Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide readers of our condensed consolidated
financial statements with the perspectives of management. It presents, in
narrative and tabular form, information regarding our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results, and is designed to enable the readers of this report to obtain
an understanding of our businesses, strategies, current trends and future
prospects. It should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2020 ("2020 Form 10-K") and the Condensed
Consolidated Financial Statements included in Item 1 of this Form 10-Q.

OVERVIEW OF BUSINESS

Kaman Corporation (the "Company" or "Kaman") currently conducts business in the
aerospace and defense, industrial and medical markets. Kaman 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.

Executive Summary



In the first quarter, consolidated net sales from continuing operations
decreased by 17.2% to $171.6 million, primarily due to a reduction in sales on
our safe and arms device and commercial business and general aviation programs.
Gross margin decreased in the quarter to 30.8% compared to 32.7% in the prior
year period. This performance was driven in part by the mix of joint
programmable fuze ("JPF") sales in the quarter and lower sales and associated
gross profit on our commercial bearings products due to the impacts of COVID-19.
Selling, general and administrative expenses ("S,G&A") decreased by 26.2%,
driven by the absence of Bal Seal acquisition costs and lower employee-related
costs as we realize the benefits of the workforce reductions implemented in the
prior year. Operating income in the period benefited from the absence of costs
associated with the acquired retention plans incurred in the prior year and
lower costs related to the transition services agreement ("TSA"). Bal Seal was
able to recover quickly from the interruption to its information technology
systems, and, as such, there was no material impact to our first quarter
results. GAAP diluted earnings per share of $0.29 in the first quarter was the
result of the activity discussed above and higher pension-related income,
partially offset by lower income from the TSA.

Other financial highlights



•Earnings from continuing operations was $8.0 million for the three-month fiscal
period ended April 2, 2021, compared to a loss from continuing operations of
$0.4 million in the comparable fiscal period in the prior year. This change was
primarily driven by the absence of Bal Seal acquisition costs and costs
associated with the acquired retention plans incurred in the prior year,
partially offset by lower sales and gross profit.
•Cash used in operating activities of continuing operations during the
three-month fiscal period ended April 2, 2021, was $2.4 million, a $53.0 million
improvement to the comparable fiscal period in the prior year. This change was
primarily due to the collection of payments on outstanding receivables, more
specifically significant receivables under a JPF direct commercial sales ("DCS")
contract, and the absence of a $10.0 million pension contribution in the current
period, partially offset by approximately $25.1 million in nonrecurring payments
to eligible participants of Bal Seal's employee retention plans.
•Total unfulfilled performance obligations ("backlog") decreased 10.9% to $562.4
million compared to total backlog at December 31, 2020, driven by deliveries of
direct commercial JPF orders and bearings products, partially offset by new
orders of our bearings products.

Recent events



•In April 2021, the K-MAX TITANTM , our new unmanned helicopter, successfully
completed its first test flight.
•In April 2021, Ian K. Walsh, President and CEO, was appointed Chairman of the
Board of Directors and Jennifer Pollino assumed the role of Lead Independent
Director.
•In March 2021, we opened our first production cell for highly engineered
products utilizing our proprietary Titanium Diffusion Hardening process.
•In March 2021, we were awarded a contract by Boeing to manufacture the
refueling boom assembly for the MH-47 program. The program is expected to start
in the second half of 2021.
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•In February 2021, we completed the sale of our UK Composites business.
•In January 2021, we received a signed purchase agreement for a K-MAX®
medium-to-heavy lift helicopter. Delivery of this aircraft was completed in
March 2021.
•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.

COVID-19 Discussion



The impact of the novel coronavirus ("COVID-19") and the precautionary measures
instituted by governments and businesses to mitigate the spread, including
limiting non-essential gatherings of people, ceasing all non-essential travel,
ordering certain businesses and government agencies to cease non-essential
operations at physical locations and issuing "shelter-in-place" orders, have
contributed to a general slowdown in the global economy and significant
volatility in financial markets, 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 has impacted and will continue
to 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. 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. Additionally,
certain of our customers and suppliers have temporarily shut down operations;
however, disruptions to our supply chain have been limited to date and we
continue to meet the demands of our customers. While we did not incur
significant disruptions related to the COVID-19 pandemic during the first
quarter of 2021, we continued to see declines in our commercial aerospace
products in the first quarter of 2021 as compared to the corresponding period in
2020 which was minimally impacted by COVID-19. As the pandemic continues, we
anticipate further challenges in our commercial aerospace programs through the
first half of 2021; however, we expect a meaningful ramp in sales for these
products in the second half of the year due to the increase in air traffic and
vaccination rates in the United States. We saw recoveries in our medical and
industrial end markets during the first quarter and expect improved performance
through the remainder of 2021. Our defense and safe and arm device 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. The extent to which COVID-19 may
adversely impact the Company depends on future developments, which are highly
uncertain and unpredictable at this time.
Steps to Protect our Workforce
The health and safety of our employees, their families and communities, and our
customers are our highest priorities. To maintain employee productivity and
minimize the risk of exposure while working, we continue to adhere to the
policies and procedures implemented in the prior year to allow our employees to
work with confidence knowing that their health and safety is a key priority. 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. For
those on-site, we continue to operate in segregated workspaces to maintain
physical distancing within our facilities, better trace 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. In addition, we continue to
require daily temperature checks and face masks for all persons entering our
facilities. Resources are available to our employees via the Company's benefits
website, which include the latest news on COVID-19, steps to prevent illness and
resources for mental health.
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. 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.
Refer to the Liquidity and Capital Resources section of Management's Discussion
and Analysis for information on the impact of COVID-19 on the liquidity of the
Company.


                                       24

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RESULTS OF OPERATIONS

Net Sales from Continuing Operations

For the Three Months Ended


                                                                       April 2,                   April 3,
                                                                         2021                       2020
                                                                                 (in thousands)
Organic sales                                                      $     169,912                $  198,836
Sales of disposed businesses that did not qualify for
discontinued operations                                                    1,704                     8,486
Net sales                                                          $     171,616                $  207,322
$ change                                                                 (35,706)                   40,888
% change                                                                   (17.2)  %                  24.6  %



Net sales decreased for the three-month fiscal period ended April 2, 2021, as
compared to the corresponding period in 2020, due to a 14.5% decrease in organic
sales and $6.8 million in lower sales due to the sale of our UK Composites
business. The decrease in organic sales was primarily driven by $16.4 million in
lower sales under our safe and arm devices programs, a $12.5 million decrease in
sales on our commercial business and general aviation programs and a $1.2
million decrease in sales on our defense programs, excluding safe and arm
devices. These decreases were partially offset by a $1.5 million increase in
sales in industrial and other commercial programs. Sales under our medical
programs remained relatively flat when compared to the corresponding period in
2020. Foreign currency exchange rates relative to the U.S. dollar had a
favorable impact of $1.7 million on net sales for the three-month fiscal period
ended April 2, 2021.

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

The decrease in sales under our commercial business and general aviation
programs was 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, and a decrease in sales under certain structures programs. These
decreases, totaling $19.1 million, were partially offset by a K-MAX® aircraft
delivery in the current period.

The decrease in sales under our defense programs, excluding safe and arm devices
was primarily due to lower sales under the AH-1Z program, the Sikorsky BLACK
HAWK helicopter program and a certain structures program. These decreases,
totaling $4.8 million, were partially offset by higher sales on the A-10
program.

The increase in sales under our industrial and other commercial programs was
primarily attributable to $1.3 million in higher sales volume of our bearings
products.

Gross Profit from Continuing Operations


                                            For the Three Months Ended
                                         April 2,                  April 3,
                                           2021                      2020
                                                  (in thousands)
                 Gross profit        $      52,905                $ 67,702
                 $ change                  (14,797)                 13,181
                 % change                    (21.9)  %                24.2  %
                 % of net sales               30.8   %                32.7  %



Gross profit decreased for the three-month fiscal period ended April 2, 2021, as
compared to the corresponding period in 2020. This decrease was primarily
attributable to lower direct commercial sales of our JPF to foreign militaries
and lower sales and associated gross profit on our commercial bearings products.
These decreases, totaling $17.4 million, were partially offset by higher sales
and associated gross profit under our JPF program with the USG.


                                       25
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Selling, General & Administrative Expenses (S,G&A) from Continuing Operations
                                            For the Three Months Ended
                                         April 2,                  April 3,
                                           2021                      2020
                                                  (in thousands)
                 S,G&A               $      44,991                $ 60,989
                 $ change                  (15,998)                 19,038
                 % change                    (26.2)  %                45.4  %
                 % of net sales               26.2   %                29.4  %



S,G&A decreased for the three-month fiscal period ended April 2, 2021, when
compared to the corresponding period in 2020. This was primarily attributable to
the absence of $8.5 million in Bal Seal acquisition costs and $1.8 million in
third party costs associated with our efforts to reduce general and
administrative expenses in the prior year, lower employee-related costs due to
the cost reductions efforts implemented in the prior year, and a decrease in
travel expenses and trade show costs due to restrictions imposed to limit the
spread of COVID-19.

Costs from Transition Service Agreement


                                                          For the Three Months Ended
                                                            April 2,               April 3,
                                                              2021                   2020
                                                                (in thousands)

  Costs from transition services agreement        $        705                    $  4,140



Upon closing the sale of our former Distribution business, the Company entered
into a 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 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 in 2020. Substantially all services were completed as
of the end of the first quarter of 2021; however, the TSA is expected to be
fully completed by the third quarter of 2021. We incurred $0.7 million and $4.1
million in costs associated with the TSA in the three-month fiscal periods ended
April 2, 2021 and April 3, 2020, respectively. These costs were partially offset
by $0.5 million and $3.0 million in income earned from the TSA in the
three-month fiscal periods ended April 2, 2021 and April 3, 2020, respectively,
included in income from transition services agreement, which is below operating
income on the Company's Condensed Consolidated Statement of Operations.

Cost of Acquired Retention Plans


                                                     For the Three Months Ended
                                                       April 2,               April 3,
                                                         2021                   2020
                                                           (in thousands)
       Costs of acquired retention plans      $       -                     

$ 5,703

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. As of the date of acquisition, Bal Seal had $1.9 million in
costs accrued for these employee retention plans, and the remaining $22.8
million in compensation expense associated with these retention plans was
incurred ratably throughout the year ended December 31, 2020. 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 one year following the acquisition date, which
is reflected in the Company's cash flows from operating activities for the
three-month fiscal period ended April 2, 2021.


                                       26
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Restructuring and Severance Costs


                                                     For the Three Months Ended
                                                       April 2,               April 3,
                                                         2021                   2020
                                                           (in thousands)

      Restructuring and severance costs      $        1,352

$ 1,795





The Company continues to evaluate its costs with the objective of a lean
organizational structure that provides a scalable infrastructure which
facilitates future growth opportunities. In the three-month fiscal period ended
April 2, 2021, the Company incurred $1.4 million in severance costs associated
with these cost reduction efforts. These actions are expected to contribute
total annualized cost savings of approximately $3.7 million, which were factored
in the Company's 2021 outlook.

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 which were completed in 2020 to support the cost savings initiative.
These actions resulted in $1.3 million in severance costs in the three-month
fiscal period ended April 3, 2020. Actions taken since the announcement of the
cost savings initiative through 2020 are expected to contribute total annualized
cost savings of approximately $18.2 million.

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 the year ended December 31, 2020.

Loss (Gain) on Sale of Business



                                                     For the Three Months Ended
                                                       April 2,                April 3,
                                                         2021                    2020
                                                           (in thousands)
     Loss (gain) on sale of business        $         234                     $    (493)



In 2020, we received approval from our Board of Directors to sell our UK
Composites business. In the fourth quarter of 2020, we accrued a loss of $36.3
million on the anticipated sale. In the first quarter of 2021, we closed on a
transaction to sell the UK Composites business. We recorded an additional loss
of $0.2 million in the three-month fiscal period ended April 2, 2021 associated
with the sale.

During 2018, we sold our UK Tooling business to better position the Company for
increased profitability. In 2019, we incurred a 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 three-month fiscal period ended April 3, 2020, we
collected $0.5 million of the note receivables written off in 2019.

Operating Income (Loss)
                                                 For the Three Months Ended
                                              April 2,                  April 3,
                                                2021                      2020
                                                       (in thousands)
            Operating income (loss)       $      5,613                 $ (4,422)
            $ change                            10,035                  (16,791)
            % change                             226.9   %               (135.8) %
            % of net sales                         3.3   %                 (2.1) %



The Company had operating income of $5.6 million for the three-month fiscal
period ended April 2, 2021, compared to an operating loss of $4.4 million in the
comparable period in 2020. The change in operating income was primarily driven
by lower costs related to the TSA, the absence of Bal Seal acquisition costs and
the costs associated with the acquired retention plans
                                       27
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incurred in the prior year and lower employee-related costs due to the cost reduction efforts implemented in the prior year. These changes were partially offset by lower sales and gross profit, as discussed above.



Interest Expense, Net
                                               For the Three Months Ended
                                                 April 2,               April 3,
                                                   2021                   2020
                                                     (in thousands)
            Interest expense, net      $        4,251                  $  3,247



Interest expense, net, generally consists of interest charged on our Credit
Agreement, which includes a revolving credit facility, our convertible notes and
the amortization of debt issuance costs, offset by interest income. Interest
expense, net increased for the three-month fiscal period ended April 2, 2021.
This increase was primarily attributable to an increase in interest expense
associated with our deferred compensation plan and lower interest income,
partially offset by lower average borrowings.

Effective Income Tax Rate from Continuing Operations

For the Three Months Ended


                                                                       April 2,                April 3,
                                                                         2021                    2020

Effective income tax rate from continuing operations                         2.5  %                   52.1  %



The effective income tax rate represents the combined federal, state and foreign
tax effects attributable to pretax earnings from continuing operations for the
period. The decrease in the effective tax rate from continuing operations for
the three-month fiscal period ended April 2, 2021, compared to the corresponding
rate in the prior year was primarily caused by a discrete benefit received in
the current period related to the sale of our UK Composites business and the
positive earnings in the current period versus a loss in the prior period. See
Note 18, Income Taxes, for further information on the Company's valuation
allowance for deferred tax assets.

Backlog
                                        April 2,       December 31,
                                          2021             2020
                                               (in thousands)
                        Backlog        $ 562,407      $     631,236



Backlog decreased during the first three months of 2021. The decrease was
primarily attributable to revenue recognized for deliveries of direct commercial
JPF orders, bearings and medical products and work performed on our structures
and legacy fuzing programs. These decreases were partially offset by orders of
our bearings and medical products.

Major Programs/Product Lines



Below is a discussion of significant changes in our major programs during the
first three months of 2021. See our 2020 Form 10-K for a complete discussion of
our major programs.

FMU-152 A/B - JPF

We manufacture the JPF, an electro-mechanical 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 8,090 fuzes were delivered to our customers during the first quarter of 2021. We expect to deliver 30,000 to 35,000 fuzes in 2021.



Total JPF backlog at April 2, 2021 was $184.5 million, all of which has received
required export approvals, licenses or authorizations from the USG allowing for
the sale of these products outside of the United States. The receipt of future
export
                                       28
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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. As the
Administration has indicated its desire to review the sale of defense products
to two Middle Eastern countries, this has led to uncertainty on the timing of
delivery of fuzes for one of our key customers. The outcome of the review
remains uncertain; therefore, we elected to exclude the previously anticipated
order from our outlook for 2021. Total JPF backlog at December 31, 2020 was
$214.7 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. 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. In the first quarter of 2021, we
began to satisfy the requirements under Option 15. We expect future orders under
Option 16 to extend FMU-152 A/B deliveries into 2023.

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 programs,
acquisitions, divestitures, dividends, availability of future credit, share
repurchase programs, 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 our 2020 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 could impact our liquidity in the next twelve months. At April 2,
2021, the Company had $120.7 million of cash on our Condensed Consolidated
Balance Sheet. 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.
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.


                                       29
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A summary of our consolidated cash flows from continuing operations is as
follows:
                                                              For the Three Months Ended
                                                     April 2,       April 3,
                                                       2021           2020         2021 vs. 2020
                                                                    (in thousands)
Total cash provided by (used in):
Operating activities                                $  (2,415)     $ (55,442)     $       53,027
Investing activities                                   (8,100)      (303,780)            295,680
Financing activities                                   (4,684)       182,878            (187,562)

Free Cash Flow (a)
Net cash used in operating activities               $  (2,415)     $ (55,442)     $       53,027
Expenditures for property, plant and equipment         (4,678)        (5,559)                881
Free cash flow                                      $  (7,093)     $ (61,001)     $       53,908


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

Net cash used in operating activities was $2.4 million for the three-month
fiscal period ended April 2, 2021, a $53.0 million improvement to cash used in
the comparable period in 2020. This change was largely driven by the collection
of payments on outstanding receivables, more specifically the receipt of
approximately $53.0 million in payments on JPF DCS receivables, the absence of a
$10.0 million pension contribution and lower material receipts on the K-MAX®
program in the current period. These changes were partially offset by
approximately $25.1 million in nonrecurring payments to eligible participants of
Bal Seal's employee retention plans implemented prior to our acquisition in
2020.

Net cash used in investing activities was $8.1 million for the three-month
fiscal period ended April 2, 2021, $295.7 million less than cash used in the
comparable period in 2020. This change was primarily attributable to cash used
to acquire Bal Seal in the prior year.

Net cash used in financing activities was $4.7 million for the three-month
fiscal period ended April 2, 2021, compared to net cash provided by financing
activities of $182.9 million in the comparable period in 2020. This change was
primarily due to higher net borrowings under our revolving credit facility in
the prior year in preparation for the potential impact of the COVID-19 pandemic,
partially offset by lower purchases of treasury shares in the current period.

We anticipate a variety of items will have an impact on our liquidity during the
next twelve months, in addition to the impacts of the COVID-19 pandemic and our
working capital requirements. These could include one or more of the following:

•the matters described in Note 14, Commitments and Contingencies, in the Notes
to Consolidated Financial Statements, including the cost of existing
environmental remediation matters;
•contributions to our qualified pension plan and Supplemental Employees'
Retirement Plan ("SERP");
•deferred compensation payments to officers;
•interest payments on outstanding debt;
•income tax payments;
•costs associated with acquisitions and corporate development activities;
•finance and operating lease payments;
•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 the extension of payment terms by our customers.


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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 future cash requirements; however, we may decide to borrow
additional funds or raise additional 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 advantageous 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 the 2020 Form 10-K for further
information on our Financing Arrangements.

Convertible 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, dated May 12, 2017, between the Company and U.S. Bank National
Association, as trustee (as amended by the First Supplemental Indenture thereto,
dated July 15, 2019, the "Indenture"). 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 our election.

The sale of our former 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 approximately 0.25% of all outstanding notes.
Holders of such notes received the repurchase price equal to 100% of the
principal amount of the 2024 Notes being purchase, plus accrued and unpaid
interest.

We incurred $7.4 million of debt issuance costs in connection with the sale of
the 2024 Notes, which was allocated between the debt and equity components of
the instrument. Of the total amount, $0.7 million was recorded as an offset to
additional paid-in capital. The balance, $6.7 million, was recorded as a
contra-debt balance and is being amortized over the term of the 2024 Notes.
Total amortization expense for three-month fiscal periods ended April 2, 2021
and April 3, 2020 was $0.2 million in both periods.

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
matures on December 13, 2024 and consists of revolving commitments of $800.0
million. Capitalized terms used but not defined within this discussion of the
Credit Agreement have the meanings ascribed thereto in the Credit Agreement,
which with amendments is included as Exhibit 10.39 to our 2020 Form 10-K.

We incurred $3.6 million of debt issuance costs in connection with the amendment and restatement of the Credit Agreement. Total amortization expense for three-month fiscal periods ended April 2, 2021 and April 3, 2020 was $0.2 million in both periods.



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 2021. 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 that 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
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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.

No amounts were outstanding under the revolving credit facility in the first
quarter of 2021; therefore, the interest rate for the period was 0%. 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.
There were no bank borrowings during the three-month period ended April 2, 2021,
compared to total average bank borrowings of $111.9 million for the year ended
December 31, 2020.

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


                                                                      April 2,            December 31,
                                                                        2021                  2020
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)                      152,475                165,373
Amounts available for borrowing                                     $  

647,525 $ 634,627

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

                                          $  

346,880 $ 363,997




(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 reflect the minimum
borrowing capacity under EBITDA, subject to adjustments.

Other Sources/Uses of Capital

Advance Payments



In 2018, we received $97.2 million in advance payments, which relate to $146.2
million in letters of a 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 obligations, our customer has the ability to draw on the
letters of credit.

Pension Plans

Management regularly monitors pension plan asset performance and the assumptions
used in the determination of our benefit obligation, comparing them to actual
performance. 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 subsequent to the end
of the first quarter and $0.1 million to the SERP through the end of the first
quarter of 2021. No further contributions are expected to be made to the
qualified pension plan during 2021. We plan to contribute an additional $2.6
million to the SERP in 2021. For the 2020 plan year, we contributed $10.0
million to the qualified pension plan and $0.5 million to the SERP.

Effective December 31, 2015, our qualified pension plan was frozen with respect
to future benefit accruals. Under USG Cost Accounting Standard ("CAS") 413, we
must calculate the USG's share of any pension curtailment adjustment calculated
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 calculation, which was
submitted to the USG for review in December 2016. We have maintained our accrual
at $0.3 million as of April 2, 2021. 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.



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Share-based Arrangements



In 2021, the Company modified its long-term incentive program to increase the
emphasis on equity. Beginning in the first quarter of 2021, the long-term
incentive awards granted to the Company's Named Executive Officers ("NEOs") will
consist of a combination of service-based RSAs and PSUs which are intended to be
settled in shares, as opposed to cash-based awards that had been utilized in the
past. These awards are expected to increase the alignment of interests between
the Company's NEOs and shareholders and help build stock ownership for new
executives, supporting both executive retention and 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. The number of PSUs that will
vest will be determined 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. The achievement level
for both factors may range from zero to 200%. As of April 2, 2021, future
compensation costs related to non-vested stock options, restricted stock grants
and performance stock grants is $12.9 million. The Company anticipates that this
cost will be recognized over a weighted-average period of 2.7 years.

NON-GAAP FINANCIAL MEASURES



Management believes the non-GAAP (Generally Accepted Accounting Principles)
measures used in this report 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 or businesses disposed of that did not qualify for accounting as a
discontinued operation during the previous 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 separately provides management and
investors with useful information about the trends impacting our operations and
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 from continuing operations (in thousands)
                                                                        For 

the Three Months Ended


                                                                       April 2,              April 3,
                                                                         2021                  2020
Net sales                                                          $      171,616          $  207,322
Acquisition sales                                                               -                   -
Sales of disposed businesses that did not qualify for
discontinued operations                                                     1,704               8,486
Organic Sales                                                      $      169,912          $  198,836



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.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS



There have been no material changes outside the ordinary course of business in
our contractual obligations or off-balance sheet arrangements during the first
three months of 2021. See our 2020 Form 10-K for a discussion of our contractual
obligations and off-balance sheet arrangements.


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CRITICAL ACCOUNTING ESTIMATES



Preparation of the Company's financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Management believes the most complex and
sensitive judgments, because of their significance to the Consolidated Financial
Statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Management's Discussion and Analysis
and the Notes to Consolidated Financial Statements in the Company's 2020 Form
10-K describe the critical accounting estimates and significant accounting
policies used in preparing the Consolidated Financial Statements. Actual results
in these areas could differ from management's estimates.

RECENT ACCOUNTING STANDARDS



Information regarding recent changes in accounting standards is included in Note
2, Recent Accounting Standards, of the Notes to Condensed Consolidated Financial
Statements in this report.

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