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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1995 Commission File No. 0-10265
Kevlin Corporation
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2073497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Cornell Place, Wilmington, Massachusetts 01887
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 657-3900
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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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.10 per share 2,728,794
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Class of Stock Outstanding at
August 31, 1995
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<TABLE>
KEVLIN CORPORATION
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - August 31,1995
and May 31, 1995............................................ 3 - 4
Consolidated Statements of Operations - Three Months
Ended August 31, 1995 and 1994.............................. 5
Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1995 and 1994................. 6 - 7
Notes to Consolidated Financial
Statements.................................................. 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition....................... 9 - 10
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of matters to a vote of Security holders......... 11
Item 6. Exhibits and Reports on Form 8-K ........................... 11
</TABLE>
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<TABLE>
ITEM 1. FINANCIAL STATEMENTS
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KEVLIN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<CAPTION>
ASSETS
August 31, May 31,
1995 1995
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,003 $ 2,881
Marketable securities 300 -
Accounts receivable, net of
allowance for doubtful accounts
of $52 at August 31, 1995
and May 31, 1995 2,007 2,750
Inventories 2,293 2,000
Costs and estimated earnings
in excess of billings on
uncompleted contracts 1,471 1,297
Prepaid expenses and other
current assets 179 113
Refundable and deferred income taxes 340 226
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Total current assets 8,593 9,267
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Equipment, fixtures and
improvements, at cost:
Machinery and equipment 1,856 1,856
Electrical test equipment 1,106 1,106
Furniture, fixtures and
office equipment 1,052 1,006
Leasehold improvements 833 824
Motor vehicles 14 14
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4,861 4,806
Less-accumulated depreciation
and amortization (3,628) (3,539)
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Net equipment, fixtures &
improvements 1,233 1,267
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Other assets 385 408
Deferred income taxes 142 142
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Total Assets $ 10,353 $ 11,084
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
KEVLIN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Continued)
(Dollars in thousands, except share
data)
LIABILITIES AND STOCKHOLDERS'
EQUITY
<CAPTION>
August 31, May 31,
1995 1995
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(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 506 $ 489
Billings in excess of costs
and estimated earnings on
uncompleted contracts 52 17
Accrued income taxes - 434
Current portion of obligation
under capital lease 12 17
Accrued expenses and other
current liabilities 946 1,479
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Total current liabilities 1,516 2,436
Accrued retirement benefits 1,063 1,016
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Total Liabilities 2,579 3,452
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1.00 par value
Authorized - 2,000,000 shares,
Issued - none - -
Common Stock, $.10 par value -
Authorized - 8,000,000 shares
Issued - 3,121,881 shares at
August 31, 1995 and 3,084,881
at May 31, 1995 312 308
Capital in excess of par value 2,163 2,079
Retained earnings 5,909 5,821
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8,384 8,208
Less - Treasury stock of 393,087
shares at August 31, 1995, and
386,487 shares at May 31, 1995,
at cost 610 576
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Total stockholders' equity 7,774 7,632
Total Liabilities and Stockholders' Equity $ 10,353 $ 11,084
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
KEVLIN CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except per
share data)
(UNAUDITED)
<CAPTION>
Three Months Ended
August 31, August 31,
1995 1994
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<S> <C> <C>
Net sales $ 2,326 $ 2,837
Cost of sales 1,352 1,821
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Gross profit 974 1,016
Operating expenses:
Product development 148 74
Selling 254 264
General and administrative 454 473
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Income from operations 118 205
Interest income 19 14
Other income, net 10 -
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Income from continuing operations before
provision for income taxes 147 219
Provision for income taxes 59 88
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Net income $ 88 $ 131
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Income per common and common
equivalent share:
Net income per share $.03 $.05
==== ====
Weighted average number of common
and common equivalent shares outstanding 2,988,984 2,901,073
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
KEVLIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
<CAPTION>
Three Months Ended
August 31, August 31,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 88 $ 131
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 97 91
Gain on sale of asset 10 -
Changes in assets and liabilities:
Decrease in accounts receivable 743 229
Increase in inventories (293) -
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (174) (881)
Decrease (increase) in prepaid expenses and
other current assets; refundable and deferred
income taxes; and other assets (160) 73
Decrease in accounts payable and accrued (478) (426)
expenses
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 35 36
Increase (decrease) in accrued and deferred
income taxes (434) 82
Decrease in net discontinued liability - (26)
Increase (decrease) in accrued retirement
benefits 47 (9)
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Net cash used for operating activities $ (519) $ (700)
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</TABLE>
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<TABLE>
KEVLIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(UNAUDITED)
<CAPTION>
Three Months Ended
August 31, August 31,
1995 1994
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<S> <C> <C>
Cash flows from investing activities:
Expenditures for property and equipment (70) (71)
Purchase of marketable securities (300) -
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Net cash used for investing activities (370) (71)
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Cash flows from financing activities:
Principal payments under capital
lease obligations (5) (15)
Net proceeds (payments) from stock transactions 16 (15)
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Net cash provided by (used in) financing
activities 11 (30)
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Net decrease in cash & cash equivalents (878) (801)
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Cash & cash equivalents, beginning of period 2,881 2,192
Cash & cash equivalents, end of period $ 2,003 $ 1,391
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Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ - $ 2
Income taxes $ 607 $ 22
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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KEVLIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The condensed 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.
The Company's accounting and financial reporting policies are in
conformity with generally accepted accounting principles and include
normal recurring adjustments in interim periods, which in the opinion
of management, are considered necessary for a fair presentation of the
results of operations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the related notes thereto
included in the Company's latest annual report on Form 10-K.
The accompanying consolidated financial statements reflect the
Company's results of operations for an interim period and are not
necessarily indicative of the results of operations for the year ending
May 31, 1996.
<TABLE>
Note 2 - Inventories are comprised of the following:
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<CAPTION>
August 31, 1995 May 31, 1995
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(unaudited)
(Dollars in thousands)
<S> <C> <C>
Parts and materials $ 1,014 $ 814
Work-in-process 1,032 939
Finished goods 247 247
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$ 2,293 $ 2,000
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</TABLE>
NOTE 3 - Income per common and common equivalent share is
computed based on the weighted average number of common shares and
common equivalent shares (if dilutive) outstanding during each period.
NOTE 4 - Statements of Cash Flow: During the first quarter of
fiscal 1996, the Company paid its fiscal 1995 ESOP contribution accrual
in the form of a noncash distribution from its treasury stock in the
amount of $38,250.
NOTE 5 - In the first quarter of fiscal 1996, the Company entered
into a letter of intent with Kaydon Corporation regarding the
acquisition of the Company at a price of $4.50 a share. The
transaction is subject to approval by the board of Kaydon and by the
board and shareholders of Kevlin, completion by Kaydon of due diligence
and the execution of a definitive agreement.
In a related matter, there are several managers of the Company who
have contracts which, in the event of a change in control of the
Company, entitle them to severance pay and benefits.
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Item 2. Management's Discussion and Analysis of Results of Operations
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and Financial Condition
-----------------------
Results of Operations:
Net sales for the first quarter of fiscal 1996 ending August 31, 1995
decreased by $511,000, or 18%, compared to the first quarter of the
prior fiscal year. The decline in first quarter sales was principally
due to the non-recurrence of defense system repair business which
decreased by $481,000 as compared to the first fiscal quarter of 1995.
In addition, there was a decrease in air traffic control related sales,
which was partially offset by an increase in sales to the North America
market and in MAST division sales.
The gross profit margin for the first quarter of fiscal 1996 increased
by 6% to 42%, as compared to 36% in the corresponding period of fiscal
1995. The higher gross margin for the three months ended August 31,
1995 was due to the addition of some higher margin contracts,
specifically relating to international sales, and the absence of
several lower margin contracts in the current fiscal year, as compared
with the same period of the prior fiscal year.
Operating expenses for the first quarter of fiscal 1996 increased by
$45,000, or 6%, as compared to the same period in fiscal 1995. The
increase resulted from additional product development costs as well as
corporate expenses related to recent merger and acquisition activity,
which were partially offset by the net benefit realized from the
reorganization of the Kevlin Microwave and MAST divisions.
Interest income increased by $5,000, or 36%, compared to the same
period in the last fiscal year. The increase is attributable to new
cash management and investment policies initiated by the Company in the
fourth quarter of fiscal 1995 and an increase in the average cash
balance in the first quarter of fiscal 1996 as compared to the same
quarter of the prior fiscal year.
Net Income for the first quarter of $88,000, or $.03 per share,
decreased by 33% from the prior year first quarter amount of $131,000,
or $.05 per share. The decrease was primarily attributable to lower
sales for the quarter compared to the same period of the prior fiscal
year. However, improved margins and decreased operating expenses in
the first quarter of fiscal year 1996 lessened the impact on net income
created by the lower sales.
New orders decreased by $217,000, or 13%, during the first quarter of
fiscal 1996 to $1,514,000, as compared to $1,731,000 received in the
first quarter of the prior fiscal year. The decrease is primarily
related to the fiscal 1996 first quarter cancellation of a $264,000
defense order to upgrade existing units which was booked in the same
quarter of fiscal 1995. This order was canceled when the customer
decided to purchase $576,000 of new products from Kevlin instead of
both upgrading existing units and purchasing new products.
The Company's backlog decreased by $303,000, or 5%, to $6,460,000 from
the prior year first quarter amount of $6,763,000.
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Item 2. Management's Discussion and Analysis of Results of Operations
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and Financial Condition
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Liquidity and Capital Resources
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Net cash and cash equivalents decreased by $878,000 during the three
months ended August 31, 1995. The primary reasons for the decrease
related to the first major payments of income taxes (approximately
$607,000) in several years and a $300,000 investment in high quality
marketable securities. In the last few years, taxable income has been
absorbed by the utilization of net operating loss carryforward amounts
relating to the discontinuance of the Flow Vision operation. Liquid
assets of $4,310,000 have decreased by $1,321,000 since May 31, 1995,
however, the Company's financial condition remains relatively strong.
The Company's current ratio increased to 5.7 at August 31, 1995 from
3.8 at May 31, 1995 and 4.5 at May 31, 1994. The Company believes its
future capital requirements for equipment and product development can
be met through cash flow from operations, bank borrowings, and other
sources at its disposal. This includes the Company's $2,500,000
unsecured demand lines of credit with two Boston banks, which were
fully available at August 31, 1995. Additionally, the Company also
has an unsecured term loan facility of $5,000,000 which is still
available for acquisitions with one of these banks.
Also, the Company has entered into a letter of intent with Kaydon
Corporation. Refer to note 5 of the Notes to Consolidated Financial
Statements for further discussion.
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PART II - OTHER INFORMATION
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Item 4. Submission of matters to a vote of security holders.
- --------------------------------------------------------------
None.
Item 5. Other Information.
- ----------------------------
The Company has entered into contracts with seven officers and managers
of the Company which, in the event of a change in control of the
Company, entitles them to severance pay and benefits.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
---------
As discussed in Item 5 above, the Company has entered into
severance contracts with several officers and managers. There
are two types of contracts between the related parties:
1. In the event of a change in control of the Company, if
employment is terminated within a one year period following a
change in control, the employee is entitled to a severance package
equal to two years' annual salary, related bonuses and certain
benefits.
Officers in this category are as follows:
Arthur Williams President and Chief Executive Officer
John Moran Vice President and General Manager
Robert Ricci Vice President of Administration
John Rice Vice President of Sales
2. In the event of a change in control of the Company, if
employment is terminated within a one year period following a
change in control, the employee is entitled to a severance package
equal to one year's annual salary plus related bonus amounts.
Officers and managers in this category are as follows:
D. Wayne Peters Vice President, Chief Financial
Officer and Treasurer
Andrew Pellerin Engineering Manager
Daniel Whelan Corporate Controller
(b) Report of Form 8-K
The Registrant did not file any Current Reports on Form 8-K
during the quarter ended August 31, 1995.
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SIGNATURES
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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.
DATED: October 4, 1995
Kevlin Corporation
By: /s/ D. Wayne Peters
---------------------------
D. Wayne Peters
Vice President,
Chief Financial Officer and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF KEVLIN CORPORATION FOR THE THREE
MONTHS ENDED AUGUST 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,003
<SECURITIES> 300
<RECEIVABLES> 2,059
<ALLOWANCES> (52)
<INVENTORY> 2,293
<CURRENT-ASSETS> 8,593
<PP&E> 4,861
<DEPRECIATION> 3,628
<TOTAL-ASSETS> 10,353
<CURRENT-LIABILITIES> 1,516
<BONDS> 0
<COMMON> 312
0
0
<OTHER-SE> 7,462
<TOTAL-LIABILITY-AND-EQUITY> 10,353
<SALES> 2,326
<TOTAL-REVENUES> 2,326
<CGS> 1,352
<TOTAL-COSTS> 1,352
<OTHER-EXPENSES> 856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 147
<INCOME-TAX> 59
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
