Kaman

AR 13

Financials

Part II

Financials/Management's Discussion and Analysis of Financial Condition and Results of Operations/Overview of Business

Kaman Corporation conducts business through two business segments:

  • Distribution, the third largest power transmission/motion control industrial distributor in North America.
  • Aerospace, a manufacturer and subcontractor in the international, commercial and military aerospace and defense markets.

Company financial performance

  • Net sales from continuing operations increased 5.6% compared to the prior year.
  • Earnings from continuing operations increased 5.1% compared to the prior year.
  • Diluted earnings per share from continuing operations increased to $2.09 in 2013 compared to $2.03 in the prior year.
  • Cash flows provided by operating activities from continuing operations were $62.5 million for 2013, a decrease of $22.0 million when compared to the prior year.
  • Both our Distribution segment and our Aerospace segment had record annual sales from continuing operations of $1.1 billion and $614.0 million, respectively.

Acquisitions

  • On August 15, 2013, our Distribution segment acquired Western Fluid Components, Inc., with locations in Tacoma, Kirkland, Everett and Bellingham, Washington, a Parker distributor, which provides us with new Parker authorizations.
  • On July 31, 2013, our Distribution segment acquired substantially all the assets of Ohio Gear & Transmission Inc. of Eastlake, Ohio.
  • On June 14, 2013, our Distribution segment acquired substantially all of the assets of Northwest Hose & Fittings, Inc. based in Spokane, Washington, a Parker distributor, which provides us with new Parker authorizations.

Management changes

  • On February 19, 2014, Mr. Michael J. Lyon was appointed to the position of Vice President - Tax, following the retirement of Mr. John B. Lockwood, former Vice President - Tax.
  • On November 6, 2013, the Company announced the appointment of Mr. Jairaj Chetnani to the position of Vice President and Treasurer.
  • On July 1, 2013, Mr. Robert D. Starr became the Company's Senior Vice President and Chief Financial Officer, following the retirement of Mr. William C. Denninger, former Executive Vice President and Chief Financial Officer.

Other key events

  • On November 21, 2013, the Company announced that its Aerospace segment entered into a Memorandum of Agreement ("MOA") with Boeing Canada Winnipeg for the manufacture and assembly of two major sections of the 747-8 Wing-to-Body Fairing.
  • During the fourth quarter, we recorded a $2.1 million non-cash non-tax deductible goodwill impairment charge related to our VT Composites reporting unit. This charge has been included in the operating results of our Aerospace segment.
  • During the fourth quarter, the first cabin was delivered under our Bell Helicopter AH-1Z program.
  • In October 2013, we delivered our 1,000th cockpit on the UH-60 program.
  • During the third quarter, we entered into a new contract with the U.S. Air Force ("USAF") for the sale of Joint Programmable Fuzes ("JPF"). Deliveries under this $78.5 million contract are expected to begin in the second half of 2014.
  • On June 17, 2013, our Aerospace segment was selected by Triumph Aerostructures – Vought Aircraft Division to manufacture the Fixed Leading Edge (FLE) assemblies for the Bombardier Global 7000 and Global 8000 large, ultra long-range business jets.
  • On May 8, 2013, we announced that we entered into a $120.6 million contract with the New Zealand Ministry of Defence for the sale of ten SH-2G(I) Super Seasprite aircraft, spare parts, a full mission flight simulator, and related logistics support.
  • On April 2, 2013, we made our final minimum payment of $6.4 million (AUD) to the Commonwealth of Australia; we have now made total payments of $39.5 million (AUD) in accordance with our settlement agreement related to the SH-2G(A) Helicopters.
  • During the first quarter, we were awarded a $20.3 million JPF commercial sales contract.
  • In March 2013, we initiated restructuring activities at our Distribution segment, which included workforce reductions and the consolidation of field operations. These activities resulted in $3.0 million of expense in the first quarter.

Outlook

Our expectations for 2014 are as follows:
  • Distribution:
    • Sales of $1,115 million to $1,150 million, up 4.4% to 7.7% over 2013
    • Operating margins of 4.7% to 5.2%
  • Aerospace:
    • Sales of $640 million to $660 million, up 4.2% to 7.5% over 2013
    • Operating margins of 16.5% to 17.0%
  • Interest expense of approximately $13 million
  • Corporate expenses of approximately $52 million
  • Estimated annualized tax rate of approximately 35%
  • Capital expenditures of $35 million to $40 million
  • Free cash flow of $40 million to $45 million

2014 Outlook

In millions
Free Cash Flow(a):
Net cash provided by operating activities $ 75.0 to $ 85.0
Expenditures for property, plant and equipment 35.0 to 40.0
Free Cash Flow $ 40.0 to $ 45.0
  1. Free Cash Flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less expenditures for property, plant and equipment, both of which are presented in our consolidated statements of cash flows. See Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures, in this Form 10-K.