EX-99 3 pr1003.txt EARNINGS PRESS RELEASE 10-31-03 Exhibit 99.1 KAMAN REPORTS 2003 THIRD QUARTER, NINE MONTH RESULTS BLOOMFIELD, Connecticut (October 31, 2003) - (NASDAQ:KAMNA) Kaman Corp. today reported financial results for the third quarter and nine months ended September 30, 2003. Net earnings for the 2003 third quarter were $1.2 million, or $0.05 per share diluted, including an after-tax gain of approximately $700 thousand, or about $0.03 per share diluted, as the result of post-closing adjustments associated with the sale of businesses in prior periods, compared to $5.6 million or $0.25 per share diluted in the same quarter last year. Net sales for the third quarter were $223.3 million compared to $218.3 million the previous year. For the 2003 nine-month period, the company reported net earnings of $18.4 million, or $0.81 per share diluted, including a $10.6 million after-tax gain ($0.48 per share) from the sale of the company's Electromagnetics Development Center (EDC) in January, compared to a net loss of $39.5 million or $1.76 net loss per share diluted in the same period last year. Nine month net sales were $655.6 million, compared to $650.5 million the previous year. Results for the 2002 nine-month period include pre-tax charges of $86.0 million taken in the second quarter of 2002 to cover the write-down of K-MAX helicopter assets, principally inventories; for cost growth associated with the Australian SH-2G(A) helicopter program; and to phase out operations at the company's Moosup, Conn. plant. The nine-month 2002 results also include a pre-tax $1.9 million gain from the sale of the company's microwave products line. SEGMENT PERFORMANCE Aerospace Segment ----------------- Third quarter operating profits for the segment were $1.7 million (including the effect of $946 thousand in ongoing relocation and re-certification costs related to the Moosup, Conn. plant closure), compared to $7.2 million last year. Segment sales for the third quarter 2003 were $62.8 million, compared to $65.2 million in the 2002 period. The 2002 third quarter sales included $2.2 million from EDC. Page 1 Page 2 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 In the first nine months of 2003, the segment had operating profits of $15.5 million (including the effect of $2.1 million in ongoing relocation and re-certification costs related to the Moosup, Conn. plant closing), compared to an operating loss of $61.7 million in the 2002 nine-month period as a result of the pre-tax charges. Sales for the first nine months of 2003 were $187.4 million, compared to $201.3 million the previous year, which included $11.9 million from two divested businesses. The Australian program adjustment reduced segment sales in the 2002 nine-month period by $6.5 million. The Aerospace segment serves the commercial aerospace and domestic and foreign defense markets with a variety of products including the SH-2G Super Seasprite naval helicopter and K-MAX medium-to- heavy lift helicopter, subcontracted commercial and military aerostructures, specialized bearings, and advanced technology products for specialized applications, including missile and bomb- fuzing devices. During the quarter and first nine months of 2003 the Kaman Aerospace subsidiary was affected by several factors including the absence of new helicopter orders, the fact that the MD Helicopters, Inc. (MDHI) subcontract program is in stop-work mode, the transition of manufacturing from the Moosup plant to the Jacksonville, Fla. facility, and the current weak market for commercial airliners, which has caused order stretch-outs and a lower volume of deliveries than anticipated for certain Boeing programs. These conditions have resulted in lower sales, which in turn have resulted in overhead and general and administrative expenditures being absorbed at higher rates by active aerospace programs. This has led to generally lower profitability or losses for these programs. Paul R. Kuhn, chairman, president and chief executive officer, said, "We continue to evaluate our overall cost structure in this environment. To date, the company has elected to continue expenditures for longer-term competitiveness in order to position it for the commercial aircraft market recovery that we believe will come, and to maintain our prime helicopter program capabilities." Helicopter Programs ------------------- Sales generated by the SH-2G Super Seasprite and K-MAX helicopter programs, including spare parts and sales support, totaled $21.3 million in the third quarter, compared to $20.3 million in the Page 2 Page 3 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 2002 period. Helicopter programs represented approximately 34 percent of segment sales for the quarter, compared to approximately 31 percent a year ago. Except for post-production support, the SH-2G helicopter program for New Zealand has been successfully completed, while the Australia program is in its later stages. Production of the eleven 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 being made on this element of the program. In September the Royal Australian Navy (RAN) began the process of provisional acceptance of these aircraft after receiving a critical "decision to proceed" from the Australian government. The company expects to be able to deliver the full capability of the ITAS weapons system software by the end of 2004. While the company believes its reserves are sufficient to cover estimated costs to complete the program, the task of software integration is yet to come, and that task could present issues that are difficult to anticipate. In a smaller program, the company announced it had completed training of Polish Navy pilots, sensor operators and maintenance personnel as part of the Polish Navy's SH-2G Super Seasprite helicopter acquisition program. Poland acquired four of the aircraft from the U. S. Navy in 2002 that underwent refurbishment at Kaman. The four aircraft will operate aboard two FFG-7 class frigates that Poland also acquired from the U. S. Navy. The company is marketing its existing K-MAX aircraft inventory, which was written down to an estimated fair market value last year, using sales and short-term leasing programs. During the quarter, two K-MAX helicopters were leased and two others were converted from leases to sales. These sales produced pre-tax profit of $2.1 million. The company will produce additional K-MAX aircraft only upon firm order by a customer. Aircraft Structures and Components ---------------------------------- Third quarter aircraft structures and components sales were $25.7 million, compared to year-ago results of $31.2 million. This business contributed approximately 41 percent of the Aerospace segment's sales in the third quarter, compared to approximately 48 percent a year ago. Page 3 Page 4 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 Aerostructures subcontract work involves commercial and military aircraft programs. Current programs include production of assemblies such as wing structures and other parts for virtually all Boeing commercial aircraft and the C-17 military transport. This is an area the company has focused on as core to the business and important for the future. The low current and projected build rates for commercial airliners affect this business directly, and the market has become increasingly competitive and difficult on an industry-wide basis. The move from Moosup to Jacksonville was specifically undertaken to provide a lower cost base from which to compete. The physical completion of that move has been accompanied by phase-out costs in Moosup as well as learning curve and other ramp-up costs in Jacksonville, which have resulted in lower profitability or losses in certain aerostructures programs. While management believes that these costs hit their peak in the third quarter of 2003, the opportunity to operate at lower cost in Jacksonville remains evident and is an expectation for the future. The Jacksonville facility is now ready to accept additional business, which may take time to develop in the present environment. Helicopter subcontract work involves commercial and military programs. The company's helicopter subcontracting group provides fuselages for the MD Helicopters 500 and 600 series helicopters and composite rotor blades for the MD Explorer helicopter. Total orders received from MDHI have run at significantly lower rates than originally anticipated due to lower than expected demand. The company's investment in these contracts consists of $4.5 million in billed receivables as of October 1 and $16.9 million in recoverable costs not billed (including start-up costs and other program expenditures). The company has received several partial payments in 2003, including a payment received on October 1. The recoverability of unbilled costs will depend to a significant extent upon MDHI's future requirements. The company has stopped production on these programs while working with MDHI to resolve overall payment issues and establish conditions under which production can be resumed. The company's Kamatics specialty bearing business had increased sales and profits in the reporting period with military sales helping to offset continued softness in commercial and regional aircraft manufacturing. Initially involved principally in military programs, Kamatics products are now in wide use in commercial airliners operated by the major and regional airlines, and Boeing is Kamatics' largest customer. Page 4 Page 5 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 Advanced Technology Products ---------------------------- Sales of the company's advanced technology products in the 2003 third quarter rose to $15.8 million from $13.7 million a year ago. This business accounted for approximately 25 percent of Aerospace segment sales in the third quarter, compared to approximately 21 percent 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's Kaman Dayron operation, acquired in July 2002, manufactures fuzes for a variety of munitions programs, and has the contract to develop a fuze for the U. S. Air Force and Navy Joint Programmable Fuze (JPF) program. Securing the JPF program was the principal motivation for making the Dayron acquisition, as the program is expected to generate substantial business for the company once final qualification has been achieved and production orders have been received. As a result of qualification test results received during the first quarter of 2003, the company is implementing certain changes to the fuze design and production process and is conducting internal testing. This additional qualification work has delayed production unit sales and has increased program costs. Management now expects to resume final qualification testing by the end of 2003 and begin production in 2004. Industrial Distribution Segment ------------------------------- Industrial Distribution's operating profit was $2.8 million for the third quarter, compared to $3.0 million reported a year ago. Sales were $122.6 million in the third quarter, compared to $120.3 million in the period a year ago. For the nine-month period, operating profits were $9.0 million, compared to $9.1 million in the 2002 period. Nine-month sales were $364.7 million for 2003, compared to $358.7 million a year ago. Kaman is the third largest U.S. industrial distributor servicing the bearings, electrical/mechanical power transmission, fluid power, motion control and materials handling market in the United States. Kaman offers more than 1.5 million items, as well as value-added services to a base of more than 50,000 customers Page 5 Page 6 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 spanning nearly every sector of U.S. industry, from its geographically broad-based footprint of nearly 200 branches and regional distribution centers in the U.S., Canada and Mexico. At present the company covers 68 of the top 100 industrial markets in the U.S. This segment is directly affected by national macroeconomic variables such as the percentage of plant capacity utilization within the U.S. industrial base, and the business tends to track the U.S. Industrial Production Index with a short lag. Conditions for manufacturers have remained soft since the second half of 2000, with capacity utilization remaining considerably below the 80 percent threshold considered a recession level by the U.S. government. As manufacturing continues to move off shore, and as customers permanently close facilities, recovery in industrial production becomes even more difficult. Kuhn said, "Signs of meaningful national economic recovery have been inconsistent and inconclusive. The tone of the market remains weak as we enter the fourth quarter. The company believes that it has the appropriate platform, including the technology, systems management and customer and supplier relationships, to compete effectively in the evolving industrial distribution industry. The company's size and scale of operations allow it to attract highly skilled personnel and realize internal operating efficiencies, and also to take advantage of vendor incentives in the form of rebates, which tend to favor the larger distributors and remain an important factor in profitability. The company's resources and product knowledge enable it to offer a comprehensive product line and invest in sophisticated inventory management and control systems. The company's prominent position in the industry also enhances its ability to rebound during economic recoveries and to grow through additional acquisitions." Success in the market requires a combination of competitive pricing and value-added services that save the customer money while helping them become more efficient and productive. Over the past several years, large companies have increasingly centralized their purchasing through suppliers that can service all of their plant locations across a wide geographic area. Kaman has expanded its presence in geographic markets considered key to winning these customers through acquisitions in the upper midwest and Mexico, and the selective opening of new branches. Furthering this strategy, the company acquired the net assets and business of Industrial Supplies, Inc. (ISI), of Birmingham, Alabama early in the fourth quarter of 2003. ISI distributes a wide variety of Page 6 Page 8 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 extended its line of percussion products and accessories over the past two years, augmenting its CB, Toca (registered trademark) and Gibraltar (registered trademark) lines with the addition of an exclusive distribution agreement with Gretsch (registered trademark) drums in 2001 and the acquisition of Latin Percussion, Inc., the world leader in hand percussion instruments in 2002. Kuhn said, "Professional users of the segment's products include many of the most popular superstar artists, and several of Kaman's popular trademark products are available to retailers only through the company, providing a significant competitive advantage. The acquisition of Latin Percussion has provided outstanding additions to the Kaman product lines, and the consolidation of LP into Kaman was rapid and successful. In September the company acquired Genz Benz Enclosures, Inc., a small manufacturer of amplification and sound reinforcement equipment. Genz Benz had been working closely with Kaman Music for several years through an exclusive distribution agreement, so the acquisition brings Kaman control of the product source, but does not add immediate incremental sales. However, under Kaman, Genz Benz will have the resources to exploit its full potential." Concluding Remark ----------------- Kuhn said, "This was a difficult quarter for the company and many of the issues that impacted our business segments continue to be a concern. We believe, however, that the investments we are making in each of our segments and the actions we are taking are positioning the company to do well as the markets we serve recover." Forward-Looking Statements -------------------------- This release contains forward-looking information relating to the company's business and prospects, including the SH-2G and K-MAX helicopter programs, aerostructures and helicopter subcontract programs and components, advanced technology products, the industrial and music 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 and thereafter contract negotiations with government authorities, including foreign governments; 2) political developments in countries where the company intends to do business; 3) standard government contract Page 8 Page 9 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 provisions permitting renegotiation of terms and termination for the convenience of the government; 4) economic and competitive conditions in markets served by the company, 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) recovery of the company's investment in the MD Helicopters, Inc. contracts; 7) actual costs for moving equipment and recertifying products and processes in connection with phase out of the Moosup, Connecticut facility; 8) JPF program final qualification test results and receipt of production orders; 9) achievement of enhanced business base in the Aerospace segment in order to better absorb overhead and general and administrative expenses; 10) successful sale or lease of existing K-MAX inventory; 11) the condition of consumer markets for musical instruments, including the strength of the Christmas season; 12) profitable integration of acquired businesses into the company's operations; 13) changes in supplier sales or vendor incentive policies; 14) the effect of price increases or decreases; and 15) currency exchange rates, taxes, changes in laws and regulations, inflation rates, general business conditions and other factors. Any forward-looking information should be considered with these factors in mind. ### Contact: Russell H. Jones SVP, Chief Investment Officer & Treasurer (860) 243-6307 rhj-corp@kaman.com Page 9 Page 10 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 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, 2003 2002 2003 2002 ------------------------------------------------------------------ Net sales $ 223,324 $ 218,266 $ 655,645 $ 650,500 Costs and expenses: Cost of sales (1) 168,584 160,961 484,615 552,444 Selling, general and ad- ministrative expense 53,415 48,191 156,799 149,681 Restructuring costs (2) - - - 8,290 Other operating (income)/expense, net (493) (501) (1,107) (1,008) Interest expense, net 739 713 2,258 1,580 (Gain)/loss on sale of product lines and other assets, net (1,317) 52 (18,143) (1,852) Other expense, net 443 303 1,035 1,143 ------------------------------------------------------------------ 221,371 209,719 625,457 710,278 ------------------------------------------------------------------ Earnings (loss) before income taxes 1,953 8,547 30,188 (59,778) Income taxes (benefit) 765 2,975 11,750 (20,325) ------------------------------------------------------------------ Net earnings (loss) $ 1,188 $ 5,572 $ 18,438 $ (39,453) ================================================================== Net earnings (loss) per share: Basic $ .05 $ .25 $ .82 $ (1.76) Diluted (3) $ .05 $ .25 $ .81 $ (1.76) ================================================================== Average shares outstanding: Basic 22,584 22,446 22,543 22,394 Diluted (4) 23,585 23,521 23,516 22,394 ================================================================== Dividends declared per share $ .11 $ .11 $ .33 $ .33 ================================================================== (1) Cost of sales for the nine months ended September 30, 2002 includes the write-off of K-MAX assets of $50,000 and Moosup facility assets of $2,679 which are associated with the charge taken in the Aerospace segment. Page 10 Page 11 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 (2) Restructuring costs for the nine months ended September 30, 2002 relate to the closure of the Moosup facility in 2003 and are associated with the charge taken in the Aerospace segment. (3) The calculated diluted per share amounts for the three months ended September 30, 2003 and the nine months ended September 30, 2002 are anti-dilutive, therefore, amounts shown are equal to the basic per share calculation. (4) Additional potentially diluted average shares outstanding of 1,186 for the nine months ended September 30, 2002 have been excluded from the average diluted shares outstanding due to the loss from operations in that year.
Page 11 Page 12 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 KAMAN CORPORATION AND SUBSIDIARIES Segment Information (In thousands) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2003 2002 2003 2002 ------------------------------------------------------------------ Net sales: Aerospace $ 62,785 $ 65,226 $ 187,421 $ 201,253 Industrial Distribution 122,571 120,259 364,699 358,734 Music Distribution 37,968 32,781 103,525 90,513 ------------------------------------------------------------------ 223,324 218,266 655,645 650,500 ================================================================== Operating profit (loss): Aerospace 1,738 7,180 15,463 (61,694) Industrial Distribution 2,830 3,003 8,992 9,060 Music Distribution 2,772 2,289 6,010 4,351 ------------------------------------------------------------------ 7,340 12,472 30,465 (48,283) Interest, corporate and other expense, net(1)(6,704) (3,873) (18,420) (13,347) Gain/(loss) on sale of product lines and other assets, net 1,317 (52) 18,143 1,852 ------------------------------------------------------------------ Earnings (loss) before income taxes $ 1,953 $ 8,547 $ 30,188 $ (59,778) ================================================================== (1) "Interest, corporate and other expense, net" increased for the three months ended September 30, 2003, the largest element of which is stock appreciation rights expense. The increase for the nine months ended September 30, 2003 is primarily due to a reduction in group insurance liabilities in 2002 that did not recur in 2003, and growth in stock appreciation rights expense, pension and interest expenses.
Page 12 Page 13 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 KAMAN CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) September 30, December 31, 2003 2002 ------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 8,005 $ 5,571 Accounts receivable, net 211,350 195,857 Inventories 165,166 164,715 Income taxes receivable 6,050 5,192 Deferred income taxes 27,999 28,450 Other current assets 12,737 14,460 ------------------------------------------------------------------ Total current assets 431,307 414,245 ------------------------------------------------------------------ Property, plant and equipment, net 53,341 61,635 Goodwill and other intangible assets 50,753 50,994 Other assets 7,158 8,666 ------------------------------------------------------------------ $ 542,559 $ 535,540 ================================================================== Liabilities and shareholders' equity Current liabilities: Notes payable $ 10,579 $ 10,307 Accounts payable 49,074 46,664 Accrued contract loss 22,846 26,674 Accrued restructuring costs 6,702 7,594 Other accrued liabilities 26,391 23,583 Advances on contracts 20,646 22,318 Other current liabilities 17,988 19,954 Income taxes payable 3,040 - ------------------------------------------------------------------ Total current liabilities 157,266 157,094 ------------------------------------------------------------------ Long-term debt, excluding current portion 53,774 60,132 Other long-term liabilities 27,331 26,367 Shareholders' equity 304,188 291,947 ------------------------------------------------------------------ $ 542,559 $ 535,540 ==================================================================
Page 13 Page 14 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 KAMAN CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) For the Nine Months Ended September 30, ------------------------------------------------------------------ 2003 2002 ---- ---- Cash flows from operating activities: Net earnings (loss) $ 18,438 $ (39,453) Depreciation and amortization 7,657 8,520 Gain on sale of product lines and other assets, net (18,143) (1,852) Restructuring costs - 8,290 Non-cash write-down of assets - 52,679 Deferred income taxes 1,818 (22,250) Other, net 1,618 2,430 Changes in current assets and liabilities, excluding effects of acquisitions/divestitures: Accounts receivable (17,820) (29,072) Inventory (3,469) 713 Income taxes receivable (858) (1,409) Accounts payable - trade 2,309 (8,380) Accrued contract loss (3,828) 18,495 Accrued restructuring costs (892) (520) Advances on contracts (893) (3,277) Income taxes payable 3,040 - Changes in other current assets and liabilities 6,056 (9,303) ------------------------------------------------------------------ Cash provided by (used in) operating activities (4,967) (24,389) ------------------------------------------------------------------ Cash flows from investing activities: Proceeds from sale of product lines and other assets 28,309 7,685 Expenditures for property, plant & equipment (6,682) (4,637) Acquisition of businesses, less cash acquired (465) (35,302) Other, net (1,016) (144) ------------------------------------------------------------------ Cash provided by (used in) investing activities 20,146 (32,398) ------------------------------------------------------------------ Page 14 Page 15 of 15 "Kaman Reports Third Quarter Earnings" October 31, 2003 For the Nine Months Ended September 30, ------------------------------------------------------------------ 2003 2002 ---- ---- Cash flows from financing activities: Changes to notes payable 293 7,283 Additions / (reductions) to long-term debt (6,358) 31,680 Proceeds from exercise of employee stock plans 956 1,150 Purchase of treasury stock (205) (5) Dividends paid (7,431) (7,379) Other - 979 ------------------------------------------------------------------ Cash provided by (used in) financing activities (12,745) 33,708 ------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 2,434 (23,079) Cash and cash equivalents at beginning of period 5,571 30,834 ------------------------------------------------------------------ Cash and cash equivalents at end of period $ 8,005 $ 7,755 ==================================================================
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