<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
/x/ OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13
/ / OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 000-22519
KAYNAR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0591091
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. State College Blvd., Suite 1000, Orange, California 92868-1638
- ---------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)712-4900
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 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. YES X NO
The number of shares of common stock outstanding on April 24, 1998 was
3,704,000.
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Statements of Income for the three months
ended March 29, 1998 (Unaudited) and March 30, 1997 (Unaudited) 3
Condensed Consolidated Balance Sheets at March 29, 1998 (Unaudited)
and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 29, 1998 (Unaudited) and March 30, 1997 (Unaudited) 6
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - Other Information
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities and Use of Proceeds 12
ITEM 3. Defaults Upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 29, 1998 March 30, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales, including $3,675 and $2,550 in 1998
and 1997, respectively, to a related party $45,355 $32,202
Cost of sales 31,474 22,969
------- -------
Gross profit 13,881 9,233
Selling, general and administrative expenses 6,165 4,340
------- -------
Operating income 7,716 4,893
Interest expense, net 591 1,265
------- -------
Income before provision for income taxes 7,125 3,628
Provision for income taxes 2,850 1,459
------- -------
Net income $ 4,275 $ 2,169
------- -------
------- -------
Earnings per share
Basic $ 1.15 $ 1.35
Diluted $ 0.48 $ 0.32
------- -------
------- -------
Weighted average number of shares of common stock
and common stock equivalents
Basic 3,702 1,594
Diluted 8,908 6,800
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,220 $ 675
Marketable securities - 3,079
Accounts receivable, including $1,810 and $1,846 in 1998 and
1997, respectively, from a related party, net of allowance for
doubtful accounts of $369 and $310 in 1998 and 1997, respectively 29,715 23,293
Inventories 35,529 34,231
Prepaid expenses and other current assets 931 647
Deferred tax asset 1,006 1,006
-------- --------
Total current assets 68,401 62,931
-------- --------
Property, plant and equipment, at cost 45,184 41,048
Less accumulated depreciation and amortization (9,873) (8,797)
-------- --------
35,311 32,251
-------- --------
Intangible assets, net of accumulated amortization of $584 and
$480 at March 29, 1998 and December 31, 1997, respectively 6,778 6,409
Other assets 66 65
-------- --------
Total assets $110,556 $101,656
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Revolving line-of-credit, to a related party $ 6,497 $ -
Current portion of long-term debt 986 1,021
Current portion of capital lease obligations 271 272
Accounts payable 9,321 9,969
Accrued payroll and related expenses 5,358 8,546
Other accrued expenses 6,236 4,423
-------- --------
Total current liabilities 28,669 24,231
-------- --------
Long-term liabilities:
Long-term debt, primarily to a related party 26,067 26,372
Capital lease obligations 430 484
Deferred tax liability 1,136 1,136
-------- --------
Total long-term liabilities 27,633 27,992
-------- --------
Commitments and contingencies
Stockholders' equity:
Series C Convertible Preferred stock; $0.01 par value;
Authorized--10,000,000; issued and outstanding-5,206,000 shares 52 52
Common stock; $0.01 par value; Authorized--20,000,000 shares; issued
and outstanding--3,704,000 and 3,694,000 shares at March 29, 1998
and December 31, 1997, respectively 37 37
Additional paid-in capital 29,244 28,973
Retained earnings 25,669 21,394
Currency translation adjustment (748) (1,023)
-------- --------
Total stockholders' equity 54,254 49,433
-------- --------
Total liabilities and stockholders' equity $110,556 $101,656
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 29, 1998 March 30, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,275 $ 2,169
Adjustments to reconcile net income to net cash used in operating
activities-
Depreciation and amortization 1,237 893
(Gain) loss on sale of property, plant and equipment (8) 62
Changes in operating assets and liabilities, net of acquisition-
Increase in accounts receivable (3,140) (3,184)
Increase in inventories (841) (860)
(Increase) decrease in prepaid expenses and other
current assets (267) 219
(Increase) decrease in other assets 6 (271)
Increase (decrease) in accounts payable (1,972) 166
Increase (decrease) in accrued expenses (1,467) 458
------- -------
Net cash used in operating activities (2,177) (348)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,155) (3,058)
Proceeds from sales of property, plant and equipment 87 -
Net redemptions of marketable securities 3,079 -
Acquisition of business assets (2,357) -
Increase in intangible assets (133) (52)
------- -------
Net cash used in investing activities (3,479) (3,110)
------- -------
Cash flows from financing activities:
Net (payments) borrowings on line-of-credit, from a related party 6,497 2,886
Borrowings on long-term debt, primarily from a related party - 500
Payments on long-term debt, primarily from a related party (276) (200)
Net principal payments on capital lease obligations (76) (4)
------- -------
Net cash provided by financing activities 6,145 3,182
------- -------
Effect of exchange rate changes on cash $ 56 $ (8)
------- -------
Net increase (decrease) in cash 545 (284)
Cash, beginning of period 675 909
------- -------
Cash, end of period $ 1,220 $ 625
------- -------
------- -------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 29, 1998 March 30, 1997
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest $ 469 $ 1,215
------- -------
------- -------
Income taxes $ 1,390 $ 574
------- -------
------- -------
Noncash financing activities:
Capital lease obligations assumed for the purchase of equipment $ - $ 246
------- -------
------- -------
Borrowings on long-term debt for preferred stock dividends $ - $ 24
------- -------
------- -------
Common stock issued in connection with acquisition of business assets $ 271 $ -
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(Dollars in thousands)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying condensed
consolidated financial statements have been prepared on the same basis as the
consolidated financial statements for the year ended December 31, 1997.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The condensed consolidated financial statements include the
accounts of the Company and all of its subsidiaries after eliminating all
significant intercompany transactions and reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of the financial position and results of operations for the
interim periods reported. The results of operations for the three months
ended March 29, 1998 are not necessarily indicative of the results to be
expected for the full year.
The Company's fiscal quarters are on a 13 week basis ending on the
Sunday nearest to the calendar quarter end. The first fiscal quarters of
1998 and 1997 ended on March 29, 1998 and March 30, 1997, respectively.
(2) INVENTORIES
Inventories are stated at the lower of cost (FIFO) or market and
include the cost of material, labor and factory overhead. Inventories
consist of the following at March 29, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials $ 3,524 $ 2,593
Work in progress 10,388 11,012
Components 5,724 5,325
Finished goods 9,651 9,550
Supplies and small tools 6,242 5,751
------- -------
$35,529 $34,231
------- -------
------- -------
</TABLE>
8
<PAGE>
(3) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share." This statement provides for the presentation of (i) "basic"
earnings per share, which is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding and (ii) "diluted" earnings per share, which is computed by
dividing net income by the weighted average number of common shares
outstanding plus the dilutive effect of other securities. The Company's
other securities are (i) Series C Convertible Preferred stock and (ii)
outstanding common stock options.
The table below details the components of the basic and diluted
earnings per share ("EPS") calculations:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 29, 1998 March 30, 1997
--------------------- ---------------------
Income Shares Income Shares
------ ------ ------ ------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Basic EPS
Net income $4,275 3,702 $2,169 1,594
Less: dividends on previously issued
preferred stock - - (34) -
------ ----- ------ -----
Income available to common stockholders 4,275 3,702 2,135 1,594
Effect of Dilutive Securities
Series C Convertible Preferred stock - 5,206 34 5,206
Common stock options - - - -
------ ----- ------ -----
Diluted EPS $4,275 8,908 $2,169 6,800
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
(4) INCOME TAXES
Income taxes are provided using the estimated effective tax rates for
the years ended December 31, 1998 and December 31, 1997.
(5) COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as
the total of net income and all non-owner changes in equity. The following
table details the components of comprehensive income for the three months ended
March 29, 1998 and March 30, 1997:
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Net Income $ 4,275 $ 2,169
Foreign currency translation adjustment, net of tax 165 (125)
------- -------
Comprehensive Income $ 4,440 $ 2,044
------- -------
------- -------
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
"Management's Discussion and Analysis of Financial Condition and
Result of Operations" includes forward-looking statements which are subject
to certain risks and uncertainties. The Company's actual future results and
trends may differ materially from those expressed or implied by such
statements. Factors that might cause such a difference include, but are not
limited to, the Company's dependence on conditions in the airline industry,
commercial aircraft build rates (primarily Boeing and Airbus), the level of
defense spending, competitive pricing pressures, cost of material and labor,
and other risks described from time to time in the Company's registration
statements and reports filed with the Securities and Exchange Commission.
Summary
The following table sets forth certain items from the Company's
Condensed Consolidated Statements of Income for the periods indicated and
presents the results of operations as a percentage of net sales:
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, March 30,
1998 1997
--------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 69.4% 71.3%
--------- --------
Gross profit 30.6% 28.7%
Selling, general and
administrative expenses 13.6% 13.5%
--------- --------
Operating income 17.0% 15.2%
Interest expense, net 1.3% 3.9%
Provision for income taxes 6.3% 4.6%
--------- --------
Net income 9.4% 6.7%
--------- --------
--------- --------
</TABLE>
Quarter Ended March 29, 1998 Compared to Quarter Ended March 30, 1997
NET SALES. Net sales increased 41.0% or $13.2 million, to $45.4
million in the first quarter of 1998 from $32.2 million in the first quarter
of 1997. This growth was primarily the result of increased customer demand,
which occurred as commercial aircraft build rates increased. In addition,
net sales growth was enhanced by the expansion of existing product lines, the
development of variations of existing products and the introduction of new
products.
10
<PAGE>
GROSS PROFIT. Gross profit increased 51.1% to $13.9 million or 30.6% of
net sales in the first quarter of 1998 from $9.2 million or 28.7% of net
sales in the first quarter of 1997. This improvement in gross profit margin
was primarily due to the increase in sales volume (which resulted in a
greater absorption of fixed costs) and improved productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 44.2% to $6.2 million in the first quarter
of 1998 from $4.3 million in the first quarter of 1997, and were up 0.1% as a
percentage of sales. The $1.9 million increase in these expenses was
attributable primarily to additional employee costs needed to support the
increased sales volume.
INTEREST EXPENSE. Interest expense decreased 53.9% to $0.6 million in
the first quarter of 1998 from $1.3 million in the first quarter of 1997, as
a result of using proceeds received from the initial public offering in May
1997 to decrease outstanding debt by $24.0 million.
NET INCOME. Net income for the first quarter of 1998 increased to $4.3
million or 48 cents per share compared to $2.2 million or 32 cents per share
for the same period in 1997.
BACKLOG. Backlog at March 29, 1998 increased 35.4% or $26.3 million, to
$100.6 million from $74.3 million at March 30, 1997.
Liquidity and Capital Resources
The Company's liquidity requirements consist primarily of working
capital needs, capital expenditures and scheduled payments of interest on its
indebtedness to General Electric Capital Corporation. The Company's working
capital requirements have increased as a result of higher accounts receivable
and higher inventory levels needed to support its growth in net sales. The
Company's working capital was $39.7 million as of March 29, 1998, compared to
$29.8 million as of March 30, 1997.
For the first quarter of 1998, net cash used in operating activities was
$ 2.1 million, as compared to $0.3 million for the first quarter of 1997.
The primary sources of cash from operations during the first quarter of 1998
included net income of $4.3 million and non-cash charges for depreciation and
amortization of $1.2 million, offset by increases in accounts receivable and
inventories of $3.1 million and $0.8 million, respectively, and decreases in
accounts payable and accrued expenses of $2.0 million and $1.5 million,
respectively. The primary sources of cash from operations during the first
quarter of 1997 included net income of $2.2 million, non-cash charges for
depreciation and amortization of $0.9 million, an increase in accounts
payable of $0.2 million and an increase in accrued expenses of $0.5 million,
offset by increases in accounts receivable and inventories of $3.2 million
and $0.9 million, respectively.
The Company's net cash used in investing activities in the first quarter
of 1998 was $3.5 million, consisting primarily of $4.2 million in capital
expenditures and $2.4 million related to the acquisition of selected
operating assets of Aerospace Precision Systems, Inc., offset by $3.1 million
in net redemptions of marketable securities, as compared to net cash used in
investing activities in the first quarter of 1997 of $3.1 million, which
consisted primarily of $3.1 million in capital expenditures.
The Company's net cash provided by financing activities in the first
quarter of 1998 was $6.1 million, consisting of net borrowings of $6.1
million on debt, as compared to net borrowings on debt of $3.2 million in the
first quarter of 1997.
The Company believes that internally generated cash flow and amounts that
may be available under the Company's revolving line-of-credit will provide
adequate funds to meet its working
11
<PAGE>
capital needs, planned capital expenditures and debt service obligations.
However, the Company's ability to fund its operations, make planned capital
expenditures and make scheduled payments on, and refinance, its indebtedness
depends on its future operating performance and cash flow. Future operating
performance and cash flow are, in turn, subject to prevailing economic
conditions and to financial, business and other factors affecting the
Company, some of which are beyond the Company's control.
During the first quarters of 1998 and 1997, inflation has not had a
significant impact on the Company's operations.
Other Developments
During the past several years, the Company's growth in net sales has
occurred primarily as a result of increased customer demand due to the
increases in commercial aircraft build rates. Boeing, a significant customer
of the Company, has announced that it has been experiencing significant
production difficulties affecting build rates. There can be no assurance
that such difficulties will not affect Boeing's demand for the Company's
products or that commercial aircraft build rates will continue to increase.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II
ITEM 1. LEGAL PROCEEDINGS
During the ordinary course of business, the Company, from time to time,
is threatened with, or becomes a party to, legal actions and other
proceedings. Management is of the opinion that the outcome of currently known
legal actions and proceedings to which it is a party will not, singly or in
the aggregate, have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the acquisition of selected operating assets and
assumption of certain liabilities of Aerospace Precision Systems, Inc.
("APSI") on January 23, 1998, the Company issued 10,000 shares of common
stock to the Burns Heirs' Trust, the owner of APSI, pursuant to Regulation D
under the Securities Exchange Act of 1933, as amended. These shares were
valued based upon the average closing price of the Company's publicly traded
common stock, as quoted on the NASDAQ National Market System for the 20
preceding trading days.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first
quarter of 1998.
ITEM 5. OTHER INFORMATION
None
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
------ -------------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on form 8-K were filed during the quarter covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Orange, State of
California on this 5th day of May, 1998.
KAYNAR TECHNOLOGIES INC.
/s/ David A. Werner
------------------------------------
By: David A. Werner
Executive Vice President
/s/ Robert M. Nelson
-------------------------------------
Robert M. Nelson
Controller (Chief Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 1,220
<SECURITIES> 0
<RECEIVABLES> 30,084
<ALLOWANCES> 369
<INVENTORY> 35,529
<CURRENT-ASSETS> 68,401
<PP&E> 45,184
<DEPRECIATION> 9,873
<TOTAL-ASSETS> 110,556
<CURRENT-LIABILITIES> 28,669
<BONDS> 0
0
52
<COMMON> 37
<OTHER-SE> 54,165
<TOTAL-LIABILITY-AND-EQUITY> 110,556
<SALES> 45,355
<TOTAL-REVENUES> 45,355
<CGS> 31,474
<TOTAL-COSTS> 31,474
<OTHER-EXPENSES> 6,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 591
<INCOME-PRETAX> 7,125
<INCOME-TAX> 2,850
<INCOME-CONTINUING> 4,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,275
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 0.48
</TABLE>
