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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended April 2, 1994 Commission File No. 0-12640
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KAYDON CORPORATION
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A Delaware Corporation IRS Employer ID No. 13-3186040
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19345 US 19 North, Clearwater, FL 34624 Phone: 813/531-1101
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Kaydon Corporation:
(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.
Yes X No
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(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Common Stock Outstanding at May 2, 1994 - 16,690,141 shares, $0.10 par value.
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KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 1994
INDEX
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Page No.
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Part I - Financial Information:
Consolidated Condensed Balance Sheets -
April 2, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Income -
Three Months Ended April 2, 1994 and April 3, 1993 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended April 2, 1994 and April 3, 1993 3
Notes to Consolidated Condensed Financial
Statements 4 - 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 7
Part II - Other Information:
Item 4. - Submission of Matters to a Vote of Security Holders 8
Item 5. - Other Information 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibits E-1
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KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
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April 2, 1994 December 31, 1993
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(Unaudited)
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Assets:
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Cash and cash equivalents $ 17,608,000 $ 24,528,000
Accounts receivable, net 28,002,000 24,543,000
Inventories 53,889,000 51,529,000
Other current assets 6,261,000 5,920,000
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Total current assets 105,760,000 106,520,000
Plant and equipment, net 63,778,000 60,077,000
Cost in excess of net tangible
assets of purchased businesses, net 43,418,000 43,628,000
Other assets 9,413,000 7,197,000
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Total assets $222,369,000 $217,422,000
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Liabilities and Stockholders' Investment:
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Short-term debt $ 693,000 $ 1,624,000
Accounts payable 7,813,000 6,724,000
Accrued expenses 25,389,000 23,988,000
Federal income tax payable 5,552,000 2,374,000
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Total current liabilities 39,447,000 34,710,000
Other long-term liabilities 27,598,000 25,184,000
Long-term debt 8,000,000 13,688,000
Stockholders' investment 147,324,000 143,840,000
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Total liabilities and
stockholders' investment $222,369,000 $217,422,000
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See accompanying notes to consolidated condensed financial statements.
1
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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
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THREE MONTHS ENDED
April 2, 1994 April 3, 1993
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Net Sales $50,125,000 $48,035,000
Gross Profit 17,912,000 16,506,000
Operating Income 11,525,000 10,781,000
Interest (Income) Expense, Net (28,000) 6,000
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Income Before Income Taxes and Cumulative Prior
Year Effect of Change in Accounting Principle 11,553,000 10,775,000
Provision for Income Taxes 4,361,000 4,005,000
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Income Before Cumulative Prior
Year Effect of Change in Accounting Principle 7,192,000 6,770,000
Cumulative Prior Year Effect of Change in
Accounting Principle For Postemployment
Benefits, Net of Income Tax
Benefit of $1,200,000 (2,000,000) 0
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Net Income $ 5,192,000 $ 6,770,000
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Weighted Average Common Shares 16,720,000 17,539,000
Earnings Per Share Before Cumulative Prior Year
Effect of Change in Accounting Principle $ 0.43 $ 0.39
Earnings Per Share $ 0.31 $ 0.39
Dividends Per Share $ 0.10 $ 0.09
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See accompanying notes to consolidated condensed financial statements.
2
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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED
April 2, 1994 April 3, 1993
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Net cash provided by operating activities $10,977,000 $ 10,849,000
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Cash flows from investing activities:
Capital expenditures, net (2,292,000) (1,227,000)
Acquisition of business, net of cash acquired (7,268,000) 0
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Net cash used in investing activities (9,560,000) (1,227,000)
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Cash flows from financing activities:
Net borrowings under line of credit 381,000 15,000
Principal payments of long-term debt (7,000,000) (10,000,000)
Proceeds from issuance of common stock 0 979,000
Dividends paid (1,679,000) (1,562,000)
Other (39,000) (63,000)
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Net cash used in financing activities (8,337,000) (10,631,000)
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Effect of exchange rate changes on cash
and cash equivalents 0 (25,000)
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Net decrease in cash and cash equivalents (6,920,000) (1,034,000)
Cash and cash equivalents - Beginning of period 24,528,000 13,664,000
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Cash and cash equivalents - End of period $17,608,000 $ 12,630,000
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Cash expended for income taxes $ 1,161,000 $ 2,492,000
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Cash expended for interest $ 122,000 $ 169,000
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See accompanying notes to consolidated condensed financial statements.
3
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KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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(1) The consolidated condensed financial statements included herein have
been prepared by Kaydon Corporation and subsidiaries (the "Company"),
without audit, pursuant to the rules and regulation of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made in this document are
adequate to make the information presented not misleading. It is
suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated financial statements and
notes thereto in the Company's 1993 Annual Report on Form 10-K.
(2) In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of April 2,
1994 and the results of its operations and its cash flows for the
three months then ended. However, interim results are not necessarily
indicative of results of a full year.
(3) Inventories are valued at the lower of cost or market and include
material, labor and overhead. Cost is determined under the first-in,
first-out ("FIFO") method for substantially all inventories.
Inventories are summarized as follows:
April 2, 1994 Dec 31, 1993
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Raw Material $13,740,000 $12,251,000
Work in Process 10,852,000 10,347,000
Finished Goods 29,297,000 28,931,000
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$53,889,000 $51,529,000
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(4) The consolidated condensed financial statements reflect the Company's
acquisition of certain assets and certain liabilities of Industrial
Tectonics Inc ("ITI"). The acquisition was accounted for using the
purchase method of accounting and, accordingly, the results of
operations of ITI have been included in the 1994 first quarter
consolidated financial statements since January 28, 1994, the
effective date of the acquisition. The cash consideration for the
acquisition, net of cash acquired, was approximately $7,268,000.
4
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(5) The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 112, (SFAS 112) "Employers' Accounting for
Postemployment Benefits." The cumulative effect of the change in the
accounting principle resulted in an after-tax charge of $2,000,000.
(6) The Company, together with other companies, certain former officers,
and certain current and former directors, has been named as a
co-defendant in lawsuits filed in the federal court of New York. The
suits purport to be class actions on behalf of all persons who have
unsatisfied personal injury and property damage claims against Keene
Corporation. The premise of the suits is that assets of Keene were
transferred to Bairnco subsidiaries, of which Kaydon was one in 1983,
at less than fair value. The suits also allege that the Company,
among other named defendants, was a successor to and alter ego of
Keene. While the ultimate outcome of this litigation is unknown at
the present time, management believes that it has meritorious defenses
to the asserted claims. Accordingly, no provision has been reflected
in the consolidated financial statements for any alleged damages.
Management believes that the outcome of this litigation will not have
a materially adverse effect on the Company's financial position.
Various other claims, lawsuits and environmental matters arising in
the normal course of business are pending against the Company.
Management believes that the outcome of these matters will not have a
materially adverse effect on the Company's financial position or
results of operations.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
Kaydon Corporation and subsidiaries (the "Company") reported sales of
$50,125,000 in the first quarter 1994, up 4.4% compared to $48,035,000 in the
first quarter 1993. The increase was mainly due to the Company's acquisition of
Industrial Tectonics Inc on January 28, 1994.
Net income, prior to the mandated accounting change for SFAS 112, was
$7,192,000, up 6.2% compared to $6,770,000 in first quarter 1993 despite a
higher tax rate in the current year. In November 1992, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 112 (SFAS 112) - "Employers' Accounting for Postemployment Benefits." This
statement requires employers to accrue, no later than fiscal 1994, for benefits
provided to former or inactive employees after employment but prior to
retirement. The net effect of the adoption of SFAS 112 was a charge to first
quarter 1994 earnings of $2,000,000. The adoption of SFAS 112 has no effect on
the Company's cash flows.
Gross profit as a percent of sales increased to 35.7% from 34.4% in the same
period last year. The increase was attributable to improved manufacturing
results.
Selling and administrative expenses were 12.7% of sales, up slightly from 11.9%
last year. The slight increase is partially related to ITI's higher SG&A costs
as a percent of sales compared to that of the Company's other businesses.
The effective tax rate of 37.8% during the first quarter of 1994 was comparable
with the 1993 annual effective rate. The first quarter 1993 effective rate did
not reflect the approximate 1% U.S. tax rate increase enacted during the third
quarter of 1993.
Liquidity and Capital Resources
Debt at April 2, 1994 totaled $8,693,000, a reduction during the first quarter
of $6,619,000. Cash and cash equivalents on-hand now exceed debt by $8,915,000
compared to $9,216,000 at year end. The $8,000,000 of long term debt is
Industrial Revenue Bonds issued at favorable interest rates which we do not
anticipate paying ahead of schedule. Working capital at the end of the quarter
totaled $66,313,000, down $5,497,000 from year end. The decrease in working
capital is attributable to the repayment of long term debt, net capital
expenditures, dividends and the ITI acquisition, partially offset by the
quarter's cash flow from operations.
6
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Management expects that the Company's planned capital requirements for the
remainder of 1994, which consist of capital expenditures, dividend payments and
its stock repurchase program, will be financed by operations. However, the
Company has $85,000,000 available under its new multi-bank revolving credit
agreements that could be utilized to meet acquisition or liquidity needs. The
new revolving credit agreements, put in place during the first quarter, replace
the Company's previous agreements that totaled $60,000,000.
Outlook
The Company's backlog of unfilled orders increased to $86,279,000 compared to
$84,385,000 in the prior quarter, aided by the incorporation of Industrial
Tectonics' backlog. Total backlog is up substantially from last year's
$80,372,000 which was the low point in the last two years. Industrial
Tectonics Inc, like many of the Company's other businesses, operates with a low
backlog relative to sales, reflecting the modern, just-in-time inventory
philosophy adopted by many of the Company's customers.
Generally, the Company's overall business shows increasing strength in the
order backlog. There has been a marked increase in the level of inquiry and
quotation for military-oriented products, particularly for repair and
replacement. The reason for the increased military activity is not clear, but
the Company believes it will eventually result in a greater order flow later
this year.
7
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Part II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The tenth Annual Stockholders' Meeting of Kaydon Corporation was held
at the Tampa Airport Marriott on April 27, 1994. Represented at this
meeting in person or by proxy were 13,899,521 shares of Kaydon common
stock, representing 83% of the total outstanding as of the February
28, 1994 record date.
The stockholders elected Glenn W. Bailey, Gerald J. Breen, Lawrence J.
Cawley, Stephen K. Clough, John H.F. Haskell, Jr. and Norton Stevens
to serve as Directors until the 1995 Annual Meeting. The results of
the votes are as follow:
Election of Directors For Withhold
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G. Bailey 13,875,627 23,894
G. Breen 13,875,767 23,754
L. Cawley 13,877,193 22,328
S. Clough 13,877,193 22,328
J. Haskell 13,877,467 22,054
N. Stevens 13,875,167 24,354
There was no other official business to come before the meeting.
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Item 5. Other Information
On January 5, 1994, the Company announced that it had signed an
agreement with Axel Johnson Inc., headquartered in Stamford,
Connecticut, to acquire the assets and business of Industrial
Tectonics Inc located in Dexter, Michigan. The company manufactures
specialty balls used in measuring devices, floats, valves, ball point
pens and anti-friction bearings. Annual sales for the operation are
slightly over $10 million. The effective date of the purchase was
January 28, 1994.
The Company further announced that it had acquired the assets of
Kenyon Power Transmission Ltd. effective December 4, 1993. Kenyon is
a small manufacturer of pulleys and drive components and is located in
Manchester, England, with annualized sales of approximately $2
million. The Kenyon business will be relocated to and absorbed by the
Company's subsidiary, Cooper Roller Bearings Co. Ltd. in King's Lynn,
England.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No. Description Page No.
(11) Schedule setting forth computation of E-1
earnings per common share for the three
months ended April 2, 1994 and April 3, 1993.
B. Reports on Form 8-K
On January 5, 1994, the Company filed a report on Form
8-K under Item 5. relating to its agreement to acquire
the assets and business of Industrial Tectonics Inc,
effective on or about January 31, 1994, and the
completion of the acquisition of the assets of Kenyon
Power Transmission Ltd. on December 4, 1993.
9
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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.
KAYDON CORPORATION
May 10, 1994 /s/ Lawrence J. Cawley
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Lawrence J. Cawley
(Chief Executive Officer)
May 10, 1994 /s/ Thomas C. Sorrells III
--------------------------------
Thomas C. Sorrells III
(Corporate Controller)
10
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Exhibit 11
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KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS ENDED APRIL 2, 1994 AND APRIL 3, 1993
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April 2, 1994 April 3, 1993
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Primary Earnings Per Share:
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Net income $ 5,192,000 $ 6,770,000
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Weighted average common shares outstanding 16,690,000 17,436,000
Net common shares issuable in respect to
common stock equivalents, with a
dilutive effect 30,000 103,000
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Total weighted average common and
common share equivalents 16,720,000 17,539,000
Primary earnings per common share $ 0.31 $ 0.39
Fully Diluted Earnings Per Share:
- - --------------------------------
Net income $ 5,192,000 $ 6,770,000
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Weighted average common shares outstanding 16,690,000 17,436,000
Net common shares issuable in respect to
common stock equivalents, with a
dilutive effect 42,000 103,000
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Total weighted average common and
common share equivalents 16,732,000 17,539,000
Fully diluted earnings per common share $ 0.31 $ 0.39
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E - 1
