Kaman Reports 2009 Third Quarter Results
Friday, November 06, 2009 - Kaman

Kaman Corp. (Nasdaq: KAMN) today reported financial results for the third quarter ended October 2, 2009.

    Summary of Financial Results
    In thousands except per share amounts - Unaudited

                                               For the Three Months Ended
                                         October 2,  September 26,
                                              2009           2008     $ Change
    Net sales:
    Industrial Distribution               $162,921       $204,275    $(41,354)
    Aerospace                              126,980        130,858      (3,878)
    Net sales                             $289,901       $335,133    $(45,232)

    Operating income:
    Industrial Distribution                 $3,388        $10,704     $(7,316)
    Aerospace                               19,906         20,865        (959)
    Net gain (loss) on sale of assets           (3)           301        (304)
    Corporate expense                       (8,625)        (7,422)     (1,203)
    Operating income                       $14,666        $24,448     $(9,782)

      Diluted earnings per share             $0.37          $0.53      $(0.16)

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, "We delivered another quarter of solid results in a difficult economic environment. Aerospace sales declined although slightly less than we expected and despite a challenging market environment we were able to improve margin at Industrial Distribution. During the quarter, we signed an agreement with Bell Helicopters, adding a key customer to our helicopter subcontract business, and we expanded our Joint Programmable Fuze (JPF) contract with the U.S. government improving the near term profitability of the program. We were also awarded a contract by the U.S. Marine Corps for a demonstration of the unmanned K-MAX ® helicopter; if we are ultimately awarded a production contract, this program has the potential to contribute to our growth over the longer term. We were encouraged that during the quarter Industrial Distribution sales showed a slight sequential improvement over the second quarter and we improved our profit conversion on each dollar of sales. Our free cash flow* generation in the quarter was excellent and we increased the size of our credit facility and extended our debt maturities to further strengthen our financial position. Each of these accomplishments helps to strengthen our company and improve our competitiveness."

"While continued weakness in the commercial aerospace market leaves us cautious, we expect to continue to benefit from our business diversification, strong position in several product categories, and sound capital structure. We will retain a tight focus on controlling our costs, while operating our business to take advantage of growth opportunities as they arise."

During the third quarter, the company's effective tax rate was 24.7% versus 33.8% in the first half of the year. The lower tax rate in the quarter is due to the cumulative adjustment of our annualized rate to reflect a nonrecurring tax benefit for foreign exchange losses incurred as part of an international recapitalization, and from a discrete benefit in the quarter due to certain foreign tax incentives. This lower tax rate in the quarter contributed $0.05 to earnings per share (compared to a normalized rate of 35%). The full year effective tax rate for 2009 is expected to be between 30% and 32%.

Segment reports follow:

Industrial Distribution segment sales decreased 20.2% in the 2009 third quarter to $162.9 million from $204.3 million a year ago. Segment operating income for the third quarter of 2009 was $3.4 million, a 68.3% decrease from operating income of $10.7 million in the third quarter of 2008. The operating profit margin for the third quarter of 2009 was 2.1% compared to 2.0% in the second quarter of 2009 and 5.2% in the third quarter of 2008.

Industrial Distribution segment sales for the 2009 third quarter reflect the continued difficult economic environment and resultant weak market conditions for the company in addition to a very strong comparative period in 2008 which experienced a sales increase of 14.7%. The company is hopeful that the sales decline bottomed during the second quarter of 2009. Sales were slightly higher on a sequential basis in the third quarter with most of the increase coming during the month of September. Operating earnings compared to the third quarter of 2008 were impacted by the lower sales volume. The operating margin was higher on a sequential basis as a result of higher sales volume, and cost reductions.

Aerospace segment sales were $127.0 million, a decrease of 3.0% from sales of $130.9 million in the third quarter of 2008. Operating income for the 2009 third quarter was $19.9 million, compared to operating income of $20.9 million in the 2008 third quarter. The operating margin in this year's third quarter was 15.7% as compared to 15.9% in the comparable period in the prior year. The reduction was primarily attributable to lower sales of bearing product lines, which carry higher margins than the company's other product lines, and a favorable mix of legacy missile program sales in the third quarter of 2008.

The decrease in segment sales from last year's third quarter is a result of several factors including: decreased sales from aerospace bearing programs; the absence of sales under the Australian helicopter program ( $2.2 million in Q308); lower shipments of legacy missile fuzes; and $2.8 million related to foreign currency translation. These decreases were partially offset by increased JPF sales; higher BLACKHAWK cockpit deliveries (38 cockpits delivered in Q309 as compared to 31 in Q308); higher sales of SH-2 spares to New Zealand; and increased revenues from erosion coating programs for U.S. military helicopter platforms.

Outlook

CFO William C. Denninger commented, "For the full year, we continue to expect Aerospace revenue to increase 5% to 7% over 2008 with an operating margin in the mid-teens. Visibility at Distribution is limited; however, we expect the full year sales decline for 2009 to be at the high end of our previously stated range of down 10% to 15% from the prior year. We still anticipate operating margin 200 to 250 basis points below last year."

"Our balance sheet remains strong as we have focused on asset utilization and liquidity. We ended the quarter with a net debt to equity ratio* of 20.7% compared to 31.4% at year end 2008. Cash flow has been excellent and we expect to be able to attain our stated goal for the full year of $35 million to $40 million in free cash flow* and, with our $200 million universal shelf registration and recently finalized and upsized revolving credit agreement, we are well positioned for growth investments."

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 the quarter's results and various company programs.

A conference call has been scheduled for tomorrow, November 6, 2009 at 8:30 AM EST. Listeners may access the call live over the Internet through a link on the home page of the company's website at http://www.kaman.com/. In its discussion, management may include certain non-GAAP measures related to company performance. If so, a reconciliation of that information to GAAP will be provided in the exhibits to the conference call and will be available through the Internet link provided above.

Non-GAAP Measure Disclosure

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures indicated by an asterisk * used in this release provide investors with 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. The following definitions are provided:

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 investors with 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 for continuing operations" and "expenditures for property, plant & equipment", GAAP measures from the cash flow statement (in thousands):

                                               For the Nine Months Ended
                                        October 2, 2009   September 26, 2008
    Net cash provided by (used in)
     operating activities                       $48,500             $(38,479)
    Expenditures for property, plant
     & equipment                                 (8,869)              (9,995)
    Free Cash Flow                              $39,631             $(48,474)

Net Debt to Equity Ratio - Net debt to equity ratio is defined as GAAP "Notes payable" plus "Current portion of long-term debt" plus "Long-term debt, excluding current portion" less "cash and cash equivalents" divided by "Total shareholders' equity." Management believes net debt to equity provides investors with a perspective on the company's liquidity and capacity to fund investments in its operations. The following table illustrates the calculation of net debt to equity using GAAP measures from the balance sheets (in thousands):

                                                October 2,     December 31,
                                                     2009             2008

    Notes payable                                  $1,669           $1,241
    Current portion of long-term debt               5,000            5,000
    Long-term debt, excluding current portion      72,038           87,924
    Cash and cash equivalents                     (16,620)          (8,161)
    Net debt                                      $62,087          $86,004
    Total shareholders' equity                   $299,825         $274,271
    Net debt to equity                               20.7%            31.4%

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut conducts business in the aerospace and industrial distribution markets. The company produces and/or markets widely used proprietary aircraft bearings and components; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safing and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; and support for the company's SH-2G Super Seasprite maritime helicopters and K-MAX medium-to-heavy lift helicopters. The company is also a leading distributor of industrial parts, and operates nearly 200 customer service centers and five distribution centers across North America. Kaman offers more than two million items including bearings, power transmission, electrical, material handling, motion control, fluid power and MRO supplies to customers in a variety of industries. Additionally, Kaman provides value-added services such as engineering and design support for electrical, linear, hydraulic and pneumatic systems as well as belt and rubber fabrication, reducer build, hose assemblies, custom modifications, repair services, fluid analysis and motor management.

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