<PAGE> 1
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 June 29, 1996 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
--- ---
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Common Stock Outstanding at July 26, 1996 - 16,535,273 shares, $0.10 par value.
<PAGE> 2
KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED JUNE 29, 1996
INDEX
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Page No.
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Part I - Financial Information:
<TABLE>
<S> <C>
Consolidated Condensed Balance Sheets -
June 29, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended June 29, 1996
and July 1, 1995 2
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 29, 1996 and July 1, 1995 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 5. - Other Information 8
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
Exhibits E-1
</TABLE>
<PAGE> 3
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, 1996 December 31, 1995
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 24,652,000 $ 4,808,000
Marketable securities 30,679,000 42,351,000
Accounts receivable, net 40,813,000 30,186,000
Inventories 53,200,000 50,145,000
Other current assets 9,708,000 7,964,000
------------ ------------
Total current assets 159,052,000 135,454,000
Plant and equipment, net 74,836,000 72,345,000
Cost in excess of net tangible
assets of purchased businesses, net 50,532,000 49,909,000
Other assets 11,330,000 9,967,000
------------ ------------
Total assets $295,750,000 $267,675,000
============ ============
Liabilities and Stockholders' Investment:
Current portion - long term debt $ 4,000,000 $ 0
Accounts payable 10,971,000 8,877,000
Accrued expenses 38,442,000 33,119,000
Federal income tax payable 1,876,000 2,051,000
------------ ------------
Total current liabilities 55,289,000 44,047,000
Other long-term liabilities 28,220,000 27,723,000
Long-term debt 4,000,000 8,000,000
Stockholders' investment 208,241,000 187,905,000
------------ ------------
Total liabilities and
stockholders' investment $295,750,000 $267,675,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE> 4
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales $76,131,000 $57,560,000 $149,526,000 $113,025,000
Gross profit 30,735,000 22,782,000 59,471,000 43,813,000
Operating income 20,558,000 15,013,000 39,898,000 29,072,000
Interest income, net 574,000 683,000 1,073,000 1,211,000
----------- ----------- ------------ ------------
Income before income taxes 21,132,000 15,696,000 40,971,000 30,283,000
Provision for income taxes 8,051,000 5,981,000 15,610,000 11,532,000
----------- ----------- ------------ ------------
Net income $13,081,000 $ 9,715,000 $ 25,361,000 $ 18,751,000
=========== =========== ============ ============
Weighted average common shares 16,584,000 16,776,000 16,546,000 16,752,000
Earnings per share $ 0.79 $ 0.58 $ 1.53 $ 1.12
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 29, 1996 July 1, 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities $27,332,000 $19,279,000
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities (54,159,000) (19,186,000)
Maturities of marketable securities 65,831,000 2,000,000
Capital expenditures, net (4,063,000) (4,162,000)
Acquisition of businesses, net of cash acquired (10,699,000) (759,000)
Net proceeds from sale of certain assets 0 5,265,000
----------- -----------
Cash used in investing activities (3,090,000) (16,842,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,163,000 836,000
Dividends paid (3,936,000) (3,666,000)
Purchase of treasury stock (6,084,000) (288,000)
Other (349,000) 0
----------- -----------
Cash used in financing activities (4,206,000) (3,118,000)
----------- -----------
Effect of exchange rate changes on cash
and cash equivalents (192,000) (163,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 19,844,000 (844,000)
Cash and cash equivalents - Beginning of period 4,808,000 28,575,000
----------- -----------
Cash and cash equivalents - End of period $24,652,000 $27,731,000
=========== ===========
Cash expended for income taxes $16,198,000 $12,780,000
============ ===========
Cash expended for interest $ 200,000 $ 170,000
============ ===========
</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
1995 Annual Report on Form 10-K.
(2) In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, of a normal and
recurring nature, necessary to present fairly the financial position of
the Company as of June 29, 1996 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>
Jun 29, 1996 Dec 31, 1995
------------ ------------
<S> <C> <C>
Raw Material $15,228,000 $13,764,000
Work in Process 18,234,000 13,040,000
Finished Goods 19,738,000 23,341,000
----------- -----------
$53,200,000 $50,145,000
=========== ===========
</TABLE>
(4) The Company, together with other companies, certain former officers,
and certain former directors, has been named as a co-defendant in
lawsuits filed in the federal court of New York in 1993. The suits
purport to be class actions on behalf of all persons who have
unsatisfied personal injury and property damage claims against Keene
Corporation which filed for bankruptcy under Chapter 11. 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,
4
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was a successor to and alter ego of Keene. In 1994, 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 against the Company 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. In June 1995, the creditors' committee filed a complaint in the
same bankruptcy court asserting claims against the Company similar to
those previously filed. On June 12, 1996, the District and Bankruptcy
Courts for the Southern District of New York entered an order confirming
the plan of reorganization for Keene Corporation. As a result, as of a
date no earlier than 71 days after June 12 the so-called transactions
lawsuit will be transferred from the Bankruptcy Court for the Southern
District of New York to the District Court for that district. Also as of
such date, the stay of the transactions lawsuit should be lifted,
allowing all parties to the litigation to present appropriate motions to
the District Court. 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
$76,131,000 in the second quarter of 1996, up 32.3% compared to $57,560,000 in
the second quarter of 1995. The increase was attributable to growth of
approximately 11% in our base business with the remaining growth coming from
our recent acquisitions.
Net income, also a record, was $13,081,000, a 34.6% increase over $9,715,000
last year. The increase was primarily attributable to increased sales and
improvements in gross profit. The resulting earnings per share of $0.79 were
up 36.2% compared to $0.58 in 1995.
Gross profit as a percent of sales increased to 40.4% from 39.6% in the second
quarter of last year. The increase was primarily attributable to improved
plant efficiencies and the gains from the plant consolidation which occurred in
the Bearings division.
Selling and administrative expenses were 13.4% of sales, essentially flat, in
percentage terms, with the 13.5% in the same period last year.
The effective tax rate of 38.1% during the second quarter of 1996 was
comparable with the 1995 annual effective rate of 38.2%.
Six Months 1996 to 1995
Sales for the first six months of 1996 were $149,526,000 an increase of 32.3%
over last year's $113,025,000. Year to date net earnings were $25,361,000, a
gain of 35.3% over the 1995 earnings of $18,751,000. Earnings per share were
up 36.6% to $1.53 versus $1.12 last year. The improvements in the sales and
operating performance in 1996 compared to 1995 reflect the trends described in
the "Results of Operations" above.
Liquidity and Capital Resources
Working capital was $103,763,000 at the end of the second quarter reflecting a
current ratio of 2.9 compared to $91,407,000 at year end with a current ratio
of 3.1. The increase in working capital of $12,356,000 was primarily
attributable to operating cash flow offset by dividends, capital expenditures
and the business acquisition which took place in the first quarter.
6
<PAGE> 9
Total debt remained at $8,000,000 consisting of Industrial Revenue Bonds (IRB)
issued at favorable interest rates which we do not anticipate paying ahead of
schedule. Cash and securities of $55,331,000 exceeded the $8,000,000 IRB debt
by $47,331,000 compared to $39,159,000 at year end for an increase of
$8,172,000. This increase is net of the $10,699,000 spent on the acquisition
during the first quarter.
Cash flow from operating activities was $11,046,000 for second quarter 1996
compared to $6,673,000 in 1995. Similarly, cash flow from operating activities
for the first six months was $27,332,000 versus $19,279,000 at this time last
year. The increase for the quarter as well as the first six months is
primarily attributable to increased earnings.
Management expects that the Company's planned capital requirements for the
remainder of 1996, which consist of capital expenditures, dividend payments and
its stock repurchase program, will be financed by operations. The Company has
$85,000,000 available under its multi-bank revolving credit agreements that
could be utilized to meet its liquidity needs.
Outlook
The Company's backlog of unfilled orders remained essentially flat at
$119,421,000 compared to $119,933,000 at the end of the first quarter. This is
up from the backlog of $91,728,000 at the end of the second quarter 1995 and
$101,852,000 at year end. Assuming economic conditions in our markets continue
at a favorable pace, the Company expects to report both a good third quarter
and a full year 1996.
7
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Part II
OTHER INFORMATION
Item 5. Other Information
At its June 19th meeting, the Board of Directors appointed Stephen K.
Clough as President and Chief Executive Officer, continuing its
tradition of ensuring a successful management transition. Mr. Clough
will relinquish the title of Chief Operating Officer, a position which
will not be filled in the near future. Lawrence J. Cawley will remain
actively engaged as Chairman of the Board where he will concentrate his
efforts on the Company's banking and investor relationships as well as
acquisition evaluation and long term strategic planning.
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No. Description Page No.
<S> <C> <C>
(11) Schedule setting forth computation of earnings E-1
per common share for the six months ended
June 29, 1996 and July 1, 1995.
(27) Financial Data Schedule (For SEC Use Only)
</TABLE>
B. Reports on Form 8-K
On July 2, 1996, just after the quarter end, the Company filed a Form
8-K reporting the receipt of a subpoena issued by the U.S. District
Court in Bridgeport, Connecticut on behalf of a Grand Jury
investigating the May 9, 1996 accident involving an H-53E Sikorsky
helicopter in which four persons died. The Grand Jury has requested
documents and records relating to a bearing manufactured by Kaydon and
used in the H-53E helicopter. The Company intends to cooperate fully
with the subpoena.
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
<TABLE>
<S> <C>
August 2, 1996 /s/ Lawrence J. Cawley
------------------------------------
Lawrence J. Cawley
(Chairman & Chief Financial Officer)
August 2, 1996 /s/ Stephen K. Clough
------------------------------------
Stephen K. Clough
(Chief Executive Officer & President)
</TABLE>
9
<PAGE> 1
Exhibit 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS AND SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
Primary Earnings Per Share:
- ---------------------------
<S> <C> <C> <C> <C>
Net income $13,081,000 $ 9,715,000 $25,361,000 $18,751,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 16,534,000 16,695,000 16,534,000 16,695,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 50,000 81,000 12,000 57,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 16,584,000 16,776,000 16,546,000 16,752,000
Primary earnings per common share $ 0.79 $ 0.58 $ 1.53 $ 1.12
Fully Diluted Earnings Per Share:
- ---------------------------------------
Net income $13,081,000 $ 9,715,000 $25,361,000 $18,751,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 16,534,000 16,695,000 16,534,000 16,695,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 65,000 94,000 25,000 67,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 16,599,000 16,789,000 16,559,000 16,762,000
Fully diluted earnings per common share $ 0.79 $ 0.58 $ 1.53 $ 1.12
</TABLE>
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KAYDON CORPORATION FOR THE SIX MONTHS ENDED JUNE 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-29-1996
<CASH> 24,652
<SECURITIES> 30,679
<RECEIVABLES> 42,216
<ALLOWANCES> 1,403
<INVENTORY> 53,200
<CURRENT-ASSETS> 159,052
<PP&E> 174,545
<DEPRECIATION> 99,709
<TOTAL-ASSETS> 295,750
<CURRENT-LIABILITIES> 55,289
<BONDS> 4,000
0
0
<COMMON> 1,794
<OTHER-SE> 206,447
<TOTAL-LIABILITY-AND-EQUITY> 295,750
<SALES> 149,526
<TOTAL-REVENUES> 149,526
<CGS> 90,055
<TOTAL-COSTS> 90,055
<OTHER-EXPENSES> 19,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,073)
<INCOME-PRETAX> 40,971
<INCOME-TAX> 15,610
<INCOME-CONTINUING> 25,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,361
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
