Dynamics 
Corporation 
of
America

1995
Annual Report

<PAGE>

Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
<PAGE>
Dynamics Corporation of America
<TABLE>
<CAPTION>
Contents                                                       Page 
<S>                                                     <C>
President's Message                                              2 
Management's Discussion and Analysis                             4 
Consolidated Balance Sheets                                      7 
Consolidated Statements of Income                                8 
Consolidated Statements of Stockholders' Equity                  9 
Consolidated Statements of Cash Flows                           10 
Notes to Consolidated Financial Statements                      11 
Report of Independent Auditors                                  21 
Selected Financial Data                                         22 
Segments of Business                                            23 
Range of Stock Prices and Dividend Information                  24 
Divisions and Subsidiary                                Inside Back Cover 

</TABLE>

Dynamics Corporation of America is a diversified manufacturer of commercial 
and industrial products founded in 1924 and incorporated in New York. Its 
corporate headquarters are in Greenwich, Connecticut and its shares are 
listed on the New York Stock Exchange (trading symbol: DYA). The Company's 
seven plants are located in California, Connecticut, Ohio and Pennsylvania. 
Its five separate business units manufacture electronic components such as 
heat dissipators and Zero Insertion Force (ZIF(tm)) printed circuit board 
retainers, frequency control components and oscillators; commercial and 
consumer appliances sold under the Waring(R), Acme Juicerator(R), 
Qualheim(tm), Blendor(R), NuBlend(R) and Touchblend(tm) tradenames; air 
distribution products and systems sold under the Anemostat(R), Anemotrak(R) 
and Envirotrak(R) tradenames; vision frames and louvers for fire rated doors; 
and air conditioning and related equipment for power plant and other 
applications, and mobile vans and transportable shelters (including the 
Environ(R)) for specialized electronic and medical diagnostic equipment such 
as CT and MRI scanners. The Company also invests from time to time in shares 
of other businesses. The Company currently holds a 44.1% stake in CTS 
Corporation ("CTS"), an Indiana corporation headquartered in Elkhart whose 
shares are listed on the New York Stock Exchange (trading symbol: CTS). CTS 
is a manufacturer of electronic and electromechanical components and 
subsystems for the automotive, communications equipment, data processing, 
defense and aerospace, instruments and controls and consumer electronic 
markets. 

                                       1
<PAGE>

President's Message 
to Shareholders 

   Dynamics Corporation of America recorded a 25% increase in its income from 
continuing operations, representing the highest level since 1985 as sales 
increased by $15,267,000, or 15.8%. The major contributing factors to the 
improved performance of Dynamics Corporation of America in 1995 were the 
increasing profitability of the CTS Corporation, in which DCA has a major and 
increasing investment, greater profitability of our International Electronic 
Research Corporation subsidiary, and the return to profitability of the 
Reeves-Hoffman Division. Responding to these better results, DCA shares, 
which were valued in the marketplace at $20.375 per share at December 31, 
1994, increased in value by 20% to $24.50 at year-end. 

   For the year ended December 31, 1995, the Company reported net income of 
$6,723,000, or $1.75 per share, on sales of $111,720,000, compared with net 
income of $8,732,000, or $2.25 per share, on sales of $96,453,000 in 1994. 
Net income for 1995 was increased by $998,000, or $.26 per share, reflecting 
a favorable resolution of prior year tax matters. Net income for 1994 
included $3,334,000, or $.86 per share, of income reflecting the Company's 
settlement of a claim of its Fermont Division on a contract with the U.S. 
Government, net of related expenses and income taxes. 

   Included in net income was the Company's proportionate share of CTS 
Corporation's income for the year ended December 31, 1995, in accordance with 
the equity method of accounting, which was $4,411,000, or $1.15 per share, 
compared to $3,618,000, or $.93 per share, in 1994. 

   As in 1994, the most notable contribution to operating earnings was made 
by International Electronic Research Corporation which increased its sales by 
44% to $22,883,000 and increased its profitability by 26%. These results 
would have been even better had it not been for the sluggish retail demand 
for computers at year-end. Computer manufacturers reduced or extended orders 
for our heat dissipating products in the last two months of 1995, reducing 
IERC's monthly bookings to almost one-half the rate experienced during the 
first ten months of the year. However, delivery of customer ordered 
prototypes is again at a high level, bookings have begun to increase, and it 
is anticipated that, as new and more powerful computer models are introduced 
to the marketplace, orders will continue to accelerate. 

   Even with this setback, IERC in 1995 recorded the highest sales and 
profitability in its history. Efforts to reduce its costs and expand its 
markets will continue. 

   Reeves-Hoffman Division also improved its performance in 1995, returning 
to profitability with increasing sales. More importantly, the Division has 
expanded its engineering capabilities and continues to do so since the 
technology-driven markets it serves require new and higher performing crystal 
and oscillator products. 

   Waring Products Division on the other hand experienced its most difficult 
year in recent memory with reduced sales of almost $4,000,000 compared to 
1994. Waring's management had anticipated as the year began that an 
aggressive introduction of new products in 1995 would greatly increase 1995 
sales over the prior year. As the year progressed, the credit worthiness of a 
number of its customers deteriorated and a decision was made to restrict 
sales to only financially sound retailers. Partly as a result, and because of 
curtailment of consumer spending, projected sales did not materialize and 
inventories rose beyond acceptable levels. On the positive side, however, 
Waring was fortunate not to have experienced large write-offs of its 
receivables from retailers who were unable to pay and some of whom were even 
forced into bankruptcy. New management at Waring is focused on building on 
the success of Waring's commercial appliance business as it addresses the 
uncertainties in its retail markets. 

   Our Ellis & Watts operation increased its sales by approximately 
$8,500,000 primarily by shipments of power plant products to a customer in 
the Pacific Rim and as a result provided a meaningful contribution to the 
sales and profitability of Dynamics Corporation of America in 1995. The 
division's management is presently in negotiations with the same customer for 
orders for similar products and it is hoped that a significant contract will 
be entered into during the first half of 1996. 

   Dynamics Corporation of America during the year purchased 81,000 shares of 
CTS Corporation common stock for $2,674,000, thereby increasing its ownership 
from 42.9% to 44.1%. Included in the Company's income from continuing 
operations is the proportionate share of CTS Corporation's results for the 
year, $4,411,000 in 1995 compared to $3,618,000 in 1994 and $1,619,000 in 
1993. 

   CTS Corporation achieved a significant improvement in performance in 1995. 
On February 1, 1996, it announced net sales of $300 million, $31 million or 
12% higher than in 1994, and net income of $17.2 million, 22% higher than the 
$14 million recorded in the prior year. 

                                       2
<PAGE>
 
    1996 marks the 100th anniversary of CTS Corporation. Joseph Walker, 
Chairman, President and Chief Executive Officer, reflecting on this milestone 
for CTS, recently stated in his letter to shareholders: "It is quite an 
accomplishment for any business considering the challenging and shifting 
economic circumstances, rapid technological developments and dramatically 
changing market needs which occurred in the past century. CTS has 
demonstrated its engineering capability to evolve technologies to serve the 
needs of a customer base which has changed continually since 1896. During 
this time, CTS has not only adapted to the demands of the marketplace, but 
has clearly demonstrated its ability to develop those products which meet the 
needs of its customers." 

   We consider our investment in CTS a sound and long term one which will 
result in significant value to Dynamics Corporation of America's 
shareholders. 

   In contrast to recent years when Dynamics Corporation of America did not 
require any borrowings, toward the end of the year the Company borrowed 
$3,000,000 under its Revolving Credit Agreement. These borrowed funds and 
internally generated funds were required to finance a $4,000,000 increase in 
accounts receivable and $5,000,000 in increased inventories at year-end. The 
Company also used $412,000 of its funds to acquire 17,577 shares of its 
common stock and to pay dividends of $768,000 to shareholders, as well as 
increasing its holdings in CTS. 

   As we enter 1996, the latest economic statistics are not reassuring: 
January payrolls fell by 200,000 persons and the unemployment rate climbed; 
household spending is flat; debt levels and delinquencies are rising while 
consumer confidence levels are falling. In sharp contrast to this economic 
activity, financial assets, in particular the stock market, are booming. 

   Faced with this undetermined and uncertain economic landscape, planning 
for our operations will focus short term on insuring that our inventories are 
at proper levels and operating costs are in line with revenues, while at the 
same time we will expand our technology base, recruit talented personnel, and 
continue the design and development of new products. 

   As always, we pledge our best efforts to evaluate all of our operations to 
determine the best allocation of the Company's resources and by so doing 
enhance shareholder values. 

   Management sincerely thanks those employees who have responded to these 
challenging times with ingenuity, dedication and hard work. We also express 
our thanks to our shareholders, suppliers, customers and lending institutions 
who by their continued support and encouragement have made possible DCA's 
progress to date. 

[Signature of Andrew Lozyniak] 
Andrew Lozyniak 
Chairman of the Board and President 

March 8, 1996 

                                    3
<PAGE>

Management's Discussion and Analysis of Results 
of Operations and Financial Condition 

The following discussion, unless otherwise noted, pertains to continuing 
operations. 

Results of Operations 
(1995 compared to 1994) 
Sales increased $15,267,000, or 15.8%, which included an increase in export 
sales of $9,839,000. Sales in the Electrical Appliances and Electronic 
Devices segment increased $6,456,000; sales of electronic devices, especially 
heat dissipators for computer microprocessors and frequency control crystal 
oscillators for the telecommunication industry, rose significantly, and sales 
of commercial electrical appliances to food and beverage equipment suppliers 
and restaurant chains were also up; competitive factors and a troubled retail 
industry reduced consumer appliance sales dramatically. Sales in the Power 
and Controlled Environmental Systems segment improved by $8,434,000, 
primarily on the strength of power plant product shipments to a single 
customer in the Pacific Rim who accounted for 10.1% of Company sales in 1995; 
sales of custom mobile products were also up in the segment, but were 
significantly offset by lower thermal and medical trailer and shelter 
shipments. Sales in the Fabricated Metal Products and Equipment segment 
increased $377,000, as sales from the door and systems product lines 
increased while air product line sales were flat. 

    Gross profit increased $2,841,000 on higher sales; however, the gross 
profit percentage declined from 25.9% to 24.9%, due to material costs 
increases and lower selling prices required to meet intense competition. 
Gross profit in the Electrical Appliances and Electronic Devices segment 
increased on the strength of higher sales, especially of electronic devices, 
and lower manufacturing costs and better yields through process improvements 
for frequency control products, offset by declines in gross profit from 
electrical appliance sales because of reduced shipments, lower average 
selling prices for consumer products and a less favorable product mix. Gross 
profit increased in the Power and Controlled Environmental Systems segment 
due to the significant increase in sales of power plant products. Gross 
profit in the Fabricated Metal Products and Equipment segment was lower 
because of increases in material costs and production inefficiencies. 

   Selling, general and administrative expenses increased $2,182,000 but 
declined as a percent of sales from 23.6% to 22.3%. Commissions accounted for 
the most significant portion of the rise in expenses, which also included 
increases in staffing, related fringe benefit and relocation costs, 
professional fees and insurance. 

   Other expenses, net increased $1,309,000, which include charges of 
$444,000 for recall of the Dualit toaster, $415,000 for settlement of certain 
environmental matters, and $360,000 as an additional provision for future 
operating losses of a division held for sale, offset by a $198,000 gain from 
the sale of excess property and leasehold rights. 

   A favorable resolution of prior year tax matters amounting to $998,000 
resulted in a net income tax benefit of $215,000 for an effective tax benefit 
rate of 10.3%, compared to the prior year effective tax provision rate of 
35.2% and the effective Federal statutory rate of 34%. Excluding the prior 
year tax matters, the effective tax rate increased 2.1% to 37.3% due to the 
effects of state taxes and non-deductible expenses. 

Equity in CTS Corporation 
Equity in the earnings of CTS Corporation increased $793,000 as a result of 
an increase in CTS' earnings of $3,197,000. According to CTS' published 
reports, investments in research and development and capital equipment for 
new products and cost reduction, combined with expansion in international 
markets and a 1994 product line acquisition, contributed to its increased 
sales and profitability. 

Liquidity and Financial Resources 
Cash and cash equivalents amounted to $1,767,000 at December 31, 1995, a 
decrease of $5,070,000 from the previous year end, due substantially to 
increases in accounts receivable and inventories amounting to $9,057,000. 
During the year the Company borrowed $3,000,000 under its Revolving Credit 
Agreement which amount remained outstanding at December 31, 1995. 

   During the year, the Company acquired 81,000 shares of CTS Corporation 
common stock for $2,674,000, paid $412,000 to acquire 17,577 shares of the 
Company's common stock for treasury, paid dividends of $768,000 to 
shareholders, and invested $1,915,000 in new equipment, including $403,000 
for production and test equipment to manufacture approximately $69 million of 
generator sets in 1996 and 1997 under a Government contract awarded in 1995 
to Fermont, a division held for sale. 

                                       4
<PAGE>

   The assets of Fermont amounted to $1,759,000 at December 31, 1995. Under 
the above mentioned Government contract, projected net cash requirements in 
1996, when deliveries are scheduled to begin, for working capital and 
equipment, net of Government progress payments, are estimated to approximate 
$5.0 million; however, Fermont projects positive cash flow on the contract. 

   The Company has available unused credit of $34,000,000 under its Revolving 
Credit Agreement with four banks and an additional $9,000,000 under an 
uncommitted line of credit with a bank. 

   Liquidity and financial resources are considered adequate to fund planned 
Company operations, including capital expenditures and payment of dividends. 
The Company intends to continue its stated policy of reviewing potential 
acquisitions which it believes could enhance growth and profitability. 

   The Company recorded deferred income taxes for transactions reported 
during different years for financial reporting and for income tax reporting 
purposes, as required by generally accepted accounting principles. In 
general, the Company has recorded deductions for financial reporting purposes 
which become deductible in subsequent years for income tax reporting purposes 
(temporary differences). The application of anticipated income tax rates to 
these deductions results in future tax benefits, or deferred tax assets. 
Management anticipates that the Company's deferred tax assets will be 
realized based upon its expectation of future taxable earnings. The Company's 
income from continuing operations before income taxes aggregated $6,519,000 
for the three years ended December 31, 1995, and sustaining this income level 
would be sufficient to realize all deferred tax assets over the statutory tax 
recovery period. The Company will require aggregate taxable income of 
$14,522,000 to realize its net deferred tax assets of $5,533,000, excluding 
deferred tax liabilities for the undistributed earnings of the Company's equity
investment in CTS Corporation amounting to $3,083,000 at December 31, 1995. 
Under applicable carryback provisions of the current Internal Revenue Code, 
$11,510,000 of the prior years' taxable income could be utilized to realize 
deferred tax assets. Although they are not expected to be required, the 
Company has available various tax planning strategies, including property 
sale and leaseback strategies, to supplement taxable income from operations 
in order to realize deferred tax assets. The Company in large measure 
controls the reversal of $7,516,000 of temporary differences and a 
significant portion of the remaining differences is expected to reverse 
during the next five years. 

   The Company has been notified by the U.S. Environmental Protection Agency 
("EPA") that it is a Potentially Responsible Party ("PRP") regarding 
hazardous waste cleanup at a non-Company site in Connecticut and at a Company 
site in California. Certain of the PRPs at the Connecticut site have agreed 
with the EPA to fund a feasibility study at the site and have sued the 
Company and other PRPs who have not agreed to share the costs. A property 
owner adjacent to the California site has sued the Company and others for 
allegedly causing contamination of their property. The Company incurred costs 
to fund engineering studies and conduct investigations of, and to remove 
contaminants from, the California site and to pay related expenses. The 
Company has settled a lawsuit brought by a state environmental agency for 
response costs at a non-Company site in Pennsylvania as to which the Company 
was earlier designated a PRP; and the Company has also been sued by certain 
of the PRPs who have agreed with the state agency to fund other past response 
costs at the Pennsylvania site, to recover a portion of those costs from the 
Company and other PRPs who have not agreed to participate in such funding. 
The Company is also a defendant in two lawsuits seeking contribution for 
Superfund cleanup costs relating to two other non-Company sites in 
Pennsylvania. 

   The amount of future environmental-related expenditures and the extent of 
insurance coverage is not determinable at this time and the Company is not in 
a position to estimate the loss or range of loss, if any, which may result 
from environmental-related matters. Based upon its knowledge of the extent of 
the Company's exposure and current statutes, rules and regulations, and 
emerging alternative remedial approaches, management believes that the 
anticipated costs resulting from claims and proceedings with respect to the 
above mentioned sites, including possible remediation, the extent of which is 
presently unknown, will not materially affect the financial position of the 
Company. However, it is possible, but unanticipated at this time, that future 
results of operations or cash flows could be materially affected by an 
unfavorable resolution of these matters. 

   In 1995 the Company expended or provided $695,000, including $165,000 for 
the California site and $415,000 for one of the Pennsylvania sites, to manage 
hazardous substances, to monitor pollutants, to test for contaminants, to 
provide for required removal activities and to settle the lawsuit for past 
response costs at one of the non-Company sites in Pennsylvania, a 75% 
increase in such costs over the prior year. Accruals for such matters at 
December 31, 1995 amounted to $565,000. 

                                       5
<PAGE>
 
   In complying with federal, state and local environmental statutes and 
regulations, the Company has altered or modified certain manufacturing 
processes and expects to do so in the future. Such modifications to date have 
not significantly increased capital expenditures or affected the 
competitiveness of the Company. 

   With respect to recently issued FASB Statements Nos. 121 and 123, as 
described in the Notes to the Financial Statements, the Company anticipates 
no substantial impact on its financial position or results of operations upon 
adoption in 1996. 

Results of Operations 
(1994 compared to 1993) 
Sales decreased $4,876,000 or 4.8%. Sales in the Electrical Appliances and 
Electronic Devices segment increased $2,442,000 on a nearly threefold 
increase in sales of heat dissipating devices for advanced microprocessors 
installed in personal computers. Sales of frequency control products were 
marginally higher, while sales of electrical appliances declined sharply in 
the consumer domestic portion of the segment because of reduced product 
placement with retailers for blender and food mixer products and 
significantly lower sales of food preparation specialty products. Sales in 
the Power and Controlled Environmental Systems segment declined $8,240,000 
due to lower sales of custom mobile products principally because of the 
completion in the prior year of a multi-unit defense-related contract. Sales 
of power plant products and services and mobile and transportable medical 
units increased, offsetting a decline in the sales of thermal products. Sales 
in the Fabricated Metal Products and Equipment segment increased $922,000 as 
sales of air and door products increased due to the modest recovery in the 
commercial building construction market. Systems sales declined on lower 
start-up and installation revenues. 

   Gross profit improved $162,000 on lower sales, to 25.9% from 24.5% of 
sales. Gross profit in the Electrical Appliances and Electronic Devices 
segment increased as a result of the increased sales of heat dissipating 
devices; however, the gross profit percentage from segment sales was slightly 
lower due to the lower gross profit percentage earned on electrical appliance 
sales because of product sales mix and pricing pressures. Gross profit in the 
Power and Controlled Environmental Systems segment declined on sharply lower 
sales; however, the gross profit percentage increased significantly on the 
sale of power plant products and services, and on mobile and transportable 
medical units. Gross profit in the Fabricated Metal Products and Equipment 
segment increased on higher sales and favorable product mix. 

   Selling, general and administrative expenses decreased $1,355,000. Staff 
reductions undertaken in the prior year were primarily responsible for a 
$967,000 reduction in compensation and related benefits. Advertising expenses 
decreased $734,000, primarily because of lower advertising expenditures for 
electrical appliances. Commission expense increased $557,000 as a greater 
portion of sales were commissionable. All other expenses decreased $211,000. 

   Other income decreased $445,000. Royalty income decreased $1,050,000 as, 
unlike 1993, no royalty was earned under a technology transfer agreement with 
a customer in the Power and Controlled Environmental Systems segment. Staff 
reductions in 1993 resulted in a $470,000 charge. Net interest income 
increased $103,000, investments in marketable securities resulted in a 
$87,000 reduction in other income, while remaining other income (net) 
increased $119,000. 

   Income taxes amounted to $967,000, increasing $350,000 principally because 
of the $1,072,000 increase in income before taxes. The 1994 effective tax 
rate is slightly higher than the applicable 34% Federal statutory rate 
primarily because of state income taxes. 

Equity in CTS Corporation 
Equity in the earnings of CTS Corporation increased $1,999,000 as a result of 
CTS' increase in earnings of $7,397,000 over 1993, before accounting changes, 
and because the Company's proportionate share in CTS' earnings increased as 
its percentage ownership of CTS common stock increased to 42.9% from 37.3% 
during the year through purchases of CTS stock. In 1993 the Company recorded 
a charge of $1,716,000, or $.44 per share, for its proportionate share of 
CTS' net charge from its adoption of FASB Statement No. 106, "Employers' 
Accounting for Postretirement Benefits Other Than Pensions", and FASB 
Statement No. 109, "Accounting for Income Taxes." 

Division Held for Sale 
In May 1994, the Company agreed to accept $6,450,000 from the Government in 
settlement of the preproduction portion of its proposed change order on a 
contract for 3KW generator sets with the Company's Fermont Division. The 
settlement, net of related expenses and income taxes, amounted to $3,334,000, 
or $.86 per share, and was reported as income from discontinued operations. 
Effective July 1, 1994, Fermont is no longer classified as a discontinued 
operation but as a business held for sale, based upon its decision to bid on 
new contracts. In January 1995, Fermont was awarded a contract by the U.S. 
Army for tactical quiet (TQ) generator sets, the first order under which, 
valued at $57.8 million, has been received. 

                                       6
<PAGE>
 
Dynamics Corporation of America

Consolidated Balance Sheets 
(dollar amounts in thousands) 

<TABLE>
<CAPTION>
As of December 31,                                                                    1995        1994 
<S>                                                                               <C>         <C>
Assets 
Current Assets: 
 Cash and cash equivalents                                                        $  1,767    $  6,837 
 Accounts receivable, less allowances of $484 and $604                              19,175      15,214 
 Inventories--Note 2                                                                22,989      17,893 
 Other current assets--Note 3                                                        1,237       3,065 
 Current assets of division held for sale--Note 4                                    1,191       1,185 
 Deferred income taxes                                                               4,434       5,418 
                                                                                     -----      ------- 
   Total Current Assets                                                             50,793      49,612 
Property, Plant and Equipment, at cost, less accumulated depreciation and 
  amortization--Notes 5 and 8                                                        3,603       3,472 
Equity Investment in CTS Corporation--Note 6                                        77,180      69,291 
Other Assets                                                                         2,725       1,719 
Deferred Income Taxes                                                                               83 
                                                                                     -----      ------- 
   Total Assets                                                                   $134,301    $124,177 
                                                                                     =====      ======= 
Liabilities 
Current Liabilities: 
 Current installments of long-term debt                                           $     63    $    126 
 Accounts payable                                                                    6,284       4,454 
 Accrued expenses and sundry liabilities--Notes 4 and 7                             14,616      15,648 
 Federal income taxes payable                                                          851       2,006 
                                                                                     -----      ------- 
   Total Current Liabilities                                                        21,814      22,234 
Long-term Debt--Note 8                                                               3,424         401 
Other Liabilities--Note 13                                                           1,605       1,817 
Deferred Income Taxes                                                                1,984 
                                                                                     -----      ------- 
   Total Liabilities                                                                28,827      24,452 
                                                                                     -----      ------- 
Contingencies--Note 14 

Stockholders' Equity--Notes 9 and 10 
Preferred Stock, par value $1 per share--authorized 894,000 shares--none issued 
Series A Participating Preferred Stock, par value $1 per share--authorized 
  106,000 shares--none issued 
Common Stock, par value $.10 per share--authorized 10,600,000; outstanding 
  3,829,561 and 3,846,677 shares                                                       383         385 
Paid-in Additional Capital                                                          11,623      11,698 
Retained Earnings                                                                   93,807      88,133 
Deferred Compensation                                                                 (339)       (491) 
                                                                                     -----      ------- 
   Total Stockholders' Equity                                                      105,474      99,725 
                                                                                     -----      ------- 
   Total Liabilities and Stockholders' Equity                                     $134,301    $124,177 
                                                                                     =====      ======= 
</TABLE>

The accompanying notes are an integral part of these statements. 

                                       7
<PAGE>
 
Dynamics Corporation of America
Consolidated Statements of Income 
(dollar amounts in thousands, except per share data) 

<TABLE>
<CAPTION>
 For the Years ended December 31,                                       1995      1994        1993 
<S>                                                                 <C>        <C>        <C>
Net sales                                                           $111,720   $96,453    $101,329 
Cost of sales                                                         83,914    71,488      76,526 
                                                                       -----      ----      ------- 
Gross profit                                                          27,806    24,965      24,803 
Selling, general and administrative expenses                          24,898    22,716      24,071 
                                                                       -----      ----      ------- 
                                                                       2,908     2,249         732 
Other income (expense), net--Note 11                                    (811)      498         943 
                                                                       -----      ----      ------- 
Income from continuing operations before items shown below             2,097     2,747       1,675 
Income tax charge (benefit)--Note 12                                    (215)      967         617 
                                                                       -----      ----      ------- 
Income from continuing operations before equity in CTS 
  Corporation                                                          2,312     1,780       1,058 
Income from equity investment in CTS Corporation, net of income 
  tax charges of $2,158, $1,082 and $52                                4,411     3,618       1,619 
                                                                       -----      ----      ------- 
Income from continuing operations                                      6,723     5,398       2,677 
Income from discontinued operation, net of income tax charge of 
  $2,022--Note 4                                                                 3,334 
Equity in CTS' cumulative effect to January 1, 1993 of changes in 
  accounting methods--Note 6                                                                (1,716) 
                                                                       -----      ----      ------- 
Net income                                                          $  6,723   $ 8,732    $    961 
                                                                       =====      ====      ======= 
Income (loss) per common share: 
 Continuing operations                                              $   1.75   $  1.39    $    .68 
 Discontinued operation                                                            .86 
 Equity in CTS' cumulative effect to January 1, 1993 of changes 
  in  accounting methods                                                                      (.44) 
                                                                       -----      ----      ------- 
 Net income                                                         $   1.75   $  2.25    $    .24 
                                                                       =====      ====      ======= 
</TABLE>

The accompanying notes are an integral part of these statements. 

                                       8
<PAGE>

Dynamics Corporation of America
Consolidated Statements of Stockholders' Equity 
(dollar amounts in thousands, except per share data) 

For the Years ended December 31, 1995, 1994 and 1993 

<TABLE>
<CAPTION>
                                         Common                  Paid-in                                Total 
                                         shares        Par    additional   Retained     Deferred    stockholders' 
                                     outstanding*     value      capital   earnings  compensation       equity 
                                        ----------    -------    --------    -------    ----------   ------------ 
<S>                                    <C>             <C>       <C>        <C>           <C>          <C>
Balance at December 31, 1992           3,903,035       $390      $11,573    $81,015      ($ 262)       $ 92,716 
Shares issued and issuable from 
  treasury pursuant to benefit 
  plans and other                          3,727          1           65                    (32)             34 
Shares acquired for treasury and 
  pursuant to benefit plans              (17,011)        (2)        (183)       (70)         58            (197) 
Amortization of deferred 
  compensation and related tax 
  charge                                                              (4)                    85              81 
Net income                                                                      961                         961 
Cash dividends ($.20 per share)                                                (781)                       (781) 
                                         --------     ------      ------      -----      --------      ---------- 
Balance at December 31, 1993           3,889,751        389       11,451     81,125        (151)         92,814 
Shares issued and issuable from 
  treasury pursuant to benefit 
  plans                                   35,055          4          524                   (507)             21 
Shares acquired for treasury and 
  pursuant to benefit plans              (78,129)        (8)        (274)      (947)         43          (1,186) 
Amortization of deferred 
  compensation and related tax 
  charge                                                              (3)                   124             121 
Net income                                                                    8,732                       8,732 
Cash dividends ($.20 per share)                                                (777)                       (777) 
                                         --------     ------      ------      -----      --------      ---------- 
Balance at December 31, 1994           3,846,677        385       11,698     88,133        (491)         99,725 
Shares issued and issuable from 
  treasury pursuant to benefit 
  plans                                      461                      19                                     19 
Shares acquired for treasury and 
  pursuant to benefit plans              (17,577)        (2)        (129)      (281)                       (412) 
Amortization of deferred 
  compensation and related tax 
  benefit                                                             35                    152             187 
Net income                                                                    6,723                       6,723 
Cash dividends ($.20 per share)                                                (768)                       (768) 
                                         --------     ------      ------      -----      --------      ---------- 
Balance at December 31, 1995           3,829,561       $383      $11,623    $93,807      ($ 339)       $105,474 
                                         ========     ======      ======      =====      ========      ========== 

<FN>
*Net of shares held in treasury--3,345,600, 3,328,484 and 3,285,410 voting 
 shares at December 31, 1995, 1994 and 1993, respectively. The cumulative 
 cost of treasury shares at December 31, 1995 amounted to approximately 
 $35,300. Includes non-voting shares outstanding of 3,892 at December 31, 
 1995. 
</FN>
</TABLE>
The accompanying notes are an integral part of these statements. 

                                       9
<PAGE>

Dynamics Corporation of America
Consolidated Statements of Cash Flows 
(dollar amounts in thousands) 

<TABLE>
<CAPTION>
For the Years ended December 31,                                     1995      1994        1993 
<S>                                                               <C>       <C>        <C>
Operating activities: 
 Net income                                                       $ 6,723   $ 8,732    $   961 
 Adjustments to reconcile net income to net cash provided by 
  (used in) operating activities: 
   Depreciation and amortization                                    1,498     1,292      1,227 
   Deferred income taxes                                            3,051       498        301 
   Loss (income) before income taxes from equity investment 
     in CTS                                                        (6,569)   (4,700)        45 
   Dividends from CTS                                               1,354       930        767 
   Gain on sale of property                                          (198) 
   Issuance of Company Common Stock                                    19        21         34 
   Decrease in other liabilities                                     (212)   (1,137)      (962) 
   Decrease (increase) in other assets                               (605)        1       (347) 
   Other, net                                                         194       122         85 
   Changes in operating assets and liabilities: 
    Accounts receivable                                            (3,961)    1,073      3,404 
    Inventories                                                    (5,096)      199      3,083 
    Other current assets                                            1,352    (1,168)      (771) 
    Accounts payable, accrued expenses and sundry liabilities         798     3,937     (3,704) 
    Federal income taxes payable                                   (1,155)     (348)         1 
   Decrease (increase) in assets of division held for sale           (409)      223      1,042 
                                                                     ----      ----      ------ 
 Net cash provided by (used in) operating activities               (3,216)    9,675      5,166 
                                                                     ----      ----      ------ 
Investing activities: 
 Purchases of CTS common stock                                     (2,674)   (8,538) 
 Purchases of property, plant and equipment                        (1,512)     (859)      (929) 
 Proceeds from sale of property                                       200 
 Proceeds from note receivable                                        476        49         47 
                                                                     ----      ----      ------ 
 Net cash used in investing activities:                            (3,510)   (9,348)      (882) 
                                                                     ----      ----      ------ 
Financing activities: 
 Principal payments under capital lease obligations and 
  mortgages                                                          (164)     (496)      (432) 
 Borrowings under lines of credit                                   3,000 
 Purchases of treasury stock                                         (412)   (1,186)      (197) 
 Dividends paid                                                      (768)     (777)      (781) 
                                                                     ----      ----      ------ 
 Net cash provided by (used in) financing activities                1,656    (2,459)    (1,410) 
                                                                     ----      ----      ------ 
Increase (decrease) in cash and cash equivalents                   (5,070)   (2,132)     2,874 
Cash and cash equivalents at beginning of year                      6,837     8,969      6,095 
                                                                     ----      ----      ------ 
Cash and cash equivalents at end of year                          $ 1,767   $ 6,837    $ 8,969 
                                                                     ====      ====      ====== 
</TABLE>

The accompanying notes are an integral part of these statements. 

                                       10
<PAGE>
 
Dynamics Corporation of America 

Notes to Consolidated 
Financial Statements 

Note 1: Significant Accounting Policies 

(a) The accompanying consolidated financial statements include the accounts 
of the Company and its subsidiaries, all of which are wholly owned. The 
preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect reported amounts and disclosures. Actual results could differ 
from those reported. The investment in CTS Corporation is accounted for by 
the equity method of accounting. All material intercompany transactions and 
accounts have been eliminated in consolidation. 

(b) Revenues are reported on contracts, principally government related, based 
on the proportion of units completed to units contracted. Costs related to 
such revenues are based on estimated average costs for units contracted. 

(c) Inventories are stated at the lower of cost or market. Inventory costs 
have been determined by the last-in, first-out (LIFO) method for 
approximately 41% (1995) and 36% (1994) of inventories, excluding inventories 
subject to progress billings under contracts. Costs for other inventories 
have been determined principally by the first-in, first-out (FIFO) method. 

(d) Depreciation is computed on the straight-line and declining balance 
methods over the estimated useful lives of assets. 

(e) Realized gain or loss on the sale of marketable securities is determined 
using specific cost identification. The Company's current marketable 
securities are considered trading securities. 

(f) Research and development costs are expensed as incurred and amounted to 
$1,714,000 (1995), $1,664,000 (1994) and $1,252,000 (1993). 

(g) Advertising costs are expensed as incurred and amounted to $2,283,000 
(1995), $2,396,000 (1994) and $3,130,000 (1993). 

(h) Per share data is based upon the weighted average number of common and 
common equivalent shares outstanding during the periods. 

(i) For purposes of the Consolidated Statements of Cash Flows, the Company 
considers all investment instruments with a maturity of three months or less 
at the time of purchase to be cash equivalents. The carrying amount of cash 
and cash equivalents approximates fair value. 

(j) Certain of the Company's products are sold with warranties, under which 
the Company will repair or replace products during the designated warranty 
periods. Costs associated with warranties are determined on the basis of 
estimated future costs. 

(k) The Company's concentration of credit risk with respect to its accounts 
receivable is limited due to the large number of customers and their 
diversification across many different industries. The Company performs 
ongoing credit evaluations of its customers' financial condition and requires 
letters of credit in some instances. 

(l) In 1995, the FASB issued Statement of Financial Accounting Standards No. 
123, "Accounting for Stock- Based Compensation," which provides an accounting 
alternative to APB Opinion No. 25, "Accounting for Stock Issued to 
Employees," for stock-based compensation issued to employees effective for 
fiscal years beginning after December 15, 1995. The Statement allows for a 
fair value-based method of accounting for employee stock options and similar 
equity instruments. If the Company continues to account for stock-based 
compensation arrangements under Opinion No. 25, Statement No. 123 requires 
disclosure of the pro forma effect on net income and earnings per share of 
fair value-based accounting for those arrangements. The Company has not yet 
determined whether it will adopt the recognition provision of Statement No. 
123. 

(m) In 1995, the FASB issued Statement of Financial Accounting Standards No. 
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to be Disposed Of." The Statement, which must be adopted in 1996, 
requires companies to investigate potential impairments of long-lived assets, 
certain identifiable intangibles, and associated goodwill on an exception 
basis, when there is evidence that events or changes in circumstances have 
made recovery of an asset's carrying value unlikely. The Company does not 
believe that the adoption of Statement No. 121 will have a material effect on 
its financial position or results of operations. 

                                       11
<PAGE>
 
Notes to Consolidated Financial Statements (continued) 

Note 2: Inventories 

<TABLE>
<CAPTION>
                                    1995       1994 
                                   ----------------- 
                                     (in thousands) 

<S>                              <C>        <C>
Raw materials and supplies       $ 8,772    $ 7,579 
Work in process                    7,354      6,791 
Finished goods                     6,863      3,391 
                                    ----      ----- 
                                  22,989     17,761 
                                    ----      ----- 
Inventories subject to 
  progress billings                             666 
Progress billings                              (534) 
                                    ----      ----- 
                                                132 
                                    ----      ----- 
                                 $22,989    $17,893 
                                    ====      ===== 
</TABLE>

   The excess of current replacement cost over LIFO cost of inventories 
amounted to approximately $800,000 (1995) and $982,000 (1994). 

   The United States Government has liens on substantially all inventories 
subject to progress billings. 

Note 3: Other Current Assets 

   Other current assets as of December 31, 1994 included marketable 
securities at market of $631,000, with a cost basis of $2,115,000. 

Note 4: Division Held for Sale--Fermont Division 

On September 30, 1991, the Company determined to discontinue operations at 
its Fermont Division, a manufacturer of electrical power systems for 
government and commercial markets, and put the assets and business up for 
sale. In conjunction with the discontinuance, the Company recorded a 
provision for disposition of $5,600,000 for costs estimated to be incurred 
prior to Fermont's disposition, including $3,629,000 for operating losses 
during the phaseout period. The provision for disposition in the Consolidated 
Statement of Operations in 1991 was reduced by $1,600,000 before taxes for 
the favorable settlement of a court action involving a contract for the sale 
of 60 KW engine generator sets to the Government. Fermont's sales for the 
years ended December 31, 1995, 1994 and 1993 were $2,444,000, $11,247,000 
(including the $6,450,000 settlement referred to below) and $5,248,000, 
respectively. 

   At the time the operations were discontinued, Fermont was a party to a 
contract with the U.S. Government for the production of 3KW engine generator 
sets. The contract was subject to First Article approval of prototype 3KW 
units. A proposed change order was submitted to the Government in April 1992 
seeking equitable compensation for constructive changes by the Government and 
associated delays in the contract. In May 1994, the Company agreed to accept 
$6,450,000 from the Government in settlement of the preproduction portion of 
its proposed change order. The settlement, net of related expenses and income 
taxes, amounted to $3,334,000, or $.86 per share, and was reported as income 
from discontinued operations in 1994. The Government contracted for further 
testing of prototype units at that time. In March 1995, the Government 
terminated the 3KW contract for the convenience of the Government; the 
Company has filed a claim for compensation for its costs and losses related 
to the termination. 

   In July 1994, Fermont bid on a major new generator set contract and 
decided to pursue other contracts. Accordingly, commencing on July 1, 1994, 
the division is no longer classified as a discontinued operation but as a 
business held for sale. An estimate for the projected operating losses for 
the ensuing twelve month period, including costs to consummate the division's 
sale and adjustments for the net realizable value of the division's assets, 
was provided from the remainder of the reserve established in 1991 to 
discontinue the operation. In June 1995, the Company recorded an additional 
provision for future operating losses of $360,000. Although the amount 
recorded at December 31, 1995 represents management's best estimate of the 
outcome of these matters, it is possible that future adjustments to this 
reserve may be required. 

   In January 1995, Fermont was awarded a contract to manufacture tactical 
quiet (TQ) generator sets for the U.S. Army Aviation and Troop Command. The 
Government's initial delivery order issued with the award and subsequent 
additions call for deliveries of gensets aggregating $69,000,000. Shipments 
are expected to begin in 1996 subject to First Article prototype approval. 
The contract is a two-year requirements contract. 

   Current assets of the division held for sale consist primarily of accounts 
receivable and inventories. Accounts payable and accrued expenses and sundry 
liabilities included $862,000 and $677,000 at December 31, 1995 and 1994, 
respectively, related to the division held for sale. 

                                       12
<PAGE>
 
Note 5: Property, Plant and Equipment 
(in thousands) 

<TABLE>
<CAPTION>
                                                      1995 
                                          ------------------------------- 
                                           Fixed    Capital 
Classification                            Assets     Leases       Total 
-------------------------------------     -------    -------   --------- 
<S>                                      <C>         <C>       <C>
Land and improvements                    $   983                $   983 
Buildings and improvements                 8,972     $1,520      10,492 
Machinery, equipment, furniture and 
  fixtures                                23,974        688      24,662 
Leasehold improvements                       517                    517 
                                          ------     ------      ------- 
                                          34,446      2,208      36,654 
Less accumulated depreciation and 
  amortization                            31,243      1,808      33,051 
                                          ------     ------      ------- 
                                         $ 3,203     $  400     $ 3,603 
                                          ======     ======      ======= 
</TABLE>

<TABLE>
<CAPTION>
                                                      1994 
                                          ------------------------------- 
                                          Fixed     Capital 
Classification                           Assets      Leases      Total 
-------------------------------------     -------    -------   --------- 
<S>                                      <C>         <C>        <C>
Land and improvements                    $   983                $   983 
Buildings and improvements                 8,979     $2,270      11,249 
Machinery, equipment, furniture and 
  fixtures                                22,536        651      23,187 
Leasehold improvements                       507                    507 
                                          ------     ------      ------- 
                                          33,005      2,921      35,926 
Less accumulated depreciation and 
  amortization                            29,908      2,546      32,454 
                                          ------     ------      ------- 
                                         $ 3,097     $  375     $ 3,472 
                                          ======     ======      ======= 
</TABLE>

Note 6: Equity Investment in CTS Corporation 
The Company's holdings aggregated 2,303,100, 2,222,100 and 1,920,900 shares 
of CTS Corporation ("CTS") common stock at December 31, 1995, 1994 and 1993, 
respectively. The Company's equity ownership in CTS was 44.1%, 42.9% and 
37.3% at December 31, 1995, 1994 and 1993, respectively. 

   The market value of the Company's investment in CTS amounted to 
$86,942,000 and $61,663,000 at December 31, 1995 and 1994, respectively. The 
market value of the Company's investment in CTS on February 27, 1996 amounted 
to $86,654,000, on holdings of 2,303,100 shares. Under the Control Share 
Acquisitions Chapter of the Indiana Business Corporation Law, 1,020,000 of 
the Company's shares of CTS stock presently have no voting rights. 

   The excess of the carrying amount of the Company's investment over the 
underlying equity in the net assets of CTS, net of accumulated amortization 
of $8,334,000, amounted to $14,143,000 at December 31, 1995 and is being 
amortized over twenty-five years (commencing in 1986) using the straight-line 
method ($854,000 in 1995). At December 31, 1995, undistributed net income of 
CTS included in the Company's retained earnings, before Company-provided 
deferred income taxes of $3,083,000, amounted to $9,068,000. 

   CTS operates primarily in one business segment, electronic and 
electromechanical components and subsystems, in worldwide markets. Summarized 
financial information derived from CTS' 1995 Annual Report to Stockholders 
follows: 

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                          --------------------------------- 
                                             1995        1994          1993 
                                          --------    --------   ---------- 
                                                   (in thousands) 
<S>                                      <C>         <C>         <C>
Net sales                                $300,157    $268,707     $236,979 
                                          =======     =======      ======== 
Gross profit                             $ 74,804    $ 63,067     $ 53,052 
                                          =======     =======      ======== 
Earnings before cumulative effect of 
  changes in accounting principles       $ 17,164    $ 13,967     $  6,570 
Cumulative effect of accounting 
  change 
  --postretirement benefits                                         (5,096) 
Cumulative effect of accounting 
  change 
  --income taxes                                                       482 
                                          -------     -------      -------- 
Net earnings                             $ 17,164    $ 13,967     $  1,956 
                                          =======     =======      ======== 
Current assets                           $126,113    $110,667     $ 97,266 
                                          =======     =======      ======== 
Noncurrent assets                        $101,014    $ 96,159     $ 87,798 
                                          =======     =======      ======== 
Current liabilities                      $ 50,962    $ 44,792     $ 49,888 
                                          =======     =======      ======== 
Noncurrent liabilities                   $ 29,912    $ 30,179     $ 15,973 
                                          =======     =======      ======== 
Stockholders' equity                     $146,253    $131,855     $119,203 
                                          =======     =======      ======== 
</TABLE>

                                       13
<PAGE>
 
Notes to Consolidated 
Financial Statements (continued) 

   Certain reclassifications have been made for all years presented in CTS' 
financial statements to conform to the classifications adopted by CTS in 
1995. 

   The Company recognized its proportionate share, in accordance with the 
equity method of accounting, of CTS' net charge from its adoption of FASB 
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other 
Than Pensions," a charge of $1,896,000, or $.49 per share, and FASB Statement 
No. 109, "Accounting for Income Taxes," a credit of $180,000, or $.05 per 
share. These onetime, non-cash accounting changes were adopted by CTS in the 
first quarter of 1993 as cumulative effects to January 1, 1993. 

   CTS is required to file annual and other reports, including audited annual 
financial statements, with the Securities and Exchange Commission and such 
reports and statements are available for review at the offices of the 
Securities and Exchange Commission in Washington, D.C. The Company has relied 
on CTS' financial information to compile its financial statements. 

Note 7: Accrued Expenses and Sundry Liabilities 

<TABLE>
<CAPTION>
                                                1995         1994 
                                             --------------------- 
                                                (in thousands) 
<S>                                          <C>          <C>
Salaries, wages, commissions and 
  employee benefits                          $ 3,972      $ 2,988 
Taxes, other than Federal income taxes         1,116        1,398 
Insurance                                      1,715        1,242 
Customer contract claims, including 
  price adjustments and refunds                2,800        2,800 
Advances from customers                        1,131        1,835 
Warranties                                       941          967 
Division held for sale                           642        2,497 
Other                                          2,299        1,921 
                                              -------      -------- 
                                             $14,616      $15,648 
                                              =======      ======== 
</TABLE>

Note 8: Long-term Debt and Credit Facilities 

<TABLE>
<CAPTION>
 Long-term Debt                                1995         1994
                                              ------------------ 
                                                (in thousands) 
<S>                                           <C>           <C>
Revolving credit notes, 6.10% at 
  December 31, 1995                           $3,000 
Obligations under capital leases                 487        $527 
                                              -------      -------- 
                                               3,487         527 
Less current portion                              63         126 
                                              -------      -------- 
                                              $3,424        $401 
                                              =======      ======== 
</TABLE>

   Capital leases generally provide that the Company pay property taxes and 
operating costs. Certain capital leases contain renewal and/or purchase 
options. 

   Minimum lease payments under capital leases total $741,000, including 
$254,000 representing interest. Minimum lease payments in each year for the 
next five years are: $106,000, $86,000, $78,000, $58,000 and $45,000. 

   The Company leases real estate and equipment under operating leases. 
Certain of the leases contain renewal options and escalation clauses relating 
to taxes and maintenance. Rental expense amounted to $747,000, $585,000 and 
$676,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 

   Minimum lease payments under operating leases total $3,035,000. Minimum 
lease payments in each year for the next five years are: $657,000, $529,000, 
$456,000, $388,000 and $276,000. 

   Interest payments amounted to $85,000, $73,000 and $118,000 for the years 
ended December 31, 1995, 1994 and 1993, respectively. 

Credit Facilities 
The Company has a Revolving Credit Agreement with banks which provides a line 
of credit of up to $37,000,000 through November 30, 1998 at the lower of the 
prime rate or other rate options available at the time of borrowing. The 
Company pays a commitment fee of 1/4% based on the unused portion of the 
line. The Agreement provides that, at the option of the Company, the 
principal outstanding at November 30, 1998 may be converted to a four year 
term loan, with interest at the lower of the prime rate or other rate 
options, payable in equal semi-annual principal installments. The Agreement 
contains restrictions which, among other things, require the Company to have 
income from continuing operations before equity in the operating results of 
unconsolidated affiliates for the year and in at least one of any two 
consecutive fiscal quarters. The Agreement requires maintenance of certain 
financial ratios and contains other restrictive covenants, including a 
restriction on payment of dividends to 50% of current year's net income plus 
$3,000,000. 

   The Company also has an uncommitted line of credit with a bank amounting 
to $9,000,000. The Company does not pay any fee for the uncommitted line and 
therefore the availability of the line is at the discretion of the bank. 

   Outstanding letters of credit, principally related to imports and bid and 
performance bond obligations, amounted to $5,229,000 at December 31, 1995. 

                                       14
<PAGE>
 
Note 9: Stockholders' Equity 

1980 Restricted Stock and Cash Bonus Plan 
The Plan, prior to amendment, provided for the discretionary award or sale of 
up to 400,000 shares of common stock to key executives. The shares awarded or 
sold are subject to restrictions against transfer as well as repurchase 
rights of the Company which, in effect, provide for the lapse of restrictions 
at the rate of 20% per year beginning one year from the award or sale. In 
addition, the Plan provides for a cash bonus to the participant equal to the 
fair market value of the shares on the date restrictions lapse in the case of 
an award, or the excess of the fair market value thereof as of such date over 
the original purchase price if the shares were purchased, with a limit upon 
the total bonuses paid to any participant during the 5-year period of twice 
the fair market value of the shares on the date of award or sale. The Plan 
was amended in 1988 to make additional shares available for issuance to 
replenish the Plan for shares awarded since its inception. At December 31, 
1995, 1994 and 1993, 339,000, 339,000 and 370,500 shares, respectively, were 
available for award or sale under the Plan. 

   In addition to the shares issued and amortization of deferred compensation 
included in the Consolidated Statements of Stockholders' Equity, the Company 
accrued bonuses of $349,000 (1995), $272,000 (1994) and $58,000 (1993) and 
reacquired (at no cost) through forfeitures 3,000 (1994) and 3,800 (1993) 
previously issued restricted shares pursuant to the Plan. 

1986 Stock Plan for Outside Directors 
The Plan provides for a portion of outside directors' compensation to be 
deferred and to be paid in shares of the Company's common stock upon a 
director's retirement, disability or death. Under the Plan, common stock 
units (payable in shares of the Company's common stock on a one-for-one 
basis) are credited to the directors based on their service as outside 
directors each year. Common stock units of 437 (1995), 547 (1994) and 449 
(1993) were credited to the outside directors. In 1995, 100 shares were 
distributed under the Plan to a deceased director's estate. The total number 
of units in the Plan is 4,911 at December 31, 1995. 

Note 10: Preferred Stock Purchase Rights 
In 1986 the Company declared a distribution to shareholders of record on 
February 14, 1986 of one preferred stock purchase right for each outstanding 
share of the Company's voting and non-voting common stock. Under certain 
conditions, each right may be exercised to purchase one one-hundredth of a 
share of a newly created series of participating preferred stock at an 
exercise price of $80. The rights become exercisable ten days after a public 
announcement that a party or group has acquired or obtained the right to 
acquire 20% or more of the Company's common stock in a transaction not 
previously approved by the Board of Directors of the Company, or after 
commencement or public announcement of a tender offer for 25% or more of the 
Company's common stock. The rights, which are non-voting, may be redeemed by 
the Company at a price of $.05 per right at any time prior to their 
expiration or prior to the acquisition by a party or group of 20% of the 
Company's common stock, unless approved by the Board of Directors. The 
participating preferred stock to be purchased upon exercise of the rights 
will be nonredeemable. 

   In the event the Company is acquired in a merger or other business 
combination transaction after the rights become exercisable, provision shall 
be made so that each holder of a right shall have the right to receive, upon 
exercise thereof and payment of the then current exercise price, that number 
of shares of common stock of the surviving company which at the time of such 
transaction would have a market value of two times the exercise price of the 
right. If the Company is the surviving company, each holder would have the 
right to receive for the then current exercise price preferred stock of the 
Company with a market value of two times the exercise price. 

   In December 1995, the Board of Directors of the Company voted to extend 
the expiration date of the rights from February 14, 1996 to February 14, 
2006, at which time the rights will expire unless further extended. 

                                       15
<PAGE>
 
Notes to Consolidated 
Financial Statements (continued) 

Note 11: Other Income (Expense), Net 

<TABLE>
<CAPTION>
 Income (Expense):        1995   1994     1993 
                          ---------------------
                              (in thousands) 
<S>                      <C>     <C>     <C>
Interest: 
 Income                  $ 211   $239    $  181 
 Expense                   (92)   (73)     (118) 
                           ---      -      ---- 
                           119    166        63 
Royalties                  113    157     1,207 
Sales of property and 
  leasehold rights         236 
Dualit toaster recall     (444) 
Environmental 
  response costs          (415) 
Division held for 
  sale                    (360) 
Staff reduction           (125)            (470) 
Other, net                  65    175       143 
                           ---    ---      ---- 
                        ($ 811)  $498    $  943 
                           ===    ===      ==== 
</TABLE>

Note 12: Income Taxes 
Income tax charges (credits) from continuing operations consist of: 

<TABLE>
<CAPTION>
                           1995     1994    1993 
                           --------------------- 
                              (in thousands) 
<S>                     <C>       <C>       <C>
Current income taxes: 
 Federal                ($ 1,159) $  937    $211 
 State                       (81)    225      77 
 Foreign                      35     327 
                           -----   -----     --- 
                          (1,205)  1,489     288 
                           -----   -----     --- 
Deferred income 
  taxes: 
 Federal                     790    (273)     51 
 State                       160    (136)    125 
 Foreign                      40    (113)    153 
                           -----   -----     --- 
                             990    (522)    329 
                           -----   -----     --- 
                        ($   215) $  967    $617 
                           =====   =====     === 
</TABLE>

Gross income subject to foreign taxes amounted to $516,000, $1,328,000 and 
$1,000,000 for tax years 1995, 1994 and 1993, respectively. 

Deferred income tax charges (credits) result from the following: 

<TABLE>
<CAPTION>
                         1995     1994     1993 
                         ----------------------- 
                              (in thousands) 
<S>                     <C>     <C>       <C>
Inventory               $ 636   ($ 205)   ($572) 
Employee benefits         (35)     107      (94) 
Division held for 
  sale                    729      (13)     438 
Warranties                         123      152 
Environmental costs      (180) 
Deferred income           (98)    (274)     372 
Insurance                (141)    (292) 
Toaster recall           (110) 
Investments               241 
Prepaid commissions       (79) 
Depreciation              (49) 
Other, net                 76       32       33 
                           --      ---      ----- 
                        $ 990   ($ 522)    $329 
                           ==      ===      ===== 
</TABLE>

A reconciliation of the applicable Federal statutory rate to the Company's 
consolidated effective tax (benefit) rate from continuing operations before 
equity in CTS follows: 

<TABLE>
<CAPTION>
                             1995      1994      1993 
                             ------------------------ 
<S>                          <C>      <C>       <C>
Statutory rate               34.0%    34.0%     34.0% 
State income taxes, net 
  of Federal income tax 
  benefit                     2.5      2.1       8.0 
Foreign taxes                 3.6     11.9       9.2 
Resolution of prior 
  year tax matters          (47.6) 
Employee benefits            (1.1)    (1.0)     (3.9) 
Foreign tax credits          (3.7)   (12.3)    (12.6) 
Other, net                    2.0       .5       2.1 
                             ----      ---      ----- 
                            (10.3%)   35.2%     36.8% 
                             ====      ===      ===== 
</TABLE>

                                       16
<PAGE>
 
Significant components of the Company's deferred tax assets and liabilities 
at December 31 are as follows: 

<TABLE>
<CAPTION>
                                 1995      1994
                                --------------- 
                                 (in thousands) 
<S>                           <C>        <C>
Deferred tax assets:
 Warranty reserve             $   363    $   381 
 Bad debt allowance               191        226 
 Inventory                      1,389      2,025 
 Employee benefit plans         1,476      1,441 
 Investments                      250        491 
 Division held for sale           251        980 
 Customer contract claims         624        625 
 Depreciation                     471        422 
 Insurance                        453        312 
 Other, net                       330        202 
                                 ----      ------ 
                                5,798      7,105 
 Valuation allowance for 
   deferred tax assets           (250)      (251) 
                                 ----      ------ 
   Total deferred tax 
  assets                        5,548      6,854 
                                 ----      ------ 
Deferred tax liabilities: 
 Undistributed earnings of 
   CTS                         (3,083)    (1,019) 
 Deferred income                             (98) 
 Other, net                       (15)      (236) 
                                 ----      ------ 
   Total deferred tax 
     liabilities               (3,098)    (1,353) 
                                 ----      ------ 
Net deferred tax assets       $ 2,450    $ 5,501 
                                 ====      ====== 
</TABLE>

   The change in the valuation allowance for deferred tax assets decreased 
the provision for income taxes $1,000, $22,000 and $5,000 for the years ended 
December 31, 1995, 1994 and 1993, respectively. 

   Income tax payments, net of refunds, amounted to $470,000, $3,611,000 and 
$302,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 

Note 13: Employee Benefit Plans 

   The Company has a noncontributory defined benefit retirement plan covering 
substantially all of its employees. The benefits are based on the employee's 
years of service and career average compensation. Pension costs are generally 
funded to the extent amounts are tax deductible. Contributions are intended 
to provide not only for benefits attributed to service to date but also for 
those expected to be earned in the forthcoming year. The Company also 
contributes to a multi-employer plan which provides defined retirement 
benefits, as required by collective bargaining agreements. 

   A summary of the components of net periodic pension cost of the defined 
benefit plan and the total contributions charged to pension expense for the 
multi-employer plan follows: 

<TABLE>
<CAPTION>
                             1995      1994       1993
                             -------------------------- 
                                  (in thousands) 
<S>                       <C>       <C>        <C>
Defined benefit plan:
 Service cost-- 
   benefits earned 
   during the period      $   522   $   586    $   628 
 Interest cost on 
   projected benefit 
   obligation               1,510     1,440      1,402 
 Actual return on plan 
   assets                  (2,961)              (2,085) 
 Net amortization and 
   deferral                 1,325    (1,688)       520 
                             ----      ----      ------ 
Net pension charges 
  for: 
 Defined benefit plan         396       338        465 
 Multi-employer plan          306       323        294 
                             ----      ----      ------ 
Net periodic pension 
  cost                    $   702   $   661    $   759 
                             ====      ====      ====== 
</TABLE>

   Net periodic pension cost for the defined benefit plan includes $70,000 
(1995), $39,000 (1994) and $87,000 (1993) charged against the reserve for 
division held for sale. 

                                       17
<PAGE>
 
Notes to Consolidated
Financial Statements (continued)

Assumptions used in accounting for the 
defined benefit plan as of December 31 were: 

<TABLE>
<CAPTION>
                                1995      1994        1993
                                -------------------------- 

<S>                             <C>       <C>       <C>
Discount rate                   7.25%     8.50%     7.50% 
Rate of increase in 
  compensation levels           5.0 %     5.0 %     5.0 % 
Expected long-term rate of 
  return on assets              9.0 %     9.0 %     9.0 % 
</TABLE>

   The following table sets forth the funded status and amounts recognized in 
the consolidated balance sheets as of December 31, 1995 and 1994 for the 
Company's defined benefit pension plan: 

<TABLE>
<CAPTION>
                                        1995         1994
                                     --------------------- 
                                       (in thousands) 

<S>                                <C>          <C>
Actuarial present value of
benefit obligation:
 Accumulated benefit 
   obligation, including 
   vested benefits of $17,923 
   and $15,202                    ($ 20,053)   ($ 16,715) 
 Effect of salary projections        (1,850)      (1,313) 
                                     ------      -------- 
 Projected benefit obligation 
   for service rendered to date     (21,903)     (18,028) 
Plan assets at fair value            18,371       16,700 
                                     ------      -------- 
Projected benefit obligation in 
  excess of plan assets              (3,532)      (1,328) 
Unrecognized net loss from past 
  experience different from 
  assumed and effect of changes 
  in assumptions                      2,433          987 
Prior service cost not yet 
  recognized in net periodic 
  pension cost                          178          206 
Unrecognized net asset 
  remaining from initial 
  application of FASB Statement 
  No. 87                             (1,292)      (1,682) 
                                      ------      -------- 
Accrued pension cost                 (2,213)      (1,817) 
 Less current portion                   608 
                                      ------      -------- 
Accrued long-term pension cost    ($  1,605)   ($  1,817) 
                                      ======      ======== 
</TABLE>

   The 1995 change in the discount rate from 8.50% to 7.25% resulted in a 
$2,755,000 increase in the projected benefit obligation. 

   Plan assets are invested in cash equivalents, guaranteed investment 
contracts and equity stocks, including 100,000 shares of common stock of the 
Company having a market value of $2,450,000 and $2,037,500 at December 31, 
1995 and 1994, respectively. Dividend payments to the Plan on Company common 
stock amounted to $20,000 in both 1995 and 1994. 

   Information concerning the Company's share of related estimated plan 
benefit obligations and assets is not available for the multi-employer plan. 

   The Company has a Savings and Investment Plan for all full time employees 
not covered by collective bargaining agreements, which qualifies as a profit 
sharing plan under Section 401(k) of the Internal Revenue Code. The Company's 
contributions under the Plan are based on specified percentages of employee 
contributions and were $347,000 (1995), $325,000 (1994) and $342,000 (1993). 

Note 14: Contingencies 

   The Company is a supplier to the United States Government under contracts 
and subcontracts on which there are cost allocation, cost allowability and 
compliance issues under examination by various agencies or departments of the 
Federal government. In the course of the resolution of these issues, the 
Company may be required to adjust certain prices or refund certain payments 
on its government contracts and subcontracts. The Company believes that any 
such price adjustments or refunds will not have a materially adverse effect 
on the financial position or results of operations of the Company. 

   In October 1994, the Company, after notifying the Consumer Products Safety 
Commission, commenced a recall of approximately 2,700 electronic toasters 
manufactured in the United Kingdom by Dualit, Ltd. and distributed in the 
U.S. by the Company's Waring Products Division, because of a defect in the 
electronic timer on the units. The Company has advised the manufacturer that 
it will seek full indemnity from the manufacturer, as provided in the 
agreement between the parties, for all costs related to the defect. 

   The Company has been notified by the U.S. Environmental Protection Agency 
("EPA") that it is a Potentially Responsible Party ("PRP") regarding 
hazardous waste cleanup at a non-Company site in Connecticut and at a Company 
site in California. Certain of the PRPs at the Connecticut site have agreed 
with the EPA to fund a feasibility study at the site and have sued the 
Company and other PRPs who have not agreed to share the costs. A property 
owner neighboring the Company site in California has sued the Company and 
others for allegedly causing contamination at the neighbor's property. In 

                                       18
<PAGE>
 
February 1996, the Company settled the past costs portion of a 1995 lawsuit 
by a state environmental agency to recover past and future response costs 
related to the cleanup of a non-Company site in Pennsylvania as to which the 
Company was earlier designated a PRP; and the Company has also been sued by 
certain of the PRPs who have agreed with the state agency to fund other past 
response costs at that site to recover a portion of those costs from the 
Company and other PRPs who have not agreed to participate in such funding. 
The Company is also a defendant in two lawsuits seeking contribution for 
Superfund cleanup costs relating to two other non- Company sites in that 
state. In 1995 the Company expended or provided $695,000, including $165,000 
for the California site and $415,000 for one of the Pennsylvania sites, to 
manage hazardous substances, to monitor pollutants, to test for contaminants, 
to provide for required removal activities and to settle the lawsuit for past 
costs and to provide for future response costs at the non-Company site in 
Pennsylvania. Accruals for such matters at December 31, 1995 amounted to 
$565,000. Based upon its knowledge of the extent of the Company's exposure 
and current statutes, rules and regulations, and emerging alternative 
remedial approaches, management believes that the anticipated costs resulting 
from claims and proceedings with respect to the above mentioned sites, 
including remediation, the extent and cost of which are presently unknown, 
will not materially affect the financial position of the Company. However, it 
is possible, but unanticipated at this time, that future results of 
operations or cash flow could be materially affected by an unfavorable 
resolution of these matters. 

   With respect to other claims and actions against the Company, it is the 
opinion of Management that they will not have a material effect on the 
financial position of the Company. 

Note 15: Industry Segments 
See Financial Information About Industry Segments on pages 23 and 24 of this 
report. 

                                       19
<PAGE>
Notes to Consolidated 
Financial Statements (continued) 

Note 16: Quarterly Financial Data (Unaudited) 
(dollar amounts in thousands, except per share data) 

<TABLE>
<CAPTION>
                                             Three months ended                           Year 
                          March 31     June 30      September 30       December 31 
                          ----------    --------   ---------------   ---------------    --------- 
<S>                       <C>          <C>             <C>               <C>            <C>
1995 
Net sales                 $25,119      $27,501         $30,077           $29,023        $111,720 
                           ========      ======      =============      =============     ======= 
Gross profit              $ 6,555      $ 7,208         $ 7,526           $ 6,517        $ 27,806 
                           ========      ======      =============      =============     ======= 
Net income                $ 1,083      $ 1,585(a)      $ 2,444(b)        $ 1,611(c)     $  6,723 
                           ========      ======      =============      =============     ======= 
Net income per share      $   .28      $   .41(a)      $   .64(b)        $   .42(c)     $   1.75 
                           ========      ======      =============      =============     ======= 
1994 
Net sales                 $22,716      $23,998         $24,732           $25,007        $ 96,453 
                           ========      ======      =============      =============     ======= 
Gross profit              $ 6,027      $ 6,689         $ 6,803           $ 5,446        $ 24,965 
                           ========      ======      =============      =============     ======= 
Income from 
  continuing 
  operations              $   933      $ 1,733         $ 1,162           $ 1,570        $  5,398 
                           ========      ======      =============      =============     ======= 
Net income                $   933      $ 5,067(d)      $ 1,162           $ 1,570        $  8,732 
                           ========      ======      =============      =============     ======= 
Income per share: 
 Income from 
  continuing 
   operations             $   .24      $   .45         $   .30           $   .40        $   1.39 
                           ========      ======      =============      =============     ======= 
 Net income               $   .24      $  1.31(d)      $   .30           $   .40        $   2.25 
                           ========      ======      =============      =============     ======= 
<FN>
(a) Includes a charge of $227 ($.06 per share) for an additional provision 
    for future operating losses of the Fermont Division, a business held for 
    sale, and $124 ($.03 per share) of income from the sale of excess 
    property and leasehold rights. 

(b) Increased by $998 ($.26 per share) for resolution of prior year tax 
    matters. 

(c) Includes charges of $260 ($.07 per share) for environmental response 
    costs and $204 ($.05 per share) for Dualit toaster recall costs. 

(d) Includes $3,334 ($.86 per share) of income from a discontinued operation 
    reflecting the Company's favorable settlement of a claim of its Fermont 
    Division on a contract with the U.S. Government. 
</FN>
</TABLE>
                                       20
<PAGE>
 
Report of Ernst & Young LLP, Independent Auditors 

[Logo] Ernst & Young LLP 

1111 Summer Street 
Stamford, Connecticut 06905 

Phone: 203 326 8200 
Fax: 203 358 9644 

To the Board of Directors and Stockholders of Dynamics Corporation of America 

We have audited the accompanying consolidated balance sheets of Dynamics 
Corporation of America as of December 31, 1995 and 1994, and the related 
consolidated statements of income, stockholders' equity, and cash flows for 
each of the three years in the period ended December 31, 1995. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits. The financial statements of CTS Corporation (a corporation in 
which the Company had a 44.1% interest at December 31, 1995) have been 
audited by other auditors whose report, which included an explanatory 
paragraph for CTS Corporation's accounting changes discussed in Note 6 to 
these consolidated financial statements, has been furnished to us; insofar as 
our opinion on the consolidated financial statements relates to data included 
for CTS Corporation, it is based solely on their report. 

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits and the report 
of other auditors provide a reasonable basis for our opinion. 

In our opinion, based on our audits and the report of other auditors, the 
financial statements referred to above present fairly, in all material 
respects, the consolidated financial position of Dynamics Corporation of 
America at December 31, 1995 and 1994, and the consolidated results of its 
operations and its cash flows for each of the three years in the period ended 
December 31, 1995, in conformity with generally accepted accounting 
principles. 

As discussed in Note 6 to the consolidated financial statements, in 1993 CTS 
Corporation changed its method of accounting for income taxes and 
post-retirement health care and life insurance benefits. 

[Signature of Ernst & Young LLP] 
February 27, 1996 

                                    21
<PAGE>
 
Selected Financial Data 
(amounts in thousands, except share data) 

<TABLE>
<CAPTION>
 Year ended December 31,                    1995        1994         1993        1992         1991 
<S>                                       <C>         <C>          <C>         <C>          <C>
Net sales                                 $111,720    $ 96,453     $101,329    $110,243     $111,962 
                                            ======      ======      =======      ======      ======= 
Gross profit                              $ 27,806    $ 24,965     $ 24,803    $ 30,467     $ 27,890 
                                            ======      ======      =======      ======      ======= 
Income from continuing operations 
  before equity in CTS                    $  2,312(a) $  1,780     $  1,058(c) $  3,775(e)  $  2,580(h) 
Income (loss) from equity investment 
  in continuing operations of CTS            4,411       3,618        1,619        (442)         650 
                                            ------      ------      -------      ------      ------- 
Income from continuing operations            6,723       5,398        2,677       3,333        3,230 
Income (loss) from discontinued 
  division                                               3,334(b)                             (4,071)(i) 
Equity in loss of discontinued 
  unconsolidated affiliate                                                          (20)        (492) 
Loss on disposition of unconsolidated 
  affiliate                                                                        (248)(f) 
Equity in CTS' cumulative effect to 
  January 1, 1993 of changes in 
  accounting methods                                                 (1,716)(d) 
Cumulative effect to January 1, 1992 
  of change in accounting for income 
  taxes                                                                            (942)(g) 
                                            ------      ------      -------      ------      -------  
Net income (loss)                         $  6,723    $  8,732     $    961    $  2,123    ($  1,333) 
                                            ======      ======      =======      ======      =======  
Average common shares outstanding        3,839,488   3,877,106    3,902,164   3,915,224    3,914,312 
                                            ======      ======      =======      ======      ======= 
Amounts per common share: 
 Income from continuing operations        $   1.75    $   1.39     $    .68    $    .85     $    .83 
                                            ======      ======      =======      ======      =======  
 Net income (loss)                        $   1.75    $   2.25     $    .24    $    .54    ($    .34) 
                                            ======      ======      =======      ======      ======= 
 Cash dividends                           $    .20    $    .20     $    .20    $    .20     $    .20 
                                            ======      ======      =======      ======      ======= 
 Stockholders' equity(j)                  $  27.54    $  25.92     $  23.86    $  23.75     $  23.33 
                                            ======      ======      =======      ======      ======= 
Total assets                              $134,301    $124,177     $115,364    $120,288     $122,020 
                                            ======      ======      =======      ======      ======= 
Long-term debt                            $  3,424    $    401     $    623    $  1,023     $  1,313 
                                            ======      ======      =======      ======      ======= 
<FN>
(a) Increased by $998 ($.26 per share) for resolution of prior year tax 
    matters and $124 ($.03 per share) from the sale of property and leasehold 
    rights, and reduced by charges of $278 ($.07 per share) for toaster 
    recall costs, $260 ($.07 per share) for environmental response costs and 
    $227 ($.06 per share) for an additional provision for future operating 
    losses of the Fermont Division, a business held for sale. 

(b) Income from a discontinued operation of $3,334 ($.86 per share), 
    reflecting the Company's favorable settlement of a claim of its Fermont 
    Division on a contract with the U.S. Government. 

(c) Increased by $608 ($.16 per share) from initial royalty income under a 
    technology transfer agreement. Includes a charge of $286 ($.07 per share) 
    for staff reduction costs. 

(d) The Company recognized its proportionate share under equity accounting of 
    CTS' adoption of FASB Statement No. 106, "Employers' Accounting for 
    Postretirement Benefits Other Than Pensions," a charge of $1,896 ($.49 
    per share), and FASB Statement No. 109, "Accounting for Income Taxes," a 
    credit of $180 ($.05 per share). These onetime, non-cash accounting 
    changes were adopted by CTS as cumulative effects to January 1, 1993. 

(e) Increased by $780 ($.20 per share) for resolution of prior years tax 
    matters and $349 ($.09 per share) from the sale of property. 

(f) Loss on disposition of the Company's equity investment in Farmhand Inc. 
    ($.06 per share). 

(g) Cumulative effect to January 1, 1992 of a change in the Company's method 
    of accounting for income taxes from the deferred method to the liability 
    method required by FASB Statement No. 109, "Accounting for Income Taxes" 
    ($.24 per share). 

(h) Includes income from a resolution of prior years tax matters of $1,015 
    ($.26 per share) and from a nonrefundable escrow deposit of $155 ($.04 
    per share) from the decision by Halton OY of Finland not to proceed with 
    the purchase of the Company's Anemostat Division. 

(i) Includes a charge of $2,678 ($.68 per share) for estimated operating 
    losses and costs during the phase out period of the Company's Fermont 
    Division. 

(j) Based upon shares outstanding at end of period. 

The above Selected Financial Data should be read in conjunction with the 
Consolidated Financial Statements of the Company, including the Notes to 
Consolidated Financial Statements, appearing elsewhere in this Annual Report. 
</FN>
</TABLE>
                                       22
<PAGE>
 
SEGMENTS OF BUSINESS 

During 1995, the Company's continuing operations were in a number of 
manufacturing businesses conducted by four divisions and a subsidiary, each 
of which operates as a separate unit and each of which maintains its own 
sales, administration, accounting, marketing, engineering and manufacturing 
operations. Corporate headquarters determines policy and provides such 
services as legal counsel, accounting, financing, cash management, auditing, 
insurance, public relations and long-range planning guidance. 

The Company sells its products predominately in the United States and export 
sales are concentrated primarily in the Pacific Rim and Europe. The methods 
of distribution and marketing utilized by the Company vary by operation. In 
general, sales for all the Company's segments combine some direct selling in 
certain market areas with appropriate manufacturers' representatives, 
wholesalers, distributors and/or dealers. 

The operations are classified into three industry segments: electrical 
appliances and electronic devices, fabricated metal products and equipment, 
and power and controlled environmental systems. 

Segments are grouped according to similarities in profitability, risk, growth 
potential, material and labor composition of products and/or capital 
requirements. 

These segments accounted for the following net sales, operating results and 
other financial data for each of the three years in the period ended December 
31, 1995: 

Financial Information About Industry Segments 

<TABLE>
<CAPTION>
 Year ended December 31,                           1995       1994         1993
                                               ------------------------------- 
                                                        (in thousands) 
<S>                                            <C>        <C>         <C>
Net Sales:
 Electrical Appliances and Electronic 
  Devices                                      $ 62,711   $ 56,255    $ 53,813 
 Fabricated Metal Products and Equipment         23,646     23,269      22,347 
 Power and Controlled Environmental Systems      25,363     16,929      25,169 
                                                  -----      -----      ------- 
                                               $111,720   $ 96,453    $101,329 
                                                  =====      =====      ======= 
Operating Profit (Loss): 
 Electrical Appliances and Electronic 
  Devices                                      $  2,880   $  3,067    $  1,438 
 Fabricated Metal Products and Equipment           (354)       450         498 
 Power and Controlled Environmental Systems       1,889      1,101       2,399 
                                                  -----      -----      ------- 
                                                  4,415      4,618       4,335 
 Corporate Expenses                              (2,315)    (2,008)     (2,719) 
 Interest Income, net                               112        159          52 
 Other Income (Expense), net                       (115)       (22)          7 
                                                  -----      -----      ------- 
                                               $  2,097   $  2,747    $  1,675 
                                                  =====      =====      ======= 
Depreciation and Amortization: 
 Electrical Appliances and Electronic 
  Devices                                      $    995   $    944    $    795 
 Fabricated Metal Products and Equipment            201        189         255 
 Power and Controlled Environmental Systems         275        135         157 
 Corporate                                           27         24          20 
                                                  -----      -----      ------- 
                                               $  1,498   $  1,292    $  1,227 
                                                  =====      =====      ======= 
Capital Expenditures: 
 Electrical Appliances and Electronic 
  Devices                                      $  1,175   $    768    $    748 
 Fabricated Metal Products and Equipment            272         69         149 
 Power and Controlled Environmental Systems         156                     31 
 Corporate                                           33         22          22 
                                                  -----      -----      ------- 
                                               $  1,636   $    859    $    950 
                                                  =====      =====      ======= 
Identifiable Assets: 
 Electrical Appliances and Electronic 
  Devices                                      $ 28,019   $ 21,920    $ 23,317 
 Fabricated Metal Products and Equipment          8,277      8,224       8,154 
 Power and Controlled Environmental Systems      13,771     11,172      10,837 
 Corporate                                       82,475     81,499      71,440 
                                                  -----      -----      ------- 
                                                132,542    122,815     113,748 
 Division Held For Sale                           1,759      1,362       1,616 
                                                  -----      -----      ------- 
                                               $134,301   $124,177    $115,364 
                                                  =====      =====      ======= 
</TABLE>

                                       23
<PAGE>
 
Financial Information About Industry Segments (continued) 

<TABLE>
<CAPTION>
 Year ended December 31,                                             1995         1994          1993 
------------------------------------------------------------------------------------------------------- 
                                                                         (dollar amounts in thousands) 
<S>                                                                 <C>          <C>           <C>
U.S. Government Sales, direct and indirect (occurring 
  predominantly in the Power and Controlled Environmental 
  Systems segment)                                                  $ 5,606      $ 7,340       $18,151 
                                                                     =======      =======      ========= 
Export Sales (primarily Pacific Rim and Europe)                     $23,864      $14,025       $ 8,787 
                                                                     =======      =======      ========= 
Sales to single customers representing 10% or more of Company 
  net sales: 
 Power and Controlled Environmental Systems                         $11,333                    $12,701 
                                                                     =======                   ========= 
Classes of products representing 10% or more of Company net 
  sales: 
 Electrical Appliances and Electronic Devices: 
  Consumer and Commercial Portable Electrical Appliances               25.5%        33.4%        37.0% 
  Thermal Management Components                                        20.5%        16.5% 
  Quartz Crystal Products                                              10.1% 
 Fabricated Metal Products and Equipment: 
  Air Distribution Equipment and Controls                              21.2%        24.1%        22.1% 
 Power and Controlled Environmental Systems: 
  Power Plant Equipment                                                11.2% 
</TABLE>

Notes: 

See page inside back cover for the classification of the Company's present 
manufacturing Divisions and Subsidiary for segment purposes and a brief 
description of each. 

Total revenue by industry segments includes sales to all unaffiliated 
customers including the U.S. Government. 

Operating profit is total revenues less operating expenses. Identifiable 
assets by industry segments are those assets that are used in the Company's 
operations in each industry. Corporate assets are principally cash, 
receivables and marketable securities, including the Company's equity 
investment in CTS Corporation, substantially all of which is held by its 
wholly owned subsidiary, LTB Investment Corporation. 

It should be noted that the reported information follows the pronouncements 
of the Financial Accounting Standards Board and does not follow the Company's 
internal allocation procedures relating to interest, other income and certain 
administrative costs such as management, legal and financial. Accordingly, 
the information may not be indicative of the financial results of, or 
investments in, the reported segments were they independent organizations, or 
useful for comparison with operations of other companies. 

Range of Stock Prices and Dividend Information 

The Company's Common Stock (Voting) is traded on the New York Stock Exchange 
(ticker symbol: DYA). There is no market for the Non-Voting Common Shares of 
the Company. 

The prices of the Company's Common Stock and dividends paid per share during 
1995 and 1994 are as follows: 

<TABLE>
<CAPTION>
                        New York Stock Exchange         Dividends Paid 
                   ---------------------------------   --------------- 
                        1995              1994          1995     1994 
                  ---------------    ---------------   --------------- 
<S>               <C>       <C>      <C>      <C>        <C>       <C>
                    HIGH      LOW     HIGH      LOW 
                    ----     ----      ----     ---- 
1st Quarter       26-3/4    19-1/2       16   13-1/4     $.10      $.10 
2nd Quarter       24-3/4    22-1/4   15-5/8       13 
3nd Quarter       24-5/8    22-1/2   20-1/4       14     $.10      $.10 
4th Quarter       25-7/8    21-5/8       21   17-7/8 
</TABLE>

As of February 27, 1996 there were 3,766 shareholders of record. 

The Board of Directors of the Company established a semi-annual dividend 
policy in January 1978 and expects to continue this policy. At its January 
1984 meeting, the Board of Directors established the regular semi-annual 
dividend rate of ten cents ($.10) per share. The first payment for 1996 was 
made on March 1 to shareholders of record as of the close of business on 
February 15, 1996. 

The number of employees of the Company as of December 31, 1995 was 1,194. 

                                       24
<PAGE>
 
DCA's Manufacturing Divisions and Subsidiary 

The following is the classification of the Company's present operations 
for industry segment purposes and a brief description of each: 

Electrical Appliances 
and Electronic Devices 

INTERNATIONAL ELECTRONIC 
RESEARCH CORPORATION 
135 West Magnolia Blvd. 
Burbank, California 
91502-7704 
Tel. 818-842-7277 

Designs and manufactures heat dissipators/sinks and the Zero Insertion Force 
(ZIF(tm)) printed circuit board retainer, ZIF II using tool free concept, 
thermally efficient coldwalls and enclosures using the integrated ZIF(tm) or 
the machined ZIF(tm) technology approach for high performance electronic 
systems, and other components related to thermal management of electronic 
systems for the military/aerospace, computer and commercial marketplace 
worldwide. 

REEVES-HOFFMAN DIVISION 
400 West North Street 
Carlisle, Pennsylvania 
17013-2248 
Tel. 717-243-5929 

Designs and manufactures quartz crystals, crystal oscillators, crystal 
filters and glass-to-metal hermetic seal packages for sales to customers 
worldwide. Primary applications include telecommunications, hybrid 
microcircuits, navigation, position location, medical electronics, test 
equipment, microwave and satellite communications and guidance systems. 

WARING PRODUCTS DIVISION 
283 Main Street 
New Hartford, Connecticut 
06057-0319 
Tel. 860-379-0731 

Manufactures commercial and consumer portable electrical appliances such as 
the original Blendor(R), NuBlend(R) and Touchblend(tm) blenders, mixers, can 
openers, food processors, juicers, juice extractors, cookers, coffee 
preparation products, ice cream makers and steamers sold under the Waring(R), 
Acme Juicerator(R) and Qualheim(tm) brand names for both the domestic and 
export markets. 

Power and Controlled Environmental Systems 

ELLIS AND WATTS DIVISION 
4400 Glen Willow Lake Lane 
Batavia, Ohio 
45103-2356 
Tel. 513-752-9000 

Manufactures special air conditioning equipment, liquid cooling systems, 
fluid transfer units, air handling equipment, special fans, dehydrators, 
humidifiers, mobile vans and transportable suites (Environ(R)) for 
specialized electronic and medical diagnostic equipment, including "CT" 
Scanners, Lithotriptors and Magnetic Resonance Imaging (MRI) systems, for 
government, industry, medical and power plant use. 

Fabricated Metal 
Products and Equipment 

ANEMOSTAT PRODUCTS 
DIVISION 
888 North Keyser Avenue 
Scranton, Pennsylvania 
18504-9723 
Tel. 717-346-6586 

Designs, manufactures and markets a broad line of air distribution products 
and systems with both pneumatic and electronic controls to meet the need for 
total environmental control in laboratories, industrial buildings, commercial 
buildings, and air distribution in aircraft, marine and rail equipment. Brand 
names include Anemostat(R), Anemotherm(R), Multi-Vent(R), Anemotrak(R) and 
Envirotrak(R). Anemostat also manufactures a line of UL(R) approved vision 
frames and louvers for fire rated doors. 

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Dynamics Corporation of America 

Directors

HAROLD COHAN +* 
 Business Consultant 

PATRICK J. DORME 
 Vice President-Finance and 
 Chief Financial Officer of the Corporation 

FRANK A. GUNTHER +* 
 President, Highpoint Enterprises Incorporated 

HENRY V. KENSING 
 Vice President, General Counsel and Secretary 
 of the Corporation 

RUSSELL H. KNISEL +* 
 Business Consultant 

ANDREW LOZYNIAK 
 Chairman of the Board and President 
 of the Corporation 

SAUL SPERBER +* 
 Financial Advisor 

Officers 
ANDREW LOZYNIAK 
 Chairman of the Board and President 

HENRY V. KENSING 
 Vice President, General Counsel and Secretary 

PATRICK J. DORME 
 Vice President-Finance and 
 Chief Financial Officer 

RICHARD E. SMITH 
 Treasurer 

M. GREGORY BOHNSACK 
 Controller 

+Member of Audit Committee 
*Member of Compensation Committee 

Shareholders' Meeting: 
The annual meeting of shareholders will be held on May 3, 1996 at 10:30 A.M. 
in the Cole Auditorium of the Greenwich Library, West Putnam Avenue at 
Dearfield Drive, Greenwich, Connecticut. 

Stock Listing: 
New York Stock Exchange Ticker Symbol: DYA NYSE-Composite Transactions 
Symbol: DynaAmer 

Additional Information: 
A copy of the Company's annual report on Form 10-K filed with the Securities 
and Exchange Commission will be furnished, without charge, on the written 
request of a shareholder. Requests should be forwarded to the Company, 
attention of the Secretary, 475 Steamboat Road, Greenwich, Connecticut 
06830-7197 

Executive Offices: 
475 Steamboat Road 
Greenwich, Connecticut 
06830-7197 
Tel. 203-869-3211 

Transfer Agent and Registrar: 
THE FIRST NATIONAL BANK OF BOSTON 
c/o Boston EquiServe 
P.O. Box 644 
Mail Stop 45-02-09 
Boston, Massachusetts 02102-0644 
Tel. 617-575-3400 

Independent Auditors: 
ERNST & YOUNG LLP 
1111 Summer Street 
Stamford, Connecticut 
06905-5571 
Tel. 203-326-8200