SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 1998.
-------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
--------------- --------------.
Commission File No. 0-1093
KAMAN CORPORATION
(Exact Name of Registrant)
Connecticut 06-0613548
(State of Incorporation) (I.R.S. Employer Identification No.)
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (860) 243-7100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of Otober 31, 1998:
Class A Common 23,008,702
Class B Common 667,814
Page 1 of 18 Pages
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands)
September 30, December 31,
Assets 1998 1997
------ ----------------- ------------------
Current assets:
Cash and cash equivalents $ 62,007 $ 109,974
Accounts receivable (net of
allowance for doubtful
accounts of $3,939 in
1998, $3,827 in 1997) 194,099 191,154
Inventories:
Raw materials $ 6,695 $ 6,626
Work-in-process 52,048 54,413
Finished goods 33,859 31,334
Merchandise for resale 121,307 213,909 107,112 199,485
------- -------
Other current assets 28,540 34,691
------- -------
Total current assets 498,555 535,304
Property, plant & equip., at cost 163,218 153,146
Less accumulated depreciation
and amortization 100,031 95,521
------- -------
Net property, plant & equipment 63,187 57,625
Other assets 5,021 5,232
-------- --------
$566,763 $ 598,161
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 4,772 $ 7,207
Accounts payable 55,302 45,264
Accrued liabilities 29,816 34,177
Advances on contracts 91,351 104,723
Other current liabilities 30,674 31,426
Income taxes payable 3,063 36,728
------- -------
Total current liabilities 214,978 259,525
Deferred credits 19,477 18,759
Long-term debt, excl. current portion 28,206 29,867
Shareholders' equity:
Series 2 preferred stock $ -- $ 37,691
Other shareholders' equity 304,102 304,102 252,319 290,010
-------- -------- -------- --------
$566,763 $ 598,161
======== =========
- 2 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $249,661 $269,974 $736,173 $772,376
Costs and expenses:
Cost of sales 184,874 206,277 542,507 583,791
Selling, general and
administrative expense 51,656 50,230 155,546 154,938
Loss on sale of
amplifier business -- -- -- 10,400
Interest expense (income), net 66 1,423 (332) 6,516
Other expense (income), net 406 196 1,120 69
-------- -------- -------- --------
237,002 258,126 698,841 755,714
-------- -------- -------- --------
Earnings before income taxes 12,659 11,848 37,332 16,662
Income taxes 5,059 4,751 15,139 7,262
-------- -------- -------- --------
Net earnings $ 7,600 $ 7,097 $ 22,193 $ 9,400
======== ======== ======== ========
Preferred stock dividend
requirement $ -- $ (929) $ -- $ (2,787)
======== ======== ======== ========
Earnings applicable to
common stock $ 7,600 $ 6,168 $ 22,193 $ 6,613
======== ======== ======== ========
Net earnings per common share:
Basic $ .32 $ .33 $ .95 $ .35
Diluted $ .31 $ .29 $ .91 $ .35
======== ======== ======== ========
Dividends declared per share:
Series 2 preferred stock $ -- $ 3.25 $ -- $ 9.75
Common stock $ .11 $ .11 $ .33 $ .33
======== ======== ======== ========
- 3 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months
Ended September 30,
--------------------
1998 1997
--------- --------
Cash flows from operating activities:
Net earnings $ 22,193 $ 9,400
Depreciation and amortization 7,844 8,999
Gain on sale of assets (65) (502)
Loss on sale of amplifier business -- 10,400
Advances on contracts (13,372) 101,789
Income taxes payable (33,665) --
Changes in other current assets and liabilities (12,041) (43,451)
Other, net 1,182 2,594
-------- --------
Cash provided by (used in) operating
activities (27,924) 89,229
-------- --------
Cash flows from investing activities:
Proceeds from sale of businesses and
other assets 5,625 3,677
Expenditures for property, plant & equipment (13,385) (8,764)
Other, net (342) (254)
-------- --------
Cash provided by (used in) investing
activities (8,102) (5,341)
-------- --------
Cash flows from financing activities:
Reductions to notes payable (2,434) (48,082)
Reductions to long-term debt (1,661) (24,250)
Dividends paid (7,482) (9,030)
Other, net (364) 2,069
-------- --------
Cash provided by (used in) financing
activities (11,941) (79,293)
-------- --------
Net increase (decrease)in cash and cash equivalents (47,967) 4,595
Cash and cash equivalents at beginning of period 109,974 5,445
-------- --------
Cash and cash equivalents at end of period $62,007 $10,040
======== ========
- 4 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands except share amounts)
Basis of Presentation
- ----------------------
The December 31, 1997 condensed consolidated balance sheet
amounts have been derived from the previously audited consolidated
balance sheet of Kaman Corporation and subsidiaries.
In the opinion of management, the balance of the condensed
financial information reflects all adjustments which are necessary
for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented and
are of a normal recurring nature, unless otherwise disclosed in
this report.
The statements should be read in conjunction with the notes to
the consolidated financial statements included in Kaman
Corporation's 1997 Annual Report.
Advances on Contracts
- ---------------------
Advances on contracts include customer advances and customer
payments associated with the achievement of certain contract
milestones in excess of cost incurred. A portion of the customer
advances are secured by letters of credit.
Series 2 Preferred Stock Conversion/Redemption
- ----------------------------------------------
Pursuant to a redemption call on January 8, 1998 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.
Loss on Closure of Amplifier Business
- -------------------------------------
The corporation recorded a pre-tax charge of $15,000 in the first
quarter of 1997 as a result of management's decision to close Kaman
Music's Trace Elliot amplifier manufacturing business in Great
Britain. This loss was adjusted to $10,400 in the second quarter
to reflect the sale of Trace Elliot in June 1997. The balance of
the loss was utilized to offset other items in the music business.
- 5 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, Continued:
Notes to Condensed Consolidated Financial Statements
(In thousands except share amounts)
Cash Flow Items
- ---------------
Cash payments for interest were $2,384 and $7,692 for the nine
months ended September 30, 1998 and 1997, respectively. Cash
payments for income taxes for the comparable periods were $45,056
and $6,669, respectively.
Recently Adopted Accounting Standards
- -------------------------------------
Effective January 1, 1998, the corporation adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The standard requires the corporation to report
comprehensive income which is defined as net income plus
non-shareholder direct adjustments to shareholders' equity.
Comprehensive income was $22,105 and $9,376 for the nine
months ended September 30, 1998 and 1997, respectively. These
adjustments to shareholders' equity are foreign currency items.
Effective January 1, 1998, the corporation adopted Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This standard changes
the criteria used to determine the segments for which SEC
registrants must report information. As permitted by the standard,
the corporation will provide the required disclosures for its
segments in its Form 10-K for the year ending December 31, 1998.
Effective January 1, 1998, the corporation adopted Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement
requires additional disclosure on changes in the benefit
obligations and fair values of plan assets during the year. As
permitted by the standard, the corporation will provide the
required disclosures for its benefit plans in its Form 10-K for the
year ending December 31, 1998.
- 6 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Results of Operations
Consolidated revenues for the quarter and nine months ended
September 30, 1998 were down about 8% and 5%, respectively,
compared to the same periods of 1997. These results largely
reflect the sale of Kaman Sciences, a Diversified Technologies
segment subsidiary, at the end of 1997.
Diversified Technologies segment revenues decreased about 20% and
15% for the three month and nine month periods ended September 30,
1998, respectively, compared to the same periods a year ago. These
results reflect loss of revenue due to the sale of Kaman Sciences,
which more than offset increases in revenue recorded for the
Australia and New Zealand SH-2 helicopter programs and demand for
aircraft structures and specialty self-lubricating bearings.
Excluding Kaman Sciences, however, Diversified Technologies segment
revenues increased 12% during the third quarter and 30% for the
nine month period, compared to the prior year.
The Diversified Technologies segment's principal programs are in
the aerospace business; they include the SH-2G multi-mission naval
helicopter, the K-MAX 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 SH-2G helicopter program generally involves retrofit of the
corporation's SH-2F helicopters, previously manufactured for the
U.S. Navy (and currently in desert storage), to the SH-2G
configuration. The corporation is currently performing this work
under several contracts with foreign governments. Specifically,
the corporation is delivering ten (10) SH-2G helicopters to the
Republic of Egypt under its foreign military sale agreement with
the U.S. Navy. This work has a value of about $150 million, of
which about 97% has now been recorded as revenue. To date, nine
(9) aircraft have been delivered, with completion of deliveries
scheduled by the end of this year. The corporation is currently
conducting pilot training and providing support for program start
up issues, in country.
-7-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The corporation also has commercial sale contracts 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 has an
anticipated value of nearly $600 million, of which about 18% has
now been recorded as revenue . The work for New Zealand involves
four (4) aircraft, and support, for New Zealand defense forces.
This contract has an anticipated value of nearly $170 million, of
which about 19% has now been recorded as revenue. Work is
proceeding on both programs and deliveries are expected to begin in
the 2000 - 2001 time frame.
The corporation is pursuing other potential SH-2 business
(including possible further orders from current customers) as
various countries develop their naval helicopter requirements.
This market is highly competitive and naturally influenced by
global economic and political conditions. Management believes that
conditions currently prevailing in some areas will slow the
prospects for potential sales, a prime example being economic
difficulties in Southeast Asia.
The SH-2 is an aircraft that was originally manufactured for the
United States Navy. This is no longer done, however, the U.S.
Naval Reserves has twelve (12) SH-2G aircraft active in its fleet.
Management anticipates that at some point, the aircraft will be
retired from this type of service as well. In the meantime, the
corporation expects to continue providing logistics and spare parts
support for the aircraft.
The corporation also performs subcontract work for certain airframe
manufacturing programs and manufactures various niche market
products, including self-lubricating bearings for use principally
in aircraft as well as hydro power installations, ships and
submarines; and driveline couplings for use in helicopters. These
businesses have benefitted from growth in the commercial aviation
industry, although management believes that this growth trend is
beginning to level off.
-8-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 expects that this approach will provide
time for potential markets to develop and continues to believe that
sales and profitability will take some time to achieve. The K-MAX
has been used extensively in the commercial logging industry since
its introduction in the third quarter of 1994. Considerable
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. These
circumstances appear to be affecting sales of the K-MAX and
production has been adjusted accordingly. 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
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.
Overall, Distribution segment revenues increased approximately 3%
for both the third quarter and first nine months of 1998, compared
to the same periods a year ago. These results reflect an increase
of 6.6% and 6.7%, respectively, for Industrial Distribution (which
constitutes 82% of the segment's revenues) offset by decreases of
12% in Music Distribution for both the third quarter and first nine
months of 1998.
Increased revenues for the Industrial Distribution business are due
in part to its expansion of branch locations in the past few years
and to its 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. However, the Industrial Distribution business
serves nearly every sector of U.S. industry and so tends to be
influenced by industrial production levels. It is becoming clearer
that export demand in North American industry has been adversely
affected by economic difficulties in Southeast Asia, including the
forest products, chemical, agriculture and semi-conductor
-9-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
industries, which is causing increased competition and price
pressure on the company's business. Moreover, while industrial
distribution has traditionally been a very competitive business,
increasing consolidation in the industry appears to be resulting in
even more intense competition. In this environment, the company is
working to focus sales efforts in the markets that offer the best
opportunities and to carry out initiatives to enhance operating
efficiencies, including consolidation and centralization of various
support functions.
The decrease in revenues for the Music Distribution business is
largely due to loss of sales associated with the amplifier
manufacturing business that was sold during 1997 and to softness in
international markets. Management continues efforts to improve
operating efficiency and reorient its product lines to adapt to a
general shift in musical tastes and buying habits in the market for
music instruments.
Total operating profits for the segments for the third quarter of
1998 decreased 2.5% compared to the same period of 1997; total
operating profits for the segments for the nine months ended
September 30, 1998 increased substantially compared to the prior
year, due to the loss resulting from charges taken in the Music
Distribution business during 1997. For the third quarter and nine
months ended September 30, 1998, operating profits for the
Diversified Technologies segment were level with the same periods
of last year. These results reflect increases in earnings from the
SH-2 helicopter programs and sales of aircraft structures and
specialty self-lubricating bearings, offset primarily by loss of
operating profit on sales from Kaman Sciences. Excluding Kaman
Sciences, operating profits for this segment increased almost 47%
for the third quarter and 38% for the nine month period, compared
to the same periods of 1997. Operating profits for the
Distribution segment were down by 6% for the third quarter of 1998
due largely to pricing and competitive pressures resulting from the
effects of economic difficulties in Southeast Asia upon the
Industrial Distribution business. Operating profits for the
Distribution segment in the first nine months of 1998 were up
substantially compared to the prior year, due primarily to the
charge taken in the Music Distribution business in 1997.
-10-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
For the quarter ended September 30, 1998, net earnings totaled $7.6
million compared to $7.1 million in 1997. Earnings applicable to
common shareholders were 31 cents per common share diluted compared
to 29 cents per common share diluted for the third quarter last
year. These results reflect elimination of the preferred stock
dividend as a result of completion of the redemption process for
the Corporation's Series 2 Preferred Stock during the first quarter
of 1998.
For the nine month period ended September 30, 1998, net earnings
were $22.2 million compared to $9.4 million a year ago. Earnings
applicable to common shareholders for the first nine months of 1998
were 91 cents per common share diluted compared to 35 cents per
common share diluted in 1997. Results for the first nine months of
1997 include a loss on the sale of the Trace Elliot amplifier
business and charges taken in the Music Distribution business.
Interest expense decreased almost 71% for the nine months ended
September 30, 1998 compared to the same period of 1997, primarily
due to the application of a substantial portion of advance payments
received from the governments of Australia and New Zealand and a
portion of the proceeds from the sale of Kaman Sciences to pay down
bank debt. For the first nine months of 1998, interest expense
attributable to the corporation's debentures was more than offset
by interest income earned from investment of surplus cash.
The consolidated effective income tax rate for the nine months
ended September 30, 1998 was 40.6% compared to 43.6% for the same
period a year ago.
Effective January 1, 1998, the corporation adopted: (1) Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The Statement requires the corporation to report
"comprehensive income" as defined therein. Please refer to the
Notes to Condensed Consolidated Financial Statements for more
information; (2) Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related
Information." The Statement changes the criteria used to determine
the segments for which the corporation must report information. As
permitted by the Statement, the corporation will provide the
required disclosures for its segments in its Form 10-K report for
-11-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
the year ending December 31, 1998; (3) Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The Statement
requires additional disclosures on changes in the benefit
obligations and fair values of plan assets during the year. As
permitted by the Statement, the corporation will provide the
required disclosures for its benefit plans in its Form 10-K report
for the year ending December 31, 1998.
The corporation is, of course, aware of the potential software
logic anomalies associated with the year 2000 date change and began
discussions on this subject with its board of directors and the
board's audit committee in early 1997. During the fourth quarter
of that year, KPMG Peat Marwick was retained as a consultant to
assist in formalizing the Year 2000 (Y2K) compliance program.
During the first quarter of 1998, each operating subsidiary
designated a program manager responsible for coordinating its
activities and developed a plan providing for inventory assessment
of all Y2K related matters (including hardware, software, networks,
facilities systems, embedded systems in product deliverables) as
well as the status of suppliers and service providers; conversion,
upgrade, or replacement of applications, as needed; and compliance
testing and problem solving, all to be accomplished within time
tables established under the plan. Planning and assessment phases
are substantially complete with all matters that are not
satisfactory "as is" to be remediated either with a vendor upgrade
or replacement. To date, compliance time tables are being met,
such that the corporation is on schedule to achieve overall Y2K
compliance, including testing, by June 30, 1999. Contingency plans
will be established in the event they become appropriate. In
addition, the corporation and each operating subsidiary are
currently working with suppliers, customers and service providers
to gauge their Y2K readiness and monitor their progress toward
compliance. An oversight committee reporting to the executive vice
president and chief financial officer, has been established at
corporate headquarters to monitor the progress of each subsidiary's
compliance work. Senior management provides progress reports to the
corporation's board of directors and audit committee on a regular
basis. The corporation separately identifies costs of Y2K efforts
as an internal management tool and based upon information known to
it at this time, management does not anticipate that the costs of
-12-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
addressing Y2K issues will be material to the corporation's
financial position, results of operations, or cash flows in future
periods. Naturally, there can be no assurance that third parties'
systems, upon which the corporation and its subsidiaries may rely,
will become Y2K compliant in a timely manner, nor can the
corporation foresee the eventual outcome associated with the
arrival of the millennium and the impact that potential computer
failures within the corporation or among significant customers,
suppliers, or service providers might have on the corporation's
operations. It is conceivable that if such failures occur, there
could be an adverse impact upon the corporation's operations.
In late August, 1998, Charles H. Kaman, chief executive officer and
president of the corporation suffered a mild stroke following
successful knee replacement surgery. Mr. Kaman is presently
recovering at home. For the present, the board of directors has
designated Robert M. Garneau, the corporation's executive vice
president and chief financial officer, to have the duties and
responsibilities of the corporation's chief executive officer.
Mr. Garneau has held various corporate financial officer positions
since joining the corporation in 1981.
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 nine month period ended September 30, 1998, operating
activities used cash, principally due to increases in accounts
receivable in the Distribution segment, decreases in advances under
the Australia and New Zealand SH-2G contracts, increases in
inventories (largely in the Distribution segment) and payment of
taxes due on the Kaman Sciences transaction, offset by increases in
accounts payable in the Diversified Technologies and Distribution
segments and decreases in accounts receivable in the Diversified
Technologies segment. During this period, cash used in investing
activities was for items such as acquisition of machinery and
computer equipment used in manufacturing and distribution, while
cash provided by investing activities consisted principally of a
-13-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
post closing adjustment to the purchase price of Kaman Sciences.
Cash used by financing activities was primarily attributable to the
repayment of debt, the payment of dividends to common shareholders,
and repurchase of Class A common stock pursuant to a repurchase
program for use in connection with administration of the
corporation's stock plans.
The corporation had approximately $54.3 million in surplus cash at
September 30, 1998, with an average of $58.8 million for the nine
month period. These funds have been invested in high quality,
short term instruments.
At September 30, 1998, the corporation had approximately $30
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 redeems approximately $1.7 million of the outstanding
principal of the debentures each year.
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 considered 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. At present, the face
amount of these letters of credit has been reduced to about $54
million, in accordance with the terms of the relevant contracts.
Further reductions are anticipated as certain contract milestones
are achieved.
-14-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Under the revolving credit agreement, the corporation has the
ability to borrow funds on both a short-term and long-term basis.
As of September 30, 1998, the corporation had virtually no
outstanding bank borrowings. Average bank borrowings were $3.8
million for the nine months, compared to $103.7 million for the
same period of 1997.
During the first quarter of 1998, pursuant to a redemption call,
the corporation completed the process of converting virtually all
of its Series 2 preferred stock to Class A common stock with an
immaterial number of Series 2 preferred shares being redeemed by
the corporation and settled in cash.
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.
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, specialty self-lubricating bearings and
couplings, the industrial and music distribution businesses, Year
2000 compliance issues, 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 renegotiation of terms and termination for the
convenience of the government; 4) economic and competitive
conditions in markets served by the corporation, including industry
consolidation in the United States and global economic conditions
(most notably, in Southeast Asia); 5) the degree of acceptance of
new products in the marketplace; 6) U.S. industrial production
levels; 7) achievement of Year 2000 compliance by the corporation,
its customers, suppliers, and service providers, including various
-15-
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
federal, state, and foreign governments and agencies thereof;
8) 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.
-16-
KAMAN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits to Form 10-Q:
(11) Earnings per common share computation
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There have been no reports on Form 8-K filed
during the quarter ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KAMAN CORPORATION
Registrant
Date: November 13, 1998 By Robert M. Garneau
Executive Vice President and
Chief Financial Officer and
Acting President
(Duly Authorized Officer)
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KAMAN CORPORATION AND SUBSIDIARIES
Index to Exhibits
Exhibit 11 Earnings Per Common Share
Computation Attached
Exhibit 27 Financial Data Schedule Attached
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