EXHIBIT 13, PORTIONS OF THE CORPORATION'S ANNUAL REPORT TO
SHAREHOLDERS
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
RESULTS OF OPERATIONS
Consolidated revenues for 1997 were $1.04 billion, compared to
$953.7 million for 1996 and $899.5 million in 1995. The 1997
increase of almost 10% is primarily due to results in the
Diversified Technologies segment, while the increase for 1996 was
equally attributable to the Diversified Technologies and
Distribution segments.
Diversified Technologies segment revenues increased 22% in
1997, 9% in 1996 and 4% in 1995. The results for 1997 were
primarily due to the corporation's SH-2G helicopter programs and
its proprietary line of self-lubricating bearings and driveline
couplings. Revenues also increased for its defense information
technology and services operation (referred to as "Kaman
Sciences"), which was sold on December 30, 1997.
The Diversified Technologies segment's principal programs
are in the aerospace business; they include the SH-2G multi-mission
naval helicopter, subcontract work involving airframe structures,
and the manufacture of niche market products such as
self-lubricating bearings and driveline couplings for aircraft
applications. The corporation's K-MAX(R) helicopter program is also
part of the Diversified Technologies segment.
The SH-2G helicopter program generally involves retrofit
of the corporation's SH-2F helicopters, previously manufactured for
the U.S. Navy (and currently in storage), to the SH-2G
configuration. The corporation is currently performing this work
under a contract for the Republic of Egypt's acquisition of ten
(10) SH-2G helicopters from the U.S. Navy. The contract has a value
of about $150 million, of which about 85% percent has now been
recorded as revenue. The first delivery was made in October, 1997
and deliveries are scheduled to continue through 1998.
During 1997, contracts were signed with the Commonwealth
of Australia and the Government of New Zealand for the supply of
retrofit SH-2G aircraft. The work for Australia involves eleven
(11) helicopters (incorporating a new cockpit and new weapons and
sensors) with support, including a support services facility, for
the Royal Australian Navy. This contract is valued at nearly $600
million. The work for New Zealand involves four (4) aircraft, and
support, for New Zealand defense forces. This contract is valued at
nearly $180 million. It is expected that revenues and earnings will
phase in gradually; revenue was recorded for each of these
contracts in the third and fourth quarters of 1997. Deliveries
under both programs are expected to begin in the 2000 - 2001 time
frame.
KAMAN CORPORATION AND SUBSIDIARIES Page 1
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
Certain other regions of the world are developing naval
helicopter requirements, and the corporation is pursuing this
business in a highly competitive environment. However, management
continues to believe that political and financial conditions in
various areas may well slow the prospects for potential sales. The
recent economic difficulties in Southeast Asia demonstrate this, as
it appears that certain procurement awards are likely to be delayed
in that region.
Management anticipates that there are sufficient SH-2F
aircraft available in storage to meet existing and certain
potential program requirements. At some point in the future,
however, it is possible that there may be a need to re-certify
certain dynamic components of the SH-2 aircraft. Management is
exploring the factors that would be involved in such a
re-certification process.
There are currently fourteen (14) SH-2G aircraft in the
U.S. Naval Reserves. The corporation expects to continue providing
logistics and spare parts support for these aircraft for a period
of time, even though this aircraft is no longer manufactured for
the U.S. government.
The corporation also performs subcontract work for certain
airframe manufacturing programs and manufactures various niche
market products, including self-lubricating bearings for use in
aircraft, hydro power installations, ships, and submarines, and
driveline couplings for use in helicopters. These businesses have
benefitted from growth in the commercial aviation market during
1997.
Management continues to take a conservative approach to
production of its K-MAX helicopter, a medium to heavy lift "Aerial
Truck" with many potential applications, including logging,
movement of equipment and materials for projects such as ski lift
and oil rig construction, utility power line work, fire fighting,
and reforestation. Management believes that this approach will give
the aircraft's markets time to develop and expects that sales and
profitability will take some time to achieve. The K-MAX has been
used extensively in the logging industry during its four years of
commercial operation. Some softness has developed in this market in
the U.S. Pacific Northwest and Canada, due at least in part to the
effect of economic conditions in Southeast Asia upon export sales
in the logging industry. These circumstances could affect sales of
the K-MAX. Management also recognizes that the market has been
affected by the availability of military surplus aircraft released
to the public at lower cost than new aircraft. Another potential
K-MAX application is the task of vertical replenishment (VERTREP),
a non-combat role in the military. As the federal government has
explored the concept of outsourcing VERTREP work to commercial
KAMAN CORPORATION AND SUBSIDIARIES Page 2
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
providers, the U.S. Navy Military Sealift Command has
awarded K-MAX two separate demonstration projects using
charter/lease arrangements. Management believes that the federal
government is continuing to consider the commercial outsourcing
alternative.
The corporation sold Kaman Sciences to ITT Industries,
Inc. on December 30, 1997 for $135 million in cash. There was a
pre-tax gain on the sale of approximately $90 million, which is not
included in the operating profits figure for the Diversified
Technologies segment. Kaman Sciences contributed approximately $145
million to the corporation's 1997 revenues. Management's decision
to sell Kaman Sciences was based upon its assessment of trends in
the defense sciences industry, including increasing consolidation
and a tendency for defense sciences contracts to become larger in
size and longer in duration in relation to the corporation's
determination to focus capital investment in its aerospace and
industrial distribution businesses.
Overall, Distribution segment revenues increased 2% in
1997, 4% in 1996, and by 13% in 1995. The results for 1997 reflect
an increase of 7% for Industrial Distribution (which constitutes
almost 80% of the segment's revenues) offset by a decrease of 13%
in Music Distribution.
The Industrial Distribution business continues to benefit
from a healthy domestic economy, internal initiatives to enhance
operating efficiencies, and ongoing efforts to differentiate the
business by offering a product mix which incorporates more
value-added high technology and providing certain technical
services to support customer needs. The company has expanded
its geographic presence in order to provide products and services
even more efficiently; in the past two years, 25 new branch
facilities have been opened in the southern and western regions of
the U.S., including five branches located in Texas that were
acquired as part of an asset acquisition during the year. In
this environment, the company is seeking appropriate opportunities
for further growth.
In view of the fact that sales of the Industrial
Distribution business are made to nearly every sector of U.S.
industry, demand for products tends to be influenced by industrial
production levels. As a result, the economic difficulties in
Southeast Asia are being monitored by management for their
potential impact on U.S. industry. Additionally, while the
industrial distribution business has traditionally been very
competitive, increasing consolidation in the industry during 1997
appears to be resulting in even more intense competition.
KAMAN CORPORATION AND SUBSIDIARIES Page 3
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
The Music Distribution business was affected in 1997 by
softness in the markets for its products. Management believes that
this represents a general shift in musical tastes and buying habits
in the market for music instruments, and to some degree structural
changes in the industry. Based on its assessment of these changes
and the capital investment that would have been required in the
future, management decided to exit the amplifier manufacturing
business in 1997 and thus sold the company's Trace Elliot operation
located in Great Britain. A pre-tax loss of $10.4 million was taken
on the transaction, which is not included in the operating profits
figure for the Distribution segment. The company also took a charge
during the year to cover costs associated with receivable and
inventory carrying values and streamlining its operations.
Internal initiatives have been undertaken to refocus product lines
and improve operating efficiencies with a view toward focusing
primarily on the distribution of fretted instruments, including its
Ovation(R) guitars, percussion instruments, instructional
instruments and accessories.
Total operating profits for the segments for 1997
increased by 2% compared to 1996. Operating profits for Diversified
Technologies increased almost 13% for 1997 compared to the prior
year, primarily due to the SH-2G program and demand for specialty
bearings and scientific services, offset to some extent by
continuing difficulty in the electromagnetics operation in
transitioning from defense to commercial business. Operating
profits for the Distribution segment decreased 17% for 1997
compared to 1996, due primarily to the charge taken and loss of
sales in the Music Distribution portion of the Distribution segment
business.
Net earnings for 1997 were $70.5 million, compared to
$23.6 million in 1996. Excluding all special items for each year,
earnings available to common shareholders increased more than 11%
to $19.5 million in 1997 from $17.5 million in 1996. Net earnings
for 1997 include a post-tax gain of approximately $53.5 million, or
$2.80 per common share basic, on the sale of Kaman Sciences and a
post-tax loss of $6.1 million, or 32 cents per common share basic,
on the sale of Trace Elliot. Net earnings for 1996 include a
post-tax gain of $2.3 million, or 12 cents per common share basic,
on the sale of real estate within the Diversified Technologies
segment. Earnings available to common shareholders for 1997,
including special items, were $66.8 million, or $3.53 per common
share basic, $2.86 per common share diluted, compared to $19.9
million, or $1.07 per common share basic, $1.00 per common share
diluted in 1996.
KAMAN CORPORATION AND SUBSIDIARIES Page 4
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
For 1996, total operating profits for the segments were
$62.4 million and net earnings were $23.6 million, compared to
operating profits of $52.8 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 in 1995. 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 benefited 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 the electromagnetics
business which has had 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.
During 1996, the Industrial Distribution business continued 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 Music Distribution's
European amplifier manufacturing operations.
Due to the adoption of SFAS No. 128 (discussed below),
both the earnings per share - basic and earnings per share -
diluted figures for 1996 and 1995 have been restated. The earnings
per share - diluted figures 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.
Interest expense decreased 21% in 1997 compared to 1996.
The reduction is primarily due to the application of a substantial
portion of advance payments received from the governments of
Australia and New Zealand to pay down bank debt. Interest expense
increased 13% in 1996 compared to 1995, largely due to
substantially higher average borrowing due to increased capital
requirements.
The consolidated effective income tax rate for 1997 was
41.4% compared to 42.0% for 1996 and 40.1% for 1995.
Effective December 31, 1997, the corporation has adopted
the provisions of Statement of Financial Accounting Standards No.
128 "Earnings per Share." The application of this standard has not
resulted in any material impact to the consolidated financial
statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 5
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
Effective January 1, 1998, the provisions of Statements of
Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" and No. 131 "Disclosures about Segments of an Enterprise
and Related Information" will apply to the corporation. The
corporation anticipates that application of these statements will
have an effect on presentation of its financial information.
Management is aware of the potential software logic
anomalies associated with the year 2000 date change. The
corporation is in the process of evaluating the potential issues
that might need to be addressed in connection with its operations.
Based on preliminary information, costs of addressing the issue are
not expected to have any material effect upon the corporation's
financial position, results of operations, or cash flows in future
periods.
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, however for 1996 and 1995,
increased capital requirements resulted in financing more of the
corporation's working capital requirements from bank borrowings.
During 1997, operating activities generated cash,
principally due to advance payments from the governments of
Australia and New Zealand under their SH-2G programs (which
payments are discussed further below). This result was partially
offset by working capital requirements, primarily due to increases
in accounts receivable for the SH-2G programs for Egypt, Australia,
and New Zealand.
For 1996 and 1995, operating activities 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 have been primarily attributable to the K-MAX
helicopter program. This 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 were principally being used in various applications
under shorter-term lease or charter/lease arrangements.
Distribution segment inventory growth was in line with increased
business.
KAMAN CORPORATION AND SUBSIDIARIES Page 6
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
Cash used in investing activities has traditionally been
for the acquisition of machinery and computer equipment used in
manufacturing and distribution. During 1997, these customary
requirements were more than offset by proceeds from the sale of
businesses and other assets, principally the disposition of Kaman
Sciences in the Diversified Technologies segment. For 1996
and 1995, proceeds from the sale of other assets increased,
primarily due to the sale of certain real estate associated with
Diversified Technologies segment operations.
Cash used by financing activities was primarily
attributable to payments made to reduce bank debt and the payment
of dividends. Cash provided by financing activities during 1996 and
1995 was primarily used to support the increase in working capital
requirements previously described for those periods.
For borrowing purposes, the corporation maintains a
revolving credit agreement involving a group of domestic and
foreign banks. This facility provides a maximum unsecured line of
credit of $250 million. The agreement has a term of five years
ending in January 2001, and contains various covenants, including
debt to capitalization, consolidated net worth requirements, and
limitations on other loan indebtedness that the corporation may
incur. The agreement was amended and restated during 1997 to
specifically address the issuance of certain letters of credit,
which are treated in the same manner as borrowings under the
agreement.
During 1997, the governments of Australia and New Zealand
made advance payments of $104.3 million in connection with their
SH-2G contracts, which were fully secured by the corporation
through the issuance of irrevocable letters of credit. It is
anticipated that the face amount of these letters of credit will
be reduced as certain milestones are reached, in accordance with
the terms of the relevant contracts.
Under the revolving credit agreement, the corporation has
the ability to borrow funds on both a short-term and long-term
basis. As of December 31, 1997, the corporation had virtually no
outstanding borrowing. Average borrowings were $84.8 million for
the year, compared to $125 million for 1996 and $96.3 million for
1995. Substantially all of the advance payments described above and
certain of the proceeds from the sale of Kaman Sciences were used
to pay down bank debt in the third and fourth quarters of 1997.
KAMAN CORPORATION AND SUBSIDIARIES Page 7
[ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ]
At December 31, 1997, the corporation had $31.5 million of
its 6% convertible subordinated debentures outstanding. The
debentures are convertible into shares of Class A common stock at
any time on or before March 15, 2012 at a conversion price of
$23.36 per share, generally at the option of the holder.
Pursuant to a sinking fund requirement that began March 15,1997,
the corporation will redeem approximately $1.7 million of the
outstanding principal of the debentures each year.
As of December 23, 1997, 95,106 shares of the
corporation's Series 2 preferred stock were converted to Class A
common stock pursuant to a call for partial redemption issued on
November 20, 1997. Pursuant to a January 8, 1998 redemption call
for the balance of the Series 2 preferred stock, the remaining
shares were converted into 3,000,174 shares of Class A common stock
as of February 9, 1998. An immaterial number of Series 2 preferred
shares were redeemed by the corporation and settled in cash.
Management believes that the corporation's cash flow from
operations, cash equivalents 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.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking information relating to the
corporation's business and prospects, including the SH-2G and K-MAX
helicopter programs, and specialty self-lubricating bearings and
couplings, as well as 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
renegotiation of terms and termination for the convenience of the
government; 4) economic and competitive conditions in markets
served by the corporation including in particular economic
conditions in Southeast Asia; 5) the degree of acceptance of new
products in the marketplace; 6) U.S. industrial production levels;
7) 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.
KAMAN CORPORATION AND SUBSIDIARIES Page 8
[ SELECTED QUARTERLY FINANCIAL DATA ]
(In thousands except
per share amounts)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
NET SALES:
1997 $ 251,794 $249,920 $269,852 $271,799 $1,043,365
1996 239,508 246,148 227,680 234,770 948,106
GROSS PROFIT:
1997 $ 62,726 $ 61,475 $ 63,574 $ 67,619 $ 255,394
1996 62,044 60,432 57,319 59,806 239,601
NET EARNINGS (LOSS):
1997 $ (4,407) $ 6,710 $ 7,097 $ 61,104 $ 70,504
1996 5,202 5,412 5,834 7,129 23,577
PER COMMON SHARE - BASIC:
1997 $ (.28) $ .31 $ .33 $ 3.15 $ 3.53
1996 .23 .24 .27 .33 1.07
PER COMMON SHARE - DILUTED:
1997 $ (.28) $ .28 $ .29 $ 2.43 $ 2.86
1996 .22 .23 .25 .30 1.00
- -----------------------------------------------------------------------------
The net earnings (loss) per common share figures have been restated
as a result of the adoption of Statement of Financial Accounting
Standards No. 128, Earnings per Share.
Due to the loss in the first quarter of 1997, the quarterly per
common share amounts for 1997 do not equal the total year.
KAMAN CORPORATION AND SUBSIDIARIES Page 9
[ CONSOLIDATED BALANCE SHEETS ]
(In thousands except share and per share amounts)
December 31 1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 109,974 $ 5,445
Accounts receivable 191,154 185,516
Inventories 199,485 213,468
Deferred income taxes 21,475 22,392
Other current assets 13,216 7,310
- ---------------------------------------------------------------------------
Total current assets 535,304 434,131
- ---------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 57,625 76,393
GOODWILL, NET 2,629 7,639
OTHER ASSETS 2,603 3,573
- ---------------------------------------------------------------------------
$ 598,161 $ 521,736
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 5,547 $ 60,837
Current portion of long-term debt 1,660 2,165
Accounts payable-trade 45,264 61,334
Accrued salaries and wages 10,254 10,733
Accrued vacations 5,575 7,079
Customer advances 104,723 --
Other accruals and payables 49,774 53,490
Income taxes payable 36,728 --
- ---------------------------------------------------------------------------
Total current liabilities 259,525 195,638
- ---------------------------------------------------------------------------
KAMAN CORPORATION AND SUBSIDIARIES Page 10
[ CONSOLIDATED BALANCE SHEETS ]
(In thousands except share and per share amounts)
DEFERRED CREDITS 18,759 14,028
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 29,867 83,940
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
188,456 shares in 1997 and 285,837
shares in 1996 37,691 57,167
Common stock:
Class A, authorized 48,500,000 shares,
nonvoting; $.10 per common share
dividend preference; issued
19,936,385 shares in 1997
and 18,075,247 shares in 1996 19,936 18,075
Class B, authorized 1,500,000 shares,
voting; issued 667,814 shares
in 1997 and 1996 668 668
Additional paid-in capital 42,876 21,696
Retained earnings 190,336 132,058
Unamortized restricted stock awards (1,147) (818)
Equity adjustment from foreign currency translation (320) (612)
- ---------------------------------------------------------------------------
290,040 228,234
Less 2,929 shares and 9,738 shares of
Class A common stock in 1997 and 1996,
respectively, held in treasury, at cost (30) (104)
- ---------------------------------------------------------------------------
Total shareholders' equity 290,010 228,130
- ---------------------------------------------------------------------------
$ 598,161 $ 521,736
===========================================================================
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 11
[ CONSOLIDATED STATEMENTS OF OPERATIONS ]
(In thousands except per share amounts)
Year ended December 31 1997 1996 1995
REVENUES:
Net sales $ 1,043,365 $ 948,106 $ 896,398
Other 1,450 5,548 3,078
- ----------------------------------------------------------------------------
1,044,815 953,654 899,476
- ----------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 787,971 708,505 666,761
Selling, general and
administrative expense 208,763 193,747 190,604
Net gain on sale of businesses (80,351) -- --
Interest expense 7,894 10,023 8,834
Other expense 234 702 546
- ----------------------------------------------------------------------------
924,511 912,977 866,745
- ----------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 120,304 40,677 32,731
INCOME TAXES 49,800 17,100 13,129
- ----------------------------------------------------------------------------
NET EARNINGS $ 70,504 $ 23,577 $ 19,602
============================================================================
PREFERRED STOCK DIVIDEND REQUIREMENT $ (3,716) $ (3,716) $ (3,716)
============================================================================
EARNINGS APPLICABLE TO COMMON STOCK $ 66,788 $ 19,861 $ 15,886
============================================================================
PER SHARE:
Net earnings per common share:
Basic $ 3.53 $ 1.07 $ .87
Diluted 2.86 1.00 .85
Dividends declared:
Series 2 preferred stock 13.00 13.00 13.00
Common stock .44 .44 .44
============================================================================
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 12
[ CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ]
(In thousands except share amounts)
Year ended December 31 1997 1996 1995
SERIES 2 PREFERRED STOCK:
Balance - beginning of year $ 57,167 $ 57,167 $ 57,167
Shares converted (19,451) -- --
Shares redeemed (25) -- --
- ----------------------------------------------------------------------------
Balance - end of year 37,691 57,167 57,167
- ----------------------------------------------------------------------------
CLASS A COMMON STOCK:
Balance - beginning of year 18,075 17,788 17,600
Shares issued upon conversion 1,548 -- --
Shares issued - other 313 287 188
- ----------------------------------------------------------------------------
Balance - end of year 19,936 18,075 17,788
- ----------------------------------------------------------------------------
CLASS B COMMON STOCK 668 668 668
- ----------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance - beginning of year 21,696 19,319 17,853
Conversion of Series 2 preferred stock 17,903 -- --
Employee stock plans 2,506 1,871 1,427
Restricted stock awards 771 506 39
- ----------------------------------------------------------------------------
Balance - end of year 42,876 21,696 19,319
- ----------------------------------------------------------------------------
RETAINED EARNINGS:
Balance - beginning of year 132,058 120,399 112,592
Net earnings 70,504 23,577 19,602
Dividends declared:
Preferred stock (3,716) (3,716) (3,716)
Common stock (8,510) (8,202) (8,079)
- ----------------------------------------------------------------------------
Balance - end of year 190,336 132,058 120,399
- ----------------------------------------------------------------------------
UNAMORTIZED RESTRICTED STOCK AWARDS:
Balance - beginning of year (818) (609) (744)
Stock awards issued (804) (517) (179)
Amortization of stock awards 475 308 314
- ----------------------------------------------------------------------------
Balance - end of year (1,147) (818) (609)
- ----------------------------------------------------------------------------
KAMAN CORPORATION AND SUBSIDIARIES Page 13
[ CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ]
(In thousands except share amounts)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION:
Balance - beginning of year (612) (280) (444)
Translation adjustment 292 (332) 164
- ----------------------------------------------------------------------------
Balance - end of year (320) (612) (280)
- ----------------------------------------------------------------------------
TREASURY STOCK:
Balance - beginning of year (104) (169) (938)
Shares acquired in 1997 - 259;
1996 - 501; 1995 - 38,685 (5) (5) (430)
Shares reissued under various stock plans 79 70 1,199
- ----------------------------------------------------------------------------
Balance - end of year (30) (104) (169)
- ----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 290,010 $ 228,130 $214,283
=============================================================================
See accompanying notes to consolidated financial statements
KAMAN CORPORATION AND SUBSIDIARIES Page 14
[ CONSOLIDATED STATEMENTS OF CASH FLOWS ]
(In thousands except share amounts)
Year ended December 31 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 70,504 $ 23,577 $ 19,602
Adjustments to reconcile net
earnings to cash provided by
(used in) operating activities:
Depreciation and amortization 12,223 12,358 12,687
Net gain on sale of businesses (80,351) -- --
Net gain on sale of assets (859) (4,094) (1,660)
Deferred income taxes 3,718 (1,298) 10,171
Other, net 1,532 1,785 1,130
Changes in current assets and
liabilities, net of
effects of businesses sold:
Accounts receivable (30,321) (7,638) (31,981)
Inventories 6,241 (20,734) (33,583)
Other current assets (7,218) 1,614 (1,299)
Accounts payable - trade (13,720) (395) 7,294
Customer advances 104,723 -- --
Accrued expenses and payables (8,555) (9,744) (3,206)
Income taxes payable 37,591 -- (978)
- ----------------------------------------------------------------------------
Cash provided by (used in)
operating activities 95,508 (4,569) (21,823)
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses
and other assets 139,580 6,883 4,210
Expenditures for property, plant
and equipment (13,690) (7,966) (11,503)
Other, net 559 (333) (99)
- ----------------------------------------------------------------------------
Cash provided by (used in)
investing activities 126,449 (1,416) (7,392)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable (55,290) (2,014) 10,192
Changes in current portion of
long-term debt (250) 1,518 (12)
Additions to long-term debt -- 20,000 30,000
Reduction of long-term debt (52,564) (2,446) (1,047)
Proceeds from exercise of
employee stock plans 2,907 2,217 2,674
Purchases of treasury stock (5) (5) (430)
Dividends paid-Series 2 preferred stock (3,716) (3,716) (3,716)
Dividends paid-common stock (8,510) (8,202) (8,079)
- ----------------------------------------------------------------------------
Cash provided by (used in)
financing activities (117,428) 7,352 29,582
- ----------------------------------------------------------------------------
KAMAN CORPORATION AND SUBSIDIARIES Page 15
[ CONSOLIDATED STATEMENTS OF CASH FLOWS ]
(In thousands except share amounts)
NET INCREASE IN CASH
AND CASH EQUIVALENTS 104,529 1,367 367
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,445 4,078 3,711
- ----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 109,974 $ 5,445 $ 4,078
============================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During 1997, holders of the corporation's Series 2 preferred stock
converted 97,254 shares into 1,548,242 shares of Class A common
stock.
See accompanying notes to consolidated financial statements.
KAMAN CORPORATION AND SUBSIDIARIES Page 16
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(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.
Cash and Cash Equivalents - Excess funds are invested in cash
equivalents which consist of highly liquid investments with
original maturities of three months or less.
Long-Term Contracts - Revenue Recognition - Sales and estimated
profits under long-term contracts are principally recognized on the
percentage-of-completion method of accounting 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.
KAMAN CORPORATION AND SUBSIDIARIES Page 17
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
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 $345 in 1997,
$365 in 1996 and $355 in 1995.
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.
Research and Development - Research and development costs not
specifically covered by contracts are charged against income as
incurred. Such costs amounted to $6,889 in 1997, $8,036 in 1996 and
$13,664 in 1995.
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.
KAMAN CORPORATION AND SUBSIDIARIES Page 18
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
SALE OF BUSINESSES
On December 30, 1997, the corporation sold Kaman Sciences
Corporation (a wholly owned subsidiary) for $135,000 in cash. The
sale resulted in a pre-tax gain of $90,751. Certain proceeds from
the sale were used to reduce borrowings under the revolving credit
agreement with the balance invested in cash equivalents. Kaman
Sciences Corporation, an information technology and services
operation, contributed $145,000 to 1997 sales.
On June 27, 1997, the corporation sold Trace Elliot
Limited (a wholly owned subsidiary) to a Trace Elliot management
group. As a result of the sale, the corporation recorded a pre-tax
charge of $10,400. Trace Elliot, Kaman Music's amplifier
manufacturing business in Great Britain, contributed $4,200 to
sales for the first six months of 1997.
ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31, 1997 1996
- ---------------------------------------------------------------------------
Trade receivables, net of allowance
for doubtful accounts of $3,827
in 1997, $2,574 in 1996 $ 71,197 $ 74,402
U.S. Government contracts:
Billed 15,467 33,911
Recoverable costs and accrued
profit - not billed 60,329 51,742
Commercial and other government contracts:
Billed 18,950 10,332
Recoverable costs and accrued
profit - not billed 25,211 15,129
- ---------------------------------------------------------------------------
Total $191,154 $185,516
===========================================================================
Recoverable costs and accrued profit-not billed represent costs
incurred on contracts which will become billable upon future
deliveries, achievement of specific contract milestones or
completion of engineering and service type contracts. Management
estimates that approximately $25,250 of such costs and accrued
profits at December 31, 1997 will be collected after one year.
KAMAN CORPORATION AND SUBSIDIARIES Page 19
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
INVENTORIES
Inventories are comprised as follows:
December 31, 1997 1996
- ---------------------------------------------------------------------------
Merchandise for resale $107,112 $110,126
Contracts in process:
U.S. Government 7,757 12,637
Commercial 12,194 7,754
Other work in process (including certain
general stock materials) 41,088 52,442
Finished goods 31,334 30,509
- ---------------------------------------------------------------------------
Total $199,485 $213,468
===========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 20
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
Finished goods inventory consists of (i) K-MAX(Registered
Trademark) helicopters, certain of which are being used under
shorter-term leases or held for potential use under charter/lease
arrangements; and (ii) K-MAX spare parts.
The aggregate amounts of general and administrative costs
allocated to contracts in process during 1997, 1996 and 1995 were
$57,474, $47,985 and $46,833, respectively.
The estimated amounts of general and administrative costs
remaining in contracts in process at December 31, 1997 and 1996
amount to $3,808 and $3,872, 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, 1997 1996
- --------------------------------------------------------------------------
Land $ 6,332 $ 8,224
Buildings 32,552 55,452
Leasehold improvements 12,827 14,659
Machinery, office furniture and equipment 101,435 112,988
- --------------------------------------------------------------------------
Total 153,146 191,323
Less accumulated depreciation
and amortization 95,521 114,930
- --------------------------------------------------------------------------
Property, plant and equipment, net $ 57,625 $ 76,393
==========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 21
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
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, which expires in 2001, provides for an
aggregate maximum commitment of $250,000 with interest payable at
various market rates. The agreement was amended during the third
quarter of 1997 to specifically address the issuance of irrevocable
letters of credit which are treated in the same manner as
borrowings under the agreement.
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, generally to borrow funds on a short-term
basis with interest at current market rates.
Short-term borrowings outstanding are as follows:
December 31, 1997 1996
- -------------------------------------------------------------
Revolving credit agreement $ -- $52,000
Other credit arrangements 5,547 8,837
- -------------------------------------------------------------
Total $5,547 $60,837
=============================================================
Long-Term Debt - The corporation has long-term debt as follows:
December 31, 1997 1996
- -------------------------------------------------------------
Revolving credit agreement $ -- $50,000
Convertible subordinated debentures 31,527 33,191
Other obligations -- 2,914
- -------------------------------------------------------------
Total 31,527 86,105
Less current portion 1,660 2,165
- -------------------------------------------------------------
Total excluding current portion $29,867 $83,940
=============================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 22
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
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.
Certain Letters of Credit - At December 31, 1997, the face amounts
of irrevocable letters of credit issued under the corporation's
revolving credit agreement totaled $104,300.
Convertible Subordinated Debentures - The corporation issued its 6%
convertible subordinated debentures during 1987. The debentures are
convertible into shares of the Class A common stock of Kaman
Corporation at any time on or before March 15, 2012 at a conversion
price of $23.36 per share at the option of the holder unless
previously redeemed by the corporation. Pursuant to a sinking fund
requirement that began March 15, 1997, the corporation 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. These debentures have a fair
value of $30,424 at December 31, 1997 based upon current market
prices.
Other Obligations - These obligations consisted primarily of notes
issued by the corporation to industrial and economic development
authorities in connection with the issuance of their bonds in
similar amounts. These obligations were eliminated in connection
with the sale of Kaman Sciences Corporation.
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:
1998 $1,660
1999 1,660
2000 1,660
2001 1,660
2002 1,660
- -----------------------------------------
Interest Payments - Cash payments for interest were $8,695, $9,682
and $8,587 for 1997, 1996 and 1995, respectively.
KAMAN CORPORATION AND SUBSIDIARIES Page 23
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
CUSTOMER ADVANCES
The corporation has received certain customer advances for the
purchase of SH-2G helicopters. In accordance with contract
requirements, the corporation fully secured these advances, upon
their receipt, through the issuance of irrevocable letters of
credit. It is anticipated that the face amounts of these letters of
credit will be reduced as various contract milestones are achieved.
INCOME TAXES
The components of income taxes are as follows:
1997 1996 1995
- -------------------------------------------------------------------
Current:
Federal $ 36,532 $ 13,734 $ 1,958
State 9,550 4,664 1,000
- -------------------------------------------------------------------
46,082 18,398 2,958
Deferred:
Federal 2,968 (434) 8,192
State 750 (864) 1,979
- -------------------------------------------------------------------
3,718 (1,298) 10,171
- -------------------------------------------------------------------
Total $ 49,800 $ 17,100 $13,129
- -------------------------------------------------------------------
KAMAN CORPORATION AND SUBSIDIARIES Page 24
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
The components of the deferred tax assets and deferred tax
liabilities are presented below:
December 31, 1997 1996
- -------------------------------------------------------------------
Deferred tax assets:
Long-term contracts $ 4,178 $ 5,838
Deferred employee benefits 10,411 8,998
Restructuring, impairment and other costs 1,900 5,255
Inventory 2,326 1,205
Accrued liabilities and other items 7,760 6,922
-----------------------------------------------------------------
Total deferred tax assets 26,575 28,218
-----------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (6,551) (4,501)
Other items (4,124) (4,099)
-----------------------------------------------------------------
Total deferred tax liabilities (10,675) (8,600)
-----------------------------------------------------------------
Net deferred tax asset $ 15,900 $ 19,618
=================================================================
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 two years to offset taxes paid. In
addition, the corporation has the ability to offset deferred tax
assets against deferred tax liabilities created for such items as
depreciation and amortization.
The provisions for federal income taxes approximate the
amounts computed by applying the U.S. federal income tax rate to
earnings before income taxes after giving effect to state income
taxes. Cash payments for income taxes were $8,623, $15,823 and
$3,953 in 1997, 1996 and 1995, 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 $12,487 of Class A common stock of Kaman Corporation at
December 31, 1997).
KAMAN CORPORATION AND SUBSIDIARIES Page 25
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
The pension plan costs were computed using the projected unit
credit actuarial cost method and include the following components:
1997 1996 1995
- ---------------------------------------------------------------------------
Service cost for benefits earned
during the year $ 10,424 $ 9,888 $ 8,991
Interest cost on projected
benefit obligation 20,010 18,756 18,065
Actual return on plan assets (51,694) (35,855) (58,243)
Net amortization and deferral 27,508 12,731 36,725
- ---------------------------------------------------------------------------
Net pension cost $ 6,248 $ 5,520 $ 5,538
===========================================================================
The funded status of the pension plan is as follows:
December 31, 1997 1996
- --------------------------------------------------------------------------
Actuarial present value of accumulated
benefit obligation:
Vested benefits $ 234,307 $ 238,097
Non-vested benefits 1,592 2,172
- --------------------------------------------------------------------------
Total $ 235,899 $ 240,269
==========================================================================
Actuarial present value of
projected benefit obligation $ 261,127 $ 273,196
Plan assets at fair value 322,010 307,796
- --------------------------------------------------------------------------
Excess of assets over
projected benefit obligation 60,883 34,600
Unrecognized prior service cost (456) (511)
Unrecognized net gain (54,780) (26,533)
Unrecognized net transition asset (7,415) (9,268)
- --------------------------------------------------------------------------
Accrued pension cost $ 1,768 $ 1,712
==========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 26
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
The actuarial assumptions used in determining the funded
status of the pension plan are as follows:
December 31, 1997 1996
- ----------------------------------------------------------------------------
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 8 5/8% for 1997 and 9%
for 1996.
In connection with the agreement for the sale of Kaman
Sciences Corporation, effective December 30, 1997, the corporation
segregated approximately $29,800 of its plan assets in anticipation
of a transfer of such assets to the buyer's pension plan to cover
the then estimated accrued benefit obligation for the Kaman
Sciences "active employee" group for which the buyer has assumed
responsibility. The present value of the accrued benefit
obligations is being determined using the December 1997 PBGC
interest rates used to value annuities: 5.6% for the 25 years
immediately following the valuation date and 5.0% thereafter, among
other assumptions including mortality and estimated retirement
ages. The estimated asset and obligation amount described in this
paragraph are not included in the 1997 figures shown above for the
funded status of the pension plan.
COMMITMENTS AND CONTINGENCIES
Rent commitments under various leases for office space, warehouse,
land and buildings expire at varying dates from January 1998 to
December 2002. Certain annual rentals are subject to renegotiation,
with certain leases renewable for varying periods. Lease periods
for machinery and equipment vary from 1 to 5 years.
Substantially all real estate taxes, insurance and
maintenance expenses are obligations of the corporation. It is
expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties.
KAMAN CORPORATION AND SUBSIDIARIES Page 27
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
The following future minimum rental payments are required
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1997:
1998 $12,677
1999 6,410
2000 3,606
2001 2,083
2002 1,168
- --------------------------------------------------------
Total $25,944
========================================================
Lease expense for all operating leases, including leases with terms
of less than one year, amounted to $15,311, $14,889 and $14,158 for
1997, 1996 and 1995, 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 PER COMMON SHARE
Effective December 31, 1997, the corporation adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128) which has changed the method of computing and presenting
earnings per common share. All prior periods presented have been
restated in accordance with SFAS 128. This restatement had an
immaterial impact on the prior periods' earnings per common
share amounts calculated under the previous standard.
Under SFAS 128, primary earnings per common share has been
replaced with basic earnings per common share. The basic earnings
per common share computation is based on the earnings applicable to
common stock divided by the weighted average number of shares of
common stock outstanding in 1997, 1996 and 1995. The preferred
stock dividend on the Series 2 preferred stock was deducted
from net earnings to arrive at earnings applicable to common stock.
KAMAN CORPORATION AND SUBSIDIARIES Page 28
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
Fully diluted earnings per common share has been replaced
with diluted earnings per common share. The diluted earnings per
common share computation includes the common stock equivalency of
options granted to employees under the stock incentive plan. The
diluted earnings per common share computation also assumes that at
the beginning of the year both the 6% convertible subordinated
debentures are converted into Class A common stock with the
resultant reduction in interest costs net of tax, and the Series 2
preferred stock is converted into Class A common stock eliminating
the preferred stock dividend requirement. Excluded from the diluted
earnings per common share calculation are options granted to
employees that are anti-dilutive based on the average stock price
for the year.
KAMAN CORPORATION AND SUBSIDIARIES Page 29
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
1997 1996 1995
- --------------------------------------------------------------------------
Earnings per common share - basic
Earnings applicable to
common stock $66,788 $19,861 $15,886
==========================================================================
Weighted average shares
outstanding 18,941 18,607 18,330
==========================================================================
Earnings per common
share - basic $ 3.53 $ 1.07 $ .87
==========================================================================
Earnings per common share - diluted
Earnings applicable
to common stock $66,788 $19,861 $15,886
Plus: Dividends on
Series 2 preferred stock 3,716 3,716 3,716
After-tax interest savings on
convertible debentures 1,188 1,145 1,195
- --------------------------------------------------------------------------
Earnings applicable to common
stock assuming conversion $71,692 $24,722 $20,797
==========================================================================
Weighted average shares
outstanding 18,941 18,607 18,330
Plus shares issuable on:
Conversion of Series 2
preferred stock 4,523 4,552 4,552
Conversion of 6% convertible
debentures 1,359 1,421 1,421
Exercise of dilutive options 285 129 182
- --------------------------------------------------------------------------
Weighted average shares
outstanding assuming
conversion 25,108 24,709 24,485
==========================================================================
Earnings per common
share - diluted $ 2.86 $ 1.00 $ .85
==========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 30
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
As of December 23, 1997, 95,106 shares of the corporation's Series
2 preferred stock were converted to Class A common stock pursuant
to a call for partial redemption issued on November 20, 1997.
Pursuant to a redemption call on January 8, 1998 for the balance of
the Series 2 preferred stock, the remaining shares will be
converted into 3,000,174 shares of Class A common stock as of
February 9, 1998. An immaterial amount of Series 2 preferred stock
shares were redeemed by the corporation and settled in cash.
STOCK PLANS
Employees Stock Purchase Plan - The Kaman Corporation Employees
Stock Purchase Plan allows employees to purchase Class A common
stock of the corporation, through payroll deductions, at 85% of the
market value of shares at the time of purchase. The plan provides
for the grant of rights to employees to purchase a maximum of
1,500,000 shares of Class A common stock of the corporation
commencing July 1, 1989. Effective November 18, 1997, the maximum
number of shares available for issuance under the plan was
replenished to 1,500,000 shares, subject to shareholder approval at
the 1998 annual meeting of shareholders. There are no charges or
credits to income in connection with the plan. During 1997, 177,523
shares were issued to employees at prices ranging from $10.84 to
$16.79 per share. 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. At December 31, 1997, there were
approximately 584,879 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.
KAMAN CORPORATION AND SUBSIDIARIES Page 31
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
Restricted stock awards were made for 62,900 shares at prices
ranging from $12.13 to $14.63 per share in 1997, 54,000 shares at
$10.38 per share in 1996 and 30,000 shares at $11.38 per share in
1995. At December 31, 1997, there were 118,900 shares remaining
subject to restrictions pursuant to these awards. In 1997, stock
appreciation rights were issued for 350,000 shares at $13.25 per
share, to be settled only for cash. The corporation recorded
approximately $500 in expense in 1997 for these stock appreciation
rights.
Stock option activity is as follows:
Weighted-
average
exercise
Stock options outstanding: Options price
- ---------------------------------------------------------------------------
Balance at January 1, 1995 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
Options granted 193,700 13.41
Options exercised (147,720) 8.28
Options cancelled (19,880) 9.33
- ---------------------------------------------------------------------------
Balance at December 31, 1997 791,080 $ 10.50
===========================================================================
Weighted average contractual life
remaining at December 31, 1997 7.0 years
===========================================================================
Range of exercise prices for options $ 7.50- $ 11.26-
outstanding at December 31, 1997 $ 11.25 $ 16.50
- ---------------------------------------------------------------------------
Options outstanding 556,480 234,600
Options exercisable 363,300 15,000
Weighted average contractual remaining
life of options outstanding 5.8 years 8.8 years
Weighted average exercise price:
Options outstanding $ 9.42 $ 13.05
Options exercisable $ 9.02 $ 11.38
===========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 32
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
As of December 31, 1996 and 1995, there were 437,000
and 424,807 options exercisable, respectively.
In order to continue administration of this plan,
effective November 18, 1997, the number of shares of Class A common
stock reserved for issuance under this plan was increased by
1,250,000 shares, subject to shareholder approval at the 1998
annual meeting of shareholders.
Effective January 1, 1996, the corporation adopted the
disclosure requirements of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." As permitted by the standard, the corporation has
elected to continue following the guidance of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
for measurement and recognition of stock-based transactions with
employees. Accordingly, no compensation cost has been recognized
for its stock plans other than for the restricted stock awards and
stock appreciation rights. Under the disclosure alternative of SFAS
123, the pro forma net earnings and earnings per common share
information presented below includes the compensation cost of stock
options issued to employees based on the fair value at the grant
date and includes compensation cost for the 15% discount offered to
participants in the employees stock purchase plan.
1997 1996 1995
- ----------------------------------------------------------------------------
Net earnings:
As reported $ 70,504 $ 23,577 $ 19,602
Pro forma 70,075 23,212 19,243
Earnings per common share - basic:
As reported 3.53 1.07 .87
Pro forma 3.50 1.05 .85
Earnings per common share - diluted:
As reported 2.86 1.00 .85
Pro forma 2.86 .99 .84
=============================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 33
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
The fair value of each option grant is estimated on the date of
grant by using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used for grants in
1997, 1996, and 1995:
1997 1996 1995
- --------------------------------------------------------------------
Expected dividend yield 3.3% 4.2% 3.9%
Expected volatility 24% 25% 25%
Risk-free interest rate 6.4% 5.8% 7.5%
Expected option lives 8 years 8 years 8 years
Per share fair value of
options granted $ 3.65 $ 2.38 $ 3.19
====================================================================
SEGMENT INFORMATION
The corporation conducts its operations through two business
segments - Diversified Technologies and Distribution.
Diversified Technologies operations consist largely of
aerospace related business for government and commercial markets,
including the retrofit of its SH-2 helicopters from the SH-2F to
the SH-2G configuration as well as support services, logistics and
spare parts for that helicopter; manufacture of the K-MAX
helicopter together with spare parts and technical support;
subcontract work consisting of fabrication of airframe
substructures; and production of self-lubricating bearings and
couplings for commercial aircraft applications. On December 30,
1997, the corporation sold the portion of its operations involving
defense information technology and services provided primarily to
government customers. 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 Distribution segment consists of industrial and music
distribution operations. The industrial distribution business
provides replacement parts, including bearings, power transmission,
motion control and materials handling components to nearly every
sector of industry in North America, along with industrial
engineering support services. Operations are conducted from
approximately 195 locations in 38 states and British Columbia,
Canada. The music distribution business provides music instruments
and accessories in the U.S. and abroad through offices in the U.S.
and Canada. Music operations also include some manufacture of
guitars. On June 27, 1997, the corporation sold its amplifier
manufacturing business located in Great Britain.
KAMAN CORPORATION AND SUBSIDIARIES Page 34
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
Summarized financial information by business segment is as
follows:
1997 1996 1995
- ---------------------------------------------------------------------------
Net sales:
Diversified Technologies $ 433,493 $350,082 $322,614
Distribution 609,872 598,024 573,784
- ---------------------------------------------------------------------------
$ 1,043,365 $948,106 $896,398
===========================================================================
Operating profit:
Diversified Technologies $ 44,941 $ 39,826 $ 33,492
Distribution 18,738 22,555 19,355
- ---------------------------------------------------------------------------
63,679 62,381 52,847
Net gain on sale of businesses (80,351) -- --
Interest, corporate and other
expense, net 23,726 21,704 20,116
- ---------------------------------------------------------------------------
Earnings before income taxes $ 120,304 $ 40,677 $ 32,731
===========================================================================
Identifiable assets:
Diversified Technologies $ 265,746 $287,501 $267,037
Distribution 212,023 221,485 223,495
Corporate 120,392 12,750 9,537
- ---------------------------------------------------------------------------
$ 598,161 $521,736 $500,069
===========================================================================
Capital expenditures:
Diversified Technologies $ 7,691 $ 3,718 $ 6,472
Distribution 5,625 3,796 4,440
Corporate 374 452 591
- ---------------------------------------------------------------------------
$ 13,690 $ 7,966 $ 11,503
===========================================================================
Depreciation and amortization:
Diversified Technologies $ 7,454 $ 7,953 $ 8,208
Distribution 3,947 3,555 3,568
Corporate 822 850 911
- ---------------------------------------------------------------------------
$ 12,223 $ 12,358 $ 12,687
===========================================================================
KAMAN CORPORATION AND SUBSIDIARIES Page 35
[ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
December 31, 1997, 1996 and 1995
(In thousands except share and per share amounts)
Operating profit is total revenues less cost of sales
and selling, general and administrative expense 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 cash
equivalents 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 $262,405 in 1997, $253,260 in
1996 and $228,658 in 1995.
For the year ended December 31,1997, unaffiliated export
sales amounted to $116,900 (11.2% of consolidated net sales) in the
following geographic areas; Australia/New Zealand 36%, Canada 28%,
Europe 18%, Japan 9%, and other 9%. Prior to 1997, export sales
were less than 10% of consolidated net sales.
KAMAN CORPORATION AND SUBSIDIARIES Page 36
[ 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,
1997 and 1996, 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, 1997.
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, 1997 and 1996 and the results of their operations and
their cash flows for each of the years in the three year period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
January 29, 1998
KAMAN CORPORATION AND SUBSIDIARIES Page 37
[FIVE-YEAR SELECTED FINANCIAL DATA ]
(In thousands except per share amounts, shareholders and employees)
1997 1996 1995 1994 1993
OPERATIONS:
Revenues $1,044,815 $953,654 $899,476 $820,774 $794,092
Cost of sales 787,971 708,505 666,761 611,762 588,237
Selling, general and
administrative expense 208,763 193,747 190,604 173,853 173,581
Restructuring, impairment
and other costs -- -- -- 44,000 69,500
Operating income (loss) 48,081 51,402 42,111 (8,841) (37,226)
Net gain on sale of
businesses 80,351 -- -- -- --
Interest expense 7,894 10,023 8,834 4,694 6,976
Other expense (income) 234 702 546 646 (3,728)
Earnings (loss) before
income taxes 120,304 40,677 32,731 (14,181) (40,474)
Income taxes (benefit) 49,800 17,100 13,129 (1,000) (11,679)
Net earnings (loss) 70,504 23,577 19,602 (13,181) (28,795)
FINANCIAL POSITION:
Current assets $ 535,304 $434,131 $404,864 $339,012 $316,601
Current liabilities 259,525 195,638 206,273 192,882 166,765
Working capital 275,779 238,493 198,591 146,130 149,836
Property, plant and
equipment, net 57,625 76,393 83,054 84,621 81,711
Total assets 598,161 521,736 500,069 442,949 440,196
Long-term debt 29,867 83,940 66,386 37,433 37,977
Shareholders' equity 290,010 228,130 214,283 203,754 228,313
PER SHARE AMOUNTS:
Net earnings (loss)
per common share-basic $ 3.53 $ 1.07 $ .87 $ (.93) $ (1.63)
Net earnings (loss)per
common share-diluted 2.86 1.00 .85 (.93) (1.63)
Dividends declared -
Series 2 preferred stock 13.00 13.00 13.00 13.00 1.37
Dividends declared -
common stock .440 .440 .440 .440 .440
Shareholders' equity -
common stock 12.25 9.13 8.52 8.07 9.46
Market price range 20 3/8 13 3/8 13 3/8 11 1/8 12 1/8
12 9 3/8 10 8 1/2 8 5/8
GENERAL STATISTICS:
Shareholders 7,291 7,632 7,646 7,198 6,920
Employees 4,318 5,476 5,400 5,239 5,363
=============================================================================
Note: The net earnings (loss) per common share figures have been restated as
a result of the adoption of Statement of Financial Accounting Standards No.
128, Earnings per Share.
KAMAN CORPORATION AND SUBSIDIARIES Page 38