Kaman

AR 13

Financials

Part II

Financials/Management's Discussion and Analysis of Financial Condition and Results of Operations/Results of Continuing Operations – Part 2

Operating Income from Continuing Operations

2013 2012 2011
In thousands
Operating income $ 100,480 $ 92,838 $ 87,581
$ change 7,642 5,257 29,386
% change 8.2 % 6.0 % 50.5 %
% of net sales 6.0 % 5.8 % 5.9 %

The increase in operating income from continuing operations for 2013 as compared to 2012 was driven by an increase at our Aerospace segment. The increase in operating income for 2012 as compared to 2011 was driven by increases at both our segments. See Segment Results of Operations and Financial Condition below for further discussion of segment operating income.

Interest Expense, Net

2013 2012 2011
In thousands
Interest expense, net $ 12,559 $ 12,185 $ 11,646

Net interest expense generally consists of interest charged on the revolving credit facility and other borrowings and the amortization of debt issuance costs, offset by interest income. The increase in net interest expense for 2013 as compared to 2012 was primarily due to higher average borrowings under our revolving credit facility. At December 31, 2013, the interest rate for outstanding amounts on both the revolving credit facility and term loan agreement was 1.72% compared to 1.75% at December 31, 2012.

The increase in net interest expense for 2012 as compared to 2011 was primarily due to higher average borrowings under our revolving credit facility and a higher average interest rate for the period, partially offset by lower bank commitment fees and letter of credit fees.

Effective Income Tax Rate for Continuing Operations

2013 2012 2011
Effective income tax rate 35.2 % 33.3 % 34.5 %

The effective tax rate for continuing operations represents the combined federal, state and foreign tax effects attributable to pretax earnings for the year. The increase in the effective rate for 2013 as compared to 2012 was primarily due to the non-cash non-tax deductible goodwill charge and the reversal in 2012 of a liability for unrecognized tax benefits.

The decrease in the effective rate for 2012 as compared to 2011 was due principally to the reversal of a liability for unrecognized tax benefits.

Gain on Disposal of Discontinued Operations, Net of Tax

The Company sold substantially all of the assets and liabilities of our Distribution segment's Canadian operations on December 31, 2012. The sale resulted in a net gain on disposal of discontinued operations of $0.4 million and $1.3 million for the years ended December 31, 2013 and 2012, respectively. More information on this transaction can be found in Note 2, Discontinued Operations, in the Notes to Consolidated Financial Statements included in this Form 10-K.

Other Matters

Information regarding our various environmental remediation activities and associated accruals can be found in Note 17, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this Form 10-K.