The following table summarizes the Sacramento Land (in acres):


	Environmentally Unrestricted	Environmentally Restricted (1)	Total	Entitled		Environmentally Unrestricted	Environmentally Restricted (1)	Total	Entitled
Glenborough and Easton Place	1,043	349	1,392	1,392	Glenborough and Easton Place	1,043	349	1,392	1,392
Rio del Oro	1,818	491	2,309	2,309	Rio del Oro	1,818	491	2,309	2,309
Westborough	1,387	272	1,659	—	Westborough	1,387	272	1,659	—
Hillsborough (2)	51	97	148	148	Hillsborough (2)	51	97	148	148
Office Park and Auto Mall	47	8	55	55	Office Park and Auto Mall	47	8	55	55
Total Easton acreage	4,346	1,217	5,563	3,904	Total Easton acreage	4,346	1,217	5,563	3,904
Operations land (3)	24	5,179	5,203
Former operations land (3)					Former operations land (3)	24	5,179	5,203
Land available for future entitlement (4)	443	242	685		Land available for future entitlement (4)	386	242	628
Total Sacramento Land	4,813	6,638	11,451		Total Sacramento Land	4,756	6,638	11,394

_________

~~(1)~~

Indicates land subject to restrictions imposed by state and/or federal regulatory agencies because of our historical propulsion system testing and manufacturing activities. We are actively working with the various regulatory agencies to have the restrictions removed as early as practicable, and the solutions to use these lands within Easton have been accounted for in the various land use plans and granted entitlements. See Note 8(c) in notes to consolidated financial statements for a discussion of the federal and/or state environmental restrictions affecting portions of the Sacramento Land.

(1) Indicates land subject to restrictions imposed by state and/or federal regulatory agencies because of our historical propulsion system testing and manufacturing activities. We are actively working with the various regulatory agencies to have the restrictions removed as early as practicable, and the solutions to use these lands within Easton have been accounted for in the various land use plans and granted entitlements. See Note 8(b) in the consolidated financial statements in Item 8 of this Report for a discussion of the federal and/or state environmental restrictions affecting portions of the Sacramento Land.

(2) The remaining 148 acres designated in Hillsborough will be transferred, per the completed purchase and sale contract from 2015, when the required environmental remediation work is completed. ~~See Note 1(t)~~

(3) In 2019, we completed our manufacturing commitments in our Sacramento, California facility and transitioned the Sacramento site to host our shared services function.

(4) We believe it will be several years before any of this excess Sacramento Land is available for future change in entitlement. Some of this excess land is outside the ~~notes~~current Urban Services Boundary established by the County of Sacramento and all of it is far from existing infrastructure, making it uneconomical to ~~the consolidated financial statements.~~pursue entitlement for this land at this time.


~~(3)~~	~~We believe that the operations land is adequate for our long-term needs.~~


~~(4)~~	We believe it will be several years before any of this excess Sacramento Land is available for future change in entitlement. Some of this excess land is outside the current Urban Services Boundary established by the County of Sacramento and all of it is far from existing infrastructure, making it uneconomical to pursue entitlement for this land at this time.

Leasing ~~& Other Real Estate~~

We currently lease ~~approximately 0.4 million square feet of~~ office space in Sacramento to various third ~~parties. These leasing activities~~parties that generated ~~$6.4~~$3.3 million in revenue in ~~fiscal 2017~~.

We also own approximately 580 acres of land in Chino Hills, California. This property was used for the manufacture and testing of ordnance. With the sale of our ordnance business in the mid-1990s, we closed this facility and commenced clean-up of the site. We continue to work with state regulators and the City of Chino Hills to complete those efforts.2020.

Environmental Matters

Our current and former business operations are subject to, and affected by, federal, state, ~~local,~~ and ~~foreign~~local environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation, and remediation of certain materials, substances, and wastes. Our policy is to conduct our business with due regard for the preservation and protection of the environment. We continually assess compliance with these regulations, and we believe our current operations are materially in compliance with all applicable environmental laws and regulations.

On January 12, 1999, Aerojet Rocketdyne and the U.S. government reached a settlement agreement (“Global Settlement”) which established a cost-sharing ratio with respect to the cleanup costs of prior environmental contamination. Additionally, in conjunction with the sale of our Electronics and Information Systems ("EIS") business in 2001, we entered into an agreement with Northrop (the “Northrop Agreement”) whereby Aerojet Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement, subject to an annual and a cumulative limitation.

Operation and maintenance costs associated with environmental compliance and management of contaminated sites are a normal, recurring part of operations. Most of our environmental costs are incurred by our Aerospace and Defense segment, and certain of these future costs are allowed to be included in our contracts with the U.S. government.

Allowable environmental costs are charged to our contracts as the costs are incurred. Because these costs are recovered through forward-pricing arrangements, the ability of Aerojet Rocketdyne to continue recovering these costs from the U.S. government depends on Aerojet Rocketdyne’s sustained business volume from U.S. government contracts and programs.

The inclusion of environmental costs in our contracts with the U.S. government impacts our competitive pricing; however, we believe that this impact is mitigated by driving improvements and efficiencies across our operations as well as our ability to deliver innovative and quality products to our customers.

Under existing U.S. environmental laws, Potentially Responsible Parties ~~(“PRPs”~~("PRPs"), are jointly and severally liable, and therefore we are potentially liable to the U.S. government or other third parties for the full cost of remediating the contamination at our facilities or former facilities or at third-party sites where we have been designated as a PRP by the ~~EPA~~Environmental Protection Agency or state environmental agencies. The nature of environmental investigation and cleanup activities requires significant management judgment to determine the timing and amount of any estimated future costs that may be required for remediation measures. Further, environmental standards change from time to time. However, we perform quarterly reviews of these matters and accrue for costs associated with environmental remediation when it becomes probable that a liability has been incurred and the amount of the liability, usually based on proportionate sharing, can be reasonably estimated. These liabilities have not been discounted to their present value as the amounts and timing of cash payments are not fixed or reliably determinable.

On January 12, 1999, we reached a settlement agreement ("Global Settlement") with the U.S. government covering environmental costs associated with our Sacramento site and our former Azusa site. Pursuant to the Global Settlement, we can recover up to 88% of our environmental remediation costs through the establishment of prices for Aerojet Rocketdyne's products and services sold to the U.S. government. Additionally, in conjunction with the sale of the Electronics and Information Systems business in 2001, Aerojet Rocketdyne entered into an agreement with Northrop (the "Northrop Agreement") whereby Aerojet Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement, subject to an annual billing limitation of $6.0 million and a cumulative limitation of $189.7 million.

We did not incur material capital expenditures for environmental control facilities in ~~fiscal 2017~~2020 nor do we anticipate any material capital expenditures in ~~fiscal 2018~~2021 and ~~2019.~~ 2022.See Management’s Discussion and Analysis in Part II, Item 7 ~~“Environmental Matters”~~"Environmental Matters" of this Report for additional information.

Additional information on the risks related to environmental matters can be found under ~~“Risk Factors”~~"Risk Factors" in Item 1A of this Report, including the material effects on compliance with environmental regulations that may impact our competitive position and operating results.

Employees

As of December 31, ~~2017, 14%~~2020, 8% of our ~~5,157~~4,969 employees were covered by collective bargaining agreements. ~~Significant collective bargaining agreements are due to expire in the fall of 2018.~~ We believe that our relations with our employees and unions are good. Our workforce, along with their commitment to our values, provides the foundation of our Company’s success.

Human Capital Management

We believe our success depends on the strength of our workforce. Our integrated human capital management strategy includes the acquisition, development, and retention of talent, as well as the design of compensation and benefits programs, to deliver on our strategy.

Development - We enable our employees to reach their full potential by providing a wide range of career development and opportunities, skill development and resources they need to be successful. Our Rocket University learning platform supplements our talent development strategies and enables employees to access instructor-led classroom or virtual courses and self-directed web-based courses. Our annual Succession Planning and Talent Management process is the formal identification and development of our next generation leaders and supports the development of our talent pipeline for key roles across the enterprise. We encourage advancement and movement across our organization to fill our open positions with strong and experienced management talent and individual contributors.

Inclusion, Diversity and Engagement ("ID&E") – We believe in the strength of engaged and diverse teams in an inclusive work environment to unleash the potential of our employees. Through the efforts of these diverse and collaborative teams, we seek to be on the cutting edge of technology and exceed customer expectations. We have established a corporate-wide ID&E council and a number of executive-sponsored employee resource groups ("ERG") across the enterprise, where employees can foster connections and develop in a supportive environment. Our ERGs support the acquisition of diverse talent internally and externally. To assess and improve employee engagement, we survey our employees and take actions to address areas of employee concern.

Health and Safety - Safety is one of our core values. We are committed to a safe work environment for our employees as well as being good stewards of the natural environment. Like many companies, the COVID-19 pandemic has been especially challenging as we focused our health and safety efforts on protecting our employees and their families from potential COVID-19 exposure while delivering excellent performance to our customers. Since the beginning of the COVID-19 pandemic, we have developed plans and taken focused actions aligned with the Centers for Disease Control and Prevention to protect, manage, and communicate with our employees to contain the impacts of COVID-19.

Corporate Information

We were incorporated in Ohio in 1915 and reincorporated in the State of Delaware on April 11, 2014. Our principal executive offices are located at 222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245.

Our Internet website address is www.AerojetRocketdyne.com. We have made available through our Internet website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials were electronically filed with, or furnished to, the SEC. We also make available on our Internet website our corporate governance guidelines and the charters for each of the following committees of our Board of Directors: Audit; Corporate Governance & Nominating; and Organization & Compensation. Copies of the Code of Conduct and the Company’s Corporate Governance Guidelines are available on the Company’s Internet website at www.AerojetRocketdyne.com (copies are available in print to any stockholder or other interested person who requests them by writing to Secretary, Aerojet Rocketdyne Holdings, Inc., 222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245).

Item 1A. Risk Factors

~~Future reductions~~The following discussion describes the material factors, events, and uncertainties that make an investment in us risky, and these risk factors should be considered carefully together with all other information in this Report, including the financial statements and notes thereto. This discussion does not include all risks that we face, and additional risks or uncertainties that are currently not known to us, or that are not currently believed to be material may occur or become material. The occurrence of any of these factors, events, or uncertainties may, in ways we may or may not accurately predict, adversely affect our business, operations, financial condition, and results.

Risks Related to the Merger

Failure to complete the Merger could negatively impact the price of our common stock, as well as our future business and financial results.

On December 20, 2020, we entered into the Merger Agreement, pursuant to which Lockheed Martin will acquire us, as described in Part I, Item 1 of this Report. The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger, including stockholder approval and regulatory approval. We cannot assure you that all of the conditions to the Merger will be satisfied or waived on a timely basis. If the conditions to the Merger are not satisfied or waived on a timely basis, we may be unable to complete the Merger as quickly as expected or at all.

If the Merger is not completed, our ongoing business may be adversely affected as follows: (i) we may experience negative reactions from the financial markets, including negative impacts on the market price of our common stock; (ii) some of management's attention will have been directed to the Merger instead of being directed to our own operations and the pursuit of other opportunities that could have been beneficial to us; (iii) the manner in which customers, suppliers and other third parties perceive us may be negatively impacted, which in turn could affect our ability to compete for business; (iv) we may experience negative reactions from employees; (v) we will have expended time and resources that could otherwise have been spent on our business; and (vi) we may be required, in certain circumstances, to pay a termination fee of $150 million, as provided in the Merger Agreement. In addition, any significant delay in consummating the Merger could have an adverse effect on our operating results and adversely affect our relationships with customers and suppliers and would likely lead to a significant diversion of management and employee attention.

Additionally, in approving the Merger Agreement, the Board of Directors considered a number of factors and potential benefits, including the fact that the merger consideration to be received by holders of common stock represented a significant premium over the last closing stock price prior to announcement of the Merger. If the Merger is not completed, neither the Company nor the holders of our common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related fees and costs and the loss of management time and resources.

Our ability to complete the Merger is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect us or cause the Merger to be abandoned.

The Merger Agreement contains certain closing conditions, including, among others, the approval by the holders of a majority of all our outstanding shares to adopt the Merger Agreement and approve the Merger, and the absence of any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other government authority or other legal restraint or prohibition that has the effect of preventing the consummation of the Merger or that makes consummation of the Merger illegal. We cannot assure you that the various closing conditions will be satisfied or will not result in the abandonment or delay of the Merger.

In addition, before the Merger may be completed, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), must be obtained. The regulatory review under the HSR Act may impose conditions on the granting of such approval. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the Merger or of imposing additional costs or limitations on the combined company following the completion of the Merger, and the conditions may result in the failure of a closing condition under the Merger Agreement. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the Merger that are unacceptable to Lockheed Martin.

Expenses related to the pending Merger are significant and will adversely affect our operating results.

We have incurred and expect to continue to incur significant expenses in connection with the pending Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not consummated, we may under certain circumstances be required to pay to Lockheed Martin a termination fee of $150 million. Our financial position and results of operations would be adversely affected if we were required to pay the termination fee.

We are subject to business uncertainties, litigation risk, and contractual restrictions while the Merger is pending, which could adversely affect our business.

The Merger Agreement requires us to operate in the ordinary course of business and restricts us, without the consent of Lockheed Martin, from taking certain specified actions agreed by the parties to be outside the ordinary course of business until the pending Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement. As of February 16, 2021, eightlawsuits challenging the Merger were filed on behalf of purported stockholders, as described in Note 8 to this Report. One of the conditions to the closing of the Merger is the absence of any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other government authority or other legal restraint or prohibition that has the effect of preventing the consummation of the Merger or that makes consummation of the Merger illegal. Accordingly, if any of the plaintiffs is successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from becoming effective, or delay its becoming effective within the expected time frame.

Uncertainties associated with the Merger may cause a loss of management and other key employees and disrupt our business relationships, which could adversely affect our business.

Uncertainty about the effect of the Merger on our employees, customers and suppliers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. If key employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of us.

The Merger Agreement contains "no shop" provisions that, subject to limited exceptions, restrict our ability to solicit, initiate, or knowingly encourage or induce competing third-party proposals (or knowingly cooperate in connection with such third party proposals) for the acquisition of our stock or assets. In addition, before our Board of Directors withdraws, qualifies or modifies its recommendation on the Merger or terminates the Merger Agreement to enter into a third-party acquisition proposal, Lockheed Martin generally has an opportunity to offer to modify the terms of the Merger. In some circumstances, upon termination of the Merger Agreement, we will be required to pay a termination fee of $150 million.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if the acquirer was prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Merger, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than they might otherwise have proposed to pay due to the added expense of the termination fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

Payment of the Pre-Closing Dividend will result in a significant outflow of cash and is not conditioned upon the closing of the Merger, which means that if the Merger fails to close after payment of the Pre-Closing Dividend, the Company will be required to operate with less liquidity than was previously available to us.

The Pre-Closing Dividend was declared by the Board of Directors in connection with the announcement of the Merger. The Pre-Closing Dividend will be paid on March 24, 2021, and is expected to result in the payment of an aggregate of $447.8 million. The Merger is not expected to close until the second half of 2021. If the conditions to the Merger are not satisfied or waived on a timely basis, we may be unable to complete the Merger as quickly as expected or at all. As a result, we will be required to operate the business with less cash on hand than we would have had if the Pre-Closing Dividend had not been paid. This decrease in liquidity could have an adverse effect on our operating results and financial condition.

Risks Related to our Business and Industry

Reductions, delays or changes in U.S. government spending, ~~could~~including failure to timely appropriate funding, may reduce, delay or cancel certain programs in which we participate and as a result adversely affect our financial results.

Our primary aerospace and defense customers include the DoD and its agencies, NASA, and the prime contractors that supply products to these customers. We rely on particular levels of U.S. government spending on propulsion systems for defense, space and armament systems for precision tactical weapon systems and munitions applications, and our backlog depends, in a large part, on continued funding by the U.S. government for the programs in which we are involved. These spending levels are not generally correlated with any specific economic cycle, but rather follow the cycle of general public policy and political support for this type of spending. Moreover, although our contracts often contemplate that our services will be performed over a period of several years, the U.S. President must propose and Congress must appropriate funds for a given program each GFY and may significantly change, increase, reduce or eliminate, funding for a program. The failure by Congress to approve future budgets on a timely basis could delay procurement of our products and services and cause us to lose future sales. If a prolonged government shutdown were to occur, it could result in program cancellations, disruptions and/or stop work orders and could limit the U.S. government’s ability to make timely payments, and our ability to perform on our U.S. government contracts.

AIn addition, a decrease in the DoD and/or NASA expenditures, the elimination or curtailment of a material program in which we are involved, or changes in payment patterns of our customers as a result of changes in U.S. government spending, could have a material adverse effect on our operating results, financial condition, and/or cash flows.

In addition, U.S. government agency budgets could be negatively impacted by several factors, including, but not limited to, a change in defense spending policy as a result of the presidential election or otherwise, the U.S. government’s budget deficits, spending priorities (e.g., allocating more spending to combat the effects of the COVID-19 pandemic), the cost of sustaining the U.S. military presence internationally and possible political pressure to reduce U.S. government military spending, each of which could cause agency budgets to remain unchanged or to decline. A significant decline in U.S. military expenditures could result in a reduction in the amount of our products sold to the various agencies and buying organizations of the U.S. government.

The cancellation or material modification of one or more significant contracts could adversely affect our financial results.

Sales, directly and indirectly, to the U.S. government and its agencies accounted for approximately ~~92%~~96% of our total net sales in ~~fiscal 2017.~~2020. Our contracts typically permit the U.S. government to unilaterally modify or terminate a contract or to discontinue funding for a particular program at any time. The cancellation of a contract, if terminated for cause, could also subject us to liability for the excess costs incurred by the U.S. government in procuring undelivered items from another source. If terminated for convenience, our recovery of costs would be limited to amounts already incurred or committed (including severance costs for terminated employees), and our profit would be limited based on the work completed prior to termination.

In addition, termination or suspension of any of our significant commercial contracts could result in the loss of future sales and unreimbursable expenses that could have a material adverse effect on our operating results, financial condition, and/or cash flows. Furthermore, the termination of any such contracts for default could also have a material adverse effect on our reputation and ability to obtain new business in the future.

If ~~we experience cost overruns on our contracts, we would have to absorb the excess costs which could adversely affect our financial results and our ability to win new contracts.~~

In fiscal 2017, approximately 60% of our net sales were from fixed-price contracts, most of which are in mature production mode. Under fixed-price contracts, we agree to perform specified work for a fixed price and realize all of the profit or loss resulting from variations in the costs of performing the contract. As a result, all fixed-price contracts involve the inherent risk of unreimbursed cost overruns. To the extent we were to incur unanticipated cost overruns on a program or

platform subject to a fixed-price contract, our profitability would be adversely affected. Future profitability is subject to risks including the ability of suppliers to deliver components of acceptable quality on schedule and the successful implementation of automated tooling in production processes.

In fiscal 2017, approximately 36% of our net sales were from cost reimbursable contracts. Under cost reimbursable contracts, we agree to be reimbursed for allowable costs and be paid a fee. If our costs are in excess of the final target cost, fees and our margin may be adversely affected. If our costs exceed authorized contract funding or they do not qualify as allowable costs under applicable regulations, those costs are expensed, and we will not be reimbursed for those costs. Cost overruns may adversely affect our financial performance and our ability to win new contracts.

Also, certain costs such as those related to charitable contributions, advertising, interest expense, and public relations are generally not allowable, and therefore not recoverable through U.S. government contracts. Unexpected variances in unallowable costs may adversely affect our financial performance.

If our subcontractors or suppliers fail to perform their contractual obligations, our contract performance and our ability to win new contracts may be adversely affected.

We rely on subcontractors to perform a portion of the services we agree to provide our customers, and on suppliers to provide raw materials and component parts for our contract performance. A failure by one or more of our subcontractors or suppliers to satisfactorily provide on a timely basis the agreed-upon services or supplies may affect our ability to perform our contractual obligations. Deficiencies in the performance of our subcontractors and/or suppliers could result in liquidated damages or our ~~customer~~customers terminating ~~our~~their contract with us for default. A termination for default could expose us to liability and adversely affect our financial performance and our ability to win new contracts.

Disruptions in the supply of key raw materials, difficulties in the supplier qualification process or increases in prices of raw materials could adversely affect our financial results.

We use a significant quantity of raw materials that are subject to market fluctuations and government regulations. Further, as a U.S. government contractor, we are often required to procure materials from suppliers capable of meeting rigorous customer and government specifications. As market conditions change for these companies, they often discontinue materials with low sales volumes or profit margins. We are often forced to either qualify new materials or pay higher prices to maintain the supply. We may be unable to establish replacement materials and secure customer funding to address specific qualification needs of the programs.

The supply of ammonium perchlorate, a principal raw material used in solid propellant for many years, has been limited to a domestic independent single source that supplies the majority of the domestic solid propellant industry, and actual pricing is based on the total industry demand. The completion of the Space Shuttle Program reduced demand, resulting in significant unit price increases. The abnormal escalation pricing language in our contracts and proposals may not be successful in passing the entire price increase on to the customer or may have a reduced profit margin as a result of any such price increase. Efforts to minimize impacts through contracting levers may not be successful.

An emerging challenge to the extended supply chain is U.S. government contracting regulations to comply with stringent cyber security regulations that may influence the cost of material and services on U.S. government contracts. Further, a relatively recent MDA requirement to pre-approve supplier background screening processes of personnel that will have access to "controlled unclassified information" and separately approve any supplier personnel with dual citizenship has been challenging due to delays at MDA in approving requests which will potentially impact the award of subcontracts while approval is pending. Cyber security requirements will prove to be a continuing challenge as some small key/critical suppliers do not have the capability or infrastructure to support the requirements.

We may be impacted by significant changes across our supply chain due to increased tariffs on materials imported directly, or any significant effects tariffs may have on domestic materials indirectly.

Prolonged disruptions in the supply of any of our key raw materials, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply, and/or a continuing volatility in the prices of raw materials could have a material adverse effect on our operating results, financial condition, and/or cash flows.

The release, unplanned ignition, explosion, or improper handling of dangerous materials used in our business could disrupt our operations and adversely affect our financial results.

Our ~~success~~business operations involve the handling, production, and disposition of potentially explosive and ignitable energetic materials and other dangerous chemicals, including motors and other materials used in rocket propulsion. The handling, production, transport, and disposition of hazardous materials could result in incidents that temporarily shut down or otherwise

disrupt our manufacturing operations and could cause production delays. A release of these chemicals or an unplanned ignition or explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties could also occur. The use of these products in applications by our customers could also result in liability if an explosion, unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic materials, including but not limited to, regulations governing hazardous substances and hazardous waste. The failure to properly store and ultimately dispose of such materials could create significant liability and/or result in regulatory sanctions. Any release, unplanned ignition or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

The real estate market involves significant risk, which could adversely affect our financial results.

Our real estate activities involve significant risks, which could adversely affect our financial results. We are subject to various risks, including the following:

•we may be unable to obtain, or suffer delays in obtaining, necessary re-zoning, land use, building, occupancy, and other required governmental permits and authorizations, which could result in increased costs or our abandonment of these projects;

•we may be unable to complete environmental remediation or to have state and federal environmental restrictions on our property lifted, which could cause a delay or abandonment of these projects;

•we may be unable to obtain sufficient water sources to service our projects, which may prevent us from executing our plans;

•our real estate activities may require significant expenditures and we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our plans;

•economic and political uncertainties could have an adverse effect on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general;

•our property is subject to federal, state, and local regulations and restrictions that may impose significant limitations on our plans;

•much of our property is raw land that includes the natural habitats of various endangered or protected wildlife species requiring mitigation;

•if our land use plans are approved by the appropriate governmental authorities, we may face lawsuits from those who oppose such plans (such lawsuits and the costs associated with such opposition could be material and have an adverse effect on our ability to sell property or realize income from our projects); and

•the time frame required for approval of our plans means that we will have to wait years for a significant cash return.

Our results of operations and financial position may be negatively impacted by the COVID-19 pandemic, and the resulting economic disruption.

The World Health Organization declared COVID-19 a pandemic on March 11, 2020. Subsequently, all the states and local governments in communities where we operate issued various state of emergency decrees or "Stay at Home" orders restricting non-essential business activities. As a defense industrial-base U.S. government contractor, we are considered an essential business by the U.S. and state governments and we continue to operate as such during the COVID-19 pandemic. Some U.S., state, and local government restrictions have been lifted and eased, resulting in an increase in cases of COVID-19 throughout the U.S., which could in turn increase the risk of future outbreaks or exposure of our workforce to COVID-19 which may impact employee health and absenteeism. There is a risk that new strains of the virus could result in new outbreaks and that the efforts being undertaken to combat the virus may not be as successful or effective as intended. The future impact of the COVID-19 pandemic and responses to it therefore remains highly uncertain, as we cannot predict if further governmental restrictions will be issued or if developments will cause a material change in our ability to maintain and operate our business.

We continue to actively monitor the COVID-19 pandemic and its future potential impact on our employees, customers, and supply chain. The increase in the number of our employees who are working remotely as a result of the COVID-19 pandemic has increased cyber and other security-related risks that are associated with operating in a remote environment. As a result, we have increased reliance on our remote employees following our procedures and protocols to protect our confidential information and information entrusted to us. If our workforce fails to properly adhere to these procedures, we could have increased vulnerability to data loss, security breaches, cyber-attacks and other similar events and intrusions.

While some of our employees are able to work remotely, a significant number can only perform their job functions on site, and we have promulgated policies designed to provide for appropriate social distancing, employee protection, mask-wearing, enhanced cleaning protocols, and health monitoring. We evaluate and modify these policies as needed on an ongoing basis, but there remains the risk of disruption or reduced efficiency caused by social distancing and other protective measures as well as elevated employee absence because of illness or required quarantines.

While our customers and suppliers generally continue to operate and perform their missions, some facilities have temporarily reduced or halted operations due to precautionary measures, staffing illness, or cleaning disruptions. For example, NASA's Stennis Space Center, an engine test site for our space programs, continues to operate at Stage 3 of their coronavirus response framework which limits access to the facility for personnel supporting activities necessary for mission-essential and approved mission-critical work. The length and severity of such delays and closures, and any impact they will have on our

operations, remains uncertain. We cannot predict whether the current or future closures of our customer facilities related to the COVID-19 pandemic will have a material adverse effect on our financial results and operations. In addition, as we have a diverse supply chain utilizing companies of varying size, resources and complexity, there is no guarantee that our supply network will have sufficient resources or the ability to maintain their operations.

In addition, the COVID-19 pandemic and resulting global disruptions have caused significant economic uncertainty and volatility in financial markets. Moreover, additional or unforeseen effects from the COVID-19 pandemic and actions taken by governments, companies, and individuals in response to the pandemic may affect our results of operations and financial positions in unexpected ways.

Risks Related to Our Operations

If we experience cost overruns on our contracts, we would have to absorb the excess costs which could adversely affect our financial results and our ability to win new contracts.

In 2020, approximately 61% of our net sales were from fixed-price contracts, most of which are in mature production mode. Under fixed-price contracts, we agree to perform specified work for a fixed price and realize all of the profit or loss resulting from variations in the costs of performing the contract. As a result, all fixed-price contracts involve the inherent risk of unreimbursed cost overruns. To the extent we incur unanticipated cost overruns on a program or platform subject to a fixed-price contract, our profitability would be adversely affected. Future profitability is subject to risks including the ability of suppliers to deliver components of acceptable quality on schedule and the successful implementation of automated tooling in production processes.

In 2020, approximately 39% of our net sales were from cost reimbursable contracts. Under cost reimbursable contracts, we agree to be reimbursed for allowable costs and paid a fee. When our costs are in excess of the final target cost, fees and our margin may be adversely affected. If our costs exceed authorized contract funding or do not qualify as allowable costs under applicable regulations, those costs are expensed, and we will not be reimbursed for those costs. Cost overruns may adversely affect our financial performance and our ability to win new contracts.

Our business and operations could be adversely impacted in the event of a failure of our information technology infrastructure or failure to perform by our third party service providers.

We are dependent on various critical information technologies, including cyber security functions, administered and supported by third party service providers. The use of third party service providers can cause unexpected security vulnerabilities, loss of control and additional costs in the delivery of information services and data storage. Any disruption of our information technology infrastructure may cause operational stoppages, fines, penalties, diminished competitive advantages through reputational damages and increased operational costs. Additionally, we may incur additional costs to comply with our customers', including the U.S. government's, increased cyber security protections and standards in our products.

Substantially all of our excess real estate, that we are in the process of entitling for new opportunities, is located in Sacramento County, California, making us vulnerable to changes in economic and other conditions in that particular market.

As a result of the geographic concentration of our properties, our long-term real estate performance and the value of our properties will depend upon conditions in the Sacramento region, including:

•the sustainability and growth of industries located in the Sacramento region;

•the financial strength and spending of the State of California;

•local real estate market conditions;

•changes in neighborhood characteristics;

•changes in interest rates; and

•real estate tax rates.

If unfavorable economic or other conditions affect the region, our plans and business strategy could be adversely affected.

In order to be successful, we must attract and retain key employees.

Our business has a continuing need to attract large numbers of skilled personnel, including personnel holding security clearances, to support the growth of the enterprise and to replace individuals who have terminated employment due to retirement or for other reasons. To the extent that the demand for qualified personnel exceeds supply, we could experience higher labor, recruiting, or training costs in order to attract and retain such employees, or could experience difficulties in performing under our contracts if our needs for such employees were unmet. In addition, our inability to appropriately plan for the transfer or replacement of appropriate intellectual capital and skill sets critical to us could result in business disruptions and impair our ability to achieve business objectives.

A strike or other work stoppage, or our inability to renew collective bargaining agreements on favorable terms, could adversely affect our financial results.

As of December 31, 2020, 8% of our employees were covered by collective bargaining agreements. In the future, if we are unable to negotiate acceptable new agreements with the unions, upon expiration of the existing contracts, we could experience a strike or work stoppage. Even if we are successful in negotiating new agreements, the new agreements could call for higher wages or benefits paid to union members, which would increase our operating costs and could adversely affect our profitability. If our unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become unionized, we could experience a significant disruption of operations at our facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of our major customers or suppliers could also have similar effects on us.

Risks Related to Our Liquidity and Financing

We use estimates when accounting for certain contracts and changes in these estimates may have a significant impact on our financial results.

Our quarterly and annual sales are affected by a variety of factors that may lead to significant variability in our operating results. In our Aerospace and Defense segment, sales earned under long-term contracts are recognized either on a cost basis, when deliveries are made, or when contractually defined performance milestones are achieved. The timing of deliveries or milestones may fluctuate from quarter to quarter. We evaluate the contract value and cost estimates for performance obligations at least quarterly, and more frequently when circumstances change significantly which is described in more detail in Note 1 in the consolidated financial statements in Item 8 of this Report. Changes in estimates and assumptions related to the status of certain long-term contracts which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Our pension plans are currently underfunded and we expect to be required to make cash contributions in future periods, which may reduce the cash available for our businesses.

As of December 31, 2020, the pension assets, projected benefit obligations, and unfunded pension obligation were $957.0 million, $1,381.5 million, and $424.5 million, respectively. In 2021, we expect to make cash contributions of approximately $94 million to our tax-qualified defined benefit pension plan. We generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there are differences between when we contribute to our tax-qualified defined benefit pension plan under pension funding rules and when it is recoverable under Cost Accounting Standards ("CAS"). Accordingly, in 2021, we expect to recover approximately $43 million of our tax-qualified defined benefit pension plan contributions as allowable costs on our U.S. government contracts.

The funded status of our pension plans may be adversely affected by the investment experience of the plans' assets, by any changes in U.S. law and by changes in the statutory interest rates used by tax-qualified pension plans in the U.S. to calculate funding requirements. Accordingly, if the performance of our plans' assets does not meet our assumptions, if there are changes to the Internal Revenue Service ("IRS") regulations or other applicable law or if other actuarial assumptions are modified, our future contributions to our underfunded pension plans could be higher than we expect.

Additionally, the level of returns on retirement benefit assets, changes in interest rates, increases in Pension Benefit Guaranty Corporations premiums, changes in regulations, changes in mortality rate assumptions, and other factors affect our financial results. The timing of recognition of retirement benefits expense or income in our financial statements differs from the timing of the required funding under the Pension Protection Act or the amount of funding that can be recorded in our overhead rates through our U.S. government contracting business. Significant cash contributions in future periods could materially adversely affect our business, operating results, financial condition, and/or cash flows.

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.

All of the operations of our Aerospace and Defense and Real Estate segments are conducted through subsidiaries. Consequently, our cash flow and ability to service our debt obligations will be largely dependent upon the earnings and cash flows of our operating subsidiaries and the distribution of those earnings to us, or upon loans, advances or other payments made by these subsidiaries to us. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend upon their operating results and cash flows and will be subject to applicable laws and any contractual restrictions contained in the agreements governing their debt, if any.

We have a substantial amount of debt. Our ability to operate is limited by the agreements governing our debt.

We have a substantial amount of debt for which we are required to make interest and principal payments. Interest on long-term financing is not a recoverable cost under our U.S. government contracts. As of December 31, 2020, we had $654.1 million of debt principal. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur additional debt in the future. Our maintenance of higher levels of indebtedness could have adverse consequences including impairing our ability to obtain additional financing in the future.

Our level of debt places significant demands on our cash resources, which could:

•make it more difficult to satisfy our outstanding debt obligations;

•require us to dedicate a substantial portion of our cash for payments related to our debt, reducing the amount of cash flow available for working capital, capital expenditures, entitlement of our real estate assets, contributions to our tax-qualified pension plan, and other general corporate purposes;

•limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;

•place us at a competitive disadvantage with respect to our competitors, some of which have lower debt service obligations and greater financial resources than we do;

•limit our ability to borrow additional funds;

•limit our ability to expand our operations through acquisitions; and

•increase our vulnerability to general adverse economic and industry conditions.

If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected.

We are obligated to comply with financial and other covenants outlined in our debt indentures and agreements that could restrict our operating activities. A failure to comply could result in a default which would, if not waived by the lenders, likely come with substantial cost and accelerate the payment of our debt.

Our debt instruments generally contain various restrictive covenants which include, among others, provisions which may restrict our ability to:

•access the full amount of our revolving credit facility and/or incur additional debt;

•enter into certain leases;

•make certain distributions, investments, and other restricted payments;

•cause our restricted subsidiaries to make payments to us;

•enter into transactions with affiliates;

•create certain liens;

•purchase assets or businesses;

•sell assets and, if sold, retain excess cash flow from these sales; and

•consolidate, merge or sell all or substantially all of our assets.

Our secured debt also contains other customary covenants, including, among others, provisions restricting our ability to pledge assets or create other liens. In addition, certain covenants in our bank facility require that we maintain certain financial ratios.

Based on our existing debt agreements, we were in compliance with our financial and non-financial covenants as of December 31, 2020. Any of the covenants described in this risk factor may restrict our operations and our ability to pursue potentially advantageous business opportunities. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our amended and restated senior credit facility entered into on September 20, 2018, (the "Senior Credit Facility") with the lenders identified therein and Bank of America, N.A., as administrative agent and the 2¼% Notes. In addition, our failure to pay principal and interest when due is a default under the Senior Credit Facility, and in certain cases, would cause cross defaults on the 2¼% Notes.

We may be adversely affected by changes in London Inter-Bank Offered Rate ("LIBOR") reporting practices or the method by which LIBOR is determined.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the LIBOR, announced that it intends to phase out LIBOR by the end of 2021. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. In the U.S., efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee ("ARRC") that has been convened by the Federal Reserve Board and the Federal Reserve Bank of New York. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the U.S., the European Union or elsewhere on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate. Borrowings under our Senior Credit Facility, which consists of a revolver and term loan, constitute our most significant exposure to this transition and there is no guarantee that a shift from LIBOR to a new reference rate will not result in increases to our borrowing costs.

Risks Related to Our Strategy

Our success and growth depends on our ability to execute long-standing programs and periodically secure new contracts in a competitive environment.

~~Aerojet Rocketdyne’s revenue is~~Our sales are primarily derived from long-standing contracts (often sole source) where ~~Aerojet Rocketdyne is~~we are the long-term incumbent. The challenge ~~for Aerojet Rocketdyne~~ is to successfully utilize ~~its~~our technical, engineering, manufacturing, and management skills to execute these programs for the customer, to continue to innovate and refine ~~its~~our solutions, and to offer the customer increasing affordability in an era of fiscal restraint. If ~~Aerojet Rocketdyne is~~we are unable to successfully execute these long-standing programs, our ability to retain existing customers and attract new customers may be impaired.

In addition, we continue to be subject to intense competition in ~~sectors where there is competition, it can be intense.~~certain sectors. For example, we face increasing competition from ~~entrepreneurs~~emerging spaceflight companies such as SpaceX and Blue Origin, who have ~~been or are in the process of developing~~developed liquid fuel propulsion capabilities which are primarily focused on the development of space propulsion systems for heavy lift launch vehicles. ~~These~~For the in-space

propulsion market, we also see a number of new ~~entrepreneurs have signaled their intent to compete primarily on price~~startups entering the market in both small chemical propulsion and ~~are therefore bringing pressure to bear on existing cost paradigms and our manufacturing methodologies.~~small electric propulsion systems targeted at the rapidly expanding small satellite market. The U.S. government also has its own manufacturing capabilities in some areas. We may be unable to compete successfully with our competitors and our inability to do so could result in a decrease in sales, profits, and cash flows that we historically have generated from certain contracts. Further, the U.S. government may open to competition programs on which we are currently the sole supplier, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

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 adversely affect our financial results.

In the performance of contracts with the U.S. government, we operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies, such as the DCAA. These agencies review performance under our contracts, our cost structure and our compliance with applicable laws, regulations and standards, as well as the adequacy of, and our compliance with, our internal control systems and policies. Systems that are subject to review include, but are not limited to, our accounting systems, purchasing systems, property management systems, estimating systems, earned value management systems, and material management and accounting system. Any costs ultimately found to be unallowable or improperly allocated to a specific contract will not be reimbursed or must be refunded if already reimbursed. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties, sanctions or suspension or debarment from doing business with the U.S. government. Whether or not illegal activities are alleged, the U.S. government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. If such actions were to result in suspension or debarment, this could have a material adverse effect on our business.

the award of new contracts. If the U.S. government or one or more prime contractors were to determine that we were not financially viable, our ability to continue to act as a U.S. government contractor or subcontractor would be impaired.

~~Our competitive improvement program (“CIP”) may not be successful in aligning our operations to current market conditions.~~

During fiscal 2015, we initiated the first phase ("Phase I") of the CIP comprised of activities and initiatives aimed at reducing costs in order for us to continue to compete successfully. Phase I is composed of three major components: (i) facilities optimization and footprint reduction; (ii) product affordability; and (iii) reduced administrative and overhead costs. On April 6, 2017, the Board of Directors approved the second phase (“Phase II”) of our previously announced CIP. Pursuant to Phase II, we expanded CIP and further consolidated our Sacramento, California, and Gainesville, Virginia sites, while centralizing and expanding our existing presence in Huntsville, Alabama. We have incurred and will continue to incur significant expenditures to implement the CIP, and we expect to realize significant future cost savings as a result. The cost savings will be realized by the U.S government in the form of more competitive pricing. The CIP may not be successful in achieving these cost savings and other benefits within the expected timeframes, may be insufficient to successfully restructure our operations through, among other ways, the relocation of programs or the inability to transition institutional program knowledge, to conform with the changes affecting our industry, may disrupt our operations, or may be more costly than currently anticipated. See additional information in Note 11 in notes to the consolidated financial statements.

We may expand our operations through acquisitions, which may divert management’s attention and expose us to unanticipated liabilities and costs. Also, acquisitions may increase our non-reimbursable costs. We may experience difficulties integrating any acquired operations, and we may incur costs relating to acquisitions that are never consummated.

Our business strategy may lead us to expand our Aerospace and Defense segment through acquisitions. However, our ability to consummate any future acquisitions on terms that are favorable to us may be limited by U.S. government regulations, the number of attractive acquisition targets, internal demands on our resources, and our ability to obtain financing. Our success in integrating newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s attention from operational matters, implement internal controls, integrate general and administrative services and key information processing systems and, where necessary, re-qualify our customer programs. In addition, future acquisitions could result in the incurrence of additional debt, costs, and/or contingent liabilities. We may also incur costs and divert management attention to acquisitions that are never consummated. Integration of acquired operations may take longer, or be more costly or disruptive to our business, than originally anticipated.

~~Although we undertake a due diligence investigation of each business that we have acquired or may acquire, there~~There may be liabilities of the acquired companies that we fail to, or were unable to, discover during ~~the~~our due diligence investigation of each business that we have acquired or may acquire and for which we, as a successor owner, may be responsible. ~~In connection with acquisitions, we generally seek~~Our efforts to minimize the impact of these types of potential liabilities through indemnities and warranties from ~~the seller. However, these indemnities and warranties, if obtained,~~sellers in connection with acquisitions may not fully cover the liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor, or other reasons.

Due to the pending Merger, we do not expect to pursue additional strategic acquisitions at this time. If the Merger were not completed for any reason, we would expect to consider exploring possible strategic acquisitions.

Risks Related to Legislation, Regulation, and Compliance

Our ~~inability~~Aerospace and Defense segment is subject to ~~adapt~~procurement and other related laws and regulations inherent in contracting with the U.S. government, and non-compliance could adversely affect our financial results.

In the performance of contracts with the U.S. government, we operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies, such as the DCAA. These agencies review performance under our contracts, our cost structure and our compliance with applicable laws, regulations and standards, as well as the adequacy of, and our compliance with, our internal control systems and policies. Systems that are subject to ~~rapid technological changes could impair~~review include, but are not limited to, our accounting systems, purchasing systems, property management systems, estimating systems, earned value management systems, and material management and accounting system. Any costs ultimately found to be unallowable or improperly allocated to a specific contract will not be reimbursed and must be refunded if already reimbursed. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties, sanctions or suspension or debarment from doing business with the U.S. government. Whether or not illegal activities are alleged, the U.S. government also has the ability to ~~remain competitive.~~decrease or withhold certain payments when it deems systems subject to its review to be inadequate. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. If such actions were to result in suspension or debarment, this could have a material adverse effect on our business.

These laws and regulations provide for ongoing audits and reviews of incurred costs as well as contract procurement, performance and administration. The U.S. government may, if it deems appropriate, conduct an investigation into possible illegal or unethical activity in connection with these contracts. Investigations of this nature are common in the aerospace and defense industry, ~~continues~~and lawsuits may result. In addition, the U.S. government and its principal prime contractors periodically investigate the financial viability of their contractors and subcontractors as part of its risk assessment process associated with the award of new contracts. If the U.S. government or one or more prime contractors were to ~~undergo rapid~~determine that we were not financially viable, our ability to continue to act as a U.S. government contractor or subcontractor would be impaired.

Cyber security incidents could disrupt business operations, result in the loss of critical and significant technological development. Our competitors may implement new technologies before us, allowing them to provide more effective products at more competitive prices. Future technological developments could:

confidential information, and adversely impact our ~~competitive position if we are unable~~reputation and results of operations.

We routinely defend against various cyber and other security threats against our defenses to ~~react to these developments in a timely or efficient manner;~~

~~require us to write-down obsolete facilities, equipment,~~protect the confidentiality, integrity and ~~technology;~~

~~require us to discontinue production of obsolete products before we can recover any or all of our related research, development and commercialization expenses; or~~

~~require significant capital expenditures for research, development, and launch of new products or processes.~~

~~Our business and operations could be adversely impacted in the event of a failure~~availability of our information technology infrastructure, supply chain, business or ~~adversely impacted by a successful cyber-attack.~~

As a U.S. defense contractor, we face cyber threats, insider threats, threats to the physical security of our facilities and employees, and terrorist acts, as well as the potential for business disruptions associated withcustomer information ~~technology failures, natural disasters, or public health crises.~~

We routinely experience cyber security threats, threats to our information technology infrastructure and unauthorized attempts to gain access to our sensitive information, as do our customers, suppliers, subcontractors, and other ~~partners.~~threats. We ~~may experience~~are also subject to similar security threats at customer sites that we operate and manage as a contractual requirement.

Prior cyber attacks directed at us have not had a material impact on our financial results, however this may not continue to be the case in the future. Cyber security assessment analyses undertaken by us identified and prioritized steps to enhance our cyber security safeguards. We are in the process of implementing these recommendations to enhance our threat detection and mitigation processes and procedures. Despite the implementation of these new safeguards, there can be no assurance that we will adequately protect our information or that we will not experience any future successful attacks. The threats we face ~~vary~~range from attacks common to most industries to more advanced and persistent, highly organized adversaries, ~~who target~~insider threats and other threat vectors targeting us and other defense and aerospace companies; because we protect national security information. In addition, cyber threats are evolving, growing in their frequency and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption

of data, networks or systems. We also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners’ or customers’ systems that are used in connection with our business.

If we are unable to protect sensitive information or the integrity of our systems, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures. ~~Due~~There can be no assurance that the variety of efforts, procedures and controls we deploy to monitor and minimize the ~~evolving nature of these security threats, however, the~~likelihood and impact of ~~any future incident cannot be predicted.~~

~~We recently outsourced certain information technology and~~adverse cyber security ~~functions~~incidents will be sufficient. The costs related to ~~third-party contractors in order to take advantage of advanced~~ cyber ~~security technologies. The transition may present unexpected security vulnerabilities, additional costs, and result in our having less control over the performance and delivery of such services.~~

~~Although we work cooperatively with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber threats,~~or other security threats or ~~business~~ disruptions may not be fully insured or indemnified by other means. The occurrence of any of these events could adversely affect our internal operations, the services we ~~must rely on~~provide to our customers, our future financial results, or our reputation. Such events could also result in the ~~safeguards put in place by these entities, which may affect the security~~loss of competitive advantages derived from our R&D efforts or other intellectual property, early obsolescence of our ~~information. These entities have varying levels of cyber security expertise~~products and ~~safeguards and their relationships with U.S. government contractors, such as Aerojet Rocketdyne, may increase the likelihood that they are targeted by the same cyber threats~~services, or contractual penalties. Moreover, we ~~face.~~

The DoD and NASA have contract provisions that require contractors at the prime and subcontract level to comply with Safeguarding Covered Defense Information and Cyber Incident Reporting and Security Requirements for Unclassified Information Technology Resources in accordance with their agency guidelines. These clauses are being inserted in or made applicable to U.S. government contracts and non-compliance may impact our ability to receive contracts if we cannot comply or use alternative approaches to comply with the contract information security requirements.

We may be required to expend significant additional resources to modify our cyber security protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications, and we may be subject to litigation and financial losses. These costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to our customers, our future financial results, our reputation or our stock price; or such events could result in the loss of competitive advantages derived from our research and development efforts or other intellectual property, early obsolescence of our products and services, or contractual penalties.

We may experience warranty claims for product failures, schedule delays or other problems with existing or new products and systems.

Many of the products we develop and manufacture are technologically advanced systems that must function under demanding operating conditions. ~~Even though we believe that we employ~~The sophisticated and rigorous design, manufacturing and testing processes and practices we employ do not entirely prevent the risk that we may not be able to successfully launch or manufacture our products on schedule or that our products may not perform as intended.

IfWhen our products fail to perform adequately, some of our contracts require us to forfeit a portion of our expected profit, receive reduced payments, provide a replacement product or service or reduce the price of subsequent sales to the same customer. Performance penalties may also be imposed ifwhen we fail to meet delivery schedules or other measures of contract performance. We do not generally insure against potential costs resulting from any required remedial actions or costs or loss of sales due to postponement or cancellation of scheduled operations or product deliveries.

~~The release, unplanned ignition, explosion, or improper handling of dangerous materials used in our business could disrupt our operations and could adversely affect our financial results.~~

Our business operations involve the handling, production, and disposition of potentially explosive and ignitable energetic materials and other dangerous chemicals, including motors and other materials used in rocket propulsion. Despite our use of specialized facilities to handle dangerous materials and intensive employee training programs, the handling, production, transport, and disposition of hazardous materials could result in incidents that temporarily shut down or otherwise disrupt our manufacturing operations and could cause production delays. It is possible that a release of these chemicals or an unplanned ignition or explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties could also occur. The use of these products in applications by our customers could also result in liability if an explosion, unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic materials, including but not limited to, regulations governing hazardous substances and hazardous waste. The failure to properly store and ultimately dispose of such materials could create significant liability and/or result in regulatory sanctions. Any release, unplanned ignition or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

~~Disruptions in the supply of key raw materials, difficulties in the supplier qualification process or increases in prices of raw materials could adversely affect our financial results.~~

We use a significant quantity of raw materials that are subject to market fluctuations and government regulations. Further, as a U.S. government contractor, we are often required to procure materials from suppliers capable of meeting rigorous customer and government specifications. As market conditions change for these companies, they often discontinue materials with low sales volumes or profit margins. We are often forced to either qualify new materials or pay higher prices to maintain the supply. Although to-date we have been successful in establishing replacement materials and securing customer funding to address specific qualification needs of the programs, we may be unable to continue to do so.

The supply of ammonium perchlorate, a principal raw material used in solid propellant, is limited to a domestic independent single source that supplies the majority of the domestic solid propellant industry and actual pricing is based on the total industry demand. The completion of the Space Shuttle Program reduced demand, resulting in significant unit price increases. In the majority of our contracts, we anticipated this price increase and incorporated abnormal escalation pricing language into our proposals and contracts.

We are also impacted, as is the rest of the industry, by fluctuations in the sustained availability, prices and lead-times of raw materials used in production on various fixed-price contracts, particularly on multi-year programs. We continue to experience volatility in the price and lead-times of certain commodity metals, electronic components, and constituent chemicals. Additionally, we may not be able to continue to negotiate with our customers for economic and/or price adjustment clauses tied to obsolete materials and commodity indices to reduce program impact. The DoD also continues to rigorously enforce the provisions of the “Berry Amendment” which imposes a requirement to procure certain strategic materials critical to national security only from U.S. sources. While availability has not been a significant issue, cost remains a concern as this industry continues to quote “price in effect” at time of shipment terms, increasing the cost risk to our programs. An emerging challenge to the extended supply chain is the U.S. government contracting regulations to comply with stringent cyber security regulations that may influence the cost of material and services on U.S. government contracts. We are actively working to identify these costs to obtain protection in our contracts. Further, a relatively recent Missile Defense Agency ("MDA") requirement to pre-approve supplier background screening processes of personnel that will have access to “controlled unclassified information” and separately approve any supplier personnel with dual citizenship has been challenging due to delays at MDA in approving requests which will potentially impact the award of subcontracts while approval is pending.

~~Our pension plans are currently underfunded and we expect to be required to make cash contributions in future periods, which may reduce the cash available for our businesses.~~

As of the last measurement date at December 31, 2017, the assets, projected benefit obligations, and unfunded pension obligation were $931.2 million, $1,442.9 million, and $511.7 million, respectively. We expect to make cash contributions of approximately $42.0 million to our tax-qualified defined benefit pension plan in fiscal 2018 of which $37.5 million is expected to be recoverable from our U.S. government contracts in fiscal 2018 with the remaining $4.5 million being potentially recoverable from our U.S. government contracts in the future. During fiscal 2017, we made cash contributions of $75.8 million to our tax-qualified defined benefit pension plan of which $33.7 million was recoverable from our U.S. government contracts in fiscal 2017 with the remaining $42.1 million expected to be recoverable from our U.S. government contracts in the future. We generally are able to recover cash contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there can be differences between when we contribute cash to our tax-qualified defined benefit pension plan under pension funding rules and recover it under Cost Accounting Standards ("CAS").

Additionally, the level of returns on retirement benefit assets, changes in interest rates, increases in Pension Benefit Guaranty Corporations premiums, changes in regulations, changes in mortality rate assumptions, and other factors affect our financial results. The timing of recognition of retirement benefit expense or income in our financial statements differs from the timing of the required funding under the Pension Protection Act ("PPA") or the amount of funding that can be recorded in our overhead rates through our U.S. government contracting business. Significant cash contributions in future periods could materially adversely affect our business, operating results, financial condition, and/or cash flows.

~~The level of returns on retirement benefit assets, changes in interest rates, changes in legislation, and other factors affect our financial results.~~

Our earnings are positively or negatively impacted by the amount of expense or income we record for our employee retirement benefit plans. We calculate the expense for the plans based on actuarial valuations. These valuations are based on assumptions that we make relating to financial market and other economic conditions. Changes in key economic indicators result in changes in the assumptions we use. The key assumptions used to estimate retirement benefit expense for the following year are the discount rate and expected long-term rate of return on assets. Our pension expense or income can also be affected by legislation and other government regulatory actions.

Our operations and properties are currently the subject of significant environmental liabilities, and the numerous environmental and other government requirements to which we are subject may become more stringent in the future.

We are subject to federal, state, ~~local,~~ and ~~foreign~~local environmental laws and regulations that, among other things, require us to obtain permits to operate and install pollution control equipment and regulate the generation, storage, handling, transportation, treatment, and disposal of hazardous and solid wastes. These requirements may become more stringent in the future. Additional regulations dictate how and to what level we remediate contaminated soils and the level to which we are required to clean contaminated groundwater. These requirements may also become more stringent in the future. We may also be subject to fines and penalties relating to the operation of our existing and formerly owned businesses. We have been and are subject to toxic tort and asbestos lawsuits as well as other third-party lawsuits, due to either our past or present use of hazardous substances or the alleged on-site or off-site contamination of the environment through past or present operations. We may incur material costs in defending these claims and lawsuits and any similar claims and lawsuits that may arise in the future. Contamination at our current and former properties is subject to investigation and remediation requirements under federal, state and local laws and regulations, and the full extent of the required remediation has not yet been determined. Any adverse judgment or cash outlay could have a significant adverse effect on our operating results, financial condition, and/or cash flows.

~~Although some of our environmental expenditures may be recoverable and we have established reserves, given~~Given the many uncertainties involved in assessing liability for environmental claims, our established reserves may not be sufficient, which could adversely affect our financial results and cash flows.

As of December 31, ~~2017,~~2020, the aggregate range of our estimated future environmental obligations was ~~$341.4~~$300.6 million to ~~$503.4~~$451.1 million and the accrued amount was ~~$341.4~~$300.6 million. We believe the accrued amount for future remediation costs represents the costs that could be incurred by us over the contractual term, if any, or the next fifteen years of the estimated remediation, to the extent they are probable and reasonably estimable. However, inIn many cases the nature and extent of the required remediation has not yet been determined. Given the many uncertainties involved in assessing liability for environmental claims, our reserves may prove to be insufficient. For example, in fiscal 2016, we reached a decision with the U.S. government on the treatment of certain utility costs related to the Sacramento site resulting in a reserve increase of $59.4 million. We evaluate the adequacy of those reserves on a quarterly basis, and adjust them as appropriate. In addition, theThe reserves are based only on known sites and the known contamination at those sites. It is possible that additional sites needing remediation may be identified or that unknown contamination at previously identified sites may be discovered. It is also possible that the regulatory agencies may change clean-up standards for chemicals of concern such as ammonium perchlorate and trichloroethylene. This could lead to additional expenditures for environmental remediation in the future and, given the uncertainties involved in assessing liability for environmental claims, our reserves may prove to be insufficient.

Most of our environmental costs are incurred by our Aerospace and Defense segment, and certain of these future costs are ~~allowable~~allowed to be included in our ~~contracts with the~~ U.S. ~~government.~~government contracts. We currently estimate approximately ~~24%~~12% of our Aerospace and Defense segment environmental costs will not likely be reimbursable.

Our environmental expenses related to non-Aerojet Rocketdyne sites are generally not recoverable and a significant increase in these estimated environmental expenses could have a significant adverse effect on our operating results, financial condition, and/or cash flows.

We face certain significant risk exposures and potential liabilities that may not be adequately covered by ~~indemnity or~~ insurance.

A significant portion of our business relates to developing and manufacturing propulsion systems for defense and space applications, armament systems for precision tactical weapon systems, and munitions applications. New technologies may be untested or unproven. In addition, we may incur significant liabilities that are unique to our products and services. ~~In some, but not all, circumstances, we may receive indemnification from the U.S. government. While we maintain insurance for certain risks, the~~The amount of our insurance coverage may not be adequate to cover all claims or liabilities, and it is not possible to obtain insurance to protect against all operational risks and liabilities. Accordingly, we may be forced to bear substantial costs resulting from risks and

uncertainties of our business, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

14Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware ("Court of Chancery") will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Company to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine as that doctrine exists under the law of the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our Certificate of Incorporation described in the preceding sentence. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934 (the "Exchange Act"), except that it may apply to such suits if brought derivatively on our behalf. There is, however, uncertainty as to whether a court would enforce such provision in connection with suits to enforce a duty or liability created by the Securities Act or the Exchange Act if brought derivatively on our behalf, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

General Risk Factors

Business disruptions could seriously affect us.

Our business may be affected by disruptions including, but not limited to: threats to physical security of our facilities and employees; information technology attacks; natural disasters; political and social unrest; and pandemics or other public health crises. The costs related to these events may not be fully mitigated by insurance or other means. For example, subsequent to Aerojet Rocketdyne’s 2020 year-end, a manufacturing building under construction experienced weather damage and we are currently evaluating the impact of such damage. Disruptions could affect our internal operations or services provided to customers, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Tax changes could affect our effective tax rate and future profitability

Our effective tax rate for 2020 was 23.6% compared with 26.5% for 2019. Changes in applicable U.S. tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense, operating results, and/or cash flows.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize such costs incurred in the U.S. over five years. While it is possible that Congress may modify, defer or repeal this provision before it takes effect, we have no assurance that the provision will be modified, deferred or repealed. If this provision is not modified, deferred or repealed, it may have an adverse effect on our cash taxes and as a result, our operating results, financial condition, and/or cash flows.

The level of returns on retirement benefit assets, changes in interest rates, changes in legislation, and other factors affect our financial results.

Our earnings are positively or negatively impacted by the amount of expense or income we record for our employee retirement benefit plans. We calculate the expense for the plans based on actuarial valuations. These valuations are based on assumptions that we make relating to financial market and other economic conditions. Changes in key economic indicators result in changes in the assumptions we use. The key assumptions used to estimate retirement benefits expense for the following year are the discount rate and expected long-term rate of return on assets. Our pension expense or income can also be affected by legislation and other government regulatory actions.

Our inability to protect our trade secrets, patents and proprietary rights could adversely affect our businesses’ prospects and competitive positions.

~~We seek~~If we are unable to ~~protect~~obtain or maintain protections for proprietary technology and inventions through patents and other ~~proprietary-right protection. If we are unable to obtain or maintain these~~proprietary rights protections, we may not be able to prevent third parties from using our proprietary rights. In addition, we may incur significant expense in protecting our intellectual property.

We also rely on trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We have taken measures to protect our trade secrets and know-how, including the use of confidentiality agreements with our employees, consultants and advisors. These agreements may be breached and remedies for a breach may not be sufficient to compensate us for damages incurred. ~~We generally control and limit access to our product documentation and other proprietary information.~~ Other parties may independently develop our know-how or otherwise obtain access to our technology.

~~Business disruptions could seriously affect us.~~

Our business may be affected by disruptions including, but not limited to: threats to physical security of our facilities and employees, including senior executives; terrorist acts; information technology attacks or failures; damaging weather or other acts of nature; and pandemics or other public health crises. The costs related to these events may not be fully mitigated by insurance or other means. Disruptions could affect our internal operations or services provided to customers, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

~~We have a substantial amount of debt. Our ability to operate is limited by the agreements governing our debt.~~

We have a substantial amount of debt for which we are required to make interest and principal payments. Interest on long-term financing is not a recoverable cost under our U.S. government contracts. As of December 31, 2017, we had $670.9 million of debt principal. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur additional debt in the future. Our maintenance of higher levels of indebtedness could have adverse consequences including impairing our ability to obtain additional financing in the future.

~~Our level of debt places significant demands on our cash resources, which could:~~

~~make it more difficult to satisfy our outstanding debt obligations;~~

require us to dedicate a substantial portion of our cash for payments related to our debt, reducing the amount of cash flow available for working capital, capital expenditures, entitlement of our real estate assets, contributions to our tax-qualified pension plan, and other general corporate purposes;

~~limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;~~

~~place us at a competitive disadvantage with respect to our competitors, some of which have lower debt service obligations and greater financial resources than we do;~~

~~limit our ability to borrow additional funds;~~

~~limit our ability to expand our operations through acquisitions; and~~

~~increase our vulnerability to general adverse economic and industry conditions.~~

~~If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected.~~

We are obligated to comply with financial and other covenants outlined in our debt indentures and agreements that could restrict our operating activities. A failure to comply could result in a default which would, if not waived by the lenders, likely would come with substantial cost and accelerate the payment of our debt.

~~Our debt instruments generally contain various restrictive covenants which include, among others, provisions which may restrict our ability to:~~

~~access the full amount of our revolving credit facility and/or incur additional debt;~~

~~enter into certain leases;~~

~~make certain distributions, investments, and other restricted payments;~~

~~cause our restricted subsidiaries to make payments to us;~~

~~enter into transactions with affiliates;~~

~~create certain liens;~~

~~purchase assets or businesses;~~

~~sell assets and, if sold, retain excess cash flow from these sales; and~~

~~consolidate, merge or sell all or substantially all of our assets.~~

~~Our secured debt also contains other customary covenants, including, among others, provisions:~~

~~relating to the maintenance of the property collateralizing the debt; and~~

~~restricting our ability to pledge assets or create other liens.~~

~~In addition, certain covenants in our bank facility require that we maintain certain financial ratios.~~

Based on our existing debt agreements, we were in compliance with our financial and non-financial covenants as of December 31, 2017. Any of the covenants described in this risk factor may restrict our operations and our ability to pursue potentially advantageous business opportunities. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our amended and restated senior credit facility entered into on June 17, 2016 (the “Senior Credit Facility”) with the lenders identified therein and Bank of America, N.A., as administrative agent and the 2.25% Convertible Senior Notes ("2¹/₄~~% Notes"). In addition, our failure to pay principal and interest when due is a default under the Senior Credit Facility, and in certain cases, would cause cross defaults on the 2~~ ¹/₄~~% Notes.~~

~~The real estate market involves significant risk, which could adversely affect our financial results.~~

~~Our real estate activities involve significant risks, which could adversely affect our financial results. We are subject to various risks, including the following:~~

we may be unable to obtain, or suffer delays in obtaining, necessary re-zoning, land use, building, occupancy, and other required governmental permits and authorizations, which could result in increased costs or our abandonment of these projects;

~~we may be unable to complete environmental remediation or to have state and federal environmental restrictions on our property lifted, which could cause a delay or abandonment of these projects;~~

~~we may be unable to obtain sufficient water sources to service our projects, which may prevent us from executing our plans;~~

~~our real estate activities may require significant expenditures and we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our plans;~~

economic and political uncertainties could have an adverse effect on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general;

~~our property is subject to federal, state, and local regulations and restrictions that may impose significant limitations on our plans;~~

~~much of our property is raw land that includes the natural habitats of various endangered or protected wildlife species requiring mitigation;~~

if our land use plans are approved by the appropriate governmental authorities, we may face lawsuits from those who oppose such plans (such lawsuits and the costs associated with such opposition could be material and have an adverse effect on our ability to sell property or realize income from our projects); and

~~the time frame required for approval of our plans means that we will have to wait years for a significant cash return.~~

~~As a result of the geographic concentration of our properties, our long-term real estate performance and the value of our properties will depend upon conditions in the Sacramento region, including:~~

~~the sustainability and growth of industries located in the Sacramento region;~~

~~the financial strength and spending of the State of California;~~

~~local real estate market conditions;~~

~~changes in neighborhood characteristics;~~

~~changes in interest rates; and~~

~~real estate tax rates.~~

~~If unfavorable economic or other conditions continue in the region, our plans and business strategy could be adversely affected.~~

~~We may incur additional costs related to past or future divestitures, which could adversely affect our financial results.~~

In connection with our divestitures in prior periods, we have incurred and may incur additional costs. As part of our divestitures, we have provided customary indemnification to the purchasers for such matters as claims arising from the operation of the businesses prior to disposition, including income tax matters and the liability to investigate and remediate certain environmental contamination existing prior to disposition. These additional costs and the indemnification of the purchasers of our former or current businesses may require additional cash expenditures, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

~~In order to be successful, we must attract and retain key employees.~~

~~A strike or other work stoppage, or our inability to renew collective bargaining agreements on favorable terms, could adversely affect our financial results.~~

As of December 31, 2017, 14% of our 5,157 employees were covered by collective bargaining agreements. In the future, if we are unable to negotiate acceptable new agreements with the unions, upon expiration of the existing contracts, we could experience a strike or work stoppage. Even if we are successful in negotiating new agreements, the new agreements could call for higher wages or benefits paid to union members, which would increase our operating costs and could adversely affect our profitability. If our unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become unionized, we could experience a significant disruption of operations at our facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of our major customers or suppliers could also have similar effects on us.

~~Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate.~~

The restatement of our previously issued financial statements has been time-consuming, expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows.

We have incurred expenses, including audit, legal, consulting and other professional fees, in connection with the restatement of our previously issued financial statements and the remediation of weaknesses in our internal control over financial reporting. We have taken a number of steps, including adding significant internal resources and implemented a number of additional procedures, in order to strengthen our accounting function and attempt to reduce the risk of additional misstatements in our financial statements. To the extent these steps are not successful, we could be forced to incur additional time and expense. Our management’s attention has also been diverted from the operation of our business in connection with the restatements and remediation of material weaknesses in our internal controls.

In addition, any stockholder, U.S. governmental or other actions brought based on the restatement of our previously issued financial statements could, regardless of the outcome, consume management’s time and attention and result in additional legal, accounting, insurance and other costs.

~~Failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act could negatively impact the market price of our common stock.~~

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We rely on numerous manual processes to manage our business, which increases our risk of having an internal control failure. The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a

PART II


~~Item 5.~~	~~Market for Registrant’s Common Equity, Related Stockholders’ Matters and Issuer Purchases of Equity Securities~~

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of February ~~15, 2018,~~12, 2021, there were ~~6,070~~5,349 holders of record of our common stock. Our common stock is listed on the New York Stock Exchange under the trading symbol "AJRD." On February ~~15, 2018,~~12, 2021, the last reported sale price of our common stock on the New York Stock Exchange was ~~$27.59~~ $52.36per share.

On December 19, 2020, our Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share (including shares underlying the 2¼% Notes participating on an as-converted basis).

On March 13, 2020, we announced that our Board of Directors authorized and approved a new share repurchase program ("Repurchase Program") allowing us to repurchase our outstanding common stock with an aggregate market value of up to $100 million, from time to time, over a period of up to 18 months. The Repurchase Program may be executed through various methods, including open market purchases or privately negotiated transactions. The table below provides information about the Repurchase Program activity during the three months ended December 31, 2020.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (1)






October 1, 2020 through October 31, 2020	969,871	$	40.57	969,871	$	48.3
November 1, 2020 through November 30, 2020	—	$	—	—	—
December 1, 2020 through December 31, 2020	—	$	—	—	—
Total	969,871	$	40.57	969,871	$	48.3

_____

(1) In millions

The table below provides information about shares surrendered to the Company during the three months ended December 31, 2020, to pay employee withholding taxes due upon the vesting of restricted stock.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs






October 1, 2020 through October 31, 2020	923	$	39.82	—	—
November 1, 2020 through November 30, 2020	—	$	—	—	—
December 1, 2020 through December 31, 2020	119,884	$	52.47	—	—
Total	120,807	$	52.37	—	—

Information concerning long-term debt appears in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption ~~“Liquidity~~"Liquidity and Capital ~~Resources”~~Resources" and in Part II, Item 8. ~~Consolidated~~ Financial Statements and Supplementary Data at Note 6 in ~~notes to~~the consolidated financial statements. ~~Our Senior Credit Facility restricts the payment of dividends, and we do not anticipate paying cash dividends in the foreseeable future.~~

Information concerning securities authorized for issuance under our equity compensation plans appears in Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters under the caption ~~“Equity~~"Equity Compensation Plan Information.”"

~~Common Stock~~

Our common stock is listed on the New York Stock Exchange under the trading symbol “AJRD.” The following table lists, on a per share basis for the periods indicated, the high and low sale prices for the common stock as reported by the New York Stock Exchange:

Common Stock Price
High Low
Fiscal 2017
  First Quarter $ 22.99
$ 17.69
  Second Quarter $ 23.27
$ 20.06
  Third Quarter $ 36.25
$ 20.77
  Fourth Quarter $ 35.91
$ 27.66
Fiscal 2016
  First Quarter $ 17.20
$ 13.98
  Second Quarter $ 18.86
$ 15.52
  Third Quarter $ 19.16
$ 16.80
  Fourth Quarter $ 21.40
$ 16.04

Stock Performance Graph

The following graph compares the cumulative total stockholder returns, calculated on a dividend reinvested basis, on $100 invested in our common stock in November ~~2012~~2015 with the cumulative total return of (i) the Standard & Poor’s 500 Composite Stock Price Index (“("S&P 500 ~~Index”~~Index"), and (ii) the Standard & Poor’s 500 Aerospace & Defense Index. The stock price performance shown on the graph is not necessarily indicative of future performance.

Comparison of Cumulative Total Stockholder Return Among

Aerojet Rocketdyne, S&P 500 Index, and the S&P 500 Aerospace & Defense Index,

November ~~2012~~2015 through December ~~2017~~2020


Company/Index	Base Year 2015		Year Ended December 31,
			2016		2017		2018		2019		2020

Aerojet Rocketdyne Holdings, Inc.	$	100.00	$	102.34	$	177.88	$	200.86	$	260.32	$	301.31
S&P 500 Index	100.00		110.19		134.25		128.37		168.78		199.84
S&P 500 Aerospace & Defense	100.00		117.97		166.78		153.32		199.82		167.72

Company/Index
Base
Period
2012
Year ended
November 30, November 30, November 30, December 31, December 31,
2013 2014 2015 2016 2017

Aerojet Rocketdyne Holdings, Inc. $ 100.00
$ 199.35
$ 181.52
$ 190.65
$ 195.11
$ 339.13
S&P 500 Index 100.00
130.30
152.27
156.45
172.40
210.04
S&P 500 Aerospace & Defense 100.00
153.67
175.96
187.61
221.31
312.90

Item 6. Selected Financial Data

The following selected financial data is qualified by reference to and should be read in conjunction with the consolidated financial statements, including the notes thereto in Item 8. ~~Consolidated~~ Financial Statements and Supplementary Data and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Year Ended December 31,
	2020			2019			2018			2017			2016
	(In millions, except per share amounts)
Net sales	$	2,072.7		$	1,981.5		$	1,895.9		$	1,877.2		$	1,761.3
Net income (loss)	137.7			141.0			137.3			(9.2)			18.0
Basic earnings (loss) per share of common stock ("EPS")	1.76			1.79			1.80			(0.13)			0.27
Diluted EPS	1.66			1.69			1.75			(0.13)			0.27
Cash dividends declared per share	5.00			—			—			—			—
Supplemental statement of operations information:
Net income (loss)	$	137.7		$	141.0		$	137.3		$	(9.2)		$	18.0
Interest expense	30.1			35.7			34.4			30.9			32.5
Interest income	(6.3)			(15.5)			(10.0)			(3.5)			(0.6)
Income tax provision	42.5			50.9			51.3			96.1			11.2
Depreciation and amortization	65.3			74.5			72.3			72.6			64.9
GAAP retirement benefits expense	36.6			26.1			57.6			73.2			68.9
CAS recoverable retirement benefits expense	(43.8)			(41.3)			(38.2)			(36.2)			(29.5)
Unusual items	8.1			0.3			0.2			(1.0)			34.5





Adjusted EBITDAP (Non-GAAP measure)*	$	270.2		$	271.7		$	304.9		$	222.9		$	199.9
Net income (loss) as percentage of net sales	6.6		%	7.1		%	7.2		%	(0.5)		%	1.0		%
Adjusted EBITDAP (Non-GAAP measure) as a percentage of net sales	13.0		%	13.7		%	16.1		%	11.9		%	11.3		%
Stock-based compensation expense	$	31.4		$	27.3		$	20.5		$	22.0		$	12.9
Environmental remediation provision adjustments	4.3			2.1			(36.9)			8.2			18.3
Cash flow information:
Cash flow provided by operating activities	$	363.8		$	261.2		$	252.7		$	212.8		$	158.7
Capital Expenditures	(54.6)			(42.9)			(43.2)			(29.4)			(47.6)
Free Cash Flow*	$	309.2		$	218.3		$	209.5		$	183.4		$	111.1
Balance Sheet information:
Total assets	$	2,899.9		$	2,707.8		$	2,490.1		$	2,258.7		$	2,249.5
Total debt principal	654.1			675.8			672.8			670.9			725.6

_________

* We provide Non-GAAP measures as a supplement to financial results presented in accordance with GAAP. A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is presented later in the Management’s Discussion and Analysis under the heading "Use of Non-GAAP Financial Measures."

Year end One month ended
December 31, December 31, November 30, November 30, November 30, December 31,
2017 2016 2015 2014 2013 2015
(In millions, except per share amounts)
Net sales $ 1,877.2
$ 1,761.3
$ 1,708.3
$ 1,602.2
$ 1,378.1
$ 96.3
Net (loss) income (9.2 ) 18.0
(16.2 ) (50.0 ) 162.9
7.0
Basic (loss) income per share of common stock (0.13 ) 0.27
(0.27 ) (0.86 ) 2.68
0.11
Diluted (loss) income per share of common stock (0.13 ) 0.27
(0.27 ) (0.86 ) 2.05
0.10
Supplemental statement of operations information:

Net (loss) income $ (9.2 ) $ 18.0
$ (16.2 ) $ (50.0 ) $ 162.9
$ 7.0
Income tax provision (benefit) 96.1
11.2
0.3
16.3
(198.4 ) 2.0
Interest expense 30.9
32.5
50.4
52.7
48.7
3.8
Interest income (3.5 ) (0.6 ) (0.3 ) (0.1 ) (0.2 ) —
Depreciation and amortization 72.6
64.9
65.1
63.7
43.5
5.1
Retirement benefits, net (1) 39.5
41.4
67.6
36.5
65.0
5.6
Unusual items:

     Acquisition costs 1.0
—
—
—
20.0
—
     (Gain) loss on legal matters and settlements (2.0 ) —
50.0
0.9
(0.5 ) 0.4
     Loss on bank amendment —
0.1
—
0.2
—
—
     Loss on debt repurchased/redeemed —
34.4
1.9
60.6
5.0
—
Adjusted EBITDAP (Non-GAAP measure) $ 225.4
$ 201.9
$ 218.8
$ 180.8
$ 146.0
$ 23.9
Adjusted EBITDAP (Non-GAAP measure) as a percentage of net sales 12.0 % 11.5 % 12.8 % 11.3 % 10.6 % 24.8 %
Net (loss) income as percentage of net sales (0.5 )% 1.0 % (0.9 )% (3.1 )% 11.8 % 7.3 %
Stock-based compensation expense (benefit) $ 22.0
$ 12.9
$ 8.6
$ 5.7
$ 14.1
$ (0.4 )
Environmental remediation provision adjustments 8.2
18.3
17.3
10.8
8.4
(0.1 )
Cash flow information:

   Cash flow provided by operating activities $ 212.8
$ 158.7
$ 67.6
$ 151.9
$ 77.6
$ 0.1
   Cash flow used in investing activities (66.4 ) (47.1 ) (35.8 ) (35.7 ) (474.9 ) (1.2 )
   Cash flow (used in) provided by financing activities (21.7 ) 90.2
(86.6 ) (47.9 ) 432.8
(1.5 )
Balance Sheet information:

   Total assets $ 2,258.7
$ 2,249.5
$ 2,034.9
$ 1,918.6
$ 1,752.1
$ 2,023.3
   Total debt principal 670.9
725.6
652.0
782.2
699.2
650.6

~~________~~

(1) Retirement benefits are net of cash funding to our tax-qualified defined benefit pension plan which are recoverable costs under our U.S. government contracts. Our recoverable tax-qualified pension costs in fiscal 2017 and 2016 totaled $33.7 million and $27.5 million, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the other sections of this Report, including the consolidated financial statements and notes thereto appearing in Item ~~8. Consolidated Financial Statements and Supplementary Data~~8 of this Report, the risk factors appearing in Item ~~1A. Risk Factors~~1A of this Report, and the disclaimer regarding forward-looking statements appearing at the beginning of Item ~~1. Business~~1 of this Report. ~~Historical results~~We have elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 19, 2020, for the discussion of the year ended December 31, 2018, the earliest of the three fiscal years presented.

Overview

On December 20, 2020, the Company entered into the Merger Agreement with Lockheed Martin and the Merger Sub, pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company with the Company being the surviving corporation and a wholly-owned subsidiary of Lockheed Martin.

Subject to the terms and conditions set forth in ~~Item 6. Selected Financial Data and Item 8. Consolidated Financial Statements and Supplementary Data~~the Merger Agreement, each share of ~~this Report should not~~common stock outstanding as of immediately prior to the effective time of the Merger will be ~~taken~~automatically converted into the right to receive cash in an amount equal to $56.00 per share, without interest, less, to the extent paid or payable as ~~indicative~~outlined below, the amount per share of the Pre-Closing Dividend (defined below).

On December 19, 2020, our Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share (including shares underlying the 2¼% Notes participating on an as-converted basis). The Pre-Closing Dividend is payable on March 24, 2021, to the holders of our ~~future operations.~~shares and 2¼% Notes as of the close of business on March 10, 2021. The $56.00 per share price under the Merger Agreement is expected to be reduced to $51.00 after the payment of the Pre-Closing Dividend to our stockholders and holders of our 2¼% Notes participating on an as-converted basis (or, in the unlikely event that closing occurs after March 10, 2021, but before March 24, 2021, to the extent the Pre-Closing Dividend is payable after the closing).

~~Overview~~Closing of the Merger is anticipated to occur in the second half of 2021, subject to various customary conditions, including our stockholder approval and regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

A summary of the significant financial highlights for ~~fiscal 2017~~the years ended December 31, 2020 and 2019, which management uses to evaluate our operating performance and financial condition, is presented below.

~~Net sales for fiscal 2017 totaled $1,877.2 million compared with $1,761.3 million for fiscal 2016.~~

~~Net loss for fiscal 2017 was $(9.2) million, or $(0.13) loss per share, compared with net income of $18.0 million, or $0.27 diluted income per share, for fiscal 2016.~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code. Among other provisions, the Tax Act reduced the federal corporate statutory income tax rate from 35% to 21% beginning in 2018. In accordance with the rate reduction, we wrote down our net deferred tax assets by $64.6 million which unfavorably affected our effective tax rate by 74.4%. We expect the tax rate in future years to be between 27% and 29%.

~~Adjusted EBITDAP (Non-GAAP measure*) for fiscal 2017 was $225.4 million, compared with $201.9 million for fiscal 2016.~~

Segment performance before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure*) was $205.4 million for fiscal 2017, compared with $188.4 million for fiscal 2016.

~~Cash provided by operating activities in fiscal 2017 totaled $212.8 million, compared with $158.7 million in fiscal 2016.~~

~~Free cash flow (Non-GAAP measure*) in fiscal 2017 totaled $183.4 million, compared with $111.1 million in fiscal 2016.~~

~~Total contract backlog as of December 31, 2017 was $4.6 billion compared with $4.5 billion as of December 31, 2016.~~

~~Total funded backlog as of December 31, 2017 was $2.1 billion compared with $2.3 billion as of December 31, 2016.~~


	Year Ended December 31,
	2020			2019
	(In millions, except percentage and per share amounts)
Net sales	$	2,072.7		$	1,981.5
Net income	137.7			141.0
Net income as a percentage of net sales	6.6		%	7.1		%
Adjusted Net Income (Non-GAAP measure*)	138.4			130.1
Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales	6.7		%	6.6		%
Earnings Per Share ("EPS") - Diluted	1.66			1.69
Adjusted EPS (Non-GAAP measure*)	1.67			1.56
Adjusted EBITDAP (Non-GAAP measure*)	270.2			271.7
Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales	13.0		%	13.7		%
Cash provided by operating activities	363.8			261.2
Free cash flow (Non-GAAP measure*)	309.2			218.3

_________

* We provide Non-GAAP measures as a supplement to financial results ~~based on~~presented in accordance with GAAP. A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is presented later in the Management’s Discussion and Analysis under the heading ~~“Operating Segment Information” and “Use~~"Use of Non-GAAP Financial Measures.”"

~~We have a long-term view~~Our business outlook is affected by both increasing complexity in the global security environment and continuing worldwide economic pressures, including those resulting from the COVID-19 pandemic. A significant component of our strategy in this environment is to focus on ~~value creation~~protecting our employees' health and may take initiatives that we believe offer substantial future prospects even if they may dampen near term performance. In addition, our portfolio of contracts includes programs which last for decades and range from lower margin cost-plus development programssafety, delivering excellent performance to higher margin fixed-price production programs. Further, the mix of those programs can vary substantially. We intend to strengthen our competitive advantage by continuously improving operational excellence through our CIP programs and continue to invest in R&D initiatives. We also intend to grow our business and plan to work with our customers, ~~to expand markets for current products, develop upgrades to extend product life,~~driving improvements and ~~develop~~efficiencies across our operations, and creating value through the ~~requirements for future systems. We plan to maintain a diversified~~enhancement and ~~broad business mix, a favorable balance~~expansion of ~~cost-reimbursable and fixed-price type contracts, a significant follow-on business and an attractive customer profile. Finally, we intend to complement~~ our ~~growth strategy through select acquisitions that broaden our product and service offerings, deepen our capabilities, and provide entry into new markets.~~business.

Some of the significant challenges we face are as follows: uncertainty associated with the COVID-19 pandemic and the actions taken by governments, companies, and individuals in response, including the distribution of a vaccine, dependence upon U.S. government programs and contracts, future reductions or changes in U.S. government spending in our markets, ~~implementation of the CIP,~~ environmental matters, capital structure, underfunded pension plan, and cyber security.

COVID-19

During 2020, there was minimal adverse impact to our ~~underfunded retirement benefit plans.~~financial results and operations as a result of the COVID-19 outbreak. The safety and welfare of our employees remains our top priority, and throughout the year, we have continued to operate with our established safety protocols, which include selected and site-specific work and travel restrictions, in addition to other measures intended to reduce the spread of COVID-19. We have also continued to evaluate new opportunities to protect our employees. Although we have not experienced significant absenteeism or supply chain disruption, the extent to which the COVID-19 pandemic impacts our future financial results depends on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic and the actions being taken to contain and treat it, including the distribution of a vaccine, and other indirect effects that may come as a result of actions taken by governments, companies, and individuals in response to the pandemic and its economic impact.

As a defense industrial-base U.S. government contractor, we are considered an essential business by the U.S. and state governments and we continue to operate as such during the COVID-19 pandemic. We are taking a variety of measures to maintain the availability and functionality of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. In making decisions regarding our operations, we take into account public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the adoption of mask-wearing protocols, enhanced cleaning protocols and health monitoring, as well as the imposition of travel restrictions, the promotion of social distancing, and the adoption of work-from-home requirements for employees where practicable. All of these policies and initiatives could impact our operations. Due to the evolving nature of the COVID-19 pandemic, corresponding U.S. government policies and the uncertainty relating to the rollout and timing of vaccines, we are not able at this time to estimate its full impact on our financial results and operations.

Major Customers

The principal end user customers of our products and technology are primarily agencies of the U.S. government. Since a majority of our sales are, directly or indirectly, to the U.S. government, funding for the purchase of our products and services generally follows trends in U.S. aerospace and defense spending. However, individual U.S. government agencies, which include the military services, NASA, ~~the Missile Defense Agency,~~MDA, and the prime contractors that serve these agencies, exercise independent purchasing power within ~~“budget top-line”~~"budget top-line" limits. Therefore, sales to the U.S. government are not regarded as sales to one customer, but rather each contracting agency is viewed as a separate customer.

~~Sales~~The following table summarizes end user net sales to the U.S. government and its agencies, including net sales to ~~our~~ significant customers disclosed ~~below, were as follows:~~



	~~Percentage of Net~~ ~~Sales~~
~~Fiscal 2017~~	92	%
~~Fiscal 2016~~	91	%
~~Fiscal 2015~~	90	%
~~One month ended December 31, 2015~~	85	%

below:


Year Ended December 31,	Percentage of Net Sales
2020	96	%
2019	96

The following ~~are percentages of~~table summarizes net sales by principal end user in ~~fiscal 2017:~~

2020:



NASA		3025	%
MDA		23
U.S. Army		19
U.S. Air Force		2312
U.S. ~~Army~~Navy		1610
~~Missile Defense Agency~~		12
~~U.S. Navy~~	9
Other U.S. government	27
Total U.S. government customers		9296
Other customers		84
Total		100	%

The following ~~are~~table summarizes the percentages of net sales for significant programs, all of which are included in the U.S. government sales and are comprised of multiple ~~contracts.~~contracts:


	Year Ended December 31,
	2020		2019
RS-25 program	18	%	17	%
Standard Missile program	13		13
THAAD program	11		10
PAC-3 program	10		10

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
RS-25 program 14 % 12 % 12 % 10 %
Standard Missile program 9
12
14
12
THAAD program 9
13
13
13

The ~~demand for certain of our services and products is directly related to the level of funding of U.S. government programs.~~

~~Customers~~following table summarizes customers that represented more than 10% of net sales, ~~for the periods presented were as follows:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
Lockheed Martin 24 % 27 % 29 % 24 %
ULA 22
21
19
28
Raytheon 17
20
20
19
NASA 17
13
11
10

~~Our sales to~~ each of ~~the major customers listed above involve~~which involves sales of several product lines and ~~programs.~~programs:


	Year Ended December 31,
	2020		2019
Lockheed Martin	34	%	33	%


NASA	21		21
Raytheon	17		17

ULA	*		10

________

* Less than 10%

Industry Update

Information concerning our industry appears in Part I, Item 1. Business under the caption ~~“Industry~~"Industry Overview.”"

~~Competitive Improvement Program~~

During fiscal 2015, we initiated Phase I of the CIP comprised of activities and initiatives aimed at reducing costs in order for us to continue to compete successfully. Phase I is composed of three major components: (i) facilities optimization and

footprint reduction; (ii) product affordability; and (iii) reduced administrative and overhead costs. On April 6, 2017, the Board of Directors approved Phase II of our previously announced CIP. Pursuant to Phase II, our plans are to expand CIP and further consolidate our Sacramento, California, and Gainesville, Virginia sites, while centralizing and expanding our existing presence in Huntsville, Alabama. When fully implemented, we anticipate that the CIP will result in annual cost reductions of $230 million.

We currently estimate that we will incur restructuring and related costs of the Phase I and II programs of approximately $235.1 million (including approximately $60.5 million of capital expenditures). We incurred $79.5 million of such costs through December 31, 2017, including $32.5 million in capital expenditures.

Environmental Matters

Our current and former business operations are subject to, and affected by, federal, state, ~~local,~~ and ~~foreign~~local environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation, and remediation of certain materials, substances, and wastes. See Notes 8(b) and 8(c) ~~and 8(d) of~~in the ~~notes to~~ consolidated financial statements in Item 8 of this Report and "Environmental Matters" below for summary of our environmental reserve activity.

Capital Structure

~~Retirement Benefits~~Pension Plan

As of the last measurement date at December 31, 2020, the pension assets, projected benefit obligations, and unfunded pension obligation were $957.0 million, $1,381.5 million, and $424.5 million, respectively. We estimate that 82% of our unfunded pension obligation as of December 31, 2020, is related to our U.S. government contracting business, Aerojet Rocketdyne.

We expect to make cash contributions of approximately ~~$42.0~~$94 million to our tax-qualified defined benefit pension plan in fiscal 2018 of which $37.5 million is expected to be recoverable from our U.S. government contracts in fiscal 2018 with the remaining $4.5 million being potentially recoverable from our U.S. government contracts in the future. During fiscal 2017, we made cash contributions of $75.8 million to our tax-qualified defined benefit pension plan of which $33.7 million was recoverable from our U.S. government contracts in fiscal 2017 with the remaining $42.1 million expected to be recoverable from our U.S. government contracts in the future.2021. We generally are able to recover ~~cash~~ contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there ~~can be~~are differences between when we contribute ~~cash~~ to our tax-qualified defined benefit pension plan under pension funding rules and ~~recover~~when it is recoverable under CAS. Accordingly, in 2021, we expect to recover approximately $43 million of our tax-qualified defined benefit pension plan contributions as allowable costs on our U.S. government contracts.

The COVID-19 pandemic and resulting global disruptions have continued to cause significant economic uncertainty and volatility in financial markets which could adversely impact the funded status of our tax-qualified defined benefit pension plan. The funded status of our ~~retirement benefit plans may be adversely affected~~pension plan is impacted by the investment experience of the plan assets, by any changes in U.S. law, and by changes in the statutory interest rates used by the tax-qualified pension ~~plans~~plan in the U.S. to calculate funding requirements. Accordingly, if the performance of our ~~retirement benefit~~plan assets does not meet our assumptions, if there are changes to the ~~IRS~~Internal Revenue Service regulations or other applicable law or if other actuarial assumptions are modified, our future contributions to our underfunded ~~retirement benefit plans~~pension plan could be higher than we expect.

~~Additionally, the level of returns on retirement benefit assets, changes in interest rates, changes in legislation,~~Cyber Security

We routinely defend against various cyber and other ~~factors affect~~security threats against our ~~financial results.~~ defenses to protect the confidentiality, integrity and availability of our information technology infrastructure, supply chain, business or customer information and other threats. We are also subject to similar security threats at customer sites that we operate and manage as a contractual requirement.

The ~~timing~~threats we face range from attacks common to most industries to more advanced and persistent, highly organized adversaries, insider threats and other threat vectors targeting us and other defense and aerospace companies; because we protect national security information. In addition, cyber threats are evolving, growing in their frequency and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of ~~recognition~~service attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of ~~retirement benefit expense~~confidential, personal or ~~income~~otherwise protected information (ours or that of our employees, customers or partners), and corruption of data, networks or systems. We also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our ~~financial statements differs from~~partners’ or customers’ systems that are used in connection with our business.

In response to the ~~timing~~COVID-19 pandemic, where practicable, we have required employees to work remotely, and expanded our information technology and communication support to enhance their connectivity. We continue to assess our information technology systems and are engaged in cooperative efforts with our customers, suppliers, and subcontractors to seek to minimize the impact of ~~the required funding under the PPA~~cyber threats, other security threats or ~~the amount of funding that can be recorded in our overhead rates through our U.S. government contracting business.~~business disruptions.

Results of Operations:

Net Sales:


	Year Ended December 31,
	2020		2019		Change
	(In millions)
Net sales:	$	2,072.7	$	1,981.5	$	91.2

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions)
Net sales: $ 1,877.2
$ 1,761.3
$ 115.9
$ 1,761.3
$ 1,708.3
$ 53.0

* Primary reason for change.The increase in net sales was primarily ~~due to an increase of $158.0 million in space programs primarily~~ driven by the ~~following (i) the~~ RS-25, ~~program development~~MRBM, and integration effort in support of the SLS development program; (ii) increased development effort and volume on the Commercial Crew Development program; and (iii) increased deliveries on the Atlas V program. The increase in net sales wasGMLRS programs partially offset by a decrease of $36.5 million in defense programs primarily driven by the timing of deliveries on the THAAD and Standard Missile programs partially offset by the net sales generated from the Coleman Aerospace acquisition. Further, as a result of the 2016 calendar, Aerojet Rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2017. The additional week of operations, which occurred in the fourth quarter of fiscal 2016 and accounted for $32.2 million in additional net sales, is included in the above discussion of program changes.

** ~~Primary reason for change.~~ The increase in net sales was primarily due to the following (i) an increase of $95.0 million on space launch programs primarily driven by increased deliveries on the RL10 program and the transition of the Commercial Crew Development program from development activities to initial production and (ii) an increase of $37.2 million on air defense programs primarily driven by the transition of the PAC-3 contracts to full-rate production. These factors were partially offset by (i) the sale of approximately 550 acres of our Sacramento Land for $42.0 million in fiscal 2015 and (ii) a decrease of $36.8 million in the various Standard Missile contracts primarily from the timing of deliveries on the Standard Missile-3 Block IB contract and Standard Missile MK72 booster contract. Further, as a result of the 2016 calendar, Aerojet Rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2015. The additional week of operations, which occurred in the fourth quarter of fiscal 2016 and accounted for $32.2 million in additional net sales, is included in the above discussion of program changes.

One month ended December 31,
2015
(In millions)
Net sales: $ 96.3

Net sales for the month ended December 31, 2015 was primarily comprised of the following: (i) sales of $32.4 million in missile defense and strategic systems programs primarily driven by the deliveries on the THAAD and Standard Missile programs; (ii) sales of $26.4 million in our space launch programs primarily associated with the RL10 program as a result of deliveries on this multi-year contract and deliveries on the Atlas V program; and (iii) sales of $26.1 million in space advanced programs primarily driven by workdecline on the Commercial Crew Development program and the ~~RS-25 program which is currently engaged~~cancellation in ~~a significant development and integration effort in support~~2019 of the ~~SLS~~Redesigned Exoatmospheric Kill Vehicle ("RKV") program.

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


	Year Ended December 31,
	2020			2019			Change
	(In millions, except percentage amounts)




Cost of sales (exclusive of items shown separately below)	$	1,701.3		$	1,613.6		$	87.7


Percentage of net sales	82.1		%	81.4		%

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions, except percentage amounts)
Components of cost of sales:
Cost of sales excluding retirement benefits $ 1,562.2
$ 1,477.4
$ 84.8
$ 1,477.4
$ 1,409.3
$ 68.1
Retirement benefits 53.2
50.0
3.2
50.0
50.2
(0.2 )
Cost of sales $ 1,615.4
$ 1,527.4
$ 88.0
$ 1,527.4
$ 1,459.5
$ 67.9
Percentage of net sales 86.1 % 86.7 % 86.7 % 85.4 %
Percentage of net sales excluding retirement benefits 83.2 % 83.9 % 83.9 % 82.5 %

* Primary reason for change. The decrease in cost of sales as a percentage of net sales excluding retirement benefits was primarily due to favorable contract performance on numerous programs as a result of overhead cost reductions and reduced program risks, most notably on the THAAD program, partially offset by cost growth and manufacturing inefficiencies in fiscal 2017 on electric propulsion contracts.

** ~~Primary reason for change.~~ The increase in cost of sales as a percentage of net sales ~~excluding retirement benefits~~ was primarily ~~due to~~driven by the ~~fiscal 2015 land sale~~following: (i) cost growth on a portion of ~~approximately 550 acres of Sacramento Land resulting in gross profit of $30.6 million.~~

One month ended December 31,
2015
(In millions, except percentage amounts)
Components of cost of sales:
Cost of sales excluding retirement benefits $ 71.3
Retirement benefits 4.1
Cost of sales $ 75.4
Percentage of net sales 78.3 %
Percentage of net sales excluding retirement benefits 73.9 %

Cost of sales as a percentage of net sales excluding retirement benefits for the month ended December 31, 2015 included favorable changes in contract estimates due to better than expected performance primarily on the Standard Missile program in 2020; (ii) cost growth and ~~THAAD programs as a result of manufacturing efficiencies~~performance issues in 2020 on the Commercial Crew Development program; and ~~risk mitigation.~~(iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019. These ~~favorable~~ factors were partially offset by ~~contract losses~~improved performance and risk retirements on ~~an electric propulsion contract.~~the RS-68, MRBM, and THAAD programs.

~~AR1 Research and Development:~~

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change 2016 2015 Change*
(In millions, except percentage amounts)
AR1 R&D: $ —
$ —
$ —
$ —
$ 32.1
$ 32.1
Percentage of net sales — % — % — % 1.9 %

* ~~Primary reason for change.~~ Our company-sponsored R&D expenses (reported as a component of cost of sales) are generally allocated among all contracts and programs in progress under U.S. government contractual arrangements. From time to time, we believe it is in our best interests to self-fund and not allocate costs for certain R&D activities to the U.S. government contracts. In fiscal 2015, we self-funded $32.1 million of engine development expenses associated with our newest liquid booster engine, the AR1, and did not allocate these costs to the U.S. government. The table below summarizes total AR1 R&D costs net of reimbursements:

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
AR1 R&D costs allocated to U.S. government contracts $ 16.8
$ 20.5
$ 16.1
$ 2.7
AR1 R&D costs not allocated to U.S. government contracts —
—
32.1
—
Total $ 16.8
$ 20.5
$ 48.2
$ 2.7

Selling, General and Administrative Expense (“("SG~~&A”~~&A"):


	Year Ended December 31,
	2020			2019			Change
	(In millions, except percentage amounts)



Components of SG&A:
SG&A excluding stock-based compensation	$	24.7		$	26.3		$	(1.6)
Stock-based compensation	31.4			27.3			4.1

SG&A	$	56.1		$	53.6		$	2.5
Percentage of net sales	2.7		%	2.7		%
Percentage of net sales excluding stock-based compensation	1.2		%	1.3		%

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions, except percentage amounts)
Components of SG&A:
SG&A excluding retirement benefits and stock-based compensation $ 25.0
$ 21.8
$ 3.2
$ 21.8
$ 23.0
$ (1.2 )
Stock-based compensation 22.0
12.9
9.1
12.9
8.6
4.3
Retirement benefits 20.0
18.9
1.1
18.9
17.4
1.5
SG&A $ 67.0
$ 53.6
$ 13.4
$ 53.6
$ 49.0
$ 4.6
Percentage of net sales 3.6 % 3.0 % 3.0 % 2.9 %
Percentage of net sales excluding retirement benefits and stock-based compensation 1.3 % 1.2 % 1.2 % 1.3 %

* Primary reason for change.The increase in SG&A expense was primarily driven by ~~an increase of $9.1 million~~stock-based compensationthat was partially offset by a decrease in business travel-related expenses due to our restrictions on travel in response to COVID-19. For detailed information about stock-based compensation ~~primarily as a result of increases~~refer to Note 9(e) in the ~~fair value~~consolidated financial statements in Item 8 of stock appreciation rights, the accelerated vesting of stock awards to a former executive officer, and the August 2016 stock award granted to the Executive Chairman that vested according to the attainment of share prices ranging from $22 per share to $27 per share of our common stock.this Report.

** ~~Primary reason for change.~~ ~~The increase in SG&A expense was primarily driven by an increase of $4.3 million in stock-based compensation which was primarily a result of an increase in performance based stock compensation.~~

One month ended December 31,
2015
(In millions, except percentage amounts)
Components of SG&A:
SG&A excluding retirement benefits and stock-based compensation $ 1.7
Stock-based compensation (0.4 )
Retirement benefits 1.5
SG&A $ 2.8
Percentage of net sales 2.9 %

~~SG&A expense as a percentage of net sales for the month ended December 31, 2015 was relatively proportional to the first quarter of fiscal 2016.~~

Depreciation and Amortization:


	Year Ended December 31,
	2020		2019		Change
	(In millions)

Components of depreciation and amortization:
Depreciation	$	49.2	$	58.1	$	(8.9)
Amortization	13.4		13.6		(0.2)
Accretion	2.7		2.8		(0.1)
Depreciation and amortization	$	65.3	$	74.5	$	(9.2)

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions)
Components of depreciation and amortization:
Depreciation $ 56.7
$ 49.6
$ 7.1
$ 49.6
$ 49.8
$ (0.2 )
Amortization 13.7
13.3
0.4
13.3
13.4
(0.1 )
Accretion 2.2
2.0
0.2
2.0
1.9
0.1
Depreciation and amortization $ 72.6
$ 64.9
$ 7.7
$ 64.9
$ 65.1
$ (0.2 )

* Primary reason for change.The ~~increase~~decrease in depreciation expense was primarily the result of increased accelerated depreciation associated with changes in the estimated useful lives of long-lived assets and capital projects being placed in service to support the cost saving initiatives of the CIP.

** ~~Primary reason for change.~~ ~~Depreciation~~ and amortization expense was ~~essentially unchanged for the period.~~

One month ended December 31,
2015
(In millions)
Components of depreciation and amortization:
Depreciation $ 3.8
Amortization 1.1
Accretion 0.2
Depreciation and amortization $ 5.1

~~Depreciation and amortization expense for the month ended December 31, 2015 was relatively proportional~~primarily due to the ~~first quarter~~completion of ~~fiscal 2016.~~depreciation expense associated with the enterprise resource planning system which was placed into service in June 2013.

Other Expense, ~~Net and Loss On Debt:~~Net:


	Year Ended December 31,
	2020		2019		Change
	(In millions)
Other expense, net:	$	9.4	$	1.6	$	7.8

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions)
Other expense, net and loss on debt: $ 7.9
$ 54.3
$ (46.4 ) $ 54.3
$ 68.4
$ (14.1 )

* Primary reason for change. The decrease was primarily due to a decrease of $35.5 million in unusual items (discussed below) and a decrease of $10.1 million in environmental remediation expenses (see discussion of "Environmental Matters" below).

** ~~Primary reason for change.~~ ~~The decrease~~increase in other expense, net was primarily due to ~~a decrease~~an increase of ~~$17.4~~$7.8 million in unusual items ~~charges (see discussion of~~primarily related to Merger costs. For detailed information about unusual ~~items below).~~

One month ended December 31,
2015
(In millions)
Other expense, net: $ 0.2

~~The $0.2 million of other expense, net for the month ended December 31, 2015 was insignificant.~~

~~Total unusual items, comprised of a component of other expense, net and loss on debt~~expenses refer to Note 13 in the consolidated financial statements in Item 8 of ~~operations, was as follows:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Aerospace and Defense:
        (Gain) loss on legal matters and settlements (1) $ (2.0 ) $ —
$ 50.0
$ 0.4
        Aerospace and defense unusual items (2.0 ) —
50.0
0.4
Corporate:
        Loss on debt repurchased (2) —
34.4
1.9
—
        Acquisition costs (1) 1.0
—
—

        Loss on bank amendment (1) —
0.1
—
—
        Corporate unusual items 1.0
34.5
1.9
—
            Total unusual items $ (1.0 ) $ 34.5
$ 51.9
$ 0.4

~~________~~

~~(1) Operating (income) expense~~

~~(2) Non-operating expense~~

~~Fiscal 2017 Activity:~~

We recorded $2.0 million of realized gains, net of interest associated with the failure to register with the SEC the issuance of certain of our common shares under the defined contribution 401(k) employee benefit plan. On May 30, 2017, we made a registered rescission offer to buy back unregistered shares from eligible Plan participants at the original purchase price plus interest, or to reimburse eligible Plan participants for losses they may have incurred if their shares had been sold. The actual cost of the registered rescission offer was less than the previously estimated costs. The registered rescission offer expired on June 30, 2017 and settlement payments of $3.5 million under the offer have been completed in the third quarter of fiscal 2017.

~~We recorded $1.0 million of costs related to the acquisition of Coleman Aerospace from L3 Technologies, Inc.~~

~~Fiscal 2016 Activity:~~

~~On July 18, 2016, we redeemed $460.0 million principal amount of our7.125% Second-Priority Senior Secured Notes (“7~~¹/₈~~% Notes”), representing all of the outstanding 7~~¹/₈% Notes, at a redemption price equal to 105.344% of the principal amount, plus accrued and unpaid interest. We incurred a pre-tax charge of $34.1 million in fiscal 2016 associated with the extinguishment of the 7¹/₈~~% Notes. The $34.1 million pre-tax charge was the result of the $24.6 million paid in excess of the par value and $9.5 million associated with the write-off of unamortized deferred financing costs.~~

~~We retired $13.0 million principal amount of our delayed draw term loan resulting in a loss of $0.3 million.~~

~~We recorded a charge of $0.1 million associated with an amendment to the Senior Credit Facility.~~

~~Fiscal 2015 Activity:~~

We recorded an expense of $50.0 million associated with a legal settlement. Aerojet Rocketdyne entered into a Settlement and Mutual Release Agreement (the “Agreement”) with Orbital Sciences Corporation (“Orbital”) pursuant to which the parties mutually agreed to a termination for convenience of the contract relating to the provision by Aerojet Rocketdyne of 20 AJ-26 liquid propulsion rocket engines to Orbital for the Antares program (the “Contract”). The Agreement also settles all claims the parties may have had against one another arising out of the Contract and the launch failure that occurred on October 28, 2014 of an Antares launch vehicle carrying the Cygnus ORB-3 service and cargo module.

~~We retired $76.0 million principal amount of our delayed draw term loan resulting in $1.9 million of losses associated with the write-off of deferred financing fees.~~

~~December 2015 Activity:~~

We recorded $0.4 million for realized losses and interest associated with the failure to register with the SEC the issuance of certain of our common shares under the defined contribution 401(k) employee benefit plan.

this Report.

Interest Income:


	Year Ended December 31,
	2020		2019		Change
	(In millions)
Interest income:	$	6.3	$	15.5	$	(9.2)

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions)
Interest income: $ 3.5
$ 0.6
$ 2.9
$ 0.6
$ 0.3
$ 0.3

* Primary reason for change.The ~~increase~~decrease in interest income was primarily due to lower market rates partially offset by higher average cash ~~balances and interest rates.~~balances.

** ~~Primary reason for change.~~ ~~Interest income was immaterial for the period presented.~~


	Year Ended December 31,
	2020		2019		Change
	(In millions)

Components of interest expense:
Contractual interest and other	$	20.2	$	26.3	$	(6.1)
Amortization of debt discount and deferred financing costs	9.9		9.4		0.5
Interest expense	$	30.1	$	35.7	$	(5.6)

~~Interest Expense:~~

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions)
Components of interest expense:
Contractual interest and other $ 22.4
$ 30.2
$ (7.8 ) $ 30.2
$ 47.7
$ (17.5 )
Amortization of debt discount and deferred financing costs 8.5
2.3
6.2
2.3
2.7
(0.4 )
Interest expense $ 30.9
$ 32.5
$ (1.6 ) $ 32.5
$ 50.4
$ (17.9 )

* Primary reason for change. The decrease in interest expense was primarily due to ~~the retirement of the principal amount of our delayed draw term loan in the first quarter of fiscal 2016, the redemption of the 7~~¹/₈~~% Senior Secured Notes in the third quarter of fiscal 2016, and the conversion of 4~~¹/₁₆~~% Convertible Subordinated Debentures (“4~~¹/₁₆% Debentures”) to common shares. The decrease was partially offset by interest expense on the debt incurred on the Senior Credit Facility at a variable interest rate of 3.82% as of December 31, 2017 and the issuance of the 2¹/₄~~% Notes in December 2016 at an effective interest rate of 5.8%.~~

** ~~Primary reason for change.~~ ~~The decrease in interest expense was primarily due to the retirement of the principal amount of our delayed draw term loan in the first quarter of fiscal 2016 and the redemption of the 7~~¹/₈~~% Notes in the third quarter of fiscal 2016. The decrease was partially offset by interest expense on the debt incurred on the Senior Credit Facility at a~~ lower variable interest ~~rate (3.02% as of December 31, 2016).~~rates and average obligations on our Senior Credit Facility.

One month ended December 31,
2015
(In millions)
Components of interest expense:
Contractual interest and other $ 3.6
Amortization of deferred financing costs 0.2
Interest expense $ 3.8

~~Interest expense for the month ended December 31, 2015 was proportional to our interest expense for the first quarter of fiscal 2016.~~

Income Tax Provision:

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Income tax provision $ 96.1
$ 11.2
$ 0.3
$ 2.0


	Year Ended December 31,
	2020		2019

	(In millions)
Income tax provision	$	42.5	$	50.9

In ~~fiscal 2017,~~2020, our effective tax rate was ~~an income tax expense of 110.6% on pre-tax income of $86.9 million.~~23.6%. Our effective tax rate differed from the ~~35.0%~~21% statutory federal income tax rate primarily due to ~~the change in the federal statutory tax rate from 35% to 21% under the Tax Act of 2017. The one time reduction to deferred tax assets due to the Tax Act was~~

$64.6 million or a 74.4% increase to the effective tax rate. Before applying the effects of the Tax Act, the effective tax rate was 36.2%. This rate differs from the 35% federal income tax rate due to an increase from state income taxes, ~~partially offset by R&D credits and favorable adjustments to~~ uncertain tax ~~positions. We expect the tax rate in future years to be between 27% and 29%.~~

In fiscal 2016, the income tax provision recorded differs from the expected tax that would be calculated by applying the federal statutory rate to our income before income taxes primarily due to the impacts from state income taxes,positions, and certain expenditures which are permanently not deductible for tax purposes, ~~partially~~ offset by ~~the impact of~~ R&D ~~credits.~~

~~In fiscal 2015, the income~~credits and excess tax ~~provision recorded differs from the expected tax that would be calculated by applying the federal statutory rate~~benefits related to our ~~loss before income taxes primarily due to state income taxes and certain non-deductible interest expense, partially offset by~~stock-based compensation.

During the ~~retroactive reinstatement~~fourth quarter of ~~the federal R&D credit and benefits allowed by Section 199 of~~2020, the IRS ~~code allowed to manufacturers.~~

released final regulations regarding the timing of income and inclusion under an accrual method of accounting. In accordance with the ~~month ended December 31, 2015,~~Applicable Financial Statement cost offset method described within the ~~income tax provision~~regulations, we recorded ~~differs from the expected tax that would be calculated by applying the federal statutory rate~~a $41.1 million reduction to our income before income taxes primarily due to the re-enactment of the federal R&D credit in December 2015 for calendar year 2015 which has been treated as a discrete event for the December 2015 one-month period, as well as impacts from state income taxes, benefits allowed by Section 199 of the IRS code allowed to manufacturers, and R&D credits.

~~The carrying value of our deferred~~uncertain tax ~~assets is dependent on our ability to generate sufficient taxable income in the future. Our valuation allowance of $1.7 million remained unchanged from prior year.~~positions.

As of December 31, ~~2017,~~2020, the liability for uncertain income tax positions was ~~$2.8~~$14.6 million. Due to the 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.

In 2019, our effective tax rate was 26.5%. Our effective tax rate is higher than the 21% statutory federal income tax rate primarily due to state income taxes and uncertain tax positions, offset by R&D credits and excess tax benefits related to our stock-based compensation.

Retirement ~~Benefit Plans:~~Benefits Expense:


	Year Ended December 31,

	2020		2019		Change
	(In millions)

Components of retirement benefits expense:
Interest cost on benefit obligation	$	43.3	$	53.9	$	(10.6)
Assumed return on assets	(60.5)		(64.8)		4.3
Amortization of prior service credits	0.1		(0.1)		0.2
Amortization of net losses	53.7		37.1		16.6
Retirement benefits expense	$	36.6	$	26.1	$	10.5

~~Components of~~Primary reason for change. The increase in retirement benefits ~~are:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Service cost $ 15.0
$ 14.0
$ 10.8
$ 1.1
Interest cost on benefit obligation 59.1
66.0
65.5
5.5
Assumed return on assets (64.5 ) (70.1 ) (88.1 ) (6.0 )
Amortization of prior service credits (0.1 ) (1.1 ) (1.1 ) (0.1 )
Amortization of net losses 63.7
60.1
80.5
5.1
$ 73.2
$ 68.9
$ 67.6
$ 5.6
expense was primarily due to higher actuarial losses in the current period for the most part as a result of a decrease in the discount rate used to calculate the benefit obligation at December 31, 2019, partially offset by lower interest costs on the benefit obligation.

We estimate that our retirement benefits expense will be approximately ~~$60~~$34 million in ~~fiscal 2018.~~

2021. Additionally, we estimate the CAS recoverable amounts related to the Company's retirement benefits plans to be approximately $45 million in 2021. See ~~“Critical~~"Critical Accounting Policies - Retirement Benefit ~~Plans”~~Plans" for more information about our accounting practices with respect to retirement benefits.

Operating Segment Information:

We evaluate our operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales less applicable costs, expenses and provisions for unusual items relating to the segment. Excluded from segment performance are: corporate income and expenses, interest expense, interest income, income taxes, ~~legacy income or expenses,~~ and unusual items not related to the segment. We believe that segment performance provides information useful to investors in understanding our ~~underlying~~ operational performance. In addition, we provide the Non-GAAP financial measure of our operational performance called segment performance before environmental remediation provision adjustments, retirement benefits, and segment unusual items. We believe the exclusion of the items listed above permits an evaluation and a comparison of results for ongoing business operations, and it is on this basis that management internally assesses operational performance.

Aerospace and Defense Segment


	Year Ended December 31,
	2020			2019			Change
	(In millions, except percentage amounts)
Net sales	$	2,069.4		$	1,974.0		$	95.4
Segment performance	275.6			269.3			6.3



Segment margin	13.3		%	13.6		%

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change**
(In millions, except percentage amounts)
Net sales $ 1,870.8
$ 1,753.9
$ 116.9
$ 1,753.9
$ 1,660.0
$ 93.9
Segment performance 177.9
143.3
34.6
143.3
48.9
94.4
Segment margin 9.5 % 8.2 % 8.2 % 2.9 %
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) 10.8 % 10.5 % 10.5 % 10.0 %
Components of segment performance:
Aerospace and Defense before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) $ 202.9
$ 184.1
$ 18.8
$ 184.1
$ 165.7
$ 18.4
Environmental remediation provision adjustments (7.5 ) (18.3 ) 10.8
(18.3 ) (16.6 ) (1.7 )
Retirement benefits, net (1) (19.5 ) (22.5 ) 3.0
(22.5 ) (50.2 ) 27.7
Unusual items 2.0
—
2.0
—
(50.0 ) 50.0
Aerospace and Defense total $ 177.9
$ 143.3
$ 34.6
$ 143.3
$ 48.9
$ 94.4

~~________~~

* Primary reason for change. The increase in net sales was primarily ~~due to an increase of $158.0 million in space programs primarily~~ driven by the ~~following (i) the~~ RS-25, ~~program development~~MRBM, and integration effort in support of the SLS development program; (ii) increased development effort and volume on the Commercial Crew Development program; and (iii) increased deliveries on the Atlas V program. The increase in net sales wasGMLRS programs partially offset by a decrease of $36.5 million in defense programs primarily driven by the timing of deliveries on the THAAD and Standard Missile programs partially offset by the net sales generated from the Coleman Aerospace acquisition. Further, as a result of the 2016 calendar, Aerojet Rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2017. The additional week of operations, which occurred in the fourth quarter of fiscal 2016 and accounted for $32.2 million in additional net sales, is included in the above discussion of program changes.

Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items in fiscal 2017 compared with fiscal 2016 was up 30 basis points. Items that had a significant impact were favorable contract performance on numerous programs as a result of overhead cost reductions and reduced program risks, most notably on the THAAD program, partially offset by cost growth and manufacturing inefficiencies in fiscal 2017 on electric propulsion contracts.

** ~~Primary reason for change.~~ The increase in net sales was primarily due to the following (i) an increase of $95.0 million on space launch programs primarily driven by increased deliveries on the RL10 program, and the transition of the Commercial Crew Development program from development activities to initial production and (ii) an increase of $37.2 million on air defense programs primarily driven by the transition of the PAC-3 contracts to full-rate production. These factors were partially offset by a decrease of $36.8 million in the various Standard Missile contracts primarily from the timing of deliveries on the Standard Missile-3 Block IB contract and Standard Missile MK72 booster contract. Further, as a result of the 2016 calendar, Aerojet Rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2015. The additional week of operations, which occurred in the fourth quarter of fiscal 2016 and accounted for $32.2 million in additional net sales, is included in the above discussion of program changes.

Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items in fiscal 2016 compared with fiscal 2015 was up 50 basis points. Items that had a significant impact include the following: (i) favorable contract performance on the THAAD program as a result of operating performance and lower overhead costs; (ii) a gross contract benefit of $8.1 million in fiscal 2015 associated with the Antares AJ-26 Settlement Agreement; and (iii) cost growth and manufacturing inefficiencies in the current period on electric propulsion contracts.

One month ended December 31,
2015
(In millions, except percentage amounts)
Net sales $ 95.8
Segment performance 15.2
Segment margin 15.9 %
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) 20.5 %
Components of segment performance:
Aerospace and Defense before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) $ 19.6
Environmental remediation provision adjustments 0.1
Retirement benefits, net (4.1 )
Unusual items (0.4 )
Aerospace and Defense total $ 15.2

Net sales for the month ended December 31, 2015 was primarily comprised of the following: (i) sales of $32.4 million in missile defense and strategic systems programs primarily driven by the deliveries on the THAAD and Standard Missile programs; (ii) sales of $26.4 million in our space launch programs primarily associated with the RL10 program as a result of deliveries on this multi-year contract and deliveries on the Atlas V program; and (iii) sales of $26.1 million in space advanced programs primarily driven by development workdecline on the Commercial Crew Development program and the ~~RS-25 program which is currently engaged~~cancellation in ~~a significant development and integration effort in support~~2019 of the ~~SLS~~RKV program.

The decrease in segment margin ~~before environmental remediation provision adjustments,~~was primarily driven by the following: (i) cost growth on a portion of the Standard Missile program in 2020; (ii) cost growth and performance issues in 2020 on the Commercial Crew Development program; (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019; and (iv) higher retirement ~~benefits,~~benefit expense. These factors were partially offset by (i) improved performance and risk retirements on the RS-68, MRBM, and THAAD programs and (ii) lower depreciation expense.

During 2020, we had $45.1 millionof net ~~and unusual items included (i)~~ favorable changes in contract estimates ~~due to better than expected~~on operating results before income taxes compared with net favorable changes of $38.4 million during 2019.

Real Estate Segment


	Year Ended December 31,
	2020		2019		Change
	(In millions)
Net sales	$	3.3	$	7.5	$	(4.2)
Segment performance	(1.8)		2.1		(3.9)

Primary reason for change. Net sales consist primarily of rental property operations. The decrease in net sales and segment performance ~~on the Standard Missile and THAAD programs~~were driven primarily by delays in new tenant starts as a result of ~~manufacturing efficiencies~~the COVID-19 pandemic.

Backlog:

As of December 31, 2020, our total remaining performance obligations, also referred to as backlog, totaled $6.7 billion, compared with $5.4 billion as of December 31, 2019. The increase in backlog was due to a $1.8 billion contract modification for the production of an additional 18 RS-25 engines to support future deep space exploration missions. We expect to recognize approximately 32%, or $2.2 billion, of the remaining performance obligations as sales over the next twelve months, an additional

24% the following twelve months, and ~~risk mitigation and (ii) costs recoveries on retirement benefit plan contributions. These favorable factors were partially offset by contract losses on an electric propulsion contract.~~

44% thereafter. The following table summarizes ~~our~~ backlog:

As of December 31,
2017 2016
(In billions)
Funded backlog $ 2.1
$ 2.3
Unfunded backlog 2.5
2.2
Total contract backlog $ 4.6
$ 4.5
Total contract backlog expected to be filled within one year $ 1.7
$ 1.7


	As of December 31,
	2020		2019
	(In billions)
Funded backlog	$	3.0	$	2.1
Unfunded backlog	3.7		3.3
Total backlog	$	6.7	$	5.4

Total backlog includes both funded backlog (unfilled orders for which funding is authorized, appropriated and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated). Indefinite delivery and quantity contracts and unexercised options are not reported in total backlog. Backlog is subject to funding delays or program restructurings/cancellations which are beyond our control.

~~Real Estate Segment~~

Year Ended Year Ended
December 31, December 31, December 31, November 30,
2017 2016 Change* 2016 2015 Change*
(In millions)
Net sales $ 6.4
$ 7.4
$ (1.0 ) $ 7.4
$ 48.3
$ (40.9 )
Segment performance 2.5
4.3
(1.8 ) 4.3
34.4
(30.1 )

* ~~Primary reason for change.~~ ~~During fiscal 2017 and 2016, net sales and segment performance consisted primarily of rental property operations.~~ ~~During fiscal 2015, we recognized net sales of $42.0 million associated with a land sale of approximately 550 acres which resulted in a pre-tax gain of $30.6 million.~~

One month ended December 31,
2015
(In millions)
Net sales $ 0.5
Segment performance 0.2

~~Net sales and segment performance consisted primarily of rental property operations.~~

Use of Non-GAAP Financial Measures:

~~In addition to segment performance (discussed above), we~~Adjusted EBITDAP, Adjusted Net Income, and Adjusted EPS

We provide the Non-GAAP financial ~~measure~~measures of our ~~operational~~ performance called Adjusted ~~EBITDAP.~~EBITDAP, Adjusted Net Income, and Adjusted EPS. We use ~~this metric~~these metrics to measure our operating and total Company performance. We believe that for management and investors to effectively compare core ~~operating~~ performance from period to period, the ~~metric~~metrics should exclude items ~~relating~~that are not indicative of, or are unrelated to, results from our ongoing business operations such as retirement benefits (pension and postretirement benefits), significant non-cash expenses, the impacts of financing decisions on earnings, and items incurred outside the ordinary, ~~on-going~~ongoing and customary course of our ~~operations.~~business. Accordingly, we define Adjusted EBITDAP as GAAP net ~~(loss)~~ income adjusted to exclude ~~income taxes,~~ interest expense, interest income, income taxes, depreciation and amortization, retirement benefits net of ~~cash funding to our tax-qualified defined benefit pension plan~~amounts that are recoverable under our U.S. government contracts, and unusual items which we do not believe are reflective of such ordinary, ~~on-going~~ongoing and customary activities. Adjusted ~~EBITDAP does~~Net Income and Adjusted EPS exclude retirement benefits net of amounts that are recoverable under our U.S. government contracts and unusual items which we do not believe are reflective of such ordinary, ongoing and customary activities. Adjusted Net Income and Adjusted EPS do not represent, and should not be considered an alternative to, net ~~(loss)~~ income or diluted EPS as determined in accordance with GAAP.


	Year Ended December 31,
	2020			2019
	(In millions, except per share and percentage amounts)
Net income	$	137.7		$	141.0

Interest expense	30.1			35.7
Interest income	(6.3)			(15.5)
Income tax provision	42.5			50.9
Depreciation and amortization	65.3			74.5
GAAP retirement benefits expense	36.6			26.1
CAS recoverable retirement benefits expense	(43.8)			(41.3)
Unusual items	8.1			0.3
Adjusted EBITDAP	$	270.2		$	271.7
Net income as a percentage of net sales	6.6		%	7.1		%
Adjusted EBITDAP as a percentage of net sales	13.0		%	13.7		%



Net income	$	137.7		$	141.0
GAAP retirement benefits expense	36.6			26.1
CAS recoverable retirement benefits expense	(43.8)			(41.3)
Unusual items	8.1			0.3
Income tax impact of adjustments (1)	(0.2)			4.0



Adjusted Net Income	$	138.4		$	130.1





Diluted EPS	$	1.66		$	1.69





Adjustments	0.01			(0.13)

Adjusted EPS	$	1.67		$	1.56

Diluted weighted average shares, as reported and as adjusted	81.9			81.7

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Net (loss) income $ (9.2 ) $ 18.0
$ (16.2 ) $ 7.0
Income tax provision 96.1
11.2
0.3
2.0
Interest expense 30.9
32.5
50.4
3.8
Interest income (3.5 ) (0.6 ) (0.3 ) —
Depreciation and amortization 72.6
64.9
65.1
5.1
Retirement benefits, net (1) 39.5
41.4
67.6
5.6
Unusual items (1.0 ) 34.5
51.9
0.4
Adjusted EBITDAP $ 225.4
$ 201.9
$ 218.8
$ 23.9
Adjusted EBITDAP as a percentage of net sales 12.0 % 11.5 % 12.8 % 24.8 %
Net (loss) income as a percentage of net sales (0.5 )% 1.0 % (0.9 )% 7.3 %

~~________~~_________

(1) Retirement benefits are net of cash funding to our tax-qualified defined benefit pension plan which are recoverable costs under our U.S. government contracts. Our recoverable tax-qualified pension costsThe income tax impact is calculated using the federal and state statutory rates in ~~fiscal 2017 and 2016 totaled $33.7 million and $27.5 million, respectively.~~the corresponding year.

~~In addition to segment performance and Adjusted EBITDAP, we~~

Free Cash Flow

We also provide the Non-GAAP financial measure of free cash flow. We use this financial measure, both in presenting our results to stakeholders and the investment community, and in our internal evaluation and management of the business. Management believes that this financial measure is useful because it provides supplemental information to assist investors in viewing the business using the same tools that management uses to evaluate progress in achieving our goals (including under our annual cash and long-term compensation incentive plans).

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Net cash provided by operating activities $ 212.8
$ 158.7
$ 67.6
$ 0.1
Capital expenditures (29.4 ) (47.6 ) (36.8 ) (1.2 )
Free cash flow(1) $ 183.4
$ 111.1
$ 30.8
$ (1.1 )

~~_________~~

~~(1)~~Free Cash Flow. Free Cash Flow ~~a Non-GAAP financial measure,~~ is defined as cash flow from operating activities less capital expenditures. Free Cash Flow should not be considered in isolation as a measure of residual cash flow available for discretionary purposes or as an alternative to cash flows from operations presented in accordance with GAAP. We use Free Cash Flow, both in presenting our results to stakeholders and the investment community, and in our internal evaluation and management of the business. Management believes that this financial measure is useful to investors because it provides supplemental information to assist them in viewing the business using the same tools that management uses to evaluate progress in achieving our goals. The following table summarizes Free Cash Flow:


	Year Ended December 31,
	2020		2019
	(In millions)
Net cash provided by operating activities	$	363.8	$	261.2
Capital expenditures	(54.6)		(42.9)
Free Cash Flow	$	309.2	$	218.3

Because our method for calculating these Non-GAAP measures may differ from other companies’ methods, the Non-GAAP measures presented above may not be comparable to similarly titled measures reported by other companies. These measures are not recognized in accordance with GAAP, and we do not intend for this information to be considered in isolation or as a substitute for GAAP measures.

Environmental Matters:

Our policy is to conduct our businesses with due regard for the preservation and protection of the environment. We devote a significant amount of resources and management attention to environmental matters and actively manage our ongoing processes to comply with environmental laws and regulations. We are involved in the remediation of environmental conditions that resulted from generally accepted manufacturing and disposal practices at certain plants in the 1950s and 1960s. In addition, we have been designated a PRP with other companies at third party sites undergoing investigation and remediation.

Estimating environmental remediation costs is difficult due to the significant uncertainties inherent in these activities, including the extent of remediation required, changing governmental regulations and legal standards regarding liability, evolving technologies and the long period of time over which most remediation efforts take place. We:

•accrue for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and when our proportionate share of the costs can be reasonably estimated; and

•record related estimated recoveries when such recoveries are deemed probable.

In addition to the costs associated with environmental remediation discussed above, we incur expenditures for recurring costs associated with managing hazardous substances or pollutants in ongoing operations which ~~were immaterial for fiscal 2017, 2016, 2015,~~totaled $6.0 million and ~~the one month ended December 31, 2015.~~$5.3 million in 2020 and 2019, respectively.

The following table summarizes our recoverable amounts, environmental reserves, and range of liability, as of December 31, ~~2017:~~

Recoverable
Amount (1)
Reserve
Estimated Range
of Liability
(In millions)
Aerojet Rocketdyne - Sacramento $ 156.6
$ 206.5
$206.5 - $325.2
Aerojet Rocketdyne - Baldwin Park Operable Unit ("BPOU") 88.2
116.4
116.4 - 152.5
Other Aerojet Rocketdyne sites 11.2
13.7
13.7 - 19.2
Other sites 0.7
4.8
4.8 - 6.5
Total $ 256.7
$ 341.4
$341.4 - $503.4
2020:


	Recoverable Amount (1)		Reserve		Estimated Range of Liability
	(In millions)
Aerojet Rocketdyne - Sacramento	$	183.4	$	208.4	$208.4 - $331.4
Aerojet Rocketdyne - Baldwin Park Operable Unit ("BPOU")	67.0		76.2		76.2 - 91.9
Other Aerojet Rocketdyne sites	10.6		10.6		10.6 - 21.1
Other sites	0.8		5.4		5.4 - 6.7
Total	$	261.8	$	300.6	$300.6 - $451.1

_____

~~(1)~~

Excludes the receivable from Northrop of $64.5 million as of December 31, 2017 related to environmental costs already paid (and therefore not reserved) by us in prior years and reimbursable under our agreement with Northrop. The cumulative limitation under our agreement with Northrop was reached in the second quarter of fiscal 2017. See Notes 8(c) and 8(d) of the Notes to Consolidated Financial Statements for additional information.

(1)Excludes the receivable from Northrop of $46.5 million as of December 31, 2020, related to environmental costs already paid (and therefore not reserved) by us in prior years and reimbursable under our agreement with Northrop.

Environmental Reserves

OnWe review on a quarterly basis ~~we review~~ estimated future remediation costs and have an established practice of estimating environmental remediation costs over a fifteen year period, except for those environmental remediation costs with a specific contractual term. Environmental liabilities at the BPOU site are currently estimated through the term of the ~~new~~ project agreement, which expires in May 2027. As the period for which estimated environmental remediation costs lengthens, the reliability of such estimates decreases. These estimates consider the investigative work and analysis of engineers, outside environmental consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and legal proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimate is used when determinable; otherwise, the minimum amount is used when no single amount in the range is more probable. Accordingly, such estimates can change as we periodically evaluate and revise these estimates as new

information becomes available. We cannot predict whether new information gained as projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs is influenced by a number of factors, such as the regulatory approval process and the time required designing, constructing, and implementing the remedy.

~~A summary of~~The following table summarizes our environmental reserve activity:

Year ended One month ended
December 31, 2017 December 31, 2016 November 30, 2015 December 31, 2015
(In millions)
Opening balance $ 349.7
$ 302.3
$ 166.0
$ 306.1
Additions 31.3
87.4
176.6
0.5
Expenditures (39.6 ) (40.0 ) (36.5 ) (4.3 )
Ending balance $ 341.4
$ 349.7
$ 306.1
$ 302.3


	Year Ended December 31,
	2020		2019
	(In millions)
Balance at beginning of year	$	309.2	$	327.9
Additions	32.4		16.7
Expenditures	(41.0)		(35.4)
Balance at end of year	$	300.6	$	309.2

The ~~$31.3~~$32.4 million of environmental reserve additions in ~~fiscal 2017~~2020 was primarily due to the following items: (i) ~~$13.4~~$13.7 million of remediation related to operable treatment units; (ii) $10.2 million of additional operations and maintenance for treatment facilities; (iii) $3.2 million of sampling analysis costs; and (iv) $5.3 million related to other environmental clean-up matters.

The $16.7 million of environmental reserve additions in 2019 was primarily due to the following items: (i) $10.0 million of additional operations and maintenance for treatment facilities; (ii) $6.7 million of additional estimated costs related to the Camden, Arkansas site; (iii) $2.3 million associated with water replacement; and (iv) $8.9 million related to other environmental clean-up matters.

The $87.4 million of environmental reserve additions in fiscal 2016 was primarily due to the following items: (i) in fiscal 2016 we reached a decision with the U.S. government on the treatment of certain utility costs related to the Sacramento site resulting in a reserve increase of $59.4 million for the estimated impact over the current period and a fifteen year reserve period; (ii) $10.4 million of additional operations and maintenance for treatment facilities; (iii) $5.9 million of remediation related to inactive test sites and landfill clean-up; and (iv) $2.7$4.1 million of remediation related to operable treatment units; ~~and (v) $9.0 million related to other environmental clean-up matters.~~

~~The $0.5~~(iii) $1.9 million of ~~environmental reserve additions in the one month ended December 31, 2015 were insignificant.~~

The $176.6 million of environmental reserve additions in fiscal 2015 was primarily due to the following items: (i) $126.3 million associated with our detailed review estimate related to the BPOU site to reflect the anticipated costs through the term of a new project agreement,sampling analysis costs; and ~~the amount reserved is based on the proposal by Aerojet Rocketdyne; (ii) $13.8 million associated with water replacement; (iii) $13.5 million of remediation related to operable treatment units;~~ (iv) ~~$5.2 million of additional operations and maintenance for treatment facilities; and (v) $17.8~~$0.7 million related to other environmental clean-up matters.

The effect of the final resolution of environmental matters and our obligations for environmental remediation and compliance cannot be accurately predicted due to the uncertainty concerning both the amount and timing of future expenditures and due to regulatory or technological changes. We continue our efforts to mitigate past and future costs through pursuit of claims for recoveries from our insurance ~~coverage~~carriers and other PRPs and continued investigation of new and more cost effective remediation alternatives and associated technologies.

Estimated Recoveries

Environmental remediation costs are primarily incurred by our Aerospace and Defense segment, and certain of these costs are recoverable from our contracts with the U.S. government. We currently estimate approximately ~~24%~~12% of our future Aerospace and Defense segment environmental remediation costs will not likely be reimbursable and are expensed.

Allowable environmental remediation costs are charged to our contracts as the costs are incurred. Because these costs are recovered through forward-pricing arrangements, the ability of Aerojet Rocketdyne to continue recovering these costs from the U.S. government depends on Aerojet Rocketdyne’s sustained business volume from U.S. government contracts and programs.

While we are currently seeking an arrangement with the U.S. government to recover environmental expenditures in excess of the reimbursement ceiling identified in the ~~Northrop Agreement and~~ Global Settlement, there can be no assurances that such a recovery will be obtained, or if not obtained, that such unreimbursed environmental expenditures will not have a materially adverse effect on our operating results, financial condition, and/or cash flows.

The following table summarizes the activity in the current and non-current recoverable amounts from the U.S. government and Northrop:

Year ended One month ended
December 31, 2017 December 31, 2016 November 30, 2015 December 31, 2015
(In millions)
Opening balance $ 333.0
$ 300.4
$ 181.4
$ 303.1
Additions 21.4
67.3
133.6
0.4
Reimbursements (31.5 ) (35.1 ) (31.2 ) (3.8 )
Other adjustments 1.8
1.6
25.4
0.2
Change in Northrop receivable (3.5 ) (1.2 ) (6.1 ) 0.5
Ending balance $ 321.2
$ 333.0
$ 303.1
$ 300.4


	Year Ended December 31,
	2020		2019
	(In millions)
Balance at beginning of year	$	322.0	$	344.1
Additions	28.3		14.5
Reimbursements	(36.0)		(30.6)
Other adjustments	(6.0)		(6.0)

Balance at end of year	$	308.3	$	322.0

The activity for recoveries is commensurate with the activity associated with the environmental reserve activity.

Environmental reserves and recoveries impact toon the consolidated statements of operations

The expenses associated with adjustments to the environmental reserves are recorded as a component of other expense (income), net in the consolidated statements of operations. ~~Summarized financial information for~~The following table summarizes the impact of environmental reserves and recoveries to the consolidated statements of ~~operations were as follows:~~operations:


	Year Ended December 31,
	2020		2019
	(In millions)


Expense to consolidated statement of operations	$	4.3	$	2.1

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Estimated recoverable amounts from U.S. government contracts and other third parties $ 23.1
$ 69.1
$ 159.3
$ 0.6
Expense (benefit) to consolidated statement of operations 8.2
18.3
17.3
(0.1 )
Total environmental reserve adjustments $ 31.3
$ 87.4
$ 176.6
$ 0.5

Recently Adopted Accounting Pronouncements:

See Note ~~1(w) to our~~1 in the consolidated financial statements in Item ~~8. Consolidated Financial Statements~~8 of this Report for information relating to our discussion of the effects of recent accounting pronouncements.

Liquidity and Capital Resources:

Net Cash Provided By (Used In) Operating, Investing, and Financing Activities

The following table summarizes the change in cash, ~~and~~ cash equivalents ~~was as follows:~~and restricted cash:


														Year Ended December 31,
														2020		2019
														(In millions)

	Year Ended									One month ended
	December 31,			December 31,			November 30,			December 31,
	2017			2016			2015			2015
	(In millions)
Net Cash Provided by Operating Activities	$	212.8		$	158.7		$	67.6		$	0.1		Net Cash Provided by Operating Activities	$	363.8	$	261.2
Net Cash Used in Investing Activities	(66.4		)	(47.1		)	(35.8		)	(1.2		)	Net Cash Used in Investing Activities	(61.0)		(41.8)
Net Cash (Used in) Provided by Financing Activities	(21.7		)	90.2			(86.6		)	(1.5		)
Net Increase (Decrease) in Cash and Cash Equivalents	$	124.7		$	201.8		$	(54.8	)	$	(2.6	)
Net Cash Used in Financing Activities													Net Cash Used in Financing Activities	(85.9)		(24.1)
Net Increase in Cash, Cash Equivalents and Restricted Cash													Net Increase in Cash, Cash Equivalents and Restricted Cash	$	216.9	$	195.3

Net Cash Provided by Operating Activities

The ~~$212.8~~$102.6 million ofincrease in cash provided by operating activities in fiscal 2017 was primarily the result of cash provided by income before income taxes adjusted for non-cash items which generated $263.9 million and income tax refunds of $19.9 million which was partially offset by cash of $75.8 million to fund our tax-qualified defined benefit pension plan.

The $158.7 million of cash provided by operating activities in fiscal 2016 was primarily the result of cash provided by income before income taxes adjusted for non-cash items which generated $213.2 million, primarily offset by cash used to fund working capital (defined as accounts receivables, inventories, other current assets, accounts payable, contract advances, real estate activities, and other current liabilities) and cash contributions of $32.8 million to our tax-qualified defined benefit pension plan. The cash used to fund working capital2020 compared with 2019 was primarily due to the following: (i) ~~a decrease of $37.4 million in other current liabilities primarily~~improved cash flow from contracts due to the timing of ~~payments associated with income taxes and interest expense~~customer advances; and (ii) ~~an increase of $28.9 million in inventories primarily due to the timing of milestone billings and deliveries on the Atlas V and Standard Missile programs.The funding of working capital was partially offset by~~ a decrease in income (net of ~~$33.1 million in accounts receivable primarily due to the timing of cash receipts.~~

The $67.6 million of cash provided by operating activities in fiscal 2015 was primarily the result of cash provided by net loss before income taxes adjusted for non-cash items which generated $129.7 million, offset by cash used to fund the following: (i) a decrease of $18.8 million in other current liabilities primarily related to the CIP, cost reduction initiatives,refunds) and the amounts paid to UTC related to Transition Service Agreements; (ii) an increase of $19.5 million in inventories primarily due to the timing of milestone billings and deliveries on the PAC-3 and Standard Missile programs; and (iii) $7.8 million of real estate activities.

The $0.1 million of cash provided by operating activities in December 2015 was primarily due to the cash used to fund working capital offset by net income before income taxes adjusted for non-cash items.payroll tax payments.

Net Cash Used in Investing Activities

During ~~fiscal 2017, 2016,~~2020 and ~~2015 and the one month ended December 31, 2015,~~2019, we had capital expenditures of ~~$29.4 million, $47.6 million, $36.8~~$54.6 million and ~~$1.2~~$42.9 million, respectively. The increase in capital expenditures in ~~fiscal 2016 compared with fiscal 2015 is~~2020 was primarily ~~related~~due to ~~construction projects associated with supporting our CIP.~~ capacity expansion to support the RS-25 program.

During ~~fiscal 2017, we purchased Coleman Aerospace for $17.0 million and~~2020, we made a net ~~cash~~ investment of ~~$20.0~~$6.7 million in marketable securities.

Net Cash ~~(Used in) Provided by~~Used in Financing Activities

During ~~fiscal 2017,~~2020 and 2019, we had debt cash payments of ~~$20.0~~$21.7 million ~~(see below). During fiscal 2016, we had $700.6~~and $20.8 million, ~~in debt cash payments and borrowings~~respectively. See a summary of ~~$800.0 million. During fiscal 2015, we had debt cash payments of $81.2 million. During~~ the ~~one month ended December 31, 2015, we had immaterial financing activities.~~

~~Debt Activity and Covenants~~

~~Our~~2020 debt principal activity ~~since December 31, 2016 was as follows:~~

December 31, 2016
Cash
Payments
Non-cash Activity December 31, 2017
(In millions)
Term loan $ 390.0
$ (20.0 ) $ —
$ 370.0
2¹/₄% Notes
300.0
—
—
300.0
4¹/₁₆% Debentures
35.6
—
(35.6 ) —
Capital lease obligations —
—
0.9
0.9
Total Debt Activity $ 725.6
$ (20.0 ) $ (34.7 ) $ 670.9

~~Our Senior Credit Facility contains covenants requiring us to (i) maintain an interest coverage ratio (the "Consolidated Interest Coverage Ratio")~~below. During 2020, we repurchased 1.3 million of ~~not less than 3.00 to 1.00 and (ii) maintain~~our common shares at a leverage ratio ( the "Consolidated Net Leverage Ratio") not to exceed 3.75 to 1.00 for periods ending from December 31, 2017 through September 30, 2018; and 3.50 to 1.00 for periods ending from December 31, 2018 thereafter, provided that the maximum leverage ratio for all periods shall be increased by 0.50 to 1.00 for two quarters after consummationcost of a qualified acquisition. We may generally make certain investments, redeem debt subordinated to the Senior Credit Facility and make certain restricted payments (such as stock repurchases) if our Consolidated Net Leverage Ratio does not exceed 3.25 to 1.00 pro forma for such transaction. We are otherwise subject to customary covenants including limitations on asset sales, incurrence$51.7 million Additionally, we had net cash usage of ~~additional debt, and limitations on certain investments and restricted payments.~~



~~Financial Covenant~~	~~Actual Ratios as of~~ ~~December 31, 2017~~	~~Required Ratios~~
~~Consolidated Interest Coverage Ratio, as defined under the Senior Credit Facility~~	~~10.13 to 1.00~~	~~Not less than: 3.00 to 1.00~~
~~Consolidated Net Leverage Ratio, as defined under the Senior Credit Facility~~	~~2.64 to 1.00~~	~~Not greater than: 3.75 to 1.00~~

~~We were~~$12.5 million in ~~compliance~~2020 associated with our ~~financial and non-financial covenants as~~equity plans compared with net cash usage of ~~December 31, 2017.~~$3.3 million in 2019.

Debt Activity

The following table summarizes our debt principal activity:


	December 31, 2019		Cash Payments		December 31, 2020
	(In millions)
Term loan	$	328.1	$	(19.6)	$	308.5
2 1/4% Notes	300.0		—		300.0
Finance leases	47.7		(2.1)		45.6
Total Debt Activity	$	675.8	$	(21.7)	$	654.1

Outlook

Short-term liquidity requirements consist primarily of recurring operating expenses, including but not limited to costs related to our capital and environmental expenditures, company-funded R&D expenditures, debt service requirements, and retirement benefit plans. We believe that our existing cash and cash equivalents and availability under ~~our revolving credit facility~~the Senior Credit Facility coupled with cash generated from our future operations will provide sufficient funds to meet our operating plan ~~which includes our CIP Phase I and Phase II, and AR1 engine development costs,~~ for the next twelve months. The operating plan for this period provides for full operation of our businesses, ~~and~~including interest and ~~principal payments on our debt.~~debt payments. As of December 31, ~~2017,~~2020, we had ~~$535.0~~$1,149.5 million of cash and cash equivalents ~~and $20.0 million of marketable securities~~ as well as ~~$311.4~~$622.4 million of available borrowings under our Senior Credit Facility. Based on our existing debt agreements, we were in compliance with our financial and non-financial covenants as of December 31, ~~2017.~~2020. Our failure to comply with these covenants could result in an event of default that, if not cured or waived by the lenders, could result in the acceleration of the Senior Credit Facility and 2¼% Notes. In addition, our failure to pay principal and interest when due is a default under the Senior Credit Facility, and in certain cases, would cause a cross default on the 2¼% Notes.

We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business, our growth strategy, ~~and~~as well as to withstand unanticipated business ~~volatility.~~volatility, including any impact arising from the COVID-19 pandemic. Our cash management strategy includes maintaining the flexibility to pay down debt and/or repurchase shares depending on economic and other conditions. In connection with the implementation of our cash management strategy, our management may seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise if we believe that it is in our best interests.

Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Under the terms of the Merger Agreement, we are not permitted to pay cash dividends during the Pre-Closing Period (as defined therein), other than the pre-closing dividend approved by the Board of Directors on December 19, 2020.

The CARES Act was enacted on March 27, 2020, in response to the COVID-19 pandemic and the negative impacts that it is having on the global economy and U.S. companies. The CARES Act includes various financial measures to assist companies, including temporary changes to income and non-income-based tax laws. Through these provisions, as of December 31, 2020, we have delayed $21.4 million of payroll tax payments. Additionally, in accordance with the provisions of the CARES Act, we accelerated depreciation on qualified improvement property placed in service after December 31, 2017 for income tax purposes.

In light of the pending Merger, we do not expect to pursue strategic acquisitions at this time. If the Merger is not completed for any reason, we would expect to consider exploring possible strategic acquisitions. Potential future business acquisitions depend, in part, on the availability of financial resources at an acceptable cost of capital. We expect to utilize cash on hand and cash generated by operations, as well as cash available under our Senior Credit Facility, which may involve renegotiation of credit limits to finance any future acquisitions. Other sources of capital could include the issuance of common and/or preferred stock, ~~and~~ the placement of ~~debt.~~debt, or combination of both. We periodically evaluate capital markets and may access such markets when circumstances appear favorable. We believe that sufficient capital resources will be available from one or several of these sources to finance any future acquisitions. However, no assurances can be made that acceptable financing will be available, or that acceptable acquisition candidates will be identified, or that any such acquisitions will be accretive to earnings.

On March 13, 2020, we announced that our Board of Directors authorized and approved a new share repurchase program allowing us to repurchase our outstanding common stock with an aggregate market value of up to $100 million over a period of up to 18 months; however, management has discretion as to whether any repurchases will be executed. The timing of any share repurchases will be based on available liquidity, cash flows and general market conditions. The repurchase program may be executed through various methods, including open market purchases or privately negotiated transactions. During 2020, we repurchased 1.3 million of our common shares at a cost of $51.7 million which leaves $48.3 million of market value remaining for repurchase under the program at management’s discretion.

As disclosed in Notes 8(a) and 8(b) ~~and 8(c) of~~in the ~~notes to~~ consolidated financial statements in Item 8 of this Report, we have exposure for certain legal and environmental matters. We believe that it is currently not possible to estimate the impact, if any, that the ultimate resolution of certain of these matters will have on our financial position, results of operations, or cash flows.

Major factors that could adversely impact our forecasted operating cash flows and our financial condition are described in Part I, Item 1A. Risk Factors. In addition, our liquidity and financial condition will continue to be affected by changes in prevailing interest rates on the portion of debt that bears interest at variable interest rates.

Contractual Obligations:

We have contractual obligations and commitments in the form of debt obligations, operating leases, certain other liabilities, and other commitments. The following table summarizes our contractual obligations as of December 31, ~~2017:~~

Payments due by period
Total Less than
1 year 1-3
years 3-5
years After
5 years
(In millions)
Contractual Obligations:
  Long-term debt:
    Senior debt $ 370.0
$ 25.0
$ 65.0
$ 280.0
$ —
    Convertible senior notes 300.0
—
—
—
300.0
    Capital lease obligations 0.9
0.2
0.4
0.3
—
  Interest on long-term debt (1) 84.5
20.7
38.2
19.1
6.5
  Huntsville building commitments (2) 83.1
2.2
7.4
7.5
66.0
  Outsourced information technology commitment 121.9
29.4
52.7
39.8
—
  Postretirement medical and life insurance benefits (3) 33.6
4.8
8.7
7.4
12.7
  Operating leases 95.1
15.1
28.7
27.4
23.9
  Conditional asset retirement obligations (4) 44.0
1.3
2.6
17.6
22.5
         Total $ 1,133.1
$ 98.7
$ 203.7
$ 399.1
$ 431.6
2020:


	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
	(In millions)

Long-term debt:
Senior debt	$	308.5	$	26.3	$	282.2	$	—	$	—
Convertible senior notes (1)	300.0		300.0		—		—		—
Finance lease obligations	45.6		2.1		3.2		3.0		37.3

Interest on long-term debt (2)	63.1		15.0		27.1		4.6		16.4

Postretirement medical and life insurance benefits (3)	21.0		3.4		5.7		4.5		7.4
Operating leases	56.4		14.9		19.6		5.9		16.0
Purchase obligations (4)	1,352.8		863.9		485.3		3.0		0.6
Conditional asset retirement obligations (5)	51.4		—		21.5		1.4		28.5
Total	$	2,198.8	$	1,225.6	$	844.6	$	22.4	$	106.2

________


~~(1)~~	~~Includes interest on variable debt calculated based on interest rates at December 31, 2017.~~

~~(2)~~(1) Holders may convert their 2¼% Notes at their option from January 1, 2021, through March 31, 2021, because our closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to December 31, 2020. We have a stated intention to cash settle the principal amount of the 2¼% Notes with the conversion premium to be settled in common shares. Accordingly, the 2¼% Notes are classified as a current liability as of December 31, 2020. See ~~Note 6(d) to our~~Notes 6 and 15 in the consolidated financial statements in Item ~~8. Consolidated Financial Statements~~8 of this Report for additional information.

~~(3)~~

(2) Includes interest on variable debt calculated based on interest rates at December 31, 2020.

(3) The payments presented above are expected payments for the next 10 years. The payments for postretirement medical and life insurance benefits reflect the estimated benefit payments of the plans using the provisions currently in effect. The obligation related to postretirement medical and life insurance benefits is actuarially determined on an annual basis. A substantial ~~portion of these amounts are recoverable through our contracts with the U.S. government.~~


~~(4)~~	~~The conditional asset retirement obligations presented are related to our Aerospace and Defense segment and are allowable costs under our contracts with the U.S. government.~~

~~We may be required to make significant cash contributions in the future to fund our retirement benefit plans, a~~ portion of ~~which we may not be able to immediately recover from~~these amounts are recoverable through our U.S. government contracts. We expect to make cash contributions of approximately $42.0 million to our tax-qualified defined benefit pension plan in fiscal 2018 of which $37.5 million is expected to be recoverable from our U.S. government contracts ~~in fiscal 2018~~ with the ~~remaining $4.5 million being potentially recoverable from our~~ U.S. ~~government contracts in the future.~~government.

~~We also issue~~(4) Purchase obligations represent open purchase orders and ~~make~~ other commitments to suppliers, subcontractors, and other outsourcing partners for equipment, materials, and supplies in the normal course of business. These ~~purchase commitments~~amounts are ~~generally for~~based on volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or expected to be received, from ~~customers~~customers. A substantial portion of these amounts are recoverable through our contracts with the U.S. government.

(5) The conditional asset retirement obligations presented are related to our Aerospace and ~~would~~Defense segment and are allowable costs under our contracts with the U.S. government.

We expect to make cash contributions of approximately $94 million to our tax-qualified defined benefit pension plan in 2021. We generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there can be ~~subject~~differences between when we contribute to ~~reimbursement if a cost-plus contract was terminated.~~our tax-qualified defined benefit pension plan under pension funding rules and recover it under CAS.

Arrangements with Off-Balance Sheet Risk:

AsSee Note 8(d) in the consolidated financial statements in Item 8 of ~~December 31, 2017, arrangements with~~this Report for information relating to our off-balance sheet ~~risk consisted of:~~risk.

~~$38.6 million in outstanding commercial letters of credit, the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.~~

~~$52.8 million in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation coverage.~~

~~Up to $120.0 million aggregate in guarantees by us of Aerojet Rocketdyne’s obligations to U.S. government agencies for environmental remediation activities.~~

~~$121.9 million in commitments associated with outsourcing certain information technology and cyber security functions.~~

~~$83.1 million~~ ~~in commitments associated with our new facilities located in Huntsville, Alabama.~~

~~Guarantees, jointly and severally, by our material domestic subsidiaries of their obligations under our Senior Credit Facility.~~

In addition to the items discussed above, we have and will from time to time enter into certain types of contracts that require us to indemnify parties against potential third-party and other claims. These contracts primarily relate to: (i) divestiture agreements, under which we may provide customary indemnification to purchasers of our businesses or assets including, for example, claims arising from the operation of the businesses prior to disposition, liability to investigate and remediate environmental contamination existing prior to disposition; (ii) certain real estate leases, under which we may be required to indemnify property owners for claims arising from the use of the applicable premises; and (iii) certain agreements with officers and directors, under which we may be required to indemnify such persons for liabilities arising out of their relationship with us. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated.

Additionally, we issue purchase orders and make other commitments to suppliers for equipment, materials, and supplies in the normal course of business. These purchase commitments are generally for volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or expected to be received, from customers and would be subject to reimbursement if the contract is terminated.

We provide product warranties in conjunction with certain product sales. The majority of our warranties are one-year standard warranties for parts, workmanship, and compliance with specifications. On occasion, we have made commitments beyond the standard warranty obligation. While we have contracts with warranty provisions, there is not a history of any significant warranty claims experience. A reserve for warranty exposure is made on a product by product basis when it is both estimable and probable. ~~These costs are included in the program’s estimate at completion and are expensed in accordance with our revenue recognition methodology as allowed under GAAP for that particular contract.~~

Critical Accounting Policies:

Our financial statements are prepared in accordance with GAAP that offer acceptable alternative methods for accounting for certain items affecting our financial results, such as determining inventory cost, depreciating long-lived assets, and recognizing revenues.

The preparation of financial statements requires the use of estimates, assumptions, judgments, and interpretations that can affect the reported amounts of assets, liabilities, revenues, and expenses, the disclosure of contingent assets and liabilities and other supplemental disclosures. The development of accounting estimates is the responsibility of our management. Management discusses those areas that require significant judgment with the audit committee of our Board of Directors. All of our financial disclosures in our filings with the SEC have been reviewed with the audit committee. Although we believe that the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively and, if significant, disclosed in notes of the consolidated financial statements.

The areas most affected by our accounting policies and estimates are revenue recognition, other contract considerations, goodwill, retirement benefit plans, litigation, environmental remediation costs and recoveries, and income taxes. Except for income taxes, which are not allocated to our operating segments, these areas affect the financial results of our business segments.

For a discussion of all of our accounting policies, including the accounting policies discussed below, see Note 1 ofin the consolidated financial ~~statements.~~statements in Item 8 of this Report.

Revenue Recognition

We consider the nature of the individual underlying contract and the type of products and services provided in determining the proper accounting for a particular contract. Each method is applied consistently to all contracts having similar characteristics, as described below.

Under the percentage of completion method, we recognize sales based upon our progress against the contracted performance objectives. Progress is generally measured as costs are incurred (cost-to-cost) or as units are delivered to customers (units-of-delivery) depending on the contractual terms and scope of work of each contract. We use the cost-to-cost measure where the scope of work on contracts principally relates to research and/or development efforts, or the contract is predominantly a development effort with few deliverable units. Under cost-to-cost, we recognize sales as costs are incurred. We use the units-of-delivery measure to recognize sales when contracts require unit deliveries on a frequent and routine basis. Under units-of-delivery, we recognize sales at the contractually agreed upon unit price as units are sold.

For fixed-priced contracts, variance in actual costs from the cost estimates used in determining the fixed price impact the overall profit from the contract. We recognize these variances during the contact performance period. Fixed-priced and cost-reimbursable contracts may provide for variable consideration including awards, incentives, and/or penalties based upon the customer’s assessment of our performance against pre-established targets or other criteria. These targets may include factors such as cost, performance, quality, and schedule. We recognize variable consideration over the contract performance period based upon estimates of performance against the established criteria.

In our Aerospace and Defense segment, ~~recognition~~the majority of our revenue is earned from long-term contracts to design, develop, and manufacture aerospace and defense products, and provide related services, for our customers, including the U.S. government, major aerospace and defense prime contractors, and the commercial sector. Each customer contract defines our distinct performance obligations and the associated transaction price for each obligation. A contract may contain one or multiple performance obligations. In certain circumstances, multiple contracts with a customer are required to be combined in determining the distinct performance obligation. For contracts with multiple performance obligations, we allocate the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents the price at which we would sell the promised good or service separately to the customer. We determine the standalone selling price based upon the facts and circumstances of each obligated good or service. The majority of our contracts have no observable standalone selling price since the associated products and services are customized to customer specifications. As such, the standalone selling price generally reflects our forecast of the total cost to satisfy the performance obligation plus an appropriate profit margin.

Contract modifications are routine in the performance of our long-term contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.

We recognize revenue as each performance obligation is satisfied. The majority of our aerospace and defense performance obligations are satisfied over time either as the service is provided, or as control transfers to the customer. Transfer of control is evidenced by our contractual right to payment for work performed to date plus a reasonable profit on contracts with highly customized products that we have no alternative use for. We measure progress on substantially all our performance obligations using the cost-to-cost method, which we believe best depicts the transfer of control of goods and services to the customer. Under the cost-to-cost method, we record revenues based upon costs incurred to date relative to the total estimated cost at completion. Contract costs include labor, material, overhead, and general and administrative expenses, as appropriate.

obligation. Due to the nature of the programs, developing the estimated total contract ~~revenue~~value and total cost at completion for each performance obligation requires the use of significant judgment. ~~Estimates are continually evaluated~~

The contract value of long-term contracts may include variable consideration, such as ~~work progresses~~incentives, awards, or penalties. The value of variable consideration is generally determined by contracted performance metrics, which may include targets for cost, performance, quality, and ~~are revised as necessary.~~schedule. We include variable consideration in the transaction price for the respective performance obligation at either estimated value, or most likely amount to be earned, based upon our assessment of expected performance. We record these amounts only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

We evaluate the contract value and cost estimates for performance obligations at least quarterly and more frequently when circumstances significantly change. Factors ~~that must be~~ considered in estimating the work to be completed include, but are not limited to: labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, warranty costs, volume assumptions, anticipated labor agreements, inflationary trends, schedule and performance delays, availability of funding from the customer, and the recoverability of costs incurred outside the original contract included in any estimates to complete. ~~We review contract~~When our estimate of total costs to be incurred to satisfy a performance ~~and cost estimates at least quarterly and more frequently when circumstances significantly change.~~obligation exceeds the expected revenue, we recognize the loss immediately. When we determine that a change in ~~estimate is determined to have~~estimates has an impact on ~~contract~~the associated profit of a performance obligation, we ~~will~~ record athe cumulative positive or negative adjustment to the statement of operations. Changes in estimates and assumptions related to the status of certain long-term contracts may have a material effect on our operating results. The following table summarizes the impact of the ~~change~~changes in significant contract accounting estimates on our Aerospace and Defense segment operating ~~results accounted~~results:


	Year Ended December 31,
	2020		2019
	(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales	$	38.5	$	38.6
Favorable effect of the changes in contract estimates on income before income taxes	45.1		38.4
Favorable effect of the changes in contract estimates on net income	34.5		28.2
Favorable effect of the changes in contract estimates on basic EPS	0.44		0.36
Favorable effect of the changes in contract estimates on diluted EPS	0.42		0.34

See Note 1 in the consolidated financial statements in Item 8 of this Report for ~~under the percentage-of-completion method of accounting:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions, except per share amounts)
Favorable effect of the changes in contract estimates on income (loss) before income taxes $ 37.2
$ 14.1
$ 41.2
$ 11.7
Favorable effect of the changes in contract estimates on net (loss) income 22.3
8.5
24.7
7.0
Favorable effect of the changes in contract estimates on basic net (loss) income per share 0.31
0.13
0.40
0.11
Favorable effect of the changes in contract estimates on diluted net (loss) income per share 0.31
0.11
0.40
0.09

The fiscal 2017 favorable changes in contract estimates were primarily driven by improved performance on numerous programs as a result of overhead cost reductions and reduced program risks, most notably on the THAAD program, partially offset by cost growth and manufacturing inefficiencies in fiscal 2017 on electric propulsion contracts. The fiscal 2016 favorable changes in contract estimates were primarily driven by improved performance on space launch systems primarily due to affordability initiatives and lower overhead costs, partially offset by cost growth and manufacturing inefficiencies on electric propulsion contracts. The one month ended December 31, 2015 favorable changes in contract estimates were primarily driven by improved performance on tactical and missile defense programs primarily due to affordability initiatives and lower overhead costs, partially offset by cost growth and manufacturing inefficiencies on an electric propulsion contract. The fiscal 2015 favorable changes in contract estimates were primarily due to improved performance on space launch systems and missile defense programs primarily due to affordability initiatives and lower overhead costs, and unexpected favorable contract performance on close-out activities on the J-2X program.

~~Revenue on service or time and material contracts is recognized when performed.~~

~~If at any time expected costs exceed the value of the contract, the loss is recognized immediately.~~

If change orders are in dispute or are unapproved in regard to both scope and price they are evaluated as claims. We recognize revenue on claims when recovery of the claim is probable and the amount can be reasonably estimated. Revenue on claims is recognized only to the extent that contract costs related to the claims have been incurred and when it is probable that the claim will result in a bona fide addition to contract value that can be reliably estimated. No profit is recognized on a claim until final settlement occurs.

Revenue from real estate asset sales is recognized when a sufficient down-payment has been received, financing has been arranged and title, possession and other attributes of ownership have been transferred to the buyer. The allocation to cost of sales on real estate asset sales is based on a relative fair market value computation of the land sold which includes the basis on our books, capitalized entitlement costs, and an estimate of our continuing financial commitment.

Revenue that is not derived from long-term development and production contracts, or real estate asset transactions, is recognized when persuasive evidence of a final agreement exists, delivery has occurred, the selling price is fixed or determinable and payment from the customer is reasonably assured. Sales are recorded net of provisions for customer pricing allowances.

additional information.

Other Contract Considerations

The majority of Aerospace and Defense segment sales are driven by pricing based on costs incurred to produce products and perform services under contracts with the U.S. government. Cost-based pricing is determined under the FAR and CAS. The FAR and CAS provide guidance on the types of costs that are allowable and allocable in establishing prices for goods and services from U.S. government contracts. For example, costs such as charitable contributions, advertising, interest expense, and public relations are unallowable, and therefore not recoverable through sales. In addition, we may enter into agreements with the U.S. government that address the subjects of allowability and allocability of costs to contracts for specific matters.

We closely monitor compliance with and the consistent application of our critical accounting policies related to contract accounting. We review the status of contracts through periodic contract status and performance reviews. Also, regular and recurring evaluations of contract cost, scheduling and technical matters are performed by management personnel independent from the business segment performing work under the contract. Costs incurred and allocated to contracts with the U.S. government are reviewed for compliance with regulatory standards by our personnel, and are subject to audit by the DCAA. Accordingly, we record an allowance on our unbilled receivables for amounts of potential contract overhead costs which may not be successfully negotiated and collected.

~~Goodwill~~

Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair values of the identifiable assets acquired and liabilities assumed. All of our recorded goodwill resides in the Aerospace and Defense reporting unit. Tests for impairment of goodwill are performed on an annual basis, or at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an impairment test include but are not limited to: a significant adverse change in the business climate or legal factors; adverse cash flow trends; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; decline in stock price; and results of testing for recoverability of a significant asset group within a reporting unit.

We evaluate qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance) to determine whether it is necessary to perform the first step of the goodwill test. This step is referred to as the “Step Zero" analysis. If it is determined that it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, we will proceed to the quantitative (“Step One”) analysis to determine the existence and amount of any goodwill impairment. We evaluated goodwill using a “Step Zero" analysis as of October 1, 2017, October 1, 2016, and September 1, 2016 (first day of our fourth quarter), and determined that goodwill was not impaired. On a periodic basis, we will perform a Step One analysis to determine any potential goodwill impairment.

There can be no assurance that our estimates and assumptions made for purposes of our goodwill impairment testing will prove to be accurate predictions of the future. If our assumptions and estimates are incorrect, we may be required to record goodwill impairment charges in future periods.

Retirement Benefit Plans

We discontinued future benefit accruals for our defined benefit pension plans in ~~fiscal~~ 2009. ~~In addition, we~~We provide medical and life insurance benefits to certain eligible retired employees, with varied coverage by employee group. Annual charges are made for the cost of the plans, including ~~administrative costs,~~ interest costs on benefit obligations, and net amortization and deferrals, increased or reduced by the return on assets. We also sponsor a defined contribution 401(k) plan and participation in the plan is available to all employees.

Retirement benefits are a significant cost of doing business and represent obligations that will be ultimately settled far in the future and therefore are subject to estimates. We generally are able to recover cash contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there is a lag between when we contribute cash to our tax-qualified defined benefit pension plan under pension funding rules and recover it under our U.S. government contracts. Our pension and medical and life insurance benefit obligations and related costs are calculated using actuarial concepts in accordance with GAAP. We are required to make assumptions regarding such variables as the expected long-term rate of return on assets and the discount rate applied to determine ~~service cost~~the retirement benefit obligations and ~~interest cost to arrive at income or~~ expense (income) for the year.

~~We used~~The following table presents the ~~following discount rate~~assumptions to determine the benefit ~~obligations for~~obligations:


	Pension Benefits				Medical and Life Insurance Benefits
	As of December 31,				As of December 31,
	2020		2019		2020		2019
Discount rate	2.52	%	3.28	%	2.28	%	3.19	%

The following table presents the ~~applicable period:~~

Pension
Benefits Medical and
Life Insurance Benefits
As of December 31, As of December 31,
2017 2016 2017 2016
Discount rate 3.59 % 4.02 % 3.37 % 3.68 %

~~We used the following~~ assumptions to determine the retirement benefits expense (income) ~~for the~~:


	Pension Benefits			Medical and Life Insurance Benefits
	Year Ended December 31,				Year Ended December 31,

	2020	2019				2020	2019
Discount rate	3.28 %	4.27	%			3.19 %	4.09	%

Expected long-term rate of return on assets	7.00 %	7.00	%			*	*

____

* Not applicable ~~period:~~as our medical and life insurance benefits are unfunded.

Pension Benefits Medical and
Life Insurance Benefits
Year Ended One month ended Year Ended One month ended
December 31, November 30, November 30, December 31, December 31, November 30, November 30, December 31,
2017 2016 2015 2015 2017 2016 2015 2015
Discount rate 4.02 % 4.36 % 3.96 % 4.26 % 3.68 % 3.99 % 3.54 % 3.87 %
Expected long-term rate of return on assets 7.00 % 7.00 % 8.00 % 7.00 % *
*
*
*

~~______~~


*	~~Not applicable as our medical and life insurance benefits are unfunded.~~

The discount rate represents the current market interest rate used to determine the present value of future cash flows currently expected to be required to settle pension obligations. Based on market conditions, discount rates can experience significant variability. Changes in discount rates can significantly change the liability and, accordingly, the funded status of the pension plan. The assumed discount rate represents the market rate available for investments in high-quality fixed income instruments with maturities matched to the expected benefit payments for pension and medical and life insurance benefit plans.

The expected long-term rate of return on assets represents the rate of earnings expected in the funds invested, and funds to be invested, to provide for anticipated benefit payments to plan participants. We evaluated the historical investment performance, current and expected asset allocation, and, with input from our external advisors, developed best estimates of future investment performance.

Market conditions and interest rates significantly affect assets and liabilities of our pension plans. Pension accounting permits market gains and losses to be deferred and recognized over a period of years. This ~~“smoothing”~~"smoothing" results in the creation of other accumulated income or loss which will be amortized to pension costs in future years. The accounting method we utilize recognizes one-fifth of the unamortized gains and losses in the market-related value of pension assets and all other gains and losses including changes in the discount rate used to calculate the benefit obligation each year. Investment gains or losses for this purpose are the difference between the expected return and the actual return on the market-related value of assets which smoothes asset values over three years. Although the smoothing period mitigates some volatility in the calculation of annual pension costs, future pension costs are impacted by changes in the market value of assets and changes in interest rates.

~~A one percentage point~~The following table summarizes the effects of a one-percentage-point change in ~~the~~ key assumptions ~~would have the following effects~~ on the projected benefit obligations as of December 31, ~~2017~~2020, and on retirement benefits expense for ~~fiscal 2017:~~2020:

Pension Benefits and
Medical and Life Insurance Benefits Discount Rate

Expected Long-term
Rate of Return

Assumed Healthcare
Cost Trend Rate

Net Periodic
Benefit Expense

Projected
Benefit
Obligation

Net Periodic Pension
Benefit Expense

Net Periodic
Medical and Life
Insurance Benefit Expense

Accumulated
Benefit
Obligation
(In millions)
1% decrease $21.7 $153.5 $9.2 $(0.2) $(0.7)
1% increase (18.5) (128.9) (9.2) 0.3 0.8

~~Contingencies and Litigation~~

We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs and recoveries for resolution of these claims. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in assumptions or the effectiveness of strategies related to

~~these proceedings. See Notes 8(b) and 8(c) in notes to consolidated financial statements for more detailed information on litigation exposure.~~


	Pension Benefits and Medical and Life Insurance Benefits Discount Rate		Expected Long-term Rate of Return	Assumed Healthcare Cost Trend Rate
	Net Periodic Benefit Expense	Projected Benefit Obligation	Net Periodic Pension Benefit Expense	Net Periodic Medical and Life Insurance Benefit Expense	Accumulated Benefit Obligation
	(In millions)
1% decrease	$18.3	$150.5	$8.6	$(0.1)	$(0.3)
1% increase	(15.7)	(126.0)	(8.7)	0.1	0.3

Environmental Reserves and Estimated Recoveries

For a discussion of our accounting for environmental remediation obligations and costs and related legal matters, see ~~“Environmental Matters”~~"Environmental Matters" above and Notes 8(b) and 8(c) ~~and 8(d)~~ in ~~notes to~~the consolidated financial ~~statements.~~statements in Item 8 of this Report.

We accrue for costs associated with the remediation of environmental contamination when it becomes probable that a liability has been incurred, and when our costs can be reasonably estimated. ~~Management has a well-established process in place to identify and monitor our environmental exposures.~~ In most cases, only a range of reasonably probable costs can be estimated. In establishing the reserves, the most probable estimated amount is used when determinable, and the minimum amount is used when no single amount in the range is more probable. Environmental reserves include the costs of completing remedial investigation and feasibility studies, remedial and corrective actions, regulatory oversight costs, the cost of operation and maintenance of the remedial action plan, and employee compensation costs for employees who are expected to devote a significant amount of time to remediation efforts. Calculation of environmental reserves is based on the evaluation of currently available information with respect to each individual environmental site and considers factors such as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. Such estimates

are based on the expected costs of investigation and remediation and the likelihood that other potentially responsible parties will be able to fulfill their commitments at sites where we may be jointly or severally liable.

At the time a liability is recorded for future environmental costs, we record an asset for estimated future recoveries that are estimable and probable. Some of our environmental costs are eligible for future recovery in the pricing of our products and services to the U.S. government and under existing third party agreements. We consider the recovery probable based on the Global Settlement, ~~Northrop Agreement,~~ U.S. government contracting regulations, and our long history of receiving reimbursement for such costs.

Income Taxes

We file a consolidated U.S. federal income tax return for the Company and our 100% owned consolidated subsidiaries. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the period of the enactment date of the change.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act of 2017. The Tax Act makes broad and complex changes to the U.S. tax code. Among other provisions, the Tax Act reduced the federal corporate statutory income tax rate from 35% to 21% beginning in 2018. In accordance with the rate reduction, we wrote down our net deferred tax assets by $64.6 million which unfavorably affected our effective tax rate by 74.4%.

The carrying value of our deferred tax assets is dependent upon our ability to generate sufficient taxable income in the future. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence is considered, including our past and future performance, the market environment in which we operate, the utilization of tax attributes in the past, the length of carryback and carryforward periods, and evaluation of potential tax planning strategies.

~~Despite our belief that our tax return positions are consistent with applicable tax laws, we~~We believe that certain positions ~~are likely to~~may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or ~~some~~a partial adjustment reached through negotiations or litigation. Our tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the financial statements. The accounting standards provide guidance for the recognition and measurement in financial statements ~~for~~of uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process, the first step being recognition. We determine whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority. As the examination process progresses with tax authorities, adjustments to tax reserves may be necessary to reflect taxes payable upon settlement. Tax reserve adjustments related to positions impacting the effective tax rate affect the provision for income taxes. Tax reserve adjustments related to positions impacting the timing of deductions impact deferred tax assets and liabilities.

Item 7A. Quantitative and Qualitative Disclosures ~~about~~About Market Risk

Policies and Procedures

As an element of our normal business practice, we have established policies and procedures for managing our exposure to changes in interest rates.

The objective in managing exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flow and to make overall borrowing costs more predictable. To achieve this objective, we may use interest rate hedge transactions or other interest rate hedge instruments to manage the net exposure to interest rate changes related to our portfolio of borrowings and to balance our fixed rate compared ~~to floating~~with variable rate debt. We did not enter into any interest rate hedge transactions or instruments during the past three ~~fiscal~~ years.

Interest Rate Risk

We are exposed to market risk principally due to changes in interest ~~rates.~~ rates related to our borrowings, cash and cash equivalents, marketable securities, and pension assets and liabilities.

Borrowings

Debt with interest rate risk includes borrowings under our Senior Credit Facility. ~~The interest rate risk related to our tax-qualified pension plan assets and liabilities can be found in the "Retirement Benefit Plans" discussion above.~~ As of December 31, ~~2017~~,2020, our debt principal amounts excluding finance lease obligations totaled ~~$670.9~~$608.5 million: ~~$300.9~~$300.0 million, or ~~45%~~49%, was at ~~an average~~a fixed rate of ~~2.26%~~2.25%; and ~~$370.0~~$308.5 million, or ~~55%~~51%, was at a variable rate of ~~3.82%~~1.90%.

The following table summarizes the estimated fair value and principal amount for outstanding debt obligations excluding finance lease obligations:


	Fair Value				Principal Amount
	As of December 31,				As of December 31,
	2020		2019		2020		2019

	(In millions)
Term loan	$	306.5	$	328.1	$	308.5	$	328.1


2¼% Notes	609.5		546.0		300.0		300.0
	$	916.0	$	874.1	$	608.5	$	628.1

Fair Value Principal Amount
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016
(In millions)
Term loan $ 370.0
$ 390.0
$ 370.0
$ 390.0
2¹/₄% Notes
415.3
294.9
300.0
300.0
4¹/₁₆% Debentures
—
70.8
—
35.6
Capital leases 0.9
—
0.9
—
$ 786.2
$ 755.7
$ 670.9
$ 725.6

The fair ~~values~~value of the 2¹/₄2¼% Notes ~~and 4~~¹/₁₆~~% Debentures were~~was determined using broker quotes that are based on open markets for our debt securities (Level 2 securities). The fair value of the term loan ~~bore interest~~ at ~~variable rates, which adjusted~~December 31, 2020, was estimated based on ~~market conditions,~~a third-party model used to derive a relative value price using comparable corporate loans within the same industry, credit quality, and ~~its~~currency. At December 31, 2019, the term loan carrying value approximated fair value.

Cash and Marketable Securities

We also have exposure to changes in interest rates related to interest earned and market value on our cash and cash equivalents and marketable securities. Our cash and cash equivalents and marketable securities consist of cash, time deposits, money market funds, and investment grade corporate debt securities. Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the market value of those securities.

Pension Assets and Liabilities

Our tax-qualified pension assets and liabilities are subject to interest rate risk. The interest rate risk related to our tax-qualified pension assets and liabilities can be found in the "Retirement Benefit Plans" discussion above.

Item 8. ~~Consolidated~~ Financial Statements and Supplementary Data

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and Stockholders of Aerojet Rocketdyne Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Aerojet Rocketdyne Holdings, Inc. and its subsidiaries (the ~~“Company”~~"Company") as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the related consolidated statements of operations, of comprehensive income, ~~(loss),~~ of stockholders’ equity ~~(deficit),~~ and of cash flows for each of the three years ~~then ended, for~~in the ~~one month~~period ended December 31, ~~2015, and for the year ended November 30, 2015,~~2020, including the related notes (collectively referred to as the ~~“consolidated~~"consolidated financial ~~statements”~~statements"). We also have audited the Company's internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the results of its operations and its cash flows for each of the three years ~~then ended,~~in the ~~one month~~period ended December 31, ~~2015, and the year ended November 30, 2015~~2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019, and as discussed in Note 14 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in ~~Management's~~Management’s Report on Internal Control ~~Over~~over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~("PCAOB")~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition - estimated total cost at completion on fixed-price contracts

As described in Note 1 to the consolidated financial statements, approximately 61% of total net sales of $2,073 million are from fixed-price revenue contracts for the year ended December 31, 2020. These contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. The Company recognizes revenue as each performance obligation is satisfied. The majority of the Company’s aerospace and defense performance obligations are satisfied over time either as the service is provided, or as control transfers to the customer. Transfer of control is evidenced by the Company’s contractual right to payment for work performed to date plus a reasonable profit on contracts with highly customized products that have no alternative use to the Company. Management measures progress on substantially all its performance obligations using the cost-to-cost method, which management believes best depicts the transfer of control of goods and services to the customer. Under the cost-to-cost method, management records revenues based upon costs incurred to date relative to the total estimated cost at completion. Recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to the total contract value, the total cost at completion, and the measurement of progress towards completion for each performance obligation. Due to the nature of the programs, developing the estimated total contract value and total cost at completion for each performance obligation requires the use of significant judgment. As described in Note 1, factors considered in estimating the work to be completed include, but are not limited to, labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, warranty costs, volume assumptions, anticipated labor agreements, inflationary trends, schedule and performance delays, availability of funding from the customer, and the recoverability of costs incurred outside the original contract included in any estimates to complete.

The principal considerations for our determination that performing procedures relating to revenue recognition - estimated total cost at completion on fixed-price contracts is a critical audit matter are the significant judgment by management when estimating the total cost at completion for such contracts; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate significant assumptions used in management’s estimated total cost at completion for fixed-price contracts related to labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, and schedule and performance delays.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the development of estimated total cost at completion on fixed-price contracts. These procedures also included, among others, testing management’s process for the estimate of its total cost at completion for a sample of contracts, which included testing inception-to-date actual costs, and evaluating the reasonableness of significant assumptions related to labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, and schedule and performance delays. Evaluating the reasonableness of significant assumptions involved assessing management’s ability to reasonably estimate the total cost to complete on fixed-price contracts by (i) performing a comparison of estimated labor and material costs to complete to agreements with third parties or actual costs incurred on the sampled contract or similar completed contracts, (ii) evaluating the timely identification of circumstances that may warrant a modification to estimated total cost to complete, and (iii) testing management’s process for identifying and estimating risks that could result in schedule or performance delays.

/s/ PricewaterhouseCoopers LLP

~~Los Angeles,~~

Sacramento, California

February ~~21, 2018~~18, 2021

We have served as the Company’s auditor since 2006.

Aerojet Rocketdyne Holdings, Inc.

Consolidated Statements of Operations


													Year Ended December 31,
	Year Ended									One month ended
	December 31,			December 31,			November 30,			December 31,			2020		2019		2018
	2017			2016			2015			2015
	(In millions, except per share amounts)												(In millions, except per share amounts)
Net sales	$	1,877.2		$	1,761.3		$	1,708.3		$	96.3	Net sales	$	2,072.7	$	1,981.5	$	1,895.9
Operating costs and expenses:												Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	1,615.4			1,527.4			1,459.5			75.4		Cost of sales (exclusive of items shown separately below)	1,701.3		1,613.6		1,549.4
AR1 research and development	—			—			32.1			—

Selling, general and administrative expense	67.0			53.6			49.0			2.8		Selling, general and administrative expense	56.1		53.6		43.8
Depreciation and amortization	72.6			64.9			65.1			5.1		Depreciation and amortization	65.3		74.5		72.3
Other expense, net:
Legal settlement	—			—			50.0			—
Other expense (income), net:												Other expense (income), net:
Environmental remediation provision adjustments												Environmental remediation provision adjustments	4.3		2.1		(36.9)

Other	7.9			19.8			16.5			0.2		Other	5.1		(0.5)		(3.3)
Total operating costs and expenses	1,762.9			1,665.7			1,672.2			83.5		Total operating costs and expenses	1,832.1		1,743.3		1,625.3
Operating income	114.3			95.6			36.1			12.8		Operating income	240.6		238.2		270.6
Non-operating (income) expense:
Loss on debt	—			34.5			1.9			—
Non-operating:												Non-operating:
Retirement benefits expense												Retirement benefits expense	36.6		26.1		57.6

Interest income	(3.5		)	(0.6		)	(0.3		)	—		Interest income	(6.3)		(15.5)		(10.0)
Interest expense	30.9			32.5			50.4			3.8		Interest expense	30.1		35.7		34.4
Total non-operating expense, net	27.4			66.4			52.0			3.8		Total non-operating expense, net	60.4		46.3		82.0
Income (loss) before income taxes	86.9			29.2			(15.9		)	9.0
Income before income taxes												Income before income taxes	180.2		191.9		188.6
Income tax provision	96.1			11.2			0.3			2.0		Income tax provision	42.5		50.9		51.3
Net (loss) income	$	(9.2	)	$	18.0		$	(16.2	)	$	7.0
(Loss) income per share of common stock
Basic:
Net (loss) income per share	$	(0.13	)	$	0.27		$	(0.27	)	$	0.11
Diluted:
Net (loss) income per share	$	(0.13	)	$	0.27		$	(0.27	)	$	0.10

Net income												Net income	$	137.7	$	141.0	$	137.3
Earnings per share of common stock												Earnings per share of common stock

Basic earnings per share												Basic earnings per share	$	1.76	$	1.79	$	1.80

Diluted earnings per share												Diluted earnings per share	$	1.66	$	1.69	$	1.75
Weighted average shares of common stock outstanding, basic	73.0			65.6			61.1			62.9		Weighted average shares of common stock outstanding, basic	77.4		77.2		74.8
Weighted average shares of common stock outstanding, diluted	73.0			65.7			61.1			72.5		Weighted average shares of common stock outstanding, diluted	81.9		81.7		76.8
Cash dividends declared per share												Cash dividends declared per share	$	5.00	$	0	$	0

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Consolidated Statements of Comprehensive Income ~~(Loss)~~


	Year Ended December 31,
		2020		2019		2018

		(In millions)
Net income		$	137.7	$	141.0	$	137.3
Other comprehensive income:
Amortization of net actuarial losses, net of $13.4 million, $7.6 million, and $16.8 million of income taxes in 2020, 2019, and 2018, respectively		40.3		29.5		49.7
Actuarial losses, net of $10.4 million, $6.9 million, and $5.5 million of income taxes in 2020, 2019, and 2018, respectively		(31.5)		(26.5)		(16.4)
Amortization of prior service costs, net of income taxes		0.1		(0.1)		(0.1)


Other comprehensive income, net of income taxes		8.9		2.9		33.2
Comprehensive income		$	146.6	$	143.9	$	170.5

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Net (loss) income $ (9.2 ) $ 18.0
$ (16.2 ) $ 7.0
Other comprehensive income (loss):
Amortization of net actuarial losses, net of $24.5 million, $23.2 million, $31.3 million, and $1.7 million of income taxes in fiscal 2017, 2016, 2015, and one month ended December 31, 2015, respectively 39.0
37.1
49.4
3.4
Actuarial (losses) gains, net of $2.9 million, $4.8 million, $36.9 million, and $4.6 million of income taxes in fiscal 2017, 2016, 2015, and one month ended December 31, 2015, respectively (8.5 ) 7.5
(56.6 ) (8.6 )
Amortization of prior service credits, net of $0.0 million, $0.4 million, $0.4 million, and $0.0 million of income taxes in fiscal 2017, 2016, 2015, and one month ended December 31, 2015, respectively (0.1 ) (0.6 ) (0.8 ) (0.1 )
Other comprehensive income (loss), net of income taxes 30.4
44.0
(8.0 ) (5.3 )
Comprehensive income (loss) $ 21.2
$ 62.0
$ (24.2 ) $ 1.7

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Consolidated Balance Sheets

As of December 31,
2017 2016
(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents $ 535.0
$ 410.3
Marketable securities 20.0
—
Accounts receivable 215.5
136.4
Inventories 136.4
185.1
Other current assets, net 109.8
122.9
Total Current Assets 1,016.7
854.7
Noncurrent Assets
Property, plant and equipment, net 359.0
366.0
Recoverable from the U.S. government and other third parties for environmental remediation costs 231.1
239.8
Deferred income taxes 145.8
292.5
Goodwill 161.3
158.1
Intangible assets 85.5
94.4
Other noncurrent assets, net 259.3
244.0
Total Noncurrent Assets 1,242.0
1,394.8
Total Assets $ 2,258.7
$ 2,249.5
LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt $ 25.0
$ 55.6
Accounts payable 100.9
96.2
Reserves for environmental remediation costs 35.2
37.1
Advance payments on contracts 237.8
221.8
Other current liabilities 195.9
173.0
Total Current Liabilities 594.8
583.7
Noncurrent Liabilities
Long-term debt 591.4
608.0
Reserves for environmental remediation costs 306.2
312.6
Pension benefits 492.8
548.2
Other noncurrent liabilities 171.1
161.4
Total Noncurrent Liabilities 1,561.5
1,630.2
Total Liabilities 2,156.3
2,213.9
Commitments and contingencies (Note 8)

Redeemable common stock, par value of $0.10; none issued and outstanding December 31, 2017; 0.1 million shares issued and outstanding as of December 31, 2016 —
1.1
Stockholders’ Equity
Preference stock, par value of $1.00; 15.0 million shares authorized; none issued or outstanding —
—
Common stock, par value of $0.10; 150.0 million shares authorized; 73.6 million shares issued and outstanding as of December 31, 2017; 69.2 million shares issued and outstanding as of December 31, 2016 7.4
6.9
Other capital 503.1
456.9
Treasury stock at cost, 3.5 million shares as of December 31, 2017 and 2016 (64.5 ) (64.5 )
Accumulated deficit (71.0 ) (61.8 )
Accumulated other comprehensive loss, net of income taxes (272.6 ) (303.0 )
Total Stockholders’ Equity 102.4
34.5
Total Liabilities, Redeemable Common Stock and Stockholders’ Equity $ 2,258.7
$ 2,249.5


	As of December 31,
	2020		2019
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	1,149.5	$	932.6
Restricted cash	3.0		3.0
Marketable securities	7.0		0
Accounts receivable, net	75.6		112.5
Contract assets	288.6		224.1



Other current assets, net	136.5		145.8


Total Current Assets	1,660.2		1,418.0
Noncurrent Assets
Right-of-use assets	46.8		48.0
Property, plant and equipment, net	423.1		409.9

Recoverable environmental remediation costs	227.7		234.8

Deferred income taxes	81.1		121.9
Goodwill	161.4		161.4
Intangible assets	44.8		58.2
Other noncurrent assets, net	254.8		255.6

Total Noncurrent Assets	1,239.7		1,289.8
Total Assets	$	2,899.9	$	2,707.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	299.9	$	284.7
Accounts payable	99.1		127.3
Reserves for environmental remediation costs	39.8		40.1

Contract liabilities	407.2		262.3
Dividends payable	447.8		0
Other current liabilities	161.9		155.5
Total Current Liabilities	1,455.7		869.9
Noncurrent Liabilities
Long-term debt	324.4		352.3



Reserves for environmental remediation costs	260.8		269.1
Pension benefits	405.2		398.9

Operating lease liabilities	35.7		39.1
Other noncurrent liabilities	184.6		201.8
Total Noncurrent Liabilities	1,210.7		1,261.2
Total Liabilities	2,666.4		2,131.1
Commitments and contingencies (Note 8)	0		0

Stockholders’ Equity
Preferred stock, par value of $1.00; 15.0 million shares authorized; NaN issued or outstanding	0		0
Common stock, par value of $0.10; 150.0 million shares authorized; 76.8 million shares issued and outstanding as of December 31, 2020; 77.3 million shares issued and outstanding as of December 31, 2019	7.7		7.7
Other capital	583.0		573.3
Treasury stock at cost, 2.1 million at December 31, 2020; 0.8 million shares as of December 31, 2019	(64.4)		(12.7)
(Accumulated deficit) retained earnings	(65.2)		244.9
Accumulated other comprehensive loss, net of income taxes	(227.6)		(236.5)
Total Stockholders’ Equity	233.5		576.7
Total Liabilities and Stockholders’ Equity	$	2,899.9	$	2,707.8

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~

Common Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Deficit)
Shares Amount Other Capital Treasury Stock Accumulated Deficit
(In millions)
November 30, 2014 56.9
$ 5.9
$ 287.4
$ (64.5 ) $ (70.6 ) $ (333.7 ) $ (175.5 )
Net loss —
—
—
—
(16.2 ) —
(16.2 )
Other comprehensive loss, net of income taxes —
—
—
—
—
(8.0 ) (8.0 )
Reclassification of redeemable common stock (0.1 ) —
0.7
—
—
—
0.7
Tax benefit from shares issued under equity plans —
—
2.5
—
—
—
2.5
Conversion of debt to common stock 5.5
0.5
48.5
—
—
—
49.0
Repurchase of shares to satisfy tax withholding obligations (0.3 ) —
(6.7 ) —
—
—
(6.7 )
Stock-based compensation and shares issued under equity plans, net 0.9
0.1
7.7
—
—
—
7.8
November 30, 2015 62.9
6.5
340.1
(64.5 ) (86.8 ) (341.7 ) (146.4 )
Net income —
—
—
—
7.0
—
7.0
Other comprehensive loss, net of income taxes —
—
—
—
—
(5.3 ) (5.3 )
Reclassification from redeemable common stock —
—
(0.7 ) —
—
—
(0.7 )
Tax benefit from shares issued under equity plans —
—
2.4
—
—
—
2.4
Repurchase of shares to satisfy tax withholding obligations —
—
(0.2 ) —
—
—
(0.2 )
Stock-based compensation and other, net —
—
1.0
—
—
—
1.0
December 31, 2015 62.9
6.5
342.6
(64.5 ) (79.8 ) (347.0 ) (142.2 )
Net income —
—
—
—
18.0
—
18.0
Other comprehensive income, net of income taxes —
—
—
—
—
44.0
44.0
Reclassification of redeemable common stock —
—
0.5
—
—
—
0.5
Tax benefit from shares issued under equity plans —
—
0.3
—
—
—
0.3
Equity component of convertible debt —
—
54.5
—
—
—
54.5
Conversion of debt to common stock 5.4
0.4
48.6
—
—
—
49.0
Repurchase of shares for option cost and to satisfy tax withholding obligations (0.3 ) —
(3.9 ) —
—
—
(3.9 )
Stock-based compensation and shares issued under equity plans, net 1.2
—
14.3
—
—
—
14.3
December 31, 2016 69.2
6.9

456.9

(64.5 )
(61.8 )
(303.0 )
34.5
Net loss —
—
—
—
(9.2 ) —
(9.2 )
Other comprehensive income, net of income taxes —
—
—
—
—
30.4
30.4
Reclassification of redeemable common stock 0.1
—
0.9
—
—
—
0.9
Cumulative effect of change in accounting guidance —
—
0.3
—
—
—
0.3
Conversion of debt to common stock 3.9
0.4
35.2
—
—
—
35.6
Repurchase of shares for option cost and to satisfy tax withholding obligations —
—
(6.2 ) —
—
—
(6.2 )
Stock-based compensation and shares issued under equity plans, net 0.4
0.1
16.0
—
—
—
16.1
December 31, 2017 73.6
$ 7.4

$ 503.1

$ (64.5 )
$ (71.0 )
$ (272.6 )
$ 102.4


	Common Stock							(Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Other Capital		Treasury Stock		Retained Earnings
	(In millions)






































December 31, 2017	73.6	$	7.4	$	503.1	$	(64.5)	$	(71.0)	$	(272.6)	$	102.4
Net income	—	—		—		—		137.3		—		137.3
Other comprehensive income, net of income taxes	—	—		—		—		—		33.2		33.2




Cumulative effect of change in accounting guidance	—	—		—		—		37.6		—		37.6
Contribution of treasury stock to retirement benefit plan	2.7	0.3		42.9		51.8		—		—		95.0
Repurchase of shares for option cost and to satisfy tax withholding obligations	—	—		(3.3)		—		—		—		(3.3)
Stock-based compensation and shares issued under equity plans, net	0.5	—		19.1		—		—		—		19.1
December 31, 2018	76.8	7.7		561.8		(12.7)		103.9		(239.4)		421.3
Net income	—	—		—		—		141.0		—		141.0
Other comprehensive income, net of income taxes	—	—		—		—		—		2.9		2.9


Repurchase of shares for option cost and to satisfy tax withholding obligations	(0.3)	—		(8.5)		—		—		—		(8.5)
Stock-based compensation and shares issued under equity plans, net	0.8	—		20.0		—		—		—		20.0
December 31, 2019	77.3	7.7		573.3		(12.7)		244.9		(236.5)		576.7
Net income	—	—		—		—		137.7		—		137.7
Other comprehensive income, net of income taxes	—	—		—		—		—		8.9		8.9


Cash dividends declared ($5.00 per share)	—	—		—		—		(447.8)		—		(447.8)


Purchase of treasury stock	(1.3)	—		—		(51.7)		—		—		(51.7)
Repurchase of shares for option cost and to satisfy tax withholding obligations	(0.3)	—		(20.0)		—		—		—		(20.0)
Stock-based compensation and shares issued under equity plans, net	1.1	—		29.7		—		—		—		29.7
December 31, 2020	76.8	$	7.7	$	583.0	$	(64.4)	$	(65.2)	$	(227.6)	$	233.5

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Consolidated Statements of Cash Flows

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Operating Activities
Net (loss) income $ (9.2 ) $ 18.0
$ (16.2 ) $ 7.0
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 72.6
64.9
65.1
5.1
Amortization of debt discount and deferred financing costs 8.5
2.3
2.7
0.2
Stock-based compensation 22.0
12.9
8.6
(0.4 )
Retirement benefits, net (8.2 ) 30.5
61.4
5.4
Loss on debt repurchased —
34.4
1.9
—
Other, net 0.7
0.6
(0.3 ) —
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable (67.6 ) 33.1
(1.0 ) 2.0
Inventories 48.6
(28.9 ) (19.5 ) 1.3
Other current assets, net 13.0
(23.8 ) (25.7 ) (4.8 )
Recoverable from the U.S. government and other third parties for environmental remediation costs 8.7
(32.6 ) (127.8 ) 3.2
Other noncurrent assets (31.4 ) (12.6 ) 10.2
(0.1 )
Accounts payable 1.6
27.0
(5.1 ) (41.0 )
Advance payments on contracts 16.0
(9.1 ) 6.3
27.2
Other current liabilities 8.2
(37.4 ) (18.8 ) 5.6
Deferred income taxes 125.7
4.8
(27.6 ) (7.1 )
Reserves for environmental remediation costs (8.3 ) 47.4
140.1
(3.8 )
Other noncurrent liabilities and other 11.9
27.2
13.3
0.3
Net Cash Provided by Operating Activities 212.8
158.7
67.6
0.1
Investing Activities
Purchases of marketable securities (24.0 ) —
—

Sale of marketable securities 4.0
—
—

Purchase of Coleman Aerospace (17.0 ) —
—
—
Proceeds from sale of technology —
0.5
1.0
—
Capital expenditures (29.4 ) (47.6 ) (36.8 ) (1.2 )
Net Cash Used in Investing Activities (66.4 ) (47.1 ) (35.8 ) (1.2 )
Financing Activities
Proceeds from issuance of debt —
800.0
—
—
Debt issuance costs including equity component of convertible debt —
(9.5 ) —
—
Debt repayments/repurchases (20.0 ) (700.6 ) (81.2 ) (1.3 )
Proceeds from shares issued under equity plans, net 4.5
4.2
1.3
—
Repurchase of shares for option cost and to satisfy tax withholding obligations (6.2 ) (3.9 ) (6.7 ) (0.2 )
Net Cash (Used in) Provided by Financing Activities (21.7 ) 90.2
(86.6 ) (1.5 )
Net Increase (Decrease) in Cash and Cash Equivalents 124.7
201.8
(54.8 ) (2.6 )
Cash and Cash Equivalents at Beginning of Period 410.3
208.5
265.9
211.1
Cash and Cash Equivalents at End of Period $ 535.0
$ 410.3
$ 211.1
$ 208.5
Supplemental disclosures of cash flow information
Cash paid for interest $ 22.2
$ 39.0
$ 49.3
$ 2.7
Cash paid for income taxes 3.0
31.2
27.9
—
Cash refund for income taxes 22.9
0.1
—
—
Capital leases 0.9
—
—
—
Conversion of debt to common stock 35.6
49.0
49.0
—


	Year Ended December 31,
	2020		2019		2018
	(In millions)
Operating Activities
Net income	$	137.7	$	141.0	$	137.3
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	65.3		74.5		72.3
Amortization of debt discount and deferred financing costs	9.9		9.4		8.9
Stock-based compensation	31.4		27.3		20.5
Retirement benefits, net	18.1		21.6		15.9




Other, net	(0.4)		(0.6)		(2.2)
Changes in assets and liabilities, net of effects from acquisition in 2019:
Accounts receivable, net	36.9		28.8		(47.3)
Contract assets	(64.5)		11.0		10.5
Other current assets, net	9.2		(27.9)		21.5


Recoverable for environmental remediation costs	7.1		16.3		(20.0)
Other noncurrent assets	0.6		(6.3)		5.8
Accounts payable	(36.8)		20.3		(39.4)

Contract liabilities	144.9		(10.3)		29.2
Other current liabilities	(4.4)		(72.5)		40.9
Deferred income taxes	37.9		(5.7)		4.7
Reserves for environmental remediation costs	(8.6)		(18.7)		(13.5)
Other noncurrent liabilities and other	(20.5)		53.0		7.6


Net Cash Provided by Operating Activities	363.8		261.2		252.7
Investing Activities
Capital expenditures	(54.6)		(42.9)		(43.2)
Purchases of marketable securities	(31.7)		0		(47.7)
Sale of marketable securities	25.0		0		68.1

Other	0.3		1.1		1.9


Net Cash Used in Investing Activities	(61.0)		(41.8)		(20.9)
Financing Activities

Debt issuance costs	0		0		(3.3)
Debt principal payments	(21.7)		(20.8)		(25.3)
Proceeds from shares issued under equity plans	7.5		5.2		5.4
Repurchase of shares for withholding taxes and option costs under employee equity plans	(20.0)		(8.5)		(3.3)
Purchase of treasury stock	(51.7)		0		0

Net Cash Used in Financing Activities	(85.9)		(24.1)		(26.5)
Net Increase in Cash, Cash Equivalents and Restricted Cash	216.9		195.3		205.3
Cash, Cash Equivalents and Restricted Cash at Beginning of Year	935.6		740.3		535.0
Cash, Cash Equivalents and Restricted Cash at End of Year	$	1,152.5	$	935.6	$	740.3
Supplemental disclosures of cash flow information
Cash paid for interest	$	19.7	$	26.3	$	25.3
Cash paid for income taxes	56.0		63.8		24.0
Cash refund for income taxes	13.3		2.0		5.2


Contribution of treasury stock to retirement benefit plans	0		0		95.0

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

a. Basis of Presentation and Nature of Operations

The consolidated financial statements of Aerojet Rocketdyne Holdings, Inc. (“("Aerojet Rocketdyne ~~Holdings”~~Holdings" or the ~~“Company”~~"Company") include the accounts of the ~~parent company~~Company and its 100% owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to financial information for prior years to conform to the current year’s presentation.

The ~~Company is a manufacturer of aerospace and defense products and systems with a real estate segment. The~~ Company’s operations are organized into ~~two~~2 segments:

Aerospace and Defense — includes the operations of the Company’s wholly-owned subsidiary Aerojet Rocketdyne, Inc. (“("Aerojet ~~Rocketdyne”~~Rocketdyne"), a leading technology-based designer, developer and manufacturer of aerospace and defense products and systems for the United States (“("U.S.”") government, including the Department of Defense ~~(“DoD”~~("DoD"), the National Aeronautics and Space Administration ~~(“NASA”~~("NASA"), and major aerospace and defense prime contractors.

Real Estate — includes the activities of the Company’s wholly-owned subsidiary Easton Development Company, LLC ~~(“Easton”~~("Easton") related to the re-zoning, entitlement, sale, and leasing of the Company’s excess real estate assets. ~~The Company is currently in the process of seeking zoning changes and other governmental approvals on its excess real estate assets to optimize its value.~~

~~In January 2016, the Company's Board of Directors approved a change in the Company's fiscal year-end from November 30 of each year to December 31 of each year.~~ The ~~fiscal~~ year of the Company's subsidiary, Aerojet Rocketdyne, ends on the last Saturday in December. ~~As a result of the change, the Company had a one month transition period in December 2015.~~Further, as a result of the 2016 calendar, Aerojet Rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2017 and fiscal 2015. The additional week of operations, which occurred in the fourth quarter of fiscal 2016, accounted for $32.2 million in additional net sales.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP") requires the Company 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.

Merger

On December 20, 2020, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Lockheed Martin Corporation ("Lockheed Martin") and Mizar Sub, Inc., a wholly-owned subsidiary of Lockheed Martin ("Merger Sub"), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company (the "Merger") with the Company being the surviving corporation and a wholly-owned subsidiary of Lockheed Martin.

Subject to the terms and conditions set forth in the Merger Agreement, each share of common stock outstanding as of immediately prior to the effective time of the Merger will be automatically converted into the right to receive cash in an amount equal to $56.00 per share, without interest, less, to the extent paid or payable as outlined below, the amount per share of the Pre-Closing Dividend (defined below).

On December 19, 2020, the Company’s Board of Directors declared a one-time cash dividend of $5.00 per share (including shares underlying the 2.25% Convertible Senior Notes ("2¼% Notes") participating on an as-converted basis) (the "Pre-Closing Dividend"). The Pre-Closing Dividend is payable on March 24, 2021, to the holders of the Company’s shares and 2¼% Notes as of the close of business on March 10, 2021. The $56.00 per share price under the Merger Agreement is expected to be reduced to $51.00 after the payment of the Pre-Closing Dividend to the Company’s stockholders and holders of its 2¼% Notes participating on an as-converted basis (or, in the unlikely event that closing occurs after March 10, 2021, but before March 24, 2021, to the extent the Pre-Closing Dividend is payable after the closing).

Closing of the Merger is anticipated to occur in the second half of 2021, subject to various customary conditions, including Company stockholder approval and regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Coronavirus ("COVID-19") Pandemic

During 2020, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic. As a defense industrial-base U.S. government contractor, the Company is considered an essential business by the U.S. and state governments and it continues to operate as such during the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by COVID-19 pandemic depends on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

b. Cash and Cash Equivalents

All highly liquid debt instruments purchased with a remaining maturity at the date of purchase of three months or less are considered to be cash equivalents. The Company aggregates its cash balances by bank, and reclassifies any negative balances, if applicable, to ~~accounts payable.~~other current liabilities.

c. Restricted Cash

As of December 31, 2020 and 2019, the Company designated $3.0 million as restricted cash to satisfy indemnification obligations for environmental remediation coverage.

d. Fair Value of Financial Instruments

Financial instruments are classified using a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. ~~The following are measured~~


			Fair value measurement as of December 31, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Money market funds	$	569.3	$	569.3	$	0	$	0
Commercial paper	232.0		0		232.0		0
Registered investment companies	2.5		2.5		0		0
Equity securities	7.0		7.0		0		0

Total	$	810.8	$	578.8	$	232.0	$	0


			Fair value measurement as of December 31, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Money market funds	$	626.0	$	626.0	$	0	$	0
Registered investment companies	3.7		3.7		0		0
Commercial paper	99.9		0		99.9		0
Total	$	729.6	$	629.7	$	99.9	$	0

As of December 31, 2020 and 2019, the total estimated fair value for commercial paper was classified as cash and cash equivalents as the remaining maturity at ~~fair value:~~

Fair value measurement at December 31, 2017
Total
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
(In millions)
Money market funds $ 155.0
$ 155.0
$ —
$ —
Commercial paper 135.6
—
135.6
—
U.S. treasury notes 4.1
—
4.1
—
Total $ 294.7
$ 155.0
$ 139.7
$ —

Fair value measurement at December 31, 2016
Total
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
(In millions)
Money market funds $ 328.5
$ 328.5
$ —
$ —
date of purchase was less than three months. In 2020, the Company recognized $0.3 million of unrealized gains on equity securities (component of interest income in the consolidated statements of operations).

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued compensation, and other accrued liabilities, approximate fair value because of their short maturities.

The following table summarizes the estimated fair value and principal amount for outstanding debt obligations excluding finance lease obligations:


	Fair Value				Principal Amount
	As of December 31,				As of December 31,
	2020		2019		2020		2019

	(In millions)
Term loan	$	306.5	$	328.1	$	308.5	$	328.1


2¼% Notes	609.5		546.0		300.0		300.0



	$	916.0	$	874.1	$	608.5	$	628.1

Fair Value Principal Amount
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016
(In millions)
Term loan $ 370.0
$ 390.0
$ 370.0
$ 390.0
2.25% Convertible Senior Notes ("2¹/₄% Notes")
415.3
294.9
300.0
300.0
4¹/₁₆% Convertible Subordinated Debentures (“4¹/₁₆% Debentures”)
—
70.8
—
35.6
Capital leases 0.9
—
0.9
—
$ 786.2
$ 755.7
$ 670.9
$ 725.6

The fair ~~values~~value of the 2¹/₄2¼% Notes ~~and 4~~¹/₁₆~~% Debentures were~~was determined using broker quotes that are based on open markets for the ~~Company’s~~Company's debt securities (Level 2 securities). The fair value of the term loan ~~bore interest~~ at ~~variable rates, which adjusted~~December 31, 2020, was estimated based on ~~market conditions,~~a third-party model used to derive a relative value price using comparable corporate loans within the same industry, credit quality, and ~~its~~currency. At December 31, 2019, the term loan carrying value approximated fair value.

d.e. Accounts Receivable, net

Accounts ~~receivable associated with long-term contracts consist of~~Receivable represent the Company's unconditional right to consideration under the contract and include amounts billed and ~~unbilled amounts. Billed~~currently due from long-term contract customers. The amounts include invoices presented to customers that have not been paid. Unbilled amounts relate to sales that have been recorded and billings that have not been presented to customers. Amounts for overhead disallowances or billing decrements are ~~reflected in unbilled receivables and primarily represent estimates of potential overhead costs which may not be successfully negotiated and collected.~~stated at their net estimated realizable value.

Other receivables represent amounts billed ~~where sales were~~for revenue not derived from long-term contracts.

e.f. Inventories

Inventories are stated at ~~the lower of~~ cost ~~or market, generally~~(generally using the average cost method. Costs on long-term contracts and programs in progress represent recoverable costs incurred for production, contract-specific facilities and equipment, allocable operating overhead, advances to suppliers, environmental expenses and, in the case of contracts with the U.S. government, allocable costs deemed allowable from U.S. government procurement regulations for bid and proposal, research and development, and selling, general and administrative expenses.method) or net realizable value. The Company capitalizes costs incurred in advance of contract award or funding in inventories if it determines that contract award or funding is probable.

Amounts previously capitalized are expensed when changes in facts and circumstances indicate that a contract award or funding is no longer probable.~~Pursuant~~ General and administrative costs incurred throughout 2020 and 2019 totaled $262.9 million and $273.9 million, respectively, and the cumulative amount of general and administrative costs in long-term contract inventories were estimated to ~~contract provisions, agencies~~be $1.8 million and $3.8 million as of ~~the U.S. government~~December 31, 2020 and ~~certain other customers have title to, or a security interest in, inventories related to such~~

~~contracts~~2019, respectively. Inventories are included as a ~~result~~component of ~~performance-based and progress payments. Such progress payments are reflected as an offset against the related inventory balances.~~other current assets.

f.g. Income Taxes

The Company files a consolidated U.S. federal income tax return with its 100% owned consolidated subsidiaries. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the period of the enactment date of the change.

The carrying value of the Company’s deferred tax assets is dependent upon its ability to generate sufficient taxable income in the future. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence is considered, including the Company’s past and future performance, the market environment in which it operates, the utilization of tax attributes in the past, the length of carryback and carryforward periods, and evaluation of potential tax planning strategies.

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions are likely to be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the financial statements. The accounting standards provide guidance for the recognition and measurement in financial statements for uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process, the first step being recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority. As the examination process progresses with tax authorities, adjustments to tax reserves may be necessary to reflect taxes payable upon settlement. Tax reserve adjustments related to positions impacting the effective tax rate affect the provision for income taxes. Tax reserve adjustments related to positions impacting the timing of deductions impact deferred tax assets and liabilities.

g.h. Property, Plant and Equipment, net

Property, plant and equipment are recorded at cost. Refurbishment costs that extend the life or increase the value of an asset are capitalized in the property accounts, whereas ordinary maintenance and repair costs are expensed as incurred. Depreciation is computed principally by accelerated methods based on the following useful lives:



Buildings and improvements			39 - 40 years
Machinery and equipment			6 - 10 years

Costs related to software acquired, developed or modified solely to meet the Company's internal requirements (including cloud computing arrangements) and for which there are no substantive plans to market for sale are ~~capitalized.~~capitalized and depreciated over 3 to 7 years. Only costs incurred after the preliminary planning stage of the project and after management has authorized and committed funds to the project are eligible for capitalization.

h.i. Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities. Finance leases are included in property, plant and equipment and debt. Operating ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Finance leases are recorded as an asset and an obligation at an amount equal to the present value of the minimum lease payments during the lease term. Amortization expense related to finance leases is included in depreciation and amortization expense.

For certain technology equipment leases, the Company accounts for lease and nonlease (service) components separately based on a relative fair market value basis. For all other leases, the Company accounts for the lease and nonlease components (e.g., common area maintenance) on a combined basis.

The discount rate used for leases is the Company's incremental borrowing rate for collateralized debt based on information available at the lease commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Leases with a term of twelve months or less and that do not include a purchase option that is likely to be exercised are treated as short-term leases and are not reflected on the balance sheet. The Company leases certain facilities, machinery and equipment (including information technology equipment), and office buildings under long-term, non-cancelable operating and finance leases.

j. Real Estate Held for Entitlement and Leasing

The Company capitalizes all costs associated with the real estate entitlement and leasing process. The Company classifies activities related to the entitlement, sale, and leasing of its excess real estate assets as operating activities in the consolidated statements of cash flows. Real estate held for entitlement and leasing is included as a component of other noncurrent assets.

i.k. Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair values of the identifiable assets acquired and liabilities assumed. All of the Company's recorded goodwill resides in the Aerospace and Defense reporting unit. Tests for impairment of goodwill are performed on an annual basis, or at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an impairment test include but are not limited to: a significant adverse change in the business climate or legal factors; adverse cash flow trends; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; decline in stock price; and results of testing for recoverability of a significant asset group within a reporting unit.

The Company evaluates qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance) to determine whether it is necessary to perform the first step of the goodwill test. This step is referred to as the ~~“Step~~"Step Zero" analysis. If it is determined that it is more likely than not (a likelihood of more

than 50%) that

the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative (“("Step ~~One”~~One") analysis to determine the existence and amount of any goodwill impairment. The Company may also perform a Step One analysis from time to time to augment its qualitative assessment. The Company evaluated goodwill using a ~~“Step Zero"~~Step Zero analysis as of October 1, ~~2017, October 1, 2016,~~2020 and ~~September 1, 2016 (first day of the Company's fourth quarter),~~2019, and determined that goodwill was ~~not~~0t impaired.

There can be no assurance that the Company’s estimates and assumptions made for purposes of its goodwill impairment testing will prove to be accurate predictions of the future. If the Company’s assumptions and estimates are incorrect, the Company may be required to record goodwill impairment charges in future periods.

During the year ended December 31, 2016, and in connection with the Company's change in fiscal year end, as described in Note 1(a), from November 30 to December 31, the Company changed its annual test of goodwill impairment from September 1 of each year to October 1 of each year. With respect to its annual goodwill testing date, management believes that this voluntary change in accounting method is preferable as it aligns the annual impairment testing date with the Company's long-range planning cycle, the timing of which has changed consistent with the change in the Company's fiscal year end and which is a significant element in the testing process. In connection with this change, the Company first performed an impairment test as of September 1, 2016 and then performed an additional test as of October 1, 2016. This change in annual testing date did not delay, accelerate or avoid an impairment charge.

j.l. Intangible Assets

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 based on when they provide the Company economic benefit, or using the straight-line method, over their estimated useful life. Amortization periods for identifiable intangible assets range from 7 years to 30 years.

k.m. Environmental Remediation

The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and contamination in ongoing operations. The Company ~~accrues~~reviews on a quarterly basis estimated future remediation costs and has an established practice of estimating environmental remediation costs over a fifteen-year period, except for those environmental remediation costs ~~associated~~ with a specific contractual term. Environmental liabilities at the ~~remediation~~Baldwin Park Operable Unit ("BPOU") site are currently estimated through the term of ~~environmental contamination when it becomes probable that a liability has been incurred, and~~ the ~~amount can be reasonably estimated. In most cases only a range of reasonably possible costs can be estimated.~~project agreement, which expires in May 2027. In establishing ~~the Company’s~~ reserves, the most probable estimated amount is used when determinable, and the minimum amount is used when no single amount in the range is more probable. Environmental reserves include the costs of completing remedial investigation and feasibility studies, remedial and corrective actions, regulatory oversight costs, the cost of operation and maintenance of the remedial action plan, and employee compensation costs for employees who are expected to devote a significant amount of time to remediation efforts. Calculation of environmental reserves is based on the evaluation of currently available information with respect to each individual environmental site and considers factors such as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. Such estimates are based on the expected costs of investigation and remediation and the likelihood that other potentially responsible parties will be able to fulfill their commitments at sites where the Company may be jointly or severally liable.

At the time a liability is recorded for future environmental costs, the Company records an asset for estimated future recoveries that are estimable and probable. Some of the Company’s environmental costs are eligible for future recovery in the pricing of its products and services to the U.S. government and under existing third party agreements. The Company considers the recovery probable based on the Global Settlement, ~~Northrop Grumman Corporation ("Northrop") Agreement,~~ U.S. government contracting regulations, and its long history of receiving reimbursement for such costs (see Notes ~~8(c)~~8(b) and ~~8(d)~~8(c)).

l.n. Retirement Benefits

The ~~Company's~~Company discontinued future benefit accruals for the defined benefit pension ~~plan future benefit accrual was discontinued~~plans in ~~fiscal~~ 2009. ~~In addition, the~~The Company provides medical and life insurance benefits (“("postretirement ~~benefits”~~benefits") to certain eligible retired employees, with varied coverage by employee group. Annual charges are made for the cost of the plans, including ~~administrative costs,~~ interest costs on benefit obligations, and net amortization and deferrals, increased or reduced by the return on assets. The Company also sponsors a defined contribution 401(k) plan and participation in the plan is available to all employees (see Note 7).

m.o. Conditional Asset Retirement Obligations

Conditional asset retirement obligations ~~(“CAROs”~~("CAROs") are legal obligations associated with the retirement of long-lived assets. These liabilities are initially recorded at fair value and the ~~related~~expected asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the Company records period-to-period changes in the CARO liability resulting from the passage of time and revisions to either the timing or the amount of the estimate of the undiscounted cash flows.

~~The Company’s estimate of~~ CAROs associated with owned properties ~~relates to~~are based on estimated costs necessary for the legally required removal or remediation of various regulated materials, primarily asbestos disposal and radiological decontamination of

an ordnance manufacturing facility. For leased properties, ~~such obligations relate to~~CAROs are based on the estimated cost of contractually required property restoration.

The following table summarizes the changes in the carrying amount of ~~CAROs since November 30, 2014 were as follows (in millions):~~CAROs:


	Year Ended December 31,
	2020		2019		2018
	(In millions)
Balance at beginning of year	$	51.4	$	46.0	$	44.0
(Reductions)/ additions and other, net	(2.7)		2.6		(0.5)
Accretion	2.7		2.8		2.5
Balance at end of year	$	51.4	$	51.4	$	46.0

Balance as of November 30, 2014 $ 24.4
Additions and other, net 3.0
Accretion 1.9
Balance as of November 30, 2015 29.3
Accretion 0.2
Balance as of December 31, 2015 29.5
Additions and other, net (0.9 )
Accretion 2.0
Balance as of December 31, 2016 30.6
Additions and other, net 11.2
Accretion 2.2
Balance as of December 31, 2017 $ 44.0

~~n. Advance Payments on Contracts~~

The Company receives advances from customers which may exceed costs incurred on certain contracts. Such advances or billings in excess of cost and estimated earnings, other than those reflected as a reduction of inventories as progress payments, are classified as current liabilities.

o.p. Loss Contingencies

The Company is currently involved in certain legal proceedings and has accrued its estimate of the probable costs and recoveries (in relation to environmental costs) for resolution of these claims. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations or cash flows for any particular period could be materially affected by changes in estimates or the effectiveness of strategies related to these proceedings.

p.q. Warranties

The Company provides product warranties in conjunction with certain product sales. The majority of the Company’s warranties are a one-year standard warranty for parts, workmanship, and compliance with specifications. On occasion, the Company has made commitments beyond the standard warranty obligation. While the Company has contracts with warranty provisions, there is not a history of any significant warranty claims experience. A reserve for warranty exposure is made on a product by product basis when it is both estimable and probable. These costs are included in the program’s estimate at completion and are expensed in accordance with the Company’s revenue recognition methodology for that particular contract.

q.r. Revenue Recognition

The Company considers the nature of the individual underlying contract and the type of products and services provided in determining the proper accounting for a particular contract. Each method is applied consistently to all contracts having similar characteristics, as described below.

Under the percentage of completion method, the Company recognizes sales based upon the Company's progress against the contracted performance objectives. Progress is generally measured as costs are incurred (cost-to-cost) or as units are delivered to customers (units-of-delivery) depending on the contractual terms and scope of work of each contract. The Company uses the cost-to-cost measure where the scope of work on contracts principally relates to research and/or development efforts, or the contract is predominantly a development effort with few deliverable units. Under cost-to-cost, the Company recognizes sales as costs are incurred. The Company uses the units-of-delivery measure to recognize sales when contracts require unit deliveries on a frequent and routine basis. Under units-of-delivery, the Company recognizes sales at the contractually agreed upon unit price as units are sold.

For fixed-priced contracts, variance in actual costs from the cost estimates used in determining the fixed price impact the overall profit from the contract. The Company recognizes these variances during the contact performance period. Fixed-priced and cost-reimbursable contracts may provide for variable consideration including awards, incentives, and/or penalties based upon the customer’s assessment of performance against pre-established targets or other criteria. These targets may include factors such as cost, performance, quality, and schedule. The Company recognizes variable consideration over the contract performance period based upon the Company's estimates of performance against the established criteria.

In the Company’s Aerospace and Defense segment, ~~recognition~~the majority of revenue is earned from long-term contracts to design, develop, and manufacture aerospace and defense products for, and provide related services to, the Company’s customers, including the U.S. government and major aerospace and defense prime contractors. Each customer contract defines the Company’s distinct performance obligations and the associated transaction price for each obligation. A contract may contain one or multiple performance obligations. In certain circumstances, multiple contracts with a customer are required to be combined in determining the distinct performance obligation. For contracts with multiple performance obligations, the Company allocates the contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents the price at which the Company would sell the promised good or service separately to the customer. The Company determines the standalone selling price based upon the facts and circumstances of each obligated good or service. The majority of the Company’s contracts have no observable standalone selling price since the associated products and services are customized to customer specifications. As such, the standalone selling price generally reflects the Company’s forecast of the total cost to satisfy the performance obligation plus an appropriate profit margin.

Contract modifications are routine in the performance of the Company's long-term contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.

The Company recognizes revenue as each performance obligation is satisfied. The majority of the Company’s aerospace and defense performance obligations are satisfied over time either as the service is provided, or as control transfers to the customer. Transfer of control is evidenced by the Company’s contractual right to payment for work performed to date plus a reasonable profit on contracts with highly customized products that have no alternative use to the Company. The Company measures progress on substantially all its performance obligations using the cost-to-cost method, which the Company believes best depicts the transfer of control of goods and services to the customer. Under the cost-to-cost method, the Company records revenues based upon costs incurred to date relative to the total estimated cost at completion. Contract costs include labor, material, overhead, and general and administrative expenses, as appropriate.

Recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to the total contract ~~revenue,~~value, the total cost at completion, and the measurement of progress towards ~~completion.~~completion for each performance obligation. Due to the nature of the programs, developing the estimated total contract ~~revenue~~value and total cost at completion for each performance obligation requires the use of significant judgment. ~~Estimates are continually evaluated~~

The contract value of long-term contracts may include variable consideration, such as ~~work progresses~~incentives, awards, or penalties. The value of variable consideration is generally determined by contracted performance metrics, which may include targets for cost, performance, quality, and ~~are revised as necessary.~~schedule. The Company includes variable consideration in the transaction price for the respective performance obligation at either estimated value, or most likely amount to be earned, based upon the Company’s assessment of expected performance. The Company records these amounts only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

The Company evaluates the contract value and cost estimates for performance obligations at least quarterly and more frequently when circumstances significantly change. Factors ~~that must be~~ considered in estimating the work to be completed include, but are

not limited to: labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, warranty costs, volume assumptions, anticipated labor agreements, inflationary trends, schedule and performance delays, availability of funding from the customer, and the recoverability of costs incurred outside the original contract included in any estimates to complete. ~~The~~When the Company’s estimate of total costs to be incurred to satisfy a performance obligation exceeds the expected revenue, the Company ~~reviews contract performance and cost estimates at least quarterly and more frequently when circumstances significantly change.~~recognizes the loss immediately. When the Company determines that a change in ~~estimate is determined to have~~estimates has an impact on ~~contract~~the associated profit of a performance obligation, the Company ~~will record a~~records the cumulative positive or negative adjustment to the statement of operations. Changes in estimates and assumptions related to the status of certain long-term contracts may have a material effect on the Company’s operating results. The following table summarizes the impact of the ~~change~~changes in significant contract accounting estimates on the Company’s Aerospace and Defense segment operating ~~results accounted for under the percentage-of-completion method of accounting:~~

results:


	Year Ended December 31,
	2020		2019		2018
	(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales	$	38.5	$	38.6	$	68.2
Favorable effect of the changes in contract estimates on income before income taxes	45.1		38.4		59.1
Favorable effect of the changes in contract estimates on net income	34.5		28.2		43.1
Favorable effect of the changes in contract estimates on basic earnings per share ("EPS") of common stock	0.44		0.36		0.56
Favorable effect of the changes in contract estimates on diluted EPS	0.42		0.34		0.55

The ~~fiscal 2017~~2020 net favorable changes in contract estimates were primarily driven by improved performance ~~on numerous programs as a result of overhead cost reductions~~ and ~~reduced program risks, most notably~~risk retirements on the Terminal High Altitude Area Defense ("THAAD"), RS-68, RL10, and Patriot Advanced Capability-3 ("PAC-3") programs partially offset by cost growth on a portion of the Standard Missile program and the Commercial Crew program. The 2019 net favorable changes in contract estimates on income before income taxes were primarily driven by improved performance and risk retirements on the THAAD and PAC-3 programs. The 2018 net favorable changes in contract estimates on income before income taxes were primarily driven by risk retirements on the THAAD, RS-68, and RL10 programs and favorable overhead rate performance, partially offset by cost growth and ~~manufacturing inefficiencies~~performance issues on the Commercial Crew Development program.

In the Company’s Aerospace and Defense segment, the timing of revenue recognition, customer invoicing, and collections produces accounts receivable, contract assets, and contract liabilities on the Company’s Consolidated Balance Sheet. The Company invoices in ~~fiscal 2017 on electric propulsion contracts. The fiscal 2016 favorable changes~~accordance with contract payment terms either based upon a recurring contract payment schedule, or as contract milestones are achieved. Customer invoices, net of reserves, represent an unconditional right of consideration. When revenue is recognized in advance of customer invoicing, a contract asset is recorded. Conversely, when customers are invoiced in advance of revenue recognition, a contract liability is recorded. Unpaid customer invoices are reflected as accounts receivable. Amounts for overhead disallowances or billing decrements are reflected in contract assets and primarily represent estimates ~~were primarily driven~~of potential overhead costs which may not be successfully negotiated and collected. The following table summarizes contract assets and liabilities:


	As of December 31,
	2020		2019
	(In millions)
Contract assets	$	294.3	$	243.5
Reserve for overhead rate disallowance	(5.7)		(19.4)
Contract assets, net of reserve	288.6		224.1
Contract liabilities	407.2		262.3
Net contract liabilities, net of reserve	$	(118.6)	$	(38.2)

Net contract liabilities increased by ~~improved performance on space launch systems~~$80.4 million primarily due to ~~affordability initiatives and lower overhead costs,~~an increase in contract advances partially offset by ~~cost growth and manufacturing inefficiencies on electric propulsion contracts.~~an increase in unbilled receivables. The ~~one month ended December 31, 2015 favorable changes~~decrease of $13.7 million in ~~contract estimates were primarily driven by improved performance on tactical and missile defense programs~~the reserve for overhead rate disallowance was primarily due to ~~affordability initiatives~~adjustments for final incurred costs from prior years which were subject to audit and ~~lower overhead costs, partially offset~~review for allowability by ~~cost growth~~the U.S. government.During 2020, the Company recognized sales of $223.3 million that were included in the Company’s contract liabilities as of December 31, 2019. During 2019, the Company recognized sales of $240.6 million that were included in the Company’s contract liabilities as of December 31, 2018.Contract assets included unbilled receivables of $286.0 million and ~~manufacturing inefficiencies on an electric propulsion contract.~~ $232.4 million as of December 31, 2020 and 2019, respectively. Approximately 19% of unbilled receivables at December 31, 2020, are expected to be collected after one year.

As of December 31, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.7 billion.The ~~fiscal 2015 favorable changes in contract estimates were primarily due~~Company expects to improved performance on space launch systems and missile defense programs primarily due to affordability initiatives and lower overhead costs, and unexpected favorable contract performance on close-out activities on the J-2X program.

~~Revenue on service~~recognize approximately 32%, or ~~time and material contracts is recognized when performed.~~

~~If at any time expected costs exceed the value~~$2.2 billion, of the remaining performance obligations as sales over the next twelve months, an additional 24% the following twelve months, and 44% thereafter.

The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and

margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the ~~loss is recognized immediately.~~percentages of net sales by contract type:

If change orders are in dispute or are unapproved in regard to both scope and price they are evaluated as claims. The Company recognizes revenue on claims when recovery of the claim is probable and the amount can be reasonably estimated. Revenue on claims is recognized only to the extent that contract costs related to the claims have been incurred and when it is probable that the claim will result in a bona fide addition to contract value that can be reliably estimated. No profit is recognized on a claim until final settlement occurs.


	Year Ended December 31,

	2020		2019		2018
Fixed-price	61	%	61	%	63	%
Cost-reimbursable	39		39		37

Revenue from real estate asset sales is recognized when a sufficient down-payment has been received, financing has been arranged and title, possession and other attributes of ownership have been transferred to the buyer. The allocation to cost of sales on real estate asset sales is based on a relative fair market value computation of the land sold which includes the basis on the Company’s book value, capitalized entitlement costs, and an estimate of the Company’s continuing financial commitment.

r.s. Research and Development ("R&D")

~~Company-sponsored~~Company-funded R&D expenses (reported as a component of cost of sales) were ~~$44.6~~$55.8 million, ~~$43.0 million, $74.4~~$65.1 million, and ~~$4.6~~$46.7 million in ~~fiscal 2017, 2016, 2015~~2020, 2019, and ~~the one month ended December 31, 2015,~~2018, respectively. ~~Company-sponsored~~Company-funded R&D expenses include the costs of technical activities that are useful in developing new products, services, processes, or techniques, as well as expenses for technical activities that may significantly improve existing products or processes. These expenses are generally allocated among all contracts and programs in progress under U.S. government contractual arrangements. From time to time, the Company believes it is in its best interests to self-fund and not allocate costs for certain R&D activities to the U.S. government ~~contracts and the Company had $32.1 million of such costs in fiscal 2015 related to the AR1 engine, see discussion below.~~contracts.

~~Customer-sponsored~~Customer-funded R&D expenditures, which are funded from U.S. government contracts, totaled ~~$561.1~~$628.7 million, ~~$513.0 million, $485.8~~$680.5 million, and ~~$33.7~~$591.6 million in ~~fiscal 2017, 2016, 2015,~~2020, 2019, and ~~the one month ended December 31, 2015,~~2018, respectively. Expenditures under ~~customer-sponsored~~customer-funded R&D ~~funded~~ U.S. government contracts are accounted for as sales and cost of ~~products sold.~~sales.

~~AR1 Research and Development~~

Company-sponsored R&D expenses (reported as a component of cost of sales) are generally reimbursed via allocation of such expenses among all contracts and programs in progress under U.S. government contractual arrangements. The newest large liquid booster engine development project, the AR1, accounted for $56.1 million of such reimbursable costs from inception through December 31, 2017. In February 2016, pursuant to an Other Transaction Agreement, the U.S. Air Force selected Aerojet Rocketdyne and United Launch Alliance ("ULA") to share in a public-private partnership to develop jointly the AR1 engine. The total agreement is valued at $804.0 million with the U.S. Air Force investing two-thirds of the funding required to complete development of the AR1 engine by 2019. The work is expected to be completed no later than December 31, 2019, and is being conducted in four phases, with each being an option to progress the project at pre-defined decision points. Through December 31, 2017, the U.S. Air Force has obligated $174.0 million with Aerojet Rocketdyne contributing $77.3 million and ULA contributing $6.1 million in cash and $3.6 million in "in-kind" R&D expenses. On February 1, 2018, the U.S. Air Force authorized phase two of the program, which obligates the U.S. Air Force to an additional $95.5 million and Aerojet Rocketdyne and ULA to an additional $47.8 million. The total potential investment by Aerojet Rocketdyne and its partners, if all options are exercised, is $268.0 million. The U.S. Air Force contributions are recognized proportionately as an offset to R&D expenses. In the event the Company records a receivable for a milestone prior to expending the prospective proportional share to be contributed by the Company, the amount is recorded as an accrued liability until earned. The AR1 inception to date project costs at December 31, 2017, were as follows (in millions):

AR1 R&D costs incurred $ 245.6
Less amounts funded by the U.S. Air Force (147.7 )
Less amounts funded by ULA (9.7 )
AR1 R&D costs net of reimbursements $ 88.2

~~Of the $88.2 million AR1 investment, $32.1 million was expensed and $56.1 million was applied to the Company's contracts.~~

s.t. Stock-based Compensation

The Company recognizes stock-based compensation in the statements of operations at the grant-date fair value of stock awards issued to employees and directors over the vesting period. The Company also grants Stock Appreciation Rights ~~(“SARs”~~("SARs") awards which are similar to the Company’s employee stock options, but are settled in cash rather than in shares of common stock, and are classified as liability awards. Compensation cost for these awards is determined using a fair-value method and remeasured at each reporting date until the date of settlement. The Company accounts for forfeitures when they occur for consistency with the U.S. government recovery accounting practice.

t.u. Impairment or Disposal of Long-Lived Assets

Impairment of long-lived assets is recognized when events or circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or a current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the Company determines that an asset is not recoverable, then the Company would record an impairment charge if the carrying value of the asset exceeds its fair value.

A long-lived asset classified as ~~“held~~"held for ~~sale”~~sale" is initially measured at the lower of its carrying amount or fair value less costs to sell. In the period that the ~~“held~~"held for ~~sale”~~sale" criteria are met, the Company recognizes an impairment charge for any initial adjustment of the long-lived asset amount. Gains or losses not previously recognized resulting from the sale of a long-lived asset are recognized on the date of sale.

As of February 28, 2015, the Company classified approximately 550 acres, known as Hillsborough and representing a portion of the 5,563 acre Easton plan, as assets held for sale as a result of its plans to sell the Hillsborough land. During fiscal 2015, the Company finalized the Hillsborough land sale for a total purchase price of $57.0 million which was comprised of $46.7 million cash and $10.3 million of promissory notes. The total acreage covered by the Hillsborough land transaction was approximately 700 acres, of which approximately 550 acres was recognized as a sale in fiscal 2015. At the initial closing, the buyer paid $40.0 million cash and executed a $9.0 million promissory note secured by a first lien Deed of Trust on a portion of the sale property which resulted in a pre-tax gain of $30.6 million in fiscal 2015. In addition, approximately 150 acres of this land, including a 50-acre portion known as “Area 40,” was held back from the initial closing. Upon receipt of regulatory approvals, a closing will take place for the sale of the developable portions of such holdback acreage for a purchase price of $6.7 million in cash. For operating segment reporting, the Hillsborough land has been reported as a part of the Real Estate segment. A summary of the impact of the land sale on the consolidated statement of operations for fiscal 2015 was as follows (in millions):v. Concentrations

Net sales from land sale $ 42.0
Cost of sales from land sale 11.4
Income before income taxes from land sale 30.6
Income tax provision related to land sale 12.7
Net income from land sale $ 17.9

~~u. Concentrations~~

Dependence upon U.S. ~~government programs~~Government Programs and ~~contracts~~Contracts

~~Sales to~~The principal end user customers of the Company's products and technology are primarily agencies of the U.S. ~~government and its agencies, including~~government. The following table summarizes the percentages of net sales ~~to the Company’s significant customers discussed below, were as follows:~~by principal end user:



	~~Percentage of Net~~ ~~Sales~~
~~Fiscal 2017~~	92	%
~~Fiscal 2016~~	91	%
~~Fiscal 2015~~	90	%
~~One month ended December 31, 2015~~	85	%


	Year Ended December 31,

	2020		2019		2018
U.S. government	96	%	96	%	94	%
Non U.S. government customers	4		4		6

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
RS-25 program 14 % 12 % 12 % 10 %
Standard Missile program 9
12
14
12
THAAD program 9
13
13
13

~~The demand for certain of the Company’s services and products is directly related to the level of funding of U.S. government programs.~~


	Year Ended December 31,
	2020		2019		2018
RS-25 program	18	%	17	%	14	%
Standard Missile program	13		13		13
THAAD program	11		10		11
PAC-3 program	10		10		8

Major ~~customers~~Customers

~~Customers~~The following table summarizes the customers that represented more than 10% of net sales, ~~for the periods presented were as follows:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
Lockheed Martin Corporation ("Lockheed Martin") 24 % 27 % 29 % 24 %
ULA 22
21
19
28
Raytheon Company ("Raytheon") 17
20
20
19
NASA 17
13
11
10

~~The Company's sales to~~ each of ~~the major customers listed above involve~~which involves sales of several product lines and ~~programs.~~programs:


	Year Ended December 31,
	2020		2019		2018
Lockheed Martin	34	%	33	%	30	%


NASA	21		21		18
Raytheon Technologies Corporation ("Raytheon")	17		17		19

ULA	*		10		17

________

* Less than 10%.

Credit Risk

Aside from investments held in the Company’s retirement benefit plans, financial instruments that could potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and trade receivables. The Company’s cash and cash equivalents are held and managed by recognized financial institutions and are subject to the Company’s investment policy. The investment policy outlines minimum acceptable credit ratings for each type of investment and limits the amount of credit exposure to any one security issue. The Company does not believe significant concentration of credit risk exists with respect to these investments.

~~Customers~~The following table summarizes customers that represented more than 10% of accounts receivable, ~~for the periods presented were as follows:~~including unbilled receivables which are a component of contract assets:


	As of December 31,
	2020		2019
Lockheed Martin	21	%	26	%
Raytheon	20		21
The Boeing Company	16		18
NASA	*		14

________

As of December 31,
2017 2016

The Boeing Company ("Boeing") 35 % 13 %
Raytheon 16
17
Lockheed Martin 12
17
NASA 11
14
ULA 11
20
* Less than 10%.

Dependence on Single Source and Other Third Party Suppliers

The Company uses a significant quantity of raw materials that are highly dependent on market fluctuations and government regulations. Further, as a U.S. government contractor, the Company is often required to procure materials from suppliers capable of meeting rigorous customer and government specifications. As market conditions change for these companies, they often discontinue materials with low sales volumes or profit margins. The Company is often forced to either qualify new materials or pay higher prices to maintain the supply. To date the Company has been successful in establishing replacement materials and securing customer funding to address specific qualification needs of the programs. Prolonged disruptions in the supply of any of the Company’s key raw materials, difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply, and/or a continuing volatility in the prices of raw materials could have a material adverse effect on the Company’s operating results, financial condition, and/or cash flows.

Workforce

As of December 31, ~~2017, 14%~~2020, 8% of the Company’s employees were covered by collective bargaining agreements.

v.w. Related Parties

Warren G. Lichtenstein, the Executive Chairman of the Company is also the Executive Chairman of Steel Partners Holdings L.P. (“("Steel ~~Holdings”~~Holdings") and the Chief Executive Officer of Steel Partners Ltd. ~~(“SPL”~~("SPL"), which entities beneficially own 5.6% and less than 1%, respectively, of the Company’s common stock according to a Schedule 13D/A filed on December 26, 2017 by Steel Holdings, SPL and certain other reporting persons listed therein.. The Company received services of ~~$0.6 million, $0.9~~$0.1 million, $1.1 million, and ~~zero~~$0.6 million in ~~fiscal 2017, 2016, 2015,~~2020, 2019, and ~~the one month ended December 31, 2015,~~2018, respectively, from Steel Holdings and SPL, ~~which~~ primarily included administrative services and the use of an aircraft for business travel. As of December 31, ~~2017~~2020 and ~~2016,~~2019, the Company had liabilities due to such entities of ~~$0.2~~$0.1 million and ~~$0.2~~$0.1 million, respectively.

FMR LLC (“FMR”) owned 3% and 13% of the Company’s Common Stock at December 31, 2017 and 2016, respectively. FMR is the parent company of Fidelity Workplace Services, LLC, Fidelity Stock Plan Services, LLC and other Fidelity subsidiaries which provide certain benefit services such as 401(k) plan administration, Health Savings Accounts administration, stock-based compensation administration, and Employee Stock Purchase Plan administration. In addition, certain of the investment alternatives provided through the Company’s 401(k) plan include funds managed by FMR. The Company received services of $0.8 million, $0.3 million, $0.4 million, and zero in fiscal 2017, 2016, 2015, and the one month ended December 31, 2015, respectively, from FMR primarily for employee benefit services. These amounts exclude expenses charged to the Company’s employees by FMR for investment management services. As of December 31, 2017 and 2016, the Company had a payable due to FMR of less than $0.1 million for both periods.

Lucas-Milhaupt, Inc., an indirect wholly-owned subsidiary of Steel Holdings, sold ~~$0.2~~$0.3 million and $0.3 million in raw materials to the Company for the manufacture of its products in ~~fiscal 2017.~~2019 and 2018, respectively.

GAMCO Investors, Inc. ~~(“GAMCO”~~("GAMCO") owned ~~12%~~8% and 9% of the Company's common stock at December 31, ~~2017~~2020 and ~~2016.~~2019, respectively. The Company received services of ~~$1.1~~$0.8 million, ~~$1.1 million, $1.1~~$1.0 million, and ~~$0.1~~$1.7 million in ~~fiscal 2017, 2016, 2015,~~2020, 2019, and ~~the one month ended December 31, 2015,~~2018, respectively, from GAMCO for investment management fees of the Company’s defined benefit pension plan assets.

Martin Turchin, a member of the Board of Directors of the Company is also a non-executive Vice Chairman of CB Richard Ellis ("CBRE"). The Company received services of $0.4 million from CBRE for lease commissions in 2018.

BlackRock, Inc. ~~(“BlackRock”~~("BlackRock") owned 15% and ~~12%~~15% of the Company's common stock at December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. The Company invests in money market funds managed by BlackRock.

The Vanguard Group, Inc. ~~(“Vanguard”~~("Vanguard") owned 10% and 11% of the Company’s common stock at December 31, ~~2017.~~2020 and 2019, respectively. Certain of the investment alternatives offered through the Company’s 401(k) plan and grantor trust include funds managed by Vanguard.

w.x. Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August ~~2014,~~2018, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued ~~an amendment~~guidance requiring a customer in a cloud computing service arrangement to follow the ~~accounting~~internal-use software guidance related to the evaluation of an entity's ability to continue as a going concern. The amendment establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in ~~connection with preparing financial statements for each annual and interim reporting period. The update also gives guidance~~order to determine ~~whether~~which implementation costs to ~~disclose information about relevant conditions~~defer and ~~events when there is substantial doubt about~~recognize as an ~~entity’s ability to continue as a going concern.~~asset. The Company adopted this ~~guidance~~new standard as of ~~December 31, 2016~~January 1, 2020, on a prospective basis and ~~no additional information was required to be presented as a result~~the adoption of ~~the adoption. As such, the new standard~~this guidance did not have ana material impact on the Company's financial position, results of operations, or cash flows.

In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated balance sheet. The standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been previously issued. The Company adopted this guidance retrospectively to all periods presented as of December 31, 2016, which resulted in $36.5 million of current deferred income taxes as of December 31, 2015, being reclassified as noncurrent. As the accounting standard only impacted presentation, the new standard did not have an impact on the Company's financial position, results of operations, or cash flows.

In March 2016, the FASB amended the existing accounting guidance related to stock compensation. The amendment requires all income tax effects of awards to be recognized in the income statement when awards vest and allows a choice to account for forfeitures on an estimated or actual basis. There is also a requirement to present excess income tax benefits as an operating activity on the statement of cash flows. Effective January 1, 2017, the Company adopted the amendment requiring recognition of excess tax benefits and tax deficiencies in the income statement prospectively. In addition, the Company elected to change its accounting policy to account for forfeitures when they occur for consistency with the U.S. government recovery accounting practices on a modified retrospective basis. The Company also elected to adopt the amendment related to the presentation of excess tax benefits within operating activities on the statement of cash flows, retrospectively.

In January 2017, the FASB issued an amendment to the accounting guidance related to goodwill impairment. The update eliminates "Step 2" which involves determining the implied fair value of goodwill and comparing it to the carrying amount of goodwill to measure the goodwill impairment loss, if any. The quantitative assessment "Step 1" will be used to determine both the existence and amount of goodwill impairment. The standard should be applied on a prospective basis and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted this new accounting guidance in conjunction with its annual impairment test on October 1, 2017. The adoption did not have an impact on the Company's financial position, results of operations, or cash flows.

In August 2016, the FASB issued an amendment to the accounting guidance related to classification of certain cash receipts and cash payments in the statement of cash flows. The standard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statement of cash flows, with the objective of reducing

diversity in practice. The Company adopted this new accounting guidance on December 31, 2017. The adoption did not have an impact on the Company's financial position, results of operations, or cash flows.

In November 2016, the FASB issued an amendment to the accounting guidance for the presentation of restricted cash in the statement of cash flows. The new guidance requires that the statement of cash flows explain the difference during the period in total cash, cash equivalents, and restricted cash. Also, when cash, cash equivalents, and restricted cash are presented on more than one line item within the statement of financial position, a reconciliation of those line items to the total cash, cash equivalents, and restricted cash presented on the statement of cash flows must be disclosed. The Company adopted this new accounting guidance on December 31, 2017. The adoption did not have an impact on the Company's financial position, results of operations, or cash flows.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act ("Tax Act"). In accordance with SAB 118, we have recorded $64.6 million of deferred tax expense in connection with the remeasurement of certain deferred tax assets and liabilities. The Company does not expect any additional material adjustments; however, since the Tax Act was passed late in the fourth quarter of fiscal 2017 and ongoing guidance and accounting interpretation is expected over the next several months, it is reasonably possible that additional adjustments will be required during the one year measurement period.

Recently Issued Accounting Pronouncements

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The effective date of the new standard is for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective method). The Company plans to adopt the guidance during the first quarter of fiscal 2018 using the modified retrospective method. The Company has developed a comprehensive implementation plan across all segments that include evaluating the impact of the new guidance on existing contracts, and updating impacted accounting policies, processes, controls and systems. The Company expects the primary impact of the new guidance will be a change in the timing of when revenue is recognized on certain fixed price and cost reimbursable type contracts. The new guidance prescribes that an entity recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when (or as) the customer obtains control of that asset. Under this new guidance, the Company expects to discontinue the use of the units-of-delivery measure on certain customer contracts and remeasure progress toward completion using the cost-to-cost method. The units-of-delivery method totaled 48% of net sales for fiscal 2017. The Company expects the adoption of this new standard will have a material impact on net sales and operating results recognized in any given fiscal year and a material impact on the amount reported for contract backlog. The adoption will also result in the reclassification of certain contract related assets and liabilities on the consolidated balance sheet.

In ~~February 2016,~~August 2020, the FASB issued guidance ~~requiring lessees~~ which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to ~~recognize a right-of-use asset and a lease liability on~~use the ~~balance sheet~~if-converted method for all ~~leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases~~convertible instruments in the ~~income statement. Lessor accounting is similar to~~diluted earnings per share calculation and include the ~~current model but updated to align with~~effect of share settlement for instruments that may be settled in cash or shares, except for certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard is for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition method and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating the impact of adopting this new accounting guidance on its financial position, results of operations, or cash flows.

In March 2017, the FASB amended the existing accounting guidance relating to the presentation of net periodic pension cost and net periodic postretirement benefit cost ( the “NPPC”) in the income statement. The amended guidance requires the service cost component to be presented in the same line item or items as other compensation arising from the services rendered by the pertinent employees during the period, and other components of the NPPC to be presented in the statement of operations separately from service cost components and outside a subtotal of income from operations. If a separate line item or items are used to present the other components of the NPPC, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the statement of operations to present the other components of NPPC must be disclosed. The newliability-classified share-based payment awards. This guidance is effective for ~~financial statements issued for fiscal years~~the Company beginning ~~after December 15, 2017, including interim periods within those fiscal years. The Company plans to adopt this new accounting guidance~~ in the first quarter of ~~fiscal 2018. The Company expects the adoption to result in an increase in operating income of $73.2 million~~2022 and ~~$68.9 million for fiscal 2017 and 2016, respectively, and~~must be applied using either a ~~corresponding increase in total non-operating expense, net for each fiscal year. The Company does not expect any impact to segment performance, net (loss) income,~~modified or ~~cash flows as a result of the adoption.~~

In February 2018, the FASB issued guidance that permits the reclassification of the income tax effects of the 2017 Tax Cuts and Jobs Act on items within accumulated other comprehensive loss to accumulated deficit. The FASB refers to these amounts as "stranded tax effects." The amended guidance also requires certain new disclosures. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.full retrospective approach. The Company is currently evaluating the impact ~~of adopting~~ this ~~new accounting~~ guidance will have on its consolidated financial ~~position, results of operations, or cash flows.~~statements.

Note 2. ~~(Loss) Income~~Earnings Per Share ~~of Common Stock~~

~~A reconciliation of~~The following table reconciles the numerator and denominator used to calculate basic and diluted ~~(loss) income per share of common stock ("EPS"):~~EPS:


	Year Ended December 31,
	2020		2019		2018
	(In millions, except per share amounts)
Numerator:


Net income	$	137.7	$	141.0	$	137.3
Income allocated to participating securities	(1.7)		(2.6)		(2.9)


Net income for basic and diluted EPS	$	136.0	$	138.4	$	134.4
Denominator:
Basic weighted average shares	77.4		77.2		74.8
Effect of:
21/4% Notes	4.5		4.4		1.9

Awards issued under equity plans	0		0.1		0.1
Diluted weighted average shares	81.9		81.7		76.8



Basic EPS	$	1.76	$	1.79	$	1.80



Diluted EPS	$	1.66	$	1.69	$	1.75

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions, except per share amounts)
Numerator:
Net (loss) income $ (9.2 ) $ 18.0
$ (16.2 ) $ 7.0
Income allocated to participating securities —
(0.4 ) —
(0.2 )
Net (loss) income for basic EPS (9.2 ) 17.6
(16.2 ) 6.8
Interest on 4¹/₁₆% Debentures
—
—
—
0.3
Net (loss) income for diluted EPS $ (9.2 ) $ 17.6
$ (16.2 ) $ 7.1
Denominator:
Basic weighted average shares 73.0
65.6
61.1
62.9
Effect of:
4¹/₁₆% Debentures
—
—
—
9.4
Employee stock options and stock purchase plan —
0.1
—
0.2
Diluted weighted average shares 73.0
65.7
61.1
72.5
Basic:
Net (loss) income per share $ (0.13 ) $ 0.27
$ (0.27 ) $ 0.11
Diluted:
Net (loss) income per share $ (0.13 ) $ 0.27
$ (0.27 ) $ 0.10

~~The following table sets forth the potentially dilutive securities~~Securities which would have been anti-dilutive are insignificant and are excluded from the computation ~~because their effect would have been anti-dilutive:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
4¹/₁₆% Debentures
0.1
7.1
11.0
—
Employee stock options and stock purchase plan 0.1
—
0.2
—
Unvested restricted shares 1.6
1.6
1.6
1.3
Total potentially dilutive securities 1.8
8.7
12.8
1.3

~~The Company's 2~~¹/₄~~% Notes were not included in the computation~~ of diluted ~~EPS for fiscal 2017 and 2016 because the average market price of the common stock did not exceed the conversion price and the Company only expects the conversion premium for the 2~~¹/₄~~% Notes to be settled~~earnings per share in ~~common shares.~~all periods presented.

Note 3. Balance Sheet Accounts and Supplemental Disclosures

a. ~~Marketable Securities~~Accounts Receivable, net


	As of December 31,
	2020		2019
	(In millions)
Billed	$	75.3	$	122.9
Reserve on billed trade receivables	0		(10.6)
Other trade receivables	0.3		0.2



Accounts receivable, net	$	75.6	$	112.5

During 2020, the Company wrote-off $10.6 million of ~~December 31, 2017, the Company's short-term available-for-sale investments were as follows:~~

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
(In millions)
Commercial paper $ 135.6
$ —
$ —
$ 135.6
U.S. treasury notes 4.1
—
—
4.1
Marketable securities $ 139.7
$ —
$ —
$ 139.7

As of December 31, 2017, of the total estimated fair value, $119.7 million was classified as cash and cash equivalents as the remaining maturity at date of purchase was less than three months, and $20.0 million was classified as marketable securities. At December 31, 2017, the contractual maturities of the Company’s available-for-sale marketable securities were less than one year.billed receivables that had previously been reserved.

b. ~~Accounts Receivable~~

As of December 31,

2017 2016
(In millions)
Billed $ 62.1

$ 55.7
Unbilled 195.5

124.1
Reserve for overhead rate disallowance (42.8 ) (44.5 )
Total receivables under long-term contracts 214.8

135.3
Other receivables 0.7

1.1
Accounts receivable $ 215.5

$ 136.4

~~The gross unbilled receivable amounts as of December 31, 2017 expected to be collected after one year are $113.7 million.~~

~~c. Inventories~~

As of December 31,

2017
2016
(In millions)
Long-term contracts at average cost $ 562.3

$ 551.9
Progress payments (427.1 )
(368.2 )
Total long-term contract inventories 135.2

183.7
Total other inventories 1.2

1.4
Inventories $ 136.4

$ 185.1

Long-term contract inventories included an allocation of general and administrative costs incurred throughout fiscal 2017 and 2016 amounting to $238.4 million and $257.4 million, respectively, and the cumulative amount of general and administrative costs in long-term contract inventories is estimated to be $11.4 million and $21.1 million as of December 31, 2017 and 2016, respectively.

d. Other Current Assets, net


	As of December 31,
	2020		2019
	(In millions)
Deferred costs recoverable from the U.S. government	$	41.0	$	47.1
Income tax receivable	46.9		43.4


Prepaid expenses	18.0		13.9


Inventories	10.0		24.0


Other	20.6		17.4
Other current assets, net	$	136.5	$	145.8

As of December 31,
2017
2016
(In millions)
Recoverable from the U.S. government for acquisition integration costs $ 10.9
$ 11.9
Recoverable from the U.S. government and other third parties for environmental remediation costs 25.6
25.2
Receivable from Northrop for environmental remediation costs 6.0
6.0
Prepaid expenses 19.2
16.5
Cost-share and other receivables, net 7.5
17.8
Recoverable from the U.S. government for competitive improvement program obligations 14.9
7.6
Income tax receivable 20.5
26.8
Other 5.2
11.1
Other current assets, net $ 109.8
$ 122.9
The income tax receivable balance at December 31, 2020 and 2019, includes amounts the Company expects to receive from amended returns and refund claims, and overpayment associated with tax returns.

e.c. Property, Plant and Equipment, net


	As of December 31,							As of December 31,
	2017			2016				2020		2019
	(In millions)							(In millions)
Land	$	71.2		$	71.4		Land	$	71.2	$	71.2
Buildings and improvements	368.3			345.1			Buildings and improvements	433.4		434.9
Machinery and equipment	493.2			499.9
Machinery and equipment, including capitalized software							Machinery and equipment, including capitalized software	471.3		488.2
Construction-in-progress	30.3			30.4			Construction-in-progress	105.5		70.2
	963.0			946.8				1,081.4		1,064.5
Less: accumulated depreciation	(604.0		)	(580.8		)	Less: accumulated depreciation	(658.3)		(654.6)
Property, plant and equipment, net	$	359.0		$	366.0		Property, plant and equipment, net	$	423.1	$	409.9

Depreciation expense for ~~fiscal 2017, 2016, 2015,~~2020, 2019, and ~~one month ended December 31, 2015~~2018 was ~~$56.7~~$49.2 million, ~~$49.6 million, $49.8~~$58.1 million, and ~~$3.8~~$56.1 million, respectively. The Company had ~~$2.9~~$8.6 million of ~~non-cash~~ property, plant and equipment additions included in accounts payable as of December 31, ~~2017.~~2020.

f.d. Goodwill.

The goodwill balance as of December 31, ~~2017~~2020 and ~~2016~~2019, relates to the Company’s Aerospace and Defense segment. The change of ~~$3.2~~$0.1 million in the carrying amount of goodwill ~~since December 31, 2015~~in 2019 was due to the ~~Coleman Aerospace acquisition in fiscal 2017 (see Note 4).~~3D Material Technologies ("3DMT") acquisition.

~~g. Intangible Assets~~

As of December 31, 2017
Gross Carrying Amount Accumulated Amortization Net Carrying Amount
(In millions)
Customer related $ 87.2
$ 46.9
$ 40.3
Intellectual property\trade secrets 34.2
11.8
22.4
Trade name 21.0
3.1
17.9
Acquired technology 19.2
14.3
4.9
Intangible assets $ 161.6
$ 76.1
$ 85.5

e. Intangible Assets


	As of December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)
Customer related	$	87.2	$	75.3	$	11.9
Intellectual property\trade secrets	34.2		19.7		14.5

Trade name	21.0		5.4		15.6
Acquired technology	19.2		16.4		2.8
Intangible assets	$	161.6	$	116.8	$	44.8


	As of December 31, 2016							As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)							(In millions)
Customer related	$	83.8	$	37.4	$	46.4	Customer related	$	87.2	$	65.9	$	21.3
Intellectual property\trade secrets	34.2		9.2		25.0		Intellectual property\trade secrets	34.2		17.1		17.1
Non-compete agreements	0.5		0.5		—

Trade name	20.5		2.4		18.1		Trade name	21.0		4.6		16.4
Acquired technology	18.3		13.4		4.9		Acquired technology	19.2		15.8		3.4
Intangible assets	$	157.3	$	62.9	$	94.4	Intangible assets	$	161.6	$	103.4	$	58.2

The intangible asset balances as of December 31, 2020 and 2019, relates to the Company’s Aerospace and Defense segment. Amortization expense related to intangible assets was $13.4 million, $13.6 million, and $13.7 million ~~$13.3 million, $13.4 million,~~in 2020, 2019, and ~~$1.1 million in fiscal 2017, 2016, 2015, and one month ended December 31, 2015,~~2018, respectively.

Future amortization expense for the five succeeding years is estimated to be as follows:


Year Ending December 31,	Future Amortization Expense
	(In millions)
2021	$	9.9
2022	6.6
2023	6.1
2024	4.8
2025	3.7
	$	31.1

Year Ending December 31, Future Amortization Expense
(In millions)
2018 $ 13.7
2019 13.6
2020 13.4
2021 9.9
2022 6.6
$ 57.2

h.f. Other Noncurrent Assets, net

As of December 31,

2017 2016
(In millions)
Real estate held for entitlement and leasing $ 94.0
$ 91.8
Receivable from Northrop for environmental remediation costs 58.5
62.0
Recoverable from the U.S. government for acquisition integration costs —

10.9
Recoverable from the U.S. government for conditional asset retirement obligations 22.7

20.3
Recoverable from the U.S. government for competitive improvement program obligations 18.4
1.3
Recoverable from the U.S. government for restructuring costs 25.5
12.8
Grantor trust 24.2

16.6
Note receivable, net 9.0
9.0
Income tax receivable —
10.8
Other 7.0

8.5
Other noncurrent assets, net $ 259.3

$ 244.0


	As of December 31,
	2020		2019
	(In millions)
Real estate held for entitlement and leasing	$	101.8	$	100.3
Receivable from Northrop Grumman Corporation for environmental remediation costs	40.5		46.5

Deferred costs recoverable from the U.S. government	54.7		54.8





Other	57.8		54.0
Other noncurrent assets, net	$	254.8	$	255.6

i.g. Other Current Liabilities


	As of December 31,
	2020		2019
	(In millions)
Accrued compensation and employee benefits	$	118.0	$	103.1






Other	43.9		52.4
Other current liabilities	$	161.9	$	155.5

As of December 31,
2017 2016
(In millions)
Accrued compensation and employee benefits $ 113.4

$ 105.7
Contract related liabilities 41.7

24.7
Income taxes 0.8
2.1
Competitive improvement program obligations 15.0
7.6
Postretirement medical and life insurance benefits 4.8
5.2
Interest payable 0.6

4.1
Contract loss provisions 3.8

6.8
Other 15.8

16.8
Other current liabilities $ 195.9

$ 173.0
h. Treasury Stock

~~j. Other Noncurrent Liabilities~~During 2020, the Company repurchased 1.3 million of its common shares at a cost of $51.7 million. The Company reflects stock repurchases in its financial statements on a "settlement" basis.

As of December 31,
2017 2016
(In millions)
Conditional asset retirement obligations $ 44.0

$ 30.6
Pension benefits, non-qualified 17.6

17.5
Deferred compensation 29.4

19.8
Deferred revenue 12.7

13.3
Postretirement medical and life insurance benefits 32.7
37.4
Competitive improvement program obligations 18.4
1.3
Uncertain income tax positions 2.8
28.4
Other 13.5

13.1
Other noncurrent liabilities $ 171.1

$ 161.4

k.i. Accumulated Other Comprehensive Loss, Net of Income Taxes

~~Changes~~The following table presents the changes in accumulated other comprehensive loss by components, net of income taxes:


	Actuarial Losses, Net		Prior Service Credits (Costs), Net		Total
	(In millions)



December 31, 2018	$	(239.4)	$	0	$	(239.4)
Actuarial losses, net of income taxes	(26.5)		0		(26.5)
Amortization of net actuarial losses and prior service credits, net of income taxes	29.5		(0.1)		29.4
December 31, 2019	(236.4)		(0.1)		(236.5)
Actuarial losses, net of income taxes	(31.5)		0		(31.5)
Amortization of net actuarial losses and prior service costs, net of income taxes	40.3		0.1		40.4
December 31, 2020	$	(227.6)	$	0	$	(227.6)

Actuarial
Losses, Net
Prior Service
Credits, Net
Total
(In millions)
November 30, 2015 $ (342.6 ) $ 0.9
$ (341.7 )
Actuarial losses arising during the period, net of income taxes (8.6 ) —
(8.6 )
Amortization of actuarial losses and prior service credits, net of income taxes 3.4
(0.1 ) 3.3
December 31, 2015 (347.8 ) 0.8
(347.0 )
Actuarial gains arising during the period, net of income taxes 7.5
—
7.5
Amortization of actuarial losses and prior service credits, net of income taxes 37.1
(0.6 ) 36.5
December 31, 2016 (303.2 )
0.2

(303.0 )
Actuarial losses arising during the period, net of income taxes (8.5 ) —
(8.5 )
Amortization of actuarial losses and prior service credits, net of income taxes 39.0
(0.1 ) 38.9
December 31, 2017 $ (272.7 )
$ 0.1

$ (272.6 )

~~The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit expense in fiscal 2018:~~

Pension Benefits Medical and Life Insurance Benefits
(In millions)
Actuarial losses (gains), net $ 70.7
$ (3.7 )
Prior service costs (credits), net 0.1
(0.2 )
$ 70.8
$ (3.9 )

~~l. Redeemable Common Stock~~

The Company inadvertently failed to register with the Securities Exchange Commission ("SEC") the issuance of certain of its common shares in its defined contribution 401(k) employee benefit plan (the “Plan”). As a result, certain Plan participants who purchased such securities pursuant to the Plan may have had the right to rescind certain of their purchases for consideration equal to the purchase price paid for the securities (or if such security has been sold, to receive consideration with respect to any loss incurred on such sale) plus interest from the date of purchase. In June 2008, the Company filed a registration statement on Form S-8 to register future transactions in the Company's stock fund in the Plan.

On May 30, 2017, the Company made a registered rescission offer to buy back unregistered shares from eligible Plan participants at the original purchase price plus interest, or to reimburse eligible Plan participants for losses they may have incurred if their shares had been sold. The registered rescission offer expired on June 30, 2017, and settlement payments of $3.5 million under the offer were completed in the third quarter of fiscal 2017 (see Note 13).

Note 4. ~~Acquisition~~Leases

OnIn February ~~24, 2017,~~2016, the ~~Company closed~~FASB issued guidance requiring lessees to recognize an ROU asset and a lease liability on ~~an agreement~~the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to ~~purchase substantially all~~be classified as either operating or finance leases in the income statement. The new standard allowed for the application of the ~~assets~~standard on the adoption date without restatement of ~~Coleman Aerospace,~~prior comparative periods presented or a ~~systems engineering and integration provider, from L3 Technologies, Inc. ("L3"). Coleman Aerospace operates now as a subsidiary~~modified retrospective transition method which required application of ~~Aerojet Rocketdyne and was renamed Aerojet Rocketdyne Coleman Aerospace, Inc. ("Coleman"). The acquisition builds upon and expands~~ the Company’s capabilities in mission analysis and systems engineering, and increases its product portfolio to include vehicle integration for small-, medium- and intermediate-range ballistic missile targets and other small launch vehicles.

~~The aggregate consideration paid to L3 for~~new guidance at the ~~purchase~~beginning of ~~Coleman was $17.0 million, which included $15.0 million of cash paid at closing and a $2.0 million working capital adjustment paid in~~ the ~~third quarter of fiscal 2017.~~earliest comparative period presented. The Company ~~incurred $1.0~~adopted this new standard as of January 1, 2019, without restating prior comparative periods. The Company recorded an ROU asset and lease liability for operating leases at adoption of $51.7 million ~~of expenses related~~and $56.3 million, respectively.

The preliminary purchase price allocation has been developed based on preliminary estimates of the fair value of the assets and liabilities of Coleman that the Company acquired. In addition, the allocation of the preliminary purchase price to acquired intangible assets is based on preliminary fair value estimates.

twenty years.

The following table summarizes the ~~estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):~~Company's lease costs:


	Year Ended December 31,
	2020		2019
	(In millions)
Operating lease cost	$	15.5	$	14.2
Finance lease cost:
Amortization	2.9		4.0
Interest on lease liabilities	2.7		2.9
Short-term lease cost	0.5		0.8
Total lease costs	$	21.6	$	21.9

Current assets $ 12.0
Property, plant and equipment 1.9
Total tangible assets acquired 13.9
Intangible assets acquired 4.8
Deferred income taxes 0.3
Total assets acquired 19.0
Liabilities assumed, current (5.2 )
Total identifiable net assets acquired 13.8
Goodwill (Consideration less total identifiable net assets acquired) $ 3.2
Rent expense was $17.2 million in 2018.

The ~~purchase price allocation resulted in~~following table summarizes the recognition of $3.2 million in goodwill, all of which is deductible for tax purposes and included within the Company’s Aerospace and Defense segment. Goodwill recognized from the acquisition primarily relatessupplemental cash flow information related to ~~the expected contributions of Coleman to the Company’s overall corporate strategy.~~

~~The estimated fair value of Coleman's intangible assets acquired included the following:~~

leases:


	Year Ended December 31,
	2020		2019
	(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	13.7	$	14.2
Operating cash flows for finance leases	2.7		2.9
Financing cash flows for finance leases	2.1		3.3
Assets obtained in exchange for lease obligations:
Operating leases	11.9		7.7
Finance leases	0		23.8

Gross Carrying Amount (in millions) Amortization Period (years)
Trade name $ 0.5
8
Customer related 3.4
7
Acquired technology 0.9
10
Total intangible assets $ 4.8

The following table summarizes the supplemental balance sheet information related to leases:


	As of December 31,
	2020			2019
	(In millions)
Operating leases:
Operating lease right-of-use assets	$	46.8		$	48.0
Operating lease liabilities (component of other current liabilities)	$	13.4		$	12.0
Operating lease liabilities, noncurrent	35.7			39.1
	$	49.1		$	51.1



Finance leases:
Property, plant and equipment	$	52.9		$	52.9
Accumulated depreciation	(8.6)			(5.8)
Property, plant and equipment, net	$	44.3		$	47.1
Current portion of long-term debt	$	2.2		$	2.1
Long-term debt	43.4			45.6
Total finance lease liability	$	45.6		$	47.7

Weighted-average remaining lease term (in years):
Operating leases	7			6
Finance leases	17			18
Weighted-average discount rate:
Operating leases	4.4		%	4.7		%
Finance leases	5.9		%	5.2		%

The ~~acquisition~~Company has additional information technology equipment operating leases that have not yet commenced amounting to $0.9 million. These operating leases will commence between 2021 and 2022 with lease terms of ~~Coleman was not considered a significant business combination.~~up to two years.

The following table presents the maturities of lease liabilities and lease revenue in effect as of December 31, 2020:


Year Ending December 31,	Operating Leases		Finance Leases		Future Minimum Rental Income
	(In millions)
2021	$	14.9	$	4.7	$	1.6
2022	13.0		4.4		1.6
2023	6.6		3.7		1.0
2024	3.0		3.8		0.9
2025	2.9		3.8		0.8
Thereafter	16.0		53.7		5.8
Total minimum rentals	56.4		74.1		11.7


Less: imputed interest	(7.3)		(28.5)		—
Total	$	49.1	$	45.6	$	11.7

The Company also leases certain surplus facilities to third parties. The Company recorded lease income of $3.3 million, $7.5 million, and $6.4 million in 2020, 2019 and 2018, respectively, related to these arrangements, which have been included in net sales.

Note 5. Income Taxes

The Company files a consolidated U.S. federal income tax return with its wholly-owned subsidiaries. The following table presents the components of the Company’s income tax provision:


	Year Ended December 31,

	2020		2019		2018
	(In millions)
Current
U.S. federal	$	4.8	$	45.2	$	35.1
State and local	(0.1)		11.5		11.5
	4.7		56.7		46.6
Deferred
U.S. federal	26.1		(8.1)		0.9
State and local	11.7		2.3		3.8
	37.8		(5.8)		4.7
Income tax provision	$	42.5	$	50.9	$	51.3

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Current
   U.S. federal $ (30.6 ) $ 3.2
$ 33.0
$ 7.9
   State and local 1.0
3.2
3.4
1.2
(29.6 ) 6.4
36.4
9.1
Deferred
   U.S. federal 116.0
2.8
(41.2 ) (6.2 )
   State and local 9.7
2.0
5.1
(0.9 )
125.7
4.8
(36.1 ) (7.1 )
Income tax provision $ 96.1
$ 11.2
$ 0.3
$ 2.0

The following table ~~shows~~presents the reconciling items between the income tax provision using the U.S. federal statutory rate and the Company's reported income tax provision.

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
Statutory U.S. federal income tax - provision (benefit) $ 30.4
$ 10.2
$ (5.6 ) $ 3.1
State income taxes 7.0
3.2
5.9
0.4
Reserve adjustments (4.6 ) (0.3 ) 0.4
—
Non-deductible convertible subordinated notes interest —
0.8
1.4
0.1
R&D credits (1.2 ) (4.1 ) —
(0.2 )
Retroactive change in federal tax law —
—
(1.9 ) (1.7 )
Benefit of manufacturing deductions —
0.5
(1.0 ) (0.6 )
Lobbying costs 0.7
0.8
0.6
—
Deferred tax adjustment (0.1 ) (0.4 ) —
0.7
Stock compensation excess tax benefits (1.4 ) —
—
—
Other, net 0.7
0.5
0.5
0.2
New legislation - tax rate changes 64.6
—
—
—
Income tax provision $ 96.1
$ 11.2
$ 0.3
$ 2.0


	Year Ended December 31,

	2020		2019		2018
	(In millions)
Statutory U.S. federal income tax	$	37.9	$	40.3	$	39.6
State income taxes, net of federal benefit	9.1		10.9		12.1

Reserve adjustments	1.2		3.9		2.7





Tax credits and special deductions	(4.6)		(2.7)		(3.7)



Nondeductible compensation	3.4		1.0		0.8
Stock-based compensation excess tax benefits	(4.4)		(2.3)		(0.4)
Other	(0.1)		(0.2)		0.2

Income tax provision	$	42.5	$	50.9	$	51.3

AThe following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate on earnings in ~~percentages was as follows:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
Statutory U.S. federal income tax rate 35.0 % 35.0 % (35.0 )% 35.0 %
State income taxes 8.0
11.0
35.2
4.9
Reserve adjustments (5.3 ) (1.0 ) 2.2
(0.3 )
Non-deductible convertible subordinated notes interest —
2.7
8.0
1.2
R&D credits (1.4 ) (14.0 ) —
(2.8 )
Retroactive change in federal tax law —
—
(11.6 ) (19.4 )
Benefit of manufacturing deductions —
1.7
(5.8 ) (7.0 )
Lobbying costs 0.8
2.7
3.6
0.4
Deferred tax adjustment (0.1 ) (1.4 ) —
7.8
Stock compensation excess tax benefits (1.6 ) —
—
—
Other, net 0.8
1.7
5.3
2.4
New legislation - tax rate changes 74.4
—
—
—
Effective income tax rate 110.6 % 38.4 % 1.9 % 22.2 %
percentages.


	Year Ended December 31,

	2020		2019		2018
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	5.1		5.7		6.4

Reserve adjustments	0.7		2.0		1.4





Tax credits and special deductions	(2.6)		(1.4)		(2.0)



Nondeductible compensation	1.9		0.5		0.5
Stock-based compensation excess tax benefits	(2.4)		(1.2)		(0.2)
Other	(0.1)		(0.1)		0.1

Effective income tax rate	23.6	%	26.5	%	27.2	%

In ~~fiscal 2017,~~2020, the Company’s effective tax rate was ~~an income tax expense of 110.6% on pre-tax income of $86.9 million.~~23.6%. The ~~Company’s~~Company's effective tax rate differed from the ~~35.0%~~21% statutory federal income tax rate primarily due to the change in the federal statutory tax rate from 35% to 21% under the recently enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). In accordance with the rate reduction, the Company wrote down its net deferred tax assets by $64.6 million which unfavorably affected the effective tax rate by 74.4%. The effective tax rate also includes an increase from state income taxes, ~~partially offset by favorable adjustments to the Company's~~ uncertain tax positions, ~~and R&D credits.~~

In fiscal 2016, the Company’s effective tax rate was an income tax expense of 38.4% on pre-tax income of $29.2 million. The Company’s effective tax rate differed from the 35.0% statutory federal income tax rate due largely to state income taxes and certain expenditures which are permanently not deductible for tax purposes, ~~partially~~ offset by ~~the impact of~~ R&D ~~credits.~~credits and excess tax benefits related to the Company's stock-based compensation.

In ~~fiscal 2015,~~2019, the Company’s effective tax rate was ~~an income tax expense of 1.9% on a pre-tax loss of $15.9 million.~~26.5%. The Company’s effective tax rate differed from the ~~35.0%~~21% statutory federal income tax rate primarily due ~~largely~~ to state income taxes and ~~certain non-deductible interest expense partially~~uncertain tax positions, offset by ~~the retroactive reinstatement of the federal~~ R&D ~~credit~~credits and excess tax benefits ~~allowed by Section 199 of~~related to the ~~Internal Revenue Service ("IRS") code allowed to manufacturers.~~Company’s stock-based compensation.

In ~~the one month ended December 31, 2015,~~2018, the Company’s effective tax rate was ~~an income tax expense of 22.2% on pre-tax income of $9.0 million~~27.2%. The Company’s effective tax rate differed from the ~~35%~~21% statutory federal income tax rate primarily due to ~~the re-enactment of the federal R&D credit in December 2015 for calendar year 2015 which has been treated as a discrete event for the December 2015 one-month period, as well as impacts from~~ state income taxes ~~benefits allowed~~and unfavorable adjustments to uncertain tax positions partially offset by ~~Section 199 of the IRS code allowed to manufacturers, and~~ R&D credits.

The timing of recording or releasing a valuation allowance requires significant management judgment. The amount of the valuation allowance released by the Company represents a portion of deferred tax assets that was deemed more-likely-than-not that the Company will realize the benefits based on the analysis in which the positive evidence outweighed the negative evidence.

A valuation allowance is required when it is more-likely-than-not that all or a portion of deferred tax assets may not be realized. Establishment and removal of a valuation allowance requires management to consider all positive and negative evidence and to make a judgmental decision regarding the amount of valuation allowance required as of a reporting date. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. In the evaluation as of December 31, 2017, management has considered all available evidence, both positive and negative, including but not limited to the following:

~~Positive evidence~~

~~The Company is in a three year cumulative income position as of December 31, 2017;~~

~~Positive operating results before income taxes for fiscal 2017;~~

~~Eligibility of some of the Company’s environmental costs for future recovery in the pricing of its products and services to the U.S. government and under existing third party agreements;~~

~~Establishment and execution of the Competitive Improvement Program evidencing increasing growth and profitability; and~~

~~Increase in the Company’s contract backlog.~~

~~Negative evidence~~

~~The Company’s exposure to environmental remediation obligations and the related uncertainty as to the ultimate exposure upon settlement; and~~

~~The significance of the Company’s defined benefit pension obligation and related impact it could have in future years.~~

As of December 31, 2017, management believes that the weight of the positive evidence outweighed the negative evidence regarding the realization of the net deferred tax assets. Management will continue to evaluate the ability to realize the Company’s net deferred tax assets and the remaining valuation allowance on a quarterly basis.

The Company is routinely examined by domestic ~~and foreign~~ tax authorities. While it is difficult to predict the outcome or timing of a particular tax matter, the Company believes it has adequately provided reserves for any reasonable foreseeable outcome related to these matters.

In the second quarter of 2018, the Internal Revenue Service ("IRS") notified the Company that its federal income tax return for the year ended November 30, 2015, was selected for audit. In the fourth quarter of 2019, the IRS notified the Company that they completed the audit at the field level with no changes and forwarded the Company's case to the Joint Committee on Taxation ("JCT") for a secondary review. In the third quarter of 2020, the IRS closed the audit after the JCT completed its review without exception and refunded the $12.9 million due on the Company's income tax return and carryback claim.

The State of Florida notified the Company they would be opening an income tax audit for the years ended December 31, 2016, through December 31, 2018. The audit began in the first quarter of 2020 and there have been no adjustments noted as of December 31, 2020.

U.S. federal tax returns for the years ended December 31, 2016, through December 31, 2019, remain open to examination. Tax returns for the years ended November 30, ~~2014~~2015, through December 31, ~~2016 remain open to examination for U.S. federal tax jurisdiction. Tax returns for the years ended November 30, 2013 through December 31, 2016~~2019, remain open to examination for state income tax jurisdictions.

AThe following table presents a reconciliation ~~of the beginning and ending amount~~ of unrecognized tax ~~benefits consisted of the following:~~

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Balances at beginning of fiscal year $ 29.5
$ 7.1
$ 6.8
$ 6.7
  Increases based on tax positions in prior years 1.0
25.8
1.0
0.6
  Decreases based on tax position in prior years (25.1 ) (1.2 ) (1.8 ) (0.2 )
  Increases based on tax positions in current year 0.4
0.7
0.7
—
  Lapse of statute of limitations (1.4 ) (2.9 ) —
—
Balances at end of fiscal year $ 4.4
$ 29.5
$ 6.7
$ 7.1
benefits:


	Year Ended December 31,

	2020		2019		2018
	(In millions)
Balances at beginning of year	$	58.0	$	7.4	$	4.4
Increases based on tax positions in prior years	2.7		40.4		0.3
Decreases based on tax position in prior years	(51.5)		0		(0.1)
Increases based on tax positions in current year	5.6		10.4		3.5
Lapse of statute of limitations	(0.6)		(0.2)		(0.7)
Balances at end of year	$	14.2	$	58.0	$	7.4

As of December 31, ~~2017,~~2020, the total amount of unrecognized tax benefits ~~is $4.4 million. Of the $4.4~~was $14.2 million ~~of unrecognized tax benefits, $4.2 million~~which would all affect the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, ~~2017,~~2020, the Company’s accrued interest and penalties related to uncertain tax positions was ~~$0.3~~$0.4 million. It is reasonably possible that a reduction of up to ~~$0.5~~$0.8 million of unrecognized tax benefits and related interest and penalties may occur within the next 12 months as a result of the expiration of certain statutes of limitations.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the Company’s assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined by multiplying such differences by the enacted tax rates expected to be in effect when such differences are recovered or settled. ~~In December 2017, as a result of~~

The following table presents the ~~Tax Act, the Company remeasured its federal~~ deferred tax assets and ~~liabilities from 35% to 21%.~~

~~Deferred tax assets and liabilities were as follows:~~

As of December 31,
2017 2016
(In millions)
Deferred Tax Assets
    Accrued estimated costs $ 56.1
$ 82.0
    Basis difference in assets and liabilities 2.1
8.5
    Tax losses and credit carryforwards 12.9
6.5
    Net cumulative defined benefit pension plan losses 114.7
212.9
    Retiree medical and life insurance benefits 9.2
16.2
    Valuation allowance (1.7 ) (1.7 )
        Total deferred tax assets 193.3
324.4
Deferred Tax Liabilities
     Revenue recognition differences 40.4
21.7
     Basis differences in intangible assets 7.1
10.2
         Total deferred tax liabilities 47.5
31.9
         Total net deferred tax assets $ 145.8
$ 292.5
liabilities:


	As of December 31,
	2020		2019
	(In millions)
Deferred Tax Assets
Accrued estimated costs	$	48.4	$	43.2
Basis difference in assets and liabilities	68.5		59.0
Operating lease liabilities	12.3		12.9
Tax losses and credit carryforwards	1.7		3.0
Net cumulative defined benefit pension plan losses	81.5		95.9
Retiree medical and life insurance benefits	6.0		6.2

Total deferred tax assets	218.4		220.2
Deferred Tax Liabilities
Revenue recognition differences	116.7		77.7
Basis differences in intangible assets	9.2		8.6
ROU assets	11.4		12.0
Total deferred tax liabilities	137.3		98.3
Total net deferred tax assets	$	81.1	$	121.9

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The Company believes it is ~~more-likely-than~~more likely than not its deferred tax assets ~~net of valuation allowances,~~ will be realized. ~~The Company’s~~Accordingly, 0 valuation allowance ~~of $1.7 million remained unchanged from prior year. The changes in the Company's valuation allowance by period~~ was ~~as follows:~~

Balance at
Beginning of
Period
Tax
Valuation
Allowance
Charged to
Income
Tax
Provision
Tax
Valuation
Allowance
Credited to
Income
Tax
Provision
Balance at
End of
Period
(In millions)
Fiscal 2017 $ 1.7
$ —
$ —
$ 1.7
Fiscal 2016 1.2
0.5
—
1.7
One month ended December 31, 2015 1.7
—
(0.5 ) 1.2
Fiscal 2015 2.6
0.6
(1.5 ) 1.7
recorded for 2020 and 2019.

The ~~Company’s~~Company fully utilized its federal net operating loss carryforwards and income tax credits in 2018. The Company utilized substantially all of ~~$20.4 million are set to expire from December 31, 2036 through December 31, 2037. The Company’s~~its state net operating loss carryforwards ~~of $33.0 million are set to expire from December 31, 2032 through December 31, 2037.~~in 2019. The Company’s ~~foreign net operating loss carryforwards of $8.0 million have a full valuation allowance and no expiration date.~~

~~The Company’s federal and~~ California income tax credit carryovers are ~~$3.4~~$1.0 million ~~and $3.4 million, respectively. The federal credit carryovers are set to expire from~~as of December 31, ~~2036 through December 31, 2037. The Company’s California credit carryovers~~2020, and have no expiration date.

Note 6.Long-Term Debt


	As of December 31,
	2020		2019
	(In millions)
Senior debt	$	307.1	$	326.3

Convertible senior notes	271.6		263.0

Finance leases (see Note 4)	45.6		47.7
Total debt, carrying amount	624.3		637.0
Less: Amounts due within one year	(299.9)		(284.7)
Total long-term debt, carrying amount	$	324.4	$	352.3

As of December 31,
2017 2016
(In millions)
Senior debt $ 368.3
$ 388.0
Convertible senior notes 247.2
240.0
Convertible subordinated notes —
35.6
Capital lease obligations 0.9
—
Total debt, carrying amount 616.4
663.6
Less: Amounts due within one year (25.0 ) (55.6 )
Total long-term debt, carrying amount $ 591.4
$ 608.0

AsThe following table presents as of December 31, ~~2017,~~2020, the earlier of the Company’s contractual debt principal maturities excluding finance lease obligations or the next debt redemption date that could be exercised at the option of the debt holder ~~are summarized~~ by ~~fiscal year:~~

Total 2018 2019 2020 2021 Thereafter
(In millions)
Senior debt $ 370.0
$ 25.0
$ 30.0
$ 35.0
$ 280.0
$ —
Convertible senior notes 300.0
—
—
—
—
300.0
Total debt principal $ 670.0
$ 25.0
$ 30.0
$ 35.0
$ 280.0
$ 300.0
year excluding finance lease obligations:


	Total		2021		2022		2023
	(In millions)
Senior debt	$	308.5	$	26.3	$	28.4	$	253.8

Convertible senior notes	300.0		300.0		0		0


	$	608.5	$	326.3	$	28.4	$	253.8

See a summary of the minimum payments under ~~capital~~finance lease obligations in Note ~~6(d).~~4.

The Company amortizes deferred financing costs over the estimated life of the related debt (a portion of which is classified as a contra liability). Amortization of deferred financing costs was $2.0 million, $1.9 million, and $1.8 million ~~$2.0 million, $2.7 million~~in 2020, 2019, and ~~$0.2 million in fiscal 2017, 2016, 2015 and the one month ended December 31, 2015,~~2018, respectively.

a. Senior Debt:


								As of December 31,
	As of December 31,							2020		2019
	2017			2016				(In millions)
Term loan, bearing interest at variable rates (rate of 1.90% as of December 31, 2020), maturing in September 2023							Term loan, bearing interest at variable rates (rate of 1.90% as of December 31, 2020), maturing in September 2023	$	308.5	$	328.1
	(In millions)
Term loan, bearing interest at variable rates (rate of 3.82% as of December 31, 2017), maturing in June 2021	$	370.0		$	390.0
Unamortized deferred financing costs	(1.7		)	(2.0		)	Unamortized deferred financing costs	(1.4)		(1.8)
Total senior debt	$	368.3		$	388.0		Total senior debt	$	307.1	$	326.3

On ~~June 17, 2016,~~September 20, 2018, the Company ~~entered into a new $750.0 million~~amended the senior secured ~~senior credit facility~~Senior Credit Facility (the "Senior Credit Facility"). to a $1.0 billion commitment with the lenders named therein and Bank of America Merrill Lynch as joint lead arranger and administrative agent. The Senior Credit Facility matures on ~~June 17, 2021~~September 20, 2023, and consists of (i) a ~~$350.0~~$650.0 million revolving line of credit (the "Revolver") and (ii) a ~~$400.0~~$350.0 million term loan (the "Term Loan"). ~~Under the Revolver, up to an aggregate of $100.0 million is available for the issuance of letters of credit and up to an aggregate of $10.0 million is available for swingline loans.~~ The Senior Credit Facility ~~amends and replaces~~amended the prior ~~$300.0~~$750.0 million credit facility which was set to mature in ~~May 2019.~~

~~On the closing date, the Company borrowed $100.0 million of loans under the Revolver~~June 2021 and ~~used the proceeds~~is intended to ~~repay in full the $90.0 million of outstanding term loans under the prior credit facility, fees incurred~~provide available funds for the ~~Senior Credit Facility, and for general corporate purposes.~~ Company’s short-term liquidity needs from time to time.

As of December 31, ~~2017,~~2020, the Company had ~~$370.0 million outstanding under the Term Loan, zero~~0 borrowings under the Revolver and had issued ~~$38.6~~$27.6 million letters of credit.

The Term Loan and ~~loans~~any borrowings under the Revolver bear interest at LIBOR ~~(or the base rate)~~ plus an applicable margin ranging from 175 to 250 basis points based on the Company's leverage ratio (the "Consolidated Net Leverage Ratio") measured at the end of ~~the most recent fiscal~~each quarter. In addition to interest, the Company must ~~also~~ pay certain fees including (i) letter of credit fees ranging from 175 to 250 basis points per annum on the amount of issued but undrawn letters of credit and eurocurrency rate loans and (ii) commitment fees ranging from 30 to 45 basis points per annum on the unused portion of the Revolver.

The Term Loan ~~amortizes~~amortized at a rate of ~~5.0% per annum of the original drawn amount starting on September 30, 2016, increasing to~~ 7.5% per annum ~~on September 30, 2018,~~as of December 31, 2020, and increasing to 10.0% per annum from ~~September 30, 2020~~December 31, 2022, to be paid in equal quarterly installments with any remaining amounts, along with outstanding borrowings under the Revolver, due on the maturity date. Outstanding borrowings under the Revolver and the Term Loan may be voluntarily repaid at any time, in whole or in part, without premium or penalty.

~~Subject to certain restrictions, all the obligations under the~~The Senior Credit Facility ~~are guaranteed~~is secured by a first priority security interest in the Company and the existing and future material domestic subsidiaries, other than Easton (the "Guarantors"). As collateral security for the amount outstanding under the Senior Credit Facility and the guarantees thereof, the Company and the Guarantors (collectively, the "Loan Parties") have grantedCompany’s assets, subject to ~~the administrative agent for the benefit~~certain customary exceptions, as well as pledges of ~~the lenders: (i) certain~~its equity interests ~~of the Loan Parties; (ii) first priority liens on substantially all of the tangible and intangible personal property of the Loan Parties; and (iii) first priority liens on~~in certain ~~real properties located in Los Angeles, California, Culpepper, Virginia and Redmond, Washington (but excluding all other owned real properties).~~subsidiaries.

The Senior Credit Facility contains financial covenants requiring the Company to (i) maintain an interest coverage ratio (the "Consolidated Interest Coverage Ratio") of not less than 3.00 to 1.00 and (ii) maintain a Consolidated Net Leverage Ratio not to exceed (a) 3.75 to 1.00 ~~for periods ending~~ from ~~December 31, 2017~~October 1, 2020, through September 30, ~~2018;~~2021; and (b) 3.50 to 1.00 ~~for periods ending~~ from ~~December 31, 2018~~October 1, 2021, thereafter, provided that the maximum leverage ratio for all periods shall be increased by 0.50 to 1.00 for two consecutive quarters after consummation of a qualified acquisition.

The Company may generally make certain investments, redeem debt subordinated to the Senior Credit Facility and make certain restricted payments (such as stock ~~repurchases)~~repurchases and dividends) if the Company's Consolidated Net Leverage Ratio does not exceed 3.25 to 1.00 pro forma for such transaction. The Company is otherwise subject to customary covenants including limitations on asset sales, incurrence of additional debt, and limitations on certain investments and restricted payments.



~~Financial Covenant~~	~~Actual Ratios as of~~ ~~December 31, 2017~~	~~Required Ratios~~
~~Consolidated Interest Coverage Ratio, as defined under the Senior Credit Facility~~	~~10.13 to 1.00~~	~~Not less than: 3.00 to 1.00~~
~~Consolidated Net Leverage Ratio, as defined under the Senior Credit Facility~~	~~2.64 to 1.00~~	~~Not greater than: 3.75 to 1.00~~

The Company was in compliance with its financial and non-financial covenants as of December 31, ~~2017.~~2020.

b. Convertible Senior Notes:

As of December 31,
2017 2016
(In millions)
Senior convertible notes, bearing interest at 2.25% per annum, interest payments due in June and December, maturing in December 2023 $ 300.0
$ 300.0
Unamortized discount and deferred financing costs (52.8 ) (60.0 )
Total convertible senior notes $ 247.2
$ 240.0


	As of December 31,
	2020		2019
	(In millions)
Senior convertible notes, bearing interest at 2.25% per annum, interest payments due in June and December, maturing in December 2023	$	300.0	$	300.0
Unamortized discount and deferred financing costs	(28.4)		(37.0)
Total convertible senior notes	$	271.6	$	263.0

On December 14, 2016, the Company issued $300.0 million aggregate principal amount of 2¼% Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as ~~amended (the “Securities Act”).~~amended. The 2¼% Notes bear cash interest at a rate of 2.25% per annum on the principal amount of the 2¼% Notes from December 14, 2016, payable semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2017. The 2¼% Notes will mature on December 15, 2023, subject to earlier repurchase, redemption or conversion in certain circumstances described below.

The 2¼% Notes are general unsecured senior obligations, which (i) rank senior in right of payment to all of the Company’s existing and future senior indebtedness that is expressly subordinated in right of payment to the 2¼% Notes; (ii) rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness that is not so subordinated; (iii) rank effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets

securing such indebtedness; and (iv) rank structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

The 2¼% Notes may be converted into cash, shares of the Company’s common stock or a combination thereof initially at a conversion rate of 38.4615 shares of common stock per $1,000 principal amount of 2¼% Notes (equivalent to a conversion price of approximately $26.00 per share of common stock), subject to adjustment from time to time as described in the indenture governing the 2¼% Notes. Holders may convert their 2¼% Notes at their option (i) at any time prior to the close of business on the business day immediately preceding September 15, 2023, under certain circumstances and (ii) at any time on or after September 15, 2023, until the close of business on the business day immediately preceding the maturity date, irrespective of such circumstances. In addition, if holders of the 2¼% Notes elect to convert their 2¼% Notes in connection with the occurrence of a make-whole fundamental change, as defined in the indenture governing the 2¼% Notes, such holders will be entitled to an increase in the conversion rate upon conversion in certain circumstances.

Holders may convert their 2¼% Notes at their option from January 1, 2021, through March 31, 2021, because the Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to December 31, 2020. The Company has a stated intention to cash settle the principal amount of the 2¼% Notes with the conversion premium to be settled in common shares. Accordingly, the net balance of the 2¼% Notes of $271.6 million is classified as a current liability as of December 31, 2020.

As more fully described in the indenture governing the 2¼% Notes, the holders of the 2¼% Notes may surrender all or any portion of their 2¼% Notes for conversion at any time during any calendar quarter, (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% ($33.80) of the conversion price on each applicable trading day.

The Company may redeem for cash all or any portion of the 2¼% Notes, at its option, on or after December 21, 2020, if the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2¼% Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If a fundamental change, as defined in the indenture governing the 2¼% Notes, occurs prior to maturity, subject to certain conditions, holders of the 2¼% Notes will have the right to require the Company to repurchase all or part of their 2¼% Notes for cash at a fundamental change repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, up to, but excluding, the fundamental change repurchase date.

The 2¼% Notes contain customary events of default, including, among other things, payment default, covenant default and certain cross-default provisions linked to the payment of other indebtedness of the Company or its significant subsidiaries.

Issuance of the 2¼% Notes generated proceeds of $294.2 million net of debt issuance costs, which were used to repurchase long-term debt and for working capital and other general corporate purposes.

On December 19, 2020, the Company's Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share (including shares underlying the 2¼% Notes participating on an as-converted basis). See Note 1 for additional information.

The Company separately accounted for the liability and equity components of the 2¼% Notes. The initial liability component of the 2¼% Notes was valued based on the present value of the future cash flows using an estimated borrowing rate at the date of the issuance for similar debt instruments without the conversion feature, which equals the effective interest rate of 5.8% on the liability component. The equity component, or debt discount, was initially valued equal to the principal value of the 2¼% Notes, less the liability component. The debt discount is being amortized as a non-cash charge to interest expense over the period from the issuance date through December 15, 2023.

The debt issuance costs of $5.8 million incurred in connection with the issuance of the 2¼% Notes were capitalized and bifurcated into deferred financing costs of $4.7 million and equity issuance costs of $1.1 million. The deferred financing costs are being amortized to interest expense from the issuance date through December 15, 2023.

The following table summarizes the 2¼% Notes ~~consisted of the following~~information (in millions, except years, percentages, conversion rate, and conversion price):

As of December 31,
2017 2016
Carrying value, long-term $ 247.2
$ 240.0
Unamortized discount and deferred financing costs 52.8
60.0
Principal amount $ 300.0
$ 300.0
Carrying amount of equity component, net of equity issuance costs $ 54.5
$ 54.5
Remaining amortization period (years) 6.0
7.0
Effective interest rate 5.8 % 5.8 %
Conversion rate (shares of common stock per $1,000 principal amount) 38.4615
38.4615
Conversion price (per share of common stock) $ 26.00
$ 26.00


	As of December 31,
	2020			2019
Carrying value, long-term	$	271.6		$	263.0
Unamortized discount and deferred financing costs	28.4			37.0
Principal amount	$	300.0		$	300.0
Carrying amount of equity component, net of equity issuance costs	$	54.5		$	54.5
Remaining amortization period (years)	3.0			4.0
Effective interest rate	5.8		%	5.8		%
Conversion rate (shares of common stock per $1,000 principal amount)	38.4615			38.4615
Conversion price (per share of common stock)	$	26.00		$	26.00

Based on the Company's closing stock price of ~~$31.20~~$52.85 on December 31, ~~2017,~~2020, the if-converted value of the 2¼% Notes exceeded the aggregate principal amount of the 2¼% Notes by ~~$60.0~~$309.8 million.

The following table presents the interest expense components for the 2¼% Notes:

Year-Ended December 31,
2017 2016
(In millions)
Interest expense-contractual interest $ 6.8
$ 0.3
Interest expense-amortization of debt discount 6.7
0.3
Interest expense-amortization of deferred financing costs (1) 0.6
—

~~________~~


	Year Ended December 31,
	2020		2019		2018
	(In millions)
Interest expense-contractual interest	$	6.8	$	6.8	$	6.8
Interest expense-amortization of debt discount	7.9		7.5		7.1
Interest expense-amortization of deferred financing costs	0.6		0.6		0.6

~~(1) Less than $0.1 million in fiscal 2016.~~

~~c. Convertible Subordinated Notes:~~

As of December 31,
2017 2016
(In millions)
Convertible subordinated debentures, bearing interest at 4.0625% per annum, interest payments due in June and December, maturing in December 2039 $ —
$ 35.6
Total convertible subordinated notes $ —
$ 35.6

~~As of December 31, 2017, the Company fully redeemed the outstanding principal amount of its 4~~¹/₁₆~~% Debentures. In December 2016, the Company notified holders of its 4~~¹/₁₆~~% Debentures that the Company would redeem, on February 3, 2017, all of their 4~~¹/₁₆~~% Debentures at a purchase price equal to 100% of the principal amount of the 4~~¹/₁₆~~% Debentures to be redeemed, plus any accrued and unpaid interest. In January 2017, $35.6 million of the 4~~¹/₁₆~~% Debentures (the entire amount outstanding as of December 31, 2016) were converted to 3.9 million shares of common stock.~~

~~d. Capital Lease Obligations:~~

As of December 31,
2017 2016
(In millions)
Capital lease obligations $ 0.9
$ —
Total capital lease obligations $ 0.9
$ —

As of December 31, 2017, the Company has capital lease obligations for certain information technology equipment. The future minimum rental commitments under non-cancelable capital leases as of December 31, 2017 were as follows (in millions):

Fiscal 2018 $ 0.2
Fiscal 2019 0.2
Fiscal 2020 0.2
Fiscal 2021 0.2
Fiscal 2022 0.2
Total minimum rentals 1.0
Less: imputed interest (0.1 )
Present value of minimum capital lease payments $ 0.9

In September 2017, the Company entered into an agreement to lease 122,000-square feet of office space in Huntsville, Alabama. The term of the lease is twenty years and is expected to commence in March 2018 resulting in an estimated financial commitment of $47.8 million representing a present value of $24.9 million. The liability has not been recorded as of December 31, 2017 and the commitment minimum payments over the next five fiscal years is as follows: $1.1 million in fiscal 2018, $2.0 million each year for fiscal 2019 through fiscal 2021, $2.1 million in fiscal 2022.

In October 2017, the Company entered into an agreement to lease a new 136,000-square-foot advanced manufacturing facility located in Huntsville, Alabama. The term of the lease is thirty-one years and is expected to commence in December 2018 resulting in an estimated financial commitment of $35.3 million representing a present value of $21.0 million. The liability has not been recorded as of December 31, 2017 and the commitment minimum payments over the next five fiscal years is as follows: $1.1 million in fiscal 2018 and $1.7 million each year for fiscal 2019 through fiscal 2022.

Note 7. Retirement Benefits

a. Plan Descriptions

Pension Benefits

The Company's defined benefit pension plan future benefit accrual was discontinued in ~~fiscal~~ 2009. As of December 31, ~~2017,~~2020, the assets, projected benefit obligations, and unfunded pension obligation were ~~$931.2~~$957.0 million, ~~$1,442.9~~$1,381.5 million, and ~~$511.7~~$424.5 million, respectively.

~~The~~In 2021, the Company expects to make cash contributions of approximately ~~$42.0~~$94 million to its tax-qualified defined benefit pension ~~plan in fiscal 2018.~~plan. The Company is generally able to recover ~~these~~ contributions related to its tax-qualified defined

benefit pension plan as allowable costs on its U.S. government contracts, but there ~~is a lag~~are differences between when the Company contributes ~~cash~~ to its tax-qualified defined benefit pension plan under pension funding rules and ~~recovers the cash~~when it is recoverable under ~~the U.S. government~~ Cost Accounting ~~Standards.~~Standards ("CAS"). During ~~fiscal 2017,~~2020, the Company made cash contributions of ~~$75.8~~$14.1 million and used $28.0 million of prepayment credits to fund its tax-qualified defined benefit pension plan of which $33.7 million was recoverable from the Company's U.S. government contracts in fiscal 2017 with the remaining $42.1 million expected to be recoverable from the Company's U.S. government contracts in the future.plan.

The funded status of the Company's tax-qualified pension plan may be adversely affected by the investment experience of the plan's assets, by any changes in U.S. law and by changes in the statutory interest rates used by tax-qualified pension plans in the U.S. to calculate funding requirements. Accordingly, if the performance of the plan's assets does not meet assumptions, if there are changes to ~~the Internal Revenue Service~~income tax regulations or other applicable law, or if other actuarial assumptions are modified, future contributions to the underfunded pension plans could be higher than the Company expects.

Medical and Life Insurance Benefits

The Company provides medical and life insurance benefits to certain eligible retired employees, with varied coverage by employee group. Generally, employees hired after January 1, 1997, are not eligible for retiree medical and life insurance benefits. The medical benefit plan provides for cost sharing between the Company and its retirees in the form of retiree contributions, deductibles, and coinsurance. Medical and life insurance benefit obligations are unfunded. Medical and life insurance benefit cash payments for eligible retired employees are recoverable from the Company’s U.S. government contracts.

Defined Contribution 401(k) Benefits

The Company sponsors a defined contribution 401(k) plan and participation in the plan is available to all employees. The Company makes matching contributions in cash equal to 100% of the first 3% of the participants’ compensation contributed and 50% of the next 3% of the compensation contributed. The cost of the 401(k) plan was ~~$21.2~~$21.8 million, ~~$20.7 million, $24.9~~$21.4 million, and ~~$1.3~~$22.2 millionin ~~fiscal 2017, 2016, 2015,~~2020, 2019, and ~~the one month ended December 31, 2015,~~2018, respectively.

b. Plan Results

~~Summarized below is~~The following table summarizes the balance sheet impact of the Company’s pension benefits and medical and life insurance benefits. Pension benefits include the consolidated tax-qualified plan and the unfunded non-qualified plan for benefits

provided to employees beyond those provided by the Company’s tax-qualified plan. Assets, benefit obligations, and the funded status of the plans were determined at December 31, ~~2017~~2020 and ~~2016.~~2019.


	Pension Benefits				Medical and Life Insurance Benefits
	As of December 31,
	2020		2019		2020		2019
	(In millions)
Change in fair value of assets:
Fair value - beginning of year	$	932.5	$	894.8	$	0	$	0
Gain (loss) on assets	117.1		144.8		0		0
Employer contributions	15.6		1.4		2.8		3.1
Benefits paid (1)	(108.2)		(108.5)		(2.8)		(3.1)

Fair value - end of year	$	957.0	$	932.5	$	0	$	0
Change in benefit obligation:
Benefit obligation - beginning of year	$	1,349.8	$	1,288.7	$	25.9	$	31.3

Interest cost	42.5		52.7		0.8		1.2

Actuarial losses (gains)	97.4		116.9		1.1		(3.5)
Benefits paid	(108.2)		(108.5)		(2.8)		(3.1)

Benefit obligation and accumulated benefit obligation - end of year	$	1,381.5	$	1,349.8	$	25.0	$	25.9
Funded status of the plans	$	(424.5)	$	(417.3)	$	(25.0)	$	(25.9)
Amounts recognized in the consolidated balance sheets:
Postretirement medical and life insurance benefits, current	$	0	$	0	$	(3.5)	$	(3.6)
Postretirement medical and life insurance benefits, noncurrent	0		0		(21.5)		(22.3)
Pension liability, non-qualified current (component of other current liabilities)	(1.3)		(1.3)		0		0
Pension liability, non-qualified (component of other noncurrent liabilities)	(18.0)		(17.1)		0		0
Pension benefits, noncurrent	(405.2)		(398.9)		0		0
Net liability recognized in the consolidated balance sheets	$	(424.5)	$	(417.3)	$	(25.0)	$	(25.9)

______

(1)Benefits paid for medical and life insurance benefits are net of the Medicare Part D Subsidy of $0.1 million received in both 2020 and 2019.

The pension benefits obligation actuarial losses of $97.4 million in 2020 were primarily the result of a decrease in the discount rate used to determine the obligation due to lower market interest rates. The discount rate was 2.52% as of December 31, 2020, compared with 3.28% as of December 31, 2019. The pension obligation actuarial losses of $116.9 million in 2019 were primarily the result of a decrease in the discount rate used to determine the obligation due to lower market interest rates. The discount rate was 3.28% as of December 31, 2019, compared with 4.27% as of December 31, 2018.

The following table presents the components of retirement benefits expense (income):


	Pension Benefits						Medical and Life Insurance Benefits
	Year Ended December 31,							Year Ended December 31,

	2020		2019		2018			2020		2019		2018
	(In millions)

Interest cost on benefit obligation	$	42.5	$	52.7	$	49.7		$	0.8	$	1.2	$	1.2
Assumed return on assets	(60.5)		(64.8)		(60.1)			0		0		0
Amortization of prior service costs (credits)	0.1		0.1		0.1			0		(0.2)		(0.2)
Amortization of net losses (gains)	57.4		40.9		70.7			(3.7)		(3.8)		(3.8)
	$	39.5	$	28.9	$	60.4		$	(2.9)	$	(2.8)	$	(2.8)

The following table presents the actual return and rate of return on assets:

Pension Benefits Medical and
Life Insurance
Benefits
As of December 31,
2017 2016 2017 2016
(In millions)
Change in fair value of assets:
Fair value - beginning of period $ 925.1
$ 931.4
$ —
$ —
Gain on assets 96.8
93.7
—
—
Employer contributions 77.2
34.1
4.2
4.3
Benefits paid (1) (133.2 ) (134.1 ) (4.2 ) (4.3 )
Settlements (2) (34.7 ) —
—
—
Fair value - end of period $ 931.2
$ 925.1
$ —
$ —
Change in benefit obligation:
Benefit obligation - beginning of period $ 1,492.1
$ 1,531.0
$ 42.6
$ 50.8
Service cost 15.0
14.0
—
—
Interest cost 57.6
64.1
1.5
1.9
Actuarial losses (gains) 46.1
17.1
(2.4 ) (5.8 )
Benefits paid (133.2 ) (134.1 ) (4.2 ) (4.3 )
Settlements (2) (34.7 ) —
—
—
Benefit obligation - end of period (3) $ 1,442.9
$ 1,492.1
$ 37.5
$ 42.6
Funded status of the plans $ (511.7 ) $ (567.0 ) $ (37.5 ) $ (42.6 )
Amounts recognized in the consolidated balance sheets:
Postretirement medical and life insurance benefits, current $ —
$ —
$ (4.8 ) $ (5.2 )
Postretirement medical and life insurance benefits, noncurrent —
—
(32.7 ) (37.4 )
Pension liability, non-qualified current (component of other current liabilities) (1.3 ) (1.3 ) —
—
Pension liability, non-qualified (component of other noncurrent liabilities) (17.6 ) (17.5 ) —
—
Pension benefits, noncurrent (4) (492.8 ) (548.2 ) —
—
Net liability recognized in the consolidated balance sheets $ (511.7 ) $ (567.0 ) $ (37.5 ) $ (42.6 )

~~__________~~


~~(1)~~	~~Benefits paid for medical and life insurance benefits are net of the Medicare Part D Subsidy of $0.1 million and $0.1 million received in fiscal 2017 and 2016, respectively.~~


~~(2)~~	~~On October 17, 2017, the Company's tax-qualified defined benefit pension plan purchased non-participating annuity contracts in the amount of $34.7 million for approximately 2,800 participants.~~


~~(3)~~	~~Pension benefit obligation includes $18.9 million and $18.8 million as of December 31, 2017 and 2016, respectively, for the non-qualified plan.~~


~~(4)~~	~~The net cash flow impact of the pension benefit obligation in fiscal 2017 was $42.3 million.~~

~~The accumulated benefit obligation for the defined benefit pension plans was $1,442.9 million and $1,492.1 million as of the December 31, 2017 and 2016 measurement dates, respectively.~~

~~Components of retirement benefit expense (income) were:~~

Pension Benefits Medical and
Life Insurance Benefits
Year Ended One month ended Year Ended One month ended
December 31, December 31, November 30, December 31, December 31, December 31, November 30, December 31,
2017 2016 2015 2015 2017 2016 2015 2015
(In millions)
Service cost $ 15.0
$ 14.0
$ 10.8
$ 1.1
$ —
$ —
$ —
$ —
Interest cost on benefit obligation 57.6
64.1
63.6
5.3
1.5
1.9
1.9
0.2
Assumed return on assets (1) (64.5 ) (70.1 ) (88.1 ) (6.0 ) —
—
—
—
Amortization of prior service costs (credits) 0.1
0.1
—
—
(0.2 ) (1.2 ) (1.1 ) (0.1 )
Amortization of net losses (gains) 67.8
63.7
84.0
5.4
(4.1 ) (3.6 ) (3.5 ) (0.3 )
$ 76.0
$ 71.8
$ 70.3
$ 5.8
$ (2.8 ) $ (2.9 ) $ (2.7 ) $ (0.2 )

~~__________~~


~~(1)~~	~~The actual return and rate of return on assets was as follows:~~


	Year Ended									One month ended
	December 31,			December 31,			November 30,			December 31,				Year Ended December 31,
	2017			2016			2015			2015				2020			2019			2018
	(In millions, except rate of return)													(In millions, except rate of return)
Actual gain (loss) on assets	$	96.8		$	93.7		$	(64.2	)	$	(22.2	)	Actual gain (loss) on assets	$	117.1		$	144.8		$	(57.8)
Actual rate of return on assets	10.8		%	11.0		%	(6.1		)%	(2.3		)%
Actual rate of return (loss) on assets													Actual rate of return (loss) on assets	15.6		%	18.0		%	(5.2)		%

Market conditions and interest rates significantly affect assets and liabilities of the pension plans. Pension accounting permits market gains and losses to be deferred and recognized over a period of years. This ~~“smoothing”~~"smoothing" results in the creation of other accumulated income or loss which will be amortized to pension costs in future years. The accounting method the Company utilizes recognizes one-fifth of the unamortized gains and losses in the market-related value of pension assets and all other gains and losses including changes in the discount rate used to calculate the benefit obligation each year. Investment gains or losses for this purpose are the difference between the expected return and the actual return on the market-related value of assets which smoothes asset values over three years. Although the smoothing period mitigates some volatility in the calculation of annual retirement ~~benefit~~benefits expense, future expenses are impacted by changes in the market value of assets and changes in interest rates.

c. Plan Assumptions

The ~~Company used~~following table presents the ~~following~~ assumptions, calculated based on a weighted-average, to determine the benefit obligations:


	Pension Benefits				Medical and Life Insurance Benefits					Pension Benefits				Medical and Life Insurance Benefits
	As of December 31,				As of December 31,					As of December 31,				As of December 31,
	2017		2016		2017		2016			2020		2019		2020		2019
Discount rate	3.59	%	4.02	%	3.37	%	3.68	%	Discount rate	2.52	%	3.28	%	2.28	%	3.19	%
Discount rate (non-qualified plan)	3.62	%	4.07	%	*		*		Discount rate (non-qualified plan)	2.51	%	3.30	%	*		*
Ultimate healthcare trend rate	*		*		5.00	%	5.00	%	Ultimate healthcare trend rate	*		*		4.50	%	4.50	%
Initial healthcare trend rate (pre 65/post 65)	*		*		6.50	%	7.00	%	Initial healthcare trend rate (pre 65/post 65)	*		*		6.50	%	5.50	%
Year ultimate rate attained (pre 65/post 65)	*		*		2021		2021		Year ultimate rate attained (pre 65/post 65)	*		*		2028		2022

______


*	~~Not applicable~~

* Not applicable

The ~~Company used~~following table presents the ~~following~~ assumptions, calculated based on a weighted-average, to determine the retirement ~~benefit~~benefits expense (income):


	Pension Benefits								Medical and Life Insurance Benefits									Pension Benefits					Medical and Life Insurance Benefits
	Year Ended						One month ended		Year Ended						One month ended			Year Ended December 31,						Year Ended December 31,
	December 31,		December 31,		November 30,		December 31,		December 31,		December 31,		November 30,		December 31,
	2017		2016		2015		2015		2017		2016		2015		2015			2020	2019		2018			2020	2019		2018
Discount rate	4.02	%	4.36	%	3.96	%	4.26	%	3.68	%	3.99	%	3.54	%	3.87	%	Discount rate	3.28 %	4.27	%	3.59	%		3.19 %	4.09	%	3.37	%
Discount rate (non-qualified plan)	4.07	%	4.41	%	4.01	%	4.32	%	*		*		*		*		Discount rate (non-qualified plan)	3.30 %	4.27	%	3.62	%		*	*		*
Expected long-term rate of return on assets	7.00	%	7.00	%	8.00	%	7.00	%	*		*		*		*		Expected long-term rate of return on assets	7.00 %	7.00	%	7.00	%		*	*		*
Ultimate healthcare trend rate	*		*		*		*		5.00	%	5.00	%	5.00	%	5.00	%	Ultimate healthcare trend rate	*	*		*			4.50 %	4.50	%	5.00	%
Initial healthcare trend rate (pre 65/post 65)	*		*		*		*		7.00	%	7.00	%	7.00	%	7.00	%	Initial healthcare trend rate (pre 65/post 65)	*	*		*			5.50 %	6.00	%	6.50	%
Year ultimate rate attained (pre 65/post 65)	*		*		*		*		2021		2021		2021		2021		Year ultimate rate attained (pre 65/post 65)	*	*		*			2022	2022		2021

______


*	~~Not applicable~~

* Not applicable

Certain actuarial assumptions, such as assumed discount rate, long-term rate of return, and assumed healthcare cost trend rates can have a significant effect on amounts reported for periodic cost of pension benefits and medical and life insurance benefits, as well as respective benefit obligation amounts. The assumed discount rate represents the market rate available for investments in high-quality fixed income instruments with maturities matched to the expected benefit payments for pension and medical and life insurance benefit plans.

The expected long-term rate of return on assets represents the rate of earnings expected in the funds invested, and funds to be invested, to provide for anticipated benefit payments to plan participants. The Company evaluated historical investment performance, current and expected asset allocation, and, with input from the Company’s external advisors, developed best estimates of future investment performance. Based on this analysis, the Company assumed a long-term expected rate of return of 7.0% in ~~fiscal 2017.~~2020.

The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates for the medical benefit plans. For ~~fiscal 2017~~2020 medical benefit obligations, the Company assumed a 6.5% annual rate of increase for pre and post 65 participants in the per capita cost of covered healthcare claims with the rate decreasing over ~~three~~seven years until reaching ~~5.0%~~4.5%.

~~A one percentage point change in the key assumptions would have the following effects on the projected benefit obligations as of December 31, 2017 and on retirement benefit expense for fiscal 2017:~~

d. Plan Assets and Investment Policy

The Company’s investment policy is to maximize the total rate of return within a prudent risk framework, while maintaining adequate liquidity throughout volatile market cycles to meet benefit obligations when due. The Company's strategies employ active management and are generally focused on minimizing the permanent loss of capital. The Company's asset diversification objectives target a ~~global~~diversified portfolio that invests across the capital structure via strategies with complimentary risk and return profiles. Diversification is achieved by investing in various asset types, which may include cash, fixed income, equities, private assets, credit holdings, and ~~private equity and credit holdings.~~future contracts. Further, the Company's strategy allows for diversification as to the types of investment vehicle structures, investment and redemption periods, and the number of investment managers used to carry out its strategy. Allocations between asset types, structures and managers may change as a result of changing market conditions, tactical investment opportunities, planned Company contributions, and cash obligations of the plan.

The following table presents the asset allocations by asset ~~category were as follows:~~

As of December 31,
2017 2016
Cash and cash equivalents 6 % 26 %
Equity securities 52
43
Fixed income 16
15
Private assets 10
8
Hedge funds 16
8
Total 100 % 100 %
category:


	As of December 31,
	2020		2019
Cash and cash equivalents	2	%	4	%
Equity securities	46		44
Fixed income	15		15
Registered investment companies	2		2
Private assets	11		12
Hedge funds	24		23
Total	100	%	100	%

The following tables present the fair value by asset category and by ~~level was as follows:~~level:


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
December 31, 2020

Equity securities:
Domestic equity securities	$	406.3	$	400.2	$	0	$	6.1
International equity securities	37.0		37.0		0		0



Fixed income:
Corporate debt securities	71.5		0		39.6		31.9
Asset-backed securities	28.7		0		28.7		0
U.S. government securities	41.4		0		41.4		0
Municipal bonds	0.6		0		0.6		0
Foreign bonds	0.5		0		0.5		0
Registered investment companies	16.4		16.4		0		0
Private assets	3.1		0		0		3.1
Total	605.5		$	453.6	$	110.8	$	41.1
Investment measured at Net Asset Value ("NAV")
Private assets	100.8
Hedge funds	232.3
Common/collective trusts ("CCTs")	36.2
Total investments measured at NAV	369.3
Receivables	0.8
Payables	(18.6)
Total assets	$	957.0

Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(In millions)
December 31, 2017
Cash and cash equivalents $ 28.2
$ 28.2
$ —
$ —
Equity securities:
  Domestic equity securities 440.9
437.1
—
3.8
  International equity securities 39.9
39.9
—
—
Fixed income:
  Corporate debt securities 87.1
—
75.8
11.3
  Asset-backed securities 33.8
—
33.8
—
  Foreign bonds 0.1
—
0.1
—
  U.S. government securities 10.7
—
10.7
—
Private assets 25.7
—
—
25.7
Total 666.4
$ 505.2
$ 120.4
$ 40.8
Investment measured at Net Asset Value ("NAV")
  Private assets 69.0

  Hedge funds 153.7

  Registered investment companies 10.5

  Common/collective trusts ("CCTs") 39.3

Total investments measured at NAV 272.5

Receivables 1.0

Payables (8.7 )
Total assets $ 931.2


													Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			(In millions)
	(In millions)
December 31, 2016
December 31, 2019												December 31, 2019
Cash and cash equivalents	$	31.3		$	31.3		$	—		$	—	Cash and cash equivalents	$	0.1	$	0.1	$	0	$	0
Equity securities:												Equity securities:
Domestic equity securities	377.2			373.8			1.2			2.2		Domestic equity securities	372.6		368.4		0		4.2
International equity securities	16.2			16.2			—			—		International equity securities	33.5		33.5		0		0
Derivatives:
Written options	(0.1		)	(0.1		)	—			—
Short sales	(0.1		)	(0.1		)	—			—

Fixed income:												Fixed income:
Corporate debt securities	33.8			—			27.0			6.8		Corporate debt securities	78.2		0		50.6		27.6
Asset-backed securities	71.5			—			71.5			—		Asset-backed securities	26.3		0		26.3		0
Municipal bonds	26.3			—			26.3			—
Short sales	(0.2		)	—			(0.2		)	—
Real estate investments	0.5			—			—			0.5
U.S. government securities												U.S. government securities	31.3		0		31.3		0
Foreign bonds												Foreign bonds	0.8		0		0.8		0
Foreign exchange contracts												Foreign exchange contracts	0.1		0		0.1		0
Registered investment companies												Registered investment companies	22.8		22.8		0		0
Private assets												Private assets	5.4		0		0		5.4
Total	556.4			$	421.1		$	125.8		$	9.5	Total	571.1		$	424.8	$	109.1	$	37.2
Investment measured at NAV												Investment measured at NAV
Private assets	70.7											Private assets	106.3
Hedge funds	79.3											Hedge funds	218.7
CCTs	219.4											CCTs	50.0
Total investments measured at NAV	369.4											Total investments measured at NAV	375.0
Receivables	1.8											Receivables	6.5
Payables	(2.5		)									Payables	(20.1)
Total assets	$	925.1										Total assets	$	932.5

Below is a description of the significant investment strategies and valuation methodologies used for the investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy. There have been no changes in the methodologies used at December 31, ~~2017~~2020 and ~~2016.~~2019.

Cash and cash equivalents

Cash and cash equivalents are ~~held~~invested in money market ~~accounts~~funds or ~~invested in~~ Short-Term Investment Funds ~~(“STIFs”~~("STIFs"). Cash and cash equivalents ~~held~~invested in money market ~~accounts~~funds are classified as Level 1 investments. STIFs are measured at NAV and included in CCTs as a reconciling item to the fair value tables above.

Equity securities

Equity securities are invested broadly in U.S. and non-U.S. companies in a variety of sectors and market capitalizations. These investments are comprised of common stocks, ~~exchange-traded funds (“ETFs”),~~ CCTs, ~~derivatives~~ and other investment vehicles. Common stocks ~~and ETFs~~ are stated at fair value as quoted on a recognized securities exchange and are valued at the last reported sales price on the last business day of the ~~fiscal~~ year and are classified as Level 1 investments. Derivatives include call and put options on common stocks or ETFs, which are all listed on an exchange and active market and classified as Level 1 investments. Short sales are short equity positions which are all listed on an exchange and active market and classified as Level 1 investments. Equity securities that are invested in common stock or preferred stock and priced using observable inputs are classified as Level 2 investments. Equity securities that are invested in common stock of private companies and priced using unobservable inputs are classified as Level 3 investments. CCTs invested in equity securities are measured at NAV and included as a reconciling item to the fair value tables above.

Fixed income securities

Fixed income securities are invested in a variety of instruments, including, but not limited to, corporate debt securities, U.S. government securities, CCTs, ~~registered investment companies,~~ asset-backed securities, municipal bonds, foreign bonds, and other investment vehicles. Corporate debt securities are invested in corporate bonds ~~or ETFs. ETFs are traded in an exchange~~ and ~~active market and classified as Level 1 investments.~~

term loans. Corporate bonds ~~that~~ are valued at bid evaluations using observable and market-based inputs and are classified as Level 2 investments. ~~Corporate bonds that~~Term loans are priced ~~by brokers~~ using unobservable inputs and are classified as Level 3 investments. Asset-backed securities, including government-backed mortgage securities, ~~non-government-backed collateralized mortgage obligations, asset-backed securities, and~~ commercial mortgage-backed securities, auto receivable backed securities, and other asset-backed securities,are valued at bid evaluations and are classified as Level 2 investments. ~~Short sales~~Municipal bonds are ~~short fixed income positions which are classified as Level 1 investments if they are listed on an exchange and active market,~~valued using pricing models maximizing the use of observable inputs for similar securities and are classified as Level 2 ~~investments if they~~investments. Foreign bonds that are valued using pricing models maximizing the use of observable inputs for similar securities are classified as Level 2 investments. Foreign bonds that are priced using unobservable inputs are classified as Level 3 investments. The foreign bond classified as Level 3 investment had no value at ~~bid evaluation using observable~~both December 31, 2020 and ~~market-based inputs. Registered investment companies and~~2019. CCTs invested in fixed income securities are measured at NAV and included as a reconciling item to the fair value tables above.

~~Real estate investments~~

~~Real estate investments include residential lots located~~

Registered investment companies

Registered investment companies are invested in ~~Benicia, California~~corporate bonds, senior secured loans, and other fixed income. Registered investment companies are transacted at NAV published daily and are classified as Level 31 investments.

Private assets

Private assets are primarily limited partnerships ~~and fund-of-funds~~ that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special situation strategies. Generally, the individual investments within the partnerships or funds are valued at public market, private market, or appraised value. Private assets are valued by investment managers using unobservable inputs such as extrapolated data, proprietary data, or indicative quotes. The majority of the private assets are valued at NAV and included as a reconciling item to the fair value tables above. Private assets for which there is no NAV are classified as Level 3 investments. Valuations of certain assets were based on the NAV or market value three months prior to the ~~fiscal~~ year-end. The Company made adjustments amounting to ~~an increase~~a decrease of ~~$0.3~~$6.2 million and ~~$11.3~~$17.4 million for ~~fiscal 2017~~2020 and ~~2016,~~2019, respectively, to account for changes since the valuation date.

Hedge funds

Hedge funds primarily consist of multi-strategy hedge funds that invest across a range of equity and debt securities in a variety of industry sectors. Hedge funds are valued at NAV calculated by investment managers using unobservable inputs such as extrapolated data, proprietary data, or indicative quotes and are included as a reconciling item to the fair value tables above. Valuations of certain assets were based on the NAV or ~~total~~ market value three months prior to the ~~fiscal~~ year-end. The Company made adjustments amounting to ~~an increase~~a decrease of ~~$0.3~~$4.5 million for ~~fiscal 2017~~2019 to account for changes since the valuation date.

~~Changes~~The following tables present the changes in the fair value of the Level 3 ~~investments were as follows:~~

investments:


	December 31, 2019		Unrealized Gains (Losses)		Realized Gains		Purchases, Sales, and Settlements, net		December 31, 2020
	(In millions)
Equity securities:
Domestic equity securities	$	4.2	$	1.9	$	0	$	0	$	6.1

Corporate debt securities	27.6		5.4		0		(1.1)		31.9

Private assets	5.4		1.7		1.3		(5.3)		3.1
Total	$	37.2	$	9.0	$	1.3	$	(6.4)	$	41.1

December 31, 2016 Unrealized
Gains Purchases, Sales, and
Settlements, net December 31,
2017
(In millions)
Domestic equity securities $ 2.2
$ 2.9
$ (1.3 ) $ 3.8
Corporate debt securities 6.8
2.0
2.5
11.3
Real estate investments 0.5
—
(0.5 ) —
Private assets —
1.2
24.5
25.7
Total $ 9.5
$ 6.1
$ 25.2
$ 40.8

December 31, 2015 Unrealized
Gains Purchases, Sales, and
Settlements, net December 31,
2016
(In millions)
Domestic equity securities $ 0.5
$ 0.1
$ 1.6
$ 2.2
Corporate debt securities —
—
6.8
6.8
Real estate investments 0.7
—
(0.2 ) 0.5
Total $ 1.2
$ 0.1
$ 8.2
$ 9.5


	December 31, 2018		Unrealized Gains (Losses)		Realized Gains		Purchases, Sales, and Settlements, net		December 31, 2019
	(In millions)
Equity securities:
Domestic equity securities	$	4.9	$	(0.3)	$	0.3	$	(0.7)	$	4.2
International equity securities	0.1		(0.1)		0		0		0
Corporate debt securities	21.5		(0.1)		0.1		6.1		27.6

Private assets	1.3		0.2		0.1		3.8		5.4
Total	$	27.8	$	(0.3)	$	0.5	$	9.2	$	37.2

e. Benefit Payments

The following table presents estimated future benefit payments:


	Pension Benefit Payments		Medical and Life Insurance Benefits
Year Ending December 31,			Gross Benefit Payments		Medicare D Subsidy		Net Benefit Payments
	(In millions)
2021	$	106.9	$	3.5	$	0.1	$	3.4
2022	103.8		3.1		0.1		3.0
2023	100.6		2.8		0.1		2.7
2024	97.1		2.5		0.1		2.4
2025	93.4		2.2		0.1		2.1
Years 2026 - 2030	409.1		7.6		0.2		7.4

Pension
Benefit
Payments

Medical and Life Insurance Benefits

Year Ending December 31, Gross Benefit Payments
Medicare D
Subsidy

Net Benefit
Payments
(In millions)
2018 $ 116.2
$ 5.0
$ 0.2
$ 4.8
2019 113.9
4.7
0.2
4.5
2020 110.7
4.4
0.2
4.2
2021 107.2
4.0
0.1
3.9
2022 103.6
3.6
0.1
3.5
Years 2023 - 2027 463.2
13.1
0.4
12.7

Note 8. Commitments and Contingencies

a. ~~Operating Lease Commitments and Income~~

The Company and its subsidiaries lease certain facilities, machinery and equipment, and office buildings under long-term, non-cancelable operating leases. The leases generally provide for renewal options ranging from one to five years and require the Company to pay for utilities, insurance, taxes, and maintenance. Rent expense was $20.7 million in fiscal 2017, $21.2 million in fiscal 2016, $18.5 million in fiscal 2015, and $1.8 million in the one month ended December 31, 2015.

The Company also leases certain surplus facilities to third parties. The Company recorded lease income of $6.4 million in fiscal 2017, $6.5 million in fiscal 2016, $6.3 million in fiscal 2015, and $0.5 million in the one month ended December 31, 2015 related to these arrangements, which have been included in net sales.

~~The future minimum rental commitments under non-cancelable operating leases with initial or remaining terms of one year or more and lease revenue in effect as of December 31, 2017 were as follows:~~

Year Ending December 31, Future Minimum
Rental Commitments Future Minimum
Rental Income
(In millions)
2018 $ 15.1
$ 4.8
2019 14.6
2.5
2020 14.1
0.7
2021 14.2
0.7
2022 13.2
0.2
Thereafter 23.9
—
$ 95.1
$ 8.9

b. Legal Matters

The Company and its subsidiaries are subject to legal proceedings, including litigation in U.S. federal and state courts, which arise out of, and are incidental to, the ordinary course of the Company’s on-going and historical businesses. The Company is also subject from time to time to ~~suits under the U.S. federal False Claims Act, known as “qui tam” actions, and to~~ governmental investigations by federal and state agencies. The Company cannot predict the outcome of such proceedings with any degree of certainty. Loss contingency provisions are recorded for probable losses at management’s best estimate of a ~~loss, or when~~loss. When only a ~~best estimate cannot~~range of amounts can be ~~made, a minimum loss contingency~~reasonably estimated and no amount within the range is more likely than another, the low end of the range is recorded. These estimates are often initially developed substantially earlier than when the ultimate loss is known, and are refined each quarterly reporting period as additional information becomes available.

Merger-Related Litigation

On January 29, 2021, a lawsuit entitled Richard Myers v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21- cv-00844, styled as a putative class action, was filed in the United States District Court for the Central District of California against the Company and the members of the Company's Board of Directors (the "Myers Action"). Also on January 29, 2021, a lawsuit entitled Alexa Hiramitsu v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-00123, was filed in the United States District Court for the District of Delaware against the Company and the members of the Company’s Board of Directors (the "Hiramitsu Action"). On February 1, 2021, a lawsuit entitled Richard Feinhals v. Aerojet Rocketdyne Holdings, Inc.et al., Case No. 1:21-cv-00892, was filed in the United States District Court for the Southern District of New York against the Company and the members of the Company's Board of Directors (the "Feinhals Action"). On February 2, 2021, a lawsuit entitled Shiva Stein v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-00962, was filed in the United States District Court for the Central District of California (the "Stein Action"). On February 4, 2021, a lawsuit entitled Mateo Clark v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-00994, was filed in the United States District Court for the Southern District of New York against the Company and the members of the Company's Board of Directors (the "Clark Action"). Also on February 4, 2021, a lawsuit entitled Guy Coffman v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-01917, was filed in the United States District Court for the District of New Jersey against the Company and the members of the Company's Board of Directors (the "Coffman Action"). On February 15, 2021, a lawsuit entitled Richard Wilhelm vs. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-01348, was filed in the U.S. District Court for the Central District of California, against the Company and members of the Company’s Board of Directors (the "Wilhelm Action"). Also, on February 15, 2021, a lawsuit entitled Hiten Patel vs. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-01349, was filed in the U.S. District Court for the Central District of California, against the Company and members of the Company’s Board of Directors (the "Patel Action"). The Myers Action, the Hiramitsu Action, the Feinhals Action, the Stein Action, the Clark Action, the Coffman Action, the Wilhelm Action, and the Patel Action are collectively referred to as the "Actions." The Actions allege that the defendants violated Sections 14(a) (and Rule 14a-9 promulgated thereunder) and 20(a) of the Exchange Act by, among other things, omitting certain allegedly material information with respect to the Merger in the preliminary proxy statement filed by the Company on January 25, 2021. The Myers Action and the Feinhals Action also allege that the members of the Company’s Board of Directors breached their fiduciary duties in connection with the Merger, and the Myers Action further alleges that the Company aided and abetted the Board of Directors’ alleged breaches of fiduciary duties. The plaintiffs in the Actions seek, among other things, injunctive relief, money damages and the costs of the Actions, including reasonable attorneys’ and experts’ fees.

The Company and the members of its Board of Directors disagree with and intend to vigorously defend against the Actions. If the Actions are not resolved on a timely basis, the Actions could delay consummation of the Merger and result in additional costs to the Company, including costs associated with the indemnification of directors. Additional plaintiffs may file lawsuits against the Company and/or its directors and officers in connection with the Merger.

Asbestos Litigation

The Company has been, and continues to be, named as a defendant in lawsuits alleging personal injury or death and seeking various monetary damages due to exposure to asbestos in building materials, products, or in manufacturing operations. The majority of cases are pending in ~~Texas and Illinois.~~Illinois state courts. There were 5999 asbestos cases pending as of December 31, ~~2017.~~2020.

Given the lack of any significant consistency to claims (i.e., as to product, operational site, or other relevant assertions) filed against the Company, the Company is generally unable to make a reasonable estimate of the future costs of pending

claims or unasserted claims. The aggregate settlement costs and legal and administrative fees associated with the Company’s asbestos litigation has been immaterial for the last three years. As of December 31, ~~2017,~~2020, the Company has accrued an immaterial amount related to pending claims.

~~Socorro~~

On May 12, 2015, a complaint for personal injuries, loss of consortium and punitive damages was filed by James Chavez, Andrew Baca, and their respective spouses, against Aerojet Rocketdyne and the Board of Regents of New Mexico Tech in the Seventh Judicial District, County of Socorro, New Mexico, ~~James Chavez, et al.,~~United States ex. rel. Markus vs. Aerojet Rocketdyne Holdings

In the case captioned United States ex. rel. Markus vs. Aerojet Rocketdyne Holdings, Inc., et ~~al.~~al., Case No. ~~D725CV201500047. Messrs. Chavez~~2:15-CV-02245- WBS-AC, the Department of Justice completed its review of the case and ~~Baca were employees~~declined to intervene in June 2018. The case was originally filed under seal in the U.S. District Court, Eastern District of ~~Aerotek, a contractor to Aerojet Rocketdyne, who were injured when excess energetic materials being managed by the Energetic Materials Research~~California in September 2017 and ~~Testing Center, a research division of New Mexico Tech, ignited in an unplanned manner. The complaint alleges~~alleged causes of action against the Company based on ~~negligence~~false claims, retaliation, and ~~negligence per se, strict liability,~~wrongful termination of employment seeking injunctive relief, civil penalties, and ~~willful, reckless and wanton conduct against Aerojet Rocketdyne, and seeks unspecified~~ compensatory and punitive damages. ~~Trial is scheduled for June 18, 2018. No~~In February 2019, the Company filed a Motion to Dismiss the False Claims Act ("FCA") counts of the complaint and a Motion to Compel Arbitration on the employment based claims. In May 2019, the court dismissed one count of the FCA claim, denied the motion to dismiss the remaining FCA counts, and moved the employment based claims to arbitration. The Company continues to vigorously contest the complaint’s allegations and has not recorded any liability for this matter ~~has been recorded by the Company~~ as of December 31, ~~2017.~~2020.

~~Department of Justice ("DOJ") Investigation~~

The Company is responding to a civil investigative demand issued by the DOJ in the first quarter of fiscal 2017 requesting information relating to allegations under the False Claims Act that the Company may have previously made false representations to the U.S. government regarding the Company’s compliance with certain regulatory cybersecurity requirements. The Company is cooperating with the DOJ in its investigation of the false claim allegations.

c.b. Environmental Matters

The Company is involved in approximately ~~forty~~40 environmental matters under the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation Recovery Act, and other federal, state, ~~local,~~ and ~~foreign~~local laws relating to soil and groundwater contamination, hazardous waste management activities, and other environmental matters at some of its current and former facilities. The Company is also involved in a number of remedial activities at third party sites, not owned by the Company, where it is designated a potentially responsible party ~~(“PRP”~~("PRP") by either the U.S. Environmental Protection Agency ("EPA") and/or a state agency. In many of these matters, the Company is involved with other PRPs. In some 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 and costs are generally made based on relative contributions of waste or contamination. Anticipated costs associated with environmental remediation that are probable and estimable are accrued. In cases where a date to complete remedial activities at a particular site cannot be determined by reference to agreements or otherwise, the Company projects costs over an appropriate time period not exceeding ~~fifteen~~15 years. In such cases, generally the Company does not have the ability to reasonably estimate environmental remediation costs that are beyond this period. Factors that could result in changes to the Company’s estimates include completion of current and future soil and groundwater investigations, new claims, future agency demands, discovery of more or less contamination than expected, discovery of new contaminants, modification of planned remedial actions, changes in estimated time required to remediate, new technologies, and changes in laws and regulations.

As of December 31, ~~2017,~~2020, the aggregate range of these anticipated environmental costs was ~~$341.4~~$300.6 million to ~~$503.4~~$451.1 million and the accrued amount was ~~$341.4~~$300.6 million. See Note ~~8(d)~~8(c) for a summary of the environmental reserve activity. Of these accrued liabilities, approximately 99% relates to the Company’s U.S. government contracting business and a portion of this liability is recoverable. The significant environmental sites are discussed below. The balance of the accrued liabilities, which are not recoverable from the U.S. government, relate to other sites for which the Company’s obligations are probable and estimable.

Sacramento, California Site

In 1989, a federal district court in California approved a Partial Consent Decree ~~(“PCD”~~("PCD") requiring Aerojet Rocketdyne, among other things, to conduct a Remedial Investigation and Feasibility Study to determine the nature and extent of impacts due to the release of chemicals from the Sacramento, California site, monitor the American River and offsite public water supply wells, operate Groundwater Extraction and Treatment facilities that collect groundwater at the site perimeter, and pay certain government oversight costs. The primary chemicals of concern for both on-site and off-site groundwater are trichloroethylene, perchlorate, and n-nitrosodimethylamine. ~~The~~A 2002 PCD revision (a) separated the Sacramento site into multiple operable units to allow quicker implementation of ~~remedy~~remedies for critical areas; (b) required the Company to guarantee up to $75 million (in addition to a prior $20 million guarantee) to assure that Aerojet Rocketdyne’s Sacramento remediation activities are fully funded; and (c) removed approximately 2,600 acres of non-contaminated land from the EPA superfund designation.

Aerojet Rocketdyne is involved in various stages of soil and groundwater investigation, remedy selection, design, construction, operation and maintenance associated with the operable units, all of which are conducted under the direction and oversight of the EPA, including unilateral administrative orders, and the California Department of Toxic Substances Control

("DTSC") and Regional Water Quality Control Board, Central Valley Region ("RWQCB"). On September 22, 2016, the EPA completed its first five-year remedy review of the Sacramento superfund site. The five-year review required by statute and regulation applies to all remedial actions which result in hazardous substances above levels that allow unlimited use and unrestricted exposure. The Company is ~~working~~continuing to work with the EPA to address and remedy the remaining findings of the 2016 five-year remedy ~~review.~~review and has established EPA approved action plans which include additional extraction wells, treatment, and monitoring. The Company’s action plans and implementation will be evaluated at the next EPA five-year remedy review scheduled to occur in 2021.

The entire southern portion of the site known as Rio Del Oro was under state orders issued in the 1990s from DTSC and the RWQCB to investigate and remediate soil and groundwater contamination. In 2008, the DTSC released all but approximately 400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil contamination although the property remains subject to the RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating offsite from the property.

As of December 31, ~~2017,~~2020, the estimated range of anticipated costs discussed above for the Sacramento, California site was ~~$206.5~~$208.4 million to ~~$325.2~~$331.4 million and the accrued amount was ~~$206.5~~$208.4 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note ~~8(d)~~8(c) below for further discussion on recoverability.

Baldwin Park Operable Unit ~~(“BPOU”)~~

As a result of its former Azusa, California operations, in 1994, Aerojet Rocketdyne was named a PRP by the EPA in the area of the San Gabriel Valley Basin superfund site known as the BPOU. In 2002, Aerojet Rocketdyne, along with ~~seven~~7 other PRPs (the "Cooperating ~~Respondents”~~Respondents") signed a project agreement ~~in late March 2002~~ with the San Gabriel Basin Water Quality Authority, the Main San Gabriel Basin Watermaster, and ~~five~~5 water ~~companies (the “Water Entities”).~~companies. The 2002 project agreement terminated in 2017 and the parties executed a ~~new~~ project agreement which became operational on May 9, 2017. The ~~new~~ agreement has a ten-year term and requires the Cooperating Respondents to fund through an escrow account the ongoing operation, maintenance, and administrative costs of certain treatment and water distribution facilities owned and operated by the water companies. There are also provisions in the project agreement for maintaining financial assurance.

Pursuant to anthe 2017 agreement with the remaining Cooperating Respondents, Aerojet Rocketdyne's current share of future BPOU costs will be approximately74%.

As part of Aerojet Rocketdyne’s sale of its Electronics and Information Systems ("EIS") business to Northrop Grumman Corporation ("Northrop") in October 2001, the EPA approved a prospective purchaser agreement with Northrop to absolve it of a pre-closing liability for contamination caused by the Azusa, California operations, which liability remains with Aerojet Rocketdyne. As part of that agreement, the Company agreed to provide a $25 million guarantee of its obligations under the project agreement.

As of December 31, ~~2017,~~2020, the estimated range of anticipated costs was ~~$116.4~~$76.2 million to ~~$152.5~~$91.9 million and the accrued amount was ~~$116.4~~$76.2 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note ~~8(d)~~8(c) below for further discussion on recoverability.

d.c. Environmental Reserves and Estimated Recoveries

Environmental Reserves

The Company reviews on a quarterly basis estimated future remediation costs and has an established practice of estimating environmental remediation costs over a fifteen year period, except for those environmental remediation costs with a specific contractual term. Environmental liabilities at the BPOU site are currently estimated through the term of the ~~new~~ project agreement, which expires in May 2027. As the period for which estimated environmental remediation costs lengthens, the reliability of such estimates decreases. These estimates consider the investigative work and analysis of engineers, outside environmental consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and legal proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing the Company’s reserves, the most probable estimate is used when determinable; otherwise, the minimum amount is used when no single amount in the range is more probable. Accordingly, such estimates can change as the Company periodically evaluates and revises these estimates as new information becomes available. The Company cannot predict whether new information gained as projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs is influenced by a number of factors, such as the regulatory approval process and the time required designing, constructing, and implementing the remedy.

~~A summary of~~The following table summarizes the Company’s environmental reserve activity:


																				Aerojet Rocketdyne- Sacramento		Aerojet Rocketdyne- BPOU		Other Aerojet Rocketdyne Sites		Total Aerojet Rocketdyne		Other		Total Environmental Reserve
	Aerojet Rocketdyne- Sacramento			Aerojet Rocketdyne- BPOU			Other Aerojet Rocketdyne Sites			Total Aerojet Rocketdyne			Other			Total Environmental Reserve				(In millions)
	(In millions)
November 30, 2014	$	130.4		$	21.7		$	8.1		$	160.2		$	5.8		$	166.0

December 31, 2017																			December 31, 2017	$	206.5	$	116.4	$	13.7	$	336.6	$	4.8	$	341.4
Additions	44.3			129.7			2.0			176.0			0.6			176.6			Additions	20.1		2.3		0.6		23.0		0.3		23.3
Expenditures	(21.7		)	(11.3		)	(2.3		)	(35.3		)	(1.2		)	(36.5		)	Expenditures	(19.2)		(14.9)		(1.9)		(36.0)		(0.8)		(36.8)
November 30, 2015	153.0			140.1			7.8			300.9			5.2			306.1
December 31, 2018																			December 31, 2018	207.4		103.8		12.4		323.6		4.3		327.9
Additions	0.5			—			—			0.5			—			0.5			Additions	17.0		(0.8)		0.3		16.5		0.2		16.7
Expenditures	(0.9		)	(3.4		)	—			(4.3		)	—			(4.3		)	Expenditures	(20.8)		(13.4)		(0.9)		(35.1)		(0.3)		(35.4)
December 31, 2015	152.6			136.7			7.8			297.1			5.2			302.3
December 31, 2019																			December 31, 2019	203.6		89.6		11.8		305.0		4.2		309.2
Additions	80.0			3.5			3.9			87.4			—			87.4			Additions	30.9		(0.2)		0		30.7		1.7		32.4
Expenditures	(22.5		)	(13.4		)	(3.2		)	(39.1		)	(0.9		)	(40.0		)	Expenditures	(26.1)		(13.2)		(1.2)		(40.5)		(0.5)		(41.0)
December 31, 2016	210.1			126.8			8.5			345.4			4.3			349.7
Additions	19.2			3.3			8.0			30.5			0.8			31.3
Expenditures	(22.8		)	(13.7		)	(2.8		)	(39.3		)	(0.3		)	(39.6		)
December 31, 2017	$	206.5		$	116.4		$	13.7		$	336.6		$	4.8		$	341.4
December 31, 2020																			December 31, 2020	$	208.4	$	76.2	$	10.6	$	295.2	$	5.4	$	300.6

The effect of the final resolution of environmental matters and the Company’s obligations for environmental remediation and compliance cannot be accurately predicted due to the uncertainty concerning both the amount and timing of future expenditures and due to regulatory or technological changes. The Company continues its efforts to mitigate past and future costs through pursuit of claims for recoveries from insurance coverage and other PRPs and continued investigation of new and more cost effective remediation alternatives and associated technologies.

As part of the acquisition of the Atlantic Research Corporation ~~(“ARC”~~("ARC") propulsion business in 2003, Aerojet Rocketdyne entered into an agreement with ARC pursuant to which Aerojet Rocketdyne iswas responsible for up to $20.0 million of costs (“("Pre-Close Environmental ~~Costs”~~Costs") associated with environmental issues that arose prior to Aerojet Rocketdyne’s acquisition of the ARC propulsion business. ARC is responsible for any cleanup costs relating to the ARC acquired businesses in excess of $20.0 million. Pursuant to a separate agreement with the U.S. government which was entered into prior to the completion of the ARC acquisition, these costs are recovered through the establishment of prices for Aerojet Rocketdyne’s products and services sold to the U.S. government. The Company reached the $20.0 million cap on cleanup costs in the ~~first quarter of fiscal~~three months ended March 31, 2017, and expects that additional costs will be incurred due to contamination existing at the time of the acquisition and still requiring remediation and monitoring. On May 6, 2016, ARC informed Aerojet Rocketdyne that it was disputing certain costs that Aerojet Rocketdyne attributed to the $20.0 million Pre-Close Environmental Costs (“("ARC ~~Claim”~~Claim"). The ~~Company has met with~~settlement resolved past costs and established that the $20.0 million cap had been reached, ARC ~~and responded~~became financially responsible subject to ~~the ARC Claim on June 23, 2017. Certain~~an allocation

of future cleanup costs related to the ~~ARC Claim will be determined in conjunction with the~~ Company’s ~~evaluation and ultimate resolution~~operation of the Open Burn Unit from 2003-2009, and ARC ~~Claim.~~assumed management for the ongoing remediation as required by the 2003 acquisition agreement.

Estimated Recoveries

On January 12, 1999, Aerojet Rocketdyne and the U.S. government reached a settlement agreement (“("Global ~~Settlement”~~Settlement") ~~which established a cost-sharing ratio~~covering environmental costs associated with ~~respect~~the Company's Sacramento site and its former Azusa site. Pursuant to the ~~clean-up~~Global Settlement, the Company can recover up to 88% of its environmental remediation costs through the establishment of ~~prior environmental contamination.~~prices for Aerojet Rocketdyne's products and services sold to the U.S. government. Additionally, in conjunction with the sale of the EIS business in 2001, Aerojet Rocketdyne entered into an agreement with Northrop (the ~~“Northrop Agreement”~~"Northrop Agreement") whereby Aerojet Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement, subject to an annual billing limitation of $6.0 million and a cumulative limitation of $189.7 million. The following table summarizes the Northrop Agreement activity (in millions):


Total reimbursable costs under the Northrop Agreement	$	189.7
Amount reimbursed to the Company through December 31, 2020	(143.2)
Receivable from Northrop included in the balance sheet at December 31, 2020	$	46.5

The cumulative expenditure limitation of $189.7 million under the Northrop Agreement was reached in June 2017. At that time, the ~~second~~Company was uncertain of the allowability and allocability of additional expenditures above that cumulative limitation and therefore did not recognize a recoverable asset for such amounts. In the third quarter of ~~fiscal 2017. A summary~~2018, the Company and the U.S. government reached a determination that these expenditures are reimbursable under the Global Settlement and therefore recorded a one-time benefit of $43.0 million to recognize the ~~Northrop Agreement activity is shown below (in millions):~~recoverability of environmental expenditures at a rate of 88%.

Total reimbursable costs under the Northrop Agreement $ 189.7
Amount reimbursed through December 31, 2017 (125.2 )
Receivable from Northrop included in the consolidated balance sheet as of December 31, 2017 $ 64.5

Environmental remediation costs are primarily incurred by the Company's Aerospace and Defense segment, and certain of these costs are recoverable from the Company's contracts with the U.S. government. The Company currently estimates approximately ~~24%~~ 12%of its future Aerospace and Defense segment environmental remediation costs will not likely be reimbursable and are expensed.

Allowable environmental remediation costs are charged to the Company’s contracts with the U.S. government as the costs are incurred. Because these costs are recovered through forward-pricing arrangements, the ability of Aerojet Rocketdyne to continue recovering these costs from the U.S. government depends on Aerojet Rocketdyne’s sustained business volume from U.S. government contracts and programs.

While the Company ~~is currently seeking~~continues to seek an arrangement with the U.S. government to recover environmental expenditures in excess of the reimbursement ceiling identified in the ~~Northrop Agreement and~~ Global Settlement, there can be no assurances that such a recovery will be obtained, or if not obtained, that such unreimbursed environmental expenditures will not have a materially adverse effect on the Company’s operating results, financial condition, and/or cash flows.

Environmental reserves and estimated recoveries impact toon the consolidated statements of operations

The ~~expenses associated with adjustments to~~following table summarizes the ~~environmental reserves are recorded as a component of other expense, net in the consolidated statements of operations. Summarized~~ financial information for the impact of environmental reserves and recoveries to the consolidated statements of ~~operations were as follows:~~operations:


	Year Ended December 31,
	2020		2019		2018
	(In millions)


Expense (benefit) to consolidated statement of operations	$	4.3	$	2.1	$	(36.9)

e.d. Arrangements with Off-Balance Sheet Risk

As of December 31, ~~2017,~~2020, arrangements with off-balance sheet risk consisted of:

•$~~38.6~~27.6 millionin outstanding commercial letters of credit,the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.

•$~~52.8~~53.5 million in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation coverage.

•Up to $120.0 million aggregate in guarantees by the Company of Aerojet Rocketdyne’s obligations to U.S. government agencies for environmental remediation activities.

~~$121.9 million~~ ~~in commitments associated with outsourcing certain information technology and cyber security functions.~~

~~$83.1 million in commitments associated with the Company's new facilities located in Huntsville, Alabama.~~

•Guarantees, jointly and severally, by the Company’s material domestic subsidiaries of their obligations under the Senior Credit Facility.

In addition to the items discussed above, the Company has and will from time to time enter into certain types of contracts that require the Company to indemnify parties against potential third-party and other claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnification to purchasers of its businesses or assets including, for example, claims arising from the operation of the businesses prior to disposition, and liability to investigate and remediate environmental contamination existing prior to disposition; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for claims arising from the use of the applicable premises; and (iii) certain agreements with officers and directors, under which the Company may be required to indemnify such persons for liabilities arising out of their relationship with the Company. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated.

Additionally, the Company ~~issues~~has open purchase orders and other commitments to suppliers, subcontractors, and other outsourcing partners for equipment, materials, and supplies in the normal course of business. These ~~purchase commitments~~amounts are ~~generally for~~based on volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or expected to be received, from ~~customers and would be subject to reimbursement if a cost-plus contract is terminated.~~customers. A substantial portion of these amounts are recoverable through the Company's contracts with the U.S. government.

completion and are expensed in accordance with the Company’s revenue recognition methodology as allowed under GAAP for that particular contract.

Note 9. Stockholders’ Equity

a. ~~Preference~~Preferred Stock

As of December 31, ~~2017~~2020 and ~~2016,~~2019, 15.0 million shares of preferred stock were authorized and ~~none~~NaN were issued or outstanding.

b. Common Stock

As of December 31, ~~2017,~~2020, the Company had 150.0 million authorized shares of common stock, par value $0.10 per share, of which ~~73.6~~76.8 million shares were issued and outstanding, and ~~20.2~~21.5 millionshares were reserved for future issuance for the exercise of stock options (seven ~~and ten~~ year contractual life) and restricted stock (no maximum contractual life), payment of awards under stock-based compensation plans, and conversion of the Company’s convertible debt.

c. Treasury Stock

~~The~~As of December 31, 2020 and 2019, the Company ~~has~~had 2.1 million and 0.8 million, respectively, of its common shares classified as treasury stock. During 2020, the Company repurchased ~~3.5~~1.3 million of its common shares at a cost of ~~$64.5~~$51.7 million. On September 10, 2018, the Company made a discretionary contribution of 2.7 million treasury stock, or $95.0 million, of its common stock to the Aerojet Rocketdyne Master Retirement Trust, which is a trust maintained in connection with the Aerojet Rocketdyne (GenCorp) Consolidated Pension Plan. Treasury stock is stated at cost (first-in, first-out basis). The Company reflects stock repurchases in its financial statements on a ~~“settlement” basis.~~"settlement" basis

d. Dividends

On December 19, 2020, the Company’s Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share (including shares underlying the 2¼% Notes participating on an as-converted basis). The Pre-Closing Dividend is payable on March 24, 2021, to the holders of the Company’s shares and 2¼% Notes as of the close of business on March 10, 2021.

e. Stock-based Compensation

~~Total~~The following table summarizes stock-based compensation expense ~~(benefit)~~ by type of ~~award was as follows:~~award:


	Year Ended December 31,

	2020		2019		2018
	(In millions)
SARs	$	8.1	$	11.4	$	6.2
Restricted stock and restricted stock units, service based	8.6		5.2		4.5
Restricted stock and restricted stock units, performance based	12.6		9.4		9.1
Employee stock purchase plan ("ESPP")	1.1		0.9		0.6
Stock options	1.0		0.4		0.1
Total stock-based compensation expense	$	31.4	$	27.3	$	20.5

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
SARs $ 9.3
$ 2.2
$ 1.8
$ (1.4 )
Restricted stock, service based 4.1
3.6
5.6
0.3
Restricted stock, performance based 6.8
5.7
0.1
0.6
Employee stock purchase plan ("ESPP") 0.6
0.5
0.3
—
Stock options 1.2
0.9
0.8
0.1
Total stock-based compensation expense (benefit) $ 22.0
$ 12.9
$ 8.6
$ (0.4 )

Stock Appreciation Rights: As of December 31, ~~2017,~~2020, a total of ~~1.0~~0.9 million SARs were ~~outstanding under the 1999 Equity and Performance Incentive Plan (“1999 Plan”) and 2009 Equity and Performance Incentive Plan (“2009 Plan”).~~outstanding. SARs granted to employees generally vest in one-third increments at one year, two years, and three years from the date of grant and have a ~~ten year contractual life under the 1999 Plan and a~~ seven year contractual ~~life under the 2009 Plan.~~life. SARs granted to directors of the Company typically vest over a one year service period (half after six months and half after one year) and have a ~~ten year contractual life under the 1999 Plan and a~~ seven year contractual ~~life under the 2009 Plan.~~life. These awards are similar to the Company’s employee stock options, but are settled in cash rather than in shares of common stock, and are classified as liability awards. Compensation cost for these awards is determined using a fair-value method and remeasured at each reporting date until the date of settlement.

~~A summary of~~

The following table summarizes the status of the Company’s ~~SARs as of December 31, 2017 and changes during fiscal 2017:~~SARs:

SARs
(In millions) Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Life (years) Aggregate
Intrinsic
Value
(In millions)
Outstanding at December 31, 2016 1.0
$ 11.52

Granted 0.4
22.35

Exercised (0.3 ) 6.97

Canceled (0.1 ) 17.21

Outstanding at December 31, 2017 1.0
$ 16.62
4.7 $ 14.6
Exercisable at December 31, 2017 0.2
$ 8.17
1.2 $ 5.4


	SARs (In millions)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (In millions)



Outstanding at December 31, 2019	1.2	$	27.32

Exercised	(0.2)	19.97
Canceled	(0.1)	31.46
Outstanding at December 31, 2020	0.9	$	29.09	4.2	$	21.0
Exercisable at December 31, 2020	0.6	$	28.27	4.0	$	15.3
Expected to vest at December 31, 2020	0.3	$	31.01	4.5	$	5.7

The weighted average grant date fair value for SARs granted in ~~fiscal 2017~~2019 and ~~2016~~2018 was ~~$15.41~~$37.26 and ~~$7.66,~~$27.53, respectively. ~~No SARs were granted in fiscal 2015 and the one month ended December 31, 2015.~~ The total intrinsic value for SARs liabilities paid in ~~fiscal 2017, 2016,~~2020, 2019, and ~~2015~~2018 was ~~$4.9~~$7.6 million, ~~$2.3~~$4.3 million, and ~~$3.3~~$3.5 million, respectively. As of

December 31, ~~2017,~~2020, there was ~~$7.5~~$0.8 million of ~~total~~unrecognized stock-based compensation related to nonvested ~~SARs. That cost~~SARs that is expected to be recognized over an estimated weighted-average amortization period of 23eleven months.

Restricted Stock, service-based: As of December 31, ~~2017,~~2020, a total of ~~0.4~~0.2 million shares of service-based restricted stock were outstanding which vest based on years of ~~service under the 2009 Plan.~~service. Restricted shares are granted to ~~key~~ employees and directors of the Company. The fair value ~~of the restricted stock awards~~ was based on the closing market price of the Company’s common stock on the date of award and is being amortized on a straight line basis over the service period.

~~A summary of~~The following table summarizes the status of the Company’s service-based restricted ~~stock as of December 31, 2017 and changes during fiscal 2017:~~

Service
Based
Restricted
Stock
(In millions) Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2016 0.6
$ 18.06
Granted 0.1
24.98
Exercised (0.3 ) 18.12
Outstanding at December 31, 2017 0.4
$ 20.14
Expected to vest at December 31, 2017 0.4
$ 20.14
stock:


	Service Based Restricted Stock (In millions)	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	0.3	$	36.33





Exercised	(0.1)	34.81

Outstanding and expected to vest at December 31, 2020	0.2	$	39.90

As of December 31, ~~2017,~~2020, there was ~~$5.0~~$3.9 million of ~~total~~unrecognized stock-based compensation related to nonvested service-based restricted ~~stock. That cost~~stock that is expected to be recognized over an estimated weighted-average amortization period of ~~six~~seventeen months. At December 31, ~~2017,~~2020, the intrinsic value of the service-based restricted stock outstanding and expected to vest was ~~$11.7~~$9.4 million. The weighted average grant date fair values for service-based restricted stock granted in ~~fiscal 2016~~2019 and ~~2015~~2018 was ~~$17.65~~$40.70 and ~~$20.70,~~$29.74, respectively.

Restricted Stock Units, service-based: As of December 31, 2020, a total of 0.1 million shares of service-based restricted stock units were outstanding which vest based on years of service. Restricted stock units are granted to employees of the Company. The fair value was based on the closing market price of the Company’s common stock on the date of award and is being amortized on a straight line basis over the service period.

The following table summarizes the status of the Company’s service-based restricted stock units:


	Service Based Restricted Stock Units (In millions)	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	0	$	0




Granted	0.1	46.00


Outstanding and expected to vest at December 31, 2020	0.1	$	46.00

As of December 31, 2020, there was $3.5 million of unrecognized stock-based compensation related to nonvested service-based restricted stock units that is expected to be recognized over an estimated weighted-average amortization period of thirty months. At December 31, 2020, the intrinsic value of the service-based restricted stock units outstanding and expected to vest was $5.1 million.

Restricted Stock, performance-based Company metrics: As of December 31, ~~2017,~~2020, a total of ~~1.0~~0.5 million shares of performance-based restricted shares were ~~outstanding under the 2009 Plan.~~outstanding. The performance-based restricted stock vests if the Company meets various operations and earnings targets set by the Organization & Compensation Committee of the Board of Directors. The fair value ~~of the performance-based restricted stock awards~~ was based on the closing market price of the Company’s common stock on the date of award and is being amortized over the estimated service period to achieve the operations and earnings targets.

~~A summary of~~

The following table summarizes the status of the Company’s performance-based restricted ~~stock as of December 31, 2017 and changes during fiscal 2017:~~

Performance
Based
Restricted
Stock
(In millions) Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2016 1.1
$ 17.85
Granted 0.5
22.35
Exercised (0.3 ) 15.80
Canceled (0.3 ) 18.48
Outstanding at December 31, 2017 1.0
$ 19.73
Expected to vest at December 31, 2017 0.6
$ 19.74
stock:


	Performance Based Restricted Stock (In millions)	Weighted Average Grant Date Fair Value




Outstanding at December 31, 2019	1.0	$	29.41

Exercised	(0.4)	25.01
Canceled	(0.1)	29.00
Outstanding at December 31, 2020	0.5	$	36.59
Expected to vest at December 31, 2020	0.4	$	35.52

As of December 31, ~~2017,~~2020, there was ~~$4.9~~$4.4 million of ~~total~~unrecognized stock-based compensation related to nonvested performance-based restricted ~~stock. That cost~~stock that is expected to be recognized over an estimated weighted-average amortization period of 17fourteen months. At December 31, ~~2017,~~2020, the intrinsic value of the performance-based restricted stock outstanding was ~~$32.7~~$26.6 million and the intrinsic value of the performance-based restricted stock expected to vest was ~~$17.8~~$21.5 million. The weighted average grant date fair values for performance-based restricted stock granted in ~~fiscal 2016~~2019 and ~~2015~~2018 was ~~$15.97~~$37.27 and ~~$21.33,~~$26.36, respectively.

Restricted Stock Units, performance-based Company metrics: As of December 31, 2020, a total of 0.4 million shares of performance-based restricted stock units were outstanding. The performance-based restricted stock units vest if the Company meets various operations and earnings targets set by the Organization & Compensation Committee of the Board of Directors. The fair value was based on the closing market price of the Company’s common stock on the date of award and is being amortized over the estimated service period to achieve the operations and earnings targets.

The following table summarizes the status of the Company’s performance-based restricted stock units:


	Performance Based Restricted Stock Units (In millions)	Weighted Average Grant Date Fair Value




Outstanding at December 31, 2019	0	$	0
Granted	0.4	50.00


Outstanding at December 31, 2020	0.4	$	50.00
Expected to vest at December 31, 2020	0.2	$	50.00

As of December 31, 2020, there was $6.2 million of unrecognized stock-based compensation related to nonvested performance-based restricted stock units that are expected to be recognized over an estimated weighted-average amortization period of twenty-six months. At December 31, 2020, the intrinsic value of the performance-based restricted stock units outstanding was $19.7 million and the intrinsic value of the performance-based restricted stock expected to vest was $9.8 million.

Employee Stock Purchase Plan: The ESPP enables eligible employees the opportunity to purchase the Company’s common stock at a price not less than 85% of the fair market value of the common stock on the last day of the respective offering period. A maximum of 1.5 million shares are authorized for ~~issuance~~issuance. During 2020, 0.2 million shares were issued under the ESPP ~~under the 2009 Plan.~~at an average price of $45.65. During ~~fiscal 2017,~~2019, 0.1 million shares were issued under the ESPP at an average price of ~~$25.43 per share.~~$45.25. During ~~fiscal 2016, 0.2 million shares were issued under the ESPP at an average price of $18.11 per share. During the one month ended December 31, 2015,~~2018, 0.1 million shares were issued under the ESPP at an average price of ~~$15.66 per share. During fiscal 2015, 0.1 million shares were issued under the ESPP at an average price of $20.61 per share.~~$32.11.

Stock Options: As of December 31, ~~2017, a total of 0.4 million~~2020, there were 0 stock options ~~were outstanding under the 1999 Plan and 2009 Plan.~~outstanding. The ~~stock options granted in fiscal 2016 related to an award granted to the Executive Chairman, see the discussion below.~~

~~A summary of~~following table summarizes the status of the Company’s stock ~~options as of December 31, 2017 and changes during fiscal 2017:~~options:

Stock
Options
(In millions) Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life (years) Intrinsic
Value
(In millions)
Outstanding at December 31, 2016 0.6
$ 15.48

Exercised (0.2 ) 6.54

Outstanding at December 31, 2017 0.4
$ 18.86
4.6 $ 5.1
Exercisable at December 31, 2017 0.3
$ 17.09
4.8 $ 4.1
Expected to vest at December 31, 2017 0.1
$ 23.06
4.2 $ 1.0


	Stock Options (In millions)	Weighted Average Exercise Price
Outstanding at December 31, 2019	0.4	$	23.11





Exercised and Cancelled	(0.4)	23.11

Outstanding at December 31, 2020	0	$	0

The total intrinsic value for options exercised in ~~fiscal 2017, 2016,~~2020, 2019, and ~~2015~~2018 was ~~$2.9~~$11.0 million, ~~$2.1~~$0.8 million, and ~~$3.9~~$0.9 million, respectively. ~~No options were exercised in the one month ended December 31, 2015.~~ The ~~weighted average grant date~~ fair value ~~for~~of the stock option grant in 2019 was estimated using a Black-Scholes model with an expected life of seven years, volatility of 33.48%, and a risk-free rate of 2.62%. The Company did 0t grant stock options ~~granted~~ in ~~fiscal 2016~~2020 and ~~2015 was $18.01 and $23.04.~~2018.

~~The following table summarizes the range of exercise prices and weighted-average exercise prices for options outstanding as of December 31, 2017 under the Company’s stock option plans:~~

Outstanding
Period
Granted Range of Exercise Prices Stock
Options
Outstanding
(In millions) Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life (years)
Fiscal 2015 $20.48 - $23.06 0.2
$ 23.03
4.2
Fiscal 2016 $18.01 0.2
$ 18.01
5.6
0.4

Performance Common Shares ~~and Stock Options, performance-based~~: In ~~August 2016,~~February 2018, the Company granted ~~the Executive Chairman 0.2~~senior executives 0.1 million ~~performance-based~~performance common shares ~~and 0.2 million performance-based stock options~~ that vest according to the attainment of share prices ranging from ~~$22.00~~$34.00 per share to ~~$27.00~~$42.00 per share of the Company's stock. The ~~performance-based~~performance common shares were valued at a weighted average price of ~~$12.99~~$18.67 using a Monte Carlo model. The ~~performance-based~~Company recognized the grant-date fair value of these awards as stock-based compensation expense ratably over

the estimated vesting period based on the number of awards expected to vest at each reporting date or earlier if the market condition was satisfied. All of the performance based common shares have vested as a result of the attainment of the share prices ranging from $34.00 per share to $42.00 per share of the Company's stock. The following table presents the weighted average assumptions used to value the awards for 2018:


	Performance- based common shares
Expected life (in years)	1.25
Volatility	31.52	%
Risk-free interest rate	2.65	%
Dividend yield	0	%

Performance Stock Units: In March 2020, the Company granted the Executive Chairman 0.1 million performance stock ~~options~~units that vest according to the attainment of share prices ranging from $57.80 per share to $67.85 per share of the Company's stock. The performance stock units were valued at a weighted average price of ~~$5.81~~$37.12 using a Monte Carlo model. The Company recognized the grant-date fair value of these awards as stock-based compensation expense ratably over the estimated vesting period based on the number of awards expected to vest at each reporting date or earlier if the market condition was satisfied. ~~All~~As of December 31, 2020, there was $0.1 million of unrecognized stock-based compensation related to nonvested performance stock units that are expected to be recognized over an estimated weighted-average amortization period of thirty-six months. At December 31, 2020, the intrinsic value and expected to vest of the performance ~~based awards vested during fiscal 2017 as a result of~~stock units outstanding was $3.8 million. The following table presents the ~~attainment of share prices. The Company used the following~~ weighted average assumptions used to value the ~~awards~~units for ~~the year ended December 31, 2016:~~

Performance- based common shares Performance-based stock options
Expected life (in years) 1.04
0.99
Volatility 32.97 % 39.58 %
Risk-free interest rate 1.17 % 1.43 %

The Monte Carlo Model requires a single expected dividend yield as an input. The Senior Credit Facility restricts the payment of dividends and the Company does not anticipate paying cash dividends in the foreseeable future. Accordingly, the Company did not apply an expected dividend yield to the Monte Carlo Model.

~~Valuation Assumptions:~~ The fair value of stock options was estimated using a Black-Scholes Model (except for the performance-based stock options discussed in the section above) with the following weighted average assumptions:

2020:



		~~Year ended~~
		~~November 30,~~
	~~2015~~
Expected life (in years)	~~7.0~~0.67
Volatility		~~58.06~~35.41	%
Risk-free interest rate		~~1.94~~0.72	%
Dividend yield		0	%

Valuation Assumptions: The ~~Company did not grant any stock options during fiscal 2017.~~

~~The fair value of SARs was estimated using a Black-Scholes Model with~~following table presents the ~~following~~ weighted average ~~assumptions:~~assumptions used to value the SARs:


	Year Ended December 31,

	2020		2019		2018
Expected life (in years)	0.7		4.9		4.9
Volatility	48.30	%	34.79	%	35.10	%
Risk-free interest rate	0.11	%	1.69	%	2.51	%
Dividend yield	0	%	0	%	0	%

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
Expected life (in years) 4.8
4.0
2.1
2.0
Volatility 34.00 % 36.00 % 34.00 % 34.00 %
Risk-free interest rate 2.23 % 1.65 % 0.94 % 0.79 %

Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

Expected Volatility: The fair value of stock-based payments was determined using the Black-Scholes ~~Model~~model with a volatility factor based on the Company’s historical stock prices. ~~The range of expected volatility used in the Black-Scholes Model was 32.2% to 42.7% as of December 31, 2017.~~

~~Expected Dividend:~~ The Black-Scholes Model requires a single expected dividend yield as an input. The Senior Credit Facility restricts the payment of dividends and the Company does not anticipate paying cash dividends in the foreseeable future. Accordingly, the Company did not apply an expected dividend yield to the Black-Scholes Model for all periods presented.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the Black-Scholes ~~Model~~model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. ~~The range of risk-free interest rates used in the Black-Scholes Model was 1.66% to 2.40% as of December 31, 2017.~~

Note 10. Operating Segments and Related Disclosures

The Company’s operations are organized into ~~two~~2 operating segments based on different products and customer bases: Aerospace and Defense, and Real Estate. Sales to significant customers and other concentrations information is presented in Note ~~1(u).~~1. The accounting policies of the operating segments are the same as those ~~described~~presented in the summary of significant accounting policies ~~(see~~in Note ~~1).~~1.

The Company evaluates its operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales less applicable costs, expenses and unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, unusual items not related to the segment operations, interest expense, interest income, and income taxes.

~~Selected~~The following table presents selected financial information for each reportable segment:

Year Ended One month ended
December 31, December 31, November 30, December 31,
2017 2016 2015 2015
(In millions)
Net Sales:
Aerospace and Defense $ 1,870.8
$ 1,753.9
$ 1,660.0
$ 95.8
Real Estate 6.4
7.4
48.3
0.5
Total Net Sales $ 1,877.2
$ 1,761.3
$ 1,708.3
$ 96.3
Segment Performance:
Aerospace and Defense $ 202.9
$ 184.1
$ 165.7
$ 19.6
Environmental remediation provision adjustments (7.5 ) (18.3 ) (16.6 ) 0.1
Retirement benefits, net (1) (19.5 ) (22.5 ) (50.2 ) (4.1 )
Unusual items 2.0
—
(50.0 ) (0.4 )
Aerospace and Defense Total 177.9
143.3
48.9
15.2
Real Estate 2.5
4.3
34.4
0.2
Total Segment Performance $ 180.4
$ 147.6
$ 83.3
$ 15.4
Reconciliation of segment performance to income (loss) before income taxes:
Segment performance $ 180.4
$ 147.6
$ 83.3
$ 15.4
Interest expense (30.9 ) (32.5 ) (50.4 ) (3.8 )
Interest income 3.5
0.6
0.3
—
Stock-based compensation (22.0 ) (12.9 ) (8.6 ) 0.4
Corporate retirement benefits (20.0 ) (18.9 ) (17.4 ) (1.5 )
Corporate and other (23.1 ) (20.1 ) (22.1 ) (1.5 )
Unusual items (1.0 ) (34.5 ) (1.9 ) —
Income (loss) before income taxes $ 86.9
$ 29.3
$ (16.8 ) $ 9.0
Aerospace and Defense $ 29.3
$ 46.4
$ 36.8
$ 1.2
Real Estate —
—
—
—
Corporate 0.1
1.2
—
—
Capital Expenditures $ 29.4
$ 47.6
$ 36.8
$ 1.2
Aerospace and Defense $ 71.6
$ 64.2
$ 64.4
$ 5.0
Real Estate 0.7
0.6
0.7
0.1
Corporate 0.3
0.1
—
—
Depreciation and Amortization $ 72.6
$ 64.9
$ 65.1
$ 5.1

~~________~~

(1) Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under its U.S. government contracts. The Company's recoverable tax-qualified pension costs in fiscal 2017 and 2016 totaled $33.7 million and $27.5 million, respectively.


	Year Ended December 31,

	2020		2019		2018
	(In millions)
Net Sales:
Aerospace and Defense	$	2,069.4	$	1,974.0	$	1,888.1
Real Estate	3.3		7.5		7.8
Total Net Sales	$	2,072.7	$	1,981.5	$	1,895.9
Segment Performance:
Aerospace and Defense	$	264.2	$	249.1	$	233.4
Environmental remediation provision adjustments	(2.7)		(1.9)		37.2

GAAP/CAS retirement benefits expense difference	14.7		22.4		(6.0)
Unusual items	(0.6)		(0.3)		0
Aerospace and Defense Total	275.6		269.3		264.6
Real Estate	(1.8)		2.1		2.8
Total Segment Performance	$	273.8	$	271.4	$	267.4
Reconciliation of segment performance to income before income taxes:
Segment performance	$	273.8	$	271.4	$	267.4
Interest expense	(30.1)		(35.7)		(34.4)
Interest income	6.3		15.5		10.0
Stock-based compensation	(31.4)		(27.3)		(20.5)
Corporate retirement benefits expense	(7.5)		(7.2)		(13.4)
Corporate and other	(23.4)		(24.8)		(20.3)
Unusual items	(7.5)		0		(0.2)
Income before income taxes	$	180.2	$	191.9	$	188.6
Aerospace and Defense	$	54.6	$	42.9	$	42.2
Real Estate	0		0		0
Corporate	0		0		1.0
Capital Expenditures	$	54.6	$	42.9	$	43.2
Aerospace and Defense	$	64.2	$	72.9	$	71.1
Real Estate	0.8		1.2		0.9
Corporate	0.3		0.4		0.3
Depreciation and Amortization	$	65.3	$	74.5	$	72.3


	As of December 31,
	2020		2019
	(In millions)
Assets:
Aerospace and Defense	$	1,484.9	$	1,515.1
Real Estate	133.9		132.8
Operating segment assets	1,618.8		1,647.9
Corporate	1,281.1		1,059.9
Total Assets	$	2,899.9	$	2,707.8

As of December 31,
2017 2016
(In millions)
Assets:
Aerospace and Defense (1) $ 1,477.8
$ 1,571.3
Real Estate 125.9
128.7
Operating segment assets 1,603.7
1,700.0
Corporate 655.0
549.5
Total Assets $ 2,258.7
$ 2,249.5

~~_________~~


~~(1)~~	The Aerospace and Defense operating segment had $161.3 million and $158.1 million of goodwill as of December 31, 2017 and 2016, respectively. In addition, as of December 31, 2017 and 2016, intangible assets balances (other than goodwill) were $85.5 million and $94.4 million, respectively, in the Aerospace and Defense operating segment.

Note 11. Cost Reduction Plans

During ~~fiscal~~ 2015, the Company initiated the first phase ("Phase I") of the competitive improvement program (the ~~"CIP”~~"CIP") comprised of activities and initiatives aimed at reducing costs in order for the Company to continue to compete successfully. Phase I ~~is composed~~was comprised of three major components: (i) facilities optimization and footprint reduction; (ii) product affordability; and (iii) reduced administrative and overhead costs. ~~On April 6,~~In 2017, the Board of Directors approved the second phase (“("Phase ~~II”~~II") of the ~~Company’s previously announced~~ CIP. Pursuant to Phase II, the Company ~~plans to expand~~expanded its CIP and further ~~consolidate~~consolidated its Sacramento, California, and Gainesville, Virginia sites, while ~~centralizing~~it centralized and ~~expanding~~expanded its existing presence in Huntsville, Alabama. The Company ~~currently~~ estimates ~~that it will incur~~the restructuring and related costs ~~of the Phase I and II programs of approximately $235.1~~will be $185.0 million (including approximately ~~$60.5~~$53.2 million of capital expenditures). The Company has incurred ~~$79.5~~$182.8 million of such costs through December 31, ~~2017,~~2020, including ~~$32.5~~$52.9 million in capital expenditures. ~~A summary~~

The Company's current estimate of $185.0 million has decreased from December 31, 2019, primarily due to continued efficiencies in program transitions and lower than expected employee costs. The following table summarizes the Company's severance and retention liabilities related to ~~Phase I and II activity is shown below:~~

Severance Retention Total
(In millions)
November 30, 2014 $ —
$ —
$ —
Accrual established 12.9
2.7
15.6
Payments (1.8 ) —
(1.8 )
November 30, 2015 11.1
2.7
13.8
Accrual (0.2 ) 0.2
—
Payments —
(1.2 ) (1.2 )
December 31, 2015 10.9
1.7
12.6
Accrual —
2.3
2.3
Payments (0.9 ) (1.9 ) (2.8 )
Adjustments (3.2 ) —
(3.2 )
December 31, 2016 6.8
2.1
8.9
Accrual 26.1
2.2
28.3
Payments (2.9 ) (0.9 ) (3.8 )
December 31, 2017 $ 30.0
$ 3.4
$ 33.4
CIP activity:


	Severance		Retention		Total
	(In millions)










December 31, 2017	$	30.0	$	3.4	$	33.4
Accrual	0.2		5.7		5.9
Payments	(12.1)		(4.0)		(16.1)
December 31, 2018	18.1		5.1		23.2
Accrual	0		5.5		5.5
Payments	(12.9)		(6.0)		(18.9)
December 31, 2019	5.2		4.6		9.8
Accrual/other	(1.0)		1.8		0.8
Payments	(3.3)		(5.5)		(8.8)
December 31, 2020	$	0.9	$	0.9	$	1.8

The costs associated with the CIP ~~will be~~are included as a component of the Company’s U.S. government ~~forward pricing~~forward-pricing rates, and therefore, ~~will be~~are recovered through the pricing of the Company’s products and services to the U.S. government. In addition to the employee-related CIP obligations, the Company incurred non-cash accelerated depreciation expense of $3.9 million, $0.7 million and $0.8 million in fiscal 2017, 2016, and 2015, respectively, associated with changes in the estimated useful life of long-lived assets impacted by the CIP.

Note 12. Quarterly Financial Data (Unaudited)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In millions, except per share amounts)
2020
Net sales	$	476.1	$	512.4	$	527.7	$	556.5
Cost of sales (exclusive of items shown separately on Statement of Operations)	394.9		415.2		441.6		449.6
Income before income taxes	42.7		53.5		40.7		43.3


Net income	31.4		39.2		31.7		35.4


Basic EPS	0.40		0.50		0.40		0.46


Diluted EPS	0.37		0.47		0.38		0.43


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In millions, except per share amounts)
2019
Net sales	$	491.7	$	485.0	$	481.8	$	523.0
Cost of sales (exclusive of items shown separately on Statement of Operations)	397.6		379.6		392.9		443.5
Income before income taxes	51.8		59.4		43.5		37.2


Net income	38.7		44.1		32.9		25.3


Basic EPS	0.49		0.56		0.42		0.32


Diluted EPS	0.47		0.54		0.39		0.30


~~Note 12.~~	~~Quarterly Financial Data (Unaudited)~~

Note 13. Unusual Items

First
Quarter Second
Quarter Third
Quarter Fourth
Quarter
(In millions, except per share amounts)
Fiscal 2017
Net sales $ 405.3
$ 459.6
$ 484.1
$ 528.2
Cost of sales (exclusive of items shown separately on Statement of Operations) 352.7
383.9
417.1
461.7
Income before income taxes 9.2
36.2
18.6
22.9
Net income (loss) 5.9
24.3
12.6
(52.0 )
Basic and Diluted net income (loss) per share 0.08
0.32
0.17
(0.71 )

First
Quarter Second
Quarter Third
Quarter Fourth
Quarter
(In millions, except per share amounts)
Fiscal 2016
Net sales $ 356.9
$ 408.4
$ 463.8
$ 532.2
Cost of sales (exclusive of items shown separately on Statement of Operations) 309.7
356.5
405.4
455.8
Income (loss) before income taxes 8.6
11.5
(25.3 ) 34.4
Net income (loss) 5.1
5.9
(11.1 ) 18.1
Basic net income (loss) per share 0.08
0.09
(0.17 ) 0.26
Diluted net income (loss) per share 0.08
0.09
(0.17 ) 0.25


~~Note 13.~~	~~Unusual Items~~

~~Total~~The following table presents total unusual items, comprised of a component of other expense (income), net ~~and loss on debt~~ in the consolidated statements of ~~operations, was~~operations:


	Year Ended December 31,

	2020		2019		2018
	(In millions)
Aerospace and Defense:
Merger costs	$	0.2	$	0	$	0
Legal matter	0.4		0		0
Acquisition costs	0		0.3		0
Aerospace and defense unusual items	0.6		0.3		0

Corporate:
Merger costs	7.5		0		0


Loss on bank amendment	0		0		0.2
Corporate unusual items	7.5		0		0.2
Total unusual items	$	8.1	$	0.3	$	0.2

In 2020, the Company recorded a reserve of $0.4 million for a legal related matter.

In 2020, the Company recorded $7.7 million of costs associated with the Merger with Lockheed Martin. See Note 1(a) for additional information. The components of the Merger costs are as ~~follows:~~follows (in millions):



Legal	$	3.9
Consulting and other professional costs	3.4
Internal labor	0.4
	$	7.7



Delaware		34-0244000
(State or other jurisdiction of ~~Incorporation)~~incorporation or organization)		(I.R.S. Employer Identification No.)
~~222 N. Sepulveda Blvd., Suite 500~~ ~~El Segundo, California~~	~~90245~~
~~(Address of Principal Executive Offices)~~	~~(Zip Code)~~


			Parent Company		Propulsion Type
			Aerojet Rocketdyne Holdings, Inc.		Solid, liquid, air-breathing, electric
			ArianeGroup		Solid, liquid, electric
			Avio S.p.A		Solid, liquid
			Busek Co. Inc.		Electric
			Blue Origin		Liquid

~~Company~~			~~Parent~~	~~Propulsion Type~~
~~Aerojet Rocketdyne~~			~~Aerojet Rocketdyne Holdings, Inc.~~General Dynamics		Solid ~~liquid, air- breathing, electric~~
~~Airbus Defence and Space (formerly Astrium)~~			~~Airbus Group~~IHI Aerospace		~~Solid, liquid~~Liquid, electric
~~Alliant Techsystems~~			~~Orbital ATK,~~Moog Inc.		~~Solid, air-breathing~~Liquid
~~Avio~~			~~Avio S.p.A~~Nammo Talley		Solid, liquid
~~Blue Origin LLC~~			~~Blue Origin~~		~~Liquid~~
~~Electron Technologies, Inc.~~			~~L-3 Communications Corporation~~		~~Electric~~
~~General Dynamics OTS~~			~~General Dynamics~~		~~Solid~~
~~Moog Inc.~~	~~Moog Inc.~~	~~Liquid, electric~~
~~Nammo Talley~~	~~Nammo Talley~~	~~Solid~~
~~Northrop Grumman Aerospace Systems~~	Northrop Grumman Corporation ~~(“Northrop”)~~	~~Liquid~~Solid, liquid, air-breathing
~~Safran~~			Safran		~~Liquid, solid~~Electric
~~SpaceX~~			SpaceX		Liquid, electric



	Aerospace and Defense El Segundo, California*
	Operating/Design/Manufacturing Facilities:Camden, Arkansas (owned and leased); Carlstadt, New Jersey; Chatsworth, California; Gainesville, VirginiaCalifornia (owned and leased); Hancock County, Mississippi; Huntsville, Alabama; Jonesborough, Tennessee*; Orange, Virginia; Orlando, Florida; ~~Rancho Cordova, California;~~ Redmond, Washington; ~~Socorro, New Mexico;~~ West Palm Beach, Florida*	Marketing/Sales Offices: Arlington, Virginia*
	Real Estate
~~Rancho Cordova, California~~



ý☒		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the fiscal year ended: December 31, 2017~~



¨☐			~~Transition Report Pursuant to Section~~TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to



Item Number
PART I
1.	Business	1
1A.	Risk Factors	9
1B.	Unresolved Staff Comments	18
2.	Properties	18
3.	Legal Proceedings	19
4.	Mine Safety Disclosures

PART II
5.	Market for Registrant’s Common Equity, Related Stockholders’ Matters, and Issuer Purchases of Equity Securities	20
6.	Selected Financial Data	22
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
7A.	Quantitative and Qualitative Disclosures about Market Risk	47
8.	Consolidated Financial Statements and Supplementary Data	49
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	98
9A.	Controls and Procedures	98
9B.	Other Information	99

PART III
10.	Directors, Executive Officers, and Corporate Governance	99
11.	Executive Compensation	101
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
13.	Certain Relationships and Related Transactions, and Director Independence	102
14.	Principal Accountant Fees and Services	103

PART IV
15.	Exhibits and Financial Statement Schedules	103
16.	10-K Summary	103

	Signatures	104



AR1 R&D costs incurred	$	245.6
Less amounts funded by the U.S. Air Force	(147.7		)
Less amounts funded by ULA	(9.7		)
AR1 R&D costs net of reimbursements	$	88.2


**	~~Owned and operated by Aerojet Ordnance Tennessee, Inc., a 100% owned subsidiary of Aerojet Rocketdyne.~~



	Common Stock Price
	High		Low
Fiscal 2017
First Quarter	$	22.99	$	17.69
Second Quarter	$	23.27	$	20.06
Third Quarter	$	36.25	$	20.77
Fourth Quarter	$	35.91	$	27.66
Fiscal 2016
First Quarter	$	17.20	$	13.98
Second Quarter	$	18.86	$	15.52
Third Quarter	$	19.16	$	16.80
Fourth Quarter	$	21.40	$	16.04



Company/Index	Base Period 2012		Year ended
			November 30,		November 30,		November 30,		December 31,		December 31,
			2013		2014		2015		2016		2017

Aerojet Rocketdyne Holdings, Inc.	$	100.00	$	199.35	$	181.52	$	190.65	$	195.11	$	339.13
S&P 500 Index	100.00		130.30		152.27		156.45		172.40		210.04
S&P 500 Aerospace & Defense	100.00		153.67		175.96		187.61		221.31		312.90



	Year end															One month ended
	December 31,			December 31,			November 30,			November 30,			November 30,			December 31,
	2017			2016			2015			2014			2013			2015
	(In millions, except per share amounts)
Net sales	$	1,877.2		$	1,761.3		$	1,708.3		$	1,602.2		$	1,378.1		$	96.3
Net (loss) income	(9.2		)	18.0			(16.2		)	(50.0		)	162.9			7.0
Basic (loss) income per share of common stock	(0.13		)	0.27			(0.27		)	(0.86		)	2.68			0.11
Diluted (loss) income per share of common stock	(0.13		)	0.27			(0.27		)	(0.86		)	2.05			0.10
Supplemental statement of operations information:
Net (loss) income	$	(9.2	)	$	18.0		$	(16.2	)	$	(50.0	)	$	162.9		$	7.0
Income tax provision (benefit)	96.1			11.2			0.3			16.3			(198.4		)	2.0
Interest expense	30.9			32.5			50.4			52.7			48.7			3.8
Interest income	(3.5		)	(0.6		)	(0.3		)	(0.1		)	(0.2		)	—
Depreciation and amortization	72.6			64.9			65.1			63.7			43.5			5.1
Retirement benefits, net (1)	39.5			41.4			67.6			36.5			65.0			5.6
Unusual items:
Acquisition costs	1.0			—			—			—			20.0			—
(Gain) loss on legal matters and settlements	(2.0		)	—			50.0			0.9			(0.5		)	0.4
Loss on bank amendment	—			0.1			—			0.2			—			—
Loss on debt repurchased/redeemed	—			34.4			1.9			60.6			5.0			—
Adjusted EBITDAP (Non-GAAP measure)	$	225.4		$	201.9		$	218.8		$	180.8		$	146.0		$	23.9
Adjusted EBITDAP (Non-GAAP measure) as a percentage of net sales	12.0		%	11.5		%	12.8		%	11.3		%	10.6		%	24.8		%
Net (loss) income as percentage of net sales	(0.5		)%	1.0		%	(0.9		)%	(3.1		)%	11.8		%	7.3		%
Stock-based compensation expense (benefit)	$	22.0		$	12.9		$	8.6		$	5.7		$	14.1		$	(0.4	)
Environmental remediation provision adjustments	8.2			18.3			17.3			10.8			8.4			(0.1		)
Cash flow information:
Cash flow provided by operating activities	$	212.8		$	158.7		$	67.6		$	151.9		$	77.6		$	0.1
Cash flow used in investing activities	(66.4		)	(47.1		)	(35.8		)	(35.7		)	(474.9		)	(1.2		)
Cash flow (used in) provided by financing activities	(21.7		)	90.2			(86.6		)	(47.9		)	432.8			(1.5		)
Balance Sheet information:
Total assets	$	2,258.7		$	2,249.5		$	2,034.9		$	1,918.6		$	1,752.1		$	2,023.3
Total debt principal	670.9			725.6			652.0			782.2			699.2			650.6



	One month ended December 31,
	2015
	(In millions)
Net sales:	$	96.3



	December 31, 2016		Cash Payments			Non-cash Activity			December 31, 2017
	(In millions)
Term loan	$	390.0	$	(20.0	)	$	—		$	370.0
2¹/₄% Notes	300.0		—			—			300.0
4¹/₁₆% Debentures	35.6		—			(35.6		)	—
Capital lease obligations	—		—			0.9			0.9
Total Debt Activity	$	725.6	$	(20.0	)	$	(34.7	)	$	670.9



	Common Stock													Accumulated Other Comprehensive Loss			Total Stockholders' Equity (Deficit)
	Shares		Amount		Other Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Equity (Deficit)
	(In millions)
November 30, 2014	56.9		$	5.9	$	287.4		$	(64.5	)	$	(70.6	)	$	(333.7	)	$	(175.5	)
Net loss	—		—		—			—			(16.2		)	—			(16.2		)
Other comprehensive loss, net of income taxes	—		—		—			—			—			(8.0		)	(8.0		)
Reclassification of redeemable common stock	(0.1	)	—		0.7			—			—			—			0.7
Tax benefit from shares issued under equity plans	—		—		2.5			—			—			—			2.5
Conversion of debt to common stock	5.5		0.5		48.5			—			—			—			49.0
Repurchase of shares to satisfy tax withholding obligations	(0.3	)	—		(6.7		)	—			—			—			(6.7		)
Stock-based compensation and shares issued under equity plans, net	0.9		0.1		7.7			—			—			—			7.8
November 30, 2015	62.9		6.5		340.1			(64.5		)	(86.8		)	(341.7		)	(146.4		)
Net income	—		—		—			—			7.0			—			7.0
Other comprehensive loss, net of income taxes	—		—		—			—			—			(5.3		)	(5.3		)
Reclassification from redeemable common stock	—		—		(0.7		)	—			—			—			(0.7		)
Tax benefit from shares issued under equity plans	—		—		2.4			—			—			—			2.4
Repurchase of shares to satisfy tax withholding obligations	—		—		(0.2		)	—			—			—			(0.2		)
Stock-based compensation and other, net	—		—		1.0			—			—			—			1.0
December 31, 2015	62.9		6.5		342.6			(64.5		)	(79.8		)	(347.0		)	(142.2		)
Net income	—		—		—			—			18.0			—			18.0
Other comprehensive income, net of income taxes	—		—		—			—			—			44.0			44.0
Reclassification of redeemable common stock	—		—		0.5			—			—			—			0.5
Tax benefit from shares issued under equity plans	—		—		0.3			—			—			—			0.3
Equity component of convertible debt	—		—		54.5			—			—			—			54.5
Conversion of debt to common stock	5.4		0.4		48.6			—			—			—			49.0
Repurchase of shares for option cost and to satisfy tax withholding obligations	(0.3	)	—		(3.9		)	—			—			—			(3.9		)
Stock-based compensation and shares issued under equity plans, net	1.2		—		14.3			—			—			—			14.3
December 31, 2016	69.2		6.9		456.9			(64.5		)	(61.8		)	(303.0		)	34.5
Net loss	—		—		—			—			(9.2		)	—			(9.2		)
Other comprehensive income, net of income taxes	—		—		—			—			—			30.4			30.4
Reclassification of redeemable common stock	0.1		—		0.9			—			—			—			0.9
Cumulative effect of change in accounting guidance	—		—		0.3			—			—			—			0.3
Conversion of debt to common stock	3.9		0.4		35.2			—			—			—			35.6
Repurchase of shares for option cost and to satisfy tax withholding obligations	—		—		(6.2		)	—			—			—			(6.2		)
Stock-based compensation and shares issued under equity plans, net	0.4		0.1		16.0			—			—			—			16.1
December 31, 2017	73.6		$	7.4	$	503.1		$	(64.5	)	$	(71.0	)	$	(272.6	)	$	102.4



Balance as of November 30, 2014	$	24.4
Additions and other, net	3.0
Accretion	1.9
Balance as of November 30, 2015	29.3
Accretion	0.2
Balance as of December 31, 2015	29.5
Additions and other, net	(0.9		)
Accretion	2.0
Balance as of December 31, 2016	30.6
Additions and other, net	11.2
Accretion	2.2
Balance as of December 31, 2017	$	44.0



Net sales from land sale	$	42.0
Cost of sales from land sale	11.4
Income before income taxes from land sale	30.6
Income tax provision related to land sale	12.7
Net income from land sale	$	17.9



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In millions)
Commercial paper	$	135.6	$	—	$	—	$	135.6
U.S. treasury notes	4.1		—		—		4.1
Marketable securities	$	139.7	$	—	$	—	$	139.7



	As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)
Customer related	$	87.2	$	46.9	$	40.3
Intellectual property\trade secrets	34.2		11.8		22.4
Trade name	21.0		3.1		17.9
Acquired technology	19.2		14.3		4.9
Intangible assets	$	161.6	$	76.1	$	85.5



	Actuarial Losses, Net			Prior Service Credits, Net			Total
	(In millions)
November 30, 2015	$	(342.6	)	$	0.9		$	(341.7	)
Actuarial losses arising during the period, net of income taxes	(8.6		)	—			(8.6		)
Amortization of actuarial losses and prior service credits, net of income taxes	3.4			(0.1		)	3.3
December 31, 2015	(347.8		)	0.8			(347.0		)
Actuarial gains arising during the period, net of income taxes	7.5			—			7.5
Amortization of actuarial losses and prior service credits, net of income taxes	37.1			(0.6		)	36.5
December 31, 2016	(303.2		)	0.2			(303.0		)
Actuarial losses arising during the period, net of income taxes	(8.5		)	—			(8.5		)
Amortization of actuarial losses and prior service credits, net of income taxes	39.0			(0.1		)	38.9
December 31, 2017	$	(272.7	)	$	0.1		$	(272.6	)



	Gross Carrying Amount (in millions)		Amortization Period (years)
Trade name	$	0.5	8
Customer related	3.4		7
Acquired technology	0.9		10
Total intangible assets	$	4.8



	Balance at Beginning of Period		Tax Valuation Allowance Charged to Income Tax Provision		Tax Valuation Allowance Credited to Income Tax Provision			Balance at End of Period
	(In millions)
Fiscal 2017	$	1.7	$	—	$	—		$	1.7
Fiscal 2016	1.2		0.5		—			1.7
One month ended December 31, 2015	1.7		—		(0.5		)	1.2
Fiscal 2015	2.6		0.6		(1.5		)	1.7



	Year-Ended December 31,
	2017		2016
	(In millions)
Interest expense-contractual interest	$	6.8	$	0.3
Interest expense-amortization of debt discount	6.7		0.3
Interest expense-amortization of deferred financing costs (1)	0.6		—



Fiscal 2018	$	0.2
Fiscal 2019	0.2
Fiscal 2020	0.2
Fiscal 2021	0.2
Fiscal 2022	0.2
Total minimum rentals	1.0
Less: imputed interest	(0.1		)
Present value of minimum capital lease payments	$	0.9



	December 31, 2016		Unrealized Gains		Purchases, Sales, and Settlements, net			December 31, 2017
	(In millions)
Domestic equity securities	$	2.2	$	2.9	$	(1.3	)	$	3.8
Corporate debt securities	6.8		2.0		2.5			11.3
Real estate investments	0.5		—		(0.5		)	—
Private assets	—		1.2		24.5			25.7
Total	$	9.5	$	6.1	$	25.2		$	40.8



Year Ending December 31,	Future Minimum Rental Commitments		Future Minimum Rental Income
	(In millions)
2018	$	15.1	$	4.8
2019	14.6		2.5
2020	14.1		0.7
2021	14.2		0.7
2022	13.2		0.2
Thereafter	23.9		—
	$	95.1	$	8.9



Total reimbursable costs under the Northrop Agreement	$	189.7
Amount reimbursed through December 31, 2017	(125.2		)
Receivable from Northrop included in the consolidated balance sheet as of December 31, 2017	$	64.5



	Service Based Restricted Stock (In millions)		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	0.6		$	18.06
Granted	0.1		24.98
Exercised	(0.3	)	18.12
Outstanding at December 31, 2017	0.4		$	20.14
Expected to vest at December 31, 2017	0.4		$	20.14



		Outstanding
Period Granted	Range of Exercise Prices	Stock Options Outstanding (In millions)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Fiscal 2015	$20.48 - $23.06	0.2	$	23.03	4.2
Fiscal 2016	$18.01	0.2	$	18.01	5.6
		0.4



	Performance- based common shares		Performance-based stock options
Expected life (in years)	1.04		0.99
Volatility	32.97	%	39.58	%
Risk-free interest rate	1.17	%	1.43	%


	Year Ended December 31, 2018
	As Reported		Effect of Adoption		Amounts Excluding Effect of Adoption

	(In millions, except per share amounts)
Net sales	$	1,895.9	$	14.1	$	1,910.0



Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	1,549.4		27.2		1,576.6

Selling, general and administrative expense	43.8		0		43.8
Depreciation and amortization	72.3		0		72.3



Other income, net	(40.2)		0		(40.2)
Total operating costs and expenses	1,625.3		27.2		1,652.5
Operating income	270.6		(13.1)		257.5





Total non-operating expense, net	82.0		—		82.0
Income before income taxes	188.6		(13.1)		175.5
Income tax provision	51.3		(3.5)		47.8


Net income	$	137.3	$	(9.6)	$	127.7
Earnings per share of common stock
Basic earnings per share	$	1.80	$	(0.13)	$	1.67
Diluted earnings per share	$	1.75	$	(0.12)	$	1.63
Weighted average shares of common stock outstanding, basic	74.8		0		74.8
Weighted average shares of common stock outstanding, diluted	76.8		0		76.8


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
	(a)	(b)		(c)
Equity compensation plans approved by stockholders
Stock options	38,868	$	23.06
Restricted shares (2)	—
Performance shares (3)	—
Restricted units	96,823	$	46.00
Performance units	443,230	$	47.85
Total	578,921	$	45.91	4,215,275	(1)
Equity compensation plans not approved by stockholders (4)	—	N/A		—
Total	578,921	$	45.91	4,215,275


~~(2)~~	~~As of December 31, 2017, 1,422,555shares had been granted as restricted shares that had not yet vested.~~


~~(a)~~			~~The following documents are filed as part of this report:~~