Kaman Reports 2018 First Quarter Results

May 07, 2018

First Quarter Highlights:

  • Diluted earnings per share of $0.50, or $0.55 adjusted*
  • Operating cash flow of $56.9 million; Free Cash Flow* of $50.5 million
  • Consolidated backlog of $948.9 million
  • Distribution operating margin of 4.2% on sales increase of 4.5%
  • Aerospace operating margin of 12.6%, or 13.6% adjusted*, on sales of $179.4 million

BLOOMFIELD, Conn.--May 7, 2018-- Kaman Corp. (NYSE:KAMN) today reported financial results for the first fiscal quarter ended March 30, 2018.

Table 1. Summary of Financial Results (unaudited)
In thousands except per share amounts   For the Three Months Ended
   

March 30,

 

March 31,

   
   

2018

 

2017

  Change
Net sales:            
Distribution   $   283,932     $   271,618     $   12,314  
Aerospace   179,395     164,323     15,072  
Net sales   $   463,327     $   435,941     $   27,386  
             
Operating income:            
Distribution   $   11,834     $   11,416     $   418  
% of sales   4.2 %   4.2 %   %
Aerospace   22,662     16,030     6,632  
% of sales   12.6 %   9.8 %   2.8 %
Net gain on sale of assets   63     20     43  
Corporate expense   (13,835 )   (13,977 )   142  
Operating income   $   20,724     $   13,489     $   7,235  
             
Adjusted EBITDA*:            
Net earnings   $   14,066     $   6,291     $   7,775  
Adjustments   22,041     18,673     3,368  
Adjusted EBITDA*   $   36,107     $   24,964     $   11,143  
% of sales   7.8 %   5.7 %   2.1 %
             
Earnings per share:            
Diluted earnings per share   $   0.50     $   0.22     $   0.28  
Adjustments   0.05         0.05  
Adjusted Diluted Earnings per Share*   $   0.55     $   0.22     $   0.33  
 

Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “Our results for the first quarter demonstrate continued momentum. At Distribution, our efforts to improve sales trends showed progress as Organic Sales per Sales Day* increased 4.5% over the prior year. As we normally experience, certain employee related costs disproportionately impacted Distribution's first quarter results. In addition, we incurred costs associated with the onboarding of several new national accounts and we expect the benefit from these new customers to ramp up over the next three quarters. We will continue to focus on balancing sales growth and operating margin expansion to drive improvement throughout the year.

“Aerospace delivered strong performance in the quarter, and as of the end of the quarter backlog is in excess of $800 million. Demand for the Joint Programmable Fuze from both the US and foreign governments remains strong and we are working on a number of significant new opportunities. In addition, we anticipate continued sales growth in our specialty bearings and engineered products area as the year progresses, continuing a trend that has developed over the past several years. And in 2018 we will open a new state of the art test facility that will enable us to reduce our time to market for new products, while allowing our engineers to design and test new products for next generation applications and platforms.

“Finally, we are redeploying a portion of the benefit from tax reform to make additional investments in our business and our people. First, our outlook for capital expenditures of $35.0 million will allow us to improve our operations and expand production capacity. Second, we are investing in our people, by contributing an additional $10.0 million to our defined benefit pension plan and offering $2.6 million in one-time employee incentives."

Chief Financial Officer
Robert D. Starr commented, "In the first quarter of 2018, we delivered operating cash flows of $56.9 million, leading to Free Cash Flow* of $50.5 million. This level of cash flow generation provides us confidence in our forecast for the year and allowed us to reduce our debt to capitalization ratio to 35.2%. We are well positioned to execute on our strategic initiatives, with a focus on investing in engineered product offerings.

“First quarter performance was slightly ahead of expectations as we delivered diluted earnings per share of $0.50, or $0.55 adjusted*, on sales of $463.3 million, as measured under the new revenue standard. Our top line performance benefited from our second straight quarter of organic growth at Distribution, higher JPF DCS deliveries and revenue recognized on Option 13 of our JPF USG contract as we made progress toward meeting our scheduled delivery requirements later this year. The adoption of the new standard increased operating income in the first quarter by $9.7 million, while the reduction in our corporate tax rate and the benefit from our pension plan also contributed to the significant year over year net earnings growth.

“Looking more closely at the impact from the adoption of the new standard, Distribution was not significantly impacted; however, we experienced a more meaningful impact at Aerospace. The new standard changed the accounting for a number of our Aerospace contracts, with the largest impact to our results from our JPF and K-MAX® contracts. As a reminder, we prepared our 2018 outlook under the new standard which shifts the timing of revenue recognized on our contracts, but does not change the total amount of revenue we anticipate or the timing of cash receipts or payments associated with our contracts.

“Finally, based on first quarter performance, we are increasing our expectations for 2018. We now expect sales at Distribution to be $10.0 million higher than our prior outlook, in the range of $1.11 billion to $1.16 billion. Additionally, we have finalized the assumptions associated with our pension and now expect the income associated with the plan for 2018 to increase by $1.0 million to $12.5 million. All other components of our prior outlook remain unchanged, with approximately 70% of our earnings expected in the second half of the year. I want to highlight that our expectations for core operational cash flow and profit performance have increased, allowing us to more than offset the impacts from the one-time employee incentive and the additional $10.0 million discretionary pension contribution."

2018 Outlook

Our revised 2018 outlook is as follows:

  • Distribution:
    • Sales of $1,110.0 million to $1,160.0 million
    • Operating margins of 5.1% to 5.4%
    • Depreciation and amortization expense of approximately $15.0 million
  • Aerospace:
    • Sales of $750.0 million to $780.0 million
    • Operating margins of 15.5% to 16.0%, or 16.2% to 16.7% when adjusted* for approximately $5.5 million in anticipated restructuring and transition costs
    • Depreciation and amortization expense of approximately $24.0 million
  • Interest expense of approximately $20.0 million
  • Corporate expenses of approximately $59.0 million
  • Net periodic pension benefit of approximately $12.5 million
  • Estimated annualized tax rate in the range of approximately 25.5% to 26.5%
  • Consolidated depreciation and amortization expense of approximately $43.0 million
  • Capital expenditures of approximately $35.0 million
  • Cash flows from operations in the range of $185.0 million to $210.0 million; Free Cash Flow* in the range of $150.0 million to $175.0 million
  • Weighted average diluted shares outstanding of 28.0 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, May 8, 2018, 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: 4989807; 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: 4989807. 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 220 customer service centers including five distribution centers across the U.S. and Puerto Rico. Kaman offers more than five million items including electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components, 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
   

March 30,

 

March 31,

   

2018

 

2017

Net sales:            
Distribution   $ 283,932     $ 271,618  
Aerospace  

 

179,395

   

 

164,323

 
Net sales   $ 463,327     $ 435,941  
             
Operating income:            
Distribution   $ 11,834     $ 11,416  
Aerospace  

 

22,662

   

 

16,030

 
Net gain on sale of assets  

 

63

   

 

20

 
Corporate expense  

 

(13,835

)  

 

(13,977

)
Operating income  

$

20,724

   

$

13,489

 
     
Table 3. Depreciation and Amortization by Segment (in thousands) (unaudited)    
    For the Three Months Ended
   

March 30,

 

March 31,

   

2018

 

2017

Depreciation and Amortization:        
Distribution   $   3,506     $   4,033  
Aerospace   6,310     5,738  
Corporate   845     985  
Consolidated Total   $   10,661     $   10,756  
 

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP (i.e. Financial measures that are noted computed in accordance with Generally Accepted Accounting Principles) financial measures identified 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 release 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 fiscal periods ended March 30, 2018 and March 31, 2017. 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
   

March 30,

 

March 31,

   

2018

 

2017

Distribution        
Net sales   $   283,932     $   271,618  
Acquisition Sales        
Organic Sales   $   283,932     $   271,618  
Aerospace        
Net sales   179,395     164,323  
Acquisition Sales        
Organic Sales   $   179,395     $   164,323  
Consolidated        
Net sales   $   463,327     $   435,941  
Acquisition Sales        
Organic Sales   $   463,327     $   435,941  
 

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 Consolidated Financial Statements” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on May 7, 2018.

Table 5. Distribution - Organic Sales Per Sales Day (in thousands, except days) (unaudited)   For the Three Months Ended
       

March 30,

 

March 31,

       

2018

 

2017

Current period            
Net sales       $   283,932     $   271,618  
Sales days       64     64  
Organic Sales per Sales Day for the current period   a   $   4,436     $   4,244  
             
Prior period            
Net sales from the prior year       $   271,618     $   288,664  
Sales days from the prior year       64     65  
Organic Sales per sales day from the prior year   b   $   4,244     $   4,441  
             
% change   (a-b)÷b   4.5 %   (4.4 )%
 
Table 6. Distribution - Sales Days    
   

First

 

Second

 

Third

 

Fourth

   

Quarter

 

Quarter

 

Quarter

 

Quarter

Distribution Sales Days                
2018 Sales Days by quarter   64     64     63    

62

 

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, depreciation and amortization and certain items that are not indicative of the operating performance of the Company's segments or corporate function for the period presented. 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, other expense (income), net and certain items that are not indicative of the operating performance of the Company's segments or corporate function for the period presented. 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 and certain items that are not indicative of the operating performance of the Company's segments or corporate function for the period presented. 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 fiscal periods ended March 30, 2018 and March 31, 2017. The following table illustrates the calculation of Adjusted EBITDA using GAAP measures:

Table 7. Adjusted EBITDA (in thousands) (unaudited)    
    For the Three Months Ended
   

March 30,

 

March 31,

   

2018

 

2017

Adjusted EBITDA        
Consolidated Results        
Sales   $   463,327     $   435,941  
         
Net earnings   $   14,066     $   6,291  
         
Interest expense, net   5,352     4,160  
Income tax expense   4,677     3,916  
Other expense (income), net   (342 )   (159 )
Depreciation and amortization   10,661     10,756  
Other Adjustments:        
Restructuring and severance costs   1,693      
Adjustments   $   22,041     $   18,673  
         
Adjusted EBITDA   $   36,107     $   24,964  
Adjusted EBITDA margin   7.8 %   5.7 %
 

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 Three

   

Months Ended

   

March 30,

   

2018

Net cash (used in) provided by operating activities  

$

56,913

 
Expenditures for property, plant & equipment  

 

(6,422

)
Free Cash Flow  

$

  50,491  
   

Table 9. Free Cash Flow - 2018 Outlook (in millions)

   

 

  2018 Outlook
Free Cash Flow:            
Net cash provided by operating activities   $   185.0     to   $   210.0  
Less: Expenditures for property, plant and equipment   (35.0 )   to   (35.0 )
Free Cash Flow   $   150.0     to   $   175.0  
 

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) (unaudited)        
   

March 30,

 

December 31,

   

2018

 

2017

Current portion of long-term debt   $     7,500     $   7,500  
Long-term debt, excluding current portion, net of debt issuance costs   341,591     391,651  
Debt   $     349,091     $   399,151  
Total shareholders' equity   642,329     635,656  
Capitalization   $     991,420     $   1,034,807  
Debt to Capitalization Ratio   35.2 %   38.6 %
 

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 “Consolidated Statements of Operations” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on May 7, 2018.

Table 11. Adjusted Net Earnings and Adjusted Diluted Earnings per Share
(In thousands except per share amounts) (unaudited)
    For the Three Months Ended
   

March 30,

 

March 31,

   

2018

 

2017

Adjustments to Net Earnings, pre tax        
Restructuring and severance costs at Aerospace   $   1,693     $    
Adjustments, pre tax   $   1,693     $    
         
Tax Effect of Adjustments to Net Earnings        
Restructuring and severance costs at Aerospace   $   423     $    
Tax effect of Adjustments   $   423     $    
         
Adjustments to Net Earnings, net of tax        
Restructuring and severance costs at Aerospace   $   1,270     $    
Adjusted Net Earnings   $   1,270     $    
         
Calculation of Adjusted Diluted Earnings per Share        
GAAP diluted earnings per share   $   0.50     $   0.22  
Restructuring and severance costs at Aerospace   0.05      
Adjusted Diluted Earnings per Share   $   0.55     $   0.22  
         
Diluted weighted average shares outstanding   28,168     28,897  
 

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 16, Segment and Geographic Information, to the Consolidated Financial Statements included in the Company's Form 10-Q filed with the Securities and Exchange Commission on May 7, 2018.

Table 12. Adjusted Net Sales and Adjusted Operating Income
(In thousands) (unaudited)
    For the Three Months Ended
   

March 30,

 

March 31,

   

2018

 

2017

DISTRIBUTION SEGMENT OPERATING INCOME:        
Net Sales   $   283,932     $   271,618  
GAAP Operating income - Distribution segment   11,834     11,416  
% of GAAP net sales   4.2 %   4.2 %
Adjusted Operating Income - Distribution segment   $   11,834     $   11,416  
% of net sales   4.2 %   4.2 %
AEROSPACE SEGMENT OPERATING INCOME:        
Net Sales   $   179,395     $   164,323  
GAAP Operating income - Aerospace segment   22,662     16,030  
% of GAAP net sales   12.6 %   9.8 %
Restructuring and severance costs   1,693      
Adjusted Operating Income - Aerospace segment   $   24,355     $   16,030  
% of GAAP net sales   13.6 %   9.8 %
CORPORATE EXPENSE:        
GAAP Corporate Expense   (13,835 )   (13,977 )
CONSOLIDATED OPERATING INCOME:        
Net Sales   $   463,327     $   435,941  
GAAP - Operating income   20,724     13,489  
% of GAAP net sales   4.5 %   3.1 %
Restructuring and severance costs at Aerospace   1,693      
Adjusted Operating Income   $   22,417     $   13,489  
% of GAAP net sales   4.8 %   3.1 %
 

The following table reconciles our GAAP operating margin outlook for Aerospace for 2018 to our Adjusted Operating Margin outlook for Aerospace for 2018:

Table 13. Adjusted Operating Income - Outlook    
    2018 Outlook
   

Low End of

     

High End of

Adjusted Operating Income - Outlook

 

Range

     

Range

Aerospace            
Net Sales - Outlook   $   750.0     to   $   780.0  
             
Operating income - Outlook   116.0     to   124.8  
GAAP operating margin - outlook   15.5 %   to   16.0 %
Restructuring and transition costs   5.5     to   5.5  
Restructuring and transition costs as a percentage of sales   0.7 %   to   0.7 %
Adjusted Operating Income - Outlook   $   121.5     to   $   130.3  
Adjusted Operating Margin - Outlook   16.2 %   to   16.7 %
 

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) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (vii) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (viii) the successful resolution of government inquiries or investigations relating to our businesses and programs; (ix) 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; (x) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (xi) 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; (xii) 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; (xiii) the accuracy of current cost estimates associated with environmental remediation activities; (xiv) the profitable integration of acquired businesses into the Company's operations; (xv) 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; (xvi) changes in supplier sales or vendor incentive policies; (xvii) the effects of price increases or decreases; (xviii) 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; (xix) future levels of indebtedness and capital expenditures; (xx) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xxi) the effects of currency exchange rates and foreign competition on future operations; (xxii) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxiii) the effects, if any, of the UK's exit from the EU; (xxiv) future repurchases and/or issuances of common stock; (xxv) the occurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; and (xxvi) other risks and uncertainties set forth herein and in our 2017 Form 10-K and our First Quarter Form 10-Q filed May 7, 2018.

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
   

March 30,

 

March 31,

   

2018

 

2017

Net sales   $   463,327     $   435,941  
Cost of sales   329,220     311,595  
Gross profit   134,107     124,346  
Selling, general and administrative expenses   111,753     110,877  
Restructuring costs   1,693      
Net gain on sale of assets   (63 )   (20 )
Operating income   20,724     13,489  
Interest expense, net   5,352     4,160  
Non-service pension and post retirement benefit cost (income)   (3,029 )   (719 )
Other expense (income), net   (342 )   (159 )
Earnings before income taxes   18,743     10,207  
Income tax expense   4,677     3,916  
Net earnings   $   14,066     $   6,291  
         
Earnings per share:        
Basic earnings per share   $   0.51     $   0.23  
Diluted earnings per share   $   0.50     $   0.22  
Average shares outstanding:        
Basic   27,851     27,144  
Diluted   28,168     28,897  
Dividends declared per share   $   0.20     $   0.20  
 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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

 
   

March 30,

 

December 31,

   

2018

 

2017

Assets        
Current assets:        
Cash and cash equivalents   $     30,050     $   36,904  
Accounts receivable, net   290,564     313,451  
Contract assets   108,114      
Contract costs, current portion   3,271      
Inventories   296,622     367,437  
Income tax refunds receivable       2,889  
Other current assets   33,035     27,188  
Total current assets   761,656     747,869  
Property, plant and equipment, net of accumulated depreciation of $259,827 and $252,611, respectively   186,668     185,452  
Goodwill   355,106     351,717  
Other intangible assets, net   114,851     117,118  
Deferred income taxes   28,819     27,603  
Contract costs, noncurrent portion   12,630      
Other assets   26,031     25,693  
Total assets   $     1,485,761     $   1,455,452  
Liabilities and Shareholders’ Equity        
Current liabilities:        
Current portion of long-term debt   $     7,500     $   7,500  
Accounts payable – trade   139,159     127,591  
Accrued salaries and wages   38,710     48,352  
Contract liabilities, current portion   5,670      
Advances on contracts       8,527  
Income taxes payable   1,257     1,517  
Other current liabilities   56,245     52,812  
Total current liabilities   248,541     246,299  
Long-term debt, excluding current portion, net of debt issuance costs   341,591     391,651  
Deferred income taxes   8,213     8,024  
Underfunded pension   112,140     126,924  
Contract liabilities, noncurrent portion   81,708      
Other long-term liabilities   51,239     46,898  
Commitments and contingencies        
Shareholders' equity:        
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding        
Common stock, $1 par value, 50,000,000 shares authorized; voting; 29,308,962 and 29,141,467 shares issued, respectively   29,309     29,141  
Additional paid-in capital   190,057     185,332  
Retained earnings   586,778     587,877  
Accumulated other comprehensive income (loss)   (107,583 )   (115,814 )
Less 1,415,048 and 1,325,975 shares of common stock, respectively, held in treasury, at cost   (56,232 )   (50,880 )
Total shareholders’ equity   642,329     635,656  
Total liabilities and shareholders’ equity   $     1,485,761     $   1,455,452  
 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands) (unaudited)

 
    For the Three Months Ended
   

March 30,

 

March 31,

   

2018

 

2017

Cash flows from operating activities:        
Net earnings   $   14,066     $   6,291  
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:        
Depreciation and amortization   10,661     10,756  
Amortization of debt issuance costs   449     388  
Accretion of convertible notes discount   637     553  
Provision for doubtful accounts   295     263  
Net gain on sale of assets   (63 )   (20 )
Net gain on derivative instruments   (391 )   (67 )
Stock compensation expense   1,455     1,381  
Deferred income taxes   2,232     2,731  
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:        
Accounts receivable   (6,014 )   (26,266 )
Contract assets   (25,130 )    
Contract costs   (4,990 )    
Inventories   (1,947 )   4,157  
Income tax refunds receivable   2,893     309  
Other current assets   (5,615 )   (804 )
Accounts payable - trade   10,187     (4,655 )
Contract liabilities   75,986      
Advances on contracts       (1,952 )
Other current liabilities   (8,209 )   (2,428 )
Income taxes payable   (1,817 )   690  
Pension liabilities   (11,938 )   (10,534 )
Other long-term liabilities   4,166     758  
Net cash provided by (used in) operating activities   56,913     (18,449 )
Cash flows from investing activities:        
Proceeds from sale of assets   103     227  
Expenditures for property, plant & equipment   (6,422 )   (7,409 )
Other, net   (293 )   (1,072 )
Net cash used in investing activities   (6,612 )   (8,254 )
Cash flows from financing activities:        
Net (repayments) borrowings under revolving credit agreements   (50,708 )   14,860  
Debt repayment   (1,875 )   (1,250 )
Net change in bank overdraft   2,598     2,381  
Proceeds from exercise of employee stock awards   2,687     1,653  
Purchase of treasury shares   (4,600 )   (2,689 )
Dividends paid   (5,569 )   (4,881 )
Other   (271 )   (120 )
Net cash (used in) provided by financing activities   (57,738 )   9,954  
Net (decrease) increase in cash and cash equivalents   (7,437 )   (16,749 )
Effect of exchange rate changes on cash and cash equivalents   583     228  
Cash and cash equivalents at beginning of period   36,904     41,205  
Cash and cash equivalents at end of period   $   30,050     $   24,684  
         
Supplemental disclosure of noncash activities:        
Common shares issued for partial unwind of warrant transactions   $   2,281     $    

 

Kaman Corporation
James Coogan, 860-243-6342
Vice President, Investor Relations
james.coogan@kaman.com