<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 April 4, 1998 Commission File No. 0-12640
- ------------------------------- ---------------------------
KAYDON CORPORATION
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A Delaware Corporation IRS Employer ID No. 13-3186040
---------------------------- ----------------------------------
19345 US 19 North, Clearwater, FL 33764 Phone: 813/531-1101
- --------------------------------------------- ------------------------------
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 May 14, 1998 - 33,023,163 shares, $0.10 par value.
<PAGE> 2
KAYDON CORPORATION FORM 10-Q
FOR THE QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
INDEX
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Page No.
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<S> <C>
Part I - Financial Information:
Consolidated Condensed Balance Sheets -
April 4, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Income -
Three Months Ended April 4, 1998 and March 29, 1997 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended April 4, 1998 and March 29, 1997 3
Notes to Consolidated Condensed Financial Statements 4 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
Part II - Other Information:
Item 4. - Submission of Matters to a Vote of Security Holders 10
Item 5. - Other Information 10
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
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KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
April 4, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets:
- ------
Cash and cash equivalents $ 59,225,000 $ 74,735,000
Marketable securities 41,987,000 22,067,000
Accounts receivable, net 51,798,000 42,690,000
Inventories, net 64,951,000 60,548,000
Other current assets 15,412,000 14,738,000
------------ ------------
Total current assets 233,373,000 214,778,000
Plant and equipment, net 93,147,000 85,510,000
Cost in excess of net tangible
assets of purchased businesses, net 66,409,000 66,687,000
Other assets 19,111,000 17,010,000
------------ ------------
Total assets $412,040,000 $383,985,000
============ ============
Liabilities and Stockholders' Investment:
- ----------------------------------------
Accounts payable $ 15,854,000 $ 11,574,000
Accrued expenses 53,019,000 52,782,000
Federal income tax payable 14,995,000 6,659,000
------------ ------------
Total current liabilities 83,868,000 71,015,000
Other long-term liabilities 29,777,000 29,374,000
Stockholders' investment 298,395,000 283,596,000
------------ ------------
Total liabilities and
stockholders' investment $412,040,000 $383,985,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
April 4, 1998 March 29, 1997
------------- --------------
<S> <C> <C>
Net Sales $ 99,109,000 $ 76,531,000
Gross Profit 40,468,000 31,823,000
Operating Income 28,260,000 21,546,000
Interest Income, net 1,249,000 879,000
------------ ------------
Income before Income Taxes 29,509,000 22,425,000
Provision for Income Taxes 11,214,000 8,544,000
------------ ------------
Net Income $ 18,295,000 $ 13,881,000
============ ============
Earnings Per Share:
Basic $ 0.55 $ 0.42
Diluted $ 0.55 $ 0.42
Average Common Shares Outstanding:
Basic 33,006,000 32,951,000
Diluted 33,265,000 33,086,000
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 5
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
THREE MONTHS ENDED
Apr 4, 1998 Mar 29, 1997
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<S> <C> <C>
Cash flows from operating activities $ 18,944,000 $ 11,261,000
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (19,920,000) (59,733,000)
Maturities of marketable securities 0 29,000,000
Capital expenditures, net (10,867,000) (2,396,000)
Acquisition of businesses, net of cash acquired 11,000 (4,412,000)
------------ ------------
Cash used in investing activities (30,776,000) (37,541,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,238,000 732,000
Dividends paid (2,969,000) (2,305,000)
Purchase of treasury stock (2,739,000) (629,000)
Payment of short term debt 0 (31,000)
------------ ------------
Cash used in financing activities (4,470,000) (2,233,000)
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents 792,000 (320,000)
------------ ------------
Net decrease in cash and cash equivalents (15,510,000) (28,833,000)
Cash and cash equivalents - Beginning of period 74,735,000 54,443,000
------------ ------------
Cash and cash equivalents - End of period $ 59,225,000 $ 25,610,000
============ ============
Cash expended for income taxes $ 2,700,000 $ 4,679,000
============ ============
Cash expended for interest $ 10,000 $ 109,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 6
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 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 1997 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 April 4, 1998 and the results of its operations and
its cash flows for the three 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>
Apr 4, 1998 Dec 31, 1997
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<S> <C> <C>
Raw Material $22,183,000 $20,282,000
Work in Process 22,966,000 19,424,000
Finished Goods 19,802,000 20,842,000
----------- -----------
$64,951,000 $60,548,000
=========== ===========
</TABLE>
(4) On March 5, 1998, the Company purchased a manufacturing facility and
adjacent property in Mocksville, North Carolina for $4,630,500. This
facility will produce custom bearings for various commercial
applications and represents additional capacity for the continuing
growth of its Bearings Division. The Company anticipates limited
production to commence in the third quarter, and upon reaching full
production levels, to eventually employ approximately 125 people.
4
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(5) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income reflects
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
For the Company, the comprehensive income represents net income
adjusted for unrealized gains and losses on foreign currency
translation adjustments. Other comprehensive income, net of tax, was
approximately $974,000 and ($1,472,000), resulting in comprehensive
income of $19,269,000 and $12,409,000 for the quarters ended April 4,
1998 and March 29, 1997, respectively.
(6) Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". This statement establishes standards for computing and
presenting earnings per share ("EPS"). Under these standards, basic
earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for
the period. Diluted earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding plus
all potential common shares. Dilutive potential common shares include
all shares which may become contractually issuable. For the Company,
dilutive potential common shares are primarily comprised of shares
issuable under stock option plans. All prior period earnings per share
data presented has been restated to conform to this statement.
The following table reconciles the numerators and denominators used in
the calculation of basic and diluted earnings per share for the
quarters presented.
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending
April 4, 1998 March 29, 1997
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<S> <C> <C>
Numerators:
Numerators for both basic
and diluted earnings per share,
net income $ 18,295,000 $ 13,881,000
============ ============
Denominators:
Denominators for basic earnings
per share, weighted average
common shares outstanding 33,006,000 32,951,000
Potential dilutive shares resulting
from stock option plans 259,000 135,000
------------ ------------
Denominator for dilutive
earnings per share 33,265,000 33,086,000
============ ============
Earnings Per Share:
Basic $ .55 $ .42
Diluted $ .55 $ .42
============ ============
</TABLE>
5
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All options were included in first quarter 1998 because the options'
exercise price was less than the average market price of common shares.
Options to purchase 416,400 shares of common stock at $21.75 per share
were outstanding during the first quarter of 1997, but were not
included in the computation of diluted EPS because the options' price
was greater than the average market price of the common shares.
(7) 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, the Company submitted a motion to dismiss the complaint based on
the statute of limitations. All motions, supporting documents and
rebuttal were filed on December 15, 1997. The court has not yet ruled
upon the motions. Management believes that the outcome of this
litigation will not have a material adverse effect on the Company's
financial position.
6
<PAGE> 9
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 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, 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.
7
<PAGE> 10
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
$99,109,000 in the first quarter 1998, up 29.5% from $76,531,000 in the first
quarter last year. Approximately 67% of the increase was contributed by the
Company's base businesses while the remainder was attributed to the 1997
acquisitions in the Fluid Power Products Group. Growth in base businesses was
broad based and was led by increases in the existing Fluid Power operations, in
addition to across-the-board increases in the Bearings operations. The Ring and
Seal Division was essentially flat from 1997 due to lower sales in industrial
seals. The quarter's growth benefited from four additional shipping days in 1998
versus 1997. Without the impact of the longer schedule, base businesses growth
approximated 12.5% over the first quarter last year.
Gross profit as a percent of sales decreased slightly to 40.8% from 41.6% in the
first quarter of last year. The decrease resulted from the dilutive impact of
the 1997 acquisitions. Without the acquisition impact, the gross profit rate
would have increased slightly reflecting continued favorable operating
conditions.
Selling and administrative expenses were $12,208,000, up $1,931,000 from
$10,277,000 last year. Although the absolute dollars increased, expenses as a
percent of sales were down to 12.3% from 13.4% in the first quarter last year.
This percentage decrease is primarily attributable to slower expense growth to
support the larger sales base.
Net interest income was $1,249,000, up $370,000 from $879,000 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 flat with the 38.1% rate in first quarter
1997.
Liquidity and Capital Resources
Working capital was $149,505,000 at the end of the first quarter reflecting a
current ratio of 2.8 compared to $143,763,000 at year end with a current ratio
of 3.0. The increase in working capital reflects the higher sales in the first
quarter 1998 over the fourth quarter 1997, yet the increase was modest relative
to the higher volume. Cash flow from operating activities was $18,944,000
compared to $11,261,000 in the first quarter 1997, reflecting the increase in
earnings and improved working capital. Depreciation and amortization totaled
$3,698,000 compared to $3,231,000 in the first quarter 1997.
8
<PAGE> 11
Cash and securities of $101,212,000 were up $4,410,000 over the balance at year
end of $96,802,000. This increase reflects strong operating cash flow offset by
$10,867,000 paid for capital expenditures.
Management expects that the Company's planned capital requirements for the
remainder of 1998, 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. The Company is currently debt
free.
Year 2000
The Company has a plan in place to ensure its systems are compliant with the
requirements to process transactions in the year 2000. The Company is also
working with its venders and processing banks to ensure their systems are year
2000 compliant.
Incremental costs associated with year 2000 modifications, if any, will be
expensed as incurred and are not expected to be material. Any year 2000
compliance costs associated with outside vendors and processors will be borne by
those parties.
Outlook
The Company's backlog of unfilled orders increased once again to $160,404
compared to $155,548,000 at year end and $123,911,000 this time last year. The
Company is pleased to see the continuing increased activity in the business and
anticipates a good second quarter and full year 1998.
9
<PAGE> 12
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The fourteenth Annual Stockholders' Meeting of Kaydon Corporation was
held at the Tampa Airport Marriott on April 30, 1998. Represented at
this meeting in person or by proxy were 28,907,720 shares of Kaydon
common stock, representing 87.5% of the total outstanding as of the
February 27, 1998 record date.
The stockholders elected Gerald J. Breen, Brian P. Campbell, Lawrence
J. Cawley, and Stephen K. Clough to serve as Directors until the 1999
Annual Meeting. The results of the votes are as follows:
<TABLE>
<CAPTION>
Election of Directors For Withhold
--------------------- -------------- --------
<S> <C> <C>
G. Breen 28,817,147 90,573
B. Campbell 28,826,011 81,709
L. Cawley 28,823,615 84,105
S. Clough 28,824,553 83,167
</TABLE>
There was no other official business to come before the meeting.
Item 5. Other Information
Effective April, 1998, Mr. John H.F. Haskell, Jr. retired from the
Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit No. Description
(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 April 4, 1998.
10
<PAGE> 13
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
May 18, 1998
/s/ Stephen K. Clough
------------------------------------------
(President, CEO & Chief Financial Officer)
May 18, 1998
/s/ Joseph P. Port
------------------------------------------
(Vice President Finance & Corporate
Controller)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-04-1998
<CASH> 59,225
<SECURITIES> 41,987
<RECEIVABLES> 53,460
<ALLOWANCES> 1,662
<INVENTORY> 64,951
<CURRENT-ASSETS> 233,373
<PP&E> 208,743
<DEPRECIATION> 115,596
<TOTAL-ASSETS> 412,040
<CURRENT-LIABILITIES> 83,868
<BONDS> 0
0
0
<COMMON> 3,628
<OTHER-SE> 294,767
<TOTAL-LIABILITY-AND-EQUITY> 412,040
<SALES> 99,109
<TOTAL-REVENUES> 99,109
<CGS> 58,641
<TOTAL-COSTS> 58,641
<OTHER-EXPENSES> 12,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,249)
<INCOME-PRETAX> 29,509
<INCOME-TAX> 11,214
<INCOME-CONTINUING> 18,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,295
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
