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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 July 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 August 1, 1994 - 16,682,041 shares, $0.10 par
value.
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KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED JULY 2, 1994
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information:
Consolidated Condensed Balance Sheets -
July 2, 1994 and December 31, 1993 1
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended July 2, 1994
and July 3, 1993 2
Consolidated Condensed Statements of Cash Flows -
Six Months Ended July 2, 1994 and July 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 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibits E-1
</TABLE>
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KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
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July 2, 1994 December 31, 1993
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(Unaudited)
<S> <C> <C>
Assets:
- - ------
Cash and cash equivalents $ 22,468,000 $ 24,528,000
Accounts receivable, net 27,279,000 24,543,000
Inventories 54,703,000 51,529,000
Other current assets 6,807,000 5,920,000
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Total current assets 111,257,000 106,520,000
Plant and equipment, net 62,235,000 60,077,000
Cost in excess of net tangible
assets of purchased businesses 43,209,000 43,628,000
Other assets 9,321,000 7,197,000
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Total assets $226,022,000 $217,422,000
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Liabilities and Stockholders' Investment:
- - ----------------------------------------
Short-term debt $ 0 $ 1,624,000
Accounts payable 6,859,000 6,724,000
Accrued expenses 26,440,000 23,988,000
Federal income tax payable 3,394,000 2,374,000
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Total current liabilities 36,693,000 34,710,000
Other long-term liabilities 27,661,000 25,184,000
Long-term debt 8,000,000 13,688,000
Stockholders' investment 153,668,000 143,840,000
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Total liabilities and
stockholders' investment $226,022,000 $217,422,000
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</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 SIX MONTHS ENDED
July 2, 1994 July 3, 1993 July 2, 1994 July 3, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $52,032,000 $47,195,000 $102,157,000 $95,230,000
Gross profit 19,966,000 17,294,000 37,878,000 33,800,000
Operating income 12,912,000 11,096,000 24,437,000 21,877,000
Net interest income 79,000 35,000 107,000 29,000
----------- ----------- ------------ -----------
Income before income taxes and
cumulative prior year effect of
change in accounting principle 12,991,000 11,131,000 24,544,000 21,906,000
Provision for income taxes 4,968,000 4,118,000 9,329,000 8,123,000
----------- ----------- ------------ -----------
Income before cumulative prior
year effect of change in
accounting principle 8,023,000 7,013,000 15,215,000 13,783,000
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 $ 8,023,000 $ 7,013,000 $ 13,215,000 $13,783,000
=========== =========== ============ ===========
Weighted average common shares 16,737,000 17,527,000 16,729,000 17,533,000
Earnings per share before cumulative
prior year effect of change in
accounting principle N/A N/A $ 0.91 N/A
Earnings per share $ 0.48 $ 0.40 $ 0.79 $ 0.79
Dividends per share $ 0.10 $ 0.09 $ 0.20 $ 0.18
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED
July 2, 1994 July 3,1993
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<S> <C> <C>
Cash flows from operating activities $19,398,000 $16,655,000
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Cash flows from investing activities:
Capital expenditures, net (3,481,000) (3,636,000)
Acquisition of business, net of cash acquired (7,268,000) 0
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Cash used in investing activities (10,749,000) (3,636,000)
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Cash flows from financing activities:
Net payments under line of credit (312,000) (15,000)
Principal payments of long-term debt (7,000,000) (10,000,000)
Proceeds from issuance of common stock 18,000 1,000,000
Dividends paid (3,348,000) (3,131,000)
Other (67,000) (43,000)
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Cash used in financing activities (10,709,000) (12,189,000)
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Effect of exchange rate changes on cash
and cash equivalents 0 (25,000)
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Net increase (decrease) in cash and cash equivalents (2,060,000) 805,000
Cash and cash equivalents - Beginning of period 24,528,000 13,664,000
----------- -----------
Cash and cash equivalents - End of period $22,468,000 $14,469,000
=========== ===========
Cash expended for income taxes $ 8,308,000 $ 9,525,000
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Cash expended for interest $ 198,000 $ 225,000
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</TABLE>
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 July 2,
1994 and the results of its operations and its cash flows for the six
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>
July 2, 1994 Dec 31, 1993
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<S> <C> <C>
Raw Material $12,551,000 $12,251,000
Work in Process 12,752,000 10,347,000
Finished Goods 29,400,000 28,931,000
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$54,703,000 $51,529,000
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</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
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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 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
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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 record sales of
$52,032,000 in the second quarter 1994, up 10.2% compared to $47,195,000 in the
second 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 $8,023,000, up 14.4% from $7,013,000 last year.
The resulting earnings per share of $0.48 were up 20% compared to $0.40 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 repurchase during the fourth quarter of 1993.
Gross profit as a percent of sales increased to 38.4% from 36.6% in the same
period last year. The increase was attributable to improved manufacturing
results.
Selling and administrative expenses were 13.6% of sales, up slightly from 13.1%
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 38.2% during the second quarter of 1994 was generally
comparable with the 1993 annual effective rate. The second quarter 1993
effective rate did not reflect the approximate 1% U.S. tax rate increase
enacted during the third quarter of 1993.
Six Months 1994 to 1993
For the first six months of 1994, net earnings before mandated accounting
changes for FASB 112, were $15,215,000, a gain of 10.4% over the $13,783,000
realized in 1993. Sales in the period were $102,157,000 versus $95,230,000 in
the prior year, showing a gain of 7.3%. Earnings per share were up 15.2% to
$0.91 before accounting changes versus $0.79 last year.
Liquidity and Capital Resources
Cash and cash equivalents of $22,468,000 exceed debt of $8,000,000 by
$14,468,000 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 $74,564,000, up $2,754,000 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.
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 multi-bank revolving credit
agreements that could be utilized to meet acquisition or liquidity needs.
Outlook
The Company's backlog of unshipped orders increased again to $86,647,000 at the
end of the second quarter of 1994 in spite of the record breaking shipments in
the period. That level compares with $81,961,000 at this time last year and
$86,279,000 at the end of the prior quarter. The Company continues to book
strongly in many areas and is beginning to see the favorable impact of the
falling value of the dollar relative to the Yen and Deutschemark. While the
Company believes the dollar is significantly undervalued at this time, the
Company will continue to be extremely competitive even at higher levels.
Given the Company's backlog and its perception that current business conditions
remain strong, the Company is expecting a good second half and an excellent
year.
7
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Part II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No. Description Page No.
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(11) Schedule setting forth computation of earnings E-1
per common share for the six months and three
months ended July 2, 1994 and July 3, 1993.
B. Reports on Form 8-K
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No reports on Form 8-K were filed during the
quarter ended July 2, 1994.
8
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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
August 10, 1994 /s/ Lawrence J. Cawley
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Lawrence J. Cawley
(Chief Executive Officer)
August 10, 1994 /s/ Thomas C. Sorrells III
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Thomas C. Sorrells III
(Corporate Controller)
9
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Exhibit 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS AND SIX MONTHS ENDED JULY 2, 1994 AND JULY 3, 1993
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
July 2, 1994 July 3, 1993 July 2, 1994 July 3, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- - --------------------------
Net income $ 8,023,000 $ 7,013,000 $13,215,000 $13,783,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 16,690,000 17,437,000 16,690,000 17,437,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 47,000 90,000 39,000 96,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 16,737,000 17,527,000 16,729,000 17,533,000
Primary earnings per common share $ 0.48 $ 0.40 $ 0.79 $ 0.79
Fully Diluted Earnings Per Share:
- - --------------------------------
Net income $ 8,023,000 $ 7,013,000 $13,215,000 $13,783,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 16,690,000 17,437,000 16,690,000 17,437,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 47,000 93,000 48,000 98,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalent 16,737,000 17,530,000 16,738,000 17,535,000
Fully diluted earnings per common share $ 0.48 $ 0.40 $ 0.79 $ 0.79
</TABLE>
E - 1
