KAMAN Corp [KAMN] Filings

10-Q 1 kamn-20230929.htm 10-Q kamn-20230929

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	September 29, 2023


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

For the transition period from _____ to ______


Commission File Number:			001-35419


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


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

1332 Blue Hills Avenue,

Bloomfield,

Connecticut

06002

(Address of principal executive offices)

(Zip Code)


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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($1 par value)

KAMN

New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☒			No			☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes			☒			No			☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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


			☐

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


Yes			☐			No			☒


At October 27, 2023, there were			28,256,389			shares of Common Stock outstanding.

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

KAMAN CORPORATION AND SUBSIDIARIES

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


	September 29, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	30,065	$	24,154
Accounts receivable, net	106,647		87,659
Contract assets	100,709		113,182
Inventories	201,439		172,383
Income tax refunds receivable	4,680		14,843
Other current assets	21,063		16,114
Total current assets	464,603		428,335
Property, plant and equipment, net of accumulated depreciation of $283,272 and $268,089, respectively	203,704		201,606
Operating right-of-use assets, net	6,325		7,391
Goodwill	380,243		379,854
Other intangible assets, net	352,208		372,331
Deferred income taxes	45,878		47,385
Other assets	54,831		51,207
Total assets	$	1,507,792	$	1,488,109
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt, net of debt issuance costs	$	198,854	$	—
Accounts payable – trade	45,890		48,277
Accrued salaries and wages	31,027		31,395
Contract liabilities, current portion	7,884		4,081
Operating lease liabilities, current portion	3,110		3,332
Income taxes payable	2,214		393
Other current liabilities	45,540		39,097
Total current liabilities	334,519		126,575
Long-term debt, excluding current portion, net of debt issuance costs	382,000		561,061
Deferred income taxes	6,490		6,079
Underfunded pension	49,813		52,309
Contract liabilities, noncurrent portion	19,653		20,515
Operating lease liabilities, noncurrent portion	3,452		4,534
Other long-term liabilities	32,570		36,280
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding	—		—
Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,910,177 and 30,640,068 shares issued, respectively	30,910		30,640
Additional paid-in capital	251,843		245,436
Retained earnings	674,271		685,234
Accumulated other comprehensive income (loss)	(154,794)		(158,421)
Less 2,663,437 and 2,607,841 shares of common stock, respectively, held in treasury, at cost	(122,935)		(122,133)
Total shareholders’ equity	679,295		680,756
Total liabilities and shareholders’ equity	$	1,507,792	$	1,488,109

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

KAMAN CORPORATION AND SUBSIDIARIES

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


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net sales	$	183,031	$	172,004	$	572,731	$	490,818
Cost of sales	117,977		117,326		368,246		334,008
Program inventory impairment (Note 10)	417		—		1,013		—
Gross profit	64,637		54,678		203,472		156,810
Selling, general and administrative expenses	42,501		49,009		127,765		127,980
Research and development costs	4,022		3,937		15,122		14,265
Intangible asset amortization expense	5,593		3,118		19,937		8,024
Restructuring and severance costs	571		(243)		3,033		2,853
Gain on sale of business	—		(457)		—		(457)
Net loss on disposition of assets	78		15		496		71
Operating income (loss)	11,872		(701)		37,119		4,074
Interest expense, net	9,405		3,614		29,349		8,088
Non-service pension and post-retirement benefit income	(310)		(5,142)		(930)		(15,429)
Other expense, net	849		1,221		377		2,415
Earnings (loss) before income taxes	1,928		(394)		8,323		9,000
Income tax expense (benefit)	462		(114)		2,371		1,631
Net earnings (loss)	$	1,466	$	(280)	$	5,952	$	7,369

Earnings per share:
Basic earnings (loss) per share	$	0.05	$	(0.01)	$	0.21	$	0.26
Diluted earnings (loss) per share	$	0.05	$	(0.01)	$	0.21	$	0.26
Average shares outstanding:
Basic	28,247		28,037		28,189		27,997
Diluted	28,350		28,037		28,324		28,076

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

KAMAN CORPORATION AND SUBSIDIARIES

(In thousands) (Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net earnings (loss)	$	1,466	$	(280)	$	5,952	$	7,369
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(5,766)		(9,875)		(2,297)		(25,347)
Change in pension and post-retirement benefit plan liabilities, net of tax expense of $445 and $259 and $1,336 and $756, respectively	1,478		821		4,434		2,483
(Loss) gain on derivative instruments, net of tax (benefit) expense of $(13) and $0 and $449 and $0, respectively	(42)		—		1,490		(7)
Other comprehensive (loss) income	(4,330)		(9,054)		3,627		(22,871)
Comprehensive (loss) income	$	(2,864)	$	(9,334)	$	9,579	$	(15,502)

See accompanying notes to condensed consolidated financial statements.


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


	For the Nine Months Ended
	September 29, 2023		September 30, 2022
Cash flows from operating activities:
Net earnings	5,952		7,369
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	38,244		27,037
Amortization of debt issuance costs	2,985		1,882
Provision for doubtful accounts	1,495		619
Gain on sale of business	—		(457)
Net loss on disposition of assets	496		71
Program inventory impairment	1,013		—
Net loss on derivative instruments	620		2,670
Stock compensation expense	5,190		6,145
Non-cash consideration received for blade exchange	(1,309)		(827)
Deferred income taxes	212		1,600
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable	(20,736)		(23,640)
Contract assets	12,467		(5,405)
Inventories	(30,952)		(19,478)
Income tax refunds receivable	10,158		(2,401)
Operating right of use assets	1,052		3,347
Other assets	(3,802)		(3,230)
Accounts payable - trade	(2,423)		(8,780)
Contract liabilities	2,951		4,246
Operating lease liabilities	(1,290)		(3,296)
Other current liabilities	5,057		(4,591)
Income taxes payable	1,867		(227)
Pension liabilities	3,005		(13,309)
Other long-term liabilities	(2,579)		(3,045)
Net cash provided by (used in) operating activities	29,673		(33,700)
Cash flows from investing activities:
Expenditures for property, plant & equipment	(19,864)		(17,626)
Investment in Near Earth Autonomy	—		(10,000)
Acquisition of businesses	(1,487)		(441,340)
Other, net	(708)		2,438
Net cash used in investing activities	(22,059)		(466,528)
Cash flows from financing activities:
Net borrowings under revolving credit agreement	19,000		412,000
Purchase of treasury shares	(780)		(762)
Dividends paid	(16,871)		(16,760)
Debt issuance costs	(4,833)		(4,285)
Other, net	1,903		1,725
Net cash (used in) provided by financing activities	(1,581)		391,918
Net increase (decrease) in cash and cash equivalents	6,033		(108,310)
Effect of exchange rate changes on cash and cash equivalents	(122)		(1,132)
Cash and cash equivalents at beginning of period	24,154		140,800
Cash and cash equivalents at end of period	$	30,065	$	31,358

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

1. BASIS OF PRESENTATION

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 condensed consolidated financial statements for the period ended September 29, 2023 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, 2022.

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 2023 and 2022 ended on September 29, 2023, and September 30, 2022, respectively.

2. ACCOUNTING CHANGES

Revision of Previously Issued Consolidated Financial Statements

During the three-month fiscal period ended June 30, 2023, the Company identified errors related to (1) the accounting for certain labor costs at one business in the Precision Products segment and (2) the net realizable value on certain portions of the Company's inventory at another business in the Structures segment, each resulting in an overstatement of inventory and an understatement of cost of sales and related tax impacts. The Company concluded that these errors were not material, either individually or in aggregate, to previously issued consolidated financial statements; however, the Company has determined it was appropriate to revise its previously issued consolidated financial statements as of December 31, 2022, and for the years ended December 31, 2022 and 2021 and its unaudited condensed consolidated financial statements as of and for the quarters and year-to-date fiscal periods ended July 1, 2022, September 30, 2022 and March 31, 2023. Accordingly, the accompanying financial statements and relevant footnotes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q have been revised to correct for these errors. The Company will present the revision of its previously issued consolidated financial statements for the years ended December 31, 2022 and 2021 in connection with the future filing of its Annual Report on Form 10-K for the year ended December 31, 2023. Additionally, the Company will present the revision of its previously issued unaudited condensed consolidated financial statements for the quarter ended March 31, 2023 with the future filing of its Quarterly Report on Form 10-Q for the quarter ending March 29, 2024.

The revision to the accompanying unaudited condensed consolidated balance sheet, condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statement of cash flows are as follows. There were no changes to the consolidated statement of stockholders' equity that have not otherwise been reflected in the condensed consolidated balance sheets, condensed consolidated statements of operations, and condensed consolidated statements of comprehensive income as detailed in the tables below.


Condensed Consolidated Balance Sheet
In thousands
	December 31, 2022
	As Previously Reported		Adjustments		As Corrected
Assets
Inventories(1)	$	176,468	$	(4,085)	$	172,383
Income tax refunds receivable	13,981		862		14,843
Total	$	190,449	$	(3,223)	$	187,226
Shareholders' equity
Retained earnings	$	688,457	$	(3,223)	$	685,234

(1) At December 31, 2022, the adjustments to inventories consisted of an adjustment of $2.5 million for certain labor costs at a business within the Precision Products segment and an adjustment of $1.6 million for the net realizable value on certain portions of the inventory at a business within the Structures segment.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

2. ACCOUNTING CHANGES (CONTINUED)

Revision of Previously Issued Consolidated Financial Statements - continued


Condensed Consolidated Statements of Operations
In thousands, except per share amounts
	For the Three Months Ended September 30, 2022
	As Previously Reported		Adjustments		As Corrected
Cost of sales	$	116,179	$	1,147	$	117,326
Income tax expense	128		(242)		(114)
Net earnings	625		(905)		(280)
Basic earnings per share	$	0.02	$	(0.03)	$	(0.01)
Diluted earnings per share	$	0.02	$	(0.03)	$	(0.01)

	For the Nine Months Ended September 30, 2022
	As Previously Reported		Adjustments		As Corrected
Cost of sales	$	332,299	$	1,709	$	334,008
Income tax expense	1,992		(361)		1,631
Net earnings	8,717		(1,348)		7,369
Basic earnings per share	$	0.31	$	(0.05)	$	0.26
Diluted earnings per share	$	0.31	$	(0.05)	$	0.26


Condensed Consolidated Statements of Comprehensive Income (Loss)
In thousands
	For the Three Months Ended September 30, 2022
	As Previously Reported		Adjustments		As Corrected
Comprehensive (loss) income	$	(8,429)	$	(905)	$	(9,334)

	For the Nine Months Ended September 30, 2022
	As Previously Reported		Adjustments		As Corrected
Comprehensive (loss) income	$	(14,154)	$	(1,348)	$	(15,502)


Condensed Consolidated Statement of Cash Flows
In thousands
	For the Nine Months Ended September 30, 2022
	As Previously Reported		Adjustments		As Corrected
Net earnings	$	8,717	$	(1,348)	$	7,369
Inventories	(21,187)		1,709		(19,478)
Income tax refunds receivable	(2,040)		(361)		(2,401)
Net cash used in operating activities	(33,700)		—		(33,700)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

3. BUSINESS COMBINATIONS AND INVESTMENTS

Aircraft Wheel & Brake

On September 16, 2022, the Company acquired all of the assets and related liabilities of Parker-Hannifin Corporation's ("Parker") Aircraft Wheel and Brake division, of Avon, Ohio, at a purchase price of $442.8 million. Aircraft Wheel and Brake is a leader in the design, development, qualification, manufacturing and assembly, product support and repair of wheels, brakes and related hydraulic components for fixed-wing aircraft and rotorcraft. With this acquisition, the Company has expanded its portfolio of engineered products, broadening the number of offerings available to serve customers across a range of critical applications and has increased the Company's exposure within the aerospace and defense end markets.

This acquisition was accounted for under the acquisition method. The assets acquired and liabilities assumed were recorded based on their fair values at the date of acquisition as follows (in thousands):


Accounts receivable	$	7,635
Contract assets	171
Inventories	11,246
Property, plant and equipment	7,686
Goodwill	171,277
Other intangible assets(1)	250,500
Contract costs, noncurrent	41
Liabilities	(5,729)
Net assets acquired	442,827
Less cash received	—
Net consideration	$	442,827

(1)Refer to Note 3, Business Combinations and Investments, in the Annual Report on Form 10-K for the year ended December 31, 2022 for information on the Company's determination of the fair value of identifiable intangible assets.

During the first quarter of 2023, the Company paid Parker an additional $1.5 million for the working capital adjustment, which resulted in an increase to goodwill. All purchase price allocations were finalized within the one-year measurement period and no further adjustments are expected.

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 goodwill associated with this acquisition was recognized in the Engineered Products segment.

Pro Forma Information (Unaudited)

Aircraft Wheel and Brake's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on September 16, 2022. In the three-month and nine-month fiscal periods ended September 29, 2023, Aircraft Wheel and Brake contributed $16.9 million and $56.6 million of revenue, respectively, and $1.9 million and $5.8 million of operating income, respectively. Aircraft Wheel and Brake contributed $2.7 million of revenue and $1.1 million of operating loss for both the three-month and nine-month fiscal periods ended September 30, 2022.

The following table reflects the pro forma operating results of the Company for the three-month and nine-month fiscal periods

ended September 30, 2022 which gives effect to the Acquisition as if the company had been acquired on January 1, 2021. 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 this acquisition been effective January 1, 2021, 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 acquisition.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

3. BUSINESS COMBINATIONS AND INVESTMENTS (CONTINUED)

Aircraft Wheel & Brake - continued

Pro Forma Information (Unaudited) - continued

For the Three Months Ended

For the Nine Months Ended

September 30,
2022

In thousands

Net sales

188,554

543,817

Net earnings

8,949

17,035

These pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired plant, property, and equipment and interest expense on debt financing in connection with this acquisition. Material pro forma adjustments directly attributable to this acquisition for the three-month and nine-month fiscal period ended September 30, 2022 include:

•Increases in depreciation of $0.1 million and $0.5 million relating to fixed assets acquired;

•Increases in amortization of $1.8 million and $7.9 million relating to intangible assets acquired;

•Decreases in selling, general and administrative costs of $10.1 million and $12.1 million relating to transaction costs for this acquisition;

•Increases in interest expense of $3.4 million and $11.4 million relating to debt financing in connection with this acquisition; and

•Increase in income tax expense of $1.0 million for the three-month fiscal period and decrease in income tax expense of $1.6 million for the nine-month fiscal period relating to the above adjustments.

4. REVENUE AND SEGMENT INFORMATION

The Company is organized based upon the nature of its products and services, and is composed of three operating segments, each overseen by a segment manager. These segments are reflective of how the Company’s Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purposes of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments.

The Engineered Products segment serves the aerospace and defense, industrial and medical markets providing sophisticated proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; and wheels, brakes and related hydraulic components for helicopters and fixed-wing and unmanned aerial vehicle ("UAV") aircraft.

The Precision Products segment serves the aerospace and defense markets providing precision safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of the Company's SH-2G Super Seasprite maritime helicopters; support of the heavy lift K-MAX® manned helicopter; and development of the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle.

The Structures segment serves the aerospace and defense and medical end markets providing sophisticated complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft, and medical imaging solutions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

4. REVENUE AND SEGMENT INFORMATION (CONTINUED)

Summarized financial information by business segment is as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
In thousands
Net sales:
Engineered Products	$	123,598	$	92,052	$	380,437	$	263,269
Precision Products	27,098		46,282		93,128		135,098
Structures	32,335		33,670		99,166		92,451
Net sales	$	183,031	$	172,004	$	572,731	$	490,818
Operating income (loss):
Engineered Products	$	29,026	$	14,156	$	78,924	$	40,665
Precision Products	(3,241)		5,296		(3,996)		10,725
Structures	(3,020)		(642)		(3,769)		(2,121)
Corporate expense	(9,828)		(20,196)		(29,499)		(42,728)
Other unallocated (expenses) income, net(1)	(1,065)		685		(4,541)		(2,467)
Operating income (loss)	$	11,872	$	(701)	$	37,119	$	4,074
Interest expense, net	9,405		3,614		29,349		8,088
Non-service pension and post-retirement benefit income, net	(310)		(5,142)		(930)		(15,429)
Other expense, net	849		1,221		377		2,415
Earnings (loss) before income taxes	$	1,928	$	(394)	$	8,323	$	9,000

(1) Other unallocated expenses, net include program inventory impairment, restructuring and severance costs and net loss on disposition of assets.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

4. REVENUE AND SEGMENT INFORMATION (CONTINUED)

Disaggregation of Revenue

The following tables disaggregate segment revenue by major product line:


	For the Three Months Ended
	September 29, 2023
	Engineered Products		Precision Products		Structures		Total
In thousands
Defense	$	18,859	$	7,541	$	17,324	$	43,724
Safe and Arm Devices	—		12,890		—		12,890
Commercial, Business & General Aviation	61,550		5,459		13,374		80,383
Medical	23,005		—		1,637		24,642
Industrial & Other	20,184		1,208		—		21,392
Total revenue	$	123,598	$	27,098	$	32,335	$	183,031

	For the Three Months Ended
	September 30, 2022
	Engineered Products		Precision Products		Structures		Total
In thousands
Defense	$	13,356	$	5,171	$	20,805	$	39,332
Safe and Arm Devices	—		37,460		—		37,460
Commercial, Business & General Aviation	39,852		2,457		11,006		53,315
Medical	21,782		—		1,859		23,641
Industrial & Other	17,062		1,194		—		18,256
Total revenue	$	92,052	$	46,282	$	33,670	$	172,004


	For the Nine Months Ended
	September 29, 2023
	Engineered Products		Precision Products		Structures		Total
In thousands
Defense	$	57,362	$	20,502	$	55,461	$	133,325
Safe and Arm Devices	—		49,486		—		49,486
Commercial, Business & General Aviation	190,471		19,548		38,232		248,251
Medical	73,463		—		5,473		78,936
Industrial & Other	59,141		3,592		—		62,733
Total revenue	$	380,437	$	93,128	$	99,166	$	572,731

	For the Nine Months Ended
	September 30, 2022
	Engineered Products		Precision Products		Structures		Total
In thousands
Defense	$	32,351	$	17,122	$	53,158	$	102,631
Safe and Arm Devices	—		96,345		—		96,345
Commercial, Business & General Aviation	109,874		18,119		33,138		161,131
Medical	65,614		—		6,155		71,769
Industrial & Other	55,430		3,512		—		58,942
Total revenue	$	263,269	$	135,098	$	92,451	$	490,818

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

4. REVENUE AND SEGMENT INFORMATION (CONTINUED)

Disaggregation of Revenue - continued

The following table disaggregates total revenue by product types.


	For the Three Months Ended								For the Three Months Ended
	September 29, 2023								September 30, 2022
	Engineered Products		Precision Products		Structures		Total		Engineered Products		Precision Products		Structures		Total
Original Equipment Manufacturer	47	%	3	%	18	%	68	%	40	%	2	%	19	%	61	%
Aftermarket	20	%	5	%	—	%	25	%	14	%	3	%	—	%	17	%
Safe and Arm Devices	—	%	7	%	—	%	7	%	—	%	22	%	—	%	22	%
Total revenue	67	%	15	%	18	%	100	%	54	%	27	%	19	%	100	%

	For the Nine Months Ended								For the Nine Months Ended
	September 29, 2023								September 30, 2022
	Engineered Products		Precision Products		Structures		Total		Engineered Products		Precision Products		Structures		Total
Original Equipment Manufacturer	47	%	3	%	17	%	67	%	41	%	4	%	19	%	64	%
Aftermarket	20	%	4	%	—	%	24	%	12	%	4	%	—	%	16	%
Safe and Arm Devices	—	%	9	%	—	%	9	%	—	%	20	%	—	%	20	%
Total revenue	67	%	16	%	17	%	100	%	53	%	28	%	19	%	100	%

Disaggregation of Research and Development Costs

The following table presents research and development costs by segment:


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
In thousands
Engineered Products	$	1,620	$	2,106	$	6,738	$	6,470
Precision Products	2,387		1,812		8,308		7,599
Structures	15		19		76		196
Total research and development costs	$	4,022	$	3,937	$	15,122	$	14,265

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

4. REVENUE AND SEGMENT INFORMATION (CONTINUED)

Other

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

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


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
In thousands
Net change in revenue due to change in profit estimates	$	(3,123)	$	(892)	$	(5,987)	$	580

In the three-month and nine-month fiscal periods ended September 29, 2023, the net decreases in revenue were primarily related to cost growth on certain structures and precision products contracts. In the nine-month fiscal period, this decrease was partially offset by favorable cost performance on the joint programmable fuze ("JPF") contract with the U.S. Government ("USG").

In the three-month fiscal period ended September 30, 2022, the net decrease in revenue was primarily related to cost growth on certain structures programs and legacy fuzing contracts, partially offset by favorable cost performance on memory and measuring programs. In the nine-month fiscal period ended September 30, 2022, the net increase in revenue was primarily related to favorable cost performance on the JPF contract with the USG, partially offset by cost growth on certain structures programs and legacy fuzing contracts.

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 September 29, 2023 and December 31, 2022, and the portion of backlog the Company expects to recognize revenue on over the next twelve months is as follows:


	September 29, 2023(1)		December 31, 2022
	(in thousands)
Engineered Products	$	363,228	$	322,452
Precision Products	100,712		134,903
Structures	254,633		263,581
Total Backlog	$	718,573	$	720,936

(1) The Company expects to recognize revenue on approximately 69% of backlog as of September 29, 2023 over the next twelve months.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

5. RESTRUCTURING AND SEVERANCE COSTS

Restructuring and severance costs are included in restructuring and severance costs on the Company's Condensed Consolidated Statements of Operations and other unallocated expenses, net in Note 4, Revenue and Segment Information.

Transformation Restructuring

In December 2022, the Company began a review of all businesses and programs to increase efficiencies, improve working capital management and focus on sustainable and consistent revenue and profit generating activities. As a result of this review, the Company identified areas to reduce annualized costs in the Precision Products segment and at Corporate through streamlining processes, consolidating the production of fuzes for the JPF program at its Middletown facility, discontinuing K-MAX® helicopter production and right-sizing the Company's total cost structure. In the three-month and nine-month fiscal periods ended September 29, 2023, the Company incurred $0.6 million and $3.0 million, respectively, in severance costs associated with these actions. Of this amount, $0.3 million was related to share-based compensation expense in the nine-month fiscal period ended September 29, 2023. No share-based compensation expense was recorded to restructuring and severance costs in the three-month fiscal period ended September 29, 2023.

The following table summarizes the accrual balances by cost type for the restructuring actions:


	Severance		Other(1)		Total
In thousands
Restructuring accrual balance at December 31, 2022(2)	$	6,629	$	—	$	6,629
Provision	2,147		625		2,772
Cash payments	(5,767)		(625)		(6,392)
Changes in foreign currency exchange rates	(2)		—		(2)
Restructuring accrual balance at September 29, 2023	$	3,007	$	—	$	3,007

(1) Includes costs associated with the consolidation of facilities.

(2) Of the above accrual balance, $1.0 million was included in other long-term liabilities on the Company's Condensed Consolidated Balance Sheets as of December 31, 2022. The remainder was included in other current liabilities.

Other Matters

The Company identified workforce reductions and other reductions in certain general and administrative expenses, which resulted in $1.9 million in restructuring and severance costs in the nine-month fiscal period ended September 30, 2022. In conjunction with the sale of the Company's Mexico operations in the third quarter of 2022, the Company reversed severance costs previously accrued, which were partially offset by costs incurred in the period. This resulted in a net reduction to restructuring and severance costs of $0.2 million for the three-month fiscal period ended September 30, 2022.

In addition to the restructuring and severance costs discussed above, in the nine-month fiscal period ended September 30, 2022, the Company incurred $1.0 million in other severance expense.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

6. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:


	September 29, 2023		December 31, 2022
In thousands
Trade receivables	$	42,931	$	31,126
U.S. Government contracts:
Billed	16,333		14,150
Cost and accrued profit - not billed	2,460		661
Commercial and other government contracts
Billed	46,751		41,520
Cost and accrued profit - not billed	1,069		2,268
Less allowance for doubtful accounts	(2,897)		(2,066)
Accounts receivable, net	$	106,647	$	87,659

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 September 29, 2023:


In thousands
Balance at December 31, 2022	$	(2,066)
Provision	(1,495)
Amounts written off	307
Recoveries	356
Changes in foreign currency exchange rates	1
Balance at September 29, 2023	$	(2,897)

There were no amounts included in accounts receivable, net for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs at September 29, 2023 and December 31, 2022.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

7. CONTRACT ASSETS, CONTRACT COSTS AND CONTRACT LIABILITIES

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


	September 29, 2023		December 31, 2022		$ Change		% Change
In thousands
Contract assets	$	100,709	$	113,182	$	(12,473)	(11.0)	%

Contract costs, current portion(1)	$	139	$	695	$	(556)	(80.0)	%
Contract costs, noncurrent portion(2)	$	643	$	673	$	(30)	(4.5)	%

Contract liabilities, current portion	$	7,884	$	4,081	$	3,803	93.2	%
Contract liabilities, noncurrent portion	$	19,653	$	20,515	$	(862)	(4.2)	%

(1) Contract costs, current portion are included within other current assets on the Company's Condensed Consolidated Balance Sheets.

(2) Contract costs, noncurrent portion are included within other assets on the Company's Condensed Consolidated Balance Sheets.

Contract Assets

The decrease in contract assets was primarily due to amounts billed in the current period on the JPF program and higher unliquidated progress payments on our legacy fuzing contracts, partially offset by the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations for work performed and not yet billed on various contracts. There were no significant impairment losses related to the Company's contract assets during the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022.

There were no amounts included in contract assets for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs at September 29, 2023 and December 31, 2022.

Contract Costs

At September 29, 2023 and December 31, 2022, costs to fulfill a contract were $0.8 million and $1.4 million, respectively. These amounts were included in other current assets and other assets on the Company's Condensed Consolidated Balance Sheets at September 29, 2023 and December 31, 2022. There were no costs to obtain a contract at September 29, 2023 and December 31, 2022.

Contract costs, current portion at September 29, 2023 decreased compared to the balance at December 31, 2022. This was primarily attributable to the write-off of contract costs on the A-10 contract and amortization of contract costs. For the three-month and nine-month fiscal periods ended September 29, 2023, amortization of contract costs was $0.1 million and $0.3 million, respectively. For the three-month and nine-month fiscal periods ended September 30, 2022, amortization of contract costs was $0.2 million and $0.5 million, respectively.

Contract costs, noncurrent portion at September 29, 2023 remained relatively flat when compared to the balance at December 31, 2022.

Contract Liabilities

Contract liabilities, current portion at September 29, 2023 increased compared to the balance at December 31, 2022, primarily driven by the FireBurstTM enhanced fuzing capability program and SH-2G program. Revenue recognized related to contract liabilities, current portion was $1.2 million and $1.7 million in the three-month and nine-month fiscal periods ended September 29, 2023, respectively. Revenue recognized related to contract liabilities, current portion was $0.2 million and $1.4 million in the three-month and nine-month fiscal periods ended September 30, 2022, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

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

Contract Liabilities - continued

Contract liabilities, noncurrent portion at September 29, 2023 decreased compared to the balance at December 31, 2022 due to the reclassification of liabilities on the FireBurstTM enhanced fuzing capability program to contract liabilities, current portion. For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022, the Company did not recognize revenue against contract liabilities, noncurrent portion. Refer to Note 14, Commitments and Contingencies, for further information on the Company's offset agreements.

8. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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


	September 29, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
In thousands
Debt (1)	$	581,500	$	547,294	$	562,500	$	547,393

(1) These amounts are classified within Level 2.

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

The fair values of cash and cash equivalents, accounts receivable, net and accounts payable - trade approximate their carrying amounts due to the short-term maturities of these instruments. The Company's cash and cash equivalents at September 29, 2023 and December 31, 2022 included $5.4 million and $0.1 million, respectively, of Level 1 money market funds.

Recurring Fair Value Measurements

The Company holds derivative instruments for foreign exchange contracts and interest rate swaps that are measured at fair value using observable market inputs such as forward rates and its counterparties’ credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy. At September 29, 2023, the interest rate swaps were included in other assets and other long-term assets on the Company's Condensed Consolidated Balance Sheets. At September 29, 2023, the foreign exchange contracts were included in other current liabilities on the Company's Condensed Consolidated Balance Sheets. At December 31, 2022, the foreign exchange contracts were included in other current assets and other current liabilities on the Company's Condensed Consolidated Balance Sheets. Based on the Company's continued ability to trade and enter into forward contracts and interest rate swaps, the Company considers the markets for its fair value instruments to be active.

The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as of September 29, 2023, such credit risks had not had an adverse impact on the fair value of these instruments.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

8. FAIR VALUE MEASUREMENTS (CONTINUED)

Nonrecurring Fair Value Measurements

In the three-month and nine-month fiscal periods ended September 29, 2023, the Company incurred impairment charges of $0.4 million and $1.0 million, respectively, associated with the write-off of inventory related to the K-MAX® program. Refer to Note 10, Inventories, for further information.

9. DERIVATIVE FINANCIAL INSTRUMENTS

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

Cash Flow Hedges

Interest Rate Swaps

The Company's Credit Agreement (as defined in Note 12, Debt) contains floating rate obligations and is subject to interest rate fluctuations. At September 29, 2023, the Company has interest rate swap agreements with a notional value of $175.0 million, for the purposes of hedging the eight quarterly variable-rate Credit Agreement interest payments due in 2023 and 2024. These interest rate swap agreements were designated as cash flow hedges and intended to manage interest rate risk associated with the Company's variable-rate borrowings and minimize the impact on earnings and cash flows of interest rate fluctuations attributable to changes in the Secured Overnight Financing Rate ("SOFR"). These interest rate swaps were not material to the Company's Condensed Consolidated Financial Statements as of and for the three-month and nine-month fiscal periods ended September 29, 2023. Over the next twelve months, the income related to cash flow hedges expected to be reclassified from other comprehensive income is $1.6 million.

Forward Exchange Contracts

The Company holds forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. These contracts were not material to the Company's Condensed Consolidated Balance Sheets as of September 29, 2023 and December 31, 2022. The activity related to these contracts was not material to the Company's Condensed Consolidated Financial Statements for the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022.

10. INVENTORIES

Inventories consisted of the following:


	September 29, 2023		December 31, 2022
In thousands
Raw materials	$	35,228	$	24,572
Contracts and other work in process (including certain general stock materials)	127,779		107,803
Finished goods	38,432		40,008
Inventories	$	201,439	$	172,383

There were no amounts included in inventories associated with matters such as contract changes, negotiated settlements and claims for unanticipated contract costs at September 29, 2023 and December 31, 2022.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

10. INVENTORIES (CONTINUED)

At September 29, 2023 and December 31, 2022, $22.9 million and $24.7 million, respectively, of K-MAX® inventory was included in contracts and other work in process inventory and finished goods on the Company's Condensed Consolidated Balance Sheets. Management believes that approximately $9.5 million of the K-MAX® inventory will be sold after September 30, 2024, based upon the requirements to support the fleet for the foreseeable future. In December 2022, the Company began a review of all businesses and programs to increase efficiencies, improving working capital management and focus on sustainable and consistent revenue and profit generating activities. As a result, the Company determined it would discontinue K-MAX® aircraft production and wrote off $44.5 million of inventory associated with the program as of December 31, 2022. Additionally, production material for the K-MAX® includes long lead parts, which the Company evaluates for alternative use as received. Any write-offs related to these parts are not expected to have a material adverse effect on the Company's results of

operations or financial position. Inventory write-offs for the three-month and nine-month fiscal periods ended September 29, 2023 were $0.4 million and $1.0 million, respectively.

At September 29, 2023 and December 31, 2022, $5.4 million and $6.2 million, respectively, of SH-2G(I) inventory was included in contracts and other work in process inventory on the Company's Condensed Consolidated Balance Sheets. Management believes that approximately $4.1 million of the SH-2G(I) inventory will be sold after September 30, 2024. This balance represents spares requirements and inventory to be used on SH-2G programs.

11. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company:


	Engineered Products		Precision Products		Structures		Total
In thousands
Gross balance at December 31, 2022	$	363,785	$	41,375	$	66,559	$	471,719
Accumulated impairment	—		(25,306)		(66,559)		(91,865)
Net balance at December 31, 2022	363,785		16,069		—		379,854
Additions	1,487		—		—		1,487
Impairments	—		—		—		—
Foreign currency translation	(1,098)		—		—		(1,098)
Ending balance at September 29, 2023	$	364,174	$	16,069	$	—	$	380,243

Accumulated impairment at end of period	$	—	$	(25,306)	$	(66,559)	$	(91,865)

In accordance with ASC 350 - Intangibles - Goodwill and Other ("ASC 350"), the Company evaluates goodwill for possible impairment on an at least annual basis. The Company is currently in the process of updating its long-term forecast, which it will use to complete its annual evaluation during the fourth quarter. Management has determined that the Company will perform a quantitative assessment, rather than a qualitative assessment, for the Precision Products reporting unit, a division of the Precision Products segment which manufactures and produces the JPF. The quantitative assessment could result in a determination that there has been an impairment of some or all of the goodwill associated with this reporting unit. At September 29, 2023, the goodwill associated with the Precision Products reporting unit is $16.1 million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

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

Other Intangible Assets

Other intangible assets consisted of:


		At September 29,				At December 31,
		2023				2022
	Amortization Period	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
In thousands
Customer lists / relationships	6-38 years	$	363,269	$	(51,311)	$	363,549	$	(41,695)
Developed technologies	7-20 years	44,923		(20,582)		45,028		(17,508)
Trademarks / trade names	15-40 years	16,619		(3,583)		16,681		(3,153)
Non-compete agreements and other	1-15 years	17,332		(14,516)		17,336		(7,974)
Patents	17 years	551		(494)		551		(484)
Total intangible assets		$	442,694	$	(90,486)	$	443,145	$	(70,814)

12. DEBT

Credit Agreement

On June 21, 2023 (the "Closing Date"), the Company closed an amended and restated $740.0 million Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent. The Credit Agreement amends and restates the Company's previously existing credit facility in its entirety to, among other things: (i) extend the maturity date to June 21, 2028; (ii) reduce the aggregate amount of revolving commitments from $800.0 million to $740.0 million; (iii) modify the financial covenants set forth in Article 6 of the previously existing credit facility; and (iv)

effectuate certain additional modifications set forth in the previously existing facility, including its pricing. Capitalized terms used but not defined within this discussion of the Credit Agreement have the meanings ascribed thereto in the Credit Agreement, which with amendments is included as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

The financial covenants associated with the Credit Agreement require that (i) the Consolidated Total Net Leverage Ratio, as defined by the Credit Agreement, cannot be greater than 5.00 to 1.00 for any quarter ending on or after the Closing Date through September 28, 2023, 4.75 to 1.00 for each quarter ending thereafter through September 26, 2024, 4.50 to 1.00 for each quarter ending thereafter through September 25, 2025 and 4.00 to 1.00 for each quarter ending thereafter. The Company may elect to increase the Consolidated Total Net Leverage Ratio by 0.50 to 1.00 if the Company consummates a Material Permitted Investment, which shall not exceed 5.00 to 1.00 for each of the four consecutive quarters that included the fiscal quarter in which the Material Permitted Investment is consummated. As of September 29, 2023, the Consolidated Total Net Leverage Ratio was 3.89, as calculated in accordance with the Credit Agreement.

In addition to the Consolidated Total Net Leverage Ratio, as defined in the Credit Agreement and discussed above, the financial covenants associated with the Credit Agreement also include a requirement that (i) the Interest Coverage Ratio cannot be less than 3.00 to 1.00; and (ii) Liquidity cannot be less than (a) an amount equal to 50% of the aggregate principal amount of the Convertible Notes as of the last day of the third quarter of 2023 and (b) an amount equal to 100% of the aggregate principal of the 2024 Convertible Notes in the fourth quarter of 2023 and the first quarter of 2024. The Company was in compliance with these financial covenants as of and for the quarter ended September 29, 2023, and management does not anticipate noncompliance in the foreseeable future.

Interest rates on amounts outstanding under the Credit Agreement are variable based on the SOFR. The interest rate at September 29, 2023 was 7.13%. We are required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.200% to 0.350% per annum, based on the Senior Secured Net Leverage Ratio. Fees for outstanding letters of credit range from 1.375% to 2.250%, based on the Senior Secured Net Leverage Ratio. At September 29, 2023, $382.0 million was outstanding under the revolving credit facility and total average bank borrowings were $391.9 million during the nine-month fiscal period ended September 29, 2023. Total average bank borrowings were $120.7 million during the year ended December 31, 2022.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

12. DEBT (CONTINUED)

Credit Agreement - continued

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


	September 29, 2023		December 31, 2022
In thousands
Total facility	$	740,000	$	800,000
Amounts outstanding, excluding letters of credit	382,000		363,000
Amounts available for borrowing, excluding letters of credit	358,000		437,000
Letters of credit under the credit facility(1)(2)	70,549		51,630
Amounts available for borrowing	$	287,451	$	385,370

Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)	$	129,313	$	196,256

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

(2) Of these amounts, $65.1 million and $46.1 million in letters of credit relate to a JPF DCS contract in the periods ended September 29, 2023 and December 31, 2022, respectively.

(3) The Company's Convertible Notes will mature in 2024. The Company currently expects to settle the Convertible notes with available borrowing capacity under our Credit Agreement; however we are assessing potential options for the refinancing of these instruments prior to their scheduled maturity. With the extension of the Credit Agreement, the Company maintained sufficient capacity to use proceeds from this facility to repay the Convertible Notes. The amounts available for borrowing subject to EBITDA represents amounts available for borrowing after considering the Company's total debt obligations including its Credit Agreement and Convertible Notes.

Debt issuance costs in connection with the Credit Agreement have been capitalized. The Company incurred $4.8 million of debt issuance costs in connection with the amendment of the Credit Agreement in 2023, which are being amortized over the term of the agreement with the debt issuance costs associated with the previous existing credit facility for lenders that remained in the Credit Agreement. In the second quarter of 2023, the Company recorded a write-off of debt issuance costs of $0.6 million

related to lenders that are no longer participating in the Credit Agreement. Total amortization expense for the three-month fiscal periods ended September 29, 2023 and September 30, 2022 was $0.4 million and $0.7 million, respectively. Total amortization expense for the nine-month fiscal periods ended September 29, 2023 and September 30, 2022 was $1.6 million and $1.2 million, respectively.

13. PENSION PLANS

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


	For the Three Months Ended
	Qualified Pension Plan				SERP
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
In thousands
Service cost	$	1,445	$	840	$	—	$	—
Interest cost on projected benefit obligation	7,296		4,300		44		22
Expected return on plan assets	(9,573)		(10,544)		—		—
Amortization of net loss	1,923		1,064		—		16
Net pension cost (income)	$	1,091	$	(4,340)	$	44	$	38

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

13. PENSION PLANS (CONTINUED)


	For the Nine Months Ended
	Qualified Pension Plan				SERP
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
In thousands
Service cost	$	4,336	$	2,522	$	—	$	—
Interest cost on projected benefit obligation	21,888		12,899		132		66
Expected return on plan assets	(28,720)		(31,633)		—		—
Amortization of net loss	5,770		3,193		—		46
Net pension cost (income)	$	3,274	$	(13,019)	$	132	$	112

No contributions have been or are expected to be made to the qualified pension plan during 2023. The Company contributed $0.4 million to the SERP through the end of the third quarter of 2023 and plans to contribute an additional $0.1 million to the SERP in 2023. No contributions were made to the qualified pension plan during 2022. For the 2022 plan year, the Company contributed $0.5 million to the SERP.

14. COMMITMENTS AND CONTINGENCIES

New Hartford Property

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

The Company's estimate of its portion of the cost to assess the environmental conditions and remediate this site is $2.3 million, all of which has been accrued. The remediation has been nearly completed and the Company continues to monitor the results of the remediation. The total amount paid to date in connection with these environmental remediation activities is $1.8 million. At September 29, 2023, the Company had $0.5 million accrued for these environmental remediation activities. A portion ($0.1 million) of the accrual related to this property is included in other current liabilities and the balance is included in other long-term liabilities. The remaining balance of the accrual reflects the total anticipated cost of completing these environmental remediation activities. Although it is reasonably possible that additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at this time.

Bloomfield Property

In connection with the Company’s 2008 purchase of the portion of the Bloomfield campus that Kaman Aerospace Corporation had leased from NAVAIR, the Company assumed responsibility for environmental remediation at the facility as may be required under the Transfer Act and is currently remediating the property under the guidance of the Connecticut Department of Environmental Protection. The assumed environmental liability of $10.3 million was determined by taking the undiscounted estimated remediation liability of $20.8 million and discounting it at a rate of 8%. This remediation process will take many years to complete. The total amount paid to date in connection with these environmental remediation activities is $15.5 million. At September 29, 2023, the Company had $2.3 million accrued for these environmental remediation activities. A portion ($0.4 million) of the accrual related to this property is included in other current liabilities, and the balance is included in other long-term liabilities. Although it is reasonably possible that additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at this time.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Offset Agreement

The Company has entered into offset agreements as a condition to obtaining orders from a Middle Eastern customer for the Company's JPF product. Offset agreements are designed to return economic value to the foreign country by requiring the Company to engage in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology capabilities or addressing other local development priorities. Such agreements may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing manufacturing, training and other consulting support to in-country projects and the purchase by third parties of supplies from in-country vendors. The agreements may also be satisfied through the Company's use of cash for activities, such as subcontracting with local partners, purchasing supplies from in-country vendors, providing financial support for in-country projects and making investments in local ventures. At September 29, 2023, the aggregate amount of the Company's offset agreements had an outstanding notional value of approximately $220.9 million, which is equal to sixty percent of the value of the contracts as defined by the agreement between the customer and the Company. The amount ultimately applied against offset agreements is based on negotiations with the customer and may require cash outlays that represent only a fraction of the notional value in the offset agreement.

The Company continues to work with the customer to further define the requirements to satisfy the offset agreements. In February 2023, the Company announced that it received a Business Plan Approval Letter to establish a manufacturing and final assembly facility in collaboration with an in-country vendor, which will enhance the technological capabilities available in this country. At September 29, 2023, the Company continues to work with the Tawazun Council to identify a suitable in-country vendor to support the manufacturing and final assembly facility as the Company is no longer working with the previously announced vendor. Offset programs typically extend over several years and may provide for penalties in the event the Company fails to perform according to offset requirements. The satisfaction of the offset requirements will be determined by the customer. In the event the offset requirements of the contracts are not met, the Company could be liable for potential penalties up to $18.8 million payable to the customer. Failure to satisfy the offset requirements could also negatively impact the Company's ability to attract future orders from this customer. The Company considers these potential penalties to be a reduction to the transaction price in its determination of the value of the performance obligations within these contracts. At September 29, 2023, $18.8 million in contract liabilities associated with the potential penalties of the offset requirements were included on the Company's Condensed Consolidated Balance Sheets.

Guarantees

During 2020, the Company and the USG entered into a Guaranty Agreement, pursuant to which the Company agreed to guarantee the full, complete and satisfactory performance of its subsidiary, Kaman Precision Products, Inc. ("KPPI") under all current and future contracts with the USG. As of the date of this filing, the only contract in place between KPPI and the USG relates to the production and sale of the JPF. KPPI fulfilled the requirements of Option 16 in the second quarter of 2023 and the USG has indicated that they will not award the Company any future options. The guaranty will remain in effect until the USG has confirmed that the Company has completed all obligations and the Company requests the expiration, which is expected to occur before the end of the fiscal year. The guaranty was provided in lieu of a periodic financial capability review by the Financial Capacity Team ("FCT") of the Defense Contract Management Agency ("DCMA"). The Company is unable to estimate the maximum potential amount of future payments under the guaranty as it is dependent on costs incurred by the USG in the event of default. Although the Company believes the risk of default is low given the maturity and operational performance of the JPF program, there can be no assurance that the guaranty will not have a material adverse effect on the Company's results of operations, financial position and cash flows.

On September 16, 2022, the Company acquired all of the assets and related liabilities of Parker's Aircraft Wheel and Brake division. In association with the acquisition, the Company entered into a novation agreement in which Parker's contractual obligations with respect to Aircraft Wheel and Brake at the time of the acquisition were transferred to the Company. There can be no assurance that this agreement will not have a material adverse effect on the Company's results of operations, financial position and cash flows.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the three-month and nine-month fiscal periods ended September 29, 2023 and September 30, 2022

(Unaudited)

15. COMPUTATION OF EARNINGS PER SHARE

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

For the Three Months Ended

For the Nine Months Ended