40888--2/13/2006--GENCORP

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{loan, real, estate}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{customer, product, revenue}

{cost, operation, labor}

{acquisition, growth, future}

{product, market, service}

{regulation, government, change}

{capital, credit, financial}

{loss, insurance, financial}

{personnel, key, retain}

{control, financial, internal}

{stock, price, operating}

{competitive, industry, competition}

{tax, income, asset}

Our success and growth in the aerospace and defense industry depend on our ability to secure contracts. We face significant competition, including from competitors with greater resources than ours, which may adversely affect our market share. Our Aerospace and Defense segment is subject to procurement and other related laws and regulations inherent in contracting with the U.S. government, non-compliance with which could have a material adverse effect on our business. Our inability to adapt to rapid technological changes could impair our ability to remain competitive. We may experience product failures, schedule delays or other problems with existing or new products and systems, all of which could result in increased costs and loss of sales. Future reductions in airbag propellant volume could adversely affect our profitability. Our operations and properties are currently the subject of significant environmental claims, and the numerous environmental and other government regulations to which we are subject may become more stringent in the future and may reduce our profitability. Although some of our environmental costs may be recoverable and we have established reserves, given the many uncertainties involved in assessing liability for environmental claims, our reserves may not be sufficient. The release or explosion of dangerous materials used in our business could disrupt our operations and cause us to incur additional costs and liability. Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations. Substantially all of our real estate is located in Sacramento County, California making us vulnerable to changes in economic and other conditions in that particular market. We have limited experience in real estate activities. The real estate business is inherently risky. The value of our real estate assets could be adversely affected by an increase in interest rates. We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions or our liquidity or financial condition. We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment of our debt. If our operating subsidiaries do not generate sufficient cash flow or if they are not able to pay dividends or otherwise distribute their cash to us, or if we have insufficient funds on hand, we may not be able to service our debt. We may expand our operations through acquisitions, which may divert management s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating any acquired operations, and we may incur costs relating to acquisitions that are never consummated. We have recently focused our operations through divestitures. We may incur additional costs related to these divestitures, which may negatively impact our profitability. A strike or other work stoppage, or our inability to renew collective bargaining agreements on favorable terms, could have a material adverse effect on our cost structure and ability to run our facilities and produce our products. A loss of key personnel or highly skilled employees could disrupt our operations. Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate. If we are unable to effectively and efficiently implement the necessary initiatives to eliminate the material weakness identified in our internal controls and procedures, there could be an adverse effect on our operations or financial results. Investment returns on pension plan assets and the discount rate used to determine pension liabilities may have a material affect on our shareholders deficit.

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40888--2/13/2006--GENCORP_INC