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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended: September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-41939-01
STELLEX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3971931
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
680 FIFTH AVENUE, 8TH FLOOR
NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 931-5333
STELLEX INDUSTRIES, INC.
1430 BROADWAY, 13TH FLOOR, NEW YORK, NEW YORK 10018
(FORMER NAME AND FORMER ADDRESS)
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 May 1, 1999, 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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EXPLANATORY NOTE:
The quarterly report on Form 10-Q filed by Stellex Industries, Inc. on
November 16, 1998 is being amended for the sole purpose of filing the quarterly
consolidated financial statements of KII Holding Corp., a majority owned
subsidiary, for the period ended September 30, 1998.
2
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KII HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
1998 1997
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 490,500 $ 1,152,200
Account receivables, net 5,780,200 5,446,700
Inventories 14,220,900 12,817,100
Prepaid and other assets 266,100 916,700
Deferred income taxes 581,000 531,800
----------- -----------
Total current assets 21,338,700 20,864,500
Property, plant and equipment, net 14,972,400 14,458,900
Deferred financing costs, net 908,300 983,200
Other assets 1,196,700 1,059,100
----------- -----------
Total assets $38,416,100 $37,365,700
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term obligations $ 1,846,300 $ 139,700
Accounts payable 1,906,200 1,638,400
Customer deposits 347,300 116,700
Accrued liabilities 2,653,600 2,190,800
----------- -----------
Total current liabilities 6,753,400 4,085,600
Long-term obligations, less current portion 22,107,200 25,624,800
Deferred employee benefits 1,512,000 1,405,700
Unfunded pension benefits 298,300 298,300
Deferred income taxes 1,957,000 1,693,400
----------- -----------
Total liabilities 32,627,900 33,107,800
Equity Put Rights on common stock 3,343,300 1,078,100
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized, 8,010 issued and outstanding 3,131,900 3,131,900
Series A Preferred stock, $10,000 stated value,
400 shares authorized, 84 shares
issued and outstanding 840,000 840,000
Series B Preferred stock, $10,000 stated value,
75 shares authorized, none issued
and outstanding -- --
Undesignated Preferred stock, $10,000
stated value, 25 shares authorized, none
issued and outstanding -- --
Accumulated deficit (1,527,000) (792,100)
----------- -----------
Total shareholders' equity 2,444,900 3,179,800
----------- -----------
Total liabilities and shareholders' equity $38,416,100 $37,365,700
=========== ===========
See accompanying notes to unaudited consolidated financial statements
3
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KII HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months Six Months
Ended Ended Ended
September 30, September 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Predecessor)
<S> <C> <C> <C> <C>
Sales $8,863,900 $8,889,800 $27,019,600 $14,296,000
Cost of sales 6,210,100 6,746,900 18,816,500 10,139,600
---------- ---------- ----------- -----------
Gross profit 2,653,800 2,142,900 8,203,100 4,156,400
Selling, general and administrative 2,012,000 1,570,600 5,967,800 1,798,700
---------- ---------- ----------- -----------
Income from operations 641,800 572,300 2,235,300 2,357,700
---------- ---------- ----------- -----------
Other income (expense):
Interest expense (603,600) (456,300) (1,841,200) (375,700)
Other income (expense) (78,700) (20,400) (202,800) (98,400)
---------- ---------- ----------- -----------
Total other expense (682,300) (476,700) (2,044,000) (474,100)
---------- ---------- ----------- -----------
Income (loss) before provision
for income taxes (40,500) 95,600 191,300 1,883,600
Provision (benefit) for income taxes 251,000 287,600 857,900 753,400
---------- ---------- ----------- -----------
Net income (loss) (291,500) (192,000) (666,600) 1,130,200
Preferred stock dividends (23,400) -- (68,300) --
---------- ---------- ----------- -----------
Income (loss) applicable to common
shareholders $ (314,900) $ (192,000) $ (734,900) $ 1,130,200
========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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KII HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Three Months Six Months
Ended Ended Ended
September 30, September 30, June 30,
1998 1997 1997
---- ---- ----
(Predecessor)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (666,600) $ (192,000) $ 1,130,200
Reconciliation to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,364,200 363,400 878,200
Deferred income taxes 214,400 760,500 125,100
Stock compensation charge 2,265,200 -- --
Other (5,200) 9,800 (4,000)
Changes in assets and liabilities:
Accounts receivable (333,500) (899,000) (978,200)
Inventories (1,403,800) (584,800) (1,078,300)
Prepaid and other assets 650,600 17,800 (105,300)
Other assets (97,000) (43,300) (2,100)
Accounts payable 267,800 (547,900) 559,000
Accrued and other liabilities 462,800 915,200 (42,100)
Customer deposits 230,600 58,300 (3,100)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 2,949,500 (142,000) 479,400
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (1,794,400) (559,500) (868,500)
Proceeds from sale of fixed assets 24,500 -- 33,500
Net cash used in Kleinert acquisition -- (14,799,300) --
----------- ----------- -----------
Net cash used in investing activities (1,769,900) (15,358,800) (835,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit -- -- 300,000
Repayment of bank debt and intercompany loans (1,811,000) -- --
Payment of financing costs -- (1,326,800) --
Proceeds from issuance of common and
preferred stock -- 4,750,000 --
Repayment of debt in connection with
Kleinert Acquisition -- (6,800,000) --
Proceeds from borrowings in connection
with Kleinert Acquisition -- 19,300,000 --
Other (30,300) (14,600) (28,400)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,841,300) 15,908,600 271,600
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (661,700) 407,800 (84,000)
Cash and cash equivalents, beginning
of period 1,152,200 322,000 406,000
----------- ----------- -----------
Cash and cash equivalents, end of period $ 490,500 $ 729,800 $ 322,000
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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KII HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Three Months Six Months
Ended Ended Ended
September 30, September 30, June 30,
1998 1997 1997
---- ---- ----
(Predecessor)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,479,447 $ 329,300 $ 377,800
=========== ============ ===========
Income taxes, net $ -- $ -- $ 633,000
=========== ============ ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease agreements for equipment $ 30,400 $ -- $ --
=========== ============ ===========
Assets acquired and liabilities assumed in
connection with acquisitions:
Fair value of assets acquired $ -- $ 35,541,200 $ --
Liabilities assumed -- (19,388,400) --
----------- ------------ -----------
Cash paid -- 16,152,800 --
Less cash acquired -- 1,353,500 --
----------- ------------ -----------
Net cash used for business acquisition $ -- $ 14,799,300 $ --
=========== ============ ===========
</TABLE>
See accompanying notes to unaudited financial statements
6
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KII HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Predecessor
Kleinert Industries, Inc. (predecessor) ("Kleinert") was a wholly owned
subsidiary of Kleinert Industrie Holding A.G., a Swiss company (the "Parent"),
and was organized under the laws of the State of California on July 1, 1988,
commencing operations on September 1, 1988, and which provided management
services for its wholly owned subsidiaries - Paragon Precision Products ("PPP"),
Bandy Machining International ("BMI"), Scanning Electron Analysis Laboratories,
Inc. ("SEAL"), and General Inspection Laboratories, Inc. ("GIL").
PPP specializes in the manufacture of precision aerospace components. BMI
manufactures precision hinges, door panels and hinged assemblies for both
aerospace and industrial applications. SEAL specializes in materials analysis
and problem-solving for government and industry. GIL provides a complete array
of non-destructive testing services for inspecting critical parts and
manufactured components.
Acquisition and Successor
On July 1, 1997, KII Holding Corp. (successor), a Delaware company ("KII
Holding") incorporated on July 1, 1997, through a wholly owned subsidiary (KII
Acquisition Corp., a Delaware corporation), acquired all of the issued and
outstanding capital stock of Kleinert and Subsidiaries (predecessor company and
currently known as Stellex Aerospace and Subsidiaries) from Kleinert Industrie
Holding A.G. (the "Seller"). The acquisition has been accounted for using the
purchase method of accounting, and, accordingly, the net purchase price of
approximately $26.5 million (including the assumption of $2.65 million of
mortgage indebtedness and the issuance to the Seller of a note for $1.75
million) has been 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 on the net assets acquired in connection
with the acquisition. The acquisition was financed in part from new borrowings
totaling $19.3 million and the issuance of common and preferred stock totaling
$4.75 million. KII Holding is owned by Stellex Industries, Inc., a Delaware
corporation, which owns 80.1% of the issued and outstanding common stock of KII
Holding, with certain members of Stellex Aerospace's management holding the
remainder of its outstanding common stock. KII Holding is a holding company
whose operations are conducted through its operating subsidiaries. References to
the "Company" include both KII Holding and its predecessor, Kleinert.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements dated prior to the
acquisition of Kleinert and Subsidiaries on July 1, 1997, include the accounts
of Kleinert and its wholly owned subsidiaries (the "Predecessor"). Financial
statements dated subsequent to the acquisition include the accounts of KII
Holding (the "Successor") and its wholly owned subsidiaries, KII Acquisition
Corp., Stellex Aerospace and Subsidiaries (PPP, BMI, SEAL and GIL). 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 a normal and
recurring nature, 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.
7
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3. RECENT ACCOUNTING STANDARDS
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 nine-month periods
ended September 30, 1998.
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 annual financial statements.
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's 1998 annual
financial statements.
4. INVENTORIES
Inventories consisted of the following:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Raw materials $ 1,612,600 $ 1,212,500
Work-in-process 6,962,600 6,250,300
Finished goods 5,645,700 5,354,300
----------- -----------
Total $14,220,900 $12,817,100
=========== ===========
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Demand note payable to Stellex
Industries, Inc. $19,200,200 $20,943,000
7.785% Mortgage notes payable 2,576,300 2,624,000
Sellers Notes Payable 1,750,000 1,750,000
Obligations under capital leases 426,100 447,500
Other long term obligations 900 --
----------- -----------
23,953,500 25,764,500
Less current portion 1,846,300 139,700
----------- -----------
Total $22,107,200 $25,624,800
=========== ===========
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 there are no lawsuits that will have a material affect
on the Company's financial position.
8
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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 May 14, 1999.
STELLEX TECHNOLOGIES, 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 Directors May 18, 1999
- --------------------- and Director of
Richard L. Kramer Stellex Technologies, Inc.
/s/ William L. Remley Vice Chairman, President and Chief May 18, 1999
- --------------------- Executive Officer Treasurer and
William L. Remley Director of
Stellex Technologies, Inc.
/s/ P. Roger Byer Chief Financial Officer of May 18, 1999
- --------------------- Stellex Technologies, Inc.
P. Roger Byer
9
