Quick10K

Kaman

Price	59.45		EPS	6
Shares	28		P/E	10
MCap	1,672		P/FCF	418
Net Debt	-329		EBIT	191
TEV	1,342		TEV/EBIT	7
TTM 2019-09-27, in MM, except price, ratios

10-Q	2020-10-02	Filed 2020-11-04 Print
10-Q	2020-07-03	Filed 2020-08-10 Print
10-Q	2020-04-03	Filed 2020-05-11 Print
10-K	2019-12-31	Filed 2020-02-24 Print
10-Q	2019-09-27	Filed 2019-11-04 Print
10-Q	2019-06-28	Filed 2019-07-31 Print
10-Q	2019-03-29	Filed 2019-05-01 Print
10-K	2018-12-31	Filed 2019-02-25 Print
10-Q	2018-09-28	Filed 2018-11-01 Print
10-Q	2018-06-29	Filed 2018-08-08 Print
10-Q	2018-03-30	Filed 2018-05-07 Print
10-K	2017-12-31	Filed 2018-02-27 Print
10-Q	2017-09-29	Filed 2017-10-26 Print
10-Q	2017-06-30	Filed 2017-07-31 Print
10-Q	2017-03-31	Filed 2017-05-03 Print
10-K	2016-12-31	Filed 2017-02-28 Print
10-Q	2016-09-30	Filed 2016-10-27 Print
10-Q	2016-07-01	Filed 2016-07-28 Print
10-Q	2016-04-01	Filed 2016-05-03 Print
10-K	2015-12-31	Filed 2016-02-29 Print
10-Q	2015-10-02	Filed 2015-10-29 Print
10-Q	2015-07-03	Filed 2015-07-30 Print
10-Q	2015-04-03	Filed 2015-04-29 Print
10-K	2014-12-31	Filed 2015-02-23 Print
10-Q	2014-09-26	Filed 2014-11-03 Print
10-Q	2014-06-27	Filed 2014-08-04 Print
10-Q	2014-03-28	Filed 2014-04-28 Print
10-K	2013-12-31	Filed 2014-02-27 Print
10-Q	2013-09-27	Filed 2013-10-28 Print
10-Q	2013-06-28	Filed 2013-07-29 Print
10-Q	2013-03-29	Filed 2013-04-29 Print
10-K	2012-12-31	Filed 2013-02-25 Print
10-Q	2012-09-28	Filed 2012-10-31 Print
10-Q	2012-06-29	Filed 2012-07-26 Print
10-Q	2012-03-30	Filed 2012-04-30 Print
10-K	2011-12-31	Filed 2012-02-27 Print
10-Q	2011-09-30	Filed 2011-11-02 Print
10-Q	2011-07-01	Filed 2011-08-04 Print
10-Q	2011-04-01	Filed 2011-05-05 Print
10-K	2010-12-31	Filed 2011-02-28 Print
10-Q	2010-10-01	Filed 2010-11-01 Print
10-Q	2010-07-02	Filed 2010-08-05 Print
10-Q	2010-04-02	Filed 2010-05-06 Print
10-K	2009-12-31	Filed 2010-02-25 Print

8-K	2020-11-16
8-K	2020-11-04
8-K	2020-09-10
8-K	2020-08-20
8-K	2020-08-10
8-K	2020-08-04
8-K	2020-06-10
8-K	2020-05-26
8-K	2020-05-11
8-K	2020-04-10
8-K	2020-04-08
8-K	2020-03-30
8-K	2020-03-24
8-K	2020-03-19
8-K	2020-03-16
8-K	2020-02-25
8-K	2020-02-24
8-K	2020-01-03
8-K	2019-12-13
8-K	2019-12-11
8-K	2019-11-04
8-K	2019-11-04
8-K	2019-09-04
8-K	2019-08-26
8-K	2019-08-06
8-K	2019-07-31
8-K	2019-07-24
8-K	2019-07-15
8-K	2019-07-08
8-K	2019-06-25
8-K	2019-06-04
8-K	2019-05-01
8-K	2019-04-17
8-K	2019-02-27
8-K	2019-02-25
8-K	2018-11-15
8-K	2018-11-01
8-K	2018-09-12
8-K	2018-08-08
8-K	2018-06-05
8-K	2018-05-17
8-K	2018-05-07
8-K	2018-04-18
8-K	2018-04-18
8-K	2018-03-13
8-K	2018-02-27
8-K	2018-02-16

top bs is cf

Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

---

---

PART I

Item 1. Financial Statements

---

---

---

---

During the third quarter of 2019, Kaman Corporation ("the Company") completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020 and transaction costs. The Distribution business' results of operations and the related cash flows have been reclassified to earnings from discontinued operations in the Condensed Consolidated Statement of Operations and cash flows from discontinued operations in the Condensed Consolidated Statement of Cash Flows, respectively, for all periods presented. See Note 3, Discontinued Operations, to the Condensed Consolidated Financial Statements for further information.

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

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

Recent Accounting Standards Adopted

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". The objective of the standard update is to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract to address the diversity in practice. The ASU requires an entity in a hosting arrangement that is a service arrangement to determine which costs to capitalize as an asset related to a service contract and which costs to expense, and to determine which project stage implementation activities relate to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. Capitalized implementation costs of a hosting arrangement are expensed over the term of the hosting arrangement in the same line item in the statement of operations as the fees associated with the hosting element of the arrangement. The standard update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption was permitted. The amendments in this standard update should be applied either retrospectively or prospectively to all implementation costs incurred after the inception date. The Company has elected to adopt the standard update prospectively. The adoption of this standard update did not have a material impact on the Company's consolidated financial statements.

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

---

2. RECENT ACCOUNTING STANDARDS (CONTINUED)

Recent Accounting Standards Adopted - continued

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The objective of this standard update is to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under this ASU, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, assuming the loss recognized does not exceed the total amount of goodwill for the reporting unit. The standard update is effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company adopted this accounting standard for the year ended December 31, 2020. During the third quarter of 2020, the Company recognized a goodwill impairment charge for its Aerosystems reporting unit. The carrying amount exceeded the reporting unit's fair value by $56.1 million; therefore, the Company recorded a goodwill impairment charge of $50.3 million, which represents the entire goodwill balance for the reporting unit.

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

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

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

Recent Accounting Standards Yet to be Adopted

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

---

2. RECENT ACCOUNTING STANDARDS (CONTINUED)

Recent Accounting Standards Yet to be Adopted - continued

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

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes". The objective of the standard is to simplify the accounting for income taxes by removing certain exceptions and to improve consistent application of Topic 740 by clarifying and amending existing guidance. The standard update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the standard is permitted, including adoption in any interim period for which financial statements have not yet been issued. If early adopted in an interim period, the adjustments should be reflected as of the beginning of the annual period that includes that interim period. All amendments under the standard must be adopted in the same period. The Company is currently assessing the potential impact this standard update could have on its consolidated financial statements.

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

---

3. DISCONTINUED OPERATIONS (CONTINUED)

Upon closing, the Company entered into a transition services agreement ("TSA") with the buyer, pursuant to which the Company agreed to support the information technology ("IT"), human resources and benefits, tax and treasury functions of the Distribution business for six to twelve months. The buyer has exercised the option to extend the support period for up to a maximum of an additional year for certain IT services. The buyer has the right to terminate individual services at any point over the renewal term and has begun to terminate certain services in the third quarter of 2020. Since the sale of the Distribution business, costs associated with the TSA were $16.2 million through October 2, 2020. The Company incurred $3.0 million and $11.5 million in costs associated with the TSA in the three-month and nine-month fiscal periods ended October 2, 2020. The Company incurred $1.2 million in costs associated with the TSA in both the three-month and nine-month fiscal periods ended September 27, 2019. These amounts were included in costs from transition services agreement on the Company's Condensed Consolidated Statements of Operations. Since the sale of the Distribution business, the Company earned $11.5 million in income associated with the TSA through October 2, 2020. The Company earned $1.8 million and $7.9 million in income associated with the TSA in the three-month and nine-month fiscal periods ended October 2, 2020. The Company earned $0.9 million in income associated with the TSA in both the three-month and nine-month fiscal periods ended September 27, 2019. These amounts were included in income from transition services on the Company's Condensed Consolidated Statements of Operations.

Since the sale of the Distribution business, cash outflows from the Company to its former Distribution business totaled $8.1 million through October 2, 2020, which primarily related to Distribution employee and employee-related costs incurred prior to the sale. Cash outflows from the Company to its former Distribution business after the sale totaled $0.3 million and $4.8 million for the nine-month fiscal periods ended October 2, 2020 and September 27, 2019, respectively. Since the sale of the Distribution business, cash inflows from the Company's former Distribution business to the Company totaled $16.1 million through October 2, 2020, which primarily related to cash received for services performed under the TSA and the $5.2 million working capital adjustment settled in the first quarter of 2020. Cash inflows from the Company's former Distribution business received in the nine-month fiscal period ended October 2, 2020 totaled $12.5 million. Cash inflows from the Company's former Distribution business received in the nine-month fiscal period ended September 27, 2019 were not material.

---

3. DISCONTINUED OPERATIONS (CONTINUED)

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

Copy History

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

In the nine-month fiscal period ended October 2, 2020, the Company recorded a gain on disposal of discontinued operations as a result of the final settlement of the working capital adjustment, partially offset by transaction costs.

4. BUSINESS COMBINATIONS

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

---

4. BUSINESS COMBINATIONS (CONTINUED)

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

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

Copy History

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

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

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

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

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

---

4. BUSINESS COMBINATIONS (CONTINUED)

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

Copy History

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

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

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

---

5. REVENUE

Disaggregation of Revenue

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

Copy History

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

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

COVID-19

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

The following table disaggregates total revenue by product types.

Copy History

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

---

5. REVENUE (CONTINUED)

Disaggregation of Revenue - continued

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

Copy History

						For the Three Months Ended												For the Nine Months Ended
						October 2, 2020						September 27, 2019						October 2, 2020						September 27, 2019
Over time						25		%				32		%				31		%				41		%
Point-in-time						75		%				68		%				69		%				59		%
Total revenue						100		%				100		%				100		%				100		%

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

Copy History

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

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

---

5. REVENUE (CONTINUED)

Unfulfilled Performance Obligations

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

Copy History

						October 2,  2020(1)						December 31, 2019
In thousands
Backlog						$	712,133					$	806,870

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

General & Administration Expense Reduction Initiative

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

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

Workforce Reductions in Response to COVID-19

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

Composites Businesses Restructuring

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

---

6. RESTRUCTURING COSTS (CONTINUED)

Composites Businesses Restructuring - continued

Since the announcement, restructuring expense associated with these activities through October 2, 2020 was $9.7 million of the total anticipated expense of $9.7 million. Expense associated with these restructuring activities was $0.4 million for the three-month and nine-month fiscal periods ended October 2, 2020. Expense associated with these restructuring activities was $0.1 million and $0.6 million for three-month and nine-month fiscal periods ended September 27, 2019. At October 2, 2020 and December 31, 2019, the Company had an accrual balance of $0.8 million and $0.4 million, respectively, included in other current liabilities, which relates to costs associated with the consolidation of facilities. During the fourth quarter, the Company settled the claim associated with its accrual at October 2, 2020.

Accounts receivable, net consisted of the following:

Copy History

						October 2, 2020						December 31, 2019
In thousands
Trade receivables						$	20,139					$	13,794
U.S. Government contracts:
Billed						26,041						15,136
Cost and accrued profit - not billed						810						894
Commercial and other government contracts
Billed						129,131						120,427
Cost and accrued profit - not billed						10,622						7,487
Less allowance for doubtful accounts						(1,614)						(1,246)
Accounts receivable, net						$	185,129					$	156,492

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

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

Copy History

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

COVID-19

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

---