Kaman Reports 2021 Second Quarter Results

August 05, 2021

 

Second Quarter Highlights:

  • Kaman revises full year outlook for 2021
  • Net sales from continuing operations of $182.4 million, up 2.5% over the prior year period; Organic sales up 5.4% over the prior year period
  • Gross profit from continuing operations of $61.9 million; Gross margin of 34.0%
  • Earnings from continuing operations of $11.9 million, up $12.0 million over the prior year period
  • Diluted earnings per share from continuing operations of $0.42; Adjusted diluted earnings per share from continuing operations* of $0.56, up 56% from prior year period
  • Adjusted EBITDA from continuing operations* of $26.9 million, or 14.8%, up 480 basis points from the first quarter of 2021 and 140 basis points from the second quarter of 2020
  • Year-to-date net cash used in operating activities of $14.7 million; Adjusted Free Cash Flow* of $2.3 million, a $91.3 million improvement over the prior year period

  • James G. Coogan appointed Senior Vice President and Chief Financial Officer

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Aug. 5, 2021-- Kaman Corp. (NYSE:KAMN) today reported financial results for the second fiscal quarter ended July 2, 2021.

 

 

 

 

 

 

 

 

 

Table 1. Summary of Financial Results (unaudited)

 

 

 

 

 

 

In thousands except per share amounts

For the Three Months Ended

 

 

 

July 2,
2021

 

July 3,
2020

 

Change

 

 

Net sales from continuing operations

$

182,394

 

 

$

177,890

 

 

$

4,504

 

 

 

 

 

 

 

 

 

 

 

Operating income from continuing operations:

 

 

 

 

 

 

 

Operating income (loss) from continuing operations

$

14,832

 

 

$

(2,770)

 

 

$

17,602

 

 

 

% of sales

8.1

%

 

(1.6)

%

 

9.7

%

 

 

Adjustments

$

2,930

 

 

$

16,382

 

 

$

(13,452)

 

 

 

Adjusted operating income from continuing operations*

$

17,762

 

 

$

13,612

 

 

$

4,150

 

 

 

% of sales

9.7

%

 

7.7

%

 

2.0

%

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from continuing operations*:

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

$

11,856

 

 

$

(100)

 

 

$

11,956

 

 

 

Adjustments

15,088

 

 

24,017

 

 

(8,929)

 

 

 

Adjusted EBITDA from continuing operations*

$

26,944

 

 

$

23,917

 

 

$

3,027

 

 

 

% of sales

14.8

%

 

13.4

%

 

1.4

%

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

$

0.42

 

 

$

0.00

 

 

$

0.42

 

 

 

Adjustments

0.14

 

 

0.36

 

 

(0.22)

 

 

 

Adjusted diluted earnings per share from continuing operations*

$

0.56

 

 

$

0.36

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

Ian K. Walsh, Chairman, President and Chief Executive Officer, commented, “Our strong second quarter results speak to the broad diversity of our product offerings as we continue to see sequential improvements for our Medical and Industrial products and higher sales on our Defense products. Looking at the remainder of the year, we continue to see strong order rates for our Medical and Industrial products and we anticipate a meaningful recovery for our Commercial, Business and General Aviation products, providing us confidence in raising our full year outlook for Adjusted EBITDA* and Adjusted Diluted earnings per share*."

"We recorded GAAP diluted earnings per share of $0.42 in the quarter. When adjusted*, we earned diluted earnings per share of $0.56, a 55.6% increase over the adjusted diluted earnings per share* of $0.36 earned in the second quarter of 2020. Strong gross margin performance in the quarter, up 210 basis points to 34.0%, coupled with the 40 basis point improvement in S,G&A as a percentage of sales of 21.2% led to improved profitability for the period. This improvement demonstrates the power of our newly deployed Operations Excellence."

"Investments in product development continue to be a primary focus for us as we look to drive future organic growth. In the quarter, we made significant progress on our new purpose built medium-lift autonomous aerial vehicle with several successful test flights and early testing of its external cargo capability. These test flights demonstrate our proof of concept and the ability of our aircraft to perform in real world conditions. As we look to the remainder of the year, we anticipate we will make further progress on this aircraft, as well as our other R&D initiatives, while continuing to build on our portfolio of highly engineered products through strategic acquisitions."

Management's Commentary on Second Quarter Results:

Net sales for the quarter increased 2.5% when compared to the second quarter of 2020 and 6.3% sequentially. Organic sales*, which excludes sales from our former U.K. composite operations, increased 5.4% from the second quarter of 2020 and increased 7.3% from the first quarter of 2021. These improvements were the result of increased sales on our Medical and Industrial products, partially offset by lower sales volume of our Commercial, Business and General Aviation products.

Higher sales volume of our miniature bearings contributed to recoveries in our Medical and Industrial end markets. Coupled with the increase in sales of our medical and analytical devices, our Medical products delivered a 54.8% increase in sales over the second quarter of 2020 and 11.1% over the first quarter of 2021. Sales for our Industrial products increased 28.2% when compared to the second quarter of 2020 and 15.3% sequentially. We continue to see high order intake for these product offerings and expect strong performance through the remainder of the year.

Sales of our Defense products and Commercial, Business and General Aviation products decreased 1.4% and 14.1%, respectively, on a GAAP basis from the prior year period. Prior year sales of our Defense and Commercial, Business and General Aviation products included $3.6 million and $1.2 million, respectively, of sales from our former U.K. composites operations.

Organic sales* for our Defense products increased 2.3% when compared to the second quarter of 2020 and 16.2% when compared to the first quarter of 2021. The sequential increase was due in large part to the mix of sales on our Joint Programmable Fuze program offset by a modest decrease in our other defense offerings. During the quarter we delivered 8,200 fuzes, bringing our total year-to-date deliveries to 16,290 units, and we continue to expect to deliver 30,000 to 35,000 Joint Programmable Fuzes for the full year.

Organic sales* for our Commercial, Business and General Aviation products decreased 11.8% from the second quarter of 2020 and 13.0% from the first quarter of 2021. This sequential decrease was due to a 13.1% decrease in sales for our commercial aviation products and the absence of a K-MAX® aircraft sale in the quarter, partially offset by a 10.9% increase in sales for other general and business aviation products. Based on lead times with our customers, we anticipated the second quarter being the low point in demand for 2021 and, thus, we expect a meaningful ramp in sales for these products in the second half of the year.

Chief Financial Officer,
James G. Coogan, commented, "In the quarter, we used $12.3 million of cash from operating activities which contributed to our Free Cash Flow* usage of $15.7 million. For the year-to-date period we have used $14.7 million in cash from operating activities; however, this included a $25.1 million payment for the acquired retention plans at Bal Seal. When adjusted for this payment, our Free Cash Flow* was $2.3 million in the first half of the year compared to a usage of $89.0 million in the first half of 2020, a significant improvement, as we benefited from improved collections on our JPF program and overall cash management across the company."

"Adjusted EBITDA margin from continuing operations* increased 480 basis points sequentially to 14.8% in the quarter demonstrating our commitment to our new Operations Excellence model while remaining agile in this dynamic environment."

"We are revising our full year outlook based on our strong performance in the first half of 2021 and the anticipated recovery in our Commercial, Business and General Aviation products in the second half of the year, while remaining mindful of the timing of the recovery in the commercial aerospace market. We are lowering our sales range to $715 million to $735 million, while increasing our expectations for Adjusted EBITDA* to $87.5 million to $97.5 million and Adjusted Diluted Earnings per share* to $1.70 to $1.95. These new ranges reflect lower expected sales on our lower margin structures programs and our continued focus on improved profitability. We continue to expect Adjusted Free Cash Flow of $30.1 million to $40.1 million for the full year."

2021 Outlook

(in millions)

2020

 

2021 Outlook

 

Actual

 

Low End

High End

Sales

 

 

 

 

Sales from continuing operations

$

784.5

 

 

$

715.0

 

$

735.0

 

Sales of Disposed Business(1)

21.5

 

 

 

 

Organic Sales*

$

763.0

 

 

$

715.0

 

$

735.0

 

 

 

 

 

 

Adjusted EBITDA*

 

 

 

 

Earnings from continuing operations

$

(70.4)

 

 

$

41.8

 

$

48.8

 

Adjustments

173.3

 

 

45.7

 

48.7

 

Adjusted EBITDA* from continuing operations

$

102.9

 

 

$

87.5

 

$

97.5

 

Adjusted EBITDA margin* from continuing operations

13.1

%

 

12.2

%

13.3

%

 

 

 

 

 

Adjusted Diluted Earnings Per Share*

 

 

 

 

Diluted Earnings Per Share

$

(2.54)

 

 

$

1.50

 

$

1.75

 

Adjustments

4.65

 

 

0.20

 

0.20

 

Adjusted Diluted Earnings Per Share*

$

2.11

 

 

$

1.70

 

$

1.95

 

 

 

 

 

 

Cash Flow

 

 

 

 

Operating cash flow from continuing operations

$

16.5

 

 

$

25.0

 

$

35.0

 

Bal Seal Acquisition Retention Payment

 

 

25.1

 

25.1

 

Cash used for the purchase of property, plant and equipment

(17.8)

 

 

(20.0)

 

(20.0)

 

Adjusted Free Cash Flow*

$

(1.3)

 

 

$

30.1

 

$

40.1

 

 

 

 

 

 

Discretionary Pension Contribution

$

10.0

 

 

$

10.0

 

$

10.0

 

(1) In the first quarter of 2021 the Company sold its U.K Composites Business which did not qualify for reporting as a discontinued operation under GAAP. In 2021 we will record sales of $1.7 million for this business which was not contemplated as part of our outlook for the year.
(2) Operating cash flow from continuing operations include the $25.1 million payment to
Bal Seal employees which represents purchase price paid to the former
Bal Seal owners that was accounted for as compensation expense under ASC 805 in 2020.

Please see the MD&A section of the Company's Form 10-Q filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.

A conference call has been scheduled for tomorrow, August 6, 2021, at 8:30 AM ET. The call will be accessible by telephone within the U.S.at (844) 473-0975 and from outside theU.S.at (562) 350-0826 (using the Conference I.D.: 1672665) or via the Internet atwww.kaman.com. Please go to the website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference I.D.: 1672665.

About Kaman Corporation

Kaman Corporation, founded in 1945 by aviation pioneer
Charles H. Kaman, and headquartered in Bloomfield, Connecticut, conducts business in the Aerospace, Defense, Industrial and Medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our K-MAX® manned and unmanned medium-to-heavy lift helicopters.

More information is available at www.kaman.com.

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP financial measures (i.e. financial measures that are not computed in accordance with Generally Accepted Accounting Principles) identified by an asterisk (*) used in this release or in other disclosures provide 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 release and other disclosures as follows:

Organic Sales - Organic Sales is defined as "
Net Sales" less sales derived from acquisitions completed or businesses disposed of that did not qualify for accounting as a discontinued operation during the 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 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. No other adjustments were made during the three-month and six-month fiscal periods ended July 2, 2021 and July 3, 2020, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, "
Net Sales".

Table 2. Organic Sales from continuing operations (in thousands) (unaudited)

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

 

July 2,
2021

 

July 3,
2020

Net sales

 

$

182,394

 

 

$

177,890

 

 

$

354,010

 

 

$

385,212

 

Acquisition Sales

 

 

 

 

 

 

 

 

Sales of Disposed Business

 

 

 

4,812

 

 

1,704

 

 

13,298

 

Organic Sales

 

$

182,394

 

 

$

173,078

 

 

$

352,306

 

 

$

371,914

 

$ Change

 

9,316

 

 

 

 

(19,608)

 

 

 

% Change

 

5.4

%

 

 

 

(5.3)

%

 

 

Adjusted
Net Sales from continuing operations and Adjusted Operating Income from continuing operations
- Adjusted
Net Sales from continuing operations is defined as net sales from continuing operations, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income from continuing operations is defined as operating income from continuing operations, less items that are not indicative of the operating performance of the Company for the period presented. These items are included in the reconciliation below. Management uses Adjusted
Net Sales from continuing operations and Adjusted Operating Income from continuing operations to evaluate performance period over period, to analyze underlying trends and to assess our performance relative to our 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. The following table illustrates the calculation of Adjusted Operating Income from continuing operations to the Consolidated Financial Statements included in the Company's Form 10-Q filed with the Securities and Exchange Commission on August 5, 2021.

Table 3. Adjusted
Net Sales and Adjusted Operating Income from Continuing Operations

(In thousands) (unaudited)

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

 

July 2,
2021

 

July 3,
2020

CONSOLIDATED OPERATING INCOME:

 

 

 

 

 

 

 

 

Net Sales from continuing operations

 

$

182,394

 

 

$

177,890

 

 

$

354,010

 

 

$

385,212

 

GAAP - Operating income (loss) from
continuing operations

 

$

14,832

 

 

$

(2,770)

 

 

$

20,445

 

 

$

(7,192)

 

% of GAAP net sales

 

8.1

%

 

(1.6)

%

 

5.8

%

 

(1.9)

%

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

1,516

 

 

4,484

 

 

2,868

 

 

6,279

 

Costs associated with corporate development activities

 

415

 

 

679

 

 

415

 

 

2,466

 

Bal Seal acquisition costs

 

 

 

(36)

 

 

 

 

8,447

 

Cost of acquired
Bal Seal retention plans

 

 

 

5,704

 

 

 

 

11,407

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

1,178

 

 

 

 

2,355

 

Costs from transition services agreement

 

999

 

 

4,373

 

 

1,704

 

 

8,513

 

Reversal of employee tax-related matters in
foreign operations

 

 

 

 

 

 

 

(1,211)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(264)

 

Loss (gain) on sale business

 

 

 

 

 

234

 

 

(493)

 

Total adjustments

 

$

2,930

 

 

$

16,382

 

 

$

5,221

 

 

$

37,499

 

 

 

 

 

 

 

 

 

 

Adjusted Operating Income

 

$

17,762

 

 

$

13,612

 

 

$

25,666

 

 

$

30,307

 

% of GAAP net sales

 

9.7

%

 

7.7

%

 

7.3

%

 

7.9

%

Adjusted EBITDA from continuing operations - Adjusted EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company for the periods presented. Adjusted EBITDA from continuing operations differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items that are not indicative of the operating performance of the Company for the periods presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Adjusted EBITDA from continuing operations. Adjusted EBITDA from continuing operations also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted EBITDA from continuing operations 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 because it provides a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other expense (income), net and certain items that are not indicative of the operating performance of the Company for the period presented. Adjusted EBITDA from continuing operations is not presented as an alternative measure of operating performance, as determined in accordance with GAAP. No other adjustments were made during the three-month and six-month fiscal periods ended July 2, 2021 and July 3, 2020. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures:

Table 4. Adjusted EBITDA from continuing operations (in thousands) (unaudited)

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

 

July 2,
2021

 

July 3,
2020

Adjusted EBITDA from continuing operations

 

 

 

 

 

 

 

 

Consolidated Results

 

 

 

 

 

 

 

 

Sales from continuing operations

 

$

182,394

 

 

$

177,890

 

 

$

354,010

 

 

$

385,212

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations, net of tax

 

11,856

 

 

(100)

 

 

19,840

 

 

(507)

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4,335

 

 

5,808

 

 

8,586

 

 

9,055

 

Income tax expense (benefit)

 

5,502

 

 

(1,258)

 

 

5,709

 

 

(1,701)

 

Non-service pension and post retirement
benefit income

 

(6,577)

 

 

(4,062)

 

 

(13,220)

 

 

(8,125)

 

Other expense, net

 

158

 

 

(108)

 

 

447

 

 

110

 

Depreciation and amortization

 

9,182

 

 

10,305

 

 

18,391

 

 

19,814

 

Other Adjustments:

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

1,516

 

 

4,484

 

 

2,868

 

 

6,279

 

Cost associated with corporate development activities

 

415

 

 

679

 

 

415

 

 

2,466

 

Bal Seal acquisition costs

 

 

 

(36)

 

 

 

 

8,447

 

Cost of acquired
Bal Seal retention plans

 

 

 

5,704

 

 

 

 

11,407

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

1,178

 

 

 

 

2,355

 

Costs from transition services agreement

 

999

 

 

4,373

 

 

1,704

 

 

8,513

 

Income from transition services agreement

 

(442)

 

 

(3,050)

 

 

(917)

 

 

(6,024)

 

Reversal of employee tax-related matters in
foreign operations

 

 

 

 

 

 

 

(1,211)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(264)

 

Loss (gain) on sale of business

 

 

 

 

 

234

 

 

(493)

 

Adjustments

 

$

15,088

 

 

$

24,017

 

 

$

24,217

 

 

$

50,628

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from continuing operations

 

$

26,944

 

 

$

23,917

 

 

$

44,057

 

 

$

50,121

 

Adjusted EBITDA margin

 

14.8

%

 

13.4

%

 

12.4

%

 

13.0

%

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations - Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP "Earnings from Continuing Operations" and "Diluted earnings per share from continuing operations", less items that are not indicative of the operating performance of the business for the periods presented. These items are included in the reconciliation below. Management uses Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations to evaluate performance period over period, to analyze the underlying trends in our business and to assess its performance relative to its 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.

The following table illustrates the calculation of Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations using “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations” from the “Consolidated Statements of Operations” included in the Company's Form 10-Q filed with the Securities and Exchange Commission on August 5, 2021.

Table 5. Adjusted Earnings from continuing operations and Adjusted Diluted Earnings per Share from continuing operations

(In thousands except per share amounts) (unaudited)

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

 

July 2,
2021

 

July 3,
2020

Adjustments to Earnings from Continuing Operations

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

$

1,516

 

 

$

4,484

 

 

$

2,868

 

 

$

6,279

 

Costs associated with corporate development activities

 

415

 

 

679

 

 

415

 

 

2,466

 

Bal Seal acquisition costs

 

 

 

(36)

 

 

 

 

8,447

 

Cost of acquired
Bal Seal retention plans

 

 

 

5,704

 

 

 

 

11,407

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

1,178

 

 

 

 

2,355

 

Costs from transition services agreement

 

999

 

 

4,373

 

 

1,704

 

 

8,513

 

Income from transition services agreement

 

(442)

 

 

(3,050)

 

 

(917)

 

 

(6,024)

 

Reversal of employee tax-related matters in
foreign operations

 

 

 

 

 

 

 

(1,211)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(264)

 

Tax expense on sale of UK operations

 

1,799

 

 

 

 

287

 

 

 

Loss (gain) on sale of business

 

 

 

 

 

234

 

 

(493)

 

Adjustments, pre tax

 

$

4,287

 

 

$

13,332

 

 

$

4,591

 

 

$

31,475

 

 

 

 

 

 

 

 

 

 

Tax Effect of Adjustments to Earnings from
Continuing Operations

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

$

322

 

 

$

1,143

 

 

$

596

 

 

$

1,601

 

Costs associated with corporate development activities

 

88

 

 

173

 

 

86

 

 

629

 

Bal Seal acquisition costs

 

 

 

(9)

 

 

 

 

2,154

 

Cost of acquired
Bal Seal retention plans

 

 

 

1,455

 

 

 

 

2,909

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

300

 

 

 

 

601

 

Costs from transition services agreement

 

212

 

 

1,115

 

 

354

 

 

2,171

 

Income from transition services agreement

 

(94)

 

 

(778)

 

 

(191)

 

 

(1,536)

 

Employee tax-related matters in foreign operations

 

 

 

 

 

 

 

(309)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(67)

 

Tax expense on sale of UK operations

 

 

 

 

 

 

 

 

Loss (gain) on sale of business

 

 

 

 

 

 

 

(126)

 

Tax effect of Adjustments

 

$

528

 

 

$

3,399

 

 

$

845

 

 

$

8,027

 

 

 

 

 

 

 

 

 

 

Adjustments to Earnings from Continuing
Operations, net of tax

 

 

 

 

 

 

 

 

GAAP Earnings (loss) from continuing
operations, as reported

 

$

11,856

 

 

$

(100)

 

 

$

19,840

 

 

$

(507)

 

Restructuring and severance costs

 

1,194

 

 

3,341

 

 

2,272

 

 

4,678

 

Costs associated with corporate development activities

 

327

 

 

506

 

 

329

 

 

1,837

 

Bal Seal acquisition costs

 

 

 

(27)

 

 

 

 

6,293

 

Cost of acquired
Bal Seal retention plans

 

 

 

4,249

 

 

 

 

8,498

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

878

 

 

 

 

1,754

 

Costs from transition services agreement

 

787

 

 

3,258

 

 

1,350

 

 

6,342

 

Income from transition services agreement

 

(348)

 

 

(2,272)

 

 

(726)

 

 

(4,488)

 

Employee tax-related matters in foreign operations

 

 

 

 

 

 

 

(902)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(197)

 

Tax expense on sale of UK Operations

 

1,799

 

 

 

 

287

 

 

 

Loss (gain) on sale of business

 

 

 

 

 

234

 

 

(367)

 

Adjusted Earnings from continuing operations

 

$

15,615

 

 

$

9,833

 

 

$

23,586

 

 

$

22,941

 

 

 

 

 

 

 

 

 

 

Calculation of Adjusted Diluted Earnings per
Share from Continuing Operations

 

 

 

 

 

 

 

 

GAAP diluted earnings (loss) per share from
continuing operations

 

$

0.42

 

 

$

0.00

 

 

$

0.71

 

 

$

(0.02)

 

Restructuring and severance costs

 

0.04

 

 

0.12

 

 

0.08

 

 

0.17

 

Costs associated with corporate development activities

 

0.01

 

 

0.02

 

 

0.01

 

 

0.07

 

Bal Seal acquisition costs

 

 

 

 

 

 

 

0.23

 

Cost of accrued
Bal Seal retention plans

 

 

 

0.15

 

 

 

 

0.30

 

Inventory step-up associated with
Bal Seal acquisition

 

 

 

0.03

 

 

 

 

0.06

 

Costs from transition services agreement

 

0.03

 

 

0.12

 

 

0.05

 

 

0.23

 

Income from transition services agreement

 

(0.01)

 

 

(0.08)

 

 

(0.02)

 

 

(0.16)

 

Employee tax-related matters in foreign operations

 

 

 

 

 

 

 

(0.03)

 

Reversal of environmental accrual at GRW

 

 

 

 

 

 

 

(0.01)

 

Tax effect on sale of UK operations

 

0.07

 

 

 

 

0.01

 

 

 

Loss (gain) on sale of business

 

 

 

 

 

0.01

 

 

(0.01)

 

Adjustments to diluted earnings per share from
continuing operations

 

$

0.14

 

 

$

0.36

 

 

$

0.14

 

 

$

0.85

 

Adjusted Diluted Earnings per Share from continuing operations

 

$

0.56

 

 

$

0.36

 

 

$

0.85

 

 

$

0.83

 

Diluted weighted average shares outstanding

 

27,913

 

 

27,659

 

 

27,890

 

 

27,734

 

Adjusted Free Cash Flow from continuing operations - Adjusted Free Cash Flow from continuing operations is defined as GAAP “Net cash provided by (used in) operating activities from continuing operations” in a period less “Expenditures for property, plant & equipment” in the same period and any adjustments that are representative of the Company's cash generation or usage in the period. For 2021 we will adjust free cash flow to remove the cash payment made to
Bal Seal employees under the retention plan established by the former owners of
Bal Seal. Management believes Free Cash Flow from continuing operations and Adjusted Free Cash Flow provides an important perspective on our ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow from continuing operations and Adjusted Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it may exclude certain mandatory expenditures such as repayment of maturing debt and other contractual obligations. Management uses Free Cash Flow from continuing operations and Adjusted Free Cash Flow internally to assess overall liquidity. The following table illustrates the calculation of Adjusted Free Cash Flow from continuing operations using “Net cash provided by (used in) operating activities from continuing operations”, “Expenditures for property, plant & equipment” and “Cash paid for acquired retention plans”, GAAP measures from the Condensed Consolidated Statements of Cash Flows included in this release.

Table 6. Adjusted Free Cash Flow from continuing operations (in thousands) (unaudited)

 

 

For the Six
Months Ended

 

For the Three
Months Ended

 

For the Three
Months Ended

 

 

July 2, 2021

 

April 2, 2021

 

July 2, 2021

Net cash used in operating activities from continuing operations

 

$

(14,723)

 

 

$

(2,415)

 

 

$

(12,308)

 

Expenditures for property, plant & equipment

 

(8,102)

 

 

(4,678)

 

 

(3,424)

 

Cash paid for acquired retention plans (1)

 

25,108

 

 

25,108

 

 

 

Adjusted Free Cash Flow from continuing operations

 

$

2,283

 

 

$

18,015

 

 

$

(15,732)

 

(1) Operating cash flow from continuing operations will include the $25.1 million payment to
Bal Seal employees which represents purchase price paid to the former
Bal Seal owners accounted for as compensation under ASC 805

Debt to Capitalization Ratio - Debt to Capitalization Ratio is calculated by dividing debt by capitalization. Debt is defined as GAAP “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 Ratio is a measurement of financial leverage and provides an insight into the financial structure of the Company and its financial strength. The following table illustrates the calculation of Debt to Capitalization Ratio using GAAP measures from the Condensed Consolidated Balance Sheets included in this release.

Table 7. Debt to Capitalization Ratio (in thousands) (unaudited)

 

 

 

 

 

 

July 2, 2021

 

December 31, 2020

Long-term debt, excluding current portion

 

$

187,358

 

 

$

185,401

 

Debt

 

187,358

 

 

185,401

 

Total shareholders' equity

 

779,212

 

 

746,438

 

Capitalization

 

$

966,570

 

 

$

931,839

 

Debt to Capitalization Ratio

 

19.4

%

 

19.9

%

FORWARD-LOOKING STATEMENTS

This release 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) risks related to Kaman's performance of its obligations under the transition services agreement entered into in connection with the sale of our former Distribution business and UK Composites business and disruption of management time from ongoing business operations relating thereto; (ii) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (iii) 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, including the elimination of Overseas Contingency Operations funding, or automatic sequestration); (iv) the global economic impact of the COVID-19 pandemic; (v) changes in geopolitical conditions in countries where the Company does or intends to do business; (vi) 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; (vii) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the USG; (viii) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (ix) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (x) the successful resolution of government inquiries or investigations relating to our businesses and programs; (xi) 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; (xii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (xiii) the receipt and successful execution of production orders under the Company's existing USG 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; (xiv) the continued support of the existing K-MAX® helicopter fleet, including the sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our investments in the K-MAX® production line; (xv) the accuracy of current cost estimates associated with environmental remediation activities; (xvi) the profitable integration of acquired businesses into the Company's operations; (xvii) the ability to recover from cyber-based or other security attacks, information technology failures or other disruptions, including the December 2020 Bal Seal incident; (xviii) changes in supplier sales or vendor incentive policies; (xix) the ability of our suppliers to satisfy their performance obligations; (xx) the effects of price increases or decreases; (xxi) the effects of pension regulations, pension plan assumptions, pension plan asset performance, future contributions and the pension freeze, including the ultimate determination of the USG's share of any pension curtailment adjustment calculated in accordance with CAS 413; (xxii) future levels of indebtedness and capital expenditures; (xxiii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xxiv) the effects of currency exchange rates and foreign competition on future operations; (xxv) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxvi) future repurchases and/or issuances of common stock; (xxvii) the 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 retain skilled employees; and (xxix) other risks and uncertainties set forth herein and in our 2020 Form 10-K and our Second Quarter Form 10-Q filed August 5, 2021.

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

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts) (unaudited)

         

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

 

July 2,
2021

 

July 3,
2020

Net sales

 

$

182,394

 

 

$

177,890

 

 

$

354,010

 

 

$

385,212

 

Cost of sales

 

120,448

 

 

121,222

 

 

239,159

 

 

260,842

 

Gross profit

 

61,946

 

 

56,668

 

 

114,851

 

 

124,370

 

Selling, general and administrative expenses

 

38,719

 

 

38,396

 

 

76,847

 

 

91,724

 

Research and development costs

 

3,238

 

 

2,847

 

 

7,464

 

 

7,702

 

Intangible asset amortization expense

 

2,637

 

 

3,637

 

 

5,274

 

 

6,443

 

Costs from transition services agreement

 

999

 

 

4,373

 

 

1,704

 

 

8,513

 

Cost of acquired retention plans

 

 

 

5,704

 

 

 

 

11,407

 

Restructuring and severance costs

 

1,516

 

 

4,484

 

 

2,868

 

 

6,279

 

Loss (gain) on sale of business

 

 

 

 

 

234

 

 

(493)

 

Net loss (gain) on sale of assets

 

5

 

 

(3)

 

 

15

 

 

(13)

 

Operating income (loss)

 

14,832

 

 

(2,770)

 

 

20,445

 

 

(7,192)

 

Interest expense, net

 

4,335

 

 

5,808

 

 

8,586

 

 

9,055

 

Non-service pension and post retirement benefit income

 

(6,577)

 

 

(4,062)

 

 

(13,220)

 

 

(8,125)

 

Income from transition services agreement

 

(442)

 

 

(3,050)

 

 

(917)

 

 

(6,024)

 

Other expense (income), net

 

158

 

 

(108)

 

 

447

 

 

110

 

Earnings (loss) from continuing operations
before income taxes

 

17,358

 

 

(1,358)

 

 

25,549

 

 

(2,208)

 

Income tax expense (benefit)

 

5,502

 

 

(1,258)

 

 

5,709

 

 

(1,701)

 

Earnings (loss) from continuing operations

 

11,856

 

 

(100)

 

 

19,840

 

 

(507)

 

Earnings from discontinued operations before
gain on disposal, net of tax

 

 

 

 

 

 

 

 

Gain on disposal of discontinued operations, net
of tax

 

 

 

 

 

 

 

692

 

Total earnings from discontinued operations

 

 

 

 

 

 

 

692

 

Net earnings (loss)

 

$

11,856

 

 

$

(100)

 

 

$

19,840

 

 

$

185

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from
continuing operations

 

$

0.43

 

 

$

0.00

 

 

$

0.71

 

 

$

(0.02)

 

Basic earnings per share from discontinued operations

 

0.00

 

 

0.00

 

 

0.00

 

 

0.03

 

Basic earnings per share

 

$

0.43

 

 

$

0.00

 

 

$

0.71

 

 

$

0.01

 

Diluted earnings (loss) per share from
continuing operations

 

$

0.42

 

 

$

0.00

 

 

$

0.71

 

 

$

(0.02)

 

Diluted earnings per share from
discontinued operations

 

0.00

 

 

0.00

 

 

0.00

 

 

0.03

 

Diluted earnings per share

 

$

0.42

 

 

$

0.00

 

 

$

0.71

 

 

$

0.01

 

Average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

27,867

 

 

27,659

 

 

27,841

 

 

27,734

 

Diluted

 

27,913

 

 

27,659

 

 

27,890

 

 

27,734

 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts) (unaudited)

         

 

 

July 2, 2021

 

December 31, 2020

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

98,362

 

 

$

104,377

 

Restricted cash

 

 

 

25,121

 

Accounts receivable, net

 

99,361

 

 

153,806

 

Contract assets

 

114,552

 

 

108,645

 

Contract costs, current portion

 

3,841

 

 

3,511

 

Inventories

 

196,133

 

 

185,072

 

Income tax refunds receivable

 

3,783

 

 

5,269

 

Other current assets

 

13,194

 

 

12,173

 

Total current assets

 

529,226

 

 

597,974

 

Property, plant and equipment, net of accumulated depreciation of $240,970 and
$228,984, respectively

 

204,659

 

 

210,852

 

Operating right-of-use assets, net

 

12,075

 

 

12,880

 

Goodwill

 

244,480

 

 

247,244

 

Other intangible assets, net

 

144,204

 

 

150,198

 

Deferred income taxes

 

36,144

 

 

39,809

 

Contract costs, noncurrent portion

 

8,332

 

 

8,311

 

Other assets

 

37,545

 

 

39,125

 

Total assets

 

$

1,216,665

 

 

$

1,306,393

 

Liabilities and Shareholders’ Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable – trade

 

$

36,543

 

 

$

60,200

 

Accrued salaries and wages

 

37,782

 

 

70,552

 

Contract liabilities, current portion

 

17,268

 

 

39,073

 

Operating lease liabilities, current portion

 

4,005

 

 

4,305

 

Income taxes payable

 

1,555

 

 

19

 

Liabilities held for sale, current portion

 

 

 

18,086

 

Other current liabilities

 

35,183

 

 

36,177

 

Total current liabilities

 

132,336

 

 

228,412

 

Long-term debt, excluding current portion, net of debt issuance costs

 

187,358

 

 

185,401

 

Deferred income taxes

 

7,293

 

 

7,381

 

Underfunded pension

 

44,754

 

 

69,610

 

Contract liabilities, noncurrent portion

 

14,324

 

 

11,019

 

Operating lease liabilities, noncurrent portion

 

8,681

 

 

9,325

 

Liabilities held for sale, noncurrent portion

 

 

 

1,171

 

Other long-term liabilities

 

42,707

 

 

47,636

 

Commitments and contingencies

 

 

 

 

Shareholders' equity:

 

 

 

 

Preferred stock, $1 par value, 200,000 shares authorized; none outstanding

 

 

 

 

Common stock, $1 par value, 50,000,000 shares authorized; voting;
30,400,125 and 30,278,668 shares issued, respectively

 

30,400

 

 

30,279

 

Additional paid-in capital

 

244,546

 

 

238,829

 

Retained earnings

 

737,203

 

 

728,764

 

Accumulated other comprehensive income (loss)

 

(111,848)

 

 

(130,821)

 

Less 2,567,430 and 2,555,785 shares of common stock, respectively, held in
treasury, at cost

 

(121,089)

 

 

(120,613)

 

Total shareholders’ equity

 

779,212

 

 

746,438

 

Total liabilities and shareholders’ equity

 

$

1,216,665

 

 

$

1,306,393

 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands) (unaudited)

     

 

 

For the Six Months Ended

 

 

July 2,
2021

 

July 3,
2020

Cash flows from operating activities:

 

 

 

 

Net earnings

 

$

19,840

 

 

$

185

 

Less: Total earnings from discontinued operations

 

 

 

692

 

Earnings (loss) from continuing operations

 

$

19,840

 

 

$

(507)

 

Adjustments to reconcile net earnings from continuing operations to net cash (used in)
provided by operating activities of continuing operations:

 

 

 

 

Depreciation and amortization

 

18,391

 

 

19,814

 

Amortization of debt issuance costs

 

882

 

 

907

 

Accretion of convertible notes discount

 

1,484

 

 

1,412

 

Provision for doubtful accounts

 

290

 

 

314

 

Loss (gain) on sale of business

 

234

 

 

(493)

 

Net loss (gain) on sale of assets

 

15

 

 

(13)

 

Net loss on derivative instruments

 

566

 

 

404

 

Stock compensation expense

 

4,225

 

 

3,590

 

Deferred income taxes

 

2,957

 

 

4,124

 

Changes in assets and liabilities, excluding effects of acquisitions/divestitures:

 

 

 

 

Accounts receivable

 

53,232

 

 

(11,368)

 

Contract assets

 

(4,637)

 

 

(9,158)

 

Contract costs

 

(349)

 

 

(842)

 

Inventories

 

(12,205)

 

 

(38,029)

 

Income tax refunds receivable

 

1,485

 

 

(3,382)

 

Operating right of use assets

 

781

 

 

1,974

 

Other assets

 

1,319

 

 

135

 

Accounts payable - trade

 

(24,068)

 

 

(13,872)

 

Contract liabilities

 

(18,588)

 

 

(11,002)

 

Operating lease liabilities

 

(919)

 

 

(1,916)

 

Acquired retention plan payments

 

(25,108)

 

 

 

Other current liabilities

 

(9,470)

 

 

528

 

Income taxes payable

 

1,532

 

 

(2,658)

 

Pension liabilities

 

(22,837)

 

 

(15,775)

 

Other long-term liabilities

 

(3,775)

 

 

(3,587)

 

Net cash used in operating activities of continuing operations

 

(14,723)

 

 

(79,400)

 

Cash flows from investing activities:

 

 

 

 

Proceeds from sale of discontinued operations

 

 

 

5,223

 

Proceeds from sale of business, net of cash on hand

 

(3,428)

 

 

493

 

Expenditures for property, plant & equipment

 

(8,102)

 

 

(9,592)

 

Acquisition of businesses, net of cash acquired

 

 

 

(304,661)

 

Other, net

 

(671)

 

 

(366)

 

Net cash used in investing activities of continuing operations

 

(12,201)

 

 

(308,903)

 

Cash flows from financing activities:

 

 

 

 

Net borrowings under revolving credit agreements

 

 

 

201,100

 

Purchase of treasury shares

 

(390)

 

 

(14,168)

 

Dividends paid

 

(11,106)

 

 

(11,144)

 

Other, net

 

876

 

 

1,399

 

Net cash (used in) provided by financing activities of continuing operations

 

(10,620)

 

 

177,187

 

Net decrease in cash and cash equivalents

 

(37,544)

 

 

(211,116)

 

Effect of exchange rate changes on cash and cash equivalents

 

(183)

 

 

314

 

Cash and cash equivalents and restricted cash at beginning of period

 

136,089

 

 

471,540

 

Cash and cash equivalents and restricted cash at end of period

 

$

98,362

 

 

$

260,738

 

 

James CooganSenior Vice President and Chief Financial Officer
(860) 243-6342
James.Coogan@kaman.com

Source: Kaman Corp.