UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (Mark(Mark One)

or

Commission File Number 1-1520

GenCorp Inc.

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþx Noo

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yesþx Noo

     As of JuneSeptember 30, 2004, there were 44,822,47645,322,909 outstanding shares of our Common Stock, $0.10 par value.

GenCorp Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended MayAugust 31, 2004

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

GenCorp Inc.

GENCORP INC.

GenCorp Inc.

GenCorp Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Operations

     We have prepared the accompanying Unaudited Condensed Consolidated Financial Statements, including our accounts and the accounts of our wholly-ownedwholly owned and majority-owned subsidiaries, in accordance with the instructions to Form 10-Q and therefore do not include all of the information and notes required by accounting principles generally accepted in the United States (GAAP). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 30, 2003, as filed with the Securities and Exchange Commission (SEC). Unless otherwise indicated or required by the context, as used in this Quarterly Report on Form 10-Q, the terms “we,” “our,”“our” and “us” refer to GenCorp Inc. and all of our subsidiaries that are consolidated under GAAP.

     We believe the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, our operating results for interim periods may not be indicative of the results of operations for a full year.

     Certain amounts in the prior year financial statements and notes thereto have been reclassified to conform to the current period presentation.

We are a multinational technology-based companymanufacturer operating primarily in North America. Our continuing operations are organized into threetwo segments: Aerospace and Defense Fine Chemicals and Real Estate. The Aerospace and Defense segment includes the operations of Aerojet-General Corporation (Aerojet), 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. 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 Fine Chemicals segment consists of the operations of Aerojet Fine Chemicals LLC (AFC), sales of which are primarily from custom manufactured active pharmaceutical ingredients and advanced/registered intermediates to pharmaceutical and biotechnology companies. The Real Estate segment includes activities related to the development, sale and leasing of our real estate assets. Information on our operations by segment is provided in Note 16.15.

     During the second quarter of fiscal 2004, we classified the GDX Automotive (GDX) operating segment as a discontinued operationsoperation as a result of our announcedplans to sell the business. During the third quarter of fiscal 2004, we signed a definitive agreement to sell GDX, including substantially all of the assets of GenCorp Inc. that were used in the GDX business and substantially all of GenCorp Inc.’s worldwide subsidiaries that were engaged in the GDX business, to Cerberus Capital Management, L.P. (Cerberus) for $147 million, subject to adjustment, of which $140 million has been received as of August 31, 2004. We closed the transaction on August 31, 2004. During the third quarter of fiscal 2004, we classified the Fine Chemicals segment as a discontinued operation as a result of our plans to sell the business. See additional discussion in Note 15.14. For all periods presented, we have classified the results of GDX and Fine Chemicals as discontinued operations in the Condensed Consolidated Statements of Income. The assets and liabilities of GDX have been

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classified as Assets of Discontinued Operations and Liabilities of Discontinued Operations in the Condensed Consolidated Balance Sheets as of November 30, 2003. The assets and liabilities of the Fine Chemicals segment have been classified as Assets of Discontinued Operations and Liabilities of Discontinued Operations in the Consolidated Balance Sheets as of MayAugust 31, 2004 and November 30, 2003.

     On October 17, 2003, Aerojet completed the acquisition of substantially all of the assets of the propulsion business of Atlantic Research Corporation (ARC), a subsidiary of Sequa Corporation (Sequa), for a purchase price of $144 million, comprised of $133 million in cash and estimated direct

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Notes due 2024, issued in January 2004 (4% Notes) were not convertible into common stock as of MayAugust 31, 2004,2004; accordingly, the 4% Notes were not included in the computation of diluted earnings (loss) per share for the three and sixnine months ended MayAugust 31, 2004. The 5.75% Notes are convertible at an initial conversion rate of 54.29 shares per $1,000 outstanding. The 4% Notes are convertible at an initial conversion rate of 64.8088 shares per $1,000 outstanding. Potentially dilutive securities that were not included in the diluted EPS calculation because they would have been antidilutive also include 3,278,0053,044,673 and 3,249,0003,644,518 employee stock options for the three months ended MayAugust 31, 2004 and 2003, respectively, and 3,278,0053,044,673 and 3,209,0002,947,089 employee stock options for the sixnine months ended MayAugust 31, 2004 and 2003, respectively.

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4. Inventories, Net

     During the third quarter of 2004, Aerojet recorded an inventory write-down of $16 million on a contract to design, develop and produce a solid rocket motor for Lockheed Martin’s Atlas^® V program. This write-down relates to unanticipated transition costs from the development phase to the production phase of the contract and the value of materials rendered obsolete by a decision to proceed with qualification and production of an enhanced motor configuration. In management’s judgment, these costs will not be recoverable on the contract.

     The current contract provides for production of 44 motors over a number of years and for the order of an additional 52 motors at Lockheed Martin’s option. At August 31, 2004, the Atlas V inventory balance was $128 million. Full recovery of this investment is subject to uncertainties, including: (i) Aerojet’s ability to produce motors at its estimated average unit price, (ii) final pricing of the enhanced motor configuration, and (iii) a satisfactory renegotiation of contract terms with Lockheed Martin. Aerojet believes its Atlas V contract will be restructured during 2005 when launch services contracts between launch vehicle manufacturers and the U.S. government are modified to reflect cost pressures resulting from continued low commercial launch activity. Details of the form and terms of the anticipated changes are unknown at this time.

     Aerojet management believes that continued improvements in operational efficiency and renegotiation of contract terms will permit recovery of inventoried development and production costs. However, if management’s efforts are unsuccessful, Aerojet may be required to recognize additional material losses.

5. Property, Plant and Equipment, Net

6. Goodwill

     The changes in the carrying amount of goodwill for the sixnine months ended MayAugust 31, 2004 were as follows (dollars in millions):

8. Other Current Liabilities

9. Long-term Debt

     In January 2004, we issued $125 million aggregate principal amount of our 4% Contingent Convertible Subordinated Notes due 2024 (4% Notes) in a private placement pursuant to Section 4(2) and Rule 144A under the Securities Act of 1933. The 4% Notes will mature in January 2024. Interest on the notes accrues at a rate of 4% per annum and is payable on January 16 and July 16, beginning July 16, 2004. In addition, contingent interest will be paid during any six-month period, commencing with the six-month period, beginning January 16, 2008, if the average market price of a 4% Note for the five trading days ending on the third trading day immediately preceding the relevant six-month period equals 120% or more of the principal amount of the notes.

     Each $1,000 principal amount of the 4% Notes is convertible at each holder’s option into 64.8088 shares of our common stock (subject to adjustment as provided in the indenture governing the 4% Notes) only if: (i) during any calendar quarter if the closing price of the common stock for at least 20 trading days in the 30 trading-day period ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price on that 30th trading day; (ii) we have called the notes for redemption and redemption has not yet occurred; (iii) during the five trading day period after any five consecutive trading day period in which the average trading price of the notes for each day of such five-day period is less than 95% of the product of the common stock price on that day multiplied by the number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or (iv) certain corporate events have occurred. The conversion rate of 64.8088 shares for each $1,000 principal amount of the 4% Notes is equivalent to an initial conversion price of $15.43 per share of our common stock. None of these events have occurred subsequent to the issuance of the notes.

     We may redeem some or all of our 4% Notes for cash on or after January 19, 2010. In addition, we may redeem some or all of our notes for cash on or after January 19, 2008 if the closing price of our common stock for at least 20 trading days in the 30 trading-day period ending on the last trading day of the preceding calendar month is more than 125% of the conversion price of $15.43. Each holder may require us to repurchase for cash all or a portion of its notes on January 16, 2010, 2014, and 2019, or, subject to certain exceptions, upon a change of control. In all cases for either redemption of the notes or repurchase of the notes at the option of the holder, the price is equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, including contingent interest and liquidated damages, if any.

     The 4% Notes are general, unsecured obligations and rank equal in right of payment to all of our other existing and future subordinated indebtedness, including the 5.75% Notes, and junior in right of payment to all of our existing and future senior indebtedness, including all of our obligations under our Senior Credit Facilitiessenior credit facilities and all of our existing and future senior subordinated indebtedness, including our outstanding 9.50% Senior Subordinated Notes due 2013 (9.50% Notes). In addition, the 4% Notes are effectively subordinated to any of our secured debt and to any and all debt and liabilities, including trade debt of our subsidiaries.

     The indenture governing the 4% Notes limits our ability to, among other things, consolidate with or merge into any other person, or convey, transfer or lease our properties and assets substantially as an entirety to any other person unless certain conditions are satisfied. The indenture also contains customary events of default, including failure to pay principal or interest when due, cross-acceleration to other specified indebtedness, failure to deliver shares of common stock as required, failure to comply with covenants and certain events of bankruptcy, insolvency and reorganization, subject in some cases to notice and applicable grace periods.

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     Issuance of the 4% Notes generated net proceeds of approximately $120 million, which were first used to repay $40 million of outstanding borrowings under the Revolving Credit Facility,revolving credit facility, and, second, to prepay the next 12 months of scheduled principal amortization under the Term Loan A in the amount of $19 million. The remaining net proceeds arewere available to be used for general corporate purposes. Amounts repaid under

Foreign Credit Facilities and Other Debt

     Prior to the Revolving Credit Facilty may be reborrowed at any timesale of the GDX, we had credit facilities in Europe and Canada, as well as other bank loans and capitalized leases relating to our discontinued operations. With the sale of GDX effective August 31, 2004, the outstanding debt was paid in full or assumed by Cerberus and the borrowings may be usedforeign credit facilities were terminated. The remaining balance of other debt of $2 million as of August 31, 2004, represents a capitalized equipment lease for any purpose, subject only to the limitations contained in the agreements governing that facility.continuing operations.

Interest Rate Swaps

     Effective January 2003, we entered into interest rate swap agreements on $100 million of our variable rate term loan debt for a two-year period. Under the swap agreements, we make payments based on a fixed rate of 6.02% and receive a London InterBank Offered Rate (LIBOR) based variable rate (4.89%(5.34% as of MayAugust 31, 2004). We account for the interest rate swaps pursuant to SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,and there was no material ineffectiveness recognized in earnings. As of MayAugust 31, 2004, the fair value of these swaps resulted in a liability of less than $1 million, which has been included in other current liabilities with an offsetting amount recorded as an unrealized loss in other comprehensive income.

10. Commitments and Contingencies

     a. Legal proceedings

     From time to time, as discussed in our Annual Report to the SEC on Form 10-K, we and our subsidiaries are subject to legal proceedings, including litigation in federal and state courts, which arise out of, and are incidental to, the ordinary course of business. We are also subject to governmental investigations by state and federal agencies. While we 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 our financial position or the results of operations.

Groundwater Cases

     Along with other industrial Potentially Responsible Parties (PRPs) and area water purveyors, Aerojet was sued in three cases by approximately 500 individual plaintiffs residing in the vicinity of Aerojet’s facilities near Sacramento, California (the Sacramento cases). The Sacramento Superior Court through the initial pleading stage had reduced the number of plaintiffs in the Sacramento cases to approximately 300. On or about May 28, 2004 and July 23, 2004, the Sacramento Superior Court dismissed, without leave to amend, 204nearly 250 plaintiffs, leaving the number of plaintiffs at 88.53. The remaining individual plaintiffs in the Sacramento cases generally seek damages for illness (in some cases death) and economic injury allegedly caused by their ingestion of groundwater contaminated or served by defendants, without specifying actual damages. Discovery in the Sacramento cases has commenced and trial has been set for July 2005. Aerojet has retained outside

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counsel and is vigorously defending these actions.

     Aerojet was also sued in 14 cases by approximately 1,100 individual plaintiffs residing in the vicinity of Aerojet’s former facility in Azusa, California (the San Gabriel Valley cases). In the San Gabriel Valley cases, the number of plaintiffs has been reduced to approximately 500. The San Gabriel Valley cases, coordinated for trial in Los Angeles, California, are proceeding under two

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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); andTaylor, 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. Various motions have reduced the number of plaintiffs from 80 to 49. Discovery is proceeding in the cases. Trial is likely to be scheduled for 2005. Aerojet has notified its insurers and is vigorously defending the actions.

Water Entity Cases

     In October 1999, Aerojet was sued by American States Water Company (ASWC), a local water purveyor, for damages, including unspecified past costs, future damages and replacement water for contaminated drinking water wells near Aerojet’s Sacramento, California manufacturing facility.American States Water Company, et al. v. Aerojet-General Corporation, et al., Case No. 99AS05949, Sacramento County Superior Court. Weeks before the scheduled trial, Aerojet and ASWC initiated mediation to resolve the dispute. As a result,Subsequently, Aerojet and ASWC have entered intoexecuted a Memorandum of Understanding (MOU) to settle this matter. Although thefinal settlement agreement has not yet been finalized, the trial court has ruled that the MOU is binding and the trial date has been vacated. Any disputes arising in subsequent negotiations with respect to the settlement agreement are to be resolved by arbitration subject to the continuing jurisdiction of the trial court for enforcement or ancillary purposes.ending this litigation.

     Aerojet’s 2003 agreement with the Sacramento County Water Agency (the County) in which Aerojet agreed to transfer all of its remediated groundwater to the County is anticipated to satisfy Aerojet’s water replacement obligations in eastern Sacramento County. Subject to various provisions of the County agreement, including approval under the California Environmental Quality Act, the County will assume Aerojet’s responsibility for providing replacement water to ASWC and other impacted water purveyors up to the amount of remediated water Aerojet transfers to the County. Aerojet has also agreed to pay the County approximately $13 million over several years toward the cost of constructing a replacement water supply project. If the amount of Aerojet’s transferred water is in excess of the replacement water provided to the impacted water purveyors, the County has committed to make such water available for the development of Aerojet’s land in an amount equal to the excess.

     In October 2002, Aerojet, along with approximately 65 other individual and corporate defendants, was 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-

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the contaminants identified by the water entities in the SEMOU and those detected at Aerojet’s former facility located in El Monte, California, near the SEMOU (East Flair Drive site). Aerojet has notified its insurers of these claims. Discovery is ongoing and a trial is likely to be scheduled for early 2005. The EPA has retained the services of a professional mediator to assist the recipients of its Unilateral Administrative Order (UAO) for groundwater investigation and remediation to form a group and negotiate with the EPA and the water entities. The cost estimates to implement projects under the UAO prepared by EPA and the water entities range from $77 million to $127is approximately $90 million.

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

     In October 2000, a group of hourly retirees filed a federal lawsuit against GenCorp Inc. (GenCorp) and OMNOVA Solutions Inc. (OMNOVA) disputing certain retiree medical benefits.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 seek rescission of the then current Hourly Retiree Medical Plan established in the spring of 1994, and the reinstatement of the prior plan terms. The crux of the dispute relates to union and GenCorp negotiated modifications to 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 costs implemented in late 1993. A retiree’s failure to pay contributions results in a termination of benefits. We prevailed in similar litigation filed in 1995 involving salaried employees arising at our 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.

     The initial plaintiffs consistconsisted of four hourly retirees from the Jeannette, Pennsylvania facility of OMNOVA, the company spun-off from GenCorp on October 1, 1999, two hourly retirees from OMNOVA’s former Newcomerstown, Ohio facility, and three hourly retirees from our former tire plants in Akron, Ohio; Mayfield, Kentucky; and Waco, Texas. The plaintiffs sought class certification seeking to represent all eligible hourly retirees formerly represented by the unions URW or USWA. The unions are not party to the suit and have agreed not to support such litigation pursuant to an agreement negotiated with us. In December 2003, the trial court denied plaintiffs’ motion for class action certification. The plaintiffs filed a motion seeking reconsideration, and that motion was denied. Plaintiffs petitioned the Sixth Circuit Court of Appeals (Court of Appeals) for the right to seek an interlocutory appeal of the trial court’s denial of class certification. We filed our opposition withThe Court of Appeals denied that petition in August 2004.

     Following the Court of Appeals ruling on March 16, 2004.

     In addition, OMNOVA has filed a motion to be dismissed alleging that it is “not a party” to the agreements giving rise to the dispute. Plaintiffs have filed a brief in opposition to OMNOVA’s motion, and a decision byinterlocutory appeal, the trial court lifted the stay on the Wotus case and denied a pending motion filed on behalf of 241 individuals who sought to intervene in the Wotus case. The result of these rulings is pending.that that the Wotus case will move forward with the seven remaining individual plaintiffs. Extensive discovery has already occurred in this case. We have given notice to our insurance carriers and are receiving reimbursement for portions of our defense fees and costs. We are vigorously defending these claims. A trial in the Ohio federal court is not expected until sometime after the summer of 2005.

     OMNOVA had requested defense and indemnification from us regarding this matter. We denied this request and the party-defendants engaged in arbitration as required pursuant to the 1999

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     On or about July 8, 2004, the 238241 individuals who are seekingsought to intervene in the Wotus matter filed a separate lawsuit against GenCorp and OMNOVA, also in the U.S. District Court for the Northern District of Ohio, seeking the same claims and relief (other than class certification) as in the Wotus matter.Baumgardner, et al. v. GenCorp Inc. et al., U.S.D.C., N.D. OH (Cleveland, OH), Case No. 1:04 CV 1278. If (i)The number of plaintiffs in the Baumgardner case was subsequently increased to 294. After the Sixth Circuit Court of Appeals denied the Wotus plaintiffs are successful in obtainingplaintiffs’ petition for an interlocutory appeal, and ifdenied the Court of Appeals overturns the trial court and orders that a class be certified, or (ii) the Wotus trial court allows the 238 Baumgardner plaintiffsplaintiffs’ motion to intervene in the Wotus case, the Baumgardner plaintiffs have indicatedtrial court ruled that they would likely voluntarily dismiss the lawsuit without prejudice. We have not yet responded tojoinder of the 294 individuals in the Baumgardner claims but we intendcase was improper. As a result of that decision, the trial court dismissed the Baumgardner case and gave each of the 294 individuals until October 31, 2004 to vigorously defend against suchfile individual claims.

GenCorp Inc. v. Olin Corporation

     In August 1991, Olin Corporation (Olin) advised us that under a 1962 manufacturing agreement with Olin (the 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, we sought a declaratory judgment in federal court (the Ohio Court) that we are not responsible for such environmental remediation costs.GenCorp Inc. v. Olin Corporation, Case No. 5:93CV2269, U.S. District Court, N.D. Ohio. Olin counterclaimed seeking a judgment that we are liable for a share of remediation costs. We argued that we are not derivatively or directly liable as an arranger for disposal of waste at the “Big D Campground” landfill (Big D site), both as a matter of fact and law. As a defense to Olin’s counterclaim, we asserted 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 us for these remediation costs. Further, we claim that any failure on Olin’s part to comply with the terms of such insurance policies would result in our 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 (the Reduction Claims).

     In 1999, the Ohio Court rendered an interim decision on CERCLA liability. The Ohio Court found GenCorp 30 percent liable and Olin 70 percent liable for remediation costs at the Big D site. The Ohio Court also found GenCorp 40 percent40% liable and Olin 60 percent60% liable for remediation

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insurance carriers. While the appeals court upheld the dismissal as to the primary carriers, it held the trial court failed to make a record sufficient to dismiss the excess carriers. Thus, the court returned the case to the NY Court for further proceedings holding that the decision could not be upheld on the basis of the facts as outlined in the NY Court’s decision. On further review, the NY Court may still decide that Olin’s notice to the excess insurance carriers remains untimely or could decide it was timely. If the NY Court decides Olin’s notice was untimely, the Ohio Court could rule inGenCorp Inc. v. Olin Corporationthat Olin’s late notice constituted a breach of its obligation under the 1962 Agreement to protect the insurance; or it could conclude that Olin’s conduct does not support our Reduction Claims and thus does not reduce our liability. If the Ohio Court rules that Olin’s late notice is a breach of the 1962 Agreement, then it must determine the damages suffered by us as a result of the breach. We have 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 our entire liability.

     Nonetheless, on November 21, 2002, the Ohio Court issued a memorandum opinion and judgment entering “final” judgment in favor of Olin in the amount of approximately $19 million plus prejudgment interest in the amount of approximately $10 million. At that time, the Ohio Court did not decide our Reduction Claims against Olin. The Ohio Court held that our Reduction Claims “are held in abeyance pending the resolution of [Olin’s] appeal in the New York insurance litigation.”

     On January 22, 2003, the Ohio Court 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 recovery for Big D, remain unresolved.” Management believes that a recovery on our Reduction Claims could range from a nominal amount to an amount sufficient to reduce the judgment against us in its entirety.

     We have appealed our CERCLA contribution liability to the Sixth Circuit Court of Appeals (the Court of Appeals).GenCorp Inc. v. Olin Corporation, Docket Nos. 03-3019; 03-3211, United States Court of Appeals for the Sixth Circuit. We believe that we are not directly or indirectly liable as an arranger for Olin’s waste disposal at the Big D site and that we did not either actively control Olin’s waste disposal choices or operate the plant on a day-to-day basis. The Court of Appeals

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finding because: (a) we previously accrued the entire amount of our estimated potential liability for contamination at the Olin TDI facility and related offsite contamination, except for disposal at the Big D site; (b) we believe we will prevail on appeal on the basis that we are not derivatively or directly liable as an arranger for disposal at the Big D site, both as a matter of fact and law; and (c) irrespective of whether, upon exhausting all avenues of appeal, there is a finding of CERCLA liability, we believe that: (i) if Olin prevails in its appeal of the NY Court ruling, we will ultimately benefit from available insurance proceeds and may 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. In any event, the possible amount of additional liability arising from this case or any reduction in our liability, if any, cannot be established at this time.

Vinyl Chloride Toxic Tort Cases

     Between the early 1950s and 1985, we produced polyvinyl chloride (PVC) resin at our 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. The Occupational Safety and Health Administration (OSHA) has strictly regulated workplace exposure to VC since 1974.

     Since the mid-1990s, we have been named in 3844 toxic tort cases involving alleged exposure to VC. With the exception of one case brought by the family of a former Ashtabula employee, we are alleged to be a “supplier/manufacturer” of PVC and/or a civil co-conspirator with other VC and PVC manufacturers. Plaintiffs generally allege that we suppressed information about the carcinogenic risk of VC to industry workers, and placed VC or PVC into commerce without sufficient warnings. Of these 3844 cases, 18 have been settled or dismissed on terms favorable to us, including the case where we were the employer and the cases that allege VC exposure through various aerosol consumer products. In these “aerosol” cases, it was alleged that VC had been used as an aerosol propellant during the 1960s. Defendants in these cases include numerous consumer product manufacturers and more than 30 chemical manufacturers. We used VC internally, but never supplied VC for aerosol or any other use.

     The 2026 pending cases involve employees at VC or PVC facilities that had no connection to us. One of the pending cases is a class action seeking a medical monitoring program for former

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the majority being dismissed and many being settled for less than $0.1 million each. As of MayAugust 31, 2004, there were 3849 asbestos cases pending, including theGoedecase described below.

     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 based on plaintiffs’ settlements with other defendants, which we have accrued.Goede et al. v. A. W. Chesterton Inc. et al., Case No. 012-9428, Circuit Court, City of St. Louis, MO. The $3 million setoff was based on plaintiffs’ settlements with other defendants. Post-trial motions filed by Aerojet and the plaintiffs were denied by the trial court. Aerojet appealed the decision to the Missouri Court of Appeals, Eastern District (the Appellate Court) and asked the Appellate Court to vacate the judgment and order a new trial based on, among other things, the trial court’s actions during trial that denied Aerojet the opportunity to introduce testimony from certain witnesses and to introduce certain evidence at trial, and based on the trial court’s application of Missouri law rather than California law. The appellate court heard oral arguments on December 9, 2003. In an opinion dated May 11, 2004, the Appellate Court denied Aerojet’s appeal and affirmed the trial court’s opinion. Aerojet has filed with the Appellate Court a motion for a rehearing and a petition to transfer to the Supreme Court of Missouri. A ruling onOn September 28, 2004, the Missouri Supreme Court denied our petition to transfer the matter effectively ending Aerojet’s appellate rights in this matter.

     In July 2004, counsel for PCC Flow Technologies, Inc. (PCC), a subsidiary of Precision Castparts Corp., sent a demand letter to Aerojet seeking indemnification for approximately fifty seven pending asbestos cases, and forty two settled or closed asbestos cases. PCC claims that motionit is expected laterthe successor to the business of Johnston Pump Company, a business operated by a subsidiary of Aerojet. In 1984, Johnston Pump Company sold certain assets relating to the Johnston Pump and valve business. PCC contends that the purchase agreement provided that the seller would retain liability for product liability claims arising out of products manufactured prior to the closing date in 1984 and would indemnify and defend the buyer from such claims. PCC also contends that Aerojet guaranteed the seller’s alleged indemnity obligations contained in the purchase agreement. We are in the process of obtaining documentation from PCC to understand how it is the successor to this year.business. We are exploring a number of potential defenses to the tender of these claims including failure to comply with the 1984 purchase agreement and late notice. While we may have certain defenses available to us, we may face some exposure with respect to these tendered cases. We have signed a standstill and tolling agreement with PCC and are working with PCC to determine what liabilities we may have for these cases.

     Given the lack of any significant consistency to claims (i.e., as to product, operational site, or other relevant assertions) filed against us and our subsidiaries, we are unable to make a reasonable estimate of the future costs of pending claims or unasserted claims. Accordingly, no estimate of future liability has been accrued for such contingencies.

Other Legal Matters

     We are subject to other legal actions, governmental investigations and proceedings relating to a wide range of matters in addition to those discussed above. While there can be no certainty regarding the outcome of any litigation, investigation or proceeding, in the opinion of our management, after reviewing the information that is currently available with respect to such matters, any liability that may ultimately be incurred with respect to these matters is not expected to materially affect our consolidated financial condition. The effect of the resolution of these matters

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on our financial condition and results of operations, our liquidity and available financial resources cannot be predicted because any such effect depends on both future results of operations, liquidity position and available financial resources, and the amount and timing of the resolution of such

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first three years of the Stipulation and Order, the new guarantee is partially offset by financial assurances provided in conjunction with the Baldwin Park Operable Unit (BPOU) agreement (discussed below). Obligations under the $75 million aggregate guarantee are limited to $10 million

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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

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     The Cooperating Respondents will also fund operation and maintenance of treatment facilities (not including ordinary operating expenses of the Water Entities, certain costs for replacement water that may be incurred by such Water Entities and related administrative costs, (O&M Costs)). The Cooperating Respondents are required to maintain sufficient financial assurance to cover the estimated O&M Costs for two years. Actual payments for O&M Costs 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 providing a 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. 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 $47$56 million (so called Title 16 or 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. Approximately $28$34 million of the funding has been allocated to the project and additional funds may follow in later years.

     As part of Aerojet’s sale of its Electronics and Information Systems (EIS) business to Northrop Grumman Corporation (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 fund Aerojet’s obligations under the Project Agreement. In addition, GenCorp agreed to provide a $25 million guarantee of Aerojet’s obligations under the Project Agreement. During the first three years of the Project Agreement, the GenCorp guarantee is partially offset by other financial assurances provided in conjunction with the Project Agreement.

     Also as part of the EIS sale to Northrop, Aerojet paid the EPA $9 million which was an amount to be offset against Aerojet’s share of the EPA’s total claimed past costs (the EPA now claims total past costs attributable to various parties are approximately $28 million). A very substantial shareAerojet and the EPA have agreed to a final settlement for Aerojet’s portion of the EPA’ssuch past costs relate to the period prior to 1997 when the sole contamination being considered involved VOCs. Aerojet believes that it is responsible for less than 10 percent of these costs.and are negotiating a consent decree. Unresolved at this time is the issue of California’s past costs which were last estimated at approximately $4 million.

     Aerojet intends to continue to defend itself vigorously to assure that it is appropriately treated with other PRPs and that costs of any remediation are properly allocated among all PRPs. Aerojet has notified its insurers and is pursuing claims under its insurance policies.

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South El Monte Operable Unit (SEMOU)

     On December 21, 2000, Aerojet received an order from the Los Angeles Regional Water Quarter Control Board (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 had been held in abeyance pending negotiations with the Los Angeles RWQCB, but due to a two-year limitation on the abeyance period, the appeal was dismissed without prejudice. In 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. The RWQCB recently agreed to allow Aerojet to conduct less than the RWQCB’s demanded scope of work in order to take advantage of site access during building renovations at the site. In the event the RWQCB demands further site investigation, Aerojet may re-file its appeal.

     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 groundwater 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 the EPA reconsider its issuance of the SEMOU special notice letter.

     On August 29, 2003, the EPA issued a Unilateral Administrative Order (UAO) against Aerojet and approximately 40 other parties requiring them to conduct the remedial design and remedial action in the SEMOU. The impact of the UAO on the recipients is not clear as much of the remedy is already being implemented by the water entities. The cost estimate to implement projects under the UAO prepared by the EPA and the water entities is approximately $90 million.

     The UAO requires the implementation of the Interim Record of Decision (IROD). The EPA extended the deadline for compliance with the UAO to allow the PRPs to resolve their liabilities with respect to SEMOU. In return, the EPA required the submission of a Good Faith Offer to implement the IROD. We have been working closely with the other PRPs to resolve this matter and submitted a Good Faith Offer to the EPA that was rejected on May 20, 2004. The EPA alleges that we, along with the other UAO recipients, have failed to transmit a Good Faith Offer in compliance with our obligations under the UAO. We are working diligently with the EPA and the other PRPs to resolve this matter and insure compliance with the UAO.

     Aerojet has been served with civil suits filed in the U.S. District Court for the Central District of California by four public and private water companies. The suits seek recovery of costs allegedly incurred in response to the contamination present in the SEMOU. Plaintiffs allege that groundwater in the SEMOU is contaminated with chlorinated solvents and ammonium perchlorate that were released into the environment by Aerojet and other parties causing plaintiffs to incur unspecified

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response costs and other damages. Aerojet’s investigations to date have not identified a credible connection between the contaminants identified by the water entities in the SEMOU and those detected at Aerojet’s former facility located at 9100 &and 9200 East Flair Drive, El Monte, California, which lies in or near the SEMOU.

     Aerojet was successful in its efforts to eliminate several of the claims initially raised by the water entities. However, other claims remain. Discovery is ongoing.

     Aerojet recentlyhas filed third-party complaints against several water entities on the basis that they introduced perchlorate-containing Colorado River water to the basin. Responsive pleadings from theSuch water entities have not yet been filed.filed motions to dismiss Aerojet’s complaints. A hearing on such matters is scheduled for December 2004.

Other Sites

     We have studied remediation alternatives for our closed Lawrence, Massachusetts facility, which was primarily contaminated with PCBs,polychlorinated biphenyls, and have begun site remediation and off-site disposal of debris. As part of these remediation efforts, we are 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 three years.

     We are also currently involved, together with other companies, in approximately 2731 other Superfund and non-Superfund remediation sites. In many instances, our liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and extent of site conditions and our involvement. While government agencies frequently claim PRPs are jointly and severally liable at such sites, in our experience, interim and final allocations of liability costs are generally made based on relative contributions of waste. In our previous experience, our allocated share has frequently been minimal, and in many instances, has been less than one percent. Also, we are seeking recovery of our costs from our insurers.

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Environmental Reserves and Estimated Recoveries

Reserves

     We continually review estimated future remediation costs that we could incur, which take into consideration the investigative work and analysis of our engineers and the advice of our legal staff regarding the status and anticipated results of various administrative and legal proceedings. In most cases only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimated amount is used when determinable and the minimum is used when no single amount is more probable. The timing of payment for estimated future environmental costs is subject to variability and depends on the timing of regulatory approvals for planned remedies and the construction and completion of the remedies.

     During 2002, we completed aOur 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;

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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, Aerojet 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. Allowable environmental costs are charged to these contracts as the costs are incurred. Aerojet’s mix of contracts can affect the actual reimbursement made by the U.S. government. Because these costs are recovered through forward-pricing arrangements, the ability to continue recovering these costs depends on Aerojet’s sustained business volume under U.S. government contracts and programs and the relative size of Aerojet’s commercial business.

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by $12 million and estimated recoveries by $13 million, which resulted in a net $1 million of other income in our statement of operations. The recovery of costs under the Global Settlement is based, in part, on the relative size of Aerojet’s commercial business base, which has historically included the Fine Chemicals operating segment because it was previously a division of Aerojet. As a result of our plan to sell Fine Chemicals, Aerojet revised its estimated recovery of costs under the Global Settlement during the third quarter of 2004. As a result, Aerojet increased its estimated recoveries by $39 million and recorded $17 million of other income (expense), net in the third quarter of fiscal 2004.

11. Arrangements with Off-Balance Sheet Risk

     As of MayAugust 31, 2004, obligations required to be disclosed in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Othersconsisted of:

	—		$56 million in outstanding commercial letters of credit expiring in 2004 and 2005 securing obligations for environmental remediation, insurance coverage and litigation.
	—		Up to $120 million aggregate in guarantees by usGenCorp Inc. of Aerojet’s obligations to government agencies for environmental remediation activities, subject to partial offsets for other financial assurances provided in conjunction with these obligations.
	—		Up to $28 million in guarantees of bank loans, accounts receivable and lines of credit for our discontinued operations.
	—		Guarantees, jointly and severally, by our material domestic subsidiaries including certain

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     The components of other comprehensive income (loss) and the related income tax effects are presented in the following table (dollars in millions):

     The components of periodic cost for pension benefits and other postretirement benefits for the three and sixnine months ended MayAugust 31, 2004 and 2003 were comprised of (dollars in millions):

a $261 million has beenloss being recorded. An additional loss of $18 million was recorded as a component of Income (Loss) From Discontinued Operations in the third quarter ended Mayof fiscal 2004 to reflect the net assets of the GDX business as of August 31, 2004.2004 and management’s estimate of the proceeds from the sale of the GDX business to Cerberus.

     In accordance with Emerging Issues Task Force (EITF) 87-24,Allocation of Interest to Discontinued Operations, we allocated interest to discontinued operations based upon interest on debt that would be required to be repaid using estimated proceeds to be received from the anticipated sale of the GDX Automotive.business. This resulted in an interest allocation of approximately $1 million and $2 million, respectively, for the three and six months ended MayAugust 31, 2004 and 2003. Interest allocation for the first nine months of fiscal 2004 and fiscal 2003 was $4 million and $3 million, respectively.

     In November 2003, we announced we were closing a GDX manufacturing facility in Chartres, France. The decision resulted primarily from declining sales volumes with French automobile manufacturers. In June 2004, we completed the legal process for closing the facility and establishing a social plan. As a result, we recorded pre-tax expense of approximately $11 million during the third quarter of fiscal 2004 primarily related to employee social costs in accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. The charge is included as a component of discontinued operations. We have not yet recorded expenses associated with certain social benefits due to the uncertainty of the benefit amount. These additional social costs are expected to result in additional pre-tax expense of $3 million to $6 million and are anticipated to be incurred over the next two years. In accordance with SFAS No. 146, we will recognize the related costs once they are certain.

     During the third quarter of fiscal 2004, we classified the Fine Chemicals segment as a discontinued operation as a result of our plans to sell the business. This plan was a result of management’s decision to focus our capital and resources on our Aerospace and Defense and Real Estate operating segments. For operating segment reporting, Fine Chemicals business was previously reported as a separate operating segment.

     Summarized financial information for the GDX Automotiveand Fine Chemicals operations (discontinued operations) is set forth below (dollars in millions):

     The major components of assets and liabilities of discontinued operations in the condensed consolidated balance sheets are as follows (dollars in millions):