KAMAN : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide readers of our consolidated financial
statements with the perspectives of management. MD&A presents in narrative form
information regarding our financial condition, results of operations, liquidity
and certain other factors that may affect our future results. This should allow
the readers of this report to obtain a comprehensive understanding of our
businesses, strategies, current trends and future prospects. MD&A should be read
in conjunction with the Consolidated Financial Statements and related Notes
included in this Form 10-K.

OVERVIEW OF BUSINESS

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

Our strategy is to continuously differentiate ourselves through leveraging
innovation to drive organic growth and acquiring value by developing businesses
and product lines, all focused around a best in class operations excellence
model. We continue to focus on highly engineered parts, automation and best in
class engineering and seek to design our technology and solutions into our
customer's products. This strategy requires a relentless focus on recruiting,
developing, and retaining top talent, while deploying an operating model focused
on continuous improvement. We strive to find the right balance in the markets we
serve: aerospace and defense, commercial aviation, medical and industrial.
Having a stronger diversified portfolio of businesses and products allows us
leverage our broad capabilities and to make intelligent choices around our
research and development expenditures. Fundamentally we will continue investing
in those high value creating opportunities, which will drive stronger total
shareholder returns and cash flow.

Executive Summary

In the year ended December 31, 2020, consolidated net sales from continuing
operations increased by 3.0% to $784.5 million due to the contribution of
$77.0 million in total sales from Bal Seal, partially offset by a 7.1% decrease
in organic sales. Gross margin remained relatively flat at 31.3% compared to
31.6% in the prior year period. This performance was driven in part by a higher
volume of sales from our lower margin structures programs and the mix of
bearings products, mostly offset by the addition of the higher margin product
portfolio at Bal Seal and the mix of joint programmable fuze ("JPF") sales.
Absent the addition of selling, general and administrative expenses ("S,G&A")
from Bal Seal and acquisition-related costs, S,G&A decreased, driven by lower
employee-related costs as we began to realize the benefits of the workforce
reductions implemented and lower costs as a result of the precautions taken by
our employees and the restrictions imposed to limit the spread of COVID-19,
including lower travel expenses and trade show costs and a decrease in group
health costs due to the limited number of elective procedures being performed.
In the third quarter, we recorded a goodwill impairment charge of $50.3 million
due to a decline in earnings compared with forecasts used in prior periods for
our Aerosystems reporting unit. The Company considered this decline, as well as
the updated forecasts for the reporting unit, which indicated the forecasted
cash flows for this reporting unit were lower than amounts previously
forecasted. Additionally, a $36.3 million impairment charge was recorded
associated with the anticipated sale of our United Kingdom ("UK") Composites
business as the estimated fair value of the business based on the anticipated
transaction was less than the book value of its assets. The impairment charges
were the main drivers of the GAAP diluted loss per share from continuing
operations of $2.54.

Other financial highlights

•Loss from continuing operations, net of tax was $70.4 million, a 224.8%
decrease compared to the prior year. This decrease reflects the goodwill
impairment charge and loss on the anticipated sale of our UK Composites
business.
•Cash flows provided by operating activities of continuing operations were $16.5
million for 2020, a decrease of $26.0 million. This change was largely driven by
lower net earnings.
•Total unfulfilled performance obligations ("backlog") decreased 21.8% to $631.2
million, mostly driven by deliveries under our JPF program and lower orders of
bearings products as a result of the impact of the novel coronavirus
("COVID-19").

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COVID-19 Discussion

The impact of 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,
including a decrease in our stock price. We are closely monitoring the impact of
the COVID-19 pandemic on all aspects of our business and across the geographies
in which we operate and serve customers, and we are working to assess the extent
to which it will impact our customers, suppliers and other business partners.

Impact on our Business

Kaman is operating as an essential business in the United States and in most of
the markets in which it operates around the world. While we did not incur
significant disruptions related to the COVID-19 pandemic during 2020, our
structures facility in Mexico and joint venture in India were temporarily closed
during the second quarter, due to mandates by their local governments. We have
been able to largely offset the impacts of our Mexico facility temporary closure
by satisfying our customer requirements out of our Jacksonville facility. We
were also able to largely offset the impacts of our joint venture in India due
to on-time deliveries before the business was required to halt production. Both
facilities were open throughout the third and fourth quarters and continue to
remain open through the date of this filing. During 2020, we implemented
furloughs at two domestic businesses and two foreign businesses. The furloughs
provided savings of $3.4 million in the current year. We also elected to
eliminate certain open positions and implemented workforce reductions at the
majority of our facilities, which are expected to provide annualized savings of
$19.0 million. During the fourth quarter, we continued to evaluate our workforce
in light of the impacts of COVID-19. Workforce reductions resulted in severance
costs of $3.5 million in 2020. Additionally, while certain of our customers and
suppliers have temporarily shut down operations, disruptions to our supply chain
have been limited to date and we continue to meet the demands of our customers.

Despite our efforts to mitigate the risks associated with COVID-19, our
operations continue to be adversely impacted, as approximately 50% of our 2020
sales were anticipated to be in commercial end markets, which were particularly
impacted by the effects of the pandemic. Of total expected sales, approximately
30% was anticipated to be to commercial aerospace customers. Furthermore, direct
and indirect sales to Boeing and Airbus were expected to account for
approximately 40% of commercial aerospace sales. During the second quarter, we
began to see order deferrals and cancellations resulting in declines in our
commercial aerospace programs, which continued into the second half of 2020.
More specifically, we have had lower sales of our commercial bearings products
to Boeing and Airbus and decreases in our medical programs due to the limited
number of elective procedures being performed. Our defense and safe and arm
devices end markets have not been impacted by COVID-19 and we do not expect
future declines due to COVID-19 on the results of these end markets.

Steps to Protect our Workforce

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

Work-from-home guidelines and travel bans were implemented in March, and all
employees who are able to work from home have been encouraged to do so for the
foreseeable future to limit contact points and reduce the risk of exposure. To
support a higher volume of employees working from home, we have upgraded our
remote capabilities, and our human resources department has made training
materials available on how to overcome the challenges of working from home.
For those on-site, we have implemented segregated workspaces to increase
physical distancing within our facilities, improve the traceability of employee
contacts, and limit risk of exposure while in the facility. We have also
restricted free flow of employees throughout the factories and prevented
non-essential employees and business associates from entering these facilities.
We have developed detailed plans on how to respond quickly to an ill employee
showing symptoms or a confirmed case within a facility. In addition, we
implemented mandatory daily temperature checks for all persons entering our
facilities. Face masks have been made available to all employees and are
required in production facilities, those areas where required by law, and
strongly encouraged in all other areas.

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

Looking Ahead

Despite efforts to mitigate the risks associated with COVID-19, we expect our
operations to continue to be adversely impacted through at least the first half
of 2021. We continued to see order deferrals and cancellations resulting in
declines in commercial aerospace products through the end of 2020. As the
pandemic continues, we anticipate further challenges in our commercial and
medical end markets. Our defense and safe and arm devices end markets have not
been impacted by COVID-19 and we do not expect future declines due to COVID-19
on the results of these end markets. We look forward to improved performance in
the second half of 2021; however, the extent to which COVID-19 may adversely
impact the Company depends on future developments, which are highly uncertain
and unpredictable at this time.

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

Acquisitions and divestitures

•In December 2020, the Company committed to a plan to sell its UK Composites
division and received approval from its Board of Directors. Subsequent to the
end of the year, the transaction closed on February 2, 2021.
•In January 2020, we completed the acquisition of Bal Seal Engineering, Inc.
("Bal Seal") for a purchase price $317.5 million.

Awards and recognition

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

Management changes

•In August 2020, Neal J. Keating announced his retirement as President and CEO
of the Company and Ian K. Walsh was appointed President and CEO as of September
8, 2020. Mr. Keating will continue to serve as Executive Chairman through the
date of the 2021 Annual Meeting of Shareholders, at which time he is expected to
retire from the Board.
•Richard R. Barnhart, Executive Vice President of the Company and President of
Kaman Aerospace Group, retired from the Company as of September 30, 2020.
•Gregory T. Troy, Senior Vice President - Human Resources & Chief Human
Resources Officer, retired from the Company as of January 31, 2021. Megan A.
Morgan was appointed Vice President - Human Resources and Chief Human Officer as
of February 1, 2021.
•Russell J. Bartlett was appointed the Company's Chief Operating Officer,
effective January 4, 2021
•Kristen M. Samson was appointed the Company's Chief Marketing Officer,
effective January 18, 2021.
•In November 2020, the Board of Directors appointed Michelle J. Lohmeier and
Aisha M. Barry as directors, effective immediately. The appointments increase
the size of the Board to eleven directors.


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Other key events

•In January 2021, the Agencia Nacional de Aviação Civil ("ANAC") in Brazil
issued the Type Certificate for the Kaman K-1200 K-MAX® helicopter. We have been
marketing the K-MAX® helicopter to various Brazilian operators, power line, oil
and gas firms, and engineering companies over the past two years, and this
certification clears the path for K-MAX® operations in Brazil.
•In September 2020, we received a follow-on order for Lots 17 and 18 of our
current Joint Air-to-Surface Standoff Missile contract with Lockheed Martin
Corporation. The order has an expected value of approximately $10.6 million with
performance beginning in 2021 through 2023.
•In August 2020, we received an order under Option 15 of our JPF contract with
the USG. This order has an expected value of approximately $57.3 million for the
procurement of JPFs for 25 foreign militaries.
•In August 2020, KCV entered into a new Long Term Agreement ("LTA") with a major
engine original equipment manufacturer to manufacture components for both
existing production and newly developed engine programs. The LTA has a potential
value of $118 million and initial deliveries are expected in the second half of
2021.
•In May 2020, the United States Forest Service awarded Kaman Air Vehicles 40% of
all Type 1, large helicopters exclusive use contracts, to K-MAX® helicopter
operators. These four-year contracts ensure immediate resources are available
when the need for firefighting arises.
•In March 2020, as we evaluated the uncertainty associated with the COVID-19
outbreak, we elected to borrow $200 million under our $800 million revolving
credit facility. We have since repaid these borrowings in full.
•In 2020, we identified workforce reductions to be completed in 2020 as part of
our comprehensive review of our general and administrative functions in order to
improve operational efficiency and to align the Company's costs with its
revenues. The workforce reductions are expected to provide annualized cost
savings of approximately $13.2 million.
•In February 2020, Kaman Air Vehicles entered into a strategic distribution
agreement with Trust International Group. This reseller agreement provides Trust
International with exclusive rights to market the K-MAX® medium-to-heavy lift
helicopter and its spare parts in the United Arab Emirates.

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RESULTS FROM CONTINUING OPERATIONS

During the third quarter of 2019, we completed the sale of our Distribution
business for total cash consideration of $700.0 million, excluding certain
working capital adjustments. As a result of the sale, the Distribution business
results met the criteria for the presentation of discontinued operations. The
results presented below represent the results of continuing operations. See Note
2, Discontinued Operations and Liabilities Held for Sale, in the Notes to
Consolidated Financial Statements included in this Form 10-K for further
details.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the change in results of continuing operations from the earliest year presented.

Net Sales from Continuing Operations

                           2020            2019            2018
In thousands
Organic sales          $ 707,494       $ 761,608       $ 735,994
Acquisition sales         76,965               -               -
Net sales              $ 784,459       $ 761,608       $ 735,994
$ change                  22,851          25,614          11,050
% change                     3.0  %          3.5  %          1.5  %



Net sales for 2020 increased when compared to 2019, primarily due to the
contribution of $77.0 million of sales from our Bal Seal acquisition. This
increase was partially offset by a 7.1% decrease in organic sales, driven by
lower sales of $63.2 million in our commercial, business and general aviation
programs, $6.5 million in our medical and industrial and other commercial
programs and $5.0 million in our defense programs, partially offset by an
increase in sales of $20.6 million on our safe and arm device programs. Foreign
currency exchange rates relative to the U.S. dollar had a favorable impact of
$1.8 million on net sales.

The decrease in sales under our commercial, business and general aviation
programs were primarily attributable to lower sales volume of our commercial
bearings products, driven by lower sales to Boeing and Airbus due to the impacts
of COVID-19, lower sales under certain structures programs and the K-MAX®
program. These decreases, totaling $70.7 million, were partially offset by
higher sales on our Boeing Wing-to-Body Fairing program and Bell Commercial
helicopter program.

The decrease in sales under our defense programs, excluding safe and arm devices
was primarily attributable to the absence of sales under our SH-2G program for
Peru, a decrease in sales under the AH-1Z program and a certain structures
program, and lower sales volume of spares for the SH-2 program with New Zealand.
These decreases, totaling $24.2 million, were partially offset by higher sales
volume of our defense bearings products and an increase in sales on the Combat
Rescue Helicopter program.

Sales under our medical and industrial and other commercial programs decreased
when compared to the corresponding period in 2019. This was attributable to
lower sales volume of our bearings products and decreases in sales under our
imaging program and measuring programs.

The increase in sales under our safe and arm device product programs was
primarily attributable to higher direct commercial sales of our JPF to foreign
militaries and an increase in sales on our MK54 fuzing program, partially offset
by lower sales under our JPF program with the USG.

Gross Profit from Continuing Operations

                        2020            2019            2018
In thousands
Gross profit        $ 245,582       $ 240,805       $ 227,317
$ change                4,777          13,488          (6,712)
% change                  2.0  %          5.9  %         (2.9) %
% of net sales           31.3  %         31.6  %         30.9  %


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Gross profit for 2020 increased when compared to 2019. This was primarily
attributable to higher direct commercial sales of our JPF to foreign militaries,
higher sales and associated gross profit on defense bearings products and the
contribution of $29.1 million in gross profit from our Bal Seal acquisition.
These increases, totaling $62.4 million, were partially offset by lower sales
and associated gross profit on our commercials bearings products, our JPF
program with the USG and certain structures programs.

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

                        2020            2019            2018
In thousands
S,G&A               $ 199,906       $ 177,187       $ 172,271
$ change               22,719           4,916           2,588
% change                 12.8  %          2.9  %          1.5  %
% of net sales           25.5  %         23.3  %         23.4  %



The increase in S,G&A expenses for 2020 as compared to 2019 was primarily
attributable to $36.6 million in additional S,G&A from our Bal Seal acquisition,
which includes $11.1 million of intangible amortization expense associated with
the purchase accounting for the acquisition. Additionally, we incurred $10.8
million of nonrecurring costs in the period, which consisted of $8.5 million of
Bal Seal acquisition costs and $2.3 million in third party costs associated with
our efforts to reduce general and administrative expenses.These increases were
partially offset by lower organic S,G&A driven by a decrease in employee-related
costs, including lower incentive compensation costs and lower salary and wage
expenses as a result of the workforce reductions implemented to support our cost
savings initiative, a decrease in group health costs due to the limited number
of elective procedures being performed as a result of COVID-19, and a decrease
in travel expenses and trade show costs due to restrictions imposed to limit the
spread of COVID-19.

Costs from Transition Services Agreement

                                                 2020         2019        

2018

In thousands Costs from transition services agreement $ 12,515 $ 4,673 $ -

Upon closing the sale of the Distribution business, the Company entered into a
transition services agreement ("TSA") with the buyer, pursuant to which the
Company agreed to support the information technology, human resources and
benefits, tax and treasury functions of the Distribution business for six to
twelve months. The buyer had the option to extend the support period for up to
an additional year for certain services. The buyer exercised the option to
extend the support period for up to a maximum of an additional year for certain
information technology services. The buyer has the right to terminate individual
services at any point over the renewal term and began to terminate certain
services during the third quarter of 2020. All services are expected to be
terminated by the end of the first quarter of 2021. The Company incurred $12.5
million and $4.7 million in costs associated with the TSA in the years ending
December 31, 2020 and December 31, 2019, respectively. These costs are partially
offset by $8.4 million and $3.7 million in income earned from the TSA included
in income from transition services agreement, which is below operating income on
the Company's Consolidated Statements of Operations.

Cost of Acquired Retention Plans

                                          2020        2019      2018
In thousands
Costs of acquired retention plans      $ 22,814      $  -      $  -



Bal Seal's previous owner implemented employee retention plans prior to our
acquisition in the first quarter of 2020. Upon closing, we funded $24.7 million
of the purchase price into escrow accounts associated with these employee
retention plans. Eligible participants received an allocation of the escrow
balances one year following the acquisition date. Upon acquisition, Bal Seal had
$1.9 million in costs accrued for these employee retention plans; therefore, we
incurred $22.8 million in compensation expense associated with these retention
plans in the year ended December 31, 2020.


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Goodwill and Other Intangibles Impairment

                                                  2020        2019        

2018

In thousands Goodwill and other intangibles impairment $ 50,307 $ - $ 10,039

During the third quarter of 2020, we identified a triggering event for possible
impairment of our Aerosystems reporting unit based on a decline in earnings
compared to forecasts used in prior periods and projections, which indicated the
projected cash flows for this reporting unit were lower than amounts previously
forecasted. We performed a quantitative analysis on the Aerosystems reporting
unit using an income methodology based on management's estimates of forecasted
cash flows, with those cash flows discounted to present value using rates
commensurate with the risks associated with those cash flows. In addition,
management used a market-based valuation method involving analysis of market
multiples of revenues and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for (i) a group of comparable companies and (ii) recent
transactions, if any, involving comparable companies. The quantitative analysis
resulted in a conclusion that the fair value of the Aerosystems reporting unit
was $56.1 million below its carrying value; therefore, goodwill was impaired. In
the year ended December 31, 2020, we recorded a goodwill impairment charge of
$50.3 million for the Aerosystems reporting unit, which represented the entire
goodwill balance for the reporting unit.

In 2018, we identified a triggering event for possible impairment of long-lived
intangible assets at a certain asset group within the Company's United Kingdom
("UK") business based on an analysis of historical performance, the current
forecast for the remainder of the year and the loss of future orders from one of
its customers. We performed a recoverability test by comparing the undiscounted
cash flows of the asset group to its carrying value, and the estimated future
cash flows of the business did not exceed the carrying value of the assets.
Based on these results, we calculated the fair value of the asset group using an
income approach, which resulted in an impairment charge of $10.0 million, or the
remaining balance of the customer lists/relationships at a certain asset group
within the U.K. business.

Impairment of Assets Held for Sale

                                           2020        2019      2018
In thousands
Impairment of assets held for sale      $ 36,285      $  -      $  -



In the fourth quarter of 2020, the Company committed to a plan and received
approval from its Board of Directors to sell its UK Composites division. At
December 31, 2020, the assets of the UK Composites business were considered
impaired as the estimated fair value of the disposal group was lower than the
estimated carrying value of the UK Composites business. As a result, $24.3
million in assets were written off and the remaining loss related to the
anticipated sale of the disposal group of $12.0 million was accrued for in
liabilities held for sale, current portion on the Company's Consolidated Balance
Sheets, resulting in a total loss of $36.3 million recorded to impairment on
assets held for sale on the Company's Consolidated Statements of Operations in
the year ended December 31, 2020. Of this amount, $22.9 million relates to the
cumulative translation adjustment balance for the UK Composites division.
Subsequent to the end of the year, the transaction closed on February 2, 2021.

Restructuring Costs from Continuing Operations

                           2020         2019         2018
In thousands
Restructuring costs      $ 8,359      $ 1,558      $ 7,353



Following the sale of our former distribution business, we announced that we
would undertake a comprehensive review of our general and administrative
functions in order to improve operational efficiency and to align our costs with
our revenues. We identified information technology functions to be outsourced,
workforce reductions and other reductions in certain general and administrative
expenses to be completed in 2020 to support the cost savings initiative. These
actions resulted in $4.0 million in severance costs in the year ended
December 31, 2020, and are expected to provide annualized cost savings of
approximately $13.2 million, contributing to total annualized cost savings of
approximately $18.2 million since the announcement of the cost savings
initiative. In 2019, the Company's corporate office incurred $0.9 million in
associated severance expense.
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In addition to the severance costs associated with the cost savings initiative
discussed above, we incurred $0.5 million in severance costs as we integrated
the acquisition of Bal Seal in year ended December 31, 2020. This action is
expected to provide annual cost savings of approximately $1.2 million.

During the second quarter of 2020, the Company implemented workforce reductions,
including temporary furloughs, and elected to eliminate certain open positions
as a response to the unprecedented hardships brought on by COVID-19. For the
year ended December 31, 2020, the Company recorded severance costs of
$3.5 million related to workforce reductions, which were included in
restructuring costs on the Company's Consolidated Statements of Operations.
These actions are expected to provide annualized cost savings of approximately
$19.0 million.

During the third quarter of 2017, we announced restructuring activities at
certain businesses to support the ongoing effort of improving capacity
utilization and operating efficiency to better position the Company for
increased profitability and growth. Such actions included workforce reductions
and the consolidation of operations, with the majority completed by the end of
2019. In the years ended December 31, 2020, 2019 and 2018, we recorded $0.3
million, $0.6 million, and $6.0 million, respectively, in costs associated with
the restructuring activities.

In 2018, we incurred $1.4 million in other non-related restructuring costs
associated with the termination of certain distributor agreements and separation
costs associated with certain employees not included in restructuring activities
discussed above.

(Gain) Loss on Sale of Business

                                       2020        2019         2018
In thousands
(Gain) loss on sale of business      $ (493)     $ 3,739      $ 5,722



During 2018, we sold our U.K. Tooling business. This sale did not qualify for
the reporting of discontinued operations within the consolidated financial
statements. In the year ended December 31, 2018, we incurred a loss of $5.7
million associated with the sale. Of this amount, $1.7 million related to the
foreign currency translation reclassified from accumulated other comprehensive
income (loss) to net income. In the year ended December 31, 2019, the Company
incurred an additional loss of $3.7 million associated with the write-off of
note receivables recorded for the remaining amounts to be collected on the sale
of the UK Tooling business as this balance was deemed not likely to be
collected. In the year ended December 31, 2020, we collected $0.5 million of the
note receivables written off in 2019.

Operating (Loss) Income from Continuing Operations

                                 2020           2019           2018
In thousands
Operating (loss) income      $ (84,311)      $ 53,411       $ 32,963
$ change                      (137,722)        20,448        (28,753)
% change                        (257.9) %        62.0  %       (46.6) %
% of net sales                   (10.7) %         7.0  %         4.5  %



We had an operating loss of $84.3 in 2020, compared to operating income of $53.4
in 2019. This change was primarily attributable to the goodwill impairment
charge associated with the Aerosystems reporting unit recorded in the third
quarter, the impairment loss on the anticipated sale of the UK Composites
business, costs incurred related to the TSA, an increase in restructuring costs
and costs associated with the purchase accounting for the Bal Seal acquisition
as discussed above. These changes were partially offset by increases in gross
profit on certain programs as discussed above and the contribution of gross
profit from Bal Seal.

Interest Expense, Net from Continuing Operations

                              2020          2019          2018
In thousands
Interest expense, net      $ 19,270      $ 17,202      $ 20,046

Interest expense, net generally consists of interest charged on our Credit Agreement, which includes a revolving credit facility and a term loan under our previously existing credit facility, and our convertible notes and the amortization of debt issuance

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costs, offset by interest income. The increase in interest expense, net for 2020
as compared to 2019 was primarily due to lower interest income earned on
marketable securities and higher average borrowings in the current period,
partially offset by the absence of interest expense associated with our previous
term loan facility.

Effective Income Tax Rate from Continuing Operations

                                2020        2019         2018
Effective income tax rate       9.9  %     (39.1) %     36.8  %



The effective tax rate represents the combined federal, state and foreign tax
effects attributable to pretax earnings for the year. The comparison of the
effective tax rate from continuing operations for the year ended December 31,
2020 to the corresponding rate in the prior period was impacted by the pretax
loss in the current period. The rate was unfavorably impacted by the impairment
charge on the UK Composites business as a result of the anticipated sale, for
which no associated tax benefit was recognized in the current period. Due to an
entity classification election in 2019 related to the investment in the
Company's UK business, which had the effect of treating the subsidiary as a
disregarded entity for U.S. tax purposes, a loss was recorded resulting in a
significant tax benefit recognized by the Company in 2019. Additionally, the
Company recognized additional benefits from research and development credits
relating to research completed in the three prior years. See Note 16, Income
Taxes, in the Notes to Consolidated Financial Statements included in this Form
10-K for further details.

Backlog
                                         2020           2019           2018
                    In thousands
                    Backlog           $ 631,236      $ 806,870      $ 851,814

Backlog decreased from 2019 to 2020, primarily driven by revenue recognized for deliveries of direct commercial JPF orders and sales outpacing orders of bearings products as a result of the impacts of COVID-19.

Other Matters

Information regarding our various environmental remediation activities and
associated accruals can be found in Note 19, Commitments and Contingencies, and
Note 13, Environmental Costs, in the Notes to Consolidated Financial Statements
included in this Form 10-K.

Long-Term Contracts

For long-term contracts, we generally recognize sales and cost of sales over
time because of continuous transfer of control to the customer, which allows for
recognition of revenue as work on a contract progresses. For those programs for
which there is a continuous transfer of control to the customer, we recognize
sales and profit on a cost-to-cost basis, in which case sales and profit are
recorded based upon the ratio of costs incurred to date to the total estimated
costs to complete the contract. Conversely, revenue on certain programs, such as
the K-MAX® program and on direct commercial sales under our JPF program, is
recognized at a point in time, with revenue being recognized upon transfer to
the end customer. See Note 1, Summary of Significant Accounting Policies, in the
Notes to the Consolidated Financial Statements included in this Form 10-K for
additional information regarding the effects of adjustments in profit estimates
on long-term contracts for which revenue is recognized over time.

Major Programs/Product Lines

Defense Markets

A-10

In 2019, the USAF awarded Boeing a contract to provide up to 112 new wing
assemblies and up to 15 wing kits through 2030 and we announced that we had been
awarded a contract by Boeing to manufacture wing control surfaces and structural
assemblies in support of the USAF's A-10 Thunderbolt Advanced Wing Continuation
Kitting ("ATTACK") program. At December 31, 2020 and 2019, our program backlog
was $35.7 million and $36.5 million, respectively.


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Bearings

Our bearings products are included on numerous military platforms manufactured
in North America, South America, Asia and Europe. These products are used as
original equipment and/or specified as replacement parts by the manufacturers.
The most significant portion of our military bearings sales is derived from U.S.
military platforms, such as the AH-64 helicopter, Virginia Class submarine and
Joint Strike Fighter aircraft, and sales in Europe for the Typhoon program.
These products are primarily proprietary self-lubricating, ball and roller
bearings for aircraft flight controls, turbine engines and landing gear, and
helicopter driveline couplings.

BLACK HAWK

The Sikorsky BLACK HAWK helicopter cockpit program involves the manufacture of
cockpits, including the installation of all wiring harnesses, hydraulic
assemblies, control pedals and sticks, seat tracks, pneumatic lines and the
composite structure that holds the windscreen for most models of the BLACK HAWK
helicopter. We delivered 53 cockpits in 2020 as compared to the 66 cockpits
delivered in 2019. In July 2017, we announced that we had entered into a new
multi-year contract with Sikorsky to manufacture H-60 cockpits under the
Department of Defense MY IX H-60 procurement authorization. The term of the
agreement is five years, beginning in 2018 and ending in 2022. Included in
backlog at December 31, 2020 and 2019, was $47.0 million and $53.0 million,
respectively, for orders on this program. We anticipate cockpit deliveries to
total 67 in 2021.

AH-1Z

We manufacture sheet metal details and subassemblies for the increased
capability AH-1Z attack helicopter, which is produced by Bell Helicopter for the
U.S. Marine Corps. We are on contract through Lot 16 and are currently
negotiating Lots 17 and 18. As of December 31, 2020 and 2019, our backlog for
this program was $11.2 million and $17.6 million, respectively.

FMU-152 A/B - Joint Programmable Fuze

We manufacture the JPF, an electromechanical bomb safe and arming device, which
allows the settings of a weapon to be programmed in flight. Sales of these fuzes
can be direct to the USAF, Foreign Military Sales ("FMS") through the USG and
DCS to foreign militaries that, although not funded by the USG, require
regulatory approvals from the USG.
A total of 48,749 fuzes were delivered in 2020. We expect to deliver 30,000 to
35,000 fuzes in 2021. Total JPF backlog at December 31, 2020 was $214.7 million.
Of this amount, JPF backlog that requires future export approvals, licenses or
authorizations from the USG allowing for the sale of these products outside of
the United States was not material. The receipt of export approvals, licenses or
authorizations are subject to political and geopolitical conditions which could
impact the timing and/or our ability to sell these products outside of the
United States. Given the change in Administration, there can be no assurance
that backlog with appropriate approvals will be recognized due to potential
future policies to cease shipments to certain countries. Total JPF backlog at
December 31, 2019 was $356.8 million.

JPF - USG

Revenue for JPF USG programs is recognized over time when costs are incurred as
work progresses on the program. The Company currently provides the FMU-152 A/B
to the USAF, but the U.S. Navy currently utilizes a different fuze - the
FMU-139. In 2015, NAVAIR solicited proposals for a firm fixed price production
contract to implement improvements to the performance characteristics of the
FMU-139 (such improved fuze having been designated the FMU-139 D/B), and, the
USAF had stated that, if and when a contract is awarded and production begins,
the funds associated with the FMU-152 A/B will be redirected to the FMU-139 D/B.
During the third quarter of 2015, the U.S. Navy announced that a competitor was
awarded the contract for the FMU-139 D/B. In the event the FMU-139 D/B program
proceeds as planned and the USAF redirects the funds associated with the FMU-152
A/B to the FMU-139 D/B, our business, financial condition, results of operations
and cash flows may be materially adversely impacted. During the third quarter of
2019, our competitor announced that it received its first production order from
the U.S. Navy to manufacture the FMU-139 D/B. Due to the complexity of this
program and the pending status of the USAF's final decision to redirect funds to
the FMU-139 D/B, the timing and magnitude of the impact on the Company's
financial statements are not certain; however, the Company continues to see
demand for the FMU-152 A/B. In 2020, we have continued to satisfy the
requirements for orders for both the USAF and foreign militaries under Option
14, which has a total value of approximately $121.4 million. During the third
quarter of 2020, we completed our pricing negotiations for Options 15 and 16
with the USG and we received an order under Option 15 with an expected value of
approximately $57.3 million for the procurement of fuzes for 25 foreign
militaries. We expect future orders under Option 16 to extend FMU-152 A/B
deliveries into 2023. Refer to Item 1A. Risk Factors included in this Form 10-K
for further details on the risks associated with our JPF-USG program.
                                       41
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JPF - DCS

Revenue for DCS programs is generally recognized at the point in time when
control is transferred to the customer. The Company continues to see strong
demand for DCS fuzes. During 2019, we were awarded two DCS contracts totaling
approximately $90.0 million. During 2018, we were awarded a DCS contract
totaling approximately $324.0 million, of which $307.5 million was included in
backlog. The remaining $16.5 million relates to potential penalties payable to
the customer in the event the offset requirements of the contract are not met,
which remained excluded from backlog at December 31, 2020. This agreement is
designed to return economic value to the foreign country by requiring us to
engage in activities supporting local defense or commercial industries,
promoting a balance of trade, developing in-country technology capabilities or
addressing other local development priorities. The offset agreement may be
satisfied through activities that do not require a direct cash payment,
including transferring technology, providing manufacturing, training and other
consulting support to in-country projects and the purchase by third parties of
supplies from in-country vendors. This agreement may also be satisfied through
the Company's use of cash for activities, such as subcontracting with local
partners, purchasing supplies from in-country vendors, providing financial
support for in-country projects and making investments in local ventures. The
offset requirements associated with this contract could extend for several years
and have a notional value of approximately $194.0 million, which is equal to
sixty percent of the total contract value as defined by the agreement with the
customer. The amount ultimately applied against the offset agreement is based on
negotiations with the customer and may require cash outlays that represent only
a fraction of the notional value in the offset agreement. The Company continues
to work with the customer to further define the requirements to satisfy the
offset agreement. The satisfaction of the offset requirements will be determined
by the customer and is expected to occur over a seven-year period. Additionally,
this contract provides for potential penalties payable to the customer of up to
10% of the total contract value in the event that we default on the contract and
we are unable to fulfill our contractual commitments.
Direct commercial sales are primarily concentrated with two Middle Eastern
customers. Sales to these customers require export approvals, licenses and other
authorizations from the USG and given the recent change in Administration and
the current composition of the U.S. Congress, there can be no assurance that we
will be able to obtain the necessary approvals, licenses and authorizations. In
the event that we are unable to obtain the regulatory approvals, licenses or
other authorizations needed to effectuate sales to these Middle Eastern
customers, our financial position, results of operations, and cash flows would
be adversely impacted. Refer to Item 1A. Risk Factors included in this Form 10-K
for further details on the risks associated with our DCS contracts.
Commercial Markets

K-MAX®

During 2015, we announced that we were resuming production of commercial K-MAX®
aircraft. The aircraft are being manufactured at our Jacksonville, Florida and
Bloomfield, Connecticut facilities. The first fifteen helicopters from the
reopened commercial production line were accepted by our customers through
December 2020. During 2019, we announced that we are developing the next
generation K-MAX® unmanned aircraft system that will allow operators to have the
capability to fly either manned or unmanned missions. We expect to offer
unmanned system kits for new production and existing aircraft in 2022. As of
December 31, 2020 and 2019, our backlog for this program was $20.9 million and
$13.1 million, respectively.

777 / 767

In 2019, we signed a multi-year follow-on contract with Boeing for the
production of fixed trailing edge ("FTE") assemblies for the Boeing 777 and 767
commercial aircraft. Annual quantities will vary, as they are dependent upon the
orders Boeing receives from its customers. To date, Kaman has provided
approximately 1,435 FTE kits and assemblies for each of the 777 and 767 programs
since 1995 and 1986, respectively. During 2020, on average, we delivered two and
one-half shipsets per month on the Boeing 777 platform and two and one-half
shipsets per month on the Boeing 767 platform, which includes one shipset per
month associated with a military tanker derivative of the 767. For 2021, we
estimate deliveries on the 777 program to be one and one-half shipsets per month
and on the 767 program to be three shipsets per month which includes one shipset
per month associated with a military tanker derivative of the 767. As of
December 31, 2020 and 2019, our backlog for these programs was $28.7 million and
$25.8 million, respectively.

On February 21, 2021, Boeing recommended grounding active Boeing 777 aircraft
equipped with a particular engine model following an engine failure. In the year
ended December 31, 2020, revenue associated with the Boeing 777 aircraft was
approximately 1% of total sales.


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Bearings

Our bearings products are included on commercial airliners and regional/business
jets manufactured in North and South America, Europe and Asia and are used as
original equipment and/or specified as replacement parts by airlines and
aircraft manufacturers. These products are primarily proprietary
self-lubricating, ball and roller bearings for aircraft flight controls, turbine
engines, landing gear and helicopter driveline couplings. The most significant
portion of our commercial sales is derived from Boeing, Airbus and Bombardier
platforms, such as the Boeing 737, 747, 777 and 787, the Airbus A320, A330, A350
and A380, and the Bombardier Global 7500. Additionally, our bearings offerings
include super precision miniature ball bearings used primarily in aerospace
applications, dental products, surgical power tools, analytical devices and
various industrial applications. Our commercial bearings products were
particularly impacted by the COVID-19 pandemic. We expect recovery in sales
related to single-aisle aircraft to occur over the next three years, while the
recovery for sales related to twin-aisle aircraft to be more gradual over the
next decade.
In the first quarter of 2019, the Federal Aviation Administration ("FAA") issued
an order to suspend all 737 MAX aircraft in the U.S. and by U.S. aircraft
operators following two fatal 737 MAX accidents. Boeing suspended deliveries
until the FAA and other civil aviation authorities worldwide granted the
clearance to return the aircraft to service. In November 2020, the FAA lifted
the orders to suspend operations of the Boeing 737 MAX and in early 2021,
airlines around the globe have begun to clear the Boeing 737 MAX for flying. In
the years ended December 31, 2020 and 2019, we recognized $5.6 million and $19.9
million in revenue associated with the sale of our products that are utilized on
the 737 MAX aircraft fleet. Any future reductions in the production rate or
lower than anticipated production levels than previously anticipated could have
an adverse impact on our financial position, results of operations and/or cash
flows.
Springs, Seals and Contacts
Our precision springs, seals and contacts are used in the medical technology,
aerospace and defense and industrial end markets. These products improve the
performance and reliability of components in high cost of failure environments,
such as powered surgical tools, orthopedic implants, pumps, monitors, active
implantables and other critical medical equipment. These offerings are also used
within radar systems, fuel pumps, hydraulics, navigation systems, motors and
robotics.

Learjet 85

In 2010, our U.K. Composites operation was awarded a contract to manufacture
composite passenger entry and over-wing exit doors for the Learjet 85, a
mid-sized business jet built primarily from composites and featuring advances in
aerodynamics, structures and efficiency; however, in October 2015, Bombardier
Inc. announced the cancellation of its Learjet 85 business aircraft program. At
December 31, 2020, our net balance sheet exposure on the program was $3.2
million. During 2016, we filed suit against our customer to recover this amount.
Although we expect to recover the full amount of our claim, there can be no
assurance that we will prevail in the litigation.

For a discussion of other matters, see Note 19, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

Discussion and Analysis of Cash Flows

We assess liquidity in terms of our ability to generate cash to fund working
capital requirements and investing and financing activities. Significant factors
affecting liquidity include: cash flows generated from or used by operating
activities, capital expenditures, investments in our business and its programs,
acquisitions, divestitures, dividends, availability of future credit, adequacy
of available bank lines of credit and factors that might otherwise affect the
Company's business and operations generally, as described under the heading
"Risk Factors" and "Forward-Looking Statements" in Item 1A of Part I of this
Form 10-K.

COVID-19

We anticipate that the disruptions and delays resulting from the spread of
COVID-19 and the measures instituted by governments and businesses to mitigate
its spread will impact our liquidity in the next twelve months. In consideration
of the potential future impact of the COVID-19 pandemic on our business, we
borrowed approximately $200.0 million under our Credit Agreement in the first
quarter of 2020 to provide additional financing flexibility and readily
accessible liquidity. The proceeds from the borrowing were available for working
capital adjustments, ongoing operating needs and general corporate
                                       43
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purposes. In the third quarter, we paid down $100.0 million of the $200.0
million we had borrowed under our Credit Agreement and in the fourth quarter we
paid down the remaining $100.0 million. At December 31, 2020, the Company had
$104.4 million of cash on our Consolidated Balance Sheet, excluding any
restricted cash. We are closely managing our daily cash flows to optimize our
liquidity position. We also continue to closely monitor the collectability of
our receivables from commercial aerospace customers as we recognize there may be
delays in payments due to the impacts of COVID-19 on our customers. As of the
date of this filing, we do not believe there has been any material impact on the
collectability of these receivables. In addition to the daily reviews of
collections and payables, management meets with our business units on a regular
basis to review liquidity.
During 2020, the Company reduced hiring activities, limited discretionary
spending and implemented workforce reductions and the aforementioned temporary
salary reductions amongst senior management and the Board. We evaluated our
capital investment projects and reduced spending for the year. Despite the
impacts of COVID-19, we did continue to pay our regular quarterly dividend
during 2020 and also contributed $10.0 million to our pension plan. As of the
date of this filing, we believe the Company has adequate liquidity due to the
cash we have on hand, the bank financing we have available to us and the other
actions we have taken to enhance financial flexibility and reduce the potential
impact of the pandemic on the Company.

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

                                                       2020               2019               2018            20 vs. 19          19 vs. 18
(in thousands)
Total cash provided by (used in):
Operating activities                               $  16,469          $  

42,488 $ 118,714 $ (26,019) $ (76,226) Investing activities

                                (318,722)           628,316            (22,538)          (947,038)           650,854
Financing activities                                 (33,535)          (152,713)          (141,145)           119,178            (11,568)

Free Cash Flow(1) :
Net cash provided by operating activities          $  16,469          $  42,488          $ 118,714          $ (26,019)         $ (76,226)
Expenditures for property, plant and
equipment                                            (17,783)           (22,447)           (21,504)             4,664               (943)
Free cash flow                                     $  (1,314)         $  20,041          $  97,210          $ (21,355)         $ (77,169)

(1) Free Cash Flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less expenditures for property plant and equipment, both of which are presented in our Consolidated Statements of Cash Flows. See Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures, in this Form 10-K.

Net cash provided by operating activities decreased in 2020 compared to 2019.
This change was largely driven by lower net earnings, contributions to the
pension plan and lower accounts payable, partially offset by higher working
capital requirements on the JPF DCS program and the K-MAX® program in the prior
year. Our cash flows for 2020 were also impacted by the delay in the collection
of a significant JPF DCS receivable which was expected in the fourth quarter of
2020 and has now pushed into 2021.

Net cash used in investing activities was $318.7 million in 2020, compared to
net cash provided by investing activities of $628.3 million in 2019. This change
was primarily attributable to cash used to acquire Bal Seal in the current
period versus proceeds received from the sale of the Distribution business in
the prior period.

Net cash used in financing activities decreased in 2020 compared to 2019, primarily due to lower net repayments of our credit facility and a decrease in purchases of treasury shares, partially offset by lower proceeds from the exercise of employee stock awards.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of the Annual Report on Form 10-K for the year ended
December 31, 2019 for a discussion of the change in cash flows from the earliest
year presented.


                                       44

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Material Cash Commitments

The Company considers its material contractual obligations when assessing its liquidity.

Debt and Related Interest Payments

We rely on debt financing as a source of liquidity for our business activities,
including both convertible notes and our revolving credit facility. Under the
convertible notes, $199.5 million of principal liability is due in 2024. No
amounts were outstanding under the revolving credit agreement at December 31,
2020. The Company is contractually obligated to make interest payments on our
debt, which are estimated to be $56.8 million as of December 31, 2020, of which
$14.1 million will be paid within one year. Interest payments on debt are
calculated based on the applicable rate and payment dates for each instrument.
For variable-rate instruments, interest rates and payment dates are based on
management's estimate of the most likely scenarios for each relevant debt
instrument. For further information on debt and the related interest payments,
refer to Financing Arrangement discussed below and Note 14, Debt, in the Notes
to Consolidated Financial Statements included in this Form 10-K.

Leasing

Future rental payments for operating and financing leases total $14.6 million
and $6.5 million, respectively, as of December 31, 2020. For further information
on leasing obligations, including the timing of these payments, refer to Note
20, Leases, in the Notes to Consolidated Financial Statements included in this
Form 10-K.

Purchase Obligations

The Company has entered into purchase commitments with suppliers for materials
and supplies as part of the ordinary course of business, consulting arrangements
and support services. Obligations of at least $50,000 total $200.8 million as of
December 31, 2020, of which $154.2 million will be paid within one year.
Included within these amounts is $0.3 million of purchase obligations which will
not be paid by the Company in 2021 due to the sale of the UK Composites business
on February 2, 2021.

Transition Services Agreement

We entered into a transition services agreement upon the closing the sale of the
Company's Distribution business. We agreed to support the information
technology, human resources and benefits, tax and treasury functions of the
Distribution business for six to twelve months from the date of sale. 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 began to terminate
certain services in 2020. All services are expected to be terminated by the end
of the first quarter of 2021. We expect to incur $0.7 million in costs under our
transition services agreement within the next year. For further information on
the TSA, refer to Note 2, Discontinued Operations and Liabilities Held for Sale,
in the Notes to Consolidated Financial Statements included in this Form 10-K.
Additionally, upon closing of the sale of the Distribution business, the Company
entered into separate trademark, trade name and domain license agreements with
certain licensees. Under each such agreement, the Company granted the licensee a
non-exclusive, royalty-free license to use certain registered service marks,
common law service marks, trade names and domain names owned by the Company for
a period of five years after the closing date, subject to the licensee's
agreement to use commercially reasonable efforts to phase its use of such
service marks and domain names as soon as it is reasonably practicable prior to
the expiration of the term. These agreements, and the licenses granted therein,
apply only within North America.
Retention Payments
Upon closing the acquisition of Bal Seal, the Company funded $24.7 million
associated with employee retention plans into escrow accounts. This amount and
related interest was included in restricted cash on the Company's Consolidated
Balance Sheets as of December 31, 2020. Eligible participants received an
allocation of the escrow balance in January 2021.

Other

Our other long-term obligations, which include obligations under the Company's
long-term incentive plan, deferred compensation plan, environmental liabilities,
acquisition holdbacks and unrecognized tax benefits, total $52.6 million at
December 31, 2020, of which $15.8 million will be paid within one year. For
further information on these obligations refer to Note 13, Environmental Costs;
Note 16, Income Taxes; Note 18, Other Long-Term Liabilities; and Note 19,
Commitments and Contingencies in the Notes to Consolidated Financial Statements
included in this Form 10-K.

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Off-Balance Sheet Arrangements

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 is currently fulfilling the requirements of Option 14 and
has completed pricing negotiations on Options 15 and 16. The guarantee was
provided in lieu of a periodic financial capability review by the Financial
Capacity Team ("FCT") of the Defense Contract Management Agency ("DCMA"). The
Company is unable to estimate the maximum potential amount of future payments
under the guarantee as it is dependent on costs incurred by the USG in the event
of default. Although the Company believes the risk of default is low given the
maturity and operational performance of the JPF program, there can be no
assurance that the guarantee will not have a material adverse effect on the
Company's results of operations, financial position and cash flows.

As of December 31, 2020, we had no significant off-balance sheet arrangements
other than purchase obligations, the guarantee discussed above and
$165.4 million of outstanding standby letters of credit, all of which were under
the revolving credit facility. Of this amount, $146.2 million letters of credit
relate to a JPF DCS contract.

In addition to the impacts of COVID-19, our working capital requirements and the
material cash commitments discussed above, one or more of the following items
could have an impact on our liquidity during the next 12 months:

•the matters described in Note 19, Commitments and Contingencies, in the Notes
to Consolidated Financial Statements, including the cost of existing
environmental remediation matters discussed in Note 13, Environmental Costs;
•contributions to our qualified pension plan and Supplemental Employees'
Retirement Plan ("SERP");
•deferred compensation payments to officers;
•income tax payments;
•costs associated with acquisitions and corporate development activities;
•capital expenditures;
•research and development expenditures;
•repurchase of common stock under the 2015 Share Repurchase Program;
•payment of dividends;
•costs associated with the start-up of new programs; and
•the timing of payments and extension of payment terms by our customers.

Financing Arrangements

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

Convertible Notes

2024 Notes

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


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The sale of the Distribution business in the third quarter of 2019 was deemed to
be a "Fundamental Change" and a "Make-Whole Fundamental Change" pursuant to the
terms and conditions of the indenture governing the 2024 Notes. As a result, the
sale triggered the right of the holders of our 2024 Notes to require us to
repurchase all of the 2024 Notes, or any portion thereof that is a multiple of
$1,000 principal amount on September 27, 2019. The aggregate principal amount of
the 2024 Notes validly tendered and not validly withdrawn was $0.5 million,
representing 0.25% of all outstanding notes. Holders of such notes receive the
purchase price equal to 100% of the principal amount of the 2024 Notes being
purchased, plus accrued and unpaid interest.

The following table illustrates the dilutive effect of securities issued under
the 2024 Notes at various theoretical average share prices for our stock as of
December 31, 2020:
                                                                           

Theoretical Average Share Price of Kaman Stock

$65.26                  $70.00                  $75.00                  $80.00

$84.84

Dilutive Shares associated with:
Convertible Debt                                    -                 206,879                 396,879                 563,129                705,394



Credit Agreement

On December 13, 2019, the Company closed an amended and restated $800.0 million
Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as
Administrative Agent and as Collateral Agent. The Credit Agreement amends and
restates the Company's previously existing credit facility in its entirety to,
among other things: (i) extend the maturity date to December 13, 2024; (ii)
increase the aggregate amount of revolving commitments from $600.0 million to
$800.0 million; (iii) remove the existing term loan credit facility; (iv) modify
the affirmative and negative covenants set forth in the facility; and (v)
effectuate a number of additional modifications to the terms and provision of
the 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.

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

At December 31, 2020, there were no outstanding amounts on the Credit Agreement.
In addition, we are required to pay a quarterly commitment fee on the unused
revolving loan commitment amount at a rate ranging from 0.150% to 0.250% per
annum, based on the Senior Secured Net Leverage Ratio. Fees for outstanding
letters of credit range from 1.125% to 1.625%, based on the Senior Secured Net
Leverage Ratio. Total average bank borrowings under our revolving credit
facility and previously existing term loan facility during the year ended
December 31, 2020, were $111.9 million compared to $70.6 million for the year
ended December 31, 2019.


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

                                                                      December 31,           December 31,
                                                                          2020                   2019
In thousands
Total facility                                                      $     800,000          $     800,000
Amounts outstanding, excluding letters of credit                                -                      -
Amounts available for borrowing, excluding letters of credit              800,000                800,000
Letters of credit under the credit facility(1)(2)                         165,373                152,614
Amounts available for borrowing                                     $     

634,627 $ 647,386

Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)

                                          $     

363,997 $ 322,900

(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, $146.2 million letters of credit relate to a certain JPF
DCS contract in both periods.
(3) Amounts available for borrowing subject to EBITDA as of December 31, 2019
reflect the minimum borrowing capacity under EBITDA, subject to adjustments.

Other Sources/Uses of Capital

Advance Payments

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

Pension

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

We contributed $10.0 million to the qualified pension plan during 2020. We did
not make any contributions to the qualified pension plan in 2019. In 2021, we
expect to contribute $10.0 million to the qualified pension plan. We paid $0.5
million in SERP benefits during both 2020 and 2019. We expect to pay $2.8
million in SERP benefits in 2021.

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

For more information refer to Note 17, Pension Plans, in the Notes to Consolidated Financial Statements included in this Form 10-K.

Acquisitions

On January 3, 2020, the Company completed the acquisition of Bal Seal, at a
purchase price of approximately $317.5 million. We continue to identify and
evaluate potential acquisition candidates, the purchase of which may require the
use of additional capital. No acquisitions were completed in 2019 or 2018. For a
discussion of the Bal Seal acquisition, see Note 3, Business Combinations, in
the Notes to Consolidated Financial Statements included in this Form 10-K.


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Share-based Arrangements

In 2021, the Company modified its long-term incentive program to increase the
emphasis on equity and permit the more timely reporting of long-term incentive
compensation payouts. The long-term incentive awards granted to our Named
Executive Officers ("NEOs") in February 2021 consist of a combination of
service-based restricted shares ("RSAs") and performance share units settled in
shares ("PSUs"), as opposed to the cash-based awards that had been utilized
before. The Committee believes this will increase the alignment of interests
between our NEOs and shareholders, and help build stock ownership by new
executives, striking a reasonable balance between awards focused on executive
retention and those linked to the Company's long-term financial performance.
RSAs will vest over a three-year period on each of the first three anniversaries
of the date of grant. Performance-based awards will continue to be based on
total shareholder return ("TSR") and return on total invested capital ("ROIC")
over a three-year performance period, each of which will remain equally weighted
in determining payouts. Expense associated with the RSAs and PSUs will be
dependent on the grants issued in 2021. Historically, the Company has granted
the majority of the awards in the first quarter of the year, which will be
reported in our First Quarter Form 10-Q. Any further grants in 2021 will be
reported in the quarterly filings thereafter. As of December 31, 2020, future
compensation costs related to non-vested stock options and restricted stock
grants is $4.9 million. The Company anticipates that this cost will be
recognized over a weighted-average period of 2.9 years.

Stock Repurchase Plans

On April 29, 2015, we announced that our Board of Directors approved a share
repurchase program ("2015 Share Repurchase Program") authorizing the repurchase
of up to $100.0 million of the common stock, par value $1.00 per share, of the
Company. We repurchase shares to offset the annual issuance of shares under our
employee stock plans, but the timing and actual number of shares repurchased
will depend on a variety of factors including stock price, market conditions,
corporate and regulatory requirements, capital availability and other factors,
including acquisition opportunities. During 2020, we repurchased 290,000 shares,
for approximately $13.5 million, under the 2015 Share Repurchase Program,
bringing the total number of shares repurchased through the life of the 2015
Share Repurchase Program to 1,880,422 shares. Although approximately $2.2
million remains available for repurchases under this authorization, we do not
intend to effectuate any additional share repurchases until the ongoing COVID-19
pandemic and any related impact on our business, results of operations and cash
flows have subsided.


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NON-GAAP FINANCIAL MEASURES

Management believes that the non-GAAP measures used in this Annual Report on
Form 10-K provide investors with important perspectives into our ongoing
business performance. We do not intend for the information to be considered in
isolation or as a substitute for the related GAAP measures. Other companies may
define the measures differently. We define the non-GAAP measures used in this
report and other disclosures as follows:

Organic Sales

Organic Sales is defined as "Net Sales" less sales derived from acquisitions
completed during the preceding twelve months. We believe that this measure
provides management and investors with a more complete understanding of
underlying operating results and trends of established, ongoing operations by
excluding the effect of acquisitions, which can obscure underlying trends. We
also believe that presenting Organic Sales enables a more direct comparison to
other businesses and companies in similar industries. Management recognizes that
the term "Organic Sales" may be interpreted differently by other companies and
under different circumstances.

           Organic Sales (in thousands)
                                                  2020           2019       

2018

           Net sales                           $ 784,459      $ 761,608

$ 735,994

           Less: Acquisition Sales                76,965              -              -
           Organic Sales                       $ 707,494      $ 761,608      $ 735,994



Free Cash Flow

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

CRITICAL ACCOUNTING ESTIMATES

Our significant accounting policies are outlined in Note 1, Summary of
Significant Accounting Policies, to the Consolidated Financial Statements
included in this Form 10-K. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosures based upon
historical experience, current trends and other factors that management believes
to be relevant. We are also responsible for evaluating the propriety of our
estimates, judgments and accounting methods as new events occur. Actual results
could differ from those estimates. Management periodically reviews the Company's
critical accounting policies, estimates and judgments with the Audit Committee
of our Board of Directors. The most significant areas currently involving
management judgments and estimates are described below.

Revenue from Contracts with Customers
Methodology
We recognize sales and profit based upon either (1) the over time method, in
which sales and profit are recorded based upon the ratio of costs incurred to
date to estimated total costs to complete the performance obligation, or (2) the
point-in-time method, in which sales are recognized at the time control is
transferred to the customer. For long-term contracts, we generally recognize
sales and income over time because of continuous transfer of control to the
customer. Revenue is generally recognized using the cost-to-cost method based on
the extent of progress towards completion of the performance obligation, which
allows for recognition of revenue as work on a contract progresses.
On January 1, 2018, the Company adopted Accounting Standard Codification 606,
Revenue from Contracts with Customers, using the modified retrospective method.
As a result, the Company applied ASC 606 only to contracts that were not
completed as of January 1, 2018. Prior to the adoption of ASC 606, for long-term
contracts, we generally recognized sales and income
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based on the percentage-of-completion method accounting, which allowed for
recognition of revenue as work on a contract progressed. We recognized sales and
profit based upon either (1) the cost-to-cost method, in which sales and profit
were recorded based upon the ratio of costs incurred to estimated total costs to
complete the contract, or (2) the units-of delivery method, in which sales were
recognized as deliveries were made and cost of sales was computed on the basis
of the estimated ratio of total contract cost to total contract sales.
Management performs detailed quarterly reviews of all of our significant
long-term contracts. Based upon these reviews, we 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, we record a provision for the entire anticipated
contract loss at that time.
Judgment and Uncertainties
The over time revenue recognition model requires that we estimate future
revenues and costs over the life of a contract. Revenues are estimated based
upon the original contract price, with consideration being given to exercised
contract options, change orders and, in some cases, projected customer
requirements. Contract costs may be incurred over a period of several years, and
the estimation of these costs requires significant judgment based upon the
acquired knowledge and experience of program managers, engineers and financial
professionals. Estimated costs are based primarily on anticipated purchase
contract terms, historical performance trends, business base and other economic
projections. The complexity of certain programs as well as technical risks and
uncertainty as to the future availability of materials and labor resources could
affect the Company's ability to accurately estimate future contract costs.

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

                                                           2020                2019                2018
In thousands
ASC 606
Revenue recognized for performance obligations
satisfied
Point-in-time                                          $  538,183          $  466,866          $  383,109
Over time                                                 246,276             294,742             352,885
Total revenue recognized for performance
obligations satisfied                                  $  784,459

$ 761,608 $ 735,994

% of Net sales - Point-in-time                               68.6  %             61.3  %             52.1  %
% of Net sales - Over time                                   31.4  %             38.7  %             47.9  %
% of Net sales - Performance obligations
satisfied                                                   100.0  %            100.0  %            100.0  %



Effect if Actual Results Differ From Assumptions
While we do not believe there is a reasonable likelihood there will be a
material change in estimates or assumptions used to calculate our long-term
revenues and costs, estimating the percentage of work complete on certain
programs is a complex task. As a result, changes to these estimates could have a
significant impact on our results of operations. These programs include the
Sikorsky BLACK HAWK program, the JPF program with the USG, the Boeing A-10
program, the AH-1Z program, our other Bell Helicopter programs and several other
programs. Estimating the ultimate total cost of these programs is challenging
due to the complexity of the programs, unanticipated increases in production
requirements, the nature of the materials needed to complete these programs,
change orders related to the programs and the need to manage our customers'
expectations. These programs are an important element in our continuing strategy
to increase operating efficiencies and profitability as well as broaden our
business base. Management continues to monitor and update program cost estimates
quarterly for these contracts. A significant change in an estimate on one or
more of these programs could have a material effect on our financial position
and results of operations. The company recognized a reduction in revenue of $7.0
million and $4.6 million for the years ended December 31, 2020 and 2019,
respectively, due to changes in profit estimates. The amount of revenue
recognized from performance obligations satisfied (or partially satisfied) in
previous periods was $6.7 million for the year ended December 31, 2018.


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Allowance for Doubtful Accounts

Methodology

The allowance for doubtful accounts represents management's best estimate of
probable losses inherent in the receivable balance. These estimates are based on
known past due amounts and historical write-off experience, as well as trends
and factors impacting the credit risk associated with specific customers. In an
effort to identify adverse trends for trade receivables, we perform ongoing
reviews of account balances and the aging of receivables. Amounts are considered
past due when payment has not been received within a predetermined time frame
based upon the credit terms extended. For our government and commercial
contracts, we evaluate, on an ongoing basis, the amount of recoverable costs.
The recoverability of costs is evaluated on a contract-by-contract basis based
upon historical trends of payments, program viability and the customer's
credit-worthiness.
Judgment and Uncertainties
Write-offs are charged against the allowance for doubtful accounts only after we
have exhausted all collection efforts. Actual write-offs and adjustments could
differ from the allowance estimates due to unanticipated changes in the business
environment as well as factors and risks associated with specific customers.
Of the accounts receivable on the Company's Consolidated Balance Sheet as of
December 31, 2020, approximately $64.0 million relates to delays in payments on
outstanding receivables related to a customer contract. Of this amount, $32.4
million in outstanding receivables were over twelve months past due. The Company
continues to receive payments from this customer for recent shipments under this
contract and expects to receive payment on the outstanding receivables. While
the Company has determined that these receivable amounts continue to be
collectible, to the extent these balances are not collected, this would have a
material impact on the Company's liquidity, financial position and results of
operations.
Effect if Actual Results Differ From Assumptions
As of December 31, 2020 and 2019, our allowance for doubtful accounts was $2.0
million and $1.2 million, respectively. Receivables written off, net of
recoveries, in 2020 and 2019 were $1.4 million and $0.8 million, respectively.
Currently we do not believe that we have a significant amount of risk relative
to the allowance for doubtful accounts. A 10% change in the allowance would have
a $0.2 million effect on pre-tax earnings.
Inventory Valuation
Methodology
We have four types of inventory (a) raw materials, (b) contracts in process, (c)
other work in process and (d) finished goods. Raw material includes certain
general stock materials but primarily relates to purchases that were made in
anticipation of specific programs that have not been started as of the balance
sheet date. Raw materials are stated at the lower of the cost of the inventory
or its fair market value. Contracts in process, other work in process and
finished goods are valued at production cost comprised of material, labor and
overhead. Contracts in process, other work in process and finished goods are
reported at the lower of cost or net realizable value.
Judgment and Uncertainties
The process for evaluating inventory obsolescence or market value often requires
the Company to make subjective judgments and estimates concerning future sales
levels, quantities and prices at which such inventory will be sold in the normal
course of business. We adjust our inventory by the difference between the
estimated market value and the actual cost of our inventory to arrive at net
realizable value. Changes in estimates of future sales volume may necessitate
future write-downs of inventory value. At December 31, 2020, $60.4 million of
K-MAX® inventory was included in contracts and other work in process and
finished goods, of which management believes that approximately $19.9 million
will be sold after December 31, 2021, based upon the anticipation of additional
aircraft manufacturing and supporting the fleet for the foreseeable future. We
believe the inventory is stated at net realizable value, although lack of demand
for spare parts in the future could result in additional write-downs of the
inventory value. Overall, management believes that our inventory is
appropriately valued and not subject to further obsolescence in the near term.
At December 31, 2020, $6.3 million of SH-2G(I) inventory was included in
contracts and other work in process inventory on the Company's Consolidated
Balance Sheets. Management believes $5.3 million of the SH-2G(I) inventory will
be sold after December 31, 2021. This balance represents spares requirements and
inventory to be used in SH-2G programs.
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Effect if Actual Results Differ From Assumptions
Management reviews the K-MAX® inventory balance on an annual basis to determine
whether any additional write-downs are necessary. We believe this inventory is
stated at net realizable value, although lack of demand for spare parts in the
future could result in additional write-downs of the inventory value. Overall,
management believes that our inventory is appropriately valued and not subject
to further obsolescence in the near term. If such a write-down were to occur,
this could have a significant impact on our operating results. A 10% write-down
of the December 31, 2020 K-MAX® inventory balance would have affected pre-tax
earnings by approximately $6.0 million in 2020.
The balance of SH-2G(I) inventory projected to be sold after December 31, 2020,
represents spares requirements and inventory to be used to support the SH-2G
programs in future periods and as such is appropriately valued as of December
31, 2020.
Business Combinations

Methodology

On January 3, 2020, we completed the acquisition of Bal Seal for consideration
of $317.5 million. In accordance with generally accepted accounting principles,
we recognized the identifiable assets acquired and liabilities assumed
separately from goodwill and measured the respective assets and liabilities at
their acquisition-date fair values. Goodwill for the acquisition of $95.1
million was determined based on the consideration transferred less the net value
of assets acquired and liabilities assumed at their acquisition-date fair
values.

Judgment and Uncertainties

As part of the acquisition, management identified four classes of intangible
assets acquired related to Bal Seal, consisting of customer relationships,
developed technologies, trade name and acquired backlog. The fair value of the
intangible assets of $110.3 million was determined using an income methodology
based on management's estimates of forecasted cash flows, with those cash flows
discounted to present value using rates commensurate with the risks associated
with those cash flows, specifically a multi-period, excess earnings method for
customer relationships and backlog and the relief-from-royalty method for the
trade name and developed technologies. Significant judgment was applied with
respect to estimates of forecasted cash flows, more specifically, the estimated
revenue growth rates to determine the fair value of all of the intangible assets
and the estimated profit rates used to determine the fair value of the customer
relationship intangible assets. Management evaluated the reasonableness of the
revenue growth rates and profit rates based on consideration of the past
performance, general economic conditions in the markets served by Bal Seal and
industry-specific performance statistics.

A discount rate of 10% was utilized for customer relationships, developed
technologies and the trade name and a discount rate of 8% was utilized for
backlog to reflect the risk and uncertainty in the financial markets and
specifically in our internally developed earnings projections. A change in these
assumptions could materially affect the valuation of the identified intangible
assets. Management evaluated the reasonableness of the discount rates based on
consideration of the cost of capital of comparable businesses and other industry
factors.

Effect if Actual Results Differ from Assumptions

As with all assumptions, there is an inherent level of uncertainty and actual
results, to the extent they differ from those assumptions, could have a material
impact on fair value. For example, multiples for a comparable business could
deteriorate due to changes in technology or a downturn in economic conditions. A
reduction in customer demand would impact our assumed growth rate resulting in a
reduced fair value. Potential events or circumstances could have a negative
effect on the estimated fair value. The loss of a major customer or program
could have a significant impact on the future cash flows of the acquired
business. Advances in technology by our competitors could result in our products
becoming obsolete.

We do not currently believe there to be a reasonable likelihood that actual
results will vary materially from estimates and assumptions used to value the
assets acquired and liabilities assumed. However, if actual results are not
consistent with our estimates or assumptions, we may be exposed to an impairment
charge that could be material.

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Goodwill and Other Intangible Assets
Methodology
Goodwill and certain intangible assets that have indefinite lives are evaluated
at least annually for impairment. The annual evaluation is generally performed
during the fourth quarter, using forecast information. All intangible assets are
also reviewed for possible impairment whenever changes in conditions indicate
that their carrying value may not be recoverable. For reporting units that
qualify for a qualitative assessment, management will perform the quantitative
impairment test after a period of three years has elapsed since the test was
last performed.
In accordance with generally accepted accounting principles, we test goodwill
for impairment at the reporting unit level and other long-lived intangible
assets (excluding goodwill) for impairment at the lowest level for which
identifiable cash flows are available. The identification and measurement of
goodwill impairment involves the estimation of fair value of the reporting unit
as compared to its carrying value. The identification and measurement of other
long-lived intangible asset impairment involves the estimation of future cash
flows of the business unit as compared to its carrying value. Goodwill is tested
one level below the segment level, and components are not aggregated for
purposes of goodwill testing.
The carrying value of goodwill as of December 31, 2020 was $247.2 million. The
specific reporting units contributing to the total goodwill balance were as
follows: Precision Products Orlando ("KPP-Orlando"), $41.4 million; Specialty
Bearings and Engineered Products, $110.7 million; and Bal Seal, $95.1 million.
During the third quarter of 2020, we identified a triggering event for possible
impairment of our Aerosystems reporting unit based on a decline in earnings
compared to forecasts used in prior periods and updated forecasts which
indicated the forecasted cash flows for this reporting unit were lower than
amounts previously forecasted. We performed a quantitative analysis on the
Aerosystems reporting unit using an income methodology based on management's
estimates of forecasted cash flows, with those cash flows discounted to present
value using rates commensurate with the risks associated with those cash flows.
In addition, management used a market-based valuation involving analysis of
market multiples of revenues and earnings before interest, taxes, depreciation
and amortization ("EBITDA") for (i) a group of comparable companies and (ii)
recent transactions, if any, involving comparable companies. The quantitative
analysis resulted in a conclusion that the fair value of the Aerosystems
reporting unit was $56.1 million below its carrying value; therefore, goodwill
was impaired. In 2020, we recorded a goodwill impairment charge of $50.3 million
for the Aerosystems reporting unit, which represented the entire goodwill
balance associated with this reporting unit. See Note 12, Goodwill and Other
Intangible Assets, Net, in the Notes to Consolidated Financial Statements for
additional information regarding these assets.
The carrying value of other intangible assets as of December 31, 2020, was
$150.2 million. During the third quarter of 2018, management identified a
triggering event for possible impairment at a certain asset group in its UK
business based on a review of historical performance, the current forecast for
the remainder of the year and the loss of future orders from one of its
significant customers, requiring the Company to evaluate the intangible assets
for impairment. No such triggering events were identified in 2020 or 2019. See
Note 12, Goodwill and Other Intangible Assets, Net, in the Notes to Consolidated
Financial Statements for additional information regarding these assets.
Judgment and Uncertainties
In years that management performs a qualitative assessment we consider the
following qualitative factors: general economic conditions in the markets served
by the reporting units carrying goodwill, relevant industry-specific performance
statistics, changes in the carrying value of the individual reporting units and
assumptions used in the most recent fair value calculation, including forecasted
results of operations, the weighted average cost of capital and recent
transaction multiples.
We performed a qualitative assessment for the KPP-Orlando reporting unit. The
results of this analysis indicated that it is more likely than not that goodwill
is not impaired and this reporting unit did not need to proceed to a
quantitative assessment.
For the quantitative impairment tests, management estimated the fair value of
the reporting units using an income methodology based on management's estimates
of forecasted cash flows, with those cash flows discounted to present value
using rates commensurate with the risks associated with those cash flows. In
addition, management used a market-based valuation method involving analysis of
market multiples of revenues and earnings before interest, taxes, depreciation
and amortization ("EBITDA") for (i) a group of comparable public companies and
(ii) recent transactions, if any, involving comparable companies. In estimating
the fair value of the reporting units, a weighting of 80% to the income approach
and 20% to the market-based valuation method was selected, consistent with the
prior year. A higher weighting was applied to the estimate derived from the
income approach as it is based on management's assumptions specific for the
reporting units, which are the outcome of an internal planning process. While
the selected companies in the market based valuation method have comparability
to the reporting units, they may not fully reflect the market share, product
portfolio and operations of the
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reporting units. The estimated fair value of the reporting units is adjusted for
an excess net working capital assumption, which represents management's
identification of specific contract-related assets that will generate cash flows
in the future.
In performing our quantitative tests for the reporting units, we assumed a
terminal growth rate of 3.0%. The discount rate utilized to reflect the risk and
uncertainty in the financial markets and specifically in our internally
developed earnings projections ranged from 9.5% - 10.25% for these reporting
units. Changes in these estimates and assumptions could materially affect the
results of our tests for goodwill impairment.
An impairment loss is recognized for any excess of the carrying amount of the
reporting unit's goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation. The residual
fair value after this allocation is the implied fair value of the reporting unit
goodwill. The results of the quantitative tests indicated that the the fair
values of the reporting units exceeded the respective carrying values;
therefore, no impairment charge was recorded for the Specialty Bearings and Bal
Seal reporting units.
Effect if Actual Results Differ From Assumptions
We performed the quantitative impairment test for the Specialty Bearings and Bal
Seal reporting units. Specialty Bearings' fair values exceeded its respective
carrying value in excess of 100% and Bal Seal's fair value exceeded the carrying
value by approximately 8%. A one percentage point decrease in our terminal
growth rate or an increase of one percentage point in our discount rate would
not result in a fair value calculation less than the carrying value for these
reporting units. In the third quarter of 2020, we identified a triggering event
for possible impairment at the Aerosystems reporting unit. The fair value of the
Aerosystems reporting unit was $56.1 million below its carrying value. We
recorded a goodwill impairment charge of $50.3 million for the Aerosystems
reporting unit in the third quarter of 2020, which represented the entire
goodwill balance associated with this reporting unit.
During the third quarter of 2018, we identified a triggering event for possible
impairment at a certain asset group in our UK business based on a review of its
historical performance, the current forecast for the remainder of the year and
the loss of future orders from one of our significant customers, requiring us to
evaluate the intangible assets for impairment. We performed a recoverability
test on the intangibles for a certain asset group in our UK business by
comparing the undiscounted cash flows of the asset group to its carrying value,
and the estimated future cash flows of the business did not exceed the carrying
value of the assets. Based on these results, we calculated the fair value of the
asset group using an income approach, which resulted in an impairment charge of
$10.0 million, or the remaining balance of the customer lists/relationships at a
certain asset group within the UK business.
As with all assumptions, there is an inherent level of uncertainty and actual
results, to the extent they differ from those assumptions, could have a material
impact on fair value. For example, multiples for similar type reporting units
could deteriorate due to changes in technology or a downturn in economic
conditions. A reduction in customer demand would impact our assumed growth rate
resulting in a reduced fair value. Potential events or circumstances could have
a negative effect on the estimated fair value. The loss of a major customer or
program could have a significant impact on the future cash flows of the
reporting unit(s). Advances in technology by our competitors could result in our
products becoming obsolete.
We do not currently believe there to be a reasonable likelihood that actual
results will vary materially from estimates and assumptions used to test
goodwill and other intangible assets for impairment losses. However, if actual
results are not consistent with our estimates or assumptions, we may be exposed
to an impairment charge that could be material.

Long-Term Incentive Programs

Methodology

The Company maintains a Management Incentive Plan, which provides for cash and
share-based payment awards, including non-statutory stock options, restricted
stock, stock appreciation rights and long-term incentive program ("LTIP")
awards. We determine the fair value of our non-qualified stock option awards at
the date of grant using a Black-Scholes model. We determine the fair value of
our restricted share awards at the date of grant using the closing price the day
prior to the grant.
LTIP awards provide certain senior executives an opportunity to receive
long-term incentive award payments, generally in cash, for achieving targets
established by the Personnel Compensation Committee of the Board of Directors.
Prior to 2018, LTIP grants were based on the Company's financial results
compared to the Russell 2000 indices for the same periods based upon the
following metrics: (a) average return on total capital, (b) average earnings per
share growth and (c) total return to shareholders for the performance period.
Beginning in 2018, the performance metrics were changed to the following: (a)
average return on
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total capital and (b) total return to shareholders, both compared to the Russell
2000 indices for the same performance period. No awards will be payable if the
Company's performance is below the 25th percentile of the designated indices.
The maximum award is payable if performance reaches the 75th percentile of the
designated indices. Awards will be paid out at 100% at the 50th percentile.
Awards for performance between the 25th and 75th percentiles are determined by
straight-line interpolation between 0% and 200%.
In order to estimate the liability associated with LTIP awards, management must
make assumptions as to how our current performance compares to current Russell
2000 data based upon the Russell 2000's historical results. This analysis is
performed on a quarterly basis. When sufficient Russell 2000 data for a year is
available, which typically will not be until May or June of the following year,
management will adjust the liability to reflect its best estimate of the total
award. Actual results could differ significantly from management's estimates.
The total estimated liability as of December 31, 2020, was $15.3 million.
Judgment and Uncertainties
Option-pricing models and generally accepted valuation techniques require
management to make assumptions and to apply judgment to determine the fair value
of our awards. These assumptions and judgments include estimating the future
volatility of our stock price, expected dividend yield, future employee turnover
rates and future employee stock option exercise behaviors. Changes in these
assumptions can materially affect the fair value estimate.
Our LTIP requires management to make assumptions regarding the likelihood of
achieving long-term Company goals as well as estimate future Russell 2000
results.
Effect if Actual Results Differ From Assumptions
We do not currently believe there is a reasonable likelihood that there will be
a material change in the estimates or assumptions we use to determine cash and
share-based compensation expense. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed to changes in cash and
share-based compensation expense that could be material.
If actual results are not consistent with the assumptions used, the share-based
compensation expense reported in our financial statements may not be
representative of the actual economic cost of the share-based compensation. A
10% change in our share-based compensation expense from continuing operations
for the year ended December 31, 2020, would have affected pre-tax earnings by
approximately $0.5 million in 2020.
Due to the timing of availability of the Russell 2000 data, there is a risk that
the amount we have recorded as LTIP expense could be different from the actual
payout. A 10% increase in the total estimated liability for our LTIP would
result in a reduction of 2020 pretax earnings of $1.5 million.
Pension Plans
Methodology
We maintain a qualified defined benefit pension, as well as a non-qualified
Supplemental Employees Retirement Plan ("SERP") for certain key executives. See
Note 17, Pension Plans, in the Notes to Consolidated Financial Statements
included in this Form 10-K for further discussion of these plans.
Expenses and liabilities associated with each of these plans are determined
based upon actuarial valuations. Integral to these actuarial valuations are a
variety of assumptions including expected return on plan assets and discount
rates. We regularly review these assumptions, which are updated at the
measurement date, December 31st. In accordance with generally accepted
accounting principles, the impact of differences between actual results and the
assumptions are accumulated and generally amortized over future periods, which
will affect expense recognized in future periods.
We utilize a "spot rate approach" in the calculation of pension interest and
service cost. The spot rate approach applies separate discount rates for each
projected benefit payment in the calculation of pension interest and service
cost.
Judgment and Uncertainties
The discount rate represents the interest rate used to determine the present
value of future cash flows currently expected to be required to settle the
pension obligation. Management uses the Financial Times Stock Exchange ("FTSE")
Pension Liability Index for discount rate assumptions. This index was designed
to provide a market average discount rate to assist plan sponsors in valuing the
liabilities associated with postretirement obligations. Additionally, we
reviewed the changes in the general level of interest rates since the last
measurement date noting that overall rates had decreased when compared to 2019.
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Based upon this information, we used a 2.34% discount rate as of December 31,
2020, for the qualified defined benefit pension plan. This rate takes into
consideration the participants in our pension plan and the anticipated payment
stream as compared to the Above Median Double-A Curve. For the SERP, we used the
same methodology as the pension plan and derived a discount rate of 1.78% in
2020 for the benefit obligation. The difference in the discount rates is
primarily due to the expected duration of SERP payments, which is shorter than
the anticipated duration of benefit payments to be made to the average
participant in the pension plan. The qualified defined benefit pension plan and
SERP used discount rates of 3.14% and 2.76% at December 31, 2019, respectively,
for purposes of calculating the benefit obligation.
The expected long-term rate of return on plan assets represents the average rate
of earnings expected on the funds invested to provide for anticipated benefit
payments. The expected return on assets assumption is developed based upon
several factors. Such factors include current and expected target asset
allocation, our expected returns by asset class type and our expected investment
performance. Beginning in 2020, the expected long-term rate of return on plan
assets is 6.5%. Historically, the expected long-term rate of return on plan
assets was 7.5%.
Effect if Actual Results Differ From Assumptions
During 2020, the pension plan generated net periodic benefit income and as a
result, the sensitivity analysis calculates the change on pension income rather
than on pension expense. A lower discount rate increases the present value of
benefit obligations which increases pension expense; however, this is more than
offset by a reduction in interest costs resulting in net pension income. A one
percentage point decrease in the assumed discount rate would have increased
pension income in 2020 by $1.3 million. A one percentage point increase in the
assumed discount rate would have decreased pension income in 2020 by $0.8
million.

A lower expected rate of return on pension plan assets would increase pension
expense. For 2020 and 2019, the expected rate of return on plan assets was 6.5%
and 7.5%, respectively. A one-percentage point increase/decrease in the assumed
return on pension plan assets would have changed pension income in 2020 by
approximately $6.6 million. During 2020, the actual return on pension plan
assets of 17.6% was higher than our expected long-term rate of return on pension
plan assets of 6.5%.
Income Taxes
Methodology
Deferred tax assets and liabilities generally represent temporary differences
between the recognition of tax benefits/expenses in our financial statements and
the recognition of these tax benefits/expenses for tax purposes.
We establish reserves for deferred taxes when, despite our belief that our tax
return positions are valid and defensible, we believe that certain positions may
not prevail if challenged. We adjust these reserves in light of changing facts
and circumstances, such as the progress of a tax audit or changes in tax
legislation. Our effective tax rate includes the impact of reserve provisions
and changes to reserves that we consider appropriate. This rate is then applied
to our quarterly operating results. In the event that there is a significant
unusual or one-time item recognized in our operating results, the tax
attributable to that item would be separately calculated and recorded at the
same time as the unusual or one-time item.
As of December 31, 2020, we had recorded $32.4 million of deferred tax assets,
net of valuation allowances. The realization of these benefits is dependent in
part on future taxable capital gains and tax planning strategies designed to
realize the benefit associated with the capital loss. For those jurisdictions
where the expiration of tax loss or credit carryforwards or the projection of
operating results indicates that realization is not likely, a valuation
allowance is provided.
Judgment and Uncertainties
Management believes that sufficient income will be earned in the future to
realize deferred income tax assets, net of valuation allowances recorded. The
realization of these deferred tax assets can be impacted by changes to tax laws
or statutory tax rates and future taxable income levels.
Our effective tax rate on earnings was 9.9% for 2020. This rate was unfavorably
impacted by the impairment charge on the UK Composites business as a result of
the anticipated sale, for which no associated tax benefit was recognized in the
current period. Due to an entity classification election in 2019 related to the
investment in the Company's UK business, which had the effect of treating the
subsidiary as a disregarded entity for U.S. tax purposes, a loss was recorded,
resulting in a significant tax benefit recognized by the Company in 2019.
Additionally, the Company recognized additional benefits from research and
development credits relating to research completed in the three prior years. Our
effective tax rate is based on expected or reported income or loss, statutory
tax rates and tax planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is required in
determining our effective tax rate and in evaluating our tax positions.
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Effect if Actual Results Differ From Assumptions

We do not anticipate a significant change in our unrecognized tax benefits
within the next twelve months. We file tax returns in numerous U.S. and foreign
jurisdictions, with returns subject to examination for varying periods, but
generally back to and including 2015. It is our policy to record interest and
penalties on unrecognized tax benefits as income taxes. A one percentage point
increase/decrease in our tax rate would have affected our 2020 earnings by $0.8
million.
RECENT ACCOUNTING STANDARDS

A summary of recent accounting standards is included in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

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