Kaman Reports 2010 Second Quarter Results
Second Quarter 2010 Highlights:
- Improved Industrial Distribution performance helps drive earnings per diluted share of $0.23
- Industrial Distribution total sales up 35.2%, organic sales up 17.5%
- Operating margins: Aerospace, 11.4%; Industrial Distribution, 3.7%
- Q2 free cash flow* of $22.3 million
- JPF production resumed
BLOOMFIELD, Conn., Aug 05, 2010 /PRNewswire via COMTEX/ -- Kaman Corp. (Nasdaq: KAMN) today reported financial results for the second quarter ended July 2, 2010.
Summary of
Financial Results
In thousands
except per share
amounts -
Unaudited For the Three Months Ended
--------------------------
July 2, 2010 July 3, 2009 $Change
------------ ------------ -------
Net sales:
Industrial
Distribution $210,924 $155,954 $54,970
Aerospace 106,163 137,269 (31,106)
-------
Net sales $317,087 $293,223 $23,864
======== ======== =======
Operating income:
Industrial
Distribution $7,713 $3,065 $4,648
Aerospace 12,114 21,600 (9,486)
Net gain (loss) on
sale of assets (56) (53) (3)
Corporate expense (8,581) (8,445) (136)
------ ------ ----
Operating income $11,190 $16,167 $(4,977)
======= ======= =======
Diluted earnings
per share $0.23 $0.37 $(0.14)
===== ===== ======
Neal J. Keating, Chairman, President and Chief Executive Officer, stated, "As previously announced, we experienced issues in our Aerospace segment during the second quarter that affected our financial performance. The largest issue, with our Joint Programmable Fuze (JPF) program, was the failure of a supplied component during acceptance testing. In cooperation with our supplier and customer, we have analyzed, tested and verified the root cause and have developed a plan for introduction of key product improvements. Consequently, we resumed JPF production earlier this week. As we expected, sales of our bearing product lines were lower than a year ago but operating margin remained strong. Aerospace benefited from higher sales from our various BLACK HAWK programs and a variety of other programs. We were most encouraged by the performance of our Industrial Distribution segment during the quarter, where market conditions continued to improve. We have completed three acquisitions in this segment in 2010 and each is exceeding our expectations for revenue and profitability. With our growth in revenues and the profitable contribution from the acquisitions, we were able to expand our Industrial Distribution operating margin significantly. Our free cash flow* in the quarter was excellent at $22.3 million as a result of a company-wide focus on cash generation."
Segment reports follow:
Industrial Distribution segment sales increased 35.2% in the 2010 second quarter to $210.9 million from $156.0 million a year ago. Acquisitions contributed $27.7 million in sales in the quarter. On a sales per sales day* basis, organic sales were up 15.6% over last year's second quarter (see table for additional details regarding the Company's sales per day performance). Segment operating income for the second quarter of 2010 was $7.7 million, a 151.6% increase from operating income of $3.1 million in the second quarter of 2009. The operating profit margin for the second quarter of 2010 was 3.7% compared to 2.7% in the first quarter of 2010 and 2.0% in the second quarter of 2009.
Industrial Distribution segment sales for the second quarter of 2010 reflect growth from acquisitions made in 2010 and healthier market conditions for the segment compared to the same period in 2009. Improved market conditions were broad based across all geographies, customers and end markets. Sales were higher on a sequential basis in the second quarter due to the contribution from acquisitions and improved market conditions. The operating margin was higher on a sequential basis as a result of the higher sales volume, and the contributions from acquisitions.
Aerospace segment sales were $106.2 million, a decrease of 22.7% from sales of $137.3 million in the second quarter of 2009. Operating income for the second quarter of 2010 was $12.1 million, compared to operating income of $21.6 million in the 2009 second quarter. The operating margin in this year's second quarter was 11.4% as compared to 15.7% in the comparable period in the prior year. The reduction in sales and profit was primarily attributable to the lower than anticipated deliveries under the JPF program, lower sales of bearing product lines, which carry higher margins than the company's other product lines, lower sales under the Egyptian SH-2G(E) maintenance and upgrade program, and cost adjustments on other programs. These reductions were partially offset by increased sales and profit from Sikorsky BLACK HAWK programs, including erosion coating work for rotor blades, and various other programs.
Outlook
Due to disruptions in JPF production, the company is adjusting its full year sales outlook to reflect lower anticipated sales of JPF fuzes in 2010 offset by higher anticipated BLACK HAWK cockpit deliveries.
The company's revised expectations for 2010 include:
- Aerospace segment sales of $480 million to $490 million
- Aerospace operating margins of 14.0% to 14.5%
- Industrial Distribution organic sales growth of 10% to 13% yielding sales in a range of $800 million to $815 million when combined with previously announced acquisitions
- Industrial Distribution segment operating margins of 3.0% to 3.3%
- Interest expense of approximately $9.6 million (net interest expense will be approximately $3.0 million as a result of a one-time look-back interest benefit)
- Quarterly corporate expenses on average of $9.0 million to $10.0 million
Aerospace expectations include $60 million of sales in the second half of the year from the JPF program, but do not include potential opportunities related to either the sale of SH-2G(I) inventory or deployment of the unmanned K-MAX aircraft.
CFO William C. Denninger commented, "Looking ahead to the second half of the year, recent economic data suggests that a recovery in the economy is likely to be gradual. However, at the same time, we are optimistic about the potential for improvement in our end markets for both Industrial Distribution and Aerospace. The strong second quarter performance of our Industrial Distribution segment provides us with confidence in our ability to meet our full year outlook for this business. In Aerospace, we are working diligently to implement the JPF product improvements developed from our root cause analysis and have resumed production. While sales of our bearing product lines were soft in the second quarter, as we anticipated, order intake is improving, which helps support our outlook for higher sales in the second half of the year. Overall, we believe we are well positioned to benefit from gradually improving market conditions, which should in turn result in improved second half performance."
Please see the MD&A section of the company's SEC Form 10-Q filed concurrent with the issuance of this release for greater detail on the quarter's results and various company programs.
A conference call has been scheduled for tomorrow, August 6, 2010 at 8:30 AM EDT. Listeners may access the call live over the Internet through a link on the home page of the company's website at http://www.kaman.com/. In its discussion, management may include certain non-GAAP measures related to company performance. If so, a reconciliation of that information to GAAP, if not provided in this release, will be provided in the exhibits to the conference call and will be available through the Internet link provided above.
Non-GAAP Measure Disclosure
Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures indicated by an asterisk (*) used in this release or in other disclosures provide investors with important perspectives into the company's ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures, as follows:
Organic Sales per Sales Day - Organic sales per sales day is defined as GAAP "Net sales from the Industrial Distribution segment" less sales derived from acquisitions, divided by the number of sales days in a given period. Sales days are essentially business days that the company's branch locations are open for business and exclude weekends and holidays. Sales days are provided as part of this release. Management believes sales per sales day provides investors with an important perspective on how net sales may be impacted by the number of days the segment is open for business.
Management uses sales per sales day as a measurement to compare periods in which the number of sales days differ. The following table illustrates the calculation of sales per sales day using "Net sales: Industrial Distribution" from the "Segment Information" footnote in the "Notes to Condensed Consolidated Financial Statements" from the company's Form 10-Q filed with the Securities and Exchange Commission on August 5, 2010 (in thousands, except days):
For the three months ended
--------------------------
July 2, April 2, December 31,
2010 2010 2009
-------- --------- -------------
Net sales $210,924 $179,259 $149,754
Acquisition
related sales 27,729 - -
--------------
Organic sales $183,195 $179,259 $149,754
------------- -------- -------- --------
Sales days 64 65 60
Organic sales per
sales day $2,862 $2,758 $2,496
% change -
sequential 3.8% 10.5% -2.0%
October 2, July 3,
2009 2009
----------- --------
Net sales $162,921 $155,954
Acquisition
related sales - -
--------------
Organic sales $162,921 $155,954
------------- -------- --------
Sales days 64 63
Organic sales per
sales day $2,546 $2,475
% change -
sequential 2.8% -7.6%
Free Cash Flow - Free cash flow is defined as GAAP "Net cash provided by (used in) operating activities" less "Expenditures for property, plant & equipment." Management believes free cash flow provides investors with an important perspective on the cash available for dividends to shareholders, debt repayment, and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt.
Management uses free cash flow internally to assess both business performance and overall liquidity. The following table illustrates the calculation of free cash flow using "Net cash provided by (used in) operating activities" and "Expenditures for property, plant & equipment", GAAP measures from the cash flow statement (in thousands):
For the Six For the Three For the Three
Months Ended Months Ended Months Ended
July 2, 2010 April 2, 2010 July 2, 2010
------------ ------------- ------------
Net cash provided by
(used in) operating
activities $13, 509 $(13,342) $26,851
Expenditures for
property, plant &
equipment (8,124) (3,579) (4,545)
------------------ ------ ------ ------
Free Cash Flow $5,385 $(16,921) $22,306
============== ====== ======== =======
Debt to Capitalization Ratio - Debt to capitalization ratio is calculated by dividing debt by capitalization. Debt is defined as GAAP "Notes payable" plus "Current portion of long-term debt" plus "Long-term debt, excluding current portion." Capitalization is defined as Debt plus GAAP "Total shareholders' equity." Management believes that debt to capitalization is a measurement of financial leverage and provides investors with an insight into the financial structure of the company and its financial strength. The following table illustrates the calculation of debt to capitalization using GAAP measures from the balance sheets (in thousands):
December 31,
July 2, 2010 2009
------------ -------------
Notes payable $2,599 $1,835
Current portion of long-
term debt 5,000 5,000
Long-term debt, excluding
current portion 95,700 56,800
------ ------
Debt 103,299 63,635
Total shareholders' equity 334,505 312,900
========================== ======= =======
Capitalization $437,804 $376,535
-------------- -------- --------
Debt to capitalization 23.6% 16.9%
Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut conducts business in the aerospace and industrial distribution markets. The company produces and/or markets widely used proprietary aircraft bearings and components; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arm solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; and support for the company's SH-2G Super Seasprite maritime helicopters and K-MAX medium-to-heavy lift helicopters. The company is a leading distributor of industrial parts, and operates more than 200 customer service centers and five distribution centers across North America. Kaman offers more than 3.5 million items including bearings, mechanical power transmission, electrical, material handling, motion control, fluid power, automation and MRO supplies to customers in virtually every industry. Additionally, Kaman provides engineering, design and support for automation, electrical, linear, hydraulic and pneumatic systems as well as belting and rubber fabrication, customized mechanical services, hose assemblies, repair, fluid analysis and motor management.
Forward-Looking Statements
This release contains forward-looking information relating to the company's business and prospects, including the Aerospace and Industrial Distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; 2) political conditions in countries where the company does or intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) domestic and foreign economic and competitive conditions in markets served by the company, particularly the defense, commercial aviation and industrial production markets; 5) risks associated with successful implementation and ramp up of significant new programs; 6) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 7) management's success in increasing the volume of profitable work at the Aerospace Wichita facility; 8) successful negotiation of the Sikorsky Canadian MH-92 program price; 9) successful resale of the SH-2G(I) aircraft, equipment and spare parts; 10) receipt and successful execution of production orders for the JPF U.S. government contract, including the exercise of all contract options and receipt of orders from allied militaries, as all have been assumed in connection with goodwill impairment evaluations; 11) satisfactory resolution of the company's litigation relating to the FMU-143 program; 12) continued support of the existing K-MAX helicopter fleet, including sale of existing K-MAX spare parts inventory; 13) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 14) profitable integration of acquired businesses into the company's operations; 15) changes in supplier sales or vendor incentive policies; 16) the effects of price increases or decreases; 17) the effects of pension regulations, pension plan assumptions and future contributions; 18) future levels of indebtedness and capital expenditures; 19) continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; 20) the effects of currency exchange rates and foreign competition on future operations; 21) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; 22) future repurchases and/or issuances of common stock; and 23) other risks and uncertainties set forth in the company's annual, quarterly and current reports, and proxy statements. Any forward-looking information provided in this release should be considered with these factors in mind. The company assumes no obligation to update any forward-looking statements contained in this release.
A summary of segment information follows (in thousands, unaudited):
Summary of Segment Information
For the three months ended For the six months ended
-------------------------- ------------------------
July 3, July 2, July 3,
July 2, 2010 2009 2010 2009
------------ -------- -------- --------
Net sales:
Industrial
Distribution $210,924 $155,954 $390,183 $332,860
Aerospace 106,163 137,269 203,676 254,398
Net sales $317,087 $293,223 $593,859 $587,258
======== ======== ======== ========
Operating income:
Industrial
Distribution $7,713 $3,065 $12,525 $5,844
Aerospace 12,114 21,600 21,747 36,897
Net gain (loss) on
sale of assets (56) (53) 520 40
Corporate expense (8,581) (8,445) (19,109) (17,211)
------ ------ ------- -------
Operating income $11,190 $16,167 $15,683 $25,570
======= ======= ======= =======
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)(Unaudited)
For the Three Months For the Six Months
Ended Ended
-------------------- ------------------
July 2, July 3, July 2, July 3,
2010 2009 2010 2009
-------- -------- -------- --------
Net sales $317,087 $293,223 $593,859 $587,258
Cost of sales 233,827 214,752 437,844 431,092
------- ------- ------- -------
83,260 78,471 156,015 156,166
Selling, general
and
administrative 72,014 62,251 140,852 130,636
Net (gain)/loss on
sale of assets 56 53 (520) (40)
--- --- ---- ---
Operating income 11,190 16,167 15,683 25,570
Interest expense,
net 2,337 1,195 4,391 2,639
Other (income)
expense, net (451) 752 (667) 614
---- --- ---- ---
Earnings before
income taxes 9,304 14,220 11,959 22,317
Income tax expense 3,227 4,826 4,156 7,547
----- ----- ----- -----
Net earnings $6,077 $9,394 $7,803 $14,770
====== ====== ====== =======
Net earnings per
share:
Basic net earnings
per share $0.23 $0.37 $0.30 $0.58
Diluted net
earnings per
share $0.23 $0.37 $0.30 $0.58
Average shares
outstanding:
Basic 25,926 25,638 25,877 25,586
Diluted 26,093 25,721 26,055 25,659
====== ====== ====== ======
Dividends declared
per share $0.14 $0.14 $0.28 $0.28
===== ===== ===== =====
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)(Unaudited)
July 2, 2010 December 31, 2009
------------ -----------------
Assets
Current assets:
Cash and cash equivalents $7,136 $18,007
Accounts receivable, net 167,215 135,423
Inventories 306,765 285,263
Deferred income taxes 28,190 23,040
Income taxes receivable 3,540 -
Other current assets 23,427 20,870
------ ------
Total current assets 536,273 482,603
------- -------
Property, plant and equipment,
net 83,481 81,322
Goodwill 109,339 88,190
Other intangibles assets, net 43,580 28,684
Deferred income taxes 45,467 69,811
Other assets 18,179 22,457
------ ------
Total assets $836,319 $773,067
======== ========
Liabilities and Shareholders'
Equity
Current liabilities:
Notes payable $2,599 $1,835
Current portion of long-term
debt 5,000 5,000
Accounts payable - trade 95,310 79,309
Accrued salaries and wages 22,904 19,049
Accrued pension costs 6,903 1,105
Accrued contract losses 3,027 1,310
Advances on contracts 10,039 1,800
Current portion of amount due
to Commonwealth of Australia 20,471 -
Other accruals and payables 51,322 39,204
Income taxes payable - 5,458
--- -----
Total current liabilities 217,575 154,070
------- -------
Long-term debt, excluding
current portion 95,700 56,800
Deferred income taxes 7,657 8,352
Underfunded pension 122,763 157,266
Due to Commonwealth of
Australia, excluding current
portion 10,806 34,067
Other long-term liabilities 47,313 49,612
Commitments and contingencies
Shareholders'' equity:
Capital stock, $1 par value
per share:
Preferred stock, 200,000
shares authorized; none
outstanding - -
Common stock, 50,000,000
shares authorized, voting,
26,004,293 and 26,004 25,817
25,817,477 shares issued,
respectively
Additional paid-in capital 93,717 89,624
Retained earnings 302,605 302,058
Accumulated other
comprehensive income (loss) (86,955) (104,042)
Less 63,130 and 51,000 shares
of common stock,
respectively,
held in treasury, at cost (866) (557)
---- ----
Total shareholders' equity 334,505 312,900
------- -------
Total liabilities and
shareholders' equity $836,319 $773,067
======== ========
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)(Unaudited)
For the Six Months Ended
------------------------
July 2, 2010 July 3, 2009
------------ ------------
Cash flows from operating
activities:
Net earnings $7,803 $14,770
Adjustments to reconcile
net earnings to
net cash provided by (used
in) operating activities
Depreciation and
amortization 9,457 7,692
Change in allowance for
doubtful accounts (93) 172
Net (gain) loss on sale of
assets (520) (40)
(Gain) loss on Australian
payable, net of loss on
derivative instruments (487) 862
Stock compensation expense 2,654 1,727
Excess tax expense
(benefit) from share-
based compensation
arrangements (179) 71
Deferred income taxes (2,364) 1,357
Changes in assets and
liabilities, excluding
effects of acquisitions/
divestures:
Accounts receivable (14,867) (2,780)
Inventories (10,470) 18,989
Income tax receivable (2,417) 3,450
Other current assets 2,226 1,603
Accounts payable 7,918 (12,169)
Accrued contract losses 1,719 (251)
Advances on contracts 8,238 (684)
Accrued expenses and
payables 4,277 (3,928)
Income taxes payable (4,912) 1,571
Pension liabilities 6,675 (8,869)
Other long-term
liabilities (1,149) (654)
------ ----
Net cash provided by (used
in) operating activities 13,509 22,889
------ ------
Cash flows from investing
activities:
Proceeds from sale of
assets 1,075 31
Expenditures for property,
plant & equipment (8,124) (5,508)
Acquisition of businesses
including earn out
adjustment, net of cash
received (50,637) (550)
Other, net 963 (1,237)
Cash provided by (used in)
investing activities (56,723) (7,264)
------- ------
Cash flows from financing
activities:
Net borrowings (repayments)
under revolving credit
agreements 41,266 (1,117)
Debt repayment (2,500) (2,500)
Net change in book
overdraft 1,288 (1,989)
Proceeds from exercise of
employee stock plans 1,599 899
Dividends paid (7,444) (7,350)
Debt issuance costs (43) -
Windfall tax (expense)
benefit 179 (71)
Other (211) (36)
Cash provided by (used in)
financing activities 34,134 (12,164)
------ -------
Net increase (decrease) in
cash and cash equivalents (9,080) 3,461
Effect of exchange rate
changes on cash and cash
equivalents (1,791) 797
Cash and cash equivalents
at beginning of period 18,007 8,161
------ -----
Cash and cash equivalents
at end of period $7,136 $12,419
====== =======
SOURCE Kaman Corp.
