UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	October ~~2, 2020~~1, 2021


☐			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:			001-35419


KAMAN CORPORATION
(Exact name of registrant as specified in its charter)


Connecticut			06-0613548
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1332 Blue Hills Avenue,

Bloomfield,

Connecticut

06002

(Address of principal executive offices)

(Zip Code)


(860)			243-7100
(Registrant’s telephone number, including area code)

~~Securities registered pursuant to Section 12(b) of the Act:~~

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock ($1 par value)

KAMN

New York Stock Exchange LLC

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, 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.


~~If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period~~
~~for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange~~
~~Act.~~			☐

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


Yes			☐			No			☒


At October ~~30, 2020,~~29, 2021, there were			~~27,677,393~~27,850,233			shares of Common Stock outstanding.

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

KAMAN CORPORATION AND SUBSIDIARIES

(In thousands, except share and per share amounts) (Unaudited)


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	152,288	$	471,540	Cash and cash equivalents	$	121,458	$	104,377
Restricted cash	Restricted cash	25,120		0		Restricted cash	—		25,121
Accounts receivable, net	Accounts receivable, net	185,129		156,492		Accounts receivable, net	80,849		153,806
Contract assets	Contract assets	127,260		121,614		Contract assets	128,824		108,645
Contract costs, current portion	Contract costs, current portion	3,762		6,052		Contract costs, current portion	1,533		3,511
Inventories	Inventories	188,199		156,353		Inventories	195,700		185,072
Income tax refunds receivable	Income tax refunds receivable	12,474		8,069		Income tax refunds receivable	2,123		5,269
Other current assets	Other current assets	14,400		16,368		Other current assets	14,488		12,173
Total current assets	Total current assets	708,632		936,488		Total current assets	544,975		597,974
Property, plant and equipment, net of accumulated depreciation of $232,358 and $210,549, respectively		217,906		140,450
Property, plant and equipment, net of accumulated depreciation of $246,431 and $228,984, respectively						Property, plant and equipment, net of accumulated depreciation of $246,431 and $228,984, respectively	199,955		210,852
Operating right-of-use assets, net	Operating right-of-use assets, net	15,377		15,159		Operating right-of-use assets, net	11,091		12,880
Goodwill	Goodwill	252,707		195,314		Goodwill	242,366		247,244
Other intangible assets, net	Other intangible assets, net	144,132		53,439		Other intangible assets, net	141,055		150,198
Deferred income taxes	Deferred income taxes	26,393		35,240		Deferred income taxes	34,061		39,809
Contract costs, noncurrent portion	Contract costs, noncurrent portion	8,438		6,099		Contract costs, noncurrent portion	10,389		8,311
Other assets	Other assets	38,325		36,754		Other assets	37,808		39,125
Total assets	Total assets	$	1,411,910	$	1,418,943	Total assets	$	1,221,700	$	1,306,393
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable – trade	Accounts payable – trade	$	53,937	$	70,884	Accounts payable – trade	$	38,738	$	60,200
Accrued salaries and wages	Accrued salaries and wages	56,598		43,220		Accrued salaries and wages	40,639		70,552
Contract liabilities, current portion	Contract liabilities, current portion	38,233		42,942		Contract liabilities, current portion	10,719		39,073
Operating lease liabilities, current portion	Operating lease liabilities, current portion	4,853		4,306		Operating lease liabilities, current portion	4,215		4,305
Income taxes payable	Income taxes payable	1,448		4,722		Income taxes payable	1,228		19
Liabilities held for sale, current portion						Liabilities held for sale, current portion	—		18,086
Other current liabilities	Other current liabilities	39,206		37,918		Other current liabilities	42,291		36,177
Total current liabilities	Total current liabilities	194,275		203,992		Total current liabilities	137,830		228,412
Long-term debt, excluding current portion, net of debt issuance costs	Long-term debt, excluding current portion, net of debt issuance costs	285,608		181,622		Long-term debt, excluding current portion, net of debt issuance costs	188,407		185,401
Deferred income taxes	Deferred income taxes	6,020		6,994		Deferred income taxes	7,180		7,381
Underfunded pension	Underfunded pension	74,550		97,246		Underfunded pension	37,326		69,610
Contract liabilities, noncurrent portion	Contract liabilities, noncurrent portion	16,398		37,855		Contract liabilities, noncurrent portion	15,426		11,019
Operating lease liabilities, noncurrent portion	Operating lease liabilities, noncurrent portion	11,132		11,617		Operating lease liabilities, noncurrent portion	7,556		9,325
Liabilities held for sale, noncurrent portion						Liabilities held for sale, noncurrent portion	—		1,171
Other long-term liabilities	Other long-term liabilities	53,249		56,415		Other long-term liabilities	41,226		47,636
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)					Commitments and contingencies (Note 14)	0		0
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Preferred stock, $1 par value, 200,000 shares authorized; NaN outstanding		0		0
Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,228,123 and 30,058,455 shares issued, respectively		30,228		30,058
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding						Preferred stock, $1 par value, 200,000 shares authorized; none outstanding	—		—
Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,414,184 and 30,278,668 shares issued, respectively						Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,414,184 and 30,278,668 shares issued, respectively	30,414		30,279
Additional paid-in capital	Additional paid-in capital	236,310		228,153		Additional paid-in capital	246,516		238,829
Retained earnings	Retained earnings	765,722		820,666		Retained earnings	746,300		728,764
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(140,973)		(150,893)		Accumulated other comprehensive income (loss)	(115,322)		(130,821)
Less 2,555,693 and 2,219,332 shares of common stock, respectively, held in treasury, at cost		(120,609)		(104,782)
Less 2,569,169 and 2,555,785 shares of common stock, respectively, held in treasury, at cost						Less 2,569,169 and 2,555,785 shares of common stock, respectively, held in treasury, at cost	(121,159)		(120,613)
Total shareholders’ equity	Total shareholders’ equity	770,678		823,202		Total shareholders’ equity	786,749		746,438
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,411,910	$	1,418,943	Total liabilities and shareholders’ equity	$	1,221,700	$	1,306,393

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

KAMAN CORPORATION AND SUBSIDIARIES

(In thousands, except per share amounts) (Unaudited)


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Nine Months Ended
		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Net sales	Net sales	$	213,959	$	182,670	$	599,171	$	523,816	Net sales	$	179,836	$	213,959	$	533,846	$	599,171
Cost of sales	Cost of sales	147,084		121,537		407,926		355,573		Cost of sales	116,771		147,084		355,930		407,926
Gross profit	Gross profit	66,875		61,133		191,245		168,243		Gross profit	63,065		66,875		177,916		191,245
Selling, general and administrative expenses	Selling, general and administrative expenses	45,224		43,855		151,093		127,614		Selling, general and administrative expenses	39,335		36,764		116,182		128,488
Goodwill impairment	Goodwill impairment	50,307		0		50,307		0		Goodwill impairment	—		50,307		—		50,307
Research and development costs										Research and development costs	2,540		3,634		10,004		11,336
Intangible asset amortization expense										Intangible asset amortization expense	2,624		4,826		7,898		11,269
Costs from transition services agreement	Costs from transition services agreement	3,019		1,154		11,532		1,154		Costs from transition services agreement	24		3,019		1,728		11,532
Cost of acquired retention plans	Cost of acquired retention plans	5,703		0		17,110		0		Cost of acquired retention plans	—		5,703		—		17,110
Restructuring costs		1,541		81		7,820		553
Gain on sale of business		0		0		(493)		0
Net loss (gain) on sale of assets		8		416		(5)		351
Operating (loss) income		(38,927)		15,627		(46,119)		38,571
Restructuring and severance costs										Restructuring and severance costs	2,611		1,541		5,479		7,820
Loss (gain) on sale of business										Loss (gain) on sale of business	—		—		234		(493)
Net (gain) loss on sale of assets										Net (gain) loss on sale of assets	(31)		8		(16)		(5)
Operating income (loss)										Operating income (loss)	15,962		(38,927)		36,407		(46,119)
Interest expense, net	Interest expense, net	5,327		4,058		14,382		14,595		Interest expense, net	3,646		5,327		12,232		14,382
Non-service pension and post retirement benefit income	Non-service pension and post retirement benefit income	(4,063)		(99)		(12,188)		(298)		Non-service pension and post retirement benefit income	(6,612)		(4,063)		(19,832)		(12,188)
Income from transition services agreement	Income from transition services agreement	(1,829)		(944)		(7,853)		(944)		Income from transition services agreement	(14)		(1,829)		(931)		(7,853)
Other (income) expense, net	Other (income) expense, net	(534)		185		(424)		(367)		Other (income) expense, net	(172)		(534)		275		(424)
(Loss) earnings from continuing operations before income taxes		(37,828)		12,427		(40,036)		25,585
Earnings (loss) from continuing operations before income taxes										Earnings (loss) from continuing operations before income taxes	19,114		(37,828)		44,663		(40,036)
Income tax expense (benefit)	Income tax expense (benefit)	679		2,297		(1,022)		3,244		Income tax expense (benefit)	4,447		679		10,156		(1,022)
(Loss) earnings from continuing operations		(38,507)		10,130		(39,014)		22,341
Earnings (loss) from continuing operations										Earnings (loss) from continuing operations	14,667		(38,507)		34,507		(39,014)
Earnings from discontinued operations before gain on disposal, net of tax	Earnings from discontinued operations before gain on disposal, net of tax	0		9,860		0		25,240		Earnings from discontinued operations before gain on disposal, net of tax	—		—		—		—
Gain on disposal of discontinued operations, net of tax	Gain on disposal of discontinued operations, net of tax	0		122,786		692		122,786		Gain on disposal of discontinued operations, net of tax	—		—		—		692
Total earnings from discontinued operations	Total earnings from discontinued operations	0		132,646		692		148,026		Total earnings from discontinued operations	—		—		—		692
Net (loss) earnings		$	(38,507)	$	142,776	$	(38,322)	$	170,367
Net earnings (loss)										Net earnings (loss)	$	14,667	$	(38,507)	$	34,507	$	(38,322)

Earnings per share:	Earnings per share:									Earnings per share:
Basic (loss) earnings per share from continuing operations		$	(1.39)	$	0.36	$	(1.41)	$	0.80
Basic earnings (loss) per share from continuing operations										Basic earnings (loss) per share from continuing operations	$	0.53	$	(1.39)	$	1.24	$	(1.41)
Basic earnings per share from discontinued operations	Basic earnings per share from discontinued operations	0.00		4.75		0.03		5.30		Basic earnings per share from discontinued operations	0.00		0.00		0.00		0.03
Basic (loss) earnings per share		$	(1.39)	$	5.11	$	(1.38)	$	6.10
Diluted (loss) earnings per share from continuing operations		$	(1.39)	$	0.36	$	(1.41)	$	0.79
Basic earnings (loss) per share										Basic earnings (loss) per share	$	0.53	$	(1.39)	$	1.24	$	(1.38)
Diluted earnings (loss) per share from continuing operations										Diluted earnings (loss) per share from continuing operations	$	0.53	$	(1.39)	$	1.24	$	(1.41)
Diluted earnings per share from discontinued operations	Diluted earnings per share from discontinued operations	0.00		4.72		0.03		5.27		Diluted earnings per share from discontinued operations	0.00		0.00		0.00		0.03
Diluted (loss) earnings per share		$	(1.39)	$	5.08	$	(1.38)	$	6.06
Diluted earnings (loss) per share										Diluted earnings (loss) per share	$	0.53	$	(1.39)	$	1.24	$	(1.38)
Average shares outstanding:	Average shares outstanding:									Average shares outstanding:
Basic	Basic	27,687		27,952		27,718		27,941		Basic	27,882		27,687		27,855		27,718
Diluted	Diluted	27,687		28,117		27,718		28,104		Diluted	27,888		27,687		27,889		27,718

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

KAMAN CORPORATION AND SUBSIDIARIES

(In thousands) (Unaudited)


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Nine Months Ended
		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Net (loss) earnings		$	(38,507)	$	142,776	$	(38,322)	$	170,367
Net earnings (loss)										Net earnings (loss)	$	14,667	$	(38,507)	$	34,507	$	(38,322)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other	Foreign currency translation adjustments and other	9,130		(8,585)		6,599		(10,173)		Foreign currency translation adjustments and other	(4,342)		9,130		12,890		6,599
Change in pension and post-retirement benefit plan liabilities, net of tax expense of $330 and $940 and $990 and $2,820, respectively		1,107		2,936		3,321		8,808
Change in pension and post-retirement benefit plan liabilities, net of tax expense of $257 and $330 and $773 and $990, respectively										Change in pension and post-retirement benefit plan liabilities, net of tax expense of $257 and $330 and $773 and $990, respectively	868		1,107		2,609		3,321
Other comprehensive (loss) income	Other comprehensive (loss) income	10,237		(5,649)		9,920		(1,365)		Other comprehensive (loss) income	(3,474)		10,237		15,499		9,920
Comprehensive (loss) income		$	(28,270)	$	137,127	$	(28,402)	$	169,002
Comprehensive income (loss)										Comprehensive income (loss)	$	11,193	$	(28,270)	$	50,006	$	(28,402)

See accompanying notes to condensed consolidated financial statements.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS KAMAN CORPORATION AND SUBSIDIARIES (In thousands) (Unaudited)


	For the Nine Months Ended
	October 1, 2021		October 2, 2020
Cash flows from operating activities:
Net earnings (loss)	$	34,507	$	(38,322)
Less: Total earnings from discontinued operations	—		692
Earnings (loss) from continuing operations	$	34,507	$	(39,014)
Adjustments to reconcile net earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization	27,474		32,204
Amortization of debt issuance costs	1,406		1,325
Accretion of convertible notes discount	2,191		2,132
Provision for doubtful accounts	373		570
Goodwill impairment	—		50,307
Loss (gain) on sale of business	234		(493)
Net gain on sale of assets	(16)		(5)
Net loss on derivative instruments	815		144
Stock compensation expense	5,684		4,254
Deferred income taxes	4,822		6,590
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable	71,434		(19,556)
Contract assets	(19,940)		(5,085)
Contract costs	(99)		(48)
Inventories	(12,435)		(18,273)
Income tax refunds receivable	3,145		(4,431)
Operating right of use assets	1,739		427
Other assets	1,042		526
Accounts payable - trade	(21,829)		(18,258)
Contract liabilities	(24,036)		(26,165)
Operating lease liabilities	(1,810)		(498)
Acquired retention plan payments	(25,108)		—
Other current liabilities	(2,698)		5,997
Income taxes payable	1,173		(3,464)
Pension liabilities	(29,256)		(18,662)
Other long-term liabilities	(4,689)		(2,903)
Net cash provided by (used in) operating activities of continuing operations	14,123		(52,379)
Cash flows from investing activities:
Proceeds from sale of discontinued operations	—		5,223
Proceeds from sale of business, net of cash on hand	(3,428)		493
Expenditures for property, plant & equipment	(11,364)		(14,232)
Acquisition of businesses, net of cash acquired	—		(304,661)
Other, net	(502)		(2,097)
Net cash used in investing activities of continuing operations	(15,294)		(315,274)
Cash flows from financing activities:
Net borrowings under revolving credit agreements	—		101,100
Purchase of treasury shares	(459)		(14,205)
Dividends paid	(16,672)		(16,675)
Other, net	4,086		2,843
Net cash (used in) provided by financing activities of continuing operations	(13,045)		73,063
Net decrease in cash and cash equivalents	(14,216)		(294,590)
Effect of exchange rate changes on cash and cash equivalents	(415)		458
Cash and cash equivalents and restricted cash at beginning of period (See Note 3)	136,089		471,540
Cash and cash equivalents and restricted cash at end of period	$	121,458	$	177,408

For the Nine Months Ended
October 2,
2020 September 27,
2019
Cash flows from operating activities:
Net (loss) earnings $ (38,322) $ 170,367
Less: Total earnings from discontinued operations 692 148,026
(Loss) earnings from continuing operations $ (39,014) $ 22,341
Adjustments to reconcile net earnings from continuing operations to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization 32,204 19,308
Amortization of debt issuance costs 1,325 1,401
Accretion of convertible notes discount 2,132 2,067
Provision for doubtful accounts 570 384
Goodwill impairment 50,307 0
Gain on sale of business (493) 0
Net (gain) loss on sale of assets (5) 351
Net loss on derivative instruments 144 549
Stock compensation expense 4,254 3,969
Deferred income taxes 6,590 (3,743)
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable (19,556) 17,650
Contract assets (5,085) (20,303)
Contract costs (48) 3,130
Inventories (18,273) (43,139)
Income tax refunds receivable (4,431) 157
Operating right of use assets 427 2,388
Other assets 526 (4,020)
Accounts payable - trade (18,258) 704
Contract liabilities (26,165) (16,647)
Operating lease liabilities (498) (2,256)
Other current liabilities 5,997 7,318
Income taxes payable (3,464) 15,620
Pension liabilities (18,662) 3,128
Other long-term liabilities (2,903) 979
Net cash (used in) provided by operating activities of continuing operations (52,379) 11,336
Net cash used in operating activities of discontinued operations 0 (7,341)
Net cash (used in) provided by operating activities (52,379) 3,995
Cash flows from investing activities:
Proceeds from sale of assets 128 82
Proceeds from sale of discontinued operations 5,223 656,736
Proceeds from sale of business 493 0
Expenditures for property, plant & equipment (14,232) (17,411)
Acquisition of businesses, net of cash acquired (304,661) 0
Other, net (2,225) (3,092)
Net cash (used in) provided by investing activities of continuing operations (315,274) 636,315
Net cash used in investing activities of discontinued operations 0 (9,838)
Net cash (used in) provided by investing activities (315,274) 626,477
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements 101,100 (38,500)
Debt repayment 0 (76,875)
Repayment of convertible notes — (500)
Net change in bank overdraft 958 2,995
Proceeds from exercise of employee stock awards 2,451 8,616
Purchase of treasury shares (14,205) (12,006)
Dividends paid (16,675) (16,756)
Other, net (566) (1,092)
Net cash provided by (used in) financing activities of continuing operations 73,063 (134,118)
Net cash provided by financing activities of discontinued operations 0 7,967
Net cash provided by (used in) financing activities 73,063 (126,151)
Net (decrease) increase in cash and cash equivalents (294,590) 504,321
Cash and cash equivalents of discontinued operations 0 (21,834)
Effect of exchange rate changes on cash and cash equivalents 458 (208)
Cash and cash equivalents and restricted cash at beginning of period 471,540 27,711
Cash and cash equivalents and restricted cash at end of period $ 177,408 $ 509,990

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~

(Unaudited)

1. BASIS OF PRESENTATION

During the third quarter of 2019, Kaman Corporation ("the Company") completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020 and transaction costs. The finalization of the gain on the sale of the Distribution ~~business' results~~business was recorded to gain on disposal of ~~operations and the related cash flows have been reclassified to earnings from~~ discontinued operations, net of tax on the Company's Condensed Consolidated Statements of Operations in the ~~Condensed Consolidated Statement of Operations and cash flows from discontinued operations in the Condensed Consolidated Statement of Cash Flows, respectively, for all periods presented.~~nine-month fiscal period ended October 2, 2020. See Note 3, ~~Discontinued Operations~~Disposals, to the Condensed Consolidated Financial Statements for further information.

During the fourth quarter of 2020, the Company committed to a plan and received approval from its Board of Directors to sell

its United Kingdom ("UK") Composites division. As a result of the approved plan, the UK Composites division met the criteria set forth in Accounting Standards Codification 205-20, Presentation of Financial Statements - Discontinued Operations, ("ASC 205-20") for held for sale. At December 31, 2020, the assets of the UK Composites business were considered impaired as the estimated fair value of the disposal group was lower than the estimated carrying value of the UK Composites business. As a result, the assets of the UK Composites business were written off and the remaining loss related to the anticipated sale of the disposal group was accrued for in liabilities held for sale, current portion on the Company's Consolidated Balance Sheet. The related liabilities of the UK division to be sold were reclassified to liabilities held for sale, respectively, as of December 31, 2020 on the Company's Consolidated Balance Sheet. On February 2, 2021, the Company sold its UK Composites business. See Note 3, Discontinued Operations and Liabilities Held for Sale, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K") for additional information.

In the opinion of management, the condensed consolidated financial information reflects all adjustments necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented, but do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s ~~Annual Report on~~2020 Form 10-K for the year ended December 31, 2019. The results of operations for the interim periods presented are not necessarily indicative of trends or of results to be expected for the entire year. During the three-month fiscal period ended October 2, 2020, the Company recorded a correction of certain prior-period errors. The errors primarily resulted in revenue being overstated and cost of sales being understated, resulting in income before taxes being overstated for the years ended December 31, 2019 and December 31, 2018 by approximately $1.1 million and $0.8 million, respectively. The corresponding correction, totaling $1.9 million, was recorded in fiscal year 2020. This correction is not material to the current and prior period financial statements.10-K.

The Company has a calendar year-end; however, its first three fiscal quarters follow a 13-week convention, with each quarter ending on a Friday. The third quarters for ~~2020~~2021 and ~~2019~~2020 ended on October 1, 2021, and October 2, 2020, ~~and September 27, 2019,~~ respectively.

2. RECENT ACCOUNTING STANDARDS

Recent Accounting Standards Adopted

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2018-15, "Intangibles~~2019-12, "Income Taxes (Topic 740) - ~~Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer's~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract"~~Income Taxes". The objective of the standard ~~update~~ is to ~~provide additional guidance on~~simplify the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract to address the diversity in practice. The ASU requires an entity in a hosting arrangement that is a service arrangement to determine which costs to capitalize as an asset related to a service contract and which costs to expense,income taxes by removing certain exceptions and to ~~determine which project stage implementation activities relate to. Costs for implementation activities in the~~improve consistent application ~~development stage are capitalized depending on the nature~~ of ~~the costs, while costs incurred during the preliminary project~~Topic 740 by clarifying and post-implementation stages are expensed as the activities are performed. Capitalized implementation costs of a hosting arrangement are expensed over the term of the hosting arrangement in the same line item in the statement of operations as the fees associated with the hosting element of the arrangement.amending existing guidance. The standard update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019.~~2020. Early adoption of the standard was ~~permitted.~~permitted, including adoption in any interim period for which financial statements have not yet been issued. If early adopted in an interim period, the adjustments should be reflected as of the beginning of the annual period that includes that interim period. All amendments under the standard must be adopted in the same period. In 2021, the Company adopted ASU 2019-12 using the modified retrospective basis which resulted in a cumulative effect reduction to retained earnings of$0.3 million.

Recent Accounting Standards Yet to be Adopted

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". The amendments in this standard update address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied ~~either retrospectively or~~ prospectively to ~~all implementation costs incurred~~business combinations occurring on or after the ~~inception date. The Company has elected to adopt~~effective date of the amendments. Early adoption of the standard ~~update prospectively.~~is permitted, including adoption in an interim period. The adoption of this standard update ~~did~~is not expected to have a material impact on the Company's consolidated financial ~~statements.~~

~~In August 2018,~~statements; however, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurement". The objective of this standard update is to improve the effectiveness of disclosures for recurring and nonrecurring fair value measurements. This standard update removes certain disclosure requirements that are no longer considered cost beneficial, modifies existing disclosure requirements and adds new disclosure requirements identified as relevant. The standard update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption was permitted. An entity was permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. The adoption of this standard update did not have a material impact will be dependent on ~~the Company's consolidated financial statements.~~future business combinations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~

(Unaudited)

2. RECENT ACCOUNTING STANDARDS (CONTINUED)

Recent Accounting Standards Yet to be Adopted - continued

In ~~January 2017,~~May 2021, the FASB issued ASU ~~2017-04, "Intangibles~~2021-04, "Earnings Per Share (Topic 260), Debt - ~~Goodwill~~Modifications and ~~Other~~Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic ~~350)~~718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): ~~Simplifying~~Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the ~~Test for Goodwill Impairment"~~FASB Emerging Issues Task Force)". The objective of this standard update is to ~~simplify the subsequent measurement~~clarify and reduce diversity in an issuer's accounting for modifications or exchanges of ~~goodwill, eliminating Step 2 from the goodwill impairment test. Under this ASU,~~freestanding equity-classified written call options that remain equity classified after modification or exchange. The guidance clarifies whether an ~~entity~~issuer should ~~perform its annual goodwill impairment test by comparing the fair value~~account for a modification or an exchange of a ~~reporting unit with its carrying amount. An entity would recognize~~freestanding equity-classified written call option that remains equity classified after modification or exchange as either an ~~impairment charge for~~adjustment to equity and, if so, the ~~amount by which~~related earnings per share ("EPS") effects, if any, or as an expense and, if so, the ~~carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount~~manner and pattern of ~~goodwill for the reporting unit.~~recognition. The standard update is effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company adopted this accounting standard for the year ended December 31, 2020. During the third quarter of 2020, the Company recognized a goodwill impairment charge for its Aerosystems reporting unit. The carrying amount exceeded the reporting unit's fair value by $56.1 million; therefore, the Company recorded a goodwill impairment charge of $50.3 million, which represents the entire goodwill balance for the reporting unit.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The objective of this standard update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard update is effective for fiscal

~~years, and~~2021, including interim periods within those ~~years, beginning after December 15, 2019.~~fiscal years. Early adoption ~~was permitted. An entity will apply~~is permitted, including adoption in an interim period. The Company is currently assessing the ~~amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the first reporting period in which the guidance is effective. The adoption of~~potential impact this standard update ~~did not~~could have ~~a material impact~~ on ~~the Company's~~its consolidated financial statements.

Subsequent to the issuance of ASU 2016-13, the FASB has issued the following updates: ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses", ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief", ASU 2020-02, "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)" and ASU 2020-03, "Codification Improvements to Financial Instruments". The amendments in these updates affect the guidance within ASU 2016-13 and have been assessed with ASU 2016-13.

~~Recent Accounting Standards Yet to be Adopted~~

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity". The objective of this standard update is to simplify the accounting for certain financial instruments with characteristics of liabilities and equity. The update removes certain separation models between a debt component and equity or derivative component for certain convertible instruments, adds new disclosure requirements for convertible instruments to improve the decision usefulness and relevance of the information being provided to users of financial statements, clarifies the guidance for determining whether a contract qualifies for a scope exception from derivative accounting, and amends EPS guidance to improve consistency. The standard update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption of the standard is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. An entity should adopt the guidance as of the beginning of its annual fiscal year and can do so using a modified retrospective method or fully retrospective method of transition. The Company is currently assessing the potential impact this standard update could have on its consolidated financial statements.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~2. RECENT ACCOUNTING STANDARDS (CONTINUED)~~

~~Recent Accounting Standards Yet to be Adopted - continued~~

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The objective of the standard is to address operational challenges likely to arise in accounting for contract modifications and hedge accounting due to reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The standard update is effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. Once elected for a topic or industry subtopic, the amendments in this standard update must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. An entity may elect to apply the amendments for eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. If an entity elects to apply any of the amendments for an eligible hedging relationship existing as of the beginning of the interim period that includes March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of that interim period. If an entity elects to apply any of the amendments for a new hedging relationship entered into between the beginning of the interim period that includes March 12, 2020 and March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of the hedging relationship. The Company is currently in the process of moving its LIBOR benchmark to other non-USD benchmark rates. The impact of the adoption of this standard update is dependent on the Company's contracts modifications as a result of reference rate reform; however, the Company does not expect the adoption of the amendments associated with hedging relationships to have a material impact on the Company's consolidated financial statements.

~~In December 2019,~~Subsequent to the issuance of ASU 2020-04, the FASB issued the following update: ASU ~~2019-12, "Income Taxes~~2021-01, "Reference Rate Reform (Topic ~~740)~~848) - ~~Simplifying the Accounting for Income Taxes"~~Scope". The ~~objective~~amendments in this update affect the guidance within ASU 2020-04 and are being assessed with ASU 2020-04.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

3. DISPOSALS

UK Composites Business

In the fourth quarter of 2020, the Company received approval from its Board of Directors to sell its UK Composites division. The Company sold its UK Composites division in a transaction that closed on February 2, 2021. The sale of the ~~standard is to simplify~~UK Composites business did not meet the ~~accounting~~criteria set forth in ASC 205-20 for income taxes by removing certain exceptions and to improve consistent application of Topic 740 by clarifying and amending existing guidance. The standard update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoptiondiscontinued operations as it did not reflect a significant shift in the Company's strategy. As a result of the ~~standard is permitted, including adoption~~approved plan, the UK Composites division met the criteria set forth in ~~any interim~~ASC 205-20 for held for sale presentation at December 31, 2020. At December 31, 2020, the assets of the UK Composites business were considered impaired as the estimated fair value of the disposal group was lower than the estimated carrying value of the UK Composites business. As such, the assets of the UK Composites business were written off and the related liabilities of the UK division to be sold were reclassified to liabilities held for sale, as of December 31, 2020 on the Company's Consolidated Balance Sheets.

The following table provides information on the loss recorded on the sale of the UK Composites business. These amounts reflect the balance sheet of the UK Composites business as of February 2, 2021.


In thousands
Proceeds received from the sale of the UK Composites business	$	3,600

Assets, including cash on hand	23,460
Liabilities	6,618
Net book value of business	16,842

UK cumulative foreign currency translation adjustment balance	22,835

Transaction costs	442

Loss on the sale of the UK Composites business	$	36,519

Of this amount, a loss of $36.3 million was recorded in the year ended December 31, 2020 and a loss of $0.2 million was recorded in the nine-month fiscal period ~~for which financial statements have not yet been issued. If early adopted in an interim period, the adjustments should be reflected as of~~ended October 1, 2021.

Cash and cash equivalents and restricted cash at the beginning of the ~~annual~~ period on the Company's Condensed Consolidated Statement of Cash Flows for the nine-month fiscal period ended October 1, 2021 includes $6.6 million of cash that ~~includes that interim period. All amendments under the standard must be adopted~~was included in the ~~same period. The Company is currently assessing~~UK Composites business disposal group. Given the ~~potential impact this standard update could have~~assets of the disposal group were recognized net of the impairment recorded in the year ended December 31, 2020, such amounts were not reflected on ~~its consolidated financial statements.~~the Company's Condensed Consolidated Balance Sheet at December 31, 2020.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework - Changes to Disclosure Requirements for Defined Benefit Plans". The objective of the standard update is to improve the effectiveness of disclosure requirements for defined benefit pension and other post-retirement plans. This standard update removes disclosures that are no longer considered cost beneficial, clarifies specific requirements of disclosures and adds new disclosure requirements identified as relevant. The standard update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted. The adoption of this standard update is not expected to have a material impact on the Company's consolidated financial statements.Distribution Business

~~3. DISCONTINUED OPERATIONS~~

On August 26, 2019, the Company completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020. The sale of the Distribution business was a result of the Company's shift in strategy to be a highly focused, technologically differentiated aerospace and engineered products company. As a result of the sale, the Distribution business met the criteria set forth in ~~Accounting Standards Codification ("ASC")~~ASC 205-20~~Presentation of Financial Statements - Discontinued Operations~~, for discontinued operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~

(Unaudited)

3. ~~DISCONTINUED OPERATIONS~~DISPOSALS (CONTINUED)

Distribution Business - continued

Upon closing, the Company entered into a transition services agreement ("TSA") with the buyer, pursuant to which the Company agreed to support the information technology ("IT"), human resources and benefits, tax and treasury functions of the Distribution business for six to twelve months. The buyer ~~has~~ exercised the option to extend the support period for up to a maximum of an additional year for certain IT services. The buyer ~~has~~had the right to terminate individual services at any point over the renewal term and ~~has begun~~began to terminate certain services in 2020. During the third quarter of ~~2020.~~2021, the TSA expired and all services were completed as of the end of the period. The Company is currently negotiating a release agreement related to certain IT services, which may result in a cash outflow that is not material. Since the sale of the Distribution business, costs associated with the TSA were ~~$16.2~~$18.9 million through October ~~2, 2020.~~1, 2021. Costs associated with the TSA in the three-month fiscal period ended October 1, 2021 were not material. The Company incurred $1.7 million in costs associated with the TSA in the nine-month fiscal period ended October 1, 2021. In addition, the Company incurred $3.0 million and $11.5 million in costs associated with the TSA in the three-month and nine-month fiscal periods ended October 2, ~~2020. The Company incurred $1.2 million in costs associated with the TSA in both the three-month and nine-month fiscal periods ended September 27, 2019.~~2020, respectively. These amounts were included in costs from transition services agreement on the Company's Condensed Consolidated Statements of Operations. Since the sale of the Distribution business, the Company earned ~~$11.5~~$13.0 million in income associated with the TSA through October ~~2, 2020.~~1, 2021. Income earned associated with the TSA in the three-month fiscal period ended October 1, 2021 was not material. The Company earned $0.9 million in income associated with the TSA in the nine-month fiscal period ended October 1, 2021. In addition, the Company earned $1.8 million and $7.9 million in income associated with the TSA in the three-month and nine-month fiscal periods ended October 2, ~~2020. The Company earned $0.9 million in income associated with the TSA in both the three-month and nine-month fiscal periods ended September 27, 2019.~~2020, respectively. These amounts were included in income from transition services on the Company's Condensed Consolidated Statements of Operations.

Since the sale of the Distribution business, cash outflows from the Company to its former Distribution business totaled $8.1 million through October ~~2, 2020,~~1, 2021, which primarily related to Distribution employee and employee-related costs incurred prior to the sale. There were no cash flows from the Company to its former Distribution business in the nine-month fiscal period ended October 1, 2021. Cash outflows from the Company to its former Distribution business after the sale totaled $0.3 million ~~and $4.8 million~~ for the nine-month fiscal ~~periods~~period ended October 2, ~~2020 and September 27, 2019, respectively.~~2020. Since the sale of the Distribution business, cash inflows from the Company's former Distribution business to the Company totaled ~~$16.1~~$18.7 million through October ~~2, 2020,~~1, 2021, which primarily related to cash received for services performed under the TSA and the $5.2 million working capital adjustment settled in the first quarter of 2020. Cash inflows from the Company's former Distribution business received in the nine-month fiscal ~~period~~periods ended October 1, 2021 and October 2, 2020 totaled ~~$12.5 million. Cash inflows from the Company's former Distribution business received in the nine-month fiscal period ended September 27, 2019 were not material.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month~~$1.8 million and ~~nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~3. DISCONTINUED OPERATIONS (CONTINUED)~~

$12.5 million

The results of operations for the Distribution business were included in discontinued operations on the Company's Condensed Consolidated Statement of Operations. The following table provides information regarding the results of discontinued operations:

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands
Net sales from discontinued operations $ 0 $ 167,634 $ 0 $ 748,451
Cost of sales from discontinued operations 0 120,485 0 536,749
Gross profit from discontinued operations 0 47,149 0 211,702
Selling, general and administrative expenses from discontinued operations 0 32,979 0 177,475
Net loss on sale of assets from discontinued operations 0 0 0 8
Operating income from discontinued operations 0 14,170 0 34,219
Interest expense, net from discontinued operations 0 5 0 25
Other income, net from discontinued operations 0 0 0 (12)
Earnings from discontinued operations before income taxes 0 14,165 0 34,206
Income tax expense 0 4,305 0 8,966
Earnings from discontinued operations before gain on disposal 0 9,860 0 25,240
Gain on disposal of discontinued operations, pretax 0 165,484 925 165,484
Income tax expense on gain on disposal 0 42,698 233 42,698
Gain on disposal of discontinued operations, net of tax 0 122,786 692 122,786
Earnings from discontinued operations $ 0 $ 132,646 $ 692 $ 148,026
, respectively.

In the nine-month fiscal period ended October 2, 2020, the Company recorded a pretax gain on disposal of discontinued operations as a result of the final settlement of the working capital adjustment, partially offset by transaction costs. The pretax gain of $0.9 million was subject to income tax expense of $0.2 million, resulting in a gain on disposal of discontinued operations, net of tax of $0.7 million in the nine-month fiscal period ended October 2, 2020, which was included in the Company's Condensed Consolidated Statement of Operations. As the gain on the sale of the Distribution business was finalized in 2020, no activity aside from the TSA activity and cash flows discussed above impacted the Company's Condensed Consolidated Financial Statements in the three-month and nine-month fiscal periods ended October 1, 2021.

4. BUSINESS COMBINATIONS

On January 3, 2020, the Company acquired all of the equity interests of Bal Seal Engineering ~~LLC~~ ("Bal Seal"), of Foothill Ranch, California, at a purchase price of $317.5 million. Bal Seal is a leader in the design, development and manufacturing of highly engineered products, including precision springs, seals and contacts. With this acquisition, the Company has significantly expanded its portfolio of engineered products and offerings while creating new opportunities to reach customers in medical technology, aerospace and defense, and industrial end markets.

Upon closing, the Company funded $24.7 million associated with employee retention plans at Bal Seal. This amount and related interest was included in restricted cash on the Company's Consolidated Balance Sheets as of December 31, 2020. Eligible participants received an allocation of the escrow balance one year following the acquisition date, which was reflected in the Company's cash flows from operating activities for the nine-month fiscal period ended October 1, 2021.

109

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October ~~2, 2020~~1, 2021 and ~~September 27, 2019~~

~~(Unaudited)~~

~~4. BUSINESS COMBINATIONS (CONTINUED)~~

~~This acquisition was accounted for as a purchase transaction. The assets acquired and liabilities assumed were recorded based~~

~~on their fair values at the date of acquisition as follows (in thousands):~~


~~Cash~~	$	~~10,953~~
~~Restricted cash~~	~~1,932~~
~~Accounts receivable~~	~~9,525~~
~~Contract assets~~	~~784~~
~~Inventories~~	~~13,500~~
~~Property, plant and equipment~~	~~81,997~~
~~Operating right-of-use asset~~	~~653~~
~~Other tangible assets~~	~~2,492~~
~~Goodwill~~	~~104,489~~
~~Other intangible assets~~	~~100,900~~
~~Liabilities~~	~~(9,679)~~
~~Net assets acquired~~	~~317,546~~
~~Less cash received~~	~~(12,885)~~
~~Net consideration~~	$	~~304,661~~

The preliminary purchase price allocation for the acquisition of Bal Seal was based upon a preliminary valuation and the Company's estimates and assumptions for this acquisition are subject to change as the Company obtains additional information during the measurement period. During the third quarter, the Company adjusted certain assumptions used to value the identifiable intangible assets and the Company finalized the working capital adjustment. These changes resulted in a decrease to goodwill of $6.3 million and an increase to other intangible assets of $6.3 million. The principal areas of the purchase price allocation that are not yet finalized relate to the validation of certain assumptions used to value the identifiable intangible assets. These purchase price allocations will be finalized within the one-year measurement period.

The goodwill associated with this acquisition is tax deductible and is the result of expected synergies from combining the operations of the acquired business with the Company's operations and intangible assets that do not qualify for separate recognition, such as an assembled workforce.

The fair value of the identifiable intangible assets of $100.9 million, consisting of customer relationships, developed technologies, trade name and acquired backlog, was determined using the income approach. Specifically, a multi-period, excess earnings method was utilized for the customer relationships and backlog and the relief-from-royalty method was utilized for the trade name and developed technologies. The fair value of the customer relationships, $61.9 million, is being amortized based on the economic pattern of benefit over periods ranging from 30 to 38 years; the fair value of the developed technologies, $24.8 million, is being amortized on a straight-line basis over periods ranging from 7 to 13 years; the fair value of the trade name, $11.5 million, is being amortized on a straight-line basis over a 40 year term; and the fair value of the acquired backlog, $2.7 million, is being amortized on a straight-line basis over a period of 1 year. These amortization periods represent the estimated useful lives of the assets.

As of the acquisition date, Bal Seal had $1.9 million in costs accrued for its employee retention plans in other long term liabilities. Upon closing, the Company funded $24.7 million associated with these employee retention plans into escrow accounts. This amount and related interest was included in restricted cash on the Company's Condensed Consolidated Balance Sheets as of October 2, 2020. Eligible participants will receive an allocation of the escrow balance one year following the acquisition date. In addition to the purchase price of $317.5 million, the Company will incur $22.8 million in compensation expense associated with these retention plans in the year ended December 31, 2020. Of this amount, $5.7 million and $17.1 million was incurred in the three-month and nine-month fiscal periods ended October 2, 2020 ~~respectively.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~4. BUSINESS COMBINATIONS (CONTINUED)~~

Bal Seal's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on January 3, 2020. Bal Seal contributed $19.0 million and $60.4 million of revenue and $7.6 million and $21.5 million of operating loss for the three-month and nine-month fiscal periods ended October 2, 2020. The following table reflects the unaudited pro forma operating results of the Company for the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019, which gives effect to the acquisition of Bal Seal as if the Company had been acquired on January 1, 2019. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 2019, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and the acquired business adjusted for certain items discussed below. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands
Net sales $ 213,959 $ 206,143 $ 599,171 $ 594,195
(Loss) earnings from continuing operations $ (31,890) $ 4,753 $ (14,964) $ 1,058
Net (loss) earnings $ (31,890) $ 137,399 $ (14,272) $ 149,084

Adjustments to pro forma earnings for the three-month fiscal period ended October 2, 2020, include a $5.7 million reduction in compensation expense associated with Bal Seal's employee retention plans, $1.9 million in lower amortization of intangible assets and $1.0 million in higher income tax expense. Adjustments to pro forma earnings for the three-month fiscal period ended September 27, 2019, include a $1.1 million reduction in net expenses associated with buildings purchased by the Company that were previously leased by Bal Seal, $3.7 million in incremental amortization of intangible assets, $5.7 million of incremental compensation expense associated with Bal Seal's employee retention plans and $1.2 million in lower income tax expense.

Adjustments to pro forma earnings for the nine-month fiscal period ended October 2, 2020, include a $17.1 million reduction in compensation expense associated with Bal Seal's employee retention plans, the absence of $8.5 million in acquisition-related costs, a $2.4 million reduction in costs associated with the inventory step-up, $3.8 million in lower amortization of intangible assets and $7.6 million in higher income tax expense. Adjustments to pro forma earnings for the nine-month fiscal period ended September 27, 2019, include a $3.2 million reduction in net expenses associated with buildings purchased by the Company that were previously leased by Bal Seal, $7.9 million in incremental amortization of intangible assets, $17.1 million incremental of compensation expense associated with Bal Seal's employee retention plans, $8.5 million of acquisition-related costs, $2.4 million in additional costs associated with the inventory step-up and $5.7 million in lower income tax expense.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

(Unaudited)

5. REVENUE

Disaggregation of Revenue

The following table disaggregates total revenue by major product sales by end market.

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands
Defense $ 46,324 $ 45,124 $ 137,281 $ 128,445
Safe and Arm Devices 81,252 56,167 196,238 152,874
Commercial, Business, & General Aviation 52,894 63,754 164,006 187,191
Medical 17,506 6,581 53,245 21,807
Industrial & Other 15,983 11,044 48,401 33,499
Total revenue(1)
$ 213,959 $ 182,670 $ 599,171 $ 523,816

~~(1)~~ Sales of the Company's formerly owned Distribution business were included in earnings from discontinued operations, net of tax, on the Company's Condensed Consolidated Statements of Operations. See Note 3, ~~Discontinued Operations, for further information on the Company's sale of the Distribution business.~~


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands
Defense	$	43,017	$	46,324	$	126,408	$	137,281
Safe and Arm Devices	49,393		81,252		148,985		196,238
Commercial, Business & General Aviation	44,746		52,894		133,834		164,006
Medical	21,996		17,506		65,441		53,245
Industrial & Other	20,684		15,983		59,178		48,401
Total revenue	$	179,836	$	213,959	$	533,846	$	599,171

COVID-19

The impact of the novel coronavirus (“COVID-19”) and the precautionary measures instituted by governments and businesses to mitigate the spread, including limiting non-essential ~~gatherings of people, ceasing all non-essential~~ travel, ~~ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders,~~ have contributed to a general slowdown in the global ~~economy and significant volatility in financial markets.~~economy. The Company has implemented strategies to limit the risk to its operations with a continued focus on the health of its employees and the satisfaction of its customers’ requirements. Despite all of these efforts to mitigate the risks associated with COVID-19, the effects of the pandemic have adversely impacted our commercial end markets, more specifically Commercial, Business and General Aviation ~~customers, and Medical. Additionally, the~~customers. The Company ~~has experienced modest declines in its other product lines driven by lower demand~~saw recoveries in the medical and industrial end ~~market.~~markets through the first nine months of 2021 and management expects improved performance through the remainder of 2021. As of the date of this filing, the Company's defense and safe and arm device end markets have not been impacted by COVID-19. The extent and duration of time to which COVID-19 may adversely impact the Company depends on future developments, which are highly uncertain and unpredictable at this time.

The following table disaggregates total revenue by product types.

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
Original Equipment Manufacturer 49 % 54 % 55 % 55 %
Aftermarket 13 % 15 % 12 % 16 %
Safe and Arm Devices 38 % 31 % 33 % 29 %
Total revenue 100 % 100 % 100 % 100 %

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~5. REVENUE (CONTINUED)~~

~~Disaggregation of Revenue - continued~~


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020

Original Equipment Manufacturer	56	%	49	%	58	%	55	%
Aftermarket	17	%	13	%	14	%	12	%
Safe and Arm Devices	27	%	38	%	28	%	33	%
Total revenue	100	%	100	%	100	%	100	%

The following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over time versus the amount of revenue recognized for performance obligations satisfied at a point in ~~time:~~time.


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Nine Months Ended
		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020

Over time	Over time	25	%	32	%	31	%	41	%	Over time	41	%	25	%	37	%	31	%
Point-in-time	Point-in-time	75	%	68	%	69	%	59	%	Point-in-time	59	%	75	%	63	%	69	%
Total revenue	Total revenue	100	%	100	%	100	%	100	%	Total revenue	100	%	100	%	100	%	100	%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

5. REVENUE (CONTINUED)

Disaggregation of Revenue - continued

For contracts in which revenue is recognized over time, the Company performs detailed quarterly reviews of the progress and execution of its performance obligations under these contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables. Based upon these reviews, the Company will record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, a provision for the entire anticipated contract loss is recorded at that time.

Net changes in revenue associated with cost growth on the Company's over time contracts were as follows:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Nine Months Ended
		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands	In thousands									In thousands
Net change in revenue due to change in profit estimates	Net change in revenue due to change in profit estimates	$	(2,798)	$	(1,243)	$	(5,338)	$	(1,557)	Net change in revenue due to change in profit estimates	$	(937)	$	(2,798)	$	(1,518)	$	(5,338)

The net reduction in revenue in the three-month fiscal period ended October 1, 2021 was primarily related to cost growth on certain missile fuzing contracts, partially offset by favorable cost performance on certain structures programs. The net reduction in revenue in the nine-month fiscal period ended October 1, 2021 was primarily related to cost growth on certain structures programs and missile fuzing contracts, partially offset by favorable cost performance on the joint programmable fuze ("JPF") contract with the U.S. Government ("USG"). The net reductions in revenue in the three-month and nine-month fiscal periods ended October 2, 2020 were primarily related to cost growth on certain structures programs and legacy fuzing contracts, partially offset by favorable cost performance on the joint programmable fuze ("JPF") contract with the U.S. Government ("USG"). The company recognized reductions in revenue in the three-month and nine-month fiscal periods ended September 27, 2019. These amounts were primarily related to cost growth on the SH-2G program for Peru, certain legacy fuzing contracts, and certain structures contracts. For the nine-month fiscal period ended September 27, 2019, the cost growth was partially offset by favorable cost performance on certain contracts, more specifically the JPF contract with the ~~USG and the FMU-139 fuzing contract.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~5. REVENUE (CONTINUED)~~USG.

Unfulfilled Performance Obligations

Unfulfilled performance obligations ("backlog") represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. Backlog at October ~~2, 2020~~1, 2021 and December 31, ~~2019,~~2020, and the portion of backlog ~~we expect~~the Company expects to recognize revenue on over the next twelve months is as follows:


		October 2, 2020(1)		December 31, 2019			October 1, 2021(1)		December 31, 2020
In thousands	In thousands					In thousands
Backlog	Backlog	$	712,133	$	806,870	Backlog	$	545,281	$	631,236

(1) The Company expects to recognize revenue on approximately ~~72%~~65% of backlog as of October ~~2, 2020~~1, 2021 over the next twelve months.

6. RESTRUCTURING AND SEVERANCE COSTS

General & ~~Administration~~Administrative Expense Reduction Initiative

The Company continues to evaluate its cost structure with the objective of a lean organizational structure that provides a scalable infrastructure which facilitates future growth opportunities. In the three-month and nine-month fiscal periods ended October 1, 2021, the Company incurred $0.4 million and $3.3 million, respectively, in severance costs associated with these cost reduction efforts, which were included in restructuring and severance costs on the Company's Condensed Consolidated Statements of Operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

6. RESTRUCTURING AND SEVERANCE COSTS (CONTINUED)

General & Administrative Expense Reduction Initiative - continued

Following the sale of the Company's former Distribution business, the Company announced it would undertake a comprehensive review of its general and administrative functions in order to improve operational efficiency and to align the Company's costs with its revenues. The objective of the initiative iswas to ensure that the Company has a lean organizational structure that provides a scalable infrastructure that facilitates future growth opportunities. The Company ~~has~~ identified information technology functions to be outsourced, workforce reductions and other reductions in certain general and administrative expenses ~~to be~~which were completed in 2020 to support the cost savings initiative discussed above. ~~The Company currently expects these actions to result in approximately $3.9 million in severance costs and provide annualized cost savings of approximately $12.4 million.~~ In accordance with ASC 712-10, Compensation - Nonretirement Postemployment Benefits, the Company recorded $0.7 million and $3.8 million in severance costs associated with these workforce reductions in the three-month and nine-month fiscal periods ended October 2, 2020, respectively, which were included in restructuring and severance costs on the Company's Condensed Consolidated Statements of Operations. ~~The accrual balance associated with these severance costs were included in other current liabilities on the Company's Condensed Consolidated Balance Sheets as of October 2, 2020.~~

In addition to the severance associated with the cost savings initiative discussed above, the Company incurred $0.5 million in severance costs as it integrates the acquisition of Bal Seal in the nine-month fiscal period ended October 2, 2020. These costs were included in restructuring costs on the Company's Condensed Consolidated Statements of Operations and the associated workforce reduction is expected to provide annual cost savings of approximately $1.2 million.

Workforce Reductions in Response to COVID-19

During the first nine months of 2020, the Company implemented workforce reductions and elected to eliminate certain open positions as a response to the unprecedented hardships brought on by COVID-19. For the three-month and nine-month fiscal periods ~~ended~~ ended October 2, 2020, the Company recorded severance costs of $0.5 million and $3.2 million, respectively, related to workforce reductions, which were included in restructuring costs on the Company's Condensed Consolidated ~~Statements~~Statement of Operations. ~~These actions are expected to provide annualized cost savings of approximately $16.4 million.~~

~~Composites Businesses Restructuring~~

During the third quarter of 2017, the Company initiated restructuring activities at its composite businesses to support the ongoing effort of improving capacity utilization and operating efficiency to better position the Company for increased profitability and growth. Such actions include workforce reductions and the consolidation of operations, which began in the third quarter of 2017. The majority of these restructuring activities were completed by the end of 2019. The Company began realizing total cost savings in excess of $8.0 million annually as a result of these restructuring activities.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~Other Matters

~~For~~

In both the three-month and nine-month fiscal periods ended October ~~2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~6. RESTRUCTURING COSTS (CONTINUED)~~

~~Composites Businesses Restructuring - continued~~

Since the announcement, restructuring expense associated with these activities through October 2, 2020 was $9.7 million of the total anticipated expense of $9.7 million. Expense associated with these restructuring activities was $0.4 million for the three-month and nine-month fiscal periods ended October 2, 2020. Expense associated with these restructuring activities was $0.1 million and $0.6 million for three-month and nine-month fiscal periods ended September 27, 2019. At October 2, 2020 and December 31, 2019,1, 2021, the Company ~~had an accrual balance of $0.8~~incurred $2.2 million ~~and $0.4 million, respectively, included~~ in ~~other current liabilities, which relates to~~ costs associated with the ~~consolidation~~separation of ~~facilities. During~~executive officers, which were included in restructuring and severance costs on the ~~fourth quarter,~~Company's Condensed Consolidated Statements of Operations.

In addition, the Company ~~settled~~incurred $0.5 million in severance costs as it integrated the ~~claim associated with its accrual at~~acquisition of Bal Seal in the nine-month fiscal period ended October 2, 2020.

7. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Trade receivables	Trade receivables	$	20,139	$	13,794	Trade receivables	$	24,516	$	19,945
U.S. Government contracts:	U.S. Government contracts:					U.S. Government contracts:
Billed	Billed	26,041		15,136		Billed	12,539		18,854
Cost and accrued profit - not billed	Cost and accrued profit - not billed	810		894		Cost and accrued profit - not billed	1,554		1,080
Commercial and other government contracts	Commercial and other government contracts					Commercial and other government contracts
Billed	Billed	129,131		120,427		Billed	39,730		111,794
Cost and accrued profit - not billed	Cost and accrued profit - not billed	10,622		7,487		Cost and accrued profit - not billed	4,141		4,141
Less allowance for doubtful accounts	Less allowance for doubtful accounts	(1,614)		(1,246)		Less allowance for doubtful accounts	(1,631)		(2,008)
Accounts receivable, net	Accounts receivable, net	$	185,129	$	156,492	Accounts receivable, net	$	80,849	$	153,806

The Company performs ongoing evaluations of its customers’ current creditworthiness, as determined by the review of their credit information, to determine if events have occurred subsequent to the recognition of revenue and the related receivable that provide evidence that such receivable will be realized in an amount less than that recognized at the time of sale. Estimates of credit losses are based on historical losses, current economic conditions, geographic considerations, and in some cases, evaluating specific customer accounts for risk of loss.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

7. ACCOUNTS RECEIVABLE, NET (CONTINUED)

The following table summarizes the activity in the allowance for doubtful accounts in the nine-month fiscal period ended October ~~2, 2020:~~1, 2021:


In thousands
Balance at December 31, ~~2019~~2020	$	~~(1,246)~~(2,008)
Provision	~~(579)~~
~~Additions attributable to acquisitions~~	~~(82)~~(373)
Amounts written off	~~296~~433
Recoveries	314
Changes in foreign currency exchange rates	~~(3)~~3
Balance at October ~~2, 2020~~1, 2021	$	~~(1,614)~~(1,631)

COVID-19

The Company anticipates that the disruptions and delays resulting from the spread of COVID-19 and the measures instituted by the governments and businesses to mitigate its spread ~~will~~could impact the Company's liquidity in the next twelve months. The Company continues to closely monitor the collectability of its receivables from commercial aerospace customers as it recognizes there may be delays in payments due to the impacts of COVID-19 on its customers. As of the date of this filing, the Company does not believe there has been any material impact on the collectability of these receivables.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~7. ACCOUNTS RECEIVABLE, NET (CONTINUED)~~

Accounts receivable, net includes amounts for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts are as follows:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	900	$	900	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	900	$	900

8. CONTRACT ASSETS, CONTRACT COSTS AND CONTRACT LIABILITIES

Activity related to contract assets, contract costs and contract liabilities was as follows:


		October 2, 2020		December 31, 2019		$ Change		% Change			October 1, 2021		December 31, 2020		$ Change		% Change
In thousands	In thousands									In thousands
Contract assets	Contract assets	$	127,260	$	121,614	$	5,646	4.6	%	Contract assets	$	128,824	$	108,645	$	20,179	18.6	%

Contract costs, current portion	Contract costs, current portion	$	3,762	$	6,052	$	(2,290)	(37.8)	%	Contract costs, current portion	$	1,533	$	3,511	$	(1,978)	(56.3)	%
Contract costs, noncurrent portion	Contract costs, noncurrent portion	$	8,438	$	6,099	$	2,339	38.4	%	Contract costs, noncurrent portion	$	10,389	$	8,311	$	2,078	25.0	%

Contract liabilities, current portion	Contract liabilities, current portion	$	38,233	$	42,942	$	(4,709)	(11.0)	%	Contract liabilities, current portion	$	10,719	$	39,073	$	(28,354)	(72.6)	%
Contract liabilities, noncurrent portion	Contract liabilities, noncurrent portion	$	16,398	$	37,855	$	(21,457)	(56.7)	%	Contract liabilities, noncurrent portion	$	15,426	$	11,019	$	4,407	40.0	%

Contract Assets

The ~~increase~~increase in contract assets was primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the nine-month fiscal period ended October ~~2, 2020.~~1, 2021. This increase was primarily related to work performed and not yet billed on certain structures programs, the JPF program and ~~fuzing programs,~~the KAflex® program, partially offset by amounts billed on ~~the JPF program with the USG and a decrease in revenue due to a change in profit estimate on~~ certain ~~foreign~~ structures ~~contracts.~~programs. There were 0no significant impairment losses related to the Company's contract assets during the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019.~~

(Unaudited)

8. CONTRACT ASSETS, CONTRACT COSTS AND CONTRACT LIABILITIES (CONTINUED)

Contract Assets - continued

Contract assets includes amounts for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts were as follows:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	3,693	$	3,745	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	2,023	$	3,178

Contract Costs

At October 2,1, 2021, costs to fulfill a contract and costs to obtain a contract were $11.4 million and $0.5 million, respectively. At December 31, 2020, costs to fulfill a contract and costs to obtain a contract were ~~$9.2~~$9.3 million and ~~$3.0 million, respectively. At December 31, 2019, costs to fulfill a contract and costs to obtain a contract were $6.6 million and $5.6~~$2.5 million, respectively. These amounts are included in contract costs, current portion and contract costs, noncurrent portion on the Company's Condensed Consolidated Balance Sheets at October ~~2, 2020~~1, 2021 and December 31, ~~2019.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~8. CONTRACT ASSETS, CONTRACT COSTS AND CONTRACT LIABILITIES (CONTINUED)~~

~~Contract Costs - continued~~2020.

The decrease in contract costs, current portion was primarily attributable to the amortization of contract costs, partially offset by the reclassification of a portion of costs to ~~obtain a JPF DCS contract and costs to~~ fulfill certain structures programs from contract costs, noncurrent portion. For the three-month and nine-month fiscal periods ended October 1, 2021, amortization of contract costs was $1.7 million and $6.9 million, respectively. For the three-month and nine-month fiscal periods ended October 2, 2020, amortization of contract costs was $4.9 million and $9.5 million, respectively. ~~For the three-month and nine-month fiscal periods ended September 27, 2019, amortization of contract costs was $2.2 million and $5.2 million, respectively.~~

The increase in contract costs, noncurrent portion was primarily attributable to the addition of costs to fulfill ~~unmanned K-MAX® contracts and costs to obtain a JPF DCS contract, partially~~the Titan UAV aerial system program, offset by the reclassification of ~~a portion of costs to obtain a JPF DCS contract and costs to fulfill~~ certain structures programs to contract costs, current portion.

Contract Liabilities

The decrease in contract liabilities, current portion was primarily due to revenue recognized on a JPF ~~DCS~~direct commercial sales ("DCS") contract, ~~certain fuzing programs~~the Titan UAV aerial system program and the SH-2G program for New Zealand, partially offset by advances received for the Titan UAV aerial system program and the SH-2G program for New Zealand. These decreases were partially offset by advances received for a JPF DCS contract, K-MAX® spares and support and the SH-2G program for New Zealand and the reclassification of a portion of the advance payments received for a JPF DCS contract fromRevenue recognized related to contract liabilities, ~~noncurrent portion.~~current portion was $18.3 million and $38.8 million in the three-month and nine-month fiscal periods ended October 1, 2021, respectively. Revenue recognized related to contract liabilities, current portion was $21.5 million and $50.2 million in the three-month and nine-month fiscal periods ended October 2, 2020, respectively. ~~Revenue recognized related to contract liabilities, current portion was $14.2 million and $28.2 million in the three-month and nine-month fiscal periods ended September 27, 2019, respectively.~~

The ~~decrease~~increase in contract liabilities, noncurrent portion was due to ~~the reclassification of a portion of the advance payments~~advances received for a JPF DCS ~~contract to contract liabilities, current portion.~~contract. For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020, ~~and September 27, 2019,~~ the Company did not recognize revenue against contract liabilities, noncurrent portion.

9. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

9. FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the carrying value and fair value of financial instruments that are not carried at fair value:


		October 2, 2020				December 31, 2019					October 1, 2021				December 31, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
In thousands	In thousands									In thousands
Debt (1)	Debt (1)	$	289,363	$	295,898	$	186,060	$	237,381	Debt (1)	$	191,110	$	204,031	$	188,919	$	230,093

(1) These amounts are classified within Level 2.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~9. FAIR VALUE MEASUREMENTS (CONTINUED)~~

The above fair values were computed based on quoted market prices and discounted future cash flows (observable inputs), as applicable. Differences from carrying values are attributable to interest rate changes subsequent to when the transactions occurred.

The fair values of cash and cash equivalents, accounts receivable, net and accounts payable - trade approximate their carrying amounts due to the short-term maturities of these instruments. The Company's cash and cash equivalents at October ~~2, 2020~~1, 2021 and December 31, ~~2019~~2020 included ~~$79.5~~$65.5 million and ~~$443.2~~$51.5 million of Level 1 money market funds, respectively.

Recurring Fair Value Measurements

The Company holds derivative instruments for foreign exchange contracts that are measured at fair value using observable market inputs such as forward rates and its counterparties’ credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy. At October ~~2, 2020~~1, 2021 and December 31, ~~2019,~~2020, the derivative instruments were included in other current assets and other current liabilities on the Company's Condensed Consolidated Balance Sheets. Based on the Company's continued ability to trade and enter into forward contracts and interest rate swaps, the Company considers the markets for its fair value instruments to be active.

The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as of October ~~2, 2020,~~1, 2021, such credit risks had not had an adverse impact on the fair value of these instruments.

Nonrecurring Fair Value Measurements

During the third quarter of 2020, the Company incurred a $50.3 million goodwill impairment charge for its Aerosystems reporting unit. Refer to Note 12, Goodwill and Other Intangible Assets, Net, in the Company's 2020 Form 10-K for further information ~~regrading~~regarding the calculation of fair value.

10. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are recognized on the Condensed Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income (loss) are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.

Forward Exchange Contracts

The Company holds forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. Some of these contracts are designated as cash flow hedges. The Company will include in earnings amounts currently included in accumulated other comprehensive income (loss) upon recognition of cost of sales related to the underlying transaction. These contracts were not material to the Company's Condensed Consolidated Balance Sheets as of October ~~2, 2020~~1, 2021 and December 31, ~~2019.~~2020. The activity related to these contracts was not material to the Company's Condensed Consolidated Financial Statements for the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, ~~2020 and September 27, 2019.~~2020.

1915

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~

(Unaudited)

11. INVENTORIES

Inventories consisted of the following:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Raw materials	Raw materials	$	19,798	$	15,012	Raw materials	$	19,341	$	19,502
Contracts and other work in process (including certain general stock materials)	Contracts and other work in process (including certain general stock materials)	131,045		116,382		Contracts and other work in process (including certain general stock materials)	142,657		129,241
Finished goods	Finished goods	37,356		24,959		Finished goods	33,702		36,329
Inventories	Inventories	$	188,199	$	156,353	Inventories	$	195,700	$	185,072

Inventories include amounts associated with matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts were as follows:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	428	$	403	Contract changes, negotiated settlements and claims for unanticipated contract costs	$	467	$	500

At October ~~2, 2020~~1, 2021 and December 31, ~~2019, $57.8~~2020, $71.0 million and ~~$43.6~~$60.4 million, respectively, of K-MAX® inventory was included in contracts and other work in process inventory and finished goods on the Company's Condensed Consolidated Balance Sheets. Management believes that approximately ~~$20.5~~$25.8 million of the K-MAX® inventory will be sold after October ~~2, 2021,~~1, 2022, based upon the anticipation of additional aircraft manufacturing and the requirements to support the fleet for the foreseeable future.

At October ~~2, 2020~~1, 2021 and December 31, ~~2019, $6.8~~2020, $5.8 million and ~~$3.6~~$6.3 million, respectively, of SH-2G(I) inventory was included in contracts and other work in process inventory on the Company's Condensed Consolidated Balance Sheets. Management believes that approximately ~~$5.8~~$4.4 million of the SH-2G(I) inventory will be sold after October ~~2, 2021.~~1, 2022. This balance represents spares requirements and inventory to be used on SH-2G programs.

12. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following table sets forth the change in the carrying amount of goodwill for continuing operations:


In thousands
Gross balance at December 31, ~~2019~~2020	$	~~211,566~~313,803
Accumulated impairment	~~(16,252)~~(66,559)
Net balance at December 31, ~~2019~~2020	~~195,314~~247,244
Additions~~(1)~~	~~104,489~~—
Impairments	~~(50,307)~~—
Foreign currency translation	~~3,211~~ (4,878)
Ending balance at October ~~2, 2020~~1, 2021	$	~~252,707~~242,366

~~(1)~~ ~~The additions to goodwill in the nine-month fiscal period ended October 2, 2020 were attributable to the acquisition of Bal Seal. Refer to Note 4,~~ ~~Business Combinations, for further information on this acquisition.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~12. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)~~

~~Goodwill - continued~~

In accordance with ASC 350 - Intangibles - Goodwill and Other, the Company is required to evaluate goodwill for possible impairment testing if an event occurs or circumstances change that indicate that the fair value of the reporting entity may be below its carrying amount. ~~The~~In 2020, the spread of COVID-19 and the precautionary measures instituted by governments and businesses to mitigate the risk of its spread ~~have~~ contributed to the general slowdown in the global economy and significant volatility in financial markets, which resulted in a significant decrease in the Company's stock price and market ~~capitalization in~~capitalization.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the ~~first quarter. As COVID-19 continued to impact the organization through~~three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

12. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

During the third quarter ~~and the Company’s stock price remained at a similar level, management assessed each reporting unit for triggering events for potential impairment as~~ of ~~October 2, 2020.~~

Management performed qualitative analyses on its Specialty Bearings, KPP-Orlando and Bal Seal reporting units, which took into consideration the following factors: general economic conditions, industry specific performance, changes in carrying values of the reporting units and the assessments of assumptions used in the previous fair value calculation. Based on these analyses, no triggering events for potential impairment were identified and the results indicated that it is more likely than not that goodwill is not impaired for these reporting units.

As part of management's evaluation of triggering events for the third quarter, the assessment of the Company's operating results identified a decline in earnings compared to forecasts used in prior periods for its Aerosystems reporting unit. The Company considered this decline, as well as the updated forecasts for the reporting unit, which indicated the forecasted cash flows for this reporting unit were lower than amounts previously forecasted. As a result,2020, management identified a triggering event for possible goodwill impairment in its Aerosystems reporting unit. Management performed a quantitative analysis on the Aerosystems reporting unit using an income methodology based on management's estimates of forecasted cash flows, with those cash flows discounted to present value using rates commensurate with the risks associated with those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") for (i) a group of comparable companies and (ii) recent transactions, if any, involving comparable companies. In estimating the fair value of the reporting unit, a weighting of 80% to the income approach and 20% to the market-based valuation method was selected, consistent with quantitative analyses performed in prior periods. The estimated fair value of the reporting unit was adjusted based on an assumption of excess working capital, which represents management's identification of specific contract-related assets that will generate cash flows in the future. The quantitative analysisevaluation resulted in a ~~conclusion that the fair value of the Aerosystems reporting unit was $56.1~~$50.3 million ~~below its carrying value; therefore, goodwill was impaired. In the three month fiscal period ended October 2, 2020, the Company recorded a~~ goodwill impairment charge ~~of $50.3 million~~ for the Aerosystems reporting unit, which ~~represents~~represented the entire goodwill balance for the reporting unit. This impairment charge was included in goodwill impairment on the Company's Condensed Statement of ~~Operations.~~Operations in both the three-month and nine-month fiscal periods ended October 2, 2020. See Note 12, Goodwill and Other Intangible Assets, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for further information on the evaluation. No such impairment charges were incurred in the three-month and nine-month fiscal periods ended October 1, 2021.

Other Intangibles

Other intangible assets consisted of:


			At October 2,				At December 31,						At October 1,				At December 31,
			2020				2019						2021				2020
		Amortization Period	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization			Amortization Period	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
In thousands	In thousands										In thousands
Customer lists / relationships	Customer lists / relationships	6-38 years	$	119,676	$	(27,429)	$	56,789	$	(21,415)	Customer lists / relationships	6-38 years	$	127,636	$	(33,896)	$	128,882	$	(30,094)
Developed technologies	Developed technologies	7-20 years	44,721		(8,414)		19,552		(5,217)		Developed technologies	7-20 years	45,331		(12,620)		45,798		(9,665)
Trademarks / trade names	Trademarks / trade names	15-40 years	16,731		(1,904)		5,012		(1,368)		Trademarks / trade names	15-40 years	17,077		(2,537)		17,353		(2,149)
Non-compete agreements and other	Non-compete agreements and other	1-15 years	5,092		(4,402)		2,338		(2,321)		Non-compete agreements and other	1-15 years	4,658		(4,646)		5,290		(5,276)
Patents	Patents	17 years	523		(462)		523		(454)		Patents	17 years	523		(471)		523		(464)
Total	Total		$	186,743	$	(42,611)	$	84,214	$	(30,775)	Total		$	195,225	$	(54,170)	$	197,846	$	(47,648)

~~The increase in other intangible assets, net was attributable to the acquisition of Bal Seal. Refer to Note 4,~~ ~~Business Combinations, for further information on this acquisition.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

13. PENSION PLANS

Components of net pension cost for the Qualified Pension Plan and Supplemental Employees’ Retirement Plan ("SERP") were as follows:


		For the Three Months Ended									For the Three Months Ended
		Qualified Pension Plan				SERP					Qualified Pension Plan				SERP
		October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands	In thousands									In thousands
Service cost	Service cost	$	1,309	$	1,275	$	0	$	0	Service cost	$	325	$	1,309	$	—	$	—
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	5,255		6,606		41		59		Interest cost on projected benefit obligation	3,541		5,255		16		41
Expected return on plan assets	Expected return on plan assets	(10,796)		(10,640)		0		0		Expected return on plan assets	(11,294)		(10,796)		—		—
Amortization of net loss	Amortization of net loss	1,201		3,815		236		61		Amortization of net loss	1,111		1,201		14		236
Net pension (income) cost	Net pension (income) cost	$	(3,031)	$	1,056	$	277	$	120	Net pension (income) cost	$	(6,317)	$	(3,031)	$	30	$	277


	For the Nine Months Ended
	Qualified Pension Plan				SERP
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands
Service cost	$	976	$	3,927	$	—	$	—
Interest cost on projected benefit obligation	10,624		15,765		45		124
Expected return on plan assets	(33,883)		(32,388)		—		—
Amortization of net loss	3,333		3,603		49		708
Net pension (income) cost	$	(18,950)	$	(9,093)	$	94	$	832

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

13. PENSION PLANS (CONTINUED)

For the Nine Months Ended
Qualified Pension Plan SERP
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands
Service cost $ 3,927 $ 3,825 $ 0 $ 0
Interest cost on projected benefit obligation 15,765 19,817 124 177
Expected return on plan assets (32,388) (31,920) 0 0
Amortization of net loss 3,603 11,445 708 183
Net pension (income) cost $ (9,093) $ 3,167 $ 832 $ 360

The Company contributed ~~$10.0~~$10.0 million to the qualified pension plan and $0.4 million to the SERP through the end of the third quarter of ~~2020.~~2021. No further contributions are expected to be made to the qualified pension plan during ~~2020.~~2021. The Company plans to contribute an additional ~~$0.1~~$2.3 million to the SERP in ~~2020.~~2021. For the ~~2019~~2020 plan year, the Company contributed $10.0 million to the qualified pension plan and $0.5 million to the ~~SERP and did not make a contribution to the qualified pension plan.~~SERP.

14. COMMITMENTS AND CONTINGENCIES

Pension Freeze

Effective December 31, 2015, the Company's qualified pension plan was frozen with respect to future benefit accruals. Under USG Cost Accounting Standard (“CAS”) 413, the Company must determine the USG’s share of any pension curtailment adjustment calculated in accordance with CAS. Such adjustments can result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position. During the fourth quarter of 2016, the Company accrued a $0.3 million liability representing its estimate of the amount due to the USG based on the Company's pension curtailment adjustment calculation, which was submitted to the USG for review in December 2016. The Company maintained its accrual at $0.3 million as of October ~~2, 2020.~~1, 2021. There can be no assurance that the ultimate resolution of this matter will not have a material adverse effect on the Company's results of operations, financial position and cash flows.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~14. COMMITMENTS AND CONTINGENCIES (CONTINUED)~~

New Hartford Property

In connection with the sale of the Company’s Music segment in 2007, the Company assumed responsibility for meeting certain requirements of the Connecticut Transfer Act (the “Transfer Act”) that applied to the transfer of the New Hartford, Connecticut, facility leased by that segment for guitar manufacturing purposes (“Ovation”). Under the Transfer Act, those responsibilities essentially consist of assessing the site's environmental conditions and remediating environmental impairments, if any, caused by Ovation's operations prior to the sale. The site is a multi-tenant industrial park, in which Ovation and other unrelated entities lease space. The environmental assessment process, which began in 2008, has been completed and site remediation is in process.

The Company's estimate of its portion of the cost to assess the environmental conditions and remediate this site is $2.3 million, all of which has been accrued. The remediation has been nearly completed and the Company continues to monitor the results of the remediation. The total amount paid to date in connection with these environmental remediation activities is $1.7 million. At October ~~2, 2020,~~1, 2021, the Company had $0.6 million accrued for these environmental remediation activities. A portion ($0.1 million) of the accrual related to this property is included in other current liabilities and the balance is included in other long-term liabilities. The remaining balance of the accrual reflects the total anticipated cost of completing these environmental remediation activities. Although it is reasonably possible that additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at this time.

Bloomfield Property

In connection with the Company’s 2008 purchase of the portion of the Bloomfield campus that Kaman Aerospace Corporation had leased from NAVAIR, the Company assumed responsibility for environmental remediation at the facility as may be required under the Transfer Act and is currently remediating the property under the guidance of the Connecticut Department of Environmental Protection. The assumed environmental liability of $10.3 million was determined by taking the undiscounted estimated remediation liability of $20.8 million and discounting it at a rate of 8%. This remediation process will take many years to complete. The total amount paid to date in connection with these environmental remediation activities is ~~$14.4~~$14.6 million. At October ~~2, 2020,~~1, 2021, the Company had ~~$2.2~~$2.5 million accrued for these environmental remediation activities. A portion ($~~0.6~~0.2 million) of the accrual related to this property is included in other current liabilities, and the balance is included in other long-term liabilities. Although it is reasonably possible that additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at this time.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Offset Agreement

During January 2018, the Company entered into an offset agreement as a condition to obtaining orders from a foreign customer for the Company's JPF product. This agreement is designed to return economic value to the foreign country by requiring the Company to engage in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology capabilities or addressing other local development priorities. The offset agreement may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing manufacturing, training and other consulting support to in-country projects and the purchase by third parties of supplies from in-country vendors. This agreement may also be satisfied through the Company's use of cash for activities, such as subcontracting with local partners, purchasing supplies from in-country vendors, providing financial support for in-country projects and making investments in local ventures. At October ~~2, 2020,~~1, 2021, the offset agreement had an outstanding notional value of approximately $194.0 million, which is equal to 60 percent of the contract value of $324.0 million as defined by the agreement between the customer and the Company. The amount ultimately applied against the offset agreement is based on negotiations with the customer and may require cash outlays that represent only a fraction of the notional value in the offset agreement.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~14. COMMITMENTS AND CONTINGENCIES (CONTINUED)~~

~~Offset Agreement - continued~~

The Company continues to work with the customer to further define the requirements to satisfy the offset agreement. The satisfaction of the offset requirements will be determined by the customer and is expected to occur over a seven-year period. Deliveries under the contract are expected to be completed prior to satisfaction of the offset requirements. In the event the offset requirements of the contract are not met, the Company could be liable for potential penalties up to $16.5 million payable to the customer. Failure to satisfy the offset requirement could also negatively impact the Company's ability to attract future orders from this customer. The Company began recognizing revenue associated with this contract in the third quarter of 2019 and has considered the potential penalties of $16.5 million as a reduction to the transaction price in its determination of the value of the performance obligations within this contract. At October ~~2, 2020, $9.9~~1, 2021, $15.4 million in contract liabilities associated with the potential penalties of the offset requirements were included on the Company's Condensed Consolidated Balance Sheets. At the point the Company has an approved plan to satisfy the offset requirements, the Company will update the estimate of the contract ~~transition~~transaction price, including any potential penalties or contract costs associated with the plan to fulfill the offset requirements.

~~Employee-Related Tax Matter~~

During 2018, the Company identified certain individuals at one of its foreign subsidiaries who were potentially misclassified as self-employed persons performing services for the subsidiary, as opposed to being classified as employees of the subsidiary. The Company investigated the misclassification of these individuals and the potential liability for any associated social contributions, interest and fines and/or penalties as a result of the misclassification. Following the internal investigation, the foreign subsidiary made a voluntary disclosure of the matter to the appropriate legal and regulatory authorities. At December 31, 2019, the Company had accrued $2.5 million, which represented the Company's best estimate of potentially unpaid social security contributions, related interest and possible penalties. During the first quarter of 2020, the Company received written notification of an assessment for the unpaid social security contributions and related interest. As a result, the Company reduced its accrual to $1.3 million in the first quarter of 2020 and subsequently paid $0.7 million for the unpaid social security contributions and related interest in the second quarter. During the third quarter of 2020, the Company was notified that no penalties would be assessed for the misclassification. As such, the Company reduced its accrual and 0 amounts are outstanding related to this matter as of October 2, 2020.

Guarantee

During ~~the second quarter,~~2020, the Company and the USG entered into a Guaranty Agreement, pursuant to which the Company agreed to guarantee the full, complete and satisfactory performance of its subsidiary, Kaman Precision Products, Inc. ("KPPI") under all current and future contracts with the USG. As of the date of this filing, the only contract in place between KPPI and the USG relates to the production and sale of the JPF. KPPI is currently fulfilling the requirements of Option 1415 and has ~~completed pricing negotiations on Options 15 and~~been awarded Option 16. The guarantee was provided in lieu of a periodic financial capability review by the Financial Capacity Team ("FCT") of the Defense Contract Management Agency ("DCMA"). The Company is unable to estimate the maximum potential amount of future payments under the guarantee as it is dependent on costs incurred by the USG in the event of default. Although the Company believes the risk of default is low given the maturity and operational performance of the JPF program, there can be no assurance that the guarantee will not have a material adverse effect on the Company's results of operations, financial position and cash flows.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

15. COMPUTATION OF EARNINGS PER SHARE

The computation of basic earnings per share is based on net earnings divided by the weighted average number of shares of common stock outstanding for each period. The computation of diluted earnings per share reflects the common stock equivalency of dilutive options granted to employees under the Company's stock incentive plan, shares issuable on redemption of its convertible notes and shares issuable upon redemption of outstanding warrants.


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands, except per share amounts
Earnings (loss) from continuing operations	$	14,667	$	(38,507)	$	34,507	$	(39,014)
Total earnings from discontinued operations	—		—		—		692
Net earnings (loss)	$	14,667	$	(38,507)	$	34,507	$	(38,322)

Basic:
Weighted average number of shares outstanding	27,882		27,687		27,855		27,718

Earnings (loss) per share from continuing operations	$	0.53	$	(1.39)	$	1.24	$	(1.41)
Earnings per share from discontinued operations	0.00		0.00		0.00		0.03
Basic earnings per share	$	0.53	$	(1.39)	$	1.24	$	(1.38)

Diluted:
Weighted average number of shares outstanding	27,882		27,687		27,855		27,718
Weighted average shares issuable on exercise of dilutive stock options	6		—		34		—
Total	27,888		27,687		27,889		27,718

Earnings (loss) per share from continuing operations	$	0.53	$	(1.39)	$	1.24	$	(1.41)
Earnings per share from discontinued operations	0.00		0.00		0.00		0.03
Diluted earnings per share	$	0.53	$	(1.39)	$	1.24	$	(1.38)

Equity awards

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

For the three-month and nine-month fiscal periods ended October ~~2, 2020~~1, 2021, respectively, 650,554 and ~~September 27, 2019~~

~~(Unaudited)~~

~~15. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)~~

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands, except per share amounts
(Loss) earnings from continuing operations $ (38,507) $ 10,130 $ (39,014) $ 22,341
Total earnings from discontinued operations 0 132,646 692 148,026
Net (loss) earnings $ (38,507) $ 142,776 $ (38,322) $ 170,367
Basic:
Weighted average number of shares outstanding 27,687 27,952 27,718 27,941
(Loss) earnings per share from continuing operations $ (1.39) $ 0.36 $ (1.41) $ 0.80
Earnings per share from discontinued operations 0.00 4.75 0.03 5.30
Basic (loss) earnings per share $ (1.39) $ 5.11 $ (1.38) $ 6.10
Diluted:
Weighted average number of shares outstanding 27,687 27,952 27,718 27,941
Weighted average shares issuable on exercise of dilutive stock options 0 165 0 163
Total 27,687 28,117 27,718 28,104
(Loss) earnings per share from continuing operations $ (1.39) $ 0.36 $ (1.41) $ 0.79
Earnings per share from discontinued operations 0.00 4.72 0.03 5.27
Diluted (loss) earnings per share $ (1.39) $ 5.08 $ (1.38) $ 6.06

~~Equity~~524,617 shares issuable under equity awards

granted to employees were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the periods. For the three-month and nine-month fiscal periods ended October 2, 2020, respectively, 610,253 and 608,804 shares issuable under equity awards granted to employees were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period. For the three-month and nine-month fiscal periods ended September 27, 2019, respectively, 373,935 and 377,942 shares issuable under equity awards granted to employees were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period.periods.

All outstanding stock awards were excluded in the computation of diluted earnings per share in the three-month and nine-month fiscal periods ended October 2, 2020 because their effect was antidilutive due to the loss from continuing operations. For the three-month and nine-month fiscal periods ended October 2, 2020, respectively, an additional 15,574 and 34,288 shares issuable under equity awards, which would have been dilutive if exercised based on the average market price being higher than the exercise price, were excluded from the computation of diluted earnings per share as their effect was antidilutive due to the loss from continuing operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

15. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)

2024 Convertible Notes

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020, ~~and September 27, 2019,~~ shares issuable under the Convertible Notes due 2024 were excluded from the diluted earnings per share calculation because the conversion price was more than the average market price of the Company's stock during the periods.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

16. SHARE-BASED ARRANGEMENTS

The Company accounts for stock options, restricted stock awards ("RSAs"), restricted stock units and performance ~~shares~~stock units ("PSUs") as equity awards and measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognizes this cost in the statement of operations. The Company also has an employee stock purchase plan which is accounted for as a liability award.

In 2021, the Company modified its long-term incentive program to increase the emphasis on equity. Beginning in the first quarter of 2021, the long-term incentive awards granted to the Company's Named Executive Officers ("NEOs") will consist of a combination of service-based RSAs and PSUs which are intended to be settled in shares, as opposed to cash-based awards that had been utilized in the past. These awards are expected to increase the alignment of interests between the Company's NEOs and shareholders and help build stock ownership for new executives, supporting both executive retention and the Company's long-term financial performance. RSAs will vest over a three-year period on each of the first three anniversaries of the date of grant. The number of PSUs that will vest will be determined based on total shareholder return ("TSR") and return on total invested capital ("ROIC") over a three-year performance period, each of which will remain equally weighted in determining payouts. The achievement level for both factors may range from zero to 200%.

Compensation expense for stock options, ~~restricted stock awards and~~RSAs, restricted stock units and PSUs is recognized on a straight-line basis over the vesting period of the awards. Throughout the course of the vesting period, the Company monitors the achievement level for the ROIC metric of the PSUs compared to the ROIC target and adjusts the number of shares expected to be earned, and the related compensation expense recorded thereafter, to reflect the most probable outcome. Share-based compensation expense recorded for ~~continuing operations~~the three-month and nine-month fiscal periods ended October 1, 2021 was $1.5 million and $5.7 million, respectively. Of these amounts, $0.1 million and $0.3 million was recorded to restructuring and severance costs, respectively, and the remaining amounts were recorded to selling, general and administrative expenses on the Company's Condensed Consolidated Statements of Operations. Share-based compensation expense recorded for the three-month and nine-month fiscal periods ended October 2, 2020 was $0.7 million and $4.3 million, respectively. Of these amounts,~~$0.4~~ $0.4 million was recorded to restructuring and severance costs in both the three-month and nine-month fiscal ~~period~~periods ended October 2, 2020 and the remaining amounts were ~~booked~~recorded to selling, general and administrative expenses on the Company's Condensed Consolidated Statements of Operations. Share-based compensation expense recorded for continuing operations for the three-month and nine-month fiscal periods ended September 27, 2019 was $0.4 million and $4.0 million, respectively. These amounts were included in selling, general and administrative expenses on the Company's Condensed Consolidated Statements of Operations. Share-based compensation expense recorded for discontinued operations for the three-month and nine-month fiscal periods ended September 27, 2019 was $2.6 million and $2.9 million, respectively. These amounts were included in earnings from discontinued operations, net of tax on the Company's Condensed Consolidated Statements of Operations.

Stock option activity was as follows:


		For the Three Months Ended			For the Nine Months Ended				For the Three Months Ended			For the Nine Months Ended
		October 2, 2020			October 2, 2020				October 1, 2021			October 1, 2021
		Options	Weighted - average exercise price		Options	Weighted - average exercise price			Options	Weighted - average exercise price		Options	Weighted - average exercise price
Options outstanding at beginning of period	Options outstanding at beginning of period	810,775	$	54.15	736,364	$	49.67	Options outstanding at beginning of period	760,936	$	55.15	772,625	$	54.87
Granted	Granted	0	$	0	161,114	$	63.18	Granted	—	$	—	4,990	$	55.85
Exercised	Exercised	0	$	0	(79,963)	$	31.82	Exercised	—	$	—	(14,899)	$	39.79
Forfeited or expired	Forfeited or expired	0	$	0	(6,740)	$	45.26	Forfeited or expired	(9,610)	$	63.43	(11,390)	$	63.59
Options outstanding at October 2, 2020		810,775	$	54.15	810,775	$	54.15
Options outstanding at October 1, 2021								Options outstanding at October 1, 2021	751,326	$	55.05	751,326	$	55.05

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

16. SHARE-BASED ARRANGEMENTS (CONTINUED)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The following table indicates the weighted-average assumptions used in estimating fair value:


		For the Nine Months Ended					For the Nine Months Ended
		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020
Expected option term (years)	Expected option term (years)	4.9		4.9		Expected option term (years)	4.9		4.9
Expected volatility	Expected volatility	20.2	%	19.4	%	Expected volatility	35.7	%	20.2	%
Risk-free interest rate	Risk-free interest rate	1.4	%	2.5	%	Risk-free interest rate	0.5	%	1.4	%
Expected dividend yield	Expected dividend yield	1.3	%	1.3	%	Expected dividend yield	1.6	%	1.3	%
Per share fair value of options granted	Per share fair value of options granted	$10.74		$11.18		Per share fair value of options granted	$14.89		$10.74

Restricted stock award and restricted stock unit activity were as follows:


	For the Three Months Ended			For the Nine Months Ended
	October 1, 2021			October 1, 2021
	Restricted Stock	Weighted- average grant date fair value		Restricted Stock	Weighted- average grant date fair value
Restricted Stock outstanding at beginning of period	143,704	$	53.77	109,514	$	53.66
Granted	—	$	—	83,656	$	55.20
Vested	(3,373)	$	55.85	(50,612)	$	55.81
Forfeited or expired	(210)	$	57.33	(2,437)	$	58.21
Restricted Stock outstanding at October 1, 2021	140,121	$	53.72	140,121	$	53.72

Performance stock unit activity was as follows:


	For the Three Months Ended			For the Nine Months Ended
	October 1, 2021			October 1, 2021
	Performance Stock	Weighted- average grant date fair value		Performance Stock	Weighted- average grant date fair value
Performance Stock outstanding at beginning of period	80,500	$	70.17	—	$	—
Granted(1)	—	$	—	82,460	$	70.17
Vested	—	$	—	—	$	—
Forfeited or expired	—	$	—	(1,960)	$	70.16
Performance Stock outstanding at October 1, 2021	80,500	$	70.17	80,500	$	70.17

(1) The PSUs granted in the first quarter of 2021 assumed a 100% achievement level.

The fair value of the PSUs based on TSR was estimated on the date of grant using a Monte-Carlo simulation model. The following table indicates the weighted-average assumptions used in estimating fair value:


	For the Nine Months Ended
	October 1, 2021
Expected term (years)	2.9
Expected volatility	41.3		%
Risk-free interest rate	0.2		%
Expected dividend yield	1.4		%
Per share fair value of performance stock granted	$	84.49

2622

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~

(Unaudited)

~~16. SHARE-BASED ARRANGEMENTS (CONTINUED)~~

~~Restricted stock award and restricted stock unit activity were as follows:~~

For the Three Months Ended For the Nine Months Ended
October 2, 2020 October 2, 2020
Restricted Stock Weighted-
average grant
date fair value Restricted Stock Weighted-
average grant
date fair value
Restricted Stock outstanding at beginning of period 85,443 $ 57.06 92,800 $ 53.63
Granted 26,024 $ 44.19 82,204 $ 50.61
Vested (784) $ 55.85 (62,896) $ 49.39
Forfeited or expired (100) $ 58.19 (1,525) $ 60.40
Restricted Stock outstanding at October 2, 2020 110,583 $ 53.71 110,583 $ 53.71

17. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in shareholders’ equity for the three-month and nine-month fiscal periods ended October 1, 2021, and October 2, 2020, ~~and September 27, 2019,~~ were as follows:

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
In thousands
Beginning balance $ 803,396 $ 658,169 $ 823,202 $ 633,157
Comprehensive (loss) income (28,270) 137,127 (28,402) 169,002
Dividends declared (per share of common stock, $0.20 and $0.20 and $0.60 and $0.60, respectively) (5,540) (5,589) (16,622) (16,767)
Employee stock plans and related tax benefit 465 5,070 2,451 8,616
Purchase of treasury shares (37) (8,943) (14,205) (12,006)
Share-based compensation expense 664 3,072 4,254 6,904
Changes due to convertible notes transactions 0 38 0 38
Ending balance $ 770,678 $ 788,944 $ 770,678 $ 788,944

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

~~17. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED)~~


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
In thousands
Beginning balance	$	779,212	$	803,396	$	746,438	$	823,202
Comprehensive income (loss)	11,193		(28,270)		50,006		(28,402)
Dividends declared (per share of common stock, $0.20 and $0.20 and $0.60 and $0.60, respectively)	(5,569)		(5,540)		(16,696)		(16,622)
Employee stock plans and related tax benefit	523		465		2,051		2,451
Purchase of treasury shares	(69)		(37)		(459)		(14,205)
Share-based compensation expense	1,459		664		5,684		4,254
Impact of change in tax accounting standard	—		—		(275)		—
Ending balance	$	786,749	$	770,678	$	786,749	$	770,678

The components of accumulated other comprehensive income (loss) are shown below:


		For the Three Months Ended					For the Three Months Ended
		October 2, 2020		September 27, 2019			October 1, 2021		October 2, 2020
In thousands	In thousands					In thousands
Foreign currency translation and other:	Foreign currency translation and other:					Foreign currency translation and other:
Beginning balance	Beginning balance	$	(18,882)	$	(16,167)	Beginning balance	$	16,515	$	(18,882)
Net gain (loss) on foreign currency translation		9,130		(8,585)
Other comprehensive loss, net of tax		9,130		(8,585)
Net loss on foreign currency translation						Net loss on foreign currency translation	(4,342)		9,130
Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax	(4,342)		9,130
Ending balance	Ending balance	$	(9,752)	$	(24,752)	Ending balance	$	12,173	$	(9,752)

Pension and other post-retirement benefits(1):	Pension and other post-retirement benefits(1):					Pension and other post-retirement benefits(1):
Beginning balance	Beginning balance	$	(132,328)	$	(137,541)	Beginning balance	$	(128,363)	$	(132,328)
Amortization of net loss, net of tax expense of $330 and $940, respectively		1,107		2,936
Amortization of net loss, net of tax expense of $257 and $330, respectively						Amortization of net loss, net of tax expense of $257 and $330, respectively	868		1,107
Other comprehensive income, net of tax	Other comprehensive income, net of tax	1,107		2,936		Other comprehensive income, net of tax	868		1,107
Ending balance	Ending balance	$	(131,221)	$	(134,605)	Ending balance	$	(127,495)	$	(131,221)

Total accumulated other comprehensive loss	Total accumulated other comprehensive loss	$	(140,973)	$	(159,357)	Total accumulated other comprehensive loss	$	(115,322)	$	(140,973)

(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

(See Note 13, Pension Plans for additional information.)

For the Nine Months Ended
October 2,
2020 September 27,
2019
In thousands
Foreign currency translation and other:
Beginning balance $ (16,351) $ (14,579)
Net gain (loss) on foreign currency translation 6,599 (10,173)
Other comprehensive loss, net of tax 6,599 (10,173)
Ending balance $ (9,752) $ (24,752)
Pension and other post-retirement benefits(1):
Beginning balance $ (134,542) $ (120,319)
Amortization of net loss, net of tax expense of $990 and $2,820, respectively 3,321 8,808
Other comprehensive income, net of tax 3,321 8,808
Reclassification of stranded tax effects resulting from Tax Reform to retained earnings balance 0 (23,094)
Ending balance $ (131,221) $ (134,605)
Total accumulated other comprehensive loss $ (140,973) $ (159,357)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended October 1, 2021 and October 2, 2020

(Unaudited)

17. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED)


	For the Nine Months Ended
	October 1, 2021		October 2, 2020
In thousands
Foreign currency translation and other:
Beginning balance	$	(717)	$	(16,351)
Net loss on foreign currency translation	(9,945)		6,599
Reclassification to net income(1)	22,835		—
Other comprehensive income (loss), net of tax	12,890		6,599
Ending balance	$	12,173	$	(9,752)

Pension and other post-retirement benefits(2):
Beginning balance	$	(130,104)	$	(134,542)
Amortization of net loss, net of tax expense of $773 and $990, respectively	2,609		3,321
Other comprehensive income, net of tax	2,609		3,321
Ending balance	$	(127,495)	$	(131,221)

Total accumulated other comprehensive loss	$	(115,322)	$	(140,973)

(1) The foreign currency translation reclassified to net income relates to the sale of the Company's UK Composites business. This balance was included in the loss accrual recorded in impairment on assets held for sale on the Company's Consolidated Statement of Operations in the year ended December 31, 2020 (see Note 3, Disposals, for additional information).

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

(See Note 13, Pension Plans, for additional information.)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019~~

~~(Unaudited)~~

18. INCOME TAXES

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
Effective Income Tax Rate from continuing operations (1.8) % 18.5 % 2.6 % 12.7 %


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020

Effective Income Tax Rate from continuing operations	23.3	%	(1.8)	%	22.7	%	2.6	%

The effective income tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings from continuing operations for the period. The comparison of the effective tax rate from continuing operations for the three-month and nine-month fiscal periods ended October ~~2, 2020~~1, 2021 to the corresponding ~~rate~~rates in the prior year was impacted by the pretax ~~loss~~income in the current period versus pretax ~~income~~loss in the prior period. Due to the ~~current~~prior period pretax loss, the relatively low rate represents a tax expense and was primarily caused by the requirement to treat the tax impact from the goodwill impairment as a a discrete item in the prior period. Additionally, the effective tax rate in the current ~~period. Another significant factor affecting the comparability~~period was impacted by a discrete charge to ~~the prior periods was the partial reversal of~~record a valuation ~~allowances in 2019 which had been recorded against~~allowance on deferred tax assets ~~related to state net operating loss carryforwards. The reversal was caused by a legislative change which made it more likely than not that more~~for one of the ~~benefits from the loss carryforwards will be realized.~~

A valuation allowance for deferred tax assets, including those associated with net operating loss carryforwards, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, the Company uses estimatesCompany's foreign subsidiaries. This charge was partially offset by incremental research and judgment regarding future taxable income, and considers the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies, as well as the current and forecasted business economics.

The Company has assessed both positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize the $35.4 million of deferred tax assets recorded as of October 2, 2020. Through the end of the third quarter of 2020, the Company believes it is more likely than not that only $26.4 million of these deferred tax assets will be realized and, as such, has recorded a valuation allowance of $9.0 million. Going forward, management will continue to assess the available positive and negative evidence to determine whether it is likely sufficient future taxable income will be generated to permit the use of these deferred tax assets. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income are reduced or increased, or if additional weight is given to subjective evidence such as future expected growth because objective negative evidence in the form of cumulative losses is no longer present.development credit benefits.

19. SUBSEQUENT EVENTS

On October 27, 2020, the Company repaid $50.0 million of the $100.0 million outstanding under the Second Amended and Restated Credit and Guaranty Agreement ("Credit Agreement") at the end of the third quarter.

The Company has evaluated subsequent events through the issuance date of these financial statements. ~~Other than the matter noted above, no~~No material subsequent events were identified that require disclosure.

2924

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. It presents, in narrative and tabular form, information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results, and is designed to enable the readers of this report to obtain an understanding of our businesses, strategies, current trends and future prospects. It should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 ("~~2019~~2020 Form 10-K") and the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

OVERVIEW OF BUSINESS

Kaman Corporation (the "Company" or "Kaman") currently conducts business in the aerospace and defense, industrial and medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings, proprietary spring energized seals, springs and contacts; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; and safe and arming solutions for missile and bomb systems for the U.S. and allied militaries. The Company also manufactures and supports our K-MAX® manned and unmanned medium-to-heavy lift helicopters and restores, modifies and supports our SH-2G Super Seasprite maritime helicopters.

Executive Summary

In the third quarter, consolidated net sales from continuing operations ~~increased~~decreased by ~~17.1%~~15.9% to ~~$214.0~~$179.8 million compared to the prior year, primarily due to a ~~6.7% increase~~decrease in ~~organic~~ sales on our safe and ~~the contribution of $19.0 million in total sales from Bal Seal.~~arm devices and commercial, business and general aviation programs. Gross margin ~~decreased~~as a percentage of sales increased in the quarter to ~~31.3%~~35.1% compared to ~~33.5%~~31.3% in the prior year ~~period. This~~period, due to improved performance ~~was driven in part by a higher volume of sales from~~on our ~~lower margin structures programs, partially offset by the addition of the higher margin product portfolio at Bal Seal,~~K-MAX® spares and ~~the mix of bearings products~~support and ~~joint programmable fuze ("JPF") sales in the quarter. Absent the addition of selling,~~on our seals, springs and contacts. Selling, general and administrative expenses ("S,G&A") ~~from Bal Seal~~increased primarily due to higher group health costs. Operating income in the ~~quarter, S,G&A decreased, driven by lower employee-related~~period benefited from the absence of both the $50.3 million goodwill impairment charge and $5.7 million in costs ~~as we began realize~~associated with the ~~benefits of~~acquired retention plans incurred in the ~~workforce reductions implemented~~prior year, and $3.0 million in lower costs ~~as a~~related to the transition services agreement ("TSA"). GAAP diluted earnings per share of $0.53 in the third quarter was the result of the ~~precautions taken~~activity discussed above and higher pension-related income, partially offset by ~~our employees and~~lower income from the restrictions imposed to limit the spread of COVID-19, including lower travel expenses and trade show costs and a decrease in group health costs due to the limited number of elective procedures being performed. We recorded a goodwill impairment charge of $50.3 million due to a decline in planned earnings compared with forecasts used in prior periods for our Aerosytems reporting unit and updated forecasts for the reporting unit which indicated the forecasted cash flows for this reporting unit were lower than previously forecasted. This charge was the main driver of GAAP diluted loss per share of $1.39 in the third quarter.TSA.

Other financial highlights

•~~Loss~~Earnings from continuing operations was ~~$38.5~~$14.7 million and ~~$39.0~~$34.5 million for the three-month and nine-month fiscal periods ended October ~~2, 2020,~~1, 2021, respectively, compared to ~~earnings~~losses from continuing operations of ~~$10.1~~$38.5 million and ~~$22.3~~$39.0 million in the comparable fiscal periods in the prior year. These ~~changes~~improvements were primarily driven by the absence of the $50.3 million goodwill impairment charge ~~recorded~~and costs associated with the acquired retention plans incurred in the ~~current period.~~prior year and higher non-service pension and post retirement benefit income. Additionally, for the nine-month fiscal period, earnings from continuing operations benefited from the absence of Bal Seal acquisition costs.

•Cash ~~used in~~provided by operating activities of continuing operations during the nine-month fiscal period ended October ~~2, 2020,~~1, 2021, was ~~$52.4~~$14.1 million, ~~as compared~~a $66.5 million improvement to ~~positive cash flow of $11.3 million in~~ the comparable fiscal period in the prior year. This change was primarily due to the collection of payments on outstanding receivables, more specifically significant receipts under a ~~delay~~joint programmable fuze ("JPF") direct commercial sales ("DCS") contract, partially offset by approximately $25.1 million in ~~payment on a JPF DCS contract.~~nonrecurring payments to eligible participants of Bal Seal's employee retention plans.

•Total unfulfilled performance obligations ("backlog") decreased ~~11.7%~~13.6% to ~~$712.1~~$545.3 million compared to total backlog at December 31, ~~2019,~~2020, driven by deliveries of direct commercial JPF orders and bearings products, partially offset by ~~new orders under~~the award of Option 16 on our JPF program with the U.S. Government ("USG"). and new orders of our bearings products and seals, springs and contacts.

Recent events

•In October 2021, we integrated our Titan UAV aerial system onto our K-MAX® aircraft and successfully completed two demonstrations of its capabilities, including Near Earth autonomy and obstacle avoidance technology.

•In October 2021, our Jacksonville division was named Manufacturer of the Year by First Coach Manufacturing Association. Key considerations of the award include environmental, health and safety, continuous improvement, workforce and community engagement and talent management process.

•In October 2021, we successfully completed the demonstration of two flight tests for our FireBurstTM enhanced fusing capability, a Kaman patented Height of Burst solution to add to existing and future safe and arm devices.

•In September 2021, we unveiled the KARGO UAV aerial system, a purpose-built, autonomous unmanned system designed to be the new standard for expeditionary logistics.

•In August 2021, Kaman Composites - Wichita celebrated the delivery of the 1,500th inlet unit for the CH-47 Boeing Program.

•In August 2021, the Company was selected by Transcend Air Corporation to participate in the manufacturing of its the Vy 400 High Speed Vertical Takeoff and Landing ("HSVTOL") aircraft.

•In August 2021, we announced that that we received an order under Option 16 of our JPF contract with the USG. This order has an expected value of approximately $43 million for the procurement of JPFs for foreign militaries.

•In July 2021, James G. Coogan was appointed Senior Vice President and Chief Financial Officer, effective July 8, 2021. Mr. Coogan succeeded Robert D. Starr. Mr. Starr continued to be employed by the Company through July 31, 2021 as Executive Vice President.

COVID-19 Discussion

~~The impact of the novel coronavirus (“COVID-19”) and the precautionary measures instituted by governments and businesses~~We continue to mitigate the spread, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders, have contributed to a general slowdown in the global economy and significant volatility in financial markets, including a decrease in our stock price. We are closely monitoringmonitor the impact of the ~~COVID-19~~coronavirus ("COVID-19") pandemic on all aspects of our business and across the geographies in which we operate and serve customers, ~~and we are working to assess~~as well as the extent to which it has impacted and will continue to impact our customers, suppliers and other business partners.

~~Impact on~~ Despite efforts to mitigate the risks associated with COVID-19, our ~~Operations~~

~~Kaman is operating as an essential business in~~operations were adversely impacted during the ~~United States~~first nine months of 2021 and ~~in most~~we have seen some disruptions to our supply chain; however, we continue to meet the demands of ~~the markets in which it operates around the world.~~our customers. While we did not incur significant disruptions related to the COVID-19 pandemic during the first nine months of ~~2020,~~2021, we continue to operate below pre-pandemic levels for our ~~structures facility~~commercial aerospace products through the third quarter of 2021 and expect these levels through the remainder of the year. We anticipate recoveries for these products in ~~Mexico~~2022; however, the developments related to COVID-19 variants make it difficult to predict the timing and ~~joint venture~~magnitude of the recovery. We saw recoveries in ~~India were temporarily closed during the second quarter, due to mandates by their local governments. We have been able to largely offset the impacts of~~ our Mexico facility temporary closure by continuing to satisfy our customer requirements out of our Jacksonville facility. We were also able to largely offset the impacts of our joint venture in India due to on-time deliveries before the business was required to halt production. Both facilities were open throughoutmedical and industrial end markets through the third quarter and ~~continue to remain open~~expect improved performance through the ~~date~~remainder of this filing. During the second quarter, we broadened our furloughs beyond our composite structures business in the United Kingdom to two domestic businesses. The furloughs are expected to provide savings of $3.4 million in the current year. We also elected to eliminate certain open positions and implemented workforce reductions at the majority of our facilities, which are expected to provide annualized savings of $16.4 million. During the third quarter, we continued to evaluate our workforce in light of the impacts of COVID-19. Workforce reductions resulted in severance costs of $0.5 million in the third quarter and $3.2 million year-to-date. Additionally, while certain of our customers and suppliers have temporarily shut down operations, disruptions to our supply chain have been limited to date and we continue to meet the demands of our customers.

~~Steps to Protect our Workforce~~

The health and safety of our employees, their families and communities, and our customers are our highest priorities. We have allocated significant resources to protect our workforce and attempt to reduce the impact of COVID-19 on our communities and our customers. To maintain employee productivity and minimize the risk of exposure while working, we have implemented policies and procedures to allow our employees to work with confidence knowing that their health and safety is a key priority.

Work-from-home guidelines and travel bans were implemented in March, and all employees who are able to work from home have been encouraged to do so for the foreseeable future to limit contact points and reduce the risk of exposure. To support a higher volume of employees working from home, we have upgraded our remote capabilities, and our human resources department has made training materials available on how to overcome the challenges of working from home.

For those on-site, we have implemented segregated workspaces to increase physical distancing within our facilities, improve the traceability of employee contacts, and limit risk of exposure while in the facility. We have also restricted free flow of employees throughout the factories and prevented non-essential employees and business associates from entering these facilities. We have developed detailed plans on how to respond quickly to an ill employee showing symptoms or a confirmed case within a facility. In addition, we implemented mandatory daily temperature checks for all persons entering our facilities. Face masks have been made available to all employees and are required in production facilities, those areas where required by law, and strongly encouraged in all other areas.

Resources are available to our employees via the Company's benefits website, which include the latest news on COVID-19, steps to prevent illness, resources for mental health, including coping with stress, supporting employees in a time of uncertainty and managing anxiety and stress, and resources for children and family activities.

Our senior management team meets regularly to review the status of our operations, including the health and safety of our employees, and the impact of COVID-19 on our customers, suppliers and communities. Our ~~Board of Directors are updated regularly on the realized and expected impacts of COVID-19 and the Company's response to COVID-19, including steps to protect the workforce and cost-savings initiatives.~~ A communications cadence has been developed to provide regular updates to our employees to keep them informed on what is happening within the organization, including risk identification and mitigation and relevant information and resources to support them during these challenging times. Additionally, the management team has benchmarked our efforts with peer companies to adopt best practices, improve our processes and share challenges that we are facing as we manage through the crisis.In light of the COVID-19 pandemic and its potential impact on our business, our Chairman and former Chief Executive Officer voluntarily agreed to reduce his annual base salary by 20% for the balance of the year, and our non-employee directors agreed to temporarily reduce their quarterly cash retainer payments by 20% for the second and third fiscal quarters of 2020. In addition, the base salaries of our other executive officers were temporarily reduced by 15%, and the base salaries of our other U.S. based corporate officers and certain of our subsidiary senior management teams were temporarily reduced by 10% through the end of the third quarter.

~~Looking Ahead~~

As we look forward to the reopening of the economy, we are developing strategies to limit the risk to our operations with a continued focus on the health of our employees and the satisfaction of our customers’ requirements. Despite these efforts to mitigate the risks associated with COVID-19, we expect our operations to continue to be adversely impacted, as approximately 50% of our 2020 sales were anticipated to be in commercial end markets which have been particularly impacted by the effects of the pandemic. Of total expected sales, approximately 30% was anticipated to be to commercial aerospace customers. Furthermore, direct and indirect sales to Boeing and Airbus were expected to account for approximately 40% of commercial aerospace sales. During the second quarter, we began to see order deferrals and cancellations resulting in declines in our commercial aerospace programs, which continued into the third quarter. More specifically, we have had lower sales of our commercial bearings products to Boeing and Airbus and decreases in our medical programs due to the limited number of elective procedures being performed. We anticipate further declines in these end markets and we expect more modest declines from the industrial end market.2021. Our defense and safe and arm ~~devices~~device end markets have not been impacted by COVID-19 and we do not expect future declines due to COVID-19 on the results of these end markets. The extent to which COVID-19 may adversely impact the Company depends on future developments, which are highly uncertain and unpredictable at this time.

The health and safety of our employees, their families and communities, and our customers are our highest priorities. To maintain employee productivity and minimize the risk of exposure while working, we continue to follow guidance issued by the Centers for Disease Control and state and local governments to allow our employees to work with confidence knowing that their health and safety is a key priority. We have begun to allow visitors and business associates to our facilities, provided they adhere to the Company's guidelines. On September 9, 2021, the Biden Administration issued an executive order requiring all employers with USG contracts to ensure that their U.S.-based employees, contractors, and subcontractors who perform work on or in support of USG contracts, are fully vaccinated by December 8, 2021. President Biden also announced that he directed the Occupational Safety and Health Administration ("OSHA") to create an Emergency Temporary Standard ("ETS"), stating that all employers with 100 or more employees require that all workers be vaccinated or undergo weekly COVID-19 testing. OSHA has not yet issued this ETS, nor provided any information on its contents, though it is expected that the final rule will echo the requirements of the executive order discussed above. It is currently not possible to predict the effect that the executive order or OSHA ETS will have on our workforce. Ensuring compliance with a vaccine mandate or weekly testing requirement may be difficult and costly and it is possible that some employees may choose to leave employment over a vaccine or testing requirement, which would result in attrition, including the attrition of skilled labor, and difficulty finding future workers. Our ability to perform on our contracts is also dependent upon our subcontractors and suppliers. Our subcontractors and suppliers who are subject to the vaccine mandate may be impacted by an inability to comply or loss of personnel, which could disrupt subcontractor or supplier performance or deliveries. There can be no assurance that the compliance with these requirements will not have a material adverse effect on our business, financial condition and results of operations.

Refer to the Liquidity and Capital Resources section of ~~the~~ Management's Discussion and Analysis for information on the impact of COVID-19 on the liquidity of the ~~Company and Item 1A,~~ ~~Risk Factors, for the Company’s risk factor on the potential impacts of COVID-19 on our business, results of operations, financial condition and cash flows.~~

~~Management changes~~

•In August 2020, we announced the retirement of Neal Keating as President and CEO of the Company and the appointment of Ian Walsh as incoming President and CEO. Mr. Keating will continue to serve as Executive Chairman through the date of the 2021 Annual Meeting of Shareholders, at which time he is expected to retire from the Board.

•~~Richard Barnhart, Executive Vice President of the Company and President of Kaman Aerospace Group, retired from the Company as of September 30, 2020.~~

~~Recent events~~

•~~In September 2020, a K-MAX® aircraft was accepted by one of our customers.~~

•In September 2020, we announced that we received a follow-on order for Lots 17 and 18 of our current Joint Air-to-Surface Standoff Missile contract with Lockheed Martin Corporation. The order has an expected value of approximately $10.6 million with performance beginning in 2021 through 2023.

•In August 2020, we announced that we received an order under Option 15 of our JPF contract with the USG. This order has an expected value of approximately $57.3 million for the procurement of JPFs for 25 foreign militaries.

•~~In August 2020, Kaman Composites Vermont ("KCV") was named Rotary and Mission Systems Elite Supplier by Sikorsky Aircraft Corporation.~~

•In August 2020, KCV entered into a new Long Term Agreement ("LTA") with a major engine original equipment manufacturer to manufacture components for both existing production and newly developed engine programs. The LTA has a potential value of $118 million and initial deliveries are expected by the end of 2020.Company.

~~RESULTS OF OPERATIONS~~

During the third quarter of 2019, the Company completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020. As a result of the sale, the Distribution business results met the criteria for the presentation of discontinued operations. The results presented below represent the results of continuing operations, which include the Aerospace business and our Corporate office. See Note 3, ~~Discontinued Operations, to the Condensed Consolidated Financial Statements for further information on the Company's sale of the Distribution business.~~

3226

~~Results from Continuing Operations~~RESULTS OF OPERATIONS

Net Sales from Continuing Operations

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Organic sales(1)
$ 194,927 $ 182,670 $ 538,722 $ 523,816
Acquisition sales 19,032 — 60,449 —
Net sales $ 213,959 $ 182,670 $ 599,171 $ 523,816
$ change 31,289 25,536 75,355 8,681
% change 17.1 % 16.3 % 14.4 % 1.7 %

~~(1)~~ ~~Organic Sales is defined as "Net Sales" less sales derived from acquisitions completed during the previous twelve months. Refer to Non-GAAP Financial Measures for further information on organic sales.~~


	For the Three Months Ended						For the Nine Months Ended
	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
	(in thousands)
Net sales	$	179,836		$	213,959		$	533,846		$	599,171
$ change	(34,123)			31,289			(65,325)			75,355
% change	(15.9)		%	17.1		%	(10.9)		%	14.4		%

Sales of disposed businesses that did not qualify for discontinued operations	—			2,804			1,704			16,102
Organic sales	$	179,836		$	211,155		$	532,142		$	583,069
$ change	(31,319)						(50,927)
% change	(14.8)		%				(8.7)		%

For the Three Months Ended

Net sales ~~increased~~decreased for the three-month fiscal period ended October ~~2, 2020,~~1, 2021, as compared to the corresponding period in ~~2019,~~2020, primarily due to a ~~6.7% increase~~14.8% decrease in organic ~~sales and the contribution of $19.0 million of sales from our Bal Seal acquisition. The increase in organic sales~~sales. This decrease was ~~primarily~~ driven by ~~higher~~a $31.9 million decline in sales of ~~$25.1 million in~~ our safe and arm devices, ~~programs,~~which was due to lower direct commercial sales of our JPF to foreign militaries, partially offset by ~~an $11.5 million decrease in~~higher sales under the JPF program with the USG. We saw less significant decreases in our commercial, business and general aviation programs, which continue to be impacted by the effects of COVID-19, and our defense programs, more specifically driven by the absence of a K-MAX® aircraft delivery in the current period and lower sales on our structures programs. Additionally contributing to the decrease was $2.8 million in lower sales due to the absence of sales from our former UK Composites business.

The decreases discussed above were partially offset by recoveries in our medical and industrial end markets. Improvements in our springs, seals and contacts contributed to the $4.7 million increase in sales of our industrial products, while their use in medical implantable and analytical devices drove the $4.5 million increase in sales of our medical products. Sales of our industrial products also benefited from an increase in sales of our bearings and measuring products. Foreign currency exchange rates relative to the U.S. dollar had a favorable impact of ~~$1.2~~$0.2 million onin the three-month fiscal period ended October 1, 2021.

The table below summarizes the changes in organic net sales by product line for the three-month fiscal period ended October ~~2, 2020.~~

The increase in sales on our safe and arm device programs was attributable to higher direct commercial sales of our JPF to foreign militaries, higher sales under our JPF program with the USG and an increase in sales on our ATACMS and MK54 fuzing contracts.

The decrease in sales under our commercial business and general aviation programs was primarily attributable to lower sales volume of our commercial bearings products, driven by lower sales to Boeing and Airbus due to the impacts of COVID-19, and lower sales under certain structures programs. These decreases, totaling $18.6 million, were partially offset by a K-MAX® aircraft delivery in the current period.

~~Sales under our defense programs, excluding safe and arm devices remained relatively flat when~~1, 2021, compared to the corresponding period in 2019. This was the result of higher sales volume of our defense bearings products and an increase in sales on the Combat Rescue Helicopter program, mostly offset by $6.1 million in lower sales on the AH-1Z program and a certain structures program.2020.

Sales under our medical and industrial and other commercial programs remained relatively flat when compared to the corresponding period in 2019. This was attributable to a $1.5 million decrease in sales under our imaging program and measuring programs, mostly offset by higher sales volume of our bearings products.


Product Line	Increase (Decrease)	$ (in millions)	%
Defense	↓	$(1.6)	(3.5)%
Safe and Arm Devices	↓	$(31.9)	(39.2)%
Commercial, Business and General Aviation	↓	$(7.1)	(13.7)%
Medical	↑	$4.5	25.6%
Industrial	↑	$4.7	29.4%

For the Nine Months Ended

Net sales ~~increased~~decreased for the nine-month fiscal period ended October ~~2, 2020,~~1, 2021 as compared to the corresponding period in ~~2019,~~2020, primarily due to ~~a 2.8% increase~~an 8.7% decrease in organic ~~sales and the contribution of $60.4 million of sales from our Bal Seal acquisition.~~sales. The ~~increase in organic sales~~decrease was ~~primarily~~ driven by ~~$43.4~~$47.3 million in ~~higher~~lower sales inon our safe and arm ~~device programs and an increase in~~devices, due to lower direct commercial sales of ~~$3.0 million on~~ our ~~defense programs excluding safe and arm devices. These increases were~~JPF to foreign militaries, partially offset by ~~a decrease in~~higher sales ~~on our~~under the JPF program with the USG. Our commercial, business and general aviation programs continue to be impacted by COVID-19, evidenced by the $25.1 million decrease in organic sales. This decrease was primarily driven by $27.8 million in lower sales

volume of ~~$25.2~~our bearings products and a decrease in sales on the Boeing Wing-to-Body Fairing program, partially offset by increased sales of K-MAX® spares and support in the current period. Organic sales on our defense programs declined $1.6 million, driven by $14.9 million in lower sales on certain structures programs and ~~less significant~~a certain memory program, partially offset by sales on our A-10 program and the Titan UAV aerial system program. Additionally contributing to the decrease in sales was $14.4 million in lower sales due to the sale of our UK Composites business in the current year.

The decreases discussed above were partially offset by recoveries in our medical and industrial end markets. Improvements in our bearings products and ~~other commercial programs. The impact~~springs, seals and contacts, including products used in medical implantable and analytical devices, contributed to the $12.2 million increase sales of ~~foreign~~our medical products and the $10.8 million increase in sales in our industrial products. Foreign currency exchange rates relative to the U.S. dollar onhad a favorable impact of $4.8 million in the nine-month fiscal period ended October 1, 2021.

The table below summarizes the changes in organic net sales ~~was not material~~by product line for the nine-month fiscal period ended October 2,1, 2021, compared to the corresponding period in 2020.

~~The increase~~


Product Line	Increase (Decrease)	$ (in millions)	%
Defense	↓	$(1.6)	(1.2)%
Safe and Arm Devices	↓	$(47.3)	(24.1)%
Commercial, Business and General Aviation	↓	$(25.1)	(15.9)%
Medical	↑	$12.2	22.9%
Industrial	↑	$10.8	22.3%

Gross Profit from Continuing Operations


	For the Three Months Ended						For the Nine Months Ended
	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
	(in thousands)
Gross profit	$	63,065		$	66,875		$	177,916		$	191,245
$ change	(3,810)			5,742			(13,329)			23,002
% change	(5.7)		%	9.4		%	(7.0)		%	13.7		%
% of net sales	35.1		%	31.3		%	33.3		%	31.9		%

Gross profit decreased for the three-month and nine-month fiscal periods ended October 1, 2021, as compared to the corresponding periods in ~~sales on our safe and arm device programs was~~2020. These decreases were primarily attributable to ~~higher~~lower direct commercial sales of our JPF to foreign militaries and ~~an increase in~~lower sales and associated gross profit on ~~certain~~our missile fuzing contracts. These ~~increases,~~decreases, totaling ~~$84.0~~$15.8 million and $27.6 million, respectively, were partially offset by ~~lower~~the absence of losses associated with our former UK Composites business and higher sales and associated gross profit under our JPF program with the USG and ~~the absence of sales on the FMU-139 program in the current period.~~

The increase in sales under our defense programs, excluding safe and arm devices was primarily attributable to higher sales volume of our defense bearing products and an increase in sales on the Combat Rescue Helicopter program. These increases, totaling $15.1 million, were partially offset by the absence of sales on the SH-2G program for Peru in the current period and a decrease in sales on the Bell Helicopter blade program, the AH-1Z program and a certain structures program.

The decrease in sales under our commercial business and general aviation programs was primarily due to lower sales volume of our commercial bearings products, driven by lower sales to Boeing and Airbus due to the impacts of COVID-19, and a decrease in sales on certain structures programs. These decreases, totaling $34.5 million, were partially offset by an increase in sales on our ~~Boeing Wing-to-Body Fairing program~~medical implantable and ~~the Bell Helicopter blade program.~~

The $6.3 million decrease in sales under our medical and industrial and other commercial programs was primarily attributable to lower sales volume of our bearings products and a decrease in sales under our imaging program.

~~Gross Profit from Continuing Operations~~

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Gross profit $ 66,875 $ 61,133 $ 191,245 $ 168,243
$ change 5,742 13,445 23,002 13,934
% change 9.4 % 28.2 % 13.7 % 9.0 %
% of net sales 31.3 % 33.5 % 31.9 % 32.1 %
analytical devices.

Gross profit as a percentage of sales increased for the three-month and nine-month fiscal periods ended October ~~2, 2020,~~1, 2021, as compared to the corresponding periods in ~~2019. These increases were~~2020, primarily ~~attributable~~due to ~~higher direct commercial sales~~the absence of ~~our JPF to foreign militaries, higher sales and associated gross profit on defense bearings products and the contribution of $7.9 million and $22.7 million in gross profit~~losses from our ~~Bal Seal acqusition in the three-month~~former UK Composites business, improved performance on our K-MAX® spares and ~~nine-month fiscal periods ended October 2, 2020, respectively.~~support and on our seals, springs and contacts. These increases were partially offset by ~~lower sales and associated gross profit~~cost growth on our ~~commercials bearings~~missile fuzing and memory products and ~~certain structures programs. Additionally offsetting the increase in gross profit in the nine-month fiscal period was lower sales and associated gross profit~~ on ~~the JPF program with the USG, a decrease in gross profit on K-MAX® spares and support and $2.4 million of expense associated with the inventory step-up from the Bal Seal acquisition.~~our Boeing Wing-to-Body Fairing program.

Selling, General & Administrative Expenses (S,G&A) from Continuing Operations

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
S,G&A $ 45,224 $ 43,855 $ 151,093 $ 127,614
$ change 1,369 452 23,479 (4,660)
% change 3.1 % 1.0 % 18.4 % (3.5) %
% of net sales 21.1 % 24.0 % 25.2 % 24.4 %


	For the Three Months Ended						For the Nine Months Ended
	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
	(in thousands)
S,G&A	$	39,335		$	36,764		$	116,182		$	128,488
$ change	2,571			(3,259)			(12,306)			12,943
% change	7.0		%	(8.1)		%	(9.6)		%	11.2		%
% of net sales	21.9		%	17.2		%	21.8		%	21.4		%

S,G&A increased for the three-month fiscal period ended October ~~2, 2020,~~1, 2021, when compared to the corresponding period in ~~2019.~~2020. This was primarily attributable to ~~$9.8 million in additional S,G&A from the Bal Seal acquisition, which includes $3.7 million of intangible amortization expense associated with the purchase accounting for the acquisition. This~~an increase was partially offset by lower organic S,G&A driven by a decrease in employee-related costs, including lower incentive compensation costs and lower salary and wage expenses a result of the workforce reductions implemented to support our cost savings initiative, a decrease in group health costs ~~due to the limited number of elective procedures being performed as a result of COVID-19,~~ and ~~a decrease in travel expenses and trade show costs due to restrictions imposed to limit the spread of COVID-19.~~higher incentive compensation costs.

S,G&A ~~increased~~decreased for the nine-month fiscal period ended October ~~2, 2020,~~1, 2021, when compared to the corresponding period in ~~2019.~~2020. This was primarily attributable to ~~higher nonrecurring costs associated with~~ the acquisition of Bal Seal and corporate development activities, and $27.7 million in S,G&A from the contribution of Bal Seal, which includes $7.9 million of intangible amortization expense associated with the purchase accounting for the acquisition. We incurred $10.8 million of

~~nonrecurring costs in the period which consisted~~absence of $8.5 million ofin Bal Seal acquisition costs and $2.3 million in third party costs associated with our efforts to reduce general and administrative ~~expenses. Absent these nonrecurring costs, organic S,G&A was lower~~expenses in the ~~first nine months of 2020 driven~~prior year and lower pension expense, partially offset by ~~the decreases discussed above~~an increase in ~~the three-month fiscal period.~~group health costs and higher incentive compensation costs.

Goodwill Impairment

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Goodwill impairment $ 50,307 $ — $ 50,307 $ —


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Goodwill impairment	$	—	$	50,307	$	—	$	50,307

During the third quarter of 2020, we identified a triggering event for possible impairment of our Aerosystems reporting unit based on a decline in earnings compared to forecasts used in prior periods and updated forecasts, which indicated the forecasted cash flows for this reporting unit were lower than amounts previously forecasted. We performed a quantitative analysis on the Aerosystems reporting unit using an income methodology based on management's estimates of forecasted cash flows, with those cash flows discounted to present value using rates commensurate with the risks associated with those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") for (i) a group of comparable companies and (ii) recent transactions, if any, involving comparable companies. The ~~quantitative analysis~~evaluation resulted in ~~a conclusion that the fair value of the Aerosystems reporting unit was $56.1 million below its carrying value; therefore, goodwill was impaired. We recorded~~ a goodwill impairment charge of $50.3 million for the Aerosystems reporting unit in the three-month fiscal period ended October 2, 2020.

See Note 12, Goodwill and Other Intangible Assets, Net, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for further information on the goodwill impairment charge taken in the prior year period.

Costs from Transition Service Agreement

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Costs from transition services agreement $ 3,019 $ 1,154 $ 11,532 $ 1,154


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Costs from transition services agreement	$	24	$	3,019	$	1,728	$	11,532

Upon closing the sale of our former Distribution business, the Company entered into a ~~transition services agreement ("TSA")~~TSA with the buyer, pursuant to which the Company agreed to support the information technology ("IT"), human resources and benefits, tax and treasury functions of the Distribution business for six to twelve months. The buyer ~~has~~ exercised the option to extend the support period for up to a maximum of an additional year for certain ~~information technology~~IT services. The buyer ~~has~~had the right to terminate individual services at any point over the renewal term and ~~has begun~~began to terminate certain services ~~during~~in 2020. During the third quarter of ~~2020.~~2021, the TSA expired and all services were completed as of the end of the period. The Company is currently negotiating a release agreement related to certain IT services, which may result in a cash outflow that is not material. Costs associated with the TSA in the three-month fiscal period ended October 1, 2021 were not material. We incurred $1.7 million in costs associated with the TSA in the nine-month fiscal period ended October 1, 2021. Income earned associated with the TSA in the three-month fiscal period ended October 1, 2021 was not material. In the nine-month fiscal period ended October 1, 2021, these costs were partially offset by $0.9 million in income earned from the TSA, which was included below operating income in income from transition services agreement on the Company's Condensed Consolidated Statement of Operations. We incurred $3.0 million and $11.5 million in costs associated with the TSA in the three-month and nine-month fiscal periods ended October 2, 2020, respectively. These costs

were partially offset by $1.8 million and $7.9 million in the three-month and nine-month fiscal periods ended October 2, 2020, respectively, in income earned from the TSA included in income from transition services agreement, which is below operating income on the Company's Condensed Consolidated Statement of Operations. We incurred $1.2 million in costs associated with the TSA in the three-month and nine-month fiscal periods ended September 27, 2019. These costs were partially offset by $0.9 million in income earned from the TSA in the three-month and nine-month fiscal periods ended ~~September 27, 2019,~~October 2, 2020, respectively, which iswas included below operating income in income from transition services agreement on the Company's Condensed Consolidated Statement of Operations.

Cost of Acquired Retention Plans

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Costs of acquired retention plans $ 5,703 $ — $ 17,110 $ —


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Costs of acquired retention plans	$	—	$	5,703	$	—	$	17,110

Bal Seal's previous owner implemented employee retention plans prior to our acquisition in the first quarter of 2020. Upon closing, we funded $24.7 million of the purchase price into escrow accounts associated with these employee retention plans. ~~Eligible participants will receive an allocation of the escrow balances one year following the acquisition date.~~ As of the date of

acquisition, Bal Seal had $1.9 million in costs accrued for these employee retention ~~plans; therefore, we will incur~~plans, and the remaining $22.8 million in compensation expense associated with these retention plans inwas incurred ratably throughout the year ended December 31, ~~2020,~~2020. This amount and related interest was included in restricted cash on the Company's Consolidated Balance Sheets as of December 31, 2020. Eligible participants received an allocation of the escrow balance one year following the acquisition date, which ~~$5.7 million~~is reflected in the Company's cash flows from operating activities for the nine-month fiscal period ended October 1, 2021.

Restructuring and ~~$17.1 million were incurred in~~Severance Costs


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Restructuring and severance costs	$	2,611	$	1,541	$	5,479	$	7,820

The Company continues to evaluate its costs with the objective of a lean organizational structure that provides a scalable infrastructure which facilitates future growth opportunities. In the three-month and nine-month fiscal periods ended October ~~2, 2020, respectively.~~

~~Restructuring Costs from Continuing Operations~~

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Restructuring costs $ 1,541 $ 81 $ 7,820 $ 553

~~Following~~1, 2021, the sale of our former distribution business, we announced that we would undertake a comprehensive review of our general and administrative functions in order to improve operational efficiency and to align our costs with our revenues. We identified information technology functions to be outsourced, workforce reductions and other reductions in certain general and administrative expenses to be completed in 2020 to support the cost savings initiative. These actions resulted in $0.7Company incurred $0.4 million and ~~$3.8~~$3.3 million in severance costs associated with these cost reduction efforts. These actions are expected to begin generating savings in the first half of 2022, with total annualized cost savings of approximately $5.4 million being realized by 2024.

In addition to the severance costs discussed above, we incurred $2.2 million in costs associated with the separation of executive officers in both the three-month and nine-month fiscal periods ended October 1, 2021.

Refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Quarterly Report on Form 10-Q for the period ended October 2, 2020 ~~respectively,~~for a discussion of restructuring and are expected to provide annualized cost savings of approximately $12.4 million, contributing to total annualized cost savings of approximately $17.4 million since the announcement of the cost savings initiative. In addition to the severance costs ~~associated with~~for the ~~cost savings initiative discussed above,~~earliest periods presented.

Loss (Gain) on Sale of Business


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Loss (gain) on sale of business	$	—	$	—	$	234	$	(493)

In 2020, we ~~incurred $0.5~~received approval from our Board of Directors to sell our UK Composites business. In the fourth quarter of 2020, we accrued a loss of $36.3 million ~~in severance costs as~~on the anticipated sale. In the first quarter of 2021, we ~~integrated~~closed on a transaction to sell the ~~acquisition~~UK Composites business. We recorded an additional loss of ~~Bal Seal~~$0.2 million in the nine-month fiscal period ended October ~~2, 2020.~~

During the second quarter, the Company implemented workforce reductions and elected to eliminate certain open positions as a response to the unprecedented hardships brought on by COVID-19. For the three-month and nine-month fiscal periods ended October 2, 2020, the Company recorded severance costs of $0.5 million and $3.2 million related to workforce reductions, which were included in restructuring costs on the Company's Condensed Consolidated Statements of Operations. These actions are expected to provide annualized cost savings of approximately $16.4 million.

During the third quarter of 2017, we announced restructuring activities at our composite businesses to support the ongoing effort of improving capacity utilization and operating efficiency to better position the Company for increased profitability and growth. Such actions included workforce reductions and the consolidation of operations. We incurred $0.4 million in expenses1, 2021 associated with ~~these restructuring activities in~~ the three-month and nine-month fiscal periods ended October 2, 2020. We incurred $0.1 million and $0.6 million in costs associated with these restructuring activities in the three-month and nine-month fiscal periods ended September 27, 2019, respectively. During the fourth quarter, we settled the claim associated with our accrual at October 2, 2020.

~~Gain on Sale of Business~~

~~For the Three Months Ended~~

~~For the Nine Months Ended~~

October 2,
2020

September 27,
2019

October 2,
2020

September 27,
2019

~~(in thousands)~~

~~Gain on sale of business~~

—

~~(493)~~

—

sale.

During 2018, we sold our ~~U.K.~~UK Tooling business to better position the Company for increased profitability. In ~~the fourth quarter of~~ 2019, we incurred a loss of $3.7 million associated with the write-off of note receivables recorded for the remaining amounts to be collected on the

sale of the ~~U.K.~~UK Tooling business as this balance was deemed not likely to be collected. In the nine-month fiscal period ended October 2, 2020, we collected $0.5 million of the note receivables written off in 2019.

Operating ~~(Loss)~~ Income ~~from Continuing Operations~~

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Operating (loss) income $ (38,927) $ 15,627 $ (46,119) $ 38,571
$ change (54,554) 22,625 (84,690) 29,727
% change (349.1) % 323.3 % (219.6) % 336.1 %
% of net sales (18.2) % 8.6 % (7.7) % 7.4 %
(Loss)


	For the Three Months Ended						For the Nine Months Ended
	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
	(in thousands)
Operating income (loss)	$	15,962		$	(38,927)		$	36,407		$	(46,119)
$ change	54,889			(54,554)			82,526			(84,690)
% change	141.0		%	(349.1)		%	178.9		%	(219.6)		%
% of net sales	8.9		%	(18.2)		%	6.8		%	(7.7)		%

The Company had operating ~~losses~~income of ~~$38.9~~$16.0 million and ~~$46.1~~$36.4 million for the three-month and nine-month fiscal periods ended October ~~2, 2020,~~1, 2021, respectively, compared to operating ~~income~~losses of ~~$15.6~~$38.9 million and ~~$38.6~~$46.1 million in the comparable periods in ~~2019. These changes~~2020. The increases in operating income were primarily driven by the absence of the goodwill impairment charge ~~associated with the Aerosystems reporting unit recorded in the current period, costs incurred related to the TSA, an increase in restructuring costs~~ and costs associated with the ~~purchase accounting for~~acquired retention plans incurred in the ~~Bal Seal acquisition as discussed above.~~prior year and lower costs related to the TSA. Additionally contributing to the ~~change~~increase in the nine-month fiscal period ~~were higher acquisition-related~~was the absence of Bal Seal acquisition costs and ~~corporate development costs.~~third party costs associated with our efforts to reduce general and administrative expenses incurred in the prior year. These changes were partially offset by ~~increases in~~lower sales and gross profit ~~on certain programs~~ as discussed ~~above and the contribution of gross profit from Bal Seal.~~above.

Interest Expense, Net ~~from Continuing Operations~~

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
(in thousands)
Interest expense, net $ 5,327 $ 4,058 $ 14,382 $ 14,595


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
	(in thousands)
Interest expense, net	$	3,646	$	5,327	$	12,232	$	14,382

Interest expense, net, generally consists of interest charged on our Credit Agreement, which includes a revolving credit facility, ~~and a previous term loan facility, and~~ our convertible notes and the amortization of debt issuance costs, offset by interest income.

~~Interest~~ The decrease in interest expense, net ~~increased~~ for the three-month fiscal period ended October ~~2, 2020. This~~1, 2021 was ~~the result of higher~~primarily attributable to lower average borrowings ~~an increase~~and a decrease in interest expense associated with our deferred compensation ~~plan, and lower~~plan. The decrease in interest ~~income, partially offset by the absence of interest expense associated with our previous term loan facility.~~

~~Interest~~ expense, net for the nine-month fiscal period ended October ~~2, 2020 remained relatively flat when compared to the corresponding period in 2019. This result~~1, 2021 was primarily attributable to ~~the absence of interest expense associated with our previous term loan facility, mostly~~lower average borrowings, partially offset by ~~higher letter of credit fees, an increase in average borrowings, and~~ lower interest income.

Effective Income Tax Rate from Continuing Operations

For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
Effective income tax rate from continuing operations (1.8) % 18.5 % 2.6 % 12.7 %


	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020

Effective income tax rate from continuing operations	23.3	%	(1.8)	%	22.7	%	2.6	%

The effective income tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings from continuing operations for the period. The comparison of the effective tax rate from continuing operations for the three-month and nine-month fiscal periods ended October ~~2, 2020~~1, 2021 to the corresponding ~~rate~~rates in the prior year was impacted by the pretax ~~loss~~income in the current period versus pretax ~~income~~loss in the prior period. Due to the ~~current~~prior period pretax loss, the relatively low rate represents a tax expense and was primarily caused by the requirement to treat the tax impact from the goodwill impairment as a a discrete item in the prior period. Additionally, the effective tax rate in the current ~~period. Another significant factor affecting the comparability~~period was impacted by a discrete charge to ~~the prior periods was the partial reversal of~~record a valuation ~~allowances in 2019 which had been recorded against~~allowance on deferred tax assets ~~related to state net operating loss~~for one of the Company's foreign subsidiaries. This charge was partially offset by incremental research and development credit benefits.

3731

~~carryforwards. The reversal was caused by a legislative change which made it more likely than not that more of the benefits from the loss carryforwards will be realized.~~

Backlog

October 2,
2020 December 31,
2019
(in thousands)
Backlog $ 712,133 $ 806,870


	October 1, 2021		December 31, 2020
	(in thousands)
Backlog	$	545,281	$	631,236

Backlog decreased during the first nine months of ~~2020.~~2021. The decrease was primarily attributable to revenue recognized ~~for~~on deliveries of direct commercial JPF orders, bearings and ~~bearings products~~springs, seals and contacts and work performed on our structures and ~~legacy~~missile fuzing programs. These decreases were partially offset by the award of Option 16 on our JPF program with the USG and orders of our bearings products ~~orders under the JPF program with the USG, the Bell AH-1Z program, the Sikorsky BLACK HAWK helicopter program~~ and ~~the Combat Rescue Helicopter program,~~springs, seals and ~~backlog associated with our Bal Seal acquisition.~~contacts.

Major Programs/Product Lines

Below is a discussion of significant changes in our major programs during the first nine months of ~~2020.~~2021. See our ~~2019~~2020 Form 10-K, including Item 1A, "Risk Factors", for a complete discussion of our major programs.

FMU-152 A/B – JPF

We manufacture the JPF, an electro-mechanical bomb safe and arming device, which allows the settings of a weapon to be programmed in flight. ~~The Company currently provides the FMU-152 A/B to the United States Air Force (“USAF”) and forty-one other nations.~~ Sales of these fuzes can be direct to the ~~USAF,~~USG, Foreign Military Sales ("FMS") through the USG and ~~DCS~~Direct Commercial Sales (“DCS”) to foreign militaries that, although not funded by or sold through the USG, require regulatory approvals from the USG.

A total of ~~14,278~~4,000 fuzes were delivered to our customers during the third quarter of ~~2020. A~~2021, bringing the year-to-date total to 20,290 fuzes for the nine-month fiscal period ended October 1, 2021. We expect to deliver 28,000 to 30,000 fuzes in 2021. Total JPF backlog at October 1, 2021 was $134.7 million, down from $214.7 million at December 31, 2020, reflecting the delivery of ~~36,538~~ fuzes ~~have been delivered in~~during the first nine months of ~~2020. We expect to deliver 45,000 to 50,000 fuzes~~the year, partially offset by the award of Option 16 discussed below. Of the $134.7 million in ~~2020.~~

~~Total JPF~~ backlog at October ~~2, 2020 was $254.8 million. Of this amount, $0.1~~1, 2021, $1.3 million ~~in JPF backlog require future~~requires the receipt of export approvals, licenses or authorizations from the USG ~~allowing for~~before we are permitted to ship the ~~sale of these products~~fuzes outside of the United States. The timing and receipt of ~~these~~any such export approvals, licenses, or authorizations are subject to political and geopolitical conditions ~~which could impact~~that are beyond our control. Therefore, there can be no assurance that this portion of our backlog will be converted to a firm sale and, even if it is, the timing ~~and/or our ability~~of the conversion is unknown.

Our JPF program continues to ~~sell these products outside~~move through its product lifecycle, reflecting the previously announced decision of the United ~~States. Total JPF backlog at December 31, 2019 was $356.8 million.~~

~~JPF - USG~~

~~The Company currently provides the FMU-152 A/B~~States Air Force ("USAF") to the USAF, but the U.S. Navy currently utilizes a different fuze - the FMU-139. In 2015, NAVAIR solicited proposals for a firm fixed price production contract to implement improvements to the performance characteristics of the FMU-139 (such improved fuze having been designated the FMU-139 D/B), and, the USAF had stated that, if and when a contract is awarded and production begins, the funds associated with the FMU-152 A/B will be redirected to the FMU-139 D/B. During the third quarter of 2015, the U.S. Navy announced that a competitor was awarded the contract for the FMU-139 D/B. The FMU-139 D/B program has encountered delays in excess of one year to the original plan; however, the USAF may redirect the funds associated with the FMU-152 A/Bmove to the FMU-139 D/B ~~which may materially adversely impact~~(which we do not produce) as its primary fuze system. During the first quarter of 2021, we completed our ~~business, financial condition, results~~delivery requirements under Option 14 of ~~operations~~our USG contract and ~~cash flows. Our competitor has received production orders from the U.S. Navy and USAF to manufacture the FMU-139 D/B.~~Due to the complexity of this program and the pending status of the USAF's final decision to redirect funds to the FMU-139 D/B, the timing and magnitude of the impact on the Company's financial statements are not certain; however, the Company continues to see strong demand for the FMU-152 A/B. In 2020, we ~~have continued~~began to satisfy the requirements for orders for both the USAF and foreign militaries under Option 14, which has a total value of approximately $121.4 million. During the third quarter of 2020, we completed our pricing negotiations for Options 15 and 16 with the USG and we received an order under Option 15, ~~with~~which relates solely to the procurement of fuzes by 25 foreign militaries and has an expected value of approximately $57.3 ~~million for~~million. In the third quarter of 2021, we received an award under Option 16 with an expected total value of approximately $43.0 million. Similar to Option 15, this order relates solely to the procurement of fuzes ~~for 25~~by or in support of foreign ~~militaries. We expect future orders under~~militaries and does not include any sales to the USAF. Option 16 ~~to extend~~extends FMU-152 A/B ~~deliveries~~production into 2023. We have been advised by our customer that Option 16 will be the last order under our JPF contract with the USG. We do not expect the close-out of our JPF contract with the USG will adversely impact our ability to continue to market the FMU-152 A/B directly to foreign militaries in direct commercial sales transactions, and we are currently in discussions with two Middle Eastern customers for one or more follow-on orders aggregating a minimum of $45.0 million. The final value of these orders will be dependent on volume and pricing agreed upon in the completed contracts. If received, these orders would continue to extend the life of the program. As discussed above, these orders would be subject to export approvals, licenses and other authorizations necessary to effectuate the sales, which are subject to political and geopolitical conditions.

LIQUIDITY AND CAPITAL RESOURCES

Discussion and Analysis of Cash Flows

We assess liquidity in terms of our ability to generate cash to fund working capital requirements and investing and financing activities. Significant factors affecting liquidity include: cash flows generated from or used by operating activities, capital expenditures, investments in our business and programs, acquisitions, divestitures, dividends, availability of future credit, share repurchase programs, adequacy of available bank lines of credit, and factors that might otherwise affect the company's business

and operations generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Item 1A of Part I of our ~~2019~~2020 Form 10-K.

COVID-19

We anticipate that the disruptions and delays resulting from the spread of COVID-19 and the measures instituted by governments and businesses to mitigate its spread ~~will~~could impact our liquidity in the next twelve months. In consideration of the potential future impact of the COVID-19 pandemic on our business, we borrowed approximately $200.0 million under our Credit Agreement in the first quarter of 2020 to provide additional financing flexibility and readily accessible liquidity. The proceeds from the borrowing were available for working capital adjustments, ongoing operating needs and general corporate purposes. At October ~~2, 2020,~~1, 2021, the Company had ~~$152.3~~$121.5 million of cash on our Condensed Consolidated Balance Sheet, excluding any restricted cash. In the third quarter, we paid down $100.0 million of the $200.0 million we had borrowed under our Credit Agreement in the first quarter and subsequent to the end of the third quarter we paid down an additional $50.0 million.Sheet. We are closely managing our daily cash flows to optimize our liquidity position. We also continue to closely monitor the collectability of our receivables from commercial aerospace customers as we recognize there may be delays in payments due to the impacts of COVID-19 on our customers. As of the date of this filing, we do not believe there has been any material impact on the collectability of these receivables. In addition to the daily reviews of collections and payables, management meets with our business units on a regular basis to review liquidity.

During the first nine months of 2020, the Company reduced hiring activities, limited discretionary spending and implemented workforce reductions and the aforementioned temporary salary reductions amongst senior management and the Board. We are evaluating our capital investment projects and anticipate reduced spending for the year. Despite the impacts of COVID-19, we did continue to pay our regular quarterly dividend during the first three quarters of 2020 and also contributed $10.0 million to our pension plan. As of the date of this filing, we believe the Company has adequate liquidity due to the cash we have on hand, the bank financing we have available to us and the other actions we have taken to enhance financial flexibility and reduce the potential impact of the pandemic on the Company.

A summary of our consolidated cash flows from continuing operations is as follows:


		For the Nine Months Ended							For the Nine Months Ended
		October 2, 2020		September 27, 2019		2020 vs. 2019			October 1, 2021		October 2, 2020		2021 vs. 2020
		(in thousands)							(in thousands)
Total cash provided by (used in):	Total cash provided by (used in):							Total cash provided by (used in):
Operating activities	Operating activities	$	(52,379)	$	11,336	$	(63,715)	Operating activities	$	14,123	$	(52,379)	$	66,502
Investing activities	Investing activities	(315,274)		636,315		(951,589)		Investing activities	(15,294)		(315,274)		299,980
Financing activities	Financing activities	73,063		(134,118)		207,181		Financing activities	(13,045)		73,063		(86,108)

Free Cash Flow (a)	Free Cash Flow (a)							Free Cash Flow (a)
Net cash (used in) provided by operating activities		$	(52,379)	$	11,336	$	(63,715)
Net cash provided by (used in) operating activities								Net cash provided by (used in) operating activities	$	14,123	$	(52,379)	$	66,502
Expenditures for property, plant and equipment	Expenditures for property, plant and equipment	(14,232)		(17,411)		3,179		Expenditures for property, plant and equipment	(11,364)		(14,232)		2,868
Free cash flow	Free cash flow	$	(66,611)	$	(6,075)	$	(60,536)	Free cash flow	$	2,759	$	(66,611)	$	69,370

(a) Free Cash Flow, a non-GAAP financial measure, is defined as net cash (used in) provided by operating activities less expenditures for property, plant and equipment, both of which are presented in our Condensed Consolidated Statements of Cash Flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for more information regarding Free Cash Flow.

Net cash ~~used in~~provided by operating activities was ~~$52.4~~$14.1 million for the nine-month fiscal period ended October ~~2, 2020,~~1, 2021, a $66.5 million improvement to cash used in the comparable period in 2020. This change was largely driven by the ~~changes in working capital primarily associated with~~collection of payments on outstanding receivables, ~~from~~more specifically significant receipts on JPF DCS ~~customers~~receivables, and ~~the $10.0 million pension contribution. Of the receivables outstanding for JPF DCS customers, approximately $64.0 million relates to~~

~~delays in payment on outstanding aged receivables. We have received payments from this customer for recent shipments and expect to receive payment~~lower material receipts on the ~~outstanding aged receivables.~~K-MAX® program in the current period. These changes were partially offset by approximately $25.1 million in nonrecurring payments to eligible participants of Bal Seal's employee retention plans implemented prior to our acquisition in 2020.

Net cash used in investing activities was ~~$315.3~~$15.3 million for the nine-month fiscal period ended October ~~2, 2020, compared to net~~1, 2021, $300.0 million less than cash ~~provided by investing activities of $636.3 million~~used in the comparable period in ~~2019.~~2020. This change was primarily attributable to cash used to acquire Bal Seal in the ~~current period versus proceeds received from the sale of our former Distribution business in the~~ prior ~~period.~~year.

Net cash ~~provided by~~used in financing activities was ~~$73.1~~$13.0 million for the nine-month fiscal period ended October ~~2, 2020,~~1, 2021, compared to net cash ~~used in~~provided by financing activities of ~~$134.1~~$73.1 million in the comparable period in ~~2019.~~2020. This change was primarily due to higher net borrowings under our revolving credit facility in the ~~current period~~prior year in preparation for the potential impact of the COVID-19 pandemic, ~~versus higher net repayments~~partially offset by lower purchases of ~~our revolving credit facility~~treasury shares in the ~~prior~~current period.

We anticipate a variety of items will have an impact on our liquidity during the next twelve months, in addition to the impacts of the COVID-19 pandemic and our working capital requirements. These could include one or more of the following:

•the matters described in Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, including the cost of existing environmental remediation matters;

•contributions to our qualified pension plan and Supplemental Employees’ Retirement Plan (“SERP”);

•deferred compensation payments to officers;

•interest payments on outstanding debt;

•income tax payments;

•costs associated with acquisitions and corporate development activities;

•finance and operating lease payments;

•capital expenditures;

•research and development expenditures;

•repurchase of common stock under the 2015 Share Repurchase Program;

•payment of dividends;

•costs associated with the start-up of new programs; and

•the timing of payments and the extension of payment terms by our customers.

Financing Arrangements

We continue to rely upon bank financing as an important source of liquidity for our business activities, including acquisitions. We believe this, when combined with cash generated from operating activities, will be sufficient to support our anticipated future cash requirements; however, we may decide to borrow additional funds or raise additional equity capital to support other business activities, including potential future acquisitions. We regularly monitor credit market conditions to identify potential issues that may adversely affect, or provide opportunities for, the securing and/or advantageous pricing of additional financing, if any, that may be necessary to continue with our growth strategy and finance working capital requirements. Refer to Note 14, Debt, in the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of the ~~2019~~2020 Form 10-K for further information on our Financing Arrangements.

Convertible Notes

During May 2017, we issued $200.0 million aggregate principal amount of convertible senior unsecured notes due May 2024 (the "2024 Notes") pursuant to an indenture, dated May 12, 2017, between the Company and U.S. Bank National Association, as trustee (as amended by the First Supplemental Indenture thereto, dated July 15, 2019, the "Indenture"). In connection therewith, we entered into certain capped call transactions that cover, collectively, the number of shares of the Company's common stock underlying the 2024 Notes. The 2024 Notes bear 3.25% interest per annum on the principal amount, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2017. The 2024 Notes will mature on May 1, 2024, unless earlier repurchased by the Company or converted. We will settle any conversions of the 2024 Notes in cash, shares of the Company's common stock or a combination of cash and shares of common stock, at our election.

The sale of our former Distribution business in the third quarter of 2019 was deemed to be a "Fundamental Change" and a "Make-Whole Fundamental Change" pursuant to the terms and conditions of the indenture governing the 2024 Notes. As a result, the sale triggered the right of the holders of our 2024 Notes to require us to repurchase all of the 2024 Notes, or any portion thereof that is a multiple of $1,000 principal amount on September 27, 2019. The aggregate principal amount of the 2024 Notes validly tendered and not validly withdrawn was $0.5 million, representing approximately 0.25% of all outstanding

notes. Holders of such notes received the repurchase price equal to 100% of the principal amount of the 2024 Notes being purchase, plus accrued and unpaid interest.

We incurred $7.4 million of debt issuance costs in connection with the sale of the 2024 Notes, which was allocated between the debt and equity components of the instrument. Of the total amount, $0.7 million was recorded as an offset to additional paid-in capital. The balance, $6.7 million, was recorded as a contra-debt balance and is being amortized over the term of the 2024 Notes. Total amortization expense for the three-month fiscal periods ended October 1, 2021 and October 2, 2020 was $0.3 million and ~~September 27, 2019 was~~ $0.2 million, ~~in both periods.~~respectively. Total amortization expense for the nine-month fiscal periods ended October 1, 2021 and October 2, 2020 was $0.8 million and ~~September 27, 2019 was~~ $0.7 million, ~~in both periods.~~respectively.

Credit Agreement

On December 13, 2019, the Company closed an amended and restated $800.0 million Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent. The Credit Agreement

matures on December 13, 2024 and consists of revolving commitments of $800.0 million. Capitalized terms used but not defined within this discussion of the Credit Agreement have the meanings ascribed thereto in the Credit Agreement, which with amendments is included as Exhibit ~~10.37~~10.39 to our ~~2019~~2020 Form 10-K.

We incurred $3.6 million of debt issuance costs in connection with the amendment and restatement of the Credit Agreement. Total amortization expense for the three-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~ was $0.2 million in both periods. Total amortization expense for the nine-month fiscal periods ended October 1, 2021 and October 2, 2020 ~~and September 27, 2019~~ was $0.6 million in both periods.

Interest rates on amounts outstanding under the Credit Agreement are variable based on LIBOR. The LIBOR benchmark has been the subject of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. In November 2020, the ICE Benchmark Association announced its intention to delay the timeline for the retirement of LIBOR until mid-2023. These reforms may cause LIBOR to perform differently than in the past, and LIBOR may ultimately cease to exist after 2021. Alternative benchmark rate(s) may replace LIBOR and could affect the Company's debt securities, derivative instruments, receivables, debt payments and receipts. At this time, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts that terminate after ~~2021.~~2023. There is uncertainty about how applicable law, the courts or the Company will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions. In addition, any changes to benchmark rates may have an uncertain impact on our cost of funds and our access to the capital markets, which could impact our liquidity, financial position or results of operations. The Company is currently in the process of moving its LIBOR benchmark to other non-USD benchmark rates.

No amounts were outstanding under the revolving credit facility in the third quarter of 2021; therefore, the interest rate for the ~~amounts paid down on the revolving credit facility~~period was ~~1.98%~~0%. ~~In addition, we~~We are required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.150% to 0.250% per annum, based on the Senior Secured Net Leverage Ratio. Fees for outstanding letters of credit range from 1.125% to 1.625%, based on the Senior Secured Net Leverage Ratio. ~~Total average~~There were no bank borrowings during the nine-month period ended October ~~2, 2020, were $123.6 million~~1, 2021, compared to ~~$70.6~~total average bank borrowings of $111.9 million for the year ended December 31, ~~2019.~~2020.

The following table shows the amounts available for borrowing under the Company's revolving credit facility:


		October 2, 2020		December 31, 2019			October 1, 2021		December 31, 2020
In thousands	In thousands					In thousands
Total facility	Total facility	$	800,000	$	800,000	Total facility	$	800,000	$	800,000
Amounts outstanding, excluding letters of credit	Amounts outstanding, excluding letters of credit	101,172		—		Amounts outstanding, excluding letters of credit	—		—
Amounts available for borrowing, excluding letters of credit	Amounts available for borrowing, excluding letters of credit	698,828		800,000		Amounts available for borrowing, excluding letters of credit	800,000		800,000
Letters of credit under the credit facility(1)(2)	Letters of credit under the credit facility(1)(2)	165,373		152,614		Letters of credit under the credit facility(1)(2)	92,646		165,373
Amounts available for borrowing	Amounts available for borrowing	$	533,455	$	647,386	Amounts available for borrowing	$	707,354	$	634,627

Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)	Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)	$	471,960	$	322,900	Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)	$	356,613	$	363,997

(1) The Company has entered into standby letters of credit issued on the Company's behalf by financial institutions, and directly issued guarantees to third parties primarily related to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit generally are available for draw down in the event the Company does not perform its obligations.

(2) Of these amounts, $86.3 million and $146.2 million letters of credit relate to a ~~certain~~ JPF DCS contract ~~in both periods.~~in the periods ended October 1, 2021 and December 31, 2020, respectively.

(3) Amounts available for borrowing subject to EBITDA reflect the minimum borrowing capacity under EBITDA, subject to adjustments.

Other Sources/Uses of Capital

~~Advance Payments~~Letters of Credit

~~In 2018, we received $97.2 million in advance payments, which relate to $146.2~~Of the standby letters of credit under our credit facility, $86.3 million in letters of a credit ~~for~~relate to a JPF DCS contract, including the offset agreement. In the event that we default on the contract and we are unable to fulfill our contractual obligations, our customer has the ability to draw on the letters of credit.

Pension Plans

Management regularly monitors pension plan asset performance and the assumptions used in the determination of our benefit obligation, comparing them to actual performance. We continue to believe the assumptions selected are valid due to the long-term nature of our benefit obligation.

We contributed $10.0 million to the qualified pension plan and $0.4 million to the SERP through the end of the third quarter of ~~2020.~~2021. No further contributions are expected to be made to the qualified pension plan during ~~2020.~~2021. We plan to contribute an additional ~~$0.1~~$2.3 million to the SERP in ~~2020.~~2021. For the ~~2019~~2020 plan year, we contributed $10.0 million to the qualified pension plan and $0.5 million to the ~~SERP and did not make a contribution to the qualified pension plan.~~SERP.

Effective December 31, 2015, our qualified pension plan was frozen with respect to future benefit accruals. Under USG Cost Accounting Standard (“CAS”) 413, we must calculate the USG’s share of any pension curtailment adjustment calculated resulting from the freeze. Such adjustments can result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position. During the fourth quarter of 2016, we accrued a $0.3 million liability representing our estimate of the amount due to the USG based on our pension curtailment calculation, which was submitted to the USG for review in December 2016. We have maintained our accrual at $0.3 million as of October ~~2, 2020.~~1, 2021. There can be no assurance that the ultimate resolution of this matter will not have a material adverse effect on our results of operations, financial position and cash flows.

~~Share Repurchase Plan~~Share-based Arrangements

In ~~2015, our Board~~2021, the Company modified its long-term incentive program to increase the emphasis on equity. Beginning in the first quarter of ~~Directors approved~~2021, the long-term incentive awards granted to the Company's Named Executive Officers ("NEOs") will consist of a ~~share repurchase program ("2015 Share Repurchase Program") authorizing~~combination of service-based RSAs and PSUs which are intended to be settled in shares, as opposed to cash-based awards that had been utilized in the ~~repurchase~~past. These awards are expected to increase the alignment of ~~up to $100 million~~interests between the Company's NEOs and shareholders and help build stock ownership for new executives, supporting both executive retention and the Company's long-term financial performance. RSAs will vest over a three-year period on each of the ~~Company’s common stock. The primary purpose~~first three anniversaries of the ~~2015 Repurchase Program is to offset the dilution caused by the annual issuance~~date of ~~shares under our employee stock plans, although the timing and actual~~grant. The number of ~~shares repurchased depends~~PSUs that will vest will be determined based on total shareholder return ("TSR") and return on total invested capital ("ROIC") over a ~~variety~~three-year performance period, each of which will remain equally weighted in determining payouts. The achievement level for both factors ~~including~~may range from zero to 200%. As of October 1, 2021, future compensation costs related to non-vested stock ~~price, market conditions, corporate~~options, restricted stock grants and ~~regulatory requirements, capital availability and other factors, including acquisition opportunities. During the first nine months~~performance stock grants is $9.0 million. The Company anticipates that this cost will be recognized over a weighted-average period of 2020, we repurchased 290,000 shares, for approximately $13.5 million, under the 2015 Share Repurchase Program, bringing the total number of shares repurchased throughout the life of the 2015 Share Repurchase Program to 1,880,422 shares. Although approximately $2.2 million remains available for repurchases under this authorization, we do not intend to effectuate any additional share repurchases until the ongoing COVID-19 pandemic and any related impact on our business, results of operations and cash flows have subsided.2.3 years.

NON-GAAP FINANCIAL MEASURES

Management believes the non-GAAP (Generally Accepted Accounting Principles) measures used in this report provide investors with important perspectives into our ongoing business performance. We do not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures as follows:

Organic Sales

Organic Sales is defined as "Net Sales" less sales derived from acquisitions completed or businesses disposed of that did not qualify for accounting as a discontinued operation during the previous twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales separately provides management and investors with useful information about the trends impacting our operations and enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term "Organic Sales" may be interpreted differently by other companies and under different circumstances.

Organic Sales from continuing operations (in thousands)
For the Three Months Ended For the Nine Months Ended
October 2,
2020 September 27,
2019 October 2,
2020 September 27,
2019
Net sales $ 213,959 $ 182,670 $ 599,171 $ 523,816
Acquisition Sales 19,032 — 60,449 —
Organic Sales $ 194,927 $ 182,670 $ 538,722 $ 523,816


Organic Sales from continuing operations (in thousands)
	For the Three Months Ended				For the Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Net sales	$	179,836	$	213,959	$	533,846	$	599,171
Acquisition sales	—		—		—		—
Sales of disposed businesses that did not qualify for discontinued operations	—		2,804		1,704		16,102
Organic Sales	$	179,836	$	211,155	$	532,142	$	583,069

Free Cash Flow

Free Cash Flow is defined as GAAP “Net cash provided by (used in) operating activities” in a period less “Expenditures for property, plant & equipment” in the same period. Management believes Free Cash Flow provides an important perspective on our ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it may exclude certain mandatory expenditures such as repayment of maturing debt and other contractual obligations. Management uses Free Cash Flow internally to assess overall liquidity.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes outside the ordinary course of business in our contractual obligations or off-balance sheet arrangements during the first nine months of ~~2020.~~2021. See our ~~2019~~2020 Form 10-K for a discussion of our contractual obligations and off-balance sheet arrangements.

CRITICAL ACCOUNTING ESTIMATES

Preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements in the Company’s ~~2019~~2020 Form 10-K describe the critical accounting estimates and significant accounting policies used in preparing the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates.

RECENT ACCOUNTING STANDARDS

Information regarding recent changes in accounting standards is included in Note 2, Recent Accounting Standards, of the Notes to Condensed Consolidated Financial Statements in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in the Company’s exposure to market risk during the first nine months of ~~2020.~~2021. See the Company’s ~~2019~~2020 Form 10-K for a discussion of the Company’s exposure to market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended, as of October ~~2, 2020.~~1, 2021. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation,

the Chief Executive Officer and Chief Financial Officer have concluded that, as of October ~~2, 2020,~~1, 2021, our disclosure controls and procedures were effective.

Internal Controls over Financial Reporting

During the third quarter, the Company began to outsource certain information technology functions; however, these changes did not have a material effect on the Company's internal control over financial reporting. There was no ~~other~~ change to our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

4438

PART II

Item 1. Legal Proceedings

General

From time to time, as a normal incident of the nature and kinds of businesses in which the Company and its subsidiaries are, and were, engaged, various claims or charges are asserted and legal proceedings are commenced by or against the Company and/or one or more of its subsidiaries. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred.

We evaluate, on a quarterly basis, developments in legal proceedings that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. Our loss contingencies are subject to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement postures of the parties. Because of these uncertainties, management has determined that, except as otherwise noted below, the amount of loss or range of loss that is reasonably possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already accrued), is not reasonably estimable.

While it is not possible to predict the outcome of these matters with certainty, based upon available information, management believes that all settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in legal proceedings and that can be reasonably estimated are accrued for at October ~~2, 2020.~~1, 2021. Despite this analysis, there can be no assurance that the final outcome of these matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

As of October ~~2, 2020,~~1, 2021, neither the Company nor any of its subsidiaries was a party, nor was any of its or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company and its subsidiaries. Additional information relating to certain of these matters is set forth in Note 14, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements.

Environmental Matters

The Company and its subsidiaries are subject to numerous U.S. federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past activities of companies we have acquired). From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent laws. Such notices assert potential liability for cleanup costs at various sites, which may include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. While it is not possible to predict the outcome of these proceedings, in the opinion of management, any payments we may be required to make as a result of all such claims in existence at October ~~2, 2020,~~1, 2021, will not have a material adverse effect on our business, financial condition and results of operations or cash flows.

Item 1A. Risk Factors

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition and cash flows as set forth under Item 1A. “Risk Factors” in our ~~2019~~2020 Form 10-K. ~~Except as set forth below, we~~We do not believe there have been any material changes to the risk factors previously disclosed in our ~~2019~~2020 Form 10-K, but we may disclose changes to such factors or disclose additional factors from time to time in future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.

~~Our business, results of operations, financial condition and cash flows are likely to be adversely impacted by the ongoing COVID-19 pandemic.~~

Economic and health conditions in the United States and across most of the world have changed dramatically since COVID-19 was first discovered in late 2019. In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 pandemic a national emergency. The pandemic has resulted in governments around the world implementing increasingly stringent measures intended to control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures. The public health issues resulting from COVID-19 and the precautionary measures instituted by governments and businesses to mitigate its spread is expected to result in business and manufacturing disruptions, plant closures, inventory shortages, delivery delays, supply chain disruptions, and order reductions, cancellations and deferrals, all of which are likely to adversely affect our business, results of operations, financial condition and cash flows as approximately 50% of our 2020 sales were anticipated to be in commercial end markets which have been particularly impacted by the effects of the pandemic. Furthermore, approximately 30% of total expected sales were anticipated to be to commercial aerospace customers. During the second quarter, we began to see order deferrals and cancellations resulting in declines in our commercial aerospace programs, which continued into the third quarter. More specifically, we have had lower sales of our commercial bearings products and decreases in our medical programs due to the limited number of elective procedures being performed. We anticipate further declines in these end markets and we expect more modest declines from the industrial end market. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, the severity and duration of the pandemic and the effectiveness of actions taken globally to contain or mitigate its effects. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has, and may continue to, adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our 2019 Form 10-K, such as those relating to our products and financial performance.

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) ~~the possibility that we may be unable to find appropriate reinvestment opportunities for the proceeds from the sale of our former Distribution business; (ii)~~ risks related to Kaman's performance of its obligations under the transition services agreement entered into in connection with the sale of our former Distribution business and UK Composites business and disruption of management time from ongoing business operations relating thereto; ~~(iii)~~(ii) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; ~~(iv)~~(iii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions, including the elimination of Overseas Contingency Operations funding, or automatic sequestration); ~~(v)~~(iv) the global economic impact of the COVID-19 pandemic; ~~(vi)~~(v) changes in geopolitical conditions in countries where the Company does or intends to do business; ~~(vii)~~(vi) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; ~~(viii)~~(vii) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the USG; ~~(ix)~~(viii) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; ~~(x)~~(ix) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; ~~(xi)~~(x) the successful resolution of government inquiries or investigations relating to our businesses and programs; ~~(xii)~~(xi) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed

specifications required and recover start-up costs and other investments in the programs; ~~(xiii)~~(xii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; ~~(xiv)~~(xiii) the receipt and successful execution of production orders under the Company's existing USG JPF contract, including the exercise of all contract options and receipt of orders from allied militaries, but excluding any next generation programmable fuze programs, as all have been assumed in connection with goodwill impairment evaluations; ~~(xv)~~(xiv) the continued support of the existing K-MAX® helicopter fleet, including the sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our investments in the K-MAX® production line; ~~(xvi)~~(xv) the accuracy of current cost estimates associated with environmental remediation activities; ~~(xvii)~~(xvi) the profitable integration of acquired businesses into the Company's operations; ~~(xviii)~~(xvii) the ability to recover from cyber-based or other security attacks, information technology failures or other ~~disruptions; (xix)~~disruptions, including the December 2020 Bal Seal incident; (xviii) changes in supplier sales or vendor incentive policies; ~~(xx)~~(xix) the ability of our suppliers to satisfy their performance obligations; ~~(xxi)~~(xx) the effects of price increases or decreases; ~~(xxii)~~(xxi) the effects of pension regulations, pension plan assumptions, pension plan asset performance, future contributions and the pension freeze, including the ultimate determination of the USG's share of any pension curtailment adjustment calculated in accordance with CAS 413; ~~(xxiii)~~(xxii) future levels of indebtedness and capital expenditures; ~~(xxiv)~~(xxiii) the continued availability of raw materials and other commodities in adequate supplies, including supply chain disruptions, and the effect of increased costs for such items; ~~(xxv)~~(xxiv) the effects of currency exchange rates and foreign competition on future operations; ~~(xxvi)~~(xxv) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; ~~(xxvii) the effects, if any, of the United Kingdom's exit from the European Union; (xxviii)~~(xxvi) future repurchases and/or issuances of common stock; ~~(xxix)~~(xxvii) the occurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; ~~(xxx)~~(xxviii) the ability to recruit and retain skilled employees; and ~~(xxxi)~~(xxix) other risks and uncertainties set forth herein and in our ~~2019~~2020 Form 10-K.

Any forward-looking information provided in this report should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases of common stock by the Company during the three-month fiscal period ended October ~~2, 2020:~~1, 2021:

Period Total Number
of Shares
Purchased (a) Average
Price Paid
per Share Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan (b)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (in thousands)
July 4, 2020 - July 31, 2020 39 $ 39.93 — $2,168
August 1, 2020 - August 28, 2020 — $ — — $2,168
August 29, 2020 - October 2, 2020 937 $ 37.83 — $2,168
Total 976 —


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan (b)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (in thousands)
July 3, 2021 - July 30, 2021	—	$	—	—	$2,168
July 31, 2021 - August 27, 2021	1,529	$	45.05	—	$2,168
August 28, 2021 - October 1, 2021	—	$	—	—	$2,168
Total	1,529			—

(a) During the third quarter of ~~2020~~2021 the Company purchased ~~976~~1,529 shares in connection with employee tax withholding obligations as permitted by our equity compensation plans, which are SEC Rule 16b-3 qualified compensation plans. These were not purchases under our publicly announced program.

(b) On April 29, 2015, the Company announced that its Board of Directors approved a $100.0 million share repurchase program. For additional information, see ~~'"Item 2.~~"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Other Sources/Uses of ~~Capital."~~Capital" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

4741

Item 6. Index To Exhibits


10.1	Amendment No. 1 to Executive Employment Agreement, dated ~~as of August 20, 2020,~~July 8, 2021, by and between ~~Ian K. Walsh~~the Company and ~~the Company~~Mr. Starr (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated ~~August 21, 2020,~~July 8, 2021, File No. 001-35419).*	Previously ~~filed~~
~~10.2~~	Transition and Retirement Agreement, dated as of August 20, 2020, by and between Neal J. Keating and the Company (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated August 21, 2020, File No. 001-35419).*	~~Previously filed~~
~~10.3~~	Retirement and Consulting Letter Agreement, dated as of August 20, 2020, by and between Richard R. Barnhart and the Company (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated August 21, 2020, File No. 001-35419).*	~~Previously filed~~Filed
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934	Filed Herewith
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934	Filed Herewith
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
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	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101

* Management contract or compensatory ~~plan~~plan.

4842

SIGNATURES

Kaman Corporation and Subsidiaries

Signatures

Pursuant to the requirements 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.

KAMAN CORPORATION

Registrant

Date:

November ~~4, 2020~~2, 2021

/s/ Ian K. Walsh

By:

Ian K. Walsh

Chairman, President and ~~Chief Executive Officer~~

Chief Executive Officer

Date:

November ~~4, 2020~~2, 2021

/s/ ~~Robert D. Starr~~James G. Coogan

By:

~~Robert D. Starr~~James G. Coogan

~~Executive~~Senior Vice President and

Chief Financial Officer

4943