Kaman

AR 13

Financials

Part II

Financials/Management's Discussion and Analysis of Financial Condition and Results of Operations/Segment Results of Operations and Financial Condition – Aerospace Segment – Part 3

Egypt SH-2G(E)

The segment continues work under a program for depot level maintenance and upgrades for nine Kaman SH-2G(E) helicopters originally delivered to the Egyptian government during the 1990s. This program has a total contract value of approximately $81.0 million. As of December 31, 2013, $3.0 million remains in backlog for this program.

SH-2G(I)

On May 6, 2013, we announced that the New Zealand Ministry of Defence ("MoD") entered into a $120.6 million contract for the purchase of ten SH-2G(I) Super Seasprite aircraft, spare parts, a full mission flight simulator, and related logistics support. The contract calls for the aircraft to be delivered over a period of approximately three years. We have begun work under this program and expect to deliver the first aircraft in the second half of 2014.

FMU-152 – Joint Programmable Fuze ("JPF")

We manufacture the JPF, an electro-mechanical bomb safe and arming device, which allows the settings of a weapon to be programmed in flight. During 2009, we entered into a contract modification with the USAF for the award of Options 6, 7 and 8 under our multi-option JPF contract. Under Option 8, we were awarded a total of $79.2 million in JPF orders from the USAF for fuzes to be delivered in 2012 and 2013. In the third quarter of 2013, we were awarded USAF sales orders totaling $78.5 million under a new base contract, also referred to as Option 10. Total JPF backlog at December 31, 2013, is $99.6 million.

A total of 6,873 fuzes passed acceptance testing and were delivered to our customers during the fourth quarter of 2013, for a total of 20,883 fuzes delivered in 2013. We occasionally experience lot acceptance test failures due to the complexity of the product and the extreme parameters of the acceptance test. Given the maturity of the product, we now generally experience isolated failures, rather than systematic ones. As a result, identifying a root cause can take longer and result in inconsistent delivery quantities from quarter to quarter. We expect to deliver 20,000 to 26,000 fuzes in 2014.

MH-92

The Sikorsky Canadian MH-92 helicopter program includes the manufacture and assembly of composite tail rotor pylons. This program has undergone numerous customer directed design changes that caused costs on this program to exceed the originally proposed price for the contract. To date, we have recorded $8.0 million in contract losses, none of which was recorded in 2013. As of December 31, 2013, we have four units left to ship under this program.

Commercial Markets
777 / 767

In late 2007, we signed a seven-year follow-on contract with Boeing for the production of fixed wing trailing edge assemblies for the Boeing 777 and 767 aircraft. During 2013, on average we delivered 8 ship sets per month on the Boeing 777 platform and 1 ship set per month on the Boeing 767. For 2014, we currently estimate deliveries on the 777 and 767 programs to remain consistent with 2013. This multi-year contract has a potential value in excess of $100 million; however, annual quantities will vary, as they are dependent upon the orders Boeing receives from its customers. We are currently in negotiations for a follow-on contract.

Airbus

Our U.K. Composites operations provide composite components for many Airbus platforms. The most significant of these are the A320, A330, A340 and A350. Orders for all of these platforms are dependent on the customer's build rate.

Bearings

Our bearings products are included on commercial airliners and regional/business jets manufactured in North and South America, Europe and Asia and are used as original equipment and/or specified as replacement parts by airlines and aircraft manufacturers. These products are primarily proprietary self-lubricating, ball and roller bearings for aircraft flight controls, turbine engines, landing gear, and driveline couplings for helicopters. The most significant portion of our commercial sales is derived from Boeing and Airbus platforms, such as the Boeing 737, 747, 777 and 787 and the Airbus A320, A330, A350 and A380.

Bell Helicopter

In September 2009, we were awarded a five-year contract with a potential value of $53.0 million to build composite helicopter blade skins and skin core assemblies for Bell Helicopter. Under the terms of the contract, we are providing 18 different assemblies for H1, 406, 407, 412, 427, 429, 430 and BA609 aircraft. All work is being performed at our full-service aerospace innovation and manufacturing support center in Bloomfield, Connecticut. At December 31, 2013, $14.3 million was included in backlog for orders under this program, which will allow us to continue to perform work under this program through the end of 2014. Annual quantities for this program will vary, as they are dependent upon the orders Bell receives from its customers.

Engineering Design Services

The Company offers engineering design services to Aerospace OEM customers. Engineering design service programs generate revenue primarily through the billing of employees' time spent on customer projects. Our engineers provide value to new aircraft development and product improvement programs.

Learjet 85

In 2010, our U.K. Composites operation was awarded a contract for the Learjet 85 program. We manufacture composite passenger entry and over-wing exit doors for the Learjet 85, a mid-sized business jet built primarily from composites and featuring advances in aerodynamics, structures and efficiency. We began delivery during the second quarter of 2013.

Other Matters

Sequestration

During 2011, the federal government was unable to reach agreement on budget reduction measures required by the Budget Control Act of 2011 (the "Budget Act") passed by Congress. Because Congress and the Administration could not reach agreement, the Budget Act triggered automatic reductions in both defense and discretionary spending in January 2013. While we do not believe these automatic spending reductions directly impacted our business, financial condition or operating results during 2013, the future impact of sequestration is uncertain and there can be no assurance that these automatic across-the-board budget cuts will not adversely affect our business and profitability in future periods. We believe our portfolio of programs and product offerings are well positioned and will not be materially impacted by DoD budget cuts in 2014. We continue to monitor developments in this area and work with our suppliers and customers to understand the potential impact on our Company.

For a discussion of other matters related to our Aerospace segment see Note 17, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this Form 10-K.