STRENGTH IN DIVERSIFICATION
NEAL J. KEATING
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
“ Diversity — of markets,
technologies and
people — is a continuing
source of strength for
Kaman.”
DEAR SHAREHOLDERS,
If one word could capture the unique strength
of Kaman, it would have to be diversification.
Kaman is a diversified company in every sense
of the word. We serve diverse markets with
a diverse set of products and solutions in
both operating segments. We bring diverse
technologies deployed across diverse locations
around the world. Most importantly, we are a
collection of diverse talents, skills, backgrounds
and perspectives. From Charlie Kaman’s idea
for a better helicopter seventy years ago,
Kaman has grown into a diversified aerospace
and industrial distribution leader. Today we are
an important supplier to virtually every major
aircraft manufacturer globally and a leader in the
industrial distribution market, together serving
customers in more than 60 countries worldwide.
Our performance in 2015, against challenging
market conditions in certain end markets, once
again illustrates the benefits of diversification.
In 2015, Kaman reported net earnings from
continuing operations of $60.4 million, or $2.17
per diluted share, compared to $65.8 million, or
$2.37 per diluted share, in 2014. Earnings were
impacted by lower organic revenues in both
segments, and a number of non-recurring items,
but benefited from strong margin performance
at Aerospace and reflect the success of our
focused cost management efforts across
every area of the company. Net sales from
continuing operations for 2015 declined 1%
to $1.78 billion, compared to $1.79 billion in
2014. Once again, we generated very strong
free cash flow during the year: $79.7 million
from continuing operations in 2015, compared
to $80.8 million during 2014. With our January
2016 dividend payment, we have paid dividends
for 46 consecutive years. Underscoring
this commitment to creating value for our
shareholders, during 2015 we announced a
share repurchase program of up to $100 million
and increased the dividend 12.5%. The two
initiatives combined returned $31.9 million to
shareholders in 2015.
Despite challenging conditions in some of the
markets we serve, we continued to invest in the
future of Kaman. In our Distribution business we
opened several new state-of-the-art facilities to
better serve our customers, and in Aerospace,
we completed two acquisitions, including the
largest in Kaman history.
AEROSPACE
In 2015, Aerospace delivered another year of
strong profit performance despite encountering
top line pressures. Revenues for 2015 were
$597.6 million, a decrease of 5.6% from 2014
revenues of $633.0 million. Operating profit
for 2015 increased 1.5% to $110.3 million
from $108.7 million in 2014 reflecting strong
operating performance. This represents a five-
year compound annual growth rate of 10.4% in
operating profit dollars.
Beyond solid bottom line financial performance,
we made significant progress toward our
strategy of broadening our highly engineered
product offerings. In October we announced
the acquisition of EXTEX Engineered Products
(formerly Timken Alcor Aerospace Technologies)
of Mesa, Arizona. EXTEX designs and supplies
aftermarket parts to support businesses
conducting maintenance, repair and overhauls
(MROs) in aerospace markets primarily located
in North America. EXTEX nicely complements the
aftermarket business of our Specialty Bearings
& Engineered Products division, and Kaman’s
test and development capabilities will allow
for expanded customer application solutions. I
expect that EXTEX will be able to leverage our
international sales force to provide significant
new global opportunities for their solutions.
More recently, we announced the acquisition
of GRW Bearing GmbH (GRW), our largest-ever
acquisition. GRW is a German-based designer
and manufacturer of super precision, miniature
ball bearings. GRW is focused on the demanding
applications segment of the miniature ball
bearings market, where low noise requirements,
extreme temperatures, ultra-high speeds
and/or caustic environments require both
exceptional engineering design and continuous
operating performance capabilities. GRW
operates out of two state-of-the-art production
facilities in Rimpar, Germany and Prachatice,
Czech Republic. GRW is a great addition to
our specialty bearing and engineered products
lines. While our current bearing manufacturing
businesses, Kamatics and RWG Germany, are
aligned with GRW through a focus on solving
the critical problems of OEM customers and
achieving the highest standards of performance
in the most demanding applications, GRW offers
us entry into several new end markets beyond
aerospace, including the fast-growing healthcare
segment. I am pleased to welcome GRW’s more
than 500 talented employees to Kaman, along
with those who have joined from EXTEX.
Acquisitions were not the only positive
developments in Aerospace. Our specialty
bearings product lines continue their
outstanding performance, with record orders in
2015, including strong demand from the Airbus
A350 program. To meet current and projected
growth trends we are expanding our facility in
Bloomfield, Connecticut. Additionally, our RWG
facility in Höchstadt, Germany, recently earned
site qualification from Boeing.
Our Aerospace team continues to expand our
business with key customers, including Triumph
and Boeing. We have won multiple new orders
for our preeminent Joint Programmable Fuze
(JPF). In fact, we currently have a backlog for
the JPF worth more than $300 million, and
are significantly expanding capacity to meet
this demand. We have also won new orders on
our 777/767 and KC-46A fixed trailing edge
programs, and other noteworthy wins have
included A330 NEO wing panels. Coupled with
the business from other customers such as
Airbus and Lockheed Martin, Kaman Aerospace
supplies components for most of the aircraft
produced in the world today.
decrease of 12.9% from $56.8 million in 2014.
Operating margins from continuing operations
were 4.2% in 2015, down from 4.9% in 2014.
Finally, I am particularly pleased that we have
restarted production of the K-MAX® helicopter
and already have five aircraft under contract
and three more under deposit from commercial
customers around the world, including our
first customer in China. The first delivery is
expected in early 2017. We have also performed
a number of demonstrations for government
customers with our partner, Lockheed Martin, of
the unmanned K-MAX®, including a demo for the
U.S. Marine Corps in Quantico to validate the
K-MAX®’s new mission capabilities, and several
demos for the U.S. Department of the Interior to
exhibit its firefighting capabilities.
I believe that a number of trends in aerospace
will provide significant benefits for Kaman in the
coming years. The higher bearing content on
new aerospace platforms will help drive growth
in our bearings business. Higher commercial
aircraft build rates are driving sales of bearings
as well as aerostructure solutions; this trend,
combined with increased demand for the Joint
Programmable Fuze, are providing a significant
offset to overall lower defense spending. To
capitalize on these trends, we are continuing
to diversify our offering through increased
commercial content and select acquisitions. We
are increasingly emphasizing highly engineered
products, which offer more competitive
differentiation and afford higher margins. And
we are continuing to invest in our people and
infrastructure to drive continued growth.
DISTRIBUTION
Our Distribution business faced a challenging
market environment in 2015. Falling commodity
and oil prices and a rising dollar put significant
pressure on many of our end markets, resulting
in slightly lower organic revenues. We tightly
managed our expenses to mitigate some of
the impact this environment has had on our
operating results. Revenues increased 1.3%
in 2015 to $1.18 billion, from $1.16 billion
in 2014. Operating profit from continuing
operations for 2015 was $49.4 million, a
Our top-line performance was helped by two
acquisitions in 2015, following the 2014
acquisition of B.W. Rogers, our largest
Distribution acquisition ever. In January we
announced the acquisition of G.C. Fabrication,
Inc. (GCF) of Northvale, New Jersey. This
acquisition expanded our Automation, Control
& Energy platform into the New York metro
market, complementing our acquisitions of
Minarik and Zeller. In November we announced
the acquisition of Calkins Fluid Power, Inc.,
of Spokane, Washington, a distributor of fluid
power components and systems. Calkins is
a full-line authorized distributor of Parker’s
mobile and industrial hydraulics, filtration and
pneumatics products, serving a variety of
industries throughout Washington, Montana and
Idaho. The acquisition of Calkins enhances our
strong fluid power position and further supports
our strategic relationship and authorizations with
Parker Hannifin, our primary fluid power supplier.
To strengthen our platform, we invested in
facilities and we consolidated locations to
better leverage the synergies across our three
platforms. These state-of-the-art facilities will
drive more efficient operations and enable us to
deliver greater value to our customers.
As with our Aerospace segment, several
underlying market trends offer growth
opportunities for Distribution. Continued
consolidation among suppliers favors larger
national service providers like Kaman. The
demand for value-added services, a core focus
for Kaman, is growing. The accelerating pace of
factory automation is driving demand for fluid
power and high-speed automation solutions,
which plays to Kaman’s strengths. Finally, the
distribution business remains both large and
fragmented, offering attractive opportunities
to further build our platforms through targeted,
strategic acquisitions.
“ We will carefully evaluate acquisitions and other
investments that will enable us to deliver greater
value to our clients.”
Lastly, I would like to recognize the outstanding
contribution of Eileen Kraus, who will retire
from our Board of Directors in April of this year.
Eileen has been a director of Kaman for more
than two decades and served as our first Lead
Independent Director. Her steady guidance
and keen insights have been invaluable during
a period of great change in our company,
our markets and our economy. On behalf of
everyone at Kaman, we thank Eileen for her
support and wish her well in the future.
As always, I am deeply grateful for the loyalty
of our customers, the talent and dedication
of our employees, the support of our Board
of Directors, and the confidence of our
shareholders.
NEAL J. KEATING
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
LOOKING AHEAD
Our strategy for 2016 and beyond will build on
the foundation we established over the past five
years and the diversity of markets, solutions
and geographies that combine to create the
Kaman of today. In Aerospace, we will continue
to develop and capitalize on our unparalleled
portfolio of engineered products, and drive
operational excellence through all areas of the
business. As noted, underlying market dynamics
in the aerospace industry, along with recent
acquisitions, provide a solid foundation for
future growth. Our Distribution business will
continue to focus on margin enhancement and
further rolling out our successful three-platform
strategy. In both businesses, we will carefully
evaluate acquisitions and other investments
that will enable us to deliver greater value to
our clients.
Most importantly, continued growth will
depend on the amazing diversity of talent
and capabilities of Kaman’s more than 5,200
employees. We have a strong and cohesive
culture focused on operational excellence and
outstanding customer service. As we continue
to add new employees through acquisitions and
organic growth, we have never lost focus on the
importance of the Kaman culture to our future
success. It has been heartening to observe how
well our newest employees have embraced and
added to our diversity of talents – positively
shaping our company culture.
UNLIMITED OPPORTUNITY
Diversity means many things at Kaman. It
describes the markets we serve, the solutions
we offer, and the talented people who contribute
to our continued growth.
But diversity perhaps best describes the
opportunities ahead for Kaman. In each of
our businesses, we see opportunities to
grow by offering new solutions, deploying new
technologies, serving new market segments,
and expanding to new geographies.
DIVERSE CUSTOMERS
DISTRIBUTION
Kaman serves customers across the spectrum
of industrial markets, from food and beverage
to energy and mining to municipal wastewater
treatment to OEMs in a variety of industries.
Kaman provides products, services and value-
added systems to municipal wastewater
treatment facilities (left), across all three of
its product platforms: Bearings and Power
Transmission; Automation, Control & Energy;
and Fluid Power.
AEROSPACE
Kaman customers span six continents and more
than 60 countries. In 2015, Kaman signed its
first agreement with a Chinese customer, for
two K-MAX® heavy-lift utility helicopters. The
Chinese market offers significant potential for
Kaman Aerospace, including the K-MAX®.
At left, a Kaman employee from our RWG unit
provides a tour of our airframe bearing plant in
Höchstadt, Germany.
DIVERSE SKILLS
AEROSPACE
Through our Specialty Bearings Advanced
Manufacturing Team (AMT), Kaman employees
with deep expertise in robotics, materials
science and manufacturing technology work
together to develop new automated processes
that use automation, 3D printing, robotics and
other rapid-prototyping capabilities.
The most recent AMT project is the Track-roller
“Supercell,” a multi-robotic work-center that
automatically assembles, laser welds, laser
marks, torque tests, and packages Kamatics
Track-roller parts. The Supercell adopts
advanced technologies such as vision systems,
barcode scanning, additive manufacturing and
robotics. Benefits from this highly specialized,
technologically advanced initiative include
significant reductions in lead times and labor
as well as improved quality.
DIVERSE TECHNOLOGIES
DISTRIBUTION
By focusing on value-added technologies in
three major platforms – Bearings and Power
Transmission; Fluid Power; and Automation,
Control & Energy – Kaman is able to help our
customers increase productivity and reduce
total cost of doing business. Together, these
platforms address a $35 billion market and
position Kaman as a value-added solutions
provider, rather than a traditional provider of
products. Here, a Kaman engineer confers with
a customer on-site at a mining facility in Utah.
AEROSPACE
In Middletown, CT, a quality control specialist
carefully inspects a Joint Programmable Fuze
(JPF). The unsurpassed reliability and advanced
technological design of the JPF has made it
the fuze of choice for the U.S. Air Force and
allied militaries around the world. In fact, to
meet the rapidly growing demand for the JPF,
Kaman is increasing production capacity at
its JPF manufacturing facilities in Orlando, FL
and Middletown.
DIVERSE LOCATIONS
DISTRIBUTION
The Kaman Distribution network spans 238
locations across the United States and
Puerto Rico.
In 2015, we opened a new state-of-the-art
facility in Bolingbrook, IL, near Chicago (left),
consolidating a number of area locations under
one roof. Among its advanced features are
a test area with an integrated control panel
to track data performance; a tech center
for collaborating with engineers on design
screens; and a state-of-the-art Parker Store,
where we pilot new displays and merchandising
approaches for our national network of 30
Parker Stores.
AEROSPACE
Kaman Aerospace is a truly global organization,
with 23 facilities and fully one-third of
employees located outside of the U.S.
Our latest locations are in Rimpar, Germany
and Prachatice, Czech Republic (at left), where
GRW, acquired by Kaman in 2015, designs
and manufactures super precision, miniature
ball bearings.
DIVERSE SOLUTIONS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
Commission File No. 001-35419
KAMAN CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut
(State or other jurisdiction
of incorporation or organization)
06-0613548
(I.R.S. Employer
Identification No.)
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 243-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($1 par value)
Name of each exchange on which registered
New York Stock Exchange LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated herein by reference in Part III of this Form 10-K or any amendment to this Form 10-K
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value on July 3, 2015, (the last business day of the Company’s most recently completed second quarter) of
the voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of the stock, was
approximately $1,119,363,347.
At January 29, 2016, there were 27,014,340 shares of Common Stock outstanding.
Documents Incorporated Herein By Reference
Portions of our definitive proxy statement for our 2016 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Report.
Kaman Corporation
Index to Form 10-K
Part I
Item 1
Business...............................................................................................................................................................
Item 1A Risk Factors .........................................................................................................................................................
Item 1B Unresolved Staff Comments................................................................................................................................
Item 2
Item 3
Properties.............................................................................................................................................................
Legal Proceedings ...............................................................................................................................................
Item 4 Mine Safety Disclosures......................................................................................................................................
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .............................................................................................................................................................
Item 6
Selected Financial Data .......................................................................................................................................
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations..............................
Item 7A Quantitative and Qualitative Disclosures About Market Risk ............................................................................
Item 8
Item 9
Financial Statements and Supplementary Data ...................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............................
Item 9A Controls and Procedures......................................................................................................................................
Item 9B Other Information................................................................................................................................................
Part III
Item 10 Directors, Executive Officers and Corporate Governance ..................................................................................
Item 11 Executive Compensation .....................................................................................................................................
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...........
Item 13 Certain Relationships and Related Transactions, and Director Independence ....................................................
Item 14
Principal Accounting Fees and Services..............................................................................................................
3
10
20
21
22
23
24
26
28
59
60
110
110
110
111
111
111
111
112
Item 15 Exhibits, Financial Statement Schedules.............................................................................................................
113
Part IV
2
ITEM 1.
BUSINESS
GENERAL
PART I
Kaman Corporation, headquartered in Bloomfield, Connecticut, was incorporated in 1945. We are a diversified company that
conducts business in the aerospace and distribution markets. We report information for ourselves and our subsidiaries
(collectively, “we,” “us,” “our,” and “the Company”) in two business segments, Distribution and Aerospace. A discussion of
2015 developments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in this Form 10-K.
Distribution Segment
The Distribution segment brings our commitment to technological leadership and value-added services to the distribution
business. The Distribution segment is a leading power transmission, motion control, electrical and automation, and fluid power
industrial distributor with operations throughout the United States. We provide products, including bearings, mechanical and
electrical power transmission, fluid power, motion control, automation, material handling components, electrical control and
power distribution, and MRO supplies to a broad spectrum of industrial markets throughout the United States. Locations consist
of approximately 240 branches, distribution centers and call centers across the United States (including Puerto Rico). We offer
approximately four million items, as well as value-added services, to approximately 65,000 active customers representing a
highly diversified cross section of industry.
Aerospace Segment
The Aerospace segment 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.
Principal customers include the U.S. military, Sikorsky Aircraft Corporation, The Boeing Company, Airbus, Lockheed Martin,
Raytheon and Bell Helicopter. The SH-2G aircraft is currently in service with the Egyptian Air Force and the New Zealand and
Polish navies. Operations are conducted throughout the United States, as well as in facilities located in the United Kingdom,
Germany, the Czech Republic and Mexico. Additionally, the Company maintains an investment in a joint venture in India.
FINANCIAL INFORMATION ABOUT OUR SEGMENTS
Financial information about our segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, and Note 19, Segment and Geographic Information, of the Notes to Consolidated Financial
Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
WORKING CAPITAL
A discussion of our working capital is included in Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources, in this Form 10-K.
Our Distribution segment requires substantial working capital related to accounts receivable and inventories. Significant
amounts of inventory are carried to meet our customers’ requirements. Sales returns do not have a material effect on our
working capital requirements.
Our Aerospace segment’s working capital requirements are dependent on the nature and life cycles of the programs for which
work is performed. New programs may initially require higher working capital to complete nonrecurring start-up activities and
fund the purchase of inventory and equipment necessary to perform the work. Nonrecurring start-up costs on large and complex
programs often take longer to recover, negatively impacting working capital in the short-term and producing a corresponding
benefit in future periods. As these programs mature and efficiencies are gained in the production process, working capital
requirements generally decrease.
3
Our credit agreement includes a revolving credit facility which is available for additional working capital requirements and
investment opportunities. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,
and Note 11, Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary
Data, of this Annual Report on Form 10-K.
PRINCIPAL PRODUCTS AND SERVICES
The following table sets forth the percentage contribution of each business segment’s products and services to consolidated net
sales from continuing operations for each of the three most recently completed years:
Years Ended December 31,
2014
2013
2015
Distribution ...............................................................................................................
Aerospace .................................................................................................................
Total...................................................................................................................
66.3%
33.7%
100.0%
64.7%
35.3%
100.0%
62.9%
37.1%
100.0%
AVAILABILITY OF RAW MATERIALS
While we believe we have sufficient sources for the materials, components, services and supplies used in our manufacturing
activities, we are highly dependent on the availability of essential materials, parts and subassemblies from our suppliers and
subcontractors. The most important raw materials required for our aerospace products are aluminum (sheet, plate, forgings and
extrusions), titanium, nickel, copper and composites. Many major components and product equipment items are procured from
or subcontracted on a sole-source basis with a number of domestic and non-U.S. companies. Although alternative sources
generally exist for these raw materials, qualification of the sources could take a year or more. We are dependent upon the ability
of a large number of suppliers and subcontractors to meet performance specifications, quality standards and delivery schedules
at anticipated costs. While we maintain an extensive qualification system to control risk associated with such reliance on third
parties, failure of suppliers or subcontractors to meet commitments could adversely affect production schedules and contract
profitability, while jeopardizing our ability to fulfill commitments to our customers. Although price increases for raw materials
important to some of our products (steel, copper, aluminum, titanium and nickel) may cause margin and cost pressures, we do
not foresee any near term unavailability of materials, components or supplies that would have an adverse effect on either of our
business segments. For further discussion of the possible effects of changes in the cost or availability of raw materials on our
business, see Item 1A, Risk Factors, in this Form 10-K.
PATENTS AND TRADEMARKS
We hold patents and trademarks reflecting functional, design and technical accomplishments in a wide range of areas covering
both basic production of certain aerospace products as well as highly specialized devices and advanced technology products in
defense related and commercial fields.
Although the Company's patents and trademarks enhance our competitive position, we believe that none of such patents or
trademarks is singularly or as a group essential to our business as a whole. We hold or have applied for U.S. and foreign patents
with expiration dates that range through the year 2027.
Registered trademarks of the Company include KAflex®, KAron®, and K-MAX®. In all, we maintain 34 U.S. and foreign
trademarks.
BACKLOG
The majority of our backlog is attributable to the Aerospace segment. We anticipate that approximately 80.4% of our backlog at
the end of 2015 will be performed in 2016. Approximately 56.1% of the Aerospace segment's backlog at the end of 2015 is
related to U.S. Government contracts or subcontracts.
4
Total backlog at December 31, 2015, 2014 and 2013, and the portion of the backlog we expect to complete in 2016, is as
follows:
Total Backlog at
December 31, 2015
2015 Backlog to be
completed in 2016
Total Backlog at
December 31, 2014
Total Backlog at
December 31, 2013
In thousands
Aerospace .........................
Distribution.......................
Total ...............................
$
$
659,350
65,963
725,313
$
$
516,930
65,963
582,893
$
$
518,025
70,154
588,179
$
$
601,954
50,667
652,621
Backlog related to uncompleted contracts for which we have recorded a provision for estimated losses was $0.7 million as of
December 31, 2015. Backlog related to firm but not yet funded orders was $2.4 million as of December 31, 2015. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, for further discussion.
REGULATORY MATTERS
Government Contracts
The U.S. Government ("USG"), and other governments, may terminate any of our government contracts at their convenience or
for default if we fail to meet specified performance measurements. If any of our government contracts were to be terminated for
convenience, we generally would be entitled to receive payment for work completed and allowable termination or cancellation
costs. If any of our government contracts were to be terminated for default, generally the USG would pay only for the work that
has been accepted and can require us to pay the difference between the original contract price and the cost to re-procure the
contract items, net of the work accepted from the original contract. The USG can also hold us liable for damages resulting from
the default.
During 2015, approximately 98.7% of the work performed by the Company directly or indirectly for the USG was performed
on a fixed-price basis and the balance was performed on a cost-reimbursement basis. Under a fixed-price contract, the price
paid to the contractor is negotiated at the outset of the contract and is not generally subject to adjustment to reflect the actual
costs incurred by the contractor in the performance of the contract. Cost reimbursement contracts provide for the
reimbursement of allowable costs and an additional negotiated fee.
Compliance with Environmental Protection Laws
Our operations are subject to and affected by a variety of federal, state, local and non-U.S. environmental laws and regulations
relating to the discharge, treatment, storage, disposal, investigation and remediation of certain materials, substances and wastes.
We continually assess our compliance status and management of environmental matters in an effort to ensure our operations are
in substantial compliance with all applicable environmental laws and regulations.
Operating and maintenance costs associated with environmental compliance and management of sites are a normal, recurring
part of our operations. These costs often are allowable costs under our contracts with the USG. It is reasonably possible that
continued environmental compliance could have a material impact on our results of operations, financial condition or cash
flows if more stringent clean-up standards are imposed, additional contamination is discovered and/or clean-up costs are higher
than estimated.
See Environmental Matters in Item 3, Legal Proceedings, and Critical Accounting Estimates - Environmental Costs in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 16, Commitments and
Contingencies, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary
Data, of this Annual Report on Form 10-K, for further discussion of our environmental matters.
With respect to all other matters that may currently be pending, in the opinion of management, based on our analysis of relevant
facts and circumstances, we do not believe that compliance with relevant environmental protection laws is likely to have a
material adverse effect upon our capital expenditures, earnings or competitive position. In arriving at this conclusion, we have
taken into consideration site-specific information available regarding total costs of any work to be performed, and the extent of
work previously performed. If we are identified as a “potentially responsible party” ("PRP") by environmental authorities at a
particular site, we, using information available to us, will also review and consider a number of other factors, including: (i) the
financial resources of other PRPs involved in each site, and their proportionate share of the total volume of waste at the site; (ii)
the existence of insurance, if any, and the financial viability of the insurers; and (iii) the success others have had in receiving
reimbursement for similar costs under similar insurance policies issued during the periods applicable to each site.
5
International
Our international sales are subject to U.S. and non-U.S. governmental regulations and procurement policies and practices,
including regulations relating to import-export control, investment, exchange controls and repatriation of earnings. International
sales are also subject to varying currency, political and economic risks.
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 ("ITRA") added subsection (r) to section 13 of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), requiring a public reporting issuer to disclose in its
annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions
relating to Iran, including activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S. affiliates in
compliance with local law. Issuers must also file a notice with the U.S. Securities and Exchange Commission ("SEC") if any
disclosable activities under ITRA have been included in the annual or quarterly report. We did not have any disclosable
activities during the year ended December 31, 2015.
COMPETITION
The Distribution segment competes for business with several other national distributors of bearings, power transmission,
electrical and fluid power products, two of which are substantially larger, and with many regional and local distributors and
Original Equipment Manufacturers ("OEMs"). Competitive forces have intensified due to the increasing trend towards national
contracts, customers' efforts to obtain material cost savings and the extension of supplier product authorizations within the
distribution channel. We compete for business based upon the breadth and quality of products offered, product availability,
delivery performance, and price, as well as on the basis of value-added services that we are able to provide.
The Aerospace segment operates in a highly competitive environment with many other organizations, some of which are
substantially larger than us and have greater financial strength and more extensive resources. We compete for composite and
metallic aerostructures subcontracts, and helicopter sales and structures, bearings and components business on the basis of price
and quality; product endurance and special performance characteristics; proprietary knowledge; the quality of our products and
services; the availability of facilities, equipment and personnel to perform contracts; and the reputation of our
business. Competitors for our business include small machine shops and offshore manufacturing facilities. We compete for
engineering design services business primarily on the basis of technical competence, the reputation of our business, the
availability of our personnel and price. We compete for advanced technology fuzing business primarily on the basis of technical
competence, product quality and price; and also on the basis of our experience as a developer and manufacturer of fuzes for
particular weapon types and the availability of our facilities, equipment and personnel. We are also affected by the political and
economic circumstances of our potential foreign customers.
RESEARCH AND DEVELOPMENT EXPENDITURES
Customer funded research expenditures (which are included in cost of sales) were $0.4 million in 2015, $1.6 million in 2014,
and $3.3 million in 2013. Independent research and development expenditures (which are included in selling, general and
administrative expenses) were $6.7 million in 2015, $6.7 million in 2014, and $7.2 million in 2013.
EMPLOYEES
As of December 31, 2015, we employed 5,258 individuals.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Financial information about geographic areas is included in Note 19, Segment and Geographic Information, of the Notes to
Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K.
6
AVAILABLE INFORMATION
We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to
file reports, proxy statements and other information with the SEC. Copies of these reports, proxy statements and other
information can be read and copied at:
SEC Public Reference Room
100 F Street NE
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC
maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with
the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.
We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy
statements, and current reports on Form 8-K as well as amendments to those reports filed or furnished pursuant to Section 13 or
15(d) of the Exchange Act, together with Section 16 insider beneficial stock ownership reports, as soon as reasonably
practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are posted on our
website at www.kaman.com — select the “Investors” link, then the "Financial Information" link and then the “SEC Filings”
link.
We also make available, free of charge on our website, our Certificate of Incorporation, By–Laws, Governance Principles and
all Board of Directors' standing Committee Charters (Audit, Corporate Governance, Personnel & Compensation and Finance).
These documents are posted on our website at www.kaman.com — select the “Investors” link, then the "Corporate
Governance" link and then the "Documents and Downloads" link.
The information contained on our website is not intended to be, and shall not be deemed to be, incorporated into this
Form 10-K or any other filing under the Exchange Act or the Securities Act of 1933, as amended.
77
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company’s executive officers as of the date of this report are as follows:
Name
Age Position
Prior Experience
Neal J. Keating
60 Chairman, President, Chief Executive
Officer and Director
Steven J. Smidler
57 President of Kaman Industrial
Technologies and Executive Vice President
of Kaman Corporation
Robert D. Starr
48 Executive Vice President and Chief
Financial Officer
Mr. Keating was appointed President and Chief
Operating Officer as well as elected a Director of the
company effective September 17, 2007. Effective
January 1, 2008, he was appointed to the offices of
President and Chief Executive Officer and effective
March 1, 2008, he was appointed to the additional
position of Chairman. Prior to joining the company,
Mr. Keating served as Chief Operating Officer at
Hughes Supply, a $5.4 billion industrial distributor
that was acquired by Home Depot in 2006. Prior to
that, he held senior positions at GKN Aerospace, an
aerospace subsidiary of GKN, plc, and Rockwell
Collins Commercial Systems, and served as a board
member of GKN plc and Agusta-Westland.
Mr. Smidler assumed the role of President of Kaman
Industrial Technologies on September 1, 2010, after
joining the company in December 2009 as Senior
Vice President and Chief Operating Officer of
Kaman Industrial Technologies. Effective February
20, 2012, he was appointed Executive Vice President
of Kaman Corporation. Mr. Smidler joined the
company from Lenze Americas Corporation where
he served as Executive Vice President, with
responsibility for marketing, sales, finance, business
systems and product technology for the Americas.
Mr. Smidler was also a member of the management
committee of the Lenze Group, Germany, and held
the position of President and Treasurer for Lenze
Americas and served as Treasurer and a Board
member for the Lenze ACTech production company.
Prior to that, he served as Vice President, Americas
Sales Operations at Eaton Corporation and Vice
President, Marketing of the Global Manufacturing
Group at Rockwell Automation, Inc.
Mr. Starr was appointed Executive Vice President
effective July 1, 2015, and has served as the Chief
Financial Officer of the company since July 1, 2013.
Mr. Starr joined the company in 2009 as Vice
President - Treasurer. Prior to joining Kaman, Mr.
Starr served as Assistant Treasurer at Crane Co. of
Stamford, Connecticut, a $2.6 billion diversified
manufacturer of highly engineered industrial
products. He also previously served as Managing
Director, Corporate Finance at Aetna, Inc. of
Hartford, Connecticut and as Director, Capital
Markets and Risk Management at Fisher Scientific
International, Inc. of Hampton, New Hampshire. Mr.
Starr was also an associate at both Salomon Smith
Barney in New York and Chase Securities, Inc. in
New York and Singapore.
8
Name
Age Position
Prior Experience
Gregory L. Steiner
58 President of Kaman Aerospace Group, Inc.
and Executive Vice President of Kaman
Corporation
Ronald M. Galla
64 Senior Vice President and Chief
Information Officer
Phillip A. Goodrich
59 Senior Vice President - Corporate
Development
Mr. Steiner joined the company as President of
Kaman Aerospace Group, Inc., with overall
responsibility for the company's Aerospace segment,
effective July 7, 2008. Effective February 20, 2012,
he was appointed Executive Vice President of
Kaman Corporation. From 2005 to 2007, Mr. Steiner
was employed at GE Aviation-Systems, serving first
as Vice President and General Manager, Military
Mission Systems and then as Vice President,
Systems for GE Aviation-Systems. Prior to that, he
served as Group Vice President at Curtiss-Wright
Controls, Inc., with responsibility for four aerospace
and industrial electronics businesses located in the
U.S. and U.K. Before Curtiss Wright, he had an 18
year career with Rockwell Collins, Inc., serving in a
number of progressively responsible positions,
departing as Vice President and General Manager of
Passenger Systems.
Mr. Galla has been Senior Vice President and Chief
Information Officer since 1995. Mr. Galla has been
responsible for the company's management
information systems since 1984.
Mr. Goodrich joined the company in 2009 as Vice
President - Corporate Development and was named
Senior Vice President - Corporate Development in
February 2012. He was previously Senior Vice
President, Corporate Development with Barnes
Group, Inc., Bristol, Connecticut. Mr. Goodrich held
similar positions with Ametek, Inc., Paoli,
Pennsylvania; and General Signal Corporation,
Stamford, Connecticut.
Shawn G. Lisle
49 Senior Vice President and General Counsel Mr. Lisle joined the company in 2011 and was
Gregory T. Troy
60 Senior Vice President – Human Resources
and Chief Human Resources Officer
John J. Tedone
51 Vice President, Finance and Chief
Accounting Officer
appointed Senior Vice President and General
Counsel effective December 1, 2012. Prior to joining
the company, Mr. Lisle served as Senior Counsel for
International Paper Company in Memphis,
Tennessee. Prior to that, he served as legal counsel
for Dana Corporation in Toledo, Ohio, and as an
attorney at Porter Wright Morris & Arthur LLP in
Columbus, Ohio. He also previously worked as a
trial attorney at the U.S. Department of Justice, Tax
Division in Washington, D.C. and was a Judge
Advocate in the U.S. Navy.
Mr. Troy joined the company as Senior Vice
President – Human Resources in March 2012. On
February 19, 2013, he was appointed to the position
of Chief Human Resources Officer. Prior to joining
the company, Mr. Troy served as Chief Human
Resources Officer of Force Protection, Inc. from
April 2011 to March 2012, where he was a member
of the Executive Committee. Prior to joining Force
Protection, Mr. Troy served as Vice President and
Chief Human Resources Officer at Modine
Manufacturing Company from February 2006 to
April 2011, providing global human resources
leadership in the Americas, Europe and Asia. Mr.
Troy also previously worked at OMNOVA Solutions
Inc., Bosch Corporation, and Mobil Corporation,
after serving as a Transportation Officer in the
United States Army.
Mr. Tedone has served as Vice President, Finance
and the company's Chief Accounting Officer since
May 2007. From April 2006 to April 2007, Mr.
Tedone served as the company's Vice President,
Internal Audit and prior to that as Assistant Vice
President, Internal Audit.
Each executive officer holds office for a term of one year and until his or her successor is duly appointed and qualified, in
accordance with the Company’s By-Laws.
9
ITEM 1A.
RISK FACTORS
Our business, financial condition, operating results and cash flows can be impacted by the factors set forth below, any one of
which could cause our actual results to vary materially from recent results or from our anticipated future results.
Our future operating results may be impacted by changes in global economic and political conditions.
Our future operating results and liquidity may be impacted by changes in general economic and political conditions which may
affect, among other things, the following:
• The availability of credit and our ability to obtain additional or renewed bank financing, the lack of which may limit
our ability to invest in capital projects and planned expansions or to fully execute our business strategy;
• Market rates of interest, any increase in which would increase the interest payable on some of our borrowings and
adversely impact our cash flow;
• The investment performance of our pension plan, as well as the associated discount rate, any adverse changes in which
may result in a deterioration in the funded status of the plan and an increase in required contributions and plan
expense;
• The relationship between the U.S. Dollar and other currencies, any adverse changes in which could negatively impact
our financial results;
• The ability of our customers to pay for products and services on a timely basis, any adverse change in which could
negatively impact sales and require us to increase our bad debt reserves;
• The volume of orders we receive from our customers, any adverse change in which could result in lower operating
profits as well as less absorption of fixed costs due to a decreased business base; and
• The ability of our suppliers to meet our demand requirements, maintain the pricing of their products, or continue
operations, any of which may require us to find and qualify new suppliers.
While general economic and political conditions have not impaired our ability to access credit markets and finance our
operations to date, there can be no assurance that we will not experience future adverse effects that may be material to our cash
flows, competitive position, financial condition, results of operations, or our ability to access capital.
Our financial performance is significantly influenced by customer demand for the products we distribute.
The financial performance of our Distribution segment, which generated approximately 66.3% of our 2015 consolidated net
sales and approximately 30.9% of our 2015 operating income from continuing operations before corporate expenses and net
gain on sale of assets, is significantly influenced by customer demand for the products that we distribute and the services that
we provide. Consequently, demand for our products and services has been and will continue to be significantly influenced by
the same factors that affect demand for and production of our customers' goods and services, including the following:
•
•
•
•
the level of industrial production and manufacturing capacity utilization in the markets that we serve;
the economic health of the manufacturing sector of the U.S. economy, as reflected by the Purchasing Managers Index®
reported by the Institute for Supply Management, as an index reading of 50 or more implies an expanding
manufacturing economy, while a reading below 50 implies a contracting manufacturing economy;
the consolidation of certain of our manufacturing customers and the trend of manufacturing operations being moved
overseas, which subsequently reduces demand for the products we distribute and the services we provide; and
the general industrial economy, which in declining conditions may cause reduced demand for industrial output.
Any adverse changes in these and other factors affecting the demand for and production of our customers' goods and materials
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our financial performance also is significantly influenced by conditions within the aerospace and defense industries.
The financial performance of our Aerospace segment, which generated approximately 33.7% of our 2015 consolidated net
sales, and approximately 69.1% of our 2015 operating income from continuing operations before corporate expenses and net
gain on sale of assets, is directly tied to economic conditions in the commercial aviation and defense industries.
The commercial aviation industry tends to be cyclical, and capital spending by airlines and aircraft manufacturers may be
influenced by a variety of global factors including current and future traffic levels, aircraft fuel pricing, labor issues,
competition, the retirement of older aircraft, regulatory changes, terrorism and related safety concerns, general economic
conditions, worldwide airline profits and backlog levels.
10
The defense industry may be influenced by a changing global political environment, continued pressure on U.S. and global
defense spending, U.S. foreign policy and the activity level of military flight operations.
Changes to the aerospace and defense industries and continued pressure to reduce U.S. defense spending could have a material
impact on our current and proposed aerospace programs, which could adversely affect our operating results and future
prospects. In addition, changes in economic conditions may cause customers to request that firm orders be rescheduled or
canceled, which could put a portion of our backlog at risk.
Furthermore, because of the lengthy research and development cycle involved in bringing new products to market, we cannot
predict the economic conditions that will exist when a new product is introduced. A reduction in capital spending in the aviation
or defense industries could have a significant effect on the demand for our products, which could have an adverse effect on our
financial performance or results of operations.
Our USG programs are subject to unique risks.
We have several significant long-term contracts either directly with the USG or where the USG is the ultimate customer,
including the Sikorsky BLACK HAWK cockpit program, the Joint Programmable Fuze (“JPF”) program, the Bell Helicopter
AH-1Z program, and the A-10 program. These contracts are subject to unique risks, some of which are beyond our control.
Examples of such risks include:
• The USG may modify, curtail or terminate its contracts and subcontracts at its convenience without prior notice, upon
payment for work done and commitments made at the time of termination. Modification, curtailment or termination of
our major programs or contracts could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
• Our USG business is subject to specific procurement regulations and other requirements. These requirements,
although customary in USG contracts, increase our performance and compliance costs. These costs might increase in
the future, reducing our margins, which could have a negative effect on our financial condition. Although we have
procedures designed to assure compliance with these regulations and requirements, failure to do so under certain
circumstances could lead to suspension or debarment, for cause, from USG contracting or subcontracting for a period
of time and could have a material adverse effect on our business, financial condition, results of operations and cash
flows and could adversely impact our reputation and our ability to receive other USG contract awards in the future.
• The costs we incur on our USG contracts, including allocated indirect costs, may be audited by USG representatives.
Any costs found to be improperly allocated to a specific contract would not be reimbursed, and such costs already
reimbursed would have to be refunded, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows. Moreover, if any audit were to reveal the existence of improper or
illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination
of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business
with the USG.
• We are from time to time subject to governmental inquiries and investigations of our business practices due to our
participation in domestic and foreign government contracts and programs and our transaction of business domestically
and internationally. Adverse findings associated with any such inquiry or investigation could also result in civil and
criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of
payments, fines and suspension or prohibition from doing business with domestic and foreign governments.
Our business may be adversely affected by changes in budgetary priorities of the USG.
Because a significant percentage of our revenue is derived either directly or indirectly from contracts with the USG, changes in
federal government budgetary priorities could directly affect our financial performance. A significant decline in government
expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting
policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate
contracts at any time without penalty or not to exercise options to renew contracts.
During 2011, the federal government was unable to reach agreement on budget reduction measures required by the Budget
Control Act of 2011 (the “Budget Act”) passed by Congress. Because Congress and the Administration could not reach
agreement, the Budget Act triggered automatic reductions in both defense and discretionary spending in a process known as
sequestration. The future impact of sequestration is uncertain, but there can be no assurance that automatic across-the-board
budget cuts will not adversely affect our business and profitability. One or more of our programs could be reduced, extended,
or terminated, which could result in facility closures and personnel reductions that could significantly impact our operations.
11
The cost and effort to start up new aerospace programs could negatively impact our operating results and profits.
The time required and costs incurred to ramp up a new program can be significant and include nonrecurring costs for tooling,
first article testing, finalizing drawings and engineering specifications and hiring new employees able to perform the technical
work required. New programs can typically involve a greater volume of scrap, higher costs due to inefficiencies, delays in
production and learning curves that are often more extended than anticipated, all of which could have a material effect on our
business, financial condition, results of operations and cash flows.
Competition from domestic and foreign manufacturers may result in the loss of potential contracts and opportunities.
The aerospace markets in which we participate are highly competitive, and we often compete for work not only with large
OEMs but also sometimes with our own customers and suppliers. Many of our large customers may choose not to outsource
production due to, among other things, their own direct labor and overhead considerations and capacity utilization objectives.
This could result in these customers supplying their own products or services and competing directly with us for sales of these
products or services, all of which could significantly reduce our revenues.
Our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we
do in some areas and we may not have the technology, cost structure, or available resources to effectively compete with them.
We believe that developing and maintaining a competitive advantage requires continued investment in product development,
engineering, supply chain management and sales and marketing, and we may not have enough resources to make the necessary
investments to do so. Further, our significant customers may attempt to use their position to negotiate price or other concessions
for a particular product or service without regard to the terms of an existing contract or the underlying cost of production.
We believe our strategies for our Aerospace segment will allow us to continue to effectively compete for key contracts and
customers, but there can be no assurance that we will be able to compete successfully in this market or against such
competitors.
We could be negatively impacted by the loss of key suppliers, the lack of product availability, or changes in supplier
programs.
Our business depends on maintaining a sufficient supply of various products to meet our customers' demands. We have long-
standing relationships with key suppliers but these relationships generally are non-exclusive and could be terminated by either
party. If we were to lose a key supplier, or were unable to obtain the same levels of deliveries from these suppliers and were
unable to supplement those purchases with products obtained from other suppliers, it could have a material adverse effect on
our business. Additionally, we rely on foreign and domestic suppliers and commodity markets to secure raw materials used in
many of the products we manufacture within our Aerospace segment or sell within our Distribution segment. This exposes us to
volatility in the price and availability of raw materials. In some instances, we depend upon a single source of supply. Supply
interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting suppliers' production,
transportation disruptions, or other reasons beyond our control. Even if we continue with our current supplier relationships,
high demand for certain products may result in us being unable to meet our customers' demands, which could put us at a
competitive disadvantage. Additionally, our key suppliers could also increase the pricing of their products, which would
negatively affect our operating results if we were not able to pass these price increases through to our customers. We base our
supply management process on an appropriate balancing of the foreseeable risks and the costs of alternative practices. To
protect ourselves against such risks, we engage in strategic inventory purchases during the year, negotiate long-term vendor
supply agreements and monitor our inventory levels to ensure that we have the appropriate inventory on hand to meet our
customers' requirements.
Our failure to comply with the covenants contained in our senior credit facility could trigger an event of default, which
could materially and adversely affect our operating results and our financial condition.
Our senior credit facility requires us to maintain certain financial ratios and comply with various operational and other
covenants. If we were unable to maintain these ratios and comply with such covenants, we would need to seek relief from our
lenders in order to avoid, cure or have waived an event of default under the facility. There can be no assurance that we would
be able to obtain such relief on commercially reasonable terms or otherwise. If an event of default is not cured or waived, our
lenders could, among other things, cause all outstanding indebtedness under the credit facility to be due and payable
immediately. There can be no assurance that our assets or cash flows would be sufficient to enable us to fully repay those
amounts or that we would be able to refinance or restructure the indebtedness. If, as or when required, we are unable to repay,
refinance or restructure the indebtedness outstanding under our senior credit facility, or amend the financial ratios and
covenants contained therein, the lenders under our senior credit facility could elect to terminate their commitments thereunder,
12
cease making further loans and institute foreclosure proceedings against our assets. This, in turn, could result in an event of
default under one or more of our other financing agreements, including our convertible notes.
The value of our deferred tax assets could become impaired, which could materially and adversely affect our operating
results.
As of December 31, 2015, we had approximately $51.6 million in net deferred tax assets after valuation allowance. These
deferred tax assets can be used to offset taxable income in future periods and reduce income taxes payable in those future
periods. Each quarter, we determine the probability of the realization of deferred tax assets, using significant judgments and
estimates with respect to, among other things, historical operating results, expectations of future earnings and tax planning
strategies. In the event that there is insufficient positive evidence to support the valuation of these assets, we may be required to
further adjust the valuation allowance to reduce our deferred tax assets. Such a reduction could result in a material non-cash
charge in the period in which the valuation allowance is adjusted and could have a material adverse effect on our results of
operations.
The freezing of our defined benefit pension plan could trigger a material curtailment adjustment in favor of the USG.
Our defined benefit pension plan was frozen with respect to future benefit accruals effective December 31, 2015. U.S.
Government Cost Accounting Standard 413 ("CAS 413") requires the Company to determine the USG’s share of any resulting
pension curtailment adjustment attributable to pension expense charged to Company contracts with the USG, which could
result in an amount due to the USG if the plan is determined to be in a surplus position or an amount due to the Company if the
plan is determined to be in a deficit position. The Company is working to quantify the impact of the pension curtailment, and
there can be no assurance that it will not have a material adverse effect on our business, our financial condition, results of
operations and cash flows.
Estimates of future costs for long-term contracts impact our current and future operating results and profits.
We generally recognize sales and gross margin on long-term contracts based on the percentage-of-completion method of
accounting. This method allows for revenue recognition as our work progresses on a contract and requires that we estimate
future revenues and costs over the life of a contract. Revenues are estimated based upon the negotiated contract price, with
consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements.
Contract costs may be incurred over a period of several years, and the estimation of these costs requires significant judgment
based upon the acquired knowledge and experience of program managers, engineers, and financial professionals.
Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and
other economic projections. The complexity of certain programs as well as technical risks and the availability of materials and
labor resources could affect our ability to accurately estimate future contract costs. Additional factors that could affect
recognition of revenue under the percentage-of-completion method include:
• Accounting for initial program costs;
• The effect of nonrecurring work;
• Delayed contract start-up or changes to production schedules;
• Transition of work to or from the customer or other vendors;
• Claims or unapproved change orders;
•
• Delayed completion of certain programs for which inventory has been built up;
• Our ability to estimate or control scrap level;
• Accrual of contract losses; and
• Changes in our overhead rates.
Product warranty issues;
Because of the significance of the judgments and estimation processes, it is likely that materially different sales and profit
amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in
underlying assumptions, circumstances or estimates may adversely affect current and future financial performance. While we
perform quarterly reviews of our long-term contracts to address and lessen the effects of these risks, there can be no assurance
that we will not make material adjustments to underlying assumptions or estimates relating to one or more long-term contracts
that may have a material adverse effect on our business, financial condition, results of operations and cash flows.
13
We may lose money or generate lower than expected profits on our fixed-price contracts.
Our customers set demanding specifications for product performance, reliability and cost. Most of our government contracts
and subcontracts provide for a predetermined, fixed price for the products we make regardless of the costs we incur. Therefore,
we must absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these
contracts and in projecting the ultimate level of sales that we may achieve. Our failure to anticipate technical problems,
estimate costs accurately, integrate technical processes effectively or control costs during performance of a fixed-price contract
may reduce the profitability of a fixed-price contract or cause a loss. While we believe that we have recorded adequate
provisions in our financial statements for losses on our fixed-price contracts as required under generally accepted accounting
principles ("GAAP"), there can be no assurance that our contract loss provisions will be adequate to cover all actual future
losses.
The U.S. Navy contract award for the FMU-139D/B bomb fuze could jeopardize the continued viability and profitability
of the Company's bomb fuze program with the U.S. Air Force.
The Company currently provides the FMU-152A/B bomb fuze to the U.S. Air Force ("USAF") and twenty-six other nations,
but the U.S. Navy currently utilizes a different fuze - the FMU-139. During 2015, the U.S. Naval Air Systems Command
(“NAVAIR”) solicited proposals for a firm-fixed price production contract to implement improvements to the performance
characteristics of the FMU-139 (such improved fuze having been designated the FMU-139D/B). The USAF has stated that, if
and when a contract is awarded and production begins, the funds associated with the FMU-152A/B will be redirected to the
FMU-139D/B. During the third quarter of 2015, the U.S. Navy awarded the FMU-139 D/B contract to a competitor. In the
event that the FMU-139 D/B program proceeds as planned and the USAF redirects the funds associated with the FMU-152 A/B
to the FMU-139 D/B, our business, financial condition, results of operations and cash flows may be materially adversely
impacted.
The start-up of the K-MAX® production line could adversely affect our operating results and cash flow generation.
Because the K-MAX® aircraft has not been manufactured in over a decade, restarting the production line could require
significant investments of cash to fund costs associated with development and engineering work, the acquisition of new tooling,
first article testing, and production inefficiencies. The Company currently has $14.9 million of K-MAX® inventory, a portion
of which we expect to use in connection with a start-up of the production line. If this inventory is determined to be unusable,
then the Company could incur additional costs to replace such inventory, including potentially having to requalify suppliers for
the manufacture of new components. The anticipated positive cash flows resulting from the sale of the aircraft may also be
adversely impacted by production delays. Further, if we are unable to sustain interest in this program, we may incur additional
costs associated with a shut-down of the production line.
A failure to develop and retain national accounts at our Distribution segment could adversely impact our financial
results.
Companies continue to consolidate their purchases of industrial products through a small number of major distributors or
integrated suppliers, rather than a large number of vendors. Our Distribution segment has developed a strategy to compete
effectively for national accounts, but we face intensifying competition from our competitors, several of which are larger and
have a more extensive geographic footprint.
If we are not awarded additional national accounts in the future, or if existing national account agreements are not renewed, our
sales volume could be negatively impacted, which may result in lower gross margins and weaker operating results.
Additionally, national accounts may require an increased level of customer service, such as investments in the form of opening
new branches to meet our customers' needs. The cost and time associated with these activities could be significant, and if the
relationship is not maintained, we ultimately may not be able to generate a return on these investments.
The loss of the Distribution segment’s key suppliers with whom we have national reseller agreements and/or national
distributor agreements could adversely affect our operating results and profits.
An element of our Distribution segment’s strategy is to establish alignment with a single vendor in certain portions of its
business. As a result, we currently have distribution rights for certain product lines and depend on these distribution rights as a
source of business. Many of these distribution rights are ours pursuant to contracts that are subject to cancellation upon little or
no prior notice. Although we believe we could obtain alternate distribution rights in the event of such a cancellation, the
termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption of our
business and, in turn, could adversely affect our results of operations and financial condition.
14
A decline in sales at our Distribution segment could adversely impact the vendor incentives and rebates we earn from
suppliers.
Some of our suppliers offer vendor incentives and rebates that are tied to the amount of product that we purchase. These
incentives and rebates can be market or customer-account specific or relate to a specified program period. A decline in sales
could adversely impact the vendor incentives and rebates we earn from suppliers.
Our information technology systems, processes, and sites may suffer interruptions or failures which may affect our
ability to conduct our business.
Our information technology systems provide critical data connectivity, information and services for internal and external
users. These interactions include, but are not limited to, ordering and managing materials from suppliers, inventory
management, shipping products to customers, processing transactions, summarizing and reporting results of operations,
complying with regulatory, legal or tax requirements, and other processes necessary to manage our business. Our computer
systems face the threat of unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks
and other security problems and system disruptions.
Cyber-attacks are evolving and include, but are not limited to, malicious software, destructive malware, attempts to gain
unauthorized access to data, disruption or denial of service attacks and other electronic security breaches that could lead to
disruptions in critical systems, unauthorized release of confidential, personal or otherwise protected information and corruption
of data, networks or systems. We provide products and services to customers who also face cyber threats. Our products and
services may be subject to cyber threats and we may not be able to detect or deter such threats, which could result in losses that
could adversely affect our customers and our company. Additionally, we could be impacted by cyber threats in products that we
use in our partners' and customers' systems that are used in connection with our business. These events, if not prevented or
mitigated, could damage our reputation, require remedial action, lead to loss of business, regulatory actions, potential liability
and other financial losses.
We have put in place business continuity plans and security precautions for our critical systems, including a back-up data
center. However, if our information technology systems are damaged, or cease to function properly due to any number of
causes, such as catastrophic events, power outages, security breaches resulting in unauthorized access or cyber-attacks, and our
business continuity plans and security precautions do not effectively compensate on a timely basis, we may suffer interruptions
in our operations or the misappropriation of proprietary information, which may adversely impact our business, financial
condition, results of operations and cash flows.
Our implementation of enterprise resource planning (“ERP”) systems may adversely affect our business and results of
operations or the effectiveness of internal controls over financial reporting.
We are currently implementing new ERP systems within our Aerospace and Distribution segments. ERP implementations are
complex and time-consuming projects that involve substantial expenditures on system software and implementation activities
that take several years. If we do not effectively implement the ERP systems or if the systems do not operate as intended, it
could adversely affect our financial reporting systems and our ability to produce financial reports, the effectiveness of internal
controls over financial reporting, and our business, financial condition, results of operations and cash flows.
A failure to maintain effective internal controls could adversely affect our ability to accurately report our financial
results or prevent fraud.
Our ability to provide assurance with respect to our financial reports and to effectively prevent fraud depends on effective
internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements; therefore, even effective controls can only provide reasonable assurance with respect to the preparation and fair
presentation of financial statements. If we are unable to provide reasonable assurance, our financial statements could become
materially misleading, which could adversely affect the trading price of our common stock. Any material weakness could
adversely impact investor confidence in the accuracy of our financial statements, affecting our ability to obtain additional
financing. As a result, this would affect our business, financial condition and the market value of our stock. Additionally, we
would incur costs to improve our internal control systems.
Although management has assessed our internal control over financial reporting as effective based on criteria set forth by the
COSO - Integrated Framework, we can give no assurance that material weaknesses will not occur in the future. Those controls
may not be adequate to prevent or identify irregularities or ensure fair presentation of our financial statements.
15
We may make acquisitions or investments in new businesses, products or technologies that involve additional risks,
which could disrupt our business or harm our financial condition or results of operations.
As part of our business strategy, we have made, and expect to continue to make, acquisitions of businesses or investments in
companies that offer complementary products, services and technologies. Such acquisitions or investments involve a number of
risks, including:
• Assimilating operations and products may be unexpectedly difficult;
• Management's attention may be diverted from other business concerns;
• We may enter markets in which we have limited or no direct experience;
• We may lose key employees, customers or vendors of an acquired business;
• We may not be able to achieve the synergies or cost savings we anticipated;
• We may not realize the assigned value of the acquired assets;
• We may experience quality control failures or encounter other customer issues; and
• We may become subject to preexisting liabilities and obligations of the acquired businesses.
These factors could have a material adverse effect on our business, financial condition, results of operations and cash flows. In
addition, the consideration paid for any future acquisitions could include our stock or require that we incur additional debt and
contingent liabilities. As a result, future acquisitions could cause dilution of existing equity interests and earnings per share.
Certain of our operations are conducted through joint ventures, which entail special risks.
The Company has a 26% equity interest in Kineco-Kaman Composites - India Private Limited, a composites manufacturing
joint venture located in Goa, India. The Company relies significantly on the services and skills of its joint venture partner to
manage and conduct the local business operations of the joint venture and ensure compliance with all applicable laws and
regulations. If our joint venture partner fails to perform these functions adequately, it may adversely affect our business,
financial condition, results of operations and cash flows. Moreover, if our joint venture partner fails to honor its financial
obligations to commit capital, equity or credit support to the joint venture as a result of financial or other difficulties or for any
other reason, the joint venture may be unable to perform contracted services or deliver contracted products unless we provide
the necessary capital, equity or credit support.
Our results of operations could be adversely affected by impairment of our goodwill or other intangible assets.
When we acquire a business, we record goodwill equal to the excess of the amount we pay for the business, including liabilities
assumed, over the fair value of the tangible and identifiable intangible assets of the business we acquire. Goodwill and other
intangible assets that have indefinite useful lives must be evaluated at least annually for impairment. The specific guidance for
testing goodwill and other non-amortized intangible assets for impairment requires management to make certain estimates and
assumptions when allocating goodwill to reporting units and determining the fair value of reporting unit net assets and
liabilities, including, among other things, an assessment of market conditions, projected cash flows, investment rates, cost of
capital and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. Fair value
is generally determined using a combination of the discounted cash flow, market multiple and market capitalization valuation
approaches. Absent any impairment indicators, we generally perform our evaluations annually in the fourth quarter, using
available forecast information. If at any time we determine an impairment has occurred, we are required to reflect the reduction
in value as an expense within operating income, resulting in a reduction of earnings and a corresponding reduction in our net
asset value in the period such impairment is identified.
We rely on the experience and expertise of our skilled employees, and must continue to attract and retain qualified
technical, marketing and managerial personnel in order to succeed.
Our future success will depend largely upon our ability to attract and retain highly skilled technical, operational and financial
managers and marketing personnel. There is significant competition for such personnel in the aerospace and distribution
industries. We try to ensure that we offer competitive compensation and benefits as well as opportunities for continued
development, and we continually strive to recruit and train qualified personnel and retain key employees. There can be no
assurance, however, that we will continue to be successful in attracting and retaining the personnel we require to develop new
and enhanced products and to continue to grow and operate profitably.
16
We are subject to litigation, tax, environmental and other legal compliance risks that could adversely affect our
operating results.
We are subject to a variety of litigation, tax and legal compliance risks. These risks include, among other things, possible
liability relating to contract-related claims, government contracts, product liability matters, personal injuries, intellectual
property rights, taxes, environmental matters and compliance with U.S. and foreign export laws, competition laws and laws
governing improper business practices. In the event that we or one of our business units engage in wrongdoing in connection
with any of these kinds of matters, we could be subject to significant fines, penalties, repayments, other damages (in certain
cases, treble damages), or suspension or debarment from government contracts. Moreover, our failure to comply with
applicable export and trade practice laws could result in civil or criminal penalties and suspension or termination of export
privileges.
As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate.
Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related
interpretations and other guidance. Changes in laws or regulations could result in higher expenses and payments, and
uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and
could limit our ability to enforce our rights. Changes in environmental and climate change laws or regulations, including laws
relating to greenhouse gas emissions, could lead to new or additional investment in product designs and could increase
environmental compliance expenditures. Changes in climate change concerns, or in the regulation of such concerns, including
greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw material
costs.
Our financial results may be adversely affected by the outcome of pending legal proceedings and other contingencies that
cannot be predicted. In accordance with GAAP, if a liability is deemed probable and reasonably estimable in light of the facts
and circumstances known to us at a particular point in time, we make an estimate of material loss contingencies and establish
reserves based on our assessment. Subsequent developments in legal proceedings may affect our assessment. The accrual of a
loss contingency adversely affects our results of operations in the period in which a liability is recognized. This could also have
an adverse impact on our cash flows in the period during which damages are paid.
For a discussion of these matters, please refer to Note 16, Commitments and Contingencies, in the Notes to Consolidated
Financial Statements in this Annual Report on Form 10-K.
Regulations related to conflict minerals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions designed to improve transparency and
accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic
of the Congo ("DRC") and adjoining countries. In August 2012, the SEC promulgated disclosure and reporting requirements
for companies who use conflict minerals in their products. Complying with these disclosure and reporting requirements
requires us to incur substantial costs and expenditures to conduct due diligence to determine the sources of conflict minerals
used in our products. Moreover, these requirements may result in changes to the sourcing practices of our customers which may
require the identification and qualification of alternate sourcing for the components of products we manufacture, which could
impact the availability of, or cause increases in the price of, materials used in our products. We may face reputational
challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to
verify the origin of conflict minerals used in our products through the procedures we implemented. As there may be only a
limited number of suppliers offering “conflict free” conflict minerals, there can be no assurance that we will be able to obtain
necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices.
Our foreign operations require us to comply with a number of United States and international laws and regulations,
violations of which could have a material adverse effect on our business, financial condition, results of operations and
cash flows.
Our operations outside the United States require us to comply with a number of United States and international laws and
regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), the U.K. Bribery Act of 2010 (the "Bribery
Act") and other similar anticorruption laws. The FCPA generally prohibits United States companies or their agents and
employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these
individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain
any unfair advantage. While we have internal controls and procedures and compliance programs to train our employees and
agents with respect to compliance with the FCPA and other similar international laws and regulations, there can be no assurance
that our policies, procedures and programs will always protect us from reckless or criminal acts committed by our employees or
17
agents. Allegations of violations of applicable anti-corruption laws, including the FCPA and the Bribery Act, may result in
internal, independent, or government investigations. Violations of the FCPA and other international laws and regulations may
lead to severe criminal or civil sanctions and could result in liabilities that have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Our foreign operations present additional risks and uncertainties which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Our foreign business operations create additional risks and uncertainties, including the following:
• Longer payment cycles;
• Difficulties in accounts receivable collection;
• Changes in regulatory requirements;
• Export restrictions, tariffs and other trade barriers;
• Difficulties in staffing and managing foreign operations;
•
•
•
• Cultural and legal differences impacting the conduct of business.
Seasonal reductions in business activity during the summer months in Europe and certain other parts of the world;
Political or economic instability in the markets we serve;
Potentially adverse tax consequences; and
Any one or more of these factors could have a material adverse effect on our domestic or international operations, and,
consequently, on our business, financial condition, results of operations and cash flows.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We are exposed to risks that are unique to the products and services we provide. While we believe that we maintain adequate
insurance for certain risks, insurance cannot be obtained to protect against all risks and liabilities. It is therefore possible that
our insurance coverage may not cover all claims or liabilities, and we may be forced to bear substantial unanticipated costs.
Health care reform could adversely affect our operating results.
In 2010, the United States federal government enacted comprehensive health care reform legislation. Due to the breadth and
complexity of this legislation, as well as the phased-in nature of its implementation and lack of interpretive guidance, it is
difficult for the Company to predict the effects it will have on our business over the coming years. There can be no assurance
that our operating results will not be adversely affected by increased costs, expanded liability exposure and requirements that
change the ways we provide healthcare and other benefits to our employees.
Business disruptions could seriously affect our sales and financial condition or increase our costs and expenses.
Our business may be impacted by disruptions including, but not limited to, threats to physical security, information technology
attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises. Any of these
disruptions could affect our internal operations or services provided to customers, and could impact our sales, increase our
expenses or adversely affect our reputation or our stock price. We have developed and are implementing business continuity
plans for each of our businesses, in order to mitigate the effects disruptions may have on our financial results.
Our revenue, cash flows and quarterly results may fluctuate, which could adversely affect our stock price.
We may in the future experience significant fluctuations in our quarterly operating results attributable to a variety of factors.
Such factors include but are not limited to:
Introduction, enhancement or announcement of products by us or our competitors;
• Changes in demand for our products;
•
• Market acceptance of our new products;
• The growth rates of certain market segments in which we compete;
•
• Difficulties with our technical programs;
• Budgeting cycles of customers;
• Mix of distribution channels;
• Mix of products and services sold;
Size, timing and shipment terms of significant orders;
18
• Mix of domestic and international revenues;
•
Fluctuations in currency exchange rates;
• Changes in the level of operating expenses;
• Changes in our sales incentive plans;
• Changes in tax laws in the jurisdictions in which we conduct business;
•
Inventory obsolescence;
• Accrual of contract losses;
•
• Completion or announcement of acquisitions; and
• General economic conditions in regions in which we conduct business.
Fluctuations in oil and utility costs;
Most of our expenses are relatively fixed in the short-term, including costs of personnel and facilities, and are not easily
reduced. Thus, an unexpected reduction in our revenue, or failure to achieve an anticipated rate of growth, could have a
material adverse effect on our profitability. If our operating results do not meet the expectations of investors, our stock price
may decline.
19
FORWARD-LOOKING STATEMENTS
This report 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 existence of standard government contract provisions permitting renegotiation of
terms and termination for the convenience of the government; (vi) the successful resolution of government inquiries or
investigations relating to our businesses and programs; (vii) 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; (viii) potential difficulties associated
with variable acceptance test results, given sensitive production materials and extreme test parameters; (ix) 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; (x) 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; (xi) the accuracy of current cost
estimates associated with environmental remediation activities; (xii) the profitable integration of acquired businesses and the
ability to generate projected earnings and achieve cost synergies and other expense reduction objectives from such businesses;
(xiii) 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; (xiv) changes in
supplier sales or vendor incentive policies; (xv) the effects of price increases or decreases; (xvi) the effects of pension
regulations, pension plan assumptions, pension plan asset performance and future contributions and the pension freeze; (xvii)
future levels of indebtedness and capital expenditures; (xviii) the continued availability of raw materials and other commodities
in adequate supplies and the effect of increased costs for such items; (xix) the effects of currency exchange rates and foreign
competition on future operations; (xx) changes in laws and regulations, taxes, interest rates, inflation rates and general
business conditions; (xxi) future repurchases and/or issuances of common stock; (xxii) the incurrence of unanticipated
restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; and
(xxiii) other risks and uncertainties set forth in the Company's annual, quarterly and current reports, proxy statements and
other filings with the SEC.
Any forward-looking information provided in this report should be considered with these factors in mind. We assume no
obligation to update any forward-looking statements contained in this report.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
20
ITEM 2.
PROPERTIES
Our facilities are generally suitable for, and adequate to serve, their intended uses. At December 31, 2015, we occupied major
facilities at the following principal locations:
Segment
Location
Aerospace..........
Jacksonville, Florida .........................................
Property Type (1)
Leased - Manufacturing & Office
Chihuahua, Mexico ...........................................
Leased - Manufacturing & Office
Rimpar, Germany..............................................
Owned - Manufacturing & Office
Prachatice, Czech Republic...............................
Owned - Assembly & Office
Wichita, Kansas.................................................
Leased - Manufacturing & Office
Darwen, Lancashire, United Kingdom .............
Leased - Manufacturing & Office
Hyde, Greater Manchester, United Kingdom....
Leased - Manufacturing & Office
Burnley, Lancashire, United Kingdom..............
Leased - Manufacturing & Office
Orlando, Florida ................................................
Owned - Manufacturing & Office
Everett, Washington..........................................
Leased - Office
Höchstadt, Germany..........................................
Owned - Manufacturing & Office
Middletown, Connecticut..................................
Owned - Manufacturing & Office
Bloomfield, Connecticut ...................................
Owned - Manufacturing, Office & Service Center
Bennington, Vermont........................................
Owned - Manufacturing & Office
Mesa, Arizona ...................................................
Leased - Office & Service Center
Distribution .......
Bloomfield, Connecticut ...................................
Ontario, California ............................................
Owned - Office
Leased - Distribution Center & Office
Albany, New York.............................................
Leased - Distribution Center & Office
Savannah, Georgia ............................................
Leased - Distribution Center & Office
Salt Lake City, Utah..........................................
Leased - Distribution Center & Office
Louisville, Kentucky .........................................
Leased - Distribution Center & Office
Gurabo, Puerto Rico..........................................
Leased - Distribution Center & Office
Bolingbrook, Illinois .........................................
Leased - Office & Branch
Rochester, New York.........................................
Leased - Office & Branch
Akron, Ohio ......................................................
Leased - Office
Northvale, New Jersey ......................................
Leased - Office & Branch
Corporate...........
Bloomfield, Connecticut ...................................
Owned - Office & Information Technology Back-
Up Data Center
Distribution (2) ......................................................................................................................................................
Aerospace.............................................................................................................................................................
Corporate (3) .........................................................................................................................................................
Total ...................................................................................................................................................................
Square Feet
2,379,420
2,251,689
103,041
4,734,150
(1) Owned facilities are unencumbered.
(2) The Distribution segment also has approximately 240 branches located across the United States and in Puerto Rico,
generally operating in leased facilities.
(3) We occupy a 40,000 square foot corporate headquarters building, 38,000 square foot mixed use building and 8,000
square foot data center in Bloomfield, Connecticut.
21
ITEM 3.
LEGAL PROCEEDINGS
General
From time to time, as a normal incident of the nature and kinds of businesses in which the Company and its subsidiaries are,
and were, engaged, various claims or charges are asserted and legal proceedings are commenced by or against the Company
and/or one or more of its subsidiaries. Claimed amounts may be substantial but may not bear any reasonable relationship to the
merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals related to those matters for
which we consider a loss to be both probable and reasonably estimable. Gain contingencies, if any, are not recognized until
they are realized. Legal costs are generally expensed when incurred.
We evaluate, on a quarterly basis, developments in legal proceedings that could affect the amount of any accrual and
developments that would make a loss contingency both probable and reasonably estimable. Our loss contingencies are subject
to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural
status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions;
(iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the
proceedings involve a large number of parties and/or parties and claims in multiple jurisdictions or jurisdictions in which the
relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and
(viii) the status of settlement discussions, if any, and the settlement postures of the parties. Because of these uncertainties,
management has determined that, except as otherwise noted below, the amount of loss or range of loss that is reasonably
possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already
accrued), is not reasonably estimable.
While it is not possible to predict the outcome of these matters with certainty, based upon available information, management
believes that all settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered
against us in legal proceedings and that can be reasonably estimated are accrued for at December 31, 2015. Despite this
analysis, there can be no assurance that the final outcome of these matters will not have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Except as set forth below, as of December 31, 2015, neither the Company nor any of its subsidiaries is a party, nor is any of its
or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the
business of the Company and its subsidiaries. Additional information relating to certain of these matters is set forth in Note 16,
Commitments and Contingencies of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K.
Environmental Matters
The Company and its subsidiaries are subject to numerous U.S. Federal, state and international environmental laws and
regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental
issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past
activities of companies we have acquired). From time to time, we receive notices from the U.S. Environmental Protection
Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or
equivalent laws. Such notices assert potential liability for cleanup costs at various sites, which may include sites owned by us,
sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances
attributable to us from past operations. We are currently named as a potentially responsible party at one site. While it is not
possible to predict the outcome of these proceedings, in the opinion of management, any payments we may be required to make
as a result of all such claims in existence at December 31, 2015, will not have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Asbestos Litigation
Like many other industrial companies, the Company and/or one of its subsidiaries may be named as a defendant in lawsuits
alleging personal injury as a result of exposure to asbestos integrated into certain products sold or distributed by the Company
and/or the named subsidiary. A substantial majority of these asbestos-related claims have been covered by insurance or other
forms of indemnity or have been dismissed without payment. The rest have been resolved for amounts that are not material to
the Company, either individually or in the aggregate. Based on information currently available, we do not believe that the
resolution of any currently pending asbestos-related matters will have a material adverse effect on our business, financial
condition, results of operations or cash flows.
22
ITEM 4.
MINE SAFETY DISCLOSURES
Information concerning mine safety violations required by Section 1503(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act ("Dodd-Frank Act") and Item 104 of Regulation S-K has been included in Exhibit 95 to this Annual
Report on Form 10-K.
23
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET, DIVIDEND AND SHAREHOLDER INFORMATION
Our Common Stock is traded on the New York Stock Exchange under the symbol "KAMN". As of January 29, 2016, there
were 3,400 registered holders of our Common Stock. Holders of the Company’s Common Stock are eligible to participate in
the Computershare Shareowner Services program, which offers a variety of services including dividend reinvestment. A
booklet describing the program may be obtained by contacting Computershare at (800) 522-6645 or via the web at
www.cpushareownerservices.com.
The following table sets forth the high, low and closing sale prices per share of the Company’s Common Stock and the
dividends declared for the periods indicated:
2015
First quarter ......................................................................................
Second quarter..................................................................................
Third quarter.....................................................................................
Fourth quarter ...................................................................................
2014
First quarter ......................................................................................
Second quarter..................................................................................
Third quarter.....................................................................................
Fourth quarter ...................................................................................
$
$
ISSUER PURCHASES OF EQUITY SECURITIES
Market Quotations
High
Low
Close
Dividend
Declared
$
$
42.82
43.47
42.29
41.82
41.77
44.60
43.47
43.49
$
$
37.54
41.00
35.09
36.06
37.83
39.19
38.62
37.43
$
$
42.31
42.06
35.96
40.81
40.02
42.87
39.70
40.09
0.18
0.18
0.18
0.18
0.16
0.16
0.16
0.16
The following table provides information about purchases of Common Stock by the Company during the three months ended
December 31, 2015:
Period
October 3, 2015 – October 30, 2015.......................
October 31, 2015 – November 27, 2015.................
November 28, 2015 – December 31, 2015 .............
Total
Total Number
of Shares
Purchased (a)
27,224
22,201
48,906
98,331
Average
Price Paid
per Share
37.69
$
39.48
$
40.42
$
Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan (b)
27,224
22,000
48,000
97,224
Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Plan
(in thousands)
90,767
$
89,898
$
87,959
$
(a) During the quarter the Company purchased 1,107 shares in connection with employee tax withholding obligations as
permitted by our equity compensation plans, which are SEC Rule 16b-3 qualified compensation plans. These are not purchases
under our publicly announced program.
(b) On April 29, 2015, the Company announced that its Board of Directors approved a $100.0 million share repurchase
program ("2015 Share Repurchase Program").
24
PERFORMANCE GRAPH
Following is a comparison of our total shareholder return for the period 2010 – 2015 compared to the S&P 600 Small Cap
Index and the Russell 2000 Small Cap Index. The performance graph does not include a published industry or line-of-business
index or peer group of similar issuers because during the performance period the Company was conducting operations in
diverse lines of business and we do not believe a meaningful industry index or peer group can be reasonably identified.
Accordingly, as permitted by regulation, the graph includes the S&P 600 Small Cap Index and the Russell 2000 Small Cap
Index, both of which are comprised of issuers with market capitalizations generally similar to that of the Company.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2015
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2010
2011
2012
2013
2014
2015
Kaman Corporation
Russell 2000 Index
S&P Smallcap 600 Index
Kaman Corporation ..........................
S&P Small Cap 600..........................
Russell 2000 .....................................
100.00
100.00
100.00
95.87
101.02
95.82
131.60
115.25
111.49
144.61
166.05
154.78
148.24
175.61
162.35
153.61
172.15
155.18
2010
2011
2012
2013
2014
2015
25
ITEM 6.
SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
(in thousands, except per share amounts, shareholders and employees)
OPERATIONS
Net sales from continuing operations.......................
Operating income from continuing operations.........
Earnings from continuing operations before
income taxes .............................................................
Income tax expense ..................................................
Earnings from continuing operations .......................
Earnings (loss) from discontinued operations, net
of taxes .....................................................................
Gain (loss) on disposal of discontinued operations,
net of taxes ...............................................................
Net earnings..............................................................
FINANCIAL POSITION
Current assets ...........................................................
Current liabilities......................................................
Working capital ........................................................
Property, plant and equipment, net...........................
Total assets ...............................................................
Long-term debt, excluding current portion ..............
Shareholders’ equity.................................................
PER SHARE AMOUNTS
Basic earnings per share from continuing
operations .................................................................
Basic earnings (loss) per share from discontinued
operations .................................................................
Basic earnings (loss) per share from disposal of
discontinued operations............................................
Basic earnings per share ...........................................
Diluted earnings per share from continuing
operations .................................................................
Diluted earnings (loss) per share from discontinued
operations .................................................................
Diluted earnings (loss) per share from disposal of
discontinued operations............................................
Diluted earnings per share........................................
Dividends declared ...................................................
Shareholders’ equity.................................................
Market price range – High .......................................
Market price range – Low ........................................
AVERAGE SHARES OUTSTANDING
Basic .........................................................................
Diluted......................................................................
GENERAL STATISTICS
Registered shareholders............................................
Employees ................................................................
20151
20142,6,7
20133,6,7
20124,6,7
20115,6,7
$ 1,775,125
104,519
$ 1,794,962
110,507
$ 1,653,921
103,346
$ 1,563,342
91,589
$ 1,452,182
86,819
87,989
27,551
60,438
96,502
30,722
65,780
90,654
31,588
59,066
79,695
26,748
52,947
75,541
26,214
49,327
—
(2,924)
(2,386)
755
1,815
$
$
—
60,438
676,035
236,689
439,346
175,586
1,441,205
435,821
543,077
$
$
(4,984)
57,872
662,256
221,724
440,532
147,825
1,201,205
271,232
517,665
$
$
420
57,100
665,205
227,956
437,249
148,508
1,140,631
264,655
511,292
$
$
1,323
55,025
618,045
223,952
394,093
128,669
1,096,993
249,585
420,193
$
$
—
51,142
600,102
218,698
381,404
111,895
996,398
198,522
373,071
$
2.22
$
2.43
$
2.21
$
2.00
$
$
$
$
$
(0.11)
(0.18)
2.14
2.37
(0.11)
(0.18)
2.08
0.64
19.08
44.60
37.43
27,053
27,777
3,532
4,797
(0.09) $
$
$
$
$
$
$
0.02
2.14
2.17
(0.09)
0.02
2.10
0.64
19.04
40.35
32.16
26,744
27,143
3,642
4,743
$
$
$
$
0.03
0.05
2.08
1.99
0.03
0.05
2.07
0.64
15.79
37.54
26.10
26,425
26,622
3,685
5,007
1.88
0.07
—
1.95
1.86
0.07
—
1.93
0.60
14.22
38.40
25.73
26,246
26,500
3,813
4,614
(See Footnotes below)
$
$
$
$
$
$
$
$
—
—
2.22
2.17
—
—
2.17
0.72
20.09
43.47
35.09
27,177
27,868
3,402
5,258
26
(Footnotes to Five-Year Selected Financial Data above)
Included within certain annual results are a variety of unusual or significant items that may affect comparability. The most
significant of such items are described below.
1. Results for 2015 include $5.1 million in expense related to the acquisitions at both the Aerospace and Distribution
segments, $4.0 million in expense associated with the resolution of the matters related to our AH-1Z program, $3.0
million of expenses related to foreign currency transactions associated with the purchase of GRW, and $2.4 million of
expenses associated with restructuring and severance costs at our Distribution segment.
2. Results for 2014 include the sale of the Distribution segment's Mexican operations for $9.6 million on December 19,
2014. The net loss of $5.3 million resulting from the sale is included in the loss on disposal of discontinued operations
for 2014. Additionally, we incurred $2.2 million of costs associated with the sale of our Moosup facility.
3. Results for 2013 include a $2.1 million non-cash non-tax deductible charge for the impairment of goodwill related to
VT Composites and a gain on discontinued operations due to a $0.4 million favorable tax result versus previous
estimates and other activity related to the settlement of the closing balance sheet of the Distribution segment's
Canadian operations.
4. Results for 2012 include the sale of certain assets and certain liabilities of the Distribution segment's Canadian
operations for $8.7 million on December 31, 2012, resulting in a net gain of $1.3 million. Additionally, we recorded
$3.3 million of net loss related to the resolution of an Aerospace segment program related matter.
5. Results for 2011 include $6.2 million in expense related to the settlement of the FMU-143 matter and a nonrecurring
benefit of $2.4 million resulting from the death of a former executive.
6. The Company sold the Distribution segment's Mexican operations on December 19, 2014. The results of these
discontinued operations have been reported as such in the table.
7. The Company sold substantially all assets and liabilities of the Distribution segment's Canadian operations on
December 31, 2012. The results of these discontinued operations have been reported as such in the table.
27
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide
readers of our consolidated financial statements with the perspectives of management. MD&A presents in narrative form
information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our
future results. This should allow the readers of this report to obtain a comprehensive understanding of our businesses,
strategies, current trends and future prospects. MD&A should be read in conjunction with the Consolidated Financial
Statements and related Notes included in this Form 10-K.
OVERVIEW OF BUSINESS
Kaman Corporation conducts business through two business segments:
• The Distribution segment is a leading power transmission, motion control, electrical and automation, and fluid power
industrial distributor with operations throughout the United States. We provide products, including bearings,
mechanical and electrical power transmission, fluid power, motion control, automation, material handling
components, electrical control and power distribution, and MRO supplies to a broad spectrum of industrial markets
throughout the United States.
• The Aerospace segment 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; super precision miniature bearings for commercial and aerospace applications; design and supply of
aftermarket parts to businesses performing maintenance, repair, and overhauls in aerospace markets; 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.
Company financial performance
• Net sales from continuing operations decreased 1.1% compared to the prior year.
• Earnings from continuing operations decreased 8.1% compared to the prior year.
• Diluted earnings per share from continuing operations decreased to $2.17 in 2015 compared to $2.37 in the prior
year.
• Cash flows provided by operating activities from continuing operations were $109.6 million for 2015, an increase of
$0.5 million when compared to the prior year.
Acquisitions
• On December 1, 2015, the Company's Distribution segment acquired substantially all the assets of Calkins Fluid
Power, Inc. (Calkins), a distributor of fluid power components and systems.
• On November 30, 2015, the Company's Aerospace segment acquired GRW Bearing GmbH (GRW), a German-based
designer and manufacturer of super precision, miniature ball bearings.
• On October 21, 2015, the Company's Aerospace segment acquired Timken Alcor Aerospace Technologies, Inc.
("TAAT") of Mesa, Arizona. TAAT, which has been renamed “EXTEX Engineered Products, Inc.,” designs and
supplies aftermarket parts to support businesses conducting maintenance, repair and overhauls in aerospace markets
primarily located in North America.
• On January 30, 2015, the Company's Distribution segment acquired substantially all the operating assets of G.C.
Fabrication, Inc. (GCF) of Northvale, New Jersey, a premier Schneider Electric/Square D distributor carrying a
variety of electrical power, automation, process controls, specialized HVAC, water and wastewater systems,
communication and networking devices.
Other events
•
In February 2016, the Company reached an agreement with our customer that modified the scope of our AH-1Z
contract and which, among other things, resolved outstanding claims associated with this program.
• On January 14, 2016, the Company announced that its Aerospace segment was awarded a five-year contract
extension on the Airbus A330 Long Range program for the supply of the Upper and Lower Wing panels to Spirit
AeroSystems Europe. This extends A330 Long Range program deliveries to 2020.
• On January 5, 2016, the Company announced that its Aerospace segment was awarded a direct commercial sales
order for the procurement of Joint Programmable Fuzes ("JPF") with a total value of $93.0 million. This order is in
addition to the direct commercial sales orders of $124.5 million awarded in 2015. Delivery of these orders is
anticipated to occur in 2016 and 2017.
28
• On December 8, 2015, the Company announced that its Aerospace segment was awarded an additional order under
Option 12 of its JPF contract with the U.S. Air Force ("USAF") with a total value of $20.8 million. Including this
award, contract modifications added an additional $78.8 million for the procurement of the JPF in 2015. Delivery of
the USAF fuzes are anticipated to occur in 2016 and 2017.
• On November 23, 2015, the Company announced that its Aerospace segment executed an agreement for delivery in
2017 of two manned K-MAX® heavy-lift utility helicopters with Lectern Aviation Supplies Co., Ltd of China.
• On September 21, 2015, the Company delivered the final two SH-2G(I) Super Seasprite aircraft to the New Zealand
Ministry of Defence.
• On June 5, 2015, the Company announced that it would resume production of commercial K-MAX® heavy-lift
utility helicopters. The aircraft will be manufactured at our Jacksonville, Florida and Bloomfield, Connecticut
facilities. We have received orders for five aircraft as of December 31, 2015.
• On June 2, 2015, the Company announced that its Board of Directors appointed Jennifer M. Pollino as a Director.
The Board also appointed Ms. Pollino to serve on its Personnel & Compensation Committee.
• On May 6, 2015, the Company announced it closed on an amended and restated $700 million credit facility.
• On April 29, 2015, the Company announced that the Board of Directors approved a $100.0 million share repurchase
program, which replaced our previous share repurchase program.
• On March 26, 2015, the Company announced that its Aerospace segment was awarded an extension to its current
contract with Bell Helicopter to manufacture skin and skin to core components for the Bell UH-1Y and AH-1Z
helicopters. This five-year follow-on contract has an expected value in excess of $25 million.
• On February 23, 2015, the Company announced that the Board of Directors approved an increase of 12.5% in the
quarterly dividend on the Company’s common shares, to $0.18 per share.
Outlook
Our 2016 outlook is as follows:
• Distribution:
Sales of $1,125.0 million to $1,165.0 million
Operating margin of 4.4% to 4.6%
Adjusted EBITDA margin of 5.8% to 6.0%
• Aerospace:
Sales of $700.0 million to $720.0 million
Operating margin of 17.5% to 17.8%, or 18.3% to 18.6%, when adjusted for $5.5 million of integration costs
in 2016 associated with the 2015 acquisitions
Adjusted EBITDA margin of 21.8% to 22.0%
Interest expense of approximately $16.0 million
•
• Corporate expenses of $55.0 million
• Estimated annualized tax rate of approximately 34.5%
• Depreciation and amortization expense of approximately $45.0 million
• Capital expenditures of $30.0 million to $40.0 million
•
Free cash flow* in the range of $50.0 million to $60.0 million
In millions
Free Cash Flow(a):
2016 Outlook
Low End of Range
High End of Range
Net cash provided by operating activities............................................ $
Less: Expenditures for property, plant and equipment ........................
Free Cash Flow.................................................................................. $
80.0
30.0
50.0
to
to
to
$
$
100.0
40.0
60.0
(a) 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.
29
The following table reconciles our operating margin outlook for 2016 to our Adjusted EBITDA margin outlook for 2016:
Adjusted EBITDA(a):
Distribution
GAAP Operating margin ...............................................................................
Depreciation and Amortization as a percentage of sales ...............................
Adjusted EBITDA margin.............................................................................
Aerospace
GAAP operating margin................................................................................
Transaction and integration costs as a percentage of sales ...........................
Adjusted operating margin.............................................................................
Depreciation and Amortization as a percentage of sales ...............................
Adjusted EBITDA margin.............................................................................
2016 Outlook
Low End of Range
High End of Range
4.4% to
1.4% to
5.8% to
17.5% to
0.8% to
18.3% to
3.5% to
21.8% to
4.6%
1.4%
6.0%
17.8%
0.8%
18.6%
3.4%
22.0%
(a) Adjusted EBITDA, a non-GAAP financial measure, is defined as operating income before depreciation and amortization.
Adjusted EBITDA is calculated on our consolidated results as well as the results of our reportable segments. Adjusted
EBITDA differs from Segment Operating Income, as calculated in accordance with GAAP, in that it excludes depreciation
and amortization. We have made numerous investments in our business, such as acquisitions and increased capital
expenditures, including facility improvements, new machinery and equipment, improvements to our information technology
infrastructure and new ERP systems. Management believes Adjusted EBITDA provides an additional perspective on the
operating results of the organization and its earning capacity and helps improve the comparability of our results between
periods by eliminating the impact of non-cash depreciation and amortization expense.
The following table reconciles our GAAP operating margin outlook for Aerospace for 2016 to our Adjusted operating margin
outlook for Aerospace for 2016:
Adjusted Operating Margin(a):
Aerospace
2016 Outlook
Low End of Range
High End of Range
GAAP operating margin ................................................................................
Transaction and integration costs as a percentage of sales............................
Adjusted operating margin.............................................................................
17.5% to
0.8% to
18.3% to
17.8%
0.8%
18.6%
(a) Non-GAAP 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 for the period presented. Management uses Non-GAAP adjusted
operating income to evaluate performance period over period, to analyze the underlying trends impacting 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.
30
RESULTS OF CONTINUING OPERATIONS
Consolidated Results
Net Sales from Continuing Operations
In thousands
Distribution....................................................................................................
Aerospace ......................................................................................................
Total........................................................................................................
$ change.........................................................................................................
% change .......................................................................................................
$ 1,177,539
597,586
$ 1,775,125
(19,837)
$
$ 1,161,992
632,970
$ 1,794,962
141,041
$
$ 1,039,954
613,967
$ 1,653,921
90,579
$
(1.1)%
8.5%
5.8%
2015
2014
2013
The following table details the components of the above changes as a percentage of consolidated net sales:
2015
2014
2013
Organic Sales:
Distribution ..........................................................................................................
Aerospace.............................................................................................................
Total Organic Sales .........................................................................................
Acquisition Sales:
Distribution ..........................................................................................................
Aerospace.............................................................................................................
Total Acquisition Sales....................................................................................
(2.0)%
(2.4)%
(4.4)%
2.9 %
0.4 %
3.3 %
% change in net sales .............................................................................................
(1.1)%
2.0%
1.1%
3.1%
5.4%
—%
5.4%
8.5%
(1.0)%
2.1 %
1.1 %
4.7 %
— %
4.7 %
5.8 %
The decrease in net sales from continuing operations for 2015 as compared to 2014 was attributable to a decrease in organic
sales at both our Aerospace and Distribution segments and the unfavorable impact on sales of foreign currency exchange rates
of $8.1 million. These decreases were offset by the contribution of $60.1 million in sales from acquisitions completed in 2015
and 2014.
The increase in net sales from continuing operations for 2014 as compared to 2013 was attributable to an increase in organic
sales at both our Aerospace and Distribution segments and the contribution of $89.4 million in sales from Distribution segment
acquisitions completed in 2014 and 2013. Foreign currency exchange rates had a $2.4 million favorable impact on sales from
continuing operations during 2014.
See Segment Results of Operations and Financial Condition below for further discussion of segment net sales.
Gross Profit from Continuing Operations
In thousands
Gross profit ...............................................................................................................
$ change ....................................................................................................................
% change...................................................................................................................
% of net sales ............................................................................................................
$ 517,234
9,295
$ 507,939
44,628
$ 463,311
28,216
1.8%
29.1%
9.6%
28.3%
6.5%
28.0%
2015
2014
2013
Gross profit from continuing operations increased in 2015 reflecting higher gross profit at both our Distribution and Aerospace
segments. The primary driver of the increases was the contribution of $17.7 million of gross margin from acquisitions
completed in 2015 and 2014. Additionally, gross profit as a percentage of net sales increased due to the mix of sales shifting to
higher margin programs in our Aerospace segment, specifically higher JPF direct commercial sales, the contribution of gross
profit on our SH-2G program with Peru, higher sales volume and corresponding gross profit on our military bearing products
31
and the contribution of gross profit on our commercial bearing products primarily used in distribution, regional aircraft and
engines. These increases were partially offset by lower sales under our SH-2G(I) program with New Zealand, lower sales
volume on our legacy missile fuze programs, a decline in gross margin on certain composite structure programs, $4.0 million in
expense associated with the resolution of the matters related to our AH-1Z program and lower sales volume on our Bell
composite blade program. Additionally, there was a decline in organic gross profit at our Distribution segment primarily due to
decreases in the machinery manufacturing, merchant wholesalers durable goods, mining and transportation equipment
manufacturing industries. These decreases were partially offset by increases in the computer and electronic product
manufacturing, paper manufacturing and chemical manufacturing industries.
Gross profit from continuing operations increased in 2014 primarily due to the contribution of $25.7 million of gross profit
from the Distribution segment's 2014 and 2013 acquisitions and a combined 4.2% organic growth in Aerospace and
Distribution segment gross profit. Contributing to the Aerospace segment's improved gross profit were the higher sales on the
SH-2G(I) contract with New Zealand and higher sales of our commercial bearing products. These program/product profit
increases of $16.6 million, which were in addition to the acquisition related gross profit noted above, were partially offset by
$10.7 million related to the decrease in military bearing product sales and lower margin on the JPF as a result of decreased
commercial sales to foreign militaries in 2014. The Distribution segment's organic gross profit increase was primarily due to
increases in the machinery manufacturing, transportation equipment manufacturing and paper manufacturing industries
partially offset by a decrease in the computer and electronic manufacturing industry.
Selling, General & Administrative Expenses (S,G&A) from Continuing Operations
In thousands
S,G&A......................................................................................................................
$ change....................................................................................................................
% change ..................................................................................................................
% of net sales............................................................................................................
$ 413,043
15,844
$ 397,199
39,447
$ 357,752
14,356
4.0%
23.3%
11.0%
22.1%
4.2%
21.6%
2015
2014
2013
S,G&A increased for the year ended December 31, 2015, as compared to 2014. The following table details the components of
this change:
Organic S,G&A:
Distribution.........................................................................................................
Aerospace ...........................................................................................................
Corporate ............................................................................................................
Total Organic S,G&A....................................................................................
Acquisition S,G&A:
Distribution.........................................................................................................
Aerospace ...........................................................................................................
Total Acquisition S,G&A...............................................................................
2015
2014
2013
—%
0.2%
0.2%
0.4%
3.1%
0.5%
3.6%
2.5%
0.2%
2.5%
5.2%
5.8%
—%
5.8%
(0.9)%
0.5 %
(0.4)%
(0.8)%
5.0 %
— %
5.0 %
% change in S,G&A..............................................................................................
4.0%
11.0%
4.2 %
S,G&A expenses associated with continuing operations increased for 2015 as compared to 2014 primarily due to $14.4 million
of S,G&A expenses related to our 2015 and 2014 acquisitions, a $0.9 million increase in corporate expenses and higher
expenses at our Aerospace segment. Corporate expenses increased due to acquisition costs associated with our 2015
acquisitions and an increase in consulting costs. These increases were partially offset by the absence of costs incurred in the
prior year in connection with the sale of our Moosup facility, lower salary and benefit expenses and lower long-term incentive
compensation costs. The increase in expenses at our Aerospace segment was primarily due to a reduction of inventory on
government contracts where allowable general and administrative expenses are included in inventory. Organic expenses at our
Distribution segment remained relatively flat from 2014 to 2015. This was a result of lower expenses primarily due to a
32
decrease in salary and benefit expenses, specifically lower incentive compensation costs, and lower costs associated with our
vehicles, offset by costs related to restructuring activities, higher pension expense, an increase in consulting costs and higher
depreciation and project expenses in part attributable to the introduction of the new enterprise resource planning system
("ERP").
S,G&A expenses associated with continuing operations increased for 2014 as compared to 2013 primarily due to $20.8 million
of expenses related to our 2014 and 2013 acquisitions, a $9.2 million increase in corporate expenses and higher expenses at our
Distribution segment. The increase in corporate expenses was driven by costs related to the sale of our Moosup facility, higher
salary and wage expense, higher incentive compensation costs, higher campus costs and an increase in professional service
fees. Higher Distribution segment costs related to higher employee related incentive costs, higher salary and wage expenses
primarily associated with the expansion of our sales force and higher depreciation related to the new ERP system.
Goodwill Impairment
In thousands
Goodwill impairment ...............................................................................................
$
— $
— $
2,071
2015
2014
2013
During 2013, we recorded a non-cash non-tax deductible goodwill impairment charge of $2.1 million for our VT Composites
reporting unit. This represented 11% of the reporting unit's total goodwill balance and reduced the carrying value of goodwill to
its implied fair value. This charge has been included in the 2013 operating results of the Company's Aerospace segment. No
such charges were taken in 2015 or 2014.
Operating Income from Continuing Operations
In thousands
Operating income .....................................................................................................
$ change....................................................................................................................
% change ..................................................................................................................
% of net sales............................................................................................................
$ 104,519
(5,988)
$ 110,507
7,161
$ 103,346
11,757
(5.4)%
5.9 %
6.9%
6.2%
12.8%
6.2%
2015
2014
2013
The decrease in operating income from continuing operations for 2015 as compared to 2014 was driven by lower organic
operating income at our Distribution segment and higher corporate expenses. These decreases were partially offset by an
increase in operating income at our Aerospace segment and the contribution of operating income from our acquisitions
completed in 2015 and 2014. The increase in operating income from continuing operations for 2014 as compared to 2013 was
driven by increases at both our Aerospace and Distribution segments. See Segment Results of Operations and Financial
Condition below for further discussion of segment operating income.
Interest Expense, Net
In thousands
Interest expense, net .................................................................................................
$
13,144
$
13,382
$
12,294
2015
2014
2013
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 decrease in net interest expense for 2015 as compared to
2014 was primarily due to lower average borrowings under our revolving credit facility. At December 31, 2015, the interest rate
for outstanding amounts on both the revolving credit facility and term loan agreement was 1.67% compared to 1.70% at
December 31, 2014.
The increase in net interest expense for 2014 as compared to 2013 was primarily due to higher average borrowings under our
revolving credit facility. At December 31, 2014, the interest rate for outstanding amounts on both the revolving credit facility
and term loan agreement was 1.70% compared to 1.72% at December 31, 2013.
33
Effective Income Tax Rate for Continuing Operations
Effective income tax rate..........................................................................................
31.3%
31.8%
34.8%
2015
2014
2013
The effective tax rate for continuing operations represents the combined federal, state and foreign tax effects attributable to
pretax earnings for the year. The decrease in the effective rate for 2015 as compared to prior periods was primarily the result of
discrete items recognized in 2015 related to changes in tax laws. Prior to the law changes, we had established valuation
allowances against certain net operating loss carryforwards. Some of these allowances are no longer deemed necessary as the
changes to the tax laws now make it more likely than not that these benefits will be realized in the future.
The decrease in the effective rate for 2014 as compared to 2013 was primarily due to adjustments between the provision for
taxes for 2013 and the actual returns filed.
Gain/(Loss) on Disposal of Discontinued Operations, Net of Tax
The Company sold the Distribution segment's Mexican business unit, Delamac, on December 19, 2014. The sale resulted in a
net loss on disposal of discontinued operations of $5.3 million for the year ended December 31, 2014.
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 $0.3 million and $0.4 million for the years
ended December 31, 2014 and 2013, respectively.
There were no earnings or losses from these discontinued operations during 2015. More information on these transactions 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 16,
Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this Form 10-K.
SEGMENT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Distribution Segment
Our Strategy
The Distribution segment's strategy is to offer a comprehensive portfolio of products and services to serve the mechanical,
automation and fluid power markets driven by a highly trained technical sales and service organization while investing in
technology to drive increased productivity and improved operating margins.
Results of Operations
The following table presents selected financial data for our Distribution segment:
In thousands
Net sales from continuing operations ................................................................
$ change.............................................................................................................
% change ...........................................................................................................
$ 1,177,539
15,547
$ 1,161,992
122,038
$ 1,039,954
57,381
1.3 %
11.7%
5.8 %
2015
2014
2013
Operating income ..............................................................................................
$ change.............................................................................................................
% change ...........................................................................................................
% of net sales.....................................................................................................
$
49,441
(7,324)
(12.9)%
4.2 %
$
56,765
10,559
$
46,206
(3,110)
22.9%
4.9%
(6.3)%
4.4 %
34
Net sales from continuing operations
Organic sales per sales day is a metric management uses to evaluate performance trends in its Distribution segment and is
calculated by taking total organic sales during a specific period divided by the number of sales days in that period. See
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures, in
this Form 10-K.
2015
2014
2013
Organic Sales Per Sales Day
(in thousands, except numbers of sales days)
Current period
Net sales from continuing operations ................................................
Acquisition sales (a) ............................................................................
Organic sales......................................................................................
Sales days...........................................................................................
Organic sales per sales day for the current period .............................
Prior period
Net sales from the prior year..............................................................
Sales days in the prior year ................................................................
Organic sales per sales day from the prior year.................................
a
b
$ 1,177,539
52,798
$ 1,124,741
253
4,446
$
$ 1,161,992
89,388
$ 1,072,604
253
4,240
$
$ 1,039,954
72,578
967,376
253
3,824
$
$
$ 1,161,992
253
4,593
$
$ 1,039,954
253
4,110
$
$
$
982,573
253
3,884
% change in organic sales per sales day ............................................ (a-b)/b
(3.2)%
3.2%
(1.5)%
(a) Sales contributed by an acquisition are included in organic sales beginning with the thirteenth month following the date
of acquisition. Prior period information is adjusted to reflect acquisition sales for that period as organic sales when
calculating organic sales per sales day.
2015 versus 2014
Net sales from continuing operations for 2015 increased as compared to 2014 due to the contribution of $52.8 million in sales
in 2015 from our 2015 and 2014 acquisitions. The Distribution segment's organic sales per sales day decreased in 2015
primarily due to lower sales volume to our original equipment manufacturer customers. Looking at the markets we serve, sales
were lower in the mining, machinery manufacturing and merchant wholesalers durable goods markets. Partially offsetting these
decreases, were higher sales in paper manufacturing and chemical manufacturing.
2014 versus 2013
Net sales from continuing operations for 2014 increased as compared to 2013 due to the contribution of $89.4 million in sales
in 2014 from our 2014 and 2013 acquisitions and an increase in organic sales. The Distribution segment's organic sales per
sales day increased in 2014 primarily due to higher sales in the machinery manufacturing, transportation equipment
manufacturing and paper manufacturing industries, while the demand in computer and electronic product manufacturing
partially offset these increases.
Operating Income
2015 versus 2014
Operating income from continuing operations decreased during 2015 as compared to 2014 primarily due to lower operating
income associated with lower organic sales. This was partially offset by the contribution of operating income from our 2015
and 2014 acquisitions. Organic operating expenses remained relatively flat from 2014 to 2015. This was a result of lower
expenses primarily due to a decrease in salary and benefit expenses, specifically lower incentive compensation costs, and lower
costs associated with our vehicles, offset by costs related to restructuring activities, higher pension expense, an increase in
consulting costs and higher depreciation and project expenses in part attributable to the introduction of the new ERP system.
35
2014 versus 2013
Operating income from continuing operations increased during 2014 as compared to 2013 primarily due to the contribution of
operating income from 2014 and 2013 acquisitions, incremental gross profit associated with the increase in organic sales, the
absence of $2.8 million of restructuring costs, lower pension expense and higher rebate income on our national accounts. These
increases were partially offset by increased SG&A costs related to higher employee related incentive costs, and higher salary
and wage expense primarily associated with the expansion of our sales force.
Other Matters
Enterprise Resource Planning System ("ERP")
In July 2012, we announced a decision to invest in a new enterprise resource planning business system for our Distribution
segment with an estimated total cost of $45.0 million. Since our announcement in 2012, Distribution has acquired seven
businesses. To date, we have implemented the new ERP system at four acquired entities, of which two were not included in the
original project scope. Additionally, an upgraded version of the software has become available since we developed our initial
implementation plan. The upgrade is a major release of the ERP software and provides additional functionality and features,
along with a new user interface. As a result of the unplanned implementations at the acquired businesses and the software
upgrade, our implementation timeline has been extended. With the extension of our implementation timeline, the estimated
total project cost has increased to $51.1 million.
For the years ended December 31, 2015, 2014, and 2013, expenses incurred totaled approximately $1.0 million, $0.8 million
and $1.3 million, respectively, and capital expenditures totaled $5.1 million, $8.0 million, and $9.9 million, respectively.
Depreciation expense for the ERP system for the years ended December 31, 2015 and 2014, totaled $2.9 million and $1.9
million, respectively. Depreciation of the capitalized project cost commenced in 2014; accordingly no depreciation expense was
recorded in 2013.
Aerospace Segment
Our Strategy
Our strategic goals for the Aerospace segment are built upon four objectives: Depth, Diversity, Differentiation and
Development. In order to achieve these objectives, we focus our efforts on improving balance between commercial and defense
program content, leveraging our broad capabilities to expand market positions, executing strategic acquisitions and increasing
focused investments in our people and infrastructure to increase capabilities and drive continuous improvement. The creation of
our “One Kaman” approach combines design and build capabilities to provide customers with global integrated solutions. This
approach provides us with the size and strength to address larger, integrated work packages from OEMs and Tier 1 suppliers.
Results of Operations
The following table presents selected financial data for our Aerospace segment:
In thousands
Net sales ...................................................................................................................
$ change....................................................................................................................
% change ..................................................................................................................
Operating income .....................................................................................................
$ change....................................................................................................................
% change ..................................................................................................................
% of net sales............................................................................................................
2015
2014
2013
$ 597,586
(35,384)
$ 632,970
19,003
$ 613,967
33,198
(5.6)%
3.1%
5.7%
$ 110,328
1,631
$ 108,697
6,124
$ 102,573
13,431
1.5 %
18.5 %
6.0%
17.2%
15.1%
16.7%
36
Net Sales
2015 versus 2014
Aerospace segment net sales decreased due to decreases in sales of both our military and commercial product programs of
$28.7 million and $6.7 million, respectively, including an adverse impact of foreign currency translation of $8.1 million. The
decrease in military sales is primarily attributable to lower sales associated with the JPF program with the USG, our SH-2G
contracts with New Zealand and Egypt, legacy missile and bomb fuze programs, certain composite structure programs and the
Sikorsky BLACK HAWK helicopter program. Additionally, the absence of sales under the C-17 program contributed to this
decrease, as this program was completed in 2014. These decreases, totaling $99.0 million, were offset by $70.6 million in
increases, primarily due to higher direct sales to foreign militaries of the JPF, higher sales under the AH-1Z program and sales
under the SH-2G program with Peru.
The decrease in commercial sales is primarily attributable to lower sales associated with our Bell composite blade program and
certain composite structure programs and a decline in sales volume on commercial bearing products primarily used in regional
aircraft and engines and sold through distribution channels. These decreases, totaling $25.5 million, were partially offset by a
$19.1 million increase in commercial sales associated with our K-MAX® program, higher commercial bearing product sales to
original equipment manufacturers, higher composite imaging sales, an increase in sales associated with our Boeing 747-8 wing-
to-body program and $7.0 million in sales from our 2015 acquisitions.
2014 versus 2013
Aerospace segment net sales increased as a result of an $11.6 million increase in commercial product/program sales and a $7.4
million increase in military program sales. The increase in commercial sales is primarily due to increased deliveries on
commercial composite structures products/programs and higher commercial bearing product sales. These increases totaled
$19.2 million and were partially offset by decreases totaling $7.5 million due to lower sales of engineering design services and
a decline in sales volume of composite imaging products.
The increase in military sales was primarily attributable to higher sales associated with the SH-2G(I) contract with New
Zealand, increased sales of our JPF to the USG and higher sales volume associated with the A-10 program. These increases
totaled $74.5 million and were largely offset by a $67.7 million decrease in other sales, including lower commercial sales of the
JPF to foreign militaries, a decline in shipments on the Sikorsky BLACK HAWK helicopter program, lower military bearing
product sales and lower volume associated with our Boeing CH-47 inlet screen program.
Operating Income
2015 versus 2014
The increase in operating income for 2015 as compared to 2014 was primarily due to higher direct sales to foreign militaries of
our JPF and the corresponding gross profit from these sales. In addition, operating income increased, to a lesser extent, due to
gross profit contribution from our SH-2G program with Peru, higher sales volume for our military bearing products, higher
sales volume for our commercial bearing products primarily used in regional aircraft and engines and sold through distribution
channels and the contribution of gross margin from our 2015 acquisitions. Additionally, improved performance on our long-
term contracts leading to changes in our contract cost estimates contributed approximately $4.8 million to operating income in
2015, the largest of these improvements being approximately $3.4 million associated with our JPF program. These increases
totaled $35.8 million and were partially offset by lower sales associated with our SH-2G(I) program with New Zealand, lower
sales volume on our legacy missile fuze programs, a decline in gross margin on certain composite structure programs, $4.0
million in expense associated with the resolution of the matters related to our AH-1Z program and lower sales volume on our
Bell composite blade program.
2014 versus 2013
The increase in operating income for 2014 as compared to 2013 was primarily due to gross profit attributable to the revenue
recognized on the SH-2G(I) program, gross margin associated with higher commercial bearing product sales and the absence of
the $2.1 million non-cash non-tax deductible goodwill impairment charge recorded in 2013. These increases totaled $18.7
million and were partially offset by a $13.6 million decrease related to lower sales of military bearing products, lower margin
on the JPF as a result of lower commercial sales to foreign militaries and lower margins on our tooling sales.
37
Long-Term Contracts
For long-term aerospace contracts, we generally recognize sales and income based on the percentage-of-completion method of
accounting, which allows for recognition of revenue as work on a contract progresses. We recognize sales and profit based on
either (1) the cost-to-cost method, which results in costs being reported as cost of sales as incurred and sales (and profit) being
recorded based upon the ratio of costs incurred to estimated total costs to complete the contract, or (2) the units-of-delivery
method, which results in sales being recognized as deliveries are made and cost of sales being computed on the basis of the
estimated ratio of total contract cost to total contract sales.
Revenue and cost estimates for all significant long-term contracts for which revenue is recognized using the percentage-of-
completion method of accounting are reviewed and reassessed quarterly. Based upon these reviews, we record the effects of
adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total
costs will exceed total contract revenue, we record a provision for the entire anticipated contract loss at that time. Excluding the
$4.0 million in expense associated with the resolution of the matters related to our AH-1Z program, the net increase in our
operating income from changes in contract estimates totaled $4.8 million for the year ended December 31, 2015. The increase
in 2015 was primarily a result of improved performance on the JPF and another legacy bomb fuze program. The net increase in
our operating income from changes in contract estimates totaled $1.9 million for the year ended December 31, 2014. The
increase in 2014 was primarily a result of improved performance on the New Zealand SH-2G(I) program, the JPF program and
a mix of composite programs. These improvements were slightly offset by cost growth on the Sikorsky BLACK HAWK
helicopter program. The net decrease in operating income from changes in contract estimates totaled $3.0 million for the year
ended December 31, 2013. The decrease in 2013 was primarily driven by cost growth on aerostructure assemblies.
Backlog
In thousands
Backlog...............................................................................................
$
659,350
$
518,025
$
601,954
2015
2014
2013
The backlog balance increased from 2014 to 2015, primarily due to the USG JPF Program Option 12 award and JPF
commercial sales orders received for foreign militaries, orders for our K-MAX® aircraft and orders under certain legacy
missile and bomb fuze programs. These increases were partially offset by work performed on the SH-2G(I) New Zealand
program.
The backlog balance decreased from 2013 to 2014, primarily due to work performed on the SH-2G(I) New Zealand program
and deliveries of BLACK HAWK helicopter cockpits. These reductions were partially offset by new JPF program orders.
Major Programs/Product Lines
Defense Markets
A-10
The segment has contracted with Boeing to produce the wing control surfaces (inboard and outboard flaps, slats and deceleron
assemblies) for the USAF’s A-10 fleet. This contract has a potential value of over $110.0 million; however, annual quantities
will vary, as they are dependent upon the orders Boeing receives from the USAF. Initial deliveries under this program began in
the third quarter of 2010 and full rate production began during the fourth quarter of 2012. Through December 31, 2015, 140
shipsets have been delivered over the life of the program. In January 2016, the USAF indicated that they would delay the
retirement of the A-10 fleet due to its importance in current operations in the Middle East. Formal details of the USAF plans
regarding the A-10 will not be released until the 2017 Department of Defense budget is released in February 2016. We will
continue to monitor the defense budget and understand that despite this positive indication, the future of this program could be
at risk without the continued support of Congress. As of the date of this filing, we believe congressional support remains strong
and we have confidence that this program will continue. We have not received any orders for additional shipsets in 2015, and
through the date of this filing we have not received any indication from our customer that this program will be terminated.
Tooling and nonrecurring costs on this program are being amortized over 242 shipsets, the number of shipsets expected to be
delivered under this program. At December 31, 2015, our program backlog was $14.4 million, representing approximately 33
shipsets, and total program inventory was $17.1 million, of which a significant portion may not be recoverable in the event of a
contract termination.
38
Bearings
Our bearings products are included on numerous military platforms manufactured in North America, Asia and Europe. These
products are used as original equipment and/or specified as replacement parts by the manufacturers. The most significant
portion of our military bearings sales is derived from U.S. military platforms, such as the AH-64 helicopter, Virginia Class
submarine and JSF aircraft, and sales in Europe for the Typhoon program. These products are primarily proprietary self-
lubricating, ball and roller bearings for aircraft flight controls, turbine engines and landing gear, and helicopter driveline
couplings.
BLACK HAWK
The Sikorsky BLACK HAWK helicopter cockpit program involves the manufacture of cockpits including the installation of all
wiring harnesses, hydraulic assemblies, control pedals and sticks, seat tracks, pneumatic lines, and the composite structure that
holds the windscreen for most models of the BLACK HAWK helicopter. As a result of lower customer demand, we delivered
76 cockpits in 2015 as compared to the 84 cockpits delivered in 2014. Included in backlog at December 31, 2015, is $56.5
million for orders on this program. We anticipate cockpit deliveries to total 74 in 2016.
AH-1Z
In February 2016, we reached an agreement with our customer that modified the scope of our AH-1Z contract and which,
among other things, resolved outstanding claims associated with this program. We agreed to pay our customer $4.0 million, all
of which has been accrued as of December 31, 2015. We will receive $4.3 million from our customer, the retention of this
amount being contingent on the resolution of certain contractual matters. If these contractual matters are not satisfactorily
resolved, we may be required to reimburse our customer for all or a portion of this amount. We have included this amount in
the current estimate of the contract revenue, as we believe the favorable resolution of this contractual matter is probable. We
consider this a Type I subsequent event and have updated our contract estimates as of December 31, 2015, to reflect this
contract modification and claims resolution. Given the current volume of firm orders, we estimate the contract to be a zero
margin program, taking into consideration the $2.8 million of G&A costs capitalized in inventory associated with this contract.
SH-2G Programs
New Zealand
On May 6, 2013, we announced that the New Zealand Ministry of Defence ("MoD") entered into a $120.6 million contract for
the purchase of ten SH-2G(I) Super Seasprite aircraft, spare parts, a full mission flight simulator, and related logistics support.
During the third quarter of 2015, the final two upgraded SH-2G(I) aircraft were accepted by the New Zealand MoD.
Peru
During the fourth quarter of 2014, we entered into a contract with General Dynamics Canada to remanufacture and upgrade
four Kaman SH-2G Super Seasprite aircraft and provide support for the operation of a fifth aircraft for the Peruvian Navy. The
program value to Kaman is expected to exceed $40 million. Total backlog at December 31, 2015, is $10.8 million.
FMU-152 A/B – Joint Programmable Fuze (“JPF”)
We manufacture the JPF, an electro-mechanical bomb safe and arming device, which allows the settings of a weapon to be
programmed in flight. During 2015, we were awarded approximately $78.8 million of USAF sales orders under Option 12 of
our contract with the USG, for fuzes to be delivered in 2016 and 2017. Additionally, we were awarded direct commercial sales
contracts of $124.5 million for fuzes to be delivered through 2017. Total JPF backlog at December 31, 2015, is $213.4 million.
A total of 9,941 fuzes passed acceptance testing and were delivered to our customers during the fourth quarter of 2015, for a
total of 24,730 fuzes delivered in 2015. We occasionally experience lot acceptance test failures due to the complexity of the
product and the extreme parameters of the acceptance test. Given the maturity of the product, we now generally experience
isolated failures, rather than systemic ones. As a result, identifying a root cause can take longer and result in inconsistent
delivery quantities from quarter to quarter. We expect to deliver 30,000 to 34,000 fuzes in 2016.
The Company currently provides the FMU-152A/B to the USAF and twenty-six other nations, but the U.S. Navy currently
utilizes a different fuze - the FMU-139. Earlier in 2015, the U.S. Naval Air Systems Command (“NAVAIR”) solicited proposals
for a firm fixed price production contract to implement improvements to the performance characteristics of the FMU-139 (such
improved fuze having been designated the FMU-139D/B), and the USAF has stated that, if and when a contract is awarded and
production begins, the funds associated with the FMU-152A/B will be redirected to the FMU-139D/B. During the third quarter
39
of 2015, the U.S. Navy announced that a competitor was awarded the contract for the FMU-139 D/B. In the event the
FMU-139 D/B program proceeds as planned and the U.S. Air Force redirects the funds associated with the FMU-152 A/B to
the FMU-139 D/B, our business, financial condition, results of operations and cash flows may be materially adversely
impacted, although any such impact would not be likely to occur for a number of years.
Commercial Markets
K-MAX®
During the second quarter of 2015, we announced that our Aerospace segment resumed production of commercial K-MAX®
aircraft. The aircraft are being manufactured at our Jacksonville, Florida and Bloomfield, Connecticut facilities. The first new
helicopter is expected to be delivered in early 2017. Currently, we have $30.0 million remaining in backlog for this program,
representing orders for five aircraft. In addition to the aircraft on order, we have received initial deposits on three more aircraft
and believe there is additional demand for new aircraft to support firefighting, logging and other industries requiring repetitive
aerial lift capabilities for which K-MAX® is extremely well suited.
777 / 767
In January 2015, we signed a multi-year follow-on contract with Boeing for the production of fixed trailing edge ("FTE")
assemblies for the Boeing 777 and 767 commercial aircraft. To date, Kaman has provided more than 1,000 FTE kits and
assemblies for each of the 777 and 767 programs since 1995 and 1986, respectively. During 2015, on average we delivered
eight ship sets per month on the Boeing 777 platform and one ship set per month on the Boeing 767 platform. For 2016, we
estimate deliveries on the 777 program to be eight shipsets per month and on the 767 program to be two shipsets per month
which includes one shipset per month associated with a military tanker derivative of the 767. The total contract value is
estimated to be in excess of $75 million; however, annual quantities will vary, as they are dependent upon the orders Boeing
receives from its customers.
Airbus
Our U.K. Composites operations provide composite components for many Airbus platforms. The most significant of these are
the A320, A330 and A350. Orders for all of these platforms are dependent on the customer’s build rate.
Bearings
Our bearings products are included on commercial airliners and regional/business jets manufactured in North and South
America, Europe and Asia and are used as original equipment and/or specified as replacement parts by airlines and aircraft
manufacturers. These products are primarily proprietary self-lubricating, ball and roller bearings for aircraft flight controls,
turbine engines, landing gear, and helicopter driveline couplings. The most significant portion of our commercial sales is
derived from Boeing and Airbus platforms, such as the Boeing 737, 747, 777 and 787 and the Airbus A320, A330, A350 and
A380.
With the addition of GRW in the fourth quarter of 2015, we have broadened the scope of our bearings offerings to include super
precision miniature ball bearings used primarily in aerospace applications, dental products, surgical power tools, analytical
devices and various industrial applications.
Bell Helicopter
In November 2014, we were awarded an extension to our current contract with Bell Helicopter to manufacture skin and skin to
core components for several of Bell’s commercial helicopter models. This three-year follow on contract has an expected value
in excess of $24.0 million. The components are manufactured at our full-service aerospace innovation and manufacturing
support center in Bloomfield, Connecticut. At December 31, 2015, $12.1 million was included in backlog for orders under this
program. Annual quantities for this program will vary, as they are dependent upon the orders Bell receives from its customers.
Engineering Design Services
The Company offers engineering design services to Aerospace OEM customers. Engineering design service programs generate
revenue primarily through the billing of employees' time spent on customer projects. Our engineers provide value to new
aircraft development and product improvement programs.
40
Learjet 85
In 2010, our U.K. Composites operation was awarded a contract to manufacture composite passenger entry and over-wing exit
doors for the Learjet 85, a mid-sized business jet built primarily from composites and featuring advances in aerodynamics,
structures and efficiency; however, in October 2015, Bombardier Inc. announced the cancellation of its Learjet 85 business
aircraft program. At December 31, 2015, total accounts receivable and inventory related to the program was $3.5 million, all of
which we anticipate recovering. We continue to monitor the financial performance of our customer as recent press reports
indicate deterioration in its financial condition. Continued deterioration in the financial condition of our customer could call
into question our ability to collect on amounts owed to the Company. Management will continue to monitor this situation.
747-8 Wing-to-Body Fairing
The segment has contracted with Boeing Canada Winnipeg to manufacture and assemble two major sections of the 747-8
Wing-to-Body Fairing. Initial production for these components began at our Jacksonville facility and upon completion these
components are being delivered directly to Boeing's wide-body assembly line in Everett, Washington. Initial deliveries under
this program began in the second quarter of 2014 and we shipped 16 shipsets in 2015. Recently, Boeing announced its intention
to slow production for this program from one shipset per month to half a shipset per month. This decrease in the rate of
production is expected to occur in September 2016. We currently expect to ship 10 shipsets in 2016; however, we may need to
adjust our expectations for 2016 to meet the new production requirements of Boeing.
Other Matters
For a discussion of other matters related to our Aerospace segment see Note 16, Commitments and Contingencies, in the Notes
to Consolidated Financial Statements included in this Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Discussion and Analysis of Cash Flows
We assess liquidity in terms of our ability to generate cash to fund working capital and investing and financing activities.
Significant factors affecting liquidity include: cash flows generated from or used by operating activities, capital expenditures,
investments in our business segments and their programs, acquisitions, divestitures, dividends, availability of future credit,
adequacy of available bank lines of credit, and factors that might otherwise affect the Company's business and operations
generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Item 1A of Part I of this Form
10-K.
We continue to rely upon bank financing as an important source of liquidity for our business activities including acquisitions.
We believe this, when combined with cash generated from operating activities, will be sufficient to support our anticipated cash
requirements for the foreseeable future. However, we may decide to raise additional debt or equity capital to support other
business activities including potential future acquisitions. We anticipate our capital expenditures will be approximately $30.0 to
$40.0 million in 2016, primarily related to machinery and equipment and information technology infrastructure.
In addition to our working capital requirements, one or more of the following items could have an impact on our liquidity
during the next 12 months:
•
•
•
•
•
•
the matters described in Note 16, Commitments and Contingencies, in the Notes to Consolidated Financial Statements,
including the cost of existing environmental remediation matters and deposits required to be made to the
environmental escrow for the Moosup facility sold in 2014;
contributions to our qualified pension plan and Supplemental Employees’ Retirement Plan (“SERP”);
repurchase of common stock under the 2015 Share Repurchase Program;
payment of dividends;
costs associated with the start-up of new aerospace programs, including the K-MAX® line; and
the extension of payment terms by our customers.
However, we do not believe any of these matters will lead to a shortage of capital resources or liquidity that would prevent us
from continuing with our business operations as expected.
We regularly monitor credit market conditions to identify potential issues that may adversely affect, or provide opportunities
for, the securing and/or pricing of additional financing, if any, that may be necessary to continue with our growth strategy and
finance working capital requirements.
41
Management regularly monitors its pension plan asset performance and the assumptions used in the determination of our
benefit obligation, comparing them to actual experience. We continue to believe the assumptions selected are valid due to the
long-term nature of our benefit obligation. In 2015 and prior, we used a single-weighted average discount rate to calculate
interest and service cost associated with our defined contribution pension plans. We plan to utilize a "spot rate approach" in the
calculation of interest and service cost for these plans for 2016 and beyond. The spot rate approach applies separate discount
rates for each projected benefit payment in the calculation of pension interest and service cost. This calculation change is
considered a change in accounting estimate and will be applied prospectively in 2016. The use of the spot rate approach is
expected to result in a favorable impact to pension expense of $4.6 million in 2016 relative to our estimate of what the expense
would have been had we not changed our approach. See additional details in the "Critical Accounting Policies" section in Item
7 below.
Effective December 31, 2015, the qualified pension plan was frozen with respect to future benefit accruals. Under CAS 413 we
must calculate the USG’s share of any pension curtailment adjustment resulting from the freeze. Such adjustments can result in
an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are
in a deficit position. We are unable to make a determination at this time as to the financial implications this curtailment
adjustment will have, if any, on our balance sheet as of December 31, 2015, and the current year's results of operations. Based
upon the analysis completed thus far, we believe the low end of our estimated range of a potential liability to the USG
associated with the pension plan closeout is zero and therefore no accrual is required at December 31, 2015.
In 2013, the Company signed a $120.6 million contract to resell ten of the former Australian SH-2G(A) (now designated
SH-2G(I)) aircraft, a full mission flight simulator, and related logistics support to the New Zealand MoD. Upon entering into
the sales contract with the New Zealand MoD, we agreed to provide unconditional letters of credit for the receipt of advance
payments on this program. As we performed under the contract and met certain predetermined milestones, the letter of credit
requirements were gradually reduced. As of December 31, 2015, we have satisfied all performance criteria related to the
predetermined conditions and there were no letters of credit outstanding for this program.
A summary of our consolidated cash flows from continuing operations is as follows:
2015
2014
2013
15 vs. 14
14 vs. 13
(in thousands)
Total cash provided by (used in):
Operating activities ................................................
Investing activities..................................................
Financing activities ................................................
Free Cash Flow(a) :
Net cash provided by (used in) operating
activities .................................................................
Expenditures for property, plant and equipment ....
Free cash flow...........................................................
$
$
$
$
109,584
(232,608)
127,588
$
109,089
(100,059)
(3,538)
$
64,840
(61,219)
(8,115)
$
495
(132,549)
131,126
44,249
(38,840)
4,577
109,584
(29,932)
79,652
$
$
109,089
(28,283)
80,806
$
$
64,840
(40,852)
23,988
$
$
$
495
(1,649)
(1,154) $
44,249
12,569
56,818
(a) 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.
2015 vs. 2014
Net cash provided by operating activities of continuing operations increased $0.5 million in 2015 compared to 2014, primarily
due to higher accounts receivable collections and cash generated as we near completion of our SH-2G(I) program. Offsetting
these changes were a growth in inventory due to a delay in sales associated with our legacy missile fuze and composite
structure programs, advances on contracts received for our Peru and K-MAX® programs, and higher employee benefit related
payments.
Net cash used in investing activities of continuing operations increased $132.5 million primarily due to a $123.6 million
increase in cash used for acquisitions and the absence of $7.9 million of proceeds received in 2014 from the disposal of our
Distribution segment's Mexico business unit, Delamac.
42
Net cash provided by financing activities of continuing operations increased $131.1 million primarily due to a $227.2 million
increase in borrowings under our revolving credit facility and Term Loan facility. These increases were partially offset by
repayments under the revolving credit agreement in 2015 of $83.8 million, compared to $10.0 million of repayments in the
prior year, and $12.0 million of cash used to buy treasury stock under our share repurchase program.
2014 vs. 2013
Net cash provided by operating activities of continuing operations increased $44.2 million in 2014 compared to 2013, primarily
due to proceeds from the sales of SH-2G(I) inventory as we continue to perform under the New Zealand program and JPF
program inventories and an increase in earnings from continuing operations, driven by increased operating income at both our
segments. These changes are partially offset by the reduction of advances on contracts as we achieve milestones on certain
Aerospace segment programs.
Net cash used in investing activities of continuing operations increased $38.8 million due to a $59.5 million increase in cash
used for acquisitions, partially offset by a decrease of $12.6 million in cash used for the purchase of property, plant and
equipment and $8.9 million in proceeds received from the sale of our Distribution segment's Mexico business unit, Delamac.
Net cash used in financing activities of continuing operations decreased $4.6 million primarily due to the repayment of
borrowings under our revolving credit facility due to the significant cash flow generation for the year.
Financing Arrangements
Credit Agreement
On May 6, 2015, the Company closed on an amended and restated $700.0 million Credit Agreement (the "Credit Agreement")
with JPMorgan Chase Bank N.A., as Administrative Agent, Bank of America, N.A. and Citizens Bank, N.A. as Co-Syndication
Agents and SunTrust Bank, Keybank National Association, TD Bank, N.A., Branch Banking & Trust Company and Fifth Third
Bank, as Co-Documentation Agents. The Credit Agreement amends and restates the Company's previously existing credit
facility in its entirety to, among other things: (i) extend the maturity date to May 6, 2020; (ii) increase the aggregate amount of
revolving commitments from $400.0 million to $600.0 million; (iii) reinstate the aggregate amount of outstanding Term Loans
to $100.0 million; (iv) modify the affirmative and negative covenants set forth in the facility; and (v) effectuate a number of
additional modifications to the terms and provisions of the facility, including its pricing. Capitalized terms used but not defined
within this discussion of the Credit Agreement have the meanings ascribed thereto in the Credit Agreement.
The term loan commitment requires quarterly payments of principal (which commenced on June 30, 2015) at the rate of $1.25
million, increasing to $1.875 million on June 30, 2017, and then to $2.5 million on June 30, 2019, with $65.0 million payable
in the final quarter of the facility's term. The facility includes an accordion feature that allows the Company to increase the
aggregate amount available up to $900.0 million with additional commitments from the Lenders.
Interest rates on amounts outstanding under the Credit Agreement are variable. At December 31, 2015 and 2014, the interest
rates for the outstanding amounts on the Credit Agreement were 1.67% and 1.70%, respectively. In addition, we are required to
pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.175% to 0.300%
per annum, based on the Consolidated Senior Secured Leverage Ratio. Fees for outstanding letters of credit range from 1.25%
to 2.00%, based on the Consolidated Senior Secured Leverage Ratio.
The financial covenants associated with the Credit Agreement include a requirement that (i) the Consolidated Senior Leverage
Ratio cannot be greater than 3.50 to 1.00, with an election to increase the maximum to 3.75 to 1.00 for four consecutive
quarters, in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (ii) the Consolidated Total
Leverage Ratio cannot be greater than 4.00 to 1.00, with an election to increase the maximum to 4.25 to 1.00 for four
consecutive quarters, in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (iii) the
Consolidated Interest Coverage Ratio cannot be less than 4.00 to 1.00; and (iv) Liquidity: (a) as of the last day of the fiscal
quarter of the Company ending two full fiscal quarters prior to the stated maturity of the Specified Convertible Notes, cannot be
less than an amount equal to 50% of the outstanding principal amount of the Specified Convertible Notes, and (b) as of the last
day of each fiscal quarter of the Company ending thereafter, cannot be less than an amount equal to the outstanding principal
amount of the Specified Convertible Notes as of such day. The Company was in compliance with those financial covenants as
of and for the quarter ended December 31, 2015, and management does not anticipate noncompliance in the foreseeable future.
Total average bank borrowings under our revolving credit facility and term loan facility during the year ended December 31,
2015, were $192.5 million compared to $214.8 million for the year ended December 31, 2014. As of December 31, 2015 and
43
2014, there was $259.9 million and $248.6 million available for borrowing, respectively, net of letters of credit. Letters of
credit are generally considered borrowings for purposes of calculating available borrowings. A total of $5.9 million and $59.2
million in letters of credit were outstanding as of December 31, 2015 and 2014, respectively. The letter of credit balance related
to the SH-2G(I) New Zealand sales contract was $54.5 million at December 31, 2014.
Convertible Notes
In November 2010, we issued convertible unsecured notes due on November 15, 2017, in the aggregate principal amount of
$115.0 million in a private placement offering (the "Convertible Notes"). These notes bear 3.25% interest per annum on the
principal amount, payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2011.
Proceeds from the offering were $111.0 million, net of fees and expenses which were capitalized. The proceeds were used to
repay $62.2 million of borrowings outstanding on the Company’s Revolving Credit Agreement, make a $25.0 million voluntary
contribution to the Qualified Pension Plan and pay $13.2 million for the purchase of call options related to the convertible note
offering. See below for further discussion of the call options.
The Convertible Notes will mature on November 15, 2017, unless earlier redeemed, repurchased by the Company or converted.
Upon conversion, the Convertible Notes require net share settlement, where the aggregate principal amount of the notes will be
paid in cash and remaining amounts due, if any, will be settled in cash, shares of the Company's common stock or a
combination of cash and shares of common stock, at the Company's election.
The following table illustrates the conversion rate at each date:
Convertible Notes
Conversion Rate per $1,000 principal amount (1)..........................................
Conversion Price (2) .......................................................................................
Contingent Conversion Price (3) ....................................................................
Aggregate shares to be issued upon conversion (4)........................................
December 31, 2015
December 31, 2014
$
$
29.8059
33.5504
43.62
$
$
29.6876
33.6841
43.79
3,427,679
3,414,074
(1) Represents the number of shares of Common Stock hypothetically issuable per $1,000 principal amount of Notes,
subject to adjustments per the Convertible Note Indenture dated November 19, 2010. At the date the Company issued
the Convertible Notes, the conversion rate initially equaled 29.4499 shares of common stock per $1,000 principal
amount of notes (which is equivalent to an initial conversion price of approximately $33.96 per share of common
stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events, such as an
increase in the dividend paid to shareholders.
(2) Represents $1,000 divided by the conversion rate as of such date. The conversion price reflects the strike price of
the embedded option within the Convertible Note. Were the Company's share price to exceed the conversion price at
conversion the noteholders would be entitled to receive additional consideration either in cash, shares or a
combination thereof, the form of which is at the sole discretion of the Company.
(3) Prior to May 15, 2017, the notes are convertible only in the following circumstances: (1) during any fiscal quarter
commencing after April 1, 2011, and only during any such fiscal quarter, if the last reported sale price of our common
stock was greater than or equal to 130% of the applicable conversion price for at least 20 trading days (whether or not
consecutive) during the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, (2)
upon the occurrence of specified corporate transactions, or (3) during the five consecutive business-day period
following any five consecutive trading-day period in which, for each day of that period, the trading price for the notes
was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion
rate on such trading day. On and after May 15, 2017, until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing
circumstances. Upon a change in control or termination of trading, holders of the notes may require us to repurchase
all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount, plus any accrued
and unpaid interest.
(4) Represents the number of shares hypothetically issuable upon conversion of the principal balance of the Convertible
Notes at each date; however, as the terms of the Convertible Notes require net share settlement, the aggregate principal
amount of the notes will be paid in cash. Amounts due in excess of the principal, if any, may be settled in cash, shares of
the Company's common stock or a combination of cash and shares of common stock, at the Company's election.
44
Because the embedded conversion option is indexed to the Company’s own stock and would be classified in shareholders’
equity, it does not meet the criterion under FASB Accounting Standards Codification Topic 815 - Derivatives and Hedging
("ASC 815") that would require separate accounting as a derivative instrument.
In connection with the offering, we entered into convertible note hedge transactions with affiliates of the initial purchasers.
These transactions are intended to reduce the potential dilution to our Company's shareholders upon any future conversion of
the notes. The call options, which cost an aggregate $13.2 million, were recorded as a reduction of additional paid-in capital.
The Company also entered into warrant transactions concurrently with the offering, pursuant to which we sold warrants to
acquire up to approximately 3.4 million shares of our common stock to the same counterparties that entered into the convertible
note hedge transactions. Proceeds received from the issuance of the warrants totaled approximately $1.9 million and were
recorded as additional paid-in capital. The convertible note hedge and warrant transactions effectively increased the conversion
price of the convertible notes.
The following table illustrates the warrant price at each date:
Warrants
Warrant Price..................................................................................................
$
43.87
$
44.05
December 31, 2015
December 31, 2014
The note payable principal balance at the date of issuance of $115.0 million was bifurcated into the debt component of
$101.7 million and the equity component of $13.3 million. The difference between the note payable principal balance and the
value of the debt component is being accreted to interest expense over a period of 7 years. The debt component was recognized
at the present value of associated cash flows discounted using a 5.25% discount rate, the borrowing rate at the date of issuance
for a similar debt instrument without a conversion feature. We recorded $0.5 million of debt issuance costs as an offset to
additional paid-in capital. The balance, $3.1 million, is being amortized over the term of the notes. Total amortization expense
for the years ended December 31, 2015, 2014, and 2013 was $0.5 million.
The following table illustrates the dilutive effect of securities issued under the convertible debt and warrants at various
theoretical average share prices for our stock as of December 31, 2015:
Theoretical Average Share Price of Kaman Stock
$33.55
$40.00
$43.87
$45.00
$50.00
Dilutive Shares associated with:
Convertible Debt.......................................................
Warrants....................................................................
Total dilutive shares.............................................
—
—
—
552,679
806,519
872,123
1,127,679
—
—
85,791
419,980
552,679
806,519
957,914
1,547,659
Debt Issuance Costs
Total expense associated with the amortization of debt issuance costs for the years ended December 31, 2015, 2014 and 2013,
was $1.0 million, $1.1 million and $1.1 million, respectively.
Interest Rate Swaps
During 2015, we entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate Term
Loan interest payments due in 2016 and 2017. Additionally, we have entered into interest rate swap agreements to effectively
convert $83.8 million of our variable rate revolving credit facility debt to a fixed interest rate. These interest rate swap
agreements were designated as cash flow hedges and intended to manage interest rate risk associated with our variable-rate
borrowings and minimize the impact on our earnings and cash flows of interest rate fluctuations attributable to changes in
LIBOR rates. There was no interest expense associated with these interest rate swaps in 2015.
During 2013, we entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate Term
Loan interest payments due in 2014 and 2015. These interest rate swap agreements were designated as cash flow hedges and
intended to manage interest rate risk associated with our variable-rate borrowings and minimize the impact on our earnings and
cash flows of interest rate fluctuations attributable to changes in LIBOR rates. Interest expense associated with the interest rate
swap agreements for the years ended December 31, 2015 and 2014, was $0.3 million and $0.4 million, respectively. As of
December 31, 2015, these interest rate swaps had matured.
45
Other Sources/Uses of Capital
Pension
We contributed $10.0 million to the qualified pension plan and paid $0.5 million in SERP benefits during 2015. In 2014, we
contributed $10.0 million to the qualified pension plan and paid $0.8 million in SERP benefits. In 2016, we have contributed
$10.0 million to the qualified pension plan (as of the date of this filing) and do not anticipate making any further contributions
this year. We expect to pay $0.5 million in SERP benefits in 2016.
Acquisitions
The following table illustrates the cash paid for acquisitions:
For the year ended December 31,
2015
2014
2013
In thousands
Cash paid for acquisitions completed during the year ...................... $
Cash paid for holdback payments during the year ............................
Earn-out and other payments during the year ...................................
196,395
$
70,948
$
17,284
3,404
1,453
3,060
3,610
828
50
Total cash paid for acquisitions ...................................................... $
201,252
$
77,618
$
18,162
Total consideration for the acquisitions completed in 2015 was $197.1 million, with $0.7 million remaining to be paid to sellers
representing holdback provisions. Total consideration for acquisitions completed in 2014 and 2013 was $71.9 million and $17.8
million, respectively. We anticipate that we will continue to identify and evaluate potential acquisition candidates, the purchase
of which may require the use of additional capital.
Stock Repurchase Plans
On April 29, 2015, we announced that our Board of Directors approved a share repurchase program ("2015 Share Repurchase
Program") authorizing the repurchase of up to $100.0 million of the common stock, par value $1.00 per share, of the Company.
This new program replaces our 2000 Stock Repurchase Program. We currently intend to repurchase shares to offset the annual
issuance of shares under our employee stock plans, but the timing and actual number of shares repurchased will depend on a
variety of factors including stock price, market conditions, corporate and regulatory requirements, capital availability and other
factors, including acquisition opportunities. As of December 31, 2015, we had repurchased 300,000 shares under the 2015
Share Repurchase Program and approximately $88.0 million remained available for repurchases under this authorization.
NON-GAAP FINANCIAL MEASURES
Management believes that the non-GAAP measures used in this report on Form 10-K provide investors with important
perspectives into our ongoing business performance. We do 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 report and other disclosures as follows:
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 are the
number of business days that the Distribution segment’s branch locations were open for business and exclude weekends and
holidays. Management believes 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. Management uses organic sales per sales day as a measurement to compare
periods in which the numbers of sales days differ.
46
Free Cash Flow
Free cash flow is defined as GAAP “Net cash provided by (used in) operating activities” less “Expenditures for property, plant
& equipment”, both of which are presented in our Consolidated Statements of Cash Flows. Management believes free cash
flow provides an important perspective on the cash available for dividends to shareholders, debt repayment, and acquisitions
after making capital investments required to support ongoing business operations and long-term value creation. Free cash flow
does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures
such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and
overall liquidity.
Non-GAAP Adjusted Operating Income
Non-GAAP 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 for the period presented. Management uses Non-GAAP adjusted
operating income to evaluate performance period over period, to analyze the underlying trends impacting our segments and
corporate 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.
Adjusted EBITDA and Adjusted EBTIDA Margin
Adjusted EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is calculated using
our consolidated results as well as the results of our reportable segments. Adjusted EBITDA margin is calculated by dividing
Adjusted EBITDA by Net sales for our reportable segments. Adjusted EBITDA differs from Segment Operating Income, as
calculated in accordance with GAAP, in that it excludes depreciation and amortization. The Company has made numerous
investments in our business, such as acquisitions and increased capital expenditures, including facility improvements, new
machinery and equipment, improvements to our information technology infrastructure and new ERP systems. 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 by eliminating the impact of non-cash depreciation
and amortization expense. Adjusted EBITDA does not give effect to cash used for debt service requirements and thus does not
reflect available funds for distributions, reinvestment or other discretionary uses. Adjusted EBITDA is not presented as an
alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Contractual Obligations
The following table summarizes certain of the Company’s contractual obligations as of December 31, 2015:
Contractual Obligations
Long-term debt ....................................................
Convertible notes.................................................
Interest payments on debt (a)
Operating leases...................................................
Capital leases .......................................................
Purchase obligations (b)
Other long-term obligations (c).............................
Planned funding of pension and SERP (d)
Total.....................................................................
Payments due by period (in millions)
Total
Within 1 year
1-3 years
3-5 years
More than 5
years
$
329.8
$
115.0
31.0
85.8
1.5
108.5
53.6
19.3
5.0
—
11.8
24.7
0.3
84.0
13.1
10.5
$
14.4
$
310.4
$
115.0
14.2
33.6
0.7
24.4
19.1
3.5
—
5.0
14.4
0.5
0.1
4.7
1.0
$
744.5
$
149.4
$
224.9
$
336.1
$
—
—
—
13.1
—
—
16.7
4.3
34.1
Note: For more information refer to Note 11, Debt; Note 16, Commitments and Contingencies; Note 15, Other Long-Term
Liabilities; Note 14, Pension Plans, and Note 13, Income Taxes in the Notes to Consolidated Financial Statements included in
this Form 10-K.
47
(a) Interest payments on debt are calculated based on the applicable rate and payment dates for each instrument. For variable-
rate instruments, interest rates and payment dates are based on management’s estimate of the most likely scenarios for each
relevant debt instrument.
(b) This category includes purchase commitments to suppliers for materials and supplies as part of the ordinary course of
business, consulting arrangements and support services. Only obligations of at least $50,000 are included.
(c) This category includes obligations under the Company's long-term incentive plan, deferred compensation plan,
environmental liabilities, acquisition holdbacks and unrecognized tax benefits.
(d) This category includes planned funding of the Company’s SERP and qualified pension plan. Projected funding for the
qualified pension plan beyond one year has not been included as there are several significant factors, such as the future
market value of plan assets and projected investment return rates, which could cause actual funding requirements to differ
materially from projected funding.
Off-Balance Sheet Arrangements
The following table summarizes our off-balance sheet arrangements:
Payments due by period (in millions)
Total
Within 1 year
1-3 years
3-5 years
More than 5
years
Acquisition earn-out (1) ........................................
Total.....................................................................
$
$
1.6
1.6
$
$
1.6
1.6
$
$
— $
— $
— $
— $
—
—
(1) The obligation to pay earn-out amounts depends upon the attainment of specific milestones by an aerospace operating
unit acquired in 2002. To date we have paid $23.4 million in earn-outs of the total potential amount of $25.0 million
for this acquisition.
As of December 31, 2015, we had $5.9 million of outstanding standby letters of credit under the Credit Agreement.
48
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are outlined in Note 1 to the Consolidated Financial Statements included in this Form 10-K.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses and related disclosures based upon historical experience, current trends and other
factors that management believes to be relevant. We are also responsible for evaluating the propriety of our estimates,
judgments, and accounting methods as new events occur. Actual results could differ from those estimates. Management
periodically reviews the Company’s critical accounting policies, estimates, and judgments with the Audit Committee of our
Board of Directors. The most significant areas currently involving management judgments and estimates are described below.
Long-Term Contracts
Methodology
Judgment and Uncertainties
For long-term aerospace contracts,
we generally recognize sales and
income based on the percentage-of-
completion method of accounting,
which allows for recognition of
revenue as work on a contract
progresses. We recognize sales and
profit based upon either (1) the cost-
to-cost method, in which sales and
profit are recorded based upon the
ratio of costs incurred to estimated
total costs to complete the contract,
or (2) the units-of-delivery method,
in which sales are recognized as
deliveries are made and cost of sales
is computed on the basis of the
estimated ratio of total contract cost
to total contract sales.
Management performs detailed
quarterly reviews of all of our
significant long-term contracts.
Based upon these reviews, we record
the effects of adjustments in profit
estimates each period. If at any time
management determines that in the
case of a particular contract total
costs will exceed total contract
revenue, we record a provision for
the entire anticipated contract loss at
that time.
The percentage-of-completion
method requires that we estimate
future revenues and costs over the
life of a contract. Revenues are
estimated based upon the original
contract price, with consideration
being given to exercised contract
options, change orders and in some
cases projected customer
requirements. Contract costs may be
incurred over a period of several
years, and the estimation of these
costs requires significant judgment
based upon the acquired knowledge
and experience of program managers,
engineers, and financial
professionals. Estimated costs are
based primarily on anticipated
purchase contract terms, historical
performance trends, business base
and other economic projections. The
complexity of certain programs as
well as technical risks and
uncertainty as to the future
availability of materials and labor
resources could affect the Company’s
ability to accurately estimate future
contract costs.
Effect if Actual Results Differ From
Assumptions
While we do not believe there is a
reasonable likelihood there will be a
material change in estimates or
assumptions used to calculate our
long-term revenues and costs,
estimating the percentage of work
complete on certain programs is a
complex task. As a result, changes to
these estimates could have a
significant impact on our results of
operations. These programs include
the Sikorsky BLACK HAWK
program, the JPF program, the K-
MAX® program, the Boeing A-10
program, the AH-1Z program, and
our other Bell Helicopter programs
and several other programs.
Estimating the ultimate total cost of
these programs is challenging due to
the complexity of the programs,
unanticipated increases in production
requirements, the nature of the
materials needed to complete these
programs, change orders related to
the programs and the need to manage
our customers’ expectations. These
programs are an important element in
our continuing strategy to increase
operating efficiencies and
profitability as well as broaden our
business base. Management
continues to monitor and update
program cost estimates quarterly for
these contracts. A significant change
in an estimate on one or more of
these programs could have a material
effect on our financial position and
results of operations. The net
increase in our operating income
from changes in contract estimates
totaled $4.8 million for the year
ended December 31, 2015. The net
increase in our operating income
from changes in contract estimates
totaled $1.9 million for the year
ended December 31, 2014. The net
decrease in our operating income
from changes in contract estimates
totaled $3.0 million for the year
ended December 31, 2013.
49
Allowance for Doubtful Accounts
Methodology
Judgment and Uncertainties
Write-offs are charged against the
allowance for doubtful accounts only
after we have exhausted all collection
efforts. Actual write-offs and
adjustments could differ from the
allowance estimates due to
unanticipated changes in the business
environment as well as factors and
risks associated with specific
customers.
The allowance for doubtful accounts
represents management’s best
estimate of probable losses inherent
in the receivable balance. These
estimates are based on known past
due amounts and historical write-off
experience, as well as trends and
factors impacting the credit risk
associated with specific customers.
In an effort to identify adverse trends
for trade receivables, we perform
ongoing reviews of account balances
and the aging of receivables.
Amounts are considered past due
when payment has not been received
within a pre-determined time frame
based upon the credit terms
extended. For our government and
commercial contracts, we evaluate,
on an ongoing basis, the amount of
recoverable costs. The recoverability
of costs is evaluated on a contract-
by-contract basis based upon
historical trends of payments,
program viability and the customer’s
credit-worthiness.
Effect if Actual Results Differ From
Assumptions
As of December 31, 2015 and 2014,
our allowance for doubtful accounts
was $3.0 million and $3.2 million,
respectively. Receivables written off,
net of recoveries, in 2015 and 2014
were $2.0 million and $1.9 million,
respectively.
Currently we do not believe that we
have a significant amount of risk
relative to the allowance for doubtful
accounts. A 10% change in the
allowance would have a $0.3 million
effect on pre-tax earnings.
50
Effect if Actual Results Differ From
Assumptions
Inventory valuation at our
Distribution segment generally
requires less subjective management
judgment than the valuation of
certain inventory in the Aerospace
segment.
Management reviews the K-MAX®
inventory balance on an annual basis
to determine whether any additional
write-downs are necessary. If such a
write-down were to occur, this could
have a significant impact on our
operating results. A 10% write-down
of the December 31, 2015, inventory
balance would have affected pre-tax
earnings by approximately $1.5
million in 2015.
Inventory Valuation
Methodology
Judgment and Uncertainties
We have five types of inventory (a)
merchandise for resale, (b) raw
materials, (c) contracts in process, (d)
other work in process, and (e)
finished goods. Merchandise for
resale and raw materials are stated at
the lower of the cost of the inventory
or its fair market value. Contracts in
process, other work in process and
finished goods are valued at
production cost comprised of
material, labor and overhead,
including general and administrative
expenses on certain government
contracts. Contracts in process, other
work in process, and finished goods
are reported at the lower of cost or
net realizable value. Raw material
includes certain general stock
materials but primarily relates to
purchases that were made in
anticipation of specific programs that
have not been started as of the
balance sheet date.
The process for evaluating inventory
obsolescence or market value often
requires the Company to make
subjective judgments and estimates
concerning future sales levels,
quantities and prices at which such
inventory will be sold in the normal
course of business. We adjust our
inventory by the difference between
the estimated market value and the
actual cost of our inventory to arrive
at net realizable value. Changes in
estimates of future sales volume may
necessitate future write-downs of
inventory value. The K-MAX®
inventory balance, consisting of work
in process and finished goods, was
$14.9 million as of December 31,
2015. We believe it is stated at net
realizable value, although lack of
demand for spare parts in the future
could result in additional write-
downs of the inventory value.
Overall, management believes that
our inventory is appropriately valued
and not subject to further
obsolescence in the near term.
Management believes $4.8 million of
the SH-2G(I) inventory will be sold
after December 31, 2016. This
balance represents spares
requirements and inventory to be
used in SH-2G programs.
51
Effect if Actual Results Differ From
Assumptions
For each reporting unit, we
performed the Step 1 test and the
percentage by which the fair value
exceeded the carrying value was in
excess of 13%. A decrease of 1% in
our terminal growth rate or an
increase of 1% in our discount rate
would not result in a fair value
calculation less than the carrying
value.
As with all assumptions, there is an
inherent level of uncertainty and
actual results, to the extent they
differ from those assumptions, could
have a material impact on fair value.
For example, multiples for similar
type reporting units could deteriorate
due to changes in technology or a
downturn in economic conditions. A
reduction in customer demand would
impact our assumed growth rate
resulting in a reduced fair value.
Potential events or circumstances
could have a negative effect on the
estimated fair value. The loss of a
major customer or program could
have a significant impact on the
future cash flows of the reporting
unit(s). Advances in technology by
our competitors could result in our
products becoming obsolete.
Goodwill and Other Intangible Assets
Methodology
Judgment and Uncertainties
In years that management performs a
qualitative assessment we consider
the following qualitative factors:
general economic conditions in the
markets served by the reporting units
carrying goodwill, relevant industry-
specific performance statistics,
changes in the carrying value of the
individual reporting units, and
assumptions used in the most recent
fair value calculation, including
forecasted results of operations, the
weighted average cost of capital and
recent transaction multiples.
For step one of the two-step
impairment test, management
estimated the fair value of the
reporting units using an income
methodology based on management's
estimates of forecasted cash flows,
with those cash flows discounted to
present value using rates
commensurate with the risks
associated with those cash flows. In
addition, management used a market-
based valuation method involving
analysis of market multiples of
revenues and earnings before
interest, taxes, depreciation and
amortization (“EBITDA”) for (i) a
group of comparable public
companies and (ii) recent
transactions, if any, involving
comparable companies. In estimating
the fair value of the reporting units, a
weighting of 80% to the income
approach and 20% to the market-
based valuation method was selected,
consistent with the prior year. A
higher weighting was applied to the
estimate derived from the income
approach as it is based on
Management's assumptions specific
for the reporting units, which are the
outcome of an internal planning
process. While the guideline
companies in the market based
valuation method have comparability
to the reporting units, they may not
fully reflect the market share,
product portfolio and operations of
the reporting units.
Goodwill and certain intangible
assets that have indefinite lives are
evaluated at least annually for
impairment. The annual evaluation is
generally performed during the
fourth quarter, using forecast
information. All intangible assets are
also reviewed for possible
impairment whenever changes in
conditions indicate that their carrying
value may not be recoverable. For
reporting units that qualify for a
qualitative assessment, management
will perform the two-step impairment
test after a period of three years has
elapsed since its last evaluation.
In accordance with generally
accepted accounting principles, we
test goodwill for impairment at the
reporting unit level. The
identification and measurement of
goodwill impairment involves the
estimation of fair value of the
reporting unit as compared to its
carrying value. In the Distribution
segment, this testing is conducted at
the segment level as no components
represent reporting units. In the
Aerospace segment, testing is
conducted one level below the
segment level, and components are
not aggregated for purposes of
goodwill testing.
The carrying value of goodwill as of
December 31, 2015, was $149.2
million and $203.5 million for the
Distribution and Aerospace
segments, respectively. The specific
Aerospace reporting units
contributing to the total goodwill
balance were as follows: Precision
Products Orlando facility ("KPP-
Orlando"), $39.8 million; Specialty
Bearings RWG Germany GmbH
("RWG"), $5.9 million; EXTEX
Engineered Products ("EXTEX"),
$14.5 million; GRW Bearings
("GRW"), $89.0 million; and
Aerosystems, $54.3 million. During
2015, it was determined that the two-
step impairment test would be
performed for all reporting units
carrying goodwill. See Note 9,
Goodwill and Other Intangible
Assets, Net, in the Notes to
Consolidated Financial Statements
for additional information regarding
these assets.
continues on next page
52
Effect if Actual Results Differ From
Assumptions
We do not currently believe there to
be a reasonable likelihood that actual
results will vary materially from
estimates and assumptions used to
test goodwill and other intangible
assets for impairment losses.
However, if actual results are not
consistent with our estimates or
assumptions, we may be exposed to
an impairment charge that could be
material.
Goodwill and Other Intangible Assets (continued)
Methodology
Judgment and Uncertainties
The carrying value of other
intangible assets as of December 31,
2015, was $53.4 million and $91.4
million for the Distribution and
Aerospace segments, respectively.
As a result of our Aerospace
acquisitions, RWG, EXTEX and
GRW was reorganized under the
single management team of Kaman
Specialty Bearings and Engineered
Products. This new reporting unit
will be the basis for our annual test
for goodwill impairment in 2016.
In performing our step one test for
the reporting units, we used an
assumed terminal growth rate of
3.0%. The discount rate utilized to
reflect the risk and uncertainty in the
financial markets and specifically in
our internally developed earnings
projections ranged from 9.5% -
11.0% for these reporting units.
Changes in these estimates and
assumptions could materially affect
the results of our tests for goodwill
impairment.
Under Step 2, an impairment loss is
recognized for any excess of the
carrying amount of the reporting
unit’s goodwill over the implied fair
value of that goodwill. The implied
fair value of goodwill is determined
by allocating the fair value of the
reporting unit in a manner similar to
a purchase price allocation. The
residual fair value after this
allocation is the implied fair value of
the reporting unit goodwill. The
results of the Step 1 tests indicated
that the Company did not need to
proceed to Step 2.
53
Effect if Actual Results Differ From
Assumptions
We do not currently believe there is a
reasonable likelihood that there will
be a material change in the estimates
or assumptions we use to determine
stock-based compensation expense.
However, if actual results are not
consistent with our estimates or
assumptions, we may be exposed to
changes in share-based compensation
expense that could be material.
If actual results are not consistent
with the assumptions used, the share-
based compensation expense
reported in our financial statements
may not be representative of the
actual economic cost of the share-
based compensation. A 10% change
in our share-based compensation
expense for the year ended December
31, 2015, would have affected pre-
tax earnings by approximately $0.6
million in 2015. Due to the timing of
availability of the Russell 2000 data,
there is a risk that the amount we
have recorded as LTIP expense could
be different from the actual payout. A
10.0 percentage point increase in the
total performance factor earned for
our LTIP would result in a reduction
of 2015 pretax earnings of $1.5
million.
Long-Term Incentive Programs
Methodology
Judgment and Uncertainties
Option-pricing models and generally
accepted valuation techniques require
management to make assumptions
and to apply judgment to determine
the fair value of our awards. These
assumptions and judgments include
estimating the future volatility of our
stock price, expected dividend yield,
future employee turnover rates and
future employee stock option
exercise behaviors. Changes in these
assumptions can materially affect the
fair value estimate.
Our long-term incentive plan
requires management to make
assumptions regarding the likelihood
of achieving long-term Company
goals as well as estimate future
Russell 2000 results.
The Company maintains a Stock
Incentive Plan, which provides for
share-based payment awards,
including non-statutory stock
options, restricted stock, stock
appreciation rights, and long-term
incentive program ("LTIP") awards.
We determine the fair value of our
non-qualified stock option awards at
the date of grant using a Black-
Scholes model. We determine the fair
value of our restricted share awards
at the date of grant using an average
of the high and low market price of
our stock.
LTIP awards provide certain senior
executives an opportunity to receive
award payments, generally in cash.
For each performance cycle, the
Company’s financial results are
compared to the Russell 2000 indices
for the same periods based upon the
following: (a) average return on total
capital, (b) earnings per share growth
and (c) total return to shareholders.
No awards will be payable if the
Company’s performance is in the
bottom quartile of the designated
indices. The maximum award is
payable if performance reaches the
75th percentile of the designated
indices. Awards will be paid out at
100% at the 50th percentile. Awards
for performance between the 25th
and 75th percentiles are determined
by straight-line interpolation between
0% and 200%.
In order to estimate the liability
associated with LTIP awards,
management must make assumptions
as to how our current performance
compares to current Russell 2000
data based upon the Russell 2000’s
historical results. This analysis is
performed on a quarterly basis. When
sufficient Russell 2000 data for a
year is available, which typically will
not be until May or June of the
following year, management will
adjust the liability to reflect its best
estimate of the total award. Actual
results could differ significantly from
management’s estimates. The total
estimated liability as of December
31, 2015, was $15.1 million.
54
Effect if Actual Results Differ From
Assumptions
A lower discount rate increases the
present value of benefit obligations
and increases pension expense. A one
percentage point decrease in the
assumed discount rate would have
increased pension expense in 2015
by $8.4 million. A one percentage
point increase in the assumed
discount rate would have decreased
pension expense in 2015 by $7.2
million.
A lower expected rate of return on
pension plan assets would increase
pension expense. For 2015 and 2014,
the expected rate of return on plan
assets was 7.5%. A one-percentage
point increase/decrease in the
assumed return on pension plan
assets would have changed pension
expense in 2015 by approximately
$5.9 million. During 2015, the actual
return on pension plan assets of
(3.4%) was lower than our expected
rate of return on pension plan assets
of 7.5%.
Pension Plans
Methodology
Judgment and Uncertainties
We maintain a qualified defined
benefit pension, as well as a non-
qualified Supplemental Employees
Retirement Plan ("SERP") for certain
key executives. See Note 14, Pension
Plans, in the Notes to Consolidated
Financial Statements included in this
Form 10-K for further discussion of
these plans.
Expenses and liabilities associated
with each of these plans are
determined based upon actuarial
valuations. Integral to these actuarial
valuations are a variety of
assumptions including expected
return on plan assets and discount
rate. We regularly review these
assumptions, which are updated at
the measurement date, December
31st. In accordance with generally
accepted accounting principles, the
impact of differences between actual
results and the assumptions are
accumulated and generally amortized
over future periods, which will affect
expense recognized in future periods.
For 2015 we utilized the weighted-
average discount rate in the
calculation of service and interest
costs, both of which are components
of pension expense. For 2016 we
utilized a "spot rate approach" in the
calculation of pension interest and
service cost. The spot rate approach
applies separate discount rates for
each projected benefit payment in the
calculation of pension interest and
service cost. This calculation change
is considered a change in accounting
estimate and will be applied
prospectively in 2016. The use of the
spot rate approach is expected to
result in a favorable impact to
pension expense of $4.6 million in
2016 relative to what pension
expense would have been had we not
changed our approach.
The discount rate represents the
interest rate used to determine the
present value of future cash flows
currently expected to be required to
settle the pension obligation. For
2014, management determined the
Citigroup Above Median Double-A
Curve to be most appropriate for our
discount rate assumptions. This index
was designed to provide a market
average discount rate to assist plan
sponsors in valuing the liabilities
associated with postretirement
obligations. Additionally, we
reviewed the changes in the general
level of interest rates since the last
measurement date noting that overall
rates had decreased when compared
to 2013.
Based upon this information, we
used a 4.17% discount rate as of
December 31, 2015, for the qualified
defined benefit pension plan. This
rate takes into consideration the
participants in our pension plan and
the anticipated payment stream as
compared to the Citigroup Above
Median Double-A Curve. For the
SERP, we used the same
methodology as the pension plan and
derived a discount rate of 3.47% in
2015 for the benefit obligation. The
difference in the discount rates is
primarily due to the expected
duration of SERP payments, which is
shorter than the anticipated duration
of benefit payments to be made to the
average participant in the pension
plan. The qualified defined benefit
pension plan and SERP used
discount rates of 3.80% and 3.15% at
December 31, 2014, respectively, for
purposes of calculating the benefit
obligation.
The expected long-term rate of return
on plan assets of 7.5% represents the
average rate of earnings expected on
the funds invested to provide for
anticipated benefit payments. The
expected return on assets assumption
is developed based upon several
factors. Such factors include current
and expected target asset allocation,
our historical experience of returns
by asset class type, a risk premium
and an inflation estimate.
55
Income Taxes
Methodology
Judgment and Uncertainties
Effect if Actual Results Differ From
Assumptions
We do not anticipate a significant
change in our unrecognized tax
benefits within the next twelve
months. We file tax returns in
numerous U.S. and foreign
jurisdictions, with returns subject to
examination for varying periods, but
generally back to and including 2011.
It is our policy to record interest and
penalties on unrecognized tax benefits
as income taxes. A one percent
increase/decrease in our tax rate
would have affected our 2015
earnings by $0.9 million.
Management believes that sufficient
income will be earned in the future to
realize deferred income tax assets, net
of valuation allowances recorded. The
realization of these deferred tax assets
can be impacted by changes to tax
laws or statutory tax rates and future
taxable income levels.
Our effective tax rate on earnings
from continuing operations was
31.3% for 2015. Our effective tax rate
is based on expected or reported
income or loss, statutory tax rates, and
tax planning opportunities available to
us in the various jurisdictions in which
we operate. Significant judgment is
required in determining our effective
tax rate and in evaluating our tax
positions.
Deferred tax assets and liabilities
generally represent temporary
differences between the recognition of
tax benefits/expenses in our financial
statements and the recognition of
these tax benefits/expenses for tax
purposes.
We establish reserves for deferred
taxes when, despite our belief that our
tax return positions are valid and
defensible, we believe that certain
positions may not prevail if
challenged. We adjust these reserves
in light of changing facts and
circumstances, such as the progress of
a tax audit or changes in tax
legislation. Our effective tax rate
includes the impact of reserve
provisions and changes to reserves
that we consider appropriate. This rate
is then applied to our quarterly
operating results. In the event that
there is a significant unusual or one-
time item recognized in our operating
results, the tax attributable to that item
would be separately calculated and
recorded at the same time as the
unusual or one-time item.
As of December 31, 2015, we had
recognized $51.6 million of deferred
tax assets, net of valuation
allowances. A portion of this amount,
$2.7 million, is related to a capital loss
recorded on the disposition of our
Distribution segment’s Mexico
operations. The realization of these
benefits is dependent in part on future
taxable capital gains and tax planning
strategies designed to realize the
benefit associated with the capital
loss. For those jurisdictions where the
expiration of tax loss or credit
carryforwards or the projection of
operating results indicates that
realization is not likely, a valuation
allowance is provided.
56
Effect if Actual Results Differ From
Assumptions
At December 31, 2015, amounts
accrued for known environmental
remediation costs were $11.6 million.
A 10% change in this accrual would
have impacted pre-tax earnings by
$1.2 million. Further information
about our environmental costs is
provided in Note 10, Environmental
Costs, in the Notes to Consolidated
Financial Statements.
Environmental Costs
Methodology
Judgment and Uncertainties
Our operations are subject to
environmental regulation by federal,
state and local authorities in the
United States and regulatory
authorities with jurisdiction over our
foreign operations. As a result, we
have established and update, as
necessary, policies relating to
environmental standards of
performance for our operations
worldwide.
When we become aware of an
environmental risk, we perform a site
study to ascertain the potential
magnitude of contamination and the
estimated cost of remediation.
We continually evaluate the identified
environmental issues to ensure the
time to complete the remediation and
the total cost of remediation are
consistent with our initial estimate. If
there is any change in the cost and/or
timing of remediation, the accrual is
adjusted accordingly.
Environmental costs are accrued when
it is probable that a liability has been
incurred and the amount can be
reasonably estimated. The most likely
cost to be incurred is accrued based on
an evaluation of currently available
facts with respect to each individual
site, including existing technology,
current laws and regulations and prior
remediation experience. Conditions of
the site must be monitored throughout
the remediation process as numerous
factors could affect the estimated
liability, including, but not limited to,
the discovery of geological formations
affecting the behavior or movement of
contaminants; soil conditions and soil
chemistry affecting the degradation of
contaminants; or the discovery of
further sources or types of
contaminants. Liabilities with fixed or
readily determinable payment dates
are discounted.
We believe that expenditures
necessary to comply with the present
regulations governing environmental
protection will not have a material
effect upon our competitive position,
consolidated financial position, results
of operations or cash flows.
57
RECENT ACCOUNTING STANDARDS
A summary of recent accounting standards is included in Note 1, Summary of Significant Accounting Policies, in the Notes to
Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
SELECTED QUARTERLY FINANCIAL DATA
2015
Net sales ...................................................................
Gross profit...............................................................
Net earnings..............................................................
Basic earnings per share ...........................................
Diluted earnings per share........................................
2014
Net sales ...................................................................
Gross profit...............................................................
Earnings from continuing operations .......................
Loss from discontinued operations, net of tax .........
Gain on disposal of discontinued operations, net of
tax .............................................................................
Net earnings..............................................................
Basic earnings (loss) per share:
From continuing operations ...................................
From discontinued operations................................
From disposal of discontinued operations .............
Basic earnings per share ...........................................
Diluted earnings (loss) per share:
From continuing operations ...................................
From discontinued operations................................
From disposal of discontinued operations .............
Diluted earnings per share........................................
First
Quarter
$
442,782
127,911
12,749
0.47
0.46
First
Quarter
$
407,958
Fourth
Third
Second
Quarter
Quarter
Quarter
(in thousands, except per share amounts)
452,277
$
446,324
433,742
$
$
131,952
21,691
0.80
0.77
129,926
17,224
$
$
0.63
0.62
127,445
8,774
0.32
0.32
Fourth
Third
Second
Quarter
Quarter
Quarter
(in thousands, except per share amounts)
477,931
$
453,018
456,055
$
$
Total
Year
$ 1,775,125
517,234
60,438
2.22
2.17
Total
Year
$ 1,794,962
114,000
128,549
129,365
$
136,025
507,939
11,944
(487)
—
11,457
0.45
(0.02)
—
0.43
0.44
(0.02)
—
$
$
$
$
16,709
(515)
379
16,573
0.62
(0.02)
0.01
0.61
0.61
(0.02)
0.01
$
$
$
$
15,797
$
(924) $
21,330
(998)
$
$
$
$
(94)
14,779
0.58
(0.03)
—
0.55
0.57
(0.04)
—
(5,269)
15,063
0.79
(0.04)
(0.19)
0.56
0.77
(0.04)
(0.19)
0.54
$
$
$
$
$
65,780
(2,924)
(4,984)
57,872
2.43
(0.11)
(0.18)
2.14
2.37
(0.11)
(0.18)
2.08
0.42
$
0.60
$
0.53
$
$
$
$
$
$
Included within certain quarterly results are a variety of unusual or significant adjustments that may affect comparability. The
most significant of such adjustments are described below as well as within Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the Notes to Consolidated Financial Statements. Additionally, due to the nature of the
earnings per share calculation, the sum of quarterly earnings per share data may not equal the cumulative earnings per share
data for the year.
Nonrecurring items within the 2015 quarterly results are as follows: fourth quarter, $4.0 million in expense associated with the
resolution of matters related to our AH-1Z program, $3.0 million of expenses related to foreign currency transactions associated
with the purchase of GRW, a $2.1 million loss related to the reversal of a portion of the tax benefit recognized in the second
quarter due to tax law changes in December, and $1.5 million of costs associated with restructuring activities at our Distribution
segment; second quarter, a $4.4 million gain related to the recognition of a tax benefit due to tax law changes, $0.6 million of
severance costs at our Distribution segment; first quarter, $0.3 million of severance costs associated with our Distribution
segment.
Nonrecurring items within the 2014 quarterly results are as follows: fourth quarter, a $5.3 million loss on disposal of
discontinued operations, net of tax related to the sale of Delamac; third quarter, $2.2 million of costs associated with the sale of
our Moosup facility.
58
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have various market risk exposures that arise from our ongoing business operations. Market risk is the potential economic
loss that may result from adverse changes in the fair value of financial instruments. Our financial results are impacted by
changes in interest rates, certain foreign currency exchange rates and commodity prices.
Foreign Currencies
We have manufacturing, sales, and distribution facilities in various locations throughout the world. As a result, we make
investments and conduct business transactions denominated in various currencies, including the U.S. dollar, the British pound,
the European euro, the Czech koruna and the Australian dollar. Total annual foreign sales from continuing operations, including
foreign export sales, averaged approximately $250.8 million over the last three years. Foreign sales from continuing operations
represented 15.6% of consolidated net sales from continuing operations in 2015. We estimate a hypothetical 10% adverse
change in foreign currency exchange rates relative to the U.S dollar for 2015 would have had an unfavorable impact of $7.1
million on sales and a $0.3 million favorable impact on operating income. We manage foreign currency exposures that are
associated with committed foreign currency purchases and sales and other assets and liabilities created in the normal course of
business at the subsidiary operations level. Sometimes we may, through the use of forward contracts, hedge the price risk
associated with committed and forecasted foreign denominated payments and rates. Historically the use of these forward
contracts has been minimal. We do not use derivatives for speculative or trading purposes.
Interest Rates
Our primary exposure to interest rate risk results from our outstanding debt obligations. The level of fees and interest charged
on revolving credit commitments and borrowings are based upon leverage levels and market interest rates.
Our principal debt facilities are contained within a variable rate credit agreement that provides a $600.0 million revolving credit
facility and a $100.0 million term loan commitment. Both these agreements were entered into on May 6, 2015, and expire on
May 6, 2020. Total average bank borrowings for 2015 were $192.5 million. The impact of a hypothetical 100 basis point
increase in the interest rates on our average bank borrowings would have resulted in a $1.9 million increase in interest expense.
In November 2010, we issued $115.0 million convertible unsecured senior notes due on November 15, 2017, in a private
placement offering. These notes bear 3.25% interest per annum on the principal amount, payable semiannually in arrears on
November 15 and May 15 of each year, beginning on May 15, 2011, and have an effective interest rate of 5.25%.
From time to time we will enter into interest rate swap contracts for the purpose of securing a fixed interest rate on our variable
interest rate borrowings. These contracts allow us to create certainty related to future cash flows as they relate to fluctuations in
LIBOR rates and the impact they have on interest payments on our variable rate debt.
Commodity Prices
We are exposed to volatility in the price of raw materials used in certain manufacturing operations as well as a variety of items
procured by our distribution business. These raw materials include, but are not limited to, aluminum, titanium, nickel, copper
and other specialty metals. We manage our exposure related to these price changes through strategic procurement practices.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Kaman Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of
comprehensive income, of shareholders’ equity, and of cash flows present fairly, in all material respects, the financial position
of Kaman Corporation and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control over Financial Reporting, management has excluded G.C.
Fabrication, Inc., Calkins Fluid Power, Inc., EXTEX Engineered Products, Inc., and GRW Bearing GmbH (the “Acquired
Businesses”) from its assessment of internal control over financial reporting as of December 31, 2015 because these businesses
were acquired by the Company through purchase business combinations during 2015. We have also excluded the Acquired
Businesses from our audit of internal control over financial reporting. The Acquired Businesses are wholly-owned subsidiaries
whose total assets and total revenues represent 17% and 1%, respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2015.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 29, 2016
60
CONSOLIDATED BALANCE SHEETS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except share and per share amounts)
December 31,
2015
December 31,
2014
Current assets:
Assets
Cash and cash equivalents ......................................................................................................
Accounts receivable, net.........................................................................................................
Inventories ..............................................................................................................................
Deferred income taxes ............................................................................................................
Income tax refunds receivable ................................................................................................
Other current assets.................................................................................................................
Total current assets ..........................................................................................................
Property, plant and equipment, net of accumulated depreciation of $202,648 and $183,829,
respectively ...............................................................................................................................
Goodwill....................................................................................................................................
Other intangible assets, net .......................................................................................................
Deferred income taxes ..............................................................................................................
Other assets ...............................................................................................................................
Total assets ................................................................................................................................
Liabilities and Shareholders’ Equity
$
$
16,462
238,102
385,747
—
3,591
32,133
676,035
175,586
352,710
144,763
66,815
25,296
1,441,205
$
$
Current liabilities:
Current portion of long-term debt...........................................................................................
Accounts payable – trade........................................................................................................
Accrued salaries and wages ....................................................................................................
Advances on contracts ............................................................................................................
Other accruals and payables ...................................................................................................
Income taxes payable..............................................................................................................
Total current liabilities.......................................................................................................
Long-term debt, excluding current portion ...............................................................................
Deferred income taxes ..............................................................................................................
Underfunded pension ................................................................................................................
Other long-term liabilities .........................................................................................................
Commitments and contingencies (Note 16)..............................................................................
Shareholders' equity:
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding........................
Common stock, $1 par value, 50,000,000 shares authorized; voting; 27,735,757 and
27,518,226 shares issued, respectively ..............................................................................
Additional paid-in capital ......................................................................................................
Retained earnings ..................................................................................................................
Accumulated other comprehensive income (loss).................................................................
Less 698,183 and 385,942 shares of common stock, respectively, held in treasury, at
cost .....................................................................................................................................
Total shareholders’ equity................................................................................................
Total liabilities and shareholders’ equity...................................................................................
See accompanying notes to consolidated financial statements.
61
12,411
234,648
359,741
25,888
—
29,568
662,256
147,825
238,581
94,491
34,784
23,268
1,201,205
10,000
116,787
42,214
2,406
47,583
2,734
221,724
271,232
3,391
141,546
45,647
5,000
121,044
40,284
11,274
58,761
326
236,689
435,821
15,207
158,984
51,427
—
—
27,736
156,803
520,865
(140,138)
27,518
145,845
479,984
(126,261)
(22,189)
543,077
1,441,205
$
(9,421)
517,665
1,201,205
$
CONSOLIDATED STATEMENTS OF OPERATIONS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except per share amounts)
Net sales ...................................................................................................................
Cost of sales .............................................................................................................
Gross profit...............................................................................................................
Selling, general and administrative expenses...........................................................
Goodwill impairment ...............................................................................................
Net loss (gain) on sale of assets ...............................................................................
Operating income from continuing operations.........................................................
Interest expense, net .................................................................................................
Other expense, net ....................................................................................................
Earnings from continuing operations before income taxes ......................................
Income tax expense ..................................................................................................
Earnings from continuing operations .......................................................................
Loss from discontinued operations, net of taxes ......................................................
Gain (loss) on disposal of discontinued operations, net of taxes .............................
Total loss from discontinued operations...................................................................
Net earnings..............................................................................................................
Earnings per share:
Basic earnings per share from continuing operations ............................................
Basic loss per share from discontinued operations ................................................
Basic earnings (loss) per share from disposal of discontinued operations ............
Basic earnings per share ...........................................................................................
Diluted earnings per share from continuing operations.........................................
Diluted loss per share from discontinued operations.............................................
Diluted earnings (loss) per share from disposal of discontinued operations .........
Diluted earnings per share........................................................................................
Weighted average shares outstanding:
Basic.......................................................................................................................
Diluted....................................................................................................................
Dividends declared per share ...................................................................................
For the Year Ended December 31,
2015
2014
2013
$ 1,775,125
$ 1,794,962
$ 1,653,921
1,257,891
1,287,023
1,190,610
517,234
413,043
—
(328)
104,519
13,144
3,386
87,989
27,551
60,438
—
—
—
60,438
2.22
—
—
2.22
2.17
—
—
$
$
$
$
2.17
$
507,939
397,199
—
233
110,507
13,382
623
96,502
30,722
65,780
(2,924)
(4,984)
(7,908)
57,872
2.43
(0.11)
(0.18)
2.14
2.37
(0.11)
(0.18)
2.08
$
$
$
$
$
463,311
357,752
2,071
142
103,346
12,294
398
90,654
31,588
59,066
(2,386)
420
(1,966)
57,100
2.21
(0.09)
0.02
2.14
2.17
(0.09)
0.02
2.10
27,177
27,868
27,053
27,777
0.72
$
0.64
$
26,744
27,143
0.64
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
62
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands)
Net earnings..............................................................................................................
Other comprehensive income, net of tax:
Foreign currency translation adjustments ..............................................................
Change in unrealized loss on derivative instruments, net of tax benefit
(expense) of ($158), ($161), and $38, respectively ...............................................
Pension plan adjustments, net of tax benefit (expense) of $7,382, $23,583, and
($23,933), respectively...........................................................................................
Other comprehensive income (loss)....................................................................
Total comprehensive income....................................................................................
For the Year Ended December 31,
2015
2014
2013
$
60,438
$
57,872
$
57,100
(1,949)
(6,457)
2,296
263
264
(61)
(12,191)
(13,877) $
$
46,561
(38,947)
(45,140) $
$
12,732
$
$
38,234
40,469
97,569
See accompanying notes to consolidated financial statements.
63
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except share amounts)
Common Stock
Additional
Paid-In
Retained
Accumulated
Other
Comprehensive
Treasury Stock
Total
Shareholders'
Shares
$
Capital
Earnings
Income (Loss)
Shares
$
Equity
Balance at December 31, 2012
Net earnings ..............................................
Other comprehensive income ...................
Dividends ..................................................
Purchase of treasury shares.......................
Employee stock plans,
net of tax expense of $543 .....................
Share-based compensation expense..........
Balance at December 31, 2013
Net earnings ..............................................
Other comprehensive income ...................
Dividends ..................................................
Purchase of treasury shares.......................
Employee stock plans,
net of tax expense of $834 .....................
Share-based compensation expense..........
Balance at December 31, 2014
Net earnings ..............................................
Other comprehensive income ...................
Dividends ..................................................
Purchase of treasury shares.......................
Employee stock plans,
26,881,257
—
—
$ 26,881
—
—
$ 122,522
—
—
$ 399,473
57,100
—
—
—
—
—
—
—
(17,132)
—
216,510
92,155
27,189,922
—
—
—
—
235,233
93,071
27,518,226
—
—
—
—
217
92
$ 27,190
—
—
—
—
235
93
$ 27,518
—
—
—
—
6,076
4,919
$ 133,517
—
—
—
—
6,992
5,336
$ 145,845
—
—
—
—
—
—
$ 439,441
57,872
—
(17,329)
—
—
—
$ 479,984
60,438
—
(19,557)
—
$
$
$
(121,590)
—
40,469
—
—
277,473
—
—
—
18,468
$ (7,093) $
—
—
—
(644)
—
—
(81,121)
—
(45,140)
—
—
(3,825)
38,371
330,487
—
—
—
21,312
40
(38)
$ (7,735) $
—
—
—
(853)
16,352
—
17,791
—
385,942
(126,261)
—
—
—
(13,877)
—
—
— 319,234
(815)
(18)
$ (9,421) $
—
—
—
(12,836)
net of tax expense of $327 .....................
Share-based compensation expense..........
Balance at December 31, 2015
137,037
80,494
27,735,757
4,649
—
6,309
—
$ 156,803
(140,138)
See accompanying notes to consolidated financial statements.
—
—
$ 520,865
137
81
$ 27,736
$
(8,857)
1,864
698,183
70
(2)
$(22,189) $
420,193
57,100
40,469
(17,132)
(644)
6,333
4,973
511,292
57,872
(45,140)
(17,329)
(853)
6,412
5,411
517,665
60,438
(13,877)
(19,557)
(12,836)
4,856
6,388
543,077
64
CONSOLIDATED STATEMENTS OF CASH FLOWS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands)
For the Year Ended December 31,
2014
2015
2013
Cash flows from operating activities:
Earnings from continuing operations .............................................................................
Adjustments to reconcile earnings from continuing operations to net cash provided
by (used in) operating activities of continuing operations:
$
60,438
$
65,780
$
59,066
Depreciation and amortization ................................................................................
Accretion of convertible notes discount..................................................................
Provision for doubtful accounts ..............................................................................
Net (gain) loss on sale of assets ..............................................................................
Goodwill impairment ..............................................................................................
Net gain (loss) on derivative instruments ...............................................................
Stock compensation expense ..................................................................................
Excess tax (expense) benefit from share-based compensation arrangements.........
Deferred income taxes ............................................................................................
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable..............................................................................................
Inventories ............................................................................................................
Income tax refunds receivable ..............................................................................
Other current assets...............................................................................................
Accounts payable - trade ......................................................................................
Accrued contract losses ........................................................................................
Advances on contracts ..........................................................................................
Other accrued expenses and payables...................................................................
Income taxes payable............................................................................................
Pension liabilities..................................................................................................
Other long-term liabilities.....................................................................................
Net cash provided by (used in) operating activities of continuing operations ...
Net cash provided by (used in) operating activities of discontinued operations
Net cash provided by (used in) operating activities ...........................................
Cash flows from investing activities:
Proceeds from sale of assets....................................................................................
Proceeds from sale of discontinued operations.......................................................
Expenditures for property, plant & equipment........................................................
Acquisition of businesses including earn out adjustments, net of cash acquired....
Other, net.................................................................................................................
Cash provided by (used in) investing activities of continuing operations............
Cash provided by (used in) investing activities of discontinued operations ........
Cash provided by (used in) investing activities....................................................
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements..........................
Borrowings under Term Loan Facility....................................................................
Debt repayment .......................................................................................................
Book overdraft ........................................................................................................
Proceeds from exercise of employee stock awards.................................................
Purchase of treasury shares .....................................................................................
Dividends paid ........................................................................................................
Debt issuance costs .................................................................................................
Windfall tax (expense) benefit ................................................................................
Other........................................................................................................................
Cash provided by (used in) financing activities of continuing operations ...........
Cash provided by (used in) financing activities of discontinued operations ........
Cash provided by (used in) financing activities ...................................................
Net increase (decrease) in cash and cash equivalents ....................................................
Effect of exchange rate changes on cash and cash equivalents......................................
Cash and cash equivalents at beginning of period .........................................................
Cash and cash equivalents at end of period....................................................................
$
37,729
2,035
1,694
(328)
—
579
6,388
(327)
(1,281)
4,556
(2,928)
(3,463)
(2,823)
4,697
2
8,868
(1,144)
(2,403)
(2,300)
(405)
109,584
—
109,584
719
—
(29,932)
(201,252)
(2,143)
(232,608)
—
(232,608)
143,025
100,000
(83,750)
(3,462)
4,856
(12,836)
(19,026)
(1,348)
327
(198)
127,588
—
127,588
4,564
(513)
12,411
16,462
36,209
1,931
853
233
—
1,071
5,411
(834)
1,434
(23,876)
30,181
2,292
(2,560)
(3,858)
(1,899)
(7,065)
6,746
4,455
(6,380)
(1,035)
109,089
(2,902)
106,187
39
7,863
(28,283)
(77,618)
(2,060)
(100,059)
3
(100,056)
15,788
—
(10,000)
1,568
6,411
(853)
(17,286)
—
834
—
(3,538)
—
(3,538)
2,593
(566)
10,384
12,411
$
$
31,555
1,833
1,286
142
2,071
178
4,973
(543)
2,938
(22,565)
(19,707)
(2,297)
1,299
12,170
(969)
7,570
(10,187)
(2,024)
(3,118)
1,169
64,840
(1,892)
62,948
100
—
(40,852)
(18,162)
(2,305)
(61,219)
(56)
(61,275)
22,720
—
(10,000)
(9,878)
6,333
(644)
(17,091)
(98)
543
—
(8,115)
—
(8,115)
(6,442)
233
16,593
10,384
See accompanying notes to consolidated financial statements.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Kaman Corporation, headquartered in Bloomfield, Connecticut, was incorporated in 1945 and is a diversified company that
conducts business in the aerospace and distribution markets. Kaman Corporation reports information for itself and its
subsidiaries (collectively, the "Company") in two business segments, Distribution and Aerospace.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior year financial
statements and notes thereto have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include
the carrying amount of property, plant and equipment, goodwill and other intangible assets; valuation allowances for
receivables, inventories and income taxes; valuation of share-based compensation; vendor incentives; assets and obligations
related to employee benefits; estimates of environmental remediation costs; and accounting for long-term contracts including
claims. Actual results could differ from those estimates.
Foreign Currency Translation
The Company has certain operations outside the United States that prepare financial statements in currencies other than the U.S.
dollar. For these operations, results of operations and cash flows are translated using the average exchange rate throughout the
period. Assets and liabilities are generally translated at end of period rates. The gains and losses associated with these
translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts
receivable. The carrying amounts of these items, as well as trade accounts payable and notes payable, approximate fair value
due to the short-term maturity of these instruments. At December 31, 2015 and 2014, no individual customer accounted for
more than 10% of consolidated accounts receivable or consolidated net sales. Foreign sales associated with continuing
operations were approximately 15.6%, 13.6% and 13.9% of the Company’s net sales in 2015, 2014 and 2013, respectively, and
are concentrated in the United Kingdom, Germany, New Zealand and Asia.
Additional Cash Flow Information
Non-cash investing activities in 2015 include $5.4 million in earn-out payments to the former owners of an aerospace
acquisition. The Company describes these earn-out payments in more detail in Note 3, Acquisitions. Non-cash financing
activities in 2015 include an adjustment to other comprehensive income related to the underfunding of the pension and SERP
plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total net
adjustment was $11.9 million, net of tax of $7.2 million. Additionally, non-cash financing activities in 2015 include $4.9
million of dividends declared but not yet paid. Non-cash investing activities in 2014 include an accrual of $1.5 million for
capital leases and $1.5 million in earn-out payments to the former owners of an aerospace acquisition. Non-cash financing
activities in 2014 include an adjustment to other comprehensive income related to the underfunding of the pension and SERP
plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total net
adjustment was $38.7 million, net of tax of $23.4 million. Additionally, non-cash financing activities in 2014 include $4.3
million of dividends declared but not yet paid. Non-cash investing activities in 2013 include an accrual of $0.9 million for
purchases of property and equipment and $3.5 million in earn-out payments to the former owners of an aerospace acquisition.
Non-cash financing activities in 2013 include an adjustment to other comprehensive income related to the underfunding of the
pension and SERP plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting.
The total adjustment was $39.0 million, net of tax of $23.6 million. The Company describes its pension obligations in more
detail in Note 14, Pension Plans. Additionally, non-cash financing activities in 2013 include $4.3 million of dividends declared
but not yet paid.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Sales and estimated profits under long-term contracts are generally recognized using the percentage-of-completion method of
accounting, using as a measurement basis either the ratio that costs incurred bear to estimated total costs (after giving effect to
estimates of costs to complete based upon most recent information for each contract) or units-of-delivery. Reviews of contracts
are made routinely throughout their lives and the impact of revisions in profit estimates are recorded in the accounting period in
which the revisions are made. Anticipated contract losses are charged to operations when they are probable. In cases where we
have multiple contracts with a single customer, each contract is generally treated as a separate profit center and accounted for as
such. Except in the case of contracts accounted for using the cost-to-cost method of percentage of completion accounting,
revenues are recognized when the product has been shipped or delivered, depending upon when title and risk of loss have
passed. For certain USG contracts delivery is deemed to have occurred when work is substantially complete and acceptance by
the customer has occurred by execution of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of
Shipment.
Sales contracts are initially reviewed to ascertain if they involve multiple element arrangements. If such an arrangement exists
and there is no evidence of stand-alone value for each element of the undelivered items, recognition of sales for the
arrangement is deferred until all elements of the arrangement are delivered and risk of loss and title have passed. For elements
that do have stand-alone value or contracts that are not considered multiple element arrangements, sales and related costs of
sales are recognized as services are performed or when the product has been shipped or delivered depending upon when title
and risk of loss have passed.
Pre-contract costs incurred for items such as materials or tooling for anticipated contracts are included in inventory if recovery
of such costs is considered probable. Thereafter, if the Company determines it will not be awarded an anticipated contract and
the associated pre-contract costs cannot be applied to another program the costs are expensed immediately. Learning or start-up
costs incurred in connection with existing or anticipated follow-on contracts are charged to the existing contract unless the
terms of the contract permit recovery of these costs over a specific contractual term and provide for reimbursement if the
contract is canceled. As of December 31, 2015 and 2014, approximately $2.4 million and $1.4 million, respectively, of pre-
contract costs were included in inventory, which, in both cases, represented less than 1% of total inventory.
If it is probable that a claim with respect to change orders will result in additional contract revenue and the amount of such
additional revenue can be reliably estimated, then the additional contract revenue is considered in our accounting for the
program, but only if the contract provides a legal basis for the claim, the additional costs were unforeseen and not caused by
deficiencies in our performance, the costs are identifiable and reasonable in view of the work performed and the evidence
supporting the claim is objective and verifiable. If these requirements are met, the claim portion of the program is accounted for
separately to ensure revenue from the claim is recorded only to the extent claim related costs have been incurred; accordingly,
no profit with respect to such costs is recorded until the change order is formally approved. If these requirements are not met,
the forecast of total contract cost at completion (which is used to calculate the gross margin rate) for the basic contract is
generally increased to include all incurred and anticipated claim related costs.
Recognition of sales not accounted for under the cost-to-cost method of percentage of completion accounting occurs when the
sales price is fixed, collectability is reasonably assured and the product’s title and risk of loss has transferred to the customer.
The Company includes freight costs charged to customers in net sales and the correlating expense as a cost of sales. Sales tax
collected from customers is excluded from net sales in the accompanying Consolidated Statements of Operations.
Cost of Sales and Selling, General and Administrative Expenses
Cost of sales includes costs of products and services sold (i.e., purchased product, raw material, direct labor, engineering labor,
outbound freight charges, depreciation and amortization, indirect costs and overhead charges). Selling expenses primarily
consist of advertising, promotion, bid and proposal, employee payroll and corresponding benefits and commissions paid to sales
and marketing personnel. General and administrative expenses primarily consist of employee payroll including executive,
administrative and financial personnel and corresponding benefits, incentive compensation, independent research and
development, consulting expenses, warehousing costs, depreciation and amortization. Legal costs are expensed as incurred and
are generally included in general and administrative expenses. The Aerospace segment includes general and administrative
expenses as an element of program cost and inventory for certain government contracts.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost of Sales and Selling, General and Administrative Expenses - continued
Certain inventory related costs, including purchasing costs, receiving costs and inspection costs, for the Distribution segment
are not included in cost of sales. For the years ended December 31, 2015, 2014 and 2013, $3.2 million, $3.4 million and $3.0
million, respectively, of such costs are included in general and administrative expenses.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term cash investments. These investments are
liquid in nature and have original maturities of three months or less. Book overdraft positions, which occur when total
outstanding issued checks exceed available cash balances at a single financial institution at the end of a reporting period, are
reclassified to accounts payable within the consolidated balance sheets. At December 31, 2015 and 2014, the Company had
book overdrafts of $4.0 million and $7.3 million, respectively, included in accounts payable.
Accounts Receivable
The Company has three types of accounts receivable: (a) Trade receivables, which consist of amounts billed and currently due
from customers; (b) USG contracts, which consist of (1) amounts billed, and (2) costs and accrued profit – not billed; and (c)
Commercial and other government contracts, which consist of (1) amounts billed, and (2) costs and accrued profit – not billed.
The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the trade accounts
receivable and billed contracts balance. Management determines the allowance based on known troubled accounts, historical
experience, and other currently available evidence.
Inventories
Inventory of merchandise for resale is stated at cost (using the average costing method) or market, whichever is lower.
Contracts and other work in process and finished goods are valued at production cost represented by raw material, labor and
overhead. For certain government contracts, allowable general and administrative expenses are also included in inventory.
Initial tooling and startup costs may be included, where applicable. Contracts and other work in process and finished goods are
not reported at amounts in excess of net realizable values. The Company includes raw material amounts in the contracts in
process and other work in process balances. Raw material includes certain general stock materials but primarily relates to
purchases that were made in anticipation of specific programs for which production has not been started as of the balance sheet
date.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is computed primarily on a straight-line basis over the estimated
useful lives of the assets. The estimated useful lives for buildings range from 15 to 40 years and for leasehold improvements
range from 1 to 20 years, whereas machinery, office furniture and equipment generally have useful lives ranging from 3 to 15
years. At the time of retirement or disposal, the acquisition cost of the asset and related accumulated depreciation are eliminated
and any gain or loss is credited to or charged against income.
Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash
flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not
recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair
value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market
values and third-party independent appraisals, as considered necessary.
Maintenance and repair items are charged against income as incurred, whereas renewals and betterments are capitalized and
depreciated.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangible Assets
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase
business combination and is reviewed for impairment at least annually.
Accounting Standards Codification Topic 350, "Intangibles - Goodwill and Other", ("ASC 350") permits the assessment of
qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the two-
step goodwill impairment test required under ASC 350. The qualitative assessment management performs takes into
consideration the following factors: general economic conditions, industry specific performance, changes in carrying values of
the reporting units, the assessment of assumptions used in the previous fair value calculation and changes in transaction
multiples.
In the first step of the two-step test, the fair value of the reporting unit is compared with its carrying value (including goodwill).
If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting
unit and the enterprise must perform step two of the impairment test (measurement). In step two, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.
The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
Fair value of the reporting unit is determined using an income methodology based on management’s estimates of forecasted
cash flows for each business unit, with those cash flows discounted to present value using rates commensurate with the risks
associated with those cash flows. In addition, management uses a market-based valuation method involving analysis of market
multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for (i) a group of
comparable public companies and (ii) recent transactions, if any, involving comparable companies. If the fair value of the
reporting unit exceeds its carrying value, step two need not be performed.
Goodwill and intangible assets with indefinite lives are evaluated annually for impairment in the fourth quarter, based on annual
forecast information. Intangible assets with finite lives are amortized using the straight-line method over their estimated period
of benefit. Goodwill and other intangible assets are reviewed for possible impairment whenever changes in conditions indicate
that the fair value of a reporting unit is more likely than not below its carrying value. See Note 9, Goodwill and Other
Intangible Assets, Net, for discussion of the goodwill impairment charge recorded in 2013. No such charges were recorded in
2015 or 2014.
Vendor Incentives
The Company’s Distribution segment enters into agreements with certain vendors providing for inventory purchase incentives
that are generally earned upon achieving specified volume-purchasing levels. The Company recognizes rebate income relative
to specific rebate programs as a reduction of the cost of inventory based on a systematic and rational allocation of the cash
consideration offered to each of the underlying transactions that results in progress toward earning the rebate, provided that the
amounts are probable and reasonably estimable. As of December 31, 2015 and 2014, total vendor incentive receivables,
included in other current assets, were approximately $16.4 million and $17.7 million, respectively.
Self-Insured Retentions
To limit exposure to losses related to group health, workers’ compensation, auto and product general liability claims, the
Company obtains third-party insurance coverage. The Company has varying levels of deductibles for these claims. The total
liability/deductible for group health is limited to $0.3 million per claim, workers’ compensation is limited to $0.4 million per
claim and for product/general liability and auto liability the limit is $0.3 million per claim. The cost of such benefits is
recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but not reported
(“IBNR”) during such period. The estimates for the IBNR are based upon historical trends and information provided to us by
the claims administrators, and are periodically revised to reflect changes in loss trends. These amounts are included in other
accruals and payables on the consolidated balance sheets.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Self-Insured Retentions - continued
Liabilities associated with these claims are estimated in part by considering historical claims experience, severity factors and
other actuarial assumptions. Projections of future losses are inherently uncertain because of the random nature of insurance
claim occurrences and the potential for differences between actual developments and actuarial assumptions. Such self-insurance
accruals will likely include claims for which the ultimate losses will be settled over a period of years.
Restructuring Costs
During the fourth quarter of 2015, the Company initiated restructuring activities at its Distribution segment in order to align the
cost structure of the organization to its current revenue levels. Such actions include workforce reductions and the consolidation
of field operations where its Distribution segment has multiple facilities in the same location.
The restructuring has resulted in net workforce reductions of 63 employees and the exiting of four facilities. As of December
31, 2015, we had communicated the workforce reductions to affected employees. The Company incurred all workforce
reduction costs and facility related costs during 2015.
The following table summarizes the accrual balances by cost type for the 2015 restructuring actions:
Severance
Other
Total
In thousands
Restructuring accrual balance at December 31, 2014 ......
Provision........................................................................
Cash payments...............................................................
Restructuring accrual balance at December 31, 2015 ......
$
$
— $
1,044
(390)
654
$
— $
452
(77)
375
$
—
1,496
(467)
1,029
The above accrual balance associated with severance is included in "Accrued salaries and wages" and the above accrual balance
associated with other restructuring costs is included in "Other accruals and payables" on the Company's Consolidated Balance
Sheet. Restructuring expense for 2015 is included in "Selling, general and administrative expenses" on the Company's
Consolidated Statements of Operations.
Research and Development
Customer funded research expenditures (which are included in cost of sales) were $0.4 million in 2015, $1.6 million in 2014,
and $3.3 million in 2013. Research and development costs not specifically covered by contracts are charged against income as
incurred and included in selling, general and administrative expenses. Such costs amounted to $6.7 million, $6.7 million and
$7.2 million in 2015, 2014 and 2013, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss, capital loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely
than not that such a position will be sustained upon examination by taxing authorities based on the technical merits of the
position. Unrecognized tax benefits represent the difference between the position taken in the tax return and the benefit
reflected in the financial statements.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Share-Based Payment Arrangements
The Company records compensation expense for share-based awards based upon an assessment of the grant date fair value of
the awards. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation
model. A number of assumptions are used to determine the fair value of options granted. These include expected term, dividend
yield, volatility of the options and the risk free interest rate. See Note 18, Share-Based Arrangements, for further information.
Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to
fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are recognized on the
consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives
are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is
effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other
comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item.
The Company does not use derivative instruments for speculative purposes. See Note 6, Derivative Financial Instruments, for
further information.
Pension Accounting
The Company accounts for its defined benefit pension plan by recognizing the overfunded or underfunded status of the plan,
calculated as the difference between the plan assets and the projected benefit obligation, as an asset or liability on the balance
sheet, with changes in the funded status recognized in comprehensive income in the year in which they occur.
Expenses and liabilities associated with the plan are determined based upon actuarial valuations. Integral to the actuarial
valuations are a variety of assumptions including expected return on plan assets and discount rate. The Company regularly
reviews the assumptions, which are updated at the measurement date, December 31st. The impact of differences between actual
results and the assumptions are accumulated and generally amortized over future periods, which will affect expense recognized
in future periods. See Note 14, Pension Plans, for further information.
Recent Accounting Standards
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The objective of this standard update is to provide a
complete and understandable representation of an entity’s leasing activities. This standard requires that lease assets and lease
liabilities be recognized on the balance sheet and all key information about leasing arrangements be disclosed. The new
standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption
is permitted. The Company is currently assessing the potential impact of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and
Measurement of Financial Assets and Financial Liabilities”. The objective of this standard update is to remove inconsistent
practices with regards to the accounting for financial instruments between US GAAP and International Financial Reporting
Standards (“IFRS”). The standard intends to improve the reporting model for financial instruments to provide users of financial
statements with more decision-useful information. The provisions of this ASU are effective for interim and annual periods
beginning after December 15, 2017. The Company does not expect these changes to have a material impact on its consolidated
financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred
Taxes." The objective of this standard update is to improve the usefulness of the presentation of deferred income taxes. The new
standard requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position
to align the classification with the time period in which the recognized deferred tax amounts are expected to be recovered or
settled. The update is effective for financial statement periods beginning after December 15, 2016; however, as permitted by
ASU No. 2015-17, the Company elected to adopt this standard for the year ended December 31, 2015. Adoption of this
standard did not have a material impact on the Company's consolidated balance sheet.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Standards - continued
In September 2015, the FASB issued ASU 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-
Period Adjustments.” This ASU requires that an acquirer recognize adjustments to provisional amounts that are identified
during the measurement period in the reporting period in which the adjustment amounts are determined. The standard becomes
effective the first quarter of fiscal year 2016 and early adoption is permitted. The Company elected to early adopt this standard
which did not have a material impact on the Company’s financial statements.
In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated
with Line-of-Credit Arrangements,” which amends ASC 835-30, “Interest - Imputation of Interest”. The ASU clarifies the
presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented
as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding
borrowings under the arrangement. The standard becomes effective the first quarter of fiscal year 2016. The adoption of this
standard is not expected to have a material impact on the Company’s financial statements.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330) - Simplifying the Measurement of Inventory." ASU
2015-11 requires an entity to measure inventory within the scope of the standard at the lower of cost and net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The new standard is effective for fiscal years beginning after December 15, 2016,
including interim periods within those years. Early adoption is permitted. The adoption of this standard is not expected to have
a material impact on the Company's financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs." ASU No. 2015-03 amends the FASB Accounting Standards Codification (the
"Codification") to require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying
amount of the related liability. Such treatment is consistent with the current presentation of debt discounts or premiums. As it
stood prior to the amendment, debt issuance costs were reported in the balance sheet as an asset (i.e., a deferred charge),
whereas debt discounts and premiums were, and continue to be, reported as deductions from or additions to the debt itself.
Recognition and measurement guidance for debt issuance costs is not affected by these amendments to the Codification. The
new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The
adoption of this standard is not expected to have a material impact on the Company's financial statements.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810)." ASU 2015-02 focuses on the consolidation
evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The
new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The
adoption of this standard is not expected to have a material impact on the Company's financial statements.
In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic
225-20)." The new standard eliminates the concept of extraordinary items and their segregation from the results of ordinary
operations and expands presentation and disclosure guidance to include items that are both unusual in nature and occur
infrequently. The new standard is effective for fiscal years, and interim periods within those years, beginning after December
15, 2015. The adoption of this standard is not expected to have a material impact on the Company's financial statements.
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (ASC Subtopic
205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The new standard provides
guidance regarding management's responsibility to evaluate whether there is substantial doubt about an entity's ability to
continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and
interim periods within those fiscal years, ending after December 15, 2016. Early adoption is permitted. The adoption of this
standard is not expected to have a material impact on the Company's financial statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (ASC Topic 718) - Accounting for
Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite
Service Period." The objective of this standard update is to eliminate inconsistent practices with regards to the accounting
treatment of share-based payment awards. The provisions of this ASU are effective for interim and annual periods beginning
after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company's financial
statements.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Standards - continued
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)." The objective
of this standard update is to remove inconsistent practices with regards to revenue recognition between US GAAP and IFRS.
The standard intends to improve comparability of revenue recognition practices across entities, industries, jurisdictions and
capital markets.
On August 12, 2015, the FASB issued ASU No. 2015-14, deferring the effective date by one year for ASU No. 2014-09. The
provisions of ASU No. 2014-09 will be effective for interim and annual periods beginning after December 15, 2017, with early
adoption permitted for annual periods beginning after December 15, 2016. The Company is currently assessing the potential
impact of this standard on its consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity." This standard update requires that a disposal representing a strategic shift that has (or will have) a
major effect on an entity's financial results or a business activity classified as held for sale should be reported as discontinued
operations. The standard also expands the disclosures for discontinued operations and requires new disclosures related to
individually material disposals that do not meet the definition of a discontinued operation. The provisions of this ASU are
effective for annual periods beginning on or after December 15, 2014, and interim periods beginning on or after December 15,
2015. The adoption of this standard did not have a material impact on the Company's 2015 financial statements, and is not
expected to have a material impact on the Company's financial statements in the future.
2. DISCONTINUED OPERATIONS
The following table provides information regarding the results of discontinued operations:
In thousands
Net sales of discontinued operations................................................... $
Income from discontinued operations.................................................
Other income (expense) from discontinued operations ......................
Earnings (loss) from discontinued operations before income taxes....
Income tax benefit/(expense) ..............................................................
Earnings (loss) from discontinued operations before gain/(loss) on
disposal................................................................................................
Gain/(loss) on disposal of discontinued operations ............................
Income tax benefit/(expense) ..............................................................
Net gain (loss) on disposal of discontinued operations.......................
Earnings (loss) from discontinued operations..................................... $
Delamac Disposal
For the year ended December 31,
2015
2014
2013
— $
—
—
—
—
—
—
—
—
— $
$
23,540
(3,806)
(353)
(4,159)
1,235
(2,924)
(7,567)
2,583
(4,984)
(7,908) $
27,885
(2,886)
(292)
(3,178)
792
(2,386)
—
420
420
(1,966)
On December 19, 2014, the Company sold its Distribution segment's Mexico business unit, Delamac. As a result, the Company
has reported the results of operations and consolidated financial position of this component as discontinued operations within
the consolidated financial statements for all periods presented. The sale resulted in a net loss on disposal of discontinued
operations of $5.3 million for the year ended December 31, 2014.
Canadian Operations Disposal
On December 31, 2012, the Company sold substantially all of the assets and liabilities of the Distribution segment's Canadian
operations. During 2014, the Company recorded earnings from discontinued operations of $0.3 million due to a pension
settlement that resulted from this disposal.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
3. ACQUISITIONS
The following table illustrates cash paid for acquisitions:
For the year ended December 31,
2015
2014
2013
In thousands
Cash paid for acquisitions completed during the year ...................... $
Cash paid for holdback payments during the year ............................
Earn-out and other payments during the year ...................................
196,395
$
70,948
$
17,284
3,404
1,453
3,060
3,610
828
50
Total cash paid for acquisitions ...................................................... $
201,252
$
77,618
$
18,162
2015 Acquisitions
On November 30, 2015, the Company acquired GRW Bearing GmbH ("GRW"), a German-based designer and manufacturer of
super precision, miniature ball bearings, at a purchase price of approximately €134.1 million , net of cash acquired. GRW is
focused on the demanding applications segment of the miniature ball bearings market, where low noise requirements, extreme
temperatures, ultra-high speeds and/or caustic environments require both exceptional engineering design and continuous
operating performance capabilities. GRW operates from two state-of-the-art production facilities in Rimpar, Germany and
Prachatice, Czech Republic. GRW brings additional scale and new market segments to the Company's specialty bearing and
engineered products lines. The businesses are aligned through a focus on solving the critical problems of original equipment
manufacturer ("OEM") customers and achieving the highest standards of performance in the most demanding applications.
On October 21, 2015, the Company acquired Timken Alcor Aerospace Technologies, Inc. ("TAAT") of Mesa, Arizona, at a
purchase price of approximately $44.5 million, net of cash acquired. TAAT, which was renamed EXTEX Engineered Products,
Inc. ("EXTEX"), designs and supplies aftermarket parts to support businesses conducting maintenance, repair and overhauls in
aerospace markets primarily located in North America. This acquisition strengthened the Company's position in the MRO
market and provides synergy opportunities to leverage the Company's global sales organization to accelerate growth. EXTEX
complements the aftermarket business of the Company's specialty bearings and engineered products lines.
On January 30, 2015, the Company acquired substantially all the operating assets of G.C. Fabrication, Inc. ("GCF") for a
purchase price of approximately $9.5 million, net of cash acquired. Located in Northvale, New Jersey, GCF is a premier
Schneider Electric/Square D distributor and carries a variety of electrical power, automation, process controls, specialized
HVAC, water and wasterwater systems, communication and networking devices from a premier set of global manufacturers.
The acquisition of GCF has expanded the Company's automation, control and energy product offerings into the New York
metro market. This acquisition is immaterial to the Company's results of operations and financial position.
In addition to the above acquisitions, the Company's Distribution segment acquired substantially all the assets of Calkins Fluid
Power, Inc. ("Calkins"), a small distributor of fluid power components and systems, on December 1, 2015.
These acquisitions were accounted for as purchase transactions. The assets acquired and liabilities assumed were recorded
based on their fair values at the date of acquisition as follows (in thousands):
Cash.................................................................................................................................................................. $
Accounts receivable .........................................................................................................................................
Inventories........................................................................................................................................................
Property, plant and equipment .........................................................................................................................
Other tangible assets ........................................................................................................................................
Goodwill ..........................................................................................................................................................
Other intangible assets .....................................................................................................................................
Liabilities .........................................................................................................................................................
Net assets acquired ........................................................................................................................................
Less cash received .........................................................................................................................................
Net consideration........................................................................................................................................... $
6,345
10,786
24,319
24,790
1,192
108,659
61,323
(33,920)
203,494
(6,345)
197,149
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
3. ACQUISITIONS (CONTINUED)
2015 Acquisitions - continued
The preliminary purchase price allocations for the acquisitions of GRW and EXTEX, completed during the fourth quarter of
2015, were based upon a preliminary valuation and our estimates and assumptions for these acquisitions are subject to change
as we obtain additional information during the measurement period. The principle areas of these purchase price allocations that
are not yet finalized relate to certain identifiable intangible assets, certain environmental matters, income and non-income based
taxes and residual goodwill.
The goodwill associated with these acquisitions is tax deductible and is the result of expected synergies from combining the
operations of the acquired businesses with the Company's operations and intangible assets that do not qualify for separate
recognition, such as an assembled workforce. Included in the Consolidated Statements of Operations for the year ended
December 31, 2015, is $26.1 million of revenue from these acquisitions.
The fair value of the identifiable intangible assets of $61.3 million, consisting of customer relationships, developed
technologies, non-compete agreements, trade names and acquired backlog, was determined using the income approach.
Specifically, the discounted cash flows method was utilized for the customer relationships, backlog and non-compete
agreements and the relief-from-royalty method was utilized for the trade names and developed technology. The fair value of the
customer relationships ($36.0 million) is being amortized on a straight-line basis over periods ranging from 6 to 26 years; the
fair value of the developed technologies ($19.1 million) is being amortized over periods ranging from 10 to 20 years; the fair
value of the non-compete agreements ($0.6 million) is being amortized over 1 year; the fair value of the trade names ($4.8
million) is being amortized over periods ranging from 3 to 15 years; and the fair value of the acquired backlog ($0.8 million) is
being amortized over 2 years. These amortization periods represent the estimated useful lives of the assets.
The following table reflects the unaudited pro forma operating results of the Company for the years ended December 31, 2015
and 2014, which give effect to the acquisitions of GRW, EXTEX, GCF, and Calkins as if the companies had been acquired on
January 1, 2014. The pro forma results are based on assumptions that the Company believes are reasonable under the
circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the
acquisitions been effective January 1, 2015 or 2014, nor are they intended to be indicative of results that may occur in the
future. The underlying pro forma information includes the historical financial results of the Company and the four acquired
businesses adjusted for certain items including depreciation and amortization expenses associated with the assets acquired and
the Company’s expenses related to financing arrangements, with the related tax effects. The pro forma information does not
include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisitions.
In thousands
Net sales.............................................................................................................................
Earnings from continuing operations ................................................................................
Net earnings.......................................................................................................................
$
$
$
1,844,535
69,450
69,450
$
$
$
1,895,990
59,223
51,315
For the year ended December 31,
2015
2014
The pro forma earnings during the year ended December 31, 2015, were adjusted to exclude non-recurring items including
acquisition-related costs and expenses related to the fair value adjustments to inventory. The pro forma earnings in 2014 were
adjusted to include these items, reflecting acquisition-related costs of $4.2 million and expenses of $3.0 million related to
adjustments to inventory.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
3. ACQUISITIONS (CONTINUED)
2014 Acquisitions
On April 25, 2014, the Company acquired specific assets of B.W. Rogers Company and certain affiliated entities ("B.W.
Rogers"). Headquartered in Akron, Ohio, B.W. Rogers operated from twenty-one locations in seven states from the Northeast to
the Midwest. The acquisition of B.W. Rogers expanded the Company's capabilities in both the fluid power and automation and
motion control product areas.
This acquisition was accounted for as a purchase transaction. The assets acquired and liabilities assumed were recorded based
on their fair values at the date of acquisition as follows (in thousands):
Cash .......................................................................................................................................................... $
Accounts receivable, net...........................................................................................................................
Inventories ................................................................................................................................................
Property, plant and equipment..................................................................................................................
Other tangible assets .................................................................................................................................
Goodwill ...................................................................................................................................................
Other intangible assets..............................................................................................................................
Liabilities ..................................................................................................................................................
Total of net assets acquired ....................................................................................................................
Less cash received ..................................................................................................................................
Net consideration.................................................................................................................................... $
11
13,332
9,614
850
784
37,804
16,870
(7,367)
71,898
(11)
71,887
The goodwill associated with B.W. Rogers is tax deductible and is the result of expected synergies from combining the
operations of the acquired business with the Company's operations and intangible assets that do not qualify for separate
recognition, such as an assembled workforce. Included in the Consolidated Statements of Operations for the year ended
December 31, 2014, is $73.1 million of revenue from this acquisition.
The fair value of the identifiable intangible assets of $16.9 million, consisting primarily of customer relationships, non-compete
agreements and trade names, was determined using the income approach. Specifically, the discounted cash flows method was
utilized for the customer relationships and non-compete agreements and the relief-from-royalty method was utilized for the
trade names. The fair value of the customer relationships ($14.9 million) is broken out into two asset categories, which are
amortized on a straight-line basis over periods ranging from 11 to 18 years; the fair value of the non-compete agreements ($1.1
million) is being amortized over periods ranging from 1.5 to 3 years; and the fair value of the trade name ($0.9 million) is being
amortized over 8 years, the estimated useful lives of the assets.
During the third quarter of 2014, the Company acquired a small distribution business that operates in the fluid power market as
a Parker Hannifin distributor of pneumatic and hydraulic fluid power and motion control systems. The results of this operation
are not material to the results of the Distribution segment.
Proforma results of operations have not been presented because the combined effects of the 2014 acquisitions were not
material.
Contingency Payments - Aerospace
Included in acquisition costs are contingency payments to the former owners of the Aerospace Orlando operations acquired in
2003. These payments are based on the attainment of certain milestones, and over the term of the agreement could total $25.0
million. These contingency payments are recorded as additional goodwill and totaled $5.4 million, $1.5 million and $3.5
million during 2015, 2014 and 2013, respectively. Through December 31, 2015, the Company has recorded additional goodwill
of $23.4 million related to these contingency payments. Payment of the $5.4 million recorded in 2015 will occur in the first
quarter of 2016. The remaining $1.6 million of these contingency payments is expected to be earned by the former owners of
the Aerospace Orlando facility in 2016 with final payment to occur in the first quarter of 2017.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
In thousands
Trade receivables.......................................................................................................................
U.S. Government contracts:
At December 31,
2015
2014
$
144,616
$
141,481
Billed..................................................................................................................................
Costs and accrued profit – not billed .................................................................................
20,289
4,248
Commercial and other government contracts:
Billed..................................................................................................................................
Costs and accrued profit – not billed .................................................................................
Less allowance for doubtful accounts .......................................................................................
Total............................................................................................................................
$
68,066
3,872
(2,989)
238,102
$
21,909
1,581
51,166
21,719
(3,208)
234,648
The increase in commercial and other government contracts billed is primarily related to receivables due under the JPF
program. The decrease in commercial and other government contracts unbilled costs and accrued profits is primarily due to the
receipt of payments under the SH-2G(I) New Zealand program.
Accounts receivable, net includes amounts for matters such as contract changes, negotiated settlements and claims for
unanticipated contract costs. These amounts are as follows:
In thousands
Contract changes, negotiated settlements and claims for unanticipated contract costs ......
Total
At December 31,
2015
2014
$
$
900
900
$
$
4,561
4,561
The decrease in the above balance primarily relates to the receipt of payment from a customer for claims related to a composite
aerostructures program.
5. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date.
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy
requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
• Level 1 — Quoted prices in active markets for identical assets or liabilities.
• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are
not active or other inputs that are observable or can be corroborated by observable market data.
• Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of
the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
5. FAIR VALUE MEASUREMENTS (CONTINUED)
The following table provides the carrying value and fair value of financial instruments that are not carried at fair value at
December 31, 2015 and 2014:
In thousands
Long-term debt:
2015
2014
Carrying Value
Fair Value
Carrying Value
Fair Value
Level 1 ...........................................
Level 2 ...........................................
Total..................................................
$
$
111,058
329,763
440,821
$
$
140,156
305,681
445,837
$
$
109,024
172,208
281,232
$
$
145,188
164,204
309,392
The above fair values were computed based on quoted market prices and discounted future cash flows, as applicable.
Differences from carrying amounts are attributable to interest rate changes subsequent to when the transaction occurred. The
fair values of Cash and cash equivalents, Accounts receivable, net, Notes payable, and Accounts payable - trade approximate
their carrying amounts due to the short-term maturities of these instruments.
Recurring Fair Value Measurements
The Company holds derivative instruments for foreign exchange contracts and interest rate swaps that are measured at fair
value using observable market inputs such as forward rates and our counterparties’ credit risks. Based on these inputs, the
derivative instruments are classified within Level 2 of the valuation hierarchy and have been included in other current assets
and other assets on the Consolidated Balance Sheet at December 31, 2015 and 2014. Based on the continued ability to trade and
enter into forward contracts and interest rate swaps, we consider the markets for our fair value instruments to be active. These
contracts are not material to the Company's Consolidated Financial Statements for the years ended December 31, 2015, 2014
and 2013.
The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as
of December 31, 2015, such credit risks have not had an adverse impact on the fair value of these instruments.
Nonrecurring Fair Value Measurements
Goodwill and indefinite-lived intangible assets are tested for possible impairment during the fourth quarter of each year. During
2013, management concluded that the carrying value of goodwill at its VT Composites reporting unit exceeded its fair value
and, accordingly, recorded an impairment charge totaling $2.1 million to write down the goodwill to its implied fair value.
After the $2.1 million charge there was $16.8 million of goodwill remaining for this reporting unit.
The nonrecurring fair value measurement for goodwill was developed using significant unobservable inputs (Level 3). For step-
one of the impairment analysis, the primary valuation technique used was an income methodology based on management’s
estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates
commensurate with the risks associated with those cash flows. In addition, management used a market-based valuation method
involving analysis of market multiples of revenues and EBITDA for a group of comparable public companies. Valuation
methods used to determine the fair value of the reporting unit’s assets and liabilities in order to perform a purchase price
allocation included the income and market approach depending on the nature of the asset/liability. Assumptions used by
management were similar to those that would be used by market participants performing valuations of the reporting unit.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to
fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are reported on the
consolidated balance sheets at fair value. Changes in the fair values of derivatives are recorded each period in earnings or
accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains
and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in
earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for
speculative purposes.
The Company held forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies
and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. Some of those
contracts were designated as cash flow hedges. The Company will include in earnings amounts currently included in
accumulated other comprehensive income upon recognition of cost of sales related to the underlying transaction.
Cash Flow Hedges
Interest Rate Swaps
The Company’s Term Loan Facility (“Term Loan”) contains floating rate obligations and is subject to interest rate
fluctuations. During 2013, the Company entered into interest rate swap agreements for the purposes of hedging the eight
quarterly variable-rate interest payments on its Term Loan due in 2014 and 2015. These interest rate swap agreements were
designated as cash flow hedges and intended to manage interest rate risk associated with the Company’s variable-rate
borrowings and minimize the impact on the Company's earnings and cash flows of interest rate fluctuations attributable to
changes in LIBOR rates. These agreements are not material to the Company's Consolidated Financial Statements for the years
ended December 31, 2015, 2014 and 2013. As of December 31, 2015, these interest rate swap agreements had all matured.
During 2015, we entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate Term
Loan interest payments due in 2016 and 2017. Additionally, we entered into interest rate swap agreements to effectively convert
$83.8 million of our variable rate revolving credit facility debt to a fixed interest rate. These interest rate swap agreements were
designated as cash flow hedges and intended to manage interest rate risk associated with our variable-rate borrowings and
minimize the impact on our earnings and cash flows of interest rate fluctuations attributable to changes in LIBOR rates. There
was no interest expense associated with these interest rate swaps in 2015.
Forward Exchange Contracts
During the second quarter of 2014, the Company entered into forward exchange contracts designed to hedge forecasted
transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company's
earnings and cash flows. These contracts were entered into as a result of forecasted foreign currency transactions associated
with the New Zealand contract to deliver ten SH-2G(I) aircraft and were designated as cash flow hedges. During the third
quarter of 2014, the Company dedesignated these forward contracts, due to a change in the timing of payments. These contracts
were not material to the Company's Consolidated Financial Statements for the years ended December 31, 2015 and 2014.
During the fourth quarter of 2015, the Company entered into forward exchange contracts to minimize the impact of foreign
currency fluctuations on the Company's earnings and cash flows. These contracts were entered into as a result of forecasted
foreign currency transactions associated with a portion of the purchase price of GRW in the amount of €135.0 million . For the
year ended December 31, 2015, the Company recorded expense of $2.2 million in Other expense related to the change in the
value of these contracts from the date we entered into them to their settlement date. At the settlement date, the Company took
delivery of the Euros and further decreases in the exchange rate resulted in expense of $0.8 million, recorded in Other expense,
for the period of time between the settlement of the contracts and the closing of the acquisition.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
7. INVENTORIES
Inventories consist of the following:
In thousands
Merchandise for resale ..............................................................................................................
Raw materials............................................................................................................................
Contracts in process: .................................................................................................................
U.S. Government, net of progress payments of $28,812 and $8,590 in 2015 and 2014,
respectively .............................................................................................................................
Commercial and other government contracts .........................................................................
Other work in process (including certain general stock materials) ........................................
Finished goods ..........................................................................................................................
Total............................................................................................................................
At December 31,
2015
2014
$
161,691
$
149,837
24,721
19,954
88,345
61,197
26,588
23,205
106,036
51,348
21,618
10,948
$
385,747
$
359,741
General and administrative costs charged to inventory by Aerospace segment operations during 2015 and 2014 were $15.8
million and $39.2 million, respectively. The estimated amounts of general and administrative costs remaining in contracts in
process at December 31, 2015 and 2014, are $13.5 million and $10.2 million, respectively. These estimates are based on the
ratio of such costs to total costs of production.
The Company had inventory of $6.5 million and $7.4 million as of December 31, 2015 and 2014, respectively, on consignment
at customer locations, the majority of which is located with Distribution segment customers.
Inventories include amounts associated with matters such as contract changes, negotiated settlements and claims for
unanticipated contract costs, which totaled $7.1 million and $13.3 million at December 31, 2015 and 2014, respectively. The
reduction in this balance is due to the resolution of the of the AH-1Z claims as discussed further in Note 16, Commitments and
Contingencies.
K-MAX® inventory of $14.9 million and $17.2 million as of December 31, 2015 and 2014, respectively, is included in
contracts and other work in process inventory and finished goods. Management believes that a significant portion of this K-
MAX® inventory will be sold after December 31, 2016, based upon the anticipation of additional aircraft manufacturing and
supporting the fleet for the foreseeable future.
At December 31, 2015 and 2014, $9.0 million and $23.5 million, respectively, of SH-2G(I), formerly SH-2G(A), inventory was
included on the Company's balance sheet in contracts and other work in process inventory. Management believes that
approximately $4.8 million of the SH-2G(I) inventory will be sold after December 31, 2016. This balance represents spares
requirements and inventory to be used in SH-2G programs.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is summarized as follows:
In thousands
Land......................................................................................................................................
Buildings ..............................................................................................................................
Leasehold improvements......................................................................................................
Machinery, office furniture and equipment..........................................................................
Construction in process ........................................................................................................
Total...............................................................................................................................
Less accumulated depreciation.............................................................................................
Property, plant and equipment, net.......................................................................................
$
$
At December 31,
2015
2014
14,115
93,465
18,430
242,147
10,077
378,234
(202,648)
175,586
$
$
12,873
79,477
17,341
216,527
5,436
331,654
(183,829)
147,825
Depreciation expense was $24.1 million, $23.8 million and $20.8 million for 2015, 2014 and 2013, respectively.
Capital Leases
For the year ended December 31, 2015, $1.6 million of assets purchased under the Company's master leasing agreement with
PNC and accounted for as capital leases was included in machinery, office furniture and equipment, with accumulated
depreciation of $0.1 million. For the year ended December 31, 2014, $1.5 million of assets purchased under the Company's
master leasing agreement with PNC and accounted for as capital leases was included in machinery, office furniture and
equipment and construction in process. Depreciation expense associated with the capital leases was $0.1 million for 2015.
There was no depreciation expense associated with the capital leases in 2014 and 2013. See Note 16, Commitments and
Contingencies, for a discussion on the master leasing agreement.
9. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company:
2015
2014
Distribution Aerospace
Total
Distribution
Aerospace
Total
In thousands
Gross balance at beginning of
period...........................................
Accumulated impairment ..........
Net balance at beginning of
period ........................................
Additions .....................................
Change in goodwill due to the
disposal of Delamac ....................
Impairments.................................
Foreign currency translation........
Net balance at end of period........
Accumulated impairment at end
of period.......................................
$
$
$
141,612
$
—
$
113,221
(16,252)
254,833
(16,252)
$
105,637
$
141,612
7,592
96,969
106,488
238,581
114,080
—
—
—
—
—
49
—
—
49
149,204
$
203,506
$
352,710
$
—
105,637
38,033
(2,014)
—
(44)
141,612
$
$
114,538
(16,252)
220,175
(16,252)
98,286
1,532
—
—
(2,849)
96,969
$
203,923
39,565
(2,014)
—
(2,893)
238,581
— $
(16,252) $
(16,252) $
— $
(16,252) $
(16,252)
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
9. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)
Goodwill - continued
The increase in the goodwill balance at the Company's Distribution segment relates to the acquisitions of GCF and Calkins in
2015. The addition to goodwill in the Company's Aerospace segment relates to the acquisitions of EXTEX and GRW in 2015
and an earnout payment associated with a previous acquisition. See Note 3, Acquisitions, for further discussion of these
acquisitions.
2015 Analysis
In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible
impairment on at least an annual basis. For the Company's 2015 annual assessment a Step 1 analysis was performed for all of
its reporting units that carry goodwill. The result of these analyses indicated that the the Company did not need to proceed to
Step 2, as the percentage by which the fair value exceeds the carrying value was greater than 13% for all reporting units. The
Company performed a sensitivity analysis relative to the discount rate and growth rate selected and determined a decrease of
1% in the terminal growth rate or an increase of 1% in the discount rate would not result in a fair value calculation less than the
carrying value for the reporting units.
2014 Analysis
During 2014, the Company performed a reevaluation of its reporting units for the purpose of its annual goodwill assessment.
The Company reorganized its metallic and composite aerostructures businesses, as well as its engineering design and air,
vehicle and maintenance, repair and overhaul businesses, into a new entity called Kaman Aerosystems. The Company has
designated this entity as a reporting unit for purposes of its annual assessment of goodwill for impairment. Since this is the first
year the Company assessed goodwill at this reporting unit level, the two-step impairment test was performed.
Upon completion of the qualitative assessment of events and circumstances affecting recorded goodwill as described in Note 1,
Summary of Significant Accounting Policies, the Company concluded that other than Aerosystems, no reporting units should be
subject to the two-step goodwill impairment test required by ASC 350 at the end of 2014. The qualitative assessment that
management performed took into consideration the following factors: general economic conditions, industry specific
performance, changes in carrying values of the reporting units, the assessment of assumptions used in the previous fair value
calculation and changes in transaction multiples.
The results of the Aerosystems Step 1 test indicated that the Company did not need to proceed to Step 2, as the percentage by
which the fair value exceeded the carrying value was 16%. The Company performed a sensitivity analysis relative to the
discount rate and growth rate selected and determined a decrease of 1% in the terminal growth rate or an increase of 1% in the
discount rate would not result in a fair value calculation less than the carrying value for Aerosystems.
Other Intangible Assets
Other intangible assets consisted of:
At December 31,
2015
At December 31,
2014
Amortization
Period
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
In thousands
Customer lists / relationships ............
Developed technologies ....................
Trademarks / trade names .................
Non-compete agreements and other..
Patents ...............................................
Total...................................................
6-26 years
10-20 years
3-15 years
1-9 years
17 years
$
158,831
$
19,055
8,478
8,453
523
195,340
$
$
82
(41,445) $
(154)
(2,556)
(6,006)
(416)
(50,577) $
123,005
$
—
3,546
6,719
523
133,793
$
(31,868)
—
(2,080)
(4,948)
(406)
(39,302)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
9. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)
Other Intangible Assets - continued
The increase in the other intangible assets balance at December 31, 2015, as compared to December 31, 2014, is primarily due
to the acquisitions of GRW and EXTEX. See Note 3, Acquisitions, for further discussion of these acquisitions. Intangible asset
amortization expense was $11.8 million, $10.6 million and $9.2 million in 2015, 2014 and 2013, respectively.
Estimated amortization expense for the next five years associated with intangible assets existing as of December 31, 2015, is as
follows:
In thousands
2016.......................................................................................................................................................... $
2017.......................................................................................................................................................... $
2018.......................................................................................................................................................... $
2019.......................................................................................................................................................... $
2020.......................................................................................................................................................... $
18,289
16,851
15,913
14,804
14,245
In order to determine the useful life of acquired intangible assets, the Company considered numerous factors, most importantly
the industry considerations associated with the acquired entities. The Company determined the amortization period for the
acquired intangible assets for its acquisitions in 2015 and 2014 based primarily on an analysis of their historical customer sales
attrition information and the period over which the asset delivers meaningful cash flow generation in support of the fair value
of the asset.
10. ENVIRONMENTAL COSTS
The following table displays the activity and balances associated with accruals related to environmental costs included in other
accruals and payables and other long-term liabilities:
In thousands
Balance at January 1 .................................................................................................................
Additions to accrual ...........................................................................................................
Payments ............................................................................................................................
Other ..................................................................................................................................
Changes in foreign currency exchange rates .....................................................................
Balance at December 31 ...........................................................................................................
$
10,598
$
4,731
(3,714)
—
(6)
11,609
$
$
11,531
1,865
(2,465)
(307)
(26)
10,598
2015
2014
The 2015 additions to accruals related to environmental costs primarily consist of approximately €3.8 million related to
environmental remediation at the newly acquired Rimpar, Germany facility recorded in connection with the Company's
purchase of GRW.
Bloomfield
In August 2008, the Company completed its purchase of the portion of the Bloomfield campus that Kaman Aerospace
Corporation had leased from the U.S. Naval Air Systems Command ("NAVAIR") for many years. In connection with the
purchase, the Company has assumed responsibility for environmental remediation at the facility as may be required under the
Connecticut Transfer Act (the “Transfer Act”) and it continues the effort to define the scope of the remediation that will be
required by the Connecticut Department of Environmental Protection (“CTDEP”). The transaction was recorded by taking the
undiscounted estimated remediation liability of $20.8 million and discounting it at a rate of 8% to its present value. The fair
value of the Navy Property asset, which at that time approximated the discounted present value of the assumed environmental
liability of $10.3 million, is included in Property, plant and equipment, net. This remediation process will take many years to
complete.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
10. ENVIRONMENTAL COSTS (CONTINUED)
Bloomfield - continued
The following represents estimated future payments for the undiscounted environmental remediation liability related to the
Bloomfield campus as of December 31, 2015:
In thousands
2016........................................................................................................................................................................ $
2017........................................................................................................................................................................
2018........................................................................................................................................................................
2019........................................................................................................................................................................
2020........................................................................................................................................................................
Thereafter ...............................................................................................................................................................
Total ..................................................................................................................................................................... $
902
1,003
403
451
171
5,188
8,118
Other
During 2014, the Company sold its former manufacturing facility in Moosup, Connecticut to TD Development, LLC. In
connection with the sale, the Company agreed to contribute $4.0 million in cash to an escrow account over a four-year period to
fund environmental remediation work that is expected to be performed on the site. The Company currently has $2.4 million
accrued representing the unpaid portion of this contribution payable to TD Development.
The Company's environmental accrual also includes estimated environmental remediation costs that the Company expects to
incur at the former Music segment’s New Hartford, CT facility, the Aerospace segment’s U.K. Composites facilities and its
newly acquired facility in Rimpar, Germany. The Company continues to assess the work that may be required at each of these
facilities, which may result in a change to this accrual. For further discussion of these matters, see Note 16, Commitments and
Contingencies.
11. DEBT
Long-Term Debt
The Company has long-term debt as follows:
At December 31,
2015
2014
In thousands
Revolving credit agreement ......................................................................................................
Term loan ..................................................................................................................................
Convertible notes ......................................................................................................................
Total ...................................................................................................................................
Less current portion ..................................................................................................................
Total excluding current portion..........................................................................................
$
233,513
$
96,250
111,058
440,821
5,000
92,208
80,000
109,024
281,232
10,000
$
435,821
$
271,232
The weighted average interest rate on long-term borrowings outstanding as of December 31, 2015 and 2014, was 2.08% and
2.31%, respectively.
For the year ended December 31, 2015, $1.1 million of liabilities associated with our capital leases are included in other long-
term liabilities. See note 16, Commitments and Contingencies, for a discussion of the master leasing agreement.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
11. DEBT (CONTINUED)
Long-Term Debt - continued
The aggregate annual maturities of long-term debt for each of the next five years are approximately as follows:
In thousands
2016........................................................................................................................................................................ $
2017........................................................................................................................................................................
2018........................................................................................................................................................................
2019........................................................................................................................................................................
2020........................................................................................................................................................................
5,000
121,875
7,500
9,375
301,013
In the above table, the total principal of the Convertible Notes of $115.0 million is included in the amount due in 2017. The
carrying value of the Convertible Notes at December 31, 2015, is $111.0 million.
Revolving Credit and Term Loan Agreements
On May 6, 2015, the Company closed on an amended and restated $700.0 million Credit Agreement (the "Credit Agreement")
with JPMorgan Chase Bank N.A., as Administrative Agent, Bank of America, N.A. and Citizens Bank, N.A. as Co-Syndication
Agents and SunTrust Bank, Keybank National Association, TD Bank, N.A., Branch Banking & Trust Company and Fifth Third
Bank, as Co-Documentation Agents. The Credit Agreement amends and restates the Company's previously existing credit
facility in its entirety to, among other things: (i) extend the maturity date to May 6, 2020; (ii) increase the aggregate amount of
revolving commitments from $400.0 million to $600.0 million; (iii) reinstate the aggregate amount of outstanding Term Loans
to $100.0 million; (iv) modify the affirmative and negative covenants set forth in the facility; and (v) effectuate a number of
additional modifications to the terms and provisions of the facility, including its pricing. Capitalized terms used but not defined
within this Note 11, Debt shall have the meanings ascribed thereto in the Credit Agreement.
The term loan commitment requires quarterly payments of principal (which commenced on June 30, 2015) at the rate of $1.25
million, increasing to $1.875 million on June 30, 2017, and then to $2.5 million on June 30, 2019, with $65.0 million payable in
the final quarter of the facility's term. The facility includes an accordion feature that allows the Company to increase the
aggregate amount available up to $900.0 million with additional commitments from the Lenders.
The revolving credit facility permits the Company to pay cash dividends. The Lenders have been granted a security interest in
substantially all of the Company’s and its domestic subsidiaries’ personal property and other assets (including intellectual
property but excluding real estate), including a pledge of 66% of the Company’s equity interest in certain foreign subsidiaries
and 100% of the Company’s equity interest in its domestic subsidiaries, as collateral for the Company’s obligations under the
Credit Agreement. At December 31, 2015, there was $233.5 million outstanding under the Credit Agreement, excluding letters
of credit, with $259.9 million available for borrowing. Letters of credit are considered borrowings for purposes of the Credit
Agreement. A total of $5.9 million in letters of credit was outstanding under the Credit Agreement at December 31, 2015. At
December 31, 2014, there was $92.2 million outstanding under the Revolving Credit Agreement, excluding letters of credit,
with $248.6 million available for borrowing. A total of $59.2 million in letters of credit was outstanding under the Revolving
Credit Agreement at December 31, 2014, $54.5 million of which related to the New Zealand SH-2G(I) sales contract.
Interest rates on amounts outstanding under the Credit Agreement are variable, and are determined based on the Consolidated
Senior Secured Leverage Ratio, as defined in the Credit Agreement. At December 31, 2015, the interest rate for the outstanding
amounts on both the revolving credit facility and term loan commitment was 1.67%. At December 31, 2014, the interest rate for
the outstanding amounts on both the former Revolving Credit Agreement and former Term Loan Agreement was 1.70%. In
addition, the Company is required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a
rate ranging from 0.175% to 0.300% per annum, based on the Consolidated Senior Secured Leverage Ratio. Fees for
outstanding letters of credit range from 1.25% to 2.00%, based on the Consolidated Senior Secured Leverage Ratio.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
11. DEBT (CONTINUED)
Revolving Credit and Term Loan Agreements - continued
The financial covenants associated with the Credit Agreement include a requirement that (i) the Consolidated Senior Leverage
Ratio cannot be greater than 3.50 to 1.00, with an election to increase the maximum to 3.75 to 1.00 for four consecutive
quarters, in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (ii) the Consolidated Total
Leverage Ratio, as defined in the Credit Agreement, cannot be greater than 4.00 to 1.00, with an election to increase the
maximum to 4.25 to 1.00 for four consecutive quarters, in connection with a Permitted Acquisition with consideration in excess
of $125.0 million; (iii) the Consolidated Interest Coverage Ratio cannot be less than 4.00 to 1.00; and (iv) Liquidity: (a) as of
the last day of the fiscal quarter of the Company ending two full fiscal quarters prior to the stated maturity of the Specified
Convertible Notes, cannot be less than an amount equal to 50% of the outstanding principal amount of the Specified
Convertible Notes, and (b) as of the last day of each fiscal quarter of the Company ending thereafter, cannot be less than an
amount equal to the outstanding principal amount of the Specified Convertible Notes as of such day. The Company was in
compliance with those financial covenants as of and for the quarter ended December 31, 2015, and management does not
anticipate noncompliance in the foreseeable future.
Convertible Notes
In November 2010, the Company issued convertible unsecured notes due on November 15, 2017, in the aggregate principal
amount of $115.0 million in a private placement offering (the "Convertible Notes"). These notes bear 3.25% interest per annum
on the principal amount, payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15,
2011. Proceeds from the offering were $111.0 million, net of fees and expenses which were capitalized. The proceeds were used
to repay $62.2 million of borrowings outstanding on the Company’s former Revolving Credit Agreement, make a $25.0 million
voluntary contribution to the Qualified Pension Plan and pay $13.2 million for the purchase of call options related to the
convertible note offering. See below for further discussion of the call options.
The Convertible Notes will mature on November 15, 2017, unless earlier redeemed, repurchased by the Company or converted.
Upon conversion, the Convertible Notes require net share settlement, where the aggregate principal amount of the notes will be
paid in cash and remaining amounts due, if any, will be settled in cash, shares of the Company's common stock or a
combination of cash and shares of common stock, at the Company's election.
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
11. DEBT (CONTINUED)
Convertible Notes - continued
The following table illustrates the conversion rate at each date:
Convertible Notes
Conversion Rate per $1,000 principal amount (1)..........................................
Conversion Price (2) .......................................................................................
Contingent Conversion Price (3) ....................................................................
Aggregate shares to be issued upon conversion (4)........................................
December 31, 2015
December 31, 2014
$
$
29.8059
33.5504
43.62
$
$
29.6876
33.6841
43.79
3,427,679
3,414,074
(1) Represents the number of shares of Common Stock hypothetically issuable per $1,000 principal amount of Notes,
subject to adjustments per the Convertible Note Indenture dated November 19, 2010. At the date the Company issued
the Convertible Notes, the conversion rate initially equaled 29.4499 shares of common stock per $1,000 principal
amount of notes (which is equivalent to an initial conversion price of approximately $33.96 per share of common
stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events, such as an
increase in the dividend paid to shareholders.
(2) Represents $1,000 divided by the conversion rate as of such date. The conversion price reflects the strike price of
the embedded option within the Convertible Note. Were the Company's share price to exceed the conversion price at
conversion the noteholders would be entitled to receive additional consideration either in cash, shares or a combination
thereof, the form of which is at the sole discretion of the Company.
(3) Prior to May 15, 2017, the notes are convertible only in the following circumstances: (1) during any fiscal quarter
commencing after April 1, 2011, and only during any such fiscal quarter, if the last reported sale price of our common
stock was greater than or equal to 130% of the applicable conversion price for at least 20 trading days (whether or not
consecutive) during the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, (2)
upon the occurrence of specified corporate transactions, or (3) during the five consecutive business-day period
following any five consecutive trading-day period in which, for each day of that period, the trading price for the notes
was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion
rate on such trading day. On and after May 15, 2017, until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing
circumstances. Upon a change in control or termination of trading, holders of the notes may require us to repurchase
all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount, plus any accrued
and unpaid interest.
(4) This represents the number of shares hypothetically issuable upon conversion of the principal balance of the Convertible
Notes at each date; however, as the terms of the Convertible Notes require net share settlement, the aggregate principal
amount of the notes will be paid in cash. Amounts due in excess of the principal, if any, may be settled in cash, shares of
the Company's common stock or a combination of cash and shares of common stock, at the Company's election.
Because the embedded conversion option is indexed to the Company’s own stock and would be classified in shareholders’
equity, it does not meet the criterion under FASB Accounting Standards Codification Topic 815 - Derivatives and Hedging
("ASC 815") that would require separate accounting as a derivative instrument.
In connection with the offering, we entered into convertible note hedge transactions with affiliates of the initial purchasers.
These transactions are intended to reduce the potential dilution to our Company's shareholders upon any future conversion of
the notes. The call options, which cost an aggregate $13.2 million, were recorded as a reduction of additional paid-in capital.
The Company also entered into warrant transactions concurrently with the offering, pursuant to which we sold warrants to
acquire up to approximately 3.4 million shares of our common stock to the same counterparties that entered into the convertible
note hedge transactions. Proceeds received from the issuance of the warrants totaled approximately $1.9 million and were
recorded as additional paid-in capital. The convertible note hedge and warrant transactions effectively increased the conversion
price of the convertible notes.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
11. DEBT (CONTINUED)
Convertible Notes - continued
The following table illustrates the warrant price at each date:
Warrants
Warrant Price..................................................................................................
$
43.87
$
44.05
December 31, 2015
December 31, 2014
ASC 815 provides that contracts are initially classified as equity if (1) the contract requires physical settlement or net-share
settlement, or (2) the contract gives the company a choice of net-cash settlement or settlement in its own shares (physical
settlement or net-share settlement). The settlement terms of our purchased call options and sold warrant contracts require net-
share settlement. Based on the guidance in ASC 815, the purchased call option contracts were recorded as a reduction of equity
and the warrants were recorded as an addition to equity as of the trade date. ASC 815 states that a reporting entity shall not
consider contracts to be derivative instruments if the contract issued or held by the reporting entity is both indexed to its own
stock and classified in shareholders' equity in its balance sheet. The Company concluded the purchased call option contracts and
the warrant contracts should be accounted for in shareholders' equity and are therefore not to be considered derivative
instruments.
ASC 470-20 "Debt with Conversion and Other Options" (“ASC 470-20”), clarifies the accounting for convertible debt
instruments that may be settled in cash upon conversion, including partial cash settlement. ASC 470-20 specifies that an issuer
of such instruments should separately account for the liability and equity components of the instruments in a manner that
reflects the issuer's non-convertible debt borrowing rate which interest costs are to be recognized in subsequent periods. The
note payable principal balance at the date of issuance of $115.0 million was bifurcated into the debt component of $101.7
million and the equity component of $13.3 million. The difference between the note payable principal balance and the value of
the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the
present value of associated cash flows discounted using a 5.25% discount rate, the borrowing rate at the date of issuance for a
similar debt instrument without a conversion feature. The Company incurred $3.6 million of debt issuance costs in connection
with the sale of the Convertible Notes, of which $0.5 million was recorded as an offset to additional paid-in capital. The
balance, $3.1 million, is being amortized over the term of the notes. Total amortization expense for each of the years ended
December 31, 2015, 2014, and 2013 was $0.5 million.
The carrying amount of the equity component and the principal amount of the liability component, the unamortized discount, and
the net carrying amount of the liability are as follows:
In thousands
Principal amount of liability ........................................................................ $
Unamortized discount ..................................................................................
Carrying value of liability..................................................................... $
Equity component ........................................................................................ $
115,000
3,942
111,058
13,329
$
$
$
115,000
5,976
109,024
13,329
December 31, 2015
December 31, 2014
As of December 31, 2015, the "if converted value" exceeds the principal amount of the Convertible Notes by $19.7 million
since the closing price of the Company's Common Stock was $40.81 compared to the conversion price of $33.55 for the
Convertible Notes.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
11. DEBT (CONTINUED)
Convertible Notes - continued
Interest expense associated with the Convertible Notes consisted of the following:
In thousands
Contractual coupon rate of interest ................................................... $
Accretion of convertible notes discount............................................
Interest expense - convertible notes........................................... $
3,738
2,035
5,773
$
$
3,738
1,931
5,669
$
$
3,738
1,833
5,571
For the year ended December 31,
2015
2014
2013
Debt Issuance Costs
In 2015, the Company incurred $2.3 million in debt issuance costs in connection with the Credit Agreement. These costs have
been capitalized and will be amortized over the term of the agreement. Total amortization expense for the year ended
December 31, 2015, was $1.0 million. Total amortization expense for the years ended December 31, 2014 and 2013, was $1.1
million each year.
Interest Payments
Cash payments for interest were $11.4 million, $11.9 million and $11.3 million in 2015, 2014 and 2013, respectively.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) are shown below:
In thousands
Foreign currency translation:
Beginning balance.................................................................................................................
Net loss on foreign currency translation.............................................................................
Reclassification to net income ............................................................................................
Other comprehensive loss ................................................................................................
Ending balance ......................................................................................................................
Pension and other post-retirement benefits (a):
Beginning balance.................................................................................................................
Reclassification to net income ............................................................................................
Amortization of prior service cost, net of tax expense of $21 and $37, respectively ......
Amortization of net loss, net of tax expense of $3,823 and $1,583, respectively............
Change in net gain, net of tax benefit of $11,226 and $25,203, respectively ..................
Other comprehensive loss, net of tax benefit ...................................................................
Ending balance ......................................................................................................................
Derivative instruments (b):
Beginning balance.................................................................................................................
Net loss on derivative instruments, net of tax benefit of $66 and $162, respectively ........
Reclassification to net income, net of tax expense of $224 and $323, respectively...........
Other comprehensive income, net of tax..........................................................................
Ending balance ......................................................................................................................
2015
2014
(20,676) $
(1,949)
—
(1,949)
(22,625) $
(14,219)
(3,833)
(2,624)
(6,457)
(20,676)
(105,264) $
(66,317)
36
6,315
(18,542)
(12,191)
(117,455) $
61
2,614
(41,622)
(38,947)
(105,264)
(321) $
(108)
371
263
(58) $
(585)
(268)
532
264
(321)
$
$
$
$
$
$
Total accumulated other comprehensive income (loss) ........................................................
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost
(140,138) $
(126,261)
$
(see Note 14, Pension Plans for additional information)
(b) See Note 6, Derivative Financial Instruments, for additional information regarding our derivative instruments.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
13. INCOME TAXES
The components of income tax expense (benefit) associated with continuing operations are as follows:
For the year ended December 31,
2013
2014
2015
In thousands
Current:
Federal...............................................................................................................
State...................................................................................................................
Foreign ..............................................................................................................
$
Deferred:
Federal...............................................................................................................
State...................................................................................................................
Foreign ..............................................................................................................
Total..........................................................................................................................
$
25,170
349
931
26,450
5,474
(2,682)
(1,691)
1,101
27,551
$
$
26,296
(796)
905
26,405
5,256
(380)
(559)
4,317
30,722
$
$
21,916
3,731
1,768
27,415
5,688
(270)
(1,245)
4,173
31,588
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:
In thousands
Deferred tax assets:
Deferred employee benefits ......................................................................................................
Inventories.................................................................................................................................
Tax loss and credit carryforwards .............................................................................................
Accrued liabilities and other items............................................................................................
Total deferred tax assets.....................................................................................................
Deferred tax liabilities:
Property, plant and equipment...................................................................................................
Intangibles .................................................................................................................................
Other items ................................................................................................................................
Total deferred tax liabilities ...............................................................................................
Net deferred tax assets before valuation allowance ..................................................................
Valuation allowance..................................................................................................................
Net deferred tax assets after valuation allowance .....................................................................
At December 31,
2014
2015
$
$
83,390
9,410
19,529
12,491
124,820
(17,178)
(42,717)
(2,195)
(62,090)
62,730
(11,122)
51,608
$
$
75,026
10,332
9,895
15,104
110,357
(15,666)
(29,693)
(3,096)
(48,455)
61,902
(4,694)
57,208
The Company adopted FASB Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, during
the fourth quarter of the year ended December 31, 2015. The update simplifies the presentation of deferred taxes on the balance
sheet by requiring that all deferred taxes be classified as noncurrent. The amounts shown for 2014 have not been adjusted. The
$6.4 million change in the valuation allowance from December 31, 2014, to December 31, 2015, primarily relates to tax
attributes acquired with GRW, which the Company has determined cannot be said to be more likely than not to be realized,
partially offset by the reversal of valuation allowances relating to certain state loss carryforwards, no longer deemed to be
necessary due to changes in tax laws. Valuation allowances reduced the deferred tax asset attributable to state loss and credit
carryforwards to an amount that, based upon all available information, is more likely than not to be realized. Reversal of the
valuation allowance is contingent upon the recognition of future taxable income in the respective jurisdictions or changes in
circumstances which cause the realization of the benefits of carryforwards to become more likely than not.
A portion of the net deferred tax assets, $2.7 million, is related to a capital loss recorded on the disposition of the Company's
Distribution segment’s Mexico operations. The realization of these benefits is dependent in part on future taxable capital gains.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
13. INCOME TAXES (CONTINUED)
Pre-tax income (loss) from foreign operations amounted to $(4.3) million, $(2.3) million and $(3.0) million in 2015, 2014 and
2013, respectively. U.S. income taxes have not been provided on $27.5 million of undistributed earnings of foreign subsidiaries
since it is the Company’s intention to permanently reinvest such earnings or to distribute them only when it is tax efficient to do
so. It is impracticable to estimate the total tax liability, if any, that would be created by the future distribution of these earnings.
The provision for income taxes associated with continuing operations differs from that computed at the federal statutory
corporate tax rate as follows:
For the year ended December 31,
2013
2014
2015
In thousands
Federal tax at 35% statutory rate..............................................................................
State income taxes, net of federal benefit ................................................................
Tax effect of:
Section 199 Manufacturing deduction ..............................................................
Other, net...........................................................................................................
Income tax expense ..................................................................................................
$
$
$
30,796
(1,517)
$
33,776
(765)
31,729
2,250
(2,275)
547
27,551
$
(2,000)
(289)
30,722
$
(2,200)
(191)
31,588
The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely
than not that such a position will be sustained upon examination by taxing authorities. Unrecognized tax benefits represent the
difference between the position taken and the benefit reflected in the financial statements. On December 31, 2015, 2014 and
2013 the total liability for unrecognized tax benefits was $3.0 million, $2.4 million and $2.3 million, respectively (including
interest and penalties of $0.5 million in 2015, $0.3 million in 2014 and $0.6 million in 2013). The change in the liability for
2015, 2014 and 2013 is explained as follows:
In thousands
Balance at January 1.................................................................................................
Additions based on current year tax positions ..................................................
Changes for tax positions of prior years ...........................................................
Settlements ........................................................................................................
Additions due to acquired business...................................................................
Reductions due to lapses in statutes of limitation .............................................
Balance at December 31...........................................................................................
$
$
2015
2014
2013
2,441
117
(160)
19
954
(375)
2,996
$
$
2,302
512
33
(165)
—
(241)
2,441
$
$
3,886
364
(907)
(264)
414
(1,191)
2,302
Included in unrecognized tax benefits at December 31, 2015, were items approximating $1.4 million that, if recognized, would
favorably affect the Company’s effective tax rate in future periods. The Company files tax returns in numerous U.S. and foreign
jurisdictions, with returns subject to examination for varying periods, but generally back to and including 2011. During 2015,
2014 and 2013, $0.1 million or less of interest and penalties was recognized each year as a component of income tax expense. It
is the Company’s policy to record interest and penalties on unrecognized tax benefits as income taxes.
Cash payments for income taxes, net of refunds, were $35.7 million, $22.8 million, and $33.1 million in 2015, 2014 and 2013,
respectively.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS
The Company has a non-contributory qualified defined benefit pension plan (the “Qualified Pension Plan”). On February 23,
2010, the Company’s Board of Directors approved an amendment to the Qualified Pension Plan that, among other things,
closed the Qualified Pension Plan to all new hires on or after March 1, 2010, and changed the benefit calculation for existing
employees related to pay and years of service. Specifically, changes in pay would be taken into account for benefit calculation
purposes until the end of calendar year 2010, the benefit formula was improved to use the highest five years out of the last ten
years of service up to December 31, 2010, whether consecutive or not, and years of service would continue to be added for
purposes of the benefit calculations through December 31, 2015, with no further accrual of benefits for service thereafter except
for vesting purposes. Effective December 31, 2015, the qualified pension plan was frozen with respect to future benefit
accruals. Under U.S. Government Cost Accounting Standard (“CAS”) 413 the Company must determine the USG’s share of
any pension curtailment adjustment calculated in accordance with CAS. Such adjustments may result in an amount due to the
USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position.
The Company also has a Supplemental Employees’ Retirement Plan (“SERP”), which is considered a non-qualified pension
plan. The SERP provides certain key executives, whose compensation is in excess of the limitations imposed by federal law on
the qualified defined benefit pension plan, with supplemental benefits based upon eligible earnings, years of service and age at
retirement. During 2010, the Company's Board of Directors also approved an amendment to the SERP that made changes
consistent with the pension plan amendment except that the SERP already provided for the use of non-consecutive years of
service for benefit calculation purposes and there was no provision needed regarding limitations on future participation because
executives already had to be approved for SERP participation by the Board's Personnel & Compensation Committee (the
"Committee") and the Board of Directors. The Committee and the Board have not approved any new participants to the SERP
since February 28, 2010, and do not intend to do so at any time in the future. The measurement date for both these plans is
December 31.
Obligations and Funded Status
The changes in the actuarial present value of the projected benefit obligation and fair value of plan assets are as follows:
For the year ended December 31,
Qualified Pension Plan
SERP
2015
2014
2015
2014
$
$
$
$
206
9,910
14,131
28,835
10,349
11,759
738,279
641,235
In thousands
Projected benefit obligation at beginning of year ............................
Service cost ......................................................................................
Interest cost ......................................................................................
Actuarial liability (gain) loss (a) ........................................................
Benefit payments..............................................................................
Projected benefit obligation at end of year ....................................
Fair value of plan assets at beginning of year ..................................
Actual return on plan assets .............................................................
819
Employer contributions ....................................................................
(819)
Benefit payments..............................................................................
—
Fair value of plan assets at end of year ..........................................
(10,349)
Funded status at end of year...........................................................
10,349
Accumulated benefit obligation .......................................................
(a) The actuarial liability (gain)/loss amount for the qualified pension plan for 2015 and 2014 is principally due to the effect of
$
$
$
$ (158,984) $ (141,546) $
$
$
$
596,733
(22,038)
10,000
(30,837)
553,858
27,514
(36,245)
(30,837)
712,842
— $
(10,184) $
$
10,184
318
(155)
(534)
10,184
10,000
(28,398)
596,733
84,848
(28,398)
738,279
660
(819)
10,349
534
(534)
555,400
738,279
712,842
59,731
— $
342
256
—
—
—
$
$
$
$
$
$
$
changes in the discount rate.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Obligations and Funded Status - continued
The Company has recorded liabilities related to our qualified pension plan and SERP as follows:
At December 31,
Qualified Pension Plan
SERP
2015
2014
2015
2014
In thousands
Current liabilities (a) ..........................................................................
Noncurrent liabilities........................................................................
Total..................................................................................................
$
— $
— $
(530) $
(158,984)
(141,546)
$ (158,984) $ (141,546) $
(9,654)
(10,184) $
(531)
(9,818)
(10,349)
(a) The current liabilities are included in other accruals and payables on the Consolidated Balance Sheets.
Certain amounts included in accumulated other comprehensive income on the Consolidated Balance Sheets represent costs that
will be recognized as components of pension cost in future periods. These consist of:
At December 31,
Qualified Pension Plan
SERP
2015
2014
2015
2014
In thousands
Unrecognized (gain) or loss .............................................................
Unrecognized prior service cost .......................................................
Amount included in accumulated other comprehensive income .....
$
$
187,331
—
187,331
$
$
167,329
57
167,386
$
$
1,236
—
1,236
$
$
1,609
—
1,609
The amount of unrecognized loss for the qualified pension plan and the SERP, respectively, that will be amortized from
accumulated other comprehensive income into net periodic benefit cost over the next year is estimated to be $12.5 million and
$0.2 million. No amounts will be amortized from accumulated other comprehensive income into net periodic benefit cost over
the next year related to the prior service cost for the qualified pension plan and the SERP.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Obligations and Funded Status - continued
The pension plan net periodic benefit costs on the Consolidated Statements of Operations and other amounts recognized in
other comprehensive income (loss) on the Consolidated Statements of Comprehensive Income and Consolidated Statements of
Shareholders’ Equity were computed using the projected unit credit actuarial cost method and included the following
components:
For the year ended December 31,
Qualified Pension Plan
2014
2015
2013
2015
SERP
2014
2013
In thousands
Service cost for benefits earned
during the year..................................
Interest cost on projected benefit
obligation..........................................
Expected return on plan assets .........
Amortization of prior service cost....
Recognized net loss ..........................
Additional amount recognized due
to curtailment/settlement ..................
Net pension benefit cost.................
Change in prior service cost .............
Change in net gain or loss ................
Amortization of prior service cost....
Amortization of net loss ...................
Total recognized in other
comprehensive income (loss).........
Total recognized in net periodic
benefit cost and other
comprehensive income (loss).........
$
$
$
$
$
14,131
$
11,759
$
14,347
$
206
$
256
$
27,514
(44,130)
57
9,920
28,835
(41,047)
98
4,106
25,596
(41,347)
98
9,291
—
—
—
7,492
$
3,751
$
7,985
$
— $
— $
— $
29,923
(57)
(9,920)
66,165
(98)
(4,106)
(51,465)
(98)
(9,291)
318
—
—
218
—
742
$
— $
(155)
—
(218)
342
—
—
91
—
689
$
— $
660
—
(91)
340
311
—
—
261
276
1,188
—
(1,052)
—
(261)
19,946
$
61,961
$
(60,854) $
(373) $
569
$
(1,313)
27,438
$
65,712
$
(52,869) $
369
$
1,258
$
(125)
The following tables show the amount of the contributions made to the Qualified Pension Plan and SERP during each period
and the amount of contributions the Company expects to make during 2016:
In thousands
Contributions..............................................................
$
10,000
$
10,000
$
534
$
819
Qualified Pension Plan
2014
2015
SERP
2015
2014
Qualified Pension Plan (a)
SERP
In thousands
$
Expected contributions during 2016..................................
(a) The Company contributed $10.0 million to the qualified pension plan in January 2016 and does not intend to make any
10,000
$
530
further contributions to the qualified pension plan in 2016.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Obligations and Funded Status - continued
Expected future benefit payments, which reflect expected future service, are as follows:
In thousands
2016......................................................................................................................................
2017......................................................................................................................................
2018......................................................................................................................................
2019......................................................................................................................................
2020......................................................................................................................................
2021-2025.............................................................................................................................
$
$
32,020
33,787
35,339
37,057
38,651
212,608
530
2,972
509
496
482
4,321
Qualified
Pension Plan
SERP
In October 2014, the Society of Actuaries finalized a new set of mortality tables. Mortality is a key assumption in developing
actuarial estimates, and therefore could significantly impact the valuation of the Company's obligations under the qualified
pension plan and SERP. The Company reviewed the new mortality data at December 31, 2014. Based on the size and
demographics of the plan's participant population, the Company determined the RP-2000 Scale AA Generational based
mortality table was the most appropriate assumption.
Prior to 2014, the Company used the Citigroup Discount Yield Curve in generating its discount rate assumption. Starting in
2014, as part of the Company's annual evaluation of its assumptions, the Citigroup Above Median Double-A Curve was deemed
to be a more appropriate basis for generating the Company's discount rate assumption, as the future cash flows of the plan are
more closely aligned to the Above Median Double-A Curve. The discount rates used in determining benefit obligations of the
pension plans are as follows:
At December 31,
Qualified Pension Plan
SERP
2015
2014
2015
2014
Discount rate ....................................................................................
4.17%
3.80%
3.47%
3.15%
The actuarial assumptions used in determining the net periodic benefit cost of the pension plans are as follows:
For the year ended December 31,
SERP
Qualified Pension Plan
2015
2014
2015
2014
Discount rate ....................................................................................
Expected return on plan assets .........................................................
Average rate of increase in compensation levels..............................
3.80%
7.50%
N/A
4.60%
7.50%
N/A
3.15%
N/A
N/A
3.60%
N/A
N/A
Other
In 2015 and prior, we used a single-weighted average discount rate to calculate interest and service cost associated with our
defined benefit pension plans. We plan to utilize a "spot rate approach" in the calculation of interest and service cost for these
plans for 2016 and beyond. The spot rate approach applies separate discount rates for each projected benefit payment in the
calculation of pension interest and service cost. This calculation change is considered a change in accounting estimate and will
be applied prospectively in 2016. The use of the spot rate approach is expected to have a favorable impact on pension expense
in 2016 of approximately $4.6 million relative to what pension expense would have been had we not changed our approach.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Qualified Pension Plan Assets
The expected return on plan assets rate was determined based upon historical returns adjusted for estimated future market
fluctuations. For 2015 and 2014, the expected rate of return on plan assets was 7.5%. During 2015, the actual return on pension
plan assets, net of expenses, was (3.4)%.
Plan assets are invested in a diversified portfolio consisting of equity and fixed income securities. The investment goals for
pension plan assets are to improve and/or maintain the Plan’s funded status by generating long-term asset returns that exceed
the rate of growth of the Plan’s liabilities. The Plan invests assets in a manner that seeks to (a) maximize return within
reasonable and prudent levels of risk of loss of funded status; and (b) maintain sufficient liquidity to meet benefit payment
obligations and other periodic cash flow requirements on a timely basis. The return generation/liability matching asset
allocation ratio is currently 51.1%/48.9%. As the plan’s funded status changes, the pension plan’s Administrative Committee
(the management committee that is responsible for plan administration) will act through an immediate or gradual process, as
appropriate, to reallocate assets.
Under the current investment policy, no Investment Manager may invest in investments deemed illiquid by the Investment
Manager at the time of purchase, development programs, real estate, mortgages or private equities or securities of Kaman
Corporation without prior written authorization from the Finance Committee of the Board of Directors. In addition, with the
exception of USG securities, managers’ holdings in the securities of any one issuer, at the time of purchase, may not exceed
7.5% of the total market value of that manager’s account.
The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the
investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Short-term Investments – This investment category consists of cash and cash equivalents and futures and options contracts.
Cash and cash equivalents are comprised of investments with maturities of three months or less when purchased, including
certain short-term fixed-income securities, and are classified as Level 1 investments. Futures contracts and options contracts
requiring the investment managers to receive from or pay to the broker an amount of cash equal to daily fluctuations are
included in short-term investments and are classified as Level 2 investments.
Corporate Stock – This investment category consists primarily of domestic common stock issued by U.S. corporations.
Common shares are traded actively on exchanges and price quotes for these shares are readily available. Holdings of corporate
stock are classified as Level 1 investments.
Mutual Funds –Mutual funds are traded actively on public exchanges. The share prices for these mutual funds are published at
the close of each business day. Holdings of mutual funds are classified as Level 1 investments.
Common Trust Funds – Common trust funds are comprised of shares or units in commingled funds that are not publicly
traded. The values of the commingled funds are not publicly quoted and must trade through a broker. For equity and fixed-
income commingled funds traded through a broker, the fund administrator values the fund using the net asset value (“NAV”)
per fund share, derived from the value of the underlying assets. The underlying assets in these funds (equity securities, fixed
income securities, and commodity-related securities) are publicly traded on exchanges and price quotes for the assets held by
these funds are readily available. Holdings of common trust funds are classified as Level 2 investments.
Fixed Income Securities - For fixed income securities, multiple prices and price types are obtained from pricing vendors
whenever possible, which enables cross-provider validations. A primary price source is identified based on asset type, class or
issue for each security. The fair values of fixed income securities are based on evaluated prices that reflect observable market
information, such as actual trade information of similar securities, adjusted for observable differences, and are categorized as
Level 2. These securities are primarily investment grade securities.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Qualified Pension Plan Assets - continued
The fair values of the Company’s qualified pension plan assets at December 31, 2015 and 2014, are as follows:
Total Carrying
Value at
December 31,
2015
Quoted prices in
active markets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
In thousands
Short-term investments: ................................
Cash and cash equivalents ..........................
Futures contracts.........................................
Fixed income securities:
U.S. Government and agency securities (a) .
Bonds:
Corporate fixed income ............................
Foreign fixed income ...............................
Other fixed income (b)...............................
Mutual funds .................................................
Common trust funds......................................
Corporate stock .............................................
Subtotal .........................................................
Accrued income/expense ..............................
Total...............................................................
$
$
$
$
10,201
—
$
10,201
—
— $
—
76,136
96,970
—
1,530
119,312
196,570
51,153
551,872
1,986
553,858
$
$
—
76,136
—
—
—
119,312
—
51,153
180,666
73
180,739
$
$
96,970
—
1,530
—
196,570
—
371,206
1,913
373,119
$
$
—
—
—
—
—
—
—
—
—
—
—
—
Total Carrying
Value at
December 31,
2014
Quoted prices in
active markets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
In thousands
Short term investments:
Cash and cash equivalents...........................
Futures contracts .........................................
Fixed income securities:
$
$
12,063
—
$
12,063
—
— $
—
—
—
—
83,915
83,915
US Government and agency securities (a) .
Bonds:
—
Corporate fixed income .........................
—
Foreign fixed income.............................
Other fixed income (b).............................
—
—
Mutual funds .................................................
—
Common trust funds......................................
—
Corporate stock .............................................
—
Subtotal .........................................................
—
Accrued income ............................................
—
Total...............................................................
(a) This category represents investments in debt securities issued by the U.S. Treasury, other U.S. government corporations and
112,811
—
2,080
93,659
240,438
49,802
594,768
1,965
596,733
—
—
—
93,659
—
49,802
155,524
47
155,571
112,811
—
2,080
—
240,438
—
439,244
1,918
441,162
—
$
$
$
$
$
$
$
$
agencies, states and municipalities.
(b) This category primarily represents investments in commercial and residential mortgage-backed securities.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
14. PENSION PLANS (CONTINUED)
Qualified Pension Plan Assets - continued
Derivatives are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative
instruments mainly consist of equity futures and interest rate futures.
Other Plans
The Company also maintains a Defined Contribution Plan that has been adopted by most of its U.S. subsidiaries. Employees of
the adopting employers who meet the eligibility requirements of the plan may participate. Employer matching contributions are
made to the plan based on a percentage of each participant’s pre-tax contribution. For each dollar that a participant contributes,
up to 5% of compensation, participating subsidiaries make employer contributions of one dollar. Employer contributions to the
plan totaled $11.9 million, $11.2 million and $10.4 million in 2015, 2014 and 2013, respectively.
One of the Company’s acquired U.S. subsidiaries maintains a separate defined contribution plan for its eligible employees.
Employer matching contributions are made on a discretionary basis. Additionally, one of our foreign subsidiaries maintains a
defined benefit plan of its own for its local employees. The net pension liability associated with these plans as of December 31,
2015, of $0.1 million is included in other accruals and payables on the Consolidated Balance Sheet.
15. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
In thousands
Supplemental employees' retirement plan ("SERP") .......................................................................
Deferred compensation ....................................................................................................................
Long-term incentive plan .................................................................................................................
Noncurrent income taxes payable ....................................................................................................
Environmental remediation liability.................................................................................................
Other.................................................................................................................................................
Total ...............................................................................................................................................
$
$
At December 31,
2014
2015
9,654
16,244
7,973
2,672
9,307
5,577
51,427
$
$
9,818
14,601
7,527
2,300
7,370
4,031
45,647
Disclosures regarding the assumptions used in the determination of the SERP liabilities are included in Note 14, Pension Plans.
Discussions of our environmental remediation liabilities are in Note 10, Environmental Costs, and Note 16, Commitments and
Contingencies.
The Company maintains a non-qualified deferred compensation plan for certain of its employees as well as a non-qualified
deferred compensation plan for its Board of Directors. Generally, participants in these plans have the ability to defer a certain
amount of their compensation, as defined in the agreement. The deferred compensation liability will be paid out either upon
retirement or as requested based upon certain terms in the agreements and in accordance with Internal Revenue Code Section
409A.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
16. COMMITMENTS AND CONTINGENCIES
Asset Retirement Obligations
The Company has unrecorded Asset Retirement Obligation’s (“AROs”) that are conditional upon certain events. These AROs
generally include the removal and disposition of non-friable asbestos. The Company has not recorded a liability for these
conditional AROs at December 31, 2015, because the Company does not currently believe there is a reasonable basis for
estimating a date or range of dates for major renovation or demolition of these facilities. In reaching this conclusion, the
Company considered the historical performance of each facility and has taken into account factors such as planned
maintenance, asset replacements and upgrades, which, if conducted as in the past, can extend the physical lives of the facilities
indefinitely. The Company also considered the possibility of changes in technology and risk of obsolescence in arriving at its
conclusion.
The Company currently leases various properties under leases that give the lessor the right to make the determination as to
whether the lessee must return the premises to their original condition, except for normal wear and tear. The Company does not
normally make substantial modifications to leased property, and many of the Company's leases either require lessor approval of
planned improvements or transfer ownership of such improvements to the lessor at the termination of the lease. Historically we
have not incurred significant costs to return leased premises to their original condition.
Operating Leases
Rent commitments under various leases for office space, warehouses, land and buildings expire at varying dates from January
2016 to February 2026. The terms of most of these leases are in the range of 3 to 5 years. Some of the Company’s leases have
rent escalations, rent holidays or contingent rent that are recognized on a straight-line basis over the entire lease term. Material
leasehold improvements and other landlord incentives are amortized over the shorter of their economic lives or the lease term,
including renewal periods, if reasonably assured. Certain annual rentals are subject to renegotiation, with certain leases
renewable for varying periods.
Lease periods for machinery and equipment range from 1 to 5 years.
Substantially all real estate taxes, insurance and maintenance expenses associated with leased facilities are obligations of the
Company. It is expected that in the normal course of business leases that expire will be renewed or replaced by leases on other
similar property.
The following minimum future rental payments are required under operating leases that have initial or remaining non-
cancellable lease terms in excess of one year as of December 31, 2015:
In thousands
2016........................................................................................................................................................................ $
2017........................................................................................................................................................................
2018........................................................................................................................................................................
2019........................................................................................................................................................................
2020........................................................................................................................................................................
Thereafter ...............................................................................................................................................................
Total ..................................................................................................................................................................... $
24,673
19,715
13,848
8,633
5,750
13,134
85,753
Lease expense for all operating leases, including leases with terms of less than one year, amounted to $26.4 million, $25.0
million and $24.6 million for 2015, 2014 and 2013, respectively.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Capital Leases
During 2014, the Company entered into a master leasing agreement with PNC Equipment Finance for financing the purchases
of equipment, with total capacity of $5.0 million. Such leases are classified as capital for accounting purposes and are recorded
at the present value of the future minimum lease payments at the inception of the lease. Amounts due under capital leases are
recorded as liabilities, while assets acquired under capital leases are recorded as equipment. Amortization of assets recorded
under capital leases is included in depreciation and amortization expense.
The following minimum payments are required under capital leases that have initial or remaining non-cancellable lease terms
in excess of one year as of December 31, 2015:
In thousands
2016 ....................................................................................................................................................................... $
2017 .......................................................................................................................................................................
2018 .......................................................................................................................................................................
2019 .......................................................................................................................................................................
2020 .......................................................................................................................................................................
Thereafter ..............................................................................................................................................................
Total..................................................................................................................................................................... $
349
349
349
349
138
—
1,534
Interest expense related to capital leases was immaterial in 2015. There was no interest expense associated with capital leases in
2014 and 2013. See Note 8, Property, Plant and Equipment, Net, for additional information regarding our capital leases.
Other Matters
Pension Freeze
Effective December 31, 2015, the Company's qualified pension plan was frozen with respect to future benefit accruals. Under
CAS 413 the Company must determine the U.S. Government’s share of any pension curtailment adjustment calculated in
accordance with CAS. Such adjustments can result in an amount due to the U.S. Government for pension plans that are in a
surplus position or an amount due to the contractor for plans that are in a deficit position. We are unable to make a
determination at this time as to the financial implications this curtailment adjustment will have, if any, on the Company's
balance sheet as of December 31, 2015, and the current year's results of operations. Based upon the analysis completed thus far,
the Company believes that the low end of our estimated range of a potential liability to the USG associated with the pension
plan closeout is zero and therefore no accrual is required at December 31, 2015.
AH-1Z Program
In February 2016, the Company reached an agreement with its customer that modified the scope of the AH-1Z contract and
which, among other things, resolved outstanding claims associated with this program. The Company agreed to pay its customer
$4.0 million, all of which has been accrued as of December 31, 2015. The Company will receive $4.3 million from its
customer, the retention of this amount being contingent on the resolution of certain contractual matters. If these contractual
matters are not satisfactorily resolved, we may be required to reimburse our customer for all or a portion of this amount. The
Company has included this amount in its current estimate of contract revenue, as the Company believes the favorable resolution
of this contractual matter is probable. The Company considers this a Type I subsequent event and has updated its contract
estimates as of December 31, 2015, to reflect this contract modification and claims resolution. Given the current volume of
firm orders, the Company estimates the contract to be a zero margin program, taking into consideration the $2.8 million of
G&A costs capitalized in inventory associated with this contract.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Matters - continued
New Hartford
In connection with sale of the Company’s Music segment in 2007, the Company assumed responsibility for meeting certain
requirements of the Transfer Act that applied to our transfer of the New Hartford, Connecticut, facility leased by that segment
for guitar manufacturing purposes (“Ovation”). Under the Transfer Act, those responsibilities essentially consist of assessing
the site's environmental conditions and remediating environmental impairments, if any, caused by Ovation's operations prior to
the sale. The site is a multi-tenant industrial park, in which Ovation and other unrelated entities lease space. The environmental
assessment, which began in 2008, has been completed and site remediation is in process.
The Company's estimate of its portion of the cost to assess the environmental conditions and remediate this site is $2.3 million,
all of which has been accrued. The total amount paid to date in connection with these environmental remediation activities is
$1.4 million. A portion ($0.2 million) of the accrual related to this property is included in other accruals and payables and the
balance is included in other long-term liabilities. The remaining balance of the accrual reflects the total anticipated cost of
completing these environmental remediation activities. Although it is reasonably possible that additional costs will be paid in
connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at
this time.
Bloomfield
In connection with the Company’s 2008 purchase of the portion of the Bloomfield campus that Kaman Aerospace Corporation
had leased from NAVAIR, the Company assumed responsibility for environmental remediation at the facility as may be
required under the Transfer Act and continues the effort to define the scope of the remediation that will be required by the
Connecticut Department of Environmental Protection ("CTDEP"). The assumed environmental liability of $10.3 million was
determined by taking the undiscounted estimated remediation liability of $20.8 million and discounting it at a rate of 8%. This
remediation process will take many years to complete. The total amount paid to date in connection with these environmental
remediation activities is $10.9 million. A portion ($0.9 million) of the accrual related to this property is included in other
accruals and payables, and the balance is included in other long-term liabilities. Although it is reasonably possible that
additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of
such additional costs, if any, at this time.
Rimpar
In connection with the Company's purchase of GRW, the Company assumed responsibility for the environmental remediation at
the Rimpar, Germany facility. As part of the purchase price allocation, the Company accrued approximately €3.8 million . A
portion (€0.3 million ) of the accrual related to this property is included in other accruals and payables and the balance is
included in long-term liabilities. We are currently in the process of initiating a Phase II assessment in order to better understand
the extent of the environmental effort necessary to remediate the facility. Although it is reasonably possible that additional costs
will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional
costs, if any, at this time.
17. COMPUTATION OF EARNINGS PER SHARE
The computation of basic earnings per share is based on net earnings divided by the weighted average number of shares of
common stock outstanding for each year. The computation of diluted earnings per share includes the common stock
equivalency of dilutive options granted to employees under the Company's stock incentive plan and shares issuable on
redemption of its Convertible Notes.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
17. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
For the Year Ended December 31,
2015
2014
2013
In thousands, except per share amounts
Earnings from continuing operations.....................................................................
Loss from discontinued operations, net of tax .......................................................
Gain (loss) on disposal of discontinued operations, net of tax ..............................
Net earnings ...........................................................................................................
$
60,438
$
—
—
$
60,438
$
65,780
(2,924)
(4,984)
57,872
$
59,066
(2,386)
420
$
57,100
Basic:
Weighted average number of shares outstanding...................................................
27,177
27,053
26,744
Earnings per share from continuing operations .....................................................
Loss per share from discontinued operations.........................................................
Earnings (loss) per share from disposal of discontinued operations......................
Basic earnings per share.........................................................................................
Diluted:
Weighted average number of shares outstanding...................................................
Weighted average shares issuable on exercise of dilutive stock options...............
Weighted average shares issuable on exercise of convertible notes......................
Total................................................................................................................
Earnings per share from continuing operations .....................................................
Loss per share from discontinued operations.........................................................
Earnings (loss) per share from disposal of discontinued operations......................
Diluted earnings per share .....................................................................................
$
$
$
$
2.22
$
—
—
2.22
$
2.43
(0.11)
(0.18)
2.14
$
$
2.21
(0.09)
0.02
2.14
27,177
27,053
26,744
133
558
147
577
159
240
27,868
27,777
27,143
2.17
$
—
—
2.17
$
2.37
(0.11)
(0.18)
2.08
$
$
2.17
(0.09)
0.02
2.10
Equity awards
Excluded from the diluted earnings per share calculation for the years ended December 31, 2015, 2014 and 2013, respectively,
are 487,071, 342,994 and 391,717 shares associated with equity awards granted to employees that are anti-dilutive based on the
average stock price.
Convertible Notes
For the years ended December 31, 2015, 2014 and 2013, shares issuable under the Convertible Notes that were dilutive during
the period were included in the calculation of earnings per share as the conversion price for the Convertible Notes was less than
the average share price of the Company's stock.
Warrants
Excluded from the diluted earnings per share calculation for the years ended December 31, 2015, 2014 and 2013, respectively
were 3,422,477, 3,411,539, and 3,404,626 shares, issuable under the warrants sold in connection with the Company’s
Convertible Note offering as they would be anti-dilutive. For further information on the Convertible Notes, see Note 11, Debt.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
18. SHARE-BASED ARRANGEMENTS
General
The Company accounts for stock options, restricted stock awards, restricted stock units and performance shares as equity
awards and measures the cost of all share-based payments, including stock options, at fair value on the grant date and
recognizes this cost in the statement of operations. The Company also has an employee stock purchase plan which is accounted
for as a liability award.
Compensation expense for stock options, restricted stock awards and restricted stock units is recognized on a straight-line basis
over the vesting period of the awards. Share-based compensation expense recorded for the years ended December 31, 2015,
2014, and 2013 was $6.4 million, $5.4 million, and $5.0 million, respectively.
Stock Incentive Plan
On April 17, 2013, the shareholders of the Company approved the 2013 Management Incentive Plan (the "2013 Plan"), which
replaced the 2003 Stock Incentive Plan. The 2013 Plan provides the Company with the ability to use equity-based awards of up
to 2,250,000 authorized shares and is designed as a flexible share authorization plan, such that the Company's share
authorization is based on the least costly type of award (stock options). Shares issued pursuant to “Full Value Awards” as
defined in the 2013 Plan (awards other than stock options or stock appreciation rights which are settled by the issuance of
shares, e.g., restricted stock, restricted stock units, performance shares, performance units if settled with stock, or other stock-
based awards) count against the 2013 Plan's share authorization at a rate of 3 to 1, while shares issued upon exercise of stock
options or stock appreciation rights count against the share authorization at a rate of 1 to 1. This means that every time an
option is granted, the authorized pool of shares is reduced by one (1) share and every time a Full Value Award is granted, the
authorized pool of shares is reduced by 3 shares. In deriving the valuation ratio used in the 2013 Plan, the Company used the
Black Scholes Fair Value model as the basis for determining the approximate value of an option as compared to a "full value
share." As of December 31, 2015, there were 1,299,635 shares available for grant under the plan.
LTIP awards provide certain senior executives an opportunity to receive award payments in either stock or cash as determined
by the Personnel and Compensation Committee of the Board of Directors in accordance with the Plan, at the end of each
performance cycle. For the performance cycle, the Company’s financial results are compared to the Russell 2000 indices for the
same periods based upon the following: (a) average return on total capital, (b) earnings per share growth and (c) total return to
shareholders. No awards will be payable if the Company’s performance is in the bottom quartile of the designated indices. The
maximum award is payable if performance reaches the 75th percentile of the designated indices. Awards are paid out at 100% at
the 50th percentile. Awards for performance between the 25th and 75th percentiles are determined by straight-line interpolation
between 0% and 200%. Generally, LTIP awards are paid in cash.
Stock options are granted with an exercise price equal to the average market price of our stock at the date of grant. Stock
options and Stock Appreciation Rights ("SARs") granted under the plan generally expire ten years from the date of grant and
vest 20% each year over a 5-year period on each of the first five anniversaries of the date of grant. Restricted Stock Awards
("RSAs") are generally granted with restrictions that lapse at the rate of 20% per year over a 5-year period on each of the first
five anniversaries of the date of grant. Generally, these awards are subject to forfeiture if a recipient separates from service with
the Company.
During the first quarter of 2015, the Company issued additional stock awards with market and performance based conditions,
bringing the total of these shares to 8,238, assuming a 100% achievement level. The Company measures the cost of these
awards based on their grant date fair value to the extent of the probable number of shares to be earned upon vesting.
Amortization of this cost will be recorded on a straight-line basis over the requisite service period. Throughout the course of the
requisite service period, the Company will monitor the level of achievement compared to the target and adjust the number of
shares expected to be earned, and the related compensation expense recorded thereafter, to reflect the updated most probable
outcome. Compensation expense for these awards for the year ended December 31, 2015, was not material.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
18. SHARE-BASED ARRANGEMENTS (CONTINUED)
Stock Incentive Plan - continued
Stock option activity is as follows:
Options outstanding at December 31, 2014...................................................................
Granted ...................................................................................................................
Exercised.................................................................................................................
Forfeited or expired ................................................................................................
Options outstanding at December 31, 2015...................................................................
904,091
202,345
(61,002)
(5,398)
1,040,036
$
$
31.26
39.54
24.93
36.88
33.22
Options
Weighted average-
exercise price
The following table presents information regarding options outstanding as of December 31, 2015:
Weighted-average remaining contractual term - options outstanding (years) ...........................................................
Aggregate intrinsic value - options outstanding (in thousands)................................................................................. $
Weighted-average exercise price - options outstanding............................................................................................. $
Options exercisable....................................................................................................................................................
Weighted-average remaining contractual term - options exercisable (years)............................................................
Aggregate intrinsic value - options exercisable (in thousands) ................................................................................. $
Weighted-average exercise price - options exercisable ............................................................................................. $
5.9
8,216
33.22
527,122
4.1
6,509
28.77
The intrinsic value represents the amount by which the market price of the stock on the measurement date exceeds the exercise
price of the option. The intrinsic value of options exercised in 2015, 2014 and 2013 was $1.0 million, $2.9 million and $1.9
million, respectively. The Company currently has an open stock repurchase plan, which would enable the Company to
repurchase shares as needed. Since 2008 the Company has generally issued shares related to option exercises and RSAs from
its authorized but unissued common stock.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The
following table indicates the weighted-average assumptions used in estimating fair value:
Expected option term (years) ...................................................................................
Expected volatility....................................................................................................
Risk-free interest rate ...............................................................................................
Expected dividend yield ...........................................................................................
Per share fair value of options granted.....................................................................
$
5.1
29.0%
1.6%
1.6%
9.28
5.1
37.5%
1.5%
1.7%
5.2
45.5%
0.9%
2.0%
$
11.60
$
12.38
2015
2014
2013
The expected term of options granted represents the period of time option grants are expected to be outstanding based upon
historical exercise patterns. Forfeitures of options are estimated based upon historical data and are adjusted based upon actual
occurrences. The cumulative effect of stock award forfeitures was immaterial. The volatility assumption is based on the
historical daily price data of the Company’s stock over a period equivalent to the weighted-average expected term of the
options. Management evaluated whether there were factors during that period that were unusual and would distort the volatility
figure if used to estimate future volatility and concluded that there were no such factors. The Company relies only on historical
volatility since future volatility is expected to be consistent with historical volatility.
The risk-free interest rate assumption is based upon the interpolation of various U.S. Treasury rates determined at the date of
option grant. Expected dividends are based upon a historical analysis of our dividend yield over the past year.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
18. SHARE-BASED ARRANGEMENTS (CONTINUED)
Stock Incentive Plan - continued
Restricted Stock Award and Restricted Stock Unit activity is as follows:
Restricted Stock outstanding at December 31, 2014 .............................................
Granted ...........................................................................................................
Vested..............................................................................................................
Forfeited or expired ........................................................................................
Restricted Stock outstanding at December 31, 2015 .............................................
Restricted Stock
Awards
Weighted-
average grant
date fair value
196,553
80,494
(91,640)
(1,864)
183,543
$
$
36.29
39.83
36.37
35.87
37.80
The grant date fair value for restricted stock is the average market price of the unrestricted shares on the date of grant. The total
fair value of restricted stock awards vested during 2015, 2014 and 2013 was $3.8 million, $4.5 million and $4.6 million,
respectively.
We record a tax benefit and associated deferred tax asset for compensation expense recognized on non-qualified stock options
and restricted stock for which we are allowed a tax deduction. For 2015, 2014 and 2013, respectively, we recorded a tax benefit
of $2.2 million, $1.9 million and $1.7 million for these two types of compensation expense.
The windfall tax benefit is the tax benefit realized on the exercise of non-qualified stock options and disqualifying dispositions
of stock acquired by exercise of incentive stock options and Employee Stock Purchase Plan stock purchases in excess of the
deferred tax asset originally recorded. The total windfall tax benefit realized in 2015, 2014, and 2013 was $0.3 million, $0.8
million, and $0.5 million, respectively.
As of December 31, 2015, future compensation costs related to non-vested stock options and restricted stock grants is $7.4
million. The Company anticipates that this cost will be recognized over a weighted-average period of 3.0 years.
Employees Stock Purchase Plan
The Kaman Corporation Employees Stock Purchase Plan (“ESPP”) allows employees to purchase common stock of the
Company, through payroll deductions, at 85% of the market value of shares at the time of purchase. The plan provides for the
grant of rights to employees to purchase a maximum of 1,500,000 shares of common stock.
During 2015, 79,294 shares were issued to employees at prices ranging from $31.64 to $36.46. During 2014, 76,805 shares
were issued to employees at prices ranging from $32.48 to $36.42. During 2013, 85,702 shares were issued to employees at
prices ranging from $28.34 to $32.43. At December 31, 2015, there were 309,338 shares available for purchase under the plan.
19. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized based upon the nature of its products and services, and is composed of two operating segments each
overseen by a segment manager. These segments are reflective of how the Company’s Chief Executive Officer, who is its Chief
Operating Decision Maker (“CODM”), reviews operating results for the purposes of allocating resources and assessing
performance. The Company has not aggregated operating segments for purposes of identifying reportable segments.
The Distribution segment is a leading power transmission, motion control, and fluid power industrial distributor with
operations throughout the United States. Distribution conducts business in the mechanical power transmission and bearings,
electrical, automation and control, and fluid power product platforms and provides total solutions from system design and
integration to machine parts and value-added services to the national manufacturing industry.
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
19. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
The Aerospace segment produces and/or markets widely used 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 arm solutions for missile and bomb systems for the U.S. and allied militaries; subcontract
helicopter work; restoration, modification and support of the Company’s SH-2G Super Seasprite maritime helicopters;
manufacture and support of the Company's K-MAX® medium-to-heavy lift helicopters; and engineering services.
Summarized financial information by business segment is as follows:
For the year ended December 31,
2013
2014
2015
In thousands
Net sales from continuing operations:
Distribution .......................................................................................................
Aerospace (a) ......................................................................................................
Net sales ...................................................................................................................
Operating income:
Distribution .......................................................................................................
Aerospace (b)......................................................................................................
Net gain (loss) on sale of assets ........................................................................
Corporate expense.............................................................................................
Operating income from continuing operations.........................................................
Interest expense, net .................................................................................................
Other expense (income), net.....................................................................................
Earnings before income taxes from continuing operations ......................................
Income tax expense ..................................................................................................
Earnings from continuing operations .......................................................................
$ 1,177,539
597,586
$ 1,775,125
$ 1,161,992
632,970
$ 1,794,962
$ 1,039,954
613,967
$ 1,653,921
$
$
49,441
110,328
328
(55,578)
104,519
13,144
3,386
87,989
27,551
60,438
$
$
56,765
108,697
(233)
(54,722)
110,507
13,382
623
96,502
30,722
65,780
$
$
46,206
102,573
(142)
(45,291)
103,346
12,294
398
90,654
31,588
59,066
(a) Net sales by the Aerospace segment under contracts with U.S. Government agencies (including sales to foreign governments
through foreign military sales contracts with U.S. Government agencies) totaled $211.4 million, $271.7 million and $262.9
million in 2015, 2014 and 2013, respectively, and represent direct and indirect sales to the U.S. Government and related
agencies.
(b) Operating income for 2013 includes a $2.1 million non-cash non-tax deductible goodwill impairment charge.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
19. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
In thousands
Identifiable assets (a):
At December 31,
2014
2013
2015
Distribution .......................................................................................................
Aerospace..........................................................................................................
Corporate (b).......................................................................................................
$
558,630
$
547,350
$
480,117
738,426
144,149
531,868
121,987
557,831
102,683
Total assets
Capital expenditures:................................................................................................
Distribution .......................................................................................................
Aerospace..........................................................................................................
Corporate...........................................................................................................
Total capital expenditures.........................................................................................
Depreciation and amortization:
Distribution .......................................................................................................
Aerospace..........................................................................................................
Corporate...........................................................................................................
Total depreciation and amortization.........................................................................
$ 1,441,205
$ 1,201,205
$ 1,140,631
$
10,685
$
12,205
$
$
$
13,378
5,869
29,932
16,368
16,275
5,086
$
$
12,044
4,034
28,283
14,461
16,039
5,709
$
$
12,034
21,193
7,625
40,852
11,236
15,041
5,278
$
37,729
$
36,209
$
31,555
(a) Identifiable assets are year-end assets at their respective net carrying values segregated as to segment and corporate use.
(b) For the periods presented, the corporate identifiable assets are principally comprised of cash, short-term and long-term
deferred income tax assets, capitalized debt issuance costs, cash surrender value of life insurance policies and fixed assets.
The following table summarizes total sales of the Company, which are principally derived from the sale of products:
For the year ended December 31,
2015
2014
2013
in thousands
Bearings and Power Transmission (a)......................................................
Automation, Control and Energy............................................................
Fluid Power.............................................................................................
Military and Defense ..............................................................................
Commercial Aerospace and Other..........................................................
Total sales (b) ...........................................................................................
$
594,511
$
630,557
$
354,771
228,257
362,867
234,719
300,861
230,574
391,532
241,438
622,041
271,465
146,448
384,088
229,879
$
1,775,125
$
1,794,962
$
1,653,921
(a) Aerospace bearings are not included in this caption, as they are reported in either the "Military and Defense" or
"Commercial Aerospace and Other" categories.
(b) Service revenue was not material for the years ended December 31, 2015, 2014 and 2013.
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 2015, 2014 and 2013
19. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Sales are attributed to geographic regions based on the location to which the product is shipped. Geographic distribution of
sales recorded by continuing operations is as follows:
For the year ended December 31,
2014
2013
2015
In thousands
North America..............................................................................................
Europe ..........................................................................................................
Middle East ..................................................................................................
Asia...............................................................................................................
Oceania.........................................................................................................
Other.............................................................................................................
Total..............................................................................................................
$
$
1,518,416
112,057
65,740
33,020
37,959
7,933
1,775,125
Geographic distribution of long-lived assets is as follows:
In thousands
United States ............................................................................................................................
Germany ...................................................................................................................................
United Kingdom.......................................................................................................................
Czech Republic ........................................................................................................................
Mexico......................................................................................................................................
Total..........................................................................................................................................
$
$
$
$
1,576,041
117,686
4,378
29,115
65,122
2,620
1,794,962
$
$
1,442,475
107,297
39,357
32,414
28,892
3,486
1,653,921
At December 31,
2015
2014
468,220
168,182
55,627
4,389
1,937
698,355
$
$
419,457
18,842
60,175
—
1,774
500,248
The increases in long-lived assets in Germany and the Czech Republic are primarily related to the acquisition of GRW. For the
purpose of this disclosure the company excluded deferred tax assets of $66.8 million and $34.8 million as of December 31,
2015 and 2014, respectively.
20. SUBSEQUENT EVENTS
Subsequent to December 31, 2015, the Company reached an agreement with its customer that changed the scope of its AH-1Z
contract and which, among other things, resolved outstanding claims associated with this program. See Note 16, Commitments
and Contingencies, for additional information regarding this matter.
The Company has evaluated subsequent events through the issuance date of these financial statements. Other than the matter noted
above, no material subsequent events were identified that require disclosure.
109
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9.
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company has carried out an evaluation, under the supervision and with the participation of our management, including the
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer
have concluded that, as of December 31, 2015, the Company's disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Management has assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2015.
In making its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,
2015, management utilized the criteria set forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway
Commission in Internal Control—Integrated Framework (2013). Management concluded that based on its assessment the
Company’s internal control over financial reporting was effective as of December 31, 2015. The effectiveness of internal
control over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which is included in Item 8 of this Annual Report on Form 10-K.
The scope of management's assessment of the effectiveness of internal control over financial reporting excludes the operations
of GCF, EXTEX, GRW and Calkins, which the Company acquired through purchase business combinations during the year
ended December 31, 2015. The acquired businesses in the aggregate represented approximately 1% of the Company's
consolidated revenues for the year ended December 31, 2015, and assets associated with the acquired businesses in the
aggregate represented approximately 17% of the Company's consolidated total assets as of December 31, 2015.
Changes in Internal Control Over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, changes in the Company’s internal controls over financial reporting during 2015.
During the fourth quarter ended December 31, 2015, management made no changes to internal control over financial reporting
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Controls
The Company’s evaluation described in this Item was undertaken acknowledging that there are inherent limitations to the
effectiveness of any system of controls, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective controls can only provide reasonable assurance of achieving their control
objectives.
ITEM 9B.
OTHER INFORMATION
None.
110
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than the list of executive officers of the Company set forth in Item 1, Executive Officers of the Registrant, all information
under this caption may be found in the Company’s proxy statement to be delivered to stockholders in connection with the
Annual Meeting of Shareholders, which is scheduled for April 20, 2016, (the “Proxy Statement”) in the following sections:
“Class 3 Director Nominees for Election at the 2016 Annual Meeting,” “Continuing Directors,” “Section 16(a) Beneficial
Ownership Reporting Compliance,” “Director Nominees,” and “Audit Committee.” Those portions of the Proxy Statement are
incorporated by reference into this Item 10.
ITEM 11.
EXECUTIVE COMPENSATION
Information about the compensation of Kaman’s named executive officers appears under the captions "Compensation
Discussion and Analysis" and "Summary Compensation Table" in the Proxy Statement. Information about the compensation of
Kaman’s directors appears under "Non-Employee Director Compensation" in the Proxy Statement. Those portions of the Proxy
Statement are incorporated by reference into this Item 11.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information about security ownership of certain beneficial owners and management appears under "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement. That portion of the Proxy Statement is incorporated by
reference into this Item 12.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2015, concerning Common Stock issuable under the Company’s
equity compensation plans.
(a)
Number of
securities to be issued
upon exercise of
outstanding
options, warrants and
rights
(b)
Weighted-
average exercise price
of outstanding
options, warrants
and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
658,505
381,531
—
—
1,040,036
$
$
29.64
39.40
—
—
33.22
—
1,299,635
309,338
—
1,608,973
Plan Category
Equity compensation plans approved by
security holders: .................................................
2003 Stock Incentive Plan ..........................
2013 Management Incentive Plan ..............
Employees Stock Purchase Plan.................
Equity compensation plans not approved by
security holders ..................................................
Total ...................................................................
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information about certain relationships and related transactions appears under “Transactions With Related Persons” and “Board
and Committee Independence Requirements” in the Proxy Statement. Those portions of the Proxy Statement are incorporated
by reference into this Item 13.
111
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding audit fees and all other fees, in addition to the Audit Committee’s pre-approval policies and procedures
appears under “Principal Accounting Fees and Services” in the Proxy Statement. That portion of the Proxy Statement is
incorporated by reference into this Item 14.
112
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1)
FINANCIAL STATEMENTS.
See Item 8 of this Form 10-K setting forth our Consolidated Financial Statements.
(a)(2)
FINANCIAL STATEMENT SCHEDULES.
An index to the financial statement schedule immediately precedes such schedule.
(a)(3)
EXHIBITS.
An index to the exhibits filed or incorporated by reference immediately precedes such exhibits.
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Bloomfield, State of Connecticut,
on this 29th day of February 2016.
SIGNATURES
KAMAN CORPORATION
(Registrant)
By:
/s/ Neal J. Keating
Neal J. Keating
Chairman, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title:
Date:
/s/ Neal J. Keating
Neal J. Keating
/s/ Robert D. Starr
Robert D. Starr
/s/ John J. Tedone
John J. Tedone
/s/ Neal J. Keating
Neal J. Keating
Attorney-in-Fact for:
Brian E. Barents
E. Reeves Callaway III
Karen M. Garrison
A. William Higgins
Scott E. Kuechle
Eileen S. Kraus
George E. Minnich
Jennifer M. Pollino
Thomas W. Rabaut
Richard J. Swift
Chairman, President,
February 29, 2016
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President
February 29, 2016
and Chief Financial Officer
(Principal Financial Officer)
Vice President – Finance and
February 29, 2016
Chief Accounting Officer
(Principal Accounting Officer)
February 29, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
114
KAMAN CORPORATION AND SUBSIDIARIES
Index to Financial Statement Schedule
Report of Independent Registered Public Accounting Firm
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
115
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT
SCHEDULE
To the Board of Directors
of Kaman Corporation:
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred
to in our report dated February 29, 2016 included under Item 8 in this Annual Report on Form 10-K also included an audit of
the financial statement schedule listed in Item 15(a)(2) of this 2015 Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 29, 2016
116
KAMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(Dollars in Thousands)
DESCRIPTION
Additions
Balance
Beginning of
Period
Charged to
Costs and
Expenses
Others (A)
Deductions
(B)
Balance End
of
Period
2015
Allowance for doubtful accounts........................
2014
Allowance for doubtful accounts........................
2013
Allowance for doubtful accounts........................
$
$
$
3,208
3,827
3,148
$
$
$
1,694
1,171
1,635
$
$
$
96
148
56
$
$
$
2,009
1,938
1,012
$
$
$
2,989
3,208
3,827
(A) Additions to allowance for doubtful accounts attributable to acquisitions.
(B) Write-off of bad debts, net of recoveries.
DESCRIPTION
2015
Valuation allowance on deferred tax assets............................
2014
Valuation allowance on deferred tax assets............................
2013
Valuation allowance on deferred tax assets............................
$
$
$
Additions (Reductions)
Balance
Beginning of
Period
Current Year
Provision
(Benefit)
Others
Balance End
of Period
4,694
4,657
5,288
$
$
$
281
363
531
$
$
$
6,147
$
11,122
(326) $
4,694
(1,162) $
4,657
117
KAMAN CORPORATION
INDEX TO EXHIBITS
Exhibit 3.1
Exhibit 3.2
Exhibit 4.1
Amended and Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated November
4, 2005, File No. 333-66179).
Previously
Filed
Amended and Restated Bylaws of the Company, (incorporated by reference to Exhibit
3.1 to the Company's Current Report on Form 8-K dated February 28, 2008, File No.
000-01093).
Previously
Filed
Amended and Restated Indenture, dated as of February 23, 2011, by and between the
Company and The Bank of New York Mellon Trust Company, as Trustee (incorporated
by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2010, File No. 000-01093).
Previously
Filed
Exhibit 10.1
Kaman Corporation 2013 Management Incentive Plan (incorporated by reference to
Annex A to the Company's Definitive Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on March 1, 2013, File No. 001-35419).*
Previously
Filed
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
First Amendment to the Kaman Corporation 2013 Management Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K dated February 23, 2015, File No. 001-35419).*
Previously
Filed
Form of Nonqualified Stock Option Agreement under the Kaman Corporation 2013
Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated February 24, 2014, File No.
001-35419).*
Previously
Filed
Form of Restricted Share Agreement under the Kaman Corporation 2013 Management
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K dated February 24, 2014, File No. 001-35419).*
Previously
Filed
Exhibit 10.5
Form of Restricted Stock Unit Agreement under the Kaman Corporation 2013
Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated June 6, 2014, File No 001-35419).*
Previously
Filed
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Form of Long-Term Performance Award Agreement (Payable in Cash) under the Kaman
Corporation 2013 Management Incentive Plan (incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K dated February 24, 2014, File No.
001-35419).*
Previously
Filed
Form of Long-Term Performance Award Agreement (Payable in Shares) granted under
the Kaman Corporation 2013 Management Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K dated February 24, 2014,
File No. 001-35419).*
Form of Award Agreement for Non-Employee Directors under the Kaman Corporation
2013 Management Incentive Plan.(incorporated by reference to Exhibit 10.6 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014,
File No. 001-35419).*
Previously
Filed
Previously
Filed
118
Exhibit 10.9
Exhibit 10.10
Exhibit 10.11
Exhibit 10.12
Kaman Corporation 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10
(a)(i) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 2, 2009, File No. 000-01093), as amended by amendments thereto filed with
the SEC on April 7, 2010 (incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated April 7, 2010, File No. 000-01093) and November 1,
2010 (incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 1, 2010, File No. 000-01093), and
February 22, 2012 (incorporated by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K, dated February 22, 2012, File No. 000-01093).*
Previously
Filed
Form of Incentive Stock Option Agreement under the Kaman Corporation 2003 Stock
Incentive Plan (incorporated by reference to Exhibit 10h(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093).*
Form of Non-Statutory Stock Option Agreement under the Kaman Corporation 2003
Stock Incentive Plan (incorporated by reference to Exhibit 10h(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093).*
Form of Stock Appreciation Rights Agreement under the Kaman Corporation 2003
Stock Incentive Plan (incorporated by reference to Exhibit 10h(iii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093).*
Previously
Filed
Previously
Filed
Previously
Filed
Exhibit 10.13
Form of Restricted Stock Agreement under the Kaman Corporation 2003 Stock
Incentive Plan (incorporated by reference to Exhibit 10h(iv) to the Company's Form 10-
Q for the fiscal quarter ended June 27, 2007, File No. 000-01093).*
Previously
Filed
Exhibit 10.14
Exhibit 10.15
Exhibit 10.16
Form of Long Term Performance Award Agreement under the Kaman Corporation 2003
Stock Incentive Plan (incorporated by reference to Exhibit 10h(v) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2011, File No.
001-35419).*
Previously
Filed
Form of Restricted Stock Unit Agreement under the Kaman Corporation 2003 Stock
Incentive Plan (incorporated by reference to Exhibit 10h(vi) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, File No.
000-10093).*
Kaman Corporation Employees Stock Purchase Plan (incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 1, 2010, File No. 000-01093), as amended by the First Amendment
thereto filed with the SEC on February 27, 2012 (incorporated by reference to Exhibit
10b to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2011, File No. 001-35419), the Second Amendment thereto filed with the SEC on
February 25, 2013 (incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2012, File No. 001-35419)
and the Third Amendment thereto filed with the SEC on February 23, 2015 by reference
to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2014, File No. 001-35419).*
Previously
Filed
Previously
Filed
Exhibit 10.17
Kaman Corporation Supplemental Employees' Retirement Plan (incorporated by
reference to Exhibit 10c to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, File No. 333-66179), as amended by an amendment
thereto filed with the SEC on March 5, 2004 (incorporated by reference to Exhibit 10c
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2003, File No. 333-66179), and an amendment thereto filed with the SEC on February
26, 2007 (incorporated by reference to Exhibit 10.10 to the Company's Current Report
on Form 8-K, dated February 26, 2007, File No. 000-01093).*
Previously
Filed
119
Exhibit 10.18
Exhibit 10.19
Exhibit 10.20
Exhibit 10.21
Exhibit 10.22
Post-2004 Supplemental Employees' Retirement Plan (incorporated by reference to
Exhibit 10.11 to the Company's Current Report on Form 8-K, dated February 26, 2007,
File No. 000-01093), as amended by the First Amendment thereto filed with the SEC on
February 28, 2008 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K, dated February 28, 2008, File No. 000-01093) and the Second
Amendment thereto filed with the SEC on February 25, 2010 (incorporated by reference
to Exhibit 10(c)(iii) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2009, File No. 000-01093).*
Kaman Corporation Amended and Restated Deferred Compensation Plan (incorporated
by reference to Exhibit 10d to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, File No. 333-66179), as amended by an
amendment thereto filed with the SEC on March 5, 2004 (incorporated by reference to
Exhibit 10d to the Company's Annual report on Form 10-K for the fiscal year ended
December 31, 2003 File No. 333-66179), and an amendment thereto filed with the SEC
on August 3, 2004 (incorporated by reference to Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004, File No.
333-66179).*
Kaman Corporation Post-2004 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K, dated February 28, 2008,
File No. 000-01093), as amended by the First Amendment thereto filed with the SEC on
February 27, 2012 (incorporated by reference to Exhibit 10d(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2011, File No.
001-35419), the Second Amendment thereto (incorporated by reference to Exhibit 10.20
to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2014, File No. 001-35419), and the Third Amendment thereto (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
November 21, 2014, File No. 001-35419). *
Amended and Restated Executive Employment Agreement between Kaman Corporation
and Neal J. Keating, originally dated as of August 7, 2007 and amended and restated as
of November 11, 2008 (incorporated by reference to Exhibit 10g(xviii) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008,
File No. 000-01093), as amended by Amendment No. 1 thereto dated January 1, 2010
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K, dated February 23, 2010, File No. 000-01093), Amendment No. 2 thereto dated
September 17, 2010 (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated September 20, 2010, File No. 000-01093), and
Amendment No. 3 thereto dated November 18, 2014 (incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K, dated November 21, 2014,
File No. 000-01093).*
Amended and Restated Change in Control Agreement between Kaman Corporation and
Neal J. Keating, originally dated as of August 7, 2007 and amended and restated as of
November 11, 2008 (incorporated by reference to Exhibit 10g(xix) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093), as amended by Amendment No. 1 thereto, dated January 1, 2010
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-
K dated February 25, 2010, File No. 000-01093), the Second Amendment thereto, dated
March 9, 2010 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K, dated March 16, 2010, File No. 000-01093), and the Third
Amendment thereto dated as of August 7, 2012 (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated August 8, 2012, File No.
001-35419).*
Previously
Filed
Previously
Filed
Previously
Filed
Previously
Filed
Previously
Filed
Exhibit 10.23
Executive Employment Agreement between Kaman Corporation and Robert D. Starr,
dated as of November 18, 2014 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated November 21, 2014, File No.
001-35419).*
Previously
Filed
120
Exhibit 10.24
Change in Control Agreement between Kaman Corporation and Robert D. Starr dated as
of June 7, 2013 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated June 7, 2013, File No. 001-35419).*
Previously
Filed
Exhibit 10.25
Exhibit 10.26
Exhibit 10.27
Exhibit 10.28
Exhibit 10.29
Exhibit 10.30
Amended and Restated Executive Employment Agreement between Kaman Aerospace
Group, Inc. and Gregory L. Steiner, originally dated as of July 7, 2008 and amended and
restated as of November 11, 2008 (incorporated by reference to Exhibit 10g(xx) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2009,
File No. 000-01093), as amended by Amendment No. 1 thereto, dated June 7, 2011
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K dated June 7, 2011, File No. 000-01093).*
Amended and Restated Change in Control Agreement between Kaman Aerospace
Group, Inc. and Gregory L. Steiner, originally dated as of dated July 7, 2008 and
amended and restated as of November 11, 2008 (incorporated by reference to Exhibit
10g(xx) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 3, 2009, File No. 000-01093), as amended by the First Amendment thereto, dated
March 11, 2010 (incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K, dated March 16, 2010, File No. 000-01093), and the Second
Amendment thereto, dated June 4, 2013 (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K, dated June 7, 2013, File No. 000-35419).*
Previously
Filed
Previously
Filed
Executive Employment Agreement between Kaman Industrial Technologies Corporation
and Steven J. Smidler dated as of September 1, 2010 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 10, 2010,
File No. 000-01093.)*
Previously
Filed
Change in Control Agreement between Kaman Industrial Technologies Corporation and
Steven J. Smidler dated as of September 1, 2010 (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated September 10, 2010, File No.
000-01093), as amended by the First Amendment thereto dated November 9, 2011
(incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-
K dated November 9, 2011, File No. 000-01093).*
Previously
Filed
Amended and Restated Executive Employment Agreement between the Company and
Ronald M. Galla, originally dated as of January 1, 2007 and amended and restated as of
November 11, 2008 (incorporated by reference to Exhibit 10g(v) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093), as amended by Amendment No. 1 thereto dated December 21, 2010
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-
K, dated December 21, 2010, File No. 000-01093).*
Amended and Restated Change in Control Agreement between the Company and
Ronald M. Galla, originally dated as of January 1, 2007 and amended and restated as of
November 11, 2008 (incorporated by reference to Exhibit 10g(xi) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No.
000-01093), as amended by the First Amendment thereto, dated March 8, 2010
(incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-
K, dated March 16, 2010, File No. 000-01093) and the Second Amendment thereto,
dated November 9, 2011 (incorporated by reference to Exhibit 10.2 on to the Company's
Current Report on Form 8-K, dated on November 9, 2011, File No. 000-01093).*
Previously
Filed
Previously
Filed
Exhibit 10.31
Change in Control Agreement between Kaman Corporation and Philip A. Goodrich
dated as of June 10, 2013 (incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2013, File No.
001-35419).*
Previously
Filed
121
Exhibit 10.32
Exhibit 10.33
Exhibit 10.34
Exhibit 10.35
Exhibit 10.36
Exhibit 10.37
Exhibit 10.38
Exhibit 10.39
Exhibit 10.40
Exhibit 10.41
Exhibit 10.42
Change in Control Agreement between Kaman Corporation and Shawn G. Lisle dated as
of February 4, 2013 (incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, File No.
001-35419).*
Previously
Filed
Change in Control Agreement between Kaman Corporation and Gregory T. Troy dated
as of March 26, 2012 (incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, File No.
001-35419).*
Previously
Filed
Deferred Compensation Agreement between Kaman Corporation and Eileen S. Kraus
dated August 8, 1995 as amended by First Amendment thereto dated December 8, 2005
(incorporated by reference to Exhibit 10h(vii) to the Company's Annual Report on Form
10-K for the fiscal year ended on December 31, 2005, File No. 000-01093).*
Previously
Filed
Purchase Agreement dated November 15, 2010, by and among Kaman Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, and RBS Securities Inc., as
representatives of the several Initial Purchasers (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Base Convertible Bond Hedging Transaction Confirmation dated November 15, 2010,
by and between Kaman Corporation and The Royal Bank of Scotland plc, acting
through RBS Securities Inc., as its agent (incorporated by reference to Exhibit 10.2(a) to
the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Base Convertible Bond Hedging Transaction Confirmation dated November 15, 2010,
by and between Kaman Corporation and Goldman, Sachs & Co. (incorporated by
reference to Exhibit 10.2(b) to the Company's Current Report on Form 8-K dated
November 19, 2010, File No. 000-01093).
Base Convertible Bond Hedging Transaction Confirmation dated November 15, 2010,
by and between Kaman Corporation and Bank of America, N.A. (incorporated by
reference to Exhibit 10.2(c) to the Company's Current Report on Form 8-K dated
November 19, 2010, File No. 000-01093).
Previously
Filed
Previously
Filed
Previously
Filed
Previously
Filed
Confirmation of Base Warrants dated November 15, 2010, by and between Kaman
Corporation and The Royal Bank of Scotland plc, acting through RBS Securities Inc., as
its agent(incorporated by reference to Exhibit 10.3(a) to the Company's Current Report
on Form 8-K dated November 19, 2010, File No. 000-01093).
Previously
Filed
Confirmation of Base Warrants dated November 15, 2010, by and between Kaman
Corporation and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.3(b) to
the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Previously
Filed
Confirmation of Base Warrants dated November 15, 2010, by and between Kaman
Corporation and Bank of America, N.A., filed as (incorporated by reference to Exhibit
10.3(c) to the Company's Current Report on Form 8-K dated November 19, 2010, File
No. 000-01093).
Additional Convertible Bond Hedging Transaction Confirmation dated November 17,
2010, by and between Kaman Corporation and The Royal Bank of Scotland plc, acting
through RBS Securities Inc., as its agent, (incorporated by reference to Exhibit 10.4(a)
to the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Previously
Filed
Previously
Filed
Exhibit 10.43
Additional Convertible Bond Hedging Transaction Confirmation dated November 17,
2010, by and between Kaman Corporation and Goldman, Sachs & Co. (incorporated by
reference to Exhibit 10.4(b) to the Company's Current Report on Form 8-K dated
November 19, 2010, File No. 000-01093).
Previously
Filed
122
Exhibit 10.44
Exhibit 10.45
Exhibit 10.46
Exhibit 10.47
Exhibit 10.48
Exhibit 10.49
Exhibit 10.50
Additional Convertible Bond Hedging Transaction Confirmation dated November 17,
2010, by and between Kaman Corporation and Bank of America, N.A. (incorporated by
reference to Exhibit 10.4(c) to the Company's Current Report on Form 8-K dated
November 19, 2010, File No. 000-01093).
Previously
Filed
Confirmation of Additional Warrants dated November 17, 2010, by and between Kaman
Corporation and The Royal Bank of Scotland plc, acting through RBS Securities Inc., as
its agent (incorporated by reference to Exhibit 10.5(a) to the Company's Current Report
on Form 8-K dated November 19, 2010, File No. 000-01093).
Previously
Filed
Confirmation of Additional Warrants dated November 17, 2010, by and between Kaman
Corporation and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.5(b) to
the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Previously
Filed
Confirmation of Additional Warrants dated November 17, 2010, by and between Kaman
Corporation and Bank of America, N.A. (incorporated by reference to Exhibit 10.5(c) to
the Company's Current Report on Form 8-K dated November 19, 2010, File No.
000-01093).
Previously
Filed
Credit Agreement dated as of November 20, 2012 among Kaman Corporation, RWG
Frankenjura-Industrie Flugwerklager GmbH and Kaman Composites-UK Holdings
Limited, as Borrowers, JPMorgan Chase Bank, N.A. as Co-Syndication Agents, and
Banc of America Securities LLC, RBS Citizens, N.A, as Administrative Agent, and RBS
Citizens, N.A. as Co-Syndication Agents, and J.P. Morgan Securities LLC, RBS
Citizens, N.A. as Co-Lead Arrangers and Book Managers, and various Lenders
signatory thereto (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated November 21, 2012, File No. 001-35419.)
Previously
Filed
Security Agreement dated as of November 20, 2012 among Kaman Corporation,
JPMorgan Chase Bank, N.A., as Administrative Agent and the domestic subsidiary
guarantors signatory thereto (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated November 21, 2012, File No.
001-35419.)
Amendment and Restatement Agreement, dated as of May 6, 2015, by and among
Kaman Corporation, RWG Germany GmbH and Kaman Composites-UK Holdings
Limited, as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and
Bank of America, N.A. and Citizens Bank, N.A. as Co-Syndication Agents, including,
attached as Exhibit A thereto, the Credit Agreement dated as of November 20, 2012, as
amended and restated as of May 6, 2015, among Kaman Corporation, RWG Germany
GmbH and Kaman Composites-UK Holdings Limited, as Borrowers, JPMorgan Chase
Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citizens Bank, N.A.
as Co-Syndication Agents, Suntrust Bank, Keybank National Association, TD Bank,
N.A., Branch Banking & Trust Company and Fifth Third Bank, as Co-Documentation
Agents, and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Citizens Bank, N.A., as Joint Bookrunners and Joint Lead Arrangers,
and various Lenders signatory thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated May 7, 2015, File No. 001-35419).
Previously
Filed
Previously
Filed
Exhibit 10.51
Share Purchase Agreement, signed on November 9, 2015, by and among Kaman
Aerospace Group, Inc., as Purchaser, and NIBC MBF Equity lB B.V., NIBC MBF
Mezzanine JR B.V., Michael Ludwig and Klaus Bonaventura, as Sellers (incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated
December 2, 2015, File No. 00l35419).**
Previously
Filed
Exhibit 14
Kaman Corporation Code of Business Conduct and Ethics effective as of January 1,
2013 (incorporated by reference to Exhibit 14 to the Company's Current Report on Form
8-K dated November 9, 2012, File No. 001-35419).
Previously
Filed
123
Exhibit 21
List of Subsidiaries
Filed
Herewith
Exhibit 23
Consent of PricewaterhouseCoopers LLP, the Company’s current independent registered
public accounting firm.
Filed
Herewith
Exhibit 24
Power of attorney under which this report was signed on behalf of certain directors
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities
and Exchange Act of 1934.
Filed
Herewith
Filed
Herewith
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities
and Exchange Act of 1934.
Filed
Herewith
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed
Herewith
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed
Herewith
Exhibit 95
Mine Safety Disclosures
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed
Herewith
Filed
Herewith
Filed
Herewith
Filed
Herewith
Filed
Herewith
Filed
Herewith
Filed
Herewith
* Management contract or compensatory plan
** Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish
supplementally to the U.S. Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request.
124
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LEADERSHIP
KAMAN CORPORATION AND SUBSIDIARIES
CORPORATE
LEADERSHIP
AEROSPACE
LEADERSHIP
DISTRIBUTION
LEADERSHIP
DIRECTORS
Neal J. Keating
Chairman, President and
Chief Executive Officer
Robert D. Starr
Executive Vice President and
Chief Financial Officer
Ronald M. Galla
Senior Vice President and
Chief Information Officer
Philip A. Goodrich
Senior Vice President –
Corporate Development
Shawn G. Lisle
Senior Vice President, General
Counsel and Assistant Secretary
Gregory T. Troy
Senior Vice President –
Human Resources and
Chief Human Resources Officer
Jairaj Chetnani
Vice President and Treasurer
Richard C. Forsberg
Vice President –
Chief Ethics and Compliance
Officer and Vice President –
Contracts Management
Kaman Aerospace Group
Michael J. Lyon
Vice President – Tax
Michael J. Morneau
Vice President and Controller
Eric B. Remington
Vice President – Investor Relations
Richard S. Smith, Jr.
Vice President,
Deputy General Counsel
and Secretary
John J. Tedone
Vice President – Finance
Chief Accounting Officer
James G. Coogan
Assistant Vice President –
SEC Compliance
and External Reporting
Thomas J. McNerney
Assistant Vice President –
Internal Audit
Gary L. Tong
Assistant Vice President –
Corporate Risk, Safety and
Environmental Management
Gregory L. Steiner
President – Kaman Aerospace Group
and Executive Vice President –
Kaman Corporation
Steven J. Smidler
President – Kaman Industrial
Technologies (KIT) and Executive
Vice President – Kaman Corporation
Neal J. Keating
Chairman, President and
Chief Executive Officer
Kaman Corporation
James C. Larwood, Jr.
Division President
Kaman Aerosystems
Nancy L‘Esperance
Vice President – Human Resources
Kaman Aerospace Group
Alphonse J. Lariviere, Jr.
Senior Vice President
Finance and Administration
–
Patricia W. (Tribby) Warfield
Senior Vice President and General
Manager – Automation, Control and
Energy, and Fluid Power
Brian E. Barents 3,4
President and Chief Executive
Officer, Retired Galaxy Aerospace
Company, LP
E. Reeves Callaway III 3,4
Founder and Chief Executive Officer
The Callaway Companies
Robert G. Paterson
President
Kamatics Corporation
Thomas A. Weihsmann
Senior Vice President and
General Manager – KIT
Gerald C. Ricketts
President –
Precision Products Division of
Kaman Aerospace Corporation
Joseph P. Bertalli
Vice President Finance and
Business Operations – Automation,
Control and Energy
John K. Stockman
Vice President – Finance
Kaman Aerospace Group
Patrick J. Wheeler
Vice President – Strategic Initiatives
Kaman Aerospace Group
Michael R. Ludwig
Managing Director
GRW Bearing GmbH
Robert G. Manaskie
Vice President and General
Manager – Air Vehicles and MRO
Hermann R. Mannschatz
Managing Director
RWG GmbH Germany
William H. Zmyndak
Vice President and General
Manager – Kaman Integrated
Structures & Metallics
Jeffrey M. Brown
Vice President – KIT Northeast
Anthony L. Clark
Vice President – KIT South
Carl A. Conlon
Vice President and Controller
Samuel G. Cooper
Vice President – KIT North Central
Joe Dujka
Vice President – Finance and
Business Operations – KIT
Tom R. Holtry
Vice President – KIT
Intermountain/Pacific Northwest
Michael J. Kelly
Vice President – National Accounts
Bryan K. Larson
Vice President –
Corporate Development
David H. Mayer
Vice President – Marketing
J. Louis McCord
Vice President – Sales –
Automation, Control and Energy
Michael J. Pastore
Vice President – Operations and ERP
Carmen M. Rivera
Vice President – Human Resources
Donald O. Roland
Vice President –
Process,
Pricing and Quality
Abraham D. Samaro
Vice President – KIT California
Kimberly D. Votava
Vice President – Human Resources –
Automation, Control and Energy, and
Fluid Power
Karen M. Garrison 1*,4
Lead Independent Director;
President – Business Services,
Retired Pitney Bowes
A. William Higgins 1,4*
Chairman, President and
Chief Executive Officer, Retired
CIRCOR International, Inc.
Eileen S. Kraus 2,4
Chairman, Retired Fleet Bank
Connecticut
Scott E. Kuechle 1,2*
Executive Vice President and
Chief Financial Officer, Retired
Goodrich Corporation
George E. Minnich 1,3
Senior Vice President and
Chief Financial Officer, Retired ITT
Corporation
Jennifer M. Pollino 3
Executive Vice President – Human
Resources and Communications,
Retired Goodrich Corporation
Thomas W. Rabaut 2,4
Operating Executive,
The Carlyle Group
Richard J. Swift 1, 3*
Chairman, President and
Chief Executive Officer, Retired
Foster Wheeler, Ltd. and former
Chairman, Financial Accounting
Standards Advisory Council
DIRECTORS
EMERITUS
Frank C. Carlucci
John A. DiBiaggio
Edwin A. Huston
John B. Plott
STANDING COMMITTEE
ASSIGNMENTS
1 Corporate Governance
2 Audit
3 Personnel and Compensation
4 Finance
* Denotes Chairmanship
DISTRIBUTION
Kaman Distribution has evolved from a parts
supplier to a complete solutions provider. Case
in point: our relationship with Rochester, NY-
based Gleason Corporation, a world leader in
machinery for producing, finishing and testing
gears. On-time delivery of high-quality products
is critical to the company’s success. Kaman
helps Gleason achieve this. Our relationship
with Gleason began with supplying parts
to the company; it has evolved into a truly
consultative partnership, with a team of Kaman
engineers who work side-by-side with Gleason
professionals on product design. Today, Kaman
sourcing specialists manage, maintain and
monitor the performance of dozens of different
suppliers to Gleason.
AEROSPACE
Along with organic growth, acquisitions have
broadened our set of solutions and even taken
us into entirely new markets.
EXTEX, for example, which Kaman acquired
in 2015, designs and supplies aftermarket
parts to support businesses conducting
maintenance, repair and overhauls in
aerospace markets – a strong complement to
existing Aerospace businesses. Another 2015
acquisition, Germany-based GRW, produces
super miniature ball bearings, which align
with our high-performance bearings business.
GRW’s precision bearings are used in a number
of attractive markets, including medical
instruments, pharmaceuticals, surgical and
dental instruments, and industrial applications.
STRENGTH IN DIVERSIFICATION
The opportunities ahead for Kaman are as
diverse as the markets and customers we
serve. With a diverse team of dedicated
employees and an increasingly diverse set
of solutions, we look forward to capitalizing
on these strengths to continue to benefit our
company, our customers and our shareholders.