Kaman Annual Report 09

Two thousand nine was a difficult year for virtually every company across the globe and Kaman was not exempt from these challenges. Fortunately, our company entered 2009 with a number of advantages, including a diversified business model, a loyal customer base and a uniquely talented and dedicated group of employees. These advantages, combined with our decisive response to rapidly deteriorating economic conditions, including painful but necessary expense and staff reductions, helped Kaman endure this past year. In fact, I believe that the actions we have taken will position us to benefit as the economic environment begins to improve.

Our financial performance during 2009 reflects the challenges we faced and highlights the benefits of our diversification. For 2009, Kaman reported net earnings from continuing operations of $32.6 million, or $1.27 per diluted share, compared to $35.1 million, or $1.38 per diluted share, in 2008, a decrease of 8.0%. Net sales from continuing operations for 2009 declined 8.6% to $1.15 billion, compared to $1.25 billion in 2008.

During 2009, we continued to focus on maintaining a strong balance sheet, emphasizing prudent investments and liquidity. We ended the year with a debt to capitalization ratio of 16.9%, compared to 25.6% at year-end 2008. Cash flow performance was excellent; Kaman achieved $56.9 million in free cash flow during the year, an improvement of $86.6 million over 2008.

This focus on financial strength and liquidity was recognized by the credit market, enabling us to replace our five-year, $200 million revolving credit agreement with a new three-year $225 million agreement. The new facility includes an accordion feature that allows Kaman to increase the size to $300 million with additional commitments from lenders. In addition, during August, we completed a shelf registration with the Securities and Exchange Commission that permits Kaman to offer and sell up to $200 million of equity, debt or other types of securities. Upsizing our revolving credit facility in the tough economic environment of 2009 was an impressive accomplishment. In fact, we were able to include six new lenders, and the offering was significantly over-subscribed. More importantly, the transaction has very positive long-term implications for the company and, coupled with the shelf registration, provides us the financial flexibility needed to execute our growth strategy.

Kaman's solid performance during a difficult year underscores the appeal of our diversified business model. During 2009, our Industrial Distribution business, which is highly sensitive to downturns in the industrial economy, saw a steep decline in sales and earnings. This decline was substantially offset by the improved performance of our Aerospace business, which tends to be counter-cyclical to our distribution business. This diversified model was established decades ago by our founder, Charles Kaman, and 2009 once again demonstrated the wisdom of his vision.

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