<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-2115
KEYSTONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1058689
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9600 WEST GULF BANK DRIVE, HOUSTON, 77040
TEXAS (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (713) 466-1176
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------------------- -----------------------
<S> <C>
COMMON STOCK, $1.00 PAR VALUE PER
SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 No
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 28, 1995, the number of shares of common stock outstanding was
35,318,177 excluding 537,577 treasury shares. At that date, the aggregate
market value of voting stock held by nonaffiliates was $534,101,000.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART OF 10-K
-------- ------------
<C> <S> <C>
1. Proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 with respect
to the 1995 annual meeting of shareholders. PART III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
KEYSTONE INTERNATIONAL, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<C> <S> <C>
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 2
Item 3. Legal Proceedings.............................................. 2
Item 4. Submission of Matters to a Vote of Security Holders............ 2
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 2
Item 6. Selected Financial Data........................................ 3
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 4
Item 8. Financial Statements and Supplementary Data.................... 6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 6
PART III
Item 10. Directors and Executive Officers of the Registrant............. 6
Item 11. Executive Compensation......................................... 6
Item 12. Security Ownership of Certain Beneficial Owners and Management. 6
Item 13. Certain Relationships and Related Transactions................. 6
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................... 7
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
Keystone International, Inc. ("Keystone" or the "Company") designs,
manufactures and markets, on a worldwide basis, valves and other specialized
industrial products that control the flow of liquids, gases and fibrous and
slurry materials for use in various industries, including chemical, power, food
and beverage, marine and government, petroleum production and refining, water,
commercial construction, oil and gas pipeline, mining and metals, and pulp and
paper. Keystone, incorporated in Texas in 1947, is one of the leading
manufacturers of flow control products in the world.
The Company's operations are conducted in a single industry segment. For
information concerning geographic segments, see Note 12 to the Consolidated
Financial Statements in Item 8 of this Report.
Substantially all of the products sold outside the United States are
manufactured and assembled at facilities in Canada, The Netherlands, Japan, the
United Kingdom, Italy, Germany, Korea, Singapore, the People's Republic of
China, Mexico, Brazil, Australia, New Zealand, and India. Most of Keystone's
employees engaged in operations outside the United States, including plant
managers and other executive personnel, are citizens of the nations in which
they work. The various aspects of Keystone's operations outside the United
States take into account local conditions and customs, but basic business
methods are similar in all areas. Sales and operations outside the United
States are subject to the inherent risk of fluctuations in currency rates.
As with other United States companies engaged in business outside the United
States, Keystone is subject to political and economic uncertainties, the risk
of expropriation and embargo, foreign exchange restrictions and political
disruptions.
Keystone purchases virtually all castings and certain finished or semi-
finished components used in its products. Machining of components and
assembling are done primarily by the Company, although a limited amount of
machining and assembling is done under contract by outside parties. Keystone
does not believe that compliance with federal, state or local environmental
laws adversely affects its business, earnings or competitive position.
Management believes that the Company's present level of product liability
coverage is adequate, and will make adjustments in such coverage in the future
as it believes appropriate after considering the cost and availability of such
insurance and any legal developments in the product liability area.
While Keystone has a number of patents and patent applications relating to or
covering certain features of its products, its patents are not of a scope to
exclude competition in any significant way or preclude competitors from
successfully marketing substitute products. Competition is primarily on the
basis of price and quality, and to a lesser extent, service and delivery.
There was no single customer which accounted for more than 10% of sales
during 1994. Although the Company does not necessarily know the intended use or
ultimate customer for all of its products, particularly those sold through
distributors, its business is not dependent on a single customer or a few
customers. Sales in diverse geographic areas and to a large number of customers
and industries lessen exposure to adverse conditions in a single industry or
area. These factors, however, do not afford protection against a general
economic downturn.
Keystone extends 30-day credit to most customers except in certain foreign
markets where local trade practices differ. Credit losses have not been
material. Keystone carries some inventory of all its products, and it generally
satisfies its working capital requirements out of internally generated funds.
Reference is made to Note 5 of the Consolidated Financial Statements in Item 8
of this Report for information about lines of credit that are available to
finance working capital.
1
<PAGE>
At December 31, 1994, the Company's backlog of unshipped orders was
$133,981,000 compared with $100,268,000 at December 31, 1993. Orders in backlog
at year-end are usually shipped during the following year. In the past, the
effect of changes or cancellations of orders has been minimal.
At December 31, 1994, Keystone had approximately 4,200 employees worldwide.
ITEM 2. PROPERTIES.
Keystone's major domestic manufacturing operations are located in Houston and
Harlingen, Texas; Blue Bell, Pennsylvania; Andrews and Fort Wayne, Indiana; and
Black Mountain, North Carolina. Keystone's other manufacturing and assembly
facilities are in most cases owned by the Company and are located in 14 other
countries. The Company also leases warehouse and office space in which it
maintains its sales offices. These facilities, including the corporate offices
located in Houston, contain approximately 717,000 square feet of office space
and 1,850,000 square feet of manufacturing space on 250 acres of land owned by
the Company.
ITEM 3. LEGAL PROCEEDINGS.
Keystone Sales, Inc., a wholly owned subsidiary of the registrant, was 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 from the majority 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.
Keystone and its subsidiaries are engaged in various other claims and
litigation arising from their operations. In the opinion of management,
uninsured losses, if any, resulting from these matters will not have a material
adverse impact on the consolidated financial position or future results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The common stock of Keystone is traded on the New York Stock Exchange under
the symbol KII. The following table shows the high and low sales prices as
reported by the New York Stock Exchange Composite Tape and cash dividends
declared per share.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------- --------
<S> <C> <C> <C>
1994
----
First Quarter...................................... $29 1/2 $23 3/4 $.185
Second Quarter..................................... 25 3/8 19 1/4 .185
Third Quarter...................................... 20 1/4 18 1/4 .185
Fourth Quarter..................................... 20 3/4 16 3/4 .185
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------ --------
<S> <C> <C> <C>
1993
----
First Quarter....................................... $29 1/8 $23 $.18
Second Quarter...................................... 28 3/4 26 1/2 .18
Third Quarter....................................... 28 3/8 23 5/8 .18
Fourth Quarter...................................... 27 1/2 24 1/2 .18
</TABLE>
The approximate number of security holders of the Company's common stock was
3,538 as of February 28, 1995. This number does not include the number of
security holders for whom shares are held in a "nominee" or "street" name.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales............... $535,099 $516,140 $528,372 $520,496 $446,232
Total Assets............ 496,270 456,500 438,099 458,752 417,441
Long-Term Debt.......... 60,455 62,300(/2/) 14,312(/2/) 58,365 48,221
Plant Closure and
Related Costs.......... 4,372 -- -- -- --
Restructuring and Merger
Expenses............... -- -- -- 22,372 --
Income before Change in
Accounting Principle... 32,972 39,136 42,541 22,834(/1/) 44,025
Cumulative Effect of
Change in Accounting
Principle (1991 is net
of $2,539 in Income
Taxes)................. -- 1,879(/3/) -- (4,928)(/3/) --
Earnings Per Share
before Change in
Accounting Principle... .94 1.12 1.22 .66(/1/) 1.31
Cash Dividends Per
Share.................. .74 .72 .68 .64 .60
</TABLE>
- --------
(1) After considering the estimated tax benefits of $5,235, the effect of
restructuring and merger expenses was to reduce income from continuing
operations by $17,137, or $.50 per share.
(2) The 8.75% Notes totaling $43,000 were due November 1, 1993 and as of
December 31, 1992 were classified as current portion of long-term debt.
These 8.75% notes were refinanced on November 1, 1993 with $45,000 of 6.34%
Senior Notes due November 1, 2000. See Note 5 to the Consolidated Financial
Statements in Item 8 of this Report.
(3) In 1991, the cumulative effect of the change in accounting principle
represents a charge relating to the adoption of the accounting standard for
postretirement benefits other than pensions. The 1993 cumulative effect of
the change in accounting principle represents a credit relating to the
adoption of the new accounting standard for income taxes. See Note 6 and
Note 9 to the Consolidated Financial Statements in Item 8 of this Report.
Reference is made to the Notes to Consolidated Financial Statements in Item 8
of this Report for a summary of accounting policies and additional information.
3
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SUMMARY
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the accompanying Consolidated Statements of
Income bear to net sales of the Company and (ii) the percentage increase or
decrease of amounts of such items as compared to the indicated prior period:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE
PERCENTAGE OF NET (DECREASE) OF
SALES AMOUNTS
------------------- ---------------
YEARS ENDED
DECEMBER 31, YEARS ENDED
------------------- ---------------
1994 1993 1992 1994-93 1993-92
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales................................. 100.0 100.0 100.0 3.7 (2.3)
Cost and Expenses:
Cost of sales............................ 58.9 57.4 56.7 6.3 (1.2)
Selling, general and administrative...... 29.7 28.9 28.1 6.3 .8
Plant closure and related costs.......... .8 -- -- * *
Interest expense......................... 1.0 1.1 1.3 (6.0) (16.8)
Interest income.......................... (.3) (.3) (.3) (19.2) (8.2)
Translation loss......................... .2 .4 .2 * *
Other, net............................... (.1) .5 .8 * *
Income before Income Taxes and Change in
Accounting Principle..................... 9.8 12.0 13.2 (15.7) (11.1)
Provision for Income Taxes................ 3.6 4.4 5.1 (15.7) (15.8)
Income before Change in Accounting
Principle................................ 6.2 7.6 8.1 (15.7) (8.0)
Cumulative Effect of Change in Accounting
Principle................................ -- .3 -- * *
Net Income................................ 6.2 7.9 8.1 (19.6) (3.6)
</TABLE>
- --------
* Percentage not meaningful
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
NET SALES
Net sales increased 4% in 1994 compared with a 2% decrease in 1993. Shown
below is an analysis of the change in net sales. The translation effect of
weakening foreign currencies had a significant impact in 1993 on the results of
international operations.
<TABLE>
<CAPTION>
ANALYSIS OF NET SALES
INCREASE (DECREASE)
------------------------------
YEARS ENDED
------------------------------
1994-1993 1993-1992
------------- --------------
<S> <C> <C> <C> <C>
Domestic:
Internal growth (decrease).................... $(4,257) (1.9)% $ 653 .3 %
------- --------
International:
Internal growth............................... 7,069 2.5 % 2,372 .8 %
Exchange rate effect.......................... 7,288 2.5 % (21,482) (7.1)%
------- --------
Total international........................... 14,357 5.0 % (19,110) (6.3)%
------- --------
Acquisitions................................... 8,859 * 6,225 *
------- --------
Total Net Sales Increase (Decrease)............ $18,959 3.7 % $(12,232) (2.3)%
======= ========
</TABLE>
- --------
* Percentage not meaningful
4
<PAGE>
The Company's sales and results of operations outside the United States are
subject to the inherent risk of fluctuations in currency rates. During 1994,
Asia-Pacific and European currencies strengthened in relation to the U.S.
dollar, resulting in an additional $7,288 of net sales related to currency
fluctuations. During 1993, a basket of European currencies weakened in relation
to the U.S. dollar by approximately 12%, which reduced the U.S. dollar results
of the Company's European operations. Keystone's European and Asia-Pacific
operations represent about 27% and 23% of the Company's consolidated net sales,
respectively.
COST AND EXPENSES
Cost of sales as a percentage of sales were 58.9%, 57.4% and 56.7% in 1994,
1993, and 1992, respectively. Over the last three years, the Company has been
experiencing increased price competition, especially in the U.S. and Europe.
To counteract this trend of reduced gross margins, the Company is continuing
its cost reduction initiatives. All major plants are pursuing MRPII Class A
status, a formalized approach to simplifying and shortening business processes,
with the aim toward improved efficiency and on-time deliveries, and reduced
inventory levels. Other product cost reduction initiatives include the redesign
of certain products and the implementation of new manufacturing systems.
Selling, general and administrative expenses increased by 6%, and 1% in 1994
and 1993, respectively. Excluding foreign currency fluctuations, these expenses
increased 5% in 1994 and 6% in 1993. In 1994, approximately one-half of the
increase in these expenses was in the Asia-Pacific region, where the Company is
experiencing its most significant sales growth. Other items contributing to the
increase in selling, general and administrative expenses in 1994 include
information systems expenses associated with various systems implementations,
severance costs and litigation expenses. In 1993, the increase in selling,
general and administrative expenses is primarily attributable to increased
costs in the Asia-Pacific region.
Plant closure costs of $4,372 were recognized in 1994 in connection with the
closure of a manufacturing facility in Indiana. 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 $3,600
associated with this decision over the next year as related incremental costs
are incurred, primarily at the facilities to which operations are being
transferred.
In the first quarter of 1995, the Company announced plans to reduce total
personnel costs by about $11,000 annually, or approximately 2% of sales. This
step, which is expected to be fully implemented by the end of the second
quarter of 1995, will reduce the Company's work force by approximately 6%, or
about 270 people. Severence related costs associated with these terminations of
approximately $8,000 to $8,500 will be recorded in the first quarter of 1995.
Other, net includes amortization of intangible assets and debt costs as well
as exchange gains and losses on transactions denominated in foreign currencies.
In 1994, other, net includes a gain of $4,652 related to the sale of the
Company's previous manufacturing facility in South Korea. In 1992, other
expense also included a reserve of $2,000 for management's estimate of
potential environmental exposure at one of the Company's inoperative
facilities. Management believes this reserve is adequate and that potential
exposure will not have a material impact on the Company's consolidated
financial position or future results of operations.
The Company's effective income tax rates were 37%, 37% and 39% in 1994, 1993
and 1992, respectively. The Company provides for taxes on all unremitted
foreign earnings at a rate not less than the U.S. statutory rate. The primary
components of the difference between the domestic statutory tax rate and the
actual effective tax rate include net operating losses of certain foreign
entities not currently realizable for tax
5
<PAGE>
purposes and foreign taxes in excess of the U.S. statutory rate. The effective
tax rate in 1993 includes the remeasurement of deferred tax assets at the
current U.S. statutory rate in accordance with the new accounting standard for
income taxes. See Note 6 to the Consolidated Financial Statements in Item 8 of
this Report for additional information.
The Company has resolved all issues with the Internal Revenue Service ("IRS")
covering calendar years 1986 through 1988. The IRS has completed its
examination of the Company's federal income tax returns for the years 1989 and
1990 and has recommended an assessment of additional tax. Several issues have
been resolved for these years and the Company is vigorously contesting the
remaining issues. In addition, the IRS is currently examining the federal
income tax returns filed by the Company for the years 1991 and 1992. Management
believes that any adjustment that may result from these examinations will not
have a material adverse impact on the Company's consolidated financial position
or future results of operations.
The 1993 cumulative effect of the change in accounting principle of $1,879
represents a credit relating to the adoption of the new accounting standard for
income taxes. See Note 6 to the Consolidated Financial Statements in Item 8 of
this Report for additional information.
LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS)
The Company's financial position remained strong during 1994. At December 31,
1994, the Company had working capital of $185,684 compared to $171,827 at
December 31, 1993. During 1994, the Company incurred capital expenditures of
$24,014 (net of proceeds from disposals) and paid cash dividends of $25,890.
Management is not aware of any potential impairments to the Company's
liquidity, and believes its internal and existing external sources of cash will
provide the necessary funds with which to meet its expected obligations.
INFLATION
During each year, inflation has had a relatively minor effect on the majority
of Keystone's operations. However, in Brazil, which accounted for only 1% of
total net sales and 3% of total net income in 1994, inflation often makes the
operating environment somewhat difficult. The 1994 translation losses reflected
on the Consolidated Statements of Income, included in Item 8 of this Report,
result from these operations. During 1991, the Company downsized its Brazilian
operations and reduced its assets exposed to devaluation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this Report
on page 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Part III (Items 10 through 13) is omitted because the Registrant expects to
file with the Securities and Exchange Commission within 120 days after the
close of the fiscal year ended December 31, 1994, a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934 which
involves the election of directors. If for any reason such a statement is not
filed within such a period, this Report will be appropriately amended.
6
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this Report on page 9.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
PAGE NUMBER IN THIS FILING OR
EXHIBIT NUMBER AND DESCRIPTION INCORPORATION BY REFERENCE TO
------------------------------ -----------------------------
<C> <S> <C>
(3.1) Articles of
Incorporation........... Exhibit 4.1 to Registrant's Form 10-Q
for the quarter ended June 30, 1988.
(3.2) Bylaws................... Exhibit 3.2 to Registrant's Form 10-K
for the year ended December 31, 1993.
(4.1) Form of Note purchase
agreement dated as of
October 15, 1993 between
the Company and several
purchasers.............. Exhibit 4.1 to Registrant's Form 10-K
for the year ended December 31, 1993.
(4.2) Shareholder Rights Plan
dated as of March 31,
1990 by and between
Keystone International,
Inc. and NationsBank of
Texas, N.A., as Rights
Agent (Shareholder
Rights Plan)............ Exhibit 4.2 to Registrant's Form 10-K
for the year ended December 31, 1990.
(4.3) Agreement of the Company
to provide to the
Commission, upon
request, copies of
certain long-term debt
agreements.............. Exhibit 4.3 to Registrant's Form 10-K
for year ended December 31, 1991.
(10.1) Keystone International,
Inc. 1985 Incentive
Stock Plan as amended... Exhibit 4(a) to Registrant's Registration
Statement No. 33-37053.
(11.1) Statement re computation
of per share earnings... See financial statements.
(21.1) Subsidiaries of the
registrant.............. Filed herewith.
(23.1) Consent of independent
public accountants...... Filed herewith.
(27) Financial Data Schedule.. Filed herewith.
</TABLE>
(b) Exhibits and Reports on Form 8-K:
The Company filed no reports on Form 8-K for the quarter ended December 31,
1994.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 10th day of
March, 1995.
KEYSTONE INTERNATIONAL, INC.
Raymond A. LeBlanc
By: ____________________________________
(Raymond A. LeBlanc)
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 10th day of March, 1995.
<TABLE>
<S> <C>
Raymond A. LeBlanc Director and Chief Executive Officer
- -------------------------
(Raymond A. LeBlanc)
Arthur L. French Director and Executive Vice President
- -------------------------
(Arthur L. French)
Mark E. Baldwin Vice President and Chief Financial Officer
- -------------------------
(Mark E. Baldwin)
J. Gordon Beittenmiller Corporate Controller
- -------------------------
(J. Gordon Beittenmiller)
Floyd A. Cailloux Director
- -------------------------
(Floyd A. Cailloux)
Bob G. Gower Director
- -------------------------
(Bob G. Gower)
F. O'Neil Griffin Director
- -------------------------
(F. O'Neil Griffin)
Martin E. Hamilton Director
- -------------------------
(Martin E. Hamilton)
Farrell G. Huber, Jr. Director
- -------------------------
(Farrell G. Huber, Jr.)
Dale P. Jones Director
- -------------------------
(Dale P. Jones)
W. Wayne Patterson Director
- -------------------------
(W. Wayne Patterson)
Allen F. Rhodes Director
- -------------------------
(Allen F. Rhodes)
Wallace S. Wilson Director
- -------------------------
(Wallace S. Wilson)
</TABLE>
8
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-K
ITEMS 8 AND 14(A)(1) AND (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the Registrant and its subsidiaries
required to be included in Items 8 and 14(a)(1) are listed below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated balance sheets as of December 31, 1994 and 1993............ 11
For the years ended December 31, 1994, 1993 and 1992:
Consolidated statements of income...................................... 10
Consolidated statements of cash flows.................................. 12
Consolidated statements of changes in shareholders' investment......... 13
Notes to consolidated financial statements.............................. 14
Report of independent public accountants................................ 23
</TABLE>
----------------
All schedules have been omitted because the conditions requiring their filing
do not exist or because the required information is given in the financial
statements, including the notes thereto.
9
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net Sales........................................ $535,099 $516,140 $528,372
-------- -------- --------
Cost and Expenses:
Cost of sales................................... 314,915 296,124 299,830
Selling, general and administrative............. 158,810 149,353 148,211
Plant closure and related costs................. 4,372 -- --
Interest expense................................ 5,546 5,897 7,091
Interest income................................. (1,448) (1,791) (1,950)
Translation loss................................ 908 2,078 1,153
Other, net...................................... (341) 2,358 4,183
-------- -------- --------
482,762 454,019 458,518
-------- -------- --------
Income before Income Taxes and Change in
Accounting Principle............................ 52,337 62,121 69,854
Provision for Income Taxes....................... 19,365 22,985 27,313
-------- -------- --------
Income before Change in Accounting Principle..... 32,972 39,136 42,541
Cumulative Effect of Change in Accounting
Principle....................................... -- 1,879 --
-------- -------- --------
Net Income....................................... $ 32,972 $ 41,015 $ 42,541
======== ======== ========
Earnings Per Share:
Income before change in accounting principle.... $ .94 $ 1.12 $ 1.22
Cumulative effect of change in accounting
principle...................................... -- .05 --
-------- -------- --------
Total........................................... $ .94 $ 1.17 $ 1.22
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 18,688 $ 19,873
Receivables (principally trade accounts, net of allowances
for doubtful accounts of $4,968 in 1994 and $5,983 in
1993).................................................... 131,532 119,750
Inventories............................................... 157,807 134,608
Prepayments and other..................................... 4,625 5,513
-------- --------
312,652 279,744
-------- --------
Property, Plant and Equipment:
Land...................................................... 22,230 22,753
Buildings and improvements................................ 85,168 81,437
Machinery and equipment................................... 195,329 170,700
-------- --------
302,727 274,890
Less -- accumulated depreciation.......................... 154,164 140,037
-------- --------
148,563 134,853
-------- --------
Other Assets............................................... 35,055 41,903
-------- --------
$496,270 $456,500
======== ========
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt......................... $ 3,894 $ 2,216
Short-term bank borrowings................................ 15,156 6,944
Accounts payable.......................................... 35,843 28,860
Accrued liabilities....................................... 60,908 54,533
Dividends payable......................................... 6,532 6,326
Income taxes payable...................................... 4,635 9,038
-------- --------
126,968 107,917
-------- --------
Long-Term Debt:
6.34% Senior Notes payable................................ 45,000 45,000
Other long-term notes payable............................. 15,455 17,300
-------- --------
60,455 62,300
-------- --------
Deferred Income Taxes...................................... 6,575 --
Other Long-Term Liabilities................................ 15,873 15,651
-------- --------
22,448 15,651
-------- --------
Commitments and Contingencies
Shareholders' Investment:
Common stock, $1.00 par value, 50 million shares
authorized............................................... 35,845 35,777
Additional paid-in capital................................ 111,615 110,231
Retained earnings......................................... 146,131 138,550
Treasury stock, at cost................................... (8,067) (9,535)
Unamortized restricted stock grant expense................ (4,307) (4,209)
Foreign currency translation adjustments.................. 5,182 (182)
-------- --------
286,399 270,632
-------- --------
$496,270 $456,500
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income...................................... $ 32,972 $ 41,015 $ 42,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 19,868 18,137 19,317
Amortization................................... 5,740 6,400 4,432
Cumulative effect of change in accounting
principle..................................... -- (1,879) --
Increase in deferred income taxes.............. 5,756 3,012 5,569
Loss (gain) on sale of property, plant and
equipment..................................... (5,538) (1,347) 296
Decrease (increase) in receivables............. (6,595) (16,200) 4,092
Decrease (increase) in inventories............. (17,536) 709 7,968
Decrease (increase) in prepayments and other
assets........................................ 900 (11,851) (3,633)
Increase (decrease) in accounts payable and
other liabilities............................. 10,048 919 (9,945)
Decrease in income taxes payable............... (5,220) (1,541) (4,710)
-------- -------- --------
Net Cash Provided by Operating Activities........ 40,395 37,374 65,927
-------- -------- --------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment...... (35,111) (34,781) (19,537)
Proceeds from sale of property, plant and
equipment...................................... 11,097 4,784 1,375
Proceeds from long-term investments............. -- 832 434
-------- -------- --------
Net Cash Used by Investing Activities............ (24,014) (29,165) (17,728)
-------- -------- --------
Cash Flows From Financing Activities:
Increase (decrease) in short-term bank
borrowings..................................... 7,360 (276) (8,184)
Payments on long-term debt...................... (6,037) (46,348) (6,600)
Proceeds from issuance of long-term debt........ 4,564 50,193 5,495
Cash dividends paid............................. (25,890) (24,876) (23,267)
Proceeds from stock plans and other............. 2,212 3,658 2,130
-------- -------- --------
Net Cash Used by Financing Activities............ (17,791) (17,649) (30,426)
-------- -------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents..................................... 225 (77) (850)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents. (1,185) (9,517) 16,923
Cash and Cash Equivalents at Beginning of Year... 19,873 29,390 12,467
-------- -------- --------
Cash and Cash Equivalents at End of Year......... $ 18,688 $ 19,873 $ 29,390
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Common Stock, $1.00 Par Value:
Beginning balance............................... $ 35,777 $ 35,705 $ 35,675
Issuance of stock under various plans and other. 68 72 30
-------- -------- --------
Ending balance.................................. 35,845 35,777 35,705
-------- -------- --------
Additional Paid-in Capital:
Beginning balance............................... 110,231 108,157 107,308
Tax benefits resulting from stock options and
grants......................................... 114 200 136
Issuance of stock under various plans and other. 1,270 1,874 713
-------- -------- --------
Ending balance.................................. 111,615 110,231 108,157
-------- -------- --------
Retained Earnings:
Beginning balance............................... 138,550 122,556 102,602
Net income...................................... 32,972 41,015 42,541
Cash dividends declared ($.74, $.72 and $.68 per
share in 1994, 1993 and 1992, respectively).... (26,096) (25,264) (23,658)
Issuance of treasury stock...................... 705 243 1,071
-------- -------- --------
Ending balance.................................. 146,131 138,550 122,556
-------- -------- --------
Treasury Stock, at Cost:
Beginning balance (1,017 shares at 1-1-92)...... (9,535) (11,924) (15,740)
Exercise of stock options....................... 278 1,545 1,591
Restricted stock grant plans.................... 914 510 2,225
Other........................................... 276 334 --
-------- -------- --------
Ending balance (539 shares at 12-31-94)......... (8,067) (9,535) (11,924)
-------- -------- --------
Unamortized Restricted Stock Grant Expense:
Beginning balance............................... (4,209) (4,961) (2,401)
Issuance of grants, net of cancellations........ (1,412) (1,189) (3,638)
Amortization.................................... 1,314 1,941 1,078
-------- -------- --------
Ending balance.................................. (4,307) (4,209) (4,961)
-------- -------- --------
Foreign Currency Translation Adjustments:
Beginning balance............................... (182) 3,076 11,929
Translation adjustments......................... 8,252 (4,624) (14,551)
Income tax adjustments.......................... (2,888) 1,366 5,698
-------- -------- --------
Ending balance.................................. 5,182 (182) 3,076
-------- -------- --------
Total Shareholders' Investment................... $286,399 $270,632 $252,609
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of Keystone International, Inc. and its subsidiaries ("Keystone" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation -- Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates for the year. Since the
functional currencies of these subsidiaries are not the U.S. dollar, the
resulting translation adjustments are recorded as a separate component of
shareholders' investment. Translation gains and losses relating to the
Company's Brazilian subsidiary, which operates in a highly inflationary
economy, are charged against income. Because exchange rate changes do not
themselves give rise to cash flows, their effects on items other than cash and
cash equivalents are excluded from the Consolidated Statements of Cash Flows.
Cash Equivalents -- The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Depreciation and Amortization -- Keystone provides depreciation for financial
reporting purposes primarily on a straight-line basis over periods ranging from
five to thirty years on buildings and improvements and three to ten years for
machinery and equipment. Goodwill is included in other assets and is being
amortized over periods ranging from ten to forty years. Other intangible
assets, which primarily include engineering drawings, patents and tradenames,
are being amortized over periods ranging from three to twenty years.
(2) ACQUISITIONS AND PLANT CLOSING
The Company has made several small acquisitions during 1994, 1993 and 1992.
The total effect of these acquisitions was not material to the consolidated
results of Keystone.
Plant closure costs of $4,372 were recognized in 1994 in connection with the
closure of a manufacturing facility in Indiana. 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 $3,600
associated with this decision over the next year as related incremental costs
are incurred, primarily at the facilities to which operations are being
transferred.
(3) 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 sales. This
step, which is expected to be fully implemented by the end of the second
quarter of 1995, will reduce the Company's work force by approximately 6%, or
about 270 people. Severence related costs associated with these terminations of
approximately $8,000 to $8,500 will be recorded in the first quarter of 1995.
(4) INVENTORIES
Inventories are stated at cost which is not in excess of market. Keystone
uses the last-in, first-out (LIFO) method of determining inventory cost for
most of its domestic inventories. Inventories valued at LIFO cost
14
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprised approximately 44% of consolidated inventories at December 31, 1994.
The remainder of Keystone's inventories are costed using the first-in, first-
out (FIFO) method.
Inventories, which include material, labor and manufacturing overhead costs,
consisted of the following at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Raw materials and partS.................................. $ 16,526 $ 11,450
Work-in-process.......................................... 24,368 17,120
Components, sub-assemblies and finished goods............ 119,812 109,763
Less: LIFO adjustment.................................... (2,899) (3,725)
-------- --------
$157,807 $134,608
======== ========
</TABLE>
(5) LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS
In November 1993, the Company refinanced its 8.75% notes totaling $43,000
with $45,000 of 6.34% Senior Notes due November 1, 2000. Other long-term notes
payable at December 31, 1994 bear weighted average interest rates of
approximately 8% and consist of debt related to the construction of new
manufacturing facilities in Japan and Korea and debt assumed in two 1989
Italian acquisitions. The fair value of the Senior Notes at December 31, 1994
is estimated to be $40,000 based on current market interest rates and
discounted future cash flows. The Company believes, based upon current terms,
that the carrying value of all other long-term debt approximates fair value.
Annual maturities of all long-term debt for the next five years are as
follows: 1995 -- $3,894; 1996 -- $3,931; 1997 -- $2,523; 1998 -- $2,571; 1999
- -- $1,756; 2000 and thereafter -- $49,674.
Short-term bank borrowings of $15,156 at December 31, 1994 primarily
represent borrowings under various committed and uncommitted lines of credit
totaling $78,000. Interest rates on these borrowings vary according to the
country in which the funds are borrowed, but generally approximate the market
rate of interest.
The Company made cash interest payments of $5,081, $5,654 and $6,849 during
1994, 1993 and 1992, respectively.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109 -- "Accounting for Income Taxes." This
statement provides, among other things, for the recognition and presentation of
deferred tax assets and liabilities considering the future consequences of
temporary differences between the financial statement bases and the tax bases
of assets and liabilities using the tax rates in effect during the period when
taxes are actually paid or recovered.
The adoption of this accounting method resulted in a credit to income of
$1,879 in 1993 which is reflected in the Consolidated Statements of Income as a
cumulative effect of change in accounting principle. The cumulative effect
results primarily from calculating temporary differences using currently
enacted tax rates as required. Prior year financial statements were not
restated for SFAS No. 109.
The Company's provision for income taxes includes federal, foreign, state and
local income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
15
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Domestic........................................... $ 1,346 $ 7,286 $ 8,389
Foreign............................................ 11,911 11,707 13,355
------- ------- -------
$13,257 $18,993 $21,744
======= ======= =======
Deferred:
Domestic........................................... $ 3,580 $ 1,014 $ 3,012
Foreign............................................ 2,528 2,978 2,557
------- ------- -------
$ 6,108 $ 3,992 $ 5,569
======= ======= =======
</TABLE>
The significant components of the net deferred tax (asset) and liability are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Deferred Taxes Relating to:
Deferred tax liabilities:
Property, plant and equipment and other assets.. $6,411 $ 6,859
Unremitted foreign earnings..................... 5,691 5,691
------ -------
Sub-total deferred tax liabilities............... 12,102 12,550
------ -------
Deferred tax (assets):
Inventories..................................... (4,793) (4,316)
Accounts payable and accrued liabilities........ (4,823) (5,871)
Other long-term liabilities..................... (3,393) (1,123)
Other, net...................................... 4,692 (3,563)
------ -------
Sub-total deferred tax (assets).................. (8,317) (14,873)
------ -------
Net deferred tax liabilities (assets) before
cumulative translation adjustment............... 3,785 (2,323)
------ -------
Cumulative translation adjustment................ 2,790 (98)
------ -------
Net deferred tax liability (asset)............... $6,575 $(2,421)
====== =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of a deferred tax asset will not be realized. Keystone has recorded no
deferred tax asset for which a valuation reserve is required.
16
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994 and 1993, deferred income taxes were provided for significant
temporary differences between revenue and expenses for tax and financial
statement purposes. Following is a summary of the significant components of the
deferred income tax provision (benefit):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Property, plant and equipment and other.................... $ (448) $(2,460)
Unremitted foreign earnings................................ -- 2,521
Inventories................................................ (477) 1,387
Accounts payable and accrued liabilities................... (1,412) 1,351
Other long-term liabilties................................. 190 1,866
Other, net................................................. 8,255 (673)
------ -------
Deferred income tax provision............................ $6,108 $ 3,992
====== =======
</TABLE>
A reconciliation between the actual provision for income taxes and income
taxes computed by applying the federal statutory rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Taxes computed using statutory rate............... $18,318 $21,743 $23,750
Foreign losses for which no tax benefit is
recognized, net.................................. 1,455 2,029 532
Foreign taxes in excess of the U.S. statutory
rate............................................. -- -- 1,009
State income taxes................................ 370 297 660
Other, net........................................ (778) (1,084) 1,362
------- ------- -------
Actual tax provision............................ $19,365 $22,985 $27,313
======= ======= =======
</TABLE>
The Company made cash tax payments, net of refunds, of approximately $18,597,
$20,651 and $26,854 during 1994, 1993 and 1992, respectively.
Income from continuing operations before income taxes of foreign subsidiaries
was $35,608 in 1994, $36,215 in 1993 and $43,982 in 1992.
The Company has resolved all issues with the Internal Revenue Service ("IRS")
covering calendar years 1986 through 1988. The IRS has completed its
examination of the Company's federal income tax returns for the years 1989 and
1990 and has recommended an assessment of additional tax. Several issues have
been resolved for these years and the Company is vigorously contesting the
remaining issues. In addition, the IRS is currently examining the federal
income tax returns filed by the Company for the years 1991 and 1992. Management
believes that any adjustment that may result from these examinations will not
have a material adverse impact on the Company's consolidated financial position
or future results of operations.
(7) SHAREHOLDERS' INVESTMENT
Incentive Stock Plans -- Keystone has a number of restricted stock grant and
stock option plans which are incentive stock plans administered by a committee
of outside directors for the benefit of the Company's key employees. As of
December 31, 1994, 1,212 shares were available for award under these plans.
Shares issued under the stock grant plans are owned by the employees at the
time of grant, subject to certain restrictions, principally continued
employment with Keystone for a period to be set by the committee, typically
ranging from five to ten years. The deferred compensation expense related to
the stock grants is
17
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
being amortized to expense on a straight-line basis over the period of time the
stock is restricted, and the unamortized portion is classified as a reduction
of shareholders' investment in the accompanying Consolidated Balance Sheets. As
of December 31, 1994, there were 296 shares as to which restrictions had not
lapsed under the stock grant plans.
Stock options are issued at exercise prices which are not less than the fair
market value at the date of grant. Information about Keystone's stock option
plans for the three years ended December 31, 1994 is set forth below:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE RANGE
SHARES PER SHARE
--------- ------------------
<S> <C> <C>
Options outstanding at December 31, 1991........ 677 7.60 - 24.25
Options issued.................................. 190 23.69 - 26.94
Options exercised, canceled or converted........ (320) 10.30 - 24.25
----
Options outstanding at December 31, 1992........ 547 7.60 - 26.94
Options issued.................................. 263 24.63 - 26.75
Options exercised, canceled or converted........ (145) 7.60 - 24.88
----
Options outstanding at December 31, 1993........ 665 8.43 - 26.94
Options issued.................................. 178 19.13 - 27.44
Options exercised, canceled or converted........ (62) 8.43 - 26.94
----
Options outstanding at December 31, 1994........ 781 10.90 - 27.44
====
Exercisable options at December 31, 1994........ 18 14.25 - 21.06
====
</TABLE>
Shareholder Rights Plan -- In June 1990, the Company adopted a Shareholder
Rights Plan and declared a dividend of one Depository Preferred Share purchase
right ("Right") for each share of Common Stock outstanding at the close of
business on July 2, 1990. Each Right entitles the shareholder to buy from the
Company 1/1000 of a share of a new series of preferred stock at an exercise
price of $80 per Right. The Board of Directors has authorized 900 preferred
shares, designated as Preferred Shares -- Junior Participating Series A, for
issuance upon exercise of such Rights. The Rights will not be exercisable
unless a party acquires, or announces a tender offer for, beneficial ownership
of 20% or more of the Company's Common Stock. The Rights may be redeemed by the
Company at a price of $.001 per Right at any time prior to their expiration on
March 31, 2000 or any earlier distribution of Rights certificates in accordance
with the terms of the plan.
If a party acquires a 20% or more position in the Company, each Right, except
those held by the acquiring party, will entitle its holder to purchase, at the
exercise price, Depository Preferred Shares having a value of two times the $80
exercise price, with each Depository Preferred Share valued at the market price
of a share of Common Stock. In the event the Company is acquired in a merger or
other business combination transaction, each Right will entitle its holder to
purchase, at the exercise price, that number of the acquiring company's common
shares having a value of two times the exercise price of the Right.
(8) EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding. The weighted average
number of common and common equivalent shares used in computing earnings per
share was 35,250, 35,085 and 34,902 in 1994, 1993 and 1992, respectively. There
is no significant difference between earnings per share on a primary and a
fully diluted basis.
18
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) EMPLOYEE BENEFIT PLANS
Defined Contribution and Benefit Plans -- Keystone has qualified and non-
qualified profit sharing and stock bonus plans for employees of its domestic
operations. Contributions to these plans, which may be in the form of cash or
shares of the Company's stock, are based on a discretionary percentage (as
approved by the Board of Directors) of pretax income before profit sharing and
stock bonus contributions. Certain foreign subsidiaries and one domestic
subsidiary also maintain retirement benefit plans for their employees.
Keystone's expenses related to these profit sharing, stock bonus and retirement
benefit plans were $5,239 in 1994, $5,183 in 1993, and $5,322 in 1992.
Postretirement Benefit Plans -- The Company maintains an unfunded, defined
contribution postretirement medical benefit program for those domestic retirees
with at least 25 years of service. Postretirement benefit expenses charged to
operating income were $92, (including a $283 credit for gain amortization),
$991 and $899 for 1994, 1993, and 1992, respectively.
Other long-term liabilities included $9,491 and $9,678 at December 31, 1994
and 1993, respectively, related to the long-term obligation for postretirement
benefits.
(10) COMMITMENTS AND CONTINGENCIES
Litigation --Keystone and its subsidiaries are engaged in various claims and
litigation arising from their operations. In the opinion of management,
uninsured losses, if any, resulting from these matters will not have a material
adverse impact on the consolidated financial position or future results of
operations of the Company.
Rental Expense -- Rental expense was $5,697, $6,322 and $6,348 for 1994, 1993
and 1992, respectively. The Company has entered into various leases, including
an insignificant amount of capital leases, which provide for future minimum
lease payments as follows: 1995 -- $4,913; 1996 -- $3,751; 1997 -- $2,430;
1998-- $1,410; 1999 -- $1,062; 2000 and thereafter $3,357.
Letters of Credit -- At December 31, 1994 and 1993, the Company had
outstanding letters of credit of $5,447 and $4,949, respectively.
19
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for each of the two years ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Sales....................... $121,662 $133,105 $135,896 $144,436
Gross Profit.................... 50,545 56,009 55,370 58,260
% of Net Sales.................. 41.5% 42.1% 40.7% 40.3%
Net Income...................... $ 7,232 $ 9,212 $ 7,420 $ 9,108
% of Net Sales.................. 5.9% 6.9% 5.5% 6.3%
Earnings Per Share.............. $ .21 $ .26 $ .21 $ .26
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------------------------
THREE MONTHS ENDED
----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Sales....................... $127,980 $130,804 $126,356 $131,000
Gross Profit.................... 54,011 56,689 53,625 55,691
% of Net Sales.................. 42.2% 43.3% 42.4% 42.5%
Income Before Change in Account-
ing Principle.................. $ 9,721 $ 10,450 $ 9,462 $ 9,503
% of Net Sales.................. 7.6% 8.0% 7.5% 7.3%
Earnings Per Share Before Change
in Accounting Principle........ $ .28 $ .30 $ .27 $ .27
Net Income...................... 11,600 10,450 9,462 9,503
% of Net Sales.................. 9.1% 8.0% 7.5% 7.3%
Earnings Per Share.............. $ .33 $ .30 $ .27 $ .27
</TABLE>
(12) INDUSTRY AND GEOGRAPHIC AREA INFORMATION
Industry Segments -- Keystone operates in one dominant industry segment which
involves the design, manufacture and marketing of flow control products.
Geographic Segments -- Keystone's export sales, other than those intercompany
sales reported below as sales between geographic areas, are not significant.
Sales between geographic areas consist of sales of finished products, raw
materials and unfinished products which are sold at adjusted market prices.
Keystone does not derive more than 10% of its revenue from any single customer.
Corporate assets consist primarily of cash, certificates of deposit and other
assets.
20
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Keystone's geographic area data for each of the three years ended December
31, 1994 are as follows:
<TABLE>
<CAPTION>
NORTH &
SOUTH
EUROPE AMERICA
MIDDLE EXCEPT
UNITED EAST & ASIA- THE
STATES AFRICA PACIFIC U.S. ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------- ------------ ------------
1994
- ----
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $228,209 $145,414 $123,791 $37,685 $ -- $535,099
Sales between geographic
areas.................. 34,378 22,206 6,560 3,598 (66,742) --
-------- -------- -------- ------- -------- --------
Net sales............... $262,587 $167,620 $130,351 $41,283 $(66,742) $535,099
======== ======== ======== ======= ======== ========
Operating income before
plant closure and re-
lated costs............ $ 25,110 $ 23,539 $ 20,798 $ 3,781 $ -- $ 73,228
Plant closure and re-
lated costs............ (4,372) -- -- -- -- (4,372)
-------- -------- -------- ------- -------- --------
Operating income........ 20,738 23,539 20,798 3,781 -- 68,856
General corporate ex-
penses................. (11,854)
Other, net.............. (4,665)
--------
Income before income
taxes.................. $ 52,337
========
Identifiable assets..... 186,257 132,948 128,962 22,096 -- $470,263
Corporate assets........ 26,007
--------
Total assets............ $496,270
========
<CAPTION>
1993
- ----
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $228,236 $150,593 $103,910 $33,401 $ -- $516,140
Sales between geographic
areas.................. 27,402 20,244 3,959 1,475 (53,080) --
-------- -------- -------- ------- -------- --------
Net sales............... $255,638 $170,837 $107,869 $34,876 $(53,080) $516,140
======== ======== ======== ======= ======== ========
Operating income........ $ 30,746 $ 29,082 $ 19,252 $ 3,557 $ -- $ 82,637
General corporate ex-
penses................. (11,974)
Other, net.............. (8,542)
--------
Income before income
taxes and change in ac-
counting principle..... $ 62,121
========
Identifiable assets..... 183,280 117,604 99,260 25,667 -- $425,811
Corporate assets........ 30,689
--------
Total assets............ $456,500
========
<CAPTION>
1992
- ----
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $223,597 $177,618 $ 93,389 $33,768 $ -- $528,372
Sales between geographic
areas.................. 18,960 20,080 2,771 519 (42,330) --
-------- -------- -------- ------- -------- --------
Net sales............... $242,557 $197,698 $ 96,160 $34,287 $(42,330) $528,372
======== ======== ======== ======= ======== ========
Operating income........ $ 30,320 $ 38,946 $ 17,773 $ 4,507 $ -- $ 91,546
General corporate ex-
penses................. (11,215)
Other, net.............. (10,477)
--------
Income before income
taxes.................. $ 69,854
========
Identifiable assets..... 165,350 124,286 82,530 22,222 -- $394,388
Corporate assets........ 43,711
--------
Total assets............ $438,099
========
</TABLE>
21
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) OTHER ASSETS
The following presents details of other assets at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Intangible assets, net of accumulated amortization of
$22,406 in 1994 and $18,987 in 1993.................... $18,230 $20,413
Goodwill, net of accumulated amortization of $3,647 in
1994 and $3,162 in 1993................................ 8,310 7,592
Deferred tax assets..................................... -- 2,421
Other................................................... 8,515 11,477
------- -------
$35,055 $41,903
======= =======
</TABLE>
(14) ACCRUED LIABILITIES
The following presents details of accrued liabilities at December 31, 1994
and 1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Accrued wages, commissions and benefits.................. $23,945 $21,767
Accrued restructuring and merger expenses................ -- 5,401
Other.................................................... 36,963 27,365
------- -------
$60,908 $54,533
======= =======
</TABLE>
(15) 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.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors,
Keystone International, Inc.:
We have audited the accompanying consolidated balance sheets of Keystone
International, Inc. (a Texas corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, changes in
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
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 provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keystone
International, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Note 6 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
March 10, 1995
Houston, Texas
23
<PAGE>
EXHIBIT 21.1
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following subsidiaries are included in the Company's Consolidated
Financial Statements and are wholly owned, with the exception of Keystone Valve
(Korea) Limited, which is 90% owned, and Keystone Valves (India) Pvt. Limited,
which is 51% owned.
(1) Keystone International Holdings Corp., incorporated under the laws of the
State of Delaware.
(2) Keystone Valve Corp., incorporated under the laws of the State of Delaware
(doing business as Keystone Valve U.S.A., Inc. and Keystone Controls,
Inc.).
(3) Keystone Sales, Inc., incorporated under the laws of the State of Texas.
(4) Keystone Polymers, Inc., incorporated under the laws of the State of
Delaware.
(5) Keystone Morin, Inc., incorporated under the laws of the State of Alabama.
(6) Yarway Corporation, incorporated under the laws of the Commonwealth of
Pennsylvania (doing business as Yarway Corporation and Keystone Vanessa,
Inc.).
(7) Keystone Valvtron, Inc., incorporated under the laws of the State of
Delaware.
(8) Anderson, Greenwood & Co., incorporated under the laws of the State of
Delaware (doing business as Anderson, Greenwood & Co. and A-G Safety Sales
& Services of Texas, Inc.).
(9) A-G Safety Sales, Inc., incorporated under the laws of the State of
Louisiana.
(10) A-G Safety Sales & Service, Inc., incorporated under the laws of the State
of Delaware.
(11) Anderson, Greenwood Rupture Discs, Inc., incorporated under the laws of
the State of Delaware.
(12) Kunkle Industries, Inc., incorporated under the laws of the State of
Indiana.
(13) Kunkle Foundry Company, Inc., incorporated under the laws of the State of
Indiana.
(14) Keystone Valve Middle East, Inc., incorporated under the laws of the State
of Texas.
(15) Keystone Saudi, Inc., incorporated under the laws of the State of Texas.
(16) Keystone Kuwait, Inc., incorporated under the laws of the State of
Delaware.
(17) Keystone Canada, Inc., incorporated under the laws of the Province of
Ontario, Canada.
(18) Keystone do Brasil, Ltda., incorporated under the laws of the Federal
Republic of Brazil.
(19) Valvulas Keystone de Mexico, S.A. de C.V., incorporated under the laws of
the Republic of Mexico.
(20) Keystone Valve (Europa) B.V., incorporated under the laws of The
Netherlands.
(21) Keystone Valve (U.K.) Ltd., incorporated under the laws of the United
Kingdom.
(22) Keystone G.m.b.H., incorporated under the laws of the Federal Republic of
Germany.
(23) Keystone S.r.1., incorporated under the laws of Italy.
(24) Biffi Italia S.r.1., incorporated under the laws of Italy.
(25) Keystone Vanessa S.r.1., incorporated under the laws of Italy.
(26) Keystone Pacific Pty. Ltd., incorporated under the laws of the State of
New South Wales, Australia.
<PAGE>
(27) Keystone Valve (Korea) Limited, incorporated under the laws of the
Republic of Korea.
(28) Nippon Keystone Corporation, incorporated under the laws of Japan.
(29) Keystone Southeast Asia Pte. Ltd., incorporated under the laws of
Singapore.
(30) Keystone Valve Hong Kong Ltd., incorporated under the laws of Hong Kong.
(31) Keystone Valve (M) Sdn. Bhd., incorporated under the laws of Malaysia.
(32) Keystone Valve Thailand Ltd., incorporated under the laws of Thailand.
(33) Keystone Valve (Taiwan) Ltd., incorporated under the laws of the Republic
of Taiwan.
(34) Keystone Valve (China) Ltd., incorporated under the laws of the People's
Republic of China.
(35) Keystone Valves (India) Pvt. Limited., incorporated under the laws of
India.
(36) Nortrac Engineering Limited, incorporated under the laws of New Zealand.
(37) Phoenix Automation International, Inc. incorporated under the laws of the
State of Texas.
(38) Keystone International Distribution Company, Inc. incorporated under the
laws of the State of Delaware.
<PAGE>
EXHIBIT 23.1
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 10, 1995 included in this Form 10-K, into the Company's
previously filed Registration Statements File No. 33-37053, File No. 33-69814
and File No. 33-50845.
ARTHUR ANDERSEN LLP
March 10, 1995
Houston, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 18,688
<SECURITIES> 0
<RECEIVABLES> 136,500
<ALLOWANCES> 4,968
<INVENTORY> 157,807
<CURRENT-ASSETS> 312,652
<PP&E> 302,727
<DEPRECIATION> 154,164
<TOTAL-ASSETS> 496,270
<CURRENT-LIABILITIES> 126,968
<BONDS> 60,455
<COMMON> 35,845
0
0
<OTHER-SE> 250,554
<TOTAL-LIABILITY-AND-EQUITY> 496,270
<SALES> 535,099
<TOTAL-REVENUES> 535,099
<CGS> 314,915
<TOTAL-COSTS> 473,725
<OTHER-EXPENSES> 3,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,546
<INCOME-PRETAX> 52,337
<INCOME-TAX> 19,365
<INCOME-CONTINUING> 32,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,972
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
