| Summary of Significant Accounting Policies | 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: Aerospace and Defense — includes the operations of the Company’s wholly-owned subsidiary Aerojet Rocketdyne, Inc. ("Aerojet Rocketdyne"), a leading technology-based designer, developer and manufacturer of aerospace and defense products and systems for the United States ("U.S.") government, including the Department of Defense ("DoD"), the National Aeronautics and Space Administration ("NASA"), and major aerospace and defense prime contractors. Real Estate — includes the activities of the Company’s wholly-owned subsidiary Easton Development Company, LLC ("Easton") related to the re-zoning, entitlement, sale, and leasing of the Company’s excess real estate assets. The year of the Company's subsidiary, Aerojet Rocketdyne, ends on the last Saturday in December. 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. 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, 2019 and 2018, the Company designated $3.0 million and $5.0 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. Fair value measurement as of December 31, 2019 Total Quoted Prices in (In millions) Money market funds $ 626.0 $ 626.0 $ — $ — Registered investment companies 3.7 3.7 — — Commercial paper 99.9 99.9 — Total $ 729.6 $ 629.7 $ 99.9 $ — Fair value measurement as of December 31, 2018 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) (In millions) Money market funds $ 186.3 $ 186.3 $ — $ — Commercial paper 154.7 — 154.7 — Total $ 341.0 $ 186.3 $ 154.7 $ — The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued compensation, and other accrued liabilities, approximate fair value because of their short maturities. The following table summarizes the estimated fair value and principal amount for outstanding debt obligations excluding finance lease obligations: Fair Value Principal Amount As of December 31, As of December 31, 2019 2018 2019 2018 (In millions) Term loan $ 328.1 $ 345.6 $ 328.1 $ 345.6 2.25% Convertible Senior Notes ("2¼% Notes") 546.0 441.1 300.0 300.0 $ 874.1 $ 786.7 $ 628.1 $ 645.6 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 term loan bore interest at variable rates, which adjusted based on market conditions, and its carrying value approximates 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 2019 and 2018 totaled $273.9 million and $248.8 million , respectively, and the cumulative amount of general and administrative costs in long-term contract inventories were estimated to be $3.8 million and $2.7 million as of December 31, 2019 and 2018 , 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 9 - 40 years Machinery and equipment 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, 2019, and determined that goodwill was not impaired. The Company evaluated goodwill using a Step One analysis as of October 1, 2018, 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 9(b) and 9(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 8). 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: Year Ended December 31, 2019 2018 2017 (In millions) Balance at beginning of year $ 46.0 $ 44.0 $ 30.6 Additions and other, net 2.6 (0.5 ) 11.2 Accretion 2.8 2.5 2.2 Balance at end of year $ 51.4 $ 46.0 $ 44.0 p. Loss Contingencies 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, 2019 2018 2017 (In millions, except per share amounts) Net favorable effect of the changes in contract estimates on net sales $ 38.6 $ 68.2 $ 33.7 Favorable effect of the changes in contract estimates on income before income taxes 38.4 59.1 37.2 Favorable effect of the changes in contract estimates on net income (loss) 28.2 43.1 22.3 Favorable effect of the changes in contract estimates on basic earnings (loss) per share ("EPS") of common stock 0.36 0.56 0.31 Favorable effect of the changes in contract estimates on diluted EPS 0.34 0.55 0.31 The 2019 net favorable changes in contract estimates on income before income taxes were primarily driven by improved performance and risk retirements on the Terminal High Altitude Area Defense ("THAAD") and Patriot Advanced Capability-3 ("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. The 2017 net favorable changes in contract estimates were primarily driven by improved performance on numerous programs as a result of overhead cost reductions and reduced program risks, most notably on the THAAD program, partially offset by cost growth and manufacturing inefficiencies in electric propulsion contracts. 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: As of December 31, 2019 2018 (In millions) Contract assets $ 243.5 $ 278.0 Reserve for overhead rate disallowance (19.4 ) (42.9 ) Contract assets, net of reserve 224.1 235.1 Contract liabilities 262.3 272.6 Net contract liabilities, net of reserve $ (38.2 ) $ (37.5 ) Net contract liabilities were essentially unchanged from December 31, 2018. The decrease of $23.5 million in the reserve for overhead rate disallowance reflects an adjustment for t he final incurred costs from prior years which were subject to audit and review for allowability by the U.S. government, and $22.8 million was recorded against other net contract liability accounts. During 2019, the Company recognized sales of $240.6 million that were included in the Company’s contract liabilities as of December 31, 2018. During 2018, the Company recognized sales of $209.6 million that were included in the Company’s contract liabilities as of January 1, 2018. Contract assets included unbilled receivables of $232.4 million and $263.7 million as of December 31, 2019 and 2018 , respectively. Approximately 27% of unbilled receivables at December 31, 2019, are expected to be collected after one year. As of December 31, 2019 , the Company’s total remaining performance obligations, also referred to as backlog, totaled $5.4 billion . The Company expects to recognize approximately 36% , or $2.0 billion , of the remaining performance obligations as sales over the next twelve months, an additional 23% the following twelve months, and 41% thereafter. The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the percentages of net sales by contract type: Year Ended December 31, 2019 2018 2017 Fixed-price 61 % 63 % 64 % Cost-reimbursable 39 37 36 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 $65.1 million , $46.7 million , and $44.6 million in 2019, 2018, and 2017, 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 $680.5 million , $591.6 million , and $561.1 million in 2019, 2018, and 2017, 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: Year Ended December 31, 2019 2018 2017 U.S. government 96 % 94 % 92 % Non U.S. government customers 4 6 8 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: Year Ended December 31, 2019 2018 2017 RS-25 program 17 % 14 % 14 % Standard Missile program 13 13 9 THAAD program 10 11 9 PAC-3 program 10 8 5 Major Customers 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: Year Ended December 31, 2019 2018 2017 Lockheed Martin Corporation ("Lockheed Martin") 33 % 30 % 24 % NASA 21 18 17 Raytheon Company ("Raytheon") 17 19 17 ULA 10 17 22 Credit Risk 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, ca |
