GENCORP INC - 10-K Annual Report

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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.

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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.

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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.

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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

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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

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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
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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.

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

(table continued on following page)
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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.

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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

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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,

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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%

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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 agre