FIVE-YEAR SELECTED FINANCIAL DATA
Kaman Corporation and Subsidiaries
(In thousands except per share amounts, shareholders and employees)
<table>
2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------
OPERATIONS:
Revenues $ 876,945 $1,032,326 $ 997,177 $1,018,589 $1,056,289
Cost of sales 673,782 774,264 751,291 756,057 801,088
Selling, general and
administrative
expense 188,752 202,319 201,807 210,969 207,120
Restructuring costs -- (1,680) 4,132 -- --
Operating income 14,411 57,423 39,947 51,563 48,081
Net gain on sale of
businesses -- -- -- -- 80,351
Interest expense
(income), net 623 (1,660) (1,614) (353) 7,894
Other expense
(income), net (1,876) 1,363 1,088 1,558 234
Earnings before
income taxes 15,664 57,720 40,473 50,358 120,304
Income taxes 3,950 20,800 15,400 20,350 49,800
Net earnings 11,714 36,920 25,073 30,008 70,504
FINANCIAL POSITION:
Current assets $ 442,651 $ 482,000 $ 460,111 $ 516,504 $ 535,304
Current liabilities 141,260 173,342 168,374 228,975 259,525
Working capital 301,391 308,658 291,737 287,529 275,779
Property, plant and
equipment, net 60,769 63,705 64,332 65,773 57,625
Total assets 521,946 553,830 534,203 587,230 598,161
Long-term debt 23,226 24,886 26,546 28,206 29,867
Shareholders' equity 333,581 332,046 316,377 309,494 290,010
PER SHARE AMOUNTS:
Net earnings per
common share - basic $ .52 $ 1.61 $ 1.07 $ 1.28 $ 3.53
Net earnings per
common share - diluted .52 1.57 1.05 1.23 2.86
Dividends declared -
Series 2 preferred stock -- -- -- -- 13.00
Dividends declared -
common stock .44 .44 .44 .44 .44
Shareholders' equity -
common stock 14.97 14.92 13.68 13.07 12.25
Market price range 19.50 17.75 16.13 20.38 20.38
10.90 8.77 10.06 13.00 12.00
Page 1
<page>
FIVE-YEAR SELECTED FINANCIAL DATA
Kaman Corporation and Subsidiaries
(In thousands except per share amounts, shareholders and employees)
AVERAGE COMMON SHARES OUTSTANDING:
Basic 22,364 22,936 23,468 23,407 18,941
Diluted 23,649 24,168 24,810 25,235 25,108
GENERAL STATISTICS:
Registered shareholders 5,869 6,136 6,522 6,921 7,291
Employees 3,780 3,825 4,016 4,276 4,318
=============================================================================
</table>
Page 2
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
RESULTS OF OPERATIONS
Consolidated revenues were $876.9 million for 2001, compared to
approximately $1.0 billion for 2000 and 1999. Results for 2001 were
adversely impacted by a second quarter sales and pre-tax earnings
adjustment of $31.2 million attributable to the Aerospace segment
and the phase-down of the Australia and New Zealand SH-2G
helicopter programs, as well as a yearlong national economic
decline that affected each of the corporation's business segments,
but particularly the Industrial Distribution segment.
Substantially all of the Aerospace segment adjustment is
associated with a change in estimated costs to complete the
SH-2G(A) helicopter program for Australia. This adjustment has had
the effect of lowering the profit rate on the Australia program.
The cost growth is related to a contract dispute settlement with
Litton Guidance and Control Systems (now part of Northrop Grumman)
regarding development of an advanced Integrated Tactical Avionics
System (ITAS) that is unique to this particular contract. The
corporation has replaced Litton with two subcontractors for the
balance of the ITAS software development work.
For 2000, all segments had increased revenues. In the
Aerospace segment, helicopter programs and the aerostructure and
helicopter subcontracting businesses were significant revenue
contributors. The Industrial Distribution segment benefited from
healthy market conditions and internal efficiency initiatives and
Music Distribution segment results reflected improvement in
domestic markets and some increase in demand internationally.
Results for 1999 reflected the Aerospace segment's ongoing
performance of Australia and New Zealand SH-2G contracts,
offset by lower revenues in the K-MAX helicopter program and
in the aerostructure and helicopter subcontracting businesses.
Aerospace segment net sales decreased 21.0% in 2001
compared to an increase of 2.7% in 2000 and a decrease of 2.9% in
1999. The decrease in 2001 is due to the sales and pre-tax
earnings adjustment described above, the tapering off of
revenues from the SH-2G program as the Australia and New
Zealand programs mature, and lower K-MAX program sales.
Page 3
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
The Aerospace segment's programs include the SH-2G
multi-mission maritime helicopter and the K-MAX medium-to-heavy
external lift helicopter, along with spare parts and support
(which together currently constitute about 40% of segment sales),
aerostructure and helicopter subcontract work as well as
manufacture of components such as self-lubricating bearings and
driveline couplings for aircraft applications (currently about 40%
of segment sales) and advanced technology products (currently
about 20% of segment sales).
The SH-2G helicopter represents virtually all of the
segment's helicopter program sales and generally consists of
retrofit of the corporation's SH-2F helicopters to the SH-2G
configuration or refurbishment of existing SH-2G
helicopters. The SH-2, including its F and G configurations, was
originally manufactured for the U.S. Navy. The SH-2G aircraft is
currently operational with the Egyptian Air Force and the
corporation is performing retrofit 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 about $186 million (US), of which about 94%
has now been recorded as revenue. The corporation has delivered
three SH-2G(NZ) helicopters, two of which have been provisionally
accepted, and a fourth will be shipped pending completion of
testing at the corporation's facilities in Bloomfield, CT, with
final acceptance of all four aircraft expected to follow
thereafter. The fifth aircraft, which represents the exercise of
an option under the contract, is currently scheduled for delivery
before the end of 2002.
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 $700 million (US). The helicopter
production portion of the work is valued at $580 million, of which
about 85% has now been recorded as revenue. Six aircraft are
currently in-country; two are operational and the others are in
the final stages of assembly. These aircraft were shipped without
the full ITAS software.
Page 4
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
One result of the process of negotiating new subcontracts for
production of the full ITAS software has been that Kaman will have
responsibility for aircraft integration testing (a task previously
subcontracted to Litton). This new responsibility along with the
estimated time frame for the subcontractors' development of the
full ITAS software suggests that there will be a longer
delay than previously anticipated in delivery of the full ITAS
software to Australia. The corporation is working with the Royal
Australian Navy to develop a process that will allow for phased
acceptance and delivery of the aircraft without the full ITAS,
and subsequent installation of the full software. When so
equipped, the SH-2G(A) helicopter will have the most
sophisticated, integrated cockpit and weapons system available
in an intermediate weight helicopter.
The corporation is actively pursuing opportunities for
the SH-2G helicopter in the international defense market,
enhancing familiarization with the SH-2G's capabilities among
various governments around the world. The corporation is
currently in discussions with the Egyptian government concerning
a requirement for six search and rescue helicopters and with the
United States government about a program for refurbishment of four
existing SH-2G aircraft for the Polish Navy, along with future
training and support. Management believes that the aircraft is in
a good competitive position to meet the specialized needs of navies
around the world that operate smaller ships for which the SH-2G is
ideally sized, while also recognizing that this market is highly
competitive and influenced by economic and political conditions.
The corporation also maintains a consignment of the U.S.
Navy's inventory of SH-2 spare parts under a multi-year agreement
that provides the ability to utilize certain inventory for support
of the corporation's other SH-2 programs.
The K-MAX helicopter program, which began in 1994 and for
which the corporation maintains a substantial inventory, has
experienced significant market difficulties in the past several
years, due partly to conditions in the commercial logging industry,
the aircraft's principal application to date. While the corporation
continues to pursue a strategy of refocusing K-MAX sales
development on global market opportunities in industry and
government, those efforts have met with limited success. There
were no sales of the K-MAX helicopter during 2001, other than
three aircraft that were part of the five aircraft order received
from the U.S. State Department in late 2000. Management is in the
process of evaluating the amount of time and further investment
that could be required to achieve successful sales development and
profitability for the program.
Page 5
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
The Aerospace segment also performs aerostructure and
helicopter subcontract work for a variety of aerospace
manufacturing programs. Aerostructure subcontract work
focuses on commercial and military aircraft programs, including
wing structures and components for commercial airliners, major
structural assemblies for military transports, aircraft thrust
reversers, business jet subassembly components; and the
manufacture of proprietary self-lubricating bearings for use in
aircraft flight controls, turbine engines and landing gear, as well
as driveline couplings for helicopters. Helicopter subcontract work
includes helicopter airframes, composite rotor blades, and
component work. Current aerostructure and helicopter subcontract
programs include production of wing structures and various
components for virtually all Boeing commercial aircraft, fuselages
and rotor blades for MD Helicopters, and components for military
aircraft such as the C-17 military transport, the F-22 fighter and
the Comanche helicopter. As Boeing is the largest customer of the
segment's subcontract business, management is monitoring the drop
off in commercial aircraft orders and the impact this may have on
production in the next two years.
In December 2001 the corporation acquired Plastic
Fabricating Company, Inc., a Wichita, Kansas manufacturer of
composite parts and assemblies for aerospace applications. This
acquisition provides the segment with a presence in one of the
largest aerospace manufacturing areas in the United States and
complements its existing composites and metal bonding operations.
The Aerospace segment also produces advanced technology
products, including safe, arm and fuzing devices for several
missile programs; high reliability memory systems for airborne,
shipboard, and ground-based programs; precision non-contact
measuring systems for industrial and scientific use; high-
performance microwave cable assemblies for aircraft electronic
warfare devices and other applications; and high-power permanent
magnet motors used commercially in the oil service and
transportation industries and for military uses.
In late 2001, Kaman Aerospace Corporation, the subsidiary
that accounted for 80% of Aerospace segment net sales in 2001,
undertook a realignment of its product line management structure in
an effort to increase market development of its core capabilities
while improving efficiency, enhancing customer service and reducing
costs.
Page 6
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
The Aerospace segment also continues implementation of
`Lean-Thinking' strategies throughout the organization in order to
further enhance efficiency and reduce costs.
Industrial Distribution segment net sales decreased 12.9%
in 2001, compared to an increase of 3.1% in 2000 and a decrease of
1.8% in 1999. Results for 2001 are consistent with the effect of
the manufacturing recession on the industrial distribution
industry. Since the segment's customers include nearly every sector
of U.S. industry, this business is influenced by industrial
production levels and was adversely affected in 2001 by a weakened
manufacturing sector that brought the industrial production index
(the key economic indicator for this business) down to levels not
seen since the early 1980s. The segment was also impacted by
specific events affecting particular customer industries,
such as the effect the energy crisis in the West had on the
aluminum industry. The corporation had taken steps to implement
workforce adjustments and control costs in late 2000 and as
economic conditions worsened in 2001, the corporation
implemented further reductions and efficiencies. These efforts,
along with good results with business retention efforts and certain
new national account awards helped the segment to remain profitable
despite lower sales.
At the end of the third quarter of 2001, the Industrial
Distribution segment acquired the industrial distribution business
of A-C Supply, Inc. of Milwaukee, Wisconsin. This acquisition
strengthens the segment's presence in key industrial markets in the
upper Midwest, where it has had limited presence, and will
facilitate service to national account customers with operating
plants in that region. This acquisition also represents an
incremental step in the corporation's overall strategy of building
the value of its businesses through acquisitions and internal
growth.
During 2001, the segment continued to develop the
e-business infrastructure that it began in 2000 with
implementation of its Internet e-business site. This site 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.
Page 7
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
Music Distribution segment net sales decreased 6.2% in
2001 compared to an increase of 8.6% in 2000 and a decrease of 1.4%
in 1999. Results for 2001 were affected by weakened consumer
markets both domestically and abroad; although a better than
expected Christmas season helped to mitigate some of the
year's sales shortfall.
In 2001, the segment continued its focus on `Lean-
Thinking' strategies and was able to enhance operating efficiencies
and improve customer service as a result. The segment completed the
consolidation of two warehouses into one state-of-the-art facility
and also implemented an electronic data exchange program that
allows the sharing of data and information directly with customers.
In 2001, the segment also completed the first year of its
exclusive distribution and sales license with Fred Gretsch
Enterprises, successfully launching its high quality Gretsch drum
kit lines in domestic and foreign markets.
The corporation's segments, in total, had operating
profits of $26.3 million for 2001 compared to $74.6 million for
2000. These results reflect the $31.2 million sales and pre-tax
earnings adjustment in the Aerospace segment (described previously)
as well as lower revenues in the Australia and New Zealand SH-2G
helicopter programs which are now in their later phases, and lower
sales in the Industrial Distribution segment due to economic
conditions. Excluding the Aerospace segment adjustment, operating
profits for all the corporation's segments would have been $57.5
million for 2001. Results for 2000 reflect good earnings
performance on the part of each business segment. Total
operating profits for all the corporation's business segments in
1999 were $52.6 million.
Operating profits for the Aerospace segment were $6.5
million in 2001, a decrease from $44.2 million the prior year,
reflecting the sales and pre-tax earnings adjustment in the
Aerospace segment and lower revenues in the Australia and New
Zealand SH-2G helicopter programs as previously described.
Operating profits for the Industrial Distribution segment were
$13.2 million in 2001 compared to $22.9 million the previous year.
Operating profits for 2000 in the Industrial Distribution segment
included the addition of $1.7 million in the fourth quarter which
was the unused portion of a $12.4 million pre-tax charge taken in
1999. Operating profits for the Music Distribution segment were
$6.6 million in 2001, compared to $7.4 million the previous year.
Page 8
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
Operating profits for the Aerospace segment in 2000 were
$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
profits 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 profits for the Industrial
Distribution segment in 2000 were $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 pre-tax 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 profits for 2000. Operating profits for the Music
Distribution segment in 2000 were $7.4 million compared to $5.6
million in 1999, due to improvements in domestic and international
markets and increased efficiency.
Net earnings for 2001 were $11.7 million compared to $36.9
million for 2000 and $25.1 million in 1999. Net earnings per share
for 2001 were $0.52 per diluted share compared to $1.57 per diluted
share in 2000. Results for 2001 include pre-tax gains of $2.7
million from the sale of two facilities in the first half of the
year and an effective tax rate of about 25%, which includes
reduced tax considerations for the Australia SH-2G program. Net
earnings for 2001 were adversely affected by the adjustment taken
in the Aerospace segment and the phase down of the Australia and
New Zealand SH-2G contracts as well as by economic conditions.
Excluding the sales and pre-tax earnings adjustment, along with
reduced tax considerations related to the Australian SH-2G program,
net earnings for 2001 were $30.5 million, or $1.33 per diluted
share.
Net earnings for 2000 were $36.9 million compared to $25.1
million in 1999. Net earnings per 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 and
negatively by the $12.4 million charge in the Industrial
Distribution segment, both of which are described above.
Page 9
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
For the year ended December 31, 2001, interest expense
exceeded interest income from the investment of surplus cash, as
interest expense decreased 7.2% while interest income decreased
60.8%. For the years ended December 31, 2000 and December 31, 1999,
interest income earned from investment of surplus cash more than
offset interest expense.
The consolidated effective income tax rate was 25.2% for
2001, 36.0% for 2000, and 38.1% for 1999. The rate for 2001 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 includes
reduced tax considerations for the Australia SH-2G program.
Effective July 1, 2001 and January 1, 2002, the Financial
Accounting Standards Board ("FASB") issued Statements of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
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 this
standard. All goodwill and intangible assets with indefinite useful
lives will be evaluated on an ongoing basis for impairment in
accordance with the provisions of SFAS 142. The corporation has
adopted these statements in accordance with their terms and that
adoption did not have a material impact on the corporation's
consolidated results of operations or financial position.
During 2001, the FASB also issued Statement of Financial
Accounting Standards No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" ("SFAS 143"),
and Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation and
its associated asset retirement cost. It also provides accounting
guidance for legal obligations associated with the retirement of
tangible long-lived assets. SFAS 143 is effective in fiscal years
beginning after June 15, 2002. The corporation expects that the
provisions of SFAS 143 will not have a material impact on its
consolidated results of operations or financial position upon
adoption. SFAS 144 establishes a single accounting model for the
impairment or disposal of long-lived assets, including discontinued
operations. SFAS 144 is effective in fiscal years beginning after
Page 10
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
December 15, 2001, and in general is to be applied prospectively.
The corporation will adopt SFAS 144 effective January 1, 2002 and
that adoption is not expected to have a material impact on its
consolidated results of operations or financial position.
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.
For calendar year 2001, operating activities provided cash
in the amount of $20.1 million. These results were due primarily to
net reductions in accounts receivable in the Aerospace and
Industrial Distribution segments, including the $31.2 million sales
and pre-tax earnings adjustment in the Aerospace segment, and
reductions in inventories in the distribution segments. This was
offset by decreases in accounts payable in the Aerospace and Music
Distribution segments, and accrued expenses and payables throughout
each of the segments and by a reduction in advances on contracts in
the Aerospace segment. Other items include a reduction in income
taxes payable as well as an increase in other current assets, which
relate primarily to the tax benefits associated with the adjustment
and a net pension income item, respectively. During the year 2001,
cash was used in investing activities for the A-C Supply asset
acquisition, the H.I.G. Aerospace Group, Inc. (Plastic Fabricating
Company, Inc.) stock acquisition, and for the purchase of items
such as machinery and computer equipment, which usage was offset
somewhat by proceeds from the sale of assets. Cash used by
financing activities was primarily attributable to the payment of
dividends to common shareholders, and to a lesser degree the
sinking fund requirement for the corporation's debentures
(described below) and repurchase of the corporation's Class A
common stock pursuant to a repurchase program for use in
administration of the corporation's stock plans and general
corporate purposes.
The corporation had $30.8 million in surplus cash at
December 31, 2001 with an average balance of $34.0 million for the
year. These funds have been invested in high quality, short-term
instruments.
Page 11
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
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 the repurchase program noted above, and
the sinking fund requirement for the corporation's debentures
(described below).
For calendar year 1999, operating activities provided cash
in the amount of $42.5 million. In the Aerospace segment this was
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 reflected 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. 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).
At December 31, 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
approved a replenishment of the corporation's stock repurchase
program, providing for repurchase of an aggregate of 1.4 million
Class A common shares for use in administration of the
corporation's stock plans and for general corporate purposes. A
total of almost 212,000 shares were repurchased during 2001.
Page 12
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
The corporation maintains a revolving credit agreement
involving a group of financial institutions. The agreement has a
maximum unsecured line of credit of $225 million which consists of
a $150 million commitment for 5 years and a $75 million commitment
under a "364 day" arrangement which is renewable annually for an
additional 364 days. The $75 million commitment was so renewed
in November, 2001. The most restrictive of the covenants contained
in the agreement requires the corporation to have EBITDA, as
defined, at least equal to 300% of net 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 revolving credit agreement. A total of $51.6
million in letters of credit are currently outstanding under the
agreement, most of which is related to the Australia and New
Zealand SH-2G programs. Reductions to the Australia and New
Zealand letters of credit are anticipated as agreed upon
performance milestones are reached and as the corporation and the
Australian government agree upon a phased acceptance and delivery
schedule for the SH-2G(A) aircraft.
For 2001, average bank borrowings were $2.5 million,
compared to $2.3 million for 2000, and $3.3 million for 1999.
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 recurring 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, aerostructures, helicopter 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) 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; 3) standard government
contract provisions permitting renegotiation of terms and
termination for the convenience of the government; 4) economic and
Page 13
<page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Kaman Corporation and Subsidiaries
competitive conditions in markets served by the corporation,
including industry consolidation in the United States and global
economic conditions; 5) 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; 10) currency exchange rates, taxes, laws and
regulations, inflation rates, general business conditions and other
factors; 11) effects of the September 11, 2001 attacks on the World
Trade Center in New York and the Pentagon in Washington, D.C. Any
forward-looking information should be considered with these factors
in mind.
Page 14
<page>
SELECTED QUARTERLY FINANCIAL DATA
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts
<table>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------------------------------------------------------
NET SALES:
2001 $244,489 $ 194,338 $ 219,102 $217,940 $ 875,869
2000 263,204 259,610 255,160 253,260 1,031,234
GROSS PROFIT:
2001 $ 61,797 $ 26,473 $ 54,860 $ 58,957 $ 202,087
2000 64,452 63,482 63,620 65,416 256,970
NET EARNINGS:
2001 $ 8,741 $ (12,495) $ 8,526 $ 6,942 $ 11,714
2000 8,556 9,271 9,535 9,558 36,920
PER SHARE - BASIC:
2001 $ .39 $ (.56) $ .38 $ .31 $ .52
2000 .37 .40 .41 .43 1.61
PER SHARE - DILUTED:
2001 $ .38 $ (.56) $ .37 $ .31 $ .52
2000 .36 .39 .40 .42 1.57
=============================================================================
</table>
The quarterly per share-diluted amounts for 2001 do not equal the
"Total Year" figure due to the calculation being anti-dilutive in
the second quarter.
Page 15
<page>
CONSOLIDATED BALANCE SHEETS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except share and per share amounts)
<table>
December 31 2001 2000
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,834 $ 48,157
Accounts receivable 186,798 212,374
Inventories 197,400 196,148
Deferred income taxes 16,938 18,550
Other current assets 10,681 6,771
- -----------------------------------------------------------------------------
Total current assets 442,651 482,000
- -----------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 60,769 63,705
GOODWILL 12,165 2,301
OTHER ASSETS 6,361 5,824
- -----------------------------------------------------------------------------
TOTAL ASSETS $ 521,946 $ 553,830
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,378 $ 2,060
Current portion of long-term debt 1,660 1,660
Accounts payable - trade 52,044 58,057
Accrued salaries and wages 7,252 9,824
Accrued vacations 6,031 5,954
Advances on contracts 30,781 41,905
Other accruals and payables 41,114 49,766
Income taxes payable -- 4,116
- ----------------------------------------------------------------------------
Total current liabilities 141,260 173,342
- -----------------------------------------------------------------------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 23,226 24,886
OTHER LONG-TERM LIABILITIES 23,879 23,556
Page 16
<page>
CONSOLIDATED BALANCE SHEETS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except share and per share amounts)
December 31 2001 2000
- -----------------------------------------------------------------------------
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
2001 and 2000 23,066 23,066
Class B, authorized 1,500,000
shares, voting; issued 667,814
shares in 2001 and 2000 668 668
Additional paid-in capital 77,389 77,298
Retained earnings 253,403 251,526
Unamortized restricted stock awards (2,206) (1,643)
Accumulated other comprehensive
income (loss) (919) (749)
- -----------------------------------------------------------------------------
351,401 350,166
Less 1,455,214 shares and 1,485,427
shares of Class A common stock in
2001 and 2000, respectively, held in
treasury, at cost (17,820) (18,120)
- -----------------------------------------------------------------------------
Total shareholders' equity 333,581 332,046
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 521,946 $ 553,830
=============================================================================
</table>
See accompanying notes to consolidated financial statements.
Page 17
<page>
CONSOLIDATED STATEMENTS OF OPERATIONS
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts)
<table>
Year ended December 31 2001 2000 1999
- ----------------------------------------------------------------------------
REVENUES:
Net sales $ 875,869 $ 1,031,234 $ 995,404
Other 1,076 1,092 1,773
- -----------------------------------------------------------------------------
876,945 1,032,326 997,177
- -----------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 673,782 774,264 751,291
Selling, general and
administrative expense 188,752 202,319 201,807
Restructuring costs -- (1,680) 4,132
Interest expense (income), net 623 (1,660) (1,614)
Other expense (income), net (1,876) 1,363 1,088
- -----------------------------------------------------------------------------
861,281 974,606 956,704
- -----------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 15,664 57,720 40,473
INCOME TAXES 3,950 20,800 15,400
- -----------------------------------------------------------------------------
NET EARNINGS $ 11,714 $ 36,920 $ 25,073
=============================================================================
PER SHARE:
Net earnings per share:
Basic $ .52 $ 1.61 $ 1.07
Diluted .52 1.57 1.05
Dividends declared .44 .44 .44
=============================================================================
</table>
See accompanying notes to consolidated financial statements.
Page 18
<page>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except share amounts)
<table>
Year ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------
SERIES 2 PREFERRED STOCK $ -- $ -- $ --
- -----------------------------------------------------------------------------
CLASS A COMMON STOCK 23,066 23,066 23,066
- -----------------------------------------------------------------------------
CLASS B COMMON STOCK 668 668 668
- -----------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance - beginning of year 77,298 78,422 78,899
Employee stock plans (234) (897) (463)
Restricted stock awards 325 (227) (14)
- -----------------------------------------------------------------------------
Balance - end of year 77,389 77,298 78,422
- -----------------------------------------------------------------------------
RETAINED EARNINGS:
Balance - beginning of year 251,526 224,702 209,920
Net earnings 11,714 36,920 25,073
Dividends declared (9,837) (10,096) (10,291)
- -----------------------------------------------------------------------------
Balance - end of year 253,403 251,526 224,702
- -----------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance - beginning of year (1,643) (1,944) (1,500)
Stock awards issued (1,585) (516) (1,288)
Amortization of stock awards 1,022 817 844
- -----------------------------------------------------------------------------
Balance - end of year (2,206) (1,643) (1,944)
- -----------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
Balance - beginning of year (749) (625) (774)
Foreign currency translation
adjustment* (170) (124) 149
- -----------------------------------------------------------------------------
Balance - end of year (919) (749) (625)
- -----------------------------------------------------------------------------
Page 19
<page>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except share amounts)
Year ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------
TREASURY STOCK:
Balance - beginning of year (18,120) (7,912) (785)
Shares acquired in 2001 -
211,550; 2000 - 1,126,888;
1999 - 802,721 (2,760) (13,660) (10,596)
Shares reissued under
various stock plans 3,060 3,452 3,469
- -----------------------------------------------------------------------------
Balance - end of year (17,820) (18,120) (7,912)
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 333,581 $ 332,046 $ 316,377
=============================================================================
</table>
*Comprehensive income is $11,544, $36,796 and $25,222 for 2001,
2000 and 1999, respectively.
See accompanying notes to consolidated financial statements.
Page 20
<page>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Kaman Corporation and Subsidiaries
(In thousands)
<table>
Year ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 11,714 $ 36,920 $ 25,073
Adjustments to reconcile
net earnings to cash
provided by (used in)
operating activities:
Depreciation and amortization 11,441 11,630 11,998
Net gain on sale of assets (2,637) -- --
Restructuring costs -- (1,680) 4,132
Deferred income taxes (375) (75) (800)
Other, net 2,152 6,551 3,690
Changes in current assets
and liabilities,
net of effects of
businesses acquired:
Accounts receivable 32,411 (56,201) 52,077
Inventories 5,407 3,583 8,166
Other current assets (3,680) 87 2,591
Accounts payable - trade (9,284) 9,297 (2,811)
Advances on contracts (11,124) (8,338) (51,133)
Accrued expenses and
payables (11,813) 6,400 (8,449)
Income taxes payable (4,081) 179 (1,992)
- -----------------------------------------------------------------------------
Cash provided by (used in)
operating activities 20,131 8,353 42,542
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets 4,047 56 538
Expenditures for property, plant
and equipment (8,033) (11,044) (10,964)
Acquisition of businesses,
less cash acquired (20,845) -- --
Other, net (253) (963) 194
- -----------------------------------------------------------------------------
Cash provided by (used in)
investing activities (25,084) (11,951) (10,232)
- -----------------------------------------------------------------------------
Page 21
<page>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Kaman Corporation and Subsidiaries
(In thousands)
Year ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Changes in notes payable 318 (794) (287)
Reduction of long-term debt (1,660) (1,660) (1,660)
Proceeds from exercise of
employee stock plans 1,566 1,813 1,704
Purchases of treasury
stock (2,760) (13,660) (10,596)
Dividends paid (9,834) (10,193) (10,352)
- -----------------------------------------------------------------------------
Cash provided by
(used in) financing
activities (12,370) (24,494) (21,191)
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (17,323) (28,092) 11,119
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 48,157 76,249 65,130
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 30,834 $ 48,157 $ 76,249
=============================================================================
</table>
See accompanying notes to consolidated financial statements.
Page 22
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(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 consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America 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.
Page 23
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
Property, Plant and Equipment - Depreciation of property,
plant and equipment is computed primarily on a straight-line basis
over the estimated useful lives of the assets. At the time of
retirement or disposal, the acquisition cost of the asset and
related accumulated depreciation are eliminated and any gain or
loss is credited or charged against income.
Maintenance and repair items are charged against income as
incurred, whereas renewals and betterments are capitalized and
depreciated.
Research And Development - Research and development costs not
specifically covered by contracts are charged against income as
incurred. Such costs amounted to $4,673 in 2001, $5,463 in 2000 and
$4,877 in 1999.
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 Standards - In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statements of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS
141"), and No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"), which apply to the corporation effective 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 will discontinue the
amortization of goodwill, including goodwill recorded in past
business combinations, upon adoption of this standard. All goodwill
and intangible assets with indefinite useful lives will be
evaluated on an ongoing basis for impairment in accordance with the
provisions of the SFAS 142. The corporation has adopted these
statements in accordance with their terms and that adoption did not
have a material impact on the corporation's consolidated results of
operations or financial position.
The FASB also issued Statement of Financial Accounting
Standards No. 143, "Accounting for Obligations Associated with the
Retirement of Long-Lived Assets" ("SFAS 143"), and Statement of
Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
in 2001.
Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
SFAS 143 establishes accounting standards for the recognition
and measurement of an asset retirement obligation and its
associated asset retirement cost. It also provides accounting
guidance for legal obligations associated with the retirement of
tangible long-lived assets. SFAS 143 is effective in fiscal years
beginning after June 15, 2002. The corporation expects that the
provisions of SFAS 143 will not have a material impact on its
consolidated results of operations or financial position upon
adoption.
SFAS 144 establishes a single accounting model for the
impairment or disposal of long-lived assets, including discontinued
operations. The provisions of SFAS 144 are effective in fiscal
years beginning after December 15, 2001, and in general are to be
applied prospectively. The corporation will adopt SFAS 144
effective January 1, 2002 and that adoption is not expected to have
a material impact on its consolidated results of operations or
financial position.
ACQUISITION OF BUSINESSES
In September 2001, the company purchased the majority of the
assets and liabilities of A-C Supply, Inc. for $8,500 in cash. The
assets acquired and liabilities assumed and results of operations
since the acquisition have been included in the Industrial
Distribution segment.
In December 2001, the company purchased the stock of H.I.G.
Aerospace Group, Inc., parent company of Plastic Fabricating
Company, Inc. for $12,500 in cash. The assets acquired and
liabilities assumed are included in the Aerospace
segment.
Both acquisitions have been accounted for as purchases with
the purchase price being allocated to the fair value of assets
acquired and liabilities assumed. The excess of the purchase price
over the estimated fair market value of net assets acquired is
$2,300 for A-C Supply, Inc. and $7,700 for Plastic Fabricating
Company, Inc. and has been assigned to goodwill. In accordance with
SFAS 142, the goodwill has not been amortized.
Page 25
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
Assuming the acquisitions had taken place on January 1, 2001
and 2000, Kaman Corporation's pro forma revenue, net earnings and
net earnings per share for the years ended December 31, 2001 and
2000 would not have been materially affected.
RESTRUCTURING COSTS
In 1999, the Industrial Distribution segment took a pre-tax charge
of $12,382 ($7,670 after taxes or $.32 per share diluted) as part
of an initiative to streamline operational structure. 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. In 2000, the segment completed all activities
under the restructuring plan. The financial impact of these
activities was less than anticipated in the segment's plan and a
favorable change in estimate of $1,680 was recorded.
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<table>
December 31 2001 2000
- ----------- ---- ----
Trade receivables, net of allowance
for doubtful accounts of $3,939
in 2001, $4,636 in 2000 $ 63,239 $ 72,248
U.S. Government contracts:
Billed 11,529 6,996
Recoverable costs and accrued
profit - not billed 15,169 22,954
Commercial and other government contracts:
Billed 18,835 33,510
Recoverable costs and accrued
profit - not billed 78,026 76,666
-------- --------
Total $186,798 $212,374
======== ========
</table>
Page 26
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
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 $16,900 of such costs and accrued
profits at December 31, 2001 will be collected after one year.
INVENTORIES
Inventories are comprised as follows:
<table>
December 31 2001 2000
- ----------- ---- ----
Merchandise for resale $ 86,409 $ 88,640
Contracts in process:
U.S. Government 3,686 3,723
Commercial 12,525 10,312
Other work in process (including
certain general stock materials) 49,465 51,883
Finished goods 45,315 41,590
-------- --------
Total $197,400 $196,148
======== ========
</table>
Included above in other work in process and finished goods at
December 31, 2001 and 2000 is K-MAX inventory of $76,189 and
$78,638, respectively.
The aggregate amounts of general and administrative costs
allocated to contracts in process during 2001, 2000 and 1999 were
$49,816, $53,387 and $49,752, respectively.
The estimated amounts of general and administrative costs
remaining in contracts in process at December 31, 2001 and 2000
amount to $2,225 and $2,115, respectively, and are based on the
ratio of such allocated costs to total costs incurred.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and summarized
as follows:
Page 27
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
<table>
December 31 2001 2000
- ----------- ---- ----
Land $ 6,058 $ 6,230
Buildings 31,881 34,637
Leasehold improvements 15,628 14,979
Machinery, office furniture
and equipment 120,333 115,049
------- -------
Total 173,900 170,895
Less accumulated depreciation
and amortization 113,131 107,190
-------- --------
Property, plant and equipment, net $ 60,769 $ 63,705
======== ========
</table>
CREDIT ARRANGEMENTS - SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Revolving Credit Agreement - On November 13, 2000, the corporation
entered into a five year revolving credit agreement (the
"Revolving Credit Agreement") with several banks to replace its
then existing revolving credit agreement. The 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. The $75,000 commitment was so
renewed in November, 2001. Outstanding letters of credit at
November 13, 2000, were transferred to the Revolving Credit
Agreement at that time and are considered to be indebtedness
thereunder.
Short-Term Borrowings - Under the 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.
Short-term borrowings outstanding are as follows:
Page 28
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
<table>
December 31 2001 2000
- ----------- ---- ----
Revolving credit agreement $ -- $ --
Other credit arrangements 2,378 2,060
------ ------
Total $2,378 $2,060
====== ======
</table>
Long-Term Debt - The corporation has long-term debt as follows:
<table>
December 31 2001 2000
- ----------- ---- ----
Revolving credit agreement $ -- $ --
Convertible subordinated debentures 24,886 26,546
------ ------
Total 24,886 26,546
Less current portion 1,660 1,660
------- -------
Total excluding current portion $23,226 $24,886
======= =======
</table>
Restrictive Covenants - The most restrictive of the covenants
contained in the 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 Revolving Credit Agreement totaled
$51,577 and $41,195 at December 31, 2001 and 2000, respectively.
Convertible Subordinated Debentures - The corporation issued its 6%
convertible subordinated debentures during 1987. The debentures are
convertible into shares of the Class A common stock of Kaman
Corporation at any time on or before March 15, 2012 at a conversion
price of $23.36 per share at the option of the holder unless
previously redeemed by the corporation. Pursuant to a sinking fund
Page 29
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
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 $23,891 at December 31, 2001 based upon latest market
price.
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 $2,235, $2,407
and $2,426 for 2001, 2000 and 1999, 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. The customer advances are fully 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
reduced as performance milestones are reached and as the
corporation and the Australian government agree upon a phased
acceptance and delivery schedule for the SH-2G(A) aircraft.
INCOME TAXES
The components of income taxes are as follows:
<table>
2001 2000 1999
---- ---- ----
Current:
Federal $ 3,518 $ 17,690 $ 13,824
State 807 3,185 2,376
-------- -------- --------
4,325 20,875 16,200
-------- -------- --------
Deferred:
Federal (353) (65) (650)
State (22) (10) (150)
-------- -------- --------
(375) (75) (800)
-------- -------- --------
Total $ 3,950 $ 20,800 $ 15,400
======== ======== ========
</table>
Page 30
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
The components of the deferred tax assets and deferred tax
liabilities are presented below:
<table>
December 31 2001 2000
- ----------- ---- ----
Deferred tax assets:
Long-term contracts $ 912 $ 1,547
Deferred employee benefits 14,766 14,539
Inventory 4,444 4,435
Accrued liabilities and other items 6,229 6,504
-------- --------
Total deferred tax assets 26,351 27,025
-------- --------
Deferred tax liabilities:
Depreciation and amortization (7,159) (6,540)
Other items (1,541) (3,910)
-------- --------
Total deferred tax liabilities (8,700) (10,450)
-------- --------
Net deferred tax asset $ 17,651 $ 16,575
======== ========
</table>
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 $2,972 and $1,534 in
2001 and 2000, respectively, as a result of the corporation's
ongoing assessment of its open tax years. The reduction in 2001
included reduced tax considerations related to the Australian SH-2G
program. Cash payments for income taxes were $8,589, $20,611 and
$18,204 in 2001, 2000 and 1999, respectively.
Page 31
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(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 $11,896 of Class A common stock of Kaman Corporation at
December 31, 2001).
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
<table>
2001 2000 1999
---- ---- ----
Service cost for benefits
earned during the year $ 9,757 $ 9,528 $ 9,837
Interest cost on projected
benefit obligation 22,822 21,688 20,348
Expected return on plan assets (31,614) (29,050) (25,998)
Net amortization and deferral (3,589) (2,635) (1,909)
-------- -------- --------
Net pension cost (income) $ (2,624) $ (469) $ 2,278
======== ======== ========
</table>
Page 32
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
The change in actuarial present value of the projected
benefit obligation is as follows:
<table>
December 31 2001 2000
- ----------- ---- ----
Projected benefit obligation at
beginning of year $ 312,273 $ 299,228
Service cost 9,757 9,528
Interest cost 22,822 21,688
Actuarial liability (gain) loss 413 (2,091)
Plan amendments 817 --
Benefit payments (16,914) (16,080)
--------- ---------
Projected benefit obligation at
end of year $ 329,168 $ 312,273
========= =========
</table>
The change in fair value of plan assets is as follows:
<table>
December 31 2001 2000
- ----------- ---- ----
Fair value of plan assets at
beginning of year $ 414,453 $ 415,358
Actual return on plan assets (10,897) 14,796
Employer contribution -- 379
Benefit payments (16,914) (16,080)
--------- ---------
Fair value of plan assets at end of year $ 386,642 $ 414,453
========= =========
</table>
Page 33
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
<table>
December 31 2001 2000
- ----------- ---- ----
Excess of assets over projected
benefit obligation $ 57,474 $ 102,180
Unrecognized prior service cost 582 (290)
Unrecognized net gain (55,493) (100,097)
Unrecognized net transition asset -- (1,854)
--------- ---------
Accrued (prepaid) pension cost $ (2,563) $ 61
========= =========
</table>
The actuarial assumptions used in determining the funded
status of the pension plan are as follows:
<table>
December 31 2001 2000
- ----------- ---- ----
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%
===== =====
</table>
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 pre-tax contribution.
For each dollar that a participant contributes, up to 5% of
compensation, participating subsidiaries make employer
contributions of fifty cents ($.50), up from twenty five cents
($.25) in 1999. Employer contributions to the plan totaled $3,438,
$3,514 and $1,691 in 2001, 2000, and 1999, respectively.
Page 34
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 2002 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, 2001:
<table>
2002 $ 13,092
2003 5,650
2004 3,840
2005 2,420
2006 952
Thereafter 1,786
--------
Total $ 27,740
========
</table>
Lease expense for all operating leases, including leases with
terms of less than one year, amounted to $15,113, $14,710 and
$15,413 for 2001, 2000 and 1999, respectively.
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.
Page 35
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
COMPUTATION OF EARNINGS PER SHARE
The earnings per share - basic computation is based on the net
earnings divided by the weighted average number of shares of common
stock outstanding for each year.
The earnings per share - diluted computation includes the
common stock equivalency of options granted to employees under the
Stock Incentive Plan. The earnings per 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 share - diluted
calculation are options granted to employees that are
anti-dilutive based on the average stock price for the year.
Page 36
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
<table>
2001 2000 1999
---- ---- ----
Earnings per share - basic
Net earnings $11,714 $36,920 $25,073
======= ======= =======
Weighted average shares
outstanding (000) 22,364 22,936 23,468
======= ======= =======
Earnings per share - basic $ .52 $ 1.61 $ 1.07
======= ======= =======
Earnings per share - diluted
Net earnings $11,714 $36,920 $25,073
Plus:
After-tax interest savings
on convertible
debentures 1,093 1,031 1,046
------- ------- -------
Net earnings assuming
conversion $12,807 $37,951 $26,119
======= ======= =======
Weighted average shares
outstanding (000) 22,364 22,936 23,468
Plus shares issuable on:
Conversion of 6%
convertible debentures 1,080 1,151 1,221
Exercise of
dilutive options 205 81 121
------- ------- -------
Weighted average shares
outstanding assuming
conversion (000) 23,649 24,168 24,810
======= ======= =======
Earnings per share -
diluted $ .52 $ 1.57 $ 1.05
======= ======= =======
</table>
The calculated diluted per share amount for 2001 is anti-dilutive,
therefore, amount shown is equal to the basic per share
calculation.
Page 37
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
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 2001, 106,921
shares were issued to employees at prices ranging from $10.41 to
$15.21 per share. 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. At December 31, 2001, there were
approximately 980,600 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. At December 31, 2001, there were
approximately 509,000 shares available for the granting of stock
options.
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.
Restricted stock awards were made for 100,000 shares at prices
ranging from $15.63 to $16.31 per share in 2001, 62,500 shares at
prices ranging from $10.31 to $10.75 per share in 2000 and 91,000
shares at prices ranging from $11.81 to $14.50 per share in 1999.
At December 31, 2001, there were 189,000 shares remaining subject
to restrictions pursuant to these awards.
Page 38
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
Stock appreciation rights were issued for 205,000 shares at
prices ranging from $16.28 to $16.31 per share in 2001, 130,000
shares at $10.31 in 2000 and 270,000 shares at prices ranging from
$14.13 to $14.50 per share in 1999, to be settled only for cash.
The corporation recorded income of $575 in 2001, $1,732 of expense
in 2000 and income of $703 in 1999 due to fluctuations in the
market price of the shares.
Stock option activity is as follows:
<table>
WEIGHTED-
AVERAGE
EXERCISE
Stock options outstanding: OPTIONS PRICE
- -------------------------- ------- -----
Balance at January 1, 1999 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
Options granted 335,000 16.27
Options exercised (89,560) 9.96
Options cancelled (56,290) 13.57
----------- -----------
Balance at December 31, 2001 1,259,130 13.71
=========== ===========
Weighted average contractual life
remaining at December 31, 2001 6.4 years
=========
Range of exercise prices for options $ 9.50- $ 13.26-
outstanding at December 31, 2001 $ 13.25 $ 17.00
----------- -----------
Options outstanding 522,500 736,630
Options exercisable 354,700 222,750
Weighted average contractual remaining
life of options outstanding 4.9 years 7.5 years
Weighted average exercise price:
Options outstanding $ 10.86 $ 15.74
Options exercisable $ 10.95 $ 15.62
=========== ===========
</table>
Page 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
As of December 31, 2000 and 1999, there were 472,210 and
438,720 options exercisable, respectively.
As permitted by the Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," the corporation has elected to continue following
the guidance of 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 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.
<table>
2001 2000 1999
---- ---- ----
Net earnings:
As reported $ 11,714 $ 36,920 $ 25,073
Pro forma 10,767 36,288 24,497
Earnings per share - basic:
As reported .52 1.61 1.07
Pro forma .48 1.58 1.04
Earnings per share - diluted:
As reported .52 1.57 1.05
Pro forma .48 1.55 1.03
</table>
Page 40
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
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
2001, 2000 and 1999:
<table>
2001 2000 1999
---- ---- ----
Expected dividend yield 2.7% 4.3% 3.1%
Expected volatility 45% 38% 34%
Risk-free interest rate 5.1% 6.5% 5.3%
Expected option lives 8 years 8 years 8 years
Per share fair value of
options granted $6.84 $3.35 $4.75
</table>
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. During 2001, the segment recorded a sales and pre-tax
earnings adjustment of $31,181, substantially all of which is
associated with a change in estimated costs to complete the SH-2G
(A) helicopter program for Australia. This adjustment has had
the effect of lowering the profit rate on the Australia program.
The cost growth for that program is related to a contract dispute
settlement with Litton Guidance and Control Systems (now part of
Northrup Grumman) regarding development of an advanced Integrated
Tactical Avionics System (ITAS) that is unique to this particular
contract. The corporation has replaced Litton with two
subcontractors for the balance of the ITAS software development
work.
Page 41
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
The Industrial Distribution segment provides replacement
parts, including bearings, power transmission, motion control and
materials handling components to nearly every sector of industry in
North America, along with industrial engineering support services.
Operations are conducted from many locations across the United
States and British Columbia, Canada. In 1999, the segment took
a pre-tax charge of $12,382 to write-off inventory, streamline its
operational structure, and increase efficiency. During 2000, $1,680
of this pre-tax 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 42
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
Summarized financial information by business segment is as
follows:
<table>
2001 2000 1999
---- ---- ----
Net sales:
Aerospace $ 301,580 $ 381,932 $ 371,757
Industrial Distribution 453,718 520,779 505,261
Music Distribution 120,571 128,523 118,386
----------- ----------- -----------
$ 875,869 $ 1,031,234 $ 995,404
=========== =========== ===========
Operating profit:
Aerospace $ 6,542 $ 44,236 $ 44,023
Industrial Distribution 13,217 22,902 2,908
Music Distribution 6,580 7,441 5,627
----------- ----------- -----------
26,339 74,579 52,558
Interest, corporate and
other expense, net (10,675) (16,859) (12,085)
----------- ----------- -----------
Earnings before
income taxes $ 15,664 $ 57,720 $ 40,473
=========== =========== ===========
Identifiable assets:
Aerospace $ 302,076 $ 307,762 $ 251,443
Industrial Distribution 134,974 137,297 141,913
Music Distribution 45,783 53,444 53,714
Corporate 39,113 55,327 87,133
----------- ----------- -----------
$ 521,946 $ 553,830 $ 534,203
=========== =========== ===========
Capital expenditures:
Aerospace $ 5,107 $ 6,110 $ 6,631
Industrial Distribution 1,501 2,947 2,398
Music Distribution 1,018 812 1,773
Corporate 407 1,175 162
----------- ----------- -----------
$ 8,033 $ 11,044 $ 10,964
=========== =========== ===========
Depreciation and amortization:
Aerospace $ 6,175 $ 5,875 $ 5,963
Industrial Distribution 2,742 3,138 3,395
Music Distribution 1,430 1,490 1,508
Corporate 1,094 1,127 1,132
----------- ----------- -----------
$ 11,441 $ 11,630 $ 11,998
=========== =========== ===========
</table>
Page 43
<page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001, 2000 AND 1999
(In thousands except share and per share amounts)
<table>
2001 2000 1999
---- ---- ----
Geographic information -
sales:
United States $ 726,756 $ 789,533 $ 737,023
Australia/New Zealand 100,121 186,537 200,796
Canada 27,162 29,455 28,724
Europe 12,319 12,765 11,590
Japan 6,154 6,862 10,172
Other 3,357 6,082 7,099
---------- ---------- ----------
$ 875,869 $1,031,234 $ 995,404
========== ========== ==========
</table>
Operating profit is total revenues less cost of sales and
selling, general and administrative expense other than general
corporate expense. The "Interest, corporate and other expense, net"
includes a pre-tax gain of $2,679 related to the sale of two
buildings.
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 $81,106 in 2001, $81,519 in 2000 and $72,285
in 1999.
Sales made by the Aerospace segment under a contract with one
customer were $76,865, $130,285 and $145,006 in 2001, 2000 and
1999, respectively.
Page 44
<page>
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, 2001 and
2000, 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, 2001. 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, 2001
and 2000 and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
2001 in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
January 28, 2002
Page 45
<page>