Kaman reports 2001 Q3, nine month results

Kaman Corp., Bloomfield, CT, reported financial results for the third quarter and nine months ended Sept. 30, 2001.
Net earnings for the quarter were $8.5 million, compared to $9.5 million in the same quarter last year. Revenues for the third quarter were $219.4 million, compared to $255.4 million in the period last year.


Third quarter and nine month results reflect a weak global economy and were affected by a sales and pre-tax earnings adjustment in the second quarter of $31.2 million, substantially all of which is associated with a change in estimated costs to complete the SH-2G(A) helicopter program for Australia.

This adjustment has had the effect of lowering the profit rate on the Australian program both as of June 30 and for the balance of the contract. The cost growth for that program is related to a contract dispute settlement with Litton Guidance and Control Systems (now part of Northrop Grumman) regarding development of an advanced Integrated Tactical Avionics System (ITAS) that is unique to this particular contract. The company has made progress in negotiating replacement subcontracts for the balance of the ITAS software development work, a principal element of the cost growth.

As a result of the adjustment, the company reported nine-month net earnings of $4.8 million, compared to $27.4 million in the same period last year. Revenues for the nine-month period were $658.8 million compared to $778.8 million last year. Results for the nine-month 2001 period include pre-tax gains of $2.7 million from the sale of two facilities in the first half and $2.1 million from a reduction in the stock appreciation rights accrual in the third quarter. The company has estimated its 2001 effective tax rate to be approximately 25 %, primarily due to reduced tax considerations related to the Australian helicopter program.

Excluding the $31.2 million earnings and tax adjustments, nine month net earnings for 2001 were $24.4 million.

Paul R. Kuhn, president and CEO, said, "Our businesses performed respectably in the third quarter despite difficult economic conditions. We believe this performance reflects the value of Kaman's broad diversification. Furthermore, our strong financial condition gives us the necessary resources to see us through these difficult economic times and the flexibility to take advantage of growth opportunities we are analyzing in each of our segments."


SEGMENT PERFORMANCE

Aerospace Segment

Third quarter operating profits for the company's Aerospace segment were $8.1 million, compared to $10.9 million last year. Sales were $77.1 million compared to $85.6 million a year ago.

The segment had an operating loss of $2.7 million in the nine months ended Sept. 2001, primarily due to the adjustment described above, compared to an operating profit of $33.0 million in the same period last year. Sales for the nine months were $223.8 million, compared to $281.0 million for the period last year.

Helicopter Programs

SH-2G Super Seasprite business for the international naval helicopter market and the K-MAX medium-to-heavy external lift helicopter, along with spare parts and sales support, represented approximately 43 % of Aerospace sales for the third quarter compared to approximately 54 % a year ago. The lower %age is largely due to a tapering off in revenues from the SH-2G program as the Australia and New Zealand programs mature. For the third quarter 2001, virtually all of the helicopter sales came from the SH-2G programs.

The company is continuing work on contracts to supply SH-2G helicopters to the governments of Australia and New Zealand. The New Zealand Ministry of Defence accepted delivery of two SH-2G(NZ) aircraft in August. The two aircraft are the initial delivery of five SH-2G(NZ)s ordered for service with the Royal New Zealand Navy. Shipments of two more of the aircraft to New Zealand are expected by year's

end, with final acceptance of these four aircraft to follow thereafter. Delivery of the fifth aircraft, which was ordered after the initial contract, is planned for 2002.

One SH-2G(A) helicopter was delivered to Australia early this year without the full ITAS software. The company is working with the Royal Australian Navy to develop procedures for the approval of the new software subcontractor arrangements being made, and thereafter procedures for interim acceptance of the aircraft without the full ITAS and coordination of deliveries of those aircraft.

"We are continuing to explore the international defense market where we believe the opportunities are good for intermediate-size, shipboard helicopters like the SH-2G," Kuhn said.

The company is in discussions with the government of Egypt concerning a requirement for six search and rescue helicopters. Discussions also are continuing with the United States government regarding the refurbishment of four SH-2G helicopters for the Polish Navy along with future training and support.

Aircraft Structures and Components

The aircraft structures and components business contributed approximately 40 % of the Aerospace segment's sales in the third quarter, compared to approximately 32 % a year ago.
The company is a subcontractor on a number of commercial and defense aviation programs, including production of wing structures and certain components for virtually all Boeing commercial aircraft as well as components for the Boeing C-17 military transport and F-22 fighter.

The company's Kamatics specialty bearing business had another favorable quarter with an increase in operating profits on higher sales compared to last year. Kamatics manufactures self-lubricating bearings for use principally in aircraft flight controls, turbine engines and landing gear, as well as driveline couplings for helicopters.

Kuhn said, "We are concerned by Boeing's warnings of a significant decline in commercial aircraft production in 2002 and 2003, made worse after Sept. 11. With Boeing as our largest customer for aircraft structures and components, we intend to monitor the situation closely and adjust as appropriate."

Advanced Technology Products

The company's advanced technology products accounted for approximately 17 % of Aerospace segment sales in the third quarter, compared to approximately 14 % a year ago.

These products include missile safe, arm and fuzing devices for a number of major missile programs; and precision measuring systems, mass memory systems, electromagnetic motors, microwave cabling and electro-optic systems for a variety of military and commercial uses.

Industrial Distribution Segment

Operating profits for the Industrial Distribution segment were $2.7 million for the third quarter, compared to $5.2 million reported a year ago. Sales were $109.6 million in the third quarter, compared to $133.5 million a year ago.

For the nine months, segment operating profits were $11.3 million, compared to $16.8 million in 2000. Nine-month sales were $345.7 million, compared to $403.0 million a year ago.

"The U. S. industrial sector has been on a downward slope for more than a year now with manufacturing already in recession. This is reflected in the lower sales volume and operating profits for our products," Kuhn said. "Our Industrial Distribution segment has maintained profitability and performed well considering these challenging economic conditions."

The company announced in Sept. it had acquired the industrial distribution business of A-C Supply, Inc. of Milwaukee, Wisconsin.

"This purchase is an incremental step in our overall strategy of building the value of our businesses through acquisitions and internal growth," Kuhn said. "This acquisition strengthens our presence in key industrial markets in the upper Midwest and allows us to better serve our national account customers

operating plants there."

Music Distribution Segment

Operating profits for the Music segment were $2.3 million, compared to $2.5 million reported a year ago. Sales were $32.4 million in the third quarter, compared to $36.1 million a year ago.

For the nine months, segment operating profits were $4.2 million, compared to $4.6 million last year. Nine-month sales were $88.4 million for 2001, versus $94.0 million a year ago.

"Our Music business performed well despite an overall weakness in the consumer market both in the U. S. and internationally," Kuhn said. "The second half of the year traditionally is the strongest sales period in this business as retailers stock up for the holidays. We are watching for evidence of consumer willingness and ability to spend in this weak economy and given the current world situation. We continue to focus on cost reduction and are implementing strategies to enhance our already strong market position."

Kaman Corp. is a $1 billion company with business in aerospace manufacturing, and in industrial and music distribution markets.