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Form 8-K KAMAN Corp For: Oct 27

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October 27, 2016 4:21 PM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): October 27, 2016



Kaman Corporation
(Exact Name of Registrant as Specified in Its Charter)


Connecticut
(State or Other Jurisdiction of Incorporation)

001-35419
 
06-0613548
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
1332 Blue Hills Avenue, Bloomfield, Connecticut
 
06002
(Address of Principal Executive Offices)
 
(Zip Code)

(860) 243-7100
(Registrant's Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02.    Results of Operations and Financial Condition

On October 27, 2016, the Company issued a press release summarizing the Company's financial results for the fiscal quarter ended September 30, 2016. A copy of this press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

A conference call has been scheduled for tomorrow, October 28, 2016, at 8:30 AM ET. Listeners may access the call live by telephone at (844) 473-0975 and from outside the U.S. at (562) 350-0826 using the Conference ID: 76934132; or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference ID: 76934132. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in the press release, furnished herewith, a copy of which can be accessed in the investor relations section of the Company's website.

Item 9.01.    Financial Statements and Exhibits

(c)    Exhibits

The following document is furnished as an Exhibit pursuant to Item 2.02 hereof:

Exhibit 99.1 - Press Release of the Company, dated October 27, 2016, regarding financial performance for the fiscal quarter ended September 30, 2016.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
KAMAN CORPORATION
 
 
 
 
By:
/s/ Shawn G. Lisle
 
 
Shawn G. Lisle
 
 
Senior Vice President and
 
 
General Counsel

Date: October 27, 2016




KAMAN CORPORATION AND SUBSIDIARIES

Index to Exhibits

Exhibit
Description
 
 
 
 
99.1
Press release dated October 27, 2016
Attached





Exhibit 99.1
image0a08.jpg
 
 
NEWS RELEASE
 
Kaman Corporation
 
1332 Blue Hills Avenue
Bloomfield, CT USA
 
P 860.243.7100
www.kaman.com

KAMAN REPORTS 2016 THIRD QUARTER RESULTS

Third Quarter 2016 Highlights:

•
GAAP Diluted Earnings per Share of $0.62; Adjusted Diluted Earnings per Share* of $0.64
•
Net Earnings of $17.5 million; Adjusted EBITDA* of $42.3 million
•
Aerospace Sales growth of 30%; 16.5% Operating Profit Margin
•
Distribution Operating Profit Margin of 4.3%; Adjusted Operating Margin* of 4.5%
•
Year-to-Date Cash Flows from Operations of $70.0 million; Free Cash Flow* of $46.1 million

BLOOMFIELD, Connecticut (October 27, 2016) - Kaman Corp. (NYSE: KAMN) today reported financial results for the third fiscal quarter ended September 30, 2016.
 
 
 
 
 
 
 
 
 
Table 1. Summary of Financial Results
 
 
 
 
 
 
In thousands except per share amounts
For the Three Months Ended
 
 
 
September 30, 2016
 
October 2,
2015
 
Change
 
 
Net sales:
 
 
 
 
 
 
 
Distribution
$
274,388

 
$
296,312

 
$
(21,924
)
 
 
Aerospace
179,086

 
137,430

 
41,656

 
 
Net sales
$
453,474

 
$
433,742

 
$
19,732

 
 
 
 

 
 

 
 
 
 
Operating income:
 
 
 

 
 
 
 
Distribution
$
11,872

 
$
14,422

 
$
(2,550
)
 
 
% of sales
4.3
%
 
4.9
%
 
(0.6
)%
 
 
Aerospace
29,616

 
27,801

 
1,815

 
 
% of sales
16.5
%
 
20.2
%
 
(3.7
)%
 
 
Net gain (loss) on sale of assets
(24
)
 
10

 
(34
)
 
 
Corporate expense
(10,402
)
 
(12,450
)
 
2,048

 
 
Operating income
$
31,062

 
$
29,783

 
$
1,279

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA*:


 


 
 
 
 
Net earnings
$
17,455

 
$
17,224

 
$
231

 
 
Adjustments
24,825

 
21,785

 
3,040

 
 
Adjusted EBITDA*
$
42,280

 
$
39,009

 
$
3,271

 
 
% of sales
9.3
%
 
9.0
%
 
0.3
 %
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Diluted earnings per share
$
0.62

 
$
0.62

 
$
—

 
 
Adjustments
0.02

 
0.01

 
0.01

 
 
Adjusted Diluted Earnings per Share*
$
0.64

 
$
0.63

 
$
0.01

 
 
 
 
 
 
 
 
 






Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “In the third quarter, we earned $0.62 per diluted share, or $0.64 of Adjusted Diluted Earnings Per Share*, reflecting the strength of our diverse business and customer mix. While net earnings were up slightly to $17.5 million, Adjusted EBITDA* increased 8.4% to $42.3 million when compared to the prior year.

At Distribution, sales decreased 7.4% when compared to the prior period. Organic Sales per Sales Day* declined 6.3% when compared to the prior year and declined 2.7% sequentially, which reflects weaker than expected market conditions. Operating margin was 4.3% in the third quarter, a 60 bps decrease from the 4.9% achieved in the third quarter of last year largely due to the deleveraging impact of the lower sales volume.

While disappointed in the overall market environment, we continue to invest in our productivity initiative at Distribution which includes operational process improvements and data analytics, primarily focused on expanding operating margins. Although this initiative has been successful in those locations where it has been deployed, the benefits we have seen to date have been largely offset by ongoing implementation costs.

At Aerospace, sales increased approximately 30% with Organic Sales* increasing 17.2%. The increase in Organic Sales* for the third quarter is primarily due to increased deliveries of the JPF to the U.S. Government. During the quarter, we delivered approximately 9,500 fuzes to the U.S. Government, demonstrating our ability to increase production to meet both U.S. Government and foreign customer demand. With this performance, we expect to deliver approximately 33,000 to 35,000 fuzes for the year, a record for our JPF program. Finally, our 2015 acquisitions continue to deliver positive results and, as expected, were accretive on a GAAP basis in the third quarter and contributed to our strong cash flow performance for the year-to-date period."

Chief Financial Officer, Robert D. Starr, commented, "The third quarter generated strong cash flow performance bringing year-to-date operating cash flows to $70.0 million leading to Free Cash Flow* generation of $46.1 million, giving us confidence in our cash flow outlook for the year. Net earnings for the period benefited from corporate expenses that were 16% lower than the prior year and 28% lower than the second quarter of 2016. This improved performance, relative to our expectations, was driven by numerous factors, including better than expected experience for healthcare costs, lower incentive compensation expense and continued overall expense management.

We are revising our outlook for 2016, to reflect our performance through the first nine-months of the year, specifically, the reduced sales volumes we have experienced at Distribution and the shift in the product mix and timing of deliveries at Aerospace.

At Distribution we have lowered our sales outlook for the year due to our expectations for continued weakness in the industrial markets. We now expect sales in the range of $1,110 million to $1,120 million as compared to our previously reported range of $1,125 million to $1,150 million. We have also lowered our outlook for operating margin by 20 bps at the low end and 40 bps at the high end, reducing the expected range to 4.3% to 4.4% due to the negative impact of deleveraging from the lower sales volume; lower vendor incentives and the timing of deliveries for our engineered products.

Looking forward to the remainder of the year at Aerospace, a number of programs scheduled for delivery in 2016 have shifted to 2017. Most notably, a significant JPF direct commercial sale previously anticipated in 2016 has shifted into 2017 due to the timing of required governmental approvals, reducing our operating margin expectation for the year. We have lowered our outlook for sales to $700 million to




$710 million, and reduced our operating margin expectations to a range of 16.4% to 16.6%. Aerospace operating margin expectations for the year when measured on an adjusted basis*, eliminating the $5.5 million of acquisition and integration costs, are now expected to be 17.2% to 17.4%.

As noted earlier, our corporate expense was lower than our expectations for the third quarter. As a result we are reducing our outlook for corporate expense to $52 million from our previous expectation of $55 million.

Finally, we are raising the low end of our outlook for cash flows from operations to $85.0 million and reducing the high end of our expectations for capital expenditures to $35.0 million. These changes result in a revision of our outlook for Free Cash Flow* to $55.0 million to $65.0 million from $50.0 million to $60.0 million."

2016 Outlook

Our revised 2016 outlook is as follows:
•
Distribution:
◦
Sales of $1,110.0 million to $1,120.0 million
◦
Operating margins of 4.3% to 4.4%
◦
Depreciation and amortization expense of $16.5 million
•
Aerospace:
◦
Sales of $700.0 million to $710.0 million
◦
Operating margins of 16.4% to 16.6%, or Adjusted operating margin* of 17.2% to 17.4%, when adjusted for $5.5 million of transaction and integration costs in 2016 associated with the 2015 acquisitions
◦
Depreciation and amortization expense of $24.5 million
•
Interest expense of approximately $16.0 million
•
Corporate expenses of approximately $52.0 million
•
Estimated annualized tax rate of approximately 34.5%
•
Consolidated depreciation and amortization expense of approximately $45.0 million
•
Capital expenditures of $30.0 million to $35.0 million
•
Cash flows from operations in the range of $85.0 million to $100.0 million; Free Cash Flow* in the range of $55.0 million to $65.0 million





Please see the MD&A section of the Company's SEC Form 10-Q filed concurrent with the issuance of this release for greater detail on our results and various company programs.

A conference call has been scheduled for tomorrow, October 28, 2016, at 8:30 AM ET. Listeners may access the call live by telephone at (844) 473-0975 and from outside the U.S. at (562) 350-0826 using the Conference ID: 76934132; or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference ID: 76934132. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in this release.

About Kaman Corporation
Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut conducts business in the aerospace and industrial distribution markets.  The company produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of  our SH-2G Super Seasprite maritime helicopters; manufacture and support of our K-MAX® manned and unmanned medium-to-heavy lift helicopters; and engineering design, analysis and certification services.  The company is a leading distributor of industrial parts, and operates approximately 240 customer service centers and five distribution centers across the U.S. and Puerto Rico. Kaman offers more than four million items including bearings, mechanical power transmission, electrical, material handling, motion control, fluid power, automation and MRO supplies to customers in virtually every industry.  Additionally, Kaman provides engineering, design and support for automation, electrical, linear, hydraulic and pneumatic systems as well as belting and rubber fabrication, customized mechanical services, hose assemblies, repair, fluid analysis and motor management. More information is available at www.kaman.com.

Table 2. Summary of Segment Information (in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Net sales:
 
 
 
 
 
 
 
   Distribution
$
274,388

 
$
296,312

 
$
849,104

 
$
911,832

   Aerospace
179,086

 
137,430

 
526,210

 
411,016

     Net sales
$
453,474

 
$
433,742

 
$
1,375,314

 
$
1,322,848

 
 

 
 

 
 

 
 

Operating income:
 

 
 

 
 

 
 

   Distribution
$
11,872

 
$
14,422

 
$
36,148

 
$
42,789

   Aerospace
29,616

 
27,801

 
81,374

 
78,775

   Net gain (loss) on sale of assets
(24
)
 
10

 
(10
)
 
415

   Corporate expense
(10,402
)
 
(12,450
)
 
(38,253
)
 
(39,435
)
     Operating income
$
31,062

 
$
29,783

 
$
79,259

 
$
82,544

 
 
 
 
 
 
 
 




Table 3. Depreciation and Amortization by Segment (in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Depreciation and Amortization:
 
 
 
 
 
 
 
   Distribution
 
 
 
 
 
 
 
       Depreciation
$
2,046

 
$
2,074

 
$
6,259

 
$
6,233

       Amortization
1,940

 
2,007

 
5,868

 
6,108

     Total
$
3,986

 
$
4,081

 
$
12,127

 
$
12,341

   Aerospace
 
 
 
 
 
 
 
       Depreciation
$
3,909

 
$
3,074

 
$
11,561

 
$
9,085

       Amortization
2,038

 
873

 
6,135

 
2,582

     Total
$
5,947

 
$
3,947

 
$
17,696

 
$
11,667

   Corporate
 
 
 
 
 
 
 
       Depreciation
$
901

 
$
874

 
$
2,761

 
$
2,633

       Amortization
384

 
324

 
1,148

 
1,168

     Total
$
1,285

 
$
1,198

 
$
3,909

 
$
3,801

 
 
 
 
 
 
 
 
Consolidated Total
$
11,218

 
$
9,226

 
$
33,732

 
$
27,809






Non-GAAP Measures Disclosure

Management believes that the Non-GAAP (Generally Accepted Accounting Principles) financial measures indicated by an asterisk (*) used in this release or in other disclosures provide important perspectives into the Company's ongoing business performance. The Company does 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 of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales separately for our segments provides management and investors with useful information about the trends impacting our segments 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. No other adjustments were made during the three-month and nine-month fiscal periods ended September 30, 2016, and October 2, 2015. The following table illustrates the calculation of Organic Sales using the GAAP measure, "Net Sales".
Table 4. Organic Sales (in thousands)
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Distribution
 
 
 
 
 
 
 
Net sales
$
274,388

 
$
296,312

 
$
849,104

 
$
911,832

Less: Acquisition Sales
1,128

 
5,098

 
4,681

 
47,893

Organic Sales
$
273,260

 
$
291,214

 
$
844,423

 
$
863,939

Aerospace
 
 
 
 
 
 
 
Net sales
$
179,086

 
$
137,430

 
$
526,210

 
$
411,016

Less: Acquisition Sales
18,037

 
—

 
53,418

 
—

Organic Sales
$
161,049

 
$
137,430

 
$
472,792

 
$
411,016

Consolidated
 
 
 
 
 
 
 
Net sales
$
453,474

 
$
433,742

 
$
1,375,314

 
$
1,322,848

Less: Acquisition Sales
19,165

 
5,098

 
58,099

 
47,893

Organic Sales
$
434,309

 
$
428,644

 
$
1,317,215

 
$
1,274,955

 
 
 
 
 
 
 
 

Organic Sales per Sales Day - Organic Sales per Sales Day is defined as GAAP "Net sales of the Distribution segment" less sales derived from acquisitions completed during the preceding twelve months divided by the number of Sales Days in a given period. Sales days ("Sales Days") are the days that the Distribution segment's branch locations were open for business and exclude weekends and holidays. Management believes Organic Sales per Sales Day provides an important perspective on how net sales may be impacted by the number of days the segment is open for business and provides a basis for comparing periods in which the number of sales days differs.  





The following table illustrates the calculation of Organic Sales per Sales Day using “Net sales: Distribution” from the “Segment and Geographic Information” footnote in the “Notes to Condensed Consolidated Financial Statements” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on October 27, 2016. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition. Prior period information is adjusted to reflect acquisition sales for that period as organic sales when calculating the change in Organic Sales per Sales Day.
Table 5. Distribution - Organic Sales Per Sales Day (in thousands, except days)
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Current period
 
 
 
 
 
 
 
 
Net sales
 
$
274,388

 
$
296,312

 
$
849,104

 
$
911,832

Acquisition sales (1)
 
1,128

 
5,098

 
4,681

 
47,893

Organic sales
 
273,260

 
291,214

 
844,423

 
863,939

Sales days
 
63

 
64

 
192

 
193

Organic Sales per Sales Day for the current period
a
$
4,337

 
$
4,550

 
$
4,398

 
$
4,476

 
 
 
 
 
 
 
 
 
Prior period
 
 
 
 
 
 
 
 
Net sales from the prior year
 
$
296,312

 
$
302,294

 
$
911,832

 
$
859,305

Sales days from the prior year
 
64

 
63

 
193

 
189

Sales per sales day from the prior year
b
$
4,630

 
$
4,798

 
$
4,725

 
$
4,547

 
 
 
 
 
 
 
 
 
% change
(a-b)÷b
(6.3
)%
 
(5.2
)%
 
(6.9
)%
 
(1.6
)%
Table 6. Distribution - Sales Days
 
 
 
 
 
 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
Distribution Sales Days
 
 
 
 
 
 
 
2016 sales days by quarter
65
 
64
 
63
 
61
2015 sales days by quarter
66
 
63
 
64
 
60

Adjusted EBITDA - Adjusted EBITDA is defined as net earnings before interest, taxes, other expense (income), net, and depreciation and amortization. Adjusted EBITDA differs from net earnings, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization and other expense, net. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and new ERP systems, which we believe we have adjusted for in Adjusted EBITDA. Adjusted EBITDA also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted EBITDA provides an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods because it provides a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other Expense, net. Adjusted EBITDA is not presented as an alternative measure of operating performance, as determined in accordance with GAAP. No other adjustments were made during the three-month and nine-month fiscal periods ended September 30, 2016, and October 2, 2015. The following table illustrates the calculation of Adjusted EBITDA using GAAP measures, "Net Earnings", "Interest Expense, net", "Income Tax Expense", "Depreciation and Amortization" and "Other Expense, net".





Table 7. Adjusted EBITDA (in thousands)
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Adjusted EBITDA
 
 
 
 
 
 
 
Consolidated Results
 
 
 
 
 
 
 
Sales
$
453,474

 
$
433,742

 
$
1,375,314

 
$
1,322,848

 
 
 
 
 
 
 
 
Net earnings
$
17,455

 
$
17,224

 
$
43,727

 
$
51,664

 
 
 
 
 
 
 
 
Interest expense, net
$
4,165

 
$
3,208

 
$
11,960

 
$
9,757

Income tax expense
9,774

 
9,166

 
23,329

 
21,003

Other expense (income), net
(332
)
 
185

 
243

 
120

Depreciation and amortization
11,218

 
9,226

 
33,732

 
27,809

Adjustments
$
24,825

 
$
21,785

 
$
69,264

 
$
58,689

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
42,280

 
$
39,009

 
$
112,991

 
$
110,353

   Adjusted EBITDA margin
9.3
%
 
9.0
%
 
8.2
%
 
8.3
%

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 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. The following table illustrates the calculation of Free Cash Flow using “Net cash provided by operating activities” and “Expenditures for property, plant & equipment”, GAAP measures from the Condensed Consolidated Statements of Cash Flows included in this release.
Table 8. Free Cash Flow (in thousands)
 
 
 
 
 
 
 
 
For the Nine Months Ended
 
For the Six Months Ended
 
For the Three Months Ended
 
 
September 30,
2016
 
July 1,
2016
 
September 30,
2016
Net cash provided by operating activities
 
$
70,016

 
$
25,352

 
$
44,664

Expenditures for property, plant & equipment
 
(23,926
)
 
(15,348
)
 
(8,578
)
Free Cash Flow
 
$
46,090

 
$
10,004

 
$
36,086


Table 9. Free Cash Flow - 2016 Outlook (in millions)
2016 Outlook
Free Cash Flow:
 
 
 
     Net cash provided by operating activities
$
85.0

to
$
100.0

     Less: Expenditures for property, plant and equipment
(30.0
)
to
(35.0
)
          Free Cash Flow
$
55.0

to
$
65.0






Debt to Capitalization Ratio - Debt to Capitalization Ratio is calculated by dividing debt by capitalization. Debt is defined as GAAP “Current portion of long-term debt” plus “Long-term debt, excluding current portion”. Capitalization is defined as Debt plus GAAP “Total shareholders' equity”. Management believes that Debt to Capitalization Ratio is a measurement of financial leverage and provides an insight into the financial structure of the Company and its financial strength. The following table illustrates the calculation of Debt to Capitalization Ratio using GAAP measures from the condensed consolidated balance sheets included in this release.
Table 10. Debt to Capitalization Ratio (in thousands)
 
 
 
 
 
 
September 30,
2016
 
December 31,
2015
Current portion of long-term debt
 
$
118,906

 
$
5,000

Long-term debt, excluding current portion
 
301,566

 
434,227

Debt
 
420,472

 
439,227

Temporary equity, convertible notes
 
2,344

 
—

Total shareholders' equity
 
579,362

 
543,077

Capitalization
 
$
1,002,178

 
$
982,304

Debt to Capitalization Ratio
 
42.0
%
 
44.7
%

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share - Adjusted Net Earnings and Adjusted Diluted Earnings per Share are defined as GAAP "Net earnings" and "Diluted earnings per share", less items that are not indicative of the operating performance of the business for the periods presented. These items are included in the reconciliation below. Management uses Adjusted Net Earnings and Adjusted Diluted Earnings per Share to evaluate performance period over period, to analyze the underlying trends in our business and to assess its performance relative to its competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance.

The following table illustrates the calculation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share using “Net earnings” and “Diluted earnings per share” from the “Condensed Consolidated Statements of Operations” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on October 27, 2016.





Table 11. Adjusted Net Earnings and Adjusted Diluted Earnings per Share
 
 
 
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Adjustments to Net Earnings, pre tax
 
 
 
 
 
 
 
Acquisition transaction and integration costs
$
546

 
$
437

 
$
4,850

 
$
437

Recognition of tax benefit from tax law changes
—

 
—

 
—

 
(4,402
)
Restructuring and severance costs at Distribution
344

 
—

 
691

 
848

Adjustments, pre tax
$
890

 
$
437

 
$
5,541

 
$
(3,117
)
 
 
 
 
 
 
 
 
Tax Effect of Adjustments to Net Earnings
 
 
 
 

 

Acquisition transaction and integration costs
$
191

 
$
153

 
$
1,697

 
$
153

Recognition of tax benefit from tax law changes
—

 
—

 
—

 
—

Restructuring and severance costs at Distribution
120

 
—

 
242

 
255

Tax effect of Adjustments
$
311

 
$
153

 
$
1,939

 
$
408

 
 
 
 
 
 
 
 
Adjustments to Net Earnings, net of tax
 
 
 
 
 
 
 
GAAP Net earnings, as reported
$
17,455

 
$
17,224

 
$
43,727

 
$
51,664

Acquisition transaction and integration costs
355

 
284

 
3,153

 
284

Recognition of tax benefit from tax law changes
—

 
—

 
—

 
(4,402
)
Restructuring and severance costs at Distribution
224

 
—

 
449

 
593

Adjusted Net Earnings
$
18,034

 
$
17,508

 
$
47,329

 
$
48,139

 
 
 
 
 
 
 
 
Calculation of Adjusted Diluted Earnings per Share
 
 
 
 
 
 
 
GAAP diluted earnings per share
$
0.62

 
$
0.62

 
$
1.56

 
$
1.85

Acquisition transaction and integration costs
0.01

 
0.01

 
0.11

 
0.01

Recognition of tax benefit from tax law changes
—

 
—

 
—

 
(0.16
)
Restructuring and severance costs at Distribution
0.01

 
—

 
0.02

 
0.02

Adjusted Diluted Earnings per Share
$
0.64

 
$
0.63

 
$
1.69

 
$
1.72

 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
28,080

 
27,770

 
27,943

 
27,915


Adjusted Net Sales and Adjusted Operating Income - Adjusted Net Sales is defined as net sales, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income is defined as operating income, less items that are not indicative of the operating performance of the Company's segments or corporate function for the period presented. These items are included in the reconciliation below. Management uses Adjusted Net Sales and Adjusted Operating Income to evaluate performance period over period, to analyze underlying trends in our segments and corporate function and to assess their performance relative to their competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance.

The following table illustrates the calculation of Adjusted Operating Income using information found in Note 14, Segment and Geographic Information, to the Condensed Consolidated Financial Statements included in the Company's Form 10-Q filed with the Securities and Exchange Commission on October 27, 2016.





Table 12. Adjusted Net Sales and Adjusted Operating Income
 
 
 
 
(In thousands)
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
DISTRIBUTION SEGMENT OPERATING INCOME:
 
 
 
 
 
 
 
Net Sales
$
274,388

 
$
296,312

 
$
849,104

 
$
911,832

GAAP Operating income - Distribution segment
$
11,872

 
$
14,422

 
$
36,148

 
$
42,789

% of GAAP net sales
4.3
%
 
4.9
%
 
4.3
%
 
4.7
%
Restructuring and severance costs at Distribution
344

 
—

 
691

 
848

Adjusted Operating Income - Distribution segment
$
12,216

 
$
14,422

 
$
36,839

 
$
43,637

% of net sales
4.5
%
 
4.9
%
 
4.3
%
 
4.8
%
 
 
 
 
 
 
 
 
AEROSPACE SEGMENT OPERATING INCOME:
 
 
 
 
 
 
 
Net Sales
$
179,086

 
$
137,430

 
$
526,210

 
$
411,016

Less: Settlement of Bell Matter
—

 
—

 
4,300

 
—

Adjusted Net Sales
$
179,086

 
$
137,430

 
$
521,910

 
$
411,016

GAAP Operating income - Aerospace segment
$
29,616

 
$
27,801

 
$
81,374

 
$
78,775

% of GAAP net sales
16.5
%
 
20.2
%
 
15.5
%
 
19.2
%
Acquisition transaction and integration costs
546

 
437

 
4,850

 
437

Adjusted Operating Income - Aerospace segment
$
30,162

 
$
28,238

 
$
86,224

 
$
79,212

% of net sales
16.8
%
 
20.5
%
 
16.4
%
 
19.3
%
% of adjusted net sales
16.8
%
 
20.5
%
 
16.5
%
 
19.3
%
 
 
 
 
 
 
 
 
CONSOLIDATED OPERATING INCOME:
 
 
 
 
 
 
 
Net Sales
$
453,474

 
$
433,742

 
$
1,375,314

 
$
1,322,848

Less: Settlement of Bell Matter
—

 
—

 
4,300

 
—

Adjusted Net Sales
$
453,474

 
$
433,742

 
$
1,371,014

 
$
1,322,848

GAAP - Operating income
$
31,062

 
$
29,783

 
$
79,259

 
$
82,544

% of GAAP net sales
6.8
%
 
6.9
%
 
5.8
%
 
6.2
%
Acquisition transaction and integration costs
546

 
437

 
4,850

 
437

Restructuring and severance costs at Distribution
344

 
—

 
691

 
848

Adjusted Operating Income
$
31,952

 
$
30,220

 
$
84,800

 
$
83,829

% of net sales
7.0
%
 
7.0
%
 
6.2
%
 
6.3
%
% of adjusted net sales
7.0
%
 
7.0
%
 
6.2
%
 
6.3
%





The following table reconciles our GAAP operating margin outlook for Aerospace for 2016 to our Adjusted Operating Margin outlook for Aerospace for 2016:
Table 13. Adjusted Operating Income - Outlook
 
 
 
 
2016 Outlook
Adjusted Operating Income - Outlook
Low End of Range
 
High End of Range
Aerospace
 
 
 
Net Sales - Outlook
$
700.0

to
$
710.0

 
 
 
 
Operating income - Outlook
114.9

to
118.0

   GAAP operating margin - outlook
16.4
%
to
16.6
%
Transaction and integration costs
5.5

to
5.5

   Transaction and integration costs as a percentage of sales
0.8
%
to
0.8
%
Adjusted Operating Income - Outlook
$
120.4

to
$
123.5

   Adjusted Operating Margin - Outlook
17.2
%
to
17.4
%
 


 



FORWARD-LOOKING STATEMENTS

This release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration); (iii) changes in geopolitical conditions in countries where the Company does or intends to do business; (iv) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; (v) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (vi) the successful resolution of government inquiries or investigations relating to our businesses and programs; (vii) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed specifications required and recover start-up costs and other investments in the programs; (viii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (ix) the receipt and successful execution of production orders under the Company's existing U.S. government JPF contract, including the exercise of all contract options and receipt of orders from allied militaries, but excluding any next generation programmable fuze programs, as all have been assumed in connection with goodwill impairment evaluations; (x) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our investment in the restart of the K-MAX® production line; (xi) the accuracy of current cost estimates associated with environmental remediation activities; (xii) the profitable integration of acquired businesses into the Company's operations; (xiii) the ability to implement our ERP systems in a cost-effective and efficient manner, limiting disruption to our business, and allowing us to capture their planned benefits while maintaining an adequate internal control environment; (xiv) changes in supplier sales or vendor incentive policies; (xv) the effects of price increases or decreases; (xvi) the effects of pension regulations, pension plan assumptions, pension plan asset performance, future contributions and the pension freeze, including the ultimate determination of the U.S. Government's share of any pension curtailment adjustment




calculated in accordance with CAS 413; (xvii) future levels of indebtedness and capital expenditures; (xviii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xix) the effects of currency exchange rates and foreign competition on future operations; (xx) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxi) the effects, if any, of the United Kingdom's exit from the European Union; (xxii) future repurchases and/or issuances of common stock; (xxiii) the incurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; and (xxiv) other risks and uncertainties set forth herein and in our 2015 Form 10-K.


Any forward-looking information provided in this release should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.
###
Contact: Eric Remington
V.P., Investor Relations
(860) 243-6334




KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (unaudited)

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Net sales
 
$
453,474

 
$
433,742

 
$
1,375,314

 
$
1,322,848

Cost of sales
 
317,984

 
303,816

 
961,628

 
933,059

Gross profit
 
135,490

 
129,926

 
413,686

 
389,789

Selling, general and administrative expenses
 
104,404

 
100,153

 
334,417

 
307,660

Net (gain) loss on sale of assets
 
24

 
(10
)
 
10

 
(415
)
Operating income
 
31,062

 
29,783

 
79,259

 
82,544

Interest expense, net
 
4,165

 
3,208

 
11,960

 
9,757

Other expense, net
 
(332
)
 
185

 
243

 
120

Earnings before income taxes
 
27,229

 
26,390

 
67,056

 
72,667

Income tax expense
 
9,774

 
9,166

 
23,329

 
21,003

Net earnings
 
$
17,455

 
$
17,224

 
$
43,727

 
$
51,664

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 
 
 
 
Basic earnings per share
 
$
0.64

 
$
0.63

 
$
1.61

 
$
1.90

Diluted earnings per share
 
$
0.62

 
$
0.62

 
$
1.56

 
$
1.85

 
 
 
 
 
 
 
 
 
Average shares outstanding:
 
 

 
 

 
 
 
 
Basic
 
27,128

 
27,179

 
27,096

 
27,203

Diluted
 
28,080

 
27,770

 
27,943

 
27,915

Dividends declared per share
 
$
0.18

 
$
0.18

 
$
0.54

 
$
0.54







KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (unaudited)
 
 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
25,551

 
$
16,462

Accounts receivable, net
 
248,474

 
238,102

Inventories
 
394,223

 
385,747

Income tax refunds receivable
 
2,713

 
3,591

Other current assets
 
30,518

 
32,133

Total current assets
 
701,479

 
676,035

Property, plant and equipment, net of accumulated depreciation of $220,856 and $202,648, respectively
 
178,774

 
175,586

Goodwill
 
348,243

 
352,710

Other intangible assets, net
 
132,928

 
144,763

Deferred income taxes
 
57,334

 
66,815

Other assets
 
23,319

 
23,702

Total assets
 
$
1,442,077

 
$
1,439,611

Liabilities and Shareholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of long-term debt
 
$
118,906

 
$
5,000

Accounts payable – trade
 
124,769

 
121,044

Accrued salaries and wages
 
42,595

 
40,284

Advances on contracts
 
14,847

 
11,274

Other accruals and payables
 
59,267

 
58,761

Income taxes payable
 
982

 
326

Total current liabilities
 
361,366

 
236,689

Long-term debt, excluding current portion
 
301,566

 
434,227

Deferred income taxes
 
7,067

 
15,207

Underfunded pension
 
140,220

 
158,984

Other long-term liabilities
 
50,152

 
51,427

Commitments and contingencies
 
 
 
 
Temporary equity, convertible notes
 
2,344

 
—

Shareholders' equity:
 
 

 
 

Preferred stock, $1 par value, 200,000 shares authorized; none outstanding
 
—

 
—

Common stock, $1 par value, 50,000,000 shares authorized; voting; 28,056,402 and 27,735,757 shares issued, respectively
 
28,056

 
27,736

Additional paid-in capital
 
166,745

 
156,803

Retained earnings
 
549,954

 
520,865

Accumulated other comprehensive income (loss)
 
(133,412
)
 
(140,138
)
Less 936,449 and 698,183 shares of common stock, respectively, held in treasury, at cost
 
(31,981
)
 
(22,189
)
Total shareholders’ equity
 
579,362

 
543,077

Total liabilities and shareholders’ equity
 
$
1,442,077

 
$
1,439,611








KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)

 
 
For the Nine Months Ended
 
 
September 30,
2016
 
October 2,
2015
Cash flows from operating activities:
 
 

 
 

Net earnings
 
$
43,727

 
$
51,664

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
 
 

 
 

Depreciation and amortization
 
33,732

 
27,809

Accretion of convertible notes discount
 
1,598

 
1,516

Provision for doubtful accounts
 
1,021

 
1,925

Net gain/(loss) on sale of assets
 
10

 
(415
)
Net loss on derivative instruments
 
783

 
423

Stock compensation expense
 
4,711

 
5,304

Excess tax benefit from share-based compensation arrangements
 
(302
)
 
(324
)
Deferred income taxes
 
3,993

 
(2,001
)
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
 
 
 
 

Accounts receivable
 
(12,011
)
 
1,583

Inventories
 
(10,050
)
 
(10,430
)
Income tax refunds receivable
 
883

 
(3,493
)
Other current assets
 
1,271

 
(7,421
)
Accounts payable - trade
 
967

 
18,051

Accrued contract losses
 
468

 
28

Advances on contracts
 
3,573

 
11,511

Other accruals and payables
 
6,556

 
(5,807
)
Income taxes payable
 
28

 
529

Pension liabilities
 
(9,318
)
 
(4,225
)
Other long-term liabilities
 
(1,624
)
 
(2,323
)
Net cash provided by operating activities
 
70,016

 
83,904

Cash flows from investing activities:
 
 

 
 

Proceeds from sale of assets
 
190

 
660

Expenditures for property, plant & equipment
 
(23,926
)
 
(23,130
)
Acquisition of businesses (net of cash acquired)
 
(6,631
)
 
(11,877
)
Other, net
 
(442
)
 
(696
)
Cash used in investing activities
 
(30,809
)
 
(35,043
)
Cash flows from financing activities:
 
 

 
 

Net borrowings (repayments) under revolving credit agreements
 
(12,959
)
 
(43,291
)
Proceeds from issuance of long-term debt
 
—

 
100,000

Debt repayment
 
(3,750
)
 
(82,500
)
Net change in book overdraft
 
3,427

 
(3,537
)
Proceeds from exercise of employee stock awards
 
7,094

 
4,024

Purchase of treasury shares
 
(8,989
)
 
(8,642
)
Dividends paid
 
(14,625
)
 
(14,140
)
Debt issuance costs
 
—

 
(1,348
)
Other
 
(246
)
 
(117
)
Windfall tax benefit
 
302

 
324

Cash provided by (used in) financing activities
 
(29,746
)
 
(49,227
)
Net increase in cash and cash equivalents
 
9,461

 
(366
)
Effect of exchange rate changes on cash and cash equivalents
 
(372
)
 
(466
)
Cash and cash equivalents at beginning of period
 
16,462

 
12,411

Cash and cash equivalents at end of period
 
$
25,551

 
$
11,579




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