Fourth Quarter Highlights from Continuing Operations:

  • Net sales down 22.1% versus prior year to $185.3 million
  • Net loss from continuing operations of $31.4 million, or $1.13 per diluted share
  • Adjusted diluted earnings per share from continuing operations* of $0.41
  • Net cash provided by operating activities of $68.8 million, leading to Free Cash Flow* of $65.3 million in the quarter

Full Year Highlights from Continuing Operations:

  • Net sales up 3.0% versus prior year to $784.5 million; Organic sales down 7.1%
  • Positive operating results offset by a $86.6 million in impairment charges
  • Net loss from continuing operations of $70.4 million, or $2.54 per diluted share
  • Adjusted diluted earnings per share from continuing operations* of $2.11 adjusted*, a 29.4% increase over 2019

BLOOMFIELD, Conn.–(BUSINESS WIRE)–Kaman Corp. (NYSE:KAMN) today reported financial results for the fourth fiscal quarter and full year ended December 31, 2020.

 

 

 

 

 

 

 

 

 

Table 1. Summary of Financial Results (unaudited)

 

 

 

 

 

 

In thousands except per share amounts

For the Three Months Ended

 

 

 

December 31,

2020

 

December 31,

2019

 

Change

 

 

 

 

 

 

 

 

 

 

Net sales from continuing operations

$

185,288

 

 

$

237,792

 

 

$

(52,504

)

 

 

 

 

 

 

 

 

 

 

Operating income from continuing operations:

 

 

 

 

 

 

 

Operating (loss) income from continuing operations

$

(38,192

)

 

$

14,840

 

 

$

(53,032

)

 

 

% of sales

(20.6

)%

 

6.2

%

 

(26.8

)%

 

 

Adjustments

43,763

 

 

15,360

 

 

$

28,403

 

 

 

Adjusted operating income from continuing operations

$

5,571

 

 

$

30,200

 

 

$

(24,629

)

 

 

% of sales

3.0

%

 

12.7

%

 

(9.7

)%

 

 

Adjusted EBITDA* from continuing operations:

 

 

 

 

 

 

 

(Loss) earnings from continuing operations

$

(31,420

)

 

$

34,105

 

 

$

(65,525

)

 

 

Adjustments

48,686

 

 

2,641

 

 

46,045

 

 

 

Adjusted EBITDA from continuing operations*

$

17,266

 

 

$

36,746

 

 

$

(19,480

)

 

 

% of sales

9.3

%

 

15.5

%

 

(6.2

)%

 

 

Earnings per share:

 

 

 

 

 

 

 

Diluted (loss) earnings per share from continuing operations

$

(1.13

)

 

$

1.22

 

 

$

(2.35

)

 

 

Adjustments

1.54

 

 

(0.42

)

 

1.96

 

 

 

Adjusted diluted earnings per share from continuing operations*

$

0.41

 

 

$

0.80

 

 

$

(0.39

)

 

 

 

 

 

 

 

 

 

Ian K. Walsh, President and Chief Executive Officer, commented, “Over the course of the year we saw declines in our commercial aviation and medical end markets brought on by the unprecedented challenges of the global pandemic. Throughout the year we acted decisively to mitigate the impact on our operations, relying on the strength of our team and the diversity of our products to deliver solid performance in 2020. Looking at our fourth quarter 2020 results compared to 2019 we had lower JPF shipments and, as expected, saw a significant decline in our commercial aviation bearings products due to the impact of the pandemic. Sequentially, we saw a decline in sales due to lower JPF deliveries and a delay in shipments over the last two weeks of the year at Bal Seal due to the impact of a cyber incident in December. However, this was offset by a sequential sales increase for our bearings products with a modest uptick in sales to our commercial aviation customers.”

Mr. Walsh continued, “For the full year, operating margins were lower than 2019 due to a number of non-recurring items. However, the underlying strength of our product portfolio, the diversity of our end market exposures, and our focus on cost control allowed us to deliver Adjusted EBITDA margin* above 2019 levels. As we look to 2021 we continue to expect our commercial aerospace business to remain challenged during the first half of the year. We expect improved performance in the second half as vaccines become more widely available, demand for business and leisure travel picks up and utilization of narrow body aircraft increases. For our defense products, sales volume is expected to be lower, largely due to the delay of an order for our joint programmable fuze program to the Middle East as a result of the new Presidential administration and their request that the U.S. State Department review Foreign Military Sales and Direct Commercial Sales to certain allied militaries. Due to the potential delay we felt it was appropriate to remove this order from our outlook for 2021. The absence of this order from our outlook is one of the primary drivers for 2021 expected performance below 2020. Finally, we took significant steps in 2020 at improving our cost structure, reducing expenses by approximately $50 million on a run rate basis, a significant portion of which is structural. We will remain focused on cost control in 2021 in order to hold profitability despite the lower volumes we expect for the year and we are optimistic that as commercial aviation begins to recover we will be well positioned to meet demand and benefit from increased volumes in our most profitable product lines.”

Management Discussion of Results

Sales in the fourth quarter decreased when compared to 2019 due to lower JPF deliveries and the impact of the pandemic on sales for our commercial aviation products. Organic sales* declines for both the quarter and year-to-date periods were offset by the addition of Bal Seal. Gross margin for the quarter of 29.3% remained strong despite the lower sales volume as we continued to benefit from the cost reduction efforts we implemented over the course of the year. A GAAP loss of $31.4 million, or $1.13 per diluted share, was driven by a non-cash impairment charge of $36.3 million related to the assets of our UK Composites operations which were held for sale as of December 31, 2020. Adjusted diluted earnings per share* was $0.41, and helped contribute to our full year adjusted diluted earnings per share of $2.11, a 29.4% increase over our full year adjusted diluted earnings per share of $1.63 achieved in 2019.

Sales of our defense products, including Safe and Arm Devices, were down 23.6% over the fourth quarter of 2019 and down 25.3% over the third quarter of 2020. During the quarter we delivered more than 12,000 JPF’s, bringing our total year-to-date deliveries to a record of nearly 48,750 units. In 2021 we expect to deliver between 30,000 and 35,000 fuzes, below 2020, due in part to the removal of a previously anticipated JPF DCS order which would have added approximately 7,000 fuzes to our 2021 expectations.

Sales for our commercial, business and general aviation products decreased 40.0% over the fourth quarter of 2019, but increased 6.4% when compared to the third quarter of 2020, our second straight quarter of sequential growth. This sequential improvement was due to a 13.7% increase in sales of commercial aviation products to Boeing and Airbus and a 3.7% increase in business and general aviation products, which includes the sale of one K-MAX® aircraft in the fourth quarter. Exiting 2020 we note that first half performance was relatively strong compared to the back half of year. Moving into 2021 we expect lower performance in the first half, specifically related to our commercial aviation products, and improved performance in the second half of the year. The cadence of earnings in the year is due to an expected increase in air traffic and commercial and business travel in the second half of the year as the impact from the pandemic begins to ease.

Sales for our medical products decreased 4.2% from the third quarter as shipments out of Bal Seal were disrupted by the cyber incident we experienced in December of 2020. We worked quickly to assess and control the situation, restoring Bal Seal to normal operations by mid-January without the need to pay ransom. While we incurred costs related to this incident, they were not overly material and should be largely covered by insurance. Looking to 2021, we expect to see a significant increase in sales for these products partially offsetting lower defense volumes. Finally, our industrial markets were up modestly in the fourth quarter when compared to the third quarter of 2020, and we anticipate this trend will continue into 2021.

Chief Financial Officer, Robert D. Starr, commented, “During the fourth quarter we had strong cash flow performance generating Operating Cash Flows from Continuing Operations of $68.8 million, leading to Adjusted Free Cash Flow from Continuing Operations*of $65.3 million for the period. For the full year we delivered operating cash flows from continuing operations of $16.5 million, or Free Cash Flow usage from Continuing Operations* for the year of $1.3 million. Cash flow performance for 2020 was impacted by a delay in the collection of a significant JPF DCS receivable.”

Mr. Starr further commented, “The diluted loss per share from continuing operations for the quarter of $1.13 was impacted by a number of non-recurring items, including an impairment loss associated with the assets of our UK Composites operations which were held for sale at year end. When adjusted we delivered $0.41* of diluted earnings per share from continuing operations for the quarter compared to $0.70 in the third quarter of 2020 and $0.80 in the fourth quarter of 2019. Subsequent to year end we successfully closed on a transaction to sell our UK Composites operations. This transaction will not qualify for discontinued operations reporting in 2021. In order to provide a more direct comparison to our 2021 performance we will disclose the 2020 results of this business throughout the course of the year. Sales for this business were $21.5 million in 2020, with an operating loss of approximately $6.9 million.”

2021 Outlook

(in millions)

2020

 

2021 Outlook

 

Actual

 

Low End

High End

Sales

 

 

 

 

Sales from continuing operations

$

784.5

 

 

$

725.0

 

$

745.0

 

 

 

 

 

 

Adjusted EBITDA*

 

 

 

 

Earnings from continuing operations

$

(70.4

)

 

$

43.5

 

$

52.5

 

Adjustments

173.3

 

 

41.5

 

44.0

 

Adjusted EBITDA* from continuing operations

$

102.9

 

 

$

85.0

 

$

96.5

 

Adjusted EBITDA margin* from continuing operations

13.1

%

 

11.7

%

13.0

%

 

 

 

 

 

Adjusted Diluted Earnings Per Share*

 

 

 

 

Diluted Earnings Per Share

$

(2.54

)

 

$

1.55

 

$

1.87

 

Adjustments

4.65

 

 

 

 

Adjusted Diluted Earnings Per Share

$

2.11

 

 

$

1.55

 

$

1.87

 

 

 

 

 

 

Cash Flow

 

 

 

 

Operating cash flow from continuing operations

$

16.5

 

 

$

25.0

 

$

35.0

 

Bal Seal Acquisition Retention Payment

 

 

25.1

 

25.1

 

Cash used for the purchase of property, plant and equipment

(17.8

)

 

(20.0

)

(20.0

)

Adjusted Free Cash Flow*

$

(1.3

)

 

$

30.1

 

$

40.1

 

 

 

 

 

 

Discretionary Pension Contribution

$

10.0

 

 

$

10.0

 

$

10.0

 

Additional Financial Information

  • Earnings for the year are back half weighted with approximately 30% expected in the first half and less than 10% expected in the first quarter
  • Expected recovery in second half of the year as the impact of the pandemic on commercial aviation begins to ease
  • Excludes JPF DCS order previously contemplated in 2021 due to uncertainty resulting from the change in Presidential administration
  • Operating cash flow from continuing operations will include the $25.1 million payment to Bal Seal employees which represents purchase price paid to the former Bal Seal owners accounted for as compensation under ASC 805
  • Operating cash flow from continuing operations include a discretionary pension contribution of $10 million
  • Net periodic pension benefit of approximately $26.3 million
  • Interest expense of approximately $16.4 million
  • Estimated annualized tax rate of 24.0%

Please see the MD&A section of the Company’s Form 10-K filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.

A conference call has been scheduled for tomorrow, February 26, 2021, at 8:30 AM ET. Listeners may access the call live by telephone at (844) 473-0975 and from outside the U.S. at (562) 350-0826 using the Conference ID: 6195753; or, via the Internet at www.kaman.com. A replay will also be available two hours after the call and can be accessed at (855) 859-2056 or (404) 537-3406 using the Conference ID: 6195753. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in this release. In addition, a supplemental presentation relating to the fourth quarter and full year 2020 results will be posted to the Company’s website prior to the earnings call at http://www.kaman.com/investors/presentations.

About Kaman Corporation

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut, conducts business in the aerospace & defense, industrial and medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our K-MAX® manned and unmanned medium-to-heavy lift helicopters.

More information is available at www.kaman.com.

Non-GAAP Measures Disclosure

Management believes that the Non-GAAP financial measures (i.e. financial measures that are not computed in accordance with Generally Accepted Accounting Principles) identified 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 release and other disclosures as follows:

Organic Sales – Organic Sales is defined as “Net Sales” less sales derived from acquisitions completed during the preceding twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term “Organic Sales” may be interpreted differently by other companies and under different circumstances. No other adjustments were made during the three-month and twelve-month fiscal periods ended December 31, 2020 and December 31, 2019, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, “Net Sales”.

 

Table 2. Organic Sales from continuing operations
(in thousands)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

 

 

December 31,

2020

 

December 31,

2019

 

December 31,

2020

 

December 31,

2019

Net sales from continuing operations

 

$

185,288

 

 

$

237,792

 

 

$

784,459

 

 

$

761,608

 

Acquisition sales

 

16,516

 

 

 

 

76,965

 

 

 

Organic Sales

 

168,772

 

 

237,792

 

 

707,494

 

 

761,608

 

$ Change

 

$

(69,020

)

 

$

16,933

 

 

$

(54,114

)

 

$

25,614

 

% Change

 

(29.0

)%

 

7.7

%

 

(7.1

)%

 

3.5

%

Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations – Adjusted Net Sales from continuing operations is defined as net sales from continuing operations, less items not indicative of normal sales, such as revenue recorded related to the settlement of claims. Adjusted Operating Income from continuing operations is defined as operating income from continuing operations, less items that are not indicative of the operating performance of the Company for the period presented. These items are included in the reconciliation below. Management uses Adjusted Net Sales from continuing operations and Adjusted Operating Income from continuing operations to evaluate performance period over period, to analyze underlying trends and to assess our performance relative to our competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance. The following table illustrates the calculation of Adjusted Operating Income from continuing operations to the Consolidated Financial Statements included in the Company’s Form 10-K filed with the Securities and Exchange Commission on February 25, 2021.

 

Table 3. Adjusted Net Sales and Adjusted Operating Income from Continuing Operations

 

 

 

 

(In thousands) (unaudited)

 

 

 

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

CONSOLIDATED OPERATING INCOME:

 

 

 

 

 

 

 

 

Net Sales from continuing operations

 

$

185,288

 

 

$

237,792

 

 

$

784,459

 

 

$

761,608

 

GAAP – Operating (loss) income from continuing operations

 

$

(38,192

)

 

$

14,840

 

 

$

(84,311

)

 

$

53,411

 

% of GAAP net sales

 

(20.6

)%

 

6.2

%

 

(10.7

)%

 

7.0

%

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

Non-cash, non tax goodwill impairment charge

 

$

 

 

$

 

 

$

50,307

 

 

$

 

Impairment on assets held for sale

 

36,285

 

 

 

 

36,285

 

 

 

Restructuring and severance costs

 

539

 

 

1,005

 

 

8,359

 

 

1,558

 

Costs associated with corporate development activities

 

207

 

 

7,097

 

 

4,539

 

 

10,090

 

Bal Seal acquisition costs

 

45

 

 

 

 

8,506

 

 

 

Cost of acquired Bal Seal retention plans

 

5,704

 

 

 

 

22,814

 

 

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

 

 

2,355

 

 

 

Costs from transition services agreement

 

983

 

 

3,519

 

 

12,515

 

 

4,673

 

Senior leadership transition

 

 

 

 

 

280

 

 

 

Reversal of employee tax-related matters in foreign operations

 

 

 

 

 

(1,859

)

 

 

Reversal of environmental accrual at GRW

 

 

 

 

 

(264

)

 

 

(Gain) loss on sale of U.K. Tooling business

 

 

 

3,739

 

 

(493

)

 

3,739

 

Total adjustments

 

$

43,763

 

 

$

15,360

 

 

$

143,344

 

 

$

20,060

 

 

 

 

 

 

 

 

 

 

Adjusted Operating Income

 

$

5,571

 

 

$

30,200

 

 

$

59,033

 

 

$

73,471

 

% of GAAP net sales

 

3.0

%

 

12.7

%

 

7.5

%

 

9.6

%

Adjusted EBITDA from continuing operations – Adjusted EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company’s for the period presented. Adjusted EBITDA from continuing operations differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items that are not indicative of the operating performance of the Company for the period presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Adjusted EBITDA from continuing operations. Adjusted EBITDA from continuing operations also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted EBITDA from continuing operations 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 because it provides a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other expense (income), net and certain items that are not indicative of the operating performance of the Company for the period presented. Adjusted EBITDA from continuing operations is not presented as an alternative measure of operating performance, as determined in accordance with GAAP. No other adjustments were made during the three-month and twelve-month fiscal periods ended December 31, 2020 and December 31, 2019. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures:

 

Adjusted EBITDA from continuing operations (in thousands)

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

Adjusted EBITDA from continuing operations

 

 

 

 

 

 

 

 

Consolidated Results

 

 

 

 

 

 

 

 

Sales from continuing operations

 

$

185,288

 

 

$

237,792

 

 

$

784,459

 

 

$

761,608

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations, net of tax

 

$

(31,420

)

 

$

34,105

 

 

$

(70,434

)

 

$

56,446

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4,888

 

 

2,607

 

 

19,270

 

 

17,202

 

Income tax (benefit) expense

 

(6,708

)

 

(19,103

)

 

(7,730

)

 

(15,859

)

Non-service pension and post retirement benefit income, net

 

(4,062

)

 

(98

)

 

(16,250

)

 

(396

)

Other expense (income), net

 

(304

)

 

58

 

 

(728

)

 

(309

)

Depreciation and amortization

 

11,695

 

 

6,546

 

 

43,899

 

 

25,854

 

Other Adjustments:

 

 

 

 

 

 

 

 

Non-cash, non tax goodwill impairment charge

 

$

 

 

$

 

 

$

50,307

 

 

$

 

Impairment on assets held for sale

 

36,285

 

 

 

 

36,285

 

 

 

Restructuring and severance costs

 

539

 

 

1,005

 

 

8,359

 

 

1,558

 

Cost associated with corporate development activities

 

207

 

 

7,097

 

 

4,539

 

 

10,090

 

Bal Seal acquisition costs

 

45

 

 

 

 

8,506

 

 

 

Cost of acquired Bal Seal retention plans

 

5,704

 

 

 

 

22,814

 

 

 

Inventory step-up associated with Bal Seal acquisition

 

 

 

 

 

2,355

 

 

 

Costs from transition services agreement

 

983

 

 

3,519

 

 

12,515

 

 

4,673

 

Income from transition services agreement

 

(586

)

 

(2,729

)

 

(8,439

)

 

(3,673

)

Senior leadership transition

 

 

 

 

 

280

 

 

 

Reversal of employee-tax related matters in foreign operations

 

 

 

 

 

(1,859

)

 

 

Reversal of environmental accrual at GRW

 

 

 

 

 

(264

)

 

 

(Gain) loss on sale of U.K. Tooling business

 

 

 

3,739

 

 

(493

)

 

3,739

 

Adjustments

 

$

48,686

 

 

$

2,641

 

 

$

173,366

 

 

$

42,879

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from continuing operations

 

$

17,266

 

 

$

36,746

 

 

$

102,932

 

 

$

99,325

 

Adjusted EBITDA margin

 

9.3

%

 

15.5

%

 

13.1

%

 

13.0

%

 

Outlook – Adjusted EBITDA from continuing operations (in millions)

 

 

 

 

 

2021 Outlook

 

 

Low

 

High

Adjusted EBITDA from continuing operations

 

 

 

 

2021 Outlook

 

 

 

 

Sales from continuing operations

 

$

725.0

 

 

$

745.0

 

 

 

 

 

 

Earnings from continuing operations, net of tax

 

$

43.5

 

 

$

52.5

 

 

 

 

 

 

Interest expense, net

 

16.4

 

 

16.4

 

Income tax (benefit) expense

 

14.0

 

 

16.5

 

Net Periodic Pension Benefit

 

(26.3

)

 

(26.3

)

Other expense (income), net

 

(1.3

)

 

(1.3

)

Depreciation and amortization

 

38.7

 

 

38.7

 

Total Adjustments

 

$

41.5

 

 

$

44.0

 

 

 

 

 

 

Adjusted EBITDA from continuing operations

 

$

85.0

 

 

$

96.5

 

Adjusted EBITDA margin

 

11.7

%

 

13.0

%

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations – Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP “Earnings from Continuing Operations” and “Diluted earnings per share from continuing operations”, less items that are not indicative of the operating performance of the business for the periods presented. These items are included in the reconciliation below. Management uses Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations to evaluate performance period over period, to analyze the underlying trends in our business and to assess its performance relative to its competitors.

Contacts

James Coogan

V.P., Investor Relations and Business Development

(860) 243-6342

James.Coogan@kaman.com

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