UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED
June 30, 2001.
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
--------------- --------------.
Commission File No. 0-1093
KAMAN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0613548
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
----------------------------------------
(Address of principal executive offices)
(860) 243-7100
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of July 31, 2001:
Class A Common 21,773,621
Class B Common 667,814
Page 1 of 19 Pages
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands)
<table>
Assets June 30, 2001 December 31, 2000
------ ------------------ ------------------
<s> <c> <c> <c> <c>
Current assets:
Cash and cash equivalents $ 39,057 $ 48,157
Accounts receivable (net of
allowance for doubtful
accounts of $4,296 in
2001, $4,636 in 2000) 186,331 212,374
Inventories:
Contracts and other
work in process 61,215 65,918
Finished goods 41,944 41,590
Merchandise for resale 87,509 190,668 88,640 196,148
------- -------
Other current assets 36,525 25,321
-------- -------
Total current assets 452,581 482,000
Property, plant & equip., at cost 169,585 170,895
Less accumulated depreciation
and amortization 109,856 107,190
------- -------
Net property, plant & equipment 59,729 63,705
Other assets 8,044 8,125
-------- --------
$520,354 $553,830
======== ========
Liabilities and Shareholders' Equity
------------------------------------
<s> <c> <c>
Current liabilities:
Notes payable $ 3,892 $ 3,720
Accounts payable 44,164 58,057
Accrued liabilities 28,520 30,300
Advances on contracts 35,704 41,905
Other current liabilities 35,524 35,244
Income taxes payable - 4,116
-------- -------
Total current liabilities 147,804 173,342
Deferred credits 24,798 23,556
Long-term debt, excl. current portion 23,226 24,886
Shareholders' equity 324,526 332,046
-------- --------
$520,354 $553,830
======== ========
</table>
- 2 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
<table>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Revenues $194,641 $259,852 $439,333 $523,377
Costs and expenses:
Cost of sales 167,865 196,128 350,557 394,880
Selling, general and
administrative expense 47,272 49,439 96,319 100,834
Interest (income)/expense, net 18 (564) (8) (914)
Other (income)/expense, net (2,044) 418 (2,531) 725
-------- -------- -------- --------
213,111 245,421 444,337 495,525
-------- -------- -------- --------
Earnings (loss) before
income taxes (18,470) 14,431 (5,004) 27,852
Income taxes (benefit) (5,975) 5,160 (1,250) 10,025
-------- -------- -------- --------
Net earnings (loss) $(12,495) $ 9,271 $ (3,754) $ 17,827
======== ======== ======== ========
Net earnings (loss) per share:
Basic $ (.56) $ .40 $ (.17) $ .77
Diluted* $ (.56) $ .39 $ (.17) $ .75
======== ======== ======== ========
Dividends declared per share $ .11 $ .11 $ .22 $ .22
======== ======== ======== ========
*The calculated diluted per share amounts for 2001 are anti-dilutive,
therefore, amounts shown are equal to the basic per share calculation.
</table>
- 3 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Cash Flows
(In thousands)
<table>
For the Six Months
Ended June 30,
--------------------
2001 2000
--------- --------
<s> <c> <c>
Cash flows from operating activities:
Net earnings (loss) $ (3,754) $ 17,827
Depreciation and amortization 5,654 5,777
Net gain on sale of assets (2,640) -
Accounts receivable 26,043 (42,472)
Inventory 5,480 6,809
Accounts payable (13,893) 11,789
Advances on contracts (6,201) (4,697)
Income taxes payable (4,116) (115)
Changes in other current assets and liabilities (11,614) (2,865)
Other, net 585 1,566
-------- --------
Cash provided by (used in) operating
activities (4,456) (6,381)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets 4,038 41
Expenditures for property, plant & equipment (2,991) (3,779)
Other, net (44) (262)
-------- --------
Cash provided by (used in) investing
activities 1,003 (4,000)
-------- --------
Cash flows from financing activities:
Additions (reductions) to notes payable 172 (391)
Reductions to long-term debt (1,660) (1,660)
Purchase of treasury stock - (833)
Dividends paid (4,906) (5,089)
Proceeds from sale of stock 747 769
-------- --------
Cash provided by (used in) financing
activities (5,647) (7,204)
-------- --------
Net increase (decrease) in cash and cash equivalents (9,100) (17,585)
Cash and cash equivalents at beginning of period 48,157 76,249
-------- --------
Cash and cash equivalents at end of period $ 39,057 $ 58,664
======== ========
</table>
- 4 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Basis of Presentation
- ----------------------
The December 31, 2000 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of Kaman Corporation and subsidiaries.
In the opinion of management, the balance of the condensed
financial information reflects all adjustments which are
necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods
presented and are of a normal recurring nature, unless otherwise
disclosed in this report.
The statements should be read in conjunction with the notes to
the consolidated financial statements included in Kaman
Corporation's 2000 Annual Report.
Gain From The Sale Of Facilities
- --------------------------------
Included in "Other (income)/expense, net" for 2001 are the gains
from the sale of facilities of $2,002 for the second quarter and
$2,679 for the six-month period.
Cash Flow Items
- ---------------
Cash payments for interest were $1,135 and $1,220 for the six
months ended June 30, 2001 and 2000, respectively. Cash payments
for income taxes for the comparable periods were $13,281 and
$9,945, respectively.
Comprehensive Income (Loss)
- ---------------------------
Comprehensive income (loss) was $(3,794) and $17,754 for the
six months ended June 30, 2001 and 2000, respectively.
Comprehensive income (loss) was $(12,398) and $9,204 for the
three months ended June 30, 2001 and 2000, respectively. The
changes to net earnings (loss) used to determine comprehensive
income (loss) are foreign currency translation adjustments.
- 5 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Shareholders' Equity
- --------------------
Changes in shareholders' equity were as follows:
<table>
<s> <c>
Balance, January 1, 2001 $332,046
Net earnings (loss) (3,754)
Foreign currency translation adjustment (40)
--------
Comprehensive income (loss) (3,794)
Dividends declared (4,922)
Employee stock plans 1,196
--------
Balance, June 30, 2001 $324,526
========
</table>
Recent Accounting Standards
- ---------------------------
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141"), and No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"), which are effective July 1, 2001 and January 1, 2002,
respectively, for the corporation. SFAS 141 requires all business
combinations initiated after June 30, 2001 to use the purchase method
of accounting. SFAS 142 will discontinue the amortization of goodwill,
including goodwill recorded in past business combinations, upon adoption
of this standard. All goodwill and intangible assets will be evaluated
on an ongoing basis for impairment in accordance with the provisions of
the Statement. Based upon the corporation's initial assessment of these
Statements, adoption is not anticipated to have a material impact on the
corporation's financial position or results of operations.
- 6 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands)
Business Segments
- -----------------
Summarized financial information by business segment is as follows:
<table>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- --------
<s> <c> <c> <c> <c>
Net sales:
Aerospace $ 54,554 $ 98,893 $146,712 $195,350
Industrial Distribution 113,033 133,176 236,104 269,539
Music Distribution 26,751 27,541 56,011 57,925
-------- -------- -------- --------
$194,338 $259,610 $438,827 $522,814
======== ======== ======== ========
Operating profit (loss):
Aerospace $(20,929) $ 11,390 $(10,740) $ 22,191
Industrial Distribution 3,582 6,135 8,660 11,645
Music Distribution 563 500 1,882 2,029
-------- -------- -------- --------
(16,784) 18,025 (198) 35,865
Interest, corporate and
other expense, net (1,686) (3,594) (4,806) (8,013)
-------- -------- -------- --------
Earnings (loss) before
income taxes $(18,470) $ 14,431 $ (5,004) $ 27,852
======== ======== ======== ========
</table>
<table>
June 30, December 31,
2001 2000
-------- --------
<s> <c> <c>
Identifiable assets:
Aerospace $287,386 $307,762
Industrial Distribution 128,313 137,297
Music Distribution 53,616 53,444
Corporate 51,039 55,327
-------- --------
$520,354 $553,830
======== ========
</table>
- 7 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
In the quarter ended June 30, 2001, the corporation recorded a
sales and pre-tax earnings adjustment of $31.2 million,
substantially all of which is associated with a change in estimated
costs to complete the SH-2G (A) helicopter program for Australia.
The cost growth for that program is related to a contract dispute
settlement with subcontractor Litton Guidance and Control Systems
(now part of Northrop Grumman) regarding its development of an
advanced Integrated Tactical Avionics System (ITAS) that is unique
to this particular contract. The corporation is currently placing
the balance of the ITAS software development work with other
subcontractors, which is a principal element of the cost growth.
As a result, consolidated revenues for the quarter and six months
ended June 30, 2001 were $194.6 million and $439.3 million (both
reduced by the $31.2 million adjustment) respectively, compared
to $259.9 million and $523.4 million for the comparable periods
of 2000.
Aerospace segment net sales were $54.6 million and $146.7 million
(both reduced by the adjustment)for the second quarter and six
months period of 2001, respectively, compared to $98.9 million
and $195.4 million in the same periods of last year. The
Aerospace segment's principal programs include helicopter
manufacturing, aircraft structures subcontract work and
manufacture of components such as self-lubricating bearings and
driveline couplings for aircraft applications, and advanced
technology products.
The corporation's helicopter programs include the SH-2G multi-
mission naval helicopter and the K-MAX (registered trademark)
medium-to-heavy lift helicopter. Helicopter programs represented
approximately 21 percent (without the adjustment it would be
approximately 50%) of segment net sales for the second quarter of
2001, compared to approximately 60 percent for 2000. The lower
percentage for the second quarter is due to the adjustment along
with some anticipated tapering off in revenues from the SH-2G
program as the Australia and New Zealand programs mature.
The SH-2G helicopter program (which constitutes substantially all
of the segment's total helicopter program sales in the second
quarter) 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.
- 8 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The program for New Zealand involves five (5) aircraft and
support for the Royal New Zealand Navy. The contract has an
anticipated value of about $185 million (US), of which 90 percent
has now been recorded as revenue. Two aircraft were shipped
during the second quarter and two aircraft are scheduled for
shipment during the third quarter, with each aircraft subject to
final acceptance by the Royal New Zealand Navy. Delivery of the
fifth aircraft (which represents the exercise of an option for
additional aircraft) is planned for next year.
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
work is valued at $559 million, of which 80 percent (including
the effect of the adjustment) has been recorded as revenue.
Due to the need to retain other subcontractors to complete ITAS
development, delivery of the full ITAS to Australia will be
delayed. The corporation is working with the Royal Australian
Navy to develop satisfactory procedures for approval of the new
software subcontractor arrangements being made, and thereafter
procedures for interim acceptance of the aircraft without the
full ITAS and coordination of deliveries of the aircraft(one of
which is already in Australia). When fully equipped with ITAS,
the SH-2G (A) will provide the most sophisticated, integrated
cockpit and weapons system available in an intermediate-weight
helicopter.
The corporation believes that international market opportunities
for the SH-2G are good, even though the market is highly
competitive and influenced by political and economic conditions.
The corporation is currently in a competition to provide six
search and rescue helicopters for the government of Egypt. The
SH-2G size is well suited for operating from the types of ships
in service with the Egyptian Navy. In its last procurement for
anti-submarine warfare helicopters, the Republic of Egypt
selected ten SH-2Gs, which have been in service since 1998 and
for which the corporation continues to provide on-site support.
The corporation is also in discussions with the U.S. Navy
regarding refurbishment of four of the U.S. Naval Reserve's
surplus SH-2G helicopters for the Polish navy, along with future
training and support.
The corporation has taken a consignment of the Navy's inventory
of SH-2 spare parts under a multi-year agreement that provides
- 9 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
the corporation the ability to utilize certain inventory for
support of the corporation's other SH-2 programs.
On the K-MAX helicopter program, 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.
Net sales for the portion of the Aerospace segment that performs
subcontract work and manufactures aircraft components represented
about 58 percent of sales for the second quarter. Without the
adjustment, it would be approximately 37 percent compared to
approximately 27 percent a year ago. The segment is involved in
a number of commercial and defense aviation programs, including
production of wing structures and other components for virtually
all Boeing commercial aircraft as well as components for the
Boeing C-17 transport and F-22 fighter. Work is progressing on
two multi-year contracts received last year from MD Helicopters,
Inc. to supply fuselages for that company's entire line of
single-engine helicopters and composite rotor blades for its MD
Explorer helicopter. The corporation expects to deliver 43
fuselages to MD Helicopters this year and deliveries of rotor
blades are scheduled to begin in September. These MD Helicopter
contracts have a total potential value of $175 million. The
segment's component manufacturing includes self-lubricating
bearings for use principally in aircraft flight controls, turbine
engines and landing gear, and driveline couplings for
helicopters.
The Aerospace segment also produces advanced technology products,
including missile safe, arm and fuzing devices, precision
measuring systems, mass memory systems, electromagnetic motors,
microwave cabling, and electro-optic devices. Net sales for this
portion of the segment's business represented about 21 percent of
segment sales. Excluding the adjustment, it would be
approximately 13 percent, the same as the second quarter last
year.
Industrial Distribution segment net sales were $113.0 million and
$236.1 million for the second quarter and six months ended June
30, 2001 respectively, compared to $133.2 million and $269.5
million for the same periods of 2000. These results reflect
conditions in the industrial sector of the U.S. economy. Reduced
plant capacity utilization and temporary plant closures have
affected the segment, which primarily serves the maintenance and
repair needs of its customers. The corporation began implementing
programs last year to streamline operations and increase sales
and marketing efforts and these steps have helped the segment to
remain competitive and profitable in a challenging environment.
- 10 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Music Distribution net sales were $26.8 million and $56.0 million
for the quarter and six months ended June 30, 2001 respectively,
compared to $27.5 million and $57.9 million for the same periods
of 2000. Domestic sales continue to be affected by the economic
slowdown and overall softening in the music market.
International sales are also soft due largely to the economic
conditions and currency exchange rate fluctuations in countries
where the segment does business. Management expects that, as it
has been traditionally, the second half of the year will be a
stronger sales period as music retailers increase their buying in
preparation for the holiday season.
As a result of the $31.2 million sales and earnings adjustment,
the corporation's segments, in total, experienced operating
losses of $16.8 million for the quarter and $198 thousand for the
six months ended June 30, 2001, respectively, compared to an
operating profit of $18.0 million and $35.9 million for the same
periods of 2000. Excluding the adjustment, total operating
profit was $14.4 million and $31 million for the quarter and six
month periods of 2001.
For the Aerospace segment, there were operating losses of $20.9
million and $10.7 million for the quarter and six months ended
June 30, 2001, respectively. Excluding the adjustment, operating
profit was $10.3 million for the second quarter and $20.5 million
for the first half of 2001. Operating profit for the Aerospace
segment was $11.4 million and $22.2 million for the second
quarter and first half of 2000. These results are predominantly
due to the sales and pre-tax earnings adjustment recorded in the
second quarter as well as some tapering off of revenue in the SH-
2G helicopter program as the Australia and New Zealand programs
mature.
Operating profit for the Industrial Distribution segment was $3.6
million for the second quarter and $8.7 million for the six
months ended June 30, 2001, compared to $6.1 million and $11.6
million for the same periods of 2000, reflecting the effect of
reduced sales due to adverse economic conditions. Operating
profit for the Music Distribution business was $563 thousand in
the second quarter and $1.9 million for the first half of 2001
compared to $500 thousand and $2.0 million for the same periods
of 2000.
For the quarter and six months ended June 30, 2001, interest
income earned from investment of cash approximated interest
expense.
- 11 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other income for 2001 include gains from the sale of facilities
of $2.0 million during the second quarter and $2.7 million during
the six month period ended June 30, 2001.
As a result of the $31.2 million sales and earnings adjustment,
the corporation has adjusted its 2001 estimated effective tax
rate to 25.0 percent, primarily due to reduced tax considerations
on the Australia SH-2G program. The consolidated effective income
tax rate for the same period last year was 36.0 percent.
As a result of the adjustment, the corporation experienced net
losses of $12.5 million ($0.56 loss per share diluted) and $3.8
million ($0.17 loss per share diluted) for the second quarter and
six months ended June 30, 2001, respectively, compared to net
earnings of $9.3 million ($0.39 per share diluted) and $17.8
million ($0.75 per share diluted) for the same periods a year
ago. Excluding the $31.2 million earnings adjustment and the
change in the effective tax rate, second quarter net earnings
were $8.3 million ($0.36 per share diluted) and $17.0 million
($0.74 per share diluted) for the three and six months periods of
2001.
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141), and No. 142,"Goodwill and Other
Intangible Assets" (SFAS 142), which are effective for the
corporation on July 1, 2001 and January 1, 2002, respectively.
SFAS 141 requires all business combinations initiated after June
30, 2001 to use the purchase method of accounting. SFAS 142
discontinues the amortization of goodwill, including goodwill
recorded in past business combinations, upon adoption of the
standard. All goodwill and intangible assets will be evaluated
on an ongoing basis for impairment in accordance with the
provisions of the Statement. Based upon the corporation's
initial assessment of SFAS 141 and SFAS 142, their adoption is
not anticipated to have a material impact on the corporation's
financial position or results of operations.
Liquidity and Capital Resources
- -------------------------------
On an annual basis, the corporation's cash flow from operations
has generally been sufficient to finance a significant portion of
its working capital and other capital requirements.
- 12 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
During the first half of 2001, operating activities used cash, in
part due to reductions in the Aerospace segment's accounts
payable and advances on contracts. This was offset to some extent
by a decrease in inventories, largely in the Aerospace segment's
K-MAX program. Other items include a decrease in accounts
receivable, which is generally due to the $31.2 million sales and
earnings adjustment and a reduction in income taxes payable and
an increase in other current assets, which relate primarily to
the tax benefits associated with the adjustment.
During the first half of 2001, cash was used in investing
activities for items such as acquisition of machinery and
computer equipment, which use was more than offset by proceeds
from the sale of assets during the quarter. Cash used by
financing activities was primarily attributable to the payment of
dividends to common shareholders and the sinking fund requirement
for the corporation's debentures (described below).
At June 30, 2001, the corporation had $24.9 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 November 2000, the corporation's board of directors authorized
a replenishment of the corporation's stock repurchase program,
providing for the repurchase of an aggregate of 1.4 million Class
A shares for use in administration of the corporation's stock
plans and general corporate purposes. No shares were repurchased
during the first half of 2001.
The corporation had $39.1 million in cash and cash equivalents at
June 30, 2001, with an average of $39.7 million for the first
half of 2001. These funds have been invested in high quality
short term investments.
The corporation maintains a revolving credit agreement involving
a group of eight financial institutions. The 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
- 13 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
annually for an additional 364 days. The most restrictive of the
covenants contained in the 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%. As of June 30, 2001, there
were no borrowings under this agreement.
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 issuance
of irrevocable letters of credit. The face amount of these
letters of credit remains at $41.2 million. Reductions are
anticipated as certain contract milestones are reached and as the
corporation and the Australian government agree upon a modified
acceptance and delivery schedule for the SH-2G(A)s.
Other average bank borrowings for the six months ended June 30,
2001 were $2.1 million, compared to $2.6 million for the same
period of 2000.
Management believes that the corporation's cash flow from
operations and available unused bank line of credit under its
revolving credit agreement will be sufficient to finance its
working capital and other capital requirements for the
foreseeable future.
Management also believes that its strong balance sheet provides
flexibility for it to identify and pursue appropriate
opportunities to expand its businesses.
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, earnings
expectations for future periods and other matters that involve a
number of uncertainties that may cause actual results to differ
materially from expectations. Those uncertainties include, but
are not limited to: 1) the successful conclusion of competitions
and thereafter contract negotiations with government authorities,
including foreign governments; 2) political developments in
countries where the corporation intends to do business;
- 14 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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) negotiation of subcontracts for, and timing of
satisfactory completion of, the Australian SH-2G(A) program; 6)
timing, degree and scope of market acceptance for products such
as a repetitive lift helicopter; 7) U.S. industrial production
levels; 8) changes in supplier sales policies; 9) the effect of
price increases or decreases; and 10) 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.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The corporation has various market risk exposures that arise
from its normal business operations, including currency exchange
rates, supplier price changes, and interest rates as well as
other factors described in the Forward-Looking Statements
section of this report.
The corporation's exposure to currency exchange rates is managed
at the corporate and subsidiary operations levels as an integral
part of the business.
The corporation's exposure to supplier sales policies and price
changes relates primarily to its distribution businesses and
the corporation seeks to manage this risk through its
procurement policies and maintenance of favorable relationships
with suppliers.
The corporation's exposure to interest rate risk relates
primarily to its financial instruments, which include short-
term investments with market interest rates and debt obligations
with fixed interest rates. Currently the corporation has
limited exposure in this area due to the level of its fixed rate
debt obligation and borrowings under its financing arrangements.
Where it currently exists, interest rate risk is managed through
the use of a combination of fixed rate long-term debt and
variable rate borrowings under its financing arrangements.
Letters of credit for the Australia and New Zealand SH-2G
helicopter contracts are generally considered borrowings for
- 15 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 3. Quantitative and Qualitative Disclosures About Market
Risk (continued)
purposes of the corporation's revolving credit agreement; they
are not subject to interest rate risk, however, fees are charged
based upon the corporation's usage and credit rating.
There has been no significant change in the corporation's
exposure to these market risk factors during the second quarter
of 2001. Management believes that any near-term change in the
market risk factors described above should not materially affect
the consolidated financial position, results of operations or
cash flows of the corporation.
- 16 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 5. Other Information
Kaman Aerospace Corporation and Joseph H. Lubenstein have
executed an Employment Agreement and a Change in Control
Agreement, both dated July 9, 2001. Mr. Lubenstein became
president of Kaman Aerospace Corporation on that date. These
agreements are attached as Exhibits 10(a) and 10(b) to this
report.
Kaman Corporation and Walter R. Kozlow have executed a letter
agreement dated July 9, 2001 and a Consultant's Agreement dated
July 12, 2001. Mr. Kozlow has been an employee of Kaman
Aerospace Corporation for 41 years and served as president of
Kaman Aerospace Corporation from 1986 to July 9, 2001.
Mr. Kozlow now serves as a Senior Executive Advisor to the
Corporation and will retire at the end of 2001. These agreements
are attached as Exhibits 10(c) and 10(d) to this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits to Form 10-Q:
10(a) Employment agreement between Kaman Aerospace
Corporation and Joseph H. Lubenstein, dated
July 9, 2001
10(b) Change In Control Agreement between Kaman
Aerospace Corporation and Joseph H. Lubenstein,
Dated July 9, 2001
10(c) Letter Agreement between Kaman Corporation and
Walter R. Kozlow, dated July 9, 2001
10(d) Consultant's Agreement between Kaman Corporation
and Walter R. Kozlow, dated July 12, 2001
(11) Earnings (loss) per share computation
(b) Report on For 8-K filed in the second quarter
of 2001:
There have been no reports on Form 8-K filed
during the quarter ended June 30, 2001.
- 17 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KAMAN CORPORATION
Registrant
Date: August 14, 2001 By: /s/ Paul R. Kuhn
-----------------------------
Paul R. Kuhn
Chairman, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 2001 By: /s/ Robert M. Garneau
-----------------------------
Robert M. Garneau
Executive Vice President and
Chief Financial Officer
- 18 -
<page>
KAMAN CORPORATION AND SUBSIDIARIES
Index to Exhibits
Exhibit 10(a) Employment agreement between Kaman Attached
Aerospace Corporation and Joseph H.
Lubenstein, dated July 9, 2001
Exhibit 10(b) Change In Control Agreement between Attached
Kaman Aerospace Corporation and Joseph
H. Lubenstein, dated July 9, 2001
Exhibit 10(c) Letter Agreement between Kaman Corporation Attached
And Walter R. Kozlow, dated July 9, 2001
Exhibit 10(d) Consultant's Agreement between Kaman Attached
Corporation and Walter R. Kozlow, dated
July 12, 2001
Exhibit 11 Earnings (Loss) Per Share Computation Attached
- 19 -
<page>