Unless otherwise indicated or required by the context, as used in this Quarterly Report on Form 10-Q, the terms "we," "our" and "us" refer to GenCorp Inc. and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the United States of America.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, our operating results for interim periods may not be indicative of the results of operations for a full year. This section contains a number of forward-looking statements, all of which are based on current expectations and are subject to risks and uncertainties including those described in this Quarterly Report under the heading "Forward-Looking Statements." Actual results may differ materially. This section should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended November 30, 2008, and periodic reports subsequently filed with the Securities and Exchange Commission ("SEC"). Overview
We are a manufacturer of aerospace and defense systems with a real estate segment that includes activities related to the entitlement, sale, and leasing of our excess real estate assets. Our continuing operations are organized into two segments:
Aerospace and Defense - includes the operations of Aerojet-General Corporation ("Aerojet") which develops and manufactures propulsion systems for defense and space applications, armament systems for precision tactical weapon systems and munitions applications. We are one of the largest providers of such propulsion systems in the United States ("U.S.") and the only U.S. company that provides both solid and liquid propellant based systems. Primary customers served include major prime contractors to the U.S. government, the Department of Defense ("DoD"), and the National Aeronautics and Space Administration ("NASA").
Real Estate - includes activities related to the entitlement, sale, and leasing of our excess real estate assets. We own approximately 12,200 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California, east of Sacramento ("Sacramento Land"). We are currently in the process of seeking zoning changes, removal of environmental restrictions and other governmental approvals on a portion of the Sacramento Land to optimize its value. We have filed applications with and submitted information to governmental and regulatory authorities for approvals necessary to re-zone approximately 6,000 acres of the Sacramento Land. We also own approximately 580 acres in Chino Hills, California. We are currently seeking removal of environmental restrictions on the Chino Hills property to optimize the value of such land.
On August 31, 2004, we completed the sale of our GDX Automotive ("GDX") business. The remaining subsidiaries after the sale of GDX, including Snappon SA, are classified as discontinued operations in these Unaudited Condensed Consolidated Financial Statements (see Note 12 of the Unaudited Condensed Consolidated Financial Statements).
Results of Operations

Net Sales:

                    Three months ended                         Nine months ended
                August 31,     August 31,                  August 31,     August 31,
                   2009           2008         Change*        2009           2008         Change**
                                                   (In millions)
   Net sales    $  201.4       $    172.5      $ 28.9       $  555.3      $    543.8      $   11.5

* Primary reason for change. The increase in net sales for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 was primarily the result of growth in the various Standard Missile programs and increased deliveries on the Patriot Advanced Capability - 3 and Atlas V programs, partially offset by lower sales volume on the Orion program as a result of NASA funding constraints.

** Primary
reason for
change. The
increase in
net sales
volume for
the first
nine months
of fiscal
2009 compared
to the first
nine months
of fiscal
2008 was
primarily the
result of
growth in the
various
Standard
Missile
programs,
partially
offset by
lower sales
volume on the
Orion program
as a result
of NASA
funding
constraints,
sale of our
Sacramento
Land for
$10.0 million
in the second
quarter of
fiscal 2008,
and an
additional
week of
operations in
the first
quarter of
fiscal 2008
resulting in
$19.1 million
in sales.

Customers that represented more than 10% of net sales for the periods presented are as follows:

                      Three months ended August 31,           Nine months ended August 31,
                        2009                  2008              2009                  2008
Raytheon                    27 %                   26 %             31 %                   27 %
Lockheed Martin             27 %                   28 %             24 %                   26 %


Operating Income:

                                   Three months ended                                    Nine months ended
                              August 31,        August 31,                         August 31,        August 31,
                                 2009              2008            Change*            2009              2008             Change**
                                                            (In millions, except percentage amounts)
Operating income              $   17.8            $   3.9          $ 13.9          $   48.4          $    25.3          $   23.1
Percentage of net sales            8.8 %              2.3 %                             8.7 %              4.7 %

* Primary reason for change. The improved operating income for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 is due to the following:

• Decrease of $6.0 million in environmental remediation costs primarily due to the following: (i) an increase of $4.1 million of environmental remediation obligations in fiscal 2008 related to the Company's legacy divested businesses and (ii) an increase in unrecoverable environmental remediation obligations at the Company's Sacramento site primarily related to higher water remediation obligations in fiscal 2008 (see Note 8(c) of the Unaudited Condensed Consolidated Financial Statements).

• Decrease of $5.3 million in retirement benefit expense primarily due to the freeze of the defined benefit pension and benefit restoration plans as well as the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns.

• Higher net sales and favorable contract performance on numerous programs as a result of lower non-reimbursable overhead spending in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 and other resulting in a $4.3 million increase in operating income.

The factors discussed above were partially offset by the following:
• Increase of $0.9 million in amortization due to the change in the fourth quarter of fiscal 2008 in the estimated life of the deferred financing costs for the 4% Contingent Convertible Subordinated Notes ("4% Notes") and 21/4% Convertible Subordinated Debentures ("21/4% Debentures").

• Increase of $0.8 million in unusual items. See discussion of "Unusual Items" below.

** Primary
reason for
change. The
improved
operating
income for
the first
nine months
of fiscal
2009
compared to
the first
nine months
of fiscal
2008 is due
to the
following:

• Decrease of $14.1 million in retirement benefit expense primarily due to the freeze of the defined benefit pension and benefit restoration plans as well as the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns.

• Decrease of $11.5 million in unusual items. See discussion of "Unusual Items" below.

• Decrease of $8.2 million in environmental remediation costs primarily due to the following: (i) an increase of $4.4 million of environmental remediation obligations in fiscal 2008 related to the Company's legacy divested businesses and (ii) an increase in unrecoverable environmental remediation obligations at the Company's Sacramento site primarily related to higher water remediation obligations in fiscal 2008 (see Note 8(c) of the Unaudited Condensed Consolidated Financial Statements).

• The recovery of $1.0 million in inventories that were previously written down.

• Increase in net sales and favorable contract performance on numerous programs as a result of lower non-reimbursable overhead spending during the first nine months of fiscal 2009 as compared to the first nine months of fiscal 2008 and other resulting in a $1.7 million increase in operating income.

The factors discussed above were partially offset by the following:
• The sale of 400 acres of our Sacramento Land in the second quarter of fiscal 2008 resulting in a gain of $6.8 million.

• Increase of $3.9 million in Selling, General and Administrative ("SG&A") spending. See discussion of "Selling, General and Administrative" below.

• Increase of $2.7 million in amortization due to the change in the fourth quarter of fiscal 2008 in the estimated life of the deferred financing costs for the 4% Notes and 21/4% Debentures.

Cost of Sales (exclusive of items shown separately below):

                                   Three months ended                                     Nine months ended
                             August 31,         August 31,                         August 31,          August 31,
                                2009               2008            Change*            2009                2008            Change**
                                                            (In millions, except percentage amounts)
Cost of sales
(exclusive of items
shown separately
below)                       $  172.2          $    153.2          $ 19.0           $  473.8          $    473.7          $   0.1
Percentage of net
sales                            85.5 %              88.8 %                             85.3 %              87.1 %

* Primary reason for change. The decrease in the cost of sales as a percentage of net sales in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 was primarily due to the following:
(i) a decrease of $5.6 million in non-cash aerospace and defense retirement benefit plan expense primarily due to the freeze of the defined benefit pension and benefit restoration plans as well as the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns and
(ii) favorable contract performance as a result of lower non-reimbursable overhead spending in fiscal 2009 compared to fiscal 2008.

** Primary reason
for change. The
decrease in the
cost of sales as
a percentage of
net sales in the
first nine
months of fiscal
2009 compared to
the first nine
months of fiscal
2008 was
primarily due to
the following:
(i) a decrease of $16.9 million of non-cash aerospace and defense retirement benefit plan expense primarily due to the freeze of the defined benefit pension and benefit restoration plans as well as the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns and (ii) favorable contract performance as a result of lower non-reimbursable overhead spending in fiscal 2009 compared to fiscal 2008, partially offset by the recognition of a $6.8 million gain on the sale of 400 acres of our Sacramento Land in the second quarter of fiscal 2008.

Selling, General and Administrative:

                                   Three months ended                                    Nine months ended
                             August 31,         August 31,                         August 31,        August 31,
                                2009               2008            Change*            2009              2008            Change**
                                                           (In millions, except percentage amounts)
Selling, general and
administrative                $   0.9           $     1.0          $ (0.1 )         $   5.8            $   1.9          $   3.9
Percentage of net
sales                             0.4 %               0.6 %                             1.0 %              0.3 %

* Primary reason for change. The slight decrease in SG&A spending in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 is primarily the result a decrease of $0.6 million and $0.3 million in insurance costs and professional legal and accounting services, respectively; partially offset by the recognition of a $0.8 million stock-based compensation charge in the third quarter of fiscal 2009 due to the higher fair value of stock appreciation rights.

** Primary
reason for
change. The
increase in
SG&A spending
in the first
nine months
of fiscal
2009 compared
to the first
nine months
of fiscal
2008 is
primarily the
result of the
following:
(i) an
increase of
$2.8 million
in non-cash
corporate
retirement
benefit plan
expense
primarily due
to lower
expected
investment
returns,
partially
offset by the
increase in
the discount
rate used to
determine
benefit
obligations
and (ii) an
increase of
$2.1 million
in
stock-based
compensation
due to the
recognition
of a
$0.9 million
stock-based
compensation
charge in the
first nine
months of
fiscal 2009
due to an
increase in
the fair
value of
stock
appreciation
rights in
2009 compared
to a benefit
in the first
nine months
of fiscal
2008 of
$1.2 million
due to the
reversal of

previously
recognized
stock-based
compensation
due to the
decline in
fair value
of stock
appreciation
rights in
2008,
partially
offset by a
decrease of
$1.0 million
in other net
SG&A costs,
including a
decrease of
$1.2 million
in
management
compensation
and
incentives.

Depreciation and Amortization:

                                   Three months ended                                     Nine months ended
                             August 31,         August 31,                          August 31,        August 31,
                                2009               2008             Change*            2009              2008             Change*
                                                           (In millions, except percentage amounts)
Depreciation and
amortization                  $   7.8           $     6.7          $   1.1          $   22.7          $    19.8          $   2.9
Percentage of net
sales                             3.9 %               3.9 %                              4.1 %              3.6 %

* Primary reason for change. The increase in depreciation and amortization expense was primarily due to the change in the fourth quarter of fiscal 2008 in the estimated life of the deferred financing costs for the 4% Notes and 21/4% Debentures.

Other expense, net:

                                   Three months ended                                    Nine months ended
                             August 31,         August 31,                         August 31,        August 31,
                                2009               2008            Change*            2009              2008            Change*
                                                                        (In millions)
Other expense, net            $   0.9           $     6.7          $ (5.8 )         $   0.2            $   7.2          $ (7.0 )

* Primary reason for change. The change in other expense, net is primarily due to lower estimated future environmental remediation obligations in the third quarter and first nine months of fiscal 2009 compared to the comparable periods in fiscal 2008 primarily due to increases in fiscal 2008 of environmental remediation obligations related to our legacy divested businesses (see Note 8(c) of the Unaudited Condensed Consolidated Financial Statements).

Unusual items:

                      Three months ended                           Nine months ended
                  August 31,      August 31,                   August 31,      August 31,
                     2009            2008         Change*         2009            2008        Change*
                                                     (In millions)
 Unusual items     $   1.8         $     1.0      $   0.8       $   4.4        $    15.9     $ (11.5 )

* Primary reason for change. During the first nine months of fiscal 2009, we incurred a charge of $3.1 million associated with executive severance agreements. In the first nine months of fiscal 2009, we also recorded a charge of $1.1 million for realized losses and interest associated with our failure to register with the SEC the issuance of certain of our common shares under our defined contribution 401(k) employee benefit plan. Additionally, we recorded costs of $0.2 million related to a bank amendment.

On March 5, 2008, we entered into a second amended and restated shareholder agreement ("Shareholder Agreement") with respect to the election of Directors for the 2008 Annual Meeting and certain other related matters which resulted in a charge of $13.8 million in the first nine months of fiscal 2008. The charges for the Shareholder Agreement and related matters were comprised of the following (in millions):

Increases in pension benefits primarily for certain of the Company's

officers                                                                    $  5.3
Executive severance agreement                                                  4.1
Accelerated vesting of stock appreciation rights                               1.1
Accelerated vesting of restricted stock, service based                         0.6
Accelerated vesting of restricted stock, performance based                     0.7
Professional fees and other                                                    2.0

                                                                            $ 13.8

In the first nine months of fiscal 2008, we recorded a charge of $2.1 million related to estimated costs associated with legal matters, including $0.9 million associated with the failure to register with the SEC the issuance of shares under our defined contribution 401(k) employee benefit plan.

Interest Income:

                        Three months ended                          Nine months ended
                    August 31,      August 31,                  August 31,     August 31,
                       2009            2008        Change*         2009           2008        Change*
                                                      (In millions)
 Interest income    $   (0.5 )      $    (1.0 )    $   0.5      $   (1.4 )     $    (3.3 )    $   1.9

* Primary reason for change. The decline in interest income was primarily due to lower average rates partially offset by higher average cash balances in the third quarter and first nine months of fiscal 2009 compared to the comparable fiscal 2008 periods.

Interest Expense:

                         Three months ended                          Nine months ended
                     August 31,      August 31,                  August 31,     August 31,
                        2009            2008         Change*        2009           2008        Change*
                                                       (In millions)
 Interest expense     $   6.4         $     6.8      $ (0.4 )    $   19.5       $    20.9      $ (1.4 )

* Primary reason for change. The decrease in interest expense was primarily due to lower average interest rates on variable rate debt in the third quarter and first nine months of fiscal 2009 compared to the comparable fiscal 2008 periods.

Income Tax (Benefit) Provision:

                                  Three months ended                                    Nine months ended
                             August 31,        August 31,                         August 31,         August 31,
                                2009              2008            Change*            2009               2008           Change**
                                                                        (In millions)
Income tax
(benefit) provision          $   (0.7 )          $   1.0          $ (1.7 )        $   (19.7 )        $    0.4          $ (20.1 )

* Primary reason for change. The income tax benefit of $0.7 million recorded in the third quarter of fiscal 2009 is primarily related to Internal Revenue Service
("IRS") interest allowed on examination of refund claims for tax years 1996 and 1997, partially offset by fiscal 2009 state income taxes and deferred tax liabilities recorded for tax goodwill amortization.

** Primary reason
for change.
The income tax
benefit of
$19.7 million
in the first
nine months of
fiscal 2009 is
primarily
related to new
guidance that
was published
by the Chief
Counsel's
Office of the
IRS in
December 2008
clarifying
which costs
qualify for
ten-year
carryback of
tax net
operating
losses for
refund of
prior years'
taxes. As a
result of the
clarifying
language, we
recorded
during the
first quarter
of fiscal 2009
an income tax
benefit of
$19.7 million,
of which
$14.5 million
is for the
release of the
valuation
allowance
associated
with the
utilization of
the qualifying
tax net
operating
losses and
$5.2 million
is for the
recognition of
affirmative
claims related
to previous
uncertain tax
positions
associated
with prior
years refund
claims related
to the
qualifying
costs.

The difference between net income at the statutory rate and the income tax benefit reflected is primarily related to a decrease in the valuation allowance due to the realization of certain deferred tax assets for both the first nine months of fiscal 2009 and 2008.
As of August 31, 2009, the liability for uncertain income tax positions was $0.4 million. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.
Discontinued Operations:
In November 2003, we announced the closing of a GDX manufacturing facility in Chartres, France owned by Snappon SA, a subsidiary of the Company. The decision resulted primarily from declining sales volumes with French automobile manufacturers. In June 2004, we completed the legal process for closing the facility and establishing a social plan. In fiscal 2004, an expense of approximately $14.0 million related to employee social costs was recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. An expense of $1.0 million was recorded during fiscal 2005 primarily related to employee social costs that became estimable in fiscal 2005. During the first nine months of fiscal 2009, Snappon SA had legal judgments rendered against it under French law, aggregating $4.0 million related to wrongful discharge claims by certain former employees of

Snappon SA. During the second quarter of fiscal 2009, Snappon SA filed for declaration of suspensions of payments with the clerk's office of the Paris Commercial Court (see Note 8(a) of the Unaudited Condensed Consolidated Financial Statements).
Summarized financial information for discontinued operations is set forth below:

                                                         Three months ended August 31,                Nine months ended August 31,
                                                           2009                  2008                  2009                   2008
                                                                                       (In millions)
Net sales                                             $          -            $        -           $         -            $         -
Foreign currency losses                                       (0.2 )                   -                  (1.0 )                    -
(Loss) income before income taxes                             (0.5 )                 0.2                  (5.7 )                 (0.1 )
Income tax provision                                             -                     -                     -                      -
Net (loss) income from discontinued operations                (0.5 )                 0.2                  (5.7 )                 (0.1 )

Recently Adopted Accounting Pronouncements As of November 30, 2007, we adopted Statement of Financial Accounting Standards ("SFAS") No. 158 ("SFAS 158"), Employers' Accounting for Defined . . .