- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended: June 30, 1998
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-41939
STELLEX INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3971931
(State of Incorporation) (IRS Employer Identification No.)
1430 Broadway, 13th Floor
New York, New York 10018 10018
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (212) 391-1392
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
As of August 1, 1998, the number of shares outstanding of the registrant's
Common Stock, no par value, was 1,000 shares. There is no trading market for the
Common Stock. Accordingly, the aggregate market value of the Common Stock held
by non-affiliates of the registrant is not determinable.
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<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December
1998 31, 1997
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,982,200 $ 3,304,200
Account receivables - net of allowances 27,565,300 15,232,200
Inventories 56,113,900 27,884,200
Prepaid and other assets 2,645,100 3,753,000
Deferred income taxes 3,426,800 2,172,400
------------ ------------
Total current assets 93,733,300 52,346,000
Property, plant and equipment, net 61,301,500 31,506,000
Goodwill, net 96,021,300 42,919,700
Other intangible assets, net 11,494,600 12,594,800
Deferred financing costs, net 9,263,100 5,356,800
Other assets 2,241,400 1,059,100
------------ ------------
Total assets $274,055,200 $145,782,400
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term obligations $ 3,715,600 $ 139,700
Accounts payable 10,017,200 4,637,900
Accrued liabilities 20,645,000 12,031,100
Advance billings and customer deposits 1,307,800 2,678,900
------------ ------------
Total current liabilities 35,685,600 19,487,600
9 1/2% senior subordinated notes 100,000,000 100,000,000
Long-term obligations, less current portion 112,096,500 12,181,800
Deferred employee benefits 1,771,500 1,704,000
Deferred income taxes 16,292,600 2,446,700
Minority interest in KII Holding Corp 2,568,400 1,078,100
------------ ------------
Total liabilities and minority interest $268,414,600 $136,898,200
------------ ------------
Stockholders' equity:
Common stock, no par value, 1,000 shares
authorized and outstanding 50,000 50,000
Preferred stock, no par value: 500 shares
authorized, 229 shares issued
and outstanding 11,450,000 11,450,000
Retained earnings (accumulated deficit) (5,859,400) (2,615,800)
Total stockholders' equity 5,640,600 8,884,200
------------ ------------
Total liabilities and stockholders' equity $274,055,200 $145,782,400
============ ============
See accompanying notes to unaudited consolidated financial statements
<PAGE>
ITEM 1: Financial Statements
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
(Predecessor) (Predecessor)
Sales ......................... $ 38,449,900 $ 7,854,400 $ 66,349,000 $14,296,000
Cost of sales ................. 27,812,000 5,491,900 49,763,500 10,139,600
------------ ------------ ------------ ------------
Gross profit .................. 10,637,900 2,362,500 16,585,500 4,156,400
Operating expenses:
Selling, general and
administrative ................ 5,948,000 902,200 10,075,700 1,783,100
Research and development ...... 1,209,000 -- 2,149,000 --
Amortization of intangibles ... 851,000 7,800 1,493,000 15,600
------------ ------------ ------------ ------------
Total operating costs ...... 8,008,000 910,000 13,717,700 1,798,700
------------ ------------ ------------ ------------
Income from operations ........ 2,629,900 1,452,500 2,867,800 2,357,700
------------ ------------ ------------ ------------
Other income (expense):
Interest income ............ 25,000 2,200 57,500 4,500
Interest expense ........... (3,712,000) (194,100) (6,481,600) (375,700)
Other ...................... (69,600) (89,700) (132,800) (102,900)
------- ------- -------- --------
Total other expense (3,756,600) (281,600) (6,556,900) (474,100)
---------- -------- -------- -------
Income (loss) before
provision for income taxes .. (1,126,700) 1,170,900 (3,689,100) 1,883,600
Provision (benefit) for
income taxes ................ (246,200) 468,300 (1,018,100) 753,400
-------- ------- ---------- -------
Net income (loss) ............. (880,500) 702,600 (2,671,000) 1,130,200
Preferred stock dividends ..... (286,300) -- (572,600) --
-------- -------- -------- --------
Income (loss) applicable to
common stockholders ......... $ (1,166,800) $ 702,600 $ (3,243,600) $ 1,130,200
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $(880,500) $702,600 $(2,671,000) $1,130,200
Reconciliation to net cash
provided by (used in)
operating activities:
Depreciation and amortization 2,395,500 444,700 4,584,400 878,200
Deferred financing cost
amortization 199,700 - 337,800 -
Amortization of step-up in
inventory 400,000 - 1,457,400 -
Gain on sale of property - (2,100) (2,600) (4,000)
Deferred income taxes (97,300) 43,800 (1,027,500) 125,100
Stock compensation 774,900 - 1,490,300 -
Changes in assets and
liabilities:
Accounts receivable (475,000) (519,100) (3,010,100) (978,200)
Inventories (1,570,800) (307,100) (1,740,100) (1,078,300)
Prepaid and other assets 226,400 7,400 3,191,600 (105,300)
Due from parent - 100 - (2,100)
Other assets 137,200 (41,300) (401,200) -
Accounts payable (901,300) 367,700 (71,900) 559,000
Accrued and other liabilities (1,983,000) (228,000) (1,918,600) (42,100)
Customer deposits (7,400) (3,200) (934,900) (3,100)
------ ------ -------- ------
Net cash provided by (used
in) operating activities (1,781,600) 465,500 (716,400) 479,400
---------- ------- -------- -------
Cash Flows from Investing
Activities:
Additions to fixed assets (1,029,100) (389,900) (2,212,200) (868,500)
Proceeds from sale of fixed
assets - - 24,500 33,500
Net cash used in acquisition
of Monitor (90,364,100) - (90,364,100) -
----------- -------- ----------- --------
Net cash used in investing
activities (91,393,200) (389,900) (92,551,800) (835,000)
----------- -------- ----------- --------
Cash Flows from Financing
Activities:
Net borrowings(repayments)
under revolving line of
credit 8,250,000 (50,000) 8,250,000 300,000
Proceeds from Senior Term Loans 90,000,000 - 90,000,000 -
Payment of financing costs (4,242,100) - (4,242,100) -
Repayments under capital lease
obligations (28,500) - (31,000) -
Repayment of debt and notes
payable (15,500) (14,400) (30,700) (28,400)
------- ------- ------- -------
Net cash provided by (used
in) financing activities 93,963,900 (64,400) 93,946,200 271,600
---------- ------- ---------- -------
Net increase (decrease) in
cash and cash equivalents 789,100 11,200 678,000 (84,000)
Cash and cash equivalents,
beginning of period 3,193,100 310,800 3,304,200 406,000
--------- ------- --------- -------
Cash and cash equivalents, end
of period $3,982,200 $322,000 $3,982,200 $322,000
========= ======= ========= =======
</TABLE>
<PAGE>
<TABLE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
(Predecessor) (Predecessor)
Supplemental disclosure of
cash flow information:
Cash paid during the period
for:
Interest .................. $ 5,378,610 $ 194,678 $ 5,431,539 $ 377,776
============= ============= ============= =============
Income taxes, net ......... $ -- $ 577,700 $ -- $ 633,000
============= ============= ============= =============
Supplemental schedule of
noncash investing and
financing activities:
Capital lease agreements
for equipment ............. $30,400 $ -- $30,400 $ --
======= ======= ======== =======
Note issued to Seller in
conjunction with
Monitor Acquisition ....... $5,180,000 $ -- $5,180,000 $ --
========== ======= ========== =======
Assets acquired and .........
liabilities assumed in
connection with Monitor
Acquisition:
Fair value of assets
acquired .................. $ 130,420,000 $ -- $ 130,420,000 $ --
Liabilities assumed ....... (34,483,800) -- (34,483,800) --
----------- ------- ----------- -------
Cash paid ................. 95,936,200 -- 95,936,200 --
Less financing fees and
expenses .................. (4,165,100) -- (4,165,100) --
Less cash acquired ........ (1,407,000) -- (1,407,000) --
---------- ------- ---------- -------
Net cash used for business
acquisition .............. $ 90,364,100 $ -- $ 90,364,100 $ --
========== ======= ========== =======
</TABLE>
See accompanying notes to unaudited financial statements
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
Formation of Stellex Industries, Inc. - On September 5, 1997, Stellex Holdings
Corp. was incorporated as a Delaware corporation, which on October 23, 1997
amended its articles of incorporation to change its name to Stellex Industries,
Inc. ("Stellex"). On September 12, 1997, Stellex issued 1,000 shares of its
common stock to Greystoke Capital Management Limited LDC in exchange for (i)
8,010 shares of common and 84 shares of Series A preferred stock of KII Holding
Corp. ("KII Holdings"), (ii) $50,000 cash and (iii) the assumption of a
$4,000,000 promissory note. KII Holdings had previously been formed to effect
the acquisition of Kleinert Industries and subsidiaries ("Kleinert") on July 1,
1997, as described more fully below. As a result of the September 12, 1997
transaction, Stellex acquired an 80.1% interest in KII Holdings; the remaining
equity interests are held by certain members of Kleinert management. The
transaction has been accounted for as a reincorporation of KII Holdings;
accordingly, the financial statements of Stellex reflect the results of its
operations commencing with the acquisition of Kleinert in July 1, 1997. Kleinert
is the predecessor of Stellex, and all references to the "Company" include both
Stellex and its predecessor, Kleinert.
Kleinert Acquisition - On July 1, 1997, KII Holdings through a wholly owned
subsidiary (KII Acquisition Corp., a Delaware company) acquired all of the
outstanding capital stock of Kleinert from Kleinert Industries Holding AG. The
acquisition was accounted for using the purchase method of accounting, and,
accordingly, the net purchase price of approximately $26.5 million (including
the assumption of approximately $2.6 million of indebtedness and the issuance to
the seller of a note for $1.75 million) was allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition. There was no excess purchase price over the fair values of the net
assets acquired in connection with the acquisition. Kleinert's corporate name
was subsequently changed to Stellex Aerospace. Kleinert commenced operations in
1988, and provided management services for its wholly-owned subsidiaries -
Paragon Precision Products ("Paragon"), General Inspection Laboratories, Inc.
("GIL"), Scanning Electron Analysis Laboratories, Inc. ("SEAL"), and Bandy
Machining International ("Bandy").
Paragon specializes in the manufacture of precision aerospace components. GIL
provides non-destructive testing services for inspecting critical parts and
manufactured components. SEAL specializes in materials analysis and problem
solving for government and industry. Bandy manufactures precision hinges, door
panels and hinge assemblies for both aerospace and industrial applications.
TSMD Acquisition - On October 31, 1997, Stellex, through a wholly-owned
subsidiary, TSMD Acquisition Corp., purchased 100% of the outstanding common
stock of Stellex Microwave Systems, Inc. ("Stellex Microwave"), which comprised
the operations of the Tactical Subsystems and Microwave Devices Sectors ("TSMD")
of the Watkins-Johnson Company ("Watkins-Johnson"), for a net purchase price of
approximately $82.1 million. The acquisition was accounted for using the
purchase method of accounting with estimated fair value being assigned to the
assets acquired and liabilities assumed. The purchase was financed primarily
with the net proceeds from an offering of senior subordinated notes totaling
$92.3 million. Stellex Microwave designs, markets and manufactures a broad range
of microwave devices, modular subsystems and electronic equipment operating over
the RF and microwave frequency bands for sale primarily for military and
aerospace applications. Stellex's consolidated financial statements herein
include the results of operations of Stellex Microwave during the three months
and six months ended June 30, 1998 only.
Monitor Aerospace Acquisition - On May 29, 1998, Stellex Industries, Inc. (the
"Company") acquired Monitor Aerospace Corporation ("Monitor"), a leading
aerospace subcontractor engaged in the manufacture and assembly of
precision-machined structural aircraft components and assemblies for tolerance
critical applications, located in Amityville, New York. Monitor has two wholly
owned subsidiaries, Monitor Aerospace International Corp and Monitor Marine
Products, Inc. The Company's acquisition of Monitor (the "Monitor Acquisition")
was effected pursuant to the Agreement and Plan of Merger dated as of April 28,
1998, by and among Stellex Aerospace Holdings, Inc., a subsidiary of the Company
("Holdings"), Soze Corp., a wholly-owned subsidiary of Holdings, and Monitor.
Simultaneously with the acquisition Soze Corp. merged into Monitor.
The purchase price for Monitor was approximately $95.0 million including the
assumption of approximately $26.5 million of debt and excluding transaction and
financing fees and expenses of approximately $5.9 million. The Monitor
Acquisition was financed through (i) borrowings of $95.7 million under the
Amended and Restated Credit Agreement dated as of May 29, 1998 ("Credit
Agreement") and (ii) Monitor's issuance of a promissory note to Douglas Monitto
and Lawrence Goldberg, jointly as majority shareholders, in the principal amount
of $5,180,000. Borrowings under the Credit Agreement were comprised of terms
loans in an aggregate principal amount of $90.0 million and revolving loans of
$17.3 million, of which $10.3 million was used to refinance the existing Company
revolver.
The Credit Agreement is comprised of a $115.0 million Term Loan Facility, of
which $25.0 million remains undrawn, and a $35.0 million Revolving Loan
Facility. The Term Loan Facility includes $30.0 million of tranche financing
having a scheduled maturity of December 31, 2003, and $60.0 million of tranche
financing having a scheduled maturity of December 31, 2005. The Revolving Loan
Facility has a scheduled maturity of December 31, 2003.
2. Basis of Presentation
Stellex is a holding company that has no operations or assets separate from its
investments in its subsidiaries. The consolidated balance sheet at June 30, 1998
and the consolidated statements of income and consolidated statements of cash
flows for the periods ended June 30, 1998 include the accounts of Stellex
Microwave and Stellex Aerospace Holdings, Inc. Stellex Aerospace Holdings, Inc.
consists of Monitor, a wholly-owned subsidiary, and KII Holdings, its 80% owned
subsidiary. KII Holdings consists of Stellex Aerospace and its wholly-owned
subsidiaries (collectively, "Stellex Aerospace"). Due to the timing of the
Monitor Acquisition and the filing of the 10-Q for the period, the revaluation
of assets on Monitor's balance sheet as of June 30, 1998 is management's best
estimates. Management believes that these estimates will not be materially
different on a going-forward basis after the relevant valuation appraisals have
been fully completed. The comparative financial statements for the periods ended
June 30, 1997 are of Kleinert (the predecessor of Stellex) and include the
accounts of Kleinert Industries, Inc. and its wholly owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation, which were of normal and recurring
natures, have been included. The results of operations for any interim period
are not necessarily indicative of the results for the year. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and the
Company's Report on Form 8-K dated June 15, 1998 and the Company's Report on
Form 8-K/A dated August 13, 1998.
3. Comprehensive Income
Effective January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. For example, other
comprehensive income may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be classified, as required. The Company had no
items of other comprehensive income or loss for the three and six-month periods
ended June 30, 1998.
<PAGE>
4. Inventories
Inventories consisted of the following:
June 30, December 31,
1998 1997
(Unaudited)
Raw materials $13,911,800 $8,088,400
Work-in-process 35,249,400 12,957,300
Finished goods 6,952,700 6,838,500
----------- ----------
Total $56,113,900 $27,884,200
=========== ===========
5. Long-Term Obligations
Long-term obligations consisted of the following:
June 30, December 31,
1998 1997
(Unaudited)
Term Loans $ 90,000,000 -
Revolving line of credit 15,750,000 $7,500,000
7.785% Mortgage notes payable 2,593,200 2,624,000
Sellers Notes Payable 6,930,000 1,750,000
Obligations under capital leases 446,900 447,500
Other long term obligations 92,000 -
---------- --------
115,812,100 12,321,500
Less current portion 3,715,600 139,700
--------- ----------
Total $112,096,500 $12,181,800
============ ===========
6. Commitments and Contingencies
The Company is involved from time to time in lawsuits that arise in the normal
course of business. The Company actively and vigorously defends all lawsuits.
Management believes that currently there are no lawsuits that will have a
material affect on the Company's financial position.
<PAGE>
7. Condensed Financial Information of Stellex and its Subsidiaries
The $100 million principal amount of 9 1/2% senior subordinated notes and the
term and revolving loans are fully guaranteed, on a full and unconditional
basis, by all wholly and majority owned subsidiaries of Stellex including
Stellex Microwave, Stellex Aerospace and Monitor Aerospace. The condensed
consolidating financial information set forth below is included herein because
management has concluded that separate financial statements relating to the
guarantor subsidiaries are not material to investors. There are no significant
contractual restrictions on the ability of the Company's subsidiaries to
transfer funds to the Company. Condensed consolidating financial information as
of June 30, 1998 and the three and six month periods then ended follows:
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
<S> <C> <C> <C> <C> <C> <C>
Stellex Stellex KII Monitor Adjustments & Stellex
(Parent Only) Microwave Holdings Aerospace Eliminations Consolidated
Cash and cash equivalents $ 465,700 $ 1,025,600 $ 916,900 $ 1,574,000 -- $ 3,982,200
Accounts receivable, net . -- 12,389,500 6,066,800 9,109,000 -- 27,565,300
Inventories .............. -- 14,652,600 13,819,300 27,642,000 -- 56,113,900
Other current assets ..... 2,764,400 3,674,700 983,400 1,401,300 $ (2,751,900) 6,071,900
--------- --------- ------- --------- ------------- ---------
Total current assets ..... 3,230,100 31,742,400 21,786,400 39,726,300 (2,751,900) 93,733,300
Property, plant and
equipment, net ........ -- 16,530,800 15,076,700 29,694,000 -- 61,301,500
Goodwill and
intangibles, net ...... -- 53,550,200 -- 53,965,700 -- 107,515,900
Investment in and
advances to subsidiaries . 216,588,700 -- -- -- (216,588,700) --
Other assets ............. -- 4,219,900 2,087,600 5,197,000 11,504,500
----------- --------- --------- --------- ----------
Total assets ............. $ 219,818,800 $ 106,043,300 $ 38,950,700 $ 128,583,000 $(219,340,600) $ 274,055,200
============= ============= ============= ============= ============= =============
Current liabilities ...... $ 6,593,000 $ 12,495,400 $ 5,098,200 $ 14,338,000 $ (2,839,000) $ 35,685,600
9 1/2% senior subordinated
notes ................. 100,000,000 -- -- -- -- 100,000,000
Intercompany notes ....... -- 96,479,900 20,200,000 95,936,000 (212,615,900) --
Term Loans ............... 90,000,000 -- -- -- -- 90,000,000
Other long-term
liabilities ........... 12,150,100 753,200 10,892,700 18,933,000 -- 42,729,000
Stockholders' equity ..... 11,075,700 (3,685,200) 2,759,800 (624,000) (3,885,700) 5,640,600
---------- --------- -------- ---------- --------- ----------
Total liabilities and
stockholders' equity .... $ 219,818,800 $ 106,043,300 $ 38,950,700 $ 128,583,000 $(219,340,600) $ 274,055,200
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations For The Three Months Ended
June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Stellex Stellex Monitor Adjustments & Stellex
(Parent Only) Microwave KII Holding Aerospace (1) Eliminations Consolidated
Sales ................... $ -- $ 20,632,200 $ 9,884,600 $ 7,933,100 $ -- $ 38,449,900
Cost of sales ........... -- 14,602,000 6,730,000 6,480,000 -- 27,812,000
Operating expenses ...... 8,700 3,681,500 2,042,800 1,424,000 -- 7,157,000
Amortization of
intangibles ........... -- 641,000 -- 210,000 -- 851,000
------- ------- ------- ------- --------- ----------
Income (loss) from
operation ............. (8,700) 1,707,700 1,111,800 (180,900) -- 2,629,900
Interest expense ........ (3,391,800) (2,369,600) (626,800) (851,400) $ 3,527,600 (3,712,000)
Other income (expense) .. 3,541,400 1,900 (65,700) 5,400 (3,527,600) (44,600)
--------- ----- ------- ----- ---------- -------
Income (loss) before
income taxes ......... 140,900 (660,000) 419,300 (1,026,900) -- (1,126,700)
Provision (benefit) for
income taxes ......... -- (239,000) 395,800 (403,000) -- (246,200)
--------- -------- ------- -------- -------- ---------
Net income (loss) ....... 140,900 (421,000) 23,500 (623,900) -- (880,500)
Preferred stock dividend (286,300) -- -- -- -- (286,300)
-------- -------- ------- -------- -------- ---------
Income (loss) applicable
to common shareholders (145,400) $ (421,000) $ 23,500 $ (623,900) -- $ (1,166,800)
======== ============ ============ ============ ========== ============
</TABLE>
(1) Monitor's results are for the one month ended June 30, 1998 which were
impacted by non-recurring charges associated with the acquisition. These charges
include $400,000 amortization of step up in value of inventory and $1,000,000
financial advisory fee to Mentmore Holdings Corporation, an affiliate.
<PAGE>
7. Condensed Financial Information of Stellex and its Subsidiaries -
Continued
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows for the Three Months Ended
June 30, 1998
<S> <C> <C> <C> <C> <C>
Stellex Stellex Monitor Adjustments & Stellex
(Parent Only) Microwave KII Holding Aerospace Eliminations Consolidated
Net income (loss) ...... $ 140,900 $ (421,000) $ 23,500 $ (623,900) -- $ (880,500)
Depreciation and
amortization ......... -- 1,510,700 446,500 1,038,000 -- 2,995,200
Deferred taxes and other -- (239,000) 874,600 42,000 -- 677,600
Change in operating
assets and liabilities (437,200) (4,009,600) 81,900 (209,000) -- (4,573,900)
-------- ---------- ------ -------- ------- ----------
Net cash provided by
(used in) operations . (296,300) (3,158,900) 1,426,500 247,100 -- (1,781,600)
-------- ---------- ------ -------- ------- ----------
Fixed asset additions .. -- (266,500) (682,600) (80,000) -- (1,029,100)
Purchase of Monitor
Aerospace ............ (91,836,000) -- -- -- 1,471,900 (90,364,100)
Proceeds from sale of
fixed assets ......... -- -- -- -- -- --
Cash used in investing ---------- ------- ------- ------- ------- ----------
activities ........... (91,836,000) (266,500) (682,600) (80,000) 1,471,900 (91,393,200)
----------- -------- -------- ------- --------- -----------
Proceeds from borrowings
under term loans ..... 90,000,000 -- -- -- -- 90,000,000
Net borrowing under
revolver ............. 5,479,200 -- -- -- 2,770,800 8,250,000
Intercompany loans
(repayments) ......... (743,000) 2,770,800 (743,000) -- (2,770,800) --
Other .................. (4,100,200) (77,000) (44,000) -- (64,900) (4,286,100)
---------- ------- ------- ------- ------- ----------
Cash provided by (used
in) financing
activities ........... (92,122,000) 2,693,800 (787,000) -- -- 93,963,900
----------- --------- -------- ------- ------- ----------
Net increase (decrease)
in cash .............. $ (10,300) (731,600) (43,100) $ 167,100 1,407,000 (1) 789,100
============ ======== ======= ============ ========== =======
(1) $1,407,000 relates to cash on hand at Monitor at acquistion.
Condensed Consolidating Statement of Operations For The Six Months Ended
June 30, 1998
Stellex Stellex Monitor Eliminations Stellex
(Parent Only) Microwave KII Holding Aerospace (1) Consolidated
Sales ................... -- $ 40,260,200 $ 18,155,700 $ 7,933,100 -- $ 66,349,000
Cost of sales ........... -- 30,677,100 12,606,400 6,480,000 -- 49,763,500
Operating expenses ...... 30,800 6,814,100 3,955,800 1,424,000 -- 12,224,700
Amortization of
intangibles ........... -- 1,283,000 -- 210,000 -- 1,493,000
-------- --------- ---------- ------- --------- ---------
Income (loss) from
operations ............ (30,800) 1,486,000 1,593,900 (180,900) -- 2,867,800
Interest expense ........ (5,936,800) (4,699,500) (1,237,600) (851,400) 6,243,700 (6,481,600)
Other income (expense) .. 6,263,600 23,500 (124,100) 5,400 (6,243,700) (75,300)
--------- ------ -------- ----- ---------- -------
Income (loss) before
income taxes ......... 296,600 (3,190,000) 231,800 (1,026,900) -- (3,689,100)
Provision (benefit) for
income taxes ......... -- (1,222,000) 606,900 (403,000) -- (1,018,100)
-------- --------- ---------- ------- --------- ---------
Net income (loss) ....... 296,000 (1,968,000) (375,100) (623,900) -- (2,671,000)
Preferred stock dividend (572,600) -- -- -- -- (572,600)
-------- --------- ---------- ------- --------- ---------
Income (loss) applicable
to common shareholders $ (276,600) $ (1,968,000) $ (375,100) $ (623,900) $ -- $ (3,243,600)
============ ============ ============ ============ ======== ============
(1) Monitor's results are for the one month ended June 30, 1998 which were
impacted by non-recurring charges associated with the acquisition. These charges
include $400,000 amortization of step up in value of inventory and $1,000,000
financial advisory fee to Mentmore Holdings Corporation, an affiliate.
7. Condensed Financial Information of Stellex and its Subsidiaries -
Continued
Condensed Consolidating Statement of Cash Flows for the Six Months Ended June
30, 1998
Stellex Stellex Monitor Adjustments & Stellex
(Parent Only) Microwave KII Holding Aerospace Eliminations Consolidated
Net income (loss) ...... $ 296,000 $ (1,968,000) $(375,100) $ (623,900) $ -- (2,671,000)
Depreciation and
amortization ......... -- 4,446,700 894,900 1,038,000 -- 6,379,600
Deferred taxes and other -- (1,219,400) 1,637,600 42,000 -- 460,200
Change in operating
assets and liabilities (333,300) (4,184,700) (158,200) (209,000) -- (4,885,200)
-------- ---------- -------- -------- --------- ----------
Net cash provided by
(used in) operations . (37,300) (2,925,400) 1,999,200 (247,100) -- (716,400)
------- ---------- --------- -------- -------- --------
Fixed asset additions .. -- (678,000) (1,454,200) (80,000) -- (2,212,200)
Purchase of Monitor
Aerospace ............ (91,836,000) -- -- -- 1,471,900 (90,364,100)
Proceeds from sale of
fixed assets ......... -- -- 24,500 -- -- 24,500
------- ------- ------ -------- ------- ------
(91,836,000) (678,000) (1,429,700) (80,000) 1,471,900 (92,551,800)
Cash used in investing
activities
Proceeds from borrowings
under term loans ..... 90,000,000 -- -- -- -- 90,000,000
Net borrowing under
revolver ............. 5,479,200 -- -- -- 2,770,800 8,250,000
Intercompany loans
(repayments) ......... 3,000 3,510,800 (743,000) -- (2,770,800) --
Other .................. (4,100,200) (77,000) (61,700) -- (64,900) (4,303,800)
---------- ------- ------- ----- ------- ----------
Cash provided by (used
in) financing activities 91,382,000 3,433,800 (804,700) -- (64,900) (93,946,200)
---------- --------- -------- ----- ------- -----------
Net increase (decrease)
in cash .............. $ (491,300) $ (169,600) $ (235,200) $ 167,100 $ 1,407,000 (1)$ 678,000
============ ============ ============ ============ ============ ============
</TABLE>
(1) $1,407,000 relates to cash on hand at Monitor at acquisition.
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations
Coincident with the Monitor Acquisition, Stellex Industries formed a new
subsidiary, Stellex Aerospace Holdings, to better organize the Company's
machining-related activities. Stellex Aerospace Holdings consists of Monitor, a
wholly owned subsidiary, and KII Holdings, an 80%-owned subsidiary. The
following tables segregate the operating data of the Company into its two
operating segments, Stellex Microwave and Stellex Aerospace Holdings, for the
three and six-month periods ended June 30, 1998. Comparative figures for the
periods ended June 30, 1997 are of Kleinert (the predecessor of Stellex). All
figures set forth below are a percentage of net sales:
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997.
Stellex Aerospace Stellex
Holdings Microwave
---------------------------------------
1998 1997 1998
---- ---- ----
(Predecessor)
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.1 69.9 70.8
---- ---- ----
Gross margin 25.9 30.1 29.2
Selling, general and
administrative 19.5 11.5 12.0
Research and development 0.0 0.0 5.8
Amortization of
intangible assets 1.2 0.1 3.1
--- ----- -----
Operating income 5.2 18.5 8.3
Other expense (income):
Interest expense 8.3 2.5 11.5
Other 0.3 1.1 (0.0)
----- --- ------
(Loss) income before
income taxes (3.4) 14.9 (3.2)
(Benefit) provision for
income taxes 0.0 6.0 (1.2)
--- --- ----
Net (loss) income (3.4)% 8.9% (2.0)%
===== ===== ======
Net Sales
Net sales for Stellex for the quarter ended June 30, 1998 were $38.4 million,
which was 389.5% greater than the second quarter of 1997. The significant
increase in net sales came primarily as a result of the acquisitions of Stellex
Microwave ($20.6 million) and Monitor ($7.9 million). Net sales for Stellex
Aerospace Holdings, exclusive of Monitor, were $9.9 million, which was 25.8%
greater than the second quarter of 1997. The increase in net sales for Stellex
Aerospace was a result of the strong demand in the commercial aviation market
for new aircraft production, primarily at Boeing, increases in manufacturing
requirements for military aircraft and increase deliveries of turbo-machinery
components.
Gross Margins
Gross margin for Stellex for the quarter ended June 30, 1998 was 27.7%, which
decreased from 30.1% in the previous year. The decrease in gross margin resulted
primarily from the acquisition of Monitor, which achieved a gross margin of
18.3%, which was impacted by non-recurring charges associated with the
amortization of the step up in value of its inventory as a result of purchase
accounting totaling $400,000. Gross margin for Stellex Aerospace for the quarter
ended June 30, 1998 was 31.9% which increased from 30.1% in the comparable
period in the prior year primarily as a result of increased volumes leading to
improved manufacturing efficiencies and fixed cost utilization.
<PAGE>
Selling, general and administrative
Selling, general and administrative expenses for Stellex were $5.9 million,
which was 559.3% greater than the second quarter of 1997. This increase resulted
primarily from the acquisitions of Stellex Microwave, which incurred $2.5
million of expense, and Monitor, which incurred $1.4 million of expense.
Selling, general and administrative expenses for Stellex Aerospace totaled $2.0
million, which represented an increase in expense of $1.1 million. This increase
was due primarily to incremental non-cash charges of $775,000 relating to the
valuation of management ownership puts and managerial hires.
Amortization of Intangibles
Amortization of intangible expense for Stellex was $851,000 which represents
amortization of various intangibles such as value of workforce in place,
tradename and goodwill for the three months ended June 30, 1998 resulting from
the application of purchase accounting to Stellex Microwave and Monitor in
conjunction with their acquisitions.
The respective purchase cost of Monitor will be allocated based on the relative
fair values of the acquired assets and liabilities as of the closing date, based
on valuations and other studies which are not yet complete. However, the
Company's management believes that the effects of the final allocation will not
differ materially from those set forth herein.
Interest expense
Interest expense for Stellex was $3.7 million, which was $3.5 million greater
than interest expense in the second quarter of 1997. The significant increase in
interest expense was due to the refinancings that occurred in conjunction with
the Stellex Microwave and Monitor acquisitions. The consummation of these
acquisitions resulted in outstanding indebtedness for the second quarter of 1998
of approximately $148 million at an average borrowing rate of approximately
9.2%.
Earnings before Interest, Taxes, Depreciation, Amortization and Non-recurring
items (EBITDA)
EBITDA for Stellex for the second quarter ended June 30, 1998 totaled $7.2
million compared to $1.8 million during 1997. EBITDA for 1998 included
adjustments for an investment banking fee paid to Mentmore Holdings Corporation,
an affiliate of Stellex, totaling $1.0 million in conjunction with the
acquisition of Monitor, non-cash charges for changes in the value of management
put rights in KII Holdings totaling $775,000, and non-cash, non-recurring
charges relating to the Monitor acquisition totaling $701,000. The increase in
EBITDA over the prior year was a direct result of the acquisitions of Stellex
Microwave and Monitor, as well as a 23.6% improvement within Stellex Aerospace
due primarily to improved profitability resulting from net sales increases and
plant efficiencies.
<PAGE>
Results of Operations
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Stellex Aerospace Stellex
Holdings Microwave
---------------------------------------
1998 1997 1998
---- ---- ----
(Predecessor)
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.2 70.9 76.2
---- ---- ----
Gross margin 26.8 29.1 23.8
Selling, general and
administrative 20.6 12.5 11.6
Research and development 0.0 0.0 5.3
Amortization of
intangible assets 0.8 0.1 3.2
----- ----- -----
Operating income 5.4 16.5 3.7
Other expense (income):
Interest expense 8.0 2.6 11.7
Other 0.5 0.7 (0.1)
----- ----- ------
(Loss) income before
income taxes 3.0 13.2 (7.9)
(Benefit) provision for
income taxes 0.8 5.3 (3.0)
----- ----- ------
Net (loss) income (3.8)% 7.9% (4.9)%
======= ===== ======
Net sales
Net sales for Stellex for the six months ended June 30, 1998 were $66.3 million,
which was 364.1% greater than the first half of 1997. The significant increase
in net sales came primarily as a result of the acquisitions of Stellex Microwave
($40.3 million) and Monitor ($7.9 million). Net sales for Stellex Aerospace
Holdings, exclusive of Monitor, were $18.2 million, which was 27.0% greater than
the first half of 1997. The increase in net sales for Stellex Aerospace was a
result of the strong demand in the commercial aviation market for new aircraft
production, primarily at Boeing, increases in manufacturing requirements for
military aircraft and increased deliveries of turbo-machinery components.
Gross margins
Gross margin for Stellex for the six months ended June 30, 1998 was 25.0%, which
decreased from 29.1% in the previous year. The decrease in gross margin resulted
primarily from the acquisitions of Stellex Microwave, which achieved a gross
margin of 23.8%, and Monitor, which achieved a gross margin of 18.3%. These
margins were impacted by non-recurring charges associated with the amortization
of the step up in value of its inventory as a result of purchase accounting,
totaling $1,457,000. Gross margin for Stellex Aerospace for the six months ended
June 30, 1998 was 30.6% which increased from 29.1% in the comparable period in
the prior year primarily as a result of increased volumes leading to improved
manufacturing efficiencies and fixed cost utilization.
Selling, general and administrative
Selling, general and administrative expenses for Stellex were $10.1 million
which was 465.1% greater than the first half of 1997. This increase resulted
primarily from the acquisitions of Stellex Microwave, which incurred $4.7
million of expense, and Monitor, which incurred $1.4 million of expense.
Selling, general and administrative expenses for Stellex Aerospace totaled $4.0
million, which represented an increase in expense of $2.1 million. This increase
was due primarily to incremental non-cash charges of $1.5 million relating to
the valuation of management ownership puts and managerial hires, offset
partially by selling costs incurred during 1997 relating to the Kleinert
Acquisition.
Amortization of Intangibles
Amortization of intangible expense for Stellex was $1.5 million which represents
amortization of various intangibles such as value of workforce in place,
tradename and goodwill for the six months ended June 30, 1998 resulting from the
application of purchase accounting to Stellex Microwave and Monitor in
conjunction with their acquisitions.
The respective purchase cost of Monitor will be allocated based on the relative
fair values of the acquired assets and liabilities as of the closing date, based
on valuations and other studies which are not yet complete. However, the
Company's management believes that the effects of the final allocation will not
differ materially from those set forth herein.
Interest expense
Interest expense for Stellex was $6.5 million, which was $6.1 million greater
than interest expense in the second quarter of 1997. The significant increase in
interest expense was due to the refinancings that occurred in conjunction with
the Stellex Microwave and Monitor acquisitions. The consummation of these
acquisitions resulted in average outstanding indebtedness for the first half of
1998 of approximately $130 million at an average borrowing rate of approximately
9.3%.
Earnings before Interest, Taxes, Depreciation, Amortization and Non-recurring
items (EBITDA)
EBITDA for Stellex for the six months ended June 30, 1998 totaled $11.4 million
compared to $3.1 million during 1997. EBITDA for 1998 included adjustments for
an investment banking fee paid to Mentmore Holdings Corporation, an affiliate of
Stellex, totaling $1.0 million in conjunction with the acquisition of Monitor,
non-cash charges for changes in the value of management put rights in KII
Holdings totaling $1.5 million, and non-cash, non-recurring charges relating to
the Monitor acquisition totaling $2.2 million. The increase in EBITDA over the
prior year was a direct result of the acquisitions of Stellex Microwave and
Monitor, as well as a 21.0% improvement within Stellex Aerospace due primarily
to improved profitability resulting from net sales increases and plant
efficiencies.
Liquidity and Capital Resources
Stellex was a net user of cash flows from operations for the three and six month
periods ended June 30, 1998, in the amount of $1.8 million and $716,400,
respectively, compared to a net provider of cash in the amount of $466,000 and
$479,000 for the comparable periods during 1997. During the second quarter
period, Stellex Microwave's cash flow was impacted negatively due to the build
up of a significant AMRAAM RF-head order for Raytheon scheduled to ship during
the third quarter. In addition, as a result of the Monitor acquisition,
non-recurring investment banking fees relating to the transaction totaling $1.0
million were paid to Mentmore Holdings Corporation, an affiliate.
Stellex was a net user of cash flows from investing activities for the three and
six month periods ended June 30, 1998, in the amount of $91.4 million and $92.6
million, respectively, compared to a net user of cash in the amount of $390,000
and $835,000 for the comparable periods during 1997. The increase in usage of
cash for corporate investing activities was due to the acquisitions of Stellex
Microwave and Monitor and increased capital expenditures required for the
maintenance and upgrading of a significantly larger operating company.
Approximately $90.4 million of cash proceeds were utilized to consummate the
acquisition of Monitor in May 1998.
Stellex generated net cash flows from financing activities during the three and
six month periods ended June 30, 1998, totaling approximately $94.0 million
primarily to finance the acquisition of Monitor and refinance the existing
revolving loan facility so as to increase the maximum borrowing availability for
Stellex by $10 million to $35 million.
Stellex's liquidity demands for the near term will consist of normal levels of
capital expenditure requirements sufficient to accommodate growth in backlog,
working capital needs and debt service funding. Stellex is in the process of
upgrading machining equipment at Monitor with the latest in CNC technology in
order to improve tolerances and manufacturing efficiencies and adding necessary
equipment capacity at Stellex Aerospace in order to support the very positive
order growth at Bandy and Paragon. Capital expenditures anticipated for the
second half of the year should approximate $3.2 million.
<PAGE>
Debt service requirements for Stellex for the latter half of the year will
include principal reduction payments totaling $1.9 million under the term loan
facilities and interest payments totaling approximately $9.5 million.
Management believes that current levels of operating cash flow and availability
under its revolving credit facility will provide adequate liquidity to Stellex
to satisfy its near term liquidity demands.
Pro Forma Results for the Six Months Ended June 30, 1997 and 1998
The unaudited pro forma consolidated results for the three and six-month periods
ended June 30, 1997 and 1998 give effect to the acquisition of Stellex Microwave
and Monitor Aerospace ("Acquisitions") which were acquired on October 31, 1997
and May 29, 1998 respectively. For purposes of the pro forma results of
operations, the Acquisitions are reflected as of January 1, 1997. The pro forma
consolidated statements of operations exclude non-recurring changes directly
related to the Acquisitions, including (i) investments banking and financial
advisory fees paid to Mentmore Holdings Corporation, an affiliate, and (ii)
increases in cost of sales arising from write-up of inventories at the date of
consummation of the Acquisitions to fair market value.
The unaudited pro forma consolidated results have been prepared by management of
the Company and do not necessarily represent the results of the Company's
operation which would have occurred if the Acquisitions had actually taken place
on the date indicated, and may not be indicative of the results of operations
which may be obtainable in the future.
<PAGE>
Statement of Operation Three Months Ended Six Months Ended
Data: June 30, June 30,
1998 1997 1998 1997
---- ----
Net Sales $54,317 $48,629 $104,435 $95,637
Cost of Sales 39,917 37,068 78,330 72,812
-------- ------ ------ -------
Gross Profit 14,400 11,561 26,105 22,825
Research and development 1,209 500 2,149 1,100
Selling, general, and
administrative 5,630 4,772 10,809 9,567
Amortization of
intangibles 1,279 1,185 2,564 2,370
Operating Income 6,282 5,104 10,583 9,788
Interest expense 5,250 5,458 10,372 10,767
Other 60 (78) 119 (89)
----------- ----------- -------- ----------
Income(loss)before
taxes 972 (276) 92 (890)
Provisions of taxes 389 (112) 37 (357)
---------- ----------- ---------- ----------
Net Income (loss) $ 583 $ (164) $ 55 $ 533
========= ========== ========== =========
EBITDA $10,653 $ 9,595 $19,304 $18,618
======= ======== ======= =======
Net Sales
Net sales for Stellex Industries were $54.3 million and $104.4 million for the
three and six months ended June 30, 1998, respectively. Net sales at Stellex
Aerospace were $9.9 million and $18.2 million for the three and six months ended
June 30, 1998, respectively, representing a 25.9% and a 27.0% increase over the
comparable periods in 1997. Net sales continue to grow at Stellex Aerospace as a
result of the strong demand in the commercial aviation market for new aircraft
production, increases in manufacturing requirements for military aircraft and
increased deliveries of turbo-machinery components.
Stellex Microwave's net sales for the three and six months ended June 30, 1998
were $20.6 million and $40.3 million, representing decreases of 10.3% and 13.8%,
respectively, from net sales levels during the comparable periods in 1997. These
decreases were due primarily to 1997 shipments of delinquent orders arising from
production planning problems associated with the poor implementation of a new
production planning software system in 1996 and lower 1998 shipments of
receivers due to the completion of certain non-recurring orders in 1997. During
July, Stellex Microwave effected a restructuring in response to the negative
trend experienced in microwave device orders over the past several months, which
resulted in a reduction of workforce of approximately 12%. For the tactical
subsystems business a reduction in shipments of AMRAAM subsystems during 1998,
based on 1997 end of contract shipments under certain contracted lots, was more
than offset by increased shipments on the Standard Missile and MFE programs.
Shipments at Monitor Aerospace were $23.8 million and $46.0 million for the
three and six months ended June 30, 1998, representing increases of 33.8% and
32.9%, respectively, from net sales levels during the comparable periods in
1997. These increases were due to the stronger commercial aircraft market.
Gross Margin
Gross margin for Stellex Industries was 26.5% and 25.0% for the three and six
months ended June 30, 1998, respectively, compared to gross margin of 23.8% and
23.9% for the comparable periods in 1997. Gross margin at Stellex Aerospace was
31.9% and 30.6% for the three and six months ended June 30, 1998, respectively,
compared to gross margin of 30.1% and 30.0% for the comparable periods in 1997.
Gross margin improvement at Stellex Aerospace has resulted primarily from
increased sales volume.
Gross margin for Stellex Microwave was 29.2% and 26.4% for the three and six
months ended June 30, 1998, respectively, compared to gross margin of 23.0% and
24.0% for the comparable periods in 1997. Gross margin improvement at Stellex
Microwave resulted from improved productivity, lower manufacturing costs and
improved profitability on the completion of certain programs.
Gross margin for Monitor Aerospace was 21.9% and 21.5% for the three and six
months ended June 30, 1998, respectively, compared to gross margin of 21.6% and
21.2% for the comparable periods in 1997. Gross margin at Monitor Aerospace
remained relatively consistent as a result of new program inefficiencies
offsetting benefits from the higher sales volume on fixed overheads.
Research and Development
Research and development costs have increased over the prior year by $709,000
during the second quarter and $1.0 million for the first six months due
principally to the expansion of engineering capabilities at Stellex Microwave in
order to address new product introductions and cost reductions in manufacturing
and packaging.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the consolidated group
increased $858,000 and $1.2 million to 10.4% of net sales from the three and
six-month periods ended June 30, 1998, respectively. These increases were due
primarily to incremental non-cash charges of $775,000 and $1.5 million,
respectively, relating to the valuation of management ownership puts in Stellex
Aerospace.
EBITDA before Interest, Taxes, Depreciation and Amortization and non-cash
charges ("EBITDA")
Earnings before interest, income taxes, depreciation, amortization and non-cash
charges ("EBITDA") totaled $10.7 million and $19.3 million for the three and six
months ended June 30, 1998, respectively, which was 11.1% and 3.7% better than
comparable prior year periods. The increase in EBITDA came primarily as a result
of improved gross margin.
The Year 2000 Issue
The Company has made an assessment of the impact of the Year 2000 issue on its
internal operations and has developed a plan to bring all of its computer
systems into compliance before the end of 1998. Based on the assessment of the
Company's computer systems software, it has been determined that certain of the
Company's hardware and software systems are either currently Year 2000 compliant
or have an existing upgrade available from the software vendor that is Year 2000
compliant. It is management's intention that all systems that are not currently
Year 2000 compliant will either be upgraded to be Year 2000 compliant or
replaced with alternative systems that are Year 2000 compliant by the end of
1998. The costs to be incurred in addressing the Year 2000 issues are not
expected to have a material impact on the Company's future financial results.
Recent Accounting Standards
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". The standard requires that companies
disclose "operating segments" based on the way management disaggregates the
company for making internal operating decisions. The new rules will be effective
for the Company's 1998 fiscal year end.
In February 1998, the FASB issued SFAS No. 132, "Employers" Disclosures about
Pensions and Other Postretirement Benefits," which standardizes the disclosure
requirement for pensions and other postretirement benefits. The implementation
of SFAS No. 132 is not expected to have an impact on the Company's financial
statements. The standard will be effective for the Company for the year ended
December 31, 1998.
Cautionary Statement on Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements including statements regarding the intent,
belief, or current expectations of the Company, or its management, are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those in forward-looking statements as
a result of various factors including but not limited to: (i) general economic
conditions in the markets in which the Company operates, (ii) cancellation of
specific aircraft or missile programs due to defense spending or general
budgetary constraints or poor customer demand, (iii) development of competing
technology and scientific know-how similar or superior to that of the Company,
(iv) downturn in the commercial aircraft industry, and (v) success in hiring and
retaining key management and technical personnel.
<PAGE>
Part II - Other Information
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K: A Form 8-K was filed on June 15, 1998 describing the
details of the Monitor acquisition and providing pro forma financial information
for Stellex. A Form 8-K/A was filed on August 13, 1998, including the required
historical audited financial statements for Monitor.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused the Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, as of August 14, 1998.
STELLEX INDUSTRIES, INC
By:/s/ William L. Remley
William L. Remley,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and as of dates indicated.
Signature Title Date
/s/ Richard L. Kramer Chairman of the Board of August 14, 1998
Richard L. Kramer Directors and
Director of Stellex
Industries, Inc.
/s/ William L. Remley Vice Chairman, President, August 14, 1998
William L. Remley Chief Executive Officer,
Treasurer and Director of
Stellex Industries, Inc.
/s/ P. Roger Byer Chief Financial Officer of August 14, 1998
P. Roger Byer Stellex Industries, Inc.
(principal financial and
accounting officer)
- ------------------------------------
1. $1,407,000 relates to cash on hand at Monitor at acquisition.
2 $1,407,000 relates to cash on hand at Monitor at acquisition.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,982
<SECURITIES> 0
<RECEIVABLES> 27,565
<ALLOWANCES> 14
<INVENTORY> 56,114
<CURRENT-ASSETS> 93,733
<PP&E> 106,412
<DEPRECIATION> 45,110
<TOTAL-ASSETS> 274,055
<CURRENT-LIABILITIES> 35,686
<BONDS> 100,000
0
11,450
<COMMON> 50
<OTHER-SE> (5,859)
<TOTAL-LIABILITY-AND-EQUITY> 274,055
<SALES> 38,450
<TOTAL-REVENUES> 38,450
<CGS> 27,812
<TOTAL-COSTS> 8,008
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,712
<INCOME-PRETAX> (1,127)
<INCOME-TAX> (246)
<INCOME-CONTINUING> (881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (881)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
