KAMN - 6.27.2014 -10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2014
Or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission File Number: 001-35419
KAMAN CORPORATION
(Exact name of registrant as specified in its charter)
|
| |
Connecticut | 06-0613548 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
(Address of principal executive offices) (Zip Code)
(860) 243-7100
(Registrant’s telephone number, including area code)
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 x No ¨
Indicate by check mark 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 (§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 x No ¨
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x 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 x
At July 25, 2014, there were 27,091,955 shares of Common Stock outstanding.
PART I
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except share and per share amounts) (Unaudited)
|
| | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 11,676 |
| | $ | 10,384 |
|
Accounts receivable, net | | 256,121 |
| | 205,873 |
|
Inventories | | 390,556 |
| | 390,495 |
|
Deferred income taxes | | 29,492 |
| | 30,128 |
|
Income tax refunds receivable | | 311 |
| | 2,297 |
|
Other current assets | | 27,266 |
| | 26,028 |
|
Total current assets | | 715,422 |
| | 665,205 |
|
Property, plant and equipment, net of accumulated depreciation of $178,396 and $167,282, respectively | | 153,152 |
| | 148,508 |
|
Goodwill | | 243,841 |
| | 203,923 |
|
Other intangible assets, net | | 101,924 |
| | 89,449 |
|
Deferred income taxes | | 7,876 |
| | 10,287 |
|
Other assets | | 23,358 |
| | 23,259 |
|
Total assets | | $ | 1,245,573 |
| | $ | 1,140,631 |
|
Liabilities and Shareholders’ Equity | | |
| | |
|
Current liabilities: | | |
| | |
|
Notes payable | | $ | — |
| | $ | 559 |
|
Current portion of long-term debt | | 12,500 |
| | 10,000 |
|
Accounts payable – trade | | 125,422 |
| | 119,482 |
|
Accrued salaries and wages | | 36,290 |
| | 33,677 |
|
Advances on contracts | | 3,487 |
| | 9,470 |
|
Other accruals and payables | | 54,418 |
| | 54,095 |
|
Income taxes payable | | 839 |
| | 673 |
|
Total current liabilities | | 232,956 |
| | 227,956 |
|
Long-term debt, excluding current portion | | 350,374 |
| | 264,655 |
|
Deferred income taxes | | 3,945 |
| | 3,855 |
|
Underfunded pension | | 75,608 |
| | 85,835 |
|
Other long-term liabilities | | 42,065 |
| | 47,038 |
|
Commitments and contingencies (Note 11) | | | | |
Shareholders' equity: | | |
| | |
|
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding | | — |
| | — |
|
Common stock, $1 par value, 50,000,000 shares authorized; voting; 27,456,596 and 27,189,922 shares issued, respectively | | 27,457 |
| | 27,190 |
|
Additional paid-in capital | | 141,865 |
| | 133,517 |
|
Retained earnings | | 458,819 |
| | 439,441 |
|
Accumulated other comprehensive income (loss) | | (78,255 | ) | | (81,121 | ) |
Less 371,451 and 330,487 shares of common stock, respectively, held in treasury, at cost | | (9,261 | ) | | (7,735 | ) |
Total shareholders’ equity | | 540,625 |
| | 511,292 |
|
Total liabilities and shareholders’ equity | | $ | 1,245,573 |
| | $ | 1,140,631 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands, except per share amounts) (Unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
Net sales | | $ | 459,089 |
| | $ | 431,725 |
| | $ | 873,021 |
| | $ | 819,800 |
|
Cost of sales | | 329,755 |
| | 310,468 |
| | 628,826 |
| | 588,277 |
|
Gross profit | | 129,334 |
| | 121,257 |
| | 244,195 |
| | 231,523 |
|
Selling, general and administrative expenses | | 101,590 |
| | 90,219 |
| | 195,351 |
| | 186,639 |
|
Net loss on sale of assets | | 57 |
| | 21 |
| | 168 |
| | 100 |
|
Operating income | | 27,687 |
| | 31,017 |
| | 48,676 |
| | 44,784 |
|
Interest expense, net | | 3,297 |
| | 3,163 |
| | 6,406 |
| | 6,231 |
|
Other expense, net | | 297 |
| | 58 |
| | 499 |
| | 389 |
|
Earnings from continuing operations before income taxes | | 24,093 |
| | 27,796 |
| | 41,771 |
| | 38,164 |
|
Income tax expense | | 7,899 |
| | 9,904 |
| | 14,120 |
| | 13,118 |
|
Earnings from continuing operations | | 16,194 |
| | 17,892 |
| | 27,651 |
| | 25,046 |
|
Earnings from discontinued operations, net of taxes | | 379 |
| | — |
| | 379 |
| | — |
|
Net earnings | | $ | 16,573 |
| | $ | 17,892 |
| | $ | 28,030 |
| | $ | 25,046 |
|
| | | | | | | | |
Earnings per share: | | |
| | |
| | | | |
Basic earnings per share from continuing operations | | $ | 0.60 |
| | $ | 0.67 |
| | $ | 1.03 |
| | $ | 0.94 |
|
Basic earnings per share from discontinued operations | | 0.01 |
| | — |
| | 0.01 |
| | — |
|
Basic earnings per share | | $ | 0.61 |
| | $ | 0.67 |
| | $ | 1.04 |
| | $ | 0.94 |
|
| | | | | | | | |
Diluted earnings per share from continuing operations | | $ | 0.59 |
| | $ | 0.67 |
| | $ | 1.00 |
| | $ | 0.93 |
|
Diluted earnings per share from discontinued operations | | 0.01 |
| | — |
| | 0.01 |
| | — |
|
Diluted earnings per share | | $ | 0.60 |
| | $ | 0.67 |
| | $ | 1.01 |
| | $ | 0.93 |
|
Average shares outstanding: | | |
| | |
| | | | |
Basic | | 27,039 |
| | 26,734 |
| | 26,981 |
| | 26,696 |
|
Diluted | | 27,844 |
| | 26,899 |
| | 27,717 |
| | 26,977 |
|
Dividends declared per share | | $ | 0.16 |
| | $ | 0.16 |
| | $ | 0.32 |
| | $ | 0.32 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
Net earnings | | $ | 16,573 |
| | $ | 17,892 |
| | $ | 28,030 |
| | $ | 25,046 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | |
Foreign currency translation adjustments | | 1,755 |
| | (244 | ) | | 1,460 |
| | (4,758 | ) |
Unrealized gain on derivative instruments, net of tax expense (benefit) of ($38) and $105, and $41 and $38, respectively | | — |
| | 172 |
| | 69 |
| | 61 |
|
Change in pension and post-retirement benefit plan liabilities, net of tax expense of $408 and $904, and $810 and $1,810, respectively | | 673 |
| | 1,476 |
| | 1,337 |
| | 2,951 |
|
Other comprehensive income (loss) | | 2,428 |
| | 1,404 |
| | 2,866 |
| | (1,746 | ) |
Comprehensive income | | $ | 19,001 |
| | $ | 19,296 |
| | $ | 30,896 |
| | $ | 23,300 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)
|
| | | | | | | | |
| | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 |
Cash flows from operating activities: | | |
| | |
|
Earnings from continuing operations | | $ | 27,651 |
| | $ | 25,046 |
|
Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations: | | |
| | |
|
Depreciation and amortization | | 17,069 |
| | 15,528 |
|
Accretion of convertible notes discount | | 953 |
| | 905 |
|
Provision for doubtful accounts | | 604 |
| | 734 |
|
Net loss on sale of assets | | 168 |
| | 100 |
|
Net loss on derivative instruments | | 289 |
| | 203 |
|
Stock compensation expense | | 3,293 |
| | 3,065 |
|
Excess tax benefit from share-based compensation arrangements | | (732 | ) | | (293 | ) |
Deferred income taxes | | 2,204 |
| | 68 |
|
Changes in assets and liabilities, excluding effects of acquisitions/divestitures: | | | | |
|
Accounts receivable | | (37,069 | ) | | (45,274 | ) |
Inventories | | 10,071 |
| | (16,165 | ) |
Income tax refunds receivable | | 1,990 |
| | — |
|
Other current assets | | (27 | ) | | 25 |
|
Accounts payable - trade | | (719 | ) | | 3,800 |
|
Accrued contract losses | | (1,253 | ) | | 228 |
|
Advances on contracts | | (5,984 | ) | | 10,887 |
|
Other accruals and payables | | 4,834 |
| | (5,595 | ) |
Income taxes payable | | 174 |
| | (2,768 | ) |
Pension liabilities | | (8,332 | ) | | (2,252 | ) |
Other long-term liabilities | | (3,421 | ) | | (1,649 | ) |
Net cash provided by (used in) operating activities of continuing operations | | 11,763 |
| | (13,407 | ) |
Net cash provided by operating activities of discontinued operations | | 379 |
| | — |
|
Net cash provided by (used in) operating activities | | 12,142 |
| | (13,407 | ) |
Cash flows from investing activities: | | |
| | |
|
Proceeds from sale of assets | | 68 |
| | 83 |
|
Expenditures for property, plant & equipment | | (18,058 | ) | | (21,267 | ) |
Acquisition of businesses | | (75,518 | ) | | (5,178 | ) |
Other, net | | (1,049 | ) | | (598 | ) |
Cash used in investing activities of continuing operations | | (94,557 | ) | | (26,960 | ) |
Cash used in investing activities of discontinued operations | | — |
| | — |
|
Cash used in investing activities | | (94,557 | ) | | (26,960 | ) |
Cash flows from financing activities: | | |
| | |
|
Net borrowings under revolving credit agreements | | 88,541 |
| | 39,753 |
|
Debt repayment | | (2,500 | ) | | (5,000 | ) |
Net change in book overdraft | | 1,676 |
| | 4,093 |
|
Proceeds from exercise of employee stock awards | | 4,639 |
| | 2,654 |
|
Purchase of treasury shares | | (843 | ) | | (644 | ) |
Dividends paid | | (8,616 | ) | | (8,526 | ) |
Other | | — |
| | (51 | ) |
Windfall tax benefit | | 732 |
| | 293 |
|
Cash provided by financing activities of continuing operations | | 83,629 |
| | 32,572 |
|
Cash provided by financing activities of discontinued operations | | — |
| | — |
|
Cash provided by financing activities | | 83,629 |
| | 32,572 |
|
Net increase (decrease) in cash and cash equivalents | | 1,214 |
| | (7,795 | ) |
Effect of exchange rate changes on cash and cash equivalents | | 78 |
| | (91 | ) |
Cash and cash equivalents at beginning of period | | 10,384 |
| | 16,593 |
|
Cash and cash equivalents at end of period | | $ | 11,676 |
| | $ | 8,707 |
|
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
1. BASIS OF PRESENTATION
The December 31, 2013, Condensed Consolidated Balance Sheet amounts have been derived from the previously audited Consolidated Balance Sheet of Kaman Corporation and subsidiaries (collectively, the “Company”), but do not include all disclosures required by accounting principles generally accepted in the United States of America ("US GAAP"). In the opinion of management, the condensed financial information reflects all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to current presentation. The statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the interim periods presented are not necessarily indicative of trends or of results to be expected for the entire year.
The Company has a calendar year-end; however, its first three fiscal quarters follow a 13-week convention, with each quarter ending on a Friday. The second quarter for 2014 and 2013 ended on June 27, 2014 and June 28, 2013, respectively.
2. RECENT ACCOUNTING STANDARDS
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 Company does not expect these changes to have a material impact on its consolidated financial statements.
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 International Financial Reporting Standards ("IFRS"). The standard intends to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2016; early adoption is not permitted. The Company is currently assessing the potential impact of this ASU 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 interim and annual periods beginning after December 15, 2014. The Company does not expect these changes to have a material impact on its consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes ("ASC Topic 740") - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The objective is to end some inconsistent practices with regard to the presentation on the balance sheet of unrecognized tax benefits.The update was effective for financial statement periods beginning after December 15, 2013. The Company adopted this standard beginning January 1, 2014. There was no material impact on the Company's condensed consolidated financial statements for the period ended June 27, 2014.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters ("ASC Topic 830") - Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The objective is to resolve the diversity in practice with regard to whether ASC Subtopic 810-10, Consolidation - Overall or ASC Subtopic 830-30 Foreign Currency Matters - Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. The update was effective for financial statement periods beginning after December 15, 2013. The Company has adopted this standard beginning January 1, 2014. There was no impact on the Company's condensed consolidated financial statements for the period ended June 27, 2014.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
3. DISCONTINUED OPERATIONS
On December 31, 2012, the Company sold substantially all of the assets and liabilities of the Distribution segment's Canadian operations. As a result, the Company has reported the results of operations and financial position of this component as discontinued operations within the condensed consolidated financial statements for all periods presented. During the second quarter of 2014, the Company recorded earnings from discontinued operations of $0.5 million, $0.4 million net of tax, related to a pension settlement that resulted from the 2012 disposal of the Distribution segment's Canadian operations.
4. 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 expands the Company's capabilities in both the fluid power and automation and motion control product areas.
This acquisition was accounted for as a business combination. Assets acquired and liabilities assumed were recorded based on their fair values at the date of acquisition. The fair values of assets acquired and liabilities assumed were as follows:
|
| | | |
In thousands | |
Cash | $ | 11 |
|
Accounts receivable | 13,332 |
|
Inventories | 9,614 |
|
Property, plant and equipment | 850 |
|
Other tangible assets | 784 |
|
Goodwill | 37,804 |
|
Other intangible assets | 16,870 |
|
Liabilities | (7,367 | ) |
Total of net assets acquired | 71,898 |
|
Less cash received | (11 | ) |
Total consideration | $ | 71,887 |
|
The Company has paid $70.5 million of the total consideration of $71.9 million for this acquisition through June 27, 2014. 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 Condensed Consolidated Statements of Operations is $18.8 million of revenue from this acquisition for the three months and six months ended June 27, 2014.
The fair values of the identifiable intangible assets, which totaled $16.9 million and consisted of customer relationships, non-compete agreements and trade names, were determined using the income approach. Specifically, the discounted cash flows method was utilized for 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 of 11 and 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 names ($0.9 million) is being amortized over a period of 8 years, the estimated lives of the assets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
|
| | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
In thousands | | | | |
Trade receivables | | $ | 152,986 |
| | $ | 125,092 |
|
U.S. Government contracts: | | |
| | |
|
Billed | | 21,345 |
| | 14,364 |
|
Costs and accrued profit – not billed | | 6,214 |
| | 6,340 |
|
Commercial and other government contracts: | | |
| | |
|
Billed | | 62,640 |
| | 63,051 |
|
Costs and accrued profit – not billed | | 16,793 |
| | 853 |
|
Less allowance for doubtful accounts | | (3,857 | ) | | (3,827 | ) |
Accounts receivable, net | | $ | 256,121 |
| | $ | 205,873 |
|
Accounts receivable, net includes amounts for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts are as follows:
|
| | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
In thousands | | | | |
Contract changes, negotiated settlements and claims for unanticipated contract costs | | $ | — |
| | $ | 1,021 |
|
Total | | $ | — |
| | $ | 1,021 |
|
6. 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 the Company 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 in 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. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
6. FAIR VALUE MEASUREMENTS (CONTINUED)
The following table presents the carrying value and fair value of financial instruments that are not carried at fair value:
|
| | | | | | | | | | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
In thousands | | | | | | | | |
Long-term debt: | | | | | | | | |
Level 1 | | $ | 108,046 |
| | $ | 152,642 |
| | $ | 107,093 |
| | $ | 147,822 |
|
Level 2 | | 254,828 |
| | 242,836 |
| | 167,562 |
| | 155,473 |
|
Total | | $ | 362,874 |
| | $ | 395,478 |
| | $ | 274,655 |
| | $ | 303,295 |
|
The above fair values were computed based on quoted market prices (Level 1) and discounted future cash flows (Level 2 observable inputs), as applicable. Differences from carrying values are attributable to interest rate changes subsequent to when the transaction occurred. The increase in fair value of the long-term debt is driven by increased borrowings under the Company's Revolving Credit Facility.
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 table below segregates all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine their fair value at the measurement date:
|
| | | | | | | | | | | | | | | |
| Total Carrying Value at | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| June 27, 2014 | | | |
In thousands | | | | | | | |
Derivative instruments | $ | 152 |
| | $ | — |
| | $ | 152 |
| | $ | — |
|
Total assets | $ | 152 |
| | $ | — |
| | $ | 152 |
| | $ | — |
|
| | | | | | | |
Derivative instruments | $ | 339 |
| | $ | — |
| | $ | 339 |
| | $ | — |
|
Total liabilities | $ | 339 |
| | $ | — |
| | $ | 339 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Total Carrying Value at | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| December 31, 2013 | | | |
In thousands | | | | | | | |
Derivative instruments | $ | 127 |
| | $ | — |
| | $ | 127 |
| | $ | — |
|
Total assets | $ | 127 |
| | $ | — |
| | $ | 127 |
| | $ | — |
|
| | | | | | | |
Derivative instruments | $ | 276 |
| | $ | — |
| | $ | 276 |
| | $ | — |
|
Total liabilities | $ | 276 |
| | $ | — |
| | $ | 276 |
| | $ | — |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
6. FAIR VALUE MEASUREMENTS (CONTINUED)
Recurring Fair Value Measurements - continued
The Company’s derivative instruments are 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, other assets, other accruals and payables and other long-term liabilities on the Condensed Consolidated Balance Sheets at June 27, 2014, and December 31, 2013. Based on the continued ability to trade and enter into forward contracts, we consider the markets for our fair value instruments to be active.
The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as of June 27, 2014, such credit risks have not had an adverse impact on the fair value of these instruments.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Overview
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 Condensed 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.
The Company holds 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 these contracts are 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. There was $0.2 million and $0.3 million of expense reclassified from other comprehensive income during the three months and six months ended June 27, 2014, respectively. No material amounts were reclassified to expense from other comprehensive income during the three months and six months ended June 28, 2013. Over the next twelve months, the expense related to cash flow hedges expected to be reclassified from other comprehensive income is $0.5 million.
Derivatives Designated as Cash Flow Hedges
The Term Loan Facility of the Company's Credit Agreement (“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 under its Term Loan due in 2014 and 2015. These interest rate swap agreements were designated as cash flow hedges and are 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. The amounts of the gain or (loss) recognized on the Condensed Consolidated Statements of Operations for derivatives designated as hedge instruments were not material for the three months and six months ended June 27, 2014, and June 28, 2013.
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 have been 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. The amounts of the gain or (loss) recognized on the Condensed Consolidated Statements of Operations for derivatives designated as hedge instruments were not material for the three months and six months ended June 27, 2014. During the first half of 2014, the amount recorded in other income for the ineffective portion of derivative instruments designated as cash flow hedges was not material. No such amounts were recorded during 2013.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
7. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Derivatives Designated as Cash Flow Hedges - continued
The following table shows the fair value of derivative instruments designated as cash flow hedging instruments:
|
| | | | | | | | | | | | |
| | | | Fair Value | | |
| | Balance Sheet Location | | June 27, 2014 | | December 31, 2013 | | Notional Amount |
In thousands | | | | | | | | |
Derivative Assets | | | | | | | | |
Foreign exchange contracts | | Other current assets | | $ | 11 |
| | $ | — |
| | 4,022 / 0 AUD |
Total | | | | $ | 11 |
| | $ | — |
| | |
Derivative Liabilities | | | | | | | | |
Interest rate swap contracts | | Other liabilities / Other long-term liabilities | | $ | 335 |
| | $ | 276 |
| | $87,500 / $90,000 |
Foreign exchange contracts | | Other liabilities | | 4 |
| | — |
| | £1,367 / £0 |
Total | | | | $ | 339 |
| | $ | 276 |
| | |
Derivatives Not Designated as Hedging Instruments
The following table shows the fair value of derivative instruments not designated as hedging instruments:
|
| | | | | | | | | | | | |
| | | | Fair Value | | |
| | Balance Sheet | | June 27, | | December 31, | | Notional |
| | Location | | 2014 | | 2013 | | Amount |
In thousands | | | | | | | | |
Derivative Assets | | | | | | | | |
Foreign exchange contracts | | Other current assets | | $ | 141 |
| | $ | 127 |
| | $1,818 / $2,349 |
Total | | | | $ | 141 |
| | $ | 127 |
| | |
The amounts of the gain or (loss) recognized on the Condensed Consolidated Statements of Operations for derivatives not designated as hedge instruments were not material for the three months and six months ended June 27, 2014, and June 28, 2013, and are included in other (income) expense, net.
8. INVENTORIES
Inventories consist of the following:
|
| | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
In thousands | | | | |
Merchandise for resale | | $ | 161,595 |
| | $ | 152,194 |
|
Raw materials | | 21,694 |
| | 20,609 |
|
Contracts and other work in process | | 196,456 |
| | 205,220 |
|
Finished goods (including certain general stock materials) | | 10,811 |
| | 12,472 |
|
Total | | $ | 390,556 |
| | $ | 390,495 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
8. INVENTORIES (CONTINUED)
Inventories include amounts associated with matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts are as follows:
|
| | | | | | | | |
| | June 27, 2014 | | December 31, 2013 |
In thousands | | | | |
Contract changes, negotiated settlements and claims for unanticipated contract costs | | $ | 7,337 |
| | $ | 11,581 |
|
Total | | $ | 7,337 |
| | $ | 11,581 |
|
The reduction in this balance is due to the settlement of a claim related to a commercial composite structures program.
K-MAX® inventory of $17.2 million and $17.0 million as of June 27, 2014, and December 31, 2013, 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 June 27, 2015, based upon the anticipation of supporting the fleet for the foreseeable future.
At June 27, 2014, and December 31, 2013, $34.2 million and $43.8 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. On May 8, 2013, the Company announced that it had entered into a $120.6 million contract with the New Zealand Ministry of Defence for the sale of ten SH-2G(I) Super Seasprite aircraft, spare parts, a full mission flight simulator, and related logistics support. Although a substantial portion of the SH-2G(I) inventory will be used in the performance of this contract, management believes that $10.9 million of the SH-2G(I) inventory will be sold after June 27, 2015, based upon the time needed to prepare the aircraft for sale and the requirements of our customer. For more information on the SH-2G(I) inventory, see Note 11, Commitments and Contingencies.
Long-term Contracts
For long-term aerospace contracts, the Company generally recognizes revenue and cost based on the percentage-of-completion method of accounting, which allows for recognition of revenue as work on a contract progresses. The Company recognizes revenues and cost based on 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 cost to total 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, the Company records the effects of adjustments in profit estimates each period. If at any time the Company determines that in the case of a particular contract total costs will exceed total contract revenue, the Company will record a provision for the entire anticipated contract loss at that time. There was a net decrease to the Company's operating income from changes in contract estimates of $0.6 million for the three-month period ended June 27, 2014. The decrease was primarily a result of cost growth on the Sikorsky BLACK HAWK helicopter program. For the six-month period ended June 27, 2014, changes in contract estimates contributed $0.2 million to the Company's operating income. The increase for the six-month period was primarily a result of improved performance on the Joint Programmable Fuze ("JPF") program, offset by the cost growth on the Sikorsky BLACK HAWK helicopter program. There was a net decrease to the Company's operating income from changes in contract estimates of $2.7 million for the three-month and six-month periods ended June 28, 2013. These decreases were a result of cost growth due to revised estimates in various programs, including the Sikorsky BLACK HAWK helicopter program, Bell helicopter offload program and a fuze program.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
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:
|
| | | | | | | | | | | | |
| | Distribution | | Aerospace | | Total |
In thousands | | | | | | |
Gross balance at December 31, 2013 | | $ | 105,637 |
| | $ | 114,538 |
| | $ | 220,175 |
|
Accumulated impairment | | — |
| | (16,252 | ) | | (16,252 | ) |
Net balance at December 31, 2013 | | 105,637 |
| | 98,286 |
| | 203,923 |
|
Additions | | 37,804 |
| | 1,284 |
| | 39,088 |
|
Impairments | | — |
| | — |
| | — |
|
Foreign currency translation | | 5 |
| | 825 |
| | 830 |
|
Ending balance at June 27, 2014 | | $ | 143,446 |
| | $ | 100,395 |
| | $ | 243,841 |
|
Additions to goodwill for the Company's Distribution segment relate to the acquisition of the operating assets of B.W. Rogers completed during the second quarter of 2014, as set forth in Note 4, Acquisitions. Additions to goodwill for the Company's Aerospace segment relate to an earnout payment associated with a previous acquisition.
Other intangible assets consisted of:
|
| | | | | | | | | | | | | | | | | | |
| | | | At June 27, | | At December 31, |
| | | | 2014 | | 2013 |
| | Amortization Period | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
In thousands | | | | | | | | | | |
Customer lists / relationships | | 6-21 years | | $ | 125,638 |
| | $ | (28,258 | ) | | $ | 109,790 |
| | $ | (23,647 | ) |
Trademarks / trade names | | 3-8 years | | 3,565 |
| | (1,833 | ) | | 2,695 |
| | (1,594 | ) |
Non-compete agreements and other | | 1-9 years | | 7,254 |
| | (4,564 | ) | | 6,133 |
| | (4,055 | ) |
Patents | | 17 years | | 523 |
| | (401 | ) | | 523 |
| | (396 | ) |
Total | | | | $ | 136,980 |
| | $ | (35,056 | ) | | $ | 119,141 |
| | $ | (29,692 | ) |
The changes in other intangible assets are attributable to changes in foreign currency exchange rates and the acquisition completed during the second quarter of 2014.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
10. PENSION PLANS
Components of net pension cost for the Qualified Pension Plan and Supplemental Employees’ Retirement Plan ("SERP") are as follows:
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended |
| | Qualified Pension Plan | | SERP |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
In thousands | | | | | | | | |
Service cost for benefits earned during the year | | $ | 2,940 |
| | $ | 3,587 |
| | $ | 64 |
| | $ | 85 |
|
Interest cost on projected benefit obligation | | 7,208 |
| | 6,399 |
| | 86 |
| | 83 |
|
Expected return on plan assets | | (10,261 | ) | | (10,337 | ) | | — |
| | — |
|
Amortization of prior service cost | | 20 |
| | 25 |
| | — |
| | — |
|
Amortization of net loss | | 1,038 |
| | 2,304 |
| | 23 |
| | 53 |
|
Additional amount recognized due to curtailment/settlement | | — |
| | — |
| | — |
| | 277 |
|
Net pension cost | | $ | 945 |
| | $ | 1,978 |
| | $ | 173 |
| | $ | 498 |
|
|
| | | | | | | | | | | | | | | | |
| | For the Six Months Ended |
| | Qualified Pension Plan | | SERP |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
In thousands | | | | | | | | |
Service cost for benefits earned during the year | | $ | 5,880 |
| | $ | 7,174 |
| | $ | 128 |
| | $ | 170 |
|
Interest cost on projected benefit obligation | | 14,417 |
| | 12,798 |
| | 171 |
| | 155 |
|
Expected return on plan assets | | (20,523 | ) | | (20,674 | ) | | — |
| | — |
|
Amortization of prior service cost | | 45 |
| | 50 |
| | — |
| | — |
|
Amortization of net loss | | 2,057 |
| | 4,581 |
| | 45 |
| | 130 |
|
Additional amount recognized due to curtailment/settlement | | — |
| | — |
| | — |
| | 277 |
|
Net pension cost | | $ | 1,876 |
| | $ | 3,929 |
| | $ | 344 |
| | $ | 732 |
|
The following tables show the amounts of contributions made to the Qualified Pension Plan and SERP during each period and the additional contributions the Company expects to make during the remainder of 2014:
Year-to-date contributions:
|
| | | | | | | | | | | | | | | | |
| | Qualified Pension Plan | | SERP |
| | As of June 27, 2014 | | As of December 31, 2013 | | As of June 27, 2014 | | As of December 31, 2013 |
In thousands | | | | | | | | |
Year-to-date contributions | | $ | 10,000 |
| | $ | 10,000 |
| | $ | 552 |
| | $ | 2,291 |
|
Expected additional contributions in 2014:
|
| | | | | | | | |
| | Qualified Pension Plan | | SERP |
In thousands | | | | |
Expected additional contributions | | $ | — |
| | $ | 267 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
11. COMMITMENTS AND CONTINGENCIES
Legal Matters
Wichita Matter
As previously disclosed, the U.S. District Court for the District of Kansas issued a grand jury subpoena in 2011 to Plastic Fabricating Company, Inc. (“PlasticFab”), an indirect wholly owned subsidiary of the Company now known as Kaman Composites - Wichita, Inc., regarding a government investigation of record keeping associated with the manufacture of certain composite parts at PlasticFab's facility located in Wichita, Kansas. The subpoena required information related to the period January 1, 2006, through June 30, 2008. In March 2013, the U.S. Attorney's Office for the District of Kansas notified PlasticFab that it may seek to commence a criminal proceeding against PlasticFab but it expressed a willingness to explore a pre-charge disposition of the matter. PlasticFab believes it has cooperated fully with the investigation and intends to continue to do so as it engages in further discussions with the U.S. Attorney's Office about this matter. Under present U.S. Government procurement laws and regulations, if indicted or adjudged to be in violation of procurement or other Federal laws, a contractor, such as PlasticFab, could be subject to fines, penalties, repayments, or compensatory or treble damages, or suspension or debarment on U.S. Government contract awards if warranted. Thus, as with any government contractor, an adverse outcome in a proceeding such as this could have a material adverse effect on our business, financial condition, results of operations or cash flows. Management continues to cooperate with the government's investigation; however, we are unable to predict the outcome of any proceeding that may be brought or to estimate the amounts of resulting claims or other actions that could be instituted against PlasticFab, its officers, employees, or affiliates. Sales for PlasticFab represented 1.0% of the Company's consolidated sales for the year ended December 31, 2013. At June 27, 2014, the amount accrued for this matter was not material.
Other Matters
Revenue Sharing Agreement with the Commonwealth of Australia
During the second quarter of 2013, the Company signed a $120.6 million contract to resell ten of the Australia SH-2G(A) (now designated SH-2G(I)) aircraft, spare parts, a full mission flight simulator, and related logistics support to the New Zealand Ministry of Defence. Pursuant to the terms of its revenue sharing agreement with the Commonwealth of Australia, the Company will share proceeds from the resale with the Commonwealth on a predetermined basis. Through June 27, 2014, the Company has paid $39.5 million (AUD) to the Commonwealth of Australia, the required minimum amount of payments pursuant to the revenue sharing agreement. The Company has $2.2 million accrued for additional revenue sharing payments, calculated pursuant to the terms of the revenue sharing agreement. Additional amounts due to the Commonwealth of Australia will be recorded as additional sales are recorded.
Moosup
This facility is currently being held for disposal, and the Company from time to time entertains discussions and may explore terms with interested parties about the ultimate disposition of the property. To date, however, such discussions and preliminary agreements have not resulted in the consummation of a transaction. Site characterization of the environmental condition of the property, which began in 2008, is continuing. The total anticipated cost of the environmental remediation activities associated with the Moosup property is $4.5 million, all of which has been accrued. The total amount paid to date in connection with environmental remediation activities at this location is $2.6 million. A portion ($0.1 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.
New Hartford
In connection with the sale of the Company’s Music segment in 2007, the Company assumed responsibility for meeting certain requirements of the Connecticut Transfer Act (the “Transfer Act”) that applied to the 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 process, which began in 2008, has been completed.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Matters - continued
New Hartford - continued
The Company's estimate of its portion of the cost to assess the environmental conditions and remediate this site is $2.2 million, unchanged from the previously reported estimate, all of which has been accrued. The total amount paid to date in connection with these environmental remediation activities is $0.5 million. An immaterial portion 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 a Company subsidiary had leased from the Naval Air Systems Command (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 Energy & Environmental Protection. The assumed environmental liability of $10.3 million, all of which has been accrued, 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 $8.2 million. At June 27, 2014, the Company has $6.0 million accrued for this environmental matter. A portion ($1.7 million) of the accrual related to this property is included in other accruals and payables, and the balance ($4.3 million) 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.
United Kingdom
In connection with the purchase of the Company's U.K. composites business operations, the Company accrued £1.6 million for environmental compliance at the acquired facilities. The remaining balance of the accrual at June 27, 2014, was £0.3 million, with £1.1 million having been paid to date in connection with these environmental remediation activities and £0.2 million released to income in 2011. The U.S. dollar equivalent of the remaining environmental compliance liability as of June 27, 2014, is $0.5 million, which is included in other accruals and payables. The Company continues to assess the work that may be required, which may result in a change to this accrual. 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.
Other Environmental Matters
The Company has been notified by the Environmental Protection Agency that it is a potentially responsible party ("PRP") at a Superfund Site. At June 27, 2014, the Company had no amount accrued for this matter, as it is unable to estimate the amount of costs, if any, that might be incurred in connection with the remediation of this site. In making this determination, the Company considered the availability of the information related to the site; specifically, the continued identification of PRPs and the inability to determine the proportion of total responsibility attributable to each PRP. As more information is received, the Company will reassess its ability to estimate its portion of the cost for remediation, taking into consideration the financial resources of other PRPs involved in the site, their proportionate share of the total responsibility for waste at the site, the existence of insurance and the financial viability of the insurer.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
12. 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 period. The computation of diluted earnings per share reflects 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. |
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
In thousands, except per share amounts | | | | | | | | |
Earnings from continuing operations | | $ | 16,194 |
| | $ | 17,892 |
| | $ | 27,651 |
| | $ | 25,046 |
|
Earnings from discontinued operations, net of tax | | 379 |
| | — |
| | 379 |
| | — |
|
Net earnings | | $ | 16,573 |
| | $ | 17,892 |
| | $ | 28,030 |
| | $ | 25,046 |
|
| | | | | | | | |
Basic: | | | | | | | | |
Weighted average number of shares outstanding | | 27,039 |
| | 26,734 |
| | 26,981 |
| | 26,696 |
|
| | | | | | | | |
Earnings per share from continuing operations | | $ | 0.60 |
| | $ | 0.67 |
| | $ | 1.03 |
| | $ | 0.94 |
|
Earnings per share from discontinued operations | | 0.01 |
| | — |
| | 0.01 |
| | — |
|
Basic earnings per share | | $ | 0.61 |
| | $ | 0.67 |
| | $ | 1.04 |
| | $ | 0.94 |
|
Diluted: | | |
| | |
| | | | |
Weighted average number of shares outstanding | | 27,039 |
| | 26,734 |
| | 26,981 |
| | 26,696 |
|
Weighted average shares issuable on exercise of dilutive stock options | | 155 |
| | 140 |
| | 157 |
| | 152 |
|
Weighted average shares issuable on redemption of convertible notes | | 650 |
| | 25 |
| | 579 |
| | 129 |
|
Total | | 27,844 |
| | 26,899 |
| | 27,717 |
| | 26,977 |
|
| | | | | | | | |
Earnings per share from continuing operations | | $ | 0.59 |
| | $ | 0.67 |
| | $ | 1.00 |
| | $ | 0.93 |
|
Earnings per share from discontinued operations | | 0.01 |
| | — |
| | 0.01 |
| | — |
|
Diluted earnings per share | | $ | 0.60 |
| | $ | 0.67 |
| | $ | 1.01 |
| | $ | 0.93 |
|
Equity awards
For the three and six months ended June 27, 2014, respectively, 318,111 and 380,165 shares issuable under equity awards granted to employees were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period. For the three and six months ended June 28, 2013, respectively, 437,646 and 441,559 shares issuable under equity awards granted to employees were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period.
Convertible Notes
In November 2010, the Company issued Convertible Notes due on November 15, 2017, in the aggregate principal amount of $115.0 million. 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.
For the three-month and six-month periods ended June 27, 2014, and June 28, 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
12. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
Warrants
Excluded from the diluted earnings per share calculation for the three months and six months ended June 27, 2014, are 3,410,658 and 3,409,866, respectively, shares issuable under the warrants sold in connection with the Company’s convertible note offering as they would be anti-dilutive. For the three and six months ended June 28, 2013, respectively, 3,403,787 and 3,402,772, shares issuable under the warrants sold in connection with the Company’s convertible note offering were excluded from the diluted earnings per share calculation as they would be anti-dilutive.
13. 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 three-month and six-month periods ended June 27, 2014, was $2.0 million and $3.3 million, respectively. Share-based compensation expense recorded for the three-month and six-month periods ended June 28, 2013, was $1.9 million and $3.1 million, respectively.
During the first quarter of 2014, the Company issued stock awards totaling 10,934 shares with market and performance based conditions. The Company measured the cost of these awards based on their fair value at the date of grant 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 three months and six months ended June 27, 2014, was not material.
Stock option activity was as follows:
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 27, 2014 |
| | Options | | Weighted - average exercise price | | Options | | Weighted - average exercise price |
Options outstanding at beginning of period | | 1,000,655 |
| | $ | 30.64 |
| | 891,932 |
| | $ | 28.18 |
|
Granted | | — |
| | $ | — |
| | 186,885 |
| | $ | 39.22 |
|
Exercised | | (61,898 | ) | | $ | 24.19 |
| | (140,060 | ) | | $ | 23.55 |
|
Forfeited or expired | | (5,945 | ) | | $ | 34.67 |
| | (5,945 | ) | | $ | 34.67 |
|
Options outstanding at June 27, 2014 | | 932,812 |
| | $ | 31.05 |
| | 932,812 |
| | $ | 31.05 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
13. SHARE-BASED ARRANGEMENTS (CONTINUED)
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:
|
| | | | | | | | |
| | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 |
Expected option term (years) | | 5.1 |
| | 5.2 |
|
Expected volatility | | 37.5 | % | | 45.5 | % |
Risk-free interest rate | | 1.5 | % | | 0.9 | % |
Expected dividend yield | | 1.7 | % | | 2.0 | % |
Per share fair value of options granted | | $ | 11.60 |
| | $ | 12.38 |
|
There were no options granted for the three-month periods ended June 27, 2014 and June 28, 2013.
Restricted Stock Award and Restricted Stock Unit activity was as follows:
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 27, 2014 |
| | Restricted Stock | | Weighted- average grant date fair value | | Restricted Stock | | Weighted- average grant date fair value |
Restricted Stock outstanding at beginning of period | | 200,514 |
| | $ | 35.49 |
| | 188,647 |
| | $ | 31.83 |
|
Granted | | 35,901 |
| | $ | 41.56 |
| | 111,071 |
| | $ | 39.89 |
|
Vested | | (21,665 | ) | | $ | 39.70 |
| | (84,254 | ) | | $ | 31.64 |
|
Forfeited or expired | | (6,312 | ) | | $ | 30.66 |
| | (7,026 | ) | | $ | 30.47 |
|
Restricted Stock outstanding at June 27, 2014 | | 208,438 |
| | $ | 36.24 |
| | 208,438 |
| | $ | 36.24 |
|
14. 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 North America. 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 North America's manufacturing industry.
The Aerospace segment produces and/or markets widely used proprietary aircraft bearings and components; 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; support for the Company’s SH-2G Super Seasprite maritime helicopters and K-MAX® medium-to-heavy lift helicopters; and engineering services.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
14. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Summarized financial information by business segment is as follows:
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
In thousands | | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
Net sales: | | | | | | | | |
Distribution | | $ | 304,186 |
| | $ | 270,233 |
| | $ | 569,056 |
| | $ | 527,401 |
|
Aerospace | | 154,903 |
| | 161,492 |
| | 303,965 |
| | 292,399 |
|
Net sales | | $ | 459,089 |
| | $ | 431,725 |
| | $ | 873,021 |
| | $ | 819,800 |
|
Operating income: | | |
| | |
| | | | |
Distribution | | $ | 15,419 |
| | $ | 13,669 |
| | $ | 26,554 |
| | $ | 18,299 |
|
Aerospace | | 26,681 |
| | 28,678 |
| | 48,702 |
| | 49,589 |
|
Net loss on sale of assets | | (57 | ) | | (21 | ) | | (168 | ) | | (100 | ) |
Corporate expense | | (14,356 | ) | | (11,309 | ) | | (26,412 | ) | | (23,004 | ) |
Operating income from continuing operations | | 27,687 |
| | 31,017 |
| | 48,676 |
| | 44,784 |
|
Interest expense, net | | 3,297 |
| | 3,163 |
| | 6,406 |
| | 6,231 |
|
Other expense (income), net | | 297 |
| | 58 |
| | 499 |
| | 389 |
|
Earnings before income taxes from continuing operations | | 24,093 |
| | 27,796 |
| | 41,771 |
| | 38,164 |
|
Income tax expense | | 7,899 |
| | 9,904 |
| | 14,120 |
| | 13,118 |
|
Earnings from continuing operations | | $ | 16,194 |
| | $ | 17,892 |
| | $ | 27,651 |
| | $ | 25,046 |
|
The Company's Distribution segment acquired the operating assets of B.W. Rogers during the second quarter of 2014. This acquisition resulted in an increase to the segment's total assets, as compared to December 31, 2013.
|
| | | | | | | |
| June 27, 2014 | | December 31, 2013 |
In thousands | | | |
Identifiable assets: | | | |
Distribution | $ | 573,803 |
| | $ | 480,117 |
|
Aerospace | 573,093 |
| | 557,831 |
|
Corporate | 98,677 |
| | 102,683 |
|
Total assets | $ | 1,245,573 |
| | $ | 1,140,631 |
|
15. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in shareholders’ equity for the six months ended June 27, 2014, and June 28, 2013, respectively, were as follows:
|
| | | | | | | | |
| | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 |
|
In thousands | | | | |
Beginning balance | | $ | 511,292 |
| | $ | 420,193 |
|
Comprehensive income | | 30,896 |
| | 23,300 |
|
Dividends declared | | (8,652 | ) | | (8,549 | ) |
Employee stock plans and related tax benefit | | 4,639 |
| | 2,654 |
|
Purchase of treasury shares | | (843 | ) | | (644 | ) |
Share-based compensation expense | | 3,293 |
| | 3,065 |
|
Ending balance | | $ | 540,625 |
| | $ | 440,019 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
15. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED)
The components of accumulated other comprehensive income (loss) are shown below:
|
| | | | | | | | |
| | For the Three Months Ended |
| | June 27, 2014 | | June 28, 2013 |
In thousands | | | | |
Foreign currency translation: | | | | |
Beginning balance | | $ | (14,514 | ) | | $ | (21,029 | ) |
Net gain/(loss) on foreign currency translation | | 1,755 |
| | (244 | ) |
Reclassification to net income | | — |
| | — |
|
Other comprehensive income/(loss), net of tax | | 1,755 |
| | (244 | ) |
Ending balance | | $ | (12,759 | ) | | $ | (21,273 | ) |
| | | | |
Pension and other post-retirement benefits(a): | | | | |
Beginning balance | | (65,653 | ) | | (103,076 | ) |
Reclassification to net income | | | | |
Amortization of prior service cost, net of tax expense of $7 and $10, respectively | | 13 |
| | 15 |
|
Amortization of net loss, net of tax expense of $401 and $894, respectively | | 660 |
| | 1,461 |
|
Other comprehensive income/(loss), net of tax | | 673 |
| | 1,476 |
|
Ending balance | | $ | (64,980 | ) | | $ | (101,600 | ) |
| | | | |
Derivative instruments(b): | | | | |
Beginning balance | | (516 | ) | | (635 | ) |
Net loss on derivative instruments, net of tax expense (benefit) of ($122) and $105, respectively | | (88 | ) | | 172 |
|
Reclassification to net income, net of tax expense of $84 | | 88 |
| | — |
|
Other comprehensive income/(loss), net of tax | | — |
| | 172 |
|
Ending balance | | $ | (516 | ) | | $ | (463 | ) |
| | | | |
Total accumulated other comprehensive income (loss) | | $ | (78,255 | ) | | $ | (123,336 | ) |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
15. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED)
|
| | | | | | | | |
| | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 |
In thousands | | | | |
Foreign currency translation: | | | | |
Beginning balance | | $ | (14,219 | ) | | $ | (16,515 | ) |
Net gain/(loss) on foreign currency translation | | 1,460 |
| | (4,758 | ) |
Reclassification to net income | | — |
| | — |
|
Other comprehensive income/(loss), net of tax | | 1,460 |
| | (4,758 | ) |
Ending balance | | $ | (12,759 | ) | | $ | (21,273 | ) |
| | | | |
Pension and other post-retirement benefits(a): | | | | |
Beginning balance | | (66,317 | ) | | (104,551 | ) |
Reclassification to net income | | | | |
Amortization of prior service cost, net of tax expense of $17 and $20, respectively | | 28 |
| | 30 |
|
Amortization of net loss, net of tax expense of $793 and $1,790, respectively | | 1,309 |
| | 2,921 |
|
Other comprehensive income/(loss), net of tax | | 1,337 |
| | 2,951 |
|
Ending balance | | $ | (64,980 | ) | | $ | (101,600 | ) |
| | | | |
Derivative instruments(b): | | | | |
Beginning balance | | (585 | ) | | (524 | ) |
Net loss on derivative instruments, net of tax expense (benefit) of ($78) and $38, respectively | | (129 | ) | | 61 |
|
Reclassification to net income, net of tax expense of $119 | | 198 |
| | — |
|
Other comprehensive income/(loss), net of tax | | 69 |
| | 61 |
|
Ending balance | | $ | (516 | ) | | $ | (463 | ) |
| | | | |
Total accumulated other comprehensive income (loss) | | $ | (78,255 | ) | | $ | (123,336 | ) |
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.
(See Note 10, Pension Plans for additional information.)
(b) See Note 7, Derivative Financial Instruments, for additional information regarding our derivative instruments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three months and six months ended June 27, 2014 and June 28, 2013
(Unaudited)
16. INCOME TAXES
|
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
| | | | | | |
Effective Income Tax Rate | | 32.8 | % | | 35.6 | % | | 33.8 | % | | 34.4 | % |
The effective income tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings for the year. The decrease in the effective tax rate for the three-month and six-month periods ended June 27, 2014, as compared to the rates for the same periods in the prior year is primarily due to a reduction in the effective state tax rate and discrete tax benefits in the second quarter of 2014, which include the recognition of a foreign exchange loss and additional inventory-related tax benefits.
17. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of these financial statements. No material subsequent events were identified that require disclosure.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. It presents, in narrative form, information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results, and is designed to enable the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends and future prospects. It should be read in conjunction with our 2013 Annual Report on Form 10-K.
OVERVIEW OF BUSINESS
Kaman Corporation (the "Company") is comprised of two business segments:
| |
• | The Distribution segment is a leading power transmission, motion control, electrical and automation, and fluid power industrial distributor with operations throughout North America. 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 North America. |
| |
• | The Aerospace segment produces and/or markets proprietary aircraft bearings and components; 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; support for our SH-2G Super Seasprite maritime helicopters and K-MAX® manned and unmanned medium-to-heavy lift helicopters; and engineering design, analysis and certification services. |
Financial performance
| |
• | Net sales from continuing operations increased 6.3% and 6.5% for the three months and six months ended June 27, 2014, respectively, compared to the comparable periods in the prior year. |
| |
• | Earnings from continuing operations decreased 9.5% for the three months ended June 27, 2014, compared to the comparable period in the prior year. For the six months ended June 27, 2014, earnings from continuing operations increased 10.4% compared to the comparable period in the prior year. |
| |
• | Diluted earnings per share from continuing operations decreased to $0.59, a decrease of $0.08, or 11.9% for the three months ended June 27, 2014, compared to the comparable period in the prior year. For the six months ended June 27, 2014, diluted earnings per share from continuing operations increased to $1.00, an increase of $0.07, or 7.5% compared to the comparable period in the prior year. |
| |
• | Cash flows provided by operating activities of continuing operations for the six months ended June 27, 2014 were $11.8 million, $25.2 million more than the comparable period in the prior year. |
Significant events
| |
• | In July 2014, the Company announced that its Aerospace segment has been awarded follow-on orders totaling $13.9 million under Option 11 of the Joint Programmable Fuze ("JPF") program, raising the total under Option 11 to $55.8 million. |
| |
• | On July 3, 2014, the Company's Distribution segment reached a significant milestone by successfully implementing the new enterprise-wide business system at the Minarik Automation & Controls facilities. |
| |
• | On April 25, 2014, the Company completed the acquisition of specific assets of B.W. Rogers Company. |
| |
• | In April 2014, the first upgraded SH-2G(I) aircraft successfully completed its first test flight, a significant milestone in the program. |
| |
• | In April 2014, production of the Aerospace segment's specialty bearings in Germany was moved to a new state-of-the-art manufacturing facility in Höchstadt. |
| |
• | In March 2014, the Company completed the move of its U.K. Tooling facility to a purpose-built facility in Burnley Lancashire, United Kingdom. |
Outlook
We are raising the low end of the sales and operating income range for Distribution from $1,180 million to $1,190 million and 4.7% to 4.8%, respectively. This reflects the improved performance we have seen in our base business and the acquired assets of B.W. Rogers. At Aerospace, we are maintaining our sales expectations for the year; however, we have lowered the top end of our range for operating income from 17.0% to 16.7%. The reduction in the range is due to a shift in the anticipated product mix
for the year. Finally, we have increased our Free Cash Flow expectations for the year, largely reflecting lower than expected capital expenditures. Our updated outlook for 2014 is as follows:
| |
◦ | Sales of $1,190 million to $1,220 million |
| |
◦ | Operating margins of 4.8% to 5.2% |
| |
◦ | Sales of $640 million to $660 million |
| |
◦ | Operating margins of 16.5% to 16.7% |
| |
• | Interest expense of approximately $13.5 million |
| |
• | Corporate expense of approximately $52 million |
| |
• | Estimated annualized tax rate of approximately 35% |
| |
• | Depreciation and amortization expense of approximately $38 million |
| |
• | Capital expenditures of $30 million to $35 million |
| |
• | Free cash flow in the range of $50 million to $55 million |
The following table illustrates the calculation of "Free Cash Flow", a Non-GAAP financial measure:
|
| | | | | | | |
| 2014 Outlook |
In millions | | | |
Free Cash Flow(a): | | | |
Net cash provided by operating activities | $ | 80.0 |
| to | $ | 90.0 |
|
Expenditures for property, plant and equipment | 30.0 |
| to | 35.0 |
|
Free Cash Flow | $ | 50.0 |
| to | $ | 55.0 |
|
(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 on our consolidated statements of cash flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.
RESULTS OF OPERATIONS
Consolidated Results
Net Sales
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
| | (in thousands) |
Net sales | | $ | 459,089 |
| | $ | 431,725 |
| | $ | 873,021 |
| | $ | 819,800 |
|
$ change | | 27,364 |
| | 31,499 |
| | 53,221 |
| | 35,855 |
|
% change | | 6.3 | % | | 7.9 | % | | 6.5 | % | | 4.6 | % |
The following table details the components of the increase in net sales as a percentage of consolidated net sales:
|
| | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 27, 2014 |
Organic Sales(1): | | | | |
Distribution | | 1.9 | % | | 1.1 | % |
Aerospace | | (1.5 | )% | | 1.4 | % |
Total Organic Sales | | 0.4 | % | | 2.5 | % |
| | | | |
Sales by Recent Acquisitions: | | | | |
Distribution | | 5.9 | % | | 4.0 | % |
Aerospace | | — | % | | — | % |
Total Acquisition Sales | | 5.9 | % | | 4.0 | % |
| | | | |
% change in net sales | | 6.3 | % | | 6.5 | % |
(1) Sales contributed by acquisitions are included in organic sales beginning with the thirteenth month following the date of acquisition. See segment discussions below for additional information regarding the changes in net sales.
Gross Profit
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
| | (in thousands) |
Gross profit | | $ | 129,334 |
| | $ | 121,257 |
| | 244,195 |
| | 231,523 |
|
$ change | | 8,077 |
| | 7,425 |
| | 12,672 |
| | 13,091 |
|
% change | | 6.7 | % | | 6.5 | % | | 5.5 | % | | 6.0 | % |
% of net sales | | 28.2 | % | | 28.1 | % | | 28.0 | % | | 28.2 | % |
The increase in gross profit for the three months and six months ended June 27, 2014, as compared to the same periods in 2013 is attributable to the higher gross profit at our Distribution segment. The increase at Distribution was due to higher organic gross profit, which increased 2.8% and 1.9% for the three months and six months ended June 27, 2014, respectively, and the contribution of gross profit recorded by the 2013 and 2014 Distribution segment acquisitions. Offsetting the higher gross profit at our Distribution segment was a decrease in gross profit at our Aerospace segment, primarily related to the sales mix of our bearing products and lower margins on our tooling product sales. These decreases were partially offset by the gross profit associated with New Zealand SH-2G(I) program sales and missile fuzing sales.
Selling, General & Administrative Expenses (SG&A)
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | June 27, 2014 | | June 28, 2013 | | June 27, 2014 | | June 28, 2013 |
| | (in thousands) |
|