PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KETEMA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
Three months ended Nine months ended
November 30, November 30,
1993 1992* 1993 1992*
Net sales $31,902 $27,457 $97,292 $92,483
Expenses:
Cost of sales, excluding depreciation 23,932 23,293 73,886 74,410
Selling, general and administrative 5,660 4,599 16,334 14,175
Depreciation 1,203 1,022 3,618 3,279
30,795 28,914 93,838 91,864
Operating income (loss) 1,107 (1,457) 3,454 619
Other income (expense):
Interest income 708 785 1,925 3,252
Interest expense (1,635) (1,574) (4,898) (4,787)
Other, net 66 (63) 290 (76)
Income (loss) from continuing operations before
income taxes and minority interest 246 (2,309) 771 (992)
Provision for (benefit from) income taxes (273) (171) 308 355
Income (loss) from continuing operations
before minority interest 519 (2,138) 463 (1,347)
Less minority interest in loss of subsidiary -- (376) -- (376)
Income (loss) from continuing operations 519 (1,762) 463 (971)
Discontinued operations net of income taxes -- (91) (305) (116)
Net income (loss) $519 $(1,853) $158 $(1,087)
Primary earnings (loss) per common share**
From continuing operations $0.15 $(0.47) $0.13 $(0.26)
Discontinued operations $(0.00) $(0.03) $(0.09) $(0.03)
Net income (loss) $0.15 $(0.50) $0.04 $(0.29)
Average number of common shares outstanding 3,496,005 3,729,463 3,620,841 3,776,544
* Restated to reflect disposition of Aluminum Extrusion Division (Note 5).
** The fully diluted earnings per share are not shown since they are
antidilutive.
See accompanying notes.
KETEMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
November 30, February 28,
Assets 1993 1993*
Current assets:
Cash and cash equivalents $2,034 $6,303
Marketable securities 53,320 58,405
Receivables 27,724 19,088
Notes receivable from employees 530 408
Inventories 9,890 10,952
Net assets of discontinued operations at
net realizable value 1,213 7,822
Prepaid expenses and other current assets 7,816 8,221
Total current assets 102,527 111,199
Property, plant and equipment, at cost 72,988 70,547
Less accumulated depreciation (47,204) (44,812)
Net property, plant and equipment 25,784 25,735
Intangibles, net of amortization 13,513 14,490
Other assets 8,687 6,985
$150,511 $158,409
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $7,123 $8,268
Escrow funds payable -- 5,120
Accrued employee compensation and benefits 5,202 5,710
Other accrued liabilities 17,200 16,468
Current maturities of long-term debt 4,547 90
Total current liabilities 34,072 35,656
Long-term debt 55,694 60,198
Deferred income taxes 647 664
Other long-term liabilities 4,157 4,065
Stockholders' equity 55,941 57,826
$150,511 $158,409
* Restated to reflect disposition of Aluminum Extrusion Division (Note 5).
See accompanying notes.
KETEMA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended November 30,
1993 1992*
Cash provided by (used for):
Operating activities:
Net income (loss) from continuing
operations $ 463 $ (971)
Depreciation and amortization 4,698 3,684
Changes in operating working capital (10,078) (2,690)
Other (448) (438)
Total cash used for continuing operations (5,365) (415)
Loss from discontinued operations (305) (116)
Change in net operating assets and depreciation
of discontinued operations (747) 442
Total operating activities (6,417) (89)
Investing activities:
Additions to property, plant and equipment:
Continuing operations (3,717) (2,904)
Discontinued operations (504) (351)
Sale of marketable securities, net 5,152 7,422
Proceeds from sale of Aluminum Extrusion
Division 2,500 --
Proceeds from sale of other assets 237 768
Other (102) --
Total investing activities 3,566 4,935
Financing activities:
Proceeds from issuance of long-term debt -- 500
Issuance of common stock -- 111
Principal repayments of long-term debt (47) (2,298)
Purchase of treasury stock -- (2,401)
Repayment of loans against cash surrender value
of officers' life insurance (1,371) --
Total financing activities (1,418) (4,088)
Increase (decrease) in cash and cash equivalents (4,269) 758
Cash and cash equivalents, beginning of period 6,303 2,775
Cash and cash equivalents, end of period $ 2,034 $ 3,533
Supplemental cash flow disclosures - excluded from the consolidated statement
of cash flows for the period ended November 30, 1993 was the effect of certain
non-cash investing activities related to the sale of the Aluminum Division as
covered in Note 5.
* Restated to reflect the disposition of Aluminum Extrusion Division (Note 5).
See accompanying notes.
KETEMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
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 November
30, 1993, the consolidated results of operations for the three-month and
nine-month periods ended November 30, 1993 and 1992 and the consolidated cash
flows for the nine-month periods ended November 30, 1993 and 1992.
Quarterly 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
Primary earnings per share is determined by dividing income (loss) from
continuing operations and net income (loss) by the weighted average number of
common shares outstanding during the period after adjusting for common stock
equivalents arising from stock incentives.
Earnings per share assuming full dilution is not presented since there is
no dilutive effect on earnings per share amounts for the three-month and
nine-month periods ended November 30, 1993 and 1992 assuming the conversion of
the Company's outstanding debentures into additional shares of common stock
and the exercise of outstanding stock incentives.
Note 3
The differences between the Company's federal income tax rate of 34% and
the Company's effective tax rate attributable to continuing operations were as
follows:
(In thousands)
Nine months ended November 30,
1993 1992
Statutory federal tax provision $262 $(337)
State income taxes, net of federal
income tax benefit 46 44
Valuation allowance for deferred tax
assets -- 639
Other -- 9
Provision for income taxes $308 $355
Tax valuation allowances of $0.3 million, established for deferred tax assets
during the first and second quarters of fiscal 1994, were reversed in the
third quarter since they are now believed to be recoverable.
Components of the Company's deferred tax assets and liabilities as of November
30, 1993 and February 28, 1993 are as follows:
(In thousands)
November 30, February 28,
1993 1993
Total deferred tax assets $7,306 $7,643
Valuation allowance for deferred tax assets (805) (805)
Subtotal 6,501 6,838
Total deferred tax liabilities (3,372) (3,553)
Net deferred tax assets $3,129 $3,285
In addition, as of November 30, 1993 and February 28, 1993 the Company had
income tax refund claims receivable of $1,302,000 and $1,436,000,
respectively.
Note 4
The estimated components of inventory stated at lower of LIFO cost or
market are:
(In thousands)
November 30, February 28,
1993 1993*
Finished goods and parts $5,101 $3,630
Work in process 3,745 6,275
Raw Materials 1,044 1,047
$9,890 $10,952
* Restated to reflect disposition of Aluminum Extrusion Division (Note 5).
The excess of the FIFO method of inventory valuation over the LIFO value
was $10,333,000 and $10,967,000 at November 30, 1993 and February 28, 1993,
respectively, after restating February 28, 1993 for the effect of discontinued
operations. Inventories have been reduced by progress payments of $674,000 at
November 30, 1993 and $694,000 at February 28, 1993.
During the three-month and the nine-month periods ended November 30, 1993
and 1992, inventories of certain business pools were reduced resulting in the
liquidation of LIFO inventory layers carried at lower costs prevailing in
prior years as compared with the current cost of inventory. The effect of
these inventory liquidations was to reduce cost of sales by approximately
$516,000 and $195,000 for the three-month periods ended November 30, 1993 and
1992, respectively, and by approximately $905,000 and $431,000 for the
nine-month periods ended November 30, 1993 and 1992, respectively.
Note 5
On September 1, 1993 the Company completed the sale of the business and
substantially all the assets of its Aluminum Extrusion Division to Columbia
Aluminum Corporation effective as of the close of business August 31, 1993.
The total sales price of $10,979,000 was comprised of $500,000 of cash and
non-cash items consisting of 190,900 shares of Ketema, Inc. common stock
valued at $2,100,000 and a short-term note for $8,379,000 ($2,000,000 of this
note was paid in the third quarter of fiscal 1994 and the balance was paid on
December 30, 1993).
The remaining assets of the Aluminum Extrusion Division at November 30,
1993 of $1,213,000 consist primarily of accounts receivable from the
purchaser, Columbia Aluminum, and some fixed assets to be disposed of
separately. The assets of the Aluminum Extrusion Division at February 28,
1993 were $11,112,000 consisting primarily of receivables, inventory and
property, plant and equipment less liabilities of $3,290,000 consisting of
payables and accruals. The net book value of the assets to be disposed of is
presented separately on the Consolidated Balance Sheet as a current asset
except, at November 30, 1993, for approximately $3,328,000 of payables and
accruals to be retained by Ketema, Inc.
Operating results of the Aluminum Extrusion Division were as follows:
(Dollars in thousands, except per share data)
Three months ended Nine months ended
November 30, November 30,
1993 1992 1993 1992
Sales $ -- $7,436 $17,412 $25,124
Loss before income taxes -- (153) (508) (194)
Income tax benefit -- 62 203 78
Loss from operations -- (91) (305) (116)
Loss per share from
discontinued operations $ -- $(.03) $(.09) $(.03)
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Discontinued Operations
On September 1, 1993 the Company completed the sale of the business and
substantially all the assets of its Aluminum Extrusion Division effective as
of the close of business August 31, 1993. The financial statements present
the results of the Aluminum Extrusion Division as a discontinued operation,
and reported amounts for the previous year have been restated consistent with
this presentation. The Division was previously included in the Industrial
Group for business segment reporting. See the Notes to the Financial
Statements for further information on the Aluminum Extrusion Division.
Financial Condition
Liquidity and Capital Resources
Working capital at November 30, 1993 amounted to $68.5 million, compared to
$75.5 million at February 28, 1993. Included in current assets are cash, cash
equivalents and marketable securities of $55.4 million at November 30, 1993
and $64.7 million at February 28, 1993. The reclassification of $4.5 million
of long-term debt to current was the major portion of the $7.0 million
reduction in working capital. The ratio of current assets to current
liabilities at November 30, 1993 was 3.01 to 1.
Cash used for operating activities by the Company's continuing operations for
the nine-month period ended November 30, 1993 was $5.4 million, compared to
$0.4 million for the same period of fiscal 1993. This increase is due
principally to changes in working capital related to increases in business
activity and from the funding of a $5.1 million escrow account in conjunction
with the acquisition of Aldan Machining, Inc. in the prior year. Cash
provided by investing activities was $3.6 million for 1994 compared to $4.9
million in the prior year, the components of which are detailed on the
consolidated statement of cash flow. The only significant financing activity
in the nine-month period was $1.4 million used to repay loans against the cash
surrender value of officers' life insurance policies.
The Company's overall financial condition remained strong at November 30,
1993, and its liquidity and capital resources were adequate for its
operating needs.
Results of Operations
Third Quarter of Fiscal 1994 Compared to the Third Quarter of Fiscal 1993
The following comments pertain to the Company's continuing operations and
compare the third quarter of fiscal year ending February 28, 1994 to the
same period of fiscal 1993. Sales for 1994 were $31.9 million compared to
$27.5 million in 1993, an increase of $4.4 million or 16.0%. Operating
income for 1994 was $1.1 million, which was $2.6 million greater than the
$1.5 million loss in 1993. The changes in sales and operating income by
business group are shown in the following table:
Third Quarter of Fiscal 1994 Compared to Third Quarter of Fiscal 1993 (cont.)
COMPARATIVE SALES AND OPERATING INCOME
($ millions) Sales Operating Income
Fiscal Fiscal Increase Fiscal Fiscal Increase
Group 1994 1993 (Decr.) 1994 1993 (Decr.)
Process $13.5 $11.7 $1.8 $0.6 $1.1 $(0.5)
Aerospace 12.1 9.9 2.2 1.6 0.5 1.1
Industrial 5.9 5.9 0.0 0.5 0.4 0.1
American Innovations, Inc. 0.4 0.0 0.4 (0.3) (1.9) 1.6
Corporate Gen. & Admin. NA NA NA (1.3) (1.6) 0.3
Totals $31.9 $27.5 $4.4 $1.1 $(1.5) $2.6
The Process Group reported sales of $13.5 million in 1994, an increase of
$1.8 million or 15.4% compared to sales of $11.7 million for 1993.
Increases in shipments of flow measurement devices of $0.9 million and
miscellaneous process equipment of $1.2 million were partially offset by a
decrease in shipments of heat exchangers of $0.3 million. The increase in
shipments of flow measurement devices is due primarily to the acquisition
of XO Technologies in the fourth quarter of last year. The increase in
sales of miscellaneous process equipment resulted from increased shipments
of centrifuges, including several exported to China. The decline in
shipments of heat exchangers was principally due to poor economic
conditions. Operating profit for the Process Group was $0.6 million, which
was $0.5 million less than 1993. The reduced shipments and lower margins
of heat exchangers negatively impacted operating profits by $0.7 million;
this negative impact was offset somewhat by increased operating profits
resulting from the higher level of sales of flow measurement devices and
miscellaneous process equipment.
The Aerospace Group recorded sales of $12.1 million for 1994, an increase
of $2.2 million or 22.2% compared to 1993. The purchase of Aldan
Industrial Machining, Inc. during 1993 caused $0.7 million of the increase
while shipments of other aerospace components increased by $2.0 million,
due principally to the completion of negotiations on new programs. These
increases were offset by reduced shipments of electro-mechanical devices of
$0.5 million. Delays and extensions of aerospace customer requirements
related to defense industry cutbacks and softness in the commercial airline
business, which have had an adverse effect on sales and profits of
aerospace components in the past, are expected to continue for some time in
the future. Operating profit of this group was $1.6 million, an
improvement of $1.1 million compared to the prior year. The liquidation of
LIFO inventory layers carried at lower costs prevailing in prior years
compared with the current cost of inventory contributed $0.3 million to
this improvement. The balance is attributable to the increase in volume,
improved productivity and cost control measures related to the manufacture
of aerospace components at the Aerospace & Electronics Division.
Third Quarter of Fiscal 1994 Compared to Third Quarter of Fiscal 1993 (cont.)
The Industrial Group recorded sales of $5.9 million in 1994, the same as
1993. An increase in shipments of extruded monofilaments of $0.5 million,
resulting from new products introduced for the household and industrial
brush market, and increased demand for paint brush bristle was offset by a
similar decrease in sales of die castings. The operating profit of the
Industrial Group was $0.5 million, an increase of $0.1 million over the
prior year. Increased shipments of extruded monofilaments resulted in an
increase in operating profit of $0.3 million; and increased volume, cost
control measures and new production techniques used in the manufacture of
thermistors increased operating profit by $0.1 million. Reduced sales of
die castings caused a reduction in operating profit of $0.3 million.
American Innovations, Inc., which was acquired late in the third quarter of
1993 and consequently had no sales in that period, reported sales of $0.4
million in 1994. Operating losses, consisting primarily of marketing and
engineering costs, were $0.3 million in 1994 compared to $1.9 million in
1993 which included a $1.8 million charge to research and development
expense for the value of research and development projects in process at
the time of acquisition.
On a Consolidated basis, income from continuing operations was $0.5
million, or 15 cents per share compared to a net loss of $1.8 million or 47
cents per share in the prior year. This improvement is principally
attributable to the improved operating income discussed above as well as a
decrease of $0.3 million of Corporate General & Administrative expense
related principally to reduced insurance costs. The tax provision for 1994
includes the reversal of a valuation allowance of $0.3 million for certain
deferred tax assets related to 1994 losses that are now expected to be
recoverable. The Aluminum Extrusion Division operation, discontinued in
the second quarter of 1994, incurred an after-tax loss of $0.1 million in
1993.
Net Income for the Company was $0.5 million this year, which is an
improvement of $2.4 million or 65 cents per share over the prior year.
First Nine Months of Fiscal 1994 Compared to the First Nine Months of
Fiscal 1993
The following comments pertain to the Company's continuing operations and
compare the first nine months of fiscal year ending February 28, 1994 to
the same period of fiscal 1993. Sales for 1994 were $97.3 million compared
to $92.5 million in 1993, an increase of $4.8 million or 5.2%. Operating
income for 1994 was $3.4 million which was $2.8 million greater than 1993.
The changes in sales and operating income by business group are shown in
the following table:
First Nine Months of Fiscal 1994 Compared to the First Nine Months of
Fiscal 1993 (cont.)
COMPARATIVE SALES AND OPERATING INCOME
($ millions) Sales Operating Income
Fiscal Fiscal Increase Fiscal Fiscal Increase
Group 1994 1993 (Decr.) 1994 1993 (Decr.)
Process $42.3 $39.4 $2.9 $3.9 $4.5 $(0.6)
Aerospace 35.2 33.9 1.3 3.6 1.2 2.4
Industrial 19.4 19.2 0.2 2.1 1.7 0.4
American Innovations, Inc. 0.4 0.0 0.4 (1.2) (1.9) 0.7
Corporate Gen. & Admin. NA NA NA (5.0) (4.9) (0.1)
Totals $97.3 $92.5 $4.8 $3.4 $0.6 $2.8
The Process Group's sales were $42.3 million in 1994, an increase of $2.9
million or 7.4% compared to sales of $39.4 million for the same period of
1993. Shipments of flow measurement devices and miscellaneous process
equipment increased $3.2 million and $1.3 million, respectively, while
shipments of heat exchangers decreased $1.6 million. The increase in
shipments of flow measurement devices is due to the acquisition of XO
Technologies in the fourth quarter of last year. The increase in sales of
miscellaneous process equipment resulted from increased shipments of
centrifuges, including several exported to China. The decline in shipments
of heat exchangers is due, for the most part, to poor economic conditions.
Operating profit for the Process Group for 1994 was $3.9 million, $0.6
million less than 1993. The reduced shipments and lower margins of heat
exchangers negatively impacted operating profits by $1.3 million, which was
partially offset by increases in operating profits of $0.3 million from
increased sales of flow measurement devices and of $0.4 million due to
increased sales and improved margins on miscellaneous process equipment.
The Aerospace Group reported sales of $35.2 million for 1994, an increase
of $1.3 million or 3.8% compared to 1993. The purchase of Aldan Industrial
Machining, Inc. during 1993 caused an increase in sales of $2.9 million and
shipments of other aerospace components increased by $1.3 million, due
principally to the completion of negotiations on new programs. Reduced
shipments of electro-mechanical devices and the sale of the Textile
Products and Composite Materials divisions in the third quarter of 1993
decreased group sales by $1.2 million and $1.7 million, respectively.
Delays and extensions of aerospace customer requirements related to defense
industry cutbacks and softness in the commercial airline business, which
have had an adverse effect on sales and profits of aerospace components in
the past, are expected to continue for some time in the future. The
operating
First Nine Months of Fiscal 1994 Compared to the First Nine Months of
Fiscal 1993 (cont.)
profit of this group for 1994 improved by $2.4 million to $3.6 million
compared to the prior year. The liquidation of LIFO inventory layers
carried at lower costs prevailing in prior years compared with the current
cost of inventory contributed $0.5 million to this increase. The balance
of the increase is primarily attributable to improved manufacturing
techniques and cost control measures in the manufacture of aerospace
components at the Aerospace & Electronics Division.
Sales of the Industrial Group were $19.4 million in 1994, compared to $19.2
million for 1993. This increase of $0.2 million or 1.0% was due to
increased shipments of extruded monofilaments of $1.4 million as a result
of new products introduced for the household and industrial brush market
and increased demand for paint brush bristle and specialty monofilaments,
and increased sales of thermistors of $0.2 million offset by a decrease in
die casting sales of $1.4 million. The operating profit of the Industrial
Group was $2.1 million in 1994, an increase of $0.4 million over the prior
year. Increased shipments of extruded monofilaments resulted in an
increase in operating profit of $0.5 million and increased volume, cost
control measures and new production techniques used in the manufacture of
thermistors also increased operating profit by $0.4 million. Reduced sales
volume in die castings caused a reduction in operating profits of $0.5
million.
American Innovations, Inc., acquired in the third quarter of 1993, had
sales of $0.4 million in 1994 compared to none in 1993. Orders have been
received totaling $1.3 million, including an order for 10,000 units from a
major utility, and the backlog is $1.5 million at November 30, 1993.
Operating losses, consisting primarily of marketing and engineering costs,
were $1.2 million so far this year compared to $1.9 million in 1993 which
included a $1.8 million charge to research and development expense for the
value of research and development projects in process at the time of
acquisition.
On a Consolidated basis, income from continuing operations was $0.5 million
or 13 cents per share, an improvement of $1.4 million from the prior year
loss of $1.0 million or 26 cents per share. This improvement is primarily
the result of the increased operating income discussed above offset by a
decrease in interest income of $1.3 million mainly as a result of lower
interest rates and, to a lesser extent, a lower investment pool. Unlike
the 1993 tax provision, the tax provision for 1994 does not include a
valuation allowance for certain deferred tax assets related to current year
losses since these are expected to be recoverable. The discontinued
Aluminum Extrusion Division operation incurred after-tax losses in both
years.
The net income for the Company for 1994 was $0.2 million or 4 cents per
share compared to the net loss for 1993 of $1.1 million or 29 cents per
share.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 1 in second quarter 10-Q for discussion related to legal
proceedings.
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 November 30, 1993 other than as already reported in the
Company's second quarter 10-Q.
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)
January 12, 1994