Kaman Reports 2017 Second Quarter Results

July 31, 2017

Second Quarter Highlights:

  • Diluted earnings per share of $0.48
  • Distribution operating margin of 5.7%
  • Aerospace operating margin of 15.4%
  • Extended the production of the K-MAX® aircraft for deliveries into 2019
  • Operating margin outlook for Distribution increased, high end of sales outlook lowered

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Jul. 31, 2017-- Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended June 30, 2017.

             
Table 1. Summary of Financial Results (unaudited)            
In thousands except per share amounts   For the Three Months Ended
    June 30, 2017   July 1, 2016   Change
Net sales:            
Distribution   $ 278,706     $ 286,052     $ (7,346 )
Aerospace   170,300     184,590     (14,290 )
Net sales   $ 449,006     $ 470,642     $ (21,636 )
             
Operating income:            
Distribution   $ 15,934     $ 13,807     $ 2,127  
% of sales   5.7 %   4.8 %   0.9 %
Aerospace   26,270     30,461     (4,191 )
% of sales   15.4 %   16.5 %   (1.1 )%
Net gain (loss) on sale of assets   (15 )   (14 )   (1 )
Corporate expense   (14,797 )   (14,407 )   (390 )
Operating income   $ 27,392     $ 29,847     $ (2,455 )
             
Adjusted EBITDA*:            
Net earnings   $ 13,458     $ 16,495     $ (3,037 )
Adjustments   24,487     24,563     (76 )
Adjusted EBITDA*   $ 37,945     $ 41,058     $ (3,113 )
% of sales   8.5 %   8.7 %   (0.2 )%
             
Earnings per share:            
Diluted earnings per share   $ 0.48     $ 0.59     $ (0.11 )
Adjustments       0.05     (0.05 )
Adjusted Diluted Earnings per Share*   $ 0.48     $ 0.64     $ (0.16 )
                         

Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “We are pleased with our results for the second quarter, as we continue to execute on our operational improvement initiatives and leverage incremental sales volume across both segments. As expected, we achieved significant sequential improvement in sales and earnings, which we expect to continue as we progress through the remainder of the year.

"At Distribution, operating margins for the second quarter were 5.7%, a 90 basis point improvement over the prior year and a 140 basis point improvement over the first quarter of 2017. As we have highlighted in recent quarters, we have taken steps to significantly strengthen Distribution's ability to drive improved performance. The success of these actions is reflected in the results for second quarter.

"At Aerospace, strong demand for our specialty bearings products, improved performance on our structures programs and an increase in sales for our missile fuze programs helped to offset the anticipated temporary shift in sales mix of our joint programmable fuze ("JPF") program. Our specialty bearings products performance was also very strong with sales of our self-lubricating airframe bearings and high precision miniature ball bearings both increasing year-over-year and sequentially.

"Recently, we were pleased to announce a number of significant program wins in our structures business. The Rolls Royce award in our composite business is primarily focused on products for the Trent 7000, which is the exclusive engine for the Airbus 330neo. The Sikorsky Multi-Year IX H-60 Cockpit contract award is a continuation of our successful and long running metallic structures and assembly program, with which we have been a partner with Sikorsky for more than 10 years. These important wins represent the breadth of our structures offerings and, more importantly, the confidence our customers have in us to deliver on long running, strategic production platforms. In addition to these important wins, we also announced the extension of K-MAX® production, which was based on increasing customer demand for our innovative and mission effective aircraft. We are in discussions with numerous potential customers to secure additional commitments.

"Finally, in July, we held a ceremony to commemorate the acceptance of the first two new production K-MAX® helicopters by Lectern Aviation Supplies Co., Ltd. of Hong Kong. These aircraft will be operated by Guangdong Juxiang General Aviation Co. Ltd, in China, primarily for firefighting. This is an important milestone for this program and we are proud of the cumulative effort of all those who have contributed to the success of the program."

Chief Financial Officer,
Robert D. Starr, commented, "We expect the sequential improvement we saw in Aerospace performance to continue into the second half of the year as the customer mix of our JPF deliveries shifts to higher margin direct commercial sales, sales of our specialty bearings products increase, and we continue to deliver improved performance on our structures programs. At Distribution, thanks to initiatives we have put in place, we continued to deliver strong operational performance, resulting in year-over-year and sequential improvement in our segment operating margins.

"Moving to our outlook for 2017, we are revising our expectations for Distribution sales and operating margin, as well as our expectations for interest expense. We are modestly lowering our sales outlook at Distribution to $1,100 million to $1,125 million. However, due to the improvements we have made to our operating profit performance, we are raising our outlook for operating margin in the range of 5.0% to 5.3%. The mid-point of Distribution's operating profit outlook is essentially unchanged from our prior expectations.

"In connection with the May 2017 issuance of our convertible notes due 2024 and the repurchase of 90% of our convertible notes due 2017, we are increasing our outlook for interest expense by $3.0 million, which has a $0.07 impact to diluted earnings per share. The majority of the anticipated increase represents the incremental expense associated with our 2024 convertible notes and the use of proceeds from those notes to repay amounts outstanding under our revolving credit agreement, which were not included in the prior interest expense outlook. We now expect interest expense for the year of approximately $19 million.

"We are maintaining our guidance related to Aerospace for the full year. As we have mentioned previously, our outlook includes a significant JPF direct commercial sale that we expect to deliver in the fourth quarter. During the second quarter the congressional notification process was completed and we have subsequently submitted the necessary paperwork to allow for the receipt of the export license. Our current expectation is that we will receive the export license shortly that will allow us to ship the direct commercial sale over the balance of the year.

"Moving to cash flow, we generated $18.3 million in cash flow from operations during the second quarter leading to a Free Cash Flow* for the period of $10.5 million. The pattern of cash flow generation in 2017 is consistent with our prior experience, and as such, we are maintaining our Free Cash Flow outlook for 2017 in the range of $70 million to $100 million."

2017 Outlook

Our revised 2017 outlook is as follows:

  • Distribution:
    • Sales of $1,100.0 million to $1,125.0 million
    • Operating margins of 5.0% to 5.3%
    • Depreciation and amortization expense of $16.0 million
  • Aerospace:
    • Sales of $730.0 million to $760.0 million
    • Operating margins of 16.5% to 17.0%
    • Depreciation and amortization expense of $23.0 million
  • Interest expense of approximately $19.0 million
  • Corporate expenses of approximately $55.0 million
  • Estimated annualized tax rate of approximately 34.5%
  • Consolidated depreciation and amortization expense of approximately $45.0 million
  • Capital expenditures of approximately $35.0 million
  • Cash flows from operations in the range of $105.0 million to $135.0 million; Free Cash Flow* in the range of $70.0 million to $100.0 million
  • Weighted average diluted shares outstanding of 28.5 million

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

A conference call has been scheduled for tomorrow, August 1, 2017, 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: 33225313; 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: 33225313. 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) (unaudited)

               
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Net sales:                
Distribution   $ 278,706     $ 286,052     $ 550,324     $ 574,716  
Aerospace   170,300     184,590     334,623     347,124  
Net sales   $ 449,006     $ 470,642     $ 884,947     $ 921,840  
                 
Operating income:                
Distribution   $ 15,934     $ 13,807     $ 27,628     $ 24,276  
Aerospace   26,270     30,461     42,859     51,758  
Net gain (loss) on sale of assets   (15 )   (14 )   5     14  
Corporate expense   (14,797 )   (14,407 )   (28,892 )   (27,851 )
Operating income   $ 27,392     $ 29,847     $ 41,600     $ 48,197  
                                 

Table 3. Depreciation and Amortization
by Segment (in thousands) (unaudited)

               
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Depreciation and Amortization:                
Distribution   $ 3,862     $ 4,338     $ 7,895     $ 8,141
Aerospace   5,795     5,951     11,533     11,749
Corporate   896     922     1,881     1,860
Consolidated Total   $ 10,553     $ 11,211     $ 21,309     $ 21,750
                               

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 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 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 six-month fiscal periods ended June 30, 2017, and July 1, 2016. The following table illustrates the calculation of Organic Sales using the GAAP measure, "Net Sales".

             
Table 4. Organic Sales (in thousands) (unaudited)            
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Distribution                
Net sales   $ 278,706     $ 286,052     $ 550,324     $ 574,716
Acquisition Sales       894         3,553
Organic Sales   $ 278,706     $ 285,158     $ 550,324     $ 571,163
Aerospace                
Net sales   $ 170,300     $ 184,590     $ 334,623     $ 347,124
Acquisition Sales       18,089         35,381
Organic Sales   $ 170,300     $ 166,501     $ 334,623     $ 311,743
Consolidated                
Net sales   $ 449,006     $ 470,642     $ 884,947     $ 921,840
Acquisition Sales       18,983         38,934
Organic Sales   $ 449,006     $ 451,659     $ 884,947     $ 882,906
                               

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 July 31, 2017. 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) (unaudited)

      For the Three Months Ended   For the Six Months Ended
        June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
             
Current period                    
Net sales       $ 278,706     $ 286,052     $ 550,324     $ 574,716  
Acquisition sales (1)           894         3,553  
Organic sales       278,706     285,158     550,324     571,163  
Sales days       64     64     128     129  
Organic Sales per Sales Day for the current period   a   $ 4,355     $ 4,456     $ 4,299     $ 4,428  
                     
Prior period                    
Net sales from the prior year       $ 286,052     $ 304,050     $ 574,716     $ 615,521  
Sales days from the prior year       64     63     129     129  
Sales per sales day from the prior year   b   $ 4,470     $ 4,826     $ 4,455     $ 4,771  
                     
% change   (a-b)÷b  

(2.6

)%

  (7.7 )%   (3.5 )%   (7.2

)%

                             
                             

Table 6. Distribution - Sales Days

                           

 

     

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

Distribution Sales Days

                   

2017 Sales Days by quarter

     

64

 

64

 

62

 

62

2016 Sales Days by quarter

     

65

 

64

 

63

 

61

                     

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 (income), 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 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 (income), 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 six-month fiscal periods ended June 30, 2017, and July 1, 2016. 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 (income), net".

             
Table 7. Adjusted EBITDA (in thousands) (unaudited)            
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Adjusted EBITDA                
Consolidated Results                
Sales   $ 449,006     $ 470,642     $ 884,947     $ 921,840  
                 
Net earnings   $ 13,458     $ 16,495     $ 19,749     $ 26,272  
                 
Interest expense, net   $ 6,122     $ 3,988     $ 10,282     $ 7,795  
Income tax expense   7,881     8,875     11,797     13,555  
Other expense (income), net   (69 )   489     (228 )   575  
Depreciation and amortization   10,553     11,211     21,309     21,750  
Adjustments   $ 24,487     $ 24,563     $ 43,160     $ 43,675  
                 
Adjusted EBITDA   $ 37,945     $ 41,058     $ 62,909     $ 69,947  
Adjusted EBITDA margin   8.5 %   8.7 %   7.1 %   7.6 %
                         

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. The following table illustrates the calculation of Free Cash Flow using “Net cash provided by (used in) 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) (unaudited)            
   

For the Six
Months
Ended
June 30,
2017

 

For the Three
Months
Ended
March 31,
2017

 

For the Three
Months
Ended

June 30,
2017

Net cash (used in) provided by operating activities   $ (174 )   $ (18,449 )   $ 18,275  
Expenditures for property, plant & equipment   (15,196 )   (7,409 )   (7,787 )
Free Cash Flow   $ (15,370 )   $ (25,858 )   $ 10,488  
                         
     
Table 9. Free Cash Flow - 2017 Outlook (in millions)   2017 Outlook
Free Cash Flow:            
Net cash provided by operating activities   $       105.0     to   $       135.0  
Less: Expenditures for property, plant and equipment   (35.0 )   to   (35.0 )
Free Cash Flow   $       70.0     to   $       100.0  
                                 

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” and "Temporary 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) (unaudited)        
    June 30,
2017
  December 31,
2016
Current portion of long-term debt, net of debt issuance costs   $ 18,910     $ 119,548  
Long-term debt, excluding current portion, net of debt issuance costs   414,765     296,598  
Debt   $ 433,675     $ 416,146  
Temporary equity, convertible notes   68     1,797  
Total shareholders' equity   600,346     565,787  

Capitalization

  $ 1,034,089     $ 983,730  
Debt to Capitalization Ratio   41.9 %   42.3 %
             

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 July 31, 2017.

         
Table 11. Adjusted Net Earnings and Adjusted Diluted Earnings per Share        
(In thousands except per share amounts) (unaudited)        
         
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Adjustments to Net Earnings, pre tax                
Acquisition transaction and integration costs   $     $ 2,302     $     $ 4,304
Restructuring and severance costs at Distribution               347
Adjustments, pre tax   $     $ 2,302     $     $ 4,651
                 
Tax Effect of Adjustments to Net Earnings                
Acquisition transaction and integration costs   $     $ 806     $     $ 1,506
Restructuring and severance costs at Distribution               121
Tax effect of Adjustments   $     $ 806     $     $ 1,627
                 
Adjustments to Net Earnings, net of tax                
GAAP Net earnings, as reported   $ 13,458     $ 16,495     $ 19,749     $ 26,272
Acquisition transaction and integration costs       1,496         2,798
Restructuring and severance costs at Distribution               226
Adjusted Net Earnings   $ 13,458     $ 17,991     $ 19,749     $ 29,296
                 
Calculation of Adjusted Diluted Earnings per Share                
GAAP diluted earnings per share   $ 0.48     $ 0.59     $ 0.70     $ 0.94
Acquisition transaction and integration costs       0.05         0.10
Restructuring and severance costs at Distribution               0.01
Adjusted Diluted Earnings per Share   $ 0.48     $ 0.64     $ 0.70     $ 1.05
                 
Diluted weighted average shares outstanding   27,842     27,944     28,370     27,875
                       

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 13, 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 July 31, 2017.

         
Table 12. Adjusted Net Sales and Adjusted Operating Income        
(In thousands) (unaudited)        
    For the Three Months Ended   For the Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
DISTRIBUTION SEGMENT OPERATING INCOME:                
Net Sales   $ 278,706     $ 286,052     $ 550,324     $ 574,716  
GAAP Operating income - Distribution segment   $ 15,934     $ 13,807     $ 27,628     $ 24,276  
% of GAAP net sales   5.7 %   4.8 %   5.0 %   4.2 %
Restructuring and severance costs at Distribution               347  
Adjusted Operating Income - Distribution segment   $ 15,934     $ 13,807     $ 27,628     $ 24,623  
% of net sales   5.7 %   4.8 %   5.0 %   4.3 %
                 
AEROSPACE SEGMENT OPERATING INCOME:                
Net Sales   $ 170,300     $ 184,590     $ 334,623     $ 347,124  
Adjustments       4,300         4,300  
Adjusted Net Sales   $ 170,300     $ 180,290     $ 334,623     $ 342,824  
GAAP Operating income - Aerospace segment   $ 26,270     $ 30,461     $ 42,859     $ 51,758  
% of GAAP net sales   15.4 %   16.5 %   12.8 %   14.9 %
% of Adj. net sales   15.4 %   16.9 %   12.8 %   15.1 %
Acquisition transaction and integration costs       2,302         4,304  
Adjusted Operating Income - Aerospace segment   $ 26,270     $ 32,763     $ 42,859     $ 56,062  
% of GAAP net sales   15.4 %   17.7 %   12.8 %   16.2 %
% of Adj. net sales   15.4 %   18.2 %   12.8 %   16.4 %
                 
CONSOLIDATED OPERATING INCOME:                
Net Sales   $ 449,006     $ 470,642     $ 884,947     $ 921,840  
Adjustments       4,300         4,300  
Adjusted Net Sales   $ 449,006     $ 466,342     $ 884,947     $ 917,540  
GAAP - Operating income   $ 27,392     $ 29,847     $ 41,600     $ 48,197  
% of GAAP net sales   6.1 %   6.3 %   4.7 %   5.2 %
% of Adj. net sales   6.1 %   6.4 %   4.7 %   5.3 %
Acquisition transaction and integration costs       2,302         4,304  
Restructuring and severance costs at Distribution               347  
Adjusted Operating Income   $ 27,392     $ 32,149     $ 41,600     $ 52,848  
% of GAAP net sales   6.1 %   6.8 %   4.7 %   5.7 %
% of Adj. net sales   6.1 %   6.9 %   4.7 %   5.8 %
                         

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 timely receipt of any necessary export approvals and/or other licenses or authorizations from the U.S. Government; (vi) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (vii) the successful resolution of government inquiries or investigations relating to our businesses and programs; (viii) 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; (ix) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (x) 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; (xi) 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; (xii) the accuracy of current cost estimates associated with environmental remediation activities; (xiii) the profitable integration of acquired businesses into the Company's operations; (xiv) 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; (xv) changes in supplier sales or vendor incentive policies; (xvi) the effects of price increases or decreases; (xvii) 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; (xviii) future levels of indebtedness and capital expenditures; (xix) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xx) the effects of currency exchange rates and foreign competition on future operations; (xxi) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxii) the effects, if any, of the UK's exit from the EU; (xxiii) future repurchases and/or issuances of common stock; (xxiv) the incurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; and (xxv) other risks and uncertainties set forth herein, in our 2016 Form 10-K and in our Form 10-Q for the fiscal quarter ended June 30, 2017.

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 Six Months Ended
    June 30,
2017
  July 1,
2016
  June 30,
2017
  July 1,
2016
Net sales   $ 449,006     $ 470,642     $ 884,947     $ 921,840  
Cost of sales   314,043     326,876     625,168     643,644  
Gross profit   134,963     143,766     259,779     278,196  
Selling, general and administrative expenses   107,556     113,905     218,184     230,013  
Net (gain) loss on sale of assets   15     14     (5 )   (14 )
Operating income   27,392     29,847     41,600     48,197  
Interest expense, net   6,122     3,988     10,282     7,795  
Other expense (income), net   (69 )   489     (228 )   575  
Earnings before income taxes   21,339     25,370     31,546     39,827  
Income tax expense   7,881     8,875     11,797     13,555  
Net earnings   $ 13,458     $ 16,495     $ 19,749     $ 26,272  
                 
Earnings per share:                
Basic earnings per share   $ 0.49     $ 0.61     $ 0.72     $ 0.97  
Diluted earnings per share   $ 0.48     $ 0.59     $ 0.70     $ 0.94  
Average shares outstanding:                
Basic   27,557     27,101     27,351     27,080  
Diluted   27,842     27,944     28,370     27,875  
Dividends declared per share   $ 0.20     $ 0.18     $ 0.40     $ 0.36  
                                 
         
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts) (unaudited)

         
    June 30,
2017
  December 31,
2016
Assets        
Current assets:        
Cash and cash equivalents   $ 27,766     $ 41,205  
Accounts receivable, net   270,094     230,864  
Inventories   392,600     393,814  
Income tax refunds receivable   5,038     6,065  
Other current assets   29,257     26,605  
Total current assets   724,755     698,553  
Property, plant and equipment, net of accumulated depreciation of $240,509 and $226,366, respectively   182,311     176,521  
Goodwill   345,979     337,894  
Other intangible assets, net   122,210     126,444  
Deferred income taxes   50,224     59,373  
Other assets   23,656     27,501  
Total assets   $ 1,449,135     $ 1,426,286  
Liabilities and Shareholders’ Equity        
Current liabilities:        
Current portion of long-term debt, net of debt issuance costs   $ 18,910     $ 119,548  
Accounts payable – trade   118,872     116,663  
Accrued salaries and wages   42,827     43,165  
Advances on contracts   5,314     13,356  
Income taxes payable   784     1,165  
Other current liabilities   57,913     59,989  
Total current liabilities   244,620     353,886  
Long-term debt, excluding current portion, net of debt issuance costs   414,765     296,598  
Deferred income taxes   7,491     6,875  
Underfunded pension   139,979     156,427  
Other long-term liabilities   41,866     44,916  
Commitments and contingencies (Note 10)        
Temporary equity, convertible notes   68     1,797  
Shareholders' equity:        
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding        

Common stock, $1 par value, 50,000,000 shares authorized; voting; 29,051,030
and 28,162,497 shares issued, respectively

  29,051     28,162  
Additional paid-in capital   179,535     171,162  
Retained earnings   568,938     560,200  
Accumulated other comprehensive income (loss)   (135,460 )   (156,393 )
Less 1,152,340 and 1,054,364 shares of common stock, respectively, held in treasury, at cost   (41,718 )   (37,344 )
Total shareholders’ equity   600,346     565,787  
Total liabilities and shareholders’ equity   $ 1,449,135     $ 1,426,286  
                 
     
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows

(In thousands) (unaudited)

     
    For the Six Months Ended
    June 30,
2017
  July 1,
2016
Cash flows from operating activities:        
Net earnings   $ 19,749     $ 26,272  
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:        
Depreciation and amortization   21,309     21,750  
Amortization of debt issuance costs   1,103     764  
Accretion of convertible notes discount   2,091     1,058  
Provision for doubtful accounts   511     672  
Net gain on sale of assets   (5 )   (14 )
Loss on debt extinguishment   137      
Net (gain) loss on derivative instruments   (337 )   588  
Stock compensation expense   3,707     3,622  
Excess tax benefit from share-based compensation arrangements       (197 )
Deferred income taxes   6,131     (928 )
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:        
Accounts receivable   (34,666 )   (30,735 )
Inventories   3,987     (12,416 )
Income tax refunds receivable   1,031     1,967  
Other current assets   (1,641 )   640  
Accounts payable - trade   1,774     11,448  
Accrued contract losses   246     693  
Advances on contracts   (8,042 )   3,723  
Other accruals and payables   (2,171 )   9,479  
Income taxes payable   (414 )   (211 )
Pension liabilities   (10,312 )   (9,549 )
Other long-term liabilities   (4,362 )   (3,274 )
Net cash (used in) provided by operating activities   (174 )   25,352  
Cash flows from investing activities:        
Proceeds from sale of assets   253     176  
Expenditures for property, plant & equipment   (15,196 )   (15,348 )
Acquisition of businesses (net of cash acquired)   (1,365 )   (5,681 )
Other, net   (763 )   (133 )
Cash used in investing activities   (17,071 )   (20,986 )
Cash flows from financing activities:        
Net borrowings (repayments) under revolving credit agreements   (53,431 )   14,029  
Debt repayment   (3,125 )   (2,500 )
Proceeds from the issuance of 2024 convertible notes   200,000      
Repayment of 2017 convertible notes   (163,654 )    
Purchase of capped call - 2024 convertible notes   (20,500 )    
Proceeds from bond hedge settlement - 2017 convertible notes   58,564      
Bank overdraft   575     47  
Proceeds from exercise of employee stock awards   4,681     5,085  
Purchase of treasury shares   (2,718 )   (7,022 )
Dividends paid   (10,312 )   (9,744 )
Debt and equity issuance costs   (7,348 )    
Other   (235 )   (163 )
Windfall tax benefit       197  
Cash provided by (used in) financing activities   2,497     (71 )
Net (decrease) increase in cash and cash equivalents   (14,748 )   4,295  
Effect of exchange rate changes on cash and cash equivalents   1,309     (547 )
Cash and cash equivalents at beginning of period   41,205     16,462  
Cash and cash equivalents at end of period   $ 27,766     $ 20,210  
         
Supplemental disclosure of noncash activities:        
Common shares issued for partial unwind of warrant transactions   $ 30,279     $  
                 

 

Source: Kaman Corp.

Kaman Corp.
James Coogan, 860-243-6342
V.P., Investor Relations
James.Coogan@kaman.com