<PAGE>
================================================================================
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, 1995
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 November 1, 1995, the number of shares of common stock
outstanding was 35,409,631 excluding 464,384 treasury shares.
================================================================================
<PAGE>
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,
-------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Sales $147,264 $135,896 $437,579 $390,663
Cost and Expenses:
Cost of sales 88,223 80,526 262,833 228,739
Selling, general and administrative 39,455 40,254 120,645 116,436
Severance related costs - - 8,458 -
Plant closure and related costs - 53 2,931 4,053
Interest expense 1,503 1,384 4,646 4,037
Interest income (193) (172) (816) (1,204)
Translation loss 237 259 71 991
Other (income) expense, net (296) 1,624 (1,429) (879)
-------- -------- -------- --------
Income before Income Taxes 18,335 11,968 40,240 38,490
Provision for Income Taxes 6,784 4,548 14,889 14,626
-------- -------- -------- --------
Net Income $ 11,551 $ 7,420 $ 25,351 $ 23,864
======== ======== ======== ========
Weighted Average Outstanding
and Equivalent Shares 35,393 35,274 35,352 35,233
======== ======== ======== ========
Earnings Per Share $ .33 $ .21 $ .72 $ .68
======== ======== ======== ========
Cash Dividends Per Share $ .185 $ .185 $ .555 $ .555
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,531 $ 18,688
Receivables 150,299 131,532
Inventories 166,151 157,807
Prepayments and other 4,981 4,625
-------- --------
333,962 312,652
-------- --------
Property, Plant and Equipment 314,291 302,727
Less - Accumulated Depreciation 168,885 154,164
-------- --------
145,406 148,563
-------- --------
Other Assets 33,163 35,055
-------- --------
$512,531 $496,270
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term bank borrowings $ 17,963 $ 19,050
Accounts payable and accrued liabilities 104,052 103,283
Income taxes payable 6,767 4,635
-------- --------
128,782 126,968
-------- --------
Long-Term Liabilities:
Long-Term Debt 59,443 60,455
Deferred Income Taxes 10,700 6,575
Other Long-Term Liabilities 17,258 15,873
-------- --------
87,401 82,903
-------- --------
Shareholders' Investment:
Common stock $1.00 par value, 50 million shares
authorized 35,873 35,845
Additional paid-in capital 112,285 111,615
Retained earnings 152,448 146,131
Treasury stock, at cost (7,318) (8,067)
Unamortized restricted stock grant expense (3,449) (4,307)
Foreign currency translation adjustments 6,509 5,182
-------- --------
296,348 286,399
-------- --------
$512,531 $496,270
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 25,351 $ 23,864
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 17,259 14,811
Amortization 4,146 4,617
Increase in deferred taxes 3,401 892
Gain on sale of interest in former subsidiary (4,578) -
Gain on sale of property, plant and equipment, net (681) (5,612)
Increase in receivables (17,776) (485)
(Increase) decrease in prepayments and other assets (2,303) 1,284
Increase in inventories (7,067) (17,595)
Increase in accounts payable and other liabilities 1,033 6,660
Increase (decrease) in income taxes payable 1,970 (5,289)
-------- --------
Net Cash Provided by Operating Activities 20,755 23,147
-------- --------
Cash Flows From Investing Activities:
Proceeds from sale of interest in former subsidiary 4,843 -
Purchases of property, plant and equipment (14,381) (26,089)
Proceeds from sale of property, plant and equipment 2,623 10,518
-------- --------
Net Cash Used by Investing Activities (6,915) (15,571)
-------- --------
Cash Flows From Financing Activities:
(Decrease) increase in short-term bank borrowings (559) 4,822
Payments of long-term debt (4,016) (3,889)
Proceeds from long-term borrowings 1,785 3,926
Cash dividends paid (19,620) (19,361)
Proceeds from stock plans and other 2,164 1,673
-------- --------
Net Cash Used by Financing Activities (20,246) (12,829)
-------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 249 615
-------- --------
Decrease in Cash and Cash Equivalents (6,157) (4,638)
-------- --------
Cash and Cash Equivalents at Beginning of Period 18,688 19,873
-------- --------
Cash and Cash Equivalents at End of Period $ 12,531 $ 15,235
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1994
---------------------------
(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,
1995 and 1994, 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 44% of
consolidated inventories at December 31, 1994) 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, 1995 has been based on certain estimates of quantities and costs
at December 31, 1995.
Inventories at September 30, 1995 and December 31, 1994 are comprised of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- ------------
<S> <C> <C>
Raw materials and parts $ 15,960 $ 16,526
Work-in-process 26,020 24,368
Components, sub-assemblies and finished goods 127,170 119,812
Less: LIFO Adjustment (2,999) (2,899)
-------- --------
$166,151 $157,807
======== ========
</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.
5
<PAGE>
(3) FOREIGN CURRENCY TRANSLATION AND COMMITMENTS
--------------------------------------------
An analysis of changes in the foreign currency translation adjustments
included in Shareholders' Investment is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance as of December 31, 1994 $5,182
Currency translation adjustments 2,042
Income tax adjustments (715)
------
Balance as of September 30, 1995 $6,509
======
</TABLE>
From time to time, the Company enters into forward exchange contracts and
borrows in foreign currencies to mitigate the effect of exchange rate
fluctuations on its operations. These hedging techniques limit exchange rate
exposure and the resulting impact on the Company's reported margins.
At September 30, 1995, the Company has obligations of $4,440 under forward
exchange contracts primarily for French francs, Spanish pesetas and United
States dollars with various settlement dates through 1995 and 1996.
(4) PLANT CLOSURE AND RELATED COSTS
-------------------------------
The nine month period ended September 30, 1995 includes a non-recurring
charge of $2,931 for the closure of a manufacturing facility in Indiana. This is
in addition to the $4,372 which was recorded in the year ended December 31,
1994. The costs recognized in the nine month period ended September 30, 1995
include incremental costs incurred at the facilities to which operations have
been transferred. The Company has terminated approximately 155 employees from
the plant, of which 58% were hourly workers involved in manufacturing processes
and 42% were involved in engineering and administrative functions. The Company
does not expect to incur any additional costs associated with the termination of
operations at this facility.
5) WORKFORCE REDUCTION
-------------------
In the first quarter of 1995, the Company announced plans to reduce total
personnel costs by about $11,000 annually, or approximately 2% of net sales.
This step, which was substantially completed by the end of the second quarter of
1995, reduced the Company's workforce by approximately 6%, or about 270 people.
Severance related costs associated with these terminations of $8,458 were
recorded in the first quarter of 1995.
(6) 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.
(7) SALE OF ASSETS
--------------
Gains of $3,152 and $2,135 were recognized in "Other (income) expense, net"
in the first quarter and third quarter of 1995, respectively, in connection with
the disposition of certain non-operational assets.
6
<PAGE>
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 represent of 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 INC. OF NET SALES INC.
-------------- --------------
1995 1994 (DEC.) 1995 1994 (DEC.)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 100.0 8.4 100.0 100.0 12.0
Cost and Expenses:
Cost of sales 59.9 59.3 9.6 60.1 58.6 14.9
Selling, general and administrative 26.8 29.6 (2.0) 27.6 29.8 3.6
Severance related costs - - - 1.9 - *
Plant closure and related costs - - - .7 1.0 *
Interest expense 1.0 1.0 8.6 1.0 1.0 15.1
Interest income (.2) (.1) 12.2 (.2) (.3) (32.2)
Translation loss .2 .2 * - .3 *
Other (income) expense, net (.2) 1.2 * (.3) (.3) *
Income before Income Taxes 12.5 8.8 53.2 9.2 9.9 4.5
Provision for Income Taxes 4.7 3.3 49.2 3.4 3.8 1.8
Net Income 7.8 5.5 55.7 5.8 6.1 6.2
</TABLE>
* percentage not meaningful
7
<PAGE>
RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three and nine month periods ended September 30, 1995,
increased 8.4% and 12.0%, 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, 1995 SEPTEMBER 30, 1995
------------------------ ------------------------
INC. (DEC.) IN NET SALES INC. (DEC.) IN NET SALES
------------------------ ------------------------
$ % $ %
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Domestic:
Internal Growth (Decrease) $(2,005) (3.6) $ 6,455 3.9
------- -------
International:
Internal Growth 9,923 12.4 25,457 11.4
Exchange Rate Effect 3,450 4.3 15,004 6.7
------- -------
Total International 13,373 16.7 40,461 18.1
------- -------
Total Net Sales Increase $11,368 8.4 $46,916 12.0
======= =======
</TABLE>
For the three months ended September 30, 1995, cost of sales as a
percentage of net sales increased to 59.9% from 59.3% a year ago. For the nine
months ended September 30, 1995, cost of sales as a percentage of net sales
increased to 60.1% from 58.6% in 1994. These increases were primarily the result
of lower pricing initiated in the first half of 1994 relating to basic quarter-
turn valves and actuators, a decline in gross margins in the Company's Specialty
Products unit due to a decrease in demand for certain higher margin products,
and a decline in gross margins in the Asia Pacific region resulting from
increased competition and an increase in the mix of lower margin project
business.
For the three months ended September 30, 1995, selling, general and
administrative expenses decreased 2% from the same period in 1994. For the
nine months ended September 30, 1995, selling, general and administrative
expenses increased 3.6% compared to the same period in 1994. Excluding
translation effects, selling, general and administrative expenses decreased
4.0% and were flat in the quarter and year-to-date periods, respectively,
while sales in local currencies have increased 5.7% and 7.9%, respectively,
compared to the same periods in 1994. The decrease in the three month period
ended September 30, 1995 compared to the same period in 1994 is due primarily
to a reduction in expenses in the Company's Safety and Environmental unit and
the consolidation and reduction in the number of sales offices in 1994 and
early 1995. These decreases were partially offset by increases attributable
to the Company's growth in the Asia Pacific region.
In the first quarter of 1995, the Company announced plans to reduce total
personnel costs by about $11,000 annually, or approximately 2% of net sales.
This step reduced the Company's workforce by approximately 6%, or about
270 people. Severance related costs associated with these terminations of
$8,458 were recorded in the first quarter of 1995.
Interest expense for the three month and nine month periods ended September
30, 1995 increased compared to the same periods in 1994, primarily due to
an increase in average short-term bank borrowings and the effect of higher
interest rates. Interest income was flat in the three month period and decreased
in the nine month period ended September 30, 1995 as compared to the same
periods in 1994. The decrease in the nine month period is due primarily to the
1994 recognition of interest income from a note receivable that was paid off in
April 1995.
The nine month period ended September 30, 1995 includes a non-recurring
charge of $2,931 for the closure of a manufacturing facility in Indiana. This
is in addition to the $4,372 which was recorded in the year ended December 31,
1994. The costs recognized in the nine month period ended September 30, 1995
include incremental costs incurred at the facilities to which operations have
been transferred. The Company has terminated approximately 155 employees from
the plant, of which 58% were hourly workers involved in manufacturing
processes and 42% were involved in engineering and administrative functions.
The Company does not expect to incur any additional costs associated with the
termination of operations at this facility.
8
<PAGE>
Other (income) expense, net generally represents amortization of intangible
assets and debt costs, as well as exchange gains and losses related to
currency fluctuations. In the three and nine month periods ended September
30, 1995, other (income) expense, net also includes gains of $2,135 and
$5,287, respectively, related to the disposition of certain non-operational
assets. The nine month period ended September 30, 1994 included a gain of
$4,652 related to the sale of the Company's former facility in South Korea.
The Company's effective income tax rate was 37% for the three and nine month
periods ended September 30, 1995, as compared to 38% for the corresponding
periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At September 30, 1995, the Company had working capital of $205,180 compared
to $185,684 at December 31, 1994. 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.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
(b) Reports on Form 8-K
None.
(27) Financial Data Schedule
10
<PAGE>
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 9, 1995 By: /s/ Mark E. Baldwin
--------------------------------------
Mark E. Baldwin
Vice President and Chief
Financial Officer
By: /s/ J. Gordon Beittenmiller
--------------------------------------
J. Gordon Beittenmiller
Corporate Controller
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,531
<SECURITIES> 0
<RECEIVABLES> 156,414
<ALLOWANCES> 6,115
<INVENTORY> 166,151
<CURRENT-ASSETS> 333,962
<PP&E> 314,291
<DEPRECIATION> 168,885
<TOTAL-ASSETS> 512,531
<CURRENT-LIABILITIES> 128,782
<BONDS> 0
<COMMON> 35,873
0
0
<OTHER-SE> 260,475
<TOTAL-LIABILITY-AND-EQUITY> 512,531
<SALES> 437,579
<TOTAL-REVENUES> 437,579
<CGS> 262,833
<TOTAL-COSTS> 391,936
<OTHER-EXPENSES> 757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,646
<INCOME-PRETAX> 40,240
<INCOME-TAX> 14,889
<INCOME-CONTINUING> 25,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,351
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
