BLOOMFIELD, Conn., Aug. 6 /PRNewswire-FirstCall/ -- Kaman Corp. (Nasdaq: KAMN) today reported financial results for the second quarter and six-month period ended July 3, 2009.
Net sales for the second quarter of 2009 were $293.2 million, a decrease of 7.3% from $316.3 million in the second quarter of 2008. For the second quarter of 2009, the company reported net earnings of $9.4 million, or $0.37 per diluted share, compared to net earnings from continuing operations of $6.1 million, or $0.24 per diluted share, in the second quarter of 2008. The company's results for the second quarter of 2008 included a non-cash, charge of $7.8 million related to goodwill impairment at the company's Wichita facility, which was not deductible for tax purposes.
Net sales for the 2009 six-month period were $587.3 million, a decrease of 2.5% as compared to $602.1 million in the first half of last year. For the first half of 2009, net earnings decreased slightly to $14.8 million, or $0.58 per diluted share, compared to net earnings from continuing operations of $15.0 million, or $0.59 per diluted share in the year ago period. First half 2008 results include the goodwill impairment charge of $7.8 million.
Neal J. Keating, Chairman, President and Chief Executive Officer, said, "Our financial results for the second quarter reflect solid performance in Aerospace, and Industrial Distribution demonstrated the impacts of their cost reduction efforts in delivering a profitable quarter under extraordinarily difficult market conditions. We saw top line growth at Aerospace across several programs including strong contributions from our Brookhouse acquisition, the JPF program and the BLACKHAWK cockpit program. While we are experiencing weakness in our sales of aircraft bearings for the commercial, business and regional jet markets, this has been somewhat offset by increased sales of military aircraft bearings. Despite this weakness, profit margins on bearing product lines have increased on a sequential basis, and Aerospace profits were higher on the higher sales volume. While we continue to make progress in Wichita, the facility is not yet profitable and without additional revenues we now do not expect to reach break even status until mid 2010. Within our Aerospace segment the most significant accomplishment during the quarter was the previously announced Joint Programmable Fuze (JPF) contract modification award, which will result in a significantly higher sales price to the U.S. Government beginning next year.
While sales at Industrial Distribution are off significantly in a difficult market, the management team has been able to maintain profitability by focusing effectively on margin improvement, expense control and asset management. We were also very pleased with our improved cash flow for the period. We generated $17.4 million in free cash flow* during the first half of the year compared to a use of $45.7 million last year. In light of an uncertain commercial aerospace market we remain cautious of the next several quarters and are expecting a weaker third quarter due to lower commercial bearing bookings with some improvement in the fourth quarter. Overall, Kaman remains in solid financial position, given our diversified business model and exposure to stable military programs in Aerospace, to continue navigating the current environment."
Segment reports follow:
Beginning with the second quarter the company's segment reporting changed to reflect changes in its organizational structure and information used to allocate resources. The aerospace business is now completely organized and managed under the leadership of a group president and staff. Under the provisions of SFAS 131, the company determined it now has two reportable segments, Industrial Distribution and Aerospace.
Industrial Distribution segment sales decreased 23.3% in the 2009 second quarter to $156.0 million from $203.3 million a year ago. Segment operating income for the second quarter of 2009 was $3.1 million, a 68.5% decrease from operating income of $9.7 million in the second quarter of 2008. During the second quarter of 2009, the INRUMEC acquisition completed in 2008 contributed incremental sales of $2.3 million. The operating profit margin for the second quarter of 2009 was 2.0% compared to 1.6% in the first quarter of 2009 and 4.8% in the second quarter of 2008.
The Industrial Distribution segment's sales for the 2009 second quarter reflect the continued difficult economic environment and resultant weak market conditions for the company in addition to a very strong comparative period in 2008 which experienced a sales increase of 16.5%. An unfavorable U.S. Dollar exchange rate also contributed to the lower sales level, shaving $1.9 million from the top line. Operating earnings were impacted by the lower sales volume as well. However, the company's cost control efforts had a positive impact and contributed to a higher operating margin as compared to the first quarter of 2009. The company is hopeful that the sales decline bottomed during the second quarter of 2009 with sales per day in Q1 of $2.7 million and sales per day in Q2 of $2.5 million.
For the 2009 six-month period, net sales in the Industrial Distribution segment totaled $332.9 million, compared with $385.5 million in the year ago period. Segment operating income in the first half of 2009 totaled $5.8 million, compared to $18.8 million in the first half of 2008. Organic growth for the first half of 2009 was a negative 19.2%, compared with a positive 6.7% in the same period last year.
Aerospace segment sales were $137.3 million, an increase of 21.5% over sales of $113.0 million in the second quarter of 2008. Operating income for the 2009 second quarter was $21.6 million, compared to operating income of $11.4 million in the 2008 second quarter. The second quarter of 2008 included the $7.8 million goodwill impairment charge at the Wichita facility.
The increase in segment sales over last year's second quarter is a result of several factors including: the addition of $9.0 million of incremental sales from the Brookhouse acquisition; increased JPF sales, which were $8.5 million higher than the comparable period; higher BLACKHAWK cockpit deliveries (43 cockpits delivered in Q209 as compared to 32 in Q208); higher sales on legacy missile fuze programs; higher sales of military aircraft bearings and KAflex(TM) couplings; and higher SH-2 revenues from the Egypt maintenance and upgrade program and New Zealand spares sales, partially offset by the loss of $2.6 million of sales to Australia. Most of the JPF and legacy missile fuze sales increases related to deliveries missed in Q109 and completed in Q209. Overall these increases were somewhat offset by a decrease in sales of aircraft bearings to the regional/business jet markets, a decrease of non-Sikorsky helicopter subcontract work, and a decrease of $1.0 million due to foreign currency translation of the company's European sales into U.S. Dollars.
The operating margin in this year's second quarter was 15.7% as compared to 17.0% in the comparable period in the prior year, excluding the goodwill impairment charge of $7.8 million. The reduction in the operating margin was primarily attributable to the higher sales from Brookhouse at a lower margin and slightly lower margins on bearing product lines.
For the 2009 six-month period, the Aerospace segment reported net sales of $254.4 million, compared to $216.6 million for the first half of 2008. The segment had operating income of $36.9 million in the first half of 2009, compared to operating income of $26.1 million in the first half of 2008 (after the $7.8 million goodwill impairment charge).
Outlook
CFO William C. Denninger commented, "Results this year have been favorably impacted by focused cost control efforts across the organization. At Aerospace this has resulted in maintained or in some cases enhanced margins, while at Distribution it has helped us remain profitable albeit at lower levels. All of our operations have participated in this effort including Brookhouse, which is both profitable and accretive to earnings per share.
For the full year, we expect Aerospace revenue to be up 5% to 7% over the prior year with an operating margin in the mid-teens. However, revenue in the third quarter is expected to be about 10% lower than the second quarter. This sequential decline is primarily attributable to lower anticipated sales of our aircraft bearing and KAflex(TM) product lines, and normalized fuzing program sales versus the 'catch-up' sales in Q2. Earlier this year, we stated that Distribution sales for 2009 were expected to be 10% to 15% lower than the prior year. At this point, we expect that the drop in sales will be at the high end of that range and that operating margin will be 200 to 250 basis points below last year.
Our balance sheet remains strong as we have focused on asset utilization and liquidity. Cash flow has been excellent and we expect to be able to attain our stated goal for the year of $35 million to $40 million in free cash flow*."
Please see the MD&A section of the company's SEC Form 10-Q filed concurrent with the issuance of this release for greater detail on the quarter's results and various company programs.
A conference call has been scheduled for tomorrow, August 7, 2009 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 will be provided in the exhibits to the conference call and will be available through the Internet link provided above.
Non-GAAP Measure Disclosure
Management believes that the non-GAAP (Generally Accepted Accounting Principles) measure indicated by an asterisk * used in this release provides investors with important perspectives into the company's ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. The following definitions are provided:
Free Cash Flow - Free cash flow is defined as GAAP "Net cash provided by (used in) operating activities" less "Expenditures for property, plant & equipment." Management believes free cash flow provides investors with an important perspective on the cash available for dividends to shareholders, debt repayment, and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt.
Management uses free cash flow internally to assess both business performance and overall liquidity. The following table illustrates the calculation of free cash flow using "net cash provided by (used in) operating activities" and "expenditures for property, plant & equipment," GAAP measures from the cash flow statement on Page 7 (in thousands):
For the Six Months Ended
------------------------
July 3, 2009 June 27, 2008
------------ -------------
Net cash provided by (used in)
operating activities $22,889 $(39,039)
Expenditures for property, plant &
equipment $(5,508) $(6,651)
---------------------------------- ------- ---------
Free Cash Flow $17,381 $(45,690)
============== ======= ========
Kaman Corp., headquartered in Bloomfield, Conn. 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; safing and arming 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. Kaman is also one of the nation's leading industrial distribution companies for power transmission, motion control, material handling and electrical components from nearly two hundred locations throughout North America.
Forward-Looking Statements
This release may contain forward-looking information relating to the company's business and prospects, including the Aerospace and Industrial Distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; 2) political conditions in countries where the company does or intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) domestic and foreign economic and competitive conditions in markets served by the company, particularly the defense, commercial aviation and industrial production markets; 5) risks associated with successful implementation and ramp up of significant new programs; 6) management's success in resolving operational issues at the Aerostructures Wichita facility; 7) successful negotiation of the Sikorsky Canadian MH-92 program; 8) successful resale of the SH-2G(I) aircraft, equipment and spare parts; 9) 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; 10) satisfactory resolution of the company's litigation relating to the FMU-143 program; 11) continued support of the existing K-MAX helicopter fleet, including sale of existing K-MAX spare parts inventory; 12) cost growth in connection 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 and future contributions; 17) future levels of indebtedness and capital expenditures; 18) continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; 19) the effects of currency exchange rates and foreign competition on future operations; 20) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; 21) future repurchases and/or issuances of common stock; and 22) other risks and uncertainties set forth in the company's annual, quarterly and current reports, and proxy statements. Any forward-looking information provided in this release should be considered with these factors in mind. The company assumes no obligation to update any forward-looking statements contained in this release.
A summary of segment information follows:
Summary of Segment Information
For the Three Months For the Six Months
Ended Ended
-------------------- ------------------
July 3, June 27, July 3, June 27,
2009 2008 2009 2008
------ ------- ------ -------
Net sales:
Industrial Distribution $155,954 $203,333 $332,860 $385,498
Aerospace 137,269 112,952 254,398 216,568
------- ------- ------- -------
Net sales $293,223 $316,285 $587,258 $602,066
======== ======== ======== ========
Operating income:
Industrial Distribution $3,065 $9,735 $5,844 $18,808
Aerospace 21,600 11,439 36,897 26,055
Net gain (loss) on sale
of assets (53) (97) 40 (207)
Corporate expense (1) (8,445) (6,486) (17,211) (16,282)
------ ------ ------- -------
Operating income $16,167 $14,591 $25,570 $28,374
======= ======= ======= =======
(1)"Corporate expense" increased for the quarter and six months ended
July 3, 2009 compared to the same periods of 2008, primarily due to
higher year over year pension expense on that portion of pension expense
included in corporate expense. The expense was $1.2 million higher in
the quarter and $2.6 million higher for the six-month period.
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
For the Three Months For the Six Months
Ended Ended
-------------------- ------------------
July 3, June 27, July 3, June 27,
2009 2008 2009 2008
------ ------- ------ -------
Net sales $293,223 $316,285 $587,258 $602,066
Cost of sales 214,752 230,013 431,092 439,203
------- ------- ------- -------
Gross profit 78,471 86,272 156,166 162,863
Selling, general and
administrative expenses 62,251 63,774 130,636 126,472
Goodwill impairment - 7,810 - 7,810
Net (gain)/loss on
sale of assets 53 97 (40) 207
------- ------- ------- -------
Operating income from continuing
operations 16,167 14,591 25,570 28,374
Interest expense, net 866 463 1,969 462
Other expense, net 1,081 321 1,284 462
------- ------- ------- -------
Earnings from continuing
operations before income taxes 14,220 13,807 22,317 27,450
Income tax expense 4,826 7,717 7,547 12,492
------- ------- ------- -------
Net earnings from continuing
operations 9,394 6,090 14,770 14,958
Gain on disposal of discontinued
operations - 506 - 506
Income tax expense - 183 - 183
------- ------- ------- -------
Net earnings from disposal of
discontinued operations - 323 - 323
Net earnings $9,394 $6,413 $14,770 $15,281
====== ====== ======= =======
Net earnings per share:
Basic earnings per share
from continuing operations $0.37 $0.24 $0.58 $0.59
Basic earnings per share
from disposal of discontinued
operations - 0.01 - 0.01
------- ------- ------- -------
Basic earnings per share $0.37 $0.25 $0.58 $0.60
===== ===== ===== =====
Diluted earnings per share
from continuing operations $0.37 $0.24 $0.58 $0.59
Diluted earnings per share
from disposal of discontinued
operations - 0.01 - 0.01
------- ------- ------- -------
Diluted earnings per share $0.37 $0.25 $0.58 $0.60
===== ===== ===== =====
Average shares outstanding:
Basic 25,638 25,354 25,586 25,280
Diluted 25,721 25,497 25,659 25,444
Dividends declared per share $0.14 $0.14 $0.28 $0.28
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
July 3, 2009 December 31, 2008
------------ -----------------
Assets
Current assets:
Cash and cash equivalents $12,419 $8,161
Accounts receivable, net 137,228 173,847
Inventories 291,261 255,817
Deferred income taxes 21,993 23,851
Income taxes receivable - 3,450
Other current assets 20,068 21,390
------ ------
Total current assets 482,969 486,516
------- -------
Property, plant and equipment, net 80,146 79,476
Goodwill 88,482 83,594
Other intangibles assets, net 30,089 28,211
Deferred income taxes 72,483 71,926
Other assets 16,383 12,890
------ ------
Total assets $770,552 $762,613
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $1,618 $1,241
Current portion of long-term debt 5,000 5,000
Accounts payable - trade 70,827 84,059
Accrued salaries and wages 18,153 21,104
Accrued pension costs 1,095 5,878
Accrued contract losses 3,397 9,714
Advances on contracts 1,397 10,612
Other accruals and payables 39,532 39,467
Income taxes payable 3,247 1,464
----- -----
Total current liabilities 144,266 178,539
------- -------
Long-term debt, excluding current portion 84,000 87,924
Deferred income taxes 8,738 7,926
Liability for pension benefits 161,882 168,148
Due to Commonwealth of Australia 31,188 -
Other long-term liabilities 45,999 45,805
Commitments and contingencies
Shareholders' equity:
Capital stock, $1 par value per share:
Preferred stock, 200,000 shares
authorized; none outstanding - -
Common stock, 50,000,000 shares
authorized, 25,706,324 and
25,514,525 shares issued, respectively 25,706 25,515
Additional paid-in capital 87,531 85,073
Retained earnings 291,383 283,789
Accumulated other comprehensive
income (loss) (109,608) (119,658)
Less 48,182 and 43,907 shares of
common stock, respectively, held
in treasury, at cost (533) (448)
---- ----
Total shareholders' equity 294,479 274,271
------- -------
Total liabilities and shareholders' equity $770,552 $762,613
======== ========
KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Six Months Ended
------------------------
July 3, 2009 June 27, 2008
------------ -------------
Cash flows from operating activities:
Net earnings from continuing operations $14,770 $14,958
Adjustments to reconcile net earnings
from continuing operations to net cash
provided by (used in) operating activities
of continuing operations:
Depreciation and amortization 7,692 5,435
Provision for doubtful accounts 172 (213)
Net (gain) loss on sale of assets (40) 207
Loss on derivative instruments 862 -
Goodwill impairment - 7,810
Share-based compensation expense 1,727 1,111
Excess tax benefits from share-based
Compensation arrangements 71 (205)
Deferred income taxes 1,357 3,517
Changes in assets and liabilities,
excluding effects of acquisitions/divestures:
Accounts receivable, net (2,780) (36,991)
Inventories 18,989 (15,929)
Income tax receivable 3,450 (3,603)
Other current assets 1,603 3,618
Accounts payable - trade (12,169) 4,547
Accrued contract losses (251) 1,270
Advances on contracts (684) 921
Accrued expenses and payables (3,928) (9,964)
Income taxes payable 1,571 (11,100)
Pension liabilities (8,869) (2,871)
Other long-term liabilities (654) (1,557)
------ ------
Cash provided by (used in) operating
activities of continuing operations 22,889 (39,039)
Cash provided by (used in) operating
activities of discontinued operations - (183)
------ ------
Cash provided by (used in) operating
activities 22,889 (39,222)
------ ------
Cash flows from investing activities:
Proceeds from sale of assets 31 65
Net proceeds form the sale of
discontinued operations - 447
Expenditures for property, plant & equipment (5,508) (6,651)
Acquisition of businesses including earn out
adjustment, net of cash (550) (100,168)
Other, net (1,237) (2,782)
------ ------
Cash provided by (used in) investing
activities of continuing operations (7,264) (109,089)
Cash provided by (used in) investing
activities of discontinued operations - -
------ ------
Cash provided by (used in) investing
activities (7,264) (109,089)
------ ------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit agreements (1,117) 84,458
Debt repayment (2,500) -
Net change in book overdraft (1,989) 7,293
Proceeds from employee stock plan transactions 899 2,519
Dividends paid (7,350) (7,064)
Windfall tax benefit (71) 205
Other (36) 304
------ ------
Cash provided by (used in) financing
activities of continuing operations (12,164) 87,715
Cash provided by (used in) financing
activities of discontinued operations - -
------ ------
Cash provided by (used in) financing
activities (12,164) 87,715
------ ------
Net increase (decrease) in cash and cash
equivalents 3,461 (60,596)
Effect of exchange rate changes on cash and cash
equivalents 797 268
Cash and cash equivalents at beginning of period 8,161 73,898
------ ------
Cash and cash equivalents at end of period $12,419 $13,570
======= =======
