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Kaman Reports 2011 Third Quarter Results

Dépèche transmise le 2 novembre 2011 par Business Wire

BLOOMFIELD, Conn.--(BUSINESS WIRE)--Kaman Corp. (NASDAQ GS: KAMN) today reported financial results for the third quarter ended September 30, 2011.

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

  Table 1. Summary of Financial Results
In thousands except per share amounts - Unaudited   For the Three Months Ended

September 30,
2011

 

October 1,
2010

 

$ Change

Net sales:
Industrial Distribution $ 239,132 $ 223,127 $ 16,005
Aerospace   117,388     136,418     (19,030 )
Net sales $ 356,520   $ 359,545   $ (3,025 )
 
Operating income:
Industrial Distribution $ 11,869 $ 8,494 $ 3,375
Aerospace 18,694 19,017 (323 )
Net gain (loss) on sale of assets (14 ) (5 ) (9 )
Corporate expense   (10,207 )   (7,914 )   (2,293 )
Operating income $ 20,342   $ 19,592   $ 750  
 
 
Diluted earnings per share $ 0.47 $ 0.61 $ (0.14 )
 
Adjustments   -     (0.12 )   0.12  
Adjusted diluted earnings per share $ 0.47   $ 0.49   $ (0.02 )
 

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, "We continued to demonstrate strength across the majority of our businesses in the third quarter. In Industrial Distribution, we have maintained a steady pace of growth and our focus on profitability improvements continues to yield year-over-year gains. In Aerospace, strong demand across our product lines including bearing product lines, partially offset a delay in shipments of our Joint Programmable Fuzes. The Joint Programmable Fuze program is expected to return to acceptance testing in early November, after encountering acceptance test interruptions, and we expect to achieve our full year delivery target for the program.

"We continue to pursue acquisition opportunities in both business segments to supplement our organic growth and I am pleased that we have announced three acquisitions since the beginning of September - Vermont Composites in Aerospace; and Target Electronics and Plains Bearings in Industrial Distribution. In addition to acquisitions, we continue to develop a range of longer-term opportunities that we believe will enable us to deliver continued revenue growth and margin improvement. These opportunities include the unmanned K-MAX®, two of which are undergoing final testing for deployment in Afghanistan. We are proud that along with our partner, Lockheed Martin, our aircraft will be performing a vital life saving role for the Marine Corps by the end of the year."

Segment reports follow:

Industrial Distribution segment sales increased 7.2% in the 2011 third quarter to $239.1 million compared to $223.1 million a year ago. Acquisitions contributed $1.1 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, organic sales were up 6.7% over last year's third quarter (see Table 2 for additional details regarding the Company's sales per sales day performance). Segment operating income for the third quarter of 2011 was $11.9 million, a 39.7% increase from operating income of $8.5 million in the third quarter of 2010. The operating profit margin for the third quarter of 2011 was 5.0%. In comparison, the operating profit margin was 5.1% in the second quarter of 2011 and 3.8% in the third quarter of 2010.

Industrial Distribution segment sales for the third quarter of 2011 reflect continued positive market conditions. Market strength was broad based across most geographies, customers and end markets. Operating margin was higher on a year-over-year basis as a result of the higher sales volume, improved productivity resulting from IT investments and our organizational realignment, and continued gross margin improvement.

Aerospace segment sales were $117.4 million, a decrease of 13.9% from sales of $136.4 million in the third quarter of 2010. Operating income for the third quarter of 2011 was $18.7 million, compared to operating income of $19.0 million in the 2010 third quarter. The operating margin in this year's third quarter was 15.9% as compared to 13.9% (15.7% adjusted*) in the comparable period in the prior year. Third quarter 2011 results benefited as compared to the prior year period from higher sales of bearing product lines and the unmanned K-MAX® program. These increases were offset by lower deliveries associated with acceptance testing interruptions on the Joint Programmable Fuze program. During the third quarter approximately 1,200 JPF fuzes were delivered as compared to over 9,000 in the prior year period. The program is expected to return to acceptance testing in early November. Results in the prior year 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 a customer contract.

Other

During the third quarter of 2010 the Company received a look-back interest payment of $6.6 million from the IRS, which was recorded as interest income, related to the Australian helicopter program. Net of tax, this resulted in income of $0.17 per diluted share.

Outlook

The Company's updated expectations for 2011 are as follows:

  • Aerospace segment sales of approximately $560 million up 15% over 2010
  • Aerospace operating margins of 15.3% to 15.5%
  • Industrial Distribution sales of approximately $950 million up 14% over 2010
  • Industrial Distribution segment operating margins of 4.8% to 5.0%
  • Interest expense of approximately $12.0 million
  • Corporate expenses of approximately $43.0 million to $44.0 million for the year
  • Tax rate for the full year of approximately 34%
  • Free cash flow* of $15 million to $20 million

The Aerospace outlook excludes contributions from the acquisition of Vermont Composites. The outlook for corporate expenses excludes the non-recurring benefit of $2.4 million recognized in the first quarter of 2011 resulting from the death of a former executive.

Chief Financial Officer, William C. Denninger, commented, "We have essentially maintained our full year outlook for sales and operating profit for both of our businesses, but tightened it up a bit with three quarters of the year behind us. Order intake in our aerospace bearing product lines has been robust affirming our expectations for that business, and notwithstanding the delays in the JPF program, we expect to meet our full year outlook. Our Industrial Distribution business also remains on track with our previous full-year expectations, including a positive but slowing rate of sales growth. We continue to focus on total return to shareholders demonstrated by our recent 14% dividend increase and stock repurchases.”

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, November 3, 2011 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.

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 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 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 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 differ. The following table illustrates the calculation of organic 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-Q filed with the Securities and Exchange Commission on November 2, 2011. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition.

   

Table 2. Industrial Distribution - Organic
Sales Per Day (in thousands, except days)

 
For the three months ended

September 30,
2011

 

October 1,
2010

Net sales: Industrial Distribution $ 239,132 $ 223,127
Acquisition related sales   1,089  
Organic sales $ 238,043 $ 223,127
Sales days   63   63
Organic sales per sales day $ 3,778 $ 3,542
 

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 condensed consolidated statement of cash flows included in this release.

Table 3. Free Cash Flow (in thousands)
 

For the Nine
Months Ended

 

For the Six
Months Ended

 

For the Three
Months Ended

September 30,
2011

July 1,
2011

September 30,
2011

Net cash provided by (used in) operating activities $ 15,497 $ 6,146 $ 9,351
Expenditures for property, plant & equipment   (19,416 )   (12,530 )   (6,886 )
Free Cash Flow $ (3,919 ) $ (6,384 ) $ 2,465  
 

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 included in this release.

Table 4. Debt to Capitalization (in thousands)    

September 30,
2011

December 31,
2010

Notes payable $ 1,410 $ 2,980
Current portion of long-term debt 5,000 5,000
Long-term debt, excluding current portion   143,323     140,443  
Debt 149,733 148,423
Total shareholders' equity   399,412     362,670  
Capitalization $ 549,145   $ 511,093  
Debt to capitalization 27.3 % 29.0 %
 
Table 5. Reconciliation of Non-GAAP Financial Information
(In millions except share and per share amounts) (Unaudited)
 
  For the three months ended   For the nine months ended
September 30, 2011   October 1, 2010 September 30, 2011   October 1, 2010

NET EARNINGS:

GAAP net earnings as reported $ 12.4 $ 15.8 $ 39.4 $ 23.6
Non-recurring benefit associated with the death of a former executive (1.9 )
Look-back interest benefit (4.3 ) (4.3 )
Aerospace contract pricing settlement       1.3         1.3  
Non-GAAP adjusted net earnings $ 12.4   $ 12.8   $ 37.5   $ 20.6  
 
GAAP earnings per common share - diluted $ 0.47 $ 0.61 $ 1.48 $ 0.91
Non-recurring benefit associated with the death of a former executive (0.07 )
Look-back interest benefit per common share diluted (0.17 ) (0.17 )
Aerospace contract pricing settlement per common share diluted       0.05         0.05  
Non-GAAP adjusted net earnings per common share diluted $ 0.47   $ 0.49   $ 1.41   $ 0.79  
 
Diluted weighted average shares outstanding (in thousands) 26,561 26,104 26,530 26,071
 

AEROSPACE SEGMENT OPERATING INCOME:

GAAP net sales - Aerospace segment $ 117.4 $ 136.4 $ 402.1 $ 340.1
Sales adjustment due to contract pricing settlement       (2.3 )       (2.3 )
Adjusted net sales - Aerospace segment $ 117.4   $ 134.1   $ 402.1   $ 337.8  
 
GAAP operating income - Aerospace segment $ 18.7 $ 19.0 $ 61.5 $ 40.8
% of GAAP net sales 15.9 % 13.9 % 15.3 % 12.0 %
 
Aerospace contract pricing settlement       2.0         2.0  
% of adjusted net sales % 1.5 % % 0.6 %
 
Non-GAAP adjusted operating income - Aerospace segment $ 18.7   $ 21.0   $ 61.5   $ 42.8  
% of adjusted net sales 15.9 % 15.7 % 15.3 % 12.7 %
 

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) satisfactory conclusion to government inquiries or investigations regarding government programs; 5) domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; 6) risks associated with successful implementation and ramp up of significant new programs; 7) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 8) management's success in increasing the volume of profitable work at the Wichita facility; 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) satisfactory resolution of (i) the Company's litigation relating to the FMU-143 program and (ii) the Wichita subpoena matter; 12) continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory; 13) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 14) profitable integration of acquired businesses into the Company's operations; 15) changes in supplier sales or vendor incentive policies; 16) the effects of price increases or decreases; 17) the effects of pension regulations, pension plan assumptions and future contributions; 18) future levels of indebtedness and capital expenditures; 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 release should be considered with these factors in mind. The Company assumes no obligation to update any forward-looking statements contained in this release.

Table 6. Summary of Segment
Information (in thousands, unaudited)

   
For the three months ended For the nine months ended
September 30, 2011   October 1, 2010 September 30, 2011   October 1, 2010
Net sales:
Industrial Distribution $ 239,132 $ 223,127 $ 717,309 $ 613,310
Aerospace   117,388     136,418     402,120     340,094  
Net sales $ 356,520   $ 359,545   $ 1,119,429   $ 953,404  
 
Operating income:
Industrial Distribution $ 11,869 $ 8,494 $ 35,853 $ 21,019
Aerospace 18,694 19,017 61,515 40,764
Net gain (loss) on sale of assets (14 ) (5 ) (50 ) 515
Corporate expense   (10,207 )   (7,914 )   (30,292 )   (27,023 )
Operating income $ 20,342   $ 19,592   $ 67,026   $ 35,275  
 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands except per share amounts, unaudited)

 

  For the Three Months Ended   For the Nine Months Ended

September 30,
2011

 

October 1,
2010

September 30,
2011

 

October 1,
2010

Net sales $ 356,520 $ 359,545 $ 1,119,429 $ 953,404
Cost of sales   255,219     265,782     807,681     703,626  
Gross profit 101,301 93,763 311,748 249,778
Selling, general and administrative expenses 80,945 74,166 244,672 215,018
Net (gain)/loss on sale of assets   14     5     50     (515 )
Operating income 20,342 19,592 67,026 35,275
Interest expense (income), net 2,733 (3,529 ) 8,624 862
Other (income) expense, net   (176 )   (24 )   (590 )   (691 )
Earnings before income taxes 17,785 23,145 58,992 35,104
Income tax expense   5,426     7,320     19,626     11,476  
Net earnings $ 12,

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