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Kaman Reports 2010 Fourth Quarter and Full Year Results

Dépèche transmise le 28 février 2011 par Business Wire

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Kaman Corp. (NASDAQ GS:KAMN) today reported financial results for the fourth quarter ended December 31, 2010.

“Net cash provided by (used in) operating activities”

Summary of Financial Results
In thousands except per share amounts
 
  For the Three Months Ended  
December 31,   December 31,
2010 2009

$ Change

Net sales:
Industrial Distribution $ 218,687 $ 149,754 $ 68,933
Aerospace   146,422   119,318   27,104
Net sales $ 365,109 $ 269,072 $ 96,037
 
Operating income:
Industrial Distribution $ 9,233 $ 3,380 $ 5,853
Aerospace

26,387a

18,193 8,194
Net gain (loss) on sale of assets (68) (41) (27)
Corporate expense   (8,010)   (7,826)   (184)
Operating income $ 27,542 $ 13,706 $ 13,836
 
Diluted earnings per share $ 0.56 $ 0.32 $ 0.24
 
Non-GAAP Reconciliation b
Operating income – as reported $ 27,542 $ 13,706 $ 13,836
Goodwill impairment charge   6,371   -   6,371
Operating income – adjusted $ 33,913 $ 13,706 $ 20,207
 
Diluted earnings per share – as reported $ 0.56 $ 0.32 $ 0.24
Goodwill impairment charge   0.24   -   0.24
Diluted earnings per share – adjusted $ 0.80 $ 0.32 $ 0.48
 
a Aerospace operating income adjusted for the goodwill impairment charge is $32,758.
b Additional non-GAAP financial information reconciliations are presented on page 4.

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “In the fourth quarter of 2010, we delivered the strongest operational performance in the history of our company as a result of solid execution in both our Industrial Distribution and Aerospace segments. Industrial Distribution continued to benefit from healthy demand in nearly all of our end markets, with our organic and acquired businesses both contributing approximately equally to our 46% year-over-year daily sales growth. We were especially pleased that both our Minarik and Allied acquisitions were accretive in the fourth quarter and full year. In our Aerospace business, higher Joint Programmable Fuze (JPF) sales were the primary contributor to the strong segment performance. Having cleared the issues related to supplied components, we were able to leverage our in-process inventory and production capacity to make up much of the production missed in prior quarters. We were also able to take advantage of a large direct commercial JPF delivery in the quarter, which was a higher margin sale. In addition to the strong quarter of production, we won several large JPF orders to significantly increase our backlog and extend our position on this important product line. Our improved pricing on the JPF program, combined with higher margin commercial orders, drove not only higher sales, but also a significant increase in operating margins, helping to produce a 720 basis point increase in our overall Aerospace operating margin for the quarter compared to the prior year quarter on a non-GAAP basis. In addition, we were awarded several important contracts during the quarter, and completed the acquisition of Global Aerosystems, which will allow us to expand our aerostructure engineering design services and provides us with a significant strategic growth opportunity. Overall, our performance for the quarter resulted in $3.2 million of free cash flow* generation (which is net of a voluntary $25 million pension plan contribution) and, combined with the convertible note offering completed during the quarter, puts us in an even stronger financial position as we move into 2011.”

Segment reports follow:

The Industrial Distribution segment achieved sales growth of 46.0% in the 2010 fourth quarter to $218.7 million from $149.8 million a year ago. Acquisitions contributed $34.3 million in sales during the quarter. On a sales per sales day* basis, organic sales were up 23.2% over last year’s fourth quarter (see table on page 5 for additional details regarding the Company’s sales per day performance). Segment operating income for the fourth quarter of 2010 was $9.2 million, a 173.2% increase from operating income of $3.4 million in the fourth quarter of 2009. The operating profit margin for the fourth quarter of 2010 was 4.2% compared to 3.8% in the third quarter of 2010 and 2.3% in the fourth quarter of 2009.

Industrial Distribution segment sales for the fourth quarter of 2010 reflect growth from acquisitions made in 2010, and a healthier business environment compared to the same period in 2009. The improved market conditions were broad based across geographies, customers and end markets. Operating margin was higher year-over-year and on a sequential basis in the fourth quarter due to the contribution from acquisitions, leverage from higher sales volume, and lower employee health insurance costs.

Segment sales for the full year 2010 were $832.0 million compared to $645.5 million in 2009, an increase of 28.9%. Sales growth was achieved as a result of an improved end market environment and contributions from the three acquisitions completed during the year.

Aerospace segment sales were $146.4 million in the fourth quarter, an increase of 22.7% from sales of $119.3 million in the fourth quarter of 2009. The sales increase was primarily attributable to higher sales prices, increased volume and a large direct commercial sale of JPF fuzes combined with increased deliveries of BLACK HAWK cockpits. These increases were partially offset by lower sales volume of bearing product lines. Operating income for the fourth quarter of 2010 was $26.4 million, compared to operating income of $18.2 million in the 2009 fourth quarter. The fourth quarter includes a non-cash non-tax deductible goodwill impairment charge of $6.4 million, or $0.24 per diluted share, related to our U.K. Composites Facility. The increased operating income in the fourth quarter was primarily a result of improved profitability from the higher volume and pricing on the JPF fuze program, but also included year over year improvement at our Wichita composites facility, which achieved profitability during the quarter.

For the full year 2010, segment sales were $486.5 million, a decrease of 2.8% from $500.7 million in 2009. The decrease was primarily attributable to lower sales from bearing product lines, composite aerostructure programs in the U.K., and helicopter service and support programs. These decreases were partially offset by increases in sales of Joint Programmable Fuzes and BLACK HAWK cockpits deliveries. In addition to the goodwill impairment charge in the fourth quarter, full year segment results include a pre-tax charge of $2.0 million, or after-tax $0.05 per diluted share, related to the resolution of pricing associated with the Sikorsky Canadian MH-92 Tail Rotor Pylon program contract.

Other

Free cash flow* for the fourth quarter and full year 2010 was $3.2 million and $15.8 million (amounts for both periods are net of a voluntary $25 million pension plan contribution made in the fourth quarter), respectively. Full year 2010 results include receipt of a look-back interest payment of $6.6 million from the IRS, related to the Australian helicopter program, which was recorded as interest income. Net of tax this resulted in income of $0.17 per diluted share.

Outlook

The company’s expectations for full year 2011 include:

  • Aerospace segment sales of $550 million to $565 million
  • Aerospace operating margins of 15.2% to 15.5%
  • Industrial Distribution sales of $930 million to $960 million
  • Industrial Distribution segment operating margins of 4.2% to 4.5%
  • Interest expense of approximately $12.5 million
  • Corporate expenses averaging from approximately $10.0 million to $10.5 million per quarter

Aerospace expectations exclude the potential sale of SH-2G(I) aircraft.

Chief Financial Officer William C. Denninger commented, "We expect a year of solid revenue growth as we look ahead to 2011. In Industrial Distribution, we continue to experience strong demand from our customers. Key industry data also continues to suggest that this sector of the economy is in an expansionary mode. In Aerospace, we also expect a strong year, with more profitability coming in the second half, consistent with the ramp up in production on several key platforms. Our consolidated top line and operating income growth will be somewhat offset by higher pension, interest, and benefit expenses, which are anticipated in our outlook. Overall, we are encouraged to be heading into 2011 with positive fundamentals in both of our businesses and strong execution to drive further improvement in our results this year."

Please see the MD&A section of the company’s Form 10-K filed with the Securities and Exchange Commission (SEC) concurrently with the issuance of this release for more information on our 2010 results and various company programs.

A conference call has been scheduled for tomorrow, March 1, at 8:30 AM ET. 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.

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. More information is available at www.kaman.com.

KAMAN CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Information
(In millions except share and per share amounts)
   
For the three months ended For the years ended
December 31, 2010   December 31, 2009 December 31, 2010   December 31, 2009

NET EARNINGS:

GAAP net earnings as reported $ 14.7 $ 8.3 $ 38.3 $ 32.6
Goodwill impairment 6.4 6.4
Look-back interest benefit - - (4.3) -
Aerospace contract price settlement   -   -   1.3

 

-
Non-GAAP adjusted net earnings $ 21.1 $ 8.3 $ 41.7 $ 32.6
 

GAAP earnings per common share - diluted

$ 0.56 $ 0.32 $ 1.47 $ 1.27

Goodwill impairment per common share - diluted

 

0.24 - 0.24 -

Look-back interest benefit per common share - diluted

 

- - (0.17) -
Aerospace contract price settlement per common share - diluted   -   -   0.05   -
Non-GAAP adjusted net earnings per

common share - diluted

$ 0.80 $ 0.32 $ 1.59 $ 1.27
 

Weighted average shares outstanding (in thousands) - diluted

 

  26,200   25,964   26,104   25,779
 

AEROSPACE SEGMENT OPERATING INCOME:

GAAP net sales - Aerospace segment $ 146.4 $ 119.3 $ 486.5 $ 500.7
 

Sales adjustment due to contract price settlement

 

  -   -   (2.3)   -
 
Adjusted net sales-Aerospace segment $ 146.4 $ 119.3 $ 484.2 $ 500.7
 

GAAP operating income - Aerospace segment

 

$ 26.4 $ 18.2 $ 67.2 $ 75.0
% of GAAP Sales 18.0% 15.2% 13.8% 15.0%
Goodwill impairment 6.4 - 6.4 -
Aerospace contract price settlement   -   -   2.0   -
 

Non-GAAP adjusted operating income – Aerospace segment

 

$ 32.8 $ 18.2 $ 75.6 $ 75.0
% of adjusted Sales 22.4% 15.2% 15.6% 15.0%
  For the three months ended   For the years ended
December 31, 2010   December 31, 2009 December 31, 2010   December 31, 2009
 

EFFECTIVE TAX RATE:

GAAP income tax expense $ 10.6 $ 3.7 $ 22.0 $ 14.4
 
GAAP earnings before income taxes $ 25.3 $ 11.9 $ 60.4 $ 47.0
Effective tax rate 41.8% 30.7% 36.5% 30.5%
 
Goodwill impairment   6.4   -   6.4   -
 
Adjusted earnings before income taxes $ 31.7 $ 11.9 $ 66.8 $ 47.0
Adjusted effective tax rate 33.4% 30.7% 33.0% 30.5%

Non-GAAP Measures Disclosure

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures indicated by an asterisk (*) used in this release or in other disclosures provide investors with important perspectives into the company’s ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures, as follows:

Organic Sales per Sales Day – Organic sales per sales day is defined as GAAP “Net sales of the Industrial Distribution segment” less sales derived from current year acquisitions, divided by the number of sales days in the period. Sales days are essentially business days that the company’s branch locations are open for business and exclude weekends and holidays. Sales days are provided as part of this release. Management believes sales per sales day provides investors with an important perspective on how net sales may be impacted by the number of days the segment is open for business.

Management uses sales per sales day as a measurement to compare periods in which the number of sales days differs. The following table illustrates the calculation of sales per sales day using “Net sales: Industrial Distribution” from the “Segment Information” footnote in the “Notes to Condensed Consolidated Financial Statements” from the company’s Form 10-K filed with the SEC on February 28, 2011 (in thousands, except days):

  For the three months ended
December 31, 2010   October 1, 2010   July 2, 2010   April 2, 2010   December 31, 2009
Net sales $ 218,687 $ 223,127 $ 210,924 $ 179,259 $ 149,754
Acquisition related sales   34,253   35,254   26,729   -   -
Organic sales $ 184,434 $ 187,873 $ 184,195 $ 179,259 $ 149,754
 
Sales days 60 63 64 65 60
Organic sales per sales day (a) $ 3,074 $ 2,982 $ 2,878 $ 2,758 $ 2,496
% change - sequential 3.1% 3.6% 4.4% 10.5% -2.0%
 

(a) Organic sales per sales day is a metric management uses to evaluate performance trends at its Industrial Distribution segment and is calculated by taking total organic sales for the quarter divided by the number of sales days during the quarter. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Non-GAAP Financial Measures.”

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 10 (in thousands):

 

For the Twelve

Months Ended

 

For the Nine

Months Ended

 

For the Three

Months Ended

    December 31, 2010   October 1, 2010   December 31, 2010
Net cash provided by (used in) operating activities $ 37,356 $ 27,120 $ 10,236
Expenditures for property, plant & equipment     (21,507)     (14,505)     (7,002)
Free Cash Flow   $ 15,849   $ 12,615   $ 3,234

Debt to Capitalization Ratio – Debt to capitalization ratio is calculated by dividing debt by capitalization. Debt is defined as GAAP “Notes payable” plus “Current portion of long-term debt” plus “Long-term debt, excluding current portion.” Capitalization is defined as Debt plus GAAP “Total shareholders’ equity.” Management believes that debt to capitalization is a measurement of financial leverage and provides investors with an insight into the financial structure of the company and its financial strength. The following table illustrates the calculation of debt to capitalization using GAAP measures from the balance sheets on page 9 (in thousands):

    December 31, 2010   December 31, 2009
Notes payable   $ 2,980   $ 1,835
Current portion of long-term debt 5,000 5,000
Long-term debt, excluding current portion     140,443     56,800
Debt 148,423 63,635
Total shareholders’ equity     362,670     312,900
Capitalization   $ 511,093   $ 376,535
Debt to capitalization 29.0% 16.9%

Forward-Looking Statements

This release contains forward-looking information relating to the company's business and prospects, including the Aerospace and Industrial Distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful conclusion of competitions for government programs and thereafter contract negotiations with government authorities, both foreign and domestic; 2) political conditions in countries where the company does or intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) domestic and foreign economic and competitive conditions in markets served by the company, particularly the defense, commercial aviation and industrial production markets; 5) risks associated with successful implementation and ramp up of significant new programs; 6) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 7) management's success in increasing the volume of profitable work at the Wichita facility; 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 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 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 releases, proxy statements and other filings with the U.S. Securities and Exchange Commission. Any forward-looking information provided in this release should be considered with these factors in mind. The company assumes no obligation to update any forward-looking statements contained in this release.

A summary of segment information follows (in thousands):

Summary of Segment Information

   
For the three months ended For the twelve months ended
December 31, 2010   December 31, 2009 December 31, 2010   December 31, 2009
Net sales:    
Industrial Distribution $ 218,687 $ 149,754 $ 831,997 $ 645,535
Aerospace 146,422 119,318 486,516 500,696
Net sales $ 365,109 $ 269,072 $ 1,318,513 $ 1,146,231
 
Operating income:
Industrial Distribution $ 9,233 $ 3,380 $ 30,252 $ 12,612
Aerospace 26,387 18,193 67,151 74,996
Net gain (loss) on sale of assets (68) (41) 447 (4)
Corporate expense (8,010) (7,826) (35,033) (33,662)
Operating income $ 27,542 $ 13,706 $ 62,817 $ 53,942

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands except per share amounts)

   
For the Three Months Ended December 31, For the Twelve Months Ended December 31,
2010   2009 2010   2009

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