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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: March 31, 2020
or
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
ajrdimage.jpg
   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
(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
 
 
 
 
 
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 April 20, 2020 , the Company had 78,527,768   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, 2020
Table of Contents  
Item
Number
 
Page
1
Financial Statements
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3
Quantitative and Qualitative Disclosures About Market Risk
4
Controls and Procedures
1
Legal Proceedings
1A
Risk Factors
2
Unregistered Sales of Equity Securities and Use of Proceeds
3
Defaults Upon Senior Securities
4
Mine Safety Disclosures
5
Other Information
6
Exhibits
 
Signatures





Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)  
 
Three months ended March 31,
 
2020
 
2019
 
(In millions, except per share amounts)
Net sales
$
476.1

 
$
491.7

Operating costs and expenses:
 
 
 
Cost of sales (exclusive of items shown separately below)
394.9

 
397.6

Selling, general and administrative expense
9.1

 
12.2

Depreciation and amortization
17.2

 
17.5

Other (income) expense, net
( 2.2
)
 
1.1

Total operating costs and expenses
419.0

 
428.4

Operating income
57.1

 
63.3

Non-operating:
 
 
 
Retirement benefits expense
9.2

 
6.5

Interest income
( 3.2
)
 
( 4.0
)
Interest expense
8.4

 
9.0

Total non-operating expense, net
14.4

 
11.5

Income before income taxes
42.7

 
51.8

Income tax provision
11.3

 
13.1

Net income
$
31.4

 
$
38.7

Earnings per share of common stock
 
 
Basic earnings per share
$
0.40

 
$
0.49

Diluted earnings per share
$
0.37

 
$
0.47

Weighted average shares of common stock outstanding, basic
77.5

 
77.1

Weighted average shares of common stock outstanding, diluted
83.1

 
80.6

See Notes to Unaudited Condensed Consolidated Financial Statements.

1



Aerojet R ocketdyne Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Net income
$
31.4

 
$
38.7

Other comprehensive income:
 
 
 
Amortization of net actuarial losses and prior service costs (credits), net of income taxes of $3.3 million, and $2.2 million
10.2

 
7.0

Comprehensive income
$
41.6

 
$
45.7

See Notes to Unaudited Condensed Consolidated Financial Statements.

2



Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
March 31,
2020
 
December 31, 2019
 
(In millions, except per share amounts)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
902.6

 
$
932.6

Restricted cash
3.0

 
3.0

Accounts receivable, net
151.7

 
112.5

Contract assets
278.9

 
224.1

Other current assets, net
137.4

 
145.8

Total Current Assets
1,473.6

 
1,418.0

Noncurrent Assets
 
 
 
Right-of-use assets
53.5

 
48.0

Property, plant and equipment, net
403.2

 
409.9

Recoverable environmental remediation costs
228.1

 
234.8

Deferred income taxes
114.5

 
121.9

Goodwill
161.4

 
161.4

Intangible assets
54.7

 
58.2

Other noncurrent assets, net
251.5

 
255.6

Total Noncurrent Assets
1,266.9

 
1,289.8

Total Assets
$
2,740.5

 
$
2,707.8

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
 
 
 
Current portion of long-term debt
$
289.0

 
$
284.7

Accounts payable
128.4

 
127.3

Reserves for environmental remediation costs
41.7

 
40.1

Contract liabilities
288.6

 
262.3

Other current liabilities
134.4

 
155.5

Total Current Liabilities
882.1

 
869.9

Noncurrent Liabilities
 
 
 
Long-term debt
345.3

 
352.3

Reserves for environmental remediation costs
260.9

 
269.1

Pension benefits
394.3

 
398.9

Operating lease liabilities
43.9

 
39.1

Other noncurrent liabilities
197.2

 
201.8

Total Noncurrent Liabilities
1,241.6

 
1,261.2

Total Liabilities
2,123.7

 
2,131.1

Commitments and contingencies (Note 8)

 

Stockholders’ Equity
 
 
 
Preferred stock, par value of $1.00; 15.0 million shares authorized; none issued or outstanding

 

Common stock, par value of $0.10; 150.0 million shares authorized; 77.6 million shares issued and outstanding as of March 31, 2020; 77.3 million shares issued and outstanding as of December 31, 2019
7.7

 
7.7

Other capital
572.3

 
573.3

Treasury stock at cost, 0.8 million shares as of March 31, 2020 and December 31, 2019
( 13.2
)
 
( 12.7
)
Retained earnings
276.3

 
244.9

Accumulated other comprehensive loss, net of income taxes
( 226.3
)
 
( 236.5
)
Total Stockholders’ Equity
616.8

 
576.7

Total Liabilities and Stockholders’ Equity
$
2,740.5

 
$
2,707.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

3



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)
December 31, 2018
76.8

 
$
7.7

 
$
561.8

 
$
( 12.7
)
 
$
103.9

 
$
( 239.4
)
 
$
421.3

Net income

 

 

 

 
38.7

 

 
38.7

Amortization of net actuarial losses and prior service credits, net of income taxes

 

 

 

 

 
7.0

 
7.0

Repurchase of shares for withholding taxes and option costs under equity plans
( 0.3
)
 

 
( 6.2
)
 

 

 

 
( 6.2
)
Stock-based compensation and shares issued under equity plans
0.6

 

 
5.4

 

 

 

 
5.4

March 31, 2019
77.1

 
$
7.7

 
$
561.0

 
$
( 12.7
)
 
$
142.6

 
$
( 232.4
)
 
$
466.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
77.3

 
$
7.7

 
$
573.3

 
$
( 12.7
)
 
$
244.9

 
$
( 236.5
)
 
$
576.7

Net income

 

 

 

 
31.4

 

 
31.4

Amortization of net actuarial losses and prior service credits, net of income taxes

 

 

 

 

 
10.2

 
10.2

Purchase of treasury stock

 

 

 
( 0.5
)
 

 

 
( 0.5
)
Repurchase of shares for withholding taxes and option costs under equity plans
( 0.1
)
 

 
( 7.9
)
 

 

 

 
( 7.9
)
Stock-based compensation and shares issued under equity plans
0.4

 

 
6.9

 

 

 

 
6.9

March 31, 2020
77.6

 
$
7.7

 
$
572.3

 
$
( 13.2
)
 
$
276.3

 
$
( 226.3
)
 
$
616.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

4



Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Operating Activities
 
 
 
Net income
$
31.4

 
$
38.7

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
17.2

 
17.5

Amortization of debt discount and deferred financing costs
2.4

 
2.3

Stock-based compensation
2.4

 
5.3

Retirement benefits, net
7.9

 
5.4

Other, net
0.4

 
0.2

Changes in assets and liabilities, net of effects from acquisition in 2019:
 
 
 
Accounts receivable, net
( 39.2
)
 
( 4.9
)
Contract assets
( 54.8
)
 
( 0.6
)
Other current assets, net
8.4

 
( 6.1
)
Recoverable environmental remediation costs
6.7

 
4.2

Other noncurrent assets, net
4.6

 
( 5.6
)
Accounts payable
( 3.3
)
 
6.2

Contract liabilities
26.3

 
( 63.4
)
Other current liabilities
( 20.3
)
 
1.6

Deferred income taxes
4.1

 
( 19.3
)
Reserves for environmental remediation costs
( 6.6
)
 
( 4.7
)
Other noncurrent liabilities and other
( 4.7
)
 
5.5

Net Cash Used in Operating Activities
( 17.1
)
 
( 17.7
)
Investing Activities
 
 
 
Capital expenditures
( 3.0
)
 
( 1.5
)
Net Cash Used in Investing Activities
( 3.0
)
 
( 1.5
)
Financing Activities
 
 
 
Debt repayments
( 4.9
)
 
( 5.5
)
Repurchase of shares for withholding taxes and option costs under equity plans
( 7.9
)
 
( 6.2
)
Proceeds from shares issued under equity plans
3.4

 
2.2

Purchase of treasury stock
( 0.5
)
 

Net Cash Used in Financing Activities
( 9.9
)
 
( 9.5
)
Net Decrease in Cash, Cash Equivalents and Restricted Cash
( 30.0
)
 
( 28.7
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
935.6

 
740.3

Cash, Cash Equivalents and Restricted Cash at End of Period
$
905.6

 
$
711.6

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
4.1

 
$
5.3

See Notes to Unaudited Condensed Consolidated Financial Statements.

5



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, 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, 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 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 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, 2019 .
During the three months ended March 31, 2020, the Company’s financial results and operations were not materially 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 COVID-19 pandemic impacts the Company’s financial results and operations for 2020 and beyond will depend on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued guidance requiring a customer in a cloud computing service arrangement to follow the internal-use software guidance in order to determine which implementation costs to defer and recognize as an asset. The Company adopted this new standard as of January 1, 2020, on a prospective basis and the adoption of this guidance did not have a material impact on the Company's financial position, results of operations, or cash flows.





6



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,
 
2020
 
2019
 
(In millions, except per share amounts)
Numerator:
 
 
 
Net income
$
31.4

 
$
38.7

Income allocated to participating securities
( 0.5
)
 
( 0.7
)
Net income for basic and diluted EPS
$
30.9

 
$
38.0

Denominator:
 
 
 
Basic weighted average shares
77.5

 
77.1

Effect of:
 
 
 
2.25% Convertible Senior Notes ("2 1 / 4 % Notes")
5.4

 
3.4

Employee stock options and stock purchase plan
0.2

 
0.1

Diluted weighted average shares
83.1

 
80.6

Basic
 
 
 
Basic EPS
$
0.40

 
$
0.49

Diluted
 
 
 
Diluted EPS
$
0.37

 
$
0.47


The following table sets forth the potentially dilutive securities excluded from the computation because their effect would have been anti-dilutive: 
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Unvested restricted shares
1.2

 
1.4

Total potentially dilutive securities
1.2

 
1.4


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,
 
2020
 
2019
 
(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales
$
2.1

 
$
13.0

Net favorable effect of the changes in contract estimates on income before income taxes
2.5

 
13.4

Net favorable effect of the changes in contract estimates on net income
1.9

 
9.7

Net favorable effect of the changes in contract estimates on basic and diluted EPS
0.02

 
0.12



7



For the three months ended March 31, 2019, favorable changes in contract estimates were primarily driven by (i) improved performance on the Terminal High Altitude Area Defense and RL10 programs and (ii) the reserve release upon the final AJ-60 solid rocket motor delivery.
In the Company’s Aerospace and Defense segment, the timing of revenue recognition, customer invoicing, and collections produces accounts receivable, contract assets, and contract liabilities in the unaudited condensed consolidated balance sheets. The following table summarizes contract assets and liabilities:
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Contract assets
$
298.7

 
$
243.5

Reserve for overhead rate disallowance
( 19.8
)
 
( 19.4
)
Contract assets, net of reserve
278.9

 
224.1

Contract liabilities
288.6

 
262.3

Net contract liabilities, net of reserve
$
( 9.7
)
 
$
( 38.2
)

Net contract liabilities decreased by $ 28.5 million primarily due to an increase in unbilled receivables as of March 31, 2020 . During the three months ended March 31, 2020 , the Company recognized sales of $ 109.3 million that were included in the Company's contract liabilities as of December 31, 2019 .
As of March 31, 2020 , the Company’s total remaining performance obligations, also referred to as backlog, totaled $ 5.2 billion . The Company expects to recognize approximately 38 % , or $ 2.0 billion , of the remaining performance obligations as sales over the next twelve months, an additional 24 % the following twelve months, and 38 % thereafter.
The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the percentages of net sales by contract type:
 
Three months ended March 31,
 
2020
 
2019
Fixed-price
61
%
 
62
%
Cost-reimbursable
39

 
37

Other

 
1

The following table summarizes the percentages of net sales by principal end user:
 
Three months ended March 31,
 
2020
 
2019
U.S. government
96
%
 
95
%
Non U.S. government
4

 
5


The Company's Real Estate segment represented less than 1 % of the Company's net sales for the three months ended March 31, 2020 and 2019.
Note 4. Stock-Based Compensation
The following table summarizes stock-based compensation expense by type of award:
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Stock Appreciation Rights  
$
( 1.5
)
 
$
1.7

Stock options
0.1

 

Restricted stock and restricted stock units, service based
1.5

 
1.2

Restricted stock and restricted stock units, performance based
2.0

 
2.2

Employee stock purchase plan
0.3

 
0.2

Total stock-based compensation expense
$
2.4

 
$
5.3



8



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, 2020
 
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 

Other
Observable
Inputs
(Level 2)
 

Unobservable
Inputs
(Level 3)
 
(In millions)
Money market funds
$
652.9

 
$
652.9

 
$

 
$

Registered investment companies
3.3

 
3.3

 

 

Commercial paper
15.0

 

 
15.0

 

Total
$
671.2

 
$
656.2

 
$
15.0

 
$

 
 
 
Fair value measurement as of December 31, 2019
 
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 

Other
Observable
Inputs
(Level 2)
 

Unobservable
Inputs
(Level 3)
 
(In millions)
Money market funds
$
626.0

 
$
626.0

 
$

 
$

Registered investment companies
3.7

 
3.7

 

 

Commercial paper
99.9

 

 
99.9

 
 
Total
$
729.6

 
$
629.7

 
$
99.9

 
$


As of March 31, 2020 and December 31, 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
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Term loan
$
299.9

 
$
328.1

 
$
323.8

 
$
328.1

2 1 / 4 % Notes
488.2

 
546.0

 
300.0

 
300.0

Total
$
788.1

 
$
874.1

 
$
623.8

 
$
628.1


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 at March 31, 2020, 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. At December 31, 2019, the term loan carrying value approximated fair value.
b. Accounts Receivable, net

March 31, 2020

December 31, 2019
 
(In millions)
Billed receivables under long-term contracts
$
152.5


$
122.9

Reserve on billed trade receivables
( 1.0
)
 
( 10.6
)
Other trade receivables
0.2


0.2

Accounts receivable, net
$
151.7


$
112.5



9



c. Other Current Assets, net
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Deferred costs recoverable from the U.S. government
$
46.9

 
$
47.1

Income taxes receivable
36.2

 
43.4

Inventories
18.0

 
24.0

Prepaid expenses
13.4

 
13.9

Other
22.9

 
17.4

Other current assets, net
$
137.4

 
$
145.8


d. Property, Plant and Equipment, net
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Land
$
71.2


$
71.2

Buildings and improvements
436.2


434.9

Machinery and equipment, including capitalized software
459.4


488.2

Construction-in-progress
67.1


70.2


1,033.9


1,064.5

Less: accumulated depreciation
( 630.7
)

( 654.6
)
Property, plant and equipment, net
$
403.2


$
409.9


e. Other Noncurrent Assets, net

March 31, 2020

December 31, 2019
 
(In millions)
Real estate held for entitlement and leasing
$
100.4

 
$
100.3

Deferred costs recoverable from the U.S. government
55.9

 
54.8

Receivable from Northrop Grumman Corporation for environmental remediation costs
45.0

 
46.5

Other
50.2


54.0

Other noncurrent assets, net
$
251.5


$
255.6


f. Other Current Liabilities
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Accrued compensation and employee benefits
$
90.0


$
103.1

Other
44.4


52.4

Other current liabilities
$
134.4


$
155.5


g. Treasury Stock
During the three months ended March 31, 2020, the Company repurchased less than 0.1 million of its common shares at a cost of $ 0.5 million . The Company reflects stock repurchases in its financial statements on a "settlement" basis.
Note 6.  Income Taxes
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Income tax provision
$
11.3

 
$
13.1


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 Research and Development ("R&D") credits.

10



In the three months ended March 31, 2019, the income tax provision was $ 13.1 million for an effective tax rate of 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 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, 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
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Term loan, bearing interest at variable rates (rate of 2.74% as of March 31, 2020), maturing in September 2023
$
323.8


$
328.1

Unamortized deferred financing costs
( 1.7
)
 
( 1.8
)
Total senior debt
322.1


326.3

Convertible senior notes, bearing interest at 2.25% per annum, interest payments due in June and December, maturing in December 2023
300.0


300.0

Unamortized discount and deferred financing costs
( 34.9
)
 
( 37.0
)
Total convertible senior notes
265.1


263.0

Finance leases
47.1


47.7

Total other debt
47.1


47.7

Total debt, net of unamortized discount and deferred financing costs
634.3


637.0

Less: Amounts due within one year
( 289.0
)

( 284.7
)
Total long-term debt, net of unamortized discount and deferred financing costs
$
345.3


$
352.3


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").
As of March 31, 2020 , the Company had zero borrowings under the Revolver and issued $ 29.7 million 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. 
On December 31, 2018, the Term Loan began amortizing at a rate of 5.0 % per annum of the original drawn amount which will increase to 7.5 % per annum on 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) 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 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, 2020 .

11



2¼% Convertible Senior Notes
On December 14, 2016, the Company issued $ 300.0 million aggregate principal amount of 2¼% Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
Holders may convert their 2¼% Notes at their option from April 1, 2020, through June 30, 2020, because the Company's closing stock price exceeded $ 33.80 for at least 20 days in the 30 day period prior to March 31, 2020. The Company 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 $ 265.1 million is classified as a current liability as of March 31, 2020. 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.
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):
 
March 31, 2020
 
December 31, 2019
Carrying value
$
265.1

 
$
263.0

Unamortized discount and deferred financing costs
34.9

 
37.0

Principal amount
$
300.0

 
$
300.0

Carrying amount of equity component, net of equity issuance costs
$
54.5

 
$
54.5

Remaining amortization period (years)
3.75

 
4.0

Effective interest rate
5.8
%
 
5.8
%
Conversion rate (shares of common stock per $1,000 principal amount)
38.4615

 
38.4615

Conversion price (per share of common stock)
$
26.00

 
$
26.00


Based on the Company's closing stock price of $ 41.83 on March 31 2020, the if-converted value of the 2¼% Notes exceeded the aggregate principal amount of the 2¼% Notes by $ 182.6 million .
The following table presents the interest expense components for the 2¼% Notes:
 
Three months ended March 31,
 
2020
 
2019
 
(In millions)
Interest expense-contractual interest
$ </