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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: September 30, 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
https://cdn.kscope.io/cee999ed8adc62430c693f428f56394e-ajrd-20200930_g1.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 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 October 20, 2020, the Company had 77,279,471 outstanding common shares, including unvested common shares, $0.10 par value.



Aerojet Rocketdyne Holdings, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2020
Table of Contents 
Item
Number
 Page
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
6Exhibits
Signatures




Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited) 
Three months ended September 30,Nine months ended September 30,
 2020201920202019
 (In millions, except per share amounts)
Net sales$527.7 $481.8 $1,516.2 $1,458.5 
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)441.6 392.9 1,251.7 1,170.1 
Selling, general and administrative expense11.2 15.1 31.0 44.2 
Depreciation and amortization15.1 18.4 49.7 53.4 
Other expense, net3.3 0.3 1.2 1.3 
Total operating costs and expenses471.2 426.7 1,333.6 1,269.0 
Operating income56.5 55.1 182.6 189.5 
Non-operating:
Retirement benefits expense9.1 6.5 27.4 19.5 
Interest income(0.5)(3.9)(4.7)(11.9)
Interest expense7.2 9.0 23.0 27.2 
Total non-operating expense, net15.8 11.6 45.7 34.8 
Income before income taxes40.7 43.5 136.9 154.7 
Income tax provision 9.0 10.6 34.6 39.0 
Net income $31.7 $32.9 $102.3 $115.7 
Earnings per share of common stock
Basic earnings per share
$0.40 $0.42 $1.30 $1.47 
Diluted earnings per share
$0.38 $0.39 $1.23 $1.39 
Weighted average shares of common stock outstanding, basic77.6 77.3 77.6 77.1 
Weighted average shares of common stock outstanding, diluted 81.9 82.8 82.4 81.5 
See Notes to Unaudited Condensed Consolidated Financial Statements.
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Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended September 30,Nine months ended September 30,
 2020201920202019
 (In millions)
Net income $31.7 $32.9 $102.3 $115.7 
Other comprehensive income:
Amortization of net actuarial losses, net of income taxes of $3.3 million, $2.2 million, $10.0 million, and $6.8 million
10.1 6.9 30.3 20.9 
Comprehensive income $41.8 $39.8 $132.6 $136.6 
See Notes to Unaudited Condensed Consolidated Financial Statements.
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Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30,
2020
December 31, 2019
 (In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents$1,010.0 $932.6 
Restricted cash3.0 3.0 
Marketable securities1.5  
Accounts receivable, net182.4 112.5 
Contract assets273.3 224.1 
Other current assets, net138.5 145.8 
Total Current Assets1,608.7 1,418.0 
Noncurrent Assets
Right-of-use assets48.9 48.0 
Property, plant and equipment, net403.8 409.9 
Recoverable environmental remediation costs228.8 234.8 
Deferred income taxes107.8 121.9 
Goodwill161.4 161.4 
Intangible assets48.0 58.2 
Other noncurrent assets, net247.4 255.6 
Total Noncurrent Assets1,246.1 1,289.8 
Total Assets$2,854.8 $2,707.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt$297.7 $284.7 
Accounts payable93.7 127.3 
Reserves for environmental remediation costs42.1 40.1 
Contract liabilities343.4 262.3 
Other current liabilities144.2 155.5 
Total Current Liabilities921.1 869.9 
Noncurrent Liabilities
Long-term debt331.4 352.3 
Reserves for environmental remediation costs262.0 269.1 
Pension benefits379.9 398.9 
Operating lease liabilities38.3 39.1 
Other noncurrent liabilities213.2 201.8 
Total Noncurrent Liabilities1,224.8 1,261.2 
Total Liabilities2,145.9 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; 77.4 million shares issued and outstanding as of September 30, 2020; 77.3 million shares issued and outstanding as of December 31, 2019
7.7 7.7 
Other capital585.2 573.3 
Treasury stock at cost, 1.1 million shares as of September 30, 2020; 0.8 million shares as of December 31, 2019
(25.0)(12.7)
Retained earnings 347.2 244.9 
Accumulated other comprehensive loss, net of income taxes(206.2)(236.5)
Total Stockholders’ Equity708.9 576.7 
Total Liabilities and Stockholders’ Equity $2,854.8 $2,707.8 
See Notes to Unaudited Condensed Consolidated Financial Statements.
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Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited) 
Common StockAccumulated OtherTotal
SharesAmountOther
Capital
Treasury
Stock
Retained EarningsComprehensive
Loss
Stockholders'
Equity
 (In millions)
June 30, 201977.1 $7.7 $564.7 $(12.7)$186.7 $(225.4)$521.0 
Net income— — — — 32.9 — 32.9 
Amortization of net actuarial losses, net of income taxes— — — — — 6.9 6.9 
Repurchase of shares for withholding taxes and option costs under equity plans — — (0.8)— — — (0.8)
Stock-based compensation and shares issued under equity plans0.2 — 6.7 — — — 6.7 
September 30, 201977.3 $7.7 $570.6 $(12.7)$219.6 $(218.5)$566.7 
December 31, 201876.8 $7.7 $561.8 $(12.7)$103.9 $(239.4)$421.3 
Net income— — — — 115.7 — 115.7 
Amortization of net actuarial losses, net of income taxes— — — — — 20.9 20.9 
Repurchase of shares for withholding taxes and option costs under equity plans (0.3)— (7.5)— — — (7.5)
Stock-based compensation and shares issued under equity plans0.8 — 16.3 — — — 16.3 
September 30, 201977.3 $7.7 $570.6 $(12.7)$219.6 $(218.5)$566.7 
June 30, 202077.6 $7.7 $577.6 $(13.2)$315.5 $(216.3)$671.3 
Net income— — — — 31.7 — 31.7 
Amortization of net actuarial losses, net of income taxes— — — — — 10.1 10.1 
Purchase of treasury stock(0.3)— — (11.8)— — (11.8)
Repurchase of shares for withholding taxes and option costs under equity plans — — (0.6)— — — (0.6)
Stock-based compensation and shares issued under equity plans0.1 — 8.2 — — — 8.2 
September 30, 202077.4 $7.7 $585.2 $(25.0)$347.2 $(206.2)$708.9 
December 31, 201977.3 $7.7 $573.3 $(12.7)$244.9 $(236.5)$576.7 
Net income— — — — 102.3 — 102.3 
Amortization of net actuarial losses, net of income taxes— — — — — 30.3 30.3 
Purchase of treasury stock(0.3)— — (12.3)— — (12.3)
Repurchase of shares for withholding taxes and option costs under equity plans (0.2)— (8.8)— — — (8.8)
Stock-based compensation and shares issued under equity plans0.6 — 20.7 — — — 20.7 
September 30, 202077.4 $7.7 $585.2 $(25.0)$347.2 $(206.2)$708.9 


See Notes to Unaudited Condensed Consolidated Financial Statements.
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Aerojet Rocketdyne Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
 20202019
 (In millions)
Operating Activities
Net income $102.3 $115.7 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization49.7 53.4 
Amortization of debt discount and deferred financing costs7.4 7.0 
Stock-based compensation13.2 24.5 
Retirement benefits, net18.9 16.2 
Other, net0.2 0.3 
Changes in assets and liabilities, net of effects from acquisition in 2019:
Accounts receivable, net(69.9)(29.7)
Contract assets (49.2)(2.0)
Other current assets, net7.3 (22.8)
Recoverable environmental remediation costs6.0 10.5 
Other noncurrent assets, net6.9 (21.5)
Accounts payable(33.6)7.8 
Contract liabilities81.1 (4.5)
Other current liabilities(12.0)(45.1)
Deferred income taxes4.2 (19.3)
Reserves for environmental remediation costs(5.1)(9.7)
Other noncurrent liabilities and other11.2 15.6 
Net Cash Provided by Operating Activities 138.6 96.4 
Investing Activities
Purchases of marketable securities(26.5) 
Sales of marketable securities25.0  
Capital expenditures(31.0)(16.3)
Net Cash Used in Investing Activities(32.5)(16.3)
Financing Activities
Debt repayments(14.7)(15.9)
Repurchase of shares for withholding taxes and option costs under equity plans (8.8)(7.5)
Proceeds from shares issued under equity plans7.1 5.1 
Purchase of treasury stock(12.3) 
Net Cash Used in Financing Activities(28.7)(18.3)
Net Increase in Cash, Cash Equivalents and Restricted Cash77.4 61.8 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period935.6 740.3 
Cash, Cash Equivalents and Restricted Cash at End of Period$1,013.0 $802.1 
Supplemental disclosures of cash flow information
Cash paid for interest$13.5 $18.6 
Cash paid for income taxes35.9 48.9 
Cash refund for income taxes0.4 1.0 
See Notes to Unaudited Condensed Consolidated Financial Statements.
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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 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, 2019.
During the three and nine months ended September 30, 2020, the Company’s financial results and operations were not materially adversely impacted by the coronavirus ("COVID-19") pandemic. As a defense industrial-base U.S. government contractor, the Company is considered an essential business by the U.S. and state governments and it continues to operate as such during the COVID-19 pandemic. The extent to which the Company’s future financial results could be impacted by COVID-19 pandemic depends on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") 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.
Recently Issued Accounting Pronouncements
In August 2020, the FASB 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.



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Note 2. Earnings Per Share ("EPS") of Common Stock
The following table reconciles the numerator and denominator used to calculate basic and diluted EPS of common stock:
Three months ended September 30,Nine months ended September 30,
 2020201920202019
 (In millions, except per share amounts)
Numerator:
Net income $31.7 $32.9 $102.3 $115.7 
Income allocated to participating securities(0.3)(0.6)(1.3)(2.2)
Net income for basic and diluted EPS$31.4 $32.3 $101.0 $113.5 
Denominator:
Basic weighted average shares77.6 77.3 77.6 77.1 
Effect of:
2.25% Convertible Senior Notes ("21/4% Notes")
4.2 5.4 4.7 4.3 
Awards issued under equity plans
0.1 0.1 0.1 0.1 
Diluted weighted average shares81.9 82.8 82.4 81.5 
Basic
Basic EPS$0.40 $0.42 $1.30 $1.47 
Diluted
Diluted EPS$0.38 $0.39 $1.23 $1.39 
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 September 30,Nine months ended September 30,
 2020201920202019
 (In millions, except per share amounts)
Net favorable effect of the changes in contract estimates on net sales$3.2 $4.7 $20.4 $43.5 
Net favorable effect of the changes in contract estimates on income before income taxes3.2 4.0 21.4 43.0 
Net favorable effect of the changes in contract estimates on net income 2.7 2.9 16.0 31.6 
Net favorable effect of the changes in contract estimates on basic EPS0.03 0.04 0.20 0.40 
Net favorable effect of the changes in contract estimates on diluted EPS0.03 0.03 0.19 0.38 
For the nine months ended September 30, 2020, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the Terminal High Altitude Area Defense ("THAAD"), RS-68, RL-10, and Patriot Advanced Capability-3 ("PAC-3") programs partially offset by cost growth on a portion of the Standard Missile program and the
7


Commercial Crew program. For the nine months ended September 30, 2019, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the THAAD, PAC-3, 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:
September 30, 2020December 31, 2019
 (In millions)
Contract assets$280.3 $243.5 
Reserve for overhead rate disallowance(7.0)(19.4)
Contract assets, net of reserve273.3 224.1 
Contract liabilities343.4 262.3 
Net contract liabilities, net of reserve$(70.1)$(38.2)
Net contract liabilities increased by $31.9 million from December 31, 2019, primarily due to an increase in contract advances partially offset by an increase in unbilled receivables. During the three and nine months ended September 30, 2020, the Company recognized sales of $23.2 million and $207.2 million that were included in the Company's contract liabilities as of December 31, 2019.
As of September 30, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.7 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 24% the following twelve months, and 46% thereafter.
The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the percentages of net sales by contract type:
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Fixed-price60 %59 %61 %60 %
Cost-reimbursable40 41 39 40 
The principal end user customers are primarily agencies of the U.S. government as illustrated in the following table:
Three months ended September 30,Nine months ended September 30,
 2020201920202019
U.S. government96 %98 %96 %95 %
Non U.S. government4 2 4 5 
The Company's Real Estate segment represented less than 1% of the Company's net sales for the three and nine months ended September 30, 2020 and 2019.
Note 4. Stock-Based Compensation
The following table summarizes stock-based compensation expense by type of award:
Three months ended September 30,Nine months ended September 30,
 2020201920202019
 (In millions)
Stock Appreciation Rights
$0.6 $5.1 $(1.3)$12.7 
Stock options0.1 0.1 0.3 0.2 
Restricted stock and restricted stock units, service based1.5 1.3 4.7 4.0 
Restricted stock and restricted stock units, performance based3.0 2.2 8.7 6.9 
Employee stock purchase plan 0.3 0.3 0.8 0.7 
Total stock-based compensation expense $5.5 $9.0 $13.2 $24.5 

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Note 5. Balance Sheet Accounts
a. Fair Value of Financial Instruments
Financial instruments are classified using a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 Fair value measurement as of September 30, 2020
 TotalQuoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Other
Observable
Inputs
(Level 2)

Unobservable
Inputs
(Level 3)
 (In millions)
Money market funds$659.8 $659.8 $ $ 
Registered investment companies2.8 2.8   
Equity securities1.5 1.5   
Total$664.1 $664.1 $ $ 
 Fair value measurement as of December 31, 2019
 TotalQuoted 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 companies3.7 3.7   
Commercial paper99.9  99.9  
Total$729.6 $629.7 $99.9 $ 
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 ValuePrincipal Amount
 September 30, 2020December 31, 2019September 30, 2020December 31, 2019
 (In millions)
Term loan$