<page>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-1093
KAMAN CORPORATION
(Exact Name of Registrant)
Connecticut 06-0613548
(State of Incorporation) (I.R.S. Employer Identification No.)
1332 Blue Hills Avenue, Bloomfield, Connecticut 06002
(Address of principal executive offices)
Registrant's telephone number, including area code-
(860) 243-7100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
-Class A Common Stock, Par Value $1.00
-6% Convertible Subordinated Debentures Due 2012
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated herein by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ].
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes (X) No ( )
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid
and asked price of such common equity, as of the last business day
of the registrant's most recently completed second fiscal quarter.
$239,984,608.00 as of June 30, 2003.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date (February 2, 2004).
Class A Common 21,975,797 shares
Class B Common 667,814 shares
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
Portions of the Corporation's 2003 Annual Report to Shareholders
are incorporated herein by reference and filed as Exhibit 13 to
this Report.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Kaman Corporation, incorporated in 1945, reports
information for itself and its subsidiaries (collectively, the
"corporation") in the following business segments: Aerospace,
Industrial Distribution, and Music.
The Aerospace segment's programs are conducted through
three principal businesses, consisting of Aircraft Structures
and Components, Advanced Technology Products, and Helicopter
Programs. The Aircraft Structures and Components business
involves aerostructure and helicopter subcontract work as well
as manufacture of components such as self-lubricating bearings
and driveline couplings for aircraft applications. For 2003,
this business constituted 48% of Aerospace segment sales. The
aerostructure subcontract element of this business continues to
be an area of strategic emphasis for the corporation. The
Advanced Technology Products business manufactures products
involving systems, devices and assemblies for a variety of
military and commercial applications, including safe, arm and
fuzing devices for several missile and bomb programs; precision
non-contact measuring systems for industrial and scientific use;
electro-optic systems for mine detection and other applications;
and high reliability memory systems for airborne, shipboard, and
ground-based programs. For 2003, this business constituted 22%
of segment sales. The Advanced Technology Products operation is
also an area of strategic emphasis for the corporation.
Helicopter Programs include prime helicopter production along
with spare parts and support. The helicopters produced by this
business are the SH-2G multi-mission maritime helicopter and the
K-MAX (registered trademark) medium to heavy external lift
helicopter. For 2003, this business constituted 30% of segment
sales.
The Industrial Distribution segment is the third largest
U.S. industrial distributor servicing the bearing,
electrical/mechanical power transmission, fluid power, motion
control and materials handling markets in the United States.
This segment offers more than 1.5 million items, as well as
value-added services to a base of more than 50,000 customers
spanning nearly every sector of U.S. industry from approximately
200 branches and regional distribution centers in the U.S.,
Canada, and Mexico.
The Music segment, the name of which has been changed from
"Music Distribution" in order to better express the breadth of
the segment's other activities, is America's largest independent
distributor of musical instruments and accessories, and is
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involved in some combination of designing, manufacturing,
marketing and distributing more than 15,000 products from four
distribution facilities and one manufacturing facility located
in the United States and Canada, to retailers of all sizes for
musicians at all skill levels.
AEROSPACE SEGMENT
Aircraft Structures and Components
- ----------------------------------
Aerostructures subcontract work involves commercial and
military aircraft programs. Current programs include production
of aircraft subassemblies and other parts for virtually all
Boeing commercial aircraft and the C-17 military transport.
This element of the Aerospace segment operation continues to be
an area of strategic emphasis for the corporation. The low
current and projected build rates for commercial airliners
affect this business directly, and the market has become
increasingly cost competitive on an industry-wide basis.
Helicopter subcontract work involves commercial and
military helicopter programs. Commercial programs include
multi-year contracts for production of fuselages for the MD
Helicopters, Inc. ("MDHI") 500 and 600 series helicopters and
composite rotor blades for the MD Explorer helicopter. Total
orders from MDHI have run at significantly lower rates than
originally anticipated due to lower than expected demand. The
corporation's investment in these contracts consists of $4.4
million in billed receivables and $16.4 million in recoverable
costs - not billed (including start-up costs and other program
expenditures) as of December 31, 2003. In 2003, the corporation
received payments totaling $4.4 million, primarily for items
shipped during 2003. The recoverability of unbilled costs will
depend to a significant extent upon MDHI's future requirements
through 2013, the year to which both contracts extend. The
corporation stopped production on these contracts in the second
quarter of 2003, while working closely with this customer to
resolve overall payment issues and establish conditions under
which production could be resumed, including the timing thereof.
Based upon MDHI's projected future requirements and inventory on
hand at both MDHI and the corporation, this would not be
expected to occur until the second half of 2004 at the earliest.
Although the outcome is not certain, the corporation understands
that MDHI management is pursuing strategies to improve its
current financial and operational circumstances.
The segment's Kamatics operation manufactures proprietary
self-lubricating bearings used in aircraft flight controls,
turbine engines and landing gear and produces driveline
couplings for helicopters. This business had increased sales in
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2003 with military and commercial aftermarket sales helping to
offset continued softness in commercial and regional aircraft
manufacturing. Kamatics products are in wide use in commercial
airliners operated by the major and regional airlines, and
increasingly, in military programs. Boeing is Kamatics' largest
commercial customer.
Advanced Technology Products
- ----------------------------
Advanced Technology Products is also an area of strategic
emphasis for the corporation. In July 2002, the corporation
acquired Dayron, a weapons fuze manufacturer for a variety of
munitions programs. The principal motivation for the
acquisition was a Dayron contract to develop a fuze for the U.S.
Air Force and Navy Joint Programmable Fuze ("JPF") program. The
JPF program is expected to generate substantial business once
final qualification has been achieved and future production
orders have been received. Final qualification testing was
undertaken early in 2003 but test results at that time
necessitated additional qualification work, which has delayed
production unit sales and increased program costs. Final
qualification testing resumed in the fourth quarter of 2003,
however, with Dayron completing the portion of qualification
testing required to be conducted by it as the contractor. The
customer has now resumed its portion of the qualification
testing with positive early results. Management expects that
final qualification testing will be completed in March 2004.
Helicopter Programs
- -------------------
The segment's helicopter products include the SH-2G multi-
mission maritime helicopter and the K-MAX medium-to-heavy
external lift helicopter. The SH-2G helicopter represents the
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 the New
Zealand and Polish navies.
The program for five retrofit SH-2G aircraft for New
Zealand, which had a contract value of about $190 million, was
completed early in 2003. A much smaller program for the
refurbishment of four SH-2G aircraft for Poland, which had a
contract value of almost $7 million, was also completed during
2003.
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Work continues on the SH-2G(A) retrofit 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 $723 million. The helicopter production portion of
the program is valued at approximately $598 million, of which
about 96% has been recorded as sales through December 31, 2003.
As previously reported, this contract is now in a loss position
due to increases in anticipated costs to complete the program
that were reflected in a $25.0 million pre-tax charge taken in
2002 and a $31.2 million sales and pre-tax profit adjustment
taken in 2001.
Production of all the SH-2G(A) aircraft is essentially
complete. As previously reported, the aircraft lack the full
Integrated Tactical Avionics System ("ITAS") software and
progress is continuing on this element of the program. In
September 2003, the RAN began the process of provisional
acceptance of these aircraft after receiving a decision to
proceed from the Australian government. The corporation expects
to be able to deliver the full capability of the ITAS weapons
system software in late 2004 with final acceptance anticipated
in 2005. While management believes that the corporation's
reserves are sufficient to cover estimated costs to complete the
program, final development of the software by subcontractors and
its integration, which is the corporation's responsibility, are
yet to come and they are complex tasks.
The corporation continues to pursue 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.
With respect to its K-MAX helicopter program, the segment
continues to pursue both a sale and short-term lease program for
existing K-MAX aircraft inventory that was written down to
estimated fair market value in 2002. As previously reported,
this approach follows a 2002 market evaluation of the K-MAX
helicopter program which had experienced several years of
significant market difficulties. In connection with this
decision, the corporation wrote down the value of existing
aircraft, excess spare parts, and equipment inventories.
Development costs for the aircraft were expensed in earlier
years, when incurred. On a going forward basis, the corporation
intends to maintain adequate inventories and personnel to
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support the fleet and additional aircraft will be produced only
upon firm order by a customer. During 2003, two K-MAX
helicopters were leased and two others were converted from
leases to sales. Currently, there are seven K-MAX aircraft
remaining available for sale, including the two aircraft
currently leased to customers.
Overall Aerospace Segment Performance in 2003
- ---------------------------------------------
The Aerospace segment business was adversely impacted by
several factors during 2003. These factors included weakness in
the commercial aerospace market, which has caused order stretch-
outs and a lower volume of deliveries than anticipated for
certain Boeing programs, difficulties experienced in certain
significant segment programs, including the MDHI helicopter
subcontract program, and the JPF program, lack of new helicopter
orders, and cost and operational issues associated with the
transition from the segment's Moosup, Conn. manufacturing
facility to its expanded facility in Jacksonville, Fla. These
factors have led to lower sales volume, which in turn has
resulted in overhead and general and administrative expenses
being absorbed at higher rates by active segment programs; this
has led to generally lower profitability or losses for these
programs.
Management continues to evaluate Kaman Aerospace's cost
structure, including its manpower requirements, and action is
being taken, where appropriate, to help bring the cost structure
in line with the business base. Management directed the move
from Moosup, the corporation's oldest facility, to Jacksonville,
a modern, expanded facility, in order to provide a lower cost
base from which to compete in the aerostructures subcontract
arena. This move was essentially completed in 2003. However,
the transition has generated additional costs associated with
the phase-out of Moosup, production man-hour performance in
Jacksonville, which has not yet achieved the levels that had
existed on an overall basis in Moosup, and the normal FAA and
customer requirements to requalify manufacturing and quality
processes in Jacksonville. While these costs continue to be an
issue going into 2004, the opportunity to operate at lower cost
in Jacksonville remains evident and is an expectation for the
future. The Jacksonville facility is ready to accept additional
business, although that may take time to develop in the present
environment.
Despite current circumstances, to date, management has
elected to continue expenditures for longer-term competitiveness
in the commercial aircraft market and to maintain its prime
helicopter program capabilities.
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Industrial Distribution Segment
- -------------------------------
This segment is the third largest U.S. industrial
distributor servicing the bearing, electrical/mechanical power
transmission, fluid power, motion control and materials handling
markets in the United States. The segment distributes products
and provides customized value-added services on a regional and
national basis to companies having production plants and
facilities that represent a wide spectrum of the North American
economy, from major food processing companies to basic
industries producing brand name products, from approximately 200
branches and regional distribution centers in the U.S., Canada,
and Mexico.
Because the segment's customers include a broad spectrum of
U.S. industry, this business is directly affected by national
macroeconomic variables such as the percentage of plant capacity
utilization within the U.S. industrial base, and the business
tends to track the U.S. Industrial Production Index with a short
lag. Industrial Distribution segment results in 2003 were
affected by continued weakness in the U.S. manufacturing sector
that has existed since the latter part of 2000. During this
period, cost controls and focus on working capital investment
helped performance. Particularly in this type of environment,
vendor incentives in the form of rebates (i.e., vendors provide
inventory purchase rebates to distributors at specified volume-
purchasing levels) have been a major contributor to the
segment's operating profits.
Despite economic circumstances during most of the year, the
segment benefited from acquisitions completed in the past
several years and from awards of new business at the national
account level. Significant recent additions to this roster
include Campbell Soup, GAF and Phelps Dodge. Late in 2003, the
segment also began to experience increased requests for
proposals and order activity. While industrial production
levels remain far from the levels sustained several years ago,
management is encouraged by signs of improvement in national
industrial markets.
Success in the segment's markets requires a combination of
competitive pricing and value-added services that save the
customer money while helping it become more efficient and
productive. Management believes that this segment has the
appropriate platforms, including technology, systems management
and customer and supplier relationships to compete effectively
in the evolving and highly fragmented industrial distribution
industry. The segment's size and scale of operations allow it to
attract highly skilled personnel and realize internal operating
efficiencies, and also to take advantage of vendor incentives in
the form of rebates, which tend to favor the larger
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distributors. Management believes that the segment's resources
and product knowledge enable it to offer a comprehensive product
line and invest in sophisticated inventory management and
control systems while its position in the industry enhances its
ability to rebound during economic recoveries and grow through
acquisitions.
In addition, over the past several years, large companies
have increasingly centralized their purchasing through suppliers
that can service all of their plant locations across a wide
geographic area. As this trend continues, the segment has
expanded its presence in geographic markets considered key to
winning these customers through acquisitions in the upper
Midwest and Mexico, and the selective opening of new branches.
Early in the fourth quarter of 2003, the segment acquired a
majority of the net assets and business of Industrial Supplies,
Inc. ("ISI"), of Birmingham, Alabama, a distributor of a wide
variety of bearing, conveyor, electrical, fluid power and power
transmission components used by manufacturing, mining, steel,
lumber, pulp and paper, food and other industries. As a result
of the acquisition, the segment now maintains four branches in
Alabama and an additional branch in Florida, expanding the
segment's presence in the increasingly important southeast
industrial market. The segment also added branches in the
Dallas and Richmond areas during 2003, so that as of the end of
the year, the segment now serves 70 of the top 100 industrial
markets in the country. Management's goal is to grow the
Industrial Distribution segment by expanding into additional
areas that enhance its ability to compete for large regional and
national customer accounts.
The segment also seeks to provide leadership in e-commerce
initiatives and further enhance operating and asset utilization
efficiencies throughout the business. The segment's information
technology infrastructure enables it to interface with all of
the major software systems used by its customers. As a result,
many formerly manual processes are now automated, including
purchase order receipts, acknowledgments, electronic invoicing
and funds transfer. In addition, the segment's e-commerce
website, although a small portion of overall sales, is serving
an increasingly broad customer base. Technology is also an
important tool to increase efficiency in the segment's
relationships with its suppliers; more than 65% of product
orders to these suppliers are placed electronically and an
increasing proportion is shipped from suppliers directly to the
segment's customers.
As previously reported, this segment had experienced an
increase in the number of "John Doe" type legal proceedings
filed against it, 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
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asbestos. While management believes that the segment has good
defenses to these claims, it is in the process of settling
virtually all of the claims for amounts that are immaterial in
the aggregate, with contribution from insurance carriers.
Management does not currently expect that these circumstances
will have a material adverse effect on the corporation.
MUSIC SEGMENT (formerly the Music Distribution Segment)
- -------------
Music segment results in 2003 reflect the positive effects
of the 2002 acquisition of Latin Percussion, the world leader in
hand percussion instruments. This segment's business is directly
affected by consumer confidence levels and although results for
the segment's base business (i.e., without Latin Percussion)
reflected a somewhat weak consumer environment, conditions
improved toward the end of the year and the segment had good
results overall, including a good Christmas season, particularly
at the large national stores.
The segment's broad array of instruments includes premier
and proprietary products, such as the Ovation (registered
trademark), and Hamer (registered trademark) guitars, Latin
Percussion/LP (registered trademarks) percussion products and
Takamine (registered trademark) guitars under its exclusive
distribution agreement. To enhance its market position, the
segment has significantly extended its line of percussion
products and accessories over the past two years, augmenting its
CB, Toca (registered trademark) and Gibraltar (registered
trademark), Gretsch* (registered trademark) drums, and Sabian*
cymbals, with the acquisition of Latin Percussion.
In September, 2003, the segment acquired Genz Benz
Enclosures, Inc., a small manufacturer of amplification and
sound reinforcement equipment that complements the segment's
guitar lines. Genz Benz has been working with the segment for
several years through an exclusive distribution agreement, so
while the acquisition will not add immediate incremental sales,
it provides the segment with ownership of this product line.
The segment continues to seek opportunities to add exclusive
premier brand product lines that would build upon the segment's
market position.
Technology is an important part of the segment's business.
The segment's customers have access to kmconline.com, an
industry-leading e-commerce site for expedited direct ordering
of merchandise that helps customers cut costs and improve
efficiencies through electronic exchange of information.
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In addition, to ensure high quality while offering value at
different price points, the segment's products are manufactured
both in the United States and abroad.
*Sabian and Gretsch are registered trademarks of other
organizations.
AVAILABLE INFORMATION
The corporation's website address is www.kaman.com. The
corporation's annual report on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K as well as amendments
to those reports filed or furnished pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, together with
Section 16 insider beneficial stock ownership reports, are
available free of charge through the website as soon as reasonably
practicable after they are electronically filed or furnished to
the Securities and Exchange Commission. The information contained
in the corporation's website is not intended to be incorporated
into this Annual Report on Form 10-K.
The Corporation's Governance Principles and all Board of
Directors' standing Committee Charters (including Audit, Corporate
Governance, Personnel & Compensation and Finance) are also located
on the corporation's website.
FINANCIAL INFORMATION
Information concerning each segment's performance for the
last three fiscal years is included in the Segment Information
section of the corporation's 2003 Annual Report to Shareholders
(Exhibit 13 to this Form 10-K) and such section is incorporated
herein by reference.
PRINCIPAL PRODUCTS AND SERVICES
Following is information for the three preceding fiscal
years concerning the percentage contribution of each business
segment's products and services to the corporation's
consolidated net sales:
<table>
Years Ended December 31
2001 2002 2003
------ ------ ------
<s> <c> <c> <c>
Aerospace 34.4% 31.3% 28.1%
Industrial Distribution 51.8% 54.2% 55.7%
Music 13.8% 14.5% 16.2%
------ ------ ------
Total 100.0% 100.0% 100.0%
</table>
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RESEARCH AND DEVELOPMENT EXPENDITURES
Aerospace segment government sponsored research expenditures,
included in cost of sales, were $4.9 million in 2003, $9.8 million
in 2002 and $6.7 million in 2001. Independent research and
development expenditures, included in selling, general and
administrative expenses, were $4.3 million in 2003, $5.4 million
in 2002 and $4.7 million in 2001.
BACKLOG
Program backlog of the Aerospace segment was approximately
$322.4 million at December 31, 2003, $370.0 million at December
31, 2002 and $364.9 million at December 31, 2001.
The corporation anticipates that approximately 53.7% of its
backlog at the end of 2003 will be performed in 2004.
Approximately 38.3% of the backlog at the end of 2003 is
related to U.S. government contracts or subcontracts which are
included in backlog to the extent that funding has been
appropriated by Congress and allocated to the particular contract
by the relevant procurement agency. Virtually all of these funded
government contracts have been signed.
GOVERNMENT CONTRACTS
During 2003, approximately 92.0% of the work performed by
the corporation directly or indirectly for the U.S. government
was performed on a fixed-price basis and the balance was
performed on a cost-reimbursement basis. Under a fixed-price
contract, the price paid to the contractor is negotiated at the
outset of the contract and is not generally subject to
adjustment to reflect the actual costs incurred by the
contractor in the performance of the contract. Cost
reimbursement contracts provide for the reimbursement of
allowable costs and an additional negotiated fee.
The corporation's U.S. government contracts and subcontracts
contain the usual required provisions permitting termination at
any time for the convenience of the government with payment for
work completed and associated profit at the time of termination.
COMPETITION
The Aerospace segment operates in a highly competitive
environment with many other organizations, some of which are
substantially larger and have greater financial and other
resources.
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The corporation competes for its aerostructures subcontract,
helicopter structures and components business on the basis of
price and quality; product endurance and special performance
characteristics; proprietary knowledge; and the reputation of the
corporation. Competitors for this business include small machine
shops and offshore manufacturing facilities. The corporation
competes for its advanced technology fuzing business primarily on
the basis of technical competence, product quality, and to some
extent, price; and also on the basis of its experience as a
developer and manufacturer of fuzes for particular weapon types
and the availability of facilities, equipment and personnel. The
corporation is also affected by the political and economic
circumstances of its potential foreign customers. The corporation
competes with other helicopter manufacturers on the basis of
price, performance, and mission capabilities; and also on the
basis of its experience as a manufacturer of helicopters, the
quality of its products and services, and the availability of
facilities, equipment and personnel to perform contracts.
Consolidation in the industry has increased the level of
international competition for helicopter programs. The
corporation's FAA certified K-MAX helicopters compete with
military surplus helicopters and other used commercial helicopters
employed for lifting, as well as with alternative methods of
meeting lifting requirements.
Industrial distribution operations are subject to a high
degree of competition from several other national distributors,
two of which are substantially larger than the corporation;
and from many regional and local firms. Competitive forces
have intensified due to weakness in the U.S. manufacturing
sector that has existed since late 2000, the growth of major
competitors through consolidation and the increasing importance
of large national or North American accounts.
Music operations compete with domestic and foreign
distributors. Certain musical instrument products manufactured by
the corporation are subject to competition from U.S. and foreign
manufacturers as well. The corporation competes in these markets
on the basis of service, price, performance, and inventory variety
and availability. The corporation also competes on the basis of
quality and market recognition of its music products and has
established trademarks and trade names under which certain of its
music products are produced, as well as under private label
manufacturing in a number of foreign countries.
FORWARD-LOOKING STATEMENTS
- --------------------------
This release contains forward-looking information relating to
the company's business and prospects, including aerostructures and
helicopter subcontract programs and components, advanced
technology products, SH-2G and K-MAX helicopter programs, the
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industrial distribution and music businesses, and other matters
that involve a number of uncertainties that may cause actual
results to differ materially from expectations. Those
uncertainties include, but are not limited to: 1) the successful
conclusion of competitions and thereafter contract negotiations
with government authorities, including foreign governments; 2)
political developments in countries where the company 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 company, particularly industrial production and
commercial aviation, and global economic conditions; 5)
satisfactory completion of the Australian SH-2G(A) program,
including successful completion and integration of the full ITAS
software; 6) recovery of the company's investment in the MD
Helicopters, Inc. contracts; 7) actual costs for recertifying
products and processes in connection with start-up of the expanded
Jacksonville 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 and general and administrative expenses; 10)
successful sale or lease of existing K-MAX inventory; 11) the
condition of consumer markets for musical instruments; 12)
profitable integration of acquired businesses into the company's
operations; 13) changes in supplier sales or vendor incentive
policies; 14) the effect of price increases or decreases; and 15)
currency exchange rates, taxes, changes in laws and regulations,
inflation rates, general business conditions and other factors.
Any forward-looking information should be considered with these
factors in mind.
EMPLOYEES
As of December 31, 2003, the Corporation employed 3,499
individuals throughout its business segments and corporate
headquarters as follows:
<table>
<s> <c>
Aerospace 1,579
Industrial Distribution 1,471
Music 365
Corporate Headquarters 84
-----
3,499
</table>
PATENTS AND TRADEMARKS
The corporation holds patents reflecting scientific and
technical accomplishments in a wide range of areas covering both
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basic production of certain products, including aerospace
products and music instruments, as well as highly specialized
devices and advanced technology products in defense related
and commercial fields.
Although the corporation's patents enhance its competitive
position, management believes that none of such patents or patent
applications is singularly or as a group essential to its
business as a whole. The corporation holds or has applied for
U.S. and foreign patents with expiration dates that range through
the year 2023.
These patents are allocated among the corporation's business
segments as follows:
<table>
U.S. PATENTS FOREIGN PATENTS
Segment Issued Pending Issued Pending
<s> <c> <c> <c> <c>
Aerospace 43 2 13 5
Industrial Distribution 0 0 0 0
Music 31 1 33 66
-- -- -- --
74 3 46 71
</table>
Registered trademarks of Kaman Corporation include Adamas,
Applause, Hamer, KAflex, KAron, K-MAX, Magic Lantern, Ovation, LP
and Latin Percussion. In all, the corporation maintains 305 U.S.
and foreign trademarks with 89 applications pending, most of which
relate to music products in the Music segment.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS
In the opinion of management, based on the corporation's
knowledge and analysis of relevant facts and circumstances,
compliance with any environmental protection laws is not likely
to have a material adverse effect upon the capital expenditures,
earnings or competitive position of the corporation.
The corporation is subject to the usual reviews, inspections
and enforcement actions by various federal and state
environmental and enforcement agencies and has entered into
agreements and consent decrees at various times in connection
with such reviews. One such matter, Rocque vs. Kaman, is
discussed in Item 3 (Legal Proceedings). In addition, the
Corporation engages in various environmental studies and
investigations and, where legally required to do so, undertakes
appropriate remedial actions at facilities owned or controlled by
it, either voluntarily or in connection with the acquisition,
disposal or operation of such facilities. Such studies and
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investigations are ongoing at the Corporation's Bloomfield, and
Moosup, Connecticut facilities with voluntary remediation
activities also being undertaken at the Moosup facility. Also on
occasion the corporation has been identified as a potentially
responsible party ("PRP") by the U.S. Environmental Protection
Agency ("EPA")in connection with the EPA's investigation of
certain third party facilities. In each instance, the corporation
has provided appropriate responses to all requests for information
that it has received, and the matters have been resolved either
through de minimis settlements, consent agreements, or through no
further action being taken by the EPA or the applicable state
agency with respect to the corporation. One such matter involved
the Barkhamsted Landfill site located in New Hartford, Connecticut
(the "Barkhamsted site") which the corporation has previously
reported in its report on Form 10-Q for the quarter ended June 30,
2002, Document No. 0000054381-02-000022 filed with the Securities
and Exchange Commission on August 14, 2002. The Corporation,
together with other PRPs has entered into, and finalized, a
consent decree with the EPA settling its involvement and
responsibility for remediation of the site for a non-material
amount, subject to certain contingencies which the corporation
believes are reasonable. With respect to any other such matters
which may currently be pending, the corporation has been able to
determine, based on its current knowledge, that resolution of such
matters is not likely to have a material adverse effect on the
future financial condition of the corporation.
In arriving at this conclusion, the corporation has taken
into consideration site-specific information available regarding
total costs of any work to be performed, and the extent of work
previously performed. Where the corporation has been identified
as a PRP at a particular site, the corporation, using information
available to it, also has reviewed and considered a number of
other factors, including: (i) the financial resources of other
PRPs involved in each site, and their proportionate share of the
total volume of waste at the site; (ii) the existence of
insurance, if any, and the financial viability of the insurers;
and (iii) the success others have had in receiving reimbursement
for similar costs under similar insurance policies issued during
the periods applicable to each site.
FOREIGN SALES
Fifteen percent (15%) of the sales of the corporation made
in 2003 were to customers located outside the United States. In
2003, the corporation continued its efforts to develop
international markets for its products and foreign sales
(including sales for export). The corporation also continued to
perform work under contracts with the Commonwealth of Australia
and the Government of New Zealand for the supply of retrofit
SH-2G helicopters. Additional information required by this item
Page 14
<page>
is included in the Segment Information section of the
corporation's 2003 Annual Report to Shareholders (Exhibit 13 to
this Form 10-K) which section is incorporated herein by
reference.
ITEM 2. PROPERTIES
The corporation occupies approximately 3,581 thousand square
feet of space throughout the United States and in Australia,
Canada, Germany and Mexico, distributed as follows:
<table>
SEGMENT SQUARE FEET
(in thousands as of 12/31/03)
<s> <c>
Aerospace 1,809
Industrial Distribution 1,255
Music 477
Corporate Headquarters 40
-----
Total 3,581
</table>
The Aerospace segment's principal facilities are located in
Arizona, Connecticut, Florida, and Kansas; other facilities
including offices and smaller manufacturing and assembly
operations are located in several other states and in Dachsbach,
Germany. These facilities are used for manufacturing, research
and development, engineering and office purposes. The U.S.
Government owns 154 thousand square feet of the space occupied by
Kaman Aerospace Corporation in Bloomfield, Connecticut in
accordance with a Facilities Lease Agreement with an initial five
(5) year term which has been extended to expire in March 2005. The
corporation also occupies a facility in Nowra, New South Wales,
Australia under a contract providing for a ten (10) year term
expiring in June, 2010. Approximately 500,000 square feet of space
listed above is attributable to the Aerospace segment facility
located in Moosup (the "Moosup facility") which was closed in
2003.
The Industrial Distribution segment's facilities are located
throughout the United States with principal facilities located in
Alabama, California, Connecticut, New York, Kentucky and Utah.
Additional Industrial Distribution segment facilities are located
in Mexico and British Columbia, Canada. These facilities consist
principally of regional distribution centers, branches and office
space with a portion used for fabrication and assembly work.
The Music segment's facilities in the United States are
located in Connecticut, California, New Jersey and Tennessee. An
additional Music facility is located in Ontario, Canada. These
Page 15
<page>
facilities consist principally of regional distribution centers
and office space. Also included are facilities used for
manufacturing music instruments.
The corporation occupies a 40 thousand square foot Corporate
headquarters building in Bloomfield, Connecticut.
The corporation's facilities are generally suitable and
adequate to serve its purposes. Substantially all of its
facilities are currently fully utilized with the exception of
certain properties in the Aerospace segment. Within the Aerospace
segment, the Moosup manufacturing facility is now closed for
operation and awaiting disposition, while the expanded
Jacksonville facility and the helicopter program-related space at
the Bloomfield facility are currently underutilized due to the
factors discussed in Item 1 of this report.
The corporation is a lessee of many of its facilities,
particularly in the Industrial Distribution segment.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in October 2003 the corporation
entered into a stipulated judgment with the Connecticut Department
of Environmental Protection, settling the matter referred to as
Rocque vs. Kaman. The complaint in this matter alleged certain
regulatory violations (the majority of which were administrative
in nature) at facilities located in Connecticut related to routine
inspections which took place between 1988 and 1998. The matter
was settled for a non-material amount.
Other legal proceedings or enforcement actions relating to
environmental matters are discussed in the section entitled
Compliance with Environmental Protection Laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of 2003.
Page 16
<page>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
MARKET FOR CLASS A COMMON STOCK
The Class A Common Stock of the corporation is traded on the
NASDAQ Stock Market under the symbol "KAMNA". The corporation's
Class B Common Stock is not actively traded.
HOLDERS OF COMMON STOCK
As of February 2, 2004, there were approximately 5,416
holders of record of the corporation's Class A Common Stock and 70
holders of record of the corporation's Class B Common Stock.
INVESTOR SERVICES PROGRAM
Shareholders of Kaman Class A common stock are eligible to
participate in the Mellon Investor Services Program
administered by Mellon Bank, N.A. which offers a variety of
services including dividend reinvestment. A booklet describing
the program may be obtained by writing to the program's
Administrator, Mellon Investor Services, P.O. Box 590, Ridgefield
Park, NJ 07660.
Page 17
<page>
<table>
QUARTERLY CLASS A COMMON STOCK INFORMATION
- -----------------------------------------------------------------
<s> <c> <c> <c> <c>
High Low Close Dividend
2003
First $13.24 $ 9.40 $ 9.78 $.11
Second 11.80 9.42 11.49 .11
Third 14.91 10.72 12.96 .11
Fourth 14.29 11.67 12.73 .11
- -----------------------------------------------------------------
2002
First $17.61 $13.46 $16.95 $.11
Second 18.81 14.82 16.76 .11
Third 17.50 11.00 12.25 .11
Fourth 13.75 9.42 11.00 .11
- -----------------------------------------------------------------
QUARTERLY DEBENTURE INFORMATION (6% Conv. Subordinated)
- -----------------------------------------------------------------
<s> <c> <c> <c>
High Low Close
2003
First $ 92.00 $92.00 $92.00
Second 95.00 94.75 94.75
Third 99.00 99.00 99.00
Fourth - - - - No Trades* - - - - -
*Effective January 29, 2004, this security's listing moved from
the NASDAQ Small Cap Market to the OTC bulletin board.
- -----------------------------------------------------------------
2002
First $ 99.00 $91.00 $99.00
Second - - - - No Trades - - - - -
Third - - - - No Trades - - - - -
Fourth 100.00 91.00 95.00
- -----------------------------------------------------------------
</table>
NASDAQ market quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not
necessarily represent actual transactions.
Page 18
<page>
ANNUAL MEETING
The Annual Meeting of Shareholders of the corporation is
scheduled to be held on Tuesday, April 20, 2004 at 11:00 a.m. in
the offices of the corporation, 1332 Blue Hills Avenue,
Bloomfield, Connecticut 06002. Holders of all classes of Kaman
securities are invited to attend, however it is expected that
matters on the agenda for the meeting will require the vote of
Class B shareholders only.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is included in the Five-
Year Selected Financial Data section of the corporation's 2003
Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and
that section is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is included in the
Management's Discussion and Analysis section of the corporation's
2003 Annual Report to Shareholders (Exhibit 13 to this Form 10-K)
and that section is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The corporation has various market risk exposures that arise
from its normal business operations, including interest rates,
currency exchange rates, and supplier price changes as well as
other factors described in the Forward-Looking Statements section
of this report.
The corporation's exposure to interest rate risk relates
primarily to its financial instruments, and is managed
principally through the use of long-term debt obligations with
fixed interest rates and revolving credit facilities with
interest at current market rates. Fees and interest rates charged
on revolving credit commitments and borrowings are based upon
borrowing levels, market interest rates, and the corporation's
credit rating. Letters of credit are generally considered
borrowings for purposes of the corporation's revolving credit
agreement.
The corporation's primary interest rate risk is derived from
its outstanding variable-rate revolving credit facilities.
Changes in market interest rates or the corporation's credit
rating would impact the interest rates on these facilities. There
Page 19
<page>
was some increase in the corporation's exposure to this market
risk factor during 2003, as average bank borrowings increased
principally due to acquisitions during the past few years. For
the year ended December 31, 2003, the result of a hypothetical 1%
increase in the average cost of the corporation's revolving credit
facilities would have reduced earnings before income taxes by
approximately $400,000.
The corporation has manufacturing, sales, and distribution
facilities in certain locations throughout the world and makes
investments and conducts business transactions denominated in
various currencies, including the U.S. dollar, Euro, Canadian
dollar, Mexican peso, and Australian dollar. The corporation's
exposure to currency exchange rates is managed at the corporate
and subsidiary operations levels as an integral part of the
business. Management believes that any near-term changes in
currency exchange rates would not materially affect the
consolidated financial position, results of operations or cash
flows of the corporation.
The corporation's exposure to supplier sales policies and
price changes relates primarily to its distribution businesses and
the corporation seeks to manage this risk through its procurement
policies and maintenance of favorable relationships with
suppliers. Except for vendor incentives, management believes that
any near-term changes in supplier sales policies and price changes
would not materially affect the consolidated financial position,
results of operations or cash flows of the corporation. Vendor
incentives have been an important contributor to the Industrial
Distribution segment's operating profits. While management
believes that vendors will continue to offer incentives, there can
be no assurance that the segment will continue to receive
comparable amounts in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included in the
Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Selected Quarterly Financial Data
sections of the corporation's 2003 Annual Report to Shareholders
(Exhibit 13 to this Form 10-K) and such sections are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 20
<page>
ITEM 9 A. Controls and Procedures
(a) Disclosure Controls and Procedures. The corporation's
management, with the participation of the corporation's Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the corporation's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the corporation's Chief
Executive Officer and Chief Financial Officer have concluded that,
as of the end of such period, the corporation's disclosure
controls and procedures were effective.
We note, however, that even the most well designed and
executed control systems are subject to inherent limitations and
as a result, the control system can provide reasonable but not
absolute assurance that its objectives will be met under all
potential future conditions. The corporation's Chief Executive
Officer and Chief Financial Officer have concluded that the
corporation's disclosure controls and procedures are effective at
a reasonable assurance level.
(b) Internal Control Over Financial Reporting. There have
not been any changes in the corporation's internal control over
financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15 (f) under the Exchange Act) during the fiscal quarter
to which this report relates (the registrant's fourth fiscal
quarter in the case of an annual report) that have materially
affected, or are reasonably likely to materially affect, the
corporation's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Following is information concerning each Director and
executive officer of Kaman Corporation including name, age,
position with the corporation, and business experience during the
last five years:
Brian E. Barents Mr. Barents, 60, has been a Director
since 1996. He is the retired President
and Chief Executive Officer of Galaxy
Aerospace Corp. Prior to that he was
President and Chief Executive Officer of
Learjet, Inc. He is also a director of
Eclipse Aerospace Corp. and The Nordam
Group.
Page 21
<page>
T. Jack Cahill Mr. Cahill, 55, has been President of
Kaman Industrial Technologies
Corporation, a subsidiary of the
corporation, since 1993. He has held
various positions with the
corporation since 1975.
E. Reeves Callaway, III Mr. Callaway, 56, has been a Director
since 1995. He is the Founder and Chief
Executive Officer of The Callaway
Companies, an engineering services firm.
Candace A. Clark Ms. Clark, 49, has been Senior Vice
President, Chief Legal Officer and
Secretary since 1996. Prior to that
she served as Vice President and Counsel.
Ms. Clark has held various positions with
the corporation since 1985.
John A. DiBiaggio Dr. DiBiaggio, 71, has been a Director
since 1984. He is now President
Emeritus of Tufts University, having
served as President until the fall of
2001. Prior to that he was President
and Chief Executive Officer of Michigan
State University.
Ronald M. Galla Mr. Galla, 52, has been Senior Vice
President and Chief Information Officer
since 1995. Prior to that he served as
Vice President and director of the
corporation's Management Information
Systems, a position which he held since
1990. Mr. Galla has been director of
the corporation's Management
Information Systems since 1984.
Robert M. Garneau Mr. Garneau, 59, has been Executive Vice
President and Chief Financial Officer
since 1995. Previously he served as
Senior Vice President, Chief Financial
Officer and Controller. Mr. Garneau has
held various positions with the
corporation since 1981.
Edwin A. Huston Mr. Huston, 65, has been a director
since 2002. Mr. Huston is the retired
Vice Chairman of Ryder System,
Incorporated, an international logistics
and transportation solutions company.
He served as Senior Executive Vice
President Finance and Chief Financial
Page 22
<page>
Officer of that company from 1986 to
1999. Mr. Huston is a director of Unisys
Corporation, Answerthink, Inc. and
Enterasys Networks, Inc.
Russell H. Jones Mr. Jones, 59, was appointed Senior Vice
President, Chief Investment Officer, and
Treasurer in 2003. Prior to that he
served as Vice President and Treasurer.
He has held various positions with the
Corporation since 1973.
C. William Kaman II Mr. Kaman, 52, has been a Director
since 1992 and is Vice Chairman of the
board of directors of the corporation.
He is the retired Chairman and CEO of
AirKaman of Jacksonville, Inc., an
entity no longer affiliated with the
corporation. Previously he was
Executive Vice President of the
corporation and President of Kaman Music
Corporation, a subsidiary of the
corporation.
John C. Kornegay Mr. Kornegay, 54, has been President of
Kamatics Corporation, a subsidiary of
the corporation, since 1999. He has
held various positions with Kamatics
Corporation since 1988.
Eileen S. Kraus Ms. Kraus, 65, has been a Director
since 1995. As the current Chairman of
the Corporate Governance Committee, she
also serves as the Board's Lead Director.
She is the retired Chairman of Fleet Bank
Connecticut. She is a director of The
Stanley Works and Rogers Corporation.
Paul R. Kuhn Mr. Kuhn, 62, has been a Director since
1999. He has been President and Chief
Executive Officer of the corporation
since August 1999 and was appointed to
the additional position of Chairman in
2001. From 1998 to 1999 he was Senior
Vice President, Operations, Aerospace
Engine Business, for Coltec Industries,
Inc. Prior to that he was Group Vice
President, Coltec Industries, Inc. and
President of its Chandler Evans
division. He is a director of the
Connecticut Business and Industry
Association.
Page 23
<page>
Joseph H. Lubenstein Mr. Lubenstein, 56, has been President of
Kaman Aerospace Corporation, a subsidiary
of the corporation, since 2001. Prior to
that, he served for many years in a
variety of senior management positions
at Pratt & Whitney, a subsidiary of
United Technologies Corporation, the
last position being Vice President -
Quality and Vice President - Materials.
Walter H. Monteith, Jr. Mr. Monteith, 73, has been a Director
since 1987. He is the retired Chairman
of Southern New England Telecommuni-
cations Corporation.
Wanda L. Rogers Mrs. Rogers, 71, has been a Director
since 1991. She is President and Chief
Executive Officer of Rogers
Helicopters, Inc., President of Sco-Matt,
Inc. and Vice President of Heavy Lift
Helicopters. She is also a director of
both Central Valley Community Bancorp
and its subsidiary, Central Valley
Community Bank.
Robert H. Saunders, Jr. Mr. Saunders, 62, has been President of
Kaman Music Corporation, a subsidiary
of the corporation, since 1998. He has
held various positions with the
corporation since 1995.
Richard J. Swift Mr. Swift, 59, has been a director
since 2002. Mr. Swift is currently
Chairman of the Financial Accounting
Standards Advisory Council. In 2001, he
retired as Chairman, President and Chief
Executive Officer of Foster Wheeler Ltd.,
a provider of design, engineering,
construction, and other services, a
position he held since 1994. Prior to
that, Mr. Swift held various positions
at Foster Wheeler, having joined the
company in 1972. Mr. Swift is a
director of Ingersoll-Rand Company Ltd.,
Public Service Enterprise Group
Incorporated and Hubbell Incorporated.
Each Director and executive officer has been elected for a
term of one year and until his or her successor is elected. The
terms of all Directors and executive officers are expected to
expire as of the Annual Meeting of the Shareholders and Directors
of the corporation scheduled to be held on April 20, 2004.
Page 24
<page>
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon information provided to the corporation by
persons required to file reports under Section 16(a) of the
Securities Exchange Act of 1934, no Section 16(a) reporting
delinquencies occurred in 2003.
Board Independence
A majority of the corporation's Board of Directors are
"independent" directors as required and defined by NASDAQ Stock
Market, Inc. Rule 4350(c)(1) and Rule 4200(a)(15). The Board of
Directors has determined that the following persons are
independent: Brian E. Barents, E. Reeves Callaway III, John
A. DiBiaggio, Edwin A. Huston, Eileen S. Kraus, Walter H.
Monteith, Jr., Richard J. Swift, and Wanda Lee Rogers.
Audit Committee Financial Expert(s)
The Corporation's Board of Directors has for many years
maintained an Audit Committee which is currently composed of the
following directors: Walter H. Monteith, Jr., Chairman, E. Reeves
Callaway III, Eileen S. Kraus, and Richard J. Swift.
The corporation's Board of Directors has determined that the
Chairman of the Audit Committee, Walter H. Monteith, Jr., and
Richard J. Swift are "audit committee financial experts" within
the meaning of Item 401(h) of Regulation S-K. In addition, each
member of the Audit Committee is "independent" as that term is
used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
Code of Business Conduct
The corporation has for several years maintained a Code of
Business Conduct applicable to all of its employees and the Board
of Directors. This Code of Business Conduct is also applicable to
the corporation's principal executive officer, principal financial
officer, principal accounting officer or controller, and persons
performing similar functions. The Code of Business Conduct is
filed with this report as Exhibit 14.
ITEM 11. EXECUTIVE COMPENSATION
A) GENERAL. The following tables provide certain information
relating to the compensation of the corporation's Chief
Executive Officer and its four other most highly compensated
executive officers.
Page 25
<page>
B) SUMMARY COMPENSATION TABLE.
<table>
- ---------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Name and Other AWARDS Other
Principal Salary Bonus Annual RSA Options/SARs LTIP Comp.
Position Year ($) ($) Comp. ($)(1) (#Shares) Payments ($)(2)
- ---------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
P. R. Kuhn 2003 800,000 384,000 ------- 138,600 0/ --- 14,227
Chairman, 90,000
President and
Chief 2002 800,000 240,000 ------- 174,000 21,000/ --- 13,496
Executive 52,000
Officer 2001 762,500 300,000 ------- 261,000 25,000/ --- 15,630
65,000
R.M. Garneau 2003 470,000 169,000 ------- 77,715 0/ --- 13,516
Executive 51,000
Vice Pres- 2002 470,000 118,000 ------- 101,500 12,000/ --- 23,655
ident and 29,000
Chief 2001 450,000 150,000 ------- 163,125 12,500/ --- 25,056
Financial 40,000
Officer
J.H. Lubenstein
President, 2003 325,000 65,000 ------- 51,480 0/ --- 14,366
Kaman 34,000
Aerospace 2002 325,000 65,000 ------- 72,500 9,000/ --- 7,766
Corporation 22,000
2001 300,000 160,000 ------- 406,875 45,000/ --- 2,875
45,000
T.J.Cahill 2003 295,000 74,000 ------- 44,550 0/ --- 16,431
President, 29,200
Kaman 2002 280,000 56,000 ------- 58,000 7,000/ --- 12,230
Industrial 18,000
Technologies 2001 280,000 90,000 ------- 97,875 9,000/ --- 15,077
Corporation 20,000
R.H.Saunders Jr.
President, 2003 255,000 198,000 ------- 58,410 0/ --- 18,083
Kaman Music 38,300
Corporation 2002 245,000 196,000 ------- 50,750 6,000/ --- 18,383
15,000
2001 235,000 85,000 ------- 81,563 8,000/ --- 15,681
15,000
- ---------------------------------------------------------------------------
Page 26
<page>
<fn>
1. As of December 31, 2003, aggregate restricted stock holdings
and their year end value were: P.R. Kuhn, 49,200 shares valued at
$683,388; R.M. Garneau, 23,050 shares valued at $320,165; J.H.
Lubenstein, 24,200 shares valued at $336,138; T.J.Cahill, 13,400
shares valued at $186,126; and R.H. Saunders, Jr., 14,100 shares
valued at $195,849. Restrictions lapse at the rate of
20% per year for all awards, beginning one year after the grant
date provided recipient remains an employee of the corporation or
a subsidiary. Awards reported in this column are as follows:
P.R. Kuhn, 14,000 shares in 2003, 12,000 shares in 2002, and 16,000
shares in 2001; R. M. Garneau, 7,850 shares in 2003, 7,000
shares in 2002, and 10,000 shares in 2001; J.H. Lubenstein, 5,200
shares in 2003, and 5,000 shares in 2002, and 25,000 shares in 2001;
T. J. Cahill, 4,500 shares in 2003, 4,000 shares in 2002, and 6,000
shares in 2001; R. H. Saunders, Jr., 5,900 shares in 2003, 3,500
shares in 2002, and 5,000 in 2001. Dividends are paid on the
restricted stock.
2. Amounts reported in this column consist of: P.R. Kuhn, $7,907
- - Senior executive life insurance program ("Executive Life"),
$5,000 - employer matching contributions to the Kaman Corporation
Thrift and Retirement Plan (the "Thrift Plan employer match");
$1,320 - medical expense reimbursement program ("MERP"); R.M.
Garneau, $6,545 - Executive Life, $851 - Officer 162 Insurance
Program, $5,000 - Thrift Plan employer match, $1,120 - MERP; J. H.
Lubenstein, $3,761 - Executive Life, $5,000 - Thrift Plan employer
match, $4,750 - all supplemental employer contributions under the
Kaman Corporation Deferred Compensation Plan ("supplemental
employer contributions"), $855 - MERP; T. J. Cahill, $3,448 -
Executive Life, $5,000 - Thrift Plan employer match, $3,758 -
MERP, $4,225 - supplemental employer contributions; R.H. Saunders,
Jr., $7,247 - Executive Life, $5,000 Thrift Plan employer match,
$2,438 - MERP, $3,398 - supplemental employer contributions.
</fn>
</table>
Page 27
<page>
C) OPTION/SAR GRANTS IN THE LAST FISCAL YEAR:
<table>
- ----------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term*
- ----------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/
SARs**
Options/ Granted to
SARs** Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
- ----------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
P. R. Kuhn 0/ 0/ 9.9000 2/25/13 560,345 1,420,025
90,000 28.64
R. M. Garneau 0/ 0/ 9.9000 2/25/13 317,529 804,681
51,000 16.23
J. H. Luben- 0/ 0/ 9.9000 2/25/13 211,686 536,454
stein 34,000 10.82
T. J. Cahill 0/ 0/ 9.9000 2/25/13 181,801 460,719
29,200 9.29
R. H. Saunders 0/ 0/ 9.9000 2/25/13 238,458 604,299
38,300 12.19
- ----------------------------------------------------------------------------
*The information provided herein is required by Securities and
Exchange Commission rules and is not intended to be a projection
of future common stock prices.
**Stock Appreciation Rights ("SARs") are payable in cash only,
not in shares of common stock.
Options and SARs relate to the corporation's Class A common
stock and generally vest at the rate of 20% per year, beginning
one year after the grant date provided the recipient remains an
employee of the corporation or a subsidiary.
</table>
Page 28
<page>
D) STOCK OPTION EXERCISES IN THE LAST FISCAL YEAR, AND
FISCAL YEAR-END OPTION VALUES.
<table>
- -------------------------------------------------------------------------
Number of
Shares under- Value of
lying Unexercised
Unexercised in-the-money
options options*
Shares at FY-end (#) at FY-end ($)
acquired on Value exercisable/ exercisable/
Name Exercise(#) realized unexercisable unexercisable
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------
<s> <c> <c> <c> <c>
P. R. Kuhn none - 106,200/59,800 $42,930/28,620
R. M. Garneau none - 38,100/22,900 $27,865/14,310
J. H. Lubenstein none - 19,800/34,200 0/ 0
T. J. Cahill none - 47,600/22,300 $69,137/ 8,586
R. H. Saunders none - 23,800/13,200 $25,344/ 8,586
- -------------------------------------------------------------------------
*Difference between the 12/31/03 Fair Market Value and the exercise price.
</table>
Page 29
<page>
STOCK APPRECIATION RIGHT ("SAR")EXERCISES IN THE LAST FISCAL YEAR
AND YEAR-END SAR VALUES.
<table>
- ------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised in-the-money
SARs SARs*
SARs at FY-end (#) at FY-end ($)
acquired on Value exercisable/ exercisable/
Name Exercise(#) realized unexercisable unexercisable
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------
<s> <c> <c> <c> <c>
P. R. Kuhn none none 210,000/226,600 $107,325/430,650
R. M. Garneau none none 101,300/116,200 $ 80,395/246,420
J. H. Lubenstein none none 22,400/ 78,600 0/ 135,660
T. J. Cahill none none 90,100/ 64,600 $ 64,198/137,973
R. H. Saunders none none 19,000/ 64,300 $ 22,465/167,127
- ------------------------------------------------------------------------
*Difference between the 12/31/03 Fair Market Value and the exercise price(s).
</table>
Page 30
<page>
E) LONG TERM INCENTIVE PLAN AWARDS:
<table>
- -------------------------------------------------------------------------
Estimated future payouts under non-stock
price-based plans (1)
----------------------------------------
( a ) ( b ) ( c ) ( d ) ( e ) ( f )
- -------------------------------------------------------------------------
Performance
Number of or other
Shares period until
Units or maturation Threshold Target Maximum
Name Other Rights or payout ($) ($) ($)
- -------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
P.R. KUHN 0 24 months 0 880,000 1,760,000
R.M. GARNEAU 0 24 months 0 376,000 752,000
J.H. LUBENSTEIN 0 24 months 0 211,000 423,000
T.J.CAHILL 0 24 months 0 192,000 384,000
R. H. SAUNDERS,JR 0 24 months 0 166,000 332,000
- -------------------------------------------------------------------------
<fn>
1. Payouts will generally be made in cash, however, up to one-third of the
payment may be made in stock at the discretion of the Kaman Corporation
Board of Directors' Personnel and Compensation Committee. The executive may
request the Committee to approve a greater percentage of the payout to be
made in stock.
</fn>
</table>
The long term incentive program (LTIP) was added to the
corporation's Stock Incentive Plan features effective with
calendar year 2003. The Kaman LTIP measures and rewards the
comparative financial performance on average return on total
capital (40%), growth in earnings per share (40%), and total
return to shareholders (20%) over the performance period, which is
generally three years. Kaman's performance is compared to that of
the Russell 2000 companies. Each participant is assigned a target
award expressed as a percent of base salary that varies with
organizational level. A two-year transition award was made in
2003, the implementation year. The award, if any, for 2003 would
be paid in 2005. The LTIP will pay target awards if performance
is at the 50th percentile of the Russell 2000. If relative
company performance is below the 25th percentile of the Russell
2000, no award will be paid. Should relative performance be at
the 75th percentile or higher, of the Russell 2000, the maximum
Page 31
<page>
award of 200% of target will be paid. Prorated awards will be
paid for performance levels between the 25th and 75th percentiles.
F) PENSION AND OTHER DEFINED BENEFIT DISCLOSURE. The
following table shows estimated annual benefits payable at
normal retirement age to participants in the corporation's
Pension Plan at various compensation and years of service
levels using the benefit formula applicable to Kaman
Corporation. Pension benefits are calculated based on
60 percent of the average of the highest five consecutive
years of "covered compensation" out of the final ten years
of employment less 50 percent of the primary social security
benefit, reduced proportionately for years of service less than 30
years:
<table>
PENSION PLAN TABLE
Years of Service
Remuneration* 15 20 25 30 35
- ---------------------------------------------------------------
<c> <c> <c> <c> <c> <c>
125,000 32,337 43,332 53,679 64,674 64,674
150,000 39,837 53,382 66,129 79,674 79,674
175,000 47,337 63,432 78,579 94,674 94,674
200,000 54,837 73,482 91,029 109,674 109,674
225,000 62,337 83,532 103,479 124,674 124,674
250,000 69,837 93,582 115,929 139,674 139,674
300,000 84,837 113,682 140,829 169,674 169,674
350,000 99,837 133,782 165,729 199,674 199,674
400,000 114,837 153,882 190,629 229,674 229,674
450,000 129,837 173,982 215,529 259,674 259,674
500,000 144,837 194,082 240,429 289,674 289,674
750,000 219,837 294,582 364,929 439,674 439,674
1,000,000 294,837 395,082 489,729 589,674 589,674
1,250,000 369,837 495,582 613,929 739,674 739,674
1,500,000 444,837 596,082 738,429 889,674 889,674
1,750,000 519,837 696,582 862,929 1,039,674 1,039,674
2,000,000 594,082 797,082 988,429 1,189,674 1,189,674
*Remuneration: Average of the highest five consecutive years of
"Covered Compensation" out of the final ten years of service.
</table>
"Covered Compensation" means "W-2 earnings" or "base
earnings", if greater, as defined in the Pension Plan. W-2
earnings for pension purposes includes salary (including 401(k)
and Section 125/129 Plan contributions but not deferrals under a
non-qualified Deferred Compensation Plan), bonus and taxable
income attributable to restricted stock awards, stock appreciation
rights, and the cash out of employee stock options. Salary and
bonus amounts for the named executive officers for 2003 are as
Page 32
<page>
shown on the Summary Compensation Table. Compensation deferred
under the corporation's non-qualified deferred compensation plan
is included in Covered Compensation here because it is covered by
the corporation's unfunded supplemental employees' retirement
plan for the participants in that plan.
Current Compensation covered by the Pension Plan for any
named executive whose Covered Compensation differs by more than
10% from the compensation disclosed for that executive in the
Summary Compensation Table: Mr. Lubenstein, $473,216.
Federal law imposes certain limitations on annual pension
benefits under the Pension Plan. For the named executive
officers who are participants, the excess will be paid under the
Corporation's unfunded supplemental employees' retirement plan.
The executive officers named in Item 11(b) are participants
in the Pension Plan and as of December 31, 2003, had the number of
years of credited service indicated: Mr. Kuhn - 10.0; Mr. Garneau
- - 22.5 years; Mr. Lubenstein - 4.63 years; Mr. Cahill - 28.7
years; Mr. Saunders - 8.0 years.
Benefits are computed generally in accordance with the
benefit formula described above.
G) COMPENSATION OF DIRECTORS. Effective January 1, 2004, non-
employee members of the Board of Directors of the corporation
receive an annual retainer of $35,000, a fee of $1,500 for
attending each meeting of the Board and a fee of $1,200 for
attendance at each meeting of a standing Committee of the Board.
From time to time, the Board of Directors may establish a special
committee for a limited time and purpose. Fees paid for service
of special committees are generally consistent with fees paid for
service on standing committees, except that special committee
members may also receive compensation for service beyond
attendance at meetings, most recently at the rate of $1,000 per
day up to a maximum equal to the current annual retainer
applicable to the Board of Directors. The Chairman of each
committee receives a fee of $1,600 for attending each meeting of
that Committee and an annual retainer as follows: Audit, $7,500;
Personnel and Compensation, $5,000; Finance and Governance, each
$3,000. The Vice Chairman is entitled to a fee of $3,000 per
meeting when serving as the Chairman. Such fees may be received on
a deferred basis. The Lead Director receives an annual retainer
equal to $5,000. In addition, each non-employee director will
receive a Restricted Stock Award for 1,000 shares (issued pursuant
to the corporation's 2003 Stock Incentive Plan), providing for
immediate vesting upon election as a director at the corporation's
2004 Annual Meeting of Shareholders.
H) EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF
CONTROL ARRANGEMENTS. The corporation has entered into
Page 33
<page>
Employment Agreements and Change in Control Agreements with
certain executive officers, amendments to which are attached as
Exhibits 10g(i) through 10(g)(xvii). These agreements were filed
as exhibits to the following filings made by the corporation with
the Securities and Exchange Commission: Form 10-Q (Document
54381-99-14) filed on November 12, 1999; Form 10-K (Document No.
54381-00-03 filed on March 21, 2000; and Form 10-Q (Document
54381-00-500006) filed on November 14, 2000. Form 10-Q filed
August 14, 2001 (Document No. 0000054381-01-500011 and Form 10-Q
filed November 14, 2001 (Document No. 0000054381-01-500016. The
employment agreements do not have a fixed term and generally
provide for a severance payment to be made to any such officer if
he or she is terminated from employment (other than for willful
failure to perform proper job responsibilities or violations of
law) or if he or she leaves employment for good reason (e.g., due
to a diminution in job responsibilities). The change in control
agreements generally provide that, for a three year period
following a change in control of Kaman Corporation or, in certain
cases, a subsidiary thereof, a severance payment will be made to
any such officer if his or her employment ends following the
change in control (unless the termination was for cause, the
officer dies or becomes disabled or if he or she leaves employment
without good reason). The change in control agreements do not
have a fixed term.
Following his retirement from regular employment effective
December 31, 2001, the corporation entered into an agreement with
Walter Kozlow retaining him as a consultant for a period of two
years at an annual rate of $242,500. This agreement expired on
December 31, 2003. A copy of such agreement was attached to the
corporation's Form 10-Q filed with the Securities and Exchange
Commission on August 14, 2001.
Except as disclosed in Item 13, and except as described above
or in connection with the corporation's Pension Plan, Supplemental
Employees' Retirement Plan, 2003 Stock Incentive Plan and the non-
qualified Deferred Compensation Plan, the corporation has no other
employment contract, plan or arrangement with respect to any named
executive officer which relates to employment termination for any
reason, including resignation, retirement or otherwise, or a
change in control of the corporation or a change in any such
executive officer's responsibilities following a change of
control, which exceeds or could exceed $100,000.
I) Not Applicable.
J) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS.
1) The following persons served as members of the Personnel
and Compensation Committee of the Corporation's Board of Directors
Page 34
<page>
during the last fiscal year: Brian E. Barents, E. Reeves Callaway,
III, Edwin A. Huston, Wanda L. Rogers, and Richard J. Swift.
None of these individuals was an officer or employee of the
corporation or any of its subsidiaries during either the last
fiscal year or any portion thereof in which he or she served as a
member of the Personnel and Compensation Committee.
2) During the last fiscal year no executive officer of the
corporation served as a director of or as a member of the
compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive
officers served as a director of, or on the Personnel and
Compensation Committee of the corporation.
K) Not Applicable.
L) Not Applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
Following is information about persons known to the
corporation to be beneficial owners of more than five percent
(5%) of the Corporation's voting securities. Ownership is
direct unless otherwise noted.
<table>
- -----------------------------------------------------------------
Number of Shares
Class of Beneficially Owned
Common Name and Address as of February 1, Percentage
Stock Beneficial Owner 2004 of Class
- -----------------------------------------------------------------
<s> <c> <c> <c>
Class B Charles H. Kaman 258,375(1),(2) 38.69%
Kaman Corporation
1332 Blue Hills Avenue
Bloomfield, CT 06002
Holders of Mr. Kaman's (2)
Power of Attorney
c/o John C. Yavis, Jr.
Murtha Cullina LLP
CityPlace I
185 Asylum Street
Hartford, CT 06105
Page 35
<page>
Class B Newgate Associates 199,802(3),(4) 29.91%
Limited Partnership
c/o Murtha Cullina, LLP
CityPlace I
185 Asylum Street
Hartford, CT 06103
Voting Trustees pursuant (4)
to a Voting Trust
Agreement, dated as of
August 14, 2000
c/o John C. Yavis, Jr.
Murtha Cullina LLP
CityPlace I
185 Asylum Street
Hartford, CT 06105
Class B C. William Kaman, II 64,446(5) 9.65%
5367 Florence Point Drive
Fernandina Beach, FL 32034
Class B Robert D. Moses 51,177(6) 7.66%
Farmington Woods
Avon, CT 06001
- -----------------------------------------------------------------
<fn>
(1) Excludes 1,471 shares held by Mrs. Kaman. Mr. Kaman shares
beneficial ownership of these shares with the holders of a
Power of Attorney, as described in note (2) below.
(2) The power to vote Mr. Kaman's shares of Class B common stock
is shared through a durable power of attorney (the "Power of
Attorney") with certain individuals who have the authority to
vote Mr. Kaman's shares by majority vote. These individuals
are: John S. Murtha, a director emeritus of the corporation
and of counsel to the Hartford, Connecticut law firm, Murtha
Cullina LLP, counsel to the corporation, Robert M. Garneau,
Executive Vice President and Chief Financial Officer of the
corporation, Roberta C. Kaman, Mr. Kaman's wife, C. William
Kaman II, Mr. Kaman's son and a director and Vice Chairman of
the Board of the corporation, Steven W. Kaman, Mr. Kaman's
son, and Cathleen H. Kaman-Wood, Mr. Kaman's daughter.
(3) These shares are subject to a voting trust agreement dated
August 14, 2000 (the "Voting Trust"), as described in note
(4) below. Newgate shares beneficial ownership of such
shares with the voting trustees of such trust, as described
in note (4) below.
(4) The power to vote the shares of Newgate Associates Limited
Partnership is currently vested in ten voting trustees (the
"Voting Trustees") under the Voting Trust, which has a term
Page 36
<page>
of ten (10) years, subject to renewal. The Voting Trustees
consist of the six (6) individuals identified in footnote
(2) above and the following four (4) individuals: T. Jack
Cahill, President of Kaman Industrial Technologies
Corporation, a subsidiary of the corporation, Paul R. Kuhn,
Chairman, President, and Chief Executive Officer of the
corporation, Wanda L. Rogers, director of the corporation,
and John C. Yavis, Jr., of counsel to Murtha Cullina LLP,
counsel to the corporation.
(5) Excludes 4,800 shares held as trustee for the benefit of
certain family members.
(6) This information was current as of January 31, 2003 and
includes 39,696 shares held by a partnership controlled by
Mr. Moses.
</fn>
</table>
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following is
information concerning beneficial ownership of the corporation's
stock by each Director of the corporation, each executive officer
of the corporation named in the Summary Compensation Table, and
all Directors and executive officers of the corporation as a
group. Ownership is direct unless otherwise noted.
<table>
- ------------------------------------------------------------------------
Number of Shares
Class of Beneficially Owned Percentage
Name Common Stock as of February 1, 2004 of Class
- ------------------------------------------------------------------------
<s> <c> <c> <c>
Brian E. Barents Class A 3,500 *
T. Jack Cahill Class A 109,756(1) *
E. Reeves Callaway Class A 3,500 *
John A. DiBiaggio Class A 3,500 *
Robert M. Garneau Class A 123,016(2) *
Class B 24,404 3.48%
Edwin A. Huston Class A 1,500 *
C. William Kaman, II Class A 60,888(3) *
Class B 64,446(4) 9.65%
Paul R. Kuhn Class A 258,363(5) *
Class B 3,288 *
Eileen S. Kraus Class A 4,580 *
Joseph H. Lubenstein Class A 56,800(6) *
Walter H. Monteith, Jr. Class A 3,700 *
Wanda L. Rogers Class A 3,500 *
Robert H. Saunders, Jr. Class A 57,961(7) *
Class B 720 *
Richard J. Swift Class A 1,500 *
All Directors and
Executive Officers Class A 903,164(8) 4.10%
as a group ** Class B 94,020 14.08%
- ------------------------------------------------------------------------
Page 37
<page>
* Less than one percent.
** Excludes 22,400 Class A shares held by spouses of certain
Directors and executive officers.
<fn>
(1) Includes 53,500 shares subject to stock options exercisable
or which will become exercisable within 60 days.
(2) Includes 46,800 shares subject to stock options exercisable
or which will become exercisable within 60 days.
(3) Excludes 89,891 shares held by Mr. Kaman as Trustee, in
which shares Mr. Kaman disclaims any beneficial ownership.
(4) Excludes 4,800 shares held by Mr. Kaman as Trustee in which
shares Mr. Kaman disclaims any beneficial ownership.
(5) Includes 119,400 shares subject to stock options exercisable
or which will become exercisable within 60 days. Includes
17,250 shares held jointly with spouse.
(6) Includes 21,600 shares subject to stock options exercisable
or which will become exercisable within 60 days.
(7) Includes 29,000 shares subject to stock options exercisable
or which will become exercisable within 60 days.
(8) Includes 380,700 shares subject to stock options which will
become exercisable within 60 days.
</fn>
</table>
Page 38
<page>
<table>
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS:
- ------------------------------------------------------------------
Number of
securities
Number of remaining
securities to available for
be issued Weighted- future issuance
upon average under equity
exercise of exercise compensation
outstanding price of plans
options, outstanding (excluding
warrants options, securities
and warrants reflected in
Plan Category rights and rights column (a))
(a) (b) (c)
- ------------------------------------------------------------------
<s> <c> <c> <c>
Equity compensation
plans approved by
security holders:
1993 Stock Incentive
Plan 1,275,670 $ 13.67 ----
2003 Stock Incentive
Plan* ---- ---- 2,000,000
Employees Stock
Purchase Plan ---- ---- 735,500
Equity compensation
plans not approved by
security holders ---- ---- ----
- ------------------------------------------------------------------
Total 1,275,670 $ 13.67 2,735,500
- ------------------------------------------------------------------
</table>
*The corporation's 2003 Stock Incentive Plan was adopted by the
Board of Directors effective November 1, 2003, and was further
amended on February 17, 2004. The 2003 Stock Incentive Plan, and
the awards made thereunder to date, are subject to approval by the
corporation's Class B shareholders at the Annual Meeting of
Shareholders scheduled to be held on April 20, 2004. The 2003
Stock Incentive Plan provides for the grant of stock options,
stock appreciation rights, restricted stock awards and long-term
performance based awards. A total of 2,000,000 shares of the
corporation's Class A common stock has been reserved for issuance
Page 39
<page>
under the 2003 Stock Incentive Plan, in addition to shares
underlying any award under a predecessor plan. A copy of the 2003
Stock Incentive Plan is filed with this report as Exhibit 10a.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2003, the corporation obtained legal services in the
amount of $525,272 from the Hartford, Connecticut law firm of
Murtha Cullina LLP of which Mr. John S. Murtha and Mr. John C.
Yavis, Jr. are of counsel. Mr. Murtha, a director emeritus of the
corporation, is currently one of six holders of a power of
attorney described in footnote (2) to the table entitled "Security
Ownership of Certain Beneficial Owners", and a voting trustee of
the Voting Trust described in footnote (4) of such table. Mr.
Yavis currently serves as a voting trustee of the Voting Trust and
as the general partner of Newgate Associates Limited Partnership.
ITEM 14. Principal Accounting Fees and Services
Following is a summary of KPMG LLP fees for professional services
in fiscal years ended December 31, 2003 and 2002:
<table>
(in thousands)
Fee Category 2003 Fees 2002 Fees
- ------------ --------- ---------
<s> <c> <c>
Audit Fees $ 562.8 $ 559.3
Audit-Related Fees 21.0 60.4
Tax Fees 218.2 131.2
All Other Fees 9.8 ---
--------- ----------
Total Fees $ 811.8 $ 750.9
========== ==========
</table>
Audit Fees relate to services rendered for the audit of the
corporation's consolidated financial statements and review of the
interim consolidated financial statements included in quarterly
reports and services normally provided by KPMG in connection with
statutory and regulatory filings or engagements.
Audit-Related Fees relate to assurance and related services
that are reasonably related to performance of the audit or review
of the corporation's consolidated financial statements and which
are not reported under "Audit Fees". These services have included
employee benefit plan audits and consultations in connection with
acquisitions.
Page 40
<page>
Tax Fees relate to tax compliance, tax advice, and tax
planning services, including assistance with federal, state and
international tax compliance, tax audit defense, acquisitions and
international tax planning.
All Other Fees relate to products and services other than
those described above.
The Audit Committee's policy is to pre-approve all audit,
non-audit, tax and other fees to be paid to its independent
auditor. The Chairman of the Committee has been authorized by the
Committee to pre-approve KPMG proposals up to twenty thousand
dollars per service item, subject to the full Committee's approval
at a subsequent meeting. Pre-approvals are specific as to the
particular service that is proposed and each service is generally
subject to a budget.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
See Item 8 concerning financial statements appearing
as Exhibit 13 to this report.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
An index to the financial statement schedules
immediately precedes such schedules.
(a)(3) EXHIBITS.
An index to the exhibits filed or incorporated by
reference immediately precedes such exhibits.
(b) REPORTS ON FORM 8-K: The following reports on Form 8-K
were filed with the Securities and Exchange Commission
since January 1, 2003:
(b) (1) January 15, 2003, File No. 333-666179, Document No.
0000054381-03-000002 concerning the corporation's sale
of its Electromagnetics Division of Kaman Aerospace
Corporation.
(b) (2) April 15, 2003, File No. 333-666179, Document No.
0000054381-03-000081 concerning the corporation's first
quarter earnings results.
Page 41
<page>
(b) (3) July 22, 2003, File No. 333-666179, Document No.
0000054381-03-000111 concerning the corporation's second
quarter earnings results.
(b) (4) September 9, 2003, File No. 333-666179, Document No.
0000054381-03-000115 concerning the acquisition of
Industrial Supplies, Inc.
(b) (5) October 31, 2003, File No. 333-666179, Document No.
0000054381-03-000121 concerning the corporation's third
quarter earnings results.
(b) (6) January 29, 2004, File No. 333-666179, Document No.
0000054381-04-000006 concerning the move of its 6%
Convertible Subordinated Debentures to the OTC Bulletin
Board from the Nasdaq Small Cap Market listing.
(b) (7) February 11, 2004, File No. 333-666179, Document No.
0000054381-04-000029 concerning the financial
performance for the quarter and year ended December 31,
2003.
Page 42
<page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Bloomfield, State of
Connecticut, on this 5th day of March, 2004.
KAMAN CORPORATION
(Registrant)
/s/ Paul R. Kuhn
By Paul R. Kuhn, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature: Title: Date:
- ---------------------------------------------------------------
/s/ Paul R. Kuhn
Paul R. Kuhn Chairman, President, and March 5, 2004
Chief Executive Officer
and Director
/s/ Robert M. Garneau
Robert M. Garneau Executive Vice President March 5, 2004
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Paul R. Kuhn
Paul R. Kuhn March 5, 2004
Attorney-in-Fact for:
Brian E. Barents Director
E. Reeves Callaway, III Director
John A. DiBiaggio Director
Edwin A. Huston Director
C. William Kaman, II Director
Eileen S. Kraus Director
Walter H. Monteith, Jr. Director
Wanda L. Rogers Director
Richard J. Swift Director
Page 43
<page>
KAMAN CORPORATION AND SUBSIDIARIES
Index to Financial Statement Schedules
Report of Independent Auditors
Financial Statement Schedules:
Schedule V - Valuation and Qualifying Accounts
Page 44
<page>
REPORT OF INDEPENDENT AUDITORS
KPMG LLP
Certified Public Accountants
One Financial Plaza
Hartford, Connecticut 06103
The Board of Directors and Shareholders
Kaman Corporation:
Under date of February 6, 2004, we reported on the consolidated
balance sheets of Kaman Corporation and subsidiaries as of
December 31, 2003 and 2002 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, 2003, as contained in the 2003 annual report to
shareholders. These consolidated financial statements and our
report thereon are included in the annual report on Form 10-K
for 2003. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such schedule, when considered in relation to
the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG LLP
Hartford, Connecticut
February 6, 2004
Page 45
<page>
KAMAN CORPORATION AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<table>
YEAR ENDED DECEMBER 31, 2003
Additions
<s> <c> <c> <c> <c> <c>
BALANCE CHARGED TO BALANCE
JANUARY 1, COSTS AND DECEMBER 31,
DESCRIPTION 2003 EXPENSES OTHERS DEDUCTIONS 2003
Allowance for
doubtful accounts $2,853 $1,507 $ 150(B) $1,170(A) $3,340
====== ====== ====== ====== ======
Accumulated
amortization $1,817 $-----(C) $----- $----- $1,817
of goodwill ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 2002
Additions
<s> <c> <c> <c> <c> <c>
BALANCE CHARGED TO BALANCE
JANUARY 1, COSTS AND DECEMBER 31,
DESCRIPTION 2002 EXPENSES OTHERS DEDUCTIONS 2002
Allowance for
doubtful accounts $3,939 $1,024 $ 110(B) $2,220(A) $2,853
====== ====== ====== ====== ======
Accumulated
amortization $1,817 $-----(C) $----- $----- $1,817
of goodwill ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 2001
Additions
<s> <c> <c> <c> <c> <c>
BALANCE CHARGED TO BALANCE
JANUARY 1, COSTS AND DECEMBER 31,
DESCRIPTION 2001 EXPENSES OTHERS DEDUCTIONS 2001
Allowance for
doubtful accounts $4,636 $ 868 $277(B) $1,842(A) $3,939
====== ====== ====== ====== ======
Accumulated
amortization $1,708 $ 109 $----- $----- $1,817
of goodwill ====== ====== ====== ====== ======
<fn>
(A) Write-off of bad debts, net of recoveries.
(B) Additions to allowance for doubtful accounts attributable to
acquisitions.
(C) In accordance with FASB 142, no amortization expense for
goodwill has been recorded in 2003.
</fn>
</table>
Page 46
<page>
KAMAN CORPORATION
INDEX TO EXHIBITS
Exhibit 3a The Amended and Restated by reference
Certificate of Incorporation
of the corporation, as amended,
has been filed with the Securities
and Exchange Commission on form
S-8POS on May 11, 1994, as
Document No. 94-20.
Exhibit 3b The By-Laws of the corporation attached
as amended on February 17, 2004.
Exhibit 4a Indenture between the corporation by reference
and Manufacturers Hanover Trust
Company, as Indenture Trustee,
with respect to the Corporation's
6% Convertible Subordinated Debentures,
has been filed as Exhibit 4.1 to
Registration Statement No. 33 -
11599 on Form S-2 of the corporation
filed with the Securities and Exchange
Commission on January 29, 1987.
Exhibit 4b Revolving Credit Agreement by reference
between the corporation and The
Bank of Nova Scotia and Fleet
National Bank as Co-Administrative
Agents and Bank One, N.A. as the
Documentation Agent and The Bank of
Nova Scotia and Fleet Securities, Inc.
as the Co-Lead Arrangers and Various
Financial Institutions dated as of
November 13, 2000 filed as Exhibit 4
to form 10-Q filed with the Securities
and Exchange Commission on November 14,
2000, Document No. 0000054381-00-500006,
as amended by Document No. 0000054381-02-
000022 filed on August 14, 2002, as amended
by Document No. 0000054381-03-000124, filed
on November 5, 2003.
Exhibit 4c Credit Agreement between the by reference
corporation, RWG Frankenjura-
Industrie Flugwerklager GmbH, and
Wachovia Bank, N.A., dated July 29,
2002, as amended by Document No.
0000054381-02-000022 filed on August 14,
2002, as amended by Document No.
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0000054381-03-000124, filed on
November 5, 2003. Schedules and
Exhibits to the Credit Agreement,
which are listed in its Table of Contents,
are omitted but will be provided to the
Commission upon request.
Exhibit 10a The Kaman Corporation 2003 Stock attached
Incentive Plan effective November 1,
2003, as amended effective February
17, 2004.
Exhibit 10b The Kaman Corporation Employees by reference
Stock Purchase Plan as amended
effective November 19, 1997 has been
filed as an exhibit to the Corporation's
Form 10-K Document No. 0000054381-98-09
filed with the Securities and
Exchange Commission on March 16, 1998,
as amended by Document No. 0000054381-98-13
filed on March 27, 1998.
Exhibit 10c Fifth Amendment to Kaman attached
Corporation Supplemental
Employees' Retirement Plan. The
Plan, as previously amended has
been filed as an exhibit to
the Corporation's Form 10-K,
Document No. 0000054381-02-000005
filed with the Securities and Exchange
Commission on March 14, 2002.
Exhibit 10d First Amendment to Kaman attached
Corporation Amended and Restated
Deferred Compensation Plan (Effective
as of November 12, 2002, except where
otherwise indicated). The Amended and
Restated Plan has been filed as an
Exhibit to the corporation's Form 10-K
Document No. 0000054381-03-000079 filed
with the Securities and Exchange
Commission on March 26, 2003.
Exhibit 10e(i) Kaman Corporation Cash Bonus Plan by reference
(Amended and Restated Effective as
of January 1, 2002) and First
Amendment thereto was filed as an
exhibit to the Corporation's Form 10-K
Document No. 0000054381-02-000005,
filed with the Securities and Exchange
Commission on March 14, 2002. The
Second Amendment to Kaman Corporation
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Cash Bonus Plan (Amended and
Restated Effective as of January 1,
2002) has been filed as an Exhibit
to the corporation's Form 10-K
Document No. 0000054381-03-000079 filed
with the Securities and Exchange
Commission on March 26, 2003.
Exhibit 10f Notice of change of control by reference
filed as Exhibit 99 to the
corporation's Form 8-K dated
August 16, 2000 as Document
No. 54381-00-000010.
Exhibit 10g (i) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between Paul R. Kuhn and Kaman
Corporation, dated as of September
11, 2001.
Exhibit 10g(ii) Amendment No. 2 to Amended and attached
Restated Employment Agreement
between Paul R. Kuhn and Kaman
Corporation, dated as of February
17, 2004.
Exhibit 10g(iii) Second Amended and Restated attached
Change in Control Agreement
between Paul R. Kuhn and Kaman
Corporation, dated as of November
11, 2003.
Exhibit 10g(iv) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between Candace A. Clark and
Kaman Corporation, dated as of
February 17, 2004.
Exhibit 10g (v) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between Ronald M. Galla and Kaman
Corporation, dated as of February
17, 2004.
Exhibit 10g (vi) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between Robert M. Garneau and
Kaman Corporation, dated as of
February 17, 2004.
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Exhibit 10g (vii) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between T. Jack Cahill and Kaman
Industrial Technologies Corporation,
dated as of February 17, 2004.
Exhibit 10g (viii)Amendment No. 2 to Amended and attached
Restated Employment Agreement
between Joseph H. Lubenstein and
Kaman Aerospace Corporation, dated
as of February 17, 2004.
Exhibit 10g (ix) Amendment No. 1 to Amended and attached
Restated Employment Agreement
between Robert H. Saunders, Jr.
and Kaman Music Corporation,
dated as of February 17, 2004.
Exhibit 10g (x) Second Addendum to Change in attached
Control Agreement between
Candace A. Clark and Kaman
Corporation, dated as of November
11, 2003.
Exhibit 10g (xi) Second Addendum to Change in attached
Control Agreement between
Ronald M. Galla and Kaman
Corporation, dated as of
November 11, 2003.
Exhibit 10g (xii) Second Addendum to Change attached
in Control Agreement between
Robert M. Garneau and Kaman
Corporation, dated as of
November 11, 2003.
Exhibit 10g (xiii)Second Addendum to Change in attached
Control Agreement between T. Jack
Cahill and Kaman Industrial
Distribution Corporation, dated
as of November 11, 2003.
Exhibit 10g (xiv) Second Addendum to Change in attached
Control Agreement between Joseph
H. Lubenstein and Kaman Aerospace
Corporation, dated as of November
11, 2003.
Exhibit 10g (xv) Second Addendum to Change in attached
Control Agreement between
Robert H. Saunders, Jr. and
Kaman Music Corporation, dated
as of November 11, 2003.
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Exhibit 10g (xvi) Employment Agreement between attached
Russell H. Jones and Kaman
Corporation, dated as of February
17, 2004.
Exhibit 10g (xvii)Change in Control Agreement attached
between Russell H. Jones and
Kaman Corporation, dated as of
November 11, 2003.
Exhibit 11 Statement regarding computation attached
of per share earnings.
Exhibit 13 Portions of the Corporation's attached
2003 Annual Report to
Shareholders as required by
Item 8.
Exhibit 14 Kaman Corporation Code of attached
Business Conduct.
Exhibit 21 Subsidiaries. attached
Exhibit 23 Consent of Independent Auditors attached
Exhibit 24 Power of attorney under which attached
this report has been signed on
behalf of certain directors.
Exhibit 31.1 Certification of Chief Executive attached
Officer Pursuant to Rule 13a-14
under the Securities and Exchange
Act of 1934.
Exhibit 31.2 Certification of Chief Financial attached
Officer Pursuant to Rule 13a-14
under the Securities and Exchange
Act of 1934.
Exhibit 32.1 Certification of Chief Executive attached
Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial attached
Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002.
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