EXHIBIT 13 (IN THOUSANDS EXCEPT PER Five-Year Selected Financial Data
SHARE AMOUNTS, SHAREHOLDERS AND EMPLOYEE KAMAN CORPORATION AND SUBSIDIARIES
2002 2001 2000 1999 1998
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OPERATIONS:
Net sales $ 880,776 $ 875,869 $1,031,234 $ 995,404 $1,017,124
Cost of sales 723,243 673,782 774,264 751,291 756,057
Selling, general and ad-
ministrative expense 199,453 188,752 202,319 201,807 210,969
Restructuring costs 8,290 -- (1,680) 4,132 --
Other operating
expense (income) (1,302) (1,076) (1,092) (1,773) (1,465)
Operating income (loss)(48,908) 14,411 57,423 39,947 51,563
Interest expense
(income), net 2,486 623 (1,660) (1,614) (353)
Other expense
(income), net (468) (1,876) 1,363 1,088 1,558
Earnings (loss) before
income taxes (50,926) 15,664 57,720 40,473 50,358
Income taxes (benefit) (17,325) 3,950 20,800 15,400 20,350
Net earnings (loss) (33,601) 11,714 36,920 25,073 30,008
FINANCIAL POSITION:
Current assets $ 414,245 $ 442,651 $ 482,000 $ 460,111 $ 516,504
Current liabilities 157,094 141,260 173,342 168,374 228,975
Working capital 257,151 301,391 308,658 291,737 287,529
Property, plant and
equipment, net 61,635 60,769 63,705 64,332 65,773
Total assets 535,540 521,946 553,830 534,203 587,230
Long-term debt 60,132 23,226 24,886 26,546 28,206
Shareholders' equity 291,947 333,581 332,046 316,377 309,494
PER SHARE AMOUNTS:
Net earnings (loss)
per share - basic $ (1.50) $ .52 $ 1.61 $ 1.07 $ 1.28
Net earnings (loss)
per share - diluted (1.50) .52 1.57 1.05 1.23
Dividends declared .44 .44 .44 .44 .44
Shareholders' equity 13.00 14.97 14.92 13.68 13.07
Market price range 18.81 19.50 17.75 16.13 20.38
9.42 10.90 8.77 10.06 13.00
AVERAGE SHARES OUTSTANDING:
Basic 22,408 22,364 22,936 23,468 23,407
Diluted 22,408 23,649 24,168 24,810 25,235
GENERAL STATISTICS:
Registered shareholders 5,634 5,869 6,136 6,522 6,921
Employees 3,615 3,780 3,825 4,016 4,276
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Page 1
Management's Discussion and Analysis
of Financial Condition and Results of Operations
KAMAN CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated net sales for 2002 were $880.8 million compared to
$875.9 million for 2001 and approximately $1 billion for 2000.
Net sales for 2002 were reduced by $6.5 million as part of a
25.0 million pre-tax charge taken in the second quarter for cost
growth associated with the Australia SH-2G (A) program in the
Aerospace segment. Results for 2002 were also adversely affected
by weak economic conditions in the commercial aerospace and
industrial markets, which are served by the Corporation's
Aerospace and Industrial Distribution segments. Net sales for
2001 were reduced by $31.2 million due to sales and pre-tax
earnings adjustment taken in the second quarter of that year,
principally related to cost growth in the Australia helicopter
program.
The total 2002 second quarter pre-tax charge was $86.0 million
(of which $52.7 million was non-cash), which included the
Australia program charge described above; the write-down of K-MAX
helicopter assets, principally inventories; and the anticipated
costs to phase out operations at the Corporation's Moosup,
Connecticut manufacturing facility by the end of 2003.
Results for 2001 were adversely impacted by the above-described
adjustment as well as a continuing national economic decline that
affected each of the corporation's business segments, but
particularly the Industrial Distribution segment.
Aerospace segment net sales decreased by 8.5% in 2002 and 21.0%
in 2001 compared to an increase of 2.7% in 2000. Net sales for
2002 were $275.9 million (including $20.0 million from
acquisitions made during 2002 and 2001) compared to $301.6
million for 2001 (the 2001 acquisition occurred in December so no
sales from acquisitions are included for 2001). The decrease in
2002 is due to the second quarter charge, declining revenues from
the New Zealand SH-2G program (which is essentially completed)and
the Australia SH-2G program (which is nearing completion), and
lack of new SH-2G and K-MAX helicopter sales. Excluding the
impact of the Australia program adjustments in both years, 2002
net sales would have been $282.4 million compared to $332.8
million for 2001.
The Aerospace segment's programs include helicopter manufacturing
along with spare parts and support (currently approximately 31%
of this segment's sales compared to approximately 41% a year
ago); aerostructure and helicopter subcontract work as well as
manufacture of components such as self-lubricating bearings and
driveline couplings for aircraft applications (currently about
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
48% of segment sales compared to about 42% a year ago); and
advanced technology products (approximately 21% of segment sales
compared to 17% a year ago).
The corporation's helicopter programs include the SH-2G multi-
mission maritime helicopter and the K-MAX medium-to-heavy
external lift helicopter. The SH-2G helicopter represents the
vast majority 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 in service with the Egyptian Air
Force and New Zealand Navy.
Work continues on the SH-2G (A) program for Australia which
involves eleven helicopters with support, including a support
services facility, for the Royal Australian Navy (RAN). The total
contract has an anticipated value of about $711 million (US). The
helicopter production portion of the program is valued at
approximately $590 million, of which about 91% has been recorded
as sales through December 31, 2002. As a result of the $25.0
million charge taken in the second quarter of 2002, the
corporation eliminated the $6.5 million profit element of
previously recorded sales and recognized pre-tax loss accruals of
$18.5 million for anticipated cost growth associated with
completion of the aircraft, and final integration and testing of
the aircraft's Integrated Tactical Avionics System (ITAS)
software, a feature unique to the Australian aircraft. An
additional loss accrual was recognized in the fourth quarter of
2002 in recognition of the impact of higher overhead rates across
all active programs.
Ten of the aircraft are substantially complete; the corporation
has retained the eleventh aircraft for test purposes. All of the
aircraft lack the full ITAS software because the corporation was
required to select replacement subcontractors to complete ITAS
software development as a result of a contract dispute settlement
with the original software supplier. The replacement sub-
contractors are in the process of completing this element of the
program and the corporation now has responsibility for aircraft
system integration (previously a subcontracted task). The
corporation and the RAN have recently reached agreement on a plan
for phased acceptance of the aircraft and completion of aircraft
deliveries. Under the agreement, phased acceptance is contingent
upon the RAN's satisfaction with the company's progress with
respect to certain important project milestones during 2003.
The corporation currently expects that the software will be
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
fully completed, installed and operational on all of the
Australia aircraft by the end of 2004.
The program for New Zealand, involving five aircraft with support
to serve the Royal New Zealand Navy, is essentially complete as
the fifth and final aircraft has now been shipped to New Zealand.
The contract has an anticipated value of about $189 million (US),
of which about 98% has been recorded as revenue through December
31, 2002.
The corporation is continuing work on a small contract to
refurbish four existing SH-2G aircraft previously in service with
the U.S. Navy Reserves to operate aboard two Polish Navy frigates
in multi-mission roles such as surface surveillance and anti-
submarine warfare. The program involves reactivation of the
aircraft, training, and logistics support, including delivery of
initial spares components. Reactivation of two aircraft was
completed in the fourth quarter of 2002 and they have been
accepted. Reactivation of the other two aircraft is underway and
is scheduled for completion by the end of 2003.
The corporation is also participating in a competition to supply
up to six search and rescue helicopters to Egypt, proposing to
supply remanufactured SH-2Gs for that requirement. The
corporation's involvement in this process began in early 1999.
Based upon discussions with Egyptian officials during recent
visits, management believes that the selection process is being
further delayed and is not likely to result in an award
announcement in 2003.
The corporation is actively pursuing other opportunities for the
SH-2G helicopter in the international defense market. This market
is highly competitive and heavily influenced by economic and
political conditions. However, management continues to believe
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.
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 corporation the ability to utilize certain inventory
for support of its SH-2G programs.
Regarding the K-MAX helicopter program, based upon a market
evaluation of the aircraft that followed several years of
significant market difficulties for the program, management made
a determination in the second quarter of 2002 that it would
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
produce further aircraft only upon firm order by a customer and
would pursue both a sale and short-term lease program for
existing new and used K-MAX aircraft inventory. During 2002,
three used aircraft were leased and two used aircraft (one of
which had been under lease) were sold under that program. In
connection with the decision made in the second quarter, the
corporation wrote down the value of existing aircraft, excess
spare parts, and equipment inventories ($46.7 million for
inventories and $3.3 million for capital equipment). Development
costs for the aircraft were expensed in the past. On a going
forward basis, the corporation intends to maintain adequate
inventories and personnel to support the fleet.
Also included in the second quarter 2002 pre-tax charge was $11.0
million for the cost of phasing out the corporation's aircraft
manufacturing plant in Moosup, Connecticut, by the end of 2003.
This is the oldest and least efficient of the corporation's
facilities and the work performed there will be relocated to
other company facilities. The charge represents severance costs
of about $3.3 million at the Moosup and Bloomfield, Connecticut
locations which is expected to involve the separation from
service of approximately 400 employees (of which $696 thousand
had been paid for 119 such separations as of December 31, 2002);
asset write-offs of about $2.7 million; and $5.0 million for
the cost of closing the facility (including costs associated with
an ongoing voluntary environmental remediation program). An
additional $8.3 million of ongoing pre-tax costs are expected to
be expensed as incurred for moving machinery and re-certifying
products and processes.
The Aerospace segment also performs aerostructure and helicopter
subcontract work for a variety of aerospace manufacturers and
produces proprietary self-lubricating bearings. This business
continues to be an area of strategic emphasis for the
corporation; however, performance was adversely affected by
weakness in the commercial aerospace market during 2002.
Aerostructures subcontract work involves commercial and military
aircraft programs. Current programs include production of wing
structures for virtually all Boeing commercial aircraft and the
C-17 military transport. In the third quarter of 2002, the
corporation received a follow-on contract from Boeing for C-17
structural components. The contract runs through June 2007 and
has a potential value of $67.5 million. During the second quarter
of 2002, the corporation received a new contract from Boeing
related to the production and fabrication of an additional group
of subassemblies that will become part of aircraft fuselages,
wings and tail structures for the Boeing 747, 757, 767 and 777
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
families of commercial airplanes. Under this new contract, the
Aerospace segment will receive and assemble parts from other
suppliers and ship higher-level assemblies to Boeing.
Helicopter subcontract work involves commercial helicopter
programs. Current work includes multi-year contracts for
production of fuselages and rotor systems for various MD
Helicopters, Inc. (MDHI) aircraft. Total orders received from
MDHI continue to run at significantly lower rates than
originally anticipated due to lower than expected demand. MDHI
has publicly indicated that aircraft deliveries during 2002 were
adversely affected by technical difficulties with respect to
certain MD Explorer programs and export financing issues with one
MD 600 program. The corporation has developed a large investment
in its contracts with MDHI (including receivables, start-up
costs, and other program expenditures) and has experienced
difficulty with receipt of payments from MDHI. Management is
concerned about this exposure and is working with MDHI in an
effort to address their payment issues.
The segment manufactures proprietary self-lubricating bearings
used in aircraft flight controls, turbine engines and landing
gear and produces driveline couplings for helicopters. This
business continues to be affected by the drop-off in commercial
and regional aircraft manufacturing, although the effect has been
offset to some degree by increases in commercial aftermarket and
military programs. In late July 2002, the corporation acquired
RWG Frankenjura-Industrie Flugwerklager GmbH ("RWG"), a privately
held German aerospace bearing manufacturer. RWG complements the
corporation's proprietary line of bearings and provides a
presence in European aerospace markets. RWG had net sales of
about US $10 million in 2001 and its largest customer is Airbus
Industrie.
The Aerospace segment also produces advanced technology products
and this portion of the segment's business is benefiting from
increased defense spending. These products involve systems,
devices and assemblies for a variety of military and commercial
applications, including safe, arm and fuzing devices for several
missile and bomb programs; high reliability memory systems for
airborne, shipboard, and ground-based programs; precision non-
contact measuring systems for industrial and scientific use; and
electro-optic systems for mine detection and other applications.
Advanced technology products is also an area of strategic
emphasis for the corporation. In July 2002, the corporation
completed its acquisition of the assets and certain liabilities
of Dayron, (a division of DSE, Inc.) a weapons fuze manufacturer,
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
located in Orlando, Florida. Dayron manufactures bomb fuzes for
a variety of munitions programs, and has the contract to develop
a fuze for the U.S. Air Force and Navy Joint Programmable Fuze
(JPF) program. As a result of qualification test results received
during the first quarter of 2003, the corporation is evaluating
the need for certain changes to the fuze and its production
process. In addition, a new government requirement has been
identified for which the corporation expects to receive a
contract modification in the near term. Management currently
expects to complete changes, if any, and resume final
qualification testing by early in the third quarter of 2003.
In the third quarter of 2002, the corporation was selected to
participate on a Northrop Grumman-led team for a U.S. Navy
program to design and develop the Rapid Airborne Mine Clearance
System, a helicopter-borne clearance capability system for near
surface and surface moored sea mines that will provide airborne
mine defense for carrier battle groups and amphibious ready
groups. The corporation will be responsible for the laser-based
target sensor subsystem development. The 36-month subcontract is
valued at approximately $7.6 million. In October of 2002, the
corporation was selected to participate with the University of
Arizona to build a collimator used for testing large optical
systems in a vacuum environment. The corporation's portion of the
five-year contract is valued at about $12.8 million, with the
majority of the work expected to occur in 2003.
The corporation has sold two non-core portions of the Aerospace
segment. Specifically, in the second quarter of 2002, the
corporation sold its microwave products line. That product line
was associated with the former Kaman Sciences Corp. subsidiary
which was sold in 1997. Microwave product sales were about $7.5
million in 2001. In January 2003, the corporation sold its
Electromagnetics Development Center (EDC), an electric motor and
drive business that had sales of approximately $14 million in
2002. The EDC is part of the industry team selected by the U.S.
Navy to design the integrated electric drive system for the
Navy's DD(X) next generation surface vessel.
During 2002, a common lean thinking methodology was adopted in
manufacturing and office environments across the segment and
results have included elimination of production time and parts
travel, and required square footages for the segment's
activities. The application of lean thinking principles
continues.
Industrial Distribution segment net sales increased 5.2% for 2002
compared to a decrease of 12.9% for 2001 and an increase of 3.1%
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
for 2000. Net sales for 2002 were $477.2 million (including
$38.0 million from acquisitions made during 2002 and 2001)
compared to $453.7 million in 2001 (including $8.0 million from
acquisitions made in 2001).
Since the segment's customers include nearly every sector of U.S.
industry, this business is influenced by industrial production
levels and has been adversely affected by conditions in the
manufacturing sector that have existed since late 2000. These
difficult economic conditions are continuing, however cost
reduction activity has helped the segment to remain profitable to
date. Management believes that when economic recovery occurs,
this segment will be in a good position to benefit due to its
lean operating posture.
In executing the segment's strategy to expand its geographic
coverage through both acquisitions and internal growth, the
segment acquired a majority of the assets and certain liabilities
of A-C Supply, Inc., located in the upper Midwest, in 2001 and a
60% equity interest in Delamac de Mexico S.A. de C.V. "Delamac"),
a leading distributor of industrial products headquartered in
Mexico City, in the first quarter of 2002. These acquisitions
expand the segments presence into new geographical areas and
improve its ability to serve national account customers. In
addition, during 2002, the segment opened two locations in
Roanoke and Lynchburg, Virginia and one location in Omaha,
Nebraska.
During 2002, the segment launched a new, updated version of its
e-commerce website. The new site provides a computer-to-computer
link that features a complete electronic catalog, allowing
on-line ordering and payment, and supporting inventory
management. This website increases customer convenience and
reduces paperwork and costs.
In the past, the Industrial Distribution segment has been one of
numerous defendants in a few "John Doe" type legal proceedings,
and generally relating to parts allegedly supplied to the U.S.
Navy's shipyard in San Diego, California by a predecessor company
over 25 years ago, that may have contained asbestos. The
corporation settled those few claims for nominal amounts with
contribution by insurance carriers. In the third quarter of 2002,
however, the corporation experienced an increase in such claims.
Management believes that the Industrial Distribution segment has
good defenses to these claims, which it intends to assert and
does not currently expect that this situation will have a
material adverse effect on the corporation.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
Music Distribution segment net sales increased 5.9% in 2002
compared to a decrease of 6.2% in 2001 and an increase of 8.6% in
2000. Net sales for 2002 were approximately $127.7 million
(including $3.7 million from a 2002 acquisition) compared to
$120.6 million in 2001.
The segment had good results for 2002 reflecting the sustained
levels of consumer spending in the music retail market. In
October 2002, this segment acquired Latin Percussion, Inc., a
leading global distributor of a wide range of Latin hand
percussion instruments. Latin Percussion's net sales for 2001
were about $20.8 million. Management considers this acquisition
to be a strong addition to the segment's existing line of brand
name percussion instruments, including Toca, Gretsch, and Sabian.
In the third quarter of 2002, one of the Music Distribution
segment's larger chain store customers, Mars Music, filed for
Chapter 11 bankruptcy protection. The corporation's exposure as
an unsecured creditor has been reserved for.
The corporation's segments, in total, had a net operating loss of
$35.7 million in 2002 compared to operating profits of $26.3
million for 2001 and $74.6 million in 2000. The 2002 results
reflect difficult economic conditions and include the second
quarter pre-tax charge of $86.0 million described earlier.
Excluding the 2002 charge, operating profits would have been
$50.3 million. The 2001 results include the $31.2 million second
quarter sales and pre-tax earnings adjustment also described
earlier and reflect lower revenues in the Australia and New
Zealand SH-2G helicopter programs as well as 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 and an add-back of $1.7 million of
the 1999 charge in the Industrial Distribution segment that was
unused.
For the year 2002, the Aerospace segment had an operating loss of
$55.2 million, primarily due to the previously described charge.
Excluding the charge, segment operating profits would have been
$30.8 million for 2002. In 2001, the segment had operating
profits of $6.5 million. Excluding the 2001 adjustment, segment
operating profits would have been $37.7 million for the year.
The lack of new helicopter production orders, in combination
with the wind down of the New Zealand and Australia SH-2G
programs and weakness in the commercial aerospace market, has
necessitated significant measures as the segment attempts to
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
bring operating overheads in line with a lower business base.
These steps have included the charge already described to phase
out operations at the Moosup, Connecticut production facility and
continuing reduction in the segment's workforce. As a result
of lower production levels, overhead expenditures must be
absorbed at higher rates by active programs, and in the fourth
quarter of 2002 these increased overhead rates resulted in higher
costs, lower program profitability and loss accruals for a few
long-term programs, including certain Boeing work, and a higher
loss accrual for the Australia SH-2G program. Industrial
Distribution segment operating profits for 2002 were $12.3
million, compared to $13.2 million the previous year, reflecting
the continued impact of weakness in the economy. Particularly in
this environment, the industry's practice of providing vendor
incentives was an important contributor to the segment's
operating profits. In addition, steps taken to reduce costs
throughout the segment helped to maintain its profitability in
2002. Music Distribution segment operating profits for 2002 were
$7.2 million compared to $6.6 million last year, reflecting the
Latin Percussion acquisition and continued consumer spending
in the music retail market.
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 from the Australia and New Zealand
SH-2G helicopter programs. Operating profits for the Industrial
Distribution segment were $13.2 million in 2001 compared to $22.9
million the previous year. Operating profits for the Music
Distribution segment were $6.6 million in 2001, compared to $7.4
million the previous year.
The corporation reported a net loss in 2002 of $33.6 million, or
$1.50 net loss per share diluted, compared to net earnings of
$11.7 million, or $0.52 per diluted share in 2001, and $36.9
million or $1.57 per diluted share in 2000. The 2002 and 2001
results each include the charges or adjustments previously
described. Excluding the 2002 Aerospace segment charge, net
earnings would have been $21.8 million or $0.96 per share
diluted. Excluding the 2001 Australia program adjustment, net
earnings would have been $30.5 million or $1.33 per share
diluted. 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.
Selling, general and administrative expenses for the year 2002
were higher than for 2001, principally due to acquisitions. For
the year ended December 31, 2002, net interest expense increased,
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Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
principally due to borrowings to fund acquisitions. For the year
ended December 31, 2001, interest expense exceeded interest
income due to the reduction of surplus cash. For the year ended
December 31, 2000, interest income earned from investment of
surplus cash more than offset interest expense.
Other income for the year ended December 31, 2002 includes a
pre-tax $1.9 million gain from the sale of the corporation's
microwave products line. Other income for the year 2001 included
gains from the sale of facilities of $2.7 million.
The tax benefit for the year 2002 is calculated at approximately
34% and represents the combined estimated federal and state tax
effect attributable to the second quarter loss. In the 2001
period, the corporation adjusted its estimated tax rate to 25
percent, primarily due to reduced tax considerations on the
Australian helicopter program. The consolidated effective tax
rate for 2000 was 36%.
The corporation has not been required to make a contribution to
its tax-qualified defined benefit pension plan since 2000. As a
result of market conditions, the corporation will be required to
expense approximately $4.6 million in 2003 and make a
contribution of $1.4 million for 2003, based upon the asset value
of the pension trust fund as of December 31, 2002.
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 discontinues the amortization of goodwill,
including goodwill recorded in past business combinations. 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.
In 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 provides
accounting guidance for legal obligations associated with the
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Management's Discussion and Analysis
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retirement of tangible long-lived assets. SFAS 143 is
effective in fiscal years beginning after June 15, 2002. The
corporation adopted SFAS 143 effective January 1, 2003 and that
adoption did not have a material impact on its consolidated
results of operations or financial position. 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 has adopted SFAS 144
effective January 1, 2002 and that adoption did not have a
material impact on its consolidated results of operations or
financial position.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS 146"). SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. SFAS 146 also
requires that the initial measurement of a liability be at fair
value. SFAS 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The corporation adopted
SFAS 146 effective January 1, 2003 and that adoption did not have
a material impact on its consolidated results of operations or
financial position.
In December 2002, the FASB issued Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation" to provide
alternative methods for a voluntary change to the fair value
based method of accounting for stock-based employee compensation
and amends the disclosure requirements of Statement 123 in both
annual and interim financial statements. The provisions of SFAS
148 are effective in fiscal years ending after December 15, 2002.
The corporation has adopted the statement in accordance with its
terms and that adoption did not have a material impact on the
corporation's consolidated results of operations or financial
position.
CRITICAL ACCOUNTING POLICIES
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
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of revenues and expenses during the reporting period.
Significant accounting policies are disclosed in the Notes
to Consolidated Financial Statements in the corporation's Annual
Report on Form 10-K for the year ended December 31, 2002. The
most significant current areas involving management judgments and
estimates are described below. Actual results could differ from
those estimates.
LONG-TERM CONTRACTS - REVENUE RECOGNITION
Sales and estimated profits under long-term contracts are
principally recognized on the percentage-of-completion method of
accounting, generally using either a 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, or units-of-delivery as the measurement basis for
effort accomplished. Reviews of contracts are made regularly
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.
ACCOUNTS RECEIVABLE
Trade accounts receivable consist of amounts billed and currently
due from customers. The allowance for doubtful accounts reflects
management's best estimate of probable losses inherent in the
trade accounts receivable balance. Management determines the
allowance for doubtful accounts based on known troubled accounts,
historical experience, and other currently available evidence.
Billed amounts for U.S. Government, commercial, and other
government contracts consist of amounts billed and currently due
from customers. Recoverable costs and accrued profit - not billed
for U.S. Government, commercial, and other government contracts
primarily relate to costs incurred on contracts which will become
billable upon future deliveries, achievement of specific contract
milestones or completion of engineering and service type
contracts.
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 13
Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
GOODWILL AND OTHER INTANGIBLE
ASSETS ACCOUNTING
Goodwill and certain other intangible assets are no longer
required to be amortized but rather are evaluated at least
annually for impairment. The corporation utilizes discounted cash
flow models to determine fair value used in the goodwill and
other intangible asset impairment evaluations. Management's
estimates of fair value are based upon factors such as projected
sales and cash flows and other elements requiring significant
judgments. The corporation utilizes the best available
information to prepare its estimates and perform impairment
evaluations; however, actual results could differ significantly,
resulting in the future impairment of recorded goodwill and other
intangible asset balances.
LIQUIDITY AND CAPITAL RESOURCES
For calendar year 2002, operating activities used a net of $11.2
million of cash. The Industrial Distribution segment was the
largest user of working capital during 2002, mostly due to growth
in receivables and inventories and reductions in accounts
payables. Cash flow for the year was generally not affected by
the $86.0 million second quarter Aerospace charges previously
described because $52.7 million of the charges were non-cash in
nature and $6.5 million consisted of a write-down of receivables.
Additionally, $8.3 million of the Moosup restructuring ($696
thousand of which had been spent for severances as of December
31, 2002) and the $18.5 million loss accrual attributable to the
Australia SH-2G program are expected to be spent in future
periods. The second quarter charges are expected to result in a
tax benefit of about 34 percent although much of the cash aspect
of this benefit will not be realized until 2003 and future
periods. During 2002, cash was used by investing activities
principally due to the acquisitions of Delamac, Dayron, RWG and
Latin Percussion and by the purchase of items such as machinery
and computer equipment. This was offset to some degree by the
sale of the microwave products line. Cash provided by financing
activities was primarily attributable to bank borrowings to fund
the acquisitions. This was partially offset by the payment of
dividends to shareholders.
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 segment. This was offset by
Page 14
Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
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 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 were invested in high quality, short-term instruments.
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 and the
sinking fund requirement for the corporation's debentures (both
described below).
At December 31, 2002, the corporation had $23.2 million of its 6%
convertible subordinated debentures outstanding. The debentures
are convertible into shares of Class A common stock at any time
on or before March 15, 2012 at a conversion price of $23.36 per
share, generally at the option of the holder. Pursuant to a
sinking fund requirement that began March 15, 1997, the
corporation redeems approximately $1.7 million of the outstanding
principal of the debentures each year.
Page 15
Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
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. As of December
31, 2002, a total of about 249,000 shares had been repurchased
under this replenishment program.
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 five years, and a $75 million commitment
under a "364 day" arrangement which is renewable annually for an
additional 364 days, upon the consent of the banks. The entire
facility expires in 2005. The $75 million commitment was renewed
in November 2002. 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, on the
basis of a rolling four quarters and a ratio of consolidated
total indebtedness to total capitalization of not more than 55%.
Late in the second quarter of 2002, an amendment to the revolving
credit agreement was entered into, under which the non-cash
portion of the 2002 second quarter charges, up to $52.5 million,
were excluded from the financial covenant calculations. In view
of the weak earnings environment, management is closely
monitoring the EBITDA to interest expense ratio requirement.
Letters of credit are generally considered borrowings for
purposes of the revolving credit agreement. A total of $51.0
million in letters of credit were outstanding at December 31,
2002, most of which is related to the Australia SH-2G program.
A reduction of $2 million pursuant to the Australia program
occurred in early February 2003. Further reductions to the
Australia letters of credit are anticipated as agreed upon
performance milestones are reached under a recent agreement
between the corporation and the Australian government regarding
the process for completion of delivery of the SH-2G(A) aircraft
with the full ITAS software.
Total average bank borrowings were $23.8 million for 2002
compared to $2.5 million in 2001 and $2.3 million in 2000.
During 2002, cash in the amount of approximately $51.2 million
was used for the acquisitions of Delamac, Dayron, RWG, and Latin
Percussion. In connection with the acquisition of RWG, in July
2002 the corporation established a 9.5 million Euro term loan and
revolving credit facility with one of its revolving credit
agreement lenders having offices in London. In general, the
agreement contains the same financial covenants as the revolving
Page 16
Management's Discussion and Analysis
of Financial Condition and Results of Operations (CONTINUED)
KAMAN CORPORATION AND SUBSIDIARIES
credit agreement described previously and the term of this
facility will expire at the same time as the revolving credit
agreement.
Management believes that the corporation's annual 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 and helicopter
subcontract programs and components, advanced technology
products, including fuzes for the JPF program, 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,
including specifically the Egypt helicopter competition; 2)
political developments in countries where the corporation intends
to do business; 3) standard government contract provisions
permitting renegotiation of terms and termination for the
convenience of the government; 4) economic and competitive
conditions in markets served by the corporation, including
industry consolidation in the United States and global economic
conditions; 5) attainment of remaining project milestones and
satisfactory completion of the Australian SH-2G(A) program; 6)
recovery of the corporation's investment in the MD Helicopter,
Inc. contracts; 7) actual costs for moving equipment and re-
certifying products and processes in connection with phase out of
the Moosup, Connecticut facility; 8) JPF program final
qualification test results and receipt of production orders; 9)
achievement of enhanced business base in the Aerospace segment in
order to better absorb overhead rates; 10) successful sale or
lease of existing K-MAX inventory; 11) profitable integration of
acquired businesses into the corporation's operations; 12)
U.S. industrial production levels; 13) changes in supplier sales
policies; 14) the effect of price increases or decreases; and 15)
currency exchange rates, taxes, changes in laws and regulations,
interest rates, inflation rates, general business conditions and
other factors. Any forward-looking information should be
considered with these factors in mind.
Page 17
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Selected Quarterly Financial Data
KAMAN CORPORATION AND SUBSIDIARIES
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------
NET SALES:
2002 $ 223,093 $ 209,141 $ 218,266 $ 230,276 $ 880,776
2001 244,489 194,338 219,102 217,940 875,869
GROSS PROFIT:
2002 $ 60,410 $ (19,659) $ 57,305 $ 59,477 $ 157,533
2001 61,797 26,473 54,860 58,957 202,087
NET EARNINGS (LOSS):
2002 $ 5,341 $ (50,366) $ 5,572 $ 5,852 $ (33,601)
2001 8,741 (12,495) 8,526 6,942 11,714
PER SHARE - BASIC:
2002 $ .24 $ (2.25) $ .25 $ .26 $ (1.50)
2001 .39 (.56) .38 .31 .52
PER SHARE - DILUTED:
2002 $ .24 $ (2.25) $ .25 $ .26 $ (1.50)
2001 .38 (.56) .37 .31 .52
- -----------------------------------------------------------------------------
<FN>
The calculated per share-diluted amounts for the twelve months ended December
31, 2002 and 2001 are anti-dilutive, therefore, amounts shown are equal to the
basic per share calculation.
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.
</FN>
Page 18
Consolidated Balance Sheets (IN THOUSANDS EXCEPTS SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
December 31 2002 2001
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,571 $ 30,834
Accounts receivable 195,857 186,798
Inventories 164,715 197,400
Income taxes receivable 5,192 342
Deferred income taxes 28,450 16,938
Other current assets 14,460 10,339
- ------------------------------------------------------------------------------
Total current assets 414,245 442,651
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 61,635 60,769
GOODWILL AND OTHER INTANGIBLE ASSETS 50,994 13,281
OTHER ASSETS 8,666 5,245
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 535,540 $ 521,946
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 8,647 $ 2,378
Current portion of long-term debt 1,660 1,660
Accounts payable - trade 46,664 52,044
Accrued salaries and wages 8,434 7,252
Accrued vacations 6,434 6,031
Accrued contract loss 26,674 --
Accrued restructuring cost 7,594 --
Advances on contracts 22,318 30,781
Other accruals and payables 28,669 41,114
- ------------------------------------------------------------------------------
Total current liabilities 157,094 141,260
- ------------------------------------------------------------------------------
Page 19
Consolidated Balance Sheets (IN THOUSANDS EXCEPTS SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
December 31 2002 2001
- ------------------------------------------------------------------------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 60,132 23,226
OTHER LONG-TERM LIABILITIES 26,367 23,879
SHAREHOLDERS' EQUITY:
Capital stock, $1 par value per share:
Preferred stock, authorized 700,000 shares:
Series 2 preferred stock, 61/2% cumulative convertible,
authorized 500,000 shares, none outstanding -- --
Common stock:
Class A, authorized 48,500,000 shares, nonvoting;
$.10 per common share dividend preference;
issued 23,066,260 shares in 2002 and 2001 23,066 23,066
Class B, authorized 1,500,000 shares, voting;
issued 667,814 shares in 2002 and 2001 668 668
Additional paid-in capital 77,267 77,389
Retained earnings 209,932 253,403
Unamortized restricted stock awards (2,094) (2,206)
Accumulated other comprehensive income (loss) (1,099) (919)
- ------------------------------------------------------------------------------
307,740 351,401
Less 1,274,091 shares and 1,455,214 shares
of Class A common stock in 2002 and 2001,
respectively, held in treasury, at cost (15,793) (17,820)
- ------------------------------------------------------------------------------
Total shareholders' equity 291,947 333,581
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 535,540 $ 521,946
- ------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
Page 20
(IN THOUSANDS EXCEPTS PER SHARE Consolidated Statements of Operations
AMOUNTS) KAMAN CORPORATION AND SUBSIDIARIES
Year ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------
NET SALES $ 880,776 $ 875,869 $1,031,234
- ------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales(1) 723,243 673,782 774,264
Selling, general and
administrative expense 199,453 188,752 202,319
Restructuring costs(2) 8,290 -- (1,680)
Other operating expense (income) (1,302) (1,076) (1,092)
Interest expense (income), net 2,486 623 (1,660)
Other expense (income), net(3) (468) (1,876) 1,363
- ------------------------------------------------------------------------------
931,702 860,205 973,514
- ------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (50,926) 15,664 57,720
INCOME TAXES (BENEFIT) (17,325) 3,950 20,800
- ------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (33,601) $ 11,714 $ 36,920
- ------------------------------------------------------------------------------
PER SHARE:
Net earnings (loss) per share:
Basic $ (1.50) $ .52 $ 1.61
Diluted(4) (1.50) .52 1.57
Dividends declared .44 .44 .44
- ------------------------------------------------------------------------------
<FN>
(1) Cost of sales for the twelve months ended December 31, 2002 includes the
write-off of K-MAX assets of $50,000 and Moosup facility assets of $2,679
which are associated with the charge taken in the Aerospace segment.
(2) Restructuring costs for the twelve months ended December 31, 2002 relate
to the closure of the Moosup facility in 2003 and are associated with the
charge taken in the Aerospace segment.
(3) Included in "Other expense (income), net" are the net gain on the sale of
product line and other assets of $2,299 and $2,637 for the twelve months
ended December 31, 2002 and 2001, respectively.
(4) The calculated diluted per share amounts for the twelve months ended
December 31, 2002 and 2001 are anti-dilutive, therefore, amounts shown
are equal to the basic per share calculation.
See accompanying notes to consolidated financial statements.
</FN>
Page 21
Consolidated Statement of Changes (IN THOUSANDS EXCEPT SHARE AMOUNTS)
in Shareholders' Equity
KAMAN CORPORATION AND SUBSIDIARIES
Year ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------
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 77,389 77,298 78,422
Employee stock plans (304) (234) (897)
Restricted stock awards 182 325 (227)
- ------------------------------------------------------------------------------
Balance - end of year 77,267 77,389 77,298
- ------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance - beginning of year 253,403 251,526 224,702
Net earnings (loss)(1) (33,601) 11,714 36,920
Dividends declared (9,870) (9,837) (10,096)
- ------------------------------------------------------------------------------
Balance - end of year 209,932 253,403 251,526
- ------------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance - beginning of year (2,206) (1,643) (1,944)
Stock awards issued (832) (1,585) (516)
Amortization of stock awards 944 1,022 817
- ------------------------------------------------------------------------------
Balance - end of year (2,094) (2,206) (1,643)
- ------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance - beginning of year (919) (749) (625)
Foreign currency translation adjustment(1) (180) (170) (124)
- ------------------------------------------------------------------------------
Balance - end of year (1,099) (919) (749)
- ------------------------------------------------------------------------------
Page 22
Consolidated Statement of Changes (IN THOUSANDS EXCEPT SHARE AMOUNTS)
in Shareholders' Equity
KAMAN CORPORATION AND SUBSIDIARIES
Year ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------
TREASURY STOCK:
Balance - beginning of year (17,820) (18,120) (7,912)
Shares acquired in 2002 - 37,300;
2001 - 211,550; 2000 - 1,126,888 (412) (2,760) (13,660)
Shares reissued under various stock plans 2,439 3,060 3,452
- ------------------------------------------------------------------------------
Balance - end of year (15,793) (17,820) (18,120)
- ------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 291,947 $ 333,581 $ 332,046
- ------------------------------------------------------------------------------
<FN>
(1) Comprehensive income (loss) is $(33,781), $11,544 and $36,796 for 2002,
2001 and 2000, respectively.
See accompanying notes to consolidated financial statements.
</FN>
Page 23
(IN THOUSANDS) Consolidated Statement of Cash Flows
KAMAN CORPORATION AND SUBSIDIARIES
Year ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(33,601) $ 11,714 $ 36,920
Adjustments to reconcile net earnings
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 11,620 11,441 11,630
Net gain on sale of product line
and other assets (2,299) (2,637) --
Restructuring costs 8,290 -- (1,680)
Non-cash write-down of assets 52,679 -- --
Deferred income taxes (16,715) (375) (75)
Other, net 3,403 2,152 6,551
Changes in current assets and liabilities,
excluding effects of acquisition/divestiture:
Accounts receivable (4,625) 32,411 (56,201)
Inventories (12,751) 5,407 3,583
Income taxes receivable (4,888) (4,081) 179
Other current assets (2,691) (3,680) 87
Accounts payable - trade (8,813) (9,284) 9,297
Accrued contract loss 26,674 -- --
Accrued restructuring costs (696) -- --
Advances on contracts (9,286) (11,124) (8,338)
Accrued expenses and payables (17,470) (11,813) 6,400
- ------------------------------------------------------------------------------
Cash provided by (used in)
operating activities (11,169) 20,131 8,353
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of product
line and other assets 8,034 4,047 56
Expenditures for property, plant
and equipment (7,601) (8,033) (11,044)
Acquisition of businesses, less
cash acquired (51,227) (20,845) --
Other, net 1,854 (253) (963)
- ------------------------------------------------------------------------------
Cash provided by (used in)
investing activities (48,940) (25,084) (11,951)
- ------------------------------------------------------------------------------
Page 24
<page>
(IN THOUSANDS) Consolidated Statement of Cash Flows
KAMAN CORPORATION AND SUBSIDIARIES
Year ended December 31 2002 2001 2000
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable $ 5,985 $ 318 $ (794)
Changes in long-term debt 36,906 (1,660) (1,660)
Proceeds from exercise of employee
stock plans 1,485 1,566 1,813
Purchases of treasury stock (412) (2,760) (13,660)
Dividends paid (9,850) (9,834) (10,193)
Other 732 -- --
- ------------------------------------------------------------------------------
Cash provided by (used in)
financing activities 34,846 (12,370) (24,494)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (25,263) (17,323) (28,092)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 30,834 48,157 76,249
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,571 $ 30,834 $ 48,157
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</FN>
Page 25
Notes to Consolidated Financial Statements
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
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.
Certain amounts in prior year financial statements and notes
thereto have been reclassified to conform to current year
presentation.
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,
generally using either a 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,
or units-of-delivery as the measurement basis for effort
accomplished. Reviews of contracts are made regularly
throughout their lives and revisions in profit estimates are
recorded in the accounting period in which the revisions are
made. Any anticipated contract losses are charged to operations
when first indicated.
Inventories - Inventory of merchandise for resale is stated
at cost (using the average costing method) or market, whichever
is lower. Contracts and work in process and finished goods are
valued at production cost represented by material, labor and
overhead, including general and administrative expenses where
applicable. Contracts and work in process and finished goods are
not recorded in excess of net realizable values.
Property, Plant and Equipment - Depreciation of property,
plant and equipment is computed primarily on a straight-line
Page 26
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
basis over the estimated useful lives of the assets. The
estimated useful lives for buildings range between 15 to 40 years
and leasehold improvements range between 5 to 15 years, whereas
machinery, office furniture and equipment generally range between
3 to 10 years. 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.
Goodwill and Other Intangible Assets - Goodwill and
intangible assets with indefinite lives are not amortized, but
are evaluated for impairment at least annually. Intangible assets
with finite lives (presently consisting of patents) are amortized
using the straight-line method over their estimated 17 year
period of benefit and reviewed for possible impairment whenever
changes in conditions indicate carrying value may not be
recoverable.
Research and Development - Research and development costs
not specifically covered by contracts are charged against income
as incurred. Such costs amounted to $5,363 in 2002, $4,673 in
2001 and $5,463 in 2000.
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 discontinues the
amortization of goodwill, including goodwill recorded in past
business combinations.
Page 27
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
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.
In 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
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 adopted SFAS 143 effective January 1, 2003 and that
adoption did not have a material impact on its consolidated
results of operations or financial position. 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 has adopted SFAS 144 effective
January 1, 2002 and that adoption did not have a material
impact on its consolidated results of operations or financial
position.
In June 2002, the FASB issued Statement of Financial
Accounting Standards No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS 146
also requires that the initial measurement of a liability be at
fair value. SFAS 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The corporation
adopted SFAS 146 effective January 1, 2003 and that adoption
did not have a material impact on its consolidated results of
operations or financial position.
In December 2002, the FASB issued Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation" to provide
Page 28
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
alternative methods for a voluntary change to the fair value
based method of accounting for stock-based employee compensation
and amends the disclosure requirements of Statement 123 in
both annual and interim financial statements. The provisions of
SFAS 148 are effective in fiscal years ending after December 15,
2002. The corporation has adopted the statement in accordance
with its terms and that adoption did not have a material impact
on the corporation's consolidated results of operations or
financial position.
ACQUISITION OF BUSINESSES
During the first quarter of 2002, the corporation acquired a
60% equity interest in Delamac de Mexico S.A. de C.V., a leading
distributor of industrial products headquartered in Mexico City.
Delamac, which had net sales of about US $7,000 in 2001, supplies
power transmission, bearings and fluid power products. The assets
acquired and liabilities assumed and results of operations since
the acquisition have been included in the Industrial Distribution
segment.
In July 2002, the corporation purchased the assets and
certain liabilities of Dayron (a division of DSE, Inc.), a
weapons fuze manufacturer, located in Orlando, Florida. Dayron
manufactures bomb fuzes for a variety of munitions programs, and
has the contract to develop a fuze for the Air Force Joint
Programmable Fuze (JPF) program. Dayron had net sales of
approximately $14,000 for 2001. The assets acquired, liabilities
assumed and results of operations since the acquisition have
been included in the Aerospace segment.
In late July 2002, the corporation purchased the stock
of RWG Frankenjura-Industrie Flugwerklager GmbH (RWG), a German
aerospace bearing manufacturer that complements the corporation's
proprietary line of bearings and provides a presence in European
aerospace markets. RWG had net sales of about US $10,000 in 2001
and its largest customer is Airbus Industrie. The assets
acquired, liabilities assumed and results of operations since the
acquisition have been included in the Aerospace segment.
In October 2002, the corporation purchased the stock of
Latin Percussion, Inc., a leading global distributor of a wide
range of Latin hand percussion instruments. Latin Percussion had
net sales of about $20,800 in 2001. The assets acquired,
liabilities assumed and results of operations since the
Page 29
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
acquisition have been included in the Music Distribution
segment.
In the aggregate, the corporation paid $51,227 for
acquisition of businesses in 2002, and there is potential for
contingency payments of up to $25,000 over the next ten years if
certain milestones are reached. Any such contingency payments
would be treated as additional goodwill.
In September 2001, the company purchased a majority of
the assets and liabilities of A-C Supply, Inc. The assets
acquired, 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. The assets acquired, liabilities
assumed and results of operations since the acquisition have been
included in the Aerospace segment.
All acquisitions have been accounted for as purchases
with the purchase price being allocated to the fair value of
tangible and intangible assets acquired and liabilities assumed.
The excess of the purchase price over the estimated fair market
value of net assets acquired has been assigned to goodwill. In
accordance with SFAS 142, the goodwill has not been amortized.
Assuming these acquisitions had taken place on January
1, 2001, Kaman Corporation's pro forma net sales, earnings (loss)
before income taxes, net earnings (loss) and net earnings (loss)
per share for the years ended December 31, 2002 and 2001 would
have been as follows:
Page 30
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
Pro forma
- --------------------------------------------------------
December 31 (unaudited) 2002 2001
- --------------------------------------------------------
Net sales $ 913,597 $ 970,551
Earnings (loss)
before income taxes (50,264) 16,384
Net earnings (loss) (33,128) 12,045
Net earnings (loss) per share:
Basic (1.48) .54
Diluted (1.48) .54
- --------------------------------------------------------
The pro forma results are not necessarily indicative of
the results of operations that would have occurred had the
acquisitions actually been completed on January 1, 2001. The pro
forma results do not include future initiatives or planned
synergies, nor are they intended to be indicative of future
results. The underlying pro forma information includes interest
expense and income tax assumptions associated with the
transactions.
DIVESTITURES
In April 2002, the corporation sold its microwave products
line to Meggitt Safety Systems, Inc. That product line was
associated with the former Kaman Sciences Corp., a subsidiary
which was sold in 1997, and was no longer core to the segment's
advanced technology business. Microwave product sales were about
$7,500 for the year 2001.
In January 2003, the corporation sold its electric motor
and drive business, operating as the Electromagnetics Development
Center ("EDC") within the Kaman Aerospace subsidiary, to DRS
Technologies, Inc. The EDC develops and manufactures high
performance electric motors, generators, and drive electronics
for industrial and defense applications and contributed sales of
approximately $14,000 in 2002. The resulting gain from this
transaction will be recorded in 2003.
Page 31
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
RESTRUCTURING COSTS
The Aerospace segment recorded pre-tax restructuring costs
of $8,290 in the second quarter of 2002 for the cost of phasing
out the company's aircraft manufacturing plant in Moosup,
Connecticut by the end of 2003. The charges represent severance
costs of $3,290 at the Moosup and Bloomfield, Connecticut
locations for approximately 400 employees (of which $696 has
been paid for 119 such separations as of December 31, 2002)
and the cost of closing the facility of $5,000 (including costs
of an ongoing voluntary environmental remediation program). An
additional $8,300 of ongoing pre-tax costs are expected to be
incurred for moving machinery to other company facilities and
recertifying products and processes.
In 1999, the Industrial Distribution segment took a pre-
tax charge of $12,382 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 and because the actual financial impact of
these activities was less than anticipated in the segment's plan,
a favorable change in estimate of $1,680 was recorded.
ASSET WRITE-DOWNS/WRITE-OFFS
During the second quarter of 2002, as a result of
management's evaluation of the K-MAX program, the Aerospace
segment wrote-down its K-MAX helicopter program assets, including
$46,665 for inventories and $3,335 for capital equipment. In
addition, the segment wrote-off Moosup facility assets of $2,679,
as a result of the previously described facility closure. These
charges are included in cost of sales for 2002.
ACCRUED CONTRACT LOSS
During the second quarter of 2002, the Aerospace segment
recorded a pre-tax charge of $25,000 for estimated cost growth on
the Australia SH-2G(A) helicopter program, which put the contract
in a loss position. Accordingly, the Company eliminated the
$6,505 profit element of previously recorded sales and recognized
pre-tax loss accruals of $18,495 for anticipated cost growth
Page 32
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
associated with completion of the aircraft, final integration and
testing of the aircraft's advanced Integrated Tactical Avionic
System (ITAS) software.
During the fourth quarter of 2002, the Aerospace segment
recorded an additional loss accrual for the Australia SH-2G(A)
helicopter program, and loss accruals for other long-term
programs, consisting principally of certain Boeing programs.
These loss accruals reflect the impact of higher overhead rates,
which were attributable to lower production activity on the
corporation's helicopter and commercial aerospace programs.
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31 2002 2001
- -----------------------------------------------------------------
Trade receivables, net of allowance
for doubtful accounts of $2,853
in 2002, $3,939 in 2001 $ 72,471 $ 63,239
U.S. Government contracts:
Billed 11,607 11,529
Recoverable costs and accrued
profit - not billed 21,225 15,169
Commercial and other government contracts:
Billed 21,628 18,835
Recoverable costs and accrued
profit - not billed 68,926 78,026
- -----------------------------------------------------------------
Total $ 195,857 $ 186,798
- -----------------------------------------------------------------
The allowance for doubtful accounts reflects management's
best estimate of probable losses inherent in the trade accounts
receivable balance. Management determines the allowance based on
known troubled accounts, historical experience, and other
currently available evidence.
Page 33
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
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 $36,861 of such costs and accrued
profits at December 31, 2002 will be collected after one year.
The costs included in this estimate are for the corporation's
programs with the Royal Australian Navy and MD Helicopters, Inc.
INVENTORIES
Inventories are comprised as follows:
December 31 2002 2001
- --------------------------------------------------------------
Merchandise for resale $ 95,056 $ 86,409
Contracts in process:
U.S. Government 13,348 3,686
Commercial 16,694 12,525
Other work in process (including
certain general stock materials) 31,875 49,465
Finished goods 7,742 45,315
- --------------------------------------------------------------
Total $ 164,715 $ 197,400
- --------------------------------------------------------------
Included above in other work in process and finished
goods at December 31, 2002 and 2001 is K-MAX inventory of $25,181
and $76,189, respectively.
The aggregate amounts of general and administrative
costs allocated to contracts in process during 2002, 2001 and
2000 were $51,845, $49,816 and $53,387, respectively.
The estimated amounts of general and administrative costs
remaining in contracts in process at December 31, 2002 and 2001
amount to $4,222 and $2,225, respectively, and are based on the
ratio of such allocated costs to total costs incurred.
Page 34
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and
summarized as follows:
December 31 2002 2001
- --------------------------------------------------------
Land $ 6,524 $ 6,058
Buildings 35,077 31,881
Leasehold improvements 11,397 15,628
Machinery, office furniture
and equipment 108,920 120,333
- --------------------------------------------------------
Total 161,918 173,900
Less accumulated depreciation
and amortization 100,283 113,131
- --------------------------------------------------------
Property, plant and
equipment, net $ 61,635 $ 60,769
- --------------------------------------------------------
Page 35
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are as follows:
December 31 2002 2001
- -----------------------------------------------------------------
Intangible assets not subject
to amortization:
Goodwill:
Aerospace $ 30,635 $ 8,792
Industrial Distribution 3,197 2,573
Music Distribution 2,141 800
- -----------------------------------------------------------------
35,973 12,165
Trade name:
Music Distribution 13,819 --
- -----------------------------------------------------------------
49,792 12,165
Intangible assets subject
to amortization, net:
Patents 1,202 1,116
- -----------------------------------------------------------------
Total $ 50,994 $ 13,281
- -----------------------------------------------------------------
Intangible amortization expense was $107 in 2002 and $99 in
2001.
CREDIT ARRANGEMENTS - SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Revolving Credit Agreement - The corporation maintains a
five-year revolving credit agreement (the "Revolving Credit
Agreement") with several banks, which consists of a maximum
unsecured line of credit of $225,000 ($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 renewed in November 2002.
In general, outstanding letters of credit are considered to be
indebtedness under the Revolving Credit Agreement.
Page 36
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
During the second quarter of 2002, the corporation's
Revolving Credit Agreement was amended to exclude the non-cash
portion of the 2002 second quarter charges, up to $52,500, from
the financial covenant calculations under the Agreement.
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:
December 31 2002 2001
- -----------------------------------------------------
Revolving credit agreement $ -- $ --
Other credit arrangements 8,647 2,378
- -----------------------------------------------------
Total $ 8,647 $ 2,378
- -----------------------------------------------------
Long-Term Debt - The corporation has long-term debt as
follows:
December 31 2002 2001
- ------------------------------------------------------
Revolving credit agreement $ 30,840 $ --
Euro credit agreement 7,726 --
Convertible subordinated
debentures 23,226 24,886
- ------------------------------------------------------
Total 61,792 24,886
Less current portion 1,660 1,660
- ------------------------------------------------------
Total excluding
current portion $ 60,132 $ 23,226
- ------------------------------------------------------
Page 37
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
In the third quarter of 2002, the corporation entered
into a 9,500 Euro credit agreement with one of the Revolving
Credit Agreement lenders that maintains European offices. The
agreement contains a revolving credit facility at current market
rates, and a term loan facility at a rate of 5%. In general, the
credit agreement incorporates the financial covenants of the
Revolving Credit Agreement and expires at the same time.
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, on the basis of a rolling four quarters
and a ratio of consolidated total indebtedness to total
capitalization of not more than 55%. Under the 2002 Revolving
Credit Agreement Amendment, the non-cash portion of the 2002
second quarter charges, up to $52,500, are excluded from the
financial covenant calculations under the Agreement.
Certain Letters of Credit - The face amounts of irrevocable
letters of credit issued under the Revolving Credit Agreement
totaled $50,975 and $51,577 at December 31, 2002 and 2001,
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 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 $22,065 at
December 31, 2002 based upon latest market price.
Page 38
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
Long-Term Debt Annual Maturities - The aggregate amounts of
annual maturities of long-term debt for each of the next five
years and thereafter are approximately as follows:
- --------------------------------------------------
2003 $ 1,660
2004 1,660
2005 40,226
2006 1,660
2007 1,660
Thereafter 14,926
- --------------------------------------------------
Interest Payments - Cash payments for interest were $2,668,
$2,235 and $2,407 for 2002, 2001 and 2000, 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, primarily for the Australia SH-2G helicopter contract.
The customer advances for that contract 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 in
accordance with the agreement between the corporation and the
Australian government regarding a phased acceptance and delivery
schedule for the SH-2G(A) aircraft.
Page 39
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
INCOME TAXES
The components of income taxes are as follows:
2002 2001 2000
- ----------------------------------------------------------------
Current:
Federal $ (1,447) $ 3,411 $ 17,629
State 698 748 3,179
Foreign 273 166 67
- ----------------------------------------------------------------
(476) 4,325 20,875
- ----------------------------------------------------------------
Deferred:
Federal (17,111) (353) (65)
State 262 (22) (10)
Foreign -- -- --
- ----------------------------------------------------------------
(16,849) (375) (75)
- ----------------------------------------------------------------
Total $ (17,325) $ 3,950 $ 20,800
- ----------------------------------------------------------------
Page 40
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
The components of the deferred tax assets and deferred
tax liabilities are presented below:
December 31 2002 2001
- --------------------------------------------------------------
Deferred tax assets:
Long-term contracts $ 10,066 $ 912
Deferred employee benefits 14,195 14,766
Inventory 9,311 4,444
Restructuring costs 2,679 --
Accrued liabilities and other items 6,949 6,229
- --------------------------------------------------------------
Total deferred tax assets 43,200 26,351
- --------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (6,820) (7,159)
Other items (1,880) (1,541)
- --------------------------------------------------------------
Total deferred tax liabilities (8,700) (8,700)
- --------------------------------------------------------------
Net deferred tax asset $ 34,500 $ 17,651
- --------------------------------------------------------------
No valuation allowance has been recorded because the
corporation believes that these deferred tax assets will, more
likely than not, be realized. This determination is based largely
upon the corporation's historical earnings trend as well as its
ability to carryback reversing items within two years to offset
taxes paid. In addition, the corporation has the ability to
offset deferred tax assets against deferred tax liabilities
created for such items as depreciation and amortization.
The provisions for federal income taxes approximate the
amounts computed by applying the U.S. federal income tax rate to
earnings before income taxes after giving effect to state income
taxes. The consolidated effective tax rate was lower due to the
reversal of prior years' tax accruals of $1,156, $2,972 and
$1,534 in 2002, 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 $3,562, $8,589 and $20,611 in 2002, 2001 and 2000,
respectively.
Page 41
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
PENSION PLAN
The corporation has a non-contributory defined benefit
pension plan covering the full-time U.S. employees of all U.S.
subsidiaries (with the exception of certain companies acquired in
2002 and 2001 who have not adopted the plan). These employees
become participants of the plan 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 $8,388 of Class A common stock of Kaman Corporation at
December 31, 2002).
The pension plan costs were computed using the projected
unit credit actuarial cost method and include the following
components:
2002 2001 2000
- -----------------------------------------------------------------
Service cost for benefits
earned during the year $ 10,061 $ 9,757 $ 9,528
Interest cost on projected
benefit obligation 24,045 22,822 21,688
Expected return on
plan assets (32,761) (31,614) (29,050)
Net amortization
and deferral (1,382) (3,589) (2,635)
- -----------------------------------------------------------------
Net pension cost (income) $ (37) $ (2,624) $ (469)
- -----------------------------------------------------------------
Page 42
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
The change in actuarial present value of the projected
benefit obligation is as follows:
December 31 2002 2001
- ---------------------------------------------------------------
Projected benefit obligation
at beginning of year $ 329,168 $ 312,273
Service cost 10,061 9,757
Interest cost 24,045 22,822
Actuarial liability loss 15,848 413
Plan amendments -- 817
Benefit payments (17,909) (16,914)
- ---------------------------------------------------------------
Projected benefit obligation at
end of year $ 361,213 $ 329,168
- ---------------------------------------------------------------
The change in the actuarial liability loss for 2002 is
principally due to effect of the change in the discount rate.
The change in fair value of plan assets is as follows:
December 31 2002 2001
- --------------------------------------------------------------
Fair value of plan assets at
beginning of year $ 386,642 $ 414,453
Actual return on plan assets (30,920) (10,897)
Employer contribution -- --
Benefit payments (17,909) (16,914)
- --------------------------------------------------------------
Fair value of plan assets
at end of year $ 337,813 $ 386,642
- --------------------------------------------------------------
Page 43
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
December 31 2002 2001
- --------------------------------------------------------------
Excess (deficiency) of assets over
projected benefit obligation $(23,400) $ 57,474
Unrecognized prior service cost 576 582
Unrecognized net (gain) loss 25,425 (55,493)
- --------------------------------------------------------------
Accrued (prepaid) pension cost $ (2,601) $ (2,563)
- --------------------------------------------------------------
The actuarial assumptions used in determining the funded
status and the net periodic benefit cost of the pension plan are
as follows:
December 31 2002 2001
- ----------------------------------------------------------------
Discount rate 7.0% 7.5%
Expected return on plan assets 8.625% 8.625%
Average rate of increase in
compensation levels 4.0% 4.5%
- ----------------------------------------------------------------
The corporation also maintains a defined contribution
plan which has been adopted by certain of its U.S. subsidiaries.
All employees of adopting employers who meet the eligibility
requirements of the plan 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). Employer contributions to the plan totaled $3,019,
$3,438 and $3,514 in 2002, 2001 and 2000, respectively.
Certain U.S. subsidiaries acquired in 2002 and 2001 maintain
their own defined contribution plans for their eligible
employees. Employer matching contributions are made on a
discretionary basis.
Page 44
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
December 31 2002 2001
- -----------------------------------------------------
Supplemental employees'
retirement plan $ 13,680 $ 12,730
Deferred compensation 8,288 8,673
Other 4,399 2,476
- -----------------------------------------------------
Total $ 26,367 $ 23,879
- -----------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space,
warehouses, land and buildings expire at varying dates from
January 2003 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
Page 45
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
noncancelable lease terms in excess of one year as of December
31, 2002:
- -------------------------------------------------
2003 $ 12,312
2004 6,673
2005 4,302
2006 2,406
2007 1,502
Thereafter 1,274
- -------------------------------------------------
Total $ 28,469
- -------------------------------------------------
Lease expense for all operating leases, including leases
with terms of less than one year, amounted to $15,172, $15,113
and $14,710 for 2002, 2001 and 2000, 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.
COMPUTATION OF EARNINGS (LOSS)
PER SHARE
The earnings (loss) per share - basic computation is based
on the net earnings (loss) divided by the weighted average number
of shares of common stock outstanding for each year.
The earnings (loss) per share - diluted computation 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. The earnings
(loss) per share - diluted computation also includes the common
stock equivalency of dilutive options granted to employees under
the Stock Incentive Plan. Excluded from the earnings (loss) per
Page 46
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
share - diluted calculation are options granted to employees that
are anti-dilutive based on the average stock price for the year.
2002 2001 2000
- -----------------------------------------------------------------
Earnings (loss) per
share - basic
Net earnings (loss) $ (33,601) $ 11,714 $ 36,920
- -----------------------------------------------------------------
Weighted average shares
outstanding (000) 22,408 22,364 22,936
- -----------------------------------------------------------------
Earnings (loss) per
share - basic $ (1.50) $ .52 $ 1.61
- -----------------------------------------------------------------
Earnings (loss) per
share - diluted
Net earnings (loss) $ (33,601) $ 11,714 $ 36,920
Plus:
After-tax interest savings
on convertible debentures 918 1,093 1,031
- -----------------------------------------------------------------
Net earnings (loss)
assuming conversion $ (32,683) $ 12,807 $ 37,951
- -----------------------------------------------------------------
Weighted average
shares outstanding (000) 22,408 22,364 22,936
Plus shares issuable on:
Conversion of 6%
convertible debentures -- 1,080 1,151
Exercise of
dilutive options -- 205 81
- -----------------------------------------------------------------
Weighted average
shares outstanding
assuming conversion (000) 22,408 23,649 24,168
- -----------------------------------------------------------------
Earnings (loss) per
share - diluted(1) $ (1.50) $ .52 $ 1.57
- -----------------------------------------------------------------
<fn>
(1) The calculated diluted earnings (loss) per share amounts for
2002 and 2001 are anti-dilutive, therefore, amounts shown are
Page 47
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
equal to the basic earnings (loss) per share calculation.
Additional potentially diluted average shares outstanding of
1,145,000 from the conversion of the debentures and the exercise
of dilutive stock options for the twelve months ended December
31, 2002 have been excluded from the average diluted shares
outstanding due to the loss from operations in that year.
</fn>
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
2002, 115,316 shares were issued to employees at prices ranging
from $8.59 to $15.33 per share. 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. At December
31, 2002, there were approximately 865,300 shares available for
offering under the plan.
Stock Incentive Plan - The corporation maintains a Stock
Incentive Plan that is scheduled to expire in November 2003. It
is expected that the corporation will renew the plan at that
time, subject to subsequent shareholders' approval. 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, 2002, there were approximately
321,700 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
Page 48
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
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 56,000 shares at
prices ranging from $14.50 to $17.74 per share in 2002, 100,000
shares at prices ranging from $15.63 to $16.31 per share in 2001
and 62,500 shares at prices ranging from $10.31 to $10.75 per
share in 2000. At December 31, 2002, there were 186,400 shares
remaining subject to restrictions pursuant to these awards.
Stock appreciation rights were issued for 136,000 shares
at $14.50 per share in 2002, 205,000 shares at prices ranging
from $16.28 to $16.31 per share in 2001 and 130,000 shares at
$10.31 in 2000, to be settled only for cash. The corporation
recorded income for the stock appreciation rights of $440 in
2002, $575 in 2001 and $1,732 of expense in 2000 due to
fluctuations in the market price of the shares.
Page 49
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
Stock option activity is as follows:
WEIGHTED-
AVERAGE
EXERCISE
Stock options outstanding: OPTIONS PRICE
- -----------------------------------------------------------------
Balance at January 1, 2000 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
Options granted 211,500 14.50
Options exercised (172,010) 11.60
Options cancelled (79,820) 14.76
- -----------------------------------------------------------------
Balance at December 31, 2002 1,218,800 14.08
- -----------------------------------------------------------------
Weighted average contractual life
remaining at December 31, 2002 6.7 years
- -----------------------------------------------------------------
Range of exercise prices for options $ 9.50- $ 13.26-
outstanding at December 31, 2002 $ 13.25 $ 17.00
- -----------------------------------------------------------------
Options outstanding 367,070 851,730
Options exercisable 264,110 289,760
Weighted average contractual
remaining life of options
outstanding 4.9 years 7.4 years
Weighted average exercise price:
Options outstanding $ 10.97 $ 15.42
Options exercisable $ 11.22 $ 15.59
- -----------------------------------------------------------------
Page 50
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
As of December 31, 2001 and 2000, there were 577,450 and
472,210 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.
2002 2001 2000
- -----------------------------------------------------------------
Net earnings (loss):
As reported $ (33,601) $ 11,714 $ 36,920
Pro forma (34,517) 10,767 36,288
Earnings (loss) per
share - basic:
As reported (1.50) .52 1.61
Pro forma (1.54) .48 1.58
Earnings (loss) per share - diluted:
As reported (1.50) .52 1.57
Pro forma (1.54) .48 1.55
- -----------------------------------------------------------------
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 2002, 2001 and 2000:
Page 51
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- -----------------------------------------------------------------
Expected dividend yield 3.0% 2.7% 4.3%
Expected volatility 45% 45% 38%
Risk-free interest rate 4.9% 5.1% 6.5%
Expected option lives 8 years 8 years 8 years
Per share fair value of
options granted $ 5.86 $ 6.84 $ 3.35
- -----------------------------------------------------------------
SEGMENT INFORMATION
The corporation reports results in three business segments--
Aerospace, Industrial Distribution and Music Distribution.
The Aerospace segment produces aircraft structures and
components for military and commercial aircraft, including
specialized aircraft bearings, manufactures and supports the
SH-2G Super Seasprite naval helicopter and the K-MAX medium-to-
heavy lift helicopter, and provides various advanced technology
products serving critical specialized markets including missile
and bomb fuzing. During the second quarter of 2002, the segment
recorded a pre-tax charge of $85,969 to cover the write-down of
K-MAX helicopter assets, principally inventories; for cost growth
associated with the Australian SH-2G(A) helicopter program; and
to phase out operations at the company's Moosup, Connecticut
plant by the end of 2003. 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 cost to
complete the SH-2G(A) helicopter program for Australia. As a
result of the 2002 and 2001 Australian SH-2G(A) program
adjustments, the contract is now in a loss position.
The Industrial Distribution segment is one of the
nation's larger distributors of power transmission, motion
control, material handling and electrical components and a wide
range of bearings. Products and value-added services are offered
to a customer base of more than 50,000 companies representing a
highly diversified cross-section of North American industry.
Page 52
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
The Music Distribution segment is the largest independent
distributor of musical instruments and accessories, offering more
than 10,000 products for amateurs and professionals. Proprietary
products include Ovation(R), Takamine(R), and Hamer(R) guitars,
Latin Percussion(R) and Toca(R) instruments, Gibraltar(R)
percussion hardware and Gretsch(R) professional drum sets.
Summarized financial information by business segment is
as follows:
2002 2001 2000
- -----------------------------------------------------------------
Net sales:
Aerospace $ 275,942 $ 301,580 $ 381,932
Industrial
Distribution 477,156 453,718 520,779
Music Distribution 127,678 120,571 128,523
- -----------------------------------------------------------------
$ 880,776 $ 875,869 $1,031,234
- -----------------------------------------------------------------
Operating profit (loss):
Aerospace $ (55,208) $ 6,542 $ 44,236
Industrial
Distribution 12,344 13,217 22,902
Music Distribution 7,157 6,580 7,441
- -----------------------------------------------------------------
(35,707) 26,339 74,579
Interest, corporate and
other expense, net (15,219) (10,675) (16,859)
- -----------------------------------------------------------------
Earnings (loss) before
income taxes $ (50,926) $ 15,664 $ 57,720
- -----------------------------------------------------------------
Identifiable assets:
Aerospace $ 308,275 $ 302,076 $ 307,762
Industrial
Distribution 144,585 134,974 137,297
Music Distribution 68,448 45,783 53,444
Corporate 14,232 39,113 55,327
- -----------------------------------------------------------------
$ 535,540 $ 521,946 $ 553,830
- -----------------------------------------------------------------
Page 53
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- -----------------------------------------------------------------
Capital expenditures:
Aerospace $ 5,255 $ 5,107 $ 6,110
Industrial
Distribution 1,494 1,501 2,947
Music Distribution 515 1,018 812
Corporate 337 407 1,175
- -----------------------------------------------------------------
$ 7,601 $ 8,033 $ 11,044
- -----------------------------------------------------------------
Depreciation and amortization:
Aerospace $ 6,773 $ 6,175 $ 5,875
Industrial
Distribution 2,457 2,742 3,138
Music Distribution 1,278 1,430 1,490
Corporate 1,112 1,094 1,127
- -----------------------------------------------------------------
$ 11,620 $ 11,441 $ 11,630
- -----------------------------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------
Geographic information - sales:
United States $ 758,240 $ 726,756 $ 789,533
Australia/New Zealand 64,071 100,121 186,537
Canada 28,049 27,162 29,455
Europe 14,933 12,319 12,765
Mexico 8,046 1,484 1,453
Japan 4,492 6,154 6,862
Other 2,945 1,873 4,629
- -----------------------------------------------------------------
$ 880,776 $ 875,869 $1,031,234
- -----------------------------------------------------------------
Page 54
<page>
Notes to Consolidated Financial Statements (CONTINUED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
KAMAN CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2002, 2001 AND 2000
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 $1,928 related to the sale of
product line in 2002 and a pre-tax gain of $2,679 related to the
sale of two buildings in 2001.
Identifiable assets are year-end assets at their respective
net carrying value segregated as to segment and corporate use.
The reductions in corporate assets in 2002 and 2001 are
principally due to the use of cash and cash equivalents in each
year.
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 $102,241 in 2002, $81,106 in
2001 and $81,519 in 2000.
Sales made by the Aerospace segment under a contract
with one customer were $52,029, $76,865 and $130,285 in 2002,
2001 and 2000, respectively.
Page 55
<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, 2002 and
2001, 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, 2002. 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, 2002 and 2001 and the results of their operations
and their cash flows for each of the years in the three year
period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
January 28, 2003
Page 56