UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: ~~September 30, 2017~~March 31, 2020



¨☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 1-01520

Aerojet Rocketdyne Holdings, Inc.

(Exact name of registrant as specified in its charter)



Delaware		34-0244000
(State or other jurisdiction of ~~Incorporation)~~incorporation or organization)		(I.R.S. Employer Identification No.)
222 N. Pacific Coast Highway
~~222 N. Sepulveda Blvd.,~~ Suite 500
El Segundo
California		90245
(Address of ~~Principal Executive Offices)~~principal executive offices)		(Zip Code)

310-252-8100

(Registrant’s telephone number, including area ~~code (310) 252-8100~~code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value	AJRD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý ☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesý ☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý☒	Accelerated filer	¨☐

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	¨☐

Emerging growth company	¨ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of ~~October 26, 2017, there were 75.1 million~~ April 20, 2020, the Company had 78,527,768outstanding ~~shares of our~~ common ~~stock,~~shares, including unvested common shares, $0.10 par value.

Aerojet Rocketdyne Holdings, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2020

Table of Contents


Item Number		Page		Page
PART I — FINANCIAL INFORMATION	PART I — FINANCIAL INFORMATION		PART I — FINANCIAL INFORMATION
1	Financial Statements	1	Financial Statements	1
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
3	Quantitative and Qualitative Disclosures About Market Risk	42	Quantitative and Qualitative Disclosures About Market Risk	28
4	Controls and Procedures	42	Controls and Procedures	29
PART II — OTHER INFORMATION	PART II — OTHER INFORMATION		PART II — OTHER INFORMATION
1	Legal Proceedings	44	Legal Proceedings	29
1A	Risk Factors	44	Risk Factors	29
2	Unregistered Sales of Equity Securities and Use of Proceeds	44	Unregistered Sales of Equity Securities and Use of Proceeds	30
3	Defaults Upon Senior Securities	44	Defaults Upon Senior Securities	30
4	Mine Safety Disclosures	44	Mine Safety Disclosures	31
5	Other Information	44	Other Information	31
6	Exhibits	45	Exhibits	31
SIGNATURES	SIGNATURES		SIGNATURES
	Signatures	46	Signatures	32
EXHIBIT INDEX
	Exhibit Index	47

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2020			2019
	(In millions, except per share amounts)												(In millions, except per share amounts)
Net sales	$	484.1		$	463.8		$	1,349.0		$	1,229.1		$	476.1		$	491.7
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	417.1			405.4			1,153.7			1,071.6			394.9			397.6
Selling, general and administrative	22.5			10.8			55.7			36.0
Selling, general and administrative expense													9.1			12.2
Depreciation and amortization	18.6			15.4			54.0			45.9			17.2			17.5
Other expense, net	0.6			17.6			1.0			19.3
Other (income) expense, net													(2.2		)	1.1
Total operating costs and expenses	458.8			449.2			1,264.4			1,172.8			419.0			428.4
Operating income	25.3			14.6			84.6			56.3			57.1			63.3
Non-operating (income) expense:
Loss on debt	—			34.1			—			34.5
Non-operating:
Retirement benefits expense													9.2			6.5
Interest income	(1.0		)	(0.1		)	(2.3		)	(0.4		)	(3.2		)	(4.0		)
Interest expense	7.7			5.9			22.9			27.4			8.4			9.0
Total non-operating expense, net	6.7			39.9			20.6			61.5			14.4			11.5
Income (loss) before income taxes	18.6			(25.3		)	64.0			(5.2		)
Income tax provision (benefit)	6.0			(14.2		)	21.2			(5.1		)
Net income (loss)	$	12.6		$	(11.1	)	$	42.8		$	(0.1	)
Earnings (Loss) Per Share of Common Stock
Basic and Diluted
Net income (loss) per share	$	0.17		$	(0.17	)	$	0.57		$	—
Income before income taxes													42.7			51.8
Income tax provision													11.3			13.1
Net income													$	31.4		$	38.7
Earnings per share of common stock													Earnings per share of common stock
Basic earnings per share													$	0.40		$	0.49
Diluted earnings per share													$	0.37		$	0.47
Weighted average shares of common stock outstanding, basic	73.5			67.0			72.8			64.6			77.5			77.1
Weighted average shares of common stock outstanding, diluted	73.9			67.0			73.0			64.6			83.1			80.6

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet ~~Rocketdyne~~Rocketdyne Holdings, Inc.

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

(Unaudited)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Net income (loss) $ 12.6
$ (11.1 ) $ 42.8
$ (0.1 )
Other comprehensive income:
Amortization of actuarial losses and prior service credits, net of income taxes 10.0
9.2
29.1
27.3
Comprehensive income (loss) $ 22.6
$ (1.9 ) $ 71.9
$ 27.2



	Three months ended March 31,
	2020		2019
	(In millions)
Net income	$	31.4	$	38.7
Other comprehensive income:
Amortization of net actuarial losses and prior service costs (credits), net of income taxes of $3.3 million, and $2.2 million	10.2		7.0
Comprehensive income	$	41.6	$	45.7

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)



	March 31, 2020			December 31, 2019
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	902.6		$	932.6
Restricted cash	3.0			3.0
Accounts receivable, net	151.7			112.5
Contract assets	278.9			224.1
Other current assets, net	137.4			145.8
Total Current Assets	1,473.6			1,418.0
Noncurrent Assets
Right-of-use assets	53.5			48.0
Property, plant and equipment, net	403.2			409.9
Recoverable environmental remediation costs	228.1			234.8
Deferred income taxes	114.5			121.9
Goodwill	161.4			161.4
Intangible assets	54.7			58.2
Other noncurrent assets, net	251.5			255.6
Total Noncurrent Assets	1,266.9			1,289.8
Total Assets	$	2,740.5		$	2,707.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	289.0		$	284.7
Accounts payable	128.4			127.3
Reserves for environmental remediation costs	41.7			40.1
Contract liabilities	288.6			262.3
Other current liabilities	134.4			155.5
Total Current Liabilities	882.1			869.9
Noncurrent Liabilities
Long-term debt	345.3			352.3
Reserves for environmental remediation costs	260.9			269.1
Pension benefits	394.3			398.9
Operating lease liabilities	43.9			39.1
Other noncurrent liabilities	197.2			201.8
Total Noncurrent Liabilities	1,241.6			1,261.2
Total Liabilities	2,123.7			2,131.1
Commitments and contingencies (Note 8)
Stockholders’ Equity
Preferred 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; 77.6 million shares issued and outstanding as of March 31, 2020; 77.3 million shares issued and outstanding as of December 31, 2019	7.7			7.7
Other capital	572.3			573.3
Treasury stock at cost, 0.8 million shares as of March 31, 2020 and December 31, 2019	(13.2		)	(12.7		)
Retained earnings	276.3			244.9
Accumulated other comprehensive loss, net of income taxes	(226.3		)	(236.5		)
Total Stockholders’ Equity	616.8			576.7
Total Liabilities and Stockholders’ Equity	$	2,740.5		$	2,707.8

September 30,
2017 December 31, 2016
(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents $ 392.5
$ 410.3
Accounts receivable 283.1
136.4
Inventories 160.8
185.1
Recoverable from the U.S. government and other third parties for environmental remediation costs 26.7
25.2
Receivable from Northrop Grumman Corporation (“Northrop”) 6.0
6.0
Other current assets, net 71.0
91.7
Total Current Assets 940.1
854.7
Noncurrent Assets
Property, plant and equipment, net 349.6
366.0
Real estate held for entitlement and leasing 93.4
91.8
Recoverable from the U.S. government and other third parties for environmental remediation costs 225.5
239.8
Receivable from Northrop 60.0
62.0
Deferred income taxes 251.2
292.5
Goodwill 160.0
158.1
Intangible assets 88.4
94.4
Other noncurrent assets, net 126.7
90.2
Total Noncurrent Assets 1,354.8
1,394.8
Total Assets $ 2,294.9
$ 2,249.5
LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt $ 22.4
$ 55.6
Accounts payable 126.2
96.2
Reserves for environmental remediation costs 35.8
37.1
Postretirement medical and life insurance benefits 5.2
5.2
Advance payments on contracts 182.7
221.8
Other current liabilities 192.6
167.8
Total Current Liabilities 564.9
583.7
Noncurrent Liabilities
Long-term debt 596.2
608.0
Reserves for environmental remediation costs 298.6
312.6
Pension benefits 486.5
548.2
Postretirement medical and life insurance benefits 35.4
37.4
Other noncurrent liabilities 162.0
124.0
Total Noncurrent Liabilities 1,578.7
1,630.2
Total Liabilities 2,143.6
2,213.9
Commitments and contingencies (Note 8)

Redeemable common stock, par value of $0.10; 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 September 30, 2017; 69.2 million shares issued and outstanding as of December 31, 2016 7.4
6.9
Other capital 501.3
456.9
Treasury stock at cost, 3.5 million shares as of September 30, 2017 and December 31, 2016 (64.5 ) (64.5 )
Accumulated deficit (19.0 ) (61.8 )
Accumulated other comprehensive loss, net of income taxes (273.9 ) (303.0 )
Total Stockholders’ Equity 151.3
34.5
Total Liabilities, Redeemable Common Stock and Stockholders’ Equity $ 2,294.9
$ 2,249.5

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity

(Unaudited)

Common Stock Accumulated Other Total

Other
Capital

Treasury
Stock

Accumulated
Deficit

Comprehensive
Loss

Stockholders'
Equity
Shares Amount
(In millions)
December 31, 2016 69.2
$ 6.9
$ 456.9
$ (64.5 ) $ (61.8 ) $ (303.0 ) $ 34.5
Net income —
—
—
—
42.8
—
42.8
Amortization of actuarial losses and prior service credits, net of income taxes —
—
—
—
—
29.1
29.1
Conversion of debt to common stock 3.9
0.4
35.2
—
—
—
35.6
Reclassification from redeemable common stock 0.1
—
0.9
—
—
—
0.9
Cumulative effect of change in accounting guidance (see Note 1) —

0.3
—
—
—
0.3
Repurchase of shares for withholding taxes and option costs under employee equity plans (0.4 ) —
(5.7 ) —
—
—
(5.7 )
Stock-based compensation and shares issued under equity plans 0.8
0.1
13.7
—
—
—
13.8
September 30, 2017 73.6
$ 7.4
$ 501.3
$ (64.5 ) $ (19.0 ) $ (273.9 ) $ 151.3



	Common Stock												Accumulated Other			Total
	Shares		Amount		Other Capital			Treasury Stock			Retained Earnings		Comprehensive Loss			Stockholders' Equity
	(In millions)
December 31, 2018	76.8		$	7.7	$	561.8		$	(12.7	)	$	103.9	$	(239.4	)	$	421.3
Net income	—		—		—			—			38.7		—			38.7
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		7.0			7.0
Repurchase of shares for withholding taxes and option costs under equity plans	(0.3	)	—		(6.2		)	—			—		—			(6.2		)
Stock-based compensation and shares issued under equity plans	0.6		—		5.4			—			—		—			5.4
March 31, 2019	77.1		$	7.7	$	561.0		$	(12.7	)	$	142.6	$	(232.4	)	$	466.2

December 31, 2019	77.3		$	7.7	$	573.3		$	(12.7	)	$	244.9	$	(236.5	)	$	576.7
Net income	—		—		—			—			31.4		—			31.4
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		10.2			10.2
Purchase of treasury stock	—		—		—			(0.5		)	—		—			(0.5		)
Repurchase of shares for withholding taxes and option costs under equity plans	(0.1	)	—		(7.9		)	—			—		—			(7.9		)
Stock-based compensation and shares issued under equity plans	0.4		—		6.9			—			—		—			6.9
March 31, 2020	77.6		$	7.7	$	572.3		$	(13.2	)	$	276.3	$	(226.3	)	$	616.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine months ended September 30,
2017 2016
(In millions)
Operating Activities
Net income (loss) $ 42.8
$ (0.1 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 54.0
45.9
Amortization of debt discount and deferred financing costs 6.3
1.7
Stock-based compensation 21.2
7.7
Retirement benefits, net (16.2 ) 17.8
Loss on debt —
34.5
Loss on disposal of long-lived assets 0.3
0.4
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable (135.2 ) 22.2
Inventories 24.3
(1.0 )
Other current assets, net 20.6
(13.3 )
Real estate held for entitlement and leasing (2.2 ) (4.5 )
Receivable from Northrop 2.0
0.9
Recoverable from the U.S. government and other third parties for environmental remediation costs 12.8
(36.8 )
Other noncurrent assets (47.2 ) (12.3 )
Accounts payable 28.1
11.5
Advance payments on contracts (39.1 ) (26.9 )
Other current liabilities 8.5
(57.8 )
Deferred income taxes 23.5
9.2
Reserves for environmental remediation costs (15.3 ) 51.0
Other noncurrent liabilities and other 36.7
(0.9 )
Net Cash Provided by Operating Activities 25.9
49.2
Investing Activities
Purchase of Coleman Aerospace (see Note 5) (17.0 ) —
Proceeds from sale of technology —
0.5
Capital expenditures (10.5 ) (30.5 )
Net Cash Used in Investing Activities (27.5 ) (30.0 )
Financing Activities
Proceeds from issuance of debt —
500.0
Debt issuance costs —
(3.7 )
Debt repayments (15.0 ) (595.3 )
Repurchase of shares for withholding taxes and option costs under employee equity plans (5.7 ) (2.4 )
Proceeds from shares issued under equity plans 4.5
3.0
Net Cash Used in Financing Activities (16.2 ) (98.4 )
Net Decrease in Cash and Cash Equivalents (17.8 ) (79.2 )
Cash and Cash Equivalents at Beginning of Period 410.3
208.5
Cash and Cash Equivalents at End of Period $ 392.5
$ 129.3
Supplemental disclosures of cash flow information
Cash paid for interest $ 15.2
$ 35.2
Cash paid for income taxes 2.7
30.5
Cash refund for income taxes 21.3
0.2
Conversion of debt to common stock 35.6
43.0



	Three months ended March 31,
	2020			2019
	(In millions)
Operating Activities
Net income	$	31.4		$	38.7
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	17.2			17.5
Amortization of debt discount and deferred financing costs	2.4			2.3
Stock-based compensation	2.4			5.3
Retirement benefits, net	7.9			5.4
Other, net	0.4			0.2
Changes in assets and liabilities, net of effects from acquisition in 2019:
Accounts receivable, net	(39.2		)	(4.9		)
Contract assets	(54.8		)	(0.6		)
Other current assets, net	8.4			(6.1		)
Recoverable environmental remediation costs	6.7			4.2
Other noncurrent assets, net	4.6			(5.6		)
Accounts payable	(3.3		)	6.2
Contract liabilities	26.3			(63.4		)
Other current liabilities	(20.3		)	1.6
Deferred income taxes	4.1			(19.3		)
Reserves for environmental remediation costs	(6.6		)	(4.7		)
Other noncurrent liabilities and other	(4.7		)	5.5
Net Cash Used in Operating Activities	(17.1		)	(17.7		)
Investing Activities
Capital expenditures	(3.0		)	(1.5		)
Net Cash Used in Investing Activities	(3.0		)	(1.5		)
Financing Activities
Debt repayments	(4.9		)	(5.5		)
Repurchase of shares for withholding taxes and option costs under equity plans	(7.9		)	(6.2		)
Proceeds from shares issued under equity plans	3.4			2.2
Purchase of treasury stock	(0.5		)	—
Net Cash Used in Financing Activities	(9.9		)	(9.5		)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(30.0		)	(28.7		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	935.6			740.3
Cash, Cash Equivalents and Restricted Cash at End of Period	$	905.6		$	711.6
Supplemental disclosures of cash flow information
Cash paid for interest	$	4.1		$	5.3

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation and Nature of Operations

Aerojet Rocketdyne Holdings, Inc. (“("Aerojet Rocketdyne ~~Holdings”~~Holdings" or the ~~“Company”~~"Company") has prepared the accompanying unaudited condensed consolidated financial statements, including ~~its accounts and~~ the accounts of the Company and its ~~wholly-owned~~100% owned and majority owned subsidiaries, in accordance with the instructions to Form 10-Q. The December 31, ~~2016~~2019, condensed consolidated balance sheet was derived from audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP"). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016. Certain reclassifications have been made to financial information for the prior year to conform to the current year’s presentation.~~2019.

The Company believes the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring accruals, necessary for a fair statement of its financial position, results of operations, and cash flows for the periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, the operating results for interim periods may not be indicative of the results of operations for a full year.

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 as well as portions of the commercial sector.~~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~~year of the Company's subsidiary, Aerojet Rocketdyne, ends on the last Saturday in ~~the process of seeking zoning changes and other governmental approvals on its excess real estate assets to optimize its value.~~December.

A detailed description of the Company’s significant accounting policies can be found in the Company’s most recent Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2019.

~~AR1 Research~~During the three months ended March 31, 2020, the Company’s financial results and ~~Development~~

~~Company-sponsored research and development~~operations were not materially impacted by the coronavirus ("~~R&D"~~COVID-19") ~~expenses (reported as~~pandemic. As a ~~component of cost of sales) are generally reimbursed via allocation of such expenses among all contracts and programs in progress under~~defense industrial-base U.S. government ~~contractual arrangements. The newest large liquid booster engine development project,~~contractor, the ~~AR1, accounted for $54.0 million of such reimbursable costs from its inception through September 30, 2017. In February 2016,~~Company is considered an essential business by the U.S. ~~Air Force selected Aerojet Rocketdyne~~ and ~~United Launch Alliance ("ULA")~~state governments and it continues to ~~share~~operate as such during the COVID-19 pandemic. The extent to which the COVID-19 pandemic impacts the Company’s financial results and operations for 2020 and beyond will depend 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 Quarterly Report on Form 10-Q. 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.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board issued guidance requiring a customer in a ~~public-private partnership~~cloud computing service arrangement to ~~develop jointly~~follow 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~~internal-use software guidance in order to ~~complete development of the AR1 engine by 2019. The work is expected~~determine which implementation costs to ~~be completed no later than December 31, 2019. The U.S. Air Force has obligated $174.0 million with Aerojet Rocketdyne contributing $77.7 million~~defer and ULA contributing $5.8 million in cash and $3.5 million in "in-kind" R&D expense. The total potential U.S. government investment, including all options, is $536.0 million. The total potential investment by Aerojet Rocketdyne and its partners, including all options, is $268.0 million. Under the terms of the AR1 agreement, the U.S. Air Force contributions are recognized proportionatelyrecognize as an ~~offset~~asset. The Company adopted this new standard as of January 1, 2020, on a prospective basis and the adoption of this guidance did not have a material impact on the Company's financial position, results of operations, or cash flows.

Note 2. Earnings Per Share ("EPS") of Common Stock

The following table reconciles the numerator and denominator used to ~~R&D expenses. In~~calculate basic and diluted EPS of common stock:



	Three months ended March 31,
	2020			2019
	(In millions, except per share amounts)
Numerator:
Net income	$	31.4		$	38.7
Income allocated to participating securities	(0.5		)	(0.7		)
Net income for basic and diluted EPS	$	30.9		$	38.0
Denominator:
Basic weighted average shares	77.5			77.1
Effect of:
2.25% Convertible Senior Notes ("2¹/₄% Notes")	5.4			3.4
Employee stock options and stock purchase plan	0.2			0.1
Diluted weighted average shares	83.1			80.6
Basic
Basic EPS	$	0.40		$	0.49
Diluted
Diluted EPS	$	0.37		$	0.47

The following table sets forth the ~~event~~potentially dilutive securities excluded from 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 September 30, 2017, were as follows (in millions):computation because their effect would have been anti-dilutive:



	Three months ended March 31,
	2020	2019
	(In millions)
Unvested restricted shares	1.2	1.4
Total potentially dilutive securities	1.2	1.4

AR1 R&D costs incurred $ 236.6
Less amounts funded by the U.S. Air Force (141.2 )
Less amounts funded by ULA (9.3 )
AR1 R&D costs net of reimbursements 86.1
AR1 R&D costs expensed and not applied to contracts (32.1 )
Net AR1 R&D costs applied to contracts $ 54.0

Note 3. Revenue Recognition

In the Company’s Aerospace and Defense segment, ~~recognition~~the majority of ~~profit on~~revenue is earned from long-term contracts ~~requires the use of assumptions~~to design, develop, and ~~estimates~~manufacture aerospace and defense products for, and provide related ~~to total contract revenue, the total cost at completion and the measurement of progress towards completion. Due~~services to, the ~~nature of~~Company’s customers, including the ~~programs, developing~~U.S. government and major aerospace and defense prime contractors.

The Company evaluates the ~~estimated total~~ contract ~~revenue~~value and cost estimates for performance obligations at ~~completion requires the use of significant judgment. Estimates are continually evaluated as work progresses~~least quarterly and ~~are revised as necessary.~~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 for some contracts at least monthly and for others 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~~results:



	Three months ended March 31,
	2020		2019
	(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales	$	2.1	$	13.0
Net favorable effect of the changes in contract estimates on income before income taxes	2.5		13.4
Net favorable effect of the changes in contract estimates on net income	1.9		9.7
Net favorable effect of the changes in contract estimates on basic and diluted EPS	0.02		0.12

For the ~~percentage-of-completion method~~three months ended March 31, 2019, favorable changes in contract estimates were primarily driven by (i) improved performance on the Terminal High Altitude Area Defense and RL10 programs and (ii) the reserve release upon the final AJ-60 solid rocket motor delivery.

In the Company’s Aerospace and Defense segment, the timing of ~~accounting:~~revenue recognition, customer invoicing, and collections produces accounts receivable, contract assets, and contract liabilities in the unaudited condensed consolidated balance sheets. The following table summarizes contract assets and liabilities:



	March 31, 2020			December 31, 2019
	(In millions)
Contract assets	$	298.7		$	243.5
Reserve for overhead rate disallowance	(19.8		)	(19.4		)
Contract assets, net of reserve	278.9			224.1
Contract liabilities	288.6			262.3
Net contract liabilities, net of reserve	$	(9.7	)	$	(38.2	)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions, except per share amounts)
Favorable (unfavorable) effect of the changes in contract estimates on income before income taxes $ 11.5
$ 1.1
$ 25.2
$ (2.3 )
Favorable (unfavorable) effect of the changes in contract estimates on net income 6.9
0.7
15.1
(1.4 )
Favorable (unfavorable) effect of the changes in contract estimates on basic and diluted net income per share 0.09
0.01
0.20
(0.02 )

~~Recently Adopted Accounting Pronouncements~~

~~In August 2014,~~Net contract liabilities decreased by $28.5 million primarily due to an increase in unbilled receivables as of March 31, 2020. During the ~~Financial Accounting Standards Board (“FASB”) issued an amendment to~~three months ended March 31, 2020, the ~~accounting guidance related to~~Company recognized sales of $109.3 million that were included in 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 to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. The Company adopted this guidanceCompany's contract liabilities as of December 31, ~~2016~~2019.

As of March 31, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $5.2 billion. The Company expects to recognize approximately 38%, or $2.0 billion, of the remaining performance obligations as sales over the next twelve months, an additional 24% the following twelve months, and ~~no additional information was required to be presented~~38% 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 percentages of net sales by contract type:



	Three months ended March 31,
	2020		2019
Fixed-price	61	%	62	%
Cost-reimbursable	39		37
Other	—		1

The following table summarizes the percentages of net sales by principal end user:



	Three months ended March 31,
	2020		2019
U.S. government	96	%	95	%
Non U.S. government	4		5

The Company's Real Estate segment represented less than 1% of the ~~adoption. 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 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 and the impact to the consolidated statement of operations for the first quarter of fiscal 2017. 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.

~~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. The Company plans to adopt the guidance during the first quarter of fiscal 2018, retrospectively with the cumulative effect recognized during that quarter (modified retrospective basis). 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 unit-of-delivery method on certain customer contracts and remeasure progress toward completion using the cost-to-cost method. The unit-of-delivery method totaled 44% of net sales for the ~~first nine~~three months ~~of fiscal 2017. The Company expects the adoption of this new standard will have a material impact on net sales recognized in any given fiscal year~~ended March 31, 2020 and ~~a material impact on the amount reported for contract backlog. The adoption will also result in the reclassification of contract related assets on the consolidated balance sheet.~~2019.

In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with 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 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 consolidated financial statements.

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 standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

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 plans to adopt this new accounting guidance in conjunction with its annual impairment test on October 1, 2017. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.

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 new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued. The Company is evaluating the impact of adopting this new accounting standard on its consolidated financial statements.

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

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions, except per share amounts)
Numerator:
Net income (loss) $ 12.6
$ (11.1 ) $ 42.8
$ (0.1 )
Income allocated to participating securities (0.3 ) —
(0.9 ) —
Net income (loss) for basic earnings per share 12.3
(11.1 ) 41.9
(0.1 )
Interest on 4¹/₁₆% Convertible Subordinated Debentures (“4¹/₁₆% Debentures”)
—
—
0.1
—
Net income (loss) for diluted earnings per share $ 12.3
$ (11.1 ) $ 42.0
$ (0.1 )
Denominator:
Basic weighted average shares 73.5
67.0
72.8
64.6
Effect of:
4¹/₁₆% Debentures
—
—
0.1
—
2.25% Convertible Senior Notes ("2¹/₄% Notes") (1)
0.3
—
—
—
Employee stock options and stock purchase plan 0.1
—
0.1
—
Diluted weighted average shares 73.9
67.0
73.0
64.6
Basic and Diluted
Net income (loss) per share $ 0.17
$ (0.17 ) $ 0.57
$ —

~~_______~~

~~(1) The Company's 2~~¹/₄% Notes were not included in the computation of diluted EPS for the first nine months of fiscal 2017 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 2¹/₄~~% Notes to be settled in common shares.~~

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
4¹/₁₆% Debentures
—
5.8
—
8.0
Employee stock options and stock purchase plan —
0.1
—
0.1
Unvested restricted shares 1.6
1.5
1.6
1.4
Total potentially dilutive securities 1.6
7.4
1.6
9.5

Note 3.4. Stock-Based Compensation

~~Total~~The following table summarizes stock-based compensation expense by type of ~~award was as follows:~~award:



	Three months ended March 31,
	2020			2019
	(In millions)
Stock Appreciation Rights	$	(1.5	)	$	1.7
Stock options	0.1			—
Restricted stock and restricted stock units, service based	1.5			1.2
Restricted stock and restricted stock units, performance based	2.0			2.2
Employee stock purchase plan	0.3			0.2
Total stock-based compensation expense	$	2.4		$	5.3

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Stock appreciation rights $ 8.3
$ (0.3 ) $ 10.7
$ 1.6
Stock options 0.3
0.3
1.0
0.6
Restricted shares, service based 0.9
0.9
3.3
2.5
Restricted shares, performance based 1.3
1.3
5.7
2.7
Employee stock purchase plan 0.2
0.1
0.5
0.3
Total stock-based compensation expense $ 11.0
$ 2.3
$ 21.2
$ 7.7

Stock-based compensation in the first nine months of fiscal 2017 includes expenses associated with the accelerated vesting of stock awards to a former executive officer and the August 2016 stock award granted to the Executive Chairman that vests according to the attainment of share prices ranging from $22 per share to $27 per share of the Company's common stock. In addition, the third quarter of fiscal 2017 includes a significant increase in the fair value of the stock appreciation rights.

Note 4.5. Balance Sheet Accounts

a. Fair Value of Financial Instruments

~~The accounting standards use~~Financial instruments are classified using a ~~three-tier~~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 at fair value:~~


			Fair value measurement at September 30, 2017								Fair value measurement as of March 31, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)								(In millions)
Money market funds	$	122.1	$	122.1	$	—	$	—	$	652.9	$	652.9	$	—	$	—
			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	$	—	$	—
Registered investment companies									3.3		3.3		—		—
Commercial paper									15.0		—		15.0		—
Total									$	671.2	$	656.2	$	15.0	$	—



			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	$	—	$	—
Registered investment companies	3.7		3.7		—		—
Commercial paper	99.9		—		99.9
Total	$	729.6	$	629.7	$	99.9	$	—

As of ~~September 30, 2017,~~March 31, 2020 and December 31, 2019, the ~~carrying amounts of~~total estimated fair value for commercial paper was classified as cash and cash equivalents ~~and~~as the ~~grantor trust by investment type is as follows:~~

Total
Cash and
Cash Equivalents

Money Market
Funds
(In millions)
Cash and cash equivalents $ 392.5
$ 277.3
$ 115.2
Grantor trust (included as a component of other current and noncurrent assets) 6.9
—
6.9
$ 399.4
$ 277.3
$ 122.1
remaining maturity at date of purchase was less than three months.

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 ~~the Company’s~~ outstanding debt ~~is presented below:~~obligations excluding finance lease obligations:



	Fair Value				Principal Amount
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
	(In millions)
Term loan	$	299.9	$	328.1	$	323.8	$	328.1
2¹/₄% Notes	488.2		546.0		300.0		300.0
Total	$	788.1	$	874.1	$	623.8	$	628.1

Fair Value Principal Amount
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
(In millions)
Term loan $ 375.0
$ 390.0
$ 375.0
$ 390.0
2¹/₄% Notes
446.0
294.9
300.0
300.0
4¹/₁₆% Debentures (1)
—
70.8
—
35.6
$ 821.0
$ 755.7
$ 675.0
$ 725.6

~~_______~~

~~(1)~~

~~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.~~

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~~March 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.

b. Accounts Receivable, net



	March 31, 2020			December 31, 2019
	(In millions)
Billed receivables under long-term contracts	$	152.5		$	122.9
Reserve on billed trade receivables	(1.0		)	(10.6		)
Other trade receivables	0.2			0.2
Accounts receivable, net	$	151.7		$	112.5

September 30, 2017
December 31, 2016
(In millions)
Billed $ 145.4

$ 55.7
Unbilled 177.6

124.1
Reserve for overhead rate disallowance (40.8 )
(44.5 )
Total receivables under long-term contracts 282.2

135.3
Other receivables 0.9

1.1
Accounts receivable $ 283.1

$ 136.4

c. ~~Inventories~~

September 30, 2017
December 31, 2016
(In millions)
Long-term contracts at average cost $ 605.0

$ 551.9
Progress payments (445.5 )
(368.2 )
Total long-term contract inventories 159.5

183.7
Total other inventories 1.3

1.4
Inventories $ 160.8

$ 185.1

d. Other Current Assets, net



	March 31, 2020		December 31, 2019
	(In millions)
Deferred costs recoverable from the U.S. government	$	46.9	$	47.1
Income taxes receivable	36.2		43.4
Inventories	18.0		24.0
Prepaid expenses	13.4		13.9
Other	22.9		17.4
Other current assets, net	$	137.4	$	145.8

September 30, 2017 December 31, 2016
(In millions)
Recoverable from the U.S. government for acquisition related integration costs $ 11.9
$ 11.9
Recoverable from the U.S. government for competitive improvement program obligations (see Note 10) 20.7
7.6
Prepaid expenses 17.0
16.5
Cost-share and other receivables, net 10.7
17.8
Income taxes receivable 5.1
26.8
Indemnification receivable from United Technologies Corporation, net 0.2
5.5
Other 5.4
5.6
Other current assets, net $ 71.0
$ 91.7

e.d. Property, Plant and Equipment, net



	March 31, 2020			December 31, 2019
	(In millions)
Land	$	71.2		$	71.2
Buildings and improvements	436.2			434.9
Machinery and equipment, including capitalized software	459.4			488.2
Construction-in-progress	67.1			70.2
	1,033.9			1,064.5
Less: accumulated depreciation	(630.7		)	(654.6		)
Property, plant and equipment, net	$	403.2		$	409.9

September 30, 2017 December 31, 2016
(In millions)
Land $ 71.2

$ 71.4
Buildings and improvements 317.0

304.2
Machinery and equipment 542.7

540.8
Construction-in-progress 20.5

30.4

951.4

946.8
Less: accumulated depreciation (601.8 )
(580.8 )
Property, plant and equipment, net $ 349.6

$ 366.0

f.e. Other Noncurrent Assets, net



	March 31, 2020		December 31, 2019
	(In millions)
Real estate held for entitlement and leasing	$	100.4	$	100.3
Deferred costs recoverable from the U.S. government	55.9		54.8
Receivable from Northrop Grumman Corporation for environmental remediation costs	45.0		46.5
Other	50.2		54.0
Other noncurrent assets, net	$	251.5	$	255.6

September 30, 2017
December 31, 2016
(In millions)
Recoverable from the U.S. government for conditional asset retirement obligations $ 21.1

$ 20.3
Recoverable from the U.S. government for restructuring costs 27.1
12.8
Recoverable from the U.S. government for acquisition related integration costs 2.0

10.9
Recoverable from the U.S. government for competitive improvement program obligations (see Note 10) 22.9
1.3
Deferred financing costs 2.8

3.4
Grantor trusts 26.6

16.6
Income taxes receivable 10.7

10.8
Notes receivable, net 9.0
9.0
Other 4.5

5.1
Other noncurrent assets, net $ 126.7

$ 90.2

g.f. Other Current Liabilities



	March 31, 2020		December 31, 2019
	(In millions)
Accrued compensation and employee benefits	$	90.0	$	103.1
Other	44.4		52.4
Other current liabilities	$	134.4	$	155.5

September 30, 2017 December 31, 2016
(In millions)
Accrued compensation and employee benefits $ 102.5

$ 105.7
Contract related liabilities 47.4
24.7
Competitive improvement program obligations (see Note 10) 21.3
7.6
Income taxes payable 0.3
2.1
Interest payable 2.2

4.1
Contract loss provisions 4.5

6.8
Other 14.4

16.8
Other current liabilities $ 192.6

$ 167.8

~~h. Other Noncurrent Liabilities~~

September 30, 2017 December 31, 2016
(In millions)
Conditional asset retirement obligations $ 40.3

$ 30.6
Pension benefits, non-qualified 17.1

17.5
Deferred compensation 31.1

19.8
Deferred revenue 12.8

13.3
Competitive improvement program obligations (see Note 10) 22.9
1.3
Uncertain income tax positions 24.4
28.4
Other 13.4

13.1
Other noncurrent liabilities $ 162.0

$ 124.0

~~i. Accumulated Other Comprehensive Loss, Net of Income Taxes~~

~~Changes in accumulated other comprehensive loss by components, net of income taxes:~~

Actuarial
Losses, Net

Prior Service
Credits, Net

Total
(In millions)
December 31, 2016 $ (303.2 ) $ 0.2
$ (303.0 )
Amortization of actuarial losses and prior service credits, net of $18.5 million of income taxes 29.1
—
29.1
September 30, 2017 $ (274.1 )
$ 0.2

$ (273.9 )

~~j. Redeemable Common~~g. Treasury Stock

~~On May 30, 2017,~~During the three months ended March 31, 2020, 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 $3.5repurchased less than 0.1 million ~~under the offer were completed in the third quarter of fiscal 2017 (see Note 13).~~

~~The Company inadvertently failed to register with the Securities Exchange Commission ("SEC") the issuance of certain~~ of its common shares at a cost of $0.5 million. The Company reflects stock repurchases in its ~~defined contribution 401(k) employee benefit plan (the “Plan”). As~~financial statements on 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."settlement" basis.

~~Note 5. Acquisition~~

On February 24, 2017, the Company closed on an agreement to purchase substantially all of the assets of Coleman Aerospace, a systems engineering and integration provider, from L3 Technologies, Inc. ("L3"). Coleman Aerospace operates now as a subsidiary of Aerojet Rocketdyne, Inc. 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 the purchase 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. The Company incurred $1.0 million of expenses related to the acquisition of Coleman.

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.

~~The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):~~

Current assets $ 12.0
Property, plant and equipment 3.8
Total tangible assets acquired 15.8
Intangible assets acquired 4.2
Deferred income taxes 0.3
Total assets acquired 20.3
Liabilities assumed, current (5.2 )
Total identifiable net assets acquired 15.1
Goodwill (Consideration less total identifiable net assets acquired) $ 1.9

The purchase price allocation resulted in the recognition of $1.9 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 relates 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:~~

Gross Carrying Amount (in millions) Amortization Period (years)
Trade name $ 0.5
8
Customer relationships 2.8
8
Developed technology 0.9
10
Total intangible assets $ 4.2

~~The acquisition of Coleman was not considered a significant business combination.~~

Note 6. Income Taxes



	Three months ended March 31,
	2020		2019
	(In millions)
Income tax provision	$	11.3	$	13.1

Nine months ended September 30,
2017 2016
(In millions)
Income tax provision (benefit) $ 21.2
$ (5.1 )

In the ~~first nine~~three months ~~of fiscal 2017,~~ended March 31, 2020, the income tax provision was at$11.3 million for an effective tax rate ~~less than~~of 26.5%. The Company’s effective tax rate differed from the 21% statutory federal ~~statutory~~income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax ~~benefits attributable to~~purposes, partially offset by the ~~expiration~~impact of ~~the statute of limitations, excess tax benefits from the exercise~~Research and ~~vesting of stock-based compensation, and the revisions of estimated tax balances based on expected tax filings.~~Development ("R&D") credits.

In the ~~first nine~~three months ~~of fiscal 2016,~~ended March 31, 2019, the income tax ~~benefit~~provision was at$13.1 million for an effective tax rate ~~greater than~~of 25.3%. The Company’s effective tax rate differed from the 21% statutory federal ~~statutory~~income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax ~~benefits attributable to~~purposes, partially offset by the ~~expiration~~impact of ~~the statute of limitations.~~R&D credits.

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. Assessing the need for a valuation allowance requires management to evaluate, on a quarterly basis, all available evidence, both positive and negative. As of ~~September 30, 2017,~~March 31, 2020, the Company continues to believe that the weight of the positive evidence outweighed the negative evidence regarding the realization of its net deferred tax assets.

In the next twelve months, the Company believes it is reasonably possible that the unrecognized tax benefits could decrease by approximately $23.9 million as a result of the resolution of certain outstanding positions.

~~In the second quarter of fiscal 2017, the Company received a refund of $21.3 million from the Internal Revenue Service associated with federal taxes on deposit.~~

Note 7. Long-term Debt



	March 31, 2020			December 31, 2019
	(In millions)
Term loan, bearing interest at variable rates (rate of 2.74% as of March 31, 2020), maturing in September 2023	$	323.8		$	328.1
Unamortized deferred financing costs	(1.7		)	(1.8		)
Total senior debt	322.1			326.3
Convertible senior 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	(34.9		)	(37.0		)
Total convertible senior notes	265.1			263.0
Finance leases	47.1			47.7
Total other debt	47.1			47.7
Total debt, net of unamortized discount and deferred financing costs	634.3			637.0
Less: Amounts due within one year	(289.0		)	(284.7		)
Total long-term debt, net of unamortized discount and deferred financing costs	$	345.3		$	352.3

September 30, 2017 December 31, 2016
(In millions)
Term loan, bearing interest at variable rates (rate of 3.24% as of September 30, 2017), maturing in June 2021 $ 375.0

$ 390.0
Unamortized deferred financing costs (1.8 ) (2.0 )
Total senior debt 373.2

388.0
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 (54.6 ) (60.0 )
Total convertible senior notes 245.4

240.0
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
Total debt, net of unamortized discount and deferred financing costs 618.6

663.6
Less: Amounts due within one year (22.4 )
(55.6 )
Total long-term debt, net of unamortized discount and deferred financing costs $ 596.2

$ 608.0

Senior Credit Facility

On ~~June 17, 2016,~~September 20, 2018, the Company ~~entered into a new $750.0 million~~amended the senior secured senior credit facility (the "Senior Credit Facility"). to a $1.0 billion commitment. 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 the prior $300.0 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 and used the proceeds to repay in full the $90.0 million of outstanding term loans under the prior credit facility, fees incurred for the Senior Credit Facility, and for general corporate purposes. As of ~~September 30, 2017,~~March 31, 2020, the Company had ~~$375.0 million outstanding under the Term Loan, zero~~0 borrowings under the Revolver and ~~had~~ issued ~~$39.1~~$29.7 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~~On December 31, 2018, the Term Loan ~~amortizes~~began amortizing at a rate of 5.0% per annum of the original drawn amount ~~starting on September 30, 2016, increasing~~which will increase to 7.5% per annum on ~~September 30, 2018,~~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) 4.00 to 1.00 ~~for period ended~~through September 30, ~~2017;~~2020; (b) 3.75 to 1.00 ~~for periods ending~~ from ~~December 31, 2017~~October 1, 2020, through September 30, ~~2018;~~2021; and (c) 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~~ ~~September 30, 2017~~	~~Required Ratios~~
~~Consolidated Interest Coverage Ratio, as defined under the Senior Credit Facility~~	~~10.97 to 1.00~~	~~Not less than: 3.00 to 1.00~~
~~Consolidated Net Leverage Ratio, as defined under the Senior Credit Facility~~	~~2.47 to 1.00~~	~~Not greater than: 4.00 to 1.00~~

The Company was in compliance with its financial and non-financial covenants as of ~~September 30, 2017.~~March 31, 2020.

~~2.25%~~

2¼% Convertible Senior Notes

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.

Holders may convert their 2¼% Notes at their option from April 1, 2020, through June 30, 2020, because the Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to March 31, 2020. The Company ~~separately accounted for~~has a stated intention to cash settle the ~~liability and equity components of the 2¼% Notes. The initial liability component~~principal amount 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~~with the conversion ~~feature, which equals~~premium to be settled in common shares. Accordingly, 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~~net balance of the 2¼% Notes ~~less the liability component. The debt discount~~of $265.1 million is ~~being amortized~~classified as a ~~non-cash charge to interest expense over the period from the issuance date through December 15, 2023.~~

current liability as of March 31, 2020. The ~~debt issuance costs of $5.8 million incurred in connection with the issuance~~classification of the 2¼% Notes ~~were capitalized~~as current or noncurrent on the balance sheet is evaluated at each reporting date 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~~may change depending on whether the ~~issuance date through December 15, 2023.~~sale price contingency (discussed below) has been met.

~~The~~As more fully described in the indenture governing the 2¼% Notes, ~~consisted~~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 commencing after the calendar quarter ending on March 31, 2017, (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 following table summarizes information regarding the 2¼% Notes (in millions, except years, percentages, conversion rate, and conversion price):



	March 31, 2020			December 31, 2019
Carrying value	$	265.1		$	263.0
Unamortized discount and deferred financing costs	34.9			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)	3.75			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

September 30, 2017 December 31, 2016
Carrying value, long-term $ 245.4
$ 240.0
Unamortized discount and deferred financing costs 54.6
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) 6.3
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

Based on the Company's closing stock price of ~~$35.01~~$41.83 on ~~September 30, 2017,~~March 31 2020, the if-converted value of the 2¼% Notes exceeded the aggregate principal amount of the 2¼% Notes by ~~$104.0~~$182.6 million.

The following table presents the interest expense components for the 2¼% ~~Notes for the first nine months of fiscal 2017 (in millions):~~Notes:



	Three months ended March 31,
	2020		2019
	(In millions)
Interest expense-contractual interest	$	1.7	$	1.7
Interest expense-amortization of debt discount	1.9		1.8
Interest expense-amortization of deferred financing costs	0.2		0.2

Interest expense-contractual interest $ 5.1
Interest expense-amortization of debt discount 5.0
Interest expense-amortization of deferred financing costs 0.4
$ 10.5

~~4.0625% Convertible Subordinated Debentures~~

~~As of September 30, 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.~~

Note 8. Commitments and Contingencies

a. ~~Capital Lease Commitments~~

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 $48.8 million representing a present value of $25.1 million. The lease obligation over the next five fiscal years is as follows: zero in fiscal 2017, $1.2 million in fiscal 2018, and approximately $2.0 million each year for fiscal 2019 through fiscal 2021.

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 $32.8 million representing a present value of $21.0 million. The lease obligation over the next five fiscal years is as follows: zero in fiscal 2017, $0.9 million in fiscal 2018, and $1.6 million each year for fiscal 2019 through fiscal 2021.

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. ~~For legal settlements where the cash payments are fixed and determinable, the Company will estimate an interest factor and discount the liability accordingly.~~

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 6364 asbestos cases pending as of ~~September 30, 2017.~~March 31, 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 ~~September 30, 2017,~~March 31, 2020, the Company has accrued an immaterial amount related to pending claims.

~~Inflective, Inc. (“Inflective”) Litigation~~

~~On December 18, 2014, Inflective filed a complaint against Aerojet Rocketdyne and Kathleen E. Redd, individually, in the Superior Court of the State of California, Sacramento County,~~ ~~Inflective, Inc. v Aerojet Rocketdyne, Inc., Kathleen E. Redd, et al, Case No. 34-2014-00173068.~~ Inflective asserted in the complaint causes for breach of contract, breach of implied contract, false promise, inducing breach of contract, intentional interference with contractual relations, negligent interference with prospective economic relations, and intentional interference with prospective economic relations and sought compensatory damages in excess of $3.0 million, punitive damages, interest and attorney’s costs. The complaint arose out of the Company’s implementation of ProjectOne, a company-wide enterprise resource planning (“ERP”) system, for which Inflective had been a consultant to the Company. After a series of motions and demurrers over nearly two years in which the Court dismissed the claims against Ms. Redd and certain claims against the Company, the Company entered into a settlement of the litigation with Inflective during the second quarter of fiscal 2017 and the case was dismissed with prejudice. The terms of the settlement are not material to the Company’s financial statements.

Separately, Satish Rachaiah, a former consultant on ProjectOne (working for Inflective), attempted to intervene in the action and assert claims against Aerojet Rocketdyne arising out of Aerojet Rocketdyne’s alleged interference with his employment with Inflective. Aerojet Rocketdyne opposed intervention, and the Court ultimately denied Mr. Rachaiah’s motion to intervene. On December 30, 2015, Rachaiah filed a separate lawsuit in the Superior Court of the State of California, Sacramento County, ~~Satish Rachaiah v. Aerojet Rocketdyne, Inc.~~, ~~Case No. 34-2015-00188516~~. The Company received the complaint on April 7, 2016, and an amended complaint was served on June 17, 2016. Rachaiah asserted the same claims in the complaint as attempted when he tried to intervene. On June 3, 2016, the Court granted Rachaiah’s motion to consolidate the case with the Inflective litigation, finding that the two cases involve common parties, witnesses, legal issues and facts. Aerojet Rocketdyne filed a demurrer to Rachaiah’s first amended complaint on July 22, 2016. On September 26, 2016, the Court granted the demurrer in part and overruled it in part, dismissing the plaintiff’s claims for intentional and negligent interference with prospective economic relations with leave to amend. On October 6, 2016, Rachaiah filed a second amended complaint, once again asserting claims for intentional and negligent interference with prospective economic relations. Aerojet

Rocketdyne filed its answer to the second amended complaint on November 11, 2016. Discovery is in process. No liability for the Rachaiah matter has been recorded by the Company as of September 30, 2017.

~~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., 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. 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 ~~filed its answer and discovery has commenced. Trial is scheduled for February 5, 2018. No~~not recorded any liability for this matter ~~has been recorded by the Company~~ as of ~~September 30, 2017.~~March 31, 2020.

~~Occupational Safety~~

On January 16, 2015, the Company received a notice that the State of California, Division of Occupational Safety & Health (“Cal\OSHA”), Bureau of Investigation (“BOI”) is conducting an investigation into an accident that occurred at the Rancho Cordova facility in November 2013. The accident involved the deflagration of solid rocket propellant following a remote cutting operation and resulted in injuries to two employees, one of whom ultimately died from his injuries. Cal\OSHA issued nine citations relating to the accident with penalties of approximately $0.1 million, all of which the Company has appealed. The BOI is the criminal investigatory arm of Cal\OSHA and is required by law to investigate any occupational fatality to determine if criminal charges will be recommended. In August 2016, the BOI advised that it had completed its investigation and the criminal aspect of the case was closed. Pre-hearing conferences on the Company’s appeal of the citations were held on May 22, 2017 and September 11, 2017. The judge will likely set a hearing date for early 2018.

~~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 ~~September 30, 2017,~~March 31, 2020, the aggregate range of these anticipated environmental costs was ~~$334.4~~$302.6 million to ~~$496.4~~$453.7 million and the accrued amount was ~~$334.4~~$302.6 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 PCD has been revised several times, most recently in 2002. 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~~$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 ~~remedy construction~~maintenance associated with the operable ~~units. In 2002,~~units, all of which are conducted under the direction and oversight of the EPA, issued a Unilateral Administrative Order (“UAO”) requiring Aerojet Rocketdyne to implement the EPA-approved remedial action in the Western Groundwater Operable Unit. An identical order was issued byincluding unilateral administrative orders, and the California Department of Toxic Substances Control ("DTSC") and Regional Water Quality Control Board, Central Valley ~~(“Central Valley RWQCB”~~Region ("RWQCB"). On July 7, 2011, the EPA issued Aerojet Rocketdyne its Approval of Remedial Action Construction Completion Report for Western Groundwater Operable Unit and its Determination of Remedy as Operational and Functional. On September 20, 2011, the EPA issued two UAOs to Aerojet Rocketdyne to complete a remedial design and implement remedial action for the Perimeter Groundwater Operable Unit. One UAO addresses groundwater and the other addresses soils within the Perimeter Groundwater Operable Unit. Issuance of the UAOs is the next step in the superfund process for the Perimeter Groundwater Operable Unit. Aerojet Rocketdyne submitted a final Remedial Investigation Report for the Boundary Operable Unit in 2010 and a revised Feasibility Study for the Boundary Operable Unit in 2012. A Record of Decision was issued by the EPA on August 4, 2015. Aerojet Rocketdyne anticipates the EPA will issue a UAO or negotiate a consent decree for implementation of the remedy. A draft Remedial Investigation Report for the Island Operable Unit was submitted in January 2013 and the Final Remedial Investigation Report was issued on September 3, 2015. A portion of the Island Operable Unit, Area 40, is being handled separately and Aerojet Rocketdyne submitted a draft Feasibility Study to the agencies on June 23, 2016. The remaining operable units are under various stages of investigation. 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 with the EPA to address the findings of the five-year remedy review.

Following completion of the five-year review, the EPA required Aerojet Rocketdyne to conduct a vapor intrusion evaluation of several of its Sacramento facility buildings, and off-site businesses and residences. The evaluation was conducted to determine whether and to what extent volatile organic compounds, such as trichloroethylene, may be present in indoor air or in soil at concentrations that exceed EPA thresholds that would require some type of mitigation. Sample results in two buildings resulted in short-term responses, including efforts to increase air flow and prevent vapors from entering the buildings. Off-site soil gas sampling did not identify trichloroethylene concentrations that warranted indoor air monitoring of residences or commercial buildings. A second phase of indoor air sampling which includes resampling a subset of the on-site buildings sampled in the first phase and off-site soil gas sampling, as determined by EPA, began in September 2017.

The entire southern portion of the site known as Rio Del Oro was under state orders issued in the 1990s from ~~the Department of Toxic Substances Control (“DTSC”) to investigate~~DTSC and ~~remediate environmental contamination in~~ the ~~soils and the Central Valley~~ RWQCB to investigate and remediate soil and groundwater ~~environmental~~ contamination. ~~On March 14,~~In 2008, the DTSC released all but approximately 400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil ~~contamination. Aerojet Rocketdyne expects~~contamination although the ~~approximately 400 acres of Rio Del Oro property that remain subject to the DTSC orders to be released once the soil remediation has been completed. The Rio Del Oro~~ property remains subject to the ~~Central Valley~~ RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating offsite from such property. Pursuant to a settlement agreement entered into in 2009, Aerojet Rocketdyne and The Boeing Company ("Boeing") have defined responsibilities with respect to future costs and environmental projects relating to this property.the property

As of ~~September 30, 2017,~~March 31, 2020, the estimated range of anticipated costs discussed above for the Sacramento, California site was ~~$202.3~~$204.2 million to ~~$320.3~~$327.4 million and the accrued amount was ~~$202.3~~$204.2 million included as a component of the Company’s

environmental reserves. Expenditures associated with this matter are partially recoverable. See Note ~~8(d) below~~8(c) for further discussion on recoverability.

Baldwin Park Operable Unit ~~(“BPOU”~~("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. Between 1995 and 1997, the EPA issued Special Notice Letters to Aerojet Rocketdyne and eighteen other companies requesting that they implement a groundwater remedy. On June 30, 2000, the EPA issued a UAO ordering the PRPs to implement a remedy consistent with the 1994 record of decision.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 ~~which had a term of fifteen years, became effective May 9, 2002 and~~ terminated in ~~May 2017. In April~~ 2017 and the parties executed a ~~new~~ project agreement which became operational on May 9, 2017. The ~~new~~ agreement has a ~~ten year~~ten-year term and ~~has similar provisions as the 2002 project agreement requiring~~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.

~~Aerojet Rocketdyne and three of~~Pursuant to the 2017 agreement with the remaining Cooperating Respondents, entered into an agreement establishing final allocation among them and which also establishes as to the other Cooperating Respondent, that entity's obligation to pay an interim allocation at their current interim allocation and an arbitration process to establish their final allocation for project agreement related costs. 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”~~("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 ~~September 30, 2017,~~March 31, 2020, the estimated range of anticipated costs was ~~$119.1~~$84.8 million to ~~$155.5~~$100.9 million and the accrued amount was ~~$119.1~~$84.8 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note ~~8(d) below~~8(c) for further discussion on recoverability.

~~Wabash, Indiana Site~~

As part of the Company's automotive business that was divested in 2004, the Company owned and operated a former rubber processing plant in Wabash, Indiana from 1937 to 2004. Pursuant to a request from the Indiana Department of Environmental Management (“IDEM”), the Company conducted an initial site investigation of the soil and groundwater at the site and a report was submitted to IDEM. By letter of June 11, 2014, IDEM directed the Company to conduct additional investigation of the site, including a vapor intrusion investigation in areas in and around the site where trichloroethylene levels in groundwater were found to exceed screening levels for vapor intrusion. Vapor mitigation systems were installed in one residence and one business where indoor air screening levels were exceeded. The Company acquired a separate residence in August 2016 where indoor air screening levels were exceeded and a mitigation system was not economically feasible. The Company anticipates donating the property to the City of Wabash for use in connection with a city park. The Company conducted further investigations of the site in accordance with the IDEM request and approved work plan. The Company met with IDEM on May 24, 2016, to present the results of the further investigation and IDEM requested the Company to submit a remedial action plan. The remedial action plan was submitted in January 2017 and approved by IDEM in March 2017. The work plan focuses on periodic monitoring and specific plans for long term remedial actions for on-site soils which will be deferred until City of Wabash access has been secured and a redevelopment plan is in place. The Company sent demands to other former owners/operators of the site to participate in the site work, but they declined to participate. As of September 30, 2017, the estimated range of the Company's share of anticipated costs for the Wabash, Indiana site was $0.4 million to $0.7 million and the accrued amount was $0.4 million. None of the expenditures related to this matter are recoverable from the U.S. government.

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.~~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 is shown below:~~activity:



	Aerojet Rocketdyne- Sacramento			Aerojet Rocketdyne- BPOU			Other Aerojet Rocketdyne Sites			Total Aerojet Rocketdyne			Other			Total Environmental Reserve
	(In millions)
December 31, 2019	$	203.6		$	89.6		$	11.8		$	305.0		$	4.2		$	309.2
Additions/Adjustments	4.1			(0.8		)	(2.2		)	1.1			0.2			1.3
Expenditures	(3.5		)	(4.0		)	(0.3		)	(7.8		)	(0.1		)	(7.9		)
March 31, 2020	$	204.2		$	84.8		$	9.3		$	298.3		$	4.3		$	302.6

Aerojet
Rocketdyne-
Sacramento
Aerojet
Rocketdyne-
BPOU
Other
Aerojet
Rocketdyne
Sites
Total
Aerojet
Rocketdyne
Other (1)
Total
Environmental
Reserve
(In millions)
December 31, 2016 $ 210.1

$ 126.8

$ 8.5
$ 345.4
$ 4.3
$ 349.7
Additions 9.7

3.1

0.9
13.7
0.6
14.3
Expenditures (17.5 )
(10.8 )
(1.0 ) (29.3 ) (0.3 ) (29.6 )
September 30, 2017 $ 202.3

$ 119.1

$ 8.4

$ 329.8

$ 4.6

$ 334.4

~~______~~

~~(1) Related to the Company's legacy business operations that are primarily non-recoverable from the U.S. government.~~

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 is 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 ARC and responded to~~parties reached a settlement on March 23, 2020, resolving the ARC ~~Claim on June 23, 2017. Certain~~Claim. The settlement provides for resolution of past costs and agreement that the $20.0 million cap had been reached, ARC becomes financially responsible subject to an allocation of future cleanup costs related to the ~~ARC Claim may be allocable to Aerojet Rocketdyne and 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.~~assumes 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 ~~implemented~~reached a settlement agreement ("Global Settlement") covering environmental costs associated with the ~~October 1997 Agreement in Principle (“Global Settlement”) resolving certain prior environmental~~Company's Sacramento site and ~~facility disagreements, with retroactive effect~~its former Azusa site. Pursuant to ~~December 1, 1998. Under~~ the Global Settlement, the Company can recover up to 88% of its environmental remediation costs through the establishment of prices for Aerojet ~~Rocketdyne~~Rocketdyne's products and services sold to the U.S. government resolved disagreements about an appropriate cost-sharing ratio with respect to the clean-up costs of the environmental contamination. The Global Settlement cost-sharing ratio does not have a defined term over which costs will be recovered.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 cumulative expenditure limitation of $189.7~~ million which was reached in ~~the second quarter of fiscal~~June 2017. ~~A summary of~~The following table summarizes the Northrop Agreement activity ~~is shown below~~ (in millions):



Total reimbursable costs under the Northrop Agreement	$	189.7
Amount reimbursed to the Company through March 31, 2020	(138.7		)
Receivable from Northrop included in the unaudited balance sheet at March 31, 2020	$	51.0

Total reimbursable costs under the Northrop Agreement $ 189.7
Amount reimbursed to the Company through September 30, 2017 (123.7 )
Potential future cost reimbursements available 66.0
Less: Receivable from Northrop included in the unaudited condensed consolidated balance sheet as of September 30, 2017 (66.0 )
Potential future recoverable amounts available under the Northrop Agreement $ —

~~Most of the environmental~~Environmental remediation costs are primarily incurred by the Company's Aerospace and Defense segment, and certain of these costs are ~~allowable to be included in~~recoverable from the Company's contracts with the U.S. government. ~~Excluding the receivable from Northrop of $66.0 million, the~~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 ~~under~~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 to unaudited condensed 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 unaudited condensed consolidated statements of operations. Summarized~~ financial information for the impact of environmental reserves and recoveries to the unaudited condensed consolidated statements of ~~operations is set forth below:~~operations:



	Three months ended March 31,
	2020			2019
	(In millions)
(Benefit) expense to unaudited condensed consolidated statements of operations	$	(0.5	)	$	0.3

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Estimated recoverable amounts under U.S. government contracts $ 4.4
$ 53.7
$ 12.1
$ 60.0
Expense to unaudited condensed consolidated statement of operations 0.5
16.4
2.2
16.9
Total environmental reserve adjustments $ 4.9
$ 70.1
$ 14.3
$ 76.9

~~Note 9.~~

d. Arrangements with Off-Balance Sheet Risk

As of ~~September 30, 2017,~~March 31, 2020, arrangements with off-balance sheet risk consisted of:

~~$39.1 million in outstanding commercial letters of credit,the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.~~


•	$29.7 million in outstanding commercial letters of credit,the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.

$~~55.4~~53.9 million in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation coverage.

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

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. During~~customers. A substantial portion of these amounts are recoverable through the ~~third quarter of fiscal 2017,~~Company's contracts with the ~~Company outsourced certain information technology and cyber security functions resulting in a significant financial commitment over the next five years.~~U.S. government.

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 as allowed under GAAP for that particular contract.

Note ~~10.~~9. 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 $197.0 million (including approximately $60.5 million of capital expenditures)~~. The Company~~ and has incurred ~~$71.6~~$178.1 million of such costs through ~~September 30, 2017,~~March 31, 2020, including ~~$29.8~~$54.7 million in capital expenditures. ~~A summary of~~The following table summarizes the Company's severance and retention liabilities related to ~~Phase I and II activity is shown below:~~CIP activity:



	Severance			Retention			Total
	(In millions)
December 31, 2019	$	5.2		$	4.6		$	9.8
Accrual	—			0.7			0.7
Payments	(2.6		)	(2.3		)	(4.9		)
March 31, 2020	$	2.6		$	3.0		$	5.6

Severance Retention Total
(In millions)
December 31, 2016 $ 6.8
$ 2.1
$ 8.9
Accrual 33.3
�� 4.3
37.6
Payments (2.0 ) (0.3 ) (2.3 )
September 30, 2017 $ 38.1
$ 6.1
$ 44.2

The costs associated with ~~Phase I and II will be~~CIP 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 Phase I and II obligations, the Company incurred non-cash accelerated depreciation expense of $3.5 million and $0.6 million in the first nine months of fiscal 2017 and 2016, respectively, associated with changes in the estimated useful lives of long-lived assets.

Note ~~11.~~10. Retirement Benefits

~~Pension Benefits~~

The ~~Company's defined benefit pension plan future benefit accrual was discontinued in fiscal 2009. As of~~following table presents the last measurement date of December 31, 2016, the assets, projected benefit obligations, and unfunded pension obligation for the tax-qualified pension plans were approximately $925.1 million, $1,492.1 million, and $548.2 million, respectively.

The Company expects to make cash contributions of $75.8 million to its tax-qualified defined benefit pension plan in fiscal 2017 of which $34.0 million is expected to be recoverable from its U.S. government contracts in fiscal 2017 with the remaining $41.8 million expected to be recoverable from its U.S. government contracts in the future. The Company has funded $67.0 million to its tax-qualified defined benefit pension plan in the first nine months of fiscal 2017 and in the fourth quarter of fiscal 2017 expects to fund $8.8 million. The Company generally is able to recover cash contributions related to its tax-qualified defined benefit pension plan as allowable costs on U.S. government contracts, but there can be differences between when the Company contributes cash to its tax-qualified defined benefit pension plan under pension funding rules and recovers the costs under the U.S. government Cost Accounting Standards.

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 which will reduce future service costs of the pension 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 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.

~~Components~~components of retirement ~~benefit~~benefits expense ~~(benefit) are:~~(income):



	Pension Benefits						Postretirement Medical and Life Insurance Benefits
	Three months ended March 31,
	2020			2019			2020			2019
	(In millions)
Interest cost on benefit obligation	$	10.6		$	13.2		$	0.2		$	0.3
Expected return on assets	(15.1		)	(16.2		)	—			—
Amortization of prior service costs (credits)	0.1			—			—			(0.1		)
Amortization of net losses (gains)	14.3			10.2			(0.9		)	(0.9		)
Retirement benefits expense (income)	$	9.9		$	7.2		$	(0.7	)	$	(0.7	)

Pension Benefits
Postretirement Medical and Life
Insurance Benefits
Three months ended September 30,
2017 2016 2017 2016
(In millions)
Service cost $ 3.7
$ 3.6
$ —
$ —
Interest cost on benefit obligation 14.4
16.0
0.4
0.5
Assumed return on plan assets (16.1 ) (17.5 ) —
—
Amortization of prior service credits —
—
—
(0.3 )
Recognized net actuarial losses (gains) 17.0
15.9
(1.1 ) (0.9 )
Retirement benefit expense (benefit) $ 19.0
$ 18.0
$ (0.7 ) $ (0.7 )

Pension Benefits
Postretirement Medical and Life
Insurance Benefits
Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Service cost $ 11.2
$ 10.5
$ —
$ —
Interest cost on benefit obligation 43.2
48.1
1.1
1.4
Assumed return on plan assets (48.4 ) (52.6 ) —
—
Amortization of prior service credits 0.1
0.1
(0.1 ) (0.9 )
Recognized net actuarial losses (gains) 50.9
47.8
(3.1 ) (2.7 )
Retirement benefit expense (benefit) $ 57.0
$ 53.9
$ (2.1 ) $ (2.2 )

Note ~~12.~~11. 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.

The ~~Company evaluates its operating segments based on several factors, of which the primary~~following table presents selected 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, legacy income or expenses, unusual items not related to the segment operations, interest expense, interest income, and income taxes.information for each reportable segment:

~~Customers~~



	Three months ended March 31,
	2020			2019
	(In millions)
Net Sales:
Aerospace and Defense	$	474.4		$	490.0
Real Estate	1.7			1.7
Total Net Sales	$	476.1		$	491.7
Segment Performance:
Aerospace and Defense	$	52.6		$	64.9
Environmental remediation provision adjustments	0.5			(0.3		)
GAAP/Cost Accounting Standards retirement benefits expense difference	4.7			5.4
Unusual items	—			(0.3		)
Aerospace and Defense Total	57.8			69.7
Real Estate	(0.6		)	0.5
Total Segment Performance	$	57.2		$	70.2
Reconciliation of segment performance to income before income taxes:
Segment performance	$	57.2		$	70.2
Interest expense	(8.4		)	(9.0		)
Interest income	3.2			4.0
Stock-based compensation	(2.4		)	(5.3		)
Corporate retirement benefits	(2.0		)	(1.8		)
Corporate and other	(4.9		)	(6.3		)
Income before income taxes	$	42.7		$	51.8

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Lockheed Martin Corporation 24 % 25 % 22 % 29 %
United Launch Alliance 22 % 24 % 22 % 21 %
NASA 19 % 14 % 19 % 14 %
Raytheon Company 15 % 22 % 15 % 19 %

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

~~Sales to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, were as follows:~~programs:



	Three months ended March 31,
	2020		2019
Lockheed Martin Corporation	34	%	30	%
NASA	23		20
Raytheon Technologies Corporation	16		18
United Launch Alliance	*		12

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Percentage of net sales 94 % 92 % 93 % 91 %
______

~~Selected financial information for each operating segment is as follows:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Net Sales:
Aerospace and Defense $ 482.5
$ 462.2
$ 1,344.2
$ 1,224.3
Real Estate 1.6
1.6
4.8
4.8
Total Net Sales $ 484.1
$ 463.8
$ 1,349.0
$ 1,229.1
Segment Performance:
Aerospace and Defense $ 53.5
$ 46.4
$ 151.6
$ 122.3
Environmental remediation provision adjustments (0.5 ) (16.4 ) (1.6 ) (16.8 )
Retirement benefits, net (1) (6.4 ) (5.6 ) (14.4 ) (16.8 )
Unusual items 0.1
(0.2 ) 2.0
—
Aerospace and Defense Total 46.7
24.2
137.6
88.7
Real Estate 0.5
0.8
2.1
2.5
Total Segment Performance $ 47.2
$ 25.0
$ 139.7
$ 91.2
Reconciliation of segment performance to income (loss) before income taxes:
Segment performance $ 47.2
$ 25.0
$ 139.7
$ 91.2
Interest expense (7.7 ) (5.9 ) (22.9 ) (27.4 )
Interest income 1.0
0.1
2.3
0.4
Stock-based compensation expense (11.0 ) (2.3 ) (21.2 ) (7.7 )
Corporate retirement benefits (5.0 ) (4.8 ) (15.0 ) (14.2 )
Corporate and other expense, net (5.9 ) (3.3 ) (17.9 ) (13.0 )
Unusual items —
(34.1 ) (1.0 ) (34.5 )
Income (loss) before income taxes $ 18.6
$ (25.3 ) $ 64.0
$ (5.2 )

~~_____~~

(1) Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under the Company's U.S. government contracts. The Company's recoverable tax-qualified pension costs in the third quarter and first nine months of fiscal 2017 totaled $6.9 million and $25.5 million, respectively. The Company's recoverable tax-qualified pension costs in the third quarter and first nine months of fiscal 2016 totaled $6.9 million and $20.7 million, respectively.* Less than 10%.

Note ~~13.~~12. Unusual Items

~~Total~~The following table presents total unusual items, comprised of a component of other (income) expense, net ~~and loss on debt~~ in the unaudited condensed consolidated statements of ~~operations,~~operations:



	Three months ended March 31,
	2020		2019
	(In millions)
Unusual items
Acquisition costs	$	—	$	0.3
	$	—	$	0.3

On March 29, 2019, the Company acquired certain assets of 3D Material Technologies ("3DMT") from ARC Group Worldwide, Inc. 3DMT is a provider of additive manufacturing (3-D printing) services to the aerospace, defense and industrial markets. The net assets acquired of $1.1 million are immaterial to the Company’s unaudited condensed consolidated financial statements. The purchase price allocation was ~~as follows:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Unusual items
Legal related matters $ (0.1 ) $ 0.2
$ (2.0 ) $ —
Loss on debt —
34.1
—
34.5
Acquisition costs —
—
1.0
—
$ (0.1 ) $ 34.3
$ (1.0 ) $ 34.5

~~Fiscal 2017 activity:~~

~~The Company recorded $2.0 million of realized gains, net of interest associated with the failure to register with the SEC the issuance of certain~~developed based on estimates of the ~~Company’s common shares under the defined contribution 401(k) employee benefit plan (see Note 4(j)).~~

~~The Company recorded $1.0 million of costs related to the acquisition of Coleman (see Note 5).~~

~~Fiscal 2016 activity:~~

~~On July 18, 2016, the Company redeemed $460.0 million principal amount of its 7.125% Second-Priority Senior Secured Notes ("7~~¹/₈~~% Notes"), representing all~~fair value of the ~~outstanding 7~~¹/₈~~% Notes, at a redemption~~assets and liabilities. The purchase price ~~equal to 105.344% of the principal amount, plus accrued and unpaid interest. The Company incurred a pre-tax charge of $34.1 million~~allocation resulted in the ~~third quarter of fiscal 2016 associated with the extinguishment of the 7~~¹/₈% Notes. The $34.1 million pre-tax charge was comprised of $24.6 million paid in excess of the par value and $9.5 million associated with the write-off of unamortized deferred financing costs. The Company funded the redemption in part through a $400.0 million drawdown from its Term Loan facility.

~~The Company retired $13.0 million principal amount of its delayed draw term loan resulting in a loss of $0.3 million.~~

~~The Company recorded a charge~~recognition of $0.1 million ~~associated with the amendment to the Senior Credit Facility.~~in goodwill.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or required by the context, as used in this Quarterly Report on Form 10-Q, the terms ~~“the~~"the Company,~~” “we,” “our”~~" "we," "our" and ~~“us”~~"us" refer to Aerojet Rocketdyne Holdings, Inc. and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP").

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, ~~since our operating cycle is primarily based on long-term contracts with various delivery schedules,~~ our operating results for interim periods may not be indicative of the results of operations for a full year or future periods. This section contains a number of forward-looking statements, all of which are based on current expectations and are subject to risks and uncertainties including those described in this Quarterly Report under the heading ~~“Forward-Looking~~"Forward-Looking Statements.”" Actual results may differ materially. This section should be read in conjunction with our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016~~2019, and periodic reports subsequently filed with the Securities and Exchange Commission ~~(“SEC”~~("SEC").

Overview

~~We are a manufacturer of aerospace and defense products and systems with a real estate segment.~~ Our operations are organized into two segments:

Aerospace and Defense — includes the operations of our 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 as well as portions of the commercial sector.~~contractors.

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

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

~~Net sales for the third quarter of fiscal 2017 totaled $484.1 million compared with $463.8 million for the third quarter of fiscal 2016.~~

Net income for the third quarter of fiscal 2017 was $12.6 million, or $0.17 diluted income per share, compared with a net loss of $(11.1) million, or $(0.17) loss per share, for the third quarter of fiscal 2016.

~~Adjusted EBITDAP (Non-GAAP measure*) for the third quarter of fiscal 2017 was $55.2 million compared with $40.6 million for the third quarter of fiscal 2016.~~

Segment performance before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure*) was $54.0 million for the third quarter of fiscal 2017, compared with $47.2 million for the third quarter of fiscal 2016.

~~Cash used in operating activities in the third quarter of fiscal 2017 totaled $(11.8) million compared with $45.1 million of cash provided by operating activities in the third quarter of fiscal 2016.~~

~~Total funded backlog as of September 30, 2017 was $2.1 billion compared with $2.3 billion as of December 31, 2016.~~



	Three months ended March 31,
	2020			2019
	(In millions, except percentage and per share amounts)
Net sales	$	476.1		$	491.7
Net income	31.4			38.7
Net income as a percentage of net sales	6.6		%	7.9		%
Adjusted Net Income (Non-GAAP measure*)	29.4			36.3
Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales	6.2		%	7.4		%
Earnings Per Share ("EPS") - Diluted	0.37			0.47
Adjusted EPS (Non-GAAP measure*)	0.35			0.44
Adjusted EBITDAP (Non-GAAP measure*)	62.4			71.0
Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales	13.1		%	14.4		%
Cash used in operating activities	(17.1		)	(17.7		)
Free cash flow (Non-GAAP measure*)	(20.1		)	(19.2		)

_________

* 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 are operating in an environment that~~Our business outlook is ~~characterized~~affected by both increasing complexity in the global security environment and continuing worldwide economic ~~pressures.~~pressures, including those resulting from the coronavirus ("COVID-19") pandemic. A significant component of our strategy in this environment is to focus on protecting our employees' health and safety, delivering excellent performance to our customers, driving improvements and efficiencies across our operations, and creating value through the enhancement and expansion of our business.

We continuously evaluate a broad range of options that could be implemented to increase operational efficiency across all sites, and improve our overall market competitiveness. Our decisions will be focused on moving us forward to solidify our leadership in the propulsion markets.

Some of the significant challenges we face are as follows:uncertainty associated with the COVID-19 pandemic, dependence upon U.S. government programs and contracts, future reductions or changes in U.S. government spending in our markets, ~~implementation of the competitive improvement program (the "CIP"),~~ environmental matters, capital structure, ~~and our~~ underfunded retirement benefit ~~plans.~~plans, and cyber security.

COVID-19

During the three months ended March 31, 2020, there was minimal impact to our financial results and operations as a result of the COVID-19 outbreak that began in late 2019, and was declared a pandemic by the World Health Organization on March 11, 2020. The safety and welfare of our employees is our top priority, and during the quarter, a number of safety protocols were established. Selected and site-specific work and travel restrictions, in addition to other measures intended to reduce the spread of COVID-19, were introduced. Although we did not experience significant absenteeism or supply chain disruption, the extent to which the COVID-19 pandemic impacts our financial results and operations for 2020 and beyond will depend 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, 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 imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home requirements for employees where practicable, and all of these policies and initiatives could impact our operations. Due to the evolving nature of the COVID-19 pandemic, 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, 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 net sales to the U.S. government and its agencies, including net sales to ~~our~~ significant customers disclosed ~~below, were as follows:~~

below:

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Percentage of net sales 94 % 92 % 93 % 91 %



	Three months ended March 31,
	2020		2019
U.S. government	96	%	95	%
Non U.S. government	4		5

The ~~RS-25 program, which is comprised of several contracts and included in U.S. government sales, represented 16% and 13%~~following table summarizes the percentages of net sales for ~~the third quarter~~significant programs, all of fiscal 2017 and 2016, respectively. In addition, the RS-25 program represented 16% and 12% of net sales for the first nine months of fiscal 2017 and 2016, respectively. The Terminal High Altitude Area Defense (“THAAD”) program, which ~~is comprised of several contracts and~~are included in the U.S. government sales ~~was less than 10% of net sales for the third quarter~~ and first nine months of fiscal 2017. The THAAD program represented 13% and 14% of net sales for the third quarter and first nine months of fiscal 2016, respectively. The Standard Missile program, which isare comprised of ~~several contracts and included in U.S. government sales, was less than 10% of net sales for the third quarter and first nine months of fiscal 2017.~~ multiple contracts:



	Three months ended March 31,
	2020		2019
RS-25	18	%	15	%
Standard Missile	13		14
Terminal High Altitude Area Defense	11		11
Patriot Advanced Capability-3	10		9

The ~~Standard Missile program represented 12% and 10% of net sales for the third quarter and first nine months of fiscal 2016, respectively.~~

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

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



	Three months ended March 31,
	2020		2019
Lockheed Martin Corporation	34	%	30	%
NASA	23		20
Raytheon Technologies Corporation	16		18
United Launch Alliance	*		12

______

* Less than 10%.

Industry Update

~~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 U.S. government spending on aerospace and defense products and systems, and our backlog depends, in large part, on continued funding by the U.S. government for the programs in which we are involved. ~~These funding levels are not generally correlated with any specific economic cycle, but rather follow~~While U.S. and state governments continue to address the ~~cycle of general public policy~~COVID-19 pandemic, our customers continue to operate under the Public Law 116-93,

which includes DoD and ~~political support~~NASA full-year appropriations bills for ~~this type of funding. Moreover, although our contracts often contemplate that our services will be performed over a period of several years,~~Government Fiscal Year 2020. Additionally, the U.S. ~~Congress must appropriate funds~~government enacted the Coronavirus Aid, Relief & Economic Security ("CARES") Act on March 27, 2020, which provides $60 million of supplemental appropriations for NASA operational adjustments due to delays and center closures and an additional $2.45 billion for the DoD to support the defense industrial-base. There is no assurance that we will receive any benefit from the CARES Act or other emergency support legislation. Disruptions to our customer’s facilities or delays in supply chain as a ~~given program and the~~result of COVID-19 could delay or decrease expenditures by U.S. ~~President must sign into law such appropriations legislation each~~ government ~~fiscal year (“GFY”) and may significantly increase, decrease or eliminate, funding for~~agencies. Such a ~~program. A~~ decrease in DoD and/or NASA expenditures, the elimination or curtailment of a material program in which we are or hope to be involved, or changes in payment patterns of our customers as a result of changes in U.S. government outlays, could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Congress was not able to pass full year appropriations for either DoD or NASA prior to the start of GFY 2017 on October 1, 2016, necessitating a short-term Continuing Resolution (“CR”) into December 2016. After the 2016 U.S. Presidential Election in November 2016, Congress passed another CR into mid-2017 to allow the new Administration an opportunity to shape federal spending. On May 5, 2017, President Trump signed into law the Consolidated Appropriations Act of 2017, an omnibus appropriations bill for GFY 2017, including appropriations for DoD and NASA; however, the delayed completion of the GFY2017 spending bills resulted in a delay to the release of the President’s Budget Request for GFY2018. With a truncated legislative cycle, Congress was unable to pass GFY 2018 bills before October 1, 2017, necessitating another CR through December 8, 2017.

The Space Launch Systems ("SLS") appears to remain a top Congressional priority as the CR included a provision to allow NASA the funding flexibility for SLS and deep exploration to remain on track. The SLS program also has enjoyed wide,

bipartisan support in both chambers of Congress. We maintain a strong relationship with NASA and our propulsion systems have been powering NASA launch vehicles and spacecraft since the inception of the U.S. space program. Our booster, upper stage and Orion vehicle propulsion systems are currently baselined on the new SLS vehicle and both upper stage and booster engines are in development for future SLS variants. Due to the retirement of the space shuttle fleet, U.S. astronauts have been dependent on Russian Soyuz flights for access to and from the International Space Station ("ISS") for the better part of this decade. NASA has been working to re-establish U.S. manned space capability as soon as possible through development of a new “space taxi” to ferry astronauts and cargo to the ISS. In 2014, Boeing’s CST-100 Starliner capsule, powered by Aerojet Rocketdyne propulsion, was selected by NASA to transport astronauts to and from the ISS. As Boeing’s business partner, Aerojet Rocketdyne will be providing the propulsion system for this new capsule, thereby supplementing its work for NASA on the SLS designed for manned deep space exploration. In both instances, we have significant propulsion content and we look forward to supporting these generational programs for NASA.

The competitive dynamics of our multi-faceted marketplace vary by product line and customer as we experience many of the same influences felt by the broader aerospace and defense industry. The large majority of products we manufacture are highly complex, technically sophisticated and extremely hazardous to build, demanding rigorous manufacturing procedures and highly specialized manufacturing equipment. While historically these factors, coupled with the high cost to establish the infrastructure required to meet these needs, posed substantial barriers to entry, modern design tools and manufacturing techniques (e.g., additive manufacturing) available to new entrants with the ability to self-fund start-up as well as development costs has led to increased competition in space related markets. To date, the competition has been limited to a few participants who tend to be narrowly focused on products that are sub-elements of our overall product portfolio. For example, entrepreneurs such as SpaceX and Blue Origin, who have been or are in the process of developing liquid fuel propulsion capabilities are primarily focused on the development of space propulsion systems for heavy lift launch vehicles and are not pursuing or participating in the missile defense or tactical propulsion business segments that make up a substantial portion of our overall business. These new entrepreneurs have signaled their intent to compete primarily on price and are therefore bringing pressure to bear on existing cost paradigms and manufacturing methodologies.

~~Competitive Improvement Program~~

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, 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 as follows (in millions):~~

Annual cost reductions related to Phase I (expected during 2019) $ 145.0
Annual cost reductions related to Phase II (expected during 2021) 85.0
Total annual cost reductions $ 230.0

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 have incurred $71.6 million through September 30, 2017, including $29.8 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. 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.

~~A summary of~~The following table summarizes our recoverable amounts, environmental reserves, and ~~estimated~~ range of liability, as of ~~September 30, 2017 is presented below:~~

March 31, 2020:


	Recoverable Amounts (1)		Environmental Reserves		Estimated Range of Liability	Recoverable Amounts (1)		Environmental Reserves		Estimated Range of Liability
	(In millions)					(In millions)
Sacramento	$	153.1	$	202.3	$202.3 - $320.3	$	179.7	$	204.2	$204.2 - $327.4
Baldwin Park Operable Unit	90.1		119.1		119.1 - 155.5	74.6		84.8		84.8 - 100.9
Other Aerojet Rocketdyne sites	8.4		8.4		8.4 - 14.3	9.3		9.3		9.3 - 19.8
Other sites	0.6		4.6		4.6 - 6.3	0.7		4.3		4.3 - 5.6
Total	$	252.2	$	334.4	$334.4 - $496.4	$	264.3	$	302.6	$302.6 - $453.7

_____


(1)	Excludes the receivable from Northrop Grumman Corporation ~~(“Northrop”~~("Northrop") of ~~$66.0~~$51.0 million as of ~~September 30, 2017~~March 31, 2020, related to environmental costs already paid (and therefore not reserved) by ~~the Company~~us in prior years and reimbursable under our agreement with Northrop.

~~Most of our environmental~~Environmental remediation costs are primarily incurred by our Aerospace and Defense segment, and certain of these ~~future~~ costs are ~~allowable to be included in~~recoverable from our contracts with the U.S. government. ~~The cumulative expenditure limitation under~~We currently estimate approximately 12% of our ~~agreement with Northrop was reached in the second quarter of fiscal 2017. See Note 8(c)~~future Aerospace and ~~(d) of the Notes to Unaudited Condensed Consolidated Financial Statements.~~Defense segment environmental remediation costs will not likely be reimbursable and are expensed.

Capital Structure

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. ~~Debt outstanding is presented below:~~

September 30, 2017 December 31, 2016
(In millions)
Total debt $ 618.6
$ 663.6
Plus: unamortized debt discount and deferred financing costs 56.4
62.0
Debt principal $ 675.0
$ 725.6
As of March 31, 2020, we had $634.3 million of debt outstanding.

Retirement Benefits

WeDuring 2020, we expect to make ~~cash~~ contributions of ~~$75.8~~approximately $46.0 million to our tax-qualified defined benefit pension plan in ~~fiscal 2017~~2020, including $13.9 million of ~~which $34.0~~cash and $32.1 million is expected to be recoverable from our U.S. government contracts in fiscal 2017 with the remaining $41.8 million expected to be recoverable from our U.S. government contracts in the future. We have funded $67.0 million to our tax-qualified defined benefit pension plan in the first nine months of ~~fiscal 2017 and in the fourth quarter of fiscal 2017 we expect to fund $8.8 million.~~prepayment credits. 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 ~~the~~ Cost Accounting ~~Standards.~~Standards ("CAS").

The COVID-19 pandemic and resulting global disruptions have caused 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 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.

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 ~~timing~~impact of ~~the required funding under the Pension Protection Act~~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:

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change**
(In millions)
Net sales: $ 484.1
$ 463.8
$ 20.3
$ 1,349.0
$ 1,229.1
$ 119.9



	Three months ended March 31,
	2020		2019		Change
	(In millions)
Net sales	$	476.1	$	491.7	$	(15.6	)

* Primary reason for change. The ~~increase~~decrease in net sales was primarily due to ~~an increase~~a decline of ~~$31.3~~$21.3 million in space ~~programs~~program sales primarily driven by (i) lower sales in the Commercial Crew Development program and (ii) the final shipment of the AJ-60 solid rocket motor that occurred in the first quarter of 2019, partially offset by growth in the RS-25 ~~program development and integration effort in support of the SLS development~~ program. The ~~increase~~decline in net sales was partially offset by ~~a decrease~~an increase of ~~$20.2~~$5.7 million in defense ~~programs~~program sales primarily driven by ~~lower deliveries on~~ the ~~THAAD~~Guided Multiple Launch Rocket System ("GMLRS") and ~~Standard Missile~~hypersonic booster programs, partially offset by declines in the ~~net sales generated from the Coleman Aerospace acquisition.~~

** ~~Primary reason for change.~~ ~~The increase~~Redesigned Exoatmospheric Kill Vehicle ("RKV") program which was canceled in net sales was primarily due to an increase of $162.6 million in space programs primarily driven by the following (i) the RS-25 program development and integration effort in support of the SLS development program; (ii) increased development effort and production volume on the Commercial Crew Development program; and (iii) increased deliveries on the Atlas V program. The increase in net sales was partially offset by a decrease of $52.2 million in defense programs primarily driven by lower deliveries on the THAAD and Standard Missile programs partially offset by the net sales generated from the Coleman Aerospace acquisition.2019.

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

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change**
(In millions, except percentage amounts)
Cost of sales (exclusive of items shown separately below): $ 417.1
$ 405.4
$ 11.7
$ 1,153.7
$ 1,071.6
$ 82.1
Percentage of net sales 86.2 % 87.4 % 85.5 % 87.2 %
Percentage of net sales excluding retirement benefits 83.4 % 84.7 % 82.6 % 84.1 %
Components of cost of sales:
Cost of sales excluding retirement benefits $ 403.8
$ 392.9
$ 10.9
$ 1,113.8
$ 1,034.1
$ 79.7
Retirement benefits 13.3
12.5
0.8
39.9
37.5
2.4
Cost of sales $ 417.1
$ 405.4
$ 11.7
$ 1,153.7
$ 1,071.6
$ 82.1



	Three months ended March 31,
	2020			2019			Change
	(In millions, except percentage amounts)
Cost of sales (exclusive of items shown separately below)	$	394.9		$	397.6		$	(2.7	)
Percentage of net sales	82.9		%	80.9		%

* Primary reason for change. The ~~decrease~~increase in cost of sales as a percentage of net sales ~~excluding retirement benefits~~ was primarily ~~due to favorable contract performance on the THAAD program due to reduced program risks and cost reductions.~~

** ~~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 the THAAD program due to reduced program risks and cost reductions partially offsetdriven by 2020 cost growth on a portion of the Standard Missile program and ~~manufacturing inefficiencies~~the reserve release upon the final AJ-60 solid rocket motor delivery in ~~the first nine months of fiscal 2017 on electric propulsion contracts.~~2019.

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


																	Three months ended March 31,
	Three months ended September 30,								Nine months ended September 30,								2020			2019			Change
	2017			2016			Change*		2017			2016			Change**		(In millions, except percentage amounts)
	(In millions, except percentage amounts)
SG&A:	$	22.5		$	10.8		$	11.7	$	55.7		$	36.0		$	19.7
Components of SG&A:
SG&A excluding stock-based compensation																	$	6.7		$	6.9		$	(0.2	)
Stock-based compensation																	2.4			5.3			(2.9		)
SG&A																	$	9.1		$	12.2		$	(3.1	)
Percentage of net sales	4.6		%	2.3		%			4.1		%	2.9		%			1.9		%	2.5		%
Components of SG&A:
SG&A excluding retirement benefits and stock-based compensation	$	6.5		$	3.7		$	2.8	$	19.5		$	14.1		$	5.4
Stock-based compensation	11.0			2.3			8.7		21.2			7.7			13.5
Retirement benefits	5.0			4.8			0.2		15.0			14.2			0.8
SG&A	$	22.5		$	10.8		$	11.7	$	55.7		$	36.0		$	19.7
Percentage of net sales excluding stock-based compensation																	1.4		%	1.4		%

* Primary reason for change. The ~~increase~~decrease in SG&A expense was primarily driven by ~~an increase of $8.7 million in~~ stock-based compensation ~~primarily~~ as a result of ~~increases~~decreases in the fair value of ~~stock appreciation rights.~~

** ~~Primary reason for change.~~ ~~The increase in SG&A expense was primarily driven by an increase of $13.5 million in stock-based compensation primarily as a result of increases in~~ the ~~fair value of~~ stock appreciation rights in 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.current period.

Depreciation and Amortization:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017		2016		Change*		2017		2016		Change*		2020		2019		Change
	(In millions)												(In millions)
Depreciation and amortization:	$	18.6	$	15.4	$	3.2	$	54.0	$	45.9	$	8.1
Components of depreciation and amortization:
Depreciation	$	15.2	$	12.1	$	3.1	$	43.9	$	35.9	$	8.0	$	13.1	$	13.5	$	(0.4	)
Amortization	3.4		3.3		0.1		10.1		10.0		0.1		3.4		3.4		—
Accretion													0.7		0.6		0.1
Depreciation and amortization													$	17.2	$	17.5	$	(0.3	)

* Primary reason for change. ~~The increase in depreciation~~Depreciation and amortization expense was ~~primarily~~comparable with 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.prior year period.

Other (Income) Expense, ~~net and loss on debt:~~

net:

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change**
(In millions)
Other expense, net and loss on debt: $ 0.6
$ 51.7
$ (51.1 ) $ 1.0
$ 53.8
$ (52.8 )



	Three months ended March 31,
	2020			2019		Change
	(In millions)
Other (income) expense, net	$	(2.2	)	$	1.1	$	(3.3	)

* Primary reason for change. The ~~decrease~~change in other (income) expense, net was primarily due to ~~a decrease of $34.4 million in unusual items (discussed below)~~lower expenses associated with our deferred compensation plans and a decrease ~~of $15.9 million~~ in environmental ~~remediation expenses (see Note 8(d) of the Notes to Unaudited Condensed Consolidated Financial Statements).~~expenses.

** Retirement Benefits Expense:



	Three months ended March 31,
	2020			2019			Change
	(In millions)
Components of retirement benefits expense:
Interest cost on benefit obligation	$	10.8		$	13.5		$	(2.7	)
Expected return on assets	(15.1		)	(16.2		)	1.1
Amortization of prior service costs (credits)	0.1			(0.1		)	0.2
Amortization of net losses	13.4			9.3			4.1
Retirement benefits expense	$	9.2		$	6.5		$	2.7

Primary reason for change. The ~~decrease~~increase in retirement benefits expense was primarily due to higher actuarial losses in the current period as a result of a decrease ~~of $35.5 million in unusual items (discussed below) and a decrease of $14.7 millionin environmental remediation expenses (see Note 8(d) of the Notes to Unaudited Condensed Consolidated Financial Statements).~~

~~Total unusual items, comprised of a component of other expense, net and loss on debt~~ in the ~~Unaudited Condensed Consolidated Statements~~discount rate used to calculate the benefit obligation at December 31, 2019, and the deferral of ~~Operations, was as follows:~~investment gains, partially offset by lower interest costs on the benefit obligation.

Interest Income:



	Three months ended March 31,
	2020		2019		Change
	(In millions)
Interest income	$	3.2	$	4.0	$	(0.8	)

~~Fiscal 2017 Activity:~~

~~We recorded $2.0 million of realized gains, net of~~Primary reason for change. The decrease in interest ~~associated with the failure~~income was primarily due 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 registered rescission offer expired on June 30, 2017 and settlement payments of $3.5 million under the offer have been completedlower market rates partially offset by higher average cash balances in the ~~third quarter of fiscal 2017.~~current period.

~~We recorded $1.0 million of costs related~~Interest Expense:



	Three months ended March 31,
	2020		2019		Change
	(In millions)
Components of interest expense:
Contractual interest and other	$	6.0	$	6.7	$	(0.7	)
Amortization of debt discount and deferred financing costs	2.4		2.3		0.1
Interest expense	$	8.4	$	9.0	$	(0.6	)

Primary reason for change. The decrease in interest expense was primarily due to ~~the acquisition of Coleman Aerospace from L3 Technologies, Inc. (see Note 5 of the Notes to Unaudited Condensed Consolidated Financial Statements).~~

~~Fiscal 2016 Activity:~~

~~On July 18, 2016, we redeemed $460.0 million principal amount of~~lower average obligations and variable interest rates on our ~~7.125% 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 the third quarter of fiscal 2016 associated with the extinguishment of the 7¹/₈~~% Notes. The $34.1 million pre-tax charge was comprised of $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 the amendment to our $750.0 million~~ senior secured senior credit facility (the "Senior Credit Facility").

~~Interest Income:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change*
(In millions)
Interest income: $ 1.0
$ 0.1
$ 0.9
$ 2.3
$ 0.4
$ 1.9

* ~~Primary reason for change.~~ ~~The increase in interest income was primarily due to higher average cash balances and interest rates.~~

~~Interest Expense:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change**
(In millions)
Interest expense: $ 7.7
$ 5.9
$ 1.8
$ 22.9
$ 27.4
$ (4.5 )
Components of interest expense:
Contractual interest and other 5.6
5.5
0.1
16.6
25.7
(9.1 )
Amortization of debt discount and deferred financing costs 2.1
0.4
1.7
6.3
1.7
4.6
Interest expense $ 7.7
$ 5.9
$ 1.8
$ 22.9
$ 27.4
$ (4.5 )

* ~~Primary reason for change.~~ ~~The increase in interest expense was primarily due to the amortization of the debt discount related to the issuance of the 2~~¹/₄~~% Convertible Senior Notes ("2~~¹/₄~~% 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, 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 3.24% as of September 30, 2017 and the issuance of the 2¹/₄~~% Notes in December 2016 at an effective interest rate of 5.8%.~~

Income ~~Tax provision:~~Taxes:

The income tax provision was as follows:

Nine months ended September 30,
2017 2016
(In millions)
Income tax provision (benefit) $ 21.2
$ (5.1 )



	Three months ended March 31,
	2020		2019
	(In millions)
Income tax provision	$	11.3	$	13.1

In the ~~first nine~~three months ~~of fiscal 2017,~~ended March 31, 2020, the income tax provision was at$11.3 million for an effective tax rate ~~less than~~of 26.5%. Our effective tax rate differed from the 21% statutory federal ~~statutory~~income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax ~~benefits attributable to~~purposes, partially offset by the ~~expiration~~impact of ~~the statute of limitations, excess tax benefits from the exercise~~Research and ~~vesting of stock-based compensation, and the revisions of estimated tax balances based on expected tax filings.~~Development ("R&D") credits.

In the ~~first nine~~three months ~~of fiscal 2016,~~ended March 31, 2019, the income tax ~~benefit~~provision was at$13.1 million for an effective tax rate ~~greater than~~of 25.3%. Our effective tax rate differed from the 21% statutory federal ~~statutory~~income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax ~~benefits attributable to~~purposes, partially offset by the ~~expiration~~impact of ~~the statute of limitations.~~

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. Assessing the need for a valuation allowance requires management to evaluate, on a quarterly basis, all available evidence, both positive and negative. As of September 30, 2017, we continue to believe that the weight of the positive evidence outweighed the negative evidence regarding the realization of our net deferred tax assets.

~~See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion on uncertain income tax positions.~~

~~Retirement Benefits:~~

~~Components of retirement benefit expense are:~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Service cost $ 3.7
$ 3.6
$ 11.2
$ 10.5
Interest cost on benefit obligation 14.8
16.5
44.3
49.5
Assumed return on plan assets (16.1 ) (17.5 ) (48.4 ) (52.6 )
Amortization of prior service credits —
(0.3 ) —
(0.8 )
Recognized net actuarial losses 15.9
15.0
47.8
45.1
Retirement benefits $ 18.3
$ 17.3
$ 54.9
$ 51.7

Market conditions and interest rates significantly affect the assets and liabilities of our retirement benefit plans. Pension accounting permits market gains and losses to be deferred and recognized over a period of years. This “smoothing” results in the creation of other accumulated income or losses which will be amortized to retirement benefit expense or benefit in future years. The accounting method we utilize recognizes one-fifth of the unamortized gains and losses associated with the market-related value of pension assets and all other gains and losses, including changes in the discount rate used to calculate benefit costs 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 market related asset values over three years. Although the smoothing period mitigates some volatility in the calculation of annual retirement benefit expense, future expenses are impacted by changes in the market value of assets and changes in interest rates.R&D credits.

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 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

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change**
(In millions, except percentage amounts)
Net sales $ 482.5
$ 462.2
$ 20.3
$ 1,344.2
$ 1,224.3
$ 119.9
Segment performance 46.7
24.2
22.5
137.6
88.7
48.9
Segment margin 9.7 % 5.2 % 10.2 % 7.2 %
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) 11.1 % 10.0 % 11.3 % 10.0 %
Components of segment performance:
Aerospace and Defense $ 53.5
$ 46.4
$ 7.1
$ 151.6
$ 122.3
$ 29.3
Environmental remediation provision adjustments (0.5 ) (16.4 ) 15.9
(1.6 ) (16.8 ) 15.2
Retirement benefits, net (6.4 ) (5.6 ) (0.8 ) (14.4 ) (16.8 ) 2.4
Unusual items 0.1
(0.2 ) 0.3
2.0
—
2.0
Aerospace and Defense total $ 46.7
$ 24.2
$ 22.5
$ 137.6
$ 88.7
$ 48.9



	Three months ended March 31,
	2020			2019			Change
	(In millions, except percentage amounts)
Net sales	$	474.4		$	490.0		$	(15.6	)
Segment performance	57.8			69.7			(11.9		)
Segment margin	12.2		%	14.2		%

* Primary reason for change. The ~~increase~~decrease in net sales was primarily due to ~~an increase~~a decline of ~~$31.3~~$21.3 million in space ~~programs~~program sales primarily driven by (i) lower sales in the Commercial Crew Development program and (ii) the final shipment of the AJ-60 solid rocket motor that occurred in the first quarter of 2019, partially offset by growth in the RS-25 ~~program development and integration effort in support of the SLS development~~ program. The ~~increase~~decline in net sales was partially offset by ~~a decrease~~an increase of ~~$20.2~~$5.7 million in defense ~~programs~~program sales primarily driven by ~~lower deliveries on~~ the ~~THAAD~~GMLRS and ~~Standard Missile~~hypersonic booster programs, partially offset by declines in the ~~net sales generated from the Coleman Aerospace acquisition.~~RKV program which was canceled in 2019.

~~Segment~~The decrease in segment margin before environmental remediation provision adjustments, retirement benefits, net and unusual items increased primarily due to favorable contract performance on the THAAD program due to reduced program risks and cost reductions.

** ~~Primary reason for change.~~ ~~The increase in net sales~~ was ~~primarily due to an increase of $162.6 million in space programs~~ primarily driven by ~~the following: (i) the RS-25 program development and integration effort in support~~2020 cost growth on a portion of the SLS development program; (ii) increased development effort and production volume on the Commercial Crew Development program; and (iii) increased deliveries on the Atlas V program. The increase in net sales was partially offset by a decrease of $52.2 million in defense programs primarily driven by lower deliveries on the THAAD and Standard Missile ~~programs partially offset by~~program and the ~~net~~reserve release upon the final AJ-60 solid rocket motor delivery in 2019.

During the three months ended March 31, 2020, we had $2.5 million of favorable changes in contract estimates on operating results before income taxes compared with favorable changes of $13.4 million during the three months ended March 31, 2019.

Real Estate Segment



	Three months ended March 31,
	2020			2019		Change
	(In millions)
Net sales	$	1.7		$	1.7	$	—
Segment performance	(0.6		)	0.5		(1.1		)

Net sales ~~generated from~~and segment performance consist primarily of rental property operations.

Backlog

As of March 31, 2020, our total remaining performance obligations, also referred to as backlog, totaled $5.2 billion. We expect to recognize approximately 38%, or $2.0 billion, of the ~~Coleman Aerospace acquisition.~~

~~Segment margin before environmental remediation provision adjustments, retirement benefits, net~~remaining performance obligations as sales over the next twelve months, an additional 24% the following twelve months, and unusual items increased primarily due to favorable contract performance on the THAAD program due to reduced program risks and cost reductions partially offset by losses in the current period on electric propulsion contracts.

38% thereafter. A summary of our backlog is as follows:


	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
	(In billions)				(In billions)
Funded backlog	$	2.1	$	2.3	$	3.3	$	2.1
Unfunded backlog	2.2		2.2		1.9		3.3
Total contract backlog	$	4.3	$	4.5
Total backlog					$	5.2	$	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. ~~Of our September 30, 2017 total contract backlog, approximately 45%, or $1.9 billion, is expected to be filled within one year as compared with 38%, or $1.7 billion, at December 31, 2016.~~

~~Real Estate Segment~~

Three months ended September 30, Nine months ended September 30,
2017 2016 Change* 2017 2016 Change*
(In millions)
Net sales $ 1.6
$ 1.6
$ —
$ 4.8
$ 4.8
$ —
Segment performance 0.5
0.8
(0.3 ) 2.1
2.5
(0.4 )

* ~~Primary reason for change.~~ ~~Net sales and segment performance consist 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 income ~~(loss)~~ adjusted to exclude ~~income tax provision (benefit),~~ 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 income or diluted EPS as determined in accordance with GAAP.



	Three months ended March 31,
	2020			2019
	(In millions, except per share and percentage amounts)
Net income	$	31.4		$	38.7
Interest expense	8.4			9.0
Interest income	(3.2		)	(4.0		)
Income tax provision	11.3			13.1
Depreciation and amortization	17.2			17.5
GAAP retirement benefits expense	9.2			6.5
CAS recoverable retirement benefits expense	(11.9		)	(10.1		)
Unusual items	—			0.3
Adjusted EBITDAP	$	62.4		$	71.0
Net income as a percentage of net sales	6.6		%	7.9		%
Adjusted EBITDAP as a percentage of net sales	13.1		%	14.4		%

Net income	$	31.4		$	38.7
GAAP retirement benefits expense	9.2			6.5
CAS recoverable retirement benefits expense	(11.9		)	(10.1		)
Unusual items	—			0.3
Income tax impact of adjustments (1)	0.7			0.9
Adjusted Net Income	$	29.4		$	36.3

Diluted EPS	$	0.37		$	0.47
Adjustments	(0.02		)	(0.03		)
Adjusted EPS	$	0.35		$	0.44

Diluted weighted average shares, as reported and adjusted	83.1			80.6

_________


(1)	The income tax impact is calculated using the federal and state statutory rates in the corresponding period.

Free Cash Flow

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions, except percentage amounts)
Net income (loss) $ 12.6
$ (11.1 ) $ 42.8
$ (0.1 )
Income tax provision (benefit) 6.0
(14.2 ) 21.2
(5.1 )
Interest expense 7.7
5.9
22.9
27.4
Interest income (1.0 ) (0.1 ) (2.3 ) (0.4 )
Depreciation and amortization 18.6
15.4
54.0
45.9
Retirement benefits, net (1) 11.4
10.4
29.4
31.0
Unusual items (0.1 ) 34.3
(1.0 ) 34.5
Adjusted EBITDAP $ 55.2
$ 40.6
$ 167.0
$ 133.2
Net income (loss) as a percentage of net sales 2.6 % (2.4 )% 3.2 % — %
Adjusted EBITDAP as a percentage of net sales 11.4 % 8.8 % 12.4 % 10.8 %

~~_____~~

(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 the third quarter of fiscal 2017 and 2016 totaled $6.9 million for both periods. Our recoverable tax-qualified pension costs in the first nine months of fiscal 2017 and 2016 totaled $25.5 million and $20.7 million, respectively.

~~In addition to segment performance and Adjusted EBITDAP, we~~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 presents our business using the same tools that management uses to evaluate progress in achieving our performance metrics for annual cash and long-term compensation incentive plans.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(In millions)
Net cash (used in) provided by operating activities $ (11.8 ) $ 45.1
$ 25.9
$ 49.2
Capital expenditures (4.4 ) (11.0 ) (10.5 ) (30.5 )
Free cash flow(1) $ (16.2 ) $ 34.1
$ 15.4
$ 18.7

~~____________~~

~~(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 ~~believe~~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 asbecause 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. The following table summarizes Free Cash Flow:



	Three months ended March 31,
	2020			2019
	(In millions)
Net cash used in operating activities	$	(17.1	)	$	(17.7	)
Capital expenditures	(3.0		)	(1.5		)
Free Cash Flow	$	(20.1	)	$	(19.2	)

Because our method for calculating ~~the~~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.

Other Information

Recently Adopted Accounting Pronouncements

See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements.

Contractual Obligations

There have been no material changes to our contractual obligations as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

Arrangements with Off-Balance Sheet Risk

See Note 8(d) of the Notes to Unaudited Condensed Consolidated Financial Statements for off-balance sheet risk.

Critical Accounting Policies and Estimates

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,~~contract costs, 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.~~Notes to Unaudited Condensed 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 and litigation matters related to legacy operations, which are not allocated to our operating segments, these areas affect the financial results of our business segments.

In our Aerospace and Defense segment, recognition of profit on long-term contracts requires the use of assumptions and estimates related to total contract revenue, the total cost at completion and the measurement of progress towards completion. Due to the nature of the programs, developing the estimated total contract revenue and cost at completion requires the use of significant judgment. Estimates are continually evaluated as work progresses and are revised as necessary. Factors that must be considered in estimating the work to be completed include, but 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 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 performance and cost estimates for some contracts at least monthly and for others at least quarterly and more frequently when circumstances significantly change. When a change in estimate is determined to have an impact on contract profit, we will record a 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 in significant contract accounting estimates on our Aerospace and Defense segment operating results accounted for under the percentage-of-completion method of accounting:

A detailed description of our significant accounting policies can be found in our most recent Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~

~~Arrangements with Off-Balance Sheet Risk~~

~~As of September 30, 2017, arrangements with off-balance sheet risk consisted of:~~

~~$39.1 million in outstanding commercial letters of credit, the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.~~

~~$55.4 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.~~

~~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. During the third quarter of fiscal 2017, we outsourced certain information technology and cyber security functions resulting in a significant financial commitment over the next five years.

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.~~2019.

Liquidity and Capital Resources

Net Cash ~~Provided by (Used in)~~Used in Operating, Investing, and Financing Activities

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

and restricted cash:


	Nine months ended September 30,						Three months ended March 31,
	2017			2016			2020			2019
	(In millions)						(In millions)
Net Cash Provided by Operating Activities	$	25.9		$	49.2
Net Cash Used in Operating Activities							$	(17.1	)	$	(17.7	)
Net Cash Used in Investing Activities	(27.5		)	(30.0		)	(3.0		)	(1.5		)
Net Cash Used in Financing Activities	(16.2		)	(98.4		)	(9.9		)	(9.5		)
Net Decrease in Cash and Cash Equivalents	$	(17.8	)	$	(79.2	)
Net Decrease in Cash, Cash Equivalents and Restricted Cash							$	(30.0	)	$	(28.7	)

Net Cash ~~Provided by~~Used in Operating Activities

The ~~$25.9 million of~~ cash ~~provided by~~used in operating activities infor the ~~first nine~~three months ~~of fiscal 2017~~ended March 31, 2020, was ~~primarily~~comparable with the result of $200.7 million of cash generated by income from operations before income taxes adjusted for non-cash items which was offset by cash used to fund working capital (defined as accounts receivables, inventories, other current assets, accounts payables, contract advances, real estate activities, and other current liabilities). The funding of working capital was comprised of the following: (i) an increase of $135.2 million in accounts receivables due to the timing of net sales and milestone billings on a space program contract and (ii) a decrease of $39.1 million in cash advances on long-term contracts, partially offset by a decrease of $24.3 million in inventories primarily due to a decrease in overhead costs. Further, we funded $67.0 million to our tax-qualified defined benefit pension plan in the first nine months of fiscal 2017 which was partially offset by $21.3 million of income tax refunds received in the first nine months of fiscal 2017.

The $49.2 million of cash provided by operating activities in the first nine months of fiscal 2016 was primarily the result of $136.7 million of cash generated by the net loss before income taxes adjusted for non-cash items which was 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). The funding of working capital is primarily due to the following: (i) a decrease of $26.9 million in cash advances on long-term contracts; (ii) an increase of $13.3 million in other current assets, net primarily related to income taxes; and (iii) a decrease of $57.8 million in other current liabilities primarily due to the timing of payments associated with employee compensation, income taxes, and interest expense. The funding of working capital was partially offset by a decrease of $22.2 million in accounts receivable primarily due to the timing of net sales. In addition, we funded $29.9 million to our tax-qualified defined benefit pension plan during the first nine months of fiscal 2016.prior year period.

Net Cash Used Inin Investing Activities

During the ~~first nine~~three months ~~of fiscal 2017, we purchased Coleman Aerospace for $17.0 million.~~

~~During the first nine months of fiscal 2017~~ended March 31, 2020 and ~~2016,~~2019, we had capital expenditures of ~~$10.5~~$3.0 million and ~~$30.5~~$1.5 million, respectively. ~~The decrease in capital expenditures is primarily due to timing of expenditures related to our fiscal 2017 capital plan.~~

Net Cash Used in Financing Activities

During the ~~first nine~~three months ~~of fiscal 2017,~~ended March 31, 2020 and 2019, we had debt repayments of ~~$15.0~~$4.9 million ~~(see below).~~ and $5.5 million, respectively. See a summary of our debt activity below.

During the ~~first nine~~three months ~~of fiscal 2016,~~ended March 31, 2020 and 2019, we had ~~debt repayments~~net disbursements from shares issued under our equity plans of ~~$595.3 million.~~$4.5 million and $4.0 million, respectively.

Debt Activity and Covenants

~~Our~~The following table summarizes our debt principal ~~activity since December 31, 2016 was as follows:~~

activity:

December 31, 2016
Cash
Payments
Non-cash Equity Conversion September 30, 2017
(In millions)
Term loan $ 390.0
$ (15.0 ) $ —
$ 375.0
2¹/₄% Notes
300.0
—
—
300.0
4¹/₁₆% Debentures
35.6
—
(35.6 ) —
Total Debt and Borrowing Activity $ 725.6
$ (15.0 ) $ (35.6 ) $ 675.0

Our Senior Credit Facility contains covenants requiring us 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 leverage ratio ( the "Consolidated Net Leverage Ratio") not to exceed (a) 4.00 to 1.00 for period ended September 30, 2017; (b) 3.75 to 1.00 for periods ending from December 31, 2017 through September 30, 2018; and (c) 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 consummation 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 of additional debt, and limitations on certain investments and restricted payments.



~~Financial Covenant~~	~~Actual Ratios as of~~ ~~September 30, 2017~~	~~Required Ratios~~
~~Consolidated Interest Coverage Ratio, as defined under the Senior Credit Facility~~	~~10.97 to 1.00~~	~~Not less than: 3.00 to 1.00~~
~~Consolidated Net Leverage Ratio, as defined under the Senior Credit Facility~~	~~2.47 to 1.00~~	~~Not greater than: 4.00 to 1.00~~



	December 31, 2019		Principal Payments			March 31, 2020
	(In millions)
Term loan	$	328.1	$	(4.3	)	$	323.8
2.25% Convertible Senior Notes ("2¹/₄% Notes")	300.0		—			300.0
Finance leases	47.7		(0.6		)	47.1
Total Debt Activity	$	675.8	$	(4.9	)	$	670.9

We were in compliance with our financial and non-financial covenants under the Senior Credit Facility as of ~~September 30, 2017.~~March 31, 2020.

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 the Senior Credit Facility coupled with cash generated from our ~~revolving credit facility~~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 ~~September 30, 2017,~~March 31, 2020, we had ~~$392.5~~$902.6 million of cash and cash equivalents as well as ~~$310.9~~$620.3 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 ~~September 30, 2017.~~March 31, 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. We believe that cash generated~~volatility, including any impact arising from operations, together with our current levels of cash and investments as well as availability under our revolving credit facility, should be sufficient to maintain our ongoing operations, support working capital requirements, fund the ~~CIP, cash contributions to our tax-qualified defined benefit pension plan, and fund anticipated capital expenditures related to projected business growth.~~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.

We expect to make cash contributions of $75.8 million to our tax-qualified defined benefit pension plan in fiscal 2017 of which $34.0 million is expected to be recoverable from our U.S. government contracts in fiscal 2017 with the remaining $41.8 million expected to be recoverable from our U.S. government contracts in the future. We have funded $67.0 million to our tax-qualified defined benefit pension plan in the first nine months of fiscal 2017 and in the fourth quarter of fiscal 2017 we expect to fund $8.8 million. 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 the Cost Accounting Standards.

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.

As disclosed in Notes 8(a) and 8(b) ~~and 8(c) of~~in the ~~Notes to Unaudited Condensed Consolidated Financial Statements,~~unaudited condensed consolidated financial statements, 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.

In September 2017, we 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 $48.8 million representing a present value of $25.1 million. The lease obligation over the next five fiscal years is as follows: zero in fiscal 2017, $1.2 million in fiscal 2018, and approximately $2.0 million each year for fiscal 2019 through fiscal 2021.

In October 2017, we 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 $32.8 million representing a present value of $21.0 million. The lease obligation over the next five fiscal years is as follows: zero in fiscal 2017, $0.9 million in fiscal 2018, and $1.6 million each year for fiscal 2019 through fiscal 2021.

Major factors that could adversely impact our forecasted operating cash and our financial condition are described in the section ~~“Risk Factors”~~"Risk Factors" in Item 1A of our Annual Report to the SEC on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2019.

Forward-Looking Statements

Certain information contained in this report should be considered ~~“forward-looking statements”~~"forward-looking statements" as defined by Section 21E of the Private Securities Litigation Reform Act of 1995. All statements in this report other than historical information may be deemed forward-looking statements. These statements present (without limitation) the expectations, beliefs, plans and objectives of management and future financial performance and assumptions underlying, or judgments concerning, the matters discussed in the statements. The words ~~“believe,” “estimate,” “anticipate,” “project”~~"believe," "estimate," "anticipate," "project" and ~~“expect,”~~"expect," and similar expressions, are generally intended to identify forward-looking statements. Forward-looking statements involve certain risks, estimates, assumptions and uncertainties, including with respect to future sales and activity levels, cash flows, contract performance, the outcome of litigation and contingencies, environmental remediation and anticipated costs of capital. A variety of factors could

cause actual results or outcomes to differ materially from those expected and expressed in our forward-looking statements. Important risk factors that could cause actual results or outcomes to differ from those expressed in the forward-looking statements are described in the section ~~“Risk Factors”~~"Risk Factors" in Item 1A of our Annual Report to the SEC on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016~~2019, and Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and include, but are not limited to, the following:

the COVID-19 pandemic and its impact on economic and other conditions world-wide, including global spending, sourcing and the business operations of the Company and its customers and suppliers, among others;

~~future~~ reductions, delays or changes in U.S. government spending;

cancellation or material modification of one or more significant contracts;

~~negative audit findings of the Company's business by the U.S. government;~~

~~the estimates or judgments the Company makes, or the assumptions the Company relies on, in preparing consolidated financial statements could prove to be inaccurate;~~

cost overruns on the Company's contracts that require the Company to absorb excess costs;

changes in estimates related to contract accounting;

failure to secure contracts;

failure of the Company's subcontractors or suppliers to perform their contractual obligations;

failure to ~~secure contracts;~~

~~failure to~~ comply with regulations applicable to contracts with the U.S. government;

~~failure to comply with applicable laws, including laws relating to export controls and anti-corruption~~the release, unplanned ignition, explosion, or ~~bribery laws;~~

improper handling of dangerous materials used in the Company's ~~Competitive Improvement Program may not be successful in aligning the Company's operations to current market conditions or in achieving the anticipated costs savings~~businesses;

loss of key qualified suppliers of technologies, components, and ~~other benefits within the expected timeframes;~~

~~the Company's international sales are subject to applicable laws relating to export controls, the violation of which could adversely affect its operations;~~

~~costs and time commitment related to potential and/or actual acquisition activities may exceed expectations;~~

~~the Company's inability to adapt to rapid technological changes;~~materials;

failure of the Company's information technology infrastructure, including a successful cyber-attack, accident, unsuccessful outsourcing of certain information technology and cyber security functions, or security breach that could result in disruptions to the Company's operations;

~~product failures, schedule delays or other problems with existing or new products and systems;~~

~~the release, explosion, or unplanned ignition of dangerous materials used in~~ the Company's ~~businesses;~~

~~loss of key qualified suppliers of technologies, components, and materials;~~Competitive Improvement Program may not be successful in aligning the Company's operations to current market conditions;

the funded status of the Company's defined benefit pension plan and the Company's obligation to make cash contributions in excess of the amount that the Company can recover in its current period overhead rates;

effects of changes in discount rates and actuarial estimates, actual returns on plan assets, and government regulations on defined benefit pension plans;

costs and time commitment related to potential and/or actual acquisition activities may exceed expectations;

failure of the Company's information technology infrastructure or failure to perform by the Company's third party service providers;

product failures, schedule delays or other problems with existing or new products and systems;

the possibility that environmental and other government regulations that impact the Company become more stringent or subject the Company to material liability in excess of its established reserves;

environmental claims related to the Company's current and former businesses and operations including the inability to protect or enforce previously executed environmental agreements;

reductions in the amount recoverable from environmental claims;

~~the results of significant litigation;~~

significant risk exposures and potential liabilities that are inadequately covered by ~~indemnity or~~ insurance;

inability to protect the Company's patents and proprietary rights;

business disruptions to the extent not covered by insurance;

changes or clarifications to current tax law or procedural guidance could adversely impact the Company’s tax liabilities and effective tax rate;

the substantial amount of debt ~~which~~that places significant demands on the Company's cash resources and could limit the Company's ability to borrow additional funds or expand its operations;

the Company's ability to comply with the financial and other covenants contained in the Company's debt agreements;

changes in LIBOR reporting practices or the method by which LIBOR is determined;

risks inherent to the real estate market;

changes in economic and other conditions in the Sacramento, California metropolitan area real estate market or changes in interest rates affecting real estate values in that market;

~~additional costs related to past or future divestitures;~~

the loss of key employees and shortage of available skilled employees to achieve anticipated growth;

a strike or other work stoppage or the Company's inability to renew collective bargaining agreements on favorable terms;

~~fluctuations in sales levels causing the Company's quarterly operating results and cash flows to fluctuate;~~

~~restatement of previously issued consolidated financial statements may lead to additional risks and uncertainties;~~

~~failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act;~~ and

those risks detailed in the Company's reports filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our disclosures related to certain market risks as reported under Part II, Item 7A, ~~“Quantitative~~"Quantitative and Qualitative Disclosures About Market Risk,”" in our Annual Report to the SEC on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2019.

Interest Rate Risk

We are exposed to market risk principally due to changes in interest ~~rates. Debt with interest rate risk includes~~rates related to our borrowings, ~~under our Senior Credit Facility. Other than~~cash and cash equivalents, marketable securities, and pension assets and ~~liabilities, we do not have any significant exposure to interest rate risk related to our investments.~~liabilities.

Borrowings

As of ~~September 30, 2017,~~March 31, 2020, our debt principal ~~amounts~~excluding finance lease obligations totaled ~~$675.0~~$623.8 million: $300.0 million, or ~~44%~~48%, was at a fixed rate of 2.25%; and ~~$375.0~~$323.8 million, or ~~56%~~52%, was at a variable rate of ~~3.24%~~2.74%.

The following table summarizes the estimated fair value and principal amount ~~of our~~for outstanding debt ~~is presented below:~~

obligations excluding finance lease obligations:



	Fair Value				Principal Amount
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
	(In millions)
Term loan	$	299.9	$	328.1	$	323.8	$	328.1
2¹/₄% Notes	488.2		546.0		300.0		300.0
Total	$	788.1	$	874.1	$	623.8	$	628.1

~~_______~~

~~(1)~~

~~In December 2016, we notified holders of our 4~~¹/₁₆~~% Debentures that we 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.~~

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~~our debt securities (Level 2 securities). The fair value of the term loan ~~bore interest~~ at ~~variable rates, which adjusted~~March 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. Information concerning our interest rate risk related to our tax-qualified pension assets and liabilities can be found in Part 7, Item 1, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption "Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

~~Management has conducted an~~Based on our management’s evaluation (with the participation of our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer)~~principal financial officer), as of the ~~effectiveness~~end of the ~~design~~period covered by this report, our principal executive officer and ~~operation of the Company’s~~principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 30, 2017. As a result of the material weakness in the Company’s internal control over financial reporting discussed below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were notare effective ~~as of September 30, 2017.~~

~~Disclosure controls and procedures are designed~~ to ensure that information required to be disclosed by us in ~~company~~ reports ~~filed~~that we file or ~~submitted~~submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~the SEC’s~~SEC rules and ~~forms. Disclosure controls~~forms and ~~procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed under the Exchange Act~~ is accumulated and communicated to our management, including ~~the Company’s Chief Executive Officer~~our principal executive officer and ~~Chief Financial Officer~~principal financial officer, as appropriate to allow timely decisions regarding required ~~disclosure as of the end of the period covered by this report.~~

We previously identified and disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, a material weakness in our internal control over financial reporting as we did not maintain adequate controls over the completeness and accuracy of our accounting for income taxes, including the income tax provision and related tax assets and liabilities.

~~Income tax accounting remediation efforts~~

Management has strengthened the income tax function by hiring additional key internal tax personnel with the requisite background and knowledge. During the the third quarter of fiscal 2017, through these resources, management has designed and implemented quarterly controls to validate the completeness and accuracy of financial information utilized in the preparation of our income tax provision, including the related income tax assets and liabilities. Notwithstanding the above, the identified material weakness in our internal control over financial reporting will not be considered remediated until the new controls are in operation for a sufficient period of time (including certain annual controls which are still being designed), and are concluded by management to be designed and operating effectively.disclosure.

Changes in internal control over financial reporting

~~Other than the controls over income tax accounting implemented during the third quarter of fiscal 2017, as discussed above, there~~There were no changes in internal control over financial reporting that occurred during the most recent ~~fiscal~~ quarter that have materially affected, or are reasonably likely to materially affect, the effectiveness of our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Except as disclosed in Note 89 of the Notes to Unaudited Condensed Consolidated Financial Statements, which is incorporated herein by reference, there have been no significant developments in the pending legal proceedings as previously reported in Part 1, Item 3, Legal Proceedings in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~

~~Asbestos Cases.~~ ~~The following table sets forth information related to our historical product liability costs associated with our asbestos litigation cases since December 31, 2016 (dollars in millions):~~

Claims filed as of December 31, 2016 64
Claims filed 19
Claims dismissed (17 )
Claims settled (3 )
Claims pending as of September 30, 2017 63
Aggregate settlement costs $ 0.1
Average settlement costs (1) $ —

~~_______~~

~~(1) Less than $0.1 million.~~2019.

Item 1A. Risk Factors

~~There have been no~~The information presented below sets forth what we reasonably believe represent material changes ~~from our~~to the risk factors ~~as previously reported~~described in our Annual Report ~~to the SEC~~ on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019, and should be read in conjunction with the risk factors therein and the information described in this Quarterly Report.

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

In December 2019, COVID-19 surfaced in Wuhan, China and the World Health Organization declared COVID-19 a pandemic on March 11, 2020. Similarly, all the states and local governments in communities where we operate have 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. However, the future impact of the COVID-19 pandemic is highly uncertain and 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. Additionally, the lifting and easing of U.S., state, and local government restrictions could also increase the risk of future outbreaks or exposure of our workforce to COVID-19 which may impact employee health and absenteeism.

We are also actively monitoring the COVID-19 pandemic and its potential impact on our employees, customers, and supply chain. 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 insure appropriate social distancing, employee protection, enhanced cleaning protocols, and health monitoring. Even so, 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, on March 20, 2020, NASA's Stennis Space Center, an engine test site for our space programs, entered into Stage 4 of their coronavirus response framework which limits access to the facility forpersonnel supporting activities necessary to protect life and critical infrastructure. The length and severity of such delays and closures, and any impact they will have on our operations, is uncertain. We cannot predict whether the current or future closures of customers and suppliers facilities related to the COVID-19 pandemic will have a material adverse effect on our financial results and 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~Issuer Purchases of Equity Securities

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.



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)
January 1, 2020 through January 31, 2020	—	$	—	—	$	—
February 1, 2020 through February 29, 2020	—	$	—	—	$	—
March 1, 2020 through March 31, 2020	15,518	$	35.89	15,518	$	99.4
Total	15,518	$	35.89	15,518	$	99.4

______

(1) In millions.

The table below provides information about shares surrendered to the Company 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
January 1, 2020 through January 31, 2020	3,368	$	48.90	—	—
February 1, 2020 through February 29, 2020	19,053	$	50.80	—	—
March 1, 2020 through March 31, 2020	133,678	$	50.99	—	—
Total	156,099	$	50.92	—	—

Item 3. Defaults ~~upon~~Upon Senior Securities

None.

Item 4. Mine ~~safety disclosures~~Safety Disclosures

Not applicable.

Item 5. Other Information

~~Changes to Director Compensation Program~~

On November 1, 2017, the Board of Directors (the “Board”) of the Company, upon recommendation of the Organization & Compensation Committee of the Board (the “Committee”), approved the following changes to the Company’s compensation program for non-employee Directors, effective November 15, 2017:

~~increase of annual cash retainer fee from $55,000 per annum to $70,000 per annum;~~

~~increase of annual equity retainer value from $90,000 per annum to $100,000 per annum;~~

~~elimination of the Board and Board committee meeting fees that are paid for meetings in excess of a specified number (while maintaining all other existing Board and Board committee services fees); and~~

~~elimination of the Board Chairman fee for so long as the Company maintains an Executive Chairman.~~

~~Adoption of Executive Change in Control Severance Policy~~

~~On November 1, 2017, the Board, upon recommendation of the Committee, adopted an executive change in control severance policy (the “CIC Policy”).~~

The CIC Policy provides certain executive officers of the Company and its subsidiaries who have been designated in writing by the Board, other than Warren Lichtenstein and Eileen Drake, with compensation and benefits upon a termination of their employment by the Company without “cause” or by executive for “good reason” (including due to executive’s death or disability) within the 6-month period preceding a “change in control” through the 18-month period following a “change in control” (each, as defined in the CIC Policy).

~~In the event of an applicable termination of employment, the executive shall be entitled to the following:~~

~~lump sum payment equal to executive’s annual base salary;~~

prorated portion of incentive compensation under the Company’s Short-Term Incentive Plan (“STIP”) to the “termination date” (as defined in the CIC Policy), and full STIP payment for the prior fiscal year;

~~lump sum payment equal to the target incentive compensation executive could have received under the STIP for the fiscal year in which the termination date occurs;~~

~~payment of COBRA benefit premiums until the earlier of the 12-month anniversary of the termination date or when eligible for health insurance coverage through another employer;~~

~~to the extent unvested, immediate full vesting of all of the executive’s equity awards (at target performance, if applicable); and~~

~~outplacement services for a period of 12 months starting no later than 90 days from date of termination with a maximum value of $15,000.~~

~~Receipt of compensation and benefits under the CIC Policy is contingent on the executive’s timely execution of a release in a form prescribed by the Company.~~

The foregoing description of the CIC Policy does not purport to be complete and is qualified in its entirety by reference to the full text of the CIC Policy, which is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.None.

Item 6. Exhibits

Incorporated herein by reference

Table

Item No.

Exhibit Description

Form

File Number

Exhibit

Filing Date

Filed or Furnished herewith

10.1*

Form of Restricted Stock Unit Agreement between the Company and the Executive Chairman for grants of restricted stock units under the Aerojet Rocketdyne Holdings, Inc. 2019 Equity and Performance Incentive Plan.

10.2*

Form of Restricted Stock Unit Agreement between the Company and Employees for grants of restricted stock units under the Aerojet Rocketdyne Holdings, Inc. 2019 Equity and Performance Incentive Plan.

10.3

Aerojet Rocketdyne Holdings, Inc. Amended and Restated Executive Change in Control Severance Policy

8-K

1-01520

10.1

March 6, 2020

10.4

Second Amended and Restated Employment Agreement between Aerojet Rocketdyne Holdings, Inc. and Eileen Drake, dated March 4, 2020

8-K

1-01520

10.2

March 6, 2020

31.1*

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (included as Exhibit 101) -- the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

_______



~~No.~~*		~~Description~~

10.1*		~~Aerojet Rocketdyne Holdings, Inc. Executive Change in Control Severance Policy~~
31.1*		~~Certification of Principal Executive Officer pursuant to Rule 13a — 14 (a) of the Securities Exchange Act of 1934, as amended.~~
31.2*		~~Certification of Principal Financial Officer pursuant to Rule 13a — 14 (a) of the Securities Exchange Act of 1934, as amended.~~
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a — 14(b) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations, (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statement of Stockholders’ Equity, (v) Unaudited Condensed Consolidated Statements of Cash Flows, and (vi) Unaudited Notes to Unaudited Condensed Consolidated Financial Statements.Filed herewith. All other exhibits have been previously filed.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		Aerojet Rocketdyne Holdings, Inc.

Date:	~~November 2, 2017~~April 28, 2020	By:	/s/ Eileen P. Drake
			Eileen P. Drake
			Chief Executive Officer and President
			(Principal Executive Officer)

Date:	~~November 2, 2017~~April 28, 2020	By:	/s/ Paul R. Lundstrom
			Paul R. Lundstrom ~~Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)~~

~~EXHIBIT INDEX~~



~~No.~~		~~Description~~

~~10.1~~*		~~Aerojet Rocketdyne Holdings, Inc. Executive Change in Control Severance Policy~~ Vice President of Finance and Chief Financial Officer
~~31.1~~*		~~Certification of Principal Executive Officer pursuant to Rule 13a — 14 (a) of the Securities Exchange Act of 1934, as amended~~.
~~31.2~~*		~~Certification of~~ (Principal Financial ~~Officer pursuant to Rule 13a — 14 (a) of the Securities Exchange Act of 1934, as amended~~. Officer)
~~32.1~~*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a — 14(b) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Date:	April 28, 2020	By:	/s/ Daniel L. Boehle
101*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations, (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statement of Stockholders’ Equity, (v) Unaudited Condensed Consolidated Statements of Cash Flows,	Daniel L. Boehle
			Vice President and ~~(vi) Unaudited Notes to Unaudited Condensed Consolidated Financial Statements.~~Controller
			(Principal Accounting Officer)

~~_______~~

* Filed herewith.

4732



	September 30, 2017			December 31, 2016
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	392.5		$	410.3
Accounts receivable	283.1			136.4
Inventories	160.8			185.1
Recoverable from the U.S. government and other third parties for environmental remediation costs	26.7			25.2
Receivable from Northrop Grumman Corporation (“Northrop”)	6.0			6.0
Other current assets, net	71.0			91.7
Total Current Assets	940.1			854.7
Noncurrent Assets
Property, plant and equipment, net	349.6			366.0
Real estate held for entitlement and leasing	93.4			91.8
Recoverable from the U.S. government and other third parties for environmental remediation costs	225.5			239.8
Receivable from Northrop	60.0			62.0
Deferred income taxes	251.2			292.5
Goodwill	160.0			158.1
Intangible assets	88.4			94.4
Other noncurrent assets, net	126.7			90.2
Total Noncurrent Assets	1,354.8			1,394.8
Total Assets	$	2,294.9		$	2,249.5
LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	22.4		$	55.6
Accounts payable	126.2			96.2
Reserves for environmental remediation costs	35.8			37.1
Postretirement medical and life insurance benefits	5.2			5.2
Advance payments on contracts	182.7			221.8
Other current liabilities	192.6			167.8
Total Current Liabilities	564.9			583.7
Noncurrent Liabilities
Long-term debt	596.2			608.0
Reserves for environmental remediation costs	298.6			312.6
Pension benefits	486.5			548.2
Postretirement medical and life insurance benefits	35.4			37.4
Other noncurrent liabilities	162.0			124.0
Total Noncurrent Liabilities	1,578.7			1,630.2
Total Liabilities	2,143.6			2,213.9
Commitments and contingencies (Note 8)
Redeemable common stock, par value of $0.10; 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 September 30, 2017; 69.2 million shares issued and outstanding as of December 31, 2016	7.4			6.9
Other capital	501.3			456.9
Treasury stock at cost, 3.5 million shares as of September 30, 2017 and December 31, 2016	(64.5		)	(64.5		)
Accumulated deficit	(19.0		)	(61.8		)
Accumulated other comprehensive loss, net of income taxes	(273.9		)	(303.0		)
Total Stockholders’ Equity	151.3			34.5
Total Liabilities, Redeemable Common Stock and Stockholders’ Equity	$	2,294.9		$	2,249.5



AR1 R&D costs incurred	$	236.6
Less amounts funded by the U.S. Air Force	(141.2		)
Less amounts funded by ULA	(9.3		)
AR1 R&D costs net of reimbursements	86.1
AR1 R&D costs expensed and not applied to contracts	(32.1		)
Net AR1 R&D costs applied to contracts	$	54.0



	Total		Cash and Cash Equivalents		Money Market Funds
	(In millions)
Cash and cash equivalents	$	392.5	$	277.3	$	115.2
Grantor trust (included as a component of other current and noncurrent assets)	6.9		—		6.9
	$	399.4	$	277.3	$	122.1



	Actuarial Losses, Net			Prior Service Credits, Net		Total
	(In millions)
December 31, 2016	$	(303.2	)	$	0.2	$	(303.0	)
Amortization of actuarial losses and prior service credits, net of $18.5 million of income taxes	29.1			—		29.1
September 30, 2017	$	(274.1	)	$	0.2	$	(273.9	)



Current assets	$	12.0
Property, plant and equipment	3.8
Total tangible assets acquired	15.8
Intangible assets acquired	4.2
Deferred income taxes	0.3
Total assets acquired	20.3
Liabilities assumed, current	(5.2		)
Total identifiable net assets acquired	15.1
Goodwill (Consideration less total identifiable net assets acquired)	$	1.9



	Gross Carrying Amount (in millions)		Amortization Period (years)
Trade name	$	0.5	8
Customer relationships	2.8		8
Developed technology	0.9		10
Total intangible assets	$	4.2



	September 30, 2017			December 31, 2016
Carrying value, long-term	$	245.4		$	240.0
Unamortized discount and deferred financing costs	54.6			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)	6.3			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



Annual cost reductions related to Phase I (expected during 2019)	$	145.0
Annual cost reductions related to Phase II (expected during 2021)	85.0
Total annual cost reductions	$	230.0



	December 31, 2016		Cash Payments			Non-cash Equity Conversion			September 30, 2017
	(In millions)
Term loan	$	390.0	$	(15.0	)	$	—		$	375.0
2¹/₄% Notes	300.0		—			—			300.0
4¹/₁₆% Debentures	35.6		—			(35.6		)	—
Total Debt and Borrowing Activity	$	725.6	$	(15.0	)	$	(35.6	)	$	675.0



Claims filed as of December 31, 2016	64
Claims filed	19
Claims dismissed	(17		)
Claims settled	(3		)
Claims pending as of September 30, 2017	63
Aggregate settlement costs	$	0.1
Average settlement costs (1)	$	—