Aerojet Rocketdyne Annual Report 2020

FY2020 Annual Report · Aerojet Rocketdyne

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Dear Fellow Stakeholders,

Aerojet Rocketdyne had another strong year, highlighted by the solidification of
a key role on the nation’s next generation strategic deterrent program, a contract
award for 18 RS-25 engines, history-making hypersonic tests, and culminating in
our agreement to be acquired by Lockheed Martin.

The acquisition, which is anticipated to
close in the second half of 2021 pending
the requisite approvals, commanded a
premium price of $56 per share that is a
testament to the value Lockheed Martin
sees across our operations, in our product
and systems offerings and in our world-
class team. We are pleased to bring
together our complementary companies
in a transformative transaction that will

Joining Lockheed
Martin is a testament to
the organization we’ve
built and represents a
natural next phase of
our evolution.

provide premium cash value for our shareholders and tremendous
benefits for our employees, customers and partners.

Joining Lockheed Martin is a testament to the organization we’ve built and represents a natural next phase of our
evolution. As part of Lockheed Martin, we will bring our advanced technologies together with their substantial
expertise and resources to accelerate our shared purpose: enabling the defense of our nation and space exploration.

Over the last 15 years, much of our significant growth can be attributed to our disciplined strategy to improve
the competitiveness of our company and invest heavily in our core propulsion and power businesses. In 2020,
we completed our Competitive Improvement Program that began in March 2015 and has resulted in more than
$230 million in annual cost savings. One of the final major milestones in the CIP was the opening last October
of our state-of-the-art Engineering, Manufacturing and Development (EMD) facility in Camden, Ark. The
17,000-square-foot EMD facility positions us to deliver on some of the nation’s most important next generation
national security programs, including the Ground Based Strategic Deterrent (GBSD), hypersonics and missile
defense targets.

We are thankful to see the number of COVID-19 cases across the country and at Aerojet Rocketdyne declining
since the peak in December. Throughout 2020, Aerojet Rocketdyne implemented widespread COVID-19 safety
measures designed to protect our employees, our customers and our communities, and to ensure we continued to
deliver essential technology in support of critical national security requirements for defense and space exploration.

I am extremely proud of our team’s resilience, and the way our employees adapted to the challenges posed by
the COVID-19 pandemic, and happy to report that we met our mission and achieved strong financial results. In
fact, at Aerojet Rocketdyne, we not only maintained our successful trajectory in 2020, we built upon it. Through
continued growth, even in the midst of a global pandemic, we reached record sales levels and ended the year with
a strong backlog, while profitability remained stable. Moreover, we continued to break ground in key technology
areas that will ensure our central role in U.S. national security and space exploration in the years ahead.

Financial Results and Outlook
The momentum that we’ve been building in our financial performance continued in 2020 with sales of $2.1
billion reflecting growth of 5% year over year and the highest level we’ve seen since the transformative
Aerojet Rocketdyne merger in 2013. Adjusted EBITDAP margins stayed strong at 13.3% (after excluding the
$6 million incremental stock based compensation from the stock price increase immediately following the
acquisition announcement) and free cash flow conversion was 225% of net income at $309 million.

The increase in net sales was largely driven by the RS-25, Medium Range Ballistic Missile and Guided
Multiple Launch Rocket System programs and was partially offset by a decline on the Commercial Crew
Development program and the cancellation in 2019 of the Redesigned Exoatmospheric Kill Vehicle program.

Our free cash flow generation and ability to maintain solid working capital positions continued to drive a strong
balance sheet. We established a goal of converting greater than 100% of net income to free cash flow and have
now exceeded that several years in a row while continuing to execute a disciplined capital allocation strategy
focused on increasing return on invested capital.

We also ended the year with $6.7 billion of backlog, up 23% from a year ago. Included in backlog growth is the
NASA contract modification award received in the second quarter to produce the additional 18 RS-25 engines
in support of deep space exploration missions. Backlog expected to convert to revenue in the next 12 months
was 32% or $2.2 billion as of December 31, 2020.

Aerospace and Defense
Our defense business continued to execute on its main production programs while positioning the company to win
new business in important growth areas.

In the critical field of hypersonics, Aerojet Rocketdyne, along with the Air Force Research Laboratory, made history
by achieving record thrust levels – more than 13,000 pounds – on a scramjet engine. For the Defense Advanced
Research Projects Agency, we completed a second series of propulsion tests on the Operational Fires hypersonic
tactical weapon program and were selected to develop enabling technologies for the Glide Breaker hypersonic
interceptor.

As a key member of a nationwide team led by Northrop Grumman, we
are now under contract to develop a large solid rocket motor and the post
boost propulsion system for the nation’s modernized nuclear deterrent,
known as the Ground Based Strategic Deterrent.

In air and missile defense, we announced a $1 billion, five-year strategic
agreement with prime contractor Raytheon Missiles and Defense to
supply propulsion for the U.S. Navy’s Standard Missile program.
Meanwhile, all three Prime Contractors, Boeing, Lockheed Martin and
Northrop Grumman-Raytheon, announced they teamed with us on their
proposals for the Missile Defense Agency’s Next Generation Interceptor
competition.

Our defense business
continued to execute
on its main production
programs while
positioning the company
to win new business in
important growth areas.

We produced 70,000 solid rocket motors during 2020, along with 330 in-space propulsion systems. Notable
production milestones included the 5,000th flight motor for the Stinger missile system since the program’s relocation
to Camden, Ar., and the 600th Boost Motor and 600th Divert and Attitude Control System for the Terminal High
Altitude Area Defense system. Specialty metals producer Aerojet Ordnance Tennessee, meanwhile, delivered its 8
millionth M67 hand grenade body for final assembly and delivery to the U.S. Army.

Turning to the space side of the business, we won a $1.79 billion NASA contract modification to deliver 18
newly manufactured RS-25 large liquid rocket engines to power NASA’s Space Launch System (SLS) heavy-lift
exploration rocket, bringing the total number of new RS-25s on order to 24. We also delivered four RL10 upper
stage engines for use on the SLS, including three that will power the Exploration Upper Stage, a significant upgrade
to the heavy lift rocket.

NASA’s Perseverance Mars Rover began its journey to the red planet and landed with support from numerous
Aerojet Rocketdyne propulsion systems and tanks on the United Launch Alliance (ULA) Atlas V launch vehicle,
the spacecraft and its landing system. While operating on the Martian surface, Perseverance is being powered by
an Aerojet Rocketdyne-supplied Multi-Mission Radioisotope Thermoelectric Generator. We also completed and
delivered chemical and electric propulsion systems for NASA’s Double Asteroid Redirection Test, a mission to
impact the near-earth asteroid Didymos in an attempt to change its motion in space.

A bit closer to home, last year astronauts aboard the International Space Station installed our Lithium-Ion batteries
aboard the orbiting outpost. These batteries will provide twice the kilowatt-hours than their predecessors at a fraction
of the mass, and are expected to operate for at least ten years.

Also during 2020, ULA’s Vulcan rocket was selected to begin launching national security payloads starting in
2022, and its upper stage will be powered by a pair of RL10 engines. We also made significant progress on a next-
generation variant of the RL10 engine, leveraging our industry-leading 3D printing technology to reduce cost while
maintaining its unmatched performance. Separately, our RL10 engine flew its 500th flight on the launch of the
Defense Department’s sixth and final Advanced Extremely High Frequency secure communications satellite aboard
an Atlas V rocket. The RL10 engine has a long legacy supporting national security, civil, and commercial space
launches and it is positioned for a promising future.

Real Estate
Our Real Estate segment maintains focus on entitlement and monetization of our 5,563 acres in Sacramento.
We remain committed to finding the right partner or partners to maximize the value of the land via land sales
and/or joint ventures with builders and developers, as well as increased interest in buildings and land available
for lease for commercial, industrial and flex uses.

Safety and the Environment
Safety is one of our core values and we are committed to providing a safe work environment for our employees as
well as being good stewards of the natural environment. The COVID-19 pandemic presented unique challenges
as we prioritized protecting our employees and their families from potential COVID-19 exposure while delivering
excellent performance to our customers. Since the beginning of the COVID-19 pandemic, we implemented
comprehensive safety protocols and flexible workforce practices aligned with guidance published by the Centers for
Disease Control and Prevention.

In 2020, we experienced a slight increase in our OSHA Recordable
Rate over 2019. This was partly attributed to COVID-19. While
2020 was higher than 2019, it was lower than 2018 and all other
prior years and represents the second safest year on record for
Aerojet Rocketdyne. We’ve seen a positive trend of the OSHA
recordable rate for six of the last eight years – a 50% reduction over
that same period. Through our Aerojet Rocketdyne Safety, Health
and Environmental (SH&E) Management System, we continue
to systematically identify and mitigate risks through effective job
safety analyses, audits and assessments of our manufacturing,
assembly, test, and office areas. Our SH&E Management System is
focused on continuous improvement through employee involvement
and management commitment. Our entire team is committed to
achieving an injury-free workplace. We also take very seriously our
commitment and obligation to environmental remediation. In 2020
we treated 8.1 billion gallons of groundwater and removed more than
49,000 pounds of contaminants.

Our People
Our high-performing teams are the reason for our long-term success; their skill, dedication and ability to
innovate are the lifeblood of the company. From the designers and scientists pushing technology’s frontiers
to the factory floor technicians manufacturing this technology with precision, our employees continue to
meet challenges head on, and the results speak for themselves, both in the form of our financial results and
recognition from our customers. Last year I was proud to accept, on behalf of our great team, the Association of
the U.S. Army’s John W. Dixon Award, recognizing outstanding contributions to national defense.

At Aerojet Rocketdyne, we know that innovation has been – and always will be – led by those who break from
tradition, who don’t just look at problems from a new angle, but who identify problems we didn’t even know
needed solving. Emphasizing diversity and inclusion is a key driver of the innovation, invention and creativity
necessary to our success as a propulsion technology powerhouse. Leaders at Aerojet Rocketdyne are committed
to continuing to build an inclusive workplace and a diverse workforce that draws on the experiences and
insights of people with different backgrounds.

Our employees are our greatest asset and enable us to provide quality products that help protect our warfighters
and push the boundaries of what is possible in space. It’s critical and my top priority that every person who
works at Aerojet Rocketdyne is valued for who they are as an individual and the unique perspectives that they
bring to the team.

We have created a dedicated Inclusion, Diversity and Engagement Council to advise my executive team
on strategies and policies, leadership training, community relations and the recruitment and retention of

employees. Together with our Employee Resource Groups, who are each sponsored and supported by one of
our Executives, we ensure that we continue to apply diverse and valuable perspectives to initiatives that help
create an even more inclusive and strong future.

We enable our employees to reach their full potential by providing
a wide range of career and skill development opportunities.
Our Rocket University learning platform supplements our
talent development strategies and enables employees to access
instructor-led classroom or virtual courses and self-directed
web-based courses. Our annual Succession Planning and Talent
Management process is the formal identification and development
of our next generation leaders and supports the development of our
talent pipeline for key roles across the enterprise. We encourage
advancement and movement across our organization to fill our
open positions with strong and experienced management talent
and individual contributors.

Our high-performing
teams are the reason for
our long-term success;
their skill, dedication and
ability to innovate are the
lifeblood of the company.

Our company and our employees remain committed to supporting the communities in which we live and work.
In 2020, Aerojet Rocketdyne, the Aerojet Rocketdyne Foundation and our employees together donated $1.7
million to organizations that are funding important efforts that include Science, Technology, Engineering and
Mathematics (STEM) scholarships, disaster recovery and COVID-19 relief.

In a year that brought major changes to education programs, Aerojet Rocketdyne remained committed to
encouraging the next STEM generation, through supporting both local and national events virtually and
mentoring tomorrow’s leaders remotely.

Conclusion
For Aerojet Rocketdyne, 2020 was a year of strong execution on existing contracts, a year of winning new
business and the year we put into place the final pieces of our plan to secure a prosperous future. While 2020
certainly posed challenges, our team’s focus and adaptability enabled our company to meet our important
mission of enabling the defense of our nation and space exploration. With the arrival of COVID-19 vaccines
and our planned acquisition, we look forward to an exciting, opportunity-filled 2021.

Sincerely,

Eileen P. Drake, Chief Executive Officer and President
Aerojet Rocketdyne Holdings, Inc.
March 18, 2021

Learn more at www.rocket.com

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒

☐

For the transition period from to

Commission File Number 1-01520

Aerojet Rocketdyne Holdings, Inc.
(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

Delaware

34-0244000

(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
Common stock, $0.10 par value

Trading Symbol(s)
AJRD

Name of each exchange on which registered
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Securities registered pursuant to Section 12(g) of the Act: None

Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐

No ☒

The aggregate market value of the voting common equity held by nonaffiliates of the registrant as of June 30, 2020, was

$3.1 billion.

As of February 12, 2021, there were 77,530,542 outstanding shares of the Company’s common stock, including unvested

common shares, $0.10 par value.

Portions of the 2021 Proxy Statement of Aerojet Rocketdyne Holdings, Inc. relating to its annual meeting of stockholders

scheduled to be held on May 5, 2021, are incorporated by reference into Part III of this Report.

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Aerojet Rocketdyne Holdings, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 2020

Table of Contents

PART I

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item
Number

1A.

1B.

7A.

Quantitative and Qualitative Disclosures About Market Risk

9A.

9B.

16.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

PART III

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules

Form 10-K Summary

PART IV

Signatures

[THIS PAGE INTENTIONALLY LEFT BLANK]

Item 1. Business

Part I

Unless otherwise indicated or required by the context, as used in this Annual Report on Form 10-K ("Report"), the terms

"we," "our," "us," and the "Company" refer to Aerojet Rocketdyne Holdings, Inc. and all of its subsidiaries that are consolidated in
conformity with accounting principles generally accepted in the United States of America ("GAAP").

All statements in this Report other than historical information should be considered "forward-looking statements" as
defined by Section 21E of the Private Securities Litigation Reform Act of 1995. These statements present (without limitation) the
expectations, beliefs, plans, and objectives of management and future financial performance and assumptions underlying, or
judgments concerning, the matters discussed in the statements. The words "believe," "estimate," "anticipate," "project," "expect,"
and "reliable" and similar expressions, are intended to identify forward-looking statements. Forward-looking statements involve
certain risks, estimates, assumptions, and uncertainties, including with respect to the pending acquisition by Lockheed Martin
Corporation ("Lockheed Martin"), the uncertainties arising from the coronavirus ("COVID-19") pandemic, future sales and activity
levels, cash flows, contract performance, the outcome of litigation and contingencies, environmental remediation, availability of
capital, and anticipated costs of capital. Important risk factors that could cause actual results or outcomes to differ from those
expressed in the forward-looking statements are described in the section "Risk Factors" in Item 1A of this Report. Additional risk
factors may be described from time to time in our future filings with the Securities and Exchange Commission ("SEC").

Overview

Our 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 our wholly-owned subsidiary Easton Development Company, LLC ("Easton")
related to the re-zoning, entitlement, sale, and leasing of our excess real estate assets. We are currently in the process of
seeking zoning changes and other governmental approvals on our excess real estate assets.

On December 20, 2020, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Lockheed Martin and Mizar Sub, Inc., a wholly-owned subsidiary of Lockheed Martin ("Merger Sub"), pursuant to which, subject
to the terms and conditions thereof, Merger Sub will merge with and into the Company (the "Merger") with the Company being
the surviving corporation and a wholly-owned subsidiary of Lockheed Martin.

Subject to the terms and conditions set forth in the Merger Agreement, each share of common stock outstanding as of

immediately prior to the effective time of the Merger will be automatically converted into the right to receive cash in an amount
equal to $56.00 per share, without interest, less, to the extent paid or payable as outlined below, the amount per share of the
Pre-Closing Dividend (defined below).

On December 19, 2020, our Board of Directors declared a one-time cash dividend of $5.00 per share (including shares

underlying the 2.25% Convertible Senior Notes ("2¼% Notes") participating on an as-converted basis) (the "Pre-Closing
Dividend"). The Pre-Closing Dividend is payable on March 24, 2021, to the holders of our shares and 2¼% Notes as of the close
of business on March 10, 2021. The $56.00 per share price under the Merger Agreement is expected to be reduced to $51.00
after the payment of the Pre-Closing Dividend to our stockholders and holders of our 2¼% Notes participating on an as-
converted basis (or, in the unlikely event that closing occurs after March 10, 2021, but before March 24, 2021, to the extent the
Pre-Closing Dividend is payable after the closing).

Closing of the Merger is anticipated to occur in the second half of 2021, subject to various customary conditions, including
our stockholder approval and regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Aerospace and Defense

Aerojet Rocketdyne is a world-recognized technology-based engineering and manufacturing company that develops and

produces specialized power and propulsion systems, as well as armament systems. We develop and manufacture liquid and
solid rocket propulsion, air-breathing hypersonic engines, and electric power and propulsion for space, defense, civil and
commercial applications. Principal customers and end users include the DoD (including the U.S. Air Force ("USAF"), U.S. Space
Force, U.S. Army, Missile Defense Agency ("MDA"), and U.S. Navy), NASA, The Boeing Company ("Boeing"), Lockheed Martin,
Raytheon Technologies Corporation ("Raytheon"), and United Launch Alliance ("ULA").

We have demonstrated a legacy of successfully meeting the most challenging missions by producing some of the world’s

most technologically advanced propulsion systems to meet our nation's critical needs. We believe we maintain a unique
competitive position due to our strategic focus on creating and maintaining a broad spectrum of propulsion and energetic
products assisted by the growing market demand for our innovative energy management technologies. The highly reliable nature
of our revenue comes from the long-term nature of the programs with which we are involved, our attractive contract base and our
deep customer relationships. High renewal rates, supported by our market leading technology provide us with a highly stable
business base from which to grow. As of December 31, 2020, our remaining performance obligations, also referred to as
backlog, totaled $6.7 billion and our funded backlog, which includes only amounts for which funding has been authorized by a
customer and a purchase order has been received, totaled $3.0 billion.

Primary Markets and Programs

The markets and key programs we serve are:

Aerospace. We specialize in the development and production of propulsion and power systems for space applications. Our

products include a broad market offering of both electric and chemical propulsion, including liquid propellant engines and solid
rocket motors, required for launch vehicle and in-space applications supporting defense, civil and commercial missions.

Our space products have a long, successful flight heritage with the U.S. government and we continue to provide strong

support of National Security Space requirements enabling communications, navigation, intelligence, surveillance, and
reconnaissance ("ISR") missions. We provide first stage and upper stage liquid propulsion for ULA’s Delta IV Heavy launch
vehicle as well as the liquid upper stage propulsion for the Atlas V launch vehicle in support of the National Security Space
Launch ("NSSL") program. During 2020, the U.S. Space Force selected ULA as one of two launch service providers under the
NSSL Phase 2 Launch Services Procurement ("LSP") with its new Vulcan Centaur launch vehicle and we will supply two RL10
upper stage engines to ULA for each Vulcan Centaur mission.

We continue to support the exploration of deep space. During 2020, NASA made significant progress in returning the U.S.

to the Moon with the Artemis program and we are a critical contributor to multiple elements of this historic endeavor. This year,
NASA began a series of final tests on the core stage of the Space Launch System ("SLS") Artemis I rocket, powered by our
RS-25 liquid rocket engines. During 2020, we also completed all hardware for the first crewed flight of NASA’s SLS rocket and
Orion crew module, Artemis II. Additionally, in 2020, we were awarded a follow-on contract from NASA for $1.8 billion to deliver
18 RS-25 engines to power the SLS heavy-lift exploration rocket, bringing the total number of new RS-25s on order to 24.

In support of Low Earth Orbit human spaceflight initiatives, astronauts installed the final sets of our Lithium-Ion ("Li-Ion")

batteries into the International Space Station’s ("ISS") power system in 2020. Over the course of this three and half year
endeavor a total of 24 of our Li-Ion batteries replaced the 48 obsolete nickel hydrogen batteries. In addition, we supply critical
propulsion hardware for Boeing’s CST-100 Starliner spacecraft for NASA, which will usher in a new era of commercial human
spaceflight by ferrying astronauts to and from the ISS for NASA.

In the commercial market, we provide in-space propulsion products to major U.S. commercial satellite manufacturers. Our

in-space propulsion products and systems also support critical U.S. government and civil spacecraft programs.

We are playing a critical role in NASA’s Mars 2020 mission, launched in July 2020. The Perseverance Rover

("Perseverance") relies on our propulsion systems during launch, entry, descent, and landing phases of the mission. Additionally,
while operating on the Mars surface, Perseverance will be powered by an Aerojet Rocketdyne-supplied Multi-Mission
Radioisotope Thermoelectric Generator.

Also in 2020, we delivered our dual chemical and electric propulsion system for NASA’s Double Asteroid Redirection Test

("DART") spacecraft which will be the first demonstration of a kinetic impactor striking an asteroid at high speed in order to
change the asteroids motion in space.

We continued to mature critical technologies for our nation’s next generation of advanced hydrocarbon engines for future

high-performance launch systems. In February 2016, the USAF awarded Aerojet Rocketdyne a Rocket Propulsion System Other
Transaction Agreement ("OTA"), a public-private partnership, to develop the AR1 engine. Following the decision by the Launch
Services Program competitors not to incorporate the AR1 in their new launch vehicle designs, we signed a modification to the
existing OTA to design, build, and assemble only one AR1 engine. The assembly of the AR1 engine was completed in 2020.

A subset of our key space programs include: (i) RL10 and RS-68 engines/boosters that power the NSSL program, (ii)
RS-25 main and RL10 upper stage engines that power NASA’s SLS heavy-lift rocket for deep space exploration, (iii) propulsion
for the Orion human spacecraft and the Starliner Commercial Crew Transportation Capability capsule, (iv) power systems for ISS
and science missions, and (v) multiple in-space electric and chemical propulsion systems to provide orbit raising and satellite
positioning.

Defense. We specialize in the development and production of propulsion systems for defense applications including both

solid and liquid propellant based systems, along with air-breathing (ramjet and hypersonic scramjet) systems for missile
applications. The majority of these systems are the primary axial propulsion for missile systems. We also develop and
manufacture liquid and solid divert and attitude control ("DACs") propulsion systems for missile defense applications. These are
complex systems that provide multi-directional thrust and variable thrust levels to steer or control an intercept missile.
Additionally, we develop and manufacture post-boost propulsion systems for strategic missiles. These systems provide
directional control for ground and sea-based strategic missiles. Using our energetics expertise we also design, develop, and
produce warhead/lethality systems for tactical missiles. Our tactical armament products have been successfully fielded on
multiple active U.S. and international weapon system platforms. The breadth of our products includes tactical missiles, missile
defense interceptors, hypersonic systems and strategic boosters and post-boost systems for a variety of applications.

During 2020, we continued to expand our strong legacy propulsion franchises on the Standard Missile, Patriot Advanced

Capability-3 ("PAC-3"), Terminal High Altitude Area Defense ("THAAD") and Guided Multiple Launch Rocket System ("GMLRS")
missile programs, to include Raytheon awarding a five-year, $1 billion strategic agreement to address Standard Missile
propulsion products. These franchise programs continue to be globally deployed in support of U.S. and allied armed forces.

In the hypersonic propulsion arena, we continued to advance the state of the art of air-breathing scramjet engines with

tests that achieved record thrust levels in simulated hypersonic flight conditions. Our work on complementary air-breathing
propulsion (ramjet/scramjet) for hypersonic missiles continued in 2020 with the completion of flight-ready engines.

In 2020, we were selected to develop a large solid rocket motor and the post-boost propulsion system for the Ground
Based Strategic Deterrent ("GBSD") program as a key member of Northrop Grumman Corporation's ("Northrop") nationwide
GBSD team. Northrop was selected by the U.S. Air Force as the prime contractor for GBSD’s Engineering and Manufacturing
Development phase. Additionally, we continued to expand our portfolio of propulsion products with development contract awards
that included (i) the U.S. Navy advanced propulsion system – Stored Chemical Energy Propulsion System for the MK 54
Advanced Lightweight Torpedo and (ii) Defense Advanced Research Projects Agency ("DARPA") propulsion technologies for the
Glide Breaker hypersonic defense interceptor.

Finally, in 2020, our Aerojet Rocketdyne Coleman Aerospace ("Coleman") business continued to expand its scope on the

medium-range ballistic missile ("MRBM") target program with the development of new subsystems that will allow target
simulation of significantly more advanced threats.

A subset of our key defense programs include: (i) Boosters and Solid DACs for the Navy’s Standard Missile family, (ii)

Booster and Liquid DACs for THAAD, (iii) PAC-3, (iv) GMLRS, (v) Stinger, (vi) Javelin, (vii) Tactical Tomahawk, (viii) Army
Tactical Missile Systems ("ATACMS"), (ix) Tube-launched Optically-tracked Wire-guided ("TOW") warhead, and (x) HAWK.

Information concerning the percentage of net sales attributable to our significant programs appears in Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption "Major Customers."

Competition

The competitive dynamics of our business vary by product type and customer, but we experience many of the same
challenges as the broader aerospace and defense industry. The large majority of products we manufacture are highly complex,
technically sophisticated and extremely difficult or hazardous to build, which require rigorous manufacturing systems and highly
specialized manufacturing equipment. While historically these factors posed substantial barriers to entry, modern design tools
and manufacturing techniques (such as additive manufacturing) are enabling new entrants with the funding to enter this industry,
leading to increased competition. To date, competition from new entrants has been limited to a few participants who tend to be
narrowly focused on products that are sub-elements of our overall product portfolio. For example, competitors such as SpaceX
and Blue Origin, who have developed liquid fuel propulsion capabilities are primarily focused on the development of space
propulsion systems for space launch vehicles and are not pursuing or participating in the missile defense or tactical propulsion
products that make up a substantial portion of our overall business. These new competitors have signaled their intent to compete
primarily on price and are willing to take on substantial risk exposure on development programs with unproven market potential
and are, therefore, disrupting existing cost paradigms and manufacturing methodologies. For the in-space propulsion market, we
also see a number of new startups entering the market in both small chemical propulsion and small electric propulsion systems
targeted at the rapidly expanding small satellite market.

The following table lists the primary participants in the propulsion market (in alphabetical order):

Parent Company
Aerojet Rocketdyne Holdings, Inc.

ArianeGroup

Avio S.p.A

Busek Co. Inc.

Blue Origin

General Dynamics

IHI Aerospace

Moog Inc.

Nammo Talley

Propulsion Type
Solid, liquid, air-breathing, electric

Solid, liquid, electric

Solid, liquid

Electric

Liquid

Solid

Liquid, electric

Liquid

Solid, liquid

Northrop Grumman Corporation

Solid, liquid, air-breathing

Safran

SpaceX

Industry Overview

Electric

Liquid, electric

Our primary aerospace and defense customers include DoD, NASA, and the prime contractors that supply products to
these customers. We rely on U.S. government funding for aerospace and defense and our backlog depends, in large part, on the
continued funding by the U.S. government for these programs. While U.S. and state governments continue to address the
COVID-19 pandemic, our customers are operating under the Consolidated Appropriations Act, 2021 (Public Law 116-260), which
appropriated funding to DoD and NASA for Government Fiscal Year 2021. Public Law 116-260 was signed into law on December
27, 2020. Additionally, the Consolidated Appropriations Act included a section on COVID-19 relief and recovery that includes
numerous policy provisions and an appropriation of about $900 billion in COVID-19 assistance funding. Disruptions to our
customer’s facilities or delays in supply chain as a result of COVID-19 could delay or decrease expenditures by U.S. government

agencies. Such a decrease in DoD and/or NASA expenditures, the elimination or curtailment of a program in which we are or
hope to be involved, or changes in payment patterns of our customers as a result of changes in U.S. government outlays, could
have a material adverse effect on our operating results, financial condition, and/or cash flows.

Major Customers

Information concerning major customers appears in Part II, Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations under the caption "Major Customers."

Contract Types

Research and development ("R&D") contracts are awarded during the early stages of a program’s development.
Production contracts provide for the production and delivery of mature products for operational use. Our 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). During 2020, approximately 61% of our net
sales were from fixed-price contracts and 39% from cost-reimbursable contracts.

Fixed-price contracts are typically (i) firm fixed-price, (ii) fixed-price-incentive fee, or (iii) fixed-price level of effort contracts.

For firm fixed-price contracts, Aerojet Rocketdyne performs work for a fixed price and realizes all of the profit or loss resulting
from variations in costs during contract performance. For fixed-price-incentive fee contracts, Aerojet Rocketdyne receives
increased or decreased fees (or profits) based upon actual performance against established targets or other criteria. For fixed-
price level of effort contracts, Aerojet Rocketdyne generally receives a structured fixed price per labor hour, dependent upon the
customer’s labor hour needs. All fixed-price contracts present the risk of unreimbursed cost overruns potentially resulting in lower
than expected contract profit margin and losses.

Cost-reimbursable contracts are typically (i) cost plus fixed fee, (ii) cost plus incentive fee, or (iii) cost plus award fee

contracts. For cost plus fixed fee contracts, Aerojet Rocketdyne typically receives reimbursement of its costs, to the extent the
costs are allowable under contractual and regulatory provisions, in addition to receiving a fixed fee. For cost plus incentive fee
contracts and cost plus award fee contracts, Aerojet Rocketdyne receives adjustments to the contract fee, within designated
limits, based on actual results as compared with contractual targets for factors such as cost, performance, quality, and schedule.

In addition, OTA contracts are becoming more prevalent in the developmental stages of U.S. government procurements.

An OTA is a special vehicle used by federal agencies for obtaining or advancing R&D or prototypes. The U.S. government's
procurement regulations and certain procurement statutes do not apply to OTAs, and accordingly, other transaction authority
gives agencies the flexibility necessary to develop agreements tailored to a particular transaction. Generally, our sales and
backlog figures do not include work we have under contracts obligated by the customer under an OTA as our share of the
contract costs are recognized as company-funded R&D.

Government Contracts and Regulations

U.S. government contracts generally are subject to Federal Acquisition Regulations ("FAR"), agency-specific regulations
that supplement FAR, such as the DoD’s Defense Federal Acquisition Regulations, and other applicable laws and regulations.
These regulations impose a broad range of requirements, many of which are unique to U.S. government contracting, including
various procurement, import and export, security, contract pricing and cost, contract termination and adjustments, mandatory
disclosure, and audit requirements. Our failure to comply with these regulations and requirements could result in reductions of
the value of contracts, contract modifications or termination, inability to bill and collect receivables from customers, and the
assessment of penalties and fines that could lead to suspension or debarment from U.S. government contracting or
subcontracting. In addition, as a U.S. government contractor, we are subject to routine audits, reviews, and investigations by the
Defense Contract Audit Agency ("DCAA"), the Defense Contract Management Agency, and other similar U.S. government
agencies. Such reviews include but are not limited to our contract performance, compliance with applicable laws, regulations,
and standards as well as the review of the adequacy of our accounting systems, purchasing systems, property management
systems, estimating systems, earned value management systems, and material management and accounting systems.

The U.S. government’s ability to unilaterally modify or terminate a contract or to discontinue funding for a particular
program at any time could have a material adverse effect on our operating results, financial condition, and/or cash flows. The
cancellation of a contract, if terminated for cause, could also subject us to liability for the excess costs incurred by the
U.S. government in procuring undelivered items from another source. If terminated for convenience, our recovery of costs would
be limited to amounts already incurred or committed (including severance costs for terminated employees), and our profit would
be limited based on the work completed prior to termination.

Additional information about the risks relating to government contracts and regulations appears in "Risk Factors" in Item 1A

of this Report.

Backlog

Information concerning backlog appears in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations under the caption "Backlog."

Seasonality

Aerojet Rocketdyne’s business is not subject to predictable seasonality. Primary factors affecting the timing of our sales

include the timing of U.S. government awards, the availability of U.S. government funding, contractual product delivery
requirements, and customer acceptances.

Research and Development

We view R&D efforts as critical to maintaining our leadership position in markets in which we compete. Our R&D is
primarily supported by customer funding. Our company-funded R&D efforts include expenditures for technical activities that are
vital to the development of new products, services, processes or techniques, as well as those expenses for significant
improvements to existing products or processes. See Note 1 in the consolidated financial statements in Item 8 of this Report for
additional information on R&D expenditures.

Suppliers and Raw Materials

The national aerospace supply base continues to consolidate due to economic, environmental, and marketplace
circumstances beyond our control. The loss of key qualified suppliers of technologies, components, and materials can cause
significant disruption to our program performance and cost.

Availability of raw materials and supplies has been generally sufficient. We sometimes are dependent, for a variety of

reasons, upon sole-source or qualified suppliers and have, in some instances in the past, experienced difficulties meeting
production and delivery obligations because of delays in delivery or reliance on such suppliers. Further, as a U.S. government
contractor, we are often limited to procuring materials from certain suppliers capable of meeting rigorous customer and
government specifications.

Additional information about the risks relating to suppliers and raw materials appears in "Risk Factors" in Item 1A of this

Report.

Intellectual Property

Where appropriate, Aerojet Rocketdyne obtains patents in the U.S. and other countries for new and useful processes,
machines, manufactures or compositions of matter, or any new and useful improvements thereof relating to its products and
services. Our patents are maintained through the statutory limit of time, which is typically 20 years from the date of filing of the
patent application, where the claimed invention has value in the markets in which we compete. We rely on trade secret protection
for financial, technical and personnel information that provides an economic competitive advantage by virtue of not being known
by the relevant public and ordinarily require employees to sign confidentiality agreements as a condition to employment. If
properly protected, trade secrets can be maintained in perpetuity. Aerojet Rocketdyne takes reasonable steps to prevent
disclosure of its trade secrets in order to maintain protection under applicable state and federal laws. As our products and
services typically embody complex systems that include many technologies, we do not believe any single existing patent,
license, or trade secret is material to our success.

Real Estate

We own 11,394 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California east of
Sacramento ("Sacramento Land"). Acquired in the early 1950s and historically used for our aerospace and defense operations,
large portions were used solely to provide safe buffer zones around hazardous operations. Modern changes in propulsion
technology coupled with the relocation of our propulsion operations led us to determine large portions of the Sacramento Land
were no longer needed for operations. Consequently, our plan has been to re-entitle the Sacramento Land for new uses and
explore various opportunities to optimize its value.

The Sacramento Land is made up of 5,203 acres previously used for our aerospace and defense operations, 628 acres

available for future entitlement, and 5,563 acres for future development under the brand name "Easton". Easton has 3,904 acres
that are fully entitled. The term "entitlement" is generally used to denote the required set of regulatory approvals required to allow
land to be zoned for new requested uses. Required regulatory approvals vary with each jurisdiction and each zoning proposal
and may include permits, land use master plans, zoning designations, state and federal environmental documentation, and other
regulatory approvals unique to the land. The entitlement and development process in California is long and uncertain with
approvals required from various authorities, including local jurisdictions, and in select projects, permits required by federal
agencies such as the U.S. Army Corps of Engineers and the U.S. Department of Interior, Fish and Wildlife Service, and others
prior to construction.

As Easton continues to execute re-entitlement and pre-development activities, we are pursuing a variety of monetization
options and are exploring how to maximize value from Easton. Value creation and monetization may include outright land sales
and/or joint ventures with real estate developers, residential builders, and/or other third parties. We believe the long-term
prospect for the Sacramento region represents an attractive and affordable alternative to the San Francisco Bay Area and other
large metropolitan areas of California.

The following table summarizes the Sacramento Land (in acres):

Glenborough and Easton Place

Rio del Oro

Westborough

Hillsborough (2)

Office Park and Auto Mall

Total Easton acreage

Former operations land (3)

Land available for future entitlement (4)

Total Sacramento Land

_________

Environmentally
Unrestricted

Environmentally
Restricted (1)

Total

Entitled

1,043

1,818

1,387

4,346

386

4,756

349

491

272

1,217

5,179

242

6,638

1,392

2,309

1,659

148

5,563

5,203

628

11,394

1,392

2,309

—

148

3,904

(1)

Indicates land subject to restrictions imposed by state and/or federal regulatory agencies because of our historical
propulsion system testing and manufacturing activities. We are actively working with the various regulatory agencies to
have the restrictions removed as early as practicable, and the solutions to use these lands within Easton have been
accounted for in the various land use plans and granted entitlements. See Note 8(b) in the consolidated financial
statements in Item 8 of this Report for a discussion of the federal and/or state environmental restrictions affecting portions
of the Sacramento Land.

(2) The remaining 148 acres designated in Hillsborough will be transferred, per the completed purchase and sale contract

from 2015, when the required environmental remediation work is completed.

(3)

In 2019, we completed our manufacturing commitments in our Sacramento, California facility and transitioned the
Sacramento site to host our shared services function.

(4) We believe it will be several years before any of this excess Sacramento Land is available for future change in entitlement.
Some of this excess land is outside the current Urban Services Boundary established by the County of Sacramento and all
of it is far from existing infrastructure, making it uneconomical to pursue entitlement for this land at this time.

Leasing

We currently lease office space in Sacramento to various third parties that generated $3.3 million in revenue in 2020.

Environmental Matters

Our current and former business operations are subject to, and affected by, federal, state, and local environmental laws

and regulations relating to the discharge, treatment, storage, disposal, investigation, and remediation of certain materials,
substances, and wastes. Our policy is to conduct our business with due regard for the preservation and protection of the
environment. We continually assess compliance with these regulations, and we believe our current operations are materially in
compliance with all applicable environmental laws and regulations.

Under existing U.S. environmental laws, Potentially Responsible Parties ("PRPs"), are jointly and severally liable, and

therefore we are potentially liable to the U.S. government or other third parties for the full cost of remediating the contamination
at our facilities or former facilities or at third-party sites where we have been designated as a PRP by the Environmental
Protection Agency or state environmental agencies. The nature of environmental investigation and cleanup activities requires
significant management judgment to determine the timing and amount of any estimated future costs that may be required for
remediation measures. Further, environmental standards change from time to time. However, we perform quarterly reviews of
these matters and accrue for costs associated with environmental remediation when it becomes probable that a liability has been
incurred and the amount of the liability, usually based on proportionate sharing, can be reasonably estimated. These liabilities
have not been discounted to their present value as the amounts and timing of cash payments are not fixed or reliably
determinable.

On January 12, 1999, we reached a settlement agreement ("Global Settlement") with the U.S. government covering
environmental costs associated with our Sacramento site and our former Azusa site. Pursuant to the Global Settlement, we can
recover up to 88% of our environmental remediation costs through the establishment of prices for Aerojet Rocketdyne's products
and services sold to the U.S. government. Additionally, in conjunction with the sale of the Electronics and Information Systems
business in 2001, Aerojet Rocketdyne entered into an agreement with Northrop (the "Northrop Agreement") whereby Aerojet
Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global
Settlement, subject to an annual billing limitation of $6.0 million and a cumulative limitation of $189.7 million.

Operation and maintenance costs associated with environmental compliance and management of contaminated sites are

a normal, recurring part of operations. Most of our environmental costs are incurred by our Aerospace and Defense segment,
and certain of these future costs are allowed to be included in our contracts with the U.S. government.

The inclusion of environmental costs in our contracts with the U.S. government impacts our competitive pricing; however,

we believe that this impact is mitigated by driving improvements and efficiencies across our operations as well as our ability to
deliver innovative and quality products to our customers.

We did not incur material capital expenditures for environmental control facilities in 2020 nor do we anticipate any material
capital expenditures in 2021 and 2022. See Management’s Discussion and Analysis in Part II, Item 7 "Environmental Matters" of
this Report for additional information.

Additional information on the risks related to environmental matters can be found under "Risk Factors" in Item 1A of this

Report, including the material effects on compliance with environmental regulations that may impact our competitive position and
operating results.

Employees

As of December 31, 2020, 8% of our 4,969 employees were covered by collective bargaining agreements. We believe that

our relations with our employees and unions are good. Our workforce, along with their commitment to our values, provides the
foundation of our Company’s success.

Human Capital Management

We believe our success depends on the strength of our workforce. Our integrated human capital management strategy

includes the acquisition, development, and retention of talent, as well as the design of compensation and benefits programs, to
deliver on our strategy.

Development - We enable our employees to reach their full potential by providing a wide range of career development and
opportunities, skill development and resources they need to be successful. Our Rocket University learning platform supplements
our talent development strategies and enables employees to access instructor-led classroom or virtual courses and self-directed
web-based courses. Our annual Succession Planning and Talent Management process is the formal identification and
development of our next generation leaders and supports the development of our talent pipeline for key roles across the
enterprise. We encourage advancement and movement across our organization to fill our open positions with strong and
experienced management talent and individual contributors.

Inclusion, Diversity and Engagement ("ID&E") – We believe in the strength of engaged and diverse teams in an inclusive
work environment to unleash the potential of our employees. Through the efforts of these diverse and collaborative teams, we
seek to be on the cutting edge of technology and exceed customer expectations. We have established a corporate-wide ID&E
council and a number of executive-sponsored employee resource groups ("ERG") across the enterprise, where employees can
foster connections and develop in a supportive environment. Our ERGs support the acquisition of diverse talent internally and
externally. To assess and improve employee engagement, we survey our employees and take actions to address areas of
employee concern.

Health and Safety - Safety is one of our core values. We are committed to a safe work environment for our employees as

well as being good stewards of the natural environment. Like many companies, the COVID-19 pandemic has been especially
challenging as we focused our health and safety efforts on protecting our employees and their families from potential COVID-19
exposure while delivering excellent performance to our customers. Since the beginning of the COVID-19 pandemic, we have
developed plans and taken focused actions aligned with the Centers for Disease Control and Prevention to protect, manage, and
communicate with our employees to contain the impacts of COVID-19.

Corporate Information

We were incorporated in Ohio in 1915 and reincorporated in the State of Delaware on April 11, 2014. Our principal

executive offices are located at 222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245.

Our Internet website address is www.AerojetRocketdyne.com. We have made available through our Internet website, free
of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after such materials were electronically filed with, or furnished to, the SEC. We also make available on our Internet
website our corporate governance guidelines and the charters for each of the following committees of our Board of Directors:
Audit; Corporate Governance & Nominating; and Organization & Compensation. Copies of the Code of Conduct and the
Company’s Corporate Governance Guidelines are available on the Company’s Internet website at www.AerojetRocketdyne.com
(copies are available in print to any stockholder or other interested person who requests them by writing to Secretary, Aerojet
Rocketdyne Holdings, Inc., 222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245).

Item 1A. Risk Factors

The following discussion describes the material factors, events, and uncertainties that make an investment in us risky, and

these risk factors should be considered carefully together with all other information in this Report, including the financial
statements and notes thereto. This discussion does not include all risks that we face, and additional risks or uncertainties that
are currently not known to us, or that are not currently believed to be material may occur or become material. The occurrence of
any of these factors, events, or uncertainties may, in ways we may or may not accurately predict, adversely affect our business,
operations, financial condition, and results.

Risks Related to the Merger

Failure to complete the Merger could negatively impact the price of our common stock, as well as our future
business and financial results.

On December 20, 2020, we entered into the Merger Agreement, pursuant to which Lockheed Martin will acquire us, as

described in Part I, Item 1 of this Report. The Merger Agreement contains a number of conditions that must be satisfied or
waived prior to the completion of the Merger, including stockholder approval and regulatory approval. We cannot assure you that
all of the conditions to the Merger will be satisfied or waived on a timely basis. If the conditions to the Merger are not satisfied or
waived on a timely basis, we may be unable to complete the Merger as quickly as expected or at all.

If the Merger is not completed, our ongoing business may be adversely affected as follows: (i) we may experience negative

reactions from the financial markets, including negative impacts on the market price of our common stock; (ii) some of
management's attention will have been directed to the Merger instead of being directed to our own operations and the pursuit of
other opportunities that could have been beneficial to us; (iii) the manner in which customers, suppliers and other third parties
perceive us may be negatively impacted, which in turn could affect our ability to compete for business; (iv) we may experience
negative reactions from employees; (v) we will have expended time and resources that could otherwise have been spent on our
business; and (vi) we may be required, in certain circumstances, to pay a termination fee of $150 million, as provided in the
Merger Agreement. In addition, any significant delay in consummating the Merger could have an adverse effect on our operating
results and adversely affect our relationships with customers and suppliers and would likely lead to a significant diversion of
management and employee attention.

Additionally, in approving the Merger Agreement, the Board of Directors considered a number of factors and potential

benefits, including the fact that the merger consideration to be received by holders of common stock represented a significant
premium over the last closing stock price prior to announcement of the Merger. If the Merger is not completed, neither the
Company nor the holders of our common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless
incurred substantial transaction-related fees and costs and the loss of management time and resources.

Our ability to complete the Merger is subject to certain closing conditions and the receipt of consents and approvals
from government entities which may impose conditions that could adversely affect us or cause the Merger to be
abandoned.

The Merger Agreement contains certain closing conditions, including, among others, the approval by the holders of a

majority of all our outstanding shares to adopt the Merger Agreement and approve the Merger, and the absence of any
temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other government authority or other legal restraint or prohibition that has the effect of preventing the consummation of the Merger
or that makes consummation of the Merger illegal. We cannot assure you that the various closing conditions will be satisfied or
will not result in the abandonment or delay of the Merger.

In addition, before the Merger may be completed, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), must be obtained. The regulatory review under the HSR Act may impose conditions on
the granting of such approval. Such conditions and the process of obtaining regulatory approvals could have the effect of
delaying completion of the Merger or of imposing additional costs or limitations on the combined company following the
completion of the Merger, and the conditions may result in the failure of a closing condition under the Merger Agreement. The
regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the
completion of the Merger that are unacceptable to Lockheed Martin.

Expenses related to the pending Merger are significant and will adversely affect our operating results.

We have incurred and expect to continue to incur significant expenses in connection with the pending Merger, including legal

and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not
consummated, we may under certain circumstances be required to pay to Lockheed Martin a termination fee of $150 million. Our
financial position and results of operations would be adversely affected if we were required to pay the termination fee.

We are subject to business uncertainties, litigation risk, and contractual restrictions while the Merger is pending,
which could adversely affect our business.

The Merger Agreement requires us to operate in the ordinary course of business and restricts us, without the consent of
Lockheed Martin, from taking certain specified actions agreed by the parties to be outside the ordinary course of business until
the pending Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise
attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is
not completed, termination of the Merger Agreement. As of February 16, 2021, eight lawsuits challenging the Merger were filed
on behalf of purported stockholders, as described in Note 8 to this Report. One of the conditions to the closing of the Merger is
the absence of any temporary restraining order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other government authority or other legal restraint or prohibition that has the effect of preventing the
consummation of the Merger or that makes consummation of the Merger illegal. Accordingly, if any of the plaintiffs is successful
in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from
becoming effective, or delay its becoming effective within the expected time frame.

Uncertainties associated with the Merger may cause a loss of management and other key employees and disrupt our
business relationships, which could adversely affect our business.

Uncertainty about the effect of the Merger on our employees, customers and suppliers may have an adverse effect on our
business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed
and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. If key
employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to
disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or
consider entering into business relationships with parties other than the Company. If key employees depart or if our existing
business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could
be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of us.

The Merger Agreement contains "no shop" provisions that, subject to limited exceptions, restrict our ability to solicit, initiate,

or knowingly encourage or induce competing third-party proposals (or knowingly cooperate in connection with such third party
proposals) for the acquisition of our stock or assets. In addition, before our Board of Directors withdraws, qualifies or modifies its
recommendation on the Merger or terminates the Merger Agreement to enter into a third-party acquisition proposal, Lockheed
Martin generally has an opportunity to offer to modify the terms of the Merger. In some circumstances, upon termination of the
Merger Agreement, we will be required to pay a termination fee of $150 million.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant
portion of us from considering or proposing that acquisition, even if the acquirer was prepared to pay consideration with a higher
per share cash or market value than the market value proposed to be received or realized in the Merger, or might otherwise
result in a potential third-party acquirer proposing to pay a lower price to our stockholders than they might otherwise have
proposed to pay due to the added expense of the termination fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and we decide to seek another business combination, we may not be able to

negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger
Agreement.

Payment of the Pre-Closing Dividend will result in a significant outflow of cash and is not conditioned upon the
closing of the Merger, which means that if the Merger fails to close after payment of the Pre-Closing Dividend, the
Company will be required to operate with less liquidity than was previously available to us.

The Pre-Closing Dividend was declared by the Board of Directors in connection with the announcement of the Merger. The
Pre-Closing Dividend will be paid on March 24, 2021, and is expected to result in the payment of an aggregate of $447.8 million.
The Merger is not expected to close until the second half of 2021. If the conditions to the Merger are not satisfied or waived on a
timely basis, we may be unable to complete the Merger as quickly as expected or at all. As a result, we will be required to
operate the business with less cash on hand than we would have had if the Pre-Closing Dividend had not been paid. This
decrease in liquidity could have an adverse effect on our operating results and financial condition.

Risks Related to our Business and Industry

Reductions, delays or changes in U.S. government spending, including failure to timely appropriate funding, may
reduce, delay or cancel certain programs in which we participate and as a result adversely affect our financial
results.

Our primary aerospace and defense customers include the DoD and its agencies, NASA, and the prime contractors that

supply products to these customers. We rely on particular levels of U.S. government spending on propulsion systems for
defense, space and armament systems for precision tactical weapon systems and munitions applications, and our backlog
depends, in a large part, on continued funding by the U.S. government for the programs in which we are involved. These
spending levels are not generally correlated with any specific economic cycle, but rather follow the cycle of general public policy
and political support for this type of spending. Moreover, although our contracts often contemplate that our services will be
performed over a period of several years, the U.S. President must propose and Congress must appropriate funds for a given
program each GFY and may significantly change, increase, reduce or eliminate, funding for a program. The failure by Congress
to approve future budgets on a timely basis could delay procurement of our products and services and cause us to lose future
sales. If a prolonged government shutdown were to occur, it could result in program cancellations, disruptions and/or stop work
orders and could limit the U.S. government’s ability to make timely payments, and our ability to perform on our U.S. government
contracts.

In addition, a decrease in the DoD and/or NASA expenditures, the elimination or curtailment of a material program in which

we are involved, or changes in payment patterns of our customers as a result of changes in U.S. government spending, could
have a material adverse effect on our operating results, financial condition, and/or cash flows.

In addition, U.S. government agency budgets could be negatively impacted by several factors, including, but not limited to, a

change in defense spending policy as a result of the presidential election or otherwise, the U.S. government’s budget deficits,
spending priorities (e.g., allocating more spending to combat the effects of the COVID-19 pandemic), the cost of sustaining the
U.S. military presence internationally and possible political pressure to reduce U.S. government military spending, each of which
could cause agency budgets to remain unchanged or to decline. A significant decline in U.S. military expenditures could result in
a reduction in the amount of our products sold to the various agencies and buying organizations of the U.S. government.

The cancellation or material modification of one or more significant contracts could adversely affect our financial
results.

Sales, directly and indirectly, to the U.S. government and its agencies accounted for approximately 96% of our total net
sales in 2020. Our contracts typically permit the U.S. government to unilaterally modify or terminate a contract or to discontinue
funding for a particular program at any time. The cancellation of a contract, if terminated for cause, could also subject us to
liability for the excess costs incurred by the U.S. government in procuring undelivered items from another source. If terminated
for convenience, our recovery of costs would be limited to amounts already incurred or committed (including severance costs for
terminated employees), and our profit would be limited based on the work completed prior to termination.

In addition, termination or suspension of any of our significant commercial contracts could result in the loss of future sales
and unreimbursable expenses that could have a material adverse effect on our operating results, financial condition, and/or cash
flows. Furthermore, the termination of any such contracts for default could also have a material adverse effect on our reputation
and ability to obtain new business in the future.

If our subcontractors or suppliers fail to perform their contractual obligations, our contract performance and our
ability to win new contracts may be adversely affected.

We rely on subcontractors to perform a portion of the services we agree to provide our customers, and on suppliers to
provide raw materials and component parts for our contract performance. A failure by one or more of our subcontractors or
suppliers to satisfactorily provide on a timely basis the agreed-upon services or supplies may affect our ability to perform our
contractual obligations. Deficiencies in the performance of our subcontractors and/or suppliers could result in liquidated damages
or our customers terminating their contract with us for default. A termination for default could expose us to liability and adversely
affect our financial performance and our ability to win new contracts.

Disruptions in the supply of key raw materials, difficulties in the supplier qualification process or increases in prices
of raw materials could adversely affect our financial results.

We use a significant quantity of raw materials that are subject to market fluctuations and government regulations. Further, as

a U.S. government contractor, we are often required to procure materials from suppliers capable of meeting rigorous customer
and government specifications. As market conditions change for these companies, they often discontinue materials with low
sales volumes or profit margins. We are often forced to either qualify new materials or pay higher prices to maintain the supply.
We may be unable to establish replacement materials and secure customer funding to address specific qualification needs of the
programs.

The supply of ammonium perchlorate, a principal raw material used in solid propellant for many years, has been limited to a

domestic independent single source that supplies the majority of the domestic solid propellant industry, and actual pricing is
based on the total industry demand. The completion of the Space Shuttle Program reduced demand, resulting in significant unit
price increases. The abnormal escalation pricing language in our contracts and proposals may not be successful in passing the
entire price increase on to the customer or may have a reduced profit margin as a result of any such price increase. Efforts to
minimize impacts through contracting levers may not be successful.

We are also impacted, as is the rest of the industry, by fluctuations in the sustained availability, prices and lead-times of raw

materials used in production on various fixed-price contracts, particularly on multi-year programs. We continue to experience
volatility in the price and lead-times of certain commodity metals, electronic components, and constituent chemicals. Additionally,
we may not be able to continue to negotiate with our customers for economic and/or price adjustment clauses tied to obsolete
materials and commodity indices to reduce program impact. The DoD also continues to rigorously enforce the provisions of the
"Berry Amendment" which imposes a requirement to procure certain strategic materials critical to national security only from U.S.
sources. Similarly, European laws and regulations that apply to our business have additional strategic material sourcing
requirements. Cost remains a concern as this industry continues to quote "price in effect" at time of shipment terms, increasing
the cost risk to our programs.

An emerging challenge to the extended supply chain is U.S. government contracting regulations to comply with stringent
cyber security regulations that may influence the cost of material and services on U.S. government contracts. Further, a relatively
recent MDA requirement to pre-approve supplier background screening processes of personnel that will have access to
"controlled unclassified information" and separately approve any supplier personnel with dual citizenship has been challenging
due to delays at MDA in approving requests which will potentially impact the award of subcontracts while approval is
pending. Cyber security requirements will prove to be a continuing challenge as some small key/critical suppliers do not have the
capability or infrastructure to support the requirements.

We may be impacted by significant changes across our supply chain due to increased tariffs on materials imported directly,

or any significant effects tariffs may have on domestic materials indirectly.

Prolonged disruptions in the supply of any of our key raw materials, difficulty qualifying new sources of supply, implementing

use of replacement materials or new sources of supply, and/or a continuing volatility in the prices of raw materials could have a
material adverse effect on our operating results, financial condition, and/or cash flows.

The release, unplanned ignition, explosion, or improper handling of dangerous materials used in our business could
disrupt our operations and adversely affect our financial results.

Our business operations involve the handling, production, and disposition of potentially explosive and ignitable energetic

materials and other dangerous chemicals, including motors and other materials used in rocket propulsion. The handling,
production, transport, and disposition of hazardous materials could result in incidents that temporarily shut down or otherwise

disrupt our manufacturing operations and could cause production delays. A release of these chemicals or an unplanned ignition
or explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties
could also occur. The use of these products in applications by our customers could also result in liability if an explosion,
unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic materials,
including but not limited to, regulations governing hazardous substances and hazardous waste. The failure to properly store and
ultimately dispose of such materials could create significant liability and/or result in regulatory sanctions. Any release, unplanned
ignition or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could
have a material adverse effect on our operating results, financial condition, and/or cash flows.

The real estate market involves significant risk, which could adversely affect our financial results.

Our real estate activities involve significant risks, which could adversely affect our financial results. We are subject to various

risks, including the following:

•

we may be unable to obtain, or suffer delays in obtaining, necessary re-zoning, land use, building, occupancy, and other
required governmental permits and authorizations, which could result in increased costs or our abandonment of these
projects;

we may be unable to complete environmental remediation or to have state and federal environmental restrictions on our
property lifted, which could cause a delay or abandonment of these projects;

we may be unable to obtain sufficient water sources to service our projects, which may prevent us from executing our
plans;

our real estate activities may require significant expenditures and we may not be able to obtain financing on favorable
terms, which may render us unable to proceed with our plans;

economic and political uncertainties could have an adverse effect on consumer buying habits, construction costs,
availability of labor and materials and other factors affecting us and the real estate industry in general;

our property is subject to federal, state, and local regulations and restrictions that may impose significant limitations on
our plans;

• much of our property is raw land that includes the natural habitats of various endangered or protected wildlife species

requiring mitigation;

•

if our land use plans are approved by the appropriate governmental authorities, we may face lawsuits from those who
oppose such plans (such lawsuits and the costs associated with such opposition could be material and have an adverse
effect on our ability to sell property or realize income from our projects); and

the time frame required for approval of our plans means that we will have to wait years for a significant cash return.

Our results of operations and financial position may be negatively impacted by the COVID-19 pandemic, and the
resulting economic disruption.

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

We continue to actively monitor the COVID-19 pandemic and its future potential impact on our employees, customers, and

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

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

While our customers and suppliers generally continue to operate and perform their missions, some facilities have

temporarily reduced or halted operations due to precautionary measures, staffing illness, or cleaning disruptions. For example,
NASA's Stennis Space Center, an engine test site for our space programs, continues to operate at Stage 3 of their coronavirus
response framework which limits access to the facility for personnel supporting activities necessary for mission-essential and
approved mission-critical work. The length and severity of such delays and closures, and any impact they will have on our

operations, remains uncertain. We cannot predict whether the current or future closures of our customer facilities related to the
COVID-19 pandemic will have a material adverse effect on our financial results and operations. In addition, as we have a diverse
supply chain utilizing companies of varying size, resources and complexity, there is no guarantee that our supply network will
have sufficient resources or the ability to maintain their operations.

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

Risks Related to Our Operations

If we experience cost overruns on our contracts, we would have to absorb the excess costs which could adversely
affect our financial results and our ability to win new contracts.

In 2020, approximately 61% of our net sales were from fixed-price contracts, most of which are in mature production mode.
Under fixed-price contracts, we agree to perform specified work for a fixed price and realize all of the profit or loss resulting from
variations in the costs of performing the contract. As a result, all fixed-price contracts involve the inherent risk of unreimbursed
cost overruns. To the extent we incur unanticipated cost overruns on a program or platform subject to a fixed-price contract, our
profitability would be adversely affected. Future profitability is subject to risks including the ability of suppliers to deliver
components of acceptable quality on schedule and the successful implementation of automated tooling in production processes.

In 2020, approximately 39% of our net sales were from cost reimbursable contracts. Under cost reimbursable contracts, we

agree to be reimbursed for allowable costs and paid a fee. When our costs are in excess of the final target cost, fees and our
margin may be adversely affected. If our costs exceed authorized contract funding or do not qualify as allowable costs under
applicable regulations, those costs are expensed, and we will not be reimbursed for those costs. Cost overruns may adversely
affect our financial performance and our ability to win new contracts.

Also, certain costs such as those related to charitable contributions, advertising, interest expense, and public relations are

generally not allowable, and therefore not recoverable through U.S. government contracts. Unexpected variances in unallowable
costs may adversely affect our financial performance.

Our business and operations could be adversely impacted in the event of a failure of our information technology
infrastructure or failure to perform by our third party service providers.

We are dependent on various critical information technologies, including cyber security functions, administered and

supported by third party service providers. The use of third party service providers can cause unexpected security vulnerabilities,
loss of control and additional costs in the delivery of information services and data storage. Any disruption of our information
technology infrastructure may cause operational stoppages, fines, penalties, diminished competitive advantages through
reputational damages and increased operational costs. Additionally, we may incur additional costs to comply with our customers',
including the U.S. government's, increased cyber security protections and standards in our products.

Substantially all of our excess real estate, that we are in the process of entitling for new opportunities, is located in
Sacramento County, California, making us vulnerable to changes in economic and other conditions in that particular
market.

As a result of the geographic concentration of our properties, our long-term real estate performance and the value of our

properties will depend upon conditions in the Sacramento region, including:

•

the sustainability and growth of industries located in the Sacramento region;

the financial strength and spending of the State of California;

local real estate market conditions;

changes in neighborhood characteristics;

changes in interest rates; and

real estate tax rates.

If unfavorable economic or other conditions affect the region, our plans and business strategy could be adversely affected.

In order to be successful, we must attract and retain key employees.

Our business has a continuing need to attract large numbers of skilled personnel, including personnel holding security
clearances, to support the growth of the enterprise and to replace individuals who have terminated employment due to retirement
or for other reasons. To the extent that the demand for qualified personnel exceeds supply, we could experience higher labor,
recruiting, or training costs in order to attract and retain such employees, or could experience difficulties in performing under our
contracts if our needs for such employees were unmet. In addition, our inability to appropriately plan for the transfer or
replacement of appropriate intellectual capital and skill sets critical to us could result in business disruptions and impair our ability
to achieve business objectives.

A strike or other work stoppage, or our inability to renew collective bargaining agreements on favorable terms, could
adversely affect our financial results.

As of December 31, 2020, 8% of our employees were covered by collective bargaining agreements. In the future, if we are

unable to negotiate acceptable new agreements with the unions, upon expiration of the existing contracts, we could experience a
strike or work stoppage. Even if we are successful in negotiating new agreements, the new agreements could call for higher
wages or benefits paid to union members, which would increase our operating costs and could adversely affect our profitability. If
our unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become
unionized, we could experience a significant disruption of operations at our facilities or higher ongoing labor costs. A strike or
other work stoppage in the facilities of any of our major customers or suppliers could also have similar effects on us.

Risks Related to Our Liquidity and Financing

We use estimates when accounting for certain contracts and changes in these estimates may have a significant
impact on our financial results.

Our quarterly and annual sales are affected by a variety of factors that may lead to significant variability in our operating
results. In our Aerospace and Defense segment, sales earned under long-term contracts are recognized either on a cost basis,
when deliveries are made, or when contractually defined performance milestones are achieved. The timing of deliveries or
milestones may fluctuate from quarter to quarter. We evaluate the contract value and cost estimates for performance obligations
at least quarterly, and more frequently when circumstances change significantly which is described in more detail in Note 1 in the
consolidated financial statements in Item 8 of this Report. Changes in estimates and assumptions related to the status of certain
long-term contracts which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Our pension plans are currently underfunded and we expect to be required to make cash contributions in future
periods, which may reduce the cash available for our businesses.

As of December 31, 2020, the pension assets, projected benefit obligations, and unfunded pension obligation were $957.0

million, $1,381.5 million, and $424.5 million, respectively. In 2021, we expect to make cash contributions of approximately $94
million to our tax-qualified defined benefit pension plan. We generally are able to recover contributions related to our tax-qualified
defined benefit pension plan as allowable costs on our U.S. government contracts, but there are differences between when we
contribute to our tax-qualified defined benefit pension plan under pension funding rules and when it is recoverable under Cost
Accounting Standards ("CAS"). Accordingly, in 2021, we expect to recover approximately $43 million of our tax-qualified defined
benefit pension plan contributions as allowable costs on our U.S. government contracts.

The funded status of our pension plans may be adversely affected by the investment experience of the plans' assets, by any

changes in U.S. law and by changes in the statutory interest rates used by tax-qualified pension plans in the U.S. to calculate
funding requirements. Accordingly, if the performance of our plans' assets does not meet our assumptions, if there are changes
to the Internal Revenue Service ("IRS") regulations or other applicable law or if other actuarial assumptions are modified, our
future contributions to our underfunded pension plans could be higher than we expect.

Additionally, the level of returns on retirement benefit assets, changes in interest rates, increases in Pension Benefit
Guaranty Corporations premiums, changes in regulations, changes in mortality rate assumptions, and other factors affect our
financial results. The timing of recognition of retirement benefits expense or income in our financial statements differs from the
timing of the required funding under the Pension Protection Act or the amount of funding that can be recorded in our overhead
rates through our U.S. government contracting business. Significant cash contributions in future periods could materially
adversely affect our business, operating results, financial condition, and/or cash flows.

If our operating subsidiaries do not generate sufficient cash flow or if they are not able to pay dividends or otherwise
distribute their cash to us, or if we have insufficient funds on hand, we may not be able to service our debt.

All of the operations of our Aerospace and Defense and Real Estate segments are conducted through subsidiaries.
Consequently, our cash flow and ability to service our debt obligations will be largely dependent upon the earnings and cash
flows of our operating subsidiaries and the distribution of those earnings to us, or upon loans, advances or other payments made
by these subsidiaries to us. The ability of our subsidiaries to pay dividends or make other payments or advances to us will
depend upon their operating results and cash flows and will be subject to applicable laws and any contractual restrictions
contained in the agreements governing their debt, if any.

We have a substantial amount of debt. Our ability to operate is limited by the agreements governing our debt.

We have a substantial amount of debt for which we are required to make interest and principal payments. Interest on long-
term financing is not a recoverable cost under our U.S. government contracts. As of December 31, 2020, we had $654.1 million
of debt principal. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur
additional debt in the future. Our maintenance of higher levels of indebtedness could have adverse consequences including
impairing our ability to obtain additional financing in the future.

Our level of debt places significant demands on our cash resources, which could:

• make it more difficult to satisfy our outstanding debt obligations;

•

require us to dedicate a substantial portion of our cash for payments related to our debt, reducing the amount of cash
flow available for working capital, capital expenditures, entitlement of our real estate assets, contributions to our tax-
qualified pension plan, and other general corporate purposes;

limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;

•

place us at a competitive disadvantage with respect to our competitors, some of which have lower debt service
obligations and greater financial resources than we do;

limit our ability to borrow additional funds;

limit our ability to expand our operations through acquisitions; and

increase our vulnerability to general adverse economic and industry conditions.

If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be

adversely affected.

We are obligated to comply with financial and other covenants outlined in our debt indentures and agreements that
could restrict our operating activities. A failure to comply could result in a default which would, if not waived by the
lenders, likely come with substantial cost and accelerate the payment of our debt.

Our debt instruments generally contain various restrictive covenants which include, among others, provisions which may

restrict our ability to:

•

access the full amount of our revolving credit facility and/or incur additional debt;

enter into certain leases;

• make certain distributions, investments, and other restricted payments;

•

cause our restricted subsidiaries to make payments to us;

enter into transactions with affiliates;

create certain liens;

purchase assets or businesses;

sell assets and, if sold, retain excess cash flow from these sales; and

consolidate, merge or sell all or substantially all of our assets.

Our secured debt also contains other customary covenants, including, among others, provisions restricting our ability to

pledge assets or create other liens. In addition, certain covenants in our bank facility require that we maintain certain financial
ratios.

Based on our existing debt agreements, we were in compliance with our financial and non-financial covenants as of

December 31, 2020. Any of the covenants described in this risk factor may restrict our operations and our ability to pursue
potentially advantageous business opportunities. Our failure to comply with these covenants could result in an event of default
that, if not cured or waived, could result in the acceleration of our amended and restated senior credit facility entered into on
September 20, 2018, (the "Senior Credit Facility") with the lenders identified therein and Bank of America, N.A., as administrative
agent and the 2¼% Notes. In addition, our failure to pay principal and interest when due is a default under the Senior Credit
Facility, and in certain cases, would cause cross defaults on the 2¼% Notes.

We may be adversely affected by changes in London Inter-Bank Offered Rate ("LIBOR") reporting practices or the
method by which LIBOR is determined.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the LIBOR, announced that it intends to

phase out LIBOR by the end of 2021. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the
administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted
alternatives to LIBOR. In the U.S., efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by
the Alternative Reference Rates Committee ("ARRC") that has been convened by the Federal Reserve Board and the Federal
Reserve Bank of New York. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any
establishment of alternative reference rates in the U.S., the European Union or elsewhere on the global capital markets. The
uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could
have adverse impacts on floating rate obligations, loans, deposits, derivatives and other financial instruments that currently use
LIBOR as a benchmark rate. Borrowings under our Senior Credit Facility, which consists of a revolver and term loan, constitute
our most significant exposure to this transition and there is no guarantee that a shift from LIBOR to a new reference rate will not
result in increases to our borrowing costs.

Risks Related to Our Strategy

Our success and growth depends on our ability to execute long-standing programs and periodically secure new
contracts in a competitive environment.

Our sales are primarily derived from long-standing contracts (often sole source) where we are the long-term incumbent. The
challenge is to successfully utilize our technical, engineering, manufacturing, and management skills to execute these programs
for the customer, to continue to innovate and refine our solutions, and to offer the customer increasing affordability in an era of
fiscal restraint. If we are unable to successfully execute these long-standing programs, our ability to retain existing customers
and attract new customers may be impaired.

In addition, we continue to be subject to intense competition in certain sectors. For example, we face increasing competition

from emerging spaceflight companies such as SpaceX and Blue Origin, who have developed liquid fuel propulsion capabilities
which are primarily focused on the development of space propulsion systems for heavy lift launch vehicles. For the in-space

propulsion market, we also see a number of new startups entering the market in both small chemical propulsion and small
electric propulsion systems targeted at the rapidly expanding small satellite market. The U.S. government also has its own
manufacturing capabilities in some areas. We may be unable to compete successfully with our competitors and our inability to do
so could result in a decrease in sales, profits, and cash flows that we historically have generated from certain contracts. Further,
the U.S. government may open to competition programs on which we are currently the sole supplier, which could have a material
adverse effect on our operating results, financial condition, and/or cash flows.

We may expand our operations through acquisitions, which may divert management’s attention and expose us to
unanticipated liabilities and costs. Also, acquisitions may increase our non-reimbursable costs. We may experience
difficulties integrating any acquired operations, and we may incur costs relating to acquisitions that are never
consummated.

Our business strategy may lead us to expand our Aerospace and Defense segment through acquisitions. However, our
ability to consummate any future acquisitions on terms that are favorable to us may be limited by U.S. government regulations,
the number of attractive acquisition targets, internal demands on our resources, and our ability to obtain financing. Our success
in integrating newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s
attention from operational matters, implement internal controls, integrate general and administrative services and key information
processing systems and, where necessary, re-qualify our customer programs. In addition, future acquisitions could result in the
incurrence of additional debt, costs, and/or contingent liabilities. We may also incur costs and divert management attention to
acquisitions that are never consummated. Integration of acquired operations may take longer, or be more costly or disruptive to
our business, than originally anticipated.

There may be liabilities of the acquired companies that we fail to, or were unable to, discover during our due diligence

investigation of each business that we have acquired or may acquire and for which we, as a successor owner, may be
responsible. Our efforts to minimize the impact of these types of potential liabilities through indemnities and warranties from
sellers in connection with acquisitions may not fully cover the liabilities due to limitations in scope, amount or duration, financial
limitations of the indemnitor or warrantor, or other reasons.

Due to the pending Merger, we do not expect to pursue additional strategic acquisitions at this time. If the Merger were not

completed for any reason, we would expect to consider exploring possible strategic acquisitions.

Risks Related to Legislation, Regulation, and Compliance

Our Aerospace and Defense segment is subject to procurement and other related laws and regulations inherent in
contracting with the U.S. government, and non-compliance could adversely affect our financial results.

In the performance of contracts with the U.S. government, we operate in a highly regulated environment and are routinely
audited and reviewed by the U.S. government and its agencies, such as the DCAA. These agencies review performance under
our contracts, our cost structure and our compliance with applicable laws, regulations and standards, as well as the adequacy of,
and our compliance with, our internal control systems and policies. Systems that are subject to review include, but are not limited
to, our accounting systems, purchasing systems, property management systems, estimating systems, earned value
management systems, and material management and accounting system. Any costs ultimately found to be unallowable or
improperly allocated to a specific contract will not be reimbursed and must be refunded if already reimbursed. If an audit
uncovers improper or illegal activities, we may be subject to civil and criminal penalties, sanctions or suspension or debarment
from doing business with the U.S. government. Whether or not illegal activities are alleged, the U.S. government also has the
ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate. In addition, we
could suffer serious reputational harm if allegations of impropriety were made against us. If such actions were to result in
suspension or debarment, this could have a material adverse effect on our business.

These laws and regulations provide for ongoing audits and reviews of incurred costs as well as contract procurement,
performance and administration. The U.S. government may, if it deems appropriate, conduct an investigation into possible illegal
or unethical activity in connection with these contracts. Investigations of this nature are common in the aerospace and defense
industry, and lawsuits may result. In addition, the U.S. government and its principal prime contractors periodically investigate the
financial viability of their contractors and subcontractors as part of its risk assessment process associated with the award of new
contracts. If the U.S. government or one or more prime contractors were to determine that we were not financially viable, our
ability to continue to act as a U.S. government contractor or subcontractor would be impaired.

Cyber security incidents could disrupt business operations, result in the loss of critical and confidential information,
and adversely impact our reputation and results of operations.

We routinely defend against various cyber and other security threats against our defenses to protect the confidentiality,
integrity and availability of our information technology infrastructure, supply chain, business or customer information and other
threats. We are also subject to similar security threats at customer sites that we operate and manage as a contractual
requirement.

The threats we face range from attacks common to most industries to more advanced and persistent, highly organized
adversaries, insider threats and other threat vectors targeting us and other defense and aerospace companies; because we
protect national security information. In addition, cyber threats are evolving, growing in their frequency and include, but are not
limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service
attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of
confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption

of data, networks or systems. We also could be impacted by cyber threats or other disruptions or vulnerabilities found in products
we use or in our partners’ or customers’ systems that are used in connection with our business.

If we are unable to protect sensitive information or the integrity of our systems, our customers or governmental authorities
could question the adequacy of our threat mitigation and detection processes and procedures. There can be no assurance that
the variety of efforts, procedures and controls we deploy to monitor and minimize the likelihood and impact of adverse cyber
security incidents will be sufficient. The costs related to cyber or other security threats or disruptions may not be fully insured or
indemnified by other means. The occurrence of any of these events could adversely affect our internal operations, the services
we provide to our customers, our future financial results, or our reputation. Such events could also result in the loss of
competitive advantages derived from our R&D efforts or other intellectual property, early obsolescence of our products and
services, or contractual penalties. Moreover, we may be required to expend significant additional resources to modify our cyber
security protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications,
and we may be subject to litigation and financial losses.

We may experience warranty claims for product failures, schedule delays or other problems with existing or new
products and systems.

Many of the products we develop and manufacture are technologically advanced systems that must function under

demanding operating conditions. The sophisticated and rigorous design, manufacturing and testing processes and practices we
employ do not entirely prevent the risk that we may not be able to successfully launch or manufacture our products on schedule
or that our products may not perform as intended.

When our products fail to perform adequately, some of our contracts require us to forfeit a portion of our expected profit,

receive reduced payments, provide a replacement product or service or reduce the price of subsequent sales to the same
customer. Performance penalties may also be imposed when we fail to meet delivery schedules or other measures of contract
performance. We do not generally insure against potential costs resulting from any required remedial actions or costs or loss of
sales due to postponement or cancellation of scheduled operations or product deliveries.

Our operations and properties are currently the subject of significant environmental liabilities, and the numerous
environmental and other government requirements to which we are subject may become more stringent in the future.

We are subject to federal, state, and local environmental laws and regulations that, among other things, require us to obtain

permits to operate and install pollution control equipment and regulate the generation, storage, handling, transportation,
treatment, and disposal of hazardous and solid wastes. These requirements may become more stringent in the future. Additional
regulations dictate how and to what level we remediate contaminated soils and the level to which we are required to clean
contaminated groundwater. These requirements may also become more stringent in the future. We may also be subject to fines
and penalties relating to the operation of our existing and formerly owned businesses. We have been and are subject to toxic tort
and asbestos lawsuits as well as other third-party lawsuits, due to either our past or present use of hazardous substances or the
alleged on-site or off-site contamination of the environment through past or present operations. We may incur material costs in
defending these claims and lawsuits and any similar claims and lawsuits that may arise in the future. Contamination at our
current and former properties is subject to investigation and remediation requirements under federal, state and local laws and
regulations, and the full extent of the required remediation has not yet been determined. Any adverse judgment or cash outlay
could have a significant adverse effect on our operating results, financial condition, and/or cash flows.

Given the many uncertainties involved in assessing liability for environmental claims, our established reserves may
not be sufficient, which could adversely affect our financial results and cash flows.

As of December 31, 2020, the aggregate range of our estimated future environmental obligations was $300.6 million to
$451.1 million and the accrued amount was $300.6 million. In many cases the nature and extent of the required remediation has
not yet been determined. Given the many uncertainties involved in assessing liability for environmental claims, our reserves may
prove to be insufficient. The reserves are based only on known sites and the known contamination at those sites. It is possible
that additional sites needing remediation may be identified or that unknown contamination at previously identified sites may be
discovered. It is also possible that the regulatory agencies may change clean-up standards for chemicals of concern such as
ammonium perchlorate and trichloroethylene. This could lead to additional expenditures for environmental remediation in the
future and, given the uncertainties involved in assessing liability for environmental claims, our reserves may prove to be
insufficient.

Most of our environmental costs are incurred by our Aerospace and Defense segment, and certain of these future costs are

allowed to be included in our U.S. government contracts. We currently estimate approximately 12% of our Aerospace and
Defense segment environmental costs will not likely be reimbursable.

Our environmental expenses related to non-Aerojet Rocketdyne sites are generally not recoverable and a significant
increase in these estimated environmental expenses could have a significant adverse effect on our operating results, financial
condition, and/or cash flows.

We face certain significant risk exposures and potential liabilities that may not be adequately covered by insurance.

A significant portion of our business relates to developing and manufacturing propulsion systems for defense and space

applications, armament systems for precision tactical weapon systems, and munitions applications. New technologies may be
untested or unproven. In addition, we may incur significant liabilities that are unique to our products and services. The amount of
our insurance coverage may not be adequate to cover all claims or liabilities, and it is not possible to obtain insurance to protect
against all operational risks and liabilities. Accordingly, we may be forced to bear substantial costs resulting from risks and

uncertainties of our business, which could have a material adverse effect on our operating results, financial condition, and/or
cash flows.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and
exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court

of Chancery of the State of Delaware ("Court of Chancery") will be the sole and exclusive forum for (i) any derivative action or
proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or
employee of the Company to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine as that doctrine
exists under the law of the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of
our capital stock will be deemed to have notice of, and consented to, the provisions of our Certificate of Incorporation described
in the preceding sentence. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that
the stockholder finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such
lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our Certificate of Incorporation
inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial
condition, or results of operations.

This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of

1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934 (the "Exchange Act"), except that it may apply to
such suits if brought derivatively on our behalf. There is, however, uncertainty as to whether a court would enforce such provision
in connection with suits to enforce a duty or liability created by the Securities Act or the Exchange Act if brought derivatively on
our behalf, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules
and regulations thereunder.

General Risk Factors

Business disruptions could seriously affect us.

Our business may be affected by disruptions including, but not limited to: threats to physical security of our facilities and

employees; information technology attacks; natural disasters; political and social unrest; and pandemics or other public health
crises. The costs related to these events may not be fully mitigated by insurance or other means. For example, subsequent to
Aerojet Rocketdyne’s 2020 year-end, a manufacturing building under construction experienced weather damage and we are
currently evaluating the impact of such damage. Disruptions could affect our internal operations or services provided to
customers, which could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Tax changes could affect our effective tax rate and future profitability

Our effective tax rate for 2020 was 23.6% compared with 26.5% for 2019. Changes in applicable U.S. tax laws and
regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense,
operating results, and/or cash flows.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development

expenditures currently and requires taxpayers to amortize such costs incurred in the U.S. over five years. While it is possible that
Congress may modify, defer or repeal this provision before it takes effect, we have no assurance that the provision will be
modified, deferred or repealed. If this provision is not modified, deferred or repealed, it may have an adverse effect on our cash
taxes and as a result, our operating results, financial condition, and/or cash flows.

The level of returns on retirement benefit assets, changes in interest rates, changes in legislation, and other factors
affect our financial results.

Our earnings are positively or negatively impacted by the amount of expense or income we record for our employee
retirement benefit plans. We calculate the expense for the plans based on actuarial valuations. These valuations are based on
assumptions that we make relating to financial market and other economic conditions. Changes in key economic indicators result
in changes in the assumptions we use. The key assumptions used to estimate retirement benefits expense for the following year
are the discount rate and expected long-term rate of return on assets. Our pension expense or income can also be affected by
legislation and other government regulatory actions.

Our inability to protect our trade secrets, patents and proprietary rights could adversely affect our businesses’
prospects and competitive positions.

If we are unable to obtain or maintain protections for proprietary technology and inventions through patents and other

proprietary rights protections, we may not be able to prevent third parties from using our proprietary rights. In addition, we may
incur significant expense in protecting our intellectual property.

We also rely on trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We

have taken measures to protect our trade secrets and know-how, including the use of confidentiality agreements with our
employees, consultants and advisors. These agreements may be breached and remedies for a breach may not be sufficient to
compensate us for damages incurred. Other parties may independently develop our know-how or otherwise obtain access to our
technology.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Significant operating, manufacturing, research, design, and/or marketing locations are set forth below.

Facilities

Corporate Headquarters

Aerojet Rocketdyne Holdings, Inc.
222 N. Pacific Coast Highway, Suite 500
El Segundo, California 90245

Aerospace and Defense
Operating/Design/Manufacturing Facilities:
Camden, Arkansas (owned and leased); Carlstadt, New Jersey*; Chatsworth, California
(owned and leased); Hancock County, Mississippi*; Huntsville, Alabama*;
Jonesborough, Tennessee**; Orange, Virginia; Orlando, Florida*; Redmond,
Washington; West Palm Beach, Florida*

Marketing/Sales Offices:
Arlington, Virginia*

Real Estate
Rancho Cordova, California

_____

* Indicates a leased property.
** Owned and operated by Aerojet Ordnance Tennessee, Inc., a 100% owned subsidiary of Aerojet Rocketdyne.

We believe each of the facilities is suitable and adequate for the business conducted at that facility taking into account

current and planned future needs.

Item 3. Legal Proceedings

See Note 8(a) in the consolidated financial statements in Item 8 of this Report for information relating to our legal

proceedings.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

As of February 12, 2021, there were 5,349 holders of record of our common stock. Our common stock is listed on the New
York Stock Exchange under the trading symbol "AJRD." On February 12, 2021, the last reported sale price of our common stock
on the New York Stock Exchange was $52.36 per share.

On December 19, 2020, our Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share

(including shares underlying the 2¼% Notes participating on an as-converted basis).

On March 13, 2020, we announced that our Board of Directors authorized and approved a new share repurchase program
("Repurchase Program") allowing us to repurchase our outstanding common stock with an aggregate market value of up to $100
million, from time to time, over a period of up to 18 months. The Repurchase Program may be executed through various
methods, including open market purchases or privately negotiated transactions. The table below provides information about the
Repurchase Program activity during the three months ended December 31, 2020.

Period

Total Number of
Shares
Purchased

Average Price
Paid per Share

Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs

Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
under the Plans
or Programs (1)

October 1, 2020 through October 31, 2020

969,871 $

40.57

969,871 $

November 1, 2020 through November 30, 2020

December 1, 2020 through December 31, 2020

Total

_____

(1) In millions

— $

—

969,871 $

40.57

969,871 $

48.3

—

48.3

The table below provides information about shares surrendered to the Company during the three months ended December

31, 2020, to pay employee withholding taxes due upon the vesting of restricted stock.

Period

October 1, 2020 through October 31, 2020

November 1, 2020 through November 30, 2020

December 1, 2020 through December 31, 2020

Total

Total Number of
Shares
Purchased

Average Price
Paid per Share

923 $

— $

119,884 $

120,807 $

39.82

—

52.47

52.37

Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs

Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
under the Plans
or Programs

—

Information concerning long-term debt appears in Part II, Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations under the caption "Liquidity and Capital Resources" and in Part II, Item 8. Financial
Statements and Supplementary Data at Note 6 in the consolidated financial statements.

Information concerning securities authorized for issuance under our equity compensation plans appears in Part III,
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters under the caption
"Equity Compensation Plan Information."

Stock Performance Graph

The following graph compares the cumulative total stockholder returns, calculated on a dividend reinvested basis, on $100

invested in our common stock in November 2015 with the cumulative total return of (i) the Standard & Poor’s 500 Composite
Stock Price Index ("S&P 500 Index"), and (ii) the Standard & Poor’s 500 Aerospace & Defense Index. The stock price
performance shown on the graph is not necessarily indicative of future performance.

Comparison of Cumulative Total Stockholder Return Among
Aerojet Rocketdyne, S&P 500 Index, and the S&P 500 Aerospace & Defense Index,
November 2015 through December 2020

Company/Index

Base
Year
2015

Year Ended December 31,

2016

2017

2018

2019

2020

Aerojet Rocketdyne Holdings, Inc.

100.00 $

102.34 $

177.88

200.86 $

260.32 $

S&P 500 Index

S&P 500 Aerospace & Defense

100.00

110.19

117.97

134.25

166.78

128.37

153.32

168.78

199.82

301.31

199.84

167.72

Item 6. Selected Financial Data

The following selected financial data is qualified by reference to and should be read in conjunction with the consolidated

financial statements, including the notes thereto in Item 8. Financial Statements and Supplementary Data and Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Year Ended December 31,

2020

2019

2018

2017

2016

(In millions, except per share amounts)

2,072.7

1,981.5

1,895.9

1,877.2

1,761.3

137.7

141.0

137.3

Net sales

Net income (loss)

Basic earnings (loss) per share of common stock
("EPS")

Diluted EPS

Cash dividends declared per share

Supplemental statement of operations information:

1.76

1.66

5.00

Net income (loss)

Interest expense

Interest income

Income tax provision

Depreciation and amortization

GAAP retirement benefits expense

CAS recoverable retirement benefits expense

Unusual items

137.7

30.1

(6.3)

42.5

65.3

36.6

(43.8)

8.1

1.79

1.69

—

141.0

35.7

(15.5)

50.9

74.5

26.1

(41.3)

0.3

1.80

1.75

—

137.3

34.4

(10.0)

51.3

72.3

57.6

(38.2)

0.2

(9.2)

(0.13)

—

(9.2)

30.9

(3.5)

96.1

72.6

73.2

(36.2)

(1.0)

Adjusted EBITDAP (Non-GAAP measure)*

270.2

271.7

304.9

222.9

Net income (loss) as percentage of net sales

Adjusted EBITDAP (Non-GAAP measure) as a
percentage of net sales

Stock-based compensation expense

Environmental remediation provision adjustments

Cash flow information:

Cash flow provided by operating activities

Capital Expenditures

Free Cash Flow*

Balance Sheet information:

Total assets

Total debt principal

_________

6.6 %

13.0 %

31.4

4.3

363.8

(54.6)

309.2

2,899.9

654.1

7.1 %

13.7 %

27.3

2.1

261.2

(42.9)

218.3

2,707.8

675.8

7.2 %

16.1 %

20.5

(36.9)

252.7

(43.2)

209.5

2,490.1

672.8

(0.5) %

11.9 %

22.0

8.2

212.8

(29.4)

183.4

2,258.7

670.9

18.0

0.27

—

18.0

32.5

(0.6)

11.2

64.9

68.9

(29.5)

34.5

199.9

1.0 %

11.3 %

12.9

18.3

158.7

(47.6)

111.1

2,249.5

725.6

* We provide Non-GAAP measures as a supplement to financial results presented in accordance with GAAP. A reconciliation of

the Non-GAAP measures to the most directly comparable GAAP measures is presented later in the Management’s
Discussion and Analysis under the heading "Use of Non-GAAP Financial Measures."

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the other sections of this Report, including the consolidated

financial statements and notes thereto appearing in Item 8 of this Report, the risk factors appearing in Item 1A of this Report, and
the disclaimer regarding forward-looking statements appearing at the beginning of Item 1 of this Report. We have elected to omit
discussion of the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal
year ended December 31, 2019, filed with the SEC on February 19, 2020, for the discussion of the year ended December 31,
2018, the earliest of the three fiscal years presented.

Overview

On December 20, 2020, the Company entered into the Merger Agreement with Lockheed Martin and the Merger Sub,

pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company with the
Company being the surviving corporation and a wholly-owned subsidiary of Lockheed Martin.

Subject to the terms and conditions set forth in the Merger Agreement, each share of common stock outstanding as of

On December 19, 2020, our Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00 per share
(including shares underlying the 2¼% Notes participating on an as-converted basis). The Pre-Closing Dividend is payable on
March 24, 2021, to the holders of our shares and 2¼% Notes as of the close of business on March 10, 2021. The $56.00 per
share price under the Merger Agreement is expected to be reduced to $51.00 after the payment of the Pre-Closing Dividend to
our stockholders and holders of our 2¼% Notes participating on an as-converted basis (or, in the unlikely event that closing
occurs after March 10, 2021, but before March 24, 2021, to the extent the Pre-Closing Dividend is payable after the closing).

A summary of the significant financial highlights for the years ended December 31, 2020 and 2019, which management

uses to evaluate our operating performance and financial condition, is presented below.

Net sales

Net income

Net income as a percentage of net sales

Adjusted Net Income (Non-GAAP measure*)

Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales
Earnings Per Share ("EPS") - Diluted

Adjusted EPS (Non-GAAP measure*)

Adjusted EBITDAP (Non-GAAP measure*)

Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales
Cash provided by operating activities

Free cash flow (Non-GAAP measure*)

_________

Year Ended December 31,

2020

2019

(In millions, except percentage and
per share amounts)

2,072.7

1,981.5

137.7

6.6 %

138.4

6.7 %

1.66

1.67

270.2

13.0 %

363.8

309.2

141.0

7.1 %

130.1

6.6 %

1.69

1.56

271.7

13.7 %

261.2

218.3

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

Our business outlook is affected by both increasing complexity in the global security environment and continuing worldwide

economic pressures, including those resulting from the COVID-19 pandemic. A significant component of our strategy in this
environment is to focus on protecting our employees' health and safety, delivering excellent performance to our customers,
driving improvements and efficiencies across our operations, and creating value through the enhancement and expansion of our
business.

Some of the significant challenges we face are as follows: uncertainty associated with the COVID-19 pandemic and the

actions taken by governments, companies, and individuals in response, including the distribution of a vaccine, dependence upon
U.S. government programs and contracts, future reductions or changes in U.S. government spending in our markets,
environmental matters, capital structure, underfunded pension plan, and cyber security.

COVID-19

During 2020, there was minimal adverse impact to our financial results and operations as a result of the COVID-19

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

As a defense industrial-base U.S. government contractor, we are considered an essential business by the U.S. and state

governments and we continue to operate as such during the COVID-19 pandemic. We are taking a variety of measures to
maintain the availability and functionality of our critical infrastructure, to promote the safety and security of our employees and to
support the communities in which we operate. In making decisions regarding our operations, we take into account public and
private sector policies and initiatives to reduce the transmission of COVID-19, such as the adoption of mask-wearing protocols,
enhanced cleaning protocols and health monitoring, as well as the imposition of travel restrictions, the promotion of social
distancing, and the adoption of work-from-home requirements for employees where practicable. All of these policies and
initiatives could impact our operations. Due to the evolving nature of the COVID-19 pandemic, corresponding U.S. government
policies and the uncertainty relating to the rollout and timing of vaccines, we are not able at this time to estimate its full impact on
our financial results and operations.

Major Customers

The principal end user customers of our products and technology are primarily agencies of the U.S. government. Since a

majority of our sales are, directly or indirectly, to the U.S. government, funding for the purchase of our products and services
generally follows trends in U.S. aerospace and defense spending. However, individual U.S. government agencies, which include
the military services, NASA, MDA, and the prime contractors that serve these agencies, exercise independent purchasing power
within "budget top-line" limits. Therefore, sales to the U.S. government are not regarded as sales to one customer, but rather
each contracting agency is viewed as a separate customer.

The following table summarizes end user net sales to the U.S. government and its agencies, including net sales to

significant customers disclosed below:

Year Ended December 31,
2020

2019

The following table summarizes net sales by principal end user in 2020:

NASA

MDA

U.S. Army

U.S. Air Force

U.S. Navy

Other U.S. government

Total U.S. government customers

Other customers

Total

Percentage of Net
Sales

96 %

25 %

100 %

The following table summarizes the percentages of net sales for significant programs, all of which are included in the

U.S. government sales and are comprised of multiple contracts:

RS-25 program

Standard Missile program

THAAD program

PAC-3 program

Year Ended December 31,

2020

2019

18 %

17 %

The following table summarizes customers that represented more than 10% of net sales, each of which involves sales of

several product lines and programs:

Lockheed Martin

NASA

Raytheon

ULA

________

* Less than 10%

Industry Update

Year Ended December 31,

2020

2019

34 %

33 %

Information concerning our industry appears in Part I, Item 1. Business under the caption "Industry Overview."

Environmental Matters

Our current and former business operations are subject to, and affected by, federal, state, and local environmental laws

and regulations relating to the discharge, treatment, storage, disposal, investigation, and remediation of certain materials,
substances, and wastes. See Notes 8(b) and 8(c) in the consolidated financial statements in Item 8 of this Report and
"Environmental Matters" below for summary of our environmental reserve activity.

Capital Structure

Pension Plan

As of the last measurement date at December 31, 2020, the pension assets, projected benefit obligations, and unfunded

pension obligation were $957.0 million, $1,381.5 million, and $424.5 million, respectively. We estimate that 82% of our unfunded
pension obligation as of December 31, 2020, is related to our U.S. government contracting business, Aerojet Rocketdyne.

We expect to make cash contributions of approximately $94 million to our tax-qualified defined benefit pension plan in

2021. We generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs
on our U.S. government contracts, but there are differences between when we contribute to our tax-qualified defined benefit
pension plan under pension funding rules and when it is recoverable under CAS. Accordingly, in 2021, we expect to recover
approximately $43 million of our tax-qualified defined benefit pension plan contributions as allowable costs on our U.S.
government contracts.

The COVID-19 pandemic and resulting global disruptions have continued to cause significant economic uncertainty and
volatility in financial markets which could adversely impact the funded status of our tax-qualified defined benefit pension plan.
The funded status of our pension plan is impacted by the investment experience of the plan assets, by any changes in U.S. law,
and by changes in the statutory interest rates used by the tax-qualified pension plan in the U.S. to calculate funding
requirements. Accordingly, if the performance of our plan assets does not meet our assumptions, if there are changes to the
Internal Revenue Service regulations or other applicable law or if other actuarial assumptions are modified, our future
contributions to our underfunded pension plan could be higher than we expect.

Cyber Security

We routinely defend against various cyber and other security threats against our defenses to protect the confidentiality,

integrity and availability of our information technology infrastructure, supply chain, business or customer information and other
threats. We are also subject to similar security threats at customer sites that we operate and manage as a contractual
requirement.

In response to the COVID-19 pandemic, where practicable, we have required employees to work remotely, and
expanded our information technology and communication support to enhance their connectivity. We continue to assess our
information technology systems and are engaged in cooperative efforts with our customers, suppliers, and subcontractors to
seek to minimize the impact of cyber threats, other security threats or business disruptions.

Results of Operations:

Net Sales:

Net sales:

Year Ended December 31,

2020

2019

Change

(In millions)

2,072.7 $

1,981.5 $

91.2

Primary reason for change. The increase in net sales was primarily driven by the RS-25, MRBM, and GMLRS programs partially
offset by a decline on the Commercial Crew Development program and the cancellation in 2019 of the Redesigned
Exoatmospheric Kill Vehicle ("RKV") program.

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

Cost of sales (exclusive of items shown separately below)

Percentage of net sales

Year Ended December 31,

2020

2019

Change

(In millions, except percentage amounts)

$ 1,701.3

$ 1,613.6

87.7

82.1 %

81.4 %

Primary reason for change. The increase in cost of sales as a percentage of net sales was primarily driven by the following: (i)
cost growth on a portion of the Standard Missile program in 2020; (ii) cost growth and performance issues in 2020 on the
Commercial Crew Development program; and (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019.
These factors were partially offset by improved performance and risk retirements on the RS-68, MRBM, and THAAD programs.

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

Components of SG&A:

SG&A excluding stock-based compensation

Stock-based compensation

SG&A

Percentage of net sales

Percentage of net sales excluding stock-based compensation

Year Ended December 31,

2020

2019

Change

(In millions, except percentage amounts)

24.7

31.4

56.1

2.7 %

1.2 %

26.3

27.3

53.6

(1.6)

4.1

2.5

2.7 %

1.3 %

Primary reason for change. The increase in SG&A expense was primarily driven by stock-based compensation that was partially
offset by a decrease in business travel-related expenses due to our restrictions on travel in response to COVID-19. For detailed
information about stock-based compensation refer to Note 9(e) in the consolidated financial statements in Item 8 of this Report.

Depreciation and Amortization:

Components of depreciation and amortization:

Depreciation

Amortization

Accretion

Depreciation and amortization

Year Ended December 31,

2020

2019

Change

(In millions)

49.2

58.1 $

13.4

2.7

13.6

2.8

65.3

74.5 $

(8.9)

(0.2)

(0.1)

(9.2)

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

Other Expense, Net:

Other expense, net:

Year Ended December 31,

2020

2019

Change

(In millions)

9.4 $

1.6 $

7.8

Primary reason for change. The increase in other expense, net was primarily due to an increase of $7.8 million in unusual items
primarily related to Merger costs. For detailed information about unusual expenses refer to Note 13 in the consolidated financial
statements in Item 8 of this Report.

Interest Income:

Interest income:

Year Ended December 31,

2020

2019

Change

(In millions)

6.3 $

15.5 $

(9.2)

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

Components of interest expense:

Contractual interest and other

Amortization of debt discount and deferred financing costs

Interest expense

Year Ended December 31,

2020

2019

Change

(In millions)

20.2 $

26.3 $

9.9

9.4

30.1 $

35.7 $

(6.1)

0.5

(5.6)

Primary reason for change. The decrease in interest expense was primarily due to lower variable interest rates and average
obligations on our Senior Credit Facility.

Income Tax Provision:

Income tax provision

Year Ended December 31,

2020

2019

(In millions)

42.5 $

50.9

In 2020, our effective tax rate was 23.6%. Our effective tax rate differed from the 21% statutory federal income tax rate

primarily due to state income taxes, uncertain tax positions, and certain expenditures which are permanently not deductible for
tax purposes, offset by R&D credits and excess tax benefits related to our stock-based compensation.

During the fourth quarter of 2020, the IRS released final regulations regarding the timing of income and inclusion under an

accrual method of accounting. In accordance with the Applicable Financial Statement cost offset method described within the
regulations, we recorded a $41.1 million reduction to our uncertain tax positions.

As of December 31, 2020, the liability for uncertain income tax positions was $14.6 million. Due to the uncertainty regarding
the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of
the amount and period in which these liabilities might be paid.

In 2019, our effective tax rate was 26.5%. Our effective tax rate is higher than the 21% statutory federal income tax rate

primarily due to state income taxes and uncertain tax positions, offset by R&D credits and excess tax benefits related to our
stock-based compensation.

Retirement Benefits Expense:

Components of retirement benefits expense:

Interest cost on benefit obligation

Assumed return on assets

Amortization of prior service credits

Amortization of net losses

Retirement benefits expense

Year Ended December 31,

2020

2019

Change

(In millions)

43.3

53.9 $

(10.6)

(60.5)

0.1

53.7

(64.8)

(0.1)

37.1

36.6

26.1 $

4.3

0.2

16.6

10.5

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

We estimate that our retirement benefits expense will be approximately $34 million in 2021. Additionally, we estimate the

CAS recoverable amounts related to the Company's retirement benefits plans to be approximately $45 million in 2021. See
"Critical Accounting Policies - Retirement Benefit Plans" for more information about our accounting practices with respect to
retirement benefits.

Operating Segment Information:

We evaluate our operating segments based on several factors, of which the primary financial measure is segment

performance. Segment performance represents net sales less applicable costs, expenses and provisions for unusual items
relating to the segment. Excluded from segment performance are: corporate income and expenses, interest expense, interest
income, income taxes, and unusual items not related to the segment. We believe that segment performance provides information
useful to investors in understanding our operational performance.

Aerospace and Defense Segment

Net sales

Segment performance

Segment margin

Year Ended December 31,

2020

2019

Change

(In millions, except percentage amounts)

$ 2,069.4

$ 1,974.0

275.6

269.3

13.3 %

13.6 %

95.4

6.3

The decrease in segment margin was primarily driven by the following: (i) cost growth on a portion of the Standard Missile

program in 2020; (ii) cost growth and performance issues in 2020 on the Commercial Crew Development program; (iii) the
reserve release upon the final AJ-60 solid rocket motor delivery in 2019; and (iv) higher retirement benefit expense. These
factors were partially offset by (i) improved performance and risk retirements on the RS-68, MRBM, and THAAD programs and
(ii) lower depreciation expense.

During 2020, we had $45.1 million of net favorable changes in contract estimates on operating results before income taxes

compared with net favorable changes of $38.4 million during 2019.

Real Estate Segment

Net sales

Segment performance

Year Ended December 31,

2020

2019

Change

(In millions)

3.3 $

(1.8)

7.5 $

2.1

(4.2)

(3.9)

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

Backlog:

As of December 31, 2020, our total remaining performance obligations, also referred to as backlog, totaled $6.7 billion,

compared with $5.4 billion as of December 31, 2019. The increase in backlog was due to a $1.8 billion contract modification for
the production of an additional 18 RS-25 engines to support future deep space exploration missions. We expect to recognize
approximately 32%, or $2.2 billion, of the remaining performance obligations as sales over the next twelve months, an additional

24% the following twelve months, and 44% thereafter. The following table summarizes backlog:

Funded backlog

Unfunded backlog

Total backlog

As of December 31,

2020

2019

(In billions)

3.0 $

3.7

6.7 $

2.1

3.3

5.4

Total backlog includes both funded backlog (unfilled orders for which funding is authorized, appropriated and contractually

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

Use of Non-GAAP Financial Measures:

Adjusted EBITDAP, Adjusted Net Income, and Adjusted EPS

We provide the Non-GAAP financial measures of our performance called Adjusted EBITDAP, Adjusted Net Income, and

Adjusted EPS. We use these metrics to measure our operating and total Company performance. We believe that for
management and investors to effectively compare core performance from period to period, the metrics should exclude items that
are not indicative of, or are unrelated to, results from our ongoing business operations such as retirement benefits (pension and
postretirement benefits), significant non-cash expenses, the impacts of financing decisions on earnings, and items incurred
outside the ordinary, ongoing and customary course of our business. Accordingly, we define Adjusted EBITDAP as GAAP net
income adjusted to exclude interest expense, interest income, income taxes, depreciation and amortization, retirement benefits
net of amounts that are recoverable under our U.S. government contracts, and unusual items which we do not believe are
reflective of such ordinary, ongoing and customary activities. Adjusted Net Income and Adjusted EPS exclude retirement benefits
net of amounts that are recoverable under our U.S. government contracts and unusual items which we do not believe are
reflective of such ordinary, ongoing and customary activities. Adjusted Net Income and Adjusted EPS do not represent, and
should not be considered an alternative to, net income or diluted EPS as determined in accordance with GAAP.

Net income

Interest expense

Interest income

Income tax provision

Depreciation and amortization

GAAP retirement benefits expense

CAS recoverable retirement benefits expense

Unusual items

Adjusted EBITDAP

Net income as a percentage of net sales

Adjusted EBITDAP as a percentage of net sales

Net income

GAAP retirement benefits expense

CAS recoverable retirement benefits expense

Unusual items

Income tax impact of adjustments (1)

Adjusted Net Income

Diluted EPS

Adjustments
Adjusted EPS

Diluted weighted average shares, as reported and as adjusted

Year Ended December 31,

2020

2019

(In millions, except per share
and percentage amounts)

137.7

141.0

30.1

(6.3)

42.5

65.3

36.6

(43.8)

8.1

35.7

(15.5)

50.9

74.5

26.1

(41.3)

0.3

270.2

271.7

6.6 %

13.0 %

7.1 %

13.7 %

137.7

141.0

36.6

(43.8)

8.1

(0.2)

138.4

1.66

0.01

1.67

81.9

26.1

(41.3)

0.3

4.0

130.1

1.69

(0.13)

1.56

81.7

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

Free Cash Flow

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

Net cash provided by operating activities

Capital expenditures

Free Cash Flow

Year Ended December 31,

2020

2019

(In millions)

363.8 $

261.2

(54.6)

(42.9)

309.2 $

218.3

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

Environmental Matters:

Our policy is to conduct our businesses with due regard for the preservation and protection of the environment. We devote

a significant amount of resources and management attention to environmental matters and actively manage our ongoing
processes to comply with environmental laws and regulations. We are involved in the remediation of environmental conditions
that resulted from generally accepted manufacturing and disposal practices at certain plants in the 1950s and 1960s. In addition,
we have been designated a PRP with other companies at third party sites undergoing investigation and remediation.

Estimating environmental remediation costs is difficult due to the significant uncertainties inherent in these activities,
including the extent of remediation required, changing governmental regulations and legal standards regarding liability, evolving
technologies and the long period of time over which most remediation efforts take place. We:

•

accrue for costs associated with the remediation of environmental pollution when it becomes probable that a liability has
been incurred and when our proportionate share of the costs can be reasonably estimated; and

record related estimated recoveries when such recoveries are deemed probable.

In addition to the costs associated with environmental remediation discussed above, we incur expenditures for recurring
costs associated with managing hazardous substances or pollutants in ongoing operations which totaled $6.0 million and $5.3
million in 2020 and 2019, respectively.

The following table summarizes our recoverable amounts, environmental reserves, and range of liability, as of

December 31, 2020:

Aerojet Rocketdyne - Sacramento

Aerojet Rocketdyne - Baldwin Park Operable Unit ("BPOU")

Other Aerojet Rocketdyne sites

Other sites

Total

_____

Recoverable
Amount (1)

Estimated Range
of Liability

Reserve

(In millions)

183.4 $

208.4

$208.4 - $331.4

67.0

10.6

0.8

76.2

10.6

5.4

76.2 - 91.9

10.6 - 21.1

5.4 - 6.7

261.8 $

300.6

$300.6 - $451.1

(1) Excludes the receivable from Northrop of $46.5 million as of December 31, 2020, related to environmental costs already

paid (and therefore not reserved) by us in prior years and reimbursable under our agreement with Northrop.

Environmental Reserves

We review on a quarterly basis estimated future remediation costs and have an established practice of estimating
environmental remediation costs over a fifteen year period, except for those environmental remediation costs with a specific
contractual term. Environmental liabilities at the BPOU site are currently estimated through the term of the project agreement,
which expires in May 2027. As the period for which estimated environmental remediation costs lengthens, the reliability of such
estimates decreases. These estimates consider the investigative work and analysis of engineers, outside environmental
consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and legal
proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most
probable estimate is used when determinable; otherwise, the minimum amount is used when no single amount in the range is
more probable. Accordingly, such estimates can change as we periodically evaluate and revise these estimates as new

information becomes available. We cannot predict whether new information gained as projects progress will affect the estimated
liability accrued. The timing of payment for estimated future environmental costs is influenced by a number of factors, such as
the regulatory approval process and the time required designing, constructing, and implementing the remedy.

The following table summarizes our environmental reserve activity:

Balance at beginning of year

Additions

Expenditures

Balance at end of year

Year Ended December 31,

2020

2019

(In millions)

309.2 $

32.4

(41.0)

300.6 $

327.9

16.7

(35.4)

309.2

The $32.4 million of environmental reserve additions in 2020 was primarily due to the following items: (i) $13.7 million of

remediation related to operable treatment units; (ii) $10.2 million of additional operations and maintenance for treatment facilities;
(iii) $3.2 million of sampling analysis costs; and (iv) $5.3 million related to other environmental clean-up matters.

The $16.7 million of environmental reserve additions in 2019 was primarily due to the following items: (i) $10.0 million of

additional operations and maintenance for treatment facilities; (ii) $4.1 million of remediation related to operable treatment units;
(iii) $1.9 million of sampling analysis costs; and (iv) $0.7 million related to other environmental clean-up matters.

The effect of the final resolution of environmental matters and our obligations for environmental remediation and

compliance cannot be accurately predicted due to the uncertainty concerning both the amount and timing of future expenditures
and due to regulatory or technological changes. We continue our efforts to mitigate past and future costs through pursuit of
claims for recoveries from our insurance carriers and other PRPs and continued investigation of new and more cost effective
remediation alternatives and associated technologies.

Estimated Recoveries

Environmental remediation costs are primarily incurred by our Aerospace and Defense segment, and certain of these costs

are recoverable from our contracts with the U.S. government. We currently estimate approximately 12% of our future Aerospace
and Defense segment environmental remediation costs will not likely be reimbursable and are expensed.

Allowable environmental remediation costs are charged to our contracts as the costs are incurred. Because these costs
are recovered through forward-pricing arrangements, the ability of Aerojet Rocketdyne to continue recovering these costs from
the U.S. government depends on Aerojet Rocketdyne’s sustained business volume from U.S. government contracts and
programs.

While we are currently seeking an arrangement with the U.S. government to recover environmental expenditures in excess

of the reimbursement ceiling identified in the Global Settlement, there can be no assurances that such a recovery will be
obtained, or if not obtained, that such unreimbursed environmental expenditures will not have a materially adverse effect on our
operating results, financial condition, and/or cash flows.

The following table summarizes the activity in the current and non-current recoverable amounts from the U.S. government

and Northrop:

Balance at beginning of year

Additions

Reimbursements

Other adjustments

Balance at end of year

Year Ended December 31,

2020

2019

(In millions)

322.0 $

344.1

28.3

(36.0)

(6.0)

14.5

(30.6)

(6.0)

308.3 $

322.0

The activity for recoveries is commensurate with the activity associated with the environmental reserve activity.

Environmental reserves and recoveries impact on the consolidated statements of operations

The expenses associated with adjustments to the environmental reserves are recorded as a component of other expense

(income), net in the consolidated statements of operations. The following table summarizes the impact of environmental reserves
and recoveries to the consolidated statements of operations:

Expense to consolidated statement of operations

Year Ended December 31,

2020

2019

(In millions)

4.3 $

2.1

Recently Adopted Accounting Pronouncements:

See Note 1 in the consolidated financial statements in Item 8 of this Report for information relating to our discussion of the

effects of recent accounting pronouncements.

Liquidity and Capital Resources:

Net Cash Provided By (Used In) Operating, Investing, and Financing Activities

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

Net Cash Provided by Operating Activities

Net Cash Used in Investing Activities

Net Cash Used in Financing Activities

Net Increase in Cash, Cash Equivalents and Restricted Cash

Net Cash Provided by Operating Activities

Year Ended December 31,

2020

2019

(In millions)

363.8 $

261.2

(61.0)

(85.9)

(41.8)

(24.1)

216.9 $

195.3

The $102.6 million increase in cash provided by operating activities in 2020 compared with 2019 was primarily due to the

following: (i) improved cash flow from contracts due to the timing of customer advances; and (ii) a decrease in income (net of
refunds) and payroll tax payments.

Net Cash Used in Investing Activities

During 2020 and 2019, we had capital expenditures of $54.6 million and $42.9 million, respectively. The increase in capital

expenditures in 2020 was primarily due to capacity expansion to support the RS-25 program.

During 2020, we made a net investment of $6.7 million in marketable securities.

Net Cash Used in Financing Activities

During 2020 and 2019, we had debt cash payments of $21.7 million and $20.8 million, respectively. See a summary of the

2020 debt principal activity below. During 2020, we repurchased 1.3 million of our common shares at a cost of $51.7 million
Additionally, we had net cash usage of $12.5 million in 2020 associated with our equity plans compared with net cash usage of
$3.3 million in 2019.

Debt Activity

The following table summarizes our debt principal activity:

Term loan
2 1/4% Notes
Finance leases
Total Debt Activity

Outlook

December 31,
2019

Cash
Payments

December 31,
2020

(In millions)

328.1 $
300.0
47.7

675.8 $

(19.6) $
—
(2.1)
(21.7) $

308.5
300.0
45.6
654.1

Short-term liquidity requirements consist primarily of recurring operating expenses, including but not limited to costs related

to our capital and environmental expenditures, company-funded R&D expenditures, debt service requirements, and retirement
benefit plans. We believe that our existing cash and cash equivalents and availability under the Senior Credit Facility coupled
with cash generated from our future operations will provide sufficient funds to meet our operating plan for the next twelve
months. The operating plan for this period provides for full operation of our businesses, including interest and debt payments. As
of December 31, 2020, we had $1,149.5 million of cash and cash equivalents as well as $622.4 million of available borrowings
under our Senior Credit Facility. Based on our existing debt agreements, we were in compliance with our financial and non-
financial covenants as of December 31, 2020. Our failure to comply with these covenants could result in an event of default that,
if not cured or waived by the lenders, could result in the acceleration of the Senior Credit Facility and 2¼% Notes. In addition, our
failure to pay principal and interest when due is a default under the Senior Credit Facility, and in certain cases, would cause a
cross default on the 2¼% Notes.

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

Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material. Under the terms of the Merger Agreement, we are not
permitted to pay cash dividends during the Pre-Closing Period (as defined therein), other than the pre-closing dividend approved
by the Board of Directors on December 19, 2020.

The CARES Act was enacted on March 27, 2020, in response to the COVID-19 pandemic and the negative impacts that it
is having on the global economy and U.S. companies. The CARES Act includes various financial measures to assist companies,
including temporary changes to income and non-income-based tax laws. Through these provisions, as of December 31, 2020,
we have delayed $21.4 million of payroll tax payments. Additionally, in accordance with the provisions of the CARES Act, we
accelerated depreciation on qualified improvement property placed in service after December 31, 2017 for income tax purposes.

In light of the pending Merger, we do not expect to pursue strategic acquisitions at this time. If the Merger is not completed

for any reason, we would expect to consider exploring possible strategic acquisitions. Potential future business acquisitions
depend, in part, on the availability of financial resources at an acceptable cost of capital. We expect to utilize cash on hand and
cash generated by operations, as well as cash available under our Senior Credit Facility, which may involve renegotiation of
credit limits to finance any future acquisitions. Other sources of capital could include the issuance of common and/or preferred
stock, the placement of debt, or combination of both. We periodically evaluate capital markets and may access such markets
when circumstances appear favorable. We believe that sufficient capital resources will be available from one or several of these
sources to finance any future acquisitions. However, no assurances can be made that acceptable financing will be available, or
that acceptable acquisition candidates will be identified, or that any such acquisitions will be accretive to earnings.

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

allowing us to repurchase our outstanding common stock with an aggregate market value of up to $100 million over a period of
up to 18 months; however, management has discretion as to whether any repurchases will be executed. The timing of any share
repurchases will be based on available liquidity, cash flows and general market conditions. The repurchase program may be
executed through various methods, including open market purchases or privately negotiated transactions. During 2020, we
repurchased 1.3 million of our common shares at a cost of $51.7 million which leaves $48.3 million of market value remaining for
repurchase under the program at management’s discretion.

As disclosed in Notes 8(a) and 8(b) in the consolidated financial statements in Item 8 of this Report, we have exposure for
certain legal and environmental matters. We believe that it is currently not possible to estimate the impact, if any, that the ultimate
resolution of certain of these matters will have on our financial position, results of operations, or cash flows.

Major factors that could adversely impact our forecasted operating cash flows and our financial condition are described in
Part I, Item 1A. Risk Factors. In addition, our liquidity and financial condition will continue to be affected by changes in prevailing
interest rates on the portion of debt that bears interest at variable interest rates.

Contractual Obligations:

We have contractual obligations and commitments in the form of debt obligations, operating leases, certain other liabilities,

and other commitments. The following table summarizes our contractual obligations as of December 31, 2020:

Long-term debt:

Senior debt

Convertible senior notes (1)

Finance lease obligations

Interest on long-term debt (2)

Postretirement medical and life insurance benefits (3)

Operating leases

Purchase obligations (4)

Conditional asset retirement obligations (5)

Total

________

Payments due by period

Total

Less than
1 year

1-3
years

3-5
years

After
5 years

(In millions)

$ 308.5 $

26.3 $ 282.2 $

— $

300.0

45.6

63.1

21.0

56.4

2.1

15.0

3.4

14.9

1,352.8

863.9

51.4

—

3.2

27.1

5.7

19.6

485.3

21.5

—

3.0

4.6

4.5

5.9

3.0

1.4

—

37.3

16.4

7.4

16.0

0.6

28.5

$ 2,198.8 $ 1,225.6 $ 844.6 $

22.4 $ 106.2

(1) Holders may convert their 2¼% Notes at their option from January 1, 2021, through March 31, 2021, because our closing
stock price exceeded $33.80 for at least 20 days in the 30 day period prior to December 31, 2020. We have 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 2¼% Notes are classified as a current liability as of December 31, 2020. See Notes 6 and 15 in the
consolidated financial statements in Item 8 of this Report for additional information.

(2) Includes interest on variable debt calculated based on interest rates at December 31, 2020.

(3) The payments presented above are expected payments for the next 10 years. The payments for postretirement medical and

life insurance benefits reflect the estimated benefit payments of the plans using the provisions currently in effect. The
obligation related to postretirement medical and life insurance benefits is actuarially determined on an annual basis. A
substantial portion of these amounts are recoverable through our contracts with the U.S. government.

(4) Purchase obligations represent open purchase orders and other commitments to suppliers, subcontractors, and other

outsourcing partners for equipment, materials, and supplies in the normal course of business. These amounts are based on
volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or
expected to be received, from customers. A substantial portion of these amounts are recoverable through our contracts with
the U.S. government.

(5) The conditional asset retirement obligations presented are related to our Aerospace and Defense segment and are

allowable costs under our contracts with the U.S. government.

We expect to make cash contributions of approximately $94 million to our tax-qualified defined benefit pension plan in

2021. We generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs
on our U.S. government contracts, but there can be differences between when we contribute to our tax-qualified defined benefit
pension plan under pension funding rules and recover it under CAS.

Arrangements with Off-Balance Sheet Risk:

See Note 8(d) in the consolidated financial statements in Item 8 of this Report for information relating to our off-balance

sheet risk.

Critical Accounting Policies:

Our financial statements are prepared in accordance with GAAP that offer acceptable alternative methods for accounting

for certain items affecting our financial results, such as determining inventory cost, depreciating long-lived assets, and
recognizing revenues.

The preparation of financial statements requires the use of estimates, assumptions, judgments, and interpretations that

can affect the reported amounts of assets, liabilities, revenues, and expenses, the disclosure of contingent assets and liabilities
and other supplemental disclosures. The development of accounting estimates is the responsibility of our management. Although
we believe that the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions
and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects
are accounted for prospectively and, if significant, disclosed in notes of the consolidated financial statements.

The areas most affected by our accounting policies and estimates are revenue recognition, other contract considerations,

goodwill, retirement benefit plans, litigation, environmental remediation costs and recoveries, and income taxes. Except for
income taxes, which are not allocated to our operating segments, these areas affect the financial results of our business
segments.

For a discussion of all of our accounting policies, including the accounting policies discussed below, see Note 1 in the

consolidated financial statements in Item 8 of this Report.

Revenue Recognition

In our Aerospace and Defense segment, the majority of our revenue is earned from long-term contracts to design, develop,

and manufacture aerospace and defense products, and provide related services, for our customers, including the U.S.
government, major aerospace and defense prime contractors, and the commercial sector. Each customer contract defines our
distinct performance obligations and the associated transaction price for each obligation. A contract may contain one or multiple
performance obligations. In certain circumstances, multiple contracts with a customer are required to be combined in determining
the distinct performance obligation. For contracts with multiple performance obligations, we allocate the contracted transaction
price to each performance obligation based upon the relative standalone selling price, which represents the price at which we
would sell the promised good or service separately to the customer. We determine the standalone selling price based upon the
facts and circumstances of each obligated good or service. The majority of our contracts have no observable standalone selling
price since the associated products and services are customized to customer specifications. As such, the standalone selling
price generally reflects our forecast of the total cost to satisfy the performance obligation plus an appropriate profit margin.

Contract modifications are routine in the performance of our long-term contracts. Contracts are often modified to account
for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that
are not distinct, and, therefore, are accounted for as part of the existing contract.

We recognize revenue as each performance obligation is satisfied. The majority of our aerospace and defense

performance obligations are satisfied over time either as the service is provided, or as control transfers to the customer. Transfer
of control is evidenced by our contractual right to payment for work performed to date plus a reasonable profit on contracts with
highly customized products that we have no alternative use for. We measure progress on substantially all our performance
obligations using the cost-to-cost method, which we believe best depicts the transfer of control of goods and services to the
customer. Under the cost-to-cost method, we record revenues based upon costs incurred to date relative to the total estimated
cost at completion. Contract costs include labor, material, overhead, and general and administrative expenses, as appropriate.

Recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to the total

contract value, the total cost at completion, and the measurement of progress towards completion for each performance

obligation. Due to the nature of the programs, developing the estimated total contract value and total cost at completion for each
performance obligation requires the use of significant judgment.

The contract value of long-term contracts may include variable consideration, such as incentives, awards, or penalties.
The value of variable consideration is generally determined by contracted performance metrics, which may include targets for
cost, performance, quality, and schedule. We include variable consideration in the transaction price for the respective
performance obligation at either estimated value, or most likely amount to be earned, based upon our assessment of expected
performance. We record these amounts only to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is resolved.

We evaluate 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 our estimate of total costs to be incurred to satisfy a performance
obligation exceeds the expected revenue, we recognize the loss immediately. When we determine that a change in estimates
has an impact on the associated profit of a performance obligation, we record 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 our operating results. The following table summarizes the impact of the changes in significant contract
accounting estimates on our Aerospace and Defense segment operating results:

Year Ended December 31,

2020

2019

(In millions, except per share
amounts)

Net favorable effect of the changes in contract estimates on net sales

38.5 $

Favorable effect of the changes in contract estimates on income before income taxes

Favorable effect of the changes in contract estimates on net income

Favorable effect of the changes in contract estimates on basic EPS

Favorable effect of the changes in contract estimates on diluted EPS

45.1

34.5

0.44

0.42

38.6

38.4

28.2

0.36

0.34

See Note 1 in the consolidated financial statements in Item 8 of this Report for additional information.

Other Contract Considerations

The majority of Aerospace and Defense segment sales are driven by pricing based on costs incurred to produce products
and perform services under contracts with the U.S. government. Cost-based pricing is determined under the FAR and CAS. The
FAR and CAS provide guidance on the types of costs that are allowable and allocable in establishing prices for goods and
services from U.S. government contracts. For example, costs such as charitable contributions, advertising, interest expense, and
public relations are unallowable, and therefore not recoverable through sales. In addition, we may enter into agreements with the
U.S. government that address the subjects of allowability and allocability of costs to contracts for specific matters.

We closely monitor compliance with and the consistent application of our critical accounting policies related to contract

accounting. We review the status of contracts through periodic contract status and performance reviews. Also, regular and
recurring evaluations of contract cost, scheduling and technical matters are performed by management personnel independent
from the business segment performing work under the contract. Costs incurred and allocated to contracts with the
U.S. government are reviewed for compliance with regulatory standards by our personnel, and are subject to audit by the DCAA.
Accordingly, we record an allowance on our unbilled receivables for amounts of potential contract overhead costs which may not
be successfully negotiated and collected.

Retirement Benefit Plans

We discontinued future benefit accruals for our defined benefit pension plans in 2009. We provide medical and life
insurance benefits to certain eligible retired employees, with varied coverage by employee group. Annual charges are made for
the cost of the plans, including interest costs on benefit obligations, and net amortization and deferrals, increased or reduced by
the return on assets. We also sponsor a defined contribution 401(k) plan and participation in the plan is available to all
employees.

Retirement benefits are a significant cost of doing business and represent obligations that will be ultimately settled far in

the future and therefore are subject to estimates. We generally are able to recover cash contributions related to our tax-qualified
defined benefit pension plan as allowable costs on our U.S. government contracts, but there is a lag between when we contribute
cash to our tax-qualified defined benefit pension plan under pension funding rules and recover it under our U.S. government
contracts. Our pension and medical and life insurance benefit obligations and related costs are calculated using actuarial
concepts in accordance with GAAP. We are required to make assumptions regarding such variables as the expected long-term
rate of return on assets and the discount rate applied to determine the retirement benefit obligations and expense (income) for
the year.

The following table presents the assumptions to determine the benefit obligations:

Discount rate

Pension
Benefits

Medical and
Life Insurance Benefits

As of December 31,

2020

2019

2020

2019

2.52 %

3.28 %

2.28 %

3.19 %

The following table presents the assumptions to determine the retirement benefits expense (income):

Discount rate

Expected long-term rate of return on assets

____

Pension Benefits

Medical and
Life Insurance Benefits

Year Ended December 31,

2020

2019

2020

2019

3.28 %

7.00 %

4.27 %

7.00 %

3.19 %

4.09 %

* Not applicable as our medical and life insurance benefits are unfunded.

The discount rate represents the current market interest rate used to determine the present value of future cash flows

currently expected to be required to settle pension obligations. Based on market conditions, discount rates can experience
significant variability. Changes in discount rates can significantly change the liability and, accordingly, the funded status of the
pension plan. The assumed discount rate represents the market rate available for investments in high-quality fixed income
instruments with maturities matched to the expected benefit payments for pension and medical and life insurance benefit plans.

The expected long-term rate of return on assets represents the rate of earnings expected in the funds invested, and funds

to be invested, to provide for anticipated benefit payments to plan participants. We evaluated the historical investment
performance, current and expected asset allocation, and, with input from our external advisors, developed best estimates of
future investment performance.

Market conditions and interest rates significantly affect assets and liabilities of our pension plans. Pension accounting
permits market gains and losses to be deferred and recognized over a period of years. This "smoothing" results in the creation of
other accumulated income or loss which will be amortized to pension costs in future years. The accounting method we utilize
recognizes one-fifth of the unamortized gains and losses in the market-related value of pension assets and all other gains and
losses including changes in the discount rate used to calculate the benefit obligation each year. Investment gains or losses for
this purpose are the difference between the expected return and the actual return on the market-related value of assets which
smoothes asset values over three years. Although the smoothing period mitigates some volatility in the calculation of annual
pension costs, future pension costs are impacted by changes in the market value of assets and changes in interest rates.

The following table summarizes the effects of a one-percentage-point change in key assumptions on the projected benefit

obligations as of December 31, 2020, and on retirement benefits expense for 2020:

Pension Benefits and
Medical and Life Insurance
Benefits Discount Rate

Expected Long-term
Rate of Return

Assumed Healthcare
Cost Trend Rate

Net Periodic
Benefit Expense

$18.3
(15.7)

Projected
Benefit
Obligation

$150.5
(126.0)

Net Periodic Pension
Benefit Expense

(In millions)
$8.6
(8.7)

Net Periodic
Medical and Life
Insurance
Benefit Expense

Accumulated
Benefit
Obligation

$(0.1)
0.1

$(0.3)
0.3

1% decrease
1% increase

Environmental Reserves and Estimated Recoveries

For a discussion of our accounting for environmental remediation obligations and costs and related legal matters, see

"Environmental Matters" above and Notes 8(b) and 8(c) in the consolidated financial statements in Item 8 of this Report.

We accrue for costs associated with the remediation of environmental contamination when it becomes probable that a
liability has been incurred, and when our costs can be reasonably estimated. In most cases, only a range of reasonably probable
costs can be estimated. In establishing the reserves, the most probable estimated amount is used when determinable, and the
minimum amount is used when no single amount in the range is more probable. Environmental reserves include the costs of
completing remedial investigation and feasibility studies, remedial and corrective actions, regulatory oversight costs, the cost of
operation and maintenance of the remedial action plan, and employee compensation costs for employees who are expected to
devote a significant amount of time to remediation efforts. Calculation of environmental reserves is based on the evaluation of
currently available information with respect to each individual environmental site and considers factors such as existing
technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. Such estimates

are based on the expected costs of investigation and remediation and the likelihood that other potentially responsible parties will
be able to fulfill their commitments at sites where we may be jointly or severally liable.

At the time a liability is recorded for future environmental costs, we record an asset for estimated future recoveries that are

estimable and probable. Some of our environmental costs are eligible for future recovery in the pricing of our products and
services to the U.S. government and under existing third party agreements. We consider the recovery probable based on the
Global Settlement, U.S. government contracting regulations, and our long history of receiving reimbursement for such costs.

Income Taxes

We file a consolidated U.S. federal income tax return for the Company and our 100% owned consolidated subsidiaries.
The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax
reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in the period of the enactment date of the change.

The carrying value of our deferred tax assets is dependent upon our ability to generate sufficient taxable income in the
future. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be
realized. A review of all available positive and negative evidence is considered, including our past and future performance, the
market environment in which we operate, the utilization of tax attributes in the past, the length of carryback and carryforward
periods, and evaluation of potential tax planning strategies.

We believe that certain positions may be challenged by taxing authorities. Settlement of any challenge can result in no

change, a complete disallowance, or a partial adjustment reached through negotiations or litigation. Our tax reserves reflect the
difference between the tax benefit claimed on tax returns and the amount recognized in the financial statements. The accounting
standards provide guidance for the recognition and measurement in financial statements of uncertain tax positions taken or
expected to be taken in a tax return. The evaluation of a tax position is a two-step process, the first step being recognition. We
determine whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any
related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived
from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their
applicability to the facts and circumstances of the tax position. If a tax position does not meet the more likely than not recognition
threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax
position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in
the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being
realized upon ultimate resolution with a taxing authority. As the examination process progresses with tax authorities, adjustments
to tax reserves may be necessary to reflect taxes payable upon settlement. Tax reserve adjustments related to positions
impacting the effective tax rate affect the provision for income taxes. Tax reserve adjustments related to positions impacting the
timing of deductions impact deferred tax assets and liabilities.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Policies and Procedures

As an element of our normal business practice, we have established policies and procedures for managing our exposure

to changes in interest rates.

The objective in managing exposure to interest rate changes is to limit the impact of interest rate changes on earnings and

cash flow and to make overall borrowing costs more predictable. To achieve this objective, we may use interest rate hedge
transactions or other interest rate hedge instruments to manage the net exposure to interest rate changes related to our portfolio
of borrowings and to balance our fixed rate compared with variable rate debt. We did not enter into any interest rate hedge
transactions or instruments during the past three years.

Interest Rate Risk

We are exposed to market risk principally due to changes in interest rates related to our borrowings, cash and cash

equivalents, marketable securities, and pension assets and liabilities.

Borrowings

Debt with interest rate risk includes borrowings under our Senior Credit Facility. As of December 31, 2020, our debt
principal amounts excluding finance lease obligations totaled $608.5 million: $300.0 million, or 49%, was at a fixed rate of 2.25%;
and $308.5 million, or 51%, was at a variable rate of 1.90%.

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

finance lease obligations:

Term loan

2¼% Notes

Fair Value

As of December 31,

Principal Amount

As of December 31,

2020

2019

2020

2019

(In millions)

306.5 $

328.1 $

308.5 $

609.5

546.0

300.0

916.0 $

874.1 $

608.5 $

328.1

300.0

628.1

The fair value of the 2¼% Notes was determined using broker quotes that are based on open markets for our debt
securities (Level 2 securities). The fair value of the term loan at December 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.

Cash and Marketable Securities

We also have exposure to changes in interest rates related to interest earned and market value on our cash and cash

equivalents and marketable securities. Our cash and cash equivalents and marketable securities consist of cash, time deposits,
money market funds, and investment grade corporate debt securities. Our investment policy and strategy are focused on
preservation of capital and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our
cash and cash equivalents and marketable securities, and the market value of those securities.

Pension Assets and Liabilities

Our tax-qualified pension assets and liabilities are subject to interest rate risk. The interest rate risk related to our tax-

qualified pension assets and liabilities can be found in the "Retirement Benefit Plans" discussion above.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Aerojet Rocketdyne Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Aerojet Rocketdyne Holdings, Inc. and its subsidiaries (the
"Company") as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive
income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including
the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019, and as discussed in Note 14 to the consolidated financial statements, the Company changed the manner in
which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition - estimated total cost at completion on fixed-price contracts

As described in Note 1 to the consolidated financial statements, approximately 61% of total net sales of $2,073 million are from
fixed-price revenue contracts for the year ended December 31, 2020. These contracts present the risk of unreimbursed cost
overruns, potentially resulting in lower than expected contract profits and margins. The Company recognizes revenue as each
performance obligation is satisfied. The majority of the Company’s aerospace and defense performance obligations are satisfied
over time either as the service is provided, or as control transfers to the customer. Transfer of control is evidenced by the
Company’s contractual right to payment for work performed to date plus a reasonable profit on contracts with highly customized
products that have no alternative use to the Company. Management measures progress on substantially all its performance
obligations using the cost-to-cost method, which management believes best depicts the transfer of control of goods and services
to the customer. Under the cost-to-cost method, management records revenues based upon costs incurred to date relative to
the total estimated cost at completion. Recognition of revenue and profit on long-term contracts requires the use of assumptions
and estimates related to the total contract value, the total cost at completion, and the measurement of progress towards
completion for each performance obligation. Due to the nature of the programs, developing the estimated total contract value and
total cost at completion for each performance obligation requires the use of significant judgment. As described in Note 1, 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.

The principal considerations for our determination that performing procedures relating to revenue recognition - estimated total
cost at completion on fixed-price contracts is a critical audit matter are the significant judgment by management when estimating
the total cost at completion for such contracts; this in turn led to a high degree of auditor judgment, subjectivity, and effort in
performing procedures to evaluate significant assumptions used in management’s estimated total cost at completion for fixed-
price contracts related to labor productivity, the nature and technical complexity of the work to be performed, availability and cost
volatility of materials, subcontractor and vendor performance, and schedule and performance delays.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the development of estimated total cost at completion on fixed-price
contracts. These procedures also included, among others, testing management’s process for the estimate of its total cost at
completion for a sample of contracts, which included testing inception-to-date actual costs, and evaluating the reasonableness of
significant assumptions related to labor productivity, the nature and technical complexity of the work to be performed, availability
and cost volatility of materials, subcontractor and vendor performance, and schedule and performance delays. Evaluating the
reasonableness of significant assumptions involved assessing management’s ability to reasonably estimate the total cost to
complete on fixed-price contracts by (i) performing a comparison of estimated labor and material costs to complete to
agreements with third parties or actual costs incurred on the sampled contract or similar completed contracts, (ii) evaluating the
timely identification of circumstances that may warrant a modification to estimated total cost to complete, and (iii) testing
management’s process for identifying and estimating risks that could result in schedule or performance delays.

/s/ PricewaterhouseCoopers LLP

Sacramento, California
February 18, 2021
We have served as the Company’s auditor since 2006.

Aerojet Rocketdyne Holdings, Inc.
Consolidated Statements of Operations

Net sales

Operating costs and expenses:

Cost of sales (exclusive of items shown separately below)

Selling, general and administrative expense

Depreciation and amortization

Other expense (income), net:

Environmental remediation provision adjustments

Other

Total operating costs and expenses

Operating income

Non-operating:

Retirement benefits expense

Interest income

Interest expense

Total non-operating expense, net

Income before income taxes

Income tax provision

Net income

Earnings per share of common stock

Basic earnings per share

Diluted earnings per share

Weighted average shares of common stock outstanding, basic

Weighted average shares of common stock outstanding, diluted

Cash dividends declared per share

Year Ended December 31,

2020

2019

2018

(In millions, except per share amounts)

2,072.7 $

1,981.5 $

1,895.9

1,701.3

1,613.6

1,549.4

56.1

65.3

4.3

5.1

53.6

74.5

2.1

(0.5)

1,832.1

240.6

1,743.3

238.2

36.6

26.1

(6.3)

(15.5)

30.1

60.4

180.2

42.5

35.7

46.3

191.9

50.9

137.7 $

141.0 $

1.76 $

1.66 $

77.4

81.9

1.79 $

1.69 $

77.2

81.7

5.00 $

— $

43.8

72.3

(36.9)

(3.3)

1,625.3

270.6

57.6

(10.0)

34.4

82.0

188.6

51.3

137.3

1.80

1.75

74.8

76.8

—

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Consolidated Statements of Comprehensive Income

Net income

Other comprehensive income:

Amortization of net actuarial losses, net of $13.4 million, $7.6 million, and
$16.8 million of income taxes in 2020, 2019, and 2018, respectively

Actuarial losses, net of $10.4 million, $6.9 million, and $5.5 million of income
taxes in 2020, 2019, and 2018, respectively

Amortization of prior service costs, net of income taxes

Other comprehensive income, net of income taxes

Comprehensive income

Year Ended December 31,

2020

2019

2018

(In millions)

137.7 $

141.0 $

137.3

40.3

29.5

49.7

(31.5)
0.1

8.9

(26.5)
(0.1)

2.9

146.6 $

143.9 $

(16.4)
(0.1)

33.2

170.5

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Consolidated Balance Sheets

ASSETS

As of December 31,

2020

2019

(In millions, except per share amounts)

1,149.5 $

3.0

7.0

75.6

288.6

136.5

932.6

3.0

—

112.5

224.1

145.8

1,660.2

1,418.0

LIABILITIES AND STOCKHOLDERS’ EQUITY

46.8

423.1

227.7

81.1

161.4

44.8

254.8

48.0

409.9

234.8

121.9

161.4

58.2

255.6

1,239.7

2,899.9 $

1,289.8

2,707.8

299.9 $

99.1

39.8

407.2

447.8

161.9

1,455.7

324.4

260.8

405.2

35.7

184.6

1,210.7

2,666.4

284.7

127.3

40.1

262.3

—

155.5

869.9

352.3

269.1

398.9

39.1

201.8

1,261.2

2,131.1

Current Assets

Cash and cash equivalents

Restricted cash

Marketable securities

Accounts receivable, net

Contract assets

Other current assets, net

Total Current Assets

Noncurrent Assets

Right-of-use assets

Property, plant and equipment, net

Recoverable environmental remediation costs

Deferred income taxes

Goodwill

Intangible assets

Other noncurrent assets, net

Total Noncurrent Assets

Total Assets

Current Liabilities

Current portion of long-term debt

Accounts payable

Reserves for environmental remediation costs

Contract liabilities

Dividends payable

Other current liabilities

Total Current Liabilities

Noncurrent Liabilities

Long-term debt

Reserves for environmental remediation costs

Pension benefits

Operating lease liabilities

Other noncurrent liabilities

Total Noncurrent Liabilities

Total Liabilities

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; 76.8 million shares issued and
outstanding as of December 31, 2020; 77.3 million shares issued and outstanding as of December
31, 2019
Other capital

Treasury stock at cost, 2.1 million at December 31, 2020; 0.8 million shares as of December 31,
2019

(Accumulated deficit) retained earnings

Accumulated other comprehensive loss, net of income taxes

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

7.7

583.0

(64.4)

(65.2)

(227.6)

233.5

7.7

573.3

(12.7)

244.9

(236.5)

576.7

2,899.9 $

2,707.8

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Consolidated Statements of Stockholders’ Equity

Common Stock

(Accumulated
Deficit)

Amount

Other
Capital

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total
Stockholders'
Equity

December 31, 2017

Net income

Other comprehensive income, net of
income taxes

Cumulative effect of change in
accounting guidance

Contribution of treasury stock to
retirement benefit plan

Repurchase of shares for option cost
and to satisfy tax withholding
obligations

Stock-based compensation and
shares issued under equity plans, net

December 31, 2018

Net income

Other comprehensive income, net of
income taxes

Repurchase of shares for option cost
and to satisfy tax withholding
obligations

Stock-based compensation and
shares issued under equity plans, net

December 31, 2019

Net income

Other comprehensive income, net of
income taxes

Cash dividends declared ($5.00 per
share)

Purchase of treasury stock

Repurchase of shares for option cost
and to satisfy tax withholding
obligations

Stock-based compensation and
shares issued under equity plans, net

73.6 $

7.4 $

503.1 $

(64.5) $

(71.0) $

(272.6) $

(In millions)

—

2.7

0.3

42.9

51.8

—

0.5

76.8

—

(0.3)

0.8

77.3

—

(1.3)

(0.3)

1.1

—

7.7

—

7.7

—

(3.3)

19.1

561.8

—

(8.5)

20.0

573.3

—

(20.0)

29.7

—

(12.7)

—

(12.7)

—

(51.7)

—

137.3

—

37.6

—

103.9

141.0

—

244.9

137.7

—

(447.8)

—

33.2

—

(239.4)

—

2.9

—

(236.5)

—

8.9

—

December 31, 2020

76.8 $

7.7 $

583.0 $

(64.4) $

(65.2) $

(227.6) $

See Notes to Consolidated Financial Statements.

102.4

137.3

33.2

37.6

95.0

(3.3)

19.1

421.3

141.0

2.9

(8.5)

20.0

576.7

137.7

8.9

(447.8)

(51.7)

(20.0)

29.7

233.5

Aerojet Rocketdyne Holdings, Inc.
Consolidated Statements of Cash Flows

Operating Activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Amortization of debt discount and deferred financing costs

Stock-based compensation

Retirement benefits, net

Other, net

Changes in assets and liabilities, net of effects from acquisition in 2019:

Accounts receivable, net

Contract assets

Other current assets, net

Recoverable for environmental remediation costs

Other noncurrent assets

Accounts payable

Contract liabilities

Other current liabilities

Deferred income taxes

Reserves for environmental remediation costs

Other noncurrent liabilities and other

Net Cash Provided by Operating Activities

Investing Activities

Capital expenditures

Purchases of marketable securities

Sale of marketable securities

Other

Net Cash Used in Investing Activities

Financing Activities

Debt issuance costs

Debt principal payments

Proceeds from shares issued under equity plans

Repurchase of shares for withholding taxes and option costs under employee equity plans

Purchase of treasury stock

Net Cash Used in Financing Activities

Net Increase in Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash at Beginning of Year

Cash, Cash Equivalents and Restricted Cash at End of Year

Supplemental disclosures of cash flow information

Cash paid for interest

Cash paid for income taxes

Cash refund for income taxes

Contribution of treasury stock to retirement benefit plans

Year Ended December 31,

2020

2019

2018

(In millions)

137.7 $

141.0

137.3

65.3

9.9

31.4

18.1

(0.4)

36.9

(64.5)

9.2

7.1

0.6

(36.8)

144.9

(4.4)

37.9

(8.6)

(20.5)

363.8

(54.6)

(31.7)

25.0

0.3

(61.0)

—

(21.7)

7.5
(20.0)

(51.7)

(85.9)

216.9

935.6

74.5

9.4

27.3

21.6

(0.6)

28.8

11.0

(27.9)

16.3

(6.3)

20.3

(10.3)

(72.5)

(5.7)

(18.7)

53.0

261.2

(42.9)

—

1.1

(41.8)

—

(20.8)

5.2
(8.5)

—

(24.1)

195.3

740.3

1,152.5 $

935.6

19.7 $

26.3

56.0

13.3

—

63.8

2.0

—

72.3

8.9

20.5

15.9

(2.2)

(47.3)

10.5

21.5

(20.0)

5.8

(39.4)

29.2

40.9

4.7

(13.5)

7.6

252.7

(43.2)

(47.7)

68.1

1.9

(20.9)

(3.3)

(25.3)

5.4
(3.3)

—

(26.5)

205.3

535.0

740.3

25.3

24.0

5.2

95.0

See Notes to Consolidated Financial Statements.

Aerojet Rocketdyne Holdings, Inc.
Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

a. Basis of Presentation and Nature of Operations

The consolidated financial statements of Aerojet Rocketdyne Holdings, Inc. ("Aerojet Rocketdyne Holdings" or the

"Company") include the accounts of the Company and its 100% owned and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to
financial information for prior years to conform to the current year’s presentation.

The Company’s operations are organized into two segments:

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.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America ("GAAP") requires the Company to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Merger

On December 20, 2020, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Lockheed Martin Corporation ("Lockheed Martin") and Mizar Sub, Inc., a wholly-owned subsidiary of Lockheed Martin ("Merger
Sub"), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company (the
"Merger") with the Company being the surviving corporation and a wholly-owned subsidiary of Lockheed Martin.

Subject to the terms and conditions set forth in the Merger Agreement, each share of common stock outstanding as of

On December 19, 2020, the Company’s Board of Directors declared a one-time cash dividend of $5.00 per share (including

shares underlying the 2.25% Convertible Senior Notes ("2¼% Notes") participating on an as-converted basis) (the "Pre-Closing
Dividend"). The Pre-Closing Dividend is payable on March 24, 2021, to the holders of the Company’s shares and 2¼% Notes as
of the close of business on March 10, 2021. The $56.00 per share price under the Merger Agreement is expected to be reduced
to $51.00 after the payment of the Pre-Closing Dividend to the Company’s stockholders and holders of its 2¼% Notes
participating on an as-converted basis (or, in the unlikely event that closing occurs after March 10, 2021, but before March 24,
2021, to the extent the Pre-Closing Dividend is payable after the closing).

Closing of the Merger is anticipated to occur in the second half of 2021, subject to various customary conditions, including

Company stockholder approval and regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

Coronavirus ("COVID-19") Pandemic

During 2020, the Company’s financial results and operations were not materially adversely impacted by the COVID-19
pandemic. As a defense industrial-base U.S. government contractor, the Company is considered an essential business by the
U.S. and state governments and it continues to operate as such during the COVID-19 pandemic. The extent to which the
Company’s future financial results could be impacted by 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 Annual Report on Form 10-K. 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.

b. Cash and Cash Equivalents

All highly liquid debt instruments purchased with a remaining maturity at the date of purchase of three months or less are

considered to be cash equivalents. The Company aggregates its cash balances by bank, and reclassifies any negative balances,
if applicable, to other current liabilities.

c. Restricted Cash

As of December 31, 2020 and 2019, the Company designated $3.0 million as restricted cash to satisfy indemnification

obligations for environmental remediation coverage.

d. 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.

Money market funds

Commercial paper

Registered investment companies

Equity securities

Total

Money market funds

Registered investment companies

Commercial paper

Total

Fair value measurement as of December 31, 2020

Total

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

Other
Observable
Inputs
(Level 2)

(In millions)

Unobservable
Inputs
(Level 3)

569.3 $

— $

232.0

2.5

7.0

—

2.5

7.0

232.0

—

810.8 $

578.8 $

232.0 $

—

Fair value measurement as of December 31, 2019

Total

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

Other
Observable
Inputs
(Level 2)

(In millions)

Unobservable
Inputs
(Level 3)

626.0 $

— $

3.7

99.9

3.7

—

99.9

729.6 $

629.7 $

99.9 $

—

As of December 31, 2020 and 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. In 2020, the Company recognized
$0.3 million of unrealized gains on equity securities (component of interest income in the consolidated statements of operations).

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:

Term loan

2¼% Notes

Fair Value

As of December 31,

Principal Amount

As of December 31,

2020

2019

2020

2019

(In millions)

306.5 $

328.1 $

308.5 $

609.5

546.0

300.0

916.0 $

874.1 $

608.5 $

328.1

300.0

628.1

The fair value of the 2¼% Notes was determined using broker quotes that are based on open markets for the Company's
debt securities (Level 2 securities). The fair value of the term loan at December 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.

e. Accounts Receivable, net

Accounts Receivable represent the Company's unconditional right to consideration under the contract and include amounts

billed and currently due from long-term contract customers. The amounts are stated at their net estimated realizable value.

Other receivables represent amounts billed for revenue not derived from long-term contracts.

f. Inventories

Inventories are stated at cost (generally using the average cost method) or net realizable value. The Company capitalizes
costs incurred in advance of contract award or funding in inventories if it determines that contract award or funding is probable.

Amounts previously capitalized are expensed when changes in facts and circumstances indicate that a contract award or funding
is no longer probable. General and administrative costs incurred throughout 2020 and 2019 totaled $262.9 million and $273.9
million, respectively, and the cumulative amount of general and administrative costs in long-term contract inventories were
estimated to be $1.8 million and $3.8 million as of December 31, 2020 and 2019, respectively. Inventories are included as a
component of other current assets.

g. Income Taxes

The Company files a consolidated U.S. federal income tax return with its 100% owned consolidated subsidiaries. The

deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax
reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in the period of the enactment date of the change.

The carrying value of the Company’s deferred tax assets is dependent upon its ability to generate sufficient taxable income

in the future. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not
be realized. A review of all available positive and negative evidence is considered, including the Company’s past and future
performance, the market environment in which it operates, the utilization of tax attributes in the past, the length of carryback and
carryforward periods, and evaluation of potential tax planning strategies.

h. Property, Plant and Equipment, net

Property, plant and equipment are recorded at cost. Refurbishment costs that extend the life or increase the value of an

asset are capitalized in the property accounts, whereas ordinary maintenance and repair costs are expensed as incurred.
Depreciation is computed principally by accelerated methods based on the following useful lives:

Buildings and improvements

Machinery and equipment

9 - 40 years

6 - 10 years

Costs related to software acquired, developed or modified solely to meet the Company's internal requirements (including
cloud computing arrangements) and for which there are no substantive plans to market for sale are capitalized and depreciated
over 3 to 7 years. Only costs incurred after the preliminary planning stage of the project and after management has authorized
and committed funds to the project are eligible for capitalization.

i. Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-
of-use ("ROU") assets, other current liabilities, and operating lease liabilities. Finance leases are included in property, plant and
equipment and debt. Operating ROU assets and liabilities are recognized at commencement date based on the present value of
lease payments over the lease term. Finance leases are recorded as an asset and an obligation at an amount equal to the
present value of the minimum lease payments during the lease term. Amortization expense related to finance leases is included
in depreciation and amortization expense.

For certain technology equipment leases, the Company accounts for lease and nonlease (service) components separately
based on a relative fair market value basis. For all other leases, the Company accounts for the lease and nonlease components
(e.g., common area maintenance) on a combined basis.

The discount rate used for leases is the Company's incremental borrowing rate for collateralized debt based on information

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

j. Real Estate Held for Entitlement and Leasing

The Company capitalizes all costs associated with the real estate entitlement and leasing process. The Company
classifies activities related to the entitlement, sale, and leasing of its excess real estate assets as operating activities in the
consolidated statements of cash flows. Real estate held for entitlement and leasing is included as a component of other
noncurrent assets.

k. Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair values of the
identifiable assets acquired and liabilities assumed. All of the Company's recorded goodwill resides in the Aerospace and
Defense reporting unit. Tests for impairment of goodwill are performed on an annual basis, or at any other time if events occur or
circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an
impairment test include but are not limited to: a significant adverse change in the business climate or legal factors; adverse cash
flow trends; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; decline in stock
price; and results of testing for recoverability of a significant asset group within a reporting unit.

The Company evaluates qualitative factors (including macroeconomic conditions, industry and market considerations, cost
factors, and overall financial performance) to determine whether it is necessary to perform the first step of the goodwill test. This
step is referred to as the "Step Zero" analysis. If it is determined that it is more likely than not (a likelihood of more than 50%) that

the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative ("Step One")
analysis to determine the existence and amount of any goodwill impairment. The Company may also perform a Step One
analysis from time to time to augment its qualitative assessment. The Company evaluated goodwill using a Step Zero analysis as
of October 1, 2020 and 2019, and determined that goodwill was not impaired.

There can be no assurance that the Company’s estimates and assumptions made for purposes of its goodwill impairment

testing will prove to be accurate predictions of the future. If the Company’s assumptions and estimates are incorrect, the
Company may be required to record goodwill impairment charges in future periods.

l. Intangible Assets

Identifiable intangible assets, such as patents, trademarks, and licenses are recorded at cost or when acquired as part of a

business combination at estimated fair value. Identifiable intangible assets are amortized based on when they provide the
Company economic benefit, or using the straight-line method, over their estimated useful life. Amortization periods for identifiable
intangible assets range from 7 years to 30 years.

m. Environmental Remediation

The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and
contamination in ongoing operations. The Company reviews on a quarterly basis estimated future remediation costs and has an
established practice of estimating environmental remediation costs over a fifteen-year period, except for those environmental
remediation costs with a specific contractual term. Environmental liabilities at the Baldwin Park Operable Unit ("BPOU") site are
currently estimated through the term of the project agreement, which expires in May 2027. In establishing reserves, the most
probable estimated amount is used when determinable, and the minimum amount is used when no single amount in the range is
more probable. Environmental reserves include the costs of completing remedial investigation and feasibility studies, remedial
and corrective actions, regulatory oversight costs, the cost of operation and maintenance of the remedial action plan, and
employee compensation costs for employees who are expected to devote a significant amount of time to remediation efforts.
Calculation of environmental reserves is based on the evaluation of currently available information with respect to each individual
environmental site and considers factors such as existing technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites. Such estimates are based on the expected costs of investigation and
remediation and the likelihood that other potentially responsible parties will be able to fulfill their commitments at sites where the
Company may be jointly or severally liable.

At the time a liability is recorded for future environmental costs, the Company records an asset for estimated future
recoveries that are estimable and probable. Some of the Company’s environmental costs are eligible for future recovery in the
pricing of its products and services to the U.S. government and under existing third party agreements. The Company considers
the recovery probable based on the Global Settlement, U.S. government contracting regulations, and its long history of receiving
reimbursement for such costs (see Notes 8(b) and 8(c)).

n. Retirement Benefits

The Company discontinued future benefit accruals for the defined benefit pension plans in 2009. The Company provides

medical and life insurance benefits ("postretirement benefits") to certain eligible retired employees, with varied coverage by
employee group. Annual charges are made for the cost of the plans, including interest costs on benefit obligations, and net
amortization and deferrals, increased or reduced by the return on assets. The Company also sponsors a defined contribution
401(k) plan and participation in the plan is available to all employees (see Note 7).

o. Conditional Asset Retirement Obligations

Conditional asset retirement obligations ("CAROs") are legal obligations associated with the retirement of long-lived
assets. These liabilities are initially recorded at fair value and the expected asset retirement costs are capitalized by increasing
the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently
depreciated over the useful lives of the related assets. Subsequent to initial recognition, the Company records period-to-period
changes in the CARO liability resulting from the passage of time and revisions to either the timing or the amount of the estimate
of the undiscounted cash flows.

CAROs associated with owned properties are based on estimated costs necessary for the legally required removal or

remediation of various regulated materials, primarily asbestos disposal and radiological decontamination of an ordnance
manufacturing facility. For leased properties, CAROs are based on the estimated cost of contractually required property
restoration.

The following table summarizes the changes in the carrying amount of CAROs:

Balance at beginning of year

(Reductions)/ additions and other, net

Accretion

Balance at end of year

p. Loss Contingencies

Year Ended December 31,

2020

2019

2018

(In millions)

51.4 $

(2.7)

2.7

46.0 $

2.6

2.8

51.4 $

44.0

(0.5)

2.5

46.0

The Company is currently involved in certain legal proceedings and has accrued its estimate of the probable costs and
recoveries (in relation to environmental costs) for resolution of these claims. These estimates are based upon an analysis of
potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of
operations or cash flows for any particular period could be materially affected by changes in estimates or the effectiveness of
strategies related to these proceedings.

q. Warranties

The Company provides product warranties in conjunction with certain product sales. The majority of the Company’s
warranties are a one-year standard warranty for parts, workmanship, and compliance with specifications. On occasion, the
Company has made commitments beyond the standard warranty obligation. While the Company has contracts with warranty
provisions, there is not a history of any significant warranty claims experience. A reserve for warranty exposure is made on a
product by product basis when it is both estimable and probable. These costs are included in the program’s estimate at
completion and are expensed in accordance with the Company’s revenue recognition methodology for that particular contract.

r. 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. Each customer contract defines the
Company’s distinct performance obligations and the associated transaction price for each obligation. A contract may contain one
or multiple performance obligations. In certain circumstances, multiple contracts with a customer are required to be combined in
determining the distinct performance obligation. For contracts with multiple performance obligations, the Company allocates the
contracted transaction price to each performance obligation based upon the relative standalone selling price, which represents
the price at which the Company would sell the promised good or service separately to the customer. The Company determines
the standalone selling price based upon the facts and circumstances of each obligated good or service. The majority of the
Company’s contracts have no observable standalone selling price since the associated products and services are customized to
customer specifications. As such, the standalone selling price generally reflects the Company’s forecast of the total cost to satisfy
the performance obligation plus an appropriate profit margin.

Contract modifications are routine in the performance of the Company's long-term contracts. Contracts are often modified

to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or
services that are not distinct, and, therefore, are accounted for as part of the existing contract.

The Company recognizes revenue as each performance obligation is satisfied. The majority of the Company’s aerospace

and defense performance obligations are satisfied over time either as the service is provided, or as control transfers to the
customer. Transfer of control is evidenced by the Company’s contractual right to payment for work performed to date plus a
reasonable profit on contracts with highly customized products that have no alternative use to the Company. The Company
measures progress on substantially all its performance obligations using the cost-to-cost method, which the Company believes
best depicts the transfer of control of goods and services to the customer. Under the cost-to-cost method, the Company records
revenues based upon costs incurred to date relative to the total estimated cost at completion. Contract costs include labor,
material, overhead, and general and administrative expenses, as appropriate.

Recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to the total

contract value, the total cost at completion, and the measurement of progress towards completion for each performance
obligation. Due to the nature of the programs, developing the estimated total contract value and total cost at completion for each
performance obligation requires the use of significant judgment.

The contract value of long-term contracts may include variable consideration, such as incentives, awards, or penalties.
The value of variable consideration is generally determined by contracted performance metrics, which may include targets for
cost, performance, quality, and schedule. The Company includes variable consideration in the transaction price for the respective
performance obligation at either estimated value, or most likely amount to be earned, based upon the Company’s assessment of
expected performance. The Company records these amounts only to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

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:

Year Ended December 31,

2020

2019

2018

(In millions, except per share amounts)

Net favorable effect of the changes in contract estimates on net sales

38.5 $

38.6 $

68.2

Favorable effect of the changes in contract estimates on income before income
taxes

Favorable effect of the changes in contract estimates on net income

Favorable effect of the changes in contract estimates on basic earnings per share
("EPS") of common stock

Favorable effect of the changes in contract estimates on diluted EPS

45.1

34.5

0.44

0.42

38.4

28.2

0.36

0.34

59.1

43.1

0.56

0.55

The 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, RL10, and Patriot Advanced Capability-3 ("PAC-3") programs
partially offset by cost growth on a portion of the Standard Missile program and the Commercial Crew program. The 2019 net
favorable changes in contract estimates on income before income taxes were primarily driven by improved performance and risk
retirements on the THAAD and PAC-3 programs. The 2018 net favorable changes in contract estimates on income before
income taxes were primarily driven by risk retirements on the THAAD, RS-68, and RL10 programs and favorable overhead rate
performance, partially offset by cost growth and performance issues on the Commercial Crew Development program.

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 on the Company’s Consolidated Balance Sheet. The
Company invoices in accordance with contract payment terms either based upon a recurring contract payment schedule, or as
contract milestones are achieved. Customer invoices, net of reserves, represent an unconditional right of consideration. When
revenue is recognized in advance of customer invoicing, a contract asset is recorded. Conversely, when customers are invoiced
in advance of revenue recognition, a contract liability is recorded. Unpaid customer invoices are reflected as accounts receivable.
Amounts for overhead disallowances or billing decrements are reflected in contract assets and primarily represent estimates of
potential overhead costs which may not be successfully negotiated and collected. The following table summarizes contract
assets and liabilities:

Contract assets

Reserve for overhead rate disallowance

Contract assets, net of reserve

Contract liabilities

Net contract liabilities, net of reserve

As of December 31,

2020

2019

(In millions)

294.3 $

(5.7)

288.6

407.2

(118.6) $

243.5

(19.4)

224.1

262.3

(38.2)

Net contract liabilities increased by $80.4 million primarily due to an increase in contract advances partially offset by an
increase in unbilled receivables. The decrease of $13.7 million in the reserve for overhead rate disallowance was primarily due to
adjustments for final incurred costs from prior years which were subject to audit and review for allowability by the U.S.
government. During 2020, the Company recognized sales of $223.3 million that were included in the Company’s contract
liabilities as of December 31, 2019. During 2019, the Company recognized sales of $240.6 million that were included in the
Company’s contract liabilities as of December 31, 2018. Contract assets included unbilled receivables of $286.0 million and
$232.4 million as of December 31, 2020 and 2019, respectively. Approximately 19% of unbilled receivables at December 31,
2020, are expected to be collected after one year.

As of December 31, 2020, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.7
billion. The Company expects to recognize approximately 32%, or $2.2 billion, of the remaining performance obligations as sales
over the next twelve months, an additional 24% the following twelve months, and 44% 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:

Fixed-price

Cost-reimbursable

Year Ended December 31,

2020

2019

2018

61 %

63 %

Revenue from real estate asset sales is recognized when a sufficient down-payment has been received, financing has

been arranged and title, possession and other attributes of ownership have been transferred to the buyer. The allocation to cost
of sales on real estate asset sales is based on a relative fair market value computation of the land sold which includes the basis
on the Company’s book value, capitalized entitlement costs, and an estimate of the Company’s continuing financial commitment.

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

Company-funded R&D expenses (reported as a component of cost of sales) were $55.8 million, $65.1 million, and $46.7
million in 2020, 2019, and 2018, respectively. Company-funded R&D expenses include the costs of technical activities that are
useful in developing new products, services, processes, or techniques, as well as expenses for technical activities that may
significantly improve existing products or processes. These expenses are generally allocated among all contracts and programs
in progress under U.S. government contractual arrangements. From time to time, the Company believes it is in its best interests
to self-fund and not allocate costs for certain R&D activities to the U.S. government contracts.

Customer-funded R&D expenditures, which are funded from U.S. government contracts, totaled $628.7 million, $680.5
million, and $591.6 million in 2020, 2019, and 2018, respectively. Expenditures under customer-funded R&D U.S. government
contracts are accounted for as sales and cost of sales.

t. Stock-based Compensation

The Company recognizes stock-based compensation in the statements of operations at the grant-date fair value of stock

awards issued to employees and directors over the vesting period. The Company also grants Stock Appreciation Rights ("SARs")
awards which are similar to the Company’s employee stock options, but are settled in cash rather than in shares of common
stock, and are classified as liability awards. Compensation cost for these awards is determined using a fair-value method and
remeasured at each reporting date until the date of settlement. The Company accounts for forfeitures when they occur for
consistency with the U.S. government recovery accounting practice.

u. Impairment or Disposal of Long-Lived Assets

Impairment of long-lived assets is recognized when events or circumstances indicate that the carrying amount of the asset,

or related groups of assets, may not be recoverable. Circumstances which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset;
current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with
the use of the asset; or a current expectation that the asset will more likely than not be sold or disposed of significantly before the
end of its estimated useful life. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the Company determines that
an asset is not recoverable, then the Company would record an impairment charge if the carrying value of the asset exceeds its
fair value.

A long-lived asset classified as "held for sale" is initially measured at the lower of its carrying amount or fair value less

costs to sell. In the period that the "held for sale" criteria are met, the Company recognizes an impairment charge for any initial
adjustment of the long-lived asset amount. Gains or losses not previously recognized resulting from the sale of a long-lived asset
are recognized on the date of sale.

v. Concentrations

Dependence upon U.S. Government Programs and Contracts

The principal end user customers of the Company's products and technology are primarily agencies of the U.S.

government. The following table summarizes the percentages of net sales by principal end user:

U.S. government

Non U.S. government customers

Year Ended December 31,

2020

2019

2018

96 %

94 %

The following table summarizes the percentages of net sales for significant programs, all of which are included in the

U.S. government sales and are comprised of multiple contracts:

RS-25 program

Standard Missile program

THAAD program

PAC-3 program

Major Customers

Year Ended December 31,

2020

2019

2018

18 %

17 %

14 %

The following table summarizes the customers that represented more than 10% of net sales, each of which involves sales

of several product lines and programs:

Lockheed Martin

NASA

Raytheon Technologies Corporation ("Raytheon")

ULA

________
* Less than 10%.

Credit Risk

Year Ended December 31,

2020

2019

2018

34 %

33 %

30 %

Aside from investments held in the Company’s retirement benefit plans, financial instruments that could potentially subject

the Company to concentration of credit risk consist primarily of cash, cash equivalents, and trade receivables. The Company’s
cash and cash equivalents are held and managed by recognized financial institutions and are subject to the Company’s
investment policy. The investment policy outlines minimum acceptable credit ratings for each type of investment and limits the
amount of credit exposure to any one security issue. The Company does not believe significant concentration of credit risk exists
with respect to these investments.

The following table summarizes customers that represented more than 10% of accounts receivable, including unbilled

receivables which are a component of contract assets:

Lockheed Martin

Raytheon

The Boeing Company

NASA

________
* Less than 10%.

As of December 31,

2020

2019

21 %

26 %

Dependence on Single Source and Other Third Party Suppliers

The Company uses a significant quantity of raw materials that are highly dependent on market fluctuations and
government regulations. Further, as a U.S. government contractor, the Company is often required to procure materials from
suppliers capable of meeting rigorous customer and government specifications. As market conditions change for these
companies, they often discontinue materials with low sales volumes or profit margins. The Company is often forced to either
qualify new materials or pay higher prices to maintain the supply. To date the Company has been successful in establishing
replacement materials and securing customer funding to address specific qualification needs of the programs. Prolonged
disruptions in the supply of any of the Company’s key raw materials, difficulty qualifying new sources of supply, implementing use
of replacement materials or new sources of supply, and/or a continuing volatility in the prices of raw materials could have a
material adverse effect on the Company’s operating results, financial condition, and/or cash flows.

Workforce

As of December 31, 2020, 8% of the Company’s employees were covered by collective bargaining agreements.

w. Related Parties

Warren G. Lichtenstein, the Executive Chairman of the Company is also the Executive Chairman of Steel Partners
Holdings L.P. ("Steel Holdings") and the Chief Executive Officer of Steel Partners Ltd. ("SPL"). The Company received services
of $0.1 million, $1.1 million, and $0.6 million in 2020, 2019, and 2018, respectively, from Steel Holdings and SPL, primarily
included administrative services and the use of an aircraft for business travel. As of December 31, 2020 and 2019, the Company
had liabilities due to such entities of $0.1 million and $0.1 million, respectively.

Lucas-Milhaupt, Inc., an indirect wholly-owned subsidiary of Steel Holdings, sold $0.3 million and $0.3 million in raw

materials to the Company for the manufacture of its products in 2019 and 2018, respectively.

GAMCO Investors, Inc. ("GAMCO") owned 8% and 9% of the Company's common stock at December 31, 2020 and 2019,
respectively. The Company received services of $0.8 million, $1.0 million, and $1.7 million in 2020, 2019, and 2018, respectively,
from GAMCO for investment management fees of the Company’s defined benefit pension plan assets.

Martin Turchin, a member of the Board of Directors of the Company is also a non-executive Vice Chairman of CB Richard

Ellis ("CBRE"). The Company received services of $0.4 million from CBRE for lease commissions in 2018.

BlackRock, Inc. ("BlackRock") owned 15% and 15% of the Company's common stock at December 31, 2020 and 2019,

respectively. The Company invests in money market funds managed by BlackRock.

The Vanguard Group, Inc. ("Vanguard") owned 10% and 11% of the Company’s common stock at December 31, 2020 and

2019, respectively. Certain of the investment alternatives offered through the Company’s 401(k) plan and grantor trust include
funds managed by Vanguard.

x. Accounting Pronouncements

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.

Note 2. Earnings Per Share

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

Numerator:

Net income

Income allocated to participating securities

Net income for basic and diluted EPS

Denominator:

Basic weighted average shares

Effect of:
21/4% Notes
Awards issued under equity plans

Diluted weighted average shares

Basic EPS

Diluted EPS

Year Ended December 31,

2020

2019

2018

(In millions, except per share amounts)

137.7 $

141.0 $

137.3

(1.7)

(2.6)

(2.9)

136.0 $

138.4 $

134.4

77.4

77.2

74.8

4.5

—

81.9

4.4

0.1

81.7

1.76 $

1.66 $

1.79 $

1.69 $

1.9

0.1

76.8

1.80

1.75

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. Balance Sheet Accounts and Supplemental Disclosures

a. Accounts Receivable, net

Billed

Reserve on billed trade receivables

Other trade receivables

Accounts receivable, net

As of December 31,

2020

2019

(In millions)

75.3 $

—

0.3

75.6 $

122.9

(10.6)

0.2

112.5

During 2020, the Company wrote-off $10.6 million of billed receivables that had previously been reserved.

b. Other Current Assets, net

Deferred costs recoverable from the U.S. government

Income tax receivable

Prepaid expenses

Inventories

Other

Other current assets, net

As of December 31,

2020

2019

(In millions)

41.0 $

46.9

18.0

10.0

20.6

47.1

43.4

13.9

24.0

17.4

136.5 $

145.8

The income tax receivable balance at December 31, 2020 and 2019, includes amounts the Company expects to receive

from amended returns and refund claims, and overpayment associated with tax returns.

c. Property, Plant and Equipment, net

Land

Buildings and improvements

Machinery and equipment, including capitalized software

Construction-in-progress

Less: accumulated depreciation

Property, plant and equipment, net

As of December 31,

2020

2019

(In millions)

71.2 $

433.4

471.3

105.5

1,081.4

(658.3)

423.1 $

71.2

434.9

488.2

70.2

1,064.5

(654.6)

409.9

Depreciation expense for 2020, 2019, and 2018 was $49.2 million, $58.1 million, and $56.1 million, respectively. The

Company had $8.6 million of property, plant and equipment additions included in accounts payable as of December 31, 2020.

d. Goodwill.

The goodwill balance as of December 31, 2020 and 2019, relates to the Company’s Aerospace and Defense segment. The

change of $0.1 million in the carrying amount of goodwill in 2019 was due to the 3D Material Technologies ("3DMT") acquisition.

e. Intangible Assets

Customer related
Intellectual property\trade secrets

Trade name

Acquired technology

Intangible assets

Customer related
Intellectual property\trade secrets

Trade name

Acquired technology

Intangible assets

As of December 31, 2020

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

(In millions)

87.2 $

75.3 $

34.2

21.0

19.2

19.7

5.4

16.4

161.6 $

116.8 $

11.9

14.5

15.6

2.8

44.8

As of December 31, 2019

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

(In millions)

87.2 $

65.9 $

34.2

21.0

19.2

17.1

4.6

15.8

161.6 $

103.4 $

21.3

17.1

16.4

3.4

58.2

The intangible asset balances as of December 31, 2020 and 2019, relates to the Company’s Aerospace and Defense
segment. Amortization expense related to intangible assets was $13.4 million, $13.6 million, and $13.7 million in 2020, 2019, and
2018, respectively.

Future amortization expense for the five succeeding years is estimated to be as follows:

Future
Amortization
Expense

(In millions)

9.9

6.6

6.1

4.8

3.7

31.1

As of December 31,

2020

2019

(In millions)

101.8 $

100.3

40.5

54.7

57.8

46.5

54.8

54.0

254.8 $

255.6

Year Ending December 31,

2021

2022

2023

2024

2025

f. Other Noncurrent Assets, net

Real estate held for entitlement and leasing

Receivable from Northrop Grumman Corporation for environmental remediation costs

Deferred costs recoverable from the U.S. government

Other

Other noncurrent assets, net

g. Other Current Liabilities

Accrued compensation and employee benefits

Other

Other current liabilities

h. Treasury Stock

As of December 31,

2020

2019

(In millions)

118.0 $

43.9

161.9 $

103.1

52.4

155.5

During 2020, the Company repurchased 1.3 million of its common shares at a cost of $51.7 million. The Company reflects

stock repurchases in its financial statements on a "settlement" basis.

i. Accumulated Other Comprehensive Loss, Net of Income Taxes

The following table presents the changes in accumulated other comprehensive loss by components, net of income taxes:

December 31, 2018

Actuarial losses, net of income taxes

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

December 31, 2019

Actuarial losses, net of income taxes

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

December 31, 2020

Note 4. Leases

Actuarial
Losses, Net

Prior Service
Credits (Costs),
Net

(In millions)

Total

(239.4) $

(26.5)

29.5

(236.4)

(31.5)

40.3

— $

—

(0.1)

—

0.1

(239.4)

(26.5)

29.4

(236.5)

(31.5)

40.4

(227.6) $

— $

(227.6)

In February 2016, the FASB issued guidance requiring lessees to recognize an ROU asset and a lease liability on the

balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either
operating or finance leases in the income statement. The new standard allowed for the application of the standard on the
adoption date without restatement of prior comparative periods presented or a modified retrospective transition method which
required application of the new guidance at the beginning of the earliest comparative period presented. The Company adopted
this new standard as of January 1, 2019, without restating prior comparative periods. The Company recorded an ROU asset and
lease liability for operating leases at adoption of $51.7 million and $56.3 million, respectively.

The Company and its subsidiaries lease certain facilities, machinery and equipment, and office buildings under long-term,

non-cancelable operating leases. The leases generally provide for renewal options ranging from one to twenty years.

The following table summarizes the Company's lease costs:

Year Ended December 31,

2020

2019

(In millions)

15.5 $

14.2

2.9

2.7

0.5

21.6 $

4.0

2.9

0.8

21.9

Operating lease cost

Finance lease cost:

Amortization

Interest on lease liabilities

Short-term lease cost

Total lease costs

Rent expense was $17.2 million in 2018.

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

Year Ended December 31,

2020

2019

(In millions)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases

Operating cash flows for finance leases

Financing cash flows for finance leases

Assets obtained in exchange for lease obligations:

Operating leases

Finance leases

13.7 $

2.7

2.1

11.9

—

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

Operating leases:

Operating lease right-of-use assets

Operating lease liabilities (component of other current liabilities)

Operating lease liabilities, noncurrent

Finance leases:

Property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

Current portion of long-term debt

Long-term debt

Total finance lease liability

Weighted-average remaining lease term (in years):

Operating leases

Finance leases

Weighted-average discount rate:

Operating leases

Finance leases

As of December 31,

2020

2019

(In millions)

46.8

13.4

35.7

49.1

52.9

(8.6)

44.3

2.2

43.4

45.6

4.4 %

5.9 %

14.2

2.9

3.3

7.7

23.8

48.0

12.0

39.1

51.1

52.9

(5.8)

47.1

2.1

45.6

47.7

4.7 %

5.2 %

The Company has additional information technology equipment operating leases that have not yet commenced amounting

to $0.9 million. These operating leases will commence between 2021 and 2022 with lease terms of up to two years.

The following table presents the maturities of lease liabilities and lease revenue in effect as of December 31, 2020:

Year Ending December 31,

Operating Leases

Finance Leases

Future Minimum
Rental Income

2021

2022

2023

2024

2025

Thereafter

Total minimum rentals

Less: imputed interest

Total

14.9 $

4.7 $

(In millions)

13.0

6.6

3.0

2.9

16.0

56.4

(7.3)

49.1 $

4.4

3.7

3.8

53.7

74.1

(28.5)

45.6 $

1.6

1.0

0.9

0.8

5.8

11.7

—

11.7

The Company also leases certain surplus facilities to third parties. The Company recorded lease income of $3.3 million,

$7.5 million, and $6.4 million in 2020, 2019 and 2018, respectively, related to these arrangements, which have been included in
net sales.

Note 5. Income Taxes

The Company files a consolidated U.S. federal income tax return with its wholly-owned subsidiaries. The following table

presents the components of the Company’s income tax provision:

Current

U.S. federal

State and local

Deferred

U.S. federal

State and local

Year Ended December 31,

2020

2019

2018

(In millions)

4.8 $

45.2 $

(0.1)

4.7

11.5

56.7

26.1

11.7

37.8

(8.1)

2.3

(5.8)

35.1

11.5

46.6

0.9

3.8

4.7

Income tax provision

42.5 $

50.9 $

51.3

The following table presents the reconciling items between the income tax provision using the U.S. federal statutory rate

and the Company's reported income tax provision.

Statutory U.S. federal income tax

State income taxes, net of federal benefit

Reserve adjustments

Tax credits and special deductions

Nondeductible compensation

Stock-based compensation excess tax benefits

Other

Income tax provision

Year Ended December 31,

2020

2019

2018

(In millions)

37.9 $

40.3 $

9.1

1.2

10.9

3.9

(4.6)

(2.7)

3.4

(4.4)

(0.1)

1.0

(2.3)

(0.2)

42.5 $

50.9 $

39.6

12.1

2.7

(3.7)

0.8

(0.4)

0.2

51.3

The following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income

tax rate on earnings in percentages.

Statutory U.S. federal income tax rate

State income taxes, net of federal benefit

Reserve adjustments

Tax credits and special deductions

Nondeductible compensation

Stock-based compensation excess tax benefits

Other

Effective income tax rate

Year Ended December 31,

2020

2019

2018

21.0 %

5.1

0.7

(2.6)

1.9

(2.4)

(0.1)

5.7

2.0

(1.4)

0.5

(1.2)

(0.1)

6.4

1.4

(2.0)

0.5

(0.2)

0.1

23.6 %

26.5 %

27.2 %

In 2020, the Company’s effective tax rate was 23.6%. The Company's effective tax rate differed from the 21% statutory

federal income tax rate primarily due to state income taxes, uncertain tax positions, and certain expenditures which are
permanently not deductible for tax purposes, offset by R&D credits and excess tax benefits related to the Company's stock-
based compensation.

In 2019, the Company’s effective tax rate was 26.5%. The Company’s effective tax rate differed from the 21% statutory
federal income tax rate primarily due to state income taxes and uncertain tax positions, offset by R&D credits and excess tax
benefits related to the Company’s stock-based compensation.

In 2018, the Company’s effective tax rate was 27.2%. The Company’s effective tax rate differed from the 21% statutory
federal income tax rate primarily due to state income taxes and unfavorable adjustments to uncertain tax positions partially offset
by R&D credits.

The Company is routinely examined by domestic tax authorities. While it is difficult to predict the outcome or timing of a

particular tax matter, the Company believes it has adequately provided reserves for any reasonable foreseeable outcome related
to these matters.

In the second quarter of 2018, the Internal Revenue Service ("IRS") notified the Company that its federal income tax return

for the year ended November 30, 2015, was selected for audit. In the fourth quarter of 2019, the IRS notified the Company that
they completed the audit at the field level with no changes and forwarded the Company's case to the Joint Committee on
Taxation ("JCT") for a secondary review. In the third quarter of 2020, the IRS closed the audit after the JCT completed its review
without exception and refunded the $12.9 million due on the Company's income tax return and carryback claim.

The State of Florida notified the Company they would be opening an income tax audit for the years ended December 31,
2016, through December 31, 2018. The audit began in the first quarter of 2020 and there have been no adjustments noted as of
December 31, 2020.

U.S. federal tax returns for the years ended December 31, 2016, through December 31, 2019, remain open to

examination. Tax returns for the years ended November 30, 2015, through December 31, 2019, remain open to examination for
state income tax jurisdictions.

The following table presents a reconciliation of unrecognized tax benefits:

Balances at beginning of year

Increases based on tax positions in prior years

Decreases based on tax position in prior years

Increases based on tax positions in current year

Lapse of statute of limitations

Balances at end of year

Year Ended December 31,

2020

2019

2018

(In millions)

58.0 $

7.4 $

2.7

(51.5)

5.6

(0.6)

40.4

—

10.4

(0.2)

14.2 $

58.0 $

4.4

0.3

(0.1)

3.5

(0.7)

7.4

As of December 31, 2020, the total amount of unrecognized tax benefits was $14.2 million which would all affect the
effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2020, the Company’s accrued interest and penalties related to uncertain tax positions was $0.4 million. It is
reasonably possible that a reduction of up to $0.8 million of unrecognized tax benefits and related interest and penalties may
occur within the next 12 months as a result of the expiration of certain statutes of limitations.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the Company’s

assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined by
multiplying such differences by the enacted tax rates expected to be in effect when such differences are recovered or settled.

The following table presents the deferred tax assets and liabilities:

Deferred Tax Assets

Accrued estimated costs

Basis difference in assets and liabilities

Operating lease liabilities

Tax losses and credit carryforwards

Net cumulative defined benefit pension plan losses

Retiree medical and life insurance benefits

Total deferred tax assets

Deferred Tax Liabilities

Revenue recognition differences

Basis differences in intangible assets

ROU assets

Total deferred tax liabilities

Total net deferred tax assets

As of December 31,

2020

2019

(In millions)

48.4 $

68.5

12.3

1.7

81.5

6.0

43.2

59.0

12.9

3.0

95.9

6.2

218.4

220.2

116.7

9.2

11.4

137.3

77.7

8.6

12.0

98.3

81.1 $

121.9

Realization of deferred tax assets is primarily dependent on generating sufficient taxable income in future periods. The

Company believes it is more likely than not its deferred tax assets will be realized. Accordingly, no valuation allowance was
recorded for 2020 and 2019.

The Company fully utilized its federal net operating loss carryforwards and income tax credits in 2018. The Company

utilized substantially all of its state net operating loss carryforwards in 2019. The Company’s California income tax credit
carryovers are $1.0 million as of December 31, 2020, and have no expiration date.

Note 6. Long-Term Debt

Senior debt

Convertible senior notes

Finance leases (see Note 4)

Total debt, carrying amount

Less: Amounts due within one year

Total long-term debt, carrying amount

As of December 31,

2020

2019

(In millions)

307.1 $

271.6

45.6

624.3

(299.9)

324.4 $

326.3

263.0

47.7

637.0

(284.7)

352.3

The following table presents as of December 31, 2020, the earlier of the Company’s contractual debt principal maturities
excluding finance lease obligations or the next debt redemption date that could be exercised at the option of the debt holder by
year excluding finance lease obligations:

Senior debt

Convertible senior notes

Total

2021

2022

2023

(In millions)

$ 308.5 $ 26.3 $ 28.4 $ 253.8

300.0

—

$ 608.5 $ 326.3 $ 28.4 $ 253.8

See a summary of the minimum payments under finance lease obligations in Note 4.

The Company amortizes deferred financing costs over the estimated life of the related debt (a portion of which is classified

as a contra liability). Amortization of deferred financing costs was $2.0 million, $1.9 million, and $1.8 million in 2020, 2019, and
2018, respectively.

a. Senior Debt:

Term loan, bearing interest at variable rates (rate of 1.90% as of December 31, 2020),
maturing in September 2023

Unamortized deferred financing costs

Total senior debt

As of December 31,

2020

2019

(In millions)

308.5 $

(1.4)

307.1 $

328.1

(1.8)

326.3

On September 20, 2018, the Company amended the senior secured Senior Credit Facility (the "Senior Credit Facility") to a

$1.0 billion commitment with the lenders named therein and Bank of America Merrill Lynch as joint lead arranger and
administrative agent. The Senior Credit Facility matures on September 20, 2023, and consists of (i) a $650.0 million revolving
line of credit (the "Revolver") and (ii) a $350.0 million term loan (the "Term Loan"). The Senior Credit Facility amended the prior
$750.0 million credit facility which was set to mature in June 2021 and is intended to provide available funds for the Company’s
short-term liquidity needs from time to time.

As of December 31, 2020, the Company had zero borrowings under the Revolver and had issued $27.6 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.

The Term Loan amortized at a rate of 7.5% per annum as of December 31, 2020, and increasing to 10.0% per annum from

December 31, 2022, to be paid in equal quarterly installments with any remaining amounts, along with outstanding borrowings
under the Revolver, due on the maturity date. Outstanding borrowings under the Revolver and the Term Loan may
be voluntarily repaid at any time, in whole or in part, without premium or penalty.

The Senior Credit Facility is secured by a first priority security interest in the Company’s assets, subject to certain

customary exceptions, as well as pledges of its equity interests in certain subsidiaries.

The Senior Credit Facility contains financial covenants requiring the Company to (i) maintain an interest coverage ratio (the

"Consolidated Interest Coverage Ratio") of not less than 3.00 to 1.00 and (ii) maintain a Consolidated Net Leverage Ratio not to
exceed (a) 3.75 to 1.00 from October 1, 2020, through September 30, 2021; and (b) 3.50 to 1.00 from October 1, 2021,
thereafter, provided that the maximum leverage ratio for all periods shall be increased by 0.50 to 1.00 for two consecutive
quarters after consummation of a qualified acquisition.

The Company may generally make certain investments, redeem debt subordinated to the Senior Credit Facility and make

certain restricted payments (such as stock repurchases and dividends) if the Company's Consolidated Net Leverage
Ratio does not exceed 3.25 to 1.00 pro forma for such transaction. The Company is otherwise subject to customary covenants
including limitations on asset sales, incurrence of additional debt, and limitations on certain investments and restricted payments.

The Company was in compliance with its financial and non-financial covenants as of December 31, 2020.

b. Convertible Senior Notes:

Senior convertible notes, bearing interest at 2.25% per annum, interest payments due in
June and December, maturing in December 2023

Unamortized discount and deferred financing costs

Total convertible senior notes

As of December 31,

2020

2019

(In millions)

300.0 $

(28.4)

271.6 $

300.0

(37.0)

263.0

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. The 2¼% Notes
bear cash interest at a rate of 2.25% per annum on the principal amount of the 2¼% Notes from December 14, 2016, payable
semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2017. The 2¼% Notes will mature on
December 15, 2023, subject to earlier repurchase, redemption or conversion in certain circumstances described below.

The 2¼% Notes are general unsecured senior obligations, which (i) rank senior in right of payment to all of the Company’s

existing and future senior indebtedness that is expressly subordinated in right of payment to the 2¼% Notes; (ii) rank equal in
right of payment with all of the Company’s existing and future unsecured indebtedness that is not so subordinated; (iii) rank
effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets

securing such indebtedness; and (iv) rank structurally junior to all indebtedness and other liabilities (including trade payables) of
the Company’s subsidiaries.

The 2¼% Notes may be converted into cash, shares of the Company’s common stock or a combination thereof initially at a
conversion rate of 38.4615 shares of common stock per $1,000 principal amount of 2¼% Notes (equivalent to a conversion price
of approximately $26.00 per share of common stock), subject to adjustment from time to time as described in the indenture
governing the 2¼% Notes. Holders may convert their 2¼% Notes at their option (i) at any time prior to the close of business on
the business day immediately preceding September 15, 2023, under certain circumstances and (ii) at any time on or after
September 15, 2023, until the close of business on the business day immediately preceding the maturity date, irrespective of
such circumstances. In addition, if holders of the 2¼% Notes elect to convert their 2¼% Notes in connection with the occurrence
of a make-whole fundamental change, as defined in the indenture governing the 2¼% Notes, such holders will be entitled to an
increase in the conversion rate upon conversion in certain circumstances.

Holders may convert their 2¼% Notes at their option from January 1, 2021, through March 31, 2021, because the

Company's closing stock price exceeded $33.80 for at least 20 days in the 30 day period prior to December 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 $271.6 million is classified as a current liability as of
December 31, 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 Company may redeem for cash all or any portion of the 2¼% Notes, at its option, on or after December 21, 2020, if
the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at
least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of
such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2¼% Notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date.

If a fundamental change, as defined in the indenture governing the 2¼% Notes, occurs prior to maturity, subject to certain
conditions, holders of the 2¼% Notes will have the right to require the Company to repurchase all or part of their 2¼% Notes for
cash at a fundamental change repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any,
up to, but excluding, the fundamental change repurchase date.

The 2¼% Notes contain customary events of default, including, among other things, payment default, covenant default
and certain cross-default provisions linked to the payment of other indebtedness of the Company or its significant subsidiaries.

Issuance of the 2¼% Notes generated proceeds of $294.2 million net of debt issuance costs, which were used to

repurchase long-term debt and for working capital and other general corporate purposes.

On December 19, 2020, the Company's Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00

per share (including shares underlying the 2¼% Notes participating on an as-converted basis). See Note 1 for additional
information.

The Company separately accounted for the liability and equity components of the 2¼% Notes. The initial liability

component of the 2¼% Notes was valued based on the present value of the future cash flows using an estimated borrowing rate
at the date of the issuance for similar debt instruments without the conversion feature, which equals the effective interest rate of
5.8% on the liability component. The equity component, or debt discount, was initially valued equal to the principal value of the
2¼% Notes, less the liability component. The debt discount is being amortized as a non-cash charge to interest expense over
the period from the issuance date through December 15, 2023.

The debt issuance costs of $5.8 million incurred in connection with the issuance of the 2¼% Notes were capitalized and

bifurcated into deferred financing costs of $4.7 million and equity issuance costs of $1.1 million. The deferred financing costs are
being amortized to interest expense from the issuance date through December 15, 2023.

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

conversion price):

Carrying value, long-term

Unamortized discount and deferred financing costs

Principal amount

Carrying amount of equity component, net of equity issuance costs

Remaining amortization period (years)

Effective interest rate

Conversion rate (shares of common stock per $1,000 principal amount)

Conversion price (per share of common stock)

As of December 31,

2020

2019

271.6

$ 263.0

28.4

37.0

300.0

$ 300.0

54.5

3.0

5.8 %

4.0

5.8 %

38.4615

26.00

$ 26.00

Based on the Company's closing stock price of $52.85 on December 31, 2020, the if-converted value of the 2¼% Notes

exceeded the aggregate principal amount of the 2¼% Notes by $309.8 million.

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

Interest expense-contractual interest

Interest expense-amortization of debt discount

Interest expense-amortization of deferred financing costs

Note 7. Retirement Benefits

a. Plan Descriptions

Pension Benefits

Year Ended December 31,

2020

2019

2018

(In millions)

6.8 $

7.9

0.6

7.5

0.6

6.8

7.1

0.6

The Company's defined benefit pension plan future benefit accrual was discontinued in 2009. As of December 31, 2020,
the assets, projected benefit obligations, and unfunded pension obligation were $957.0 million, $1,381.5 million, and $424.5
million, respectively.

In 2021, the Company expects to make cash contributions of approximately $94 million to its tax-qualified defined benefit
pension plan. The Company is generally able to recover contributions related to its tax-qualified defined benefit pension plan as
allowable costs on its U.S. government contracts, but there are differences between when the Company contributes to its tax-
qualified defined benefit pension plan under pension funding rules and when it is recoverable under Cost Accounting Standards
("CAS"). During 2020, the Company made cash contributions of $14.1 million and used $28.0 million of prepayment credits to
fund its tax-qualified defined benefit pension plan.

The funded status of the Company's tax-qualified pension plan may be adversely affected by the investment experience of

the plan's assets, by any changes in U.S. law and by changes in the statutory interest rates used by tax-qualified pension plans
in the U.S. to calculate funding requirements. Accordingly, if the performance of the plan's assets does not meet assumptions, if
there are changes to income tax regulations or other applicable law, or if other actuarial assumptions are modified, future
contributions to the underfunded pension plans could be higher than the Company expects.

Medical and Life Insurance Benefits

The Company provides medical and life insurance benefits to certain eligible retired employees, with varied coverage by

employee group. Generally, employees hired after January 1, 1997, are not eligible for retiree medical and life insurance
benefits. The medical benefit plan provides for cost sharing between the Company and its retirees in the form of retiree
contributions, deductibles, and coinsurance. Medical and life insurance benefit obligations are unfunded. Medical and life
insurance benefit cash payments for eligible retired employees are recoverable from the Company’s U.S. government contracts.

Defined Contribution 401(k) Benefits

The Company sponsors a defined contribution 401(k) plan and participation in the plan is available to all employees. The
Company makes matching contributions in cash equal to 100% of the first 3% of the participants’ compensation contributed and
50% of the next 3% of the compensation contributed. The cost of the 401(k) plan was $21.8 million, $21.4 million, and $22.2
million in 2020, 2019, and 2018, respectively.

b. Plan Results

The following table summarizes the balance sheet impact of the Company’s pension benefits and medical and life

insurance benefits. Pension benefits include the consolidated tax-qualified plan and the unfunded non-qualified plan for benefits

provided to employees beyond those provided by the Company’s tax-qualified plan. Assets, benefit obligations, and the funded
status of the plans were determined at December 31, 2020 and 2019.

Change in fair value of assets:

Fair value - beginning of year

Gain (loss) on assets

Employer contributions

Benefits paid (1)

Fair value - end of year

Change in benefit obligation:

Benefit obligation - beginning of year

Interest cost

Actuarial losses (gains)

Benefits paid

Pension Benefits

Medical and
Life Insurance
Benefits

As of December 31,

2020

2019

2020

2019

(In millions)

$ 932.5 $ 894.8 $ — $

117.1

144.8

15.6

1.4

—

2.8

—

3.1

(108.2)

(108.5)

(2.8)

(3.1)

$ 957.0 $ 932.5 $ — $

—

$ 1,349.8 $ 1,288.7 $ 25.9 $

31.3

42.5

52.7

97.4

116.9

0.8

1.1

(108.2)

(108.5)

(2.8)

1.2

(3.5)

(3.1)

Benefit obligation and accumulated benefit obligation - end of year

$ 1,381.5 $ 1,349.8 $ 25.0 $

25.9

Funded status of the plans

$ (424.5) $ (417.3) $ (25.0) $

(25.9)

Amounts recognized in the consolidated balance sheets:

Postretirement medical and life insurance benefits, current

— $ — $

(3.5) $

(3.6)

Postretirement medical and life insurance benefits, noncurrent

Pension liability, non-qualified current (component of other current liabilities)

Pension liability, non-qualified (component of other noncurrent liabilities)

Pension benefits, noncurrent

—

(1.3)

—

(1.3)

(18.0)

(17.1)

(405.2)

(398.9)

(21.5)

(22.3)

—

Net liability recognized in the consolidated balance sheets

$ (424.5) $ (417.3) $ (25.0) $

(25.9)

______

(1) Benefits paid for medical and life insurance benefits are net of the Medicare Part D Subsidy of $0.1 million received in both

2020 and 2019.

The pension benefits obligation actuarial losses of $97.4 million in 2020 were primarily the result of a decrease in the

discount rate used to determine the obligation due to lower market interest rates. The discount rate was 2.52% as of
December 31, 2020, compared with 3.28% as of December 31, 2019. The pension obligation actuarial losses of $116.9 million in
2019 were primarily the result of a decrease in the discount rate used to determine the obligation due to lower market interest
rates. The discount rate was 3.28% as of December 31, 2019, compared with 4.27% as of December 31, 2018.

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

Pension Benefits

Medical and
Life Insurance Benefits

Year Ended December 31,

2020

2019

2018

2020

2019

2018

(In millions)

Interest cost on benefit obligation

42.5 $

52.7 $

49.7 $

0.8 $

1.2 $

Assumed return on assets

Amortization of prior service costs (credits)

Amortization of net losses (gains)

(60.5)

(64.8)

(60.1)

0.1

57.4

0.1

40.9

0.1

70.7

—

(3.7)

—

(0.2)

(3.8)

39.5 $

28.9 $

60.4 $

(2.9) $

(2.8) $

1.2

—

(0.2)

(3.8)

(2.8)

The following table presents the actual return and rate of return on assets:

Actual gain (loss) on assets

Actual rate of return (loss) on assets

Year Ended December 31,

2020

2019

2018

(In millions, except rate of return)

117.1

144.8

(57.8)

15.6 %

18.0 %

(5.2) %

Market conditions and interest rates significantly affect assets and liabilities of the pension plans. Pension accounting
permits market gains and losses to be deferred and recognized over a period of years. This "smoothing" results in the creation of
other accumulated income or loss which will be amortized to pension costs in future years. The accounting method the Company
utilizes recognizes one-fifth of the unamortized gains and losses in the market-related value of pension assets and all other gains
and losses including changes in the discount rate used to calculate the benefit obligation each year. Investment gains or losses
for this purpose are the difference between the expected return and the actual return on the market-related value of assets which
smoothes asset values over three years. Although the smoothing period mitigates some volatility in the calculation of annual
retirement benefits expense, future expenses are impacted by changes in the market value of assets and changes in interest
rates.

c. Plan Assumptions

The following table presents the assumptions, calculated based on a weighted-average, to determine the benefit

obligations:

Discount rate

Discount rate (non-qualified plan)

Ultimate healthcare trend rate

Initial healthcare trend rate (pre 65/post 65)

Year ultimate rate attained (pre 65/post 65)

______

* Not applicable

Pension
Benefits

Medical and
Life Insurance Benefits

As of December 31,

2020

2019

2020

2019

2.52 %

2.51 %

3.28 %

3.30 %

2.28 %

3.19 %

4.50 %

6.50 %

2028

4.50 %

5.50 %

2022

The following table presents the assumptions, calculated based on a weighted-average, to determine the retirement

benefits expense (income):

Discount rate

Discount rate (non-qualified plan)

Expected long-term rate of return on assets

Ultimate healthcare trend rate

Initial healthcare trend rate (pre 65/post 65)

Year ultimate rate attained (pre 65/post 65)

______

* Not applicable

Pension Benefits

Medical and
Life Insurance Benefits

Year Ended December 31,

2020

2019

2018

2020

2019

2018

3.28 %

3.30 %

7.00 %

4.27 %

7.00 %

3.59 %

3.62 %

7.00 %

3.19 %

4.09 %

3.37 %

4.50 %

5.50 %

2022

4.50 %

6.00 %

2022

5.00 %

6.50 %

2021

Certain actuarial assumptions, such as assumed discount rate, long-term rate of return, and assumed healthcare cost
trend rates can have a significant effect on amounts reported for periodic cost of pension benefits and medical and life insurance
benefits, as well as respective benefit obligation amounts. The assumed discount rate represents the market rate available for
investments in high-quality fixed income instruments with maturities matched to the expected benefit payments for pension and
medical and life insurance benefit plans.

The expected long-term rate of return on assets represents the rate of earnings expected in the funds invested, and funds

to be invested, to provide for anticipated benefit payments to plan participants. The Company evaluated historical investment
performance, current and expected asset allocation, and, with input from the Company’s external advisors, developed best
estimates of future investment performance. Based on this analysis, the Company assumed a long-term expected rate of return
of 7.0% in 2020.

The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost
trend rates for the medical benefit plans. For 2020 medical benefit obligations, the Company assumed a 6.5% annual rate of
increase for pre and post 65 participants in the per capita cost of covered healthcare claims with the rate decreasing over seven
years until reaching 4.5%.

d. Plan Assets and Investment Policy

The Company’s investment policy is to maximize the total rate of return within a prudent risk framework, while maintaining

adequate liquidity throughout volatile market cycles to meet benefit obligations when due. The Company's strategies employ
active management and are generally focused on minimizing the permanent loss of capital. The Company's asset diversification
objectives target a diversified portfolio that invests across the capital structure via strategies with complimentary risk and return
profiles. Diversification is achieved by investing in various asset types, which may include cash, fixed income, equities, private
assets, credit holdings, and future contracts. Further, the Company's strategy allows for diversification as to the types of
investment vehicle structures, investment and redemption periods, and the number of investment managers used to carry out its
strategy. Allocations between asset types, structures and managers may change as a result of changing market conditions,
tactical investment opportunities, planned Company contributions, and cash obligations of the plan.

The following table presents the asset allocations by asset category:

Cash and cash equivalents

Equity securities

Fixed income

Registered investment companies

Private assets

Hedge funds

Total

The following tables present the fair value by asset category and by level:

As of December 31,

2020

2019

2 %

4 %

100 %

December 31, 2020

Equity securities:

Domestic equity securities

International equity securities

Fixed income:

Corporate debt securities

Asset-backed securities

U.S. government securities

Municipal bonds

Foreign bonds

Registered investment companies

Private assets

Total

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

Other
Observable
Inputs

(Level 2)

Unobservable
Inputs

(Level 3)

Total

(In millions)

406.3 $

400.2 $

37.0

71.5

28.7

41.4

0.6

0.5

16.4

3.1

37.0

—

16.4

—

— $

—

39.6

28.7

41.4

0.6

0.5

—

605.5 $

453.6 $

110.8 $

6.1

—

31.9

—

3.1

41.1

Investment measured at Net Asset Value ("NAV")

Private assets

Hedge funds

Common/collective trusts ("CCTs")

Total investments measured at NAV

Receivables

Payables

Total assets

100.8

232.3

36.2

369.3

0.8

(18.6)

957.0

December 31, 2019

Cash and cash equivalents

Equity securities:

Domestic equity securities

International equity securities

Fixed income:

Corporate debt securities

Asset-backed securities

U.S. government securities

Foreign bonds

Foreign exchange contracts

Registered investment companies

Private assets

Total

Investment measured at NAV

Private assets

Hedge funds

CCTs

Total investments measured at NAV

Receivables

Payables

Total assets

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

Other
Observable
Inputs

(Level 2)

Unobservable
Inputs

(Level 3)

Total

(In millions)

0.1 $

— $

372.6

33.5

78.2

26.3

31.3

0.8

0.1

22.8

5.4

368.4

33.5

—

22.8

—

50.6

26.3

31.3

0.8

0.1

—

571.1 $

424.8 $

109.1 $

—

4.2

—

27.6

—

5.4

37.2

106.3

218.7

50.0

375.0

6.5

(20.1)

932.5

Below is a description of the significant investment strategies and valuation methodologies used for the investments
measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy. There have
been no changes in the methodologies used at December 31, 2020 and 2019.

Cash and cash equivalents

Cash and cash equivalents are invested in money market funds or Short-Term Investment Funds ("STIFs"). Cash and cash

equivalents invested in money market funds are classified as Level 1 investments. STIFs are measured at NAV and included in
CCTs as a reconciling item to the fair value tables above.

Equity securities

Equity securities are invested broadly in U.S. and non-U.S. companies in a variety of sectors and market capitalizations.
These investments are comprised of common stocks, CCTs, and other investment vehicles. Common stocks are stated at fair
value as quoted on a recognized securities exchange and are valued at the last reported sales price on the last business day of
the year and are classified as Level 1 investments. Equity securities that are invested in common stock of private companies and
priced using unobservable inputs are classified as Level 3 investments. CCTs invested in equity securities are measured at NAV
and included as a reconciling item to the fair value tables above.

Fixed income securities

Fixed income securities are invested in a variety of instruments, including, but not limited to, corporate debt securities, U.S.
government securities, CCTs, asset-backed securities, municipal bonds, foreign bonds, and other investment vehicles. Corporate
debt securities are invested in corporate bonds and term loans. Corporate bonds are valued at bid evaluations using observable
and market-based inputs and are classified as Level 2 investments. Term loans are priced using unobservable inputs and are
classified as Level 3 investments. Asset-backed securities, including government-backed mortgage securities, commercial
mortgage-backed securities, auto receivable backed securities, and other asset-backed securities, are valued at bid evaluations
and are classified as Level 2 investments. Municipal bonds are valued using pricing models maximizing the use of observable
inputs for similar securities and are classified as Level 2 investments. Foreign bonds that are valued using pricing models
maximizing the use of observable inputs for similar securities are classified as Level 2 investments. Foreign bonds that are
priced using unobservable inputs are classified as Level 3 investments. The foreign bond classified as Level 3 investment had
no value at both December 31, 2020 and 2019. CCTs invested in fixed income securities are measured at NAV and included as a
reconciling item to the fair value tables above.

Registered investment companies

Registered investment companies are invested in corporate bonds, senior secured loans, and other fixed income.

Registered investment companies are transacted at NAV published daily and are classified as Level 1 investments.

Private assets

Private assets are primarily limited partnerships that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital

and special situation strategies. Generally, the individual investments within the partnerships or funds are valued at public
market, private market, or appraised value. Private assets are valued by investment managers using unobservable inputs such
as extrapolated data, proprietary data, or indicative quotes. The majority of the private assets are valued at NAV and included as
a reconciling item to the fair value tables above. Private assets for which there is no NAV are classified as Level 3 investments.
Valuations of certain assets were based on the NAV or market value three months prior to the year-end. The Company made
adjustments amounting to a decrease of $6.2 million and $17.4 million for 2020 and 2019, respectively, to account for changes
since the valuation date.

Hedge funds

Hedge funds primarily consist of multi-strategy hedge funds that invest across a range of equity and debt securities in a

variety of industry sectors. Hedge funds are valued at NAV calculated by investment managers using unobservable inputs such
as extrapolated data, proprietary data, or indicative quotes and are included as a reconciling item to the fair value tables above.
Valuations of certain assets were based on the NAV or market value three months prior to the year-end. The Company made
adjustments amounting to a decrease of $4.5 million for 2019 to account for changes since the valuation date.

The following tables present the changes in the fair value of the Level 3 investments:

Equity securities:

Domestic equity securities

Corporate debt securities

Private assets

Total

Equity securities:

Domestic equity securities

International equity securities

Corporate debt securities

Private assets

Total

e. Benefit Payments

December 31,
2019

Unrealized
Gains
(Losses)

Realized
Gains

(In millions)

Purchases,
Sales, and
Settlements,
net

December 31,
2020

4.2 $

1.9 $

— $

27.6

5.4

1.7

—

1.3

(1.1)

(5.3)

37.2 $

9.0 $

1.3 $

(6.4) $

6.1

31.9

3.1

41.1

December 31,
2018

Unrealized
Gains
(Losses)

Realized
Gains

(In millions)

Purchases,
Sales, and
Settlements,
net

December 31,
2019

4.9 $

(0.3) $

0.3 $

(0.7) $

0.1

21.5

1.3

(0.1)

0.2

—

0.1

—

6.1

3.8

27.8 $

(0.3) $

0.5 $

9.2 $

4.2

—

27.6

5.4

37.2

The following table presents estimated future benefit payments:

Year Ending December 31,

2021
2022
2023
2024
2025
Years 2026 - 2030

Medical and Life Insurance Benefits

Pension
Benefit
Payments

Gross
Benefit
Payments

Medicare
D
Subsidy

Net Benefit
Payments

106.9 $
103.8
100.6
97.1
93.4
409.1

(In millions)
3.5 $
3.1
2.8
2.5
2.2
7.6

0.1 $
0.1
0.1
0.1
0.1
0.2

3.4
3.0
2.7
2.4
2.1
7.4

Note 8. Commitments and Contingencies

a. Legal Matters

The Company and its subsidiaries are subject to legal proceedings, including litigation in U.S. federal and state courts,
which arise out of, and are incidental to, the ordinary course of the Company’s on-going and historical businesses. The Company
is also subject from time to time to governmental investigations by federal and state agencies. The Company cannot predict the
outcome of such proceedings with any degree of certainty. Loss contingency provisions are recorded for probable losses at
management’s best estimate of a loss. When only a range of amounts can be reasonably estimated and no amount within the
range is more likely than another, the low end of the range is recorded. These estimates are often initially developed substantially
earlier than when the ultimate loss is known, and are refined each quarterly reporting period as additional information becomes
available.

Merger-Related Litigation

On January 29, 2021, a lawsuit entitled Richard Myers v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-00844,

styled as a putative class action, was filed in the United States District Court for the Central District of California against the
Company and the members of the Company's Board of Directors (the "Myers Action"). Also on January 29, 2021, a lawsuit entitled
Alexa Hiramitsu v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-00123, was filed in the United States District Court
for the District of Delaware against the Company and the members of the Company’s Board of Directors (the "Hiramitsu Action").
On February 1, 2021, a lawsuit entitled Richard Feinhals v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-cv-00892, was
filed in the United States District Court for the Southern District of New York against the Company and the members of the
Company's Board of Directors (the "Feinhals Action"). On February 2, 2021, a lawsuit entitled Shiva Stein v. Aerojet Rocketdyne
Holdings, Inc. et al., Case No. 2:21-cv-00962, was filed in the United States District Court for the Central District of California (the
"Stein Action"). On February 4, 2021, a lawsuit entitled Mateo Clark v. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 1:21-
cv-00994, was filed in the United States District Court for the Southern District of New York against the Company and the members
of the Company's Board of Directors (the "Clark Action"). Also on February 4, 2021, a lawsuit entitled Guy Coffman v. Aerojet
Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-01917, was filed in the United States District Court for the District of New
Jersey against the Company and the members of the Company's Board of Directors (the "Coffman Action"). On February 15, 2021,
a lawsuit entitled Richard Wilhelm vs. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:21-cv-01348, was filed in the U.S.
District Court for the Central District of California, against the Company and members of the Company’s Board of Directors (the
"Wilhelm Action"). Also, on February 15, 2021, a lawsuit entitled Hiten Patel vs. Aerojet Rocketdyne Holdings, Inc. et al., Case No.
2:21-cv-01349, was filed in the U.S. District Court for the Central District of California, against the Company and members of the
Company’s Board of Directors (the "Patel Action"). The Myers Action, the Hiramitsu Action, the Feinhals Action, the Stein Action,
the Clark Action, the Coffman Action, the Wilhelm Action, and the Patel Action are collectively referred to as the "Actions." The
Actions allege that the defendants violated Sections 14(a) (and Rule 14a-9 promulgated thereunder) and 20(a) of the Exchange
Act by, among other things, omitting certain allegedly material information with respect to the Merger in the preliminary proxy
statement filed by the Company on January 25, 2021. The Myers Action and the Feinhals Action also allege that the members of
the Company’s Board of Directors breached their fiduciary duties in connection with the Merger, and the Myers Action further
alleges that the Company aided and abetted the Board of Directors’ alleged breaches of fiduciary duties. The plaintiffs in the
Actions seek, among other things, injunctive relief, money damages and the costs of the Actions, including reasonable attorneys’
and experts’ fees.

The Company and the members of its Board of Directors disagree with and intend to vigorously defend against the Actions.

If the Actions are not resolved on a timely basis, the Actions could delay consummation of the Merger and result in additional
costs to the Company, including costs associated with the indemnification of directors. Additional plaintiffs may file lawsuits
against the Company and/or its directors and officers in connection with the Merger.

Asbestos Litigation

The Company has been, and continues to be, named as a defendant in lawsuits alleging personal injury or death and
seeking various monetary damages due to exposure to asbestos in building materials, products, or in manufacturing operations.
The majority of cases are pending in Illinois state courts. There were 99 asbestos cases pending as of December 31, 2020.

Given the lack of any significant consistency to claims (i.e., as to product, operational site, or other relevant assertions)

filed against the Company, the Company is generally unable to make a reasonable estimate of the future costs of pending claims
or unasserted claims. The aggregate settlement costs and legal and administrative fees associated with the Company’s asbestos
litigation has been immaterial for the last three years. As of December 31, 2020, the Company has accrued an immaterial
amount related to pending claims.

United States ex. rel. Markus vs. Aerojet Rocketdyne Holdings

In the case captioned United States ex. rel. Markus vs. Aerojet Rocketdyne Holdings, Inc. et al., Case No. 2:15-

CV-02245- WBS-AC, the Department of Justice completed its review of the case and declined to intervene in June 2018. The
case was originally filed under seal in the U.S. District Court, Eastern District of California in September 2017 and alleged causes
of action against the Company based on false claims, retaliation, and wrongful termination of employment seeking injunctive
relief, civil penalties, and compensatory and punitive damages. In February 2019, the Company filed a Motion to Dismiss the
False Claims Act ("FCA") counts of the complaint and a Motion to Compel Arbitration on the employment based claims. In May
2019, the court dismissed one count of the FCA claim, denied the motion to dismiss the remaining FCA counts, and moved the
employment based claims to arbitration. The Company continues to vigorously contest the complaint’s allegations and has not
recorded any liability for this matter as of December 31, 2020.

b. Environmental Matters

The Company is involved in approximately 40 environmental matters under the Comprehensive Environmental Response
Compensation and Liability Act, the Resource Conservation Recovery Act, and other federal, state, and local laws relating to soil
and groundwater contamination, hazardous waste management activities, and other environmental matters at some of its current
and former facilities. The Company is also involved in a number of remedial activities at third party sites, not owned by the
Company, where it is designated a potentially responsible party ("PRP") by either the U.S. Environmental Protection Agency
("EPA") and/or a state agency. In many of these matters, the Company is involved with other PRPs. In some instances, the
Company’s liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and
extent of site conditions and the Company’s involvement. While government agencies frequently claim PRPs are jointly and
severally liable at such sites, in the Company’s experience, interim and final allocations of liability and costs are generally made
based on relative contributions of waste or contamination. Anticipated costs associated with environmental remediation that are
probable and estimable are accrued. In cases where a date to complete remedial activities at a particular site cannot be
determined by reference to agreements or otherwise, the Company projects costs over an appropriate time period not exceeding
15 years. In such cases, generally the Company does not have the ability to reasonably estimate environmental remediation
costs that are beyond this period. Factors that could result in changes to the Company’s estimates include completion of current
and future soil and groundwater investigations, new claims, future agency demands, discovery of more or less contamination
than expected, discovery of new contaminants, modification of planned remedial actions, changes in estimated time required to
remediate, new technologies, and changes in laws and regulations.

As of December 31, 2020, the aggregate range of these anticipated environmental costs was $300.6 million to $451.1

million and the accrued amount was $300.6 million. See Note 8(c) for a summary of the environmental reserve activity. Of these
accrued liabilities, approximately 99% relates to the Company’s U.S. government contracting business and a portion of this
liability is recoverable. The significant environmental sites are discussed below. The balance of the accrued liabilities, which are
not recoverable from the U.S. government, relate to other sites for which the Company’s obligations are probable and estimable.

Sacramento, California Site

In 1989, a federal district court in California approved a Partial Consent Decree ("PCD") requiring Aerojet Rocketdyne,
among other things, to conduct a Remedial Investigation and Feasibility Study to determine the nature and extent of impacts due
to the release of chemicals from the Sacramento, California site, monitor the American River and offsite public water supply
wells, operate Groundwater Extraction and Treatment facilities that collect groundwater at the site perimeter, and pay certain
government oversight costs. The primary chemicals of concern for both on-site and off-site groundwater are trichloroethylene,
perchlorate, and n-nitrosodimethylamine. A 2002 PCD revision (a) separated the Sacramento site into multiple operable units to
allow quicker implementation of remedies for critical areas; (b) required the Company to guarantee up to $75 million (in addition
to a prior $20 million guarantee) to assure that Aerojet Rocketdyne’s Sacramento remediation activities are fully funded; and
(c) removed approximately 2,600 acres of non-contaminated land from the EPA superfund designation.

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

The entire southern portion of the site known as Rio Del Oro was under state orders issued in the 1990s from DTSC and

the RWQCB to investigate and remediate soil and groundwater contamination. In 2008, the DTSC released all but approximately
400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil contamination although the property
remains subject to the RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating
offsite from the property.

As of December 31, 2020, the estimated range of anticipated costs discussed above for the Sacramento, California site

was $208.4 million to $331.4 million and the accrued amount was $208.4 million included as a component of the Company’s
environmental reserves. Expenditures associated with this matter are partially recoverable. See Note 8(c) below for further
discussion on recoverability.

Baldwin Park Operable Unit

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

Pursuant to the 2017 agreement with the remaining Cooperating Respondents, Aerojet Rocketdyne's current share of

future BPOU costs will be approximately 74%.

As part of Aerojet Rocketdyne’s sale of its Electronics and Information Systems ("EIS") business to Northrop Grumman

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

As of December 31, 2020, the estimated range of anticipated costs was $76.2 million to $91.9 million and the accrued
amount was $76.2 million included as a component of the Company’s environmental reserves. Expenditures associated with this
matter are partially recoverable. See Note 8(c) below for further discussion on recoverability.

c. Environmental Reserves and Estimated Recoveries

Environmental Reserves

The Company reviews on a quarterly basis estimated future remediation costs and has an established practice of
estimating environmental remediation costs over a fifteen year period, except for those environmental remediation costs with a
specific contractual term. Environmental liabilities at the BPOU site are currently estimated through the term of the project
agreement, which expires in May 2027. As the period for which estimated environmental remediation costs lengthens, the
reliability of such estimates decreases. These estimates consider the investigative work and analysis of engineers, outside
environmental consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and
legal proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing the Company’s
reserves, the most probable estimate is used when determinable; otherwise, the minimum amount is used when no single
amount in the range is more probable. Accordingly, such estimates can change as the Company periodically evaluates and
revises these estimates as new information becomes available. The Company cannot predict whether new information gained as
projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs is
influenced by a number of factors, such as the regulatory approval process and the time required designing, constructing, and
implementing the remedy.

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

Aerojet
Rocketdyne-
Sacramento

Aerojet
Rocketdyne-
BPOU

Other
Aerojet
Rocketdyne
Sites

Total
Aerojet
Rocketdyne

(In millions)

Other

Total
Environmental
Reserve

206.5 $

116.4 $

13.7 $

336.6 $

4.8 $

December 31, 2017

Additions

Expenditures

December 31, 2018

Additions

Expenditures

December 31, 2019

Additions

Expenditures

December 31, 2020

20.1

2.3

(19.2)

(14.9)

207.4

17.0

(20.8)

203.6

30.9

(26.1)

103.8

(0.8)

(13.4)

89.6

(0.2)

(13.2)

0.6

(1.9)

12.4

0.3

23.0

(36.0)

323.6

16.5

0.3

(0.8)

4.3

0.2

(0.9)

(35.1)

(0.3)

11.8

—

305.0

30.7

(1.2)

(40.5)

4.2

1.7

(0.5)

5.4 $

208.4 $

76.2 $

10.6 $

295.2 $

341.4

23.3

(36.8)

327.9

16.7

(35.4)

309.2

32.4

(41.0)

300.6

The effect of the final resolution of environmental matters and the Company’s obligations for environmental remediation

and compliance cannot be accurately predicted due to the uncertainty concerning both the amount and timing of future
expenditures and due to regulatory or technological changes. The Company continues its efforts to mitigate past and future costs
through pursuit of claims for recoveries from insurance coverage and other PRPs and continued investigation of new and more
cost effective remediation alternatives and associated technologies.

As part of the acquisition of the Atlantic Research Corporation ("ARC") propulsion business in 2003, Aerojet Rocketdyne

entered into an agreement with ARC pursuant to which Aerojet Rocketdyne was responsible for up to $20.0 million of costs ("Pre-
Close Environmental Costs") associated with environmental issues that arose prior to Aerojet Rocketdyne’s acquisition of the
ARC propulsion business. ARC is responsible for any cleanup costs relating to the ARC acquired businesses in excess of
$20.0 million. Pursuant to a separate agreement with the U.S. government which was entered into prior to the completion of the
ARC acquisition, these costs are recovered through the establishment of prices for Aerojet Rocketdyne’s products and services
sold to the U.S. government. The Company reached the $20.0 million cap on cleanup costs in the three months ended March 31,
2017, and expects that additional costs will be incurred due to contamination existing at the time of the acquisition and still
requiring remediation and monitoring. On May 6, 2016, ARC informed Aerojet Rocketdyne that it was disputing certain costs that
Aerojet Rocketdyne attributed to the $20.0 million Pre-Close Environmental Costs ("ARC Claim"). The settlement resolved past
costs and established that the $20.0 million cap had been reached, ARC became financially responsible subject to an allocation

of future cleanup costs related to the Company’s operation of the Open Burn Unit from 2003-2009, and ARC assumed
management for the ongoing remediation as required by the 2003 acquisition agreement.

Estimated Recoveries

On January 12, 1999, Aerojet Rocketdyne and the U.S. government reached a settlement agreement ("Global Settlement")

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

Total reimbursable costs under the Northrop Agreement

Amount reimbursed to the Company through December 31, 2020

Receivable from Northrop included in the balance sheet at December 31, 2020

189.7

(143.2)

46.5

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

Environmental remediation costs are primarily incurred by the Company's Aerospace and Defense segment, and certain of

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

While the Company continues to seek an arrangement with the U.S. government to recover environmental expenditures in
excess of the reimbursement ceiling identified in the Global Settlement, there can be no assurances that such a recovery will be
obtained, or if not obtained, that such unreimbursed environmental expenditures will not have a materially adverse effect on the
Company’s operating results, financial condition, and/or cash flows.

Environmental reserves and estimated recoveries impact on the consolidated statements of operations

The following table summarizes the financial information for the impact of environmental reserves and recoveries to the

consolidated statements of operations:

Year Ended December 31,

2020

2019

2018

(In millions)

Expense (benefit) to consolidated statement of operations

4.3 $

2.1 $

(36.9)

d. Arrangements with Off-Balance Sheet Risk

As of December 31, 2020, arrangements with off-balance sheet risk consisted of:

•

$27.6 million in outstanding commercial letters of credit, the majority of which may be renewed, primarily to collateralize
obligations for environmental remediation and insurance coverage.
$53.5 million in outstanding surety bonds to primarily satisfy indemnification obligations for environmental remediation
coverage.
Up to $120.0 million aggregate in guarantees by the Company of Aerojet Rocketdyne’s obligations to U.S. government
agencies for environmental remediation activities.
Guarantees, jointly and severally, by the Company’s material domestic subsidiaries of their obligations under the Senior
Credit Facility.

In addition to the items discussed above, the Company has and will from time to time enter into certain types of contracts
that require the Company to indemnify parties against potential third-party and other claims. These contracts primarily relate to:
(i) divestiture agreements, under which the Company may provide customary indemnification to purchasers of its businesses or
assets including, for example, claims arising from the operation of the businesses prior to disposition, and liability to investigate
and remediate environmental contamination existing prior to disposition; (ii) certain real estate leases, under which the Company
may be required to indemnify property owners for claims arising from the use of the applicable premises; and (iii) certain
agreements with officers and directors, under which the Company may be required to indemnify such persons for liabilities
arising out of their relationship with the Company. The terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated.

Additionally, the Company has open purchase orders and other commitments to suppliers, subcontractors, and other
outsourcing partners for equipment, materials, and supplies in the normal course of business. These amounts are based on
volumes consistent with anticipated requirements to fulfill purchase orders or contracts for product deliveries received, or
expected to be received, from customers. A substantial portion of these amounts are recoverable through the Company's
contracts with the U.S. government.

Note 9. Stockholders’ Equity

a. Preferred Stock

As of December 31, 2020 and 2019, 15.0 million shares of preferred stock were authorized and none were issued or

outstanding.

b. Common Stock

As of December 31, 2020, the Company had 150.0 million authorized shares of common stock, par value $0.10 per share,

of which 76.8 million shares were issued and outstanding, and 21.5 million shares were reserved for future issuance for the
exercise of stock options (seven year contractual life) and restricted stock (no maximum contractual life), payment of awards
under stock-based compensation plans, and conversion of the Company’s convertible debt.

c. Treasury Stock

As of December 31, 2020 and 2019, the Company had 2.1 million and 0.8 million, respectively, of its common shares
classified as treasury stock. During 2020, the Company repurchased 1.3 million of its common shares at a cost of $51.7 million.
On September 10, 2018, the Company made a discretionary contribution of 2.7 million treasury stock, or $95.0 million, of its
common stock to the Aerojet Rocketdyne Master Retirement Trust, which is a trust maintained in connection with the Aerojet
Rocketdyne (GenCorp) Consolidated Pension Plan. Treasury stock is stated at cost (first-in, first-out basis). The Company
reflects stock repurchases in its financial statements on a "settlement" basis

d. Dividends

On December 19, 2020, the Company’s Board of Directors declared the one-time Pre-Closing Dividend in cash of $5.00

per share (including shares underlying the 2¼% Notes participating on an as-converted basis). The Pre-Closing Dividend is
payable on March 24, 2021, to the holders of the Company’s shares and 2¼% Notes as of the close of business on March 10,
2021.

e. Stock-based Compensation

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

SARs

Restricted stock and restricted stock units, service based

Restricted stock and restricted stock units, performance based

Employee stock purchase plan ("ESPP")

Stock options

Total stock-based compensation expense

Year Ended December 31,

2020

2019

2018

(In millions)

8.1 $

11.4 $

8.6

12.6

1.1

1.0

5.2

9.4

0.9

0.4

6.2

4.5

9.1

0.6

0.1

31.4 $

27.3 $

20.5

Stock Appreciation Rights: As of December 31, 2020, a total of 0.9 million SARs were outstanding. SARs granted to

employees generally vest in one-third increments at one year, two years, and three years from the date of grant and have a
seven year contractual life. SARs granted to directors of the Company typically vest over a one year service period (half after six
months and half after one year) and have a seven year contractual life. These awards are similar to the Company’s employee
stock options, but are settled in cash rather than in shares of common stock, and are classified as liability awards. Compensation
cost for these awards is determined using a fair-value method and remeasured at each reporting date until the date of
settlement.

The following table summarizes the status of the Company’s SARs:

Outstanding at December 31, 2019

Exercised

Canceled

Outstanding at December 31, 2020

Exercisable at December 31, 2020

Expected to vest at December 31, 2020

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life (years)

Aggregate
Intrinsic
Value
(In millions)

SARs
(In millions)

1.2 $

(0.2)

(0.1)

0.9 $

0.6 $

0.3 $

27.32

19.97

31.46

29.09

28.27

31.01

4.2 $

4.0 $

4.5 $

21.0

15.3

5.7

The weighted average grant date fair value for SARs granted in 2019 and 2018 was $37.26 and $27.53, respectively. The
total intrinsic value for SARs liabilities paid in 2020, 2019, and 2018 was $7.6 million, $4.3 million, and $3.5 million, respectively.
As of December 31, 2020, there was $0.8 million of unrecognized stock-based compensation related to nonvested SARs that is
expected to be recognized over an estimated weighted-average amortization period of eleven months.

Restricted Stock, service-based: As of December 31, 2020, a total of 0.2 million shares of service-based restricted stock

were outstanding which vest based on years of service. Restricted shares are granted to employees and directors of the
Company. The fair value was based on the closing market price of the Company’s common stock on the date of award and is
being amortized on a straight line basis over the service period.

The following table summarizes the status of the Company’s service-based restricted stock:

Outstanding at December 31, 2019

Exercised

Outstanding and expected to vest at December 31, 2020

Service
Based
Restricted
Stock
(In millions)

Weighted
Average
Grant Date
Fair Value

0.3 $

(0.1)

0.2 $

36.33

34.81

39.90

As of December 31, 2020, there was $3.9 million of unrecognized stock-based compensation related to nonvested service-

based restricted stock that is expected to be recognized over an estimated weighted-average amortization period of seventeen
months. At December 31, 2020, the intrinsic value of the service-based restricted stock outstanding and expected to vest was
$9.4 million. The weighted average grant date fair values for service-based restricted stock granted in 2019 and 2018 was
$40.70 and $29.74, respectively.

Restricted Stock Units, service-based: As of December 31, 2020, a total of 0.1 million shares of service-based restricted

stock units were outstanding which vest based on years of service. Restricted stock units are granted to employees of the
Company. The fair value was based on the closing market price of the Company’s common stock on the date of award and is
being amortized on a straight line basis over the service period.

The following table summarizes the status of the Company’s service-based restricted stock units:

Outstanding at December 31, 2019

Granted

Outstanding and expected to vest at December 31, 2020

Service
Based
Restricted
Stock Units
(In millions)

Weighted
Average
Grant Date
Fair Value

— $

0.1

0.1 $

—

46.00

As of December 31, 2020, there was $3.5 million of unrecognized stock-based compensation related to nonvested service-

based restricted stock units that is expected to be recognized over an estimated weighted-average amortization period of thirty
months. At December 31, 2020, the intrinsic value of the service-based restricted stock units outstanding and expected to vest
was $5.1 million.

Restricted Stock, performance-based Company metrics: As of December 31, 2020, a total of 0.5 million shares of
performance-based restricted shares were outstanding. The performance-based restricted stock vests if the Company meets
various operations and earnings targets set by the Organization & Compensation Committee of the Board of Directors. The fair
value was based on the closing market price of the Company’s common stock on the date of award and is being amortized over
the estimated service period to achieve the operations and earnings targets.

The following table summarizes the status of the Company’s performance-based restricted stock:

Outstanding at December 31, 2019

Exercised

Canceled

Outstanding at December 31, 2020

Expected to vest at December 31, 2020

Performance
Based
Restricted
Stock
(In millions)

Weighted
Average
Grant Date
Fair Value

1.0 $

29.41

(0.4)

(0.1)

0.5 $

0.4 $

25.01

29.00

36.59

35.52

As of December 31, 2020, there was $4.4 million of unrecognized stock-based compensation related to nonvested

performance-based restricted stock that is expected to be recognized over an estimated weighted-average amortization period of
fourteen months. At December 31, 2020, the intrinsic value of the performance-based restricted stock outstanding was $26.6
million and the intrinsic value of the performance-based restricted stock expected to vest was $21.5 million. The weighted
average grant date fair values for performance-based restricted stock granted in 2019 and 2018 was $37.27 and $26.36,
respectively.

Restricted Stock Units, performance-based Company metrics: As of December 31, 2020, a total of 0.4 million shares of
performance-based restricted stock units were outstanding. The performance-based restricted stock units vest if the Company
meets various operations and earnings targets set by the Organization & Compensation Committee of the Board of Directors.
The fair value was based on the closing market price of the Company’s common stock on the date of award and is being
amortized over the estimated service period to achieve the operations and earnings targets.

The following table summarizes the status of the Company’s performance-based restricted stock units:

Outstanding at December 31, 2019

Granted

Outstanding at December 31, 2020

Expected to vest at December 31, 2020

Performance
Based
Restricted
Stock Units
(In millions)

Weighted
Average
Grant Date
Fair Value

— $

—

0.4

0.4 $

0.2 $

50.00

As of December 31, 2020, there was $6.2 million of unrecognized stock-based compensation related to nonvested
performance-based restricted stock units that are expected to be recognized over an estimated weighted-average amortization
period of twenty-six months. At December 31, 2020, the intrinsic value of the performance-based restricted stock units
outstanding was $19.7 million and the intrinsic value of the performance-based restricted stock expected to vest was $9.8 million.

Employee Stock Purchase Plan: The ESPP enables eligible employees the opportunity to purchase the Company’s
common stock at a price not less than 85% of the fair market value of the common stock on the last day of the respective offering
period. A maximum of 1.5 million shares are authorized for issuance. During 2020, 0.2 million shares were issued under the
ESPP at an average price of $45.65. During 2019, 0.1 million shares were issued under the ESPP at an average price of $45.25.
During 2018, 0.1 million shares were issued under the ESPP at an average price of $32.11.

Stock Options: As of December 31, 2020, there were no stock options outstanding. The following table summarizes the

status of the Company’s stock options:

Outstanding at December 31, 2019

Exercised and Cancelled

Outstanding at December 31, 2020

Stock
Options
(In millions)

Weighted
Average
Exercise
Price

0.4 $

(0.4)

— $

23.11

—

The total intrinsic value for options exercised in 2020, 2019, and 2018 was $11.0 million, $0.8 million, and $0.9 million,
respectively. The fair value of the stock option grant in 2019 was estimated using a Black-Scholes model with an expected life of
seven years, volatility of 33.48%, and a risk-free rate of 2.62%. The Company did not grant stock options in 2020 and 2018.

Performance Common Shares: In February 2018, the Company granted senior executives 0.1 million performance
common shares that vest according to the attainment of share prices ranging from $34.00 per share to $42.00 per share of the
Company's stock. The performance common shares were valued at a weighted average price of $18.67 using a Monte Carlo
model. The Company recognized the grant-date fair value of these awards as stock-based compensation expense ratably over

the estimated vesting period based on the number of awards expected to vest at each reporting date or earlier if the market
condition was satisfied. All of the performance based common shares have vested as a result of the attainment of the share
prices ranging from $34.00 per share to $42.00 per share of the Company's stock. The following table presents the weighted
average assumptions used to value the awards for 2018:

Expected life (in years)

Volatility

Risk-free interest rate

Dividend yield

Performance-
based
common
shares

1.25

31.52 %

2.65 %

— %

Performance Stock Units: In March 2020, the Company granted the Executive Chairman 0.1 million performance stock

units that vest according to the attainment of share prices ranging from $57.80 per share to $67.85 per share of the Company's
stock. The performance stock units were valued at a weighted average price of $37.12 using a Monte Carlo model. The
Company recognized the grant-date fair value of these awards as stock-based compensation expense ratably over the estimated
vesting period based on the number of awards expected to vest at each reporting date or earlier if the market condition was
satisfied. As of December 31, 2020, there was $0.1 million of unrecognized stock-based compensation related to nonvested
performance stock units that are expected to be recognized over an estimated weighted-average amortization period of thirty-six
months. At December 31, 2020, the intrinsic value and expected to vest of the performance stock units outstanding was
$3.8 million. The following table presents the weighted average assumptions used to value the units for 2020:

Expected life (in years)

Volatility

Risk-free interest rate

Dividend yield

0.67

35.41 %

0.72 %

— %

Valuation Assumptions: The following table presents the weighted average assumptions used to value the SARs:

Expected life (in years)

Volatility

Risk-free interest rate

Dividend yield

Year Ended December 31,

2020

2019

2018

0.7

4.9

48.30 %

34.79 %

35.10 %

0.11 %

— %

1.69 %

— %

2.51 %

— %

Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are
expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards and vesting schedules.

Expected Volatility: The fair value of stock-based payments was determined using the Black-Scholes model with a volatility

factor based on the Company’s historical stock prices.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the Black-Scholes model on the implied

yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Note 10. Operating Segments and Related Disclosures

The Company’s operations are organized into two operating segments based on different products and customer bases:
Aerospace and Defense, and Real Estate. Sales to significant customers and other concentrations information is presented in
Note 1. The accounting policies of the operating segments are the same as those presented in the summary of significant
accounting policies in Note 1.

The Company evaluates its operating segments based on several factors, of which the primary financial measure is
segment performance. Segment performance represents net sales less applicable costs, expenses and unusual items relating to
the segment operations. Segment performance excludes corporate income and expenses, unusual items not related to the
segment operations, interest expense, interest income, and income taxes.

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

Net Sales:

Aerospace and Defense

Real Estate

Total Net Sales

Segment Performance:

Aerospace and Defense

Environmental remediation provision adjustments

GAAP/CAS retirement benefits expense difference

Unusual items

Aerospace and Defense Total

Real Estate

Total Segment Performance

Reconciliation of segment performance to income before income taxes:

Segment performance

Interest expense

Interest income

Stock-based compensation

Corporate retirement benefits expense

Corporate and other

Unusual items

Income before income taxes

Aerospace and Defense

Real Estate

Corporate

Capital Expenditures

Aerospace and Defense

Real Estate

Corporate

Depreciation and Amortization

Assets:

Aerospace and Defense

Real Estate

Operating segment assets

Corporate

Total Assets

Note 11. Cost Reduction Plans

Year Ended December 31,

2020

2019

2018

(In millions)

2,069.4 $

1,974.0 $

1,888.1

3.3

7.5

7.8

2,072.7 $

1,981.5 $

1,895.9

264.2 $

249.1 $

233.4

(2.7)

(1.9)

14.7

22.4

(0.6)

(0.3)

275.6

(1.8)

269.3

2.1

37.2

(6.0)

—

264.6

2.8

273.8 $

271.4 $

267.4

273.8 $

271.4 $

267.4

(30.1)

(35.7)

6.3

(31.4)

(7.5)

(23.4)

(7.5)

15.5

(27.3)

(7.2)

(24.8)

—

(34.4)

10.0

(20.5)

(13.4)

(20.3)

(0.2)

180.2 $

191.9 $

188.6

54.6 $

42.9 $

42.2

—

54.6 $

64.2 $

42.9 $

72.9 $

0.8

0.3

1.2

0.4

—

1.0

43.2

71.1

0.9

0.3

65.3 $

74.5 $

72.3

As of December 31,

2020

2019

(In millions)

1,484.9 $

1,515.1

133.9

1,618.8

1,281.1

132.8

1,647.9

1,059.9

2,899.9 $

2,707.8

During 2015, the Company initiated the first phase ("Phase I") of the competitive improvement program (the "CIP")
comprised of activities and initiatives aimed at reducing costs in order for the Company to continue to compete successfully.
Phase I was comprised of three major components: (i) facilities optimization and footprint reduction; (ii) product affordability; and
(iii) reduced administrative and overhead costs. In 2017, the Board of Directors approved the second phase ("Phase II") of the
CIP. Pursuant to Phase II, the Company expanded its CIP and further consolidated its Sacramento, California, and Gainesville,
Virginia sites, while it centralized and expanded its existing presence in Huntsville, Alabama. The Company estimates the
restructuring and related costs will be $185.0 million (including approximately $53.2 million of capital expenditures). The
Company has incurred $182.8 million of such costs through December 31, 2020, including $52.9 million in capital expenditures.

The Company's current estimate of $185.0 million has decreased from December 31, 2019, primarily due to continued
efficiencies in program transitions and lower than expected employee costs. The following table summarizes the Company's
severance and retention liabilities related to CIP activity:

Severance

Retention

(In millions)

Total

December 31, 2017
Accrual
Payments
December 31, 2018
Accrual
Payments
December 31, 2019
Accrual/other
Payments
December 31, 2020

30.0 $

0.2
(12.1)
18.1
—
(12.9)
5.2
(1.0)
(3.3)
0.9 $

3.4
5.7
(4.0)
5.1
5.5
(6.0)
4.6
1.8
(5.5)
0.9

33.4
5.9
(16.1)
23.2
5.5
(18.9)
9.8
0.8
(8.8)
1.8

The costs associated with the CIP are included as a component of the Company’s U.S. government forward-pricing rates,

and therefore, are recovered through the pricing of the Company’s products and services to the U.S. government.

Note 12. Quarterly Financial Data (Unaudited)

2020
Net sales
Cost of sales (exclusive of items shown separately on Statement
of Operations)
Income before income taxes
Net income
Basic EPS
Diluted EPS

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(In millions, except per share amounts)

476.1 $

512.4 $

527.7 $

556.5

394.9
42.7
31.4
0.40
0.37

415.2
53.5
39.2
0.50
0.47

441.6
40.7
31.7
0.40
0.38

449.6
43.3
35.4
0.46
0.43

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(In millions, except per share amounts)

2019
Net sales
Cost of sales (exclusive of items shown separately on Statement
of Operations)
Income before income taxes
Net income
Basic EPS
Diluted EPS

491.7 $

485.0 $

481.8 $

523.0

397.6
51.8
38.7
0.49
0.47

379.6
59.4
44.1
0.56
0.54

392.9
43.5
32.9
0.42
0.39

443.5
37.2
25.3
0.32
0.30

Note 13. Unusual Items

The following table presents total unusual items, comprised of a component of other expense (income), net in the

consolidated statements of operations:

Aerospace and Defense:
Merger costs
Legal matter
Acquisition costs
Aerospace and defense unusual items
Corporate:
Merger costs
Loss on bank amendment
Corporate unusual items
Total unusual items

Year Ended December 31,

2020

2019

2018

(In millions)

0.2 $
0.4
—
0.6

7.5
—
7.5
8.1 $

— $
—
0.3
0.3

—
—
—
0.3 $

—
—
—
—

—
0.2
0.2
0.2

In 2020, the Company recorded a reserve of $0.4 million for a legal related matter.

In 2020, the Company recorded $7.7 million of costs associated with the Merger with Lockheed Martin. See Note 1(a) for

additional information. The components of the Merger costs are as follows (in millions):

Legal
Consulting and other professional costs
Internal labor

3.9
3.4
0.4
7.7

Note 14. Adoption of Revenue Recognition Guidance

The Company adopted the new revenue recognition guidance effective January 1, 2018, using the modified retrospective
method, with the cumulative effect recognized as of January 1, 2018. The primary impact of the new guidance was a change in
the timing of revenue recognition on certain long-term contracts in the Company’s Aerospace and Defense segment. The
adoption of the new revenue recognition guidance did not impact revenue recognized within the Company's Real Estate
segment. The new guidance does not change the total sales or operating income on the related customer contracts, only the
timing of when sales and operating income are recognized. Under this new guidance, the Company discontinued the use of the
unit-of-delivery revenue recognition method on certain customer contracts and re-measured the performance obligations using
the cost-to-cost method. The cumulative favorable impact of the adoption was $37.6 million of net income which was recorded to
stockholders' equity.

The following tables summarize the effect of adoption of the new revenue recognition standard on the Company’s

consolidated financial statements for 2018.

Condensed Consolidated Statement of Operations

Year Ended December 31, 2018

As Reported

Effect of
Adoption

Amounts
Excluding
Effect of
Adoption

(In millions, except per share amounts)

1,895.9 $

14.1 $

1,910.0

Net sales

Operating costs and expenses:

Cost of sales (exclusive of items shown separately below)

1,549.4

27.2

1,576.6

Selling, general and administrative expense

Depreciation and amortization

Other income, net

Total operating costs and expenses

Operating income

Total non-operating expense, net

Income before income taxes

Income tax provision

Net income

Earnings per share of common stock

Basic earnings per share

Diluted earnings per share

Weighted average shares of common stock outstanding, basic

Weighted average shares of common stock outstanding, diluted

43.8

72.3

(40.2)

1,625.3

270.6

82.0

188.6

51.3

—

27.2

(13.1)

—

(13.1)

(3.5)

137.3 $

(9.6) $

1.80 $

1.75 $

74.8

76.8

(0.13) $

(0.12) $

—

43.8

72.3

(40.2)

1,652.5

257.5

82.0

175.5

47.8

127.7

1.67

1.63

74.8

76.8

Condensed Consolidated Statement of Comprehensive Income

Net income

Other comprehensive income:

Year Ended December 31, 2018

As Reported

Effect of
Adoption

(In millions)

Amounts
Excluding
Effect of
Adoption

137.3 $

(9.6) $

127.7

Actuarial losses and amortization of actuarial losses, net of income
taxes

Comprehensive income

33.2

—

170.5 $

(9.6) $

33.2

160.9

Condensed Consolidated Statement of Cash Flows

Operating Activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Amortization of debt discount and deferred financing costs

Stock-based compensation

Retirement benefits, net

Other, net

Changes in assets and liabilities:

Accounts receivable, net

Contract assets

Other current assets, net

Recoverable environmental remediation costs

Other noncurrent assets

Accounts payable

Contract liabilities

Other current liabilities

Deferred income taxes

Reserves for environmental remediation costs

Other noncurrent liabilities and other

Net Cash Provided by Operating Activities

Investing Activities

Net Cash Used in Investing Activities

Financing Activities

Net Cash Used in Financing Activities

Net Increase in Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash at Beginning of Year

Cash, Cash Equivalents and Restricted Cash at End of Year

Note 15. Subsequent Event

Year Ended December 31, 2018

As Reported

Effect of
Adoption

(In millions)

Amounts
Excluding
Effect of
Adoption

137.3 $

(9.6) $

127.7

72.3

8.9

20.5

15.9

(2.2)

(47.3)

10.5

21.5

(20.0)

5.8

(39.4)

29.2

40.9

4.7

(13.5)

7.6

252.7

(20.9)

(26.5)

205.3

535.0

—

57.1

1.2

(8.1)

—

(42.2)

(31.8)

33.4

—

740.3 $

— $

72.3

8.9

20.5

15.9

(2.2)

9.8

11.7

13.4

(20.0)

5.8

(39.4)

(13.0)

9.1

38.1

(13.5)

7.6

252.7

(20.9)

(26.5)

205.3

535.0

740.3

As of February 16, 2021, the Company has received $135.4 million of conversion notices from the holders of the 2¼%

Notes that will settle in the first quarter of 2021. The Company will cash settle the principal amount of the 2¼% Notes and the
conversion premium will be settled in common shares.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

As of December 31, 2020, we conducted an evaluation under the supervision and with the participation of our

management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a
company that are designed to provide reasonable assurance that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance
that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded as of December 31, 2020, that our disclosure controls and procedures were
effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as

defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The rules define internal control over financial reporting as a
process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes
those policies and procedures that:

•

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In

addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an

evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2020.

The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by

PricewaterhouseCoopers LLP, our independent registered public accounting firm. Their report appears in Item 8 of this Form 10-
K.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the most recent quarter that have

materially affected, or are reasonably likely to materially affect, the effectiveness of our internal control over financial reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

Directors of the Registrant

PART III

Information with respect to directors of the Company who will stand for election at the 2021 Annual Meeting of

Stockholders is set forth under the heading "PROPOSAL 1 – ELECTION OF DIRECTORS" in our 2021 Proxy Statement for our
2021 Annual Meeting of Stockholders ("2021 Proxy Statement"), which will be filed with the SEC within 120 days after the close
of our year. Such information is incorporated herein by reference.

The information in our 2021 Proxy Statement set forth under the caption "Delinquent Section 16(a) Reports" is

incorporated herein by reference. Information regarding stockholder communications with our Board of Directors may be found
under the caption "Communications with Directors" in our 2021 Proxy Statement and is incorporated herein by reference.

Information about our Executive Officers

The following information is given as of December 31, 2020.

Name

Warren G. Lichtenstein
Executive Chairman
(since June 2016)
Age: 55

Eileen P. Drake
Chief Executive Officer and President (since
June 2015)
Age: 54

Amy Gowder
Chief Operating Officer
(since May 2020)
Age: 45

Other Business Experience

Chairman, March 2013 – June 2016 (Director since 2008); Executive Chairman
of Steel Partners Holdings GP Inc., the general partner of SPLP February 2013
– Present; Chairman and CEO of general partner of SPLP July 2009 –
February 2013; Chairman, Handy & Harman Ltd. (formerly known as WHX
Corporation) July 2005 – Present; Executive Chairman, Steel Connect, Inc.
June 2016 – Present; Interim CEO, Steel Connect, Inc. March 2016 – June
2016; Chairman, Steel Connect, Inc. March 2013 – June 2016. Chairman Steel
Excel May 2011 – Present (director since 2010); Director SLI March 2010 –
Present; Director (formerly Chairman) SLI January 2002 – May 2008; CEO SLI
February 2002 – August 2005.

Chief Operating Officer, March 2015 – June 2015; Director, Woodward, Inc.
February 2017 – Present; President of Pratt & Whitney AeroPower’s auxiliary
power unit and small turbojet propulsion business, UTC 2012 – 2015; Vice
President ("VP") of Operations, UTC 2009 – 2012; VP of Quality,
Environmental Health & Safety, and Achieving Competitive Excellence, UTC
2003 – 2009; Product Line Manager and Plant Manager, Ford Motor Company
1996 – 2003; United States Army 1989 – 1996.

Employed by Lockheed Martin from 2005 – 2020 with recent positions
including: Vice President and General Manager of Lockheed’s Training and
Logistics Solutions 2017 – 2020; Vice President of Supply Chain Management
of Lockheed Martin Aeronautics 2015 – 2016, Vice President and General
Manager of the Kelly Aviation Center 2012 – 2015. Consulting services at
Accenture PLC focusing on supply chain management (1998 – 2005).

Daniel L. Boehle
Vice President, Chief Financial Officer
(since August 2020)
Age: 48

Vice President and Controller 2017 – 2020. Employed by Northrop Grumman
Corporation from 2001 – 2017 with positions including: Director of Aerospace
Systems Sector Financial Planning, Reporting and Analysis 2013 –2017,
Director, Corporate Internal Audit 2012 – 2013, Director, Corporate Assistant
Controller 2008 – 2012, and Manager, Financial Reporting 2001–2008.
Financial Assurance services at KPMG LLP focusing on audits of various
publicly held companies 1994 – 2001.

John D. Schumacher
Senior Vice President, Washington
Operations and Communications (since
September 2019)
Age: 66

Senior Vice President, Washington Operations August 2018 – September
2019, VP, Washington Operations June 2015 – August 2018; VP, Business
Relations April 2013 – June 2015; President, Aerojet Rocketdyne Foundation
since October 2013; President, Astrium Americas and VP, Space, EADS North
America April 2011 – April 2013; VP, Washington Operations, Aerojet May 2006
– April 2011; Director, Whitney, Bradley & Brown Consulting September 2005 –
May 2006; Chief of Staff, National Aeronautics and Space Administration
("NASA") May 2003 – September 2005; Associate Administrator for External
Relations, NASA 1994 – 2003; Deputy Associate Administrator, NASA 1990 –
1994; Advisor to the Administrator, NASA 1989 – 1990; Associate, Rogers &
Wells, NY, 1987 – 1989; Captain, Naval Reserve 1984 – 2006; Active Duty
U.S. Navy 1972 – 1984.

Name

Other Business Experience

Arjun L. Kampani
Senior Vice President, General Counsel and
Secretary
(since May 2020)
Age: 49

Vice President, General Counsel and Secretary (2016 – 2020). VP, General
Counsel and Corporate Secretary, General Dynamics Land Systems, Inc. 2010
– 2016; Director & Assistant General Counsel, Mergers and Acquisitions,
General Dynamics Corporation 2006 – 2009; Assistant General Counsel and
Assistant Corporate Secretary, Anteon International Corporation 2004 – 2006;
Attorney, Business and Finance Department, Thelen Reid & Priest, LLP 1999 –
2004.

The Company’s executive officers generally hold terms of office of one year and/or until their successors are elected and

serve at the discretion of the Board.

Code of Ethics and Corporate Governance Guidelines

The Company has adopted a code of ethics known as the Code of Conduct that applies to the Company’s directors and

employees including the principal executive officer and principal financial officer. Copies of the Code of Conduct and the
Company’s Corporate Governance Guidelines are available on the Company’s website at www.AerojetRocketdyne.com (copies
are available in print to any stockholder or other interested person who requests them by writing to Secretary, Aerojet
Rocketdyne Holdings, Inc., 222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245). Amendments to the Code
of Conduct and any grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable SEC rules
will be disclosed on the Company’s website at www.AerojetRocketdyne.com within the four business days following the
amendment or waiver.

Audit Committee and Audit Committee Financial Expert

Information regarding the Audit Committee and the Audit Committee’s Financial Expert is set forth under the heading

"Board Committees" in our 2021 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

Information concerning executive compensation may be found under the captions "Executive Compensation,"

"2020 Director Compensation Table," "Compensation Discussion and Analysis," "2020 Summary Compensation Table," "2020
Grants of Plan-Based Awards," "Outstanding Equity Awards at 2020 Year End," "2020 Option/SAR Exercises and Stock Vested,"
"2020 Pension Benefits," "2020 Non-Qualified Deferred Compensation," "Potential Payments upon Termination of Employment
or Change in Control," "Employment Agreement and Indemnity Agreements," "Director Compensation," "Organization &
Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" of our 2021 Proxy
Statement. Such information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of

Officers and Directors" in our 2021 Proxy Statement is incorporated herein by reference.

Equity Compensation Plan Information

The table below sets forth certain information regarding the following equity compensation plans of the Company, pursuant

to which we have made equity compensation available to eligible persons, as of December 31, 2020: (i) 2009 Equity and
Performance Incentive Plan; (ii) 2018 Equity and Performance Incentive Plan; and (iii) 2019 Equity and Performance Incentive
Plan. All three plans were approved by our stockholders.

Plan Category

Equity compensation plans approved
by stockholders

Stock options

Restricted shares (2)

Performance shares (3)

Restricted units

Performance units

Total

Equity compensation plans not approved
by stockholders (4)

Total

_____

Number of Securities
to be
Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))

(a)

(b)

(c)

38,868 $

23.06

—

96,823 $

443,230 $

578,921 $

—

578,921 $

46.00

47.85

45.91

N/A

45.91

4,215,275 (1)

—

4,215,275

(1) As of December 31, 2020, there are no more shares available to be issued under any type of incentive award under the

2009 Equity and Performance Incentive Plan and the 2018 Equity and Performance Plan (the "Prior Plans"). The number
of shares approved for issuance to participants under the 2019 Equity and Performance Incentive Plan (the "Plan") is
4,453,022 shares plus shares issued under the Prior Plans that are forfeited or withheld to settle income tax obligations, all
of which may be awarded as incentive stock options. Subject to the total shares available to be issued under the Plan, the
following specific limit applies: The maximum aggregate dollar value of equity-based awards and cash compensation
granted under the Plan or otherwise during any Plan Year to any one nonemployee director shall not exceed $400,000
($800,000 for a nonemployee director designated as Chairman of the Board).

(2) As of December 31, 2020, 177,101 shares had been granted as restricted shares that had not yet vested.

(3) As of December 31, 2020, 503,898 shares had been granted as performance shares that had not yet vested.

(4) The Company also maintains the Aerojet Rocketdyne Holdings, Inc. and Participating Subsidiaries Deferred Bonus Plan.

Prior to 2016, this plan allowed participating employees to defer a portion of their compensation for future distribution. All or
a portion of such deferrals made prior to November 30, 2009, could be allocated to an account based on the Company’s
common stock and does permit limited distributions in the form of Company common shares. However, distributions in the
form of common shares are permitted only at the election of the Organization & Compensation Committee of the Board of
Directors and, according to the terms of the plan, individuals serving as officers or directors of the Company are not
permitted to receive distributions in the form of Company common shares until at least six months after such individual
ceases to be an officer or director of the Company. The table does not include information about this plan because no
options, warrants or rights are available under this plan and no specific number of shares is set aside under this plan as
available for future issuance. Based upon the price of Company common shares on December 31, 2020, the maximum
number of shares that could be distributed to employees not subject to the restrictions on officers and directors (if
permitted by the Organization & Compensation Committee) would be 888. This plan was amended effective November 30,
2009, to prevent the application of future deferrals to the Company common stock investment program.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding certain transactions and employment agreements with management is set under the headings

"Employment and Indemnity Agreements," "Related Person Transaction Policy" and "Potential Payments upon Termination of
Employment or Change in Control" in our 2021 Proxy Statement and is incorporated herein by reference. Information regarding
director independence is set forth under the heading "Determination of Independence of Directors" in our 2021 Proxy Statement
and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information in our 2021 Proxy Statement set forth under the captions "Proposal 3 - Ratification of the Appointment of
Independent Auditors," "Audit Fees and All Other Fees," and "Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of the Company’s Independent Auditors" is incorporated herein by reference.

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) FINANCIAL STATEMENTS

Part IV

Page
Number

Filed or
Furnished
herewith

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019, and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018

Notes to Consolidated Financial Statements

(b) EXHIBITS

EXHIBIT INDEX

Incorporated herein by reference

Table
Item No.

Exhibit Description

Form

File Number

Exhibit

Filing Date

2.1

2.2

2.3

3.1

3.2

3.3

3.4

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

Amended and Restated Stock and Asset Purchase
Agreement, by and between United Technologies
Corporation and GenCorp Inc., dated June 12,
2013

Plan of Conversion

Agreement and Plan of Merger, dated December
20, 2020, by and among Aerojet Rocketdyne
Holdings, Inc., Lockheed Martin Corporation, and
Mizar Sub, Inc.

Certificate of Conversion, as filed with the Secretary
of State of the State of Ohio

Certificate of Conversion

Certificate of Incorporation, as of April 11, 2014, as
amended on April 27, 2015

Aerojet Rocketdyne Holdings, Inc. Second
Amended and Restated Bylaws

Description of Capital Stock

GenCorp Retirement Savings Plan

Form of Common Stock Certificate

GenCorp Inc. Amended and Restated 2009 Equity
and Performance Incentive Plan

Indenture between Aerojet Rocketdyne Holdings,
Inc. and The Bank of New York Mellon Trust
Company, N.A., as trustee, relating to Aerojet
Rocketdyne Holdings, Inc.’s 2.25% Convertible
Senior Notes due 2023.

8-K

10-K

8-K

10-K

S-8

8-K

S-8

1-01520

2.1

June 14, 2013

1-01520

2.1

April 11, 2014

1-01520

2.1

December 21, 2020

1-01520

333-0152032

1-01520

333-203319

3.1

3.2

3.3

3.1

4.1

April 11, 2014

February 16, 2016

January 20, 2016

February 19, 2020

June 30, 2008

April 11, 2014

April 9, 2015

8-K

1-01520

4.1

December 14, 2016

Form of 2.25% Convertible Senior Note due 2023

8-K

2018 Equity and Performance Incentive Plan

2019 Equity and Performance Incentive Plan

DEF 14A

1-01520

4.2

December 14, 2016

March 29, 2018

March 29, 2019

10.1

10.2†

10.3†

Amended and Restated Environmental Agreement
by and between Aerojet and Northrop Grumman,
dated October 19, 2001

GenCorp 1996 Supplemental Retirement Plan for
Management Employees effective March 1, 1996

2009 Benefit Restoration Plan for the GenCorp Inc.
Pension Plan

8-K

1-01520

2.4

November 5, 2001

1-01520

February 13, 1997

1-01520

10.1

January 7, 2009

10-K

8-K

10.4†

10.5†

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13

10.14

10.15†

10.16†

2009 Benefit Restoration Plan for the GenCorp Inc.
401(k) Plan

Deferred Bonus Plan of GenCorp Inc. and
Participating Subsidiaries

Director Stock Appreciation Rights Agreement
between GenCorp Inc. and Directors for grants of
stock appreciation rights under the GenCorp Inc.
2009 Equity and Performance Incentive Plan

Amendment to the Benefits Restoration Plan for
Salaried Employees of GenCorp Inc. and Certain
Subsidiary Companies, effective October 6, 2009

Amendment to the 2009 Benefit Restoration Plan
for the GenCorp Inc. 401(k) Plan, effective
October 6, 2009

Amendment to the 2009 Benefits Restoration Plan
for the GenCorp Inc. Pension Plan, effective
October 6, 2009

Amendment to the Deferred Bonus Plan of
GenCorp Inc. and Participating Subsidiaries,
effective October 6, 2009

Amendment to the GenCorp Inc. Deferred
Compensation Plan for Nonemployee Directors, as
amended, effective October 6, 2009

Amendment to the GenCorp Inc. 1996
Supplemental Retirement Plan for Management
Employees, effective October 6, 2009

Settlement Agreement by and between Aerojet and
United States of America, dated November 29,
1992

Modification No. 1 to the November 29, 1992
Settlement Agreement by and between Aerojet and
United States of America, dated October 27, 1998

Form of Restricted Stock Agreement between the
Company and Employees for grants of time-based
vesting of restricted stock under the GenCorp Inc.
Amended and Restated 2009 Equity and
Performance Incentive Plan.

Amendment to the GenCorp Inc. Deferred
Compensation Plan for Nonemployee Directors, as
amended, effective April 11, 2013

10.17

Form of Indemnification Agreement

10.18†

10.19†

10.20†

10.21†

10.22†

10.23†

10.24†

10.25†

10.26†

10.27†

Amended and Restated 2013 Employee Stock
Purchase Plan, dated June 24, 2014

Amended and Restated Deferred Compensation
Plan for Nonemployee directors, dated June 24,
2014

Amended and Restated 2009 Equity and
Performance Incentive Plan, dated June 24, 2014

Form of Restricted Stock Agreement between the
Company and Directors for grants of time-based
vesting of restricted stock under the GenCorp Inc.
Amended and Restated 2009 Equity and
Performance Incentive Plan

Form of Unrestricted Stock Agreement between the
Company and Directors for grants of common stock
under the GenCorp Inc. Amended and Restated
2009 Equity and Performance Incentive Plan

Form of Director Nonqualified Stock Option
Agreement between the Company and Directors for
grants of nonqualified stock options under the
GenCorp Inc. Amended and Restated 2009 Equity
and Performance Incentive Plan

Second Amended and Restated Employment
Agreement between Aerojet Rocketdyne Holdings,
Inc. and Eileen Drake, dated March 4, 2020

Amended and Restated Deferred Compensation
Plan for Directors, dated February 22, 2017

Aerojet Rocketdyne Holdings, Inc. Amended and
Restated Executive Change in Control Severance
Policy

Form of Restricted Stock Agreement between the
Company and Employees for time-based grants
under the 2018 Equity and Performance Incentive
Plan

8-K

10-K

1-01520

10.2

January 7, 2009

1-01520

10.6

February 12, 2009

10-Q

1-01520

10.4

October 8, 2009

10-Q

1-01520

10.5

October 8, 2009

10-Q

1-01520

10.6

October 8, 2009

10-Q

1-01520

10.7

October 8, 2009

10-Q

1-01520

10.8

October 8, 2009

10-Q

1-01520

10.9

October 8, 2009

10-Q

1-01520

10.10

October 8, 2009

10-K

1-01520

10.52

February 4, 2010

10-K

1-01520

10.53

February 4, 2010

8-K

10-Q

8-K

10-Q

1-01520

10.1

May 13, 2013

1-01520

10.1

July 9, 2013

1-01520

10.1

April 11, 2014

1-01520

10.1

October 10, 2014

10-Q

1-01520

10.2

October 10, 2014

10-Q

1-01520

10.3

October 10, 2014

10-Q

1-01520

10.4

October 10, 2014

10-Q

1-01520

10.5

October 10, 2014

10-Q

1-01520

10.6

October 10, 2014

8-K

1-01520

10.2

March 6, 2020

10-Q

1-01520

10.1

May 8, 2017

8-K

1-01520

10.1

March 6, 2020

S-8

333-224823

99.2

May 10, 2018

10.28†

10.29†

10.30†

10.31†

10.32†

10.33

10.34†

10.35†

10.36†

10.37†

10.38†

10.39†

10.40†

10.41†

10.42†

10.43†

10.44†

21.1*

23.1*

24.1*

31.1*

31.2*

32.1*

Form of Restricted Stock Agreement between the
Company and Employees for performance-based
grants under the 2018 Equity and Performance
Incentive Plan

Form of Unrestricted Stock Agreement between the
Company and Directors for grants under the 2018
Equity and Performance Incentive Plan

Form of Restricted Stock Agreement between the
Company and Directors for matching share grants
under the 2018 Equity and Performance Incentive
Plan

Form of Restricted Stock Agreement between the
Company and Directors for annual share grants
under the 2018 Equity and Performance Incentive
Plan

Form of Stock Appreciation Rights Agreement
between the Company and Employees for grants
under the 2018 Equity and Performance Incentive
Plan

First Amendment to Fourth Amended and Restated
Credit Agreement with Bank of America, N.A., dated
September 20, 2018

Form of Restricted Stock Agreement between the
Company and Employees for grants under the 2019
Equity and Performance Incentive Plan

Form of Restricted Stock Agreement between the
Company and Directors for grants under the 2019
Equity and Performance Incentive Plan

Form of Unrestricted Stock Agreement between the
Company and Directors for grants under the 2019
Equity and Performance Incentive Plan

Form of Stock Option Agreement between the
Company and Employees for grants under the 2019
Equity and Performance Incentive Plan

Form of Stock Appreciation Rights Agreement
between the Company and Employees for grants
under the 2019 Equity and Performance Incentive
Plan

Form of Restricted Stock Unit Agreement between
the Company and the Executive Chairman for
grants of restricted stock units under the Aerojet
Rocketdyne Holdings, Inc. 2019 Equity and
Performance Incentive Plan.
Form of Restricted Stock Unit Agreement between
the Company and Employees for grants of
restricted stock units under the Aerojet Rocketdyne
Holdings, Inc. 2019 Equity and Performance
Incentive Plan.

Amended and Restated Executive Retention
Agreement by and between Aerojet Rocketdyne
Holdings, Inc. and Mark A. Tucker, dated October
31, 2019

Offer letter between Aerojet Rocketdyne Holdings,
Inc. and Amy Gowder, dated March 17, 2020.

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

Form of Restricted Stock Agreement between the
Company and Employees for grants under the 2019
Equity and Performance Incentive Plan.

Subsidiaries of the Company. of the Company.

Consent of Independent Registered Public
Accounting Firm.

Power of Attorney

Certification of Principal Executive Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.

Certification of Principal Financial Officer pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.

Certification of Principal Executive Officer and
Principal Financial Officer pursuant to
Rule 13a-14(b) under the Securities Exchange Act
of 1934 as amended, and 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.

S-8

333-224823

99.3

May 10, 2018

S-8

333-224823

99.4

May 10, 2018

S-8

333-224823

99.5

May 10, 2018

S-8

333-224823

99.6

May 10, 2018

S-8

333-224823

99.7

May 10, 2018

8-K

1-01520

10.1

September 20, 2018

S-8

333-231423

99.2

May 13, 2019

S-8

333-231423

99.3

May 13, 2019

S-8

333-231423

99.4

May 13, 2019

S-8

333-231423

99.5

May 13, 2019

S-8

333-231423

99.6

May 13, 2019

10-Q

1-01520

10.1

April 28, 2020

10-Q

1-01520

10.2

April 28, 2020

1-01520

10.1

November 1, 2019

1-01520

10.1

May 7, 2020

1-01520

10.1

August 7, 2020

8-K

101.INS*

XBRL Instance Document - the instance document
does not appear in the Interactive Data File
because its XBRL tags are embedded within the
Inline XBRL document.

101.SCH*

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase
Document

XBRL Taxonomy Extension Definition Linkbase
Document

XBRL Taxonomy Extension Label Linkbase
Document

XBRL Taxonomy Extension Presentation Linkbase
Document

Cover Page Interactive Data File (included as
Exhibit 101) -- the cover page interactive data file
does not appear in the Interactive Data File
because its XBRL tags are embedded within the
Inline XBRL document

101.CAL*

101.DEF*

101.LAB*

101.PRE*

104*

_____

Filed herewith. All other exhibits have been previously filed.

† Management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary

None

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

February 18, 2021

Aerojet Rocketdyne Holdings, Inc.

By:

/s/ EILEEN P. DRAKE

Eileen P. Drake

Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
/s/ EILEEN P. DRAKE

Eileen P. Drake

/s/ DANIEL L. BOEHLE

Daniel L. Boehle
*

Warren G. Lichtenstein
*

Kevin P. Chilton

Thomas A. Corcoran
*

James R. Henderson
*

Lance W. Lord
*

Audrey McNiff
*

Martin Turchin
*
By:

/s/ DANIEL L. BOEHLE

Daniel L. Boehle

Title
Chief Executive Officer, President and Director
(Principal Executive Officer)

Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)

Date

February 18, 2021

Executive Chairman

February 18, 2021

Director

February 18, 2021

Attorney-in-Fact pursuant to Power of Attorney

February 18, 2021

Board of Directors

Executive Officers

General Kevin P. Chilton
USAF (Ret.)
President, Chilton & Associates LLC
Director since 2018

Thomas A. Corcoran
President of Corcoran Enterprises, LLC
Director since 2008

Eileen P. Drake
Chief Executive Officer and President
Aerojo et Rocketdyne Hold
Director since 2015

ings, Inc.

James R. Henderson
CEO of Armor Express
Director since 2008

Warren G. Lichtenstein
Executive Chairman
Aerojet Rocketdyne Holdings, Inc.
Director since 2008

General Lance W. Lord
USAF (Ret.)
Senior Associate
The Four Star Group, LLC
HF GlobalNet, LLC
Director since 2015

Audrey A. McNiff
Director since 2020

Martin Turchin
Vice Chairman
CB Richard Ellis
d
Director since 2008

Warren G. Lichtenstein
Executive Chairman of the Board

Eileen P. Drake
Chief Executive Officer and President

Amy L. Gowder
Chief Operating Officer

Daniel L. Boehle
Vice President,

Chief Financial Officer

John D. Schumacher
Senior Vice
r
and Communications

President, Washington Operations

L. Kampani

Arjunr
Senior Vice President, General Counsel and Secretary

Address

Aerojet Rocketdyne Holdings, Inc.
222 N. Pacific Coast Highway
Suite 500
El Segundo, California 90245
310-252-8100

Shareholder Information

Independent Auditors

Common Stock
Exchange Listings:
New York Stock Exchange
Ticker Symbol: AJRD

Transfer Agent and Registrar
Compum tershare
Toll Free – Domestic Callers: 877-889-2023
International Callers: 201-680-6578

Address for Regular Mail
Compum tershare
C/O Computershare Shareholder Services
P.O. Box 505000
Louisville,

40233-5000

Kentucky

Address for Overnight Carriers
Compum tershare
C/O Computershare Shareholder Services
462 South 4th Street
Suite 1600
Louisville, Kentucky 40202

Website
www.computershare.com/investor

Shareholder Online Inquiries
https://www-us.computershare.com/investor/contact

BuyDIRECT

A direct purchase and sale plan, BuyDIRECT, is
available to shareholders and interested first-time
investors, offering a convenient method of increasing
investment in Aerojet Rocketdyne Holdings, Inc. The
Company pays all brokerage commissions and bank
service fees incurred on behalf of the participant in
connection with stock purchases. Subject to terms and
conditions of the plan, investments of up to $120,000
per year are used to buy more shares of the Company’s
Common Stock.

For additional information, or to participate, contact:
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville,

40233-5000

Kentucky

PricewaterhouseCoopers LLP
Sacramento, California

Investor Information

Security analysts and institutional investors seeking
additional information about
Holdings should contact:

Aerojet Rocketdyne

Kelly Anderson
Vice President, Controller and Investor Relations
310-252-8155
IR@AerojetRocketdyne.com

Board of Directors Communications

Correspondence to members of the Aerojet Rocketdyne
Holdings Board of Directors should be addressed
to:

Chair, Corporate Governance & Nominating Committee
c/o Aerojet Rocketdyne Holdings, Inc.
Arjr un L. Kampani
Vice President, General Counsel and Secretary
222 N. Pacific Coast Highway
Suite 500
El Segundo, California 90245

Corporate Communications

For inquiries about Aerojo et Rocketdyne Hold
contact:

ings

Steven H. Warren
Vice President of Communications
703-650-0278

Additional information about Aerojet Rocketdyne
Holdings including recent news, can be found at
http://www.aerojetrocketdyne.com

A copy of the Company’s Form 10-K as filed with the Securities and Exchange Commission (SEC) for 2020, which includes as Exhibits
the Chief Executive Officer and Chief Financial Officer Certifications required to be filed with the SEC pursuant to Section 302 of the
Sarbanes-Oxley Act, is included in this annual report and may also be obtained by shareholders without charge upon written request to
Aerojet Rocketdyne Holdings, Inc., P.O. Box 537012, Sacramento, CA 95853-7012. Attn: Investor Relations. The Form 10-K is also available
on the Company’s web site at http://www.AerojetRocketdyne.com. During the Company’s year ended December 31, 2020, the Company filed
with the New York Stock Exchange (NYSE) the Certification of its Chief Executive Officer confirming that the Chief Executive Officer was
not aware of any violations by the Company of the NYSE’s corporate governance listing standards.