<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 1998
KAYNAR TECHNOLOGIES INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-22519 33-0591091
- ------------------------------- ------------------ ------------------
(State or other jurisdiction of Commission File No. (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
1
<PAGE>
This Form 8-K has been amended to include the financial statements and pro forma
financial information omitted from the initial report on Form 8-K filed on
August 12, 1998.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 28, 1998, Kaynar Technologies Inc. ("KTI") acquired all of the
issued and outstanding common stock of M & M Machine & Tool Co. ("M & M")(this
transaction being referred to herein as the "Acquisition"). M & M, located in
Huntington Beach, California specializes in the machining of structural
components and assemblies for aircraft. These components and assemblies include
pylons, flap hinges, struts, wing fittings, landing gear parts, spars, and many
others. M & M has current annualized sales in excess of $20 million.
As consideration for the Acquisition, KTI paid the four stockholders of
M & M (the "Stockholders") $11 million in cash and 354,276 shares of KTI common
stock at closing. An additional $1 million in cash will be paid to the
Stockholders following the first of two contingent adjustments to the purchase
price. The two contingent adjustments to the purchase price will be paid 60% in
cash and 40% in shares of KTI common stock. The first contingency will be a
dollar-for-dollar adjustment to the purchase price to the extent that M & M's
net worth at closing exceeds or falls below $4.5 million. The second contingency
will be additional consideration of no less than zero and no more than $2
million which will be based on M & M's recasted earnings before interest, taxes
and transaction costs related to the Acquisition for its fiscal year ended
October 31, 1998.
A registration rights agreement was entered into by KTI with the
Stockholders, permitting them to exercise up to two demand registration rights
per calendar year for offerings with an aggregate price exceeding $1 million.
The registration rights agreement also accorded the Stockholders piggyback
registration rights. KTI funded the cash portion of the purchase price by
increasing its existing Term Loan with General Electric Capital Corporation
("GECC") and plans to fund the contingency payments out of their Revolving
Credit Facility with GECC.
The Stockholders consisted of Robert E. McGuire, the Robert E. McGuire
Family Trust UDT December 28, 1989, the Robert E. McGuire Family Trust #2 UDT
December 27, 1991, and the Ronald D. McGuire Family Trust UDT April 30, 1997. In
connection with the Acquisition, Robert E. McGuire and Ronald D. McGuire, two
principals of M & M, entered into employment agreements with KTI in which they
will serve as the President and Vice-President of M & M, respectively. Robert E.
and Ronald D. McGuire also entered into 5-year minimum non-competition
agreements with KTI.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Independent Auditors' Report
Balance Sheet as of July 26, 1998
Statement of Income and Retained Earnings for the
period from August 1, 1997 to July 26, 1998
Statement of Cash Flows for the period from August 1, 1997
to July 26, 1998
Notes to Financial Statements for the period from August 1, 1997
to July 26, 1998
2
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(b) Pro Forma Financial Information
Introduction
Pro Forma Condensed Consolidated Combining Balance Sheet as of
June 28, 1998 (unaudited)
Pro Forma Condensed Consolidated Combining Statement of Income
for the six months ended June 28, 1998 (unaudited)
Pro Forma Condensed Consolidated Combining Statement
of Income for the year ended December 31, 1997
(unaudited)
Notes to Pro Forma Condensed Consolidated Combining Financial
Statements
(c) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -------------------------
<S> <C>
2.1* Agreement and Plan of Merger among Kaynar
Technologies Inc., KTIC Acquisition Corp. and M & M
Machine & Tool Co. dated as of July 27, 1998 (the
"Merger Agreement").
2.2* List of Schedules omitted from the Merger Agreement.
4.1* Registration Rights Agreement among Kaynar
Technologies Inc. and the Stockholders dated as of
July 27, 1998.
23.1 Independent Auditors' Consent
</TABLE>
* Filed previously with Current Report on Form 8-K of Kaynar
Technologies Inc. dated August 12, 1998.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
M & M Machine & Tool Co.
We have audited the accompanying balance sheet of M & M Machine & Tool Co., as
of July 26, 1998, and the related statements of income, retained earnings, and
cash flows for the period from August 1, 1997 to July 26, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of M & M Machine & Tool Co. as of
July 26, 1998, and the results of operations and cash flows for the period from
August 1, 1997 to July 26, 1998 in conformity with generally accepting
accounting principles.
Allen, Haight & Cooney LLP
October 7, 1998
4
<PAGE>
M & M MACHINE & TOOL CO.
BALANCE SHEET AS OF JULY 26, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents (Note 9) $ 110,833
Accounts receivable - trade (Note 3) 1,697,309
Inventories (Notes 2 and 3) 3,481,858
Prepaid expenses 16,881
Deferred income taxes (Note 5) 103,515
-----------
Total current assets 5,410,396
-----------
Property and equipment, at cost (Notes 3 and 4)
Building 1,320,775
Land 1,743,667
Automobiles and trucks 86,262
Furniture, fixture and equipment 425,044
Machinery and equipment 12,288,555
Leasehold improvements 255,528
-----------
16,119,831
Less accumulated depreciation and amortization 4,540,875
-----------
Net property and equipment 11,578,956
-----------
Deposits 20,064
Intangible assets, net 28,674
-----------
Total assets $17,038,090
-----------
-----------
</TABLE>
See accompanying notes to the financial statements
and independent auditors' report.
5
<PAGE>
M & M MACHINE & TOOL CO.
BALANCE SHEET AS OF JULY 26, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Current portion of long-term debt (Note 4) $ 1,529,835
Bank note payable (Note 3) 400,000
Accounts payable 128,989
Accrued payroll and related taxes 374,822
Accrued commissions 7,194
Accrued interest 47,613
Accrued income taxes (Note 5) 242,022
-----------
Total current liabilities 2,730,475
-----------
Long-term debt, net of current portion (Note 4) 8,575,056
Deferred income taxes (Note 5) 413,153
-----------
Total liabilities 11,718,684
-----------
Commitments (Note 8)
Stockholders' equity:
Common stock $10 stated value; authorized
15,000 shares; issued and outstanding 15,000 shares 150,000
Additional paid-in capital 74,673
Retained earnings 5,094,733
-----------
Total stockholders' equity 5,319,406
-----------
Total liabilities and stockholders' equity $17,038,090
-----------
-----------
</TABLE>
See accompanying notes to the financial statements
and independent auditors' report.
6
<PAGE>
M & M MACHINE & TOOL CO.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
<TABLE>
<S> <C>
Net sales $20,079,868
Cost of sales 13,509,351
-----------
Gross profit 6,570,517
Selling, general and administrative expenses 2,199,671
-----------
Operating income 4,370,846
Interest expense, net 517,296
-----------
Income before provision for income taxes 3,853,550
Provision for income taxes (Note 5) 1,542,181
-----------
Net income 2,311,369
Retained earnings, beginning of period 2,783,364
-----------
Retained earnings, end of period $ 5,094,733
-----------
-----------
</TABLE>
See accompanying notes to the financial statements
and independent auditors' report.
7
<PAGE>
M & M MACHINE & TOOL CO.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $2,311,369
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,178,679
Provision for deferred income taxes 205,368
Changes in operating assets and liabilities:
Increase in accounts receivable - trade (168,862)
Decrease in advances to officer 38,320
Increase in inventories (886,050)
Decrease in prepaid expenses 61,376
Decrease in deposits 157,836
Decrease in accounts payable (439,527)
Decrease in note payable - officer (167,500)
Decrease in accrued expenses (5,134)
Decrease in accrued income taxes (701,608)
----------
Net cash provided by operating activities 1,584,267
----------
Cash flows from investing activities:
Purchases of property and equipment (8,055,906)
----------
Net cash used in investing activities (8,055,906)
----------
Cash flows from financing activities:
Increase in bank note payable 386,028
Proceeds from issuance of long-term debt 7,871,698
Principal payments on long-term debt (1,996,160)
Increase in loan fees (28,674)
----------
Net cash provided by financing activities 6,232,892
----------
Net decrease in cash and cash equivalents (238,747)
Cash and cash equivalents, beginning of period 349,580
----------
Cash and cash equivalents, end of period $ 110,833
----------
----------
Additional Disclosures
Cash paid during the period for:
Interest expense $ 495,140
----------
----------
Income taxes $1,058,966
----------
----------
</TABLE>
See accompanying notes to the financial statements
and independent auditors' report.
8
<PAGE>
M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of M & M Machine & Tool Co. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles.
NATURE OF BUSINESS
M & M Machine & Tool Co. is a California corporation engaged in manufacturing
precision machined metal parts used principally in the aerospace and defense
industries. The Company operates from facilities in Huntington Beach,
California.
INVENTORIES
Inventories are stated at cost, which is not in excess of market. Cost is
determined on a specific job basis and consists principally of materials, labor,
overhead and outside processing costs.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided over the
estimated useful lives of the assets, ranging from 3 to 40 years principally
using the straight-line method.
INCOME TAXES
Deferred tax provisions/benefits are calculated for certain transactions and
events because of differing treatments under generally accepted accounting
principles and the currently enacted tax laws of the federal government. The
results of these differences on a cumulative basis, known as temporary
differences, result in the recognition and measurement of deferred tax assets
and liabilities in the accompanying balance sheet.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
9
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M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTANGIBLE ASSETS
Loan fees are amortized on a straight-line basis, over the life of the related
loan.
NOTE 2 - INVENTORIES
Inventories as of July 26, 1998 consisted of the following:
Hardware $ 173,836
Work in progress 3,114,087
Finished goods 193,935
-----------
$ 3,481,858
-----------
-----------
NOTE 3 - BANK NOTE PAYABLE
The Company has a credit agreement with a bank which provides for borrowings of
up to $1,500,000. Borrowings under this agreement are due on demand or, if no
demand is made, on May 1, 1999. Payments of interest at the bank's reference
rate (8.5% at July 26, 1998) plus .75% are due monthly. At July 26, 1998, the
Company had borrowed $400,000 under this credit agreement. Borrowings are
secured by accounts receivable, inventory, and property and equipment now owned
or hereafter acquired by the Company. In addition, borrowings are subject to
certain terms and conditions specified in the borrowing agreement. The Company
was in compliance with such terms and conditions as of July 26, 1998. The
stockholders and principal officers of the Company have also executed continuing
guarantees in connection with the above credit agreement.
10
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M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable, collateralized by equipment, bearing interest at 8.5%, due in
monthly installments of $19,559 including interest through December 1998. $ 114,929
Note payable, collateralized by equipment, bearing interest at 10%, due in
monthly installments of $11,416 including interest through March 2000, final
payment due on April 21, 2000. 219,966
Note payable, collateralized by equipment, bearing interest at 10.5%, due in
monthly installments of $3,252 including interest through December 1999, final
payment due on January 13, 2000. 54,584
Note payable, collateralized by equipment, bearing interest at 10%, due in
monthly installments of $504 including interest through October 1998. 1,599
Note payable, collateralized by accounts receivable, inventory, and property and
equipment now owned or hereafter acquired by the Company, bearing interest at
9.5%, due in monthly installments of $11,235 including interest through December 1998. 55,140
Note payable, collateralized by equipment, bearing interest at 9.73%, due in
monthly installments of $8,791 including interest through June 2001; the
stockholders and principal officers of the Company have also executed
continuing guarantees in connections with the note payable. 265,577
Note payable, collateralized by equipment, bearing interest at
4.9%, due in monthly installments of $909 including
interest through January 2000. 14,634
Note payable, collateralized by equipment, bearing interest at 9.16%, due in
monthly installments of $17,897 including interest through January 2002. 651,809
</TABLE>
11
<PAGE>
M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 4 - LONG-TERM DEBT (Continued)
<TABLE>
<S> <C>
Note payable, collateralized by equipment, bearing interest at 9.59%, due in
monthly installments of $3,711 including interest through February 2002. 136,712
Note payable, collateralized by equipment, bearing interest at 9.38%, due in
monthly installments of $3,472 including interest through May 2002. 130,392
Note payable, collateralized by equipment, bearing interest at 8.58%, due in
monthly installments of $10,218 including interest through October 2002. 428,166
Note payable, collateralized by equipment, bearing interest at 8.69%, due in
monthly installments of $20,359 including interest through October 2002. 887,613
Note payable, collateralized by equipment, bearing interest at 8.98%, due in
monthly installments of $6,346 including interest through September 2002. 263,090
Note payable, collateralized by equipment, bearing interest at 8.73%, due in
monthly installments of $6,836 including interest through September 2002. 284,765
Note payable, collateralized by equipment, bearing interest at 6.75%, due in
monthly installments of $30,980 including interest through January 2001. 852,991
Note payable, collateralized by equipment, bearing interest at 8.2%, due in
monthly installments of $2,912 including interest through June 2003. 250,048
</TABLE>
12
<PAGE>
M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 4 - LONG-TERM DEBT (Continued)
<TABLE>
<S> <C>
Note payable, collateralized by equipment, bearing interest at 8.28%, due in
monthly installments of $3,351 including interest through April 2003. 156,300
Mortgage note payable, collateralized by land and building, bearing interest at
7.85%, due in monthly installments of $22,439 including interest through June 2008
(see paragraph below). 2,912,000
Note payable collateralized by equipment bearing interest at 9.25%, due on
September 1, 1998 (see description of refinancing of note in paragraph below). 2,424,576
-------------
-------------
10,104,891
Less current portion 1,529,835
-------------
-------------
$ 8,575,056
-------------
-------------
</TABLE>
On June 2, 1998, the Company acquired its manufacturing and office facilities in
Huntington Beach, California for $3,064,442. The Company previously leased these
facilities under an operating lease agreement until the date of the acquisition.
The acquisition was financed with a bank mortgage loan in the original amount of
$2,916,000.
In December 1997, the Company entered into an agreement to purchase certain
machinery. The Company accepted delivery of the machinery in April 1998. As of
July 26, 1998, the Company had not placed the machinery in service since it was
in the process of installing it. In June 1998, the Company signed a promissory
note for the purchase of the machinery in the amount of $2,424,576, bearing
interest at 9.25% with a maturity date of September 1, 1998. On September 1,
1998, the Company renewed the promissory note in the amount of $2,424,576 with
an additional borrowing of $275,424 to cover the cost of the installation. The
new promissory note in the amount of $2,700,000 bears interest at 7.56% with a
maturity date of September 1, 2003. The stockholders and principal officers of
the Company have also executed continuing guarantees in connection with the this
promissory note.
13
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M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 4 - LONG-TERM DEBT (Continued)
The aggregate amounts of long-term debt payable in each of the next five years
are as follows:
<TABLE>
<S> <C>
1999 $ 1,529,835
2000 1,767,375
2001 1,592,531
2002 1,319,386
2003 3,599,412
Thereafter 296,352
------------
------------
$ 10,104,891
------------
------------
</TABLE>
NOTE 5 - INCOME TAXES
The provision for income taxes is comprised of the following for the period from
August 1, 1997 to July 26, 1998:
<TABLE>
<S> <C>
Current payable:
Federal $ 1,186,544
State 261,215
------------
1,447,759
------------
Deferred:
Federal 42,900
State 51,522
------------
------------
94,422
------------
------------
Total income tax expense $ 1,542,181
------------
------------
</TABLE>
14
<PAGE>
M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 5 - INCOME TAXES (Continued)
A reconciliation of the income tax expense to the amount of income tax expense
that would result from applying the federal statutory rate (34%) to income
before income taxes is as follows:
<TABLE>
<S> <C> <C>
Provision for income taxes at statutory rate $ 1,310,207 34%
State income taxes, net of federal income tax benefit 206,406 5%
Limitation on meals and entertainment 4,646
Nondeductible officers' life insurance 9,385
Other (principally income taxed in lower brackets and
changes to deferred tax estimates) 11,537 1%
------------ -----
------------ -----
$ 1,542,181 40%
------------ -----
------------ -----
</TABLE>
Net deferred tax assets and liabilities in the accompanying balance sheet
include the following components:
<TABLE>
<S> <C>
Deferred tax assets:
Current:
Federal $ 103,515
----------
Deferred tax liabilities:
Noncurrent:
Federal $ 320,881
State 92,272
----------
----------
Noncurrent deferred tax liability $ 413,153
----------
</TABLE>
Deferred tax assets result from state franchise taxes accrued for financial
reporting purposes and deducted for federal tax purposes in the subsequent year.
Deferred tax liabilities result from the use of accelerated methods of
depreciation of property and equipment for tax purposes.
15
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M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 6 - RELATED PARTY TRANSACTIONS
As of July 26, 1998, the Company engaged in transactions with
officers/stockholders. The following is a summary of such transactions:
<TABLE>
<S> <C>
Collection of advances to officer/stockholder $ 57,390
Payment on note payable to officer/stockholder,
bearing interest at 10% per annum, due on
demand, including interest of $16,585 $ 84,085
</TABLE>
NOTE 7 - SIGNIFICANT CUSTOMERS
McDonnell Douglas Corporation and The Boeing Company are major customers of the
Company. Sales to McDonnell Douglas Corporation and The Boeing Company accounted
for $17,196,776 of the net sales of $20,079,868 for the period from August 1,
1997 to July 26, 1998. Such sales were made to four separate operating entities
within McDonnell Douglas Corporation, and to two separate operating entities
within The Boeing Corporation. Accounts receivable balances from these same
customers accounted for $1,584,387 of the Company's accounts receivable - trade
balance of $1,697,309 as of July 26, 1998.
NOTE 8 - COMMITMENTS
The Company was a lessee of manufacturing and office facilities under an
operating lease. Such lease called for monthly rentals of $16,820. On June 2,
1998, the Company acquired the facilities and terminated the lease (see Note 4.)
The Company also is a lessee of storage facilities under an operating lease
expiring in November 1999. Such lease calls for monthly rentals of $9,500. Rent
expense, including real estate taxes, insurance and repair costs associated with
the leases was $256,350 for the period from August 1, 1997 to July 26, 1998.
Aggregate minimum rentals under the noncancelable operating lease subsequent to
July 26, 1998, are as follows:
<TABLE>
<S> <C>
Period ending July 26,
1999 $ 114,000
2000 $ 38,000
</TABLE>
NOTE 9 - FINANCIAL INSTRUMENTS WITH CREDIT RISK
The Company maintains its cash at major financial institutions in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents. At July 26,
1998, the Company exceeded the insured limit by $10,833.
16
<PAGE>
M & M MACHINE & TOOL CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 1, 1997 TO JULY 26, 1998
NOTE 10 - 401(k) PLAN
The Company has a 401(k) plan which covers substantially all of the Company's
employees who are 21 years or older, and who have completed one year of service
with the Company and are credited with 1,000 hours of service. Contributions to
the plan by the Company are discretionary and are determined annually. The
Company's contribution vests over 7 years. There was no contribution to the
401(k) plan for the period from August 1, 1997 to July 26, 1998.
NOTE 11 - SUBSEQUENT EVENT
On July 27, 1998, the stockholders of the Company entered into an agreement to
sell all of the common stock of the Company to KTIC Acquisition Corp., a wholly
owned subsidiary of Kaynar Technologies Inc.
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED COMBINING FINANCIAL STATEMENTS
INTRODUCTION
(Unaudited)
The unaudited pro forma condensed consolidated combining financial information
presented herein gives effect to the purchase of all outstanding shares of M & M
Machine & Tool Co. ("M & M") by Kaynar Technologies Inc. ("KTI") effective July
28, 1998. M & M's fiscal year ends on October 31, and KTI's fiscal year ends on
December 31.
The unaudited pro forma condensed consolidated combining balance sheet data at
June 28, 1998 combines the historical balance sheet of KTI and its subsidiaries
as of June 28, 1998 with M & M's historical balance sheet as of April 30, 1998.
The pro forma adjustments to the balance sheet assume that the acquisition was
consummated as of the balance sheet date.
The unaudited pro forma condensed consolidated combining statement of income
data being presented for the six months ended June 28, 1998 combines KTI's six
months of operations ended June 28, 1998 with M & M's six months of operations
ended April 30, 1998. The pro forma adjustments to the statement of operations
assume that the acquisition was consummated at the beginning of the period
being presented.
The unaudited pro forma condensed consolidated combining statement of income
data being presented for the year ended December 31, 1997 combines KTI's twelve
months of operations ended December 31, 1997 with M & M's twelve months of
operations ended October 31, 1997. The pro forma adjustments to the statement of
operations assume that the acquisition was consummated at the beginning of the
period being presented.
KTI expects to achieve certain reductions in costs subsequent to the purchase of
M & M as a result of the reduction of salaries and benefits to the officers of
M & M based on their new employment contracts entered into at the time of
acquisition. To comply with the Commission's pro forma reporting rules, the cost
reductions reflected in the accompanying unaudited pro forma condensed
consolidated combining statements of income have been limited to the excessive
salary and benefit costs of the officers that will be eliminated after the
acquisition.
The unaudited pro forma condensed consolidated combining financial statements
are intended for informational purposes only and are not necessarily indicative
of the future financial position or future results of operations of the combined
company, or of the financial position or results of operations of the combined
company that would have actually occurred had the acquisition taken place as of
the date or for the periods presented. These unaudited pro forma combined
financial statements and the accompanying notes should be read in conjunction
with the financial statements, including the accompanying notes, of M & M which
are attached and of KTI which are included in KTI's annual report on Form 10-K
for the fiscal year ended December 31, 1997 and KTI's quarterly report on Form
10-Q for the six months ended June 28, 1998.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the pro forma data.
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED COMBINING BALANCE SHEET
AS OF JUNE 28, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
KTI M & M Pro Forma Pro Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 1,551 $ 32 $ - $ 1,583
Accounts receivable, net 30,179 2,129 - 32,308
Inventories 38,460 2,910 - 41,370
Prepaid expenses and other current assets 619 116 (57)(E) 678
Deferred tax asset 1,006 - - 1,006
-------- -------- -------- --------
Total current assets 71,815 5,187 (57) 76,945
-------- -------- -------- --------
Property, plant and equipment, at cost 50,378 10,174 - 60,552
Less accumulated depreciation and amortization (11,047) (4,229) - (15,276)
-------- -------- -------- --------
39,331 5,945 - 45,276
Intangible assets, net 6,650 - 17,855 (A,B,C,D,E,F) 24,505
Other assets 60 440 - 500
-------- -------- -------- --------
Total assets $117,856 $ 11,572 $ 17,798 $147,226
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Revolving line-of-credit $ 12,603 $ 315 $ - $ 12,918
Current portion of long-term debt 1,093 1,445 - 2,538
Current portion of capital lease obligations 283 - - 283
Accounts payable 8,283 391 - 8,674
Accrued payroll and related expenses 6,940 59 - 6,999
Other accrued expenses 3,067 728 (596)(E) 3,199
-------- -------- -------- --------
Total current liabilities 32,269 2,938 (596) 34,611
-------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt 26,018 3,694 13,991 (A,B,C,D) 43,703
Capital lease obligations 348 - - 348
Deferred tax liability 1,136 215 - 1,351
-------- -------- -------- --------
Total long-term liabilities 27,502 3,909 13,991 45,402
-------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Series C Convertible preferred stock 42 - - 42
Common stock 47 150 (146)(A,B,C,F) 51
Additional paid-in-capital 29,531 75 9,049 (A,B,C,F) 38,655
Retained earnings 30,020 4,500 (4,500)(F) 30,020
Currency translation adjustment (1,555) - - (1,555)
-------- -------- -------- --------
Total stockholders' equity 58,085 4,725 4,403 67,213
-------- -------- -------- --------
Total liabilities and stockholders' equity $117,856 $ 11,572 $ 17,798 $147,226
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated combining financial statements
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED COMBINING INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 28, 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
KTI M & M Pro Forma Pro Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
Net sales $ 92,179 $ 10,535 $ - $102,714
Cost of sales 63,668 7,511 (115)(I) 71,064
-------- -------- -------- --------
Gross profit 28,511 3,024 115 31,650
Selling, general and administrative expenses 12,831 854 (37)(G,I) 13,648
-------- -------- -------- --------
Operating Income 15,680 2,170 152 18,002
Interest expense, net 1,304 192 490 (H) 1,986
-------- -------- -------- --------
Income before provision for income taxes 14,376 1,978 (338) 16,016
Provision for income taxes 5,750 530 (46)(J) 6,234
-------- -------- -------- --------
Net income $ 8,626 $ 1,448 $ (292) $ 9,782
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share
Basic $ 2.32 $ 2.35
Diluted $ 0.97 $ 1.05
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common stock
and common stock equivalents
Basic 3,721 439 (K) 4,160
Diluted 8,918 439 (K) 9,357
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated combining financial statements
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
KTI M & M Pro Forma Pro Forma
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
Net sales $150,429 $ 16,569 $ - $166,998
Cost of sales 104,390 11,494 (696)(N) 115,188
-------- -------- -------- --------
Gross profit 46,039 5,075 696 51,810
Selling, general and administrative expenses 21,454 1,500 195 (L,N) 23,149
-------- -------- -------- --------
Operating Income 24,585 3,575 501 28,661
Interest expense, net 3,602 341 980 (M) 4,923
-------- -------- -------- --------
Income before provision for income taxes 20,983 3,234 (479) 23,738
Provision for income taxes 8,393 1,156 (13)(O) 9,536
-------- -------- -------- --------
Net income $ 12,590 $ 2,078 $ (466) $ 14,202
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share
Basic $ 4.23 $ 4.16
Diluted $ 1.54 $ 1.65
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common stock
and common stock equivalents
Basic 2,967 439 (P) 3,406
Diluted 8,173 439 (P) 8,612
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to condensed consolidated combining financial statements
21
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED COMBINING FINANCIAL STATEMENTS
JUNE 28, 1998 and DECEMBER 31, 1997
(Unaudited)
(Dollars in thousands)
(A) Reflects the initial payment of consideration in connection with the
acquisition of M & M, in the form of $11,000 in long-term debt and 354,276
shares of KTI common stock with a fair value of $8,000.
(B) Reflects an additional payment of consideration based on the first
contingent adjustment of $1,491 in long-term debt and 24,650 shares of KTI
common stock with a fair value of $328.
(C) Reflects an additional payment of consideration based on the second
contingent adjustment of $1,200 in long-term debt and 60,122 shares of KTI
common stock with a fair value of $800.
(D) Represents $300 in long-term bank debt to fund payment of transaction
related costs.
(E) Represents the removal of receivables and payables to officers of M & M not
acquired by KTI.
(F) Represents the removal of M & M's equity accounts.
(G) Reflects six months of amortization expense on goodwill, based on an
estimated useful life of 40 years.
(H) Reflects six months of interest expense on the additional long-term debt,
assuming an average interest rate of 7%.
(I) Represents the planned reduction of salaries and benefits to the
officers of M & M based on their new employment contracts entered into
at the time of acquisition.
(J) Reflects the tax effect on the pro forma adjustments using the Company's
statutory tax rate.
(K) Reflects the shares of KTI's common stock issued as part of consideration
for M & M (see (A), (B), and (C) above).
(L) Reflects twelve months of amortization expense on goodwill, based on an
estimated useful life of 40 years.
(M) Reflects twelve months of interest expense on the additional long-term
debt, assuming an average interest rate of 7%.
(N) Represents the planned reduction of salaries and benefits to the
officers of M & M based on their new employment contracts entered into
at the time of acquisition.
(O) Reflects the tax effect on the pro forma adjustments using the Company's
statutory tax rate.
(P) Reflects the shares of KTI's common stock issued as part of consideration
for M & M (see (A), (B), and (C) above).
22
<PAGE>
SIGNATURE
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 8th day of October, 1998.
KAYNAR TECHNOLOGIES INC.
/s/ David A. Werner
---------------------
By: David A. Werner
Executive Vice President
23
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion of our report dated October 7, 1998 relating to the
balance sheet of M & M Machine and Tool Co., as of July 26, 1998 and the related
statements of income, retained earnings, and cash flows for the period from
August 1, 1997 to July 26, 1998, which report appears in the Form 8-K/A of
Kaynar Technologies Inc. dated October 9, 1998.
Allen, Haight & Cooney LLP
Irvine, California
October 7, 1998
