UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
x |
Quarterly
Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of
1934 |
| |
For
The Quarterly Period Ended April
1, 2005 |
OR
|
o |
Transition
Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of
1934 for the
Transition
Period From ___ to ___ |
Commission
File No. 0-1093
KAMAN
CORPORATION
(Exact
name of registrant as specified in its charter)
|
Connecticut
|
|
06-0613548 |
|
(State
or other jurisdiction |
|
(I.R.S.
Employer |
|
of
incorporation or organization) |
|
Identification
No.) |
1332 Blue
Hills Avenue
Bloomfield,
Connecticut 06002
(Address
of principal executive offices)
(860)
243-7100
Registrant's
telephone number, including area code
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2)
Yes
X
No
__
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
X
No
__
Indicate
the number of shares outstanding of each of the issuer's classes of common stock
as of May 1, 2005:
|
Class
A Common |
22,142,262 |
|
Class
B Common |
667,814 |
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements:
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts and
other work in process |
|
$ |
74,980 |
|
|
|
|
|
|
|
$ |
72,057 |
|
|
|
|
|
Finished
goods |
|
|
19,157
|
|
|
|
|
|
|
|
|
21,544
|
|
|
|
|
|
Merchandise
for resale |
|
|
105,435
|
|
|
199,572
|
|
|
|
|
|
103,117
|
|
|
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 & equip., at cost |
|
|
159,971
|
|
|
|
|
|
|
|
|
158,599
|
|
|
|
|
|
Less
accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization |
|
|
111,791
|
|
|
|
|
|
|
|
|
109,641
|
|
|
|
|
|
Net
property, plant & equipment |
|
|
|
|
|
48,180
|
|
|
|
|
|
|
|
|
48,958
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
41,301
|
|
|
|
|
|
|
|
|
40,933
|
|
|
Other
intangible assets, net |
|
|
|
|
|
14,583
|
|
|
|
|
|
|
|
|
14,605
|
|
|
Deferred
income taxes |
|
|
|
|
|
4,024 |
|
|
|
|
|
|
|
|
4,086 |
|
|
Other
assets, net |
|
|
|
|
|
3,402
|
|
|
|
|
|
|
|
|
3,414
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
|
|
$ |
576,490
|
|
|
|
|
|
|
|
$ |
562,331
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial statements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Condensed
Consolidated Balance Sheets (continued)
(In
thousands)
|
|
|
|
April
1, 2005 |
|
|
December
31, 2004 |
|
|
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, excl. current portion |
|
|
16,856
|
|
|
18,522
|
|
|
Other
long-term liabilities |
|
|
35,695
|
|
|
33,534
|
|
|
Shareholders'
equity |
|
|
287,320
|
|
|
284,170 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity |
|
$ |
576,490 |
|
$ |
562,331
|
|
See
accompanying notes to condensed consolidated financial statements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
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.
See
accompanying notes to condensed consolidated financial statements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
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/divestitures: |
|
|
|
|
|
|
|
|
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 |
) |
| |
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Condensed
Consolidated Statements of Cash Flows (continued)
(In
thousands)
|
|
For
the Three Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
April
1, 2005 |
|
|
April
2, 2004 |
|
| |
|
|
|
|
|
|
|
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 |
|
|
Purchases
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 |
|
See
accompanying notes to condensed consolidated financial statements.
Notes
to Condensed Consolidated Financial Statements (In
thousands)
Basis
of Presentation
The
December 31, 2004 condensed consolidated balance sheet amounts have been derived
from the previously audited consolidated balance sheet of Kaman Corporation and
subsidiaries. In the opinion of management, the balance of the condensed
financial information reflects all adjustments which are necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented and are of a normal recurring nature, unless
otherwise disclosed in this report. Certain amounts in prior period condensed
consolidated financial statements have been reclassified to conform to current
year presentation.
The
corporation 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 ended on April 1, 2005 and April 2, 2004,
respectively. The re-titling of the headings to the closing dates for 2004 does
not have an impact on the corporation’s financial results for the first quarter
of 2004.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In
thousands)
The
statements should be read in conjunction with the consolidated financial
statements and notes included in the corporation’s annual report on Form 10-K
for the year ended December 31, 2004. The results of operations for the interim
period presented are not necessarily indicative of trends or of results to be
expected for the entire year.
As
reported in the year-end 2004 Form 10-K, the corporation 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 for the
first quarter of 2004.
Recently
Issued Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (Revised 2004),
"Share-Based Payment" (“SFAS 123(R)”). The Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS 123(R) requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That cost is
to be recognized over the period during which an employee is required to provide
service in exchange for the award. In April 2005, the Securities and Exchange
Commission (the "SEC") announced that the effective date of SFAS 123(R)
would be delayed from June 15, 2005 until January 1, 2006, for
calendar year companies. The corporation will adopt SFAS 123(R) effective
January 1, 2006 and expects that the adoption of such standard will have a
negative impact on the corporation’s results of operations. The corporation
anticipates that it will apply one of the
available prospective
accounting methods for the application of SFAS 123(R).
Cash
Flow Items
Cash
payments for interest were $1,166 and $1,093 for the three months ended April 1,
2005 and April 2, 2004, respectively. Cash payments for income taxes, net of
refunds, for the comparable periods were $1,029 and $(791),
respectively.
Comprehensive
Income
Comprehensive
income was $5,256 and $2,104 for the three months ended April 1, 2005 and April
2, 2004, respectively. The changes to net earnings used to determine
comprehensive income are comprised of foreign currency translation
adjustments.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In
thousands)
Accounts
Receivable
Accounts
receivable consist of the following:
|
|
|
April
1, 2005 |
|
|
December
31, 2004 |
|
| |
|
|
|
|
|
|
|
|
Trade
receivables |
|
$ |
96,049 |
|
$ |
87,158 |
|
| |
|
|
|
|
|
|
|
|
U.S.
Government contracts: |
|
|
|
|
|
|
|
|
Billed |
|
|
23,241 |
|
|
15,360 |
|
|
Costs
and accrued profit - not billed |
|
|
2,882 |
|
|
5,062 |
|
| |
|
|
|
|
|
|
|
|
Commercial
and other government contracts: |
|
|
|
|
|
|
|
|
Billed |
|
|
22,314 |
|
|
25,057 |
|
|
Costs
and accrued profit - not billed |
|
|
63,603 |
|
|
63,024 |
|
| |
|
|
|
|
|
|
|
|
Less
allowance for doubtful accounts |
|
|
(5,573 |
) |
(5,520) |
| |
|
|
|
|
|
Total |
|
$ |
202,516 |
|
$ |
190,141 |
|
Shareholders’
Equity
Changes
in shareholders’ equity for the first quarter 2005 were as follows:
|
Balance,
January 1, 2005 |
|
$ |
284,170 |
|
| |
|
|
|
|
|
Net
earnings |
|
|
4,705 |
|
|
Foreign
currency translation adjustment |
|
|
551 |
|
|
Comprehensive
income |
|
|
5,256 |
|
| |
|
|
|
|
|
Dividends
declared |
|
|
(2,507 |
) |
|
Employee
stock plans |
|
|
401 |
|
| |
|
|
|
|
|
Balance,
April 1, 2005 |
|
$ |
287,320 |
|
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In
thousands)
Restructuring
Costs
The
following table displays the activity and balances of the pre-tax charges
relating to the Moosup, CT plant closure as of and for the quarter ended April
1, 2005:
|
|
|
Balance
at |
|
|
|
|
|
|
|
Balance
at |
|
|
|
December
31, |
|
|
|
|
|
Cash |
|
|
April
1, |
|
|
|
|
|
2004 |
|
|
Additions |
|
|
Payments |
|
|
2005 |
|
Restructuring
costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
closing |
|
$ |
3,762 |
|
$ |
815 |
|
$ |
(462 |
) |
$ |
4,115 |
|
|
Total
restructuring costs |
|
$ |
3,762 |
|
$ |
815
|
|
$ |
(462 |
) |
$ |
4,115
|
|
The
increase in accrued restructuring costs during the first quarter of 2005
represents additional costs associated with the closing and eventual sale of the
facility. The majority of the accrual is included in general and administrative
expense in the consolidated statement of operations.
Warranty
Reserve
As
discussed in a previous report, the corporation has been working to
resolve two warranty-related matters for which it recorded a $3,507 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 $2,660 of the fourth
quarter 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 $847 of the fourth quarter charge was recorded
to address this matter. In connection with this second issue, on March 18, 2005,
the corporation 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 corporation recorded an additional $644 charge to
account for its current best estimate of the additional cost associated with
this matter. No work with respect to these two matters has been performed
through the first quarter of 2005
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In
thousands)
Pension
Cost
Components
of net pension cost are as follows:
|
|
For
the Three Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
April
1, 2005 |
|
|
April
2, 2004 |
|
| |
|
|
|
|
|
|
|
|
Service
cost for benefits earned |
|
$ |
2,873 |
|
$ |
2,558 |
|
Interest
cost on projected benefit obligation |
|
|
6,367
|
|
|
6,163
|
|
|
Expected
return on plan assets |
|
|
(7,119 |
) |
|
(7,169 |
) |
|
Net
amortization and deferral |
|
|
418
|
|
|
2
|
|
|
Net
pension cost |
|
$ |
2,539
|
|
$ |
1,554
|
|
The
corporation plans to make a contribution of $4,747 during 2005.
Business
Segments
Summarized
financial information by business segment is as follows:
|
|
|
April
1, 2005 |
|
|
December
31, 2004 |
|
Identifiable
assets: |
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
293,032 |
|
$ |
289,343 |
|
|
Industrial
Distribution |
|
|
169,792
|
|
|
164,711
|
|
|
Music |
|
|
78,973
|
|
|
76,764
|
|
|
Corporate |
|
|
34,693
|
|
|
31,513
|
|
| |
|
$ |
576,490
|
|
$ |
562,331
|
|
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In
thousands)
|
|
For
the Three Months Ended |
|
|
|
April
1, 2005 |
|
|
April
2, 2004 |
|
| |
|
|
|
|
|
|
|
Net
sales: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
65,681 |
|
$ |
59,203 |
|
| |
|
|
|
|
|
|
|
|
Industrial
Distribution |
|
|
155,993
|
|
|
145,607
|
|
| |
|
|
|
|
|
|
|
|
Music |
|
|
41,632
|
|
|
40,341
|
|
| |
|
|
|
|
|
|
|
| |
|
$ |
263,306
|
|
$ |
245,151
|
|
| |
|
|
|
|
|
|
|
|
Operating
income: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
7,630 |
|
$ |
3,026 |
|
| |
|
|
|
|
|
|
|
|
Industrial
Distribution |
|
|
8,458
|
|
|
5,030
|
|
| |
|
|
|
|
|
|
|
|
Music |
|
|
2,574
|
|
|
1,981
|
|
| |
|
|
|
|
|
|
|
|
Corporate
expense |
|
|
(9,487 |
) |
|
(6,700 |
) |
| |
|
|
|
|
|
|
|
|
Operating
income |
|
|
9,175 |
|
|
3,337 |
|
| |
|
|
|
|
|
|
|
|
Interest
expense, net |
|
|
(712 |
) |
|
(795 |
) |
| |
|
|
|
|
|
|
|
|
Other
expense, net |
|
|
(238 |
) |
|
(484 |
) |
| |
|
|
|
|
|
|
|
|
Earnings
before income taxes |
|
$ |
8,225 |
|
$ |
2,058
|
|
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
1. Financial Statements, Continued:
Notes to
Condensed Consolidated Financial Statements, continued (In thousands except per
share amounts)
Stock
Option Accounting
The
following table reflects pro forma net earnings and earnings per share had the
corporation elected to record employee stock option expense based on the fair
value methodology:
|
|
For
the Three Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
April
1, 2005 |
|
|
April
2, 2004 |
|
Net
earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
$ |
4,705 |
|
$ |
1,173 |
|
| |
|
|
|
|
|
|
|
Stock
compensation reported in net earnings, net of tax
effect |
|
|
76 |
|
|
712 |
|
| |
|
|
|
|
|
|
|
Less
stock compensation expense, net of tax effect
|
|
|
(261 |
) |
|
(898 |
) |
|
|
|
|
|
|
|
|
|
|
Pro
forma net earnings |
|
$ |
4,520 |
|
$ |
987 |
|
| |
|
|
|
|
|
|
|
|
Earnings
per share - basic: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
As
reported |
|
|
.21 |
|
|
0.05 |
|
|
Pro
forma |
|
|
.20 |
|
|
0.04 |
|
| |
|
|
|
|
|
|
|
|
Earnings
per share - diluted: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
As
reported |
|
|
.21 |
|
|
0.05 |
* |
|
Pro
forma |
|
|
.20 |
|
|
0.04 |
* |
These pro
forma amounts may not be representative of future disclosures since the
estimated fair value of stock options is amortized to expense over the vesting
period, and additional options may be granted in future years. The pro forma
amounts assume that the corporation had been following the fair value approach
since the beginning.
* The
calculated diluted per share amounts for the three months ended April 2, 2004
are anti-dilutive, therefore, amounts shown are equal to the basic per share
calculation.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results
of Operations
Overview
Kaman
Corporation is composed of three business segments: Aerospace, Industrial
Distribution, and Music.
In 2004,
the corporation began the process of realigning its Aerospace subsidiary in
order to provide for a more focused management structure. The Aerospace segment
now has four primary operating units: Aerostructures, Fuzing, Helicopters and
Kamatics. Beginning with this report, the corporation will report sales for each
of these primary operating units.
The
Aerostructures Division involves aerostructure and helicopter subcontract work.
For the first quarter of 2005, this division constituted approximately 19.7
percent of Aerospace segment sales, compared to approximately 18.0 percent for
the same period of 2004. The Aerostructures Jacksonville facility has achieved
profitability for the first quarter of 2005. Additionally, the Sikorsky cockpit
program has commenced and delivery of the first cockpit occurred in April 2005.
The Fuzing Division manufactures products primarily involving systems, devices
and assemblies for a variety of military applications, including safe, arm and
fuzing devices for several missile and bomb programs; precision non-contact
measuring systems for industrial and scientific use; and high reliability memory
systems for airborne, shipboard, and ground-based programs. For the first
quarter of 2005, this division constituted approximately 19.4 percent of segment
sales, compared to approximately 15.1 percent for the same period of 2004. The
Fuzing Joint Programmable Fuze (“JPF”) program continues to progress with the
release of Lot 2 in late 2004. Sales for this program along with increased
deliveries for certain other programs have resulted in sales growth for Fuzing.
Results at Fuzing include a charge taken during the first quarter of
approximately $0.7 million related to the Dayron operation as further described
below. The Helicopters Division includes prime helicopter production along with
spare parts and support for the SH-2G multi-mission maritime helicopter and the
K-MAX medium-to-heavy external lift helicopter. For the first quarter of 2005,
this business constituted approximately 23.1 percent of segment sales, compared
to approximately 30.4 percent for the same period of 2004. The Helicopters
Division continued to work toward finalizing the testing of the Integrated
Tactical Avionics System ("ITAS") software for the Australian SH-2G(A) program.
Sales for the quarter primarily consisted of supplemental services associated
with the Australian program along with sales of spare parts, maintenance
programs and the sale of a K-MAX helicopter. The Kamatics subsidiary primarily
manufactures proprietary self-lubricating bearings used in most commercial
airliners operated by the major and regional airlines, and most military
aircraft. This operation constituted approximately 34.9 percent of segment sales
for the first quarter of 2005, compared to 33.4 percent the same period of 2004.
Kamatics continues to be a primary component of the Aerospace segment with
record sales and operating profit for the first quarter of 2005. The
corporation’s Electro-Optics Development Center (EODC) produced the balance of
the sales for the Aerospace segment.
The
Industrial Distribution segment is the nation's third largest industrial
distributor of power transmission, motion control, material handling and
electrical components, and a wide range of bearings. This segment 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 North American industry from
nearly 200 branches and four regional distribution centers in the United States,
Canada, and Mexico. Results for the first quarter of 2005 reflect an increase in
sales and operating profit for the Industrial Distribution segment as a result
of strong market demand, certain price increases and a higher level of
recognition of rebate income.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Music
segment is the largest independent distributor of musical instruments and
accessories in the United States, and is involved in a combination of designing,
manufacturing, marketing and distributing more than 15,000 products from several
facilities located in the United States and Canada, to retailers of all sizes in
domestic and international markets for musicians at all skill levels. The Music
segment showed an improvement in sales during the first quarter primarily due to
increased sales to large national customers.
Overall,
the first quarter of 2005 reflected record sales in the Industrial Distribution
segment and by the Kamatics subsidiary in the Aerospace segment along with
strong sales in the Music segment. All of the corporation’s segments also had
increased operating profits.
For
discussion of the activities of, and factors affecting, each of these business
segments, please refer to the specific discussions below.
Tabular
Presentation of Financial Results
The
following table summarizes certain financial results of the corporation and its
business segments for the first quarter of 2005 compared to the same period of
2004:
|
Segment
Information |
|
(In
millions) |
| |
|
|
|
|
For
the Three Months Ended |
| |
|
|
|
|
|
|
|
|
|
|
|
April
1, 2005 |
|
|
April
2, 2004 |
|
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 |
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes |
|
|
3.5 |
|
|
.9
|
|
| |
|
|
|
|
|
|
|
|
Net
earnings |
|
$ |
4.7 |
|
$ |
1.2 |
|
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Discussion
and Analysis of Net Sales By Business 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.
Beginning
in the first quarter of 2005, the corporation is reporting net sales for each of
these four principal operating units of the Aerospace segment. Aerospace segment
net sales increased 10.9 percent for the first quarter of 2005 compared to the
first quarter of 2004. The Kamatics subsidiary continues to be an important
element of the segment with record sales for the first quarter of 2005. The
Aerostructures Division and Fuzing Division in the Aerospace segment showed
continued improvement with respect to sales growth.
Aerostructures
Division
First
quarter 2005 net sales for the Aerostructures Division were $12.9 million,
compared to $10.7 million for the 2004 period. Aerostructures Division net sales
for the full year 2004 were $46.9 million. This business involves the production
of aircraft subassemblies and other parts for commercial airliners and the C-17
military transport, as well as helicopter subcontract work. Operations are
generally conducted at the Jacksonville, Florida and Wichita, Kansas
facilities.
The
Aerostructures Division has made further progress related to reestablishing
levels of customer satisfaction and improved performance metrics in the
Jacksonville facility during the first quarter of 2005. As a result of these
efforts, the Jacksonville facility achieved profitability for the first quarter
of 2005, which is the first profitable quarter since the relocation of detail
manufacturing operations from Moosup, Connecticut in mid-2003. Sales for the
quarter were primarily due to work for Boeing and the C-17 Program.
The
recent award from Sikorsky Aircraft Corporation, in the third quarter 2004, for
a multi-year contract under which Kaman will manufacture the cockpit for four
models of the Sikorsky BLACK HAWK helicopter is key in helping to broaden the
business base at the Jacksonville facility which should help to improve
profitability. The initial work having a value of $27.7 million, covers 80 units
that are currently on contract, and includes installation of all wiring
harnesses, hydraulic assemblies, control pedals and sticks, seat tracks,
pneumatic lines, and the composite structure that holds the windscreen. The
multi-year contract has follow-on options that, if fully exercised, would
include the fabrication of approximately 349 units, and bring the total
potential value to Kaman to approximately $100.0 million over five years. The
first cockpit was delivered in April 2005. Starting with the 13th cockpit,
the Aerostructures Division expects to take primary responsibility for
manufacturing the parts as well as assembling the cockpits in the Jacksonville
facility.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Kaman
Corporation is a member of an international team that includes Lockheed Martin,
Bell Helicopter, and Agusta Westland that was selected in January 2005 by the
U.S. Government to provide the next “Marine One” presidential helicopter. In
that capacity, the corporation is bidding on a share of the work being sourced
into the U.S.
Fuzing
Division
First
quarter 2005 net sales for the Fuzing Division were $12.8 million compared to
$9.0 million in the 2004 period. Fuzing Division net sales for the full year
2004 were $57.0 million. This division manufactures products for military and
commercial markets, including safe, arm and fuzing devices for a number of major
missile and bomb programs as well as precision measuring systems and mass memory
systems. Operations are conducted at the Middletown, Connecticut and Orlando,
Florida (Dayron) facilities.
Management
continues to work on identifying and correcting certain internal operational
issues at the Dayron Orlando facility. As previously discussed in the year end
2004 report on Form 10-K, the corporation 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, and approximately $2.7 million of
the fourth quarter 2004 charge was for this issue. 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 2004 charge
was recorded to address this matter.
In
connection with the second issue, on March 18, 2005, Dayron 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 corporation recorded a pre-tax charge in the amount
of approximately $0.7 million to account for its current best estimate of the
additional cost associated with this matter in addition to that already
contemplated by the charge recorded in the fourth quarter of 2004, bringing the
total charge currently expected to be incurred in this matter to approximately
$1.5 million.
Dayron
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
low rate initial production and production of Lot 1 that extends through 2005
and includes options for eight additional years of production, which, if fully
exercised, would bring the total potential value of the contract to $168.7
million. In late 2004, the Air Force released production for Lot 2 (including
some additional production) for $11.4 million. These releases under the contract
plus development and engineering activity along with special tool and test
equipment, bring the total
value to approximately $36.4 million to date. During the quarter, the
corporation continued to work on material flow and manpower ramp-up to meet
production requirements and the corporation has begun marketing the JPF to
allied militaries. 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. Additionally,
the Fuzing Division is working toward expanding its supply base for certain
products. An increased supply base will allow for greater flexibility, cost
effectiveness and better service to its customers.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Helicopters
Division
First
quarter 2005 net sales for the Helicopters Division were $15.2 million 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. The Helicopters Division includes the SH-2G multi-mission
maritime helicopter and the K-MAX medium-to-heavy external lift helicopter,
along with spare parts and support. The SH-2G helicopter program generally
consists of retrofit of the corporation's SH-2F helicopters to the SH-2G
configuration or refurbishment of existing SH-2G helicopters. The SH-2,
including its F and G configurations, was originally manufactured for the U.S.
Navy. The SH-2G aircraft is currently in service with the Egyptian Air Force and
the New Zealand and Polish navies. Operations are primarily conducted at the
Bloomfield, Connecticut facility.
Work
continues on the SH-2G(A) program for Australia which involves the production of
eleven helicopters with support, including a support services facility, for the
Royal Australian Navy ("RAN"). The total contract has a current anticipated
value of approximately $740.5 million. The helicopter production portion of the
program is valued at approximately $606.4 million, essentially all of which has
been recorded as sales through the first quarter of 2005. This contract has been
in a loss position since 2002. The in-service support center portion of the
program has a current anticipated value of approximately $134.1 million of which
33 percent has been recorded as sales through the first quarter of 2005.
Production
of the eleven SH-2G(A) aircraft for the program is essentially complete. The
aircraft still lack the full ITAS software and progress is continuing on this
element of the program. As of April 1, 2005, the corporation has a remaining
accrued contract loss of $19.5 million most of which was recorded in 2002. This
accrual continues to be monitored and adjusted if necessary to accommodate the
complexity of the integration process and the results of the testing process.
The RAN has provisionally accepted eight aircraft through the end of the first
quarter. The corporation currently expects to deliver the first fully
operational aircraft in the third quarter 2005. The RAN is expected to begin the
final acceptance process for all eleven aircraft shortly thereafter.
The
corporation continues to maintain a consignment of the U.S. Navy's inventory of
SH-2 spare parts under a multi-year agreement that provides the corporation the
ability to utilize certain inventory for support of its SH-2G programs. Also,
the corporation continues to market the SH-2G helicopter on an international
basis. However this market is highly competitive and heavily influenced by
economic and political conditions. In order to broaden its opportunities, the
corporation is working to develop programs to provide depot level maintenance
and upgrade work on the helicopters.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The
corporation continues to support K-MAX helicopters that are operating with
customers. In February 2005, the Helicopters Division sold a previously leased
helicopter for approximately $3.6 million. At the end of the first quarter 2005,
K-MAX inventories included approximately $20.7 million in spare parts and $7.1
million in aircraft currently leased or on deposit. As previously reported, the
corporation wrote down the value of existing aircraft, excess spare parts, and
equipment inventories in 2002, following a market evaluation of the K-MAX
helicopter program, which had experienced several years of market difficulties.
The corporation continues to market the K-MAX to both U.S. and foreign
governments to perform such roles as an unmanned cargo hauler for the military,
large-scale infrastructure construction programs in remote regions or its
already established forestry and firefighting work. While the K-MAX helicopter
production line remains inactive, the corporation may consider producing
additional aircraft upon receipt of a substantial firm order by a
customer.
Kamatics
Subsidiary
First
quarter 2005 net sales for the Kamatics subsidiary, (which includes RWG, the
company’s German aircraft bearing manufacturer) were $23.0 million compared to
$19.8 million in the 2004 period. Kamatics net sales for the full year 2004 were
$77.1 million. Kamatics primarily manufactures proprietary self-lubricating
bearings used in aircraft flight controls, turbine engines and landing gear that
are currently in use in almost all military and commercial aircraft in
production in North and South America and Europe as well as driveline couplings
for helicopters. Operations are primarily conducted at the Bloomfield,
Connecticut and Dachsbach, Germany facilities. Kamatics had a strong first
quarter as a result of improving market conditions and increased shipments to
Boeing, Airbus and other customers in both the commercial and military sectors.
As the aviation industry strengthened, the company increased production levels
to manage an increasing backlog which led to additional sales. Additionally,
Kamatics’ dedication to meeting and exceeding customer expectations with respect
to quality and timely delivery continues to make Kamatics a strong presence in
its industry. Kamatics continues to look for new opportunities to further
enhance its market presence.
Other
Aerospace Matters
Since
2001, the company's Electro-Optics Development Center ("EODC") had been teamed
with the University of Arizona ("University") to build a 6.5-meter aperture
collimator that will be used for testing large optical systems in a vacuum
environment. EODC had 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. 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 stopped production
on the program. The University thereafter filed a counterclaim and although
additional efforts were made to resolve the matter out of court, no resolution
has been reached as of the end of the first quarter. The litigation process is
ongoing. Management is unable to make a determination as to the outcome of the
litigation as of the end of the first quarter 2005.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Industrial
Distribution Segment
Industrial
Distribution segment net sales increased approximately 7.1 percent in the first
quarter of 2005 compared to the same period of 2004. Results for the first
quarter 2005 reflect an increase in sales primarily due to an increased demand
in the Central and West regions, principally related to continued strength in
the paper, mining, and printing accounts in the Central region and primary
materials accounts in the West region. The demand for products in the Northeast
region has tapered slightly due to certain slower original equipment
manufacturing (OEM) sectors.
This
segment is the third largest North American industrial distributor servicing the
bearings, electrical/mechanical power transmission, fluid power, motion control
and materials handling markets. 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. Because of its diversified customer
base, segment performance tends to track the U.S. Industrial Production Index
and is affected to a large extent by the overall business climate for its
customer industries, including plant capacity utilization levels and the effect
of pricing spikes and/or interruptions for basic commodities such as steel and
oil. Generally the market continues to be positive and stable but global demand
for basic materials such as scrap steel, coal, cement and copper has been
outpacing supply which would lead to longer lead times. There has also been a
trend by customers to purchase inventory on a “just in time” basis which is
putting a strain on the segment as the lead times associated with the segment’s
suppliers has also begun to lengthen, specifically in the large bore product
groups used in the heavy industry as well as the rubber and hose product groups.
Management continues to focus on maintaining the appropriate inventory levels to
meet customer expectations and minimize risk of inventory obsolescence.
Success
in the segment’s markets requires a combination of competitive pricing (with
pricing pressures more pronounced with respect to larger customers) and
value-added services that save customers money while helping them become more
efficient and productive. Management believes that this segment has the
appropriate platforms, including technology, systems management and customer and
supplier relationships, to compete effectively in the evolving and highly
fragmented industrial distribution industry. The segment’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.
Management believes that the segment’s resources and product knowledge enable it
to offer a comprehensive product line and invest in sophisticated inventory
management and control systems while its position in the industry enhances its
ability to rebound during economic recoveries and grow through
acquisitions.
Over the
past several years, large companies have increasingly centralized their
purchasing, focusing on suppliers that can service all of their plant locations
across a wide geographic area. To meet these requirements, the segment has
expanded its geographic presence through the selective opening of new branches
and acquisitions in key markets of the upper mid-west, the south, Mexico and
Canada. The segment’s footprint of nearly 200 locations now covers 70 of the top
100 industrial markets in the United States. Management’s goal is to grow the
Industrial Distribution segment by expanding into additional areas that enhance
its ability to compete for large regional and national customer accounts.
During
the first quarter of 2005, the segment added Chemical Lime, a limestone mining
company with operations in Alabama, California and Texas, as a new national
account.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Music
Segment
Music
segment net sales increased approximately 3.2 percent for the first quarter of
2005 compared to the same period of 2004. The increase in sales is primarily
attributable to a strong demand by certain large national retailers during the
quarter. Growth in such products as Gretsch® drums, Sabian® cymbals and the
proprietary U.S. Ovation® guitars continued during the first quarter. The
positive effects of the increased sales were partially offset by a decrease in
demand by the smaller retail customers who had excess inventory at the end of
the year due to lower than expected sales during the Christmas season.
The
segment is the largest independent distributor of music instruments and
accessories in the United States and is involved in a combination of designing,
manufacturing, marketing and distributing more than 15,000 products from several
facilities in the United States and Canada to retailers of all sizes worldwide
for musicians of all skill levels. The segment's array of fretted instruments
includes premier and proprietary products, such as the OvationÒ and
HamerÒ guitars,
and TakamineÒ guitars
under an exclusive distribution agreement. The Ovation LX series premium guitar,
introduced in 2004, continues to receive high acceptance ratings from players
and industry reviews have been outstanding. The
business is affected by changes in consumers’ musical tastes and interests and
by actual consumer spending levels.
A
principal strategy of the segment has been to add popular premier branded
products that can be brought to market exclusively by the segment. The segment
has also significantly extended its line of percussion products and accessories
over the past few years, augmenting its CB, TocaÒ and
GibraltarÒ lines to
include an exclusive distribution agreement with GretschÒ drums
and acquiring Latin Percussion (a leading distributor of hand percussion
instruments) and Genz Benz (an amplification equipment manufacturer). The
segment continues to seek opportunities to add exclusive premier brand product
lines that would build upon the segment's market position.
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 sales to these large customers is increasing and along with this is an
increase in pricing pressures. Management believes that 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. While the vast majority of the segment’s
sales are to North American customers, the segment has been building its
presence in European, Asian and Australian markets as well. 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 North America.
Discussion
and Analysis of Operating Profits by Business Segment
Operating
profit is a key indicator utilized by management in its evaluation of the
performance of its business segments. The Aerospace segment operating profits
increased 152.1 percent in the first quarter 2005 compared to the first quarter
of 2004. Operating profit for the Industrial Distribution segment increased 68.2
percent in the first quarter of 2005 compared to the same period in the prior
year. Operating profit for the Music segment increased 29.9 percent in 2005
compared to 2004. Operating profit for all segments has primarily increased as
the result of continued growth in sales along with continued focus on managing
cost growth.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Aerospace
Segment
This
segment's operating profit increased 152.1 percent to $7.6 million for the first
quarter of 2005, compared to $3.0 million for the same period of 2004. Operating
profit in both periods includes $0.7 million and $0.8 million in idle facility
costs in 2005 and 2004, respectively, which is primarily associated with the
absence of new helicopter orders at the Bloomfield facility.
All but
the Fuzing Division in the Aerospace segment generated operating profit. The
Jacksonville facility in the Aerostructures Division has continued its progress
and established profitability through new orders from customers, including
Boeing, Sikorsky and the C-17 program and lower general and administrative
expenses as a result of the realignment of the Kaman Aerospace subsidiary.
Additionally, in other divisions there were lower general and administrative
costs as a result of lower employee costs and slower spending for research and
development. The corporation expects that these research and development costs
will be incurred in future quarters in 2005. Kamatics experienced an increase in
operating profit primarily due to increased sales, product mix and continued
cost control resulting from lean implementation activities. These results were
predominately attributable to Kamatics and to a lesser extent to the
Aerostructures and Helicopters Divisions. These positive results were partially
offset by an operating loss in the Fuzing Division, principally due to
additional contract losses on certain programs and the additional warranty
related reserve described above.
Management
continues discussions with the U.S. Naval Air Systems Command (“NAVAIR”)
regarding the potential purchase of a portion of the Bloomfield campus that the
Aerospace subsidiary currently leases from NAVAIR and has operated for several
decades for the principal purpose of performing U.S. government contracts.
Management believes that ownership of the facility, which is currently utilized
for flight and ground test operations and limited parts manufacturing, can be
helpful to its ongoing operations. As previously reported, as part of its
decision-making process, the corporation is discussing with NAVAIR and General
Services Administration the method that would be used to calculate the purchase
price of the facility, which could possibly include the corporation undertaking
some level of the environmental remediation that may be legally required in the
event of a sale of the property. In applying the guidance of SFAS 5 “Accounting
for Contingencies”, the corporation’s management has concluded that, while not
probable, it is reasonably possible that the corporation may agree to undertake
some level of environmental remediation, should the facility be sold to the
corporation. Based on the discussions so far, however, it is not possible to
determine the magnitude, if any, of such a potential undertaking. Therefore, no
liability for environmental remediation at the facility has been recorded to
date.
The
corporation is also working with government and environmental authorities to
prepare the closed Moosup facility for eventual sale.
Industrial
Distribution Segment
This
segment's operating profit increased 68.2 percent to $8.5 million for the first
quarter of 2005, compared to $5.0 million for the same period of 2004. The
segment experienced an increase in sales volume during the first quarter 2005
which contributed to the growth in operating profit. Additionally, there was a
one-time benefit in gross margin growth due to certain price increases. There
were other favorable effects that impacted the first quarter,
including a higher realization of vendor incentives in the form of rebates and a
decrease in the bad debt reserve as a result of improved collections of older
accounts, offset partially by an increase in the reserve for sales returns and
allowances during the first quarter.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Music
Segment
This
segment's operating profit increased 29.9 percent to $2.6 million for the first
quarter of 2005, compared to $2.0 for the same period of 2004. These results are
attributable to increased sales as well as an improved gross profit rate
primarily due to a general price increase in the product lines. Additionally,
continuing foreign currency exchange rate changes and the decreasing value of
the U.S. dollar have resulted in increased costs to purchase certain inventory.
The segment has attempted to address this situation, in part by increasing
prices on certain products recognizing that this could lead to potential pricing
pressure in the future.
Net
Earnings and Certain Expense Items
For the
first quarter of 2005, the corporation reported net earnings of $4.7 million, or
$0.21 earnings per share diluted, compared to net earnings of $1.2 million, or
$.05 earnings per share in the first quarter 2004 diluted. The first quarter
earnings are primarily due to increased operating profits in the Industrial
Distribution segment, Music segment and Kamatics offset by an increase in
corporate expenses, as further discussed below.
Selling,
general and administrative expenses increased $3.5 million to $62.2 million for
the first quarter 2005 compared to $58.7 million for the first quarter 2004. The
Aerospace segment portion decreased $1.2 million whereas the majority of the
increase is attributable to increases in the Industrial Distribution segment and
corporate expenses of $1.7 million and $2.8 million, respectively. The Music
segment had a slight increase in expenses of $0.2 million. The Aerospace segment
decrease was primarily attributable to lower costs as a result of the Kaman
Aerospace subsidiary realignment as it related to personnel costs as well as
slower spending for research and development of approximately $0.7 million.
These cost savings were offset by an increase in Kamatics general and
administrative expenses of approximately $0.5 million primarily due to sales
growth for the quarter. The Industrial Distribution segment general and
administrative expenses growth for the quarter was primarily due to an increase
in certain incentive compensation of approximately $0.6 million for the first
quarter as a result of increased sales and $0.7 million in other employee costs
primarily consisting of merit increases, taxes, insurance and pension costs. The
increase in corporate general and administrative costs related principally to a
$1.7 million increase for the long-term incentive program, a $0.8 million
increase in reserves associated with the Moosup facility, and a $0.8 million
increase attributable to fringe benefits and a $0.3 million increase in audit
fees, partially offset by a decrease in stock appreciation rights expense
of $1.0 million.
Interest
expense, net decreased to $0.7 million for the first quarter 2005 compared to
$0.8 million in the first quarter 2004, primarily due to a decrease in average
borrowings offset by an increase in interest rates period over period.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
For the
first quarter of 2005, the effective tax rate was calculated at approximately
42.8 percent, representing the combined estimated federal and state tax effects
attributable to the expected net earnings for the year. The first quarter 2004
effective tax rate was 43.0 percent.
For a
discussion of Financial Accounting Standards Board Statements applicable to the
corporation, please refer to the corporation's annual report on Form 10-K for
the year-ended December 31, 2004.
Critical
Accounting Estimates
Preparation
of the corporation’s financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Management believes the most complex and sensitive
judgments, because of their significance to the consolidated financial
statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Management’s Discussion and Analysis
and the Notes to the Consolidated Financial Statements in the Corporation’s
Annual Report, incorporated by reference in Form 10-K for the fiscal year 2004,
describe the significant accounting estimates and policies used in preparation
of the Consolidated Financial Statements. Actual results in these areas could
differ from management’s estimates. There have been no significant changes in
the corporation's critical accounting policies and significant estimates in the
first quarter.
Liquidity
and Capital Resources
Discussion
and Analysis of Cash Flows
Management
assesses the corporation’s liquidity in terms of its ability to generate cash to
fund operating, investing and financing activities. Cash flow generation is
another key performance indicator reviewed by management in evaluating business
segment performance. Significant factors affecting the management of liquidity
include earnings, cash flows generated from or used by operating activities,
capital expenditures, investments in the business segments and their programs,
acquisitions, dividends, adequacy of available bank lines of credit, and factors
which might otherwise affect the corporation’s business and operations
generally, as described below under the heading “Forward-Looking Statements”.
During the first quarter of 2005, the corporation continued to rely to a
significant extent upon borrowings under its revolving credit agreement in order
to satisfy working capital requirements, along with the regular payment of
quarterly dividends, because cash flows from operations were insufficient for
these purposes. While it is anticipated that cash flows from operations will
improve during 2005, and debt levels should be reduced upon successful
completion of the Australia SH-2G(A) program, management also expects that bank
borrowings will continue to provide an important source of support for the
corporation’s activities. The corporation’s current revolving credit agreement
will expire in November 2005 and management expects that it will be replaced
with an equally appropriate facility in order to support the corporation’s
future cash requirements. Management believes that its current and future credit
agreements, along with cash generated from operations, will be adequate to
support its anticipated future liquidity requirements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The
corporation’s expectation is to maintain operating profits for the year, and it
is expected that these profits will produce positive cash flow which will
further support the corporation’s cash requirements.
Net cash
used in operating activities decreased to $18.5 million for the first quarter
2005 compared to $23.1 million for the first quarter of 2004. The decrease of
approximately $4.6 million in cash used in operating activities is primarily
attributable to increased sales and operating profits for Industrial
Distribution, Music and the Kamatics subsidiary which has provided an additional
cash inflow during the first quarter 2005 compared to the first quarter 2004.
Additionally in the first quarter of 2004, the Industrial Distribution segment
purchased significant amounts of inventory in order to benefit from certain
vendor buying programs. The Music segment also purchased significant amounts of
inventory during the first quarter 2004 in order to replenish inventory levels
as a result of a strong Christmas season. The segments did not engage in the
same level of inventory purchasing during the first quarter of 2005. This
resulted in a lower cash outflow for inventory purchases during the first
quarter 2005 as compared to the first quarter of 2004. The Aerospace segment
also contributed to increased cash flow partially through receipt of $3.6
million from the sale of a K-MAX helicopter. These cash inflows were also
somewhat offset by cash outflows in the Helicopters Division associated with
additional materials and labor related to the Australian SH-2G(A)
program.
Net cash
used in investing activities decreased slightly to $0.8 million in 2005 from
$1.2 million in 2004. The decrease is primarily due to slower spending related
to capital expenditures. Total capital expenditures for the first quarter 2005
were approximately $1.1 million as compared to $1.6 million in 2004.
Net cash
provided by financing activities also decreased to $19.0 million during the
first quarter 2005 compared to $27.0 million during the first quarter 2004. The
decrease in cash from financing activities is primarily attributable to a
decrease in borrowing activity. The reduction in cash required to be derived
from financing activities is directly attributable to improved cash flow from
operating activities due to the increase in sales and operating profit for the
corporation for the first quarter 2005 compared to the first quarter 2004.
Contractual
Obligations
There has
been no material change outside the ordinary course of business in the
corporation's contractual obligations during the first quarter of 2005. Please
see the corporation's annual report on Form 10-K for the year ended December 31,
2004 for a discussion of its contractual obligations.
Off-Balance
Sheet Arrangements
There has
been no material change in the corporation's off-balance sheet arrangements as
of the first quarter of 2005. Please
see the corporation's annual report on Form 10-K for the year ended December 31,
2004 for a discussion of such arrangements.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Other
Sources/Uses of Capital
At the
end of the first quarter of 2005, the corporation had $18.2 million of its 6%
convertible subordinated debentures outstanding. The debentures are convertible
into shares of Class A common stock at any time on or before March 15, 2012 at a
conversion price of $23.36 per share, generally at the option of the holder.
Pursuant to a sinking fund requirement that began March 15, 1997, the
corporation redeems approximately $1.7 million of the outstanding principal of
the debentures each year.
In
November 2000, the corporation's board of directors approved a replenishment of
the corporation's stock repurchase program, providing for repurchase of an
aggregate of 1.4 million Class A common shares for use in administration of the
corporation's stock plans and for general corporate purposes. No additional
shares were repurchased during the first quarter of 2005. For a discussion of
share repurchase activity during the three months ended April 1, 2005, please
refer to Part II, Item 2 of this
report.
With
respect to its tax-qualified defined benefit pension plan, the corporation
expects to expense approximately $10.2 million and make a contribution of $4.8
million during 2005 attributable to calendar year 2005, based upon the asset
value of the pension trust fund as of December 31, 2004.
Financing
Arrangements
Total
average bank borrowings for the first quarter of 2005 were $40.0 million
compared to $46.0 million for the same period last year. The corporation
maintains a revolving credit agreement, as amended, (the "Revolving Credit
Agreement") with several banks that provides a $150 million five-year commitment
scheduled to expire in November 2005. Interest is charged at current market
rates. The financial covenants include a requirement that the corporation have
i) EBITDA, at least equal to 300% of net interest expense, on the basis of a
rolling four quarters and ii) a ratio of consolidated total indebtedness to
total capitalization of not more than 55%. The agreement also incorporates a
financial covenant which provides that if the corporation's EBITDA to net
interest expense ratio is less than 6 to 1, the ratio of i) accounts receivable
and inventory for certain Kaman subsidiaries to ii) the corporation's
consolidated total indebtedness cannot be less than 1.6 to 1. The corporation
remains in compliance with those financial covenants as of the end of the first
quarter 2005.
Facility
fees under the Revolving Credit Agreement are charged on the basis of the
corporation's credit rating from Standard & Poor’s, which is a BBB
investment grade rating. Management believes that this is a favorable rating for
a corporation of its size and the rating was reaffirmed by Standard & Poor’s
in April 2005. The rating continues to be accompanied by a "negative outlook"
which was assigned to the corporation and several other aerospace companies in
the wake of the events of September 11, 2001 and the subsequent weakness in
aerospace markets. Under the terms of the current Revolving Credit Agreement, if
this rating should decrease, the effect would be to increase facility fees as
well as the interest rates charged.
The
corporation also maintains a є9.5
million term loan and revolving credit facility (the "Euro Credit Agreement")
with Wachovia Bank National Association, one of its Revolving Credit Agreement
lenders. In general, the Euro Credit Agreement contains the same financial
covenants as the Revolving Credit Agreement described previously and the term of
the Euro Credit Agreement expires at the same time as the Revolving Credit
Agreement.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
As of the
end of the first quarter of 2005, borrowings under the Revolving Credit
Agreement are included in the current portion of long-term debt. The corporation
plans to replace the Revolving Credit Agreement and the Euro Credit Agreement,
which both expire in 2005, with another arrangement that meets its financial
needs. As of April 1, 2005, there was $96.9 million available for borrowing
under the Revolving Credit Agreement.
Letters
of credit are generally considered borrowings for purposes of the Revolving
Credit Agreement. A total of $26.4 million in letters of credit were outstanding
at the end of the first quarter 2005, a significant portion of which is related
to the Australia SH-2G(A) program. The letter of credit for the production
portion of the Australia program has a balance of $17.0 million, the majority of
which is expected to remain in place until this portion of the program is
completed.
Forward-Looking
Statements
This
report 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 report should be considered
with these factors in mind. The Corporation assumes no obligation to update any
forward-looking statements contained in this report.
Kaman
Corporation and Subsidiaries
Part
I - Financial Information
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
There has
been no significant change in the corporation’s exposure to market risk during
the quarter ended April 1, 2005. Please see the corporation’s annual report on
Form 10-K for the year ended December 31, 2004 for discussion of the
corporation’s exposure to market risk.
Item
4. Controls and Procedures
Evaluation
of disclosure controls and procedures
Management
has carried out an evaluation, under the supervision and with the participation
of Kaman Corporation’s Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of Kaman Corporation’s disclosure
controls and procedures as of April 1, 2005. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including
the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. Based upon management’s evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of April 1, 2005, the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports Kaman Corporation files and
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.
Changes
in internal controls
In 2004,
the Kaman Aerospace subsidiary's operations were realigned, with the creation of
three new principal operating divisions from existing Aerospace subsidiary
operations: Aerostructures, Fuzing and Helicopters. During 2004, Kaman Aerospace
subsidiary process documentation applied to each of the operating divisions.
Beginning in 2005, each of the divisions is in the process of revising process
documentation and re-evaluating and testing internal controls over financial
reporting for their own specific operations.
There
were no other changes in internal controls over financial reporting at the
Corporation that occurred that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
Kaman
Corporation and Subsidiaries
Part
II - Other Information
Item
2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
(e)
Purchases of Equity Securities
In
November 2000, the corporation's board of directors approved a replenishment of
the corporation's stock repurchase program providing for repurchase of an
aggregate of 1.4 million Class A common shares for use in administration of the
corporation's stock plans and for general corporate purposes.
The
following table provides information about purchases of Class A common shares by
the corporation during the three months ended April 1, 2005:
| |
|
|
|
|
|
Total
Number |
|
|
| |
|
|
|
|
|
of
Shares |
|
Maximum |
| |
|
|
|
|
|
Purchased
as |
|
Number
of |
| |
|
Total |
|
|
|
Part
of |
|
Shares
That |
| |
|
Number |
|
Average |
|
Publicly |
|
May
Yet Be |
| |
|
of
Shares |
|
Price
Paid |
|
Announced |
|
Purchased
Under |
|
Period |
|
Purchased |
|
per
Share |
|
Plan |
|
the
Plan |
| |
|
|
|
|
|
|
|
|
|
01/01/05- |
|
|
|
|
|
|
|
|
|
01/28/05 |
|
- |
|
- |
|
269,607 |
|
1,130,393 |
| |
|
|
|
|
|
|
|
|
|
01/29/05- |
|
|
|
|
|
|
|
|
|
02/25/05 |
|
- |
|
- |
|
269,607 |
|
1,130,393 |
| |
|
|
|
|
|
|
|
|
|
02/26/05- |
|
|
|
|
|
|
|
|
|
04/01/05
|
|
- |
|
- |
|
269,607 |
|
1,130,393 |
Item
4. Submission
of Matters to Vote of Security Holders
The
annual meeting of the shareholders of the Corporation was held at the offices of
the Corporation on April 19, 2005. Following is a brief description of each
matter voted upon at the meeting:
1.
Election
of Directors
The
following ten (10) individuals were elected directors of the Corporation to
serve until the next annual meeting and until their successors have been
elected:
|
Brian
E. Barents |
E.
Reeves Callaway III |
John
A. DiBiaggio |
|
Edwin
A. Huston |
C.
William Kaman II |
Eileen
S. Kraus |
|
Paul
R. Kuhn |
Walter
H. Monteith, Jr. |
Wanda
Lee Rogers |
|
Richard
J. Swift |
|
|
For each
director, the Class B shareholders voted 650,376 shares in favor and 1,840 with
authority withheld. There were no abstentions or broker non-votes.
Kaman
Corporation and Subsidiaries
Part
II - Other Information
| 2. |
Approval
of Certain Performance-Based Arrangements under the Kaman Corporation 1993
and 2003 Stock Incentive Plans for purposes of Section
162(m) of the Internal Revenue Code.
|
A
proposal to approve certain performance-based arrangements under the Kaman
Corporation 1993 and 2003 Stock Incentive Plans for purposes of Section 162(m)
of the Internal Revenue Code was adopted by the Class B shareholders who voted
596,236 shares in favor, 55,980 shares opposed, and no shares abstaining. There
were no broker non-votes.
3.
Ratification
of KPMG LLP Appointment
A
proposal to ratify the appointment of KPMG LLP as the Corporation's auditors
during the ensuing year was adopted by the Class B shareholders who voted
652,216 shares in favor, none against, with no abstentions and no broker
non-votes.
Item
6. Exhibits
| |
11 |
Earnings
Per Share Computation |
| |
|
|
| |
31.1 |
Certification
of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities
and Exchange Act of 1934 |
| |
|
|
| |
31.2 |
Certification
of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities
and Exchange Act of 1934 |
| |
|
|
| |
32.1 |
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
| |
|
|
| |
32.2 |
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
Kaman
Corporation and Subsidiaries
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| |
KAMAN
CORPORATION |
| |
Registrant |
| |
|
|
| |
|
|
| |
|
|
|
Date:
May 6, 2005 |
By:
/s/ Paul R. Kuhn |
| |
|
Paul
R. Kuhn |
| |
|
Chairman,
President and |
| |
|
Chief
Executive Officer |
| |
|
(Duly
Authorized Officer) |
|
Date:
May 6, 2005 |
By:
/s/ Robert M. Garneau |
| |
|
Robert
M. Garneau |
| |
|
Executive
Vice President and |
| |
|
Chief
Financial Officer |
Kaman
Corporation and Subsidiaries
Index to
Exhibits
|
Exhibit
11 |
Earnings
Per Share Computation |
Attached |
| |
|
|
|
Exhibit
31.1 |
Certification
of Chief Executive Officer
Pursuant
to Rule 13a-14 under the Securities and Exchange Act of
1934 |
Attached |
| |
|
|
|
Exhibit
31.2 |
Certification
of Chief Financial Officer
Pursuant
to Rule 13a-14 under the Securities and Exchange Act of 1934
|
Attached |
| |
|
|
|
Exhibit
32.1 |
Certification
of Chief Executive Officer
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
Attached |
| |
|
|
|
Exhibit
32.2 |
Certification
of Chief Financial Officer
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
Attached |