INDEX
KETEMA, INC.
Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Statements of Operations - Three months and
six months ended August 31, 1994 and 1993 . . . 3
Condensed Consolidated Balance Sheets - August 31, 1994
and February 28, 1994 . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Six months ended August 31, 1994 and 1993 . . . 5
Notes to consolidated financial statements . 6-9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . 10-16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . 17
Signatures . . . . 18
Exhibit 11 - Computation of Earnings Per Common Share. 19-20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
KETEMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $ 31,571 $ 31,913 $ 62,527 $ 65,390
Expenses:
Cost of sales, excluding depreciation 24,145 23,848 47,853 49,954
Selling, general and administrative 5,628 5,495 11,456 10,674
Depreciation 1,275 1,243 2,564 2,415
31,048 30,586 61,873 63,043
Operating income 523 1,327 654 2,347
Other income (expense):
Interest income 700 597 1,366 1,217
Interest expense (1,564) (1,640) (3,186) (3,263)
Other, net (265) 118 (272) 224
(1,129) (925) (2,092) (1,822)
Income (loss) from continuing operations
before income taxes (606) 402 (1,438) 525
Benefit from (provision for) income taxes 194 (365) 460 (581)
Income (loss) from continuing operations (412) 37 (978) (56)
Discontinued operations, net of income
taxes -- (55) -- (305)
Net income (loss) $ (412) $ (18) $ (978) $ (361)
Income (loss) per share(a):
Continuing operations $ (0.12) $ 0.01 $ (0.28) $ (0.02)
Discontinued operations -- (0.01) -- (0.08)
Net income (loss) $ (0.12) $ 0.00 $ (0.28) $ (0.10)
Average common shares outstanding 3,490 3,682 3,490 3,683
(a) The fully diluted earnings per share are not shown since they are antidilutive.
See accompanying notes.
</TABLE>
<PAGE>
KETEMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
August 31, February 28,
ASSETS 1994 1994
Current assets: (Unaudited)
Cash and cash equivalents $ 2,187 $ 961
Marketable securities 66,274 59,719
Receivables 20,017 20,445
Inventories 12,812 11,322
Deferred income taxes 3,669 2,835
Net assets of discontinued operations 453 992
Prepaid expenses and other current assets 2,501 4,311
Total current assets 107,913 100,585
Property, plant and equipment, at cost 74,269 73,097
Less accumulated depreciation (49,414) (47,789)
Net property, plant and equipment 24,855 25,308
Intangibles, net of amortization 12,250 13,396
Deferred income taxes -- 173
Other assets 2,451 9,511
$ 147,469 $ 148,973
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,351 $ 7,200
Accrued employee compensation and benefits 5,388 5,671
Other accrued liabilities 15,224 15,692
Income taxes payable -- 309
Current maturities of long-term debt 4,503 4,505
Total current liabilities 32,466 33,377
Long-term debt 55,692 55,692
Deferred income taxes 277 --
Other long-term liabilities 3,015 2,923
Stockholders' equity 56,019 56,981
$ 147,469 $ 148,973
See accompanying notes.
<PAGE>
<TABLE>
KETEMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Six Months Ended
August 31,
1994 1993*
<S> <C> <C>
Cash flow from operating activities:
Income (loss) from continuing operations $ (978) $ (56)
Adjustments to reconcile income (loss) from continuing opera-
tions to net cash provided by (used in) operating activities:
Depreciation and amortization 3,274 3,134
Deferred income taxes and credits (107) 458
Changes in working capital (161) (7,245)
Investing activities included in income (loss) from
continuing operations 40 (186)
Other 59 (454)*
Net cash provided by (used in) continuing operations 2,127 (4,349)*
Loss from discontinued operations -- (305)
Change in net operating assets of discontinued operations
and other adjustments 539 (54)
Net cash provided by (used in) operating activities 2,666 (4,708)*
Cash flow from investing activities:
Capital expenditures - continued operations (2,192) (2,955)
Capital expenditures - discontinued operations -- (348)
Sale (purchase) of marketable securities (6,606) 12,900
Sale of Pine Street Ltd Partnership 5,259 --
Proceeds from sale of other assets 93 237
Redemption of cash surrender value on officers' life ins. 1,574 --
Other 434 (105)
Net cash provided by (used in) investing activities (1,438) 9,729
Cash flow from financing activities:
Principal repayments of loans on officers' life insurance -- (895)*
Principal repayments of long-term debt (2) (30)
Net cash provided by (used in) financing activities (2) (925)*
Increase (decrease) in cash and cash equivalents 1,226 4,096
Cash and cash equivalents, beginning of period 961 6,303
Cash and cash equivalents, end of period $ 2,187 $ 10,399
* Restated for reclassification of principal repayments of loans on officers' life
insurance from operating activities to financing activities to agree with the
treatment in the FY94 10-K.
See accompanying notes.
</TABLE>
<PAGE>
KETEMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The accompanying consolidated financial statements are unaudited, but the
Company believes that they include all adjustments necessary for fair
presentation of the consolidated financial position of the Company at August
31, 1994, the consolidated results of operations for the three-month and six-
month periods ended August 31, 1994 and 1993 and the consolidated cash flows
for the six-month periods ended August 31, 1994 and 1993.
Interim results of operations are not necessarily indicative of results for
the full year. The consolidated financial statements, which are unaudited and
contain condensed disclosures, should be read in conjunction with the
consolidated financial statements and related notes in the Company's latest
audited financial statements.
Note 2 - Earnings Per Share
Primary earnings per share is determined by dividing income (loss) by the
weighted average number of common shares outstanding during the period, after
adjusting for common stock equivalents arising from stock incentives, if
dilutive.
Earnings per share assuming full dilution is not presented since there is no
dilutive effect on earnings per share amounts assuming the conversion of the
Company's outstanding debentures into additional shares of common stock and the
exercise of outstanding stock incentives.
Note 3 - Income Taxes
The differences between the federal income tax rate of 34% and the Company's
effective tax rate attributable to continuing operations were as follows:
(In thousands)
Six months ended August 31,
1994 1993
Statutory federal tax benefit (provision) $ 488 $ (179)
State income taxes, net of federal income tax benefit 65 (87)
Valuation allowance for deferred tax assets -- (315)
Other (93) --
Benefit from (provision for) income taxes $ 460 $ (581)
<PAGE>
KETEMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Components of the Company's deferred tax assets and liabilities as of August
31, 1994 and February 28, 1994 are as follows:
(In thousands)
August 31, February 28,
1994 1994
Total deferred tax assets $ 8,155 $7,899
Valuation allowance for deferred tax assets (2,189) (2,189)
5,966 5,710
Total deferred tax liabilities (2,574) (2,702)
Net deferred tax assets $ 3,392 $3,008
In addition, income tax refund claims receivable of $1,694,000 included in
receivables at February 28, 1994 were collected in March 1994.
Note 4 - Inventories
Inventories are principally accounted for using the last-in, first-out (LIFO)
cost method. If the first-in, first-out (FIFO) method of accounting for
inventories had been used by the Company, inventories would have been higher
than that reported at August 31, 1994 and February 28, 1994 by $9,614,000 and
$9,714,000, respectively. During the six-month periods ended August 31, 1994
and 1993, certain inventories were reduced resulting in the liquidation of
LIFO inventory layers carried at lower costs prevailing in prior years as
compared with the cost of purchases in the current periods, the effect of which
decreased cost of goods sold by approximately $204,000 and $186,000 for the
three-month periods ended August 31, 1994 and 1993, respectively, and by
approximately $289,000 and $389,000 for the six-month periods ended August
31, 1994 and 1993, respectively.
The estimated components of inventory stated at lower of LIFO cost or market
are:
(In thousands)
August 31, February 28,
1994 1994
Raw materials $ 1,665 $ 1,831
Work in process 5,663 4,335
Finished goods 5,484 5,156
$12,812 $11,322
<PAGE>
KETEMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Progress payments (principally related to long-term contracts and programs) of
$844,000 at August 31, 1994 ($661,000 at February 28, 1994), have been netted
against inventories.
Note 5 - Discontinued Operations
Effective August 31, 1993, the Company sold its Aluminum Extrusion Division for
$10,978,000 which consisted of cash and short term notes of $8,878,000 (all
notes were fully collected by December 30, 1993) and a non-cash item of 190,900
shares of the Company's common stock which had a market value of $2,100,000. In
addition, the Company is entitled to a contractually defined percentage of
profits, if any, for the period from September 1, 1993 through December 31,
1996, from the combined aluminum extrusion operations consisting of the
divested operation and two of the purchaser's operations. No gain or loss
on the sale was recognized since the sales price, net of estimated divestiture
expenditures, approximated the division's book value. The remaining assets of
the Aluminum Extrusion Division at August 31, 1994 and February 28, 1994
of $453,000 and $992,000, respectively, consist primarily of accounts receivable
and some fixed assets to be disposed of separately. The net assets and
operating results of the Aluminum Extrusion Division have been classified as
discontinued operations for all periods presented in the consolidated financial
statements. Operating results from discontinued operations for the three months
ended August 31, 1993 consisted of sales of $8,482,000 and an operating loss
before tax of $91,000 and for the six months ended August 31, 1993 consisted of
sales of $17,412,000 and an operating loss before tax of $508,000.
Note 6 - Marketable Securities
During the first quarter of fiscal 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" effective for fiscal years beginning
after December 15, 1993.
During the second quarter of this fiscal year the Company recorded a write-down
of Investments Available for Sale by $213,000. This write down was the result of
rising interest rates which, in the opinion of the Company's management, have
created a permanent unrealized loss that must be recognized in earnings under
FAS 115.
<PAGE>
KETEMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At August 31, 1994 the carrying value of the marketable securities was
$66,274,000, as follows:
Carrying
Value
Held to Maturity, due in one year or less (fair market
value of $62,227,000) $62,235,000
Available for Sale, due in 3 to 20 years, carried at fair
value 3,986,000
Interest Receivable 53,000
Total carrying value $66,274,000
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Proposed Merger Transaction
On June 21, 1994, the Company entered into an Agreement and Plan of Merger with
KTM Holdings Corp. and KTM Acquisition Corp., which corporations had been
formed by the American Securities Group. Under the proposal, members of the
American Securities Group, together with one or more third party investors,
would acquire all the Common Stock of Ketema not already owned by them at a
price of $15.00 per share in cash through the merger of KTM Acquisition Corp.
into the Company. The American Securities Group, which beneficially owns
approximately 23% of the Company's outstanding stock, including shares issuable
upon conversion of Debentures and Convertible Voting Preferred Stock held by
the Group, consists of clients of American Securities Partners, L.P. and Hugh H.
Williamson, III, the President and Chief Executive Officer of the Company.
Four members of the American Securities Group are Directors of the Company.
Consummation of the proposed merger is subject to certain conditions, including,
among other things, approval of the Merger Agreement by the holders of a
majority of the outstanding stock of the Company and funding pursuant to a
bank financing commitment. The Company has filed with the Securities and
Exchange Commission a preliminary proxy statement and other materials with
respect to the proposed merger, and the Company expects to hold a special
stockholders' meeting to consider the proposed merger before the end of
calendar 1994.
Results of Operations
Second Quarter of Fiscal 1995 Compared to the Second Quarter of Fiscal 1994
The following comments compare the second quarter of fiscal 1995 to the same
period of fiscal 1994. Sales for 1995 were $31.6 million compared to $31.9
million in 1994, a decrease of $0.3 million or 0.9%. Operating income for
1995 was $0.5 million which was $0.8 million less than 1994. The changes in
sales and operating income by business group are shown in the following table:
<TABLE>
COMPARATIVE SALES AND OPERATING INCOME
<CAPTION>
(Dollars In Millions)
Sales Operating Income
Fiscal Fiscal Increase Fiscal Fiscal Increase
Group 1995 1994 (Decr.) 1995 1994 (Decr.)
<S> <C> <C> <C> <C> <C> <C>
Process $ 15.1 $ 14.8 $ 0.3 $ 1.3 $ 1.6 $ (0.3)
Aerospace 9.4 10.3 (0.9) 0.1 1.3 (1.2)
Industrial 7.0 6.7 0.3 0.8 0.7 0.1
American Innovations, Inc. 0.1 0.1 0.0 (0.3) (0.5) 0.2
Corporate Expenses NA NA NA (1.4) (1.8) 0.4
Totals $ 31.6 $ 31.9 $ (0.3) $ 0.5 $ 1.3 $ (0.8)
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
Second Quarter of Fiscal 1995 Compared to the Second Quarter of Fiscal 1994
(cont.)
Sales of the Process Group increased $0.3 million or 2.0% to $15.1 million,
compared to the prior year. Increases in shipments of heat exchangers and
miscellaneous process equipment of $1.3 and $0.1 million, respectively, were
partially offset by a decrease in shipments of flow measurement devices of
$1.1 million. Much of the decrease in sales of flow measurement devices was the
result of reduced shipments of calibration equipment. The increase in heat
exchanger sales resulted from improved factory operations; however, the
rate of new orders has fallen off in recent months and sales increases are
not expected to continue in the third quarter. Operating income for the
Process Group was $1.3 million or a decrease of $0.3 million compared to 1994.
The increased shipments of heat exchangers favorably impacted operating income
by $0.3 million. This gain, however, was more than offset by decreased
operating income of $0.4 million resulting from reduced shipments and increased
marketing costs related to flow measurement devices. In addition, operating
income related to miscellaneous process equipment decreased $0.2 million,
despite the small increase in sales, due to increased marketing costs and
reduced margins attributable to the introduction of new products in the
filtration market.
The Aerospace Group recorded sales of $9.4 million in 1995, a decrease of $0.9
million or 8.7% compared to 1994. This decrease was caused mainly by ongoing
delays and extensions of aerospace customer requirements related to defense
industry cutbacks and softness in the commercial airline business which are
expected to continue for some time in the future. In November 1993 the Company
received verbal notification from General Electric Company ("G.E.") that it
intended to transfer, over a several year period, certain of its business
to other suppliers because the Company would not honor G.E.'s demand for
additional substantial price reductions. G.E. accounted for approximately 28%
and 22% of the Company's net sales for the full fiscal year 1994 and the
second quarter of fiscal 1995, respectively. While this situation continues to
be a concern for the Company, no significant transfers have yet been made and
the Company has received new orders from G.E. since the notification. The
operating income of this group decreased $1.2 million compared to 1994 due to
increased production and marketing costs and reduced sales volume.
The Industrial Group recorded sales of $7.0 million in 1995, an increase of $0.3
million or 4.5%. Sales of thermistors and die castings increased $0.4 million
each while shipments of extruded monofilaments decreased $0.5 million due
primarily to reduced shipments of specialty monofilament used in tire
manufacturing. The operating income of the Industrial Group was $0.8 million
or an increase of $0.1 over the prior year. Increased shipments of thermistors
and die castings increased operating income by $0.1 million each while the
decrease in sales of extruded monofilaments reduced operating income by $0.1
million.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
Second Quarter of Fiscal 1995 Compared to the Second Quarter of Fiscal 1994
(cont.)
American Innovations, Inc., had sales of $0.1 million in 1995, the same as last
year. Our efforts to penetrate this market continue to be frustrated by the
lengthy buying cycle in the utility industry. Operating losses of $0.3 million,
consisting primarily of marketing and engineering costs, were somewhat better
than the prior year due to reduced operating costs.
Corporate expenses were $1.4 million or $0.4 million less than 1994 despite the
recognition in the current period of $0.2 million of fees paid in connection
with the pending merger proposal. Reductions in expenses resulted principally
from reductions in compensation, the discontinuance of the Supplemental Senior
Executive Death Benefit Program, and decreased consulting fees and travel
expenses.
Other expense, net of other income, increased $0.2 million compared to 1994
chiefly as a result of the write down in 1995 of certain securities available
for sale in accordance with FAS 115 (See Note 6 to the Financial Statements).
The Company continues to experience a negative interest spread on its currently
nonprepayable debt position compared to the low interest earned on its almost
equal cash and marketable securities position.
Included in the 1994 tax provision was a valuation allowance for certain
deferred tax assets related to 1994 losses that were, at that time, expected
to be nonrecoverable; such valuation allowance was not required for 1995.
Losses from continuing operations were $0.4 million or 12 cents per share
compared to income from continuing operations of less than $0.1 million or
1 cent per share in 1994.
Net loss for the Company was $0.4 million or 12 cents per share this year
compared to a breakeven in 1994.
First Six Months of Fiscal 1995 Compared to the First Six Months of Fiscal 1994
The following comments compare the first six months of fiscal 1995 to the same
period of fiscal 1994. Sales for 1995 were $62.5 million compared to $65.4
million in 1994, a decrease of $2.9 million or 4.4%. Operating income for
1995 was $0.7 million which was $1.7 million less than 1994. The changes in
sales and operating income by business group are shown in the following table:
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
First Six Months of Fiscal 1995 Compared to the First Six Months of Fiscal 1994
(cont.)
<TABLE>
COMPARATIVE SALES AND OPERATING INCOME
<CAPTION>
(Dollars In Millions)
Sales Operating Income
Fiscal Fiscal Increase Fiscal Fiscal Increase
Group 1995 1994 (Decr.) 1995 1994 (Decr.)
<S> <C> <C> <C> <C> <C> <C>
Process $ 29.9 $ 28.8 $ 1.1 $ 2.5 $ 3.3 $ (0.8)
Aerospace 18.9 23.0 (4.1) 0.2 2.1 (1.9)
Industrial 13.4 13.5 (0.1) 1.6 1.6 0.0
American Innovations, Inc 0.3 0.1 0.2 (0.4) (0.9) 0.5
Corporate Expenses NA NA NA (3.2) (3.7) 0.5
Totals $ 62.5 $ 65.4 $ (2.9) $ 0.7 $ 2.4 $ (1.7)
</TABLE>
Sales of the Process Group increased $1.1 million or 3.8% to $29.9 million
compared to the prior year. Increases in shipments of heat exchangers and
miscellaneous process equipment of $1.9 and $0.8 million, respectively, were
partially offset by a decrease in shipments of flow measurement devices of
$1.6 million. Much of the decrease in sales of flow measurement devices is the
result of reduced shipments of calibration equipment and airborne instruments.
The increase in heat exchanger sales resulted from improved factory operations;
however, the rate of new orders has fallen off in recent months and sales
increases are not expected to continue in the third quarter. Operating income
for the Process Group was $2.5 million or a decrease of $0.8 million compared to
1994. The increased shipments of heat exchangers favorably impacted
operating income by $0.6 million. This gain, however, was more than offset by
decreased operating income of $0.7 million resulting from reduced shipments and
increased marketing costs related to flow measurement devices. In addition,
operating income related to miscellaneous process equipment decreased $0.7
million, despite the increase in sales, due to increased marketing costs and
reduced margins attributable to the introduction of new products in the
filtration market.
The Aerospace Group recorded sales of $18.9 million in 1995, a decrease of $4.1
million or 17.8% compared to 1994. This decrease was caused mainly by ongoing
delays and extensions of aerospace customer requirements related to defense
industry cutbacks and softness in the commercial airline business which are
expected to continue for some time in the future. In November 1993 the Company
received verbal notification from General Electric Company ("G.E.") that it
intended to transfer, over a several year period, certain of its business
to other suppliers because the Company would not honor G.E.'s demand for
additional substantial price reductions. G.E. accounted for approximately 28%
and 22% of the Company's net sales for the full fiscal year 1994 and the first
half of fiscal 1995, respectively. While this situation continues to be a
concern for the Company, no significant transfers have yet been made and the
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
First Six Months of Fiscal 1995 Compared to the First Six Months of Fiscal 1994
(cont.)
Company has received new orders from G.E. since the notification. The operating
income of this group decreased $1.9 million compared to 1994. The reduced sales
volume, increased production and marketing costs, and reduced profits related
to LIFO inventory liquidation of $0.1 million all contributed to the operating
income reduction.
The Industrial Group recorded sales of $13.4 million in 1995, a decrease of $0.1
million or 0.7%. Sales of thermistors and die castings increased $0.5 million
and $0.9 million, respectively, while shipments of extruded monofilaments
decreased $1.5 million due primarily to reduced shipments of specialty
monofilament used in tire manufacturing. The major part of this reduction
occurred in the first quarter of this year as the result of the loss of a large
specialty monofilament customer in the fourth quarter of fiscal 1994. Late in
the first quarter of 1995, however, the customer resumed business with the
Company as the customer found the Company's product to be of higher quality.
Thus far, the customer's monthly product requirements for 1995 have been
somewhat less than the previous year. The operating income of the Industrial
Group was $1.6 million which is equal to the prior year. Increased shipments
of thermistors and die castings increased operating income by $0.2 million
each while the decrease in sales of extruded monofilaments reduced operating
income by $0.4 million.
American Innovations, Inc., had sales of $0.3 million in 1995, $0.2 million more
than last year. Our efforts to penetrate this market continue to be frustrated
by the lengthy buying cycle in the utility industry. Operating losses of $0.4
million, consisting primarily of marketing and engineering costs, were $0.5
million less than the prior year as the result of cost reduction initiatives.
Corporate expenses were $3.2 million or $0.5 million less than 1994 despite the
recognition in the current period of $0.6 million of fees paid in connection
with the pending merger proposal. Reductions in expenses resulted principally
from reductions in compensation, the discontinuance of the Supplemental Senior
Executive Death Benefit Program, and decreased consulting fees and travel
expenses.
Other expense, net of other income, increased $0.3 million compared to 1994
due to the write down in 1995 of certain securities available for sale in
accordance with FAS 115 (See Note 6 to the Financial Statements) and fewer gains
on sales of unused capital equipment in 1995. The Company continues to
experience a negative interest spread on its currently nonprepayable debt
position compared to the low interest earned on its almost equal cash and
marketable securities position.
Included in the 1994 tax provision was a valuation allowance for certain
deferred tax assets related to 1994 losses that were, at that time, expected
to be nonrecoverable; such valuation allowance was not required for 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
First Six Months of Fiscal 1995 Compared to the First Six Months of Fiscal 1994
(cont.)
Losses from continuing operations were $1.0 million or 28 cents per share
compared to losses from continuing operations of less than $0.1 million or
2 cents per share in 1994.
Net loss for the Company was $1.0 million or 28 cents per share this year
compared to a net loss of $0.4 million or 10 cents a share in 1994.
Review of Financial Condition
Liquidity and Capital Resources
Working capital at August 31, 1994 amounted to $75.4 million, compared to $67.2
million at February 28, 1994. This increase of $8.2 million was caused, for the
most part, by two items: the receipt of $1.6 million of cash surrender value
payments on officers' life insurance related to the discontinuance and
settlement of the Supplemental Senior Executive Death Benefit Program; and the
sale of the Company's investment in the Pine Street Ltd. Partnership for $5.3
million in anticipation of the pending merger transaction. Included in current
assets are cash and cash equivalents and marketable securities of $68.5
million at August 31, 1994 and $60.7 million at February 28, 1994 (See Note 6
for discussion of adoption of FAS 115 regarding marketable security valuation).
Also included in current assets at August 31, 1994 are net deferred income tax
assets of $3.7 million, the recognition of which is justified by the Company's
ability to generate future taxable income through tax planning strategies for
inventories which are presently valued on a LIFO basis. The ratio of current
assets to current liabilities at August 31, 1994 was 3.32 to 1.
Cash provided by operating activities was $2.7 million in 1995 compared to $4.7
million of cash used in the prior year. Of the $7.4 million favorable change,
$5.1 million resulted from the 1994 funding of an escrow account that was
related to the acquisition of Aldan Industrial Machining, Inc. in 1993, which
had been recorded as an account payable at the time of acquisition. The
balance of the change was primarily related to a decrease in accounts payable
in the prior period caused by unusually high year-end balances at February 28,
1993 that did not occur in the current period. Cash used by investing
activities was $1.4 million for 1995, an unfavorable change from 1994 of $11.2
million primarily due to an unfavorable swing in investments in marketable
securities of $19.5 million between 1994 and 1995, less the following
favorable transactions in 1995: the sale of the investment in Pine Street Ltd.
Partnership for $5.3 million; a subsequent adjustment of $0.5 million to the
Aldan purchase price due to the early settlement of the escrow established
related to this acquisition; and the receipt of $1.6 million from the redemption
of the cash surrender value on officers' life insurance policies related to
the discontinued Supplemental Senior Executive Death Benefit Program. The
only significant change in financing activities was a $0.9 million payoff of
loans made against the cash surrender value of officers' life insurance
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (cont.)
Liquidity and Capital Resources (Cont.)
in 1994 with no payoffs made in 1995.
Effective September 30, 1994 members of the American Securities Group converted
an aggregate of $6,859,000 principal amount of the Company's Debentures into a
total of 440,243 shares of the Company's 7% Cumulative Convertible Voting
Preferred Stock.
The Company's overall financial condition remained strong at August 31, 1994,
and its liquidity and capital resources were adequate for its operating needs.
<PAGE>
KETEMA, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were voted upon at the Annual meeting of Stockholders
of the Company held on June 30, 1994. The voting information set forth below
was certified by Mr. Raymond R. Pacchiana, the Inspector of Elections, at the
Company's Annual Meeting.
Proposal 1. Two Directors nominated were re-elected to the Company's Board
of Directors until the Annual Meeting of Stockholders in 1997.
Number of Votes Cast
Director For Withheld
Alan R. Gruber 3,027,456 85,863
Elizabeth R. Varet 3,027,549 85,770
The Directors whose terms continued after the meeting were Alexander G.
Anagnos, William J. Catacosinos, Charles D. Klein and Hugh H. Williamson, III.
Proposal 2. The proposal to ratify the selection of Ernst & Young as
independent auditors of the Company and its subsidiaries for the fiscal year
ending February 28, 1995 was adopted as follows:
For Against Abstain
3,090,590 9,642 13,087
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
Exhibit 11 - Computation of Earnings Per Common Share.
b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three months
ended August 31, 1994 other than the current report on Form 8-K filed
June 29, 1994 - Item 1(b) as already reported in the Company's first
quarter 10-Q.
<PAGE>
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.
KETEMA, INC.
(Registrant)
By /s/ William E. Leisey
Controller
(Principal Accounting Officer
and duly authorized signer)
October 12, 1994
<PAGE>
EXHIBIT 11
KETEMA, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Quarter Ended August 31,
1994 1993
PRIMARY
Net income (loss) from continuing operations $ (412,000) $ 37,000
Net income (loss) $ (412,000) $ (18,000)
Weighted average number of common shares
outstanding 3,490,202 3,681,856
Primary earnings (loss) per common share:
Income (loss) from continuing operations $ (0.118) $ 0.010
Net income (loss) $ (0.118) $ (0.005)
ASSUMING FULL DILUTION
Income (loss) from continuing operations $ (412,000) $ 37,000
Add after tax interest expense applicable to
8% subordinated convertible debentures due 2003 206,611 182,304
Income (loss) from continuing operations as adj. $ (205,389) $ 219,304
Net income (loss), as adjusted $ (205,389) $ 164,304
Weighted average number of common shares outstanding 3,490,202 3,681,102
Assuming conversion of 8% convertible subordinated
debentures due 2003 991,197 991,197
Assuming exercise of stock incentives reduced by the
number of shares which could have been purchased
with the proceeds from exercise of such incentives 74,124 22,355
Weighted average number of common shares
outstanding, as adjusted 4,555,523 4,694,654
Earnings (loss) per common share assuming full dilution:
Income (loss) from continuing operations $(0.045)* $0.047*
Net income (loss) $(0.045)* $0.035*
* This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
EXHIBIT 11
KETEMA, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Six Months Ended August 31,
1994 1993
PRIMARY
Net income (loss) from continuing operations $ (978,000) $ (56,000)
Net income (loss) $ (978,000) $ (361,000)
Weighted average number of common shares
outstanding 3,490,202 3,682,572
Primary earnings (loss) per common share:
Income (loss) from continuing operations $ (0.280) $ (0.015)
Net income (loss) $ (0.280) $ (0.098)
ASSUMING FULL DILUTION
Income (loss) from continuing operations $ (978,000) $ (56,000)
Add after tax interest expense applicable to
8% subordinated convertible debentures due 2003 413,222 364,608
Income (loss) from continuing operations as adj. $ (564,778) $ 308,608
Net income (loss), as adjusted $ (564,778) $ 3,608
Weighted average number of common shares outstanding 3,490,202 3,681,102
Assuming conversion of 8% convertible subordinated
debentures due 2003 991,197 991,197
Assuming exercise of stock incentives reduced by the
number of shares which could have been purchased
with the proceeds from exercise of such incentives 74,124 29,236
Weighted average number of common shares
outstanding, as adjusted 4,555,523 4,701,535
Earnings (loss) per common share assuming full dilution:
Income (loss) from continuing operations $(0.124)* $0.066*
Net income (loss) $(0.124)* $0.001*
* This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE KETEMA,
INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AS OF
THE YEAR ENDED FEBRUARY 28, 1994 AND THE SIX MONTH PERIOD ENDED AUGUST 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> FEB-28-1995 FEB-28-1994
<PERIOD-END> AUG-31-1994 FEB-28-1994
<CASH> 2,187 961
<SECURITIES> 66,274 59,719
<RECEIVABLES> 20,087 22,216
<ALLOWANCES> 158 77
<INVENTORY> 12,812 11,322
<CURRENT-ASSETS> 107,913 100,585
<PP&E> 74,269 73,097
<DEPRECIATION> 49,414 47,789
<TOTAL-ASSETS> 147,469 148,973
<CURRENT-LIABILITIES> 32,466 33,377
<BONDS> 55,692 55,692
<COMMON> 4,532 4,532
0 0
0 0
<OTHER-SE> 51,487 52,449
<TOTAL-LIABILITY-AND-EQUITY> 147,469 148,973
<SALES> 62,527 127,109
<TOTAL-REVENUES> 62,527 127,109
<CGS> 50,297 100,262
<TOTAL-COSTS> 50,297 100,262
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,186 6,515
<INCOME-PRETAX> (1,438) 2,095
<INCOME-TAX> (460) 554
<INCOME-CONTINUING> (978) 1,541
<DISCONTINUED> 0 (305)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (978) 1,236
<EPS-PRIMARY> (.28) .34
<EPS-DILUTED> (.28) .34
</TABLE>
