<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------------
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 October 1, 1994 Commission File No. 0-12640
- - --------------------------------- ---------------------------
KAYDON CORPORATION
------------------
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
----- -----
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Common Stock Outstanding at November 1, 1994 - 16,712,541 shares, $0.10 par
value.
<PAGE> 2
KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 1, 1994
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information:
Consolidated Condensed Balance Sheets -
October 1, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended October 1, 1994
and October 2, 1993 2
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended October 1, 1994 and October 2, 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 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibit 11 Schedule setting forth computation of earnings per common share for the
three months and nine months ended October 1, 1994 and October 2, 1993 E-1
Exhibit 27 Financial Data Schedule Ex-27
(For SEC Use Only)
</TABLE>
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KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 1, 1994 December 31, 1993
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(Unaudited)
<S> <C>
Assets:
- - ------
Cash and cash equivalents $ 27,929,000 $ 24,528,000
Accounts receivable, net 29,748,000 24,543,000
Inventories 53,426,000 51,529,000
Other current assets 6,256,000 5,920,000
--------------------------------------
Total current assets 117,359,000 106,520,000
Plant and equipment, net 61,176,000 60,077,000
Cost in excess of net tangible
assets of purchased businesses 43,000,000 43,628,000
Other assets 10,708,000 7,197,000
--------------------------------------
Total assets $232,243,000 $217,422,000
======================================
Liabilities and Stockholders' Investment:
- - ----------------------------------------
Short-term debt $ 0 $ 1,624,000
Accounts payable 7,354,000 6,724,000
Accrued expenses 27,130,000 23,988,000
Federal income tax payable 2,000,000 2,374,000
--------------------------------------
Total current liabilities 36,484,000 34,710,000
Other long-term liabilities 27,881,000 25,184,000
Long-term debt 8,000,000 13,688,000
Stockholders' investment 159,878,000 143,840,000
--------------------------------------
Total liabilities and
stockholders' investment $232,243,000 $217,422,000
======================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Oct 1, 1994 Oct 2, 1993 Oct 1, 1994 Oct 2, 1993
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 50,279,000 $ 44,023,000 $152,436,000 $139,253,000
Gross profit 18,871,000 16,487,000 56,749,000 50,287,000
Operating income 12,263,000 11,007,000 36,700,000 32,884,000
Net interest income 173,000 79,000 280,000 108,000
------------ ------------- ------------ ------------
Income before income taxes and
cumulative prior year effect of
change in accounting principle 12,436,000 11,086,000 36,980,000 32,992,000
Provision for income taxes 4,726,000 4,275,000 14,055,000 12,398,000
------------ ------------- ------------ ------------
Income before cumulative prior
year effect of change in
accounting principle 7,710,000 6,811,000 22,925,000 20,594,000
Cumulative prior year effect of change
in accounting principle for
postemployment benefits, net of
income tax benefit of $1,200,000 0 0 (2,000,000) 0
------------ ------------- ------------ ------------
Net income $ 7,710,000 $ 6,811,000 $ 20,925,000 $ 20,594,000
============ ============= ============ ============
Weighted average common shares 16,735,000 17,506,000 16,736,000 17,517,000
Earnings per share before cumulative
prior year effect of change in
accounting principle N/A N/A $ 1.37 N/A
Earnings per share $ 0.46 $ 0.39 $ 1.25 $ 1.18
Dividends per share $ 0.10 $ 0.09 $ 0.30 $ 0.27
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Oct 1, 1994 Oct 2, 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities $ 27,390,000 $ 23,558,000
------------ ------------
Cash flows from investing activities:
Capital expenditures, net (4,513,000) (4,886,000)
Acquisition of business, net of cash acquired (7,268,000) 0
------------ ------------
Cash used in investing activities (11,781,000) (4,886,000)
------------ ------------
Cash flows from financing activities:
Net payments under line of credit (312,000) (69,000)
Principal payments of long-term debt (7,000,000) (10,000,000)
Proceeds from issuance of common stock 393,000 1,080,000
Dividends paid (5,017,000) (4,700,000)
Purchase of treasury stock (176,000) 0
Other (96,000) (208,000)
------------ ------------
Cash used in financing activities (12,208,000) (13,897,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents 0 (25,000)
------------ ------------
Net increase in cash and cash equivalents 3,401,000 4,750,000
Cash and cash equivalents - Beginning of period 24,528,000 13,664,000
------------ ------------
Cash and cash equivalents - End of period $ 27,929,000 $ 18,414,000
============ ============
Cash expended for income taxes $ 15,925,000 $ 15,959,000
============ ============
Cash expended for interest $ 238,000 $ 280,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 6
KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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 regulations 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 October 1,
1994 and the results of its operations and its cash flows for the nine
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:
<TABLE>
<CAPTION>
Oct 1, 1994 Dec 31, 1993
----------- ------------
<S> <C> <C>
Raw Material $12,769,000 $12,251,000
Work in Process 11,253,000 10,347,000
Finished Goods 29,404,000 28,931,000
----------- -----------
$53,426,000 $51,529,000
=========== ===========
</TABLE>
(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 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
<PAGE> 7
(5) The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 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. Earlier this year an examiner was appointed by a bankruptcy
court to examine the issues at stake. On September 23, 1994, the
"Preliminary Report of the Examiner" was made public. In the report,
the examiner stated that the alleged fraudulent conveyance claims
appear to be time-barred by the statute of limitations, subject to
certain possible exceptions which the Company does not believe are
significant or factual. Although the examiner has made certain
recommendations regarding a mechanism to resolve the claims against
the Company, the Court has not taken any action related to the report.
Nevertheless, in the Company's opinion, the report reinforces
management's original view that the claims will ultimately not be
sustained. 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 material
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
material adverse effect on the Company's financial position or results
of operations.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Kaydon Corporation and subsidiaries (the "Company") reported record sales of
$50,279,000 in the third quarter 1994, up 14.2% compared to $44,023,000 in the
third quarter 1993. The increase was the result of improvement in most
operations as well as the addition of ITI.
Net income was also a record at $7,710,000, up 13.2% from $6,811,000 last year.
The resulting earnings per share of $0.46 were up 17.9% compared to $0.39 last
year. The earnings per share percentage increase surpassed the net income gain
as a result of fewer common shares outstanding resulting from the Company's
stock repurchases.
Gross profit increased to $18,871,000 from $16,487,000 last year. The gross
profit increase resulted from the increased sales volume. Gross profit as a
percent of sales is comparable with last year at 37.5%.
Selling and administrative expenses were $6,608,000, up from $5,480,000 last
year. The increase is generally related to the higher sales volume, however,
selling and administrative expenses as a percent of sales did increase to 13.1%
from 12.4% last year. This increase results from slightly higher expenses as a
percent of sales at ITI compared to the Company's other businesses and slightly
higher expense accruals this year over last year.
The effective tax rate of 38% during the third quarter of 1994 was generally
comparable with the 1993 annual effective rate. The 1993 third quarter rate
was slightly higher than the annual effective rate due to the enaction of the
1993 tax law change.
Nine Months 1994 to 1993
For the first nine months of 1994, net earnings before the mandated accounting
change, were $22,925,000, a gain of 11.3% over the $20,594,000 realized in
1993. Sales in the period were $152,436,000 versus $139,253,000 in the prior
year, showing a gain of 9.5%. Earnings per share were up 16.1% to $1.37 versus
$1.18 last year.
6
<PAGE> 9
Liquidity and Capital Resources
Cash and cash equivalents of $27,929,000 exceed debt of $8,000,000 by
$19,929,000 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 $80,875,000, up $9,065,000 from year end. The increase in
working capital is attributable to cash flow from operations, partially offset
by the repayment of long term debt, net capital expenditures, dividends and the
ITI acquisition. The current ratio has improved to 3.22 from 3.07 at year end.
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 multi-bank revolving credit
agreements that could be utilized to meet acquisition or liquidity needs.
Recent Events
As discussed in Note (6) of the "Notes to Consolidated Condensed Financial
Statements," the Company has been brought into litigation alleging fraudulent
conveyance and other related theories of liabilities. Earlier this year an
examiner was appointed by a bankruptcy court to examine the issues at stake.
On September 23, 1994, the "Preliminary Report of the Examiner" was made
public. In the report, the examiner stated that the alleged fraudulent
conveyance claims appear to be time-barred by the statute of limitations,
subject to certain possible exceptions which the Company does not believe are
significant or factual. Although the examiner has made certain recommendations
regarding a mechanism to resolve the claims against the Company, the Court has
not taken any action related to the report. Nevertheless, in the Company's
opinion, the report reinforces management's original view that the claims will
ultimately not be sustained.
Outlook
The Company's backlog of unshipped orders increased slightly to $86,771,000 at
the end of the third quarter of 1994. That level compares with $83,745,000 at
this time last year and $86,647,000 at the end of the prior quarter. The
Company feels comfortable with the booking rate and the strength of its
individual businesses and, as a result, anticipates a good fourth quarter and
another record-setting year.
7
<PAGE> 10
Part II
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No. Description Page No.
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<S> <C>
(11) Schedule setting forth computation of earnings E-1
per common share for the three months and nine
months ended October 1, 1994 and October 2, 1993.
(27) Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended October 1, 1994.
</TABLE>
8
<PAGE> 11
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
November 7, 1994 /s/ Lawrence J. Cawley
-------------------------------------------
Lawrence J. Cawley
(Chief Executive Officer)
November 7, 1994 /s/ Thomas C. Sorrells III
-------------------------------------------
Thomas C. Sorrells III
(Corporate Controller)
9
<PAGE> 1
Exhibit 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Oct 1, 1994 Oct 2, 1993 Oct 1, 1994 Oct 2, 1993
----------- ----------- -----------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- - --------------------------
Net income $ 7,710,000 $ 6,811,000 $20,925,000 $20,594,000
----------- ------------ ----------- -----------
Weighted average common
shares outstanding 16,714,000 17,441,000 16,698,000 17,439,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 21,000 65,000 38,000 78,000
----------- ------------ ----------- -----------
Total weighted average common and
common share equivalents 16,735,000 17,506,000 16,736,000 17,517,000
Primary earnings per common share $ 0.46 $ 0.39 $ 1.25 $ 1.18
Fully Diluted Earnings Per Share:
- - --------------------------------
Net income $ 7,710,000 $ 6,811,000 $20,925,000 $20,594,000
----------- ------------ ----------- -----------
Weighted average common
shares outstanding 16,714,000 17,441,000 16,698,000 17,439,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 29,000 67,000 46,000 79,000
----------- ------------ ----------- -----------
Total weighted average common and
common share equivalent 16,743,000 17,508,000 16,744,000 17,518,000
Fully diluted earnings per common share $ 0.46 $ 0.39 $ 1.25 $ 1.18
</TABLE>
E - 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF KAYDON CORPORATION FOR THE PERIOD ENDED OCTOBER 1, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> OCT-01-1994
<CASH> 27,929
<SECURITIES> 0
<RECEIVABLES> 30,991
<ALLOWANCES> 1,243
<INVENTORY> 53,426
<CURRENT-ASSETS> 117,359
<PP&E> 162,996
<DEPRECIATION> 101,820
<TOTAL-ASSETS> 232,243
<CURRENT-LIABILITIES> 36,484
<BONDS> 8,000
<COMMON> 1,753
0
0
<OTHER-SE> 158,125
<TOTAL-LIABILITY-AND-EQUITY> 232,243
<SALES> 152,436
<TOTAL-REVENUES> 152,436
<CGS> 95,687
<TOTAL-COSTS> 95,687
<OTHER-EXPENSES> 20,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (280)
<INCOME-PRETAX> 36,980
<INCOME-TAX> 14,055
<INCOME-CONTINUING> 22,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,000)
<NET-INCOME> 20,925
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
