SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1996.
------------------
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.)
Blue Hills Avenue
Bloomfield, Connecticut 06002
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (860)243-7100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 1996:
Class A Common 18,032,940
Class B Common 667,814
Page 1 of 13 Pages
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands)
September 30, December 31,
Assets 1996 1995
------ ----------------- -----------------
Current assets:
Cash $ 5,268 $ 4,078
Accounts receivable (net of allowance
for doubtful accounts of $2,772
in 1996, $2,289 in 1995) 209,961 177,878
Inventories:
Raw materials $ 9,548 $ 8,761
Work-in-process 67,803 53,696
Finished goods 18,653 22,870
Merchandise for resale 113,430 209,434 107,407 192,734
------- -------
Other current assets 32,787 30,174
------- -------
Total current assets 457,450 404,864
Property, plant & equip., at cost 191,381 189,317
Less accumulated depreciation
and amortization 113,397 106,263
------- -------
Net property, plant & equipment 77,984 83,054
Other assets 12,013 12,151
-------- --------
$547,447 $500,069
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 75,297 $ 63,498
Accounts payable 71,942 61,729
Accrued liabilities 37,832 38,151
Other current liabilities 39,249 42,895
-------- -------
Total current liabilities 224,320 206,273
Deferred credits 13,847 13,127
Long-term debt, excl. current portion 85,760 66,386
Shareholders' equity:
Series 2 preferred stock $ 57,167 $ 57,167
Other shareholders' equity 166,353 223,520 157,116 214,283
-------- ------- -------- -------
$547,447 $500,069
======== ========
- 2 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Condensed Consolidated Statements of Earnings
(In thousands except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues $227,994 $225,981 $714,552 $657,935
Costs and expenses:
Cost of sales 170,361 169,196 533,541 486,592
Selling, general and
administrative expense 45,103 46,768 144,648 139,989
Interest expense 2,472 2,308 7,278 6,392
Other expense 173 114 462 354
-------- -------- ------- -------
218,109 218,386 685,929 633,327
-------- -------- ------- -------
Earnings before income taxes 9,885 7,595 28,623 24,608
Income taxes 4,051 3,024 12,175 9,824
-------- ------- ------- -------
Net earnings $ 5,834 $ 4,571 $ 16,448 $ 14,784
======== ======= ======= =======
Preferred stock dividend
requirement $ (929) $ (929) $ (2,787) $ (2,787)
======== ======= ======= =======
Earnings applicable to
common stock $ 4,905 $ 3,642 $ 13,661 $ 11,997
======== ======= ======= =======
Net earnings per common share
- Primary $ .26 $ .20 $ .73 $ .65
- Fully diluted $ .25 $ .20 $ .70 $ .64
======== ======= ======= =======
Dividends declared per share:
- Series 2 preferred stock $ 3.25 $ 3.25 $ 9.75 $ 9.75
- Common stock $ .11 $ .11 $ .33 $ .33
======== ======= ======= =======
- 3 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months
Ended September 30,
-------------------
1996 1995
--------- --------
Cash flows from operating activities:
Net earnings $ 16,448 $ 14,784
Depreciation and amortization 9,044 9,204
Gain on sale of assets (264) (1,779)
Changes in current assets and liabilities (45,148) (63,710)
Other, net 956 1,131
--------- --------
Cash provided by (used in) operating
activities (18,964) (40,370)
--------- --------
Cash flows from investing activities:
Proceeds from sale of assets 1,789 3,975
Expenditures for property, plant & equipment (5,156) (7,897)
Other, net (366) (101)
--------- --------
Cash provided by (used in) investing
activities (3,733) (4,023)
--------- --------
Cash flows from financing activities:
Additions to notes payable 11,799 11,955
Additions to long-term debt 20,000 40,000
Dividends paid (8,929) (8,837)
Other, net 1,017 733
--------- ---------
Cash provided by (used in) financing
activities 23,887 43,851
--------- ---------
Net increase (decrease) in cash 1,190 (542)
Cash at beginning of period 4,078 3,711
--------- ---------
Cash at end of period $ 5,268 $ 3,169
========= =========
- 4 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Notes to Condensed Consolidated Financial Statements
(In Thousands)
Basis of Presentation
- ---------------------
The December 31, 1995 condensed consolidated balance sheet
amounts have been derived from the previously audited consolidated
balance sheet of Kaman Corporation and subsidiaries.
The balance of the condensed financial information reflects all
adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented and
are of a normal recurring nature unless otherwise disclosed in
this report.
The statements should be read in conjunction with the notes
to the consolidated financial statements included in Kaman
Corporation's 1995 Annual Report.
Cash Flow Items
- ---------------
Cash payments for interest were $7,482 and $6,167 for the nine
months ended September 30, 1996 and 1995, respectively. Cash
payments for income taxes for the comparable periods were $9,070
and $2,536, respectively.
- 5 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Consolidated revenues for the three month and nine month periods
ended September 30, 1996 were up 1% and 9%, respectively, compared
to the same periods of 1995. These results reflect year-to-date
increases in revenues in both the Distribution and Diversified
Technologies segments.
Distribution segment revenues increased approximately 2% and 6% for
the quarter and nine months ended September 30, 1996, respectively,
compared to the same periods of 1995. Revenue increases in both the
industrial distribution (which constitutes 75% of the segment's
revenues) and music distribution businesses contributed to these
year-to-date results.
For the quarter and nine months ended September 30, 1996,
Industrial Distribution sales have continued to increase at a
stronger rate than that of industrial production generally.
Results are 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.
The company continues to open new branches in the south and midwest
regions of the United States to service new customers and develop
additional business. These are geographical regions where the
company has not traditionally had a strong presence. In addition,
the company is being given the opportunity to perform an
"integrated supply" function for its larger customers, which
includes management of the customer's parts inventories and
associated personnel as well as selection of suppliers for the
facility. Management believes that these initiatives, in
combination with enhanced operating efficiencies attained during
the past few years, have resulted in increased market share for
this business.
Music Distribution revenues were level and up 9% for the three
month and nine month periods, compared to the same periods of 1995.
Demand for products were level in both the U.S. and international
markets in the third quarter.
Diversified Technologies segment revenues were level for the
quarter and up 14% for the nine months ended September 30, 1996,
compared to the same periods of 1995. The year-to-date increases
are primarily attributable to SH-2G retrofit work in connection
with the Republic of Egypt's acquisition of ten (10) SH-2G
helicopters from the U.S. Navy, sales of the K-MAX (Registered
- 6 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Trademark) helicopter, and to some extent, increases in scientific
services.
Within the Diversified Technologies segment, management continues
initiatives to adapt the corporation's businesses to conditions in
defense and commercial aircraft markets. With respect to its SH-2
helicopter, management is pursuing the 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 $160
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 not yet finalized, however, the corporation
has received a contract to provide long lead materials and services
in support of the sale in the amount of $93 million. Deliveries
are scheduled to begin in the fourth quarter of 1997. The
corporation is also seeking other opportunities for foreign sales
and has established an office in Australia to coordinate work on
competitions in New Zealand, Australia, and Malaysia. Regarding
New Zealand's procurement of four (4) to six (6) aircraft, the
corporation was the only U.S. company among the two competitors
that were invited to enter the Best and Final Offer process, and
the corporation's offer was submitted in February 1996. In July,
the New Zealand government notified the corporation that the award
announcement would be made after its general elections in October.
Therefore, the earliest the corporation expects an announcement is
the end of the year. In addition, the corporation has submitted a
proposal to the Royal Australian Navy in connection with the
procurement of fourteen (14) retrofitted aircraft. In the U.S.,
while 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 the
current defense environment where emphasis is being placed upon
advanced technology "smart weapons" programs. The corporation has
significant experience and expertise with advanced 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
- 7 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
corporation continues to be successful in maintaining revenues from
this type of business, however, competition for these contracts has
increased. During the quarter the corporation was awarded a
contract from the Air Force for software support services to
Cheyenne Mountain Air Station, Colorado. This is the third
consecutive award to the corporation to perform this work, dating
back to 1987. The estimated value of the contract, including
options for the next five years, is $150 million.
The corporation also performs aerospace subcontracting work for
several airframe manufacturing programs. This business had been
adversely affected by weakness in the domestic aircraft industry
for some time, however, there has recently been some evidence of
renewed health in the industry with the roll out of the new Boeing
777 and the government's announcement regarding longer term
production of the McDonnell Douglas C-17 being good examples.
The K-MAX program is now in its second year of commercial
operation. 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. The aircraft is
now certified in the United States, Canada, Japan, and Switzerland.
The special lease program for the first five (5) helicopters has
been substantially completed. The corporation continues to lease a
few of the aircraft, generally with initial customers. Otherwise,
the aircraft is being sold in the United States and abroad.
Production of six (6) aircraft is scheduled for 1996. Management
continues to take a conservative approach to market introduction of
this aircraft 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.
In April 1996, the U.S. Navy Military Sealift Command ("MSC")
awarded the corporation a contract to provide an extended
demonstration of the K-MAX helicopter's vertical replenishment
("VERTREP") capability. That demonstration began in May, with two
(2) K-MAX helicopters scheduled to support MSC airborne cargo
movement for a period of seven (7) months. The value of the
contract is estimated at $5.7 million. The demonstration is being
conducted under a charter/lease arrangement whereby the corporation
provides the aircraft, crew, and all maintenance and logistics
support. This is the second MSC award that the corporation has
received for this type of work; the first award was for a two-month
VERTREP demonstration in the third quarter of 1995. In October
- 8 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
1996, the MSC issued a request for proposal for a seven-month
VERTREP project scheduled to begin in April 1997, with an option
for a six-month extension. The corporation plans to bid for this
work, which would involve two aircraft under a charter/lease
arrangement. Management believes that the federal government's
continuing evaluation of the charter/lease concept for K-MAX in a
non-combat role represents another significant step forward in the
process of defense acquisition reform.
Total operating profits for the segments increased approximately
24% and 16% for the three month and nine month periods ended
September 30, 1996 compared to the same periods of 1995. Operating
profits for the Diversified Technologies segment increased some 26%
and 15% for the quarter and nine month periods, from the same
periods last year. Results for the first quarter of 1995 included
a gain of $1.8 million on the sale of real estate in this segment.
If the gain is disregarded, operating profits for the first nine
months of 1996 increased 24%, due primarily to increases in
aerospace subcontracting work, two aerospace subcontract programs
that are in the final stages of completion and work on the SH-2G
sale for Egypt. Operating profits for the Distribution segment were
up about 22% and 18% respectively for the three month and nine
month periods ended September 30, 1996, compared to the same
periods last year, due to relatively healthy domestic markets. Work
continues in the Music business to improve efficiency in our
European amplifier manufacturing operations.
Interest expense for the first nine months of 1996 increased almost
14% compared to the same period of 1995, due to increases in
average borrowings and higher interest rates.
The consolidated effective income tax rate for the first nine
months of 1996 was 42.5%. For the same period of 1995, the rate
was 39.9%.
Net earnings for the quarter ended September 30, 1996 were $5.8
million, compared to $4.6 million for the same period of 1995.
After giving effect to preferred stock dividend requirements,
earnings available to common shareholders were $4.9 million for the
third quarter of 1996 compared to $3.6 million for the same period
of 1995.
Net earnings for the nine months ended September 30, 1996 were
$16.4 million, compared to $14.8 million for the same period of
1995. After giving effect to preferred stock dividend
requirements, earnings available to common shareholders were $13.7
million for the nine-month period of 1996 compared to $12.0 million
for the same period of 1995. Results for 1995 included a gain of
approximately $1.8 million on the sale of real estate within the
- 9 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Diversified Technologies segment. Adjusted to exclude this
one-time gain, net earnings for the first nine months of 1996 were
up approximately 20% over 1995.
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. In recent periods, the corporation
has financed somewhat more of its requirements from bank
borrowings.
For general borrowing purposes, the corporation maintains a
revolving credit agreement involving twelve domestic and foreign
banks. This facility was established in January 1996 and provides
a maximum unsecured line of credit of $250 million. It replaces
two previous revolving credit arrangements and involves many of the
same lenders that participated in those arrangements. The agreement
has a term of five years and contains various covenants, including
debt to capitalization, consolidated net worth requirements, and
limitations on other loan indebtedness that the corporation may
incur.
As of September 30, 1996, the corporation's aggregate borrowings
were $124.7 million, most of which was borrowed under the revolving
credit facility. Average borrowings were $121.3 million for the
first nine months of 1996, compared to $90.7 million for the same
period last year.
The corporation has a stock repurchase program under which it may
repurchase slightly more than 700,000 Class A shares. As of
September 30, 1996, a total of 189,000 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.
Management believes that the corporation's cash flow from
operations and available unused bank lines of credit under its
revolving credit agreement will be sufficient to finance its
working capital and other capital requirements for the foreseeable
future. These requirements may include working capital
requirements for potential foreign sales of the SH-2 helicopter.
- 10 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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.
- 11 -
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits to Form 10-Q:
(11) Earnings per common share computation
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There have been no reports on Form 8-K filed during the
quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KAMAN CORPORATION
Registrant
Date: November 12, 1996 By Charles H. Kaman
Chairman and Chief Executive
Officer
(Duly Authorized Officer)
Date: November 12, 1996 By Robert M. Garneau
Executive Vice President and
Chief Financial Officer
- 12 -
KAMAN CORPORATION AND SUBSIDIARIES
Index to Exhibits
Exhibit 11 Earnings Per Common Share Computation Attached
Exhibit 27 Financial Data Schedule Attached
- 13 -