10-K 1 annrpt.txt 10K 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: -Class A Common Stock, Par Value $1.00 -6% Convertible Subordinated Debentures Due 2012 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated herein by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]. State the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. $313,942,293 as of February 1, 2002. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date (February 1, 2002). Class A Common 21,625,432 shares Class B Common 667,814 shares DOCUMENTS INCORPORATED HEREIN BY REFERENCE Portions of the Corporation's 2001 Annual Report to Shareholders are incorporated herein by reference and filed as Exhibit 13 to this Report. PART I ITEM 1. BUSINESS Kaman Corporation, incorporated in 1945, reports information for itself and its subsidiaries (collectively, the "corporation") in the following business segments: Aerospace, Industrial Distribution, and Music Distribution. The Aerospace segment serves commercial, U.S. defense and foreign government markets. Its principal programs consist of the SH-2G maritime helicopter, K-MAX (Registered Trademark) medium-to-heavy lift helicopter, subcontract work involving aerostructures and helicopter airframes as well as the manufacture of components such as self-lubricating bearings and advanced technology products. The Industrial Distribution segment serves nearly every sector of U.S. industry with industrial repair and OEM products as well as support services. The Music Distribution segment serves domestic and foreign markets with a wide variety of musical instruments and accessories and manufactures guitars and other music products for musicians of all capabilities and skill levels. AEROSPACE The Aerospace segment consists of several operating subsidiaries of Kaman Aerospace Group, Inc., including Kaman Aerospace Corporation, Kaman Aerospace International Corporation, K-MAX Corporation, and Kamatics Corporation. In December 2001, Kaman Aerospace Group, Inc. acquired H.I.G. Aerospace Group, Inc.(now known as Kaman PlasticFab Group, Inc.) and its subsidiary, Plastic Fabricating Company, Inc. The segment's largest program is the SH-2G Super Seasprite helicopter, an advanced, intermediate-weight, multi-mission, maritime aircraft designed to meet the needs of navies around the world that operate smaller ships for which the SH-2G is ideally sized. The helicopter is configured for rapid deployment and multi- mission flexibility, including anti-submarine warfare, surface surveillance, attack and search and rescue. The SH-2, including its F and G configurations, was originally manufactured for the U.S. Navy. At the present time the corporation's work generally consists of retrofit of the SH-2F helicopters to the SH-2G configuration or refurbishment of existing SH-2G helicopters. Page 1 The SH-2G is currently operational with the Egyptian Air Force and the corporation is performing retrofit work under commercial contracts with the governments of Australia and New Zealand. The program for New Zealand involves five (5) aircraft, and support, for the Royal New Zealand Navy. The contract has an anticipated value of about $186 million (US). The corporation has delivered three SH-2G(NZ) helicopters and a fourth will be shipped pending completion of testing at the corporation's facilities in Bloomfield, CT, with final acceptance of all four aircraft expected to follow thereafter. The fifth aircraft, which represents the exercise of an option under the contract, is currently scheduled for delivery before the end of 2002. The program for Australia involves eleven (11) helicopters with support, including a support services facility, for the Royal Australian Navy. The total contract has an anticipated value of about $700 million (US) and the helicopter production portion of the work is valued at $580 million. The Australian SH-2G(A) will contain an integrated tactical avionics system ("ITAS") that will provide the most sophisticated, integrated cockpit and weapons system available in an intermediate-weight helicopter. In the second quarter of 2001, the corporation recorded a sales and pre-tax earnings adjustment of $31.2 million attributable to the Aerospace segment, substantially all of which was associated with a change in the estimated cost to complete the Australia SH-2G program. This adjustment has had the effect of lowering the profit rate on the Australia program. The cost growth for that program is related to a contract dispute settlement with Litton Guidance and Control Systems (now part of Northrop Grumman) which had been the subcontractor responsible for ITAS hardware and software development as well as integration testing. As a result of the settlement arrived at in early 2001, the balance of ITAS software development is being completed by other subcontractors. One result of the process of negotiating new subcontracts for this development has been that the corporation will have responsibility for aircraft integration testing, a task previously subcontracted to Litton. This new responsibility along with the estimated time frame for the subcontractors' development of the full ITAS software suggests that there will be a longer delay than previously anticipated in delivery of the full ITAS software to Australia. The corporation is working with the Royal Australian Navy to develop a process that will allow for phased acceptance and delivery of the aircraft without the full ITAS, and subsequent installation of the full Page 2 software. Six aircraft are currently in Australia, all without the full ITAS software; two are operational and the others are in the final stages of assembly. The corporation is actively pursuing opportunities for the SH-2G helicopter in the international defense market, enhancing familiarization with the SH-2G's capabilities among various governments around the world. The corporation is currently in discussions with the Egyptian government concerning a requirement for up to six search and rescue helicopters and with the United States government about a program for refurbishment of four existing SH-2G aircraft for the Polish Navy, along with future training and support. Management believes that the aircraft is in a good competitive position, while also recognizing that this market is highly competitive and influenced by economic and political conditions. The corporation also maintains a consignment of the U.S. Navy's inventory of SH-2 spare parts under a multi-year agreement that provides the ability to utilize certain inventory for support of the corporation's SH-2 programs. During 2001, the corporation continued to provide on-site support in the Republic of Egypt for ten (10) SH-2G helicopters that were delivered in 1998 under that country's foreign military sale agreement with the U.S. Navy. The corporation also manufactures the K-MAX medium-to-heavy lift helicopter that can be used for fire fighting and commercial applications such as logging and construction of power lines and oil rigs. The K-MAX program, which began in late 1994, is based on the corporation's intermeshing rotor technology with servo-flap control and the corporation has been conservative in its production of this aircraft since inception. The program, for which the corporation maintains a significant inventory, has experienced significant market difficulties in the past several years, due partly to conditions in the commercial logging industry, the aircraft's principal application to date. While the corporation continues to pursue a strategy of refocusing K-MAX sales development on global market opportunities in industry and government, those efforts have met with limited success. There were no sales of the K-MAX helicopter during 2001, other than the three aircraft that were part of the five aircraft order received Page 3 from the U.S. State Department in late 2000, a transaction that represented the first sale of the K-MAX to the U.S. government and its first application in a law enforcement role. Management is in the process of evaluating the amount of time and further investment that could be required to achieve successful sales development and profitability for the program. The Aerospace segment also performs aerostructure and helicopter subcontract work for a variety of aerospace manufacturing programs. Aerostructure subcontract work focuses on commercial and military aircraft programs, including wing structures and components for commercial airliners, major structural assemblies for military transports, aircraft thrust reversers, business jet subassembly components; and the manufacture of proprietary self-lubricating bearings for use in aircraft flight controls, turbine engines and landing gear, as well as driveline couplings for helicopters. Helicopter subcontract work includes helicopter airframes, composite rotor blades, and component work. Current aerostructure and helicopter subcontract programs include production of wing structures and various components for virtually all Boeing commercial aircraft, fuselages and rotor blades for MD Helicopters, and components for military aircraft such as the C-17 military transport, the F-22 fighter and the Comanche helicopter. As Boeing is the largest customer of the segment's subcontract business, management is monitoring the drop off in commercial aircraft orders and the impact this may have on production in the next two years. Management is in the process of identifying opportunities to leverage the strengths of the aerospace business and is also focused on building upon its well recognized expertise in aerospace subcontracting and advanced technology products. For example, in December 2001 the corporation acquired Plastic Fabricating Company, Inc., a Wichita, Kansas manufacturer of composite parts and assemblies for aerospace applications. This acquisition provides the segment with a presence in one of the largest aerospace manufacturing areas in the United States and complements its existing composites and metal bonding operations. The Aerospace segment's advanced technology products include safe, arm and fuzing devices for several missile programs; high reliability memory systems for airborne, shipboard, and ground- based programs; precision non-contact measuring systems for industrial and scientific use; high-performance microwave cable assemblies for aircraft electronic warfare devices and other Page 4 applications; and high-power permanent magnet motors used commercially in the oil service and transportation industries and for military uses. In late 2001, Kaman Aerospace Corporation, the subsidiary that accounted for 80% of Aerospace segment net sales in 2001, undertook a realignment of its product line management structure in an effort to increase market development of its core capabilities while improving efficiency, enhancing customer service and reducing costs. During 2001, the Aerospace segment also continued implementation of `Lean-Thinking' strategies throughout the organization in order to further enhance efficiency and reduce costs. INDUSTRIAL DISTRIBUTION The Industrial Distribution segment consists of Kaman Industrial Technologies Corporation and its Canadian subsidiary, Kaman Industrial Technologies, Ltd. In March, 2002, Kaman Industrial Technologies Corporation acquired a majority ownership interest in Delamac de Mexico S.A. de C.V., a Mexican corporation. This segment is one of the nation's larger industrial distributors, supplying OEM and replacement parts to more than 50,000 customers representing nearly every industry sector. The segment's catalog of more than one million individual items includes an extensive array of power transmission, motion control, materials handling and electrical components, and a wide range of bearings. The segment maintains a sophisticated warehouse management system, a network of over 170 branches across the U.S. and British Columbia, Canada and strategically located distribution centers, all of which helps the segment to provide same-day or next-day delivery for most of its offerings. The products that the segment purchases for distribution are for the most part derived from traditional technologies, although the segment is increasingly selling products with the higher technological content required to support automated production processes. In addition to providing products, the segment uses its know-how to help its customers solve problems, drive out inefficiencies and become more profitable and competitive in their own markets. The segment continues to move forward with its e-commerce initiatives to provide customers the convenience of ordering products online and accessing real-time account information on the Internet. Page 5 This channel represents a small portion of total sales today, however it is expected to become an increasingly important method of doing business. At the end of the third quarter of 2001, the segment acquired the industrial distribution business of A-C Supply, Inc. of Milwaukee, Wisconsin. This acquisition strengthens the segment's presence in key industrial markets in the upper Midwest, where it has had limited presence, and will facilitate service to national account customers with operating plants in that region. This acquisition is in keeping with management's intention to build value for the segment through both acquisitions and internal growth. In March, 2002, the segment acquired a majority ownership interest in Delamac de Mexico S.A. de C.V., a Mexican distributor of industrial products headquartered in Mexico City. This acquisition provides the segment with access to Mexico's industrial markets and enhances its ability to service the Mexico-based operations of its North American customers. Since the segment's customers include many sectors of U.S. industry, this business is influenced by industrial production levels and was adversely affected in 2001 by a weakened manufacturing sector that brought the industrial production index (the key economic indicator for this business) to levels not seen since the early 1980s. The segment was also impacted by specific events affecting particular customer industries, such as the effect that the energy crisis in the West had on the aluminum industry. The segment had taken steps to implement workforce adjustments and control costs in late 2000 and as economic conditions worsened in 2001, the corporation implemented further reductions and efficiencies. These efforts, along with good results with business retention efforts and certain new national account awards, helped the segment to remain profitable in 2001 despite lower sales. MUSIC DISTRIBUTION The Music Distribution segment consists of Kaman Music Corporation, KMI Europe, Inc., and a Canadian subsidiary, B & J Music Ltd. This segment is the largest independent distributor of musical instruments and accessories, offering more than 10,000 products that reach musicians of all capabilities and skill levels. Products include the segment's proprietary Ovation (Registered Trademark) and Hamer (Registered Trademark) guitars, as well as the Takamine (Registered Trademark) guitar line, Toca percussion instruments, Gibraltar drum hardware, and an extensive Page 6 offering of other musical instruments and accessories. In 2001, the segment also completed the first year of its exclusive distribution and sales license with Fred Gretsch Enterprises, successfully launching its high quality Gretsch drum kit lines in domestic and foreign markets. Segment results for 2001 were affected by weakened consumer markets both domestically and abroad, although a better than expected Christmas season helped to mitigate some of the year's sales shortfall. During 2001, the segment continued its focus on `Lean-Thinking' strategies and was able to enhance operating efficiencies and improve customer service as a result. During the year, the segment completed the consolidation of two warehouses into one state-of- the-art facility. The segment also implemented an electronic data exchange program that allows the sharing of data and information directly with customers, providing a value-added tool that customers use to place orders, verify order status, and check inventory availability at any time. FINANCIAL INFORMATION Information concerning each segment's performance for the last three fiscal years is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and is incorporated herein by reference. PRINCIPAL PRODUCTS AND SERVICES Following is information for the three preceding fiscal years concerning the percentage contribution of each business segment's products and services to the corporation's consolidated net sales: Years Ended December 31 1999 2000 2001 ------ ------ ------ Aerospace 37.3% 37.0% 34.4% Industrial Distribution 50.8% 50.5% 51.8% Music Distribution 11.9% 12.5% 13.8% ------ ------ ------ Total 100.0% 100.0% 100.0%
Page 7 RESEARCH AND DEVELOPMENT EXPENDITURES Government sponsored research expenditures by the Aerospace segment were $6.7 million in 2001, $10.2 million in 2000, and $11.3 million in 1999. Independent research and development expenditures were $4.7 million in 2001, $5.5 million in 2000, and $4.9 million in 1999. BACKLOG Program backlog of the Aerospace segment was approximately $364.9 million at December 31, 2001, $439.9 million at December 31, 2000, and $580.1 million at December 31, 1999. As the Aerospace segment completes its work on the commercial contracts with the governments of Australia and New Zealand, the segment's backlog is decreasing and returning to more historic levels. The corporation anticipates that approximately 57.7% of its backlog at the end of 2001 will be performed in 2002. Approximately 16.6% of the backlog at the end of 2001 is related to U.S. government contracts or subcontracts which are included in backlog to the extent that funding has been appropriated by Congress and allocated to the particular contract by the relevant procurement agency. Virtually all of these funded government contracts have been signed. GOVERNMENT CONTRACTS During 2001, approximately 91.8% of the work performed by the corporation directly or indirectly for the U.S. government was performed on a fixed-price basis and the balance was performed on a cost-reimbursement basis. Under a fixed-price contract, the price paid to the contractor is negotiated at the Page 8 outset of the contract and is not generally subject to adjustment to reflect the actual costs incurred by the contractor in the performance of the contract. Cost reimbursement contracts provide for the reimbursement of allowable costs and an additional negotiated fee. The corporation's United States government contracts and subcontracts contain the usual required provisions permitting termination at any time for the convenience of the government with payment for work completed and associated profit at the time of termination. COMPETITION The Aerospace segment operates in a highly competitive environment with many other organizations which are substantially larger and have greater financial and other resources. The corporation competes with other helicopter manufacturers on the basis of price, performance, and mission capabilities; and also on the basis of its experience as a manufacturer of helicopters, the quality of its products and services, and the availability of facilities, equipment and personnel to perform contracts. Consolidation in the industry has increased the level of international competition for helicopter programs. The corporation is also affected by the political and economic circumstances of its potential foreign customers. The corporation's FAA certified K-MAX helicopters compete with military surplus helicopters and other used commercial helicopters employed for lifting, as well as with alternative methods of meeting lifting requirements. The corporation competes for its subcontract aerostructures, helicopter structures and components business on the basis of price and quality; product endurance and special performance characteristics; proprietary knowledge; and the reputation of the corporation. Industrial distribution operations are subject to a high degree of competition from several other national distributors, two of which are substantially larger than the corporation; and from many regional and local firms. Competitive forces have intensified as a result of weakness in the U.S. manufacturing sector during 2001 and as major competitors grow through consolidation. Page 9 Music distribution operations compete with domestic and foreign distributors. Certain musical instrument products manufactured by the corporation are subject to competition from U.S. and foreign manufacturers as well. The corporation competes in these markets on the basis of service, price, performance, and inventory variety and availability. The corporation also competes on the basis of quality and market recognition of its music products and has established certain trademarks and trade names under which certain of its music products are produced, as well as under private label manufacturing in a number of foreign countries. 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, aerostructures, helicopter structures, and components, the industrial and music distribution businesses, operating cash flow, 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 competitions and thereafter 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; 5) timing of satisfactory completion of the Australian SH-2G(A) program; 6) timing, degree and scope of market acceptance for products such as a repetitive lift helicopter; 7) U.S. industrial production levels; 8) changes in supplier sales policies; 9) the effect of price increases or decreases; 10) currency exchange rates, taxes, laws and regulations, inflation rates, general business conditions and other factors; 11) effects of the September 11, 2001 attacks on the World Trade Center in New York and the Pentagon in Washington, D.C. Any forward-looking information should be considered with these factors in mind. Page 10 EMPLOYEES As of December 31, 2001, the Corporation employed 3,780 individuals throughout its business segments and corporate headquarters as follows: Aerospace 1,900 Industrial Distribution 1,457 Music Distribution 361 Corporate Headquarters 62 ----- 3,780
PATENTS AND TRADEMARKS The corporation holds patents reflecting scientific and technical accomplishments in a wide range of areas covering both basic production of certain products, including aerospace products and musical instruments, as well as highly specialized devices and advanced technology products in defense related and commercial fields. Although the corporation's patents enhance its competitive position, management believes that none of such patents or patent applications is singularly or as a group essential to its business as a whole. The corporation holds or has applied for U.S. and foreign patents with expiration dates that range through the year 2021. These patents are allocated among the corporation's business segments as follows: U.S. PATENTS FOREIGN PATENTS Segment Issued Pending Issued Pending Aerospace 59 4 28 6 Industrial Distribution 0 0 0 0 Music Distribution 6 1 2 12 -- -- -- -- 65 5 30 18
Page 11 Trademarks of Kaman Corporation include Adamas, Applause, Hamer, KAflex, KAron, K-MAX, Magic Lantern, and Ovation. In all, the corporation maintains 205 U.S. and foreign trademarks with 16 applications pending, most of which relate to music products in the Music Distribution segment. COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS In the opinion of management, based on the corporation's knowledge and analysis of relevant facts and circumstances, compliance with any environmental protection laws is not likely to have a material adverse effect upon the capital expenditures, earnings or competitive position of the corporation or any of its subsidiaries. The corporation is subject to the usual reviews, inspections and enforcement actions by various federal and state environmental and enforcement agencies and has entered into agreements and consent decrees at various times in connection with such reviews. One such matter, Rocque vs. Kaman, is discussed in Item 3 (Legal Proceedings). Also on occasion the corporation has been identified as a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency ("EPA") in connection with the EPA's investigation of certain third party facilities. In each instance, the corporation has provided appropriate responses to all requests for information that it has received, and the matters have been resolved either through de minimis settlements, consent agreements, or through no further action being taken by the EPA or the applicable state agency with respect to the corporation. With respect to any such matters which may currently be pending, the corporation has been able to determine, based on its current knowledge, that resolution of such matters is not likely to have a material adverse effect on the future financial condition of the corporation. In arriving at this conclusion, the corporation has taken into consideration site-specific information available regarding total costs of any work to be performed, and the extent of work previously performed. Where the corporation has been identified as a PRP at a particular site, the corporation, using information available to it, also has reviewed and considered a number of other factors, including: (i) the financial resources of other PRPs involved in each site, and their proportionate share of the total volume of waste at the site; (ii) the existence of Page 12 insurance, if any, and the financial viability of the insurers; and (iii) the success others have had in receiving reimbursement for similar costs under similar policies issued during the periods applicable to each site. FOREIGN SALES Seventeen percent (17%) of the sales of the corporation made in 2001 were to customers located outside the United States. In 2001, the corporation continued its efforts to develop international markets for its products and foreign sales (including sales for export); and during 2001 the corporation continued to perform work under contracts with the Commonwealth of Australia and the Government of New Zealand for the supply of retrofit SH-2G helicopters. Additional information required by this item is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K)and is incorporated herein by reference. ITEM 2. PROPERTIES The corporation occupies approximately 3.393 million square feet of space throughout the United States and in Canada and Australia, distributed as follows: SEGMENT SQUARE FEET (in thousands as of 12/31/01) Aerospace 1,755 Industrial Distribution 1,194 Music Distribution 404 Corporate Headquarters 40 ----- Total 3,393
The Aerospace segment's principal facilities are located in Arizona, Connecticut, Florida, Kansas and Massachusetts; other facilities including offices and smaller manufacturing and assembly operations are located in several other states. These facilities are used for manufacturing, research and development, engineering and office purposes. The U.S. Government owns 154 thousand square feet of the space occupied by Kaman Page 13 Aerospace Corporation in Bloomfield, Connecticut in accordance with a Facilities Lease Agreement with a five (5) year term expiring in March 2003. The corporation also occupies a facility in Nowra, New South Wales, Australia under a contract providing for a ten (10) year term expiring in June, 2010. The Industrial Distribution segment's facilities are located throughout the United States with principal facilities located in California, Connecticut, New York, Kentucky and Utah. Additional Industrial Distribution segment facilities are located in British Columbia, Canada. These facilities consist principally of regional distribution centers, branches and office space with a portion used for fabrication and assembly work. The Music Distribution segment's facilities in the United States are located in Connecticut, California, and Tennessee. An additional Music Distribution facility is located in Ontario, Canada. These facilities consist principally of regional distribution centers, source centers and office space. Also included are facilities used for manufacturing musical instruments. The corporation occupies a 40 thousand square foot Corporate headquarters building in Bloomfield, Connecticut. The corporation's facilities are suitable and adequate to serve its purposes and substantially all of such properties are currently fully utilized. Many of the properties, especially within the Industrial Distribution segment, are leased. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the corporation or any of its subsidiaries is a party or to which any of their property is subject. Legal proceedings or enforcement actions relating to environmental matters are discussed in the section entitled Compliance with Environmental Protection Laws. The corporation is presently in settlement discussions with the Connecticut Department of Environmental Protection regarding the matter referred to as Rocque vs. Kaman previously reported by the corporation in its report on Form 10-K for fiscal year ended December 31, 2000, Document No. 0000054381-01-500002 filed with the Securities and Exchange Commission on March 15, 2001. The complaint in this matter alleges certain regulatory violations (the majority of which are administrative in nature) at facilities located in Connecticut related to routine inspections which took place between 1988 and 1998. The complaint seeks civil penalties and injunctive relief. Management believes that in all cases where corrective action was required at the time of such inspections, such action was promptly taken. Management does not anticipate that the resolution of this matter will be material to the business or financial condition of the corporation. Page 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS CAPITAL STOCK AND PAID-IN CAPITAL Information required by this item is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and is incorporated herein by reference. INVESTOR SERVICES PROGRAM Shareholders of Kaman Class A common stock are eligible to participate in the Mellon Investor Services Program administered by Mellon Bank, N.A. which offers a variety of services including dividend reinvestment. A booklet describing the program may be obtained by writing to the program's Administrator, Mellon Bank, N.A., P. O. Box 3338, South Hackensack, NJ 07606-1938. Page 15 QUARTERLY CLASS A COMMON STOCK INFORMATION ----------------------------------------------------------------- High Low Close Dividend 2001 First $19.50 $13.31 $16.38 $.11 Second 18.18 14.70 17.70 .11 Third 17.95 12.26 13.24 .11 Fourth 16.38 10.90 15.60 .11 ----------------------------------------------------------------- 2000 First $12.81 $8.77 $9.75 $.11 Second 11.69 9.44 10.69 .11 Third 15.25 10.50 12.63 .11 Fourth 17.75 11.00 16.88 .11 ----------------------------------------------------------------- QUARTERLY DEBENTURE INFORMATION (6% Conv. Subordinated) ----------------------------------------------------------------- High Low Close 2001 First $ 92.00 $82.00 $ 92.00 Second 98.00 90.00 98.00 Third 99.00 98.00 99.00 Fourth 96.00 90.00 96.00 ----------------------------------------------------------------- 2000 First $ 94.00 $86.00 $88.00 Second 93.00 82.00 82.00 Third 90.00 82.00 84.00 Fourth 92.00 84.00 87.00 -----------------------------------------------------------------
NASDAQ market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions. Page 16 ANNUAL MEETING The Annual Meeting of Shareholders of the corporation will be held on Tuesday, April 16, 2002 at 11:00 a.m. in the offices of the corporation, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002. Holders of all classes of Kaman securities are invited to attend, however it is expected that matters on the agenda for the meeting will require the vote of Class B shareholders only. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The corporation has various market risk exposures that arise from its normal business operations, including currency exchange rates, supplier price changes, and interest rates as well as other factors described in the Forward-Looking Statements section of this report. The corporation's exposure to currency exchange rates is managed at the corporate and subsidiary operations levels as an integral part of the business. The corporation's exposure to supplier sales policies and price changes relates primarily to its distribution businesses and the corporation seeks to manage this risk through its procurement policies and maintenance of favorable relationships with suppliers. The corporation's exposure to interest rate risk relates primarily to its financial instruments, which include short-term Page 17 investments with market interest rates and debt obligations with fixed interest rates. Currently the corporation has limited exposure in this area due to the level of its fixed rate debt obligation and borrowings under its financing arrangements, however this exposure is expected to increase during 2002. Interest rate risk is managed through the use of a combination of fixed rate long-term debt and variable rate borrowings under its financing arrangements. Letters of credit are generally considered borrowings for purposes of the corporation's revolving credit agreement; they are not subject to interest rate risk, however, fees are charged based upon the corporation's usage and credit rating. There has been no significant change in the corporation's exposure to these market risk factors during the year 2001. Management believes that any near-term change in the market risk factors described above should not materially affect the consolidated financial position, results of operations or cash flows of the corporation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is included in the corporation's 2001 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 18 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Following is information concerning each Director, Director Nominee and Executive Officer of Kaman Corporation including name, age, position with the corporation, and business experience during the last five years: Brian E. Barents Mr. Barents, 58, has been a Director since 1996. He is the retired President and Chief Executive Officer of Galaxy Aerospace Company L.P. Prior to that he was President and Chief Executive Officer of Learjet, Inc. T. Jack Cahill Mr. Cahill, 53, has held various positions with Kaman Industrial Technologies Corporation, a subsidiary of the corporation, since 1975, and has been President of that subsidiary since 1993. E. Reeves Callaway, III Mr. Callaway, 54, has been a Director since 1995. He is the Founder of The Callaway Companies, an engineering services firm. Frank C. Carlucci Mr. Carlucci, 71, has been a Director since 1989. Prior to that he served as U.S. Secretary of Defense. He is Chairman of The Carlyle Group, merchant bankers, and Chairman of Nortel Networks Corporation. Mr. Carlucci is also a director of Ashland, Inc., Neurogen Corporation, Pharmacia Corp., Sun Resorts, Ltd., N.V., United Defense, LP, and Texas Biotechnology Corporation. Laney J. Chouest, M.D. Dr. Chouest, 48, has been a Director since 1996. He is Owner-Manager of Edison Chouest Offshore, Inc. Page 19 Candace A. Clark Ms. Clark, 47, has been Senior Vice President, Chief Legal Officer and Secretary since 1996. Prior to that she served as Vice President and Counsel. Ms. Clark has held various positions with the corporation since 1985. John A. DiBiaggio Dr. DiBiaggio, 69, has been a Director since 1984. He is now President Emeritus of Tufts University, having served as President until the fall of 2001. Prior to that he was President and Chief Executive Officer of Michigan State University. Ronald M. Galla Mr. Galla, 50, has been Senior Vice President and Chief Information Officer since 1995. Prior to that he served as Vice President and director of the corporation's Management Information Systems, a position which he held since 1990. Mr. Galla has been director of the corporation's Management Information Systems since 1984. Robert M. Garneau Mr. Garneau, 57, has been Executive Vice President and Chief Financial Officer since 1995. Previously he served as Senior Vice President, Chief Financial Officer and Controller. Mr. Garneau has held various positions with the corporation since 1981. Huntington Hardisty Admiral Hardisty (USN-Ret.), 73, is the retired President of Kaman Aerospace International Corporation, a subsidiary of the corporation. He has been a Director since 1991 and serves as a consultant to the corporation. He retired from the U.S. Navy in 1991 having served as Commander-in-Chief for the U.S. Navy Pacific Command since 1988. Page 20 Edwin A. Huston Mr. Huston, 63, is a nominee for election as a director at the 2002 Annual Meeting of Shareholders. Mr. Huston is the retired Vice Chairman of Ryder System, Incorporated, an international logistics and transportation solutions company. He also served as Senior Executive Vice President Finance and Chief Financial Officer of that company and had held various positions with that company since 1973. Mr. Huston is a director of Unisys Corporation, Answerthink, Inc. and Enterasys Networks, Inc. C. William Kaman II Mr. Kaman, 50, has been a Director since 1992 and is Vice Chairman of the board of directors of the corporation. He is Chairman and CEO of AirKaman of Jacksonville, Inc., an entity unaffiliated with the corporation. Previously he was Executive Vice President of the corporation and was President of Kaman Music Corporation, a subsidiary of the corporation. John C. Kornegay Mr. Kornegay, 52, has been President of Kamatics Corporation, a subsidiary of the corporation, since 1999, and has held various positions with Kamatics Corporation since 1988. Eileen S. Kraus Ms. Kraus, 63, has been a Director since 1995. She is the retired Chairman of Fleet Bank Connecticut. She is a director of The Stanley Works and Rogers Corporation. Paul R. Kuhn Mr. Kuhn, 60, has been a Director since 1999. He has been President and Chief Executive Officer of the corporation since August 1999 and was appointed to the additional position of Chairman in April, 2001. From 1998 to 1999 he was Senior Vice President, Operations, Aerospace Engine Business, for Coltec Industries, Inc. Prior to that he was Group Vice President, Coltec Industries, Inc. and President of its Chandler Evans division. He is a director of the Connecticut Business and Industry Association. Page 21 Joseph H. Lubenstein Mr. Lubenstein, 54, was appointed President of Kaman Aerospace Corporation, a subsidiary of the corporation, in July, 2001. Prior to that, he served for many years in a variety of senior management positions at Pratt & Whitney, a subsidiary of United Technologies Corporation, most recently as Vice President - Quality and Vice President - Materials. Walter H. Monteith, Jr. Mr. Monteith, 71, has been a Director since 1987. He is the retired Chairman of Southern New England Telecommuni- cations Corporation. Wanda L. Rogers Mrs. Rogers, 69, has been a Director since 1991. She is President and Chief Executive Officer of Rogers Helicopters, Inc. She is also a director of Clovis Community Bank. Robert H. Saunders, Jr. Mr. Saunders, 60, became President of Kaman Music Corporation, a subsidiary of the corporation, in 1998. Prior to that, he served as Senior Vice President of the corporation from 1995 and also held the position of Senior Executive Vice President of Kaman Music Corporation during a portion of that period. Richard J. Swift Mr. Swift, 57, is a nominee for election as a director at the 2002 Annual Meeting of Shareholders. Mr. Swift is currently Chairman of the Financial Accounting Standards Advisory Council. In 2001, he retired as Chairman, President and Chief Executive Officer of Foster Wheeler Corporation, a provider of design, engineering, construction, manufacturing, research, plant operations and environmental services, a position he held since 1994. Prior to that, Mr. Swift held various positions at Foster Wheeler, having joined the company in 1972. Mr. Swift is a director of Ingersoll-Rand Company and Public Service Enterprise Group Incorporated. Page 22 Each Director and Executive Officer has been elected for a term of one year and until his or her successor is elected. The terms of all Directors and Executive Officers are expected to expire as of the Annual Meeting of the Shareholders and Directors of the corporation to be held on April 16, 2002. Section 16(a) Beneficial Ownership Reporting Compliance. Based upon information provided to the corporation by persons required to file reports under Section 16(a) of the Securities Exchange Act of 1934, no Section 16(a) reporting delinquencies occurred in 2001. ITEM 11. EXECUTIVE COMPENSATION A) GENERAL. The following tables provide certain information relating to the compensation of the corporation's Chief Executive Officer, its four other most highly compensated executive officers, and one retired executive officer who would have been included in these tables but for the fact that he was not serving as an executive officer at December 31, 2001. B) SUMMARY COMPENSATION TABLE. Annual Compensation Long Term Compensation ------------------- ---------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) All Name and Other AWARDS Other Principal Salary Bonus Annual RSA Options/SARs LTIP Comp. Position Year ($) ($) Comp.(1)($)(2) (#Shares) Payments ($)(3) --------------------------------------------------------------------------- P. R. Kuhn 2001 762,500 300,000 ------- 261,000 25,000/ --- 15,630 Chairman, 65,000 President and Chief 2000 650,000 570,000 ------- 154,688 20,000/ --- 11,924 Executive 50,000 Officer 1999 250,000(4) 360,000 ------- 706,250 100,000/--- 3,661 180,000 R.M.Garneau 2001 450,000 150,000 ------- 163,125 12,500/ --- 25,056 Executive 40,000 Vice Pres- 2000 425,000 310,000 ------- 77,344 10,000/ --- 25,181 ident and 30,000 Chief 1999 400,000 175,000 ------- 43,500 9,000/ --- 12,329 Financial 30,000 Officer Page 23 Annual Compensation Long Term Compensation ------------------- ---------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) All Name and Other AWARDS Other Principal Salary Bonus Annual RSA Options/SARs LTIP Comp. Position Year ($) ($) Comp.(1)($)(2) (#Shares) Payments ($)(3) --------------------------------------------------------------------------- T.J.Cahill 2001 280,000 90,000 ------- 97,875 9,000/ --- 15,077 President, 20,000 Kaman 2000 260,000 160,000 ------- 41,250 6,000/ --- 15,670 Industrial 15,000 Technologies 1999 255,000 51,000 ------- 36,250 7,500/ --- 7,449 Corporation 15,000 C.A. Clark 2001 255,000 68,000 ------- 138,656 10,500/ --- 11,339 Sr. Vice 0 President 2000 240,000 140,000 ------- 51,563 7,500/ --- 12,590 and Chief 0 Legal 1999 225,000 75,000 ------- 58,000 6,000/ --- 5,666 Officer 0 R.H.Saunders Jr. President, 2001 235,000 85,000 ------- 81,563 8,000/ --- 15,681 Kaman Music 15,000 Corporation 2000 210,000 110,000 ------- 41,250 6,000/ --- 13,832 10,000 1999 200,000 61,000 ------- 58,000 6,000/ --- 6,536 5,000 W.R. Kozlow 2001 325,000 ------- 66,196 114,188 10,500/ --- 21,866 President, 20,000 Kaman 2000 300,000 160,000 ------- 61,875 9,000/ --- 26,341 Aerospace 25,000 Corporation 1999 275,000 140,000 ------- 36,250 7,500/ --- 18,150 (retired) 20,000 1. The corporation maintains a program pursuant to which it provides a company vehicle to designated executives and reimburses such executives for the maintenance of the vehicle. Amounts reported in this column include $52,346 attributable to W.R. Kozlow. Page 24 2. As of December 31, 2001, aggregate restricted stock holdings and their year end value were: P.R. Kuhn, 58,000 shares valued at $904,800; R.M. Garneau, 22,300 shares valued at $347,880; T.J. Cahill, 13,900 shares valued at $216,840; C.A. Clark, 16,500 shares valued at $257,400; R.H. Saunders, Jr., 11,800 shares valued at $184,080; and W.R. Kozlow, no shares. Restrictions lapse at the rate of 20% per year for all awards, beginning one year after the grant date provided recipient remains an employee of the corporation or a subsidiary. Awards reported in this column are as follows: P. R. Kuhn, 16,000 shares in 2001, 15,000 shares in 2000 and 50,000 shares in 1999; R. M. Garneau, 10,000 shares in 2001, 7,500 shares in 2000, and 3,000 shares in 1999; T. J. Cahill, 6,000 shares in 2001, 4,000 shares in 2000, and 2,500 shares in 1999; C.A. Clark, 8,500 shares in 2001, 5,000 shares in 2000, and 4,000 shares in 1999; R. H. Saunders, Jr., 5,000 shares in 2001, 4,000 shares in 2000, and 4,000 in 1999; W.R. Kozlow, 7,000 shares in 2001, 6,000 shares in 2000, and 2,500 shares in 1999. Dividends are paid on the restricted stock. 3. Amounts reported in this column consist of: P.R. Kuhn, $9,271 - Senior executive life insurance program ("Executive Life"), $4,250 - employer matching contributions to the Kaman Corporation Thrift and Retirement Plan (the "Thrift Plan employer match"); $2,109 - medical expense reimbursement program (MERP); R.M. Garneau, $7,340 - Executive Life, $851 - Officer 162 Insurance Program, $4,250 - Thrift Plan employer match, $1,865 - MERP, $10,750 - all supplemental employer contributions under the Kaman Corporation Deferred Compensation Plan ("supplemental employer contributions"); T. J. Cahill, $4,218 - Executive Life, $4,250 - Thrift Plan employer match, $1,610 - MERP, $5,000 supplemental employer contributions; C.A. Clark, $1,912 - Executive Life, $4,250 - Thrift Plan employer match, $1,352 - MERP, $3,825 - supplemental employer contributions; R.H. Saunders, Jr., $6,146 - Executive Life, $4,250 - Thrift Plan employer match, $2,885 - MERP, $2,400 - supplemental employer contributions; W.R. Kozlow, $13,444 - Executive Life, $4,250 - Thrift Plan employer match, $4,171 - MERP. 4. P.R. Kuhn joined the corporation on August 2, 1999 as President and Chief Executive Officer.
Page 25 C) OPTION/SAR GRANTS IN THE LAST FISCAL YEAR: ---------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term* ---------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) % of Total Options/ SARs** Options/ Granted to SARs** Employees Exercise or Granted in Fiscal Base Price Expiration Name (#) Year ($/Sh) Date 5%($) 10%($) ---------------------------------------------------------------------------- P. R. Kuhn 25,000/ 7.46/ 16.3125 2/13/11 923,295.92 2,339,813.15 65,000 31.71 R. M. Garneau 12,500/ 3.73/ 16.3125 2/13/11 538,589.29 1,364,891.00 40,000 19.51 T. J. Cahill 9,000/ 2.69/ 16.3125 2/13/11 297,506.46 753,939.79 20,000 9.76 C. A. Clark 10,500/ 3.13/ 16.3125 2/13/11 107,717.86 272,978.20 0 0.00 R. H. Saunders 8,000/ 2.39/ 16.3125 2/13/11 235,953.40 597,952.25 15,000 7.32 W. R. Kozlow 10,500/ 3.13/ 16.3125 2/13/11 312,894.73 792,936.68 20,000 9.76 *The information provided herein is required by Securities and Exchange Commission rules and is not intended to be a projection of future common stock prices. **Stock Appreciation Rights (SARs) are payable in cash only, not in shares of common stock. Options and SARs relate to the corporation's Class A common stock and vest at the rate of 20% per year, beginning one year after the grant date.
Page 26 D) AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION/SAR VALUES. Number of Shares under- Value of lying Unexercised Unexercised in-the-money options options* Shares at FY-end (#) at FY-end ($) acquired on Value exercisable/ exercisable/ Name Exercise(#) realized unexercisable unexercisable (a) (b) (c) (d) (e) ------------------------------------------------------------------- P. R. Kuhn none - 44,000/101,000 80,150/173,100.00 R. M. Garneau 3,000 26,625 44,600/30,900 172,172.50/52,940.00 T. J. Cahill 8,500 85,850 32,400/23,100 105,277.50/34,560.00 C. A. Clark 500 4,531 16,900/23,100 53,790.00/38,035.00 R. H. Saunders none - 12,000/19,000 30,300.00/30,750.00 W. R. Kozlow 3,000 22,140 69,000/0 210,600.00/0
Page 27 Value of Number of Unexercised Unexercised in-the-money SARs SARs* SARs at FY-end (#) at FY-end ($) acquired on Value exercisable/ exercisable/ Name Exercise(#) realized unexercisable unexercisable (a) (b) (c) (d) (e) ------------------------------------------------------------------ P. R. Kuhn none none 82,000/213,000 159,075/370,800 R. M. Garneau " " 105,500/107,000 232,925/193,700 T. J. Cahill " " 53,500/54,000 116,452.50/96,850 C. A. Clark " " 0/0 0/0 R. H. Saunders " " 4,000/26,000 12,775/45,600 W. R. Kozlow 55,000 271,487.50 70,000/0 69,000/0 *Difference between the 12/31/01 Fair Market Value ($15.60 per share) and the exercise price(s).
Page 28 E) LONG TERM INCENTIVE PLAN AWARDS: Except as described above, no long term incentive plan awards were made to any named executive officer in the last fiscal year. F) PENSION AND OTHER DEFINED BENEFIT DISCLOSURE. The following table shows estimated annual benefits payable at normal retirement age to participants in the corporation's Pension Plan at various compensation and years of service levels using the benefit formula applicable to Kaman Corporation. Pension benefits are calculated based on 60 percent of the average of the highest five consecutive years of "covered compensation" out of the final ten years of employment less 50 percent of the primary social security benefit, reduced proportionately for years of service less than 30 years: PENSION PLAN TABLE Years of Service Remuneration* 15 20 25 30 35 --------------------------------------------------------------- 125,000 32,889 44,071 54,596 65,778 65,778 150,000 40,389 54,121 67,046 80,778 80,778 175,000 47,889 64,171 79,496 95,778 95,778 200,000 55,389 74,221 91,946 110,778 110,778 225,000 62,889 84,271 104,396 125,778 125,778 250,000 70,389 94,321 116,846 140,778 140,778 300,000 85,389 114,421 141,746 170,778 170,778 350,000 100,389 134,521 166,646 200,778 200,778 400,000 115,389 154,621 191,546 230,778 230,778 450,000 130,389 174,721 216,446 260,778 260,778 500,000 145,389 194,821 241,346 290,778 290,778 750,000 220,389 295,321 365,846 440,778 440,778 1,000,000 295,389 395,821 490,346 590,778 590,778 1,250,000 370,389 496,321 614,846 740,778 740,778 1,500,000 445,389 596,821 739,346 890,778 890,778 1,750,000 520,389 697,321 863,846 1,040,778 1,040,778 2,000,000 595,389 797,821 988,346 1,190,778 1,190,778 *Remuneration: Average of the highest five consecutive years of "Covered Compensation" out of the final ten years of service.
Page 29 "Covered Compensation" means "W-2 earnings" or "base earnings", if greater, as defined in the Pension Plan. W-2 earnings for pension purposes consist of salary (including 401(k) and Section 125/129 Plan contributions but not deferrals under a non-qualified Deferred Compensation Plan), bonus and taxable income attributable to restricted stock awards, stock appreciation rights, and the cash out of employee stock options. Salary and bonus amounts for the named Executive Officers for 2001 are as shown on the Summary Compensation Table. Compensation deferred under the corporation's non-qualified deferred compensation plan is included in Covered Compensation here because it is covered by the corporation's unfunded supplemental employees' retirement plan for the participants in that plan. Current Compensation covered by the Pension Plan for any named executive whose Covered Compensation differs by more than 10% from the compensation disclosed for that executive in the Summary Compensation Table: Mr. Kuhn, $1,571,390; Mr. Garneau, $874,543; Mr. Cahill, $520,994; Ms. Clark, $442,863; Mr. Saunders, $384,848; Mr. Kozlow, $839,582. Federal law imposes certain limitations on annual pension benefits under the Pension Plan. For the named executive officers who are participants, the excess will be paid under the Corporation's unfunded supplemental employees' retirement plan. The Executive Officers named in Item 11(b) are participants in the plan and as of December 31, 2001, had the number of years of credited service indicated: Mr. Kuhn - 6.0; Mr. Garneau - 20.48 years; Mr. Cahill - 26.7 years; Ms. Clark - 17.0; Mr. Saunders - 7.0; Mr. Kozlow - 41.7. Benefits are computed generally in accordance with the benefit formula described above. G) COMPENSATION OF DIRECTORS. In general, effective January 1, 2002, non-employee members of the Board of Directors of the corporation receive an annual retainer of $25,000 and a fee of $1,200 for attending each meeting of the Board and each meeting of a Committee of the Board, except that the Chairman of each committee receives a fee of $1,600 for attending each meeting of that Committee. The Vice Chairman is entitled to a fee of $2,500 per meeting when serving as the Chairman. Such fees may be received on a deferred basis. In addition, each non-employee director will receive a Restricted Stock Award for 500 shares (issued pursuant to the corporation's Stock Incentive Plan), providing for immediate vesting upon election as a director at the corporation's 2002 Annual Meeting of Shareholders. Page 30 H) EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS. The corporation has an arrangement with Mr. C. H. Kaman that provides for him to receive an amount equal to his then current annual base salary for the remainder of his life as a result of his becoming disabled during active employment. Mr. Kaman became so disabled effective December 31, 2000. In addition, the corporation has entered into Employment Agreements and Change in Control Agreements with certain executive officers, copies of which were filed as exhibits to the following filings made by the corporation with the Securities and Exchange Commission: Form 10-Q (Document 54381-99-14) filed on November 12, 1999; Form 10-K (Document No. 54381-00-03 filed on March 21, 2000; and Form 10-Q (Document 54381-00-500006) filed on November 14, 2000. Form 10-Q filed August 14, 2001 (Document No. 0000054381-01-500011 and Form 10-Q filed November 14, 2001 (Document No. 0000054381-01-500016. The employment agreements do not have a fixed term and generally provide for a severance payment to be made to any such officer if he or she is terminated from employment (other than for willful failure to perform proper job responsibilities or violations of law) or if he or she leaves employment for good reason (e.g., due to a diminution in job responsibilities). The change in control agreements generally provide that, for a three year period following a change in control of Kaman Corporation or, in certain cases, a subsidiary thereof, a severance payment will be made to any such officer if his or her employment ends following the change in control (unless the termination was for cause, the officer dies or becomes disabled or if he or she leaves employment without good reason). The change in control agreements do not have a fixed term. Admiral Hardisty's consulting agreement with the Corporation has been renewed for a period of one year effective March 1, 2002 at a per diem rate of $1,000.00. A copy of such agreement is attached as Exhibit 10(f)(I). The corporation has also entered into an agreement with Walter Kozlow retaining him as a consultant for a period of two years following his retirement from regular employment effective December 31, 2001 at an annual rate of $242,500. A copy of such agreement was attached to the corporation's Form 10-Q filed with the Securities and Exchange Commission on August 14, 2001. Page 31 Except as disclosed in Item 13, and except as described above and in connection with the corporation's Pension Plan and the corporation's non-qualified Deferred Compensation Plan, the corporation has no other employment contract, plan or arrangement with respect to any named executive which relates to employment termination for any reason, including resignation, retirement or otherwise, or a change in control of the corporation or a change in any such executive officer's responsibilities following a change of control, which exceeds or could exceed $100,000. I) Not Applicable. J) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS. 1) The following persons served as members of the Personnel and Compensation Committee of the Corporation's Board of Directors during the last fiscal year: Frank C. Carlucci, Brian E. Barents, Eileen S. Kraus, and Walter H. Monteith, Jr. None of these individuals was an officer or employee of the corporation or any of its subsidiaries during either the last fiscal year or any portion thereof in which he or she served as a member of the Personnel and Compensation Committee. 2) During the last fiscal year no executive officer of the corporation served as a director of or as a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of, or on the Personnel and Compensation Committee of the corporation. K) Not Applicable. L) Not Applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. Following is information about persons known to the corporation to be beneficial owners of more than five percent (5%) of the Corporation's voting securities. Ownership is direct unless otherwise noted. Page 32 ----------------------------------------------------------------- Number of Shares Class of Beneficially Owned Common Name and Address as of February 1, Percentage Stock Beneficial Owner 2002 of Class ----------------------------------------------------------------- Class B Charles H. Kaman 258,375(1),(2) 38.69% Kaman Corporation 1332 Blue Hills Avenue Bloomfield, CT 06002 Holders of Mr. Kaman's see above Power of Attorney c/o John C. Yavis, Jr. Murtha Cullina LLP CityPlace I 185 Asylum Street Hartford, CT 06105 Class B Newgate Associates 199,802(3),(4) 29.91% Limited Partnership c/o Murtha Cullina, LLP CityPlace I 185 Asylum Street Hartford, CT 06103 Voting Trustees pursuant see above to a Voting Trust Agreement, dated as of August 14, 2000 c/o John C. Yavis, Jr. Murtha Cullina LLP CityPlace I 185 Asylum Street Hartford, CT 06105 Class B C. William Kaman, II 64,446(5) 9.65% c/o AirKaman of Jacksonville, Inc. Jacksonville International Airport 14700 Yonge Drive Jacksonville, FL 32218 Page 33 Class B Robert D. Moses 51,177(6) 7.66% Farmington Woods Avon, CT 06001 (1) Excludes 1,471 shares held by Mrs. Kaman. Mr. Kaman shares beneficial ownership of these shares with the holders of a Power of Attorney, as described in note (2) below. (2) The power to vote Mr. Kaman's shares of Class B common stock is shared through a durable power of attorney (the "Power of Attorney") with certain individuals who have the authority to vote Mr. Kaman's shares by majority vote. These individuals are: John S. Murtha, a director emeritus of the corporation and of counsel to Murtha Cullina LLP, counsel to the corporation, Robert M. Garneau, Executive Vice President and Chief Financial Officer of the corporation, Roberta C. Kaman, Mr. Kaman's wife, C. William Kaman II, Mr. Kaman's son and a director and Vice Chairman of the Board of the corporation, Steven W. Kaman, Mr. Kaman's son, and Cathleen H. Kaman-Wood, Mr. Kaman's daughter. (3) These shares are subject to a voting trust agreement dated August 14, 2000 (the "Voting trust"), as described in note (4) below. Newgate shares beneficial ownership of such shares with the voting trustees of such trust, as described in note (4) below. (4) The power to vote the shares of Newgate Associates Limited Partnership is vested in eleven voting trustees (the "Voting Trustees") under the Voting Trust, which has a term of ten (10) years, subject to renewal. The Voting Trustees consist of the six (6) individuals identified in footnote (2) above and the following five (5) individuals: T. Jack Cahill, President of Kaman Industrial Technologies Corporation, a subsidiary of the corporation, Paul R. Kuhn, Chairman, President, and Chief Executive Officer of the corporation, Huntington Hardisty and Eileen S. Kraus, directors of the corporation, and John C. Yavis, Jr., a partner in the Hartford, Connecticut law firm, Murtha Cullina LLP, counsel to the corporation. (5) Excludes 4,800 shares held as trustee for the benefit of certain family members. (6) Includes 39,696 shares held by a partnership controlled by Mr. Moses.
Page 34 (b) SECURITY OWNERSHIP OF MANAGEMENT. The following is information concerning beneficial ownership of the corporation's stock by each Director and Director Nominee of the corporation, each Executive Officer of the corporation named in the Summary Compensation Table, and all Directors and Executive Officers of the corporation as a group. Ownership is direct unless otherwise noted. Number of Shares Class of Beneficially Owned Percentage Name Common Stock as of February 1, 2002 of Class -------------------------------------------------------------------- Brian E. Barents Class A 2,500 * T. Jack Cahill Class A 90,456(1) * E. Reeves Callaway Class A 2,500 * Frank C. Carlucci Class A 5,500(2) * Laney J. Chouest Class A 4,423 * Candace A. Clark Class A 46,700(3) * Class B 1,042 * John A. DiBiaggio Class A 2,500 * Robert M. Garneau Class A 105,150(4) * Class B 23,236 3.48% Huntington Hardisty Class A ------(5) * Edwin A. Huston TBD C. William Kaman, II Class A 59,888(6) * Class B 64,446(7) 9.65% Walter R. Kozlow Class A 116,500(8) * Class B 296 * Paul R. Kuhn Class A 154,163(9) * Class B 3,288 * Eileen S. Kraus Class A 3,304 * Joseph H. Lubenstein Class A 31,144(10) * Walter H. Monteith, Jr. Class A 2,700 * Wanda L. Rogers Class A 2,500 * Robert H. Saunders, Jr. Class A 36,359(11) * Class B 720 * Richard J. Swift TBD All Directors and Executive Officers Class A 673,759(12) 3.12% as a group ** Class B 93,148 13.90% * Less than one percent. ** Excludes 21,900 Class A shares held by spouses of certain Directors and Executive Officers. Page 35 (1) Includes 40,200 shares subject to stock options exercisable or which will become exercisable within 60 days. (2) Includes 5,000 shares held jointly with Mrs. Carlucci. (3) Includes 23,700 shares subject to stock options exercisable or which will become exercisable within 60 days. (4) Includes 54,400 shares subject to stock options exercisable or which will become exercisable within 60 days. (5) Excludes 21,900 shares held by Mrs. Hardisty. (6) Excludes 89,891 shares held by Mr. Kaman as Trustee, in which shares Mr. Kaman disclaims any beneficial ownership. (7) Excludes 4,800 shares held by Mr. Kaman as Trustee in which shares Mr. Kaman disclaims any beneficial ownership. (8) Includes 69,000 shares subject to stock options exercisable or which will become exercisable within 60 days. (9) Includes 73,000 shares subject to stock options exercisable or which will become exercisable within 60 days. (10) Includes 6,144 shares subject to stock options exercisable or which will become exercisable within 60 days. (11) Includes 18,200 shares subject to stock options which will become exercisable within 60 days. (12) Includes 284,644 shares subject to stock options which will become exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 2001, the corporation obtained legal services from the Hartford, Connecticut law firm of Murtha Cullina LLP of which Mr. John S. Murtha, is of counsel and Mr. John C. Yavis, Jr. is a partner. Mr. Murtha, a director emeritus of the corporation, is currently one of six holders of a power of attorney described in footnote (2) to the table entitled Page 36 "Security Ownership of Certain Beneficial Owners", and a voting trustee of the Voting Trust described in footnote (4) of such table. Mr. Yavis currently serves as a voting trustee of the Voting Trust and as the general partner of Newgate Associates Limited Partnership. Also in 2000, the corporation utilized the services of K-Power, S.A., a company controlled by Mr. Ivan Humberto Iraola Pellane as a sales representative in connection with the sale of the corporation's K-MAX and SH-2 helicopters for use in Peru. Mr. Iraola Pellane is the son-in-law of Mr. Walter Kozlow, a consultant to the corporation and formerly an Executive Officer of the corporation. The corporation's agreement with K-Power, S.A. with respect to the SH-2 helicopter provided for a fee of $3,000 per month for in-country support and marketing services and also provided for a commission of 2 1/2% on any sale of the SH-2 helicopter which may ensue. To date no such sales have occurred and in 2001 such agreement was terminated. The corporation's agreement with K-Power, S.A. with respect to the K-MAX helicopter provides for a commission arrangement of 5% on such sales with an additional 1% as compensation for after market support services. In December, 2000, the corporation was awarded a contract valued at $21 million with the U.S. State Department for the sale of five K-MAX helicopters for use in Peru. As of December 31, 2001, a total of $1,208,152.31 has been paid to K-Power, S.A. Page 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. See Item 8 concerning financial statements appearing as Exhibit 13 to this Report. (a)(2) FINANCIAL STATEMENT SCHEDULES. An index to the financial statement schedules immediately precedes such schedules. (a)(3) EXHIBITS. An index to the exhibits filed or incorporated by reference immediately precedes such exhibits. (b) REPORTS ON FORM 8-K: Form 8-K's filed with the Securities and Exchange Commission on March 12, 2001 as Document No. 0000054381-01-500002; September 25, 2001 as Document No. 0000054381-01-500014; and December 11, 2001 as Document No. 0000054381-01-500019. Page 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the Town of Bloomfield, State of Connecticut, on this 14th day of March, 2002. KAMAN CORPORATION (Registrant) By Paul R. Kuhn, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature: Title: Date: --------------------------------------------------------------- Paul R. Kuhn Chairman, President, and March 14, 2002 Chief Executive Officer and Director Robert M. Garneau Executive Vice President March 14, 2002 and Chief Financial Officer (Principal Financial and Accounting Officer) Paul R. Kuhn March 14, 2002 Attorney-in-Fact for: Brian E. Barents Director E. Reeves Callaway, III Director Frank C. Carlucci Director Laney J. Chouest Director John A. DiBiaggio Director Huntington Hardisty Director C. William Kaman, II Director Eileen S. Kraus Director Walter H. Monteith, Jr. Director Wanda L. Rogers Director Page 39 KAMAN CORPORATION AND SUBSIDIARIES Index to Financial Statement Schedules Report of Independent Auditors Financial Statement Schedules: Schedule V - Valuation and Qualifying Accounts Page 40 REPORT OF INDEPENDENT AUDITORS KPMG LLP Certified Public Accountants One Financial Plaza Hartford, Connecticut 06103 The Board of Directors and Shareholders Kaman Corporation: Under date of January 28, 2002, we reported on the consolidated balance sheets of Kaman Corporation and subsidiaries as of December 31, 2001 and 2000 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, 2001, as contained in the 2001 annual report to shareholders. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Hartford, Connecticut January 28, 2002 Page 41 KAMAN CORPORATION AND SUBSIDIARIES SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands) YEAR ENDED DECEMBER 31, 1999 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 1999 EXPENSES OTHERS DEDUCTIONS 1999 Allowance for doubtful accounts $4,047 $1,355 $----- $ 883(A) $4,519 ====== ====== ====== ====== ====== Accumulated amortization $1,488 $ 110 $----- $----- $1,598 of goodwill ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 2000 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 2000 EXPENSES OTHERS DEDUCTIONS 2000 Allowance for doubtful accounts $4,519 $1,490 $----- $1,373(A) $4,636 ====== ====== ====== ====== ====== Accumulated amortization $1,598 $ 110 $----- $----- $1,708 of goodwill ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 2001 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 2001 EXPENSES OTHERS DEDUCTIONS 2001 Allowance for doubtful accounts $4,636 $ 868 $277(B) $1,842(A) $3,939 ====== ====== ====== ====== ====== Accumulated amortization $1,708 $ 109 $----- $----- $1,817 of goodwill ====== ====== ====== ====== ====== (A) Write-off of bad debts, net of recoveries. (B) Additions to allowance for doubtful accounts attributable to acquisitions.
Page 42 KAMAN CORPORATION INDEX TO EXHIBITS Exhibit 3a The Amended and Restated by reference Certificate of Incorporation of the corporation, as amended, has been filed with the Securities and Exchange Commission on form S-8POS on May 11, 1994, as Document No. 94-20. Exhibit 3b The By-Laws of the corporation by reference as amended on February 9, 1999 has been filed with the Securities and Exchange Commission on Form 10-K on March 16, 1999, as Document No. 99-03. Exhibit 4a Indenture between the corporation by reference and Manufacturers Hanover Trust Company, as Indenture Trustee, with respect to the Corporation's 6% Convertible Subordinated Debentures, has been filed as Exhibit 4.1 to Registration Statement No. 33 - 11599 on Form S-2 of the corporation filed with the Securities and Exchange Commission on January 29, 1987 and is incorporated in this report by reference. Exhibit 4b Revolving Credit Agreement by reference between the corporation and The Bank of Nova Scotia and Fleet National Bank as Co-Administrative Agents and Bank One, N.A. as the Documentation Agent and The Bank of Nova Scotia and Fleet Securities, Inc. as the Co-Lead Arrangers and Various Financial Institutions dated as of November 13, 2000 filed as Exhibit 4 to form 10-Q filed with the Securities and Exchange Commission on November 14, 2000, Document No. 54381-00-500006. Page 43 Exhibit 4c The corporation is party to certain by reference long-term debt obligations, such as real estate mortgages, copies of which it agrees to furnish to the Commission upon request. Exhibit 10a The Kaman Corporation 1993 Stock by reference Incentive Plan as amended effective November 18, 1997 has been filed as an exhibit to the Corporation's Form 10-K Document No. 0000054381-98-09 filed with the Securities and Exchange Commission on March 16, 1998 as amended by Document No. 0000054381-98-13 filed on March 27, 1998; by Document No. 0000054381-00-500006 filed on November, 14, 2000) and as an exhibit to the Corporation's Form 10-K Document No. 0000054381-00-500005 filed on March 15, 2001. Exhibit 10b The Kaman Corporation Employees by reference Stock Purchase Plan as amended effective November 19, 1997 has been filed as an exhibit to the Corporation's Form 10-K Document No. 0000054381-98-09 filed with the Securities and Exchange Commission on March 16, 1998 (as amended by Document No. 0000054381-98-13 on March 27, 1998) and is incorporated in this report by reference. Exhibit 10c Kaman Corporation Supplemental by reference Employees' Retirement Plan, as amended Exhibit 10d Fifth Amendment to Kaman Corporation attached Deferred Compensation Plan (As Amended and Restated Effective as of January 1, 1994). Exhibit 10e Kaman Corporation Cash Bonus Plan attached (Amended and Restated Effective as of January 1, 2002) and First Amendment thereto. Page 44 Exhibit 10f Employment Agreements and Change in by reference Control Agreements with certain executive officers have been filed as exhibits to the following filings by the corporation with the Securities and Exchange Commission: Form 10-Q (Document No. 54381-99-14) filed November 12, 1999; Form 10-K (Document No. 54381-00-03) filed March 21, 2000; Form 10-Q (Document No. 54381-00-500006) Filed November 14, 2000; and Form 10-Q (Document No. 54381-01-500015) filed November 14, 2001. Exhibit 10f(I) Agreement between Kaman Aerospace attached Corporation and Huntington Hardisty effective March 1, 2002. Exhibit 10g Notice of change of control by reference filed as Exhibit 99 to the corporation's Form 8-K dated August 16, 2000 as Document No. 54381-00-000010. Exhibit 11 Statement regarding computation attached of per share earnings. Exhibit 13 Portions of the Corporation's attached 2001 Annual Report to Shareholders as required by Item 8. Exhibit 21 Subsidiaries. attached Exhibit 23 Consent of Independent Auditors. attached Exhibit 24 Power of attorney under which attached this report has been signed on behalf of certain directors. Page 45