EX-99.1 2 exhibit991-q22019earni.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
image0a51.jpg
 
 
NEWS RELEASE
 
Kaman Corporation
 
1332 Blue Hills Avenue
Bloomfield, CT USA
 
P 860.243.7100
www.kaman.com
KAMAN REPORTS 2019 SECOND QUARTER RESULTS

Second Quarter Highlights:
•
Announced the anticipated sale of the Distribution segment
•
Net sales from continuing operations up 5% sequentially to $175 million, 2.2% lower versus prior year on dispositions and foreign currency translation
•
Consolidated operating margin from continuing operations increases 46% over prior year
•
Diluted earnings per share from continuing operations increased $0.06 to $0.23
•
Received U.S. Government approval for our $324 million DCS Contract
•
Record first half order intake for our specialty bearings and engineered products

BLOOMFIELD, Conn. (July 31, 2019) - Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended June 28, 2019. During the second quarter, the Company announced the anticipated sale of its Distribution segment to affiliates of Littlejohn & Co., LLC for $700 million in cash, subject to customary closing conditions and working capital adjustments. The Distribution segment results are reported as discontinued operations for all periods in the release.
 
 
 
 
 
 
 
 
 
Table 1. Summary of Financial Results (unaudited)
 
 
 
 
 
 
In thousands except per share amounts
For the Three Months Ended
 
 
 
June 28, 2019

 
June 29, 2018

 
Change
 
 
Net sales from continuing operations:
 
 
 
 
 
 
 
Aerospace
$
174,712

 
$
178,606

 
$
(3,894
)
 
 
 
 

 
 

 
 
 
 
Operating income from continuing operations:
 
 
 

 
 
 
 
Aerospace
$
24,598

 
$
22,741

 
$
1,857

 
 
% of sales
14.1
%
 
12.7
%
 
1.4
%
 
 
Net gain on sale of assets
—

 
1,528

 
(1,528
)
 
 
Corporate expense
(14,023
)
 
(17,043
)
 
3,020

 
 
Operating income from continuing operations
$
10,575

 
$
7,226

 
$
3,349

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA*:


 


 
 
 
 
Earnings from continuing operations
$
6,389

 
$
4,778

 
$
1,611

 
 
Adjustments
10,735

 
12,807

 
(2,072
)
 
 
Adjusted EBITDA*
$
17,124

 
$
17,585

 
$
(461
)
 
 
% of sales
9.8
%
 
9.8
%
 
—
%
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
$
0.23

 
$
0.17

 
$
0.06

 
 
Adjustments
(0.07
)
 
0.01

 
(0.08
)
 
 
Adjusted diluted earnings per share from continuing operations*
$
0.16

 
$
0.18

 
$
(0.02
)
 
 
 
 
 
 
 
 
 




Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “The second quarter marked an exciting and transformational time for Kaman. During the period, we announced the sale of our Distribution segment, beginning a strategic shift toward focusing on the opportunities to maximize value in our Aerospace business. The divestiture of Distribution remains on track and will provide us significant financial capacity to execute on strategic acquisitions of complementary businesses and organic growth investments.

In our continuing operations, we exit the second quarter with strong sales of $174.7 million, up 5.0% from the first quarter. Sales declined when compared to the second quarter of 2018, due to unfavorable foreign exchange of $1.9 million and the absence of $2.5 million of sales from the Aerospace businesses sold in 2018. Highlighting our performance in the quarter was an 8.2% increase in Aerospace operating profit to $24.6 million, or 14.1% of sales, when compared to the prior year.

We are pleased that through the first six months of 2019 we had record order intake for our specialty bearings and engineered products, supporting our forecasted growth for these products and underscoring the benefits of the investments we continue to make in this business. Also, in July we received authorization from the U.S. Government to begin deliveries under our $324 million JPF DCS contract. We expect to make initial deliveries in September and continue to expect record deliveries of 40,000 to 45,000 fuzes for 2019. Backlog for this program was $427 million at the end of the second quarter and looking ahead we see opportunities to grow backlog through additional sales to foreign militaries and the U.S Government. The expected increase in volume for our JPF DCS and specialty bearing products is expected to lead to higher operating margins in the back half of the year.

During the quarter we continued to make investments to help drive sustained long term organic growth. First, we recently announced the expansion of GRW, our precision bearings operations in Germany. This expansion will allow us to increase capacity to meet the higher forecasted demand, while creating a more efficient layout and increasing the efficiency of our operations. Second, we continue to execute on the development of our K-MAX® unmanned mission management system and we are seeing strong interest from commercial operators for this technology. Lastly, we recently opened our new customer service and delivery center which will support both our K-MAX® and SH-2 Super Seasprite customers. This customer service center includes our brand new K-MAX® flight simulator and consolidates a number of our customer support functions under one roof. These initiatives represent just a sample of the opportunities we have undertaken to drive continued growth in our business."

Chief Financial Officer, Robert D. Starr, commented, "Through the first six months of 2019 we generated cash flows from continuing operations of $10.9 million. Cash usage in the second quarter was due in part to a buildup of inventory in our Joint Programmable Fuze and self-lubricating bearings products which we expect to deliver in the second half of the year. Sales in the second half of the year are expected to be 20% higher at the mid-point than first half results, leading to expected sales from continuing operations for the full year in the range of $740.0 million to $760.0 million, an increase of $10.0 million in the low end of our previous expectations. The higher volume of JPF DCS and specialty bearing products is expected to contribute to higher operating margins in the second half of the year. As such we expect Aerospace operating margin in the range of 16.7% to 17.2%, a 195 bps increase at the mid-point over our first half performance of 15.0%.

We are progressing towards a third quarter closing of the sale of the Distribution segment. The net proceeds of the sale are expected to be approximately $600 million, after taxes of approximately $75 million and transaction expenses of approximately $25 million to $30 million. Of the approximately $600 million in net proceeds, we will use approximately $100 million to pay down amounts outstanding on our




revolving credit facility. We expect to deploy a significant portion of the remaining proceeds toward our acquisition priorities and organic growth initiatives. In addition, we are evaluating the return of capital to shareholders through dividend and share buybacks; however, the scope and timing of these capital return options have not been finalized."

2019 Outlook
Our revised 2019 outlook for Aerospace performance:
•
Aerospace:
◦
Sales of $740.0 million to $760.0 million
◦
Operating margins of 16.7% to 17.2%
◦
Depreciation and amortization expense of approximately $21.0 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, August 1, 2019, 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: 33675726; 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: 33675726. 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. 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 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Net sales from continuing operations:
 
 
 
 
 
 
 
 
   Aerospace
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

 
 
 

 
 

 
 
 
 
Operating income from continuing operations:
 
 

 
 

 
 
 
 
   Aerospace
 
$
24,598

 
$
22,741

 
$
51,210

 
$
45,403

   Net gain (loss) on sale of assets
 
—

 
1,528

 
65

 
1,589

   Corporate expense
 
(14,023
)
 
(17,043
)
 
(28,331
)
 
(31,150
)
     Operating income from continuing operations
 
$
10,575

 
$
7,226

 
$
22,944

 
$
15,842





Table 3. Depreciation and Amortization from continuing operations (in thousands) (unaudited)
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 28, 2019

June 29, 2018
 
June 28, 2019
 
June 29, 2018
Depreciation and Amortization:
 
 
 
 
 
 
 
 
   Aerospace
 
$
5,457

 
$
6,202

 
$
10,775

 
$
12,512

   Corporate
 
786

 
834

 
1,590

 
1,679

Consolidated Total
 
$
6,243


$
7,036


$
12,365


$
14,191


Non-GAAP Measures Disclosure

Management believes that the Non-GAAP financial measures (i.e. Financial measures that are not computed in accordance with Generally Accepted Accounting Principles) 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 and six-month fiscal periods ended June 28, 2019 and June 29, 2018, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, "Net Sales".
Table 4. Organic Sales from continuing operations (in thousands) (unaudited)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Aerospace
 
 
 
 
 
 
 
 
Net sales
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

Acquisition Sales
 
—

 
—

 
—

 
—

Organic Sales
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001


Adjusted EBITDA from continuing operations - Adjusted EBITDA from continuing operations is defined as earnings from continuing operations 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 from continuing operations differs from earnings from continuing operations, 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 from continuing operations. Adjusted




EBITDA from continuing operations 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 from continuing operations 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 from continuing operations 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 28, 2019 and June 29, 2018. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures:

Table 5. Adjusted EBITDA from continuing operations (in thousands) (unaudited)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 28, 2019

June 29, 2018
 
June 28, 2019
 
June 29, 2018
Adjusted EBITDA from continuing operations
 
 
 
 
 
 
 
 
Consolidated Results
 
 
 
 
 
 
 
 
Sales from continuing operations
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

 
 
 
 
 
 
 
 
 
Earnings from continuing operations
 
$
6,389

 
$
4,778

 
$
12,211

 
$
9,748

 
 
 
 
 
 
 
 
 
Interest expense, net
 
5,236

 
5,000

 
10,537

 
10,323

Income tax (benefit) expense
 
(487
)
 
123

 
947

 
1,817

Other (income) expense, net
 
(463
)
 
364

 
(552
)
 
22

Depreciation and amortization
 
6,243

 
7,036

 
12,365

 
14,191

Other Adjustments:
 
 
 
 
 
 
 
 
Restructuring and severance costs
 
206

 
1,804

 
472

 
3,497

Gain on the sale of land
 
—

 
(1,520
)
 
—

 
(1,520
)
Adjustments
 
$
10,735

 
$
12,807

 
$
23,769

 
$
28,330

 
 
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations
 
$
17,124


$
17,585

 
$
35,980

 
$
38,078

   Adjusted EBITDA margin
 
9.8
%

9.8
%
 
10.5
%
 
10.6
%

Free Cash Flow from continuing operations - Free Cash Flow from continuing operations 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 from continuing operations 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 from continuing operations 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 from continuing operations internally to assess overall liquidity. The following table illustrates the calculation of Free Cash Flow from continuing operations using “Net cash provided by (used in) operating activities from continuing operations” and “Expenditures for property, plant & equipment”, GAAP measures from the Condensed Consolidated Statements of Cash Flows included in this release.




Table 6. Free Cash Flow from continuing operations (in thousands) (unaudited)
 
 
 
 
 
 
 
 
For the Six Months Ended
 
 
June 28,
2019
 
June 29,
2018
 
2019 vs. 2018
Net cash provided by operating activities from continuing operations
 
$
10,862

 
$
79,715

 
$
(68,853
)
Expenditures for property, plant & equipment
 
(11,375
)
 
(10,831
)
 
(544
)
Free Cash Flow from continuing operations
 
$
(513
)
 
$
68,884

 
$
(69,397
)

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 7. Debt to Capitalization Ratio (in thousands) (unaudited)
 
 
 
 
 
 
June 28, 2019
 
December 31, 2018
Current portion of long-term debt
 
$
127,603

 
$
9,375

Long-term debt, excluding current portion
 
180,196

 
284,256

Debt
 
$
307,799

 
$
293,631

Total shareholders' equity
 
658,169

 
633,157

Capitalization
 
$
965,968

 
$
926,788

Debt to Capitalization Ratio
 
31.9
%
 
31.7
%

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations - Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP "Earnings from Continuing Operations" and "Diluted earnings per share from continuing operations", 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 Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations 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 Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations using “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations” from the “Consolidated Statements of Operations” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on July 31, 2019.

Table 8. Adjusted Earnings from continuing operations and Adjusted Diluted Earnings per Share from continuing operations
 
 
 
 
(In thousands except per share amounts) (unaudited)
 
 
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Adjustments to Earnings from Continuing Operations, pre tax
 
 
 
 
 
 
 
 
Restructuring and severance costs at Aerospace
 
$
206

 
$
1,804

 
$
472

 
$
3,497

Benefit from change in state tax laws
 
(2,137
)
 
—

 
(2,137
)
 
—

Gain on the sale of land
 
—

 
(1,520
)
 
—

 
(1,520
)
Adjustments, pre tax
 
$
(1,931
)
 
$
284

 
$
(1,665
)
 
$
1,977

 
 
 
 
 
 
 
 
 
Tax Effect of Adjustments to Earnings from Continuing Operations
 
 
 
 
 
 
 
 
Restructuring and severance costs at Aerospace
 
$
(17
)
 
$
451

 
$
34

 
$
874

Benefit from change in state tax laws
 
—

 
—

 
—

 
—

Gain on the sale of land
 
—

 
(380
)
 
—

 
(380
)
Tax effect of Adjustments
 
$
(17
)
 
$
71

 
$
34

 
$
494

 
 
 
 
 
 
 
 
 
Adjustments to Earnings from Continuing Operations, net of tax
 
 
 
 
 
 
 
 
GAAP Earnings from continuing operations, as reported
 
$
6,389

 
$
4,778

 
$
12,211

 
$
9,748

Restructuring and severance costs at Aerospace
 
223

 
1,353

 
438

 
2,623

Benefit from change in state tax laws
 
(2,137
)
 
—

 
(2,137
)
 
—

Gain on the sale of land
 
—

 
(1,140
)
 
—

 
(1,140
)
Adjusted Earnings from continuing operations
 
$
4,475

 
$
4,991

 
$
10,512

 
$
11,231

 
 
 
 
 
 
 
 
 
Calculation of Adjusted Diluted Earnings per Share from Continuing Operations
 
 
 
 
 
 
 
 
GAAP diluted earnings per share from continuing operations
 
$
0.23

 
$
0.17

 
$
0.43

 
$
0.34

Restructuring and severance costs at Aerospace
 
0.01

 
0.05

 
0.02

 
0.09

Benefit from change in state tax laws
 
(0.08
)
 
—

 
(0.08
)
 
—

Gain on the sale of land
 
—

 
(0.04
)
 
—

 
(0.04
)
Adjusted Diluted Earnings per Share from continuing operations
 
$
0.16


$
0.18

 
$
0.37

 
$
0.39

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
28,123

 
28,349

 
28,097

 
28,258






Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations - Adjusted Net Sales from continuing operations is defined as net sales from continuing operations, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income from continuing operations is defined as operating income from continuing operations, 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 from continuing operations and Adjusted Operating Income from continuing operations 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 from continuing operations using information found in Note 18, 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 July 31, 2019.

Table 9. Adjusted Net Sales and Adjusted Operating Income from Continuing Operations
 
 
 
 
(In thousands) (unaudited)
 
 
 
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
AEROSPACE SEGMENT OPERATING INCOME:
 
 
 
 
 
 
 
 
Net Sales
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

GAAP Operating income - Aerospace segment
 
$
24,598

 
$
22,741

 
$
51,210

 
$
45,403

% of GAAP net sales
 
14.1
%
 
12.7
%
 
15.0
%
 
12.7
%
Restructuring and severance costs
 
206


1,804


472


3,497

Adjusted Operating Income - Aerospace segment
 
$
24,804

 
$
24,545

 
$
51,682

 
$
48,900

% of GAAP net sales
 
14.2
%
 
13.7
%
 
15.1
%
 
13.7
%
CORPORATE EXPENSE:
 
 
 
 
 
 
 
 
GAAP Corporate Expense
 
$
(14,023
)
 
$
(17,043
)
 
$
(28,331
)
 
$
(31,150
)
CONSOLIDATED OPERATING INCOME:
 
 
 
 
 
 
 
 
Net Sales from continuing operations
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

GAAP - Operating income from continuing operations
 
$
10,575

 
$
7,226

 
$
22,944

 
$
15,842

% of GAAP net sales
 
6.1
%
 
4.0
%
 
6.7
%
 
4.4
%
Restructuring and severance costs
 
206

 
1,804

 
472

 
3,497

Gain on sale of land
 
—

 
(1,520
)
 
—

 
(1,520
)
Adjusted Operating Income
 
$
10,781

 
$
7,510

 
$
23,416

 
$
17,819

% of GAAP net sales
 
6.2
%
 
4.2
%
 
6.9
%
 
5.0
%


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) the occurrence of any event, change or other circumstances that could give rise to the termination of the Share Purchase Agreement; (ii) the failure to satisfy or fulfill in a timely manner any of the closing conditions set forth in the Share Purchase Agreement; (iii) the filing of any litigation relating to the Share Purchase Agreement or any of the transactions contemplated thereby; (iv) the possibility that the pendency of the Sale Transaction may adversely affect our business; (v) the possibility that our business and financial performance may be adversely affected if we fail to complete the Sale Transaction; (vi) the possibility that we may be unable to find appropriate reinvestment opportunities for the proceeds from the Sale Transaction; (vii) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (viii) 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); (ix) changes in geopolitical conditions in countries where the Company does or intends to do business; (x) 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; (xi) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the U.S. Government; (xii) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (xiii) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (xiv) the successful resolution of government inquiries or investigations relating to our businesses and programs; (xv) 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; (xvi) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (xvii) 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; (xviii) 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 investments in the K-MAX® production line; (xix) the accuracy of current cost estimates associated with environmental remediation activities; (xx) the profitable integration of acquired businesses into the Company's operations; (xxi) the ability to recover from cyber-based or other security attacks, information technology failures or other disruptions; (xxii) changes in supplier sales or vendor incentive policies; (xiii) the ability of our suppliers to satisfy their performance obligations; (xxiv) the effects of price increases or decreases; (xxv) 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; (xxvi) future levels of indebtedness and capital expenditures; (xxvii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xxviii) the effects of currency exchange rates and foreign competition on future operations; (xxix) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxx) the effects, if any, of the UK's exit from the EU; (xxxi) future repurchases and/or issuances of common stock; (xxxii) the occurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; (xxiii) the ability to recruit and retain skilled employees; and (xxxiv) other risks and uncertainties set forth herein and in our 2018 Form 10-K and our Second Quarter Form 10-Q filed July 31, 2019.

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.

Contact: James Coogan
V.P., Investor Relations
(860) 243-6342
James.Coogan@kaman.com




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 28,
2019
 
June 29,
2018
 
June 28,
2019
 
June 29,
2018
Net sales
 
$
174,712

 
$
178,606

 
$
341,146

 
$
358,001

Cost of sales
 
122,123

 
125,165

 
234,036

 
251,380

Gross profit
 
52,589

 
53,441

 
107,110

 
106,621

Selling, general and administrative expenses
 
41,808

 
45,939

 
83,759

 
88,871

Restructuring costs
 
206

 
1,804

 
472

 
3,497

Net gain on sale of assets
 
—

 
(1,528
)
 
(65
)
 
(1,589
)
Operating income
 
10,575

 
7,226

 
22,944

 
15,842

Interest expense, net
 
5,236

 
5,000

 
10,537

 
10,323

Non-service pension and post retirement benefit cost (income)
 
(100
)
 
(3,039
)
 
(199
)
 
(6,068
)
Other income, net
 
(463
)
 
364

 
(552
)
 
22

Earnings from continuing operations before income taxes
 
5,902

 
4,901

 
13,158

 
11,565

Income tax expense
 
(487
)
 
123

 
947

 
1,817

Earnings from continuing operations
 
6,389

 
4,778

 
12,211

 
9,748

Earnings from discontinued operations, net of tax
 
7,077

 
10,316

 
15,380

 
19,412

Net earnings
 
$
13,466

 
$
15,094

 
$
27,591

 
$
29,160

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 

 
 

 


 


Basic earnings per share from continuing operations
 
$
0.23

 
$
0.17

 
$
0.44

 
$
0.35

Basic earnings per share from discontinued operations
 
0.25

 
0.37

 
0.55

 
0.69

Basic earnings per share
 
$
0.48

 
$
0.54

 
$
0.99

 
$
1.04

 
 
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
 
$
0.23

 
$
0.17

 
$
0.43

 
$
0.34

Diluted earnings per share from discontinued operations
 
0.25

 
0.36

 
0.55

 
0.69

Diluted earnings per share
 
$
0.48

 
$
0.53

 
$
0.98

 
$
1.03

Average shares outstanding:
 
 

 
 

 


 


Basic
 
27,961

 
27,971

 
27,935

 
27,911

Diluted
 
28,123

 
28,349

 
28,097

 
28,258







KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (unaudited)
 
 
June 28, 2019
 
December 31, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
17,016

 
$
25,895

Accounts receivable, net
 
100,799

 
149,338

Contract assets
 
118,774

 
99,261

Contract costs, current portion
 
5,114

 
5,993

Inventories
 
163,006

 
131,569

Income tax refunds receivable
 
5,487

 
1,752

Assets held for sale
 
365,264

 
351,261

Other current assets
 
10,568

 
8,036

Total current assets
 
786,028

 
773,105

Property, plant and equipment, net of accumulated depreciation of $201,400 and $192,285, respectively
 
138,246

 
137,112

Operating right-of-use assets, net
 
16,330

 
—

Goodwill
 
195,332

 
196,161

Other intangible assets, net
 
56,054

 
58,567

Deferred income taxes
 
39,802

 
38,040

Contract costs, noncurrent portion
 
9,187

 
10,666

Assets held for sale, noncurrent portion
 
292,957

 
229,238

Other assets
 
30,903

 
31,173

Total assets
 
$
1,564,839

 
$
1,474,062

Liabilities and Shareholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of long-term debt, net of debt issuance costs
 
$
127,603

 
$
9,375

Accounts payable – trade
 
54,086

 
56,826

Accrued salaries and wages
 
29,959

 
32,795

Contract liabilities, current portion
 
30,707

 
28,865

Income taxes payable
 
—

 
139

Operating lease liabilities, current portion
 
4,259

 
—

Liabilities held for sale
 
136,292

 
131,047

Other current liabilities
 
38,669

 
39,429

Total current liabilities
 
421,575

 
298,476

Long-term debt, excluding current portion, net of debt issuance costs
 
180,196

 
284,256

Deferred income taxes
 
7,483

 
7,146

Underfunded pension
 
99,469

 
104,988

Contract liabilities, noncurrent portion
 
72,081

 
78,562

Operating lease liabilities, noncurrent portion
 
12,895

 
—

Liabilities held for sale, noncurrent portion
 
63,892

 
15,602

Other long-term liabilities
 
49,079

 
51,875

Commitments and contingencies (Note 14)
 


 


Shareholders' equity:
 
 

 
 

Preferred stock, $1 par value, 200,000 shares authorized; none outstanding
 
—

 
—

Common stock, $1 par value, 50,000,000 shares authorized; voting; 29,723,147 and 29,544,714 shares issued, respectively
 
29,723

 
29,545

Additional paid-in capital
 
208,491

 
200,474

Retained earnings
 
649,610

 
610,103

Accumulated other comprehensive income (loss)
 
(153,708
)
 
(134,898
)
Less 1,745,385 and 1,672,917 shares of common stock, respectively, held in treasury, at cost
 
(75,947
)
 
(72,067
)
Total shareholders’ equity
 
658,169

 
633,157

Total liabilities and shareholders’ equity
 
$
1,564,839

 
$
1,474,062






KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)

 
 
For the Six Months Ended
 
 
June 28,
2019
 
June 29,
2018
Cash flows from operating activities:
 
 

 
 

Net earnings
 
$
27,591

 
$
29,160

Less: Earnings from discontinued operations
 
15,380

 
19,412

Earnings from continuing operations
 
$
12,211

 
$
9,748

Adjustments to reconcile net earnings to net cash provided by operating activities from continuing operations:
 
 

 
 

Depreciation and amortization
 
12,365

 
14,191

Amortization of debt issuance costs
 
906

 
899

Accretion of convertible notes discount
 
1,347

 
1,282

Provision for doubtful accounts
 
204

 
227

Net gain on sale of assets
 
(65
)
 
(1,589
)
Net loss on derivative instruments
 
3

 
467

Stock compensation expense
 
3,557

 
3,303

Deferred income taxes
 
(3,252
)
 
7,297

Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
 

 
 

Accounts receivable
 
48,270

 
47,180

Contract assets
 
(19,572
)
 
(38,442
)
Contract costs
 
2,355

 
(5,480
)
Inventories
 
(31,662
)
 
1,590

Income tax refunds receivable
 
(3,656
)
 
(803
)
Operating right of use assets
 
2,140

 
—

Other assets
 
(892
)
 
(2,977
)
Accounts payable - trade
 
(2,673
)
 
(836
)
Contract liabilities
 
(4,640
)
 
75,261

Operating lease liabilities
 
(2,115
)
 
—

Other current liabilities
 
(4,606
)
 
(4,284
)
Income taxes payable
 
(147
)
 
(2,527
)
Pension liabilities
 
2,087

 
(23,887
)
Other long-term liabilities
 
(1,303
)
 
(905
)
Net cash provided by operating activities of continuing operations
 
10,862

 
79,715

Net cash (used in) provided by operating activities of discontinued operations
 
(9,134
)
 
14,027

Net cash provided by operating activities
 
1,728

 
93,742





KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)

 
 
For the Six Months Ended
 
 
June 28,
2019
 
June 29,
2018
Cash flows from investing activities:
 
 

 
 

Proceeds from sale of assets
 
71

 
1,692

Expenditures for property, plant & equipment
 
(11,375
)
 
(10,831
)
Other, net
 
(1,618
)
 
(687
)
Net cash used in investing activities of continuing operations
 
(12,922
)
 
(9,826
)
Net cash used in investing activities of discontinued operations
 
(3,662
)
 
(4,909
)
Net cash used in investing activities
 
(16,584
)
 
(14,735
)
Cash flows from financing activities:
 
 

 
 

Net repayments under revolving credit agreements
 
16,700

 
(71,383
)
Debt repayment
 
(4,375
)
 
(3,750
)
Net change in bank overdraft
 
724

 
878

Proceeds from exercise of employee stock awards
 
3,546

 
5,274

Purchase of treasury shares
 
(3,063
)
 
(8,824
)
Dividends paid
 
(11,160
)
 
(11,149
)
Other, net
 
(663
)
 
(439
)
Net cash provided by (used in) financing activities of continuing operations
 
1,709

 
(89,393
)
Net cash provided by financing activities of discontinued operations
 
4,458

 
1,700

Net cash provided by (used in) financing activities
 
6,167

 
(87,693
)
Net decrease in cash and cash equivalents
 
(8,689
)
 
(8,686
)
Cash and cash equivalents included in assets held for sale
 
(1,957
)
 
(2,023
)
Effect of exchange rate changes on cash and cash equivalents
 
(49
)
 
(578
)
Cash and cash equivalents at beginning of period
 
27,711

 
36,904

Cash and cash equivalents at end of period
 
$
17,016

 
$
25,617

Supplemental disclosure of noncash activities:
 


 


 
 


 


Value of common shares issued for unwind of warrant transactions
 
$
—

 
$
7,583