EX-99.2 6 projectrubyex992.htm EXHIBIT 99.2 Exhibit
KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Exhibit 99.2

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

On August 26, 2019, Kaman Corporation, a Connecticut corporation (the “Company”), sold its subsidiary, Kaman Industrial Technologies Corporation and subsidiaries (collectively, "Distribution") to LJ KAI Blocker, Inc., a Delaware corporation, LJ KFP Blocker, Inc., a Delaware corporation, and LJ KIT Blocker, Inc., a Delaware corporation (collectively, the “Purchasers”), for $700.0 million (the "Disposition").

The Disposition constitutes a significant disposition for purposes of Item 2.01 of Current Report on Form 8-K. As a result, the following unaudited pro forma consolidated statement of operations for the six month fiscal period ended June 28, 2019 and unaudited pro forma consolidated statements of operations for each of the years ended December 31, 2018, 2017 and 2016 are presented as if the Disposition and related events had occurred on January 1, 2016, the first day of fiscal year 2016. The following unaudited pro forma consolidated balance sheet as of June 28, 2019 is presented as if the Disposition and related events had occurred on June 28, 2019. Based on the magnitude of Distribution's contribution to the Company's operating income and because the Company is exiting its distribution business, the Disposition represents a strategic shift that will have a major effect on the Company's operations and financial results. Accordingly, the Company applied the discontinued operations treatment for the Disposition in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2019.

The unaudited consolidated pro forma financial statements have been derived from historical financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and are presented based on information currently available. They are intended for informational purposes only and are not intended to represent the Company’s financial position or results of operations had the Disposition and related events occurred on the dates indicated, or to project the Company’s financial performance for any future period. Pro forma adjustments have been made for events that are directly attributable to the Disposition, factually supportable and, with respect to the unaudited pro forma consolidated statements of operations, expected to have a continuing impact on the Company's consolidated operating results.

The unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the following: (i) the accompanying notes to the unaudited pro forma consolidated financial statements; (ii) the audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2018, 2017 and 2016; and (iii) the unaudited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Quarterly Report on Form 10-Q for the period ended June 28, 2019.

The unaudited pro forma consolidated financial statements include information, statements, and assumptions that are "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.




KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 2019
(in thousands, except per share amounts)

 
 
Historical (a)
 
Pro forma Adjustments
 
Notes
 
Kaman Corp. Pro forma
Net sales
 
$
341,146

 
$
—

 
 
 
$
341,146

Cost of sales
 
234,036

 
—

 
 
 
234,036

Gross profit
 
107,110

 
—

 
 
 
107,110

Selling, general and administrative expenses
 
83,759

 
(688
)
 
(b)
 
83,071

Restructuring costs
 
472

 
—

 
 
 
472

Net gain (loss) on sale of assets
 
(65
)
 
—

 
 
 
(65
)
Operating income
 
22,944

 
688

 
 
 
23,632

Interest expense, net
 
10,537

 
(1,913
)
 
(c)
 
8,624

Non-service pension and post retirement benefit income
 
(199
)
 
—

 
 
 
(199
)
Other income, net
 
(552
)
 
—

 
 
 
(552
)
Earnings from continuing operations before income taxes
 
13,158

 
2,601

 
 
 
15,759

Income tax expense
 
947

 
631

 
(d)
 
1,578

Earnings from continuing operations
 
12,211

 
1,970

 
 
 
14,181

Earnings from discontinued operations, net of tax
 
15,380

 
(15,380
)
 
 
 
—

Net earnings
 
$
27,591

 
$
(13,410
)
 
 
 
$
14,181

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share from continuing operations
 
$
0.44

 
 
 
 
 
$
0.51

Basic earnings per shares from discontinued operations
 
0.55

 
 
 
 
 
—

Basic earnings per share
 
$
0.99

 
 
 
 
 
$
0.51

Diluted earnings per share from continuing operations
 
$
0.43

 
 
 
 
 
$
0.50

Diluted earnings per share from discontinued operations
 
0.55

 
 
 
 
 
—

Diluted earnings per share
 
$
0.98

 
 
 
 
 
$
0.50

Average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
27,935

 
 
 
(e)
 
27,974

Diluted
 
28,097

 
 
 
(e)
 
28,101





KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2018
(in thousands, except per share amounts)

 
 
Historical (a)
 
Pro forma Adjustments
 
Notes
 
Kaman Corp. Pro forma
Net sales
 
$
1,875,425

 
$
(1,139,431
)
 
(f)
 
$
735,994

Cost of sales
 
1,325,388

 
(816,711
)
 
(f)
 
508,677

Gross profit
 
550,037

 
(322,720
)
 
 
 
227,317

Selling, general and administrative expenses
 
444,904

 
(274,247
)
 
(f)
 
170,657

Other intangible assets impairment
 
10,039

 
—

 
 
 
10,039

Restructuring costs
 
8,008

 
(655
)
 
(f)
 
7,353

Loss on sale of business
 
5,722

 
—

 
 
 
5,722

Net (gain) loss on sale of assets
 
(1,700
)
 
669

 
(f)
 
(1,031
)
Operating income
 
83,064

 
(48,487
)
 
 
 
34,577

Interest expense, net
 
20,097

 
(3,616
)
 
(c) (f)
 
16,481

Non-service pension and post retirement benefit income
 
(12,127
)
 
—

 
 
 
(12,127
)
Other income, net
 
(143
)
 
51

 
(f)
 
(92
)
Earnings before income taxes
 
75,237

 
(44,922
)
 
 
 
30,315

Income tax expense
 
21,068

 
(10,553
)
 
(d)
 
10,515

Earnings from continuing operations
 
$
54,169

 
$
(34,369
)
 
 
 
$
19,800

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.94

 
 
 
 
 
$
0.71

Diluted earnings per share
 
$
1.92

 
 
 
 
 
$
0.70

Average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
27,945

 
 
 
(e)
 
27,914

Diluted
 
28,223

 
 
 
(e)
 
28,152





KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(in thousands, except per share amounts)

 
 
Historical (a)
 
Pro forma Adjustments
 
Notes
 
Kaman Corp. Pro forma
Net sales
 
$
1,805,909

 
$
(1,080,965
)
 
(f)
 
$
724,944

Cost of sales
 
1,260,318

 
(769,403
)
 
(f)
 
490,915

Gross profit
 
545,591

 
(311,562
)
 
 
 
234,029

Selling, general and administrative expenses
 
432,067

 
(263,093
)
 
(f)
 
168,974

Restructuring costs
 
2,661

 
—

 
 
 
2,661

Net gain (loss) on sale of assets
 
(256
)
 
225

 
(f)
 
(31
)
Operating income
 
111,119

 
(48,694
)
 
 
 
62,425

Interest expense, net
 
20,581

 
(3
)
 
(f)
 
20,578

Non-service pension and post retirement benefit income
 
(3,056
)
 
—

 
 
 
(3,056
)
Other income, net
 
(784
)
 
56

 
(f)
 
(728
)
Earnings before income taxes
 
94,378

 
(48,747
)
 
 
 
45,631

Income tax expense
 
44,552

 
(19,071
)
 
(d)
 
25,481

Earnings from continuing operations
 
$
49,826

 
$
(29,676
)
 
 
 
$
20,150

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.80

 
 
 
 
 
$
0.73

Diluted earnings per share
 
$
1.75

 
 
 
 
 
$
0.71

Average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
27,611

 
 
 
(e)
 
27,571

Diluted
 
28,418

 
 
 
(e)
 
28,354





KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(in thousands, except per share amounts)

 
 
Historical (a)
 
Pro forma Adjustments
 
Notes
 
Kaman Corp. Pro forma
Net sales
 
$
1,808,376

 
$
(1,106,322
)
 
(f)
 
$
702,054

Cost of sales
 
1,260,855

 
(785,868
)
 
(f)
 
474,987

Gross profit
 
547,521

 
(320,454
)
 
 
 
227,067

Selling, general and administrative expenses
 
443,704

 
(282,379
)
 
(f)
 
161,325

Restructuring costs
 
1,032

 
(1,032
)
 
(f)
 
—

Net gain (loss) on sale of assets
 
11

 
(10
)
 
(f)
 
1

Operating income
 
102,774

 
(37,033
)
 
 
 
65,741

Interest expense, net
 
15,747

 
(33
)
 
(f)
 
15,714

Non-service pension and post retirement benefit cost (income)
 
(3,149
)
 
—

 
 
 
(3,149
)
Other expense (income), net
 
472

 
(3
)
 
(f)
 
469

Earnings before income taxes
 
89,704

 
(36,997
)
 
 
 
52,707

Income tax expense
 
30,850

 
(15,261
)
 
(d)
 
15,589

Earnings from continuing operations
 
$
58,854

 
$
(21,736
)
 
 
 
$
37,118

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
2.17

 
 
 
 
 
$
1.37

Diluted earnings per share
 
$
2.10

 
 
 
 
 
$
1.32

Average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
27,107

 
 
 
(e)
 
27,151

Diluted
 
28,072

 
 
 
(e)
 
28,096





KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2019
(in thousands, except share data)
 
 
Historical (a)
 
Pro forma Adjustments
 
Notes
 
Kaman Corp. Pro forma
Current assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
17,016

 
$
570,000

 
(g)(h)
 
$
587,016

Accounts receivable, net
 
100,799

 
—

 
 
 
100,799

Contract assets
 
118,774

 
—

 
 
 
118,774

Contract costs, current portion
 
5,114

 
—

 
 
 
5,114

Inventories
 
163,006

 
—

 
 
 
163,006

Income tax refunds receivable
 
5,487

 
—

 
 
 
5,487

Assets held for sale, current portion
 
365,264

 
(365,264
)
 
(i)
 
—

Other current assets
 
10,568

 
—

 
 
 
10,568

Total current assets
 
786,028

 
204,736

 
 
 
990,764

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

 
—

 
 
 
138,246

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

 
—

 
 
 
16,330

Goodwill
 
195,332

 
—

 
 
 
195,332

Other intangible assets, net
 
56,054

 
—

 
 
 
56,054

Deferred income taxes
 
39,802

 
—

 
 
 
39,802

Contract costs, noncurrent portion
 
9,187

 
—

 
 
 
9,187

Assets held for sale, noncurrent portion
 
292,957

 
(292,957
)
 
(i)
 
—

Other assets
 
30,903

 
—

 
 
 
30,903

Total assets
 
$
1,564,839

 
$
(88,221
)
 
 
 
$
1,476,618

Liabilities and Shareholders’ Equity
 
 

 
 
 
 
 
 
Current liabilities:
 
 

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

 
$
(100,000
)
 
(h)
 
$
27,603

Accounts payable – trade
 
54,086

 
—

 
 
 
54,086

Accrued salaries and wages
 
29,959

 
—

 
 
 
29,959

Contract liabilities, current portion
 
30,707

 
—

 
 
 
30,707

Operating lease liabilities, current portion
 
4,259

 
—

 
 
 
4,259

Income taxes payable
 
—

 
65,735

 
(j)
 
65,735

Liabilities held for sale, current portion
 
136,292

 
(136,292
)
 
(i)
 
—

Other current liabilities
 
38,669

 
—

 
 
 
38,669

Total current liabilities
 
421,575

 
(170,557
)
 
 
 
251,018

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

 
—

 
 
 
180,196

Deferred income taxes
 
7,483

 
—

 
 
 
7,483

Underfunded pension
 
99,469

 
—

 
 
 
99,469

Contract liabilities, noncurrent portion
 
72,081

 
—

 
 
 
72,081

Operating lease liabilities, noncurrent portion
 
12,895

 
—

 
 
 
12,895

Liabilities held for sale, noncurrent portion
 
63,892

 
(63,892
)
 
(i)
 
—

Other long-term liabilities
 
49,079

 
—

 
 
 
49,079

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 shares issued
 
29,723

 
—

 
 
 
29,723

Additional paid-in capital
 
208,491

 
—

 
 
 
208,491

Retained earnings
 
649,610

 
146,228

 
(k)
 
795,838

Accumulated other comprehensive income (loss)
 
(153,708
)
 
—

 
 
 
(153,708
)
Less 1,745,385 shares of common stock, held in treasury, at cost
 
(75,947
)
 
—

 
 
 
(75,947
)
Total shareholders’ equity
 
658,169

 
146,228

 
 
 
804,397

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

 
$
(88,221
)
 
 
 
$
1,476,618



KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


1.
BASIS OF PRESENTATION

The Company's historical consolidated financial statements have been adjusted in the unaudited consolidated pro forma financial statements to present events that are (i) directly attributable to the Disposition, (ii) factually supportable and (iii) expected to have a continuing impact on the Company's consolidated results following the Disposition. The allocation of corporate support, general, management and administrative and other liabilities and expenses included may differ from expenses that would have been included on a stand-alone basis. The pro forma consolidated statements of operations do not reflect the estimated gain on the Disposition.

2.     PRO FORMA ADJUSTMENTS

The following adjustments have been reflected in the unaudited pro forma financial statements:

(a) Reflects the Company's historical US GAAP consolidated financial statements, as reported, before pro forma adjustments related to the Disposition. For the six month fiscal period ended June 28, 2019, Distribution's results of operations were reported as earnings from discontinued operations. For the years ended December 31, 2018, 2017 and 2016, Distribution's results of operations were reported as a separate segment.

Kaman adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606), on January 1, 2018 using the modified retrospective method allowed under the standard. As a result, the Company applied Topic 606 only to contracts that were not completed as of January 1, 2018. As such, Topic 606 was effective during the six month period ended June 28, 2019 and year ended December 31, 2018, while during the years ended December 31, 2017 and 2016, revenue was recognized under ASC 605.

(b) Reflects long-term incentive compensation pro forma adjustment that did not qualify for the presentation of discontinued operations in the Company's Form 10-Q filed for the period ended June 28, 2019 as these expenses will have a continuing impact on the Company.

(c) Reflects the pro forma adjustment for the reduction in interest expense as a result of the pay down of the term loan and a portion of the amounts outstanding on the revolving credit facility.

(d) The pro forma adjustment for income tax expense was calculated as the difference between the income tax expense as reported, and pro forma income tax expense, which was calculated by using the statutory income tax rate for the Company excluding Distribution and adjusting for the impact of permanent differences.

(e) Reflects the pro forma adjustment for the acceleration and vesting of shares related to the employees of the Distribution business.

(f) Reflects the elimination of revenues and expenses representing the historical operating results of the Distribution business.

(g) Reflects estimated net cash proceeds from the Disposition of $670.0 million, representing the gross sales price of $700.0 million less estimated transaction expenses of $30.0 million.

(h) Reflects the pay down of amounts outstanding on the revolving credit facility of $100.0 million upon the receipt of the net proceeds from the Disposition.

(i) Reflects the assets and liabilities conveyed to the Purchasers in the Disposition.

(j) Reflects the taxes payable the Company will owe as a result of the Disposition.



KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


2.     PRO FORMA ADJUSTMENTS (CONTINUED)

(k) Reflects the estimated after-tax gain on the Disposition of $146.2 million, which was calculated as follows (in thousands):
Estimated proceeds, net of transaction costs
 
$
670,000

Assets of Distribution
 
(658,221
)
Liabilities of Distribution1
 
184,864

Pre-tax gain on sale of Distribution
 
196,643

Taxes on gain of sale of Distribution
 
50,415

After-tax gain on sale of Distribution
 
$
146,228

1The liabilities of Distribution have been adjusted for the assumed settlement of deferred income taxes as of the date of the Disposition.


3.     TRANSITION SERVICES AGREEMENT

Pursuant to a transitions service agreement entered into and effective on the closing of the Disposition, the Company will supply certain services to Distribution, including information technology, human resources and benefits, tax and treasury functions for six to twelve months, with the option to extend an additional year for certain services. No pro forma adjustments have been made associated with this agreement as services to be provided will not have a continuing impact.