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Forward-Looking Statements
Certain oral statements made by management of Kreisler Manufacturing Corporation (the “Company”) from time-to-time and certain statements contained herein or in other periodic reports filed by the Company with the Securities and Exchange Commission are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to results of operations and the business of the Company. All such statements, other than statements of historical facts, including those regarding market trends, the Company’s financial position and results of operations, business strategy, projected costs, and plans and objectives of management for future operations, are forward-looking statements. In general, such statements are identified by the use of forward-looking words or phrases including, but not limited to, “estimates,” “intends,” “will,” “should,” “may,” “believes,” “expects” and “anticipates, or the negative thereof or variations thereon or similar terminology. These forward-looking statements are based on the Company’s current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These forward-looking statements represent the Company’s current judgment. The Company disclaims any intent or obligation to update its forward looking statements. Because forward-looking statements involve risks and uncertainties, the Company’s actual results could differ materially from those set forth in or underlying the forward-looking statements.
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| Item 1 | Financial Statements |
Kreisler Manufacturing Corporation and Subsidiaries
Consolidated Balance Sheets
| (Unaudited) 3/31/2008 |
6/30/2007 | |||||
| Assets |
||||||
| Cash and cash equivalents |
$ | 7,521,971 | $ | 5,068,325 | ||
| Short-term investments |
— | 550,000 | ||||
| Accounts receivable – trade (net of $20,000 allowance for uncollectible accounts at March 31, 2008 (unaudited) and June 30, 2007) |
2,494,058 | 2,366,177 | ||||
| Inventories |
6,581,027 | 5,546,983 | ||||
| Deferred tax asset |
192 | 96,312 | ||||
| Other current assets |
1,172,975 | 66,200 | ||||
| Total current assets |
17,770,223 | 13,693,997 | ||||
| Property, plant and equipment, net |
1,805,776 | 2,425,098 | ||||
| Long-term investments |
700,000 | — | ||||
| Deferred tax asset |
123,942 | 123,942 | ||||
| Total non-current assets |
2,629,718 | 2,549,040 | ||||
| TOTAL ASSETS |
$ | 20,399,941 | $ | 16,243,037 | ||
| Liabilities and Stockholders’ Equity |
||||||
| Liabilities |
||||||
| Accounts payable – trade |
$ | 1,721,159 | $ | 1,130,990 | ||
| Accrued expenses |
863,997 | 520,540 | ||||
| Deferred tax liability |
139,720 | — | ||||
| Deferred revenue |
1,657,812 | 500,000 | ||||
| Product warranties |
— | 148,185 | ||||
| Income taxes payable |
124,711 | — | ||||
| Obligations under capital leases, current portion |
125,234 | 115,731 | ||||
| Total current liabilities |
4,632,633 | 2,415,446 | ||||
| Obligations under capital leases, net of current portion |
161,192 | 258,343 | ||||
| Accrued environmental cost |
440,085 | 426,117 | ||||
| Total long-term liabilities |
601,277 | 684,460 | ||||
| Stockholders’ Equity |
||||||
| Common stock, $0.125 par value – 6,000,000 shares authorized; 1,867,948 shares issued and outstanding at March 31, 2008 and June 30, 2007 |
233,494 | 233,494 | ||||
| Additional paid-in capital |
1,032,993 | 909,625 | ||||
| Retained earnings |
13,563,673 | 11,928,989 | ||||
| Accumulated other comprehensive income |
335,871 | 71,023 | ||||
| Total stockholders’ equity |
15,166,031 | 13,143,131 | ||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY |
$ | 20,399,941 | $ | 16,243,037 | ||
The accompanying notes are an integral part of these interim consolidated financial statements.
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Kreisler Manufacturing Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, |
2008 | 2007 | ||||||
| Net sales |
$ | 7,445,087 | $ | 6,247,219 | ||||
| Cost of goods sold |
5,977,364 | 5,261,352 | ||||||
| Selling, general and administrative expenses |
507,768 | 540,520 | ||||||
| Total costs and expenses |
6,485,132 | 5,801,872 | ||||||
| Income from operations |
959,955 | 445,347 | ||||||
| Interest and other income |
76,774 | 45,886 | ||||||
| Interest and other expenses |
(25,305 | ) | (6,315 | ) | ||||
| Income before income taxes |
1,011,424 | 484,918 | ||||||
| Income taxes |
(406,019 | ) | (176,794 | ) | ||||
| Net income |
$ | 605,405 | $ | 308,124 | ||||
| Net income per common share: |
||||||||
| Net income – basic |
$ | 0.32 | $ | 0.17 | ||||
| Net income – diluted |
$ | 0.32 | $ | 0.16 | ||||
| Weighted average common shares – basic |
1,867,948 | 1,842,792 | ||||||
| Weighted average common shares – diluted |
1,881,431 | 1,881,523 | ||||||
| Nine Months Ended March 31, |
2008 | 2007 | ||||||
| Net sales |
$ | 21,708,880 | $ | 17,345,535 | ||||
| Cost of goods sold |
17,507,707 | 13,938,815 | ||||||
| Selling, general and administrative expenses |
1,626,698 | 1,320,777 | ||||||
| Total costs and expenses |
19,134,405 | 15,259,592 | ||||||
| Income from operations |
2,574,475 | 2,085,943 | ||||||
| Interest and other income |
202,060 | 131,309 | ||||||
| Interest and other expenses |
(43,973 | ) | (37,800 | ) | ||||
| Income before income taxes |
2,732,562 | 2,179,452 | ||||||
| Income taxes |
(1,097,878 | ) | (871,794 | ) | ||||
| Net income |
$ | 1,634,684 | $ | 1,307,658 | ||||
| Net income per common share: |
||||||||
| Net income – basic |
$ | 0.88 | $ | 0.71 | ||||
| Net income – diluted |
$ | 0.86 | $ | 0.71 | ||||
| Weighted average common shares – basic |
1,867,948 | 1,834,781 | ||||||
| Weighted average common shares – diluted |
1,893,508 | 1,853,960 | ||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
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Kreisler Manufacturing Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income
Nine months ended March 31, 2008
| Common Stock Outstanding |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total Stockholders’ Equity | |||||||||||||
| Shares | Amounts | ||||||||||||||||
| Balances, June 30, 2007 |
1,867,948 | $ | 233,494 | $ | 909,625 | $ | 11,928,989 | $ | 71,023 | $ | 13,143,131 | ||||||
| Comprehensive income: |
|||||||||||||||||
| Net income |
1,634,684 | 1,634,684 | |||||||||||||||
| Foreign currency translation adjustment(1) |
264,848 | 264,848 | |||||||||||||||
| Total comprehensive income |
1,899,532 | ||||||||||||||||
| Stock-based compensation |
123,368 | 123,368 | |||||||||||||||
| Balances, March 31, 2008 (unaudited) |
1,867,948 | $ | 233,494 | $ | 1,032,993 | $ | 13,563,673 | $ | 335,871 | $ | 15,166,031 | ||||||
| (1) |
Net of tax expense of $176,566 |
The accompanying notes are an integral part of these interim consolidated financial statements.
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Kreisler Manufacturing Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended March 31, |
2008 | 2007 | ||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income |
$ | 1,634,684 | $ | 1,307,658 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
510,982 | 454,741 | ||||||
| Deferred tax expense (benefit) |
59,273 | (2,547 | ) | |||||
| Stock-based compensation |
123,368 | 14,027 | ||||||
| Increase (decrease) in cash attributable to changes in operating assets and liabilities: |
||||||||
| Accounts receivable – trade, net |
(99,900 | ) | 1,353,238 | |||||
| Inventories |
(1,026,132 | ) | (1,585,512 | ) | ||||
| Other current assets |
(1,074,520 | ) | (6,499 | ) | ||||
| Accounts payable – trade |
580,110 | 688,593 | ||||||
| Accrued expenses |
349,157 | 125,372 | ||||||
| Deferred revenue |
1,157,812 | — | ||||||
| Product warranties |
(148,185 | ) | 235,000 | |||||
| Income taxes payable |
124,711 | (34,314 | ) | |||||
| Accrued environmental costs |
13,968 | — | ||||||
| Net Cash Provided by Operating Activities |
2,205,328 | 2,549,757 | ||||||
| Cash Flows from Investing Activities: |
||||||||
| Foreign grant for property and equipment placed in service |
448,817 | (550,000 | ) | |||||
| Purchases of property and equipment |
(155,790 | ) | (835,697 | ) | ||||
| Purchase of investments |
(150,000 | ) | — | |||||
| Net Cash Provided by (Used in) Investing Activities |
143,027 | (1,385,697 | ) | |||||
| Cash Flows from Financing Activities: |
||||||||
| Repayment of obligations under capital leases |
(87,648 | ) | (126,920 | ) | ||||
| Repayment of line of credit |
— | (54,810 | ) | |||||
| Proceeds from exercise of stock options |
— | 93,544 | ||||||
| Net Cash (Used in) Financing Activities |
(87,648 | ) | (88,186 | ) | ||||
| Effect of foreign currency translation |
192,939 | 34,155 | ||||||
| Increase in cash and cash equivalents |
2,453,646 | 1,110,029 | ||||||
| Cash and cash equivalents, beginning of period |
5,068,325 | 3,295,947 | ||||||
| Cash and cash equivalents, end of period |
$ | 7,521,971 | $ | 4,405,976 | ||||
| Supplemental Disclosure of Cash Flow Information |
||||||||
| Cash paid during the periods for: |
||||||||
| Income taxes |
$ | 824,000 | $ | 899,050 | ||||
| Interest |
$ | 20,488 | $ | 28,893 | ||||
| Supplemental Schedule of Non-cash Investing and Financing Activities: |
||||||||
| Equipment acquired under capital leases |
— | $ | 67,241 | |||||
The accompanying notes are an integral part of these interim consolidated financial statements
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Kreisler Manufacturing Corporation and Subsidiaries
Notes to the Interim Consolidated Financial Statements
(Unaudited)
1. Principles of Consolidation
The interim consolidated financial statements include the accounts of Kreisler Manufacturing Corporation and its wholly-owned subsidiaries, Kreisler Industrial Corporation (“Kreisler Industrial”) and Kreisler Polska Sp. z o.o (“Kreisler Polska”), after the elimination of inter-company transactions and accounts. Unless the context indicates otherwise, the use of “we,” “us,” “our” or the “Company” refers to Kreisler Manufacturing Corporation and its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments necessary for a fair presentation of such interim consolidated financial statements have been included. Interim results are not necessarily indicative of results for a full year.
The interim consolidated financial statements and notes are presented as required by SEC Regulation S-B, and do not contain certain information included in the Company’s annual consolidated financial statements and notes. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes thereto appearing in the Annual Report on Form 10-KSB of the Company for the fiscal year ended June 30, 2007.
2. Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141R is effective for business combinations occurring in the fiscal years beginning on or after December 15, 2008, which will require us to adopt these provisions for business combinations occurring in fiscal 2010 and thereafter.
In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” (“SFAS No. 160”), which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retroactively. The adoption of SFAS No. 160 is not expected to have a significant impact on our financial position, results of operations or cash flows occurring in fiscal 2010 and thereafter.
3. Contingencies
Certain federal and state laws authorize the United States Environmental Protection Agency (“EPA”) and similar state agencies to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. These statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remedial costs at sites where substances that are classified as hazardous are or were produced or handled. The Company generally provides for the disposal or processing of such substances through licensed, independent contractors.
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In July 1999, we became aware of historical releases of hazardous substances at our Kreisler Industrial manufacturing facility located at 180 Van Riper Avenue, Elmwood Park, New Jersey. We promptly notified the New Jersey Department of Environmental Protection (“NJDEP”) as required by the New Jersey Spill Compensation and Control Act (“Spill Act”) and retained the services of environmental remediation consultants to perform a full site characterization in accordance with the NJDEP’s Technical Requirement for Site Remediation. In June 2001, we entered into a Fixed Price Remediation Agreement (“FPRA”) with Resource Control Corporation (“RCC”). At March 31, 2008, the remaining cost estimated for remediation of the site under the FPRA with RCC was approximately $440,000 (the present value at an interest rate of 6.16%, per annum), virtually all of which is expected to be paid by us in fiscal 2010, provided that RCC achieves specific milestones contained in the FPRA.
On May 13, 2008, we received an updated remediation status report from RCC indicating that the original remediation cost of $2,115,122, as specified in the FPRA, will be exceeded by approximately $392,000. Subject to the terms of the FPRA, RCC, not us, is responsible for any unexpected or unanticipated remediation cost increases. We monitor the project status and believe that RCC is capable of meeting RCC’s contractual obligations under the FPRA.
At March 31, 2008, estimated remediation payments were as follows:
| Estimated Remediation Payments at March 31, 2008 |
||||
| 2008 |
$ | — | ||
| 2009 |
||||