<PAGE>
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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 MARCH 31, 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 May 3, 1995, the number of shares of common stock outstanding was
35,335,328 excluding 521,781 treasury shares.
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<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
-----------------------
MARCH 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Sales $138,178 $121,662
Cost and Expenses:
Cost of sales 83,527 71,117
Selling, general and administrative 40,073 36,981
Severance related costs 8,458 -
Plant closure and related costs 908 -
Interest expense 1,470 1,244
Interest income (328) (279)
Translation loss 45 326
Other expense (income) (2,384) 609
-------- --------
Income before Income Taxes 6,409 11,664
Provision for Income Taxes 2,372 4,432
-------- --------
Net Income $ 4,037 $ 7,232
======== ========
Weighted Average Outstanding
and Equivalent Shares 35,318 35,183
======== ========
Earnings Per Share $ .11 $ .21
Cash Dividends Per Share $ .185 $ .185
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,622 $ 18,688
Receivables 143,498 131,532
Inventories 160,509 157,807
Prepayments and other 5,523 4,625
-------- --------
322,152 312,652
-------- --------
Property, Plant and Equipment 311,496 302,727
Less - Accumulated Depreciation 161,409 154,164
-------- --------
150,087 148,563
-------- --------
Other Assets 37,537 35,055
-------- --------
$509,776 $496,270
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term
bank borrowings $ 27,418 $ 19,050
Accounts payable and accrued
liabilities 105,151 103,283
Income taxes payable 3,981 4,635
-------- --------
136,550 126,968
-------- --------
Long-Term Debt 60,632 60,455
-------- --------
Deferred Income Taxes 6,792 6,575
Other Long-Term Liabilities 16,690 15,873
-------- --------
23,482 22,448
-------- --------
Shareholders' Investment:
Common stock, $1.00 par value,
50 million shares authorized 35,856 35,845
Additional paid-in capital 111,858 111,615
Retained earnings 143,830 146,131
Treasury stock, at cost (7,697) (8,067)
Unamortized restricted stock
grant expense (3,727) (4,307)
Foreign currency translation
adjustments 8,992 5,182
-------- --------
289,112 286,399
-------- --------
$509,776 $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>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
-------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 4,037 $ 7,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,557 4,709
Amortization 1,460 1,439
Increase (decrease) in deferred taxes (1,828) 3,070
Gain on sale of property, plant
and equipment, net (646) (1,149)
Gain on disposition of certain other assets (2,443) -
Decrease (increase) in receivables (9,479) 2,846
Increase in prepayments and other assets (1,828) (1,993)
Increase in inventories (529) (6,275)
Increase (decrease) in accounts payable
and other liabilities 1,393 (4,399)
Decrease in income taxes payable (716) (2,409)
------- -------
Net Cash Provided (Used) by Operating Activities (5,022) 3,071
------- -------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (3,896) (8,251)
Proceeds from sale of property, plant
and equipment 982 2,110
------- -------
Net Cash Used by Investing Activities (2,914) (6,141)
------- -------
Cash Flows From Financing Activities:
Increase in short-term borrowings 7,478 1,424
Payments of long-term debt (1,119) (389)
Proceeds from long-term borrowings 750 372
Cash dividends paid (6,532) (6,327)
Proceeds from stock plans and other 1,065 279
------- -------
Net Cash Provided (Used) by Financing Activities 1,642 (4,641)
------- -------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 228 (31)
------- -------
Decrease in Cash and Cash Equivalents (6,066) (7,742)
------- -------
Cash and Cash Equivalents at Beginning
of Period 18,688 19,873
------- -------
Cash and Cash Equivalents at End of Period $12,622 $12,131
======= =======
Supplemental Disclosures:
Cash payments for income taxes $ 5,468 $ 5,469
Cash payments for interest 501 376
</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)
MARCH 31, 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 March 31, 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% percent
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
March 31, 1995 has been based on certain estimates of quantities and costs at
December 31, 1995.
5
<PAGE>
Inventories at March 31, 1995 and December 31, 1994 are comprised of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- -------------
<S> <C> <C>
Raw materials and parts $ 16,263 $ 16,526
Work-in-process 25,532 24,368
Components, sub-assemblies
and finished goods 121,756 119,812
Less: LIFO Adjustment (3,042) (2,899)
-------- --------
$160,509 $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.
3) FOREIGN CURRENCIES
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 5,862
Income tax adjustments (2,052)
-------
Balance as of March 31, 1995 $ 8,992
=======
</TABLE>
From time to time, the Company enters into forward 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 March 31, 1995, the Company has obligations of $4,615 under forward
exchange contracts for Italian lire and Dutch guilders at various dates through
December 1995.
4) PLANT CLOSING
Plant closure costs of $908 were recognized in the first quarter of 1995 in
connection with 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 include $2,710 of termination pay and disposition of the Company's
pension obligations related to the facility. The remainder of these costs
reflect 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. The Company anticipates that it will recognize
further charges of approximately $2,700 associated with this decision over the
next year
6
<PAGE>
as related incremental costs are incurred, primarily at the facilities to which
operations are being transferred.
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 is expected to be substantially complete by the end of the
second quarter of 1995, will reduce the Company's work force by approximately
6%, or about 270 people. Severance related costs associated with these
terminations of $8,458 have been 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
A gain of $3,152 was recognized in "Other expense (income)" in the first
quarter of 1995 in connection with the disposition of certain non-operational
assets.
7
<PAGE>
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS
AND ANALYSIS OF FINANCIAL CONDITION
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 ENDED
MARCH 31,
---------------------
PERCENTAGE
OF NET SALES %
------------ INC.
1995 1994 (DEC.)
---- ---- ------
<S> <C> <C> <C>
Net Sales 100.0 100.0 13.6
Cost and Expenses:
Cost of sales 60.4 58.5 17.5
Selling, general and administrative 29.0 30.4 8.4
Severance related costs 6.1 - *
Plant closure and related costs .7 - *
Interest expense 1.1 1.0 18.2
Interest income (.2) (.3) 17.6
Translation loss - .3 *
Other expense (income) (1.7) .5 *
Income before Income Taxes 4.6 9.6 (45.1)
Provision for Income Taxes 1.7 3.7 (46.5)
Net Income 2.9 5.9 (44.2)
</TABLE>
* percentage not meaningful
8
<PAGE>
RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three-month period ended March 31, 1995 increased 13.6% over
the same period of the prior year. Shown below is an analysis of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, 1995
----------------------
INCREASE IN NET SALES
----------------------
$ %
-------- -------
<S> <C> <C>
Domestic:
Internal growth $ 4,327 8.1
------- ----
International:
Internal growth 7,170 10.5
Exchange rate effect 5,019 7.3
------- ----
Total international 12,189 17.8
------- ----
Total Net Sales Increase $16,516 13.6
======= ====
</TABLE>
For the three months ended March 31, 1995, cost of sales as a percentage of
net sales increased to 60.4% from 58.5% a year ago. This increase was 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 and an increase in low margin projects in the
Asia-Pacific region.
Selling, general and administrative expenses for the three months ended March
31, 1995 increased 8.4% compared to the same period in 1994. Excluding
translation effects, selling, general and administrative expenses for the three
month period ended March 31, 1995 increased 3.8% compared to the same period in
1994. The increases are primarily attributable to the Company's growth in the
Asia-Pacific region, expenses related to certain manufacturing-related cost
reduction initiatives and expenses incurred in connection with various systems
implementations. Selling, general and administrative expenses in the first
quarter of 1995 were down 5.4% from the fourth quarter of 1994 and reached their
lowest levels in local currencies in the past year.
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 is expected to be substantially complete by the end of the
second quarter of 1995, will reduce the Company's work force by approximately
6%, or about 270 people. Severance related costs associated with these
terminations of $8,458 have been recorded in the first quarter of 1995.
Interest expense for the three months ended March 31, 1995 increased compared
to the same period in 1994, primarily due to an increase in total debt and the
effect of higher interest rates. Interest income for the
9
<PAGE>
quarter ended March 31, 1995 remained relatively unchanged from the same period
a year ago.
Plant closure costs of $908 were recognized in the first quarter of 1995 in
connection with 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 include $2,710 of termination pay and disposition of the Company's
pension obligations related to the facility. The remainder of these costs
reflect 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. The Company anticipates that it will recognize
further charges of approximately $2,700 associated with this decision over the
next year as related incremental costs are incurred, primarily at the facilities
to which operations are being transferred.
Other expense (income) represents primarily amortization of intangible assets
and debt costs, as well as exchange gains and losses related to currency
fluctuations. In the three-month period ended March 31, 1995, other expense
also included a $3,152 gain related to the disposition of certain non-
operational assets.
The Company's effective income tax rate was 37% for the quarter ended March
31, 1995, as compared to 38% for the corresponding period a year ago.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At March 31, 1995, the Company had working capital of $185,602 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.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(27) Financial Data Schedule
11
<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: MAY 12, 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
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,622
<SECURITIES> 0
<RECEIVABLES> 148,854
<ALLOWANCES> 5,356
<INVENTORY> 160,509
<CURRENT-ASSETS> 322,152
<PP&E> 311,496
<DEPRECIATION> 161,409
<TOTAL-ASSETS> 509,776
<CURRENT-LIABILITIES> 136,550
<BONDS> 60,632
<COMMON> 35,856
0
0
<OTHER-SE> 253,256
<TOTAL-LIABILITY-AND-EQUITY> 509,776
<SALES> 138,178
<TOTAL-REVENUES> 138,178
<CGS> 83,527
<TOTAL-COSTS> 132,058
<OTHER-EXPENSES> (1,759)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,470
<INCOME-PRETAX> 6,409
<INCOME-TAX> 2,372
<INCOME-CONTINUING> 4,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,037
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
