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SECURITIES AND EXCHANGE COMMISSION
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
For Quarter Ended October 2, 1999 | Commission File No. 0-12640 |
A Delaware Corporation | IRS Employer ID No. 13-3186040 |
315 E. Eisenhower Pkwy.,
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 10, 1999 30,786,687 shares, $.10 par value.
KAYDON CORPORATION FORM 10-Q
Page No. | |||||
Part I Financial Information: | |||||
Consolidated Condensed Balance Sheets October 2, 1999 and December 31, 1998 | 1 | ||||
Consolidated Condensed Statements of Income Quarter and First Three Quarters Ended October 2, 1999 and October 3, 1998 | 2 | ||||
Consolidated Condensed Statements of Cash Flows First Three Quarters Ended October 2, 1999 and October 3, 1998 | 3 | ||||
Notes to Consolidated Condensed Financial Statements | 4 - 10 | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | 11 - 14 | ||||
Part II Other Information: | |||||
Item 6. Exhibits and Reports on Form 8-K | 15 | ||||
Signatures | 16 |
CONSOLIDATED CONDENSED BALANCE SHEETS
Oct. 2, 1999 | Dec. 31,1998 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 100,405,000 | $ | 96,203,000 | ||||
Accounts receivable, net | 48,055,000 | 48,957,000 | ||||||
Inventories, net | 64,494,000 | 68,176,000 | ||||||
Other current assets | 17,635,000 | 16,464,000 | ||||||
Total current assets | 230,589,000 | 229,800,000 | ||||||
Plant and equipment, net | 98,534,000 | 99,259,000 | ||||||
Cost in excess of net tangible assets of purchased businesses, net | 62,957,000 | 64,717,000 | ||||||
Other assets | 23,266,000 | 20,032,000 | ||||||
Total assets | $ | 415,346,000 | $ | 413,808,000 | ||||
Liabilities and Shareholders Equity: | ||||||||
Accounts payable | $ | 14,943,000 | $ | 14,853,000 | ||||
Accrued expenses | 47,548,000 | 56,347,000 | ||||||
Total current liabilities | 62,491,000 | 71,200,000 | ||||||
Long-term liabilities | 34,471,000 | 30,952,000 | ||||||
Shareholders equity: | ||||||||
Common stock | 3,662,000 | 3,646,000 | ||||||
Paid-in capital | 38,551,000 | 35,969,000 | ||||||
Retained earnings | 390,729,000 | 355,233,000 | ||||||
Less treasury stock, at cost | (112,320,000 | ) | (80,711,000 | ) | ||||
Accumulated other comprehensive loss | (2,238,000 | ) | (2,481,000 | ) | ||||
318,384,000 | 311,656,000 | |||||||
Total liabilities and shareholders equity | $ | 415,346,000 | $ | 413,808,000 | ||||
See accompanying notes to consolidated condensed financial statements.
1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Quarter Ended | First Three Quarters Ended | ||||||||||||||||
Oct. 2, 1999 | Oct. 3, 1998 | Oct. 2, 1999 | Oct. 3, 1998 | ||||||||||||||
Net sales | $ | 73,725,000 | $ | 92,801,000 | $ | 247,369,000 | $ | 291,458,000 | |||||||||
Cost of sales | 45,893,000 | 55,636,000 | 151,508,000 | 173,211,000 | |||||||||||||
Gross profit | 27,832,000 | 37,165,000 | 95,861,000 | 118,247,000 | |||||||||||||
Operating expenses | 8,452,000 | 9,837,000 | 27,399,000 | 33,469,000 | |||||||||||||
Operating income | 19,380,000 | 27,328,000 | 68,462,000 | 84,778,000 | |||||||||||||
Interest income, net | 1,404,000 | 996,000 | 3,629,000 | 3,443,000 | |||||||||||||
Income before income taxes | 20,784,000 | 28,324,000 | 72,091,000 | 88,221,000 | |||||||||||||
Provision for income taxes | 7,794,000 | 10,764,000 | 27,034,000 | 33,525,000 | |||||||||||||
Net income | $ | 12,990,000 | $ | 17,560,000 | $ | 45,057,000 | $ | 54,696,000 | |||||||||
Weighted Average Common Shares: | |||||||||||||||||
Basic | 31,776,000 | 32,466,000 | 31,877,000 | 32,736,000 | |||||||||||||
Diluted | 31,934,000 | 32,694,000 | 32,063,000 | 32,979,000 | |||||||||||||
Earnings Per Share: | |||||||||||||||||
Basic | $ | .41 | $ | .54 | $ | 1.41 | $ | 1.67 | |||||||||
Diluted | $ | .41 | $ | .54 | $ | 1.41 | $ | 1.66 |
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
First Three Quarters Ended | ||||||||
Oct. 2, 1999 | Oct. 3, 1998 | |||||||
Cash flows from operating activities | $ | 52,199,000 | $ | 42,214,000 | ||||
Cash flows from (used in) investing activities: | ||||||||
Purchases of marketable securities | (44,956,000 | ) | ||||||
Maturities of marketable securities | 67,023,000 | |||||||
Capital expenditures, net | (9,248,000 | ) | (21,438,000 | ) | ||||
Other | 82,000 | |||||||
Cash from (used in) investing activities | (9,248,000 | ) | 711,000 | |||||
Cash flows from (used in) financing activities: | ||||||||
Proceeds from issuance of common stock | 2,598,000 | 4,148,000 | ||||||
Dividends paid | (9,591,000 | ) | (8,916,000 | ) | ||||
Purchase of treasury stock | (31,609,000 | ) | (38,601,000 | ) | ||||
Cash used in financing activities | (38,602,000 | ) | (43,369,000 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (147,000 | ) | 1,023,000 | |||||
Net increase in cash and cash equivalents | 4,202,000 | 579,000 | ||||||
Cash and cash equivalents Beginning of period | 96,203,000 | 74,735,000 | ||||||
Cash and cash equivalents End of period | $ | 100,405,000 | $ | 75,314,000 | ||||
Cash expended for income taxes | $ | 25,115,000 | $ | 35,016,000 | ||||
See accompanying notes to consolidated condensed financial statements.
3
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) | The accompanying unaudited consolidated condensed financial statements of Kaydon Corporation and subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, and such adjustments are of a normal recurring nature. The year- end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 1998. |
(2) | Inventories are summarized as follows: |
Oct. 2, 1999 | Dec. 31, 1998 | |||||||
Raw Material | $ | 29,046,000 | $ | 26,570,000 | ||||
Work in Process | 15,355,000 | 20,352,000 | ||||||
Finished Goods | 20,093,000 | 21,254,000 | ||||||
$ | 64,494,000 | $ | 68,176,000 | |||||
(3) | In 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 from circumstances involving nonowner sources. For the Company, comprehensive income consists of net income, minimum pension liability adjustments and foreign currency translation adjustments. Other comprehensive income, net of tax, was approximately $3,215,000 and $1,026,000 resulting in comprehensive income of $16,205,000 and $18,586,000 for the quarters ended October 2, 1999 and October 3, 1998. For the first three quarters, other comprehensive income, net of tax, was approximately $243,000 and $2,118,000 resulting in year to date comprehensive income of $45,300,000 and $56,814,000 for the first three quarters ended October 2, 1999 and October 3, 1998. |
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(4) | The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share for the periods presented. |
Quarter Ended | |||||||||
Oct. 2, 1999 | Oct. 3, 1998 | ||||||||
Numerators: | |||||||||
Numerators for both basic and diluted earnings per share, net income | $ | 12,990,000 | $ | 17,560,000 | |||||
Denominators: | |||||||||
Denominators for basic earnings per share, weighted average common shares outstanding | 31,776,000 | 32,466,000 | |||||||
Potential dilutive shares resulting from stock option plans | 158,000 | 228,000 | |||||||
Denominators for dilutive earnings per share | 31,934,000 | 32,694,000 | |||||||
Earnings per share: | |||||||||
Basic | $ | .41 | $ | .54 | |||||
Diluted | $ | .41 | $ | .54 | |||||
First Three | |||||||||
Quarters Ended | |||||||||
Oct. 2, 1999 | Oct. 3, 1998 | ||||||||
Numerators: | |||||||||
Numerators for both basic and diluted earnings per share, net income | $ | 45,057,000 | $ | 54,696,000 | |||||
Denominators: | |||||||||
Denominators for basic earnings per share, weighted average common shares outstanding | 31,877,000 | 32,736,000 | |||||||
Potential dilutive shares resulting from stock option plans | 186,000 | 243,000 | |||||||
Denominators for dilutive earnings per share | 32,063,000 | 32,979,000 | |||||||
Earnings per share: | |||||||||
Basic | $ | 1.41 | $ | 1.67 | |||||
Diluted | $ | 1.41 | $ | 1.66 | |||||
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Options to purchase 169,350 shares of common stock at prices ranging from $31.4375 to $33.3125 per share were outstanding during the third quarter of 1999, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares during that period. Options to purchase 156,650 shares of common stock at a price of $33.00 per share were outstanding during the third quarter of 1998, but were not included in the computation of third quarter 1998 diluted earnings per share because the options exercise price was greater than the average market price of the common shares during that period. | |
In accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, potential dilutive shares resulting from stock option plans used in the calculation of dilutive earnings per share are based on an average of the potential dilutive shares resulting from stock option plans for the periods presented. | |
(5) | In 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement establishes new standards for reporting information about operating segments and related disclosures. All prior period information has been restated to conform to this statement. |
The Company operates through individual operating units which serve four key market sectors. The market sectors served by the Company have several related economic characteristics and attributes, including similar products, distribution patterns and classes of customers. As a result, the Company aggregates its operating units into a single segment of Custom-Engineered Products. | |
The corporate component of income before taxes includes interest income, goodwill amortization, depreciation and unallocated corporate administrative expenses. The Company maintains an asymmetrical allocation between its corporate office and its plants with regards to goodwill. The goodwill associated with an operating unit is on the balance sheet of the respective operating unit while the amortization expense associated with the goodwill is charged to the corporate office. |
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Segment financial data (in thousands): |
Quarter Ended | ||||||||||||||||||||||||
Oct. 2, 1999 | Oct. 3, 1998 | |||||||||||||||||||||||
Custom- | Custom- | |||||||||||||||||||||||
Engineered | Consolidated | Engineered | Consolidated | |||||||||||||||||||||
Products | Corporate | Totals | Products | Corporate | Totals | |||||||||||||||||||
Sales | $ | 76,040 | $ | 0 | $ | 76,040 | $ | 93,886 | $ | 0 | $ | 93,886 | ||||||||||||
Elimination of intercompany sales |
(2,315 | ) | 0 | (2,315 | ) | (1,085 | ) | 0 | (1,085 | ) | ||||||||||||||
Total net sales | $ | 73,725 | $ | 0 | $ | 73,725 | $ | 92,801 | $ | 0 | $ | 92,801 | ||||||||||||
Segment earnings before interest and tax |
$ | 19,655 | $ | 0 | $ | 19,655 | $ | 27,913 | $ | 0 | $ | 27,913 | ||||||||||||
Unallocated amounts | 0 | 1,129 | 1,129 | 0 | 411 | 411 | ||||||||||||||||||
Income before income taxes | $ | 19,655 | $ | 1,129 | $ | 20,784 | $ | 27,913 | $ | 411 | $ | 28,324 | ||||||||||||
First Three Quarters Ended | ||||||||||||||||||||||||
Oct. 2, 1999 | Oct. 3, 1998 | |||||||||||||||||||||||
Custom- | Custom- | |||||||||||||||||||||||
Engineered | Consolidated | Engineered | Consolidated | |||||||||||||||||||||
Products | Corporate | Totals | Products | Corporate | Totals | |||||||||||||||||||
Sales | $ | 252,632 | $ | 0 | $ | 252,632 | $ | 294,314 | $ | 0 | $ | 294,314 | ||||||||||||
Elimination of intercompany sales |
(5,263 | ) | 0 | (5,263 | ) | (2,856 | ) | 0 | (2,856 | ) | ||||||||||||||
Total net sales | $ | 247,369 | $ | 0 | $ | 247,369 | $ | 291,458 | $ | 0 | $ | 291,458 | ||||||||||||
Segment earnings before interest and tax |
$ | 69,530 | $ | 0 | $ | 69,530 | $ | 86,277 | $ | 0 | $ | 86,277 | ||||||||||||
Unallocated amounts | 0 | 2,561 | 2,561 | 0 | 1,944 | 1,944 | ||||||||||||||||||
Income before income taxes | $ | 69,530 | $ | 2,561 | $ | 72,091 | $ | 86,277 | $ | 1,944 | $ | 88,221 | ||||||||||||
There has been no change in the basis or measurement of segmentation since the last annual report. | |
(6) | In June of 1999, the Company entered into a five-year $300.0 million revolving credit facility with a group of seven banks. The new facility permits the Company to borrow under several different interest rate options. The new credit facility replaces the Companys former $100.0 million revolving credit facility. There were no borrowings associated with the new credit facility as of October 2, 1999. |
(7) | In June of 1995, the Company, along with certain former officers and directors of the Company and certain other companies and organizations, was named as a defendant in a lawsuit commenced in Bankruptcy Court in the Southern District of New York. The plaintiff was the Creditors Committee formed in connection with the Chapter 11 Bankruptcy Proceeding of Keene Corporation (Keene). That action, identified as the Transactions Lawsuit, asserted claims against the Company arising from the Companys 1983 acquisition of certain assets of Keene, and Bairnco Corporations 1984 spin-off of the Companys common stock. As originally filed, the Transactions Lawsuit alleged claims against the Company under state fraudulent conveyance laws, tort claims under successor liability law, and civil RICO claims. The Transactions |
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Lawsuit seeks damages alleged by plaintiffs to be an amount of $700 million, plus interest and punitive damages against the defendants collectively. The RICO claims sought trebling of those damages. The claims asserted in the Transactions Lawsuit are similar to, and supplant, claims previously asserted in certain class actions brought against the Company in 1993, purportedly on behalf of certain persons with asbestos-related claims against Keene. | |
In 1997, in connection with the Bankruptcy Courts confirmation of Keenes Plan of Reorganization, the Keene Creditors Trust was created to, among other things, prosecute this lawsuit, and the Trustees of that Trust were substituted as the plaintiffs in place of the Keene Creditors Committee. In addition, the case was transferred from the Bankruptcy Court to the United States District Court for the Southern District of New York. Subsequently, the Company and certain other defendants filed motions to dismiss the complaint for failure to state a claim, and for summary judgment on the grounds that the fraudulent conveyance claims and certain related causes of action were barred by the statute of limitations. | |
On October 13, 1998, the Court granted in part and denied in part the Companys motion to dismiss the complaint, and denied the Companys motion for summary judgment. With respect to the motion for summary judgment, the Court found that certain groups of asbestos claimants had claims that were not time-barred, and therefore the plaintiffs could assert claims against the Company for both actual fraudulent conveyance and constructive fraudulent conveyance. With respect to the motion to dismiss, the Court granted the Companys motion to dismiss the fraudulent conveyance claim against it in connection with Bairncos 1984 spin-off of the Companys common stock, and dismissed all the RICO claims asserted against the Company. The Court denied the Companys motion to dismiss the successor liability claim, but noted the plaintiffs ability to pursue such a claim was subject to their ability to pursue a fraudulent conveyance claim. | |
On October 29, 1998, the Company filed a motion for reargument of the Courts ruling that the plaintiffs claims for actual and constructive fraudulent conveyance against the Company are not barred by the applicable statute of limitations. On January 5, 1999, the Court issued a decision on the Companys motion for reargument, which granted the Companys motion for reargument with regard to the plaintiffs claims for constructive fraudulent conveyance, and, with one minor exception, held those claims were barred by the applicable statute of limitations and dismissed them. However, the Court denied the Companys motion to dismiss the actual fraudulent conveyance claims. Accordingly, as a result of the Companys motions, the only claims remaining against the Company are plaintiffs claims for actual fraudulent conveyance and for successor liability. In addition, there is, on behalf of certain individual judgment creditors, a limited claim for constructive fraudulent conveyance. The Company does not believe any recovery on this limited claim will be material. The discovery stay previously in place has been lifted, and discovery is in its preliminary stages. |
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In other decisions, the Court also dismissed the claims against all the individual defendants except one, and against the professional organizations that had been named as defendants in the case. However, Bairnco and its other subsidiaries and former subsidiaries remain as defendants in the case. | |
Management believes it has meritorious defenses to the claims pending against it in this litigation. Accordingly, no provision has been reflected in the consolidated financial statements for any alleged damages. Management further believes that the outcome of this litigation will not have a material adverse effect on the Companys 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 (CH-53E) in which four persons died. The grand jury requested and received documents and records relating to bearings manufactured by Kaydon and used in the Sikorsky helicopter. In addition, a Mishap Board led by Sikorsky Aircraft Corporation personnel alleged that product quality problems or deficiencies existed with respect to the Kaydon bearing used in the Sikorsky helicopter described above. Kaydon personnel were excluded from participation on this Mishap Board. However, Kaydon has independently evaluated the available evidence and refuted the Mishap Board findings in reports 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 and Navy personnel, reinforcing the Companys 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. On July 6, 1998, Sikorsky filed a claim against the Company in those same civil cases claiming damages which they are alleged to have incurred following the May 9, 1996 accident. In October 1998, Kaydons insurance company reached settlement agreements with the estates of each plaintiff in the four civil suits. All settlement amounts were fully covered under Company insurance. In September 1998, Kaydon received the Judge Advocate Generals Report (the JAG Report) and the Naval Air Systems Command First Endorsement to the JAG Report dated July 28, 1998 wherein the U.S. Navy reviewed the crash of the Sikorsky CH-53E on May 9, 1996. The findings contained in the JAG Report, management believes, reaffirm the position that the bearing was not the causative action in the May 9, 1996 accident. The JAG Report states, ...the Sikorsky investigation process was flawed. It goes on to say that, NADEP (Naval Aviation Depot) Cherry Point personnel were not fully utilized in the investigative process, nor did they contribute to the conclusion reached. Furthermore, the report states, ...the Sikorsky investigative process erred in failing to fully exploit the expertise of Kaydon engineers in developing causal factors for the mishap. The JAG Report also states ...future investigations of this kind are much less likely to produce a conclusion that is self-serving to the contractor if the investigation agenda and investigative participants are not controlled by the contractor... Management believes it has meritorious defenses against any claims. |
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Management further believes the outcome of this matter will not have a material adverse effect on the Companys financial position or results of operations. | |
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 Companys financial position or results of operations. |
10
Results of Operations
During the third quarter of 1999, Kaydon Corporation and subsidiaries (the Company) achieved sales of $73,725,000, down 20.6 percent from $92,801,000 in the third quarter of 1998. The Company continues to be negatively impacted by lower sales levels in most of Kaydons key industrial markets including heavy construction equipment, mining, offshore oil equipment, government spare parts, military, railroad, and aerospace markets, as well as lower sales levels of specialty bearing products in the United Kingdom.
As a result of the lower sales volume, both gross profit and operating income were negatively affected. Gross profit during the 1999 third quarter of $27,832,000 was 37.8 percent of sales, compared with $37,165,000 or 40.0 percent of sales in the 1998 third quarter. Operating income during the third quarter of 1999 was $19,380,000 or 26.3 percent of sales as compared to $27,328,000 or 29.4 percent of sales in the 1998 third quarter.
Total operating costs, including cost of sales and selling, general and administrative expenses were $54,345,000 during the third quarter of 1999. This is a decrease of $11,128,000 from the comparable third quarter 1998 figure of $65,473,000. Approximately $2,450,000 of this decrease is attributable to managements continued emphasis on cost reduction initiatives during the third quarter of 1999, with the remainder of the decrease in total operating costs attributable to the reduction in sales volumes.
Net interest income in the third quarter of 1999 of $1,404,000 increased $408,000 from $996,000 in last years comparable period due to higher average cash balances.
Third quarter 1999 net income was $12,990,000, or 17.6 percent of sales. Earnings per share on a diluted basis equaled $.41. Third quarter 1998 net income was $17,560,000, or 18.9 percent of sales, while earnings per share on a diluted basis equaled $.54.
The effective tax rate during the 1999 third quarter was 37.5 percent compared to 38.0 percent in the third quarter 1998. The lower rate is due to a combination of lower foreign rates and higher export sales.
Sales for the first three quarters of 1999 were $247,369,000, a decrease of 15.1 percent over last years $291,458,000 reflecting the continued softness in major markets served by Kaydon.
11
Lower sales volume caused gross profit for the first three quarters of 1999 to decrease to $95,861,000 or 38.8 percent of sales as compared to $118,247,000 or 40.6 percent of sales during the first three quarters of 1998.
Selling, general and administrative expenses during the first three quarters of 1999 decreased by $6,070,000 to $27,399,000 or 11.1 percent of sales as compared to $33,469,000 or 11.5 percent of sales during the first three quarters of 1998.
Net income for the first three quarters of 1999 was $45,057,000 or 18.2 percent of sales, while earnings per share on a diluted basis equaled $1.41. Net income for the first three quarters of 1998 was $54,696,000 or 18.8 percent of sales, while earnings per share on a diluted basis equaled $1.66.
Liquidity and Capital Resources
Working capital was $168,098,000 as of October 2, 1999, reflecting a current ratio of 3.7 to 1 compared to $158,600,000 and a current ratio of 3.2 to 1 at year-end 1998. Cash flow from operations was a record $52,199,000 during the first three quarters, up from $42,214,000 for the same period in 1998. The record cash flow is greatly attributable to managements ability to focus on controlling working capital during this period of lower sales.
Depreciation and amortization for the first three quarters of 1999 totaled $11,931,000 compared to $11,030,000 in the first three quarters of 1998.
Cash and cash equivalents equaled $100,405,000 as of October 2, 1999, up $4,202,000 over the balance at year-end 1998 of $96,203,000. This increase reflects strong operating cash flow offset by capital expenditures of $9,248,000, dividend payments of $9,591,000, and the repurchase of 1,167,606 shares of common stock for $31,609,000.
Management expects that the Companys planned capital requirements for the remainder of 1999, which consists of capital expenditures, dividend payments and its stock repurchase program will be financed by operations and existing cash balances. In June of 1999, the Company entered in to a five-year $300.0 million revolving credit facility with a group of seven banks. The new credit facility replaces the Companys former $100.0 million revolving credit facility. The Company is currently debt free.
Year 2000
This year 2000 readiness disclosure is the most current information available and replaces all previous disclosures made by the Company in its filings on Form 10-Q and Form 10-K, and in its Annual Report to shareholders.
The Company has a plan in place to manage the readiness of its systems with respect to the requirements for transaction processing in the year 2000. The proprietary Company internal system was modified to be year 2000 compliant in 1997. Review and testing of the modifications was completed during 1998. The costs for these
12
modifications were expensed as routine internal programming costs during the period incurred and were not material. Any additional expenses will also be expensed as incurred and are not expected to be material.
As part of the Companys long-term objectives for continued operational improvements and cost management, investments in information technology have already begun and are estimated to total $2.5 to $3.0 million over the next 12-15 months. As part of any investment in information systems, year 2000 compliance will be assured. The incremental costs associated with year 2000 modifications related to these investments, if any, will be expensed as incurred and are not expected to be material.
Embedded technology in facilities systems and machinery and equipment have been inventoried and assessed. No significant year 2000 compliance issues are pending and completion of all remaining minor remediation projects are expected to be completed by December 31, 1999.
Also, in accordance with the Companys year 2000 readiness plan, the Company has assessed the year 2000 systems readiness of its customers, vendors and suppliers and has developed contingency plans for those who are not expected to be year 2000 compliant. Any costs for remediation of third party system issues are expected to be borne by those third parties.
At this time, the Company would characterize as worst case any scenario that involves potential disruptions in which the Companys operations may rely on such third parties whose systems may not work properly after December 31, 1999. Possible consequences of year 2000 interruptions include, but are not limited to, a temporary inability to manufacture or ship product; process transactions; communicate with customers, suppliers, subsidiary locations and employees; or conduct other similar corporate activities in a normal business environment. While such failures could affect the Company either directly or indirectly, the Company cannot at the present time estimate either the likelihood or the potential cost of such failures.
Outlook
The Companys backlog at October 2, 1999 was $121,361,000 compared to $145,311,000 at the end of 1998. Based upon current business indications, including quoting activity and future business forecasts for Kaydon customers end-markets, we believe that orders will increase only slightly for the remainder of 1999, but should rebound during the first half of next year. Expected operating cash flows coupled with the Companys current cash reserves, and the new credit facility will provide substantial resources to fund our ongoing business development efforts which include internal and external growth initiatives as well as selected stock repurchases.
Certain information in this Form 10-Q is forward looking, such as the Companys expectations regarding future financial performance, business development activity, and year 2000 readiness. The Company may not update these expectations to reflect subsequent events. Such forward-looking information involves risks and uncertainties that
13
could significantly affect expected results. These risks and uncertainties include, but are not limited to, uncertainties as to economic conditions, market acceptance of new enhanced versions of the Companys products, the pricing of raw materials and changes in the competitive environments in which the Companys businesses operate. Readers are cautioned to consider these factors when relying on such forward-looking information.
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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 October 2, 1999.
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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 12, 1999 | /s/ BRIAN P. CAMPBELL | |
Brian P. Campbell (Chairman, President & Chief Executive Officer) |
||
November 12, 1999 | /s/ KENNETH W. CRAWFORD | |
Kenneth W. Crawford (Vice President & Corporate Controller) |
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EXHIBIT INDEX
EXHIBIT NO. | DESCRIPTION | |
27 | Financial Data Schedule |
|