SEC Filing | Aerojet Rocketdyne Holdings, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

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: June 30, 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

https://cdn.kscope.io/1f596e109321ede03fc07dc074845aa5-ajrdimagea01.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 July 21, 2020, the Company had 78,621,278 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 June 30, 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	19
3	Quantitative and Qualitative Disclosures About Market Risk	30
4	Controls and Procedures	30
PART II — OTHER INFORMATION
1	Legal Proceedings	31
1A	Risk Factors	31
2	Unregistered Sales of Equity Securities and Use of Proceeds	31
3	Defaults Upon Senior Securities	32
4	Mine Safety Disclosures	32
5	Other Information	32
6	Exhibits	32
SIGNATURES
	Signatures	33

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
	(In millions, except per share amounts)
Net sales	$	512.4		$	485.0		$	988.5		$	976.7
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	415.2			379.6			810.1			777.2
Selling, general and administrative expense	10.7			16.9			19.8			29.1
Depreciation and amortization	17.4			17.5			34.6			35.0
Other expense (income), net	0.1			(0.1		)	(2.1		)	1.0
Total operating costs and expenses	443.4			413.9			862.4			842.3
Operating income	69.0			71.1			126.1			134.4
Non-operating:
Retirement benefits expense	9.1			6.5			18.3			13.0
Interest income	(1.0		)	(4.0		)	(4.2		)	(8.0		)
Interest expense	7.4			9.2			15.8			18.2
Total non-operating expense, net	15.5			11.7			29.9			23.2
Income before income taxes	53.5			59.4			96.2			111.2
Income tax provision	14.3			15.3			25.6			28.4
Net income	$	39.2		$	44.1		$	70.6		$	82.8
Earnings per share of common stock
Basic earnings per share	$	0.50		$	0.56		$	0.90		$	1.05
Diluted earnings per share	$	0.47		$	0.54		$	0.84		$	1.01
Weighted average shares of common stock outstanding, basic	77.6			77.1			77.5			77.1
Weighted average shares of common stock outstanding, diluted	82.1			80.7			82.6			80.6

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(In millions)
Net income	$	39.2	$	44.1	$	70.6	$	82.8
Other comprehensive income:
Amortization of net actuarial losses and prior service credits, net of income taxes of $3.4 million, $2.4 million, $6.7 million, and $4.6 million	10.0		7.0		20.2		14.0
Comprehensive income	$	49.2	$	51.1	$	90.8	$	96.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)



	June 30, 2020			December 31, 2019
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	1,003.9		$	932.6
Restricted cash	3.0			3.0
Marketable securities	25.0			—
Accounts receivable, net	80.4			112.5
Contract assets	287.9			224.1
Other current assets, net	114.2			145.8
Total Current Assets	1,514.4			1,418.0
Noncurrent Assets
Right-of-use assets	51.8			48.0
Property, plant and equipment, net	401.5			409.9
Recoverable environmental remediation costs	224.5			234.8
Deferred income taxes	111.2			121.9
Goodwill	161.4			161.4
Intangible assets	51.3			58.2
Other noncurrent assets, net	248.1			255.6
Total Noncurrent Assets	1,249.8			1,289.8
Total Assets	$	2,764.2		$	2,707.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	293.2		$	284.7
Accounts payable	82.3			127.3
Reserves for environmental remediation costs	42.4			40.1
Contract liabilities	295.7			262.3
Other current liabilities	147.7			155.5
Total Current Liabilities	861.3			869.9
Noncurrent Liabilities
Long-term debt	338.4			352.3
Reserves for environmental remediation costs	256.9			269.1
Pension benefits	389.6			398.9
Operating lease liabilities	41.3			39.1
Other noncurrent liabilities	205.4			201.8
Total Noncurrent Liabilities	1,231.6			1,261.2
Total Liabilities	2,092.9			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 June 30, 2020; 77.3 million shares issued and outstanding as of December 31, 2019	7.7			7.7
Other capital	577.6			573.3
Treasury stock at cost, 0.8 million shares as of June 30, 2020 and December 31, 2019	(13.2		)	(12.7		)
Retained earnings	315.5			244.9
Accumulated other comprehensive loss, net of income taxes	(216.3		)	(236.5		)
Total Stockholders’ Equity	671.3			576.7
Total Liabilities and Stockholders’ Equity	$	2,764.2		$	2,707.8

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)
March 31, 2019	77.1		$	7.7	$	561.0		$	(12.7	)	$	142.6	$	(232.4	)	$	466.2
Net income	—		—		—			—			44.1		—			44.1
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		7.0			7.0
Contribution of treasury stock to retirement benefit plan	—		—		—			—			—		—			—
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	—		—		4.2			—			—		—			4.2
June 30, 2019	77.1		$	7.7	$	564.7		$	(12.7	)	$	186.7	$	(225.4	)	$	521.0

December 31, 2018	76.8		$	7.7	$	561.8		$	(12.7	)	$	103.9	$	(239.4	)	$	421.3
Net income	—		—		—			—			82.8		—			82.8
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		14.0			14.0
Repurchase of shares for withholding taxes and option costs under equity plans	(0.3	)	—		(6.7		)	—			—		—			(6.7		)
Stock-based compensation and shares issued under equity plans	0.6		—		9.6			—			—		—			9.6
June 30, 2019	77.1		$	7.7	$	564.7		$	(12.7	)	$	186.7	$	(225.4	)	$	521.0

March 31, 2020	77.6		$	7.7	$	572.3		$	(13.2	)	$	276.3	$	(226.3	)	$	616.8
Net income	—		—		—			—			39.2		—			39.2
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		10.0			10.0
Repurchase of shares for withholding taxes and option costs under equity plans	(0.1	)	—		(0.3		)	—			—		—			(0.3		)
Stock-based compensation and shares issued under equity plans	0.1		—		5.6			—			—		—			5.6
June 30, 2020	77.6		$	7.7	$	577.6		$	(13.2	)	$	315.5	$	(216.3	)	$	671.3

December 31, 2019	77.3		$	7.7	$	573.3		$	(12.7	)	$	244.9	$	(236.5	)	$	576.7
Net income	—		—		—			—			70.6		—			70.6
Amortization of net actuarial losses and prior service credits, net of income taxes	—		—		—			—			—		20.2			20.2
Purchase of treasury stock	—		—		—			(0.5		)	—		—			(0.5		)
Repurchase of shares for withholding taxes and option costs under equity plans	(0.2	)	—		(8.2		)	—			—		—			(8.2		)
Stock-based compensation and shares issued under equity plans	0.5		—		12.5			—			—		—			12.5
June 30, 2020	77.6		$	7.7	$	577.6		$	(13.2	)	$	315.5	$	(216.3	)	$	671.3

See Notes to Unaudited Condensed Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six months ended June 30,
	2020			2019
	(In millions)
Operating Activities
Net income	$	70.6		$	82.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	34.6			35.0
Amortization of debt discount and deferred financing costs	4.9			4.6
Stock-based compensation	7.7			15.5
Retirement benefits, net	15.9			10.8
Other, net	0.1			0.4
Changes in assets and liabilities, net of effects from acquisition in 2019:
Accounts receivable, net	32.1			13.8
Contract assets	(63.8		)	(11.3		)
Other current assets, net	31.6			(0.1		)
Recoverable environmental remediation costs	10.3			8.4
Other noncurrent assets, net	7.6			(15.6		)
Accounts payable	(47.5		)	(10.8		)
Contract liabilities	33.4			(59.6		)
Other current liabilities	(7.3		)	(27.6		)
Deferred income taxes	4.1			(19.3		)
Reserves for environmental remediation costs	(9.9		)	(7.7		)
Other noncurrent liabilities and other	3.2			11.9
Net Cash Provided by Operating Activities	127.6			31.2
Investing Activities
Purchases of marketable securities	(25.0		)	—
Capital expenditures	(16.2		)	(6.9		)
Net Cash Used in Investing Activities	(41.2		)	(6.9		)
Financing Activities
Debt repayments	(9.9		)	(10.8		)
Repurchase of shares for withholding taxes and option costs under equity plans	(8.2		)	(6.7		)
Proceeds from shares issued under equity plans	3.5			2.2
Purchase of treasury stock	(0.5		)	—
Net Cash Used in Financing Activities	(15.1		)	(15.3		)
Net Increase in Cash, Cash Equivalents and Restricted Cash	71.3			9.0
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	935.6			740.3
Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,006.9		$	749.3
Supplemental disclosures of cash flow information
Cash paid for interest	$	10.7		$	13.7
Cash paid for income taxes	2.4			33.9
Cash refund for income taxes	0.4			1.0

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, 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 and six months ended June 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 COVID-19 pandemic impacts the Company’s financial results and operations for 2020 and beyond 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 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.

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 June 30,						Six months ended June 30,
	2020			2019			2020			2019
	(In millions, except per share amounts)
Numerator:
Net income	$	39.2		$	44.1		$	70.6		$	82.8
Income allocated to participating securities	(0.5		)	(0.9		)	(1.0		)	(1.6		)
Net income for basic and diluted EPS	$	38.7		$	43.2		$	69.6		$	81.2
Denominator:
Basic weighted average shares	77.6			77.1			77.5			77.1
Effect of:
2.25% Convertible Senior Notes ("2¹/₄% Notes")	4.3			3.5			4.9			3.4
Awards issued under equity plans	0.2			0.1			0.2			0.1
Diluted weighted average shares	82.1			80.7			82.6			80.6
Basic
Basic EPS	$	0.50		$	0.56		$	0.90		$	1.05
Diluted
Diluted EPS	$	0.47		$	0.54		$	0.84		$	1.01

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 June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales	$	15.1	$	25.8	$	17.2	$	38.8
Net favorable effect of the changes in contract estimates on income before income taxes	15.7		25.6		18.2		39.0
Net favorable effect of the changes in contract estimates on net income	11.4		19.0		13.3		28.7
Net favorable effect of the changes in contract estimates on basic EPS	0.15		0.24		0.17		0.37
Net favorable effect of the changes in contract estimates on diluted EPS	0.14		0.23		0.16		0.35

For the six months ended June 30, 2020, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the RL-10, Patriot Advanced Capability-3 ("PAC-3"), and Terminal High Altitude A

rea Defense ("THAAD") programs partially offset by cost growth on a portion of the Standard Missile program. For the six months ended June 30, 2019, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the THAAD, PAC-3, AJ-60, and RL-10 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:



	June 30, 2020			December 31, 2019
	(In millions)
Contract assets	$	299.1		$	243.5
Reserve for overhead rate disallowance	(11.2		)	(19.4		)
Contract assets, net of reserve	287.9			224.1
Contract liabilities	295.7			262.3
Net contract liabilities, net of reserve	$	(7.8	)	$	(38.2	)

Net contract liabilities decreased by $30.4 million from December 31, 2019, primarily due to an increase in unbilled receivables partially offset by an increase in contract advances. During the three and six months ended June 30, 2020, the Company recognized sales of $74.7 million and $184.0 million that were included in the Company's contract liabilities as of December 31, 2019.

As of June 30, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.8 billion. The Company expects to recognize approximately 30%, or $2.1 billion, of the remaining performance obligations as sales over the next twelve months, an additional 22% the following twelve months, and 48% 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 June 30,				Six months ended June 30,
	2020		2019		2020		2019
Fixed-price	61	%	59	%	61	%	61	%
Cost-reimbursable	39		41		39		39

The principal end user customers are primarily agencies of the U.S. government as illustrated in the following table:



	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
U.S. government	96	%	94	%	96	%	94	%
Non U.S. government	4		6		4		6

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

Note 4. Stock-Based Compensation

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



	Three months ended June 30,					Six months ended June 30,
	2020			2019		2020			2019
	(In millions)
Stock Appreciation Rights	$	(0.4	)	$	5.9	$	(1.9	)	$	7.6
Stock options	0.1			0.1		0.2			0.1
Restricted stock and restricted stock units, service based	1.7			1.5		3.2			2.7
Restricted stock and restricted stock units, performance based	3.7			2.5		5.7			4.7
Employee stock purchase plan	0.2			0.2		0.5			0.4
Total stock-based compensation expense	$	5.3		$	10.2	$	7.7		$	15.5

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 June 30, 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	$	570.0	$	570.0	$	—	$	—
Registered investment companies	3.0		3.0		—		—
Commercial paper	110.0		—		110.0		—
Total	$	683.0	$	573.0	$	110.0	$	—



			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 June 30, 2020, of the total estimated fair value for commercial paper, $85.0 million was classified as cash and cash equivalents as the remaining maturity at date of purchase was less than three months, and $25.0 million was classified as marketable securities. As of 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
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
	(In millions)
Term loan	$	303.4	$	328.1	$	319.4	$	328.1
2¹/₄% Notes	477.4		546.0		300.0		300.0
Total	$	780.8	$	874.1	$	619.4	$	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 June 30, 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



	June 30, 2020			December 31, 2019
	(In millions)
Billed receivables under long-term contracts	$	81.0		$	122.9
Reserve on billed trade receivables	(1.0		)	(10.6		)
Other trade receivables	0.4			0.2
Accounts receivable, net	$	80.4		$	112.5

c. Other Current Assets, net



	June 30, 2020		December 31, 2019
	(In millions)
Deferred costs recoverable from the U.S. government	$	45.7	$	47.1
Income taxes receivable	23.7		43.4
Inventories	15.8		24.0
Prepaid expenses	15.2		13.9
Other	13.8		17.4
Other current assets, net	$	114.2	$	145.8

d. Property, Plant and Equipment, net



	June 30, 2020			December 31, 2019
	(In millions)
Land	$	71.2		$	71.2
Buildings and improvements	439.6			434.9
Machinery and equipment, including capitalized software	461.8			488.2
Construction-in-progress	72.1			70.2
	1,044.7			1,064.5
Less: accumulated depreciation	(643.2		)	(654.6		)
Property, plant and equipment, net	$	401.5		$	409.9

e. Other Noncurrent Assets, net



	June 30, 2020		December 31, 2019
	(In millions)
Real estate held for entitlement and leasing	$	100.7	$	100.3
Deferred costs recoverable from the U.S. government	56.3		54.8
Receivable from Northrop Grumman Corporation for environmental remediation costs	43.5		46.5
Other	47.6		54.0
Other noncurrent assets, net	$	248.1	$	255.6

f. Other Current Liabilities



	June 30, 2020		December 31, 2019
	(In millions)
Accrued compensation and employee benefits	$	105.2	$	103.1
Other	42.5		52.4
Other current liabilities	$	147.7	$	155.5

Note 6. Income Taxes



	Six months ended June 30,
	2020		2019
	(In millions)
Income tax provision	$	25.6	$	28.4

In the six months ended June 30, 2020, the income tax provision was $25.6 million for an effective tax rate of 26.6%. 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 six months ended June 30, 2019, the income tax provision was $28.4 million for an effective tax rate of 25.5%. 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 June 30, 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



	June 30, 2020			December 31, 2019
	(In millions)
Term loan, bearing interest at variable rates (rate of 1.93% as of June 30, 2020), maturing in September 2023	$	319.4		$	328.1
Unamortized deferred financing costs	(1.5		)	(1.8		)
Total senior debt	317.9			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	(32.8		)	(37.0		)
Total convertible senior notes	267.2			263.0
Finance leases	46.5			47.7
Total other debt	46.5			47.7
Total debt, net of unamortized discount and deferred financing costs	631.6			637.0
Less: Amounts due within one year	(293.2		)	(284.7		)
Total long-term debt, net of unamortized discount and deferred financing costs	$	338.4		$	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").

As of June 30, 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 increase to 10.0% per annum 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.

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 June 30, 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 July 1, 2020, through September 30, 2020, because the Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to June 30, 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 $267.2 million is classified as a current liability as of June 30, 2020.

As more fully described in the indenture governing the 2¼% Notes, the holders of the 2¼% Notes may surrender all or any portion of their 2¼% Notes for conversion at any time during any calendar quarter, (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% ($33.80) of the conversion price on each applicable trading day.

The following table summarizes information regarding the 2¼% Notes (in millions, except years, percentages, conversion rate, and conversion price):



	June 30, 2020		December 31, 2019
Carrying value	$	267.2	$	263.0
Unamortized discount and deferred financing costs	32.8		37.0
Principal amount	$	300.0