MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for 1996 were $953.7 million compared to $899.5 million in
1995 and $820.8 million in 1994. The increase for 1996 is equally
attributable to the corporation's Distribution and Diversified
Technologies segments. The increase for 1995 is primarily
attributable to the Distribution segment.
Distribution segment revenues increased by 4% in 1996, and by 13%
in 1995 and 1994. During 1996, Industrial Distribution revenues
(about 75% of this segment's revenues in 1996) continued to benefit
from domestic economic growth. Revenue increases have generally
been stronger than the rate of increase in industrial production
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
in 1996 opened 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. For its larger customers, the
company has been 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 1996, with the increases occurring largely in the U.S.
market.
Diversified Technologies segment revenues were up 9% in 1996 and 4%
in 1995, compared to a decrease of 9% in 1994. The results for 1996
are primarily due to sales of the K-MAX(R) helicopter, work on the
SH-2G helicopter retrofit program for Egypt, and increased demand
for the corporation's specialty self-lubricating bearings and
scientific services.
During 1996, the corporation continued efforts to adapt the defense
portion of this segment's business (72% in 1996) to market
conditions. With respect to its SH-2 helicopter, management
believes that there is potential for use of this aircraft by
Page 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
foreign military services, especially those using smaller ships
with landing platforms that are well-suited to this helicopter. 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 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 program was finalized in December 1996 and
is worth approximately $150 million. Deliveries are scheduled to
begin in the fourth quarter of 1997 and be completed by the end of
1998. As it pursues other opportunities for foreign sales, the
corporation has maintained an office in Australia to coordinate
work on competitions in Australia, New Zealand, and Malaysia.
During January 1997, the corporation was notified by the Australian
government that it had been selected as the "preferred tenderer" in
a competition to supply eleven (11) multi-mission helicopters to go
aboard Royal Australian Navy ANZAC frigates. Contract negotiations
should begin shortly and are expected to take several months to
complete. The retrofit aircraft for Australia will incorporate a
new cockpit and new weapons and sensors. Therefore, while the
contract value is presently undetermined, management expects that
it will be significantly larger in dollar value than the program
for Egypt. It is also anticipated that revenues and earnings will
phase in gradually, with deliveries expected to begin in 2001. As
to New Zealand, the corporation is one of only two competitors
involved in the final bid process for a program involving four (4)
to six (6) retrofitted aircraft. The New Zealand government
has delayed announcement of the contract award due to its general
elections in 1996; the corporation now anticipates that an award
announcement may be made during the first quarter of 1997. The
corporation continues to pursue other opportunities for foreign
sales as well, including Malaysia and other countries in Southeast
Asia and the Middle East. Although the corporation is not
manufacturing further aircraft for the U.S. Navy, sixteen aircraft
are currently in the Naval Reserves and the corporation expects to
continue to provide logistics and spare parts support for these
aircraft.
As to its advanced technology defense programs, management believes
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
Page 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
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 in this area is increasing. During 1996 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 is
$150 million, inclusive of options, for the next five years.
The corporation also performs aerospace subcontracting work for
several airframe manufacturing programs. This business showed
improvement during 1996 due to revitalization in the domestic
aviation market evidenced by the roll out of the Boeing 777 and the
government's announcement regarding longer term production of
the McDonnell Douglas C-17.
The K-MAX helicopter program, an important initiative for this
segment, completed its second full year in commercial operation
during 1996. 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, Germany, Switzerland
and 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 1996 consisted of
six (6) aircraft and a similar number are scheduled for production
in 1997. Management has taken a conservative approach to the
introduction of this aircraft, in part to give its markets time to
develop and also because the market has been affected by the
existence of military surplus aircraft that have been (and may
be in the future) released to the public at lower cost than new
aircraft. In any case, management expects that sales and
profitability will take some time to achieve.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
One of the potential applications for the K-MAX is the task of
vertical replenishment ("VERTREP"), a non-combat role in the
military. 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 VERTREP capability.
That demonstration began in May, with two (2) K-MAX helicopters
supporting MSC airborne cargo movement for a period of seven (7)
months. The value of the contract was $5.7 million. The
demonstration was conducted under a charter/lease arrangement
whereby the corporation provided the aircraft, crew, and all
maintenance and logistics support. This was 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 1996, MSC issued a request for proposal
for a seven-month VERTREP project scheduled to begin in April 1997.
The corporation bid for this third demonstration, however, in
February 1997 MSC decided to evaluate the services of another
provider. The corporation has been the only commercial organization
to carry out these VERTREP demonstrations to date, so management
does not consider it unusual that the government would choose to
award the latest project to another provider in order to provide
comparative performance data. Management believes that the federal
government's continuing evaluation of the charter/lease concept
represents another significant step forward in the process of
defense acquisition reform.
The corporation had operating income of $51.4 million and net
earnings of $23.6 million for 1996 compared to an operating income
of $42.1 million and net earnings of $19.6 million in 1995. After
giving effect to the preferred stock dividend requirement, earnings
available to common shareholders for 1996 were $19.9 million
compared to $15.9 million a year ago. The Diversified Technologies
segment had operating profits of $39.8 million for 1996 compared to
$33.5 million in the previous year. Operating profits of the
segment for 1996 benefitted from reductions in research and
development expenditures and a gain of approximately $4.0 million
attributable to the sale of real estate, partially offset by costs
associated with our electromagnetics business which is having
some difficulty with a market-driven conversion from defense to
commercial products. Also included in 1995 operating profits was a
$1.8 million gain on the sale of real estate. Operating profits in
the Distribution segment increased in 1996 to $22.6 million from
$19.4 million in 1995. The Industrial Distribution business
Page 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
continues to benefit from relatively healthy domestic markets, but
these results were offset somewhat by a slowdown in foreign music
markets and continued efforts to improve efficiency in our European
amplifier manufacturing operations.
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 for 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 in 1994. 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, which benefitted from a reduction in
research and development expenditures and a $1.8 million gain on
sale of real estate as described above, compared to an operating
loss of $17.2 million for 1994. Operating profits in the
Distribution segment declined slightly in 1995 to $19.4 million
from $19.6 million in 1994. The reduction is attributable to higher
than expected costs associated with Music Distribution's
manufacturing and distribution in Europe and to softening Asian and
European markets during the year.
The fourth quarter 1994 charge of $44.0 million related to 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 operations and certain of its product
lines, as well as its merger into Kaman Aerospace, another Kaman
subsidiary. Approximately 70% of the charge represented the
write-down of impaired assets, including goodwill, facilities and
equipment, and inventories. The balance related to personnel
reductions, contract close-out costs and related items that would
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 was
substantially completed in 1996.
The fully diluted earnings per share figures for 1996 and 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 earnings per share figure for 1994 does
not reflect these potential conversions and exercises since their
effect was anti-dilutive.
Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
Interest expense increased 13% in 1996 compared to 1995; for 1995,
interest expense increased 88% compared to 1994. The increases are
primarily attributable to substantially higher average borrowings
in 1996 and 1995 due to increased capital requirements.
The corporation's consolidated effective income tax rate was 42.0%
for 1996 and 40.1% in 1995. 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.
Effective January 1, 1996, the corporation adopted the disclosure
requirements of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. The accounting
provisions of the new Statement are not presented because the
effect on 1996 and 1995 net earnings would have been immaterial.
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 the past few years, the
corporation's capital requirements have continued to increase,
however, and this resulted in financing more of its requirements
from bank borrowings.
During the past two years, operating activities have required
additional cash due principally to growth in accounts receivable
and inventories. Accounts receivable increased in 1995 primarily
due to the SH-2G helicopter programs for the U.S. Navy, and
increased in 1996 due to the SH-2G program for Egypt.
Increases in inventory levels for 1996 are largely due to
work-in-process for aerospace subcontracting work. Inventory
increases for 1995 and 1994 are primarly attributable to the K-MAX
helicopter program. K-MAX inventory growth has involved both the
method of introduction of the aircraft to the market and
the timing of aircraft production lots. Specifically, the first
group of five (5) aircraft were leased under a special introductory
lease program during 1994 and 1995, so these aircraft were added to
inventory along with 1995 production aircraft. Spare parts
production in order to fully support the program has also
added to inventory levels. Inventories at December 31, 1996 and
1995 include K-MAX aircraft that are principally being used in
various applications under shorter-term lease or charter/lease
Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
arrangements. Distribution segment inventory growth has been in
line with increased business.
Cash used in investing activities has traditionally been for the
acquisition of equipment used for manufacturing and distribution.
During 1994, capital expenditures increased due primarily to a real
estate acquisition in the Diversified Technologies segment.
Proceeds from the sale of property, plant and equipment increased
in 1996 and 1995 due primarily to the sale of other Diversified
Technologies segment real estate.
Cash provided by financing activities was primarily used to support
the previously discussed increase in working capital requirements.
For this purpose, 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 replaced 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.
Cash used by financing activities was primarily attributable to the
payment of dividends.
Under its revolving credit agreement, the corporation has the
ability to borrow funds on both a short-term and long-term basis.
As of December 31, 1996, the corporation's aggregate bank
borrowings were $110.8 million, most of which was borrowed under
the revolving credit facility. Average bank borrowings were
$125.0 million for 1996, compared to $96.3 million for 1995.
The corporation has a stock repurchase program under which it may
repurchase slightly more than 700,000 Class A shares. As of
December 31, 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.
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
FORWARD-LOOKING STATEMENTS
This report contains forward-looking information relating to the
corporation's business prospects, including future contract awards
and negotiations, the SH-2G and K-MAX helicopter programs, and
other matters that involve a number of uncertainties that may cause
actual results to differ materially from expectations. Those
uncertainties include, but are not limited to: 1) the successful
conclusion of contract negotiations with government authorities,
including foreign governments; 2) political developments in
countries where the corporation intends to do business; 3) standard
government contract provisions permitting termination for the
convenience of the government; 4) competitive conditions in markets
served by the corporation; 5) the degree of acceptance of new
products in the marketplace; 6) currency exchange rates, taxes,
laws and regulations, inflation rates, general business conditions
and other factors. Any forward-looking information should be
considered with these factors in mind.
SELECTED QUARTERLY FINANCIAL DATA
(In thousands except First Second Third Fourth Total
per share amounts) Quarter Quarter Quarter Quarter Year
- ----------------------------- -------- -------- -------- -------- --------
NET SALES:
1996 .................... $239,508 $246,148 $227,680 $234,770 $948,106
1995 .................... 207,982 221,509 225,629 241,278 896,398
GROSS PROFIT:
1996 .................... $ 62,044 $ 60,432 $ 57,319 $ 59,806 $239,601
1995 .................... 55,816 56,279 56,433 61,109 229,637
NET EARNINGS:
1996 .................... $ 5,202 $ 5,412 $ 5,834 $ 7,129 $ 23,577
1995 .................... 5,550 4,663 4,571 4,818 19,602
PER COMMON SHARE--PRIMARY:
1996 .................... $ .23 $ .24 $ .26 $ .33 $ 1.06
1995 .................... .25 .20 .20 .21 .86
PER COMMON SHARE--FULLY DILUTED:
1996 .................... $ .22 $ .23 $ .25 $ .30 $ 1.00
1995 .................... .24 .20 .20 .21 .85
Page 8
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except share and per share amounts) 1996 1995
- ------------------------------------------------- ---- ----
ASSETS
CURRENT ASSETS:
Cash............................................ $ 5,445 $ 4,078
Accounts receivable............................. 185,516 177,878
Inventories..................................... 213,468 192,734
Deferred income taxes........................... 22,392 21,250
Other current assets ........................... 7,310 8,924
-------- --------
Total current assets ..................... 434,131 404,864
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET ................. 76,393 83,054
GOODWILL, NET ...................................... 7,639 8,131
OTHER ASSETS ....................................... 3,573 4,020
-------- --------
$521,736 $500,069
======== ========
Page 9
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 KAMAN CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
-------- --------
CURRENT LIABILITIES:
Notes payable...................................... $ 60,837 $ 62,851
Current portion of long-term debt.................. 2,165 647
Accounts payable -- trade.......................... 61,334 61,729
Accrued salaries and wages......................... 10,733 10,386
Accrued vacations.................................. 7,079 6,361
Accrued restructuring and other costs.............. 6,531 13,542
Other accruals and payables........................ 46,959 50,757
-------- --------
Total current liabilities.................... 195,638 206,273
-------- --------
DEFERRED CREDITS....................................... 14,028 13,127
LONG-TERM DEBT, EXCLUDING CURRENT PORTION.............. 83,940 66,386
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 1996 and 1995 ........ 57,167 57,167
Common stock:
Class A, authorized 48,500,000 shares, nonvoting;
$.10 per common share dividend preference;
issued 18,075,247 shares in 1996 and
17,788,233 shares in 1995...................... 18,075 17,788
Class B, authorized 1,500,000 shares, voting;
issued 667,814 shares in 1996 and 1995......... 668 668
Additional paid-in capital .......................... 21,696 19,319
Retained earnings.................................... 132,058 120,399
Unamortized restricted stock awards.................. (818) (609)
Equity adjustment from foreign currency translation.. (612) (280)
-------- -------
228,234 214,452
Less 9,738 shares and 16,825 shares of Class A
common stock in 1996 and 1995, respectively,
held in treasury, at cost ......................... (104) (169)
-------- -------
Total shareholders' equity................... 228,130 214,283
-------- -------
$521,736 $500,069
======== ========
See accompanying notes to consolidated financial statements.
Page 10
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts)
- ---------------------------------------
1996 1995 1994
-------- -------- --------
REVENUES:
Net sales ....................... $948,106 $896,398 $819,182
Other ........................... 5,548 3,078 1,592
-------- -------- --------
953,654 899,476 820,774
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales ................... 708,505 666,761 611,762
Selling, general and
administrative expense ........ 193,747 190,604 173,853
Interest expense ................ 10,023 8,834 4,694
Restructuring, impairment
and other costs ............... -- -- 44,000
Other expense ................... 702 546 646
-------- -------- --------
912,977 866,745 834,955
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES . 40,677 32,731 (14,181)
INCOME TAXES (BENEFIT) .............. 17,100 13,129 (1,000)
-------- -------- --------
NET EARNINGS (LOSS) ................. $ 23,577 $ 19,602 $(13,181)
======== ======== ========
PREFERRED STOCK DIVIDEND REQUIREMENT $ (3,716) $ (3,716) $ (3,716)
======== ======== ========
EARNINGS(LOSS)APPLICABLE TO
COMMON STOCK ...................... $ 19,861 $ 15,886 $(16,897)
======== ======== ========
PER SHARE:
Net earnings(loss)per common share:
Primary ..................... $ 1.06 $ .86 $ (.93)
Fully diluted ............... 1.00 .85 (.93)
Dividends declared:
Series 2 preferred stock .... 13.00 13.00 13.00
Common stock ................ .44 .44 .44
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 11
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts)
- ---------------------------------------
1996 1995 1994
-------- -------- --------
SERIES 2 PREFERRED STOCK ............ $ 57,167 $ 57,167 $ 57,167
-------- -------- --------
CLASS A COMMON STOCK:
Balance -- beginning of year .... 17,788 17,600 17,600
Shares issued ................... 287 188 --
-------- -------- --------
Balance -- end of year .......... 18,075 17,788 17,600
-------- -------- --------
CLASS B COMMON STOCK ................ 668 668 668
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL:
Balance -- beginning of year .... 19,319 17,853 18,459
Employee stock plans ............ 1,871 1,427 (611)
Restricted stock awards ......... 506 39 5
-------- -------- --------
Balance -- end of year .......... 21,696 19,319 17,853
-------- -------- --------
RETAINED EARNINGS:
Balance -- beginning of year .... 120,399 112,592 137,490
Net earnings (loss) ............. 23,577 19,602 (13,181)
Dividends declared:
Preferred stock .............. (3,716) (3,716) (3,716)
Common stock ................. (8,202) (8,079) (8,001)
-------- -------- --------
Balance -- end of year .......... 132,058 120,399 112,592
-------- -------- --------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance -- beginning of year .... (609) (744) (968)
Stock awards issued ............. (517) (179) (119)
Amortization of stock awards .... 308 314 343
-------- -------- --------
Balance -- end of year .......... (818) (609) (744)
-------- -------- --------
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION:
Balance -- beginning of year .... (280) (444) (158)
Translation adjustment .......... (332) 164 (286)
-------- -------- --------
Balance -- end of year .......... (612) (280) (444)
-------- -------- --------
Page 12
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
KAMAN CORPORATION AND SUBSIDIARIES
1996 1995 1994
-------- -------- --------
TREASURY STOCK:
Balance -- beginning of year .... (169) (938) (1,945)
Shares acquired in 1996--501;
1995--38,685; 1994--193,399 ... (5) (430) (1,847)
Shares reissued under various
stock plans ................... 70 1,199 2,854
-------- -------- --------
Balance -- end of year .......... (104) (169) (938)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY .......... $228,130 $214,283 $203,754
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) 1996 1995 1994
- -------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ....................... $ 23,577 $ 19,602 $(13,181)
Adjustments to reconcile net earnings (loss)
to cash provided by (used in)
operating activities:
Depreciation and amortization ......... 12,358 12,687 13,053
Net gain on sale of assets ............ (4,094) (1,660) --
Restructuring, impairment and other costs -- -- 44,000
Deferred income taxes ................. (1,298) 10,171 (7,062)
Other, net ............................ 1,785 1,130 1,999
Changes in current assets and liabilities:
Accounts receivable ................ (7,638) (31,981) 19,204
Inventories ........................ (20,734) (33,583) (44,273)
Other current assets ............... 1,614 (1,299) (2,864)
Accounts payable -- trade .......... (395) 7,294 3,315
Accrued expenses and payables....... (9,744) (3,206) 892
Income taxes payable ............... -- (978) (2,361)
-------- -------- --------
Cash provided by (used in)
operating activities......... (4,569) (21,823) 12,722
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant
and equipment and other assets ........ 6,883 4,210 195
Expenditures for property, plant and
equipment ............................. (7,966) (11,503) (21,581)
Other, net ............................... (333) (99) (482)
-------- -------- --------
Cash provided by (used in)
investing activities......... (1,416) (7,392) (21,868)
-------- -------- --------
Page 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
KAMAN CORPORATION AND SUBSIDIARIES
(In thousands) 1996 1995 1994
- -------------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ................ (2,014) 10,192 21,498
Changes in current portion of
long-term debt......................... 1,518 (12) (45)
Additions to long-term debt ............. 20,000 30,000 --
Reduction of long-term debt ............. (2,446) (1,047) (834)
Proceeds from exercise of employee
stock plans............................ 2,217 2,674 2,128
Purchases of treasury stock ............. (5) (430) (1,847)
Dividends paid--Series 2 preferred stock (3,716) (3,716) (3,716)
Dividends paid--common stock ............ (8,202) (8,079) (8,001)
Other, net .............................. -- -- (171)
-------- -------- --------
Cash provided by (used in)
financing activities........ 7,352 29,582 9,012
-------- -------- --------
NET INCREASE (DECREASE) IN CASH ............. 1,367 367 (134)
CASH AT BEGINNING OF YEAR ................... 4,078 3,711 3,845
-------- -------- --------
CASH AT END OF YEAR .........................$ 5,445 $ 4,078 $ 3,711
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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 Sales and estimated
profits under long-term contracts are principally recognized on the
percentage-of-completion method of accounting using the ratio that
costs incurred bear to estimated total costs after giving effect to
estimates of costs to complete based upon most recent information
for each contract. Sales and estimated profits on other contracts
are recorded as products are shipped or services are performed.
Reviews of contracts are made periodically throughout their lives
and revisions in profit estimates are recorded in the accounting
period in which the revisions are made. Any anticipated contract
losses are charged to operations when first indicated.
INVENTORIES Inventory of merchandise for resale is stated at cost
(using the average costing method) or market, whichever is lower.
Contracts and work in process and finished goods are valued at
production cost represented by material, labor and overhead,
including general and administrative expenses where applicable.
Contracts and work in process and finished goods are not recorded
in excess of net realizable values.
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 16
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 $365 in 1996, $355 in 1995 and
$1,318 in 1994.
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 $8,036 in 1996, $13,664 in 1995
and $21,062 in 1994.
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 a 1994 fourth quarter pre-tax charge of
$44,000 ($32,100 after taxes or $1.76 per common share) reflecting
its strategy for addressing trends in U.S. defense planning and
spending priorities. The charge represented 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. Approximately
seventy percent (70%) of the charge represented the write-down of
impaired assets, including goodwill, facilities and equipment, and
inventories. The balance related to personnel reductions and
contract close-out costs and related expenses for items which would
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 was
substantially completed in 1996.
Page 17
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
-----------------------
1996 1995
--------- ---------
Trade receivables, net of allowance
for doubtful accounts of $2,574
in 1996, $2,289 in 1995 ............ $ 74,402 $ 76,659
U.S. Government contracts:
Billed ............................. 33,911 43,380
Recoverable costs and accrued
profit -- not billed ............ 51,742 37,597
Commercial contracts:
Billed ............................. 10,332 7,866
Recoverable costs and accrued
profit -- not billed ............ 15,129 12,376
--------- ---------
Total ........................... $ 185,516 $ 177,878
========= =========
Recoverable costs and accrued profit-not billed represent costs
incurred on contracts which will become billable upon future
deliveries or completion of engineering and service type contracts.
Management estimates that approximately $23,812 of such costs and
accrued profits at December 31, 1996 will be collected after one
year.
Page 18
INVENTORIES
Inventories are comprised as follows:
December 31,
---------------------
1996 1995
--------- ---------
Merchandise for resale ................ $ 110,126 $ 107,407
Contracts in process:
U.S. Government .................... 12,637 9,397
Commercial ......................... 7,754 2,110
Other work in process (including
certain general stock materials
and spare parts) ................... 63,943 50,950
Finished goods ........................ 19,008 22,870
--------- ---------
Total .............................. $ 213,468 $ 192,734
========= =========
Finished goods inventory consists of K-MAX(R) helicopters that are
principally being used in various applications under shorter-term
lease or charter/lease arrangements.
The aggregate amounts of general and administrative costs allocated
to contracts in process during 1996, 1995 and 1994 were $47,985,
$46,833 and $44,979, respectively.
The estimated amounts of general and administrative costs remaining
in contracts in process at December 31, 1996 and 1995 amount to
$3,872 and $2,134, respectively, and are based on the ratio of such
allocated costs to total costs incurred.
Page 19
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment are recorded at cost and summarized
as follows:
December 31,
---------------------
1996 1995
--------- ---------
Land .................................. $ 8,224 $ 8,382
Buildings ............................. 55,452 57,063
Leasehold improvements ................ 14,659 14,023
Machinery, office furniture and
equipment .......................... 112,988 109,849
--------- ---------
Total .............................. 191,323 189,317
Less accumulated depreciation
and amortization ................... 114,930 106,263
--------- ---------
Property, plant and equipment,
net ................................ $ 76,393 $ 83,054
========= =========
CREDIT ARRANGEMENTS -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
REVOLVING CREDIT AGREEMENT On January 29, 1996, the corporation
replaced its then existing revolving credit agreements with one
revolving credit agreement involving several domestic and foreign
lenders. The agreement provides for an aggregate maximum commitment
of $250,000 and expires in 2001. Interest is payable at various
market rates.
SHORT-TERM BORROWINGS Under its revolving credit agreement, the
corporation has the ability to borrow funds on both a short-term
and long-term basis. The corporation also has arrangements with
several other banks to borrow funds on a short-term basis with
interest at current market rates.
Page 20
Short-term borrowings outstanding are as follows:
December 31,
--------------------
1996 1995
-------- --------
Revolving credit agreement ............ $ 52,000 $ --
Other credit arrangements ............. 8,837 62,851
-------- --------
Total .............................. $ 60,837 $ 62,851
======== ========
LONG-TERM DEBT The corporation has long-term debt as follows:
December 31,
--------------------
1996 1995
-------- --------
Revolving credit agreement ............ $ 50,000 $ 30,000
Convertible subordinated
debentures ......................... 33,191 33,191
Other obligations ..................... 2,914 3,842
-------- --------
Total .............................. 86,105 67,033
Less current portion .................. 2,165 647
-------- --------
Total excluding current portion .... $ 83,940 $ 66,386
======== ========
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 $1,660 of the outstanding principal amount of the
debentures annually. The debentures are subordinated to the claims
of senior debt holders and general creditors. The corporation
exchanged $61,804 of these debentures for its Series 2 preferred
stock on October 22, 1993. The remaining debentures have a fair
value of $28,876 at December 31, 1996 based upon current market
prices.
Page 21
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.
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:
1997 ......................................... $ 2,165
1998 ......................................... 2,238
1999 ......................................... 2,165
2000 ......................................... 1,915
2001 ......................................... 51,915
RESTRICTIVE COVENANTS The most restrictive of the covenants
contained in the revolving credit 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 $9,682, $8,587
and $4,572 for 1996, 1995 and 1994, respectively.
Page 22
INCOME TAXES
The components of income taxes are as follows:
1996 1995 1994
--------- --------- --------
Current:
Federal .......... $ 13,734 $ 1,958 $ 6,362
State ............ 4,664 1,000 (300)
----- ----- ----
18,398 2,958 6,062
------ ----- -----
Deferred:
Federal .......... (434) 8,192 (5,762)
State ............ (864) 1,979 (1,300)
---- ----- ------
(1,298) 10,171 (7,062)
------ ------ ------
Total ............ $ 17,100 $ 13,129 $ (1,000)
========= ========= ========
The components of the deferred tax assets and deferred tax
liabilities are presented below:
December 31,
---------------------
1996 1995
-------- --------
Deferred tax assets:
Long-term contracts ................ $ 5,838 $ 2,531
Deferred employee benefits ......... 8,998 7,371
Restructuring, impairment and
other costs .................... 5,255 8,860
Inventory .......................... 1,205 1,238
Accrued liabilities and other
items .......................... 6,922 7,170
-------- --------
Total deferred tax assets ...... 28,218 27,170
-------- --------
Deferred tax liabilities:
Depreciation and amortization ...... (4,501) (4,715)
Other items ........................ (4,099) (4,135)
-------- --------
Total deferred tax liabilities . (8,600) (8,850)
-------- --------
Net deferred tax asset ......... $ 19,618 $ 18,320
======== ========
Page 23
No valuation allowance has been recorded because the corporation
believes that these net 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.
Cash payments for income taxes were $15,823, $3,953 and $8,255 in
1996, 1995 and 1994, 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 $9,913 of Class A common stock of Kaman Corporation at
December 31, 1996).
Page 24
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
1996 1995 1994
-------- -------- --------
Service cost for
benefits earned
during the year ...... $ 9,888 $ 8,991 $ 9,636
Interest cost on
projected benefit
obligation ........... 18,756 18,065 16,558
Actual return on plan
assets ............... (35,855) (58,243) (1,848)
Net amortization and
deferral ............. 12,731 36,725 (17,543)
-------- -------- --------
Net pension cost ........ $ 5,520 $ 5,538 $ 6,803
======== ======== ========
The funded status of the pension plan is as follows:
December 31,
-----------------
1996 1995
--------- ---------
Actuarial present value of
accumulated benefit obligation:
Vested benefits ................... $ 238,097 $ 224,699
Non-vested benefits ............... 2,172 1,967
--------- ---------
Total ............................. $ 240,269 $ 226,666
========= =========
Actuarial present value of
projected benefit obligation ...... $ 273,196 $ 258,111
Plan assets at fair value ............ 307,796 279,173
--------- ---------
Excess of assets over
projected benefit obligation ...... 34,600 21,062
Unrecognized prior service cost ...... (511) (566)
Unrecognized net gain ................ (26,533) (10,896)
Unrecognized net transition asset .... (9,268) (11,122)
--------- ---------
Accrued pension cost ................. $ 1,712 $ 1,522
========= =========
Page 25
The actuarial assumptions used in determining the funded status of
the pension plan are as follows:
December 31,
-----------------
1996 1995
----- -----
Discount rate 7 1/2% 7 1/2%
Average rate of increase
in compensation levels 4 1/2% 4 1/2%
The expected long-term rates of return on plan assets used to
compute the net periodic pension costs were 9% for 1996 and 1995.
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 1997 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, 1996:
1997 .......................................... $ 13,128
1998 .......................................... 7,479
1999 .......................................... 6,068
2000 .......................................... 3,943
2001 .......................................... 1,295
Later years ................................... 778
----------
Total ......................................... $ 32,691
==========
Page 26
Lease expense for all operating leases, including leases with terms
of less than one year, amounted to $14,889, $14,158 and $14,150 for
1996, 1995 and 1994, 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 1996, 1995 and 1994 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. In 1996 and 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, 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.
STOCK PLANS
Effective January 1, 1996, the corporation adopted the disclosure
requirements of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. The accounting
provisions of the new Statement are not presented because the
effect on 1996 and 1995 net earnings would have been immaterial.
Page 27
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 1996, 228,148 shares were issued
to employees at prices ranging from $8.82 to $11.21 per share.
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. At December 31, 1996, there were approximately 762,402
shares available for offering under the plan.
STOCK INCENTIVE PLAN The corporation maintains a Stock Incentive
Plan which includes a continuation and extension of a predecessor
stock incentive program. The Stock Incentive Plan provides for the
grant of non-statutory stock options, incentive stock options,
restricted stock awards and stock appreciation rights primarily to
officers and other key employees. The corporation has designated
962,199 shares of its Class A common stock for this plan, including
2,199 shares previously reserved under the predecessor 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.
Restricted stock awards were made for 54,000 shares at $10.38 per
share in 1996, 30,000 shares at $11.38 per share in 1995 and 12,000
shares at $9.94 per share in 1994. At December 31, 1996, there were
92,400 shares remaining subject to restrictions pursuant to these
awards. At December 31, 1996, no stock appreciation rights had been
issued under the plan.
Page 28
Stock option activity is as follows:
Weighted-
average
exercise
Stock options outstanding: Options price
- -------------------------- ------- -----
Balance at January 1, 1994 .......... 807,893 $ 8.55
Options granted ................. 103,050 9.94
Options exercised ............... (12,104) 8.22
Options cancelled ............... (34,250) 9.18
-------- -------
Balance at December 31, 1994 ........ 864,589 8.69
Options granted ................. 45,000 11.38
Options exercised ............... (132,857) 7.93
Options cancelled ............... (99,685) 9.49
-------- -------
Balance at December 31, 1995 ........ 677,047 8.90
Options granted ................. 169,100 10.38
Options exercised ............... (55,102) 7.86
Options cancelled ............... (26,065) 9.00
-------- -------
Balance at December 31, 1996 ........ 764,980 $ 9.30
======== =======
Range of exercise prices
for options outstanding
at December 31, 1996 ............ $7.50 - $11.38
Options exercisable at:
December 31, 1994 ............... 522,519
December 31, 1995 ............... 424,807
December 31, 1996 ............... 437,000
Average contractual life remaining
at December 31, 1996 ............ 6.2 years
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
Page 29
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(R) helicopter program, a significant
commercial effort for the corporation, is included in the
Diversified Technologies segment. The Diversified Technologies'
segment operating profits for 1996 and 1995 include gains of
approximately $4,000 and $1,800, respectively, 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.
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 175 locations in 35 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.
Page 30
Summarized financial information by business segment is as follows:
1996 1995 1994
-------- -------- --------
Net sales:
Diversified
Technologies ..............$350,082 $322,614 $310,279
Distribution ................ 598,024 573,784 508,903
-------- -------- --------
$948,106 $896,398 $819,182
======== ======== ========
Operating profit (loss):
Diversified
Technologies ..............$ 39,826 $ 33,492 $(17,226)
Distribution ................ 22,555 19,355 19,558
-------- -------- --------
62,381 52,847 2,332
Interest, corporate
and other income/
expense, net ................ 21,704 20,116 16,513
-------- -------- --------
Earnings (loss) before
income taxes ................$ 40,677 $ 32,731 $(14,181)
======== ======== =========
Identifiable assets:
Diversified
Technologies ..............$287,501 $267,037 $236,239
Distribution ................ 221,485 223,495 198,145
Corporate ................... 12,750 9,537 8,565
-------- -------- --------
$521,736 $500,069 $442,949
======== ======== ========
Capital expenditures:
Diversified
Technologies ..............$ 3,718 $ 6,472 $ 17,396
Distribution ................ 3,796 4,440 3,732
Corporate ................... 452 591 453
-------- -------- --------
$ 7,966 $ 11,503 $ 21,581
======== ======== ========
Depreciation and amortization:
Diversified
Technologies ..............$ 7,953 $ 8,208 $ 9,307
Distribution ................ 3,555 3,568 2,946
Corporate ................... 850 911 800
-------- -------- --------
$ 12,358 $ 12,687 $ 13,053
======== ======== ========
Page 31
Operating profit (loss) is total revenues less cost of sales and
selling, general and administrative expense (including
restructuring, impairment and other costs in 1994) 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 $253,260 in 1996, $228,658 in 1995
and $249,854 in 1994.
Page 32
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, 1996 and
1995, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 1996. 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, 1996
and 1995 and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/KPMG PEAT MARWICK LLP
---------------------
January 27, 1997
Page 33
FIVE-YEAR SELECTED FINANCIAL DATA KAMAN CORPORATION AND SUBSIDIARIES
(In thousands except per share amounts,
shareholders and employees)
- ---------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
OPERATIONS:
Revenues ................$953,654 $899,476 $820,774 $794,092 $784,732
Cost of sales ........... 708,505 666,761 611,762 588,237 583,638
Selling, general and
administrative expense.. 193,747 190,604 173,853 173,581 164,603
Restructuring, impairment
and other costs ....... -- -- 44,000 69,500 --
Operating income (loss) . 51,402 42,111 (8,841) (37,226) 36,491
Interest expense ........ 10,023 8,834 4,694 6,976 7,086
Other expense (income) .. 702 546 646 (3,728) 401
Earnings (loss) before
income taxes .......... 40,677 32,731 (14,181) (40,474) 29,004
Income taxes (benefit)... 17,100 13,129 (1,000) (11,679) 11,628
Net earnings (loss) ..... 23,577 19,602 (13,181) (28,795) 17,376
FINANCIAL POSITION:
Current assets ..........$434,131 $404,864 $339,012 $316,601 $334,581
Current liabilities ..... 195,638 206,273 192,882 166,765 122,015
Working capital ......... 238,493 198,591 146,130 149,836 212,566
Property, plant and
equipment, net ........ 76,393 83,054 84,621 81,711 73,262
Total assets ............ 521,736 500,069 442,949 440,196 443,445
Long-term debt .......... 83,940 66,386 37,433 37,977 100,889
Shareholders' equity .... 228,130 214,283 203,754 228,313 209,535
PER SHARE AMOUNTS:
Net earnings (loss) per
common share--primary .$ 1.06 $ .86 $ (.93)$ (1.63)$ .95
Net earnings (loss) per
common share--
fully diluted.......... 1.00 .85 (.93) (1.63) .93
Dividends declared--Series
2 preferred stock ..... 13.00 13.00 13.00 1.37 ---
Dividends declared --
common stock .......... .44 .44 .44 .44 .44
Shareholders' equity --
common stock .......... 9.13 8.52 8.07 9.46 11.58
Market price range ...... 13 3/8 13 3/8 11 1/8 12 1/8 10 3/4
9 3/8 10 8 1/2 8 5/8 7 7/8
GENERAL STATISTICS:
Shareholders ............ 7,632 7,646 7,198 6,920 6,994
Employees ............... 5,476 5,400 5,239 5,363 5,424
Page 34