Portions of our definitive proxy statement for our ~~2016~~2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

Kaman Corporation, headquartered in Bloomfield, Connecticut, was incorporated in 1945. We are a diversified company that conducts business in the aerospace and industrial distribution markets. We report information for ourselves and our subsidiaries (collectively, “we,” “us,” “our,” and “the Company”) in two business segments, Distribution and Aerospace. A discussion of ~~2015~~2018 developments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-K.

The Distribution segment brings our commitment to technological leadership and value-added services to the distribution business. The Distribution segment is a leading power transmission, ~~motion control, electrical and~~ automation and fluid power industrial distributor with operations throughout the United States. WeWith approximately 6 million SKUs, we provide electro-mechanical products, ~~including~~ bearings, ~~mechanical~~power transmission, motion control and electrical ~~power transmission,~~and fluid power ~~motion control, automation, material handling~~ components, ~~electrical control and power distribution, and MRO supplies to~~along with engineered integrated solutions for our customers' most challenging applications, serving a broad spectrum of industrial markets ~~throughout the United States. Locations consist of~~including both maintenance, repair and overhaul ("MRO") and original equipment manufacturer ("OEM") customers. With approximately ~~240 branches,~~220 service facilities, including distribution centers, assembly, fabrication and ~~call centers across the United States (including Puerto Rico). We offer approximately four million items, as well as value-added services,~~repair facilities, Kaman provides products and service solutions to approximately ~~65,000~~55,000 active customers representing a highly diversified cross section of ~~industry.~~industries.

The Aerospace segment produces and markets proprietary aircraft bearings and components; super precision miniature ball ~~bearings;~~bearings for the medical, industrial and aerospace markets; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; and safe and arming solutions for missile and bomb systems for the U.S. and allied ~~militaries;~~militaries. The segment also markets the design and supply of aftermarket parts to businesses performing MRO in aerospace markets; performs helicopter subcontract ~~helicopter~~ work; ~~restoration, modification~~restores, modifies and ~~support of~~supports our SH-2G Super Seasprite maritime helicopters; ~~manufacture~~ and ~~support of~~manufactures and supports our K-MAX® manned and unmanned medium-to-heavy lift ~~helicopters; and engineering design, analysis and certification services.~~helicopters.

Principal customers include the U.S. military, foreign allied militaries, Sikorsky Aircraft Corporation, The Boeing Company, Airbus, Lockheed Martin, Rolls Royce, Raytheon and Bell Helicopter. The SH-2G aircraft is currently in service with the Egyptian Air Force and the New Zealand, Peruvian and Polish navies. Operations are conducted throughout the United States, as well as in facilities located in the United Kingdom, Germany, the Czech Republic, Mexico and ~~Mexico.~~Singapore. Additionally, the Company maintains an investment in a joint venture in India.

A discussion of our working capital is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, in this Form 10-K.

Our Distribution segment requires substantial working capital related to accounts receivable and inventories. Significant amounts of inventory are carried to meet our customers’ requirements. Sales returns do not have a material effect on our working capital requirements.

Our Aerospace segment’s working capital requirements are dependent on the nature and life cycles of the programs for which work is performed. New programs may initially require higher working capital to complete nonrecurring start-up activities and fund the purchase of inventory and equipment necessary to perform the work. Nonrecurring start-up costs on large and complex programs often take longer to recover, negatively impacting working capital in the short-term and producing a corresponding benefit in future periods. As these programs mature and efficiencies are gained in the production process, working capital requirements generally decrease.

The following table sets forth the percentage contribution of each business segment’s products and services to consolidated net sales ~~from continuing operations~~ for each of the three most recently completed years:

While we believe we have sufficient sources for the materials, components, services and supplies used in our manufacturing activities, we are highly dependent on the availability of essential materials, parts and subassemblies from our suppliers and subcontractors. The most important raw materials required for our aerospace products are aluminum (sheet, plate, forgings and extrusions), titanium, nickel, steel, copper and composites. Many major components and product equipment items are procured from or subcontracted on a sole-source basis with a number of domestic and non-U.S. companies. Although alternative sources generally exist for these raw materials, qualification of the sources could take a year or more. We are dependent upon the ability of a large number of suppliers and subcontractors to meet performance specifications, quality standards and delivery schedules at anticipated costs. While we maintain an extensive qualification system to control risk associated with such reliance on third parties, failure of suppliers or subcontractors to meet commitments could adversely affect production schedules and contract profitability, while jeopardizing our ability to fulfill commitments to our customers. ~~Although price increases for~~From time to time, we have experienced shortages in raw materials ~~important to some of~~which have impacted our ~~products (steel, copper, aluminum, titanium and nickel) may cause margin and cost pressures,~~near term results; however, we do not foresee any near term unavailability of materials, components or supplies that would have an adverse effect on either of our business segments. For further discussion of the possible effects of changes in the cost or availability of raw materials on our business, see Item 1A, Risk Factors, in this Form 10-K.

We hold patents and trademarks reflecting functional, design and technical accomplishments in a wide range of areas covering both basic production of certain aerospace products as well as highly specialized devices and advanced technology products in defense related and commercial fields.

Although the Company's patents and trademarks enhance our competitive position, we believe that none of such patents or trademarks is singularly or as a group essential to our business as a whole. We hold or have applied for U.S. and foreign patents with expiration dates that range through the year ~~2027.~~2035.

Registered trademarks of the Company include KAflex®, KAron®, and K-MAX®. In all, we maintain 3428 U.S. and foreign trademarks.

The majority of our backlog is attributable to the Aerospace segment. We anticipate that approximately ~~80.4%~~59.1% of our Aerospace backlog at the end of ~~2015~~2018 will be performed in ~~2016.~~2019. Approximately ~~56.1%~~37.4% of the Aerospace segment's backlog at the end of ~~2015~~2018 is related to U.S. Government ("USG") contracts or subcontracts.

Total backlog at December 31, ~~2015~~2018, ~~2014~~2017 and ~~2013~~2016, and the portion of the backlog we expect to complete in ~~2016,~~2019, is as follows:


	Total Backlog at December 31, 2015		2015 Backlog to be completed in 2016		Total Backlog at December 31, 2014		Total Backlog at December 31, 2013		Total Backlog at December 31, 2018		2018 Backlog to be completed in 2019		Total Backlog at December 31, 2017		Total Backlog at December 31, 2016
In thousands
Aerospace	$	659,350	$	516,930	$	518,025	$	601,954	$	851,814	$	503,553	$	616,090	$	581,619
Distribution	65,963		65,963		70,154		50,667		134,332		134,332		126,025		108,681
Total	$	725,313	$	582,893	$	588,179	$	652,621	$	986,146	$	637,885	$	742,115	$	690,300

Backlog related to uncompleted contracts for which we have recorded a provision for estimated losses was ~~$0.7~~$0.4 million as of December 31, ~~2015. Backlog~~2018. As of December 31, 2018, backlog related to firm but not yet funded orders was ~~$2.4 million as of December 31, 2015.~~not material. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for further discussion.

The ~~U.S. Government ("USG"),~~USG, and other governments, may terminate any of our government contracts at their convenience or for default if we fail to meet specified performance measurements. If any of our government contracts were to be terminated for convenience, we generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts were to be terminated for default, generally the USG would pay only for the work that has been accepted and can require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The USG can also hold us liable for damages resulting from the default.

During ~~2015~~2018, approximately ~~98.7%~~97.7% of the work performed by the Company directly or indirectly for the USG was performed on a fixed-price basis and the balance was performed on a cost-reimbursement basis. Under a fixed-price contract, the price paid to the contractor is negotiated at the outset of the contract and is not generally subject to adjustment to reflect the actual costs incurred by the contractor in the performance of the contract. Cost reimbursement contracts provide for the reimbursement of allowable costs and an additional negotiated fee.

Our operations are subject to and affected by a variety of federal, state, local and non-U.S. environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation and remediation of certain materials, substances and wastes. We continually assess our compliance status and management of environmental matters in an effort to ensure our operations are in substantial compliance with all applicable environmental laws and regulations.

Operating and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the USG. It is reasonably possible that continued environmental compliance could have a material impact on our results of operations, financial condition or cash flows if more stringent clean-up standards are imposed, additional contamination is discovered and/or clean-up costs are higher than estimated.

See Environmental Matters in Item 3, Legal Proceedings, and Critical Accounting Estimates - Environmental Costs in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note ~~16,~~17, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for further discussion of our environmental matters.

With respect to all other matters that may currently be pending, in the opinion of management, based on our analysis of relevant facts and circumstances, we do not believe that compliance with relevant environmental protection laws is likely to have a material adverse effect upon our capital expenditures, earnings or competitive position. In arriving at this conclusion, we have taken into consideration site-specific information available regarding total costs of any work to be performed and the extent of work previously performed. If we are identified as a “potentially responsible party” ("PRP") by environmental authorities at a particular site, we, using information available to us, will also review and consider a number of other factors, including: (i) the financial resources of other PRPs involved in each site and their proportionate share of the total volume of waste at the site; (ii) the existence of insurance, if any, and the financial viability of the insurers; and (iii) the success others have had in receiving reimbursement for similar costs under similar insurance policies issued during the periods applicable to each site.

International Operations

Our international sales are subject to U.S. and non-U.S. governmental regulations and procurement policies and practices, including regulations relating to import-export control, investment, exchange controls and repatriation of earnings. International sales are also subject to varying currency, political and economic risks.

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 ("ITRA") added subsection (r) to section 13 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), requiring a public reporting issuer to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran, including activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S. affiliates in compliance with local law. Issuers must also file a notice with the U.S. Securities and Exchange Commission ("SEC") if any disclosable activities under ITRA have been included in the annual or quarterly report. We did not have any disclosable activities during the year ended December 31, ~~2015.~~2018.

COMPETITION

The Distribution segment competes for business with several other national distributors of bearings, power transmission, motion control and electrical and fluid power products, two of which are substantially larger, and with many regional and local distributors and ~~Original Equipment Manufacturers ("OEMs").~~OEMs. Competitive forces have intensified due to the increasing trend towards ~~national~~corporate contracts, customers' efforts to obtain material cost savings and the extension of supplier product authorizations within the distribution channel. We compete for business based upon the breadth and quality of products offered, product availability, delivery performance, and price, as well as on the basis of value-added services that we are able to provide.

The Aerospace segment operates in a highly competitive environment with many other organizations, some of which are substantially larger than us and have greater financial strength and more extensive resources. We compete for composite and metallic aerostructures subcontracts, and helicopter sales and structures, bearings and components business on the basis of price ~~and~~and/or quality; product endurance and special performance characteristics; proprietary knowledge; the quality of our products and services; the availability of facilities, equipment and personnel to perform contracts; and the reputation of our business. Competitors for our business include small machine shops and offshore manufacturing facilities. We compete for ~~engineering design services business primarily on the basis of technical competence, the reputation of our business, the availability of our personnel and price. We compete for~~ advanced technology fuzing business primarily on the basis of technical competence, product quality and ~~price;~~price, and also on the basis of our experience as a developer and manufacturer of fuzes for particular weapon types and the availability of our facilities, equipment and personnel. We are also affected by the political and economic circumstances of our potential foreign ~~customers.~~

~~RESEARCH AND DEVELOPMENT EXPENDITURES~~

~~Customer funded research expenditures (which are included~~customers and, in ~~cost~~certain situations, the relationships of ~~sales) were $0.4 million in 2015, $1.6 million in 2014,~~those foreign customers with the USG, the USG's perceptions of those foreign customers and $3.3 million in 2013. Independent research and development expenditures (which are included in selling, general and administrative expenses) were $6.7 million in 2015, $6.7 million in 2014, and $7.2 million in 2013.the ability to obtain necessary export approvals, licenses or authorizations from the U.S. Government.

EMPLOYEES

As of December 31, ~~2015~~,2018, we employed ~~5,258~~approximately 5,100 individuals.

~~FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS~~

~~Financial information about geographic areas is included in Note 19,~~ ~~Segment and Geographic Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.~~

AVAILABLE INFORMATION

We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC. ~~Copies of these reports, proxy statements and other information can be read and copied at:~~

~~SEC Public Reference Room~~

~~100 F Street NE~~

~~Washington, D.C. 20549~~

Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.

We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, and current reports on Form 8-K as well as amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act, together with Section 16 insider beneficial stock ownership reports, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are posted on our website at www.kaman.com — select the “Investors” link, then the "Financial Information" link and then the “SEC Filings” link.

We also make available, free of charge on our website, our Certificate of Incorporation, By–Laws, Governance Principles and all Board of Directors' standing Committee Charters (Audit, Corporate Governance, Personnel & Compensation and Finance). These documents are posted on our website at www.kaman.com — select the “Investors” link, then the "Corporate Governance" link and then the "Documents and Downloads" link.

The information contained on our website is not intended to be, and shall not be deemed to be, incorporated into this

Form 10-K or any other filing under the Exchange Act or the Securities Act of 1933, as amended.

EXECUTIVE OFFICERS OF THE REGISTRANT

The Company’s executive officers as of the date of this report are as follows:



Name	Age	Position	Prior Experience
Neal J. Keating	6063	Chairman, President, Chief Executive Officer and Director	Mr. Keating was appointed President and Chief Operating Officer as well as elected a Director of the company effective September 17, 2007. Effective January 1, 2008, he was appointed to the offices of President and Chief Executive Officer and effective March 1, 2008, he was appointed to the additional position of Chairman. Prior to joining the company, Mr. Keating served as Chief Operating Officer at Hughes Supply, a $5.4 billion industrial distributor that was acquired by Home Depot in 2006. Prior to that, he held senior positions at GKN Aerospace, an aerospace subsidiary of GKN plc, and Rockwell Collins Commercial Systems, and served as a board member of GKN plc and Agusta-Westland.
~~Steven~~Richard R. Barnhart	58	President of Kaman Aerospace Group, Inc. and Executive Vice President of Kaman Corporation	Mr. Barnhart joined the company as President of Kaman Aerospace Group, Inc., with overall responsibility for the company's Aerospace segment, effective October 1, 2017. Effective November 14, 2017, he was appointed Executive Vice President of Kaman Corporation. He was previously Senior Vice President Barnes Group, Inc. and President of Barnes Aerospace, effective August 2013, and remained in this role until his retirement in June 2016. Prior to that, Mr. Barnhart served as President of Barnes Aerospace from February 2012 until his appointment in August 2013, following a tenure of divisional leadership and advancement across a number of the company's Aerospace and Distribution divisions. Prior to his service with The Barnes Group, Mr. Barnhart was President of Kaman's Aerostructures division. He began his career with Price Waterhouse and spent a decade in increasingly responsible operating roles with United Technologies and Pratt & Whitney.
Alphonse J. ~~Smidler~~Lariviere Jr.	5759	President of Kaman Industrial Technologies and Executive Vice President of Kaman Corporation	Mr. ~~Smidler assumed the role of~~Lariviere was appointed President of Kaman Industrial Technologies on ~~September 1, 2010, after joining the company in December 2009 as Senior Vice President~~November 9, 2017, and ~~Chief Operating Officer of Kaman Industrial Technologies. Effective February 20, 2012, he~~ was appointed Executive Vice President of Kaman ~~Corporation.~~Corporation effective November 14, 2017. Mr. ~~Smidler joined the company from Lenze Americas~~Lariviere has served in various roles with Kaman Corporation ~~where he served~~since 2004, most recently as ~~Executive~~Senior Vice President ~~with responsibility for marketing, sales, finance, business systems and product technology for the Americas. Mr. Smidler was also a member~~- Finance & Administration of the ~~management committee of~~Distribution segment from April 2015 through December 2017 and prior to that President Composite Structures in the ~~Lenze~~Aerospace segment from January 2013 through April 2015. Previous Kaman positions include: Aerospace Group ~~Germany,~~Vice President - Finance and ~~held the position of~~Helicopters Division Vice President ~~and Treasurer for Lenze Americas and served as Treasurer and a Board member for the Lenze ACTech production company.~~- Finance. Prior to ~~that,~~joining Kaman, he served as Vice President ~~Americas Sales Operations~~Global Shared Services at ~~Eaton Corporation~~Garlock Sealing Technologies and was with Goodrich Pump & Engine Controls working through increasingly responsible roles, ultimately being named Vice President ~~Marketing of the Global Manufacturing Group at Rockwell Automation, Inc.~~Finance.
Robert D. Starr	4851	Executive Vice President and Chief Financial Officer	Mr. Starr was appointed Executive Vice President effective July 1, 2015, and has served as the Chief Financial Officer of the company since July 1, 2013. Mr. Starr joined the company in 2009 as Vice President - Treasurer. Prior to joining Kaman, Mr. Starr served as Assistant Treasurer at Crane Co. of Stamford, Connecticut, a then $2.6 billion diversified manufacturer of highly engineered industrial products. He also previously served as Managing Director, Corporate Finance at Aetna, Inc. of Hartford, Connecticut and as Director, Capital Markets and Risk Management at Fisher Scientific International, Inc. of Hampton, New Hampshire. Mr. Starr was also an associate at both Salomon Smith Barney in New York and Chase Securities, Inc. in New York and Singapore.



Name	Age	Position	Prior Experience
~~Gregory L. Steiner~~	58	~~President of Kaman Aerospace Group, Inc. and Executive Vice President of Kaman Corporation~~	Mr. Steiner joined the company as President of Kaman Aerospace Group, Inc., with overall responsibility for the company's Aerospace segment, effective July 7, 2008. Effective February 20, 2012, he was appointed Executive Vice President of Kaman Corporation. From 2005 to 2007, Mr. Steiner was employed at GE Aviation-Systems, serving first as Vice President and General Manager, Military Mission Systems and then as Vice President, Systems for GE Aviation-Systems. Prior to that, he served as Group Vice President at Curtiss-Wright Controls, Inc., with responsibility for four aerospace and industrial electronics businesses located in the U.S. and U.K. Before Curtiss Wright, he had an 18 year career with Rockwell Collins, Inc., serving in a number of progressively responsible positions, departing as Vice President and General Manager of Passenger Systems.
~~Ronald M. Galla~~	64	~~Senior Vice President and Chief Information Officer~~	~~Mr. Galla has been Senior Vice President and Chief Information Officer since 1995. Mr. Galla has been responsible for the company's management information systems since 1984.~~
Phillip A. Goodrich	5962	Senior Vice President - Corporate Development	Mr. Goodrich joined the company in 2009 as Vice President - Corporate Development and was named Senior Vice President - Corporate Development in February 2012. He was previously Senior Vice President, Corporate Development with Barnes Group, Inc., of Bristol, Connecticut. Mr. Goodrich held similar positions with Ametek, Inc., of Paoli, Pennsylvania; and General Signal Corporation of Stamford, Connecticut.
Shawn G. Lisle	4952	Senior Vice President and General Counsel	Mr. Lisle joined the company in 2011 and was appointed Senior Vice President and General Counsel effective December 1, 2012. Prior to joining the company, Mr. Lisle served as Senior Counsel for International Paper Company in Memphis, Tennessee. Prior to that, he served as legal counsel for Dana Corporation in Toledo, Ohio, and as an attorney at Porter Wright Morris & Arthur LLP in Columbus, Ohio. He also previously worked as a trial attorney at the U.S. Department of Justice, Tax Division in Washington, D.C. and was a Judge Advocate in the U.S. Navy.
Gregory T. Troy	6063	Senior Vice President – Human Resources and Chief Human Resources Officer	Mr. Troy joined the company as Senior Vice President – Human Resources in March 2012. On February 19, 2013, he was appointed to the position of Chief Human Resources Officer. Prior to joining the company, Mr. Troy served as Chief Human Resources Officer of Force Protection, Inc. from April 2011 to March 2012, where he was a member of the Executive Committee. Prior to joining Force Protection, Mr. Troy served as Vice President and Chief Human Resources Officer at Modine Manufacturing Company from February 2006 to April 2011, providing global human resources leadership in the Americas, Europe and Asia. Mr. Troy also previously worked at OMNOVA Solutions Inc., Bosch Corporation and Mobil Corporation, after serving as a Transportation Officer in the United States Army.
John J. Tedone	5154	Vice President, Finance and Chief Accounting Officer	Mr. Tedone has served as Vice President, Finance and the company's Chief Accounting Officer since May 2007. From April 2006 to April 2007, Mr. Tedone served as the company's Vice President, Internal Audit and prior to that as Assistant Vice President, Internal Audit.
Paul M. Villani	53	Senior Vice President and Chief Information Officer	Mr. Villani joined the company in 2015 and was appointed Senior Vice President and Chief Information Officer effective as of January 1, 2017. From August 2015 to December 2016, Mr. Villani served as the Senior Director, Software Development and ERP Support at Kaman Distribution Group. Prior to joining the company, Mr. Villani served as Chief Information Officer at Med Solutions, Inc. from November 2013 to June 2015; and Chief Information Officer at Triad Healthcare, Inc. from 2007 to 2013.

Each executive officer holds office for a term of one year and until his or her successor is duly appointed and qualified, in accordance with the Company’s By-Laws.

ITEM 1A. RISK FACTORS

Our business, financial condition, operating results and cash flows can be impacted by the factors set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

Our future operating results may be impacted by changes in global economic and political conditions.

Our future operating results and liquidity may be impacted by changes in general economic and political conditions which may affect, among other things, the following:

The availability of credit and our ability to obtain additional or renewed bank financing, the lack of which may limit our ability to invest in capital projects and planned expansions or to fully execute our business strategy;

Market rates of interest, any increase in which would increase the interest payable on some of our borrowings and adversely impact our cash flow;

The investment performance of our pension plan, as well as the associated discount rate, any adverse changes in which may result in a deterioration in the funded status of the plan and an increase in required contributions and plan expense;

The relationship between the U.S. ~~Dollar~~dollar and other currencies, any adverse changes in which could negatively impact our financial results;

The ability of our customers to pay for products and services on a timely basis, any adverse change in which could negatively impact sales and cash flows and require us to increase our bad debt reserves;

The volume of orders we receive from our customers, any adverse change in which could result in lower operating profits as well as less absorption of fixed costs due to a decreased business base; ~~and~~

The ability of our suppliers to meet our demand requirements, maintain the pricing of their products or continue operations, any of which may require us to find and qualify new ~~suppliers.~~suppliers; and

The issuance and timely receipt of necessary export approvals, licenses and authorizations from the U.S. Government.

While general economic and political conditions have not impaired our ability to access credit markets and finance our operations to date, there can be no assurance that we will not experience future adverse effects that may be material to our cash flows, competitive position, financial condition, results of operations or our ability to access capital.

Our financial performance is significantly influenced by customer demand for the products we distribute.

The financial performance of our Distribution segment, which generated approximately ~~66.3%~~60.8% of our ~~2015~~2018 consolidated net sales and approximately ~~30.9%~~35.3% of our ~~2015~~2018 operating income ~~from continuing operations~~ before corporate expenses, loss on sale of business and net gain (loss) on sale of assets, is significantly influenced by customer demand for the products ~~that~~ we distribute and the services ~~that~~ we provide. Consequently, demand for our products and services has been and will continue to be significantly influenced by the same factors that affect demand for and production of our customers' goods and services, including the following:

the level of industrial production and manufacturing capacity utilization in the markets ~~that~~ we serve;


•	the economic health of the manufacturing sector of the U.S. economy, as reflected by the Purchasing Managers Index^® reported by the Institute for Supply Management, as an index reading of 50 or more implies an expanding manufacturing economy, while a reading below 50 implies a contracting manufacturing economy;

the consolidation of certain of our manufacturing customers and the trend of manufacturing operations being moved overseas, which subsequently reduces demand for the products we distribute and the services we provide; and

the general industrial economy, which in declining conditions may cause reduced demand for industrial output.

Any adverse changes in these and other factors affecting the demand for and production of our customers' goods and materials could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our financial performance is also is significantly influenced by conditions within the aerospace and defense industries.

The financial performance of our Aerospace segment, which generated approximately ~~33.7%~~39.2% of our ~~2015~~2018 consolidated net sales and approximately ~~69.1%~~64.7% of our ~~2015~~2018 operating income ~~from continuing operations~~ before corporate expenses, loss on sale of business and net gain (loss) on sale of assets, is directly tied to economic conditions in the commercial aviation and defense industries.

The commercial aviation industry tends to be cyclical, and capital spending by airlines and aircraft manufacturers may be influenced by a variety of global factors including current and future traffic levels, aircraft fuel pricing, labor issues, competition, the retirement of older aircraft, regulatory changes, terrorism and related safety concerns, general economic conditions, worldwide airline profits and backlog levels.

The defense industry may be influenced by a changing global political environment, ~~continued pressure on~~changes in U.S. and global defense spending, U.S. foreign policy and the activity level of military flight operations.

Changes to the aerospace and defense industries and ~~continued pressure to reduce~~any reductions in U.S. defense spending could have a material impact on our current and proposed aerospace programs, which could adversely affect our operating results and future prospects. In addition, changes in economic conditions may cause customers to request that firm orders be rescheduled or canceled, which could put a portion of our backlog at risk.

Furthermore, because of the lengthy research and development cycle involved in bringing new products to market, we cannot predict the economic conditions that will exist when a new product is introduced. A reduction in capital spending in the aviation or defense industries could have a significant effect on the demand for our products, which could have an adverse effect on our financial performance or results of operations.

Our USG programs are subject to unique risks.

We have several significant long-term contracts either directly with the USG or where the USG is the ultimate customer, including the Sikorsky BLACK HAWK cockpit ~~program,~~and Combat Rescue Helicopter programs, the Joint Programmable Fuze (“JPF”) program ~~the Bell Helicopter AH-1Z program,~~ and the ~~A-10~~AH-1Z program. These contracts are subject to unique risks, some of which are beyond our control. Examples of such risks include:

The USG may modify, curtail or terminate its contracts and subcontracts at its convenience without prior notice, upon payment for work done and commitments made at the time of termination. Modification, curtailment or termination of our major programs or contracts could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our USG business is subject to specific procurement regulations and other requirements. These requirements, although customary in USG contracts, increase our performance and compliance costs. These costs might increase in the future, reducing our margins, which could have a negative effect on our financial condition. Although we have procedures designed to assure compliance with these regulations and requirements, failure to do so under certain circumstances could lead to suspension or debarment, for cause, from USG contracting or subcontracting for a period of time and could have a material adverse effect on our business, financial condition, results of operations and cash flows and could adversely impact our reputation and our ability to receive other USG contract awards in the future.

The costs we incur on our USG contracts, including allocated indirect costs, may be audited by USG representatives. Any costs found to be improperly allocated to a specific contract would not be reimbursed, and such costs already reimbursed would have to be refunded, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, if any audit were to reveal the existence of improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the USG.

We are from time to time subject to governmental inquiries and investigations of our business practices due to our participation in domestic and foreign government contracts and programs and our transaction of business domestically and internationally. Adverse findings associated with any such inquiry or investigation could also result in civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with domestic and foreign governments.

Our business may be adversely affected by changes in budgetary priorities of the USG.

Because a significant percentage of our revenue is derived either directly or indirectly from contracts with the USG, changes in federal government budgetary priorities could directly affect our financial performance. A significant decline in government expenditures, a shift of expenditures away from programs that we support or a change in federal government contracting policies could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

~~During 2011,~~Exports of certain of our products are subject to various export control regulations and authorizations, and we may not be successful in obtaining the ~~federal government was unable~~necessary U.S. Government approvals and resultant export licenses for proposed sales to ~~reach agreement~~certain foreign customers.

We must comply with numerous laws and regulations relating to the export of our products and technologies, including, among others, the FMU-152A/B JPF, before we are permitted to sell those products and technologies outside of the United States. Compliance often entails the submission and timely receipt of necessary export approvals, licenses or authorizations from the U.S. Government and, depending on ~~budget reduction measures required~~the size and nature of the proposed transaction, may even require the submission of formal notification to the United States Congress, which then has the ability to pass a joint resolution of disapproval blocking or amending the sale. In recent months, the U.S. export licensing environment for munitions, such as the JPF, has been adversely affected by a number of factors, including, but not limited to, the changing geopolitical environment and heightened tensions with other countries (which shift and evolve over time). Accordingly, we can give no assurance that we will be successful in obtaining, in a timely manner or at all, the approvals, licenses or authorizations we need to sell our products and technologies outside the United States, which may result in the cancellation of orders, the incurrence of significant penalties payable by the ~~Budget Control Act of 2011 (the “Budget Act”) passed by Congress. Because Congress~~Company and the return of advance payments to our customers if we do not make deliveries and fulfill our contractual commitments. Any significant delay in, or impairment of, our ability to sell products or technologies outside of the United States could have a material adverse effect on our business, financial condition and results of operations.

The ability to obtain and retain product approvals issued by the Federal Aviation Administration ("FAA") and any intellectual property claims could ~~not reach agreement,~~adversely affect our Aerospace segment’s operating results and profits.

Our Aerospace segment may be impacted by regulations set forth by the ~~Budget Act triggered automatic reductions~~FAA to obtain Parts Manufacturer Approvals ("PMAs") to design or produce a modification or replacement aircraft part. The loss or suspension of the Company's product and design approvals could negatively impact our operating results and profits. We believe our current design and production processes that are subject to such regulations by the FAA are in ~~both defense and discretionary spending in a process known as sequestration. The future impact of sequestration is uncertain, but~~compliance; however, there can be no assurance that ~~automatic across-the-board budget cuts~~we will not ~~adversely affect~~lose approvals for our products in the future. Additionally, we may be subject to claims of intellectual property infringement by third parties, including in connection with our PMA business, which could have a material adverse effect on our business, financial condition, results of operations and ~~profitability. One or more of our programs could be reduced, extended, or terminated, which could result in facility closures and personnel reductions that could significantly impact our operations.~~cash flows.

The cost and effort to start up new aerospace programs could negatively impact our operating results and profits.

The time required and costs incurred to ramp up a new program can be significant and include nonrecurring costs for tooling, first article testing, finalizing drawings and engineering specifications and hiring new employees able to perform the technical work required. New programs can typically involve a greater volume of scrap, higher costs due to inefficiencies, delays in production and learning curves that are often more extended than anticipated, all of which could have a material effect on our business, financial condition, results of operations and cash flows.

Competition from domestic and foreign manufacturers may result in the loss of potential contracts and opportunities.

The aerospace markets in which we participate are highly competitive, and we often compete for work not only with large OEMs but also sometimes with our own customers and suppliers. Many of our large customers may choose not to outsource production due to, among other things, their own direct labor and overhead considerations and capacity utilization objectives. This could result in these customers supplying their own products or services and competing directly with us for sales of these products or services, all of which could significantly reduce our revenues.

Our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas, and we may not have the technology, cost structure, or available resources to effectively compete with them. We believe that developing and maintaining a competitive advantage requires continued investment in product ~~development, engineering,~~development; engineering; supply chain ~~management~~management; production capabilities, including technology, equipment and facilities; and sales and marketing, and we may not have enough resources to make the necessary investments to do so. Further, our significant customers may attempt to use their position to negotiate price or other concessions for a particular product or service without regard to the terms of an existing contract or the underlying cost of production.

We believe our strategies for our Aerospace segment will allow us to continue to effectively compete for key contracts and customers, but there can be no assurance that we will be able to compete successfully in this market or against such competitors.

We could be negatively impacted by the loss of key suppliers, the consolidation of suppliers, the lack of product availability or changes in supplier programs.

Our business depends on maintaining a sufficient supply of various products to meet our customers' demands. We have long-standing relationships with key suppliers but these relationships generally are non-exclusive and could be terminated by either party. If we were to lose a key supplier, or were unable to obtain the same levels of deliveries from these suppliers and were unable to supplement those purchases with products obtained from other suppliers, it could have a material adverse effect on our business. Additionally, we rely on foreign and domestic suppliers and commodity markets to secure raw materials used in many of the products we manufacture within our Aerospace segment or sell within our Distribution segment. Suppliers have consolidated and formed alliances to broaden their product and integrated system offerings, and achieve critical mass. Supplier consolidation could cause us to compete against certain competitors with greater financial resources, market penetration and purchasing power. This exposes us to volatility in the price and availability of raw materials. In some instances, we depend upon a single source of supply. Supply interruptions could arise from shortages of raw materials, labor disputes or weather conditions affecting suppliers' production, transportation disruptions or other reasons beyond our control. Even if we continue with our current supplier relationships, high demand for certain products may result in us being unable to meet our customers' demands, which could put us at a competitive disadvantage. Additionally, our key suppliers could also increase the pricing of their products, which would negatively affect our operating results if we were not able to pass these price increases through to our customers. We base our supply management process on an appropriate balancing of the foreseeable risks and the costs of alternative practices. To protect ourselves against such risks, we engage in strategic inventory purchases during the year, negotiate long-term vendor supply agreements, ~~and~~ monitor our inventory levels and obtain second sources when applicable to ensure that we have the appropriate inventory on hand to meet our customers' requirements.

The adoption of new accounting guidance or changes in the interpretations of existing guidance could affect our financial results.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). A change in these principles or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations and may require us to make costly changes to our operational processes and accounting systems. In February 2016, the FASB issued Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), which supersedes nearly all existing generally accepted accounting principles ("GAAP") lease guidance. The updated standard is effective for us in the first quarter of 2019 and we have elected the transition method allowing entities to apply the new standard at the adoption date recognizing a cumulative-effect adjustment in the period of adoption. We have completed our preliminary evaluation of the likely impact of ASU 2016-02 on our consolidated financial statements. For additional information about these matters, please refer to Note 1, Summary of Significant Accounting Policies - Recent Accounting Standards in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. Additionally, during the first quarter of 2018, we implemented ASU 2014-09, Revenue from Contracts with Customers, which superseded nearly all GAAP revenue recognition guidance. For additional information on the impact of this standard, please refer to Note 2, Accounting Changes, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Our failure to comply with the covenants contained in our senior credit facility could trigger an event of default, which could materially and adversely affect our operating results and our financial condition.

Our senior credit facility requires us to maintain certain financial ratios and comply with various operational and other covenants. If we were unable to maintain these ratios and comply with such covenants, we would need to seek relief from our lenders in order to avoid, cure or have waived an event of default under the facility. There can be no assurance that we would be able to obtain such relief on commercially reasonable terms or otherwise. If an event of default occurs and is not cured or waived, we may not be able to make further borrowings under the credit facility and our lenders could, among other things, cause all outstanding indebtedness under the credit facility to be due and payable immediately. There can be no assurance that our assets or cash flows would be sufficient to provide us with sufficient liquidity to fund outstanding commitments or meet other business requirements or to enable us to fully repay those amounts or that we would be able to refinance or restructure the indebtedness. If, as or when required, we are unable to repay, refinance or restructure the indebtedness outstanding under our senior credit facility, or amend the financial ratios and covenants contained therein, the lenders under our senior credit facility could elect to terminate their commitments thereunder,

cease making further loans and institute foreclosure proceedings against our assets. This, in turn, could result in an event of default under one or more of our other financing agreements, including our convertible notes.

In addition, in the ordinary course of business, certain of our customers require us to deliver standby letters of credit to guarantee our performance under our contractual obligations with them, which are currently issued by certain of our lenders pursuant to our senior credit facility. If we are unable to obtain letters of credit as needed to operate our business as a result of any of the circumstances described above or otherwise, our ability to enter into certain contracts may be adversely affected. Moreover, by their nature, standby letters of credit may be drawn upon by the beneficiaries thereof, which could affect our financial ratios and ability to make additional borrowings. The occurrence of any of these events could have a material adverse effect on our liquidity, financial position or results of operations.

Additional tax exposure and tax law changes could have a material effect on our financial results.

We are subject to income taxes in the United States and certain foreign jurisdictions. The determination of the Company’s provision for income taxes and other tax liabilities requires judgment and is based on legislative and regulatory structures that exist in the jurisdictions in which we operate, and we are periodically under audit by various tax authorities. We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We are currently under audit by various states for the years 2013 through 2017. Although we do not believe that any material adjustments will result from these audits, the outcome of tax audits cannot be predicted with certainty. Any final assessment resulting from tax audits may result in material changes to our past or future taxable income, tax payable or deferred tax assets and may require us to pay penalties and interest that could have a material adverse effect on our results of operations.

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Reform") was signed into law. One of the major provisions in this legislation was a reduction in the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. While this rate reduction was favorable to earnings in 2018, the rate change also required a revaluation of our existing net U.S. deferred tax assets as of December 31, 2017. Other provisions of Tax Reform also impacted the Company, but given the rate reduction, the overall impact of the Tax Reform was beneficial to the Company in 2018. For additional information on Tax Reform, please refer to Note 14, Income Taxes, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Recently enacted tariffs on certain imports to the United States and other potential changes to U.S. tariff and import/export regulations may have a negative effect on global economic conditions and our business, financial results and financial condition.

In 2018, new tariffs were implemented on imports of steel and aluminum into the United States. As the implementation of tariffs is ongoing, more tariffs may be added in the future. While any steel and aluminum we use in our products is produced primarily in North America, the new tariffs may provide domestic steel and aluminum producers the flexibility to increase their prices, at least to a level where their products would still be priced below foreign competitors once the tariffs are taken into account. These tariffs could have an adverse impact on our financial results, which include, but are not limited to, the following: products we sell include steel and aluminum and if we are unable to pass such price increases through to our customers, it would likely increase our cost of sales and, as a result, decrease our gross margins, operating income and net income. In addition, in response to the new tariffs, a number of other countries are threatening to impose tariffs on U.S. imports, which, if implemented, could increase the price of our products in these countries and may result in our customers looking to alternative sources for our products. This would result in decreased sales, which could have a negative impact on our net income and financial condition. Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations.

The value of our deferred tax assets could become impaired, which could materially and adversely affect our operating results.

As of December 31, ~~2015,~~2018, we had approximately ~~$51.6~~$17.4 million in net deferred tax assets after valuation allowance. These deferred tax assets can be used to offset taxable income in future periods and reduce income taxes payable in those future periods. Each quarter, we determine the probability of the realization of deferred tax assets, using significant judgments and estimates with respect to, among other things, historical operating results, expectations of future earnings and tax planning strategies. In the event that there is insufficient positive evidence to support the valuation of these assets, we may be required to further adjust the valuation allowance to reduce our deferred tax assets. Such a reduction could result in a material non-cash charge in the period in which the valuation allowance is adjusted and could have a material adverse effect on our results of operations.

The freezing of our defined benefit pension plan could trigger a material curtailment adjustment in favor of the USG.

Our defined benefit pension plan was frozen with respect to future benefit accruals effective December 31, 2015. U.S. Government Cost Accounting Standard 413 ("CAS 413") requires the Company to determine the USG’s share of any resulting pension curtailment adjustment attributable to pension expense charged to Company contracts with the USG, which could result in an amount due to the USG if the plan is determined to be in a surplus position or an amount due to the Company if the plan is determined to be in a deficit position. During the fourth quarter of 2016, the Company accrued a $0.3 million liability representing our estimate of the amount due to the USG based on our pension curtailment adjustment calculation, which was submitted to the USG for review in December 2016. The Company ~~is working to quantify the impact~~has maintained its accrual at $0.3 million as of ~~the pension curtailment, and there~~December 31, 2018. There can be no assurance that itthe ultimate resolution of this matter will not have a material adverse effect on our ~~business, our financial condition,~~ results of operations, financial position and cash flows.

Estimates of future costs for long-term contracts impact our current and future operating results and profits.

We generally recognize sales and gross margin on long-term contracts based on the ~~percentage-of-completion~~over time method of accounting. This method allows for revenue recognition as our work progresses on a contract and requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the negotiated contract price, with consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements. Contract costs may be incurred over a period of several years, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers and financial professionals.

Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections. The complexity of certain programs as well as technical risks and the availability of materials and labor resources could affect our ability to accurately estimate future contract costs. Additional factors that could affect recognition of revenue and gross margin under ~~the percentage-of-completion~~this method include:

Accounting for initial program costs;

The effect of nonrecurring work;

Delayed contract start-up or changes to production schedules;

Transition of work to or from the customer or other vendors;

Claims or unapproved change orders;

Product warranty issues;

Delayed completion of certain programs for which inventory has been built up;

Our ability to estimate or control scrap level;

Accrual of contract losses; and

Changes in our overhead rates.

Because of the significance of the judgments and estimation processes, it is likely that materially different sales and profit amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect current and future financial performance. While we perform quarterly reviews of our long-term contracts to address and lessen the effects of these risks, there can be no assurance that we will not make material adjustments to underlying assumptions or estimates relating to one or more long-term contracts that ~~may~~ have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may lose money or generate lower than expected profits on our fixed-price contracts.

Our customers set demanding specifications for product performance, reliability and cost. Most of our government contracts and subcontracts provide for a predetermined, fixed price for the products we make regardless of the costs we incur. Therefore, we must absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve. Our failure to anticipate technical problems, estimate costs accurately, integrate technical processes effectively or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause a loss. While we believe that we have recorded adequate provisions in our financial statements for losses on our fixed-price contracts as required under ~~generally accepted accounting principles ("GAAP"),~~GAAP, there can be no assurance that our contract loss provisions will be adequate to cover all actual future losses.

The U.S. Navy contract award for the ~~FMU-139D/~~FMU-139 D/B bomb fuze could jeopardize the continued viability and profitability of the Company's FMU-152 A/B bomb fuze program with the U.S. Air ~~Force.~~Force ("USAF").

The Company currently provides the ~~FMU-152A/~~FMU-152 A/B bomb fuze (also referred to as the JPF) to the ~~U.S. Air Force ("USAF")~~USAF and ~~twenty-six~~thirty-six other nations, but the U.S. Navy currently utilizes a different fuze - the FMU-139. During 2015, the U.S. Naval Air Systems Command (“NAVAIR”) solicited proposals for a firm-fixed price production contract to implement improvements to the performance characteristics of the FMU-139 (such improved fuze having been designated the ~~FMU-139D/~~FMU-139 D/B). The USAF has stated that, if and when a contract is awarded and production begins, the funds associated with the ~~FMU-152A/~~FMU-152 A/B will be redirected to the ~~FMU-139D/~~FMU-139 D/B. During the third quarter of 2015, the U.S. Navy awarded the FMU-139 D/B contract to a competitor. In the event that the FMU-139 D/B program proceeds as planned and the USAF redirects the funds associated with the FMU-152 A/B to the FMU-139 D/B, our business, financial condition, results of operations and cash flows may be materially adversely impacted.

The ~~start-up~~timing of the ~~K-MAX®~~impact on our financial statements is dependent on the ability of our competitor to complete the design and qualification phase of the program and other factors. Our competitor has publicly stated that this program will have a 32-month qualification phase, after which production ~~line could adversely affect our operating results and cash flow generation.~~

~~Because~~will begin. Due to the ~~K-MAX® aircraft has not been manufactured in over a decade, restarting~~complexity of this program, the ~~production line could require significant investments of cash to fund costs~~uncertainty associated with ~~development~~the successful completion of each phase and ~~engineering work,~~ the acquisition of new tooling, first article testing, and production inefficiencies. The Company currently has $14.9 million of K-MAX® inventory, a portion of which we expect to use in connection with a start-uppending status of the ~~production line. If this inventory is determined~~USAF's final decision to ~~be unusable, then~~redirect funds to the ~~Company could incur additional costs to replace such inventory, including potentially having to requalify suppliers for~~FMU-139 D/B, the ~~manufacture of new components. The anticipated positive cash flows resulting from the sale~~timing and magnitude of the ~~aircraft may also be adversely impacted by production delays. Further, if we are unable to sustain interest in this program, we may incur additional costs associated with a shut-down of~~impact on the ~~production line.~~Company's financial statements is not certain.

A failure to develop and retain ~~national~~corporate accounts at our Distribution segment could adversely impact our financial results.

Companies continue to consolidate their purchases of industrial products through a small number of major distributors or integrated suppliers, rather than a large number of vendors. Our Distribution segment has developed a strategy to compete effectively for ~~national~~corporate accounts, but we face intensifying competition from our competitors, several of which are larger and have a more extensive geographic footprint.

If we are not awarded additional national accounts in the future, or if existing ~~national~~corporate account agreements are not renewed, our sales volume could be negatively impacted, which may result in lower gross margins and weaker operating results. Additionally, national accounts may require an increased level of customer service, such as investments in the form of opening new branches to meet our customers' needs. The cost and time associated with these activities could be significant, and if the relationship is not maintained, we ultimately may not be able to generate a return on these investments.

The loss of the Distribution segment’s key suppliers with whom we have national reseller agreements and/or national distributor agreements could adversely affect our operating results and profits.

An element of our Distribution segment’s strategy is to establish alignment with a single vendor in certain portions of its business. As a result, we currently have distribution rights for certain product lines and depend on these distribution rights as a source of business. Many of these distribution rights are ours pursuant to contracts that are subject to cancellation upon little or no prior notice. Although we believe we could obtain alternate distribution rights in the event of such a cancellation, the termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption of our business and, in turn, could adversely affect our results of operations and financial condition.

A decline in sales at our Distribution segment could adversely impact the vendor incentives and rebates we earn from suppliers.

Some of our suppliers offer vendor incentives and rebates that are tied to the amount of product that we purchase. These incentives and rebates can be market or customer-account specific, or relate to a specified program period. A decline in sales could adversely impact the vendor incentives and rebates we earn from suppliers.

Our information technology systems, processes and sites may suffer interruptions or failures which may affect our ability to conduct our business.

Our information technology systems provide critical data connectivity, information and services for internal and external users. These interactions include, but are not limited to, ordering and managing materials from suppliers, inventory management, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements and other processes necessary to manage our business. Our computer systems face the threat of unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks and other security problems and system disruptions.

Cyber-attacks are evolving and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, manipulation of data, disruption or denial of service attacks and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential, personal or otherwise protected information, including trade secrets, and corruption of data, networks or systems. We provide products and services to customers who also face cyber threats. Our products and services may be subject to cyber threats and we may not be able to detect or deter such threats, which could result in losses that could adversely affect our customers and our company. Additionally, we could be impacted by cyber threats in products that we use in our partners' and customers' systems that are used in connection with our business. These events, if not prevented or mitigated, could damage our reputation, require remedial action and lead to loss of business, regulatory actions, potential liability and other financial losses.

We To address the risks to our information technology systems and data, we manage an information security program, maintain strong incident report capabilities and perform daily off-site backups. Additionally, we have put in place business continuity plans and security precautions for our critical systems, including a back-up data center. ~~However, if~~Updates on cyber security are provided to the Board of Directors at least annually.

In the event our information technology systems are damaged or cease to function properly due to any number of causes, such as catastrophic events, power outages and security breaches resulting in unauthorized access or cyber-attacks, and our information security program, incident report capabilities, business continuity plans and security precautions do not function effectively ~~compensate~~ on a timely basis, we may suffer interruptions in our operations or the misappropriation of proprietary information, which may adversely impact our business, financial condition, results of operations and cash flows.

Our implementation of enterprise resource planning (“ERP”) systems may adversely affect our business and results of operations or the effectiveness of internal controls over financial reporting.

We are currently implementing new ERP systems within our Aerospace and Distribution segments. ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities that take several years. If we do not effectively implement the ERP systems or if the systems do not operate as intended, it could adversely affect our financial reporting systems and our ability to produce financial reports, the effectiveness of internal controls over financial reporting, and our business, financial condition, results of operations and cash flows.

A failure to maintain effective internal controls could adversely affect our ability to accurately report our financial results or prevent fraud.

Our ability to provide assurance with respect to our financial reports and to effectively prevent fraud depends on effective internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements; therefore, even effective controls can only provide reasonable assurance with respect to the preparation and fair presentation of financial statements. If ~~we are unable~~our internal controls were to ~~provide reasonable assurance,~~be compromised, our financial statements could become materially misleading, which could adversely affect the trading price of our common stock. Any material weakness could adversely impact investor confidence in the accuracy of our financial statements, affecting our ability to obtain additional financing. ~~As a result, this~~This would ~~affect~~likely have an adverse effect on our business, financial condition and the market value of our stock. Additionally, we would be required to incur costs to ~~improve~~make the necessary improvements to our internal control systems.

Although management has assessed our internal control over financial reporting as effective based on criteria set forth by the ~~COSO~~Committee of Sponsoring Organizations - Integrated Framework, we can give no assurance that material weaknesses will not occur in the ~~future. Those~~future nor that existing controls ~~may not~~will continue to be adequate to prevent or identify irregularities or ensure fair presentation of our financial ~~statements.~~statements in the future.

We may make acquisitions or investments in new businesses, products or technologies that involve additional risks, which could disrupt our business or harm our financial condition or results of operations.

As part of our business strategy, we have made, and expect to continue to make, acquisitions of businesses or investments in companies that offer complementary products, services and technologies. Such acquisitions or investments involve a number of risks, including:

Assimilating operations and products may be unexpectedly difficult;

Management's attention may be diverted from other business concerns;

We may enter markets in which we have limited or no direct experience;

We may lose key employees, customers or vendors of an acquired business;

We may not be able to achieve the synergies or cost savings we anticipated;

We may not realize the assigned value of the acquired assets;

We may experience quality control failures or encounter other customer relationship issues; and

We may become subject to preexisting liabilities and obligations of the acquired businesses.

These factors could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the consideration paid for any future acquisitions could include our stock or require that we incur additional debt and contingent liabilities. As a result, future acquisitions could cause dilution of existing equity interests and earnings per share.

Certain of our operations are conducted through joint ventures, which entail special risks.

The Company has a ~~26%~~49% equity interest in Kineco-Kaman Composites - India Private Limited, a composites manufacturing joint venture located in Goa, India. The Company relies significantly on the services and skills of its joint venture partner to manage and conduct the local business operations of the joint venture and ensure compliance with all applicable laws and regulations. If our joint venture partner fails to perform these functions adequately, it may adversely affect our business, financial condition, results of operations and cash flows. Moreover, if our joint venture partner fails to honor its financial obligations to commit capital, equity or credit support to the joint venture as a result of financial or other difficulties or for any other reason, the joint venture may be unable to perform contracted services or deliver contracted products unless we provide the necessary capital, equity or credit support.

We may be unable to realize expected benefits from our sales initiatives and cost reduction and restructuring efforts and our profitability may be hurt or business otherwise might be adversely affected.

In both of our segments, we have a number of initiatives to grow sales and win new programs. Additionally, in order to operate more efficiently and control costs, from time to time, we announce restructuring plans, which include workforce reductions as well as facility consolidations and other cost reduction initiatives. These plans are intended to generate operating expense savings through direct cost and indirect overhead expense reductions, as well as other savings. We may undertake further sales growth initiatives, workforce reductions or restructuring actions in the future. These types of sales growth initiatives and cost reduction and restructuring activities are complex. If we do not successfully manage our current initiatives and restructuring activities or any other similar activities that we may undertake in the future, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted. Risks associated with these initiatives, actions and other workforce management issues include political responses to such actions, unforeseen delays in the implementation of anticipated workforce reductions, additional unexpected costs, adverse effects on employee morale and the failure to meet operational targets, whether due to the loss of employees, work stoppages or otherwise, any of which may impair our ability to achieve anticipated sales or cost reductions and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our financial results of operations could be adversely affected by impairment of our goodwill or other intangible assets.

When we acquire a business, we record goodwill equal to the excess of the amount we pay for the business, including liabilities assumed, over the fair value of the tangible and identifiable intangible assets of the business we acquire. Goodwill and other intangible assets that have indefinite useful lives must be evaluated at least annually for impairment. The specific guidance for testing goodwill and other non-amortized intangible assets for impairment requires management to make certain estimates and assumptions when allocating goodwill to reporting units and determining the fair value of reporting unit net assets and liabilities, including, among other things, an assessment of market conditions, projected cash flows, investment rates, cost of capital and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. Changes in our estimates and assumptions, including economic and market projections in our Distribution Segment and commercial and military program awards in our Aerospace Segment, could adversely impact projected cash flows and the fair value of reporting units. Fair value is generally determined using a combination of the discounted cash flow, market multiple and market capitalization valuation approaches. Absent any impairment indicators, we generally perform our evaluations annually in the fourth quarter, using available forecast information. If at any time we determine an impairment has occurred, we are required to reflect the reduction in value as an expense within operating income, resulting in a reduction of earnings and a corresponding reduction in our net asset value in the period such impairment is identified.

We rely on the experience and expertise of our skilled employees, and must continue to attract and retain qualified technical, marketing and managerial personnel in order to succeed.

Our future success will depend largely upon our ability to attract and retain highly skilled technical, operational and financial managers and marketing personnel. There is significant competition for such personnel in the aerospace and distribution industries. We try to ensure that we offer competitive compensation and benefits as well as opportunities for continued development, and we continually strive to recruit and train qualified personnel and retain key employees. There can be no assurance, however, that we will continue to be successful in attracting and retaining the personnel we require to develop new and enhanced products and to continue to grow and operate profitably.

We are subject to litigation, tax, environmental and other legal compliance risks that could adversely affect our operating results.

We are subject to a variety of litigation, tax and legal compliance risks. These risks include, among other things, possible liability relating to contract-related claims, government contracts, product liability matters, personal injuries, intellectual property rights, taxes, employment, environmental matters and compliance with U.S. and foreign export laws, competition laws, ~~and~~ laws governing improper business ~~practices.~~practices and data privacy laws, including the EU-wide General Data Protection Regulation (the "GDPR"), which became effective in May 2018. In the event that we or one of our business units engage in wrongdoing in connection with any of these kinds of matters, we could be subject to significant fines, penalties, repayments, other damages (in certain cases, treble damages), or suspension or debarment from government contracts. Moreover, our failure to comply with applicable export and trade practice laws could result in civil or criminal penalties and suspension or termination of export privileges.

As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights. Changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in product designs and could increase environmental compliance expenditures. Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw material costs.

Our financial results may be adversely affected by the outcome of pending legal proceedings and other contingencies that cannot be predicted. In accordance with GAAP, if a liability is deemed probable and reasonably estimable in light of the facts and circumstances known to us at a particular point in time, we make an estimate of material loss contingencies and establish reserves based on our assessment. Subsequent developments in legal proceedings may affect our assessment. The accrual of a loss contingency adversely affects our results of operations in the period in which a liability is recognized. This could also have an adverse impact on our cash flows in the period during which damages are paid.

For a discussion of these matters, please refer to Note ~~16,~~17, Commitments and Contingencies, and Note 11, Environmental Costs, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

~~Regulations related to conflict minerals could adversely impact our business.~~

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions designed to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of the Congo ("DRC") and adjoining countries. In August 2012, the SEC promulgated disclosure and reporting requirements for companies who use conflict minerals in their products. Complying with these disclosure and reporting requirements requires us to incur substantial costs and expenditures to conduct due diligence to determine the sources of conflict minerals used in our products. Moreover, these requirements may result in changes to the sourcing practices of our customers which may require the identification and qualification of alternate sourcing for the components of products we manufacture, which could impact the availability of, or cause increases in the price of, materials used in our products. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to verify the origin of conflict minerals used in our products through the procedures we implemented. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, there can be no assurance that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices.

Our foreign operations require us to comply with a number of United States and international laws and regulations, violations of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

~~Our operations outside the United States require us~~We are required to comply with a number of United States and international laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), the U.K. Bribery Act of 2010 (the "Bribery Act"), and other similar anticorruption ~~laws.~~laws and regulations. The FCPA generally prohibits United States companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. ~~While~~Although we have internal controls, ~~and~~ procedures and compliance programs to train our employees and agents with respect to compliance with the FCPA and other ~~similar~~applicable international laws and regulations, there can be no assurance that our policies, procedures and programs will always protect us from reckless or criminal acts committed by our employees or

agents. Allegations of violations of applicable ~~anti-corruption~~international laws and regulations, including the FCPA and the Bribery Act, may result in internal, independent or government investigations. Violations of the FCPA and other international laws and regulations may lead to severe criminal or civil sanctions and could result in liabilities that have a material adverse effect on our business, financial condition, results of operations and cash flows.

Economic conditions and regulatory changes leading up to and following the United Kingdom’s ("UK") likely exit from the European Union ("EU") could have a material adverse effect on our business, financial condition and results of operations.

We have business operations in both the UK and the broader EU. In June 2016, a majority of voters in the UK elected to withdraw from the EU in a national referendum, and the UK is currently negotiating the terms of its exit from the EU, which is scheduled for March 29, 2019. In November 2018, the UK and the EU agreed upon a draft Withdrawal Agreement that sets out the terms of the UK's departure, including commitments on citizen rights after its withdrawal, a financial settlement from the UK and a transition period from March 29, 2019 through December 31, 2020 to allow time for a future deal to be agreed upon. On January 15, 2019, the draft Withdrawal Agreement was rejected by the UK parliament, creating significant uncertainty regarding the terms and timing under which the UK will leave the EU. In addition, the UK referendum and withdrawal process have given rise to calls for the governments of other EU member states to consider withdrawal.

These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future UK laws and regulations as the UK determines which EU laws to replace or replicate in the course of its withdrawal, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the UK, increase costs, depress economic activity and restrict our access to capital. If the UK and the EU are unable to negotiate acceptable withdrawal terms or if other EU member states pursue withdrawal, barrier-free access between the UK and other EU member states or among the European economic area overall could be diminished or eliminated. Any of these factors could have a direct or indirect impact on our business in the UK and EU, our customers and suppliers in the UK and EU and our business outside the UK and EU. Any of these factors could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.

Our foreign operations present additional risks and uncertainties which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our foreign business operations create additional risks and uncertainties, including the following:

Longer payment cycles;

Difficulties in accounts receivable ~~collection;~~collection, including complexities in documenting letters of credit;

Changes in regulatory requirements;

Export restrictions, tariffs and other trade barriers;

Difficulties in staffing and managing foreign operations;

Seasonal reductions in business activity during the summer months in Europe and certain other parts of the world;

Political or economic instability in the markets we serve;

Potentially adverse tax consequences; and

Cultural and legal differences impacting the conduct of business.

~~Any one~~

In addition, our contracts with foreign customers may include terms and reflect legal requirements that create additional risks. These include, among others, industrial cooperation agreements requiring specific in-country purchases, investments, manufacturing agreements or ~~more~~other financial obligations, known as offset requirements, and provide for significant penalties if we fail to meet such requirements. Our foreign customers may also require us to enter in letters of credit, performance or surety bonds, bank guarantees and/or other financial arrangements to secure our performance obligations. All or any of these factors ~~could~~have the potential to have a material adverse effect ~~on our domestic or international operations, and, consequently,~~ on our business, financial condition, results of operations and cash flows.

Our insurance coverage may be inadequate to cover all significant risk exposures.

We are exposed to risks that are unique to the products and services we provide. While we believe that we maintain adequate insurance for certain risks, insurance cannot be obtained to protect against all risks and liabilities. It is therefore possible that our insurance coverage may not cover all claims or liabilities, and we may be forced to bear substantial unanticipated costs.

~~Health care reform could adversely affect our operating results.~~

In 2010, the United States federal government enacted comprehensive health care reform legislation. Due to the breadth and complexity of this legislation, as well as the phased-in nature of its implementation and lack of interpretive guidance, it is difficult for the Company to predict the effects it will have on our business over the coming years. There can be no assurance that our operating results will not be adversely affected by increased costs, expanded liability exposure and requirements that change the ways we provide healthcare and other benefits to our employees.

Business disruptions could seriously affect our sales and financial condition or increase our costs and expenses.

Our business may be impacted by disruptions including, but not limited to, threats to physical security, information technology attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises. Any of these disruptions could affect our internal operations or services provided to customers, and could impact our sales, increase our expenses or adversely affect our reputation or our stock price. We have developed and are implementing business continuity plans for each of our businesses, in order to mitigate the effects disruptions may have on our financial results.

Our business could be impacted as a result of actions by activist shareholders or others.

We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others. Responding to such actions could be costly and time-consuming, may not align with our business strategies and could divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may make it more difficult to attract and retain qualified personnel and business partners and may affect our relationships with vendors, customers and other third parties.

Our revenue, cash flows and quarterly results may fluctuate, which could adversely affect our stock price.

We may in the future experience significant fluctuations in our quarterly operating results attributable to a variety of factors. Such factors include but are not limited to:

Changes in demand for our products;

Introduction, enhancement or announcement of products by us or our competitors;

Market acceptance of our new products;

The growth rates of certain market segments in which we compete;

Size, timing and shipment terms of significant orders;

Difficulties with our technical programs;

Budgeting cycles of customers;

Pricing pressures from customers;

Customer advances;

Longer payment terms required by our customers;

Mix of distribution channels;

Mix of products and services sold;

Mix of domestic and international revenues;

Fluctuations in currency exchange rates;

Changes in the level of operating expenses;

Changes in our sales incentive plans;

Changes in tax laws in the jurisdictions in which we conduct business;

Inventory obsolescence;

Accrual of contract losses;

Fluctuations in oil and utility costs;

Health care reform;

Completion or announcement of acquisitions; and

General economic conditions in regions in which we conduct business.

Most of our expenses are relatively fixed in the short-term, including costs of personnel and facilities, and are not easily reduced. Thus, an unexpected reduction in our revenue, or failure to achieve an anticipated rate of growth, could have a material adverse effect on our profitability. If our operating results do not meet the expectations of investors, our stock price may decline.

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration); (iii) changes in geopolitical conditions in countries where the Company does or intends to do business; (iv) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; (v) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the U.S. Government; (vi) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (vii) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; ~~(vi)~~(viii) the successful resolution of government inquiries or investigations relating to our businesses and programs; ~~(vii)~~(ix) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed specifications required and recover start-up costs and other investments in the programs; ~~(viii)~~(x) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; ~~(ix)~~(xi) the receipt and successful execution of production orders under the Company's existing U.S. government JPF contract, including the exercise of all contract options and receipt of orders from allied militaries, but excluding any next generation programmable fuze programs, as all have been assumed in connection with goodwill impairment evaluations; ~~(x)~~(xii) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our ~~investment~~investments in ~~the restart of~~ the K-MAX® production line; ~~(xi)~~(xiii) the accuracy of current cost estimates associated with environmental remediation activities; ~~(xii)~~(xiv) the profitable integration of acquired businesses ~~and~~into the ~~ability to generate projected earnings and achieve cost synergies and other expense reduction objectives from such businesses; (xiii)~~Company's operations; (xv) the ability to implement our ERP systems in a cost-effective and efficient manner, limiting disruption to our business, and allowing us to capture their planned benefits while maintaining an adequate internal control environment; ~~(xiv)~~(xvi) the ability to recover from cyber-based or other security attacks, information technology failures or other disruptions; (xvii) changes in supplier sales or vendor incentive policies; ~~(xv)~~(xviii) the ability of our suppliers to satisfy their performance obligations; (xix) the effects of price increases or decreases; ~~(xvi)~~(xx) the effects of pension regulations, pension plan assumptions, pension plan asset performance, ~~and~~ future contributions and the pension ~~freeze; (xvii)~~freeze, including the ultimate determination of the U.S. Government's share of any pension curtailment adjustment calculated in accordance with CAS 413; (xxi) future levels of indebtedness and capital expenditures; ~~(xviii)~~(xxii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; ~~(xix)~~(xxiii) the effects of currency exchange rates and foreign competition on future operations; ~~(xx)~~(xxiv) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; ~~(xxi)~~(xxv) the effects, if any, of the UK's exit from the EU; (xxvi) future repurchases and/or issuances of common stock; ~~(xxii)~~(xxvii) the ~~incurrence~~occurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; (xxviii) the ability to recruit and ~~(xxiii)~~retain skilled employees; and (xxix) other risks and uncertainties set forth ~~in the Company's annual, quarterly and current reports, proxy statements and other filings with the SEC.~~herein.

Any forward-looking information provided in this report should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.


ITEM 2.	PROPERTIES

Our facilities are generally suitable for, and adequate to serve, their intended uses. At December 31, ~~2015~~2018, we occupied major facilities at the following principal locations:



Segment	Location	Property Type ⁽¹⁾
Aerospace	Jacksonville, Florida	Leased - Manufacturing & Office
	Chihuahua, Mexico	Leased - Manufacturing & Office
	Rimpar, Germany	Owned - Manufacturing & Office
	Prachatice, Czech Republic	Owned - Assembly & Office
	Wichita, Kansas	Leased - Manufacturing & Office
	Darwen, Lancashire, United Kingdom	Leased - Manufacturing & Office
	~~Hyde, Greater Manchester, United Kingdom~~	~~Leased - Manufacturing & Office~~
	~~Burnley, Lancashire, United Kingdom~~	~~Leased - Manufacturing & Office~~
	Orlando, Florida	Owned - Manufacturing & ~~Office~~
	~~Everett, Washington~~	~~Leased -~~ Office
	Höchstadt, Germany	Owned - Manufacturing & Office
	Middletown, Connecticut	Owned - Manufacturing & Office
	Bloomfield, Connecticut	Owned - Manufacturing, Office & Service Center
	Bennington, Vermont	Owned - Manufacturing & Office
	~~Mesa,~~Gilbert, Arizona	Leased - Office & Service Center

Distribution	Bloomfield, Connecticut	Owned - Office
	Ontario, California	Leased - Distribution Center & Office
	~~Albany,~~Latham, New York	Leased - Distribution Center & Office
	Savannah, Georgia	Leased - Distribution Center & Office
	Salt Lake City, Utah	Leased - Distribution Center & Office
	Louisville, Kentucky	Leased - Distribution Center & Office
	Gurabo, Puerto Rico	Leased - Distribution Center & Office
	Bolingbrook, Illinois	Leased - Office & Branch
	Rochester, New York	Leased - Office & Branch
	Akron, Ohio	Leased - Office
	~~Northvale,~~Teterboro, New Jersey	Leased - Office & Branch
	Plano, Texas	Leased - Office & Warehouse
	Franklin, Massachusetts	Leased - Office & Warehouse

Corporate	Bloomfield, Connecticut	Owned - Office & Information Technology Back-Up Data Center



	Square Feet
Distribution ⁽²⁾	~~2,379,420~~2,263,438
Aerospace	~~2,251,689~~2,043,938
Corporate ⁽³⁾	103,041
Total	~~4,734,150~~4,410,417


(1)	Owned facilities are unencumbered.


(2)	The Distribution segment also has approximately ~~240~~220 branches located across the United States and in Puerto Rico, generally operating in leased facilities.


(3)	We occupy a 40,000 square foot corporate headquarters building, 38,000 square foot mixed use building and 8,000 square foot data center in Bloomfield, Connecticut.

~~ITEM 3. LEGAL PROCEEDINGS~~


ITEM 3.	LEGAL PROCEEDINGS

General

From time to time, as a normal incident of the nature and kinds of businesses in which the Company and its subsidiaries are, and were, engaged, various claims or charges are asserted and legal proceedings are commenced by or against the Company and/or one or more of its subsidiaries. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals related to those matters for which we consider a loss to be both probable and reasonably estimable. Gain contingencies, if any, are not recognized until they are realized. Legal costs are generally expensed when incurred.

We evaluate, on a quarterly basis, developments in legal proceedings that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. Our loss contingencies are subject to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or ~~parties and~~ claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement postures of the parties. Because of these uncertainties, management has determined that, except as otherwise noted below, the amount of loss or range of loss that is reasonably possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already accrued), is not reasonably estimable.

While it is not possible to predict the outcome of these matters with certainty, based upon available information, management believes that all settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in legal proceedings and that can be reasonably estimated are accrued for at December 31, ~~2015.~~2018. Despite this analysis, there can be no assurance that the final outcome of these matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

Except as set forth below, as of December 31, ~~2015,~~2018, neither the Company nor any of its subsidiaries is a party, nor is any of its or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company and its subsidiaries. Additional information relating to certain of these matters is set forth in Note ~~16,~~17, Commitments and Contingencies, and Note 11, Environmental Costs, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Environmental Matters

The Company and its subsidiaries are subject to numerous U.S. Federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past activities of companies we have acquired). From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent laws. Such notices assert potential liability for cleanup costs at various sites, which may include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. ~~We are currently named as a potentially responsible party at one site.~~ While it is not possible to predict the outcome of these proceedings, in the opinion of management, any payments we may be required to make as a result of all such claims in existence at December 31, ~~2015,~~2018, will not have a material adverse effect on our business, financial condition and results of operations or cash flows. Additional information relating to certain of these matters is set forth in Note 17, Commitments and Contingencies, and Note 11, Environmental Costs, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Asbestos Litigation

Like many other industrial companies, the Company and/or one of its subsidiaries may be named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos integrated into certain products sold or distributed by the Company and/or the named subsidiary. A substantial majority of these asbestos-related claims have been covered by insurance or other forms of indemnity or have been dismissed without payment. The rest have been resolved for amounts that are not material to the Company, either individually or in the aggregate. Based on information currently available, we do not believe that the resolution of any currently pending asbestos-related matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.


ITEM 4.	MINE SAFETY DISCLOSURES

Information concerning mine safety violations required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and Item 104 of Regulation S-K ~~has been included in Exhibit 95 to~~was not required for this Annual Report on Form ~~10-K.~~10-K as there were no reportable violations during 2018.

PART II


ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET, DIVIDEND AND SHAREHOLDER INFORMATION

Our Common Stock is traded on the New York Stock Exchange under the symbol "KAMN". As of January ~~29, 2016,~~25, 2019, there were ~~3,400~~3,089 registered holders of our Common Stock. Holders of the Company’s Common Stock are eligible to participate in the Computershare Shareowner Services program, which offers a variety of services including dividend reinvestment. A booklet describing the program may be obtained by contacting Computershare at (800) 522-6645 or via the web at www.cpushareownerservices.com.

~~The following table sets forth the high, low and closing sale prices per share of the Company’s Common Stock and the dividends declared for the periods indicated:~~

Market Quotations
High Low Close
Dividend
Declared
2015

First quarter $ 42.82
$ 37.54
$ 42.31
$ 0.18
Second quarter 43.47
41.00
42.06
0.18
Third quarter 42.29
35.09
35.96
0.18
Fourth quarter 41.82
36.06
40.81
0.18
2014

First quarter $ 41.77
$ 37.83
$ 40.02
$ 0.16
Second quarter 44.60
39.19
42.87
0.16
Third quarter 43.47
38.62
39.70
0.16
Fourth quarter 43.49
37.43
40.09
0.16

ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information about purchases of Common Stock by the Company during the three months ended December 31, ~~2015:~~2018:

Period
Total Number
of Shares
Purchased (a)

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan (b)

Approximate Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Plan (in thousands)
October 3, 2015 – October 30, 2015 27,224
$ 37.69
27,224
$ 90,767
October 31, 2015 – November 27, 2015 22,201
$ 39.48
22,000
$ 89,898
November 28, 2015 – December 31, 2015 48,906
$ 40.42
48,000
$ 87,959
Total 98,331

97,224



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan (b)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (in thousands)
September 29, 2018 – October 26, 2018	26,617	$	63.81	26,000	$	51,278
October 27, 2018 – November 23, 2018	51,265	$	58.75	50,507	$	48,311
November 24, 2018 – December 31, 2018	46,615	$	55.98	46,500	$	45,707
Total	124,497			123,007

(a) During the quarter the Company purchased ~~1,107~~1,490 shares in connection with employee tax withholding obligations as permitted by our equity compensation plans, which are SEC Rule 16b-3 qualified compensation plans. These are not purchases under our publicly announced program.

(b) On April 29, 2015, the Company announced that its Board of Directors approved a $100.0 million share repurchase program ("2015 Share Repurchase Program"). This program will expire December 31, 2019.

PERFORMANCE GRAPH

Following is a comparison of our total shareholder return for the period ~~2010~~2013 – ~~2015~~2018 compared to the S&P 600 Small Cap Index and the Russell 2000 Small Cap Index. The performance graph does not include a published industry or line-of-business index or peer group of similar issuers because during the performance period the Company was conducting operations in diverse lines of business and we do not believe a meaningful industry index or peer group can be reasonably identified. Accordingly, as permitted by regulation, the graph includes the S&P 600 Small Cap Index and the Russell 2000 Small Cap Index, both of which are comprised of issuers with market capitalizations generally similar to that of the Company.


	2010	2011	2012	2013	2014	2015	2013	2014	2015	2016	2017	2018
Kaman Corporation	100.00	95.87	131.60	144.61	148.24	153.61	100.00	102.51	106.22	129.47	158.09	152.63
S&P Small Cap 600	100.00	101.02	115.25	166.05	175.61	172.15	100.00	105.76	103.67	131.20	148.56	135.96
Russell 2000	100.00	95.82	111.49	154.78	162.35	155.18	100.00	104.89	100.26	121.63	139.44	124.09

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SELECTED FINANCIAL DATA

(in thousands, except per share amounts, shareholders and employees)


	2015¹		2014^2,6,7			2013^3,6,7			2012^4,6,7		2011^5,6,7		2018 ^1,6,7		2017 ^2,6,7		2016 ^3,6,7		2015 ^4,6,7		2014 ^5,6,7
OPERATIONS
Net sales from continuing operations	$	1,775,125	$	1,794,962		$	1,653,921		$	1,563,342	$	1,452,182	$	1,875,425	$	1,805,909	$	1,808,376	$	1,775,125	$	1,794,962
Operating income from continuing operations	104,519		110,507			103,346			91,589		86,819		83,064		111,119		102,774		98,416		102,932
Earnings from continuing operations before income taxes	87,989		96,502			90,654			79,695		75,541		75,237		94,378		89,704		87,989		96,502
Income tax expense	27,551		30,722			31,588			26,748		26,214		21,068		44,552		30,850		27,551		30,722
Earnings from continuing operations	60,438		65,780			59,066			52,947		49,327		54,169		49,826		58,854		60,438		65,780
Earnings (loss) from discontinued operations, net of taxes	—		(2,924		)	(2,386		)	755		1,815
Gain (loss) on disposal of discontinued operations, net of taxes	—		(4,984		)	420			1,323		—
Loss from discontinued operations, net of taxes													—		—		—		—		(2,924		)
Loss on disposal of discontinued operations, net of taxes													—		—		—		—		(4,984		)
Net earnings	$	60,438	$	57,872		$	57,100		$	55,025	$	51,142	$	54,169	$	49,826	$	58,854	$	60,438	$	57,872
FINANCIAL POSITION
Current assets	$	676,035	$	662,256		$	665,205		$	618,045	$	600,102	$	773,105	$	747,869	$	698,553	$	676,035	$	662,256
Current liabilities	236,689		221,724			227,956			223,952		218,698		298,476		246,299		353,886		236,689		221,724
Working capital	439,346		440,532			437,249			394,093		381,404		474,629		501,570		344,667		439,346		440,532
Property, plant and equipment, net	175,586		147,825			148,508			128,669		111,895		184,224		185,452		176,521		175,586		147,825
Total assets	1,441,205		1,201,205			1,140,631			1,096,993		996,398		1,460,313		1,455,452		1,426,286		1,439,611		1,199,281
Long-term debt, excluding current portion	435,821		271,232			264,655			249,585		198,522		284,256		391,651		296,598		434,227		269,308
Shareholders’ equity	543,077		517,665			511,292			420,193		373,071		633,157		635,656		565,787		543,077		517,665
PER SHARE AMOUNTS
Basic earnings per share from continuing operations	$	2.22	$	2.43		$	2.21		$	2.00	$	1.88	$	1.94	$	1.80	$	2.17	$	2.22	$	2.43
Basic earnings (loss) per share from discontinued operations	—		(0.11		)	(0.09		)	$	0.03	0.07		—		—		—		—		(0.11		)
Basic earnings (loss) per share from disposal of discontinued operations	—		(0.18		)	0.02			$	0.05	—		—		—		—		—		(0.18		)
Basic earnings per share	$	2.22	$	2.14		$	2.14		$	2.08	$	1.95	$	1.94	$	1.80	$	2.17	$	2.22	$	2.14
Diluted earnings per share from continuing operations	$	2.17	$	2.37		$	2.17		$	1.99	$	1.86	$	1.92	$	1.75	$	2.10	$	2.17	$	2.37
Diluted earnings (loss) per share from discontinued operations	—		(0.11		)	(0.09		)	0.03		0.07		—		—		—		—		(0.11		)
Diluted earnings (loss) per share from disposal of discontinued operations	—		(0.18		)	0.02			$	0.05	—		—		—		—		—		(0.18		)
Diluted earnings per share	$	2.17	$	2.08		$	2.10		$	2.07	$	1.93	$	1.92	$	1.75	$	2.10	$	2.17	$	2.08
Dividends declared	$	0.72	$	0.64		$	0.64		$	0.64	$	0.60	$	0.80	$	0.80	$	0.72	$	0.72	$	0.64
Shareholders’ equity	20.09		19.08			19.04			15.79		14.22		22.72		22.85		20.87		20.09		19.08
Market price range – High	43.47		44.60			40.35			37.54		38.40
Market price range – Low	35.09		37.43			32.16			26.10		25.73
AVERAGE SHARES OUTSTANDING
Basic	27,177		27,053			26,744			26,425		26,246		27,945		27,611		27,107		27,177		27,053
Diluted	27,868		27,777			27,143			26,622		26,500		28,223		28,418		28,072		27,868		27,777
GENERAL STATISTICS
Registered shareholders	3,402		3,532			3,642			3,685		3,813		3,085		3,142		3,261		3,402		3,532
Employees	5,258		4,797			4,743			5,007		4,614		5,065		5,297		5,265		5,258		4,797

(See Footnotes below)

(Footnotes to Five-Year Selected Financial Data above)

Included within certain annual results are a variety of unusual or significant items that may affect comparability. The most significant of such items are described below.

Results from 2018 include a $10.0 million write-off of other intangibles associated with the impairment for a certain asset group at our U.K. business, $6.0 million in expense related to restructuring activities at Aerospace, a $5.7 million loss on the sale of our U.K. Tooling business, $3.4 million in costs associated with corporate development activities, $3.0 million in costs incurred for employee-tax related matters at Aerospace, a $1.5 million gain on the sale of land, $1.4 million in costs associated with the termination of certain distributor agreements and separation costs for certain employees not covered by the restructuring activities at Aerospace, a $0.7 million loss on the sale of substantially all the assets and liabilities of our Engineering Services business and $0.6 million in separation costs for certain employees at Distribution.

Results for 2017 include $9.7 million in tax expense associated with the revaluation of the Company's existing U.S. deferred tax assets resulting from Tax Reform, $2.7 million in expense related to restructuring activities at the Aerospace segment and $2.8 million in separation costs associated with two senior executives. Additionally, we issued convertible senior unsecured notes in the aggregate principal amount of $200.0 million ("2024 Notes"). The Company used the proceeds from the issuance of the 2024 Notes, along with cash received in connection with the termination of existing convertible note hedge transactions, to repurchase a portion of the existing convertible senior unsecured notes due in November 2017 ("2017 Notes") at a cost of $106.7 million, purchase a capped call related to the 2024 Notes and pay down a portion of our revolving credit facility. The remaining portion of the 2017 Notes was settled in November 2017. The Company incurred $7.4 million of debt issuance costs in connection with the issuance of the 2024 Notes. Of the total amount, $0.7 million was recorded as an offset to additional paid-in capital and the remaining balance of $6.7 million was recorded as a contra-debt balance and is being amortized over the term of the 2024 Notes.

Results for 2016 include $5.1 million of acquisition transaction and integration costs related to our 2015 acquisitions, $2.5 million of severance costs at our Aerospace segment, of which $1.1 million is included in acquisition transaction and integration costs, and $1.0 million of restructuring and severance costs at our Distribution segment. Additionally, the carrying amount of the 2017 Notes was reclassified to current liabilities, as these 2017 Notes were convertible through April 3, 2017. Upon closure of the conversion period, the Notes remained in current liabilities due to their scheduled maturity.

Results for 2015 include $5.1 million in expense related to the acquisitions at both the Aerospace and Distribution segments, $4.0 million in expense associated with the resolution of the matters related to our AH-1Z program, $3.0 million of expenses related to foreign currency transactions associated with the purchase of GRW Bearing GmbH ("GRW") and $2.4 million of expenses associated with restructuring and severance costs at our Distribution segment.


2.5.	Results for 2014 include the sale of the Distribution segment's Mexican operations for $9.6 million on December 19, 2014. The net loss of $5.3 million resulting from the sale is included in the loss on disposal of discontinued operations for 2014. Additionally, we incurred $2.2 million of costs associated with the sale of our Moosup facility.

3.6.

~~Results for 2013 include~~

On January 1, 2018, we adopted new revenue recognition guidance ("ASC 606") using the modified retrospective method. As a ~~$2.1 million non-cash non-tax deductible charge for~~result, we applied the ~~impairment~~new revenue recognition guidance only to contracts that were not completed as of ~~goodwill related to VT Composites~~January 1, 2018; therefore, current period results are presented under the new revenue recognition guidance and ~~a gain on discontinued operations due to a $0.4 million favorable tax result versus~~prior period results are presented in accordance with previous ~~estimates and other activity related to the settlement~~revenue recognition guidance ("ASC 605"). The adoption of ~~the closing balance sheet of the Distribution segment's Canadian operations.~~


4.	~~Results for 2012 include the sale of certain assets and certain liabilities of the Distribution segment's Canadian operations for $8.7 million on December 31, 2012, resulting~~this standard resulted in ~~a net gain of $1.3 million. Additionally, we recorded $3.3 million of net loss related to the resolution of~~ an ~~Aerospace segment program related matter.~~


5.	~~Results for 2011 include $6.2~~additional $64.3 million in ~~expense related to the settlement of the FMU-143 matter~~net sales and ~~a nonrecurring benefit of $2.4~~$17.0 million ~~resulting from the death of a former executive.~~

~~The Company sold the Distribution segment's Mexican operations on December 19, 2014. The results of these discontinued operations~~in operating income in 2018, which otherwise would not have been ~~reported as such~~ recorded in 2018 under previous guidance. See Note 1, Summary of Significant Accounting Policies, and Note 2, Accounting Changes in the ~~table.~~Notes to Consolidated Financial Statements included in this Form 10-K for further details.

~~The Company sold substantially all assets~~

On January 1, 2018, we adopted the new accounting standard that resulted in the net periodic pension cost and ~~liabilities~~net post retirement cost other than service costs to no longer be presented in cost of sales and selling, general and administrative expenses, but instead be presented within non-service pension and post retirement benefit cost. This ASU was applied retrospectively for the presentation of the ~~Distribution segment's Canadian operations on December 31, 2012. The results~~service cost component and the other components of ~~these discontinued operations have been reported as such~~net benefit cost in the ~~table.~~income statement and prospectively, on and after the effective date, for the capitalization of the service cost component and the other components of net benefit cost in assets. See Note 1, Summary of Significant Accounting Policies, and Note 2, Accounting Changes in the Notes to Consolidated Financial Statements included in this Form 10-K for further details.


ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide readers of our consolidated financial statements with the perspectives of management. MD&A presents in narrative form information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends and future prospects. MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in this Form 10-K.

OVERVIEW OF BUSINESS

Kaman Corporation conducts business through two business segments:

The Distribution segment is a leading power transmission, ~~motion control, electrical and~~ automation and fluid power industrial distributor with operations throughout the United States. ~~We provide~~The segment provides electro-mechanical products, ~~including~~ bearings, ~~mechanical~~power transmission, motion control and electrical ~~power transmission,~~and fluid power ~~motion control, automation, material handling~~ components, ~~electrical control and power distribution, and MRO supplies to~~along with engineered integrated solutions for our customers' most challenging applications, serving a broad spectrum of industrial markets ~~throughout the United States.~~including both MRO and OEM customers.

The Aerospace segment produces and markets proprietary aircraft bearings and components; super precision, miniature ball ~~bearings;~~bearings for the medical, industrial and aerospace markets; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; and safe and arming solutions for missile and bomb systems for the U.S. and allied ~~militaries; super precision miniature bearings for commercial and aerospace applications;~~militaries. The segment also markets the design and supply of aftermarket parts to businesses performing ~~maintenance, repair, and overhauls~~MRO in aerospace markets; performs helicopter subcontract ~~helicopter~~ work; ~~restoration, modification~~restores, modifies and ~~support of~~supports our SH-2G Super Seasprite maritime helicopters; ~~manufacture~~ and ~~support of~~manufactures and supports our K-MAX® manned and unmanned medium-to-heavy lift ~~helicopters; and engineering design, analysis and certification services.~~helicopters.

Company financial performance

Net sales ~~from continuing operations decreased 1.1%~~increased 3.8% compared to the prior ~~year.~~year driven by an increase in net sales at Distribution and a less significant increase in net sales at Aerospace. Adoption of ASC 606 had a favorable impact of 3.5% on net sales in 2018.

~~Earnings from continuing operations decreased 8.1%~~Net earnings increased 8.7% compared to the prior year. This increase reflects the benefits realized from the Tax Cut and Jobs Act ("Tax Reform"), partially offset by the $10.0 million other intangible assets impairment charge incurred in the third quarter of 2018.

Diluted earnings per share ~~from continuing operations decreased~~increased to ~~$2.17~~$1.92 in ~~2015~~2018 compared to ~~$2.37~~$1.75 in the prior year.

Cash flows provided by operating activities ~~from continuing operations~~ were $~~109.6~~$162.4 million for ~~2015,~~2018, an increase of ~~$0.5~~$82.5 million when compared to the prior year.

~~Acquisitions~~

~~On December 1, 2015, the Company's Distribution segment acquired substantially all the assets of Calkins Fluid Power, Inc. (Calkins),~~ The increase in cash flows provided by operating activities was largely driven by advance payments received in connection with a ~~distributor of fluid power components and systems.~~

~~On November 30, 2015, the Company's Aerospace segment acquired GRW Bearing GmbH (GRW), a German-based designer and manufacturer of super precision, miniature ball bearings.~~

~~On October 21, 2015, the Company's Aerospace segment acquired Timken Alcor Aerospace Technologies, Inc.~~Joint Programmable Fuze ("~~TAAT"~~JPF") of Mesa, Arizona. TAAT, which has been renamed “EXTEX Engineered Products, Inc.,” designs and supplies aftermarket parts to support businesses conducting maintenance, repair and overhauls in aerospace markets primarily located in North America.

On January 30, 2015, the Company's Distribution segment acquired substantially all the operating assets of G.C. Fabrication, Inc. (GCF) of Northvale, New Jersey, a premier Schneider Electric/Square D distributor carrying a variety of electrical power, automation, process controls, specialized HVAC, water and wastewater systems, communication and networking devices.

~~Other events~~

In February 2016, the Company reached an agreement with our customer that modified the scope of our AH-1Z contract and which, among other things, resolved outstanding claims associated with this program.

On January 14, 2016, the Company announced that its Aerospace segment was awarded a five-year contract extension on the Airbus A330 Long Range program for the supply of the Upper and Lower Wing panels to Spirit AeroSystems Europe. This extends A330 Long Range program deliveries to 2020.

~~On January 5, 2016, the Company announced that its Aerospace segment was awarded a~~ direct commercial sales ~~order for~~("DCS") contract.

Total backlog increased 32.9% to $986.1 million, mostly driven by JPF orders.

Recent events

In the ~~procurement~~fourth quarter of ~~Joint Programmable Fuzes ("JPF") with a total value~~2018, our Aerospace segment received three additional orders of ~~$93.0 million. This order is in addition~~K-MAX® helicopters from both new and existing customers. Due to the ~~direct commercial sales orders~~continued demand and interest in the capabilities of ~~$124.5 million awarded in 2015. Delivery~~the K-MAX®, our Aerospace segment announced that we will continue production of ~~these orders is anticipated~~the medium-lift utility helicopter into 2020 at a minimum.

In December 2018, our Aerospace segment sold its U.K. Tooling business to ~~occur in 2016 and 2017.~~

~~On December 8, 2015,~~better position the Company ~~announced that its~~for increased profitability. This sale resulted in a loss of $5.7 million in 2018.

During 2018, our Aerospace segment ~~was awarded an additional order~~received two orders under Option 1214 of its JPF contract with the U.S. Air Force ("USAF") with a total value of ~~$20.8~~approximately $121.4 million. ~~Including this award, contract modifications added an additional $78.8 million for the procurement of the JPF in 2015. Delivery of the USAF fuzes are anticipated to occur in 2016 and 2017.~~

On November 23, 2015, the Company announced that its Aerospace segment executed an agreement for delivery in 2017 of two manned K-MAX® heavy-lift utility helicopters with Lectern Aviation Supplies Co., Ltd of China.

OnIn September ~~21, 2015, the Company delivered the final two SH-2G(I) Super Seasprite aircraft to the New Zealand Ministry of Defence.~~

~~On June 5, 2015, the Company announced that it would resume production of commercial K-MAX® heavy-lift utility helicopters. The aircraft will be manufactured at~~2018, our ~~Jacksonville, Florida and Bloomfield, Connecticut facilities. We have received orders for five aircraft as of December 31, 2015.~~

~~On June 2, 2015, the Company announced that its Board of Directors appointed Jennifer M. Pollino as a Director. The Board also appointed Ms. Pollino to serve on its Personnel & Compensation Committee.~~

~~On May 6, 2015, the Company announced it closed on an amended and restated $700 million credit facility.~~

~~On April 29, 2015, the Company announced that the Board of Directors approved a $100.0 million share repurchase program, which replaced our previous share repurchase program.~~

~~On March 26, 2015, the Company announced that its~~ Aerospace segment was awarded a DCS contract for our JPF with an ~~extension~~expected total value of

$48.6 million.

During 2018, we contributed $30.0 million to the pension plan. The Company had not made annual contributions to the pension plan in excess of $10.0 million since 2010.

In September 2018, our Aerospace segment recorded a $10.0 million impairment charge on its ~~current~~customer lists/

relationships of a certain asset group within its U.K. business.

In July 2018, our Aerospace segment entered into an agreement with Rainier Heli International Inc., under which

Rainier will offer K-MAX® leasing solutions to customers.

In May 2018, the Company donated a refurbished SH-2F Seasprite helicopter to the National Naval Aviation Museum in Pensacola, FL.

In April 2018, our Aerospace segment entered into a new contract with Bell Helicopter to manufacture ~~skin~~sheet metal

details and ~~skin to core components~~subassemblies for the ~~Bell UH-1Y~~AH-1Z attack helicopter. The expected total value of the contract is approximately

$25.6 million annually with deliveries anticipated in 2019 and ~~AH-1Z helicopters. This five-year follow-on contract has an expected value in excess of $25 million.~~2020.

~~On February 23, 2015,~~In April 2018, the Company announced ~~that~~its plan to pay a bonus of $1,000 to approximately 2,400 eligible employees as a way of sharing benefits from Tax Reform.

In April 2018, the ~~Board~~Company celebrated a collaboration agreement with Airbus, who designated the Company as a

strategic supplier.

On January 31, 2018, our Aerospace segment announced it had been awarded a DCS order for the procurement of ~~Directors approved~~the

JPF with an ~~increase~~expected total value of ~~12.5%~~approximately $324.0 million. Delivery of these fuzes is anticipated to begin in

2019 and continue through 2022.

On January 16, 2018, our Aerospace segment announced it had received a contract modification from the ~~quarterly dividend on~~USAF under Option 13 of its JPF contract with a value of approximately $17.0 million. This modification increased the ~~Company’s common shares,~~total value of Option 13 to ~~$0.18 per share.~~more than $102.0 million. Delivery of these fuzes began in 2018 and will continue into 2019.

~~Outlook~~

~~Our 2016 outlook is as follows:~~

~~Distribution:~~


◦	~~Sales of $1,125.0 million to $1,165.0 million~~


◦	~~Operating margin of 4.4% to 4.6%~~


◦	~~Adjusted EBITDA margin of 5.8% to 6.0%~~

~~Aerospace:~~


◦	~~Sales of $700.0 million to $720.0 million~~


◦	~~Operating margin of 17.5% to 17.8%, or 18.3% to 18.6%, when adjusted for $5.5 million of integration costs in 2016 associated with the 2015 acquisitions~~


◦	~~Adjusted EBITDA margin of 21.8% to 22.0%~~

~~Interest expense of approximately $16.0 million~~

~~Corporate expenses of $55.0 million~~

~~Estimated annualized tax rate of approximately 34.5%~~

~~Depreciation and amortization expense of approximately $45.0 million~~

~~Capital expenditures of $30.0 million to $40.0 million~~

~~Free cash flow* in the range of $50.0 million to $60.0 million~~

2016 Outlook
In millions Low End of Range High End of Range
Free Cash Flow^(a):

Net cash provided by operating activities $ 80.0
to $ 100.0
Less: Expenditures for property, plant and equipment 30.0
to 40.0
Free Cash Flow $ 50.0
to $ 60.0

^(a)Free Cash Flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less expenditures for property, plant and equipment, both of which are presented in our consolidated statements of cash flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures, in this Form 10-K.

~~The following table reconciles our operating margin outlook for 2016 to our Adjusted EBITDA margin outlook for 2016:~~

2016 Outlook
Adjusted EBITDA^(a):
Low End of Range High End of Range
Distribution
   GAAP Operating margin 4.4 % to 4.6 %
   Depreciation and Amortization as a percentage of sales 1.4 % to 1.4 %
   Adjusted EBITDA margin 5.8 % to 6.0 %

Aerospace
GAAP operating margin 17.5 % to 17.8 %
Transaction and integration costs as a percentage of sales 0.8 % to 0.8 %
   Adjusted operating margin 18.3 % to 18.6 %
   Depreciation and Amortization as a percentage of sales 3.5 % to 3.4 %
   Adjusted EBITDA margin 21.8 % to 22.0 %

^(a)

Adjusted EBITDA, a non-GAAP financial measure, is defined as operating income before depreciation and amortization. Adjusted EBITDA is calculated on our consolidated results as well as the results of our reportable segments. Adjusted EBITDA differs from Segment Operating Income, as calculated in accordance with GAAP, in that it excludes depreciation and amortization. We have made numerous investments in our business, such as acquisitions and increased capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and new ERP systems. Management believes Adjusted EBITDA provides an additional perspective on the operating results of the organization and its earning capacity and helps improve the comparability of our results between periods by eliminating the impact of non-cash depreciation and amortization expense.

~~The following table reconciles our GAAP operating margin outlook for Aerospace for 2016 to our Adjusted operating margin outlook for Aerospace for 2016:~~

2016 Outlook
Adjusted Operating Margin^(a):
Low End of Range High End of Range
Aerospace
   GAAP operating margin 17.5 % to 17.8 %
   Transaction and integration costs as a percentage of sales 0.8 % to 0.8 %
   Adjusted operating margin 18.3 % to 18.6 %

^(a)Non-GAAP adjusted operating income is defined as operating income, less items that are not indicative of the operating performance of the Company's segments or corporate for the period presented. Management uses Non-GAAP adjusted operating income to evaluate performance period over period, to analyze the underlying trends impacting our segments and corporate function and to assess their performance relative to their competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance.

RESULTS OF ~~CONTINUING~~ OPERATIONS

Consolidated Results

On January 1, 2018, we adopted the new accounting standard that resulted in the net periodic pension cost and net post retirement cost other than service costs to no longer be presented in cost of sales and selling, general and administrative expenses, but instead be presented within non-service pension and post retirement benefit cost. See Note 1, Summary of Significant Accounting Policies, and Note 2, Accounting Changes, in the Notes to Consolidated Financial Statements included in this Form 10-K for further details.

Also on January 1, 2018, we adopted new revenue recognition guidance ("ASC 606") using the modified retrospective method. As a result, we applied the new revenue recognition guidance only to contracts that were not completed as of January 1, 2018; therefore, current period results are presented under the new revenue recognition guidance and prior period results are presented in accordance with previous revenue recognition guidance ("ASC 605"). See Note 1, Summary of Significant Accounting Policies, and Note 2, Accounting Changes,in the Notes to Consolidated Financial Statements included in this Form 10-K for further details.

The method of revenue recognition at the Distribution segment remained substantially the same. Under the new revenue recognition guidance Distribution will generally recognize revenue using the point-in-time method, at the time control of products is transferred to our customers.

In the prior period, the majority of our long-term contracts in the Aerospace segment were accounted for under the percentage-of-completion method using units-of-delivery as a measurement basis, generally recognizing revenue upon delivery to our customer. Revenue recognition under many of these contracts has moved to an over time method under the new revenue recognition guidance, using input costs as the basis for recognizing progress to completion. Under this method, revenue is generally recognized when costs are incurred as work progresses on a program prior to delivery to the customer. The two programs most significantly impacted by the adoption of the new revenue recognition guidance were our JPF program with the U.S. Government ("USG") and our K-MAX® program. Revenue recognition for our JPF program with the USG moved from percentage-of-completion using units-of-delivery to an over time method using input costs as the basis for recognizing progress to completion. Conversely, revenue recognition for our K-MAX® program moved from percentage-of-completion on a cost-to-cost basis to a point-in-time method with revenue recognized at the time control is transferred to our customer.

Net Sales ~~from Continuing Operations~~


	2015			2014			2013			2018			2017			2016
In thousands
Distribution	$	1,177,539		$	1,161,992		$	1,039,954		$	1,139,431		$	1,080,965		$	1,106,322
Aerospace	597,586			632,970			613,967			735,994			724,944			702,054
Total	$	1,775,125		$	1,794,962		$	1,653,921		$	1,875,425		$	1,805,909		$	1,808,376
$ change	$	(19,837	)	$	141,041		$	90,579		69,516			(2,467		)	33,251
% change	(1.1		)%	8.5		%	5.8		%	3.8		%	(0.1		)%	1.9		%

The following table details the components of ASC 606 changes as a percentage of consolidated net sales as compared to the corresponding period in 2017:



	2018

Increase in sales associated with ASC 606	3.5	%
Increase in sales absent the adoption impact of ASC 606	0.3	%
% change in net sales	3.8	%

The following table details the components of the above changes as a percentage of consolidated net sales:


	2015		2014		2013		2018		2017		2016

Organic Sales:
Distribution	(2.0	)%	2.0	%	(1.0	)%	3.2	%	(1.4	)%	(4.3	)%
Aerospace	(2.4	)%	1.1	%	2.1	%	0.6	%	1.3	%	2.3	%
Total Organic Sales	(4.4	)%	3.1	%	1.1	%	3.8	%	(0.1	)%	(2.0	)%

Acquisition Sales:
Distribution	2.9	%	5.4	%	4.7	%	—	%	—	%	0.3	%
Aerospace	0.4	%	—	%	—	%	—	%	—	%	3.6	%
Total Acquisition Sales	3.3	%	5.4	%	4.7	%	—	%	—	%	3.9	%

% change in net sales	(1.1	)%	8.5	%	5.8	%	3.8	%	(0.1	)%	1.9	%

~~The~~Net sales for 2018 increased when compared to 2017. This was a result of higher sales at our Distribution segment and an increase in net sales of $64.3 million resulting from the adoption of the new revenue recognition guidance, primarily at Aerospace. These increases were partially offset by a decrease in net sales ~~from continuing operations~~at our Aerospace segment absent the adoption impact of ASC 606. Under the new guidance, revenue recognition will generally be accelerated ahead of deliveries for ~~2015 as~~certain aerospace programs and distribution contracts. Foreign currency exchange rates relative to the U.S. dollar had a favorable impact of $5.0 million on net sales.

Net sales for 2017 remained relatively flat when compared to ~~2014~~2016. This was ~~attributable to~~ a ~~decrease in organic~~result of lower sales at ~~both~~our Distribution segment, mostly offset by higher sales at our Aerospace ~~and Distribution segments and the unfavorable~~segment. The impact ~~on sales~~ of foreign currency exchange rates ~~of $8.1 million. These decreases were offset by~~relative to the ~~contribution of $60.1 million in sales from acquisitions completed in 2015 and 2014.~~

~~The increase in net sales from continuing operations for 2014 as compared to 2013~~U.S. dollar was attributable to an increase in organic sales at both our Aerospace and Distribution segments and the contribution of $89.4 million in sales from Distribution segment acquisitions completed in 2014 and 2013. Foreign currency exchange rates had a $2.4 million favorable impact on sales from continuing operations during 2014.not material.

See Segment Results of Operations and Financial Condition below for further discussion of segment net sales.

Gross Profit ~~from Continuing Operations~~


	2015			2014			2013			2018			2017			2016
In thousands
Gross profit	$	517,234		$	507,939		$	463,311		$	550,037		$	545,591		$	547,521
$ change	9,295			44,628			28,216			4,446			(1,930		)	33,172
% change	1.8		%	9.6		%	6.5		%	0.8		%	(0.4		)%	6.4		%
% of net sales	29.1		%	28.3		%	28.0		%	29.3		%	30.2		%	30.3		%

Gross profit for 2018 remained relatively flat when compared to 2017. This was attributable to higher gross profit of $18.7 million resulting from ~~continuing operations increased in 2015 reflecting~~the adoption of the new revenue recognition guidance, primarily at Aerospace, and higher gross profit at ~~both our~~the Distribution ~~and Aerospace segments. The primary driver~~segment. These increases were mostly offset by a decrease in gross profit of $24.3 million absent the adoption of the increases was the contribution of $17.7 million of gross margin from acquisitions completed in 2015 and 2014. Additionally, gross profit as a percentage of net sales increased due to the mix of sales shifting to higher margin programs innew revenue recognition guidance at our Aerospace ~~segment, specifically higher JPF~~segment. This decrease was primarily attributable to lower direct commercial sales ~~the contribution~~ of our JPF to foreign militaries, lower sales and associated gross profit on ~~our SH-2G~~the K-MAX® program, ~~with Peru, higher sales volume~~ and ~~corresponding~~decreases in gross profit ~~on our military bearing products~~

~~and~~under the contribution of gross profit on our commercial bearing products primarily used in distribution, regional aircraft and engines. These increases were partially offset by lower sales under our SH-2G(I) program with New Zealand, lower sales volume on our legacy missile fuze programs, a decline in gross margin on certain composite structure programs, $4.0 million in expense associated with the resolution of the matters related to our AH-1Z program and ~~lower sales volume on~~ our ~~Bell~~ composite ~~blade program. Additionally, there was a decline~~structures products from foreign operations.

Gross profit for 2017 remained relatively flat when compared to 2016. Of the change noted above, the Distribution segment represented 1.6% of the decrease in ~~organic~~consolidated gross profit, mostly offset by an increase in consolidated gross profit of 1.3% associated with higher gross profit at our Aerospace segment. The decrease in gross profit at our Distribution segment was primarily ~~due~~attributable to ~~decreases~~lower sales under our bearings and power transmission and automation, control and energy product lines. The increase in the machinery manufacturing, merchant wholesalers durable goods, mining and transportation equipment manufacturing industries. These decreases were partially offset by increases in the computer and electronic product manufacturing, paper manufacturing and chemical manufacturing industries.

~~Gross profit from continuing operations increased in 2014 primarily due to the contribution of $25.7 million of~~ gross profit ~~from the Distribution segment's 2014 and 2013 acquisitions and a combined 4.2% organic growth in~~at our Aerospace ~~and Distribution~~ segment gross profit. Contributing to the Aerospace segment's improved gross profit were the higher sales on the SH-2G(I) contract with New Zealand and higher sales of our commercial bearing products. These program/product profit increases of $16.6 million, which were in addition to the acquisition related gross profit noted above, were partially offset by $10.7 million related to the decrease in military bearing product sales and lower margin on the JPF as a result of decreased commercial sales to foreign militaries in 2014. The Distribution segment's organic gross profit increase was primarily due to ~~increases in~~higher sales and associated gross profit under our commercial bearings products, the ~~machinery manufacturing, transportation equipment manufacturing~~AH-1Z program and ~~paper manufacturing industries partially offset by~~our SH-2G program with Peru. Gross profit as a ~~decrease in the computer and electronic manufacturing industry.~~percentage of sales for 2017 remained relatively flat when compared to 2016.

Selling, General & Administrative Expenses (S,G&A) ~~from Continuing Operations~~


	2015			2014			2013			2018			2017			2016
In thousands
S,G&A	$	413,043		$	397,199		$	357,752		$	444,904		$	432,067		$	443,704
$ change	15,844			39,447			14,356			12,837			(11,637		)	28,939
% change	4.0		%	11.0		%	4.2		%	3.0		%	(2.6		)%	7.0		%
% of net sales	23.3		%	22.1		%	21.6		%	23.7		%	23.9		%	24.5		%

S,G&A increased for the year ended December 31, ~~2015,~~2018, as compared to ~~2014.~~2017. The following table details the components of this change:


	2015		2014		2013		2018		2017		2016

Organic S,G&A:
Distribution	—	%	2.5	%	(0.9	)%	2.4	%	(4.2	)%	0.8	%
Aerospace	0.2	%	0.2	%	0.5	%	0.4	%	(0.1	)%	2.5	%
Corporate	0.2	%	2.5	%	(0.4	)%	0.2	%	1.7	%	(1.2	)%
Total Organic S,G&A	0.4	%	5.2	%	(0.8	)%	3.0	%	(2.6	)%	2.1	%

Acquisition S,G&A:
Distribution	3.1	%	5.8	%	5.0	%	—	%	—	%	0.3	%
Aerospace	0.5	%	—	%	—	%	—	%	—	%	4.6	%
Total Acquisition S,G&A	3.6	%	5.8	%	5.0	%	—	%	—	%	4.9	%

% change in S,G&A	4.0	%	11.0	%	4.2	%	3.0	%	(2.6	)%	7.0	%

The increase in S,G&A expenses ~~associated with continuing operations increased~~ for ~~2015~~2018 as compared to ~~2014~~2017 was attributable to higher expenses at both our Distribution and Aerospace segments and an increase in corporate expenses. The increase in expenses at the Distribution segment was mainly driven by higher employee and employee-related costs, including an increase in group health costs and $1.4 million in one-time employee incentives. S,G&A expenses at our Aerospace segment increased when compared to prior year, primarily due to ~~$14.4~~$3.0 million ~~of S,G&A expenses~~in costs incurred for employee-tax related ~~to our 2015 and 2014 acquisitions, a $0.9 million~~matters. The increase in corporate expenses ~~and higher expenses at our Aerospace segment. Corporate expenses increased due~~was primarily attributable to ~~acquisition~~$3.4 million in corporate development activities, which includes costs associated with ~~our 2015 acquisitions and~~the due diligence for an ~~increase in consulting costs. These increases were~~acquisition we elected not to complete, partially offset by the absence of $2.8 million in separation costs associated with senior executives incurred in the prior ~~year in connection with the sale of our Moosup facility, lower salary and benefit~~year.

S,G&A expenses ~~and lower long-term incentive compensation costs. The increase in expenses at our Aerospace segment was~~decreased for 2017 as compared to 2016 primarily due to ~~a reduction of inventory on government contracts where allowable general and administrative expenses are included in inventory. Organic~~lower expenses at our Distribution segment, ~~remained relatively flat from 2014 to 2015. This was a result of lower expenses primarily due to a~~

~~decrease in salary and benefit expenses, specifically lower incentive compensation costs, and lower costs associated with our vehicles,~~partially offset by ~~costs related to restructuring activities, higher pension expense,~~ an increase in ~~consulting costs and higher depreciation and project expenses~~corporate expenses. The decrease in ~~part attributable to the introduction of the new enterprise resource planning system ("ERP").~~

S,G&A expenses associated with continuing operations increased for 2014 as compared to 2013 primarily due to $20.8 million of expenses related to our 2014 and 2013 acquisitions, a $9.2 million increase in corporate expenses and higher expenses at our Distribution ~~segment. The increase in corporate expenses~~segment was ~~driven by costs~~primarily related to ~~the sale~~lower expenses of $10.5 million associated with our ~~Moosup facility, higher~~productivity and efficiency initiatives and lower salary and wage expense, higher incentive compensation costs, higher campus costs and an increase in professional service fees. Higher Distribution segment costs related to higher employee related incentive costs, higher salary and wage expenses primarily associated with the expansion of our sales force and higher depreciation related to the new ERP system.

~~Goodwill Impairment~~

2015 2014 2013
In thousands
Goodwill impairment $ —
$ —
$ 2,071

During 2013, we recorded a non-cash non-tax deductible goodwill impairment charge of $2.1 million for our VT Composites reporting unit. This represented 11% of the reporting unit's total goodwill balance and reduced the carrying value of goodwill to its implied fair value. This charge has been included in the 2013 operating results of the Company's Aerospace segment. No such charges were taken in 2015 or 2014.

~~Operating Income from Continuing Operations~~

2015 2014 2013
In thousands
Operating income $ 104,519
$ 110,507
$ 103,346
$ change (5,988 ) 7,161
11,757
% change (5.4 )% 6.9 % 12.8 %
% of net sales 5.9 % 6.2 % 6.2 %

~~The decrease in operating income from continuing operations for 2015 as compared to 2014 was driven by lower organic operating income at our Distribution segment and higher corporate~~benefit expenses. These decreases were partially offset by an increase in corporate expenses, resulting from higher employee and employee-related costs and $2.8 million in separation costs associated with senior executives, partially offset by lower consulting expenses. S,G&A expenses at our Aerospace segment remained relatively flat when compared to 2016. This was a result of higher salary and wage expenses, mostly offset by lower costs associated with the sale of government contract program inventory (see segment discussion below for additional information).

Other Intangible Assets Impairment



	2018		2017		2016
In thousands
Other intangible assets impairment	$	10,039	$	—	$	—

During the third quarter of 2018, we identified a triggering event for possible impairment of long-lived intangible assets at a certain asset group within the Aerospace segment's U.K. business based on an analysis of historical performance, the current forecast for the remainder of the year and the loss of future orders from one of its customers. We performed a recoverability test by comparing the undiscounted cash flows of the asset group to its carrying value, and the estimated future cash flows of the

business did not exceed the carrying value of the assets. Based on these results, we calculated the fair value of the asset group using an income approach, which resulted in an impairment charge of $10.0 million, or the remaining balance of the customer lists/relationships at a certain asset group within the U.K. business. This charge has been included in the operating results of the Aerospace segment.

Restructuring Costs



	2018		2017		2016
In thousands
Restructuring costs	$	8,008	$	2,661	$	1,032

During the third quarter 2017, we announced restructuring activities at certain businesses within our Aerospace segment to support the ongoing effort of improving capacity utilization and operating efficiency to better position the Company for increased profitability and growth. Such actions included workforce reductions and the consolidation of operations, which we expect to continue through the planned completion in 2019. In the years ended December 31, 2018 and 2017, we recorded $6.0 million and $2.7 million, respectively, in costs associated with the restructuring activities. In addition to these costs, in 2018, the Aerospace segment incurred $1.4 million in other non-related restructuring costs associated with the termination of certain distributor agreements and separation costs associated with certain employees not included in restructuring activities discussed above. The Distribution segment incurred $0.6 million in separation costs for certain employees in 2018.

During 2016, we offered a voluntary retirement program to certain employees of its Distribution segment. In addition to the voluntary retirement program, the Distribution segment incurred $0.7 million of severance expense in 2016.

Loss on Sale of Business



	2018		2017		2016
In thousands
Loss on sale of business	$	5,722	$	—	$	—

During the fourth quarter of 2018, we sold our U.K. Tooling business to better position the Company for increased profitability. This sale did not qualify for the reporting of discontinued operations within the consolidated financial statements. We incurred a loss of $5.7 million associated with the sale. Of this amount, $1.7 million relates to the foreign currency translation reclassified from accumulated other comprehensive income (loss) to net income.

Operating Income



	2018			2017			2016
In thousands
Operating income	$	83,064		$	111,119		$	102,774
$ change	(28,055		)	8,345			4,358
% change	(25.2		)%	8.1		%	4.4		%
% of net sales	4.4		%	6.2		%	5.7		%

The decrease in operating income for 2018 as compared to 2017 was primarily attributable to lower operating income at our Aerospace segment, driven by the $10.0 million other intangible assets impairment at our U.K business, the loss incurred for the sale of the U.K. Tooling business, higher restructuring costs, the costs incurred for employee-tax related matters and the ~~contribution~~loss on the sale of substantially all of the assets and liabilities of our Engineering Services business, and higher corporate expenses, as discussed above. These changes were partially offset by an increase in operating income of $17.0 million resulting from ~~our acquisitions completed in 2015 and 2014.~~the adoption of the new revenue recognition guidance, primarily at Aerospace. The increase in operating income ~~from continuing operations~~ for ~~2014~~2017 as compared to ~~2013~~2016 was ~~driven by increases~~primarily due to higher operating income at both our Distribution and Aerospace ~~and Distribution segments.~~segments, partially offset by higher corporate expenses, as discussed above. See Segment Results of Operations and Financial Condition below for further discussion of segment operating income.

Interest Expense, Net


	2015		2014		2013		2018		2017		2016
In thousands
Interest expense, net	$	13,144	$	13,382	$	12,294	$	20,097	$	20,581	$	15,747

~~Net interest~~Interest expense, net generally consists of interest charged on ~~the~~our Credit Agreement, which includes a revolving credit facility and ~~other borrowings~~a term loan facility, and our convertible notes and the amortization of debt issuance costs, offset by interest income. The decrease in ~~net~~ interest expense, net for ~~2015~~2018 as compared to ~~2014~~2017 was primarily due to lower average borrowings, ~~under our revolving~~partially offset by an increase in letter of credit ~~facility.~~fees. At December 31, ~~2015,~~2018, the interest rate for outstanding amounts on both the revolving credit facility and term loan agreement was ~~1.67%~~3.74% compared to ~~1.70%~~2.84% at December 31, ~~2014.~~2017.

The increase in ~~net~~ interest expense, net for ~~2014~~2017 as compared to ~~2013~~2016 was primarily due to higher ~~average borrowings~~interest expense under our ~~revolving credit facility.~~convertible notes and a higher interest rate for outstanding amounts under the Credit Agreement. At December 31, ~~2014,~~2017, the interest rate for outstanding amounts on both the revolving credit facility and term loan agreement was ~~1.70%~~2.84% compared to ~~1.72%~~2.19% at December 31, ~~2013.~~2016. Additionally, contributing to the increase in interest expense, net was the write-off of unamortized debt issuance costs and the unamortized debt discount associated with the repurchase of a portion of our 2017 Notes, for $0.3 million and $1.0 million, respectively. Partially offsetting these increases to interest expense, net were lower average borrowings under the credit facility compared to 2016.

Effective Income Tax Rate ~~for Continuing Operations~~

2015 2014 2013
Effective income tax rate 31.3 % 31.8 % 34.8 %



	2018		2017		2016
Effective income tax rate	28.0	%	47.2	%	34.4	%

The effective tax rate ~~for continuing operations~~ represents the combined federal, state and foreign tax effects attributable to pretax earnings for the year. The decrease in the effective tax rate for ~~2015~~2018 compared to 2017 was primarily due to the rate reduction resulting from Tax Reform, partially offset by foreign losses for which no tax benefit was recorded. Tax reform was enacted by the federal government during the fourth quarter of 2017 and provided for the reduction in the applicable U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.

The increase in the effective rate for 2017 as compared to ~~prior periods~~2016 was primarily the result of ~~discrete items recognized~~Tax Reform, which required the Company's U.S. net deferred tax assets to be revalued as of December 31, 2017. This resulted in ~~2015 related~~a one-time charge to ~~changes~~tax expense of $9.7 million in ~~tax laws. Prior~~the fourth quarter of 2017. In addition to ~~the~~this law ~~changes, we had established~~change, increases in valuation allowances against certain net operating loss ~~carryforwards. Some of these allowances are no longer deemed necessary as the changes~~carryforwards also contributed to the ~~tax laws now make it more likely than not that these benefits will be realized in~~increase over the ~~future.~~prior year.

Backlog



	2018		2017		2016
In thousands
Aerospace	$	851,814	$	616,090	$	581,619
Distribution	134,332		126,025		108,681
Total	$	986,146	$	742,115	$	690,300

Backlog increased from 2017 to 2018, primarily driven by activity at our Aerospace segment. The increase in backlog at Aerospace was primarily associated with orders of our JPF and bearings products and orders under our AH-1Z program and composite structures programs. These increases were partially offset by a decrease in ~~the effective rate for 2014 as compared to 2013 was~~backlog primarily due to ~~adjustments between~~ the ~~provision~~acceleration of revenue for ~~taxes for 2013 and~~which delivery has not yet occurred resulting from the ~~actual returns filed.~~

~~Gain/(Loss) on Disposal of Discontinued Operations, Net of Tax~~

The Company sold the Distribution segment's Mexican business unit, Delamac, on December 19, 2014. The sale resulted in a net loss on disposal of discontinued operations of $5.3 million for the year ended December 31, 2014.

~~The Company sold substantially all~~adoption of the ~~assets~~new revenue recognition guidance, deliveries of direct commercial JPF orders and ~~liabilities~~bearings products, customer acceptance of our ~~Distribution segment's Canadian operations~~K-MAX® aircraft and work performed on ~~December 31, 2012. The sale resulted in a net gain on disposal of discontinued operations of $0.3 million and $0.4 million for the years ended December 31, 2014 and 2013, respectively.~~

~~There were no earnings or losses from these discontinued operations during 2015. More information on these transactions can be found in Note 2,~~ ~~Discontinued Operations, in the Notes to Consolidated Financial Statements included in this Form 10-K.~~various programs.

Other Matters

Information regarding our various environmental remediation activities and associated accruals can be found in Note ~~16,~~17, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this Form 10-K.

SEGMENT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Distribution Segment

Our Strategy

The Distribution segment's strategy is to offer a comprehensive portfolio of products and services, along with engineered solutions, to serve the mechanical, automation and fluid power markets driven by a highly trained technical sales and service organization while investing in technology to drive increased productivity and improved operating margins.

Results of Operations

The following table presents selected financial data for our Distribution segment:


	2015			2014			2013			2018			2017			2016
In thousands
Net sales from continuing operations	$	1,177,539		$	1,161,992		$	1,039,954
Net sales										$	1,139,431		$	1,080,965		$	1,106,322
$ change	15,547			122,038			57,381			58,466			(25,357		)	(71,217		)
% change	1.3		%	11.7		%	5.8		%	5.4		%	(2.3		)%	(6.0		)%

Operating income	$	49,441		$	56,765		$	46,206		$	51,529		$	51,372		$	40,813
$ change	(7,324		)	10,559			(3,110		)	157			10,559			(6,104		)
% change	(12.9		)%	22.9		%	(6.3		)%	0.3		%	25.9		%	(13.0		)%
% of net sales	4.2		%	4.9		%	4.4		%	4.5		%	4.8		%	3.7		%

The following table details the components of the ASC 606 changes as a percentage of net sales and operating income at the Distribution segment as compared to the corresponding period in 2017:



	2018
Net sales:
Increase in sales associated with ASC 606	0.4	%
Increase in sales absent the adoption impact of ASC 606	5.0	%
% change in net sales	5.4	%

Operating income:
Increase in operating income associated with ASC 606	2.1	%
Decrease in operating income absent the adoption impact of ASC 606	(1.8	)%
% change in operating income	0.3	%

Net sales

2018 versus 2017

Net sales for 2018 increased when compared to 2017, with $4.6 million of the increase resulting from ~~continuing operations~~the adoption of the new revenue recognition guidance. Within our product lines, the increase in sales was attributable to an increase in sales associated with our automation, control and energy product line, less significant increases in our bearings and power transmission and fluid power product lines and an additional sales day in 2018. The increase in net sales was mostly attributable to higher sales volume to our MRO customers and a less significant increase in sales volume to our OEM customers. Net sales were higher in the majority of the markets we serve, most notably the machinery manufacturing, paper manufacturing, food manufacturing and merchant wholesalers, durable goods markets.

2017 versus 2016

The decrease in net sales for 2017 as compared to 2016 was driven by decreases in sales associated with our bearings and power transmission and automation, control and energy product lines of $12.9 million and $12.4 million, respectively. Sales in our fluid power product line remained relatively flat when compared to 2016. The decreases in sales were mostly attributable to lower sales volume to our MRO customers of $37.3 million, partially offset by higher sales volume to our OEM customers. Additionally, there was one fewer sales day in the current year as compared to 2016. Looking at the end markets we serve, sales were lower in the food manufacturing and paper manufacturing markets. Partially offsetting these decreases were higher sales in the fabricated metal product and mining markets.

Organic sales per sales day is a metric management uses to evaluate performance trends in its Distribution segment and is calculated by taking total organic sales during a specific period divided by the number of sales days in that period. See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures, in this Form 10-K.


		2015			2014			2013				2018			2017			2016
Organic Sales Per Sales Day (in thousands, except numbers of sales days)
Current period
Net sales from continuing operations		$	1,177,539		$	1,161,992		$	1,039,954
Net sales												$	1,139,431		$	1,080,965		$	1,106,322
Acquisition sales ^(a)		52,798			89,388			72,578				—			—			5,171
Organic sales		$	1,124,741		$	1,072,604		$	967,376			$	1,139,431		$	1,080,965		$	1,101,151
Sales days		253			253			253				253			252			253
Organic sales per sales day for the current period	a	$	4,446		$	4,240		$	3,824		a	$	4,504		$	4,290		$	4,352

Prior period
Net sales from the prior year		$	1,161,992		$	1,039,954		$	982,573			$	1,080,965		$	1,106,322		$	1,177,539
Sales days in the prior year		253			253			253				252			253			253
Organic sales per sales day from the prior year	b	$	4,593		$	4,110		$	3,884		b	$	4,290		$	4,373		$	4,654

% change in organic sales per sales day	(a-b)/b	(3.2		)%	3.2		%	(1.5		)%	(a-b)/b	5.0		%	(1.9		)%	(6.5		)%

Operating income for ~~2015 increased as~~2018 remained relatively flat when compared to ~~2014 due to~~ the ~~contribution of $52.8 million~~corresponding period in sales in 2015 from our 2015 and 2014 acquisitions. The Distribution segment's organic sales per sales day decreased in 2015 primarily due to lower sales volume to our original equipment manufacturer customers. Looking at the markets we serve, sales were lower in the mining, machinery manufacturing and merchant wholesalers durable goods markets. Partially offsetting these decreases, were higher sales in paper manufacturing and chemical manufacturing.

Operating income ~~from continuing operations decreased~~increased during ~~2015~~2017 as compared to 2014 primarily due to lower operating income associated with lower organic sales. This was partially offset by the contribution of operating income from our 2015 and 2014 acquisitions. Organic operating expenses remained relatively flat from 2014 to 2015. This was a result of lower expenses primarily due to a decrease in salary and benefit expenses, specifically lower incentive compensation costs, and lower costs associated with our vehicles, offset by costs related to restructuring activities, higher pension expense, an increase in consulting costs and higher depreciation and project expenses in part attributable to the introduction of the new ERP system.

~~In July 2012, we announced a decision~~We continue to ~~invest~~make progress in implementing a new ~~enterprise resource planning~~ERP business system ~~for~~at our Distribution ~~segment with an estimated total cost~~segment. Since the initial announcement, a couple of ~~$45.0 million. Since our announcement in 2012, Distribution has acquired seven businesses. To date, we~~factors have ~~implemented~~delayed the ~~new~~full implementation of the ERP ~~system~~ at ~~four acquired entities,~~this segment. The first of ~~which two were not included in~~these factors is the ~~original~~acquisition of nine businesses leading to additional scope from the initial project ~~scope. Additionally, an~~plan. Second, multiple upgraded ~~version~~versions of the software ~~has become available since~~have been released and we ~~developed our initial implementation plan. The~~have elected to install these major upgrades in order to benefit from the improved functionality, the enhanced features these upgrades offer and the new user interface they provide. Each of these upgrades required additional development, integration and extensive testing. A major upgrade ~~is a major release~~ of the ERP ~~software and provides additional functionality and features, along with a new user interface.~~system was successfully completed during 2018. The Distribution segment is now proceeding to the next step of implementation in 2019. As a result of these factors, the ~~unplanned implementations at the acquired businesses and the software upgrade, our implementation timeline has been extended. With the extension of our implementation timeline, the estimated~~ total project cost ~~has increased to $51.1~~is currently estimated between $51.0 million and $54.0 million.

For the years ended December 31, ~~2015, 2014,~~2018, 2017 and ~~2013,~~2016, expenses incurred totaled approximately ~~$1.0~~$1.1 million, ~~$0.8~~$1.2 million and ~~$1.3~~$1.4 million, respectively, and capital expenditures totaled ~~$5.1~~$2.1 million, ~~$8.0~~$3.6 million and ~~$9.9~~$3.7 million, respectively. Total to date ERP system capital expenditures as of December 31, 2018 were $40.2 million. Depreciation expense for the ERP system for the years ended December 31, ~~2015~~2018, 2017 and ~~2014,~~2016, totaled ~~$2.9~~$2.8 million, $2.5 million and ~~$1.9~~$2.8 million, respectively. ~~Depreciation of the capitalized project cost commenced in 2014; accordingly no depreciation expense was recorded in 2013.~~

The following table presents selected financial data for our Aerospace segment:



	2018			2017			2016
In thousands
Net sales	$	735,994		$	724,944		$	702,054
$ change	11,050			22,890			104,468
% change	1.5		%	3.3		%	17.5		%

Operating income	$	94,357		$	117,654		$	112,846
$ change	(23,297		)	4,808			5,953
% change	(19.8		)%	4.3		%	5.6		%
% of net sales	12.8		%	16.2		%	16.1		%

The following table details the components of the ASC 606 changes as a percentage of net sales and operating income at the Aerospace segment as compared to the corresponding period in 2017:

Aerospace segment net sales increased due to increases in sales for both our military and commercial product programs of ~~$28.7~~$16.4 million and ~~$6.7~~$6.5 million, ~~respectively, including an adverse impact of foreign currency translation of $8.1 million.~~ respectively.

The ~~decrease~~increase in sales generated by our military ~~sales is~~product programs was primarily attributable to lower sales associated with the JPF program with the USG, our SH-2G contracts with New Zealand and Egypt, legacy missile and bomb fuze programs, certain composite structure programs and the Sikorsky BLACK HAWK helicopter program. Additionally, the absence of sales under the C-17 program contributed to this decrease, as this program was completed in 2014. These decreases, totaling $99.0 million, were offset by $70.6 million in increases, primarily due to higher direct sales of our JPF to foreign militaries, ~~of the JPF, higher~~an increase in sales under the AH-1Z program and ~~sales under the~~our SH-2G program with ~~Peru.~~

The increase in ~~military~~ sales generated by our commercial product programs was primarily attributable to higher sales volume under our commercial bearing products, higher sales associated with the ~~SH-2G(I) contract with New Zealand, increased~~K-MAX® program and an increase in sales under our composite structure products from foreign operations. These increases, totaling $18.8 million, were partially offset by lower sales under the Boeing 767/777 program, a decrease in sales on the Bell Helicopter composite blade program and lower commercial tooling sales.

The segment ~~has contracted~~was previously under contract with Boeing to produce the wing control surfaces (inboard and outboard flaps, slats and deceleron assemblies) for the USAF’s A-10 fleet. ~~This contract has a potential value of over $110.0 million; however, annual quantities will vary, as they are dependent upon the orders Boeing receives from the USAF.~~ Initial deliveries under this program began in ~~the third quarter of~~ 2010 and full rate production began ~~during the fourth quarter of~~in late 2012. Through December 31, ~~2015, 140~~2018, we received orders and delivered 173 shipsets ~~have been delivered~~equivalent to the number of orders Boeing has received from the USAF over the life of the program. ~~In January 2016,~~Final production and deliveries under this contract were completed during the ~~USAF indicated that they would delay~~third quarter of 2018. Revenues for the ~~retirement~~year ended December 31, 2018 were not material. Included in contract costs at December 31, 2018 were nonrecurring costs of ~~the A-10 fleet due~~$2.1 million related to its importance in current operations in the Middle East. Formal details of the USAF plans regarding the A-10 will not be released until the 2017 Department of Defense budget is released in February 2016. We will continue to monitor the defense budget and understand that despite this positive indication, the future of this program could be at risk without the continued support of Congress. As of the date of this filing, we believe congressional support remains strong and we have confidence that this program will continue. We have not received any orders for additional shipsets in 2015, and through the date of this filing we have not received any indication from our customer that this program will be terminated. Tooling and nonrecurring costs on this program are being amortized over 242 shipsets, the number of shipsets expected to be ~~delivered under this program. At December 31, 2015, our program backlog was $14.4 million, representing approximately 33 shipsets, and total program inventory was $17.1 million, of~~utilized on future shipset orders, which ~~a significant portion~~ may not be recoverable in the event of an extended break in production or program termination. At December 31, 2017, our program backlog was $1.2 million.

The USAF confirmed that the A-10 fleet would continue indefinitely due to its unique close-air support functions, with support from both Congress and the White House. In March 2018, the 2018 Appropriations Act was enacted, authorizing the USAF to spend an additional $103.0 million for A-10 wing replacements. In June 2018, the 2019 Defense Authorization Act was passed, authorizing $65.0 million for A-10 wing replacements. We have not received any additional orders beyond 173 shipsets; however, we are currently in negotiations with the customer and expect to be awarded a contract ~~termination.~~under this program in the first half of 2019.

The Sikorsky BLACK HAWK helicopter cockpit program involves the manufacture of cockpits, including the installation of all wiring harnesses, hydraulic assemblies, control pedals and sticks, seat tracks, pneumatic lines and the composite structure that holds the windscreen for most models of the BLACK HAWK helicopter. ~~As a result of lower customer demand, we~~We delivered 7661 cockpits in ~~2015~~2018 as compared to the 8477 cockpits delivered in ~~2014.~~2017. In July 2017, we announced that our Aerospace segment had entered into a new multi-year contract with Sikorsky to manufacture H-60 cockpits under the Department of Defense MY IX H-60 procurement authorization. The term of the agreement is five years, beginning in 2018 and ending in 2022. Included in backlog at December 31, ~~2015, is $56.5~~2018 and 2017, was $81.0 million and $126.3 million, respectively, for orders on this program. We anticipate cockpit deliveries to total 7466 in ~~2016.~~2019.

The Sikorsky Combat Rescue Helicopter program involves the manufacture of cockpits, including the installation of hydraulic assemblies, seat tracks, pneumatic lines and composite structures that hold the windscreen for most models of the H-60 helicopter and the fit of control pedals. During 2017, the Company was awarded a contract to provide developmental expertise and manufacture for the newly designed HH-60W Combat Rescue Helicopter, an advanced variant of the UH-60M BLACK HAWK helicopter. The initial contract has a total value of $8.7 million over 10 aircraft, with an expected follow-on contract with increased work scope for an additional 102 aircraft valued at approximately $62.2 million. We delivered ten ship sets in 2018. As of December 31, 2018, our backlog for this program was not material. As of December 31, 2017, our backlog for this program was $6.2 million.

~~In February 2016, we reached an agreement with our customer that modified~~The segment manufactures sheet metal details and subassemblies for the ~~scope of our~~increased capability AH-1Z attack helicopter, which is produced by Bell Helicopter for the U.S. Marine Corps. We are currently on contract ~~and which, among other things, resolved outstanding claims associated with this program. We agreed to pay our customer $4.0 million, all of which has been accrued as~~through Lot 16. As of December 31, ~~2015. We will receive $4.3~~2018 and 2017, our backlog for this program was $46.6 million ~~from our customer, the retention of this amount being contingent~~and $49.1 million, respectively.

During 2016, we were awarded a contract for $41.0 million with General Dynamics Mission Systems - Canada to commence work on the resolution of certain contractual matters. If these contractual matters are not satisfactorily resolved, we may be required to reimburse our customer for all or a portion of this amount. We have included this amount in the current estimateimplementation phase of the contract revenue, as we believe the favorable resolution of this contractual matter is probable. We consider this a Type I subsequent event and have updated our contract estimates as of December 31, 2015, to reflect this contract modification and claims resolution. Given the current volume of firm orders, we estimate the contract to be a zero margin program, taking into consideration the $2.8 million of G&A costs capitalized in inventory associated with this contract.

We manufacture the JPF, an electro-mechanical bomb safe and arming device, which allows the settings of a weapon to be programmed in flight. ~~During 2015, we were awarded approximately $78.8 million~~The Company currently provides the FMU-152 A/B to the USAF and thirty-six other nations. Sales of these fuzes can be direct to the USAF, ~~sales orders under Option 12 of our contract with~~Foreign Military Sales ("FMS") through the USG ~~for fuzes~~and DCS to be delivered in 2016 and 2017. Additionally, we were awarded direct commercial sales contracts of $124.5 million for fuzes to be delivered through 2017. Total JPF backlog at December 31, 2015, is $213.4 million.foreign militaries that, although not funded by the USG, require regulatory approvals from the USG.

~~A total of 9,941 fuzes passed acceptance testing and were delivered to our customers during the fourth quarter of 2015, for a total of 24,730 fuzes delivered in 2015.~~ We occasionally experience lot acceptance test failures due to the complexity of the product and the extreme parameters of the acceptance test. Given the maturity of the product, we now generally experience isolated failures, rather than systemic ones. As a result, identifying a root cause can take longer and result in inconsistent delivery quantities from quarter to quarter.

A total of 17,467 fuzes were delivered to our customers during the fourth quarter of 2018. A total of 32,216 fuzes were delivered in 2018. We expect to deliver ~~30,000~~40,000 to ~~34,000~~45,000 fuzes in ~~2016.~~2019, primarily consisting of orders from the USG in order to meet the USG's current demand.

Total JPF backlog at December 31, 2018 was $454.1 million. Of this amount, $308.7 million in JPF backlog require future export approvals, licenses or authorizations from the USG before we are permitted to sell these products outside of the United States. The receipt of these export approvals, licenses or authorizations are subject to political and geopolitical conditions which could impact the timing and/or our ability to sell these products outside of the United States. Total JPF backlog at December 31, 2017 was $128.2 million.

The Company currently provides the ~~FMU-152A/~~FMU-152 A/B to the USAF, ~~and twenty-six other nations,~~ but the U.S. Navy currently utilizes a different fuze - the FMU-139. ~~Earlier in~~In 2015, ~~the U.S. Naval Air Systems Command (“NAVAIR”)~~NAVAIR solicited proposals for a firm fixed price production contract to implement improvements to the performance characteristics of the FMU-139 (such improved fuze having been designated the ~~FMU-139D/~~FMU-139 D/B), and, the USAF ~~has~~had stated that, if and when a contract is awarded and production begins, the funds associated with the ~~FMU-152A/~~FMU-152 A/B will be redirected to the ~~FMU-139D/~~FMU-139 D/B. During the third quarter

may be materially adversely ~~impacted, although any~~impacted. The timing of the impact on our financial statements is dependent on the ability of our competitor to complete the design and qualification phase of the program and other factors. Our competitor has publicly stated that this program is expected to have a 32-month qualification phase, preceding production. Due to the complexity of this program, the uncertainty associated with the successful completion of each phase in accordance with the planned schedule and the pending status of the USAF's final decision to redirect funds to the FMU-139 D/B, the timing and magnitude of the impact on the Company's financial statements is not certain; however, the Company continues to see strong demand for the FMU-152 A/B. In 2017, we were awarded Options 13 and 14 with the USG. The USAF has exercised two orders under Option 13, which have a total value of more than $102.0 million, and two orders under Option 14 which have a total value of approximately $121.4 million. Additionally, the USAF issued a Notice of Contract Action announcing its intent to award us Options 15 and 16, which, if and when awarded, would extend FMU-152 A/B deliveries into 2022.

During ~~the second quarter of~~ 2015, we announced that our Aerospace segment ~~resumed~~was resuming production of commercial K-MAX® aircraft. The aircraft are being manufactured at our Jacksonville, Florida and Bloomfield, Connecticut facilities. The first ~~new helicopter~~nine helicopters from the newly reopened commercial production line were accepted by our customers through December 2018, of which five aircraft were accepted by our customers in 2018. We received three orders for K-MAX® aircraft during the fourth quarter of 2018, of which two were delivered during the fourth quarter and the third is expected to be delivered in ~~early 2017. Currently,~~the first half of 2019. During the fourth quarter of 2018, we ~~have $30.0 million remaining~~announced that we will continue production of the commercial K-MAX® aircraft into 2020 at a minimum due to continued interest in the capabilities of the K-MAX®. As of December 31, 2018 and 2017, our backlog for this program ~~representing orders for five aircraft. In addition to the aircraft on order, we have received initial deposits on three more aircraft~~was $14.9 million and ~~believe there is additional demand for new aircraft to support firefighting, logging and other industries requiring repetitive aerial lift capabilities for which K-MAX® is extremely well suited.~~$4.1 million, respectively.

In ~~January~~ 2015, we signed a multi-year follow-on contract with Boeing for the production of fixed trailing edge ("FTE") assemblies for the Boeing 777 and 767 commercial aircraft. To date, Kaman has provided more than ~~1,000~~1,250 FTE kits and assemblies for each of the 777 and 767 programs since 1995 and 1986, respectively. During ~~2015,~~2018, on average, we delivered ~~eight ship sets~~three shipsets per month on the Boeing 777 platform and ~~one ship set~~three shipsets per month on the Boeing 767 ~~platform.~~platform, which includes one shipset per month associated with a military tanker derivative of the 767. For ~~2016,~~2019, we estimate deliveries on the 777 program to be ~~eight~~four shipsets per month and on the 767 program to be ~~two~~three shipsets per month which includes one shipset per month associated with a military tanker derivative of the 767. The total contract value is estimated to be in excess of ~~$75~~$90 million; however, annual quantities will vary, as they are dependent upon the orders Boeing receives from its customers. As of December 31, 2018 and 2017, our backlog for these programs was $9.3 million and $14.2 million, respectively.

Our U.K. Composites operations provide composite components for many Airbus platforms. The most significant of these are the A320, A330 and A350. Orders for all of these platforms are dependent on the customer’s build rate.

~~With the addition of GRW in the fourth quarter of 2015, we have broadened the scope of~~Additionally, our bearings offerings to include super precision miniature ball bearings used primarily in aerospace applications, dental products, surgical power tools, analytical devices and various industrial applications.

In ~~November 2014,~~2018, we were awarded ~~an extension to our current~~a follow-on contract with Bell Helicopter to manufacture skin and ~~skin to core~~skin-to-core components for several of Bell’s commercial helicopter models. This three-year follow on contract has an expected value in excess of $24.0 million. The components are manufactured at our full-service aerospace innovation and manufacturing support center in Bloomfield, Connecticut. At December 31, ~~2015, $12.1~~2018 and 2017, $1.2 million and $3.9 million, respectively, was included in backlog for orders under this program. Annual quantities for this program will vary, as they are dependent upon the orders Bell receives from its customers.

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 segments and their programs, acquisitions, divestitures, dividends, availability of future credit, adequacy of available bank lines of credit and factors that might otherwise affect the Company's business and operations generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Item 1A of Part I of this Form 10-K.

We continue to rely upon bank financing as an important source of liquidity for our business activities including acquisitions. We believe this, when combined with cash generated from operating activities, will be sufficient to support our anticipated cash requirements for the foreseeable future. However, we may decide to raise additional debt or equity capital to support other business activities including potential future acquisitions. ~~We anticipate our capital expenditures will be approximately $30.0 to $40.0 million in 2016, primarily related to machinery and equipment and information technology infrastructure.~~

In addition to our working capital requirements, one or more of the following items could have an impact on our liquidity during the next 12 months:

the matters described in Note ~~16,~~17, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, including the cost of existing environmental remediation matters ~~and deposits required to be made to the environmental escrow for the Moosup facility sold~~discussed in ~~2014;~~Note 11, Environmental Costs;

~~However,~~In addition to the items listed above, we ~~do not believe any~~have received $97.2 million in advance payments, which relate to $129.6 million in letters of ~~these matters will lead~~credit for a JPF DCS contract in 2018. In the event that we default on the contract and we are unable to ~~a shortage~~fulfill our contractual commitments, our customer has the ability to draw on the letters of ~~capital resources or liquidity that would prevent us from continuing with our business operations as expected.~~credit.

We regularly monitor credit market conditions to identify potential issues that may adversely affect, or provide opportunities for, the securing and/or pricing of additional financing, if any, that may be necessary to continue with our growth strategy and finance working capital requirements.

Management regularly monitors its pension plan asset performance and the assumptions used in the determination of our benefit obligation, comparing them to actual experience. We continue to believe the assumptions selected are valid due to the long-term nature of our benefit obligation. In 2015 and prior, we used a single-weighted average discount rate to calculate interest and service cost associated with our defined contribution pension plans. We plan to utilize a "spot rate approach" in the calculation of interest and service cost for these plans for 2016 and beyond. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension interest and service cost. This calculation change is considered a change in accounting estimate and will be applied prospectively in 2016. The use of the spot rate approach is expected to result in a favorable impact to pension expense of $4.6 million in 2016 relative to our estimate of what the expense would have been had we not changed our approach. See additional details in the "Critical Accounting Policies" section in Item 7 below.

Effective December 31, 2015, the qualified pension plan was frozen with respect to future benefit accruals. Under ~~CAS~~U.S. Government Cost Accounting Standard ("CAS") 413 we must calculate the USG’s share of any pension curtailment adjustment resulting from the freeze. Such adjustments can result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position. ~~We are unable to make~~During the fourth quarter of 2016, we accrued a ~~determination at this time as~~$0.3 million liability representing our estimate of the amount due to the ~~financial implications this~~USG based on our pension curtailment adjustment ~~will~~calculation which was submitted to the USG for review in December 2016. We have ~~if any, on~~maintained our ~~balance sheet~~accrual at $0.3 million as of December 31, ~~2015, and~~2018. There can be no assurance that the ~~current year's~~ultimate resolution of this matter will not have a material adverse effect on our results of ~~operations. Based upon the analysis completed thus far, we believe the low end of our estimated range of a potential liability to the USG associated with the pension plan closeout is zero~~operations, financial position and ~~therefore no accrual is required at December 31, 2015.~~cash flows.

In 2013, the Company signed a $120.6 million contract to resell ten of the former Australian SH-2G(A) (now designated SH-2G(I)) aircraft, a full mission flight simulator, and related logistics support to the New Zealand MoD. Upon entering into the sales contract with the New Zealand MoD, we agreed to provide unconditional letters of credit for the receipt of advance payments on this program. As we performed under the contract and met certain predetermined milestones, the letter of credit requirements were gradually reduced. As of December 31, 2015, we have satisfied all performance criteria related to the predetermined conditions and there were no letters of credit outstanding for this program.

A summary of our consolidated cash flows ~~from continuing operations~~ is as follows:


	2015			2014			2013			15 vs. 14			14 vs. 13			2018			2017			2016			18 vs. 17			17 vs.16
(in thousands)
Total cash provided by (used in):
Operating activities	$	109,584		$	109,089		$	64,840		$	495		$	44,249		$	162,368		$	79,885		$	107,707		$	82,483		$	(27,822	)
Investing activities	(232,608		)	(100,059		)	(61,219		)	(132,549		)	(38,840		)	(29,961		)	(31,835		)	(37,583		)	1,874			5,748
Financing activities	127,588			(3,538		)	(8,115		)	131,126			4,577			(141,362		)	(54,736		)	(43,959		)	(86,626		)	(10,777		)

Free Cash Flow^(a):
Net cash provided by (used in) operating activities	$	109,584		$	109,089		$	64,840		$	495		$	44,249
Free Cash Flow⁽¹⁾:
Net cash provided by operating activities																$	162,368		$	79,885		$	107,707		$	82,483		$	(27,822	)
Expenditures for property, plant and equipment	(29,932		)	(28,283		)	(40,852		)	(1,649		)	12,569			(29,871		)	(27,631		)	(29,777		)	(2,240		)	2,146
Free cash flow	$	79,652		$	80,806		$	23,988		$	(1,154	)	$	56,818		$	132,497		$	52,254		$	77,930		$	80,243		$	(25,676	)

~~(a)~~(1) Free Cash Flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less expenditures for property plant and equipment, both of which are presented in our ~~consolidated statements~~Consolidated Statements of ~~cash flows.~~Cash Flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures, in this Form 10-K.

Net cash provided by operating activities ~~of continuing operations~~ increased ~~$0.5~~$82.5 million in ~~2015~~2018 compared to ~~2014,~~2017, primarily due to advance payments received under a JPF DCS contract, partially offset by higher ~~accounts receivable collections and cash generated as we near completion of our SH-2G(I) program. Offsetting these changes were a growth~~pension contributions in inventory due to a delay in sales associated with our legacy missile fuze and composite structure programs, advances on contracts received for our Peru and K-MAX® programs, and higher employee benefit related payments.the current period.

Net cash used in investing activities ~~of continuing operations increased $132.5~~decreased $1.9 million in 2018 compared to 2017 primarily due to ~~a $123.6 million increase in cash used for acquisitions~~proceeds received from the sale of assets and the absence of ~~$7.9 million of proceeds received~~an earnout payment associated with a previous acquisition incurred in ~~2014 from~~ the ~~disposal of our Distribution segment's Mexico business unit, Delamac.~~prior period.

Net cash ~~provided by~~used in financing activities ~~of continuing operations~~ increased ~~$131.1~~in 2018 by $86.6 million compared to 2017, primarily due to ~~a $227.2 million increase in borrowings under~~the absence of the convertible notes transactions and higher net repayments of our revolving credit facility in the current period. In the prior period, convertible notes transactions consisted of $200.0 million in proceeds received from the issuance of our 2024 Notes and ~~Term Loan facility. These increases~~$58.6 million in proceeds related to the unwind of a portion of the convertible note hedge transactions related to our 2017 Notes, which were partially offset by ~~repayments under~~ the ~~revolving credit agreement in 2015~~cost to repurchase a portion of ~~$83.8 million, compared~~the 2017 Notes, the purchase of the capped call transactions related to ~~$10.0 million~~our 2024 Notes and higher debt issuance costs associated with the issuance of ~~repayments in the prior year, and $12.0 million of cash used to buy treasury stock under~~ our ~~share repurchase program.~~2024 Notes.

Net cash provided by operating activities ~~of continuing operations increased $44.2~~decreased $27.8 million in ~~2014~~2017 compared to ~~2013, primarily~~2016, due to ~~proceeds~~higher accounts receivable under our JPF program resulting from the ~~sales~~timing of SH-2G(I) inventory as we continue to perform under the New Zealand program and JPF program inventories and an increase in earnings from continuing operations, driven by increased operating income at both our segments. These changes arecollections, partially offset by lower inventory related to our K-MAX®, JPF and legacy fuze programs and the ~~reduction~~timing of ~~advances on contracts as we achieve milestones on certain Aerospace segment programs.~~accounts payable cash disbursements.

Net cash used in investing activities ~~of continuing operations increased $38.8~~decreased $5.7 million in 2017 compared to 2016 primarily due to a ~~$59.5 million increase~~lower earnout payment associated with a previous acquisition in cash used for acquisitions, partially offset by a decrease of $12.6 million in cash used for the purchase of property, plant and equipment and $8.9 million in proceeds received from the sale of our Distribution segment's Mexico business unit, Delamac.2017.

Net cash used in financing activities ~~of continuing operations decreased $4.6~~increased in 2017 by $10.8 million compared to 2016, primarily due to the ~~repayment~~cost to repurchase a portion of ~~borrowings~~the 2017 Notes, higher repayments under our revolving credit facility, ~~due~~the purchase of capped call transactions related to our 2024 Notes and higher debt issuance costs associated with the issuance of our 2024 Notes. These changes were partially offset by $200.0 million in proceeds received from the issuance of our 2024 Notes and $58.6 million in proceeds received related to the ~~significant cash flow generation for~~unwind of a portion of the ~~year.~~convertible note hedge transactions related to the 2017 Notes.

In November 2010, the Company issued convertible senior unsecured notes due on November 15, 2017 ("2017 Notes"), in the aggregate principal amount of $115.0 million in a private placement offering. These notes bore 3.25% interest per annum on the principal amount, payable semiannually in arrears on May 15 and November 15 of each year, beginning in 2011. In May 2017, the Company used a portion of the net proceeds from the issuance of the 2024 Notes, along with cash received from the counterparties in connection with the termination of the existing convertible note hedge transactions, to repurchase $103.5 million principal amount of the 2017 Notes from a limited number of holders in an arm's length transaction. This repurchase represented approximately 90% of the aggregate principal amount of 2017 Notes. The repurchases were accounted for as an extinguishment of the outstanding instrument. Of the total aggregate cost of $165.3 million, $60.0 million was allocated to the equity component of the 2017 Notes and was recorded as a reduction to additional paid-in capital. The remainder of the cost was attributed to the outstanding principal repurchased and accrued interest. The repayment of a portion of the 2017 Notes was not contingent upon the issuance of the 2024 Notes. As such, the repurchase of the 2017 Notes was accounted for as a debt extinguishment. The remaining portion of the 2017 Notes and bond hedge were settled in November 2017. A portion of the existing warrant transactions associated with the 2017 Notes remained outstanding at December 31, 2017. During the first half of 2018, the remaining warrant transactions were settled with 114,778 shares of the Company's common stock.

Interest rates on amounts outstanding under the Credit Agreement are variable. At December 31, ~~2015~~2018 and ~~2014,~~2017, the interest rates for the outstanding amounts on the Credit Agreement were ~~1.67%~~3.74% and ~~1.70%~~2.84%, respectively. In addition, we are required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.175% to 0.300% per annum, based on the Consolidated Senior Secured Leverage Ratio. Fees for outstanding letters of credit range from 1.25% to 2.00%, based on the Consolidated Senior Secured Leverage Ratio.

The financial covenants associated with the Credit Agreement include a requirement that (i) the Consolidated Senior Leverage Ratio cannot be greater than 3.50 to 1.00, with an election to increase the maximum to 3.75 to 1.00 for four consecutive quarters, in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (ii) the Consolidated Total Leverage Ratio cannot be greater than 4.00 to 1.00, with an election to increase the maximum to 4.25 to 1.00 for four consecutive quarters, in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (iii) the Consolidated Interest Coverage Ratio cannot be less than 4.00 to 1.00; and (iv) Liquidity: (a) as of the last day of the fiscal quarter of the Company ending two full fiscal quarters prior to the stated maturity of the Specified Convertible Notes, cannot be less than an amount equal to 50% of the outstanding principal amount of the Specified Convertible Notes, and (b) as of the last day of each fiscal quarter of the Company ending thereafter, cannot be less than an amount equal to the outstanding principal amount of the Specified Convertible Notes as of such day. The Company was in compliance with those financial covenants as of and for the quarter ended December 31, 2015, and management does not anticipate noncompliance in the foreseeable future.

During 2015, we entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate Term Loan interest payments due in 2016 and 2017. Additionally, we ~~have~~ entered into interest rate swap agreements to effectively convert $83.8 million of our variable rate revolving credit facility debt to a fixed interest rate. These interest rate swap agreements were designated as cash flow hedges and intended to manage interest rate risk associated with our variable-rate borrowings and minimize the impact on our earnings and cash flows of interest rate fluctuations attributable to changes in LIBOR rates. ~~There~~As of December 31, 2017, these interest rate swap agreements had all matured and were not outstanding. As such, there was no ~~interest~~activity related to these contracts for the year ended December 31, 2018. The activity related to these contracts was not material to the Company's Consolidated Financial Statements for the year ended December 31, 2017. Interest expense associated with these interest rate ~~swaps in 2015.~~

We contributed ~~$10.0~~$30.0 million ~~to the qualified pension plan~~ and ~~paid $0.5 million in SERP benefits during 2015. In 2014, we contributed~~ ~~$10.0 million~~ ~~to the qualified pension plan and paid~~ ~~$0.8 million~~ ~~in SERP benefits. In 2016, we have contributed~~ $10.0 million to the qualified pension plan ~~(as of the date of this filing)~~during 2018 and 2017, respectively. We do not anticipate making any ~~further~~ contributions ~~this year.~~to the qualified pension plan in 2019. We paid $0.9 million and $3.1 million in SERP benefits during 2018 and 2017, respectively. We expect to pay $0.5 million in SERP benefits in ~~2016.~~2019.

The following table illustrates the cash paid for acquisitions:

On April 29, 2015, we announced that our Board of Directors approved a share repurchase program ("2015 Share Repurchase Program") authorizing the repurchase of up to $100.0 million of the common stock, par value $1.00 per share, of the Company. ~~This new program replaces our 2000 Stock Repurchase Program.~~ We currently intend to repurchase shares to offset the annual issuance of shares under our employee stock plans, but the timing and actual number of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, capital availability and other factors, including acquisition opportunities. As of December 31, ~~2015,~~2018, we had repurchased ~~300,000~~1,097,853 shares under the 2015 Share Repurchase Program and approximately ~~$88.0~~$45.7 million remained available for repurchases under this authorization.

Management believes that the non-GAAP measures used in this ~~report~~Annual Report on Form 10-K provide investors with important perspectives into our ongoing business performance. We do not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures as follows:

Organic Sales is defined as "Net Sales" less sales derived from acquisitions completed during the preceding 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 for our segments provides management and investors with useful information about the trends impacting our segments 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 per sales day is defined as GAAP “Net sales of the Distribution ~~segment”,~~segment,” less sales derived from acquisitions completed during the preceding twelve months, divided by the number of sales days in a given period. Sales days ("Sales Days") are the ~~number of business~~ days that the Distribution segment’s branch locations were open for business and exclude weekends and holidays. Management believes ~~sales~~Organic Sales per ~~sales day~~Sales Day provides an important perspective on how net sales may be impacted by the number of days the segment is open for ~~business. Management uses organic sales per sales day as~~business and provides a ~~measurement to compare~~basis for comparing periods in which the ~~numbers~~number of sales days ~~differ.~~differs. For the Organic Sales per Sales Day for 2018, 2017 and 2016, please refer to Results of Operations - Segment Results of Operations and Financial Condition - Distribution Segment in the Management's Discussion and Analysis of Financial Condition and Results of Operation in this Annual Report on Form 10-K.

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”~~, both of which are presented~~ in ~~our Consolidated Statements of Cash Flows.~~the same period. Management believes ~~free cash flow~~Free Cash Flow provides an important perspective on ~~the~~our ability to generate cash ~~available for dividends to shareholders, debt repayment, and acquisitions after making capital investments required to support ongoing~~from our business operations and, ~~long-term value creation.~~as such, that it is an important financial measure for use in evaluating the Company's financial performance. Free ~~cash flow does~~Cash Flow should not ~~represent~~be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it ~~excludes~~may exclude certain mandatory expenditures such as repayment of maturing ~~debt.~~debt and other contractual obligations. Management uses ~~free cash flow~~Free Cash Flow internally to assess ~~both business performance and~~ overall liquidity.

~~Non-GAAP Adjusted Operating Income~~

Non-GAAP adjusted operating income is defined as operating income, less items that are not indicative of the operating performance of the Company's segments or corporate for the period presented. Management uses Non-GAAP adjusted operating income to evaluate performance period over period, to analyze the underlying trends impacting our segments and corporate and to assess their performance relative to their competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance.

~~Adjusted EBITDA and Adjusted EBTIDA Margin~~

Adjusted EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is calculated using our consolidated results as well as the results of our reportable segments. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Net sales for our reportable segments. Adjusted EBITDA differs from Segment Operating Income, as calculated in accordance with GAAP, in that it excludes depreciation and amortization. The Company has made numerous investments in our business, such as acquisitions and increased capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and new ERP systems. Management believes Adjusted EBITDA provides an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods by eliminating the impact of non-cash depreciation and amortization expense. Adjusted EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. Adjusted EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

The following table summarizes certain of the Company’s contractual obligations as of December 31, ~~2015:~~2018:


	Payments due by period (in millions)										Payments due by period (in millions)
Contractual Obligations	Total		Within 1 year		1-3 years		3-5 years		More than 5 years		Total		Within 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt	$	329.8	$	5.0	$	14.4	$	310.4	$	—
Convertible notes	115.0		—		115.0		—		—
Long-term debt (including convertible notes)											$	315.4	$	9.4	$	106.0	$	—	$	200.0
Interest payments on debt ^(a)	31.0		11.8		14.2		5.0		—		79.1		15.0		30.3		30.5		3.3
Operating leases	85.8		24.7		33.6		14.4		13.1		101.8		27.5		42.3		21.5		10.5
Capital leases	1.5		0.3		0.7		0.5		—		8.6		2.0		3.9		2.5		0.2
Purchase obligations ^(b)	108.5		84.0		24.4		0.1		—		305.3		271.6		33.1		0.6		—
Other long-term obligations ^(c)	53.6		13.1		19.1		4.7		16.7		52.4		13.6		16.0		4.3		18.5
Planned funding of pension and SERP ^(d)	19.3		10.5		3.5		1.0		4.3		6.2		0.5		2.8		0.9		2.0
Total	$	744.5	$	149.4	$	224.9	$	336.1	$	34.1	$	868.8	$	339.6	$	234.4	$	60.3	$	234.5

Note: For more information refer to Note ~~11,~~12, Debt; Note 14, Income Taxes;Note 15, Pension Plans;Note 16,Other Long-Term Liabilities and Note 17, Commitments and Contingencies~~; Note 15,~~ ~~Other Long-Term Liabilities; Note 14,~~ ~~Pension Plans, and Note 13,~~ ~~Income Taxes~~ in the Notes to Consolidated Financial Statements included in this Form 10-K.

~~The following table summarizes our off-balance sheet arrangements:~~

Our significant accounting policies are outlined in Note 1,Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this Form 10-K. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures based upon historical experience, current trends and other factors that management believes to be relevant. We are also responsible for evaluating the propriety of our estimates, judgments and accounting methods as new events occur. Actual results could differ from those estimates. Management periodically reviews the Company’s critical accounting policies, estimates and judgments with the Audit Committee of our Board of Directors. The most significant areas currently involving management judgments and estimates are described below.

The over time revenue recognition model requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the original contract price, with consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements. Contract costs may be incurred over a period of several years, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers and financial professionals. Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections. The complexity of certain programs as well as technical risks and uncertainty as to the future availability of materials and labor resources could affect the Company’s ability to accurately estimate future contract costs.

The following table illustrates the amount of revenue recognized for performance obligations satisfied over time versus the amount of revenue recognized for performance obligations satisfied at a point in time for the Aerospace segment.

We do not currently believe there to be a reasonable likelihood that actual results will vary materially from estimates and assumptions used to test goodwill and other intangible assets for impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material. Our estimates of the fair value of the Aerosystems reporting unit include estimated cash flows related to the continued production and sale of the K-MAX aircraft, including derivative technologies, spares sales and support.

A summary of recent accounting standards is included in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

First Second Third Fourth Total
2014 Quarter Quarter Quarter Quarter Year
(in thousands, except per share amounts)
Net sales $ 407,958
$ 453,018
$ 456,055
$ 477,931
$ 1,794,962
Gross profit 114,000
128,549
129,365
$ 136,025
507,939
Earnings from continuing operations 11,944
16,709
15,797
$ 21,330
65,780
Loss from discontinued operations, net of tax (487 ) (515 ) (924 ) $ (998 ) (2,924 )
Gain on disposal of discontinued operations, net of tax —
379
(94 ) (5,269 ) (4,984 )
Net earnings $ 11,457
$ 16,573
$ 14,779
$ 15,063
$ 57,872
Basic earnings (loss) per share:
From continuing operations $ 0.45
$ 0.62
$ 0.58
$ 0.79
$ 2.43
From discontinued operations (0.02 ) (0.02 ) (0.03 ) (0.04 ) (0.11 )
From disposal of discontinued operations —
0.01
—
(0.19 ) (0.18 )
Basic earnings per share $ 0.43
$ 0.61
$ 0.55
$ 0.56
$ 2.14
Diluted earnings (loss) per share:
From continuing operations $ 0.44
$ 0.61
$ 0.57
$ 0.77
$ 2.37
From discontinued operations (0.02 ) (0.02 ) (0.04 ) (0.04 ) (0.11 )
From disposal of discontinued operations —
0.01
—
(0.19 ) (0.18 )
Diluted earnings per share $ 0.42
$ 0.60
$ 0.53
$ 0.54
$ 2.08



	First		Second		Third		Fourth		Total
2017	Quarter		Quarter		Quarter		Quarter		Year
	(in thousands, except per share amounts)
Net sales	$	435,941	$	449,006	$	447,046	$	473,916	$	1,805,909
Gross profit	124,346		134,493		138,465		148,287		545,591
Net earnings	6,291		13,458		16,280		13,797		49,826
Basic earnings per share	0.23		0.49		0.58		0.50		1.80
Diluted earnings per share	0.22		0.48		0.58		0.49		1.75

Included within certain quarterly results are a variety of unusual or significant adjustments that may affect comparability. The most significant of such adjustments are described below as well as within Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Consolidated Financial Statements. Additionally, due to the nature of the earnings per share calculation, the sum of quarterly earnings per share data may not equal the cumulative earnings per share data for the year.

Items within the ~~2015~~2018 quarterly results that may affect comparability are as follows: fourth quarter, $4.0 million in expense associated with the resolution of matters related to our AH-1Z program, $3.0 million of expenses related to foreign currency transactions associated with the purchase of GRW, a $2.1 million loss related to the reversal of a portion of the tax benefit recognized in the second quarter due to tax law changes in December, and $1.5 million of costs associated with restructuring activities at our Distribution segment; second quarter, a $4.4 million gain related to the recognition of a tax benefit due to tax law changes, $0.6 million of severance costs at our Distribution segment; first quarter, $0.3 million of severance costs associated with our Distribution segment.

We have various market risk exposures that arise from our ongoing business operations. Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. Our financial results are impacted by changes in interest rates, certain foreign currency exchange rates and commodity prices.

We have manufacturing, sales and distribution facilities in various locations throughout the world. As a result, we make investments and conduct business transactions denominated in various currencies, including the U.S. dollar, the British pound, the European euro, the Czech koruna, the Japanese yen and the ~~Australian dollar.~~Indian rupee. Total annual foreign sales, ~~from continuing operations,~~ including foreign export sales, averaged approximately ~~$250.8~~$320.7 million over the last three years. Foreign sales ~~from continuing operations~~ represented ~~15.6%~~15.8% of consolidated net sales ~~from continuing operations~~ in ~~2015.~~2018. We estimate a hypothetical 10% adverse change in foreign currency exchange rates relative to the U.S dollar for ~~2015~~2018 would have had an unfavorable impact of ~~$7.1~~$13.1 million on sales and a ~~$0.3 million~~ favorable impact of $2.1 million on operating income. We manage foreign currency exposures that are associated with committed foreign currency purchases and sales and other assets and liabilities created in the normal course of business at the subsidiary operations level. Sometimes we may, through the use of forward contracts or other derivative contracts, hedge the price risk associated with committed and forecasted foreign denominated payments and rates. Historically the use of these forward contracts has been minimal. We do not use derivatives for speculative or trading purposes.

Our primary exposure to interest rate risk results from our outstanding debt obligations. The level of fees and interest charged on revolving credit commitments and borrowings are based upon leverage levels and market interest rates.

Our principal debt facilities are contained within a variable rate credit agreement that provides a $600.0 million revolving credit facility and a $100.0 million term loan commitment. Both these agreements were ~~entered into~~amended and restated on May 6, 2015 (as amended), and expire on May 6, 2020. Total average bank borrowings for ~~2015~~2018 were ~~$192.5~~$151.6 million. The impact of a hypothetical 100 basis point increase in the interest rates on our average bank borrowings would have resulted in a ~~$1.9~~$1.5 million increase in interest expense.

~~In November 2010,~~During the fiscal quarter ended June 30, 2017, we issued ~~$115.0~~$200.0 million aggregate principal of convertible unsecured senior notes, due ~~on November 15, 2017,~~May 2024, in a private placement offering. These notes bear 3.25% interest per annum on the principal amount, payable semiannually in arrears on May 1 and November ~~15 and May 15~~1 of each year, beginning on ~~May 15, 2011,~~November 1, 2017, and have an effective interest rate of ~~5.25%~~5.0%.

From time to time we will enter into interest rate swap contracts for the purpose of securing a fixed interest rate on our variable interest rate borrowings. These contracts allow us to create certainty ~~related~~with respect to future cash flows ~~as they relate to~~associated with our variable rate debt that would otherwise be impacted by fluctuations in LIBOR ~~rates and the impact they have on interest payments on our variable rate debt.~~rates.

We are exposed to volatility in the price of raw materials used in certain manufacturing operations as well as a variety of items procured by our distribution business. These raw materials include, but are not limited to, aluminum, titanium, nickel, copper and other specialty metals. We manage our exposure related to these price changes through strategic procurement practices.

To the Board of Directors and Shareholders of Kaman Corporation:

~~In our opinion,~~We have audited the accompanying consolidated balance sheets of Kaman Corporation and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations, of comprehensive income, of shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~Kaman Corporation and its subsidiaries at~~the Company as of December 31, ~~2015~~2018 and ~~December 31, 2014,~~2017, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2015~~2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2015,~~2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the ~~Committee~~COSO.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers and its presentation of ~~Sponsoring Organizations of the Treadway Commission (COSO).~~ pension and postretirement benefit costs in 2018.

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under ~~Item~~item 9A. Our responsibility is to express opinions on ~~these~~the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our ~~integrated~~ audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the consolidated financial ~~statements, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall presentation of the consolidated financial ~~statement presentation.~~statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control over Financial Reporting, management has excluded G.C. Fabrication, Inc., Calkins Fluid Power, Inc., EXTEX Engineered Products, Inc., and GRW Bearing GmbH (the “Acquired Businesses”) from its assessment of internal control over financial reporting as of December 31, 2015 because these businesses were acquired by the Company through purchase business combinations during 2015. We have also excluded the Acquired Businesses from our audit of internal control over financial reporting. The Acquired Businesses are wholly-owned subsidiaries whose total assets and total revenues represent 17% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2015.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

February ~~29, 2016~~25, 2019

We have served as the Company’s auditor since 2013.

Kaman Corporation, headquartered in Bloomfield, Connecticut, was incorporated in 1945 and is a diversified company that conducts business in the aerospace and distribution markets. Kaman Corporation reports information for itself and its subsidiaries (collectively, the "Company") in two business segments, Distribution and Aerospace.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation.

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, goodwill and other intangible assets; valuation allowances for receivables, inventories and income taxes; valuation of share-based compensation; vendor incentives; assets and obligations related to employee benefits; estimates of environmental remediation costs; and accounting for long-term contracts including claims. Actual results could differ from those estimates.

The Company has certain operations outside the United States that prepare financial statements in currencies other than the U.S. dollar. For these operations, results of operations and cash flows are translated using the average exchange rate throughout the period. Assets and liabilities are generally translated at end of period rates. The gains and losses associated with these translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. The carrying amounts of these items, as well as trade accounts payable and notes payable, approximate fair value due to the short-term maturity of these instruments. At December 31, ~~2015~~ ~~and~~ ~~2014~~,2018, no individual customer accounted for more than 10% of consolidated accounts ~~receivable or~~receivable. At December 31, 2017, one individual customer accounted for more than 10% of consolidated accounts receivable. At December 31, 2018 and 2017, no individual customer accounted for more than 10.0% of consolidated net sales. Foreign sales ~~associated with continuing operations~~ were approximately ~~15.6%~~15.8%, ~~13.6%~~18.8% and ~~13.9%~~18.1% of the Company’s net sales in ~~2015, 2014~~2018, 2017 and ~~2013,~~2016, respectively, and are concentrated in the United Kingdom, Germany, Canada, France, Switzerland, New Zealand, the Middle East and Asia.

Non-cash investing activities in ~~2015~~2018 include ~~$5.4~~an accrual of $3.5 million ~~in earn-out payments~~for purchases of property and equipment (including capital lease obligations) and a note receivable with a present value of $2.5 million for the amounts to be collected associated with the ~~former owners~~sale of ~~an aerospace acquisition. The Company describes these earn-out payments in more detail in Note 3,~~ ~~Acquisitions.~~the U.K. Tooling business. Non-cash financing activities in ~~2015~~2018 include 114,778 common shares issued for the unwind of the remaining warrant transactions associated with the 2017 Notes during the first half of 2018 that had a value of approximately $7.6 million. Other non-cash financing activities in 2018 include an adjustment to other comprehensive income related to the underfunding of the pension and SERP plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total net adjustment was ~~$11.9~~$11.6 million, net of tax of ~~$7.2~~$3.7 million. Additionally, non-cash financing activities in ~~2015~~2018 include ~~$4.9~~$5.6 million of dividends declared but not yet paid.

Non-cash investing activities in ~~2014~~2017 include an accrual of $$3.6 million for purchases of property and equipment (including capital lease obligations). Non-cash financing activities in 2017 include 624,044 common shares issued for the partial unwind of warrant transactions during the second quarter of 2017 that had a value of approximately $30.3 million, the receipt of 136,369 shares with an approximate value of $7.5 million to unwind the remaining bond hedge transactions during the fourth quarter of 2017 and the issuance to bond holders of 136,347 shares with an approximate value of $7.5 million upon conversion of the remaining 2017 Notes. Other non-cash financing activities in 2017 include an adjustment to other comprehensive income related to the underfunding of the pension and SERP plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total net adjustment was ~~1.5~~$12.7 million, net of tax of $7.7 million. Additionally, non-cash financing activities in 2017 include $5.6 million of dividends declared but not yet paid.

Non-cash investing activities in 2016 include an accrual of $2.3 million for purchases of property and equipment (including capital ~~leases and $1.5~~lease obligations), $1.4 million in earn-out payments to the former owners of an aerospace ~~acquisition.~~acquisition and an adjustment of $0.2 million for a certain tax matter. Non-cash financing activities in ~~2014~~2016 include an adjustment to other comprehensive income related to the underfunding of the pension and SERP plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total net adjustment was $~~38.7~~4.0 million, net of tax of $~~23.4~~2.5 million. Additionally, non-cash financing activities in ~~2014~~2016 include ~~$4.3~~$4.9 million of dividends declared but not yet paid. Non-cash investing activities in 2013 include an accrual of $0.9 million for purchases of property and equipment and $3.5 million in earn-out payments to the former owners of an aerospace acquisition. Non-cash financing activities in

~~2013~~ include an adjustment to other comprehensive income related to the underfunding of the pension and SERP plans and changes in the fair value of derivative financial instruments that qualified for hedge accounting. The total adjustment was ~~$39.0 million, net of tax of~~ ~~$23.6 million~~. The Company describes its pension obligations in more detail in Note ~~14,~~15, Pension Plans. ~~Additionally,~~The Company describes the convertible notes transactions in more detail in Note 12, Debt.

Under ASC 606, the amount of revenue recognized for any goods or services reflects the consideration that the Company expects to be entitled to receive in exchange for these goods or services. To achieve this core principle, the Company applies the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as a performance obligation is satisfied.

A contract is accounted for when there has been approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Performance obligations under a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. In certain instances, the Company has concluded distinct goods or services should be accounted for as a single performance obligation when they are a series of distinct goods or services that have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether the customer can benefit from the goods or services either on their own or together with other resources that are readily available to the customer (the goods or services are distinct) and if the promise to transfer the goods or services to the customer is separately identifiable from other promises in the contract (the goods or services are distinct in the context of the contract). If these criteria are not met, the promised services are accounted for as a single performance obligation. The transaction price is determined based on the consideration that the Company will be entitled to in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price, generally utilizing the expected value method. Determining the transaction price requires significant judgment. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. Standalone selling price is determined by the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Performance obligations are satisfied either over time or at a point in time as discussed in further detail below. In addition, the Company's contracts with customers generally do not include significant financing components or non-cash ~~financing activities in 2013 include $4.3 million of dividends declared but not yet paid.~~consideration.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016

~~Sales and estimated profits under long-term~~In certain instances, the Company has accounted for contracts ~~are generally recognized~~ using the ~~percentage-of-completion method~~portfolio approach, a practical expedient permissible under the standard. The determination of when the use of the portfolio approach is appropriate requires judgment from management based on consideration of all the facts and circumstances. The Company uses the portfolio approach when the effect of accounting ~~using as~~for a measurement basis either the ratio that costs incurred bear to estimated total costs (after giving effect to estimates of costs to complete based upon most recent information for each contract) or units-of-delivery. Reviewsgroup of contracts ~~are made routinely~~or a group of performance obligations would not differ materially from considering each contract or performance obligation separately. This determination requires the use of estimates and assumptions that reflect the size and composition of the portfolio. The Company primarily uses the portfolio approach within its over time revenue streams throughout ~~their lives~~the Distribution segment as well as for its commercial and defense bearings and structures businesses in the Aerospace segment. The Company's primary criteria considered when using the portfolio approach is the commonality of economic factors, which generally follow the product type based on consistent production costs and standard pricing for the products.

The Distribution segment has historically recognized the majority of its revenue when the sales price was fixed, collectability was reasonably assured and the impact of revisions in profit estimates are recorded in the accounting period in which the revisions are made. Anticipated contract losses are charged to operations when they are probable. In cases where we have multiple contracts with a single customer, each contract is generally treated as a separate profit center and accounted for as such. Except in the case of contracts accounted for using the cost-to-cost method of percentage of completion accounting, revenues are recognized when the product has been shipped or delivered, depending upon whenproduct's title and risk of loss have passed. For certain USG contracts delivery is deemed to have occurred when work is substantially complete and acceptance by the customer has occurred by execution of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment.

The Company generally uses the cost-to-cost measure of progress for its over time contracts because it best depicts the transfer of assets to the customer which occurs as cost is incurred under the contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company performs detailed quarterly reviews of the progress and execution of its performance obligations under certain larger contracts. As part of this process, management reviews information, primarily its estimated costs at completion and costs incurred to date by its vendors as a majority of production costs at the segment are incurred by third party vendors. These estimated costs are included in the calculation of the measures of progress towards completion.

Additionally, the Company includes freight costs charged to customers in net sales and the correlating expense as a cost of sales. Sales tax collected from customers is excluded from net sales in the ~~accompanying~~Company's Consolidated Statements of Operations.

The majority of long-term contracts in the Aerospace segment were historically accounted for under the percentage-of-completion method using units-of-delivery as a measurement basis. Many of these contracts moved to an over time revenue model under ASC 606. For example, revenue for the Company's Joint Programmable Fuze ("JPF") program with the U.S. Government ("USG") moved from percentage-of-completion using units-of-delivery as the measurement basis to the over time revenue recognition model using input costs as the basis for recognizing progress to completion. Conversely, revenue for the K-MAX® program moved from cost-to-cost revenue recognition under percentage-of-completion accounting to the point-in-time method, with revenue on these aircraft being recognized upon acceptance by the end customer. For certain programs, early-contract unit costs in excess of the average expected cost over the life of the contract and contractually recoverable general and administrative costs were previously capitalized and amortized over the period of performance of the contract. With the adoption of this standard update, $32.5 million of previously capitalized deferred costs in excess of the contract average and previously contractually recoverable general and administrative costs were adjusted within the cumulative effect to retained earnings and will not be amortized into earnings after January 1, 2018.

To determine the appropriate revenue recognition model for the Aerospace segment's long-term contracts, the Company evaluates whether a contract exists, considering whether multiple contracts should be combined as one single contract and then whether the contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment, as these decisions could change the amount of revenue and profit recorded in a given period. For certain programs, the Company may promise to provide distinct goods or services within a contract, in which case these are separated into more than one performance obligation.

For certain programs in the Aerospace segment, the Company recognizes revenue over time because of continuous transfer of control to the customer. For USG contracts, this continuous transfer of control to the customer is supported by clauses in the contract that provide lien rights to the customer over the work in progress, thereby control transfers as costs are incurred. For non-USG contracts, the customer typically controls the work in progress because the Company is producing products that do not have an alternative use to the Company and where contractual termination clauses provide the Company rights to payment for work performed to date plus a reasonable profit.

Revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of assets to the customer which occurs as cost is incurred under the contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Total estimated contract costs generally include labor, materials and subcontractors’ costs, other direct costs and related overhead costs. These estimates also include the estimated cost of satisfying offset obligations, as required under certain contracts. The complexity of certain programs as well as technical risks and uncertainty as to the future availability of materials and labor resources could affect the Company’s ability to accurately estimate future contract costs.

For contracts that recognize revenue over time, the Company performs detailed quarterly reviews of the progress and execution of its performance obligations under these contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g. the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g. to estimate increases in wages and prices for materials and related support cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables. Based upon these reviews, the Company will record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, a provision for the entire anticipated contract loss is recorded at that time. The amount of revenue recognized in the year ended December 31, 2018 from performance obligations satisfied (or partially satisfied) in previous periods was $6.7 million. This amount was primarily related to changes in the estimates of the stage of completion of Aerospace contracts, more specifically the JPF contract with the USG and the AH-1Z contract. For the year ended December 31, 2017, the net increase in our operating income from changes in contract estimates totaled $5.7 million. The increase in 2017 was primarily a result of improved performance on the AH-1Z program, JPF program with the USG and the SH-2G program with Peru. These improvements were partially offset by cost growth on the K-MAX® and A-10 programs. The net decrease in our operating income from changes in contract estimates totaled $0.8 million for the year ended December 31, 2016. The decrease in 2016 was primarily a result of cost growth on various programs, including the Boeing 767/777 program, the A-10 program and certain composite structures and assembly programs. This cost growth was partially offset by improved performance on the JPF program.

Due to the nature of the work required to be performed on many of the Company's performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. From time-to-time the Company enters into long-term contracts with the USG and other customers that contain award fees, incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company's anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company does not include financing components as variable consideration if less than one year. At December 31, 2018, the Company did not have any significant financing components.

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or makes changes to the existing enforceable rights and obligations. Contract modifications for goods or services that are not distinct from the existing contract are accounted for as if they were part of that existing contract. In these cases, the effect of the contract modification on the transaction price and the measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis, except when such modifications relate to a performance obligation that is a series of substantially the same distinct goods or services. If the modification relates to a performance obligation for a series of substantially the same distinct goods or services, the modification is treated prospectively. Contract modifications for goods or services that are considered distinct from the existing contract are accounted for as separate contracts. The Company applied the practical expedient for any contracts that were modified prior to January 1, 2018; therefore, the contracts were not restated retrospectively for those modifications.

For other contracts within the Aerospace segment, excluding the long-term contracts discussed above, the method of revenue recognition will remain substantially the same under ASC 606. For these contracts, revenue will be primarily recognized at the point in time when the title transfers to the customer, as this is when the performance obligation is controlled by the customer. Additionally, a small percentage of revenue related to certain contracts for repairs and overhauls within the Aerospace segment is accounted for over time under ASC 606. Under these contracts, revenue is generally recognized as work is performed in proportion to the actual costs incurred as compared to total estimated contract costs.

Cost of sales includes costs of products and services sold (i.e., purchased product, raw material, direct labor, engineering labor, outbound freight charges, depreciation and amortization, indirect costs and overhead charges). Selling expenses primarily consist of advertising, promotion, bid and proposal, employee payroll and corresponding benefits and commissions paid to sales and marketing personnel. General and administrative expenses primarily consist of employee payroll including executive, administrative and financial personnel and corresponding benefits, incentive compensation, independent research and development, consulting expenses, warehousing costs, depreciation and amortization. Legal costs are expensed as incurred and are generally included in general and administrative expenses. The Aerospace segment ~~includes~~previously included general and administrative expenses as an element of program cost and inventory for certain government ~~contracts.~~

Certain inventory related costs, including purchasing costs, receiving costs and inspection costs, for the Distribution segment are not included in cost of sales. For the years ended December 31, ~~2015~~, ~~2014~~2018, 2017 and ~~2013, $3.2~~2016, $4.2 million, $~~3.4~~3.5 million and $~~3.0~~3.5 million, respectively, of such costs are included in general and administrative expenses.

Cash and cash equivalents include cash on hand, demand deposits and short-term cash investments. These investments are liquid in nature and have original maturities of three months or less. ~~Book~~Bank overdraft positions, which occur when total outstanding issued checks exceed available cash balances at a single financial institution at the end of a reporting period, are reclassified to ~~accounts payable~~other current liabilities within the consolidated balance sheets. At December 31, ~~2015~~2018 and ~~2014~~,2017, the Company had ~~book~~bank overdrafts of ~~$4.0~~$2.7 million and ~~$7.3~~$3.1 million,, respectively, included in ~~accounts payable.~~other current liabilities.

The Company has three types of accounts receivable: (a) Trade receivables, which consist of amounts billed and currently due from customers; (b) USG contracts, which consist of (1) amounts billed, and (2) costs and accrued profit – not billed; and (c) Commercial and other government contracts, which consist of (1) amounts billed, and (2) costs and accrued profit – not billed. The Company's receivables, net, consist of amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value.

The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the trade accounts receivable and billed contracts balance. Management determines the allowance based on known troubled accounts, historical experience and other currently available evidence.

The Company's contract assets include unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is applied and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts do not exceed their net realizable value. Contract assets are generally classified as current as such amounts are billable and collectible within twelve months.

Contract costs consist of costs to obtain and fulfill a contract. Costs to fulfill a contract primarily consist of nonrecurring engineering costs incurred at the start of a new program for which such costs are expected to be recovered under existing and future contracts. Such costs are amortized over the estimated revenue amount of the contract. Costs to obtain a contract consist of commissions and agent fees paid in connection with the award of a contract. If these costs are determined to have an amortization period of less than one year, the Company applies the practical expedient and the related costs are expensed as incurred. If the amortization period is determined to be greater than a year and the incremental costs to obtaining the contract qualify as an asset, then the contract costs are recorded and amortized over the estimated contract revenue.

Inventory of merchandise for resale is stated at cost (using the average costing method) or ~~market,~~net realizable value, whichever is lower. Contracts and other work in process and finished goods are valued at production cost represented by raw material, labor and overhead. ~~For certain government contracts, allowable general and administrative expenses are also included in inventory. Initial tooling and startup costs may be included, where applicable.~~ Contracts and other work in process and finished goods are not reported at amounts in excess of net realizable values. The Company includes raw material amounts in the contracts in process and other work in process balances. Raw material includes certain general stock materials but primarily relates to purchases that were made in anticipation of specific programs for which production has not been started as of the balance sheet date.

Property, plant and equipment is recorded at cost. Depreciation is computed primarily on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives for buildings range from 15 to 40 years and for leasehold improvements range from 1 to 20 years, whereas machinery, office furniture and equipment generally have useful lives ranging from 3 to 15 years. At the time of retirement or disposal, the acquisition cost of the asset and related accumulated depreciation are eliminated and any gain or loss is credited to or charged against income.

Long-lived assets, such as property, plant and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Maintenance and repair items are charged against income as incurred, whereas renewals and betterments are capitalized and depreciated.

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination and is reviewed for impairment at least annually.

Accounting Standards Codification Topic 350, "Intangibles - Goodwill and ~~Other",~~Other," ("ASC 350") permits the assessment of qualitative factors to determine whether events and circumstances lead to the conclusion that it is necessary to perform the two-step goodwill impairment test required under ASC 350. The qualitative assessment management performs takes into consideration the following factors: general economic conditions, industry specific performance, changes in carrying values of the reporting units or asset groups, the assessment of assumptions used in the previous fair value calculation and changes in transaction multiples.

In the first step of the two-step test, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). In ~~step two,~~Step 2, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

Fair value of the reporting unit is determined using an income methodology based on management’s estimates of forecasted cash flows for each ~~business~~reporting unit, with those cash flows discounted to present value using rates commensurate with the risks associated with those cash flows. In addition, management uses a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization ~~(“EBITDA”~~("EBITDA") for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. If the fair value of the reporting unit exceeds its carrying value, step two need not be performed.

Goodwill and intangible assets with indefinite lives are evaluated annually for impairment in the fourth quarter, based on annual forecast information. Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Goodwill and other intangible assets are reviewed for possible impairment whenever changes in conditions indicate that the fair value of a reporting unit is more likely than not below its carrying value. ~~See Note 9,~~ ~~Goodwill and Other Intangible Assets, Net~~,During the third quarter of 2018, management identified a triggering event for ~~discussion~~possible impairment at a certain asset group in its U.K. business based on a review of historical performance, the current forecast for the remainder of the ~~goodwill~~year and the loss of future orders from one of its significant customers, requiring the Company to evaluate the intangible assets for impairment. The Company performed a recoverability test by comparing the undiscounted cash flows of the asset group to its carrying value, and the estimated future cash flows of the business did not exceed the carrying value of the assets. Based on these results, the Company calculated the fair value of the asset group using an income approach, which resulted in an other intangible assets impairment charge ~~recorded~~of $10.0 million, or the remaining balance of the customer lists/relationships at a certain asset group within the U.K. business. This charge has been included in ~~2013.~~the operating results of the Aerospace segment. No such charges were recorded in ~~2015~~2017 or ~~2014.~~2016.

The Company's contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue. Advance payments and billings in excess of revenue recognized are classified as current or noncurrent based on the timing of when recognition of revenue is expected.

The Company’s Distribution segment enters into agreements with certain vendors providing for inventory purchase incentives that are generally earned upon achieving specified volume-purchasing levels. The Company recognizes rebate income relative to specific rebate programs as a reduction of the cost of inventory based on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions that results in progress toward earning the rebate, provided that the amounts are probable and reasonably estimable. As of December 31, ~~2015~~2018 and ~~2014,~~2017, total vendor incentive receivables, included in other current assets, were approximately ~~$16.4~~$17.3 million and ~~$17.7~~$14.5 million,, respectively.

To limit exposure to losses related to group health, workers’ compensation, auto and product general liability claims, the Company obtains third-party insurance coverage. The Company has varying levels of deductibles for these claims. The total liability/deductible for group health is limited to $0.3 million per claim, workers’ compensation is limited to $0.4 million per claim and for product/general liability and auto liability the limit is $0.3 million per claim. The cost of such benefits is recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but not reported (“IBNR”) during such period. The estimates for the IBNR are based upon historical trends and information provided to us by the claims administrators, and are periodically revised to reflect changes in loss trends. These amounts are included in other ~~accruals and payables~~current liabilities on the ~~consolidated balance sheets.~~

Liabilities associated with these claims are estimated in part by considering historical claims experience, severity factors and other actuarial assumptions. Projections of future losses are inherently uncertain because of the random nature of insurance claim occurrences and the potential for differences between actual developments and actuarial assumptions. Such self-insurance accruals will likely include claims for which the ultimate losses will be settled over a period of years.

Customer funded research expenditures (which are included in cost of sales) were ~~$0.4~~$1.8 million in ~~2015, $1.6~~2018, $1.1 million in ~~2014,~~2017 and ~~$3.3~~$0.9 million in ~~2013.~~2016. Research and development costs not specifically covered by contracts are ~~charged against income~~recognized as expense as incurred and included in selling, general and administrative expenses. Such costs amounted to ~~$6.7~~$9.1 million, $8.2 million and $7.7 million in ~~$6.7 million~~2018, 2017 and ~~$7.2 million~~ in ~~2015~~, ~~2014~~ ~~and~~ ~~2013~~2016, respectively.

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The deferred income taxes were significantly impacted by the enactment of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"), as further discussed in Note 14, Income Taxes.

The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely than not that such a position will be sustained upon examination by taxing authorities based on the technical merits of the position. Unrecognized tax benefits represent the difference between the position taken in the tax return and the benefit reflected in the financial statements.

The Company records compensation expense for share-based awards based upon an assessment of the grant date fair value of the awards. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. A number of assumptions are used to determine the fair value of options granted. These include expected term, dividend yield, volatility of the options and the risk free interest rate. See Note ~~18,~~19, Share-Based Arrangements, for further information.

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are recognized on the ~~consolidated balance sheets~~Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes. See Note 6,7, Derivative Financial Instruments, for further information.

The Company accounts for its defined benefit pension plan by recognizing the overfunded or underfunded status of the plan, calculated as the difference between the plan assets and the projected benefit obligation, as an asset or liability on the balance sheet, with changes in the funded status recognized in comprehensive income in the year in which they occur.

For the year ended December 31, 2018, the Company realized changes of asset and liability accounts as described above, with no impact to the Company's cash flows from operating activities.

For the year ended December 31, 2018, the only adjustments to comprehensive income when comparing the balances with ASC 606 and the balances without ASC 606 included the adjustments to net earnings presented above.

During the third quarter of 2016, the Company offered a voluntary retirement program to certain employees of its Distribution segment. This program resulted in $0.3 million of expense, all of which was included in selling, general and administrative expenses on the Company's Consolidated Statements of Operations for the year ended December 31, 2016. In addition to the restructuring activity, the Distribution segment and Aerospace segment incurred $0.7 million and $2.5 million of severance expense in 2016, respectively.

Contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract costs consist of costs to obtain and fulfill a contract. Costs to fulfill a contract primarily consist of nonrecurring engineering costs incurred at the start of a new program for which such costs are expected to be recovered under existing and future contracts. Such costs are amortized over the estimated revenue amount of the contract. Costs to obtain a contract consist of commissions and agent fees paid in connection with the award of a contract. Contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue.

Contract assets includes amounts for matters such as contract changes, negotiated settlements and claims for unanticipated contract costs. These amounts are as follows:

At December 31, 2018, costs to fulfill a ~~customer for claims~~contract and costs to obtain a contract were $8.9 million and $7.8 million, respectively. These amounts are included in contract costs, current portion and contract costs, noncurrent portion on the Company's Consolidated Balance Sheets at December 31, 2018.

Fair value is defined as the exchange price that would be received for an asset or the price paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

The following table provides the carrying value and fair value of financial instruments that are not carried at fair value at December 31, ~~2015~~2018 and ~~2014~~2017:

⁽¹⁾ These amounts are classified within Level 2.

The above fair values were computed based on quoted market prices and discounted future cash flows ( observable inputs), as applicable. Differences from carrying ~~amounts~~values are attributable to interest rate changes subsequent to when the ~~transaction~~transactions occurred. The fair values of ~~Cash~~cash and cash equivalents, ~~Accounts~~accounts receivable, net, ~~Notes payable,~~ and ~~Accounts~~accounts payable - trade approximate their carrying amounts due to the short-term maturities of these instruments.

The Company holds derivative instruments for foreign exchange contracts ~~and interest rate swaps~~ that are measured at fair value using observable market inputs such as forward rates and our counterparties’ credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy and have been included in other current liabilities on the Consolidated Balance Sheet at December 31, 2018 and other current assets and other assets on the Consolidated Balance Sheet at December 31, ~~2015~~ ~~and~~ ~~2014~~.2017. Based on the continued ability to trade and enter into forward contracts and interest rate swaps, ~~we consider~~the Company considers the markets for ~~our~~the fair value instruments to be active. ~~These contracts are not material to the Company's Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013.~~

The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as of December 31, ~~2015~~2018, such credit risks have not had an adverse impact on the fair value of these instruments.

During the third quarter of 2018, the Company incurred a $10.0 million impairment charge for a certain asset group at its U.K. business. Refer to Note 10, Goodwill and ~~indefinite-lived intangible assets are tested~~Other Intangible Assets, Net for ~~possible impairment during~~further information regarding the ~~fourth quarter~~calculation of each year. During 2013, management concluded that the carrying value of goodwill at its VT Composites reporting unit exceeded its fair value and, accordingly, recorded an impairment charge totaling $2.1 million to write down the goodwill to its implied fair value. ~~After the $2.1 million charge there was $16.8 million of goodwill remaining for this reporting unit.~~

The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are reported on the ~~consolidated balance sheets~~Consolidated Balance Sheets at fair value. Changes in the fair values of derivatives are ~~recorded~~reported each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. The Company does not use derivative instruments for speculative purposes.

The Company held forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company’s earnings and cash flows. Some of those contracts were designated as cash flow hedges. The Company will include in earnings amounts currently included in accumulated other comprehensive income upon recognition of cost of sales related to the underlying transaction.

The Company’s Term Loan Facility (“Term Loan”) contains floating rate obligations and is subject to interest rate fluctuations. During ~~2013,~~2015, the Company entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate interest payments on its Term Loan due in 2014 and 2015. These interest rate swap agreements were designated as cash flow hedges and intended to manage interest rate risk associated with the Company’s variable-rate borrowings and minimize the impact on the Company's earnings and cash flows of interest rate fluctuations attributable to changes in LIBOR rates. These agreements are not material to the Company's Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, these interest rate swap agreements had all matured.

Previously contractually recoverable general and administrative costs were adjusted within the cumulative effect to retained earnings and are no longer amortized into earnings after January 1, 2018. General and administrative costs charged to inventory by Aerospace segment operations during ~~2015~~ ~~and~~ ~~2014~~2017 were ~~$15.8 million and~~ $~~39.2~~14.7 million~~, respectively.~~. The estimated ~~amounts~~amount of general and administrative costs remaining in contracts in process at December 31, ~~2015~~2017 ~~and~~was ~~2014, are $13.5 million and~~ $~~10.2~~10.6 million~~, respectively. These estimates are~~. This estimate was based on the ratio of such costs to total costs of production.

The Company had inventory of ~~$6.5~~$5.1 million and $~~7.4~~5.2 million as of December 31, ~~2015~~2018 and ~~2014~~2017, respectively, on consignment at customer locations, the majority of which is ~~located with~~held by Distribution segment customers.

Inventories include amounts associated with matters such as contract changes, negotiated settlements and claims for unanticipated contract costs, which totaled ~~$7.1~~$0.5 million and $~~13.3~~4.4 million at December 31, ~~2015~~2018 and ~~2014~~2017, respectively. ~~The reduction~~As a result of ASC 606, $4.3 million of claims in ~~this balance is due~~inventory at December 31, 2017 were reclassified to ~~the resolution~~contract assets as part of the ~~of the AH-1Z claims as discussed further in Note 16,~~ ~~Commitments and Contingencies~~.cumulative effect adjustment on January 1, 2018.

~~K-MAX® inventory of $14.9~~At December 31, 2018 and 2017, $34.7 million and $~~17.2~~25.5 million ~~as of~~ ~~December 31, 2015~~ ~~and~~ ~~2014~~, respectively, isof K-MAX® inventory, including inventory associated with the new build aircraft, was included in contracts and other work in process inventory and finished ~~goods.~~goods on the Company's Consolidated Balance Sheets. Management believes that ~~a significant portion~~approximately $18.1 million of ~~this~~the K-MAX® inventory will be sold after December 31, ~~2016,~~2019, based upon the anticipation of additional aircraft manufacturing and supporting the fleet for the foreseeable future.

At December 31, 2018 and 2017, $5.4 million and ~~$23.5~~$6.2 million,, respectively, of SH-2G(I)~~, formerly SH-2G(A),~~ inventory was included on the Company's balance sheet in contracts and other work in process inventory. Management believes that approximately ~~$4.8~~$5.0 million of the SH-2G(I) inventory will be sold after December 31, ~~2016.~~2019. This balance represents spares requirements and inventory to be used in SH-2G programs.

Depreciation expense was ~~$24.1~~$28.6 million, $~~23.8~~27.7 million and $~~20.8~~27.5 million for ~~2015~~2018, ~~2014~~2017 and ~~2013~~2016, respectively.

The Company is currently implementing new enterprise resource planning ("ERP") systems at both its Aerospace segment and its Distribution segment. For the years ended December 31, 2018, 2017 and 2016, expenses incurred totaled approximately $1.2 million, $1.2 million and $2.0 million, respectively, and capital expenditures totaled $4.1 million, $3.6 million, and $4.1 million, respectively. Total to date ERP system capital expenditures as of December 31, 2018, were $52.3 million. Depreciation expense for the ERP systems for the years ended December 31, 2018, 2017 and 2016, totaled $3.7 million, $3.3 million and $3.9 million, respectively.

For the year ended December 31, ~~2015, $1.6~~2018, $11.4 million of assets included in machinery, office furniture and equipment and construction in process were accounted for as capital leases, with the majority of these assets being purchased under the Company's master leasing agreement with PNC Equipment Finance ("PNC"). At December 31, 2018, the Company had accumulated depreciation of $1.5 million associated with these assets. For the year ended December 31, 2017, $7.2 million of assets purchased under the Company's master leasing agreement with PNC and accounted for as capital leases was included in machinery, office furniture and equipment with accumulated depreciation of ~~$0.1~~$0.8 million. For the year ended December 31, 2014, $1.5 million of assets purchased under the Company's master leasing agreement with PNC and accounted for as capital leases was included in machinery, office furniture and equipment and construction in process. Depreciation expense associated with the capital leases was ~~$0.1~~$0.7 million, $0.4 million and $0.3 million for ~~2015. There was no depreciation expense associated with the capital leases in 2014~~2018, 2017 and ~~2013.~~2016, respectively. See Note ~~16,~~17, Commitments and Contingencies, for a discussion on the master leasing agreement.

The following table sets forth the change in the carrying amount of goodwill for each reportable segment and for the Company:

The increase in the goodwill balance at the Company's Distribution segment relates to the acquisitions of GCF and Calkins in 2015. The addition to goodwill in the Company's Aerospace segment relates to the acquisitions of EXTEX and GRW in 2015 and an earnout payment associated with a previous acquisition. See Note 3, ~~Acquisitions, for further discussion of these acquisitions.~~

The qualitative assessment ~~that management~~ performed for Specialty Bearings and Engineered Products and KPP - Orlando took into consideration the following factors: general economic conditions, industry specific performance, changes in carrying values of the reporting ~~units,~~unit, the assessment of assumptions used in the previous fair value calculation and changes in transaction multiples. The results of these analyses indicated that it is more likely than not that goodwill is not impaired and these reporting units did not need to proceed to the two-step impairment test.

A Step 1 analysis was performed for the Distribution and Aerosystems reporting units. The results of the ~~Aerosystems~~ Step 1 ~~test~~analyses indicated that the Company did not need to proceed to Step 2, as the ~~percentage by which~~fair values of the ~~fair value~~reporting units exceeded the respective carrying ~~value was 16%.~~values. The Company performed a sensitivity analysis relative to the discount rate and growth rate selected and determined a decrease of 1%one percentage point in the terminal growth rate or an increase of 1%one percentage point in the discount rate would not result in a fair value calculation less than the carrying value for ~~Aerosystems.~~both reporting units.

Upon completion of the 2017 qualitative assessment of events and circumstances affecting recorded goodwill as described in Note 1, Summary of Significant Accounting Policies, the Company concluded that the Aerosystems and Distribution reporting units should receive a Step 1 analysis, while qualitative assessments should be performed for the Specialty Bearings and Engineered Products and KPP - Orlando reporting units.

The qualitative assessment performed for Specialty Bearings and Engineered Products and KPP - Orlando took into consideration the following factors: general economic conditions, industry specific performance, changes in carrying values of the reporting unit, the assessment of assumptions used in the previous fair value calculation and changes in transaction multiples. The results of these analyses indicated that these reporting units did not need to proceed to the two-step impairment test.

A Step 1 analysis was performed for the Distribution and Aerosystems reporting units. The results of the Step 1 analyses indicated that the Company did not need to proceed to Step 2, as the as the fair values of the reporting units exceeded the respective carrying values. The increase in fair value for these reporting units, as compared to 2016, was partially driven by a benefit to future cash flows as a result of the enactment of Tax Reform during the fourth quarter of 2017. The Company performed a sensitivity analysis relative to the discount rate and growth rate selected and determined a decrease of one percentage point in the terminal growth rate or an increase of one percentage point in the discount rate would not result in a fair value calculation less than the carrying value for both reporting units.

Other intangible assets consisted of:

The decrease in the other intangible assets, net balance at December 31, 2018, as compared to December 31, 2017, was primarily due to the write-off of $10.0 million for a certain asset group at the U.K. business discussed below and amortization. Intangible asset amortization expense was $13.5 million, $14.6 million and $15.6 million in 2018, 2017 and 2016, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

For the Years Ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016

In accordance with ASC 360 - Property, Plant, and Equipment ("ASC 360"), the Company is required to evaluate long-lived assets for possible impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. During the third quarter of 2018, management identified a triggering event for possible impairment at a certain asset group in its U.K. business based on a review of its historical performance, the current forecast for the remainder of the year and the loss of future orders from one of its significant customers, requiring the Company to evaluate the intangible assets for impairment. The ~~increase~~Company performed a recoverability test as defined under ASC 360 by comparing the undiscounted cash flows of the asset group to its carrying value. The estimated undiscounted cash flows of the business did not exceed the carrying value of the assets. Based on these results, the Company calculated the fair value of the asset group, using an income approach based on the estimated future cash flows, discounted to present value using a rate commensurate with the risks associated with the asset group's weighted average cost of capital. This calculation resulted in a write-off of $10.0 million for a certain asset group at the U.K. business, which was included in other intangible assets ~~balance~~impairment on the Company's Consolidated Statements of Operations. This charge has been included in the operating results of the Company's Aerospace segment. Other intangible assets, gross, and accumulated amortization decreased by $21.0 million and $11.0 million, respectively, as a result of the $10.0 million impairment of customer lists/relationships at the asset group within the Company's U.K. business incurred in the year ended December 31, 2018.

Estimated amortization expense for the next five years associated with intangible assets existing as of December 31, ~~2015,~~2018, is as follows:

In order to determine the useful life of acquired intangible assets, the Company ~~considered~~considers numerous factors, most importantly the industry considerations associated with the acquired entities. The Company ~~determined~~determines the amortization period for ~~the~~ acquired intangible assets, ~~for its acquisitions in~~ ~~2015~~ ~~and~~ ~~2014~~such as customer relationships, based primarily on an analysis of their historical customer sales attrition information and the period over which the ~~asset delivers~~assets are expected to deliver meaningful cash flow generation in support of the fair value of the asset.

In August 2008, the Company completed its purchase of the portion of the Bloomfield campus that Kaman Aerospace Corporation had leased from ~~the U.S. Naval Air Systems Command ("NAVAIR")~~NAVAIR for many years. In connection with the purchase, the Company has assumed responsibility for environmental remediation at the facility as may be required under the Connecticut Transfer Act (the “Transfer Act”) and it continues the effort to define the scope of the remediation that will be required by the Connecticut Department of Environmental Protection (“CTDEP”). The transaction was recorded by taking the undiscounted estimated remediation liability of ~~$20.8~~$20.8 million and discounting it at a rate of 8% to its present value. The fair value of the Navy Property asset, which at that time approximated the discounted present value of the assumed environmental liability of ~~$10.3~~$10.3 million,, is included in ~~Property,~~property, plant and equipment, net. This remediation process will take many years to complete.

The following represents estimated future payments for the undiscounted environmental remediation liability related to the Bloomfield campus as of December 31, ~~2015~~2018:

~~During~~In 2014, the Company sold its former manufacturing facility in Moosup, Connecticut to TD Development, ~~LLC.~~LLC ("TD"). In connection with the sale, the Company agreed to contribute $4.0 million in cash to an escrow account over a four-year period to fund a portion of TD's environmental remediation work ~~that is expected to be~~ performed on the site. The Company ~~currently has~~funded $1.6 million to the escrow account between 2014 and 2015. TD stopped work on the site in 2016 and defaulted on its obligations under the sale agreements. From 2016 to 2018, the Company funded $2.4 million to a separate environmental escrow account due to TD's work stoppage.

In December 2016, the Company filed a summons and civil complaint against TD, which was subsequently amended in April 2017. The amended complaint alleged breach of contract, default by TD and unjust enrichment, and sought damages and other equitable relief against TD, including the return to the Company of all amounts held in the environmental escrow accounts. On December 21, 2018, the court entered an order and judgment favorable to the Company, which granted its application to confirm an arbitration award. The judgment provides that TD is not entitled to any of the amounts held in the escrow accounts nor any accrued ~~representing~~interest, and the ~~unpaid portion~~funds held in the escrow accounts shall be released to the Company. Additionally, the court awarded the Company compensatory damages, including reasonable legal fees, costs and expenses, and interest on the amounts awarded, but unpaid.

As of December 31, 2018, the Company has not recorded any amounts for compensatory damages, reasonable legal fees and costs and expenses from the arbitration award. The accrual related to this ~~contribution payable to TD Development.~~matter remained at $2.4 million as of December 31, 2018, unchanged from the prior year.

The Company's environmental accrual also includes estimated environmental remediation costs that the Company expects to incur at the former Music segment’s New Hartford, CT facility and the Aerospace segment’s ~~U.K. Composites facilities and its newly acquired~~ facility in Rimpar, Germany. The Company continues to assess the work that may be required at each of these facilities, which may result in a change to this accrual. For further discussion of these matters, see Note ~~16,~~17, Commitments and Contingencies.

At December 31, 2018 and 2017, the current and long-term debt balances on the Company's Consolidated Balance Sheets were net of debt issuance costs of $5.5 million and $6.5 million, respectively.



Connecticut		06-0613548
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)



Title of each class		Name of each exchange on which registered
Common Stock ($1 par value)		New York Stock Exchange LLC



Part I
Item 1	Business	3
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	2023
Item 2	Properties	2124
Item 3	Legal Proceedings	2225
Item 4	Mine Safety Disclosures	2326

Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2427
Item 6	Selected Financial Data	2629
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2831
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	5962
Item 8	Financial Statements and Supplementary Data	6063
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~110~~127
Item 9A	Controls and Procedures	~~110~~127
Item 9B	Other Information	~~110~~127

Part III
Item 10	Directors, Executive Officers and Corporate Governance	~~111~~128
Item 11	Executive Compensation	~~111~~128
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~111~~128
Item 13	Certain Relationships and Related Transactions, and Director Independence	~~111~~128
Item 14	Principal Accounting Fees and Services	~~112~~129

Part IV
Item 15	Exhibits, Financial Statement ~~Schedules~~Schedule	~~113~~130
Item 16	Form 10-K Summary	130



	Theoretical Average Share Price of Kaman Stock
	$65.26	$70.00	$75.00	$80.00	$84.84
Dilutive Shares associated with:
Convertible Debt	—	207,399	397,876	564,542	707,164



	December 31, 2015		December 31, 2014
Convertible Notes
Conversion Rate per $1,000 principal amount ⁽¹⁾	29.8059		29.6876
Conversion Price ⁽²⁾	$	33.5504	$	33.6841
Contingent Conversion Price ⁽³⁾	$	43.62	$	43.79
Aggregate shares to be issued upon conversion ⁽⁴⁾	3,427,679		3,414,074



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, ~~2015~~2018


	Years Ended December 31,						Years Ended December 31,
	2015		2014		2013		2018		2017		2016
Sales
Distribution	66.3	%	64.7	%	62.9	%	60.8	%	59.9	%	61.2	%
Aerospace	33.7	%	35.3	%	37.1	%	39.2	%	40.1	%	38.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



	Market Quotations
	High		Low		Close		Dividend Declared
2015
First quarter	$	42.82	$	37.54	$	42.31	$	0.18
Second quarter	43.47		41.00		42.06		0.18
Third quarter	42.29		35.09		35.96		0.18
Fourth quarter	41.82		36.06		40.81		0.18
2014
First quarter	$	41.77	$	37.83	$	40.02	$	0.16
Second quarter	44.60		39.19		42.87		0.16
Third quarter	43.47		38.62		39.70		0.16
Fourth quarter	43.49		37.43		40.09		0.16



	2016 Outlook
In millions	Low End of Range			High End of Range
Free Cash Flow^(a):
Net cash provided by operating activities	$	80.0	to	$	100.0
Less: Expenditures for property, plant and equipment	30.0		to	40.0
Free Cash Flow	$	50.0	to	$	60.0



	2016 Outlook
Adjusted EBITDA^(a):	Low End of Range			High End of Range
Distribution
GAAP Operating margin	4.4	%	to	4.6	%
Depreciation and Amortization as a percentage of sales	1.4	%	to	1.4	%
Adjusted EBITDA margin	5.8	%	to	6.0	%

Aerospace
GAAP operating margin	17.5	%	to	17.8	%
Transaction and integration costs as a percentage of sales	0.8	%	to	0.8	%
Adjusted operating margin	18.3	%	to	18.6	%
Depreciation and Amortization as a percentage of sales	3.5	%	to	3.4	%
Adjusted EBITDA margin	21.8	%	to	22.0	%



	2016 Outlook
Adjusted Operating Margin^(a):	Low End of Range			High End of Range
Aerospace
GAAP operating margin	17.5	%	to	17.8	%
Transaction and integration costs as a percentage of sales	0.8	%	to	0.8	%
Adjusted operating margin	18.3	%	to	18.6	%


(a)	Sales contributed by an acquisition are included in organic sales beginning with the thirteenth month following the date of acquisition. Prior period information is adjusted to reflect acquisition sales for that period as organic sales when calculating organic sales per sales day.



	December 31, 2015		December 31, 2014
Warrants
Warrant Price	$	43.87	$	44.05



	Theoretical Average Share Price of Kaman Stock
	$33.55	$40.00	$43.87	$45.00	$50.00
Dilutive Shares associated with:
Convertible Debt	—	552,679	806,519	872,123	1,127,679
Warrants	—	—	—	85,791	419,980
Total dilutive shares	—	552,679	806,519	957,914	1,547,659


	For the year ended December 31,						For the year ended December 31,
	2015		2014		2013		2018		2017		2016
In thousands
Cash paid for acquisitions completed during the year	$	196,395	$	70,948	$	17,284
Cash paid for holdback payments during the year	3,404		3,060		828		$	—	$	—	$	1,014
Earn-out and other payments during the year	1,453		3,610		50		—		1,365		5,617
Total cash paid for acquisitions	$	201,252	$	77,618	$	18,162	$	—	$	1,365	$	6,631



Organic Sales (in thousands)
	2018		2017		2016
Distribution
Net sales	$	1,139,431	$	1,080,965	$	1,106,322
Less: Acquisition Sales	—		—		5,171
Organic Sales	$	1,139,431	$	1,080,965	$	1,101,151
Aerospace
Net sales	$	735,994	$	724,944	$	702,054
Less: Acquisition Sales	—		—		63,483
Organic Sales	$	735,994	$	724,944	$	638,571
Consolidated
Net sales	$	1,875,425	$	1,805,909	$	1,808,376
Less: Acquisition Sales	—		—		68,654
Organic Sales	$	1,875,425	$	1,805,909	$	1,739,722


(a)	Interest payments on debt are calculated based on the applicable rate and payment dates for each instrument. For variable-rate instruments, interest rates and payment dates are based on management’s estimate of the most likely scenarios for each relevant debt instrument.


(b)	This category includes purchase commitments to suppliers for materials and supplies as part of the ordinary course of business, consulting arrangements and support services. Only obligations of at least $50,000 are included.


(c)	This category includes obligations under the Company's long-term incentive plan, deferred compensation plan, environmental liabilities, acquisition holdbacks and unrecognized tax benefits.


(d)	This category includes planned funding of the Company’s SERP and qualified pension plan. Projected funding for the qualified pension plan beyond one year has not been included as there are several significant factors, such as the future market value of plan assets and projected investment return rates, which could cause actual funding requirements to differ materially from projected funding.


~~(1)~~	The obligation to pay earn-out amounts depends upon the attainment of specific milestones by an aerospace operating unit acquired in 2002. To date we have paid $23.4 million in earn-outs of the total potential amount of $25.0 million for this acquisition.



~~Long-Term Contracts~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
For long-term aerospace contracts, we generally recognize sales and income based on the percentage-of-completion method of accounting, which allows for recognition of revenue as work on a contract progresses. We recognize sales and profit based upon either (1) the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the contract, or (2) the units-of-delivery method, in which sales are recognized as deliveries are made and cost of sales is computed on the basis of the estimated ratio of total contract cost to total contract sales. Management performs detailed quarterly reviews of all of our significant long-term contracts. Based upon these reviews, we record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, we record a provision for the entire anticipated contract loss at that time.	The percentage-of-completion method requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the original contract price, with consideration being given to exercised contract options, change orders and in some cases projected customer requirements. Contract costs may be incurred over a period of several years, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers, and financial professionals. Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections. The complexity of certain programs as well as technical risks and uncertainty as to the future availability of materials and labor resources could affect the Company’s ability to accurately estimate future contract costs.	While we do not believe there is a reasonable likelihood there will be a material change in estimates or assumptions used to calculate our long-term revenues and costs, estimating the percentage of work complete on certain programs is a complex task. As a result, changes to these estimates could have a significant impact on our results of operations. These programs include the Sikorsky BLACK HAWK program, the JPF program, the K-MAX® program, the Boeing A-10 program, the AH-1Z program, and our other Bell Helicopter programs and several other programs. Estimating the ultimate total cost of these programs is challenging due to the complexity of the programs, unanticipated increases in production requirements, the nature of the materials needed to complete these programs, change orders related to the programs and the need to manage our customers’ expectations. These programs are an important element in our continuing strategy to increase operating efficiencies and profitability as well as broaden our business base. Management continues to monitor and update program cost estimates quarterly for these contracts. A significant change in an estimate on one or more of these programs could have a material effect on our financial position and results of operations. The net increase in our operating income from changes in contract estimates totaled $4.8 million for the year ended December 31, 2015. The net increase in our operating income from changes in contract estimates totaled $1.9 million for the year ended December 31, 2014. The net decrease in our operating income from changes in contract estimates totaled $3.0 million for the year ended December 31, 2013.



~~Allowance for Doubtful Accounts~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
The allowance for doubtful accounts represents management’s best estimate of probable losses inherent in the receivable balance. These estimates are based on known past due amounts and historical write-off experience, as well as trends and factors impacting the credit risk associated with specific customers. In an effort to identify adverse trends for trade receivables, we perform ongoing reviews of account balances and the aging of receivables. Amounts are considered past due when payment has not been received within a pre-determined time frame based upon the credit terms extended. For our government and commercial contracts, we evaluate, on an ongoing basis, the amount of recoverable costs. The recoverability of costs is evaluated on a contract-by-contract basis based upon historical trends of payments, program viability and the customer’s credit-worthiness.	Write-offs are charged against the allowance for doubtful accounts only after we have exhausted all collection efforts. Actual write-offs and adjustments could differ from the allowance estimates due to unanticipated changes in the business environment as well as factors and risks associated with specific customers.	As of December 31, 2015 and 2014, our allowance for doubtful accounts was $3.0 million and $3.2 million, respectively. Receivables written off, net of recoveries, in 2015 and 2014 were $2.0 million and $1.9 million, respectively. Currently we do not believe that we have a significant amount of risk relative to the allowance for doubtful accounts. A 10% change in the allowance would have a $0.3 million effect on pre-tax earnings.



~~Inventory Valuation~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
We have five types of inventory (a) merchandise for resale, (b) raw materials, (c) contracts in process, (d) other work in process, and (e) finished goods. Merchandise for resale and raw materials are stated at the lower of the cost of the inventory or its fair market value. Contracts in process, other work in process and finished goods are valued at production cost comprised of material, labor and overhead, including general and administrative expenses on certain government contracts. Contracts in process, other work in process, and finished goods are reported at the lower of cost or net realizable value. Raw material includes certain general stock materials but primarily relates to purchases that were made in anticipation of specific programs that have not been started as of the balance sheet date.	The process for evaluating inventory obsolescence or market value often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. We adjust our inventory by the difference between the estimated market value and the actual cost of our inventory to arrive at net realizable value. Changes in estimates of future sales volume may necessitate future write-downs of inventory value. The K-MAX® inventory balance, consisting of work in process and finished goods, was $14.9 million as of December 31, 2015. We believe it is stated at net realizable value, although lack of demand for spare parts in the future could result in additional write-downs of the inventory value. Overall, management believes that our inventory is appropriately valued and not subject to further obsolescence in the near term. ~~Management believes $4.8 million of the SH-2G(I) inventory will be sold after December 31, 2016. This balance represents spares requirements and inventory to be used in SH-2G programs.~~	~~Inventory valuation at our Distribution segment generally requires less subjective management judgment than the valuation of certain inventory in the Aerospace segment.~~ Management reviews the K-MAX® inventory balance on an annual basis to determine whether any additional write-downs are necessary. If such a write-down were to occur, this could have a significant impact on our operating results. A 10% write-down of the December 31, 2015, inventory balance would have affected pre-tax earnings by approximately $1.5 million in 2015.



~~Goodwill and Other Intangible Assets~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
Goodwill and certain intangible assets that have indefinite lives are evaluated at least annually for impairment. The annual evaluation is generally performed during the fourth quarter, using forecast information. All intangible assets are also reviewed for possible impairment whenever changes in conditions indicate that their carrying value may not be recoverable. For reporting units that qualify for a qualitative assessment, management will perform the two-step impairment test after a period of three years has elapsed since its last evaluation. In accordance with generally accepted accounting principles, we test goodwill for impairment at the reporting unit level. The identification and measurement of goodwill impairment involves the estimation of fair value of the reporting unit as compared to its carrying value. In the Distribution segment, this testing is conducted at the segment level as no components represent reporting units. In the Aerospace segment, testing is conducted one level below the segment level, and components are not aggregated for purposes of goodwill testing. ~~The carrying value of goodwill as of December 31, 2015, was $149.2~~Write-offs are charged against the allowance for doubtful accounts only after we have exhausted all collection efforts. Actual write-offs and adjustments could differ from the allowance estimates due to unanticipated changes in the business environment as well as factors and risks associated with specific customers. Effect if Actual Results Differ From Assumptions As of December 31, 2018 and 2017, our allowance for doubtful accounts was $4.1 million. Receivables written off, net of recoveries, in 2018 and 2017 were $1.1 million and $1.2 million, ~~and $203.5 million for the Distribution and Aerospace segments,~~ respectively. The specific Aerospace reporting units contributing to the total goodwill balance were as follows: Precision Products Orlando facility ("KPP-Orlando"), $39.8 million; Specialty Bearings RWG Germany GmbH ("RWG"), $5.9 million; EXTEX Engineered Products ("EXTEX"), $14.5 million; GRW Bearings ("GRW"), $89.0 million; and Aerosystems, $54.3 million. During 2015, it was determined that the two-step impairment test would be performed for all reporting units carrying goodwill. See Note 9, ~~Goodwill and Other Intangible Assets, Net, in the Notes to Consolidated Financial Statements for additional information regarding these assets.~~	In years that management performs a qualitative assessment we consider the following qualitative factors: general economic conditions in the markets served by the reporting units carrying goodwill, relevant industry-specific performance statistics, changes in the carrying value of the individual reporting units, and assumptions used in the most recent fair value calculation, including forecasted results of operations, the weighted average cost of capital and recent transaction multiples. For step one of the two-step impairment test, management estimated the fair value of the reporting units using an income methodology based on management's estimates of forecasted cash flows, with those cash flows discounted to present value using rates commensurate with the risks associated with those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. In estimating the fair value of the reporting units, a weighting of 80% to the income approach and 20% to the market-based valuation method was selected, consistent with the prior year. A higher weighting was applied to the estimate derived from the income approach as it is based on Management's assumptions specific for the reporting units, which are the outcome of an internal planning process. While the guideline companies in the market based valuation method have comparability to the reporting units, they may not fully reflect the market share, product portfolio and operations of the reporting units.	For each reporting unit, we performed the Step 1 test and the percentage by which the fair value exceeded the carrying value was in excess of 13%. A decrease of 1% in our terminal growth rate or an increase of 1% in our discount rate would not result in a fair value calculation less than the carrying value. As with all assumptions, there is an inherent level of uncertainty and actual results, to the extent they differ from those assumptions, could have a material impact on fair value. For example, multiples for similar type reporting units could deteriorate due to changes in technology or a downturn in economic conditions. A reduction in customer demand would impact our assumed growth rate resulting in a reduced fair value. Potential events or circumstances could have a negative effect on the estimated fair value. The loss of a major customer or program could have a significant impact on the future cash flows of the reporting unit(s). Advances in technology by our competitors could result in our products becoming obsolete.
~~continues on next page~~



~~Goodwill and Other Intangible Assets (continued)~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
~~The carrying value of other intangible assets as of December 31, 2015, was $53.4 million and $91.4 million for the Distribution and Aerospace segments, respectively.~~ As a result of our Aerospace acquisitions, RWG, EXTEX and GRW was reorganized under the single management team of Kaman Specialty Bearings and Engineered Products. This new reporting unit will be the basis for our annual test for goodwill impairment in 2016.	In performing our step one test for the reporting units, we used an assumed terminal growth rate of 3.0%. The discount rate utilized to reflect the risk and uncertainty in the financial markets and specifically in our internally developed earnings projections ranged from 9.5% - 11.0% for these reporting units. Changes in these estimates and assumptions could materially affect the results of our tests for goodwill impairment. Under Step 2, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. The results of the Step 1 tests indicated that the Company did not need to proceed to Step 2.	We do not currently believe there to be a reasonable likelihood that actual results will vary materially from estimates and assumptions used to test goodwill and other intangible assets for impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.



~~Long-Term Incentive Programs~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
The Company maintains a Stock Incentive Plan, which provides for share-based payment awards, including non-statutory stock options, restricted stock, stock appreciation rights, and long-term incentive program ("LTIP") awards. We determine the fair value of our non-qualified stock option awards at the date of grant using a Black-Scholes model. We determine the fair value of our restricted share awards at the date of grant using an average of the high and low market price of our stock. LTIP awards provide certain senior executives an opportunity to receive award payments, generally in cash. For each performance cycle, the Company’s financial results are compared to the Russell 2000 indices for the same periods based upon the following: (a) average return on total capital, (b) earnings per share growth and (c) total return to shareholders. No awards will be payable if the Company’s performance is in the bottom quartile of the designated indices. The maximum award is payable if performance reaches the 75^th ~~percentile of the designated indices. Awards will be paid out at 100% at the 50~~^th ~~percentile. Awards for performance between the 25th and 75th percentiles are determined by straight-line interpolation between 0% and 200%.~~ In order to estimate the liability associated with LTIP awards, management must make assumptions as to how our current performance compares to current Russell 2000 data based upon the Russell 2000’s historical results. This analysis is performed on a quarterly basis. When sufficient Russell 2000 data for a year is available, which typically will not be until May or June of the following year, management will adjust the liability to reflect its best estimate of the total award. Actual results could differ significantly from management’s estimates. The total estimated liability as of December 31, 2015, was $15.1 million.	Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future volatility of our stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate. ~~Our long-term incentive plan requires management to make assumptions regarding the likelihood of achieving long-term Company goals as well as estimate future Russell 2000 results.~~	We do not currently believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material. If actual results are not consistent with the assumptions used, the share-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the share-based compensation. A 10% change in our share-based compensation expense for the year ended December 31, 2015, would have affected pre-tax earnings by approximately $0.6 million in 2015. Due to the timing of availability of the Russell 2000 data, there is a risk that the amount we have recorded as LTIP expense could be different from the actual payout. A 10.0 percentage point increase in the total performance factor earned for our LTIP would result in a reduction of 2015 pretax earnings of $1.5 million.



~~Pension Plans~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~
~~We maintain a qualified defined benefit pension, as well as a non-qualified Supplemental Employees Retirement Plan ("SERP") for certain key executives.~~The carrying value of goodwill as of December 31, 2018, was $149.2 million and $196.2 million for the Distribution and Aerospace segments, respectively. The specific Aerospace reporting units contributing to the total goodwill balance were as follows: Precision Products Orlando facility ("KPP-Orlando"), $41.4 million; Specialty Bearings and Engineered Products, $104.8 million; and Aerosystems, $50.0 million. During 2018, it was determined that the two-step impairment test would be performed for the following reporting units: Distribution and Aerosystems. See ~~Note 14,~~ ~~Pension Plans, in the Notes to Consolidated Financial Statements included in this Form 10-K for further discussion of these plans.~~ Expenses and liabilities associated with each of these plans are determined based upon actuarial valuations. Integral to these actuarial valuations are a variety of assumptions including expected return on plan assets and discount rate. We regularly review these assumptions, which are updated at the measurement date, December 31st. In accordance with generally accepted accounting principles, the impact of differences between actual results and the assumptions are accumulated and generally amortized over future periods, which will affect expense recognized in future periods. For 2015 we utilized the weighted-average discount rate in the calculation of service and interest costs, both of which are components of pension expense. For 2016 we utilized a "spot rate approach" in the calculation of pension interest and service cost. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension interest and service cost. This calculation change is considered a change in accounting estimate and will be applied prospectively in 2016. The use of the spot rate approach is expected to result in a favorable impact to pension expense of $4.6 million in 2016 relative to what pension expense would have been had we not changed our approach.	The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the pension obligation. For 2014, management determined the Citigroup Above Median Double-A Curve to be most appropriate for our discount rate assumptions. This index was designed to provide a market average discount rate to assist plan sponsors in valuing the liabilities associated with postretirement obligations. Additionally, we reviewed the changes in the general level of interest rates since the last measurement date noting that overall rates had decreased when compared to 2013. Based upon this information, we used a 4.17% discount rate as of December 31, 2015, for the qualified defined benefit pension plan. This rate takes into consideration the participants in our pension plan and the anticipated payment stream as compared to the Citigroup Above Median Double-A Curve. For the SERP, we used the same methodology as the pension plan and derived a discount rate of 3.47% in 2015 for the benefit obligation. The difference in the discount rates is primarily due to the expected duration of SERP payments, which is shorter than the anticipated duration of benefit payments to be made to the average participant in the pension plan. The qualified defined benefit pension plan and SERP used discount rates of 3.80% and 3.15% at December 31, 2014, respectively, for purposes of calculating the benefit obligation. The expected long-term rate of return on plan assets of 7.5% represents the average rate of earnings expected on the funds invested to provide for anticipated benefit payments. The expected return on assets assumption is developed based upon several factors. Such factors include current and expected target asset allocation, our historical experience of returns by asset class type, a risk premium and an inflation estimate.	A lower discount rate increases the present value of benefit obligations and increases pension expense. A one percentage point decrease in the assumed discount rate would have increased pension expense in 2015 by $8.4 million. A one percentage point increase in the assumed discount rate would have decreased pension expense in 2015 by $7.2 million. A lower expected rate of return on pension plan assets would increase pension expense. For 2015 and 2014, the expected rate of return on plan assets was 7.5%. A one-percentage point increase/decrease in the assumed return on pension plan assets would have changed pension expense in 2015 by approximately $5.9 million. During 2015, the actual return on pension plan assets of (3.4%) was lower than our expected rate of return on pension plan assets of 7.5%.



~~Income Taxes~~
~~Methodology~~	~~Judgment and Uncertainties~~	~~Effect if Actual Results Differ From~~ ~~Assumptions~~

Deferred tax assets and liabilities generally represent temporary differences between the recognition of tax benefits/expenses in our financial statements and the recognition of these tax benefits/expenses for tax purposes. We establish reserves for deferred taxes when, despite our belief that our tax return positions are valid and defensible, we believe that certain positions may not prevail if challenged. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit or changes in tax legislation. Our effective tax rate includes the impact of reserve provisions and changes to reserves that we consider appropriate. This rate is then applied to our quarterly operating results. In the event that there is a significant unusual or one-time item recognized in our operating results, the tax attributable to that item would be separately calculated and recorded at the same time as the unusual or one-time item. As of December 31, 2015, we had recognized $51.6 million of deferred tax assets, net of valuation allowances. A portion of this amount, $2.7 million, is related to a capital loss recorded on the disposition of our Distribution segment’s Mexico operations. The realization of these benefits is dependent in part on future taxable capital gains and tax planning strategies designed to realize the benefit associated with the capital loss. For those jurisdictions where the expiration of tax loss or credit carryforwards or the projection of operating results indicates that realization is not likely, a valuation allowance is provided.	Management believes that sufficient income will be earned in the future to realize deferred income tax assets, net of valuation allowances recorded. The realization of these deferred tax assets can be impacted by changes to tax laws or statutory tax rates and future taxable income levels. Our effective tax rate on earnings from continuing operations was 31.3% for 2015. Our effective tax rate is based on expected or reported income or loss, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions.	We do not anticipate a significant change in our unrecognized tax benefits within the next twelve months. We file tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including 2011. It is our policy to record interest and penalties on unrecognized tax benefits as income taxes. A one percent increase/decrease in our tax rate would have affected our 2015 earnings by $0.9 million.


	December 31, 2015			December 31, 2014			December 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	16,462		$	12,411		$	27,711		$	36,904
Accounts receivable, net	238,102			234,648			301,094			313,451
Contract assets							108,861			—
Contract costs, current portion							5,993			—
Inventories	385,747			359,741			294,912			367,437
Deferred income taxes	—			25,888
Income tax refunds receivable	3,591			—			1,752			2,889
Other current assets	32,133			29,568			32,782			27,188
Total current assets	676,035			662,256			773,105			747,869
Property, plant and equipment, net of accumulated depreciation of $202,648 and $183,829, respectively	175,586			147,825
Property, plant and equipment, net of accumulated depreciation of $262,306 and $252,611, respectively							184,224			185,452
Goodwill	352,710			238,581			345,365			351,717
Other intangible assets, net	144,763			94,491			91,007			117,118
Deferred income taxes	66,815			34,784			24,437			27,603
Contract costs, noncurrent portion							10,666			—
Other assets	25,296			23,268			31,509			25,693
Total assets	$	1,441,205		$	1,201,205		$	1,460,313		$	1,455,452
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	5,000			10,000
Current portion of long-term debt, net of debt issuance costs							$	9,375		$	7,500
Accounts payable – trade	121,044			116,787			158,627			127,591
Accrued salaries and wages	40,284			42,214			46,634			48,352
Contract liabilities, current portion							28,865			—
Advances on contracts	11,274			2,406			—			8,527
Other accruals and payables	58,761			47,583
Income taxes payable	326			2,734			139			1,517
Other current liabilities							54,836			52,812
Total current liabilities	236,689			221,724			298,476			246,299
Long-term debt, excluding current portion	435,821			271,232
Long-term debt, excluding current portion, net of debt issuance costs							284,256			391,651
Deferred income taxes	15,207			3,391			7,027			8,024
Underfunded pension	158,984			141,546			104,988			126,924
Contract liabilities, noncurrent portion							78,562			—
Other long-term liabilities	51,427			45,647			53,847			46,898
Commitments and contingencies (Note 16)
Shareholders' equity:
Commitments and contingencies (Note 17)
Shareholders’ equity:
Preferred stock, $1 par value, 200,000 shares authorized; none outstanding	—			—			—			—
Common stock, $1 par value, 50,000,000 shares authorized; voting; 27,735,757 and 27,518,226 shares issued, respectively	27,736			27,518
Common stock, $1 par value, 50,000,000 shares authorized; voting; 29,544,714 and 29,141,467 shares issued, respectively							29,545			29,141
Additional paid-in capital	156,803			145,845			200,474			185,332
Retained earnings	520,865			479,984			610,103			587,877
Accumulated other comprehensive income (loss)	(140,138		)	(126,261		)	(134,898		)	(115,814		)
Less 698,183 and 385,942 shares of common stock, respectively, held in treasury, at cost	(22,189		)	(9,421		)
Less 1,672,917 and 1,325,975 shares of common stock, respectively, held in treasury, at cost							(72,067		)	(50,880		)
Total shareholders’ equity	543,077			517,665			633,157			635,656
Total liabilities and shareholders’ equity	$	1,441,205		$	1,201,205		$	1,460,313		$	1,455,452


	Common Stock			Additional Paid-In		Retained			Accumulated Other Comprehensive			Treasury Stock					Total Shareholders'			Common Stock			Additional Paid-In			Retained			Accumulated Other Comprehensive			Treasury Stock				Total Shareholders'
	Shares	$		Capital		Earnings			Income (Loss)			Shares		$			Equity			Shares	$		Capital			Earnings			Income (Loss)			Shares	$			Equity
Balance at December 31, 2012	26,881,257	$	26,881	$	122,522	$	399,473		$	(121,590	)	277,473		$	(7,093	)	$	420,193
Balance at December 31, 2015																				27,735,757	$	27,736	$	156,803		$	520,865		$	(140,138	)	698,183	$	(22,189	)	$	543,077
Net earnings	—	—		—		57,100			—			—		—			57,100			—	—		—			58,854			—			—	—			58,854
Other comprehensive income	—	—		—		—			40,469			—		—			40,469			—	—		—			—			(16,255		)	—	—			(16,255		)
Dividends	—	—		—		(17,132		)	—			—		—			(17,132		)
Dividends (per share of common stock, $0.72)																				—	—		—			(19,519		)	—			—	—			(19,519		)
Amounts reclassified to temporary equity																							(1,797		)											(1,797		)
Purchase of treasury shares	—	—		—		—			—			18,468		(644		)	(644		)	—	—		—			—			—			316,545	(13,792		)	(13,792		)
Employee stock plans,
net of tax expense of $543	216,510	217		6,076		—			—			(3,825	)	40			6,333
Employee stock plans																				344,221	344		10,541			—			—			28,672	(1,352		)	9,533
Share-based compensation expense	92,155	92		4,919		—			—			38,371		(38		)	4,973			82,519	82		5,615			—			—			10,964	(11		)	5,686
Balance at December 31, 2013	27,189,922	$	27,190	$	133,517	$	439,441		$	(81,121	)	330,487		$	(7,735	)	$	511,292
Balance at December 31, 2016																				28,162,497	$	28,162	$	171,162		$	560,200		$	(156,393	)	1,054,364	$	(37,344	)	$	565,787
Net earnings	—	—		—		57,872			—			—		—			57,872			—	—		—			49,826			—			—	—			49,826
Other comprehensive income	—	—		—		—			(45,140		)	—		—			(45,140		)	—	—		—			—			40,579			—	—			40,579
Dividends	—	—		—		(17,329		)	—			—		—			(17,329		)
Dividends (per share of common stock, $0.80)																				—	—		—			(22,149		)	—			—	—			(22,149		)
Amounts reclassified to temporary equity																				—	—		1,797			—			—			—	—			1,797
Changes due to convertible notes transactions																				624,044	624		(2,582		)	—			—			—	—			(1,958		)
Purchase of treasury shares	—	—		—		—			—			21,312		(853		)	(853		)	—	—		—			—			—			218,235	(11,552		)	(11,552		)
Employee stock plans,
net of tax expense of $834	235,233	235		6,992		—			—			16,352		(815		)	6,412
Employee stock plans																				265,886	266		9,074			—			—			39,647	(1,970		)	7,370
Share-based compensation expense	93,071	93		5,336		—			—			17,791		(18		)	5,411			89,040	89		5,881			—			—			13,729	(14		)	5,956
Balance at December 31, 2014	27,518,226	$	27,518	$	145,845	$	479,984		$	(126,261	)	385,942		$	(9,421	)	$	517,665
Balance at December 31, 2017																				29,141,467	$	29,141	$	185,332		$	587,877		$	(115,814	)	1,325,975	$	(50,880	)	$	635,656
Net earnings	—	—		—		60,438			—			—		—			60,438			—	—		—			54,169			—			—	—			54,169
Impact of change in revenue accounting standard																										(9,584		)								(9,584		)
Other comprehensive income	—	—		—		—			(13,877		)	—		—			(13,877		)	—	—		—			—			(19,084		)	—	—			(19,084		)
Dividends	—	—		—		(19,557		)	—			—		—			(19,557		)
Dividends (per share of common stock, $0.80)																				—	—		—			(22,359		)	—			—	—			(22,359		)
Changes due to convertible notes transactions																				114,778	115		(123		)	—			—			—	—			(8		)
Purchase of treasury shares	—	—		—		—			—			319,234		(12,836		)	(12,836		)	—	—		—			—			—			313,330	(19,489		)	(19,489		)
Employee stock plans,
net of tax expense of $327	137,037	137		4,649		—			—			(8,857	)	70			4,856
Employee stock plans																				226,722	227		8,813			—			—			25,069	(1,689		)	7,351
Share-based compensation expense	80,494	81		6,309		—			—			1,864		(2		)	6,388			61,747	62		6,452			—			—			8,543	(9		)	6,505
Balance at December 31, 2015	27,735,757	$	27,736	$	156,803	$	520,865		$	(140,138	)	698,183		$	(22,189	)	$	543,077
Balance at December 31, 2018																				29,544,714	$	29,545	$	200,474		$	610,103		$	(134,898	)	1,672,917	$	(72,067	)	$	633,157


CONSOLIDATED STATEMENTS OF CASH FLOWS KAMAN CORPORATION AND SUBSIDIARIES (In thousands)											CONSOLIDATED STATEMENTS OF CASH FLOWS KAMAN CORPORATION AND SUBSIDIARIES (In thousands)

		For the Year Ended December 31,										For the Year Ended December 31,
		2015			2014			2013				2018			2017			2016
Cash flows from operating activities:
Earnings from continuing operations		$	60,438		$	65,780		$	59,066
Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities of continuing operations:
Net earnings												$	54,169		$	49,826		$	58,854
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		37,729			36,209			31,555				42,029			42,471			43,393
Amortization of debt issuance costs												1,806			2,014			1,536
Accretion of convertible notes discount		2,035			1,931			1,833				2,596			3,410			2,144
Provision for doubtful accounts		1,694			853			1,286				1,123			1,094			2,635
Loss on sale of business												5,722			—			—
Net (gain) loss on sale of assets		(328		)	233			142				(1,700		)	(256		)	11
Goodwill impairment		—			—			2,071
Net gain (loss) on derivative instruments		579			1,071			178
Other intangible assets impairment												10,039			—			—
Loss on debt extinguishment												—			137			—
Net loss (gain) on derivative instruments												829			(1,126		)	1,007
Stock compensation expense		6,388			5,411			4,973				6,505			5,956			5,686
Excess tax (expense) benefit from share-based compensation arrangements		(327		)	(834		)	(543		)
Deferred income taxes		(1,281		)	1,434			2,938				10,417			24,555			7,928
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:	Changes in assets and liabilities, excluding effects of acquisitions/divestitures:										Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable		4,556			(23,876		)	(22,565		)		(19,398		)	(77,560		)	(778		)
Contract assets												(27,595		)	—			—
Contract costs												(5,834		)	—			—
Inventories		(2,928		)	30,181			(19,707		)		(4,599		)	31,095			(11,891		)
Income tax refunds receivable		(3,463		)	2,292			(2,297		)		1,136			3,180			(2,474		)
Other current assets		(2,823		)	(2,560		)	1,299
Other assets												(7,316		)	1,747			4,859
Accounts payable - trade		4,697			(3,858		)	12,170				30,177			10,164			693
Contract liabilities												96,034			—			—
Accrued contract losses		2			(1,899		)	(969		)		(5		)	(957		)	745
Accrued restructuring costs												(355		)	1,122			(1,029		)
Advances on contracts		8,868			(7,065		)	7,570				—			(4,829		)	2,082
Other accrued expenses and payables		(1,144		)	6,746			(10,187		)
Other current liabilities												1,942			(366		)	2,078
Income taxes payable		(2,403		)	4,455			(2,024		)		(2,915		)	212			351
Pension liabilities		(2,300		)	(6,380		)	(3,118		)		(38,179		)	(11,318		)	(9,087		)
Other long-term liabilities		(405		)	(1,035		)	1,169				5,740			(686		)	(1,036		)
Net cash provided by (used in) operating activities of continuing operations		109,584			109,089			64,840
Net cash provided by (used in) operating activities of discontinued operations		—			(2,902		)	(1,892		)
Net cash provided by (used in) operating activities		109,584			106,187			62,948
Net cash provided by operating activities												162,368			79,885			107,707
Cash flows from investing activities:
Proceeds from sale of assets		719			39			100				2,905			618			201
Proceeds from sale of discontinued operations		—			7,863			—
Expenditures for property, plant & equipment		(29,932		)	(28,283		)	(40,852		)		(29,871		)	(27,631		)	(29,777		)
Acquisition of businesses including earn out adjustments, net of cash acquired		(201,252		)	(77,618		)	(18,162		)		—			(1,365		)	(6,631		)
Other, net		(2,143		)	(2,060		)	(2,305		)		(2,995		)	(3,457		)	(1,376		)
Cash provided by (used in) investing activities of continuing operations		(232,608		)	(100,059		)	(61,219		)
Cash provided by (used in) investing activities of discontinued operations		—			3			(56		)
Cash provided by (used in) investing activities		(232,608		)	(100,056		)	(61,275		)
Cash used in investing activities												(29,961		)	(31,835		)	(37,583		)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements		143,025			15,788			22,720
Borrowings under Term Loan Facility		100,000			—			—
Net repayments under revolving credit agreements												(98,087		)	(75,988		)	(15,147		)
Debt repayment		(83,750		)	(10,000		)	(10,000		)		(7,500		)	(6,875		)	(5,000		)
Book overdraft		(3,462		)	1,568			(9,878		)
Proceeds from issuance of 2024 convertible notes												—			200,000			—
Repayment of 2017 convertible notes												—			(175,151		)	—
Purchase of capped call - 2024 convertible notes												—			(20,500		)	—
Proceeds from bond hedge settlement - 2017 convertible notes												—			58,564			—
Net change in bank overdraft												(422		)	(1,146		)	275
Proceeds from exercise of employee stock awards		4,856			6,411			6,333				7,351			7,370			9,533
Purchase of treasury shares		(12,836		)	(853		)	(644		)		(19,278		)	(11,552		)	(13,792		)
Dividends paid		(19,026		)	(17,286		)	(17,091		)		(22,349		)	(21,462		)	(19,510		)
Debt issuance costs		(1,348		)	—			(98		)
Windfall tax (expense) benefit		327			834			543
Debt and equity issuance costs												—			(7,473		)	—
Other		(198		)	—			—				(1,077		)	(523		)	(318		)
Cash provided by (used in) financing activities of continuing operations		127,588			(3,538		)	(8,115		)
Cash provided by (used in) financing activities of discontinued operations		—			—			—
Cash provided by (used in) financing activities		127,588			(3,538		)	(8,115		)
Net increase (decrease) in cash and cash equivalents		4,564			2,593			(6,442		)
Net cash used in financing activities												(141,362		)	(54,736		)	(43,959		)
Net (decrease) increase in cash and cash equivalents												(8,955		)	(6,686		)	26,165
Effect of exchange rate changes on cash and cash equivalents		(513		)	(566		)	233				(238		)	2,385			(1,422		)
Cash and cash equivalents at beginning of period		12,411			10,384			16,593				36,904			41,205			16,462
Cash and cash equivalents at end of period		$	16,462		$	12,411		$	10,384			$	27,711		$	36,904		$	41,205



	Severance			Other			Total
In thousands
Restructuring accrual balance at December 31, 2014	$	—		$	—		$	—
Provision	1,044			452			1,496
Cash payments	(390		)	(77		)	(467		)
Restructuring accrual balance at December 31, 2015	$	654		$	375		$	1,029



Cash	$	6,345
Accounts receivable	10,786
Inventories	24,319
Property, plant and equipment	24,790
Other tangible assets	1,192
Goodwill	108,659
Other intangible assets	61,323
Liabilities	(33,920		)
Net assets acquired	203,494
Less cash received	(6,345		)
Net consideration	$	197,149



Cash	$	11
Accounts receivable, net	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		)
Net consideration	$	71,887