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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------
RESULTS OF OPERATIONS
Revenues for 1995 were $899.5 million compared to $820.8 million in
1994 and $794.1 million in 1993. The increase for 1995 is largely
attributable to the corporation's Distribution segment.
Distribution segment revenues increased by 13% in 1995 and 1994,
and by 7% in 1993. During 1995, Industrial Distribution sales
(about 75% of this segment's business in 1995) continued to benefit
from domestic economic growth. Revenue increases have been stronger
than the rate of increase in industrial production, however, due in
part to the company's efforts to expand partnering relationships
with suppliers, address the needs of customers who want to
consolidate their vendor base, and provide value added services in
areas such as electrical and electronic systems, materials
handling, and precision positioning systems. For its larger
customers, the corporation is increasingly being given the
opportunity to perform an "integrated supply" function, involving
management of their parts inventories and associated personnel as
well as selection of suppliers for the customer's facility. These
initiatives, in combination with enhanced operating efficiencies
attained during the past few years, have resulted in increased
market share for the industrial distribution business. Music
Distribution sales also increased during 1995, with the increases
occurring largely in the U.S. market.
Diversified Technologies segment revenues were up 4% in 1995,
compared to decreases of 9% in 1994 and 5% in 1993. The results for
1995 are primarily due to sales of the K-MAX(Registered Trademark)
helicopter and increased demand for the corporation's specialty
self-lubricating bearings.
During 1995, the corporation continued efforts to adapt the defense
portion of this segment's business (71% in 1995) to market
conditions. With respect to its SH-2 helicopter, management
believes that there is potential for use of this aircraft by
foreign military services. In 1995, the corporation began work
pursuant to a letter agreement between the Republic of Egypt and
the U.S. Navy for the acquisition of ten (10) SH-2G helicopters.
This work, which could have a value of up to $135 million over a
three year period, involves the retrofit of SH-2F helicopters
already manufactured for the U.S. Navy into the SH-2G
configuration. The contract between the corporation and the U.S.
Navy for this work is in the negotiation process, however, the
corporation has received a contract to provide long lead materials
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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and services in support of the sale in the amount of $40 million.
Deliveries are scheduled to begin in the third quarter of 1997. The
corporation is pursuing other opportunities for foreign sales as
well; during 1995 an office was established in Australia to
coordinate work on competitions in New Zealand, Australia, and
Malaysia. In December 1995 the government of New Zealand notified
the corporation that it is one of only two competitors (and the
only U.S. company) that will enter the Best and Final Offer process
for the procurement of four (4) to six (6) retrofitted aircraft.
Although the corporation is not manufacturing further aircraft for
the U.S. Navy, sixteen (16) aircraft are currently in the Naval
Reserves and the corporation expects to provide logistics and spare
parts support for these aircraft.
As to its advanced technology defense programs, management
continues to believe that it is well positioned to compete in a
defense environment that is increasingly emphasizing advanced
technology "smart weapons" programs in its strategic planning. The
corporation has significant expertise in the field of
high-technology programs, having performed a multitude of
government contracts over the years. These contracts have involved
products and systems, as well as services such as computer software
development, intelligence analysis, and research and development.
The corporation continues to be successful in maintaining revenues
from this type of business, however, competition for these
contracts is increasing.
The corporation is also involved in aerospace subcontracting work
for several commercial and military airframe manufacturing
programs. This work has been affected by weakness in the domestic
aircraft industry in the last several years. However, during 1995
there were indications from the commercial aircraft industry itself
of some potential for renewed health in the industry, with the roll
out of the new Boeing 777 being a prime example. Additionally, the
Department of Defense announcement regarding longer term production
of the McDonnell Douglas C-17 is an encouraging sign.
The K-MAX helicopter program, an important initiative for this
segment, completed its first full year in commercial operation
during 1995. K-MAX is a medium to heavy lift 'aerial truck' with
operating characteristics that distinguish it from other
helicopters for use in logging, fire fighting, reforestation,
utility power line work, and other applications. During 1995,
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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research and development expenditures for the program decreased
compared to expenditures for 1994 and prior periods, as initial
development of the aircraft nears completion. The aircraft is now
certified in the United States, Canada, and Switzerland; the
approval process has been initiated in Japan. The special lease
program for the first five (5) helicopters has been substantially
completed; the corporation continues to lease certain of the
aircraft, generally with initial customers. For the most part, the
aircraft is now being sold in the United States and abroad. The
production lot for 1995 consisted of six (6) aircraft and a similar
number are scheduled for production in 1996. Management has
deliberately taken a conservative approach to introducing this new
model of helicopter and expects that sales and profitability will
take some time to achieve. Management also believes that a
conservative approach is prudent since the market has been affected
by a number of military surplus aircraft that have been (and may be
in the future) released to the public at lower cost than new
aircraft.
During the third quarter of 1995, the K-MAX was chosen as the
winner of the U.S. Navy Military Sealift Command vertical
replenishment (VERTREP) demonstration competition. Two aircraft
were used in the demonstration, which was conducted for a period of
two months. Management believes that this may be another step
taken by the federal government toward acquisition reform by
evaluating the concept of charter/lease for this aircraft in a
non-combat role. During the first quarter of 1996, the U.S. Navy
issued a request for proposal for a six month VERTREP project
scheduled to begin in April; the corporation is in the process of
bidding for this work, which would involve two aircraft under a
charter/lease arrangement.
The corporation had operating income of $42.1 million and net
earnings of $19.6 million for 1995 compared to an operating loss of
$8.8 million and a net loss of $13.2 million in 1994. After giving
effect to the preferred stock dividend requirement, earnings
available to common shareholders for 1995 were $15.9 million
compared to a loss of $16.9 million a year ago. Results for
1994 reflect a pre-tax charge of $44.0 million taken in the fourth
quarter to write-down the corporation's investment in Raymond
Engineering, a subsidiary of the Diversified Technologies group.
The Diversified Technologies segment had operating profits
of $33.5 million for 1995 compared to a loss of $17.2 million in
the previous year, due to the Raymond write-down. About $1.8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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million of 1995 results for Diversified Technologies is
attributable to a one-time gain on the sale of real estate.
Operating profits in the Distribution segment declined slightly
in 1995 to $19.4 million from $19.6 million in 1994. Although
Industrial Distribution operating profits increased, such
increase was more than offset by a reduction in Music Distribution
operating profits. The reduction is attributable to higher than
expected costs associated with efforts to expand Music
Distribution's manufacturing and distribution in Europe and to
softening in Asian and European markets during the year. The
Industrial Distribution business continues to benefit from good
general economic conditions and to some degree its internal
efforts to develop value added systems and services which have
differentiated it from its competitors.
The corporation had an operating loss of $8.8 million and a net
loss of $13.2 million for 1994 compared to an operating loss of
$37.2 million and a net loss of $28.8 million for 1993. Results for
1993 were attributable to a restructuring charge of $69.5 million
taken in the third quarter of that year. The Diversified
Technologies segment had an operating loss of $17.2 million for
1994 compared to an operating loss of $41.3 million for 1993. The
Distribution segment had operating income of $19.6 million for 1994
compared to $16.5 million for 1993, with the increase attributable
largely to increased sales in the Industrial Distribution business.
These results also reflect the fact that the overall mix of the
corporation's activities has been in the process of shifting to
businesses with somewhat lower profit margins and an increase of
14.8% for Diversified Technologies research and development
expenditures in 1994.
The fourth quarter 1994 charge of $44.0 million related to a
write-down of the corporation's investment in Raymond Engineering
and its merger into Kaman Aerospace Corporation, another
Diversified Technologies subsidiary. The charge consisted of $25.5
million to reflect management's judgment that its best
estimate of Raymond Engineering's forecasted future operations,
including interest expense, did not support the recoverability of
its goodwill balance and a certain amount of its facilities and
equipment; the write-down at estimated net realizable value of
inventories whose cost was not expected to be recovered; and $2.5
million for severance costs related to personnel reductions, $6.5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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million for contract close-out costs, and related expenses of $4.0
million for items which will not benefit the ongoing activities of
the merged organization. Implementation of the downsizing of
Raymond's business and completion of merging operations of the two
companies continued during 1995.
The third quarter 1993 charge reflects restructuring and other
non-recurring costs in connection with the corporation's plan to
reduce the size of its defense and commercial aircraft
manufacturing business and implement defense conversion
initiatives. About seventy percent (70%) of the charge has been
used to write-off costs incurred for development, retooling and
start-up for conversion initiatives, notably the K-MAX helicopter.
The balance relates to personnel and facility reductions, contract
close-out and related expenses associated with downsizing the
defense and commercial aircraft manufacturing business.
The fully diluted earnings per share figures for 1995 include the
potential conversion of the 6% convertible subordinated debentures,
potential conversion of the corporation's Series 2 preferred stock
and the exercise of stock options, since they were dilutive. The
fully diluted loss per share figures for 1994 and 1993 do not
reflect these potential conversions and exercises since their
effect was anti-dilutive.
Interest expense increased 88% in 1995 compared to 1994; for 1994,
interest expense decreased 33% compared to 1993. The increase is
attributable to substantially higher average borrowings in 1995 due
to increased capital requirements, and somewhat higher interest
rates. The decrease for 1994 reflects in large part the exchange of
Series 2 preferred stock for the majority of the outstanding 6%
convertible subordinated debentures during the fourth quarter of
1993.
The corporation's consolidated effective income tax rate for 1995
was 40.1%. The corporation recorded an income tax benefit on its
loss before income taxes at an overall rate of 7.1% for 1994, due
primarily to a state income tax refund. The 1994 charge would
probably have resulted in a higher income tax benefit, except
for the fact that a substantial portion of the goodwill balance is
non-deductible. The corporation recorded an income tax benefit of
28.9% for 1993, due primarily to the 1993 restructuring charge.
Page 5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. This statement permits either the
recording of the cost of stock-based compensation over the
applicable vesting period or disclosure of the unrecorded cost and
related effect on earnings per share in the financial statement
footnotes. This statement will be effective for the corporation
beginning in 1996 and management continues to evaluate the
provisions of the statement as it prepares for adoption.
Effective January 1, 1993, the corporation adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes. The cumulative effect of this change in accounting for
income taxes determined as of January 1, 1993 was immaterial to the
consolidated statements of earnings. On that date, the corporation
also adopted Statement of Financial Accounting Standards No. 106
concerning rules for certain post-retirement benefits. Retirees are
generally responsible for the cost of their post-retirement
benefits, therefore, adoption of this statement did not result in
any material adjustment to or disclosure in the consolidated
financial statements.
Finally, on January 1, 1993, the corporation adopted Statement of
Accounting Standards No. 112 concerning accounting for certain
post-employment benefits. Adoption of this statement did not result
in any material adjustment to or disclosure in the consolidated
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The corporation's cash flow from operations has generally been
sufficient to finance a significant portion of its working capital
and other capital requirements. During 1995, the corporation's
capital requirements increased compared to 1994 and this resulted
in financing more of its requirements from bank borrowings compared
to the prior year. These requirements included costs associated
with the K-MAX helicopter program and working capital requirements
due to increased business.
For general borrowing purposes during 1995, the corporation had
maintained revolving credit agreements involving several banks
located in the United States, Canada, and Europe, with a maximum
unsecured line of credit of $200 million. The agreements each had a
Page 6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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term of five years and contained provisions permitting the term to
be extended for additional one-year periods upon concurrence of the
parties (in the second quarter of 1995, the agreements were
extended for an additional one year period). The agreements also
contained various covenants, including debt to capitalization and
consolidated net worth requirements. As of December 31, 1995, there
were $30.0 million in borrowings under these agreements. For the
year ended December 31, 1995, average borrowings under these
agreements were $24.0 million. There were no borrowings under these
agreements during 1994.
The corporation also maintains other short-term credit arrangements
with various banks. As of December 31, 1995, these borrowings were
at $62.9 million. For the year ended December 31, 1995, average
bank borrowings against these short-term arrangements were $72.3
million compared to $45.5 million for 1994.
In order to obtain increased flexibility in meeting its future
business requirements, including working capital requirements for
potential foreign sales of the SH-2 helicopter, the corporation
replaced its existing revolving credit agreements with a new
revolving credit facility on January 29, 1996. The new
facility provides a maximum unsecured line of credit of $250
million and involves a syndicate of eleven banks, both foreign and
domestic, many of whom were participants in the previous
agreements. The agreement has a term of five years and contains
various covenants, including debt to capitalization, consolidated
net worth requirements, and limitations on other indebtedness for
borrowed money that the corporation may incur.
The corporation has a stock repurchase program under which it may
repurchase slightly more than 700,000 Class A shares. As of
December 31, 1995, a total of 188,000 Class A shares had been
repurchased under the program. The primary purpose of the stock
repurchase program is to meet the needs of the Employees Stock
Purchase Plan and Stock Incentive Plan.
During the third quarter of 1993, the corporation made an offer
pursuant to which holders of its 6% convertible subordinated
debentures might exchange them for the corporation's newly created
Series 2 preferred stock. The purpose of the offer was to increase
the corporation's equity capital while reducing its indebtedness.
Page 7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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On October 22, 1993 the corporation issued $57.2 million of
preferred stock (representing 285,837 shares of preferred stock or
1,143,348 depositary shares) in exchange for $61.8 million of
debentures (66.73% of the amount actually tendered). The preferred
stock is convertible to Class A common stock at a price of $12.56
per share and has a 6.5% cumulative dividend rate.
The corporation recorded a net gain of $3.0 million as a result of
the exchange. While the transaction was favorable to the
corporation from a debt to equity standpoint, it resulted in
further dilution of outstanding common stock in the event of
conversion of the preferred stock and some dilution of the earnings
that would otherwise be available for common shareholders.
Management believes that the corporation's cash flow from
operations and available bank line of credit under its new
revolving credit agreement will be sufficient to finance its
working capital and other capital requirements for the
foreseeable future.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements that describe the
corporation's business prospects. Readers should keep in mind
factors that could have an adverse impact on those prospects. These
include political, economic, or other conditions, such as
recessionary or expansive trends, inflation rates, currency
exchange rates, taxes and regulations and laws affecting the
business, and standard government contract provisions permitting
termination for the convenience of the government; as well as
product competition, pricing, the degree of acceptance of new
products to the marketplace, and the difficulty of forecasting
sales at various times in various markets.
Page 8
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SELECTED QUARTERLY FINANCIAL DATA
(In thousands except per share amounts)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------
NET SALES:
1995 ............... $207,982 $221,509 $225,629 $241,278 $896,398
1994 ............... 197,583 208,625 198,933 214,041 819,182
GROSS PROFIT:
1995 ............... $ 55,816 $ 56,279 $ 56,433 $ 61,109 $229,637
1994 ............... 51,953 52,703 51,867 50,897 207,420
NET EARNINGS (LOSS):
1995 ............... $ 5,550 $ 4,663 $ 4,571 $ 4,818 $ 19,602
1994 ................ 4,240 4,596 4,901 (26,918) (13,181)
PER COMMON SHARE--PRIMARY:
1995 ................ $.25 $.20 $.20 $.21 $.86
1994 ................ .18 .20 .22 (1.53) (.93)
PER COMMON SHARE--FULLY DILUTED:
1995 ................ $.24 $.20 $.20 $.21 $.85
1994 ................ .18 .20 .22 (1.53) (.93)
- -----------------------------------------------------------------------------
Gross profit for 1994 excludes the effect of restructuring,
impairment and other costs.
The conversion of the convertible subordinated debentures and the
Series 2 preferred stock along with the exercise of the stock
options were not assumed in the net loss per common share --
primary and fully diluted calculations for the fourth quarter of
and year 1994 because they had an anti-dilutive effect.
Page 9
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
- -----------------------------------------------------------------------------
(In thousands except share and per share amounts) 1995 1994
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash ...............................................$ 4,078 $ 3,711
Accounts receivable ................................ 177,878 146,411
Inventories ........................................ 192,734 160,224
Deferred income taxes .............................. 21,250 21,041
Other current assets ............................... 8,924 7,625
- -----------------------------------------------------------------------------
Total current assets ......................... 404,864 339,012
- -----------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET ..................... 83,054 84,621
GOODWILL, NET .......................................... 8,131 8,486
OTHER ASSETS ........................................... 4,020 10,830
- -----------------------------------------------------------------------------
$ 500,069 $ 442,949
- -----------------------------------------------------------------------------
Page 10
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CONSOLIDATED BALANCE SHEETS continued
DECEMBER 31, 1995 AND 1994 KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ................................... $ 62,851 $ 52,659
Current portion of long-term debt ............... 647 659
Accounts payable -- trade ....................... 61,729 54,561
Accrued salaries and wages ...................... 10,386 9,609
Accrued vacations ............................... 6,361 6,350
Accrued restructuring and other costs ........... 13,542 27,650
Other accruals and payables ..................... 50,757 40,416
Income taxes payable ............................ -- 978
- -----------------------------------------------------------------------------
Total current liabilities ................. 206,273 192,882
- -----------------------------------------------------------------------------
DEFERRED CREDITS .................................... 13,127 8,880
LONG-TERM DEBT, EXCLUDING CURRENT PORTION ........... 66,386 37,433
SHAREHOLDERS' EQUITY:
Capital stock, $1 par value per share:
Preferred stock, authorized 700,000 shares:
Series 2 preferred stock, 6 1/2% cumulative
convertible (stated at liquidation preference
of $200 per share)authorized 500,000 shares,
issued 285,837 shares in 1995 and 1994.... 57,167 57,167
Common stock:
Class A, authorized 48,500,000 shares,
nonvoting; $.10 per common share dividend
preference; issued 17,788,233 shares in
1995 and 17,600,381 shares in 1994...... 17,788 17,600
Class B, authorized 1,500,000 shares, voting;
issued 667,814 shares in 1995 and 1994... 668 668
Additional paid-in capital ...................... 19,319 17,853
Retained earnings ............................... 120,399 112,592
Unamortized restricted stock awards ............. (609) (744)
Equity adjustment from foreign currency translation (280) (444)
- -----------------------------------------------------------------------------
214,452 204,692
Less 16,825 shares and 95,479 shares of Class A
common stock in 1995 and 1994, respectively,
held in treasury, at cost .................... (169) (938)
- -----------------------------------------------------------------------------
Total shareholders' equity ................ 214,283 203,754
- -----------------------------------------------------------------------------
$ 500,069 $ 442,949
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Page 11
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CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
- -----------------------------------------------------------------------------
(In thousands except per share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------
REVENUES:
Net sales ........................... $ 896,398 $ 819,182 $ 792,510
Other ............................... 3,078 1,592 1,582
- -----------------------------------------------------------------------------
899,476 820,774 794,092
- -----------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales ....................... 666,761 611,762 588,237
Selling, general and administrative
expense............................. 190,604 173,853 173,581
Interest expense .................... 8,834 4,694 6,976
Restructuring, impairment and other
costs .............................. -- 44,000 69,500
Other expense (income) .............. 546 646 (3,728)
- -----------------------------------------------------------------------------
866,745 834,955 834,566
- -----------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES ..... 32,731 (14,181) (40,474)
INCOME TAXES (BENEFIT) .................. 13,129 (1,000) (11,679)
- -----------------------------------------------------------------------------
NET EARNINGS (LOSS) ..................... $ 19,602 $ (13,181) $ (28,795)
- -----------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENT .... $ (3,716) $ (3,716) $ (702)
- -----------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 15,886 $ (16,897) $ (29,497)
- -----------------------------------------------------------------------------
PER SHARE:
Net earnings (loss) per common share:
Primary .......................... $ .86 $ (.93) $ (1.63)
Fully diluted .................... .85 (.93) (1.63)
Dividends declared:
Series 2 preferred stock ......... 13.00 13.00 1.37
Common stock ..................... .44 .44 .44
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Page 12
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
(In thousands except share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------
SERIES 2 PREFERRED STOCK:
Balance -- beginning of year ........ $ 57,167 $ 57,167 $ --
Shares issued ....................... -- -- 57,167
- -----------------------------------------------------------------------------
Balance -- end of year .............. 57,167 57,167 57,167
- -----------------------------------------------------------------------------
CLASS A COMMON STOCK:
Balance -- beginning of year ........ 17,600 17,600 17,600
Shares issued ....................... 188 -- --
- -----------------------------------------------------------------------------
Balance -- end of year .............. 17,788 17,600 17,600
- -----------------------------------------------------------------------------
CLASS B COMMON STOCK .................... 668 668 668
- -----------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance -- beginning of year ........ 17,853 18,459 19,343
Employee stock plans ................ 1,427 (611) (409)
Restricted stock awards ............. 39 5 (75)
Expenses relating to issuance of preferred stock -- -- (400)
- -----------------------------------------------------------------------------
Balance -- end of year .............. 19,319 17,853 18,459
- -----------------------------------------------------------------------------
RETAINED EARNINGS:
Balance -- beginning of year ........ 112,592 137,490 174,607
Net earnings (loss) ................. 19,602 (13,181) (28,795)
Dividends declared:
Preferred stock .................. (3,716) (3,716) (392)
Common stock ..................... (8,079) (8,001) (7,930)
- -----------------------------------------------------------------------------
Balance -- end of year .............. 120,399 112,592 137,490
- -----------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance -- beginning of year ........ (744) (968) (1,008)
Stock awards issued ................. (179) (119) (323)
Amortization of stock awards ........ 314 343 363
- -----------------------------------------------------------------------------
Balance -- end of year .............. (609) (744) (968)
- -----------------------------------------------------------------------------
Page 13
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CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY continued
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION:
Balance -- beginning of year ........ (444) (158) 52
Translation adjustment .............. 164 (286) (210)
- -----------------------------------------------------------------------------
Balance -- end of year .............. (280) (444) (158)
- -----------------------------------------------------------------------------
TREASURY STOCK:
Balance -- beginning of year ........ (938) (1,945) (1,727)
Shares acquired in 1995-38,685;
1994-193,399;1993-315,961 (430) (1,847) (3,520)
Shares reissued under various stock plans 1,199 2,854 3,302
- -----------------------------------------------------------------------------
Balance -- end of year .............. (169) (938) (1,945)
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY .............. $ 214,283 $ 203,754 $ 228,313
- -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Page 14
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CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ............... $ 19,602 $(13,181) $(28,795)
Adjustments to reconcile net
earnings (loss)to cash provided
by (used in) operating activities:
Depreciation and amortization .... 12,687 13,053 13,456
Net gain on sale of assets ....... (1,660) -- (846)
Net gain on exchange of debentures -- -- (3,037)
Restructuring, impairment and
other costs .................... -- 44,000 69,500
Deferred income taxes ............ 10,171 (7,062) (19,679)
Other, net ....................... 1,130 1,999 1,783
Changes in current assets and
liabilities:
Accounts receivable ........... (31,981) 19,204 13,058
Inventories ................... (33,583) (44,273) (22,155)
Other current assets .......... (1,299) (2,864) (229)
Accounts payable -- trade ..... 7,294 3,315 (8,063)
Accrued expenses and payables . (3,206) 892 (7,614)
Income taxes payable .......... (978) (2,361) (248)
- -----------------------------------------------------------------------------
Cash provided by (used in)
operating activities .... (21,823) 12,722 7,131
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant and equipment
and other assets ................. 4,210 195 1,014
Expenditures for property,
plant and equipment ............... (11,503) (21,581) (20,428)
Other, net .......................... (99) (482) 689
- -----------------------------------------------------------------------------
Cash provided by (used in)
investing activities .... (7,392) (21,868) (18,725)
- -----------------------------------------------------------------------------
Page 15
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CONSOLIDATED STATEMENTS OF CASH FLOWS continued
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
KAMAN CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable .......... $ 10,192 $ 21,498 $ 23,493
Changes in current portion of
long-term debt ................. (12) (45) (59)
Additions to long-term debt ....... 30,000 -- --
Reduction of long-term debt ....... (1,047) (834) (1,108)
Proceeds from exercise of employee
stock plans .................... 2,674 2,128 2,500
Purchases of treasury stock ....... (430) (1,847) (3,520)
Dividends paid --
Series 2 preferred stock ....... (3,716) (3,716) (392)
Dividends paid -- common stock .... (8,079) (8,001) (7,930)
Other, net ........................ -- (171) --
- -----------------------------------------------------------------------------
Cash provided by (used in)
financing activities .. 29,582 9,012 12,984
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH ....... 367 (134) 1,390
CASH AT BEGINNING OF YEAR ............. 3,711 3,845 2,455
- -----------------------------------------------------------------------------
CASH AT END OF YEAR ................... $ 4,078 $ 3,711 $ 3,845
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
On October 22, 1993, the corporation exchanged $61,804 of its 6%
convertible subordinated debentures for $57,167 of its new Series 2 preferred
stock.
See accompanying notes to consolidated financial statements.
Page 16
- -----------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(In thousands except share and per share amounts)
- -----------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of the parent corporation and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
LONG-TERM CONTRACTS -- REVENUE RECOGNITION
Certain sales are made under fixed price and cost reimbursement
type contracts. Estimated profits under such contracts are recorded
concurrently with costs incurred thereon on the basis of percentage
of completion. Any anticipated total contract losses are charged to
operations during the period the loss is first indicated. Profits
and losses accrued include the cumulative effect of changes in
prior periods' price and cost estimates.
INVENTORIES Inventory of merchandise for resale is stated at cost
(using the average costing method) or market, whichever is lower.
Contracts and work in process and finished goods are valued at
production cost represented by material, labor and overhead,
including general and administrative expenses where applicable.
Contracts and work in process and finished goods are not recorded
in excess of net realizable values.
PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and
equipment is computed primarily on a straight-line basis over the
estimated useful lives of the assets. At the time of retirement or
disposal, the acquisition cost of the asset and related accumulated
depreciation are eliminated and any gain or loss is credited or
charged against income.
Maintenance and repair items are charged against income as
incurred, whereas renewals and betterments are capitalized and
depreciated.
Page 17
GOODWILL Amortization of goodwill is calculated on a straight-line
method over its estimated useful life but not in excess of forty
years. Such amortization amounted to $355 in 1995, $1,318 in 1994
and $1,268 in 1993.
At each balance sheet date, the corporation evaluates the carrying
value of goodwill based upon its assessment of the forecasted
future operations (including interest expense) and other factors
for each subsidiary having a material goodwill balance. Based upon
management's analysis, the corporation wrote-down goodwill relating
to its investment in Raymond Engineering in the amount of $20,500
during the fourth quarter of 1994.
RESEARCH AND DEVELOPMENT Research and development costs not
specifically covered by contracts are charged against income as
incurred. Such costs amounted to $13,664 in 1995, $21,062 in 1994
and $18,350 in 1993.
INCOME TAXES Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of assets and
liabilities and their respective tax bases using enacted tax rates
expected to apply in the years in which temporary differences are
expected to be recovered or settled.
RESTRUCTURING, IMPAIRMENT AND OTHER COSTS
The corporation recorded pre-tax charges in 1994 and 1993, both
reflecting its strategy for addressing trends in U.S. defense
planning and spending priorities. Specifically, in 1994 the
corporation recorded charges of $44,000 before taxes
($32,100 after taxes or $1.76 per common share); in 1993, the
charge was $69,500 before taxes ($45,500 after taxes or $2.52 per
common share).
The 1994 fourth quarter charge of $44,000 represents a write-down
of the corporation's investment in Raymond Engineering, a
diversified technologies subsidiary, in anticipation of a reduction
in the size of its operation and certain of its product lines, and
its merger into Kaman Aerospace, another Kaman subsidiary. When
fully implemented, the consolidation is expected, on an overall
Page 18
basis, to result in reduced overheads and enhanced administrative
and operational efficiency. This will assist the merged
organization in positioning itself to compete more effectively in a
defense environment which seems increasingly likely to favor the
use of commercial technology products where possible. Approximately
seventy percent (70%) of the charge represented the write-down of
impaired assets, including goodwill, facilities and equipment, and
inventories. A variety of factors contributed to the impairment of
Raymond's assets. These included defense spending reductions,
changes in defense planning and spending priorities, and
technological evolution in certain product areas where Raymond has
done business. In order for Raymond to compete in these product
areas in the future, varying levels of investment in technological
development would be required. In the fourth quarter of 1994, the
corporation determined that it was not economically feasible to
make such investments in those products which were unable to
demonstrate potential for success. Consequently, the corporation's
best estimate of Raymond's forecasted future operations, including
interest expense, was that they did not support the recoverability
of goodwill and a certain amount of facilities and equipment, which
resulted in the write-down of approximately $25,500 for these
items. In addition, inventories whose cost was not expected to be
recovered were written down to estimated net realizable value
during the fourth quarter. The remainder of the charge relates to
personnel reductions and other expenses associated with downsizing
Raymond's business. The majority of work force reductions have
involved management and administrative employees whose functions
are redundant to the merged organization. Severance payments of
approximately $2,500 are to be made in accordance with Raymond's
written severance pay policy and, in certain cases, individually
negotiated agreements. Other expenses include contract close-out
costs of $6,500 and related expenses of $4,000 for items which will
not benefit the continuing activities of the merged organization.
Through December 31, 1995, $2,200 of the severance accrual and
$3,000 of the contract close-out costs and related expense accruals
were utilized.
Page 19
The 1993 third quarter charge of $69,500 represented restructuring
and other costs in connection with the corporation's plan to reduce
the size of its defense and commercial aircraft manufacturing
business and develop defense conversion initiatives. About seventy
percent (70%) of the charge has been used to write-off costs for
development, retooling, and start-up of the conversion initiatives,
notably the K-MAX(Registered Trademark) helicopter program. The
balance relates to personnel and facility reductions, contract
close-out and related expenses associated with the downsizing of
the defense and commercial manufacturing businesses.
EXCHANGE OF CONVERTIBLE SUBORDINATED DEBENTURES
On October 22, 1993, pursuant to an exchange offer to all
debentureholders, the corporation exchanged $57,167 of its new
6 1/2% cumulative convertible Series 2 preferred stock (convertible
into Class A common stock at $12.56 per share) for $61,804 of its
6% convertible subordinated debentures. The pre-tax gain on the
exchange of the debentures was $3,037 net of expenses of
approximately $1,600. Additional issuance expenses of $400 were
charged directly to additional paid-in capital.
Page 20
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
1995 1994
- -----------------------------------------------------------------
Trade receivables, net of allowance
for doubtful accounts of $2,289
in 1995, $1,665 in 1994 ................ $ 76,659 $ 66,477
U.S. Government contracts:
Billed ................................. 43,380 36,407
Recoverable costs and accrued
profit -- not billed ................ 37,597 19,585
Commercial contracts:
Billed ................................. 7,866 12,004
Recoverable costs and accrued
profit -- not billed ................ 12,376 11,938
- -----------------------------------------------------------------
Total ................................... $177,878 $146,411
- -----------------------------------------------------------------
Recoverable costs and accrued profit - not billed represent costs
incurred on contracts, including contract retentions, which will
become billable upon future deliveries or completion of engineering
and service type contracts. Management estimates that approximately
$14,162 of such costs and accrued profits at December 31, 1995 will
be collected after one year.
INVENTORIES
Inventories are comprised as follows:
December 31,
1995 1994
- -----------------------------------------------------------------
Merchandise for resale ..................... $107,407 $ 96,918
Contracts in process:
U.S. Government ........................ 9,397 10,834
Commercial ............................. 2,110 2,376
Other work in process (including
certain general stock materials
and spare parts) ....................... 50,950 32,814
Finished goods ............................. 22,870 17,282
- -----------------------------------------------------------------
Total .................................. $192,734 $160,224
- -----------------------------------------------------------------
Page 21
Progress payments of approximately $2,683 were netted against
contracts in process at December 31, 1994.
The aggregate amounts of general and administrative costs allocated
to contracts in process during 1995, 1994 and 1993 were $46,833,
$44,979 and $54,551, respectively.
The estimated amounts of general and administrative costs remaining
in contracts in process at December 31, 1995 and 1994 amount to
$2,134 and $2,733, respectively, and are based on the ratio of such
allocated costs to total costs incurred.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and summarized
as follows:
December 31,
1995 1994
- -----------------------------------------------------------------
Land ..................................... $ 8,382 $ 8,521
Buildings ................................ 57,063 57,383
Leasehold improvements ................... 14,023 13,123
Machinery, office furniture and
equipment ............................ 109,849 104,376
- -----------------------------------------------------------------
Total ................................ 189,317 183,403
Less accumulated depreciation
and amortization ..................... 106,263 98,782
- -----------------------------------------------------------------
Property, plant and equipment,
net .................................. $ 83,054 $ 84,621
- -----------------------------------------------------------------
CREDIT ARRANGEMENTS --
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
SHORT-TERM BORROWINGS The corporation has arrangements with several
banks to borrow funds on a short-term basis with interest at
current market rates. There were borrowings of $62,851 outstanding
under these arrangements at December 31, 1995.
Page 22
LONG-TERM DEBT The corporation has long-term debt as follows:
December 31,
1995 1994
- -----------------------------------------------------------------
Unsecured notes:
Revolving credit agreements .............$30,000 $ --
Convertible subordinated
debentures ........................... 33,191 33,191
Other obligations ........................... 3,842 4,901
- -----------------------------------------------------------------
Total ................................... 67,033 38,092
Less current portion ........................ 647 659
- -----------------------------------------------------------------
Total excluding current portion .........$66,386 $37,433
- -----------------------------------------------------------------
REVOLVING CREDIT AGREEMENTS The corporation has two revolving
credit agreements involving several domestic and foreign lenders.
The agreements provide an aggregate maximum commitment of $200,000
and each agreement expires in 2000. Interest under both agreements
is payable at various market rates.
CONVERTIBLE SUBORDINATED DEBENTURES The corporation issued $95,000
of its 6% convertible subordinated debentures during 1987. The
debentures are convertible into shares of the Class A common stock
of Kaman Corporation at any time on or before March 15, 2012 at a
conversion price of $23.36 per share at the option of the holder
unless previously redeemed by the corporation. Pursuant to a
sinking fund requirement beginning March 15, 1997, the corporation
will redeem 5% of the outstanding principal amount of the
debentures annually. The debentures are subordinated to the claims
of senior debt holders and general creditors. The corporation
exchanged $61,804 of these debentures for its new Series 2
preferred stock on October 22, 1993. The remaining debentures have
a fair value of $27,217 at December 31, 1995 based upon current
market prices.
OTHER OBLIGATIONS These obligations consist primarily of notes
issued by the corporation to industrial and economic development
authorities in connection with the issuance of their bonds in
similar amounts. The proceeds were used by the corporation to
finance certain of its building construction within the regions of
the authorities. These obligations are secured by mortgages and
generally have interest rates and payment terms more favorable than
conventional financing.
Page 23
LONG-TERM DEBT ANNUAL MATURITIES The aggregate amounts of annual
maturities of long-term debt for each of the next five years are
approximately as follows:
1996 ........................................ $ 647
1997 ........................................ 2,295
1998 ........................................ 2,242
1999 ........................................ 2,165
2000 ........................................ 1,915
RESTRICTIVE COVENANTS The most restrictive of the covenants
contained in the loan agreements require the corporation to have
operating income, as defined, at least equal to 250% of interest
expense; consolidated total indebtedness to total capitalization of
not more than 45%; and consolidated net worth at least equal to
$200,000.
NEW REVOLVING CREDIT AGREEMENT On January 29, 1996, the corporation
entered into a new revolving credit agreement with an expanded
group of domestic and foreign lenders which replaces the two
revolving credit agreements described above. The new agreement
provides for an aggregate maximum commitment of $250,000 and
expires in 2001. The most restrictive of the covenants contained in
the new agreement requires the corporation to have operating
income, as defined, at least equal to 250% of interest expense
through December 31, 1997 and 275% thereafter; consolidated total
indebtedness to total capitalization of not more than 55%; and
consolidated net worth at least equal to $200,000.
INTEREST PAYMENTS Cash payments for interest were $8,587, $4,572
and $8,092 for 1995, 1994 and 1993, respectively.
Page 24
INCOME TAXES
The components of income taxes are as follows:
1995 1994 1993
- -----------------------------------------------------------------
Current:
Federal ............ $ 1,958 $ 6,362 $ 6,250
State .............. 1,000 (300) 1,750
- -----------------------------------------------------------------
2,958 6,062 8,000
- -----------------------------------------------------------------
Deferred:
Federal ............ 8,192 (5,762) (17,929)
State .............. 1,979 (1,300) (1,750)
- -----------------------------------------------------------------
10,171 (7,062) (19,679)
- -----------------------------------------------------------------
Total .............. $ 13,129 $ (1,000) $(11,679)
- -----------------------------------------------------------------
The components of the deferred tax assets and deferred tax
liabilities are presented below:
December 31,
1995 1994
- -----------------------------------------------------------------
Deferred tax assets:
Long-term contracts .................$ 2,531 $ 1,908
Deferred employee benefits .......... 7,371 7,093
Restructuring, impairment and
other costs ...................... 8,860 20,050
Inventory ........................... 1,238 2,121
Accrued liabilities and other
items ............................ 7,170 6,678
- -----------------------------------------------------------------
Total deferred tax assets ........ 27,170 37,850
- -----------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization ....... (4,715) (6,319)
Other items ......................... (4,135) (3,040)
- -----------------------------------------------------------------
Total deferred tax liabilities ... (8,850) (9,359)
- -----------------------------------------------------------------
Net deferred tax asset ...........$ 18,320 $ 28,491
- -----------------------------------------------------------------
Page 25
No valuation allowance has been recorded because the corporation
believes that these deferred tax assets will, more likely than not,
be realized. This determination is based largely upon the
corporation's historical earnings trend as well as its ability to
carryback reversing items within three years to offset taxes paid.
In addition, the corporation has the ability to offset deferred tax
assets against deferred tax liabilities created for such items as
depreciation and amortization.
The provisions for federal income taxes approximate the amounts
computed by applying the U.S. federal income tax rate to earnings
(loss) before income taxes after giving effect to state income
taxes. The federal tax provision was reduced by $4,600 in 1994 as a
result of the non-deductible portion of the write-down of goodwill.
The federal tax benefit in 1993 was reduced $1,800 to provide for
prior years' tax examinations. Cash payments for income taxes were
$3,953, $8,255 and $7,988 in 1995, 1994 and 1993, respectively.
PENSION PLAN
The corporation has a non-contributory defined benefit pension plan
covering all of its full-time employees. Benefits under this plan
are based upon an employee's years of service and compensation
levels during employment and there is an offset provision for
social security benefits. It is the corporation's policy to fund
pension costs accrued. Plan assets are invested in a diversified
portfolio consisting of equity and fixed income securities
(including $8,483 of Class A common stock of Kaman Corporation at
December 31, 1995).
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
Page 26
1995 1994 1993
- -----------------------------------------------------------------
Service cost for
benefits earned
during the year .......... $ 8,991 $ 9,636 $ 8,661
Interest cost on
projected benefit
obligation ............... 18,065 16,558 15,900
Actual return on plan
assets ................... (58,243) (1,848) (21,498)
Net amortization and
deferral ................. 36,725 (17,543) 2,200
- -----------------------------------------------------------------
Net pension cost ............ $ 5,538 $ 6,803 $ 5,263
- -----------------------------------------------------------------
The funded status of the pension plan is as follows:
December 31,
1995 1994
- -----------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested benefits .....................$ 224,699 $ 200,745
Non-vested benefits ................. 1,967 2,153
- -----------------------------------------------------------------
Total ............................$ 226,666 $ 202,898
- -----------------------------------------------------------------
Actuarial present value of
projected benefit obligation ........$ 258,111 $ 233,312
Plan assets at fair value .............. 279,173 226,054
- -----------------------------------------------------------------
Excess (deficiency) of assets over
projected benefit obligation ........ 21,062 (7,258)
Unrecognized prior service cost ........ (566) (621)
Unrecognized net loss .................. (10,896) 18,503
Unrecognized net transition asset ...... (11,122) (12,976)
- -----------------------------------------------------------------
Accrued pension cost ...................$ 1,522 $ 2,352
- -----------------------------------------------------------------
Page 27
The actuarial assumptions used in determining the funded status of
the pension plan are as follows:
December 31,
1995 1994
- -----------------------------------------------------------------
Discount rate ..........................7 1/2% 8%
Average rate of increase
in compensation levels ..............4 1/2% 5%
- -----------------------------------------------------------------
The expected long-term rates of return on plan assets used to
compute the net periodic pension costs were 9% for 1995 and 1994.
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 1996 to
December 2008. Certain annual rentals are subject to renegotiation,
with certain leases renewable for varying periods. Lease periods
for machinery and equipment vary from 1 to 7 years.
Substantially all real estate taxes, insurance and maintenance
expenses are obligations of the corporation. It is expected that in
the normal course of business, leases that expire will be renewed
or replaced by leases on other properties.
The following future minimum rental payments are required under
operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of December 31, 1995:
1996 ...................................... $ 11,476
1997 ...................................... 6,436
1998 ...................................... 4,659
1999 ...................................... 3,572
2000 ...................................... 2,997
Later years ............................... 2,136
------------------------------------------------------
Total ..................................... $ 31,276
------------------------------------------------------
Page 28
Lease expense for all operating leases, including leases with terms
of less than one year, amounted to $14,158, $14,150 and $15,172 for
1995, 1994 and 1993, respectively.
From time to time, the corporation is subject to various claims and
suits arising out of the ordinary course of business, including
commercial, employment and environmental matters. While the
ultimate result of all such matters is not presently determinable,
based upon its current knowledge, management does not expect that
their resolution will have a material adverse effect on the
corporation's consolidated financial position.
COMPUTATION OF EARNINGS (LOSS)
PER COMMON SHARE
The primary earnings (loss) per common share computation is based
on the weighted average number of shares of common stock
outstanding in 1995, 1994 and 1993 and includes the common stock
equivalency of options granted to employees under the stock
incentive plan. The fully diluted earnings per share computation
also assumes that the 6% convertible subordinated debentures are
converted at the beginning of each year with the resultant
reduction in interest costs net of tax and the additional dilutive
effect of the stock options.
Subsequent to the exchange of a majority of the debentures for
Series 2 preferred stock on October 22, 1993, the corporation added
the preferred stock dividend requirement to its net loss to arrive
at net loss applicable to common stock to calculate its loss per
common share -- primary for 1994 and 1993. In 1995, the preferred
stock dividend requirement was deducted to arrive at earnings
applicable to common stock to calculate its earnings per common
share -- primary. In addition, in order to determine the fully
diluted earnings (loss) per common share, it is assumed that the
Series 2 preferred stock would be converted into Class A common
stock from its date of issuance and the preferred stock dividend
requirement eliminated.
Due to the net loss during 1994 and 1993, however, the dilutive
effect from conversion of the outstanding 6% convertible
subordinated debentures and the Series 2 preferred stock is
anti-dilutive and accordingly not included in the computation.
Page 29
EMPLOYEES STOCK PURCHASE PLAN
The Kaman Corporation Employees Stock Purchase Plan allows
employees to purchase Class A common stock of the corporation,
through payroll deductions, at 85% of the market value of shares at
the time of purchase. The plan provides for the grant of rights to
employees to purchase a maximum of 1,500,000 shares of Class A
common stock of the corporation commencing July 1, 1989. Effective
November 1, 1993, the maximum number of shares available for
issuance under the Plan was replenished to 1,500,000 shares. There
are no charges or credits to income in connection with the plan.
During 1995, 218,028 shares were issued to employees at prices
ranging from $9.03 to $10.94 per share. During 1994, 248,223 shares
were issued to employees at prices ranging from $7.54 to $8.61 per
share. During 1993, 241,808 shares were issued to employees at
prices ranging from $7.86 to $9.78 per share. At December 31, 1995,
there were approximately 990,550 shares available for offering
under the plan.
STOCK INCENTIVE PLAN
Effective November 1, 1993, the corporation adopted the 1993 Stock
Incentive Plan. The 1993 Plan includes a continuation and extension
of the stock incentive program of the corporation set forth in the
1983 Stock Incentive Plan which terminated on October 31, 1993.
The 1993 Plan provides for the grant of non-statutory stock
options, incentive stock options, restricted stock awards and stock
appreciation rights primarily to officers and other key employees.
The corporation has designated 962,199 shares of its Class A common
stock for this plan, including 2,199 shares previously reserved
under the 1983 plan.
Stock options are generally granted at prices not less than the
fair market value at the date of grant. Options granted under the
plan generally expire ten years from the date of grant and are
exercisable on a cumulative basis with respect to 20% of the
optioned shares on each of the five anniversaries from the
date of grant. Restricted stock awards are generally granted with
restrictions that lapse at the rate of 20% per year and are
amortized accordingly. These awards are subject to forfeiture if a
recipient separates from service with the corporation. Stock
appreciation rights generally expire ten years from the date
of grant and are exercisable on a cumulative basis with respect to
20% of the rights on each of the five anniversaries from the date
of grant.
Page 30
At December 31, 1995, there were outstanding options issued under
the plan for the purchase of 677,047 shares at prices ranging from
$7.50 to $11.38 per share. As of that date options covering 424,807
shares were exercisable at $7.50 to $11.25 per share. Options for
132,857, 12,104 and 37,929 shares were exercised during 1995, 1994
and 1993, respectively, at prices ranging from $7.50 to $9.88 per
share. Restricted stock awards were made for 30,000 shares at
$11.38 per share in 1995, 12,000 shares at $9.94 per share in 1994
and 34,000 shares at $9.50 per share in 1993. At December 31, 1995,
there were 64,300 shares remaining subject to restrictions pursuant
to these awards. No stock appreciation rights have been issued
under the plan.
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation. SFAS 123 permits either the recording
of the cost of stock-based compensation over the applicable vesting
period or disclosing the unrecorded cost and related effect on
earnings per share in the financial statement footnotes. The
corporation continues to evaluate the provisions of this statement,
which will be effective for 1996, as it prepares for adoption.
SEGMENT INFORMATION
The corporation serves government, industrial and commercial
markets through two industry segments -- Diversified Technologies
and Distribution.
Through its diversified technologies operations, the corporation
provides a range of technical professional services involving
either advanced information technologies or high technology science
and engineering to Department of Defense and other government
customers; advanced technology products such as electromagnetic
motors, sliding bearings, and non-contact measuring systems for
military and industrial customers; commercial airframe
subcontracting programs, safety and fusing systems, and
manufacturing work along with spare parts and logistics for the
SH-2 helicopter. The K-MAX(Registered Trademark) helicopter
program, a significant commercial effort for the corporation, is
included in the Diversified Technologies segment. The Diversified
Technologies' segment operating profit for 1995 includes a gain of
approximately $1,800 on the sale of real estate. The Diversified
Technologies' segment operating loss for 1994 reflects the effect
of the $44,000 fourth quarter charge associated with the write-down
of the investment in Raymond Engineering, its merger into Kaman
Aerospace, and the downsizing of Raymond's business. In addition,
Page 31
the Diversified Technologies' segment operating loss for 1993
includes the impact of the $69,500 charge for restructuring and
other costs accrued in the third quarter to address various
downsizing and product conversion efforts.
Through its distribution operations, the corporation supplies
nearly every sector of industry with industrial replacement parts
(including bearings, power transmission equipment, fluid power,
linear motion, and materials handling items) as well as industrial
engineering and systems services. Operations are conducted from
approximately 150 service centers located in 29 states and British
Columbia, Canada. Music operations manufacture and distribute
musical instruments and accessories in the United States and abroad
through domestic, Canadian and U.K. based offices.
Summarized financial information by business segment is as follows:
1995 1994 1993
- -----------------------------------------------------------------
Net sales:
Diversified
Technologies ........... $322,614 $310,279 $341,621
Distribution .............. 573,784 508,903 450,889
- -----------------------------------------------------------------
$896,398 $819,182 $792,510
=================================================================
Operating profit (loss):
Diversified
Technologies ............ $ 33,492 $(17,226) $(41,346)
Distribution ............... 19,355 19,558 16,521
- -----------------------------------------------------------------
52,847 2,332 (24,825)
Interest, corporate
and other income/
expense, net ............... 20,116 16,513 15,649
- -----------------------------------------------------------------
Earnings (loss) before
income taxes ............... $ 32,731 $(14,181) $(40,474)
=================================================================
Identifiable assets:
Diversified
Technologies ............ $267,037 $236,239 $252,450
Distribution ............... 223,495 198,145 177,608
Corporate .................. 9,537 8,565 10,138
- -----------------------------------------------------------------
$500,069 $442,949 $440,196
=================================================================
Page 32
Capital expenditures:
Diversified
Technologies ............ $ 6,472 $ 17,396 $ 13,678
Distribution ............... 4,440 3,732 6,207
Corporate .................. 591 453 543
- -----------------------------------------------------------------
$ 11,503 $ 21,581 $ 20,428
=================================================================
Depreciation and amortization:
Diversified
Technologies ............ $ 8,208 $ 9,307 $ 9,439
Distribution ............... 3,568 2,946 3,197
Corporate .................. 911 800 820
- -----------------------------------------------------------------
$ 12,687 $ 13,053 $ 13,456
=================================================================
Operating profit (loss) is total revenues less cost of sales and
selling, general and administrative expense (including
restructuring, impairment and other costs in 1994 and 1993) other
than general corporate expense.
Identifiable assets are year-end assets at their respective net
carrying value segregated as to industry segment and corporate use.
Corporate assets are principally cash and net property, plant and
equipment.
Net sales by the Diversified Technologies segment made under
contracts with U.S. Government agencies (including sales to foreign
governments through foreign military sales contracts with U.S.
Government agencies) account for $228,658 in 1995, $249,854 in 1994
and $279,530 in 1993.
Page 33
- -----------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- -----------------------------------------------------------------
KPMG PEAT MARWICK LLP
Certified Public Accountants
CityPlace II
Hartford, Connecticut 06103
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KAMAN CORPORATION:
We have audited the accompanying consolidated balance sheets of
Kaman Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of earnings, changes
in shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Kaman Corporation and subsidiaries at December 31, 1995
and 1994 and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
1995 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
January 29, 1996
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ELEVEN-YEAR SELECTED FINANCIAL DATA
KAMAN CORPORATION AND SUBSIDIARIES
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(In thousands except per share amounts, shareholders and employees)
1995 1994 1993 1992 1991
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OPERATIONS:
Revenues...................... $899,476 $820,774 $794,092 $784,732 $780,357
Cost of sales ................ 666,761 611,762 588,237 583,638 582,641
Selling, general and
administrative expense...... 190,604 173,853 173,581 164,603 160,824
Restructuring, impairment
and other costs............. -- 44,000 69,500 -- --
Operating income (loss) ...... 42,111 (8,841) (37,226) 36,491 36,892
Interest expense ............. 8,834 4,694 6,976 7,086 8,191
Other expense (income) ....... 546 646 (3,728) 401 359
Earnings (loss) before
income taxes................ 32,731 (14,181) (40,474) 29,004 28,342
Income taxes (benefit) ....... 13,129 (1,000) (11,679) 11,628 11,375
Net earnings (loss) .......... 19,602 (13,181) (28,795) 17,376 16,967
FINANCIAL POSITION:
Current assets ............... $404,864 $339,012 $316,601 $334,581 $309,970
Current liabilities .......... 206,273 192,882 166,765 122,015 110,916
Working capital .............. 198,591 146,130 149,836 212,566 199,054
Property, plant and
equipment, net.............. 83,054 84,621 81,711 73,262 75,233
Total assets ................. 500,069 442,949 440,196 443,445 421,866
Long-term debt ............... 66,386 37,433 37,977 100,889 102,053
Shareholders' equity ......... 214,283 203,754 228,313 209,535 202,150
PER SHARE AMOUNTS:
Net earnings (loss)
per common share--primary... $.86 $(.93) $(1.63) $.95 $.93
Net earnings (loss) per
common share--fully diluted .85 (.93) (1.63) .93 .91
Dividends declared --
Series 2 preferred stock.... 13.00 13.00 1.37 -- --
Dividends declared--common stock .44 .44 .44 .44 .44
Shareholders' equity --
common stock ............... 8.52 8.07 9.46 11.58 11.07
Market price range ........... 13 3/8 11 1/8 12 1/8 10 3/4 9 5/8
10 8 1/2 8 5/8 7 7/8 7 3/8
GENERAL STATISTICS:
Shareholders ................. 7,646 7,198 6,920 6,994 7,139
Employees .................... 5,400 5,239 5,363 5,424 5,544
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