Kaman Reports 2004 Third Quarter, Nine Month Results BLOOMFIELD,
Conn., Nov. 8 /PRNewswire-FirstCall/ -- Kaman Corp. (NASDAQ:KAMNA)
today reported financial results for the third quarter and nine
months ended September 30, 2004. The company reported a net loss
for the 2004 third quarter of $11.9 million, or $0.52 loss per
share diluted, compared to net earnings of $1.2 million, or $0.05
earnings per share diluted the previous year. Net sales for the
third quarter were $246.0 million, compared to $223.3 million in
the 2003 period. The third quarter loss is primarily attributable
to events in the Aerospace segment, including a non-cash sales and
pre-tax earnings charge in the third quarter of $20.1 million
(includes an $18.2 million negative sales adjustment for
recoverable costs not-billed and a $1.9 million addition to the
corporation's bad debt reserve for billed receivables) that
eliminates the company's investment in contracts with MD
Helicopters, Inc. (MDHI). Included in the third quarter results
were $2.0 million in severance costs associated with realignment of
the segment's management team, and approximately $1.6 million in
increased accrued contract costs associated with the Australia SH-
2G(A) helicopter program. For the nine-month period of 2004, the
company reported a net loss of $12.4 million, or $0.55 loss per
share diluted, compared to net earnings of $18.4 million, or $0.81
earnings per share diluted in the period a year ago. In addition to
the $20.1 million charge for the MDHI program and other items
listed above, the 2004 nine-month results include a second quarter
$7.1 million non-cash adjustment to the company's Boeing Harbour
Pointe parts and subassemblies contract. The 2003 nine-month
results included a $10.6 million after-tax gain, or $0.48 per
share, from the sale of the company's Electromagnetics Development
Center (EDC). Nine-month net sales for 2004 were $738.9 million,
compared to $655.6 million a year ago. The MDHI charge required
that the company obtain an amendment to its $150 million revolving
credit agreement in order to avoid violation of a financial
covenant. The amendment, effective as of September 30, 2004 has
been filed as an exhibit to Form 8-K. Paul R. Kuhn, chairman,
president and CEO, said, "While actions taken by the company to
address issues in the Aerospace segment have resulted in a loss for
the quarter and nine-month periods, the company has made meaningful
progress aligning our various business models with the changing
markets we serve. While there is still a considerable amount of
work to do and difficult challenges remain, there are numerous
bright spots in the company. The Kamatics proprietary aircraft
bearing business operated at record levels, and very significantly,
both the Industrial Distribution segment, Kaman's largest in terms
of sales, and the Music segment had record sales for the quarter,
continuing to benefit from market improvement and solid execution
of their strategic initiatives of the past several years. Along
with these, there are also some other encouraging signs. Fuzing
began to make deliveries under its low rate initial production
contract for the joint programmable fuze (JPF), the company
continued to make progress toward completion of its SH-2G(A)
helicopter production contract with Australia, and the Jacksonville
facility, which has been operating at well below capacity levels,
is beginning to see new work coming in." The board of directors
voted to continue to pay dividends at the rate of $0.11 per share
in each of the first three quarters of the year. Summary of Segment
Information (In millions) For the Three Months For the Nine Months
Ended September 30, Ended September 30, 2004 2003 2004 2003 Net
sales: Aerospace $54.3 $62.8 $180.8 $187.4 Industrial Distribution
149.3 122.6 440.2 364.7 Music 42.4 37.9 117.9 103.5 246.0 223.3
738.9 655.6 Operating profit (loss): Aerospace (15.1) 1.7 (15.5)
15.5 Industrial Distribution 5.5 2.8 16.3 9.0 Music 3.5 2.8 6.8 6.0
Net gain/(loss) on sale of product lines and other assets -- 1.3 .2
18.1 Corporate expense(1) (6.7) (5.5) (19.2) (15.1) Operating
profit (loss) (12.8) 3.1 (11.4) 33.5 Interest expense, net (.9)
(.7) (2.6) (2.3) Other income/(expense), net (.1) (.4) (.8) (1.0)
Earnings/(loss) before income taxes $ (13.8) $2.0 $ (14.8) $30.2
(1) "Corporate expense" increased for the three months ended
September 30, 2004, compared to the prior year period, primarily
due to a $1.2 million increase in pension expense and a $1.9
million increase in supplemental retirement plan expense, offset by
a $0.6 million reduction in salary expense, a $0.7 reduction in
consulting expense, and a $0.8 million decrease in stock
appreciation rights expense. The increase for the nine months ended
September 30, 2004, compared to the prior year period, is primarily
due to a $3.5 million increase in pension expense and a $1.9
million increase in supplemental retirement plan expense, offset by
a $1.0 reduction in consulting expense. REPORT BY SEGMENT Aerospace
Segment The Aerospace segment had a third quarter operating loss of
$15.1 million, compared to an operating profit of $1.7 million a
year ago. The loss is primarily attributable to a $20.1 million
non-cash sales and pre-tax earnings charge for its MDHI contracts
discussed below. The 2004 third quarter results also include $0.9
million in underutilized facility costs primarily associated with
the absence of new helicopter orders at the Bloomfield facility.
The 2003 results include the effect of $0.9 million in relocation
and re- certification costs related to the closure in 2002 of the
company's Moosup, Conn. plant. Sales for the third quarter of 2004
were $54.3 million, net of an $18.2 million negative sales
adjustment for the MDHI program, compared to $62.8 million in the
prior year period. For the 2004 nine-month period, the segment had
an operating loss of $15.5 million as a result of the MDHI charge,
a $7.1 million adjustment in the second quarter for the Boeing
Harbour Pointe contract, and underutilized facility costs of $2.5
million. Nine-month operating profits for the 2003 period were
$15.5 million, including the effect of $2.1 million in ongoing
relocation and re-certification costs related to the Moosup, Conn.
plant closure. Sales for the 2004 nine-month period were $180.8
million, net of the $18.2 million negative sales adjustment for
MDHI, compared to $187.4 million in the 2003 period. Aircraft
Structures and Components Third quarter aircraft structures and
components sales were $15.2 million, net of the $18.2 million
negative sales adjustment for MDHI, compared to $25.7 million in
the period a year ago. With the adjustment, this business
contributed approximately 28 percent of the Aerospace segment's
sales in the third quarter, compared to approximately 41 percent a
year ago. Aircraft Structures and Components involves commercial
and military aircraft programs, including proprietary aircraft
bearings, the production of aircraft subassemblies and other parts
for Boeing commercial airliners and the C-17 military transport,
and helicopter subcontract work. Results for the company's Kamatics
proprietary aircraft bearing business were significantly higher in
the third quarter and nine-month periods compared to a year ago.
These products are in use in most military and commercial aircraft
in production. Business conditions overall continued to improve
with signs of mounting customer momentum across the markets served.
The market for subcontract detail parts manufacturing and assembly
work at the expanded Jacksonville operation continues to be very
competitive, and the lower sales volume at Jacksonville, in
particular, has resulted in overhead and general and administrative
expenditures being absorbed at higher rates by active programs, and
generally lower profitability or losses for these programs.
Improving performance metrics and reestablishing levels of customer
satisfaction continue to be a focus at the Jacksonville facility.
The company is also beginning to bring orders from new customers on
line that should help with the overhead absorption issue. The
company has multi-year contracts for production of fuselages for
the MD Helicopters 500 and 600 series helicopters and composite
rotor blades for the MD Explorer helicopter. Because of unresolved
payment issues with MDHI, Kaman stopped work under this program in
2003. In the third quarter of 2004, the company recorded a sales
and non-cash pre-tax earnings charge of $20.1 million, consisting
of an $18.2 million negative sales adjustment and a $1.9 million
addition to the corporation's bad debt reserve, to eliminate its
investment in these programs and related receivables. The charge is
not expected to result in any future cash expenditures. Mr. Kuhn,
said, "As previously reported, it had been our expectation that
MDHI would be successful in executing its strategy to improve
current financial and operational circumstances. MDHI management
has indicated that, although it continues to work on this strategy,
it has not been able to resolve the situation thus far; therefore,
we determined that, given the current circumstances, a sales and
pre-tax earnings charge in the amount of our investment under these
contracts needed to be taken in accordance with accounting
principles generally accepted in the United States. We intend to
maintain a business relationship with MDHI should it be successful
in improving its financial and operational situation." Advanced
Technology Products Sales of the company's advanced technology
products in the third quarter were $13.6 million, compared to $15.8
million a year ago. Sales in the third quarter 2003 were somewhat
higher due to one-time fuzing deliveries in that period. The
business accounted for approximately 25 percent of Aerospace
segment sales, the same as a year ago. The company manufactures
products for military and commercial markets, including safe, arm
and fuzing devices for a number of major missile and bomb programs;
and precision measuring systems, mass memory systems and electro-
optic systems. The company has a contract with the U.S. Air Force
for production of the advanced FMU-152A/B Joint Programmable Fuze.
The JPF contract has a value of $13.6 million covering LRIP (low
rate initial production) and production of Lot 1 that extends
through 2005. During the third quarter the company continued
working on materials flow and manpower ramp-up to meet production
requirements. The JPF contract includes options for eight
additional years of production that would bring the total potential
value, if fully exercised, to $168.7 million. Since 2001, the
company's Electro-Optics Development Center (EODC) in Tucson,
Ariz., has been teamed with the University of Arizona's Steward
Observatory (University) to build a 6.5-meter aperture collimator
that will be used for testing large optical systems in a vacuum
environment. The EODC has been working under a $12.8 million
fixed-price contract to design and fabricate the structural,
electrical, mechanical and software control systems for the
collimator. The EODC has experienced significant cost growth in its
portion of the program which it believes is a result of changes in
the scope of the project, and in April 2004, submitted a claim in
the amount of $6.3 million to the University to recover these
additional costs. Having been unable to satisfactorily resolve this
matter, the company filed suit against the University on September
17, 2004 to recover these costs and has stopped production on the
program. A counterclaim has recently been filed by the University
and the litigation process is ongoing. Helicopter Programs Sales
generated by the SH-2G Super Seasprite and K-MAX helicopter
programs, including spare parts and sales support, totaled $25.5
million in the third quarter, compared to $21.3 million in the year
ago period. This represented approximately 47 percent of segment
sales for the quarter, compared to approximately 34 percent the
previous year. 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 by mid-year 2005. Due to the complexity of the
integration process and testing results that indicate additional
work to be done, the company added $1.6 million to its estimated
accrued contract loss during the quarter to reflect the current
estimate of costs to complete the program. The company continued to
market K-MAX helicopter inventory that had been written down to an
estimated fair market value in 2002. With the July sale to Grizzly
Mountain Aviation of Prineville, Ore., of its second K-MAX, the
company has now sold or leased all of its available K-MAX
helicopters. Additionally, during the quarter two customers
converted from leases to sales. At September 30, 2004, the company
had an inventory of approximately $30.8 million in K-MAX spare
parts and leased aircraft. Management is in discussions with U.S.
Naval Air Systems Command (NAVAIR) regarding the potential purchase
by the company of a portion of the Bloomfield complex that
Aerospace currently leases from NAVAIR and has operated for several
decades for the principal purpose of performing U.S. government
contracts. Pursuant to the federal government's policy of disposing
of such government-owned, contractor-operated facilities and the
terms of the current lease, the company has confirmed to the
General Services Administration (GSA) that negotiations are
underway for purchase of the facility, which will lead to
determination of the price and other terms of the sale. Management
believes that the facility, which is currently utilized for flight
and ground test operations and limited parts manufacturing, is
important to its ongoing operations. As part of its decision-making
process, the company is discussing with NAVAIR and the GSA the
method that would be used to calculate the purchase price of the
facility which 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. Industrial Distribution
Segment Industrial Distribution's operating profit was $5.5 million
in the third quarter, compared to $2.8 million the previous year.
Sales for the quarter were $149.3 million, including $7.4 million
from Industrial Supplies, Inc. (ISI) which was acquired in the
fourth quarter of 2003, compared to $122.6 million in the 2003
quarter. For the first nine months of 2004, the segment had
operating profits of $16.3 million, compared to $9.0 million in the
same period last year. Sales for the 2004 nine-month period were
$440.2 million including $21.8 million from ISI, compared to $364.7
million a year ago. Vendor incentives in the form of rebates
continue to be an important contributor to the segment's operating
profits. Mr. Kuhn said, "The strong results for Kaman's Industrial
Distribution segment reflect a strengthening U.S. industrial
economy along with the impact of expense reduction, process
improvement, and lean thinking initiated by the company during the
manufacturing recession years of 2001-2003. Kaman's strategy of
expanding its geographic footprint through selective acquisitions
and branch openings also contributed. In the third quarter the
company acquired Brivsa de Mexico, a small Monterrey, Mexico
distributor, expanding the company's ability to serve its national
account customers with operations in this important Mexican
industrial center. "The industrial environment continued to be
strong throughout the quarter even though some of the leading
indicators have softened in recent periods. Sales in the natural
resource-oriented Western U.S. economy contributed to the sales
growth as the demand for basic resources has remained high and U.S.
dollar exchange rates stimulated the export market. East and
Central regions also produced strong results, while the Southern
markets are expected to contribute to results as hurricane damaged
facilities are brought back on line." Kaman is the nation's third
largest distributor of power transmission, motion control, material
handling and electrical components and a wide range of bearings.
Products and value-added services are offered to a customer base of
more than 50,000 companies representing a highly diversified
cross-section of North American industry. The company's footprint
of nearly 200 branches and regional distribution centers covers 70
of the top 100 industrial markets in the United States. Music
Segment The Music segment's operating profit was $3.5 million in
the 2004 third quarter, compared to $2.8 million the previous year.
Sales for the quarter were $42.4 million, compared to $37.9 million
the prior year. For the nine-month period the segment had operating
profits of $6.8 million, compared to $6.0 million in the 2003
period. Sales for the nine months of 2004 were $117.9 million,
compared to $103.5 million in 2003. Mr. Kuhn said, "Music performed
well in the quarter with solid gains in sales and operating profits
as dealers who had been buying cautiously over the past several
months decided to stock more aggressively for the upcoming holiday
season. Sales were strong across our customer base of large
national and small local dealers, with Kaman's Ovation and Takamine
guitars, Gretsch drum sets, and Genz Benz amplifiers all doing
well. Increased sales of Sabian cymbals and Elixir strings also
contributed. "The company continues to expand its market
penetration with new customers and new products. The recently
introduced Ovation LX series premium guitar is receiving high
acceptance ratings from players and industry reviews have been
outstanding. To fill the influx of orders for the LX series, the
company has been gradually increasing production to satisfy the
resulting manufacturing backlog, while maintaining the high quality
of the product. The company's strategy of offering premium brands
that are exclusive to Kaman has worked well in the market and
remains a focus for this segment." 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. Concluding Remark Mr. Kuhn concluded: "Throughout
its history, Kaman Corporation has built and maintained a
diversified business structure in order to ensure financial
stability during periods when business conditions or other factors
were difficult. This basic business philosophy has served the
company well. From 2001 through 2003, world aviation and industrial
markets were weak, and Kaman encountered challenges that affected
earnings performance. Throughout this time and continuing at
present, the company's balance sheet has remained sound. We used
these years to strengthen the business model, implementing a higher
level of 'lean thinking' and individual strategies to build each of
the business segments. Acting on these strategies has required
difficult decisions, including a major plant relocation and
divestiture of non-core elements of the business. We have made
selected acquisitions and have worked through a number of problems
on various aerospace contracts. Two of our segments, Industrial
Distribution and Music, and the Kamatics portion of the Aerospace
segment, are delivering good financial performance in 2004 and are
competing well in their markets with good opportunities for growth.
Taken together, these achievements validate the work we have done."
FORWARD-LOOKING STATEMENTS -------------------------- This report
contains 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 and thereafter contract negotiations
with government authorities, including foreign governments; 2)
political developments in countries where the corporation 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
industrial production and commercial aviation, and global economic
conditions; 5) satisfactory completion of the Australian
SH-2G(A)program, including successful completion and integration of
the full ITAS software; 6) achievement of and actual costs for
recertifying products and processes in connection with the expanded
Jacksonville facility; 7) for the JPF program, receipt and
successful execution of production orders as well as the exercise
of all contract options as such exercise has been assumed in
connection with goodwill impairment evaluations; 8) satisfactory
resolution of the EODC/University of Arizona litigation; 9)
achievement of enhanced business base in the Aerospace segment in
order to better absorb overhead and general and administrative
expenses; 10) satisfactory results of negotiations with NAVAIR
concerning the corporation's leased facility in Bloomfield, Conn.;
11) profitable integration of acquired businesses into the
corporation's operations; 12) changes in supplier sales or vendor
incentive policies; 13) the effect of price increases or decreases;
14) pension plan assumptions and future contributions; and 15)
currency exchange rates, taxes, changes in laws and regulations,
interest rates, inflation rates, general business conditions and
other factors. Any forward-looking information should be considered
with these factors in mind. KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (In thousands
except per share amounts) For the Three Months For the Nine Months
Ended September 30, Ended September 30, 2004 2003 2004 2003 Net
sales $246,017 $223,324 $738,866 $655,645 Costs and expenses: Cost
of sales 195,365 168,584 570,282 484,615 Selling, general and
administrative expense 63,922 53,415 181,396 156,799 Net
(gain)/loss on sale of product lines and other assets 20 (1,317)
(215) (18,143) Other operating (income)/ expense, net (468) (493)
(1,221) (1,107) Interest expense, net 891 739 2,635 2,258 Other
(income)/expense, net 136 443 797 1,035 259,866 221,371 753,674
625,457 Earnings (loss) before income taxes (13,849) 1,953 (14,808)
30,188 Income taxes (benefit) (1,960) 765 (2,375) 11,750 Net
earnings (loss) $(11,889) $1,188 $(12,433) $18,438 Net earnings
(loss) per share: Basic $ (.52) $.05 $(.55) $.82 Diluted (1) $(.52)
$.05 $(.55) $.81 Average shares outstanding: Basic 22,717 22,584
22,684 22,543 Diluted (2) 22,717 23,585 22,684 23,516 Dividends
declared per share $.11 $.11 $.33 $.33 (1) The calculated diluted
per share amounts for the three months ended September 30, 2004 and
2003 and the nine months ended September 30, 2004 are
anti-dilutive, therefore, amounts shown are equal to the basic per
share calculation. (2) Additional potentially diluted average
shares outstanding of 917 for the three months ended September 30,
2004 and 955 for the nine months ended September 30, 2004 have been
excluded from the average diluted shares outstanding due to the
loss from operations in that year. KAMAN CORPORATION AND
SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
September 30, December 31, 2004 2003 Assets Current assets: Cash
and cash equivalents $9,550 $7,130 Accounts receivable, net 207,173
193,243 Inventories 181,691 178,952 Income taxes receivable 4,590
1,043 Deferred income taxes 26,704 26,026 Other current assets
14,526 12,457 Total current assets 444,234 418,851 Property, plant
and equipment, net 48,404 51,049 Goodwill and other intangible
assets, net 53,346 53,347 Other assets 6,008 5,064 $551,992
$528,311 Liabilities and shareholders' equity Current liabilities:
Notes payable $10,352 $7,673 Accounts payable 56,790 59,600 Accrued
contract loss 30,842 23,611 Accrued restructuring costs 4,463 6,109
Other accrued liabilities 33,770 26,123 Advances on contracts
18,476 19,693 Other current liabilities 15,700 17,746 Total current
liabilities 170,393 160,555 Long-term debt, excluding current
portion 65,224 36,624 Other long-term liabilities 30,982 27,949
Shareholders' equity 285,393 303,183 $551,992 $528,311 KAMAN
CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of
Cash Flows (In thousands) For the Nine Months Ended September 30,
2004 2003 Cash flows from operating activities: Net earnings (loss)
$(12,433) $18,438 Depreciation and amortization 6,836 7,657
Provision for losses on accounts receivable 2,273 188 Net gain on
sale of product lines and other assets (215) (18,143) Non-cash
sales adjustment for recoverable costs- not billed 18,211 --
Deferred income taxes (593) 1,818 Other, net 4,803 1,618 Changes in
current assets and liabilities, excluding effects of
acquisitions/divestitures: Accounts receivable (34,391) (18,008)
Inventory (2,699) (3,469) Income taxes receivable (3,547) (858)
Accounts payable (2,814) 2,309 Accrued contract loss 7,231 (3,828)
Accrued restructuring costs (1,646) (892) Advances on contracts
(1,217) (893) Income taxes payable 5 3,040 Changes in other current
assets and liabilities 3,471 6,056 Cash provided by (used in)
operating activities (16,725) (4,967) Cash flows from investing
activities: Proceeds from sale of product lines and other assets
348 28,309 Expenditures for property, plant & equipment (5,015)
(6,682) Acquisition of businesses, less cash acquired (399) (465)
Other, net (472) (1,016) Cash provided by (used in) investing
activities (5,538) 20,146 Cash flows from financing activities:
Changes to notes payable 2,660 293 Additions / (reductions) to
long-term debt 28,600 (6,358) Proceeds from exercise of employee
stock plans 911 956 Purchase of treasury stock (9) (205) Dividends
paid (7,479) (7,431) Cash provided by (used in) financing
activities 24,683 (12,745) Net increase (decrease) in cash and cash
equivalents 2,420 2,434 Cash and cash equivalents at beginning of
period 7,130 5,571 Cash and cash equivalents at end of period
$9,550 $8,005 DATASOURCE: Kaman Corp. CONTACT: Russell H. Jones,
SVP, Chief Investment Officer & Treasurer of Kaman Corp.,
+1-860-243-6307, Web site: http://www.kaman.com/ Company News
On-Call: http://www.prnewswire.com/comp/480450.html
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