form10-q.htm
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 June 29,
2007
|
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)
|
|
|
(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 (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
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [ ]
|
|
Accelerated
filer [X]
|
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
[ ] No [X]
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock
as of August 2, 2007:
Part
I – Financial Information
Item
1. Financial Statements:
Condensed
Consolidated Balance Sheets
(In
thousands) (Unaudited)
|
|
June
29, 2007
|
|
|
December
31, 2006
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$ |
12,902
|
|
|
|
|
|
$ |
12,720
|
|
Accounts
receivable, net
|
|
|
|
|
|
216,684
|
|
|
|
|
|
|
189,328
|
|
Inventories
|
|
|
|
|
|
241,563
|
|
|
|
|
|
|
231,350
|
|
Income
taxes receivable
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
-
|
|
Deferred
income taxes
|
|
|
|
|
|
28,722
|
|
|
|
|
|
|
25,425
|
|
Other
current assets
|
|
|
|
|
|
18,691
|
|
|
|
|
|
|
19,097
|
|
Total
current assets
|
|
|
|
|
|
520,618
|
|
|
|
|
|
|
477,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant & equip., at cost
|
|
|
174,365
|
|
|
|
|
|
|
|
168,875
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
|
119,062
|
|
|
|
|
|
|
|
114,710
|
|
|
|
|
|
Net
property, plant & equipment
|
|
|
|
|
|
|
55,303
|
|
|
|
|
|
|
|
54,165
|
|
Goodwill
|
|
|
|
|
|
|
58,095
|
|
|
|
|
|
|
|
56,833
|
|
Other
intangible assets, net
|
|
|
|
|
|
|
19,108
|
|
|
|
|
|
|
|
19,264
|
|
Deferred
income taxes
|
|
|
|
|
|
|
15,417
|
|
|
|
|
|
|
|
14,000
|
|
Other
assets, net
|
|
|
|
|
|
|
9,964
|
|
|
|
|
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
$ |
678,505
|
|
|
|
|
|
|
$ |
630,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
|
|
|
$ |
442
|
|
|
|
|
|
|
$ |
-
|
|
Current
portion of long-term debt
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
1,551
|
|
Accounts
payable - trade
|
|
|
|
|
|
|
98,253
|
|
|
|
|
|
|
|
95,059
|
|
Accrued
salaries and wages
|
|
|
|
|
|
|
22,634
|
|
|
|
|
|
|
|
26,129
|
|
Accrued
pension costs
|
|
|
|
|
|
|
8,725
|
|
|
|
|
|
|
|
2,965
|
|
Accrued
contract losses
|
|
|
|
|
|
|
11,477
|
|
|
|
|
|
|
|
11,542
|
|
Advances
on contracts
|
|
|
|
|
|
|
9,964
|
|
|
|
|
|
|
|
10,215
|
|
Other
accruals and payables
|
|
|
|
|
|
|
39,619
|
|
|
|
|
|
|
|
42,661
|
|
Income
taxes payable
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
8,215
|
|
Total
current liabilities
|
|
|
|
|
|
|
191,637
|
|
|
|
|
|
|
|
198,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excl. current portion
|
|
|
|
|
|
|
107,135
|
|
|
|
|
|
|
|
72,872
|
|
Other
long-term liabilities
|
|
|
|
|
|
|
61,199
|
|
|
|
|
|
|
|
62,643
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
318,534
|
|
|
|
|
|
|
|
296,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
|
$ |
678,505 |
|
|
|
|
|
|
$ |
630,413
|
|
See
accompanying notes to condensed consolidated financial statements.
Condensed
Consolidated Statements of Operations
(In
thousands except per share amounts)
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
319,953
|
|
|
$ |
292,967
|
|
|
$ |
637,271
|
|
|
$ |
589,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
231,774
|
|
|
|
212,462
|
|
|
|
459,963
|
|
|
|
427,754
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expense
|
|
|
71,472
|
|
|
|
67,008
|
|
|
|
143,571
|
|
|
|
137,082
|
|
Net
gain on sale of assets
|
|
|
(56 |
) |
|
|
(43 |
) |
|
|
(14 |
) |
|
|
(56 |
) |
Other
operating income
|
|
|
(724 |
) |
|
|
(452 |
) |
|
|
(1,256 |
) |
|
|
(823 |
) |
Interest
expense, net
|
|
|
1,625
|
|
|
|
1,630
|
|
|
|
3,143
|
|
|
|
2,888
|
|
Other
expense, net
|
|
|
260
|
|
|
|
303
|
|
|
|
218
|
|
|
|
563
|
|
|
|
|
304,351
|
|
|
|
280,908
|
|
|
|
605,625
|
|
|
|
567,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
15,602
|
|
|
|
12,059
|
|
|
|
31,646
|
|
|
|
22,196
|
|
Income
tax expense
|
|
|
(5,543 |
) |
|
|
(4,573 |
) |
|
|
(11,512 |
) |
|
|
(8,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
10,059
|
|
|
|
7,486
|
|
|
|
20,134
|
|
|
|
13,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.41
|
|
|
|
0.31
|
|
|
|
0.83
|
|
|
|
0.56
|
|
Diluted
|
|
|
0.40
|
|
|
|
0.31
|
|
|
|
0.81
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,285
|
|
|
|
24,031
|
|
|
|
24,213
|
|
|
|
23,984
|
|
Diluted
|
|
|
25,210
|
|
|
|
24,880
|
|
|
|
25,157
|
|
|
|
24,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.125
|
|
|
$ |
0.125
|
|
|
$ |
0.25
|
|
|
$ |
0.25
|
|
See
accompanying notes to condensed consolidated financial statements.
Condensed
Consolidated Statements of Cash Flows
(In
thousands except share and per share amounts) (Unaudited)
|
|
For
the Six Months Ended
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
20,134
|
|
|
$ |
13,406
|
|
Depreciation
and amortization
|
|
|
5,718
|
|
|
|
5,165
|
|
Change
in allowance for doubtful accounts
|
|
|
(688 |
) |
|
|
(219 |
) |
Net
(gain) loss on sale of assets
|
|
|
(14 |
) |
|
|
(56 |
) |
Stock
compensation expense
|
|
|
2,157
|
|
|
|
1,627
|
|
Deferred
income taxes
|
|
|
(4,986 |
) |
|
|
2,423
|
|
Changes
in assets and liabilities, excluding effects of
|
|
|
|
|
|
|
|
|
acquisitions/divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(26,025 |
) |
|
|
(23,623 |
) |
Inventories
|
|
|
(9,198 |
) |
|
|
(1,260 |
) |
Income
taxes receivable
|
|
|
(2,056 |
) |
|
|
-
|
|
Other
current assets
|
|
|
768
|
|
|
|
(448 |
) |
Accounts
payable
|
|
|
8,612
|
|
|
|
(13,093 |
) |
Accrued
contract losses
|
|
|
(65 |
) |
|
|
(6,217 |
) |
Advances
on contracts
|
|
|
(251 |
) |
|
|
(3,857 |
) |
Accrued
expenses and payables
|
|
|
(7,943 |
) |
|
|
(9,836 |
) |
Income
taxes payable
|
|
|
(7,711 |
) |
|
|
(3,230 |
) |
Pension
liabilities
|
|
|
2,432
|
|
|
|
4,913
|
|
Other
long-term liabilities
|
|
|
3,565
|
|
|
|
187
|
|
Cash
provided by (used in) operating activities
|
|
|
(15,551 |
) |
|
|
(34,118 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of assets
|
|
|
194
|
|
|
|
461
|
|
Expenditures
for property, plant & equipment
|
|
|
(6,799 |
) |
|
|
(5,046 |
) |
Acquisition
of businesses including earn out adjustment
|
|
|
(1,793 |
) |
|
|
(362 |
) |
Other,
net
|
|
|
(2,228 |
) |
|
|
(1,742 |
) |
Cash
provided by (used in) investing activities
|
|
|
(10,626 |
) |
|
|
(6,689 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) under revolving credit agreements
|
|
|
36,143
|
|
|
|
38,410
|
|
Debt
repayment
|
|
|
(1,543 |
) |
|
|
(1,827 |
) |
Net
change in book overdraft
|
|
|
(5,834 |
) |
|
|
7,820
|
|
Proceeds
from exercise of employee stock plans
|
|
|
2,829
|
|
|
|
2,010
|
|
Dividends
paid
|
|
|
(6,056 |
) |
|
|
(5,985 |
) |
Debt
issuance costs
|
|
|
(150 |
) |
|
|
-
|
|
Windfall
tax benefit
|
|
|
464
|
|
|
|
200
|
|
Other
|
|
|
96
|
|
|
|
151
|
|
Cash
provided by (used in) financing activities
|
|
|
25,949
|
|
|
|
40,779
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(228 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
410
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
12,720
|
|
|
|
12,998
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
12,902
|
|
|
$ |
13,323
|
|
Supplemental
Disclosure: Non-cash financing activity for the first half of 2007 and
2006 includes the conversion of 975 and 276 debentures with a total value of
$975 and $276 into 41,731 and 11,801 shares of common stock, respectively,
issued from treasury.
See
accompanying notes to condensed consolidated financial statements.
Notes
to Condensed Consolidated Financial Statements
(In
thousands except share and per share amounts) (Unaudited)
1. Basis
of Presentation
The
December 31, 2006 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 company’s 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 the prior period
condensed consolidated financial statements have been reclassified to conform
to
current year presentation. The statements should be read in conjunction with
the
consolidated financial statements and notes included in the company’s Form 10-K
(as amended) for the year ended December 31, 2006. 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.
The
company has a calendar year-end; however, its first three fiscal quarters follow
a 13-week convention, with each quarter ending on a Friday. The second quarter
for 2007 and 2006 ended on June 29, 2007 and June 30, 2006,
respectively.
Recently
Issued Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159), including an amendment to Statement of Financial Accounting
Standards No. 115. Under SFAS 159, entities may elect to measure specified
financial instruments and warranty and insurance contracts at fair value on
a
contract-by-contract basis, with changes in fair value recognized in earnings
each reporting period. The election, called the fair value option, will enable
entities to achieve an offsetting accounting effect for changes in fair value
of
certain related assets and liabilities without having to apply complex hedge
accounting provisions. SFAS 159 is effective as of the beginning of a company’s
first fiscal year that begins after November 15, 2007. The company is still
in
the process of evaluating the impact that adoption of SFAS 159 will have on
our
future consolidated financial statements.
On
January 1, 2007, the company adopted FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes.” The cumulative effect
of the adoption of FIN 48 was a decrease of $415 in the liability for
unrecognized tax benefits and a corresponding increase to retained
earnings. The total liability for unrecognized tax benefits upon
adoption was $5,118, including interest and penalties of
$1,152. Included in unrecognized tax benefits upon adoption were
items approximating $1,500 that, if recognized, would favorably affect the
company’s effective tax rate in future periods.
During
the second quarter of 2007, the liability for unrecognized tax benefits was
reduced by $373 to reflect payments in settlements with tax authorities, with
no
impact to the company’s effective tax rate. The company does not
anticipate that total unrecognized tax benefits will change significantly within
the next twelve months. The company files tax returns in numerous
U.S. and foreign jurisdictions, with returns subject to examination for varying
periods, but generally back to and including 2003. It is the
company’s policy to record interest and penalties on unrecognized tax benefits
as income taxes.
Cash
Flow Items
Cash
payments for interest were $3,141 and $2,886 for the six months ended June
29,
2007 and June 30, 2006, respectively. Cash payments for income taxes, net of
refunds, for the comparable periods were $19,949 and $9,260,
respectively.
Comprehensive
Income
Comprehensive
income was $22,670 and $13,913 for the six months ended June 29, 2007 and June
30, 2006, 2006, respectively. The changes to net earnings used to determine
comprehensive income are comprised of foreign currency translation adjustments
and net changes in pension and post-retirement benefit plan unrecognized gains
and losses as a result of the adoption of SFAS No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans,” as of December 31,
2006.
Sale
of Product Line Assets
The
company has entered into an agreement with DSE, Inc., former owner of the Dayron
operation, under which DSE will purchase the 40mm production line assets,
including principally equipment and inventory. The sale
price is approximately $4,500 plus the value of inventory and the transaction,
which is subject to customary closing conditions, is expected to occur on or
before December 31, 2007.
2.
Accounts Receivable, net
Accounts
receivable consist of the following:
|
|
June
29, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
$ |
105,564
|
|
|
$ |
97,752
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
contracts:
|
|
|
|
|
|
|
|
|
Billed
|
|
|
38,010
|
|
|
|
26,938
|
|
Costs
and accrued profit – not billed
|
|
|
6,814
|
|
|
|
4,544
|
|
|
|
|
|
|
|
|
|
|
Commercial
and other government contracts:
|
|
|
|
|
|
|
|
|
Billed
|
|
|
26,650
|
|
|
|
21,479
|
|
Costs
and accrued profit – not billed
|
|
|
42,323
|
|
|
|
41,968
|
|
|
|
|
|
|
|
|
|
|
Less
allowance for doubtful accounts
|
|
|
(2,677 |
) |
|
|
(3,353 |
) |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
216,684
|
|
|
$ |
189,328
|
|
Included
in commercial and other government contracts – not billed as of December 31,
2006 was $41,295 related to the production contract for the Australian SH-2G(A)
program for the Helicopters segment. Of this balance, $41,016 remained unbilled
as of June 29, 2007. A total of $279 was billed during the first half of 2007
all of which has been collected to date. Based upon the terms of the existing
contract, the company estimates that approximately $1,000 of the currently
unbilled amount will be billed after June 29, 2008. If the company
performs additional work scope for the customer pursuant to currently proposed
terms of a potential contract modification, certain milestone billings permitted
under the existing contract will be deferred and approximately $18,000 of the
currently unbilled amount will be billed after June 29, 2008.
3.
Inventories
Inventories
consist of the following:
|
|
June
29, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
Merchandise
for resale
|
|
$ |
133,909
|
|
|
$ |
130,694
|
|
|
|
|
|
|
|
|
|
|
Contracts
and other work in process
|
|
|
94,836
|
|
|
|
87,137
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
|
|
|
|
|
|
(including
certain general stock materials)
|
|
|
12,818
|
|
|
|
13,519
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
241,563
|
|
|
$ |
231,350
|
|
4.
Shareholders’ Equity
Changes
in shareholders’ equity for the six months ended June 29, 2007 were as
follows:
Balance,
January 1, 2007
|
|
$ |
296,561
|
|
|
|
|
|
|
Net
earnings
|
|
|
20,134
|
|
Change
in pension & post-retirement benefit plans, net
|
|
|
1,311
|
|
Foreign
currency translation adjustment
|
|
|
1,225
|
|
Comprehensive
income
|
|
|
22,670
|
|
|
|
|
|
|
Dividends
declared
|
|
|
(6,091 |
) |
Employee
stock plans and related tax benefit
|
|
|
4,004
|
|
Adoption
of FIN 48 - adjustment to retained earnings
|
|
|
415
|
|
Debentures
|
|
|
975
|
|
|
|
|
|
|
Balance,
June 29, 2007
|
|
$ |
318,534
|
|
Shareholders’
equity consists of the following:
|
|
June
29, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
Common
stock
|
|
$ |
24,565
|
|
|
$ |
24,565
|
|
Additional
paid in capital
|
|
|
62,084
|
|
|
|
60,631
|
|
Retained
earnings
|
|
|
233,595
|
|
|
|
219,137
|
|
Other
shareholders' equity
|
|
|
(1,710 |
) |
|
|
(7,772 |
) |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
318,534
|
|
|
$ |
296,561
|
|
5.
Earnings Per Share
The
following table presents a reconciliation of the numerators and denominators
of
basic and diluted earnings per share:
(In
thousands except per share amounts)
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
10,059
|
|
|
$ |
7,486
|
|
|
$ |
20,134
|
|
|
$ |
13,406
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
24,285
|
|
|
|
24,031
|
|
|
|
24,213
|
|
|
|
23,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - basic
|
|
$ |
0.41
|
|
|
$ |
0.31
|
|
|
$ |
0.83
|
|
|
$ |
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
10,059
|
|
|
$ |
7,486
|
|
|
$ |
20,134
|
|
|
$ |
13,406
|
|
Elimination
of interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
6% subordinated convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures
(net after taxes)
|
|
|
139
|
|
|
|
153
|
|
|
|
291
|
|
|
|
310
|
|
Net
earnings (as adjusted)
|
|
$ |
10,198
|
|
|
$ |
7,639
|
|
|
$ |
20,425
|
|
|
$ |
13,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
24,285
|
|
|
|
24,031
|
|
|
|
24,213
|
|
|
|
23,984
|
|
Weighted
averages shares issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
conversion of 6% subordinated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
627
|
|
|
|
706
|
|
|
|
657
|
|
|
|
736
|
|
Weighted
average shares issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
exercise of dilutive stock options
|
|
|
298
|
|
|
|
143
|
|
|
|
287
|
|
|
|
163
|
|
Total
|
|
|
25,210
|
|
|
|
24,880
|
|
|
|
25,157
|
|
|
|
24,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - diluted
|
|
$ |
0.40
|
|
|
$ |
0.31
|
|
|
$ |
0.81
|
|
|
$ |
0.55
|
|
There
were no anti-dilutive shares options, based on average stock price, excluded
from earnings per share diluted for any of the periods presented.
6.
Exit Activity
The
following table displays the activity and balances of various exit activities
as
of and for the six months ended June 29, 2007:
Balance
at January 1, 2007
|
|
$ |
3,467
|
|
Additions
to accrual
|
|
|
-
|
|
Cash
payments
|
|
|
(712 |
) |
Release
to income
|
|
|
-
|
|
|
|
|
|
|
Balance
at June 29, 2007
|
|
$ |
2,755
|
|
In
connection with the acquisition of Musicorp in August 2005, the company accrued
$3,500 for certain exit costs. These costs relate primarily to lease
consolidation and employee severance payments for reductions primarily in
administrative and warehousing personnel. For the first half of 2007, the
segment paid $578 in exit costs. The total Musicorp accrual as of
June 29, 2007, was $191.
The
accrual related to the Moosup, CT plant closure as of June 29, 2007 was $2,564,
which consists primarily of the estimated cost of ongoing voluntary
environmental investigating and remediation activities. During the six months
ended June 29, 2007, the company paid $134 against this accrual for costs
associated with environmental remediation activities for the facility. Ongoing
maintenance costs of $205 for the six months ended June 29, 2007 related to
this
idle facility are included in selling, general and administrative
expenses.
These
exit activity accruals are included in other accruals and payables on the
condensed consolidated balance sheets for the periods presented.
7.
Product Warranty Costs
The
following table presents the activity and balances of accrued product warranty
costs included in other accruals and payables on the condensed consolidated
balance sheets as of June 29, 2007:
Balance
at January 1, 2007
|
|
$ |
2,028
|
|
Product
warranty accrual
|
|
|
28
|
|
Warranty
costs incurred
|
|
|
(255 |
) |
Release
to income
|
|
|
(5 |
) |
|
|
|
|
|
Balance
at June 29, 2007
|
|
$ |
1,796
|
|
The
company continues to work to resolve two warranty-related matters that primarily
impact our FMU-143 program at the Dayron facility, which is part of our Fuzing
segment, that have been previously reported. The net reserve as of the end
of
the second quarter of 2007 related to these two matters was $873.
As
previously disclosed, in March 2005 the U.S. Attorney's Office for the Middle
District of Florida and the Defense Criminal Investigative Service (DCIS)
initiated an investigation into the second warranty matter. Dayron has
cooperated fully with the authorities, working to resolve the matter in a
mutually satisfactory manner. As of the date of this report, the company has
not
received any notification from the authorities regarding final disposition
of
the investigation.
The
company also has a warranty reserve for $677 for a matter related to our
Aerostructures segment’s facility in Wichita, Kansas as previously reported.
There has been no activity with respect to this matter during the six-month
period ended June 29, 2007.
8.
Accrued Contract Losses
The
following is a summary of activity and balances of accrued contract losses
as of
and for the six months ended June 29, 2007:
Balance
at January 1, 2007
|
|
$ |
11,542
|
|
Additions
to loss accrual
|
|
|
6,155
|
|
Costs
incurred
|
|
|
(6,092 |
) |
Release
to income
|
|
|
(128 |
) |
Balance
at June 29, 2007
|
|
$ |
11,477
|
|
During
the second quarter of 2007, the company recorded an additional $2,383 pretax
charge for the SH-2G(A) Helicopter Program for Australia based upon additional
work that is necessary to complete the production portion of the program. This
contract has been in a loss position since 2002. The remaining accrued contract
loss for the Australia program as of June 29, 2007 was $10,563. This contract
loss accrual continues to be monitored and adjusted as necessary to reflect
the
anticipated cost of the complex integration process and the results of the
software testing.
9.
Pension Cost
Components
of net pension cost for the qualified pension plan and Supplemental Employees’
Retirement Plan (SERP) are as follows:
|
|
Qualified
Pension Plan
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost for benefits earned
|
|
$ |
3,330
|
|
|
$ |
3,142
|
|
|
$ |
6,659
|
|
|
$ |
6,284
|
|
Interest
cost on projected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligation
|
|
|
6,930
|
|
|
|
6,603
|
|
|
|
13,861
|
|
|
|
13,206
|
|
Expected
return on plan assets
|
|
|
(8,074 |
) |
|
|
(7,362 |
) |
|
|
(16,148 |
) |
|
|
(14,724 |
) |
Net
amortization and deferral
|
|
|
226
|
|
|
|
752
|
|
|
|
451
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
pension cost
|
|
$ |
2,412
|
|
|
$ |
3,135
|
|
|
$ |
4,823
|
|
|
$ |
6,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost for benefits earned
|
|
$ |
116
|
|
|
$ |
528
|
|
|
$ |
232
|
|
|
$ |
1,056
|
|
Interest
cost on projected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligation
|
|
|
505
|
|
|
|
432
|
|
|
|
1,010
|
|
|
|
864
|
|
Expected
return on plan assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
amortization and deferral
|
|
|
882
|
|
|
|
389
|
|
|
|
1,765
|
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
pension cost
|
|
$ |
1,503
|
|
|
$ |
1,349
|
|
|
$ |
3,007
|
|
|
$ |
2,698
|
|
For
the
2007 plan year, the company expects to contribute $10,000 to the qualified
pension plan and $2,438 to the SERP. Through the first six months of 2007,
the
company has paid $2,500 and $446 with respect to the qualified pension plan
and
SERP, respectively, for the 2007 plan year.
10.
Business Segments
Summarized
financial information by business segment is as follows:
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerostructures
|
|
$ |
23,322
|
|
|
$ |
17,052
|
|
|
$ |
48,501
|
|
|
$ |
33,972
|
|
Fuzing
|
|
|
23,962
|
|
|
|
14,634
|
|
|
|
42,462
|
|
|
|
33,676
|
|
Helicopters
|
|
|
19,025
|
|
|
|
15,212
|
|
|
|
36,483
|
|
|
|
26,715
|
|
Specialty
Bearings
|
|
|
31,471
|
|
|
|
27,500
|
|
|
|
63,450
|
|
|
|
53,671
|
|
Subtotal
Aerospace Segments
|
|
|
97,780
|
|
|
|
74,398
|
|
|
|
190,896
|
|
|
|
148,034
|
|
Industrial
Distribution
|
|
|
174,602
|
|
|
|
170,476
|
|
|
|
348,016
|
|
|
|
341,053
|
|
Music
|
|
|
47,571
|
|
|
|
48,093
|
|
|
|
98,359
|
|
|
|
100,517
|
|
|
|
$ |
319,953
|
|
|
$ |
292,967
|
|
|
$ |
637,271
|
|
|
$ |
589,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerostructures
|
|
$ |
3,680
|
|
|
$ |
1,997
|
|
|
$ |
8,231
|
|
|
$ |
4,364
|
|
Fuzing
|
|
|
4,015
|
|
|
|
1,484
|
|
|
|
6,545
|
|
|
|
4,427
|
|
Helicopters
|
|
|
(244 |
) |
|
|
(1,164 |
) |
|
|
(1,269 |
) |
|
|
(3,226 |
) |
Specialty
Bearings
|
|
|
10,204
|
|
|
|
8,346
|
|
|
|
20,763
|
|
|
|
15,099
|
|
Subtotal
Aerospace Segments
|
|
|
17,655
|
|
|
|
10,663
|
|
|
|
34,270
|
|
|
|
20,664
|
|
Industrial
Distribution
|
|
|
8,304
|
|
|
|
9,266
|
|
|
|
16,998
|
|
|
|
20,073
|
|
Music
|
|
|
1,628
|
|
|
|
1,625
|
|
|
|
3,224
|
|
|
|
2,903
|
|
Net
gain (loss) on sale of assets
|
|
|
56
|
|
|
|
43
|
|
|
|
14
|
|
|
|
56
|
|
Corporate
expense
|
|
|
(10,156 |
) |
|
|
(7,605 |
) |
|
|
(19,499 |
) |
|
|
(18,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,487
|
|
|
|
13,992
|
|
|
|
35,007
|
|
|
|
25,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(1,625 |
) |
|
|
(1,630 |
) |
|
|
(3,143 |
) |
|
|
(2,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
(260 |
) |
|
|
(303 |
) |
|
|
(218 |
) |
|
|
(563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
$ |
15,602
|
|
|
$ |
12,059
|
|
|
$ |
31,646
|
|
|
$ |
22,196
|
|
11.
Share-Based Arrangements
The
following table summarizes share-based compensation expense recorded during
each
period presented:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Stock
options
|
|
$ |
217
|
|
|
$ |
231
|
|
|
$ |
434
|
|
|
$ |
463
|
|
Restricted
stock awards
|
|
|
530
|
|
|
|
464
|
|
|
|
630
|
|
|
|
563
|
|
Stock
appreciation rights
|
|
|
815
|
|
|
|
(762 |
) |
|
|
985
|
|
|
|
495
|
|
Employee
stock purchase plan
|
|
|
56
|
|
|
|
55
|
|
|
|
108
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
share-based compensation expense
|
|
$ |
1,618
|
|
|
$ |
(12 |
) |
|
$ |
2,157
|
|
|
$ |
1,627
|
|
Stock
option activity was as follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
Stock
options outstanding:
|
|
Options
|
|
|
Exercise
Price
|
|
Balance
at January 1, 2007
|
|
|
900,639
|
|
|
$ |
14.49
|
|
Options
granted
|
|
|
109,800
|
|
|
|
23.68
|
|
Options
exercised
|
|
|
(168,226 |
) |
|
|
13.96
|
|
Options
forfeited or expired
|
|
|
(7,250 |
) |
|
|
17.85
|
|
Balance
at June 29, 2007
|
|
|
834,963
|
|
|
$ |
15.77
|
|
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model. The following table indicates the weighted
average assumptions used in estimating fair value for the following
periods:
|
|
Three
and Six Months Ended
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Expected
option term
|
|
6.5
years
|
|
|
6.5
years
|
|
Expected
volatility
|
|
|
36.2 |
% |
|
|
41.5 |
% |
Risk-free
interest rate
|
|
|
4.6 |
% |
|
|
4.5 |
% |
Expected
dividend yield
|
|
|
2.5 |
% |
|
|
2.5 |
% |
Per
share fair value of options granted
|
|
$ |
8.04
|
|
|
$ |
7.99
|
|
Restricted
Stock activity is as follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
Date
|
|
Restricted
Stock outstanding:
|
|
|
|
|
Fair
Value
|
|
Nonvested
at January 1, 2007
|
|
|
53,695
|
|
|
$ |
16.52
|
|
RSA
granted
|
|
|
65,675
|
|
|
|
23.81
|
|
Vested
|
|
|
(40,315 |
) |
|
|
18.17
|
|
Forfeited
or expired
|
|
|
(981 |
) |
|
|
22.32
|
|
Nonvested
at June 29, 2007
|
|
|
78,074
|
|
|
$ |
21.73
|
|
Stock
Appreciation Rights (SAR) activity is as follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
SARs
outstanding:
|
|
|
|
|
Exercise
Price
|
|
Balance
at January 1, 2007
|
|
|
139,060
|
|
|
$ |
10.65
|
|
SARs
granted
|
|
|
-
|
|
|
|
-
|
|
SARs
exercised
|
|
|
(65,280 |
) |
|
|
11.25
|
|
SARs
forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
Balance
at June 29, 2007
|
|
|
73,780
|
|
|
$ |
10.12
|
|
Total
cash paid to settle SARs (at intrinsic value) during the second quarter of
2007
and 2006 was $572 and $0, respectively. Total cash paid to settle SARs (at
intrinsic value) for the first six months of 2007 and 2006 was $1,042 and
$1,227, respectively.
12.
Contingencies
On
July
31, 2006, the company submitted an Offer to Purchase (OTP) to NAVAIR and the
General Services Administration to purchase the portion of the Bloomfield campus
that Kaman Aerospace Corporation (of which the Helicopters segment forms a
part)
currently leases from NAVAIR and has operated for several decades for the
principal purpose of performing U.S. government contracts. The OTP is
subject to negotiation of terms mutually acceptable to the company and the
government that include, in consideration for the transfer of title, the
company's assumption of responsibility for environmental remediation at the
facility as necessary to meet the requirements of state law that will apply
upon
the transfer. As of the date of this report, the company is continuing its
discussions with the U.S. government regarding negotiation of such terms, and
the company anticipates that the process may take several more
months. If agreement is reached, completion of various government
approval processes will be required before transfer of title to the property
can
take place. In concert with this, the company is in discussions with the
Connecticut Department of Environmental Protection (CTDEP) in order to define
the scope of such remediation as may be required in connection with such
transfer. Pending such negotiations, the company and the government
have agreed to extend through December 31, 2007 the company's OTP and its lease
of the facility.
In
preparation for disposal of the Moosup, Connecticut facility, CTDEP has given
the company conditional approval for reclassification of groundwater in the
vicinity of the facility consistent with the character of the area. The company
has substantially completed the process of connecting neighboring properties
to
public drinking water in accordance with such approval and in coordination
with
the CTDEP and local authorities. The company anticipates that this project
will
be completed in 2007.
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) is intended to provide readers of our consolidated financial
statements with the perspectives of management in the form of a narrative
regarding our financial condition, results of operations, liquidity and certain
other factors that may affect our future results. The MD&A is presented in
seven sections:
II.
|
Second
Quarter 2007 Highlights
|
III.
|
Results
of Operations
|
IV.
|
Critical
Accounting Estimates
|
V.
|
Liquidity
and Capital Resources
|
VI.
|
Contractual
Obligations and Off-Balance Sheet
Arrangements
|
VII.
|
Recent
Accounting Standards
|
Our
MD&A should be read in conjunction with our Form 10-K (as amended) for the
year ended December 31, 2006.
Kaman
Corporation is composed of six business segments. They are Industrial
Distribution and Music as well as four reporting segments within the aerospace
industry: Aerostructures, Fuzing, Helicopters, and Specialty Bearings
(collectively, the “Aerospace Segments”).
AEROSTRUCTURES
SEGMENT
The
Aerostructures segment produces aircraft subassemblies and other parts for
commercial and military airliners and helicopters. Its principal customers
are
Boeing and Sikorsky Aircraft Corporation. Operations involving the use of metals
are conducted principally at the company's Jacksonville, Florida facility,
while
operations involving composite materials are conducted principally at the
Wichita, Kansas facility.
FUZING
SEGMENT
The
Fuzing segment manufactures products for military and commercial markets,
primarily related to military safe, arm and fuzing devices for several missile
and bomb programs; as well as precision non-contact measuring systems for
industrial and scientific use; and high reliability memory systems for airborne,
shipboard, and ground-based programs. Principal customers include the U.S.
military, Boeing, Lockheed Martin and Raytheon. Operations are conducted at
the
Middletown, Connecticut, Orlando, Florida and Tucson,
Arizona facilities.
HELICOPTERS
SEGMENT
The
Helicopters segment markets its helicopter engineering expertise and performs
subcontract work for other manufacturers. It also refurbishes, provides upgrades
and supports Kaman SH-2G maritime helicopters operating with foreign militaries
as well as K-MAX® “aerial truck” helicopters operating with government and
commercial customers in several countries. 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.
SPECIALTY
BEARINGS SEGMENT
The
Specialty Bearings segment primarily manufactures proprietary self-lubricating
bearings used in aircraft flight controls, turbine engines and landing gear.
These bearings are currently used in nearly all military and commercial aircraft
in production in North and South America and Europe and are market-leading
products for applications requiring a highly sophisticated level of engineering
and specialization in the airframe bearing market. The Specialty Bearings
segment also manufactures market leading proprietary power transmission
couplings for helicopters and other applications in Bloomfield and custom
designed and manufactured rolling element and self-lubricating bearings in
Germany for aerospace applications. Operations for the Specialty Bearings
segment are conducted at the Bloomfield, Connecticut and Dachsbach, Germany
facilities.
INDUSTRIAL
DISTRIBUTION SEGMENT
The
Industrial Distribution segment is the third largest power transmission/motion
control industrial distributor in North America. We provide products including
bearings, electrical/mechanical power transmission, fluid power, motion control
and materials handling components to a broad spectrum of industrial markets
throughout North America. Our locations consist of nearly 200 branches,
distribution centers and call centers across the United States and in Canada
and
Mexico. We offer almost two million items, as well as value-added services,
to a
base of more than 50,000 customers representing a highly diversified
cross-section of North American industry.
MUSIC
SEGMENT
The
Music
segment is the largest independent U.S. distributor of musical instruments
and
accessories, offering more than 20,000 products for amateurs and professionals.
Our premium branded products, many of which are brought to the market on an
exclusive basis, and our market-leading business-to-business systems for our
customer base of over 10,000 retailers nationwide, contribute to the performance
of the business. Our array of fretted instruments includes proprietary products,
such as the Ovation® and Hamer® guitars, as well as premier products including
Takamine® guitars, which are distributed in the United States under an exclusive
distribution agreement. We offer an extended line of percussion products and
accessories through Latin Percussion®, the leading supplier of hand percussion
instruments. Additionally, our exclusive distribution agreements with Gretsch®
drums and Sabian® cymbals, along with our own CB®, Toca® and Gibraltar® lines,
have further enhanced our array of products offered.
While
the
vast majority of the Music segment sales are to North American customers, we
continue to build our presence in key international markets including Europe,
Asia, South America and Australia. Operations are headquartered in Bloomfield,
Connecticut and conducted from manufacturing plants in New Hartford,
Connecticut, Scottsdale, Arizona and Ridgeland, South Carolina and strategically
placed warehouse facilities that primarily cover the North American
market.
II. SECOND
QUARTER 2007 HIGHLIGHTS
The
following is a summary of key events that occurred during the second quarter
of
2007:
·
|
Our
net sales increased 9.2 percent in the second quarter of 2007 compared
to
the second quarter of 2006.
|
·
|
Our
net earnings increased 34.4 percent in the second quarter of 2007
compared
to the second quarter of 2006.
|
·
|
Earnings
per share diluted increased 29.0 percent to $0.40 per share diluted
in the
second quarter of 2007 compared to the second quarter of
2006.
|
·
|
The
combined Aerospace Segments experienced a strong quarter with respect
to
sales and operating income primarily as a result of several key
programs.
|
·
|
We
recorded an additional $2.4 million charge related to the increase
in
anticipated costs to complete the SH-2G(A) program for the Royal
Australian Navy during the second quarter of
2007.
|
·
|
The
Industrial Distribution segment had modest sales growth during the
second
quarter of 2007 despite a softening in certain of the industries
served by
the segment.
|
·
|
Music
segment sales were relatively flat as compared to the second quarter
of
2006.
|
III. RESULTS
OF OPERATIONS
CONSOLIDATED
RESULTS –
The
following table presents selected financial data of the company:
Selected
Consolidated Financial Information
|
|
For
the three months ended
|
|
|
For
the six months ended
|
|
In
millions, except per share data
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
320.0
|
|
|
$ |
293.0
|
|
|
$ |
637.3
|
|
|
$ |
589.6
|
|
%
change
|
|
|
9.2 |
% |
|
|
8.0 |
% |
|
|
8.1 |
% |
|
|
10.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
88.2
|
|
|
$ |
80.5
|
|
|
$ |
177.3
|
|
|
$ |
161.9
|
|
%
of net sales
|
|
|
27.6 |
% |
|
|
27.5 |
% |
|
|
27.8 |
% |
|
|
27.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses (SG&A)
|
|
$ |
71.5
|
|
|
$ |
67.0
|
|
|
$ |
143.6
|
|
|
$ |
137.1
|
|
%
of net sales
|
|
|
22.3 |
% |
|
|
22.9 |
% |
|
|
22.5 |
% |
|
|
23.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
17.5
|
|
|
$ |
14.0
|
|
|
$ |
35.0
|
|
|
$ |
25.7
|
|
%
of net sales
|
|
|
5.5 |
% |
|
|
4.8 |
% |
|
|
5.5 |
% |
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
$ |
(1.6 |
) |
|
$ |
(1.6 |
) |
|
$ |
(3.2 |
) |
|
$ |
(2.9 |
) |
Other
expense, net
|
|
|
(.3 |
) |
|
|
(.3 |
) |
|
|
(.2 |
) |
|
|
(.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
10.1
|
|
|
$ |
7.5
|
|
|
$ |
20.1
|
|
|
$ |
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share – basic
|
|
$ |
.41
|
|
|
$ |
.31
|
|
|
$ |
.83
|
|
|
$ |
.56
|
|
Net
earnings per share – diluted
|
|
|
.40
|
|
|
|
.31
|
|
|
|
.81
|
|
|
|
.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
–
all percentages in the MD&A are calculated based upon financial information
in thousands.
RESULTS
OF OPERATIONS - CONSOLIDATED
NET
SALES
Total
consolidated sales increased $27.0 million in the second quarter of 2007
compared to the second quarter of 2006. Net sales increased $47.7 million for
the first half of 2007 compared to the same period in 2006. The increase was
primarily attributable to several key programs at the Aerostructures and Fuzing
segments. The Industrial Distribution segment experienced modest sales growth
whereas sales for the Music segment were relatively flat primarily due to lower
purchases by our customer base during the second quarter and first half of
2007.
GROSS
PROFIT
Total
gross profit increased $7.7 million, or 9.5 percent, for the second quarter
of
2007 compared to the second quarter of 2006. Total gross profit increased $15.5
million, or 9.6 percent, for the first half of 2007 compared to the first half
of 2006. The increase in gross profit was primarily due to sales growth and
margin improvement primarily at our Aerostructures, Fuzing and Specialty
Bearings segments. Additionally, gross profit as a percentage of sales (gross
margin) has improved for both the second quarter and first half of 2007 as
compared to the same periods in 2006 as a result of higher sales volume,
increased efficiencies and a growing business base at all of our reporting
segments that participate in the aerospace industry.
SELLING,
GENERAL & ADMINISTRATIVE EXPENSES
Total
selling, general and administrative (SG&A) expenses as a percent of net
sales decreased 0.6 percentage point in the second quarter of 2007 compared
to
2006. This reduction in total SG&A expense as a percent of net sales was
primarily due to an increase in sales volume. Total SG&A expense increased
$4.5 million, or 6.7 percent, in the second quarter of 2007 as compared to
the
second quarter of 2006. This increase consisted of $1.9 million in our reporting
segments and $2.6 million in corporate expense. Higher operating
expenses in our Industrial Distribution segment primarily drove the aggregate
cost increase in our reporting segments due to additional expenses incurred
for
new branch openings and higher personnel cost relative to start up costs for
several new contracts. This increase was partially offset by a
decrease in the Aerostructures and Fuzing segments’ operating expenses.
Corporate expense increased primarily as a result of higher stock appreciation
rights expense, driven by the recent increase in the stock price, as well as
higher group insurance expense.
Total
SG&A expenses as a percent of net sales decreased 0.7 percentage point in
the first half of 2007 compared to the first half of 2006. Total SG&A
expense increased $6.5 million, or 4.7 percent, in the first half of 2007 as
compared to the first half of 2006. This increase consisted of $5.0 million
in
our reporting segments and $1.5 million in corporate expense. Higher operating
expenses in our Industrial Distribution segment primarily drove the increase
in
our reporting segments. Corporate expense increased primarily as a result of
higher group insurance expense as well as stock appreciation rights
expense.
OPERATING
INCOME
Operating
income increased $3.5 million, or 25.0 percent, for the second quarter of 2007
compared to the second quarter of 2006. Operating income increased $9.4 million,
or 36.5 percent, for the first half of 2007 compared to the first half of 2006.
The improvement in operating income for both the second quarter and first half
of 2007 was primarily attributable to stronger operating results as a result
of
several key programs in the Aerostructures, Fuzing and Specialty Bearings
segments. The Music segment also experienced an increase in operating income
for
the first half of 2007 as compared to the first half of 2006. This
increase was primarily a result of lower S,G&A costs for the first quarter
of 2007. Total operating income for the second quarter of 2007 as compared
to
the second quarter of 2006 for the Music segment was relatively
flat. The Industrial Distribution segment's operating income
decreased for the second quarter and first half of 2007 compared to the second
quarter and first half of 2006 partially as a result of a variety of expenses
incurred for start up costs relative to several new contracts.
ADDITIONAL
CONSOLIDATED RESULTS
Interest
expense, net, remained relatively flat for the second quarter of 2007 compared
to the second quarter of 2006. Interest expense, net, increased 8.8 percent
to
$3.2 million for the first half of 2007 compared to $2.9 million for the first
half of 2006. Net interest expense generally consists of interest charged on
the
revolving credit facility and the convertible debentures offset by interest
income. The increase in net interest expense was primarily due to higher
interest rates charged on borrowings during the first half 2007 as compared
to
the same period of 2006.
For
2007,
the effective income tax rate is 36.4 percent as compared to an effective tax
rate of 39.6 percent for 2006. The 2007 effective tax rate was favorably
impacted by one-time adjustments resulting from tax law changes in the US,
as
well as internationally. The effective tax rate represents the
combined estimated federal, state and foreign tax effects attributable to pretax
earnings for the year.
COMBINED
AEROSPACE SEGMENTS’ RESULTS
The
following table presents selected financial data for the combined Aerospace
Segments:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
|
For
the six months ended
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Net
sales
|
|
$ |
97.8
|
|
|
$ |
74.4
|
|
|
$ |
190.9
|
|
|
$ |
148.0
|
|
%
change
|
|
|
31.4 |
% |
|
|
(2.2 |
)% |
|
|
29.0 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
17.7
|
|
|
$ |
10.7
|
|
|
$ |
34.3
|
|
|
$ |
20.7
|
|
%
of net sales
|
|
|
18.1 |
% |
|
|
14.3 |
% |
|
|
18.0 |
% |
|
|
14.0 |
% |
%
change
|
|
|
65.6 |
% |
|
|
11.9 |
% |
|
|
65.8 |
% |
|
|
20.4 |
% |
Net
sales
for the combined Aerospace Segments represented 30.6 percent and 25.4 percent
of
the total consolidated sales for the second quarter of 2007 and 2006,
respectively. Net sales for the combined Aerospace Segments represented 30.0
percent and 25.1 percent of the total consolidated sales for the first half
of
2007 and 2006, respectively. In the paragraphs that follow you will find further
information with respect to sales growth and significant programs for the four
individual Aerospace reporting segments.
Operating
income for the second quarter of 2007 increased $7.0 million as compared to
the
second quarter of 2006. This was net of a $2.4 million charge recorded by the
Helicopters segment for the Australian SH-2G(A) program in the second quarter
of
2007 as compared to a $2.8 million charge in the second quarter of 2006.
Operating income for the first half of 2007 increased $13.6 million as compared
to the first half of 2006. These results are net of a $4.9 million
charge for the Australian program in the first half of 2007 as compared to
a
$5.3 million charge in the first half of 2006. The increase in operating income
for both the second quarter and first half of 2007 was primarily due to
increases in sales volume in the Aerostructures segment, largely due to the
Sikorsky cockpit program, and the Fuzing segment, due to the JPF program, and
an
increase in bearing product lines sales in the Specialty Bearings
segment.
2007
AEROSPACE TRENDS
THE
MARKET
Both
the
commercial and military aerospace markets were strong during 2006 and it is
anticipated that this positive trend will continue through 2007. Several major
prime contractors are anticipating a large number of shipments of commercial
and
military aircraft over the next few years.
OUR
STRATEGY
Before
2005, our Kaman Aerospace Corporation (KAC) subsidiary operations were designed
to support our prime helicopter operations. We were not able to compete
effectively in our target markets in part due to higher operating expenses
as a
result of a lower than sufficient business base. In 2005, the subsidiary was
realigned to create separate divisions that allowed for greater transparency and
accountability through a more focused management structure. This realignment
along with upgrades to our facilities, lean initiatives and strategic
positioning as a subcontractor to the prime aerospace contractors has allowed
us
to build our business base and develop our reputation as a lower cost, high
quality domestic partner. We have been able to successfully build upon several
key programs, which are discussed in the following paragraphs.
AEROSTRUCTURES
SEGMENT
The
following table presents selected financial data for the Aerostructures
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
|
For
the six months ended
|
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Net
sales
|
|
$ |
23.3
|
|
|
$ |
17.1
|
|
|
$ |
48.5
|
|
|
$ |
34.0
|
|
%
change
|
|
|
36.8 |
% |
|
|
27.1 |
% |
|
|
42.8 |
% |
|
|
28.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
3.7
|
|
|
$ |
2.0
|
|
|
$ |
8.2
|
|
|
$ |
4.4
|
|
%
of net sales
|
|
|
15.8 |
% |
|
|
11.7 |
% |
|
|
17.0 |
% |
|
|
12.8 |
% |
%
change
|
|
|
84.3 |
% |
|
|
164.9 |
% |
|
|
88.6 |
% |
|
|
284.5 |
% |
The
Aerostructures segment represented 7.3 percent of total company sales for the
second quarter of 2007 and 5.8 percent of total consolidated sales for the
second quarter of 2006. Net sales for the Aerostructures segment represented
7.6
percent and 5.8 percent of the total consolidated sales for the first half
of
2007 and 2006, respectively. The growth in net sales was primarily due to higher
production levels and increased shipments to Sikorsky for the BLACK HAWK
helicopter program. During the second quarter of 2007, the segment delivered
18
cockpits as compared to the 11 delivered in the second quarter of 2006.
Additionally, the segment increased its shipments to Boeing for the 777 program
during 2007 as compared to the same period in 2006.
AEROSTRUCTURES
– MAJOR PROGRAMS
The
Sikorsky helicopter program, the Boeing C-17 wing structure assembly program
and
the Boeing 777 program comprise the Aerostructures segment’s major programs.
During the second quarter of 2007, the segment continued to make significant
progress on its multi-year contract with Sikorsky, which was originally
estimated to include the fabrication of approximately 350 units. This program
includes the installation of all wiring harnesses, hydraulic assemblies, control
pedals and sticks, seat tracks, pneumatic lines, and the composite structure
that holds the windscreen for cockpits on several models of the BLACK HAWK
helicopter. To date, Sikorsky has placed orders for 290 cockpits, for various
models of the helicopter. Management anticipates that deliveries on these orders
will continue through 2008. A total of 110 cockpits have been delivered under
this contract from inception through June 29, 2007. This program could lead
to
follow on work for the manufacturing of additional cockpits beyond the
originally estimated 350 units as well as other work for this
customer.
During
the first half of 2007, work continued on the production of structural wing
subassemblies for the Boeing C-17. The program was originally scheduled to
conclude in mid-2007 with the completion of the 180th aircraft.
As
previously reported, Boeing informed the company that the program will continue
for a minimum of 22 additional shipsets, extending deliveries through the end
of
2008. Subsequent communications from Boeing indicate that this program could
extend even beyond this time period. This long-term program has been
an important element in helping to maintain a sufficient business base at the
Jacksonville facility.
The
segment continued to work toward improving operational efficiencies through
process improvement and lean initiatives at both our Jacksonville and Wichita
facilities. The segment has continued to work on ramping up several
programs that were awarded during 2006 including composite and metal structure
work for both Spirit AeroSystems and Shenyang Aircraft Corporation on the Boeing
787 Dreamliner as well as a program with Sikorsky to manufacture and assemble
composite tail rotor pylons for its Canadian MH-92 helicopters. Management
expects that this ramp up process, which is proceeding more slowly than
originally anticipated, will continue throughout 2007 and into 2008. The company
is working with our customers to ensure that these programs are brought on
line
effectively in order to meet scheduling requirements and customer
expectations.
FUZING
SEGMENT
The
following table presents selected financial data for the Fuzing
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Net
sales
|
|
$ |
24.0
|
|
|
$ |
14.6
|
|
|
$ |
42.5
|
|
|
$ |
33.7
|
|
%
change
|
|
|
63.7 |
% |
|
|
(11.3 |
)% |
|
|
26.1 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
4.0
|
|
|
$ |
1.5
|
|
|
$ |
6.6
|
|
|
$ |
4.4
|
|
%
of net sales
|
|
|
16.8 |
% |
|
|
10.1 |
% |
|
|
15.4 |
% |
|
|
13.1 |
% |
%
change
|
|
|
170.6 |
% |
|
|
(10.5 |
)% |
|
|
47.8 |
% |
|
|
327.7 |
% |
The
Fuzing segment represented 7.5 percent of total company sales for the second
quarter of 2007 and 5.0 percent of total consolidated sales for the second
quarter of 2006. Net sales for the Fuzing segment represented 6.7 percent and
5.7 percent of the total consolidated sales for the first half of 2007 and
2006,
respectively. The increase for both the second quarter and first half of 2007
was due to a significant increase in JPF program shipments.
FUZING
-
MAJOR PROGRAMS
The
Fuzing segment continued to produce fuzes under its contract with the U.S.
Air
Force for the advanced FMU-152A/B JPF. The current total value of JPF contracts
awarded by the U.S. Government (USG) from inception through June 29, 2007 is
$120.2 million. This value primarily consists of Options 1 through 4 under
the
original contract and various contract modifications, including a two-phase
facilitization contract modification, additional foreign military sales
facilitated by the U.S. Government, as well as a variety of development and
engineering contracts, along with special tooling and test equipment. Deliveries
under Option 2 were completed during the second quarter of
2007. Production under Option 3, which commenced during the second
quarter, is currently on schedule.
During
the first half of 2007, the segment continued to make progress on production
improvements and enhancements of the fuze system, which has previously been
subject to periodic production interruptions. The company currently
believes that production issues have improved and the segment was able to
significantly increase production on this program during the second quarter
of
2007. The facilitization program that is currently underway is
another important element of our strategy to improve our quality and efficiency
and increase production on the JPF program. This facilitization program provides
us an opportunity to review production workflow to create greater efficiencies.
Management expects that the facilitization program will be completed in early
2008 and believes that these initiatives will be more fully realized in 2008
and
beyond. Additionally, as the JPF product has continued to develop in the market,
the segment is focused on further marketing the JPF to foreign allied
militaries. The segment has begun to make shipments to foreign allied militaries
under both the USG contract as well as separate direct sales. Foreign
sales are important to the ultimate success of the program. Overall, we believe
that profitability will improve as progress is made relative to operating
efficiencies, as deliveries to the U.S. military increase and as further orders
are received from foreign militaries.
HELICOPTERS
SEGMENT
The
following table presents selected financial data for the Helicopters
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
June
29, 2007
|
|
June
30, 2006
|
|
June
29, 2007
|
|
June
30, 2006
|
Net
sales
|
|
$ |
19.0
|
|
|
$ |
15.2
|
|
|
$ |
36.5
|
|
|
$ |
26.7
|
|
%
change
|
|
|
25.1 |
% |
|
|
(34.6 |
)% |
|
|
36.6 |
% |
|
|
(30.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
(0.2 |
) |
|
$ |
(1.1 |
) |
|
$ |
(1.3 |
) |
|
$ |
(3.2 |
) |
%
of net sales
|
|
|
(1.3 |
)% |
|
|
(7.7 |
)% |
|
|
(3.5 |
)% |
|
|
(12.1 |
)% |
%
change
|
|
|
79.0 |
% |
|
|
(231.2 |
)% |
|
|
60.7 |
% |
|
|
(312.0 |
)% |
The
Helicopters segment represented 5.9 percent of total company sales for the
second quarter of 2007 and 5.2 percent of total consolidated sales for the
second quarter of 2006. Net sales for the Helicopters segment represented 5.7
percent and 4.5 percent of the total consolidated sales for the first half
of
2007 and 2006, respectively. The higher sales during the second quarter and
first half of 2007 are a result of a greater volume of work on the depot level
maintenance and upgrade program for the Egyptian SH-2G(E) aircraft and the
Sikorsky BLACK HAWK helicopter program involving fuselage joining and
installation tasks and the production of certain mechanical
subassemblies.
HELICOPTERS
- MAJOR PROGRAMS
Work
continued on the SH-2G(A) program for Australia during the second quarter of
2007. This program involves the remanufacture of eleven
helicopters with support, including a support services facility, for the Royal
Australian Navy (RAN). The segment continued the process of Formal Qualification
Testing (FQT) of the Integrated Tactical Avionics System (ITAS) software during
the second quarter. As previously reported, the Australian Minister of Defence
had undertaken a review of the program and possible alternatives in
mid-2006. On May 25, 2007, the Minister announced that the
Commonwealth will proceed with the Kaman program, "subject to satisfactory
contract arrangements." The parties are engaged in discussions
regarding development of a mutual path forward to complete the program. This
will involve a mutually agreed payment and performance schedule addressing
remaining program tasks, including completion of FQT, acceptance of the aircraft
with the ITAS software, and the additional work described
below. Discussions about these matters are continuing.
The
Commonwealth has also expressed renewed interest in having the segment conduct
additional work scope involving development and testing of new software and
hardware requirements for the aircraft's automatic flight control system that
would assist the Commonwealth in meeting current Australia aircraft
certification requirements. The potential for this additional effort
has previously been reported. The additional work would have a
contract value of approximately $37.7 million, for which the Commonwealth would
be responsible, and take up to 29 months to complete. Management does
not expect that this effort will move forward until the parties agree upon
the
payment and performance schedule discussed above.
As
previously reported, in January 2007 the Commonwealth initiated the dispute
resolution process outlined in the contract (which begins with discussions
between the parties and could ultimately result in arbitration). The parties
subsequently agreed to stop that process and mutually waive, for the present,
the expiration of any statute of limitations periods that might be involved
in
the dispute. The Commonwealth's principal assertions are that the helicopters
have not been delivered in a timely manner and the design of the helicopter,
particularly the automatic flight control system, is inadequate from a safety
perspective. Management believes that its obligations to the Commonwealth under
the program are being performed and the design of the SH-2G(A) is safe and
proper as demonstrated by the significant operational history of this aircraft
type with several countries, including the United States, Egypt, New Zealand,
and Poland.
The
combined contracts have a current anticipated value of $765.0 million. The
helicopter production portion of the program is valued at $613.4 million,
essentially all of which has been recorded as sales. The associated in-service
support center contract has a current anticipated value of $151.6 million,
of
which 49 percent has been recorded as sales through the second quarter of 2007.
Continued cost growth on the production contract has required additional charges
to the contract loss reserve including a $2.4 million charge recorded in the
second quarter of 2007. This production has been in a loss position since 2002.
The remaining accrued contract loss as of the end of the second quarter of
2007
was $10.6 million. This contract loss accrual continues to be monitored and
adjusted as necessary to reflect the current anticipated cost of completing
the
contract.
At
the
conclusion of this contract, the company anticipates filing a claim for a refund
with the IRS for look-back interest which management believes may be in excess
of $5.0 million pretax. Look-back interest income relates to the timing of
taxes
paid on contract profit recognized in prior periods. The company's policy is
to
record this interest income or expense when the contract is completed as defined
under IRS regulations.
The
new
subcontract work that the segment is performing has become an important element
in developing the business base at the Bloomfield, CT facility. The exposure
to
new customers is creating the potential for additional business opportunities
for the segment, which would further enhance the Helicopters segment's
reputation as an attractive subcontractor to the prime aerospace
manufacturers.
The
segment continued its work under a program for depot level maintenance and
upgrades for nine SH-2G(E) helicopters delivered to the Egyptian government
during the 1990s. The total work scope is planned to include depot level
maintenance and upgrades for all nine aircraft. Through June 29, 2007, the
segment is on contract for approximately $21.1 million of work related to
maintenance and upgrades. To date, work for depot level maintenance on four
of
the aircraft has been completed. The segment is working with the U.S. Navy
and
Egyptian Air Force to continue to structure the scope and timing for the funding
regarding the multi-year program for the balance of the nine
aircraft.
During
the first half of 2007, the segment continued to work under a contract from
the
Army Material Research Development and Engineering Command for follow-on work
associated with development of the BURRO Unmanned Resupply Helicopter, utilizing
the K-MAX. The contract currently covers work to enhance features of the flight
and mission management system and to support BURRO participation in Army
demonstrations. Additionally, in the first quarter of 2007, the
segment signed an agreement with Lockheed Martin Systems Integration which
will
provide an opportunity for the parties to work together to develop potential
government programs (foreign and domestic), involving the K-MAX helicopter
and
the BURRO aircraft.
The
segment also continues to support K-MAX helicopters that are operating with
customers. At the end of the second quarter of 2007, the segment maintained
$18.9 million of K-MAX spare parts inventory.
SPECIALTY
BEARINGS
The
following table presents selected financial data for the Specialty Bearings
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
June
29, 2007
|
|
June
30, 2006
|
|
June
29, 2007
|
|
June
30, 2006
|
Net
sales
|
|
$ |
31.5
|
|
|
$ |
27.5
|
|
|
$ |
63.4
|
|
|
$ |
53.6
|
|
%
change
|
|
|
14.4 |
% |
|
|
20.3 |
% |
|
|
18.2 |
% |
|
|
17.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
10.2
|
|
|
$ |
8.3
|
|
|
$ |
20.8
|
|
|
$ |
15.1
|
|
%
of net sales
|
|
|
32.4 |
% |
|
|
30.3 |
% |
|
|
32.7 |
% |
|
|
28.1 |
% |
%
change
|
|
|
22.3 |
% |
|
|
33.9 |
% |
|
|
37.5 |
% |
|
|
12.1 |
% |
The
Specialty Bearings segment represented 9.8 percent of total company sales for
the second quarter of 2007 and 9.4 percent of total consolidated sales for
the
second quarter of 2006. Net sales for the Specialty Bearings segment represented
10.0 percent and 9.1 percent of the total consolidated sales for the first
half of 2007 and 2006, respectively. The increases in net sales for the second
quarter and first half of 2007 were primarily a result of higher shipments
for
our bearings product lines, specifically to customers in the commercial
aftermarket, regional jet market, commercial engine market and military
market.
SPECIALTY
BEARINGS - MAJOR PROGRAMS
Several
key customers contributed to the increase in the Specialty Bearings segment’s
sales across several product lines. The bearing product lines have experienced
significant growth in the second quarter and first half of 2007 as a result
of
new orders from customers in various markets discussed above. Although we are
focused on maintaining the current customer base, the segment also continues
to
seek additional sales opportunities and is working toward further market
penetration in both domestic and foreign markets. Additionally, the segment
has
sustained its focus on process improvement and development of operating
efficiencies. These endeavors have allowed it to manage its high level of order
activity and backlog as well as maintain delivery schedules. The Bloomfield
facility completed its expansion of the last 10,000 square feet of production
space during the second quarter of 2007.
WARRANTY
MATTERS
The
Fuzing segment has two warranty-related matters that primarily impact the
FMU-143 program at the Orlando facility (Dayron), which is part of the Fuzing
segment. The first item involves a supplier's recall of a switch embedded in
certain bomb fuzes. The second item involves bomb fuzes manufactured for the
U.S. Army utilizing systems which originated before Dayron was acquired by
Kaman
that were subsequently found to contain an incorrect part, known as a bellows
motor. The U.S. Army Sustainment Command (USASC), the procurement agency that
administers the FMU-143 contract, had authorized warranty rework for the bellows
motor matter in late 2004/early 2005, however the segment had not been permitted
to finish the rework due to issues raised by the USASC primarily related to
administrative matters and requests for verification of the accuracy of test
equipment (which accuracy was subsequently verified).
In
December 2006, the USASC informed us that it was changing its remedy under
the
contract from the segment's performance of warranty rework to an "equitable
adjustment" of $6.9 million to the contract price. We timely responded to
that letter in January 2007 explaining our view that the segment has complied
with contract requirements. In June 2007 the USASC affirmed its
initial determination and gave instructions for disposition of the subject
fuzes, including both the impact switch and bellows motor-related items, to
a
Navy facility. The USASC also rescinded its $6.9 million demand, stating
that its full costs had not yet been determined. Management continues to
believe that the segment has performed in accordance with the contract and
that
the USASC is unjustified in its claims and demands. The segment intends to
take appropriate steps to protect its legal rights in the matter and to make
any
appropriate claims against the USASC.
As
previously disclosed, in March 2005 the U.S. Attorney's Office for the Middle
District of Florida and the Defense Criminal Investigative Service (DCIS)
initiated an investigation into the second warranty matter. Dayron has
cooperated fully with the authorities, working to resolve the matter in a
mutually satisfactory manner. As of the date of this report, the segment has
not
received any notification from the authorities regarding final disposition
of
the investigation.
The
company also has a warranty reserve for $0.7 million related to certain products
produced at the Aerostructures segment’s Wichita, KS facility as previously
reported. There has been no activity with respect to this matter during the
second quarter of 2007.
OTHER
MATTERS
On
July
31, 2006, the company submitted an Offer to Purchase (OTP) to NAVAIR and the
General Services Administration to purchase the portion of the Bloomfield campus
that Kaman Aerospace Corporation (of which the Helicopters segment forms a
part)
currently leases from NAVAIR and has operated for several decades for the
principal purpose of performing U.S. government contracts. The OTP is
subject to negotiation of terms mutually acceptable to the company and the
government that include, in consideration for the transfer of title, the
company's assumption of responsibility for environmental remediation at the
facility as necessary to meet the requirements of state law that will apply
upon
the transfer. As of the date of this report, the company is continuing its
discussions with the U.S. government regarding negotiation of such terms, and
the company anticipates that the process may take several more
months. If agreement is reached, completion of various government
approval processes will be required before transfer of title to the property
can
take place. In concert with this, the company is in discussions with the
Connecticut Department of Environmental Protection (CTDEP) in order to define
the scope of such remediation as may be required in connection with such
transfer. Pending such negotiations, the company and the government
have agreed to extend through December 31, 2007 the company's OTP and its lease
of the facility.
In
preparation for disposal of the Moosup, Connecticut facility, CTDEP has given
the company conditional approval for reclassification of groundwater in the
vicinity of the facility consistent with the character of the area. The company
has substantially completed the process of connecting neighboring properties
to
public drinking water in accordance with such approval and in coordination
with
the CTDEP and local authorities. The company anticipates that this project
will
be completed in 2007.
The
company has entered into an agreement with DSE, Inc., former owner of the Dayron
operation, under which DSE will purchase the 40mm production line assets,
including principally equipment and inventory. The sale price is
approximately $4.5 million plus the value of inventory and the transaction,
which is subject to customary closing conditions, is expected to occur on or
before December 31, 2007.
I
NDUSTRIAL
DISTRIBUTION SEGMENT RESULTS
The
following table presents selected financial data for the Industrial Distribution
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
June
29, 2007
|
|
June
30, 2006
|
|
June
29, 2007
|
|
June
30, 2006
|
Net
sales
|
|
$ |
174.6
|
|
|
$ |
170.5
|
|
|
$ |
348.0
|
|
|
$ |
341.1
|
|
%
change
|
|
|
2.4 |
% |
|
|
8.3 |
% |
|
|
2.0 |
% |
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
8.3
|
|
|
$ |
9.3
|
|
|
$ |
17.0
|
|
|
$ |
20.1
|
|
%
of net sales
|
|
|
4.8 |
% |
|
|
5.4 |
% |
|
|
4.9 |
% |
|
|
5.9 |
% |
%
change
|
|
|
(10.4 |
)% |
|
|
10.3 |
% |
|
|
(15.3 |
)% |
|
|
19.1 |
% |
The
Industrial Distribution segment represented 54.6 percent of total consolidated
sales for the second quarter of 2007 and 58.2 percent for the second quarter
of
2006. Net sales for the Industrial Distribution segment represented 54.6 percent
and 57.8 percent of the total consolidated sales for the first half of 2007
and
2006, respectively. The increases in net sales in the second quarter and first
half of 2007 were primarily driven by greater sales volume in certain customer
industries including mining, oil exploration and electrical power generation,
partially offset by a decrease in net sales specifically related to original
equipment manufacturers (OEM) and the building materials industry.
Despite
the modest increase in sales volume and the correlating increase in gross
margin, the segment experienced a decrease in operating income. The decrease
in
operating income for the second quarter of 2007 was primarily attributable
to
additional start up costs for new branch openings and other implementation
costs
that the segment has incurred for several new contracts that were awarded in
2007 and late 2006. Additionally, for the first half of 2007 the
segment experienced an increase in overall operating expenses and higher
personnel costs. The additional gross margin generated by the increase in sales
was not sufficient to cover these incremental operating costs.
2007
INDUSTRIAL DISTRIBUTION SEGMENT TRENDS
THE
MARKET
Because
of our diverse customer base, our performance tends to track the U.S. Industrial
Production Index. We are therefore affected, to a large extent, by the overall
business climate of our customer industries, which includes plant capacity
utilization levels, and the effect of pricing spikes and/or supply interruptions
for basic commodities such as steel and oil. The strength of certain markets
varied considerably by industry type in the second quarter and first half of
2007. Industries such as food processing, mining, oil exploration and electrical
power generation continued to perform well during the second quarter. Other
industries have experienced a decline, including the building materials industry
with respect to new home construction, OEMs and the automotive
industry.
OUR
STRATEGY
In
order
to meet the demands of our customers, we are focused on maintaining competitive
pricing as well as providing value added services that save our customers money
and time while helping them become more efficient and productive. Our strategy
to accomplish this is to offer inventory management control procedures, process
improvements, e-commerce capabilities and customer production enhancements.
The
segment's size and scale of operations also allows us to realize internal
operating efficiencies as well as take strategic advantage of vendor incentives
in the form of rebates. Management believes that we have appropriate tools
related to systems management to compete effectively in our portion of the
highly diversified industrial distribution industry. We are currently working
to
further improve our technology in order to continue to meet our customers’
growing needs. It is important that we have the appropriate qualified personnel
to undertake these challenges and capitalize on opportunities and we continue
to
work at attracting and retaining well-qualified people.
Our
business is one in which the top tiered participants, including Kaman, continue
to expand their market presence due to both consolidation in the ranks of
distributors and the inclination of the larger manufacturers to concentrate
their purchases through national account arrangements. We also continue to
look
for additional opportunities in growing markets, particularly the mining, energy
and food and beverage industries. Additionally, we continue to explore potential
acquisition candidates. Our long-term strategy is to grow the segment by
expanding into additional areas that enhance our ability to compete for large
regional and national customer accounts. By so doing, we will more clearly
establish our business as one that can provide all levels of service to our
customers who are continually focused on streamlining their purchasing
operations and consolidating supplier relationships. As previously disclosed,
the segment has recently won two new national accounts that are expected to
be
among the segment’s largest. The sales volume for these two accounts
should increase throughout the year as various new branches open to support
these customers as they complete the implementation.
MUSIC
SEGMENT RESULTS
The
following table presents selected financial data for the Music
segment:
|
|
|
|
|
|
|
In
Millions
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
June
29, 2007
|
|
June
30, 2006
|
|
June
29, 2007
|
|
June
30, 2006
|
Net
sales
|
|
$ |
47.6
|
|
|
$ |
48.1
|
|
|
$ |
98.4
|
|
|
$ |
100.5
|
|
%
change
|
|
|
(1.1 |
)% |
|
|
27.4 |
% |
|
|
(2.1 |
)% |
|
|
26.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
1.6
|
|
|
$ |
1.6
|
|
|
$ |
3.2
|
|
|
$ |
2.9
|
|
%
of net sales
|
|
|
3.4 |
% |
|
|
3.4 |
% |
|
|
3.3 |
% |
|
|
2.9 |
% |
%
change
|
|
|
0.2 |
% |
|
|
(12.4 |
)% |
|
|
11.1 |
% |
|
|
(34.4 |
)% |
The
Music
segment represented 14.9 percent of total consolidated sales for the second
quarter of 2007 and 16.4 percent of total consolidated sales for the second
quarter of 2006. Net sales for the Music segment represented 15.4 percent and
17.0 percent of the total consolidated sales for the first half of 2007 and
2006, respectively. The results for the second quarter and first half of 2007
were affected by lower sales to national retailers as well as mid to smaller
sized retailers. The trend of lower discretionary spending has continued to
affect the entire musical instruments industry. Additionally, the second quarter
is traditionally the softest of the year, amplified in 2007 by economic stresses
within the age demographic of our end customers.
Operating
income remained flat for the second quarter of 2007 as compared to the same
period in 2006. For the first half of 2007, total operating income
increased as compared to the first half of 2006. The increase in
operating income for the first half of 2007 was as a result of certain cost
control programs that were implemented in mid 2006. The benefits
realized from these programs was partially offset in both the second quarter
and
first half of 2007 by an increase in legal expenses primarily associated
with the segment's response to an inquiry by the FTC (Federal Trade
Commission) issued to participants throughout the music industry in
general relative to minimum advertised pricing policies utilized in the
industry. The fees that the segment has incurred thus far are for
document production at the FTC’s request.
2007
MUSIC SEGMENT TRENDS
THE
MARKET
The
retail environment in 2007 continues to be a challenge for the musical
instrument industry. The 2006 holiday selling season was slower than anticipated
and many of our customers continued to work off their 2006 purchased inventory
well into the first quarter of 2007. Most retailers within the industry, from
large national accounts to the mid size to small retailers, currently appear
to
be affected by a decrease in consumer spending. The unstable housing market,
rising fuel prices and higher minimum monthly payments on credit cards have
continued to curb consumer discretionary spending throughout the second quarter
of 2007. Until these factors stabilize, management anticipates the trend of
lower consumer spending on discretionary products will continue.
Large
retail chains have continued to acquire mid-size retailers and consolidate
their
stores. The segment benefits from the increase in purchases by the national
retailers but as a result of these consolidations, the remaining mid to smaller
retailers continue to lose market share, which has a negative impact on our
business. The segment also continues to watch the emerging trend involving
non-musical instrument retailers selling lower end musical products that has
created additional competition in an already challenging industry.
OUR
STRATEGY
The
segment's strategy to add popular premier branded products that can be brought
to market exclusively by the segment has allowed us to build upon our market
position. The added value that the segment brings as the largest independent
U.S. distributor has allowed us to secure such arrangements. In mid 2006, the
segment converted our distribution agreement with Sabian Cymbals into an
exclusive contract for the U.S. market, expanding an important product offering
to proprietary brand status. Additionally, effective January 1, 2007, Elixir
Strings selected the segment as its principal U.S. distributor. As a result
of
these agreements, sales during the second quarter and first half of 2007
increased for both of these product lines.
As
discussed above, the continued industry trend toward consolidation in the retail
market has led to growth in the very large retail chains. The concentration
of
sales to these large customers is increasing and this has led to pricing
pressures. Although our national accounts are important contributors to our
sales volume, the segment also continues to support its traditional base of
mid
to small retailers. We have utilized the advantage of our sophisticated,
large-scale business systems and have created a proprietary software system
link
to our inventories for our customer base of several thousand retailers ranging
from the industry’s largest national chains, which require such systems, to the
smallest neighborhood music stores, which gain the benefit of greater
efficiency.
IV. CRITICAL
ACCOUNTING ESTIMATES
Preparation
of the company’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 company’s Form 10-K (as amended) for
the year ended December 31, 2006, 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 company's critical accounting policies
and significant estimates in the second quarter of 2007. In the first quarter
of
2007, the company adopted the provisions of FIN 48 relative to the methodology
for financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. For additional information regarding
FIN
48, see Note 1 of Notes to Condensed Consolidated Financial Statements in this
Quarterly Report on Form 10-Q.
V. LIQUIDITY
AND CAPITAL RESOURCES
The
following table summarizes cash flow activity:
In
millions
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
|
$
Change
|
|
|
%
Change
|
|
Total
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
(15.5 |
) |
|
$ |
(34.1 |
) |
|
$ |
18.6
|
|
|
|
54.4 |
% |
Investing
activities
|
|
|
(10.6 |
) |
|
|
(6.7 |
) |
|
|
(3.9 |
) |
|
|
(58.9 |
)% |
Financing
activities
|
|
|
25.9
|
|
|
|
40.8
|
|
|
|
(14.9 |
) |
|
|
(36.4 |
)% |
Increase
(decrease) in cash
|
|
$ |
(0.2 |
) |
|
$ |
0.0
|
|
|
$ |
(0.2 |
) |
|
|
(714.3 |
)% |
Management
assesses the company's liquidity in terms of its ability to generate cash to
fund working capital, investing and financing activities. Significant factors
affecting liquidity include: cash flows generated from or used by operating
activities, capital expenditures, investments in the business segments and
their
programs, acquisitions, divestitures, dividends, adequacy of available bank
lines of credit, and factors which might otherwise affect the company's business
and operations generally, as described below under the heading “Forward-Looking
Statements”.
The
primary sources of our liquidity are cash flow from operations and borrowings
under our revolving credit agreement. During the first half of 2007, the company
continued to rely significantly upon borrowings in order to fund our working
capital requirements as well as certain investing and financing activities.
Our
working capital needs have continued to increase primarily as a result of delays
in the completion of the Australian SH-2G(A) program. Going forward, we believe
that bank borrowings will continue to provide an important source of support
for
the company's activities. We believe that our current revolving credit
agreement, along with cash generated from operating activities, will be
sufficient to support our anticipated liquidity requirements.
OPERATING
ACTIVITIES
Net
cash
used in operating activities decreased $18.6 million for the first half of
2007
compared to the first half of 2006. This decrease was partially attributable
to
lower cash necessary to fund working capital requirements in the first half
of
2007 as compared to the first half of 2006. Additionally, the company
generated higher net earnings in the first half of 2007 compared to the first
half of 2006 which provided more overall cash to fund working capital
requirements for the first half of 2007. The company also paid down
significantly more accounts payable in the first half of 2006 as compared to
2007, specifically at the Industrial Distribution segment.
INVESTING
ACTIVITIES
Net
cash
used in investing activities increased $3.9 million for the first half of 2007
compared to the same period of 2006. The primary contributor to this increase
was additional cash outflow related to capital expenditures of $1.8 million.
Most of these capital expenditures related to the Aerospace Segments as each
reporting segment increased its expenditures related to machinery and facilities
for the additional work that it has been awarded. Additionally, the Industrial
Distribution segment purchased the final 9.2 percent minority interest in
Delamac de Mexico S.A. de C.V. in the first quarter of 2007 for $0.5
million.
FINANCING
ACTIVITIES
Net
cash
provided by financing activities decreased $14.9 million for the first half
of
2007 compared to the same period of 2006. Total overall borrowings under
revolving credit agreements remained relatively flat with total net borrowings
for the first half of 2007 of $36.1 million as compared to $38.4 million for
the
first half of 2006. Additionally as discussed above, the company made
significant payments against accounts payable during the first half of
2006. To do so, the company utilized more short term borrowings in
the first half of 2006 than compared to the same period in 2007.
FINANCING
ARRANGEMENTS
The
company has a $200 million revolving credit facility (Revolving Credit
Agreement) expiring August 4, 2010. The facility includes the availability
of
funding in foreign currencies as well as an “accordion” feature that provides
the company the opportunity to request, subject to bank approval, an expansion
of up to $50 million in the overall size of the facility. The facility is
expected to be sufficient to support the company's anticipated operating,
investing and financing activities for at least the next 12 months.
Total
average bank borrowings for the first half of 2007 were $78.5 million compared
to $79.2 million for the same period in 2006. As of June 29, 2007, there was
$79.9 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 $26.3 million in letters of credit were
outstanding under the Revolving Credit Agreement at June 29, 2007, $19.8 million
of which is related to the Australia SH-2G(A) program. The letter of credit
for
the production portion of the Australia program currently has a balance of
$16.0
million.
Facility
fees and interest rates under the Revolving Credit Agreement are determined
on
the basis of the company's credit rating from Standard & Poor's. In January
2007, Standard & Poor's re-affirmed the company rating as investment grade
BBB- with an outlook of stable. Management believes that this is a favorable
rating for a company of our size. Under the terms of the Revolving Credit
Agreement, if this rating should decrease, the effect would be to increase
facility fees as well as the interest rates charged. The financial covenants
related to the Revolving Credit Agreement include a requirement that the company
have i) EBITDA, at least equal to 300 percent 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 percent. The agreement
also incorporates a financial covenant which provides that if the company'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
company's consolidated total indebtedness cannot be less than 1.6 to 1. The
company remained in compliance with those financial covenants as of and for
the
three months and six months ended June 29, 2007.
OTHER
SOURCES/USES OF CAPITAL
At
June
29, 2007, the company had $13.9 million of its 6 percent convertible
subordinated debentures outstanding. The debentures are convertible into shares
of 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 company was required to redeem
$1.7 million of the outstanding principal of the debentures each year. Recently,
as a result of the increase in the company's stock price, several debenture
holders have elected to convert their bonds to shares of common stock. During
the first half of the year, a total of 41,731 shares of common stock were issued
for the conversion of 975 debentures. The conversion of debentures into common
shares typically decreases outstanding principal that the company must redeem
each year. As a result of these conversions, the company currently plans to
redeem only $0.5 million of the outstanding principal of the debentures in
March
2008 when the next sinking fund payment is due as opposed to the originally
required $1.7 million discussed above.
In
November 2000, the company's board of directors approved a replenishment of
the
company's stock repurchase program, providing for repurchase of an aggregate
of
1.4 million common shares for use in administration of the company's stock
plans
and for general corporate purposes. There were no shares repurchased during
the
first half of 2007.
We
plan
to record pension expense of approximately $9.6 million and make cash
contributions of $10.0 million to our tax-qualified defined benefit pension
plan
for the 2007 plan year. This is based upon the asset value of the pension trust
fund as of December 31, 2006. The company plans to make payments of $2.4 million
for the SERP for plan year 2007. For the 2006 plan year, we expensed
approximately $12.5 million and made a contribution of $9.8 million, of which
$2.5 million was paid in January 2007, to our tax-qualified defined benefit
pension plan. This was based upon the asset value of the pension trust fund
as
of December 31, 2005.
VI. CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
CONTRACTUAL
OBLIGATIONS
There
has
been no material change outside the ordinary course of business in the company's
contractual obligations during the second quarter of 2007. Please see the
company's Form 10-K (as amended) for the year ended December 31, 2006 for a
discussion of our contractual obligations.
OFF-BALANCE
SHEET ARRANGEMENTS
There
has
been no material change in the company's off-balance sheet arrangements as
of
the second quarter of 2007. Please see the company's Form
10-K (as amended) for the year ended December 31, 2006 for a discussion of
such
arrangements.
VII. RECENT
ACCOUNTING STANDARDS
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159), including an amendment to Statement of Financial Accounting
Standards No. 115. Under SFAS 159, entities may elect to measure specified
financial instruments and warranty and insurance contracts at fair value on
a
contract-by-contract basis, with changes in fair value recognized in earnings
each reporting period. The election, called the fair value option, will enable
entities to achieve an offsetting accounting effect for changes in fair value
of
certain related assets and liabilities without having to apply complex hedge
accounting provisions. SFAS 159 is effective as of the beginning of a company’s
first fiscal year that begins after November 15, 2007. The company is in the
process of evaluating the impact that adoption of SFAS 159 will have on our
future consolidated financial statements.
Forward-Looking
Statements
This
report may contain forward-looking information relating to the company's
business and prospects, including the Aerospace, 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 company does or intends to do
business; 3) standard government contract provisions permitting renegotiation
of
terms and termination for the convenience of the government; 4) domestic and
foreign economic and competitive conditions in markets served by the company,
particularly defense, commercial aviation, industrial production and the
consumer market for music products; 5) risks associated with successful
implementation and ramp up of significant new programs; 6) satisfactory
completion of the Australian SH-2G(A) program, including negotiation of payment
and performance terms for the balance of the program as well as the additional
work scope that would assist the Commonwealth in achieving certification of
the
aircraft in Australia; 7) 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; 8) in the
EODC/University of Arizona litigation, successful defeat of the University’s
appeal of the jury verdict in the company’s favor; 9) satisfactory resolution of
(i) the company’s dispute with the U.S. Army procurement agency relating to
warranty work for the FMU-143 program and (ii) the 2005 DCIS investigation
of
that program; 10) satisfactory results of negotiations with NAVAIR concerning
purchase of the company's leased facility in Bloomfield, Conn.; 11) continued
support of the existing K-MAX helicopter fleet, including sale of existing
K-MAX
spare parts inventory and in 2007, availability of a redesigned clutch assembly
system; 12) cost growth in connection with environmental remediation activities
at the Moosup facility and such potential activities at the Bloomfield facility;
13) profitable integration of acquired businesses into the company's operations;
14) changes in supplier sales or vendor incentive policies; 15) the effect
of
price increases or decreases; 16) pension plan assumptions and future
contributions; 17) future levels of indebtedness and capital expenditures;
18)
continued availability of raw materials in adequate supplies; 19) the effects
of
currency exchange rates and foreign competition on future operations; 20)
changes in laws and regulations, taxes, interest rates, inflation rates, general
business conditions and other factors; and 21) other risks and uncertainties
set
forth in the company's annual, quarterly and current reports, and proxy
statements. Any forward-looking information provided in this report should
be
considered with these factors in mind. The company assumes no obligation to
update any forward-looking statements contained in this
report.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
There
has
been no significant change in the company’s exposure to market risk during the
quarter ended June 29, 2007. Please see the company’s Form 10-K (as amended) for
the year ended December 31, 2006 for discussion of the company’s exposure to
market risk.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
company has carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer and
Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of June 29, 2007. 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 our evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of June
29, 2007, the disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed in the reports
that we file and submit 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
There
were no changes in internal controls over financial reporting at the company
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
1A. Risk Factors
Information
regarding risk factors appears in Part I – Item 1A of our Report on Form 10-K
for the fiscal year ended December 31, 2006 (SEC Accession No.
0000054381-07-000022). There have been no material changes in our risk factors
from those disclosed in our Form 10-K for 2006. The company has amended its
Form 10-K for the fiscal year ended December 31, 2006. There were no
material changes to Item 1A in our amended Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
(a)
Sales
of Equity Securities; Conversion of Convertible Debentures
During
the three months period ended June 29, 2007, holders of the company’s 6%
Convertible Subordinated Debentures Due 2012 converted a total of 959 such
debentures into an aggregate of 41,047 shares of the company’s common stock. The
company received no cash consideration for the issued shares which were issued
pursuant to an exemption from registration under the Securities Act of 1933,
as
amended, contained in Section 3(a)(9) of such Act.
(c)
Purchases of Equity Securities
In
November 2000, the company's board of directors approved a replenishment of
the
company's stock repurchase program providing for repurchase of an aggregate
of
1.4 million common shares for use in administration of the company's stock
plans
and for general corporate purposes.
The
following table provides information about purchases of common shares by the
company during the three months ended June 29, 2007:
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
03/31/07-
|
|
|
|
|
|
|
|
|
04/27/07
|
|
-
|
|
-
|
|
269,611
|
|
1,130,389
|
|
|
|
|
|
|
|
|
|
04/28/07-
|
|
|
|
|
|
|
|
|
05/25/07
|
|
-
|
|
-
|
|
269,611
|
|
1,130,389
|
|
|
|
|
|
|
|
|
|
05/26/07-
|
|
|
|
|
|
|
|
|
06/29/07
|
|
-
|
|
-
|
|
269,611
|
|
1,130,389
|
Item
6. Exhibits
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
|
Exhibit
10h (i)
|
Form
of Incentive Stock Option Agreement under the Kaman Corporation 2003
Stock
Incentive Plan
|
Exhibit
10h (ii)
|
Form
of Non-Statutory Stock Option Agreement under the Kaman Corporation
2003
Stock Incentive Plan
|
Exhibit
10h (iv)
|
Form
of Restricted Stock Agreement under the Kaman Corporation 2003 Stock
Incentive Plan
|
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:
August 2, 2007
|
By:
/s/ Paul R. Kuhn
|
|
|
Paul
R. Kuhn
|
|
|
Chairman,
President and
|
|
|
Chief
Executive Officer
|
|
|
(Duly
Authorized Officer)
|
Date:
August 2, 2007
|
By:
/s/ Robert M. Garneau
|
|
|
Robert
M. Garneau
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
Kaman
Corporation and Subsidiaries
Index
to
Exhibits
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
|
|
|
|
Exhibit
10h (i)
|
Form
of Incentive Stock Option Agreement under the Kaman Corporation 2003
Stock
Incentive Plan
|
Attached
|
|
|
|
Exhibit
10h (ii)
|
Form
of Non-Statutory Stock Option Agreement under the Kaman Corporation
2003
Stock Incentive Plan
|
Attached
|
|
|
|
Exhibit
10h (iv)
|
Form
of Restricted Stock Agreement under the Kaman Corporation 2003 Stock
Incentive Plan
|
Attached
|
|
|
|