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, 1995.
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
------------------------ -----------------------.
Commission File No. 0-1093
KAMAN CORPORATION
(Exact Name of Registrant)
Connecticut 06-0613548
(State of Incorporation) (I.R.S. Employer Identification No.)
Blue Hills Avenue
Bloomfield, Connecticut 06002
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (203)243-7100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 1995:
Class A Common 17,750,825
Class B Common 667,814
Page 1 of 12 Pages
PAGE
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets(In thousands)
September 30, December 31,
Assets 1995 1994
------ ----------------- -----------------
Current assets:
Cash $ 3,169 $ 3,711
Accounts receivable (net of allowance
for doubtful accounts of $2,258
in 1995, $1,665 in 1994) 185,254 146,411
Inventories:
Raw materials $ 8,020 $ 9,616
Work-in-process 49,941 36,408
Finished goods 26,602 17,282
Merchandise for resale 117,243 201,806 96,918 160,224
------- ------
Other current assets 27,823 28,666
------- -------
Total current assets 418,052 339,012
Property, plant & equip., at cost 187,035 183,403
Less accumulated depreciation
and amortization 103,904 98,782
------- -------
Net property, plant & equipment 83,131 84,621
Other assets 19,196 19,316
-------- --------
$520,379 $442,949
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 65,273 $ 53,318
Accounts payable 64,083 54,561
Accrued liabilities 36,429 34,560
Other current liabilities 56,612 50,443
-------- -------
Total current liabilities 222,397 192,882
Deferred credits 9,764 8,880
Long-term debt, excl. current portion 76,475 37,433
Shareholders' equity:
Series 2 preferred stock $ 57,167 $ 57,167
Other shareholders' equity 154,576 211,743 146,587 203,754
-------- ------- -------- -------
$520,379 $442,949
======== ========
- 2 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Condensed Consolidated Statements of Earnings
(In thousands except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues $225,981 $199,249 $657,935 $606,186
Costs and expenses:
Cost of sales 169,196 147,066 486,592 448,618
Selling, general and
administrative expense 46,768 43,529 139,989 131,934
Interest expense 2,308 1,178 6,392 3,100
Other expense 114 41 354 546
-------- -------- ------- -------
218,386 191,814 633,327 584,198
-------- -------- ------- -------
Earnings before income taxes 7,595 7,435 24,608 21,988
Income taxes 3,024 2,534 9,824 8,251
-------- ------- ------- -------
Net earnings $ 4,571 4,901 $ 14,784 $ 13,737
======== ======= ======= =======
Preferred stock dividend
requirement $ (929) $ (929) $ (2,787) $ (2,787)
======== ======= ======= =======
Earnings applicable to
common stock $ 3,642 $ 3,972 $ 11,997 $ 10,950
======== ======= ======= =======
Net earnings per common share
- Primary $ .20 $ .22 $ .65 $ .60
- Fully diluted $ .20 $ .22 $ .64 $ .60
======== ======= ======= =======
Dividends declared per share:
- Series 2 preferred stock $ 3.25 $ 3.25 $ 9.75 $ 9.75
- Common stock $ .11 $ .11 $ .33 $ .33
======== ======= ======= =======
- 3 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months
Ended September 30,
-------------------
1995 1994
--------- --------
Cash flows from operating activities:
Net earnings $ 14,784 $ 13,737
Depreciation and amortization 9,204 9,378
Gain on sale of assets (1,779) -
Changes in current assets and liabilities (63,710) (25,169)
Other, net 1,131 2,096
--------- --------
Cash provided by (used in) operating
activities (40,370) 42
--------- --------
Cash flows from investing activities:
Proceeds from sale of assets 3,975 495
Expenditures for property, plant & equipment (7,897) (7,683)
Other, net (101) (1,281)
--------- --------
Cash provided by (used in) investing
activities (4,023) (8,469)
--------- --------
Cash flows from financing activities:
Additions to notes payable 11,955 14,430
Additions (reductions) to long-term debt 40,000 (286)
Dividends paid (8,837) (8,789)
Other, net 733 763
--------- ---------
Cash provided by (used in) financing
activities 43,851 6,118
--------- ---------
Net increase (decrease) in cash (542) (2,309)
Cash at beginning of period 3,711 3,845
--------- ---------
Cash at end of period $ 3,169 $ 1,536
========= =========
- 4 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 1. Financial Statements, continued:
Notes to Condensed Consolidated Financial Statements
(In Thousands)
Basis of Presentation
- ---------------------
The December 31, 1994 condensed consolidated balance sheet
amounts have been derived from the previously audited consolidated
balance sheet of Kaman Corporation and subsidiaries.
The balance of the condensed financial information reflects all
adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented and
are of a normal recurring nature unless otherwise disclosed in
this report.
The statements should be read in conjunction with the notes
to the consolidated financial statements included in Kaman
Corporation's 1994 Annual Report.
Cash Flow Items
- ---------------
Cash payments for interest were $6,167 and $3,606 for the nine
months ended September 30, 1995 and 1994, respectively. Cash
payments for income taxes for the comparable periods were $2,536
and $7,745, respectively.
- 5 -
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Consolidated revenues increased approximately 13% and 9% for the three
month and nine month periods ended September 30, 1995, respectively,
compared with the same periods of 1994. These results are largely
attributable to increased sales in the Distribution segment.
Distribution segment revenues were up about 14% for both the quarter
and nine months ended September 30, 1995, compared with the same
periods of 1994. These results reflect commensurate increases in
industrial distribution and music distribution sales. The industrial
distribution business comprises slightly more than 75% of the
Distribution segment.
Industrial Distribution sales continue to benefit from a relatively
healthy domestic economy. Revenue increases have been stronger than
the general rate of growth, however, due in part to the company's
efforts to expand partnering relationships with suppliers, address the
needs of customers who want to consolidate their vendor base, and
provide value added services in areas such as electrical and
electronic systems, materials handling, and precision positioning
systems. These measures, in combination with enhanced operating
efficiencies attained during the past few years, have resulted in
increased market share for the industrial distribution business.
Increases in Music Distribution sales were derived largely from
domestic, rather than foreign, markets. Music has experienced some
softening in European and Asian markets during the relevant periods.
Diversified Technologies segment revenues were up about 12% for the
three month period and flat for the nine month period ended September
30, 1995, compared with the same periods of 1994. Although revenues
increased in the third quarter, in general, results continue to
reflect changing conditions in defense markets and the commercial
aircraft industry.
The Diversified Technologies segment is adapting to the evolving U.S.
defense market. The federal government's planning and spending
priorities are shifting toward more emphasis on high-technology
programs. Management believes that it is well positioned to compete
in this environment because it has significant expertise in the field
of high-technology programs, having performed a multitude of
government contracts over the years. These contracts have involved
products and systems, as well as services such as computer software
development, intelligence analysis, and research and development. The
corporation continues to be successful in maintaining revenues from
this type of business, however, competition for these contracts is
increasing.
-6-
PAGE
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
There is also considerable pressure within the defense market for
allocation of the overall defense budget. In this environment,
military hardware programs have been more vulnerable to the risk of
program termination. The corporation's program to retrofit its SH-2F
helicopter to the SH-2G configuration illustrates this. Its contract
with the U.S. Navy for retrofit work has now been completed. The
naval reserves currently maintain two squadrons of this helicopter and
the remainder are in military storage. The corporation expects to
continue to provide logistics and spare parts support, but at lower
levels than in the past.
There is some potential for use of these stored aircraft through sales
to foreign military services and the corporation is actively pursuing
those opportunities. For example, in late 1994, the Egyptian
government signed a letter of agreement with the U.S. Navy for the
acquisition of ten (10) SH-2G helicopters. The corporation is in the
process of negotiating a contract with the U.S. Navy to perform this
retrofit work, which could have a value of up to $140 million over a
three (3) year period. During the third quarter of 1995, the letter
contract awarded to the corporation to provide long lead materials and
services in support of the sale, increased from $30 million to $40
million.
The Diversified Technologies segment continues efforts to further
develop commercial markets for its products. For some time now, the
corporation has performed subcontract work on several commercial
airframe manufacturing programs. This work continues although it has
been affected by the slowdown in aircraft production rates in the
domestic aircraft industry.
The K-MAX (registered trademark) helicopter program is another
important commercial initiative for the segment. The K-MAX is a
medium to heavy lift 'aerial truck' with operating characteristics
that distinguish it from other helicopters for use in logging, fire
fighting, reforestation, utility power line work, and other
applications. In addition to the United States, the helicopter is
now certified in Canada and Switzerland. The first five (5)
helicopters were completed and deliveries to initial customers began
in September, 1994 under a special lease program which has provided
the corporation an opportunity to maintain active involvement in
the product's introduction to the marketplace. The 1995 production
lot consists of six (6) aircraft and management expects that the
1996 lot will consist of six (6) aircraft also. Management has
deliberately taken a conservative approach to introducing this new
model of helicopter and expects that sales and profitability will
take some time to achieve. Management also believes that a
conservative approach is prudent since the market could be affected
by the number of military surplus aircraft released to the public.
-7-
PAGE
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
During the third quarter of 1995, the K-MAX was chosen as the winner
of the U.S. Navy vertical replenishment (VERTREP) demonstration
competition. Two aircraft were used in the demonstration, which was
conducted for a period of two months, ending in late October.
Management believes that this may be another step taken by the
federal government toward acquisition reform by evaluating the
concept of charter/lease for this aircraft in a non-combat role.
Total operating profits for the segments increased 7% and almost 16%
for the three months and nine months of 1995 compared to the same
periods a year ago. Operating profits for the Diversified
Technologies segment were up 17% and 25% for the quarter and nine
months, respectively, from the same periods of 1994. Almost fifty
percent of the Diversified Technologies segment increase is
attributable to the gain on sale of real estate in the segment
during the first quarter. Operating profits for the Distribution
segment decreased by 6% for the quarter and increased by 3% for the
nine months ended September 30, 1995, compared with the same periods
of 1994. Overall results for the segment were significantly
affected by softening in Music Distribution's markets in Asia and
Europe, higher than expected costs associated with the expansion of
its amplifier manufacturing facility in the United Kingdom, and
reconfiguration of certain distribution facilities in Europe. The
Industrial Distribution business continues to benefit from a healthy
domestic economy and to some degree to the effects of the industrial
distribution business' value added systems marketing strategy which
has differentiated it from its competitors.
Interest expense for the first nine months of 1995 increased 106%
compared to the same period of 1994, due in significant part to
increases in average borrowings and to some degree, higher interest
rates.
The consolidated effective income tax rate for the first nine months
of 1995 was 39.9%. For the same period of 1994, the rate was 37.5%.
Net earnings were $4.6 million for the quarter ended September 30,
1995, compared to $4.9 million for the same period of 1994. After
giving effect to preferred stock dividend requirements, earnings
available to common shareholders were $3.6 million for the third
quarter of 1995, compared to $4.0 million for the same period of
1994.
Net earnings were $14.8 million for the first nine months of 1995,
compared to $13.7 million for the same period of 1994. After giving
effect to preferred stock dividend requirements, earnings available
to common shareholders were $12.0 million for the nine month period
of 1995, compared to $11.0 million for the same period of 1994.
-8-
PAGE
KAMAN CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 first nine months of
1995, the corporation's capital requirements have increased compared
to last year and this has resulted in financing more of its
requirements from bank borrowings compared to the same period of
1994. These capital requirements include costs associated with the
new K-MAX helicopter program, financing of receivables due mostly to
increased business, and inventory purchases by the Distribution
segment to take advantage of special pricing opportunities or in
connection with implementation of marketing initiatives.
For general borrowing purposes, the corporation has maintained
revolving credit agreements involving several banks located in the
United States, Canada, and Europe, with a maximum unsecured line of
credit of $200 million. The agreements each have a term of five
years and contain provisions permitting the term to be extended for
additional one-year periods upon concurrence of the parties. During
the second quarter of 1995, the agreements were extended for a
period of one additional year.
The agreements contain various covenants which could serve to limit
total available borrowings at a given time. These covenants include
debt to capitalization and consolidated net worth requirements.
As of September 30, 1995, the corporation had borrowed $40 million
under these agreements. For the nine months ended September 30,
1995, average borrowings under the agreements were $19.9 million.
There were no borrowings for the first nine months of 1994.
The corporation also maintains other short-term credit arrangements
with various banks. As of September 30, 1995, these borrowings were
at $64.6 million. For the nine months ended September 30, 1995,
average bank borrowings against these short-term arrangements were
$70.8 million compared to $37.9 million a year ago.
The corporation maintains a stock repurchase program, under which it
is authorized to repurchase a total of approximately 700,000 Class A
shares. As of September 30, 1995, a total of 188 thousand Class A
shares had been repurchased pursuant to the program. The primary
purpose of the stock repurchase program is to meet the needs of the
Employees Stock Purchase Plan and Stock Incentive Plan.
-9-
PAGE
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 believes that the corporation's cash flow from operations
and available unused bank lines of credit are currently sufficient
to finance its working capital and other capital requirements. As
the corporation's business grows, with attendant capital
requirements, management anticipates exploration of alternative debt
and/or equity financing vehicles in order to assure that its future
business requirements are met.
-10-
PAGE
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, 1995.
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 10, 1995 By Charles H. Kaman
Chairman and Chief Executive
Officer
(Duly Authorized Officer)
Date: November 10, 1995 By Robert M. Garneau
Senior Vice President and
Chief Financial Officer
- 11 -
PAGE
KAMAN CORPORATION AND SUBSIDIARIES
Index to Exhibits
Page in Sequentially
Numbered Copy
--------------------
Exhibit 11 Earnings Per Common Share Computation Attached
Exhibit 27 Financial Data Schedule Attached
- 12 -
KAMAN CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - EARNINGS PER COMMON SHARE COMPUTATION
(In thousands except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
Primary:
Net earnings applicable to
common stock $ 3,642 $ 3,972 $ 11,997 $ 10,950
======== ======= ======== ========
Weighted average number of common
shares outstanding 18,367 18,213 18,299 18,177
Weighted average shares issuable on
exercise of dilutive stock options 195 80 194 91
-------- -------- -------- --------
Total 18,562 18,293 18,493 18,268
======== ======== ======== ========
Net earnings per common share
- primary $ .20 $ .22 $ .65 $ .60
======== ======== ======== ========
Fully diluted:
Net earnings applicable to
common stock $ 3,642 $ 3,972 $ 11,997 $ 10,950
Elimination of interest expense
on 6% subordinated convertible
debentures(net after taxes) 299 329 896 *
Elimination of preferred stock
dividend requirement 929 929 2,787 *
-------- ------- -------- --------
Net earnings (as adjusted) $ 4,870 $ 5,230 $ 15,680 $ 10,950
======== ======= ======== ========
Weighted avg. no. of shares out-
standing including shares issuable
on exercise of stock options 18,562 18,293 18,493 18,268
Shares issuable on conversion of 6%
subordinated convertible debentures 1,421 1,421 1,421 *
Shares issuable on conversion of
Series 2 preferred stock 4,552 4,552 4,552 *
Additional shares using ending market
price instead of avg. market on treasury
method use of stock option proceeds - 15 8 *
-------- ------- -------- --------
Total 24,535 24,281 24,474 18,268
======== ======= ======== ========
Net earnings per common share
- fully diluted $ .20 $ .22 $ .64 $ .60
======== ======= ======== ========
* Anti-dilutive and accordingly not included in the computation
5
1,000
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
3,169
0
187,512
(2,258)
201,806
418,052
187,035
(103,904)
520,379
222,397
76,475
18,398
0
57,167
136,178
520,379
655,120
657,935
486,592
626,581
354
0
6,392
24,608
9,824
14,784
0
0
0
14,784
.65
.64
