EXHIBIT 13, PORTIONS OF THE CORPORATION'S ANNUAL REPORT TO
SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On August 2, 1999, Paul R. Kuhn joined Kaman Corporation as
President, Chief Executive Officer, and a member of the Board of
Directors. Prior to that, Mr. Kuhn was senior vice president of the
aerospace engine business for Coltec Industries, Inc. which has
merged with BF Goodrich. Mr. Charles H. Kaman, founder of Kaman
Corporation, will continue in his role as Chairman of the Board.
Consolidated revenues were $984.2 million for 1999 compared to
$1 billion in 1998. Results for 1999 reflect the Aerospace
segment's ongoing performance of SH-2G contracts with the
governments of Australia and New Zealand, offset by lower revenues
in the aerospace structures and components business and in the
K-MAX(R) helicopter program. Results for 1998 reflected increased
revenue in the Aerospace segment primarily due to the
aforementioned SH-2G contracts.
Aerospace segment net sales decreased 2.9% in 1999 compared to
increases of almost 33% in 1998 and 28% in 1997. The Aerospace
segment's principal programs include the SH-2G multi-mission naval
helicopter, the K-MAX repetitive lift helicopter, subcontract work
involving aerospace structures, and the manufacture of components
such as self-lubricating bearings and driveline couplings for
aircraft applications.
The SH-2G helicopter program generally involves retrofit of
the corporation's SH-2F helicopters, previously manufactured for
the U.S. Navy (and currently in desert storage) to the SH-2G
configuration. The corporation is currently performing this work
under commercial contracts with the governments of Australia and
New Zealand. The program for Australia involves eleven (11)
helicopters (incorporating a new cockpit and new weapons and
sensors) with support, including a support services facility, for
the Royal Australian Navy. The total contract has an anticipated
value of about $675 million (US). The helicopter production portion
of the work is valued at $557 million, and 53% of that amount has
now been recorded as revenue. The program for New Zealand involves
five (5) aircraft, and support, for New Zealand defense forces. The
contract has an anticipated value of $175.4 million (US), of which
55% has now been recorded as revenue. Work is proceeding on both
programs; deliveries to New Zealand are scheduled to begin in late
2000 while deliveries to Australia are scheduled to begin in early
2001. The segment is actively monitoring the work of its major
subcontractors and in certain cases (specifically, Litton Guidance
and Control Systems which is responsible for a variety of
integration software) has established a resident manager at the
subcontractor site.
KAMAN CORPORATION AND SUBSIDIARIES Page 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The corporation continues to provide on-site support in the
Republic of Egypt for ten (10) SH-2G helicopters that were
delivered in 1998 under that country's foreign military sale
agreement with the U.S. Navy.
The corporation continues efforts to build and further enhance
familiarization with the SH-2's capabilities among various foreign
governments. This market is highly competitive and is also
influenced by economic and political conditions. The corporation
continues to pursue this business, including possible further
orders from current customers.
The SH-2 is an aircraft that was originally manufactured for
the U.S. Navy. This is no longer done; however, the U.S. Naval
Reserve maintains twelve (12) SH-2G aircraft active in its fleet.
While these aircraft remain in service, the corporation will
continue providing logistics and spare parts support for the
aircraft. The corporation has made an agreement with the
appropriate federal agencies to take a consignment of the U.S.
Navy's inventory of SH-2 spare parts; the initial agreement has
been extended beyond the scheduled September 1999 expiration date
in the expectation that the parties will eventually reach
agreement on a longer term arrangement. The overall objective is
for the corporation to provide further support of U.S. Naval
Reserve requirements while having the ability to utilize certain
inventory for support of the corporation's other SH-2 programs.
The corporation's K-MAX medium to heavy lift "aerial truck"
helicopter program continues to experience market difficulties, due
in significant part to conditions in the U.S. and Canadian
commercial logging industries, the aircraft's "launch" application
and principal market to date. During the past two years,
substantial weakness in the logging industry has adversely affected
certain current customers as well as potential customers and
curtailed sales of the aircraft. The corporation's commercial sales
efforts have been refocused on further development of markets for
the aircraft's other applications, which include oil and gas
exploration, power line and other utility construction, fire
fighting, and movement of equipment. These efforts are ongoing;
however, successful sales development in these markets as well as
profitability for the entire program will take some time to
achieve.
The Aerospace segment also performs subcontract work for
certain aerospace manufacturing programs and manufactures various
components, including self-lubricating bearings for use principally
in aircraft. During 1999, the segment experienced some softness in
these businesses due to a slowdown of growth trends in the
commercial aviation industry and the efforts of major
manufacturers, particularly Boeing (which is a long-standing and
important customer of the segment) to increase efficiency within
their own operations by implementing new inventory and procurement
practices.
KAMAN CORPORATION AND SUBSIDIARIES Page 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this environment, the Aerospace segment is working to
enhance operating efficiency and reduce costs by implementing "lean
thinking" strategies throughout the organization.
Industrial Distribution net sales decreased 1.9% for 1999,
compared to increases of 5% in 1998 and 7% in 1997. During 1999,
the Industrial Distribution business, which serves nearly every
sector of U.S. industry, continued to experience pressure on
operating margins due to the depressed market for a number of key
industries, principally mining, primary metals, paper and
chemicals, where low capacity utilization adversely affected demand
for products distributed by the segment. Additionally, while the
industrial distribution business has traditionally been very
competitive, increasing consolidation in the industry has resulted
in even more intense competition. To address these conditions and
bolster its competitive position, the segment undertook several
initiatives in December of 1999, including a reorganization of its
sales, marketing and field management structure, a consolidation of
certain branch locations and closure of others and an extensive
program to remove obsolete or excess inventory to the ongoing
organization. Management believes that these steps will provide a
better opportunity to become more efficient, more responsive to
customers, and better focused on the products that its customers
are seeking as they look for ways to improve their own businesses.
Music Distribution net sales were down by 1.2% for 1999, 10%
for 1998 and 13% for 1997. During 1999, the domestic market
remained stable; however, the segment continued to be affected by
weakness in international markets.
With regard to 1997 results, the corporation sold its
Scientific Services segment (consisting of Kaman Sciences
Corporation) to ITT Industries, Inc. on December 30, 1997 for $135
million in cash. There was a pre-tax gain on the sale of
approximately $90 million, which is not included in the operating
profits for the Scientific Services segment. In the third quarter
of 1998, the corporation received an additional $5.4 million in
cash, determined in accordance with the Stock Purchase Agreement
for the sale. The segment's net sales for 1997 increased 16% to
approximately $145 million. In addition, during 1997, the Music
Distribution segment sold its amplifier manufacturing operation
located in Great Britain; a pre-tax loss of $10.4 million was taken
on the transaction which was not included in the operating profit
figure for the Distribution segment for 1997. During that year, a
charge was taken to cover costs associated with receivable and
inventory carrying values and steps taken to make the music
operation more efficient.
KAMAN CORPORATION AND SUBSIDIARIES Page 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For 1999, all the segments' total operating profit was down
21.8% compared to 1998, due primarily to the pre-tax charge
described below associated with the Industrial Distribution
segment. Operating profit for the Aerospace segment increased 1.7%
for 1999, primarily due to its SH-2G helicopter programs and the
aircraft structures and components business. This performance was
offset by losses in the K-MAX program which continued to require
investment for technical work and market development and by
continuing difficulties in the segment's electromagnetics business
in developing new markets for niche market products (this operation
was merged with Kaman Aerospace Corporation during 1999). Also
included in operating profit for 1999 was a second quarter reversal
of a reserve in the amount of $2.5 million that had been
established in 1994 associated with Raymond Engineering, now part
of Kaman Aerospace. Operating profit for the Industrial
Distribution segment was down 84.3% for 1999, primarily due to a
pre-tax charge of $12.4 million taken in December; approximately
$4.1 million of the charge represented costs associated with the
reorganization of operations and the closure of branches and other
facilities while approximately $8.3 million represented a write-off
of inventory that was determined to be excess or obsolete to the
ongoing business. Approximately $1.3 million of the reorganization
charge relates to severance costs for approximately 65 branch
operations and regional management employees that the segment plans
to separate from service in 2000; the balance relates to costs to
close ten branches and three other facilities in 2000. Operating
profit for the Industrial Distribution segment was also adversely
affected by weakness in certain customer industries which lowered
demand for the segment's offerings. Operating profit for the Music
Distribution segment was up 5.9% for 1999 primarily due to the
domestic market, which is the larger market for this business.
Net earnings for 1999 were $25.1 million compared to $30.0
million in 1998. Net earnings per common share for 1999 were $1.05
on a diluted basis compared to $1.23 for 1998. Net earnings for
1999 were negatively impacted by 32 cents per share due to the
charge in the Industrial Distribution segment, and positively
impacted by 6 cents per share, due to the reserve reversal in the
Aerospace segment, both of which are described in the previous
paragraph. Excluding these adjustments, net earnings per common
share increased to $1.31 on a diluted basis compared to $1.23 in
1998.
The segments' total operating profit for 1998 increased by
almost 6% compared to 1997 (including the Scientific Services
segment in 1997). Operating profit for the Aerospace segment
increased 38% for 1998 compared to the prior year, primarily due to
the SH-2G program and demand for its specialty bearings, offset to
some degree by costs associated with the K-MAX program and
difficulties experienced by the electromagnetics business in
KAMAN CORPORATION AND SUBSIDIARIES Page 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
developing new markets for niche market products and transitioning
from defense to commercial business. Operating profit for the
Industrial Distribution segment decreased 7% for 1998 compared to
1997, due primarily to the effects of the economic difficulties in
Asia upon certain of the segment's customers. Operating profit for
the Music Distribution segment was up substantially in 1998
compared to the prior year, due primarily to the loss
resulting from charges taken in this segment during 1997.
Net earnings for 1998 were $30.0 million compared to $70.5
million in 1997. Results for 1997 include a post-tax gain of
approximately $53.5 million on the sale of the Scientific Services
segment and a post-tax loss of $6.1 million on the sale of the
Music Distribution segment's European amplifier manufacturing
business. Net earnings per common share basic in 1998 were $1.28
($1.23 per common share diluted) compared to $3.53 per common share
basic ($2.86 per common share diluted) in 1997. The sale of the
Scientific Services segment resulted in a post-tax gain of
approximately $2.80 per common share basic in 1997 while the
sale of the amplifier business in the Music Distribution segment
resulted in a post-tax loss of 32 cents per common share basic in
1997.
For the year ended December 31, 1999, interest income earned
from investment of surplus cash more than offset interest expense.
For 1998, interest expense decreased almost 68% compared to 1997,
primarily due to the application of a substantial portion of
advance payments received from the governments of Australia and New
Zealand and a portion of the proceeds from the sale of the
Scientific Services segment to pay down bank debt.
The consolidated effective income tax rate was 38.1% for 1999,
40.4% for 1998, and 41.4% for 1997.
The corporation did not experience any adverse impact upon its
business operations with the arrival of the year 2000. However, the
program managers from each of the operating subsidiaries as well as
the oversight committee at corporate headquarters (both groups
being part of the compliance program described in the corporation's
reports during 1999) will continue to monitor this item for several
months.
LIQUIDITY AND CAPITAL RESOURCES
The corporation's cash flow from operations has generally been
sufficient to finance a significant portion of its working capital
and other capital requirements.
KAMAN CORPORATION AND SUBSIDIARIES Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For calendar year 1999, operating activities provided cash in
the amount of $42.5 million. In the Aerospace segment this is
primarily a result of earnings from operations together with the
receipt of additional payments on accounts receivable, offset to
some extent by growth in K-MAX inventories, payments on
accounts payable, and ongoing reductions in the advances on the
SH-2G contracts. In the Industrial Distribution segment, this
result largely reflects reductions in inventories. For 1999, cash
used in investing activities was primarily for the acquisition of
machinery and computer equipment used in manufacturing and
distribution. In addition, cash used by financing activities was
primarily attributable to the payment of dividends to common
shareholders and repurchase of Class A common stock pursuant to a
repurchase program for use in connection with administration of the
corporation's stock plans and general corporate purposes.
The corporation had approximately $73.3 million in surplus
cash at December 31, 1999 with an average balance of $77.8 million
for the year. These funds have been invested in high quality,
short-term instruments.
For calendar year 1998, operating activities used cash,
principally due to increases in accounts receivable and inventories
in the Aerospace segment and payment of taxes due on the Kaman
Sciences transaction, offset by increases in accounts payable in
the Aerospace segment. During the year, cash used in investing
activities was for items such as acquisition of machinery and
computer equipment used in manufacturing and distribution, while
cash provided by investing activities consisted principally of a
post-closing adjustment to the purchase price of the Scientific
Services segment. Cash used by financing activities was primarily
attributable to the repayment of debt, the payment of dividends to
common shareholders, and repurchase of Class A common stock
pursuant to a repurchase program for use in connection with
administration of the corporation's stock plans and general
corporate purposes.
At December 31, 1999, the corporation had $28.2 million of its
6% convertible subordinated debentures outstanding. The debentures
are convertible into shares of Class A 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 corporation redeems
approximately $1.7 million of the outstanding principal of the
debentures each year.
KAMAN CORPORATION AND SUBSIDIARIES Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For borrowing purposes, the corporation maintains a revolving
credit agreement involving a group of domestic and foreign banks.
This facility provides a maximum unsecured line of credit of $250
million. The agreement has a term of five years ending in January
2001, and contains various covenants, including debt to
capitalization, consolidated net worth requirements, and
limitations on other loan indebtedness that the corporation may
incur. Under the revolving credit agreement, the corporation has
the ability to borrow funds on both a short-term and long-term
basis. As of December 31, 1999, the corporation had no outstanding
borrowings under this agreement. In due course, the corporation
will plan to replace the expiring agreement with another
arrangement that meets its financing requirements.
Letters of credit are generally considered borrowings for
purposes of the revolving credit agreement. The governments of
Australia and New Zealand made advance payments of $104.3 million
in connection with their SH-2G contracts in 1997 and those payments
were fully secured by the corporation through the issuance of
irrevocable letters of credit. At present, the face amount of these
letters of credit has been reduced to $47.2 million in accordance
with the terms of the relevant contracts. Further reductions are
anticipated as certain contract milestones are achieved.
For 1999, average bank borrowings were $3.3 million, compared
to $3.3 million for 1998, and $84.8 million for 1997. Substantially
all of the advance payments from the SH-2G contracts and certain of
the proceeds from the sale of the Scientific Services segment were
used to pay down bank debt in 1997.
As of December 23, 1997, 95,106 shares of the corporation's
Series 2 preferred stock were converted to Class A common stock
pursuant to a call for partial redemption issued on November 20,
1997. During the first quarter of 1998, pursuant to another
redemption call, the corporation completed the process
of converting virtually all of its Series 2 preferred stock to
Class A common stock with an immaterial number of Series 2
preferred shares being redeemed by the corporation and settled in
cash.
Management believes that the corporation's cash flow from
operations and available unused bank lines of credit under its
revolving credit agreement will be sufficient to finance its
working capital and other capital requirements for the foreseeable
future.
KAMAN CORPORATION AND SUBSIDIARIES Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking information relating to the
corporation's business and prospects, including the SH-2G and K-MAX
helicopter programs, specialty self-lubricating bearings and
couplings, the industrial and music distribution businesses, 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 contract negotiations with government authorities,
including foreign governments; 2) political developments in
countries where the corporation intends to do business; 3) standard
government contract provisions permitting renegotiation of terms
and termination for the convenience of the government; 4) economic
and competitive conditions in markets served by the corporation,
including industry consolidation in the United States and global
economic conditions; 5) the timing, degree and scope of market
acceptance for products such as a repetitive lift helicopter; 6)
U.S. industrial production levels; 7) achievement and continuation
of Year 2000 compliance by the corporation, its customers,
suppliers, and service providers, including various federal, state
and foreign governments and agencies thereof; 8) currency exchange
rates, taxes, laws and regulations, inflation rates, general
business conditions and other factors. Any forward-looking
information should be considered with these factors in mind.
KAMAN CORPORATION AND SUBSIDIARIES Page 8
SELECTED QUARTERLY FINANCIAL DATA
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------------------
NET SALES:
1999 $249,433 $246,300 $242,016 $244,711 $ 982,460
1998 238,780 247,106 249,184 269,471 1,004,541
GROSS PROFIT:
1999 $ 64,719 $ 63,651 $ 62,933 $ 55,175 $ 246,478
1998 63,073 65,179 64,310 70,260 262,822
NET EARNINGS:
1999 $ 7,273 $ 8,031 $ 8,197 $ 1,572 $ 25,073
1998 6,976 7,617 7,600 7,815 30,008
PER COMMON SHARE - BASIC:
1999 $ .31 $ .34 $ .35 $ .07 $ 1.07
1998 .31 .32 .32 .33 1.28
PER COMMON SHARE - DILUTED:
1999 $ .30 $ .33 $ .34 $ .07 $ 1.05
1998 .29 .31 .31 .32 1.23
- -----------------------------------------------------------------------------
The quarterly per common share-diluted amounts for 1999 do not
equal the "Total Year" figure due to the calculation being
anti-dilutive in the fourth quarter.
KAMAN CORPORATION AND SUBSIDIARIES Page 9
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31 1999 1998
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 76,249 $ 65,130
Accounts receivable 156,173 213,128
Inventories 199,731 207,897
Deferred income taxes 21,100 20,900
Other current assets 6,858 9,449
- -----------------------------------------------------------------------------
Total current assets 460,111 516,504
- -----------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 64,332 65,773
OTHER ASSETS 9,760 4,953
- -----------------------------------------------------------------------------
$ 534,203 $ 587,230
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,854 $ 3,141
Current portion of long-term debt 1,660 1,660
Accounts payable - trade 48,760 51,571
Accrued salaries and wages 9,778 9,696
Accrued vacations 6,069 6,464
Advances on contracts 50,243 101,376
Other accruals and payables 45,073 49,138
Income taxes payable 3,937 5,929
- -----------------------------------------------------------------------------
Total current liabilities 168,374 228,975
- -----------------------------------------------------------------------------
DEFERRED CREDITS 22,906 20,555
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 26,546 28,206
KAMAN CORPORATION AND SUBSIDIARIES Page 10
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31 1999 1998
- -----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock, $1 par value per share:
Preferred stock, authorized 700,000 shares:
Series 2 preferred stock, 61/2% cumulative
convertible, authorized
500,000 shares, none outstanding -- --
Common stock:
Class A, authorized 48,500,000 shares,
nonvoting; $.10 per common share
dividend preference; issued
23,066,260 shares in 1999 and 1998 23,066 23,066
Class B, authorized 1,500,000 shares,
voting; issued 667,814 shares
in 1999 and 1998 668 668
Additional paid-in capital 78,422 78,899
Retained earnings 224,702 209,920
Unamortized restricted stock awards (1,944) (1,500)
Accumulated other comprehensive income (loss) (625) (774)
- -----------------------------------------------------------------------------
324,289 310,279
Less 608,858 shares and 51,171 shares of
Class A common stock in 1999 and 1998,
respectively, held in treasury, at cost (7,912) (785)
- -----------------------------------------------------------------------------
Total shareholders' equity 316,377 309,494
- -----------------------------------------------------------------------------
$ 534,203 $ 587,230
=============================================================================
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 11
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------
REVENUES:
Net sales $982,460 $1,004,541 $1,043,365
Other 1,773 1,465 1,450
- ---------------------------------------------------------------------------
984,233 1,006,006 1,044,815
- ---------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales* 735,982 741,719 787,971
Selling, general & administrative expense 204,172 212,724 208,763
Restructuring costs 4,132 -- --
Net gain on sale of businesses -- -- (80,351)
Interest expense (income), net (1,614) (353) 7,894
Other expense 1,088 1,558 234
- ---------------------------------------------------------------------------
943,760 955,648 924,511
- ---------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 40,473 50,358 120,304
INCOME TAXES 15,400 20,350 49,800
- ---------------------------------------------------------------------------
NET EARNINGS $ 25,073 $ 30,008 $ 70,504
===========================================================================
PREFERRED STOCK DIVIDEND REQUIREMENT $ -- $ -- $ (3,716)
===========================================================================
EARNINGS APPLICABLE TO COMMON STOCK $ 25,073 $ 30,008 $ 66,788
===========================================================================
PER SHARE:
Net earnings per common share:
Basic $ 1.07 $ 1.28 $ 3.53
Diluted 1.05 1.23 2.86
Dividends declared:
Series 2 preferred stock -- -- 13.00
Common stock .44 .44 .44
===========================================================================
*Cost of sales for 1999 includes the write-off of inventory of $8,250
associated with the charge taken in the Industrial Distribution segment.
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 12
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------
SERIES 2 PREFERRED STOCK:
Balance - beginning of year $ -- $ 37,691 $ 57,167
Shares converted -- (37,691) (19,451)
Shares redeemed -- -- (25)
- -----------------------------------------------------------------------------
Balance - end of year -- -- 37,691
- -----------------------------------------------------------------------------
CLASS A COMMON STOCK:
Balance - beginning of year 23,066 19,936 18,075
Shares issued upon conversion -- 3,000 1,548
Shares issued - other -- 130 313
- -----------------------------------------------------------------------------
Balance - end of year 23,066 23,066 19,936
- -----------------------------------------------------------------------------
CLASS B COMMON STOCK 668 668 668
- -----------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance - beginning of year 78,899 42,876 21,696
Conversion of Series 2 preferred stock -- 34,691 17,903
Employee stock plans (463) 318 2,506
Restricted stock awards (14) 1,014 771
- -----------------------------------------------------------------------------
Balance - end of year 78,422 78,899 42,876
- -----------------------------------------------------------------------------
RETAINED EARNINGS:
Balance - beginning of year 209,920 190,336 132,058
Net earnings 25,073 30,008 70,504
Dividends declared:
Preferred stock -- -- (3,716)
Common stock (10,291) (10,424) (8,510)
- -----------------------------------------------------------------------------
Balance - end of year 224,702 209,920 190,336
- -----------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance - beginning of year (1,500) (1,147) (818)
Stock awards issued (1,288) (949) (804)
Amortization of stock awards 844 596 475
- -----------------------------------------------------------------------------
Balance - end of year (1,944) (1,500) (1,147)
- -----------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance - beginning of year (774) (320) (612)
Foreign currency translation adjustment* 149 (220) (157)
Reclassification adjustment -- (234) 449
- -----------------------------------------------------------------------------
Balance - end of year (625) (774) (320)
- -----------------------------------------------------------------------------
KAMAN CORPORATION AND SUBSIDIARIES Page 13
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Year ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------
TREASURY STOCK:
Balance - beginning of year (785) (30) (104)
Shares acquired in 1999
- 802,721; 1998 - 131,462; 1997 - 259 (10,596) (2,212) (5)
Shares reissued under various stock plans 3,469 1,457 79
- -----------------------------------------------------------------------------
Balance - end of year (7,912) (785) (30)
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 316,377 $ 309,494 $ 290,010
=============================================================================
*Comprehensive income is $25,222, $29,788 and $70,347 for 1999,
1998, and 1997, respectively.
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 25,073 $ 30,008 $ 70,504
Adjustments to reconcile net earnings to cash
provided by(used in)operating activities:
Depreciation and amortization 11,998 11,068 12,223
Net gain on sale of businesses -- -- (80,351)
Restructuring costs 4,132 -- --
Deferred income taxes (800) 200 3,718
Other, net 3,690 2,805 673
Changes in current assets and liabilities,
net of effects of businesses sold:
Accounts receivable 52,077 (21,974) (30,321)
Inventories* 8,166 (8,412) 6,241
Other current assets 2,591 768 (7,218)
Accounts payable - trade (2,811) 6,307 (13,720)
Advances on contracts (51,133) (3,347) 104,723
Accrued expenses and payables (8,449) (3,054) (8,555)
Income taxes payable (1,992) (30,799) 37,591
- --------------------------------------------------------------------------
Cash provided by (used in)
operating activities 42,542 (16,430) 95,508
- --------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses
and other assets 538 5,642 139,580
Expenditures for property, plant & equipment (10,964) (19,184) (13,690)
Other, net 194 (478) 559
- --------------------------------------------------------------------------
Cash provided by (used in)
investing activities (10,232) (14,020) 126,449
- --------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable (287) (2,406) (55,290)
Changes in current portion of long-term debt -- -- (250)
Reduction of long-term debt (1,660) (1,661) (52,564)
Proceeds from exercise of employee stock plans 1,704 1,970 2,907
Purchases of treasury stock (10,596) (2,212) (5)
Dividends paid - Series 2 preferred stock -- -- (3,716)
Dividends paid - common stock (10,352) (10,085) (8,510)
- --------------------------------------------------------------------------
Cash provided by (used in)
financing activities (21,191) (14,394)(117,428)
- --------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 11,119 (44,844) 104,529
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 65,130 109,974 5,445
- --------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 76,249 $ 65,130 $109,974
==========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 15
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During 1998 and 1997, holders of the corporation's Series 2
preferred stock converted 188,456 and 97,254 shares into 3,000,174
and 1,548,242 shares of Class A common stock, respectively.
*The change in inventories for 1999 includes the write-off of
inventory of $8,250 associated with the charge taken in the
Industrial Distribution segment.
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the parent corporation
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - Surplus funds are invested in cash
equivalents which consist of highly liquid investments with
original maturities of three months or less.
Long-Term Contracts - Revenue Recognition - Sales and estimated
profits under long-term contracts are principally recognized on the
percentage-of-completion method of accounting. This method uses the
ratio that costs incurred bear to estimated total costs, after
giving effect to estimates of costs to complete based upon most
recent information for each contract. Sales and estimated
profits on other contracts are recorded as products are shipped or
services are performed. Reviews of contracts are made periodically
throughout their lives and revisions in profit estimates are
recorded in the accounting period in which the revisions are made.
Any anticipated contract losses are charged to operations when
first indicated.
Inventories - Inventory of merchandise for resale is stated at cost
(using the average costing method) or market, whichever is lower.
Contracts and work in process and finished goods are valued at
production cost represented by material, labor and overhead,
including general and administrative expenses where applicable.
Contracts and work in process and finished goods are not recorded
in excess of net realizable values.
Property, Plant and Equipment - Depreciation of property, plant and
equipment is computed primarily on a straight-line basis over the
estimated useful lives of the assets. At the time of retirement or
disposal, the acquisition cost of the asset and related accumulated
depreciation are eliminated and any gain or loss is credited or
charged against income.
KAMAN CORPORATION AND SUBSIDIARIES Page 17
Maintenance and repair items are charged against income as
incurred, whereas renewals and betterments are capitalized and
depreciated.
Research and Development - Research and development costs not
specifically covered by contracts are charged against income as
incurred. Such costs amounted to $4,877 in 1999, $8,534 in 1998 and
$6,889 in 1997.
Income Taxes - Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
assets and liabilities and their respective tax bases using enacted
tax rates expected to apply in the years in which temporary
differences are expected to be recovered or settled.
RESTRUCTURING COSTS
The corporation's Industrial Distribution segment has undertaken
initiatives to streamline its operational structure and increase
efficiency. As a result, the segment took a pre-tax charge of
$12,382 ($7,670 after taxes or $.32 per share diluted) in the
fourth quarter of 1999. The costs associated with the
reorganization of operations, consolidation of branches and the
closure of other facilities totaled $4,132. The write-off of
inventory that was considered obsolete or excess to the ongoing
organization totaled $8,250 and is included in cost of sales.
Of the total restructuring charge, approximately $1,300
relates to severance costs for approximately 65 branch operations
and regional management employees that the segment expects to
separate from service in 2000. The remaining balance of the
restructuring charge relates to costs to close down 10 branches and
three other facilities in 2000. As of December 31, 1999, no
significant restructuring costs were paid.
SALE OF BUSINESSES
On December 30, 1997, the corporation sold Kaman Sciences
Corporation (a wholly owned subsidiary) for $135,000 in cash. The
sale resulted in a pre-tax gain of $90,751. Certain proceeds from
the sale were used to reduce borrowings under the revolving credit
agreement with the balance invested in cash equivalents. In the
third quarter of 1998, the corporation received an additional
$5,400 in cash determined in accordance with the Stock Purchase
Agreement for the sale. Kaman Sciences Corporation, an information
technology and services operation, contributed $145,000 to 1997
sales.
On June 27, 1997, the corporation sold Trace Elliot Limited (a
wholly owned subsidiary) to a Trace Elliot management group. As a
result of the sale, the corporation recorded a pre-tax charge of
$10,400. Trace Elliot, Kaman Music's amplifier manufacturing
business in Great Britain, contributed $4,200 to sales for the
first six months of 1997.
KAMAN CORPORATION AND SUBSIDIARIES Page 18
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31 1999 1998
- ------------------------------------------------------------------
Trade receivables, net of allowance
for doubtful accounts of $4,519
in 1999, $4,047 in 1998 $ 75,377 $ 79,215
U.S. Government contracts:
Billed 9,938 20,011
Recoverable costs and accrued
profit - not billed 24,611 30,181
Commercial and other government contracts:
Billed 20,419 48,914
Recoverable costs and accrued
profit - not billed 25,828 34,807
- -------------------------------------------------------------------
Total $156,173 $213,128
===================================================================
Recoverable costs and accrued profit-not billed represent costs
incurred on contracts which will become billable upon future
deliveries, achievement of specific contract milestones or
completion of engineering and service type contracts. Management
estimates that approximately $6,650 of such costs and accrued
profits at December 31, 1999 will be collected after one year.
INVENTORIES
Inventories are comprised as follows:
December 31 1999 1998
- -------------------------------------------------------------------
Merchandise for resale $ 89,184 $108,833
Contracts in process:
U.S. Government 4,951 4,035
Commercial 7,844 12,168
Other work in process (including certain
general stock materials) 39,192 45,001
Finished goods 58,560 37,860
- -------------------------------------------------------------------
Total $199,731 $207,897
===================================================================
Included above in other work in process and finished goods at
December 31, 1999 and 1998 is K-MAX inventory of $87,384 and
$73,249, respectively.
KAMAN CORPORATION AND SUBSIDIARIES Page 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
The aggregate amounts of general and administrative costs
allocated to contracts in process during 1999, 1998 and 1997 were
$49,752, $55,178 and $57,474, respectively.
The estimated amounts of general and administrative costs
remaining in contracts in process at December 31, 1999 and 1998
amount to $1,138 and $2,003, respectively, and are based on the
ratio of such allocated costs to total costs incurred.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and summarized
as follows:
December 31 1999 1998
- ------------------------------------------------------------------
Land $ 6,212 $ 6,310
Buildings 34,640 34,612
Leasehold improvements 13,605 12,725
Machinery, office furniture
and equipment 112,297 114,140
- ------------------------------------------------------------------
Total 166,754 167,787
Less accumulated depreciation
and amortization 102,422 102,014
- ------------------------------------------------------------------
Property, plant and equipment, net $ 64,332 $ 65,773
==================================================================
CREDIT ARRANGEMENTS -
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Revolving Credit Agreement - The corporation maintains a revolving
credit agreement involving several domestic and foreign lenders.
The agreement, which expires in January 2001, provides for an
aggregate maximum commitment of $250,000 with interest payable at
various market rates. The agreement was amended in 1997 to
specifically address the issuance of irrevocable letters of
credit which are treated in the same manner as borrowings under the
agreement. In due course, the corporation will plan to replace the
expiring agreement with another arrangement that meets its
financing requirements.
Short-Term Borrowings - Under its revolving credit agreement, the
corporation has the ability to borrow funds on both a short-term
and long-term basis. The corporation also has arrangements with
other banks, generally to borrow funds on a short-term basis with
interest at current market rates.
KAMAN CORPORATION AND SUBSIDIARIES Page 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Short-term borrowings outstanding are as follows:
December 31 1999 1998
- ------------------------------------------------------
Revolving credit agreement $ -- $ --
Other credit arrangements 2,854 3,141
- ------------------------------------------------------
Total $2,854 $3,141
======================================================
Long-Term Debt - The corporation has long-term debt as follows:
December 31 1999 1998
- -----------------------------------------------------------------
Revolving credit agreement $ -- $ --
Convertible subordinated debentures 28,206 29,866
- -----------------------------------------------------------------
Total 28,206 29,866
Less current portion 1,660 1,660
- -----------------------------------------------------------------
Total excluding current portion $26,546 $28,206
=================================================================
Restrictive Covenants - The most restrictive of the covenants
contained in the revolving credit agreement requires the
corporation to have operating income, as defined, at least equal to
275% of interest expense; consolidated total indebtedness to total
capitalization of not more than 55%; and consolidated net worth at
least equal to $200,000.
Certain Letters of Credit - The face amounts of irrevocable letters
of credit issued under the corporation's revolving credit agreement
totaled $47,208 and $53,944 at December 31, 1999 and 1998,
respectively.
Convertible Subordinated Debentures - The corporation issued its 6%
convertible subordinated debentures during 1987. The debentures are
convertible into shares of the Class A common stock of Kaman
Corporation at any time on or before March 15, 2012 at a conversion
KAMAN CORPORATION AND SUBSIDIARIES Page 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
price of $23.36 per share at the option of the holder unless
previously redeemed by the corporation. Pursuant to a sinking fund
requirement that began March 15, 1997, the corporation redeems
$1,660 of the outstanding principal amount of the debentures
annually. The debentures are subordinated to the claims of senior
debt holders and general creditors. These debentures have a fair
value of $27,360 at December 31, 1999 based upon current market
prices.
Long-Term Debt Annual Maturities - The aggregate amounts of annual
maturities of long-term debt for each of the next five years is
$1,660.
Interest Payments - Cash payments for interest were $2,426, $2,565
and $8,695 for 1999, 1998 and 1997, respectively.
ADVANCES ON CONTRACTS
Advances on contracts include customer advances together with
customer payments and billings associated with the achievement of
certain contract milestones in excess of costs incurred for SH-2G
helicopter contracts. Virtually all of the customer advances
continue to be secured by letters of credit. It is anticipated
that the face amounts of these letters of credit will be further
reduced as various contract milestones are achieved.
INCOME TAXES
The components of income taxes are as follows:
1999 1998 1997
- -----------------------------------------------------------
Current:
Federal $ 13,824 $ 15,650 $ 36,532
State 2,376 4,500 9,550
- -----------------------------------------------------------
16,200 20,150 46,082
- -----------------------------------------------------------
Deferred:
Federal (650) 150 2,968
State (150) 50 750
- -----------------------------------------------------------
(800) 200 3,718
- -----------------------------------------------------------
Total $ 15,400 $ 20,350 $ 49,800
===========================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
The components of the deferred tax assets and deferred tax
liabilities are presented below:
December 31 1999 1998
- ----------------------------------------------------------------
Deferred tax assets:
Long-term contracts $ 1,474 $ 1,756
Deferred employee benefits 14,309 15,961
Inventory 4,619 1,529
Accrued liabilities and other items 7,698 7,879
- ----------------------------------------------------------------
Total deferred tax assets 28,100 27,125
- ----------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (7,834) (7,730)
Other items (3,766) (3,695)
- ----------------------------------------------------------------
Total deferred tax liabilities (11,600) (11,425)
- ----------------------------------------------------------------
Net deferred tax asset $ 16,500 $ 15,700
================================================================
No valuation allowance has been recorded because the corporation
believes that these deferred tax assets will, more likely than not,
be realized. This determination is based largely upon the
corporation's historical earnings trend as well as its ability to
carryback reversing items within two years to offset taxes paid. In
addition, the corporation has the ability to offset deferred tax
assets against deferred tax liabilities created for such items as
depreciation and amortization.
The provisions for federal income taxes approximate the
amounts computed by applying the U.S. federal income tax rate to
earnings before income taxes after giving effect to state income
taxes. In 1999, the consolidated effective tax rate was lower due
to the reversal of prior years' tax accruals of $1,250. Cash
payments for income taxes were $18,204, $51,590 and $8,623 in 1999,
1998 and 1997, respectively.
PENSION PLAN
The corporation has a non-contributory defined benefit pension plan
covering all of its full-time employees. Benefits under this plan
are generally based upon an employee's years of service and
KAMAN CORPORATION AND SUBSIDIARIES Page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
compensation levels during employment with an offset provision for
social security benefits. It is the corporation's policy to fund
pension costs accrued. Plan assets are invested in a diversified
portfolio consisting of equity and fixed income securities
(including $9,818 of Class A common stock of Kaman Corporation at
December 31, 1999).
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
1999 1998 1997
- ----------------------------------------------------------------------
Service cost for benefits earned
during the year $ 9,837 $ 8,794 $ 10,424
Interest cost on projected
benefit obligation 20,348 19,648 20,010
Expected return on plan assets (25,998) (22,757) (22,277)
Net amortization and deferral (1,909) (1,909) (1,909)
- ----------------------------------------------------------------------
Net pension cost $ 2,278 $ 3,776 $ 6,248
======================================================================
The change in actuarial present value of the projected benefit
obligation is as follows:
December 31 1999 1998
- ---------------------------------------------------------------
Projected benefit obligation at
beginning of year $297,516 $261,127
Service cost 9,837 8,794
Interest cost 20,348 19,648
Actuarial liability (gain) loss (13,442) 22,387
Benefit payments (15,031) (14,440)
- ---------------------------------------------------------------
Projected benefit obligation at
end of year $299,228 $297,516
===============================================================
The actuarial liability (gain) loss of $(13,442) for 1999 and
$22,387 for 1998 consist principally of adjustments for changes in
the discount rate, average rate of increase in compensation levels
and mortality rate assumptions.
KAMAN CORPORATION AND SUBSIDIARIES Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
The change in fair value of plan assets is as follows:
December 31 1999 1998
- -------------------------------------------------------------------
Fair value of plan assets at
beginning of year $362,758 $322,010
Actual return on plan assets 65,252 50,991
Disposition of business units -- (337)
Employer contribution 2,379 4,534
Benefit payments (15,031) (14,440)
- -------------------------------------------------------------------
Fair value of plan assets at end of year $415,358 $362,758
===================================================================
December 31 1999 1998
- --------------------------------------------------------------------
Excess of assets over projected
benefit obligation $116,130 $ 65,242
Unrecognized prior service cost (345) (400)
Unrecognized net gain (112,987) (60,291)
Unrecognized net transition asset (3,707) (5,561)
- --------------------------------------------------------------------
Accrued pension cost $ 909 $ 1,010
====================================================================
The actuarial assumptions used in determining the funded
status of the pension plan are as follows:
December 31 1999 1998
- -------------------------------------------------------
Discount rate 7.5% 7%
Expected return on plan assets 8 5/8% 8 5/8%
Average rate of increase in
compensation levels 4.5% 4%
=======================================================
In connection with the sale of Kaman Sciences Corporation,
effective December 30, 1997, the corporation segregated
approximately $29,800 of its plan assets in anticipation of a
transfer of such assets to the buyer's pension plan
to cover the then estimated accrued benefit obligation for the
Kaman Sciences "active employee" group for which the buyer assumed
KAMAN CORPORATION AND SUBSIDIARIES Page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
responsibility. The present value of the accrued benefit obligation
was determined using the December 1997 PBGC interest rates used to
value annuities: 5.6% for the 25 years immediately following the
valuation date and 5.0% thereafter, among other assumptions
including mortality and estimated retirement ages. In the second
quarter of 1998, the sum of $30,137 was transferred to the buyer's
pension trust.
The company also has a thrift and retirement plan in which all
employees meeting the eligibility requirements may participate.
Employer matching contributions are currently made to the plan with
respect to a percentage of each participant's pre-tax contribution.
Company contributions to the plan totaled $1,691, $1,683 and $2,612
in 1999, 1998, and 1997, respectively.
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 2000 to
December 2004. Certain annual rentals are subject to renegotiation,
with certain leases renewable for varying periods. Lease periods
for machinery and equipment vary from 1 to 5 years.
Substantially all real estate taxes, insurance and maintenance
expenses are obligations of the corporation. It is expected that in
the normal course of business, leases that expire will be renewed
or replaced by leases on other properties.
The following future minimum rental payments are required under
operating leases that have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1999:
2000 $10,578
2001 5,539
2002 3,636
2003 1,172
2004 523
Thereafter --
- --------------------------------------------
Total $21,448
============================================
Lease expense for all operating leases, including leases with
terms of less than one year, amounted to $15,413, $14,683 and
$15,311 for 1999, 1998 and 1997, respectively.
KAMAN CORPORATION AND SUBSIDIARIES Page 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
From time to time, the corporation is subject to various claims and
suits arising out of the ordinary course of business, including
commercial, employment and environmental matters. While the
ultimate result of all such matters is not presently determinable,
based upon its current knowledge, management does not expect that
their resolution will have a material adverse effect on the
corporation's consolidated financial position.
COMPUTATION OF EARNINGS PER COMMON SHARE
The earnings per common share - basic computation is based on the
earnings applicable to common stock divided by the weighted average
number of shares of common stock outstanding for each year. In
1997, the preferred stock dividend on the then outstanding Series 2
preferred stock was deducted from net earnings to arrive at
earnings applicable to common stock.
The earnings per common share - diluted computation includes
the common stock equivalency of options granted to employees under
the Stock Incentive Plan. The earnings per common share - diluted
computation also assumes that at the beginning of the year the 6%
convertible subordinated debentures are converted into Class A
common stock with the resultant reduction in interest costs net of
tax. During 1997, the then outstanding Series 2 preferred stock is
assumed converted into Class A common stock eliminating the
preferred stock dividend requirement. Excluded from the earnings
per common share - diluted calculation are options granted to
employees that are anti-dilutive based on the average stock price
for the year.
KAMAN CORPORATION AND SUBSIDIARIES Page 27
1999 1998 1997
- -------------------------------------------------------------------
Earnings per common share - basic
Earnings applicable to
common stock $25,073 $30,008 $66,788
====================================================================
Weighted average shares
outstanding (000) 23,468 23,407 18,941
====================================================================
Earnings per common
share - basic $ 1.07 $ 1.28 $ 3.53
====================================================================
Earnings per common share - diluted
Earnings applicable
to common stock $25,073 $30,008 $66,788
Plus: Dividends on
Series 2 preferred stock -- -- 3,716
After-tax interest savings on
convertible debentures 1,046 1,075 1,188
- --------------------------------------------------------------------
Earnings applicable to common
stock assuming conversion $26,119 $31,083 $71,692
====================================================================
Weighted average shares
outstanding (000) 23,468 23,407 18,941
Plus shares issuable on:
Conversion of Series 2
preferred stock -- 282 4,523
Conversion of 6% convertible
debentures 1,221 1,293 1,359
Exercise of dilutive options 121 253 285
- --------------------------------------------------------------------
Weighted average shares
outstanding assuming
conversion (000) 24,810 25,235 25,108
====================================================================
Earnings per common
share - diluted $ 1.05 $ 1.23 $ 2.86
====================================================================
As of December 23, 1997, 95,106 shares of the corporation's Series
2 preferred stock were converted to Class A common stock pursuant
to a call for partial redemption issued on November 20, 1997.
Pursuant to a redemption call on January 8, 1998 for the balance of
the Series 2 preferred stock, the remaining shares were converted
into 3,000,174 shares of Class A common stock as of February 9,
1998. An immaterial amount of Series 2 preferred stock shares were
redeemed by the corporation and settled in cash.
KAMAN CORPORATION AND SUBSIDIARIES Page 28
STOCK PLANS
Employees Stock Purchase Plan - The Kaman Corporation Employees
Stock Purchase Plan allows employees to purchase Class A common
stock of the corporation, through payroll deductions, at 85% of the
market value of shares at the time of purchase. The plan provides
for the grant of rights to employees to purchase a maximum of
1,500,000 shares of Class A common stock. There are no charges or
credits to income in connection with the plan. During 1999, 140,620
shares were issued to employees at prices ranging from $9.03 to
$13.49 per share. During 1998, 115,374 shares were issued to
employees at prices ranging from $12.43 to $16.47 per share. During
1997, 177,523 shares were issued to employees at prices ranging
from $10.84 to $16.79 per share. At December 31, 1999, there were
approximately 1,244,000 shares available for offering under the
plan.
Stock Incentive Plan - The corporation maintains a Stock Incentive
Plan which includes a continuation and extension of a predecessor
stock incentive program. The Stock Incentive Plan provides for the
grant of non-statutory stock options, incentive stock options,
restricted stock awards and stock appreciation rights primarily to
officers and other key employees. Effective November 18, 1997, the
number of shares of Class A common stock reserved for issuance
under this plan was increased by 1,250,000 shares to a total of
2,210,000 shares.
Stock options are generally granted at prices not less than the
fair market value at the date of grant. Options granted under the
plan generally expire ten years from the date of grant and are
exercisable on a cumulative basis with respect to 20% of the
optioned shares on each of the five anniversaries from the
date of grant. Restricted stock awards are generally granted with
restrictions that lapse at the rate of 20% per year and are
amortized accordingly. These awards are subject to forfeiture if a
recipient separates from service with the corporation. Stock
appreciation rights generally expire ten years from the date
of grant and are exercisable on a cumulative basis with respect to
20% of the rights on each of the five anniversaries from the date
of grant.
Restricted stock awards were made for 91,000 shares at prices
ranging from $11.81 to $14.50 per share in 1999, 62,500 shares at
prices ranging from $17.00 to $19.25 per share in 1998 and 62,900
shares at prices ranging from $12.13 to $14.63 per share in 1997.
At December 31, 1999, there were 168,500 shares remaining subject
to restrictions pursuant to these awards. Stock appreciation
rights were issued for 270,000 shares at prices ranging from $14.13
to $14.50 per share in 1999, 165,000 shares at $17.00 per share in
1998 and 350,000 shares at $13.25 per share in 1997, to be settled
only for cash. The corporation recorded $203 and $500 in expense in
1998 and 1997, respectively, for these stock appreciation rights,
and $703 of income in 1999 due to the grant price being higher than
the market price at December 31, 1999.
KAMAN CORPORATION AND SUBSIDIARIES Page 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Stock option activity is as follows:
Weighted-
average
exercise
Stock options outstanding: Options price
- ---------------------------------------------------------------------
Balance at January 1, 1997 764,980 $ 9.30
Options granted 193,700 13.41
Options exercised (147,720) 8.28
Options cancelled (19,880) 9.33
- ---------------------------------------------------------------------
Balance at December 31, 1997 791,080 10.50
Options granted 205,000 17.00
Options exercised (79,845) 8.94
Options cancelled (121,415) 10.56
- ---------------------------------------------------------------------
Balance at December 31, 1998 794,820 12.32
Options granted 312,800 14.38
Options exercised (26,760) 9.56
Options cancelled (39,850) 14.25
- ---------------------------------------------------------------------
Balance at December 31, 1999 1,041,010 $ 12.94
=====================================================================
Weighted average contractual life
remaining at December 31, 1999 6.7 years
=====================================================================
Range of exercise prices for options $7.50- $12.26-
outstanding at December 31, 1999 $ 12.25 $ 17.06
- ---------------------------------------------------------------------
Options outstanding 395,380 645,630
Options exercisable 336,540 102,180
Weighted average contractual remaining
life of options outstanding 4.1 years 8.3 years
Weighted average exercise price:
Options outstanding $ 9.72 $ 14.91
Options exercisable $ 9.58 $ 14.79
=====================================================================
As of December 31, 1998 and 1997, there were 349,950 and 378,300
options exercisable, respectively.
As permitted by the Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," the
corporation has elected to continue following the guidance of
KAMAN CORPORATION AND SUBSIDIARIES Page 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," for measurement and recognition of
stock-based transactions with employees. Accordingly, no
compensation cost has been recognized for its stock plans other
than for the restricted stock awards and stock appreciation rights.
Under the disclosure alternative of SFAS 123, the pro forma net
earnings and earnings per common share information presented below
includes the compensation cost of stock options issued to employees
based on the fair value at the grant date and includes compensation
cost for the 15% discount offered to participants in the employees
stock purchase plan.
1999 1998 1997
- ------------------------------------------------------------------
Net earnings:
As reported $25,073 $30,008 $70,504
Pro forma 24,497 29,534 70,075
Earnings per common share - basic:
As reported 1.07 1.28 3.53
Pro forma 1.04 1.26 3.50
Earnings per common share - diluted:
As reported 1.05 1.23 2.86
Pro forma 1.03 1.22 2.86
- ------------------------------------------------------------------
The fair value of each option grant is estimated on the
date of grant by using the Black-Scholes option-pricing
model. The following weighted-average assumptions were
used for grants in 1999, 1998, and 1997:
1999 1998 1997
- ------------------------------------------------------------------
Expected dividend yield 3.1% 2.6% 3.3%%
Expected volatility 34% 31% 24%
Risk-free interest rate 5.3% 5.6%% 6.4%
Expected option lives 8 years 8 years 8 years
Per share fair value of
options granted $4.75 $5.78 $3.65
==================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
SEGMENT INFORMATION
The corporation reports results in three business segments --
Aerospace, Industrial Distribution and Music Distribution.
The Aerospace segment consists primarily of aerospace related
business for government and commercial markets, including the
retrofit of SH-2 helicopters from the SH-2F to the SH-2G
configuration as well as support services, logistics
and spare parts for that helicopter; manufacture of the K-MAX
helicopter together with spare parts and technical support;
subcontract work consisting of fabrication of airframe
substructures; and production of self-lubricating bearings and
couplings for commercial aircraft applications.
The Industrial Distribution segment provides replacement parts,
including bearings, power transmission, motion control and
materials handling components to nearly every sector of industry in
North America, along with industrial engineering support services.
Operations are conducted from many locations across the United
States and British Columbia, Canada. In 1999, the segment took
a pre-tax charge of $12,382 to write-off inventory and streamline
its operational structure and increase efficiency.
The Music Distribution segment consists of distribution of music
instruments and accessories in the U.S. and abroad through offices
in the U.S. and Canada. Music operations also include some
manufacture of guitars. On June 27, 1997, the corporation sold its
amplifier manufacturing business located in Great Britain.
The Scientific Services segment which consisted of Kaman
Sciences Corporation, an information technology and services
operation, was sold on December 30, 1997.
Summarized financial information by business segment is as
follows:
KAMAN CORPORATION AND SUBSIDIARIES Page 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1999 1998 1997
- -------------------------------------------------------------------------
Net sales:
Aerospace $ 371,757 $ 382,697 $ 288,407
Scientific Services -- -- 145,086
Industrial Distribution 493,779 503,532 478,879
Music Distribution 116,924 118,312 130,993
- -------------------------------------------------------------------------
$ 982,460 $1,004,541 $1,043,365
=========================================================================
Operating profit:
Aerospace $ 44,023 $ 43,304 $ 31,312
Scientific Services -- -- 13,629
Industrial Distribution 2,908 18,550 20,017
Music Distribution 5,627 5,315 (1,279)
- -------------------------------------------------------------------------
52,558 67,169 63,679
Net gain on sale of businesses -- -- 80,351
Interest, corporate and other
expense, net 12,085 (16,811) (23,726)
- -------------------------------------------------------------------------
Earnings before income taxes $ 40,473 $ 50,358 $ 120,304
=========================================================================
Identifiable assets:
Aerospace $ 251,443 $ 294,566 $ 265,746
Scientific Services -- -- --
Industrial Distribution 141,913 160,873 156,816
Music Distribution 53,714 54,577 55,207
Corporate 87,133 77,214 120,392
- -------------------------------------------------------------------------
$ 534,203 $ 587,230 $ 598,161
=========================================================================
Capital expenditures:
Aerospace $ 6,631 $ 11,369 $ 6,444
Scientific Services -- -- 1,247
Industrial Distribution 2,398 3,568 3,682
Music Distribution 1,773 1,770 1,943
Corporate 162 2,477 374
- -------------------------------------------------------------------------
$ 10,964 $ 19,184 $ 13,690
=========================================================================
Depreciation and amortization:
Aerospace $ 5,963 $ 5,586 $ 5,188
Scientific Services -- -- 2,266
Industrial Distribution 3,395 3,077 2,676
Music Distribution 1,508 1,317 1,271
Corporate 1,132 1,088 822
- -------------------------------------------------------------------------
$ 11,998 $ 11,068 $ 12,223
=========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1999 1998 1997
- ----------------------------------------------------------------------------
Geographic information - sales:
United States $ 724,079 $ 780,961 $ 926,495
Australia/New Zealand 200,796 158,068 41,809
Canada 28,724 35,438 32,873
Europe 11,590 11,980 21,121
Japan 10,172 9,527 10,944
Other 7,099 8,567 10,123
- ----------------------------------------------------------------------------
$ 982,460 $1,004,541 $1,043,365
============================================================================
Operating profit is total revenues less cost of sales and selling,
general and administrative expense other than general corporate
expense.
Identifiable assets are year-end assets at their respective net
carrying value segregated as to segment and corporate use.
Corporate assets are principally cash and cash equivalents and net
property, plant and equipment.
Net sales by the Aerospace and Scientific Services segments made
under contracts with U.S. Government agencies (including sales to
foreign governments through foreign military sales contracts with
U.S. Government agencies) account for $72,285 in 1999, $92,539 in
1998 and $262,405 in 1997.
Sales made by the Aerospace segment under a contract with one
customer were $145,006 and $119,222 in 1999 and 1998, respectively.
KAMAN CORPORATION AND SUBSIDIARIES Page 34
KPMG LLP
Certified Public Accountants
CityPlace II
Hartford, Connecticut 06103
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KAMAN CORPORATION:
We have audited the accompanying consolidated balance sheets of
Kaman Corporation and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 1999.
These consolidated financial statements are the responsibility of
the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Kaman Corporation and subsidiaries at December 31, 1999
and 1998 and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
1999 in conformity with generally accepted accounting principles.
KPMG LLP
January 24, 2000
KAMAN CORPORATION AND SUBSIDIARIES Page 35
FIVE-YEAR SELECTED FINANCIAL DATA
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts, shareholders and employees)
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
OPERATIONS:
Revenues $984,233 $1,006,006 $1,044,815 $953,654 $899,476
Cost of sales 735,982* 741,719 787,971 708,505 666,761
Selling, general and
administrative expense 204,172 212,724 208,763 193,747 190,604
Restructuring, impairment
and other costs 4,132 -- -- -- --
Operating income (loss) 39,947 51,563 48,081 51,402 42,111
Net gain on sale of businesses -- -- 80,351 -- --
Interest expense(income),net (1,614) (353) 7,894 10,023 8,834
Other expense(income),net 1,088 1,558 234 702 546
Earnings(loss)before
income taxes 40,473 50,358 120,304 40,677 32,731
Income taxes (benefit) 15,400 20,350 49,800 17,100 13,129
Net earnings (loss) 25,073 30,008 70,504 23,577 19,602
FINANCIAL POSITION:
Current assets $460,111 $516,504 $535,304 $434,131 $404,864
Current liabilities 168,374 228,975 259,525 195,638 206,273
Working capital 291,737 287,529 275,779 238,493 198,591
Property, plant and
equipment, net 64,332 65,773 57,625 76,393 83,054
Total assets 534,203 587,230 598,161 521,736 500,069
Long-term debt 26,546 28,206 29,867 83,940 66,386
Shareholders' equity 316,377 309,494 290,010 228,130 214,283
PER SHARE AMOUNTS:
Net earnings(loss)per
common share - basic $ 1.07 $ 1.28 $ 3.53 $ 1.07 $ .87
Net earnings(loss)per
common share-diluted 1.05 1.23 2.86 1.00 .85
Dividends declared -
Series 2 preferred stock -- -- 13.00 13.00 13.00
Dividends declared -
common stock .44 .44 .44 .44 .44
Shareholders' equity -
common stock 13.68 13.07 12.25 9.13 8.52
Market price range 16 1/8 20 3/8 20 3/8 13 3/8 13 3/8
10 1/16 13 12 9 3/8 10
GENERAL STATISTICS:
Shareholders 6,522 6,921 7,291 7,632 7,646
Employees 4,016 4,276 4,318 5,476 5,400
============================================================================
*Cost of sales for 1999 includes the write-off of inventory of $8,250
associated with the charge taken in the Industrial Distribution segment.
KAMAN CORPORATION AND SUBSIDIARIES Page 36