EX-99.1 2 exhibit991-q22012earningsr.htm EXHIBIT 99.1 Exhibit 99.1 - Q2 2012 Earnings Release


Exhibit 99.1

Kaman Corporation    
Bloomfield, CT
(860) 243-7100

KAMAN REPORTS 2012 SECOND QUARTER RESULTS

Second Quarter 2012 Highlights:
•Diluted earnings per share of $0.62; net sales $405 million
•
Aerospace segment operating profit of 17.8%, driven by bearing product line performance
•Industrial Distribution operating profit margin of 5.7% on record sales
•JPF deliveries meet year-to-date expectations

BLOOMFIELD, Connecticut (July 26, 2012) - Kaman Corp. (NYSE:KAMN) today reported financial results for the second quarter ended June 29, 2012.
 
 
 
 
 
 
 
 
 
Table 1. Summary of Financial Results
 
 
 
 
 
 
 
In thousands except per share amounts
For the three months ended
 
 
 
June 29,
2012
 
July 1,
2011
 
$ Change
 
 
Net sales:
 
 
 
 
 
 
 
Industrial Distribution
$
258,116

 
$
239,307

 
$
18,809

 
 
Aerospace
147,364

 
145,779

 
1,585

 
 
Net sales
$
405,480

 
$
385,086

 
$
20,394

 
 
 
 

 
 

 
 
 
 
Operating income:
 

 
 

 
 
 
 
Industrial Distribution
$
14,645

 
$
12,636

 
$
2,009

 
 
Aerospace
26,158

 
22,360

 
3,798

 
 
Net gain (loss) on sale of assets
8

 
(34
)
 
42

 
 
Corporate expense
(12,312
)
 
(10,883
)
 
(1,429
)
 
 
Operating income
$
28,499

 
$
24,079

 
$
4,420

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.62

 
$
0.53

 
$
0.09

 
 
 
 
 
 
 
 
 

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “We are pleased with the results achieved during the second quarter of 2012. In our Aerospace business, we continued to experience stronger demand for our bearing product lines, driving the overall Aerospace operating margin to 17.8%. In addition, we delivered approximately 5,900 Joint Programmable Fuzes during the quarter, meeting our delivery expectations year-to-date on this key program.





Industrial Distribution achieved a strong operating profit margin of 5.7% for the second quarter of 2012 compared to 5.0% in the first quarter of 2012 and 5.3% in the second quarter last year. This margin performance was achieved despite experiencing organic sales growth of just 2.1% for the second quarter. We are pleased that we were able to deliver solid profit performance as we continue to focus on gross margin improvement, cost control and continuing contributions from acquisitions.

During the quarter, we also made progress toward the sale of our SH-2G(I) helicopters and the formation of a joint venture in India for an additional low-cost manufacturing alternative. In Industrial Distribution, we launched a program to implement a new state of the art business system to support our long-term growth strategy. We continue to leverage our recent acquisitions and remain committed to pursuing acquisition targets for both of our businesses. The addition of Florida Bearings in July, which expanded our geographical footprint, diversified our customer base and added additional end market exposure, demonstrates our commitment to continue to complement our organic growth with acquisitions.”

Segment reports follow:

Industrial Distribution segment

Sales increased 7.9% in the second quarter of 2012 to a record $258.1 million compared to $239.3 million a year ago. Acquisitions contributed $13.8 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, sales increased 7.9% over last year's second quarter, with organic sales representing 2.1% of the increase. (See Table 3 for additional details regarding the Segment's sales per sales day performance.) Sales growth was driven by increases in fabricated metal product manufacturing, nonmetallic mineral manufacturing and primary metal manufacturing. These increases were partially offset by declines in the food and beverage, semi-conductor and solar power industries.

Segment operating income for the second quarter of 2012 was $14.6 million compared to operating income of $12.6 million in the second quarter of 2011. The operating profit margin for the second quarter of 2012 was 5.7%. In comparison, the operating profit margin was 5.0% in the first quarter of 2012 and 5.3% in the second quarter of 2011. Operating profit was higher year over year as a result of higher sales volume; increased gross profit, which reached a record level in the quarter; and effective SG&A expense control.

Aerospace segment

Sales were $147.4 million, an increase of $1.6 million from sales of $145.8 million in the second quarter of 2011. The increase was due to strong performance from bearing product lines; increased deliveries under the A-10 re-wing program; higher sales of commercial K-MAX service, support and spares; and contributions from the acquisition of Vermont Composites. The increases were offset by lower sales on several programs including the JPF program which had the benefit of significant direct commercial sales volume in the second quarter of 2011. Other programs generating lower sales were Unmanned K-MAX, BLACK HAWK cockpit production and our legacy fuze programs.

Operating income for the second quarter of 2012 was $26.2 million, compared to operating income of $22.4 million in the 2011 second quarter. The operating margin in this year's second quarter was 17.8% as compared to 15.3% in the comparable period in the prior year. The increase in operating income resulted from higher gross profit on our bearing products and helicopter programs, including the Egypt SH-2G(E) maintenance and upgrade program, commercial K-MAX service, support and spares, and the Bell blade




program. Also benefiting margin was the absence of legal fees related to FMU-143 litigation. These increases were offset by a less profitable mix of JPF sales, lower sales volume on our Unmanned K-MAX program, lower volume on our Sikorsky BLACK HAWK programs and lower sales volume on our legacy fuze programs.

Outlook

The Company's updated expectations for 2012 are as follows:

•
Industrial Distribution:
◦
Sales of $1,035 million to $1,055 million
◦
Operating margin between 5.4% and 5.6%
•
Aerospace:
◦
Sales of $605 million to $625 million
◦
Operating margin between 15.7% and 16.0%
•
Corporate expenses in the range of $44 million to $46 million
•
Interest expense of approximately $11.5 million
•
Estimated tax rate of approximately 35%
•
Free cash flow in the range of $30 million to $35 million.

Chief Financial Officer, William C. Denninger, commented, "Now halfway through the year, we have reviewed our full year expectations for each segment and we expect full year sales and operating margins to come in toward the lower ends of our previously reported ranges for both segments. At Aerospace, revenue projections have been impacted by a potential unmanned K-MAX bridge buy that has moved out of 2012, legacy fuze and composite program deliveries shifting to the right and an anticipated reduction in deliveries of BLACK HAWK cockpits. Industrial Distribution is experiencing lower organic sales growth rates than we originally projected due to slower industrial activity. Additionally, we have reduced our previous expectation for interest expense from $13.5 million to $11.5 million and expect Corporate expenses to be near the high end of the range.”


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 our results and various company programs.

A conference call has been scheduled for tomorrow, July 27, 2012 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.





Table 2. Summary of Segment Information (in thousands)
 
 
 
 
 
 
 
 
For the three months ended
 
For the six months ended
 
June 29, 2012
 
July 1,
2011
 
June 29, 2012
 
July 1,
2011
Net sales:
 
 
 
 
 
 
 
   Industrial Distribution
$
258,116

 
$
239,307

 
$
515,754

 
$
478,177

   Aerospace
147,364

 
145,779

 
278,448

 
284,732

     Net sales
$
405,480

 
$
385,086

 
$
794,202

 
$
762,909

 
 

 
 

 
 
 
 
Operating income:
 

 
 

 
 
 
 
   Industrial Distribution
$
14,645

 
$
12,636

 
$
27,425

 
$
24,750

   Aerospace
26,158

 
22,360

 
42,059

 
43,779

   Net gain (loss) on sale of assets
8

 
(34
)
 
32

 
(36
)
   Corporate expense
(12,312
)
 
(10,883
)
 
(23,837
)
 
(19,855
)
     Operating income
$
28,499

 
$
24,079

 
$
45,679

 
$
48,638

 
 
 
 
 
 
 
 

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 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 organic sales per sales day provides an important perspective on how net sales may be impacted by the number of days the segment is open for business and provides a basis for comparing 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 and Geographic 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 July 26, 2012. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition.

Table 3. Industrial Distribution - Organic Sales Per Sales Day (in thousands, except days)
 
 
 
 
For the three months ended
 
June 29,
2012
 
July 1,
2011
Net sales: Industrial Distribution
$
258,116

 
$
239,307

Acquisition related sales
13,769

 
—

Organic sales
$
244,347

 
$
239,307

Sales days
64

 
64

Organic sales per sales day
$
3,818

 
$
3,739






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 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 Statements of Cash Flows.

Table 4. Free Cash Flow (in thousands)
 
 
 
 
 
 
 
 
For the six months ended
 
For the three months ended
 
For the three months ended
 
 
June 29,
2012
 
March 30,
2012
 
June 29,
2012
Net cash provided by (used in) operating activities
 
$
(4,501
)
 
$
(23,771
)
 
$
19,270

Expenditures for property, plant & equipment
 
(10,967
)
 
(5,290
)
 
(5,677
)
Free Cash Flow
 
$
(15,468
)
 
$
(29,061
)
 
$
13,593


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 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 condensed consolidated balance sheets included in this release.

Table 5. Debt to Capitalization (in thousands)
 
 
 
 
 
 
June 29,
2012
 
December 31,
2011
Notes payable
 
$
3,503

 
$
1,685

Current portion of long-term debt
 
5,000

 
5,000

Long-term debt, excluding current portion
 
221,780

 
198,522

Debt
 
230,283

 
205,207

Total shareholders' equity
 
399,336

 
373,071

Capitalization
 
$
629,619

 
$
578,278

Debt to capitalization
 
36.6
%
 
35.5
%







About Kaman Corporation
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) changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration under the Budget Control Act of 2011); 5) satisfactory conclusion to government inquiries or investigations regarding government programs, including satisfactory resolution of the Wichita subpoena matter; 6) domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; 7) risks associated with successful implementation and ramp up of significant new programs; 8) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; 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) continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory; 12) cost estimates associated with environmental remediation activities at the Bloomfield, Moosup and New Hartford, CT facilities and our U.K. facilities; 13) profitable integration of acquired businesses into the Company's operations; 14) changes in supplier sales or vendor incentive policies; 15) the effects of price increases or decreases; 16) the effects of pension regulations, pension plan assumptions, pension plan asset performance and future contributions; 17) future levels of indebtedness and capital expenditures; 18) future availability of credit; 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 report should be considered with these factors in mind. The Company assumes no obligation to update any forward-looking statements contained in this release.



###

Contact: Eric Remington
V.P., Investor Relations
(860) 243-6334
Eric.Remington@kaman.com








KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 29,
2012
 
July 1,
2011
 
June 29,
2012
 
July 1,
2011
Net sales
 
$
405,480

 
$
385,086

 
$
794,202

 
$
762,909

Cost of sales
 
290,151

 
278,566

 
572,805

 
551,760

Gross profit
 
115,329

 
106,520

 
221,397

 
211,149

Selling, general and administrative expenses
 
86,838

 
82,407

 
175,750

 
162,475

Net (gain)/loss on sale of assets
 
(8
)
 
34

 
(32
)
 
36

Operating income
 
28,499

 
24,079

 
45,679

 
48,638

Interest expense, net
 
2,831

 
2,821

 
5,710

 
5,891

Other (income) expense, net
 
84

 
(25
)
 
(163
)
 
(414
)
Earnings before income taxes
 
25,584

 
21,283

 
40,132

 
43,161

Income tax expense
 
9,105

 
7,256

 
14,250

 
14,942

Net earnings
 
$
16,479

 
$
14,027

 
$
25,882

 
$
28,219

 
 
 
 
 
 
 
 
 
Net earnings per share:
 
 

 
 

 
 
 
 
Basic net earnings per share
 
$
0.62

 
$
0.53

 
$
0.98

 
$
1.08

Diluted net earnings per share
 
$
0.62

 
$
0.53

 
$
0.98

 
$
1.06

Average shares outstanding:
 
 

 
 

 
 
 
 
Basic
 
26,390

 
26,286

 
26,342

 
26,206

Diluted
 
26,534

 
26,673

 
26,498

 
26,514

Dividends declared per share
 
$
0.16

 
$
0.14

 
$
0.32

 
$
0.28


KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 29,
2012
 
July 1,
2011
 
June 29,
2012
 
July 1,
2011
Net earnings
 
$
16,479

 
$
14,027

 
$
25,882

 
$
28,219

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(3,171
)
 
530

 
526

 
4,702

Change in unrealized loss on derivative instruments, for the three months and six months ended, net of tax expense of $0 and $75, and $0 and $150, respectively
 
—

 
122

 
—

 
243

Pension plan adjustments, for the three months and six months ended, net of tax expense of $834 and $238, and $1,669 and $577, respectively
 
1,362

 
388

 
2,723

 
942

Comprehensive income
 
$
14,670

 
$
15,067

 
$
29,131

 
$
34,106






KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
 
 
June 29,
2012
 
December 31,
2011
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
15,099

 
$
14,985

Accounts receivable, net
 
211,891

 
190,081

Inventories
 
351,777

 
339,846

Deferred income taxes
 
24,926

 
25,018

Income taxes receivable
 
—

 
527

Other current assets
 
23,392

 
29,645

Total current assets
 
627,085

 
600,102

Property, plant and equipment, net of accumulated depreciation of $146,900 and $142,657, respectively
 
113,244

 
111,895

Goodwill
 
153,455

 
153,267

Other intangible assets, net
 
70,705

 
73,816

Deferred income taxes
 
35,645

 
38,434

Other assets
 
16,943

 
18,884

Total assets
 
$
1,017,077

 
$
996,398

Liabilities and Shareholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Notes payable
 
$
3,503

 
$
1,685

Current portion of long-term debt
 
5,000

 
5,000

Accounts payable – trade
 
108,337

 
106,025

Accrued salaries and wages
 
31,288

 
35,766

Current portion of amount due to Commonwealth of Australia
 
6,555

 
6,487

Other accruals and payables
 
49,105

 
62,748

Income taxes payable
 
1,499

 
987

Total current liabilities
 
205,287

 
218,698

Long-term debt, excluding current portion
 
221,780

 
198,522

Deferred income taxes
 
6,703

 
6,827

Underfunded pension
 
131,742

 
135,829

Due to Commonwealth of Australia, excluding current portion
 
—

 
6,566

Other long-term liabilities
 
52,229

 
56,885

Commitments and contingencies
 
—

 
—

Shareholders' equity:
 
 

 
 

Preferred stock, $1 par value, 200,000 shares authorized; none outstanding
 
—

 
—

Common stock, $1 par value, 50,000,000 shares authorized; voting; 26,685,377 and 26,495,828 shares issued, respectively
 
26,685

 
26,496

Additional paid-in capital
 
115,528

 
109,584

Retained earnings
 
378,832

 
361,389

Accumulated other comprehensive income (loss)
 
(114,697
)
 
(117,946
)
Less 269,846 and 258,424 shares of common stock, respectively, held in treasury, at cost
 
(7,012
)
 
(6,452
)
Total shareholders’ equity
 
399,336

 
373,071

Total liabilities and shareholders’ equity
 
$
1,017,077

 
$
996,398

 
 


 
 







KAMAN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)

 
 
For the Six Months Ended
 
 
June 29,
2012
 
July 1,
2011
Cash flows from operating activities:
 
 
 
 
Net earnings
 
$
25,882

 
$
28,219

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
 
 

 
 

Depreciation and amortization
 
13,349

 
10,805

Accretion of convertible notes discount
 
858

 
815

Change in allowance for doubtful accounts
 
(253
)
 
(300
)
Net (gain) loss on sale of assets
 
(32
)
 
36

Change in amount Due to Commonwealth of Australia, net of gain (loss) on derivative instruments
 
(206
)
 
177

Stock compensation expense
 
3,581

 
4,655

Excess tax (expense) benefit from share-based compensation arrangements
 
(381
)
 
(737
)
Deferred income taxes
 
1,045

 
3,481

Changes in assets and liabilities, excluding effects of acquisitions/divestitures:
 
 

Accounts receivable
 
(21,430
)
 
(11,302
)
Inventories
 
(11,725
)
 
(430
)
Income tax receivable
 
527

 
(142
)
Other current assets
 
7,821

 
13,265

Accounts payable - trade
 
(3,168
)
 
(4,615
)
Accrued contract losses
 
(725
)
 
255

Advances on contracts
 
(949
)
 
4,446

Other accrued expenses and payables
 
(19,897
)
 
(30,652
)
Income taxes payable
 
542

 
(301
)
Pension liabilities
 
438

 
(7,642
)
Other long-term liabilities
 
222

 
(3,887
)
Net cash provided by (used in) operating activities
 
(4,501
)
 
6,146

Cash flows from investing activities:
 
 

 
 

Proceeds from sale of assets
 
239

 
232

Expenditures for property, plant & equipment
 
(10,967
)
 
(12,530
)
Acquisition of businesses including earn out adjustments, net of cash received
 
(7,938
)
 
(2,015
)
Other, net
 
(116
)
 
312

Cash provided by (used in) investing activities
 
(18,782
)
 
(14,001
)
Cash flows from financing activities:
 
 

 
 

Net borrowings (repayments) under revolving credit agreements
 
26,702

 
(3,803
)
Debt repayment
 
(2,500
)
 
(2,500
)
Net change in book overdraft
 
5,365

 
5,940

Proceeds from exercise of employee stock awards
 
2,651

 
4,001

Purchase of treasury shares
 
(659
)
 
(858
)
Dividends paid
 
(8,411
)
 
(7,520
)
Debt issuance costs
 
—

 
(715
)
Windfall tax (expense) benefit
 
381

 
737

Other
 
—

 
(453
)
Cash provided by (used in) financing activities
 
23,529

 
(5,171
)
Net increase (decrease) in cash and cash equivalents
 
246

 
(13,026
)
Effect of exchange rate changes on cash and cash equivalents
 
(132
)
 
532

Cash and cash equivalents at beginning of period
 
14,985

 
32,232

Cash and cash equivalents at end of period
 
$
15,099

 
$
19,738