UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended: September 30, ~~2019~~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 or organization)						(I.R.S. Employer Identification No.)
222 N. Pacific Coast Highway
Suite 500
El Segundo
California						90245
(Address of principal executive offices)						(Zip Code)

~~310~~-~~252-8100~~310-252-8100

(Registrant’s telephone number, including area 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.Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

Non-accelerated filer

☐

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 ☒

As of October ~~21, 2019,~~20, 2020, the Company had ~~78,691,909~~77,279,471 outstanding common 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, ~~2019~~2020

Table of Contents


Item Number		Page
PART I — FINANCIAL INFORMATION
1	Financial Statements	1
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
3	Quantitative and Qualitative Disclosures About Market Risk	31
4	Controls and Procedures	31
PART II — OTHER INFORMATION
1	Legal Proceedings	32
1A	Risk Factors	32
2	Unregistered Sales of Equity Securities and Use of Proceeds	32
3	Defaults Upon Senior Securities	33
4	Mine Safety Disclosures	33
5	Other Information	33
6	Exhibits	33
SIGNATURES
	Signatures	34

Item
Number
Page
PART I — FINANCIAL INFORMATION
1 Financial Statements
1
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
3 Quantitative and Qualitative Disclosures About Market Risk
31
4 Controls and Procedures
32
PART II — OTHER INFORMATION
1 Legal Proceedings
32
1A Risk Factors
32
2 Unregistered Sales of Equity Securities and Use of Proceeds
32
3 Defaults Upon Senior Securities
32
4 Mine Safety Disclosures
32
5 Other Information
32
6 Exhibits
33
SIGNATURES
Signatures
34

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 September 30,						Nine months ended September 30,							2020		2019		2020		2019
	2019			2018			2019			2018
	(In millions, except per share amounts)													(In millions, except per share amounts)
Net sales	$	481.8		$	498.8		$	1,458.5		$	1,458.0		Net sales	$	527.7	$	481.8	$	1,516.2	$	1,458.5
Operating costs and expenses:													Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	392.9			400.7			1,170.1			1,197.0			Cost of sales (exclusive of items shown separately below)	441.6		392.9		1,251.7		1,170.1

Selling, general and administrative expense	15.1			13.0			44.2			30.8			Selling, general and administrative expense	11.2		15.1		31.0		44.2
Depreciation and amortization	18.4			18.1			53.4			53.5			Depreciation and amortization	15.1		18.4		49.7		53.4
Other expense (income), net:
Environmental remediation provision adjustments	1.0			(39.8		)	1.7			(37.0		)
Other	(0.7		)	(1.5		)	(0.4		)	(2.2		)
Other expense, net													Other expense, net	3.3		0.3		1.2		1.3

Total operating costs and expenses	426.7			390.5			1,269.0			1,242.1			Total operating costs and expenses	471.2		426.7		1,333.6		1,269.0
Operating income	55.1			108.3			189.5			215.9			Operating income	56.5		55.1		182.6		189.5
Non-operating:													Non-operating:
Retirement benefits expense	6.5			14.4			19.5			43.2			Retirement benefits expense	9.1		6.5		27.4		19.5

Interest income	(3.9		)	(2.8		)	(11.9		)	(6.4		)	Interest income	(0.5)		(3.9)		(4.7)		(11.9)
Interest expense	9.0			9.1			27.2			25.5			Interest expense	7.2		9.0		23.0		27.2
Total non-operating expense, net	11.6			20.7			34.8			62.3			Total non-operating expense, net	15.8		11.6		45.7		34.8
Income before income taxes	43.5			87.6			154.7			153.6			Income before income taxes	40.7		43.5		136.9		154.7
Income tax provision	10.6			22.6			39.0			39.8			Income tax provision	9.0		10.6		34.6		39.0

Net income	$	32.9		$	65.0		$	115.7		$	113.8		Net income	$	31.7	$	32.9	$	102.3	$	115.7
Earnings per share of common stock	Earnings per share of common stock												Earnings per share of common stock

Basic earnings per share	$	0.42		$	0.85		$	1.47		$	1.50		Basic earnings per share	$	0.40	$	0.42	$	1.30	$	1.47

Diluted earnings per share	$	0.39		$	0.82		$	1.39		$	1.47		Diluted earnings per share	$	0.38	$	0.39	$	1.23	$	1.39
Weighted average shares of common stock outstanding, basic	77.3			74.7			77.1			74.2			Weighted average shares of common stock outstanding, basic	77.6		77.3		77.6		77.1
Weighted average shares of common stock outstanding, diluted	82.8			77.3			81.5			75.9			Weighted average shares of common stock outstanding, diluted	81.9		82.8		82.4		81.5

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


										Three months ended September 30,						Nine months ended September 30,
	Three months ended September 30,				Nine months ended September 30,					2020		2019		2020		2019
	2019		2018		2019		2018
	(In millions)									(In millions)
Net income	$	32.9	$	65.0	$	115.7	$	113.8	Net income	$	31.7	$	32.9	$	102.3	$	115.7
Other comprehensive income:									Other comprehensive income:
Amortization of net actuarial losses and prior service credits, net of income taxes of $2.2 million, $4.3 million, $6.8 million, and $12.7 million	6.9		12.3		20.9		37.3

Amortization of net actuarial losses, net of income taxes of $3.3 million, $2.2 million, $10.0 million, and $6.8 million									Amortization of net actuarial losses, net of income taxes of $3.3 million, $2.2 million, $10.0 million, and $6.8 million	10.1		6.9		30.3		20.9
Comprehensive income	$	39.8	$	77.3	$	136.6	$	151.1	Comprehensive income	$	41.8	$	39.8	$	132.6	$	136.6

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30, 2020		December 31, 2019
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	1,010.0	$	932.6
Restricted cash	3.0		3.0
Marketable securities	1.5		0
Accounts receivable, net	182.4		112.5

Contract assets	273.3		224.1

Other current assets, net	138.5		145.8


Total Current Assets	1,608.7		1,418.0
Noncurrent Assets
Right-of-use assets	48.9		48.0
Property, plant and equipment, net	403.8		409.9

Recoverable environmental remediation costs	228.8		234.8

Deferred income taxes	107.8		121.9

Goodwill	161.4		161.4
Intangible assets	48.0		58.2
Other noncurrent assets, net	247.4		255.6

Total Noncurrent Assets	1,246.1		1,289.8
Total Assets	$	2,854.8	$	2,707.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	297.7	$	284.7
Accounts payable	93.7		127.3
Reserves for environmental remediation costs	42.1		40.1
Contract liabilities	343.4		262.3

Other current liabilities	144.2		155.5
Total Current Liabilities	921.1		869.9
Noncurrent Liabilities
Long-term debt	331.4		352.3



Reserves for environmental remediation costs	262.0		269.1
Pension benefits	379.9		398.9

Operating lease liabilities	38.3		39.1
Other noncurrent liabilities	213.2		201.8
Total Noncurrent Liabilities	1,224.8		1,261.2
Total Liabilities	2,145.9		2,131.1
Commitments and contingencies (Note 8)

Stockholders’ Equity
Preferred stock, par value of $1.00; 15.0 million shares authorized; NaN issued or outstanding	0		0
Common stock, par value of $0.10; 150.0 million shares authorized; 77.4 million shares issued and outstanding as of September 30, 2020; 77.3 million shares issued and outstanding as of December 31, 2019	7.7		7.7
Other capital	585.2		573.3
Treasury stock at cost, 1.1 million shares as of September 30, 2020; 0.8 million shares as of December 31, 2019	(25.0)		(12.7)
Retained earnings	347.2		244.9
Accumulated other comprehensive loss, net of income taxes	(206.2)		(236.5)
Total Stockholders’ Equity	708.9		576.7
Total Liabilities and Stockholders’ Equity	$	2,854.8	$	2,707.8

September 30,
2019 December 31, 2018
(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents $ 797.0
$ 735.3
Restricted cash 5.1
5.0
Accounts receivable, net 171.0
141.2
Contract assets 237.1
235.1
Other current assets, net 140.8
117.7
Total Current Assets 1,351.0
1,234.3
Noncurrent Assets
Right-of-use assets 49.8
—
Property, plant and equipment, net 383.5
399.7
Recoverable environmental remediation costs 240.6
251.1
Deferred income taxes 129.4
116.9
Goodwill 161.4
161.3
Intangible assets 61.6
71.8
Other noncurrent assets, net 273.4
255.0
Total Noncurrent Assets 1,299.7
1,255.8
Total Assets $ 2,650.7
$ 2,490.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt $ 280.4
$ 273.1
Accounts payable 100.3
88.7
Reserves for environmental remediation costs 42.4
39.8
Contract liabilities 268.1
272.6
Other current liabilities 184.4
204.1
Total Current Liabilities 875.6
878.3
Noncurrent Liabilities
Long-term debt 359.2
352.3
Reserves for environmental remediation costs 275.8
288.1
Pension benefits 367.0
376.7
Operating lease liabilities 41.7
—
Other noncurrent liabilities 164.7
173.4
Total Noncurrent Liabilities 1,208.4
1,190.5
Total Liabilities 2,084.0
2,068.8
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; 77.3 million shares issued and outstanding as of September 30, 2019; 76.8 million shares issued and outstanding as of December 31, 2018 7.7
7.7
Other capital 570.6
561.8
Treasury stock at cost, 0.8 million shares as of September 30, 2019 and December 31, 2018 (12.7 ) (12.7 )
Retained earnings 219.6
103.9
Accumulated other comprehensive loss, net of income taxes (218.5 ) (239.4 )
Total Stockholders’ Equity 566.7
421.3
Total Liabilities and Stockholders’ Equity $ 2,650.7
$ 2,490.1

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Common Stock											Accumulated Other		Total
	Shares	Amount		Other Capital		Treasury Stock		Retained Earnings		Comprehensive Loss		Stockholders' Equity
	(In millions)
June 30, 2019	77.1	$	7.7	$	564.7	$	(12.7)	$	186.7	$	(225.4)	$	521.0
Net income	—	—		—		—		32.9		—		32.9
Amortization of net actuarial losses, net of income taxes	—	—		—		—		—		6.9		6.9


Repurchase of shares for withholding taxes and option costs under equity plans	—	—		(0.8)		—		—		—		(0.8)
Stock-based compensation and shares issued under equity plans	0.2	—		6.7		—		—		—		6.7
September 30, 2019	77.3	$	7.7	$	570.6	$	(12.7)	$	219.6	$	(218.5)	$	566.7

December 31, 2018	76.8	$	7.7	$	561.8	$	(12.7)	$	103.9	$	(239.4)	$	421.3
Net income	—	—		—		—		115.7		—		115.7
Amortization of net actuarial losses, net of income taxes	—	—		—		—		—		20.9		20.9


Repurchase of shares for withholding taxes and option costs under equity plans	(0.3)	—		(7.5)		—		—		—		(7.5)
Stock-based compensation and shares issued under equity plans	0.8	—		16.3		—		—		—		16.3
September 30, 2019	77.3	$	7.7	$	570.6	$	(12.7)	$	219.6	$	(218.5)	$	566.7

June 30, 2020	77.6	$	7.7	$	577.6	$	(13.2)	$	315.5	$	(216.3)	$	671.3
Net income	—	—		—		—		31.7		—		31.7
Amortization of net actuarial losses, net of income taxes	—	—		—		—		—		10.1		10.1
Purchase of treasury stock	(0.3)	—		—		(11.8)		—		—		(11.8)



Repurchase of shares for withholding taxes and option costs under equity plans	—	—		(0.6)		—		—		—		(0.6)
Stock-based compensation and shares issued under equity plans	0.1	—		8.2		—		—		—		8.2
September 30, 2020	77.4	$	7.7	$	585.2	$	(25.0)	$	347.2	$	(206.2)	$	708.9

December 31, 2019	77.3	$	7.7	$	573.3	$	(12.7)	$	244.9	$	(236.5)	$	576.7
Net income	—	—		—		—		102.3		—		102.3
Amortization of net actuarial losses, net of income taxes	—	—		—		—		—		30.3		30.3
Purchase of treasury stock	(0.3)	—		—		(12.3)		—		—		(12.3)



Repurchase of shares for withholding taxes and option costs under equity plans	(0.2)	—		(8.8)		—		—		—		(8.8)
Stock-based compensation and shares issued under equity plans	0.6	—		20.7		—		—		—		20.7
September 30, 2020	77.4	$	7.7	$	585.2	$	(25.0)	$	347.2	$	(206.2)	$	708.9

See Notes to Unaudited Condensed Consolidated Financial Statements.

~~Aerojet Rocketdyne Holdings, Inc.~~

~~Condensed Consolidated Statement of Stockholders’ Equity~~

~~(Unaudited)~~

Common Stock (Accumulated Deficit) Accumulated Other Total
Shares Amount Other
Capital Treasury
Stock Retained Earnings Comprehensive
Loss Stockholders'
Equity
(In millions)
June 30, 2018 73.9
$ 7.4
$ 509.4
$ (64.5 ) $ 15.4
$ (247.6 ) $ 220.1
Net income —
—
—
—
65.0
—
65.0
Amortization of net actuarial losses and prior service credits, net of income taxes —
—
—
—
—
12.3
12.3
Contribution of treasury stock to retirement benefit plan 2.7
0.3
42.9
51.8
—
—
95.0
Repurchase of shares for withholding taxes and option costs under equity plans —
—
(0.5 ) —
—
—
(0.5 )
Stock-based compensation and shares issued under equity plans 0.2
—
4.5
—
—
—
4.5
September 30, 2018 76.8
$ 7.7
$ 556.3
$ (12.7 ) $ 80.4
$ (235.3 ) $ 396.4

December 31, 2017 73.6
$ 7.4
$ 503.1
$ (64.5 ) $ (71.0 ) $ (272.6 ) $ 102.4
Net income —
—
—
—
113.8
—
113.8
Amortization of net actuarial losses and prior service credits, net of income taxes —
—
—
—
—
37.3
37.3
Contribution of treasury stock to retirement benefit plan 2.7
0.3
42.9
51.8
—
—
95.0
Cumulative effect of change in accounting guidance —
—
—
—
37.6
—
37.6
Repurchase of shares for withholding taxes and option costs under equity plans (0.1 ) —
(2.6 ) —
—
—
(2.6 )
Stock-based compensation and shares issued under equity plans 0.6
—
12.9
—
—
—
12.9
September 30, 2018 76.8
$ 7.7
$ 556.3
$ (12.7 ) $ 80.4
$ (235.3 ) $ 396.4

June 30, 2019 77.1
$ 7.7
$ 564.7
$ (12.7 ) $ 186.7
$ (225.4 ) $ 521.0
Net income —
—
—
—
32.9
—
32.9
Amortization of net actuarial losses and prior service credits, net of income taxes —
—
—
—
—
6.9
6.9
Repurchase of shares for withholding taxes and option costs under equity plans —
—
(0.8 ) —
—
—
(0.8 )
Stock-based compensation and shares issued under equity plans 0.2
—
6.7
—
—
—
6.7
September 30, 2019 77.3
$ 7.7
$ 570.6
$ (12.7 ) $ 219.6
$ (218.5 ) $ 566.7

December 31, 2018 76.8
$ 7.7
$ 561.8
$ (12.7 ) $ 103.9
$ (239.4 ) $ 421.3
Net income —
—
—
—
115.7
—
115.7
Amortization of net actuarial losses and prior service credits, net of income taxes —
—
—
—
—
20.9
20.9
Repurchase of shares for withholding taxes and option costs under equity plans (0.3 ) —
(7.5 ) —
—
—
(7.5 )
Stock-based compensation and shares issued under equity plans 0.8
—
16.3
—
—
—
16.3
September 30, 2019 77.3
$ 7.7
$ 570.6
$ (12.7 ) $ 219.6
$ (218.5 ) $ 566.7

~~See Notes to Unaudited Condensed Consolidated Financial Statements.~~

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended September 30,							Nine months ended September 30,
	2019			2018				2020		2019
	(In millions)							(In millions)
Operating Activities							Operating Activities
Net income	$	115.7		$	113.8		Net income	$	102.3	$	115.7
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	53.4			53.5			Depreciation and amortization	49.7		53.4
Amortization of debt discount and deferred financing costs	7.0			6.6			Amortization of debt discount and deferred financing costs	7.4		7.0
Stock-based compensation	24.5			12.9			Stock-based compensation	13.2		24.5
Retirement benefits, net	16.2			10.4			Retirement benefits, net	18.9		16.2

Other, net	0.3			(1.9		)	Other, net	0.2		0.3
Changes in assets and liabilities, net of effects from acquisition in 2019:							Changes in assets and liabilities, net of effects from acquisition in 2019:
Accounts receivable, net	(29.7		)	(95.1		)	Accounts receivable, net	(69.9)		(29.7)

Contract assets	(2.0		)	49.7			Contract assets	(49.2)		(2.0)
Other current assets, net	(22.8		)	13.1			Other current assets, net	7.3		(22.8)

Recoverable environmental remediation costs	10.5			(26.7		)	Recoverable environmental remediation costs	6.0		10.5
Other noncurrent assets, net	(21.5		)	0.6			Other noncurrent assets, net	6.9		(21.5)
Accounts payable	7.8			(36.6		)	Accounts payable	(33.6)		7.8
Contract liabilities	(4.5		)	(47.5		)	Contract liabilities	81.1		(4.5)
Other current liabilities	(45.1		)	20.4			Other current liabilities	(12.0)		(45.1)
Deferred income taxes	(19.3		)	24.7			Deferred income taxes	4.2		(19.3)
Reserves for environmental remediation costs	(9.7		)	(6.0		)	Reserves for environmental remediation costs	(5.1)		(9.7)
Other noncurrent liabilities and other	15.6			5.1			Other noncurrent liabilities and other	11.2		15.6

Net Cash Provided by Operating Activities	96.4			97.0			Net Cash Provided by Operating Activities	138.6		96.4
Investing Activities							Investing Activities
Purchases of marketable securities	—			(47.7		)	Purchases of marketable securities	(26.5)		0
Sales of marketable securities	—			65.1			Sales of marketable securities	25.0		0
Insurance proceeds	—			1.9

Capital expenditures	(16.3		)	(20.9		)	Capital expenditures	(31.0)		(16.3)

Net Cash Used in Investing Activities	(16.3		)	(1.6		)	Net Cash Used in Investing Activities	(32.5)		(16.3)
Financing Activities							Financing Activities
Debt issuance costs	—			(3.3		)

Debt repayments	(15.9		)	(20.5		)	Debt repayments	(14.7)		(15.9)
Repurchase of shares for withholding taxes and option costs under equity plans	(7.5		)	(2.6		)	Repurchase of shares for withholding taxes and option costs under equity plans	(8.8)		(7.5)
Proceeds from shares issued under equity plans	5.1			4.6			Proceeds from shares issued under equity plans	7.1		5.1
Purchase of treasury stock							Purchase of treasury stock	(12.3)		0

Net Cash Used in Financing Activities	(18.3		)	(21.8		)	Net Cash Used in Financing Activities	(28.7)		(18.3)
Net Increase in Cash, Cash Equivalents and Restricted Cash	61.8			73.6			Net Increase in Cash, Cash Equivalents and Restricted Cash	77.4		61.8
Cash, Cash Equivalents and Restricted Cash at Beginning of Year	740.3			535.0
Cash, Cash Equivalents and Restricted Cash at End of Year	$	802.1		$	608.6
Cash, Cash Equivalents and Restricted Cash at Beginning of Period							Cash, Cash Equivalents and Restricted Cash at Beginning of Period	935.6		740.3
Cash, Cash Equivalents and Restricted Cash at End of Period							Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,013.0	$	802.1
Supplemental disclosures of cash flow information							Supplemental disclosures of cash flow information
Cash paid for interest	$	18.6		$	16.9		Cash paid for interest	$	13.5	$	18.6
Cash paid for income taxes	48.9			17.6			Cash paid for income taxes	35.9		48.9
Cash refund for income taxes	1.0			5.1			Cash refund for income taxes	0.4		1.0
Contribution of treasury stock to retirement benefit plan	—			95.0

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" or the "Company") has prepared the accompanying unaudited condensed consolidated financial statements, including the accounts of the Company and its 100% owned and majority owned subsidiaries, in accordance with the instructions to Form 10-Q. The December 31, ~~2018,~~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"). 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 year ended December 31, ~~2018. 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’s operations are organized into 2 segments:

Aerospace and Defense — includes the operations of the Company’s wholly-owned subsidiary Aerojet Rocketdyne, Inc. ("Aerojet 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"), the National Aeronautics and Space Administration ("NASA"), and major aerospace and defense prime contractors.

Real Estate — includes the activities of the Company’s wholly-owned subsidiary Easton Development Company, LLC ("Easton") related to the re-zoning, entitlement, sale, and leasing of the Company’s excess real estate assets.

The ~~Company is currently~~fiscal 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 their 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 year ended December 31, ~~2018.~~2019.

During the three and nine months ended September 30, 2020, the Company’s financial results and operations were not materially adversely impacted by the coronavirus ("COVID-19") pandemic. As a defense industrial-base U.S. government contractor, the Company is considered an essential business by the U.S. and state governments and it continues to operate as such during the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by COVID-19 pandemic depends on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this 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 ~~February 2016,~~August 2018, the Financial Accounting Standards Board ("FASB") issued guidance requiring ~~lessees~~a customer in a cloud computing service arrangement to follow the internal-use software guidance in order to determine which implementation costs to defer and recognize ~~a right-of-use ("ROU") 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. The new standard allowed for the application of the standard on the adoption date without restatement of prior comparative periods presented or a modified retrospective transition method which required application of the new guidance at the beginning of the earliest comparative period presented.an asset. The Company adopted this new standard as of January 1, ~~2019, without restating prior comparative periods,~~2020, on a prospective basis and elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, did not require reassessment of lease classification. The Company recorded a ROU asset and lease liability for operating leases at adoption of $51.7 million and $56.3 million, respectively (see Note 13). The difference between the ROU asset and lease liability for operating leases was primarily due to previously recorded deferred rents relating to periods prior to January 1, 2019. The Company’s accounting for finance leases remains substantially unchanged. The standard had no impact on the Company's results of operations or cash flows.

In February 2018, the FASB issued guidance that permits the reclassification of the income tax effects of the Tax Cuts and Jobs Act ("Tax Act") on items within accumulated other comprehensive loss to retained earnings. The guidance refers to these amounts as "stranded tax effects." The Company has elected to retain the income tax effects of the Tax Act as a component of accumulated other comprehensive loss. Given this election, the adoption of this guidance did not have a material impact on the Company's financial position, results of operations, or cash flows.

Recently Issued Accounting Pronouncements

In August ~~2018,~~2020, the FASB issued guidance which simplifies the accounting for convertible instruments. This guidance eliminates certain models that ~~modifies~~require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the ~~disclosure requirements~~guidance eliminates certain of the conditions for ~~employers~~equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that ~~sponsor defined benefit pension~~may be settled in cash or ~~other postretirement plans. The new~~shares, except for certain liability-classified share-based payment awards. This guidance is effective for financial statements issued for fiscal years ending after December 15, 2020. Early adoption is permitted and requires adoption on a retrospective basis to all periods presented. As the new guidance only impacts presentation, the Company ~~does not expect~~beginning in the first quarter of 2022 and must be applied using either a modified or full retrospective approach. The Company is currently evaluating the impact this guidance towill have ~~an impact~~ on its consolidated financial ~~position, results of operations, or cash flows.~~statements.

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

The following table reconciles the numerator and denominator used to calculate basic and diluted EPS of common stock:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions, except per share amounts)
Numerator:
Net income $ 32.9
$ 65.0
$ 115.7
$ 113.8
Income allocated to participating securities (0.6 ) (1.4 ) (2.2 ) (2.4 )
Net income for basic and diluted EPS $ 32.3
$ 63.6
$ 113.5
$ 111.4
Denominator:
Basic weighted average shares 77.3
74.7
77.1
74.2
Effect of:
2.25% Convertible Senior Notes ("2¹/₄% Notes")
5.4
2.5
4.3
1.6
Employee stock options and stock purchase plan 0.1
0.1
0.1
0.1
Diluted weighted average shares 82.8
77.3
81.5
75.9
Basic
Basic EPS $ 0.42
$ 0.85
$ 1.47
$ 1.50
Diluted
Diluted EPS $ 0.39
$ 0.82
$ 1.39
$ 1.47



	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions, except per share amounts)
Numerator:


Net income	$	31.7	$	32.9	$	102.3	$	115.7




Income allocated to participating securities	(0.3)		(0.6)		(1.3)		(2.2)
Net income for basic and diluted EPS	$	31.4	$	32.3	$	101.0	$	113.5


Denominator:
Basic weighted average shares	77.6		77.3		77.6		77.1



Effect of:

2.25% Convertible Senior Notes ("2¹/₄% Notes")	4.2		5.4		4.7		4.3
Awards issued under equity plans	0.1		0.1		0.1		0.1
Diluted weighted average shares	81.9		82.8		82.4		81.5
Basic


Basic EPS	$	0.40	$	0.42	$	1.30	$	1.47
Diluted


Diluted EPS	$	0.38	$	0.39	$	1.23	$	1.39

~~The following table sets forth the potentially dilutive securities~~Securities which would have been anti-dilutive are insignificant and are excluded from the computation ~~because their effect would have been anti-dilutive:~~ of diluted earnings per share in all periods presented.

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Unvested restricted shares 1.4
1.6
1.4
1.6
Total potentially dilutive securities 1.4
1.6
1.4
1.6

Note 3. Revenue Recognition

In the Company’s Aerospace and Defense segment, the majority of revenue is earned from long-term contracts to design, develop, and manufacture aerospace and defense products for, and provide related services to, the Company’s customers, including the U.S. government and major aerospace and defense prime contractors.

The Company evaluates the contract value and cost estimates for performance obligations at least quarterly and more frequently when circumstances significantly change. Factors considered in estimating the work to be completed include, but are not limited to: labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, warranty costs, volume assumptions, anticipated labor agreements, inflationary trends, schedule and performance delays, availability of funding from the customer, and the recoverability of costs incurred outside the original contract included in any estimates to complete. When the Company’s estimate of total costs to be incurred to satisfy a performance obligation exceeds the expected revenue, the Company recognizes the loss immediately. When the Company determines that a change in estimates has an impact on the associated profit of a performance obligation, the Company 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 changes in significant contract accounting estimates on the Company’s Aerospace and Defense segment operating results:


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales	$	3.2	$	4.7	$	20.4	$	43.5
Net favorable effect of the changes in contract estimates on income before income taxes	3.2		4.0		21.4		43.0
Net favorable effect of the changes in contract estimates on net income	2.7		2.9		16.0		31.6
Net favorable effect of the changes in contract estimates on basic EPS	0.03		0.04		0.20		0.40
Net favorable effect of the changes in contract estimates on diluted EPS	0.03		0.03		0.19		0.38

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales $ 4.7
$ 32.1
$ 43.5
$ 50.9
Net favorable effect of the changes in contract estimates on income before income taxes 4.0
26.9
43.0
41.0
Net favorable effect of the changes in contract estimates on net income 2.9
19.8
31.6
30.2
Net favorable effect of the changes in contract estimates on basic EPS 0.04
0.26
0.40
0.40
Net favorable effect of the changes in contract estimates on diluted EPS 0.03
0.25
0.38
0.39

~~The three months ended September 30, 2019, favorable changes in contract estimates were primarily driven by improved performance and risk retirements on~~For the ~~Patriot Advanced Capability-3 ("PAC-3") and RL-10 programs partially offset by an unfavorable contract billing adjustment on an electric propulsion contract. The~~ nine months ended September 30, ~~2019,~~2020, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the Terminal High Altitude Area Defense ("THAAD"), ~~PAC-3,~~RS-68, RL-10, and ~~AJ-60 programs. The three~~Patriot Advanced Capability-3 ("PAC-3") programs partially offset by cost growth on a portion of the Standard Missile program and the

Commercial Crew program. For the nine months ended September 30, ~~2018,~~2019, net favorable changes in contract estimates ~~on income before income taxes~~ were primarily driven by improved performance and risk retirements on the THAAD, ~~RS-68,~~PAC-3, and RL-10 ~~programs and better than expected overhead rate performance, partially offset by performance issues on the Commercial Crew Development program.~~programs.

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

September 30, 2019 December 31, 2018
(In millions)
Contract assets $ 278.9
$ 278.0
Reserve for overhead rate disallowance (41.8 ) (42.9 )
Contract assets, net of reserve 237.1
235.1
Contract liabilities 268.1
272.6
Net contract liabilities, net of reserve $ (31.0 ) $ (37.5 )


	September 30, 2020		December 31, 2019
	(In millions)
Contract assets	$	280.3	$	243.5
Reserve for overhead rate disallowance	(7.0)		(19.4)
Contract assets, net of reserve	273.3		224.1
Contract liabilities	343.4		262.3
Net contract liabilities, net of reserve	$	(70.1)	$	(38.2)

Net contract liabilities ~~were comparable for the periods presented.~~increased by $31.9 million from December 31, 2019, primarily due to an increase in contract advances partially offset by an increase in unbilled receivables. During the three and nine months ended September 30, ~~2019,~~2020, the Company recognized sales of ~~$19.5~~$23.2 million and ~~$225.4~~$207.2 million that were included in the Company's contract liabilities as of ~~January 1,~~December 31, 2019.

As of September 30, ~~2019,~~2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled ~~$4.5~~$6.7 billion. The Company expects to recognize approximately ~~43%~~30%, or ~~$2.0~~$2.1 billion, of the remaining performance obligations as sales over the next twelve months, an additional 24% the following twelve months, and ~~33%~~46% 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 September 30,				Nine months ended September 30,					Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
Fixed-price	59	%	62	%	60	%	62	%	Fixed-price	60	%	59	%	61	%	60	%
Cost-reimbursable	41		38		40		38		Cost-reimbursable	40		41		39		40

The ~~following table summarizes the percentages of net sales by~~ principal end ~~user:~~user customers are primarily agencies of the U.S. government as illustrated in the following table:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
U.S. government 98 % 96 % 95 % 93 %
Non U.S. government 2
4
5

7


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
U.S. government	96	%	98	%	96	%	95	%
Non U.S. government	4		2		4		5

The Company's Real Estate segment represented less than 1% of the Company's net sales for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Note 4. Stock-Based Compensation

The following table summarizes stock-based compensation expense by type of award:



	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)
Stock Appreciation Rights	$	0.6	$	5.1	$	(1.3)	$	12.7
Stock options	0.1		0.1		0.3		0.2
Restricted stock and restricted stock units, service based	1.5		1.3		4.7		4.0
Restricted stock and restricted stock units, performance based	3.0		2.2		8.7		6.9
Employee stock purchase plan	0.3		0.3		0.8		0.7
Total stock-based compensation expense	$	5.5	$	9.0	$	13.2	$	24.5

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Stock Appreciation Rights ("SARs") $ 5.1
$ 3.6
$ 12.7
$ 4.1
Stock options 0.1
—
0.2
0.1
Restricted stock, service based 1.3
1.0
4.0
3.2
Restricted stock, performance based 2.2
1.4
6.9
5.0
Employee stock purchase plan 0.3
0.2
0.7
0.5
Total stock-based compensation expense $ 9.0
$ 6.2
$ 24.5
$ 12.9

Stock-based compensation in the three and nine months ended September 30, 2019, includes a significant increase in the fair value of the SARs primarily as a result of an increase in the market price of the Company's common stock as reported on the New York Stock Exchange.

Note 5. Balance Sheet Accounts

a. Fair Value of Financial Instruments

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


			Fair value measurement as of September 30, 2019									Fair value measurement as of September 30, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)									(In millions)
Money market funds	$	415.9	$	415.9	$	—	$	—	Money market funds	$	659.8	$	659.8	$	0	$	0
Registered investment companies	4.1		4.1		—		—		Registered investment companies	2.8		2.8		0		0
Commercial paper	64.9		—		64.9		—
Equity securities									Equity securities	1.5		1.5		0		0

Total	$	484.9	$	420.0	$	64.9	$	—	Total	$	664.1	$	664.1	$	0	$	0

Fair value measurement as of December 31, 2018
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 $ 186.3
$ 186.3
$ —
$ —
Commercial paper 154.7
—
154.7
—
Total $ 341.0
$ 186.3
$ 154.7
$ —


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

Total	$	729.6	$	629.7	$	99.9	$	0

As of ~~September 30, 2019 and~~ December 31, ~~2018,~~2019, the total estimated fair value for commercial paper was classified as cash and cash equivalents as the 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 outstanding debt obligations excluding finance lease obligations:

Fair Value Principal Amount
September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
(In millions)
Term loan $ 332.5
$ 345.6
$ 332.5
$ 345.6
2¹/₄% Notes
600.5
441.1
300.0
300.0
Total $ 933.0
$ 786.7
$ 632.5
$ 645.6


	Fair Value						Principal Amount
	September 30, 2020		December 31, 2019		September 30, 2020			December 31, 2019
	(In millions)
Term loan	$	304.0	$	328.1	$	315.0		$	328.1

2¹/₄% Notes	478.1		546.0		300.0			300.0



Total	$	782.1	$	874.1	$	615.0		$	628.1

The fair value of the 2¼% Notes 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~~September 30, 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 ~~approximates~~approximated fair value.

b. Accounts Receivable, net

September 30, 2019
December 31, 2018
(In millions)
Billed receivables under long-term contracts $ 186.5

$ 147.3
Reserve on billed trade receivables (15.7 ) (6.6 )
Other trade receivables 0.2

0.5
Accounts receivable, net $ 171.0

$ 141.2


	September 30, 2020		December 31, 2019
	(In millions)
Billed receivables under long-term contracts	$	183.1	$	122.9
Reserve on billed trade receivables	(1.0)		(10.6)
Other trade receivables	0.3		0.2



Accounts receivable, net	$	182.4	$	112.5

c. Other Current Assets, net

September 30, 2019 December 31, 2018
(In millions)
Deferred costs recoverable from the U.S. government $ 52.5
$ 52.6
Inventories 30.3
14.9
Prepaid expenses 14.6
14.4
Other 43.4
35.8
Other current assets, net $ 140.8
$ 117.7


	September 30, 2020		December 31, 2019
	(In millions)
Deferred costs recoverable from the U.S. government	$	43.5	$	47.1



Income taxes receivable	48.3		43.4
Inventories	10.7		24.0

Prepaid expenses	16.3		13.9





Other	19.7		17.4
Other current assets, net	$	138.5	$	145.8

d. Property, Plant and Equipment, net

September 30, 2019 December 31, 2018
(In millions)
Land $ 71.2

$ 71.2
Buildings and improvements 436.0

408.6
Machinery and equipment, including capitalized software 496.1

499.5
Construction-in-progress 40.2

63.1

1,043.5

1,042.4
Less: accumulated depreciation (660.0 )
(642.7 )
Property, plant and equipment, net $ 383.5

$ 399.7


	September 30, 2020		December 31, 2019
	(In millions)
Land	$	71.2	$	71.2
Buildings and improvements	435.4		434.9
Machinery and equipment, including capitalized software	460.9		488.2
Construction-in-progress	86.4		70.2
	1,053.9		1,064.5
Less: accumulated depreciation	(650.1)		(654.6)
Property, plant and equipment, net	$	403.8	$	409.9

e. Other Noncurrent Assets, net

September 30, 2019
December 31, 2018
(In millions)
Real estate held for entitlement and leasing $ 99.2
$ 96.3
Deferred costs recoverable from the U.S. government 67.0
56.4
Receivable from Northrop Grumman Corporation for environmental remediation costs 48.0
52.5
Other 59.2

49.8
Other noncurrent assets, net $ 273.4

$ 255.0


	September 30, 2020		December 31, 2019
	(In millions)
Real estate held for entitlement and leasing	$	101.7	$	100.3
Deferred costs recoverable from the U.S. government	56.5		54.8
Receivable from Northrop Grumman Corporation for environmental remediation costs	42.0		46.5








Other	47.2		54.0
Other noncurrent assets, net	$	247.4	$	255.6

f. Other Current Liabilities


						September 30, 2020		December 31, 2019
	September 30, 2019		December 31, 2018			(In millions)
	(In millions)
Accrued compensation and employee benefits	$	106.0	$	116.4	Accrued compensation and employee benefits	$	102.1	$	103.1
Income taxes payable	26.4		19.8

Other	52.0		67.9		Other	42.1		52.4
Other current liabilities	$	184.4	$	204.1	Other current liabilities	$	144.2	$	155.5

g. Treasury Stock

During the nine months ended September 30, 2020, the Company repurchased 0.3 million of its common shares at a cost of $12.3 million. The Company reflects stock repurchases in its financial statements on a "settlement" basis.

Note 6. Income Taxes

Nine months ended September 30,
2019 2018
(In millions)
Income tax provision $ 39.0
$ 39.8


	Nine months ended September 30,
	2020		2019
	(In millions)



Income tax provision	$	34.6	$	39.0

In the nine months ended September 30, ~~2019,~~2020, the income tax provision was ~~$39.0~~$34.6 million for an effective tax rate of ~~25.2%~~25.3%. The Company’s effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of Research and Development ("R&D") credits.

In the nine months ended September 30, ~~2018,~~2019, the income tax provision was ~~$39.8~~$39.0 million for an effective tax rate of ~~25.9%~~25.2%. The Company’s effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of 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, ~~2019,~~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.

Note 7. Long-term Debt

September 30, 2019 December 31, 2018
(In millions)
Term loan, bearing interest at variable rates (rate of 3.79% as of September 30, 2019), maturing in September 2023 $ 332.5

$ 345.6
Unamortized deferred financing costs (1.9 ) (2.3 )
Total senior debt 330.6

343.3
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 (39.1 ) (45.1 )
Total convertible senior notes 260.9

254.9
Finance leases (see Note 13) 48.1

27.2
Total other debt 48.1

27.2
Total debt, net of unamortized discount and deferred financing costs 639.6

625.4
Less: Amounts due within one year (280.4 )
(273.1 )
Total long-term debt, net of unamortized discount and deferred financing costs $ 359.2

$ 352.3


	September 30, 2020		December 31, 2019
	(In millions)
Term loan, bearing interest at variable rates (rate of 1.90% as of September 30, 2020), maturing in September 2023	$	315.0	$	328.1

Unamortized deferred financing costs	(1.4)		(1.8)
Total senior debt	313.6		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	(30.6)		(37.0)
Total convertible senior notes	269.4		263.0





Finance leases	46.1		47.7

Total other debt	46.1		47.7
Total debt, net of unamortized discount and deferred financing costs	629.1		637.0
Less: Amounts due within one year	(297.7)		(284.7)
Total long-term debt, net of unamortized discount and deferred financing costs	$	331.4	$	352.3

Senior Credit Facility

On September 20, 2018, the Company amended the senior secured senior credit facility (the "Senior Credit Facility") to a $1.0 billion commitment. The Senior Credit Facility matures on September 20, 2023, and consists of (i) a $650.0 million revolving line of credit (the "Revolver") and (ii) a $350.0 million term loan (the "Term Loan"). The Senior Credit Facility amended the prior $750.0 million credit facility which was set to mature in June 2021 and is intended to provide available funds for the Company’s short-term liquidity needs from time to time.

As of September 30, ~~2019,~~2020, the Company had 0 borrowings under the Revolver and issued ~~$29.6~~$29.7 million in letters of credit.

The Term Loan and any borrowings under the Revolver bear interest at LIBOR 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 each ~~fiscal~~ quarter. In addition to interest, the

Company must 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 ~~increasing~~which will increase to 7.5% per annum on December 31, 2020, and ~~increasing~~increase to 10.0% per annum ~~from~~on 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 ~~will be guaranteed~~is secured by a first priority security interest in the ~~Company and~~Company’s assets, subject to certain customary exceptions, as well as pledges of its ~~existing and future material domestic subsidiaries, other than Easton.~~ equity interests in certain 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~~Consolidated Net Leverage Ratio not to exceed (a) 4.00 to 1.00 through September 30, 2020; (b) 3.75 to 1.00 from October 1, 2020, through September 30, 2021; and (c) 3.50 to 1.00 from 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 and dividends) if the Company's ~~consolidated net leverage ratio~~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.

The Company was in compliance with its financial and non-financial covenants ~~under the Senior Credit Facility~~ as of September 30, ~~2019.~~2020.

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 October 1, ~~2019,~~2020, through December 31, ~~2019,~~2020, because the Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to September 30, ~~2019.~~2020. The Company has a stated intention to cash settle the principal amount of the 2¼% Notes with the conversion premium to be settled in common shares. Accordingly, the net balance of the 2¼% Notes of ~~$260.9~~$269.4 million is classified as a current liability as of September 30, 2019. The classification of the 2¼% Notes as current or noncurrent on the balance sheet is evaluated at each reporting date and may change depending on whether the sale price contingency (discussed below) has been met.2020.

As more fully described in the indenture governing the 2¼% Notes, the holders of the 2¼% Notes may surrender all or any portion of their 2¼% Notes for conversion at any time during any calendar quarter, ~~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):

September 30, 2019 December 31, 2018
Carrying value $ 260.9
$ 254.9
Unamortized discount and deferred financing costs 39.1
45.1
Principal amount $ 300.0
$ 300.0
Carrying amount of equity component, net of equity issuance costs $ 54.5
$ 54.5
Remaining amortization period (years) 4.25
5.0
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, 2020			December 31, 2019
Carrying value	$	269.4		$	263.0
Unamortized discount and deferred financing costs	30.6			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)	3.25			4.0
Effective interest rate	5.8		%	5.8		%
Conversion rate (shares of common stock per $1,000 principal amount)	38.4615			38.4615
Conversion price (per share of common stock)	$	26.00		$	26.00

Based on the Company's closing stock price of ~~$50.51~~$39.89 on September 30, ~~2019,~~2020, the if-converted value of the 2¼% Notes exceeded the aggregate principal amount of the 2¼% Notes by ~~$282.8~~$160.3 million.

The following table presents the interest expense components for the 2¼% Notes:


	Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
	(In millions)									(In millions)
Interest expense-contractual interest	$	1.7	$	1.7	$	5.1	$	5.1	Interest expense-contractual interest	$	1.7	$	1.7	$	5.1	$	5.1
Interest expense-amortization of debt discount	1.9		1.7		5.6		5.2		Interest expense-amortization of debt discount	2.0		1.9		5.9		5.6
Interest expense-amortization of deferred financing costs	0.2		0.2		0.5		0.5		Interest expense-amortization of deferred financing costs	0.2		0.2		0.5		0.5

Note 8. Commitments and Contingencies

a. 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 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. When only a range of amounts can be 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.

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 Illinois state courts. There were 59 95asbestos cases pending as of September 30, ~~2019.~~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, ~~2019,~~2020, the Company has accrued an immaterial amount related to pending claims.

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. 2:15-CV-02245- WBS-AC, the Department of Justice completed its review of the case and declined to intervene in June 2018. The case was originally filed under seal in the U.S. District Court, Eastern District of California in September 2017 and alleged causes of action against the Company based on false claims, retaliation, and wrongful termination of employment seeking injunctive relief, civil penalties, and 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 not recorded any liability for this matter as of September 30, ~~2019.~~2020.

b. Environmental Matters

The Company is involved in approximately 40 environmental matters under the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation Recovery Act, and other federal, state, and 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") 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, ~~2019,~~2020, the aggregate range of these anticipated environmental costs was ~~$318.2~~$304.1 million to ~~$468.3~~$455.3 million and the accrued amount was ~~$318.2~~$304.1 million. See Note 8(c) for a summary of the environmental reserve activity. Of these

accrued liabilities, approximately ~~99%~~98% 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") 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. A 2002 PCD revision (a) separated the Sacramento site into multiple operable units to allow quicker implementation of remedies for critical areas; (b) required the Company to guarantee up to $75 million (in addition

to a prior $20 million guarantee) to assure that Aerojet Rocketdyne’s Sacramento remediation activities are fully funded; and (c) removed approximately 2,600 acres of non-contaminated land from the EPA superfund designation.

Aerojet Rocketdyne is involved in various stages of soil and groundwater investigation, remedy selection, design, construction, operation and maintenance associated with the operable units, all of which are conducted under the direction and oversight of the EPA, including unilateral administrative orders, and the California Department of Toxic Substances Control ("DTSC") and Regional Water Quality Control Board, Central Valley Region ("RWQCB"). On September 22, 2016, the EPA completed its first five-year remedy review of the Sacramento superfund site. The five-year review required by statute and regulation applies to all remedial actions which result in hazardous substances above levels that allow unlimited use and unrestricted exposure. The Company is ~~working~~continuing to work with the EPA to address and remedy the remaining findings of the 2016 five-year remedy ~~review.~~review and has established EPA approved action plans which include additional extraction wells, treatment, and monitoring. The Company’s action plans and implementation will be evaluated at the next EPA five-year remedy review scheduled to occur in 2021.

The entire southern portion of the site known as Rio Del Oro was under state orders issued in the 1990s from DTSC and the RWQCB to investigate and remediate soil and groundwater contamination. In 2008, the DTSC released all but approximately 400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil contamination although the property remains subject to the RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating offsite from the ~~property.~~property

As of September 30, ~~2019,~~2020, the estimated range of anticipated costs discussed above for the Sacramento, California site was ~~$208.8~~$209.0 million to ~~$330.1~~$332.1 million and the accrued amount was ~~$208.8~~$209.0 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note 8(c) ~~below~~ for further discussion on recoverability.

Baldwin Park Operable Unit ("BPOU")

As a result of its former Azusa, California operations, in 1994, Aerojet Rocketdyne was named a PRP by the EPA in the area of the San Gabriel Valley Basin superfund site known as the BPOU. In 2002, Aerojet Rocketdyne, along with 7 other PRPs (the "Cooperating Respondents") signed a project agreement with the San Gabriel Basin Water Quality Authority, the Main San Gabriel Basin Watermaster, and 5 water companies. The 2002 project agreement terminated in 2017 and the parties executed a project agreement which became operational on May 9, 2017. The agreement has a ten-year term and requires the Cooperating Respondents to fund through an escrow account the ongoing operation, maintenance, and administrative costs of certain treatment and water distribution facilities owned and operated by the water companies. There are also provisions in the project agreement for maintaining financial assurance.

Pursuant to the 2017 agreement with the remaining Cooperating Respondents, Aerojet Rocketdyne's current share of future BPOU costs will be approximately 74%.

As part of Aerojet Rocketdyne’s sale of its Electronics and Information Systems ("EIS") business to Northrop Grumman Corporation ("Northrop") in October 2001, the EPA approved a prospective purchaser agreement with Northrop to absolve it of a pre-closing liability for contamination caused by the Azusa, California operations, which liability remains with Aerojet Rocketdyne. As part of that agreement, the Company agreed to provide a $25 million guarantee of its obligations under the project agreement.

As of September 30, ~~2019,~~2020, the estimated range of anticipated costs was ~~$93.7~~$79.3 million to ~~$110.6~~$95.5 million and the accrued amount was ~~$93.7~~$79.3 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note 8(c) ~~below~~ for further discussion on recoverability.

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 project agreement, which expires in May 2027. As the period for which estimated environmental remediation costs lengthens, the reliability of such estimates decreases. These estimates consider the investigative work and analysis of engineers, outside environmental consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and legal proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing the Company’s reserves, the most probable estimate is used when determinable; otherwise, the minimum amount is used when no

single amount in the range is more probable. Accordingly, such estimates can change as the Company periodically evaluates and revises these estimates as new information becomes available. The Company cannot predict whether new information gained as projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs is influenced by a number of factors, such as the regulatory approval process and the time required designing, constructing, and implementing the remedy.

The following table summarizes the Company’s environmental reserve activity:

Aerojet
Rocketdyne-
Sacramento
Aerojet
Rocketdyne-
BPOU
Other
Aerojet
Rocketdyne
Sites
Total
Aerojet
Rocketdyne
Other
Total
Environmental
Reserve
(In millions)
December 31, 2018 $ 207.4

$ 103.8

$ 12.4
$ 323.6
$ 4.3
$ 327.9
Additions/Adjustments 12.7

(0.3 )
(0.2 ) 12.2
0.1
12.3
Expenditures (11.3 )
(9.8 )
(0.7 ) (21.8 ) (0.2 ) (22.0 )
September 30, 2019 $ 208.8

$ 93.7

$ 11.5

$ 314.0

$ 4.2

$ 318.2


	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	22.8		(0.7)		(0.4)		21.7		1.6		23.3
Expenditures	(17.4)		(9.6)		(1.1)		(28.1)		(0.3)		(28.4)
September 30, 2020	$	209.0	$	79.3	$	10.3	$	298.6	$	5.5	$	304.1

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") propulsion business in 2003, Aerojet Rocketdyne entered into an agreement with ARC pursuant to which Aerojet Rocketdyne iswas responsible for up to $20.0 million of costs ("Pre-Close Environmental Costs") 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 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"). The ~~Company responded to the ARC Claim~~parties reached a settlement on ~~June~~March 23, ~~2017, and on September 13, 2019, filed a notice of arbitration disputing~~2020, resolving the ARC Claim. ~~Final~~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 Company’s operation of the ~~Pre–Close Environmental Costs will be determined in conjunction with~~Open Burn Unit from 2003-2009, and ARC assumes management for the ~~Company's evaluation and ultimate resolution of~~ongoing remediation as required by the ~~ARC Claim.~~2003 acquisition agreement.

Estimated Recoveries

On January 12, 1999, Aerojet Rocketdyne and the U.S. government reached a settlement agreement ("Global Settlement") covering environmental costs associated with the Company's Sacramento site and its former Azusa site. Pursuant to the Global Settlement, the Company can recover ~~up to~~ 88% of its environmental remediation costs through the establishment of prices for Aerojet Rocketdyne's products and services sold to the U.S. government. Additionally, in conjunction with the sale of the EIS business in 2001, Aerojet Rocketdyne entered into an agreement with Northrop (the "Northrop Agreement") whereby Aerojet Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement, subject to an annual billing limitation of $6.0 million and a cumulative limitation of $189.7 ~~million.~~million which was reached in June 2017. The following table summarizes the Northrop Agreement activity (in millions):

Total reimbursable costs under the Northrop Agreement $ 189.7
Amount reimbursed to the Company through September 30, 2019 (135.7 )
Receivable from Northrop included in the unaudited balance sheet at September 30, 2019 $ 54.0

The cumulative expenditure limitation of $189.7 million under the Northrop Agreement was reached in June 2017. At that time, the Company was uncertain of the allowability and allocability of additional expenditures above that cumulative limitation and therefore did not recognize a recoverable asset for such amounts. In the third quarter of 2018, the Company and the U.S. government reached a determination that these expenditures are reimbursable under the Global Settlement and therefore recorded a one-time benefit of $43.0 million to recognize the recoverability of environmental expenditures at a rate of 88%.


Total reimbursable costs under the Northrop Agreement	$	189.7
Amount reimbursed to the Company through September 30, 2020	(141.7)
Receivable from Northrop included in the unaudited balance sheet at September 30, 2020	$	48.0

Environmental remediation costs are primarily incurred by the Company's Aerospace and Defense segment, and certain of these costs are recoverable from the Company's contracts with the U.S. government. The Company currently estimates approximately 12% of its future Aerospace and Defense segment environmental remediation costs will not likely be reimbursable and are expensed. Allowable environmental remediation costs are charged to the Company’s contracts with the U.S. government as the costs are incurred. Because these costs are recovered through forward-pricing arrangements, the ability of Aerojet Rocketdyne to continue recovering these costs from the U.S. government depends on Aerojet Rocketdyne’s sustained business volume from U.S. government contracts and programs.

While the Company ~~is currently seeking~~continues to seek an arrangement with the U.S. government to recover environmental expenditures in excess of the reimbursement ceiling identified in the 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 following table summarizes the financial information for the impact of environmental reserves and recoveries to the unaudited condensed consolidated statements of operations:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Expense (benefit) to unaudited condensed consolidated statements of operations $ 1.0
$ (39.8 ) $ 1.7
$ (37.0 )




	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)


Expense to unaudited condensed consolidated statements of operations	$	3.1	$	1.0	$	3.3	$	1.7

d. Arrangements with Off-Balance Sheet Risk

As of September 30, ~~2019,~~2020, arrangements with off-balance sheet risk consisted of:


•	~~$29.6~~ •$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. •$54.2 million ~~the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.~~

~~$53.3 million~~ in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation ~~coverage.~~coverage

•$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 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 amounts are based on volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or expected to be received, from customers. A substantial portion of these amounts are recoverable through the Company's contracts with the 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 9. Cost Reduction Plans

During 2015, the Company initiated the first phase ("Phase I") of the competitive improvement program (the "CIP") comprised of activities and initiatives aimed at reducing costs in order for the Company to continue to compete successfully. Phase I iswas comprised of three major components: (i) facilities optimization and footprint reduction; (ii) product affordability; and (iii) reduced administrative and overhead costs. In 2017, the Board of Directors approved the second phase ("Phase II") of the ~~Company’s previously announced~~ CIP. Pursuant to Phase II, the Company expanded its CIP and further consolidated its Sacramento, California, and Gainesville, Virginia sites, while it centralized and 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 $210.0~~will be $188.0 million (including approximately ~~$60.5~~$56.6 million of capital expenditures)~~. The Company~~ and has incurred ~~$163.5~~$180.8 million of such costs through September 30, ~~2019,~~2020, including ~~$51.7~~$52.2 million in capital expenditures. The Company's current estimate of $188.0 million has decreased from December 31, 2019, primarily due to continued efficiencies in program transitions and lower than expected employee costs. The following table

summarizes the Company's severance and retention liabilities related to ~~Phase I and II~~CIP activity:

Severance Retention Total
(In millions)
December 31, 2018 $ 18.1
$ 5.1
$ 23.2
Accrual 0.8
4.3
5.1
Payments (12.7 ) (5.0 ) (17.7 )
September 30, 2019 $ 6.2
$ 4.4
$ 10.6


	Severance		Retention		Total
	(In millions)
December 31, 2019	$	5.2	$	4.6	$	9.8
(Adjustment) Accrual	(0.8)		1.6		0.8
Payments	(3.3)		(4.9)		(8.2)

September 30, 2020	$	1.1	$	1.3	$	2.4

The costs associated with ~~Phase I and II~~CIP are included as a component of the Company’s U.S. government forward-pricing rates, and therefore, are recovered through the pricing of the Company’s products and services to the U.S. government. In addition to the employee-related CIP obligations, the Company incurred non-cash accelerated depreciation expense of $0.7 million and $1.0 million in the nine months ended September 30, 2019 and 2018, respectively, associated with changes in the estimated useful lives of long-lived assets.

Note 10. Retirement Benefits

The following ~~tables present~~table presents the components of retirement benefits expense (income):


	Pension Benefits						Postretirement Medical and Life Insurance Benefits


	Three months ended September 30,
	2020		2019		2020		2019
	(In millions)

Interest cost on benefit obligation	$	10.7	$	13.2	$	0.2	$	0.3
Expected return on assets	(15.2)		(16.2)		0		0
Amortization of prior service costs (credits)	0		0		0		(0.1)
Amortization of net losses (gains)	14.3		10.2		(0.9)		(0.9)
Retirement benefits expense (income)	$	9.8	$	7.2	$	(0.7)	$	(0.7)


														Pension Benefits						Postretirement Medical and Life Insurance Benefits

	Pension Benefits						Postretirement Medical and Life Insurance Benefits							Nine months ended September 30,
	Three months ended September 30,													2020		2019		2020		2019
	2019			2018			2019			2018				(In millions)
	(In millions)
Interest cost on benefit obligation	$	13.2		$	12.4		$	0.3		$	0.3		Interest cost on benefit obligation	$	31.9	$	39.5	$	0.6	$	0.9
Expected return on assets	(16.2		)	(15.0		)	—			—			Expected return on assets	(45.4)		(48.6)		0		0
Amortization of prior service costs	—			—			(0.1		)	(0.1		)
Amortization of prior service costs (credits)													Amortization of prior service costs (credits)	0.1		0.1		0		(0.2)
Amortization of net losses (gains)	10.2			17.7			(0.9		)	(0.9		)	Amortization of net losses (gains)	43.0		30.6		(2.8)		(2.8)
Retirement benefits expense (income)	$	7.2		$	15.1		$	(0.7	)	$	(0.7	)	Retirement benefits expense (income)	$	29.6	$	21.6	$	(2.2)	$	(2.1)

Pension Benefits Postretirement Medical and Life
Insurance Benefits
Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Interest cost on benefit obligation $ 39.5
$ 37.3
$ 0.9
$ 0.9
Expected return on assets (48.6 ) (45.1 ) —
—
Amortization of prior service costs 0.1
0.1
(0.2 ) (0.2 )
Amortization of net losses (gains) 30.6
53.0
(2.8 ) (2.8 )
Retirement benefits expense (income) $ 21.6
$ 45.3
$ (2.1 ) $ (2.1 )

Note 11. Operating Segments and Related Disclosures

The Company’s operations are organized into 2 operating segments based on different products and customer bases: Aerospace and Defense, and Real Estate.

The following table presents selected financial information for each reportable segment:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Net Sales:
Aerospace and Defense $ 480.0
$ 497.2
$ 1,453.1
$ 1,453.2
Real Estate 1.8
1.6
5.4
4.8
Total Net Sales $ 481.8
$ 498.8
$ 1,458.5
$ 1,458.0
Segment Performance:
Aerospace and Defense $ 59.2
$ 70.7
$ 201.2
$ 176.8
Environmental remediation provision adjustments (0.8 ) 39.9
(1.5 ) 37.6
GAAP/Cost Accounting Standards retirement benefits expense difference 6.6
(2.6 ) 17.5
(4.8 )
Unusual items —
—
(0.3 ) —
Aerospace and Defense Total 65.0
108.0
216.9
209.6
Real Estate 0.4
0.6
1.5
1.8
Total Segment Performance $ 65.4
$ 108.6
$ 218.4
$ 211.4
Reconciliation of segment performance to income before income taxes:
Segment performance $ 65.4
$ 108.6
$ 218.4
$ 211.4
Interest expense (9.0 ) (9.1 ) (27.2 ) (25.5 )
Interest income 3.9
2.8
11.9
6.4
Stock-based compensation (9.0 ) (6.2 ) (24.5 ) (12.9 )
Corporate retirement benefits (1.8 ) (3.3 ) (5.4 ) (9.9 )
Corporate and other (6.0 ) (5.0 ) (18.5 ) (15.7 )
Unusual items —
(0.2 ) —
(0.2 )
Income before income taxes $ 43.5
$ 87.6
$ 154.7
$ 153.6




	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)
Net Sales:
Aerospace and Defense	$	527.1	$	480.0	$	1,513.4	$	1,453.1
Real Estate	0.6		1.8		2.8		5.4
Total Net Sales	$	527.7	$	481.8	$	1,516.2	$	1,458.5
Segment Performance:
Aerospace and Defense	$	61.5	$	59.2	$	184.4	$	201.2
Environmental remediation provision adjustments	(1.6)		(0.8)		(1.7)		(1.5)
GAAP/Cost Accounting Standards retirement benefits expense difference	1.8		6.6		11.1		17.5
Unusual items	0		0		(1.8)		(0.3)
Aerospace and Defense Total	61.7		65.0		192.0		216.9
Real Estate	(0.4)		0.4		(1.4)		1.5
Total Segment Performance	$	61.3	$	65.4	$	190.6	$	218.4
Reconciliation of segment performance to income before income taxes:
Segment performance	$	61.3	$	65.4	$	190.6	$	218.4
Interest expense	(7.2)		(9.0)		(23.0)		(27.2)
Interest income	0.5		3.9		4.7		11.9
Stock-based compensation	(5.5)		(9.0)		(13.2)		(24.5)
Corporate retirement benefits	(1.8)		(1.8)		(5.6)		(5.4)
Corporate and other	(6.6)		(6.0)		(16.6)		(18.5)

Income before income taxes	$	40.7	$	43.5	$	136.9	$	154.7

The following table summarizes customers that represented more than 10% of net ~~sales, each of which involves sales of several product lines and programs:~~sales:



	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
Lockheed Martin Corporation	35	%	34	%	34	%	32	%
NASA	21		22		22		21
Raytheon Technologies Corporation	15		15		16		17
United Launch Alliance	*		10		*		11

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Lockheed Martin Corporation 34 % 30 % 32 % 29 %
NASA 22
19
21
18
Raytheon Company 15
16
17
18
United Launch Alliance 10
18
11
19
______

* Less than 10%.

Note 12. Unusual Items

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

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Unusual items
Loss on bank amendment $ —
$ 0.2
$ —
$ 0.2
Acquisition costs —
—
0.3
—
$ —
$ 0.2
$ 0.3
$ 0.2



	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)
Unusual items
Legal related matter	$	0	$	0	$	1.8	$	0

Acquisition costs	0		0		0		0.3
	$	0	$	0	$	1.8	$	0.3

In the three months ended June 30, 2020, the Company recorded a reserve of $1.8 million for a legal related matter.

On March 29, 2019, the Company acquired certain assets of 3D Material Technologies ~~("3DMT") from ARC Group Worldwide, Inc. 3DMT is a provider~~resulting in $0.3 million 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 developed based on estimates of the fair value of the assets and liabilities. The purchase price allocation resulted in the recognition of $0.1 million in goodwill.

acquisition related costs.

Note 13. ~~Leases~~Subsequent Event

The Company adopted the new leasing guidance effective January 1, 2019. The new guidance requires lessees to recognize a ROU asset and a lease liability on the balance sheet for all leases with the exception of short-term leases.

Operating leases are included in operating lease ROU assets, other current liabilities, and operating lease liabilities. Finance leases are included in property, plant and equipment and debt. Operating ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Finance leases are recorded as an asset and an obligation at an amount equal to the present value of the minimum lease payments during the lease term. Amortization expense related to finance leases is included in depreciation and amortization expense.

~~The Company determines if an arrangement is a lease at inception. For certain technology equipment leases,~~In October 2020, the Company ~~accounts for lease and nonlease (service) components separately based on~~repurchased 1.0 million of its common shares at a ~~relative fair market value basis. For all other leases, the Company accounts for the lease and nonlease components (e.g., common area maintenance) on a combined basis.~~cost of $39.4 million.

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

~~The following table summarizes the Company's lease costs:~~

Three months ended September 30, 2019 Nine months ended September 30, 2019
(In millions)
Operating lease cost $ 3.3
$ 10.2
Finance lease cost:
Amortization 1.7
3.1
Interest on lease liabilities 0.8
2.2
Short-term lease cost 0.4
0.6
Total lease costs $ 6.2
$ 16.1

~~The following table summarizes the supplemental cash flow information related to leases:~~

Nine months ended September 30, 2019
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 10.6
Operating cash flows for finance leases 2.2
Financing cash flows for finance leases 2.8
Assets obtained in exchange for lease obligations:
Operating leases 6.4
Finance leases 23.7

~~The following table summarizes the supplemental balance sheet information related to leases:~~

September 30, 2019
(In millions)
Operating leases:
Operating lease right-of-use assets $ 49.8
Operating lease liabilities (component of other current liabilities) $ 11.7
Operating lease liabilities, noncurrent 41.7
$ 53.4

Finance leases:
Property, plant and equipment $ 52.9
Accumulated depreciation (4.9 )
Property, plant and equipment, net $ 48.0
Current portion of long-term debt $ 2.1
Long-term debt 46.0
Total finance lease liability $ 48.1

Weighted-average remaining lease term (in years):
Operating leases 6
Finance leases 18
Weighted-average discount rate:
Operating leases 4.7 %
Finance leases 5.2 %

The Company has additional real estate and information technology equipment operating leases that have not yet commenced amounting to $12.0 million. These operating leases will commence between 2019 and 2022 with lease terms of up to twelve years.

~~The following table presents the maturities of lease liabilities:~~

Year Ending December 31, Operating Leases Finance Leases
(In millions)
2019 (excluding the nine months ended September 30, 2019) $ 3.7
$ 1.3
2020 13.6
4.7
2021 12.9
4.7
2022 10.8
4.2
2023 5.5
3.7
Thereafter 15.6
61.3
Total minimum rentals 62.1
79.9
Less: imputed interest (8.7 ) (31.8 )
Total $ 53.4
$ 48.1

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 Company," "we," "our" and "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").

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, 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 Statements." Actual results may differ materially. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and periodic reports subsequently filed with the Securities and Exchange Commission ("SEC").

Overview

Our operations are organized into two segments:

Aerospace and Defense — includes the operations of our wholly-owned subsidiary Aerojet Rocketdyne, Inc. ("Aerojet 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"), the National Aeronautics and Space Administration ("NASA"), and major aerospace and defense prime contractors.

Real Estate — includes the activities of our wholly-owned subsidiary Easton Development Company, LLC ("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 three and nine months ended September 30, 2020 and 2019, which management uses to evaluate our operating performance and financial condition, is presented below.

~~Net sales for the three months ended September 30, 2019, totaled $481.8 million compared with $498.8 million for the three months ended September 30, 2018.~~

Net income for the three months ended September 30, 2019, was $32.9 million, or $0.39 diluted earnings per share ("EPS"), compared with net income of $65.0 million, or $0.82 diluted EPS, for the three months ended September 30, 2018. Net income for the three months ended September 30, 2018, included a one-time after-tax benefit of $31.6 million, or $0.40 diluted EPS, in environmental remediation provision adjustments as a result of reaching a determination with the U.S. government that certain environmental expenditures are reimbursable.

Adjusted Net Income (Non-GAAP measure*) for the three months ended September 30, 2019, was $29.4 million or $0.35 Adjusted EPS (Non-GAAP measure*), compared with Adjusted Net Income of $69.4 million, or $0.88 Adjusted EPS, for the three months ended September 30, 2018.

Adjusted EBITDAP (Non-GAAP measure*) for the three months ended September 30, 2019, was $62.2 million compared with $118.1 million for the three months ended September 30, 2018. Adjusted EBITDAP for the three months ended September 30, 2018, included a one-time benefit of $43.0 million in environmental remediation provision adjustments as a result of reaching a determination with the U.S. government that certain environmental expenditures are reimbursable.

~~Segment performance was $65.4 million for the three months ended September 30, 2019, compared with $108.6 million for the three months ended September 30, 2018.~~

Segment performance before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure*) was $59.6 million for the three months ended September 30, 2019, compared with $71.3 million for the three months ended September 30, 2018.

Cash provided by operating activities for the three months ended September 30, 2019, totaled $65.2 million compared with $72.5 million of cash provided by operating activities for the three months ended September 30, 2018.

~~Free cash flow (Non-GAAP measure*) for the three months ended September 30, 2019, totaled $55.8 million compared with $63.8 million for the three months ended September 30, 2018.~~

~~Total backlog as of September 30, 2019, was $4.5 billion compared with $4.1 billion as of December 31, 2018.~~


	Three months ended September 30,									Nine Months ended September 30,
	2020			2019			2020			2019
	(In millions, except percentage and per share amounts)
Net sales	$	527.7		$	481.8		$	1,516.2		$	1,458.5
Net income	31.7			32.9			102.3			115.7
Net income as a percentage of net sales	6.0		%	6.8		%	6.7		%	7.9		%
Adjusted Net Income (Non-GAAP measure*)	31.7			29.4			99.6			107.1
Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales	6.0		%	6.1		%	6.6		%	7.3		%
Earnings Per Share ("EPS") - Diluted	0.38			0.39			1.23			1.39
Adjusted EPS (Non-GAAP measure*)	0.38			0.35			1.19			1.29
Adjusted EBITDAP (Non-GAAP measure*)	62.5			62.2			201.2			211.6
Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales	11.8		%	12.9		%	13.3		%	14.5		%
Cash provided by operating activities	11.0			65.2			138.6			96.4
Free cash flow (Non-GAAP measure*)	(3.8)			55.8			107.6			80.1

_________

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

Our business outlook is 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.

Some of the significant challenges we face are as follows:uncertainty associated with the COVID-19 pandemic and the actions taken by governments, companies, and individuals in response, dependence upon U.S. government programs and contracts, future reductions or changes in U.S. government spending in our markets, ~~successful implementation of our cost reduction plans,~~ environmental matters, capital structure, underfunded retirement benefit plans, and ~~information technology and~~ cyber security.

COVID-19

During the three and nine months ended September 30, 2020, there was minimal adverse impact to our financial results and operations as a result of the COVID-19 outbreak. The safety and welfare of our employees remains our top priority, and during the quarter, we have continued to operate with our established safety protocols, which include selected and site-specific work and travel restrictions, in addition to other measures intended to reduce the spread of COVID-19. We have also continued to evaluate new opportunities to protect our employees. Although we have not experienced significant absenteeism or supply chain disruption, the extent to which the COVID-19 pandemic impacts our future financial results depends on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic and the actions being taken to contain and treat it, and other indirect effects that may come as a result of actions taken by governments, companies, and individuals in response to the pandemic and its economic impact.

As a defense industrial-base U.S. government contractor, we are considered an essential business by the U.S. and state governments and we continue to operate as such during the COVID-19 pandemic. We are taking a variety of measures to maintain the availability and functionality of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. In making decisions regarding our operations, we take into account public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the adoption of mask-wearing protocols, enhanced cleaning protocols and health monitoring, as well as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home requirements for employees where practicable. All of these policies and initiatives could impact our operations. Due to the evolving nature of the COVID-19 pandemic, 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" 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.

The ~~following table summarizes net sales to~~principal end user customers are primarily agencies of the U.S. government ~~and its agencies, including net sales to significant customers disclosed below:~~

as illustrated in the following table:


	Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
U.S. government	98	%	96	%	95	%	93	%	U.S. government	96	%	98	%	96	%	95	%
Non U.S. government	2		4		5		7		Non U.S. government	4		2		4		5

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


	Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
RS-25	18	%	14	%	17	%	14	%	RS-25	18	%	18	%	18	%	17	%
Standard Missile	11		10		13		12		Standard Missile	11		11		12		13
Patriot Advanced Capability-3									Patriot Advanced Capability-3	10		11		10		9
Terminal High Altitude Area Defense ("THAAD")	9		11		10		11		Terminal High Altitude Area Defense ("THAAD")	9		9		10		10

The following table summarizes customers that represented more than 10% of net sales, each of which involves sales of several product lines and programs:



	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
Lockheed Martin Corporation	35	%	34	%	34	%	32	%
NASA	21		22		22		21
Raytheon Technologies Corporation	15		15		16		17
United Launch Alliance	*		10		*		11

______

* Less than 10%.

Industry Update

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. ~~Information concerning~~While U.S. and state governments continue to address the COVID-19 pandemic, our ~~industry appears in Part 1, Item 1, Business~~customers continue to operate under the ~~caption "Industry Overview"~~Public Law 116-93, which includes DoD and NASA full-year appropriations bills for Government Fiscal Year ("GFY") 2020. While the funding provided by Public Law 116-93 expired on September 30, 2020, Congress passed and the President signed into law a Continuing Resolution ("CR") (Public Law 116-159) that extends GFY 2020 funding through December 11, 2020. During the time period of the CR, the U.S. Senate will attempt to pass its version of GFY 2021 appropriations and reconcile differences with the U.S. House of Representatives-passed GFY 2021 appropriations bills. Additionally, during this time period, Congress and the President will attempt to complete negotiations on a fourth COVID-19 relief bill that will, in part, extend some provisions of the Coronavirus Aid, Relief & Economic Security ("CARES") Act that have expired. Disruptions to our ~~Annual Report on Form 10-K for~~customer’s facilities or delays in supply chain as a result of COVID-19 could delay or decrease expenditures by U.S. government agencies. Such a decrease in DoD and/or NASA expenditures, the ~~year ended December 31, 2018.~~

~~Cost Reduction Plans~~

~~During 2015,~~elimination or curtailment of a material program in which we ~~initiated the first phase ("Phase I")~~are or hope to be involved, or changes in payment patterns of our ~~competitive improvement program ("CIP") comprised~~customers as a result of ~~activities and initiatives aimed at reducing costs~~changes in order for us to continue to compete successfully. Phase I is comprised 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") ofU.S. government outlays, could have a material adverse effect on our previously announced CIP. Pursuant to Phase II, we expanded CIP and further consolidated our Sacramento, California, and Gainesville, Virginia sites, while we centralized and expanded our existing presence in Huntsville, Alabama. When fully implemented, we anticipate that the CIP will result in annual costs that are $230 million below levels anticipated prior to the CIP.operating results, financial condition, and/or cash flows.

We currently estimate that we will incur restructuring and related costs of the Phase I and II programs of approximately $210.0 million (including approximately $60.5 million of capital expenditures). We have incurred $163.5 million of such costs through September 30, 2019, including $51.7 million in capital expenditures.

Environmental Matters

Our current and former business operations are subject to, and affected by, federal, state, and 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.~~regulations as of September 30, 2020.

The following table summarizes our recoverable amounts, environmental reserves, and range of liability, as of September 30, ~~2019:~~2020:


	Recoverable Amounts (1)		Environmental Reserves		Estimated Range of Liability		Recoverable Amounts (1)		Environmental Reserves		Estimated Range of Liability
	(In millions)						(In millions)
Sacramento	$	183.7	$	208.8	$208.8 - $330.1	Sacramento	$	183.9	$	209.0	$209.0 - $332.1
Baldwin Park Operable Unit	82.4		93.7		93.7 - 110.6	Baldwin Park Operable Unit	69.8		79.3		79.3 - 95.5
Other Aerojet Rocketdyne sites	10.4		11.5		11.5 - 22.0	Other Aerojet Rocketdyne sites	10.3		10.3		10.3 - 20.9
Other sites	0.7		4.2		4.2 - 5.6	Other sites	0.7		5.5		5.5 - 6.8
Total	$	277.2	$	318.2	$318.2 - $468.3	Total	$	264.7	$	304.1	$304.1 - $455.3

_____


~~(1)~~	Excludes the receivable from Northrop Grumman Corporation ("Northrop") of $54.0 million as of September 30, 2019, related to environmental costs already paid (and therefore not reserved) by us in prior years and reimbursable under our agreement with Northrop.

(1)Excludes the receivable from Northrop Grumman Corporation ("Northrop") of $48.0 million as of September 30, 2020, related to environmental costs already paid (and therefore not reserved) by us in prior years and reimbursable under our agreement with Northrop.

Environmental remediation costs are primarily incurred by our Aerospace and Defense segment, and certain of these costs are recoverable from our contracts with the U.S. government. We currently estimate approximately 12% of our future Aerospace and 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. As of September 30, ~~2019,~~2020, we had ~~$639.6~~$629.1 million of debt outstanding.

Retirement Benefits

~~During 2019,~~In 2020, we expect to ~~use $38.9~~make contributions of approximately $42 million~~of prepayment credits~~ to ~~fund~~ our tax-qualified defined benefit pension ~~plan.~~plan, including approximately $14 million of cash and $28 million of prepayment credits. We generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs on our U.S. government contracts, but there are differences between when we contribute to our tax-qualified defined benefit pension plan under pension funding rules and when it is recoverable under Cost Accounting Standards ("CAS").

~~Information Technology~~The COVID-19 pandemic and resulting global disruptions have continued to cause significant economic uncertainty and volatility in financial markets which could adversely impact the funded status of our tax-qualified defined benefit pension plan. The funded status of our 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 plan in the U.S. to calculate funding requirements. Accordingly, if the performance of our 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 pension plan could be higher than we expect.

Cyber Security

We routinely ~~experience~~defend against various cyber and other security threats ~~threats~~against our defenses to protect the confidentiality, integrity and availability of our information technology infrastructure, supply chain, business or customer information and ~~unauthorized~~other

threats. We are also subject to similar security threats at customer sites that we operate and manage as a contractual requirement.

The 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 ~~our sensitive information, as do our customers, suppliers, subcontractors,~~data, disruption or denial of service attacks, and other ~~partners.~~ electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption of data, networks or systems. We also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners’ or customers’ systems that are used in connection with our business.

In ~~2017,~~response to the COVID-19 pandemic, where practicable, we ~~outsourced certain~~have required employees to work remotely, and expanded our information technology and ~~cyber security functions~~communication support to third-party contractors in order to take advantage of advanced cyber security technologies. The visibility provided by the additional cyber security technologies identified vulnerabilities and resulted in additional costs to remediate. The transition to the outsourced provider impacted our level of control over the performance and delivery of such services.

enhance their connectivity. We continue to assess our information technology systems and are engaged in cooperative efforts with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber threats, other security threats or business disruptions.

Results of Operations

Net Sales:

Three months ended September 30, Nine months ended September 30,
2019 2018 Change* 2019 2018 Change**
(In millions)
Net sales $ 481.8
$ 498.8
$ (17.0 ) $ 1,458.5
$ 1,458.0
$ 0.5



	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change*		2020		2019		Change**
	(In millions)
Net sales	$	527.7	$	481.8	$	45.9	$	1,516.2	$	1,458.5	$	57.7

* ~~Primary reason for change.~~ The decrease in net sales was primarily due to a decrease of $27.9 million in space programs primarily driven by the RS-68 program partially offset by growth in the RS-25 program. The decline in space programs was partially offset by an increase of $10.7 million in defense programs primarily driven by the Patriot Advanced Capability-3 ("PAC-3") and Guided Multiple Launch Rocket System ("GMLRS") programs.

** Primary reason for change. The increase in net sales was ~~due to an increase of $58.7 million in defense programs~~ primarily driven by RS-25 and THAAD programs partially offset by a decline on the ~~PAC-3 and Guidance Enhanced Missile ("GEM-T") programs and an increase of $0.6 million in real estate segment sales.~~Commercial Crew Development program.

** Primary reason for change. The increase in net sales was primarily driven by the Guided Multiple Launch Rocket System ("GMLRS"), RS-25, and Medium Range Ballistic Missile ("MRBM") programs partially offset by a ~~decrease of $58.8 million in space programs primarily driven by~~decline on the ~~RS-68~~Commercial Crew Development program and the ~~winding down~~cancellation in 2019 of the ~~AJ-60 solid rocket motor partially offset by growth in the RS-25~~Redesigned Exoatmospheric Kill Vehicle ("RKV") program.

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


	Three months ended September 30,									Nine months ended September 30,										Three months ended September 30,											Nine months ended September 30,
	2019			2018			Change*			2019			2018			Change**				2020			2019			Change*		2020			2019			Change**
	(In millions, except percentage amounts)																			(In millions, except percentage amounts)
Cost of sales (exclusive of items shown separately below)	$	392.9		$	400.7		$	(7.8	)	$	1,170.1		$	1,197.0		$	(26.9	)	Cost of sales (exclusive of items shown separately below)	$	441.6		$	392.9		$	48.7	$	1,251.7		$	1,170.1		$	81.6
Percentage of net sales	81.5		%	80.3		%				80.2		%	82.1		%				Percentage of net sales	83.7		%	81.5		%			82.6		%	80.2		%

* Primary reason for change. The increase in cost of sales as a percentage of net sales was primarily driven by ~~lower risk retirements~~cost growth and performance issues in the current period on the ~~THAAD, RS-68, and RL-10 programs~~Commercial Crew Development program partially offset by improved performance on the ~~Commercial Crew Development~~Electric Propulsion programs and risk retirements on the THAAD program.

** Primary reason for change. The ~~improvement~~increase in cost of sales as a percentage of net sales was primarily driven by ~~improved~~the following: (i) cost growth on a portion of the Standard Missile program in 2020; (ii) cost growth and performance issues in 2020 on the Commercial Crew Development ~~program.~~program; and (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019. These factors were partially offset by improved performance on the Electric Propulsion programs.

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



	Three months ended September 30,											Nine months ended September 30,
	2020			2019			Change*		2020			2019			Change*
	(In millions, except percentage amounts)


Components of SG&A:
SG&A excluding stock-based compensation	$	5.7		$	6.1		$	(0.4)	$	17.8		$	19.7		$	(1.9)
Stock-based compensation	5.5			9.0			(3.5)		13.2			24.5			(11.3)

SG&A	$	11.2		$	15.1		$	(3.9)	$	31.0		$	44.2		$	(13.2)
Percentage of net sales	2.1		%	3.1		%			2.0		%	3.0		%
Percentage of net sales excluding stock-based compensation	1.1		%	1.3		%			1.2		%	1.4		%

Three months ended September 30, Nine months ended September 30,
2019 2018 Change* 2019 2018 Change*
(In millions, except percentage amounts)
Components of SG&A:
SG&A excluding stock-based compensation $ 6.1
$ 6.8
$ (0.7 ) $ 19.7
$ 17.9
$ 1.8
Stock-based compensation 9.0
6.2
2.8
24.5
12.9
11.6
SG&A $ 15.1
$ 13.0
$ 2.1
$ 44.2
$ 30.8
$ 13.4
Percentage of net sales 3.1 % 2.6 % 3.0 % 2.1 %
Percentage of net sales excluding stock-based compensation 1.3 % 1.4 % 1.4 % 1.2 %

* Primary reason for change. The ~~increase~~decrease in SG&A expense was primarily driven by (i) stock-based compensation as a result of ~~increases~~decreases in the fair value of the stock appreciation rights in the current period and ~~improved performance~~(ii) a decrease in business travel-related expenses due to our restrictions on ~~various operations and earnings targets.~~travel in response to COVID-19.

Depreciation and Amortization:


															Three months ended September 30,								Nine months ended September 30,
	Three months ended September 30,						Nine months ended September 30,								2020		2019		Change*		2020		2019		Change*
	2019		2018		Change*		2019		2018		Change*				(In millions)
	(In millions)
Components of depreciation and amortization:														Components of depreciation and amortization:
Depreciation	$	14.3	$	14.1	$	0.2	$	41.2	$	41.3	$	(0.1	)	Depreciation	$	11.2	$	14.3	$	(3.1)	$	37.6	$	41.2	$	(3.6)
Amortization	3.4		3.4		—		10.2		10.3		(0.1		)	Amortization	3.3		3.4		(0.1)		10.1		10.2		(0.1)
Accretion	0.7		0.6		0.1		2.0		1.9		0.1			Accretion	0.6		0.7		(0.1)		2.0		2.0		—
Depreciation and amortization	$	18.4	$	18.1	$	0.3	$	53.4	$	53.5	$	(0.1	)	Depreciation and amortization	$	15.1	$	18.4	$	(3.3)	$	49.7	$	53.4	$	(3.7)

* Primary reason for change. ~~Depreciation~~The decrease in depreciation and amortization expense was ~~comparable~~primarily due to the completion of depreciation expense associated with the ~~prior year period.~~enterprise resource planning system which was placed into service in June 2013.

Other Expense, ~~(Income),~~ net:

Three months ended September 30, Nine months ended September 30,
2019 2018 Change* 2019 2018 Change*
(In millions)
Other expense (income), net $ 0.3
$ (41.3 ) $ 41.6
$ 1.3
$ (39.2 ) $ 40.5




	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change*		2020		2019		Change
	(In millions)
Other expense, net	$	3.3	$	0.3	$	3.0	$	1.2	$	1.3	$	(0.1)

* Primary reason for change. The ~~change~~increase in other expense, ~~(income),~~ net was primarily due to ~~a one-time benefit of $43.0 million~~an increase in environmental remediation ~~provision adjustments as a result of reaching a determination with the U.S. government in the third quarter of 2018 that certain environmental expenditures are reimbursable~~expenses (see Note 8(c) of the Notes to Unaudited Condensed Consolidated Financial Statements).

Retirement Benefits Expense:


	Three months ended September 30,									Nine months ended September 30,										Three months ended September 30,								Nine months ended September 30,
	2019			2018			Change*			2019			2018			Change*				2020		2019		Change*		2020		2019		Change*
	(In millions)																			(In millions)
Components of retirement benefits expense:																			Components of retirement benefits expense:
Interest cost on benefit obligation	$	13.5		$	12.7		$	0.8		$	40.4		$	38.2		$	2.2		Interest cost on benefit obligation	$	10.9	$	13.5	$	(2.6)	$	32.5	$	40.4	$	(7.9)
Expected return on assets	(16.2		)	(15.0		)	(1.2		)	(48.6		)	(45.1		)	(3.5		)	Expected return on assets	(15.2)		(16.2)		1.0		(45.4)		(48.6)		3.2
Amortization of prior service credits	(0.1		)	(0.1		)	—			(0.1		)	(0.1		)	—
Amortization of prior service costs (credits)																			Amortization of prior service costs (credits)	—		(0.1)		0.1		0.1		(0.1)		0.2
Amortization of net losses	9.3			16.8			(7.5		)	27.8			50.2			(22.4		)	Amortization of net losses	13.4		9.3		4.1		40.2		27.8		12.4
Retirement benefits expense	$	6.5		$	14.4		$	(7.9	)	$	19.5		$	43.2		$	(23.7	)	Retirement benefits expense	$	9.1	$	6.5	$	2.6	$	27.4	$	19.5	$	7.9

* Primary reason for change. The increase in retirement benefits expense was primarily due to higher actuarial losses in the current period as a result of a decrease in the discount rate used to calculate the benefit obligation at December 31, 2019, partially offset by lower interest costs on the benefit obligation.

Interest Income:



	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change*		2020		2019		Change*
	(In millions)
Interest income	$	0.5	$	3.9	$	(3.4)	$	4.7	$	11.9	$	(7.2)

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

Interest Expense:



	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change*		2020		2019		Change*
	(In millions)

Components of interest expense:
Contractual interest and other	$	4.7	$	6.6	$	(1.9)	$	15.6	$	20.2	$	(4.6)
Amortization of debt discount and deferred financing costs	2.5		2.4		0.1		7.4		7.0		0.4
Interest expense	$	7.2	$	9.0	$	(1.8)	$	23.0	$	27.2	$	(4.2)

*Primary reason for change. The decrease in retirement benefits expense was primarily due to a decrease in the amortization of net actuarial losses in the current period primarily due to an increase in the discount rate used to determine our pension obligation at December 31, 2018.

~~Interest Income:~~

Three months ended September 30, Nine months ended September 30,
2019 2018 Change* 2019 2018 Change*
(In millions)
Interest income $ 3.9
$ 2.8
$ 1.1
$ 11.9
$ 6.4
$ 5.5

* ~~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,
2019 2018 Change 2019 2018 Change*
(In millions)
Components of interest expense:
Contractual interest and other $ 6.6
$ 6.9
$ (0.3 ) $ 20.2
$ 18.9
$ 1.3
Amortization of debt discount and deferred financing costs 2.4
2.2
0.2
7.0
6.6
0.4
Interest expense $ 9.0
$ 9.1
$ (0.1 ) $ 27.2
$ 25.5
$ 1.7

* ~~Primary reason for change.~~ ~~The increase in~~ interest expense was primarily due to ~~higher finance lease~~lower variable interest rates and average obligations ~~in 2019 (see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements)~~on our senior secured senior credit facility (the "Senior Credit Facility").

Income ~~Tax Provision:~~Taxes:

The income tax provision was as follows:


	Nine months ended September 30,
	2020		2019
	(In millions)



Income tax provision	$	34.6	$	39.0

Nine months ended September 30,
2019 2018
(In millions)
Income tax provision $ 39.0
$ 39.8

In the nine months ended September 30, 2020, the income tax provision was $34.6 million for an effective tax rate of 25.3%. Our effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of Research and Development ("R&D") credits.

In the nine months ended September 30, 2019, the income tax provision was $39.0 million for an effective tax rate of 25.2%. Our effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of ~~Research and Development ("R&D") credits.~~

In the nine months ended September 30, 2018, the income tax provision was $39.8 million for an effective tax rate of 25.9%. Our effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of 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 segment unusual items. We believe the exclusion of the items listed above permits an evaluation and a comparison of results for ongoing business operations, and it is on this basis that management internally assesses operational performance.

Aerospace and Defense Segment

Three months ended September 30, Nine months ended September 30,
2019 2018 Change* 2019 2018 Change**
(In millions, except percentage amounts)
Net sales $ 480.0
$ 497.2
$ (17.2 ) $ 1,453.1
$ 1,453.2
$ (0.1 )
Segment performance 65.0
108.0
(43.0 ) 216.9
209.6
7.3
Segment margin 13.5 % 21.7 % 14.9 % 14.4 %
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure) 12.3 % 14.2 % 13.8 % 12.2 %
Components of segment performance:
Aerospace and Defense income $ 59.2
$ 70.7
$ (11.5 ) $ 201.2
$ 176.8
$ 24.4
Environmental remediation provision adjustments (0.8 ) 39.9
(40.7 ) (1.5 ) 37.6
(39.1 )
GAAP/CAS retirement benefits expense difference 6.6
(2.6 ) 9.2
17.5
(4.8 ) 22.3
Unusual items —
—
—
(0.3 ) —
(0.3 )
Aerospace and Defense total $ 65.0
$ 108.0
$ (43.0 ) $ 216.9
$ 209.6
$ 7.3

Segment performance during the three and nine months ended September 30, 2018, was significantly impacted by a one-time benefit of $43.0 million as a result of reaching a determination with the U.S. government that certain environmental expenditures are reimbursable (see Note 8(c) of the Notes to Unaudited Condensed Consolidated Financial Statements).




	Three months ended September 30,											Nine months ended September 30,
	2020			2019			Change*		2020			2019			Change**
	(In millions, except percentage amounts)
Net sales	$	527.1		$	480.0		$	47.1	$	1,513.4		$	1,453.1		$	60.3
Segment performance	61.7			65.0			(3.3)		192.0			216.9			(24.9)
Segment margin	11.7		%	13.5		%			12.7		%	14.9		%

* Primary reason for change.The ~~decrease~~increase in net sales was primarily ~~due to a decrease of $27.9 million in space programs primarily~~ driven by ~~the RS-68 program~~RS-25 and THAAD programs partially offset by ~~growth in~~a decline on the ~~RS-25~~Commercial Crew Development program. ~~The decline in space programs was partially offset by an increase of $10.7 million in defense programs primarily driven by the PAC-3 and GMLRS programs.~~

The decrease in segment margin ~~before environmental remediation provision adjustments, retirement benefits, net and unusual items~~ was primarily driven by ~~lower risk retirements~~cost growth and performance issues in the current period on the ~~THAAD, RS-68, and RL-10 programs~~Commercial Crew Development program partially offset by improved performance on the ~~Commercial Crew Development~~Electric Propulsion programs and risk retirements on the THAAD program.

During the three months ended September 30, ~~2019,~~2020, we had ~~$4.0~~$3.2 millionof net favorable changes in contract estimates on operating results before income taxes compared with net favorable changes of ~~$26.9~~$4.0 million during the three months ended September 30, ~~2018.~~2019.

** Primary reason for change.~~Net~~ The increase in net sales was ~~comparable with the prior period and impacted by an increase of $58.7 million in defense programs~~ primarily driven by the ~~PAC-3~~GMLRS, RS-25, and ~~GEM-T~~MRBM programs partially offset by a decline on the Commercial Crew Development program and the cancellation in 2019 of the RKV program.

The decrease ~~of $58.8 million~~ in ~~space programs~~segment margin was primarily driven by the ~~RS-68~~following: (i) cost growth on a portion of the Standard Missile program in 2020; (ii) cost growth and performance issues in 2020 on the ~~winding down of~~Commercial Crew Development program; and (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019. These factors were partially offset ~~by growth in the RS-25 program.~~

~~The increase in segment margin before environmental remediation provision adjustments, retirement benefits, net and unusual items was primarily driven~~ by improved performance on the ~~Commercial Crew Development program.~~Electric Propulsion programs.

During the nine months ended September 30, ~~2019,~~2020, we had ~~$43.0~~$21.4 millionof net favorable changes in contract estimates on operating results before income taxes compared with net favorable changes of ~~$41.0~~$43.0 million during the nine months ended September 30, ~~2018.~~2019.

Real Estate Segment


	Three months ended September 30,							Nine months ended September 30,								Three months ended September 30,								Nine months ended September 30,
	2019		2018		Change			2019		2018		Change				2020		2019		Change*		2020		2019		Change*
	(In millions)															(In millions)
Net sales	$	1.8	$	1.6	$	0.2		$	5.4	$	4.8	$	0.6		Net sales	$	0.6	$	1.8	$	(1.2)	$	2.8	$	5.4	$	(2.6)
Segment performance	0.4		0.6		(0.2		)	1.5		1.8		(0.3		)	Segment performance	(0.4)		0.4		(0.8)		(1.4)		1.5		(2.9)

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

Backlog

As of September 30, ~~2019,~~2020, our total remaining performance obligations, also referred to as backlog, totaled ~~$4.5 billion.~~$6.7 billion compared with $5.4 billion as of December 31, 2019. The increase in backlog was due to a $1.8 billion contract modification for the production of an additional 18 RS-25 engines to support future deep space exploration missions. We expect to recognize approximately ~~43%~~30%, or ~~$2.0~~$2.1 billion, of the remaining performance obligations as sales over the next twelve months, an additional 24% the following twelve months, and ~~33%~~46% thereafter. A summary of our backlog is as follows:


	September 30, 2019		December 31, 2018			September 30, 2020		December 31, 2019
	(In billions)					(In billions)
Funded backlog	$	2.1	$	1.9	Funded backlog	$	3.1	$	2.1
Unfunded backlog	2.4		2.2		Unfunded backlog	3.6		3.3
Total backlog	$	4.5	$	4.1	Total backlog	$	6.7	$	5.4

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

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 measures of our performance called Adjusted EBITDAP, Adjusted Net Income, and Adjusted EPS. We use these metrics to measure our operating and total Company performance. We believe that for management and investors to effectively compare core performance from period to period, the metrics should exclude items 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, ongoing and customary course of our business. Accordingly, we define Adjusted EBITDAP as GAAP net income adjusted to exclude interest expense, interest income, income taxes, depreciation and amortization, 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 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 September 30,									Nine months ended September 30,
	2020			2019			2020			2019
	(In millions, except per share and percentage amounts)
Net income	$	31.7		$	32.9		$	102.3		$	115.7
Interest expense	7.2			9.0			23.0			27.2
Interest income	(0.5)			(3.9)			(4.7)			(11.9)
Income tax provision	9.0			10.6			34.6			39.0
Depreciation and amortization	15.1			18.4			49.7			53.4
GAAP retirement benefits expense	9.1			6.5			27.4			19.5
CAS recoverable retirement benefits expense	(9.1)			(11.3)			(32.9)			(31.6)
Unusual items	—			—			1.8			0.3
Adjusted EBITDAP	$	62.5		$	62.2		$	201.2		$	211.6
Net income as a percentage of net sales	6.0		%	6.8		%	6.7		%	7.9		%
Adjusted EBITDAP as a percentage of net sales	11.8		%	12.9		%	13.3		%	14.5		%

Net income	$	31.7		$	32.9		$	102.3		$	115.7
GAAP retirement benefits expense	9.1			6.5			27.4			19.5
CAS recoverable retirement benefits expense	(9.1)			(11.3)			(32.9)			(31.6)
Unusual items	—			—			1.8			0.3


Income tax impact of adjustments (1)	—			1.3			1.0			3.2
Adjusted Net Income	$	31.7		$	29.4		$	99.6		$	107.1

Diluted EPS	$	0.38		$	0.39		$	1.23		$	1.39
Adjustments	—			(0.04)			(0.04)			(0.10)
Adjusted EPS	$	0.38		$	0.35		$	1.19		$	1.29

Diluted weighted average shares, as reported and adjusted	81.9			82.8			82.4			81.5

_________

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions, except per share and percentage amounts)
Net income $ 32.9
$ 65.0
$ 115.7
$ 113.8
Interest expense 9.0
9.1
27.2
25.5
Interest income (3.9 ) (2.8 ) (11.9 ) (6.4 )
Income tax provision 10.6
22.6
39.0
39.8
Depreciation and amortization 18.4
18.1
53.4
53.5
GAAP retirement benefits expense 6.5
14.4
19.5
43.2
CAS recoverable retirement benefits expense (11.3 ) (8.5 ) (31.6 ) (28.5 )
Unusual items —
0.2
0.3
0.2
Adjusted EBITDAP $ 62.2
$ 118.1
$ 211.6
$ 241.1
Net income as a percentage of net sales 6.8 % 13.0 % 7.9 % 7.8 %
Adjusted EBITDAP as a percentage of net sales 12.9 % 23.7 % 14.5 % 16.5 %

Net income $ 32.9
$ 65.0
$ 115.7
$ 113.8
GAAP retirement benefits expense 6.5
14.4
19.5
43.2
CAS recoverable retirement benefits expense (11.3 ) (8.5 ) (31.6 ) (28.5 )
Unusual items —
0.2
0.3
0.2
Income tax impact of adjustments (1) 1.3
(1.7 ) 3.2
(4.1 )
Adjusted Net Income $ 29.4
$ 69.4
$ 107.1
$ 124.6

Diluted EPS $ 0.39
$ 0.82
$ 1.39
$ 1.47
Adjustments (0.04 ) 0.06
(0.10 ) 0.14
Adjusted EPS $ 0.35
$ 0.88
$ 1.29
$ 1.61

Diluted weighted average shares, as reported and adjusted 82.8
77.3
81.5
75.9
(1) The income tax impact is calculated using the federal and state statutory rates in the corresponding period.

~~_________~~

Free Cash Flow


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

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

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In millions)
Net cash provided by operating activities $ 65.2
$ 72.5
$ 96.4
$ 97.0
Capital expenditures (9.4 ) (8.7 ) (16.3 ) (20.9 )
Free Cash Flow (1) $ 55.8
$ 63.8
$ 80.1
$ 76.1

~~_________~~

~~(1) Free Cash Flow, a Non-GAAP financial measure, is defined as cash flow from operating activities less capital expenditures.~~


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019

	(In millions)
Net cash provided by operating activities	$	11.0	$	65.2	$	138.6	$	96.4
Capital expenditures	(14.8)		(9.4)		(31.0)		(16.3)
Free Cash Flow	$	(3.8)	$	55.8	$	107.6	$	80.1

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

Other Information

Recently Adopted and Issued 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 adopted and issued 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, ~~2018.~~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 the 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.

See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for the impact of the new 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 effective January 1, 2019.

A detailed description of our significant accounting policies can be found in our most recent Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Liquidity and Capital Resources

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

The following table summarizes the ~~change~~changes in cash, cash equivalents and restricted cash:


								Nine months ended September 30,
								2020		2019
								(In millions)

	Nine months ended September 30,
	2019			2018
	(In millions)
Net Cash Provided by Operating Activities	$	96.4		$	97.0		Net Cash Provided by Operating Activities	$	138.6	$	96.4
Net Cash Used in Investing Activities	(16.3		)	(1.6		)	Net Cash Used in Investing Activities	(32.5)		(16.3)
Net Cash Used in Financing Activities	(18.3		)	(21.8		)	Net Cash Used in Financing Activities	(28.7)		(18.3)

Net Increase in Cash, Cash Equivalents and Restricted Cash	$	61.8		$	73.6		Net Increase in Cash, Cash Equivalents and Restricted Cash	$	77.4	$	61.8

Net Cash Provided by Operating Activities

The ~~$0.6 million decrease~~increase in cash provided by operating activities for the nine months ended September 30, ~~2019,~~2020, compared with the nine months ended September 30, ~~2018,~~2019 was primarily due to ~~an increase~~the following: (i) improved cash flow from contracts due to the timing of ~~$35.4 million~~contract performance payments; and (ii) a decrease in income ~~taxes (net of refunds) paid in the current period partially offset by improved operating performance.~~and payroll tax payments.

Net Cash Used Inin Investing Activities

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we had capital expenditures of $31.0 million and $16.3 million, respectively. The increase in capital expenditures in 2020 was primarily due to capacity expansion to support the RS-25, Ground Based Strategic Deterrent ("GBSD"), and ~~$20.9 million, respectively.~~hypersonic propulsion programs.

During the nine months ended September 30, ~~2018,~~2020, we ~~received insurance proceeds~~had net purchases of ~~$1.9 million and we received net proceeds of $17.4~~$1.5 million in marketable securities.

Net Cash Used in Financing Activities

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we had debt repayments of ~~$15.9~~$14.7 million and ~~$20.5~~$15.9 million, respectively. See a summary of ~~the~~our debt activity below.

During the nine months ended September 30, ~~2018,~~2020, we ~~had debt issuance costs~~repurchased 0.3 million of ~~$3.3 million associated with an amendment to~~ our ~~senior secured senior credit facility (the "Senior Credit Facility").~~

common shares at a cost of $12.3 million.

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we had net ~~(disbursements)/receipts~~disbursements from shares issued under our equity plans of ~~$(2.4)~~$1.7 million and ~~$2.0~~$2.4 million, respectively.

Debt Activity and Covenants

The following table summarizes our debt principal activity:


	December 31, 2018		Principal Payments			Finance Lease Additions		September 30, 2019			December 31, 2019		Principal Payments		September 30, 2020
	(In millions)										(In millions)
Term loan	$	345.6	$	(13.1	)	$	—	$	332.5	Term loan	$	328.1	$	(13.1)	$	315.0
2.25% Convertible Senior Notes ("2¹/₄% Notes")	300.0		—			—		300.0		2.25% Convertible Senior Notes ("2¹/₄% Notes")	300.0		—		300.0

Finance leases	27.2		(2.8		)	23.7		48.1		Finance leases	47.7		(1.6)		46.1

Total Debt Activity	$	672.8	$	(15.9	)	$	23.7	$	680.6	Total Debt Activity	$	675.8	$	(14.7)	$	661.1

We were in compliance with our financial and non-financial covenants under the Senior Credit Facility as of September 30, ~~2019.~~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 future operations will provide sufficient funds to meet our operating plan for the next twelve months. The operating plan for this period provides for full operation of our businesses, including interest and debt payments. As of September 30, ~~2019,~~2020, we had ~~$797.0~~$1,010.0 million of cash and cash equivalents as well as ~~$620.4~~$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, ~~2019.~~2020. Our failure to comply with these covenants could result in an event of default that, if not cured or waived by the lenders, could result in the acceleration of the Senior Credit Facility and 2¼% Notes. In addition, our failure to pay principal and interest when due is a default under the Senior Credit Facility, and in certain cases, would cause a cross default on the 2¼% Notes.

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

The CARES Act was enacted on March 27, 2020, in response to the COVID-19 pandemic and the negative impacts that it is having on the global economy and U.S. companies. The CARES Act includes various financial measures to assist companies, including temporary changes to income and non-income-based tax laws. Through these provisions, as of September 30, 2020, we have delayed $15.1 million of payroll tax payments. Additionally, in accordance with the provisions of the CARES Act, we accelerated depreciation on qualified improvement property placed in service after December 31, 2017.

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, the placement of debt, or combination of both. We periodically evaluate capital markets and may access such markets when circumstances appear favorable. We believe that sufficient capital resources will be available from one or several of these sources to finance any future acquisitions. However, no assurances can be made that acceptable financing will be available, or that acceptable acquisition candidates will be identified, or that any such acquisitions will be accretive to earnings.

On March 13, 2020, we announced that our Board of Directors authorized and approved a new share repurchase program allowing us to repurchase our outstanding common stock with an aggregate market value of up to $100 million over a period of up to 18 months; however, management has discretion as to whether any repurchases will be executed. The timing of any share repurchases will be based on available liquidity, cash flows and general market conditions. The repurchase program may be executed through various methods, including open market purchases or privately negotiated transactions. During the nine months ended September 30, 2020, we repurchased 0.3 million of our common shares at a cost of $12.3 million. Additionally, in October 2020, we repurchased 1.0 million of our common shares at a cost of $39.4 million which leaves $48.3 million of market value remaining for repurchase under the program at management’s discretion.

As disclosed in Notes 8(a) and 8(b) in the 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.

Major factors that could adversely impact our forecasted operating cash and our financial condition are described in the section "Risk Factors" in Item 1A of our Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2018.~~2019, and the

Form 10-Q for the fiscal quarters ended March 31, 2020, and June 30, 2020, and should be read in conjunction with the risk factors therein and the information described in this Quarterly Report.

Forward-Looking Statements

Certain information contained in this report should be considered "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" and "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" in Item 1A of our Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2018,~~2019, and Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarters ended March 31, 2020, and June 30, 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;

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

• cancellation or material modification of one or more significant contracts;

• 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;~~materials;

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

• 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, unplanned ignition, explosion, or improper handling of dangerous materials used in~~• the Company's ~~businesses;~~Competitive Improvement Program may not be successful in aligning the Company's operations to current market conditions;

~~loss of key qualified suppliers of technologies, components, and materials;~~

• 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;

• 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 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;~~

~~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 and Qualitative Disclosures About Market Risk," in our Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2018.~~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, ~~2019,~~2020, our debt principal excluding finance lease obligations totaled ~~$632.5~~$615.0 million: $300.0 million, or ~~47%~~49%, was at a fixed rate of 2.25%; and ~~$332.5~~$315.0 million, or ~~53%~~51%, was at a variable rate of ~~3.79%~~1.90%.

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


	Fair Value				Principal Amount					Fair Value						Principal Amount
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018			September 30, 2020		December 31, 2019		September 30, 2020			December 31, 2019
	(In millions)									(In millions)
Term loan	$	332.5	$	345.6	$	332.5	$	345.6	Term loan	$	304.0	$	328.1	$	315.0		$	328.1

2¹/₄% Notes	600.5		441.1		300.0		300.0		2¹/₄% Notes	478.1		546.0		300.0			300.0

Total	$	933.0	$	786.7	$	632.5	$	645.6	Total	$	782.1	$	874.1	$	615.0		$	628.1

The fair value of the 2¼% Notes was determined using broker quotes that are based on open markets for our debt securities (Level 2 securities). The fair value of the term loan ~~bore interest~~ at ~~variable rates, which adjusted~~September 30, 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 ~~approximates~~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

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and 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")) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in internal control over financial reporting that occurred during the most recent 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 8 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 year ended December 31, ~~2018.~~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 on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019, and the Form 10-Q for the fiscal quarters ended March 31, 2020, and June 30, 2020, 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.

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

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

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

While our customers and suppliers generally continue to operate and perform their missions, some facilities have temporarily reduced or halted operations due to precautionary measures, staffing illness, or cleaning disruptions. For example, NASA's Stennis Space Center, an engine test site for our space programs, continues to operate at Stage 3 of their coronavirus response framework which limits access to the facility for personnel supporting activities necessary for mission-essential and approved mission-critical work. The length and severity of such delays and closures, and any impact they will have on our operations, remains uncertain. We cannot predict whether the current or future closures of our customer facilities related to the COVID-19 pandemic will have a material adverse effect on our financial results and operations. In addition, as we have a diverse supply chain utilizing companies of varying size, resources and complexity, there is no guarantee that our supply network will have sufficient resources or the ability to maintain their operations.

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

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

~~The Company does not currently have~~Issuer Purchases of Equity Securities

On March 13, 2020, we announced that our Board of Directors authorized and approved a new share repurchase ~~program.~~ 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)






July 1, 2020 through July 31, 2020	—	$	—	—	$	—
August 1, 2020 through August 31, 2020	—	$	—	—	$	—
September 1, 2020 through September 30, 2020	292,198	$	40.23	292,198	$	87.7
Total	292,198	$	40.23	292,198	$	87.7

______

(1) In millions.

The table below provides information about shares surrendered to the Company during the three months ended September 30, 2020, to pay employee withholding taxes due upon the vesting of restricted stock.


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






July 1, 2020 through July 31, 2020	—	$	—	—	—
August 1, 2020 through August 31, 2020	9,730	$	43.47	—	—
September 1, 2020 through September 30, 2020	4,976	$	40.98	—	—
Total	14,706	$	42.63	—	—

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
July 1, 2019 through July 31, 2019 13,016
$ 46.17
—
—
August 1, 2019 through August 31, 2019 2,587
$ 48.56
—
—
September 1, 2019 through September 30, 2019 2,453
$ 50.86
—
—
Total 18,056
$ 47.15
—
—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



~~No.~~	~~Description~~
31.1*	~~Certification of Principal Executive Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934~~
31.2*	~~Certification of Principal Financial Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934~~
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.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

Incorporated herein by reference

Table

Item No.

Exhibit Description

Form

File Number

Exhibit

Filing Date

Filed or Furnished herewith

10.1

Offer letter between Aerojet Rocketdyne Holdings, Inc. and Dan Boehle, dated August 6, 2020.

8-K

1-01520

10.1

August 7, 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

_______

* Filed herewith. All other exhibits have been previously filed.

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:

October ~~29, 2019~~26, 2020

By:

/s/ Eileen P. Drake

Eileen P. Drake

Chief Executive Officer and President

(Principal Executive Officer)

Date:

October ~~29, 2019~~26, 2020

By:

/s/ ~~Paul R. Lundstrom~~Daniel L. Boehle

~~Paul R. Lundstrom~~Daniel L. Boehle

Vice President ~~of Finance~~ and Chief Financial Officer

(Principal Financial ~~Officer)~~

~~Date:~~

~~October 29, 2019~~

~~By:~~

~~/s/ Daniel L. Boehle~~

~~Daniel L. Boehle~~

~~Vice President~~Officer and ~~Controller~~

(Principal Accounting Officer)



	September 30, 2019			December 31, 2018
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	797.0		$	735.3
Restricted cash	5.1			5.0
Accounts receivable, net	171.0			141.2
Contract assets	237.1			235.1
Other current assets, net	140.8			117.7
Total Current Assets	1,351.0			1,234.3
Noncurrent Assets
Right-of-use assets	49.8			—
Property, plant and equipment, net	383.5			399.7
Recoverable environmental remediation costs	240.6			251.1
Deferred income taxes	129.4			116.9
Goodwill	161.4			161.3
Intangible assets	61.6			71.8
Other noncurrent assets, net	273.4			255.0
Total Noncurrent Assets	1,299.7			1,255.8
Total Assets	$	2,650.7		$	2,490.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	280.4		$	273.1
Accounts payable	100.3			88.7
Reserves for environmental remediation costs	42.4			39.8
Contract liabilities	268.1			272.6
Other current liabilities	184.4			204.1
Total Current Liabilities	875.6			878.3
Noncurrent Liabilities
Long-term debt	359.2			352.3
Reserves for environmental remediation costs	275.8			288.1
Pension benefits	367.0			376.7
Operating lease liabilities	41.7			—
Other noncurrent liabilities	164.7			173.4
Total Noncurrent Liabilities	1,208.4			1,190.5
Total Liabilities	2,084.0			2,068.8
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; 77.3 million shares issued and outstanding as of September 30, 2019; 76.8 million shares issued and outstanding as of December 31, 2018	7.7			7.7
Other capital	570.6			561.8
Treasury stock at cost, 0.8 million shares as of September 30, 2019 and December 31, 2018	(12.7		)	(12.7		)
Retained earnings	219.6			103.9
Accumulated other comprehensive loss, net of income taxes	(218.5		)	(239.4		)
Total Stockholders’ Equity	566.7			421.3
Total Liabilities and Stockholders’ Equity	$	2,650.7		$	2,490.1



	Common Stock										(Accumulated Deficit)			Accumulated Other			Total
	Shares		Amount		Other Capital			Treasury Stock			Retained Earnings			Comprehensive Loss			Stockholders' Equity
	(In millions)
June 30, 2018	73.9		$	7.4	$	509.4		$	(64.5	)	$	15.4		$	(247.6	)	$	220.1
Net income	—		—		—			—			65.0			—			65.0
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—			12.3			12.3
Contribution of treasury stock to retirement benefit plan	2.7		0.3		42.9			51.8			—			—			95.0
Repurchase of shares for withholding taxes and option costs under equity plans	—		—		(0.5		)	—			—			—			(0.5		)
Stock-based compensation and shares issued under equity plans	0.2		—		4.5			—			—			—			4.5
September 30, 2018	76.8		$	7.7	$	556.3		$	(12.7	)	$	80.4		$	(235.3	)	$	396.4

December 31, 2017	73.6		$	7.4	$	503.1		$	(64.5	)	$	(71.0	)	$	(272.6	)	$	102.4
Net income	—		—		—			—			113.8			—			113.8
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—			37.3			37.3
Contribution of treasury stock to retirement benefit plan	2.7		0.3		42.9			51.8			—			—			95.0
Cumulative effect of change in accounting guidance	—		—		—			—			37.6			—			37.6
Repurchase of shares for withholding taxes and option costs under equity plans	(0.1	)	—		(2.6		)	—			—			—			(2.6		)
Stock-based compensation and shares issued under equity plans	0.6		—		12.9			—			—			—			12.9
September 30, 2018	76.8		$	7.7	$	556.3		$	(12.7	)	$	80.4		$	(235.3	)	$	396.4

June 30, 2019	77.1		$	7.7	$	564.7		$	(12.7	)	$	186.7		$	(225.4	)	$	521.0
Net income	—		—		—			—			32.9			—			32.9
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—			6.9			6.9
Repurchase of shares for withholding taxes and option costs under equity plans	—		—		(0.8		)	—			—			—			(0.8		)
Stock-based compensation and shares issued under equity plans	0.2		—		6.7			—			—			—			6.7
September 30, 2019	77.3		$	7.7	$	570.6		$	(12.7	)	$	219.6		$	(218.5	)	$	566.7

December 31, 2018	76.8		$	7.7	$	561.8		$	(12.7	)	$	103.9		$	(239.4	)	$	421.3
Net income	—		—		—			—			115.7			—			115.7
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—			20.9			20.9
Repurchase of shares for withholding taxes and option costs under equity plans	(0.3	)	—		(7.5		)	—			—			—			(7.5		)
Stock-based compensation and shares issued under equity plans	0.8		—		16.3			—			—			—			16.3
September 30, 2019	77.3		$	7.7	$	570.6		$	(12.7	)	$	219.6		$	(218.5	)	$	566.7



	Three months ended September 30, 2019		Nine months ended September 30, 2019
	(In millions)
Operating lease cost	$	3.3	$	10.2
Finance lease cost:
Amortization	1.7		3.1
Interest on lease liabilities	0.8		2.2
Short-term lease cost	0.4		0.6
Total lease costs	$	6.2	$	16.1



	Nine months ended September 30, 2019
	(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	10.6
Operating cash flows for finance leases	2.2
Financing cash flows for finance leases	2.8
Assets obtained in exchange for lease obligations:
Operating leases	6.4
Finance leases	23.7



	September 30, 2019
	(In millions)
Operating leases:
Operating lease right-of-use assets	$	49.8
Operating lease liabilities (component of other current liabilities)	$	11.7
Operating lease liabilities, noncurrent	41.7
	$	53.4

Finance leases:
Property, plant and equipment	$	52.9
Accumulated depreciation	(4.9		)
Property, plant and equipment, net	$	48.0
Current portion of long-term debt	$	2.1
Long-term debt	46.0
Total finance lease liability	$	48.1

Weighted-average remaining lease term (in years):
Operating leases	6
Finance leases	18
Weighted-average discount rate:
Operating leases	4.7		%
Finance leases	5.2		%



Year Ending December 31,	Operating Leases			Finance Leases
	(In millions)
2019 (excluding the nine months ended September 30, 2019)	$	3.7		$	1.3
2020	13.6			4.7
2021	12.9			4.7
2022	10.8			4.2
2023	5.5			3.7
Thereafter	15.6			61.3
Total minimum rentals	62.1			79.9
Less: imputed interest	(8.7		)	(31.8		)
Total	$	53.4		$	48.1