Kaman Reports First Quarter 2005 Results BLOOMFIELD, Conn., May 6
/PRNewswire-FirstCall/ -- Kaman Corp. (NASDAQ: KAMNA) today
reported financial results for the first quarter ended April 1,
2005. Net earnings for the first quarter of 2005 were $4.7 million,
or $0.21 per share diluted, compared to $1.2 million, or $0.05 per
share diluted, in the first quarter of 2004. The company paid a
quarterly dividend at the rate of $0.11 per share. Net sales for
the first quarter of 2005 were $263.3 million, compared to $245.2
million in the first quarter of 2004. Paul R. Kuhn, chairman,
president and chief executive officer, said, "We are pleased with
our performance in the first quarter of 2005, as it reflects the
efforts we have made to build and improve the company. There was
positive momentum in each of the segments: Our Industrial
Distribution and Music segments and the Kamatics subsidiary within
our Aerospace segment continued to show strength, benefiting from
improved demand within their respective customer bases. The quarter
also benefited from the long-term actions we have taken over the
past three years, including an increased focus on subcontract
activity that has yielded an expanded, more efficient
aerostructures plant in Jacksonville that is now bringing in new
business; a series of acquisitions and divestitures that have
focused resources and critical mass into businesses that we believe
hold significant promise for the future; a lean-thinking mentality
and culture that has improved our processes and competitiveness;
and the reorganization of our Aerospace subsidiary into new
divisions that is addressing differences among its various
businesses and providing for a more focused management structure."
A summary of segment information follows: Summary of Segment
Information (In millions) For the Three Months Ended April 1,
2005(1) April 2, 2004 (1) (2) Net sales: Aerospace $ 65.7 $ 59.3
Industrial Distribution 156.0 145.6 Music 41.6 40.3 263.3 245.2
Operating income: Aerospace 7.6 3.0 Industrial Distribution 8.5 5.0
Music 2.6 2.0 Corporate expense (3) (9.5) (6.7) Operating income
9.2 3.3 Interest expense, net (.7) (.8) Other expense, net (.3)
(.4) Earnings before income taxes $ 8.2 $ 2.1 (1) The company has a
calendar year-end; however, its first three fiscal quarters follow
a 13-week convention, with the first quarter ending on a Friday.
The first quarter for 2005 and 2004 end on April 1, 2005 and April
2, 2004. (2) As reported in the year-end 2004 Form 10-K, the
company has restated its 2004 statement of operations for the first
quarter of 2004. The adjustment decreased earnings per share
diluted from $0.06, originally reported, to $0.05 in the first
quarter 2004. (3) "Corporate expense" increased for the quarter
ended April 1, 2005 compared to the first quarter of 2004,
primarily due to a $1.7 million increase for the long-term
incentive program, a $0.8 million increase in reserves associated
with the closed Moosup facility, a $0.8 million increase
attributable to fringe benefits and a $0.3 million increase in
audit fees offset to some degree by a $1.0 million decrease in
stock appreciation rights expense. REPORT BY SEGMENT Aerospace
Segment In 2004, the company realigned its Kaman Aerospace
subsidiary in order to provide for a more focused management
structure. Kaman Aerospace now has three operating divisions:
Aerostructures, Fuzing, and Helicopters, which, together with the
Kamatics subsidiary comprise the four principal operating units of
the Aerospace segment. The segment, which includes all of these
units plus the Electro-optics Development Center (EODC), had a 2005
first quarter operating profit of $7.6 million, compared to $3.0
million a year ago. First quarter results for 2005 and 2004 include
$0.7 million and $0.8 million respectively in idle facility costs,
primarily related to the Helicopter Division. Segment sales for the
first quarter of 2005 were $65.7 million compared to $59.3 million
a year ago. Mr. Kuhn commented, "Kamatics performed well, as strong
demand led to another quarter of record sales for that subsidiary.
The Aerospace segment also benefited from the improvements we have
achieved within our Aerostructures Division, where results for the
Jacksonville facility shifted from an operating loss a year ago to
the beginning of profitability in the 2005 first quarter. This was
driven by the actions we have taken to improve operational
efficiencies as well as by improving order rates and capacity
utilization arising from contract wins and improving order flow.
The Helicopters Division also contributed to operating earnings.
These positives were somewhat offset, however, by operating losses
at the Fuzing Division, principally due to additional contract
losses on certain Dayron programs and additional warranty related
reserves discussed below. Overall, Kamatics was the predominant
contributor to Aerospace segment operating profits in the first
quarter." Beginning in the first quarter of 2005, the company is
reporting net sales for each of the major Aerospace segment
operating units. Aerostructures Division: The Aerostructures
Division had net sales of $12.9 million in the 2005 first quarter,
compared to $10.7 million a year ago. Aerostructures Division net
sales for the full year 2004 were $46.9 million. Operations are
conducted from the company's Jacksonville, Florida and Wichita,
Kansas facilities. The business of the Aerostructures Division
involves commercial and military aircraft programs, including
production of aircraft subassemblies and other parts for commercial
airliners as well as the C-17 military transport and helicopter
subcontract work. For the first time since consolidating its
aircraft subassembly and parts manufacturing in Jacksonville in
mid-2003, the facility achieved profitability and quality
performance improvements have led to improved customer satisfaction
ratings. An important new award that should help broaden the
business base was achieved in the third quarter of 2004 under which
Kaman will manufacture the cockpit for four models of the Sikorsky
BLACK HAWK helicopter. The initial work, having a value of $27.7
million, covers 80 units that are currently on contract for
production through 2006. Follow-on options, if fully exercised,
would have a total potential value to Kaman of approximately $100.0
million and would include the fabrication of approximately 349
cockpits. The first cockpit was delivered to Sikorsky in April
2005. Kaman is a member of an international team that includes
Lockheed Martin, Bell Helicopter, and AgustaWestland that was
selected in January 2005 by the U.S. Government to provide the next
"Marine One" presidential helicopter. In that capacity, Kaman is
bidding on a share of the work being sourced in the U.S. Fuzing
Division: The Fuzing Division had net sales of $12.8 million in the
2005 first quarter, compared to $9.0 million in the prior year
period. Fuzing Division net sales for the full year 2004 were $57.0
million. Principal operations are conducted at the company's
Middletown, Connecticut and Orlando, Florida (Dayron) facilities.
The division manufactures safe, arm and fuzing devices for a number
of major missile and bomb programs as well as precision measuring
and mass memory systems for commercial and military applications.
As previously discussed, the company has been working to resolve
two warranty-related matters for which it recorded a $3.5 million
charge in the fourth quarter of 2004. One of the issues involves a
supplier's recall of a switch embedded in certain Dayron bomb
fuzes. Approximately $2.7 million of the fourth quarter 2004 charge
was recorded to address this matter. The second warranty issue
involves bomb fuzes manufactured for the U. S. Army utilizing
systems in place at the time Dayron was acquired by Kaman that have
since been found to contain an incorrect part. Approximately $0.8
million of the fourth quarter charge was recorded to address this
matter. In connection with this issue, on March 18, 2005, the
company was notified that the U.S. Attorney's Office for the Middle
District of Florida and the Defense Criminal Investigative Service
had initiated an investigation into the matter. Dayron is
cooperating fully with the investigation and working with these
authorities to resolve the matter in a mutually satisfactory
manner. In the first quarter of 2005 the company took an additional
$0.7 million charge to account for its current best estimate of the
additional cost associated with this matter. Dayron has a contract
with the U.S. Air Force for development and production of the
advanced FMU-152A/B Joint Programmable Fuze (JPF). The contract has
a potential value of $168.7 million if all options for future
years' production are exercised. Releases under this contract total
approximately $36.4 million to date. During the quarter, the
company continued to work on materials flow and manpower ramp-up to
meet production requirements. As deliveries to the U. S. military
increase under the contract, management expects that efficiencies
will also increase and that program profitability will improve,
with further enhancement once orders are received from allied
militaries. Helicopters Division: The Helicopters Division had net
sales of $15.2 million in the 2005 first quarter, compared to $18.0
million in the 2004 period. Helicopters Division net sales for the
full year 2004 were $67.0 million, including the effect of an $18.2
million negative sales adjustment to eliminate the company's
investment in contracts with MD Helicopters, Inc. Helicopters'
operations are conducted primarily from the company's Bloomfield,
Connecticut facilities. Production of the 11 SH-2G(A) aircraft for
the Australia program is essentially complete. As previously
reported, the aircraft lack the full Integrated Tactical Avionics
System (ITAS) software and progress is continuing on this element
of the program. The company currently expects to deliver the first
fully operational aircraft in the third quarter of 2005, after
which all 11 aircraft will undergo a final acceptance process by
the Royal Australian Navy. The company continues to support K-MAX
helicopters that are operating with customers in the field. In
February the company sold a previously leased K- MAX for $3.6
million. During the first quarter, the company continued to work
with the U.S. Naval Air Systems Command (NAVAIR) and the General
Services Administration toward establishing a purchase price for
that portion of the Bloomfield, Connecticut complex that the
company currently leases from NAVAIR. This could possibly include
the company undertaking some level of the environmental remediation
that may be legally required in the event of a sale of the
property. The company also continued to work with government and
environmental authorities to prepare the closed Moosup, Connecticut
facility for eventual sale. Kamatics Subsidiary: Kamatics
(including RWG, the company's German aircraft bearing manufacturing
arm) generated net sales of $23.0 million in the first quarter of
2005, compared to $19.8 million in the comparable 2004 period.
Kamatics net sales for the full year 2004 were $77.1 million.
Operations are conducted at the company's facilities in Bloomfield,
Connecticut and Dachsbach, Germany. Kamatics' proprietary
self-lubricating bearings are currently in use in almost all
military and commercial aircraft produced in North and South
America and Europe, and are market leading products in the highly
specialized end of the aircraft bearing market. General business
conditions in the primary aerospace markets remained strong, with
increased order activity from Boeing, Airbus and other customers in
both the commercial and military sectors contributing to strong
performance in the quarter. As the aviation sector continued to
strengthen, the company increased production levels while
maintaining delivery schedules, leading to additional sales and
growth in market presence. Other Aerospace Matters: As previously
reported, EODC, which makes up the balance of Aerospace Segment
sales, submitted a $6.3 million claim to the University of Arizona
(University) in April 2004 to recover additional costs which the
company believes are a result of changes in the scope of a project
being performed under a $12.8 million fixed-price contract with the
University. Having been unable to resolve the matter, Kaman filed
suit in September 2004 to recover these costs from the University
and discontinued work on the project. The University subsequently
filed a counterclaim and the litigation process is ongoing.
Industrial Distribution Segment First quarter operating profits for
the Industrial Distribution segment were $8.5 million for the 2005
quarter, compared to $5.0 million in the 2004 period. Net sales
were $156.0 million in the 2005 first quarter, compared to $145.6
million a year ago. Industrial Distribution operations are
headquartered in Windsor, Connecticut and conducted from nearly 200
locations in the U.S., Canada and Mexico. Kuhn said, "The
Industrial Distribution segment achieved a 7 percent increase in
sales volume that contributed $1.6 million of the growth in
operating profit. The company also benefited during the quarter
from the one- time effects of certain price increases and a higher
level of realized vendor incentives in the form of rebates. The
company competed well during the quarter, winning a new national
account relationship with the Chemical Lime Company. "The strong
industrial market continued in a positive trend throughout the
first quarter. On balance, the market continues to be positive and
stable, but there is some sense developing that markets in the
western portions of North America, driven by strength in the
primary materials markets -- and the Central region, driven by
strength in the paper, mining and printing accounts -- may do
better this year than those in the Northeast where certain original
equipment manufacturing (OEM) sectors may have softened somewhat.
We are watching to see if product availability becomes an issue
because global demand for basic materials such as scrap steel,
coal, cement and copper has been outpacing supply, leading to
longer lead times." Kaman is the third largest North American
industrial distributor serving the bearings, electrical/mechanical
power transmission, fluid power, motion control and materials
handling markets. Kaman offers more than 1.5 million items, as well
as value-added services to a base of more than 50,000 customers
spanning nearly every sector of industry. The company now covers 70
of the top 100 industrial markets in the U.S. This segment
continues to track the U.S. Industrial Production Index and is
affected to a large extent by the overall climate for its customer
industries, including overall plant capacity utilization levels and
the effect of pricing spikes and/or interruptions for basic
commodities such as steel and oil. Music Segment The Music
segment's first quarter operating profit was $2.6 million for 2005,
compared to $2.0 million for the first quarter of 2004. Net sales
for the 2005 quarter were $41.6 million, compared to $40.3 million
a year ago. Music segment operations are headquartered in
Bloomfield, Connecticut and conducted from a manufacturing plant in
New Hartford, Connecticut and strategically placed warehouse
facilities to cover the North American markets. Kuhn said, "The
Music segment continued to perform well, with sales increasing and
operating margins improving. While Christmas season sales were
reasonably good last year, they were not as good as many retailers
had stocked for, thereby leaving these retailers with excess
inventories going into 2005 that had to be worked off. Once that
was accomplished, market conditions improved and orders gathered
strength, leading to solid performance in the quarter." The company
is watching U.S. consumer sentiment along with other important
variables that have the potential to affect this segment. For
instance, the increasing quality and continually lower cost of
products imported from Asia had led to price deflation in the
musical instrument business over the past several years. This
appears to have bottomed out as these supplier societies face the
effects of increasing costs associated with raw materials, electric
power shortages and increasing wages within their own economies.
If, in fact, such a bottoming out has occurred, that would be a
benefit to the segment. In addition, the lower value of the dollar
has helped the segment's export sales while, on the other hand,
increasing the costs of the company's imported products from
suppliers in Japan, Taiwan, Korea and Thailand. Kaman is the
largest independent distributor of musical instruments and
accessories in the United States, offering more than 15,000
products for amateurs and professionals. While the vast majority of
Kaman's music sales are to North American customers, the company
has been building its presence in European, Asian and Australian
markets as well. The business is affected by changes in consumers'
musical tastes and interests and by actual consumer spending
levels. A principal strategy of the company over the past several
years has been to add popular premier branded products that can be
brought to market exclusively by Kaman. An important industry trend
of the past several years has been consolidation in the retail
market with the growth in the very large retail chains. The
concentration of the company's sales to these large customers is
increasing. Kaman believes it has built upon its competitive
advantages by creating and maintaining industry-leading
distribution systems and the computerized business-to-business
capabilities that large national retailers increasingly require,
while continuing to support its traditional base of small
retailers. Concluding Remark Mr. Kuhn concluded, "We are pleased
with our first quarter results. Industrial Distribution, Music and
Kamatics continued to perform well. We continued to work on our
Aerospace businesses with meaningful progress in the Aerostructures
Division as the expanded Jacksonville plant moved into
profitability. We also made progress in the Fuzing and Helicopter
divisions, and hope to keep the momentum moving in the right
direction on those as the fuzing issues are resolved and as we move
closer to completion of the SH-2G(A) helicopter program for
Australia." Forward-Looking Statements This release may contain
forward-looking information relating to the corporation's business
and prospects, including aerostructures and helicopter subcontract
programs and components, advanced technology products, the SH-2G
and K-MAX helicopter programs, the industrial distribution and
music 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
corporation does or intends to do business; 3) standard government
contract provisions permitting renegotiation of terms and
termination for the convenience of the government; 4) economic and
competitive conditions in markets served by the corporation,
particularly defense, commercial aviation, industrial production
and consumer market for music products, as well as global economic
conditions; 5) satisfactory completion of the Australian
SH-2G(A)program, including successful completion and integration of
the full ITAS software; 6) 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 both have been assumed in connection with
goodwill impairment evaluations; 7) satisfactory resolution of the
EODC/University of Arizona litigation; 8) achievement of enhanced
business base in the Aerospace segment in order to better absorb
overhead and general and administrative expenses, including
successful execution of the contract with Sikorsky for the BLACK
HAWK Helicopter program; 9) satisfactory results of negotiations
with NAVAIR concerning the corporation's leased facility in
Bloomfield, Conn.; 10) profitable integration of acquired
businesses into the corporation's operations; 11) changes in
supplier sales or vendor incentive policies; 12) the effect of
price increases or decreases; 13) pension plan assumptions and
future contributions; 14) continued availability of raw materials
in adequate supplies; 15) satisfactory resolution of the supplier
switch and incorrect part issues attributable to Dayron suppliers
and others; 16) cost growth in connection with potential
environmental remediation activities related to the Bloomfield and
Moosup facilities; 17) successful replacement of the Corporation's
revolving credit facility upon its expiration in November 2005; 18)
changes in laws and regulations ,taxes, interest rates, inflation
rates, general business conditions and other factors and 19) the
effects of currency exchange rates and foreign competition on
future operations. Any forward- looking information provided in
this release should be considered with these factors in mind. The
Corporation assumes no obligation to update any forward- looking
statements contained in this release. KAMAN CORPORATION AND
SUBSIDIARIES Condensed Consolidated Statements of Operations (In
thousands except per share amounts) For the Three Months Ended
April 1, 2005 April 2, 2004 Net sales $ 263,306 $ 245,151 Costs and
expenses: Cost of sales 192,411 183,412 Selling, general and
administrative expense 62,178 58,720 Other operating income (458)
(318) Interest expense, net 712 795 Other expense, net 238 484
255,081 243,093 Earnings before income taxes 8,225 2,058 Income
taxes 3,520 885 Net earnings $4,705 $1,173 Net earnings per share:
Basic $.21 $.05 Diluted (1) $.21 $.05 Weighted average shares
outstanding: Basic 22,778 22,648 Diluted 23,649 23,660 Dividends
declared per share $.11 $.11 (1) The calculated diluted per share
amount for the three months ended April 2, 2004 is anti-dilutive,
therefore, amount shown is equal to the basic per share
calculation. KAMAN CORPORATION AND SUBSIDIARIES Condensed
Consolidated Balance Sheets(In thousands) April 1, 2005 December
31, 2004 Assets Current assets: Cash and cash equivalents $ 12,136
$ 12,369 Accounts receivable, net 202,516 190,141 Inventories
199,572 196,718 Deferred income taxes 34,665 35,837 Other current
assets 16,111 15,270 Total current assets 465,000 450,335 Property,
plant and equipment, net 48,180 48,958 Goodwill and other
intangible assets, net 55,884 55,538 Other assets 7,426 7,500 $
576,490 $ 562,331 Liabilities and shareholders' equity Current
liabilities: Notes payable $ 8,712 $ 7,255 Current portion of
long-term debt 39,036 17,628 Accounts payable - trade 70,098 74,809
Accrued contract losses 30,848 37,852 Accrued restructuring costs
4,115 3,762 Other accrued liabilities 36,635 38,961 Advances on
contracts 17,950 16,721 Other current liabilities 25,091 26,305
Income taxes payable 4,134 2,812 Total current liabilities 236,619
226,105 Long-term debt, excluding current portion 16,856 18,522
Other long-term liabilities 35,695 33,534 Shareholders' equity
287,320 284,170 $ 576,490 $ 562,331 KAMAN CORPORATION AND
SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In
thousands) For the Three Months Ended April 1, 2005 April 2, 2004
Cash flows from operating activities: Net earnings $4,705 $1,173
Depreciation and amortization 2,289 2,238 Provision for losses on
accounts receivable 53 358 Deferred income taxes 1,233 - Other, net
2,320 1,025 Changes in current assets and liabilities, excluding
effects of acquisitions: Accounts receivable (12,420) (16,353)
Inventory (3,431) (10,174) Income taxes receivable - 1,043 Accounts
payable (4,709) (807) Accrued contract losses (7,005) 494 Accrued
restructuring costs 353 (664) Advances on contracts 1,229 273
Income taxes payable 1,322 763 Changes in other current assets and
liabilities (4,389) (2,428) Cash provided by (used in) operating
activities (18,450) (23,059) Cash flows from investing activities:
Expenditures for property, plant & equipment (1,098) (1,586)
Acquisition of businesses, less cash acquired (367) - Other, net
711 370 Cash provided by (used in) investing activities (754)
(1,216) Cash flows from financing activities: Changes in notes
payable 1,456 3,158 Changes in debt 19,741 25,996 Proceeds from
exercise of employee stock plans 278 309 Purchase of treasury stock
- (4) Dividends paid (2,504) (2,489) Cash provided by (used in)
financing activities 18,971 26,970 Net increase (decrease) in cash
and cash equivalents (233) 2,695 Cash and cash equivalents at
beginning of period 12,369 7,130 Cash and cash equivalents at end
of period $12,136 $9,825 DATASOURCE: Kaman Corp. CONTACT: Russell
H. Jones, SVP, Chief Investment Officer & Treasurer,
+1-860-243-6307, or Web site: http://www.kaman.com/ Company News
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