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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 August 3, 1994 the number of shares of common stock outstanding
was 35,237,052 excluding 584,142 treasury shares.
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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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $133,105 $130,804 $254,767 $258,784
-------- -------- -------- --------
Cost and Expenses:
Cost of sales 77,096 74,115 148,213 148,084
Selling, general
and administrative 39,201 37,605 76,182 73,471
Plant closure and related
costs 4,000 - 4,000 -
Interest expense 1,409 1,525 2,653 2,967
Interest income (753) (378) (1,032) (944)
Translation loss 406 628 732 1,068
Other, net (3,112) 454 (2,503) 1,604
-------- -------- -------- --------
Income before Income Taxes
and Change in Accounting
Principle 14,858 16,855 26,522 32,534
Provision for Income Taxes 5,646 6,405 10,078 12,363
-------- -------- -------- --------
Income before Change in
Accounting Principle 9,212 10,450 16,444 20,171
Cumulative Effect of Change
in Accounting Principle - - - 1,879
-------- -------- -------- --------
Net Income $ 9,212 $ 10,450 $ 16,444 $ 22,050
======== ======== ======== ========
Weighted Average Outstanding
and Equivalent Shares 35,243 35,042 35,213 35,018
======== ======== ======== ========
Earnings Per Share:
Continuing Operations $ .26 $ .30 $ .47 $ .58
Cumulative Effect of Change
in Accounting Principle - - - .05
-------- -------- -------- --------
Total $ .26 $ .30 $ .47 $ .63
======== ======== ======== ========
Cash Dividends Per Share $ .185 $ .18 $ .37 $ .36
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,638 $ 19,873
Receivables 128,012 119,750
Inventories 151,413 134,608
Prepayments and other 6,006 5,513
-------- --------
301,069 279,744
-------- --------
Property, Plant and Equipment,
at cost 292,779 274,890
Less - Accumulated Depreciation 149,209 140,037
-------- --------
143,570 134,853
-------- --------
Other Assets 37,319 41,903
-------- --------
$481,958 $456,500
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term
bank borrowings $ 13,981 $ 9,160
Accounts payable and accrued
liabilities 96,924 89,719
Income taxes payable 7,226 9,038
-------- --------
118,131 107,917
-------- --------
Long-Term Debt 64,911 62,300
-------- --------
Other Long-Term Liabilities 17,292 15,651
-------- --------
Shareholders' Investment:
Common stock, $1.00 par value
50 million shares authorized 35,814 35,777
Additional paid-in capital 110,892 110,231
Retained earnings 142,537 138,550
Treasury stock, at cost (8,773) (9,535)
Unamortized restricted stock
grant expense (4,440) (4,209)
Foreign currency translation
adjustments 5,594 (182)
-------- --------
281,624 270,632
-------- --------
$481,958 $456,500
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30,
--------
1994 1993
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $16,444 $22,050
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,885 8,908
Amortization 2,776 3,284
Increase (decrease) in deferred taxes (1,066) 900
Loss (gain) on sale of property, plant and
equipment, net (5,856) 78
Cumulative effect of change in
accounting principle - (1,879)
Increase in receivables (3,125) (8,934)
Decrease (increase) in prepayments and
other assets 804 (2,604)
Decrease (increase) in inventories (11,922) 1,037
Increase (decrease) in accounts payable
and other liabilities 4,579 (2,402)
Decrease in income taxes payable (2,355) (466)
------- -------
Net Cash Provided by Operating Activities 10,164 19,972
------- -------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (18,263) (13,656)
Proceeds from sale of property, plant
and equipment 10,011 676
Proceeds from long-term investments - 196
------- -------
Net Cash Used by Investing Activities (8,252) (12,784)
------- -------
Cash Flows From Financing Activities:
Increase in short-term borrowings 4,751 1,042
Payments of long-term debt (1,390) (1,607)
Proceeds from long-term borrowings 2,133 353
Cash dividends paid (12,841) (12,249)
Proceeds from stock plans and other 1,185 1,172
------- -------
Net Cash Used by Financing Activities (6,162) (11,289)
------- -------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 15 64
------- -------
Decrease in Cash and Cash Equivalents (4,235) (4,037)
------- -------
Cash and Cash Equivalents at Beginning
of Period 19,873 29,390
------- -------
Cash and Cash Equivalents at End of Period $15,638 $25,353
======= =======
Supplemental Disclosures:
Cash payments for income taxes $ 14,214 $12,226
Cash payments for interest 2,306 2,779
</TABLE>
The accompanying notes are an integral part of these financial statements.
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KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
JUNE 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 June
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 June 30, 1994 has been based on certain estimates of quantities and costs at
December 31, 1994.
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Inventories at June 30, 1994 and December 31, 1993 are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
Raw materials and parts $ 14,548 $ 11,450
Work-in-process 25,637 17,120
Components, sub-assemblies
and finished goods 114,704 109,763
Less: LIFO Adjustment (3,476) (3,725)
-------- --------
$151,413 $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 8,939
Income tax adjustments (3,163)
-------
Balance as of June 30, 1994 $ 5,594
=======
</TABLE>
(4) PLANT CLOSURE AND RELATED COSTS
Plant closure costs of $4,000 were recognized in the second quarter of
1994 for the closure of a manufacturing facility in Indiana. The current
quarter charge includes $2,710 related to termination pay and to disposition of
the Company's pension obligations for 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. Approximately 155
employees from the plant will be terminated, of which 58% are hourly workers
involved in the manufacturing process 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 OPERATIONS
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 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 1.8 100.0 100.0 (1.6)
Cost and Expenses:
Cost of sales 57.9 56.7 4.0 58.2 57.2 .1
Selling, general and
administrative 29.5 28.7 4.2 29.9 28.4 3.7
Plant closure and
related costs 3.0 - * 1.6 - *
Interest expense 1.0 1.2 (7.6) 1.0 1.1 (10.6)
Interest income (.6) (.3) 99.2 (.4) (.3) 9.3
Translation loss .3 .5 (35.4) .3 .4 (31.5)
Other, net (2.3) .3 * (1.0) .6 *
Income before Income
Taxes and Change in
Accounting Principle 11.2 12.9 (11.8) 10.4 12.6 (18.5)
Provision for
Income Taxes 4.3 4.9 (11.9) 3.9 4.8 (18.5)
Income before Change in
Accounting Principle 6.9 8.0 (11.8) 6.5 7.8 (18.5)
Cumulative Effect of
Change in Accounting
Principle - - * - .7 *
Net Income 6.9 8.0 (11.8) 6.5 8.5 (25.4)
</TABLE>
* not meaningful
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RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three and six month periods ended June 30, 1994
increased 1.8% and decreased 1.6%, respectively, over the same periods of
the prior year. Shown below is an analysis of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1994
------------------ ----------------
INC. (DEC.) IN NET SALES INC. (DEC.) IN NET SALES
------------------------ ------------------------
$ % $ %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Domestic:
Internal Decrease $(2,837) (4.8) $ (9,285) (7.9)
------- ---------
International:
Internal Growth/
(Decrease) 1,663 2.3 (1,444) (1.0)
Exchange Rate
Effect (533) (.7) (1,391) (1.0)
------- ---------
Total International 1,130 1.6 (2,835) (2.0)
------- ---------
Acquisitions 4,008 * 8,103 *
------- ---------
Total Net Sales
Increase (Decrease) $ 2,301 1.8 $ (4,017) (1.6)
======= =========
</TABLE>
*Percentage not meaningful
For the three months ended June 30, 1994, cost of sales as a percentage
of net sales increased to 57.9% from 56.7% a year ago. For the six months
ended June 30, 1994, cost of sales as a percentage of net sales increased
to 58.2% from 57.2% in 1993. These increases were primarily due to
increased price competition in the industrial valve product line, primarily
in North America and Europe. Also, the Company experienced a decrease in
sales of certain higher margin product lines.
Selling, general and administrative expenses for the three and six
month periods ended June 30, 1994 increased 4.2% and 3.7%, respectively,
compared to the same periods in 1993 as a result of additional sales and
administrative personnel in the Asia Pacific region, an increase in
information systems expenses incurred in connection with various systems
implementations and also higher commissions and bonus expense in certain
regions.
The three and six month periods ended June 30, 1994 include a non-
recurring charge of $4,000 for closure of a manufacturing facility in
Indiana. Kunkle and Lonergan product lines will be transferred to other
locations where similar manufacturing processes exist. The relocation of
these operations to other facilities is primarily focused on reducing
administrative as well as production costs of spring actuation safety
relief valves and improving our ability to respond to customer needs as
related to these product lines. Improvement in these two factors is
regarded as the primary requirement for enhancing the Company's competitive
position in a
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market where price competition is becoming an increasingly important element.
The $4,000 non-recurring charge includes $2,710 related to termination
pay and to disposition of the Company's pension obligations for 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. Approximately 155 employees from the plant will be
terminated, of which 58% are hourly workers involved in the manufacturing
process 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 six month periods ended
June 30, 1994 decreased compared to the corresponding prior year periods
primarily due to lower interest rates.
Interest income for the three and six month periods ended June 30, 1994
increased compared to the same periods in 1993 primarily due to the
recognition of interest income from a note receivable associated with the
previous disposition of an immaterial operation.
Other, net represents primarily amortization of intangible assets and
debt costs as well as exchange gains and losses related to currency
fluctuations. The three and six month periods ended June 30, 1994 include
a gain of $4,652 related to the sale of the Company's former facility in
South Korea. The six month period ended June 30, 1994, also included a
gain of $698 related to the disposition of an inoperative facility in
Germany.
The Company's effective income tax rate was 38% for the three and six
month periods ended June 30, 1994, unchanged from the corresponding
periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At June 30, 1994, the Company had working capital of $182,938 compared
to $171,827 at December 31, 1993. Management is not aware of any potential
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.
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PART II
OTHER INFORMATION
None
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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: August 9, 1994 By: /s/ Mark E. Baldwin
Principal Financial Officer
and Duly Authorized Officer
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