KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On August 26, 2019, Kaman Corporation, a Connecticut corporation (the “Company”), sold its subsidiary, Kaman Industrial Technologies Corporation and subsidiaries (collectively, "Distribution") to LJ KAI Blocker, Inc., a Delaware corporation, LJ KFP Blocker, Inc., a Delaware corporation, and LJ KIT Blocker, Inc., a Delaware corporation (collectively, the “Purchasers”), for $700.0 million (the "Disposition").
The Disposition constitutes a significant disposition for purposes of Item 2.01 of Current Report on Form 8-K. As a result, the following unaudited pro forma consolidated statement of operations for the six month fiscal period ended June 28, 2019 and unaudited pro forma consolidated statements of operations for each of the years ended December 31, 2018, 2017 and 2016 are presented as if the Disposition and related events had occurred on January 1, 2016, the first day of fiscal year 2016. The following unaudited pro forma consolidated balance sheet as of June 28, 2019 is presented as if the Disposition and related events had occurred on June 28, 2019. Based on the magnitude of Distribution's contribution to the Company's operating income and because the Company is exiting its distribution business, the Disposition represents a strategic shift that will have a major effect on the Company's operations and financial results. Accordingly, the Company applied the discontinued operations treatment for the Disposition in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2019.
The unaudited consolidated pro forma financial statements have been derived from historical financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and are presented based on information currently available. They are intended for informational purposes only and are not intended to represent the Company’s financial position or results of operations had the Disposition and related events occurred on the dates indicated, or to project the Company’s financial performance for any future period. Pro forma adjustments have been made for events that are directly attributable to the Disposition, factually supportable and, with respect to the unaudited pro forma consolidated statements of operations, expected to have a continuing impact on the Company's consolidated operating results.
The unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the following: (i) the accompanying notes to the unaudited pro forma consolidated financial statements; (ii) the audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2018, 2017 and 2016; and (iii) the unaudited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Quarterly Report on Form 10-Q for the period ended June 28, 2019.
The unaudited pro forma consolidated financial statements include information, statements, and assumptions that are "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.
KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 2019
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | |
| | | Historical (a) | | Pro forma Adjustments | | Notes | | Kaman Corp. Pro forma |
| Net sales | | $ | 341,146 |
| | $ | — |
| | | | $ | 341,146 |
|
| Cost of sales | | 234,036 |
| | — |
| | | | 234,036 |
|
| Gross profit | | 107,110 |
| | — |
| | | | 107,110 |
|
| Selling, general and administrative expenses | | 83,759 |
| | (688 | ) | | (b) | | 83,071 |
|
| Restructuring costs | | 472 |
| | — |
| | | | 472 |
|
| Net gain (loss) on sale of assets | | (65 | ) | | — |
| | | | (65 | ) |
| Operating income | | 22,944 |
| | 688 |
| | | | 23,632 |
|
| Interest expense, net | | 10,537 |
| | (1,913 | ) | | (c) | | 8,624 |
|
| Non-service pension and post retirement benefit income | | (199 | ) | | — |
| | | | (199 | ) |
| Other income, net | | (552 | ) | | — |
| | | | (552 | ) |
| Earnings from continuing operations before income taxes | | 13,158 |
| | 2,601 |
| | | | 15,759 |
|
| Income tax expense | | 947 |
| | 631 |
| | (d) | | 1,578 |
|
| Earnings from continuing operations | | 12,211 |
| | 1,970 |
| | | | 14,181 |
|
| Earnings from discontinued operations, net of tax | | 15,380 |
| | (15,380 | ) | | | | — |
|
| Net earnings | | $ | 27,591 |
| | $ | (13,410 | ) | | | | $ | 14,181 |
|
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| Basic earnings per share from continuing operations | | $ | 0.44 |
| | | | | | $ | 0.51 |
|
| Basic earnings per shares from discontinued operations | | 0.55 |
| | | | | | — |
|
| Basic earnings per share | | $ | 0.99 |
| | | | | | $ | 0.51 |
|
| Diluted earnings per share from continuing operations | | $ | 0.43 |
| | | | | | $ | 0.50 |
|
| Diluted earnings per share from discontinued operations | | 0.55 |
| | | | | | — |
|
| Diluted earnings per share | | $ | 0.98 |
| | | | | | $ | 0.50 |
|
| Average shares outstanding: | | | | | | | | |
| Basic | | 27,935 |
| | | | (e) | | 27,974 |
|
| Diluted | | 28,097 |
| | | | (e) | | 28,101 |
|
KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2018
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | |
| | | Historical (a) | | Pro forma Adjustments | | Notes | | Kaman Corp. Pro forma |
| Net sales | | $ | 1,875,425 |
| | $ | (1,139,431 | ) | | (f) | | $ | 735,994 |
|
| Cost of sales | | 1,325,388 |
| | (816,711 | ) | | (f) | | 508,677 |
|
| Gross profit | | 550,037 |
| | (322,720 | ) | | | | 227,317 |
|
| Selling, general and administrative expenses | | 444,904 |
| | (274,247 | ) | | (f) | | 170,657 |
|
| Other intangible assets impairment | | 10,039 |
| | — |
| | | | 10,039 |
|
| Restructuring costs | | 8,008 |
| | (655 | ) | | (f) | | 7,353 |
|
| Loss on sale of business | | 5,722 |
| | — |
| | | | 5,722 |
|
| Net (gain) loss on sale of assets | | (1,700 | ) | | 669 |
| | (f) | | (1,031 | ) |
| Operating income | | 83,064 |
| | (48,487 | ) | | | | 34,577 |
|
| Interest expense, net | | 20,097 |
| | (3,616 | ) | | (c) (f) | | 16,481 |
|
| Non-service pension and post retirement benefit income | | (12,127 | ) | | — |
| | | | (12,127 | ) |
| Other income, net | | (143 | ) | | 51 |
| | (f) | | (92 | ) |
| Earnings before income taxes | | 75,237 |
| | (44,922 | ) | | | | 30,315 |
|
| Income tax expense | | 21,068 |
| | (10,553 | ) | | (d) | | 10,515 |
|
| Earnings from continuing operations | | $ | 54,169 |
| | $ | (34,369 | ) | | | | $ | 19,800 |
|
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| Basic earnings per share | | $ | 1.94 |
| | | | | | $ | 0.71 |
|
| Diluted earnings per share | | $ | 1.92 |
| | | | | | $ | 0.70 |
|
| Average shares outstanding: | | | | | | | | |
| Basic | | 27,945 |
| | | | (e) | | 27,914 |
|
| Diluted | | 28,223 |
| | | | (e) | | 28,152 |
|
KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | |
| | | Historical (a) | | Pro forma Adjustments | | Notes | | Kaman Corp. Pro forma |
| Net sales | | $ | 1,805,909 |
| | $ | (1,080,965 | ) | | (f) | | $ | 724,944 |
|
| Cost of sales | | 1,260,318 |
| | (769,403 | ) | | (f) | | 490,915 |
|
| Gross profit | | 545,591 |
| | (311,562 | ) | | | | 234,029 |
|
| Selling, general and administrative expenses | | 432,067 |
| | (263,093 | ) | | (f) | | 168,974 |
|
| Restructuring costs | | 2,661 |
| | — |
| | | | 2,661 |
|
| Net gain (loss) on sale of assets | | (256 | ) | | 225 |
| | (f) | | (31 | ) |
| Operating income | | 111,119 |
| | (48,694 | ) | | | | 62,425 |
|
| Interest expense, net | | 20,581 |
| | (3 | ) | | (f) | | 20,578 |
|
| Non-service pension and post retirement benefit income | | (3,056 | ) | | — |
| | | | (3,056 | ) |
| Other income, net | | (784 | ) | | 56 |
| | (f) | | (728 | ) |
| Earnings before income taxes | | 94,378 |
| | (48,747 | ) | | | | 45,631 |
|
| Income tax expense | | 44,552 |
| | (19,071 | ) | | (d) | | 25,481 |
|
| Earnings from continuing operations | | $ | 49,826 |
| | $ | (29,676 | ) | | | | $ | 20,150 |
|
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| Basic earnings per share | | $ | 1.80 |
| | | | | | $ | 0.73 |
|
| Diluted earnings per share | | $ | 1.75 |
| | | | | | $ | 0.71 |
|
| Average shares outstanding: | | | | | | | | |
| Basic | | 27,611 |
| | | | (e) | | 27,571 |
|
| Diluted | | 28,418 |
| | | | (e) | | 28,354 |
|
KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | |
| | | Historical (a) | | Pro forma Adjustments | | Notes | | Kaman Corp. Pro forma |
| Net sales | | $ | 1,808,376 |
| | $ | (1,106,322 | ) | | (f) | | $ | 702,054 |
|
| Cost of sales | | 1,260,855 |
| | (785,868 | ) | | (f) | | 474,987 |
|
| Gross profit | | 547,521 |
| | (320,454 | ) | | | | 227,067 |
|
| Selling, general and administrative expenses | | 443,704 |
| | (282,379 | ) | | (f) | | 161,325 |
|
| Restructuring costs | | 1,032 |
| | (1,032 | ) | | (f) | | — |
|
| Net gain (loss) on sale of assets | | 11 |
| | (10 | ) | | (f) | | 1 |
|
| Operating income | | 102,774 |
| | (37,033 | ) | | | | 65,741 |
|
| Interest expense, net | | 15,747 |
| | (33 | ) | | (f) | | 15,714 |
|
| Non-service pension and post retirement benefit cost (income) | | (3,149 | ) | | — |
| | | | (3,149 | ) |
| Other expense (income), net | | 472 |
| | (3 | ) | | (f) | | 469 |
|
| Earnings before income taxes | | 89,704 |
| | (36,997 | ) | | | | 52,707 |
|
| Income tax expense | | 30,850 |
| | (15,261 | ) | | (d) | | 15,589 |
|
| Earnings from continuing operations | | $ | 58,854 |
| | $ | (21,736 | ) | | | | $ | 37,118 |
|
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| Basic earnings per share | | $ | 2.17 |
| | | | | | $ | 1.37 |
|
| Diluted earnings per share | | $ | 2.10 |
| | | | | | $ | 1.32 |
|
| Average shares outstanding: | | | | | | | | |
| Basic | | 27,107 |
| | | | (e) | | 27,151 |
|
| Diluted | | 28,072 |
| | | | (e) | | 28,096 |
|
KAMAN CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2019
(in thousands, except share data)
|
| | | | | | | | | | | | | | |
| | | Historical (a) | | Pro forma Adjustments | | Notes | | Kaman Corp. Pro forma |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 17,016 |
| | $ | 570,000 |
| | (g)(h) | | $ | 587,016 |
|
| Accounts receivable, net | | 100,799 |
| | — |
| | | | 100,799 |
|
| Contract assets | | 118,774 |
| | — |
| | | | 118,774 |
|
| Contract costs, current portion | | 5,114 |
| | — |
| | | | 5,114 |
|
| Inventories | | 163,006 |
| | — |
| | | | 163,006 |
|
| Income tax refunds receivable | | 5,487 |
| | — |
| | | | 5,487 |
|
| Assets held for sale, current portion | | 365,264 |
| | (365,264 | ) | | (i) | | — |
|
| Other current assets | | 10,568 |
| | — |
| | | | 10,568 |
|
| Total current assets | | 786,028 |
| | 204,736 |
| | | | 990,764 |
|
| Property, plant and equipment, net of accumulated depreciation of $201,400 | | 138,246 |
| | — |
| | | | 138,246 |
|
| Operating right-of-use assets, net | | 16,330 |
| | — |
| | | | 16,330 |
|
| Goodwill | | 195,332 |
| | — |
| | | | 195,332 |
|
| Other intangible assets, net | | 56,054 |
| | — |
| | | | 56,054 |
|
| Deferred income taxes | | 39,802 |
| | — |
| | | | 39,802 |
|
| Contract costs, noncurrent portion | | 9,187 |
| | — |
| | | | 9,187 |
|
| Assets held for sale, noncurrent portion | | 292,957 |
| | (292,957 | ) | | (i) | | — |
|
| Other assets | | 30,903 |
| | — |
| | | | 30,903 |
|
| Total assets | | $ | 1,564,839 |
| | $ | (88,221 | ) | | | | $ | 1,476,618 |
|
| Liabilities and Shareholders’ Equity | | |
| | | | | | |
| Current liabilities: | | |
| | | | | | |
| Current portion of long-term debt, net of debt issuance costs | | $ | 127,603 |
| | $ | (100,000 | ) | | (h) | | $ | 27,603 |
|
| Accounts payable – trade | | 54,086 |
| | — |
| | | | 54,086 |
|
| Accrued salaries and wages | | 29,959 |
| | — |
| | | | 29,959 |
|
| Contract liabilities, current portion | | 30,707 |
| | — |
| | | | 30,707 |
|
| Operating lease liabilities, current portion | | 4,259 |
| | — |
| | | | 4,259 |
|
| Income taxes payable | | — |
| | 65,735 |
| | (j) | | 65,735 |
|
| Liabilities held for sale, current portion | | 136,292 |
| | (136,292 | ) | | (i) | | — |
|
| Other current liabilities | | 38,669 |
| | — |
| | | | 38,669 |
|
| Total current liabilities | | 421,575 |
| | (170,557 | ) | | | | 251,018 |
|
| Long-term debt, excluding current portion, net of debt issuance costs | | 180,196 |
| | — |
| | | | 180,196 |
|
| Deferred income taxes | | 7,483 |
| | — |
| | | | 7,483 |
|
| Underfunded pension | | 99,469 |
| | — |
| | | | 99,469 |
|
| Contract liabilities, noncurrent portion | | 72,081 |
| | — |
| | | | 72,081 |
|
| Operating lease liabilities, noncurrent portion | | 12,895 |
| | — |
| | | | 12,895 |
|
| Liabilities held for sale, noncurrent portion | | 63,892 |
| | (63,892 | ) | | (i) | | — |
|
| Other long-term liabilities | | 49,079 |
| | — |
| | | | 49,079 |
|
| Commitments and contingencies (Note 14) | | | | | | | | |
| Shareholders' equity: | | |
| | | | | | |
| Preferred stock, $1 par value, 200,000 shares authorized; none outstanding | | �� |
| | — |
| | | | — |
|
| Common stock, $1 par value, 50,000,000 shares authorized; voting; 29,723,147 shares issued | | 29,723 |
| | — |
| | | | 29,723 |
|
| Additional paid-in capital | | 208,491 |
| | — |
| | | | 208,491 |
|
| Retained earnings | | 649,610 |
| | 146,228 |
| | (k) | | 795,838 |
|
| Accumulated other comprehensive income (loss) | | (153,708 | ) | | — |
| | | | (153,708 | ) |
| Less 1,745,385 shares of common stock, held in treasury, at cost | | (75,947 | ) | | — |
| | | | (75,947 | ) |
| Total shareholders’ equity | | 658,169 |
| | 146,228 |
| | | | 804,397 |
|
| Total liabilities and shareholders’ equity | | $ | 1,564,839 |
| | $ | (88,221 | ) | | | | $ | 1,476,618 |
|
KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Company's historical consolidated financial statements have been adjusted in the unaudited consolidated pro forma financial statements to present events that are (i) directly attributable to the Disposition, (ii) factually supportable and (iii) expected to have a continuing impact on the Company's consolidated results following the Disposition. The allocation of corporate support, general, management and administrative and other liabilities and expenses included may differ from expenses that would have been included on a stand-alone basis. The pro forma consolidated statements of operations do not reflect the estimated gain on the Disposition.
2. PRO FORMA ADJUSTMENTS
The following adjustments have been reflected in the unaudited pro forma financial statements:
(a) Reflects the Company's historical US GAAP consolidated financial statements, as reported, before pro forma adjustments related to the Disposition. For the six month fiscal period ended June 28, 2019, Distribution's results of operations were reported as earnings from discontinued operations. For the years ended December 31, 2018, 2017 and 2016, Distribution's results of operations were reported as a separate segment.
Kaman adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606), on January 1, 2018 using the modified retrospective method allowed under the standard. As a result, the Company applied Topic 606 only to contracts that were not completed as of January 1, 2018. As such, Topic 606 was effective during the six month period ended June 28, 2019 and year ended December 31, 2018, while during the years ended December 31, 2017 and 2016, revenue was recognized under ASC 605.
(b) Reflects long-term incentive compensation pro forma adjustment that did not qualify for the presentation of discontinued operations in the Company's Form 10-Q filed for the period ended June 28, 2019 as these expenses will have a continuing impact on the Company.
(c) Reflects the pro forma adjustment for the reduction in interest expense as a result of the pay down of the term loan and a portion of the amounts outstanding on the revolving credit facility.
(d) The pro forma adjustment for income tax expense was calculated as the difference between the income tax expense as reported, and pro forma income tax expense, which was calculated by using the statutory income tax rate for the Company excluding Distribution and adjusting for the impact of permanent differences.
(e) Reflects the pro forma adjustment for the acceleration and vesting of shares related to the employees of the Distribution business.
(f) Reflects the elimination of revenues and expenses representing the historical operating results of the Distribution business.
(g) Reflects estimated net cash proceeds from the Disposition of $670.0 million, representing the gross sales price of $700.0 million less estimated transaction expenses of $30.0 million.
(h) Reflects the pay down of amounts outstanding on the revolving credit facility of $100.0 million upon the receipt of the net proceeds from the Disposition.
(i) Reflects the assets and liabilities conveyed to the Purchasers in the Disposition.
(j) Reflects the taxes payable the Company will owe as a result of the Disposition.
KAMAN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
2. PRO FORMA ADJUSTMENTS (CONTINUED)
(k) Reflects the estimated after-tax gain on the Disposition of $146.2 million, which was calculated as follows (in thousands):
|
| | | | |
| Estimated proceeds, net of transaction costs | | $ | 670,000 |
|
| Assets of Distribution | | (658,221 | ) |
Liabilities of Distribution1 | | 184,864 |
|
| Pre-tax gain on sale of Distribution | | 196,643 |
|
| Taxes on gain of sale of Distribution | | 50,415 |
|
| After-tax gain on sale of Distribution | | $ | 146,228 |
|
1The liabilities of Distribution have been adjusted for the assumed settlement of deferred income taxes as of the date of the Disposition.
3. TRANSITION SERVICES AGREEMENT
Pursuant to a transitions service agreement entered into and effective on the closing of the Disposition, the Company will supply certain services to Distribution, including information technology, human resources and benefits, tax and treasury functions for six to twelve months, with the option to extend an additional year for certain services. No pro forma adjustments have been made associated with this agreement as services to be provided will not have a continuing impact.
