KAMAN CORPORATION

(KAMN)
  Report
Delayed Nyse  -  04:00 2022-08-17 pm EDT
34.44 USD   -2.35%
08/15Kaman Unit Secures $38 Million Award From Boeing For SLAM-ER Cruise Missile Program
MT
08/15Kaman Fuzing Receives Award From the Boeing Company for Standoff Land Attack Missile Expanded Response (SLAM-ER) Program
BU
08/15Kaman Corporation Announces Kaman Fuzing Receives Award from the Boeing Company for Standoff Land Attack Missile Expanded Response (SLAM-ER) Program
CI
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

KAMAN CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/04/2022 | 04:46pm EDT
Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide readers of our condensed consolidated
financial statements with the perspectives of management. It presents, in
narrative and tabular 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
an understanding of our businesses, strategies, current trends and future
prospects. It should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2021 ("2021 Form 10-K") and the Condensed
Consolidated Financial Statements included in Item 1 of this Form 10-Q.

OVERVIEW OF BUSINESS


Kaman Corporation ("the Company") conducts business through three business
segments:
•The Engineered Products segment serves the aerospace and defense, industrial
and medical markets providing sophisticated, proprietary aircraft bearings and
components; super precision, miniature ball bearings; and proprietary spring
energized seals, springs and contacts.
•The Precision Products segment serves the aerospace and defense markets
providing precision 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 heavy lift K-MAX® manned helicopter, the TITAN
UAV aerial system and the KARGO UAV unmanned aerial system, a purpose built
autonomous medium lift logistics vehicle.
•The Structures segment serves the aerospace and defense and medical end markets
providing sophisticated complex metallic and composite aerostructures for
commercial, military and general aviation fixed and rotary wing aircraft, and
medical imaging solutions.

Executive Summary

In the second quarter, consolidated net sales decreased by 11.9% to $160.8
million compared to the prior year, primarily due to a reduction in sales on our
safe and arm devices, partially offset by higher sales in our commercial,
business and general aviation products. Gross margin as a percentage of sales
decreased in the quarter to 32.4% compared to 34.0% in the prior year period,
due to cost growth on our Sikorsky UH-60 BLACK HAWK program and a decline in
profitability on our K-MAX® program. Selling, general and administrative
expenses ("S,G&A") increased by 1.4% primarily due to $2.0 million in higher
corporate development costs associated with the agreement to purchase
Parker-Hannifin Corporation's ("Parker") Aircraft Wheel and Brake division.
Operating income in the period decreased as a result of the drivers discussed
above, higher severance costs and an increase in research and development costs,
partially offset by the absence of costs related to the transition services
agreement ("TSA").

Other financial highlights


•Net earnings were $4.1 million and $8.1 million for the three-month and
six-month fiscal periods ended July 1, 2022, respectively, $7.8 million and
$11.7 million lower than the comparable fiscal periods in the prior year,
respectively. These reductions were primarily driven by a decrease in operating
income and lower non-service pension and post-retirement benefit income,
partially offset by lower interest expense. The resulting GAAP diluted earnings
per share was $0.14 and $0.29 in the three-month and six-month fiscal periods
ending July 1, 2022.
•Cash used in operating activities during the six-month fiscal period ended
July 1, 2022, was $27.0 million, $12.2 million more than the cash used in the
comparable fiscal period in the prior year. This change was largely driven by
timing of collection of payments on outstanding receivables in the prior year,
more specifically significant receipts on joint programmable fuze ("JPF") direct
commercial sales ("DCS") receivables, partially offset by the absence of
approximately $25.1 million in nonrecurring payments to eligible participants of
Bal Seal's employee retention plans implemented prior to our acquisition.
•Total unfulfilled performance obligations ("backlog") increased 10.6% to $774.9
million compared to total backlog at December 31, 2021, driven by new orders of
our bearings products and seals, springs and contacts, partially offset by
revenue recognized for the period.


                                       32
--------------------------------------------------------------------------------

Recent events


•In July 2022, Carroll K. Lane was appointed segment lead of the Precision
Products segment.
•In June 2022, we invested $10.0 million in Near Earth Autonomy, Inc. ("Near
Earth"), in exchange for a minority interest in its outstanding equity and one
seat on its Board of Directors.
•In June 2022, Niharika Taskar Ramdev was appointed to our Board of Directors.
•In May 2022, we entered into an asset purchase agreement with Parker, pursuant
to which we will acquire its Aircraft Wheel and Brake division for a total
purchase price of $440.0 million, subject to adjustments, payable in cash.
•In April 2022, our Board of Directors approved a share repurchase program
authorizing the repurchase of up to $50.0 million of our common stock.

Impacts from Current Economy


We are currently operating in a period of global economic uncertainty, which has
been significantly impacted by geopolitical instability due to the ongoing
military conflict between Ukraine and Russia, the coronavirus ("COVID-19")
pandemic and inflation and rising interest rates. U.S. and global markets are
experiencing volatility and disruption following the escalation of geopolitical
tensions, including the military conflict in Ukraine and the resulting sanctions
imposed on Russia. Although the length and impact of the ongoing military
conflict is highly unpredictable, the conflict in Ukraine could lead to market
disruptions, including significant volatility in credit and capital markets,
increases in commodity prices, supply chain interruptions, as well as the
potential for increased risk of cyber disruptions. We are continuing to monitor
the situation in Ukraine, including its global effects, and assessing its
potential impact on our business, including the timing of our sales as certain
customers purchase safety stock for their own supply chains. Although our
business has not been materially impacted by the ongoing military conflict in
Ukraine as of the date of this filing, it is impossible to predict the extent to
which our operations, or those of our customers or suppliers, will be impacted,
or the ways in which the conflict may impact our business, cash flows or results
of operations.

We also continue to monitor the impact of COVID-19 on all aspects of our
business and across the geographies in which we operate and serve customers, as
well as the extent to which it has impacted and will continue to impact our
customers, suppliers and other business partners. We are operating below
pre-pandemic levels for our commercial aerospace products and we have seen some
disruptions to our supply chain, such as delays in materials and components used
in our manufacturing process; however, we continue to meet the demands of our
customers. We are encouraged by the recoveries for these products and the strong
order intake we saw in the first six months of 2022; however, the developments
related to COVID-19 variants make it difficult to predict the timing and
magnitude of the recovery.

The U.S. economy is experiencing broad and rapid inflation and rising interest
rates, as well as supply issues in material, services and labor due to economic
policy, the pandemic and, more recently, the war in Ukraine. These impacts are
likely to persist through 2022 and beyond. We cannot predict the impact on the
Company's end markets or input costs nor the ability of the Company to recover
cost increases through pricing.


                                       33
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS


Refer to Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of the Quarterly Report on Form 10-Q for the period ended
July 2, 2021 for a discussion of changes for the earliest periods presented.

Net Sales

                                                     For the Three Months Ended                     For the Six Months Ended
                                                   July 1,                   July 2,              July 1,               July 2,
                                                    2022                       2021                 2022                 2021
                                                                                 (in thousands)
Net sales                                     $     160,766                $ 182,394          $    318,814           $  354,010
$ change                                            (21,628)                   4,504               (35,196)             (31,202)
% change                                              (11.9)  %                  2.5  %               (9.9)  %             (8.1) %

Sales of disposed businesses that did
not qualify for discontinued operations                   -                        -                     -                1,704
Organic sales                                 $     160,766                $ 182,394          $    318,814           $  352,306
$ change                                            (21,628)                                       (33,492)
% change                                              (11.9)  %                                       (9.5)  %


For the Three Months Ended


Net sales for the three-month fiscal period ended July 1, 2022 decreased when
compared to the corresponding period in 2021. The decrease in sales was
attributable to $30.3 million in lower sales in our Precision Products segment
and $2.2 million in lower sales at our Structures segment. The decrease in the
Precision Products segment was primarily driven by a $35.2 million reduction in
JPF sales due to lower volume in the current year. This decrease was due in part
to a $10.7 million JPF DCS delivery we had anticipated making in the second
quarter of 2022 which we now expect to occur in the third quarter. This shift to
the third quarter does not change our expectations for JPF for the full year.
These decreases were partially offset by an increase in sales at our Engineered
Products segment. Foreign currency exchange rates relative to the U.S. dollar
had an unfavorable impact of $4.0 million on net sales. See Segment Results of
Operations and Financial Condition below for further discussion of segment net
sales.

The table below summarizes the changes in organic net sales by product line for
the three-month fiscal period ended July 1, 2022, compared to the corresponding
period in 2021.

        Product Line                      Increase (Decrease)                   $ (in millions)                         %
Defense                                            ?                                $(7.7)                           (19.4)%
Safe and Arm Devices                               ?                                $(36.4)                          (62.8)%
Commercial, Business and                                                             $19.7                            48.0%
General Aviation                                   ?
Medical                                            ?                                 $2.1                             9.4%
Industrial                                         ?                                 $0.7                             3.2%



For the Six Months Ended

Net sales for the six-month fiscal period ended July 1, 2022 decreased when
compared to the corresponding period in 2021, primarily due to a 9.5% decrease
in organic sales and $1.7 million in lower sales due to the sale of our former
United Kingdom ("UK") Composites business in early 2021. The decrease in organic
sales was attributable to $43.3 million in lower sales in our Precision Products
segment and $10.7 million in lower organic sales at our Structures segment. The
decrease in the Precision Products segment was primarily driven by a $37.8
million reduction in JPF sales due to lower volume in the current year, as
discussed above. These decreases were partially offset by an increase in sales
at our Engineered Products segment. Foreign currency exchange rates relative to
the U.S. dollar had an unfavorable impact of $6.0 million on net sales. See
Segment Results of Operations and Financial Condition below for further
discussion of segment net sales.
                                       34
--------------------------------------------------------------------------------


The table below summarizes the changes in organic net sales by product line for
the six-month fiscal period ended July 1, 2022, compared to the corresponding
period in 2021.

        Product Line                      Increase (Decrease)                   $ (in millions)                         %
Defense                                            ?                                $(19.1)                          (23.2)%
Safe and Arm Devices                               ?                                $(40.7)                          (40.9)%
Commercial, Business and                                                             $19.4                            22.0%
General Aviation                                   ?
Medical                                            ?                                 $4.7                             10.8%
Industrial                                         ?                                 $2.2                             5.7%



Gross Profit

                                For the Three Months Ended               For the Six Months Ended
                              July 1,                   July 2,          July 1,           July 2,
                               2022                      2021              2022              2021
                                                        (in thousands)
     Gross profit        $      52,107                $ 61,946       $    102,694        $ 114,851
     $ change                   (9,839)                  5,278            (12,157)          (9,519)
     % change                    (15.9)  %                 9.3  %           (10.6)  %         (7.7) %
     % of net sales               32.4   %                34.0  %            32.2   %         32.4  %



For the Three Months Ended

Gross profit decreased for the three-month fiscal period ended July 1, 2022, as
compared to the corresponding period in 2021. This decrease was primarily
attributable to reductions in JPF sales as discussed above, lower sales and
associated gross profit on our defense bearings products, and lower gross margin
on certain structures programs. These decreases, totaling $17.6 million, were
partially offset by higher sales and associated gross profit on our springs,
seals and contacts, commercial bearings products and aftermarket parts.

Gross profit as a percentage of sales decreased for the three-month fiscal
period ended July 1, 2022, as compared to the corresponding period in 2021. This
decrease was primarily attributable to cost growth on our Sikorsky UH-60 BLACK
HAWK program and a decline in profitability of our K-MAX® program. These
decreases were partially offset by improved performance on certain composite
programs.

For the Six Months Ended

Gross profit decreased for the six-month fiscal period ended July 1, 2022, as
compared to the corresponding period in 2021. This decrease was primarily
attributable to reductions in JPF sales as discussed above and lower sales and
associated gross profit on our defense bearings products and our K-MAX® program.
These decreases, totaling $26.7 million, were partially offset by higher sales
and associated gross profit on commercial bearings products, aftermarket parts
and on our springs, seals and contacts used in medical implantables and medical
devices.

Gross profit as a percentage of sales remained relatively flat for the six-month
fiscal period ended July 1, 2022, as compared to the corresponding period in
2021. This was primarily attributable to the mix of JPF sales in the period and
cost growth on our Sikorsky UH-60 BLACK HAWK program and a decline in
profitability of our K-MAX® program, mostly offset by improved performance on
certain composite programs.


                                       35
--------------------------------------------------------------------------------

Selling, General & Administrative Expenses (S,G&A)


                             For the Three Months Ended                 For 

the Six Months Ended

                           July 1,                   July 2,          July 1,                 July 2,
                            2022                      2021              2022                   2021
                                                       (in thousands)
  S,G&A               $      39,250                $ 38,719       $     78,971              $ 76,847
  $ change                      531                     323              2,124               (14,877)
  % change                      1.4   %                 0.8  %             2.8   %             (16.2) %
  % of net sales               24.4   %                21.2  %            24.8   %              21.7  %



S,G&A remained relatively flat for the three-month fiscal period ended July 1,
2022, when compared to the corresponding period in 2021. This was primarily
attributable to $2.0 million in higher corporate development costs associated
with the agreement to purchase Parker's Aircraft Wheel and Brake division and an
increase in group insurance costs, mostly offset by a decrease in compensation
expense as we realize the benefits from our cost reduction efforts in the prior
year.

S,G&A increased for the six-month fiscal period ended July 1, 2022, when
compared to the corresponding period in 2021. This was primarily attributable to
$2.1 million in higher corporate development costs associated with the agreement
to purchase Parker's Aircraft Wheel and Brake division, an increase in group
insurance and higher travel expenses as restrictions imposed to limit the spread
of COVID-19 are lifting. These increases were partially offset by a decrease in
compensation expense as we realize the benefits from our cost reduction efforts
in the prior year.

Costs from Transition Service Agreement

                                                  For the Three Months Ended                 For the Six Months Ended
                                                 July 1,               July 2,             July 1,              July 2,
                                                   2022                 2021                 2022                2021
                                                                            (in thousands)
Costs from transition services
agreement                                    $           -          $      999          $         -          $    1,704



Upon closing the sale of our former Distribution business, the Company entered
into a TSA with the buyer, pursuant to which the Company agreed to support the
information technology ("IT"), human resources and benefits, tax and treasury
functions of the Distribution business for six to twelve months. The buyer
exercised an option to extend the support period for up to one additional year
for certain services. During the third quarter of 2021, the TSA expired and all
services were completed as of the end of the period. As such, there were no
costs incurred associated with TSA and no income earned from the TSA in the
three-month and six-month fiscal periods ended July 1, 2022. The Company
incurred $1.0 million and $1.7 million in costs associated with the TSA, which
were partially offset by $0.4 million and $0.9 million in income earned from the
TSA in the three-month and six-month fiscal periods ended July 2, 2021,
respectively. The income earned from the TSA was included below operating income
in income from transition services agreement on the Company's Condensed
Consolidated Statement of Operations.

Restructuring and Severance Costs

                                                     For the Three Months Ended                  For the Six Months Ended
                                                     July 1,              July 2,              July 1,               July 2,
                                                      2022                  2021                 2022                 2021
                                                                                (in thousands)
Restructuring and severance costs               $        2,927          $   

1,516 $ 3,096 $ 2,868




The Company has identified workforce reductions and other reductions in certain
general and administrative expenses which resulted in $1.9 million and
$2.1 million in restructuring and severance costs in the three-month and
six-month fiscal periods ended July 1, 2022, respectively. In the three-month
and six-month fiscal periods ended July 2, 2021, the Company incurred
$1.5 million and $2.9 million in restructuring and severance costs associated
with cost reduction efforts. These costs were included in restructuring and
severance costs on the Company's Condensed Consolidated Statements of
Operations. Actions taken throughout 2021 and 2022 have started to generate
savings in the first half of 2022, with total annualized cost savings of
approximately $11.9 million being realized by 2024.
                                       36
--------------------------------------------------------------------------------

In addition to the restructuring and severance costs discussed above, in the three-month and six-month fiscal periods ended July 1, 2022, the Company incurred $1.0 million in other severance expense.

Loss on Sale of Business

                                                            For the Three Months Ended                  For the Six Months Ended
                                                           July 1,               July 2,              July 1,              July 2,
                                                            2022                   2021                 2022                 2021
                                                                                       (in thousands)
Loss on sale of business                              $            -          $         -          $         -          $       234



In 2020, we received approval from our Board of Directors to sell our UK
Composites business. In the fourth quarter of 2020, we accrued a loss of $36.3
million on the anticipated sale. In the first quarter of 2021, we closed on a
transaction to sell the UK Composites business. We recorded an additional loss
of $0.2 million in the first quarter of 2021 when the sale was finalized.

Operating Income

                               For the Three Months Ended                 

For the Six Months Ended

                            July 1,                    July 2,          July 1,                 July 2,
                              2022                      2021             2022                    2021
                                                         (in thousands)
Operating income        $      2,280                 $ 14,832       $    
5,337               $ 20,445
$ change                     (12,552)                  17,602           (15,108)                27,637
% change                       (84.6)  %                635.5  %          (73.9)  %              384.3  %
% of net sales                   1.4   %                  8.1  %            1.7   %                5.8  %



Operating income decreased for the three-month and six-month fiscal periods
ended July 1, 2022, as compared to the corresponding periods in 2021. These
decreases were primarily driven by lower operating income at the Precision
Products segment and higher severance costs, partially offset by higher
operating income at the Engineered Products segment and the absence of costs
related to the TSA. In the three-month and six-month fiscal periods ended
July 1, 2022, foreign currency exchange rates relative to the U.S. dollar had an
unfavorable impact of $0.2 million and $0.3 million, respectively, on operating
income. See Segment Results of Operations and Financial Condition below for
further discussion of segment operating income.

Interest Expense, Net

                                                         For the Three Months Ended                  For the Six Months Ended
                                                         July 1,              July 2,              July 1,               July 2,
                                                          2022                  2021                 2022                 2021
                                                                                    (in thousands)
Interest expense, net                               $        1,993          $   4,335          $       4,474          $    8,586



Interest expense, net, generally consists of interest charged on our Credit
Agreement, which includes a revolving credit facility, our convertible notes and
the amortization of debt issuance costs, offset by interest income. The decrease
in interest expense, net for the three-month and six-month fiscal periods ended
July 1, 2022 was primarily attributable to lower interest expense associated
with our deferred compensation plan and $0.8 million and $1.5 million in lower
interest on our convertible notes, respectively, which was a result of the
adoption of Accounting Standard Update ("ASU") 2020-06 on January 1, 2022. Refer
to Note 2, Recent Accounting Standards, for further information on the adoption
of ASU 2020-06.


                                       37
--------------------------------------------------------------------------------

Effective Income Tax Rate

                                                   For the Three Months Ended                      For the Six Months Ended
                                                July 1,                 July 2,                July 1,                 July 2,
                                                  2022                   2021                    2022                    2021

Effective income tax rate                            12.1  %                 31.7  %                18.7  %                  22.3  %



The effective income tax rate represents the combined federal, state and foreign
tax effects attributable to pretax earnings for the period. The decrease in the
effective tax rate for the three-month and six-month fiscal periods ended
July 1, 2022 to the corresponding rates in the prior year were driven by state
tax benefits and lower net earnings in the current period. In addition, for the
three-month fiscal period, the decrease was primarily caused by a discrete
benefit recorded in the prior period related to the sale of the Company's former
UK Composites business.

SEGMENT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Engineered Products Segment

Results of Operations
                               For the Three Months Ended               For the Six Months Ended
                             July 1,                   July 2,          July 1,           July 2,
                              2022                      2021              2022              2021
                                                       (in thousands)
Net sales               $      89,765                $ 78,956       $    171,217        $ 150,735
$ change                       10,809                   7,018             20,482           (6,979)
% change                         13.7   %                 9.8  %            13.6   %         (4.4) %

Operating income        $      15,467                $  9,758       $     26,509        $  14,664
$ change                        5,709                   4,106             11,845           (1,568)
% change                         58.5   %                72.6  %            80.8   %         (9.7) %
% of net sales                   17.2   %                12.4  %            15.5   %          9.7  %



Net Sales

Net sales for the three-month and six-month fiscal periods ended July 1, 2022
increased compared to the corresponding periods in 2021, driven by higher sales
volume of our commercial bearings products, aftermarket parts and springs, seals
and contacts used in medical implantables and industrial applications. These
improvements, totaling $14.5 million and $23.5 million, respectively, were
partially offset by lower sales volume of our defense bearings products.

Operating Income


Operating income for the three-month and six-month fiscal periods ended July 1,
2022 increased when compared to 2021, primarily due to higher sales and
associated gross profit on our seals, springs and contacts used in medical
implantables, aftermarket parts and commercial bearings products. These
increases in gross profit of $9.6 million and $15.4 million, respectively, were
partially offset by lower sales volume and associated gross profit of our
defense bearings products.


                                       38
--------------------------------------------------------------------------------

Precision Products Segment

Results of Operations
                               For the Three Months Ended                 For the Six Months Ended
                             July 1,                   July 2,          July 1,               July 2,
                              2022                      2021             2022                   2021
                                                         (in thousands)
Net sales               $      41,267                $ 71,539       $    88,816             $ 132,072
$ change                      (30,272)                  5,047           (43,256)               (1,282)
% change                        (42.3)  %                 7.6  %          (32.8)  %              (1.0) %

Operating income        $       2,550                $ 19,429       $     5,959             $  32,482
$ change                      (16,879)                  1,017           (26,523)               (1,523)
% change                        (86.9)  %                 5.5  %          (81.7)  %              (4.5) %
% of net sales                    6.2   %                27.2  %            6.7   %              24.6  %



Net Sales

Net sales for the three-month and six-month fiscal periods ended July 1, 2022
decreased when compared to 2021, primarily due to reductions of $35.2 million
and $37.8 million, respectively, in JPF sales due to lower volume in the current
year. These decreases were due in part to a $10.7 million JPF DCS delivery we
had anticipated making in the second quarter of 2022 which we now expect to
occur in the third quarter. This shift to the third quarter does not change our
expectations for JPF for the full year. Additionally contributing to the
decrease was lower sales on certain legacy fuzing programs. These decreases were
partially offset by higher sales on the AMRAAM® fuzing program. In the
three-month fiscal period, these decreases were also partially offset by the
sale of a K-MAX® aircraft in the current period.

Operating Income


Operating income for the three-month and six-month fiscal periods ended July 1,
2022 decreased when compared to 2021, primarily attributable to $15.3 million
and $23.4 million in lower gross profit, respectively, driven by the impact of
JPF sales discussed above and higher research and development costs for the
KARGO UAV unmanned aerial system. Additionally, in the six-month fiscal period
ended July 1, 2022, lower gross profit on the K-MAX® program and the SH-2G
program for New Zealand contributed to the decline in operating income.

Major Programs/Product Lines


Below is a discussion of significant changes in major programs within the
Precision Products segment during the first six months of 2022. See our 2021
Form 10-K, including Item 1A, "Risk Factors", for a complete discussion of our
major programs.

FMU-152 A/B - 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. Sales of these fuzes
can be direct to the USG, Foreign Military Sales ("FMS") through the USG and
Direct Commercial Sales ("DCS") to foreign militaries that, although not funded
by or sold through the USG, require regulatory approvals from the USG.

A total of 4,019 fuzes were delivered to our customers during the second quarter
of 2022, bringing the year-to-date total to 10,039 fuzes for the six-month
fiscal period ended July 1, 2022. We expect to deliver 25,000 to 30,000 fuzes in
2022. Total JPF backlog at July 1, 2022 was $65.5 million, down from $103.4
million at December 31, 2021. Of the $65.5 million in backlog at July 1, 2022,
no amounts require the receipt of export approvals, licenses or authorizations
from the USG before we are permitted to ship the fuzes outside of the United
States.

Our JPF program continues to move through its product lifecycle, reflecting the
previously announced decision of the United States Air Force ("USAF") to move to
the FMU-139 D/B (which we do not produce) as its primary fuze system. During
2022, we completed the requirements under Option 15, which related solely to the
procurement of fuzes by 25 foreign militaries and, and, in 2022, we began to
satisfy the requirements under Option 16 which has an expected total value of
approximately $43.0
                                       39
--------------------------------------------------------------------------------

million. Similar to Option 15, this order relates solely to the procurement of
fuzes by or in support of foreign militaries and does not include any sales to
the USAF. Option 16 extends FMU-152 A/B production into 2023. We have been
advised by our customer that Option 16 will be the last order under our JPF
contract with the USG. While we do not expect the close-out of our JPF contract
with the USG to adversely impact our ability to continue to market the FMU-152
A/B directly to foreign militaries in direct commercial sales transactions, in
the event the foreign militaries move to the FMU-139 D/B, our financial
condition and results of operations would be materially adversely impacted. We
are currently in discussions with a Middle Eastern customer for one or more
follow-on orders aggregating to a minimum of $45.0 million. The final value of
these orders will be dependent on volume and pricing agreed upon in the
completed contracts. If received, these orders would continue to extend the life
of the program. DCS orders are subject to export approvals, licenses, or
authorizations. The timing and receipt of any such export approvals, licenses,
or authorizations are subject to political and geopolitical conditions that are
beyond our control.

Structures Segment

Results of Operations
                            For the Three Months Ended                 For the Six Months Ended
                          July 1,                   July 2,          July 1,                 July 2,
                           2022                      2021              2022                   2021
                                                      (in thousands)
Net sales            $      29,734                $ 31,899       $     58,781              $ 71,203
$ change                    (2,165)                 (7,561)           (12,422)              (22,941)
% change                      (6.8)  %               (19.2) %           (17.4)  %             (24.4) %

Operating loss       $        (830)               $ (1,521)      $     (1,447)             $ (1,201)
$ change                       691                     285               (246)               (2,749)
% change                      45.4   %               (15.8) %           (20.5)  %            (177.6) %
% of net sales                (2.8)  %                (4.8) %            (2.5)  %              (1.7) %



Net Sales

Net sales for the three-month and six-month fiscal periods ended July 1, 2022
decreased when compared to 2021, primarily due to the wind down of the AH-1Z
program, lower sales on certain composites programs and the disruption of
incoming material due to a fire at one of the suppliers for our Sikorsky UH-60
BLACK HAWK program. Additionally, in the six-month fiscal period, lower sales on
the A-10 program and the absence of sales from our former UK Composites business
contributed to the decrease. These decreases, totaling $8.3 million and $18.1
million, respectively, were partially offset by higher sales on our programs
with Rolls Royce, the Sikorsky Combat Rescue Helicopter program, certain
structures programs and our imaging program.

Operating Loss


The Structures segment incurred a lower operating loss for the three-month
fiscal period ended July 1, 2022 compared to the comparable period in 2021. This
change was primarily due to higher sales and gross profit on our Sikorsky Combat
Rescue Helicopter program, our imaging program, and certain composite programs.
These increases in gross profit of $1.7 million were partially offset by lower
sales and associated gross profit on the Sikorsky UH-60 BLACK HAWK program and
the AH-1Z program.

The Structures segment incurred a higher operating loss for the six-month fiscal
period ended July 1, 2022 compared to the comparable period in 2021. This change
was primarily due to lower sales and associated gross profit on the AH-1Z
program, our Sikorsky UH-60 BLACK HAWK program and certain composite programs.
These decreases in gross profit of $3.2 million were partially offset by higher
sales and gross profit on our programs with Rolls Royce, the Sikorsky Combat
Rescue Helicopter program, and certain composite programs.


                                       40
--------------------------------------------------------------------------------
Backlog

                             July 1,       December 31,
                               2022            2021
                                   (in thousands)
Engineered Products        $ 224,563      $     169,144
Precision Products           196,406            180,082
Structures                   353,939            351,697
 Total Backlog             $ 774,908      $     700,923



The increase in backlog during the first six months of 2022 was primarily
attributable to new orders for our bearings products, our seals, springs and
contacts, and our SLAM-ER fuzing program. These increases were partially offset
by revenue recognized on the JPF program with the USG and deliveries of our
bearings products and springs, seals and contacts.

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 requirements 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 and programs,
acquisitions, divestitures, dividends, availability of future credit, share
repurchase programs, 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 our 2021 Form 10-K.

A summary of our consolidated cash flows is as follows:


                                                                              For the Six Months Ended
                                                                 July 1,            July 2,
                                                                   2022               2021             2022 vs. 2021
                                                                                   (in thousands)
Total cash provided by (used in):
Operating activities                                           $ (26,954)         $ (14,723)         $      (12,231)
Investing activities                                             (19,179)           (12,201)                 (6,978)
Financing activities                                             (13,778)           (10,620)                 (3,158)

Free Cash Flow (a)
Net cash provided by (used in) operating activities            $ (26,954)         $ (14,723)         $      (12,231)
Expenditures for property, plant and equipment                   (10,520)            (8,102)                 (2,418)
Free cash flow                                                 $ (37,474)         $ (22,825)         $      (14,649)


(a) Free Cash Flow, a non-GAAP financial measure, is defined as net cash (used
in) provided by operating activities less expenditures for property, plant and
equipment, both of which are presented in our Condensed Consolidated Statements
of Cash Flows. See Management's Discussion and Analysis of Financial Condition
and Results of Operations-Non-GAAP Financial Measures for more information
regarding Free Cash Flow.

Net cash used in operating activities was $27.0 million for the six-month fiscal
period ended July 1, 2022, $12.2 million more than cash used in the comparable
period in 2021. This change was largely driven by the timing of collection of
payments on outstanding receivables, more specifically significant receipts on
JPF DCS receivables in the prior year, and lower net earnings in the current
period, partially offset by the absence of approximately $25.1 million in
nonrecurring payments to eligible participants of Bal Seal's employee retention
plans, a $10.0 million pension contribution paid in the prior year and the
timing of accounts payable.

Net cash used in investing activities was $19.2 million for the six-month fiscal
period ended July 1, 2022, $7.0 million more than cash used in the comparable
period in 2021. This change was primarily attributable to our $10.0 million
investment in Near Earth Autonomy in the current period and higher capital
expenditures, partially offset by the cash impact of the sale of our former UK
Composites business in the prior year.

                                       41
--------------------------------------------------------------------------------

Net cash used in financing activities was $13.8 million for the six-month fiscal
period ended July 1, 2022, $3.2 million more than cash used in the comparable
period in 2021. This change was primarily due to debt issuance costs associated
with the amendment to our revolving credit agreement, described more fully in
Note 13, Debt.

We anticipate a variety of items will have an impact on our liquidity during the
next twelve months, in addition to our working capital requirements. These could
include one or more of the following:

•the matters described in Note 15, Commitments and Contingencies, in the Notes
to Consolidated Financial Statements, including the cost of existing
environmental remediation matters;
•contributions to our qualified pension plan and Supplemental Employees'
Retirement Plan ("SERP");
•deferred compensation payments to officers;
•interest payments on outstanding debt;
•income tax payments;
•costs associated with acquisitions and corporate development activities,
including the funding of our Aircraft Wheel and Brake acquisition;
•finance and operating lease payments;
•capital expenditures;
•research and development expenditures;
•repurchase of common stock under share repurchase programs;
•payment of dividends;
•costs associated with the start-up of new programs; and
•the timing of payments and the extension of payment terms by our customers.

Financing Arrangements


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 future cash requirements; however, we may decide to borrow
additional funds or raise additional equity capital to support other business
activities, including potential future acquisitions. We regularly monitor credit
market conditions to identify potential issues that may adversely affect, or
provide opportunities for, the securing and/or advantageous pricing of
additional financing, if any, that may be necessary to continue with our growth
strategy and finance working capital requirements. Refer to Note 14, Debt, in
the Notes to the Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data, of the 2021 Form 10-K for further
information on our Financing Arrangements.

Convertible Notes


During May 2017, we issued $200.0 million aggregate principal amount of
convertible senior unsecured notes due May 2024 (the "2024 Notes") pursuant to
an indenture, dated May 12, 2017, between the Company and U.S. Bank National
Association, as trustee (as amended by the First Supplemental Indenture thereto,
dated July 15, 2019, the "Indenture"). In connection therewith, we entered into
certain capped call transactions that cover, collectively, the number of shares
of the Company's common stock underlying the 2024 Notes. The 2024 Notes bear
3.25% interest per annum on the principal amount, payable semiannually in
arrears on May 1 and November 1 of each year, beginning on November 1, 2017. The
2024 Notes will mature on May 1, 2024, unless earlier repurchased by the Company
or converted. We will settle any conversions of the 2024 Notes in cash, shares
of the Company's common stock or a combination of cash and shares of common
stock, at our election.

The sale of our former Distribution business in the third quarter of 2019 was
deemed to be a "Fundamental Change" and a "Make-Whole Fundamental Change"
pursuant to the terms and conditions of the indenture governing the 2024 Notes.
As a result, the sale triggered the right of the holders of our 2024 Notes to
require us to repurchase all of the 2024 Notes, or any portion thereof that is a
multiple of $1,000 principal amount on September 27, 2019. The aggregate
principal amount of the 2024 Notes validly tendered and not validly withdrawn
was $0.5 million, representing approximately 0.25% of all outstanding notes.
Holders of such notes received the repurchase price equal to 100% of the
principal amount of the 2024 Notes being purchase, plus accrued and unpaid
interest.

We incurred $7.4 million of debt issuance costs in connection with the sale of
the 2024 Notes, which were allocated between the debt and equity components of
the instrument at issuance. Of the total amount, $0.7 million was recorded as an
offset to additional paid-in capital. The balance, $6.7 million, was recorded as
a contra-debt balance and was being amortized over the term of the 2024 Notes.
As a result of the adoption of ASU 2020-06, the amount recorded to additional
paid-in capital was reclassified to retained earnings in the cumulative effect
adjustment recorded on January 1, 2022. The remaining balance of debt issuance
costs is being amortized over the term of the convertible notes. Total
amortization expense for the three-month
                                       42
--------------------------------------------------------------------------------

and six-month fiscal periods ended July 1, 2022 and July 2, 2021 was $0.3 million and $0.5 million, respectively. Refer to Note 2, Recent Accounting Standards, for further information on the adoption and impacts of ASU 2020-06.

Credit Agreement


On December 13, 2019, the Company closed an amended and restated $800.0
million Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank,
N.A., as Administrative Agent and as Collateral Agent. The Credit Agreement
matures on December 13, 2024 and consists of revolving commitments of $800.0
million. Capitalized terms used but not defined within this discussion of the
Credit Agreement have the meanings ascribed thereto in the Credit Agreement,
which with amendments is included as Exhibit 10.43 to our 2021 Form 10-K.

Interest rates on amounts outstanding under the Credit Agreement are variable
based on LIBOR. The LIBOR benchmark has been the subject of national,
international, and other regulatory guidance and proposals for reform. These
reforms may cause LIBOR to perform differently than in the past, and LIBOR may
ultimately cease to exist. Alternative benchmark rate(s) may replace LIBOR and
could affect the Company's debt securities, derivative instruments, receivables,
debt payments and receipts. An alternative rate may create additional basis risk
for market participants as an alternative index is utilized alongside LIBOR. Key
regulatory authorities have requested that banks cease entering into new
contracts that use USD LIBOR as a reference rate, and do not permit new or
existing non-USD LIBOR borrowings, by no later than December 31, 2021.
Additionally, the Alternative Reference Rates Committee has recommended
replacing USD LIBOR with the Secured Overnight Financing Rate ("SOFR"), which is
calculated by short-term repurchase agreements. There can be no guarantee that
SOFR will become widely used, or that any alternatives may or may not be
developed.

In 2021, the Company amended its Credit Agreement to move its LIBOR benchmark
for non-USD borrowings to other non-USD benchmark rates. Future USD borrowings
under our current Credit Agreement will continue be based on LIBOR. At this
time, it is not possible to predict the effect of any changes to LIBOR, the
phase out of LIBOR or any establishment of alternative benchmark rates. Any new
benchmark rate will likely not replicate LIBOR exactly, which could impact our
contracts that terminate after 2023. There is uncertainty about how applicable
law, the courts or the Company will address the replacement of LIBOR with
alternative rates on variable rate retail loan contracts and other contracts
that do not include alternative rate fallback provisions.

On May 31, 2022, the Credit Agreement was further amended to, among other
things, adjust the Total Net Leverage Ratio financial covenant in anticipation
of the consummation of the announced acquisition of Parker's Aircraft Wheel and
Brake division. Refer to Note 13, Debt, for further information on this
amendment.

No amounts were outstanding under the revolving credit facility in the second
quarter of 2022; therefore, the interest rate for the period was 0%. We are
required to pay a quarterly commitment fee on the unused revolving loan
commitment amount at a rate ranging from 0.150% to 0.250% per annum, based on
the Senior Secured Net Leverage Ratio. Fees for outstanding letters of credit
range from 1.125% to 1.625%, based on the Senior Secured Net Leverage Ratio.
There were no bank borrowings during the six-month fiscal period ended July 1,
2022 and the year ended December 31, 2021.


                                       43
--------------------------------------------------------------------------------

The following table shows the amounts available for borrowing under the Company's revolving credit facility:

                                                                       July 1,            December 31,
                                                                        2022                  2021
In thousands
Total facility                                                      $  800,000          $     800,000
Amounts outstanding, excluding letters of credit                             -                      -

Amounts available for borrowing, excluding letters of credit 800,000

                800,000
Letters of credit under the credit facility(1)(2)                       51,630                 92,646
Amounts available for borrowing                                     $  

748,370 $ 707,354

Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement(3)

                                          $  

283,416 $ 409,914



(1) The Company has entered into standby letters of credit issued on the
Company's behalf by financial institutions, and directly issued guarantees to
third parties primarily related to advances received from customers and the
guarantee of future performance on certain contracts. Letters of credit
generally are available for draw down in the event the Company does not perform
its obligations.
(2) Of these amounts, $46.1 million and $86.3 million letters of credit relate
to a JPF DCS contract in the periods ended July 1, 2022 and December 31, 2021.
(3) Amounts available for borrowing subject to EBITDA reflect the minimum
borrowing capacity under EBITDA, subject to adjustments. On May 31, 2022, the
Credit Agreement was further amended to, among other things, adjust the Total
Net Leverage Ratio financial covenant in anticipation of the consummation of the
announced acquisition of Parker's Aircraft Wheel and Brake division. If our
Total Net Leverage Ratio was adjusted to 5.00 to 1.00 as of July 1, 2022, the
amount available for borrowing subject to EBITDA would be $395.5 million. Refer
to Note 13, Debt, for further information on this amendment.

Debt issuance costs in connection with the Credit Agreement have been
capitalized and are being amortized over the term of the agreement. In 2019, we
incurred $3.6 million of debt issuance costs in connection with the amendment
and restatement of the Credit Agreement. An additional $4.2 million of debt
issuance costs were incurred in connection with the amendment of the Credit
Agreement in 2022. Total amortization expense for the three-month fiscal periods
ended July 1, 2022 and July 2, 2021 was $0.3 million and $0.2 million,
respectively. Total amortization expense for the six-month fiscal periods ended
July 1, 2022 and July 2, 2021 was $0.5 million and $0.4 million, respectively.

Other Sources/Uses of Capital

Near Earth Autonomy


Concurrent with the $10.0 million investment we made into Near Earth Autonomy,
we entered into a Master Technology Maturation Agreement for a five-year initial
term. The agreement requires the Company to contract with Near Earth Autonomy
for a minimum spend of $1.0 million per year of the Company's own funds or $2.0
million per year from any source of revenue arranged by the Company.

Letters of Credit


Of the standby letters of credit under our credit facility, $46.1 million in
letters of credit relate to a JPF DCS contract, including the offset agreement.
In the event that we default on the contract and we are unable to fulfill our
contractual obligations, our customer has the ability to draw on the letters of
credit.

Pension Plans

Management regularly monitors pension plan asset performance and the assumptions
used in the determination of our benefit obligation, comparing them to actual
performance. We continue to believe the assumptions selected are valid due to
the long-term nature of our benefit obligation.

No contributions are expected to be made to the qualified pension plan during
2022. The Company contributed $0.3 million to the SERP through the end of the
second quarter of 2022 and plans to contribute an additional $0.2 million to the
SERP in 2022. For the 2021 plan year, the Company contributed $10.0 million to
the qualified pension plan and $2.7 million to the SERP.

Effective December 31, 2015, our qualified pension plan was frozen with respect
to future benefit accruals. Under USG Cost Accounting Standard ("CAS") 413, we
must calculate the USG's share of any pension curtailment adjustment calculated
resulting from the freeze. Such adjustments can result in an amount due to the
USG for pension plans that are in a surplus
                                       44
--------------------------------------------------------------------------------

position or an amount due to the contractor for plans that are in a deficit
position. During the fourth quarter of 2016, we accrued a $0.3 million liability
representing our estimate of the amount due to the USG based on our pension
curtailment calculation, which was submitted to the USG for review in December
2016. We have maintained our accrual at $0.3 million as of July 1, 2022. There
can be no assurance that the ultimate resolution of this matter will not have a
material adverse effect on our results of operations, financial position and
cash flows.

Share-based Arrangements

As of July 1, 2022, future compensation costs related to non-vested stock options, restricted stock grants and performance stock grants is $12.9 million. The Company anticipates that this cost will be recognized over a weighted-average period of 2.1 years.

Stock Repurchase Plans


On April 20, 2022, we announced that our Board of Directors approved a share
repurchase program ("2022 Share Repurchase Program") authorizing the repurchase
of up to $50.0 million of the common stock, par value $1.00 per share, of the
Company. We 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. This plan replaces the authorization
approved in April 2015.

NON-GAAP FINANCIAL MEASURES


Management believes the non-GAAP (Generally Accepted Accounting Principles)
measures used in this report 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


Organic Sales is defined as "Net Sales" less sales derived from acquisitions
completed or businesses disposed of that did not qualify for accounting as a
discontinued operation during the previous twelve months. We believe that this
measure provides management and investors with a more complete understanding of
underlying operating results and trends of established, ongoing operations by
excluding the effect of acquisitions, which can obscure underlying trends. We
also believe that presenting Organic Sales separately provides management and
investors with useful information about the trends impacting our operations and
enables a more direct comparison to other businesses and companies in similar
industries. Management recognizes that the term "Organic Sales" may be
interpreted differently by other companies and under different circumstances.
Organic Sales (in thousands)
                                                   For the Three Months Ended                    For the Six Months Ended
                                                   July 1,              July 2,                 July 1,                 July 2,
                                                    2022                  2021                   2022                    2021
Net sales                                     $      160,766          $ 182,394          $     318,814               $  354,010
Acquisition sales                                          -                  -                      -
Sales of disposed businesses that did
not qualify for discontinued operations                    -                  -                      -                    1,704
Organic Sales                                 $      160,766          $ 182,394          $     318,814               $  352,306



Free Cash Flow

Free Cash Flow is defined as GAAP "Net cash provided by (used in) operating
activities" in a period less "Expenditures for property, plant & equipment" in
the same period. Management believes Free Cash Flow provides an important
perspective on our ability to generate cash from our business operations and, as
such, that it is an important financial measure for use in evaluating the
Company's financial performance. Free Cash Flow should not be viewed as
representing the residual cash flow available for discretionary expenditures
such as dividends to shareholders or acquisitions, as it may exclude certain
mandatory expenditures such as repayment of maturing debt and other contractual
obligations. Management uses Free Cash Flow internally to assess overall
liquidity.


                                       45
--------------------------------------------------------------------------------

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS


There have been no material changes outside the ordinary course of business in
our contractual obligations or off-balance sheet arrangements during the first
six months of 2022. See our 2021 Form 10-K for a discussion of our contractual
obligations and off-balance sheet arrangements.

CRITICAL ACCOUNTING ESTIMATES


Preparation of the Company's financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Management believes the most complex and
sensitive judgments, because of their significance to the Consolidated Financial
Statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Management's Discussion and Analysis
and the Notes to Consolidated Financial Statements in the Company's 2021 Form
10-K describe the critical accounting estimates and significant accounting
policies used in preparing the Consolidated Financial Statements. Actual results
in these areas could differ from management's estimates.

RECENT ACCOUNTING STANDARDS


Information regarding recent changes in accounting standards is included in Note
2, Recent Accounting Standards, of the Notes to Condensed Consolidated Financial
Statements in this report.

© Edgar Online, source Glimpses

All news about KAMAN CORPORATION
08/15Kaman Unit Secures $38 Million Award From Boeing For SLAM-ER Cruise Missile Program
MT
08/15Kaman Fuzing Receives Award From the Boeing Company for Standoff Land Attack Missile Ex..
BU
08/15Kaman Corporation Announces Kaman Fuzing Receives Award from the Boeing Company for Sta..
CI
08/05Kaman to Seek M&A
CI
08/05TRANSCRIPT : Kaman Corporation, Q2 2022 Earnings Call, Aug 05, 2022
CI
08/05KAMAN : Q2 Earnings Snapshot
AQ
08/04KAMAN CORP Management's Discussion and Analysis of Financial Condition and Results of ..
AQ
08/04Earnings Flash (KAMN) KAMAN Posts Q2 Revenue $160.8M
MT
08/04Earnings Flash (KAMN) KAMAN Reports Q2 EPS $0.31
MT
08/04Kaman Corporation Reports Earnings Results for the Second Quarter and Six Months Ended ..
CI
More news
Analyst Recommendations on KAMAN CORPORATION
More recommendations