ITEM 1. BUSINESS.
Keystone International, Inc. ("Keystone" or the "Company") designs, manufactures and markets, on a worldwide basis, valves and other specialized industrial products that control the flow of liquids, gases and fibrous and slurry materials for use in various industries, including chemical, power, food and beverage, marine and government, petroleum production and refining, water, commercial construction, oil and gas pipeline, mining and metals, and pulp and paper. Keystone, incorporated in Texas in 1947, is one of the leading manufacturers of flow control products in the world.
The Company's operations are conducted in a single industry segment. For information concerning geographic segments, see Note 12 to the Consolidated Financial Statements in Item 8 of this Report.
Substantially all of the products sold outside the United States are manufactured and assembled at facilities in Canada, The Netherlands, Japan, the United Kingdom, Italy, Germany, Korea, Singapore, the People's Republic of China, Mexico, Brazil, Australia, New Zealand, and India. Most of Keystone's employees engaged in operations outside the United States, including plant managers and other executive personnel, are citizens of the nations in which they work. The various aspects of Keystone's operations outside the United States take into account local conditions and customs, but basic business methods are similar in all areas. Sales and operations outside the United States are subject to the inherent risk of fluctuations in currency rates.
As with other United States companies engaged in business outside the United States, Keystone is subject to political and economic uncertainties, the risk of expropriation and embargo, foreign exchange restrictions and political disruptions.
Keystone purchases virtually all castings and certain finished or semi- finished components used in its products. Machining of components and assembling are done primarily by the Company, although a limited amount of machining and assembling is done under contract by outside parties. Keystone does not believe that compliance with federal, state or local environmental laws adversely affects its business, earnings or competitive position.
Management believes that the Company's present level of product liability coverage is adequate, and will make adjustments in such coverage in the future as it believes appropriate after considering the cost and availability of such insurance and any legal developments in the product liability area.
While Keystone has a number of patents and patent applications relating to or covering certain features of its products, its patents are not of a scope to exclude competition in any significant way or preclude competitors from successfully marketing substitute products. Competition is primarily on the basis of price and quality, and to a lesser extent, service and delivery.
There was no single customer which accounted for more than 10% of sales during 1994. Although the Company does not necessarily know the intended use or ultimate customer for all of its products, particularly those sold through distributors, its business is not dependent on a single customer or a few customers. Sales in diverse geographic areas and to a large number of customers and industries lessen exposure to adverse conditions in a single industry or area. These factors, however, do not afford protection against a general economic downturn.
Keystone extends 30-day credit to most customers except in certain foreign markets where local trade practices differ. Credit losses have not been material. Keystone carries some inventory of all its products, and it generally satisfies its working capital requirements out of internally generated funds. Reference is made to Note 5 of the Consolidated Financial Statements in Item 8 of this Report for information about lines of credit that are available to finance working capital.
At December 31, 1994, the Company's backlog of unshipped orders was $133,981,000 compared with $100,268,000 at December 31, 1993. Orders in backlog at year-end are usually shipped during the following year. In the past, the effect of changes or cancellations of orders has been minimal.
At December 31, 1994, Keystone had approximately 4,200 employees worldwide.
ITEM 2.
ITEM 2. PROPERTIES.
Keystone's major domestic manufacturing operations are located in Houston and Harlingen, Texas; Blue Bell, Pennsylvania; Andrews and Fort Wayne, Indiana; and Black Mountain, North Carolina. Keystone's other manufacturing and assembly facilities are in most cases owned by the Company and are located in 14 other countries. The Company also leases warehouse and office space in which it maintains its sales offices. These facilities, including the corporate offices located in Houston, contain approximately 717,000 square feet of office space and 1,850,000 square feet of manufacturing space on 250 acres of land owned by the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Keystone Sales, Inc., a wholly owned subsidiary of the registrant, was sued in a counterclaim filed by Industrial Concepts, Inc., a former distributor, on October 12, 1994 in the U.S. District Court for the Southern District of Texas. Industrial Concepts, Inc. was a distributor of the registrant's Vanessa product line in certain counties in the south central United States. The counterclaim seeks compensatory damages from Keystone Sales, Inc. in the amount of $42 million and punitive damages of ten times that amount, arising out of the termination of Industrial Concepts, Inc.'s distributor agreement in January 1994 and the purchase of certain assets from the majority owner of Industrial Concepts, Inc. Keystone Sales, Inc. filed a declaratory judgment action on August 30, 1994 in the same court requesting the court to declare that Industrial Concepts, Inc. had been properly terminated in accordance with the contractual provisions between the parties. Keystone's sales of the Vanessa product line in all of the United States were approximately $12 million in 1993. Management considers the claims asserted as wholly without merit, and that in the unlikely event of an unexpected, unfavorable outcome, the prospects of a material impact upon Keystone's financial position are considered extremely remote.
Keystone and its subsidiaries are engaged in various other claims and litigation arising from their operations. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse impact on the consolidated financial position or future results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of Keystone is traded on the New York Stock Exchange under the symbol KII. The following table shows the high and low sales prices as reported by the New York Stock Exchange Composite Tape and cash dividends declared per share.
The approximate number of security holders of the Company's common stock was 3,538 as of February 28, 1995. This number does not include the number of security holders for whom shares are held in a "nominee" or "street" name.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
- -------- (1) After considering the estimated tax benefits of $5,235, the effect of restructuring and merger expenses was to reduce income from continuing operations by $17,137, or $.50 per share. (2) The 8.75% Notes totaling $43,000 were due November 1, 1993 and as of December 31, 1992 were classified as current portion of long-term debt. These 8.75% notes were refinanced on November 1, 1993 with $45,000 of 6.34% Senior Notes due November 1, 2000. See Note 5 to the Consolidated Financial Statements in Item 8 of this Report. (3) In 1991, the cumulative effect of the change in accounting principle represents a charge relating to the adoption of the accounting standard for postretirement benefits other than pensions. The 1993 cumulative effect of the change in accounting principle represents a credit relating to the adoption of the new accounting standard for income taxes. See Note 6 and Note 9 to the Consolidated Financial Statements in Item 8 of this Report.
Reference is made to the Notes to Consolidated Financial Statements in Item 8 of this Report for a summary of accounting policies and additional information.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SUMMARY
The following table sets forth for the periods indicated (i) percentages which certain items reflected in the accompanying Consolidated Statements of Income bear to net sales of the Company and (ii) the percentage increase or decrease of amounts of such items as compared to the indicated prior period:
- -------- * Percentage not meaningful
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
NET SALES
Net sales increased 4% in 1994 compared with a 2% decrease in 1993. Shown below is an analysis of the change in net sales. The translation effect of weakening foreign currencies had a significant impact in 1993 on the results of international operations.
- -------- * Percentage not meaningful
The Company's sales and results of operations outside the United States are subject to the inherent risk of fluctuations in currency rates. During 1994, Asia-Pacific and European currencies strengthened in relation to the U.S. dollar, resulting in an additional $7,288 of net sales related to currency fluctuations. During 1993, a basket of European currencies weakened in relation to the U.S. dollar by approximately 12%, which reduced the U.S. dollar results of the Company's European operations. Keystone's European and Asia-Pacific operations represent about 27% and 23% of the Company's consolidated net sales, respectively.
COST AND EXPENSES
Cost of sales as a percentage of sales were 58.9%, 57.4% and 56.7% in 1994, 1993, and 1992, respectively. Over the last three years, the Company has been experiencing increased price competition, especially in the U.S. and Europe.
To counteract this trend of reduced gross margins, the Company is continuing its cost reduction initiatives. All major plants are pursuing MRPII Class A status, a formalized approach to simplifying and shortening business processes, with the aim toward improved efficiency and on-time deliveries, and reduced inventory levels. Other product cost reduction initiatives include the redesign of certain products and the implementation of new manufacturing systems.
Selling, general and administrative expenses increased by 6%, and 1% in 1994 and 1993, respectively. Excluding foreign currency fluctuations, these expenses increased 5% in 1994 and 6% in 1993. In 1994, approximately one-half of the increase in these expenses was in the Asia-Pacific region, where the Company is experiencing its most significant sales growth. Other items contributing to the increase in selling, general and administrative expenses in 1994 include information systems expenses associated with various systems implementations, severance costs and litigation expenses. In 1993, the increase in selling, general and administrative expenses is primarily attributable to increased costs in the Asia-Pacific region.
Plant closure costs of $4,372 were recognized in 1994 in connection with the closure of a manufacturing facility in Indiana. The costs include $2,710 of termination pay and disposition of the Company's pension obligations related to the facility. The remainder of these costs reflect the book value of fixed assets at the facility that will not be recovered, as well as estimates of the costs associated with moving the facility's manufacturing operations to other locations. The Company will terminate approximately 155 employees from the plant, of which 58% are hourly workers involved in manufacturing processes and 42% are involved in engineering and administrative functions. The Company anticipates that it will recognize further charges of approximately $3,600 associated with this decision over the next year as related incremental costs are incurred, primarily at the facilities to which operations are being transferred.
In the first quarter of 1995, the Company announced plans to reduce total personnel costs by about $11,000 annually, or approximately 2% of sales. This step, which is expected to be fully implemented by the end of the second quarter of 1995, will reduce the Company's work force by approximately 6%, or about 270 people. Severence related costs associated with these terminations of approximately $8,000 to $8,500 will be recorded in the first quarter of 1995.
Other, net includes amortization of intangible assets and debt costs as well as exchange gains and losses on transactions denominated in foreign currencies. In 1994, other, net includes a gain of $4,652 related to the sale of the Company's previous manufacturing facility in South Korea. In 1992, other expense also included a reserve of $2,000 for management's estimate of potential environmental exposure at one of the Company's inoperative facilities. Management believes this reserve is adequate and that potential exposure will not have a material impact on the Company's consolidated financial position or future results of operations.
The Company's effective income tax rates were 37%, 37% and 39% in 1994, 1993 and 1992, respectively. The Company provides for taxes on all unremitted foreign earnings at a rate not less than the U.S. statutory rate. The primary components of the difference between the domestic statutory tax rate and the actual effective tax rate include net operating losses of certain foreign entities not currently realizable for tax
purposes and foreign taxes in excess of the U.S. statutory rate. The effective tax rate in 1993 includes the remeasurement of deferred tax assets at the current U.S. statutory rate in accordance with the new accounting standard for income taxes. See Note 6 to the Consolidated Financial Statements in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this Report on page 9.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Part III (Items 10 through 13) is omitted because the Registrant expects to file with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1994, a definitive proxy statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 which involves the election of directors. If for any reason such a statement is not filed within such a period, this Report will be appropriately amended.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2): The response to this portion of Item 14 is submitted as a separate section of this Report on page 9.
(a)(3) Exhibits:
(b) Exhibits and Reports on Form 8-K:
The Company filed no reports on Form 8-K for the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 10th day of March, 1995.
KEYSTONE INTERNATIONAL, INC.
Raymond A. LeBlanc By: ____________________________________ (Raymond A. LeBlanc) Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on the 10th day of March, 1995.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-K ITEMS 8 AND 14(A)(1) AND (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the Registrant and its subsidiaries required to be included in Items 8 and 14(a)(1) are listed below:
----------------
All schedules have been omitted because the conditions requiring their filing do not exist or because the required information is given in the financial statements, including the notes thereto.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these financial statements.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (AMOUNTS IN THOUSANDS)
The accompanying notes are an integral part of these financial statements.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (AMOUNTS IN THOUSANDS)
The accompanying notes are an integral part of these financial statements.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these financial statements.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts of Keystone International, Inc. and its subsidiaries ("Keystone" or the "Company"). All significant intercompany accounts and transactions have been eliminated.
Foreign Currency Translation -- Assets and liabilities of most foreign subsidiaries are translated at current exchange rates, and related revenues and expenses are translated at average exchange rates for the year. Since the functional currencies of these subsidiaries are not the U.S. dollar, the resulting translation adjustments are recorded as a separate component of shareholders' investment. Translation gains and losses relating to the Company's Brazilian subsidiary, which operates in a highly inflationary economy, are charged against income. Because exchange rate changes do not themselves give rise to cash flows, their effects on items other than cash and cash equivalents are excluded from the Consolidated Statements of Cash Flows.
Cash Equivalents -- The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Depreciation and Amortization -- Keystone provides depreciation for financial reporting purposes primarily on a straight-line basis over periods ranging from five to thirty years on buildings and improvements and three to ten years for machinery and equipment. Goodwill is included in other assets and is being amortized over periods ranging from ten to forty years. Other intangible assets, which primarily include engineering drawings, patents and tradenames, are being amortized over periods ranging from three to twenty years.
(2) ACQUISITIONS AND PLANT CLOSING
The Company has made several small acquisitions during 1994, 1993 and 1992. The total effect of these acquisitions was not material to the consolidated results of Keystone.
Plant closure costs of $4,372 were recognized in 1994 in connection with the closure of a manufacturing facility in Indiana. The costs include $2,710 of termination pay and disposition of the Company's pension obligations related to the facility. The remainder of these costs reflect the book value of fixed assets at the facility that will not be recovered, as well as estimates of the costs associated with moving the facility's manufacturing operations to other locations. The Company will terminate approximately 155 employees from the plant, of which 58% are hourly workers involved in manufacturing processes and 42% are involved in engineering and administrative functions. The Company anticipates that it will recognize further charges of approximately $3,600 associated with this decision over the next year as related incremental costs are incurred, primarily at the facilities to which operations are being transferred.
(3) WORKFORCE REDUCTION
In the first quarter of 1995, the Company announced plans to reduce total personnel costs by about $11,000 annually, or approximately 2% of sales. This step, which is expected to be fully implemented by the end of the second quarter of 1995, will reduce the Company's work force by approximately 6%, or about 270 people. Severence related costs associated with these terminations of approximately $8,000 to $8,500 will be recorded in the first quarter of 1995.
(4) INVENTORIES
Inventories are stated at cost which is not in excess of market. Keystone uses the last-in, first-out (LIFO) method of determining inventory cost for most of its domestic inventories. Inventories valued at LIFO cost
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprised approximately 44% of consolidated inventories at December 31, 1994. The remainder of Keystone's inventories are costed using the first-in, first- out (FIFO) method.
Inventories, which include material, labor and manufacturing overhead costs, consisted of the following at December 31, 1994 and 1993:
(5) LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS
In November 1993, the Company refinanced its 8.75% notes totaling $43,000 with $45,000 of 6.34% Senior Notes due November 1, 2000. Other long-term notes payable at December 31, 1994 bear weighted average interest rates of approximately 8% and consist of debt related to the construction of new manufacturing facilities in Japan and Korea and debt assumed in two 1989 Italian acquisitions. The fair value of the Senior Notes at December 31, 1994 is estimated to be $40,000 based on current market interest rates and discounted future cash flows. The Company believes, based upon current terms, that the carrying value of all other long-term debt approximates fair value.
Annual maturities of all long-term debt for the next five years are as follows: 1995 -- $3,894; 1996 -- $3,931; 1997 -- $2,523; 1998 -- $2,571; 1999 - -- $1,756; 2000 and thereafter -- $49,674.
Short-term bank borrowings of $15,156 at December 31, 1994 primarily represent borrowings under various committed and uncommitted lines of credit totaling $78,000. Interest rates on these borrowings vary according to the country in which the funds are borrowed, but generally approximate the market rate of interest.
The Company made cash interest payments of $5,081, $5,654 and $6,849 during 1994, 1993 and 1992, respectively.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 -- "Accounting for Income Taxes." This statement provides, among other things, for the recognition and presentation of deferred tax assets and liabilities considering the future consequences of temporary differences between the financial statement bases and the tax bases of assets and liabilities using the tax rates in effect during the period when taxes are actually paid or recovered.
The adoption of this accounting method resulted in a credit to income of $1,879 in 1993 which is reflected in the Consolidated Statements of Income as a cumulative effect of change in accounting principle. The cumulative effect results primarily from calculating temporary differences using currently enacted tax rates as required. Prior year financial statements were not restated for SFAS No. 109.
The Company's provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes are summarized as follows:
The significant components of the net deferred tax (asset) and liability are as follows:
A valuation allowance is provided when it is more likely than not that some portion of a deferred tax asset will not be realized. Keystone has recorded no deferred tax asset for which a valuation reserve is required.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994 and 1993, deferred income taxes were provided for significant temporary differences between revenue and expenses for tax and financial statement purposes. Following is a summary of the significant components of the deferred income tax provision (benefit):
A reconciliation between the actual provision for income taxes and income taxes computed by applying the federal statutory rate follows:
The Company made cash tax payments, net of refunds, of approximately $18,597, $20,651 and $26,854 during 1994, 1993 and 1992, respectively.
Income from continuing operations before income taxes of foreign subsidiaries was $35,608 in 1994, $36,215 in 1993 and $43,982 in 1992.
The Company has resolved all issues with the Internal Revenue Service ("IRS") covering calendar years 1986 through 1988. The IRS has completed its examination of the Company's federal income tax returns for the years 1989 and 1990 and has recommended an assessment of additional tax. Several issues have been resolved for these years and the Company is vigorously contesting the remaining issues. In addition, the IRS is currently examining the federal income tax returns filed by the Company for the years 1991 and 1992. Management believes that any adjustment that may result from these examinations will not have a material adverse impact on the Company's consolidated financial position or future results of operations.
(7) SHAREHOLDERS' INVESTMENT
Incentive Stock Plans -- Keystone has a number of restricted stock grant and stock option plans which are incentive stock plans administered by a committee of outside directors for the benefit of the Company's key employees. As of December 31, 1994, 1,212 shares were available for award under these plans.
Shares issued under the stock grant plans are owned by the employees at the time of grant, subject to certain restrictions, principally continued employment with Keystone for a period to be set by the committee, typically ranging from five to ten years. The deferred compensation expense related to the stock grants is
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
being amortized to expense on a straight-line basis over the period of time the stock is restricted, and the unamortized portion is classified as a reduction of shareholders' investment in the accompanying Consolidated Balance Sheets. As of December 31, 1994, there were 296 shares as to which restrictions had not lapsed under the stock grant plans.
Stock options are issued at exercise prices which are not less than the fair market value at the date of grant. Information about Keystone's stock option plans for the three years ended December 31, 1994 is set forth below:
Shareholder Rights Plan -- In June 1990, the Company adopted a Shareholder Rights Plan and declared a dividend of one Depository Preferred Share purchase right ("Right") for each share of Common Stock outstanding at the close of business on July 2, 1990. Each Right entitles the shareholder to buy from the Company 1/1000 of a share of a new series of preferred stock at an exercise price of $80 per Right. The Board of Directors has authorized 900 preferred shares, designated as Preferred Shares -- Junior Participating Series A, for issuance upon exercise of such Rights. The Rights will not be exercisable unless a party acquires, or announces a tender offer for, beneficial ownership of 20% or more of the Company's Common Stock. The Rights may be redeemed by the Company at a price of $.001 per Right at any time prior to their expiration on March 31, 2000 or any earlier distribution of Rights certificates in accordance with the terms of the plan.
If a party acquires a 20% or more position in the Company, each Right, except those held by the acquiring party, will entitle its holder to purchase, at the exercise price, Depository Preferred Shares having a value of two times the $80 exercise price, with each Depository Preferred Share valued at the market price of a share of Common Stock. In the event the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the exercise price, that number of the acquiring company's common shares having a value of two times the exercise price of the Right.
(8) EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. The weighted average number of common and common equivalent shares used in computing earnings per share was 35,250, 35,085 and 34,902 in 1994, 1993 and 1992, respectively. There is no significant difference between earnings per share on a primary and a fully diluted basis.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) EMPLOYEE BENEFIT PLANS
Defined Contribution and Benefit Plans -- Keystone has qualified and non- qualified profit sharing and stock bonus plans for employees of its domestic operations. Contributions to these plans, which may be in the form of cash or shares of the Company's stock, are based on a discretionary percentage (as approved by the Board of Directors) of pretax income before profit sharing and stock bonus contributions. Certain foreign subsidiaries and one domestic subsidiary also maintain retirement benefit plans for their employees. Keystone's expenses related to these profit sharing, stock bonus and retirement benefit plans were $5,239 in 1994, $5,183 in 1993, and $5,322 in 1992.
Postretirement Benefit Plans -- The Company maintains an unfunded, defined contribution postretirement medical benefit program for those domestic retirees with at least 25 years of service. Postretirement benefit expenses charged to operating income were $92, (including a $283 credit for gain amortization), $991 and $899 for 1994, 1993, and 1992, respectively.
Other long-term liabilities included $9,491 and $9,678 at December 31, 1994 and 1993, respectively, related to the long-term obligation for postretirement benefits.
(10) COMMITMENTS AND CONTINGENCIES
Litigation --Keystone and its subsidiaries are engaged in various claims and litigation arising from their operations. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse impact on the consolidated financial position or future results of operations of the Company.
Rental Expense -- Rental expense was $5,697, $6,322 and $6,348 for 1994, 1993 and 1992, respectively. The Company has entered into various leases, including an insignificant amount of capital leases, which provide for future minimum lease payments as follows: 1995 -- $4,913; 1996 -- $3,751; 1997 -- $2,430; 1998-- $1,410; 1999 -- $1,062; 2000 and thereafter $3,357.
Letters of Credit -- At December 31, 1994 and 1993, the Company had outstanding letters of credit of $5,447 and $4,949, respectively.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations for each of the two years ended December 31, 1994:
(12) INDUSTRY AND GEOGRAPHIC AREA INFORMATION
Industry Segments -- Keystone operates in one dominant industry segment which involves the design, manufacture and marketing of flow control products.
Geographic Segments -- Keystone's export sales, other than those intercompany sales reported below as sales between geographic areas, are not significant. Sales between geographic areas consist of sales of finished products, raw materials and unfinished products which are sold at adjusted market prices. Keystone does not derive more than 10% of its revenue from any single customer. Corporate assets consist primarily of cash, certificates of deposit and other assets.
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Keystone's geographic area data for each of the three years ended December 31, 1994 are as follows:
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) OTHER ASSETS
The following presents details of other assets at December 31, 1994 and 1993:
(14) ACCRUED LIABILITIES
The following presents details of accrued liabilities at December 31, 1994 and 1993:
(15) SALE OF FACILITY
A gain of $4,652 related to the sale of the Company's former facility in South Korea was recognized in "Other, net" in the second quarter of 1994.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors, Keystone International, Inc.:
We have audited the accompanying consolidated balance sheets of Keystone International, Inc. (a Texas corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in shareholders' investment and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Keystone International, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 6 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
March 10, 1995 Houston, Texas