Kaman : Reports 2015 First Quarter Results

Kaman Corp. (NYSE:KAMN) today reported financial results for the first fiscal quarter ended April 3, 2015.

Neal J. Keating, Chairman, President and Chief Executive Officer, commented, “We are pleased with our start to 2015. Despite continued challenges with reduced defense spending and a sluggish industrial economy our business delivered diluted earnings per share of $0.46 in the first quarter, a 4.5% increase over the prior year.

Distribution sales increased 20.3% to a record $311 million and grew 2.1% on an organic sales per sales day* basis, our sixth straight quarter of organic sales growth. Aerospace operating margin improved to 16.6% for the quarter from 14.8% in the prior year driven by a favorable mix of specialty bearing and JPF product lines, as well as SH-2 programs for both New Zealand and Peru.

After increasing our dividend by 12.5% in February, today we are announcing that our Board of Directors approved a share repurchase program for up to $100 million of our stock. This action reflects our improved free cash flow generation, strong balance sheet position and our focus on increasing shareholder value.”

Distribution Segment

The increase in sales in the first quarter resulted from $30.0 million in sales from acquisitions and an increase of $22.6 million in organic sales. Organic sales benefited from four additional sales days in the quarter and on a same day sales* basis were up 2.1%. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition. (See Table 6 for additional details regarding the Segment's sales per sales day* performance.) The increase in operating income in the first quarter was driven by the contribution of operating income from B.W. Rogers. This increase was partially offset by higher salary and benefit expenses, including pension and medical expenses, and costs related to our new ERP system.

Aerospace Segment

Sales for the first quarter decreased due to lower sales volumes on our legacy fuze and JPF programs, our SH-2G(I) contract with New Zealand, commercial bearing products, and various metallic and composite structures programs. These declines were partially offset by higher shipments on our Sikorsky BLACK HAWK helicopter program.

Operating profit dollars in the quarter remained relatively flat compared to the prior year, with declines in our legacy fuze programs, Boeing 777 program, SH-2G(I) contract with New Zealand and C-17 program. These declines were offset by the contribution from our SH-2G program with Peru, higher fabrication and tooling profit and higher profit on commercial bearing products.

Chief Financial Officer, Robert D. Starr, stated, “We delivered strong quarterly results with top-line growth of 8.5% and Adjusted EBITDA* growth of 6.7% to $31.7 million. Free cash flow* generation in the quarter was $25.5 million, an increase of over 200% versus the prior year, building upon our solid cash flow performance in 2014.

Turning to our 2015 outlook, we are maintaining our previous Distribution sales and operating margin ranges. For Aerospace, we are lowering our sales outlook to a range of $625 million to $645 million largely due to the impact of the strengthening U.S. dollar; however, we are raising our operating margin guidance by 30 basis points to 17.1% to 17.5%. Finally, we are raising our Corporate Expense outlook due to acquisition related expenses incurred in the first quarter.”

2015 Outlook

Our revised 2015 outlook is as follows:

• Distribution:
  • Sales of $1,250 million to $1,280 million
  • Operating margins of 4.9% to 5.2%

• Aerospace:
  • Sales of $625 million to $645 million
  • Operating margins of 17.1% to 17.5%
• Interest expense of approximately $13 million
• Corporate expenses of $53 million to $54 million
• Estimated annualized tax rate of approximately 34%
• Depreciation and amortization expense of approximately $40 million
• Capital expenditures of $30 million to $40 million
• Free cash flow* in the range of $75 million to $90 million

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, April 30, 2015, at 8:30 AM ET. Listeners may access the call live by telephone at (866) 515-2912 and from outside the U.S. at (617) 399-5126; (passcode: 62573206); or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (888) 286-8010 or (617) 801-6888 using the passcode: 47553861. 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.

Non-GAAP Measures 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:

Adjusted EBITDA - Adjusted EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is calculated on our consolidated results as well as the results of our reportable segments. Adjusted EBITDA differs from Segment Operating Income, as calculated in accordance with GAAP, in that it excludes depreciation and amortization. We have made numerous investments in our business, such as acquisitions and increased capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and new ERP systems. Management believes Adjusted EBITDA provides an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods by eliminating the impact of non-cash depreciation and amortization expense. Adjusted EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. Adjusted EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. No other adjustments were made during the three months ended April 3, 2015 and March 28, 2014.

Organic Sales per Sales Day - Organic sales per sales day is defined as GAAP net sales of the Distribution segment less sales derived from acquisitions, divided by the number of sales days in a given period. Sales days are essentially days that the Company's branch locations are open for business and exclude weekends and holidays. 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: 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 April 29, 2015. Sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition. Prior period information is adjusted to reflect acquisition sales for that period as organic sales when calculating organic sales per sales day.

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 Consolidated Statements of Cash Flows included in this release.

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.

About Kaman Corporation

Kaman Corporation (NYSE:KAMN), which was founded in 1945 by aviation pioneer Charles H. Kaman is headquartered in Bloomfield, Connecticut. Kaman conducts business in the aerospace and distribution markets. The Company is a leading distributor of industrial parts, and operates more than 250 customer service centers and five distribution centers across the United States and Puerto Rico. 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. Kaman also 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. Additionally, 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. More information is available at www.kaman.com.

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, 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); (iii) changes in geopolitical conditions in countries where the Company does or intends to do business; (iv) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; (v) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (vi) the successful resolution of government inquiries or investigations regarding government programs; (vii) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed specifications required and recover unanticipated start-up costs and other investments in the programs; (viii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (ix) the receipt and successful execution of production orders for the U.S. government JPF 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; (x) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory and the receipt of sufficient indications of interest to restart the K-MAX production line; (xi) the accuracy of current cost estimates associated with environmental remediation activities; (xii) the profitable integration of acquired businesses into the Company's operations; (xiii) the ability to implement our ERP systems in a cost-effective and efficient manner, limiting disruption to our business, and to capture their planned benefits while maintaining an adequate internal control environment; (xiv) changes in supplier sales or vendor incentive policies; (xv) the effects of price increases or decreases; (xvi) the effects of pension regulations, pension plan assumptions, pension plan asset performance and future contributions; (xvii) future levels of indebtedness and capital expenditures; (xviii) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xix) the effects of currency exchange rates and foreign competition on future operations; (xx) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxi) future repurchases and/or issuances of common stock; and (xxii) other risks and uncertainties set forth herein and in our 2014 Form 10-K.

Any forward-looking information provided in this report should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.