Five-Year Selected Financial Data
Kaman Corporation and Subsidiaries
(In thousands except per share amounts, shareholders and employees)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
OPERATIONS:
Revenues $1,032,326 $ 997,177 $1,018,589 $1,056,289 $ 964,548
Cost of sales 774,264 751,291* 756,057 801,088 721,088
Selling, general
and administrative
expense 202,319 201,807 210,969 207,120 192,058
Restructuring
costs (1,680) 4,132 -- -- --
Operating income 57,423 39,947 51,563 48,081 51,402
Net gain on sale
of businesses -- -- -- 80,351 --
Interest expense
(income), net (1,660) (1,614) (353) 7,894 10,023
Other expense,
net 1,363 1,088 1,558 234 702
Earnings before
income taxes 57,720 40,473 50,358 120,304 40,677
Income taxes 20,800 15,400 20,350 49,800 17,100
Net earnings 36,920 25,073 30,008 70,504 23,577
FINANCIAL POSITION:
Current assets $ 482,000 $ 460,111 $ 516,504 $ 535,304 $ 434,131
Current liabilities 173,342 168,374 228,975 259,525 195,638
Working capital 308,658 291,737 287,529 275,779 238,493
Property, plant
and equipment, net 63,705 64,332 65,773 57,625 76,393
Total assets 553,830 534,203 587,230 598,161 521,736
Long-term debt 24,886 26,546 28,206 29,867 83,940
Shareholders' equity 332,046 316,377 309,494 290,010 228,130
PER SHARE AMOUNTS:
Net earnings per
common share
- basic $ 1.61 $ 1.07 $ 1.28 $ 3.53 $ 1.07
Net earnings per
common share
- diluted 1.57 1.05 1.23 2.86 1.00
Dividends declared
- Series 2 preferred
stock -- -- -- 13.00 13.00
Dividends declared
- common stock .44 .44 .44 .44 .44
Shareholders' equity
- common stock 14.92 13.68 13.07 12.25 9.13
Market price range 17.75 16.13 20.38 20.38 13.38
8.77 10.06 13.00 12.00 9.38
Page 1
Five-Year Selected Financial Data
Kaman Corporation and Subsidiaries
(In thousands except per share amounts, shareholders and employees)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
AVERAGE COMMON SHARES
OUTSTANDING:
Basic 22,936 23,468 23,407 18,941 18,607
Diluted 24,168 24,810 25,235 25,108 24,709
GENERAL STATISTICS:
Registered shareholders 6,136 6,522 6,921 7,291 7,632
Employees 3,825 4,016 4,276 4,318 5,476
====== ====== ====== ====== ======
* Cost of sales for 1999 includes the write-off of inventory of $8,250
associated with the charge taken in the Industrial Distribution segment.
Page 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
RESULTS OF OPERATIONS
Consolidated revenues were approximately $1.0 billion for
2000, 1999, and 1998. Each of the corporation's business segments
had increased revenues for 2000. In the Aerospace segment,
helicopter programs and the aircraft structures and components
business were significant revenue contributors.
Results for 1999 compared to 1998 reflect the Aerospace
segment's ongoing performance of Australia and New Zealand SH-2G
contracts, offset by lower revenues in the K-MAX(Registered
Trademark) helicopter program and in the aerospace structures and
components business. Results for 1998 reflect the first full year
of performance
for the Australia and New Zealand SH-2G programs.
Aerospace segment net sales increased 2.7% in 2000 compared to
a decrease of 2.9% in 1999 and an increase of 33% in 1998.
The Aerospace segment's programs include the SH-2G
multi-mission naval helicopter and the K-MAX medium-to-heavy lift
helicopter (which together currently constitute about 60% of
segment sales), aircraft structures subcontract work, and the
manufacture of components such as self-lubricating bearings and
driveline couplings for aircraft applications (currently about 30%
of segment sales) and advanced technology products (currently about
10% of segment sales).
The SH-2G helicopter program (which constitutes the primary
component of the segment's total helicopter program sales)
generally involves retrofit of the corporation's SH-2F helicopters,
previously manufactured for the U.S. Navy (and in 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 New Zealand involves five (5) aircraft, and
support, for the Royal New Zealand Navy. The contract has an
anticipated value of $180 million (US), of which about 84% has now
been recorded as revenue. Deliveries are scheduled to begin during
the first quarter of 2001.
The program for Australia involves eleven (11) helicopters
with support, including a support services facility, for the Royal
Australian Navy. The total contract has an anticipated value of
about $680 million (US). The helicopter production portion of the
Page 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
work is valued at $559 million and about 75% of that amount has now
been recorded as revenue. The SH-2G(A) helicopter for Australia
will contain an integrated tactical avionics system ("ITAS") that
will provide the most sophisticated, integrated cockpit and weapons
system available in an intermediate-weight helicopter. Litton
Guidance and Control Systems, a division of Litton Systems, Inc.
and Litton Industries, Inc., has been a major subcontractor for
both the Australia and New Zealand programs, being responsible
for providing avionics system hardware and integration software. In
addition, Litton has been the designer and integrator of the ITAS
system specific to the Australia program. Litton had stated that it
was incurring additional costs to perform its fixed price contract
with the corporation for the Australia program and submitted claims
for such costs to the corporation during 2000. The corporation's
evaluation of the matter was different from Litton's and the
corporation had, in turn, submitted claims to Litton. In an effort
to resolve the entire matter, the parties conducted a mediation in
early February 2001. As a result of that process, the parties
arrived at an agreement in principle, under which the corporation
will make certain milestone payments to Litton as it completes
work on hardware and certain software contemplated under the fixed
price contract and Litton will release its claims against the
corporation. In return, Litton will transfer to the corporation a
software integration laboratory, software and intellectual property
rights and the corporation will release its claims against Litton.
In addition, upon performance of the items described above,
Litton's significant project responsibilities for the Australia
program will end and the corporation will assume responsibility for
several remaining elements of the project. Management has already
begun to work with identified subcontractors (who must be
acceptable to the Australian government) to negotiate contracts to
perform those elements. As these contracts are developed, the
overall impact of resolution of the Litton matter upon costs and
profitability for the Australia program will become better
understood. There will be a delay in delivery of the full ITAS
system to the Australian government, although deliveries of
helicopters without the full ITAS system are scheduled to begin in
the first quarter of 2001 and the corporation is working with the
Royal Australian Navy to coordinate these deliveries.
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.
Management expects that as deliveries to New Zealand and
Australia occur, revenues from SH-2G helicopter programs will
decrease in 2001.
Page 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
The corporation continues its marketing program to build and
enhance familiarization with the SH-2G's capabilities among various
governments around the world. This market is highly competitive,
takes time to develop, and is influenced by economic and political
conditions. The corporation continues to actively pursue this
business, including possible further orders from current customers.
The SH-2 is an aircraft that was originally manufactured for
the United States Navy. This is no longer done, however the U.S.
Naval Reserve currently maintains five (5) 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 taken a consignment of the U.S.
Navy's inventory of SH-2 spare parts and has executed a longer term
agreement with the Department of the Navy. 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.
During 2000, the corporation sold four (4) K-MAX helicopters
to commercial customers operating in the U.S., Europe and Taiwan,
principally for logging and construction. In December, the
corporation was awarded a $21 million contract from the U.S. State
Department for the purchase of five (5) K-MAX helicopters,
equipment and spare parts to be used in Peru in support of anti-
drug efforts. The corporation recognized revenue from two (2) of
these aircraft in 2000 and the contract is expected to be completed
during the second quarter of 2001. The corporation continues its
efforts to refocus sales development on global market opportunities
in industry and government, including oil and gas exploration,
power line and other utility construction, fire fighting, law
enforcement, and the movement of equipment. The K-MAX program,
which began in late 1994, has experienced significant market
difficulties during the past few years, due in part to conditions
in the commercial logging industry, the aircraft's principal
application to date . Overall, management expects that successful
sales development 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. Although the segment experienced some softness in the
market during the year, there are signs that the commercial
aircraft market is strengthening. The corporation has been
pursuing opportunities and won several significant contracts during
2000. Specifically, MD Helicopters selected the corporation to
supply fuselages for its entire line of single-engine helicopters,
Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
including the MD600N, MD520N, MD530F and MD500E helicopters. This
multi-year program has an estimated potential value of $100
million. MD Helicopters also selected the corporation to supply
composite rotor systems for its MD Explorer helicopter under a
multi-year contract with an estimated potential value, including
options, of $75 million. Boeing, an important customer of the
segment, awarded the corporation a three-year follow-on contract to
supply structural parts for Boeing's line of commercial aircraft,
including fixed trailing edge kits for Boeing 777 and 767 aircraft
and other parts and subassemblies for those aircraft as well as the
737, 747 and 757 aircraft. The Boeing contract has an estimated
potential value of $98 million and contains a three-year option.
The Aerospace segment also produces advanced technology
products, including missile fuzing devices, precision measuring
systems, electromagnetic motors and electro-optic devices. During
2000, the corporation was chosen by Litton Ingalls Shipbuilding as
part of a Newport News Shipbuilding-led team to begin preliminary
design of electric propulsion motors and drive electronics in an
industry competition for the U.S. Navy's proposed next-generation
DD-21 destroyer.
The Aerospace segment is continuing to implement lean-
thinking strategies throughout the organization in order to further
enhance efficiency and reduce costs.
Industrial Distribution segment net sales increased 3.1% in
2000, decreased 1.8% in 1999, and increased 5.3% in 1998. In 2000,
the segment benefited from healthy market conditions and the
internal initiatives implemented early in the year in order to
increase efficiency and service to customers. These initiatives
included consolidation of branch operations, a reorganization of
its sales, marketing and field management structure, and enhanced
inventory controls. Since the segment's customers include nearly
every sector of U.S. industry, this business tends to be influenced
by industrial production levels. Sales in the fourth quarter of
2000 were affected by weakness in industrial production levels
and management is closely monitoring the economic situation.
During 2000, the Industrial Distribution segment implemented its
Internet e-Commerce site which contains a complete catalog of
product offerings (with more than one million industrial products)
and provides an important new channel for both current and new
customers to transact business with the segment.
Music Distribution segment net sales increased 8.6% in 2000, and
decreased by 1.4% in 1999 and 9.5% in 1998. Results in 2000 reflect
improvement in domestic markets and some increase in demand
internationally. The segment is working to improve its market share
for existing brands and is adding products that meet the needs
Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
of its dealer base. During 2000, the segment was selected by Fred
Gretsch Enterprises to assume global sales and marketing
responsibility for Gretsch(Registered Trademark) brand professional
quality drum products, a business that complements the segment's
current drum set offerings.
Total operating profit in 2000 for all the corporation's
business segments was $74.6 million compared to $52.6 million for
1999, due to good earnings performance on the part of each business
segment and to some degree a pretax charge described below relating
to the Industrial Distribution segment. Total operating profit for
all the corporation's business segments in 1998 was $67.2 million.
Operating profit for the Aerospace segment in 2000 was $44.2
million compared to $44.0 million for 1999, the SH-2G helicopter
programs and aircraft structures and components business being the
primary contributors. This performance was offset by a loss in the
K-MAX program which continues to require investment for technical
work and market development. Also included in operating profit for
1999 was a reversal of a reserve in the amount of $2.5 million that
was associated with the Raymond Engineering (now part of Kaman
Aerospace) operation. Operating profit for the Industrial
Distribution segment in 2000 was $22.9 million compared to $2.9
million in 1999, due to healthy market conditions during most of
the year and internal initiatives undertaken early in the year to
improve efficiency and service to customers. The 1999 performance
reflects market weakness in several important customer industries
and a $12.4 million pretax charge taken in the fourth quarter of
that year as a result of a reorganization of operations, including
a closure of certain facilities and the write-off of excess
inventory. Of the charge, $1.7 million was unused and added
back to operating profit for 2000. Operating profit for the Music
Distribution segment in 2000 was $7.4 million compared to $5.6
million a year ago, due to improvements in domestic and
international markets and improved productivity.
Total operating profit in 1999, for all the corporation's
business segments was down 21.8% compared to 1998, due primarily to
the pretax charge in the Industrial Distribution segment described
above. Operating profit for the Aerospace segment increased 1.7%
for 1999, primarily due to the SH-2G helicopter programs and the
aircraft structures and components business, offset by losses
in the K-MAX program which continued to require investment for
technical work and market development and by continuing
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
difficulties in the segment's electromagnetics business in
developing new markets for niche market products (this operation
was merged with Kaman Aerospace during 1999). Also included in
operating profit for 1999 was the $2.5 million reserve reversal
attributable to Raymond Engineering. Operating profit for the
Industrial Distribution segment was down 84.3% for 1999, primarily
due to the pretax charge noted above and to weakness in certain
customer industries. 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 2000 were $36.9 million compared to $25.1
million in 1999 and $30.0 million in 1998. Net earnings per common
share were $1.57 per diluted share in 2000 compared to $1.05 per
diluted share in 1999. Net earnings for 2000 were affected
positively by the add-back of $1.7 million of the 1999 charge in
the Industrial Distribution segment that was unused. Net earnings
for 1999 were affected positively by the reversal of a $2.5 million
reserve in the Aerospace segment, described above, and negatively
by the $12.4 million charge in the Industrial Distribution segment
which is also described above.
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 impacted by the circumstances 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 per
share in 1998.
For the years ended December 31, 2000 and December 31, 1999,
interest income earned from investment of cash more than offset
interest expense. For 1998, interest expense decreased almost 68%,
primarily due to the application of a substantial portion of
advance payments received for the Australia and New Zealand SH-2G
helicopter programs and a portion of the proceeds from the sale of
the Scientific Services segment to pay bank debt.
The consolidated effective income tax rate was 36.0% for 2000,
38.1% for 1999, and 40.4% for 1998. The decrease in effective
income tax rates is due to the reversal of prior years' tax
accruals as a result of the corporation's ongoing assessment of its
open tax years and lower effective state income tax rates.
Effective December 31, 2000, the corporation adopted Emerging
Issues Task Force Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." Therefore, freight charged to customers
in the Industrial Distribution and Music Distribution segments is
now included in sales rather than as an offset to freight expense.
Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
Specifically, $14.0 million is included in sales for 2000 and prior
year amounts in these segments have been restated to conform to the
current presentation ($12.9 million in 1999 and $12.6 million in
1998).
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. The effective date of SFAS 133 was deferred one year by
SFAS 137 which was issued in 1999. As a result, the corporation
adopted the Standard effective January 1, 2001. Given the
corporation's minimal use of derivatives, initial adoption of
the Standard did not have a material impact on the corporation's
financial position or results of operations.
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.
For calendar year 2000, operating activities provided cash in
the amount of $8.4 million. Such activities were significantly
impacted by increases in accounts receivable for the Aerospace
segment's SH-2G helicopter programs. Increases in accounts payable
in the Aerospace and Music Distribution businesses offset this
impact to some degree. For the year, cash used in investing
activities was for items such as acquisition of machinery and
computer equipment used in manufacturing and distribution. Cash
used in financing activities was primarily attributable to the
payment of dividends to common shareholders, repurchase of Class A
common stock pursuant to a repurchase program for use in
administration of the corporation's stock plans and general
corporate purposes, and the sinking fund requirement for the
corporation's debentures (described below).
The corporation had approximately $48.2 million in cash and
cash equivalents at December 31, 2000 with an average balance of
$59.3 million for the year. These funds have been invested in high
quality, short-term instruments.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
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 administration of the corporation's stock plans and
general corporate purposes, and the sinking fund requirement for
the corporation's debentures (described below).
For calendar year 1998, operating activities used cash in the
amount of $16.4 million, principally due to increases in accounts
receivable and inventories in the Aerospace segment and payment of
taxes due on the Scientific Services segment sale that occurred in
1997, 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 in 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, and the sinking fund requirement for the
corporation's debentures (described below).
At December 31, 2000, the corporation had $26.5 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.
In February, 2000, the corporation's board of directors
approved a replenishment of the corporation's stock repurchase
program, providing for repurchase of an additional 1.4 million
Class A common shares for use in administration of the
corporation's stock plans and for general corporate purposes. In
November, 2000, the corporation's board of directors approved
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
another replenishment of the stock repurchase program, providing
for the repurchase of an aggregate of 1.4 million Class A common
shares for the same purposes. Approximately 1.1 million shares were
repurchased during 2000.
In November, 2000, the corporation entered into a new
revolving credit agreement to replace the agreement that was
scheduled to expire in January 2001. The new agreement involves
eight financial institutions, many of whom were participants in the
prior agreement and is suited to the corporation's projected
borrowing needs. The new agreement has a maximum unsecured line of
credit of $225 million which consists of a $150 million commitment
for five (5) years and a $75 million commitment under a "364 day"
arrangement which is renewable annually for an additional 364 days.
The most restrictive of the covenants contained in the new
agreement requires the corporation to have EBITDA, as defined, at
least equal to 300% of interest expense and a ratio of consolidated
total indebtedness to total capitalization of not more than 55%.
Letters of credit are generally considered borrowings for
purposes of the new revolving credit agreement as they were under
the prior 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 $41.2 million in accordance with the terms of the
relevant contracts. Further reductions are anticipated as certain
contract milestones are achieved.
For 2000, average bank borrowings were $2.3 million, compared
to $3.3 million for 1999 and 1998.
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.
Page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
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.
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, aircraft structures and components, the
industrial and music distribution 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) political
developments in countries where the corporation intends to do
business; 2) standard government contract provisions permitting
renegotiation of terms and termination for the convenience of the
government; 3) economic and competitive conditions in markets
served by the corporation, including industry consolidation in the
United States and global economic conditions; 4) timing of
satisfactory completion of the Australian SH-2G(A) program; 5) the
timing, degree and scope of market acceptance for products such as
a repetitive lift helicopter; 6) U.S. industrial production levels;
7) 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.
Page 12
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:
2000 $263,204 $259,610 $255,160 $253,260 $1,031,234
1999 252,734 249,483 245,247 247,940 995,404
GROSS PROFIT:
2000 $ 64,452 $ 63,482 $ 63,620 $ 65,416 $ 256,970
1999 64,288 63,225 62,155 54,445 244,113
NET EARNINGS:
2000 $ 8,556 $ 9,271 $ 9,535 $ 9,558 $ 36,920
1999 7,273 8,031 8,197 1,572 25,073
PER COMMON SHARE
- - BASIC:
2000 $ .37 $ .40 $ .41 $ .43 $ 1.61
1999 .31 .34 .35 .07 1.07
PER COMMON SHARE
- - DILUTED:
2000 $ .36 $ .39 $ .40 $ .42 $ 1.57
1999 .30 .33 .34 .07 1.05
======== ======== ======== ======== ==========
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.
Page 13
CONSOLIDATED BALANCE SHEETS
Kaman Corporation and Subsidiaries
(In thousands except share and per share amounts)
December 31 2000 1999
- ----------- ---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 48,157 $ 76,249
Accounts receivable 212,374 156,173
Inventories 196,148 199,731
Deferred income taxes 18,550 21,100
Other current assets 6,771 6,858
--------- ---------
Total current assets 482,000 460,111
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 63,705 64,332
OTHER ASSETS 8,125 9,760
--------- ---------
TOTAL ASSETS $ 553,830 $ 534,203
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,060 $ 2,854
Current portion of long-term debt 1,660 1,660
Accounts payable - trade 58,057 48,760
Accrued salaries and wages 9,824 9,778
Accrued vacations 5,954 6,069
Advances on contracts 41,905 50,243
Other accruals and payables 49,766 45,073
Income taxes payable 4,116 3,937
--------- ---------
Total current liabilities 173,342 168,374
--------- ---------
DEFERRED CREDITS 23,556 22,906
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 24,886 26,546
Page 14
CONSOLIDATED BALANCE SHEETS
Kaman Corporation and Subsidiaries
(In thousands except share and per share amounts)
December 31 2000 1999
- ----------- ---- ----
SHAREHOLDERS' EQUITY:
Capital stock, $1 par value per share:
Preferred stock, authorized
700,000 shares:
Series 2 preferred stock,
6 1/2% 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 2000
and 1999 23,066 23,066
Class B, authorized 1,500,000
shares, voting; issued 667,814
shares in 2000 and 1999 668 668
Additional paid-in capital 77,298 78,422
Retained earnings 251,526 224,702
Unamortized restricted stock awards (1,643) (1,944)
Accumulated other comprehensive
income (loss) (749) (625)
--------- ---------
350,166 324,289
Less 1,485,427 shares and 608,858
shares of Class A common stock in
2000 and 1999, respectively, held
in treasury, at cost (18,120) (7,912)
--------- ---------
Total shareholders' equity 332,046 316,377
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 553,830 $ 534,203
========= =========
See accompanying notes to consolidated financial statements.
Page 15
CONSOLIDATED STATEMENTS OF OPERATIONS
Kaman Corporation and Subsidiaries
(In thousands except per share amounts)
Year ended December 31 2000 1999 1998
- ---------------------- ---- ---- ----
REVENUES:
Net sales $1,031,234 $ 995,404 $1,017,124
Other 1,092 1,773 1,465
---------- -------- ----------
1,032,326 997,177 1,018,589
---------- -------- ----------
COSTS AND EXPENSES:
Cost of sales* 774,264 751,291 756,057
Selling, general and
administrative expense 202,319 201,807 210,969
Restructuring costs (1,680) 4,132 --
Interest expense (income), net (1,660) (1,614) (353)
Other expense, net 1,363 1,088 1,558
---------- --------- ----------
974,606 956,704 968,231
---------- --------- ----------
EARNINGS BEFORE INCOME TAXES 57,720 40,473 50,358
INCOME TAXES 20,800 15,400 20,350
---------- --------- ----------
NET EARNINGS $ 36,920 $ 25,073 $ 30,008
=========== ========= ==========
PER SHARE:
Net earnings per common
share:
Basic $ 1.61 $ 1.07 $ 1.28
Diluted 1.57 1.05 1.23
Dividends declared -
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.
Page 16
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Kaman Corporation and Subsidiaries
(In thousands except share amounts)
Year ended December 31 2000 1999 1998
- ---------------------- ---- ---- ----
SERIES 2 PREFERRED STOCK:
Balance - beginning of year $ -- $ -- $ 37,691
Shares converted -- -- (37,691)
------- ------- --------
Balance - end of year -- -- --
------- ------- --------
CLASS A COMMON STOCK:
Balance - beginning of year 23,066 23,066 19,936
Shares issued upon conversion -- -- 3,000
Shares issued - other -- -- 130
------- ------- --------
Balance - end of year 23,066 23,066 23,066
------- ------- --------
CLASS B COMMON STOCK 668 668 668
------- ------- --------
ADDITIONAL PAID-IN CAPITAL:
Balance - beginning of year 78,422 78,899 42,876
Conversion of Series 2
preferred stock -- -- 34,691
Employee stock plans (897) (463) 318
Restricted stock awards (227) (14) 1,014
------- ------- --------
Balance - end of year 77,298 78,422 78,899
------- ------- --------
RETAINED EARNINGS:
Balance - beginning of year 224,702 209,920 190,336
Net earnings 36,920 25,073 30,008
Dividends declared -
common stock (10,096) (10,291) (10,424)
-------- -------- --------
Balance - end of year 251,526 224,702 209,920
--------- -------- --------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance - beginning of year (1,944) (1,500) (1,147)
Stock awards issued (516) (1,288) (949)
Amortization of stock awards 817 844 596
--------- --------- ---------
Balance - end of year (1,643) (1,944) (1,500)
--------- --------- ---------
Page 17
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Kaman Corporation and Subsidiaries
(In thousands except share amounts)
Year ended December 31 2000 1999 1998
- ---------------------- ---- ---- ----
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS) :
Balance - beginning of year (625) (774) (320)
Foreign currency translation
adjustment* (124) 149 (220)
Reclassification adjustment -- -- (234)
--------- --------- ---------
Balance - end of year (749) (625) (774)
--------- --------- ---------
TREASURY STOCK:
Balance - beginning of year (7,912) (785) (30)
Shares acquired in 2000 -
1,126,888; 1999 - 802,721;
1998 - 131,462 (13,660) (10,596) (2,212)
Shares reissued under
various stock plans 3,452 3,469 1,457
--------- --------- ---------
Balance - end of year (18,120) (7,912) (785)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY $ 332,046 $ 316,377 $ 309,494
========= ========= =========
* Comprehensive income is $36,796, $25,222 and $29,788 for
2000, 1999, and 1998, respectively.
See accompanying notes to consolidated financial statements.
Page 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
Kaman Corporation and Subsidiaries
(In thousands except share amounts)
Year ended December 31 2000 1999 1998
- ---------------------- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 36,920 $ 25,073 $ 30,008
Adjustments to reconcile
net earnings to cash provided
by (used in) operating
activities:
Depreciation and
amortization 11,630 11,998 11,068
Restructuring costs (1,680) 4,132 --
Deferred income taxes (75) (800) 200
Other, net 6,551 3,690 2,805
Changes in current assets
and liabilities, net of
effects of businesses sold:
Accounts receivable (56,201) 52,077 (21,974)
Inventories* 3,583 8,166 (8,412)
Other current assets 87 2,591 768
Accounts payable - trade 9,297 (2,811) 6,307
Advances on contracts (8,338) (51,133) (3,347)
Accrued expenses and
payables 6,400 (8,449) (3,054)
Income taxes payable 179 (1,992) (30,799)
--------- --------- ---------
Cash provided by
(used in) operating
activities 8,353 42,542 (16,430)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses
and other assets 56 538 5,642
Expenditures for property,
plant and equipment (11,044) (10,964) (19,184)
Other, net (963) 194 (478)
--------- --------- ---------
Cash provided by
(used in) investing
activities (11,951) (10,232) (14,020)
--------- --------- ---------
Page 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Kaman Corporation and Subsidiaries
(In thousands except share amounts)
Year ended December 31 2000 1999 1998
- ---------------------- ---- ---- ----
CASH FLOWS FROM FINANCING
ACTIVITIES:
Changes in notes payable (794) (287) (2,406)
Reduction of long-term debt (1,660) (1,660) (1,661)
Proceeds from exercise of
employee stock plans 1,813 1,704 1,970
Purchases of treasury stock (13,660) (10,596) (2,212)
Dividends paid - common stock (10,193) (10,352) (10,085)
--------- --------- ---------
Cash provided by
(used in) financing
activities (24,494) (21,191) (14,394)
--------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (28,092) 11,119 (44,844)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 76,249 65,130 109,974
--------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 48,157 $ 76,249 $ 65,130
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During 1998, holders of the corporation's Series 2 preferred
stock converted 188,456 shares into 3,000,174 shares of Class A
common stock.
* 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.
Page 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(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
Page 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
depreciation are eliminated and any gain or loss is credited or
charged against income.
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 $5,463 in 2000, $4,877 in 1999,
and $8,534 in 1998.
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.
Recent Accounting Pronouncements - Effective December 31, 2000, the
corporation adopted Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." Therefore,
freight charged to customers in the Industrial Distribution and
Music Distribution segments is now included in sales rather than as
an offset to freight expense. Freight charged to customers was
$14,036, $12,944 and $12,583 for 2000, 1999 and 1998, respectively.
In addition, any freight expense previously recorded as part of
selling, general and administrative expenses has been reclassified
to cost of sales. All prior amounts have been restated to conform
to the current presentation.
RESTRUCTURING COSTS
In connection with the Industrial Distribution segment's
initiatives to streamline operational structure and increase
efficiency, the segment took a pretax 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 excess inventory totaled $8,250
and is included in cost of sales.
Of the total restructuring charge, approximately $1,300
related to severance costs for approximately 65 branch operations
and regional management employees that the segment expected to
Page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
separate from service in 2000. The remaining balance of the
restructuring charge related to costs to close down 10 branches and
three other facilities in 2000.
In the fourth quarter of 2000, the segment determined that the
cost for severance and facilities would be $1,680 lower than
originally planned and as a result, the segment recorded a
favorable change in estimate of that amount. The reduction in
severance costs of $686 is principally due to certain employees
transferring to other positions within the segment, which decreased
the number of people separated from service to 47. The reduction in
facilities costs of $994 is the result of favorable lease
terminations and more rapid exit from the various locations.
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31 2000 1999
- ----------- ---- ----
Trade receivables, net of allowance
for doubtful accounts of $4,636
in 2000, $4,519 in 1999 $ 72,248 $75,377
U.S. Government contracts:
Billed 6,996 9,938
Recoverable costs and accrued
profit - not billed 22,954 24,611
Commercial and other government contracts:
Billed 33,510 20,419
Recoverable costs and accrued
profit - not billed 76,666 25,828
-------- --------
Total $212,374 $156,173
======== ========
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 $1,328 of such costs and
accrued profits at December 31, 2000 will be collected after
one year.
Page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
INVENTORIES
Inventories are comprised as follows:
December 31 2000 1999
- ----------- ---- ----
Merchandise for resale $ 88,640 $ 89,184
Contracts in process:
U.S. Government 3,723 4,951
Commercial 10,312 7,844
Other work in process (including
certain general stock materials) 51,883 39,192
Finished goods 41,590 58,560
-------- --------
Total $196,148 $199,731
======== ========
Included above in other work in process and finished goods
at December 31, 2000 and 1999 is K-MAX inventory of $78,638
and $87,384, respectively.
The aggregate amounts of general and administrative costs
allocated to contracts in process during 2000, 1999 and 1998
were $53,387, $49,752, and $55,178, respectively.
The estimated amounts of general and administrative costs
remaining in contracts in process at December 31, 2000 and 1999
amount to $2,115, and $1,138, respectively, and are based on the
ratio of such allocated costs to total costs incurred.
Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and summarized
as follows:
December 31 2000 1999
- ----------- ---- ----
Land $ 6,230 $ 6,212
Buildings 34,637 34,640
Leasehold improvements 14,979 13,605
Machinery, office furniture
and equipment 115,049 112,297
-------- --------
Total 170,895 166,754
Less accumulated depreciation
and amortization 107,190 102,422
-------- --------
Property, plant and equipment, net $ 63,705 $ 64,332
======== ========
CREDIT ARRANGEMENTS -
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Revolving Credit Agreement - On November 13, 2000, the corporation
entered into a new revolving credit agreement with several banks to
replace its then existing revolving credit agreement. The new
agreement has a maximum unsecured line of credit of $225,000 which
consists of a $150,000 commitment expiring in November 2005 and a
$75,000 commitment under a "364 Day" arrangement which is renewable
annually for an additional 364 days. Outstanding letters of credit
at November 13, 2000, were transferred to the new revolving credit
agreement at that time and are also considered to be indebtedness
under the new agreement.
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.
Page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
Short-term borrowings outstanding are as follows:
December 31 2000 1999
- ----------- ---- ----
Revolving credit agreement $ -- $ --
Other credit arrangements 2,060 2,854
------ ------
Total $2,060 $2,854
====== ======
Long-Term Debt - The corporation has long-term debt as follows:
December 31 2000 1999
- ----------- ---- ----
Revolving credit agreement $ -- $ --
Convertible subordinated debentures 26,546 28,206
------- -------
Total 26,546 28,206
Less current portion 1,660 1,660
------- -------
Total excluding current portion $24,886 $26,546
======= =======
Restrictive Covenants - The most restrictive of the covenants
contained in the new revolving credit agreement requires the
corporation to have EBITDA, as defined, at least equal to 300% of
interest expense and a ratio of consolidated total indebtedness to
total capitalization of not more than 55%.
Certain Letters of Credit - The face amounts of irrevocable letters
of credit issued under the corporation's revolving credit agreement
totaled $41,195 and $47,208 at December 31, 2000 and 1999,
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
Page 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
Corporation at any time on or before March 15, 2012 at a conversion
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 $23,095 at December 31, 2000 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 $2,407, $2,426
and $2,565 for 2000, 1999 and 1998, 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 advances on contracts along with 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:
2000 1999 1998
---- ---- ----
Current:
Federal $ 17,690 $ 13,824 $ 15,650
State 3,185 2,376 4,500
-------- -------- --------
20,875 16,200 20,150
-------- -------- --------
Deferred:
Federal (65) (650) 150
State (10) (150) 50
-------- -------- --------
(75) (800) 200
-------- -------- --------
Total $ 20,800 $ 15,400 $ 20,350
======== ======== ========
Page 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
The components of the deferred tax assets and deferred tax
liabilities are presented below:
December 31 2000 1999
- ----------- ---- ----
Deferred tax assets:
Long-term contracts $ 1,547 $ 1,474
Deferred employee benefits 14,539 14,309
Inventory 4,435 4,619
Accrued liabilities and other items 6,504 7,698
-------- -------
Total deferred tax assets 27,025 28,100
-------- --------
Deferred tax liabilities:
Depreciation and amortization (6,540) (7,834)
Other items (3,910) (3,766)
-------- --------
Total deferred tax liabilities (10,450) (11,600)
-------- --------
Net deferred tax asset $ 16,575 $ 16,500
======== ========
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. The consolidated effective tax rate was lower due to the
reversal of prior years' tax accruals of $1,534 and $1,250 in
2000 and 1999, respectively, as a result of the corporation's
ongoing assessment of its open tax years. Cash payments for income
taxes were $20,611, $18,204 and $51,590 in 2000, 1999 and 1998,
respectively.
Page 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
PENSION PLAN
The corporation has a non-contributory defined benefit pension plan
covering all of its full-time U.S. employees upon their completion
of hours of service requirements. Benefits under this plan are
generally based upon an employee's years of service and
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 $12,868 of Class A common stock of Kaman Corporation at
December 31, 2000).
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
2000 1999 1998
---- ---- ----
Service cost for benefits earned
during the year $ 9,528 $ 9,837 $ 8,794
Interest cost on projected
benefit obligation 21,688 20,348 19,648
Expected return on plan assets (29,050) (25,998) (22,757)
Net amortization and deferral (2,635) (1,909) (1,909)
-------- -------- --------
Net pension cost (income) $ (469) $ 2,278 $ 3,776
======== ======== ========
The change in actuarial present value of the projected benefit
obligation is as follows:
December 31 2000 1999
- ----------- ---- ----
Projected benefit obligation at
beginning of year $ 299,228 $ 297,516
Service cost 9,528 9,837
Interest cost 21,688 20,348
Actuarial liability (gain) loss (2,091) (13,442)
Benefit payments (16,080) (15,031)
--------- ---------
Projected benefit obligation at
end of year $ 312,273 $ 299,228
========= =========
Page 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
The actuarial liability gain of $2,091 for 2000 is attributable to
variations from anticipated experience while the actuarial
liability gain of $13,442 for 1999 consists principally of
adjustments for changes in the discount rate and average rate of
increase in compensation levels.
The change in fair value of plan assets is as follows:
December 31 2000 1999
- ----------- ---- ----
Fair value of plan assets at
beginning of year $ 415,358 $ 362,758
Actual return on plan assets 14,796 65,252
Employer contribution 379 2,379
Benefit payments (16,080) (15,031)
--------- ---------
Fair value of plan assets
at end of year $ 414,453 $ 415,358
========= =========
Excess of assets over projected
benefit obligation $ 102,180 $ 116,130
Unrecognized prior service cost (290) (345)
Unrecognized net gain (100,097) (112,987)
Unrecognized net transition asset (1,854) (3,707)
--------- ---------
Accrued pension cost $ 61 $ 909
========= =========
The actuarial assumptions used in determining the funded status of
the pension plan are as follows:
December 31 2000 1999
- ----------- ---- ----
Discount rate 7.5 % 7.5 %
Expected return on plan assets 8.625% 8.625%
Average rate of increase in
compensation levels 4.5 % 4.5 %
===== =====
Page 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
The corporation 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 pretax contribution.
Effective January 1, 2000, certain participating subsidiaries
increased their employer contributions to fifty cents ($.50), up
from twenty five cents ($.25), for each dollar that a participant
contributed, up to 5% of compensation. Employer contributions to
the plan totaled $3,514, $1,691 and $1,683 in 2000, 1999, and 1998,
respectively.
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 2001 to
December 2010. 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, 2000:
2001 $13,295
2002 7,421
2003 3,555
2004 2,356
2005 1,389
Thereafter 2,306
-------
Total $30,322
=======
Lease expense for all operating leases, including leases with
terms of less than one year, amounted to $14,710, $15,413 and
$14,683 for 2000, 1999 and 1998, respectively.
Page 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(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.
One such matter involves Litton Guidance and Control Systems,
a division of Litton Systems, Inc. and Litton Industries, Inc.,
which has been a major subcontractor for both the Australia and New
Zealand SH-2G Helicopter programs, being responsible for providing
avionics system hardware and integration software. In addition,
Litton has been the designer and integrator of the ITAS system
specific to the Australia program. Litton had stated that it was
incurring additional costs to perform its fixed price contract
with the corporation for the Australia program and submitted claims
for such costs to the corporation during 2000. The corporation's
evaluation of the matter was different from Litton's and the
corporation had, in turn, submitted claims to Litton. In an effort
to resolve the entire matter, the parties conducted a mediation in
early February 2001. As a result of that process, the parties
arrived at an agreement in principle, under which the corporation
will make certain milestone payments to Litton as it completes work
on hardware and certain software contemplated under the fixed price
contract and Litton will release its claims against the
corporation. In return, Litton will transfer to the corporation a
software integration laboratory, software and intellectual property
rights and the corporation will release its claims against Litton.
In addition, upon performance of the items described above,
Litton's significant project responsibilities for the Australia
program will end and the corporation will assume responsibility
for several remaining elements of the project.
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.
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. 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.
Page 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
2000 1999 1998
---- ---- ----
Earnings per common share - basic
Earnings applicable to
common stock $36,920 $25,073 $30,008
======= ======= =======
Weighted average shares
outstanding (000) 22,936 23,468 23,407
======= ======= =======
Earnings per common
share - basic $ 1.61 $ 1.07 $ 1.28
======= ======= =======
Earnings per common share - diluted
Earnings applicable
to common stock $36,920 $25,073 $30,008
Plus:
After-tax interest savings on
convertible debentures 1,031 1,046 1,075
------- ------- -------
Earnings applicable to common
stock assuming conversion $37,951 $26,119 $31,083
======= ======= =======
Weighted average shares
outstanding (000) 22,936 23,468 23,407
Plus shares issuable on:
Conversion of Series 2
preferred stock -- -- 282
Conversion of 6% convertible
debentures 1,151 1,221 1,293
Exercise of dilutive options 81 121 253
------- ------- -------
Weighted average shares
outstanding assuming
conversion (000) 24,168 24,810 25,235
======= ======= =======
Earnings per common
share - diluted $ 1.57 $ 1.05 $ 1.23
======= ======= =======
Page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
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.
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 2000, 145,485
shares were issued to employees at prices ranging from $7.76 to
$13.60 per share. 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. At December 31, 2000,
there were approximately 1,088,000 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. The number of shares
of Class A common stock reserved for issuance under this plan is
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. 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. These awards are
subject to forfeiture if a recipient separates from service with
the corporation.
Page 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
Restricted stock awards were made for 62,500 shares at prices
ranging from $10.31 to $10.75 per share in 2000, 91,000 shares at
prices ranging from $11.81 to $14.50 per share in 1999 and 62,500
shares at prices ranging from $17.00 to $19.25 per share in 1998.
At December 31, 2000, there were 161,000 shares remaining subject
to restrictions pursuant to these awards. Stock appreciation
rights were issued for 130,000 shares at $10.31 in 2000, 270,000
shares at prices ranging from $14.13 to $14.50 per share in 1999
and 165,000 shares at $17.00 per share in 1998, to be settled only
for cash. The corporation recorded $1,732 of expense in 2000,
income of $703 in 1999 due to the grant price being higher than the
year end market price and $203 of expense in 1998 for these stock
appreciation rights.
Page 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(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, 1998 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
Options granted 225,500 10.31
Options exercised (75,360) 8.86
Options cancelled (121,170) 13.65
---------- -----------
Balance at December 31, 2000 1,069,980 12.59
========== ===========
Weighted average contractual life
remaining at December 31, 2000 6.7 years
===========
Range of exercise prices for options $ 8.00- $ 12.51-
outstanding at December 31, 2000 $ 12.50 $ 17.00
---------- -----------
Options outstanding 511,880 558,100
Options exercisable 278,700 193,510
Weighted average contractual remaining
life of options outstanding 5.9 years 7.5 years
Weighted average exercise price:
Options outstanding $ 10.08 $ 14.89
Options exercisable $ 9.88 $ 14.85
========== ===========
As of December 31, 1999 and 1998, there were 438,720 and 349,950
options exercisable, respectively.
Page 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
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
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.
2000 1999 1998
---- ---- ----
Net earnings:
As reported $36,920 $25,073 $30,008
Pro forma 36,288 24,497 29,534
Earnings per common share
- - basic:
As reported 1.61 1.07 1.28
Pro forma 1.58 1.04 1.26
Earnings per common share
- - diluted:
As reported 1.57 1.05 1.23
Pro forma 1.55 1.03 1.22
------- ------- -------
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
2000, 1999, and 1998:
Page 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
2000 1999 1998
---- ---- ----
Expected dividend yield 4.3% 3.1% 2.6%
Expected volatility 38.0% 34.0% 31.0%
Risk-free interest rate 6.5% 5.3% 5.6%
Expected option lives 8 years 8 years 8 years
Per share fair value of
options granted $ 3.35 $ 4.75 $ 5.78
======= ======= =======
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 global 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 aircraft structures; and
production of components, including self-lubricating bearings and
couplings.
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 pretax charge of $12,382 to write-off inventory and streamline
its operational structure and increase efficiency. During 2000,
$1,680 of this pretax charge was unused and added back to operating
profit.
The Music Distribution segment consists of distribution of
musical 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.
Page 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
Summarized financial information by business segment is as
follows:
2000 1999 1998
---- ---- ----
Net sales:
Aerospace $ 381,932 $ 371,757 $ 382,697
Industrial Distribution 520,779 505,261 514,379
Music Distribution 128,523 118,386 120,048
---------- ---------- --------
$1,031,234 $ 995,404 $1,017,124
=========== ========= ==========
Operating profit:
Aerospace $ 44,236 $ 44,023 $ 43,304
Industrial Distribution 22,902 2,908 18,550
Music Distribution 7,441 5,627 5,315
---------- --------- ----------
74,579 52,558 67,169
Interest, corporate and other
expense, net (16,859) (12,085) (16,811)
---------- --------- ----------
Earnings before income taxes $ 57,720 $ 40,473 $ 50,358
========== ========= ==========
Identifiable assets:
Aerospace $ 307,762 $ 251,443 $ 294,566
Industrial Distribution 137,297 141,913 160,873
Music Distribution 53,444 53,714 54,577
Corporate 55,327 87,133 77,214
---------- --------- ----------
$ 553,830 $ 534,203 $ 587,230
========== ========= ==========
Capital expenditures:
Aerospace $ 6,110 $ 6,631 $ 11,369
Industrial Distribution 2,947 2,398 3,568
Music Distribution 812 1,773 1,770
Corporate 1,175 162 2,477
--------- -------- ---------
$ 11,044 $ 10,964 $ 19,184
========== ======== =========
Depreciation and amortization:
Aerospace $ 5,875 $ 5,963 $ 5,586
Industrial Distribution 3,138 3,395 3,077
Music Distribution 1,490 1,508 1,317
Corporate 1,127 1,132 1,088
--------- -------- ---------
$ 11,630 $ 11,998 $ 11,068
========== ======== =========
Page 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kaman Corporation and Subsidiaries
December 31, 2000, 1999 and 1998
(In thousands except share and per share amounts)
2000 1999 1998
---- ---- ----
Geographic information - sales:
United States $ 789,533 $737,023 $ 793,544
Australia/New Zealand 186,537 200,796 158,068
Canada 29,455 28,724 35,438
Europe 12,765 11,590 11,980
Japan 6,862 10,172 9,527
Other 6,082 7,099 8,567
--------- -------- ---------
$1,031,234 $995,404 $1,017,124
========== ======== ==========
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 segment 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 $81,519 in 2000, $72,285 in 1999 and $92,539
in 1998.
Sales made by the Aerospace segment under a contract with one
customer were $130,285, $145,006 and $119,222 in 2000, 1999 and
1998, respectively.
Page 40
REPORT OF INDEPENDENT AUDITORS
Kaman Corporation and Subsidiaries
KPMG LLP
Certified Public Accountants
One Financial Plaza
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, 2000 and
1999, 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, 2000. 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 auditing standards
generally accepted in the United States of America. 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, 2000
and 1999 and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
2000 in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
February 5, 2001
Page 41