Kaman Reports 2012 Second Quarter Results

Kaman Corp. (NYSE:KAMN) today reported financial results for the second quarter ended June 29, 2012.
     

Table 1. Summary of Financial Results

In thousands except per share amounts

For the three months ended

June 29,2012

July 1,2011

$ Change
Net sales:
Industrial Distribution $ 258,116 $ 239,307 $ 18,809
Aerospace 147,364   145,779   1,585  
Net sales $ 405,480   $ 385,086   $ 20,394  
 
Operating income:
Industrial Distribution $ 14,645 $ 12,636 $ 2,009
Aerospace 26,158 22,360 3,798
Net gain (loss) on sale of assets 8 (34 ) 42
Corporate expense (12,312 ) (10,883 ) (1,429 )
Operating income $ 28,499   $ 24,079   $ 4,420  
 
 
Diluted earnings per share $ 0.62   $ 0.53   $ 0.09  
 

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “We are pleased with the results achieved during the second quarter of 2012. In our Aerospace business, we continued to experience stronger demand for our bearing product lines, driving the overall Aerospace operating margin to 17.8%. In addition, we delivered approximately 5,900 Joint Programmable Fuzes during the quarter, meeting our delivery expectations year-to-date on this key program.

Industrial Distribution achieved a strong operating profit margin of 5.7% for the second quarter of 2012 compared to 5.0% in the first quarter of 2012 and 5.3% in the second quarter last year. This margin performance was achieved despite experiencing organic sales growth of just 2.1% for the second quarter. We are pleased that we were able to deliver solid profit performance as we continue to focus on gross margin improvement, cost control and continuing contributions from acquisitions.

During the quarter, we also made progress toward the sale of our SH-2G(I) helicopters and the formation of a joint venture in India for an additional low-cost manufacturing alternative. In Industrial Distribution, we launched a program to implement a new state of the art business system to support our long-term growth strategy. We continue to leverage our recent acquisitions and remain committed to pursuing acquisition targets for both of our businesses. The addition of Florida Bearings in July, which expanded our geographical footprint, diversified our customer base and added additional end market exposure, demonstrates our commitment to continue to complement our organic growth with acquisitions.”

Segment reports follow:

Industrial Distribution segment

Sales increased 7.9% in the second quarter of 2012 to a record $258.1 million compared to $239.3 million a year ago. Acquisitions contributed $13.8 million in sales in the quarter (sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition). On a sales per sales day* basis, sales increased 7.9% over last year's second quarter, with organic sales representing 2.1% of the increase. (See Table 3 for additional details regarding the Segment's sales per sales day performance.) Sales growth was driven by increases in fabricated metal product manufacturing, nonmetallic mineral manufacturing and primary metal manufacturing. These increases were partially offset by declines in the food and beverage, semi-conductor and solar power industries.

Segment operating income for the second quarter of 2012 was $14.6 million compared to operating income of $12.6 million in the second quarter of 2011. The operating profit margin for the second quarter of 2012 was 5.7%. In comparison, the operating profit margin was 5.0% in the first quarter of 2012 and 5.3% in the second quarter of 2011. Operating profit was higher year over year as a result of higher sales volume; increased gross profit, which reached a record level in the quarter; and effective SG&A expense control.

Aerospace segment

Sales were $147.4 million, an increase of $1.6 million from sales of $145.8 million in the second quarter of 2011. The increase was due to strong performance from bearing product lines; increased deliveries under the A-10 re-wing program; higher sales of commercial K-MAX service, support and spares; and contributions from the acquisition of Vermont Composites. The increases were offset by lower sales on several programs including the JPF program which had the benefit of significant direct commercial sales volume in the second quarter of 2011. Other programs generating lower sales were Unmanned K-MAX, BLACK HAWK cockpit production and our legacy fuze programs.

Operating income for the second quarter of 2012 was $26.2 million, compared to operating income of $22.4 million in the 2011 second quarter. The operating margin in this year's second quarter was 17.8% as compared to 15.3% in the comparable period in the prior year. The increase in operating income resulted from higher gross profit on our bearing products and helicopter programs, including the Egypt SH-2G(E) maintenance and upgrade program, commercial K-MAX service, support and spares, and the Bell blade program. Also benefiting margin was the absence of legal fees related to FMU-143 litigation. These increases were offset by a less profitable mix of JPF sales, lower sales volume on our Unmanned K-MAX program, lower volume on our Sikorsky BLACK HAWK programs and lower sales volume on our legacy fuze programs.

Outlook

The Company's updated expectations for 2012 are as follows:
  • Industrial Distribution:
    • Sales of $1,035 million to $1,055 million
    • Operating margin between 5.4% and 5.6%
  • Aerospace:
    • Sales of $605 million to $625 million
    • Operating margin between 15.7% and 16.0%
  • Corporate expenses in the range of $44 million to $46 million
  • Interest expense of approximately $11.5 million
  • Estimated tax rate of approximately 35%
  • Free cash flow in the range of $30 million to $35 million.

Chief Financial Officer, William C. Denninger, commented, "Now halfway through the year, we have reviewed our full year expectations for each segment and we expect full year sales and operating margins to come in toward the lower ends of our previously reported ranges for both segments. At Aerospace, revenue projections have been impacted by a potential unmanned K-MAX bridge buy that has moved out of 2012, legacy fuze and composite program deliveries shifting to the right and an anticipated reduction in deliveries of BLACK HAWK cockpits. Industrial Distribution is experiencing lower organic sales growth rates than we originally projected due to slower industrial activity. Additionally, we have reduced our previous expectation for interest expense from $13.5 million to $11.5 million and expect Corporate expenses to be near the high end of the range.”

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 our results and various company programs.

A conference call has been scheduled for tomorrow, July 27, 2012 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.

Table 2. Summary of Segment Information (in thousands)
  For the three months ended   For the six months ended

June 29,

2012
  July 1, 2011

June 29,

2012
  July 1, 2011
Net sales:
Industrial Distribution $ 258,116 $ 239,307 $ 515,754 $ 478,177
Aerospace 147,364   145,779   278,448   284,732  
Net sales $ 405,480   $ 385,086   $ 794,202   $ 762,909  
 
Operating income:
Industrial Distribution $ 14,645 $ 12,636 $ 27,425 $ 24,750
Aerospace 26,158 22,360 42,059 43,779
Net gain (loss) on sale of assets 8 (34 ) 32 (36 )
Corporate expense (12,312 ) (10,883 ) (23,837 ) (19,855 )
Operating income $ 28,499   $ 24,079   $ 45,679   $ 48,638  

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 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 organic sales per sales day provides an important perspective on how net sales may be impacted by the number of days the segment is open for business and provides a basis for comparing periods in which the number of sales days differ.

The following table illustrates the calculation of organic sales per sales day using “Net sales: Industrial Distribution” from the “Segment and Geographic 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 July 26, 2012. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition.
Table 3. Industrial Distribution - Organic Sales Per Sales Day (in thousands, except days)
    For the three months ended
June 29, 2012   July 1, 2011
Net sales: Industrial Distribution $ 258,116 $ 239,307
Acquisition related sales 13,769  

Organic sales $ 244,347 $ 239,307
Sales days 64   64
Organic sales per sales day $ 3,818   $ 3,739

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 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 Condensed Consolidated Statements of Cash Flows.
Table 4. Free Cash Flow (in thousands)
   

For the sixmonths ended
 

For the threemonths ended
 

For the threemonths ended
June 29, 2012 March 30, 2012 June 29, 2012
Net cash provided by (used in) operating activities $ (4,501 ) $ (23,771 ) $ 19,270
Expenditures for property, plant & equipment (10,967 ) (5,290 ) (5,677 )
Free Cash Flow $ (15,468 ) $ (29,061 ) $ 13,593  

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 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 condensed consolidated balance sheets included in this release.
Table 5. Debt to Capitalization (in thousands)
  June 29, 2012     December 31, 2011
Notes payable $ 3,503 $ 1,685
Current portion of long-term debt 5,000 5,000
Long-term debt, excluding current portion 221,780   198,522  
Debt 230,283 205,207
Total shareholders' equity 399,336   373,071  
Capitalization $ 629,619   $ 578,278  
Debt to capitalization 36.6 % 35.5 %

About Kaman Corporation

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; aerostructure engineering design analysis and FAA certification services; 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 four 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) changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration under the Budget Control Act of 2011); 5) satisfactory conclusion to government inquiries or investigations regarding government programs, including satisfactory resolution of the Wichita subpoena matter; 6) domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; 7) risks associated with successful implementation and ramp up of significant new programs; 8) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 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) continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory; 12) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 13) profitable integration of acquired businesses into the Company's operations; 14) changes in supplier sales or vendor incentive policies; 15) the effects of price increases or decreases; 16) the effects of pension regulations, pension plan assumptions, pension plan asset performance and future contributions; 17) future levels of indebtedness and capital expenditures; 18) future availability of credit; 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, proxy statements and other filings with the SEC. Any forward-looking information provided in this report should be considered with these factors in mind. The Company assumes no obligation to update any forward-looking statements contained in this release.

 

KAMAN CORPORATION AND SUBSIDIARIESCondensed Consolidated Statements of Operations(In thousands except per share amounts)
 
  For the Three Months Ended   For the Six Months Ended
June 29, 2012   July 1, 2011 June 29, 2012   July 1, 2011
Net sales $ 405,480 $ 385,086 $ 794,202 $ 762,909
Cost of sales 290,151   278,566   572,805   551,760  
Gross profit 115,329 106,520 221,397 211,149
Selling, general and administrative expenses 86,838 82,407 175,750 162,475
Net (gain)/loss on sale of assets (8 ) 34   (32 ) 36  
Operating income 28,499 24,079 45,679 48,638
Interest expense, net 2,831 2,821 5,710 5,891
Other (income) expense, net 84   (25 ) (163 ) (414 )
Earnings before income taxes 25,584 21,283 40,132 43,161
Income tax expense 9,105   7,256   14,250   14,942  
Net earnings $ 16,479   $ 14,027   $ 25,882   $ 28,219  
 
Net earnings per share:
Basic net earnings per share $ 0.62 $ 0.53 $ 0.98 $ 1.08
Diluted net earnings per share $ 0.62 $ 0.53 $ 0.98 $ 1.06
Average shares outstanding:
Basic 26,390 26,286 26,342 26,206
Diluted 26,534   26,673   26,498   26,514  
Dividends declared per share $ 0.16   $ 0.14   $ 0.32   $ 0.28  
 
 

KAMAN CORPORATION AND SUBSIDIARIESCondensed Consolidated Statements of Comprehensive Income(In thousands)
   
For the Three Months Ended For the Six Months Ended
June 29, 2012   July 1, 2011 June 29, 2012   July 1, 2011
Net earnings $ 16,479 $ 14,027 $ 25,882 $ 28,219
Other comprehensive income, net of tax:
Foreign currency translation adjustments (3,171 ) 530 526 4,702

Change in unrealized loss on derivative instruments,for the three months and six monthsended, net of tax expense of $0 and $75, and $0and $150, respectively
122 243

Pension plan adjustments, for the three monthsand six months ended, net of tax expense of $834and $238, and $1,669 and $577, respectively
1,362   388   2,723   942
Comprehensive income $ 14,670   $ 15,067   $ 29,131   $ 34,106
 

 

KAMAN CORPORATION AND SUBSIDIARIESCondensed Consolidated Balance Sheets(In thousands)
   
June 29, 2012

December 31,2011
Assets
Current assets:
Cash and cash equivalents $ 15,099 $ 14,985
Accounts receivable, net 211,891 190,081
Inventories 351,777 339,846
Deferred income taxes 24,926 25,018
Income taxes receivable 527
Other current assets 23,392   29,645  
Total current assets 627,085   600,102  
Property, plant and equipment, net of accumulated depreciation of $146,900 and $142,657, respectively 113,244 111,895
Goodwill 153,455 153,267
Other intangible assets, net 70,705 73,816
Deferred income taxes 35,645 38,434
Other assets 16,943   18,884  
Total assets $ 1,017,077   $ 996,398  
Liabilities and Shareholders’ Equity
Current liabilities:
Notes payable $ 3,503 $ 1,685
Current portion of long-term debt 5,000 5,000
Accounts payable – trade 108,337 106,025
Accrued salaries and wages 31,288 35,766
Current portion of amount due to Commonwealth of Australia 6,555 6,487
Other accruals and payables 49,105 62,748
Income taxes payable 1,499   987  
Total current liabilities 205,287   218,698  
Long-term debt, excluding current portion 221,780 198,522
Deferred income taxes 6,703 6,827
Underfunded pension 131,742 135,829
Due to Commonwealth of Australia, excluding current portion 6,566
Other long-term liabilities 52,229 56,885
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; 26,685,377 and 26,495,828 shares issued, respectively 26,685 26,496
Additional paid-in capital 115,528 109,584
Retained earnings 378,832 361,389
Accumulated other comprehensive income (loss) (114,697 ) (117,946 )
Less 269,846 and 258,424 shares of common stock, respectively, held in treasury, at cost (7,012 ) (6,452 )
Total shareholders’ equity 399,336   373,071  
Total liabilities and shareholders’ equity $ 1,017,077   $ 996,398  
 
 

KAMAN CORPORATION AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(In thousands)
   
  For the Six Months Ended
  June 29, 2012   July 1, 2011
Cash flows from operating activities:
Net earnings $ 25,882 $ 28,219
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization 13,349 10,805
Accretion of convertible notes discount 858 815
Change in allowance for doubtful accounts (253 ) (300 )
Net (gain) loss on sale of assets (32 ) 36
Change in amount Due to Commonwealth of Australia, net of gain (loss) on derivative instruments (206 ) 177
Stock compensation expense 3,581 4,655
Excess tax (expense) benefit from share-based compensation arrangements (381 ) (737 )
Deferred income taxes 1,045 3,481
Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
Accounts receivable (21,430 ) (11,302 )
Inventories (11,725 ) (430 )
Income tax receivable 527 (142 )
Other current assets 7,821 13,265
Accounts payable - trade (3,168 ) (4,615 )
Accrued contract losses (725 ) 255
Advances on contracts (949 ) 4,446
Other accrued expenses and payables (19,897 ) (30,652 )
Income taxes payable 542 (301 )
Pension liabilities 438 (7,642 )
Other long-term liabilities 222   (3,887 )
Net cash provided by (used in) operating activities (4,501 ) 6,146  
Cash flows from investing activities:
Proceeds from sale of assets 239 232
Expenditures for property, plant & equipment (10,967 ) (12,530 )
Acquisition of businesses including earn out adjustments, net of cash received (7,938 ) (2,015 )
Other, net (116 ) 312  
Cash provided by (used in) investing activities (18,782 ) (14,001 )
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements 26,702 (3,803 )
Debt repayment (2,500 ) (2,500 )
Net change in book overdraft 5,365 5,940
Proceeds from exercise of employee stock awards 2,651 4,001
Purchase of treasury shares (659 ) (858 )
Dividends paid (8,411 ) (7,520 )
Debt issuance costs (715 )
Windfall tax (expense) benefit 381 737
Other   (453 )
Cash provided by (used in) financing activities 23,529   (5,171 )
Net increase (decrease) in cash and cash equivalents 246 (13,026 )
Effect of exchange rate changes on cash and cash equivalents (132 ) 532
Cash and cash equivalents at beginning of period 14,985   32,232  
Cash and cash equivalents at end of period $ 15,099   $ 19,738  

Copyright Business Wire 2010

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