GENCORP INC - 10-K Annual Report

Back to GetFilings.com

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

UNITED STATES 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, 2002 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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 10, 2003 was $347,280,259.

As of January 10, 2003, there were 43,289,894 outstanding shares of the
Company's Common Stock, $0.10 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2003 Proxy Statement of GenCorp Inc. are incorporated into
Part III of this Report.

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

GENCORP INC.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2002

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. In October 1999, the Company
completed a spin-off of its decorative and building products and performance
chemicals businesses into a separate publicly-traded company called OMNOVA
Solutions Inc.

The Company is a diversified manufacturing and engineering company with
operations in three business segments:

GDX AUTOMOTIVE -- includes the operations of GDX Automotive, which
develops and manufactures vehicle sealing systems for Original Equipment
Manufacturers (OEMs).

AEROSPACE AND DEFENSE -- includes the operations of Aerojet-General
Corporation (Aerojet or AGC) which develops and manufactures propulsion
systems for space and defense applications, armament systems for
precision tactical weapon systems and munitions applications, and
advanced airframe structures. This segment also includes the Company's
real estate activities.

FINE CHEMICALS -- includes the operations of Aerojet Fine Chemicals LLC
(AFC), which manufactures pharmaceutical fine chemicals for use in
various pharmaceutical products.

Information on revenues, operating income, identifiable assets and other
information on the Company's business segments appears in Note 11 in Notes to
Consolidated Financial Statements included in Item 8 hereof.

The Company's principal executive offices are located at Highway 50 and
Aerojet Road, Rancho Cordova, CA 95670. The Company's mailing address is P.O.
Box 537012, Sacramento, CA 95853-7012 and its telephone number is 916-355-4000.

GDX AUTOMOTIVE SEGMENT

GDX Automotive designs and manufactures highly engineered vehicle sealing
systems for both dynamic and static automotive applications. Design and
production of these systems facilitates enhanced sound management for vehicle
interiors and provides wind and water management throughout the vehicle.
Specific products within GDX Automotive's diverse vehicle sealing portfolio
include primary and secondary door sealing sub-systems, glass-run channels, and
encapsulated window modules.

GDX Automotive has built its reputation on customer service excellence,
product development expertise and a "design for manufacturing" approach for its
customers' products. The Company believes GDX Automotive is the largest producer
of automotive vehicle sealing systems in North America and the second largest
worldwide. GDX Automotive's customers include BMW AG (BMW), DaimlerChrysler AG
(DaimlerChrysler), Ford Motor Company (Ford), General Motors Corporation
(General Motors or GM), and Volkswagen AG (Volkswagen).

In North America, approximately 70 percent of GDX Automotive's sales are
derived from light trucks, sport utility vehicles and crossover vehicles. North
American platforms include General Motors' Silverado and S-10 pick-ups, Ford's
F-Series and Ranger pick-ups, and sport utility vehicles such as General Motors'
Tahoe and Yukon and Ford's Explorer and Expedition. Crossover vehicles, which
are hybrids between light trucks and passenger cars, include the Ford Escape and
the Mazda Tribute as well as the BMW X-5. In Europe, GDX Automotive's primary
focus is on the production of vehicle sealing systems for luxury and medium
vehicle segments such as the Mercedes C, E and S class, the BMW 3 and 5 Series,
the Audi A4 and A6, the Volkswagen Passat, the Ford Thunderbird, and the
recently launched Mercedes Maybach, and on high volume smaller cars such as the
Audi A2 and A3, the Volkswagen Golf, SEAT Leon, Ford Focus, Skoda Fabia and the
Renault Clio. By targeting these popular vehicle segments in North America and
Europe, GDX Automotive has been awarded contracts to provide vehicle sealing
solutions on eight of the top ten and 18 of the top 30 best-selling vehicles in
North America and Europe.

1

Recent strategic and restructuring activities include:

- In the fourth quarter of fiscal 2002, GDX Automotive implemented a
restructuring and consolidation program, which reduced staffing levels at
its worldwide headquarters in Farmington Hills, Michigan and will result
in the closure of a plant in Germany in early fiscal 2003.

- In the second quarter of fiscal 2001, GDX Automotive implemented a
significant restructuring and consolidation plan, which resulted in the
closure of the Marion, Indiana and Ballina, Ireland manufacturing
facilities.

- In December 2000, the Company acquired the Draftex International Car Body
Seals Division (Draftex) from The Laird Group Public Limited Company
(Laird) for $205 million after purchase price adjustments. In conjunction
with the acquisition, the Company's restructuring activities resulted in
the closure of a manufacturing facility in Gruchet, France and the
consolidation of portions of manufacturing facilities in Chartres, France
and Viersen, Germany.

Industry Overview

In general, automotive parts suppliers such as GDX Automotive are
influenced by the underlying trends of the automotive industry. Vehicle sales
levels, and thus vehicle production levels, are cyclical by nature. Each cycle
is driven by changes in the region's economy and changes in consumer demand.

In addition to business cycle factors, automotive suppliers such as GDX
Automotive, are adapting to new demands as OEMs consolidate their automotive
supply base. Vehicle manufacturers are demanding that their suppliers provide
technologically advanced product lines, greater systems engineering support and
management capabilities, just-in-time sequenced deliveries and lower system
costs. To manage these complex and tightly integrated supply relationships, each
OEM has selected preferred suppliers who are increasingly expected to establish
global supply capabilities.

The North American and European vehicle sealing market, which is estimated
to represent approximately $3.8 billion in annual sales based on publicly
available information, is fairly mature with a relatively low rate of
technological change. The characteristics of the market include customers who,
because of their scale, exert pricing power over suppliers, high barriers to
entry, modest opportunities for organic growth, and significant dependence on
vehicle production levels.

Barriers to entry are high in the automotive vehicle sealing industry
because new entrants need substantial engineering and manufacturing capabilities
to win contracts from OEMs. A reputation for quality is critical for automotive
vehicle sealing suppliers as vehicle manufacturers award business to experienced
suppliers who can help avoid the costs associated with defective seals. Vehicle
sealing suppliers build a positive reputation by demonstrating engineering and
manufacturing success across various types of platforms.

GDX Automotive competes primarily with a small number of independent
suppliers including Cooper-Standard, Metzeler and Hutchinson. GDX Automotive's
customers rigorously evaluate their suppliers on the basis of price, quality,
service, technology and reputation. Suppliers must be able to satisfy a
customer's platform requirements on a global scale, with varying production
volumes, at competitive prices, while incorporating the latest sealing, bonding
and coloring technologies to meet customer demands.

Automotive vehicle sealing suppliers, such as GDX Automotive, increase
sales primarily by winning additional market share. If a vehicle sealing
supplier delivers quality products at competitive prices the customer will
increasingly award new business and platform redesigns to this supplier. The
Company believes GDX Automotive is well positioned to compete for new business.

2

Products and Customers

The following table illustrates the principal platforms for GDX Automotive:

GDX Automotive's products include extruded rubber or thermoplastic 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. These
products are designed to prevent air, moisture and noise from penetrating
vehicle windows, doors and other openings. Specific products include primary and
secondary door sealing sub-systems, glass-run channels, and encapsulated window
modules.

GDX Automotive's products are sold directly to OEMs or their suppliers. GDX
Automotive relies heavily on its core GDX customers, which in North America
include General Motors, Ford and Volkswagen. Key

3

customers in Europe include Volkswagen, BMW and DaimlerChrysler. In fiscal 2002,
General Motors accounted for approximately 28 percent of GDX Automotive's sales,
or $224 million, Ford accounted for approximately 23 percent of its sales, or
$183 million, and Volkswagen accounted for approximately 18 percent of its
sales, or $147 million. A prolonged work stoppage at one or more of GDX
Automotive's significant customers could have a material adverse effect on GDX
Automotive's operating results and, if significant, could have an adverse effect
on the Company's business, financial condition, cash flows or results of
operations.

GDX Automotive supplies vehicle sealing sub-systems that are used in
vehicles such as the Mercedes-Benz Maybach and S-Class, the BMW 3-Series and
5-Series, the Audi TT convertible, and the new Ford Thunderbird. GDX Automotive
focuses on those segments of its markets with the greatest opportunity for
growth. In North America, GDX Automotive has a large presence in the sport
utility vehicle and light truck market segments, and in Europe its business is
primarily in the luxury, medium car, and higher volume smaller car segments.

Research and Development

GDX Automotive seeks to offer superior quality and advanced products and
systems to its customers at competitive prices. To achieve this objective, GDX
Automotive engages in ongoing engineering, research and development activities
to improve the reliability, performance and cost-effectiveness of its existing
products. It also designs and develops new products for existing and new
applications in an ongoing effort to meet its customers' needs.

Raw Materials, Suppliers and Seasonality

The principal materials used by GDX Automotive are synthetic rubber, rubber
chemicals, thermoplastic elastomers, carbon black, flock fibers, adhesives, coil
steel and aluminum and coating materials. The majority of these materials are
purchased on the open market from suppliers. In some locations, principally
China where GDX Automotive has a small but growing presence, suppliers that can
meet high quality and delivery standards for these raw materials may not be
available locally. In those instances, materials may be imported until qualified
local suppliers can be found. While the worldwide supply of certain products,
specifically carbon black and ethylene propylenediene monomer, was somewhat
constrained at various times during the past year, GDX Automotive believes that
sufficient supplies of raw materials will continue to be available from
qualified sources.

Generally, GDX Automotive ships its products "just-in-time" and, thus, does
not build large inventories. Its revenue is closely related to the production
schedules of its customers. Historically, the production schedules of GDX
Automotive's customers are strongest in the second and fourth quarters of each
year.

Intellectual Property

GDX Automotive has patents in the United States (U.S.) and other countries
covering various aspects of the design and manufacture of its vehicle sealing
products. The Company considers the patents to be important to GDX Automotive as
they illustrate its innovative design ability and product development
capabilities. The Company does not believe the loss of any particular patent
would have a material adverse effect on the business or financial results of GDX
Automotive or on its business as a whole.

AEROSPACE AND DEFENSE SEGMENT

Aerojet is a leader in the development and manufacture of propulsion
systems for space and defense applications, armament systems for precision
tactical weapon systems and munitions applications, and advanced airframe
structures. The Company believes Aerojet is the second largest provider of
liquid propulsion systems and one of only two providers of both solid and liquid
rocket propulsion systems in the U.S.. Having the capability to design and
produce both liquid and solid systems allows Aerojet to utilize and transfer
technology between these broad product areas and to spawn innovation for a wider
range of applications. For example, Aerojet is currently competing to provide
both liquid and solid Divert and Attitude Control Systems, or DACS, for national
missile defense. Aerojet has historically been able to capitalize on its strong
technical capabilities to

4

become the sole provider of key components for major propulsion systems
programs. Aerojet propulsion systems have flown on every manned space vehicle
since the inception of the U.S. Space Program. Aerojet's principal customers
include the U.S. Department of Defense (DoD), National Aeronautics and Space
Administration (NASA), The Boeing Company (Boeing), Lockheed Martin Corporation
(Lockheed Martin) and Raytheon Company (Raytheon).

Since its founding in 1942 by Dr. Theodore von Karman, Aerojet has been a
pioneer in the development of crucial technologies and products that have
strengthened the U.S. military and furthered the exploration of space. Aerojet
is a leader in military, civil and commercial aerospace and defense systems,
serving two broad industry segments:

- Space systems, including liquid, solid and electric propulsion systems
for launch vehicles, transatmospheric vehicles, and spacecraft; and

- Defense systems, including propulsion for strategic and tactical
missiles, precision strike missiles and interceptors required for missile
defense. In addition, Aerojet is a leading supplier of armament systems
and advanced aerospace structures to the DoD and its prime contractors.

Product applications for space systems include liquid engines for
expendable and reusable launch vehicles, upper stage engines, satellite
propulsion, large solid boosters and integrated propulsion subsystems. Product
applications for defense systems include strategic and tactical missile motors,
maneuvering propulsion, attitude control systems and warhead assemblies used in
missile defense and precision weapon systems, as well as manufacturing of
complex aerospace structures required on the F-22 Raptor aircraft.

Recent strategic activities include:

- In the fourth quarter of fiscal 2002, Aerojet acquired the assets of the
General Dynamics' Ordnance and Tactical Systems Space Propulsion and Fire
Suppression business (GDSS) for $93 million, including transaction costs.
With this acquisition, Aerojet became a leading supplier of satellite
propulsion systems for defense, civilian and commercial applications.

- In the fourth quarter of fiscal 2001, Aerojet completed the sale of its
Electronics and Information Systems business (EIS) to Northrop Grumman
Corporation (Northrop) for $309 million after purchase price adjustments.

Industry Overview

Since a substantial majority of Aerojet's sales are, directly or
indirectly, to the U.S. government and its agencies, funding for the purchase of
Aerojet's products and services generally follows trends in U.S. defense
spending. Accordingly, the Company believes the DoD and NASA budgets are highly
relevant to the outlook for spending trends on space and missile propulsion
programs. While NASA's budget is expected to grow from $14.8 billion in 2002 to
$16.5 billion by 2007, the Company believes the DoD budget will grow at a much
greater rate. Following a period of budget decreases in the post-Cold War era,
the U.S. defense budget, as appropriated by Congress, has continued to increase
in recent years. Under the Bush Administration, the defense budget has seen the
first double digit increase since the early 1990's. The 2002 U.S. defense budget
totaled approximately $350 billion, with proposals from the Bush Administration
to increase defense spending from 2002 levels to nearly $450 billion by 2007.
The Company expects that the U.S. defense budgets for research, development,
test and evaluation; and procurement; both of which fund Aerojet's programs,
will grow proportionately with the overall level of defense spending. While the
ultimate distribution of the defense budget remains uncertain, Aerojet believes
it is well positioned to benefit from the planned increases in defense spending.

The U.S. government's decision to aggressively pursue the near-term
production and deployment of missile defense systems to protect the U.S. and its
allies against enemy ballistic missile launches is a significant component of
forecasted growth. Critical components of these systems include a Payload Launch
Vehicle and an Interceptor Vehicle. Aerojet manufactures key propulsion and
control systems for these critical systems.

Aerojet's NASA-related products and services are generally dedicated to
NASA's programs for Space, Aeronautics, and Exploration and Space Flight
Capabilities. Although NASA's overall budget is projected to rise
5

only modestly between fiscal 2003 and fiscal 2007, programs that involve new
propulsion technologies and products are expected to experience significant
growth through the same time period. Aerojet is well-positioned to expand its
current contract base in areas that include the Space Launch Initiative, new
initiatives for deep space exploration and plans to develop an Orbital Space
Plane.

Participation in the space and defense propulsion market is capital
intensive and requires long research and development periods that represent
significant barriers to entry.

The on-going consolidation of the U.S. and global defense, space and
aerospace industries continues to intensify competition. This consolidation has
resulted in a reduction in the number of principal prime contractors. As a
result of this consolidation, Aerojet may partner on various programs with its
major customers or suppliers, some of whom are, from time to time, competitors
on other programs.

The table below lists the primary participants in Aerojet's markets.

Rocketdyne and Alliant Techsystems currently hold the largest share of
liquid and solid market segments, respectively. This is largely due to their
sole source production contracts for propulsion systems on the current NASA
Space Shuttle. However, Aerojet believes it is in a unique competitive position
due to the diversity of its technologies and synergy of its product lines. The
basis on which Aerojet competes in the aerospace and defense industry varies by
program, but typically is based upon price, technology, quality and service.
Competition is intensive for all of Aerojet's products and services, and has
increased due to continuing consolidation of the industry. Aerojet believes that
it possesses adequate resources to compete successfully.

Products and Customers

Aerojet produces liquid, solid and electric propulsion systems for a wide
range of launch vehicles, missiles, in-space and missile defense and precision
strike applications. Additionally, Aerojet designs and manufactures critical
components for vital, precision armament systems used by the U.S. military and
allied nations. Aerojet's current propulsion portfolio includes liquid engines
and solid motors for both expendable and reusable launch vehicles, upper-stage
engines, satellite propulsion, missile interceptors and integrated propulsion
subsystems.

6

The following table summarizes some of Aerojet's programs, customers and
ultimate end-users:

(table continued on following page)
7

Aerojet's direct and indirect sales to the U.S. government and its agencies
accounted for approximately 88 percent of its sales, or $244 million in fiscal
2002.

Research and Development

Aerojet views its research and development efforts as critical to
maintaining its leadership positions in the markets in which it competes.
Aerojet's research and development is in two categories: company-funded research
and development and customer-funded research and development.

Aerojet's company-funded research and development includes expenditures for
technical activities that are vital to the development of new products,
services, processes or techniques, as well as those expenses for significant
improvements to existing products or processes. Customer-funded research and
development expenditures are funded under contract specifications, typically
research and development contracts, several which the Company believes will
become key programs in the future.

8

The following table summarizes Aerojet's research and development expenses
during the past three fiscal years (excluding total research and development
expenses related to the divested EIS business of $150 million and $117 million
in fiscal 2001 and 2000, respectively):

Raw Materials, Suppliers and Seasonality

Availability of raw materials and supplies to Aerojet is generally
sufficient. Aerojet is sometimes dependent, for a variety of reasons, upon
sole-source suppliers for procurement requirements, but has experienced no
significant difficulties in meeting production and delivery obligations because
of delays in delivery or reliance on such suppliers.

Aerojet's business is not subject to predictable seasonality. Primary
factors affecting the timing of Aerojet's sales include the timing of government
awards, the availability of government funding, contractual product delivery
requirements and customer acceptances.

Intellectual Property

Where appropriate, Aerojet obtains patents in the U.S. and other countries
covering various aspects of the design and manufacture of its products. The
Company considers the patents to be important to Aerojet as they illustrate its
innovative design ability and product development capabilities. The Company does
not believe the loss or expiration of any single patent would have a material
adverse effect on the business or financial results of Aerojet or on its
business as a whole.

Backlog

The contract backlog for the Aerospace and Defense segment at November 30,
2002 was $773 million, and the funded backlog, which includes only contracts for
which funding has been authorized by the U.S. Congress or a firm purchase order
has been received by a commercial customer, totaled $416 million. Aerojet was
recently notified that funding for the Titan program will be restructured in
fiscal 2003 reducing Aerojet's funded backlog by $58 million with total contract
backlog remaining unchanged. Aerojet expects this funding to be incrementally
restored in future years.

U.S. Government Contracts and Regulations

Most of Aerojet's sales are made, directly or indirectly, to the U.S.
government and its agencies and their prime contractors. Contracts with these
agencies and their prime contractors typically range from 3 to 10 years, but may
be terminated for convenience, with compensation, by the U.S. government in
accordance with federal procurement regulations.

Under each of its contracts, Aerojet acts either as a prime contractor,
where it sells directly to the end user, or as a subcontractor, selling its
products to other prime contractors. Research and development contracts are
awarded during the inception stage of a program's development. Production
contracts provide for the production and delivery of mature products for
operational use. Aerojet's contracts can be categorized as either "cost
protected" or "fixed price."

Cost protected contracts. Cost protected contracts are typically (i) cost
plus fixed fee, (ii) cost plus incentive fee or (iii) cost plus award fee
contracts. For cost plus fixed fee contracts, Aerojet typically receives
reimbursement of its costs, to the extent that the costs are allowable under the
contract's provisions, in addition to the receipt of a fixed fee. For cost plus
incentive fee contracts and cost plus award fee contracts, Aerojet receives

9

adjustments in the contract fee, within designated limits, based on its actual
results as compared to contractual targets for factors such as cost,
performance, quality and schedule.

Fixed price contracts. Fixed price contracts are typically (i) firm fixed
price, (ii) fixed price incentive or (iii) fixed price level of effort
contracts. For firm fixed price contracts, Aerojet performs work for a fixed
price and realizes all of the profit or loss resulting from variations in the
costs of its performance. For fixed price incentive contracts, Aerojet receives
increased or decreased fees or profits based upon actual performance against
established targets or other criteria. For fixed price level of effort
contracts, Aerojet generally receives a structured fixed price per labor hour,
dependent upon the customer's labor hour needs. All fixed price contracts
present the risk of unreimbursed cost overruns.

Aerojet is subject to complex and extensive procurement laws and
regulations in its performance of contracts with the U.S. government. These laws
and regulations provide for ongoing audits and reviews of incurred costs,
contract performance and administration. Failure to comply, even inadvertently,
with these laws and regulations and the laws governing the export of controlled
products and commodities could subject Aerojet to civil and criminal penalties
and, under certain circumstances, suspension and debarment from future
government contracts and exporting of products for a specified period of time.

Government contracts and subcontracts are, by their terms, subject to
termination by the government or the prime contractor either for convenience or
default. The loss of a substantial portion of that business would have a
material adverse effect on the business and results of operations. There are
significant inherent risks in contracting with the U.S. government, including
risks peculiar to the defense industry, which could have a material adverse
effect on the Company's business, financial condition, cash flows or results of
operations.

Real Estate

Aerojet currently owns substantial undeveloped real property located in
high-growth areas in California. Aerojet's goal is to develop this property to
maximize the value embedded in these assets. The initial focus is on undeveloped
real estate and surplus office and industrial space at Aerojet's Sacramento
facility.

Much of Aerojet's Sacramento real property is encumbered by various state
and federal environmental restrictions. Aerojet continues to work closely with
regulators to complete the remediation activities necessary to release the
restrictions on its real property. A major milestone was reached in 2002 with
the successful removal of approximately 2,600 acres from the Superfund
designation. This land, combined with approximately 1,600 acres of land that was
not subject to Superfund restrictions.

Pre-development activity for these 4,200 acres is underway. The
pre-development process can take up to several years depending on a variety of
factors, one of which is the extent of the changes in zoning that Aerojet is
seeking. In some cases, Aerojet will be seeking extensive modifications to the
existing zoning.

Strategies to enhance the value of the Company's real estate assets include
developing the property, alone or in conjunction with one or more partners, or
selling or leasing parcels for development by others. The Company continually
monitors the local Sacramento real estate market and intends to manage its
development activities based on market conditions, an approach the Company
believes should enable it to realize the full value of these real estate
holdings.

In 2001, Aerojet sold approximately 1,100 acres in Sacramento County for
$28 million.

FINE CHEMICALS SEGMENT

AFC's sales are derived primarily from the sale of custom manufactured
active pharmaceutical ingredients (APIs) and advanced/registered intermediates
to pharmaceutical and biotechnology companies. Customers use chemicals
manufactured by AFC in products that are drug therapies for areas of neurology,
oncology, viral (including HIV/AIDS), arthritis, and inflammatory conditions.

The Company believes that AFC's position in the market for custom
manufactured pharmaceutical fine chemicals is derived from its distinctive
competencies in handling highly energetic and toxic chemicals,

10

efficiently implementing commercial standards and operating under current Good
Manufacturing Practices (cGMP).

AFC's facilities include a large-scale production complex, five pilot-scale
facilities and research and development and quality control laboratories. During
fiscal 2000, AFC completed the construction and validation of what it believes
to be one of the world's largest simulated moving bed separation facilities.
This facility allows AFC to produce chiral molecules in less time and at lower
cost than using chemical or biological separation processes. AFC undergoes
periodic inspections by its customers and the FDA in connection with
product-specific manufacturing processes.

Recent strategic and restructuring activities include:

- In late 2001, AFC completed a restructuring and downsizing of its
workforce by 40 percent, which increased operational efficiency without
reducing production capabilities.

- The Company sold a 20 percent interest in AFC to NextPharma Technologies
USA Inc. (NextPharma) in June 2000, exchanged an additional 20 percent
equity interest in AFC for a 35 percent equity interest in the parent
company of NextPharma and entered into a sales and marketing agreement
with NextPharma. In December 2001, the Company reacquired NextPharma's 40
percent minority ownership position in AFC and relinquished its 35
percent equity interest in the parent company of NextPharma. With the
termination of the relationship with NextPharma and its parent, AFC
resumed full responsibility for sales and marketing.

Industry Overview

The pharmaceutical industry continues to outsource the development and
manufacture of pharmaceutical fine chemicals. Major pharmaceutical and
biotechnology companies are increasingly relying upon suppliers, such as AFC,
that possess more integrated capabilities, have experience handling highly
energetic and toxic chemicals, and are able to scale-up rapidly to respond to
the customer's delivery requirements. The market for contract manufacturing of
pharmaceutical and biotechnology chemicals is fragmented and has suffered from
over-capacity in recent years. Within this market, AFC competes in several niche
areas, most of which are technology driven. AFC has particular strengths in
handling highly energetic and toxic chemicals, and with chiral separations. AFC
currently has few direct competitors in these areas and is the sole supplier on
a number of products that involve handling highly toxic compounds.

New drug applications with the U.S. Food and Drug Administration (FDA)
identify specific contract manufacturers which are subject to FDA approval. Once
manufacturers are validated on a particular drug, supply relationships tend to
be very stable. Although competitive and other factors are constantly present,
the cost of switching manufacturers for a product can be high.

Competition in the pharmaceutical fine chemicals market is based upon
price, reliability of supply, ability to meet delivery schedules and ability to
meet regulatory quality and documentation standards. Many of AFC's competitors
are major chemical, pharmaceutical and process research and development
companies, including a number of AFC's own customers, who possess much greater
financial resources, technical skills and marketing experience than AFC.
Depending on the market niche, competitors of AFC may include DSM, Degussa,
Cambrex, Lonza, Bayer, Dynamic Nobel (Dynamic Synthesis), Phoenix and Honeywell.

Products and Customers

AFC's net sales for fiscal 2002 were generated by products categorized as
follows:

Neurology 54%
Oncology 20%
Viral (including
HIV/AIDS) 16%
Other 10%

11

Most of AFC's sales are derived from contracts with a small number of major
customers. The loss of any one major customer or contract could have a material
adverse effect on the segment's results of operations, cash flows and financial
condition, but would not have a material adverse effect on the Company's results
of operations, cash flows, or financial condition taken as a whole.

Raw Materials, Suppliers and Seasonality

AFC uses a wide variety of raw materials and other supplies in the conduct
of its business. Although AFC is generally not dependent on any one supplier or
group of suppliers, certain manufacturing processes use raw materials that are
available from sole sources or that are in short supply or difficult for the
supplier to produce and certify in accordance with AFC's specifications. In
addition, AFC uses certain solvents, such as acetone, in both manufacturing
processes and for cleaning equipment. Because these solvents are derived from
petroleum, the price and availability of these solvents are affected by the
price and availability of petroleum and the related manufacturing capacity for
the solvents. The price and availability of these solvents are subject to
economic conditions and other factors generally outside of AFC's control. In
most cases, especially for short-term fluctuations, AFC is not able to pass
price increases on raw materials and other supplies to its customers. AFC has
generally been able to obtain sufficient supplies of the raw materials and other
supplies it uses in sufficient quantities and at acceptable prices in the past
and expects to be able to continue to do so in the future. Although AFC monitors
the ability of certain suppliers to meet its needs and the market conditions for
these raw materials and other supplies, significant shortages could impact AFC's
operations. In addition, significant increases in the prices for certain raw
materials and other supplies could adversely affect AFC's results of operations,
cash flows and financial condition.

Although AFC's business is not predictably seasonal, its revenue and
earnings in recent years have tended to concentrate to some degree in the fourth
quarter of each fiscal year. This concentration reflects delivery schedules
associated with AFC's mix of contracts. The timing of production or certain
contract deadlines can affect reported results for any given quarter.

Intellectual Property

AFC's success and competitive position depends on its ability to develop,
maintain, and protect the proprietary aspects of its technology and to operate
without infringing the proprietary rights of others. AFC seeks to protect its
inventions under the patent laws of the U.S. and several foreign jurisdictions,
and through the use of confidentiality procedures. The Company does not believe
the loss of any particular patent would have a material adverse effect on the
business or financial results of AFC or on its business as a whole.

ENVIRONMENTAL

The Company's operations are subject to and affected by federal, state,
local and foreign environmental laws and regulations relating to the discharge,
treatment, storage, disposal, investigation and remediation of certain
materials, substances and wastes. The Company's policy is to conduct its
businesses with due regard for the preservation and protection of the
environment. The Company continually assesses compliance with these regulations
and its management of environmental matters. The Company believes its operations
are in substantial compliance with all applicable environmental laws and
regulations.

Operating and maintenance costs associated with environmental compliance
and management of contaminated sites are a normal, recurring part of the
Company's operations. These costs are not significant relative to total
operating costs and most such costs are incurred in the Company's Aerospace and
Defense segment and are generally allowable costs under contracts with the U.S.
government.

Under existing U.S. environmental laws a Potentially Responsible Party
(PRP) is jointly and severally liable, and therefore the Company is potentially
liable to the government or third parties for the full cost of remediating the
contamination at its facilities or former facilities or at third-party sites
where it has been designated a PRP by the U.S. Environmental Protection Agency
(EPA) or a state environmental agency. 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 remediation
measures. However, the Company reviews these matters and

12

accrues for costs associated with environmental remediation when it becomes
probable that a liability has been incurred and the amount of the liability,
usually based on proportionate sharing, can be reasonably estimated. See
Management's Discussion and Analysis in Part II, Item 7 of this report for
additional information.

EMPLOYEES

As of November 30, 2002, the Company had 10,112 employees, of whom
approximately 55 percent were covered by collective bargaining or similar
agreements. Of the covered employees, approximately 12 percent are covered by
collective bargaining agreements that are due to expire within one year.

13

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, CA 95670

Mailing address:
P.O. Box 537012
Sacramento, CA 95853-7012

MANUFACTURING/RESEARCH/DESIGN/MARKETING LOCATIONS

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

14

The Company believes each of the facilities is adequate for the business
conducted at that facility. The facilities are suitable and adequate for their
intended purpose and as utilized take into account current and future production
needs. A portion of Aerojet's property in Sacramento County, California
(approximately 3,900 acres of undeveloped land), its Redmond, Washington
facility and GDX Automotive's owned manufacturing facilities in the U.S. are
encumbered by a deed of trust or mortgage. 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.

15

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 GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(*footnotes are listed following Table B)

(table continued on following page)
16

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
17

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
18

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
19

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
20

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
21

A. TABLE OF GROUNDWATER AND AIR POLLUTION TOXIC TORT LEGAL PROCEEDINGS
(CONTINUED)
(*footnotes are listed following Table B)

(table continued on following page)
22

B. TABLE OF OTHER LEGAL PROCEEDINGS
(*footnotes are listed following Table B)

(table continued on following page)
23

B. TABLE OF OTHER LEGAL PROCEEDINGS (CONTINUED)
(*footnotes are listed following Table B)

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. The stay in the Adams, Allen and Pennington cases will
remain in effect at least through March 2003.

2. Current Status: These cases were stayed pending California Public Utilities
Commission (PUC) investigation because PUC regulated defendants cannot be
sued if the supplied drinking water did not violate state or federal
standards. The Los Angeles cases have been consolidated for pre-trial
proceedings. Two Master Complaints have been filed covering the cases in the
San Gabriel Valley Basin. In addition, four stages of demurrers are set for
hearing, initial discovery has been approved and it is currently anticipated
that there will be an initial evidentiary hearing to determine whether the
PUC regulated water entity defendants, during the relevant period alleged in
the complaints, served water in violation of state or federal drinking water
standards. The Austin case is beginning 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 began 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 against AGC were all dismissed
without prejudice on or about September 16, 2002, in accord with agreements
reached in the Project Agreement executed in March 2002 concerning the
Baldwin Park Operable Unit (BPOU). There remain cross-claims filed by AGC
against other PRPs. The court has a status conference scheduled for February
24, 2003 to address the remaining litigation. The Sacramento case is
proceeding with trial scheduled to commence in August 2003.

7. Relief Sought: Plaintiffs seek to reinstate benefits under prior GenCorp
Retiree Medical Plans, as negotiated with their union at the time of
retirement, as well as the right to participate in improvements in
subsequent plans and the right to reimbursement of contributions paid in
excess of those required under prior medical benefit plans.

8. Current Status: Plaintiffs voluntarily dismissed, without prejudice, breach
of fiduciary duty, misrepresentation and estoppel claims, in order to
facilitate cross-motions for summary judgment. The court, however, denied
the cross-motions for summary judgment on December 20, 2002. In January
2003, the court ordered the parties to submit case management plans and
suggested that proceedings be stayed for six months. Negotiations regarding
the possible stay are proceeding.

9. Relief Sought: The Union sought to appeal the Sixth Circuit judgment in
order to obtain reinstatement of all former employees and strikers and an
award of back pay with interest (since 1981).

24

10. Current Status: The Supreme Court denied the petition for certiorari on
January 13, 2003. Thus, as a matter of law, the judgment of the Sixth
Circuit Court of Appeals in favor of the Company is in full force and
effect, vacating the NLRB ruling and terminating all claims.

11. Relief Sought: MDC seeks declaratory relief and specific performance
requiring AGC to pay 50 percent of the remediation expenses for Mather Field
groundwater remediation.

12. Current Status: Recently, MDC and the Company entered into discussions to
re-visit the temporary allocation of certain costs and a tentative
settlement has been reached (see Note 9(c) in Notes to Consolidated
Financial Statements).

13. Relief Sought: Plaintiff sought a declaratory judgment from the court and an
award of damages in the amount of $70 million plus attorneys fees and
interest.

14. Current Status: The court has found GenCorp 30 and 40 percent liable and
Olin 70 and 60 percent liable, respectively, for total CERCLA remediation
costs at different sites. (GenCorp's potential share of these costs, plus
prejudgment interest, aggregate to approximately $29 million.) On November
21, 2002 and January 22, 2003, the trial count entered memorandum opinions
and "final" judgment orders which are the subject of pending substantive and
procedural motions at the United States Court of Appeals for the Sixth
Circuit. In essence, GenCorp is arguing that the judgments cannot be final
because the memorandum opinions specifically recognize that "pivotal" issues
regarding contractual reductions in favor of GenCorp which arise from the
very same contract used to establish GenCorp's CERCLA contribution liability
"remain unresolved". (See Note 9(b) in Notes to Consolidated Financial
Statements and the important risk factors included in "Forward Looking
Statements" included in Item 7 for a more comprehensive discussion of the
Olin case, including recent developments and the potential consequences of
those matters.)

15. Relief Sought: These claims are based upon allegations of discharges from a
former site in the El Monte area, more fully discussed under San Gabriel
Valley Basin, California, South El Monte Operable Unit (SEMOU) (see Note
9(c)). AGC has notified its insurers and is defending the actions as its
investigations do not identify a credible connection between the
contaminants identified by the water entities in the SEMOU and those
detected at AGC's former facility located in El Monte, California, near the
South El Monte Operable Unit.

16. Current Status: The cases have been coordinated for ease of administration
by the court. The court directed all defendants to file their responsive
pleadings by February 10, 2003 pending discussions of a framework for a
possible settlement.

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

++ Designates South El Monte Operable Unit (SEMOU) related litigation.

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,
2002.

25

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is given as of December 31, 2002, and except as
otherwise indicated, each individual has held the same office during the
preceding five-year period.

(table continued on following page)
26

(table continued from preceding page)

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

27

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 January 10, 2003, there were 11,148
holders of record of the Company's Common Stock. During each quarter in fiscal
2002, fiscal 2001 and fiscal 2000, 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 6 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:

28

ITEM 6. SELECTED FINANCIAL DATA

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

(1) See Notes 1(a) and 7 in Notes to Consolidated Financial Statements for
information relating to business acquisition and disposition activities.

(2) See Note 13 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 for additional
information related to the change in accounting principle.

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

29

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

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.

The discussion of segment results of operations excludes restructuring and
unusual items. See discussion of restructuring and unusual items following the
discussion of segment results. As discussed under "Forward-Looking Statements",
the forward-looking statements contained herein involve certain risks,
estimates, assumptions and uncertainties with respect to future sales 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 under "Forward-Looking
Statements."

GDX AUTOMOTIVE SEGMENT

Fiscal 2002

Sales for the GDX Automotive segment were relatively unchanged at $806
million in fiscal 2002 compared to $808 million in fiscal 2001. Favorable
current exchange rate effects of $13 million and full year of sales from the
Draftex acquisition (versus eleven months in 2001) contributed to 2002 sales.
Pricing concessions of $21 million granted to GDX Automotive customers offset
this increase in sales.

The GDX Automotive segment returned to profitability in fiscal 2002, with
operating profit improving to $38 million compared to an operating loss of $4
million in the preceding year. In fiscal 2001, GDX Automotive initiated
restructuring programs to lower production costs and improve efficiency. As a
result, fiscal 2002 labor costs at the North American plants decreased $25
million from the previous year, overhead declined nearly $22 million, material
purchase prices declined $10 million and improved scrap rates positively
impacted segment operating profit by more than $7 million. Also contributing to
the increase in operating profit were reductions in accounts receivable and
inventory valuation allowances, aggregating $3 million, resulting from improved
asset management. Operating results were negatively impacted by $21 million in
pricing concessions discussed above, and a $6 million decline in income from
employee retirement benefit plans.

Fiscal 2001

In December 2000, the Company completed the acquisition of the Draftex
business of Laird. The purchase price of the Draftex business was $215 million,
including cash of $209 million and direct acquisition costs of $6 million,
subject to certain purchase price adjustments provided for in the acquisition
agreement. In February 2002, purchase price adjustments were finalized resulting
in a $10 million reduction in the purchase price. 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.

Sales for the Company's GDX Automotive segment totaled $808 million for
fiscal 2001, an increase of 67 percent compared with fiscal 2000 net sales of
$485 million. The increase was accounted for by the acquisition of the Draftex
business in December 2000. Sales attributable to the Draftex business for fiscal
2001 were $357 million for the eleven months in fiscal 2001 that the Company
owned this business. The decrease in sales from the $437 million recorded by
Draftex as an independent entity for its fiscal 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 sales year-over-year of $34 million from $485
million in fiscal 2000 to $451 million in fiscal 2001 primarily related to lower
volumes of components for the General Motors Grand Am and S-10 truck platforms.
The decrease in sales from the loss of those contracts was partially offset by
an increase in sales principally related to the GM full-size pick-up and sport
utility vehicles and the Ford full-size pick-up and redesigned Explorer.

The operating loss for the GDX Automotive segment was $4 million for fiscal
2001 compared with operating profit of $29 million in fiscal 2000. Operating
profits in fiscal 2001 were negatively affected by initial

30

production start-up 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 fiscal 2001 as compared to fiscal 2000.

AEROSPACE AND DEFENSE SEGMENT

Fiscal 2002

Sales for the Aerospace and Defense segment totaled $277 million for fiscal
2002, compared to $640 million in fiscal 2001. The decrease reflects Aerojet's
sale of its EIS business in October 2001 (as described more fully in Note 7 in
Notes to Consolidated Financial Statements), and a $28 million sale of real
estate in fiscal 2001. Excluding the results of the EIS business and the sale of
real estate, sales for the segment increased $63 million in fiscal 2002 compared
to the prior year. Approximately $54 million of the sales increase was generated
from the delivery of a NASA X-38 DeOrbit Propulsion Stage, Aerojet's work on the
COBRA booster engine and other propulsion technologies for NASA's
second-generation reusable launch vehicle program, Aerojet's Titan IV launch
vehicle propulsion systems, and increased activity on the Phase II Liquid Divert
and Attitude Control System for the missile defense system's ground based
interceptor vehicle, offset by decreased sales on the Delta II upper stage
pressure-fed liquid rocket engine. Additional sales increases of $7 million were
due to increased volume related to ordnance programs and $8 million from GDSS,
which was acquired in October 2002. Aerojet has received notice that, due to
funding constraints, the customer would not extend the COBRA contract beyond
September 2002. The contract contributed $19 million in sales and $1 million in
segment operating profit in 2002.

Operating profit for the Aerospace and Defense segment was $59 million for
fiscal 2002, compared to $131 million in fiscal 2001. Excluding the results of
the EIS business, the $23 million gain on the real estate sale in 2001 and a $24
million decrease in income from employee retirement benefit plans, operating
profit for the segment increased by $5 million in fiscal 2002 compared to the
prior year reflecting higher sales volumes and improved contract profits.

For the Company's real estate activities, fiscal 2002 sales were $6 million
compared to $36 million in 2001 and pre-tax profits in 2002 were $3 million
compared to $26 million in 2001. As noted above, 2001 results included a $28
million real estate sale, which resulted in a gain of $23 million.

In October 2002, Aerojet acquired GDSS for cash of $93 million, including
transaction costs. Aerojet's 2002 operating results include sales of $8 million
and negligible earnings from this acquired business. In conjunction with the
acquisition, in-process research and development costs of $6 million were
expensed (see Note 7 in Notes to Consolidated Financial Statements).

As of November 30, 2002, Aerojet's contract backlog was $773 million. The
comparable amount for fiscal 2001 was $603 million. 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 $416 million as of November 30, 2002. The
comparable fiscal 2001 amount was $366 million. Aerojet was recently notified
that funding for the Titan Program will be restructured in fiscal 2003 reducing
Aerojet's funded backlog by $58 million with total contract backlog remaining
unchanged. However, Aerojet expects this funding to be incrementally restored in
future years.

Fiscal 2001

Sales for the Aerospace and Defense segment reached $640 million, an
increase of $106 million over sales in fiscal 2000 of $534 million. The increase
was primarily the result of an increase in sales 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 sales year-over-year included the Titan IV launch vehicle and the
Seek-And-Destroy-Armor (SADARM) program. The SBIRS, ATMS and SADARM programs
were part of the Company's EIS business, which was sold to Northrop in October
2001 (see

31

discussion below). Excluding the results of the EIS business, sales for the
segment increased marginally year-over-year.

Operating profit for the Aerospace and Defense segment was $131 million for
fiscal 2001. The comparable amount for fiscal 2000 was $104 million.
Profitability in fiscal 2001 was favorably impacted by the results of the
Company's real estate business, income from employee retirement benefit plans
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, the gain on the real estate sale discussed below, operating
profit for the segment decreased $4 million year-over-year.

For fiscal 2001, sales attributable to the Company's real estate activities
were $36 million and operating profit was $26 million compared to sales of $6
million and operating profit of $2 million in fiscal 2000. In November 2001,
Aerojet completed the sale of approximately 1,100 acres of property in
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 carved out of the Superfund site designation under an agreement
with federal and state government regulators (see also Note 9(c) in Notes to
Consolidated Financial Statements). A $23 million gain resulted from the land
sale transaction.

Aerojet finalized the sale of its EIS business to Northrop for $315 million
in cash on October 19, 2001 subject to certain working capital adjustments as
defined in the agreement. In April 2002, Aerojet reached an agreement with
Northrop whereby, the purchase price was reduced by $6 million. The purchase
price reduction was recorded as a charge to operations. The gain on the
transaction, before the purchase price adjustment, was $206 million. The EIS
business had sales of $398 million and operating profit of $30 million for the
period December 1, 2000 through October 19, 2001 (see Note 7 in Notes to
Consolidated Financial Statements).

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 $746 million. The inability of a commercial
customer to raise additional required funding accounted for a decrease of $146
million in contract backlog from fiscal 2000 to fiscal 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 $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.

FINE CHEMICALS SEGMENT

Fiscal 2002

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.

Sales for AFC totaled $52 million in fiscal 2002, compared to $38 million
for fiscal 2001. The improvement reflects AFC's successful resumption of
internal sales and marketing responsibilities and increased demand for products
launched in 2001.

Operating profit for fiscal 2002 was $3 million compared to an operating
loss of $14 million for fiscal 2001. The significant improvement in AFC's
financial performance reflects higher sales volume and the results of
restructuring actions initiated in 2001, which included an approximate 40
percent reduction in AFC's workforce. Additionally, fiscal 2001 results included
costs of $5 million paid to NextPharma under the now terminated sales and
marketing arrangement and reflected start-up associated with the launch of
several new products.

Fiscal 2001

In June 2000, the Company sold a 20 percent equity interest in AFC to
NextPharma for $25 million in cash and exchanged an additional 20 percent equity
interest in AFC for an approximate 35 percent equity interest in

32

NextPharma's parent company. The Company continued to manage, operate, and
consolidate AFC as majority owner after the transaction. In connection with the
transaction, the Company recorded a gain on the sale of a minority interest in
its subsidiary of $5 million. In addition, the Company initially recorded
minority interest of $26 million, included in other long-term liabilities, and
an investment in NextPharma's parent company of $6 million.

AFC's sales in fiscal 2001were $38 million, compared to $28 million for
fiscal 2000. AFC began producing several new products in 2001, leveraging a
major investment in new facilities and equipment in 2000 and 1999. Operating
loss for each of fiscal 2001 and fiscal 2000 was $14 million. AFC's operating
margin for fiscal 2001were adversely affected by an increase in new product
start-up costs, which offset the effects of higher sales. The launch of new
products typically includes a period of time when various start-up activities
and related production inefficiencies occur.

INTEREST EXPENSE

Interest expense decreased to $16 million in fiscal 2002 from $33 million
in fiscal 2001 due to lower debt levels and lower interest rates. Average debt
balances during fiscal 2002 were $285 million compared to $408 million during
fiscal 2001. The Company's average interest rates decreased to 5.24 percent in
fiscal 2002 from 7.65 percent in fiscal 2001.

Interest expense increased to $33 million in fiscal 2001 from $18 million
in fiscal 2000. The $15 million increase in fiscal 2001 was due to higher
average debt levels resulting from the Draftex acquisition in December 2000.

CORPORATE AND OTHER EXPENSES

Corporate and other expenses increased to $25 million in fiscal 2002 from
$4 million in fiscal 2001. The increase in fiscal 2002 was due to $6 million in
costs for outside legal advisors and accounting consultants involved in the
special review of prior year accounting issues at GDX Automotive and reduced
income from employee retirement benefit plans of $7 million. Fiscal 2001
corporate and other expenses included a gain of $11 million related to the
settlement of foreign currency forward contracts. Corporate and other expenses
included amortization of debt financing costs of $4 million in fiscal 2002 and
$3 million in fiscal 2001.

Corporate and other expenses decreased to $4 million in fiscal 2001 from
$18 million in fiscal 2000. Fiscal 2000 included an $8 million charge related to
the expiration of foreign currency option contracts. Excluding foreign currency
transactions, fiscal 2001 corporate and other expenses increased $5 million from
fiscal 2000 due to higher amortization of acquired goodwill and other intangible
assets.

33

RESTRUCTURING AND UNUSUAL ITEMS

(ii) Estimated Recoveries

On January 12, 1999, Aerojet and the U.S. government implemented the
October 1997 Agreement in Principle ("Global Settlement") resolving certain
prior environmental and facility disagreements, with retroactive effect to
December 1, 1998. The Global Settlement covered all environmental contamination
at the Sacramento and Azusa sites. Under the Global Settlement, Aerojet and the
U.S. government resolved disagreements about an appropriate cost-sharing ratio.
The Global Settlement provides that the cost-sharing ratio will continue for a
number of years.

Pursuant to the Global Settlement covering environmental costs associated
with Aerojet's Sacramento site and its former Azusa site, the Company can
recover up to 88 percent of its environmental remediation costs for these sites
through the establishment of prices for Aerojet's products and services sold to
the U.S. government. The ability of Aerojet to continue recovering these costs
from the U.S. government depends on Aerojet's sustained business volume under
U.S. government contracts and programs and the relative size of Aerojet's
commercial business.

In conjunction with the sale of EIS, Aerojet entered into an agreement with
Northrop whereby Aerojet will be reimbursed by Northrop for 50 percent of
environmental expenditures eligible for recovery under the Global Settlement.
Amounts reimbursed are subject to annual limitations, with excess amounts
carrying over to subsequent periods, the total of which will not exceed $190
million over the term of the agreement, which ends in 2028. As of November 30,
2002, $178 million in potential future reimbursements was available over the
remaining life of the agreement.

In conjunction with the review of its environmental reserves discussed
above, the Company revised its estimate of costs that will be recovered under
the Global Settlement based on business expected to be conducted under contracts
with the U.S. government and its agencies in the future. The adjustments to the
environmental remediation reserves and estimated future cost recoveries did not
affect operating results in fiscal 2002 as the impact of increases to the
reserves of $107 million was offset by increased estimated future recoveries.

The effect of the final resolution of environmental matters and the
Company's obligations for environmental remediation and compliance cannot be
accurately predicted due to the uncertainty concerning both the amount and
timing of future expenditures. The Company believes, on the basis of presently
available information, that the resolution of environmental matters and the
Company's obligations for environmental remediation and compliance will not have
a material adverse effect on the Company's results of operations, liquidity or
financial condition. The Company will continue its efforts to mitigate past and
future costs through pursuit of claims for recoveries from insurance coverage
and other PRPs and continued investigation of new and more cost effective
remediation alternatives and associated technologies.

For additional discussion of environmental and related legal matters (see
Note 9 in Notes to Consolidated Financial Statements).

36

CHANGE IN ACCOUNTING PRINCIPLE

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 which
could result in greater volatility in annual net pension costs. The changes
resulted in a one-time after-tax gain of $74 million in the first quarter of
fiscal 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.

BUSINESS OUTLOOK

As discussed under "Forward-Looking Statements" following this section, the
forward-looking statements contained herein involve certain risks, estimates,
assumptions and uncertainties with respect to future sales and activity levels,
cash flows, contract performance, the outcome of contingencies including
environmental remediation and anticipated costs of capital. These statements do
not include the potential impact of any mergers, acquisitions, asset sales, or
other strategic transactions that may be completed after November 30, 2002. Some
of the important factors that could cause the Company's actual results or
outcomes to differ from those discussed herein are listed under "Forward-Looking
Statements."

The Company expects net earnings in fiscal 2003 to be lower than fiscal
2002 primarily attributable to the decrease in pre-tax income from employee
retirement benefit plans of $37 million in fiscal 2002 to a minimal amount of
income or expense for fiscal 2003. The Company expects diluted earnings per
share for fiscal 2003 to be in the range of $0.41 to $0.46 per share and for the
first quarter to be in the range of $0.04 to $0.06 per share. Excluding income
from employee retirement benefit plans, the Company expects fiscal 2003 net
earnings from operations to increase by approximately 20 percent over 2002.

The Company's GDX Automotive segment is forecasting fiscal 2003 sales to be
in the range of $700 to $730 million. This forecast reflects a reduction when
compared to fiscal 2002 sales, and is driven primarily by a combination of
anticipated OEM price reductions and the discontinuation of unprofitable
platforms. GDX Automotive expects its segment operating profit margins to be
between 5.5 percent and 7.0 percent in fiscal 2003. GDX Automotive expects to
continue realizing production efficiencies from its continuing consolidation and
integration efforts. However, results are largely dependent on vehicle sales and
production rates associated with platforms for which the segment provides parts.

The Company's Aerospace and Defense segment is forecasting fiscal 2003
sales to be in the range of $265 to $275 million. Expected fiscal 2003 sales
increases are partially offset by NASA funding issues, which resulted in the
cancellation of the COBRA booster engine program. In addition, fiscal 2002 sales
included sales from a NASA X-38 De-Orbit Propulsion Stage contract, which was
completed in fiscal 2002. Aerojet's projected fiscal 2003 segment operating
profit margin is expected to be between 11.0 percent and 13.0 percent.

The Company's Fine Chemicals segment is forecasting fiscal 2003 sales in
the range of $52 million to $57 million and operating margins between 6.5
percent and 8.5 percent. During fiscal 2002, Fine Chemicals' increased
production volumes and focus on improving operational and manufacturing
efficiencies yielded improved operating margins, a trend that is expected to
continue into fiscal 2003.

Interest expense is forecasted to be in the range of $22 million to $26
million in fiscal 2003. A portion of the Company's debt carries variable
interest rates; material changes in interest rates could impact this forecast.

37

The tax rate for fiscal 2003 is expected to be approximately 38 percent
compared to 28 percent in fiscal 2002.

Depreciation and amortization is expected to be in the range of $67 million
to $70 million in fiscal 2003.

Capital spending is expected to be in the range of $50 million to $60
million in fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient
operating cash flows, as well as its ability to obtain debt and equity financing
and to convert to cash those assets that are no longer required to meet its
strategic financial objectives. Changes in net cash provided by operating
activities generally reflect earnings plus depreciation and amortization and
other non-cash charges and the effect of changes in working capital. Changes in
working capital generally are the result of timing differences between the
collection of customer receivables and payment for materials and operating
expenses.

The Company's liquidity in fiscal 2002 was supplemented by borrowings under
a credit facility to cover a negative operating cash flow of $23 million, to
finance capital expenditures of $45 million, and $101 million related to the
acquisition of GDSS and the re-acquisition of the minority ownership interest in
AFC.

In fiscal 2001 cash generated from the sale of the EIS business funded
negative operating cash flow of $69 million, capital expenditures of $49 million
and the acquisition of the Draftex business of $184 million.

As of November 30, 2002, the Company's cash and cash equivalents totaled
$48 million and the ratio of current assets to current liabilities, or current
ratio, was 1.09. As of November 30, 2001, the Company's cash and cash
equivalents were $44 million and the current ratio was 0.95.

Net Cash Used in Operating Activities

Net cash used in operating activities for fiscal 2002 and 2001 was $23
million and $69 million, respectively. Net cash provided by operating activities
for fiscal 2000 was $23 million. Net cash used in operating activities for
fiscal 2002 was $50 million less than fiscal 2001. Both the GDX Automotive and
Fine Chemicals segments had improved operating results and generated positive
cash flows from operations in fiscal 2002. These improvements were offset by
increased working capital requirements for the Aerospace and Defense segment and
an increase in corporate and other expenses. The decrease in operating cash flow
for fiscal 2001 compared with fiscal 2000 reflects payment of certain current
liabilities that were assumed as part of the Draftex acquisition, the cash
impact of restructuring activities, increased environmental expenditures and
decreased financial performance of the GDX Automotive segment. The Draftex
acquisition completed in fiscal 2001 resulted in the Company purchasing
primarily long-term assets and assuming short-term obligations.

Net Cash Used in Investing Activities

Net cash used in investing activities for fiscal 2002 was $141 million,
compared to net cash provided of $94 million in fiscal 2001, and net cash used
of $57 million in fiscal 2000.

Investing activities included capital expenditures of $45 million, $49
million and $82 million for fiscal 2002, 2001 and 2000, respectively. Capital
expenditures directly support the Company's contracts and customer requirements
and are primarily made for asset replacement, capacity expansion, development of
new projects, cost reduction initiatives and safety and productivity
improvements. Decreased capital expenditures for fiscal 2002 and 2001 reflect
management initiatives to reduce capital outlays where practical. Capital
expenditures for fiscal 2001 included $6 million related to Aerojet's EIS
business, which was sold in October 2001. Capital expenditures in fiscal 2000
included significant investments in support of the SBIRS program (an EIS
program) and new manufacturing facilities at AFC.

Investing activities for fiscal 2002 included cash outflows of $93 million
paid for the purchase of GDSS, $8 million related to the Company's reacquisition
of the minority ownership interest in AFC and $6 million related to a purchase
price adjustment for the sale of EIS. These cash outflows were offset by $10
million received for the final purchase price adjustment on the Draftex
acquisition.
38

Investing activities for fiscal 2001 include proceeds of $315 million from
the sale of the EIS business and outflows of $184 million related to the
purchase of the Draftex business.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for fiscal 2002 was $165 million
compared with $2 million for fiscal 2001, and $28 million for fiscal 2000.

The Company has a senior credit facility (Restated Credit Facility) which
provides for a revolving credit facility, expiring December 28, 2005, and term
loans. In 2002, the Company issued convertible subordinated notes (see Note 6 in
Notes to Consolidated Financial Statements). The Company paid dividends of $5
million in all periods presented.

The Restated Credit Facility is secured by substantially all of the assets
of the Company and contains certain restrictive covenants that require the
Company to meet specific financial ratios and restricts capital expenditures,
the ability to incur additional debt, the disposition of assets including real
estate, and certain other transactions. The Company was in compliance with all
financial ratios as of November 30, 2002.

The Company's borrowing activity in fiscal 2002 was as follows (millions):

As of November 30, 2002, the borrowing limit under the revolving credit
facility was $137 million, of which the company had drawn-down $45 million, and
had outstanding letters of credit of $22 million, primarily securing
environmental and insurance obligations.

The outstanding debt has effective interest rates ranging from 4.4 percent
to 5.75 percent as of November 30, 2002, and matures as follows (in millions):

2003........................................................ $ 22
2004........................................................ 23
2005........................................................ 28
2006........................................................ 76
2007........................................................ 238
----
Total....................................................... $387
====

On June 20, 2002, the Company filed a shelf registration statement with the
Securities and Exchange Commission (SEC) under which the Company may, on a
delayed basis, issue debt securities, shares of common stock or preferred stock.
Net proceeds, terms and pricing of offerings, if any, of securities issued under
the shelf registration statement will be determined at the time of any such
offering.

Outlook

Over the past year, the significant changes in the commercial insurance
market have impacted the cost and availability of the Company's insurance
coverage. The Company has successfully renewed all significant policies for
fiscal 2003, although at additional premium cost, and with increased exposure to
losses.

As disclosed in Notes 9(b) and 9(c) in Notes to Consolidated Financial
Statements, the Company has exposure for certain legal and tax matters. The
Company believes that it is currently not possible to estimate the

39

impact, if any, that the ultimate resolution of these matters will have on the
Company's financial position or cash flows.

The Company currently believes that its existing cash and cash equivalents,
forecasted operating cash flows for the next twelve months, and borrowings
available under the Restated Credit Facility will provide sufficient funds to
meet its operating plan for the next twelve months. The operating plan for this
period provides for full operation of the Company's business, interest and
principal payments on the Company's debt and anticipated dividend payments.

The Company intends to continue to access capital markets to raise debt or
equity financing to fund strategic acquisitions, as well as to provide
additional liquidity for its fiscal 2003 operational requirements. 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.

If the Company experiences adverse economic developments and is not able to
raise debt or equity financing in the capital markets or to obtain bank
borrowings, the Company believes that it can generate additional funds to meet
its fiscal 2003 liquidity requirements by reducing working capital requirements,
deferring capital expenditures, implementing cost reduction initiatives in
addition to those already included in the Company's operating plan, selling
assets, or through a combination of these means.

Major factors that could adversely impact the Company's forecasted
operating cash and its financial condition are described in "Forward-Looking
Statements" following this section and "Business Outlook" above. In addition,
the Company's liquidity and financial condition will continue to be affected by
changes in prevailing interest rates on the portion of debt that bears interest
at variable interest rates.

OTHER INFORMATION

Key Accounting Policies and Estimates

The Company prepares its financial statements in accordance with accounting
principles generally accepted in the U.S. (GAAP). GAAP offers acceptable
alternative methods for accounting for certain items affecting the Company's
financial results, such as determining inventory cost, depreciating long-lived
assets and recognizing revenues.

The preparation of financial statements in accordance with GAAP requires
the use of estimates, assumptions, judgments and interpretations that can affect
the reported amounts of assets, liabilities, revenues and expenses, the
disclosure of contingent assets and liabilities and other supplemental
disclosures. The development of accounting estimates is the responsibility of
the Company's management. Management discusses those areas that require
significant judgments with the audit committee of the Company's board of
directors. The audit committee has reviewed all financial disclosures in the
Company's filings with the SEC. Although management believes that the positions
the Company has taken with regard to uncertainties are reasonable, others might
reach different conclusions and the Company's positions can change over time as
more information becomes available. If an accounting estimate changes, its
effects are accounted for prospectively.

The areas most affected by Company's accounting policies and estimates are
revenue recognition/long-term contracts, goodwill and intangible assets,
employee retirement and post retirement benefit plans, litigation, environmental
remediation costs and income taxes. Except for income taxes, which are not
allocated to the Company's business segments, these issues affect the Company's
business segments and are evaluated primarily using a combination of historical
experience, current conditions and relatively short-term forecasting.

For a discussion of all of the Company's accounting policies, including the
accounting policies discussed below, see Note 1 in Notes to Consolidated
Financial Statements.

Revenue Recognition/Long-Term Contracts

In general, the GDX Automotive segment and Fine Chemicals segment recognize
revenue after products are shipped, when customer acceptance has occurred and
collection is reasonably assured. Recognition of revenue for these segments is
not subject to significant estimates or judgment. In certain circumstances, the
Company's Fine
40

Chemicals segment records sales when products are shipped, before customer
acceptance has occurred because 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.

In the Aerospace and Defense segment, recognition of profit on long-term
contracts requires the use of assumptions and estimates related to the contract
value or total contract revenue, the total cost at completion and the
measurement of progress towards completion. Due to the long-term nature of the
programs, developing the estimated total cost at completion requires the use of
significant judgment. Factors that must be considered in estimating the work to
be completed include labor productivity, the nature and complexity of the work
to be performed, availability and cost volatility of materials, subcontractor
and vendor performance, warranty costs, performance delays, availability and
timing of funding from the customer, and the recoverability of costs incurred
outside the original contract included in any estimates to complete. Aerojet
reviews contract performance and cost estimates for significant contracts at
least monthly and for others at least quarterly and more frequently when
circumstances significantly change. When a change in estimate is determined to
have an impact on contract earnings Aerojet records a positive or negative
adjustment to earnings when identified. Changes in estimates and assumptions
related to the status of certain long-term contracts may have a material effect
on the amounts reported by the Company for sales and profitability.

- Sales and income under most government fixed-price and
fixed-price-incentive production type contracts are recorded as
deliveries are made. Sales and income under some fixed price
contracts are recorded based on a measurement of cost incurred to
date as compared to total costs at completion, plus a pro-rata share
of applicable profit. 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. Under this method, sales
and profit are recognized as work is performed based on the
relationship between actual costs incurred and total estimated costs
at the completion of the contract. Recognized revenues that will not
be billed under the terms of the contract until a later date are
recorded as an asset. Likewise, contracts where billings to date
have exceeded recognized revenues are recorded as a liability.
Provisions for estimated losses on contracts are recorded when such
losses become evident.

- 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. Aerojet continually evaluates its performance and
incorporates any anticipated penalties and cost incentives into its
sales and profit rates. Performance incentives, which increase or
decrease earnings based solely on a single significant event
generally, are not recognized until that event occurs.

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.

Goodwill and Intangible Assets

All acquired assets, including goodwill, are subject to tests for
impairment. Under Statement of Financial Accounting Standards No. 141 Business
Combinations(SFAS 141), all business combinations initiated after June 30, 2001
are accounted for using the purchase method of accounting. SFAS 141 provides
criteria for determining whether intangible assets acquired in a business
combination should be recognized separately from goodwill. The purchase price of
acquired companies is allocated to tangible and intangible assets acquired and
liabilities assumed, as well as to in-process research and development based on
their estimated fair values. Independent third-party appraisal firms assist in
determining the fair values of assets acquired and liabilities assumed. Such
valuations require management to make significant estimates and assumptions,
especially with
41

respect to intangible assets. Subsequent to the initial recognition, goodwill is
accounted for under Statement of Financial Accounting Standards No. 142 Goodwill
and Other Intangible Assets (SFAS 142), goodwill must be tested for impairment
at least annually, or more frequently if indications of possible impairment
exist, by comparing the net 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.

The evaluation of goodwill under SFAS 142 requires valuations of each
applicable underlying business. These valuations can be significantly affected
by estimates of future performance and discount rates over a relatively long
period of time, market price valuation multiples and marketplace transactions in
related markets. These estimates will likely change over time. The Company's
businesses operate in cyclical industries and the valuation of these businesses
can be expected to fluctuate as a result. If the annual review under SFAS 142
indicates impairment of goodwill balances, that entire impairment will be
recorded immediately and reported as a component of current operations. The
Company's acquisitions have generally included a large goodwill component and it
is likely that this will also be true of future acquisitions.

At November 30, 2002, the Company's total assets included $126 million of
goodwill. Goodwill was allocated $42 million to the Company's Aerospace and
Defense segment and $84 million to the Company's GDX Automotive segment.

Employee Retirement and Post Retirement Benefit Plans

Retirement and post retirement benefit plans are a significant cost of
doing business and yet represent obligations that will be ultimately settled far
in the future and therefore are subject to estimates. Pension accounting is
intended to reflect the recognition of future benefit costs over the employee's
approximate service period based on the terms of the plans and the investment
and funding decisions made by the Company. The Company is required to make
assumptions regarding such variables as the expected long-term rate of return on
assets and the discount rate applied to determine service cost and interest cost
to arrive at pension income or expense for the year.

Assumptions used in the accounting for the Company's employee retirement
plans are as follows:

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

* Not applicable

The discount rate is determined at the annual measurement date for the
Company's U.S. retirement plans of August 31, and is subject to change each
year. The rate reflects the market rate for high-quality fixed income debt
instruments on the measurement date. The rate is used to discount the future
cash flows of benefit obligations back to the measurement date. A lower discount
rate increases the present value of the benefit obligations and increases
expense. A 25 basis point reduction in the discount rate would have reduced
fiscal 2002 pension income by $4 million.

The expected long-term rate of return on plan assets is also determined
annually at the plans' measurement date. The Company and its advisors have
analyzed the rates of return on assets used and determined that these rates are
reasonable based on the plans' investment portfolio and historical performance.
Management will continue to assess the expected long-term rate of return on plan
assets assumption for each plan based on relevant market conditions as
prescribed by GAAP and will make adjustments to the assumptions as appropriate.
A

42

25 basis point change in the expected long-term rate of return on plan assets
would have changed fiscal 2002 pension income by $3 million.

A one percentage point increase in the assumed trend rate for health care
costs would have increased the accumulated benefit obligation by $3 million as
of November 30, 2002 and would not have significantly increased the cost of
fiscal 2002 postretirement health care benefits.

Market conditions and interest rates significantly affect assets and
liabilities of the Company's pension plans. Pension accounting requires that
market gains and losses be deferred and recognized over a period of years. This
"smoothing" results in the creation of assets or liabilities which will be
amortized to pension costs in future years. The accounting method utilized by
the Company recognizes gains and losses in the market value of pension assets
over a period of five years. The Company's unrecognized actuarial loss included
in its prepaid pension asset as of November 30, 2002 was $257 million. Although
the smoothing period mitigates some volatility in the calculation of annual
pension costs, future pension costs will be impacted by changes in the market
value of pension plan assets. The Company's income from employee benefit
retirement plans was $35 million in fiscal 2002. For fiscal 2003, income from
these plans will be negligible.

Contingencies and Litigation

The Company is currently involved in certain legal proceedings and, as
required, has accrued its estimate of the probable costs for resolution of these
claims. These estimates have been developed in consultation with outside counsel
and are based upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however, that future
results of operations for any particular quarterly or annual period could be
materially affected by changes in assumptions or the effectiveness of strategies
related to these proceedings. See Note 9(b) in Notes to Consolidated Financial
Statements for more detailed information on litigation exposure.

Reserves for Environmental Remediation and Recoverable from the U.S. Government
and Other Third Parties for Environmental Remediation Costs

For a discussion of the Company's accounting for environmental remediation
obligations and costs and related legal matters, see "Environmental Remediation
Costs" above and Note 9 in Notes to Consolidated Financial Statements.

The Company accrues for costs associated with the remediation of
environmental pollution when it becomes probable that a liability has been
incurred, and when its proportionate share of the costs can be reasonably
estimated. Management has a well-established process in place to identify and
monitor the Company's environmental exposures. Measurement of environmental
reserves is based on the evaluation of currently available information with
respect to each individual environmental site and considers factors such as
existing technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites. Such estimates are based on the
expected costs of investigation and remediation and the likelihood that other
potentially responsible parties will be able to fulfill their commitments at
sites where the Company may be jointly or severally liable.

As of November 30, 2002, the Company had accrued environmental remediation
liabilities of $340 million. Environmental remediation cost estimation involves
significant uncertainties, including the extent of the remediation required,
changing governmental regulations and legal standards regarding liability,
evolving technologies and the long periods of time over which most remediation
efforts take place. A number of factors could substantially change environmental
remediation cost estimates, examples of which include: regulatory changes
reducing the allowable levels of contaminants such as perchlorate,
nitrosodimethylamine or others; enhanced monitoring and testing technology or
protocols which could result in the discovery of previously undetected
contaminants; or the implementation of new remediation technologies which could
reduce future remediation costs.

Pursuant to the Global Settlement covering environmental costs associated
with Aerojet's Sacramento site and its former Azusa site, the Company can
recover up to 88 percent of environmental remediation costs

43

allocable to government contracts. Environmental recoveries for these sites are
recorded as an asset and reflect recoveries permissable through the
establishment of prices for Aerojet's products and services sold to agencies of
the U.S. government. The ability of Aerojet to continue recovering these costs
from the U.S. government depends on Aerojet's sustained business volume under
U.S. government contracts and programs and the relative size of Aerojet's
commercial business (environmental remediation costs allocable to commercial
contracts are expensed).

In conjunction with the sale of EIS, Aerojet entered into an agreement with
Northrop whereby Aerojet will be reimbursed by Northrop for 50 percent of
environmental expenditures eligible for recovery under the Global Settlement.
Amounts reimbursed are subject to annual limitations, with excess amounts
carrying over to subsequent periods, the total of which will not exceed $190
million over the term of the agreement, which ends in 2028.

Based on Aerojet's projected business volume and the proportion of its
business expected to be covered by the Global Settlement, Aerojet currently
believes that, as of November 30, 2002, approximately $232 million of its future
environmental costs will be recoverable. Significant estimates and assumptions
that could affect the future recovery of environmental remediation costs
include: the proportion of Aerojet's future business base and total business
volume which will be subject to the Global Settlement; limitations on the amount
of recoveries available under the Northrop agreement; the ability of Aerojet to
competitively bid and win future contracts if estimated environmental costs
significantly increase; the timing of environmental expenditures and
uncertainties inherent in long-term cost projections of environmental
remediation projects.

Income Taxes

The Company files a consolidated U.S. income tax return for the Company and
its wholly owned consolidated subsidiaries. The Company accounts for income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The
deferred tax assets and/or liabilities are determined by multiplying the
differences between the financial reporting and tax reporting bases for assets
and liabilities by the enacted tax rates expected to be in effect when such
differences are recovered or settled. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment
date of the change.

The carrying value of the Company's deferred tax assets is dependent upon
its ability to generate sufficient future taxable income in certain tax
jurisdictions. The Company has established valuation allowances against certain
of its deferred tax assets due to uncertainties related to the ability to
utilize these assets. The valuation allowances are based on estimates of taxable
income by each jurisdiction in which the Company operates and the period over
which the assets will be recoverable. In the event that actual results differ
from these estimates, or that the Company adjusts these estimates in future
periods, the valuation allowance would change and could impact the Company's
financial position and results of operations.

Income taxes can be affected by estimates of whether, and within which
jurisdictions, future earnings will occur and how and when cash is repatriated
to the U.S., combined with other aspects of an overall income tax strategy.
Additionally, taxing jurisdictions could retroactively disagree with the
Company's tax treatment of certain items, and some historical transactions have
income tax effects going forward. Accounting rules require these future effects
to be evaluated using current laws, rules and regulations, each of which can
change at any time and in an unpredictable manner. The Company believes it has
adequately provided for any reasonably foreseeable outcome related to these
matters, and it does not anticipate any material earnings impact from their
ultimate resolutions.

At November 30, 2002, the Company has tax basis net operating loss (NOL)
carry-forwards worldwide of approximately $214 million available to reduce
future taxable income. The majority of these NOLs are related to state
operations, expire beginning in 2003 and are fully reserved with a valuation
allowance. The remaining portion relates to foreign operations, most of which
have indefinite carry-forward periods. The company also has a foreign tax credit
carry-forward of $3.2 million, which expires beginning in 2005. These tax
carry-forwards are subject to examination by the tax authorities. As of November
30, 2002, the company's net deferred tax assets were $8 million, after reduction
for the valuation allowance of $8 million.

44

Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. SFAS 146 requires that the initial measurement
of a liability be at fair value. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company has adopted
the provisions of SFAS 146 as of December 1, 2002. The adoption of SFAS 146 is
not expected to have a material effect on the Company's results of operations,
liquidity or financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure (SFAS 148) that amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to Statement 123's fair value method of accounting for
stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The Statement does not amend SFAS 123 to require companies
to account for employee stock options using the fair value method. The Statement
is effective for fiscal years beginning after December 15, 2002. The Company is
currently evaluating the effects of SFAS 148, but does not expect that the
adoption would have a material effect on the Company's 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. All statements in this report other than historical
information, may be deemed forward-looking statements. These statements present
(without limitation) the expectations, beliefs, plans and objectives of the
Company 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 sales and activity levels, cash flows, contract performance, the outcome
of litigation contingencies including environmental remediation, and anticipated
costs of capital.

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:

- Legal and regulatory developments that may have an adverse impact on
the Company or its segments. For example:

-- The reported results of the Company's operations and financial
condition could be adversely impacted if the judgment order in the
amount of approximately $29 million entered November 21, 2002
against GenCorp in GenCorp Inc. v Olin Inc. (U.S. District Court for
the Northern District of Ohio, Eastern Division) is, notwithstanding
the Company's current position, determined to be an enforceable
judgment.

-- Restrictions on real estate development that could delay the
Company's proposed real estate development activities.

45

-- A change in toxic tort or asbestos litigation trends which is
adverse to the Company.

-- Changes in international tax laws or currency controls.

- Changes in Company-wide or business segment strategies, which may
result in changes in the types or mix of business in which the
Company is involved or chooses to invest.

- Changes in U.S., global or regional economic conditions, which may
affect, among other things,

-- Consumer spending on new vehicles, which could reduce demand for
products from the GDX Automotive segment.

-- Customer funding for the purchase of Aerospace and Defense products
which could impact the segment's business base and, as a result,
impact its ability to recover environmental costs.

-- Health care spending and demand for the pharmaceutical ingredients
produced by the Fine Chemicals segment.

-- The Company's ability to successfully complete its real estate
strategies.

-- The funded status and costs related to employee retirement benefit
plans.

- Changes in U.S. and global financial and equity markets, including
market disruptions and significant interest rate fluctuations, which
may impede the Company's access to, or increase the cost of,
external financing for its operations and investments.

- Increased competitive pressures, both domestically and
internationally which may, among other things, affect the
performance of the Company's businesses. For example:

-- The automotive industry is increasingly outsourcing the production
of key vehicle sub-assemblies. Accordingly, industry suppliers, such
as the Company's GDX Automotive segment, will need to demonstrate
the ability to be a reliable supplier of integrated components to
maintain and expand their market share.

-- Consolidation in the aerospace and defense industry has been
underway for several years. The resulting reduction in the number of
prime contractors, increased scale of certain competitors and the
reduction in alternative suppliers could negatively affect the
Aerospace and Defense segment's ability to expand.

- Labor disputes, which may lead to increased costs or disruption of
operations in the Company's GDX Automotive, Aerospace and Defense
and Fine Chemicals segments.

- Changes in product mix, which may affect automotive vehicle
preferences and demand for the Company's GDX Automotive segment's
products.

- Technological developments or patent infringement claims which may
impact the use of critical technologies in the Company's GDX
Automotive, Aerospace and Defense and Fine Chemicals segments
leading to reduced sales and/or increased costs.

- An unexpected adverse result or required cash outlay in the toxic
tort cases, environmental proceedings or other litigation, or change
in proceedings or investigations pending against the Company (see
Note 9 in Notes to Consolidated Financial Statements).

This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty. 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.

46

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

POLICIES AND PROCEDURES

As an element of the Company's normal business practice, it has established
policies and procedures for managing its exposure to changes in interest rates
and foreign currencies.

The objective in managing exposure to foreign currency fluctuations is to
reduce volatility in earnings and cash flow. To achieve this objective, the
Company may use various hedge contracts that change in value as foreign exchange
rates change to protect the value of its existing foreign currency assets,
liabilities and commitments.

The objective in managing exposure to interest rate changes is to limit the
impact of interest rate changes on earnings and cash flow and to make overall
borrowing costs more predictable. To achieve this objective, the Company may use
interest rate hedge transactions (Swaps) or other interest rate hedge
instruments to manage the net exposure to interest rate changes related to the
Company's portfolio of borrowings and to balance its fixed rate compared to
floating rate debt.

It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its stated
objectives. The Company does not enter into these transactions for speculative
purposes.

INTEREST RATE RISK

The Company is exposed to market risk principally due to changes in
domestic interest rates. Debt with interest rate risk includes fixed rate
convertible debt and borrowings under credit facilities. Other than pension
assets, the Company does not have any significant exposure to interest rate risk
related to investments (see Note 8(b) in Notes to Consolidated Financial
Statements).

The Company manages its exposure to interest rate risk through a
combination of fixed and variable rate debt. As of November 30, 2002, the
Company's long-term debt totaled $387 million. $150 million, or 39 percent was
at an average fixed rate of 5.75 percent; and $237 million, or 61 percent was at
an average variable rate of 5.02 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.

In December 2002, the Company entered into Swaps on $100 million of Term
Loan variable rate debt for a two-year period as required by the Restated Credit
Facility. The Company's fixed interest rate under these Swaps including the
Eurocurrency margin is 6.02 percent for the two-year period (see Note 14 in
Notes to Consolidated Financial Statements).

FOREIGN CURRENCY EXCHANGE RATE RISK

In addition to operations in the U.S., the Company has operations in
Canada, Germany, France, Spain, Czech Republic and China. As a result, the
Company's financial position, results of operations, and cash flows can be
impacted by fluctuations in foreign currency exchange rates (primarily the Euro
and Canadian dollar). The Company may choose to selectively hedge exposures to
foreign currency rate change risk through the use of foreign currency forward
and option contracts.

As of November 30, 2002, the Company did not have material exposure to
unhedged monetary assets, receivables, liabilities or commitments denominated in
currencies other than the operations' functional currencies.

In fiscal 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 $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 fiscal 2001, resulted in a gain
of

47

$11 million. Besides these transactions, the Company has not entered into any
significant foreign currency forward exchange contracts or other derivative
instruments to hedge the effect 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.
GDX Automotive employs a diversified supplier base as part of its efforts to
mitigate the risk of a supply interruption. In both fiscal 2002 and fiscal 2001,
rubber and rubber-related raw materials accounted for 11 percent of GDX
Automotive's cost of goods sold. Based on fiscal 2002 activity levels, a ten
percent increase in the average annual cost of these raw materials would
increase GDX Automotive's cost of goods sold by $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.

48

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

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, 2002 and 2001, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended November 30, 2002. 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 the Company, 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, 2002 and 2001, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended November 30,
2002, in conformity with accounting principles generally accepted in the United
States.

Ernst & Young LLP

Sacramento, California
January 20, 2003

49

GENCORP INC.

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.
50

GENCORP INC.

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.
51

GENCORP INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See notes to consolidated financial statements.
52

GENCORP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
53

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. See Note 7 for a discussion of recent business
acquisitions and divestitures. 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 U.S. 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 or AGC). 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). The Company also has
significant undeveloped real estate holdings in California. The Company's real
estate activities are 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's sales are derived primarily from the sale of custom
manufactured active pharmaceutical ingredients and advanced/registered
intermediates to pharmaceutical and biotechnology companies. Information on the
Company's operations by segment and geographic area is provided in Note 11.

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

b. WORKFORCE

As of November 30, 2002, approximately 55 percent of the Company's
employees are covered by collective bargaining or similar agreements. Of the
covered employees, approximately 12 percent are covered by collective bargaining
agreements that are due to expire within one year.

c. CASH EQUIVALENTS

All highly liquid debt instruments purchased with remaining maturity at the
date of purchase 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 duration 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 (see Note 7) 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 and Fine Chemicals segments use the average cost method. Inventories
are stated at the lower of cost or market value (see Note 2).

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

e. 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 five years
to 45 years, and three years to 15 years, respectively.

Impairment of long-lived assets is recognized when events or circumstances
indicate that the carrying amount of the asset, or related groups of assets, may
not be recoverable. Under SFAS No. 144, Accounting for the Impairment or
Disposal of Ling-Lived Assets (SFAS 144), which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of (SFAS 121), a long-lived asset classified as "held for sale" is
initially measured at the lower of its carrying amount or fair value less costs
to sell. In the period that the "held for sale" criteria is met, the Company
recognizes an impairment charge for any initial adjustment of the long-lived
asset amount. Gains or losses not previously recognized resulting from the sale
of a long-lived asset are recognized on the date of sale.

f. GOODWILL AND OTHER INTANGIBLE ASSETS

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 for impairment, or more frequently if indications of possible
impairment exist. The Company has performed the requisite transitional
impairment tests for goodwill and other intangible assets as of December 1, 2001
and has determined that they were are not impaired as of that date.

Goodwill represents the excess of purchase price over the estimated fair
value of net assets acquired. Identifiable intangible assets, such as existing
technology, customer backlog, 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 three to 20 years. As
of November 30, 2002, goodwill totaled $126 million and other net intangible
assets totaled $15 million. As of November 30, 2001, goodwill totaled $65
million and other intangible assets totaled $24 million, including assembled
workforce of $20 million which was reclassified to goodwill in fiscal 2002 in
accordance with SFAS 142. Accumulated amortization of goodwill and other
intangible assets was $8 million as of November 30, 2002 and 2001.

The Company periodically evaluates the value of its goodwill and the period
of amortization of its 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. The Company performed the
annual impairment tests for goodwill as of September 1, 2002 and has determined
that goodwill was not impaired as of that date. Other intangible assets are
evaluated when indicators of impairment exist.

g. 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 EITF addresses the accounting treatment and disclosure
requirements for pre-production costs incurred by original equipment
manufacturers suppliers to perform certain services related to the design and
development of the parts they will supply to the original equipment
manufacturers suppliers 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, 2002, the Company has recorded, as a noncurrent asset, $4 million of costs
for tooling for which the customer reimbursement is assured.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

h. REVENUE RECOGNITION/LONG-TERM CONTRACTS

Generally, sales are recorded when products are shipped, customer
acceptance has occurred, all other significant customer obligations have been
met and collection is reasonably assured. In certain circumstances, the
Company's Fine Chemicals segment records sales when products are shipped, before
customer acceptance has occurred because 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. Sales and income under some of the fixed price contracts are recorded
based on a measurement of costs incurred to date as compared to total costs to
be incurred, plus any applicable profit. 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. If at any time expected costs exceed the value
of the contract, the loss is recognized immediately. 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.

i. RESEARCH AND DEVELOPMENT EXPENSES

Company-sponsored research and development (R&D) expenses were $17 million
in fiscal 2002, $24 million in fiscal 2001 and $26 million in fiscal 2000.
Included in these amounts were R&D expenses related to the Electronics and
Information Systems (EIS) business of $4 million in fiscal 2001 and $7 million
in fiscal 2000. 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 $99 million in fiscal 2002, $215 million in fiscal 2001 and
$162 million in fiscal 2000. Included in these amounts were R&D expenses related
to the EIS business of $146 million in fiscal 2001 and $110 million in fiscal
2000 (see Note 7).

j. ENVIRONMENTAL REMEDIATION 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 Security and Exchange Commission (SEC) 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. In most cases
only a range of reasonably possible costs can be estimated. In establishing the
Company's reserves, the most probable estimated amount is used when
determinable, and the minimum amount is used when no single amount in the range
is more probable. The Company recognizes amounts recoverable from insurance
carriers, the U.S. government or other third parties, when the collection of
such amounts is
56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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. See also Notes
9(b) and 9(c).

k. 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).

l. DERIVATIVE FINANCIAL INSTRUMENTS

In fiscal 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 Laird
Group Public Limited Company's Draftex International Car Body Seals Division
(Draftex) business. The Company recognized an expense of $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 fiscal 2001,
resulted in a gain of $11 million.

m. EARNINGS PER SHARE

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

Potentially dilutive securities that are not included in the diluted EPS
calculation because they would be antidilutive are 825,000, 917,000 and
2,604,000 employee stock options as of November 30, 2002, 2001 and 2000,
respectively.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

n. RELATED-PARTY TRANSACTIONS

In fiscal 2001 and 2000, AFC incurred expenses totaling $5 million and $2
million, respectively, for services performed by NextPharma Technologies USA
Inc. (NextPharma) on behalf of AFC. Expenses in fiscal 2002 were not material.
These services included sales and marketing efforts, customer interface and
other related activities. From June 2000 through December 2001, NextPharma held
a minority ownership interest in AFC and GenCorp held a minority ownership
interest in NextPharma's parent company (see Note 7 for additional information.)
The Company relinquished its interest in NextPharma in December 2001.

Following review and approval by the Audit Committee of the Company's Board
of Directors, the Company's Chairman and then 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. INVENTORIES

Inventories applicable to government contracts, related to the Company's
Aerospace and Defense segment, include general and administrative costs. The
total of such costs incurred in fiscal 2002 and 2001 was $50 million and $76
million, respectively, and the amount in inventory is estimated to be $24
million and $36 million at November 30, 2002 and 2001, respectively.

In fiscal 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
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 11 percent and 13 percent of
inventories at replacement cost as of November 30, 2002 and 2001, respectively.

3. 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.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The components of the Company's provision for income taxes are as follows:

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 fiscal 2002 income tax expense by $.6 million for
the tax benefit of a charitable gift of land to the County of Muskegon, Michigan
and by $3.8 million due to the receipt of federal and state income tax
settlements. The Company reduced its fiscal 2001 income tax expense by $13.5
million due to the receipt of state income tax settlements.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:

The Company has worldwide tax basis net operating loss carry-forwards
totaling $214 million, the majority of which are related to state operations,
which expire beginning in 2003. The remaining portion relates to foreign
operations, most of which have indefinite carry-forward periods. The valuation
allowance relates primarily to state net operating losses and increased by $3
million in fiscal 2002, $1.5 million in fiscal 2001 and $1.5 million in fiscal
2000. Included in the deferred tax assets is a foreign tax credit carry-forward
of $3.2 million, which expires beginning in 2005. Pre-tax income of foreign
subsidiaries was $27 million in fiscal 2002, $14 million in fiscal 2001 and $24
million in fiscal 2000. The Company does not provide deferred taxes on
unremitted foreign earnings as it is the Company's intention to reinvest these
earnings indefinitely, or to repatriate the earnings only when it is tax
efficient to do so. Cumulative unremitted earnings of foreign subsidiaries were
$65 million as of November 30, 2002. Cash paid during the fiscal year for income
taxes was $14 million in 2002, $15 million in 2001 and $10 million in 2000.

4. PROPERTY, PLANT AND EQUIPMENT

Depreciation expense for fiscal 2002, 2001 and 2000 was $56 million, $65
million and $46 million, respectively.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

5. OTHER CURRENT LIABILITIES

6. LONG-TERM DEBT AND CREDIT FACILITY

As of November 30, 2002, the Company's debt maturities are summarized as
follows (in millions):

2003...................................................... $ 22
2004...................................................... 23
2005...................................................... 28
2006...................................................... 76
2007...................................................... 238
----
Total..................................................... $387
====

a. REVOLVING CREDIT FACILITY AND TERM LOANS

In December 2000, the Company entered into a new five year $500 million
Credit Facility (Credit Facility) to finance the acquisition of the Draftex
business and to replace a former credit facility. The Credit Facility consisted
of a $150 million revolving credit facility (Revolver); a $150 million Term Loan
A expiring December 2005; and a $200 million Term Loan B expiring December 2006.
In August 2001, the Company executed an amendment to the Credit Facility which
transferred $13 million of the Revolver and $52 million of

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Term Loan A to Term Loan B. The outstanding balance of Term Loan B on October
19, 2001 was $264 million and was repaid with proceeds from the sale of
Aerojet's EIS business (see Note 7).

On February 28, 2002, the Company amended its Credit Facility to provide an
additional $25 million term loan (Term Loan C). The $25 million was repaid on
April 5, 2002. The Company does not have the ability to re-borrow these funds.

On October 2, 2002, the Company amended and restated its Credit Facility
(Restated Credit Facility) to provide for a new Term Loan B in the amount of
$115 million maturing in April 2007. Proceeds of the Term Loan B were used to
finance the acquisition of General Dynamics' Ordnance and Tactical Systems Space
Propulsion and Fire Suppression business (GDSS) discussed in Note 7 and to repay
revolving loans outstanding under the Credit Facility. The maturity of Term Loan
B may be extended to June 2009 upon repayment of the Convertible Subordinated
Notes discussed below.

As of November 30, 2002, the borrowing limit under the revolving credit
facility (Revolver Commitment) was $137 million of which the Company had
drawn-down $45 million, and had outstanding letters of credit of $22 million,
primarily securing environmental and insurance obligations.

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 of the Revolver
Commitment. Borrowings under the Restated Credit Facility bear interest at the
borrower's option, at various rates of interest, based on adjusted base rate
(prime lending rate or federal funds rate plus 0.50 percent) or Eurocurrency
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 the Eurocurrency loans, the margin ranges between 1.75 percent and 3.00
percent. For Term Loan B borrowings the margins for base rate loans and
Eurocurrency rate loans are 2.75 percent and 3.75 percent, respectively. Cash
paid for interest was $15 million, $34 million and $17 million in fiscal 2002,
2001 and 2000, respectively.

The Restated Credit Facility is secured by substantially all of the assets
of the Company and contains certain restrictive covenants that require the
Company to meet specific financial ratios. The Restated Credit Facility also
restricts capital expenditures, the ability to incur additional debt, the
disposition of assets including real estate, and prohibits certain other types
of transactions. The Restated Credit Facility permits dividend payments as long
as there is no event of default. The Restated 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 Restated
Credit Facility. As presented in the table below, the Company was in compliance
with all financial ratios as of November 30, 2002:

On the last day of any fiscal quarter, minimum consolidated net worth is
required to be equal to the sum of $300 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 November 30, 2002.

Based on current forecasted financial results, the Company expects to be in
compliance with all of the above financial covenants for fiscal 2003, although
no assurance can be given in this regard.

b. CONVERTIBLE SUBORDINATED NOTES

In April 2002, the Company issued $150 million aggregate principal amount
of 5.75 percent Convertible Subordinated Notes (Notes) due in 2007. The Notes
are initially convertible into 54.29 shares of the Company's

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Common Stock per $1,000 principal amount of Notes, implying a conversion price
of $18.42 per share, at any time until the close of business on the business day
immediately preceding the maturity date unless previously redeemed or
repurchased. Interest accrues on the Notes at a rate of 5.75 percent per annum
payable each October 15 and April 15. The Notes are redeemable at the option of
the holder upon a change of control and at the option of the Company if the
closing price of the Company's Common Stock exceeds 125 percent of the
conversion price then in effect for at least 20 trading days within a period of
30 consecutive trading days ending on the trading day before the day of the
mailing of the optional redemption notice. The Notes are general unsecured
obligations of the Company and rank junior in right of payment to all of the
Company's other existing and future senior indebtedness, including all of its
obligations under its Restated Credit Facility.

Issuance of the Notes generated net proceeds of $144 million. The Company
used $25 million of the net proceeds to repay in full Term Loan C and $119
million to repay debt outstanding under the Revolver.

c. SHELF REGISTRATION

On June 20, 2002, the Company filed a shelf registration statement with the
SEC under which the Company may, on a delayed basis, issue up to an aggregate
principal amount of $300 million of its debt securities, shares of common stock
or preferred stock. Net proceeds, terms and pricing of offerings, if any, of
securities issued under the shelf registration statement will be determined at
the time of any such offering.

7. ACQUISITIONS AND DIVESTITURES

In October 2002, the Company's Aerospace and Defense segment completed the
acquisition of the assets of GDSS at a purchase price of $93 million, including
transaction costs. Consideration for the purchase was comprised of $90 million
in cash, direct acquisition costs of $5 million, net of a purchase price
adjustment due back to the Company in the amount of $2 million. The acquisition
strengthened the Company's position in spacecraft propulsion and emerging
Missile Defense applications, expanded the Company's role on the NASA Space
Shuttle Program, and enables expansion into new growth areas such as electric
propulsion. The results of operations for the two month period ended November
30, 2002 are included as part of the Company's Aerospace and Defense segment.
The table presented below summarizes GDSS's estimated fair value of assets
acquired and liabilities assumed as of the acquisition date as follows:

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

(1) 18 year weighted average useful life.

(2) Three year life on backlog.

(3) 20 year life on existing technology.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

During the two month period ended November 30, 2002, the Company recorded
$0.2 million in amortization expense related to the acquired backlog and
existing technology. The Company included the In-Process Research and
Development write-off of $6 million in Unusual Items in its Consolidated
Statements of Income. The Company has recorded the $42 million of goodwill in
its Aerospace and Defense segment and expects $42 million of goodwill to be
deductible for tax purposes.

Aerojet finalized the sale of its EIS business to Northrop Corporation
(Northrop) for $315 million in cash in October 2001, subject to certain working
capital adjustments as defined in the purchase agreement. In April 2002, Aerojet
reached an agreement with Northrop whereby the purchase price was reduced by $6
million. The gain on the transaction, before the purchase price adjustment, was
$206 million. Both of these items were recorded as unusual charges to
operations. The EIS business had sales of $398 million and operating profit of
$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.

In December 2000, the Company acquired Draftex at an estimated purchase
price of $215 million, including cash of $209 million and direct acquisition
costs of $6 million, subject to certain purchase price adjustments provided for
in the acquisition agreement. In February 2002, purchase price adjustments were
finalized resulting in a $10 million reduction in the purchase price. Draftex is
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. 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 $17 million
(see Note 13).

In June 2000, the Company sold a 20 percent equity interest in AFC to
NextPharma for $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 gain on the sale of the minority interest of $5 million.
In addition, the Company initially recorded a minority interest of $26 million,
included in other long-term liabilities, and an investment in NextPharma's
parent company of $6 million. In December 2001, the Company reacquired the
minority interest from NextPharma for $13 million. In addition, certain
agreements between the two companies were terminated. 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 on or before November 30, 2003,
depending on the sale price.

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. Substantially all of the pension plans' assets are invested in
short-term investments, listed stocks and bonds.

In addition to providing pension benefits, the Company currently provides
certain healthcare 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 retiree 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, offering an early retirement program to eligible employees. The
program resulted in a $10 million charge to expense.
64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

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

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

(1) As discussed in Note 7, the Company sold its EIS business in fiscal 2001.

(2) Relating to certain restructuring activities undertaken by GDX Automotive,
as discussed in Note 12.

(3) Pension amounts $19 million in 2002 and 2001 for unfunded plans.

(4) Pension amounts included $20 million in 2002 and $19 million in 2001 for
unfunded plans.

65

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:

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

* Not applicable.

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

A one percentage point increase in the assumed trend rate for health care
costs would have increased the accumulated benefit obligation by $3 million as
of November 30, 2002. A one percentage point increase in the assumed trend rate
for health care costs would not have significantly increased the cost of fiscal
2002 postretirement health care benefits.

Total periodic cost for pension benefits and other postretirement benefits:

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

(1) Actual returns on plan assets were a loss of $98 million in fiscal 2002, a
loss of $164 million in fiscal 2001 and a gain of $266 million in fiscal
2000.

(2) Includes special termination benefits totaling $10 million in fiscal 2001
related to the corporate headquarters restructuring program 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 which
could result in greater volatility in annual net pension costs.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The cumulative effect of the accounting change described above related to
periods prior to fiscal 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 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).

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 $7 million in fiscal 2002 and $9 million in fiscal 2001
and 2000. The Company's contribution to the salaried plan is invested entirely
in the GenCorp Stock Fund, and may be funded with cash or shares of 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, non-cancelable 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 $10 million in fiscal 2002, $8 million in fiscal
2001 and $6 million in fiscal 2000. The Company also leases certain surplus
facilities to third parties. The Company recorded lease sales of $6 million in
fiscal 2002 and 2001 related to these arrangements. The future minimum rental
commitments under all non-cancelable operating leases and lease revenue in
effect as of November 30, 2002 were as follows:

b. LEGAL PROCEEDINGS

From time to time, GenCorp and its affiliated companies are subject to
legal proceedings, including litigation in federal and state courts, which arise
out of, and are incidental to the ordinary course of business. The Company is
also subject to governmental investigations by state and federal agencies. While
the Company cannot predict the outcome of such proceedings with any degree of
certainty, the potential liabilities that may result could have a material
adverse effect on its financial position or the results of operations.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Groundwater Cases

Along with other industrial Potentially Responsible Parties (PRPs) and area
water purveyors, Aerojet was sued in 17 cases by approximately 1,500 private
plaintiffs residing in the vicinity of the defendants' manufacturing facilities
in Sacramento, California, and the Company's former facility in Azusa,
California. The Azusa cases have been coordinated for trial in Los Angeles,
California. The Sacramento cases have been stayed through March 2003. The
individual plaintiffs generally seek damages for illness, death, and economic
injury allegedly caused by their ingestion of groundwater contaminated or served
by defendants, without specifying actual damages. Aerojet and other industrial
defendants involved in the litigation 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 Azusa cases and the Sacramento cases are listed in the table of
groundwater and air pollution toxic tort legal proceedings in Part I, Item 3.
The Azusa cases are proceeding under two master complaints and pretrial
discovery is in process. Because water purveyors cannot be held liable if the
water consumed met state and federal quality standards, the Company currently
expects the trial court in Los Angeles will hold an evidentiary hearing to
determine whether the PUC regulated water entity defendants served water in
violation of state or federal drinking water standards. The Sacramento cases are
stayed at least until March 2003. Aerojet has notified its insurers, retained
outside counsel and intends to conduct a vigorous defense against all claims.

McDonnell Douglas Environmental Remediation Cost Recovery Dispute

As described in greater detail under Note 9(c), "Environmental Matters,"
McDonnell Douglas Corporation (MDC), an operating unit of The Boeing
Corporation, and Aerojet are engaged in a dispute in federal court regarding the
costs associated with the environmental contamination of the Inactive Rancho
Cordova Test Site (IRCTS). IRCTS was transferred by Aerojet to MDC and
subsequently reacquired by Aerojet in 1984. The dispute involves the appropriate
shares of responsibility for environmental contamination of IRCTS by MDC and
Aerojet. The initial federal lawsuit was settled under a 1999 Settlement
Agreement, in which Aerojet agreed to participate in the interim funding of
certain remediation efforts at IRCTS subject to final allocation.

In December of 2001, MDC filed a second lawsuit in Federal court alleging
that Aerojet's interpretation of a subsequent cost sharing agreement between the
parties was incorrect and constituted a breach of the 1999 Settlement Agreement.
MDC sought to have Aerojet bear a fifty percent interim share (rather than the
ten percent interim share accepted by Aerojet) of the costs of investigating and
remediating offsite perchlorate groundwater contamination near Mather Field,
allegedly associated with activities on IRCTS.

During November 2002, Aerojet and MDC entered into discussions to settle
the second lawsuit by renegotiating the temporary allocation of certain costs
associated with the environmental contamination at IRCTS. As a consequence of
those discussions, Aerojet and MDC have reached an agreement, in principle, that
MDC will be responsible for 70 percent and Aerojet will be responsible for 30
percent of the disputed costs associated with environmental contamination at
IRCTS. While the parties have reached an agreement in principle, a formal and
complete agreement has not yet been completed and therefore has not yet been
entered into by MDC and Aerojet.

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 cases have
been consolidated and are pending in the U.S. District Court for the Central
District of California -- Baier, et al. v. Aerojet-General Corporation, et al.,
Case No. EDCV 00 618VAP (RNBx) CA; Kerr, et al. v. Aerojet-General Corporation,
Case No. EDCV 01-19VAP (SGLx), and Taylor, et al., v. Aerojet-General
Corporation, et al., Case No. EDCV 01-106 VAP (RNBx). 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.
68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Water Entity Cases

In October 1999, Aerojet was sued by American States Water Company, a local
water purveyor, and certain of its affiliates seeking damages, including
unspecified past costs and replacement water for contaminated drinking water
wells near Aerojet's Sacramento, California, manufacturing facility. The
plaintiffs also sued the State of California for inverse condemnation. While
both cases were consolidated in 2001, American States Water Company and the
State of California recently entered into a settlement agreement to resolve the
dispute. A hearing to determine whether the settlement should be approved by the
court is scheduled for March 2003. Discovery has been ongoing and trial is
currently scheduled to commence in August of 2003.

Separately, between April 2000 and October 2001, six local water agencies
and water purveyors sued Aerojet and other named defendants 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 (BPOU drinking
water well lawsuits). The plaintiffs included the San Gabriel Basin Water
Quality Authority, the Upper San Gabriel Valley Municipal Water District, the
Valley County Water District (Valley), the California Domestic Water Co. and San
Gabriel Valley Water Company who were seeking, among other things, funding for a
water treatment plant at the La Puente Valley County Water District (La Puente)
well field. In January 2001, Aerojet and certain other cooperating potentially
responsible parties (PRPs) reimbursed these plaintiffs and one other funding
agency $4 million for the cost of the treatment plant. Since that time, Aerojet
and the cooperating PRPs have continued to pay all operating and related costs
for treatment at the La Puente site. The plaintiffs also sued to recover past
costs in placing treatment facilities at the Big Dalton well site in the San
Gabriel Basin. Plaintiffs claimed that Aerojet was responsible for contamination
of their drinking water wells. While Aerojet was served in the case filed by
Valley, the case has been inactive. The primary claim in these cases is for the
recovery of past and future CERCLA response costs for treatment plants at
plaintiffs' well sites.

All of the BPOU drinking water well lawsuits were settled and dismissed by
the plaintiffs without prejudice on or about September 16, 2002 in accordance
with a settlement described as the Project Agreement and more fully described
under San Gabriel Valley Basin, California. The settlement of plaintiffs' claims
was approved by the United States Environmental Protection Agency (EPA). The
settlement agreement requires the cooperating PRPs to fund the construction,
maintenance and operation of certain water treatment facilities and to reimburse
certain costs of the various water purveyors. As a consequence, all the past
cost claims in those actions are settled and released. While plaintiffs' claims
against Aerojet have been dismissed, Aerojet has filed third party claims
against certain of the PRPs that remain before the court.

Aerojet, along with approximately 60 other individual and corporate
defendants, was recently served with four civil suits filed in the U.S. District
Court for the Central District of California that seek recovery of costs
allegedly incurred in response to the contamination present at the South El
Monte Operable Unit (SEMOU) of the San Gabriel Valley Superfund site. The cases
are denominated as follows: The City of Monterey Park v. Aerojet-General
Corporation, et al., (CV-02-5909 ABC (RCx)); San Gabriel Basin Water Quality
Authority v. Aerojet-General Corporation, et al., (CV-02-4565 ABC (RCx)); San
Gabriel Valley Water Company v. Aerojet-General Corporation, et al., (CV-02-6346
ABC (RCx)) and Southern California Water Company v. Aerojet-General Corporation,
et al., (CV-02-6340 ABC (RCx)). The cases have been coordinated for ease of
administration by the court. The court directed all defendants to file their
responsive pleadings by February 10, 2003 pending discussions of a framework for
a possible settlement.

These claims are based upon allegations of discharges from a former site in
the El Monte area, as more fully discussed under San Gabriel Valley Basin,
California, South El Monte Operable Unit. Aerojet has notified its insurers and
is defending the actions as its investigations do not identify a credible
connection between the contaminants identified by the water entities in the
SEMOU and those detected at Aerojet's former facility located in El Monte,
California, near the SEMOU (East Flair Drive site).

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Vinyl Chloride Toxic Tort Cases

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

Since 1996, GenCorp has been named in 23 toxic tort cases involving alleged
exposure to VC. Thirteen of these cases were filed during 2002. With the
exception of one case brought by the family of a former Ashtabula employee,
GenCorp is alleged to be a "supplier/manufacturer" of PVC and/or a civil
co-conspirator with other VC and PVC manufacturers. Plaintiffs allege that
GenCorp suppressed information about the carcinogenic risk of VC to industry
workers, and placed VC or PVC into commerce without sufficient warnings. Of
these 23 cases, ten have been settled or dismissed on terms favorable to the
Company, including the case where GenCorp was the employer. During 2002, one
case was dismissed because Plaintiff could not establish any evidence of VC
exposure.

Of the remaining thirteen pending cases, there are four cases which allege
VC exposure through various aerosol consumer products. In these cases, VC is
alleged to have been used as an aerosol propellant during the 1960's, and the
suits name numerous consumer product manufacturers, in addition to more than 30
chemical manufacturers. GenCorp used VC internally, but never supplied VC for
aerosol or any other use. The other nine cases involve employees at VC or PVC
facilities which had no connection to GenCorp. The complaints assert GenCorp's
involvement in the alleged conspiracy in these cases stems from GenCorp's
membership in trade associations. GenCorp is vigorously defending against all
claims in these cases.

Asbestos Litigation

Over the years, both GenCorp and Aerojet have from time to time been named
as defendants in lawsuits alleging personal injury or death due to exposure to
asbestos in building materials or in manufacturing operations. The lawsuits have
been filed throughout the country, with the majority filed in Northern
California. Since 1998, more than 50 of these asbestos lawsuits have been
resolved, with the majority being dismissed and a substantial minority being
settled for less than $30 thousand each. Approximately 30 asbestos cases are
currently pending.

In November 2002, a jury verdict against Aerojet in the amount of
approximately $5 million in the Circuit Court of the City of St. Louis,
Missouri, led to a judgment of approximately $2 million after setoff. The case
is Goede et al. v. Chestertun Inc., Case No. 012-9428, Circuit Court, City of
St. Louis, MO. The $3 million setoff was based on plaintiffs' settlements with
other defendants. Aerojet and the plaintiffs recently filed post-trial motions.
Plaintiffs are seeking a new trial to recover punitive damages; and Aerojet is
seeking a new trial because the Company was not allowed to introduce all its
evidence from certain witnesses against plaintiffs' claims. The trial court has
set a hearing on pending motions on February 23, 2003. If the Company's motion
for a new trial is not granted, an appeal will be filed to vacate the judgement.

Paper, Allied Industrial v. TNS, Inc. (formerly TNS, Inc. v. NLRB et al.)

TNS, Inc., a wholly-owned subsidiary of Aerojet, is now known as Aerojet
Ordnance Tennessee, Inc. (AOT). AOT has long manufactured armor piercing
projectiles and ordnance from depleted uranium (DU) under contracts with the
U.S. Department of Defense. Through an appeal to the Sixth Circuit Court of
Appeals, the Company recently obtained judicial relief from a 1999 National
Labor Relations Board (NLRB) ruling that AOT had violated federal labor laws and
engaged in unfair practices when it failed to reinstate striking workers in
1981. Under the NLRB's ruling, striking workers were to have received
reinstatement, back pay with interest and attorneys fees.

On July 10, 2002, the Sixth Circuit Court of Appeals entered judgement in
favor of the Company and reversed the ruling of the NLRB, holding that the NLRB
had erred in concluding that AOT engaged in unfair labor practices when it did
not rehire striking workers. The appeals court held that the record in the
litigation did

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

not fully resolve the factual issue as to whether "abnormally dangerous"
conditions in the plant precipitated the strike, but at the same time, the
appeals court held that NLRB's delay in rendering its final decision more than
20 years later was "inexcusable" and no further proceedings were warranted. A
petition for certiorari was filed with the United States Supreme Court, asking
the Supreme Court to grant an appeal of the Sixth Circuit judgment.

On January 13, 2002, the Supreme Court denied that petition and, as a
matter of law, left the Sixth Circuit judgment in favor of the Company as the
final judgment in the case.

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

In October 2000, a group of hourly retirees filed a class action lawsuit
disputing retiree medical benefits and naming GenCorp and OMNOVA Solutions Inc.
(OMNOVA) as defendants, Wotus, et al. v. GenCorp Inc., et al., U.S.D.C., N.D. OH
(Cleveland, OH), Case No. 5:00-CV-2604. The retirees sought rescission of the
then current Hourly Retiree Medical Plan established in spring 1994, and
reinstatement of the prior plan terms. The crux of the dispute relates to union
and GenCorp negotiated modifications in retiree benefits that, in exchange for
other consideration, now require retirees to make benefit contributions as a
result of caps on Company paid retiree medical cost implemented in fall 1993. A
retiree's 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 unions URW or USWA. The unions, however, are not party to the suit and
have agreed not to support such litigation pursuant to an agreement negotiated
with GenCorp. 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.
IN (South Bend, IN), Case No. 96-CV-0394-AS.

Plaintiff retirees and the Company defendants filed cross-motions for
summary judgment which were denied on December 20, 2002. The court ordered the
parties to submit case management plans and suggested that proceedings be stayed
for six months. Negotiations regarding the possible stay are proceeding.

GenCorp has given notice to its insurance carriers and intends to
vigorously defend against the retirees' claims. OMNOVA has requested
indemnification from GenCorp should Plaintiffs prevail in this matter. GenCorp
has denied this request, and OMNOVA's claim will likely be decided through
binding arbitration pursuant to agreements entered into during the
GenCorp-OMNOVA spin-off in 1999.

Olin Corporation v. GenCorp Inc.

In August 1991, Olin Corporation (Olin) advised GenCorp that under a 1962
manufacturing agreement with Olin (1962 Agreement), it believed GenCorp to be
jointly and severally liable for certain Superfund remediation costs, estimated
by Olin to be $70 million. The costs are associated with a former Olin
manufacturing facility and its waste disposal sites in Ashtabula County, Ohio.
In 1993, GenCorp sought a declaratory judgment in federal court (Ohio Court)
that the Company is not responsible for such environmental remediation costs.
Olin counterclaimed seeking a judgment that GenCorp is jointly and severally
liable for a share of remediation costs. GenCorp has argued and asserted as a
defense to Olin's counterclaim that under the terms of the 1962 Agreement Olin
had a contractual obligation to insure against environmental and other risks and
that its failure to protect such insurance payments under these policies
precluded Olin from recovery against GenCorp for these remediation costs.
Further, GenCorp argued that any failure on Olin's part to comply with the terms
of such insurance policies would result in GenCorp being entitled to breach of
contract remedies resulting in a reduction in any CERCLA liability amounts
determined to be owed to Olin that would have otherwise been recovered from
Olin's insurance carriers (Reduction Claims).

In 1999, the Ohio Court rendered an interim decision on CERCLA liability.
The Court found GenCorp 30 percent liable and Olin 70 percent liable for
remediation costs at "Big D Campground" landfill (Big D site).

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Ohio Court also found GenCorp 40 percent liable and Olin 60 percent liable
for remediation costs,including costs for off-site disposal (other than Big D)
and costs attributable to contamination at the Olin TDI facility, a plant built
and operated by Olin on GenCorp property near the Big D site. On May 9, 2002,
the Ohio Court issued a memorandum opinion stating that it intended to enter a
judgment in Olin's favor in the amount of approximately $19 million, plus
prejudgment interest against GenCorp, for CERCLA contribution liability. In that
same opinion, the Ohio Court deferred concluding whether and to what extent
GenCorp would be entitled to receive a credit against its CERCLA contribution
liability based on the Company's Reduction Claims against Olin, pending the
outcome of Olin's litigation against its insurance carriers for coverage under
Olin's insurance policies.

The Company will appeal its CERCLA contribution liability. The Company
believes that it is not directly or indirectly liable as an arranger for Olin's
waste disposal at the Big D site and that it did not either actively control
Olin's waste disposal choices or operate the plant on a day-to-day basis.
Outside counsel have advised the Company that many aspects of the Company's
appeal of its CERCLA liability have considerable merit. Management believes it
will prevail on appeal, should such appeal actually be necessary.

Irrespective of the outcome of an appeal, the Company believes it has
contractual protection against Olin's claims by virtue of Olin's obligations to
procure and protect insurance. The Court had previously resolved that pursuant
to the terms of the 1962 Agreement, it was Olin's contractual obligation to
obtain insurance coverage, and the evidence adduced during the litigation showed
that Olin had in place insurance coverage during the period in question in the
amount of $40 million to $50 million.

On September 5, 2002, Olin advised the Court and GenCorp that on August 27,
2002, the U.S. District Court for the Southern District of New York (NY Court)
had ruled Olin failed to protect its right to payments under its insurance
policies for the Big D site. The NY Court based its ruling on the fact that Olin
had failed to timely notify its insurance carriers of its claims. Olin also
informed the Ohio Court it would appeal the NY Court decision and pressed the
Ohio Court to enter judgment.

If the NY Court decision is affirmed on Olin's appeal, the Ohio Court could
rule in GenCorp v. Olin in one of two ways: (a) it could find that Olin's late
notice constituted a breach of its obligation under the 1962 Agreement to
protect the insurance; or (b) it could conclude that Olin's conduct does not
fully reduce GenCorp's liability. If the Ohio Court rules that Olin's late
notice is a breach of the 1962 Agreement, the question will become determination
of the damages suffered by GenCorp as a result of the breach. GenCorp has argued
that the proper measure of damages is the coverage limits of the policies that
Olin forfeited -- an amount in this case that is more than sufficient to cover
GenCorp's entire liability.

On September 13, 2002, GenCorp filed a motion asking the Ohio Court to
reconsider its decision to enter judgment for Olin, or in the alternative, to
consider GenCorp's Reduction Claims that could result in a ruling in favor of
GenCorp. The parties exchanged briefs on these issues.

The Ohio Court issued a memorandum opinion and judgment order on November
21, 2002 entering "final" judgment in favor of Olin in the amount of
approximately $19 million plus prejudgment interest in the amount of
approximately $10 million. However, the Ohio Court did not decide GenCorp's
Reduction Claims against Olin, but did state that two matters related to the
Company's Reduction Claims were "pivotal" to the ultimate determination of this
case: (i) whether there was an insurable event upon which Olin could recover had
Olin complied with the applicable contract provisions and (ii) whether GenCorp
is entitled to receive a credit based on Olin's failure to provide timely notice
that foreclosed insurance recovery. The Ohio Court further determined that
GenCorp's Reduction Claims "are held in abeyance pending the resolution of
[Olin's] appeal in the New York insurance litigation." Management has been
advised by outside counsel that GenCorp's recovery on its Reduction Claims could
range from a nominal amount to an amount sufficient to reduce the judgment
against GenCorp in its entirety.

Outside counsel to the Company have also advised that because the Ohio
Court's opinion and judgment is based on the 1962 Agreement and because the Ohio
Court failed to resolve GenCorp's Reduction Claims against

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Olin, it is likely that the decision and order issued by the Ohio Court on
November 21, 2002 will not be considered a final judgment. Consequently, and in
reliance upon its outside counsel, the Company believes that it is not likely
that a final judgment giving rise to liability has actually occurred. The
Company has filed its notice of appeal, in any event, to preserve its appellate
rights. Given Olin's contractual obligation to have obtained and complied with
the terms of its insurance policies and the NY Court's finding that Olin failed
to give proper notice of a claim under these insurance policies, neither
management nor outside counsel can at this time estimate the possible amount of
liability arising from this case, if any.

In addition to several procedural motions pending before the Ohio Court
since early December 2002, GenCorp asked the Ohio Court to waive the standard
bond requirement and stay any attempt to execute on the Ohio Court's judgment
pending appeal. Olin opposed the stay, but stated it would not oppose a stay if
GenCorp posted the normal supersedeas bond. On January 22, 2003, the court
denied all pending motions and issued a Judgment Order stating the case was
"terminated" on the Ohio Court's docket. However, in its Memorandum Opinion and
Order of the same date, the Ohio Court stated "[w]hether there was an insurable
event upon which Olin would have been entitled to recovery had it provided its
insurers with timely notice... and... whether GenCorp is entitled to credit
based upon Olin's omission which foreclosed insurance recover for Big D, remain
unresolved."

Pursuant to a December 10, 2002 stipulation between the parties. Olin will
not and cannot execute on the judgment until fifteen business days after the
Ohio Court issues a ruling on Olin's December 5, 2002 motion to correct the
November 21, 2002 order. (Olin's motion addressed a mathematical error that will
increase slightly the interest owed to Olin.) Based on the stipulation and the
Ohio Court's January 22, 2003, ruling on Olin's motion, Olin cannot execute on
the judgment before February 13, 2003.

GenCorp filed its notice of Appeal on December 20, 2003. In light of the
Ohio Court's January 22, 2003 judgment and the accompanying opinion, on January
27, 2003, GenCorp filed a motion to dismiss its appeal on the grounds that the
November 21, 2002 and January 22, 2003 orders and judgments are not final. The
Company seeks an appellate ruling that in effect directs the Ohio Court to
address GenCorp's Reduction Claims before entering any final judgment. In
addition, GenCorp has motions pending which ask: (i) the appellate court to stay
execution without bond pending action on GenCorp's appeal; and (ii) the Ohio
Court to accept a letter of credit in lieu of bond should a bond be required.
Olin opposes the former and is expected to oppose the latter. If successful, the
Company believes it will not be obligated to make any significant payments to
Olin because of GenCorp's Reduction Claims. Until the Court of Appeals addresses
whether the judgment is final, it is impossible to determine the amount GenCorp
is obligated to pay Olin. If the Court of Appeals determines that the judgment
is final and properly certified for appeal, then the Company must address its
liability and either pay the amount of the liability or post a supersedeas bond
or other security in order to pursue its appeals.

In summary, while the Ohio Court has found the Company liable to Olin for a
CERCLA contribution payment, the Company has concluded it is not currently
appropriate to accrue any additional amount related to that finding because: (a)
the Company previously accrued the entire amount of its estimated potential
liability for contamination at the Olin TDI facility and related offsite
contamination, except for disposal at the Big D site; (b) the Company believes
it will prevail on appeal on the basis that it is not derivatively or directly
liable as an arranger for disposal at the Big D site, both as a matter of fact
and as supported by other case law; (c) irrespective of whether, upon exhausting
all avenues of appeal, there is a finding of CERCLA liability, the Company
believes that: (i) if Olin prevails in its appeal of the NY Court ruling, the
Company will make no payment to Olin; or (ii) if Olin fails in its appeal, that
Olin's breach of its contractual obligations to provide insurance will result in
a reduction in or elimination of some or all of such liability; and, (d) at this
point in time, it is uncertain whether the judgment rendered by the Ohio Court
is indeed a final judgment, and for all these reasons, the possible amount of
additional liability arising from this case, if any, cannot be established at
this time.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Other Legal Matters

The Company and its affiliated companies are subject to other legal
actions, governmental investigations, and proceedings relating to a wide range
of matters in addition to those discussed above. In the opinion of the Company,
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 other matters is not expected to
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, a federal district court in California approved a Partial Consent
Decree (Decree) requiring Aerojet to conduct a Remedial
Investigation/Feasibility Study (RI/FS) of Aerojet's Sacramento, California
site. The Decree required Aerojet to prepare a RI/FS report on specific
environmental conditions present at the site and alternatives available to
remediate such conditions. Aerojet also is required to pay for certain
governmental oversight costs associated with Decree compliance. Beginning in the
mid 1990s, the State of California expanded its surveillance of perchlorate and
nitrosodimethylamine (NDMA). Under the RI/FS, traces of these chemicals were
detected using new testing protocols in public water supply wells near Aerojet's
Sacramento site.

Aerojet has substantially completed its efforts under the Decree to
determine the nature and extent of contamination at the facility. Aerojet has
preliminarily identified the technologies that will likely be used to remediate
the site and has estimated costs using generic remedial costs from Superfund
remediation databases. Aerojet will continue to conduct feasibility studies to
refine technical approaches and costs to remediate the site. The remediation
costs are principally for design, construction, enhancement and operation 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
both on and off its facilities through the development of operable unit
feasibility studies. On August 19, 2002, the U.S. Environmental Protection
Agency (EPA) issued an administrative order requiring Aerojet to implement the
EPA approved remedial action for the Western Groundwater Operable Unit. A nearly
identical order was issued by the California Regional Water Quality Control
Board, Central Valley (Central Valley RWQCB). A discussion of Aerojet's efforts
to estimate these costs is contained under the heading "Environmental Reserves
and Estimated Recoveries."

On April 15, 2002, the United States District Court approved and entered a
Stipulation and Order Modifying the Partial Consent Decree (Stipulation and
Order). Among other things, the Stipulation and Order removed approximately
2,600 acres of Aerojet's property from the requirements of the Decree and from
the Superfund site designation, enabling the Company to put the 2,600 acres to
more productive use. The stipulated order also requires GenCorp to provide a $75
million guarantee to assure that remediation activities at the Sacramento site
are fully funded; requires Aerojet to provide a short-term and long-term plan to
replace lost water supplies; and divides the Superfund site into "Operable
Units" to allow Aerojet and the regulatory agencies to more efficiently address
and restore priority areas.

Aerojet leased a portion of its Sacramento facility to Douglas Aircraft for
rocket assembly and testing from 1957 to 1961 and sold approximately 3,800
acres, including the formerly leased portion, to Douglas Aircraft in 1961.
Aerojet reacquired the property (known as the "IRCTS") from the McDonnell
Douglas Corporation (MDC), the successor to Douglas Aircraft and now an
operating unit of the Boeing Corporation, in 1984. Both MDC and Aerojet were
ordered to investigate and remediate environmental contamination by certain
orders issued in 1991 and 1994 by the California Department of Toxic Substance
Control (DTSC) and a similar 1997 order of the Central Valley RWQCB. Aerojet
filed suit against MDC to recover costs Aerojet incurred resulting from
compliance with the orders (Aerojet-General Corporation v. McDonnell Douglas
Corporation, et al., Case No. CVS 94-1862 WBS JFM). In 1999, Aerojet and MDC
entered into a settlement agreement to allocate

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

responsibility for a portion of the costs incurred under the orders and to
negotiate responsibility for the remaining costs. MDC subsequently brought suit
against Aerojet alleging breach of the settlement agreement and seeking specific
performance and declaratory relief. (McDonnell Douglas Corporation, v.
Aerojet-General Corporation, Civ.S-01-2245, in the U.S. District Court for the
Eastern District of California filed December 7, 2001.) The alleged breach
involves interpretation of the 1999 settlement agreement and subsequent cost
sharing agreement between MDC and Aerojet pertaining to contribution by each
company toward investigation and remediation costs ordered by the DTSC and the
Central Valley RWQCB. DTSC and the Central Valley RWQCB issued their orders
alleging both companies were responsible for environmental contamination
allegedly existing at and migrating onto and from the IRCTS site, an
approximately 3,800 acre portion of Aerojet's approximately 12,000 acre
Sacramento facility.

Aerojet and MDC have entered into discussions to settle the second lawsuit
by establishing new temporary allocations of costs, subject to final allocation
(see Note 9(b), "McDonnell Douglas Environmental Remediation Dispute").

San Gabriel Valley Basin, California

Baldwin Park Operable Unit

Aerojet, through its former Azusa, California site, was named by the EPA as
a PRP in the portion of the San Gabriel Valley Superfund Site known as the
Baldwin Park Operable Unit (BPOU). A Record of Decision (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 Letter PRPs are alleged to have been a source of 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.

In May 1997, as a result of the development of more sensitive measuring
methods, perchlorate was detected in wells in the BPOU. 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
by-product 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 has been a leader in the development of new, low cost
technologies for the treatment of perchlorate, NDMA and 1,4 dioxane.

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.

On November 23, 1999 the California Regional Water Quality Control Board
(Los Angeles RWQCB) issued orders to Aerojet and other PRPs to conduct
groundwater investigations on their respective sites. As a result, the Los
Angeles RWQCB ordered Aerojet to conduct limited soil gas extraction, which
Aerojet is implementing, and evaluating remedies for perchlorate contamination
in soils.

Following extended negotiations, Aerojet, along with seven other PRPs
(collectively, the "Cooperating Respondents") signed a Project Agreement in late
March 2002 with 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 (collectively, the
Water Entities). The Project Agreement became effective on May 9, 2002,
following approval by a California Superior Court and the

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

finalization of policy language on the $100 million Baldwin Park Operable Unit
Manuscript Environmental Site Liability Policy from Chubb Custom Insurance
Company covering certain Project risks.

The basic structure of the Project Agreement is for the Cooperating
Respondents to fund and financially assure (in the form of cash or letters of
credit) the cost of certain treatment and water distribution facilities to be
owned and operated by the Water Entities. 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.

The Cooperating Respondents will also fund operation and maintenance of
treatment facilities (not including ordinary operating expenses of the local
water purveyors, certain costs for replacement water that may be incurred by
such Water Entities and related administrative costs, collectively, O&M costs).
The Cooperating Respondents are required to 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 six-month period. When fully constructed, six treatment facilities
will be treating in excess of 25,000 gallons per minute for the purposes of ROD
implementation and to provide potable water supply. The Project Agreement has a
term of 15 years. The Project Agreement also settles the past environmental
claims of the Water Entities.

Aerojet and the other Cooperating Respondents have entered into an interim
allocation agreement that establishes the interim payment obligations of Aerojet
and the remaining Cooperating Respondents for the costs of the Project
Agreement. Aerojet anticipates that the parties may seek to mediate final
allocation, but, if unsuccessful, litigation could occur. Under the interim
allocation, Aerojet is responsible for approximately two-thirds of all project
costs, pending completion of any allocation proceeding. All project costs are
subject to reallocation among the Cooperating Respondents.

A significant amount of public funding is available to offset project
costs. To date, Congress has appropriated approximately $40 million (so called
Title 16 and Dreier funds), which is potentially available for payment of
project costs. All such funding will require Water Quality Authority (WQA)
action to allocate funds to the project, which the WQA is currently considering.
Based upon WQA preliminary actions to date, Aerojet anticipates that
approximately $25 million of the funding will have been allocated to the project
by the end of 2003 and that additional funds may follow in later years.

As part of the EIS sale to Northrop in October 2001, the EPA approved a
Prospective Purchaser Agreement with Northrop 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 is being used to fund
Aerojet's obligations under the Project Agreement.

As part of the agreement to sell the EIS business to Northrop, Aerojet paid
the EPA $9 million to be offset against Aerojet's share of the EPA's claimed
past costs of approximately $22 million. A very substantial share of the 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
ten 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 the
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 November 9, 2001, GenCorp received a General Notice Letter from the EPA
asserting that GenCorp is a PRP for the BPOU. This General Notice Letter was
received more than ten years after the General Notice given to GenCorp's
subsidiary, Aerojet. The EPA alleged that in the 1940s and early 1950s GenCorp's
predecessor, The General Tire & Rubber Company, participated in a joint venture
with Aerojet Engineering Corporation, a
76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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. The EPA is factually incorrect; at all times, Aerojet
was the sole party that owned or operated the Azusa site 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, the 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. The EPA has not claimed since the effective date that
GenCorp has any current obligation under the 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 should the EPA claim action is
required.

South El Monte Operable Unit

On December 21, 2000, Aerojet received an order from the Los Angeles RWQCB
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 Los Angeles
RWQCB asserting selective enforcement. The appeal is in abeyance pending
negotiations with the Los Angeles RWQCB. In March 2001, Aerojet submitted a
limited work plan to the Los Angeles RWQCB. On February 21, 2001, Aerojet
received a General Notice Letter from the EPA Region IX naming Aerojet as a PRP
to the SEMOU of the San Gabriel Valley Superfund site. Aerojet continues to
negotiate with the Los Angeles RWQCB for a limited investigation of this former
facility. Aerojet has begun the process of obtaining access agreements should
the Los Angeles RWQCB approve Aerojet's work plan.

On April 1, 2002, Aerojet received a special notice letter from the EPA
(dated March 28, 2002) that requested Aerojet to enter into negotiations with
the EPA regarding the performance of a remedial design and remedial action for
the SEMOU. In light of this letter, Aerojet performed a limited site
investigation of the East Flair Drive Site. The data collected and summarized in
the Field Investigation Report showed that chemicals including TCE and PCE were
present in the soil and groundwater at and near the East Flair Drive Site. The
Field Investigation Report also showed that the hydraulic gradient at the East
Flair Drive Site is oriented toward the northeast. This finding indicates that
the site is not a likely source of contamination at the SEMOU, as the ground
water flow at the site is away from the SEMOU and not toward it. Given the data
indicating that the East Flair Drive Site is not a source of the contamination
at the SEMOU, Aerojet requested that EPA reconsider its issuance of the SEMOU
special notice letter.

To date, Aerojet has not received a response to the Field Investigation
Report from either the Los Angeles RWQCB or the EPA. Aerojet continues to work
cooperatively with the Los Angeles RWQCB for a limited investigation of the East
Flair Drive Site and with the EPA regarding the SEMOU.

Aerojet has been served with four civil suits filed in the U.S. District
Court for the Central District of California that seek recovery of costs
allegedly incurred in response to the contamination present at the SEMOU (see
Note 9(b), "Water Entity Cases").

Other Sites

The Company has studied remediation alternatives for its closed Lawrence,
Massachusetts facility, which was primarily contaminated with PCBs, and has
begun site remediation and off-site disposal of debris. As part of these
remediation efforts, the Company is working with local, state and federal
officials and regulatory agencies to return the property to a beneficial use.
The time frame for the remediation and redevelopment project is currently
estimated to range from two to four years.
77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company is also currently involved, together with other companies, in
approximately 22 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. Also, the Company is seeking recovery
of its costs from its insurers.

ENVIRONMENTAL RESERVES AND ESTIMATED RECOVERIES

(i) Reserves

The Company periodically prepares complete reexaminations of estimated
future remediation costs that could be incurred by the Company. These periodic
reexaminations take into consideration the investigative work and analysis of
the Company's engineers, engineering studies performed by outside consultants,
and the advice of its legal staff and outside attorneys regarding the status and
anticipated results of various administrative and legal proceedings. In most
cases only a range of reasonably possible costs can be estimated. In
establishing the Company's reserves, the most probable estimated amount is used
when determinable and the minimum is used when no single amount is more
probable.

During 2002, the Company completed a review of estimated future
environmental costs which incorporated, but was not limited to the following:
(i) status of work completed since the last estimate; (ii) expected cost savings
related to the substitution of new remediation technology and to information not
available previously; (iii) obligations for reimbursement of regulatory agency
service costs; (iv) updated BPOU cost estimates; (v) costs of complying with the
Western Groundwater Administrative Order, including replacement water and
remediation upgrades; (vi) estimated costs related to IRCTS and Aerojet's
Sacramento site; (vii) new information related to the extent and location of
previously identified contamination; and (viii) additional construction
contingencies. This re-examination of estimated future remediation costs
resulted in a net increase in the Company's environmental reserves of $107
million.

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

(ii) Estimated Recoveries

On January 12, 1999, Aerojet and the U.S. government implemented the
October 1997 Agreement in Principle (Global Settlement) resolving certain prior
environmental and facility disagreements, with retroactive effect to December 1,
1998. The Global Settlement covered all environmental contamination at the
Sacramento and Azusa sites. Under the Global Settlement, Aerojet and the U.S.
government resolved disagreements about an appropriate cost-sharing ratio. The
Global Settlement contemplates that the cost-sharing ratio will continue for a
number of years.

Pursuant to the Global Settlement covering environmental costs associated
with Aerojet's Sacramento site and its former Azusa site, the Company can
recover up to 88 percent of its environmental remediation costs for these sites
through the establishment of prices for Aerojet's products and services sold to
the U.S. government. The ability of Aerojet to continue recovering these costs
from the U.S. government depends on Aerojet's sustained business volume under
U.S. government contracts and programs and the relative size of Aerojet's
commercial business.
78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In conjunction with the sale of EIS, Aerojet entered into an agreement with
Northrop whereby Aerojet will be reimbursed by Northrop for 50 percent of
environmental expenditures eligible for recovery under the Global Settlement.
Amounts reimbursed are subject to annual limitations, with excess amounts
carrying over to subsequent periods, the total of which will not exceed $190
million over the term of the agreement, which ends in 2028. As of November 30,
2002, $178 million in potential future reimbursements was available over the
remaining life of the agreement.

In conjunction with the review of its environmental reserves discussed
above, the Company revised its estimate of costs that will be recovered under
the Global Settlement based on business expected to be conducted under contracts
with the U.S. government and its agencies in the future. The adjustments to the
environmental remediation reserves and estimated future cost recoveries did not
affect operating results in fiscal 2002 as the impact of increases to the
reserves of $107 million was offset by increased estimated future recoveries.

The effect of the final resolution of environmental matters and the
Company's obligations for environmental remediation and compliance cannot be
accurately predicted due to the uncertainty concerning both the amount and
timing of future expenditures. The Company believes, on the basis of presently
available information, that the resolution of environmental matters and the
Company's obligations for environmental remediation and compliance will not have
a material adverse effect on the Company's results of operations, liquidity or
financial condition. The Company will continue its efforts to mitigate past and
future costs through pursuit of claims for recoveries from insurance coverage
and other PRPs and continued investigation of new and more cost effective
remediation alternatives and associated technologies.

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, 2002 and 2001, the amount of commercial receivables was
$111 million and $141 million, respectively. Receivables for the GDX Automotive
segment of $84 million as of November 30, 2002 and $117 million as of November
30, 2001, are due primarily from General Motors, the Ford Motor Company and
Volkswagen. As of November 30, 2002 and 2001, the amount of U.S. government
receivables was $52 million and $48 million, respectively. As of November 30,
2002 and 2001, the U.S. government receivables includes $24 million and $18
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, 2002 and 2001, the U.S. government receivables include
unbilled amounts of $4 million and $5 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, 2002 is expected to be collected in years subsequent to fiscal
2003.

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

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

record on February 27, 1987. Rights outstanding as of November 30, 2002 and 2001
totaled 43.3 million and 43.1 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 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, 2002, 660,000 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, 2002, the Company had 150.0 million authorized shares of
common stock, par value $0.10 per share (Common Stock), of which 43.5 million
shares were issued, 43.0 million shares were outstanding and 17.6 million shares
were reserved for future issuance for discretionary payments of the Company's
portion of retirement savings plan contributions, exercise of stock options,
payment of awards under stock-based compensation plans and conversion of the
Company's Notes (See Note 6(b)).

During the years ended November 30, 2002 and 2001, 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 when the exercise price of the stock options at the date of
grant equals the market value of the underlying common stock.

The 1999 Equity and Performance Incentive Plan (1999 Plan), provides stock
options to key employees and directors. 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.

The 1999 Plan also provides for grants of restricted stock. Grants to
certain key employees of the company were made in fiscal 2002, 2001 and 2000,
with vesting generally based upon the attainment of specified performance
targets. Under this plan, key employees of the Company were granted a total of
858,000 restricted shares. Restricted shares granted in fiscal 2000 and 2001
generally vest annually over a five-year period if the Company meets EPS growth
targets as specified in the Plan. Restricted shares granted in fiscal 2002 vest
based on stock performance. Unvested restricted shares are canceled upon the
employee's termination of employment or if earnings or stock performance targets
are not achieved. During fiscal 2002 and 2001, 139,950 shares and 111,750
shares, respectively were canceled due to terminations, and the Company
estimates that no shares will vest based on fiscal 2002 EPS. In fiscal 2002,
66,550 shares were canceled because earnings targets were not achieved. 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 which may be granted to selected officers and key employees at prices
equal to the fair

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

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
fiscal 2002 was $4.91, $4.01 for stock options granted in fiscal 2001, and $3.64
for stock options granted in fiscal 2000.

The following table summarizes the range of exercise prices and
weighted-average exercise prices for options outstanding and exercisable as of
November 30, 2002 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 continues 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 would have been reduced by
$0.9 million for fiscal 2002, $1.2 million for fiscal 2001 and $1 million for
fiscal 2000. The fair value

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 3.1 percent for fiscal 2002, 3.5 percent for fiscal 2001, and
6.0 percent for fiscal 2000; dividend yield of 1.0 percent for fiscal 2002, and
fiscal 2001, and 1.4 percent for 2000; volatility factor of the expected market
price of the Company's Common Stock of 0.47 for fiscal 2002, 0.39 for fiscal
2001, and 0.40 for fiscal 2000; and a weighted-average expected life of the
option of five years for fiscal 2002, fiscal 2001, and fiscal 2000.

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:

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).

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 not related to the operations, interest expense,
income taxes and the minority interest in AFC (see Note 13).

In November 2001, the Company completed the sale of approximately 1,100
acres of property in 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 principal
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 Note 9(c)). The $23 million gain
resulting from the sale of the land is included in the activity for the
Aerospace and Defense segment.

Sales in fiscal 2002, 2001 and 2000 directly and indirectly to the U.S.
government and its agencies (principally the DoD) totaled $244 million, $574
million, and $481 million, respectively, and were generated by the Aerospace and
Defense segment. Comparable amounts excluding the EIS business were $176 million
in fiscal 2001 and $154 million in fiscal 2000. Sales to three individually
significant customers comprised $224 million, $183 million and $147 million of
GDX Automotive sales in fiscal 2002 and $259 million, $188 million and $150
million in fiscal 2001. Sales to two individually significant customers
comprised $267 million and $125 million of GDX Automotive sales in fiscal 2000.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company's operations are located primarily in the U.S., Europe and
Canada.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.
Geographic segment information is presented in the table below:

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

13. RESTRUCTURING AND UNUSUAL ITEMS

In September 2002, the Company announced a restructuring in the GDX
Automotive segment. The plan will result in the closure of a plant in Germany
and reduced staffing levels at the Farmington Hills, Michigan headquarters. A
charge for the $2 million cost of the restructuring was included in segment
operating results.

In October 2002, Aerojet charged $6 million to expense for acquired
in-process research and development resulting from the acquisition of GDSS. The
charge is included in segment operating results.

In April 2002, Aerojet reached an agreement with Northrop on purchase price
adjustments related to the sale of its EIS business whereby Aerojet reduced the
purchase price by $6 million. The purchase price reduction is recorded as an
expense in segment operating profit.

In December 2001, the Company reacquired the minority ownership interest in
its AFC subsidiary and certain agreements between AFC and NextPharma were
terminated, resulting in an expense of $2 million.

In fiscal 2001, the Company implemented restructuring plans which included
GDX Automotive, AFC and Corporate Headquarters. The GDX Automotive restructuring
program and segment consolidation 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. This restructuring program resulted in a pre-tax charge of $29
million. The restructuring program was substantially complete by the end of
fiscal 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. The restructuring plan implemented at AFC during fiscal 2001
included the elimination of 50 employee positions and resulted in a charge of $1
million. This program was designed to "right-size" AFC's workforce. The Company
also implemented a restructuring of its corporate headquarters. The
restructuring included an early retirement

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

program which was offered to certain eligible employees. The program resulted in
a $10 million pre-tax charge to operations.

In fiscal 2001, the Company recorded a gain of $206 million related to the
sale of EIS to Northrop in October 2001. The transaction is discussed above
under the discussion of results of operations for the Aerospace and Defense
segment. Also in fiscal 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 inventory write-down reflects the
inability of a commercial customer to secure additional funding, no alternative
purchasers willing to acquire inventory held by Aerojet and no market value.

In fiscal 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.

14. NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS 146
requires that the initial measurement of a liability be at fair value. SFAS 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The Company has adopted the provisions of SFAS 146 as of December 1,
2002. The adoption of SFAS 146 is not expected to have a material effect on the
Company's results of operations, liquidity or financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure (SFAS 148) that amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to Statement 123's fair value method of accounting for
stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The Statement does not amend SFAS 123 to require companies
to account for employee stock options using the fair value method. The Statement
is effective for fiscal years beginning after December 15, 2002. The Company is
currently evaluating the effects of SFAS 148, but does not expect that the
adoption of SFAS 148 would have a material effect on the Company's results of
operations.

15. SUBSEQUENT EVENTS

In January 2003, GDX Automotive entered into an agreement to sell the
assets and operations of its Viersen, Germany mixing facility to Vigar, SA, a
supplier to GDX Automotive. In addition, GDX Automotive will enter into a
ten-year supply agreement with Vigar, SA that requires certain minimum annual
purchase volumes and

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

contains monetary penalties if purchase minimums are not met. The transaction is
expected to close during the first quarter of fiscal 2003.

In December 2002, the Company entered into Swaps on $100 million of Term
Loan variable debt for a two year period as required by the Restated Credit
Facility. The Company's fixed interest rate under these Swaps including the
Eurocurrency margin is 6.02 percent for the two year period.

87

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 26, 2003 Annual Meeting of Shareholders is
set forth under the heading "Nomination and Election of Directors" in the
Company's fiscal 2003 Proxy Statement and is incorporated herein by reference.
Information with respect to directors of the Company whose terms extend beyond
the March 26, 2003 Annual Meeting of Shareholders is set forth under the heading
"Nomination and Election of Directors" in the Company's 2003 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 fiscal 2002 by persons who were, at any time during fiscal 2002, directors or
officers of the Company or beneficial owners of more than ten 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 fiscal 2002.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is set forth under the heading
"Board Compensation Committee Report on Executive Compensation" in the Company's
2003 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 under the heading "Holdings of Shares of the
Company's Capital Stock" in the Company's 2003 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 under the heading "Employment Contracts and Termination of
Employment and Change of Control Arrangement" in the Company's 2003 Proxy
Statement and is incorporated herein by reference.

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Quarterly evaluation of the Company's Disclosure Controls and Internal
Controls. Within the 90 days prior to the date of this Annual Report on Form
10-K, the Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" (Disclosure Controls), and its "internal
controls and procedures for financial reporting" (Internal Controls). This
evaluation (the Controls Evaluation) was done under the supervision and with the
participation of the Company, including the Company's Chief Executive Officer
(CEO) and Chief Financial Officer (CFO). Rules adopted by the SEC require that
in this section of the Annual Report the Company present the conclusions of the
CEO and the CFO about the effectiveness of the Company's Disclosure Controls and
Internal Controls based on and as of the date of the Controls Evaluation.

CEO and CFO Certifications. Appearing immediately following the Signatures
section of this Annual Report, there are two separate forms of "Certifications"
by the CEO and the CFO. The first form of Certification is required in accord
with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certification). This section of the Annual Report which you are currently
reading is the information concerning the Controls Evaluation referred to in the
Section 302 Certification and this information should be read in conjunction
with the Section 302 Certification for a more complete understanding of the
topics presented.

88

Disclosure Controls and Internal Controls. Disclosure Controls are
procedures that are designed with the objective of ensuring that information
required to be disclosed in the Company's reports filed under the Securities
Exchange Act of 1934 (Exchange Act), such as this Annual Report, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure Controls are also designed with the objective
of ensuring that such information is accumulated and communicated to the
Company, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure. Internal Controls are procedures which are
designed with the objective of providing reasonable assurance that (1)
transactions are properly authorized; (2) assets are safeguarded against
unauthorized or improper use; and (3) transactions are properly recorded and
reported, all to permit the preparation of financial statements in conformity
with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that the Disclosure Controls or
Internal Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The CEO/CFO evaluation of the Company's
Disclosure Controls and Internal Controls included a review of the controls'
objectives and design, the controls' implementation by the Company and the
effect of the controls on the information generated for use in this Annual
Report. In the course of the Controls Evaluation, the Company sought to identify
data errors, controls problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in Quarterly Reports on Form
10-Q and Annual Report on Form 10-K. The Company's Internal Controls are also
evaluated on an ongoing basis by its Internal Audit Department, by other
personnel in its Finance organization and by its independent auditors in
connection with their audit and review activities. The overall goals of these
various evaluation activities are to monitor Disclosure Controls and Internal
Controls and to make modifications as necessary; the Company's intent in this
regard is that the Disclosure Controls and the Internal Controls will be
maintained as dynamic systems that change (including with improvements and
corrections) as conditions warrant.

Among other matters, the Company sought in its evaluation to determine
whether there were any "significant deficiencies" or "material weaknesses" in
the company's Internal Controls, or whether the company had identified any acts
of fraud involving personnel who have a significant role in the company's
Internal Controls. This information was important both for the Controls
Evaluation generally and because items 5 and 6 in the Section 302 Certification
of the CEO and CFO require that the CEO and CFO disclose that information to the
Company's Board's Audit Committee and to the Company's independent auditors and
to report on related matters in this section of the Annual Report. In the
professional auditing literature, "significant deficiencies" are referred to as
"reportable conditions"; these are control issues that could have a significant
adverse effect on the ability to record, process, summarize and report financial
data in the financial statements. A "material weakness" is defined in the
auditing literature as a particularly serious reportable condition where the
internal control does not reduce to a relatively low level the risk that
misstatements caused by error or fraud may occur in amounts that would be
material in relation to the financial statements and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. We also sought to deal with other controls matters in

89

the Controls Evaluation, and in each case if a problem was identified, the
Company considered what revision, improvement and/or correction to make in
accord with its on-going procedures.

In accord with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Annual Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Conclusions. Based upon the Controls Evaluation, the Company's CEO and CFO
have concluded that, subject to the limitations noted above, its Disclosure
Controls are effective to ensure that material information relating to GenCorp
and its consolidated subsidiaries is made known to the Company, including the
CEO and CFO, particularly during the period when its periodic reports are being
prepared, and that its Internal Controls are effective to provide reasonable
assurance that its financial statements are fairly presented in conformity with
generally accepted accounting principles.

ITEM 15. 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

(c) EXHIBITS

The response to this portion of Item 15 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.

90

SIGNATURES

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

February 10, 2003 GENCORP INC.

By: /s/ TERRY L. HALL
------------------------------------
Terry L. Hall
President and Chief Executive
Officer/Director

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.

91

FORM OF CERTIFICATION

I, Terry L. Hall, certify that:

1. I have reviewed this annual report on Form 10-K of GenCorp Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves the management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

February 7, 2002
Date:
--------------------------------------

/s/ TERRY L. HALL
--------------------------------------
Terry L. Hall
President and Chief Executive Officer

92

FORM OF CERTIFICATION

I, Yasmin R. Seyal, certify that:

1. I have reviewed this annual report on Form 10-K of GenCorp Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves the management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: February 7, 2002

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

/s/ Yasmin R. Seyal
--------------------------------------
Yasmin R. Seyal
Senior Vice President and
Chief Financial Officer

93

CERTIFICATIONS
PURSUANT TO 18 UNITED STATES CODE SS. 1350

The undersigned hereby certifies that to his knowledge the annual report of
GenCorp Inc. (the "Company") filed with the Securities and Exchange Commission
on the date hereof fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained
in such report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

/s/ Terry L. Hall
--------------------------------------
Name: Terry L. Hall
Title: President and Chief Executive
Officer
Date: February 7, 2003

The undersigned hereby certifies that to her knowledge the annual report of
GenCorp Inc. (the "Company") filed with the Securities and Exchange Commission
on the date hereof fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained
in such report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

/s/ Yasmin R. Seyal
--------------------------------------
Name: Yasmin R. Seyal
Title: Senior Vice President and
Chief Financial Officer
Date: February 7, 2003

94

ANNUAL REPORT ON FORM 10-K
ITEM 15(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, 2002
GENCORP INC.
SACRAMENTO, CALIFORNIA 95853-7012

GENCORP INC

ITEM 15(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 AUDITORS

We consent to the incorporation by reference in GenCorp Inc.'s Registration
Statement Nos. 333-91783, 333-35621, 333-61928, 33-28056, and 2-83133 on Form
S-8, Post Effective Amendment No. 1 to Registration Statement No. 2-98730, Post
Effective Amendment No. 2 to Registration Statement No. 2-80440 on Form S-8,
Post Effective Amendment No. 4 to Registration Statement No. 2-66840 on Form
S-8, Amendment No. 1 to Form S-3 No. 333-90850 and Amendment No. 1 to Form S-3
No. 333-89796 of our report dated January 20, 2003, with respect to the
consolidated financial statements of GenCorp Inc. included in the Annual Report
(Form 10-K) for the year ended November 30, 2002.

Ernst & Young LLP

Sacramento, California
February 6, 2003

GC-2

EXHIBIT INDEX

iii

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

* Filed herewith

v