<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 MARCH 31, 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 May 01, 1996 the number of shares of common stock outstanding was
35,515,817 excluding 387,602 treasury shares.
1
<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,
------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales $164,230 $138,178
Cost and Expenses:
Cost of sales 103,350 83,527
Selling, general and administrative 42,696 40,073
Severance-related costs - 8,458
Plant closure and related costs - 908
Interest expense 2,049 1,470
Interest income (212) (328)
Other (income) expense, net 1,547 (2,339)
-------- --------
Income before Income Taxes 14,800 6,409
Provision for Income Taxes 5,476 2,372
-------- --------
Net Income $ 9,324 $ 4,037
======== ========
Weighted Average Outstanding
and Equivalent Shares 35,452 35,318
======== ========
Earnings Per Share $ .26 $ .11
======== ========
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,
1996 1995
----------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,398 $ 12,879
Receivables 173,088 160,580
Inventories 166,796 167,970
Prepayments and other 7,647 6,112
-------- --------
362,929 347,541
-------- --------
Property, Plant and Equipment 338,523 335,101
Less - Accumulated Depreciation 190,515 184,906
-------- --------
148,008 150,195
-------- --------
Other Assets 56,701 58,826
-------- --------
$567,638 $556,562
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current maturities and short-term bank borrowings $ 40,073 $ 30,900
Accounts payable and accrued liabilities 130,820 136,001
Income taxes payable 7,363 6,451
-------- --------
178,256 173,352
-------- --------
Long-Term Liabilities:
Long-term debt 78,479 79,502
Deferred income taxes 4,744 2,740
Other long-term liabilities 19,940 18,080
-------- --------
103,163 100,322
-------- --------
Shareholders' Investment:
Common stock, $1.00 par value, 50 million shares authorized 35,903 35,881
Additional paid-in capital 112,798 112,419
Retained earnings 143,392 140,627
Treasury stock, at cost (7,030) (7,018)
Unamortized restricted stock grant expense (3,461) (3,739)
Foreign currency translation adjustments 4,617 4,718
-------- --------
286,219 282,888
-------- --------
$567,638 $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>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 9,324 $ 4,037
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,388 5,557
Amortization 1,645 1,460
Increase (decrease) in deferred taxes 2,143 (1,828)
Gain on sale of property, plant and equipment, net (75) (646)
Gain on disposition of certain other assets - (2,443)
Increase in receivables (12,494) (9,479)
Increase in prepayments and other assets (1,528) (1,828)
Decrease (increase) in inventories 1,178 (529)
(Decrease) increase in accounts payable and other liabilities (4,468) 1,393
Increase (decrease) in income taxes payable 915 (716)
-------- -------
Net Cash Provided (Used) by Operating Activities 3,028 (5,022)
-------- -------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (4,105) (3,896)
Proceeds from sale of property, plant and equipment 337 982
-------- -------
Net Cash Used by Investing Activities (3,768) (2,914)
-------- -------
Cash Flows From Financing Activities:
Increase in short-term borrowings 8,353 7,478
Payments of long-term debt (689) (1,119)
Proceeds from long-term borrowings 1,688 750
Cash dividends paid (6,556) (6,532)
Proceeds from stock plans and other 461 1,065
-------- -------
Net Cash Provided by Financing Activities 3,257 1,642
-------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 2 228
-------- -------
Increase (Decrease) in Cash and Cash Equivalents 2,519 (6,066)
-------- -------
Cash and Cash Equivalents at Beginning of Period 12,879 18,688
-------- -------
Cash and Cash Equivalents at End of Period $ 15,398 $12,622
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statement.
4
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
MARCH 31, 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 March 31, 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 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 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
March 31, 1996 has been based on certain estimates of quantities and costs at
December 31, 1996.
Inventories at March 31, 1996 and December 31, 1995 are comprised of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -------------
<S> <C> <C>
Raw materials and parts $ 21,399 $ 23,867
Work-in-process 21,013 20,314
Components, sub-assemblies and finished goods 126,147 125,635
Less: LIFO Adjustment (1,763) (1,846)
-------- --------
$166,796 $167,970
======== ========
</TABLE>
Income Taxes -
The Company provides for income taxes for an interim period by making, at the
end of the interim period, an estimate of the effective tax rate expected to be
applicable for the full year, and applying that rate to the current year-to-date
income before taxes.
5
<PAGE>
(3) FOREIGN CURRENCY TRANSLATION AND COMMITMENTS
--------------------------------------------
An analysis of changes in the foreign currency translation adjustments
included in Shareholders' Investment is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance as of December 31, 1995 $4,718
Currency translation adjustments (155)
Income tax adjustments 54
------
Balance as of March 31, 1996 $4,617
======
</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 March 31, 1996, the Company has obligations of $8,171 under forward
exchange contracts primarily for Dutch guilders and German marks at various
dates through 1996.
(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.
THREE MONTHS
ENDED MARCH 31,
------------------------
PERCENTAGE %
OF NET SALES INC.
------------ ----
1996 1995 (DEC.)
---- ---- ------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Sales 100.0 100.0 18.9
Cost and Expenses:
Cost of sales 62.9 60.4 23.7
Selling, general and administrative 26.0 29.0 6.5
Severance related costs - 6.1 *
Plant closure and related costs - .7 *
Interest expense 1.2 1.1 39.4
Interest income (.1) (.2) (35.4)
Other (income) expense, net 1.0 (1.7) *
Income before Income Taxes 9.0 4.6 130.9
Provision for Income Taxes 3.3 1.7 130.9
Net Income 5.7 2.9 130.9
</TABLE>
* percentage not meaningful
7
<PAGE>
RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
Net sales for the three month period ended March 31, 1996, increased 18.9%
over the same period 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 13.1% over the first quarter of 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
------------------
INC. (DEC.) IN NET
------------------
<S> <C> <C>
Domestic:
Internal Decrease $(2,770) (4.8)
-------
International:
Internal Growth 20,611 25.6
Exchange Rate Effect 210 0.3
-------
Total International 20,821 25.9
-------
Acquisitions 8,001 5.8
-------
Total Net Sales Increase $26,052 18.9
=======
</TABLE>
For the three months ended March 31, 1996, cost of sales as a percentage of
net sales increased to 62.9% from 60.4% a year ago. The increase was primarily a
result of an increase in the mix of aggressively-priced project business in
Japan, China, Italy and the U.S., expediting costs incurred by our Vanessa
operations in Italy to meet significant demand and shorten lead times, and
start-up costs associated with establishing Vanessa manufacturing in the U.S.
Selling, general and administrative expenses for the three month period ended
March 31, 1996, increased 6.5% compared to the same period in 1995. The
increase is primarily attributable to the acquisition of Gachot and Chemat in
November 1995. Excluding the effects of the acquisition of Gachot and Chemat,
selling, general and administrative expenses declined slightly from the prior
year period.
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.
The aggregate balance of the restructuring-related liabilities as of March
31, 1996 was $9,759. The majority of these liabilities should be paid or
settled during 1996. On the whole, Management believes the Company's
restructuring plans are on track through March 1996 in terms of expected timing,
charges against reserves, annualized savings and impact on 1996's results.
8
<PAGE>
The three month period ended March 31, 1995, includes a non-recurring charge
of $908 for the closure of a manufacturing facility in Indiana. These costs
include incremental costs incurred at the facilities to which operations have
been transferred.
Interest expense for the three month period ended March 31, 1996, increased
compared to the same period in 1995, primarily due to an increase in debt
associated with the Company's acquisition of Gachot and Chemat in November 1995.
Interest income decreased in the three month period ended March 31, 1996, as
compared to the same period in 1995 primarily due to the recognition in 1995 of
interest related to an income tax refund and a decrease in cash available for
investment between the periods.
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 first quarter 1995 includes non-recurring gains of $3,152
related to the disposition of certain assets. The first quarter of 1996 includes
$288 amortization of excess of purchase price paid for Gachot and Chemat over
net assets acquired. In addition, the first quarter of 1996 includes $233 of
exchange losses versus $342 of exchange gains recognized in the first quarter of
1995.
The Company's effective income tax rate was 37% for the three month periods
ended March 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
At March 31, 1996, the Company had working capital of $184,673 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: May 14, 1996 By: /s/ Mark E. Baldwin
--------------------------
Mark E. Baldwin
Vice President and Chief
Financial Officer
By: /s/ J. Gordon Beittenmiller
--------------------------------
J. Gordon Beittenmiller
Corporate Controller
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,398
<SECURITIES> 0
<RECEIVABLES> 179,182
<ALLOWANCES> 6,094
<INVENTORY> 166,796
<CURRENT-ASSETS> 362,929
<PP&E> 338,523
<DEPRECIATION> 190,515
<TOTAL-ASSETS> 567,638
<CURRENT-LIABILITIES> 178,256
<BONDS> 0
0
0
<COMMON> 35,903
<OTHER-SE> 250,316
<TOTAL-LIABILITY-AND-EQUITY> 567,638
<SALES> 164,230
<TOTAL-REVENUES> 164,230
<CGS> 103,350
<TOTAL-COSTS> 146,046
<OTHER-EXPENSES> 1,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,049
<INCOME-PRETAX> 14,800
<INCOME-TAX> 5,476
<INCOME-CONTINUING> 9,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,324
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
