10-K405 1 l86383be10-k405.txt GENCORP, INC. FORM 10-K405 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2000 Commission File Number l-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 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:

NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value 10c per share New York and Chicago

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 934 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 is not contained herein, and will not be contained, to the best of 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. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of January 31, 2001, was $437,121,919. As of January 31, 2001, there were 42,658,555 outstanding shares of the Company's Common Stock, 10c par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2001 Proxy Statement of GenCorp Inc. are incorporated into Part III of this Report. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 GENCORP INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000 TABLE OF CONTENTS

ITEM NUMBER PAGE ------ ---- PART I 1 Business.................................................... 1 2 Properties.................................................. 5 3 Legal Proceedings........................................... 6 4 Submission of Matters to a Vote of Security Holders......... 11 Executive Officers of the Registrant........................ 11 PART II 5 Market for Registrant's Common Equity and Related Stockholder Matters....................................... 14 6 Selected Financial Data..................................... 14 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 14 7A Quantitative and Qualitative Disclosures About Market Risk...................................................... 20 8 Consolidated Financial Statements and Supplementary Data.... 20 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 20 PART III 10 Directors and Executive Officers of the Registrant.......... 49 11 Executive Compensation...................................... 49 12 Security Ownership of Certain Beneficial Owners and Management................................................ 49 13 Certain Relationships and Related Transactions.............. 49 PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 49 Signatures.................................................. 50 Index to Financial Statements and Financial Statement Schedules................................................. GC-1 Exhibit Index............................................... i

3 PART I ITEM 1. BUSINESS GenCorp Inc. (hereinafter the Company or GenCorp) was incorporated in Ohio in 1915 as The General Tire & Rubber Company. The Company's continuing operations are grouped into two business segments: its aerospace, defense and fine chemicals businesses, and its automotive vehicle sealing business. Aerojet-General Corporation (Aerojet) plays a leading role in the development and production of space electronics and smart munitions, as well as solid and liquid rocket propulsion systems and related defense products and services. Aerojet Fine Chemicals LLC (Fine Chemicals or AFC) supplies special intermediates and active pharmaceutical ingredients (APIs) primarily to commercial customers. The vehicle sealing business (Vehicle Sealing) is a major automotive supplier, engaged in the development, manufacture and sale of highly engineered extruded and molded rubber sealing systems for vehicle bodies and windows for the automotive original equipment manufacturers. In December 2000, the Company completed the acquisition of various companies comprising the Draftex International Car Body Seals Division of The Laird Group Public Limited Company in the United Kingdom (the Draftex business or Draftex). Draftex adds approximately $415 million in annual sales to GenCorp for total Vehicle Sealing sales of about $875 million. The sales added by the Draftex acquisition are primarily outside the United States. The acquisition also adds 5,484 employees worldwide for total Vehicle Sealing employment of 10,584. The purchase price was approximately $208 million and includes Draftex's German-based worldwide headquarters and International European Technical Center, and 11 manufacturing plants in Germany, France, Czech Republic, Spain, China and the United States. In October 1999, the Company completed a spin-off of its decorative & building products and performance chemicals businesses as a separate publicly traded company named OMNOVA Solutions Inc. The spin-off was approved by GenCorp shareholders at a special meeting on September 8, 1999 and by GenCorp's Board of Directors on September 17, 1999. The Board declared a dividend of one share of OMNOVA Solutions Inc. common stock for each share of GenCorp common stock held on the September 27, 1999 record date. The dividend distribution was made on October 1, 1999. Aerojet was founded in 1942 by Dr. Theodore von Karman and initially produced Jet Assisted Take Off (JATO) rockets for military aircraft. General Tire & Rubber, GenCorp's predecessor, became Aerojet's major investor. In the 1950's and 1960's, Aerojet expanded its product line to include launch vehicle and spacecraft propulsion. Since the 1960's, Aerojet has broadened its product line significantly to include satellite payloads, ground systems and weapon systems. Aerojet also expanded its product line to include pharmaceutical fine chemicals, which are now produced by GenCorp's Fine Chemicals business. The Vehicle Sealing business traces its origins to the manufacture of automotive window channels by General Tire & Rubber in the 1940's. In 1993, Vehicle Sealing acquired a minority interest in Henniges, a German vehicle sealing manufacturer, and in 1994, increased its ownership interest to 100%. This acquisition bolstered Vehicle Sealing's product line and technological capabilities, and provided a geographic diversification into the European markets. The Draftex acquisition, completed in 2000, further compliments GenCorp's Vehicle Sealing business. As of November 30, 2000, the Company employed approximately 7,895 persons. GenCorp's principal executive offices are located at Highway 50 and Aerojet Road, Rancho Cordova, California 95670. The Company's mailing address is P.O. Box 537012, Sacramento, California 95853-7012. Its telephone number is (916) 355-4000. (Financial information relating to the Company's business segments appears on pages 43 through 45 of this report.) A number of design and development centers at GenCorp's business segments focus on specific areas of the businesses and each plant has dedicated engineering services. (Information relating to research and development expense is set forth in Note G on page 29 of this report.) The Company licenses technology and owns patents, which expire at various times, relating to its businesses. The loss or expiration of any one or more of them would not materially affect the business of the Company or any of its segments. Important trademarks of the Company are registered in its major marketing areas. 4 Although GenCorp's business is not seasonal in the traditional sense, aerospace, defense and fine chemicals revenues and earnings have tended to concentrate to some degree in the fourth quarter of each year reflecting delivery schedules associated with that segment's mix of contracts. Vehicle Sealing revenues and earnings have tended to concentrate to some degree in the second and fourth quarters of the Company's fiscal year, generally as a consequence of seasonality in the automotive industry's build schedules and in response to customers' preparation for annual model changes. Nearly 60% of the Company's employees are covered by collective bargaining agreements. Of the covered employees, approximately 7% are covered by collective bargaining agreements that are due to expire within one year. A protracted work stoppage in either the Company's facilities or those of a major automotive customer could adversely affect the Company's results of operations. Compliance with laws and regulations relating to the discharge of materials into the environment or the protection of the environment continues to affect many of the Company's operating facilities. A discussion of capital and non-capital environmental expenditures incurred in 2000 and forecasted for 2001 and 2002 for environmental compliance is included under the heading Environmental Matters on page 18 of this report. Environmental matters discussed on page 18 and in Note S beginning on page 38 of this report are incorporated herein by reference. AEROSPACE, DEFENSE AND FINE CHEMICALS Satellite Payloads and Electronics Aerojet is a leading provider of advanced satellite payloads and instruments used in remote sensing applications. In addition, Aerojet offers unique ground system capabilities that utilize sophisticated data processing and fusion algorithms to process sensor data and provide the customer with complete end-to-end solutions. Specific technical expertise includes systems integration, infrared and millimeter wave sensors, space flight qualified hardware, sensor signal processing, ground data processing, data fusion, algorithm development and background signature analysis. Aerojet's in-depth understanding of and responsiveness to customer requirements and ability to provide end-to-end support to both the space and ground segments of a complex system provides important competitive advantages in the remote sensing marketplace. Major contracts include: the Space Based Infrared System (SBIRS) High and Low programs, Defense Support Program (DSP), Integrated Space Command and Control Program (ISC2), Advanced Microwave Sounding Unit (AMSU) and Advanced Technology Microwave Sounder (ATMS), as well as various classified programs. This business has traditionally focused on customers within the government sector. It is expected, however, that the commercial marketplace will provide additional opportunity for future growth in electronics. The utility and demand for information originating from space-based sensors is beginning to reach the commercial marketplace. Aerojet is well positioned to compete in this growing segment of the market by leveraging core competencies in the fusion, processing and dissemination of real time information. Space and Strategic Rocket Propulsion Aerojet is a leading producer of both liquid and solid propulsion systems for launch vehicles and strategic systems and serves customers across a wide range of applications. Aerojet's current propulsion portfolio includes liquid engines for both expendable and reusable launch vehicles, upper-stage engines, satellite propulsion, large solid boosters and integrated propulsion subsystems. Significant programs include the Atlas V Solid Rocket Motor (SRM), Titan first and second stage liquid engines, Delta II upper stage and the Mark VI Attitude Control system (ACS). The next generation space shuttle and strategic missile programs may provide new opportunities for this business area. While the markets currently being served remain stable, growth is forecasted in the commercial launch segment of the propulsion marketplace. 2 5 Tactical Weapons Aerojet's tactical weapons business continues to focus on advanced technology and value-added subsystem solutions. This strategy leverages Aerojet's strength in technology and engineering excellence, and has direct application to the military's post-Cold War doctrine. A recent example is Aerojet's key role on the National Missile Defense program where it is providing critical control systems for multiple stages of the interceptor missile. Another example is the application of sensor and advanced software technologies derived from remote sensing programs to the development of precision strike weapons and smart munitions needed in the support of the Army's Future Combat System (FCS). In addition to the National Missile Defense program and smart weapons, which includes the Sense and Destroy Armor (SADARM) program, Aerojet is a key contractor on the Joint Standoff Weapon (JSOW), Tubular Launched Optically Tracked Wire Guided (TOW) program and the Conventional Air Launched Cruise Missile (CALCM). Additionally, significant expertise in solid rocket motors and related energetic material chemistry continues to improve Aerojet's competitive position in the advanced missile propulsion and warhead markets. Fine Chemicals Aerojet Fine Chemicals produces difficult-to-manufacture regulated chemicals for major pharmaceutical manufacturers with a special emphasis on chemicals directed to therapeutic areas such as oncology, anti-viral and anti-inflammatory (COX-2) applications. AFC leverages key technologies developed and refined by Aerojet through years of defense contracting. Management believes that AFC's success in this high growth market is derived from its distinctive competencies in handling high energy and toxic chemicals, implementing commercial standards and practices and operating under current Good Manufacturing Practices (cGMP). AFC is now involved as a supplier for anti-viral, arthritis, cancer, AIDS and epilepsy new drug applications. The markets addressed by AFC are experiencing high growth due in part to the trend in the pharmaceuticals industry toward greater outsourcing of the development and manufacture of pharmaceutical chemicals. Further, major pharmaceutical companies are increasingly relying upon suppliers, like AFC, that possess more integrated capabilities and are able to scale-up and rapidly respond to delivery requirements. Two major accomplishments occurred at AFC during the year 2000. On June 5, 2000, the Company finalized an agreement with NextPharma Technologies (NextPharma) to sell a 20 percent equity interest in Aerojet Fine Chemicals LLC for approximately $25 million in cash and to exchange an additional 20 percent equity interest for an approximate 35 percent equity interest in NextPharma. NextPharma, a privately held company, operates in the United States and Europe. It plans to become a leading, global pharmaceutical manufacturing organization through acquisitions, strategic alliances and investments, providing complete supply chain service to the pharmaceutical industry. GenCorp continues to manage, operate, and consolidate Aerojet Fine Chemicals LLC as majority owner. Through its alliance with NextPharma, AFC will have the opportunity to participate in a new growth platform. The second significant event was the completion of several key new facilities, including the construction and validation of the world's largest Simulated Moving Bed (SMB) separation facility. The SMB method is considered within the pharmaceutical industry to be a new and efficient route to produce enantiomeric compounds. Most of Aerojet's sales are made directly or indirectly to agencies of the United States government pursuant to contracts or subcontracts which are subject to termination for convenience (with compensation) by the government in accordance with Federal Acquisition Regulations. Fine Chemicals' sales are derived primarily from commercial customers in the pharmaceutical industry. Aerojet's direct and indirect sales to the United States government and its agencies (principally the Department of Defense) were approximately $481 million in 2000, $519 million in 1999, and $596 million in 1998. Competition based upon price, technology, quality and service is intense for all products and services in Aerojet's business and has increased with the decline in the national defense budget and the continuing consolidation of the industry. There are several other major companies with the technology and capacity to produce most of the products manufactured and sold by Aerojet, and in some areas, the government has its own 3 6 manufacturing capabilities. Aerojet believes it remains competitive in its markets. Raw materials required by this segment are generally in adequate supply. Backlog in Aerojet's businesses is significant. Aerojet's contract backlog was approximately $1.3 billion at November 30, 2000, compared to $1.6 billion at November 30, 1999. Funded backlog, which includes only the amount of those contracts for which money has been authorized by Congress, totaled approximately $0.7 billion at November 30, 2000, unchanged from November 30, 1999. VEHICLE SEALING Revenues from the Company's automotive Vehicle Sealing business are principally derived from the development, manufacture and sale of highly engineered extruded and molded rubber products for vehicle bodies and window sealing for the original equipment automotive market. These products are designed to prevent air, moisture and noise from penetrating vehicle windows, doors and other openings. As previously described, the Company completed in December 2000 the acquisition of the Draftex International Car Body Seals Division of The Laird Group Public Limited Company (the Draftex business or Draftex). The Draftex business is now part of the Vehicle Sealing segment. Together, the GenCorp and Draftex vehicle sealing businesses, now known as GDX Automotive, provide a substantially broadened and more diversified customer base. The Vehicle Sealing segment will become the world's second largest automotive sealing supplier and the largest North American supplier of highly engineered vehicle sealing systems. North American operations primarily produce extruded rubber profiles consisting of a roll-formed steel wire or steel frame surrounded by extruded rubber which is cured, cut and molded to meet customer specifications. This business supplies products to the North American automotive assemblers for use in a wide variety of vehicles including Ford F-Series and Ranger pickups, Ford Explorer; the General Motors C/K pickup and Grand Am, Saturn Z and LS, Honda Accord and the DaimlerChrysler All Purpose Vehicle. The European-based Henniges operations design and produce vehicle sealing systems, encapsulated glass and molded rubber parts, specializing in products which dampen and isolate vibrations, reduce noise and generally seal automotive components. This business unit supplies components to major European automotive original equipment manufacturers, including Volkswagen/Audi, Opel, BMW and DaimlerChrysler. The newly-acquired Draftex operations produce extruded rubber profiles engineered to meet customer specifications. Draftex supplies these products for use principally in the passenger car market segment. This business supplies products to North American and European automotive assemblers, including Volkswagen, BMW, Mercedes, Renault and Ford. Draftex is a key supplier on platforms that include the Ford Focus, Volkswagen Golf and Renault Scenic. Automotive products are sold directly to Original Equipment Manufacturer (OEM) customers or their suppliers. Automotive customers include the major domestic automobile manufacturers, the loss of one or more of which would have a material adverse effect on this segment. Sales to General Motors and Ford in 2000 were approximately 26 and 12 percent, respectively, of the Company's net sales. The emergence of foreign vehicle manufacturing facilities in North America has significantly changed the automotive market in recent years. Competition based upon price, quality, service, technology and reputation is intense. Raw materials required by this segment are generally in good supply. 4 7 ITEM 2. PROPERTIES Significant operating, manufacturing, research, design and/or marketing facilities of the Company are set forth below. FACILITIES CORPORATE HEADQUARTERS GenCorp Inc. Highway 50 and Aerojet Road Rancho Cordova, California 95670 Mailing address: P.O. Box 537012 Sacramento, California 95853-7012 MANUFACTURING/RESEARCH/DESIGN/MARKETING LOCATIONS AEROSPACE, DEFENSE AND FINE CHEMICALS Aerojet-General Corporation Design/Manufacturing Marketing/Sales Offices: P.O. Box 13222 Facilities: *Colorado Springs, CO Sacramento, CA 95813-6000 Azusa, CA *Huntsville, AL 916/355-1000 *Boulder, CO *Mt. Arlington, NJ *Colorado Springs, CO *Tokyo, Japan Jonesborough, TN *Tucson, AZ Sacramento, CA *Washington, DC *Socorro, NM Aerojet Fine Chemicals LLC Design/Manufacturing Marketing/Sales Offices: P.O. Box 1718 Facilities: Rancho Cordova, CA 95741 Sacramento, CA Sacramento, CA 916/355-1000 GDX AUTOMOTIVE (formerly GenCorp Vehicle Sealing) World Headquarters: Manufacturing Facilities: Sales/Marketing/Design 34975 West 12 Mile Road Ballina, Ireland and Engineering Facilities: Farmington, MI 48331 Batesville, AR Farmington Hills, MI Beijing, China Dusseldorf, Germany P.O. Box 9067 *Berger, MO Rehburg, Germany Farmington Hills, MI 48333-9067 Chartres, France Wabash, IN Corvol, France Grefrath, Germany European Headquarters: LeHavre, France Dusseldorf, Germany Marion, IN Odry, Czech Republic Palau, Spain Pribor, Czech Republic Rehburg, Germany Salisbury, NC Valls, Spain Viersen, Germany Wabash, IN Welland, Ontario, Canada --------------- * An asterisk next to a facility listed above indicates that it is a leased property. In addition, the Company and its businesses own and lease properties (primarily machinery, warehouse and office facilities) in various regions of the country for use in the ordinary course of its business. Data appearing in Note R on page 38 of this report with respect to leased properties is incorporated herein by reference. 5 8 During 2000 the Company generally made effective use of its productive capacity. The Company believes that the quality and productive capacity of its properties are sufficient to maintain the Company's competitive position. ITEM 3. LEGAL PROCEEDINGS Information concerning legal proceedings, including proceedings relating to environmental matters, which appears in Note S beginning on page 38 of this report is incorporated herein by reference. Santamaria v. Suburban Water Systems On July 29, 1997, a "toxic tort" lawsuit was filed in the Los Angeles County Superior Court, Santamaria v. Suburban Water Systems, Case No. KC 025995, naming as defendants 19 manufacturing companies (including Aerojet), and 5 water companies. The complaint was subsequently amended to add additional plaintiffs and two additional defendant public water companies. On February 24, 1998, the plaintiffs served Aerojet and the other manufacturing defendants. On March 30, 1998, the Court granted a motion for change of venue and transferred the case to Ventura County which is immediately northwest of Los Angeles. Approximately 343 plaintiffs, all of whom reside or resided in the San Gabriel Valley of Los Angeles (SGV), alleged that the defendants placed hazardous chemicals in the soil, groundwater and air in the SGV and provided contaminated well water to the plaintiffs for many years. The causes of action alleged are negligence, wrongful death, strict liability, trespass, nuisance, negligence per se, ultrahazardous activity and fraudulent concealment, and the plaintiffs seek personal injury and property damages in an unspecified amount and punitive damages. They also seek a court order to stop the allegedly tortious activity, but no preliminary injunctive relief is sought. Adler et al. v. Southern California Water Company Boswell v. Suburban Water Systems Celi v. San Gabriel Valley Water Company et al. In April 1998, Aerojet was added as a defendant in three tort actions previously filed in Los Angeles County Superior Court containing allegations substantially similar to those in Santamaria. (Adler, Case No. BC169892; Boswell, Case No. KC027318; and Celi, Case No. GC020622). The cases were originally filed in February 1998 only against individual water companies but were amended in April 1998 to add eight manufacturing company defendants. The lawsuits are on behalf of approximately 47 plaintiffs and were filed by a different group of law firms than those handling the Santamaria case. Aerojet was served on April 27, 1998 in the Adler action, on April 28, 1998 in the Boswell and Celi actions. Anderson, et al. v. Suburban Water Co., et al. Alexander, et al. v. Suburban Water Systems, et al. Brooks, et al. v. Suburban Water Systems, et al. Anderson, Alexander, and Brooks were filed on July 1, 1998, August 4, 1999, April 13, 2000, respectively, in Los Angeles County Superior Court, Case Nos. KC028524, KC031130, and KC032915, by the same plaintiffs' counsel as in Santamaria. They allege the same causes of action and are made on behalf of approximately 418 plaintiffs. Aerojet was served on November 23, 1998 in the Anderson action, on June 22, 2000 in the Alexander action, and on October 17, 2000 in the Brooks action. Demciuc, et al. v. Suburban Water Co., et al. Dominguez, et al. v. Southern California Water Co., et al. Criner, et al. v. San Gabriel Valley Water Co., et al. Demciuc, Dominguez, and Criner were filed on July 30, 1998 in Los Angeles County Superior Court, Case Nos. KC028732, GC 021657, and GC 021658, respectively, by the same plaintiffs' counsel as in Adler, Celi and Boswell. They allege the same causes of action and were filed on behalf of approximately 26 plaintiffs. Aerojet was served on September 16, 1998 in all three actions. 6 9 Adams, et al. v. Aerojet-General Corporation, et al. Adams was filed on May 18, 2000 in Los Angeles County Superior Court, Case Nos. BC 230185, by a different set of plaintiffs' lawyers on behalf of approximately 45 plaintiffs against 19 manufacturing companies including Aerojet. It includes no water purveyors defendants. It alleges personal injury claims for negligence, battery and wrongful death. Aerojet was served on July 26, 2000. Allen, et al. v. Aerojet, MDC, Southern California Water Company, et al. Adams, et al. v. Aerojet, MDC, Southern California Water Company, et al. Pennington, et al. v. Aerojet-General Corporation, et al. On December 8, 1997, March 2, 1998 and June 19, 2000, three similar but unrelated tort actions were filed in Sacramento Superior Court. Case Nos. AS06295, AS01025 and AS02622. The 105 plaintiffs in these actions seek compensation for damages for alleged personal injuries and property damages related to exposure to groundwater contamination in eastern Sacramento County, California. Aerojet was served on January 14, 1998 in Allen, on April 30, 1998 in Adams and on June 19, 2000 in Pennington. In addition to Aerojet, McDonnell- Douglas Corporation (now Boeing) and two Sacramento water purveyors are defendants in Allen and Adams. California Public Utilities Commission (PUC) Investigation Because of these (and other similar recent) "toxic tort" lawsuits which named California water purveyors as defendants, on March 12, 1998, the PUC entered an Order initiating a wide ranging investigation of drinking water quality in California. The PUC informed each of the courts that it was considering water safety issues that were also the subject matter of the lawsuits. The PUC's General Counsel has publicly stated that he believes that under the California Constitution, the PUC's jurisdiction overrides that of the courts in this area. To defend its interests, Aerojet intervened in the PUC proceedings. In June 1998, the trial courts in Adler, Boswell and Celi entered stays of the entire actions until the PUC investigation was completed. Plaintiffs then agreed to subject Demciuc, Dominguez and Criner to the same stay. Plaintiffs sought writs of mandate from the Court of Appeal in all of the cases and the Court of Appeal set the writs down for briefing and argument. The same motions were made in Santamaria in August 1998, however, the trial court refused to issue a stay and dismissed the water companies on the ground that it had no jurisdiction due to the PUC investigation. Aerojet and the other manufacturing company defendants then took a writ to the Court of Appeal, and a stay was issued pending disposition of the writ. Since that writ was filed in a different division of the Court of Appeal, it was transferred and consolidated with the other writs. The Court of Appeal issued an opinion in August 1999, in which it upheld the decision in Santamaria and directed that the PUC regulated water companies should be dismissed from all of the tort actions. The plaintiffs and all non-regulated parties sought review in the California Supreme Court which granted review in December 1999. The case has been briefed and the parties are awaiting designation of a date for argument. On August 9, 2000, counsel for the plaintiffs in Santamaria, Anderson, Alexander and Brooks filed a motion for coordination of these and other similar cases. The Judicial Council assigned hearing of the motion to the presiding judge of Los Angeles County who approved coordination and assigned the coordination proceedings to a judge in Civil Central West of the Los Angeles Superior Court. The defendants have taken a writ to the Court of Appeal on the ground that this designation was in violation of the venue rulings which had transferred the Santamaria case out of Los Angeles County. In November 2000, the PUC issued a draft decision that found that the water currently being served by the private utilities regulated by the PUC is safe. It also provides for further proceedings on the safety of the water prior to discovery of contamination and setting of standards. The toxic tort actions are likely to remain stayed or inactive until the California Supreme Court proceedings are completed. Aerojet has notified its insurers of all the above tort actions and will vigorously defend these actions if and when any of them come back for trial. 7 10 Austin, et al. v. J.B. Stringfellow, Jr. et al. On May 13, 1998, a toxic tort complaint, Austin, et al. v. J. B. Stringfellow, Jr. et al., Case No. 312339 was filed in Riverside County Superior Court. Aerojet was served on October 16, 1998. The plaintiffs are all neighbors of the Stringfellow superfund site and seek compensation for damages for alleged personal injuries and property damages related to exposure to groundwater contamination allegedly emanating from the site. Aerojet is one of hundreds of defendants served which were allegedly generators of waste to the site. Aerojet has joined a common defense group comprised of 30 de minimis generators. Aerojet has notified its insurers and will vigorously defend this action. On November 7, 2000, Herre v. J. B. Stringfellow, Jr. et al., Case No. 350548, was filed in Riverside County Superior Court. The Herre action is a single plaintiff personal injury suit involving allegations and defendants identical to those in Austin. Aerojet was served on February 9, 2001 and will vigorously defend this action. In re: Proposition 65 Notices Aerojet was served in November and December 1997 with notices from a private group alleging that it had released chemicals into the air and groundwater near its Sacramento facility above state limits in violation of California's Proposition 65 and/or without filing sufficiently detailed public notifications as required by Proposition 65. Following collection and review of all of its Proposition 65 records, air release reports and groundwater reports, Aerojet believes it is in compliance with Proposition 65 and has so advised the California Attorney General's office. On June 4, 1998, Aerojet was served with a Proposition 65 lawsuit filed by the Communities for a Better Environment (CBE) in Sacramento Superior Court. The complaint alleges past and present violations of Proposition 65. On July 6, 1998, the case was removed to U.S. District Court based on that court's jurisdiction over the CERCLA Partial Consent Decree for the Sacramento site. Plaintiffs then moved to remand the case to the Sacramento Superior Court. The remand motion was denied by U.S. District Court in November 1998. The federal court in early 1999 transferred the case to Sacramento Superior Court due to its finding of lack of jurisdiction and discovery in the case began. Aerojet and CBE reached a settlement agreement in principal in late December 1999. On December 14, 2000, after receiving approval from the California Attorney General, the settlement agreement was executed. The settlement agreement required CBE to file a voluntary dismissal of its action with prejudice. On January 9, 2001, the Court entered the dismissal. American States Water Company, et al. v. Aerojet-General Corporation, et al. On October 25, 1999, plaintiffs sued Aerojet in Sacramento Superior Court, Case No. AS05949, alleging, among other things, that historical releases of chemicals at the Aerojet Sacramento plant damaged the goundwater in its service area and caused plaintiffs to sustain various economic damages. On December 27, 1999, Aerojet demurred to the first three causes of action of the complaint. Aerojet was served on October 27, 1999 in this action. The plaintiffs have also filed a suit against the State of California in the same court. The suit claims an inverse condemnation of its water supply business allegedly due to the State's omissions to act or negligence in regulating Aerojet's activities at its Sacramento site. The plaintiffs' case against the State is on a fast track calendar while the case against Aerojet is not. The cases have been consolidated for discovery purposes only. Aerojet will defend this action vigorously. Kiefer-Sunrise Associates v. Aerojet-General Corporation, et al. In October 1999, this action was filed against Aerojet in Sacramento Superior Court, Case No. AS05937, but no defendants have been served. Plaintiffs allege that groundwater contamination from the Aerojet Sacramento facility and the former Boeing site has adversely affected their real estate development. An unspecified amount of economic damages is sought. In November, 1999, Aerojet entered into a tolling agreement with plaintiffs until April 2001. 8 11 Baier, et al. v. Aerojet-General Corporation, et al. On March 1, 2000, a complaint was filed against Aerojet and other defendants in San Bernardino County Superior Court, Case No. RCV046045. The plaintiffs are residents of the cities of Chino and Chino Hills near Aerojet's former Ordnance Division facility. This "toxic tort" action seeks damages for personal injury and property damage allegedly caused by defendants' nuisance and fraud. Aerojet was served on June 29, 2000. Aerojet has notified its insurers and plans to vigorously defend this action. On July 28, 2000, Aerojet and the other defendants removed the case to the United States District Court. On August 30, 2000 the plaintiffs filed a motion to remand the case to State Court, which was denied in October, 2000. Kerr, et al.. v. Aerojet-General Corp. On December 8, 2000, a complaint was filed against Aerojet in San Bernardino County Superior Court, Case No. RCV051804. At the time of sustaining the injuries complained of, the six plaintiffs were residents of the City of Chino Hills near Aerojet's former Ordnance Division facility. This tort action seeks damages for property diminution and wrongful death allegedly caused by defendant's negligence. Aerojet was served on December 14, 2000. Aerojet has notified its insurers and plans to vigorously defend this action. Alliant Techsystems Inc. v. Aerojet-General Corp. This action was filed on May 30, 2000 in the United States District Court for the District of Utah, Case CV-0442B. It was served upon Aerojet on July 10, 2000. The plaintiff, Alliant Techsystems Inc. (ATK) is, like Aerojet, a manufacturer of solid propellant rocket motors with composite case structures. In this patent infringement action, ATK alleged that Aerojet has infringed on a utility patent held by ATK relating to the process for lining and winding composite rocket motor cases in the performance of Aerojet's contract to manufacture the Atlas V solid rocket motor for Lockheed-Martin Corp. Based on limited discovery and negotiations between the parties, and recognizing the significant expense and uncertainty associated with patent litigation, the matter was settled on December 11, 2000. Aerojet agreed to pay a royalty of $1.0 million per year for three years to obtain a license to use the patented process on any Aerojet program. Aerojet will also pay a royalty of 1% of the net sales price for any commercial rocket motors sold and launched before the end of 2008. TNS, Inc. v. NLRB, et al. TNS, Inc., now known as Aerojet Ordnance Tennessee, Inc., (AOT) has long manufactured armor piercing projectiles and ordnance from depleted uranium (DU) under contracts with the U.S. military. AOT is a wholly-owned subsidiary of Aerojet-General Corporation. In 1981, a labor strike occurred at the facility in Jonesborough, Tennessee, during which the Oil, Chemical and Atomic Workers Union, now "PACE", claimed that the employees had the legal right to strike due to "abnormally dangerous" working conditions under Section 502 of the National Labor Relations Act. The "abnormally dangerous" conditions stemmed from the radioactive nature of DU. Accordingly, the strike became an "unfair labor practice strike", which prevented permanent replacement of the 200 strikers. Notwithstanding these claims by the Union, the strikers were replaced and unfair labor practice charges were filed. In 1992, the NLRB, in a consolidated unfair labor practice case (Case Nos. 10-CA-17709 and 18785), overruled the Administrative Law Judge and found that TNS had not violated Section 502, and thus dismissed the complaint. The union appealed the dismissal to the D.C. Circuit Court of Appeals (Case No. 93-1299), which remanded the case to the NLRB in 1995 for reconsideration of the standards to be applied in determining "abnormally dangerous" working conditions. On September 30, 1999, the NLRB issued its Second Supplemental Decision and Order, finding that TNS had committed an unfair labor practice when it refused to reinstate those strikers who made the unconditional offer to return to work in 1982. TNS has appealed the recent ruling of the NLRB to the Sixth Circuit Court of Appeals (Case No. 99-6379), which has been consolidated with the cross-appeal of the NLRB (Case No. 00-5433). The case presents significant issues of first impression under Section 502 of the National Labor Relations Act, as well as primary 9 12 jurisdiction issues where the safe handling and use of radioactive materials are comprehensively regulated by the Nuclear Regulatory Commission and the Tennessee Department of Conservation and Environment, Bureau of Environment, Division of Radiological Health. The matter has been fully briefed, with numerous amicus briefs filed in support of TNS' position, and oral argument is expected in summer, 2001. A ruling adverse to TNS would likely result in a substantial backpay award to the eligible strikers, all of whom have been offered reinstatement over the past 18 years. The actual total backpay amount, however, would be subject to various interest and off-set adjustments to be determined through compliance proceedings before the NLRB. McKinley, et al. v. GenCorp Inc., et al. Following an "investigative" report published in the Houston Chronicle on November 29, 1998 a "toxic tort" lawsuit was filed against 40 chemical companies and trade association co-defendants in Common Pleas Court for Ashtabula County, Ohio, Case No. 98CV00797. The complaint was filed by the heirs of a former production employee at GenCorp's former polyvinyl chloride (PVC) resin facility in Ashtabula, Ohio and GenCorp was served on December 21, 1998. GenCorp, as the former employer, is alleged to have intentionally exposed the decedent to vinyl chloride (VC), a building block compound for PVC that is listed as a carcinogen by certain government agencies. The alleged exposure is claimed to have resulted in fatal liver damage. Plaintiffs also allege that all of the co-defendants engaged in a conspiracy to suppress information regarding the carcinogenic risk of VC to industry workers, despite the fact that OSHA has strictly regulated workplace exposure to VC since 1974. This lawsuit is an outgrowth of three similar but unrelated "toxic tort" civil conspiracy cases brought in 14th Judicial District Court, Calcasieu Parish, Louisiana by the heirs of deceased former employees of two chemical plants in Lake Charles, Louisiana: (Ross, et ux. v. Conoco, Inc., et al. (Case No. 90-4837); Landon, et ux. v. Conoco, Inc., et al. (Case No. 97-7949); Tousaint, et ux. v. Insurance Co. of North America, et al. (Case No. 92-6172). GenCorp was named as a "conspiring" co-defendant in all three cases, along with most of the same co-defendants in the McKinley case. All cases pending in Louisiana have been settled on a basis favorable to the Company. On March 22, 1999, GenCorp was served with a similar conspiracy suit alleging VC exposure from various aerosol products, including hairspray. Bland, et al. v. Air Products & Chemicals, Inc., et al., Jefferson County (Beaumont), Texas, (Case No. D-160,599). VC was used as an aerosol propellant in the 1960's. Again, the same co-defendants are named, with the addition of various consumer products and personal care manufacturers. On or about August 25, 1999, GenCorp was served with a suit alleging conspiracy, manufacturers' liability, and related claims by a railyard worker for CSX Transportation in Cincinnati, Ohio. Wiefering, et al. v. Allied Chemical Corp., et al., Cuyahoga County Common Pleas Court, (Cleveland) Ohio, (Case No. 389385). Plaintiff alleges that he contracted "vinyl chloride disease" as a result of exposure to VC and PVC products shipped by GenCorp and other manufacturers through the CSX Cincinnati railyards. On July 20, 2000, GenCorp was served with another "vinyl chloride (VC) conspiracy suit" by an employee of a Delaware PVC manufacturer, Zerby v. Allied Signal, Inc., et al., New Castle County Superior Court (Wilmington, DE), (Case No. OOC-07-68 FSS). A similar action, Staples et al. v. Dow Chemical Co., et al., Brazoria County District Court (Case No. 9673-BH99) was filed December 5, 2000 and tendered to GenCorp on December 21, 2000. All of the VC conspiracy cases, Ross, Landon, Tousaint, Bland, Zerby, Wiefering and Staples, involve allegations that the co-defendants engaged in a conspiracy to suppress information regarding the carcinogenic risk of VC to industry workers. GenCorp is not alleged to be an employer, VC manufacturer or VC supplier in any of these cases. However, in the Wiefering and Zerby cases, GenCorp is erroneously alleged to be the successor to the Great American Chemical Corp., and has moved to dismiss those false allegations. GenCorp has notified its insurers of all of these claims and is vigorously defending its actions. 10 13 Wotus, et al. v. GenCorp Inc. and OMNOVA Solutions Inc., et al. On October 12, 2000, a group of hourly retirees filed a class action seeking recision or modification of the current Hourly Retiree Medical Plan established in spring, 1994, or reinstatement of pre-1994 benefit plan terms. Wotus, et al. v. GenCorp Inc., et al., U.S.D.C., N.D. Ohio, Case No. CV-2604. GenCorp was served on October 16, 2000. The crux of the dispute relates to the payment of benefit contributions by retirees as a result of the cost caps implemented in the fall, 1993. The caps were instituted to alleviate the impact of Financial Accounting Standard Board Statement No. 106 (FAS 106). Benefit contributions had been delayed until January 1, 2000 pursuant to a moratorium negotiated with the United Rubber Workers of America (URW) and its successor, the United Steelworkers of America (USWA), as well as from savings generated by Plan sponsored networks. A failure to pay contributions results in a termination of benefits. The class representatives consist of three hourly retirees from the Jeannette, Pennsylvania facility of OMNOVA Solutions Inc. (OMNOVA), the company spun-off from GenCorp on October 1, 1999, and one hourly retiree from GenCorp's former Akron tire plant. The putative class encompasses all eligible hourly retirees formerly represented by the URW or USWA. The Unions, however, are not party to the suit, and have agreed not to support such litigation pursuant to Memoranda of Agreement negotiated with GenCorp. The retirees also challenge the creation of the OMNOVA Plan, which has terms identical to the prior GenCorp Plan, without retiree approval. GenCorp prevailed in a similar class action filed in 1995, arising at its Wabash, Indiana location. Divine, et al. v. GenCorp Inc., U.S.D.C., N.D. Ind., Case No. 96-CV-0394-AS. Accordingly, res judicata and collateral estoppel issues exist, and certainly the hourly retirees from the Wabash location are excluded from the putative class. The GenCorp and OMNOVA insurance carriers have been advised of this litigation. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to the matters discussed above and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matter. The United States government frequently conducts investigations into allegedly illegal or unethical activity in the performance of defense contracts. Investigations of this nature are common to the aerospace and defense industries in which Aerojet participates and lawsuits may result; possible consequences may include civil and criminal fines and penalties, in some cases, double or treble damages, and suspension or debarment from future government contracting. Aerojet currently is not aware that it is the subject of any United States government investigations If such an investigation were to occur, legal or administrative proceedings could result. The Company and its subsidiaries are presently engaged in other litigation, and additional litigation has been threatened. However, based upon information presently available, none of such other litigation is believed to constitute a "material pending legal proceeding" within the meaning of Item 103 of Regulation S-K (17 CFR Reg. 229.103) and the Instructions thereto. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended November 30, 2000. EXECUTIVE OFFICERS OF THE REGISTRANT The following information is given as of February 12, 2001, and except as otherwise indicated, each individual has held the same office during the preceding five-year period. Robert A. Wolfe, age 62: Chairman, Chief Executive Officer and President of the Company (since October 1999); formerly Vice President of the Company and President of Aerojet (from September 1997 to October 1999); previously Executive Vice President of the Pratt & Whitney Group, a division of United 11 14 Technologies (during 1997), President, Pratt & Whitney Aircraft's Large Commercial Engines business (from 1994 to 1997), and Senior Vice President, Pratt & Whitney's Commercial Engine Management for Latin and North America (from 1992 to 1994). Robert C. Anderson, age 51: Vice President and Deputy General Counsel; Assistant Secretary (since October 1999); formerly Vice President, Law of Aerojet (from September 1996 to October 1999); previously, Counsel, General Electric Aircraft Engines (from June 1986 to September 1996), and Senior Counsel (from 1985 to 1986) and Counsel (from 1978 to 1985) for TRW Inc. Chris W. Conley, age 42: Vice President, Environmental, Health & Safety (since October 1999); formerly Director Environmental, Health & Safety (from March 1996 to October 1999); previously Environmental Consultant (from 1994 to 1996) and Manager, Environmental for GenCorp Automotive (from 1990 to 1994). Carl B. Fischer, age 59: Vice President of the Company and President of Aerojet (since October 1999); formerly Senior Vice President, Electronic and Weapon Systems Sector of Aerojet (from October 1997 to October 1999); previously Vice President of Space Surveillance Programs for Aerojet (from July 1993 to October 1997), Vice President and General Manager of Aerojet Tactical Programs (from 1982 to 1993) and Director of Engineering for Aerojet (from 1980 to 1982). Joseph M. Gray, age 51: Vice President of the Company and President, Vehicle Sealing (since February 2000); formerly Chief Operating Officer of Peregrine Incorporated (from April to December 1998) and President, Exterior Systems Group (from January 1997 to April 1998); previously Executive Vice President of Bosch Braking Systems Corporation and President of its ABS and Wheel End Products business (from April 1996 to January 1997) and President of Allied Signal Inc.'s AntiLock Braking Systems business (from February 1995 to April 1996). Joseph Carleone, age 54: Vice President of the Company and President of Aerojet Fine Chemicals LLC (since September 2000), formerly Vice President and General Manager, Remote Sensing Systems and Vice President, Operations at Aerojet (from 1999 to 2000); previously Vice President, Operations (from 1997 to 2000); Vice President, Tactical Product Sector (from 1994 to 1997); and Vice President, Armament Systems; Director, Warhead Systems and Chief Scientist, Warheads (from 1982 to 1994). Terry L. Hall, age 46: Senior Vice President and Chief Financial Officer of the Company (since October 1999); formerly on special assignment as Chief Financial Officer of Aerojet (from May 1999 to October 1999); previously Senior Vice President and Chief Financial Officer of US Airways Group, Inc. (during 1998), Chief Financial Officer of Apogee Enterprise (from 1995 to 1997), Chief Financial Officer of Tyco International Ltd. (from 1994 to 1995), Vice President and Treasurer of UAL Corp. (from 1990 to 1993) and President/General Manager of Northwest Aircraft Inc. (from 1986 to 1990). Samuel W. Harmon, age 50: Senior Vice President, Administration (since October 1999); formerly Senior Vice President, Human Resources (from February 1996 to October 1999) and Vice President, Human Resources (from October 1995 until February 1996); previously Vice President, Human Resources, AlliedSignal, Inc., for its European operations (from 1995 to February 1996) and for its Automotive Sector (from 1993 to 1995). Michael F. Martin, age 54: Vice President and Controller (since October 1999); formerly Vice President and Controller of Aerojet (from September 1993 to October 1999); previously Controller of Aerojet's ElectroSystems Division (from 1991 to 1993). Thomas E. Peoples, age 52: Senior Vice President, International and Washington Operations (since October 1999); formerly Vice President, International and Washington Operations for Aerojet (from August 1996 to October 1999); previously Vice President, Strategic Business Development for Aerojet (from July 1994 to August 1996), Vice President of Business Development for Aerojet's Electronics Division (from February 1994 to July 1994), Director of Business Development for Aerojet's Tactical Systems and Advanced Programs (from May 1992 to July 1994) and Manager of Business Development for Raytheon's Smart Munitions Programs (from March 1987 to April 1992). William R. Phillips, age 58: Senior Vice President, Law; General Counsel (since September 1996) and Secretary (since October 1999); formerly Vice President, Law of Aerojet (from 1990 to 1996); previously 12 15 General Counsel, Group Counsel and Manager Legal Operations, General Electric Aircraft Engines (from 1986 to 1989). Charles G. Salter, age 51: Vice President of Compensation and Benefits of the Company (since April 2000); formerly Corporate Vice President, Benefits for AutoNation (from 1998 to 2000); previously Director, Employee Benefits of AlliedSignal Aerospace (from 1995 to 1998), Corporate Director, Human Resource Policies & Practices and Director, Employee Benefits, as well as other management positions within GenCorp (from 1978 to 1995). Yasmin R. Seyal, age 43: Treasurer of the Company (since July 2000); formerly Assistant Treasurer and Director of Tax of the Company (from March 2000 to July 2000); previously Director of Treasury and Taxes of the Company (from October 1999 to April 2000), Director of Taxes as well as other management positions within Aerojet (from 1989 to April 1999), Manager with PricewaterhouseCoopers (from 1982 to 1989). Rosemary Younts, age 45: Senior Vice President, Communications (since February 1996); formerly Vice President, Communications (from January 1995 to February 1996); previously Director of Communications (from 1993 to 1995) and held various communications positions with Aerojet (from 1984 to 1993). The Company's executive officers generally hold terms of office of one year and/or until their successors are elected. 13 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York and Chicago Stock Exchanges. At December 31, 2000, there were approximately 12,300 holders of record of the Company's common stock. During the first three quarters of 1999, and for all of 1998, the Company paid quarterly cash dividends on common stock of $.15 per share. During the fourth quarter of 1999, and for all of 2000, following the spin-off of OMNOVA Solutions Inc., the Company paid a quarterly cash dividend on common stock of $.03 per share. Information regarding the high and low quarterly sales prices of common stock for the past two years is contained in the Quarterly Financial Data (Unaudited) which begins on page 46 of this report and is incorporated herein by reference. Information concerning long-term debt, including material restrictions and provisions relating to distributions and cash dividends on the Company's common stock (if any), appears in Note N which begins on page 35 of this report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Financial data required under this section appears on page 48 of this report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This annual report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present (without limitation) the expectations, beliefs, plans and objectives of management and future financial performance and/or assumptions underlying or judgments concerning matters discussed in this document. These discussions and any other discussions contained in this annual report, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. In particular, this pertains to management's comments on financial resources, capital spending and the outlook for each of the Company's business segments. In addition to certain contingency matters and their respective cautionary statements discussed in this annual report, the forward-looking statements section of this Management's Discussion and Analysis indicates some important factors that could cause actual results or outcomes to differ materially from those addressed in forward-looking statements. On September 8, 1999, Shareholders voted to approve the spin-off of the Company's Performance Chemicals and Decorative & Building Products businesses (OMNOVA Solutions Inc.) to GenCorp shareholders as a separate, publicly traded company. The spin-off became effective October 1, 1999, and results of discontinued operations are shown separately in the Company's financial statements. The discussion following focuses on the continuing operations of the Company including the aerospace, defense and fine chemicals segment, and the vehicle sealing segment. 2000 FINANCIAL HIGHLIGHTS -- CONTINUING OPERATIONS - SALES -- Totaled $1.05 billion in 2000 versus $1.07 billion in 1999. - INCOME FROM CONTINUING OPERATIONS -- Increased 20 percent to $55 million in 2000 as compared to $46 million in 1999. Excluding unusual items, income from continuing operations increased to $57 million in 2000 from $39 million in 1999. - DILUTED EARNINGS PER SHARE -- Increased 20 percent to $1.31 in 2000 as compared to $1.09 in 1999. Before unusual items, diluted earnings per share were $1.37 in 2000 versus $0.92 in 1999. FINANCIAL RESOURCES AND CAPITAL SPENDING -- CONTINUING OPERATIONS Net cash provided by operating activities of continuing operations for fiscal 2000 was $23 million compared to $100 million in 1999 and $76 million in 1998. Reduced cash flow in fiscal 2000 primarily reflects the absence 14 17 of certain environmental insurance settlements received in fiscal year 1999, offset by other expected working capital changes and timing of income tax payments. In fiscal 2000, capital expenditures were $82 million as compared to $97 million in 1999 and $68 million in 1998. Capital expenditures in fiscal 2000 and 1999 included significant investments in Aerojet's Space Based Infrared System (SBIRS) Satellite Payload Facility and the Aerojet Fine Chemicals business. These capital expenditures directly support GenCorp's contract and customer requirements and were primarily made for capacity expansion, cost reduction initiatives, safety and productivity improvements and environmental protection. Capital expenditures in 2001 are expected to be less than 2000 due to the completion of these major investments. Fiscal 2001 capital expenditures are currently projected to be approximately $74 million. Cash flow provided by financing activities of $28 million in fiscal 2000 included a net increase in long-term debt of $37 million primarily used to fund capital expenditures, offset by payments of short-term debt and dividends. Cash flow used in financing activities in fiscal 1999 primarily included a net $210 million decrease in long-term debt and $20 million in dividends offset by a spin-off dividend payment received from OMNOVA Solutions Inc. of $200 million. Financing activities in 1998 included three acquisitions that were primarily responsible for a net increase in long-term debt of $272 million. Management believes that funds generated from operations and existing borrowing capacity are adequate to finance planned capital expenditures, Company-sponsored research and development programs and dividend payments to shareholders. UNUSUAL ITEMS During 2000, the Company incurred unusual items resulting in a pre-tax loss of $4 million. Unusual items included a gain of $5 million from the sale of an equity interest in Aerojet Fine Chemicals to NextPharma Technologies; a $3 million gain from an environmental settlement related to a discontinued operation, offset by an $8 million charge related to a foreign currency hedge transaction associated with the acquisition of Draftex International Car Body Seals; a $3 million charge related to the pension settlement of a discontinued Canadian operation; and a $1 million loss on the disposition of property related to a discontinued operation. During 1999, the Company incurred unusual items resulting in income before taxes of $12 million. Unusual items included a gain of $59 million on settlements covering certain environmental claims with certain of the Company's insurance carriers (see Note S -- Contingencies); a provision of $33 million for environmental remediation costs associated principally with the Company's initial estimate of its probable share, as a Potentially Responsible Party (PRP) in the portion of the San Gabriel Valley Basin Superfund Site known as the Baldwin Park Operable Unit (BPOU) (see Note S -- Contingencies); a provision for environmental remediation costs at the Company's Lawrence, Massachusetts site of $6 million (see Note S -- Contingencies); a provision for environmental remediation costs associated with other Company sites of $2 million (see Note S -- Contingencies); a charge of $4 million related to a pricing dispute with a major vehicle sealing customer; a charge of $1 million for the write-down of certain vehicle sealing assets to net realizable value; and a charge of $1 million related to relocation/retention costs associated with the spin-off. During 1998, the Company incurred unusual items resulting in income of $9 million. Unusual items included charges of $4 million primarily related to exiting the Plastic Extrusions appliance gasket business, offset by a gain of $13 million from the sale of surplus land in Nevada by Aerojet. AEROSPACE, DEFENSE AND FINE CHEMICALS Sales for the aerospace, defense and fine chemicals segment in 2000 were $562 million versus 1999 sales of $615 million, down 9 percent. The majority of the decline is the result of the completion and sale of the final Special Sensor Microwave Imager/Sounder (SSMIS) unit in 1999. Lower revenues on a mix of propulsion programs, the Integrated Advanced Microwave Sounding Unit (AMSU) program, and in Aerojet Fine Chemicals also contributed to the decline in sales, partially offset by higher volume on the Space Based Infrared System (SBIRS), Sense and Destroy Armor (SADARM), and the Japanese Hope X programs. 15 18 Aerospace, defense and fine chemicals 2000 segment operating profit of $90 million compares to $62 million in 1999. Return on sales (segment operating profit divided by segment sales) was 16 percent in 2000 and ten percent in 1999, with profit margins favorably impacted by Delta and Titan contract performance, award fees on the Atlas V and SADARM programs, 100 percent award fees recognized on the AMSU program and the Defense Support Program Consolidation, and increased pension income, offset by losses at Aerojet Fine Chemicals. On June 5, 2000, the Company finalized an agreement with NextPharma Technologies (NextPharma) to sell a 20 percent equity interest in Aerojet Fine Chemicals for approximately $25 million in cash and exchange an additional 20 percent equity interest for an approximate 35 percent equity interest in NextPharma. NextPharma, a privately held company, operates in the United States and Europe, focusing on contract process development and manufacturing in the pharmaceutical industry. GenCorp continues to manage, operate, and consolidate Aerojet Fine Chemicals as majority owner. In connection with the transaction, the Company recorded a gain on the sale of a minority interest in its subsidiary of approximately $5 million. In addition, the Company initially recorded minority interest of approximately $26 million, included in other long-term liabilities, and an investment in NextPharma of approximately $6 million. At Aerojet Fine Chemicals, new management was put into place at the end of the third quarter. Emphasis for the Aerojet Fine Chemicals business is on increasing manufacturing efficiencies to resolve contract delivery scheduling and production output issues. During the third quarter, Aerojet Fine Chemicals completed its Simulated Moving Bed facility for pharmaceutical applications that should solidify an alliance with a key customer to manufacture a breakthrough new medical treatment. Backlog and Outlook Aerojet's contract backlog was $1.3 billion at the end of fiscal 2000, compared to $1.6 billion at the end of fiscal 1999 and $1.7 billion at the end of fiscal 1998. Funded backlog, which includes only the amount of those contracts for which money has been directly authorized by Congress, totaled $0.7 billion at the end of fiscal 2000, compared to $0.7 billion at the end of fiscal 1999 and $0.6 billion at the end of fiscal 1998. The contract base for the aerospace, defense and fine chemicals segment is fairly stable with a healthy contract backlog. Significant long-term contract awards have been won over the last four years, which enhance major product areas in 2001 and beyond. 1999 Results Sales for the aerospace, defense and fine chemicals segment in 1999 were $615 million versus 1998 sales of $673 million, down 9 percent. The sales decrease primarily occurred because production deliveries under the Air Force's Defense Support Program (DSP) were completed in 1998. Deliveries of the Special Sensor Microwave Imager/Sounder (SSMIS) program were also completed in the first half of 1999. Volume was lower in some other programs (Integrated AMSU, F-22, and Minuteman) and higher in others (SADARM, tactical programs and the fine chemicals business). Aerospace, defense and fine chemicals 1999 segment operating profit of $62 million compares to $68 million in 1998, directly reflecting lower sales. The return on sales was unchanged (10.1 percent in both 1999 and 1998). Even though the return on sales was unchanged, the mix of business was a factor. Improved government contract performance was offset by disappointing performance in the fine chemicals business. VEHICLE SEALING Vehicle sealing segment sales in 2000 of $485 million were up six percent from $456 million in 1999. The sales increase was primarily due to higher production volumes on General Motors' C/K full size pickup and Ford's F-Series full size pickup platforms. Initial shipments to Ford began during the third quarter of fiscal 2000 on the Excursion, a platform previously supplied by a North American competitor. Vehicle sealing's 2000 segment operating profit improved to $34 million compared to $18 million in 1999 with operating profit margins improving to seven percent from four percent in 1999. Operating profit margins 16 19 steadily improved throughout the year as model run rates were achieved and launch support efforts subsided on launches initiated in 1999. Fiscal 2000 operating results were also favorably impacted by increased pension income partially offset by launch support and coordination costs for the Ford Explorer Sport Trac, Ford Escape and the newly redesigned Ford Explorer. Outlook The vehicle sealing segment is currently well positioned in the marketplace with a strong mix of popular passenger car, sport utility vehicle and light truck platforms. With the acquisition of the Draftex business (see Subsequent Event, below), Vehicle Sealing strengthens its sales position to number two world-wide, number one in North America and number three in Europe. The acquisition also immediately broadens and diversifies its customer/platform base and creates the opportunity for future rationalization of production capacity in both Europe and North America to achieve better utilization and operational profitability. The acquisition addresses the need for consolidation in this industry, supports the Company's need for cash flow to fuel growth, and solidifies the vehicle sealing segment's competitive global posture now and in the future. 1999 Results Vehicle sealing segment sales in 1999 of $456 million were up 22 percent from $375 million in 1998 for two major reasons. The first is because there was no impact of General Motors' strike and work stoppage at the Company's Batesville, Arkansas facility as in 1998. Secondly, the light truck and sport utility vehicle market remained extremely strong. Higher shipments were recorded in 1999 on General Motors' full size pickups and S10/Blazer models; Ford's F-Series full size pickup and the Ford Explorer program; and the Mercedes All Purpose Vehicle program. Car platform sales also improved on General Motors' Grand AM and Saturn programs. Vehicle sealing's 1999 segment operating profit was $18 million compared to $3 million in 1998. Results in 1998 were lower because of the General Motors strike, work stoppage at the Company's Batesville, Arkansas facility and higher than anticipated launch costs and operating losses from the divested Plastic Extrusions division. DISCONTINUED OPERATIONS In 1999, the Company disposed of its Polymer Products segment through the spin-off of OMNOVA Solutions Inc., and the sale of its Penn Racquet Sports Division. Earnings from discontinued operations totaled $26 million for 1999 compared to $46 million in 1998. Results in 1999 included pre-tax costs related to the spin-off of approximately $25 million. SUBSEQUENT EVENT On December 29, 2000 the Company acquired The Laird Group's Draftex International Car Body Seals Division (Draftex) at an estimated purchase price of approximately $208 million. The final purchase price will reflect certain working capital adjustments. Draftex is now part of the Company's Vehicle Sealing business segment, now known as GDX Automotive, and adds 11 manufacturing plants in six countries including Spain, France, Germany, Czech Republic, China, and the United States. The acquisition will be accounted for under the purchase method of accounting. The purchase price allocation will be made in the first quarter of 2001. On December 28, 2000, the Company entered into a new, five year, $500 million senior credit facility (New Facility). The New Facility was used to finance the acquisition of the Draftex business and replaced the previous Credit Facility. The New Facility consists of a $150 million revolving loan, a $200 million term loan and a $150 million term loan. The term loans include quarterly installment payment provisions. The Company pays a commitment fee for unused available funds. Interest rates are variable, primarily based on LIBOR. The New Facility contains certain restrictive covenants that require the Company to meet specified financial ratios and restricts dividend payments, capital expenditures, incurrance of additional debt and other transactions. 17 20 In December 2000, the Company entered into foreign currency forward contracts to hedge exchange rate risk while negotiating the Draftex acquisition. The foreign currency forward contracts resulted in a gain of approximately $10 million to be recognized in the first quarter of 2001. ENVIRONMENTAL MATTERS GenCorp's policy is to conduct its businesses with due regard for the preservation and protection of the environment. The Company devotes a significant amount of resources and management attention to environmental matters and actively manages its ongoing processes to comply with extensive environmental laws and regulations. The Company is involved in the remediation of environmental conditions that resulted from generally accepted manufacturing and disposal practices in the 1950's and 1960's that were followed at certain GenCorp plants. In addition, the Company has been designated a Potentially Responsible Party (PRP) with other companies at sites undergoing investigation and remediation. In 2000, capital expenditures for projects related to the environment were approximately $1 million, compared to $5 million in 1999 and $6 million in 1998. The Company currently forecasts that capital expenditures for environmental projects will approximate $1 million in both 2001 and 2002. During 2000, noncapital expenditures for environmental compliance and protection totaled $30 million, of which $11 million was for recurring costs associated with managing hazardous substances and pollution abatement in ongoing operations and $19 million was for investigation and remediation efforts at other sites. Similar noncapital expenditures were $40 million and $44 million in 1999 and 1998, respectively. The nature of environmental investigation and cleanup activities often makes it difficult to determine the timing and amount of any estimated future costs that may be required for remedial measures. However, the Company reviews these matters and accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount of the liability (usually based upon proportionate sharing) can be reasonably estimated. The Company's Consolidated Balance Sheet as of November 30, 2000 reflects accruals of $353 million and amounts recoverable of $213 million from the United States Government and other third parties for such costs. The effect of resolution of environmental matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. However, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The Company will continue its efforts to mitigate past and future costs through pursuit of claims for insurance coverage and continued investigation of new and more cost effective remediation alternatives and associated technologies. For additional discussion of environmental matters, refer to Note S -- Contingencies. ADOPTION OF THE EURO Based upon a preliminary evaluation, management believes that the adoption of the Euro by the European Economic Community will not have a material impact on the Company's international businesses. The Company's foreign operations as of November 30, 2000 are small and each operation conducts the majority of its business in a single currency with minimal price variations between countries. The Company is evaluating the impact of the adoption of the Euro on its newly acquired subsidiaries (see Subsequent Event, on previous page). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on long-term debt obligations. The Company's policy is to manage interest rates through the use of a combination of fixed and variable rate debt. The Company is currently evaluating the use of derivative financial instruments to manage its interest rate risk. Substantially all of the Company's outstanding long-term debt of $190 million as of November 30, 2000, which was paid off in December 2000, is variable and had an average variable interest rate of 8.2 percent as of November 30, 2000. A one point change of the interest rate on the Company's long-term debt would have affected interest expense in 2000 by $2 million. The Company's long-term debt bears interest at market rates and therefore, the carrying value approximates fair value. 18 21 Although the Company conducts business in foreign countries, international operations were not material to the Company's consolidated financial position, results of operations or cash flows as of or for the year ended November 30, 2000. Additionally, foreign currency transaction gains and losses were not material to the Company's results of operations for the year ended November 30, 2000. Except as noted below, the Company has not entered into any significant foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. The Company is evaluating the future use of such financial instruments to manage potentially significant exposure to foreign currency exchange rate risk with respect to future costs or cash flows from its foreign subsidiaries. In the fourth quarter of fiscal 2000, the Company entered into a forward exchange contract to purchase a specified number of Euros at a specified exchange rate, in order to hedge against market fluctuations during negotiations to acquire Draftex International. In connection with the forward exchange contract that expired on November 30, 2000, the Company expensed approximately $8 million as an unusual item. CHANGE IN ACCOUNTING PRINCIPLE In the first quarter of fiscal year 2000, the Company implemented a change in accounting principle to more appropriately reflect investment returns and actuarial assumptions related to pension assets and postretirement health care and life insurance liabilities. The changes to pension assets include: adjusting to a three year smoothing period from a five year smoothing period; changing the amortization period to a maximum of five years from 11 years; and eliminating the use of a 10 percent corridor for gain/loss recognition. The changes to postretirement health care and life insurance liabilities include changing the amortization period to a maximum of five years from 11 years and eliminating the use of a 10 percent corridor for gain/loss recognition. The changes were effective December 1, 1999 and resulted in a one-time after tax gain of approximately $74 million in the first quarter of fiscal year 2000. The changes have no effect on the funded status of the pension or other postretirement benefit plans, and the employee and retiree benefit plans remain unchanged. FORWARD-LOOKING STATEMENTS This annual report contains information that is forward-looking, including material contingencies as described in the Notes to Consolidated Financial Statements contained elsewhere herein. The outcomes of forward-looking statements and material contingencies could differ materially from those discussed due to inherent economic risks and changes in prevailing governmental policies and regulatory actions. Some important factors that could cause the Company's actual results or outcomes to differ from those expressed in its forward-looking statements include, but are not limited to, the following: - General economic trends affecting the Company's markets - Governmental and regulatory policies including environmental regulations - The Company's acquisition and joint venture activities - Vehicle sales and production rates of major automotive programs in the United States and abroad - Department of Defense, NASA and other funding for critical aerospace programs, including SBIRS, SADARM and Titan - The market for the Company's real estate in Northern California - Fluctuations in exchange rates of foreign currencies and other risks associated with foreign operations - The ability of the Company to satisfy contract performance criteria, including due dates - An adverse decision in any patent infringement suit, or settlement of a patent infringement suit impacting Aerojet Fine Chemicals' right to utilize new technology - Intense competition from competitors 19 22 - Potential liabilities which could arise from any release or explosion of dangerous materials - Work stoppages at a Company facility or in the facility of one of the Company's significant customers - Future funding for commercial launch vehicles including the Kistler program - Cost escalation and availability of power in California Additional risk factors may be described from time to time in the Company's filings with the Securities and Exchange Commission. All such risk factors are difficult to predict, contain material uncertainties that may affect actual results, and may be beyond the Company's control. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information called for by this item is set forth beginning on page 18 of this report. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information called for by this item is set forth beginning on the next page (page 21) of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants or disagreements with the Company's independent accountants regarding accounting and financial disclosure matters during the Company's two most recent fiscal years or during any period subsequent to the date of the Company's most recent consolidated financial statements. 20 23 REPORT OF ERNST & YOUNG LLP, INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of GenCorp Inc.: We have audited the accompanying consolidated balance sheets of GenCorp Inc. as of November 30, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended November 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GenCorp Inc. at November 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Sacramento, California January 15, 2001 21 24 GENCORP INC. CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED NOVEMBER 30 -------------------------- 2000 1999 1998 ------ ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA) NET SALES................................................... $1,047 $1,071 $1,048 COSTS AND EXPENSES Cost of products sold....................................... 855 924 905 Selling, general and administrative......................... 40 40 42 Depreciation and amortization............................... 50 44 43 Interest expense............................................ 18 6 6 Other (income) expense, net................................. (12) (7) 1 Unusual items, net.......................................... 4 (12) (9) ------ ------ ------ 955 995 988 ------ ------ ------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 92 76 60 Income tax provision........................................ 37 30 22 ------ ------ ------ INCOME FROM CONTINUING OPERATIONS........................... 55 46 38 INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES........... -- 26 46 CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES.................................................. 74 -- -- ------ ------ ------ NET INCOME................................................ $ 129 $ 72 $ 84 ====== ====== ====== EARNINGS PER SHARE OF COMMON STOCK Basic: Continuing operations..................................... $ 1.31 $ 1.11 $ 0.91 Discontinued operations................................... -- 0.63 1.11 Cumulative effect of a change in accounting principle..... 1.76 -- -- ------ ------ ------ Total................................................ $ 3.07 $ 1.74 $ 2.02 ====== ====== ====== Diluted: Continuing operations..................................... $ 1.31 $ 1.09 $ 0.90 Discontinued operations................................... -- 0.63 1.09 Cumulative effect of a change in accounting principle..... 1.76 -- -- ------ ------ ------ Total................................................ $ 3.07 $ 1.72 $ 1.99 ====== ====== ======

See notes to consolidated financial statements. 22 25 GENCORP INC. CONSOLIDATED BALANCE SHEETS

NOVEMBER 30 ---------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA) CURRENT ASSETS Cash and cash equivalents................................... $ 17 $ 23 Accounts receivable......................................... 135 139 Inventories................................................. 182 144 Prepaid expenses and other.................................. 12 57 ------ ------ Total Current Assets.............................. 346 363 Other assets, net........................................... 613 532 Property, plant and equipment, at cost Land...................................................... 30 30 Buildings and improvements................................ 261 243 Machinery and equipment................................... 599 555 Construction-in-progress.................................. 49 50 ------ ------ 939 878 Accumulated depreciation.................................. (574) (543) ------ ------ Net property, plant and equipment...................... 365 335 ------ ------ Total Assets...................................... $1,324 $1,230 ====== ====== CURRENT LIABILITIES Notes payable and current portion of long-term debt......... $ -- $ 9 Accounts payable............................................ 47 44 Income taxes payable........................................ 8 44 Accrued expenses............................................ 273 274 ------ ------ Total Current Liabilities......................... 328 371 Long-term debt.............................................. 190 149 Postretirement benefits other than pensions................. 230 251 Other long-term liabilities................................. 381 379 SHAREHOLDERS' EQUITY Preference stock -- $1.00 par value; 15 million shares authorized; none outstanding.............................. -- -- Common stock -- $.10 par value; 150 million shares authorized; 42.0 million shares outstanding (41.9 million in 1999).................................................. 4 4 Other capital............................................... 2 -- Retained earnings........................................... 217 93 Accumulated other comprehensive loss........................ (28) (17) ------ ------ Total Shareholders' Equity........................ 195 80 ------ ------ Total Liabilities and Shareholders' Equity........ $1,324 $1,230 ====== ======

See notes to consolidated financial statements. 23 26 GENCORP INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ACCUMULATED COMMON STOCK OTHER TOTAL ------------------- OTHER RETAINED COMPREHENSIVE SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY ---------- ------ ------- -------- ------------- -------------- (DOLLARS IN MILLIONS) NOVEMBER 30, 1997................. 41,325,459 $4 $ 146 $ 139 $ (8) $ 281 Net income........................ 84 84 Currency translation adjustments and other....................... (1) (1) Cash dividends -- $.60 per share........................... (25) (25) Shares issued under stock option and stock incentive plans, net............................. 210,065 -- 5 5 ---------- -- ----- ----- ---- ----- NOVEMBER 30, 1998................. 41,535,524 4 151 198 (9) 344 Net income........................ 72 72 Currency translation adjustments and other....................... (9) (9) Cash dividends -- $.48 per share........................... (20) (20) Shares issued under stock option and stock incentive plans, net............................. 326,777 -- 4 4 Dividend transfer from OMNOVA Solutions, Inc.................. 200 200 Net asset transfer to OMNOVA Solutions, Inc.................. (355) (157) 1 (511) ---------- -- ----- ----- ---- ----- NOVEMBER 30, 1999................. 41,862,301 4 -- 93 (17) 80 Net income........................ 129 129 Currency translation adjustments and other....................... (11) (11) Cash dividends -- $.12 per share........................... (5) (5) Shares issued under stock option and stock incentive plans, net............................. 104,679 -- 2 2 ---------- -- ----- ----- ---- ----- NOVEMBER 30, 2000................. 41,966,980 $4 $ 2 $ 217 $(28) $ 195 ========== == ===== ===== ==== =====

See notes to consolidated financial statements. 24 27 GENCORP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30 ------------------------- 2000 1999 1998 ----- ------ ------ (DOLLARS IN MILLIONS) OPERATING ACTIVITIES Income from continuing operations........................... $ 55 $ 46 $ 38 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Provision for unusual items............................ -- -- 2 (Gain) loss on sale of businesses...................... (5) -- 3 Depreciation, amortization and loss/gain on disposal of fixed assets.......................................... 50 44 32 Deferred income taxes.................................. 14 (12) 12 Changes in operating assets and liabilities net of effects of acquisitions and dispositions of businesses: Accounts receivable.................................. 4 25 (1) Inventories.......................................... (38) (43) 13 Other current assets................................. 4 7 4 Other non-current assets............................. 17 (88) (5) Current liabilities.................................. (34) 41 30 Other long-term liabilities.......................... (44) 80 (52) ---- ----- ----- Net Cash Provided by Continuing Operations.................. 23 100 76 Net Cash Provided by Discontinued Operations................ -- 54 54 ---- ----- ----- Net Cash Provided by Operating Activities......... 23 154 130 ---- ----- ----- INVESTING ACTIVITIES Capital expenditures........................................ (82) (97) (68) Proceeds from business and asset dispositions............... 25 1 19 Discontinued operations..................................... -- (30) (314) ---- ----- ----- Net Cash Used in Investing Activities............. (57) (126) (363) ---- ----- ----- FINANCING ACTIVITIES Long-term debt incurred..................................... 37 149 415 Long-term debt paid......................................... -- (359) (143) Short-term debt paid, net................................... (5) (2) (11) Dividends................................................... (5) (20) (25) Other equity transactions................................... 1 3 4 Cash dividend from OMNOVA Solutions Inc..................... -- 200 -- ---- ----- ----- Net Cash Provided by (Used in) Financing Activities...................................... 28 (29) 240 ---- ----- ----- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (6) (1) 7 Cash and cash equivalents at beginning of year.............. 23 24 17 ---- ----- ----- Cash and Cash Equivalents at End of Year.......... $ 17 $ 23 $ 24 ==== ===== =====

See notes to consolidated financial statements. 25 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- The Company is a multinational manufacturing company operating primarily in the United States. Information on the Company's operations by segment and geographic area is provided in Note -- T Business Segment Information. CONSOLIDATION -- The consolidated financial statements of the Company include the accounts of the parent company and its wholly-owned and majority-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. REVENUE RECOGNITION -- Generally, sales are recorded when products are shipped or customer acceptance has occurred and all other significant customer obligations have been met. Sales and income under most government fixed-price and fixed-price-incentive production type contracts are recorded as deliveries are made. For contracts where relatively few deliverable units are produced over a period of more than two years, revenue and income are recognized at the completion of measurable tasks, rather than upon delivery of the individual units. Sales under cost reimbursement contracts are recorded as costs are incurred, and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Certain government contracts contain cost or performance incentive provisions which provide for increased or decreased fees or profits based upon actual performance against established targets or other criteria. Penalties and cost incentives are considered in estimated sales and profit rates. Performance incentives are recorded when measurable or when awards are made. Provisions for estimated losses on contracts are recorded when such losses become evident. USE OF ESTIMATES -- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. ENVIRONMENTAL COSTS -- The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and pollution in ongoing operations. The Company accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred, and its proportionate share of the amount can be reasonably estimated. The Company recognizes amounts recoverable from insurance carriers, the United States Government or other third parties, when the collection of such amounts is probable. Pursuant to United States Government agreements or regulations, the Company can recover a substantial portion of its environmental costs for its aerospace and defense business through the establishment of prices of the Company's products and services sold to the United States Government. With the exception of applicable amounts representing current assets and liabilities, recoverable amounts and accrued costs are included in other long-term assets and liabilities. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's cash equivalents and short and long-term bank debt bear interest at market rates. Therefore, their carrying values approximate their fair values. INVENTORIES -- Inventories are stated at the lower of cost or market. The vehicle sealing segment uses the last-in, first-out method. The aerospace, defense and fine chemicals segment uses the average cost method. Work-in-process on fixed-price contracts includes direct costs and overhead, less the estimated average cost of deliveries. Appropriate general and administrative costs are allocated to government contracts. LONG-LIVED ASSETS -- Property, plant and equipment are recorded at cost. Refurbishment costs are capitalized in the property accounts, whereas ordinary maintenance and repair costs are expensed as incurred. Depreciation is computed principally by accelerated methods for Aerojet, and by the straight-line method for the remainder of the Company. Depreciable lives on buildings and improvements, and machinery and equipment, range from 10 years to 40 years, and 3 years to 12 years, respectively. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired and is amortized on a straight-line basis over periods ranging from 15 to 20 years. Identifiable intangible assets, such as patents, trademarks and licenses, are recorded at cost or when acquired as part of a business combination at estimated fair value. Identifiable intangible assets are amortized over their estimated useful life using the straight-line method over periods ranging from 3 to 15 years. Accumulated amortization of goodwill and identifiable intangible assets was $4 million as of both November 30, 2000 and 1999. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. INCOME TAXES -- Deferred income taxes are provided for temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes. STATEMENTS OF CASH FLOWS -- For purposes of the statements of cash flows, all highly liquid debt instruments purchased with an original maturity of three months or less, are considered to be cash equivalents. RECLASSIFICATIONS -- Certain reclassifications have been made to conform prior year's financial information to the current year's presentation. NOTE B -- DISCONTINUED OPERATIONS On December 17, 1998, the Company announced a plan to spin off its Performance Chemicals and Decorative & Building Products businesses (OMNOVA Solutions Inc.) to GenCorp shareholders as a separate, publicly traded company. During the third fiscal quarter of 1999, the Internal Revenue Service issued a favorable ruling that GenCorp's planned spin-off would be a tax-free transaction. Shareholders voted to approve the transaction at a special shareholder meeting on September 8, 1999. GenCorp's Board of Directors gave final approval of the plan on September 17, 1999 and declared a dividend of one share of OMNOVA Solutions Inc. common stock for each share of GenCorp common stock held on the September 27, 1999 record date for the dividend. The dividend distribution was made on October 1, 1999. GenCorp continues to operate Aerojet, its existing aerospace, defense and fine chemicals segment, and its vehicle sealing segment. On April 30, 1999, the Company sold its Penn Racquet Sports division (Penn) to HTM Sports-und Freizeitgerate AG, an Austrian company and HTM USA Holdings Inc., for aggregate consideration of approximately $42 million. The Company recognized a pre-tax gain of $16 million on this transaction. GenCorp has effectively disposed of its Polymer Products segment as a result of the spin-off and sale of Penn, and the Company's financial statements now reflect OMNOVA Solutions Inc. and Penn as discontinued operations. Discontinued operations also include certain other operations of the Company's Polymer Products segment which were previously sold and expenses related to the spin-off totaling approximately $25 million. Interest expense allocated to the business segments by GenCorp management, based on the use of the borrowings, amounted to $14 million and $8 million in 1999 and 1998, respectively. The table below presents results for these discontinued operations during fiscal 1999 and 1998:

YEARS ENDED NOVEMBER 30 ---------------------- 1999 1998 -------- -------- (DOLLARS IN MILLIONS) Net Sales................................................... $666 $689 ---- ---- Income before income taxes.................................. $ 50 $ 76 Income tax provision........................................ (24) (30) ---- ---- Income from discontinued operations, net of taxes........... $ 26 $ 46 ---- ----

27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE C -- UNUSUAL ITEMS During 2000, the Company incurred unusual items resulting in a loss before taxes of $4 million. Unusual items included a gain of $5 million from the sale of an equity interest in Aerojet Fine Chemicals to NextPharma Technologies; a $3 million gain from an environmental settlement related to a discontinued operation, offset by an $8 million charge related to a foreign currency hedge transaction associated with the acquisition of Draftex International Car Body Seals; a $3 million charge related to the pension settlement of a discontinued Canadian operation; and a $1 million loss on the disposition of property related to a discontinued operation. During 1999, the Company incurred unusual items resulting in income before taxes of $12 million. Unusual items included a gain of $59 million on settlements covering certain environmental claims with certain of the Company's insurance carriers (see Note S -- Contingencies); a provision of $33 million for environmental remediation costs associated principally with the Company's initial estimate of its probable share, as a Potentially Responsible Party (PRP), in the portion of the San Gabriel Valley Basin Superfund Site known as the Baldwin Park Operable Unit (BPOU) (see Note S -- Contingencies); a provision for environmental remediation costs at the Company's Lawrence, Massachusetts site of $6 million (see Note S -- Contingencies); a provision for environmental remediation costs associated with other Company sites of $2 million (see Note S -- Contingencies); a charge of $4 million related to a pricing dispute with a major vehicle sealing customer; a charge of $1 million for the write-down of certain vehicle sealing assets to net realizable value; and a charge of $1 million related to relocation/retention costs associated with the spin-off. During 1998, the Company incurred unusual items resulting in income of $9 million. Unusual items included charges of $4 million primarily related to exiting the Plastic Extrusions appliance gasket business offset by a gain of $13 million from the sale of surplus land in Nevada by Aerojet. NOTE D -- NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which is required to be adopted in years beginning after June 15, 2000. Because of the Company's historically minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. However, the Company is evaluating future transactions that may be subject to the provisions of the new Statement. NOTE E -- ACQUISITIONS, DIVESTITURES AND OTHER MATTERS On June 5, 2000, the Company finalized an agreement with NextPharma Technologies (NextPharma) to sell a 20 percent equity interest in Aerojet Fine Chemicals for approximately $25 million in cash and exchange an additional 20 percent equity interest for an approximate 35 percent equity interest in NextPharma. NextPharma, a privately held company, operates in the United States and Europe, focusing on contract process development and manufacturing in the pharmaceutical industry. GenCorp continues to manage, operate, and consolidate Aerojet Fine Chemicals as majority owner. In connection with the transaction, the Company recorded a gain on the sale of a minority interest in a subsidiary of approximately $5 million. In addition, the Company initially recorded minority interest of approximately $26 million, included in other long-term liabilities, and an investment in NextPharma of approximately $6 million. On December 29, 2000 the Company acquired The Laird Group's Draftex International Car Body Seals Division (Draftex) at an estimated purchase price of approximately $208 million. The final purchase price will reflect certain working capital adjustments. Draftex is now part of the Company's Vehicle Sealing business segment and adds 11 manufacturing plants in six countries including Spain, France, Germany, Czech Republic, China, and the United States. The acquisition will be accounted for under the purchase method of accounting. The purchase price allocation will be made in the first quarter of 2001. In connection with the acquisition, the Company entered into a new, $500 million credit facility (see Note N). 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE F -- EARNINGS PER SHARE A reconciliation of the numerator and denominator used in the basic and diluted earnings per share from continuing operations computations is as follows:

YEARS ENDED NOVEMBER 30 -------------------------- 2000 1999 1998 ------ ------ ------ (DOLLARS IN MILLIONS) NUMERATOR FOR BASIC AND DILUTED EARNINGS PER SHARE Income from continuing operations available to common shareholders.............................................. $ 55 $ 46 $ 38 ====== ====== ======

(SHARES IN THOUSANDS) DENOMINATOR Denominator for basic earnings per share -- weighted average shares outstanding........................................ 41,933 41,741 41,468 Effect of dilutive securities: Employee stock options.................................... 103 394 549 Other..................................................... 16 13 16 ------ ------ ------ Dilutive potential common shares............................ 119 407 565 ------ ------ ------ Denominator for diluted earnings per share -- adjusted weighted average shares and assumed conversions........... 42,052 42,148 42,033 ====== ====== ====== EARNINGS FROM CONTINUING OPERATIONS PER SHARE OF COMMON STOCK Basic earnings per share.................................... $ 1.31 $ 1.11 $ 0.91 Diluted earnings per share.................................. $ 1.31 $ 1.09 $ 0.90

NOTE G -- RESEARCH AND DEVELOPMENT EXPENSE Company-sponsored Research and Development (R&D) expense was $26 million in 2000 and 1999, and $20 million in 1998. Company-sponsored R&D expense includes the costs of technical activities that are useful in developing new products, services, processes or techniques, as well as those expenses for technical activities that may significantly improve existing products or processes. Customer-sponsored R&D expenditures, which are funded under government contracts, totaled $162 million in 2000, $230 million in 1999 and $207 million in 1998. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE H -- INCOME TAXES

YEARS ENDED NOVEMBER 30 ------------------------- 2000 1999 1998 ----- ----- ----- (DOLLARS IN MILLIONS) INCOME TAX PROVISION FROM CONTINUING OPERATIONS CURRENT U.S. federal................................................ $(28) $ 30 $ 6 State and local............................................. (8) 10 -- Foreign..................................................... 8 2 4 ---- ---- ---- (28) 42 10 DEFERRED U.S. federal................................................ 51 (12) 11 State and local............................................. 13 (4) 3 Foreign..................................................... 1 4 (2) ---- ---- ---- 65 (12) 12 ---- ---- ---- Income Tax Provision.............................. $ 37 $ 30 $ 22 ==== ==== ==== EFFECTIVE INCOME TAX RATE Statutory federal income tax rate........................... 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax benefit................................................... 4.1 3.4 3.7 Tax settlements, including interest......................... -- -- (3.0) Earnings of subsidiaries taxed at other than U.S. statutory rate...................................................... 0.7 0.2 -- Others, net................................................. 0.2 0.7 1.5 ---- ---- ---- Effective Income Tax Rate......................... 40.0% 39.3% 37.2% ==== ==== ====

The Company reduced its 1998 income tax expense by $2 million, due to the receipt of federal income tax settlements for tax credits and related interest.

NOVEMBER 30 ---------------------------------------------- 2000 1999 --------------------- --------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- (DOLLARS IN MILLIONS) DEFERRED INCOME TAXES Accrued estimated costs................................ $ 91 $ -- $116 $ -- Long-term contract method.............................. 6 -- 8 -- Depreciation........................................... -- 12 -- 9 Pensions............................................... -- 109 -- 36 NOLs and tax credit carryforwards...................... 3 -- 5 -- Other postretirement/employee benefits................. 108 -- 117 -- ---- ---- ---- ---- Total Deferred Income Taxes.................. $208 $121 $246 $ 45 ==== ==== ==== ====

The consolidated balance sheets reflect net deferred income taxes of $11 million and $52 million in prepaid expenses and other as of November 30, 2000 and 1999, respectively. Included in other long-term assets as of November 30, 2000 and 1999 are net deferred income taxes of $76 million and $149 million, respectively. The majority of net operating loss (NOLs) and tax credit carryforwards have an indefinite carryforward period with the remaining portion expiring in years through 2007. Pre-tax income from continuing operations of foreign subsidiaries was $24 million in fiscal 2000, $17 million in 1999 and $8 million in 1998. Cash paid during the year for income taxes of continuing and discontinued operations was $10 million in 2000, $58 million in 1999 and $33 million in 1998. Deferred taxes as of November 30, 2000 have been reduced by $49 million as a result of the cumulative effect of a change in accounting principle related to employee benefit plans as discussed in Note K. 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE I -- ACCOUNTS RECEIVABLE As of November 30, the amount of commercial receivables was $82 million and $79 million for 2000 and 1999, respectively. Receivables for the vehicle sealing segment of $63 million in both 2000 and 1999, are due primarily from General Motors and Ford. The amount of United States Government receivables was $53 million and $60 million for 2000 and 1999, respectively. Included in the 2000 and 1999 United States Government receivables is $10 million and $12 million, respectively, for environmental remediation recovery (see Note S -- Contingencies). The Company's receivables are generally unsecured and are not backed by collateral from its customers. Also included in accounts receivable from the United States Government are unbilled receivables of $3 million and $10 million as of November 30, 2000 and 1999, respectively, relating to long-term government contracts. Such amounts are billed either upon delivery of completed units or settlements of contracts. The unbilled receivables amount as of November 30, 2000 includes $2 million expected to be collected in fiscal year 2001, and $1 million expected to be collected in subsequent years. NOTE J -- INVENTORIES

NOVEMBER 30 --------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS) Raw materials and supplies.................................. $ 28 $ 23 Work-in-process............................................. 12 4 Finished products........................................... 9 10 ----- ----- Approximate replacement cost of inventories................. 49 37 Reserves, primarily LIFO.................................... (7) (6) Long-term contracts at average cost......................... 310 293 Progress payments........................................... (170) (180) ----- ----- Inventories....................................... $ 182 $ 144 ===== =====

Aerojet's inventories applicable to government contracts include general and administrative costs. The total of such costs incurred in 2000 and 1999 was $48 million and $54 million, respectively, and the amount in inventory at the end of both of those years is estimated to be $24 million. The Company currently has $38 million of inventory that has multiple applications due to its commercial nature. A customer is currently seeking additional capital to incorporate this commercial inventory into their product. The Company believes that either the customer will be successful in obtaining such capital or that the commercial nature of the inventory will allow it to be sold to alternative customers. Inventories using the LIFO method represented 56 percent and 54 percent of inventories at replacement cost at November 30, 2000 and 1999, respectively. NOTE K -- EMPLOYEE BENEFIT PLANS Effective August 31, 1999, the Company changed its measurement date for all United States pension and postretirement health care and life insurance plans from November 30 to August 31. The effect of the measurement date change was not material. PENSION PLANS -- The Company has a number of defined benefit pension plans that cover substantially all salaried and hourly employees. Normal retirement age is generally 62 or 65, but certain plan provisions allow for earlier retirement. The Company's funding policy is consistent with the funding requirements of federal law. The pension plans provide for pension benefits, the amounts of which are calculated under formulas principally based on average earnings and length of service for salaried employees and under negotiated non-wage based formulas 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED for hourly employees. The majority of the pension plans' assets are invested in short-term investments, listed stocks and bonds. HEALTH CARE PLANS -- In addition to providing pension benefits, the Company currently provides certain health care and life insurance benefits to most retired employees in the United States with varied coverage by employee groups. The health care plans generally provide for cost sharing in the form of employee contributions, deductibles and coinsurance between the Company and its retirees. Retirees in certain other countries are provided similar benefits by plans sponsored by their governments. These postretirement benefits are unfunded and are generally based on the employee's years of service and/or compensation level. The costs of postretirement benefits are accrued by the date the employees become eligible for the benefits.

PENSION HEALTH CARE ----------------- --------------- 2000 1999 2000 1999 ------ ------ ----- ----- (DOLLARS IN MILLIONS) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year............... $1,825 $1,944 $ 238 $ 309 Service cost........................................ 16 19 1 2 Interest cost....................................... 132 139 16 19 Amendments.......................................... 3 3 -- 1 Effect of spin-off of OMNOVA Solutions Inc. ........ -- (141) -- (51) Curtailments........................................ -- -- -- (1) Actuarial loss...................................... (6) (2) (12) (16) Benefits paid....................................... (144) (137) (27) (25) ------ ------ ----- ----- Benefit Obligation at End of Year(1)........ $1,826 $1,825 $ 216 $ 238 ====== ====== ===== ===== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year........ $2,244 $2,417 $ -- $ -- Actual return on assets............................. 255 224 -- -- Effect of spin-off of OMNOVA Solutions Inc. ........ -- (265) -- -- Employer contributions.............................. 3 5 27 25 Benefits paid....................................... (144) (137) (27) (25) ------ ------ ----- ----- Fair Value of Plan Assets at End of Year.... $2,358 $2,244 $ -- $ -- ====== ====== ===== ===== Funded status......................................... $ 532 $ 419 $(216) $(238) Unrecognized actuarial (gain)/loss.................. (241) (311) (17) (8) Unrecognized prior service cost..................... 22 20 (35) (41) Unrecognized transition amount...................... (9) (12) -- -- Minimum funding liability........................... (4) (3) -- -- ------ ------ ----- ----- Net Amount Recognized....................... $ 300 $ 113 $(268) $(287) ------ ------ ----- ----- Transfer of asset from pension to health care plan............................................. (19) -- -- -- Benefit payments August 31 through November 30...... -- -- 10 8 ------ ------ ----- ----- Net Amount Recognized at End of Year(2)..... $ 281 $ 113 $(258) $(279) ====== ====== ===== =====

32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

PENSION HEALTH CARE ----------------- --------------- 2000 1999 2000 1999 ------ ------ ----- ----- (DOLLARS IN MILLIONS) AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET Prepaid benefit cost................................ $ 281 $ 113 $ -- $ -- Other current liabilities........................... -- -- (28) (28) Long term liabilities............................... -- -- (230) (251) Intangible assets................................... 2 2 -- -- Other shareholders' equity.......................... 2 1 -- -- Minimum funding liability........................... (4) (3) -- -- ------ ------ ----- ----- Net Amount Recognized at End of Year(2)..... $ 281 $ 113 $(258) $(279) ====== ====== ===== =====

--------------- (1) Pension amounts included $16 million in both 2000 and 1999 for unfunded plans. (2) Pension amounts included $15 million in both 2000 and 1999 for unfunded plans.

PENSION HEALTH CARE ------------------------- ----------------------- 2000 1999 1998(1) 2000 1999 1998(1) ----- ----- ------- ---- ---- ------- (DOLLARS IN MILLIONS) NET PERIODIC BENEFIT COST (INCOME) Service cost for benefits earned during the year...................................... $ 16 $ 20 $ 19 $ 1 $ 2 $ 2 Interest cost on benefit obligation......... 132 139 137 16 19 21 Assumed return on plan assets(2)............ (180) (182) (171) -- -- -- Amortization of unrecognized amounts........ (31) -- (1) (7) (6) (6) Special events.............................. 2 4 -- -- 1 -- Curtailment effect.......................... -- -- -- -- (1) -- ----- ----- ----- --- --- ---- Net Periodic Benefit Cost (Income)........................ $ (61) $ (19) $ (16) $10 $15 $ 17 ===== ===== ===== === === ==== Continuing operations....................... (61) (3) N/A 10 3 N/A Discontinued operations..................... -- (16) N/A -- 12 N/A ----- ----- ----- --- --- ---- Net Periodic Benefit Cost (Income)........................ $ (61) $ (19) $ (16) $10 $15 $ 17 ===== ===== ===== === === ====

--------------- (1) In connection with the spin-off, OMNOVA Solutions Inc. assumed the pension and postretirement benefit liabilities and received related pension assets for its active employees and for certain former employees. The components of pension cost and post retirement benefits for 1998 have not been restated for amounts related to continuing and discontinued operations, as no detailed information was available. (2) Actual returns on plan assets were $266 million in 2000, $224 million in 1999, and $289 million in 1998.

PENSION HEALTH CARE ----------------------- ----------------------- 2000 1999 1998(1) 2000 1999 1998(1) ---- ---- ------- ---- ---- ------- WEIGHTED AVERAGE ASSUMPTIONS Discount Rate.............................. 7.5% 7.0% 7.0% 7.5% 7.0% 7.0% Expected return on plan assets............. 9.0% 9.0% 9.0% N/A N/A N/A Rate of compensation increase.............. 4.5% 4.5% 4.5% N/A N/A N/A Initial trend rate for health care costs(1)................................. N/A N/A N/A 8.0% 9.0% 9.0% Ultimate trend rate for health care costs.................................... N/A N/A N/A 6.0% 6.0% 6.0%

--------------- (1) The initial trend rate for health care costs declines by one percent per year, to six percent for years after the year 2002. A one percent increase in the assumed trend rate for health care costs would have increased the accumulated benefit obligation by $2 million as of November 30, 2000. A one percent increase in the assumed trend rate for health care costs would not have significantly increased the cost of 2000 postretirement health care benefits. 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CHANGE IN ACCOUNTING PRINCIPLE - Effective December 1, 1999, the Company changed its methods for determining the market-related value of plan assets used in determining the expected return-on-assets component of annual net pension costs and the amortization of gains and losses for both pension and postretirement benefit costs. Under the previous accounting method, the market-related value of assets was determined by smoothing assets over a five-year period. The new method shortens the smoothing period for determining the market-related value of plan assets from a five-year period to a three-year period. The changes result in a calculated market-related value of plan assets that is closer to current value, while still mitigating the effects of short-term market fluctuation. The new method also reduces the substantial accumulation of unrecognized gains and losses created under the previous method due to the disparity between fair value and market-related value of plan assets. Under the previous accounting method all gains and losses were subject to a ten-percent corridor and amortized over the expected working lifetime of active employees (approximately 11 years). The new method eliminates the ten-percent corridor and reduces the amortization period to five years. The cumulative effect of this accounting change related to periods prior to fiscal year 2000 of $123 million ($74 million after-tax, or $1.76 per basic and diluted share) is a one-time, non-cash credit to fiscal 2000 earnings. This accounting change also resulted in a reduction in benefit costs in the year ended November 30, 2000 that increased income allocable to continuing business segments by $30 million and pre-tax income from continuing operations by $37 million ($22 million after-tax, or $.52 per basic and diluted share). Presented below is pro forma income from continuing operations and earnings per share for the years ended November 30, 1999 and 1998, showing the estimated effects as if the accounting change were applied retroactively:

1999 1998 -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA AMOUNTS Income from continuing operations........................... $ 66 $ 50 Basic earnings per share from continuing operations......... $1.58 $1.21 Diluted earnings per share from continuing operations....... $1.57 $1.19

OTHER PLANS - The Company also sponsors a number of defined contribution pension plans. Participation in these plans is available to substantially all salaried employees and to certain groups of hourly employees. Company contributions to these plans are based on either a percentage of employee contributions or on a specified amount per hour based on the provisions of each plan. The cost of these plans was $9 million in 2000, 1999 and 1998. The Company funds its contribution to the salaried plan with either GenCorp common stock or cash. NOTE L -- OTHER ASSETS

NOVEMBER 30 ---------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS) Prepaid pension............................................. $281 $113 Expected recoveries from U.S. Government and third parties for environmental remediation (excluding $10 million and $12 million classified as current as of November 30, 2000 and 1999, respectively)................................... 203 211 Deferred income taxes....................................... 76 149 Others...................................................... 53 59 ---- ---- Other Assets...................................... $613 $532 ==== ====

34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE M -- ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES

NOVEMBER 30 ---------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS) ACCRUED EXPENSES Payable for goods and services.............................. $178 $174 Accrued compensation and employee benefits.................. 29 32 Environmental reserves...................................... 25 22 Others...................................................... 41 46 ---- ---- Accrued Expenses.................................. $273 $274 ==== ====

NOVEMBER 30 ---------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS) OTHER LONG-TERM LIABILITIES Environmental reserves...................................... $328 $346 Minority interest in consolidated subsidiary................ 23 -- Others...................................................... 30 33 ---- ---- Other Long-Term Liabilities....................... $381 $379 ==== ====

NOTE N -- LONG-TERM DEBT AND CREDIT LINES

NOVEMBER 30 ---------------------- 2000 1999 -------- -------- (DOLLARS IN MILLIONS) LONG-TERM DEBT Revolving loans............................................. $190 $158 Less amounts due within one year............................ -- (9) ---- ---- Long-Term Debt.................................... $190 $149 ==== ====

As of November 30, 2000, the Company had a five year, $250 million Revolving Credit Facility Agreement (Credit Facility) which was scheduled to expire in 2004. The Credit Facility was secured by stock of certain subsidiaries of the Company. Under the terms of the Credit Facility, the Company paid a commitment fee for unused available funds. Interest rates were variable, primarily based on LIBOR. As of November 30, 2000, $190 million was outstanding on the Credit Facility at an average interest rate of 8.2%. The Credit Facility was paid-off on December 28, 2000. On December 28, 2000, the Company entered into a new, five year, $500 million senior credit facility (New Facility). The New Facility was used to finance the acquisition of the Draftex business (see Note E) and replaced the previous Credit Facility. The New Facility consists of a $150 million revolving loan, a $200 million term loan and a $150 million term loan. The term loans include quarterly installment payment provisions. The Company pays a commitment fee for unused available funds. Interest rates are variable, primarily based on LIBOR. The New Facility contains certain restrictive covenants that require the Company to meet specified financial ratios and restricts dividend payments, capital expenditures, incurrance of additional debt and other transactions. At November 30, 2000, outstanding letters of credit totaled $9 million. In connection with the spin-off and prior to GenCorp's distribution of OMNOVA Solutions Inc. shares, OMNOVA Solutions Inc. paid a cash dividend of $200 million to GenCorp which amount was used to repay debt under a previous revolving credit facility. 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Cash paid during the fiscal year for interest was $17 million in 2000, $20 million in 1999 and $13 million in 1998. NOTE O -- PREFERRED SHARE PURCHASE RIGHTS In January 1997, the Board of Directors extended for ten additional years GenCorp's Shareholder Rights Plan (Plan), as amended. When the Plan was originally adopted in 1987, the Directors declared a dividend of one Preferred Share Purchase Right (Right) on each outstanding share of common stock, payable to shareholders of record on February 27, 1987. Rights outstanding at November 30, 2000 and 1999 were 42,378,980 and 41,862,301, respectively. The Plan provides that under certain circumstances each Right will entitle shareholders to buy one one-hundredth of a share of a new Series A Cumulative Preference Stock at an exercise price of $100. The Rights are exercisable only if a person or group acquires 20 percent or more of GenCorp's common stock or announces a tender or exchange offer that will result in such person or group acquiring 30 percent or more of the common stock. GenCorp is entitled to redeem the Rights at two cents per Right at any time until ten days after a 20 percent position has been acquired (unless the Board elects to extend such time period, which in no event may exceed 30 days). If the Company is involved in certain transactions after the Rights become exercisable, a holder of Rights (other than Rights beneficially owned by a shareholder who has acquired 20 percent or more of GenCorp's common stock, which Rights become void) is entitled to buy a number of the acquiring company's common shares, or GenCorp's common stock, as the case may be, having a market value of twice the exercise price of each Right. A potential dilutive effect may exist upon the exercise of the Rights. The Rights under the extended Plan expire on February 18, 2007. Until a Right is exercised, the holder has no rights as a stockholder of the Company including, without limitation, the right to vote as a stockholder or to receive dividends. As of November 30, 2000, 575,000 shares of $1 par value Series A Cumulative Preference Stock were reserved for issuance upon exercise of Preferred Share Purchase Rights. NOTE P -- STOCK-BASED COMPENSATION PLANS The Company has a 1999 Equity and Performance Incentive Plan, which was adopted in 2000, a 1997 Stock Option Plan, and a 1993 Stock Option Plan. The 1999 Equity and Performance Incentive Plan provides key employees stock options and restricted stock based on the attainment of specified performance targets (see Restricted Stock below). The 1997 and 1993 Stock Option Plans each provide for an aggregate of 2,500,000 shares of the Company's common stock to be purchased pursuant to stock options or to be subject to stock appreciation rights (SARs) which may be granted to selected officers and key employees at prices equal to the fair market value of a share of common stock on the date of grant. Options issued under the 1997 and 1993 Stock Option Plans are, in general, exercisable in 25 percent increments at six months, one year, two years and three years from the date of grant. Options issued under the 1999 Equity and Performance Incentive Plan are, in general, exercisable in one-third increments at one year, two years, and three years from the date of grant. No stock appreciation rights have been granted. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. If compensation cost for the stock options granted after 1996 had been determined based on the fair value method of FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company's net income and diluted earnings per share would have been reduced by $1 million ($.02 per share), $3 million ($.06 per share) and $3 million ($.06 per share) and for the years ended November 30, 2000, 1999, and 1998, respectively. The fair value was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk free interest rates of 6.0 percent for 2000, 5.0 percent for 1999, 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED and 4.25 percent for 1998; dividend yield of 1.4 percent for 2000, 1.9 percent for 1999, and 2.4 percent for 1998; volatility factor of the expected market price of the Company's common stock of 40 percent for 2000, 34 percent for 1999, and 32 percent for 1998; and a weighted-average expected life of the option of five years for 2000, 1999 and 1998. A summary of the Company's stock option activity, and related information for the years ended November 30 are as follows:

2000 1999 1998 -------------------------- -------------------------- -------------------------- OPTIONS WEIGHTED AVERAGE OPTIONS WEIGHTED AVERAGE OPTIONS WEIGHTED AVERAGE (000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE ------- ---------------- ------- ---------------- ------- ---------------- Outstanding at beginning of year................ 3,300 $10.13 3,226 $10.05 2,752 $ 8.39 Granted.................. 702 $ 9.39 965 $ 9.70 752 $15.72 Exercised................ (101) $ 7.70 (371) $ 6.69 (179) $ 8.24 Forfeited/cancelled...... (356) $11.08 (520) $12.81 (99) $10.72 ----- ----- ----- Outstanding at end of year................... 3,545 $ 9.96 3,300 $10.13 3,226 $10.05 ----- ----- ----- Exercisable at end of year................... 2,481 $ 9.89 2,185 $ 9.44 2,067 $ 8.53 ----- ----- ----- Weighted-average grant-date fair value of options granted during the year........ $3.64 $3.12 $4.37

The following table summarizes the range of exercise prices and weighted-average exercise prices for options outstanding and exercisable as of November 30, 2000 under the Company's stock option plans:

WEIGHTED AVERAGE FISCAL YEAR IN OPTIONS REMAINING OPTIONS WHICH OPTIONS RANGE OF OUTSTANDING WEIGHTED AVERAGE CONTRACTUAL LIFE EXERCISABLE WEIGHTED AVERAGE WERE ISSUED EXERCISE PRICE (000) EXERCISE PRICE (YRS) (000) EXERCISE PRICE --------------------- -------------- ----------- ---------------- ---------------- ----------- ---------------- 1993................. $8.44-$ 8.77 194 $ 8.66 2.9 194 $ 8.66 1994................. $6.66-$ 7.26 272 $ 6.82 3.7 272 $ 6.82 1995................. $5.67-$ 5.94 336 $ 5.91 4.8 336 $ 5.91 1996................. $6.53-$ 8.91 222 $ 8.02 5.9 222 $ 8.02 1997................. $9.24-$15.64 657 $10.94 6.4 657 $10.94 1998................. $9.76-$16.06 471 $15.78 7.4 369 $15.78 1999................. $9.40-$13.59 707 $ 9.84 8.3 385 $ 9.81 2000................. $7.06-$10.13 686 $ 9.37 9.3 46 $ 9.68 ----- ----- Total........... 3,545 $ 9.96 6.9 2,481 $ 9.89 ===== =====

RESTRICTED STOCK Under the 1999 Equity and Performance Incentive Plan (Plan), key employees of the Company were granted a total of 434,000 restricted shares. Designated shares vest annually over a five-year period if the Company meets earnings per share growth targets as specified in the Plan. Restricted shares are canceled upon termination of the employee or if earnings targets are not achieved. During fiscal 2000, 22,000 shares were canceled due to terminations, and management estimates that approximately 138,000 shares will vest based on fiscal 2000 earnings per share. The Compensation and Organization Committee of the Board has negative discretion over increasing or decreasing the actual number of shares to vest in any period. 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE Q -- RESERVED SHARES At November 30, 2000, 9,984,000 shares of $.10 par value common stock were reserved for future issuance for discretionary payments of the Company's portion of Retirement Savings Plan contributions, exercise of options and payments of awards under stock-based compensation plans. NOTE R -- LEASE COMMITMENTS The Company and its subsidiaries lease certain facilities, machinery and equipment and office buildings under long-term, noncancelable operating leases. The leases generally provide for renewal options ranging from five to ten years and require the Company to pay for utilities, insurance, taxes and maintenance. Rent expense was $6 million in fiscal 2000, $4 million in fiscal 1999, and $5 million in fiscal 1998. The aggregate future minimum rental commitments under all non-cancelable operating leases in effect as of November 30, 2000 was $28 million with annual amounts declining from $4 million in 2001, to $2 million in 2005. The Company's obligations for leases after 2005 aggregate approximately $14 million. NOTE S -- CONTINGENCIES ENVIRONMENTAL MATTERS Sacramento, California -- In 1989, the United States District Court approved a Partial Consent Decree (Decree) requiring Aerojet to conduct a Remedial Investigation/Feasibility Study (RI/FS) of Aerojet's Sacramento, California site and to prepare a RI/FS report on specific environmental conditions present at the site and alternatives available to remedy such conditions. Aerojet also is required to pay for certain governmental oversight costs associated with Decree compliance. The State of California expanded surveillance of perchlorate and nitrosodimethylamine (NDMA) under the RI/FS because these chemicals were detected in public water supply wells near Aerojet's property at previously undetectable levels using new testing protocols. Aerojet has substantially completed its efforts under the Decree to determine the nature and extent of contamination at the facility. Preliminarily, Aerojet has identified the technologies that will likely be used to remediate the site and estimated costs using generic remedial costs from databases of Superfund remediation costs. Over the next several years, Aerojet will conduct feasibility studies to refine technical approaches and costs to remediate the site. The remediation costs are principally for design, construction, enhancement and operation of groundwater and soil treatment facilities, ongoing project management and regulatory oversight, and are expected to be incurred over a period of approximately 15 years. Aerojet is also addressing groundwater contamination off of its facility through the development of an Operable Unit Feasibility Study. This Study was completed and submitted as a draft to the governmental oversight agencies in November 1999. In response to governmental agency comments, Aerojet revised the draft report and it was resubmitted in May 2000. The agencies have now accepted the report as complete. The Study enumerates various remedial alternatives by which offsite groundwater can be addressed. The governmental agencies are in the process of selecting the remedial action alternative to be implemented and will develop a Record of Decision that will be subject to Aerojet and public review and comment before the proposed remediation is approved. A discussion of Aerojet's efforts to estimate these costs is contained under the heading Aerojet's Reserve and Recovery Balances. In September 2000, Aerojet filed a motion with the U.S. District Court seeking court approval of a modification to the Decree carving out approximately 3,000 acres from the site. The agencies opposed the motion. In November 2000, the court denied Aerojet's motion on the basis that Aerojet knew that the carve-out property was not contaminated at the time it was included in the Decree. Aerojet will appeal this decision. Meanwhile, Aerojet and the agencies are continuing to meet in an effort to reach a negotiated agreement removing the "carve-out" property from the Decree and from the National Priorities List. San Gabriel Valley Basin, California -- Aerojet, through its Azusa facility, has been named by the United States Environmental Protection Agency (EPA) as a potentially responsible party (PRP) in the portion of the San Gabriel Valley Superfund Site known as the Baldwin Park Operable Unit (BPOU). Regulatory action involves 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED requiring site specific investigation, possible cleanup, issuance of a Record of Decision (ROD) regarding regional groundwater remediation and issuance to Aerojet and 18 other PRPs Special Notice letters requiring groundwater remediation. All of the Special Notice PRPs are alleged to have contributed volatile organic compounds (VOCs). Aerojet's investigation demonstrated that the groundwater contamination by VOCs is principally upgradient of Aerojet's property and that lower concentrations of VOC contaminants are present in the soils of Aerojet's presently and historically owned properties. The EPA contends that Aerojet is one of the four largest sources of VOC groundwater contamination at the BPOU of the 19 PRPs identified by the EPA. Aerojet contests the EPA's position regarding the source of contamination and the number of responsible PRPs. Aerojet is participating in a Steering Committee comprised of 14 of the PRPs. Soon after the EPA issued Special Notice letters in May 1997, as a result of the development of more sensitive measuring methods, perchlorate was detected in wells in the BPOU. More recently, NDMA was also detected using newly developed measuring methods. Suspected sources of perchlorate include Aerojet's solid rocket development and manufacturing activities in the 1940s and 1950s, military ordnance produced by a facility adjacent to the Aerojet facilities in the 1940s, and fertilizer used in agriculture. NDMA is a suspected byproduct of liquid rocket fuel activities by Aerojet in the same time period. In addition, new regulatory standards for a chemical known as 1.4 dioxane requires additional treatment. Aerojet may be a minor contributor of this chemical. Aerojet is in the process of developing new, low cost technologies for the treatment of perchlorate, NDMA and 1.4 dioxane. On September 10, 1999, eleven of the nineteen Special Notice PRP's, including Aerojet (the Offering Parties), submitted a Good Faith Offer to the EPA to implement an EPA-approved remedy, which was accepted by the agency as a basis for negotiating a Consent Decree. The remedy, as proposed, would employ low cost treatment technologies being developed by Aerojet to treat perchlorate, NDMA, and 1.4 dioxane, as well as traditional treatment for VOCs. Since submitting the Good Faith Offer, Aerojet has continued negotiations with the other Offering Parties regarding final cost allocations, and the Offering Parties have continued negotiations with the court-appointed Watermaster and local water purveyors regarding an agreement that would provide for use of the remediation project's treated water. A discussion of Aerojet's efforts to estimate these costs is contained under the heading Aerojet's Reserve and Recovery Balances. On November 23, 1999, the Regional Board issued an order to Aerojet and other PRPs to conduct certain additional soil and groundwater sampling with respect to new chemicals found in the groundwater since completion of an earlier site investigation. That study, completed in 1994, concluded that no site remediation was required. At this time, the State Regional Water Quality Control Board (Regional Board) has ordered site remediation involving certain limited soil gas extraction which Aerojet is in the process of implementing. It is too early to know whether any further remediation will be required. The Regional Board Order also indicated that at some future time it may attempt to order Aerojet to pay certain past and future costs of private and public purveyors who have been affected by contamination. However, there is a substantial legal question as to the Regional Board's legal authority to consider such action, but, if the current agreements described below are finalized with the local water entities, this issue may be moot. On April 4, 2000, Aerojet was sued by the San Gabriel Basin Water Quality Authority (WQA) in the United States District Court for the Central District of California, Case No. 00-03579. The action, which was served on Aerojet on April 18, 2000, seeks to recover $1,560,000 for funds contributed by the WQA to the cost of the La Puente Valley Water District treatment plant constructed in 1999 and 2000, plus potential operation and maintenance costs of approximately $150,000 per year. It is filed pursuant to CERCLA section 107(a) and the Water Quality Authority Act section 407(c). Aerojet has informed the WQA that if an agreement is reached with the Watermaster on the structure and financing of the project, the WQA costs will be paid out of the funds that Aerojet and the other Offering Parties put up for the total project since La Puente is part of the Watermaster remedial project. If no agreement is reached with the Watermaster, then the costs of the La Puente treatment plant 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED would likely not be part of the remedial project and the La Puente costs are likely to be considered purveyor past costs which will be addressed by the Offering Parties (including Aerojet) outside of the Offering Party settlement agreement. On May 16, 2000, Aerojet was sued by the Upper San Gabriel Valley Municipal Water District (Upper District) in the United States District Court for the Central District of California, Case No. 00-05284. The action, which was served on Aerojet on May 19, 2000, seeks to recover the Upper District's contribution to the same treatment plant of the La Puente Valley Water District as is the subject matter of the WQA suit discussed above. The claim is for an amount in excess of $1,686,000 for costs incurred or committed to be paid in connection with that project. The same considerations apply to this action as are described in the WQA action. On June 28, 2000, Aerojet was sued in a second action filed by the San Gabriel Basin Water Quality Authority (WQA) in the United States District Court for the Central District of California, Case No. 00-CU-07042. The suit, which was served on Aerojet on October 12, 2000, seeks to recover $2,000,000 for funds contributed by the WQA to the cost of the Suburban Water System's Big Dalton treatment project. This action is not related to the La Puente actions discussed above and will be litigated even if the La Puente actions are part of a BPOU remedy settlement. The expenditures claimed in the lawsuit relate primarily to VOC contamination that ultimately should be borne by other PRPs. Aerojet will vigorously defend itself in this action and plans to bring those other PRPs into the lawsuit. During June 2000, Aerojet entered into agreements with several local purveyors to toll the statute of limitations with respect to purveyor claims for past costs related to remediating or costs related to alternative water sources as a result of the contamination in their groundwater production wells allegedly caused by Aerojet and other industrial companies in the San Gabriel Basin. The parties have discussed methods of alternative dispute resolution to handle these claims. Aerojet has received from one of these purveyors, San Gabriel Valley Water Company, a statutory 90 day notice that it may bring a citizen suit under the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. On October 10, 2000, Aerojet was sued by the Valley County Water District (Valley) in the United States District Court for the Central District of California, Case No. 00-10803. The action, which was served on Aerojet on October 12, 2000, seeks to recover under CERCLA and state causes of action for past, present, and future costs relating to treatment of groundwater allegedly contaminated by Aerojet. If the current agreements described below with the local water entities are completed, these claims would be subsumed by the terms of these agreements On June 30, 2000 the EPA issued a Unilateral Administrative Order (No. 2000-13) to Aerojet and 18 other PRPs requiring them to carry out the BPOU groundwater cleanup. The Order became effective July 10, 2000, and all the PRPs responded that they would comply with all lawful requirements of the Order. The Order required the PRPs to proceed with the proposed cleanup plan but further ordered that the PRPs negotiate with the San Gabriel Basin Watermaster (Watermaster) and local water purveyors to modify the project to meet the water supply needs of the BPOU. Under the auspices of EPA oversight and an EPA financed mediator, certain of the PRPs have continued to negotiate with the Watermaster and local water purveyors. On January 12, 2001, a Memorandum of Understanding (MOU) was executed between seven of the Special Notice PRPs, including Aerojet, and the Watermaster and certain local purveyors under which these PRPs would finance the implementation by the Watermaster and these purveyors of an EPA approved remedy for the BPOU. Pursuant to the MOU, Aerojet and the other six PRPs have provided a total of $4 million in immediate funding to cover expenses of the three public agencies that financed the new treatment plant at La Puente Valley County Water District. It is expected that the MOU will be followed by a Definitive Agreement in a matter of weeks. Under the Definitive Agreement, the seven PRPs, including Aerojet, will provide one hundred percent of the resources for construction and operation of the remaining extraction and treatment facilities required to complete the EPA cleanup program, after credits for contributions from the United States Bureau of Reclamation under existing legislation and other available government funds. At the same time, the seven PRPs have reached an agreement in principal memorialized in a second 40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Memorandum of Understanding for a binding allocation proceeding between them to pay for the remedy and other related costs. This agreement contains an allocation of interim financing costs pending completion of the final allocation in late 2001 or early 2002. Aerojet intends to defend itself vigorously to assure that it is appropriately treated with other PRPs and that costs of any remediation are properly spread over all users of the San Gabriel Valley aquifer. In addition, Aerojet is also pursuing its insurance remedies. On the basis of information presently available, management believes that established environmental reserves for San Gabriel Valley groundwater remediation efforts are adequate. Muskegon, Michigan -- In a lawsuit filed by the EPA, the United States District Court ruled in 1992 that Aerojet and its two inactive Cordova Chemical subsidiaries (Cordova) are liable for remediation of Cordova's Muskegon, Michigan site, along with a former owner/operator of an earlier chemical plant at the site, who is the other potentially responsible party (PRP). That decision was appealed to the United States Court of Appeals. In May 1997, the United States Court of Appeals for the Sixth Circuit issued an en banc decision reversing Aerojet's and the other PRP's liability under the CERCLA statute. Petitions for certiorari to the United States Supreme Court for its review of the appellate decision were filed on behalf of the State of Michigan and the EPA and were granted in December 1997. On June 8, 1998, the United States Supreme Court issued its opinion. The Court held that a parent corporation could be directly liable as an operator under CERCLA if it can be shown that the parent corporation operated the facility. The Supreme Court vacated the Sixth Circuit's 1997 ruling and remanded the case back to the United States District Court in Michigan for retrial. Aerojet did not expect that it would be found liable on remand. Aerojet entered into settlement discussions with the EPA and a proposed consent decree was filed with the District Court in July 1999. After a May 8, 2000 hearing, the court requested additional briefing by all parties to occur by July 2000. On August 24, 2000 the court approved the consent decree effectively dismissing the action as against Aerojet and Cordova. It is expected that the remaining PRP will appeal the approval of the Consent Decree. In a separate action, Aerojet and Cordova won indemnification for the Muskegon site investigation and remediation costs from the State of Michigan in the state Court of Claims. The Michigan Court of Appeals affirmed on appeal, and the Michigan Supreme Court refused to hear the case. Further, the Michigan Supreme Court also denied the State's motion for reconsideration. As a result, the Company believes that most of the $50 million to $100 million in anticipated remediation costs will be paid by the State of Michigan and the former owner/operator of the site. A settlement agreement with the State of Michigan, related to the proposed consent decree discussed above, has been finalized effective upon the August 24, 2000 approval of the EPA consent decree. In September 2000, Cordova received a settlement payment of $1.5 million from the State of Michigan. In addition, Aerojet settled with one of its two insurers in August 1999 for $4 million. Aerojet's Reserve and Recovery Balances -- On January 12, 1999, having finally received all necessary Government approvals, Aerojet and the United States Government implemented, with effect retroactive to December 1, 1998, the October 1997 Agreement in Principle resolving certain prior environmental and facility disagreements between the parties. Under this Agreement, a "global" settlement covering all environmental contamination (including perchlorate) at the Sacramento and Azusa sites was achieved; the Government/Aerojet environmental cost sharing ratio was raised to 88 percent/12 percent from the previous 65 percent/35 percent (with both Aerojet and the Government retaining the right to opt out of this sharing ratio for Azusa only, after at least $40 million in allowable environmental remediation costs at Azusa have been recognized); the cost allocation base for these costs was expanded to include all of Aerojet (in lieu of the prior limitation to the Sacramento business base); and Aerojet obtained title to all of the remaining Government facilities on its Sacramento property, together with an advance agreement recognizing the allowability of certain facility demolition costs. During the year ended November 30, 1999, Aerojet entered into a settlement agreement covering certain environmental claims with certain of its insurance carriers and received settlement proceeds of approximately $92 million. Under the terms of its agreements with the United States Government, Aerojet is obliged to credit the Government a portion of the insurance recoveries for past costs paid by the Government. Pending finalization 41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED of an agreement with the Government, Aerojet has estimated the amount of the credit and recorded a liability of $33 million for the Government portion of insurance recoveries, including applicable interest. In the fourth quarter of 1999, Aerojet obtained sufficient information to provide a reasonable basis for estimating the costs to address groundwater contamination off its Sacramento facility and its probable share of the San Gabriel Valley BPOU, and recorded those estimates in its reserve and recovery balances. Estimates regarding the Sacramento Western Groundwater Remediation were based on the Operable Unit Feasibility Study, previous references and Aerojet's opinion as to which remediation alternative proposed by the study will be approved by the EPA and the State. Estimates regarding the San Gabriel Valley BPOU remediation were based on the Good Faith Offer/Administrative Consent Order and Watermaster/purveyor negotiations referenced previously. Not resolved at this time are whether Aerojet will have any additional liability for its possible share of water purveyor past cost claims, as well as the EPA's past and future oversight costs. In regard to the matter discussed above, management believes, on the basis of presently available information, that resolution of this matter would not materially affect liquidity, capital resources, or the consolidated financial condition of the Company. As of November 30, 2000, Aerojet had total reserves of $320 million for costs to remediate the Sacramento and San Gabriel Valley Basin sites and has recognized $213 million for probable future recoveries. These estimates are subject to change as work progresses, additional experience is gained and environmental standards are revised. In addition, legal proceedings to obtain reimbursements of environmental costs from insurers are continuing. Lawrence, Massachusetts -- The Company has studied remediation alternatives for its closed Lawrence, Massachusetts facility, which was contaminated with PCBs, and has begun site remediation and off-site disposal of debris. The Company has a reserve of $17 million for estimated decontamination and long-term operating and maintenance costs of this site. The reserve represents the Company's best estimate for the remaining remediation costs. Estimates of future remediation costs could range as high as $37 million depending on the results of future testing, and the ultimate remediation alternatives undertaken at the site. The time frame for remediation is currently estimated to range from five to ten years. Other Sites -- The Company is also currently involved, together with other companies, in approximately 25 other Superfund and non-superfund remediation sites. In many instances, the Company's liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and extent of site conditions and the Company's involvement. While government agencies frequently claim PRPs are jointly and severally liable at such sites, in the Company's experience, interim and final allocations of liability costs are generally made based on relative contributions of waste. Based on the Company's previous experience, its allocated share has frequently been minimal, and in many instances, has been less than one percent. The Company has reserves of approximately $16 million as of November 30, 2000 which it believes are sufficient to cover its best estimate of its share of the environmental remediation costs at these other sites. Also, the Company is seeking recovery of its costs from its insurers. ENVIRONMENTAL SUMMARY In regard to the sites discussed above, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or consolidated financial condition. The effect of resolution of these matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. OTHER LEGAL MATTERS Olin Corporation -- In August 1991, Olin Corporation (Olin) advised GenCorp that it believed GenCorp to be jointly and severally liable for certain Superfund remediation costs, estimated by Olin to be $70 million, associated with a former Olin manufacturing facility and waste disposal sites in Ashtabula County, Ohio. In 1993, GenCorp sought declaratory judgment in the United States District Court for the Northern District of Ohio that 42 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED the Company is not responsible for environmental remediation costs. Olin counterclaimed seeking a judgment that GenCorp is jointly and severally liable for a share of remediation costs. In late 1995, the Court hearing on the issue of joint and several liability was completed, and in August 1996 the Court held hearings relative to allocation. At its request, in 1998, the Court received an additional briefing regarding the impact of the U.S. Supreme Court's decision in Best Foods which the Company believes definitively addresses many issues in this case in its favor. Another hearing relative to liability and allocation was held on January 11, 1999. The Court rendered its interim decision on liability on August 16, 1999, finding GenCorp 30 percent liable for remediation costs at "Big D Campground" landfill and 40 percent liable for remediation costs attributable to the Olin TDI facility with regard to the Fields Brook site. GenCorp is currently engaged in Phase III trial proceedings on the allowability of those costs. The Phase III trial is expected to be completed by February 2001. Upon completion of the Phase III trial, a final order will be issued, and the matter will be ripe for appeal. The Company continues to vigorously litigate this matter and believes that it has meritorious defenses to Olin's claims. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to this matter and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. Other Matters -- The Company and its subsidiaries are subject to various other legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above. In the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matters. COLLECTIVE BARGAINING UNIT AGREEMENTS As of November 30, 2000, approximately 60 percent of the Company's employees are covered by a variety of collective bargaining unit agreements. One agreement representing approximately seven percent of the total workforce expires in fiscal year 2001. NOTE T -- BUSINESS SEGMENT INFORMATION The aerospace, defense, and fine chemicals business segment includes Aerojet and the Aerojet Fine Chemicals business. Aerojet's business primarily serves high technology markets that include Satellite Payloads and Electronics, Space and Strategic Rocket Propulsion and Tactical Weapons. Primary customers served include the Department of Defense (DoD) and the National Aeronautics and Space Administration (NASA). Aerojet Fine Chemicals provides development, scale-up and production of intermediate and active pharmaceutical ingredients for the pharmaceutical industry. The Vehicle Sealing business segment designs and produces extruded rubber components for vehicle body and window sealing systems for domestic, transplant and foreign automotive manufacturers. Sales in 2000, 1999 and 1998 to the United States Government and its agencies (principally the Department of Defense) totaled $481 million, $519 million and $596 million, respectively, and were generated almost entirely by the aerospace, defense and fine chemicals business segment. Sales to General Motors, primarily by the Vehicle Sealing business segment, were $267 million in 2000, $250 million in 1999 and $172 million in 1998. Sales to Ford Motor Company, primarily by the Vehicle Sealing business segment, were $125 million in 2000, $120 million in 1999 and $111 million in 1998. Intersegment sales were not material. Segment operating profit represents net sales from continuing operations less applicable costs, expenses and provisions for restructuring and unusual items relating to operations. Segment operating profit excludes corporate income and expenses, provisions for nonoperating unusual items, interest expense and income taxes. 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED In 1999, the Company recognized unusual income of $21 million related to the Company's reportable segments. The unusual income included a gain of $59 million on settlements covering certain environmental claims with certain of the Company's insurance carriers, offset by a provision of $33 million for environmental remediation costs associated with the Company's initial estimate of its probable share, as a Potentially Responsible Party, in the Baldwin Park Operable Unit; a charge of $4 million related to a pricing dispute with a major Vehicle Sealing customer; and a charge of $1 million for write-down of certain Vehicle Sealing assets to net realizable value. GEOGRAPHIC SEGMENTS GenCorp's operations are located primarily in Canada, Europe and the United States. Inter-area sales are not significant to the total sales of any geographic area. Unusual items included in operating profit pertained only to United States operations.

2000 1999 1998 ------ ------ ------ (DOLLARS IN MILLIONS) NET SALES -- CONTINUING OPERATIONS Canada...................................................... $ 119 $ 103 $ 82 Europe...................................................... 84 90 88 United States............................................... 828 825 840 United States export sales.................................. 16 53 38 ------ ------ ------ $1,047 $1,071 $1,048 ====== ====== ====== OPERATING PROFIT FROM CONTINUING OPERATIONS Canada...................................................... $ 18 $ 10 $ 10 Europe...................................................... 4 4 1 United States............................................... 102 66 60 Unusual items............................................... -- 21 9 ------ ------ ------ $ 124 $ 101 $ 80 ====== ====== ====== IDENTIFIABLE ASSETS Canada...................................................... $ 54 $ 47 $ 40 Europe...................................................... 65 72 245 United States............................................... 987 948 1,160 ------ ------ ------ 1,106 1,067 1,445 ------ ------ ------ Corporate assets............................................ 218 163 298 ------ ------ ------ Total Assets...................................... $1,324 $1,230 $1,743 ====== ====== ======

44 47 GENCORP INC. BUSINESS SEGMENT INFORMATION

2000 1999 1998 ------ --------- ------ (DOLLARS IN MILLIONS) NET SALES Aerospace, defense and fine chemicals....................... $ 562 $ 615 $ 673 Vehicle Sealing............................................. 485 456 375 ------ ------ ------ $1,047 $1,071 $1,048 ====== ====== ====== INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Aerospace, defense and fine chemicals....................... $ 90 $ 62 $ 68 Vehicle Sealing............................................. 34 18 3 Unusual items............................................... -- 21 9 ------ ------ ------ Segment Operating Profit.......................... 124 101 80 Interest expense............................................ (18) (6) (6) Corporate other income (expense)............................ (3) (5) (6) Corporate expenses.......................................... (7) (5) (8) Unusual items............................................... (4) (9) -- ------ ------ ------ Income from Continuing Operations Before Income Taxes........................................... $ 92 $ 76 $ 60 ====== ====== ====== ASSETS Aerospace, defense and fine chemicals....................... $ 855 $ 817 $ 647 Vehicle Sealing............................................. 251 250 214 Discontinued Operations..................................... -- -- 584 ------ ------ ------ Identifiable Assets............................... 1,106 1,067 1,445 Corporate assets............................................ 218 163 298 ------ ------ ------ Total Assets...................................... $1,324 $1,230 $1,743 ====== ====== ====== CAPITAL EXPENDITURES Aerospace, defense and fine chemicals....................... $ 53 $ 79 $ 41 Vehicle Sealing............................................. 29 17 23 Corporate................................................... -- 1 4 ------ ------ ------ $ 82 $ 97 $ 68 ====== ====== ====== DEPRECIATION AND AMORTIZATION Aerospace, defense and fine chemicals....................... $ 28 $ 24 $ 24 Vehicle Sealing............................................. 22 19 17 Corporate................................................... -- 1 2 ------ ------ ------ $ 50 $ 44 $ 43 ====== ====== ====== EMPLOYEES Aerospace, defense and fine chemicals....................... 2,750 2,820 3,320 Vehicle Sealing............................................. 5,100 4,600 4,130 Corporate................................................... 45 60 190 ------ ------ ------ 7,895 7,480 7,640 ====== ====== ======

45 48 GENCORP INC. QUARTERLY FINANCIAL DATA (UNAUDITED)

THREE MONTHS ENDED ------------------------------------------------------- FEBRUARY 29 MAY 31 AUGUST 31 NOVEMBER 30 ----------- ------ --------- ----------- (DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 2000 Net sales....................................... $ 239 $ 271 $ 260 $ 277 ----- ----- ----- ----- Segment operating profit........................ $ 24 $ 37 $ 33 $ 30 ----- ----- ----- ----- Income before income taxes, excluding unusual items......................................... $ 18 $ 32 $ 25 $ 21 ----- ----- ----- ----- Income before income taxes...................... $ 17 $ 32 $ 31 $ 12 ----- ----- ----- ----- Income from Operations.......................... $ 10 $ 19 $ 19 $ 7 Cumulative effect of a change in accounting principle..................................... 74 -- -- -- ----- ----- ----- ----- Net Income...................................... $ 84 $ 19 $ 19 $ 7 ----- ----- ----- ----- ------------------------------------------------ Basic earnings per share of common stock(1) Continuing Operations......................... $0.25 $0.45 $0.46 $0.16 Cumulative effect of a change in accounting principle.................................. 1.76 -- -- -- ----- ----- ----- ----- Total................................. $2.01 $0.45 $0.46 $0.16 ----- ----- ----- ----- Diluted earnings per share of common stock(1) Continuing Operations......................... $0.25 $0.45 $0.46 $0.16 Cumulative effect of a change in accounting principle.................................. 1.76 -- -- -- ----- ----- ----- ----- Total................................. $2.01 $0.45 $0.46 $0.16 ----- ----- ----- ----- Common stock price range per share -- high...... $ 11 $ 10 9/16 $ 9 15/16 $ 9 9/16 -- low....... $ 6 3/4 $ 6 15/16 $ 6 7/8 $ 7 5/16 ------------------------------------------------

THREE MONTHS ENDED ------------------------------------------------------- FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 ----------- ------ --------- ----------- (DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1999 Net sales....................................... $ 255 $ 305 $ 256 $ 255 ----- ----- ----- ------ Segment operating profit........................ $ 22 $ 26 $ 22 $ 31(3) ----- ----- ----- ------ Income from continuing operations before income taxes, excluding unusual items................ $ 17 $ 26 $ 19 $ 5 ----- ----- ----- ------ Income from continuing operations before income taxes......................................... $ 17 $ 26 $ 19 $ 17 ----- ----- ----- ------ Income from continuing operations............... $ 9 $ 15 $ 11 $ 11 Income from discontinued operations, net of taxes......................................... 8 18 9 (9) ----- ----- ----- ------ Net Income...................................... $ 17 $ 33 $ 20 $ 2 ----- ----- ----- ------ ------------------------------------------------ Basic Earnings per share of common stock(1) Continuing Operations......................... $0.22 $0.35 $0.27 $ 0.27 Discontinued Operations....................... 0.19 0.43 0.22 (0.21) ----- ----- ----- ------ Total................................. $0.41 $0.78 $0.49 $ 0.06 ----- ----- ----- ------ Diluted Earnings per share of common stock(1) Continuing Operations......................... $0.22 $0.34 $0.27 $ 0.26 Discontinued Operations....................... 0.19 0.43 0.21 (0.20) ----- ----- ----- ------ Total................................. $0.41 $0.77 $0.48 $ 0.06 ----- ----- ----- ------ Common stock price range per share(2) -- high... $ 14 11/16 $ 13 11/16 $ 14 $ 12 3/8 -- low.... $ 10 1/8 $ 9 1/16 $ 10 3/4 $ 9 1/2 ------------------------------------------------

46 49 (1) The sum of the quarterly earnings per share amounts may not equal the annual amount due to changes in the number of shares outstanding during the year. (2) Common stock prices in 1999 were adjusted to reflect the spin-off of OMNOVA Solutions Inc. which resulted in a 52.8 percent adjustment to the stock price on October 1, 1999. (3) Includes unusual income of $21 million. CAPITAL STOCK The Company's common stock is listed on the New York and Chicago Stock Exchanges. As of December 31, 2000, there were approximately 12,300 holders of record of the Company's common stock. During 2000, the Company paid quarterly dividends on its common stock of $0.03 per share. During the first three quarters of 1999, the Company paid quarterly cash dividends on its common stock of $0.15 per share. During the fourth quarter of 1999, following the spin-off of OMNOVA Solutions, Inc., the Company paid cash dividends on its common stock of $0.03 per share. During 1998, the Company paid quarterly cash dividends on its common stock of $0.15 per share. 47 50 GENCORP INC. SUMMARY OF SELECTED FINANCIAL DATA

2000 1999 1998 1997 1996 ------- ------- ------- ------ ------- (DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) NET SALES Aerospace, defense and fine chemicals.......... $ 562 $ 615 $ 673 $ 584 $ 494 Vehicle Sealing................................ 485 456 375 369 448 ------ ------ ------ ----- ------ $1,047 $1,071 $1,048 $ 953 $ 942 ====== ====== ====== ===== ====== SEGMENT OPERATING PROFIT Aerospace, defense and fine chemicals.......... $ 90 $ 62 $ 68 $ 55 $ 42 Vehicle Sealing................................ 34 18 3 29 19 Unusual items.................................. -- 21 9 -- (9) ------ ------ ------ ----- ------ $ 124 $ 101 $ 80 $ 84 $ 52 ====== ====== ====== ===== ====== OPERATIONS Income from continuing operations.............. $ 55 $ 46 $ 38 $ 99 $ 1 Income from discontinued operations............ -- 26 46 38 41 Cumulative effect of a change in accounting principle.................................... 74 -- -- -- -- ------ ------ ------ ----- ------ Net Income........................... $ 129 $ 72 $ 84 $ 137 $ 42 ====== ====== ====== ===== ====== BASIC EARNINGS PER SHARE OF COMMON STOCK Income from operations......................... $ 1.31 $ 1.11 $ 0.91 $2.68 $ 0.02 Income from discontinued operations............ -- 0.63 1.11 1.03 1.23 Cumulative effect of a change in accounting principle.................................... 1.76 -- -- -- -- ------ ------ ------ ----- ------ Total................................ $ 3.07 $ 1.74 $ 2.02 $3.71 $ 1.25 ====== ====== ====== ===== ====== DILUTED EARNINGS PER SHARE OF COMMON STOCK Income from operations......................... $ 1.31 $ 1.09 $ 0.90 $2.48 $ 0.15 Income from discontinued operations............ -- 0.63 1.09 0.92 1.01 Cumulative effect of a change in accounting principle.................................... 1.76 -- -- -- -- ------ ------ ------ ----- ------ Total................................ $ 3.07 $ 1.72 $ 1.99 $3.40 $ 1.16 ====== ====== ====== ===== ====== Cash dividends paid per share of common stock........................................ $ .12 $ .48 $ .60 $ .60 $ .60 OTHER FINANCIAL DATA Capital expenditures........................... $ 82 $ 97 $ 68 $ 45 $ 31 Depreciation and amortization.................. 50 44 43 40 44 Total assets................................... 1,324 1,230 1,743 1,419 1,330 Long-term debt................................. 190 149 356 84 263

48 51 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to nominees who will stand for election as a director of the Company at the March 28, 2001 Annual Meeting of Shareholders is set forth on pages 2 and 3 of the Company's 2001 Proxy Statement and is incorporated herein by reference. Information with respect to directors of the Company whose terms extend beyond the March 28, 2001 Annual Meeting of Shareholders is set forth on pages 3 and 4 of the Company's 2001 Proxy Statement and is incorporated herein by reference. Also, see Executive Officers of the Registrant on pages 11 through 13 of this report. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is set forth on pages 8 through 18 of the Company's 2001 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the security ownership of certain beneficial owners and management is set forth on pages 4 and 5 of the Company's 2001 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain transactions and employment arrangements with management is set forth on pages 14 and 15 of the Company's 2001 Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES A list of financial statements and financial statement schedules is set forth in a separate section of this report beginning on page GC-1. (a)(3) LISTING OF EXHIBITS An index of exhibits begins on page -i- of this report. (b) REPORTS ON FORM 8-K The Company filed a Report on Form 8-K on October 24, 2000 incorporating its press releases dated October 22 and 23, 2000 announcing that it had signed an agreement to acquire the Draftex International Car Body Seals Division of The Laird Group Public Limited Company in the United Kingdom. (c) EXHIBITS The response to this portion of Item 14 is set forth in a separate section of this report immediately following the Exhibit Index. (d) FINANCIAL STATEMENT SCHEDULES All financial statement schedules have been omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. 49 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. GENCORP INC. February 14, 2001 By /s/ W. R. PHILLIPS --------------------------------------------- W. R. Phillips Senior Vice President, Law; General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE --------- ----- ---- /s/ R. A. WOLFE Chairman, Chief Executive Officer February 14, 2001 ------------------------------------------------ and President R. A. Wolfe /s/ T. L. HALL Senior Vice President and Chief February 14, 2001 ------------------------------------------------ Financial Officer (principal T. L. Hall financial officer and principal accounting officer) * Director February 14, 2001 ------------------------------------------------ J. G. Cooper * Director February 14, 2001 ------------------------------------------------ I. Gutin * Director February 14, 2001 ------------------------------------------------ W. K. Hall * Director February 14, 2001 ------------------------------------------------ J. M. Osterhoff * Director February 14, 2001 ------------------------------------------------ S.G. Rothmeier * Director February 14, 2001 ------------------------------------------------ S. E. Widnall *Signed by the undersigned as attorney-in-fact and agent for the Directors indicated. /s/ W. R. PHILLIPS February 14, 2001 ------------------------------------------------ W. R. Phillips

50 53 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1)(2) AND (3), (c) AND (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT INDEX CERTAIN EXHIBITS FISCAL YEAR ENDED NOVEMBER 30, 2000 GENCORP INC. SACRAMENTO, CALIFORNIA 95853-7012 54 GENCORP INC. ITEM 14(a)(1) AND (2) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

PAGE NUMBER ------ (1) FINANCIAL STATEMENTS: The following consolidated financial statements of GenCorp Inc. are included in Item 8: Report of Ernst & Young LLP, Independent Accountants...... 21 Consolidated Statements of Income for the years ended November 30, 2000, 1999 and 1998....................... 22 Consolidated Balance Sheets as of November 30, 2000 and 1999................................................... 23 Consolidated Statements of Shareholders' Equity for the years ended November 30, 2000, 1999 and 1998........... 24 Consolidated Statements of Cash Flows for the years ended November 30, 2000, 1999 and 1998....................... 25 Notes to Consolidated Financial Statements.................. 26

(2) FINANCIAL STATEMENT SCHEDULES: All consolidated financial statement schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. GC-1 55 CONSENT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors GenCorp Inc. We consent to the incorporation by reference in GenCorp Inc.'s Registration Statements No. 333-91783, 333-35621, 33-61928, 33-28056 and 2-98730 on Form S-8, Post Effective Amendment No. 1 to Registration Statements No. 2-80440 and 2-83133 on Form S-8, and Post Effective Amendment No. 4 to Registration Statement No. 2-66840 on Form S-8 of our report dated January 15, 2001, with respect to the consolidated financial statements of GenCorp Inc. included in the Annual Report (Form 10-K) for the year ended November 30, 2000. Ernst & Young LLP Sacramento, California February 13, 2001 GC-2 56 EXHIBIT INDEX

TABLE EXHIBIT EXHIBIT ITEM NO. DESCRIPTION LETTER -------- ----------- ------- 3. ARTICLES OF INCORPORATION AND BY-LAWS The Amended Articles of Incorporation of GenCorp Inc., as amended on March 29, 2000 (as filed with the Secretary of State of Ohio on June 19, 2000), were filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2000 (File No. 1-1520), and are incorporated herein by reference. (14 pages) The Amended Code of Regulations of GenCorp Inc., as amended on March 29,2000, were filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2000 (File No. 1-1520), and are incorporated herein by reference. (16 pages) 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES Amended and Restated Rights Agreement (with exhibits) dated as of December 7, 1987 between GenCorp Inc. and Morgan Shareholder Services Trust Company as Rights Agent was filed as Exhibit D to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1987 (File No. 1-1520), and is incorporated herein by reference. (86 pages) Amendment to Rights Agreement among GenCorp Inc., The First Chicago Trust Company of New York, as resigning Rights Agent and The Bank of New York, as successor Rights Agent, dated August 21, 1995 was filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995 (File No. 1-1520), and is incorporated herein by reference. (3 pages) Amendment to Rights Agreement between GenCorp Inc. and The Bank of New York as successor Rights Agent, dated as of January 20, 1997 was filed as Exhibit 4.1 to the Company's Current Report on Form 8-K Date of Report January 20, 1997 (File No. 1-1520), and is incorporated herein by reference. (3 pages) Credit Agreement dated September 30, 1999 by and among GenCorp Inc. as Borrower, Bank of America, N.A., as Agent and as Lender, and certain other Lenders was filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. (123 pages) Credit Agreement among GenCorp Inc., as the Borrower, Bankers Trust Company, as Administrative Agent, Bank One, NA, as Syndication Agent, Deutsche Bank Securities Inc. and Banc One Capital Markets, Inc., as Joint Lead Arrangers and Joint Book Manager and Various Lending Institutions was filed as Exhibit 10.2 to the Current Report on Form 8-K dated December 29, 2000 (File No. 1-1520), and is incorporated herein by reference (172 pages). 10. MATERIAL CONTRACTS Agreement between The Laird Group Public Limited Company and GenCorp Inc. for the sale and purchase of all of the issued shares of various companies comprising the Draftex International Car Body Seals Division was filed as Exhibit 10.1 to the Current Report on Form 8-K dated December 29, 2000 (File No. 1-1520), and is incorporated herein by reference (107 pages).

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TABLE EXHIBIT EXHIBIT ITEM NO. DESCRIPTION LETTER -------- ----------- ------- Distribution Agreement dated September 30, 1999 between GenCorp Inc. and OMNOVA Solutions Inc. ("OMNOVA") was filed as Exhibit B to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. (30 pages) Tax Matters Agreement dated September 30, 1999 between GenCorp Inc. and OMNOVA was filed as Exhibit C to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (23 pages). Alternative Dispute Resolution Agreement dated September 30, 1999 between GenCorp Inc. and OMNOVA. was filed as Exhibit D to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (10 pages). Agreement on Employee Matters dated September 30, 1999 between GenCorp Inc. and OMNOVA. was filed as Exhibit E to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (31 pages). Services and Support Agreement between GenCorp Inc. and OMNOVA. was filed as Exhibit F to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (11 pages). 10.(iii)(A) MANAGEMENT CONTRACTS, COMPENSATORY PLANS OR ARRANGEMENTS An Employment Agreement dated July 28, 1997 between the Company and Robert A. Wolfe was filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. (4 pages) Employment Agreement dated May 6, 1999 between the Company and Terry L. Hall was filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1999 (File No. 1-1520) and is incorporated herein by reference. (4 pages) Severance Agreement dated as of October 1, 1999 between the Company and Robert A. Wolfe. was filed as Exhibit G to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (22 pages) Form of Severance Agreement granted to certain executive officers of the Company to provide for payment of an amount equal to annual base salary and highest average annual incentive compensation awarded during three most recent previous fiscal years or, if greater, target award for the fiscal year in question, multiplied by a factor of two or three, as the case may be, if their employment should terminate for any reason other than death, disability, willful misconduct or retirement within three years after a change in control, as such term is defined in such agreement was filed as Exhibit D to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. (22 pages) GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit H to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (16 pages).

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TABLE EXHIBIT EXHIBIT ITEM NO. DESCRIPTION LETTER -------- ----------- ------- GenCorp 1996 Supplemental Retirement Plan for Management Employees effective March 1, 1996 was filed as Exhibit B to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. (15 pages) Benefits Restoration Plan for Salaried Employees of GenCorp Inc. and Certain Subsidiary Companies as amended and restated effective December 1, 1986, was filed as Exhibit G to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1987 (File No. 1-1520), and is incorporated herein by reference. (6 pages) Information relating to the Deferred Bonus Plan of GenCorp Inc. is contained in Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 2-83133 dated April 18, 1986 and is incorporated herein by reference. (16 pages) Amendment to the Deferred Bonus Plan of GenCorp Inc. effective as of April 5, 1987, was filed as Exhibit I to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1987 (File No. 1-1520), and is incorporated herein by reference. (3 pages) GenCorp Inc. Deferred Compensation Plan for Nonemployee Directors effective January 1, 1992 was filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1991 (File No. 1-1520), and is incorporated herein by reference. (18 pages) GenCorp Inc. 1993 Stock Option Plan effective March 31, 1993 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 33-61928 dated April 30, 1993 and is incorporated herein by reference. (11 pages) GenCorp Inc. 1997 Stock Option Plan effective March 26, 1997 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 333-35621 dated September 15, 1997 and is incorporated herein by reference. (10 pages) 1999 GenCorp Key Employee Retention Plan providing for payment of up to two annual cash retention payments to Eligible Employees who satisfactorily continue their employment with GenCorp, attain specified performance objectives (including the spin-off of the GenCorp Performance Chemicals and Decorative and Building Products Divisions), and meet all plan provisions was filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 (File No. 1-1520), and is incorporated herein by reference. (11 pages) Form of Key Employee Retention Letter Agreement was filed as Exhibit I to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. (3 pages). 1999 GenCorp Key Employee Retention Plan was filed as Exhibit J to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (18 pages). Form of Relocation Agreement between the Company and certain Employees was filed as Exhibit K to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (2 pages). Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors' compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998 (File No. 1-1520), and is incorporated herein by reference. (4 pages)

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TABLE EXHIBIT EXHIBIT ITEM NO. DESCRIPTION LETTER -------- ----------- ------- Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors' compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 (File No. 1-1520), and is incorporated herein by reference. (4 pages) Form of Director and Officer Indemnification Agreement was filed as Exhibit L to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (12 pages). Form of Director Indemnification Agreement was filed as Exhibit M to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (11 pages). Form of Officer Indemnification Agreement was filed as Exhibit N to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference (11 pages). GenCorp Inc. Executive Incentive Compensation Program, amended September 8, 1995 to be effective for the 1996 fiscal year was filed as Exhibit E to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. (21 pages) 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Information relating to the computation of per share earnings is set forth in Note F of this report, which information is incorporated herein by reference. 21. SUBSIDIARIES OF THE REGISTRANT A Listing of Subsidiaries (1 page) 23. CONSENTS OF EXPERTS Consent of Ernst & Young LLP is contained on page GC-2 of this Form 10-K and is incorporated herein by reference. 24. POWER OF ATTORNEY B Powers of Attorney executed by J. G. Cooper, I. Gutin, W. K. Hall, J. M. Osterhoff, S. G. Rothmeier, and S. E. Widnall, Directors of the Company. (6 pages) The Company will supply copies of any of the foregoing exhibits to any shareholder upon receipt of a written request addressed to GenCorp Inc., P.O. Box 537012, Sacramento, California 95853-7012-- Attention: Secretary, and payment of $1 per page to help defray the cost of handling, copying and return postage.

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