<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 27, 1997 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 33764 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 3, 1997 - 33,991,438 shares, $0.10 par
value.
<PAGE> 2
KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 1997
INDEX
<TABLE>
<CAPTION>
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Page No.
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<S> <C>
Part I - Financial Information:
Consolidated Condensed Balance Sheets -
September 27, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended September 27, 1997
and September 28, 1996 2
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 27, 1997
and September 28, 1996 3
Notes to Consolidated Condensed Financial Statements 4 - 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
Part II - Other Information:
Item 5. - Other Information 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibits E-1
</TABLE>
<PAGE> 3
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
September 27, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 50,723,000 $ 54,443,000
Marketable securities 25,727,000 28,824,000
Accounts receivable, net 49,381,000 36,136,000
Inventories, net 60,458,000 53,079,000
Other current assets 14,707,000 13,574,000
------------ ------------
Total current assets 200,996,000 186,056,000
Plant and equipment, net 84,449,000 76,176,000
Cost in excess of net tangible
assets of purchased businesses, net 66,421,000 53,696,000
Other assets 16,125,000 15,610,000
------------ ------------
Total assets $367,991,000 $331,538,000
============ ============
Liabilities and Stockholders' Investment:
Current portion long-term debt $ 0 $ 4,000,000
Accounts payable 12,993,000 9,784,000
Accrued expenses 54,487,000 44,775,000
Federal income tax payable 4,791,000 8,265,000
------------ ------------
Total current liabilities 72,271,000 66,824,000
Other long-term liabilities 29,492,000 28,658,000
Long-term debt 0 4,000,000
Stockholders' investment 266,228,000 232,056,000
------------ ------------
Total liabilities and
stockholders' investment $367,991,000 $331,538,000
============ ============
</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 27, 1997 Sept 28, 1996 Sept 27, 1997 Sept 28, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $83,380,000 $69,838,000 $244,365,000 $219,364,000
Gross profit 34,356,000 28,382,000 101,753,000 87,853,000
Operating income 24,587,000 19,240,000 70,902,000 59,138,000
Interest income, net 847,000 738,000 2,610,000 1,811,000
----------- ----------- ------------ ------------
Income before income taxes 25,434,000 19,978,000 73,512,000 60,949,000
Provision for income taxes 9,664,000 7,612,000 27,957,000 23,222,000
----------- ----------- ------------ ------------
Net income $15,770,000 $12,366,000 $ 45,555,000 $ 37,727,000
=========== =========== ============ ============
Weighted average common shares 33,194,000 33,152,000 33,140,000 33,080,000
Earnings per share $ 0.47 $ 0.37 $ 1.37 $ 1.14
Dividends per share $ 0.07 $ 0.06 $ 0.21 $ 0.18
</TABLE>
NOTE: Weighted average common shares and all per share amounts reflect a
two-for-one stock split effective October 7, 1997.
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 27, 1997 Sept 28, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities $ 44,251,000 $ 43,370,000
------------- ------------
Cash flows from investing activities:
Purchases of marketable securities (86,025,000) (83,464,000)
Maturities of marketable securities 89,122,000 96,857,000
Capital expenditures, net (9,154,000) (6,146,000)
Acquisition of businesses, net of cash acquired (27,027,000) (10,699,000)
------------- ------------
Cash used in investing activities (33,084,000) (3,452,000)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,094,000 6,926,000
Dividends paid (6,921,000) (5,920,000)
Purchase of treasury stock (832,000) (11,592,000)
Proceeds from short term debt 0 2,132,000
Payment of debt (8,031,000) (349,000)
------------- ------------
Cash used in financing activities (14,690,000) (8,803,000)
------------- ------------
Effect of exchange rate changes on cash
and cash equivalents (197,000) (116,000)
------------- ------------
Net increase (decrease) in cash and cash equivalents (3,720,000) 30,999,000
Cash and cash equivalents - Beginning of period 54,443,000 4,808,000
------------- ------------
Cash and cash equivalents - End of period $ 50,723,000 $ 35,807,000
============= ============
Cash expended for income taxes $ 29,030,000 24,309,000
============= ============
Cash expended for interest $ 210,000 $ 275,000
============= ============
</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
1996 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 27, 1997 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. Inventories are summarized as follows:
<TABLE>
<CAPTION>
Sept 27, 1997 Dec 31, 1996
------------- ------------
<S> <C> <C>
Raw Material $20,264,000 $15,146,000
Work in Process 17,062,000 17,300,000
Finished Goods 23,132,000 20,633,000
----------- -----------
$60,458,000 $53,079,000
=========== ===========
</TABLE>
(4) On September 23, 1997, the Board of Directors of the Company
authorized a two-for-one split of the common stock of the Company to
the shareholders of record on October 7, 1997. The additional stock
was distributed on October 21, 1997. Par value per share of common
stock will remain at $0.10 per share. In addition, all per share
information has been restated to reflect the stock split as though it
had taken place as of the beginning of the earliest period presented.
On September 23, 1997, the Board of Directors of the Company increased
the fourth quarter dividend by 28.6% to $0.09 per share.
4
<PAGE> 7
(5) On March 11, 1997, the Company purchased the net assets of Gold Star
Manufacturing, Inc. for $4,412,000. Gold Star manufactures
custom-designed cylinders which strengthen and complement the
offerings of the Company's Fluid Power Division. The acquisition has
been accounted for using the purchase method of accounting and,
accordingly, the results of operations have been included in the first
quarter consolidated financial statements since the date of
acquisition.
On May 29, 1997, the Company purchased the net assets of Great Bend
Industries for a purchase price of $22,615,000. Great Bend
manufactures a variety of custom-engineered hydraulic cylinders
including single, double and telescopic cylinders used in
construction, transportation, waste, utility and energy industries.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of operations have been
included in the second quarter consolidated financial statements since
the date of acquisition.
(6) The Company, together with other companies, certain former officers,
and certain former directors, has been named as a co-defendant in
lawsuits filed in federal court in 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, 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, the so-called transactions lawsuit
was transferred in April 1997 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. On September 15,
1997, in accordance with the schedule established by the judge,
5
<PAGE> 8
the Company submitted a motion to dismiss the complaint based on the
statute of limitations. All motions and supporting documents and any
rebuttal are to be filed by December 15, 1997 after which the judge
will study and rule. Management believes that the outcome of this
litigation will not have a material adverse effect on the Company's
financial position.
In June, 1996 the Company received a subpoena issued by the U.S.
District Court in Bridgeport, Connecticut on behalf of a grand jury
investigating a May 9, 1996 accident involving a Sikorsky helicopter
in which four persons died. The grand jury has requested and received
documents and records relating to a bearing manufactured by Kaydon and
used in the Sikorsky helicopter. In addition, the Defense Logistics
Agency of the Defense Contract Management Command and a "Mishap Board"
led by Sikorsky Aircraft Corporation with participation from certain
Federal agencies alleged that product quality problems or deficiencies
exist with respect to the bearing product used in the Sikorsky
helicopter described above. The Company was excluded from
participation on this "Mishap Board". However, it has independently
evaluated the available evidence and refuted the "Mishap Board"
findings in its report submitted to the Navy. Subsequent incidents
have occurred in the helicopter fleet even though the bearings used
were newly manufactured, inspected and approved by Sikorsky personnel
and the Navy, reinforcing the Company's position that the bearing
quality was not the causative action in the May 9, 1996 accident.
During the first half of 1997, the estates of the four deceased
individuals filed civil suits against the Company. For one of the
incidents subsequent to May 9, 1996, which occurred October 19, 1996,
the NADEP Cherry Point Marine Facility distributed a report dated
August 21, 1997 analyzing potential causes for that incident. The
Company is currently in the process of reviewing this report.
Management believes it has meritorious defenses against any claims.
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, including the
Sikorsky matter referred to above, will not have a material adverse
effect on the Company's financial position or results of operations.
6
<PAGE> 9
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
$83,380,000 in the third quarter 1997, up 19.4% from $69,838,000 in the third
quarter last year. Approximately 50% of the increase was contributed by the
Company's base businesses while the remainder was attributed to the recent
acquisitions in the Fluid Power Division. The increase in the base business
was led by the Bearings Division and the U.S. sales in the Cooper Roller
Bearings Division, while sales from the Filtration Division decreased from
prior year. The decrease is primarily attributable to the air conditioning
filter market. The Company's other divisions remained essentially flat.
Gross profit as a percent of sales increased to 41.2% from 40.6% in the third
quarter of last year. The increase resulted from increased manufacturing
efficiencies and favorable operating conditions.
Selling and administrative expenses were $9,769,000, up $627,000 from
$9,142,000 last year. Although the absolute dollars increased, expenses as a
percent of sales were down to 11.7% from 13.1% in the third quarter last year.
This percentage decrease is primarily attributable to the increase in sales as
actual expenses remained essentially flat year on year.
Net interest income was $847,000, up $109,000 from $738,000 last year. This
was due to higher cash balances, favorable interest rates and the repayment of
all outstanding debt in April 1997.
The effective tax rate of 38.0% was essentially flat with the 38.1% rate in
third quarter 1996.
Nine Months 1997 to 1996
Sales for the first nine months of 1997 were $244,365,000, an increase of 11.4%
over last year's $219,364,000. Year to date net earnings were $45,555,000, a
gain of 20.7% over the 1996 earnings of $37,727,000. Earnings per share were
up 20.2% to $1.37 versus $1.14 last year.
Similar to the Quarter 3 Results of Operations above, gross profit as a percent
of sales for 1997 was 41.6% compared to 40.0% from 1996. Again, this is
indicative of increased manufacturing efficiencies and favorable operating
conditions.
7
<PAGE> 10
Selling and administrative expenses were $30,851,000 or 12.6% of sales,
essentially flat when compared to the 1996 level of $28,715,000 or 13.1% of
sales. Net interest income was $2,610,000, up $799,000 from $1,811,000 in 1996
due to both higher cash balances and favorable interest rates. The effective
tax rate remained essentially flat at 38.0% compared to 38.1% in 1996.
Liquidity and Capital Resources
Working capital was $128,725,000 at the end of the third quarter reflecting a
current ratio of 2.8 compared to $119,232,000 at year end with a current ratio
of 2.8. The increase in working capital was primarily attributable to the
acquisition of Great Bend Industries and Gold Star Manufacturing. Cash flow
from operating activities was $21,916,000 compared to $16,038,000 in the third
quarter 1996, primarily reflecting the increase in earnings.
The Company is currently debt free, having paid $8,000,000 for the Industrial
Revenue Bonds in the second quarter 1997. Cash and securities of $76,450,000
are less than the balance of $83,267,000 at year end by $6,817,000. This
reduction reflects $27,027,000 paid for acquisitions and $8,000,000 used to
pay off the IRB's.
Management expects that the Company's planned capital requirements for the
remainder of 1997, which consist of capital expenditures, dividend payments and
its stock repurchase program will be financed by operations. The Company has
$100,000,000 available under its multi-bank revolving credit agreement that
could be utilized to meet its liquidity needs.
Impact of Recently Issued Accounting Standard
In March 1997, SFAS 128, "Earnings per Share" was issued. This pronouncement
replaces "Primary EPS" with "Basic EPS", which does not include common stock
equivalents or the resulting dilution. The Statement is effective for
financial statements issued for periods ending after December 15, 1997,
however, should the Company have implemented this standard in the present
quarter there would have been no change in the EPS reported. The Company does
not believe the adoption will have a material effect on its financial
statements.
Outlook
The Company's backlog of unfilled orders increased once again to $143,037,000
compared to $117,262,000 at year end and $114,469,000 this time last year. The
Company is pleased to see the continuing increased activity in the business and
anticipates a good fourth quarter and full year 1997.
8
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Part II
OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
A. Exhibit No. Description Page No.
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<S> <C> <C>
(11) Schedule setting forth computation of E-1
earnings per common share for the three
and nine months ended September 27, 1997
and September 28, 1996.
(27) Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the
quarter ended September 27, 1997.
</TABLE>
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
November 4, 1997 /s/ Lawrence J. Cawley
------------------------------------------
Lawrence J. Cawley
(Chairman & Chief Financial Officer)
November 4, 1997 /s/ Stephen K. Clough
------------------------------------------
Stephen K. Clough
(President & Chief Executive Officer)
10
<PAGE> 1
Exhibit 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED SEPT 27, 1997 AND SEPT 28, 1996
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
Sept 27, 1997 Sept 28, 1996 Sept 27, 1997 Sept 28, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net income $15,770,000 $12,366,000 $45,555,000 $37,727,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 32,992,000 32,868,000 32,992,000 32,868,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 202,000 284,000 148,000 212,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 33,194,000 33,152,000 33,140,000 33,080,000
Primary earnings per common share $ 0.47 $ 0.37 $ 1.37 $ 1.14
Fully Diluted Earnings Per Share:
Net income $15,770,000 $12,366,000 $45,555,000 $37,727,000
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 32,992,000 32,868,000 32,992,000 32,868,000
Net common shares issuable in respect
to common stock equivalents, with
a dilutive effect 214,000 290,000 154,000 232,000
----------- ----------- ----------- -----------
Total weighted average common and
common share equivalents 33,206,000 33,158,000 33,146,000 33,100,000
Fully diluted earnings per common share $ 0.47 $ 0.37 $ 1.37 $ 1.14
</TABLE>
NOTE: Weighted average common shares and all per share amounts reflect a
two-for-one stock split effective October 7, 1997.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KAYDON CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER
27, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<CASH> 50,723
<SECURITIES> 25,727
<RECEIVABLES> 50,864
<ALLOWANCES> 1,483
<INVENTORY> 60,458
<CURRENT-ASSETS> 200,996
<PP&E> 194,961
<DEPRECIATION> 110,512
<TOTAL-ASSETS> 367,991
<CURRENT-LIABILITIES> 72,271
<BONDS> 0
0
0
<COMMON> 3,614
<OTHER-SE> 262,614
<TOTAL-LIABILITY-AND-EQUITY> 367,991
<SALES> 244,365
<TOTAL-REVENUES> 244,365
<CGS> 142,612
<TOTAL-COSTS> 142,612
<OTHER-EXPENSES> 30,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,610)
<INCOME-PRETAX> 73,512
<INCOME-TAX> 27,957
<INCOME-CONTINUING> 45,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,555
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
