<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
COMMISSION FILE NUMBER 0-2115
KEYSTONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1058689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 WEST GULF BANK DRIVE, HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 466-1176
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of October 26, 1994 the number of shares of common stock outstanding
was 35,295,360 excluding 541,427 treasury shares.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 135,896 $ 126,356 $ 390,663 $ 385,140
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 80,526 72,731 228,739 220,815
Selling, general
and administrative 40,254 36,798 116,436 110,269
Plant closure and related
costs 53 - 4,053 -
Interest expense 1,384 1,528 4,037 4,495
Interest income (172) (378) (1,204) (1,322)
Translation loss 259 348 991 1,416
Other, net 1,624 68 (879) 1,672
----------- ----------- ----------- -----------
Income before Income Taxes
and Change in Accounting
Principle 11,968 15,261 38,490 47,795
Provision for Income Taxes 4,548 5,799 14,626 18,162
----------- ----------- ----------- -----------
Income before Change in
Accounting Principle 7,420 9,462 23,864 29,633
Cumulative Effect of Change
in Accounting Principle - - - 1,879
----------- ----------- ----------- -----------
Net Income $ 7,420 $ 9,462 $ 23,864 $ 31,512
=========== =========== =========== ===========
Weighted Average Outstanding
and Equivalent Shares 35,274 35,139 35,233 35,059
=========== =========== =========== ===========
Earnings Per Share:
Continuing Operations $ .21 $ .27 $ .68 $ .85
Cumulative Effect of Change
in Accounting Principle - - - .05
----------- ----------- ----------- -----------
Total $ .21 $ .27 $ .68 $ .90
=========== =========== =========== ===========
Cash Dividends Per Share $ .185 $ .18 $ .555 $ .54
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,235 $ 19,873
Receivables 126,474 119,750
Inventories 158,322 134,608
Prepayments and other 5,913 5,513
----------- -----------
305,944 279,744
----------- -----------
Property, Plant and Equipment,
at Cost 298,397 274,890
Less - Accumulated Depreciation 151,659 140,037
----------- -----------
146,738 134,853
----------- -----------
Other Assets 35,277 41,903
----------- -----------
$ 487,959 $ 456,500
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term
bank borrowings $ 14,373 $ 9,160
Accounts payable and accrued
liabilities 100,019 89,719
Income taxes payable 4,492 9,038
----------- -----------
118,884 107,917
----------- -----------
Long-Term Debt 64,280 62,300
----------- -----------
Deferred Income Taxes 3,395 -
Other Long-Term Liabilities 16,531 15,651
----------- -----------
19,926 15,651
----------- -----------
Shareholders' Investment:
Common stock, $1.00 par value
50 million shares authorized 35,840 35,777
Additional paid-in capital 111,353 110,231
Retained earnings 143,444 138,550
Treasury stock, at cost (8,750) (9,535)
Unamortized restricted stock
grant expense (4,115) (4,209)
Foreign currency translation
adjustments 7,097 (182)
----------- -----------
284,869 270,632
----------- -----------
$ 487,959 $ 456,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
SEPTEMBER 30,
-------------
1994 1993
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 23,864 $ 31,512
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,811 13,676
Amortization 4,617 4,924
Increase in deferred taxes 892 1,854
Gain on sale of property, plant and
equipment, net (5,612) (225)
Cumulative effect of change in
accounting principle - (1,879)
Increase in receivables (485) (10,478)
Decrease (increase) in prepayments and
other assets 1,284 (6,026)
Decrease (increase) in inventories (17,595) 680
Increase (decrease) in accounts payable
and other liabilities 6,660 (2,561)
Increase (decrease) in income taxes payable (5,289) 421
---------- -----------
Net Cash Provided by Operating Activities 23,147 31,898
---------- -----------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (26,089) (23,370)
Proceeds from sale of property, plant
and equipment 10,518 2,178
Proceeds from long-term investments - 196
---------- -----------
Net Cash Used by Investing Activities (15,571) (20,996)
---------- -----------
Cash Flows From Financing Activities:
Increase (decrease) in short-term borrowings 4,822 (633)
Payments of long-term debt (3,889) (1,818)
Proceeds from long-term borrowings 3,926 1,544
Cash dividends paid (19,361) (18,568)
Proceeds from stock plans and other 1,673 3,191
---------- -----------
Net Cash Used by Financing Activities (12,829) (16,284)
---------- -----------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 615 9
---------- -----------
Decrease in Cash and Cash Equivalents (4,638) (5,373)
--------- -----------
Cash and Cash Equivalents at Beginning
of Period 19,873 29,390
---------- -----------
Cash and Cash Equivalents at End of Period $ 15,235 $ 24,017
========== ===========
Supplemental Disclosures:
Cash payments for income taxes $ 19,179 $ 16,374
Cash payments for interest 2,964 3,309
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, 1994 AND 1993
(1) BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, including significant accounting policies normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. All adjustments which are, in the
opinion of management, necessary to present a fair statement of the results of
the interim periods have been included. It is suggested these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest Form 10-K.
(2) ESTIMATES INVOLVED IN PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS
The Company's interim financial statements are prepared in accordance
with the same accounting policies followed at year-end. Certain items in the
financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year. Several of the significant accounting estimates related to the
accompanying interim financial statements are set forth below.
Inventories -
The Company performs physical counts of its inventories at various times
during the year. The amounts reflected as raw materials and parts,
work-in-process, and components, sub-assemblies and finished goods as of
September 30, 1994 and 1993, and thereby the related amounts for cost of sales,
have been determined using the Company's normal accounting procedures. Past
experience of the Company would indicate that no significant adjustment would be
required should an actual count of the inventories have been made.
The majority of the Company's domestic inventories (approximately 40% of
consolidated inventories at December 31, 1993) are priced at cost using the LIFO
(last-in, first-out) method. Since amounts for inventories under the LIFO
method are based upon computations determined at year-end, the inventory at
September 30, 1994 has been based on certain estimates of quantities and costs
at December 31, 1994.
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Inventories at September 30, 1994 and December 31, 1993 are comprised of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Raw materials and parts $ 16,829 $ 11,450
Work-in-process 25,717 17,120
Components, sub-assemblies
and finished goods 119,146 109,763
Less: LIFO Adjustment (3,370) (3,725)
----------- ------------
$ 158,322 $ 134,608
=========== ============
</TABLE>
Income Taxes -
The Company provides for income taxes for an interim period by making,
at the end of the interim period, an estimate of the effective tax rate expected
to be applicable for the full year, and applying that rate to the current
year-to-date income before taxes.
(3) FOREIGN CURRENCY TRANSLATION
An analysis of changes in the foreign currency translation adjustments
included in Shareholders' Investment is as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1993 $ (182)
Currency translation adjustments 11,198
Income tax adjustments (3,919)
---------
Balance as of September 30, 1994 $ 7,097
=========
</TABLE>
(4) PLANT CLOSURE AND RELATED COSTS
Plant closure costs of $4,053 were recognized through the third quarter
of 1994 in connection with the closure of a manufacturing facility in Indiana.
The charges include $2,710 of termination pay and disposition of the Company's
pension obligations related to the facility. The remainder of the accrual
reflects the book value of fixed assets at the facility that will not be
recovered, as well as estimates of the costs associated with moving the
facility's manufacturing operations to other locations. The Company will
terminate approximately 155 employees from the plant, of which 58% are hourly
workers involved in manufacturing processes and 42% are involved in engineering
and administrative functions. Approximately 130 of these positions will be
moved to other locations. The Company anticipates that it will recognize
further charges of approximately $4,000 associated with this decision over the
next year as related incremental costs are incurred, primarily at the facilities
to which operations are being transferred.
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(5) EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. There is no
significant difference between earnings per share on a primary and a fully
diluted basis.
(6) CHANGE IN ACCOUNTING PRINCIPLE
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The impact
of the adoption of SFAS No. 109 was to increase earnings by $1,879, or $.05 per
share, and is fully disclosed in Note 5 to the Consolidated Financial Statements
in the Company's First Quarter 1993 Form 10-Q.
(7) SALE OF FACILITY
A gain of $4,652 related to the sale of the Company's former facility in
South Korea was recognized in "Other, net" in the second quarter of 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the accompanying consolidated statements of
income bear to total net sales of the Company and (ii) the percentage increase
or decrease of amounts of such items as compared to the corresponding prior year
period.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------- ----------------------------------
PERCENTAGE PERCENTAGE
OF NET SALES % OF NET SALES %
----------------- INC. ------------------ INC.
1994 1993 (DEC.) 1994 1993 (DEC.)
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 100.0 7.6 100.0 100.0 1.4
Cost and Expenses:
Cost of sales 59.3 57.6 10.7 58.6 57.4 3.6
Selling, general and
administrative 29.6 29.1 9.4 29.8 28.6 5.6
Plant closure and
related costs - - * 1.0 - *
Interest expense 1.0 1.2 (9.4) 1.0 1.2 (10 .2)
Interest income (.1) (.3) (54.5) (.3) (.3) (8.9)
Translation loss .2 .2 (25.6) .3 .3 (30 .0)
Other, net 1.2 .1 * (.3) .4 *
Income before Income
Taxes and Change in
Accounting Principle 8.8 12.1 (21.6) 9.9 12.4 (19 .5)
Provision for
Income Taxes 3.3 4.6 (21.6) 3.8 4.7 (19 .5)
Income Before Change in
Accounting Principle 5.5 7.5 (21.6) 6.1 7.7 (19 .5)
Cumulative Effect of
Change in Accounting
Principle - - * - .5 *
Net Income 5.5 7.5 (21.6) 6.1 8.2 (24 .3)
</TABLE>
* not meaningful
8
<PAGE> 9
RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three and nine month periods ended September 30, 1994
increased 7.6% and 1.4%, respectively, over the same periods of the prior year.
Shown below is an analysis of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1994
------------------ ------------------
INC.(DEC.) IN NET SALES INC.(DEC.) IN NET SALES
----------------------- -----------------------
$ % $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Domestic:
Internal Growth
(Decrease) $ 1,231 2.3 $ (8,054) (4.7)
----------- ---------
International:
Internal Growth 3,942 5.5 2,498 1.2
Exchange Rate
Effect 3,611 * 2,220 *
----------- ---------
Total International 7,553 10.5 4,718 2.2
----------- ---------
Acquisitions 756 * 8,859 *
----------- ---------
Total Net Sales
Increase $ 9,540 7.6 $ 5,523 1.4
=========== =========
</TABLE>
* not meaningful
For the three months ended September 30, 1994, cost of sales as a
percentage of net sales increased to 59.3% from 57.6% a year ago. For the nine
months ended September 30, 1994, cost of sales as a percentage of net sales
increased to 58.6% from 57.4% in 1993. These increases were primarily due to
increased competition in the industrial valves product line, and a decrease in
sales of certain higher margin product lines.
Selling, general and administrative expenses for the three and nine
month periods ended September 30, 1994 increased 9.4% and 5.6% respectively,
compared to the same periods in 1993. Excluding translation effects, selling,
general and administrative expenses for three and nine month periods ended
September 30, 1994, increased 6.7% and 5.6% respectively. These increases are
primarily attributable to increased sales and administrative personnel in the
Asia-Pacific region and an increase in information systems expenses incurred in
connection with various systems implementations.
The three and nine month periods ended September 30, 1994 include
non-recurring charges of $53 and $4,053, respectively, for closure of a
manufacturing facility in Indiana. This facility's production of the Company's
Lonergan line of spring-operated safety relief valves will be transferred to
other locations where similar manufacturing processes exist. The relocation of
these operations to other facilities is primarily directed toward reducing
manufacturing and administrative costs of these products as well as toward
improving our ability to respond to customer needs as
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<PAGE> 10
related to this product line. Implementing these steps is believed to be the
most effective response to a market where price competition is becoming an
increasingly important factor.
The plant closure costs include $2,710 of termination pay and
disposition of the Company's pension obligations related to the facility. The
remainder of the accrual reflects the book value of fixed assets at the facility
that will not be recovered, as well as estimates of the costs associated with
moving the facility's manufacturing operations to other locations. The Company
will terminate approximately 155 employees from the plant, of which 58% are
hourly workers involved in manufacturing processes and 42% are involved in
engineering and administrative functions. Approximately 130 of these positions
will be moved to other locations. The Company anticipates that it will
recognize further charges of approximately $4,000 associated with this decision
over the next year as related incremental costs are incurred, primarily at the
facilities to which operations are being transferred.
Interest expense for the three and nine month periods ended September
30, 1994 decreased compared to the corresponding prior year periods primarily
due to lower interest rates.
Interest income for the three and nine month periods ended September 30,
1994 decreased compared to the same periods in 1993 primarily due to a decrease
in average funds available for investment.
Other, net primarily represents amortization of intangible assets and
debt costs as well as exchange gains and losses related to currency
fluctuations. The nine month period ended September 30, 1994 also included a
gain of $4,652 related to the sale of the Company's former facility in South
Korea and a gain of $698 related to the disposition of an inoperative facility
in Germany.
The Company's effective income tax rate of 38% for the three and nine
month periods ended September 30, 1994, was unchanged from the corresponding
periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At September 30, 1994, the Company had working capital of $187,060
compared to $171,827 at December 31, 1993. Management is not aware of any
potential material impairments to the Company's liquidity and believes its
internal and external sources of cash will provide the necessary funds with
which to meet its expected obligations and to fund growth.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Keystone Sales, Inc., a wholly owned subsidiary of the registrant, has
been sued in a counterclaim filed by Industrial Concepts Inc., a former
distributor, on October 12, 1994 in the U.S. District Court for the Southern
District of Texas. Industrial Concepts, Inc. was a distributor of the
registrant's Vanessa product line in certain counties in the south central
United States. The counterclaim seeks compensatory damages from Keystone
Sales, Inc. in the amount of $42 million and punitive damages of ten times that
amount, arising out of the termination of Industrial Concepts, Inc.'s
distributor agreement in January 1994 and the purchase of certain assets of a
business primarily owned by the owner of Industrial Concepts, Inc. Keystone
Sales, Inc. filed a declaratory judgment action on August 30, 1994 in the same
court requesting the court to declare that Industrial Concepts, Inc. had been
properly terminated in accordance with the contractual provisions between the
parties.
Keystone's sales of the Vanessa product line in all of the United States
were approximately $12 million in 1993. Management considers the claims
asserted as wholly without merit, and that in the unlikely event of an
unexpected, unfavorable outcome, the prospects of a material impact upon
Keystone's financial position are considered extremely remote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
---------------- -----------------------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
11
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
KEYSTONE INTERNATIONAL, INC.
DATE: November 10, 1994 By: /s/ Mark E. Baldwin
______________________________________
Mark E. Baldwin
Vice President and Chief
Financial Officer
By: /s/ J. Gordon Beittenmiller
_______________________________________
J. Gordon Beittenmiller
Corporate Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 15,235
<SECURITIES> 0
<RECEIVABLES> 132,181
<ALLOWANCES> 5,707
<INVENTORY> 158,322
<CURRENT-ASSETS> 305,944
<PP&E> 298,397
<DEPRECIATION> 151,659
<TOTAL-ASSETS> 487,959
<CURRENT-LIABILITIES> 118,884
<BONDS> 64,280
<COMMON> 35,840
0
0
<OTHER-SE> 249,029
<TOTAL-LIABILITY-AND-EQUITY> 487,959
<SALES> 390,663
<TOTAL-REVENUES> 390,663
<CGS> 228,739
<TOTAL-COSTS> 345,175
<OTHER-EXPENSES> 2,961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,037
<INCOME-PRETAX> 38,490
<INCOME-TAX> 14,626
<INCOME-CONTINUING> 23,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,864
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
