UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended: September 30, 2003.
or
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from ______________ to ______________.
Commission File Number: 000-25939
THE KELLER MANUFACTURING COMPANY, INC.
(Exact name of registrant as specified in its charter)
| Indiana | 35-0435090 | |
|
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
| 701 N. Water Street, Corydon, Indiana | 47112 | |
| (Address of principal executive offices) | (Zip Code) | |
| (812) 738-2222 | ||
|
(Registrant's telephone number, including area code) |
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 14, 2003, the registrant had 5,177,400 Common shares, no par value, outstanding.
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TABLE OF CONTENTS
Page
| PART I. | |||
| Item 1. | Financial Statements: | ||
| Consolidated Balance Sheets as of | |||
| September 30, 2003, September 30, 2002 and December 31, 2002 | 3 | ||
| Consolidated Statements of Income for the | |||
|
Three Months Ended and the Nine Months ended September 30, 2003 and 2002 | 4 | ||
| Consolidated Statements of Cash Flows for the | |||
| Nine Months ended September 30, 2003 and 2002 | 5 | ||
| Notes to Consolidated Financial Statements | 6 | ||
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 8 | |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 10 | |
| Item 4. | Controls and Procedures | 11 | |
| PART II. | |||
| Item 5. | Other Information | 11 | |
| Item 6. | Exhibits and Reports on Form 8-K | 11 | |
| Signatures | 12 | ||
| CEO Certification | 13 | ||
| CFO Certification | 14 | ||
| Index to Exhibits | 15 | ||
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THE KELLER MANUFACTURING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002 AND DECEMBER 31, 2002
| September 30, | December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2002 | ||||||||||
| (Unaudited) | ||||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS: | ||||||||||||
| Cash | $ | 1,010,074 | $ | 4,279,383 | $ | 3,172,234 | ||||||
| Investments available for sale | 3,274,412 | --- | 1,253,437 | |||||||||
| Accounts receivable, less allowance for doubtful accounts of | ||||||||||||
| $836,000 at September 30, 2003, $805,000 at September 30, | ||||||||||||
| 2002 and $886,000 at December 31, 2002 | 3,027,720 | 4,614,548 | 3,807,817 | |||||||||
| Inventories | 7,461,092 | 12,060,807 | 9,788,948 | |||||||||
| Deferred tax asset | 809,998 | 769,598 | 897,451 | |||||||||
| Income taxes refundable | 272,730 | 932,952 | 2,301,639 | |||||||||
| Other current assets | 89,584 | 332,233 | 182,777 | |||||||||
| Total Current Assets | 15,945,610 | 22,989,521 | 21,404,303 | |||||||||
| PROPERTY, PLANT AND EQUIPMENT - net | 4,837,107 | 9,397,671 | 8,490,457 | |||||||||
| OTHER ASSETS: | ||||||||||||
| Prepaid pension costs | --- | 1,331,724 | --- | |||||||||
| Net assets available for sale | 508,031 | --- | 661,048 | |||||||||
| Deferred tax asset | 86,696 | --- | --- | |||||||||
| Total Other Assets | 594,727 | 1,331,724 | 661,048 | |||||||||
| TOTAL ASSETS | $ | 21,377,445 | $ | 33,718,916 | $ | 30,555,808 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Accounts payable | $ | 574,931 | $ | 604,395 | $ | 660,165 | ||||||
| Accrued commissions, salaries & withholdings | 542,811 | 577,887 | 436,889 | |||||||||
| Accrued vacation | 461,848 | 734,130 | 547,895 | |||||||||
| Accrued pension liability | 450,647 | --- | 450,647 | |||||||||
| Allowance for sales returns | 380,000 | 245,000 | 347,981 | |||||||||
| Restructuring reserve | --- | --- | 242,299 | |||||||||
| Accrued health, life & workers comp. insurance | 739,536 | 560,664 | 816,885 | |||||||||
| Accrued property taxes | 272,803 | 421,510 | 279,269 | |||||||||
| Other current liabilities | 227,391 | 105,112 | 328,183 | |||||||||
| Total Current Liabilities | 3,649,967 | 3,248,698 | 4,110,213 | |||||||||
| LONG-TERM LIABILITIES: | ||||||||||||
| Accrued pension liability | 1,426,622 | --- | 1,339,255 | |||||||||
| Deferred income taxes | 85,352 | 1,279,650 | 241,989 | |||||||||
| Other long-term liabilities | 38,580 | --- | 107,890 | |||||||||
| Total Long-Term Liabilities | 1,550,554 | 1,279,650 | 1,689,134 | |||||||||
| TOTAL LIABILITIES | 5,200,521 | 4,528,348 | 5,799,347 | |||||||||
| COMMITMENTS AND CONTINGENCIES | --- | --- | --- | |||||||||
| STOCKHOLDERS' EQUITY: | ||||||||||||
| Common stock - no par value, authorized 40,000,000 shares, issued | ||||||||||||
| and outstanding 5,177,400 (September 30, 2003), 5,464,111 | ||||||||||||
| (September 30, 2002), 5,301,611 (December 31, 2002) | 1,670,207 | 1,615,396 | 1,710,350 | |||||||||
| Deferred stock compensation | 24,164 | --- | --- | |||||||||
| Accumulated other comprehensive loss | (1,874,914 | ) | --- | (1,874,914 | ) | |||||||
| Retained earnings | 16,357,467 | 27,575,172 | 24,921,025 | |||||||||
| Total Stockholders' Equity | 16,176,924 | 29,190,568 | 24,756,461 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 21,377,445 | $ | 33,718,916 | $ | 30,555,808 | ||||||
| See notes to the consolidated financial statements | ||||||||||||
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THE KELLER MANUFACTURING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
| THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | |||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||
| NET SALES | $ | 5,014,462 | $ | 8,302,862 | $ | 17,697,230 | $ | 27,845,113 | ||||||
| COST OF SALES | 5,870,516 | 7,679,901 | 18,200,724 | 25,448,026 | ||||||||||
| GROSS PROFIT (LOSS) | (856,054 | ) | 622,961 | (503,494 | ) | 2,397,087 | ||||||||
| SELLING, GENERAL AND ADMINISTRATIVE | 1,762,538 | 1,896,322 | 4,301,482 | 5,760,295 | ||||||||||
| IMPAIRMENT OF FIXED ASSETS | 2,850,129 | --- | 2,850,129 | --- | ||||||||||
| OPERATING LOSS | (5,468,721 | ) | (1,273,361 | ) | (7,655,105 | ) | (3,363,208 | ) | ||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||
| Interest income | 17,469 | 12,826 | 39,470 | 36,451 | ||||||||||
| Interest expense | (27 | ) | --- | (5,377 | ) | (1,515 | ) | |||||||
| Loss on disposal of fixed assets | (391,684 | ) | --- | (420,833 | ) | --- | ||||||||
| Other expense | (85,668 | ) | 33,266 | (240,987 | ) | 100,220 | ||||||||
| Total Other Income (Expense), net | (459,910 | ) | 46,092 | (627,727 | ) | 135,156 | ||||||||
| LOSS BEFORE INCOME TAXES | (5,928,632 | ) | (1,227,269 | ) | (8,282,833 | ) | (3,228,052 | ) | ||||||
| INCOME TAX BENEFIT | --- | (372,024 | ) | (155,880 | ) | (1,229,811 | ) | |||||||
| NET LOSS | $ | (5,928,632 | ) | $ | (855,245 | ) | $ | (8,126,953 | ) | $ | (1,998,241 | ) | ||
| NET LOSS PER SHARE OF COMMON STOCK, | ||||||||||||||
| BASIC AND DILUTIVE - | ||||||||||||||
| Based on weighted average number of shares outstanding | ||||||||||||||
| of 5,177,400 and 5,376,611 for the three months ended | ||||||||||||||
| September 30, 2003 and 2002 respectively; and | ||||||||||||||
| 5,240,751 and 5,397,065 for the nine months ended | ||||||||||||||
| September 30, 2003 and 2002 respectively | $ | (1.15 | ) | $ | (0.16 | ) | $ | (1.55 | ) | $ | (0.37 | ) | ||
See notes to the consolidated financial statements
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THE KELLER MANUFACTURING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
| NINE MONTHS ENDED SEPTEMBER 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Loss | (8,126,953 | ) | $ | (1,998,241 | ) | ||||||
| Adjustments to reconcile net loss to net cash | |||||||||||
| provided by operating activities: | |||||||||||
| Depreciation | 838,800 | 996,300 | |||||||||
| Loss on fixed asset disposals | 420,833 | --- | |||||||||
| Loss from impairment of fixed assets | 2,850,129 | --- | |||||||||
| Write down of inventory | 336,150 | --- | |||||||||
| Bad debt expense | 257,433 | 90,000 | |||||||||
| Deferred income taxes | (155,880 | ) | (229,743 | ) | |||||||
| Compensation for stock options granted | 24,164 | --- | |||||||||
| Changes in Assets and Liabilities | |||||||||||
| Accounts receivable | 522,664 | 773,266 | |||||||||
| Inventory | 1,991,706 | 1,765,342 | |||||||||
| Income taxes refundable / payable | 2,028,909 | 643,344 | |||||||||
| Other current assets | 93,193 | (174,217 | ) | ||||||||
| Prepaid pension costs / accrued pension liability | 87,367 | 443,785 | |||||||||
| Accounts payable | (85,234 | ) | 79,476 | ||||||||
| Accrued commissions, salaries & withholdings & accrued vacation | 19,875 | 155,191 | |||||||||
| Allowance for sales returns | 32,019 | --- | |||||||||
| Restructuring reserve | (242,299 | ) | --- | ||||||||
| Accrued health, life & workers compensation insurance | (77,349 | ) | --- | ||||||||
| Accrued property taxes | (6,466 | ) | --- | ||||||||
| Other liabilities | (170,102 | ) | 92,847 | ||||||||
| Total Adjustments | 8,765,913 | 4,635,591 | |||||||||
| Net Cash Provided By Operating Activities | 638,959 | 2,637,350 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments available for sale | (2,020,975 | ) | --- | ||||||||
| Acquisitions of property, plant & equipment | (303,395 | ) | (343,221 | ) | |||||||
| Net Cash Used In Investing Activities | (2,324,370 | ) | (343,221 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Redemptions of common stock | (291,752 | ) | (132,958 | ) | |||||||
| Dividends paid | (184,997 | ) | (473,100 | ) | |||||||
| Net Cash Used In Financing Activities | (476,749 | ) | (606,058 | ) | |||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (2,162,160 | ) | 1,688,071 | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3,172,234 | 2,591,312 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,010,074 | $ | 4,279,383 | |||||||
| CASH (PAID) REFUNDED DURING THE YEAR FOR: | |||||||||||
| Interest | $ | (5,377 | ) | $ | (1,400 | ) | |||||
| Income tax refunds | $ | 2,028,909 | $ | 1,479,000 | |||||||
See notes to the consolidated financial statements
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THE KELLER MANUFACTURING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 2003 AND 2002
AND DECEMBER 31, 2002
The interim financial statements are unaudited and reflect all adjustments that, in the opinion of management, are necessary for a fair statement of results for the interim periods presented in conformity with accounting principles generally accepted in the United States of America. This report should be read in conjunction with the audited consolidated financial statements included in the Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2002. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year ending December 31, 2003 or any other interim period.
The following is a summary of the major classes of inventories:
| September 30, 2003 (Unaudited) |
September 30, 2002 (Unaudited) |
December 31, 2002 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Raw materials | $ | 1,943,585 | $ | 3,617,695 | $ | 3,122,773 | |||||
| Work-in-process | 2,665,857 | 5,433,259 | 3,653,633 | ||||||||
| Finished goods | 3,187,800 | 3,009,853 | 3,012,542 | ||||||||
| Less: Obsolescence reserve | (336,150 | ) | --- | --- | |||||||
| Net inventories | $ | 7,461,092 | $ | 12,060,807 | $ | 9,788,948 | |||||
See also footnote 6, Inventory Obsolescence Reserve.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The Company adopted this statement effective January 1, 2003. Management has concluded that the adoption of this statement did not have a material effect on the Company’s financial position or results of operations.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and concentrations in products, sources of supply and markets that could affect the consolidated financial statements and future operations of the Company.
– 6 –
The Company follows SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the consolidated financial statements or income tax return.
A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income in the future. Because of the continuous losses through the third quarter of 2003, the Company has provided a valuation allowance for operating loss carryforwards originating in the second and third quarters.
During the third quarter of 2003 an inventory obsolescence reserve of $.3 million was established for slow moving and obsolete inventories. This amount has been reflected on the balance sheet as a reduction to the inventory balance at September 30, 2003, and is included in cost of sales for the three and nine month periods ending September 30, 2003.
The Company performs reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Equipment and improvements with an original cost of $1.3 million were written off in the third quarter of 2003 as a result of the initial stages of shutting down production at the Company’s Corydon, Indiana production facility creating a loss of $.4 million. Also related to the Corydon plant closing, equipment and improvements with an original cost of $6.2 million were adjusted to their net realizable values creating an impairment loss of $2.9 million in the third quarter of 2003. Net realizable values were based on the estimated market values of the assets as of September 30, 2003.
In August 2003, the Board approved The Keller Manufacturing Company, Inc. 2003 Stock Option Plan and issuance of 560,000 options on common shares to certain executives at an exercise price less than market value with vesting periods over the next four years. The Company recorded approximately $24,000 of deferred stock compensation expense with a credit to shareholders’ equity during the third quarter. This amount represents the intrinsic value of stock options earned during the quarter. Future vesting is contingent upon continued employment by those executives.