UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number: 0-4036
KREISLER MANUFACTURING CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 22-1044792
- --------------------------------------------------------------------------------
(State of other jurisdiction of I.R.S. employer
incorporation or organization) Identification Number)
5960 CENTRAL AVENUE, SUITE H., ST. PETERSBURG, FLORIDA 33707
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Issuer's telephone number: 727-347-1144
Securities registered pursuant to Section 12(b) of the Exchange Act:
Not applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.125 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
<PAGE>
The Issuer's revenues for its most recent fiscal year was $15,326,299.
The aggregate market value of the voting and non voting common equity held by
non-affiliates of the issuer is approximately $9,681,148(1).
The number of shares of Common Stock outstanding as of September 1, 1999 was
1,950,046 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1999 are incorporated by reference in Parts I and II of this
Report. With the exception of the information incorporated by reference in Parts
I and II of this Report, the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1999 is not to be deemed "filed" with the Securities
and Exchange Commission for any purpose.
Certain portions of the Company's Proxy Statement to be filed in connection with
its 1999 Annual Meeting of Shareholders are incorporated by reference in Part
III of this Report.
Transitional Small Business Disclosure Format (check one)
[ ] Yes [X] No
- ---------------
(1)The aggregate dollar amount of the voting and non-voting common equity stock
set forth equals the number of shares of Common Stock outstanding, reduced by
the number of shares of Common Stock held by executive officers, directors and
stockholders owning in excess of 10% of the registrant's Common Stock multiplied
by the last closing price for the Common Stock as quoted on the National
Association of Securities Dealers Automated Quotation System on September 1,
1999. The information provided shall in no way be construed as an admission that
any person whose holdings are excluded from this figure is an affiliate of the
registrant or that any person whose holdings are included in this figure is an
affiliate of the registrant or that any person whose holdings are included in
this figure is not an affiliate of the registrant and any such admission is
hereby disclaimed. The information provided herein is included solely for record
keeping purposes of the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT 1999
KREISLER MANUFACTURING CORPORATION
PAGE NO.
--------
PART I.........................................................................1
ITEM 1. DESCRIPTION OF BUSINESS..........................................1
ITEM 2. DESCRIPTION OF PROPERTY..........................................2
ITEM 3. LEGAL PROCEEDINGS................................................3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............3
PART II........................................................................3
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..............................................3
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION........................................................4
ITEM 7. FINANCIAL STATEMENTS.............................................4
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..............................5
PART III.......................................................................5
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT..............................................................5
ITEM 10. EXECUTIVE COMPENSATION...........................................5
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................5
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................5
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.................................5
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Kreisler Manufacturing Corporation is a Delaware business corporation which was
incorporated on December 13, 1968. Kreisler Manufacturing Corporation and its
wholly-owned subsidiary, Kreisler Industrial Corporation (collectively the
"Company") which was incorporated in New Jersey on July 3, 1956 manufacture
precision metal components and assemblies at Elmwood Park, New Jersey for use in
military and commercial aircraft engines.
PRODUCTS
The Company fabricates precision metal components and assemblies primarily for
aircraft engines with both military and commercial applications. The primary
function of the Company's products is to transport fluids, including air, to
various parts of the aircraft or aircraft engine. The redirection of air is a
major element in reducing the high temperatures generated by aerospace
propulsion. These high temperatures are a limiting factor in increasing thrust
in jet engines.
Tube assemblies may be made of various materials and configurations, including
titanium, inconel and stainless steel. These quality controlled and highly
engineered manifold assemblies transfer fuel for combustion, oil for
lubrication, hydraulic fluid to activate thrust reversers and impingement tubes
or baffles to cool vanes in the combustion section of the engine.
Over the past three years, ninety percent of the Company's products were tubular
assemblies. For the fiscal year ended June 30, 1999, the sales activity was
approximately thirty percent for military aircraft engines and seventy percent
for commercial aircraft engines.
Substantially all sales of products are made through an in-house sales staff
supported by a government sales representative. All products are manufactured to
the blueprints and specifications of the particular customer. Orders for these
are received through competitive proposals, which are made in response to
requests for bids from contractors who are frequently supplying engines to
various branches of the Untied States Government or to commercial businesses.
CUSTOMERS
Four customers of the Company accounted for 82% of the consolidated net sales of
the Company in the fiscal year ended June 30, 1999.
COMPETITION
The fields in which the Company operates are highly competitive and among the
Company's competitors are enterprises which are substantially larger than the
Company and possess greater financial, production and marketing resources, as
well as numerous smaller concerns. The Company is not a significant factor in
its fields. The principal methods of competition are price,
<PAGE>
quality and delivery. In today's market, flexibility, quality, cost and speed of
delivery are required elements. The Company believes that it is competitive on
all the above elements.
SOURCES OF SUPPLY
The Company does not have any long-term or fixed requirement agreements with its
suppliers.
Materials for the products within the Company are purchased, as required, from
various suppliers. At times, approved vendors are designated by the Company's
customers. The Company believes alternative sources of supply for material are
available at reasonable prices.
PRODUCTION
Fabricated precision metal components or assemblies are manufactured and
assembled by the Company to customer specifications. To meet the exacting
requirements of its customers, the Company must exercise rigid quality control.
EMPLOYEES
At June 30, 1999, the Company employed approximately 100 persons, all of whom
are full-time employees. Approximately 60 are subject to a collective bargaining
agreement with the United Service Employees Union which terminates on December
4, 2000.
GOVERNMENT REGULATIONS
The Company is subject to various Federal and State regulations concerning the
conduct of its business including regulations under the Occupational Health and
Safety Act and various acts dealing with the environment.
A material portion of the business of the Company is subject to provisions which
permit the termination of contracts at the election of the U.S Government or its
prime contractors. Contracts with the U.S. Government and with suppliers to the
U.S. Government generally provide for termination at any time for the
convenience of the U.S. Government and its prime contractors, and upon such
termination a contractor is entitled to receive payment for the work performed
plus a pro rata portion of the profit it would have earned but for the
termination.
POSSIBLE MERGER TRANSACTION
On July 1, 1999, the Company announced that it had executed a non-binding letter
of intent to be acquired by Wood Group Gas Turbine Holdings, Inc. ("Sub"), an
indirect subsidiary of John Wood Group PLC ("Parent") (Parent and Sub are
collectively referred to as the "Buyer"), for $25.5 million in cash, or
approximately $12.25 per share of Company common stock (assuming all outstanding
options are exercised).
2
<PAGE>
The potential merger is subject to Buyer's due diligence, negotiation and
execution of a definitive agreement, various governmental filings (including
Hart-Scott-Rodino and Exon-Florio), the Company's receipt of a fairness opinion,
the preparation of a proxy statement and approval by the Company's shareholders,
and other customary conditions. The letter of intent is not legally binding,
except for certain customary provisions.
Although, the Company and Buyer continue to negotiate the terms of a definitive
agreement, there is no assurance that a definitive agreement will be signed,
particularly as a result of the discovery of soil and ground water contamination
at the Company's New Jersey facility and the difficulty of determining and
agreeing upon the Company's uninsured liability exposure. See "Compliance with
Environmental Laws" below.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has recently become aware of historical releases of hazardous
substances at the facility located at 180 Van Riper Avenue, Elmwood Park, New
Jersey (hereinafter the "Facility"). Based on the results of tests conducted at
the Facility, the Company has discovered that both the soil and groundwater at
the Facility, and possibly offsite, are contaminated with tetrachloroethylene
("PCE"). While the Company cannot be absolutely certain about the source of this
condition, the Company used PCE for degreasing and other similar purposes from
about 1959, when it commenced operation at the Facility, until approximately
1985, when it replaced PCE with another solvent.
Promptly after learning of this condition, the Company notified the New Jersey
Department of Environmental Protection ("Department") as required by the New
Jersey Spill Compensation and Control Act ("Spill Act"), N.J.S.A. 58:10-23.11,
and retained the services of Pleasant Hill Consultants and The Whitman Companies
to perform a full site characterization in accordance with the Department's
Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1. While the site
characterization is still underway, the preliminary cost estimate for
remediation of the contamination is approximately $1.5 million, to be incurred
over the next two to three years. The site characterization is expected to be
completed within the next thirty to sixty days.
The Company has notified its liability insurance carriers which issued liability
policies to the Company during the period from 1959 to 1985 and is waiting for a
determination from the various insurance carriers regarding the available
insurance for coverage of the expected remediation costs and other potential
liabilities arising out of the contamination.
At this time, the Company believes, based upon the facts as currently known,
that its liability policies will cover at least some of the remediation expenses
and other liabilities.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's industrial plant is located at Elmwood Park, New Jersey and
consists of 52,000 square feet of leased space. The facility is approximately 40
years old and the average age of the
3
<PAGE>
equipment is 15 years. The lease expires October 1, 2000. The annual lease
expense on the plant facilities is $79,992.
During fiscal 1999, $127,000 of capital expenditures were made. Management
believes that the Company's present industrial plant facilities are suitable for
the Company's current and near term operations and that these properties are
adequately covered by insurance.
The Company's principal executive office is located at St. Petersburg, Florida
and consists of approximately 1,000 square feet of leased space. The lease is
currently on a month to month basis. The annual rental expense is approximately
$11,862. The Company does not intend on making any renovations or capital
improvements to the leased space. This location is adequately covered by
insurance.
ITEM 3. LEGAL PROCEEDINGS.
By letter dated June 22, 1993 from the Environmental Protection Agency (the
"EPA"), the EPA notified the Company that it had evaluated information relating
to the transportation of waste in 1962-1963-1964 to the Caldwell Trucking
Company Superfund Site (the "Site") and based upon this information EPA believes
that the Company is a Potentially Responsible Party ("PRP") pursuant to Section
107(a) of the Comprehensive Environmental Response compensation and Liability
Act ("CERCLA"), 42 U.S.C. Section 9607(a). The letter from the EPA notified the
Company of its potential liability for all costs incurred and to be incurred by
the government relating to the Site. According to the letter, under CERCLA, and
other laws, potentially liable parties, such as the Company, may be ordered to
perform response actions deemed necessary by the EPA to protect the public
health, welfare or the environment, and may be liable for all costs incurred by
the government in responding to any release or threatened release at the Site.
The EPA and a PRP Group have filed suit against the Company for its costs with
regard to the Site. Both cases are currently under a stay. Pursuant to the terms
of several insurance policies, the legal defense burden is being shared by these
insurance companies. Management estimates that the cost before insurance
reimbursement of settling both cases will range from less than $60,000 to
$100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in over the counter market and is quoted on
the National Association of Securities Dealers Automated Quotation System
(NASDAQ). The following table sets forth the sales prices for the Common Stock
for each quarter in the two year period June 30, 1999.
<TABLE>
<CAPTION>
Quarter Fiscal Year 1999 Fiscal Year 1998
High Low High Low
<S> <C> <C> <C> <C>
First Quarter - September 30 11.75 4.88 7.00 1.69
Second Quarter -December 31 6.87 3.63 17.75 5.25
Third Quarter - March 31 4.50 3.50 13.00 6.25
Fourth Quarter -June 30 4.84 3.13 10.63 6.75
</TABLE>
The Company has not paid any dividends during the last two fiscal years. The
holders of the Company's Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. It is the Company's current policy not to pay dividends and to retain
earnings for future growth of the Company.
At June 30, 1999, the Company had approximately 1000 stockholders of record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
"Management's Discussion and Analysis" on page 10 of the Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries and the Auditor's Report included on pages 1 through 9 of the
Annual Report to Stockholders for the year ended June 30,1999 are incorporated
herein by reference:
Consolidated Balance Sheets - June 30, 1999 and 1998
Consolidated Statements of Operations - Years Ended June 30, 1999, 1998
and 1997
Consolidated Statements of Changes in Stockholders' Equity - June 30,
1999, 1998 and 1997
5
<PAGE>
Consolidated Statements of Cash Flows - Years Ended June 30, 1999 and
1998
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated by reference to the Company's Proxy Statement relating to the 1999
Annual Meeting of Stockholders.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement relating to the 1999
Annual Meeting of Stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement relating to the 1999
Annual Meeting of Stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement relating to the 1999
Annual Meeting of Stockholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Report.
11 Statement Regarding Computation of Per Share Earnings.
13 Annual Report to Stockholders for the fiscal year ended June 30,
1999 (such report, except for those portions expressly incorporated by reference
to this Annual Report on Form 10-KSB, is furnished for the information of the
Commission and is not to be deemed filed as part of this Report).
21 Subsidiaries of the Registrant.
6
<PAGE>
27 Financial Data Schedule
(b) Reports on 8-K
No reports on Form 8-K were filed during the last period covered by
this report.
7
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KREISLER MANUFACTURING CORPORATION
By: /s/ EDWARD L. STERN
-----------------------------
Edward L. Stern, President
Date: September 29, 1999
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ EDWARD L. STERN Director, President and Chief Financial September 29, 1999
- --------------------------- Officer (Principal Executive Officer,
Edward L. Stern Principal Financial Officer and Principal
Accounting Officer)
/s/ ROBERT S. KRUPP Director September 29, 1999
- ---------------------------
Robert S. Krupp
/s/ HARRY BRILL-EDWARDS Director September 29, 1999
- -----------------------
Harry Brill-Edwards
/s/ EDWARD A. STERN Director, Vice President September 29, 1999
- ---------------------------
Edward A. Stern
/s/ MICHAEL D. STERN Director, Vice President September 29, 1999
- ---------------------------
Michael D. Stern
</TABLE>
8
<PAGE>
EXHIBIT INDEX
11 Statement re computation of per share earnings.
13 Annual Report to Stockholders for the fiscal year ended June 30,
1999 (such report, except for those portions expressly incorporated by reference
to this Annual Report on Form 10-K, is furnished for the information of the
Commission and is not to be deemed filed as part of this Report).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
SHARES
------
Basic Shares outstanding at June 30, 1999 1,947,570
---------
NET PROFIT AFTER TAX $ 1,839,106 = $ .94 per share
-------------------- -----------
Basic Shares outstanding 1,947,570
Diluted Shares outstanding at June 30, 1999 2,037,004
---------
NET PROFIT AFTER TAX $ 1,839,106 = $ .90 per share
-------------------- -----------
Diluted Shares outstanding 2,037,004
EXHIBIT 13
1999 ANNUAL REPORT
KREISLER MANUFACTURING CORPORATION
To Our Stockholders:
For the fiscal year ended June 30,1999, Kreisler Manufacturing
Corporation (the "Company") reached a record level for the third consecutive
year. Kreisler Industrial Corporation our only operating unit increased earnings
nineteen percent and revenues eighteen percent compared to the prior year. Our
backlog remains approximately the same as last year at slightly under fourteen
million dollars.
We must continue to improve both our sales and manufacturing efforts.
This past year we increased our sales and engineering staff to expand our
customer base. We anticipate this coming year with increased development work
and Nadcap and ISO approvals we will increase revenues with regional and major
engine and aircraft manufacturers.
On July 1, 1999 we entered into a letter of intent with Wood Group Gas
Turbine Holdings, Inc. (the "Wood Group") regarding a potential merger of the
Corporation into the Wood Group, a wholly-owned subsidiary of John Wood Group
PLC. Currently, we are going through the due diligence process to achieve a
definitive agreement.
Stockholder equity has increased thirty percent and earnings per share
increased eighteen percent compared to the fiscal year ended June 30, 1998.
I thank our shareholders for their continued support and I congratulate
and thank our employees for three outstanding years of continuous improvement.
May the coming year bring continued success.
Sincerely,
Edward L. Stern
CHAIRMAN OF THE BOARD AND PRESIDENT
September 29, 1999
1
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $3,569,380 $1,909,048
Certificates of deposits 600,723 587,609
Accounts receivable -trade 2,548,821 2,456,788
Inventories 2,181,167 1,945,800
Deferred tax asset 73,000 125,700
Other current assets 47,039 28,056
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 9,020,130 7,053,001
- -----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost less accumulated
depreciation of $2,900,662 for 1999 and $2,809,552 for 1998 362,430 322,857
- -----------------------------------------------------------------------------------------------------------------------------------
$9,382,560 $7,375,858
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable -trade $683,685 $756,057
Accrued expenses 829,222 599,252
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,512,907 1,355,309
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock, $.125 par value for 1999 and 1998; 3,000,000 shares authorized;
1,950,046 and 1,942,048 shares issued and outstanding for 1999 and 1998,
respectively 243,756 242,756
Additional paid-in capital 1,580,701 1,571,703
Retained earnings 6,045,196 4,206,090
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 7,869,653 6,020,549
- -----------------------------------------------------------------------------------------------------------------------------------
$9,382,560 $7,375,858
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
2
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $15,326,299 $13,025,631 $9,402,005
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 11,827,646 10,824,630 8,513,738
Selling, general and administrative expenses 698,170 437,514 282,221
- ------------------------------------------------------------------------------------------------------------------------------------
12,525,816 11,262,144 8,795,959
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 2,800,483 1,763,487 606,046
Other income:
Interest and other earnings 155,723 101,971 69,864
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,956,206 1,865,458 675,910
Income tax (expense) benefit (1,117,100) (317,300) 295,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,839,106 $1,548,158 $970,910
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Net Income-basic shares $.94 $.80 $.50
Net Income-diluted shares .90 .76 .50
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE JUNE 30, 1996 $242,756 $1,571,703 $1,687,022 $3,501,481
Net profit - - 970,910 970,910
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1997 242,756 1,571,703 2,657,932 4,472,391
Net profit - - 1,548,158 1,548,158
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1998 242,756 1,571,703 4,206,090 6,020,549
Exercised stock options 1,000 8,998 - 9,998
Net Profit - - 1,839,106 1,839,106
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 $243,756 $1,580,701 $6,045,196 $7,869,653
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,839,106 $1,548,158 $970,910
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Allowance for bad debt 11,400 - -
Depreciation and amortization 91,069 84,970 59,509
Gain on sale of assets - - (1,000)
(Increase) decrease in operating assets:
Accounts receivable - trade (103,433) (846,875) (718,553)
Inventories (235,367) (123,230) (248,956)
Other current assets (18,983) (5,068) (1,154)
Deferred tax asset 57,200 174,300 (300,000)
Increase(decrease) in operating liabilities:
Accounts payable - trade (72,372) 203,097 151,063
Accrued expenses 225,470 425,037 (25,715)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 1,794,090 1,460,389 (113,896)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of certificates of deposit (600,723) (32,676) (29,590)
Proceeds from redemption of certificates of deposit 587,609 - 300,000
Purchase of property, plant and equipment (130,642) (210,581) (52,661)
Proceeds from sale of equipment - - 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (143,756) (243,257) 218,749
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercised stock options 9,998 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 1,660,332 1,217,132 104,853
Cash and cash equivalents at beginning of year 1,909,048 691,916 587,063
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $3,569,380 $1,909,048 $691,916
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $940,751 $5,584 $436
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Kreisler Manufacturing Corporation (the "Company") fabricates precision metal
components and assemblies primarily for aircraft engines with both military and
commercial applications. These products include tube assemblies of multiple
sizes and configuration, vane inserts, and blade locks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Kreisler
Manufacturing Corporation and its subsidiaries, all of which are wholly owned.
Intercompany transactions and accounts have been eliminated.
STOCK SPLIT
On December 2, 1997, the Company declared a 4 for 1 stock split on its common
stock. All share-related data in these consolidated financial statements have
been adjusted retroactively to give effect to these events as if they occurred
at the beginning of the earliest period presented.
ACCOUNTS RECEIVABLE
The accounts receivable is net of an allowance for uncollectible accounts of
$20,000 and $8,600 for 1999 and 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation. Maintenance and repairs, which do not improve efficiency or extend
the useful life, are charged to operations as incurred. Asset and related
accumulated depreciation amounts are relieved from the accounts for retirements
or dispositions. Resulting gains or losses are reflected in earnings.
Depreciation is computed using accelerated methods over the estimated useful
lives three to ten years for machinery and equipment while the straight line
method is used over the term of leases for building improvements.
STOCK BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (FAS No. 123) which provides companies an alternative to
accounting for stock-based compensation as prescribed under APB Opinion No. 25
(APB 25). FAS No. 123 encourages but does not require companies to recognize
expense for stock based awards based on their fair market value at date of
grant. FAS No. 123 allows companies to continue to follow existing accounting
rules (intrinsic value method under APB 25) provided that pro-forma disclosures
are made of what net income and earnings per share would have been had the new
fair value method been used. The Company has elected to adopt the disclosure
requirements of FAS No. 123 but will continue to account for stock-based
compensation under APB 25.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.
INCOME TAXES
The Company accounts for its income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes" (FAS No. 109), which requires the
establishment of a deferred tax asset or liability for the recognition of the
tax effect of future deductible or taxable amounts, operating loss, or tax
credit carryforwards. Deferred tax expense or benefit is recognized as a result
of the changes in the deferred assets and liabilities during the year. Future
tax benefits, such as net operating loss carryforwards, are recognized to the
extent that realization of such benefits are more likely than not.
EARNINGS PER SHARE
The Company adopted SFAS No. 128 "Earnings per Share" (FAS No. 128) during 1998,
which requires disclosure of basic and diluted earnings per share. Under the new
standard, basic earnings per share is computed as earnings divided by weighted
average shares outstanding. Diluted earnings per share includes the dilutive
effects of stock options and other potentially dilutive securities. All prior
period disclosures have been restated to conform with current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
5
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
2. CASH AND CASH EQUIVALENTS
The Company classifies all highly liquid investments with an initial maturity of
90 days or less as cash equivalents.
3. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances and certificates of deposit at several
financial institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances approximated
$1,770,000 and $1,628,000 at June 30, 1999 and 1998, respectively. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
4. INVENTORIES
Inventories consist of the following at June 30:
1999 1998
- --------------------------------------------------------------------------------
Raw materials $1,844,943 $1,441,560
Work in process 271,145 412,500
Finished goods 65,079 91,740
- --------------------------------------------------------------------------------
$2,181,167 $1,945,800
5. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consists of the following at June 30:
1999 1998
- --------------------------------------------------------------------------------
Building improvements $ 204,974 $ 172,581
Machinery and equipment 3,058,118 2,959,828
- -------------------------------------------------------------------------------
3,263,092 $ 3,132,409
Less accumulated depreciation (2,900,662) (2,809,552)
- -------------------------------------------------------------------------------
$ 362,430 $ 322,857
- -------------------------------------------------------------------------------
Depreciation expense was $91,069, $84,970, and $59,509 for 1999, 1998, and 1997,
respectively.
6. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return.
The provision for income tax expense (benefit) from continuing operations was as
follows for the year ended June 30:
1999 1998 1997
- --------------------------------------------------------------------------------
Federal Income Taxes
Current $ 988,200 $ 143,000 $ 5,000
Deferred (9,600) 497,500 236,000
State Income Taxes
Current 76,200 -- --
Deferred 62,300 97,800 26,000
- --------------------------------------------------------------------------------
1,117,100 738,300 267,000
Tax Credit -- -- (5,000)
Change in valuation allowance -- (421,000) (557,000)
- --------------------------------------------------------------------------------
-- (421,000) (562,000)
- --------------------------------------------------------------------------------
Income tax expense (benefit) $1,117,100 $ 317,300 $(295,000)
- --------------------------------------------------------------------------------
The actual income tax expense (benefit) attributable to earnings (loss) for the
years ended June 30 differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income (loss) as a result of the
following:
1999 1998 1997
- --------------------------------------------------------------------------------
Computed expected tax expense $ 1,001,900 $ 634,500 $ 230,000
Alternative minimum tax -- -- 5,000
State income tax expense,
net of federal income reduction 109,200 97,800 26,000
Non-deductible expenses 6,000 6,000 6,000
Valuation allowance decrease -- (421,000) (557,000)
Alternative minimum tax credit -- -- (5,000)
- --------------------------------------------------------------------------------
Provision (benefit)
for income taxes $ 1,117,100 $ 317,300 $ (295,000)
- --------------------------------------------------------------------------------
Non deductible expenses relate primarily to life insurance payments, and meals
and entertainment that are not deductible for income tax purposes. The use of
net operating loss carry forwards to offset the 1997 taxable income resulted in
a benefit of $262,000. Also changes in economic circumstances in 1997 and 1998
made the utilization of the remaining net operating loss carryforwards likely,
generating a benefit of $295,000 for 1997 and $421,000 for 1998.
At June 30, 1999, the Company had no net operating loss carryforward for federal
income tax purposes, and a net operating loss carryforward for Florida state
income tax purposes of approximately $60,000, expiring over a period of years
through 2011.
Deferred tax assets consist of the following at June 30:
1999 1998
- --------------------------------------------------------------------------------
Net operating loss carryforward $ 3,200 $ 65,600
Other 69,800 60,100
- --------------------------------------------------------------------------------
$ 73,000 $ 125,700
- --------------------------------------------------------------------------------
6
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
7. INTEREST AND OTHER EARNINGS
The components of interest and other earnings are as follows for the year ending
June 30:
1999 1998 1997
- --------------------------------------------------------------------------------
Interest income $ 146,670 $ 94,573 $ 64,929
Miscellaneous Income 9,053 7,398 4,935
- --------------------------------------------------------------------------------
Total $ 155,723 $ 101,971 $ 69,864
- --------------------------------------------------------------------------------
8. STOCK OPTION PLAN
The Company's Stock Option Plan (Plan) was approved by the shareholders of the
Company in November 1997, effective August 5, 1997. A maximum of 280,000 shares
of the Company's common stock may be issued under the Plan. The maximum term of
the stock options granted is ten years and optionees vest in the options over a
three-year period. In the event of a change of control, optionees become fully
vested in their unexercised options.
The purpose of the Plan is to provide additional incentives to officers, other
key employees, and directors of and important consultants to the Company by
encouraging them to invest in shares of the Company's common stock and, thereby,
acquire a proprietary interest in the Company and an increased personal interest
in the Company's continued success and progress.
Options under the Plan may be options which qualify under Section 422 of the
Internal Revenue Code (Incentive Stock Options), or options which do not qualify
under Section 422 (Nonqualified Options).
On August 5, 1997, Incentive Stock Options and Nonqualified Options (1997
options) to purchase 20,000 and 112,000 shares, respectively, at a price of
$1.25 per share were granted. The quoted market price of the Company's stock at
that time was $1.46 per share. The term of the granted options is ten years. On
October 19, 1998, the Company granted Nonqualified Options (1998 options) to
purchase 8,000 shares at a price of $5.50 per share. The quoted market price of
the Company stock at that time was $5.50 per share. The term of the granted
options is 10 years.
The following table summarizes option activity.
GRANTED EXERCISABLE
---------------------- ----------------------
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
----------------------------------------------
$1.25 PER SHARE OPTIONS
Issued on 8/5/97 132,000 $ 165,000 -- $ --
- --------------------------------------------------------------------------------
Outstanding at 6/30/98 132,000 165,000 -- --
Exercisable on 8/5/98 -- -- 44,000 55,000
Exercised on 10/12/98 (7,998) (9,998) (7,998) (9,998)
- --------------------------------------------------------------------------------
Outstanding at 6/30/99 124,002 155,002 36,002 45,002
- --------------------------------------------------------------------------------
$5.50 PER SHARE OPTIONS
Granted 10/19/98 8,000 44,000 -- --
- --------------------------------------------------------------------------------
Total Outstanding At
6/30/99 132,002 $ 199,002 36,002 $ 45,002
- --------------------------------------------------------------------------------
The weighted average exercise price of options outstanding at 6/30/99 is $1.51
per share. The weighted average life of the options is approximately 8 years.
The fair value of the 1997 and 1998 Options was estimated at $.67 and $4.10
each, respectively, using the Black-Scholes option pricing model. The following
assumptions were used: (1) risk free interest rate of 6.13% (1997 options) and
4.06% (1998 options), (2) dividend yield of 0%, (3) expected lives of 5 years,
and (4) volatility of 32.18% (1997 options) and 96.23% (1998 options).
Compensation cost under FAS No. 123 is $17,700 (or $.01 per basic and diluted
share) and $0 for the periods ended June 30, 1999 and 1998. Compensation cost
under APB No. 25 is approximately $5,500 and $0 for the periods ended June 30,
1999 and 1998, respectively.
9. EARNINGS PER SHARE
1999 1998 1997
- --------------------------------------------------------------------------------
BASIC EPS:
Net Income $1,839,106 $1,548,158 $ 970,910
Basic Shares 1,947,570 1,942,048 1,942,048
Per Share .94 .80 .50
- --------------------------------------------------------------------------------
DILUTED EPS:
Net Income $1,839,106 $1,548,158 $ 970,910
Effect of options 89,434 98,689 --
Diluted shares 2,037,004 2,040,737 1,942,048
Per Share .90 .76 .50
- --------------------------------------------------------------------------------
7
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
10. SIGNIFICANT CUSTOMERS
A substantial portion of the Company's sales were to two industrial customers
and the U.S. Government in 1999 and three industrial customers and the U.S.
Government in 1998 and 1997. Sales to and accounts receivable from these
customers for the past three years were as follows:
U.S. GOVERNMENT INDUSTRIAL CUSTOMERS
--------------- --------------------
SALES A/R SALES A/R
- --------------------------------------------------------------------------------
1999 $1,501,000 $345,000 $10,031,000 $ 1,203,000
1998 1,219,000 355,000 8,913,000 1,526,000
1997 1,236,000 269,000 5,951,000 811,000
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company conducts its operations from leased facilities, which include a
manufacturing plant and office. Total rental expense for 1999, 1998, and 1997
amounted to $91,754, $91,855, and $91,682, respectively. A schedule of the
Company's minimum non-cancelable rental commitments as of June 30, 1999,
follows:
Year Ending June 30,
2000 $79,992
2001 $19,998
CONTINGENCIES
Certain federal and state laws authorize the United States Environmental
Protection Agency (EPA) 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 these substances were disposed of or processed. Because of the nature of
the Company's business, various products and substances are or were produced or
handled which contain constituents classified as hazardous. The Company
generally provides for the disposal or processing of such substances through
licensed, independent contractors.
Kreisler Industrial Corporation (KIC), a wholly-owned subsidiary of Kreisler
Manufacturing Corporation, has been named as a defendant in two related cases
dealing with the cleanup of a superfund site in Fairfield, New Jersey (Site).
Both cases are currently pending in federal court in Newark, New Jersey. KIC has
been named as a defendant because records maintained by the operators of the
Site suggest that KIC arranged for the possible disposal of some of its waste at
the Site in the early 1960s.
The first of these cases has been brought by the EPA. In this case, KIC is one
of eight parties named as defendants. The EPA is seeking recovery of its past
cleanup costs totaling over $8 million.
The second case has been brought by a group of potentially responsible parties
(the PRP Group) who have entered into an agreement with the EPA to fund the
cleanup of the Site. In this case, KIC is one of over eighty named defendants.
The PRP Group is seeking recovery of its cleanup costs to-date and into the
future. Estimates have placed the total cost of cleanup of the site in the $25
million range.
Both cases are currently under a stay so that the parties in the PRP Group case
can proceed toward settlement of the case through an Alternate Dispute
Resolution (ADR) process. KIC is participating in the ADR process, which is
drawing to a close. Management estimates that the cost before insurance
reimbursement of settling both cases will range from less than $60,000 to
$100,000.
Pursuant to the terms of insurance coverage, the legal defense burden is being
shared by the insurance companies representing the defendants and the PRP Group.
KIC's insurance carrier has represented that, at current indemnity estimates,
they will pay one-third of KIC's indemnity assessment. In addition, management
believes that other insurance carriers will cover the balance of the assessment,
therefore no accrual is considered necessary.
12. RELATED PARTY TRANSACTIONS
Consulting fees paid to a board member approximated $221,000, $0, and $43,000 in
1999, 1998, and 1997, respectively.
13. CURRENT LIABILITIES IN EXCESS OF 5%
At June 30,1999, liabilities other than trade payables which exceed 5% of
current liabilities include an accrual for miscellaneous payables of $88,187,
bonuses of $250,000, payroll of $98,321, and federal and state income taxes of
$394,137. At June 30, 1998, there was an accrual for payroll of $66,690 and
bonuses of $236,000.
14. SUBSEQUENT EVENTS
In July 1999, the Company signed a letter of intent with Wood Group Gas Turbine
Holdings, Inc., a subsidiary of John Wood Group PLC, to sell the Company to them
for approximately $25.5 million.
8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Kreisler Manufacturing Corporation
We have audited the accompanying consolidated balance sheets of Kreisler
Manufacturing Corporation and its subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 audits 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 Kreisler
Manufacturing Corporation and its subsidiaries as of June 30, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999 in conformity with generally accepted
accounting principles.
GREGORY, SHARER & STUART
St. Petersburg, Florida
July 23, 1999
9
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward looking statements,
particularly with respect to the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Additional written or oral forward-looking statements may be made by
the Company from time to time, in filings with the SEC or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of
1934. Such statements may include, but not be limited to, projections of
revenue, income, losses, cash flows, capital expenditures, plans for future
operation, financing needs or plans, plans relating to products or services of
the Company, estimates concerning the effects of litigation or other disputes,
as well as assumptions to any of the foregoing.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which can not be predicted. Future events and actual
results could differ materially from those set forth in or underlying the
forward- looking statements.
DESCRIPTION OF BUSINESS
Kreisler Manufacturing Corporation is a Delaware business corporation which
was incorporated on December 13, 1968. Kreisler Manufacturing Corporation and
its wholly-owned subsidiary, Kreisler Industrial Corporation (collectively the
"Company") which was incorporated in New Jersey July 3, 1956 manufacture
precision metal components and assemblies at Elmwood Park, New Jersey for use in
military and commercial aircraft engines.
PRODUCTS
The Company fabricates precision metal components and assemblies primarily
for aircraft engines with both military and commercial applications. The primary
function of the Company's products is to transport fluids, including air, to
various parts of the aircraft or aircraft engine. The redirection of air is a
major element in reducing the high temperatures generated by aerospace
propulsion. These high temperatures are a limiting factor in increasing thrust
in jet engines.
1999 COMPARED TO 1998
Revenues increased from $13,026,000 in 1998 to $15,326,000 in 1999. The
revenue increase of $2,300,000 or 18% reflects an increase of $3,338,000
attributable to seven major customers. New orders increased by 2,090,000 over
the prior year resulting in the same backlog for June 1999 as in the prior year.
Gross profit increased 35% from 17% to 23% as of June 30, 1999, with a
productivity increase of 10%. Income before taxes for 1999 was $2,956,000 or 19%
of revenues, as compared to $1,865,000 or 14% of revenues in the prior year.
Capital expenditures were $130,000 compared to $211,000 in the prior year.
No budget has been established for 1999-2000 and any such expenditures will be
determined as needed.
Selling, general and administrative expenses increased by $261,000 or 60%.
The primary increases were merger and acquisition expense and sales commissions.
Short-term liquidity, management believes, will be adequately provided by
internally generated funds or cash reserves to meet the needs of the business.
Our cash reserves are $4,170,000, an increase of $1,673,000 or 67% compared to
June 30, 1998. At June 30, 1999 working capital was $7,507,000 and a current
ratio of 6:1. Accounts receivable increased to $2,549,000 from $2,457,000 an
increase of $892,000 or 4%. We have no long- term debt. Stockholder equity is
$4.04 per share compared to $3.10 per share in the prior year, an increase of $
.94 per share or 30%.
10
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company recognizes the need to expand our customer base. To help
achieve this goal, the Company expects to have its NADCAP and its ISO 9000
quality certification by December 1999. In fiscal year 1998-1999 the marketing
and sales organization expanded and initial orders from new accounts have been
received. The marketing initiative highlighted the need to expand product
development. Increased development projects are being pursued to meet market
demand.
YEAR 2000 COMPLIANCE
The Company has reviewed its critical information systems for Year 2000
compliance and has initiated plans to remedy any deficiencies in a timely
manner. As a result of the review and actions plan, the Company believes the
cost of such remedial corrective actions are not material to the Company's
financial position, results of operations or cash flows. The Company plans to be
Year 2000 compliant by December 1999. Many computer systems in use today were
designed and developed using two digits, rather than four, to specify years. As
a result, such systems will recognize the year 2000 as 00 or 1900. This could
cause many computer applications to fail completely or to create erroneous
results unless corrective measures are taken.
During FY1999, the Company developed a plan to evaluate and address the
impact of the Year 2000 problem on its internal systems. In addition, the
Company is now seeking to evaluate the potential impact of the Year 2000 problem
at key customers and suppliers of the Company. The Company has divided the plan
into three areas of evaluation: 1) administrative/manufacturing hardware and
software, 2) customers and 3) suppliers.
The Company has either certification from the manufacturer or test results
to insure Year 2000 compliance of networked computer systems and automated
equipment containing so called embedded technology. Customers and vendors have
been surveyed to determine the potential exposure of Kreisler to Year 2000
issues.
The completion date for verification of internal Year 2000 compliance and
external risks is June 30, 1999 and although we arrive at this check point with
very high confidence in our ability to continue into the next millennium with
minimal disruptions, testing and verification will continue well into the next
year.
The Company's Year 2000 Compliance plan was reviewed by three of our most
prestigious business partners and found to be fully acceptable in scope and
result. All invoicing, scheduling, reporting, and general day to day application
are written or converted to MS office applications and are Year 2000 compatible
by default. At the end of June 1999 our hardware inventory has been tested and
found to be Year 2000 ready or have been patched to correct problems they may
have.
The Company has requested completion of a questionnaire from the top 90% of
customers for Year 2000 compliance. The top 90% of customers was based on sales.
Satisfactory responses were received from all responders.
The Company has requested the completion of a questionnaire by established
and new vendors for Year 2000 compliance. The top 90% of vendors will be based
on dollar receipts. Satisfactory, Ready, or Compliant responses were received
from all responders.
Despite these efforts, the Company can provide no assurances that supplier
and customer Year 2000 compliance plans will be successfully completed in a
timely manner and there can be no assurances that the Company will not
experience material Year 2000 related problems or expenses.
11
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has recently become aware of historical releases of hazardous
substances at the facility located at 180 Van Riper Avenue, Elmwood Park, New
Jersey (hereinafter the "Facility"). Based on the results of tests conducted at
the Facility, the Company has discovered that both the soil and groundwater at
the Facility, and possibly offsite, are contaminated with tetrachloroethylene
("PCE"). While the Company cannot be absolutely certain about the source of this
condition, the Company used PCE for degreasing and other similar purposes from
about 1959, when it commenced operation at the Facility, until approximately
1985, when it replaced PCE with another solvent.
Promptly after learning of this condition, the Company notified the New Jersey
Department of Environmental Protection ("Department") as required by the New
Jersey Spill Compensation and Control Act ("Spill Act"), N.J.S.A. 58:10-23.11,
and retained the services of Pleasant Hill Consultants and The Whitman Companies
to perform a full site characterization in accordance with the Department's
Technical Requirements for Site Remediation, N.J.A.C. 7:26E-1.1. While the site
characterization is still underway, the preliminary cost estimate for
remediation of the contamination is approximately $1.5 million, to be incurred
over the next two to three years. The site characterization is expected to be
completed within the next thirty to sixty days.
The Company has notified its liability insurance carriers which issued liability
policies to the Company during the period from 1959 to 1985 and is waiting for a
determination from the various insurance carriers regarding the available
insurance for coverage of the expected remediation costs and other potential
liabilities arising out of the contamination.
At this time, the Company believes, based upon the facts as currently known,
that its liability policies will cover at least some of the remediation expenses
and other liabilities.
POSSIBLE MERGER TRANSACTION
On July 1, 1999, the Company signed a non-binding letter of intent for the
merger of the Company with and into Wood Group Gas Turbine Holdings, Inc., a
wholly owned subsidiary of the John Wood Group PLC, for approximately $25.5
million. The companies are continuing to negotiate the terms of a definitive
agreement; there is no assurance that a definitive agreement will be signed or
that the proposed transaction will be completed, on the announced or on revised
terms, particularly in light of the environmental situation.
12
<PAGE>
KREISLER MANUFACTURING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTERLY COMMON STOCK DATA
The Company's stock is traded over-the-counter. There are approximately 1000
shareholders. The Company does not anticipate the payment of cash dividends this
year. The table below presents a summary of the sales prices for years ended
June 30.
Fiscal Year 1999 Fiscal Year 1998
- --------------------------------------------------------------------------------
Quarter High Low High Low
First Quarter - September 30 11.75 4.88 7.00 1.69
Second Quarter - December 31 6.87 3.63 17.75 5.25
Third Quarter - March 31 4.50 3.50 13.00 6.25
Fourth Quarter - June 30 4.84 3.13 10.63 6.75
DIRECTORS AND OFFICERS
DIRECTORS
EDWARD L. STERN, CHAIRMAN OF THE BOARD, PRESIDENT,CEO, KREISLER MANUFACTURING
CORPORATION,KREISLER INDUSTRIAL CORPORATION
ROBERT S. KRUPP, FINANCIAL CONSULTANT
HARRY BRILL-EDWARDS, PRESIDENT, GAS TURBINE CONSULTING
EDWARD A. STERN, VICE PRESIDENT, KREISLER INDUSTRIAL CORPORATION
MICHAEL D. STERN, VICE PRESIDENT, KREISLER INDUSTRIAL CORPORATION
OFFICERS
EDWARD L. STERN, CHAIRMAN OF THE BOARD, PRESIDENT
EDWARD A. STERN, VICE PRESIDENT
MICHAEL D. STERN, VICE PRESIDENT
AUDITORS
GREGORY, SHARER & STUART
CERTIFIED PUBLIC ACCOUNTANTS
100 Second Avenue South, Suite 600
St. Petersburg, FL 33701
TRANSFER AGENT
COMMON STOCK
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
REGISTRAR
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
COUNSEL
BLANK ROME COMISKY & McCAULEY LLP
One Logan Square
Philadelphia, PA 19103-6998
ADDITIONAL INFORMATION
Stockholders may obtain, free of charge, a copy of Kreisler's annual report on
Form 10-KSB filed with the Securities and Exchange Commission for the year ended
June 30, 1999, by written or telephone request to the Secretary of Kreisler
Manufacturing Corporation, 5960 Central Ave, Suite H, St. Petersburg, Florida,
33707 Telephone - 727-347-1144
CORPORATE OFFICES: 5960 CENTRAL AVENUE, SUITE H, ST. PETERSBURG, FL 33707
13
EXHIBIT 21
Subsidiaries of the Registrant
The sole subsidiary of Kreisler Manufacturing Corporation is its
wholly-owned subsidiary, Kreisler Industrial Corporation.
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4,170,103
<SECURITIES> 0
<RECEIVABLES> 2,548,821
<ALLOWANCES> 0
<INVENTORY> 2,181,167
<CURRENT-ASSETS> 9,020,130
<PP&E> 3,263,052
<DEPRECIATION> 2,900,622
<TOTAL-ASSETS> 9,382,560
<CURRENT-LIABILITIES> 1,512,907
<BONDS> 0
<COMMON> 243,756
0
0
<OTHER-SE> 7,625,897
<TOTAL-LIABILITY-AND-EQUITY> 9,382,560
<SALES> 15,326,299
<TOTAL-REVENUES> 15,326,299
<CGS> 12,525,816
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