<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 JUNE 30, 1996
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 July 31, 1996 the number of shares of common stock outstanding was
35,546,765 excluding 383,833 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 SIX MONTHS ENDED
------------------ -------------------
JUNE 30, JUNE 30,
------------------ -------------------
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales $173,554 $152,137 $337,784 $290,315
-------- -------- -------- --------
Cost and Expenses:
Cost of sales 108,935 91,083 212,285 174,610
Selling, general and administrative 43,961 41,117 86,657 81,190
Severance-related costs - - - 8,458
Plant closure and related costs - 2,023 - 2,931
Interest expense, net 1,828 1,378 3,665 2,520
Other (income) expense, net 1,857 1,040 3,404 (1,299)
-------- -------- -------- --------
Income before Income Taxes 16,973 15,496 31,773 21,905
Provision for Income Taxes 6,280 5,733 11,756 8,105
-------- -------- -------- --------
Net Income $ 10,693 $ 9,763 $ 20,017 $ 13,800
======== ======== ======== ========
Weighted Average Outstanding
and Equivalent Shares 35,521 35,346 35,486 35,332
======== ======== ======== ========
Earnings Per Share $ .30 $ .28 $ .56 $ .39
======== ======== ======== ========
Cash Dividends Per Share $ .185 $ .185 $ .37 $ .37
======== ======== ======== ========
</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>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 23,486 $ 12,879
Receivables 172,130 160,580
Inventories 154,367 167,970
Prepayments and other 6,763 6,112
-------- --------
356,746 347,541
-------- --------
Property, Plant and Equipment 344,131 335,101
Less - Accumulated Depreciation 194,501 184,906
-------- --------
149,630 150,195
-------- --------
Other Assets 55,402 58,826
-------- --------
$561,778 $556,562
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term bank borrowings $ 37,026 $ 30,900
Accounts payable and accrued liabilities 128,550 136,001
Income taxes payable 9,337 6,451
-------- ------------
174,913 173,352
-------- ------------
Long-Term Liabilities:
Long-term debt 77,346 79,502
Deferred income taxes 114 2,740
Other long-term liabilities 19,695 18,080
-------- ------------
97,155 100,322
-------- ------------
Shareholders' Investment:
Common stock $1.00 par value, 50 million shares authorized 35,914 35,881
Additional paid-in capital 113,021 112,419
Retained earnings 147,870 140,627
Treasury stock, at cost (6,198) (7,018)
Unamortized restricted stock grant expense (3,931) (3,739)
Foreign currency translation adjustments 3,034 4,718
-------- ------------
289,710 282,888
-------- ------------
$561,778 $556,562
======== ============
</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>
SIX MONTHS ENDED
--------------------
JUNE 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 20,017 $ 13,800
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 12,256 11,347
Amortization 3,357 2,831
(Decrease) increase in deferred taxes (1,582) 1,418
Gain on sale of property, plant and equipment, net (59) (816)
Increase in receivables (12,088) (16,550)
Increase in prepayments and other assets (1,592) (4,219)
Decrease (increase) in inventories 13,207 (4,608)
(Decrease) increase in accounts payable and other liabilities (7,786) 2,380
Increase in income taxes payable 2,780 375
-------- --------
Net Cash Provided by Operating Activities 28,510 5,958
-------- --------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (12,172) (9,243)
Proceeds from sale of property, plant and equipment 391 1,424
-------- --------
Net Cash Used by Investing Activities (11,781) (7,819)
-------- --------
Cash Flows From Financing Activities:
Increase in short-term borrowings 5,737 4,390
Payments of long-term debt (1,662) (2,328)
Proceeds from long-term borrowings 1,811 3,415
Cash dividends paid (13,127) (13,070)
Proceeds from stock plans and other 1,200 1,352
-------- --------
Net Cash Used by Financing Activities (6,041) (6,241)
-------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (81) 263
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 10,607 (7,839)
-------- --------
Cash and Cash Equivalents at Beginning of Period 12,879 18,688
-------- --------
Cash and Cash Equivalents at End of Period $ 23,486 $ 10,849
======== ========
</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)
JUNE 30, 1996 AND 1995
----------------------
(1) BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, including significant accounting policies normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. All adjustments which are, in the
opinion of management, necessary to present a fair statement of the results of
the interim periods have been included. It is suggested these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest Form 10-K.
(2) ESTIMATES INVOLVED IN PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------
The Company's interim financial statements are prepared in accordance with
the same accounting policies followed at year-end. Certain items in the
financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year. Several of the significant accounting estimates related to the
accompanying interim financial statements are set forth below.
Inventories -
The Company performs physical counts of its inventories at various times
during the year. The amounts reflected as raw materials and parts, work-in-
process, and components, sub-assemblies and finished goods as of June 30, 1996
and 1995, and thereby the related amounts for cost of sales, have been
determined using the Company's normal accounting procedures. Past experience of
the Company indicates that no significant adjustment would be required had an
actual count of the inventories been taken.
The majority of the Company's domestic inventories (approximately 33% of
consolidated inventories at December 31, 1995) are priced at cost using the LIFO
(last-in, first-out) method. Since amounts for inventories under the LIFO
method are based upon computations determined at year-end, the inventory at June
30, 1996, has been based on certain estimates of what quantities and costs will
be at December 31, 1996.
Inventories at June 30, 1996, and December 31, 1995, are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Raw materials and parts $ 19,202 $ 23,867
Work-in-process 18,289 20,314
Components, sub-assemblies and finished goods 118,668 125,635
Less: LIFO Adjustment (1,792) (1,846)
-------- --------
$154,367 $167,970
======== ========
</TABLE>
5
<PAGE>
Income Taxes -
The Company provides for income taxes for an interim period by making, at the
end of the interim period, an estimate of the effective tax rate expected to be
applicable for the full year, and applying that rate to the current year-to-date
income before taxes.
(3) FOREIGN CURRENCY TRANSLATION AND COMMITMENTS
--------------------------------------------
An analysis of changes in the foreign currency translation adjustments
included in Shareholders' Investment is as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1995 $ 4,718
Currency translation adjustments (2,590)
Income tax adjustments 906
-------
Balance as of June 30, 1996 $ 3,034
=======
</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 June 30, 1996, the Company has obligations of $10,607 under forward
exchange contracts primarily for Dutch guilders and British pounds at various
dates through January 1997.
(4) EARNINGS PER SHARE
------------------
Earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding. There is no
significant difference between earnings per share on a primary and a fully
diluted basis.
6
<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 SIX MONTHS
--------------------------- -----------------------
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- -----------------------
PERCENTAGE % PERCENTAGE %
OF NET SALES INC. OF NET SALES INC.
------------------- ------ -------------- -------
1996 1995 (DEC.) 1996 1995 (DEC.)
----- ------------ ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 100.0 14.1 100.0 100.0 16.4
Cost and Expenses:
Cost of sales 62.8 59.9 19.6 62.8 60.1 21.6
Selling, general and administrative 25.3 27.0 6.9 25.7 28.0 6.7
Severance-related costs - - * - 2.9 *
Plant closure and related costs - 1.3 * - 1.0 *
Interest expense, net 1.1 .9 32.7 1.1 .9 45.4
Other (income) expense, net 1.0 .7 78.6 1.0 (.5) *
Income before Income Taxes 9.8 10.2 9.5 9.4 7.6 45.0
Provision for Income Taxes 3.6 3.8 9.5 3.5 2.8 45.0
Net Income 6.2 6.4 9.5 5.9 4.8 45.0
</TABLE>
* percentage not meaningful
7
<PAGE>
RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three and six month periods ended June 30, 1996, increased
14.1% and 16.4%, respectively, over the same periods of the prior year. Shown
below is an analysis of the change in net sales. Excluding the effect of Gachot
S.A. and Chemat GmbH, two affiliated companies acquired by Keystone in the
fourth quarter of 1995, net sales increased 8.0% and 10.4%, respectively,
compared to the three and six month periods of 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 30, 1996 JUNE 30, 1996
-------------------------- --------------------------
INC. (DEC.) IN NET SALES INC. (DEC.) IN NET SALES
-------------------------- --------------------------
$ % $ %
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Domestic:
Internal Decrease $(2,129) (3.4) $(4,899) (4.1)
------- ---- ------- ----
International:
Internal Growth 16,449 18.4 37,060 21.8
Exchange Rate Effect (2,213) (2.5) (2,003) (1.2)
------- ---- ------- ----
Total International 14,236 15.9 35,057 20.6
------- ---- ------- ----
Acquisitions 9,310 6.1 17,311 6.0
------- ---- ------- ----
Total Net Sales Increase $21,417 14.1 $47,469 16.4
======= ==== ======= ====
</TABLE>
For both the three and six month periods ended June 30, 1996, cost of sales
as a percentage of net sales increased to 62.8% from 59.9% and 60.1%,
respectively, compared to the same periods in 1995. The increase was primarily
a result of an increase in the mix of aggressively-priced project business in
Europe, Japan, China, and the U.S., increased costs incurred by our Vanessa
operations in Italy to meet significant demand and shorten lead times, start-up
costs associated with establishing Vanessa manufacturing in the U.S., the impact
of the Japanese yen weakening against currencies of Keystone entities supplying
products to the Japanese market, and the addition of Gachot and Chemat activity
at lower gross margins than the Company reported in 1995.
Selling, general and administrative expenses for the three and six month
periods ended June 30, 1996, increased 6.9% and 6.7%, respectively, compared to
the same periods in 1995. The increase is primarily attributable to the
acquisition of Gachot and Chemat in November 1995. Excluding the effects of
Gachot and Chemat, selling, general and administrative expenses were flat
compared to both of the prior year periods.
During the first quarter of 1995, the Company recorded a charge of $8,458
before income taxes, or $.15 per share, and during the fourth quarter of 1995,
the Company recorded a charge of $14,364 before income taxes, or $.28 per share,
for restructuring and severance related costs. The first quarter 1995 charge
represented severance costs in connection with a worldwide workforce reduction
of approximately 270 positions. This reduction was substantially completed by
the end of the second quarter of 1995. The fourth quarter 1995 charge related
to restructuring plans focusing on further streamlining of operations and
divestiture of underperforming assets. These steps are expected to result in
the reduction of an additional 260 positions. Approximately 120 of these
positions are related to business activities being divested and 140 are
associated with ongoing operations. The restructuring charge included severance
and related costs of $9,295, the write-down of certain assets totaling $2,732
and $2,337 of other costs associated with divesting assets. The divestiture of
underperforming assets includes a discontinued product line and several small
businesses with total annual sales of approximately $13 million. In connection
with this divestiture decision, the Company also recognized a charge of $8,174
before income taxes, or $.16 per share, in the fourth quarter of 1995 relating
to impairment of certain long-lived assets held for sale as part of these
divestitures.
8
<PAGE>
The aggregate balance of the restructuring-related liabilities as of June 30,
1996 was $8,615. The majority of the liability related to the original charge
should be paid or settled during 1996. Management believes the Company's
restructuring plans are on track through June 1996 in terms of expected timing,
charges against reserves, annualized savings and impact on 1996's results.
The three and six month periods ended June 30, 1995, include non-recurring
charges of $2,023 and $2,931, respectively, for the closure of a manufacturing
facility in Indiana. These charges include incremental costs incurred at the
facilities to which operations have been transferred.
Interest expense, net for the three and six month periods ended June 30,
1996, increased compared to the same periods in 1995, primarily due to an
increase in debt associated with the Company's acquisition of Gachot and Chemat
in November 1995.
Other (income) expense, net, generally represents amortization of intangible
assets and debt costs, as well as exchange gains and losses related to currency
fluctuations. The three and six month periods ended June 30, 1996, include $305
and $593, respectively, of amortization of the excess of purchase price paid for
Gachot and Chemat over net assets acquired. The three and six month periods
ended June 30, 1996, also include $373 and $606, respectively, of exchange
losses compared to $227 and $569 of exchange gains in the respective prior year
periods. The six month period ended June 30, 1995, included non-recurring gains
of $3,152 related to the disposition of certain assets.
The Company's effective income tax rate was 37% for each of the three and six
month periods ended June 30, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At June 30, 1996, the Company had working capital of $181,833 compared to
$174,189 at December 31, 1995. 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
capital requirements.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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: August 12, 1996 By: /s/ Francis S. Kalman
--------------------------
Francis S. Kalman
Senior 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,486
<SECURITIES> 0
<RECEIVABLES> 178,121
<ALLOWANCES> 5,991
<INVENTORY> 154,367
<CURRENT-ASSETS> 356,746
<PP&E> 344,131
<DEPRECIATION> 194,501
<TOTAL-ASSETS> 561,778
<CURRENT-LIABILITIES> 174,913
<BONDS> 0
<COMMON> 35,914
0
0
<OTHER-SE> 253,796
<TOTAL-LIABILITY-AND-EQUITY> 561,778
<SALES> 337,784
<TOTAL-REVENUES> 337,784
<CGS> 212,285
<TOTAL-COSTS> 298,942
<OTHER-EXPENSES> 2,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,081
<INCOME-PRETAX> 31,773
<INCOME-TAX> 11,756
<INCOME-CONTINUING> 20,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,017
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
