falsedesktopKAMN2020-10-02000005438120000075{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Large accelerated filer\t☒\tAccelerated filer\t☐\tNon-accelerated filer\t☐\n\t\tSmaller reporting company\t☐\tEmerging growth company\t☐\n", "q10k_tbl_1": "\tOctober 2 2020\tDecember 31 2019\nAssets\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t152288\t471540\nRestricted cash\t25120\t0\nAccounts receivable net\t185129\t156492\nContract assets\t127260\t121614\nContract costs current portion\t3762\t6052\nInventories\t188199\t156353\nIncome tax refunds receivable\t12474\t8069\nOther current assets\t14400\t16368\nTotal current assets\t708632\t936488\nProperty plant and equipment net of accumulated depreciation of $232358 and $210549 respectively\t217906\t140450\nOperating right-of-use assets net\t15377\t15159\nGoodwill\t252707\t195314\nOther intangible assets net\t144132\t53439\nDeferred income taxes\t26393\t35240\nContract costs noncurrent portion\t8438\t6099\nOther assets\t38325\t36754\nTotal assets\t1411910\t1418943\nLiabilities and Shareholders' Equity\t\t\nCurrent liabilities:\t\t\nAccounts payable - trade\t53937\t70884\nAccrued salaries and wages\t56598\t43220\nContract liabilities current portion\t38233\t42942\nOperating lease liabilities current portion\t4853\t4306\nIncome taxes payable\t1448\t4722\nOther current liabilities\t39206\t37918\nTotal current liabilities\t194275\t203992\nLong-term debt excluding current portion net of debt issuance costs\t285608\t181622\nDeferred income taxes\t6020\t6994\nUnderfunded pension\t74550\t97246\nContract liabilities noncurrent portion\t16398\t37855\nOperating lease liabilities noncurrent portion\t11132\t11617\nOther long-term liabilities\t53249\t56415\nCommitments and contingencies (Note 14)\t\t\nShareholders' equity:\t\t\nPreferred stock $1 par value 200000 shares authorized; none outstanding\t0\t0\nCommon stock $1 par value 50000000 shares authorized; voting; 30228123 and 30058455 shares issued respectively\t30228\t30058\nAdditional paid-in capital\t236310\t228153\nRetained earnings\t765722\t820666\nAccumulated other comprehensive income (loss)\t(140973)\t(150893)\nLess 2555693 and 2219332 shares of common stock respectively held in treasury at cost\t(120609)\t(104782)\nTotal shareholders' equity\t770678\t823202\nTotal liabilities and shareholders' equity\t1411910\t1418943\n", "q10k_tbl_2": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nNet sales\t213959\t182670\t599171\t523816\nCost of sales\t147084\t121537\t407926\t355573\nGross profit\t66875\t61133\t191245\t168243\nSelling general and administrative expenses\t45224\t43855\t151093\t127614\nGoodwill impairment\t50307\t0\t50307\t0\nCosts from transition services agreement\t3019\t1154\t11532\t1154\nCost of acquired retention plans\t5703\t0\t17110\t0\nRestructuring costs\t1541\t81\t7820\t553\nGain on sale of business\t0\t0\t(493)\t0\nNet loss (gain) on sale of assets\t8\t416\t(5)\t351\nOperating (loss) income\t(38927)\t15627\t(46119)\t38571\nInterest expense net\t5327\t4058\t14382\t14595\nNon-service pension and post retirement benefit income\t(4063)\t(99)\t(12188)\t(298)\nIncome from transition services agreement\t(1829)\t(944)\t(7853)\t(944)\nOther (income) expense net\t(534)\t185\t(424)\t(367)\n(Loss) earnings from continuing operations before income taxes\t(37828)\t12427\t(40036)\t25585\nIncome tax expense (benefit)\t679\t2297\t(1022)\t3244\n(Loss) earnings from continuing operations\t(38507)\t10130\t(39014)\t22341\nEarnings from discontinued operations before gain on disposal net of tax\t0\t9860\t0\t25240\nGain on disposal of discontinued operations net of tax\t0\t122786\t692\t122786\nTotal earnings from discontinued operations\t0\t132646\t692\t148026\nNet (loss) earnings\t(38507)\t142776\t(38322)\t170367\nEarnings per share:\t\t\t\t\nBasic (loss) earnings per share from continuing operations\t(1.39)\t0.36\t(1.41)\t0.80\nBasic earnings per share from discontinued operations\t0.00\t4.75\t0.03\t5.30\nBasic (loss) earnings per share\t(1.39)\t5.11\t(1.38)\t6.10\nDiluted (loss) earnings per share from continuing operations\t(1.39)\t0.36\t(1.41)\t0.79\nDiluted earnings per share from discontinued operations\t0.00\t4.72\t0.03\t5.27\nDiluted (loss) earnings per share\t(1.39)\t5.08\t(1.38)\t6.06\nAverage shares outstanding:\t\t\t\t\nBasic\t27687\t27952\t27718\t27941\nDiluted\t27687\t28117\t27718\t28104\n", "q10k_tbl_3": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nNet (loss) earnings\t(38507)\t142776\t(38322)\t170367\nOther comprehensive income (loss) net of tax:\t\t\t\t\nForeign currency translation adjustments and other\t9130\t(8585)\t6599\t(10173)\nChange in pension and post-retirement benefit plan liabilities net of tax expense of $330 and $940 and $990 and $2820 respectively\t1107\t2936\t3321\t8808\nOther comprehensive (loss) income\t10237\t(5649)\t9920\t(1365)\nComprehensive (loss) income\t(28270)\t137127\t(28402)\t169002\n", "q10k_tbl_4": "\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\nCash flows from operating activities:\t\t\nNet (loss) earnings\t(38322)\t170367\nLess: Total earnings from discontinued operations\t692\t148026\n(Loss) earnings from continuing operations\t(39014)\t22341\nAdjustments to reconcile net earnings from continuing operations to net cash (used in) provided by operating activities of continuing operations:\t\t\nDepreciation and amortization\t32204\t19308\nAmortization of debt issuance costs\t1325\t1401\nAccretion of convertible notes discount\t2132\t2067\nProvision for doubtful accounts\t570\t384\nGoodwill impairment\t50307\t0\nGain on sale of business\t(493)\t0\nNet (gain) loss on sale of assets\t(5)\t351\nNet loss on derivative instruments\t144\t549\nStock compensation expense\t4254\t3969\nDeferred income taxes\t6590\t(3743)\nChanges in assets and liabilities excluding effects of acquisitions/divestitures:\t\t\nAccounts receivable\t(19556)\t17650\nContract assets\t(5085)\t(20303)\nContract costs\t(48)\t3130\nInventories\t(18273)\t(43139)\nIncome tax refunds receivable\t(4431)\t157\nOperating right of use assets\t427\t2388\nOther assets\t526\t(4020)\nAccounts payable - trade\t(18258)\t704\nContract liabilities\t(26165)\t(16647)\nOperating lease liabilities\t(498)\t(2256)\nOther current liabilities\t5997\t7318\nIncome taxes payable\t(3464)\t15620\nPension liabilities\t(18662)\t3128\nOther long-term liabilities\t(2903)\t979\nNet cash (used in) provided by operating activities of continuing operations\t(52379)\t11336\nNet cash used in operating activities of discontinued operations\t0\t(7341)\nNet cash (used in) provided by operating activities\t(52379)\t3995\nCash flows from investing activities:\t\t\nProceeds from sale of assets\t128\t82\nProceeds from sale of discontinued operations\t5223\t656736\nProceeds from sale of business\t493\t0\nExpenditures for property plant & equipment\t(14232)\t(17411)\nAcquisition of businesses net of cash acquired\t(304661)\t0\nOther net\t(2225)\t(3092)\nNet cash (used in) provided by investing activities of continuing operations\t(315274)\t636315\nNet cash used in investing activities of discontinued operations\t0\t(9838)\nNet cash (used in) provided by investing activities\t(315274)\t626477\nCash flows from financing activities:\t\t\nNet borrowings (repayments) under revolving credit agreements\t101100\t(38500)\nDebt repayment\t0\t(76875)\nRepayment of convertible notes\t0\t(500)\nNet change in bank overdraft\t958\t2995\nProceeds from exercise of employee stock awards\t2451\t8616\nPurchase of treasury shares\t(14205)\t(12006)\nDividends paid\t(16675)\t(16756)\nOther net\t(566)\t(1092)\nNet cash provided by (used in) financing activities of continuing operations\t73063\t(134118)\nNet cash provided by financing activities of discontinued operations\t0\t7967\nNet cash provided by (used in) financing activities\t73063\t(126151)\nNet (decrease) increase in cash and cash equivalents\t(294590)\t504321\nCash and cash equivalents of discontinued operations\t0\t(21834)\nEffect of exchange rate changes on cash and cash equivalents\t458\t(208)\nCash and cash equivalents and restricted cash at beginning of period\t471540\t27711\nCash and cash equivalents and restricted cash at end of period\t177408\t509990\n", "q10k_tbl_5": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nNet sales from discontinued operations\t0\t167634\t0\t748451\nCost of sales from discontinued operations\t0\t120485\t0\t536749\nGross profit from discontinued operations\t0\t47149\t0\t211702\nSelling general and administrative expenses from discontinued operations\t0\t32979\t0\t177475\nNet loss on sale of assets from discontinued operations\t0\t0\t0\t8\nOperating income from discontinued operations\t0\t14170\t0\t34219\nInterest expense net from discontinued operations\t0\t5\t0\t25\nOther income net from discontinued operations\t0\t0\t0\t(12)\nEarnings from discontinued operations before income taxes\t0\t14165\t0\t34206\nIncome tax expense\t0\t4305\t0\t8966\nEarnings from discontinued operations before gain on disposal\t0\t9860\t0\t25240\nGain on disposal of discontinued operations pretax\t0\t165484\t925\t165484\nIncome tax expense on gain on disposal\t0\t42698\t233\t42698\nGain on disposal of discontinued operations net of tax\t0\t122786\t692\t122786\nEarnings from discontinued operations\t0\t132646\t692\t148026\n", "q10k_tbl_6": "Cash\t10953\nRestricted cash\t1932\nAccounts receivable\t9525\nContract assets\t784\nInventories\t13500\nProperty plant and equipment\t81997\nOperating right-of-use asset\t653\nOther tangible assets\t2492\nGoodwill\t104489\nOther intangible assets\t100900\nLiabilities\t(9679)\nNet assets acquired\t317546\nLess cash received\t(12885)\nNet consideration\t304661\n", "q10k_tbl_7": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nNet sales\t213959\t206143\t599171\t594195\n(Loss) earnings from continuing operations\t(31890)\t4753\t(14964)\t1058\nNet (loss) earnings\t(31890)\t137399\t(14272)\t149084\n", "q10k_tbl_8": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nDefense\t46324\t45124\t137281\t128445\nSafe and Arm Devices\t81252\t56167\t196238\t152874\nCommercial Business & General Aviation\t52894\t63754\t164006\t187191\nMedical\t17506\t6581\t53245\t21807\nIndustrial & Other\t15983\t11044\t48401\t33499\nTotal revenue(1)\t213959\t182670\t599171\t523816\n", "q10k_tbl_9": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nOriginal Equipment Manufacturer\t49%\t54%\t55%\t55%\nAftermarket\t13%\t15%\t12%\t16%\nSafe and Arm Devices\t38%\t31%\t33%\t29%\nTotal revenue\t100%\t100%\t100%\t100%\n", "q10k_tbl_10": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nOver time\t25%\t32%\t31%\t41%\nPoint-in-time\t75%\t68%\t69%\t59%\nTotal revenue\t100%\t100%\t100%\t100%\n", "q10k_tbl_11": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nNet change in revenue due to change in profit estimates\t(2798)\t(1243)\t(5338)\t(1557)\n", "q10k_tbl_12": "\tOctober 2 2020(1)\tDecember 31 2019\nIn thousands\t\t\nBacklog\t712133\t806870\n", "q10k_tbl_13": "\tOctober 2 2020\tDecember 31 2019\nIn thousands\t\t\nTrade receivables\t20139\t13794\nU.S. Government contracts:\t\t\nBilled\t26041\t15136\nCost and accrued profit - not billed\t810\t894\nCommercial and other government contracts\t\t\nBilled\t129131\t120427\nCost and accrued profit - not billed\t10622\t7487\nLess allowance for doubtful accounts\t(1614)\t(1246)\nAccounts receivable net\t185129\t156492\n", "q10k_tbl_14": "In thousands\t\nBalance at December 31 2019\t(1246)\nProvision\t(579)\nAdditions attributable to acquisitions\t(82)\nAmounts written off\t296\nChanges in foreign currency exchange rates\t(3)\nBalance at October 2 2020\t(1614)\n", "q10k_tbl_15": "\tOctober 2 2020\tDecember 31 2019\t Change\t% Change\nIn thousands\t\t\t\t\nContract assets\t127260\t121614\t5646\t4.6%\nContract costs current portion\t3762\t6052\t(2290)\t(37.8)%\nContract costs noncurrent portion\t8438\t6099\t2339\t38.4%\nContract liabilities current portion\t38233\t42942\t(4709)\t(11.0)%\nContract liabilities noncurrent portion\t16398\t37855\t(21457)\t(56.7)%\n", "q10k_tbl_16": "\tOctober 2 2020\t\tDecember 31 2019\t\n\tCarrying Value\tFair Value\tCarrying Value\tFair Value\nIn thousands\t\t\t\t\nDebt (1)\t289363\t295898\t186060\t237381\n", "q10k_tbl_17": "\tOctober 2 2020\tDecember 31 2019\nIn thousands\t\t\nRaw materials\t19798\t15012\nContracts and other work in process (including certain general stock materials)\t131045\t116382\nFinished goods\t37356\t24959\nInventories\t188199\t156353\n", "q10k_tbl_18": "In thousands\t\nGross balance at December 31 2019\t211566\nAccumulated impairment\t(16252)\nNet balance at December 31 2019\t195314\nAdditions(1)\t104489\nImpairments\t(50307)\nForeign currency translation\t3211\nEnding balance at October 2 2020\t252707\n", "q10k_tbl_19": "\t\tAt October 2\t\tAt December 31\t\n\t\t2020\t\t2019\t\n\tAmortization Period\tGross Amount\tAccumulated Amortization\tGross Amount\tAccumulated Amortization\nIn thousands\t\t\t\t\t\nCustomer lists / relationships\t6-38 years\t119676\t(27429)\t56789\t(21415)\nDeveloped technologies\t7-20 years\t44721\t(8414)\t19552\t(5217)\nTrademarks / trade names\t15-40 years\t16731\t(1904)\t5012\t(1368)\nNon-compete agreements and other\t1-15 years\t5092\t(4402)\t2338\t(2321)\nPatents\t17 years\t523\t(462)\t523\t(454)\nTotal\t\t186743\t(42611)\t84214\t(30775)\n", "q10k_tbl_20": "\tFor the Three Months Ended\t\t\t\n\tQualified Pension Plan\t\tSERP\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nService cost\t1309\t1275\t0\t0\nInterest cost on projected benefit obligation\t5255\t6606\t41\t59\nExpected return on plan assets\t(10796)\t(10640)\t0\t0\nAmortization of net loss\t1201\t3815\t236\t61\nNet pension (income) cost\t(3031)\t1056\t277\t120\n", "q10k_tbl_21": "\tFor the Nine Months Ended\t\t\t\n\tQualified Pension Plan\t\tSERP\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nService cost\t3927\t3825\t0\t0\nInterest cost on projected benefit obligation\t15765\t19817\t124\t177\nExpected return on plan assets\t(32388)\t(31920)\t0\t0\nAmortization of net loss\t3603\t11445\t708\t183\nNet pension (income) cost\t(9093)\t3167\t832\t360\n", "q10k_tbl_22": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands except per share amounts\t\t\t\t\n(Loss) earnings from continuing operations\t(38507)\t10130\t(39014)\t22341\nTotal earnings from discontinued operations\t0\t132646\t692\t148026\nNet (loss) earnings\t(38507)\t142776\t(38322)\t170367\nBasic:\t\t\t\t\nWeighted average number of shares outstanding\t27687\t27952\t27718\t27941\n(Loss) earnings per share from continuing operations\t(1.39)\t0.36\t(1.41)\t0.80\nEarnings per share from discontinued operations\t0.00\t4.75\t0.03\t5.30\nBasic (loss) earnings per share\t(1.39)\t5.11\t(1.38)\t6.10\nDiluted:\t\t\t\t\nWeighted average number of shares outstanding\t27687\t27952\t27718\t27941\nWeighted average shares issuable on exercise of dilutive stock options\t0\t165\t0\t163\nTotal\t27687\t28117\t27718\t28104\n(Loss) earnings per share from continuing operations\t(1.39)\t0.36\t(1.41)\t0.79\nEarnings per share from discontinued operations\t0.00\t4.72\t0.03\t5.27\nDiluted (loss) earnings per share\t(1.39)\t5.08\t(1.38)\t6.06\n", "q10k_tbl_23": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\t\tOctober 2 2020\t\n\tOptions\tWeighted - average exercise price\tOptions\tWeighted - average exercise price\nOptions outstanding at beginning of period\t810775\t54.15\t736364\t49.67\nGranted\t0\t0\t161114\t63.18\nExercised\t0\t0\t(79963)\t31.82\nForfeited or expired\t0\t0\t(6740)\t45.26\nOptions outstanding at October 2 2020\t810775\t54.15\t810775\t54.15\n", "q10k_tbl_24": "\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\nExpected option term (years)\t4.9\t4.9\nExpected volatility\t20.2%\t19.4%\nRisk-free interest rate\t1.4%\t2.5%\nExpected dividend yield\t1.3%\t1.3%\nPer share fair value of options granted\t10.74\t11.18\n", "q10k_tbl_25": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\t\tOctober 2 2020\t\n\tRestricted Stock\tWeighted- average grant date fair value\tRestricted Stock\tWeighted- average grant date fair value\nRestricted Stock outstanding at beginning of period\t85443\t57.06\t92800\t53.63\nGranted\t26024\t44.19\t82204\t50.61\nVested\t(784)\t55.85\t(62896)\t49.39\nForfeited or expired\t(100)\t58.19\t(1525)\t60.40\nRestricted Stock outstanding at October 2 2020\t110583\t53.71\t110583\t53.71\n", "q10k_tbl_26": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\t\t\nBeginning balance\t803396\t658169\t823202\t633157\nComprehensive (loss) income\t(28270)\t137127\t(28402)\t169002\nDividends declared (per share of common stock $0.20 and $0.20 and $0.60 and $0.60 respectively)\t(5540)\t(5589)\t(16622)\t(16767)\nEmployee stock plans and related tax benefit\t465\t5070\t2451\t8616\nPurchase of treasury shares\t(37)\t(8943)\t(14205)\t(12006)\nShare-based compensation expense\t664\t3072\t4254\t6904\nChanges due to convertible notes transactions\t0\t38\t0\t38\nEnding balance\t770678\t788944\t770678\t788944\n", "q10k_tbl_27": "\tFor the Three Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\nForeign currency translation and other:\t\t\nBeginning balance\t(18882)\t(16167)\nNet gain (loss) on foreign currency translation\t9130\t(8585)\nOther comprehensive loss net of tax\t9130\t(8585)\nEnding balance\t(9752)\t(24752)\nPension and other post-retirement benefits(1):\t\t\nBeginning balance\t(132328)\t(137541)\nAmortization of net loss net of tax expense of $330 and $940 respectively\t1107\t2936\nOther comprehensive income net of tax\t1107\t2936\nEnding balance\t(131221)\t(134605)\nTotal accumulated other comprehensive loss\t(140973)\t(159357)\n", "q10k_tbl_28": "\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\nIn thousands\t\t\nForeign currency translation and other:\t\t\nBeginning balance\t(16351)\t(14579)\nNet gain (loss) on foreign currency translation\t6599\t(10173)\nOther comprehensive loss net of tax\t6599\t(10173)\nEnding balance\t(9752)\t(24752)\nPension and other post-retirement benefits(1):\t\t\nBeginning balance\t(134542)\t(120319)\nAmortization of net loss net of tax expense of $990 and $2820 respectively\t3321\t8808\nOther comprehensive income net of tax\t3321\t8808\nReclassification of stranded tax effects resulting from Tax Reform to retained earnings balance\t0\t(23094)\nEnding balance\t(131221)\t(134605)\nTotal accumulated other comprehensive loss\t(140973)\t(159357)\n", "q10k_tbl_29": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nEffective Income Tax Rate from continuing operations\t(1.8)%\t18.5%\t2.6%\t12.7%\n", "q10k_tbl_30": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nOrganic sales(1)\t194927\t182670\t538722\t523816\nAcquisition sales\t19032\t0\t60449\t0\nNet sales\t213959\t182670\t599171\t523816\n change\t31289\t25536\t75355\t8681\n% change\t17.1%\t16.3%\t14.4%\t1.7%\n", "q10k_tbl_31": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nGross profit\t66875\t61133\t191245\t168243\n change\t5742\t13445\t23002\t13934\n% change\t9.4%\t28.2%\t13.7%\t9.0%\n% of net sales\t31.3%\t33.5%\t31.9%\t32.1%\n", "q10k_tbl_32": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nSG&A\t45224\t43855\t151093\t127614\n change\t1369\t452\t23479\t(4660)\n% change\t3.1%\t1.0%\t18.4%\t(3.5)%\n% of net sales\t21.1%\t24.0%\t25.2%\t24.4%\n", "q10k_tbl_33": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nGoodwill impairment\t50307\t0\t50307\t0\n", "q10k_tbl_34": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nCosts from transition services agreement\t3019\t1154\t11532\t1154\n", "q10k_tbl_35": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nCosts of acquired retention plans\t5703\t0\t17110\t0\n", "q10k_tbl_36": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nRestructuring costs\t1541\t81\t7820\t553\n", "q10k_tbl_37": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nGain on sale of business\t0\t0\t(493)\t0\n", "q10k_tbl_38": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nOperating (loss) income\t(38927)\t15627\t(46119)\t38571\n change\t(54554)\t22625\t(84690)\t29727\n% change\t(349.1)%\t323.3%\t(219.6)%\t336.1%\n% of net sales\t(18.2)%\t8.6%\t(7.7)%\t7.4%\n", "q10k_tbl_39": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\n\t(in thousands)\t\t\t\nInterest expense net\t5327\t4058\t14382\t14595\n", "q10k_tbl_40": "\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nEffective income tax rate from continuing operations\t(1.8)%\t18.5%\t2.6%\t12.7%\n", "q10k_tbl_41": "\tOctober 2 2020\tDecember 31 2019\n\t(in thousands)\t\nBacklog\t712133\t806870\n", "q10k_tbl_42": "\tFor the Nine Months Ended\t\t\n\tOctober 2 2020\tSeptember 27 2019\t2020 vs. 2019\n\t(in thousands)\t\t\nTotal cash provided by (used in):\t\t\t\nOperating activities\t(52379)\t11336\t(63715)\nInvesting activities\t(315274)\t636315\t(951589)\nFinancing activities\t73063\t(134118)\t207181\nFree Cash Flow (a)\t\t\t\nNet cash (used in) provided by operating activities\t(52379)\t11336\t(63715)\nExpenditures for property plant and equipment\t(14232)\t(17411)\t3179\nFree cash flow\t(66611)\t(6075)\t(60536)\n", "q10k_tbl_43": "\tOctober 2 2020\tDecember 31 2019\nIn thousands\t\t\nTotal facility\t800000\t800000\nAmounts outstanding excluding letters of credit\t101172\t0\nAmounts available for borrowing excluding letters of credit\t698828\t800000\nLetters of credit under the credit facility(1)(2)\t165373\t152614\nAmounts available for borrowing\t533455\t647386\nAmounts available for borrowing subject to EBITDA as defined by the Credit Agreement(3)\t471960\t322900\n", "q10k_tbl_44": "Organic Sales from continuing operations (in thousands)\t\t\t\t\n\tFor the Three Months Ended\t\tFor the Nine Months Ended\t\n\tOctober 2 2020\tSeptember 27 2019\tOctober 2 2020\tSeptember 27 2019\nNet sales\t213959\t182670\t599171\t523816\nAcquisition Sales\t19032\t0\t60449\t0\nOrganic Sales\t194927\t182670\t538722\t523816\n", "q10k_tbl_45": "Period\tTotal Number of Shares Purchased (a)\tAverage Price Paid per Share\tTotal Number of Shares Purchased as Part of a Publicly Announced Plan (b)\tApproximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (in thousands)\nJuly 4 2020 - July 31 2020\t39\t39.93\t0\t2168\nAugust 1 2020 - August 28 2020\t0\t0\t0\t2168\nAugust 29 2020 - October 2 2020\t937\t37.83\t0\t2168\nTotal\t976\t\t0\t\n", "q10k_tbl_46": "10.1\tExecutive Employment Agreement dated as of August 20 2020 by and between Ian K. Walsh and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 21 2020 File No. 001-35419).*\tPreviously filed\n10.2\tTransition and Retirement Agreement dated as of August 20 2020 by and between Neal J. Keating and the Company (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated August 21 2020 File No. 001-35419).*\tPreviously filed\n10.3\tRetirement and Consulting Letter Agreement dated as of August 20 2020 by and between Richard R. Barnhart and the Company (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated August 21 2020 File No. 001-35419).*\tPreviously filed\n31.1\tCertification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934\tFiled Herewith\n31.2\tCertification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934\tFiled Herewith\n32.1\tCertification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002\tFiled Herewith\n32.2\tCertification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002\tFiled Herewith\n101.INS\tXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document\t\n101.SCH\tInline XBRL Taxonomy Extension Schema Document\t\n101.CAL\tInline XBRL Taxonomy Extension Calculation Linkbase Document\t\n101.DEF\tInline XBRL Taxonomy Extension Definition Linkbase Document\t\n101.LAB\tInline XBRL Taxonomy Extension Label Linkbase Document\t\n101.PRE\tInline XBRL Taxonomy Extension Presentation Linkbase Document\t\n104\tCover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101\t\n"}{"bs": "q10k_tbl_1", "is": "q10k_tbl_2", "cf": "q10k_tbl_4"}None
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
October 2, 2020
Or
☐
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
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 30, 2020, there were
27,677,393
shares of Common Stock outstanding.
PART I
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except share and per share amounts) (Unaudited)
October 2, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
152,288
$
471,540
Restricted cash
25,120
—
Accounts receivable, net
185,129
156,492
Contract assets
127,260
121,614
Contract costs, current portion
3,762
6,052
Inventories
188,199
156,353
Income tax refunds receivable
12,474
8,069
Other current assets
14,400
16,368
Total current assets
708,632
936,488
Property, plant and equipment, net of accumulated depreciation of $232,358 and $210,549, respectively
217,906
140,450
Operating right-of-use assets, net
15,377
15,159
Goodwill
252,707
195,314
Other intangible assets, net
144,132
53,439
Deferred income taxes
26,393
35,240
Contract costs, noncurrent portion
8,438
6,099
Other assets
38,325
36,754
Total assets
$
1,411,910
$
1,418,943
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable – trade
$
53,937
$
70,884
Accrued salaries and wages
56,598
43,220
Contract liabilities, current portion
38,233
42,942
Operating lease liabilities, current portion
4,853
4,306
Income taxes payable
1,448
4,722
Other current liabilities
39,206
37,918
Total current liabilities
194,275
203,992
Long-term debt, excluding current portion, net of debt issuance costs
285,608
181,622
Deferred income taxes
6,020
6,994
Underfunded pension
74,550
97,246
Contract liabilities, noncurrent portion
16,398
37,855
Operating lease liabilities, noncurrent portion
11,132
11,617
Other long-term liabilities
53,249
56,415
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; 30,228,123 and 30,058,455 shares issued, respectively
30,228
30,058
Additional paid-in capital
236,310
228,153
Retained earnings
765,722
820,666
Accumulated other comprehensive income (loss)
(140,973)
(150,893)
Less 2,555,693 and 2,219,332 shares of common stock, respectively, held in treasury, at cost
(120,609)
(104,782)
Total shareholders’ equity
770,678
823,202
Total liabilities and shareholders’ equity
$
1,411,910
$
1,418,943
See accompanying notes to condensed consolidated financial statements.
2
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
October 2, 2020
September 27, 2019
October 2, 2020
September 27, 2019
Net sales
$
213,959
$
182,670
$
599,171
$
523,816
Cost of sales
147,084
121,537
407,926
355,573
Gross profit
66,875
61,133
191,245
168,243
Selling, general and administrative expenses
45,224
43,855
151,093
127,614
Goodwill impairment
50,307
—
50,307
—
Costs from transition services agreement
3,019
1,154
11,532
1,154
Cost of acquired retention plans
5,703
—
17,110
—
Restructuring costs
1,541
81
7,820
553
Gain on sale of business
—
—
(493)
—
Net loss (gain) on sale of assets
8
416
(5)
351
Operating (loss) income
(38,927)
15,627
(46,119)
38,571
Interest expense, net
5,327
4,058
14,382
14,595
Non-service pension and post retirement benefit income
(4,063)
(99)
(12,188)
(298)
Income from transition services agreement
(1,829)
(944)
(7,853)
(944)
Other (income) expense, net
(534)
185
(424)
(367)
(Loss) earnings from continuing operations before income taxes
(37,828)
12,427
(40,036)
25,585
Income tax expense (benefit)
679
2,297
(1,022)
3,244
(Loss) earnings from continuing operations
(38,507)
10,130
(39,014)
22,341
Earnings from discontinued operations before gain on disposal, net of tax
—
9,860
—
25,240
Gain on disposal of discontinued operations, net of tax
—
122,786
692
122,786
Total earnings from discontinued operations
—
132,646
692
148,026
Net (loss) earnings
$
(38,507)
$
142,776
$
(38,322)
$
170,367
Earnings per share:
Basic (loss) earnings per share from continuing operations
$
(1.39)
$
0.36
$
(1.41)
$
0.80
Basic earnings per share from discontinued operations
0.00
4.75
0.03
5.30
Basic (loss) earnings per share
$
(1.39)
$
5.11
$
(1.38)
$
6.10
Diluted (loss) earnings per share from continuing operations
$
(1.39)
$
0.36
$
(1.41)
$
0.79
Diluted earnings per share from discontinued operations
0.00
4.72
0.03
5.27
Diluted (loss) earnings per share
$
(1.39)
$
5.08
$
(1.38)
$
6.06
Average shares outstanding:
Basic
27,687
27,952
27,718
27,941
Diluted
27,687
28,117
27,718
28,104
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)
For the Three Months Ended
For the Nine Months Ended
October 2, 2020
September 27, 2019
October 2, 2020
September 27, 2019
Net (loss) earnings
$
(38,507)
$
142,776
$
(38,322)
$
170,367
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments and other
9,130
(8,585)
6,599
(10,173)
Change in pension and post-retirement benefit plan liabilities, net of tax expense of $330 and $940 and $990 and $2,820, respectively
1,107
2,936
3,321
8,808
Other comprehensive (loss) income
10,237
(5,649)
9,920
(1,365)
Comprehensive (loss) income
$
(28,270)
$
137,127
$
(28,402)
$
169,002
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)
For the Nine Months Ended
October 2, 2020
September 27, 2019
Cash flows from operating activities:
Net (loss) earnings
$
(38,322)
$
170,367
Less: Total earnings from discontinued operations
692
148,026
(Loss) earnings from continuing operations
$
(39,014)
$
22,341
Adjustments to reconcile net earnings from continuing operations to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization
32,204
19,308
Amortization of debt issuance costs
1,325
1,401
Accretion of convertible notes discount
2,132
2,067
Provision for doubtful accounts
570
384
Goodwill impairment
50,307
—
Gain on sale of business
(493)
—
Net (gain) loss on sale of assets
(5)
351
Net loss on derivative instruments
144
549
Stock compensation expense
4,254
3,969
Deferred income taxes
6,590
(3,743)
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable
(19,556)
17,650
Contract assets
(5,085)
(20,303)
Contract costs
(48)
3,130
Inventories
(18,273)
(43,139)
Income tax refunds receivable
(4,431)
157
Operating right of use assets
427
2,388
Other assets
526
(4,020)
Accounts payable - trade
(18,258)
704
Contract liabilities
(26,165)
(16,647)
Operating lease liabilities
(498)
(2,256)
Other current liabilities
5,997
7,318
Income taxes payable
(3,464)
15,620
Pension liabilities
(18,662)
3,128
Other long-term liabilities
(2,903)
979
Net cash (used in) provided by operating activities of continuing operations
(52,379)
11,336
Net cash used in operating activities of discontinued operations
—
(7,341)
Net cash (used in) provided by operating activities
(52,379)
3,995
Cash flows from investing activities:
Proceeds from sale of assets
128
82
Proceeds from sale of discontinued operations
5,223
656,736
Proceeds from sale of business
493
—
Expenditures for property, plant & equipment
(14,232)
(17,411)
Acquisition of businesses, net of cash acquired
(304,661)
—
Other, net
(2,225)
(3,092)
Net cash (used in) provided by investing activities of continuing operations
(315,274)
636,315
Net cash used in investing activities of discontinued operations
—
(9,838)
Net cash (used in) provided by investing activities
(315,274)
626,477
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements
101,100
(38,500)
Debt repayment
—
(76,875)
Repayment of convertible notes
—
(500)
Net change in bank overdraft
958
2,995
Proceeds from exercise of employee stock awards
2,451
8,616
Purchase of treasury shares
(14,205)
(12,006)
Dividends paid
(16,675)
(16,756)
Other, net
(566)
(1,092)
Net cash provided by (used in) financing activities of continuing operations
73,063
(134,118)
Net cash provided by financing activities of discontinued operations
—
7,967
Net cash provided by (used in) financing activities
73,063
(126,151)
Net (decrease) increase in cash and cash equivalents
(294,590)
504,321
Cash and cash equivalents of discontinued operations
—
(21,834)
Effect of exchange rate changes on cash and cash equivalents
458
(208)
Cash and cash equivalents and restricted cash at beginning of period
471,540
27,711
Cash and cash equivalents and restricted cash at end of period
$
177,408
$
509,990
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
1. BASIS OF PRESENTATION
During the third quarter of 2019, Kaman Corporation ("the Company") completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020 and transaction costs. The 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.
2. RECENT ACCOUNTING STANDARDS
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.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
2. RECENT ACCOUNTING STANDARDS (CONTINUED)
Recent Accounting Standards 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.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
2. RECENT ACCOUNTING STANDARDS (CONTINUED)
Recent Accounting Standards Yet to be Adopted - continued
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The objective of the standard is to address operational challenges likely to arise in accounting for contract modifications and hedge accounting due to reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The standard update is effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. Once elected for a topic or industry subtopic, the amendments in this standard update must be applied prospectively for all eligible contract modifications for that topic or industry subtopic. An entity may elect to apply the amendments for eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. If an entity elects to apply any of the amendments for an eligible hedging relationship existing as of the beginning of the interim period that includes March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of that interim period. If an entity elects to apply any of the amendments for a new hedging relationship entered into between the beginning of the interim period that includes March 12, 2020 and March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of the hedging relationship. The 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
On August 26, 2019, the Company completed the sale of its Distribution business for total cash consideration of approximately $700.0 million, excluding certain working capital adjustments which were finalized in the first quarter of 2020. The sale of the Distribution business was a result of the Company's shift in strategy to be a highly focused, technologically differentiated aerospace and engineered products company. As a result of the sale, the Distribution business met the criteria set forth in Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements - Discontinued Operations, for discontinued operations.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
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.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
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:
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.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
4. BUSINESS COMBINATIONS (CONTINUED)
This acquisition was accounted for as a purchase transaction. The assets acquired and liabilities assumed were recorded based
on their fair values at the date of acquisition as follows (in thousands):
Cash
$
10,953
Restricted cash
1,932
Accounts receivable
9,525
Contract assets
784
Inventories
13,500
Property, plant and equipment
81,997
Operating right-of-use asset
653
Other tangible assets
2,492
Goodwill
104,489
Other intangible assets
100,900
Liabilities
(9,679)
Net assets acquired
317,546
Less cash received
(12,885)
Net consideration
$
304,661
The preliminary purchase price allocation for the acquisition of Bal Seal was based upon a preliminary valuation and the Company's estimates and assumptions for this acquisition are subject to change as the Company obtains additional information during the measurement period. During the third quarter, the Company adjusted certain assumptions used to value the identifiable intangible assets and the Company finalized the working capital adjustment. These changes resulted in a decrease to goodwill of $6.3 million and an increase to other intangible assets of $6.3 million. The principal areas of the purchase price allocation that are not yet finalized relate to the validation of certain assumptions used to value the identifiable intangible assets. These purchase price allocations will be finalized within the one-year measurement period.
The goodwill associated with this acquisition is tax deductible and is the result of expected synergies from combining the operations of the acquired business with the Company's operations and intangible assets that do not qualify for separate recognition, such as an assembled workforce.
The fair value of the identifiable intangible assets of $100.9 million, consisting of customer relationships, developed technologies, trade name and acquired backlog, was determined using the income approach. Specifically, a multi-period, excess earnings method was utilized for the customer relationships and backlog and the relief-from-royalty method was utilized for the trade name and developed technologies. The fair value of the customer relationships, $61.9 million, is being amortized based on the economic pattern of benefit over periods ranging from 30 to 38 years; the fair value of the developed technologies, $24.8 million, is being amortized on a straight-line basis over periods ranging from 7 to 13 years; the fair value of the trade name, $11.5 million, is being amortized on a straight-line basis over a 40 year term; and the fair value of the acquired backlog, $2.7 million, is being amortized on a straight-line basis over a period of 1 year. These amortization periods represent the estimated useful lives of the assets.
As of the acquisition date, Bal Seal had $1.9 million in costs accrued for its employee retention plans in other long term liabilities. Upon closing, the Company funded $24.7 million associated with these employee retention plans into escrow accounts. This amount and related interest was included in restricted cash on the Company's Condensed Consolidated Balance Sheets as of October 2, 2020. Eligible participants will receive an allocation of the escrow balance one year following the acquisition date. In addition to the purchase price of $317.5 million, the Company will incur $22.8 million in compensation expense associated with these retention plans in the year ended December 31, 2020. Of this amount, $5.7 million and $17.1 million was incurred in the three-month and nine-month fiscal periods ended October 2, 2020, respectively.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
4. BUSINESS COMBINATIONS (CONTINUED)
Bal Seal's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on January 3, 2020. Bal Seal contributed $19.0 million and $60.4 million of revenue and $7.6 million and $21.5 million of operating loss for the three-month and nine-month fiscal periods ended October 2, 2020. The following table reflects the unaudited pro forma operating results of the Company for the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019, which gives effect to the acquisition of Bal Seal as if the Company had been acquired on January 1, 2019. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 2019, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical financial results of the Company and the acquired business adjusted for certain items discussed below. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.
For the Three Months Ended
For the Nine Months Ended
October 2, 2020
September 27, 2019
October 2, 2020
September 27, 2019
In thousands
Net sales
$
213,959
$
206,143
$
599,171
$
594,195
(Loss) earnings from continuing operations
$
(31,890)
$
4,753
$
(14,964)
$
1,058
Net (loss) earnings
$
(31,890)
$
137,399
$
(14,272)
$
149,084
Adjustments to pro forma earnings for the three-month fiscal period ended October 2, 2020, include a $5.7 million reduction in compensation expense associated with Bal Seal's employee retention plans, $1.9 million in lower amortization of intangible assets and $1.0 million in higher income tax expense. Adjustments to pro forma earnings for the three-month fiscal period ended September 27, 2019, include a $1.1 million reduction in net expenses associated with buildings purchased by the Company that were previously leased by Bal Seal, $3.7 million in incremental amortization of intangible assets, $5.7 million of incremental compensation expense associated with Bal Seal's employee retention plans and $1.2 million in lower income tax expense.
Adjustments to pro forma earnings for the nine-month fiscal period ended October 2, 2020, include a $17.1 million reduction in compensation expense associated with Bal Seal's employee retention plans, the absence of $8.5 million in acquisition-related costs, a $2.4 million reduction in costs associated with the inventory step-up, $3.8 million in lower amortization of intangible assets and $7.6 million in higher income tax expense. Adjustments to pro forma earnings for the nine-month fiscal period ended September 27, 2019, include a $3.2 million reduction in net expenses associated with buildings purchased by the Company that were previously leased by Bal Seal, $7.9 million in incremental amortization of intangible assets, $17.1 million incremental of compensation expense associated with Bal Seal's employee retention plans, $8.5 million of acquisition-related costs, $2.4 million in additional costs associated with the inventory step-up and $5.7 million in lower income tax expense.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
5. REVENUE
Disaggregation of Revenue
The following table disaggregates total revenue by major product sales by end market.
For the Three Months Ended
For the Nine Months Ended
October 2, 2020
September 27, 2019
October 2, 2020
September 27, 2019
In thousands
Defense
$
46,324
$
45,124
$
137,281
$
128,445
Safe and Arm Devices
81,252
56,167
196,238
152,874
Commercial, Business, & General Aviation
52,894
63,754
164,006
187,191
Medical
17,506
6,581
53,245
21,807
Industrial & Other
15,983
11,044
48,401
33,499
Total revenue(1)
$
213,959
$
182,670
$
599,171
$
523,816
(1) Sales of the Company's formerly owned Distribution business were included in earnings from discontinued operations, net of tax, on the Company's Condensed Consolidated Statements of Operations. See Note 3, Discontinued Operations, for further information on the Company's sale of the Distribution business.
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.
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
%
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
5. REVENUE (CONTINUED)
Disaggregation of Revenue - continued
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:
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:
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.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
5. REVENUE (CONTINUED)
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:
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.
6. RESTRUCTURING COSTS
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.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended October 2, 2020 and September 27, 2019
(Unaudited)
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.
7. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
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:
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.