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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: March 31, 2021
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)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.10 par value AJRDNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 April 19, 2021, the Company had 80,085,577 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 March 31, 2021
Table of Contents 
1Financial Statements
2Management’s Discussion and Analysis of Financial Condition and Results of Operations
3Quantitative and Qualitative Disclosures About Market Risk
4Controls and Procedures
1Legal Proceedings
1ARisk Factors
2Unregistered Sales of Equity Securities and Use of Proceeds
3Defaults Upon Senior Securities
4Mine Safety Disclosures
5Other Information

Item 1. Financial Statements
Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Operations
Three months ended March 31,
 (In millions, except per share amounts)
Net sales$496.1 $476.1 
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)418.0 394.9 
Selling, general and administrative expense9.0 9.1 
Depreciation and amortization15.2 17.2 
Other expense (income), net8.1 (2.2)
Total operating costs and expenses450.3 419.0 
Operating income45.8 57.1 
Retirement benefits expense8.5 9.2 
Loss on debt9.1  
Interest income(0.6)(3.2)
Interest expense5.1 8.4 
Total non-operating expense, net22.1 14.4 
Income before income taxes23.7 42.7 
Income tax provision 5.6 11.3 
Net income $18.1 $31.4 
Earnings per share of common stock
Basic earnings per share
$0.23 $0.40 
Diluted earnings per share
$0.22 $0.37 
Weighted average shares of common stock outstanding, basic77.6 77.5 
Weighted average shares of common stock outstanding, diluted 80.7 83.1 
Cash dividends paid per share$5.00 $ 
See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
Three months ended March 31,
 (In millions)
Net income $18.1 $31.4 
Other comprehensive income:
Amortization of net actuarial losses, net of income taxes of $3.8 million and $3.3 million
11.5 10.2 
Comprehensive income $29.6 $41.6 
See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Balance Sheets
March 31,
December 31, 2020
 (In millions, except per share amounts)
Current Assets
Cash and cash equivalents$503.7 $1,149.5 
Restricted cash3.0 3.0 
Marketable securities9.2 7.0 
Accounts receivable, net206.3 75.6 
Contract assets300.5 288.6 
Other current assets, net125.4 136.5 
Total Current Assets1,148.1 1,660.2 
Noncurrent Assets
Right-of-use assets43.6 46.8 
Property, plant and equipment, net416.0 423.1 
Recoverable environmental remediation costs223.8 227.7 
Deferred income taxes77.3 81.1 
Goodwill161.4 161.4 
Intangible assets41.4 44.8 
Other noncurrent assets, net252.4 254.8 
Total Noncurrent Assets1,215.9 1,239.7 
Total Assets$2,364.0 $2,899.9 
Current Liabilities
Current portion of long-term debt$178.7 $299.9 
Accounts payable71.8 99.1 
Reserves for environmental remediation costs39.1 39.8 
Contract liabilities437.1 407.2 
Other current liabilities176.5 609.7 
Total Current Liabilities903.2 1,455.7 
Noncurrent Liabilities
Long-term debt317.4 324.4 
Reserves for environmental remediation costs256.2 260.8 
Pension benefits388.1 405.2 
Operating lease liabilities32.7 35.7 
Other noncurrent liabilities189.4 184.6 
Total Noncurrent Liabilities1,183.8 1,210.7 
Total Liabilities2,087.0 2,666.4 
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; 79.6 million shares issued and outstanding as of March 31, 2021; 76.8 million shares issued and outstanding as of December 31, 2020
8.0 7.7 
Other capital583.3 583.0 
Treasury stock at cost, 2.1 million shares as of March 31, 2021 and December 31, 2020
Accumulated deficit(33.8)(65.2)
Accumulated other comprehensive loss, net of income taxes(216.1)(227.6)
Total Stockholders’ Equity277.0 233.5 
Total Liabilities and Stockholders’ Equity $2,364.0 $2,899.9 
See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Common StockRetained EarningsAccumulated OtherTotal
(Accumulated Deficit)Comprehensive
 (In millions)
December 31, 201977.3 $7.7 $573.3 $(12.7)$244.9 $(236.5)$576.7 
Net income— — — — 31.4 — 31.4 
Amortization of net actuarial losses, net of income taxes— — — — — 10.2 10.2 
Purchase of treasury stock— — — (0.5)— — (0.5)
Repurchase of shares for withholding taxes and option costs under equity plans (0.1)— (7.9)— — — (7.9)
Stock-based compensation and shares issued under equity plans0.4 — 6.9 — — — 6.9 
March 31, 202077.6 $7.7 $572.3 $(13.2)$276.3 $(226.3)$616.8 
December 31, 202076.8 $7.7 $583.0 $(64.4)$(65.2)$(227.6)$233.5 
Net income— — — — 18.1 — 18.1 
Amortization of net actuarial losses, net of income taxes— — — — — 11.5 11.5 
Adjustment to dividends paid— — — — 13.3 — 13.3 
Settlement of debt (see Note 11)2.6 0.3 (4.1)— — — (3.8)
Repurchase of shares for withholding taxes and option costs under equity plans — — (4.0)— — — (4.0)
Stock-based compensation and shares issued under equity plans0.2 — 8.4 — — — 8.4 
March 31, 202179.6 $8.0 $583.3 $(64.4)$(33.8)$(216.1)$277.0 
See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
Three months ended March 31,
 (In millions)
Operating Activities
Net income $18.1 $31.4 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization15.2 17.2 
Amortization of debt discount and deferred financing costs1.5 2.4 
Stock-based compensation2.8 2.4 
Retirement benefits, net(2.5)7.9 
Loss on debt9.1  
Other, net(0.3)0.4 
Changes in assets and liabilities:
Accounts receivable, net(130.7)(39.2)
Contract assets (11.9)(54.8)
Other current assets, net11.1 8.4 
Recoverable environmental remediation costs3.9 6.7 
Other noncurrent assets, net2.3 4.6 
Accounts payable(27.4)(3.3)
Contract liabilities29.9 26.3 
Other current liabilities14.6 (20.3)
Deferred income taxes 4.1 
Reserves for environmental remediation costs(5.3)(6.6)
Other noncurrent liabilities and other0.2 (4.7)
Net Cash Used in Operating Activities (69.4)(17.1)
Investing Activities
Purchases of marketable securities(1.9) 
Capital expenditures(3.8)(3.0)
Net Cash Used in Investing Activities(5.7)(3.0)
Financing Activities
Dividend payments(428.5) 
Debt repayments(142.4)(4.9)
Repurchase of shares for withholding taxes and option costs under equity plans (4.0)(7.9)
Proceeds from shares issued under equity plans4.2 3.4 
Purchase of treasury stock (0.5)
Net Cash Used in Financing Activities(570.7)(9.9)
Net Decrease in Cash, Cash Equivalents and Restricted Cash(645.8)(30.0)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period1,152.5 935.6 
Cash, Cash Equivalents and Restricted Cash at End of Period$506.7 $905.6 
Supplemental disclosures of cash flow information
Cash paid for interest$2.7 $4.1 
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, 2020, 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, 2020. Certain reclassifications have been made to financial information for prior years to conform to the current year’s presentation.
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 two 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 fiscal year of the Company's subsidiary, Aerojet Rocketdyne, ends on the last Saturday in 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, 2020.
On December 20, 2020, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Lockheed Martin Corporation ("Lockheed Martin") and Mizar Sub, Inc., a wholly-owned subsidiary of Lockheed Martin ("Merger Sub"), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company (the "Merger") with the Company being the surviving corporation and a wholly-owned subsidiary of Lockheed Martin. Subject to the terms and conditions set forth in the Merger Agreement, each share of common stock outstanding as of immediately prior to the effective time of the Merger will be automatically converted into the right to receive cash in an amount equal to $51.00 per share (adjusted from $56.00 following the payment of the Pre-Closing Dividend, as discussed below).
In December 2020, the Company’s Board of Directors declared a one-time cash dividend of $5.00 per share (including shares underlying the 2.25% Convertible Senior Notes ("2¼% Notes") participating on an as-converted basis) (the "Pre-Closing Dividend"). On March 24, 2021, the Company paid the Pre-Closing Dividend to holders of record as of March 10, 2021. Payment of the Pre-Closing Dividend was made in connection with the anticipated acquisition of the Company by Lockheed Martin. Under the terms of the Merger Agreement, the Company's payment of the Pre-Closing Dividend adjusted the consideration to be paid by Lockheed Martin at closing from $56.00 per share to $51.00 per share.
On February 18, 2021, the Company received a request for additional information ("second request") from the Federal Trade Commission ("FTC") as part of the regulatory review process for the acquisition of the Company by Lockheed Martin.
On March 9, 2021, the stockholders of the Company voted in favor of approving the Merger Agreement at a special meeting. Closing of the Merger is anticipated to occur in the later part of 2021, subject to various customary conditions, including regulatory approval.
Coronavirus ("COVID-19") Pandemic
During the three months ended March 31, 2021, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic. As a defense industrial-base U.S. government contractor, the Company is considered an essential business by the U.S. and state governments and it continues to operate as such during the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by the 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 Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board issued guidance which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to 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 may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective for the Company 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 will have on its consolidated financial 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 March 31,
 (In millions, except per share amounts)
Net income $18.1 $31.4 
Income allocated to participating securities(0.1)(0.5)
Net income for basic and diluted EPS$18.0 $30.9 
Basic weighted average shares77.6 77.5 
Effect of:
21/4% Notes
3.1 5.4 
Awards issued under equity plans
Diluted weighted average shares80.7 83.1 
Basic EPS$0.23 $0.40 
Diluted EPS$0.22 $0.37 
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.
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 March 31,
 (In millions, except per share amounts)
Net (unfavorable) favorable effect of the changes in contract estimates on net sales$(1.9)$2.1 
Net (unfavorable) favorable effect of the changes in contract estimates on income before income taxes(2.4)2.5 
Net (unfavorable) favorable effect of the changes in contract estimates on net income (1.9)1.9 
Net (unfavorable) favorable effect of the changes in contract estimates on basic and diluted EPS(0.02)0.02 

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:
March 31, 2021December 31, 2020
 (In millions)
Contract assets$307.2 $294.3 
Reserve for overhead rate disallowance(6.7)(5.7)
Contract assets, net of reserve300.5 288.6 
Contract liabilities437.1 407.2 
Net contract liabilities, net of reserve$(136.6)$(118.6)
Net contract liabilities increased by $18.0 million from December 31, 2020, primarily due to an increase in contract advances partially offset by an increase in unbilled receivables. During the three months ended March 31, 2021, the Company recognized sales of $153.4 million that were included in the Company's contract liabilities as of December 31, 2020.
As of March 31, 2021, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.3 billion. The Company expects to recognize approximately 33%, or $2.1 billion, of the remaining performance obligations as sales over the next twelve months, an additional 26% the following twelve months, and 41% thereafter.
The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the percentages of net sales by contract type:
Three months ended March 31,
Fixed-price51 %61 %
Cost-reimbursable49 39 
The principal end user customers are primarily agencies of the U.S. government as illustrated in the following table:
Three months ended March 31,
U.S. government97 %96 %
Non U.S. government3 4 
The Company's Real Estate segment represented less than 1% of the Company's net sales for the three months ended March 31, 2021 and 2020.


Note 4. Stock-Based Compensation
The following table summarizes stock-based compensation expense by type of award:
Three months ended March 31,
 (In millions)
Stock Appreciation Rights
Stock options 0.1 
Restricted stock and restricted stock units, service based1.3 1.5 
Restricted stock and restricted stock units, performance based2.9 2.0 
Employee stock purchase plan 0.3 0.3 
Total stock-based compensation expense $2.8 $2.4 
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 March 31, 2021
 TotalQuoted Prices in
Active Markets
for Identical
(Level 1)

(Level 2)

(Level 3)
 (In millions)
Money market funds$268.7 $268.7 $ $ 
Registered investment companies2.1 2.1   
Commercial paper30.0  30.0  
Equity securities9.2 9.2   
Total$310.0 $280.0 $30.0 $ 
 Fair value measurement as of December 31, 2020
 TotalQuoted Prices in
Active Markets
for Identical
(Level 1)

(Level 2)

(Level 3)
 (In millions)
Money market funds$569.3 $569.3 $ $ 
Registered investment companies2.5 2.5   
Commercial paper232.0  232.0  
Equity securities7.0 7.0   
Total$810.8 $578.8 $232.0 $ 
As of March 31, 2021 and December 31, 2020, 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 ValuePrincipal Amount
 March 31, 2021December 31, 2020March 31, 2021December 31, 2020
 (In millions)
Term loan$293.2 $306.5 $301.9 $308.5 
21/4% Notes
295.4 609.5 164.6 300.0 
Total$588.6 $916.0 $466.5 $608.5 
The fair value of the 2¼% Notes was determined using broker quotes that are based on open markets for the Company's debt securities (Level 2 securities). The fair value of the term loan was estimated based on a third-party model used to derive a relative value price using comparable corporate loans within the same industry, credit quality, and currency.
b. Accounts Receivable, net
March 31, 2021December 31, 2020
 (In millions)
Billed receivables under long-term contracts$206.0 $75.3 
Other trade receivables0.3 0.3 
Accounts receivable, net$206.3 $75.6 
c. Other Current Assets, net
March 31, 2021December 31, 2020
 (In millions)
Deferred costs recoverable from the U.S. government $39.0 $41.0 
Income tax receivable41.3 46.9 
Inventories12.9 10.0 
Prepaid expenses17.5 18.0 
Other14.7 20.6 
Other current assets, net$125.4 $136.5 
d. Property, Plant and Equipment, net
March 31, 2021December 31, 2020
 (In millions)
Land$71.2 $71.2 
Buildings and improvements443.4 433.4 
Machinery and equipment, including capitalized software477.2 471.3 
Construction-in-progress93.6 105.5 
1,085.4 1,081.4 
Less: accumulated depreciation(669.4)(658.3)
Property, plant and equipment, net$416.0 $423.1 
e. Other Noncurrent Assets, net
March 31, 2021December 31, 2020
 (In millions)
Real estate held for entitlement and leasing$102.1 $101.8 
Deferred costs recoverable from the U.S. government 54.9 54.7 
Receivable from Northrop Grumman Corporation for environmental remediation costs39.0 40.5 
Other56.4 57.8 
Other noncurrent assets, net$252.4 $254.8 

f. Other Current Liabilities
March 31, 2021December 31, 2020
 (In millions)
Accrued compensation and employee benefits$108.1 $118.0 
Dividend payable1.7 447.8 
Other 66.7 43.9 
Other current liabilities$176.5 $609.7 
Note 6. Income Taxes
Three months ended March 31,
 (In millions)
Income tax provision $5.6 $11.3 
In the three months ended March 31, 2021, the income tax provision was $5.6 million for an effective tax rate of 23.6%. 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 three months ended March 31, 2020, the income tax provision was $11.3 million for an effective tax rate of 26.5%. 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 March 31, 2021, 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
March 31, 2021December 31, 2020
 (In millions)
Term loan, bearing interest at variable rates (rate of 1.86% as of March 31, 2021), maturing in September 2023
$301.9 $308.5 
Unamortized deferred financing costs(1.2)(1.4)
Total senior debt300.7 307.1 
Convertible senior notes, bearing interest at 2.25% per annum, interest payments due in June and December, maturing in December 2023
164.6 300.0 
Unamortized discount and deferred financing costs(14.4)(28.4)
Total convertible senior notes150.2 271.6 
Finance leases45.2 45.6 
Total other debt45.2 45.6 
Total debt, net of unamortized discount and deferred financing costs496.1 624.3 
Less: Amounts due within one year(178.7)(299.9)
Total long-term debt, net of unamortized discount and deferred financing costs$317.4 $324.4 
Senior Credit Facility
The senior secured senior credit facility (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").
As of March 31, 2021, the Company had zero borrowings under the Revolver and issued $27.6 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 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 Term Loan amortized at a rate of 7.5% per annum as of December 31, 2020, and increasing to 10.0% per annum from

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.
The Senior Credit Facility is secured by a first priority security interest in the Company’s assets, subject to certain customary exceptions, as well as pledges of its 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 not to exceed (a) 3.75 to 1.00 from October 1, 2020, through September 30, 2021; and (b) 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 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 as of March 31, 2021.
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.
In the three months ended March 31, 2021, the Company settled $135.4 million of its 2¼% Notes. The principal amount was settled in cash and the conversion premium was settled in common shares. See Note 11.
As of April 20, 2021, the Company has received $6.4 million of conversion notices from the holders of the 2¼% Notes that will settle in the second quarter of 2021. The Company will cash settle the principal amount of the 2¼% Notes and the conversion premium will be settled in common shares.
Holders may convert their 2¼% Notes at their option from April 1, 2021, through June 30, 2021, because the Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to March 31, 2021. 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 $150.2 million is classified as a current liability as of March 31, 2021.
As more fully described in the indenture governing the 2¼% Notes, the holders of the 2¼% Notes may surrender all or any portion of their 2¼% Notes for conversion at any time during any calendar quarter, (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% ($33.80) of the conversion price on each applicable trading day.
The following table summarizes information regarding the 2¼% Notes (in millions, except years, percentages, conversion rate, and conversion price):
March 31, 2021December 31, 2020
Carrying amount of equity component, net of equity issuance costs$ $54.5 
Remaining amortization period (years)2.753.0
Effective interest rate 5.8 %5.8 %
Conversion rate (shares of common stock per $1,000 principal amount)38.461538.4615
Conversion price (per share of common stock)$26.00 $26.00 
Based on the Company's closing stock price of $46.96 on March 31, 2021, the if-converted value of the 2¼% Notes exceeded the aggregate principal amount of the 2¼% Notes by $132.7 million.
The following table presents the interest expense components for the 2¼% Notes:
Three months ended March 31,
 (In millions)
Interest expense-contractual interest$0.8 $1.7 
Interest expense-amortization of debt discount1.1 1.9 
Interest expense-amortization of deferred financing costs0.1 0.2 


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.
Merger-Related Litigation
For information regarding the Myers Action, the Hiramitsu Action, the Feinhals Action, the Stein Action, the Clark Action, the Coffman Action, the Wilhelm Action, and the Patel Action, see Note 8(a) in the consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020, which is incorporated herein by reference. In addition, on February 24, 2021, a lawsuit entitled Sam Carlisle v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-00281, was filed in the United States District Court for the District of Delaware against the Company and the members of the Company’s Board of Directors (the "Carlisle Action"). On February 26, 2021, a lawsuit entitled Rachel Harney v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-00913, was filed in the United States District Court for the Eastern District of Pennsylvania against the Company and the members of the Company’s Board of Directors (the "Harney Action"). On March 1, 2021, a lawsuit entitled Darrell J. Clark v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-01749, was filed in the United States District Court for the Southern District of New York against the Company and the members of the Company’s Board of Directors (the "Darrell Clark Action"). The Myers Action, the Hiramitsu Action, the Feinhals Action, the Stein Action, the Clark Action, the Coffman Action, the Wilhelm Action, the Patel Action, the Carlisle Action, the Harney Action and the Darrell Clark Action are collectively referred to as the "Actions." The Actions alleged that the defendants violated Sections 14(a) (and Rule 14a-9 promulgated thereunder) and 20(a) of the Exchange Act by, among other things, omitting certain allegedly material information with respect to the Merger in the preliminary proxy statement filed by the Company on January 25, 2021, (in the case of the Myers Action, the Hiramitsu Action, the Feinhals Action, the Stein Action, the Clark Action and the Coffman Action) and the definitive proxy statement filed by the Company on February 5, 2021, (in the case of the Wilhelm Action, the Patel Action, the Carlisle Action, the Harney Action and the Darrell Clark Action). The Myers Action, the Feinhals Action and the Darrell Clark Action also alleged that the members of the Company’s Board of Directors breached their fiduciary duties in connection with the Merger, and the Myers Action further alleged that the Company aided and abetted the directors’ alleged breaches of fiduciary duties. The plaintiffs in the Actions sought, among other things, injunctive relief, money damages and the costs of the Actions, including reasonable attorneys’ and experts’ fees.
In April 2021, following the Company’s filing of additional definitive proxy soliciting materials, the plaintiffs in each of the Actions voluntarily dismissed their lawsuits. Following the dismissal of the Actions, the Company agreed to pay an immaterial amount of plaintiffs’ attorneys’ fees and expenses to resolve plaintiffs’ claims that they had the right to recover their attorneys’ fees and expenses in connection with the Actions. No assurance can be given that additional lawsuits will not be filed against the Company and/or its directors and officers in connection with the Merger.
Asbestos Litigation
The Company has been, and continues to be, named as a defendant in lawsuits alleging personal injury or death and seeking various monetary damages due to exposure to asbestos in building materials, products, or in manufacturing operations. The majority of cases are pending in Illinois state courts. There were 115 asbestos cases pending as of March 31, 2021.
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 March 31, 2021, 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 March 31, 2021.
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 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 March 31, 2021, the aggregate range of these anticipated environmental costs was $295.3 million to $446.4 million and the accrued amount was $295.3 million. See Note 8(c) for a summary of the environmental reserve activity. Of these accrued liabilities, approximately 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 continuing to work with the EPA to address and remedy the remaining findings of the 2016 five-year remedy review and has established EPA approved action plans which include additional extraction wells, treatment, and monitoring. The Company’s action plans and implementation will be evaluated at the next EPA five-year remedy review scheduled to occur in 2021.
The entire southern portion of the site known as Rio Del Oro was under state orders issued in the 1990s from DTSC and the RWQCB to investigate and remediate soil and groundwater contamination. In 2008, the DTSC released all but approximately 400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil contamination although the property remains subject to the RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating offsite from the property.
As of March 31, 2021, the estimated range of anticipated costs discussed above for the Sacramento, California site was $207.2 million to $331.1 million and the accrued amount was $207.2 million included as a component of the Company’s

environmental reserves. Expenditures associated with this matter are partially recoverable. See Note 8(c) for further discussion on recoverability.
Baldwin Park Operable Unit ("BPOU")
As a result of its former Azusa, California operations, in 1994, Aerojet Rocketdyne was named a PRP by the EPA in the area of the San Gabriel Valley Basin superfund site known as the BPOU. In 2002, Aerojet Rocketdyne, along with seven other PRPs (the "Cooperating Respondents") signed a project agreement with the San Gabriel Basin Water Quality Authority, the Main San Gabriel Basin Watermaster, and five 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 March 31, 2021, the estimated range of anticipated costs was $72.2 million to $87.3 million and the accrued amount was $72.2 million included as a component of the Company’s environmental reserves. Expenditures associated with this matter are partially recoverable. See Note 8(c) 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:
 (In millions)
December 31, 2020$208.4 $76.2 $10.6 $295.2 $5.4 $300.6 
Additions/Adjustments3.8 (0.3)0.2 3.7  3.7 
March 31, 2021$207.2 $72.2 $10.6 $290.0 $5.3 $295.3 
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.
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 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 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 March 31, 2021(144.7)
Receivable from Northrop included in the unaudited balance sheet at March 31, 2021$45.0 
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 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 March 31,
 (In millions)
Expense (benefit) to unaudited condensed consolidated statements of operations$0.5 $(0.5)
d. Arrangements with Off-Balance Sheet Risk
As of March 31, 2021, arrangements with off-balance sheet risk consisted of:
$27.6 million in outstanding commercial letters of credit, the majority of which may be renewed, primarily to collateralize obligations for environmental remediation and insurance coverage.
$82.5 million in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation 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. Retirement Benefits
The following table presents the components of retirement benefits expense (income): 
 Pension BenefitsPostretirement Medical and Life
Insurance Benefits
Three months ended March 31,
 (In millions)
Interest cost on benefit obligation$8.4 $10.6 $0.1 $0.2 
Expected return on assets (15.3)(15.1)  
Amortization of prior service costs  0.1   
Amortization of net losses (gains)15.9 14.3 (0.6)(0.9)
Retirement benefits expense (income)$9.0 $9.9 $(0.5)$(0.7)
Note 10. Operating Segments and Related Disclosures
The Company’s operations are organized into two 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 March 31,
 (In millions)
Net Sales:
Aerospace and Defense$495.5 $474.4 
Real Estate0.6 1.7 
Total Net Sales$496.1 $476.1 
Segment Performance:
Aerospace and Defense$52.4 $52.6 
Environmental remediation provision adjustments(0.4)0.5 
GAAP/Cost Accounting Standards retirement benefits expense difference3.2 4.7 
Unusual items (see Note 11) (1.7) 
Aerospace and Defense Total53.5 57.8 
Real Estate(