Kaman Reports 2016 Third Quarter Results

October 27, 2016

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, Conn.--(BUSINESS WIRE)--Oct. 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,

 

October 2,

   
   

2016

 

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.

Table 2. Summary of Segment Information (in thousands)    
    For the Three Months Ended   For the Nine Months Ended
   

September 30,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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,

 

October 2,

 

September 30,

 

October 2,

       

2016

 

2015

 

2016

 

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

 

Second

 

Third

 

Fourth

   

Quarter

 

Quarter

 

Quarter

 

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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

 

For the Six

 

For the Three

   

Months Ended

 

Months Ended

 

Months Ended

   

September 30,

 

July 1,

 

September 30,

   

2016

 

2016

 

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,

 

December 31,

   

2016

 

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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
   

Low End of

     

High End of

Adjusted Operating Income - Outlook  

Range

     

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 %
 

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.

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.

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,

 

October 2,

 

September 30,

 

October 2,

   

2016

 

2015

 

2016

 

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,

 

December 31,

   

2016

 

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,

 

October 2,

   

2016

 

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  

 

Source: Kaman Corp.

Kaman Corporation
Eric Remington, 860-243-6334
V.P., Investor Relations
Eric.Remington@kaman.com