<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 September 28, 1996 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, 1996 - 16,433,847 shares, $0.10 par
value.
<PAGE> 2
KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 1996
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - Financial Information:
Consolidated Condensed Balance Sheets -
September 28, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended September 28, 1996
and September 30, 1995 2
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 28, 1996 and
September 30, 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 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>
September 28, 1996 December 31, 1995
-------------------- ------------------
(Unaudited)
<S> <C> <C>
Assets:
- ------
Cash and cash equivalents $ 35,807,000 $ 4,808,000
Marketable securities 28,958,000 42,351,000
Accounts receivable, net 39,754,000 30,186,000
Inventories 54,272,000 50,145,000
Other current assets 10,502,000 7,964,000
--------------------------------------------
Total current assets 169,293,000 135,454,000
Plant and equipment, net 74,802,000 72,345,000
Cost in excess of net tangible
assets of purchased businesses, net 50,038,000 49,909,000
Other assets 12,514,000 9,967,000
--------------------------------------------
Total assets $306,647,000 $267,675,000
============================================
Liabilities and Stockholders' Investment:
- ----------------------------------------
Short-term debt $ 2,132,000 $ 0
Current portion - long term debt 4,000,000 0
Accounts payable 10,832,000 8,877,000
Accrued expenses 40,474,000 33,119,000
Federal income tax payable 2,921,000 2,051,000
--------------------------------------------
Total current liabilities 60,359,000 44,047,000
Other long-term liabilities 28,336,000 27,723,000
Long-term debt 4,000,000 8,000,000
Stockholders' investment 213,952,000 187,905,000
--------------------------------------------
Total liabilities and
stockholders' investment $306,647,000 $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 NINE MONTHS ENDED
Sept 28, 1996 Sept 30, 1995 Sept 28, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $69,838,000 $56,087,000 $219,364,000 $169,112,000
Gross profit 28,382,000 21,434,000 87,853,000 65,247,000
Operating income 19,240,000 14,533,000 59,138,000 43,605,000
Interest income, net 738,000 695,000 1,811,000 1,906,000
------------ ----------- --------- ----------
Income before income taxes 19,978,000 15,228,000 60,949,000 45,511,000
Provision for income taxes 7,612,000 5,813,000 23,222,000 17,345,000
------------ ----------- ---------- ----------
Net income $12,366,000 $9,415,000 $37,727,000 $28,166,000
=========== ========== =========== ===========
Weighted average common shares 16,576,000 16,810,000 16,540,000 16,770,000
Earnings per share $0.75 $0.56 $2.28 $1.68
</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
Sept 28, 1996 Sept 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities $ 43,370,000 $ 31,474,000
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (83,464,000) (26,642,000)
Maturities of marketable securities 96,857,000 9,200,000
Capital expenditures, net (6,146,000) (5,738,000)
Acquisition of businesses, net of cash acquired (10,699,000) (23,512,000)
Net proceeds from sale of certain assets 0 5,265,000
------------ ------------
Cash used in investing activities (3,452,000) (41,427,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,926,000 1,293,000
Dividends paid (5,920,000) (5,501,000)
Purchase of treasury stock (11,592,000) (623,000)
Proceeds from short term debt 2,132,000 0
Payments on short term debt (349,000) 0
------------ ------------
Cash used in financing activities (8,803,000) (4,831,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents (116,000) (145,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 30,999,000 (14,929,000)
Cash and cash equivalents - Beginning of period 4,808,000 28,575,000
------------ ------------
Cash and cash equivalents - End of period $ 35,807,000 $ 13,646,000
============ ============
Cash expended for income taxes $ 24,309,000 $ 20,455,000
============ ============
Cash expended for interest $275,000 $262,000
======== ========
</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 September 28, 1996 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>
Sep 28, 1996 Dec 31, 1995
------------ ------------
<S> <C> <C>
Raw Material $15,693,000 $13,764,000
Work in Process 16,987,000 13,040,000
Finished Goods 21,592,000 23,341,000
----------- -----------
$54,272,000 $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
4
<PAGE> 7
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. 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 was transferred from
the Bankruptcy Court for the Southern District of New York to the
District Court for that district and the stay of the transactions
lawsuit was lifted, allowing all parties to the litigation to present
appropriate motions to the District Court which the Company is
preparing to do. 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 quarterly record
sales of $69,838,000 in the third quarter of 1996, up 24.5% compared to
$56,087,000 in the third quarter of 1995. The acquisition of the Fluid Power
Group (September 1995 and February 1996) contributed approximately 17% to the
gain while the remaining growth came from the base businesses.
Net income, also a third quarter record, was $12,366,000, a 31.3% increase
over $9,415,000 last year. The increase was primarily attributable to
increased sales and improvements in gross profit. The resulting earnings per
share of $0.75 were up 33.9% compared to $0.56 in 1995.
Gross profit as a percent of sales increased to 40.6% from 38.2% in the third
quarter of last year. The increase was primarily attributable to the plant
consolidation in the Bearings division coupled with increased volume levels and
improved plant efficiencies. Excluding the Fluid Power Group actual margins
were up to 44.1% from 38.6% last year at this time.
Selling and administrative expenses were 13.1% of sales compared to 12.3% last
year. The increase as a percentage of sales is primarily attributable to
additional expenses incurred for our new acquisitions and the increase of
various accruals.
The effective tax rate of 38.1% during the third quarter of 1996 was comparable
with the 1995 annual effective rate of 38.2%.
Nine Months 1996 to 1995
- ------------------------
Sales for the first nine months of 1996 were $219,364,000, an increase of 29.7%
over last year's $169,112,000. Year to date net earnings were $37,727,000, a
gain of 33.9% over the 1995 earnings of $28,166,000. Earnings per share rose
35.7% to $2.28 versus $1.68 last year. These improvements can be seen in the
sales level and operating performance of each division, and they are a direct
result of the trends described in the "Results of Operations" above.
6
<PAGE> 9
Liquidity and Capital Resources
- -------------------------------
Working capital was $108,934,000 at the end of the third quarter reflecting a
current ratio of 2.8 compared to $91,407,000 at year end with a current ratio
of 3.1. The increase in working capital was primarily attributable to
operating cash flow offset by dividends, capital expenditures, the repurchase
of Kaydon stock and the business acquisition which took place in the first
quarter.
Total debt at the end of the quarter was $10,132,000 consisting of $2,132,000
in short term loans borrowed to purchase stock on the open market and
$8,000,000 of Industrial Revenue Bonds issued at favorable interest rates which
we do not anticipate paying ahead of schedule. The short term loan was
incurred rather than to redeem a security near the month end. Cash and
securities of $64,765,000 exceeded the $10,132,000 debt by $54,633,000 compared
to $39,159,000 at year end for an increase of $15,474,000. The increase is net
of the $10,699,000 spent on the acquisition during the first quarter and the
$11,592,000 spent to repurchase shares of Kaydon stock during the year in
accordance with the authorization by the Board of Directors.
Cash flow from operating activities was $16,038,000 for third quarter 1996
compared to $12,195,000 in 1995. Similarly, cash flow from operating
activities for the first nine months was $43,370,000 versus $31,474,000 at this
time last year. The increase for the quarter as well as the first nine 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 at the end of the third quarter of
$114,469,000 was down slightly from the $119,421,000 at the end of the second
quarter. A number of factors contributed to the small drop including a
significant reduction in past due orders at our acquisitions as we made intense
efforts to service the customers according to the Company's standards. There
were also a significant number of military and aerospace orders which were
pending but unbooked because of government funding authority or negotiations
over purchase order "terms and conditions." In the first few weeks of October
the funding was released and we were given orders of approximately $4,000,000.
The backlog was up from $98,061,000 at the end of the third 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 fourth quarter
and a full year 1996.
7
<PAGE> 10
Part II
OTHER INFORMATION
Item 5. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibit No. Description Page No.
----------- ----------- --------
(11) Schedule setting forth computation of earnings E-1
per common share for three months and nine
months ended September 28, 1996 and
September 30, 1995.
(27) Finanical Data Schedule (For SEC Use Only)
B. Reports on Form 8-K
None.
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, 1996 /s/ Lawrence J. Cawley
------------------------------------
Lawrence J. Cawley
(Chairman & Chief Financial Officer)
November 7, 1996 /s/ John F. Brocci
------------------------------------
John F. Brocci
(Secretary & Vice President Administration)
9
<PAGE> 1
Exhibit 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED SEPT 28, 1996 AND SEPT 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Sept 28, 1996 Sept 30, 1995 Sept 28, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
- --------------------------
Net income $12,366,000 $9,415,000 $37,727,000 $28,166,000
----------- ---------- ----------- -----------
Weighted average common
shares outstanding 16,434,000 16,721,000 16,434,000 16,721,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 142,000 89,000 106,000 49,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 16,576,000 16,810,000 16,540,000 16,770,000
Primary earnings per common share $0.75 $0.56 $2.28 $1.68
Fully Diluted Earnings Per Share:
- --------------------------------
Net income $12,366,000 $9,415,000 $37,727,000 $28,166,000
----------- ---------- ----------- -----------
Weighted average common
shares outstanding 16,434,000 16,721,000 16,434,000 16,721,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 145,000 100,000 116,000 60,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 16,579,000 16,821,000 16,550,000 16,781,000
Fully diluted earnings per common share $0.75 $0.56 $2.28 $1.68
</TABLE>
E - 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-28-1996
<CASH> 35,807
<SECURITIES> 28,958
<RECEIVABLES> 41,128
<ALLOWANCES> 1,374
<INVENTORY> 54,272
<CURRENT-ASSETS> 169,293
<PP&E> 176,607
<DEPRECIATION> 101,805
<TOTAL-ASSETS> 306,647
<CURRENT-LIABILITIES> 60,359
<BONDS> 4,000
0
0
<COMMON> 1,798
<OTHER-SE> 212,154
<TOTAL-LIABILITY-AND-EQUITY> 306,647
<SALES> 219,364
<TOTAL-REVENUES> 219,364
<CGS> 131,511
<TOTAL-COSTS> 131,511
<OTHER-EXPENSES> 28,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,811)
<INCOME-PRETAX> 60,949
<INCOME-TAX> 23,222
<INCOME-CONTINUING> 37,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,727
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
</TABLE>
