Kaman Reports Fourth Quarter, Year 2002 Results
BLOOMFIELD, Conn., Feb. 3 /PRNewswire-FirstCall/ -- Kaman Corp. (Nasdaq: KAMNA) today reported financial results for its fourth quarter and year ended December 31, 2002.
Net earnings for the fourth quarter were $5.9 million, or $0.26 cents per share diluted, compared to $6.9 million or $0.31 cents per share diluted the previous year. Net sales for the fourth quarter were $230.6 million compared to $218.2 million in the 2001 quarter.
The company reported a net loss in 2002 of $33.6 million, or $1.50 net loss per share diluted, compared to net earnings of $11.7 million, or $0.52 per diluted share, the previous year. The 2002 results include a pre-tax charge of $86.0 million taken in the second quarter to cover the write-down of K-MAX helicopter assets, principally inventories; for cost growth associated with the Australian SH-2G(A) helicopter program; and to phase out operations at the company's Moosup, Conn. plant by the end of 2003. The 2001 results included a $31.2 million adjustment to sales and pre-tax earnings in the second quarter related to growth in estimated costs to complete the SH-2G(A) helicopter program for Australia.
Excluding the second-quarter $86.0 million pre-tax charges, 2002 net earnings would have been $21.8 million, or $0.96 per share diluted. Excluding the $31.2 million adjustment to the Australia program, 2001 net earnings would have been $30.5 million or $1.33 per share diluted.
Net sales for 2002 were $882.1 million, compared to $876.9 million the previous year. The Australia program adjustments reduced 2002 net sales by $6.5 million and 2001 net sales by $31.2 million.
The company maintains a $225 million revolving credit agreement with eight banks to provide for its working capital needs, business acquisitions, and other corporate requirements. The agreement includes a $150 million five-year credit facility maturing in November 2005 and a $75 million 364-day facility renewable annually in November. In the fourth quarter, the banking group renewed the 364-day facility to November 2003.
SUMMARIZED REPORT BY SEGMENT
Fourth quarter operating profits for the segment were $6.5 million, compared to $9.2 million last year. Sales were $74.7 million for the quarter, including $7.9 million from acquisitions made during 2002 and 2001, compared to $77.8 million a year ago. There were no net sales from acquisitions in 2001.
The segment had an operating loss of $55.2 million for the year, primarily due to the previously described charges. Excluding the charges, segment operating profits in 2002 would have been $30.8 million. In 2001, the segment had an operating profit of $6.5 million. Excluding the adjustment, the segment operating profits would have been $37.7 million in 2001. Sales for 2002 were $275.9 million (including $20.0 million from acquisitions made during 2002 and 2001), compared to $301.6 million last year. Excluding the impact of the Australia program adjustments, 2002 sales would have been $282.4 million, compared to $332.8 million for 2001.
Industrial Distribution Segment
Industrial Distribution's operating profit rose to $3.3 million in the quarter, compared to $1.9 million a year ago. Sales were $118.4 million, including $10.6 million from acquisitions made during 2002 and 2001, compared to $108.0 million a year ago, which included $8.0 million from acquisitions made in 2001.
Segment operating profits for the full year were $12.3 million, compared to $13.2 million the previous year. Sales in 2002 were $477.2 million (including $38.0 million from acquisitions made during 2002 and 2001), compared to $453.7 million in 2001, which included $8.0 million from acquisitions made in 2001.
Music Distribution Segment
Operating profits for the Music segment were $2.8 million in the fourth quarter, compared to $2.4 million a year ago. Sales were $37.5 million in the quarter, including $3.7 million from the acquisition of Latin Percussion in October, compared to $32.4 million a year ago.
Operating profits for the year 2002 were $7.2 million, compared to $6.6 million a year ago. Sales for year were $128.9 million (including $3.7 million from the Latin Percussion acquisition), compared to $121.7 million the previous year.
REPORT BY SEGMENT
Paul R. Kuhn, chairman, president and chief executive officer, said, "The commercial aerospace and industrial markets that we serve were under severe pressure throughout the year. This affected both segments' sales and profits as would be expected. Based on current trends, which do not point to a near-term turnaround in either market, we anticipate that conditions will remain difficult for a while longer. However, our broad business diversification, our 'lean thinking' mentality and our stringent cost controls have enabled us to weather the current economic storm and we have remained focused on executing our growth strategies in each of the business segments."
Fourth quarter operating profits for the Aerospace segment were $6.5 million, compared to $9.2 million a year ago. Sales for the quarter were $74.7 million (including $7.9 million from acquisitions made during the past year), compared to $77.8 million a year ago. There were no net sales from acquisitions in 2001.
The segment had an operating loss of $55.2 million for the year, primarily due to the previously described charges. Excluding the charges, segment operating profits in 2002 would have been $30.8 million. In 2001 the segment had an operating profit of $6.5 million. Excluding the adjustment, segment operating profits would have been $37.7 million in 2001. Sales for 2002 were $275.9 million (including $20.0 million from acquisitions made during 2002 and 2001), compared to $301.6 million last year. Excluding the impact of the Australia program adjustments, 2002 sales would have been $282.4 million, compared to $332.8 million for 2001.
Kuhn said, "The production void being generated by the winding down of the New Zealand and Australian programs has been worsened by the softening of the commercial aerospace market and the absence of new helicopter production orders. This has necessitated significant measures that are being taken to sustain the Aerospace segment through these difficult economic conditions as well as prepare the company for future growth."
The segment has reduced its staff and taken other cost-cutting measures in an attempt to bring operating overheads in line with a lower revenue base. These actions will continue, along with the previously announced closure of the company's oldest and least efficient facility in Moosup, Conn. and relocation of that work to other Kaman facilities. As a result of the lower production levels, overhead expenditures must be absorbed at higher rates by active programs. These increased overhead rates result in higher costs and lower profitability for active programs and, in some cases, resulted in loss accruals for long-term programs, including certain Boeing work, and a higher loss accrual for the Australian SH-2G program.
Sales generated by the SH-2G Super Seasprite and K-MAX helicopter programs, including spare parts and sales support, totaled $26.7 million in the fourth quarter, compared to $30.0 million in the period last year. This represented approximately 36 percent of segment sales for the quarter, compared to approximately 39 percent a year ago. These results reflect reduced revenues from the SH-2G helicopter programs as the New Zealand program is now essentially completed and the Australia program moves closer to completion. Two used K-MAX helicopters, including one previously under lease, were sold in December. The company has said previously that it is reducing the scope of the K-MAX program, producing aircraft only upon firm order by a customer, while seeking to lease or sell current K-MAX inventory.
Ten of the eleven aircraft comprising the Australian SH-2G program are substantially complete; the eleventh aircraft has been retained at the company for test purposes. As previously reported, all of the aircraft lack the full Integrated Tactical Avionics System (ITAS) software and replacement subcontractors are in the process of completing this element of the program. The company and the Royal Australian Navy (RAN) have now reached an understanding on a plan for phased acceptance of the aircraft and the completion of aircraft deliveries. The plan involves the RAN's review of important project milestones during 2003. The company currently expects that the software will be fully completed, installed and operational on all of the Australian aircraft by the end of 2004.
The company continues work on a small program involving four SH-2G helicopters granted by the U.S. government to Poland for deployment aboard two Polish frigates. These aircraft were previously in service with the U.S. Navy Reserves. The program involves reactivation of the four aircraft, training, and logistics support, including delivery of initial spare components. Reactivation of two of the aircraft was completed in the fourth quarter of 2002, and these aircraft have been shipped to Poland. The balance of the program is scheduled to be completed by the third quarter of 2003.
The company has previously stated that it is in a competition to supply up to six search and rescue helicopters to Egypt, and has proposed remanufactured SH-2Gs for that requirement. Based on recent visits, the company believes the selection process is being delayed and will not likely occur in 2003.
Aircraft Structures and Components
Fourth quarter aircraft structures and components sales were $32.7 million, compared with $32.4 million in the period a year ago. This business contributed approximately 44 percent of the Aerospace segment's sales in the fourth quarter, compared to approximately 41 percent a year ago.
Aerostructure subcontract work involves commercial and military aircraft programs. Current programs include production of wing structures for virtually all Boeing commercial aircraft and the C-17 military transport. In September, the company received a follow-on, multi-year contract from Boeing worth a potential $67.5 million for C-17 structural components. The contract runs through June 2007.
Helicopter subcontract work involves commercial helicopter programs. Current programs include multi-year contracts for production of fuselages and rotor systems for various MD Helicopters, Inc. (MDHI) aircraft. Total orders received from MDHI are running at significantly lower rates than originally anticipated. The company has developed a large investment in these contracts (including receivables, start-up costs, and other program expenditures) and has experienced difficulty with receipt of payments from MDHI. The company is concerned about this exposure and is working with MDHI in an effort to address their payment issues.
The company's Kamatics specialty bearing business, a separate component of the Aerospace segment, was also impacted by the commercial and regional aircraft downturn, but that was partially offset by increases in commercial aftermarket and military programs. Kuhn said, "In keeping with our strategy, we've used our financial resources to make an acquisition to promote Kamatics' future growth potential in this vital market. RWG Frankenjura, a small but important German specialty bearing supplier to Airbus Industrie and other aviation industry customers, was acquired mid-year and, over time, is expected to strengthen Kamatics' presence in the very large European aircraft marketplace."
Advanced Technology Products
Sales of the company's advanced technology products in the fourth quarter were $15.3 million, compared to $15.4 million a year ago. The business accounted for approximately 20 percent of Aerospace segment sales, the same as a year ago.
The advanced technology products area is benefiting from increased defense spending. The company manufactures a mix of products for military and commercial markets, including missile safe, arm and fuzing devices for a number of major missile and bomb programs; and precision measuring systems, mass memory systems and electro-optic systems.
The company's Kaman Dayron operation in Orlando, Fla. (acquired in July 2002), has completed a significant hurdle toward qualifying the Joint Programmable Fuze (JPF) for the U.S. Air Force and Navy. A Department of Defense review completed in December 2002 concluded with a strong endorsement from both services to proceed into building first article acceptance fuzes for final qualification, the prelude to receiving production go-ahead. Once the JPF is qualified and deployed, the joining of Dayron's bomb fuze programs with Kaman's missile fuze programs is expected to make the company the leading fuze supplier for precision-guided munitions for the U.S. Air Force and Navy.
On January 15, 2003, the company announced it had sold its Electromagnetics Development Center (EDC) in Hudson, Mass., a non-core business, to DRS Technologies, Inc. Terms were not disclosed. The company said the transaction realized the best value for all parties. "DRS is well-positioned to integrate the EDC's development know-how with their existing production capabilities as they pursue follow-on production contracts for the U.S. Navy's recently competed DD(X) ship program as well as high-volume commercial motor production. Kaman will continue to focus on its growth strategy in Aerospace with new programs and acquisitions aligned with the company's core strengths," Kuhn said.
Fourth quarter operating profits for the Industrial Distribution segment were $3.3 million, compared to $1.9 million in the 2001 period. Sales were $118.4 million in the fourth quarter (including $10.6 million from acquisitions made during 2002 and 2001), compared to $108.0 million in the period last year, which included $8.0 million from acquisitions made in 2001.
Segment operating profits for the full year were $12.3 million, compared to $13.2 million the previous year. Sales in 2002 were $477.2 million (including $38.0 million from acquisitions made during 2002 and 2001), compared to $453.7 million in 2001, which included $8.0 million from acquisitions made in 2001. The industry's practice of offering supplier incentives is an important contributor to the company's operating profits, particularly during periods of lower economic activity.
Kuhn said, "In the last half of 2002, our industrial distribution business began to see slight increases in same-store sales over the year earlier period. Even with this hopeful sign, the business continued to be impacted by ongoing weakness in the manufacturing sector. A strong commitment to reduce costs at every level and aggressiveness in the market helped the segment stay profitable. We expanded our geographic coverage with new locations in Lynchburg and Roanoke, Va. and Omaha, Neb., and we won several new large national accounts during the year, further demonstrating our ability to compete successfully. In addition, we completed the integration of A-C Supply, a Midwest acquisition made late in 2001, and further broadened our market reach with the acquisition of a majority interest in Delamac de Mexico, a distributor of industrial products headquartered in Mexico City. Delamac provides Kaman entry into Mexico's industrial markets while also enhancing its ability to serve the Mexico-based operations of some of our major U.S. customers, who increasingly ask for North American rather than just U.S. coverage."
Music Distribution operating profits for the 2002 fourth quarter were $2.8 million, compared to $2.4 million in the period a year ago. Sales for the quarter were $37.5 million (including $3.7 million from the acquisition of Latin Percussion, Inc. in October 2002), compared to $32.4 million last year.
Operating profits for the year 2002 were $7.2 million, compared to $6.6 million a year ago. Sales for year were $128.9 million (including $3.7 from the Latin Percussion acquisition), compared to $121.7 million the previous year.
Kuhn said, "Despite the economy, consumer spending held up reasonably well in the music retail market, and we were able to take advantage of that with our diverse range of quality brand name products. The acquisition of Latin Percussion is a strong addition to our existing line of brand name percussion instruments, including Toca, Gretsch, and Sabian, and makes Kaman a world leader in percussion instruments. We expect Latin Percussion to be an important contributor to the segment's future growth and profitability."
Kuhn concluded, "We head into 2003 facing many of the same challenges of the past year, coping with the effects of a struggling economy on our business. I believe we are doing the right things and making the right investments for the future that will make Kaman a stronger company."
Kaman Corp., headquartered in Bloomfield, Conn., conducts business in the aerospace, industrial distribution and music distribution markets.
This report contains forward-looking information relating to the
corporation's business and prospects, including the SH-2G and K-MAX helicopter
programs, aerostructures, helicopter structures, and components, advanced
technology products, including fuzes for the JPF program, the industrial and
music distribution businesses, including the Latin Percussion acquisition,
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 and thereafter contract negotiations with government authorities,
including foreign governments; 2) political developments in countries where
the corporation intends to do business; 3) standard government contract
provisions permitting renegotiation of terms and termination for the
convenience of the government; 4) economic and competitive conditions in
markets served by the corporation, including industry consolidation in the
United States and global economic conditions; 5) attainment of remaining
project milestones and satisfactory completion of the Australian SH-2G(A)
program; 6) achievement of satisfactory payment arrangements with MD
Helicopters, Inc. 7) actual costs for moving equipment and recertifying
products and processes in connection with phase out of the Moosup, Connecticut
facility; 8) JPF program final qualification test results and receipt of
production orders; 9) achievement of enhanced business base in the Aerospace
segment in order to better absorb overhead rates; 10) successful sale or lease
of existing K-MAX inventory; 11) profitable integration of acquired businesses
into the company's operations; 12) U.S. industrial production levels; 13)
changes in supplier sales policies; 14) the effect of price increases or
decreases; and 15) currency exchange rates, taxes, changes in laws and
regulations, inflation rates, general business conditions and other factors.
Any forward-looking information should be considered with these factors in
KAMAN CORPORATION AND SUBSIDIARIES Condensed Consolidated Summaries of Operations (In thousands except per share amounts) For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2002 2001 2002 2001 Net Sales $230,570 $218,193 $882,078 $876,945 Costs and expenses: Cost of sales (1) 170,799 158,982 723,243 673,782 Selling, general and administrative expense 49,772 49,081 199,453 188,752 Restructuring costs (2) --- --- 8,290 --- Interest expense, net 906 416 2,486 623 Other (income)/ expense, net (3) 241 447 (468) (1,876) 221,718 208,926 933,004 861,281 Earnings (loss) before income taxes 8,852 9,267 (50,926) 15,664 Income taxes (benefit) 3,000 2,325 (17,325) 3,950 Net earnings (loss) 5,852 $6,942 (33,601) 11,714 Net earnings (loss) per share: Basic $.26 $.31 $(1.50) $.52 Diluted (4) $.26 $.31 $(1.50) $.52 Average shares outstanding: Basic 22,449 22,339 22,408 22,364 Diluted (5) 23,475 23,536 22,408 23,649 Dividends declared per share .11 .11 .44 .44 (1) Cost of sales for the twelve months ended December 31, 2002 includes the write-off of K-MAX assets of $50,000 and Moosup facility assets of $2,679 which are associated with the charge taken in the Aerospace segment. (2) Restructuring costs for the twelve months ended December 31, 2002 relate to the closure of the Moosup facility in 2003 and are associated with the charge taken in the Aerospace segment. (3) Included in "Other (income)/expense, net" are the "Net gain on the sale of product line and other assets of $2,299 and $2,637" for the twelve months ended December 31, 2002 and 2001, respectively. (4) The calculated diluted per share amounts for the twelve months ended December 31, 2002 and 2001 are anti-dilutive, therefore, amounts shown are equal to the basic per share calculation. (5) Additional potentially diluted average shares outstanding of 1,145 for the twelve months ended December 31, 2002 have been excluded from the average diluted shares outstanding due to the loss from operations in that year. KAMAN CORPORATION AND SUBSIDIARIES Segment Information (In thousands) For the Three Months For the Twelve Months Ended December 31, Ended December 31, 2002 2001 2002 2001 Net sales: Aerospace $74,688 $77,773 $275,944 $301,587 Industrial Distribution 118,368 108,030 477,233 453,671 Music Distribution 37,514 32,390 128,901 121,687 $230,570 $218,193 $882,078 $876,945 Operating profit (loss): Aerospace $6,486 $9,230 $(55,208) $6,542 Industrial Distribution 3,284 1,881 12,344 13,217 Music Distribution 2,806 2,420 7,157 6,580 12,576 13,531 (35,707) 26,339 Interest, corporate and other expense, net (1) (3,724) (4,264) (15,219) (10,675) Earnings (loss) before income taxes: $8,852 $9,267 $(50,926) $15,664 (1) "Interest, corporate and other expense, net" decreased for the three months ended December 31, 2002 primarily due to lower stock appreciation rights expense, offset to some degree by the loss of a pension credit and an increase in net interest expense. "Interest, corporate and other expense, net" increased for the twelve months ended December 31, 2002 primarily due to loss of a pension credit and an increase in net interest expense. KAMAN CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) December 31, December 31, 2002 2001 Assets Current assets: Cash and cash equivalents $5,571 $30,834 Accounts receivable, net 195,857 186,798 Inventories 164,715 197,400 Income taxes receivable 5,192 342 Deferred income taxes 28,450 16,938 Other current assets 14,460 10,339 Total current assets 414,245 442,651 Property, plant and equipment, net 61,635 60,769 Goodwill and other intangible assets 50,994 13,281 Other assets 8,666 5,245 $535,540 $521,946 Liabilities and shareholders' equity Current liabilities: Notes payable $10,307 $4,038 Accounts payable 46,664 52,044 Accrued contract loss 26,674 --- Accrued restructuring cost 7,594 --- Other accrued liabilities 23,583 25,332 Advances on contracts 22,318 30,781 Other current liabilities 19,954 29,065 Total current liabilities 157,094 141,260 Long-term debt, excluding current portion 60,132 23,226 Other long-term liabilities 26,367 23,879 Shareholders' equity 291,947 333,581 $535,540 $521,946 KAMAN CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) For the Twelve Months Ended December 31, 2002 2001 Cash flows from operating activities: Net earnings (loss) $(33,601) $11,714 Depreciation and amortization 11,620 11,441 Net gain on sale of product line and other assets (2,299) (2,637) Restructuring costs 8,290 --- Non-cash write-down of assets 52,679 --- Deferred income taxes (16,715) (375) Other, net 3,403 2,152 Changes in current assets and liabilities, excluding effects of acquisition/divestiture: Accounts receivable (4,625) 32,411 Inventory (12,751) 5,407 Income taxes receivable (4,888) (4,081) Accounts payable - trade (8,813) (9,284) Accrued contract loss 26,674 --- Accrued restructuring costs (696) --- Advances on contracts (9,286) (11,124) Changes in other current assets and liabilities (20,161) (15,493) Cash provided by (used in) operating activities (11,169) 20,131 Cash flows from investing activities: Proceeds from sale of product line and other assets 8,034 4,047 Expenditures for property, plant & equipment (7,601) (8,033) Acquisition of businesses, less cash acquired (51,227) (20,845) Other, net 1,854 (253) Cash provided by (used in) investing activities (48,940) (25,084) Cash flows from financing activities: Additions to notes payable 5,985 318 Additions / (reductions) to long-term debt 36,906 (1,660) Proceeds from exercise of employee stock plans 1,485 1,566 Purchase of treasury stock (412) (2,760) Dividends paid (9,850) (9,834) Other 732 --- Cash provided by (used in) financing activities 34,846 (12,370) Net increase (decrease) in cash and cash equivalents (25,263) (17,323) Cash and cash equivalents at beginning of period 30,834 48,157 Cash and cash equivalents at end of period $5,571 $30,834
SOURCE Kaman Corp.