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 September ~~29, 2019~~27, 2020



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

For the transition period from to

Commission File Number 001-14962

CIRCOR INTERNATIONAL, ~~INC~~.INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3477276

~~Delaware~~

~~04-3477276~~

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

30 Corporate Drive, Suite 200

Burlington,

01803-4238

(Address of principal executive offices)

(Zip Code)

(~~781~~) (781) 270-1200

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CIR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting 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. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~8, 2019,~~1, 2020, there were ~~19,910,095~~19,998,097 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

CIRCOR INTERNATIONAL, INC.

TABLE OF CONTENTS



			Page
PART I.		FINANCIAL INFORMATION	3
Item 1.		Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets as of September ~~29, 2019~~27, 2020 and December 31, ~~2018~~2019	3
		Condensed Consolidated Statements of ~~(Loss) Income~~Operations for the Three and Nine Months Ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~	43
		Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~	6
		Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months ~~ended~~ Ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~	7
		Notes to Condensed Consolidated Financial Statements	9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2729
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4042
Item 4.		Controls and Procedures	4043
PART II.		OTHER INFORMATION	4044
Item 1.		Legal Proceedings	4144
Item 1A.		Risk Factors	4144

Item 6.		Exhibits	45
~~Item~~ Signatures6.			~~Exhibits~~46	41
~~Signatures~~	43

PART I. FINANCIAL INFORMATION



ITEM 1.			FINANCIAL STATEMENTS

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

~~(UNAUDITED)~~

September 29, 2019 December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 69,225
$ 68,517
Trade accounts receivable, less allowance for doubtful accounts of $4,342 and $5,884 at September 29, 2019 and December 31, 2018, respectively 141,117
167,181
Inventories 151,744
143,682
Prepaid expenses and other current assets 89,854
71,428
Assets held for sale 29,935
197,238
Total Current Assets 481,875
648,046
PROPERTY, PLANT AND EQUIPMENT, NET 177,936
189,672
OTHER ASSETS:
Goodwill 360,304
450,605
Intangibles, net 392,515
440,281
Deferred income taxes 24,449
19,906
Assets held for sale —
30,374
Other assets 31,052
12,728
TOTAL ASSETS $ 1,468,131
$ 1,791,612
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 90,293
$ 94,715
Accrued expenses and other current liabilities 110,682
92,496
Accrued compensation and benefits 25,564
30,703
Current portion of long-term debt —
7,850
Liabilities held for sale 17,674
58,298
Total Current Liabilities 244,213
284,062
LONG-TERM DEBT 640,884
778,187
DEFERRED INCOME TAXES 26,809
33,607
PENSION LIABILITY, NET 144,809
150,623
LIABILITIES HELD FOR SALE —
861
OTHER NON-CURRENT LIABILITIES 36,028
15,279
COMMITMENTS AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding

—
Common stock, $0.01 par value; 29,000,000 shares authorized; 19,906,263
and 19,845,205 shares issued and outstanding at September 29, 2019 and December 31, 2018, respectively
212
212
Additional paid-in capital 445,305
440,890
Retained earnings 97,728
232,102
Common treasury stock, at cost (1,372,488 shares at September 29, 2019 and December 31, 2018) (74,472 ) (74,472 )
Accumulated other comprehensive loss, net of tax (93,385 ) (69,739 )
Total Shareholders’ Equity 375,388
528,993
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,468,131
$ 1,791,612

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~CIRCOR INTERNATIONAL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME~~

~~(in thousands, except per share data)~~

(UNAUDITED)

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net revenues $ 237,052
$ 247,209
$ 721,675
$ 746,754
Cost of revenues 162,578
167,132
490,870
511,563
     Gross profit 74,474
80,077
230,805
235,191
Selling, general and administrative expenses 60,039
68,544
190,227
211,909
Special and restructuring charges, net 23,519
2,988
19,893
11,924
     Operating (loss), income (9,084 ) 8,545
20,685
11,358
Other expense (income):
Interest expense, net 11,804
14,137
37,846
39,711
Other income, net (759 ) (1,580 ) (2,755 ) (7,079 )
     Total other expense, net 11,045
12,557
35,091
32,632
Loss from continuing operations before income taxes (20,129 ) (4,012 ) (14,406 ) (21,274 )
Provision for (benefit from) income taxes 7,520
(45 ) 13,513
(4,434 )
Loss from continuing operations, net of tax (27,649 ) (3,967 ) (27,919 ) (16,840 )
Loss from discontinued operations, net of tax (84,688 ) (2,874 ) (107,572 ) (1,540 )
Net loss $ (112,337 ) $ (6,841 ) $ (135,491 ) $ (18,380 )

Basic loss per common share:
Basic from continuing operations $ (1.39 ) $ (0.20 ) $ (1.40 ) $ (0.85 )
Basic from discontinued operations $ (4.25 ) $ (0.14 ) $ (5.41 ) $ (0.08 )
Net loss $ (5.64 ) $ (0.34 ) $ (6.81 ) $ (0.93 )

Diluted loss per common share:
Diluted from continuing operations $ (1.39 ) $ (0.20 ) $ (1.40 ) $ (0.85 )
Diluted from discontinued operations $ (4.25 ) $ (0.14 ) $ (5.41 ) $ (0.08 )
Net loss $ (5.64 ) $ (0.34 ) $ (6.81 ) $ (0.93 )

Weighted average number of common shares outstanding:
Basic 19,916
19,843
19,898
19,829
Diluted 19,916
19,843
19,898
19,829


	September 27, 2020		December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	72,772	$	84,531

Trade accounts receivable, less allowance for doubtful accounts of $10,424 and $3,086 at September 27, 2020 and December 31, 2019, respectively	102,840		125,422
Inventories	144,476		137,309

Prepaid expenses and other current assets	98,401		66,664

Assets held for sale	0		161,193
Total Current Assets	418,489		575,119
PROPERTY, PLANT AND EQUIPMENT, NET	167,037		172,179
OTHER ASSETS:
Goodwill	158,117		271,893
Intangibles, net	357,038		385,542
Deferred income taxes	905		30,852
Other assets	43,621		35,360
TOTAL ASSETS	$	1,145,207	$	1,470,945
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	63,966	$	79,399
Accrued expenses and other current liabilities	86,176		94,169
Accrued compensation and benefits	27,570		19,518

Liabilities held for sale	0		43,289
Total Current Liabilities	177,712		236,375
LONG-TERM DEBT	527,721		636,297
DEFERRED INCOME TAXES	16,823		21,425
PENSION LIABILITY, NET	143,599		146,801
OTHER NON-CURRENT LIABILITIES	58,538		38,636
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding	0		0
Common stock, $0.01 par value; 29,000,000 shares authorized; 19,997,931 and 19,912,362 outstanding at September 27, 2020 and December 31, 2019 respectively	214		213
Additional paid-in capital	451,351		446,657
(Accumulated deficit) retained earnings	(72,528)		99,280
Common treasury stock, at cost (1,372,488 shares at September 27, 2020 and December 31, 2019)	(74,472)		(74,472)
Accumulated other comprehensive loss, net of tax	(83,751)		(80,267)
Total Shareholders’ Equity	220,814		391,411
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,145,207	$	1,470,945

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net revenues	$	186,640	$	237,052	$	564,920	$	721,675
Cost of revenues	130,630		162,578		389,905		490,870
Gross profit	56,010		74,474		175,015		230,805
Selling, general and administrative expenses	50,652		60,039		164,948		190,227
Goodwill impairment charge	0		0		116,182		0
Special and restructuring charges (recoveries), net	938		23,519		(35,747)		19,893
Operating income, (loss)	4,420		(9,084)		(70,368)		20,685
Other expense (income):
Interest expense, net	8,202		11,804		25,699		37,846
Other expense (income), net	765		(759)		229		(2,755)
Total other expense, net	8,967		11,045		25,928		35,091
(Loss) income from continuing operations before income taxes	(4,547)		(20,129)		(96,296)		(14,406)
Provision for (benefit from) income taxes	54,318		7,520		40,923		13,513
(Loss) income from continuing operations, net of tax	(58,865)		(27,649)		(137,219)		(27,919)
Income (loss) from discontinued operations, net of tax	341		(84,688)		(34,345)		(107,572)
Net loss	$	(58,524)	$	(112,337)	$	(171,564)	$	(135,491)

Basic income (loss) per common share:
Basic from continuing operations	$	(2.94)	$	(1.39)	$	(6.87)	$	(1.40)
Basic from discontinued operations	$	0.02	$	(4.25)	$	(1.72)	$	(5.41)
Net loss	$	(2.93)	$	(5.64)	$	(8.59)	$	(6.81)

Diluted income (loss) per common share:
Diluted from continuing operations	$	(2.94)	$	(1.39)	$	(6.87)	$	(1.40)
Diluted from discontinued operations	$	0.02	$	(4.25)	$	(1.72)	$	(5.41)
Net loss	$	(2.93)	$	(5.64)	$	(8.59)	$	(6.81)

Weighted average number of common shares outstanding:
Basic	20,001		19,916		19,975		19,898
Diluted	20,001		19,916		19,975		19,898

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net loss	$	(58,524)	$	(112,337)	$	(171,564)	$	(135,491)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	2,817		(7,164)		(3,418)		(16,882)
Interest rate swap adjustments (1)	1,373		(1,206)		(192)		(6,371)
Pension adjustment	44		0		126		(393)

Other comprehensive income (loss), net of tax	4,234		(8,370)		(3,484)		(23,646)
COMPREHENSIVE LOSS	$	(54,290)	$	(120,707)	$	(175,048)	$	(159,137)

(1) Net of an income tax effect of $0.0 million and $(0.4) million for the three months ended September 27, 2020 and September 29, 2019, respectively, and $(0.5) million and $1.7 million for the nine months ended September 27, 2020 and September 19, 2019, respectively.

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net loss $ (112,337 ) $ (6,841 ) $ (135,491 ) $ (18,380 )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (7,164 ) 3,128
(16,882 ) (15,380 )
       Interest rate swap adjustments (1) (1,206 ) 2,224
(6,371 ) 3,449
       Pension adjustment —
—
(393 ) —
       Other —
1
—
1
Other comprehensive income (loss), net of tax (8,370 ) 5,353
(23,646 ) (11,930 )
COMPREHENSIVE LOSS $ (120,707 ) $ (1,489 ) $ (159,137 ) $ (30,311 )

(1) Net of an income tax effect of $(0.4) million and $1.7 million for the three and nine months ended September 29, 2019, respectively.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)


	Nine Months Ended							Nine Months Ended
OPERATING ACTIVITIES	September 29, 2019			September 30, 2018			OPERATING ACTIVITIES	September 27, 2020		September 29, 2019
Net loss	$	(135,491	)	$	(18,380	)	Net loss	$	(171,564)	$	(135,491)
Loss from discontinued operations, net of income taxes	(107,572		)	(1,540		)	Loss from discontinued operations, net of income taxes	(34,345)		(107,572)
Loss from continuing operations	(27,919		)	(16,840		)	Loss from continuing operations	(137,219)		(27,919)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:							Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation	16,618			20,096			Depreciation	14,881		16,618
Amortization	36,023			36,805			Amortization	32,418		36,023
Provision for bad debt expense	(469		)	932			Provision for bad debt expense	7,219		(469)
Loss on write down of inventory	301			2,556
Amortization of inventory fair value step-up	—			6,600
Write down of inventory							Write down of inventory	2,386		301
Compensation expense for share-based plans	4,200			4,146			Compensation expense for share-based plans	4,076		4,200
Amortization of debt issuance costs	3,669			2,852			Amortization of debt issuance costs	6,463		3,669
Deferred tax provision							Deferred tax provision	35,582		11,812
Loss on sale or write-down of property, plant and equipment	2,889			1,366			Loss on sale or write-down of property, plant and equipment	0		2,889
Loss on sale of businesses	2,707			—
Goodwill impairment charge							Goodwill impairment charge	116,182		0
(Gain) Loss on sale of businesses							(Gain) Loss on sale of businesses	(54,253)		2,707
Changes in operating assets and liabilities, net of effects of acquisition and disposition:							Changes in operating assets and liabilities, net of effects of acquisition and disposition:
Trade accounts receivable	17,413			5,520			Trade accounts receivable	18,051		17,413
Inventories	(11,724		)	(2,903		)	Inventories	(8,477)		(11,724)
Prepaid expenses and other assets	(20,546		)	(20,526		)	Prepaid expenses and other assets	(39,184)		(20,546)
Accounts payable, accrued expenses and other liabilities	(6,488		)	(10,380		)	Accounts payable, accrued expenses and other liabilities	(30,468)		(18,300)
Net cash provided by continuing operating activities	16,674			30,224
Net cash (used in) provided by continuing operating activities							Net cash (used in) provided by continuing operating activities	(32,343)		16,674
Net cash used in discontinued operating activities	(17,585		)	(6,761		)	Net cash used in discontinued operating activities	(14,022)		(17,585)
Net cash (used in) provided by operating activities	(911		)	23,463
Net cash used in operating activities							Net cash used in operating activities	(46,365)		(911)
INVESTING ACTIVITIES							INVESTING ACTIVITIES
Additions to property, plant and equipment	(9,519		)	(14,902		)	Additions to property, plant and equipment	(9,147)		(9,519)
Proceeds from the sale of property, plant and equipment	99			137			Proceeds from the sale of property, plant and equipment	(122)		99
Proceeds from the sale of business	163,056			—			Proceeds from the sale of business	166,210		163,056
Business acquisition, working capital consideration adjustment	—			6,300
Net cash provided by (used in) continuing investing activities	153,636			(8,465		)
Net cash provided by (used in) discontinued investing activities	(2,435		)	(2,058		)
Net cash provided by (used in) investing activities	151,201			(10,523		)
Proceeds from beneficial interest of factored receivables							Proceeds from beneficial interest of factored receivables	2,212		0

Net cash provided by continuing investing activities							Net cash provided by continuing investing activities	159,153		153,636
Net cash used in discontinued investing activities							Net cash used in discontinued investing activities	(11,338)		(2,435)
Net cash provided by investing activities							Net cash provided by investing activities	147,815		151,201
FINANCING ACTIVITIES							FINANCING ACTIVITIES
Proceeds from long-term debt	231,950			199,600			Proceeds from long-term debt	165,800		231,950
Payments of long-term debt	(379,897		)	(186,874		)	Payments of long-term debt	(279,191)		(379,897)

Proceeds from the exercise of stock options	106			690			Proceeds from the exercise of stock options	117		106
Return of cash to Fluid Handling Seller	—			(61,201		)

Net cash used in continuing financing activities	(147,841		)	(47,785		)	Net cash used in continuing financing activities	(113,274)		(147,841)
Net cash used in discontinued financing activities	—			—

Net cash used in financing activities	(147,841		)	(47,785		)	Net cash used in financing activities	(113,274)		(147,841)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,753		)	(5,154		)	Effect of exchange rate changes on cash, cash equivalents and restricted cash	29		(1,753)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	696			(39,999		)
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH							(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(11,795)		696
Cash, cash equivalents, and restricted cash at beginning of period	69,525			112,293			Cash, cash equivalents, and restricted cash at beginning of period	85,727		69,525
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	70,221		$	72,294		CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	73,932	$	70,221
Non-cash investing activities:							Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	1,236		$	1,574		Purchases of property and equipment included in accounts payable and accrued expenses	$	596	$	1,236

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE QUARTERS ENDED SEPTEMBER 27, 2020 AND SEPTEMBER 29, 2019


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accum-ulated Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance as of June 28, 2020	19,994	$	214	$	449,576	$	(13,982)	$	(87,985)	$	(74,472)	$	273,351
Net loss	—	—		—		(58,524)		—		—		(58,524)
Other comprehensive income, net of tax	—	—		—		—		4,234		—		4,234

Conversion of restricted stock units	4	—		(11)		—		—		—		(11)
Stock options exercised	0	—		0				—		—		0
Share-based plan compensation	—	—		1,786		—		—		—		1,786
Other	—	—		—		(22)		—		—		(22)
Balance as of September 27, 2020	19,998	$	214	$	451,351	$	(72,528)	$	(83,751)	$	(74,472)	$	220,814

Balance as of June 30, 2019	19,902	$	212	$	444,109	$	210,065	$	(85,015)	$	(74,472)	$	494,899
Net loss	—	—		—		(112,337)		—		—		(112,337)
Other comprehensive loss, net of tax	—	—		—		—		(8,370)		—		(8,370)
Conversion of restricted stock units	4	—		(64)		—		—		—		(64)
Stock options exercised	0	—		63		$	—	$	—	$	—	$	63
Share-based plan compensation	—	—		1,229		—		—		—		1,229
Other				(32)								(32)
Balance as of September 29, 2019	19,906	$	212	$	445,305	$	97,728	$	(93,385)	$	(74,472)	$	375,388

Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
Shareholders’
Equity
Shares Amount
Balance as of June 30, 2019 19,902
$ 212
$ 444,109
$ 210,065
$ (85,015 ) $ (74,472 ) $ 494,899
Net loss —
—
—
(112,337 ) —
—
(112,337 )
Other comprehensive income, net of tax —
—
—
—
(8,370 ) —
(8,370 )
Conversion of restricted stock units 4
—
(64 ) —
—
—
(64 )
Stock options exercised —
—
63
—
—
—
63
Share-based plan compensation —
—
1,229
—
—
—
1,229
Other —
—
(32 ) —
—
—
(32 )
Balance as of September 29, 2019 19,906
$ 212
$ 445,305
$ 97,728
$ (93,385 ) $ (74,472 ) $ 375,388

Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock Total
Shareholders’
Equity
Shares
Amount

Balance as of July 1, 2018 19,836
$ 212
$ 442,318
$ 259,947
$ (54,013 ) $ (74,472 ) $ 573,992
Net loss —
—
—
(6,841 ) —
—
(6,841 )
Other comprehensive income, net of tax

—
—
—
5,353
5,353
Conversion of restricted stock units 2
—
(21 ) —
—
—
(21 )
Stock options exercised 6
—
250
—
—
—
250
Share-based plan compensation —
—
1,437
—
—
—
1,437
Other —
—
—
1
—
—
1
Balance as of September 30, 2018 19,844
$ 212
$ 443,984
$ 253,107
$ (48,660 ) $ (74,472 ) $ 574,171
CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2020 AND SEPTEMBER 29, 2019


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accum-ulated Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance as of December 31, 2019	19,912	$	213	$	446,657	$	99,280	$	(80,267)	$	(74,472)	$	391,411
Net loss	—	—		—		(171,564)		—		—		(171,564)
Other comprehensive loss, net of tax	—	—		—		—		(3,484)		—		(3,484)
Cumulative effect adjustment related to adoption of current expected credit loss standard (ASC 326)	—	—		—		(222)		—		—		(222)
Conversion of restricted stock units	83	1		275		—		—		—		276
Stock options exercised	3	—		117		—		—		—		117
Share-based plan compensation	—	—		4,302		—		—		—		4,302
Other	—	—		—		(22)		—		—		(22)
Balance as of September 27, 2020	19,998	$	214	$	451,351	$	(72,528)	$	(83,751)	$	(74,472)	$	220,814







Balance as of December 31, 2018	19,845	$	212	$	440,890	$	232,102	$	(69,739)	$	(74,472)	$	528,993
Net loss	—	—		—		(135,491)		—		—		(135,491)
Other comprehensive loss, net of tax	—	—		—		—		(23,646)		—		(23,646)
Cumulative effect adjustment related to adoption of lease standard (ASC 842)						1,113						1,113
Conversion of restricted stock units	58	—		(20)		—		—		—		(20)
Stock options exercised	3	—		106		—		—		—		106
Share-based plan compensation	—	—		4,361		—		—		—		4,361
Other				$	(32)	$	4					(28)
Balance as of September 29, 2019	19,906	$	212	$	445,305	$	97,728	$	(93,385)	$	(74,472)	$	375,388

Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
Shareholders’
Equity
Shares Amount
Balance as of December 31, 2018 19,845
$ 212
$ 440,890
$ 232,102
$ (69,739 ) $ (74,472 ) $ 528,993
Net loss —
—
—
(135,491 ) —
—
(135,491 )
Other comprehensive income, net of tax —
—
—
—
(23,646 ) (23,646 )
Cumulative effect adjustment related to adoption of lease standard (ASC 842) —
—
—
1,113
—
—
1,113
Conversion of restricted stock units 58
—
(20 ) —
—
—
(20 )
Stock options exercised 3
—
106
—
—
—
106
Share-based plan compensation —
—
4,361
—
4,361
Other —
—
(32 ) 4
—
—
$ (28 )
Balance as of September 29, 2019 19,906
$ 212
$ 445,305
$ 97,728
$ (93,385 ) $ (74,472 ) $ 375,388

Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Treasury Stock
Total
Shareholders’
Equity
Shares Amount
Balance as of December 31, 2017 19,785
$ 212
$ 438,721
$ 274,243
$ (36,730 ) $ (74,472 ) $ 601,974
Net loss —
—
—
(18,380 ) —
—
(18,380 )
Other comprehensive income, net of tax

—
—
—
—
(11,930 ) —
(11,930 )
Cumulative effect adjustment related to adoption of new revenue recognition standard (ASU 2014-09) —
—
—
(2,756 ) —
—
(2,756 )
Conversion of restricted stock units 41
—
270
—
—
—
270
Stock options exercised 18
—
690
—
—
—
690
Share-based plan compensation —
—
4,303
—
—
—
4,303
Balance as of September 30, 2018 19,844
$ 212
$ 443,984
$ 253,107
$ (48,660 ) $ (74,472 ) $ 574,171

CIRCOR INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CIRCOR International, Inc. ("CIRCOR", the "Company", "us", "we" or "our") have been prepared according to the rules and regulations of the United States ("U.S.") Securities and Exchange Commission (“SEC”) for interim reporting, along with accounting principles generally accepted in the U.S ("GAAP"). In the opinion of management, the unaudited, condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary for a fair ~~statement~~presentation of the Company’s results of operations, financial position and cash flows for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.

The condensed consolidated balance sheet as of December 31, ~~2018~~2019 was derived from our audited consolidated financial statements as of that date but does not contain all of the footnote disclosures from the annual financial statements. We recommend that the financial statements included in our Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

We operate and report financial information using a fiscal year ending December 31. The data periods contained within our Quarterly Reports on Form 10-Q reflect the results of operations for the 13-week, 26-week and 39-week periods which generally end on the Sunday nearest the calendar quarter-end date. Operating results for the ~~three and~~ nine months ended September ~~29, 2019~~27, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020 or any future quarter.

We have reclassified certain prior year amounts, including the results of discontinued operations and reportable segment information, to conform to the current year presentation. Unless otherwise indicated, all financial information and statistical data included in these notes to our condensed consolidated financial statements relate to our continuing operations, with dollar amounts expressed in thousands (except share and per-share data).

In March 2020, the World Health Organization declared the outbreak of COVID-19, which continues to spread throughout the U.S. and the world, as a pandemic. The pandemic is having an impact on the global economy, resulting in rapidly changing market and economic conditions. As of March 29, 2020, the Company experienced a significant decline in its market capitalization below its consolidated book value. As a result, management concluded that there was a goodwill and an intangible asset impairment triggering event for the Company in the first quarter of 2020. Through its impairment analysis, the Company determined that goodwill in its Industrial segment was impaired and recognized a $116.2 million impairment. See Note 7, Goodwill and Intangibles, net, for additional information on the goodwill impairment.

The Company expects the effects of the COVID-19 pandemic to continue to negatively impact its results of operations, cash flows and financial position. The Company’s condensed consolidated financial statements presented herein reflect management's estimates and assumptions regarding the effects of COVID-19 as of the date of the condensed consolidated financial statements.

(2) Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September ~~29, 2019~~27, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, except as updated below with respect to newly adopted accounting standards.

of COVID-19, relate to recoverability of goodwill and indefinite-lived trade names, estimated total costs for ongoing long-term revenue contracts where transfer of control occurs over time, inventory valuation, share-based compensation, amortization and impairment of long-lived assets, income taxes (including valuation allowance), penalty accruals for late shipments, other asset valuations, and product warranties. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ materially from those estimates.

New Accounting Standards - Adopted

~~On January 1,~~In December 2019, wethe FASB issued Accounting Standards Update ("ASU")No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective for the fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The Company has early adopted this amendment as of June 28, 2020. The adoption of the standard did not have a material impact to the Company’s condensed consolidated financial position and results of operations as well as related income tax disclosures

In June 2016, the Financial Accounting Standards Board ("FASB") ~~Accounting Standards Update ("ASU"~~issued ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. The new guidance, referred to as the current expected credit loss (“CECL”) ~~2016-02, Leases,~~model, requires the measurement of expected credit losses for financial assets (e.g., accounts receivable) held at the reporting date based on historical experience, current economic conditions, and ~~all related amendments ("ASC 842"), under~~reasonable and supportable forecasts which generally result in the ~~modified retrospective approach.~~ ~~Consequently, periods prior to~~more timely recognition of losses. The adoption of this new guidance on January 1, ~~2019 are not restated for the adoption of ASC 842~~. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

Adoption of the new standard resulted in the recording of additional Right-of-Use ("ROU") assets and lease liabilities of $23.8 million and $24.1 million, respectively, as of January 1, 2019. ROU assets represent our right to use an underlying asset for the lease term, and the lease liabilities represent our obligation to make lease payments arising from the lease. The difference between the additional lease assets and lease liabilities was recorded as an adjustment to deferred rent and prepaid rent. The standard2020 did not ~~materially~~have a material impact on our condensed consolidated ~~net earnings. See Note 5, Leases for further information.~~

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The goodwill impairment test, as amended, will consist of one step comparing the fair value of a reporting unit to its carrying amount. The Company will record an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairments tests performed. The Company has elected to early-adopt this ASU in the current quarter ended September 29, 2019. financial statements.

(3) Discontinued Operations

Discontinued Operations

During the quarter ended September 29, 2019, the Company completed the disposition of its long-cycle upstream oil & gas Engineered Valves ("EV") business ~~for $1.1 million (EUR 1 million), with an earn out of 50 percent of net income over seven years up to a maximum of $20.6 million (EUR 18 million). In addition, during the quarter the Company~~and received approval from its Board of Directors to dispose of the Company’s Distributed Valves ("DV") business in a transaction or transfer to a third-party purchaser or purchasers. The Company has not yet secured a buyer for the DV business but has allocated internal resources to identify potential buyers and evaluate proposals. The Company anticipates completing the disposition within the next twelve months. These actions ~~are~~were consistent with the Company's strategic shift away from upstream oil and gas to focus on more attractive end markets.

The EV and DV businesses met the ~~conditions for~~criteria of discontinued operations ~~as of September 29, 2019~~ and are ~~recorded~~presented as such in the condensed consolidated financial ~~statements. All prior period comparative financial information has been reclassified to conform to this presentation. These businesses were previously part of~~statements for all periods presented.

During the quarter ended June 28, 2020, the Company’s wholly-owned subsidiary, CIRCOR Energy ~~segment.~~

~~The DV business met~~Products LLC ("CEP"), completed the held for sale requirements as of September 29, 2019. Upon classifying the DV business as held for sale, the Company was required in accordance with GAAP to measure the business at the lower of its carrying value or fair value less expected costs to sell. Through this process, the Company determined that the carrying value exceeded fair value as of September 29, 2019, and recognized a write-down of $64.0 million, consisting of goodwill impairment of $6.9 million, intangible asset impairment of $1.0 million and a valuation allowance of $56.1 million to adjust the remaining net assets of the business to its fair value less costs to sell.

~~The Company calculated fair value~~disposition of the DV business ~~using~~to MS Valves GmbH (the “Purchaser”) pursuant to the Securities Purchase Agreement dated June 5, 2020 (the “Purchase Agreement”), for negative $8.25 million and a working capital adjustment of negative $2.0 million at the time of closing. The transaction is subject to an ~~income approach based~~earnout of 50% of net profit (only if positive) from closing through December 31, 2022. The Company has agreed to provide certain transition services for six to twelve months, depending on the ~~present value~~nature of ~~projected future cash flows. This approach incorporates several assumptions including future growth rates, discount rates,~~the services. As part of the transaction, CEP retained certain supplier liabilities and responsibility for closing CEP's Mexico manufacturing facility. As a result of completing the disposition, the Company recognized an additional loss on disposal of $0.4 million during the three months ended September 27, 2020 resulting from the finalization of the working capital adjustment, and a loss on disposal of $21.4 million during the nine months ended September 27, 2020, within discontinued operations. In addition, the Company recognized $0.3 million of net income ~~tax rates, and market activity in assessing fair value. Changes in economic and operating conditions impacting these assumptions could result in additional valuation adjustments~~ in the ~~future.~~three months ended September 27, 2020 from the continuing wind down of the DV business.

The following table presents the summarized components of income (loss) ~~income~~ from discontinued operations ~~for the EV and DV businesses for the three and nine-months ended September 29, 2019 and September 30, 2018 (in thousands):~~

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net revenues $ 15,276
$ 50,305
$ 70,655
$ 127,708
Cost of revenues 18,533
45,305
77,846
113,267
     Gross (loss) profit (3,257 ) 5,000
(7,191 ) 14,441
Selling, general and administrative expenses 2,271
5,562
11,464
17,433
Special and restructuring charges (recoveries), net 100,812
(233 ) 101,614
5,278
     Operating loss (106,340 ) (329 ) (120,269 ) (8,270 )
Other (income):
     Interest (income), net (8 ) (37 ) (14 ) (55 )
     Other (income), net (237 ) —
(74 ) (122 )
      Total other income, net (245 ) (37 ) (88 ) (177 )
Loss from discontinued operations, pre tax (106,095 ) (292 ) (120,181 ) (8,093 )
(Benefit from) provision for income tax (21,407 ) 2,582
(12,609 ) (6,553 )
Loss from discontinued operations, net of tax $ (84,688 ) $ (2,874 ) $ (107,572 ) $ (1,540 )

~~Special and restructuring charges (recoveries), net~~ for the three and nine months ended September 27, 2020 and September 29, 2019 ~~include a $36.7 million loss on~~(in thousands):


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net revenues	$	0	$	15,276	$	10,055	$	70,655
Cost of revenues	0		18,533		26,399		77,846
Gross (loss) profit	0		(3,257)		(16,344)		(7,191)
Selling, general and administrative expenses	0		2,271		9,074		11,464

Special and restructuring charges, net	(938)		100,812		18,189		101,614
Operating (loss) income	938		(106,340)		(43,607)		(120,269)
Other (income) expense:
Interest (income), net	0		(8)		(14)		(14)
Other (income) expense, net	763		(237)		981		(74)
Total other (income) expense, net	763		(245)		967		(88)
Income (loss) from discontinued operations, before income taxes	175		(106,095)		(44,574)		(120,181)
Provision for (benefit from) income tax	(166)		(21,407)		(10,229)		(12,609)
Income (loss) from discontinued operations, net of tax	$	341	$	(84,688)	$	(34,345)	$	(107,572)

Assets Held for Sale

The Company completed the sale ~~of the EV business, a $6.9 million impairment of goodwill associated with the DV business, a $1.0 million impairment of other intangible assets~~ of the DV business during the quarter ended June 28, 2020. The Company completed the sale of its non-core Instrumentation and ~~a $56.1 million adjustment to adjust~~Sampling ("I&S") business during the ~~carrying value~~first quarter of 2020. See Note 5, Special and Restructuring Charges (Recoveries), net for additional information on the I&S business divestiture. As of December 31, 2019, the DV ~~business's~~and I&S businesses are reported as "held for sale" within the current assets ~~held for sale to fair value less expected costs to sell.~~and current liabilities section of our condensed consolidated balance sheet.

The following table presents the balance sheet information for assets and liabilities held for sale as of ~~September 29, 2019 and~~ December 31, ~~2018 (in thousands)~~2019 (in thousands):


	December 31, 2019
	DV		I&S		Total
Trade accounts receivable, net	$	467	$	9,935	$	10,402
Inventories	55,521		13,878		69,399
Prepaid expenses and other current assets	2,867		616		3,483
Property, plant, and equipment, net	6,742		6,409		13,151
Goodwill	0		91,492		91,492

Deferred tax asset	778		1,089		1,867
Other assets	4,793		6,363		11,156
Valuation adjustment on classification to assets held for sale	(39,757)		—		(39,757)
Total assets held for sale	$	31,411	$	129,782	$	161,193

Accounts payable	$	8,708	$	5,997	$	14,705
Accrued and other current liabilities	5,834		2,192		8,026
Deferred income taxes	638		151		789
Other liabilities	13,931		5,838		19,769
Total liabilities held for sale	$	29,111	$	14,178	$	43,289

September 29, 2019 December 31, 2018
Trade accounts receivable, net $ 8,298
$ 28,712
Inventories 57,768
76,740
Prepaid expenses and other current assets 2,570
20,833
Property, plant, and equipment, net 11,316
24,669
Goodwill —
48,972
Intangibles —
18,230
Deferred tax asset —
9,380
Other assets 6,079
76
Valuation adjustment on classification to assets held for sale (56,096 ) —
Total assets held for sale $ 29,935
$ 227,612

Accounts payable $ 9,355
$ 32,536
Accrued and other current liabilities 3,720
23,568
Other liabilities 4,599
3,055
Total liabilities held for sale $ 17,674
$ 59,159

The balance sheet information for assets and liabilities held for sale as of December 31, 2018 includes the balances of the Reliability Services business, which the Company divested in the first quarter of 2019. Included in the table above are assets of $83.4 million and liabilities of $11.1 million related to this business.

(4) Revenue Recognition

~~Our~~The Company's revenue is derived from a variety of contracts. A significant portion of ~~our~~ revenues are from contracts associated with the design, development, manufacture or modification of highly engineered, complex and severe environment products with customers who are either in or service the ~~energy,~~ aerospace, defense and industrial markets. ~~Our contracts~~Contracts within the defense markets are primarily with U.S. military customers. These contracts typically are subject to the Federal Acquisition Regulations (FAR). ~~We account~~The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Contracts may be modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications for goods or services that are not distinct from the existing contract are accounted for as if they were part of that existing contract.

~~Revenue~~For revenue that is recognized from products and services transferred to customers over-time, ~~using~~the Company uses an input measure (e.g., costs incurred to date relative to total estimated costs at completion, known as the “cost-to-cost” method) to measure progress. ~~We generally use~~The Company uses the cost-to-cost measure of progress ~~for our contracts~~ because it best depicts the transfer of control to the customer which occurs as ~~we incur~~it incurs costs on ~~our~~its contracts. Under the cost-to-cost measure of progress, revenues are recorded proportionally as costs are incurred. Contract costs include labor, materials and subcontractors’ costs, other direct costs and an allocation of overhead, as appropriate.

As of September ~~29, 2019, we~~27, 2020, the Company had ~~$425.5~~$415.4 million of revenue related to remaining unfulfilled performance ~~obligations. We expect~~obligations from order backlog. The Company expects to recognize approximately ~~42 percent~~42% of ~~our~~its remaining performance obligations as revenue during the remainder of ~~2019, 44 percent~~2020, 38% in ~~2020,~~2021, and the remaining ~~14 percent~~20% in ~~2021~~2022 and thereafter.

In order to determine revenue recognized in the period from contract liabilities, wethe Company first ~~allocate~~allocates revenue to the individual contract liabilities balances outstanding at the beginning of the period, and continues until the revenue exceeds that balance. If additional advances are received on those contracts in subsequent periods, ~~we assume~~the Company assumes all revenue recognized in the reporting period first applies to the beginning contract liabilities as opposed to a portion applying to the new advances for the period.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating expenses or revenue. There have been no significant changes in estimates in the three and nine months ended September ~~29, 2019.~~27, 2020.

Disaggregation of Revenue. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The following tables present our revenue disaggregated by major product line and geographical market ~~(in thousands)~~(in thousands):


		Three Months Ended				Nine Months Ended
		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019


Aerospace & Defense Segment
	Commercial Aerospace & Other	$	19,142	$	28,640	$	70,657	$	86,467
	Defense	43,107		38,981		119,326		107,088
	Total	62,249		67,621		189,983		193,555
Industrial Segment
	Valves	49,846		85,959		153,489		275,457
	Pumps	74,545		83,472		221,448		252,663
	Total	124,391		169,431		374,937		528,120

Net Revenue		$	186,640	$	237,052	$	564,920	$	721,675

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Energy Segment
EMEA $ 19,046
$ 21,178
$ 63,230
$ 60,731
North America 24,343
38,885
94,248
110,431
Other 12,446
10,655
26,986
34,928
Total 55,835
70,718
184,464
206,090
Aerospace & Defense Segment
EMEA $ 18,309
$ 17,288
$ 52,875
$ 48,144
North America 44,807
39,066
123,685
112,560
Other 4,505
1,403
16,995
13,030
Total 67,621
57,757
193,555
173,734
Industrial Segment
EMEA $ 53,297
$ 56,090
$ 159,473
$ 179,379
North America 37,654
38,206
114,323
112,818
Other 22,645
24,438
69,860
74,733
Total 113,596
118,734
343,656
366,930
Net Revenue $ 237,052
$ 247,209
$ 721,675
$ 746,754

Contract Balances. The Company’s contract assets and contract liabilities balances as of September 27, 2020 and December 31, ~~2018 and September 29,~~ 2019 are as follows ~~(in thousands)~~(in thousands):



	September 27, 2020		December 31, 2019		Increase/(Decrease)

Contract assets:
Recorded within prepaid expenses and other current assets	$	71,918	$	52,781	$	19,137
Recorded within other non-current assets	9,592		0		9,592
	$	81,510	$	52,781	$	28,729

Contract liabilities:
Recorded within accrued expenses and other current liabilities	$	30,226	$	35,007	$	(4,781)
Recorded within other non-current liabilities	11,330		0		11,330
	$	41,556	$	35,007	$	6,549

December 31, 2018 September 29, 2019 Increase/(Decrease)
Trade accounts receivables, net $ 167,181
$ 141,117
$ (26,064 )
Contract assets (1) 46,912
62,613
15,701
Contract liabilities (2) 41,951
45,174
3,223

(1) Recorded within prepaid expenses and other current assets.
(2) Recorded within accrued expenses and other current liabilities.

~~Trade accounts receivable, net decreased by $26.1 million as of September 29, 2019, primarily due to the timing of cash collections during the nine months ended September 29, 2019.~~

Contract assets increased by ~~$15.7~~$28.7 million ~~or 33%,~~during the nine months period ended September 27, 2020, primarily due to ~~$62.6 million primarily driven by~~ unbilled revenue recognized during the ~~nine months ended September 29, 2019~~period for over-time revenue contracts within our ~~Pumps~~Defense business ~~(+21%),~~and Refinery Valves ~~business (+10%) and U.S. Defense business (+10%).~~business.

Contract liabilities increased by ~~$3.2~~$6.5 million ~~or 8%, to $45.2 million as of September 29, 2019, primarily driven by timing of revenue recognized over time~~ during the nine months period ended September ~~29, 2019~~27, 2020, primarily due to invoicing in advance of revenue recognized within our ~~U.S.~~ Defense business ~~(+23%)~~ and ~~Fluid Control business (+14%), offset by decreases within our~~ Refinery Valves ~~business (-22%).~~business.

~~(5) Leases~~

We lease certain office spaces, warehouses, vehicles and equipment. Leases with an initial term of 12-months or less have not been capitalized on the balance sheet. We recognize lease expense associated with these short-term leases on a straight-line basis over the lease term. For lease agreements entered into after the adoption of ASC 842, we combine lease and non-lease fixed components for real estate, vehicles and equipment leases. We do not combine lease and non-lease components for information technology leases. Variable lease costs were not included within the measurement of the lease liability as they were entirely variable or the difference between the portion captured within the lease liability and the actual cost will be expensed as incurred. Variable costs are contractually obligated and relate primarily to common area maintenance and taxes, which were not material to the financial statements.

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward the historical lease classification, not to reassess if existing contracts are or contain leases, and not to reassess indirect costs for existing leases.

~~We have elected not to recast the comparable periods and rather used the effective adoption date of the standard as the date of initial application.~~

Leases which contain a renewal option to extend an existing lease term, or a termination option to end a lease early are exercisable at our sole discretion. We evaluate such leases to determine if we are reasonably certain to exercise the option. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

~~Our lease agreements do not contain any material residual value guarantees.~~

In determining the present value of lease payments, we use the implicit borrowing rate in the lease, if available. In cases where a lease does not provide an implicit borrowing rate, we use the incremental borrowing rate based on available information at the commencement date. As of September 29, 2019, none of our existing leases provided an implicit borrowing rate. We give consideration to our debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Additionally, we perform an entity-level financial assessment along with risk assessment by country or jurisdiction in the determination of our incremental borrowing rate. We will update our financial and risk assessments periodically. We will reassess lease classification and / or remeasure the lease liability in the event of the following: changes in assessment of renewal, termination or purchase option based on triggering events within our control, change in amounts probable of being owed under a residual guarantee, or contingency resolution.

~~The balance sheet impact at September 29, 2019 is as follows (in thousands):~~

Leases
Assets Operating Finance
Gross ROU Assets (1) $ 20,221
$ 2,842
Less: Accumulated Amortization (3,557 ) (246 )
Net ROU Assets $ 16,664
$ 2,596

Liabilities Operating Finance
Current (2) $ 3,910
$ 403
Non-current (3) 12,984
2,252
Total Lease Liabilities $ 16,894
$ 2,655

(1) Operating and Finance ROU Assets are included within other assets on the balance sheet.
(2) The current portion of operating and finance lease liabilities are recorded within accrued expenses and other current liabilities on the balance sheet.
(3) The non-current portion of operating and finance lease liabilities are recorded within other non-current liabilities on the balance sheet.

~~The components of lease costs are as follows (in thousands):~~

Three Months Ended Nine Months Ended
Lease Costs September 29, 2019 September 29, 2019
Operating lease cost (1) $ 1,578
$ 4,211

Finance lease cost
Amortization of leased assets (2) 78
174
Interest on lease liabilities (3) 15
25
Total finance lease costs 93
199
Total lease cost $ 1,671
$ 4,410

(1) Operating lease costs are recorded within selling, general and administrative expenses or cost of revenue within the condensed consolidated statements of (loss) income depending upon the nature of the underlying lease.
(2) Finance lease amortization costs are recorded in selling, general and administrative expenses within the condensed consolidated statements of (loss) income.
(3) Finance lease interest costs are recorded in interest expense, net within the condensed consolidated statements of (loss) income.

~~Short-term lease expense and variable lease cost for the three and nine months ended September 29, 2019 were not significant.~~

~~The estimated future minimum lease payments only include obligations for which we are reasonably certain to exercise our renewal option. Such future payments are as follows (in thousands):~~

Maturity of Lease Liabilities Operating Finance Total
2019 $ 1,594
$ 101
$ 1,695
2020 4,403
404
4,807
2021 3,377
404
3,781
2022 2,521
392
2,913
2023 1,966
392
2,358
After 2023 5,158
1,187
6,345
Less: Interest (2,125 ) (225 ) (2,350 )
Present value of lease liabilities $ 16,894
$ 2,655
$ 19,549

~~The weighted average remaining lease term and discount rates are as follows:~~



~~Lease Term and Discount Rate~~	~~September 29, 2019~~
~~Weighted average remaining lease term (years)~~
~~Operating leases~~	~~6.2~~
~~Finance leases~~	~~7.3~~
~~Weighted average discount rate (percentage)~~
~~Operating leases~~	~~4.4~~	%
~~Finance leases~~	~~2.0~~	%

~~Supplemental cash flow information related to leases are as follows (in thousands):~~

Other Information September 29, 2019
Operating Activities
Noncash lease expense on operating ROU assets $ (16,664 )
Amortization expense on finance ROU assets 174
Change in total operating lease liabilities 16,894
Principal paid on operating lease liabilities (3,767 )
Total Operating Activities $ (3,363 )
Financing Activities
Principal paid on finance lease liabilities $ (183 )
Supplemental
Interest Paid on finance lease liabilities $ 24

~~As of September 29, 2019, the Company has not entered into any lease agreements with related parties.~~

~~Operating Lease Commitments Disclosure under ASC 840~~

~~Minimum rental commitments due under non-cancelable operating leases, primarily for office and warehouse facilities, were as follows at December 31, 2018 (in thousands):~~

2019 2020 2021 2022 2023 Thereafter
Minimum lease commitments $ 6,296
$ 4,079
$ 2,740
$ 1,595
$ 914
$ 946

~~(6)~~(5) Special and Restructuring Charges (Recoveries), net

Special and restructuring charges (recoveries), net

Special and restructuring charges (recoveries), net consist of restructuring costs (including costs to exit a product line or program) as well as certain special charges (recoveries) such as significant litigation settlements and other transactions (charges or recoveries) that are described below. All items described below are recorded in Special and restructuring charges (recoveries), net on our condensed consolidated statements of ~~(loss) income.~~operations. Certain other special and restructuring charges (recoveries) such as inventory related items may be recorded in cost of revenues given the nature of the item.

The table below ~~(in thousands)~~ summarizes the amounts recorded within the special and restructuring charges (recoveries), net line item on the condensed consolidated statements of ~~(loss) income~~operations for the three and nine months ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018:~~(in thousands):


	Special & restructuring charges (recoveries), net
	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Special charges (recoveries), net	$	436	$	18,481	$	(39,720)	$	14,198
Restructuring charges, net	502		5,038		3,973		5,695
Total special and restructuring charges (recoveries), net	$	938	$	23,519	$	(35,747)	$	19,893

Special & restructuring charges, net
Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019
September 30, 2018
Special charges, net $ 18,481
$ 1,898
$ 14,198
$ 5,922
Restructuring charges, net 5,038
1,090
5,695
6,002
Total special and restructuring charges, net $ 23,519
$ 2,988
$ 19,893
$ 11,924

Special charges (recoveries), net

The table below ~~(in thousands) outlines~~details the special charges (recoveries), net recorded for the three and nine months ended September ~~29, 2019:~~27, 2020 (in thousands):


	Special charges, net
	Three Months Ended September 27, 2020
		Aerospace & Defense		Industrial		Corporate		Total
I&S divestiture		$	—	$	—	$	249	$	249


Other special charges		—		—		187		187
Total special charges, net		$	—	$	—	$	436	$	436

		Special (recoveries) charges, net
		Nine Months Ended September 27, 2020
		Aerospace & Defense		Industrial		Corporate		Total
I&S divestiture		$	—	$	(53,202)	$	(57)	$	(53,259)
Professional fees		—		—		6,925		6,925
Amortization of debt issuance fee		—		—		3,541		3,541
Other special charges		—		101		2,972		3,073
Total special (recoveries) charges, net		$	—	$	(53,101)	$	13,381	$	(39,720)

Special charges (recoveries), net
For the three months ended September 29, 2019
Energy Aerospace & Defense Industrial Corporate

Total
Business sales $ 1,859
$ —
$ 9,785
$ —
$ 11,644
Professional fees to review and respond to an unsolicited tender offer to acquire the Company —
—
—
3,953
3,953
Other cost savings initiatives 2,085
—
—
799
2,884
Total special charges (recoveries), net $ 3,944
$ —
$ 9,785
$ 4,752
$ 18,481

Special charges (recoveries), net
For the nine months ended September 29, 2019
Energy Aerospace & Defense Industrial Corporate

Total
Business sales $ (5,868 ) $ —
$ 9,938
$ 286
$ 4,356
Professional fees to review and respond to an unsolicited tender offer to acquire the Company —
—
—
6,028
6,028
Other cost savings initiatives 2,085
—
—
1,729
3,814
Total special (recoveries) charges, net $ (3,783 ) $ —
$ 9,938
$ 8,043
$ 14,198

I&S divestiture: The Company recorded net special charges of $0.2 million and recoveries of $(53.3) million for the three and nine months ended September 27, 2020, attributed to the sale of the I&S business in January 2020. During the quarter ended March 29, 2020, the Company received net cash proceeds of $169.8 million and recognized a pre-tax gain on sale of $54.6 million.

Professional fees: The Company incurred special charges of $6.9 million for the nine months ended September 27, 2020, respectively, associated with the review and response to an unsolicited tender offer to acquire the Company and related corporate governance actions, and for other proxy-related matters.

Amortization of debt issuance fee: The Company incurred special charges of $3.5 million for the nine months ended September 27, 2020, for accelerated amortization of capitalized debt issuance costs in connection with the accounting for the paydown and refinancing of its term loan during the first quarter of 2020. See Note 9, Financing Arrangements, for additional information on our debt repricing.

Other special charges: The Company incurred special charges of $0.2 million and $3.1 million for the three and nine months ended September 27, 2020, respectively, associated with projects to streamline operations and reduce costs.

The table below details the special charges, net recorded for the three and nine months ended September 29, 2019 (in thousands):


	Special charges, net
	Three Months Ended September 29, 2019
		Aerospace & Defense		Industrial		Corporate		Total
Business sales		$	—	$	11,644	$	0	$	11,644
Professional fees		—		—		3,953		3,953
Other cost savings initiatives		—		532		2,352		2,884
Total special charges, net		$	—	$	12,176	$	6,305	$	18,481

	Special (recoveries) charges, net
	Nine Months Ended September 29, 2019
		Aerospace & Defense		Industrial		Corporate		Total
Business sales		$	—	$	4,070	$	286	$	4,356
Professional fees		—		—		6,028		6,028
Other cost savings initiatives		—		532		3,282		3,814
Total special charges, net		$	—	$	4,602	$	9,596	$	14,198

Business sales: The Company incurred net special charges of $11.6 million and $4.4 million for the three and nine months ended September 29, 2019, respectively, attributed to the sale of our Reliability Services, Spence Engineering and Rosscor businesses. The Company announced the divestitures of these businesses as follows: Spence Engineering Company ("Spence") and Leslie Controls ("Leslie") in August 2019, Reliability Services in January 2019, and our Rosscor B.V. and SES International B.V. subsidiaries (the "Delden Business" or "Rosscor") in November 2018. During the quarter ended September 29, 2019, wethe Company received cash proceeds of $84.6 million and recognized a loss on sale of $8.2 million related to the Spence

divestiture. The ~~Energy~~Industrial segment incurred $1.5 million of 2019 operating expenses associated with the Reliability Services business, which are presented net within ~~Energy's~~Industrial's business sales recoveries line for the nine months ended September 29, 2019.

Professional fees: The Company incurred special charges of $4.0 million and $6.0 million for the three and nine months ended September 29, 2019, respectively, associated with the review and response to an unsolicited tender offer to acquire the Company.

Other cost savings initiatives: The Company incurred special charges of $2.9 million and $3.8 million for the three and nine months ended September 29, 2019, respectively, associated with projects to streamline operations and reduce costs.

~~The table below (in thousands) outlines the special charges, net recorded for the three and nine months ended September 30, 2018:~~

Special Charges, net
For the three months ended September 30, 2018
Energy Aerospace & Defense Industrial Corporate

Total
Acquisition related charges $ —
$ —
$ —
$ 1,210
$ 1,210
Other 490
—
—
—
490
Brazil closure 198
—
—
—
198
Total special charges, net $ 688
$ —
$ —
$ 1,210
$ 1,898

Special Charges, net
For the nine months ended September 30, 2018
Energy Aerospace & Defense Industrial Corporate

Total
Acquisition related charges

$ —
$ —
$ —
$ 4,665
$ 4,665
Other 527
—
—
—
527
Brazil closure

730
—
—
—
730
Total special charges, net $ 1,257
$ —
$ —
$ 4,665
$ 5,922

~~Acquisition related charges:~~

Restructuring charges, net

The tables below ~~(in thousands) outline~~detail the charges associated with restructuring actions recorded for the three and nine months ended September 27, 2020 and September 29, 2019 (in thousands). Accruals associated with the restructuring actions are recorded within Accrued expenses and ~~September 30, 2018.~~other current liabilities on the condensed consolidated balance sheets. A description of the restructuring actions is provided in the section titled "Restructuring Programs Summary" ~~below.~~below (in thousands):


	Restructuring charges, net
	As of and for the three months ended September 27, 2020
	Aerospace & Defense		Industrial		Corporate		Total
Facility related expenses	$	7	$	154	$	0	$	161
Employee related expenses, net	173		151		17		341
Total restructuring charges, net	$	180	$	305	$	17	$	502






	Restructuring charges, net
	As of and for the nine months ended September 27, 2020
	Aerospace & Defense		Industrial		Corporate		Total
Facility related expenses	$	37	$	154	$	0	$	191
Employee related expenses, net	342		3,084		356		3,782
Total restructuring charges, net	$	379	$	3,238	$	356	$	3,973

Accrued restructuring charges as of December 31, 2019							$	5,199
Total year to date charges, net (shown above)							3,973
Charges paid / settled, net							(6,664)
Accrued restructuring charges as of September 27, 2020							$	2,508

Restructuring charges, net
As of and for the three months ended September 29, 2019
Energy Aerospace & Defense Industrial Corporate

Total
Facility related expenses $ 209
$ 62
$ 749
$ —
$ 1,020
Employee related expenses, net —
—
4,018
—
4,018
Total restructuring charges, net $ 209
$ 62
$ 4,767
$ —
$ 5,038

Accrued restructuring charges as of June 30, 2019 $ 491
Total quarter to date charges, net (shown above) 5,038
Charges paid / settled, net (707 )
Accrued restructuring charges as of September 29, 2019 $ 4,822

Restructuring charges, net
As of and for the nine months ended September 29, 2019
Energy Aerospace & Defense Industrial Corporate

Total
Facility related expenses $ 312
$ 279
$ 749
$ —
$ 1,340
Employee related expenses, net 17
(3 ) 4,341
—
4,355
Total restructuring charges, net $ 329
$ 276
$ 5,090
$ —
$ 5,695

Accrued restructuring charges as of December 31, 2018 $ 874
Total year to date charges, net (shown above) 5,695
Charges paid / settled, net (1,747 )
Accrued restructuring charges as of September 29, 2019 $ 4,822

~~We expect~~The Company expects to make payment or settle the majority of the restructuring charges accrued as of September ~~29, 2019~~27, 2020 during the ~~fourth quarter of 2019.~~next six months.


	Restructuring charges, net
	As of and for the three months ended September 29, 2019
	Aerospace & Defense		Industrial		Corporate		Total
Facility related expenses	$	62	$	32	$	177	$	271
Employee related expenses	0		4,767		0		4,767
Total restructuring charges, net	$	62	$	4,799	$	177	$	5,038






	Restructuring charges, net
	As of and for the nine months ended September 29, 2019
	Aerospace & Defense		Industrial		Corporate		Total
Facility related expenses	$	279	$	32	$	177	$	488
Employee related expenses	(3)		5,210		0		5,207
Total restructuring charges, net	$	276	$	5,242	$	177	$	5,695

Accrued restructuring charges as of December 31, 2018							$	874
Total year to date charges, net (shown above)							5,695
Charges paid / settled, net							(1,747)
Accrued restructuring charges as of September 29, 2019							$	4,822

Restructuring charges, net
As of and for the three months ended September 30, 2018
Energy Aerospace & Defense Industrial Corporate

Total
Facility related expenses $ 619
$ 60
$ —
$ —
$ 679
Employee related expenses 131
—
280
—
411
Total restructuring charges, net $ 750
$ 60
$ 280
$ —
$ 1,090

Accrued restructuring charges as of July 1, 2018 $ 785
Total quarter to date charges, net (shown above) 1,090
Charges paid / settled, net (1,345 )
Accrued restructuring charges as of September 30, 2018 $ 530

Restructuring charges, net
As of and for the nine months ended September 30, 2018
Energy Aerospace & Defense Industrial Corporate

Total
Facility related expenses $ (2,812 ) $ 190
$ —
$ —
$ (2,622 )
Employee related expenses 7,135
—
1,489
—
8,624
Total restructuring charges, net $ 4,323
$ 190
$ 1,489
$ —
$ 6,002

Accrued restructuring charges as of December 31, 2017 $ 883
Total year to date charges, net (shown above) 6,002
Charges paid / settled, net (6,355 )
Accrued restructuring charges as of September 30, 2018 $ 530

Restructuring Programs Summary

The Company recorded $0.5 million and $4.0 million of restructuring charges during the three months and nine months ended September 27, 2020, respectively, to reduce expenses primarily through reductions in force and to close a sales location to consolidate operations.

During the three and nine months ended September 29, 2019, the Company recorded $5.0 million and $5.7 million of restructuring charges, respectively, related to the program it initiated during 2018.

Inventories consisted of the following ~~(in thousands)~~(in thousands):


	September 27, 2020		December 31, 2019
Raw materials	$	73,540	$	65,315
Work in process	45,191		53,891
Finished goods	25,745		18,103
Total inventories	$	144,476	$	137,309

September 29, 2019 December 31, 2018
Raw materials $ 73,568
$ 66,391
Work in process 53,127
58,911
Finished goods 25,049
18,380
Total inventories $ 151,744
$ 143,682

~~(8)~~(7) Goodwill and Intangibles, net

The following table shows goodwill by segment as of December 31, ~~2018~~2019 and September 27, 2020 (~~September 29, 2019~~in thousands ~~(in thousands)~~):


	Aerospace & Defense		Industrial		Total
Goodwill as of December 31, 2019	$	57,385	$	214,508	$	271,893
Impairment	—		(116,182)		(116,182)
Currency translation adjustments	119		2,287		2,406
Goodwill as of September 27, 2020	$	57,504	$	100,613	$	158,117

Energy Aerospace & Defense Industrial

Total
Goodwill as of December 31, 2018 $ 96,272
$ 57,418
$ 296,915
$ 450,605
Spence divestiture —
—
(85,474 ) (85,474 )
Currency translation adjustments (6,794 ) (67 ) 2,034
(4,827 )
Goodwill as of September 29, 2019 $ 89,478
$ 57,351
$ 213,475
$ 360,304

The Company performs an impairment assessment for goodwill at the reporting unit level on an annual basis as of the end of our October month end, or more frequently if circumstances warrant. At September 27, 2020, the Company performed a review and determined there were no triggering events requiring an impairment assessment. At March 29, 2020, the Company reorganized its reporting units (see Note 8, Segment Information) and had its stock price drop below book value, which the Company determined were triggering events requiring an assessment of its goodwill and indefinite-lived trade names.

For the assessment of goodwill as of March 29, 2020, the Company estimated the fair value of our 2 reporting units, Industrial and Aerospace & Defense, using an income approach based on the present value of future cash flows. The Company also utilized the implied market value method under the market approach to validate the fair value amount it obtained using a discounted cash flow model income approach which indicated a control premium. Management believes this approach was the best approximation of fair value of its reporting units in the current economic environment considering the uncertainty caused by the COVID-19 pandemic. The key assumptions utilized in our discounted cash flow model include our estimates of the rate of revenue growth, including the rate of growth used in terminal year value, the assumption of a control premium, and the discount rate based on a weighted average cost of capital. The relevant inputs, estimates and assumptions used in the implied market value method include our market capitalization as of March 29, 2020, and selection of a control premium. The Company believes its assumptions used to determine the fair value of its reporting unit are reasonable and consistent with market conditions at the time of estimation. Actual operating results and the related cash flows of the reporting units could differ from the estimated operating results and related cash flows.

Based on our impairment assessment as of March 29, 2020, the Company concluded that its goodwill in the Industrial reporting unit was impaired and, accordingly, recorded a goodwill impairment charge of $116.2 million. There was no impairment identified with respect to the Company's indefinite-lived trade name assets.

Due to the presence of impairment indicators, the Company also performed an impairment test of each reporting unit’s long-lived assets. This impairment evaluation was based on expectations of future undiscounted cash flows compared to the carrying value of the long-lived assets. The Company’s cash flow estimates were consistent with those used in the goodwill impairment

test discussed above. Based on this analysis, the undiscounted cash flows of our long-lived assets were in excess of their carrying value and thus deemed to be recoverable. The Company believes its procedures for estimating future cash flows were reasonable and consistent with market conditions at the time of estimation. As such, management determined that its long-lived assets other than goodwill were not impaired and that the long-lived assets did not suffer a decline in utility requiring a reassessment of their useful lives.

The table below presents gross intangible assets and the related accumulated amortization as of September 27, 2020 (~~September 29, 2019~~in thousands ~~(in thousands)~~):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Patents	$	5,368	$	(5,368)	$	0
Customer relationships	302,366		(102,410)		199,956
Backlog	13,700		(13,182)		518
Acquired technology	136,256		(55,575)		80,681

Total Amortized Intangibles	$	457,690	$	(176,535)	$	281,155

Non-amortized intangibles (primarily trademarks and trade names)	$	75,883	$	0	$	75,883
Total Non-Amortized Intangibles	$	75,883	$	—	$	75,883
Net carrying value of intangible assets					$	357,038

Gross
Carrying
Amount

Accumulated
Amortization
Net Carrying Value
Patents $ 5,399
$ (5,399 ) $ —
Customer relationships 295,833
(72,217 ) 223,616
Backlog 22,407
(22,312 ) 95
Acquired technology 133,348
(39,183 ) 94,165
Other 398
(398 ) —
Total Amortized Assets $ 457,385
$ (139,509 ) $ 317,876

Non-amortized intangibles (primarily trademarks and trade names) $ 74,639
$ —
$ 74,639
Total Non-Amortized Intangibles $ 74,639
$ —
$ 74,639
Net carrying value of intangible assets

$ 392,515

The table below presents estimated remaining amortization expense for intangible assets recorded as of September 27, 2020 ~~September 29, 2019~~ ~~(in~~(in thousands):


	2020		2021		2022		2023		2024		After 2024
Estimated amortization expense	$	11,186	$	41,738	$	36,711	$	32,182	$	28,272	$	131,066

2019 2020 2021 2022 2023 After 2023
Estimated amortization expense $ 11,919
$ 43,242
$ 41,525
$ 36,534
$ 32,026
$ 152,630

~~(9)~~(8) Segment Information

Our Chief Operating Decision Maker (the "CODM") evaluates segment operating performance using segment operating income. Segment operating income is defined as GAAP operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to December 31, 2011, the impact of restructuring related inventory write-offs, impairment charges and special charges or gains. The Company also refers to this measure as adjusted operating income. The Company uses this measure because it helps management understand and evaluate the segments’ core operating results and serves as the basis for determining incentive compensation achievement.

~~We organize~~During the quarter ended March 29, 2020, the Company divested its I&S business, which was previously part of the Energy segment. See Note 5, Special and Restructuring Charges (Recoveries), net for additional information on this divestiture. In light of this divestiture, effective March 29, 2020, the Company realigned our segments by eliminating the Energy segment and moving the remaining businesses into the Industrial segment. The new reporting ~~structure into three segments: Energy,~~segments are Industrial and Aerospace & Defense, which is the level at which the CODM regularly reviews operating results. The current and ~~Industrial.~~prior periods are reported under this new segment structure.

The following table presents certain reportable segment information ~~(in thousands)~~(in thousands):


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net revenues
Aerospace & Defense	$	62,249	$	67,621	$	189,983	$	193,555
Industrial	124,391		169,431		374,937		528,120
Consolidated net revenues	$	186,640	$	237,052	$	564,920	$	721,675

Results from continuing operations before income taxes
Aerospace & Defense - Segment Operating Income	$	14,782	$	13,564	$	40,418	$	33,382
Industrial - Segment Operating Income	9,807		21,278		27,383		70,033
Corporate expenses	(7,244)		(9,248)		(23,496)		(25,798)
Segment Operating Income	17,345		25,594		44,305		77,617
Restructuring charges, net	502		5,038		3,973		5,695
Special charges (recoveries), net	436		18,481		(39,720)		14,198
Special and restructuring charges (recoveries), net	938		23,519		(35,747)		19,893
Divestiture and inventory related restructuring charges and (recoveries), net	351		(1,145)		(250)		(819)

Impairment charges	0		0		116,182		0
Acquisition amortization	10,625		11,202		31,523		34,527
Acquisition depreciation	1,011		1,102		2,965		3,331
Acquisition amortization and other costs, net	11,987		11,159		150,420		37,039
Consolidated Operating Income (loss)	4,420		(9,084)		(70,368)		20,685
Interest expense, net	8,202		11,804		25,699		37,846
Other (income) expense, net	765		(759)		229		(2,755)

(Loss) income from continuing operations before income taxes	$	(4,547)	$	(20,129)	$	(96,296)	$	(14,406)


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Capital expenditures
Aerospace & Defense	$	1,236	$	1,826	$	2,562	$	3,204
Industrial	1,085		1,980		5,642		5,259
Corporate	31		222		361		877
Consolidated capital expenditures	$	2,352	$	4,028	$	8,565	$	9,340

Depreciation and amortization
Aerospace & Defense	$	3,142	$	3,145	$	9,322	$	8,593
Industrial	12,500		13,883		37,661		43,487
Corporate	85		152		316		483
Consolidated depreciation and amortization	$	15,727	$	17,180	$	47,299	$	52,563

Identifiable assets	September 27, 2020		December 31, 2019
Aerospace & Defense	$	433,922	$	426,405
Industrial	1,390,523		1,943,002
Corporate	(679,238)		(898,462)

Consolidated identifiable assets	$	1,145,207	$	1,470,945

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019
September 30, 2018
Net revenues
Energy $ 55,835

$ 70,718
$ 184,464
$ 206,090
Aerospace & Defense 67,621
57,757
193,555
173,734
Industrial 113,596
118,734
343,656
366,930
Consolidated net revenues $ 237,052
$ 247,209
$ 721,675
$ 746,754

Results from continuing operations before income taxes
Energy - Segment Operating Income $ 5,286

$ 9,726
$ 23,607
$ 26,044
Aerospace & Defense - Segment Operating Income 13,564
8,709
33,382
24,631
Industrial - Segment Operating Income 13,953
14,609
40,878
42,592
Corporate expenses (7,209 ) (8,034 ) (20,250 ) (22,284 )
Segment Operating Income 25,594
25,010
77,617
70,983
Restructuring charges, net 5,038
1,090
5,695
6,002
Special charges, net 18,481
1,898
14,198
5,922
Special and restructuring charges, net 23,519
2,988
19,893
11,924
Restructuring related inventory charges (1,145 ) —
(819 ) 488
Amortization of inventory step-up —
—
—
6,600
Acquisition amortization 11,202
11,734
34,527
35,299
Acquisition depreciation 1,102
1,743
3,331
5,314
Acquisition amortization and other costs, net 11,159
13,477
37,039
47,701
Consolidated Operating (Loss) Income (9,084 ) 8,545
20,685
11,358
Interest expense, net 11,804
14,137
37,846
39,711
Other income, net (759 ) (1,580 ) (2,755 ) (7,079 )
Loss from continuing operations before income taxes $ (20,129 ) $ (4,012 ) $ (14,406 ) $ (21,274 )

Three Months Ended Nine Months Ended
September 29, 2019
September 30, 2018
September 29, 2019
September 30, 2018
Capital expenditures
Energy $ 487
$ 1,842
$ 1,686
$ 4,724
Aerospace & Defense 1,826
1,320
3,204
3,161
Industrial 1,602
910
3,968
6,760
Corporate 222
187
877
574
Consolidated capital expenditures $ 4,137
$ 4,259
$ 9,735
$ 15,219

Depreciation and amortization
Energy $ 2,755
$ 3,390
$ 8,440
$ 10,364
Aerospace & Defense 3,145
2,716
8,579
8,244
Industrial 11,149
12,337
35,033
37,158
Corporate 131
171
416
592
Consolidated depreciation and amortization $ 17,180
$ 18,614
$ 52,468
$ 56,358

Identifiable assets September 29, 2019 September 30, 2018
Energy $ 499,463
$ 905,708

Aerospace & Defense 436,120
642,431

Industrial 1,391,897
1,020,849

Corporate (859,349 ) (756,138 )
Consolidated identifiable assets $ 1,468,131
$ 1,812,850

The total assets for each reportable segment have been reported as the Identifiable Assets for that segment, including inter-segment intercompany receivables, payables and investments in other CIRCOR ~~companies.~~subsidiaries. Identifiable assets reported in Corporate include both corporate assets, such as cash, deferred taxes, prepaid and other assets, fixed assets, as well as the elimination of all inter-segment intercompany assets. The elimination of intercompany assets results in negative amounts reported in Corporate for

Identifiable Assets. Corporate Identifiable Assets excluding intercompany assets were ~~$12.8~~$2.4 million and ~~$28.2~~$6.4 million as of September ~~29,~~27, 2020 and December 31, 2019, ~~and September 30, 2018,~~ respectively.

(9) Financing Arrangements

~~(10) Financial Instruments~~

Fair Value

The ~~company~~Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

•Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

•

~~Level One~~

•Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

~~: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.~~


•	~~Level Two~~: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	~~Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The aggregate fair value ~~measurements~~ of the Company's ~~financial instruments~~interest rate swap, cross-currency swap, and foreign currency forward contract as of September ~~29, 2019~~27, 2020 are summarized in the table below ~~(in thousands)~~(in thousands):


	Level 2 - Significant Other Observable Inputs


Derivative assets	$	2,335
Derivative liabilities	$	(13,642)

Significant Other Observable Inputs
Derivative assets $ 4,345
Derivative liabilities $ (10,160 )

The carrying amounts of cash and cash equivalents, restricted cash, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. Cash equivalents are carried at cost which approximates fair value at the balance sheet date and is a Level 1 financial instrument. As of September ~~29, 2019 and December 31, 2018,~~27, 2020, the ~~outstanding balance of the Company’s debt approximated~~ fair value ~~based on current rates available to the Company for~~of our gross debt (before netting debt issuance costs) was $532.0 million, or $8.5 million below our carrying cost of ~~the same maturity~~$540.5 million and is a Level 2 financial instrument.

Financial Instruments

As of September ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, the Company had restricted cash balances of ~~$1.0~~$1.2 million and ~~$2.3~~$1.2 million, respectively. These balances are recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets, and are included within cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows.

~~During the third quarter of 2019, the~~The Company ~~entered into~~has a ~~receivables~~receivable purchasing agreement with a bank whereby the Company can sell selected ~~account receivables~~accounts receivable and ~~receive~~obtain between 90% and 100% of the purchase price upfront, net of applicable discount fee, and the ~~remaining 10%~~residual amount as the receivables are collected. The Company services the collection of the outstanding receivables. During the ~~quarter,~~three and nine months ended September 27, 2020, the Company sold a total of $12.6 million and $41.8 million, respectively, of receivables under the program, receiving $11.9 million and $39.3 million, respectively, in upfront cash. During the nine months ended September 29, 2019, the Company sold a total of $13.5 million inof receivables ~~under the program, receiving~~and received $12.1 million in ~~cash. The outstanding purchase price component~~cash upfront. At September 27, 2020, a beneficial interest balance of ~~$1.4~~$0.7 million was recorded in prepaid expenses and other current assets on the condensed consolidated balance ~~sheet at September 29, 2019.~~sheet.

~~Effective July 12, 2019, the~~The Company ~~entered into~~has a cross-currency swap ~~("cross-currency swap")~~ agreement to hedge its net investment in non-U.S. subsidiaries against future volatility in exchange rates between the U.S. dollar and the Euro. The cross-currency swap agreement is pursuant to an ~~ISDA~~International

Swaps and Derivatives Association ("ISDA") Master Agreement with Deutsche Bank AG. The three-year cross-currency swap has a fixed notional value of $100.0 million at an annual rate of 2.4065% and a maturity date of July 12, 2022. At inception, the cross-currency swap was designated as a net investment hedge. This hedging agreement ~~was entered into to mitigate~~mitigates foreign currency exchange rate exposure on the Company's net investment in Euro denominated subsidiaries and is not for speculative trading purposes. The net investment hedge was deemed effective as of quarter-end.

The Company has an interest rate swap pursuant to an ISDA Master Agreement with Citizens Bank, National Association. The four-year interest rate swap has a fixed notional value of $400.0 million with a 1% LIBOR floor (in line with the Company's credit agreement) and a maturity date of April 12, 2022. The fixed rate of interest paid by the Company is comprised of our current credit spread of 325 basis points plus 2.6475% for a total interest rate of 5.8975%. The ISDA Master Agreement, together with its related schedules, contains customary representations, warranties, and covenants.

The Company has designated the interest rate swap as a qualifying hedging instrument and is treating it as a cash flow hedge for accounting purposes pursuant to ASC 815, Derivatives and Hedging. The aggregate net fair value of the interest rate swap, ~~and~~

cross-currency swap, and foreign currency forward contract was ~~$(5.8)~~a liability position of $(11.3) million. These balances are recorded in other ~~long-term~~non-current liabilities of $6.5 million, accrued expenses and other current liabilities of ~~$3.7~~$7.1 million, and prepaid expenses and other current assets of ~~$2.6 million and long-term deferred tax asset of $1.7~~$2.3 million on our condensed consolidated balance sheet as of September ~~29, 2019.~~ 27, 2020.

The ~~unrealized~~amount of gains ~~or (losses)~~(loss) recognized in other comprehensive (loss) income ("OCI") and reclassified from accumulated other comprehensive (loss)~~, net~~ income ("AOCI") to income are summarized below (in thousands):


	Three Months Ended		Nine Months Ended
	September 27, 2020		September 27, 2020
Amount of loss recognized in OCI	$	(293)	$	(5,081)

Amount of loss reclassified from AOCI to earnings	$	1,666	$	4,423

Losses of ~~tax, were $2.2~~$1.7 million and ~~$(5.0)~~$4.4 million ~~for the three and nine months ended September 29, 2019, respectively. The realized loss of $0.4 million and $0.8 million was~~were reclassified from ~~other comprehensive income (loss)~~AOCI to interest expense ~~as interest expense was accrued on the swap~~ during the three and nine months ended September ~~29, 2019,~~27, 2020, respectively. Amounts expected to be reclassified from ~~other comprehensive income~~AOCI into interest expense in the coming 12 months is a loss of ~~$3.7~~$6.4 million. Interest expense (including the effects of the cash flow hedges) related to the portion of the Company's term loan subject to the aforementioned interest-rate swap agreement was ~~$6.2~~$6.0 million and ~~$18.6~~$18.0 million for the three and nine months ended September 27, 2020, respectively.

The Company also uses forward contracts to manage foreign currency risk on certain business transactions denominated in foreign currencies. To the extent the underlying transactions hedged are completed, these forward contracts do not subject us to significant risk from foreign exchange rate movements because they offset gains and losses on the related foreign currency denominated transactions. These forward contracts do not qualify for fair value or cash flow hedge treatment. Any gains and losses on our foreign currency forward contracts not designated as accounting hedges are recognized as a component of other expense in our condensed consolidated statements of income.

As of September 27, 2020, the Company had one EUR/SEK contract with a notional value of EUR 30 million. This compares to no forward contracts as of December 31, 2019. The fair value liability of the derivative forward contract was approximately $0.7 million and is included in accrued expenses and other current liabilities on our consolidated balance sheet as of September 27, 2020. Our forward hedge contract falls within Level 2 of the fair value hierarchy, in accordance with ASC Topic 820. For the three- and nine- month periods ended September 27, 2020, the realized and unrealized loss associated with this contract was $1.1 million, respectively. The intent of the foreign currency forward contract is to mitigate the risk of foreign exchange gains and losses on Euro-denominated cash, Accounts Receivable and Intercompany balances of our Swedish entity, IMO AB, which is a SEK functional currency entity. The hedge matures on October 22, 2020 and is a back-to-back instrument for which the gain/loss is net settled on a monthly basis.

Debt

As of September 27, 2020, total debt was $527.7 million compared to $636.3 million as of December 31, 2019. Total debt is net of unamortized term loan debt issuance costs of $12.8 million and $17.6 million at September 27, 2020 and December 31, 2019, respectively. The Company made interest payments of $25.6 million and $36.5 million during the nine months ended September 27, 2020, and September 29, 2019, respectively.

During the nine months ended September 27, 2020, the Company paid down $161.8 million on its term loan from proceeds received through the sale of the I&S business. On March 20, 2020, the Company drew down $80 million on its line of credit due to concerns about possible disruptions to global capital markets stemming from COVID-19. The Company has since paid down its revolving credit facility balance by $31.6 million for a current balance of $48.4 million as of September 27, 2020.

~~(11)~~

During the first quarter of 2020, the Company amended its term loan to lower the interest rate associated with the applicable margin calculation. The new terms lower the interest rate on the Company's term loan from LIBOR plus an applicable margin of 3.5% to LIBOR plus an applicable margin of 3.25%, based on its existing corporate family rating from Moody's. The applicable margin reduces to LIBOR plus an applicable margin of 3.0%, with a corporate family rating from Moody's of B1 or better.

As part of the debt repricing, the Company's outstanding loan balance was reallocated amongst the lender group. The Company evaluated the changes in outstanding loan balance for each individual lender to determine the amount of capitalized debt issuance costs that required adjustment. Through this exercise, the Company determined that certain creditors under the original term loan did not participate in this refinancing transaction and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $3.5 million in the first quarter of during Q1 2020 which was recorded to Special and restructuring charges (recoveries), net, on the condensed consolidated statement of operations. For the remainder of the creditors, this transaction was accounted for as a modification. The Company accounted for the amendment pursuant to ASC 470, subtopic 50-40, and third-party costs of $0.2 million related to this transaction were expensed and $0.3 million of lender fees were recorded as a reduction to debt representing deferred issuance costs.

(10) Guarantees and Indemnification Obligations

As permitted under Delaware law, ~~we have~~the Company has agreements whereby ~~we indemnify~~it indemnifies certain of ~~our~~its officers and directors for certain events or occurrences while the officer or director is, or was, serving at ~~our~~its request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments wethe Company could be required to make under these indemnification agreements is unlimited. However, ~~we have~~it has directors’ and officers’ liability insurance policies that insure usit with respect to certain events covered under the policies and should enable usit to recover a portion of any future amounts paid under the indemnification agreements. ~~We have~~The Company has 0 liabilities recorded from those agreements as of September ~~29, 2019.~~27, 2020.

~~We record~~The Company records provisions for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized. WeThe Company also ~~record~~records provisions with respect to any significant individual warranty issues as they arise. While ~~we engage~~the Company engages in extensive product quality programs and processes, ~~our~~its warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to us. Should actual product failure rates, utilization levels, material usage, service delivery costs or supplier warranties on parts differ from our estimates, revisions to the estimated warranty liability would be required.

The following table sets forth information related to ~~our~~ product warranty reserves for the nine months ended September ~~29, 2019 (in thousands)~~27, 2020 (in thousands):


Balance beginning December 31, 2019	$	1,642
Provisions	1,895
Claims settled	(1,813)

Currency translation adjustment	6
Balance ending September 27, 2020	$	1,730

Balance beginning December 31, 2018 $ 2,980
Provisions 2,204
Claims settled (2,361 )
Currency translation adjustment (54 )
Balance ending September 29, 2019 $ 2,769

Warranty obligations ~~were $3.0 million as of December 31, 2018~~are recorded within Accrued expenses and ~~$2.8 million as of September 29, 2019, as net claims settled and quarterly provisions within our Industrial and Energy operating segments largely offset.~~other current liabilities on the condensed consolidated balance sheets.

~~(12)~~(11) Commitments and Contingencies

~~We are~~The Company is subject to various legal proceedings and claims pertaining to matters such as product liability or contract ~~disputes, including issues arising under certain customer contracts with aerospace and defense customers. We are~~disputes. The Company is also subject to other proceedings and governmental inquiries, inspections, audits or investigations pertaining to issues such as tax matters, patents and trademarks, pricing, business practices, governmental regulations, employment and other matters. Although the results of litigation and claims cannot be predicted with certainty, we expect that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.

On February 21, 2018, the Company entered into a mediated settlement regarding a wage and hour action in California by a former employee. In October 2016, the plaintiff alleged non-compliance with California State labor law, including missed or late meal breaks, for hourly employees of CIRCOR Aerospace, Inc. in Corona, California. The total settlement amount of $2.4 million was initially recorded as a liability as of December 31, 2017. This settlement resolves all wage/hour claims by all potentially affected employees through the settlement date and was approved by the California Superior Court during 2018. The Company made the payment during the third quarter of 2019.

Asbestos-related product liability claims continue to be filed against two of our subsidiaries: Spence Engineering Company, Inc. (“Spence”), the stock of which wethe Company acquired in 1984; and CIRCOR Instrumentation Technologies, Inc. (f/k/a Hoke, Inc.) (“Hoke”), the stock of which weit acquired in 1998. The Hoke subsidiary was divested in January 2020 through our sale of the I&S business. However, the Company has indemnified the buyer for asbestos-related claims that are made against Hoke. Due to the nature of the products supplied by these entities, the markets they serve and our historical experience in resolving these claims, ~~we do~~the Company does not expect that these asbestos-related claims will have a material adverse effect on the financial condition, results of operations or liquidity of the Company.

Standby Letters of Credit

~~We execute~~The Company executes standby letters of credit, which include bid bonds and performance bonds, in the normal course of business to ensure ~~our~~ performance or payments to third parties. The aggregate notional value of these instruments was ~~$44.5~~$35.3 million at September ~~29, 2019. We believe~~27, 2020. The Company believes that the likelihood of demand for a significant payment relating to the outstanding instruments is remote. These instruments generally have expiration dates ranging from less than 1 month to 5 years from September ~~29, 2019.~~27, 2020.

The following table contains information related to standby letters of credit instruments outstanding as of September ~~29, 2019 (in thousands)~~27, 2020 (in thousands):

Term Remaining
Maximum Potential
Future Payments
0–12 months $ 33,175
Greater than 12 months 11,281
Total $ 44,456


Term Remaining	Maximum Potential Future Payments
0–12 months	$	25,321
Greater than 12 months	9,949
Total	$	35,270

(12) Retirement Plans

~~(13) Retirement Plans~~

The following table sets forth the components of total net periodic benefit cost (income) of the Company’s defined benefit pension plans and other post-retirement employee benefit plans ~~(in thousands)~~(in thousands):


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Pension Benefits - U.S. Plans

Interest cost	$	1,398	$	1,967	$	4,194	$	5,901
Expected return on plan assets	(2,747)		(2,742)		(8,241)		(8,226)
Amortization	43		129		129		388
Net periodic benefit income	$	(1,306)	$	(646)	$	(3,918)	$	(1,937)

Pension Benefits - Non-U.S. Plans
Service cost	$	692	$	680	$	2,076	$	2,062
Interest cost	339		539		1,017		1,643
Expected return on plan assets	(194)		(235)		(582)		(726)
Amortization	31		4		93		13
Net periodic benefit cost	$	868	$	988	$	2,604	$	2,992

Other Post-Retirement Benefits

Interest cost	$	66	$	93	$	198	$	280

Net periodic benefit cost	$	66	$	93	$	198	$	280

Three Months Ended Nine Months Ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Pension Benefits - U.S. Plans
Service cost $ —
$ —
$ —
$ —
Interest cost 1,967
1,762
5,901
5,285
Expected return on plan assets (2,742 ) (3,771 ) (8,226 ) (11,313 )
Amortization 129
146
388
439
Net periodic benefit income $ (646 ) $ (1,863 ) $ (1,937 ) $ (5,589 )

Pension Benefits - Non-U.S. Plans
Service cost $ 680
$ 736
$ 2,062
$ 2,271
Interest cost 539
523
1,643
1,617
Expected return on plan assets (235 ) (243 ) (726 ) (755 )
Amortization 4
—
13
—
Net periodic benefit cost $ 988
$ 1,016
$ 2,992
$ 3,133

Other Post-Retirement Benefits
Service cost $ —
$ —
$ —
$ 1
Interest cost 93
86
280
259
Amortization —
—
—
—
Net periodic benefit cost $ 93
$ 86
$ 280
$ 260

The periodic benefit service costs are included in ~~the~~both costs of revenues, as well as selling, general, and administrative costs, while the remaining net periodic benefit costs are included in other (income) expense, net in our condensed consolidated statements of ~~(loss) income~~operations for the three and nine months ended September 27, 2020 and September 29, 2019, ~~and September 30, 2018,~~ respectively.

There were no employer contributions to the Company's U.S. and non- U.S. based pension plans during the three and nine months ended September ~~29, 2019.~~27, 2020.

~~(14)~~(13) Income Taxes

As of September ~~29, 2019~~27, 2020 and December 31, ~~2018, we~~2019, the Company had ~~$0.6~~$0.8 million and $0.6 million, respectively, of unrecognized tax benefits, all of which ~~$0.5 million and $0.5 million, respectively,~~ would affect our effective tax rate if recognized in any future period.

The Company files income tax returns in U.S. federal, state and local jurisdictions and in foreign jurisdictions. The Company is no longer subject to examination by the Internal Revenue Service (the "IRS") for years prior to 2016 and is no longer subject to examination by the tax authorities in foreign and state jurisdictions prior to ~~2006.~~2015, except for Germany which is under examination from 2006 to 2015. The Company is currently under examination for income tax filings in various foreign jurisdictions.

The Company ~~has a net U.S.~~is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax ~~asset~~assets and aliabilities, including net ~~foreign~~operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax ~~liability. Due to uncertainties related to our ability to utilize certain U.S. and foreign deferred income tax~~ assets, ~~we maintained a valuation allowance of $17.5 million at September 29, 2019 and $17.6 million at December 31, 2018. The valuation allowance~~the Company considers whether it is ~~based on estimates of income in each~~more likely than not that some portion or all of the ~~jurisdictions in which we operate and the period over which our~~net deferred tax assets will not be ~~recoverable. If future results~~realized.

ASC 740, Income Taxes, requires a valuation allowance to reduce deferred tax assets if, based on the weight of ~~operations exceed our current expectations, our existing tax valuation allowances may be adjusted, resulting in future tax benefits. Alternatively, if future results of operations are less~~available evidence, it is more likely than ~~expected, future assessments may result in a determination~~not that some portion, or all, of the deferred tax assets ~~are~~will not ~~realizable. Consequently, we may need~~be realized. The weight given to ~~establish additional tax~~the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation ~~allowances~~allowance is not needed for ~~all~~some portion, or ~~a portion~~all, of the deferred tax asset. Should there be

a cumulative loss in recent years it is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On July 9, 2020, the US Department of the Treasury (Treasury) and Internal Revenue Service (IRS) released Final Regulations (Final Regulations) that provide guidance on the section 250 deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). In addition, on July 20, 2020, Treasury released Proposed Regulations concerning GILTI. Based on the impact of these regulations, we believe less reliance should be placed on the US taxation of foreign earnings, which would adversely impact our ability to realize our US deferred tax assets. With the release of these Final Regulations during the third quarter, coupled with the negative evidence of cumulative losses in the US, the negative evidence outweighed the positive evidence as of the third quarter of 2020. As such, the Company has not relied on projections of future taxable income in our assessment of the realization of deferred tax assets at September 27, 2020, and recognized a valuation allowance of $42.2 million in income tax expense in the three and nine months ended September 27, 2020.

As a result of the assessment of the realizability of our US deferred tax assets at September 27, 2020 and resulting income tax expense for US valuation allowance, the valuation allowance at September 27, 2020 is at $61.8 million, which ~~may~~is an increase in the amount of $49.0 million from the US valuation allowance of $12.8 million maintained at December 31, 2019. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a result of the COVID-19 pandemic, which contains among other things, numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The Company has evaluated the current legislation and at this time, does not anticipate the CARES Act to have a material ~~adverse effect~~impact on ~~our business, results of operations~~its financial statements.

During the nine months ended September 27, 2020 and ~~financial condition.~~

~~(15) Share-Based Compensation~~

~~As of~~ September 29, 2019 the Company paid income taxes of $9.6 million and $6.7 million, respectively.

(14) Share-Based Compensation

As of September 27, 2020, the Company had ~~722,683~~666,785 stock options and ~~402,591~~773,510 Restricted Stock Unit Awards ("RSU Awards") and Restricted Stock Unit Management Stock Plan Awards ("RSU MSPs") outstanding. On May 9, 2019, our shareholders approved the 2019 Stock Option and Incentive Plan (the "2019 Plan") at the Company's annual meeting which was adopted, subject to shareholder approval, by the Company's board of directors on February 20, 2019. The 2019 Plan authorizes issuance of up to 1,000,000 shares of common stock (subject to adjustment for stock splits and similar events). Under the 2019 Plan, there were ~~955,522~~439,268 shares available for grant as of September ~~29, 2019.~~27, 2020.

During the nine months ended September ~~29, 2019, we granted 153,726~~27, 2020, there were no stock options granted as compared with ~~127,704~~153,726 stock options granted during the nine months ended September ~~30, 2018.~~29, 2019.

The average fair value of stock options granted during the first nine months of 2019 ~~and 2018~~ was $11.84 ~~and $14.68~~ per share, ~~respectively,~~ and was estimated using the following weighted-average assumptions:


	September 29, 2019
Risk-free interest rate	2.6	%
Expected life (years)	4.4
Expected stock volatility	38.1	%
Expected dividend yield	0	%

September 29, 2019 September 30, 2018
Risk-free interest rate 2.6 % 2.5 %
Expected life (years) 4.4
4.4
Expected stock volatility 38.1 % 37.2 %
Expected dividend yield — % — %

For additional information regarding the historical issuance of stock options, refer to Note 1214 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

During the nine months ended September 27, 2020 and September 29, 2019, the Company granted 612,094 and ~~September 30, 2018, we granted~~ 201,313 ~~and 160,604~~ RSU Awards with approximate fair values of ~~$32.73~~$12.76 and ~~$43.11~~$32.73 per RSU Award, respectively. During the first nine months of 2020 and 2019, ~~and 2018, we~~the Company granted performance-based RSU Awards as part of the overall mix of RSU Awards. Of the ~~201,313~~612,094 RSU Awards granted during the nine months ended September 27, 2020, 109,278 are performance-based RSU Awards. This

compares to 67,362 performance-based RSU Awards granted during the nine months ended September 29, ~~2019, 67,362 are performance-based RSU Awards. This compares to 48,080~~2019. In 2020, these performance-based RSU Awards ~~granted during the nine months ended September 30, 2018.~~include metrics for achieving Adjusted Operating Margin and Adjusted Measurement Cash Flow with target payouts ranging from 0% to 200%. In 2019, ~~these~~the performance-based RSU Awards include metrics for achieving Adjusted Operating Margin and Adjusted Free Cash Flow with ~~target payouts ranging from 0% to 200%. In 2018 and prior years, the performance-based RSU Awards include metrics for achieving Return on Invested Capital and Adjusted Operating Margin with~~ the same target payout ranges. Of the different performance-based RSU tranches, the Company anticipates approximately ~~80%~~37% overall achievement and probability to vest.

There were 0 RSU MSPs granted during the nine months ended September 27, 2020 whereas RSU MSPs totaling 56,379 ~~and 34,937~~ with per unit discount ~~amounts~~amount representing a fair ~~values~~value of $11.10 ~~and $14.06~~ per share were granted during the nine months ended September 29, ~~2019 and September 30, 2018, respectively.~~2019.

Compensation expense related to our share-based plans for the nine months ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~ was ~~$4.2~~$4.3 million and ~~$4.1~~$4.4 million, respectively. Compensation expense for ~~both periods~~nine months ended September 27, 2020 was recorded as follows: $4.0 million in selling, general and administrative expenses, $0.1 million in special charges related to the sale of our I&S business, and $0.2 million in discontinued operations related to the sale of our DV business. The special charges and discontinued operations costs relate to the accelerated vesting of awards as a result of the sale transactions. Compensation expense for the nine months ended September 29, 2019 was recorded in selling, general and administrative expenses. As of September ~~29, 2019,~~27, 2020, there were ~~$10.0~~$7.5 million of total unrecognized compensation costs related to our outstanding share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of ~~2.0~~1.7 years.

The weighted average contractual term for stock options outstanding and options exercisable as of September ~~29, 2019~~27, 2020 was ~~4.3~~3.4 years and ~~3.5~~3.0 years, respectively. The aggregate intrinsic value of stock options exercised during the nine months ended September ~~29, 2019~~27, 2020 was ~~$0.0 million and the~~insignificant. The aggregate intrinsic value of stock options outstanding and ~~options~~ exercisable as of September ~~29, 2019~~27, 2020 was ~~$0.6 million and $0.0 million, respectively.~~insignificant.

The aggregate intrinsic value of RSU Awards settled during the nine months ended September ~~29, 2019~~27, 2020 was ~~$1.9~~$1.8 million and the aggregate intrinsic value of RSU Awards outstanding and RSU Awards vested and deferred as of September ~~29, 2019~~27, 2020 was ~~$11.0~~$18.5 million and ~~$0.2~~$0.0 million, respectively.

The aggregate intrinsic ~~value~~values of RSU MSPs settled during the nine months ended September ~~29, 2019~~27, 2020 was ~~less than~~ $0.1 million and the aggregate intrinsic value of RSU MSPs outstanding and RSU ~~MSPs~~MSP Awards vested and deferred ~~as of~~during the nine months ended September ~~29, 2019 was $1.1~~27, 2020 were $0.2 million and $0.0 million, respectively.

~~International~~The majority of international participants are issued Cash Settled Stock Unit Awards. As of September ~~29, 2019,~~27, 2020, there were ~~47,997~~50,614 Cash Settled Stock Unit Awards outstanding compared to ~~50,907~~45,681 as of December 31, ~~2018.~~2019. During the nine months ended September ~~29, 2019,~~27, 2020, the aggregate cash used to settle Cash Settled Stock Unit Awards was ~~$0.9~~$0.7 million. As of September ~~29, 2019, we~~27, 2020, the Company had ~~$0.7~~$0.4 million of accrued expenses in other non-current liabilities associated with these Cash Settled Stock Unit Awards compared with ~~$0.6~~$1.1 million as of December 31, ~~2018.~~2019. Cash Settled Stock Unit Award related compensation costs for the nine months ended September 27, 2020 and September 29, 2019 were $0.3 million and ~~September 30, 2018 were~~ $1.1 million, ~~and $0.6 million,~~ respectively. The decrease in cost is due primarily to a lower stock price as of September 27, 2020 compared to September 29, 2019. For the nine months ended September ~~29, 2019, $0.7~~27, 2020, $0.2 million was recorded asin selling, general and administrative expenses and ~~$0.3~~$0.1 million was recorded as special charges related to the sale of our ~~Pibiviesse Srl entity.~~I&S business. The special charge amount related to the accelerated vesting of awards as a result of the transaction. For the nine months ended September ~~30, 2018,~~29, 2019, compensation costs for Cash Settled Stock Unit Awards were recorded ~~entirely~~as follows: $0.7 million in selling, general, and administrative ~~expense.~~expense and $0.3 million as special charges related to the sale of our Pibiviesse entity. The special charge amount related to the accelerated vesting of awards as a result of the transaction.

~~(16)~~(15) Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of shareholders' equity, for the nine months ended September ~~29, 2019 (in thousands)~~27, 2020 (in thousands):

Foreign Currency Translation Adjustments Pension, net Derivative Total
Balance as of December 31, 2018 $ (49,109 ) $ (19,114 ) $ (1,516 ) $ (69,739 )
Other comprehensive loss (16,882 ) (393 ) (6,371 ) (23,646 )
Balance as of September 29, 2019
$ (65,991 ) $ (19,507 )
$ (7,887 ) $ (93,385 )


	Foreign Currency Translation Adjustments		Pension, net		Derivative		Total
Balance as of December 31, 2019	$	(53,848)	$	(19,513)	$	(6,906)	$	(80,267)

Reclassified to earnings	(3,625)		0		4,423		798

Other comprehensive (loss) income	207		126		(4,615)		(4,282)
Balance as of September 27, 2020	$	(57,266)	$	(19,387)	$	(7,098)	$	(83,751)

During the first quarter of 2019, an immaterial error was identified in the Company's calculation of currency translation adjustments related to goodwill, intangible assets and property, plant and equipment acquired in the FH acquisition. This error impacts other comprehensive income. Specifically, other comprehensive income (loss) was overstated by $5.4 and $2.2 million for the first quarter and fiscal 2018, respectively, and was understated by $2.2 million for first quarter of 2019. The Company has determined that these adjustments were not material to the current or prior periods, or the forecasted 2019 results. These items were immaterial and were adjusted for during the first quarter of 2019. The quarterly impact ($ in millions) in 2018 was:

Q1 Q2 Q3 Q4 2018
Overstated (understated) comprehensive income $ 5.4
$ (5.1 ) $ (0.2 ) $ 2.1
$ 2.2

~~(17) Loss~~(16) (Loss) Income Per Common Share ("EPS")

~~Stock~~For the three and nine months ended September 27, 2020, and the three and nine months ended September 29, 2019, outstanding stock options, RSU Awards and RSU MSPs ~~covering 440,780 and 371,017 shares of common stock for the nine months ended September 29, 2019 and September 30, 2018, respectively,~~ were not included in the ~~computation~~calculation of ~~diluted~~dilutive EPS because ~~their effect~~to do so would be anti-dilutive.



ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”). The words “may,” “hope,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” and other expressions, which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking ~~statements.~~statements, although not all forward-looking statements are accompanied by such words. We believe that it is important to communicate our future expectations to our stockholders, and we, therefore, make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements, including statements about outlook for the fourth quarter, the expected and potential direct or indirect impacts of the COVID-19 pandemic on our business, the realization of cost reductions from restructuring activities and expected synergies, the ~~expected impact~~number of ~~tariff increases~~new product launches and future cash flows from operating activities, involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited ~~to,~~to: the duration and severity of the COVID-19 pandemic and its impact on the global economy; changes in the price of and demand for oil and gas in both domestic and international markets, our ability to successfully integrate acquired businesses, as contemplated, the possibility that expected benefits related to the acquisition of the fluid handling business of Colfax Corporation ("FH") may not materialize as expected,markets; any adverse changes in governmental ~~policies,~~policies; variability of raw material and component ~~pricing,~~pricing; changes in our suppliers’ ~~performance,~~performance; fluctuations in foreign currency exchange ~~rates,~~rates; changes in tariffs or other taxes related to doing business ~~internationally,~~internationally; our ability to hire and retain key ~~personnel,~~personnel; our ability to operate our manufacturing facilities at efficient levels including our ability to prevent cost overruns and reduce ~~costs,~~costs; our ability to generate increased cash by reducing our working ~~capital,~~capital; our prevention of the accumulation of excess ~~inventory,~~inventory; our ability to successfully implement our ~~divestiture,~~divestiture; restructuring or simplification ~~strategies,~~strategies; fluctuations in interest ~~rates,~~rates; our ability to successfully defend product liability ~~actions,any actions of stockholders or others in response to expiration of the recent unsolicited tender offer and the cost and disruption of responding to those actions,~~actions; as well as the uncertainty associated with the current worldwide economic conditions and the continuing impact on economic and financial conditions in the United States and around the world, including as a result of COVID-19, natural disasters, terrorist attacks ~~current Middle Eastern conflicts~~ and ~~related~~other similar matters. We advise you to read further about these and other risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, which is filed with the Securities and Exchange Commission ("SEC") and is available on the SEC's website at www.sec.gov. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

~~We design, manufacture and market differentiated technology~~CIRCOR is one of the world’s leading providers of mission critical flow control products and ~~sub-systems~~services for ~~markets including industrial, oil~~the Industrial and Aerospace & ~~gas, aerospace and defense, and commercial marine. CIRCOR~~Defense markets. The Company has a ~~diversified flow and motion control~~ product portfolio ~~with recognized,~~of market-leading brands ~~that fulfill~~serving its customers’ ~~mission critical needs.~~most demanding applications. CIRCOR markets its solutions directly and through various sales and distribution partners to more than 14,000 customers in approximately 100 countries. The Company has a global presence with approximately 3,200 employees and is headquartered in Burlington, Massachusetts.

We organize our reporting structure into ~~three~~two segments: ~~Energy,~~ Aerospace & Defense and Industrial. Both the current and ~~the~~ prior periods are reported under these ~~three~~two segments.

In March 2020, the World Health Organization declared the outbreak of COVID-19, which continues to spread throughout the

U.S. and the world, as a pandemic. The outbreak is having an impact on the global economy, resulting in rapidly changing

market and economic conditions.

In this time of unprecedented uncertainty resulting from the COVID-19 pandemic, the Company's top priority remains the health and safety of our employees, customers and suppliers. Because of the end markets we serve, the majority of our facilities are deemed ‘essential operations’ in the countries in which we operate. Over the last several months, we have implemented significant measures in an effort to ensure our factory employees around the world have the necessary protection and our business continues to operate with as little disruption as possible.

The Company has assembled a cross-functional Pandemic Response and Preparedness Team at the corporate level and has dedicated response teams across its business lines and sites that meets multiple times a week to address the challenges the virus poses to employee health and safety, as well as to business continuity.

As of November 2, 2020, all of our plants were currently open and operational. To that end, since the beginning of the crisis, the Company has taken a number of steps designed to protect the health and safety of all employees who work at its facilities, including:

•Additional cleaning and disinfecting procedures at all facilities;

•Daily temperature checks and masks for employees;

•Adherence to strict social distancing guidelines;

•Employees are strongly encouraged to work from home where possible; and

•Cancellation of all non-essential travel.

Since the beginning of the COVID-19 crisis, the Company has taken prudent action to ensure it maintains its financial flexibility, including the cessation of all non-critical business expenses, employee furloughs, and pay cuts for senior management and board of directors.

CIRCOR teams across the globe came together to support the global fight against the pandemic. The Company retrofitted one of its factories to produce a key product for a major ventilator manufacturer, and its engineering team was able to adapt one of its products for the ventilator application in less than 10 days.

Additionally, the Company produced pump parts for the US Navy Hospital Ships USNS Comfort and Mercy that had been dispatched to NYC and Los Angeles to support the COVID-19 response. The CIRCOR team tackled these critical needs with the utmost urgency, producing components in record time to help keep the U.S. Navy ships up and running for their critical missions.

The Company is also working with a large medical device customer to find ways for the Company’s products to support the development of COVID-19 antibodies from recovered patients. And, a number of the Company’s locations around the world have donated masks, sanitizer, and other safety equipment to local hospitals.

Basis of Presentation

All significant intercompany balances and transactions have been eliminated in consolidation.

Critical Accounting Policies

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no significant changes from the methodology applied by management for critical accounting policies and estimates previously disclosed in our most recent Annual Report on Form 10-K, except as updated by Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q with respect to newly adopted accounting standards. The expenses and accrued liabilities or allowances related to certain of our accounting policies are initially based on our best estimates at the time of original entry in our accounting records. Adjustments are recorded when our actual experience, or new information concerning our expected experience, differs from underlying initial estimates. These adjustments could be material if our actual or expected experience were to change significantly in a short period of time. We make frequent comparisons of actual experience and expected experience in ~~order~~an effort to mitigate the likelihood of material adjustments.

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures. Some of the more significant estimates, which are impacted by management's estimates and assumptions regarding the effects of COVID-19, relate to estimated total costs for ongoing long-term revenue contracts where transfer of control occurs over time, inventory valuation, share-based compensation, amortization and impairment of long-lived assets, income taxes (including valuation allowance), penalty accruals for late shipments, other asset valuations, and product warranties. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ materially from those estimates.

Results of Operations

In June 2019, we became subject to an unsolicited tender offer to purchase all outstanding shares of our common stock. After reviewing the terms and conditions of the tender offer, our board of directors unanimously recommended that our stockholders reject the tender offer. The tender offer expired by its terms on July 19, 2019. In connection with our review and response to the tender offer, we incurred significant expenses, consisting primarily of advisory and legal fees, during the three and nine months ended September 29, 2019.

Third Quarter ~~2019~~2020 Compared ~~With~~with Third Quarter ~~2018~~2019

Consolidated Operations


	Three Months Ended
(in thousands)	September 27, 2020		September 29, 2019		Total Change		Divestiture		Operations		Foreign Exchange
Net Revenues
Aerospace & Defense	$	62,249	$	67,621	$	(5,372)	$	—	$	(6,005)	$	632
Industrial	124,391		169,431		(45,040)		(20,697)		(27,034)		2,692
Consolidated Net Revenues	$	186,640	$	237,052	$	(50,412)	$	(20,697)	$	(33,039)	$	3,324

Three Months Ended
(in thousands) September 29, 2019 September 30, 2018
Total
Change
Divestiture Operations
Foreign
Exchange
Net Revenues
Energy $ 55,835
$ 70,718
$ (14,883 ) $ (16,579 ) $ 2,199
$ (503 )
Aerospace & Defense 67,621
57,757
9,864
—
10,717
(853 )
Industrial 113,596
118,734
(5,138 ) (4,232 ) 2,615
(3,521 )
Consolidated Net Revenues $ 237,052
$ 247,209
$ (10,157 ) $ (20,811 ) $ 15,531
$ (4,877 )

Net revenues for the three months ended September ~~29, 2019~~27, 2020 were ~~$237.1~~$186.6 million, a decrease of ~~$(10.2)~~$(50.4) million, or ~~(-4%)~~(21)% as compared to the three months ended September ~~30, 2018,~~29, 2019, primarily driven by lower revenue as a result of divestitures ~~(-8%)~~of (9)%, ~~along with unfavorable foreign currency translation (-2%),~~and operational decreases of (14)% due in part to the ongoing impact of COVID-19 on the global economy and the markets in which ~~were~~CIRCOR operates, partially offset by ~~operational increases of (+6%), primarily driven by our Aerospace~~favorable currency translation 1%. Although the Company's Defense business has remained stable during the pandemic, the Company's commercial aerospace and ~~Defense segment.~~industrial markets have experienced significant downturns.

In accordance with accounting principles generally accepted in the U.S. ~~(GAAP)~~("GAAP"), a company's segment reporting should follow how the business is reviewed by its ~~Chief Operating Decision Maker ("CODM"),~~CODM, which is the function that allocates the resources of the enterprise and assesses the performance of the Company's reportable operating segments. CIRCOR has determined that the CODM is its

Chief Executive Officer ("CEO"), as the CEO has the ultimate responsibility for ~~CIRCOR~~CIRCOR's strategic decision-making and resource allocation.

Our CODM evaluates segment operating performance using segment operating income. Segment operating income is defined as GAAP operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to December 31, 2011, the impact of restructuring related inventory write-offs, impairment charges and special charges or gains. The Company also refers to this measure as adjusted operating income. The Company uses this measure because it helps management understand and evaluate the segments’ core operating results and serves as the basis for determining incentive compensation achievement.


(in thousands, except percentages)	Three Months Ended
	September 27, 2020			September 29, 2019
Net revenues
Aerospace & Defense	$	62,249		$	67,621
Industrial	124,391			169,431
Consolidated net revenues	$	186,640		$	237,052

Loss from continuing operations before income taxes
Aerospace & Defense - Segment Operating Income	$	14,782		$	13,564
Industrial - Segment Operating Income	9,807			21,278
Corporate expenses	(7,244)			(9,248)
Subtotal	17,345			25,594
Restructuring charges, net	502			5,038
Special charges, net	436			18,481
Special and restructuring charges, net (1)	938			23,519
Divestiture and inventory related restructuring charges and (recoveries), net	351			(1,145)


Acquisition amortization (2)	10,625			11,202
Acquisition depreciation (2)	1,011			1,102
Acquisition amortization and other costs, net	11,987			11,159
Consolidated operating income (loss)	4,420			(9,084)
Interest expense, net	8,202			11,804
Other expense (income) , net	765			(759)
Loss from continuing operations before income taxes	$	(4,547)		$	(20,129)

Consolidated Operating Margin	2.4		%	(3.8)		%

(1) See Special and restructuring charges (recoveries), net in Note 5 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional details.
(2) Acquisition amortization and depreciation is recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

(in thousands, except percentages) Three Months Ended
September 29, 2019 September 30, 2018
Net revenues
Energy $ 55,835
$ 70,718
Aerospace & Defense 67,621
57,757
Industrial 113,596
118,734
Consolidated net revenues $ 237,052
$ 247,209

Loss from continuing operations before income taxes
Energy - Segment Operating Income $ 5,286
$ 9,726
Aerospace & Defense - Segment Operating Income 13,564
8,709
Industrial - Segment Operating Income 13,953
14,609
Corporate expenses (7,209 ) (8,034 )
Subtotal 25,594
25,010
Restructuring charges, net 5,038
1,090
Special charges, net 18,481
1,898
Special and restructuring charges, net (1) 23,519
2,988
Cost of sales related to divestitures (1,145 ) —
Acquisition amortization (2) 11,202
11,734
Acquisition depreciation (2) 1,102
1,743
Acquisition amortization and other costs, net 11,159
13,477
Consolidated operating (loss) income (9,084 ) 8,545
Interest expense, net 11,804
14,137
Other (income), net (759 ) (1,580 )
Loss from continuing operations before income taxes $ (20,129 ) $ (4,012 )

Consolidated Operating Margin (3.8 )% 3.5 %

(1) See Special and Restructuring Charges, net in Note 6 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional details.
(2) Acquisition amortization and depreciation is recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

~~Energy Segment~~

Three Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenue as reported $ 55,835
$ 70,718
$ (14,883 )
Net Revenues excluding divestiture (1) 55,835
54,139
1,696
Segment Operating Income as reported 5,286
9,726
(4,440 )
Segment Operating Income excluding divestiture (2) 5,286
6,821
(1,535 )
Segment Operating Margin (adjusted) 9.5 % 12.6 %
Segment Orders 53,276
87,146
(33,870 )
(1) Adjusted for the January 2019 divestiture of our Reliability Services business, which generated revenues of $0.0 million and $16.6 million for the three months ended September 29, 2019 and September 30, 2018, respectively.
(2) Adjusted for the January 2019 divestiture of our Reliability Services business, which contributed $0.0 million and $2.9 million to segment operating income for the three months ended September 29, 2019 and September 30, 2018, respectively.
Aerospace & Defense Segment


	Three Months Ended
(in thousands, except percentages)	September 27, 2020			September 29, 2019			Change
Net Revenues	$	62,249		$	67,621		$	(5,372)
Segment Operating Income	$	14,782		$	13,564		1,218
Segment Operating Margin	23.7		%	20.1		%
Segment Orders	59,105			63,968			(4,863)

~~Energy~~

Aerospace & Defense segment net revenues ~~excluding divestiture, increased $1.7~~decreased by $(5.4) million, or ~~(+3%~~(7.9)%, to $62.2 million for the three months ended September 27, 2020 as compared to the three months ended September 29, 2019. The decrease was driven by our Commercial business at (14)%), partially offset by an increase in our Defense business at 5% and favorable due to foreign currency fluctuations of 1%.

Aerospace & Defense segment orders decreased $(4.9) million, or (7.6)%, for the three months ended September ~~29, 2019~~27, 2020 as compared to the three months ended September 30, 2018. This increase was primarily driven by increases in our Refinery Valves business (+6%), partially offset by declines within our Instrumentation and Sampling business (-2%) and unfavorable foreign currency fluctuations (-1%).

~~Energy segment orders decreased $(33.9) million, or (-39%), for the three months ended September~~ 29, 2019 compared to the three months ended September 30, 2018, primarily driven by the divestiture of our Reliability Services business (-22%) and award push-outs within our Refinery Valves business (-14%).

Segment operating income, excluding divestiture, decreased $(1.5) million, or (-23%), to $5.3 million for the three months ended September 29, 2019 compared to the three months ended September 30, 2018. The decrease was primarily driven by our Refinery Valves business (-15%) and Instrumentation and Sampling business (-7%).

~~The decrease in Segment operating margin, excluding divestiture, from 12.6% to 9.5% was primarily driven by one time project expenses in the Refinery Valves business.~~

~~Aerospace & Defense Segment~~

Three Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenues $ 67,621
$ 57,757
$ 9,864
Segment Operating Income 13,564
8,709
4,855
Segment Operating Margin 20.1 % 15.1 %
Segment Orders 63,968
81,533
(17,565 )

Aerospace & Defense segment net revenues increased by $9.9 million, or (+17%), to $67.6 million for the three months ended September 29, 2019 compared to the three months ended September 30, 2018. The increase was primarily driven by organic increases in our defense-related business (+12%), as well as growth across commercial platforms (+7%), partially offset by unfavorable foreign currency fluctuations (-1%).

~~Aerospace & Defense segment orders decreased $(17.6) million, or (-22%), for the three months ended September 29, 2019 compared to the three months ended September 30, 2018.~~2019. The decrease was driven by declines in our ~~defense~~Defense business ~~(-21%)~~of (2)% and ~~the commercial~~Commercial business ~~(-1%)~~of (7)%, partially offset by favorable foreign currency fluctuations of 1%.

Segment operating income increased to ~~$13.6~~$14.8 million, or ~~(+56%)~~9.0%, for the three months ended September ~~29, 2019~~27, 2020 as compared to the three months ended September ~~30, 2018.~~29, 2019. The increase in operating income was primarily driven by ~~our U.S. Defense business (+34%)~~price, mix, improved manufacturing productivity, and ~~Actuation business (+14%), along with higher revenue across the portfolio and~~cost countermeasures implemented to offset the impact of ~~price increases.~~COVID-19.

Segment operating margin increased from ~~15.1%~~20.1% in the three months ended September ~~30, 2018~~29, 2019 to ~~20.1%~~23.7% for the three months ended September 27, 2020. The expanded operating margin reflects the impact of price, mix, manufacturing productivity, and cost countermeasures to offset the impact of COVID-19.

Industrial Segment


	Three Months Ended
(in thousands, except percentages)	September 27, 2020			September 29, 2019			Change
Net Revenues as reported	$	124,391		$	169,431		$	(45,040)
Net Revenues excluding divestiture (1)	124,391			148,734			(24,343)
Segment Operating Income as reported	9,807			21,278			(11,471)
Segment Operating Income excluding divestiture (2)	9,807			18,601			(8,794)
Segment Operating Margin (adjusted)	7.9		%	12.5		%
Segment Orders	107,453			158,986			(51,533)
(1) Adjusted for the January 2020 divestiture of the Instrumentation and Sampling ("I&S") business, the August 2019 divestiture of the Spence Engineering ("Spence") business and the divestiture of our Reliability Services business in January 2019. The I&S business generated revenues of $17.8 million for the three months ended September 29, 2019. The Spence business generated revenues of $2.9 million for the three months ended September 29, 2019.
(2) Adjusted for the January 2020 divestiture of the I&S business, August 2019 divestiture of the Spence business and the January 2019 divestiture of the Reliability Services business. The I&S business contributed $2.5 million to segment operating income for the three months ended September 29, 2019.

Industrial segment net revenue decreased $(45.0) million, or (26.6)% for the three months ended September 27, 2020 as compared to the three months ended September 29, 2019. Industrial segment net revenues, excluding divestiture, decreased $(24.3) million, or (16.4)%, to $124.4 million, for the three months ended September 27, 2020 as compared to the three months ended September 29, 2019. The ~~expanded operating margin reflects the impact~~decrease was primarily driven by declines in our Valves and Pumps businesses of ~~higher revenues, along with pricing initiatives~~(11)% and ~~low cost manufacturing growth.~~

(7)%, partially offset by favorable foreign currency fluctuations of 2%.

~~Industrial Segment~~

Three Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenues as reported $ 113,596
$ 118,734
$ (5,138 )
Net Revenues excluding divestiture (1) 110,705
111,611
(906 )
Segment Operating Income as reported 13,953
14,609
(656 )
Segment Operating Income excluding divestiture (2) 13,953
13,436
517
Segment Operating Margin (adjusted) 12.6 % 12.0 %
Segment Orders 105,710
114,876
(9,166 )
(1) Adjusted for the August 2019 divestiture of the Spence Engineering business ("Spence") and the October 2018 divestiture of our Rosscor B.V. and SES International B.V. subsidiaries (the "Delden Business"). Spence generated revenues of $2.9 million and $5.1 million for the three months ended September 29, 2019 and September 30, 2018, respectively. The Delden business generated revenues of $0.0 million and $2.1 million for the three months ended September 29, 2019 and September 30, 2018, respectively.
(2) Adjusted for the August 2019 divestiture of Spence and the October 2018 divestiture of the Delden Business. Spence contributed $0.0 million and $1.5 million to segment operating income for the three months ended September 29, 2019 and September 30, 2018, respectively. The Delden business contributed $0.0 million and $(0.4) million to segment operating income for the three months ended September 29, 2019 and September 30, 2018, respectively.

Industrial segment ~~net revenues, excluding divestiture,~~orders decreased ~~$(0.9)~~$(51.5) million, or ~~(-1%)~~(32.4)%, for the three months ended September 27, 2020 as compared to ~~$110.7 million, for~~ the three months ended September 29, 2019, primarily driven by the impact from divestitures of (14)%, and declines in our Valves and Pumps businesses of (11)% and (9)%, partially offset by favorable foreign currency fluctuations of 2%.

Segment operating income decreased $(11.5) million, or (53.9)% for the three months ended September 27, 2020 as compared to the three months ended September ~~30, 2018. The decrease was primarily driven by unfavorable foreign currency fluctuations (-3%), partially offset by organic growth within our Pumps and Valves businesses.~~

~~Industrial segment orders~~29, 2019. Segment operating income, excluding divestiture, decreased ~~$(9.2)~~$(8.8) million, or ~~(-8%)~~

(47.3)%, for the three months ended September 27, 2020 as compared to three months ended September 29, 2019, primarily driven by lower revenues.

Segment operating margin (adjusted) decreased from 12.5% in the three months ended September 29, 2019 to 7.9% for the three months ended September 27, 2020.The decline in margin reflects declines in Valves and Pumps businesses.

Corporate Expenses

Corporate expenses decreased $2.0 million, or (21.7)% for the three months ended September 27, 2020 as compared to the three months ended September ~~30, 2018,~~ 29, 2019primarily driven by ~~lower orders in our Valves business (-6%) and Pumps business (-2%).~~cost savings initiatives.

Segment operating income, excluding divestiture, increased $0.5 million, or (+4%), for the three months ended September 29, 2019 compared to the three months ended September 30, 2018, primarily driven by margin expansions resulting from ongoing pricing actions as well as integration synergies and productivity improvements.

~~Corporate Expenses~~

~~Corporate expenses decreased $(.8) million, or (10%) for the three months ended September 29, 2019 compared to the three months ended September 30, 2018.~~

Special and Restructuring Charges, net

During the three months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded net charges of ~~$23.5~~$0.9 million and ~~$3.0~~$23.5 million, respectively, within our condensed consolidated statements of ~~(loss) income~~operations caption "Special and restructuring charges (recoveries), net". These special and restructuring charges, net are described in further detail in Note 65 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

~~Costs of sales~~Divestiture and Inventory related ~~to divestitures~~Restructuring charges and (recoveries), net

During the three months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded a charge of $0.4 million and recovery of ~~$(1.1) million and $0.0~~$1.1 million, respectively, within our condensed consolidated ~~statement~~statements of ~~income (loss)~~operations caption “Cost of revenues”. This adjustment includes the gross profit or loss for businesses that are divested in the quarter, as well as certain restructuring costs related to inventory that are recorded in cost of revenues instead of special and restructuring charges. These types of inventory restructuring costs typically relate to the discontinuance of a product line or manufacturing inefficiencies directly related to a restructuring action.

Acquisition Amortization

During the three months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded amortization expense of ~~$11.2~~$10.6 million and ~~$11.7~~$11.2 million, respectively, for intangibles acquired in acquisitions completed subsequent to December 31, 2011. These amortization expenses are recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

Acquisition ~~Step-up~~ Depreciation

During the three months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded depreciation expense of ~~$1.1~~$1.0 million and ~~$1.7~~$1.1 million, respectively, related to the step-up to fair value of the plant, property, and equipment ~~related to~~from the ~~FH acquisition.~~acquisition of the fluid handling business of Colfax Corporation.

Interest Expense, net

Interest expense decreased ~~$(2.3)~~$(3.6) million to ~~$11.8~~$8.2 million induring the three months ended September ~~29, 2019~~27, 2020 compared to the three months ended September ~~30, 2018.~~29, 2019. The change in interest expense was primarily due to lower debt balances ~~partially offset by higher~~in addition to lower interest rates.

Other ~~Income,~~Expense (Income), net

During the three months ended September ~~29, 2019,~~27, 2020, we had other ~~income,~~expense, net of $0.8 million, as compared to other income, net of ~~$1.6~~$0.8 million for the three months ended September ~~30, 2018.~~29, 2019. The year-over-year change is driven by ~~lower~~ foreign exchange ~~gains~~losses and lower pension income. Effective January 1, 2018 all non-service pension gains and losses are recorded in the Other Expense (Income) ~~Expense,~~, net caption on our condensed consolidated statement of ~~(loss) income.~~operations.

~~Comprehensive Loss~~

During the three months ended September 29, 2019 we had comprehensive loss of $120.7 million, as compared to comprehensive loss of $1.5 million for the three months ended September 30, 2018. The change in comprehensive loss is further outlined in our condensed consolidated statements of comprehensive loss included in this Quarterly Report on Form 10-Q.

Provision for / (Benefit from) Income Taxes

The table below outlines the change in effective tax rate for the three months ended September 27, 2020 and September 29, 2019 (in thousands, except percentages).


	Three months ended
	September 27, 2020			September 29, 2019
Loss from Continuing Operations Before Income Taxes	$	(4,547)		$	(20,129)

U.S. tax rate	21.0		%	21.0		%
State taxes	(35.3)		%	8.7		%
Foreign derived intangible income	—		%	7.8		%
Foreign tax rate differential	1.5		%	(3.8)		%
Unbenefited losses	(174.3)		%	—		%
US permanent differences	(28.1)		%	—		%
GILTI impact	15.6		%	(9.0)		%
Intercompany financing	(42.4)		%	32.1		%
Dispositions	(14.5)		%	(41.0)		%
Impairment	—		%	(55.8)		%
Valuation Allowance	(933.3)		%	—		%
Other	(5.0)		%	2.6		%
Effective tax rate	(1,194.8)		%	(37.4)		%

Provision for/(benefit from) income taxes	$	54,318		$	7,520

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On July 9, 2020, the US Department of the Treasury (Treasury) and Internal Revenue Service (IRS) released Final Regulations (Final Regulations) that provide guidance on the section 250 deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). In addition, on July 20, 2020, Treasury released Proposed Regulations concerning GILTI. Based on the impact of these regulations, we believe less reliance should be placed on the US taxation of foreign earnings, which would adversely impact our ability to realize our US deferred tax assets. With the release of these Final Regulations during the third quarter, coupled with the negative evidence of cumulative losses in the US, the negative evidence outweighed the positive evidence as ~~compared to~~of the third quarter of 2020. As such, the Company has not relied on projections of future taxable income in its assessment of the realization of deferred tax assets at September 27, 2020, and recognized a valuation allowance of $42.2 million in income tax expense in the three months ended September ~~30, 2018 (in thousands, except percentages).~~27, 2020.

As a result of the assessment of the realizability of US deferred tax assets at September 27, 2020 and resulting income tax expense for US valuation allowance, the US valuation allowance at September 27, 2020 is at $61.8 million, which is an increase in the amount of $49.0 million from the US valuation allowance of $12.8 million maintained at December 31, 2019. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Three months ended
September 29, 2019 September 30, 2018
LOSS BEFORE INCOME TAXES $ (20,129 ) $ (4,012 )

U.S. tax rate 21.0 % 21.0 %
State Taxes 8.7 % (6.1 )%
Global Intangible Low-Taxed Income impact (9.0 )% (26.1 )%
Foreign derived intangible income 7.8 % (0.3 )%
Foreign Tax rate differential (3.8 )% 11.1 %
Dispositions (41.0 )% — %
Impairment (55.8 )% — %
Intercompany financing 32.1 % 8.6 %
Other 2.6 % (7.1 )%
Effective tax rate (37.4 )% 1.1 %

Provision for/(benefit from) income taxes $ 7,520
$ (45 )

The above changes in the various rate reconciling items for the three months ended September 29, 2019 compared to the three months ended September 30, 2018 are mainly due to disposition and impairment charges which are not deductible for tax purposes.

~~First~~ Nine Months Ended of ~~2019~~2020 Compared ~~With First~~with Nine Months Ended of ~~2018~~2019

Consolidated Operations


	Nine Months Ended
(in thousands)	September 27, 2020		September 29, 2019		Total Change		Divestiture		Operations		Foreign Exchange
Net Revenues
Aerospace & Defense	$	189,983	$	193,555	$	(3,572)	$	—	$	(3,464)	$	(108)
Industrial	374,937		528,120		(153,183)		(71,670)		(79,246)		(2,266)
Consolidated Net Revenues	$	564,920	$	721,675	$	(156,755)	$	(71,670)	$	(82,710)	$	(2,374)

Nine Months Ended
(in thousands) September 29, 2019 September 30, 2018
Total
Change
Divestiture Operations
Foreign
Exchange
Net Revenues
Energy $ 184,464
$ 206,090
$ (21,626 ) $ (45,436 ) $ 25,861
$ (2,051 )
Aerospace & Defense 193,555
173,734
19,821
—
22,887
(3,066 )
Industrial 343,656
366,930
(23,274 ) (8,800 ) 280
(14,754 )
Consolidated Net Revenues $ 721,675
$ 746,754
$ (25,079 ) $ (54,236 ) $ 49,028
$ (19,871 )

Net revenues for the nine months ended September ~~29, 2019~~27, 2020 were ~~$721.7~~$564.9 million, a decrease of ~~$(25.1)~~$(156.8) million, or ~~(-3%)~~(22)%, as compared to the nine months ended September ~~30, 2018,~~29, 2019, primarily driven by divestitures ~~(-7%)~~at (10)% and ~~unfavorable foreign currency translation (-3%)~~operational decline of (11)%.

Segment Results


(in thousands, except percentages)	Nine Months Ended
	September 27, 2020			September 29, 2019
Net revenues
Aerospace & Defense	$	189,983		$	193,555
Industrial	374,937			528,120

Consolidated net revenues	$	564,920		$	721,675

Loss from continuing operations before income taxes
Aerospace & Defense - Segment Operating Income	$	40,418		$	33,382
Industrial - Segment Operating Income	27,383			70,033
Corporate expenses	(23,496)			(25,798)
Subtotal	44,305			77,617
Restructuring charges, net	3,973			5,695
Special charges (recoveries), net	(39,720)			14,198
Special and restructuring charges (recoveries), net (1)	(35,747)			19,893
Divestiture and inventory related restructuring charges and (recoveries), net	(250)			(819)

Impairment charges	116,182			—
Acquisition amortization (2)	31,523			34,527
Acquisition depreciation (2)	2,965			3,331
Acquisition amortization and other costs, net	150,420			37,039
Consolidated operating (loss) income	(70,368)			20,685
Interest expense, net	25,699			37,846
Other expense (income), net	229			(2,755)
Loss from continuing operations before income taxes	$	(96,296)		$	(14,406)

Consolidated Operating Margin	(12.5)		%	2.9		%

(1) See Special and restructuring charges (recoveries), net in Note 5 to the condensed consolidated financial statements for additional details.
(2) Acquisition amortization and depreciation is recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

Aerospace & Defense Segment


	Nine Months Ended
(in thousands, except percentages)	September 27, 2020			September 29, 2019			Change
Net Revenues	$	189,983		$	193,555		$	(3,572)
Segment Operating Income	40,418			33,382			7,036
Segment Operating Margin	21.3		%	17.2		%
Segment Orders	207,752			245,480			(37,728)

Aerospace & Defense segment net revenues decreased by $(3.6) million, or (2)%, to $190.0 million for the nine months ended September 27, 2020 as compared to the nine months ended September 29, 2019. The decrease was driven by a decrease in our Commercial business of (9)%, partially offset by ~~organic~~ growth ~~primarily from~~in our ~~Energy and~~ Defense business of 7%.

Aerospace & Defense ~~businesses (+7%).~~

~~Segment Results~~

(in thousands, except percentages) Nine Months Ended
September 29, 2019 September 30, 2018
Net revenues
Energy $ 184,464

$ 206,090
Aerospace & Defense 193,555

173,734
Industrial 343,656

366,930
Consolidated net revenues $ 721,675
$ 746,754

Loss from continuing operations before income taxes
Energy - Segment Operating Income $ 23,607

$ 26,044
Aerospace & Defense - Segment Operating Income 33,382

24,631
Industrial - Segment Operating Income 40,878

42,592
Corporate expenses (20,250 ) (22,284 )
Subtotal 77,617
70,983
Restructuring charges, net 5,695
6,002
Special charges, net 14,198
5,922
Special and restructuring charges, net (1) 19,893
11,924
Cost of sales related to divestitures (819 ) 488
Amortization of inventory step-up —
6,600
Acquisition amortization (2) 34,527
35,299
Acquisition depreciation (2) 3,331
5,314
Acquisition amortization and other costs, net 37,039
47,701
Consolidated Operating Income 20,685
11,358
Interest expense, net 37,846
39,711
Other income, net (2,755 ) (7,079 )
Loss from continuing operations before income taxes $ (14,406 ) $ (21,274 )

Consolidated Operating Margin 2.9 % 1.5 %

(1) See Special and Restructuring Charges, net in Note 6 to the condensed consolidated financial statements for additional details.
(2) Acquisition amortization and depreciation is recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

~~Energy Segment~~

Nine Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenues as reported $ 184,464
$ 206,090
$ (21,626 )
Net Revenues excluding divestiture (1) 181,358
157,362
23,996
Segment Operating Income as reported 23,607
26,044
(2,437 )
Segment Operating Income excluding divestiture (2) 23,607
21,045
2,562
Segment Operating Margin (adjusted) 13.0 % 13.4 %

Segment Orders 145,346
239,307
(93,961 )
(1) Adjusted for the January 2019 divestiture of our Reliability Services business, which generated revenues of $3.1 million and $48.7 million for the nine months ended September 29, 2019 and September 30, 2018, respectively.
(2) Adjusted for the January 2019 divestiture of our Reliability Services business, which contributed $0.0 million and $5.0 million to segment operating income for the nine months ended September 29, 2019 and September 30, 2018, respectively.

~~Energy~~ segment ~~net revenues, excluding divestiture, increased $24.0~~orders decreased $(37.7) million, or ~~(+15%)~~(15.4)%, for the nine months ended September ~~29, 2019~~27, 2020 as compared to the nine months ended September ~~30, 2018.~~29, 2019, primarily driven by decreases in our Defense business of (5)% and Commercial business of (11)%.

Segment operating income increased $7.0 million, or 21.1%, to $40.4 million for the nine months ended September 27, 2020 as compared to the nine months ended September 29, 2019. The increase in operating income was primarily driven by ~~organic growth~~price, mix, improved manufacturing productivity, and cost countermeasures implemented to offset the impact of COVID-19.

The increase in segment operating margin from 17.2% to 21.3% was primarily driven by the ~~Refinery Valves business (+13%)~~impact of price, mix, manufacturing productivity, and ~~growth across~~cost countermeasures to offset the ~~remaining Energy portfolio (+3%), partially offset by unfavorable foreign currency translation (-1%).~~impact of COVID-19.

~~Energy~~Industrial Segment


	Nine Months Ended
(in thousands, except percentages)	September 27, 2020			September 29, 2019			Change
Net Revenues as reported	$	374,937		$	528,120		$	(153,183)
Net Revenues excluding divestiture (1)	370,037			451,534			(81,497)
Segment Operating Income as reported	27,383			70,033			(42,650)
Segment Operating Income excluding divestiture (2)	27,383			55,909			(28,526)
Segment Operating Margin (adjusted)	7.4		%	12.4		%
Segment Orders	359,919			495,462			(135,543)
(1) Adjusted for the January 2020 divestiture of the Instrumentation and Sampling ("I&S") business, the August 2019 divestiture of the Spence Engineering ("Spence") business and the divestiture of our Reliability Services business in January 2019. The I&S business generated revenues of $4.9 million and $60.0 million for the nine months ended September 27, 2020 and September 29, 2019, respectively. The Spence business generated revenues of $13.5 million for the nine months ended September 29, 2019. The Reliability Services business generated revenues of $3.1 million for the nine months ended September 29, 2019.
(2) Adjusted for the January 2020 divestiture of the I&S business, August 2019 divestiture of the Spence business and the January 2019 divestiture of the Reliability Services business. The I&S business contributed $10.6 million to segment operating income for the nine months ended September 29, 2019. The Spence business contributed $3.3 million to segment operating income for the nine months ended September 29, 2019.

Industrial segment ~~orders~~net revenue decreased ~~$(94.0)~~$(153.2) million, or ~~(-39%)~~(29)%, for the nine months ended September ~~29, 2019~~27, 2020 as compared to the nine months ended September, ~~30, 2018,~~2019. Industrial segment net revenue, excluding divestiture, decreased $(81.5) million, or (18)%, to $370.0 million for the nine months ended September 27, 2020 as compared to the nine months ended September 29, 2019. The decrease was primarily driven by ~~the divestiture of our Reliability Services business (-21%) and award push-outs~~declines within our ~~Refinery~~ Valves business ~~(-18%)~~of (11)% and Pumps business of (6)%.

Industrial segment orders decreased $(135.5) million, or (27.4)%, for the nine months ended September 27, 2020 as compared to the nine months ended September 29, 2019, driven by the impact from divestitures of (15)%, and declines in our Pumps business of (7)% and Valves business of (6)%.

Segment operating income decreased $(42.7) million, or (61)%, for the nine months ended September 27, 2020 as compared to the nine months ended September 29, 2019. Segment operating income, excluding divestiture, ~~increased $2.6~~decreased $(28.5) million or ~~(+12%),~~(51)% for the nine months ended September 27, 2020 as compared to ~~$23.6~~the nine months ended September 29, 2019, primarily driven by the impact of COVID-19 partially offset by cost savings initiatives.

Segment operating margin (adjusted) decreased from 12.4% in the nine months ended September 29, 2019 to 7.4% for the nine months ended September 27, 2020.The decline in margin reflects declines in Valves and Pumps businesses.

Corporate Expenses

Corporate expenses were $(23.5) million for the nine months ended September 27, 2020 compared to $(25.8) million for the nine months ended September 29, 2019 ~~compared to $21.0 million for the nine months ended September 30, 2018. The increase was~~ primarily driven by ~~volume and efficiencies in our Refinery Valves business (+9%) and the remainder of the Energy portfolio (+5%).~~cost savings initiatives.

~~Segment operating margin, excluding divestiture, remained consistent between periods.~~

~~Aerospace & Defense Segment~~

Nine Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenues $ 193,555
$ 173,734
$ 19,821
Segment Operating Income 33,382
24,631
8,751
Segment Operating Margin 17.2 % 14.2 %
Segment Orders 245,480
200,767
44,713

Aerospace & Defense segment net revenues increased by $19.8 million, or (+11%), to $193.6 million for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018. The increase was driven by our Defense businesses (+8%), along with growth across the remaining portfolio (+5%), which was partially offset by unfavorable foreign currency fluctuations (-2%).

Aerospace & Defense segment orders increased $44.7 million, or (+22%), for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018, primarily driven by our U.S. Defense orders (+20%), growth across the remainder of the portfolio (+4%), partially offset by unfavorable foreign currency translation (-2%).

Segment operating income increased $8.8 million, or (+36%), to $33.4 million for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018. The increase in operating income was primarily driven by the U.S. Defense business (+23%) and Actuation business (+12%).

~~The increase in segment operating margin from 14.2% to 17.2% was driven by higher revenues, along with pricing initiatives and low cost manufacturing growth.~~

~~Industrial Segment~~

Nine Months Ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 Change
Net Revenues as reported $ 343,656
$ 366,930
$ (23,274 )
Net Revenues excluding divestiture (1) 330,201
344,624
(14,423 )
Segment Operating Income as reported 40,878
42,592
(1,714 )
Segment Operating Income excluding divestiture (2) 37,606
38,949
(1,343 )
Segment Operating Margin (adjusted) 11.4 % 11.3 %
Segment Orders 350,116
388,229
(38,113 )
(1) Adjusted for the August 2019 divestiture of Spence and the October 2018 divestiture of the Delden Business. Spence generated revenues of $13.4 million and $14.8 million for the nine months ended September 29, 2019 and September 30, 2018, respectively. The Delden Business generated revenues of $0.0 million and $7.5 million for the nine months ended September 29, 2019 and September 30, 2018, respectively.
(2) Adjusted for the August 2019 divestiture of Spence and the October 2018 divestiture of the Delden Business. Spence contributed $3.3 million and $4.4 million to segment operating income for the nine months ended September 29, 2019 and September 30, 2018, respectively.
The Delden Business contributed $0.0 million and ($0.7) million to segment operating income for the nine months ended September 29, 2019 and September 30, 2018, respectively.

Industrial segment net revenue, excluding divestiture, decreased $(14.4) million, or (-4%), to $330.2 million for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018. The decrease was primarily driven by unfavorable foreign exchange (-4%), along with declines within our Pumps businesses (-1%), partially offset by growth in our Valves businesses (+2%).

Industrial segment orders decreased $(38.8) million, or (-10%), for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018, driven by declines within our Pumps Business (-8%) and our Valves Business (-2%).

Segment operating income, excluding divestiture, decreased $(1.3) million, or (-4%), for the nine months ended September 29, 2019 compared to the nine months ended September 30, 2018, primarily driven by declines within our Pumps Businesses (-17%), partially offset by strength in our Valves business (+9%) in both Europe and North America.

~~Segment operating margin remained consistent with price increases and synergies offset by volume and unfavorable foreign exchange.~~

~~Corporate Expenses~~

Corporate expenses were $20.3 million for the nine months ended September 29, 2019 compared to $22.3 million for the nine months ended September 30, 2018. The decrease from the prior year was primarily driven by lower professional fees and integration costs.

Special and Restructuring Charges (Recoveries), net

During the nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded net (recoveries) of $(35.7) million and charges of $19.9 million, ~~and $11.9 million, respectively,~~ within our condensed consolidated statements of ~~(loss) income~~operations caption "Special and restructuring (recoveries) charges, net". These special and restructuring (recoveries) charges, net are described in further detail in Note 65 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

~~Cost of sales~~Divestiture and Inventory related ~~to divestitures~~Restructuring charges and (recoveries), net

During the nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded ~~a recovery~~recoveries of ~~$(0.8)~~$0.3 million and ~~a net charge of $0.5~~$0.8 million, respectively, within our condensed consolidated statements of ~~(loss) income~~operations caption “Cost of revenues”. This adjustment includes the gross profit or loss for businesses that are divested in the quarter, as well as certain restructuring costs and recoveries related to inventory that are recorded in cost of revenues instead of special and restructuring charges. These types of inventory restructuring costs typically relate to the discontinuance of a product line or manufacturing inefficiencies directly related to a restructuring action.

Acquisition Amortization

During the nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded amortization expense of ~~$34.5~~$31.5 million and ~~$35.3~~$34.5 million, respectively, for intangibles acquired in acquisitions completed subsequent to December 31, 2011. These amortization expenses are recorded in either cost of revenues or selling, general, and administrative expenses depending upon the nature of the underlying asset.

Acquisition ~~Step-up~~ Depreciation

During the nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018,~~29, 2019, the Company recorded depreciation expense of ~~$3.3~~$3.0 million and ~~$5.3~~$3.3 million, respectively, related to the step-up to fair value of the plant, property, and equipment ~~related to~~from the ~~FH acquisition.~~acquisition of the fluid handling business of Colfax Corporation.

Interest Expense, net

~~Interest~~Net interest expense decreased ~~$(1.9)~~$(12.1) million to ~~$37.8~~$25.7 million induring the nine months ended September ~~29, 2019~~27, 2020 compared to the nine months ended September ~~30, 2018.~~29, 2019. The change in interest expense was ~~primarily~~ due to both lower debt ~~balances.~~balances and lower interest rates.

Other ~~Income,~~Expense (Income), net

During the nine months ended September ~~29, 2019,~~27, 2020, we had other ~~income,~~expense, net of ~~$(2.8)~~$0.2 million, as compared to other income, net of ~~$(7.1)~~$2.8 million for the nine months ended September ~~30, 2018.~~29, 2019. The year-over-year change is driven by ~~lower~~ foreign exchange ~~gains~~losses and lower pension income. ~~Effective January 1, 2018, all non-service pension gains and losses are recorded in the Other income, net caption on our condensed consolidated statements of (loss) income.~~

~~Comprehensive Loss~~

During the nine months ended September 29, 2019, we had comprehensive loss of $(159.1) million, as compared to comprehensive loss of $(30.3) million for the nine months ended September 30, 2018. The change in comprehensive loss is further outlined in our condensed consolidated statements of comprehensive loss included in this Quarterly Report on Form 10-Q.

Provision for / (Benefit from) Income Taxes

The table below outlines the change in effective tax rate for the nine months ended September 27, 2020 and September 29, 2019 (in thousands, except percentages).


	Nine Months Ended
	September 27, 2020			September 29, 2019
Loss from Continuing Operations Before Income Taxes	$	(96,296)		$	(14,406)

U.S. tax rate	21.0		%	21.0		%
State taxes	—		%	12.2		%
Global Intangible Low-Taxed Income Impact	—		%	(11.9)		%
Foreign derived intangible income	—		%	9.5		%
Foreign tax rate differential	(0.2)		%	(5.0)		%
Dispositions	(7.5)		%	(77.4)		%
Impairment	(4.7)		%	(78.0)		%
Intercompany financing	1.8		%	40.1		%

Valuation Allowance	(44.1)		%	—		%
Other	(8.8)		%	(4.3)		%
Effective tax rate	(42.5)		%	(93.8)		%

Provision for/(benefit from) income taxes	$	40,923		$	13,513

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On July 9, 2020, the Treasury and IRS released Final Regulations that provide guidance on the section 250 deduction for FDII and GILTI. In addition, on July 20, 2020, Treasury released Proposed Regulations concerning GILTI. Based on the impact of these regulations, we believe less reliance should be placed on the US taxation of foreign earnings, which would adversely impact our ability to realize our US deferred tax assets. With the release of these Final Regulations during the third quarter, coupled with the negative evidence of cumulative losses in the US , the negative evidence outweighed the positive evidence as ~~compared to~~of the third quarter of 2020. As such, the Company has not relied on projections of future taxable income in its assessment of the realization of deferred tax assets at September 27, 2020, and recognized a valuation allowance of $42.2 million in income tax expense in the nine months ended September ~~30, 2018 (in thousands, except percentages).~~27, 2020.

As a result of the assessment of the realizability of US deferred tax assets at September 27, 2020, and resulting income tax expense for US valuation allowance, the US valuation allowance at September 27, 2020 is at $61.8 million, which is an increase in the amount of $49.0 million from the US valuation allowance of $12.8 million maintained at December 31, 2019. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Off-Balance Sheet Arrangements and Contractual Obligations

Nine Months Ended
September 29, 2019 September 30, 2018
LOSS BEFORE INCOME TAXES $ (14,406 ) $ (21,274 )

U.S. tax rate 21.0 % 21.0 %
State taxes 12.2 % 4.0 %
Global Intangible Low-Taxed Income impact (11.9 )% (18.6 )%
Foreign derived intangible income 9.5 % 3.4 %
Foreign Tax rate differential (5.0 )% (9.2 )%
Dispositions (77.4 )% — %
Impairment (78.0 )% — %
Intercompany financing 40.1 % 18.6 %
Other (4.3 )% 1.6 %
Effective tax rate (93.8 )% 20.8 %

Provision for/(benefit from) income taxes $ 13,513
$ (4,434 )

~~The above~~We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. There have been no material changes outside of the ~~various rate reconciling items for~~ordinary course of business in contractual obligations set forth in the ~~nine months ended September 29, 2019 compared to the nine months ended September 30, 2018 are mainly due to disposition and impairment charges which are not deductible for tax purposes.~~table included within our most recent Annual Report on Form 10-K.

Liquidity and Capital Resources

Our liquidity needs arise primarily from capital investment in machinery, equipment and the improvement of facilities, funding working capital requirements to support business growth initiatives, acquisitions, and debt service costs. We have historically generated cash from operations and ~~remain in a strong financial position,~~have adequate liquidity, with resources available for ~~reinvestment~~reinvesting in existing businesses ~~strategic acquisitions~~ and managing our capital structure on a short and long-term basis.

The following table summarizes our cash flow activities for the nine month periods indicated ~~(in thousands)~~(in thousands):


	September 29, 2019			September 30, 2018				September 27, 2020		September 29, 2019
Cash flow provided by (used in):							Cash flow provided by (used in):
Operating activities	$	(911	)	$	23,463		Operating activities	$	(46,365)	$	(911)
Investing activities	151,201			(10,523		)	Investing activities	147,815		151,201
Financing activities	(147,841		)	(47,785		)	Financing activities	(113,274)		(147,841)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,753		)	(5,154		)	Effect of exchange rate changes on cash, cash equivalents and restricted cash	29		(1,753)
Increase / (decrease) in cash, cash equivalents and restricted cash	$	696		$	(39,999	)	Increase / (decrease) in cash, cash equivalents and restricted cash	$	(11,795)	$	696

During the nine months ended September ~~29, 2019,~~27, 2020, cash used in operations was ~~$0.9~~$46.4 million compared to cash ~~provided by~~used in operations of ~~$23.5~~$0.9 million during the ~~same period in 2018.~~prior corresponding period. The ~~$24.4~~$45.5 million ~~decrease~~increase in cash ~~provided~~used in operating activities was primarily driven by a ~~one-time pricing reimbursement in 2018~~combination of lower gross profit and lower overall revenue volume primarily as a result of divestitures, partially offset by increased cash from working capital and an increased cash usage of $10.8 million attributed to discontinued operations.net income.

During the nine months ended September ~~29, 2019,~~27, 2020, we generated ~~$151.2~~$147.8 million of cash from investing activities as compared to ~~using cash of $10.5~~$151.2 million from investing activities during the ~~same~~prior corresponding period. The $3.4 million period ~~in 2018. The $161.7 million year~~ over ~~year increase~~period decrease in cash generated was primarily driven by increased cash outflows for discontinued operations, partially offset by cash received from the sale of ~~our Reliability Services and Spence businesses which generated net proceeds~~a business during the current year resulting from of ~~$164.3 million in 2019 and lower purchases~~the sale of ~~property, plant, and equipment of $5.4 million, partially offset by a $6.3 million cash receipt in 2018 related to~~ the ~~working capital settlement with FH.~~Company's I&S business.

During the nine months ended September ~~29, 2019,~~27, 2020, we used ~~$147.8~~$113.3 million of cash in financing activities as compared to ~~$47.8~~$147.8 million of cash used in financing activities during the same period in ~~2018.~~2019. The ~~$100.1~~$34.5 million ~~year~~period over ~~year increase~~period decrease in cash used in financing activities arises from ~~an $160.7 million increase in~~lower net debt repayments ~~offset by a $61.2 million repayment of cash to~~in the ~~FH seller in 2018.~~current period.

As of September ~~29, 2019,~~27, 2020, total debt was ~~$640.9~~$527.7 million compared to ~~$786.0~~$636.3 million as of December 31, ~~2018.~~2019. Total debt is net of unamortized term loan debt issuance costs of $12.8 million and $17.6 million at September 27, 2020 and December 31, 2019, respectively. Total debt as a percentage of total shareholders’ equity was ~~172%~~239% as of September ~~29, 2019~~27, 2020 compared to ~~149%~~163% as of December 31, ~~2018.~~2019. As of September ~~29, 2019,~~27, 2020, we had gross borrowings of $540.5 million outstanding under the 2017 Credit Agreement and $35.3 million outstanding on letters of credit, with available capacity to borrow an additional ~~$108.0~~$73.5 million under ~~our~~the revolving credit facility, subject to the terms and conditions of that facility.

~~On April 12, 2018, the Company entered into a hedging agreement to mitigate the inherent risk associated with our outstanding debt.~~ The Company has entered into a cross-currency swap agreement to hedge against future volatility in exchange rates. Refer to Note 10, "Financial Instruments", of the condensed consolidated financial statements included within this Quarterly Report Form 10-Q.

~~We entered into a secured credit agreement, dated as of December 11, 2017 ("~~2017 Credit ~~Agreement"), which~~Agreement provides for a $150.0 million revolving line of credit with a five year maturity and a $785.0 million term loan with a seven year maturity. We entered into the 2017 Credit Agreement to fund acquisitions, to support our operational growth initiatives and working capital needs, and for general corporate purposes. AsOn February 26, 2020, the Company amended its term loan to lower the interest rate associated with the applicable margin calculation from LIBOR plus an applicable margin of ~~September 29, 2019, we had borrowings~~3.5% to LIBOR plus an applicable margin of ~~$640.9 million outstanding under the 2017 Credit Agreement and $44.5 million outstanding on letters of credit.~~3.25%.

The 2017 Credit Agreement contains covenants that require, among other items, maintenance of certain financial ratios and also limits our ability to: enter into secured and unsecured borrowing arrangements; issue dividends to shareholders; acquire and dispose of businesses; invest in capital equipment; transfer assets among domestic and international entities; participate in certain higher yielding long-term investment vehicles; and issue additional shares of our stock which limits our ability to borrow under the credit facility. The primary financial covenant is first lien net leverage, a ratio of total secured debt (less cash and cash equivalents) to total adjusted earnings before interest expense, taxes, depreciation, and amortization based on the 12 months ended at the testing period. We were in compliance with all financial covenants related to our existing debt obligations at September ~~29, 2019~~27, 2020 and

we believe it is likely that we will continue to meet such covenants for at least the next twelve months from date of issuance of the financial statements.

Our ratio of current assets to current liabilities was ~~2.0:~~2.4:1 as of September ~~29, 2019,~~27, 2020, which ~~remained~~was consistent with our ratio of ~~2.3:~~2.4:1 as of December 31, ~~2018.~~2019.

As of September ~~29, 2019,~~27, 2020, cash, cash equivalents, and short-term investments totaled ~~$69.2~~$72.8 million. ~~These~~Substantially, all of the Company's cash and cash equivalent balances are ~~substantially all~~ held in foreign bank accounts. This compares to ~~$68.5~~$84.5 million of cash, cash equivalents, and short-term investments as of December 31, ~~2018,~~2019, substantially all of which was held in foreign bank accounts. The cash and cash equivalents located at our foreign subsidiaries may not be repatriated to the U.S. or other jurisdictions without certain tax implications. ~~We believe that our U.S. based subsidiaries,~~If we should require more capital in the ~~aggregate, will generate positive operating cash flows. In addition,~~U.S. than is generated by our domestic operations, we could elect to repatriate future earnings from foreign jurisdictions or we may utilize our 2017 Credit ~~Agreement for U.S.-based cash needs.~~Agreement. These alternatives could result in a higher effective tax rate or increase to our interest expense.

~~We expect to generate positive cash flow from operating activities sufficient to support our capital expenditures and service our debt.~~

Based on our existing cash reserves, expected cash flows from operations and contractually available borrowings under our credit facility, we expect to have sufficient liquidity to fund working capital needs and future growth over at least the next twelve months from date of filing the quarterly financial statements. ~~On February 28, 2018, we announced the suspension of our nominal dividend, as part of our capital deployment strategy.~~

There is currently significant uncertainty about the future relationship between the United States and China, including with respect to trade policies, treaties, government regulations and tariffs. The current U.S. administration has called for substantial changes to U.S. foreign trade policy including greater restrictions on international trade and significant increases in tariffs on good imported into the U.S. Under the current status, we expect that tariff increases will primarily impact Distributed Valves product lines. The annual impact of the tariff increase will result in higher costs of imported material, which we do not currently expect to be material.

~~Off-Balance Sheet Arrangements~~

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. There have been no material changes outside of the ordinary course of business in contractual obligations set forth in the table included within our Form 10-K.



ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Business performance in the Oil & Gas refining sector is largely tied to refining margins, which are also driven by the market price of crude oil and gasoline demand. Seasonal factors such as hurricanes and peak gasoline demand in the summer months may also drive high crack spread margins. During periods when high crack spread margins exist, refineries prefer to operate continuously at full capacity. Refiners may decide to delay planned maintenance (commonly called “unit turnarounds”) during these periods to maximize their returns. Refining crack spread margins moderated in 2018, which resulted in unit turnarounds. As a result, the timing of major capital projects in our severe service refinery valves business were impacted. While planned maintenance and unit turnarounds are necessary for safe and efficient operation of the refineries, project timing driven by these factors may continue to create fluctuations in our performance.

The commercial marine market experienced a historically unprecedented decade-long increase in new ship builds beginning in 2004 to meet the increase in global trade demand. This created an over-supply of capacity that resulted in a slowdown of new ship contracts between 2015 to 2018. The pumps that we supply to the commercial marine market are first supplied during commissioning of a new vessel, with aftermarket business over the lifetime of that vessel. While we have experienced increased aftermarket business during the past decade as the global shipping fleet has expanded, the downturn in new ship builds starting in 2015 has negatively impacted our new equipment commercial marine business. Any extended downturn in the commercial marine market could have a material adverse effect on our business.

~~Foreign Currency Exchange Risk~~

The Company is exposed to certain risks relating to its ongoing business operations including foreign currency exchange rate risk, ~~and~~ interest rate ~~risk.~~ risk, and commodity raw material prices which may be impacted by tariffs on foreign-sourced materials.

Foreign Currency Exchange Risk

The Company’s foreign currency exchange rate risk is principally from the Euro, British Pound, and Swedish Krona. The effect of transaction gains and losses is reported within Other expense (income) , net in the Condensed Consolidated Statements of Operations.

The Company has entered into a cross-currency swap agreement to hedge against future volatility in exchange rates. See Financial Instruments in Note ~~10.~~9, Financing Arrangements, of the condensed consolidated financial statements included in this Quarterly Report Form 10-Q.

Interest Rate Risk

Loans under our credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by the Company. The Company entered into a hedging agreement to mitigate the inherent interest rate risk associated with our outstanding debt. Refer to Financial Instruments in Note ~~10, "Financial Instruments",~~9, Financing Arrangements, of the condensed consolidated financial statements included in this Quarterly Report Form 10-Q.



ITEM 4.			CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") (our principal executive officer and principal financial officer, respectively), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that, as of September ~~29, 2019,~~27, 2020, the Company's disclosure controls and procedures were ~~effective.~~not effective because of material weaknesses in our internal control over financial reporting as previously disclosed in Item 9A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2019, and detailed as follows:

We did not maintain a sufficient complement of corporate personnel with appropriate levels of accounting and controls knowledge and experience commensurate with our financial reporting requirements to appropriately analyze, record and disclose accounting matters completely and accurately. This material weakness contributed to the following additional material weaknesses detailed below:

• We did not design and maintain effective controls to analyze, account for and review non-routine transactions at the corporate level, including accounting for the financial statement effects of business dispositions, adverse purchase commitment liabilities, restricted cash balance sheet classification and other non-recurring transactions.

• We did not design and maintain effective controls over the preparation, review and approval of certain account reconciliations. Specifically, we did not maintain effective controls over the completeness and review of supporting schedules and accuracy of underlying data supporting account reconciliations prepared at the corporate level and certain of our shared service locations.

We have been actively addressing the identified material weaknesses. Actions have been taken to strengthen controls, and

further actions are planned as follows:

• Hire additional full-time corporate accounting resources with appropriate levels of experience.

• Continue to allocate additional resources to the Corporate accounting function, which may include the use of independent consultants with sufficient expertise to assist in the preparation and review of certain non-recurring transactions and timely review of the account reconciliations.

• Continue training on a regular basis related to internal control over financial reporting for our finance and accounting personnel.

We anticipate that the actions described above and resulting improvements in controls will strengthen the Company’s internal

control over financial reporting and will address the related material weaknesses.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September ~~29, 2019~~27, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, the Company has undertaken remediation actions to address the material weakness in our internal controls over financial reporting. These remediation actions continued throughout the quarter ended September 27, 2020, but have not materially affected our internal control over financial reporting.

The Company has now designed or redesigned a number of controls through the quarter ended September 27, 2020 that we are currently evaluating or awaiting additional testing samples to evaluate operating effectiveness. Controls that have been properly designed need to be operating effectively for acceptable periods of time. Due to the nature of the remediation process and the need to allow adequate time after implementation to evaluate and test the effectiveness of the controls, no assurance can be given as to the timing of remediation, but management has made further progress and expects the remediation to be completed by the fourth quarter of 2020.

PART II. OTHER INFORMATION



ITEM 1.			LEGAL PROCEEDINGS

For information regarding our legal proceedings refer to the first ~~three~~two paragraphs of Note 1211 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which disclosure is referenced herein.



ITEM 1A.			RISK FACTORS

~~Except for~~Shareholders and potential investors should consider the following additional risk factor ~~we have not identified any material changes~~relating to COVID-19 in conjunction with the risk factors ~~as previously disclosed~~set forth under Part 1, "Item 1A. Risk Factors" in ~~Item 1A of Part I of~~ our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

~~Actions of stockholders~~2019. The developments described in the additional risk factor have heightened, or ~~others~~ in ~~response to expiration~~some cases, manifested, certain of the ~~recent unsolicited tender offer could cause us~~risks disclosed in the risk factor section of our Form 10-K, and such risk factors are further qualified by the information relating to ~~incur substantial costs, divert management’s attention~~COVID-19 that is described in this Quarterly Report on Form 10-Q.

The impact of the COVID-19 pandemic has adversely impacted, and ~~resources,~~continues to pose risks to our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.

The pandemic caused by COVID-19 has impacted all geographic regions where the Company’s products are produced and sold. It has created significant volatility in the global economy and led to significantly reduced economic activity. The spread of COVID-19 has also caused disruptions in our manufacturing, delivery and overall supply chain. If the global economic effects of the pandemic continue or increase, overall demand for our products may continue to decrease, which would have ana material and adverse effect on our ~~business.~~business, results of operations and financial condition. There may also be long-term effects on our customers in and the economies of affected countries. If the economy or markets in which we operate remain weak or deteriorate further, our business, financial condition, cash flows and results of operations may be materially and adversely impacted.

~~During~~

The spread of COVID-19 has resulted in significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and limited access to certain corporate facilities and manufacturing sites. The full extent of the ~~second quarter~~effect of ~~2019,~~the pandemic on our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including whether COVID-19 continues to spread or re-emerges, particularly in the United States and Europe, where our operations are concentrated.

We could continue to experience, among other things:

•Adverse impacts on our operations and financial results caused by government and regulatory measures to contain or mitigate the spread of the virus, temporary closures of our facilities or the facilities of our customers or suppliers, which could impact our ability to timely meet our customers’ orders or negatively impact our supply chain;

•The failure of third parties on which we ~~became subject~~rely, including our suppliers, customers, contractors and external business partners, to ~~an unsolicited tender offer~~meet their respective obligations to ~~purchase all outstanding shares~~the Company, or significant disruptions in their ability to do so, including as a result of their own financial or operational difficulties;

•Adverse impacts on customer orders and purchases and unpredictable reductions in demand for many of our products;

•Disruptions or restrictions on our employees’ ability to work effectively, due to illness, quarantines, travel bans, shelter-in-place orders or other limitations;

•Increased cybersecurity and privacy risks and risks related to the reliability of technology to support remote operations;

•Sudden and/or severe declines in the market price of our common ~~stock. At the time the tender offer expired on July 19, 2019, approximately two-thirds of our issued~~stock; and ~~outstanding shares had been tendered~~

•Costs incurred and ~~as a result, we expect that we will receive additional attention~~revenues lost during and scrutiny from investors, potential acquirors, activist stockholders and others. Various actions to seek to effect change are available to such persons, including private engagement, publicity campaigns, proxy contests, litigation and other efforts to force transactions not supported by our board of directors or to acquire control over our company. Responding to such actions could be costly and time-consuming, may not align with our business strategies and could divert the attention of our board of directors and management from the ~~management~~effects of ~~our operations and~~ the pursuit of business strategies. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of any such actions may result in the loss of potential business opportunities, harm our ability to attract new investors, customers and employees, and cause our stock price to experience periods of volatility or stagnation.COVID-19 pandemic that likely will not be recoverable.



~~ITEM 6.~~	~~EXHIBITS~~



~~Exhibit~~ITEM 6.			EXHIBITS

~~No.~~


Exhibit No.				Description and Location
~~2.1~~3.1				~~Quota Purchase Agreement, dated as~~Amended and Restated Certificate of ~~July 13, 2019, as amended by Amendment No. 1 to~~Incorporation of the ~~Quota Purchase Agreement, dated as of July, 26, 2019, between CEP Holdings Sarl and P&P Flow Control AG,~~Company, incorporated herein by reference to Exhibit ~~2.1~~3.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on August 7, 2020.
3.2				Second Amended and Restated By-laws of the Company, incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, ~~(File No. 001-14962),~~ filed with the SEC on ~~August 1, 2019.~~ June 17, 2020.
~~2.2~~31.1*			Asset Purchase Agreement, dated as of August 30, 2019, by and among Spence Engineering Company, Inc., Leslie Controls, Inc., Emerson Process Management Regulator Technologies, Inc. and the Company (for certain enumerated provisions), incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-14962), filed with the SEC on September 6, 2019.
~~10.1~~	Guaranty dated August 30, 2019 by the Company to Emerson Process Management Regulator Technologies, Inc., incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-14962), filed with the SEC on September 6, 2019.
~~10.2~~*			~~First Amendment to the Amended and Restated Management Stock Purchase Plan~~
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*				Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**				Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101				The following financial statements (Unaudited) from CIRCOR International, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September ~~29, 2019,~~27, 2020, as filed with the Securities and Exchange Commission on November ~~13, 2019,~~5, 2020, formatted in XBRL (eXtensible Business Reporting Language), as follows:
		(i)		Condensed Consolidated Balance Sheets as of September ~~29, 2019~~27, 2020 and December 31, ~~2018~~2019
		(ii)		Condensed Consolidated Statements of ~~(Loss) Income~~Operations for the Three and Nine Months Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019
		(iii)		Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019
		(iv)		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019
		(v)		Condensed Consolidated Statements of Shareholders' Equity ~~as of~~for the Three and Nine Months Ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019
		(vi)		Notes to Condensed Consolidated Financial Statements
104				Cover Page Interactive ~~Data~~Date File (formatted as inline XBRL and contained in Exhibit 101).
*		Filed with this report.
**		Furnished with this report.




	CIRCOR INTERNATIONAL, INC.

November ~~13, 2019~~5, 2020		/s/ Scott A. Buckhout
		Scott A. Buckhout
		President and Chief Executive Officer
		Principal Executive Officer

November ~~13, 2019~~5, 2020		/s/ ~~Chadi Chahine~~Abhi Khandelwal
		~~Chadi Chahine~~Abhi Khandelwal
		Senior Vice President and Chief Financial Officer
		Principal Financial Officer

November ~~13, 2019~~5, 2020		/s/ ~~Gregory C. Bowen~~Amit Goel
		~~Gregory C. Bowen~~Amit Goel
		~~Senior~~ Vice President and ~~Corporate Controller~~Chief Accounting Officer
		Principal Accounting Officer



	September 29, 2019			December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	69,225		$	68,517
Trade accounts receivable, less allowance for doubtful accounts of $4,342 and $5,884 at September 29, 2019 and December 31, 2018, respectively	141,117			167,181
Inventories	151,744			143,682
Prepaid expenses and other current assets	89,854			71,428
Assets held for sale	29,935			197,238
Total Current Assets	481,875			648,046
PROPERTY, PLANT AND EQUIPMENT, NET	177,936			189,672
OTHER ASSETS:
Goodwill	360,304			450,605
Intangibles, net	392,515			440,281
Deferred income taxes	24,449			19,906
Assets held for sale	—			30,374
Other assets	31,052			12,728
TOTAL ASSETS	$	1,468,131		$	1,791,612
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	90,293		$	94,715
Accrued expenses and other current liabilities	110,682			92,496
Accrued compensation and benefits	25,564			30,703
Current portion of long-term debt	—			7,850
Liabilities held for sale	17,674			58,298
Total Current Liabilities	244,213			284,062
LONG-TERM DEBT	640,884			778,187
DEFERRED INCOME TAXES	26,809			33,607
PENSION LIABILITY, NET	144,809			150,623
LIABILITIES HELD FOR SALE	—			861
OTHER NON-CURRENT LIABILITIES	36,028			15,279
COMMITMENTS AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding				—
Common stock, $0.01 par value; 29,000,000 shares authorized; 19,906,263 and 19,845,205 shares issued and outstanding at September 29, 2019 and December 31, 2018, respectively	212			212
Additional paid-in capital	445,305			440,890
Retained earnings	97,728			232,102
Common treasury stock, at cost (1,372,488 shares at September 29, 2019 and December 31, 2018)	(74,472		)	(74,472		)
Accumulated other comprehensive loss, net of tax	(93,385		)	(69,739		)
Total Shareholders’ Equity	375,388			528,993
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,468,131		$	1,791,612



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance as of June 30, 2019	19,902	$	212	$	444,109		$	210,065		$	(85,015	)	$	(74,472	)	$	494,899
Net loss	—	—		—			(112,337		)	—			—			(112,337		)
Other comprehensive income, net of tax	—	—		—			—			(8,370		)	—			(8,370		)
Conversion of restricted stock units	4	—		(64		)	—			—			—			(64		)
Stock options exercised	—	—		63			—			—			—			63
Share-based plan compensation	—	—		1,229			—			—			—			1,229
Other	—	—		(32		)	—			—			—			(32		)
Balance as of September 29, 2019	19,906	$	212	$	445,305		$	97,728		$	(93,385	)	$	(74,472	)	$	375,388

	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance as of July 1, 2018	19,836	$	212	$	442,318		$	259,947		$	(54,013	)	$	(74,472	)	$	573,992
Net loss	—	—		—			(6,841		)	—			—			(6,841		)
Other comprehensive income, net of tax	—	—		—						5,353						5,353
Conversion of restricted stock units	2	—		(21		)	—			—			—			(21		)
Stock options exercised	6	—		250			—			—			—			250
Share-based plan compensation	—	—		1,437			—			—			—			1,437
Other	—	—		—			1			—			—			1
Balance as of September 30, 2018	19,844	$	212	$	443,984		$	253,107		$	(48,660	)	$	(74,472	)	$	574,171



Leases
Assets	Operating			Finance
Gross ROU Assets (1)	$	20,221		$	2,842
Less: Accumulated Amortization	(3,557		)	(246		)
Net ROU Assets	$	16,664		$	2,596

Liabilities	Operating			Finance
Current (2)	$	3,910		$	403
Non-current (3)	12,984			2,252
Total Lease Liabilities	$	16,894		$	2,655

(1) Operating and Finance ROU Assets are included within other assets on the balance sheet.
(2) The current portion of operating and finance lease liabilities are recorded within accrued expenses and other current liabilities on the balance sheet.
(3) The non-current portion of operating and finance lease liabilities are recorded within other non-current liabilities on the balance sheet.



	Three Months Ended		Nine Months Ended
Lease Costs	September 29, 2019		September 29, 2019
Operating lease cost (1)	$	1,578	$	4,211

Finance lease cost
Amortization of leased assets (2)	78		174
Interest on lease liabilities (3)	15		25
Total finance lease costs	93		199
Total lease cost	$	1,671	$	4,410

(1) Operating lease costs are recorded within selling, general and administrative expenses or cost of revenue within the condensed consolidated statements of (loss) income depending upon the nature of the underlying lease.
(2) Finance lease amortization costs are recorded in selling, general and administrative expenses within the condensed consolidated statements of (loss) income.
(3) Finance lease interest costs are recorded in interest expense, net within the condensed consolidated statements of (loss) income.



Maturity of Lease Liabilities	Operating			Finance			Total
2019	$	1,594		$	101		$	1,695
2020	4,403			404			4,807
2021	3,377			404			3,781
2022	2,521			392			2,913
2023	1,966			392			2,358
After 2023	5,158			1,187			6,345
Less: Interest	(2,125		)	(225		)	(2,350		)
Present value of lease liabilities	$	16,894		$	2,655		$	19,549



	Special & restructuring charges, net
	Three Months Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Special charges, net	$	18,481	$	1,898	$	14,198	$	5,922
Restructuring charges, net	5,038		1,090		5,695		6,002
Total special and restructuring charges, net	$	23,519	$	2,988	$	19,893	$	11,924



	Special charges (recoveries), net
	For the three months ended September 29, 2019
	Energy			Aerospace & Defense		Industrial		Corporate		Total
Business sales	$	1,859		$	—	$	9,785	$	—	$	11,644
Professional fees to review and respond to an unsolicited tender offer to acquire the Company	—			—		—		3,953		3,953
Other cost savings initiatives	2,085			—		—		799		2,884
Total special charges (recoveries), net	$	3,944		$	—	$	9,785	$	4,752	$	18,481

	Special charges (recoveries), net
	For the nine months ended September 29, 2019
	Energy			Aerospace & Defense		Industrial		Corporate		Total
Business sales	$	(5,868	)	$	—	$	9,938	$	286	$	4,356
Professional fees to review and respond to an unsolicited tender offer to acquire the Company	—			—		—		6,028		6,028
Other cost savings initiatives	2,085			—		—		1,729		3,814
Total special (recoveries) charges, net	$	(3,783	)	$	—	$	9,938	$	8,043	$	14,198



	Special Charges, net
	For the three months ended September 30, 2018
	Energy		Aerospace & Defense		Industrial		Corporate		Total
Acquisition related charges	$	—	$	—	$	—	$	1,210	$	1,210
Other	490		—		—		—		490
Brazil closure	198		—		—		—		198
Total special charges, net	$	688	$	—	$	—	$	1,210	$	1,898

	Special Charges, net
	For the nine months ended September 30, 2018
	Energy		Aerospace & Defense		Industrial		Corporate		Total
Acquisition related charges	$	—	$	—	$	—	$	4,665	$	4,665
Other	527		—		—		—		527
Brazil closure	730		—		—		—		730
Total special charges, net	$	1,257	$	—	$	—	$	4,665	$	5,922



Results from continuing operations before income taxes
Energy - Segment Operating Income	$	5,286		$	9,726		$	23,607		$	26,044
Aerospace & Defense - Segment Operating Income	13,564			8,709			33,382			24,631
Industrial - Segment Operating Income	13,953			14,609			40,878			42,592
Corporate expenses	(7,209		)	(8,034		)	(20,250		)	(22,284		)
Segment Operating Income	25,594			25,010			77,617			70,983
Restructuring charges, net	5,038			1,090			5,695			6,002
Special charges, net	18,481			1,898			14,198			5,922
Special and restructuring charges, net	23,519			2,988			19,893			11,924
Restructuring related inventory charges	(1,145		)	—			(819		)	488
Amortization of inventory step-up	—			—			—			6,600
Acquisition amortization	11,202			11,734			34,527			35,299
Acquisition depreciation	1,102			1,743			3,331			5,314
Acquisition amortization and other costs, net	11,159			13,477			37,039			47,701
Consolidated Operating (Loss) Income	(9,084		)	8,545			20,685			11,358
Interest expense, net	11,804			14,137			37,846			39,711
Other income, net	(759		)	(1,580		)	(2,755		)	(7,079		)
Loss from continuing operations before income taxes	$	(20,129	)	$	(4,012	)	$	(14,406	)	$	(21,274	)

	Three Months Ended						Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Capital expenditures
Energy	$	487		$	1,842		$	1,686		$	4,724
Aerospace & Defense	1,826			1,320			3,204			3,161
Industrial	1,602			910			3,968			6,760
Corporate	222			187			877			574
Consolidated capital expenditures	$	4,137		$	4,259		$	9,735		$	15,219

Depreciation and amortization
Energy	$	2,755		$	3,390		$	8,440		$	10,364
Aerospace & Defense	3,145			2,716			8,579			8,244
Industrial	11,149			12,337			35,033			37,158
Corporate	131			171			416			592
Consolidated depreciation and amortization	$	17,180		$	18,614		$	52,468		$	56,358

Identifiable assets	September 29, 2019			September 30, 2018
Energy	$	499,463		$	905,708
Aerospace & Defense	436,120			642,431
Industrial	1,391,897			1,020,849
Corporate	(859,349		)	(756,138		)
Consolidated identifiable assets	$	1,468,131		$	1,812,850



	Significant Other Observable Inputs
Derivative assets	$	4,345
Derivative liabilities	$	(10,160	)



Balance beginning December 31, 2018	$	2,980
Provisions	2,204
Claims settled	(2,361		)
Currency translation adjustment	(54		)
Balance ending September 29, 2019	$	2,769



	Q1		Q2			Q3			Q4		2018
Overstated (understated) comprehensive income	$	5.4	$	(5.1	)	$	(0.2	)	$	2.1	$	2.2