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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-K/A
(Mark One)
__X__Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
for the fiscal year ended September 30, 1995
or
_____Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
for the transition period from_____to_____
Commission File No. 0-8836
NUCLEAR METALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2506761
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2229 MAIN STREET,
CONCORD, MASSACHUSETTS 01742
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 369-5410
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
6,000,000 SHARES OF COMMON STOCK ($.10 PAR VALUE)
(TITLE OF CLASS)
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 if the disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in a definitive
proxy or information statement incorporated in Part III of this Form 10-K
or any amendments to this Form 10-K. _____
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates was approximately $7,582,267 as of December 15, 1995.
As of December 15, 1995, there were issued and outstanding 2,387,964
shares of the Registrant's Common Stock, $.10 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1995 (Items 5,6,7,8 and 14)
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NUCLEAR METALS, INC.
Securities and Exchange Commission
ITEM NUMBERS AND DESCRIPTION PAGE
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PART I
ITEM 1. Business 2
ITEM 2. Properties 18
ITEM 3. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of Security Holders 20
PART II
ITEM 5. Market for the Registrant's Common Equity 21
and Related Stockholder Matters
ITEM 6. Selected Financial Data 22
ITEM 7. Management's Discussion and Analysis of Financial 22
Condition and Results of Operations
ITEM 8. Financial Statements and Supplementary Data 22
ITEM 9. Changes in and Disagreements with Accountants 22
on Accounting and Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Registrant 23
ITEM 11. Executive Compensation 25
ITEM 12. Security Ownership of Certain Beneficial Owners 31
and Management
ITEM 13. Certain Relationships and Related Transactions 33
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports 34
on Form 8-K
SIGNATURES 38
INDEX TO AUDITORS REPORT AND FINANCIAL STATEMENT SCHEDULES 40
Inasmuch as the calculation of shares of the registrant's voting stock
held by non-affiliates requires a calculation of the number of shares held
by affiliates, such figure, as shown on the cover page hereof, represents
the registrant's best good faith estimate for purposes of this annual
report on Form 10-K, and the registrant disclaims that such figure is
binding for any other purpose. The aggregate market value of Common Stock
indicated is based upon the $11.00 average of the bid and asked prices of
the Common Stock as reported by NASDAQ for trading on December 15, 1995.
All outstanding shares beneficially owned by executive officers and
directors of the registrant or by any shareholder beneficially owning more
than 5% of registrant's common stock, as disclosed herein, were considered
solely for purposes of this disclosure to be held by affiliates.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is engaged in manufacturing a wide variety of specialty
metal products using sophisticated metallurgical technology and metalworking
processes. The Company operates in three industry segments: (1) uranium
services and recycling of low-level contaminated steel; (2) fabrication of a
large assortment of specialty metal products using foundry, extrusion, and
machining capabilities; including the manufacture of high-purity, spherically
shaped metal powders; and (3) manufacture of depleted uranium penetrators.
The Company participates in the uranium services and recycling industry
segment through its wholly-owned subsidiary, Carolina Metals, Inc. (CMI)
located in Barnwell, South Carolina. The uranium services and recycling
segment of the Company's market segments include: (1) the manufacture of
uranium tetrafluoride (UF(4)) and depleted uranium metal through chemical
conversion processes; and (2) the recycling of various metals from
decommissioned nuclear sites. (SEE INDUSTRY SEGMENT INFORMATION).
In 1995, the Company redefined its business to combine the former Metal
Powders and Fabricated Specialty Metal Products into Specialty Products. In
1995 the Company also added the new and growing business segment Uranium
Services and Recycling. The manufacture of depleted uranium products
(non-penetrator) and the recycle of low-level radioactive metal, which were
previously included in other business segments, have been classified as part
of this segment. Uranium Services and Recycle also includes additional new
business described further in the segment descriptions.
As of September 30, 1995 the Company had 200 employees.
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INDUSTRY SEGMENT FINANCIAL INFORMATION
The following table sets forth certain information regarding the
revenue, operating profit and identifiable assets attributable to the three
industry segments in which the Company operates. The change in industry
segments from prior years have been restated.
YEAR ENDED
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RECLASSIFIED
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SEPT. 30, SEPT. 30, SEPT. 30,
1995 1994 1993
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(IN THOUSANDS)
Net Sales and Contract Revenues:
Uranium Services & Recycle $ 4,969 $ 4,752 $ --
Specialty Products 12,102 7,284 10,258
Depleted Uranium Penetrators 1,713 6,968 6,761
Operating Profit(Loss):
Uranium Services & Recycle $ (996) $(5,409) $ --
Specialty Products (341) (162) (2,816)
Depleted Uranium Penetrators (237) (5,033) (7,330)
Identifiable Assets:
Uranium Services & Recycle $16,609 $16,772 $18,090
Specialty Products 5,140 5,646 7,297
Depleted Uranium Penetrators 12,158 9,862 11,697
See Note 14 of Notes to Consolidated Financial Statements.
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The Company does not have any foreign operations. The Company does have
export sales to EECU which accounted for 33% of net sales for the fiscal year
ended September 30, 1995. In the prior two fiscal years, 1994 and 1993, the
export sales to Common Market countries were 37% and less than 10%,
respectively.
The following is a general description of the Company's three business
segments. The business segments have been restated to properly reflect the
Company's changing product mix. For additional information concerning
developments in these business segments during fiscal 1995, reference is made
to pages 4 through 11 of the Company's
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1995 Annual Report, which is incorporated herein by reference and is included
as Exhibit 13.
URANIUM SERVICES & RECYCLE
The Company's Uranium Services and Recycle segment includes the
manufacture of depleted uranium and of uranium tetrafluoride, the recycle of
various low-level radioactive metals, and the supply of depleted uranium
alloy material for use in United States Enrichment Company's (USEC) Atomic
Vapor Laser Isotope Separation (AVLIS) program.
The Company currently is manufacturing depleted uranium from Uranium
Tetraflouride (UF(4)). A large-scale production contract from a foreign
customer for depleted uranium metal, produced at the CMI facility, will be
completed in 1996.
The Company has successfully completed a program with Westinghouse
Savannah River Company to demonstrate the beneficial reuse of contaminated
stainless steel from the Department of Energy (DOE). The program demonstrated
the technical feasibility and economic soundness of recycling radioactively
contaminated steel into storage drums and boxes for containment of various
radioactive wastes at DOE sites. This pilot program is significant due to the
large number of facilities within the DOE that were engaged in production of
nuclear materials for our national defense that have substantial quantities
of contaminated stainless steel that would benefit from the beneficial reuse
program.
These DOE facilities contain millions of tons of carbon steel and
stainless steel in the form of structural components and various types of
processing equipment. During production of nuclear materials, the carbon and
stainless steels became radioactively contaminated. In order to manage
decommissioning activities in a cost-effective and environmentally sound
manner, the DOE's Savannah River Site has initiated a program to demonstrate
the recycling of low-level radioactively contaminated stainless steel scrap.
Through beneficial reuse of contaminated steel scrap, the DOE will be able to
reduce the volume of low-level radioactive waste in a cost effective manner.
In addition to the DOE facilities, it is estimated that an additional several
million tons of low-level contaminated steel will be generated as a result of
decommissioning the more than 100 currently operating commercial nuclear
power plants over the next 30 years. Services currently are being offered to
remelt slightly contaminated steel at the Company's CMI location.
The Company supplies Depleted Uranium (DU) alloy material to the USEC
for use as AVLIS feed material. AVLIS is expected to replace the current
Gaseous Diffusion process for separating the fissionable isotope, U(235),
from natural uranium within the next ten years. The Company also supplies
conversion services to the USEC for converting Depleted Uranium Hexaflouride
(UF(6)) to Uranium Tetraflouride (UF(4)). This
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work is performed at the Company's CMI facility. The Company believes that
USEC has a need for conversion of approximately 15-20 million pounds annually.
Radioactively contaminated steel remelt services are offered at only
two other facilities in the United States. The Company continues to be the
primary supplier of AVLIS feed material, however, other companies are
attempting to compete for future business. The Company's South Carolina
facility is the Country's only active facility for converting UF(6) to UF(4).
SPECIALTY METAL PRODUCTS
The Company has several specialty metal products, including:
beryllium products; specialty, medical, and aerospace powders; and a
variety of advanced metal products and services for aerospace, energy, and
commercial applications.
The Company has completed major development activities to fully utilize
its patented Beralcast-Registered Trademark- investment cast beryllium
aluminum alloy for production applications. Beralcast-Registered Trademark-,
a registered trademark, is a new engineering material used in electronic and
secondary structural applications for advanced missiles, helicopters, and a
variety of other aerospace and avionics applications. Cost and weight
pressures on today's design engineers demand a transition to lightweight,
strong, and high stiffness materials such as NMI's patented
Beralcast-Registered Trademark-. The alloy offers 3 1/2 times the stiffness
of aluminum with 22% less weight and is investment castable to net and near
net shape. Lockheed Martin Corporation continues to view NMI's
Beralcast-Registered Trademark- hardware for the Electro Optic Sensor System
(EOSS) as the highest priority for provision of Comanche program funding.
High performance applications for Beralcast-Registered Trademark- where
cost premiums are permissible include: Comanche (Advanced Attack
Helicopter), F-22 (Advanced Tactical Fighter), PAC-3 (the updated Patriot
missile), the French Rafael (Advanced Fighter Aircraft), and many others.
Design engineers at these and other aerospace, computer, and electronic
firms, are designing this new engineering material into their systems.
Commercial uses for Beralcast -Registered Trademark- will be introduced as
production costs, which include the current high cost of beryllium input
metal, are reduced. The Company also continues to produce seamless beryllium
tubes for satellite applications. Introduction of extruded
Beralcast-Registered Trademark- tubing for satellites is a unique opportunity
to supplant expensive graphite composites. The Company's extrusion technology
has been successfully demonstrated in the recent manufacture of tubing struts
for the Comanche EOSS.
Highly reliable Bi-metallic tubes, manufactured by a proprietary NMI
process, are used by aerospace and nuclear companies to join dissimilar
metals. Extruded tubes, bars, castings, and shapes of a variety of metals and
alloys are used as finished products or for further processing in a variety
of industrial applications.
The Company uses its large capacity for fabrication of depleted uranium
components to produce shielding for cancer therapy units, Industrial
Radiography, and Commercial/Government Nuclear applications. The Company also
recycles DU armor scrap for remelt into rolling slabs for the Amy's M1A2 Main
Battle Tank Program.
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The Company manufactures metal powders by proprietary processes called
the Rotating Electrode Process-TM- (REP) and the Plasma Rotating Electrode
Process-TM- (PREP), which produce spherical metal particles within a
relatively controllable size range.
Management believes that the spherical metal particles produced by this
manufacturing process offer significant advantages for certain product
applications compared with metal powders produced by other processes. In
particular, the process produces inherently "cleaner" powders, more uniformly
spherical particles and a higher percentage of particles within the desired
size range from a given amount of raw material.
The Company holds three U.S. patents relating to developments in REP
production equipment, which provide patent rights through the year 2001.
These patents also are filed and effective in the principal industrialized
European countries, Canada, Israel and Japan. Management believes that,
although the original patent on the REP machine expired in July 1980, the
development patents continue to benefit the Company's competitive position in
the Metal Powders market. It is also the opinion of management that the
technical expertise which has evolved from the development and manufacture of
metal powders is of equal importance in maintaining the Company's competitive
position.
The metal powders produced by the Company include steel, titanium alloy
and several nickel and cobalt-base alloys generally known in the industry as
specialty powders.
Management believes that the markets for titanium alloy and specialty
powders represent significant business opportunities for the Company's powder
making capability, especially under the Government's Technology Reinvestment
Program. This program is designed to assist defense contractors with
transitioning their products for commercial use by funding fifty percent (50%)
of the cost of transition.
The principal markets for the Company's metal powders are medical
applications (titanium and cobalt-based alloy powders), which use the powder
as a porous coating on medical prostheses, and original equipment
manufacturers (steel, titanium alloy and specialty powders), which fabricate
metal parts from the powder through various processes. In addition, the
Company continues to produce steel powders for the photocopy industry, and as
a carrier for toner in copy machines and high-performance laser printers.
Key competitive factors in the metal powders market are price and the
ability to meet exact dimensional, metallurgical and other specifications.
The steel powder marketed by the Company for photocopy applications competes
with powders produced by larger manufacturers. The Company believes that the
quality of its
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powder in the photocopy processes in which it is used helps to offset any
price advantage that may exist for powders from other producers.
The principal raw material for the Company's steel powder is
cold-rolled steel bars, which are readily available. Other metal powders are
manufactured to customer specifications, and the metals for these powders are
generally available for purchase in job lots from specialty metal suppliers.
DEPLETED URANIUM PENETRATORS
The Company believes it is a technological leader in the manufacture of
depleted uranium (DU) penetrators. DU is a dense, heavy metal that is 68%
heavier than lead for a given volume. Because of its density and workability
DU is an effective low-cost material for anti-armor ammunition and is used in
numerous United States Government and foreign government weapons systems. DU
is a low-level radioactive material that is a by-product of the production of
enriched uranium for nuclear fuel and weapons.
The Company is one of two domestic manufacturers. Competition to
supply penetrators is price sensitive. The principal DU products manufactured
by the Company, referred to as penetrators, have application in various
military gun systems. The Company generally sells penetrators directly to
prime ammunition contractors. The U.S. Government has funded and owns a
portion of the manufacturing machinery and equipment used by the Company for
producing penetrators.
In fiscal 1995, the Company was awarded an M829A2 penetrator production
contract with options extending production to the year 1999. This contract is
subject to appropriations by the Government. Management strongly believes the
Government will exercise all options on the contract. The Company will
continue to pursue both domestic and foreign military depleted uranium
penetrator production requirements.
The Company believes that foreign military sales of the U.S. ABRAMS
tank could result in additional foreign military requirements for DU
penetrators in future fiscal years. Additionally, the Company expects
continuing orders for DU products from a foreign customer to support its
foreign based manufacture of tank ammunition containing DU penetrators.
SIGNIFICANT CUSTOMERS
Cogema, of France, is a significant customer of the Company's Uranium
Services & Recycle segment. In fiscal 1995, sales to Cogema accounted for 19%
of net sales. The Company currently is under contract to provide Cogema with
depleted uranium through December, 1996. The loss of Cogema as a customer
would have a material adverse effect of the Company's Uranium Services &
Recycle segment.
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Lockheed Martin Corporation (LMC) is a significant customer of the
Company's Specialty Products segment. In fiscal 1995, sales to LMC accounted
for 18% of sales. The Company is currently under several contracts with LMC
to provide Beralcast-Registered Trademark- hardware for the Comanche
Helicopter Program. The loss of LMC as a customer would have a material
adverse effect on the Company.
Olin Corporation is a significant customer of the Company's Depleted
Uranium Penetrator segment. In fiscal 1995, sales to Olin accounted for 8% of
net sales. The Company currently is under contract to provide Olin with 120MM
penetrators for the U.S. Army's ABRAMS Tank program with options extending
another four years. If Olin were lost as a customer, this would have a
material adverse effect on the Company.
Lockheed Idaho Technology Company (LITCO) is another significant
customer of the Company's Specialty Metals Products segment. In fiscal 1995,
sales to LITCO accounted for 9% of net sales (See Note 2 of Notes to
Consolidated Financial Statements). The Company currently is under contract
with Lockheed Idaho Technology Company to produce, from furnished DU recycle
metal, DU castings for the U.S. Army's heavy armor tank program. This
contract continues to have options for several additional years. The loss of
LITCO as a customer would have a material adverse effect on the Company.
MARKETING
The Company relies on a variety of marketing strategies including
advertising and direct sales. Technical papers given at industry symposia are
also used as a marketing vehicle for the Company's advanced metal products
and services. Strategic Partnerships are being developed with several key
customers to strengthen the Company's customer and product base into the
future. These Partnerships provide sharing in research and development costs
and marketing efforts.
Understanding the importance of Design-To-Cost principles, especially
those of LMC, is tantamount to Strategic Teaming with our
Beralcast-Registered Trademark- customers. Concentrated efforts on cost
reduction in the form of Concurrent Engineering, low cost Beryllium input
metal production, and many others, add value for future sales volumes. NMI
has introduced Nucast, our Beralcast-Registered Trademark- teammate, to these
cost reduction ideas which will form the basis for improved costs
competitiveness in the future. Direct marketing efforts are increasing.
Commitments by the Company to expanding the product and customer base
for our metal powders will pay both near and longer term dividends. Market
demands for clean metal powders, for re-consolidation or incorporation into
metal matrix composites, are on the rise and we are positioning ourselves to
exploit these opportunities. Novel product requirements for our advanced
metal products and
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services will continue to receive the utmost attention for expansion of our
product base. Efforts to enhance the Company's reputation as a supplier with
high value products are being strengthened through improved service, added
advertising and increased presence in the marketplace.
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BACKLOG
The following table sets forth certain information with respect to the
backlog of the Company's business segments at September 30, 1995 and
September 30, 1994 including the portions thereof represented by orders from
the Company's principal customers, COGEMA, Lockheed Martin, Lockheed Idaho
and Olin Corporation. The backlog for the Company is affected by the timing
of orders from these customers. The Company believes all orders in backlog
are firm. The Company expects to fill orders for approximately $19,193,000 in
fiscal year 1996.
1995 1994
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(In Thousands)
Uranium Services & Recycle
COGEMA $ 4,262 $ 7,097
Other 84 876
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Total 4,346 7,973
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Specialty Metal Product
Lockheed Martin $ 5,951 $ 941
Lockheed Idaho 1,053 632
Other 5,052 2,696
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Total 12,056 5,017
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Depleted Uranium Penetrators
Olin Corp. 14,299 1,282
Other 8 240
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Total 14,307 1,522
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Company Total $30,709 $14,512
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A significant portion of the Company's business is dependent on the
award of contracts or subcontracts for the supply of products and materials
to governmental departments and agencies. Payments to the Company of all or a
portion of the amounts called for under such contracts or subcontracts, is
often subject to legislative funding appropriations, government agency
purchasing requirements and other conditions and factors beyond the Company's
control. Accordingly, the Company's performance under such contracts may be
delayed or may not commence at all, in which case the payments thereunder may
be recognized later than anticipated at the time of the contract award or not
at all in cases in which the Company is not called upon to perform. As a
result, the timing and amount of revenues under such government contracts is
uncertain and subject to change, which may result in fluctuations in the
Company's operating results and cash flows.
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RESEARCH AND DEVELOPMENT ACTIVITIES
The Company engages in research and development activities for
departments and agencies of the U.S. Government and commercial customers.
During the last two fiscal years, such work has been performed for the
development and characterization of beryllium-aluminum alloys for investment
casting and extrusion, investigation of methods for producing net shape
titanium components from metal powder, improving techniques for making finer
metal powders for use in metal matrix composites, recycling processes for
radioactively contaminated steel scrap and uranium production of AVLIS
feedstock. A portion of the research and product development effort is
performed through funded contracts. The Company also funds research and
development activities, and funds other work through cost partnership
arrangements collaborated with selected customers where there is potential
for utilizing proprietary technology or specialized resources not directly
available to the Company. Internal research and development funding has the
objective of improving manufacturing techniques and developing new products.
The cost for Company-sponsored research and development activities was
$439,000 in fiscal 1995, $575,000 in fiscal 1994 and $1,031,000 in fiscal
1993. Total revenues from customer-funded research and development were
$557,000 in fiscal 1995, $792,000 in fiscal 1994 and $503,000 in fiscal 1993.
These revenues are included in the revenues of the industry segment to which
the research and development relates.
ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS
IN GENERAL
Two of the materials regularly processed by the Company, depleted
uranium and beryllium, have characteristics considered to be health or safety
hazards by various federal, state or local regulatory agencies. Processing of
these materials requires a high level of safety consciousness, personnel
monitoring devices and special equipment. Depleted uranium is a low-level
radioactive material, and the Company is subject to regulation by the United
States Nuclear Regulatory Commission (NRC). Depleted uranium in the finely
divided state, such as grinding dust or machine turnings, is combustible at
room temperature and requires special handling for safe operations and
disposal of process wastes. Beryllium is known to cause lung disease
following significant exposure by inhalation of airborne particles.
Processing this material requires use of extensive ventilation and dust
collecting systems. Management believes that the experience gained in its
many years of working with these metals has resulted in capabilities for
dealing effectively with their special characteristics.
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The presence and use in the Company's operations of materials with
hazardous characteristics subjects the Company to regulation and scrutiny by
various governmental agencies. Management believes that the Company is
presently in compliance in all material respects with existing federal, state
and local regulations and has no knowledge of any threatened actions against
the Company for violations of any such laws, statutes or regulations, except
as described below under "Concord Site Remediation" and in Item 3 below.
However, the potential effects of evolving legislation and regulations
affecting the Company's business cannot be predicted.
In the process of manufacturing depleted uranium products, the Company
generates small amounts of low-level radioactive waste materials that must be
disposed of at sites licensed by federal, state, and local governments. With
the closing of the Barnwell, South Carolina, low-level radioactive waste
repository to out-of-region generators in July 1994, the Company began
storing waste on site in Concord. Interim storage is permitted under the
Company's NRC license. At present, the Barnwell repository remains available
for use by the Company's Carolina Metals, Inc. facility. The Company has made
provision to accommodate an extended period of interim storage of waste
within existing buildings in Concord as the state government works toward a
regional solution. At the same time, the Company has made significant
progress in developing and instituting alternatives to disposal of its waste.
The Company intends to continue the development of technologies and processes
aimed at eliminating the generation of waste materials associated with its
manufacturing process.
For a number of years, ending in 1985, the Company deposited spent acid and
associated depleted uranium waste and other residual materials by
neutralizing with lime and discharging the neutralized mixture to a holding
basin on its premises in Concord, Massachusetts. In 1986 the holding basin
was covered with Hypalon, an impervious material used to prevent rain and
surface run-off water from leaching through the holding basin. The Company
now uses a proprietary "closed loop" process that it developed to discontinue
such discharges. The Company believes that both practices were and are in
compliance with all applicable regulations.
CONCORD SITE REMEDIATION
The Commonwealth of Massachusetts, Department of Environmental
Protection ("DEP"), has designated the Concord site including the holding
basin as a "priority" remediation site. The DEP, in conjunction with the
Company and its consultants, are developing a comprehensive evaluation and
risk assessment. This risk assessment originally scheduled for completion
during calendar year 1995 has been delayed. Additional information needed for
the risk assessment has been collected and is currently being evaluated with
the current expectation that completion of the risk evaluation will occur in
1996. The Company continues to believe that the results of
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these studies will establish that the holding basin does not present an
environmental risk consistent with its designation as a "priority site".
The vast majority (approximately 96%) of the material in the holding
basin is the by-product of manufacturing processes conducted by the Company
under Government contracts using Government furnished material. Management
believes, based on advice from legal counsel and discussions with the Army,
that this material continues to be Government owned and that the Government
has a responsibility for any required remediation of the site. The Company
has no written commitment from the Government to fund any remediation costs,
however, existing contracts provide the basis for Government responsibility
for these costs. In September 1995, the Company submitted a request for
funding for the full remediation of the basin under Public Law 85-804. The
Army currently is reviewing the submittal and is expected to provide their
recommendations to the Company early in 1996. The Army has not denied the
Government's responsibility to pay the costs of removal of the material from
the holding basin. Management of the Company considers it unlikely that the
Army will not pay the appropriate costs for remediation. Also, the Government
has demonstrated a general practice of paying its portion of site remediation
costs by the funding of other remediation projects.
In fiscal 1992 the Company established a $1.3 million reserve against
any potential administrative, legal, research or other costs of remediating
the holding basin that are not paid by the Government. In fiscal 1994 this
reserve was increased by $1.5 million. The Company believes this amount to be
adequate for any residual costs that may be incurred beyond the Government's
portion of the holding basin.
The Company has developed a range of cost estimates based on differing
assumptions as to how much gravel should be removed and that all material
will be buried at licensed sites. Significant costs include excavation,
transportation and burial of the holding basin material as well as back fill
and grading at the Concord site. Under these assumptions, the estimated costs
of the burial option range from $4 million to $9 million on a pretax basis.
In developing these estimates, the uncertainty as to future burial rates that
will be charged at the licensed sites is the predominant reason for the wide
range of potential costs. These burial costs are affected by, among other
things, the various regulatory agencies, the regulations imposed by these
agencies and the volume of waste disposed at individual licensed sites.
In developing these estimates, the Company has not assumed any offset
based on Government funding or insurance claims. Further, the Company assumes
that the recommendations of the Company's outside experts as to how much
gravel should be removed will be accepted by the regulatory authorities and
that none of the material in the holding basin will be recycled.
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The Company believes its portion of the cost of such remediation will
not have a material impact on its results of operations or financial position.
DECOMMISSIONING PLANNING REQUIREMENTS
The Company is in the process of renewing certain licenses issued by
the NRC which are required by the Company in order to possess and process
depleted uranium materials. Under applicable licensing regulations, the
Company was required to submit and did submit a Decommissioning Funding Plan
(DFP) to provide for the possible future decommissioning of its Concord
facility. The Company is also required to provide financial assurance for
such decommissioning.
Approximately 96% of the depleted uranium materials which generated the
DFP requirements were processed for the United States Government.
Accordingly, the Company believes that its financial assurance is only for
the balance of the cost. The estimated cost of decommissioning NMI facilities
and the holding basin in 1995 was $13.7 million. On the basis of this
estimate the Company's share, approximately 4%, would be $550,000. The
Company has provided and maintains financial assurance in the form of a
letter of credit from its commercial bank in the amount of $750,000. With
declining depleted uranium penetrator production, the Company has removed
significant volumes of contaminated equipment from service in 1995. As
allowed under the NRCOs rules governing decommissioning cost estimating, the
Company is currently preparing a new estimate of the cost associated with
decommissioning its remaining facilities. Management believes that estimated
decommissioning costs will decline as the Company removes no longer needed or
obsolete equipment from its facilities. Company representatives met several
times with NRC staff members during the year to discuss meetings with the
Army and consultants on specific decommissioning issues.
The outcome of a December, 1994 NRC enforcement conference with respect
to what the NRC described as the Company's apparent lack of compliance with
the decommissioning financial assurance regulations has resulted in the
Company submitting a request to the NRC for exemption to certain aspects of
the decontamination and disposal (D&D) regulations. The exemption request
includes alternate financial funding mechanisms not specifically called out
in the regulations. These funding mechanisms when coupled with Government
contractual obligations will collectively satisfy the decommissioning funding
obligations of the Company. In filing the exemption, the Company reiterated
its long standing position that the United States Government is obligated, by
policy and by contract, to bear the balance of decommissioning costs at the
Concord site. As a practical matter, the Company is not able to provide
private financial assurance for the Government's costs of decommissioning.
The Company expects NRCOs response to the exemption request early in 1996.
14
<PAGE>
Management believes that based on progress made to date on the holding
basin remediation (as described above) along with the submission of a request
for partial exemption to the D&D rules, escalated enforcement action by NRC
regarding decommissioning funding compliance, although possible, will not
occur. Escalated enforcement action could take the form of a civil penalty,
license suspension or license revocation. A license action, such as a
suspension or revocation would have a material and adverse impact on results
of operations and financial position.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
NAME AGE POSITION WITH THE COMPANY
George J. Matthews 65 Chairman of the Board of Directors,
CEO and Treasurer
Robert E. Quinn 42 President
Wilson B. Tuffin 64 Vice Chairman of the Board of Directors
Douglas F. Grotheer 37 Vice President, Engineering & Programs
William T. Nachtrab 42 Vice President, Technology
James M. Spiezio 47 Vice President, Finance & Administration
Frank J. Vumbaco 42 Vice President, Health/Safety
Bruce E. Zukauskas 45 Vice President, Operations
The term of office for each executive officer of the Company is one
year or until a successor is chosen and qualified. The Executive officers are
elected by the directors at their first meeting following the annual meeting
of stockholders. There are no family relationships among the directors and
executive officers.
GEORGE J. MATTHEWS has been Chairman of the Board of Directors since 1972. He
is employed by Matthews Associates Limited, a Massachusetts corporation.
Matthews Associates Limited is engaged in the business of investing in and
providing management consultation and assistance to small and medium sized
businesses. Mr. Matthews devotes approximately 75% of his time to the
Company's affairs. Mr. Matthews was elected CEO and Treasurer on November 30,
1994.
ROBERT E. QUINN was elected President of the Company on November 30, 1994.
Prior to November 30, 1994 he held the position of Vice President, Sales with
the Company for over five years.
WILSON B. TUFFIN has been Vice Chairman of the Board of Directors since
November 1994. From 1972 to November 1994, he held the positions of
President, Chief Executive Officer and Treasurer of the Company.
DOUGLAS F. GROTHEER has held the position of Vice President, Engineering and
Programs since July 1994. Prior to July 1994, he was Manager, Engineering and
Programs for two years, and Manager, Ordnance Programs for more than three
years.
WILLIAM T. NACHTRAB, Ph.D. has held the position of Vice President,
Technology with the Company since May 1993. Prior to May 1993 he was Manager,
Research & Development for the prior five years.
JAMES M. SPIEZIO has been the Vice President, Finance since October 1993.
Prior to October 1993, he was Controller, and prior to April 1989, he served as
Manager of Business Planning.
FRANK J. VUMBACO has held the position of Vice President, Health/Safety with
the Company since November 1993. Prior to November 1993, he was Manager of
Health/Safety for over five years.
16
<PAGE>
BRUCE E. ZUKAUSKAS has held the position of Vice President, Operations since
October 1994. Prior to October 1994, he was Quality Manager for over five
years.
17
<PAGE>
ITEM 2. PROPERTIES
The majority of the Company's activities are conducted at a Company-
owned site in Concord, Massachusetts. The site comprises approximately 46.4
acres and is improved by a steel and masonry building originally constructed
in 1958 and subsequently enlarged. The building contains approximately
180,000 square feet used for manufacturing activities, offices and
warehousing.
During fiscal 1995 the Company sold its 15,000 square feet office building
located in Acton, Massachusetts.
Carolina Metals, Inc., the Company's wholly-owned subsidiary, is
located on 321 acres of land in Barnwell, South Carolina. This 109,000 square
foot facility houses two manufacturing units. One unit provides the
capability of converting chemical gas (UF(6)) to chemical salt (UF(4)). The
second unit houses a reduction process to convert chemical salt (UF(4)) to
metallic depleted uranium. In December 1991, the Company completed a 70,000
square foot DU Recycle Technology Center adjacent to the manufacturing
facility in Barnwell, S.C. The Center provides the technology and facilities
required to provide recovery and recycle of depleted uranium and other useful
materials. In addition, Carolina Metals, Inc. maintains a full scale
analytical laboratory.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is named as a Potentially Responsible Party (PRP) in regard to
the Maxey Flats, Kentucky, Superfund Site. This site was used until 1977 as a
licensed and approved low-level radioactive waste disposal site. A committee
of PRP's including the Company has submitted a remedial investigation and
feasibility study report to the Environmental Protection Agency. The current
expectation is that all parties will agree to site remediation with the
formal entering of the consent agreement by the Department of Justice early
in calendar year 1996. The agreement signed by the settling parties in July
1995, outlines the responsibilities of all parties and states that the PRP's
will undertake the initial remedial phase (IRP) of the site remediation at an
estimated cost of $60 million. The Company's liability is not expected to
exceed approximately $80,000 over 10 years. The cost to the Company in fiscal
1995 was $8,455.
The Company is in the process of renewing certain licenses issued by the
United States Regulatory Commission (NRC) which are required by the Company
in order to possess and process depleted uranium materials. Under applicable
licensing regulations, the Company was required to submit and did submit, on
July 1, 1993, a Decommissioning Funding Plan (DFP) to provide for the
possible future decommissioning of its Concord facility. The Company believes
that decommissioning would occur only in the future if the Company were to
cease functioning in the capacity of handling radioactive materials. The
Company has no short or long term plans or intention to cease this activity.
The Company is required to provide financial assurance for such potential
decommissioning costs and the Company believes it has satisfied this
requirement. Approximately 96% of the depleted uranium materials which
generated the DFP requirements were processed for the United States
Government, and a similar percentage of material which remains at the
facility is the property of the United States Government. Accordingly, the
Company believes that its decommissioning obligation and, therefore, its
obligation to provide financial assurance, is, only for the balance of the
costs. The total estimated cost of decommissioning the NMI facility is $13.7
million. The Company's share, approximately 4%, would be $550,000. The
Company has provided financial assurance in the form of a letter of credit in
the amount of $750,000.
In August 1995, the Company submitted a request to the NRC for partial
exemption to the decommissioning regulation. The NRC has not responded to
to the Company. A violation of the applicable regulations which the Company
believes is unlikely, could result in the revocation of the NRC licenses,
which would have a material and adverse affect on the Company's operations.
The Company responded to the NRC's Demand for Information, renewing
19
<PAGE>
its position that its total obligation with respect to the decommissioning is
not in excess of 4% of the total cost. In support of its position, the
Company indicated that the Government has demonstrated a practice of funding
actual remediation of sites contaminated with Government furnished materials
on a case-by-case basis, without prior written commitments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
20
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the
Section entitled "Common Stock Information" in the Registrant's 1995 Annual
Report to Stockholders, which is included in this Report as Exhibit 13.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the section entitled "Selected Financial Data", pages 12 and 13, in the
Registrant's 1995 Annual Report to Stockholders, which is included in this
Report as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The information required by this item is incorporated by reference to
the section entitled "Management's Discussion and Analysis of Operations",
pages 14 - 16, in the Registrant's 1995 Annual Report to Stockholders, which
is included in this Report as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
the Consolidated Financial Statements at September 30, 1995 and notes thereto
in the Registrant's 1995 Annual Report to Stockholders, which is included in
this Report as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to
Item 401(b), the information required by this item concerning executive
officers is set forth in Part I, Item 1 under the heading "Executive Officers
of the Registrant".
The following table sets forth certain information concerning the directors
of the Company:
<TABLE>
<CAPTION>
Present Principal Employment
Name Age and Prior Business Experience Director Since
- ---- --- ----------------------------- --------------
<S> <C> <C> <C>
George J. Matthews 65 Chairman of the Board of Directors 1972
since 1972. Until July 1978 and since
December 1, 1994, also Treasurer of
the Company. Chairman of Matthews
Associates Limited, which is engaged
in the business of investing in and
providing management consulting and
assistance to small and medium sized
businesses, including the Company.
Robert E. Quinn 42 President of the Company since 1994
December 1, 1994. Prior to
becoming President, served as Vice
President, Sales for over five years.
Elected as a Director on
November 17, 1994 to fill a vacancy
created by the enlargement of the Board
of Directors by vote of the Directors.
Wilson B. Tuffin 64 Vice Chairman since November 1994. 1972
From 1972 to November 30, 1994, President,
Chief Executive Officer and Treasurer
of the Company.
Kenneth A. Smith 59 Professor of Chemical Engineering at 1985
Massachusetts Institute of Technology
since 1971.
Frank H. Brenton 70 Principal of Frank H. Brenton Associates 1986
a business consulting firm. From
1984 to 1986, Chairman of the Board of
Directors of Marshall's Incorporated,
an off-price retailer and division of Melville, Inc.
</TABLE>
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met six times during the fiscal year ended
September 30, 1995. There was no director who during the fiscal year attended
fewer than 75 percent of the aggregate of all board meetings and all meetings of
committees on which he served.
The Board of Directors has a three-member Audit Committee which is
reconstituted at the first meeting of the Board following the annual meeting
of stockholders. The Audit Committee, which met two times during fiscal
1995, meets with the Company's independent auditors and principal financial
personnel to review the scope and results of the annual audit and the
Company's financial reports. The Audit Committee also reviews the scope of
audit and non-audit services performed by the independent public accounts,
reviews the independence of the independent public accountants, and reviews
the adequacy and effectiveness of internal accounting controls. The present
members of the Audit Committee
23
<PAGE>
are Messrs. Brenton and Smith.
The "disinterested" directors, for purposes for Rule 16b-3 under the
Securities Exchange Act of 1934, Messrs. Brenton and Smith, acting as a Stock
Option Committee, have the authority, subject to the express provisions of the
Company's Employees' Stock Option Plan and Non-Qualified Stock Option Plan (the
"Plans"): to determine the employees of the Company to receive options, the
number of shares to be optioned, and the terms of the options granted; to
construe and interpret the Plans and outstanding options; and to make all other
determinations that they deem necessary and advisable for administering the
Plans. The Board of Directors as a whole has corresponding authority with
respect to options issued under the Directors' Stock Option Plan.
The Board of Directors does not have standing committees on compensation or
nominations.
DIRECTORS' COMPENSATION AND STOCK OPTION PLAN
Each outside director of the Company receives an annual fee of $15,000.
On November 20, 1995, the Board of Directors adopted a Director's Stock
Option Plan (the "Plan") in order to enhance the Company's ability to attract
and retain skilled and competent members of its Board of Directors. Only
outside (non-management) directors of the Company and its subsidiaries are
eligible to receive options under the Plan, and the maximum number of shares as
to which such directors' options may be granted is 35,000 shares (subject to
adjustments for stock splits, stock dividends and the like). Pursuant to the
Plan, each director eligible to participate in the Plan, upon first election to
office at the annual meeting of stockholders and for each subsequent period of
three years of service, receives an option to purchase 1,000 shares of Common
Stock of the Company at an exercise price equal to fair market value on the date
of grant. Options granted under the Plan are exercisable for a period of ten
years and vest over a three-year period. Options to purchase 4,000 shares
of Common Stock at an exercise price of $14.00 were granted to each of
Messrs. Brenton, Smith and Vokey on December 15, 1994 under the Directors
Stock Option Plan which preceded the Plan. No options were granted pursuant
to the Plan during fiscal 1995.
During fiscal year 1995, Matthews Associates Limited, of which Mr. Matthews
is sole owner, received compensation from the Company in connection with
consulting services provided to the Company pursuant to a management agreement
between the Company and Matthews Associates Limited. See "Executive
Compensation" and "Executive Agreements."
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table and notes present the compensation provided by the
Company during the last three fiscal years to its chief executive officer and
the four most highly compensated executive officers of the Company (other than
the chief executive officer) who were serving as executive officers at the
Company's fiscal year end of September 30, 1995.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
--------------------------------- ----------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Compen- Award(s) Options/ Payouts Compen-
Principal Position Year(1) Salary ($) Bonus ($) sation($)(2) $ SARs (#) $ sation($)
------------------ ------- ---------- --------- ------------ ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Quinn 1995 151,673 200 35,000 -- 30,000 -- --
President 1994 131,000 -- -- -- -- -- --
1993 131,000 -- -- -- -- -- --
George J. Matthews(3) 1995 350,000 -- -- -- -- -- --
Chairman of Board of Directors, 1994 350,000 -- -- -- -- -- --
CEO and Treasurer 1993 350,000 -- -- -- -- -- --
Wilson B. Tuffin(4) 1995 172,039 3,800 -- -- -- -- --
Vice Chairman of Board of 1994 210,000 -- -- -- -- -- --
Directors and Consultant 1993 210,000 -- -- -- -- -- --
James M. Spiezio 1995 113,270 10,830 -- -- 6,000 -- --
Vice President, Finance & 1994 105,987 -- -- -- 2,500 -- --
Administration 1993 89,780 -- -- -- -- -- --
William T. Nachtrab 1995 108,703 10,830 -- -- 6,000 -- --
Vice President, Technology 1994 103,558 -- -- -- 2,500 -- --
1993 103,558 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company's fiscal year ends on September 30th of each year.
(2) Excludes perquisites in amounts less than the threshold level required
for reporting.
(3) Mr. Matthews is assigned as a consultant to the Company pursuant to a
management agreement between Matthews Associates Limited and the
Company. All compensation under the agreement is paid by the Company to
Matthews Associates Limited. See "Executive Agreements."
(4) Mr. Tuffin's compensation for the fiscal year ended September 30, 1995
was determined pursuant to his Employment and Consulting Agreement. See
"Executive Agreements."
25
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all options granted to each of the named
executive officers of the Company during the fiscal year ended September 30,
1995 and the potential value at stock price appreciation rates, 5% and 10%,
over the ten year term of the options. The 5% and 10% rates of appreciation
are not intended to forecast possible future actual appreciation, if any, in
the Company's stock prices. The Company did not use an alternative present
value formula because the Company is not aware of any such formula that can
determine with reasonable accuracy the present value based on future unknown
or volatile factors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM (5)
--------------------
INDIVIDUAL GRANTS
-----------------
% OF TOTAL
NUMBER OF OPTION/SARs
SECURITIES GRANTED
UNDERLYING TO EM- EXERCISE
OPTION/SARs PLOYEES OR BASE
GRANTED IN FISCAL PRICE EXP.
NAME (#) YEAR ($/Sh)(4) DATE 5%($) 10%($)
---- ----------- ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Quinn 10,000(1) 13.50 11/16/2004 84,900 215,155
20,000(2) 36% 12.25 08/01/2005 183,923 390,467
George J. Matthews 10,000(2) 12% 12.25 08/01/2005 77,040 195,233
Wilson B. Tuffin 5,000(2) 6% 12.25 08/01/2005 38,520 97,616
James M. Spiezio 1,000(3) 14.00 12/14/2004 9,805 22,313
5,000(2) 7% 12.25 08/01/2005 38,520 97,616
William T. Nachtrab 1,000(3) 14.00 12/14/2004 8,805 22,312
5,000(2) 7% 12.25 08/01/2005 38,520 97,616
- ----------
</TABLE>
(1) These options were first exercisable on November 16, 1995 at which time
the options were 33% vested with options vesting in additional 33%
increments in two annual installments commencing on November 16, 1996.
(2) These options are first exercisable on August 1, 1996 at which time the
options will be 33% vested with options vesting in additional 33%
increments in two annual installments commencing on August 1, 1997.
(3) These options were first exercisable on December 14, 1995 at which time
the options were 33% vested with options vesting in additional 33%
increments in two annual installments commencing on December 14, 1996.
(4) The exercise price per share is the market price of the underlying
Common Stock on the date of grant.
(5) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based upon assumed rates of share price appreciation set by
the Securities and Exchange Commission of five percent and ten percent
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, are dependent on the
performance of the Common Stock and the date on which the option is
exercised. There can be no assurance that the amounts reflected will be
achieved.
26
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise
of options by the executive officers named in the Summary Compensation Table
during the last fiscal year and unexercised options held as of the end of the
fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End(2)
---------------------- --------------------
Shares Acquired
Name on Exercise (#) Value Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------------- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Quinn 5,000 41,250 3,333 26,667 0 25,000
1,000 6,500
George J. Matthews 26,350 155,025 0 10,000 0 12,500
2,000 15,750
500 4,500
Wilson B. Tuffin 23,850 196,763 0 5,000 0 6,250
James M. Spiezio 1,000 6,250 2,000 6,500 11,452 11,973
William T. Nachtrab 1,000 6,250 2,000 6,500 11,452 11,993
</TABLE>
(1) Value realized equals fair market value on the date of exercise, less
the exercise price, times the number of shares acquired, without deducting
taxes or commissions paid by employee.
(2) Value of unexercised options equals fair market value of the shares
underlying in-the-money options at September 30, 1995 ($13.50 per
share), less the exercise price, times the number of options outstanding.
PENSION PLAN TABLE
The following table sets forth the aggregate annual benefit payable
upon retirement at normal retirement age for each level of remuneration
specified at the listed years of service.
<TABLE>
<CAPTION>
Years of Service
---------------------------------------
Remuneration 15 20 25 30 OR MORE
- ------------ -------- ------- ------- ----------
<S> <C> <C> <C> <C>
$100,000 23,520 31,360 39,220 47,040
150,000 38,520 51,360 64,200 77,040
200,000 53,520 71,360 89,200 107,040
300,000 83,520 111,360 139,200 167,040
400,000 113,520 151,360 189,200 227,040
500,000 143,520 191,360 239,200 287,040
</TABLE>
The Company has a defined benefit plan (the "Pension Plan") designed to
provide retirement benefits for employees and ancillary benefits to their
beneficiaries, joint annuitants and spouses. All employees of the Company
become participants in the Pension Plan after attaining the later of age 21 or a
year of service with the Company. The Pension Plan provides retirement benefits
based on years of service and compensation. An employee's benefits under the
Pension Plan generally become fully vested after five years of service. At
normal retirement (the later of age 65 and five years of Plan participation),
participants are entitled to a monthly benefit for the remainder of their life
in an amount equal to one-twelfth of the sum of their "Annual Credits" for their
last 30 years or lesser period of employment with the Company and its
predecessors. An employee's "Annual Credit" is 1.25% of the portion of his
annual compensation that is subject to Social Security tax and two percent (2%)
of the balance of his annual compensation. Participants with five
27
<PAGE>
years of service are entitled to retirement at age 55, but the monthly benefit
payable under the Pension Plan is reduced by 0.5% for each month that early
retirement precedes normal retirement but not to less than $100 per month if the
Participant has ten or more years of service. The surviving spouse of a retiree
under the Plan is entitled to receive benefits equal to one-half the amount the
retiree had been receiving. Alternative benefit payments that are equivalent to
the benefit described above are also available to participants. Benefits
payable under the plan are not reduced by Social Security payments to the
retiree. Amounts shown assume benefits commence at age 65. Benefit amounts
shown are straight-life annuities. The executive officers named in the Summary
Compensation Table have the following years of credited service for pension plan
purposes: Robert E. Quinn-20 years, Wilson B. Tuffin-22 years; James M.
Spiezio-10 years; and William Nachtrab-6 years. On February 1, 1995, Mr.
Tuffin began to receive benefit payments under the Plan. Mr. Matthews does
not participate in the Pension Plan.
EXECUTIVE AGREEMENTS
EMPLOYMENT AGREEMENT WITH MR. TUFFIN
In November 1994, the Company entered into an employment and consulting
agreement (the "Employment and Consulting Agreement") with Mr. Tuffin.
Pursuant to the Employment and Consulting Agreement, Mr. Tuffin received
initial compensation at the annual rate of $210,000 through January 1995, and
$105,000 as a consultant thereafter, subject to such annual increases as the
Board of Directors may from time to time determine. The Employment and
Consulting Agreement amends and supersedes the employment agreement which Mr.
Tuffin had previously entered into with the Company.
MANAGEMENT AGREEMENT WITH MATTHEWS ASSOCIATES LIMITED
The Company has entered into a management agreement with Matthews
Associates Limited, a Massachusetts corporation ("MAL"), of which Mr. George J.
Matthews, Director and Chairman of the Board of Directors of the Company, is
sole owner. The agreement expires on February 28, 1999, subject to renewal
thereafter from year to year. Pursuant to the agreement, Matthews Associates
Limited provides professional management services as a consultant to the Company
through a senior executive whose duties include (i) financial management, (ii)
serving, subject to election, as a director, as Chairman of the Board of
Directors and as an officer of the Company and (iii) marketing and other advice
to the Company including placement and modification of financing and contact
with major customers, suppliers and governmental agencies. Mr. Matthews is the
senior executive assigned to the Company under the agreement. Under the
management agreement, Mr. Matthews devotes approximately 30 hours per week to
the Company.
MAL was paid $350,000 by the Company in fiscal 1995 for services under the
management agreement and is to be paid a minimum of $350,000 in fiscal 1996 for
all services under the agreement. The management agreement provides that the
Company may terminate the agreement if a majority of the directors determines in
good faith that the MAL representative has willfully refused to perform any
services under the management agreement or has been convicted of a crime of
moral turpitude, and in such event or in the event of termination by MAL without
"good reason" as defined therein, the obligation of the Company to make future
payments to MAL shall cease. The management agreement may be terminated by MAL
for "good reason" as defined therein. In the event of termination by MAL for
"good reason" or in the event of termination by the Company for reasons other
than those described above, the Company is obligated to pay to MAL all of the
amounts due under the agreement for the remaining term. In the event of
termination by MAL without "good reason," the Company is obligated to continue
to make payment to MAL for one year from the date of such termination. In the
event of Mr. Matthews' death, the management agreement automatically terminates
and the Company is obligated to continue to make payments to the estate of Mr.
Matthews for the lesser of one year from such termination or the end of the
scheduled term of the agreement.
28
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1995, the Board of Directors of
the Company was responsible for establishing executive compensation (other than
stock option compensation). Messrs. Quinn and Matthews participated in the
deliberations of the Company's Board of Directors concerning executive officer
compensation. No executive officer of the Company served as a director or
member of a compensation committee, or its equivalent, of another entity, one of
whose executive officers served as director of the Company.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE
FILINGS, IN WHOLE OR IN PART, THE FOLLOWING REPORT ON COMPENSATION AND THE
STOCK PERFORMANCE GRAPH CONTAINED ELSEWHERE HEREIN SHALL NOT BE INCORPORATED
BY REFERENCE INTO ANY SUCH FILINGS NOR SHALL THEY BE DEEMED TO BE SOLICITING
MATERIAL OR DEEMED FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED.
REPORT OF THE BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
During the fiscal year ended September 30, 1995, the Board of Directors of
the Company was responsible for establishing and administering the policies
which govern annual compensation (other than stock option compensation) for the
Company's executive officers. The Stock Option Committee was responsible for
considering stock option compensation for the Company's executive officers.
OVERVIEW
The Board of Directors has historically established levels of executive
compensation that provide for a base salary intended to allow the Company to
hire, motivate and retain qualified executive officers. From time to time,
the Board has also, on occasion, approved annual cash incentive bonuses based
on the Company's performance or on the performance of the executive in
question. In fiscal 1995, the Board approved cash incentive bonuses to
certain executive officers based on their performance. From time to time, the
Stock Option Committee also grants stock options to executive officers and
key employees in order to bring the stockholders' interests more sharply into
the focus of such officers and employees.
The Board of Directors establishes the annual salary and bonus of each of
the executive officers other than the Chief Executive Officer, based on the
recommendations made by the Chief Executive Officer. In determining the
recommendations for salary and bonus for each of the other executive officers,
the Chief Executive Officer considers each officer's individual performance,
attainment of individual goals and the contribution to the overall attainment of
the Company's goals.
STOCK OPTIONS AND OTHER COMPENSATION
Long term incentive compensation for executive officers consists
exclusively of stock options granted under the Company's Stock Option Plans (the
"Plans"). Executive officers as well as other key employees of the Company
participate in the Plans. During fiscal 1995, the Stock Option Committee
granted options only to certain newly appointed executive officers and those
executive officers whose duties and responsibilities had increased since the
prior fiscal year as a result of promotions or departmental restructuring. The
Company also believes that its Pension Plan is an attractive feature for all
employees.
BASIS FOR THE COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Mr. Matthews, the Company's Chief Executive Officer
during fiscal 1995, was determined pursuant to a management agreement between
Matthews Associates Limited and the Company. All compensation under the
agreement is paid by the Company to Matthews Associates Limited.
THE BOARD OF DIRECTORS
George J. Matthews
Robert E. Quinn
Wilson B. Tuffin
Kenneth A. Smith
Frank H. Brenton
STOCK OPTION COMMITTEE
Kenneth A. Smith
Frank H. Brenton
29
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
Set forth below is a line graph comparing the five-year cumulative total
return of the Company's Common Stock against the cumulative total return of the
NASDAQ Stock Market (U.S.) Index and the Dow Jones Aerospace and Defense Index.
Cumulative total return is measured assuming an initial investment of $100 and
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
AMONG NUCLEAR METALS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE DOW JONES AEROSPACE & DEFENSE INDEX
D O L L A R S
Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95
"NUCLEAR METALS, INC" 100 90 85 93 296 171
NASDAQ STOCK MARKET-US 100 157 176 231 233 319
D J AEROSPACE & DEFENSE 100 134 124 170 200 321
* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of December 30, 1995
with respect to the Common Stock of the Company owned or deemed beneficially
owned as determined under the rules of the Securities and Exchange Commission,
directly or indirectly, by each stockholder known to the Company to own
beneficially more than 5% of the Company's Common Stock, by each director, by
the executive officers named in the Summary Compensation Table elsewhere
herein, and by all directors and executive officers of the Company and its
subsidiaries as a group. In accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of Common Stock of the Company if he
or she has or shares voting power or investment power with respect to such
security or has the right to acquire beneficial ownership at any time within 60
days of December 30, 1995. As used herein "voting power" is the power to vote
or direct the voting of shares, and "investment power" is the power to dispose
of or direct the disposition of shares. Except as indicated in the notes
following the table below, each person named has sole voting and investment
power with respect to the shares listed as being beneficially owned by such
person.
<TABLE>
<CAPTION>
No. Common
Shares and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner Ownership(1) Common Stock(1)
- ------------------- ------------ ---------------
<S> <C> <C>
WIAF Investors Co. 1,156,228(2) 48.4%
466 Arbuckle Avenue
Lawrence, NY 11516
and
Melvin B. Chrein, M.D.
Meryl J. Chrein
Marshall J. Chrein
Michael Chrein
21 Copper Beech Lane
Lawrence, NY 11559
Charles Alpert
Joseph Alpert
George J. Matthews 229,617(3) 9.6%
Chairman of the Board of Directors,
Director & Consultant
c/o Matthews Associates Limited
100 Corporate Place
Peabody, MA 01960
Wilson B. Tuffin 203,808 8.5%
Vice Chairman and Director
23 Arlington Street
Acton, MA 01720
Robert E. Quinn 14,406(4) *
President and Director
Kenneth A. Smith, Director 3,000 *
Frank H. Brenton, Director 3,000 *
James M. Spiezio 3,000(5) *
Vice President, Finance and Administration
William T. Nachtrab 3,000(6) *
Vice President, Technology
31
<PAGE>
All directors and executive officers 453,831 19.0%
as a group (7 persons)
___________________________
* Less than one percent
(1) Does not reflect the effect on voting rights of the Massachusetts Control
Share Acquisition Act.
(2) Derived from Schedules 13DA, dated October 3, 1994, submitted to the
Company. The five persons named are described as a group in such Schedules
13DA. The persons named reported ownership of the following shares: WIAF
Investors Co. (862,428); Melvin B. Chrein (88,400); Meryl J. Chrein
(128,100); Charles Alpert (25,000) and Marshall J. Chrein (18,200). Each
person reported sole voting and dispositive power with respect to the
shares owned by such person.
(3) Includes 25,445 shares owned by a trust established by his late wife of
which Mr. Matthews is a permitted beneficiary.
(4) Includes 3,333 shares which may be purchased upon the exercise of options.
(5) Includes 2,000 shares which may be purchased upon the exercise of options.
(6) Includes 2,000 shares which may be purchased upon the exercise of options.
(7) See notes (3), (4), (5) and (6) above.
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and stockholders who own more than 10% of the outstanding
common stock of the Company to file with the Securities and Exchange Commission
and NASDAQ reports of ownership and changes in ownership of voting securities of
the Company and to furnish copies of such reports to the Company. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company, during the fiscal year ended September 30, 1995 or
written representations in certain cases, all Section 16(a) filing requirements
were complied with except that two reports were not timely filed.
32
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1994, the Company entered into an employment and consulting
agreement (the "Employment and Consulting Agreement") with Mr. Wilson B.
Tuffin. Pursuant to the Employment and Consulting Agreement, Mr. Tuffin
received initial compensation at the annual rate of $210,000 through January
1995, and $105,000 as a consultant thereafter, subject to such annual
increases as the Board of Directors may from time to time determine. The
Employment and Consulting Agreement amends and supersedes the employment
agreement which Mr. Tuffin had previously entered into with the Company.
The Company has entered into a management agreement with Matthews
Associates Limited, a Massachusetts corporation ("MAL"), of which Mr. George
J. Matthews, Director and Chairman of the Board of Directors of the Company,
is sole owner. The agreement expires on February 28, 1999, subject to
renewal thereafter from year to year. Pursuant to the agreement, Matthews
Associates Limited provides professional management services as a consultant
to the Company through a senior executive whose duties include (i) financial
management, (ii) serving, subject to election, as a director, as Chairman of
the Board of Directors and as an officer of the Company and (iii) marketing
and other advice to the Company including placement and modification of
financing and contact with major customers, suppliers and governmental
agencies. Mr. Matthews is the senior executive assigned to the Company under
the agreement. Under the management agreement, Mr. Matthews devotes
approximately 30 hours per week to the Company.
MAL was paid $350,000 by the Company in fiscal 1995 for services under
the management agreement and is to be paid a minimum of $350,000 in fiscal
1996 for all services under the agreement. The management agreement provides
that the Company may terminate the agreement if a majority of the directors
determines in good faith that the MAL representative has willfully refused to
perform any services under the management agreement or has been convicted of
a crime of moral turpitude, and in such event or in the event of termination
by MAL without "good reason" as defined therein, the obligation of the
Company to make future payments to MAL shall cease. The management agreement
may be terminated by MAL for "good reason" as defined therein. In the event
of termination by MAL for "good reason" or in the event of termination by the
Company for reasons other than those described above, the Company is
obligated to pay to MAL all of the amounts due under the agreement for the
remaining term. In the event of termination by MAL without "good reason,"
the Company is obligated to continue to make payment to MAL for one year from
the date of such termination. In the event of Mr. Matthews' death, the
management agreement automatically terminates and the Company is obligated to
continue to make payments to the estate of Mr. Matthews for the lesser of one
year from such termination or the end of the scheduled term of the agreement.
33
<PAGE>
3. EXHIBITS:
ITEM NO.* DESCRIPTION
3(a) Articles of Organization, as amended, of the Registrant,
incorporated by reference to File No. 2-62266, Part II, Exhibit
3(a).
3(b) By-laws, as amended, of the Registrant, incorporated by
reference to File No. 2-62266, Part II, Exhibit 3(b).
4(a) Financing Agreement, dated May 11, 1982, among Barnwell
County, South Carolina, Registrant and Carolina Metals, Inc. (a
34
<PAGE>
ITEM NO. DESCRIPTION
wholly owned subsidiary) relating to Barnwell County, South
Carolina Industrial Development Revenue Bond (Nuclear Metals,
Inc. project) 1982, incorporated by reference to File No.
2-70044, Part II, Exhibit 4(d).
4(b) Financing Agreement, dated September 27, 1984 among Barnwell
County, South Carolina, Registrant and Carolina Metals, Inc. (a
wholly owned subsidiary) relating to Barnwell County, South
Carolina Industrial Development Revenue Bond (Nuclear Metals,
Inc. project) 1984, incorporated by reference to File No. 0-8836,
Part II, Exhibit 4(e).
4(c) Financing Agreement, dated June 1, 1985 among Massachusetts
Industrial Finance Agency and the Registrant relating to
Massachusetts Industrial Development Revenue Bond (NMI - 1985
Concord Issue) incorporated by reference to File No. 0-8836, Part
II, Exhibit 4(f)
4(d) Nuclear Metals, Inc. Non-Qualified Stock Option Plan as
amended. (1)
4(e) Nuclear Metals, Inc. Restated Employees' Stock Option Plan
as amended. (1)
4(f) Nuclear Metals, Inc. Directors' Stock Option Plan.**
4(h) Warrant to Purchase 25,000 shares of the Company's Common
Stock issued to State Street Bank and Trust Company.**
10(a) Agreement, effective March 1, 1993, between the Registrant
and Matthews Associates Limited. (2)
10(b) Agreement, effective March 1, 1993, between the Registrant
and Wilson B. Tuffin, as amended November 17, 1994. (2)
10(c) Agreement with Olin Corporation regarding large caliber
penetrators. (Confidential treatment has been granted for certain
portions of this Exhibit). (3)
10(d) Credit Agreement dated March 31, 1995 among the Company,
Carolina Metals, Inc. and State Street Bank and Trust Company.(4)
10(e) First Amendment to Credit Agreement dated as of June 30,
1995 among the Company, Carolina Metals, Inc. and State Street
Bank and Trust Company.**
35
<PAGE>
ITEM NO. DESCRIPTION
10(f) Revolving Credit Note dated March 31, 1995 of the Company
and Carolina Metals, Inc. (5)
10(g) Amendment to Revolving Credit Note dated as of June 30,
1995 among the Company, Carolina Metals, Inc. and State Street
Bank and Trust Company. **
10(h) Term Note dated March 31, 1995 of the Company and Carolina
Metals, Inc. payable to State Street Bank and Trust Company.(6)
10(i) Line of Credit Demand Note dated September 26, 1995 of the
Company and Carolina Metals, Inc. to State Street Bank and Trust
Company.**
10(j) Letter Agreement dated September 26, 1995 among State
Street Bank and Trust Company, Carolina Metals, Inc. and the
Company.**
10(k) Letter Agreement dated September 26, 1995 among State
Street Bank and Trust Company, Carolina Metals, Inc. and the
Company.**
10(l) Joint Security Agreement dated as of March 31, 1995 among
the Company, Carolina Metals, Inc. and State Street Bank and
Trust Company.**
10(m) First Amendment to Joint Security Agreement dated September
26, 1995 among the Company, Carolina Metals, Inc. and State Street
Bank and Trust Company.**
10(n) Patent Assignment of Security dated September 26, 1995
between the Company and State Street Bank and Trust Company.**
10(o) Trademark Assignment of Security dated September 26, 1995
between the Company and State Street Bank and Trust Company.**
10(p) Purchase order dated August 23, 1995 between the Company
and Olin Corporation. (Confidential treatment requested as to
certain portions)**
10(q) Forbearance and Amendment Agreement dated as of January 11,
1996 between the Company, Carolina Metals, Inc. and State Street
Bank and Trust Company.**
13 Nuclear Metals, Inc. 1995 Annual Report to Stockholders.**
21 Subsidiaries of the Registrant.**
23(a) Consent of Independent Public Accountants.**
23(b) Consent of Independent Public Accountants.**
27 Financial Data Schedule.**
(b) REPORTS ON FORM 8-K
36
<PAGE>
None
- ------------------------------------------------------------------------------
* Item numbers correspond to Exhibit Table, Item 601, Regulation S-K
** Indicates an exhibit filed herewith
(1) Incorporated by reference to the similarly numbered Exhibit filed with
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
(2) Incorporated by reference to the similarly numbered Exhibit filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1992.
(3) Incorporated by reference to Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(4) Incorporated by reference to Exhibit 10A to the Registrant's Form 10-Q
for the Quarter ended March 31, 1995.
(5) Incorporated by reference to Exhibit 10B to the Registrant's Form 10-Q
for the Quarter ended March 31, 1995.
(6) Incorporated by reference to Exhibit 10C to the Registrant's Form 10-Q
for the Quarter ended March 31, 1995.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Nuclear Metals, Inc.
By /s/ Robert E. Quinn
-------------------------------------------------------------------------
Robert E. Quinn, President
Date January 16, 1996
-------------------------------------------------------------------------
By /s/ James M. Spiezio
-------------------------------------------------------------------------
James M. Spiezio, Vice President, Finance and Administration & Controller
Date January 16, 1996
-------------------------------------------------------------------------
By /s/ Rebecca L. Perry
------------------------------------------------------------------------
Rebecca L. Perry, Assistant Controller
Date January 16, 1996
-------------------------------------------------------------------------
38
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ George J. Matthews
-----------------------------------------------------------
George J. Matthews, Chairman of the Board of Directors, CEO
and Treasurer
Date January 16, 1996
-----------------------------------------------------------
By /s/ Frank H. Brenton
-----------------------------------------------------------
Frank H. Brenton, Director
Date January 16, 1996
-----------------------------------------------------------
By /s/ Kenneth A. Smith
-----------------------------------------------------------
Kenneth A. Smith, Director
Date January 16, 1996
-----------------------------------------------------------
By /s/ Wilson B. Tuffin
-----------------------------------------------------------
Wilson B. Tuffin, Vice Chairman
Date January 16, 1996
-----------------------------------------------------------
39
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Nuclear Metals, Inc.:
We have audited the accompanying consolidated balance sheets of Nuclear
Metals, Inc. (a Massachusetts Corporation) and subsidiaries as of September
30, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1995. 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nuclear
Metals, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Notes 1 and 6
to the financial statements, on January 11, 1996 the Company reached an
agreement with its lender to amend certain terms of its debt, including the
extension of certain maturity dates; the lender's waiver of past violations
of debt covenants and the revision of certain financial covenants. The
Company's ability to meet its revised debt service requirements in 1996 is
dependent upon the receipt of a specific order and the related proceeds from
a certain customer. As of January 11, 1996 the Company's customer has not
been able to obtain funding to complete the purchase. This matter raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 1.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
the financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
41
<PAGE>
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements as a whole.
Boston, Massachusetts Arthur Andersen LLP
November 22, 1995 (except for Notes 1 and 6
for which the date is January 11, 1996)
42
<PAGE>
NUCLEAR METALS, INC. AND SUBSIDIARIES
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- -------------- ---------- ---------- ---------- ---------
YEAR ENDED SEPTEMBER
30, 1995:
Allowance for
doubtful accounts $1,290,000 $ 400,000 $807,000 $ 883,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Inventory Reserves $1,522,000 $ -- $ -- $1,522,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
YEAR ENDED SEPTEMBER
30, 1994:
Allowance for
doubtful accounts $1,670,000 $ -- $380,000 $1,290,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Inventory Reserves $2,000,000 $ -- $442,000 $1,522,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
YEAR ENDED SEPTEMBER
30, 1993:
Allowance for
doubtful accounts $ 300,000 $1,536,000 $166,000 $1,670,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Inventory Reserves $ 570,000 $1,872,000 $442,000 $2,000,000
---------- ---------- -------- ----------
---------- ---------- -------- ----------
43
<PAGE>
[LOGO]
ANNUAL REPORT
1995
<PAGE>
OUR BUSINESS
Nuclear Metals, Inc. develops and manufactures a variety of
advanced metal products serving a diverse customer base which includes
the aerospace, environmental, defense, medical and energy industries.
CONTENTS
President's Letter 2
Market Profile 4
Selected Financial Data 12
Management's Discussion and Analysis of Operations 14
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Public Accountants 32
Corporate Directory
FINANCIAL HIGHLIGHTS 1995 1994
Net Sales $ 18,784,000 $ 19,004,000
Net Income (loss) $ 510,000 $(10,196,000)
Earnings (loss) per Share $ .22 $ (4.43)
Weighted Average Number of Shares of
Common Stock Outstanding 2,352,756 2,300,131
Number of Employees at Year-end 200 189
Total Assets $ 40,886,000 $ 40,542,000
Working Capital $ 15,866,000 $ 17,477,000
Stockholders' Equity $ 27,245,000 $ 26,252,000
<PAGE>
NMI will continue to strengthen our product and customer base into the
21st century. The entire organization is committed to providing superior
metallurgical technology, products, and services to our customers by
continuously striving for excellence in all we do. The foundation of
NMI's success in the marketplace is technological excellence and
innovation. These qualities are evidenced by the introduction of our
patented Beralcast-TM-, a beryllium aluminum alloy, in several new and
expanding aerospace systems during 1995. Making an accelerated
transition from development to production of a new engineering material
can only occur when a team of individuals, which includes our customers,
solves technical, cost, and scheduling issues in a cooperative manner.
Our involvement in the Comanche Helicopter Team has solidified the notion
that Customer Partnerships, with a focus on cost as a design requirement,
are key to continued success and expansion in today's aerospace market.
NMI is increasing its capability to accommodate the tremendous growth
that is occurring in the Beralcast-TM- product area.
Several new domestic and international customers incorporated
Beralcast-TM- into their systems during 1995 to take advantage of its
light weight, high stiffness and strength, and thermal characteristics.
In the upcoming years, NMI expects to introduce low cost manufacturing
techniques for expanded use of Beralcast-TM- in the commercial
marketplace.
<PAGE>
Through the fifty years that NMI has created new products and solved
customer's metallurgical problems, we have steadily built a profitable
base of niche metal products and services that is the foundation for
continued creativity and product innovation. The production of high
purity Cobalt Chrome alloy powders for the medical prosthetic device
industry is but one mature product where NMI's unmatched technical and
quality standards are required by customers in the medical industry.
The stringent quality and reliability needs of the satellite and
spacecraft industry mean continued reliance on NMI for seamless Beryllium
tubing and Bi-metallic transition joints. Commercial applications for our
Depleted Uranium(DU) sheilding products have been strengthened by the
expanding international marketplace which is being utilized by our
existing customers. DU is still the most effective gamma radiation
shield available at competitive prices.
Offering extrusion services to customers in the Superconducting wire
area, for precision navigational systems, and educational fields for a
variety of other alloy systems, ensures that NMI is abreast of new
materials as they are developed.
We are working diligently to improve the quality and lower the
manufacturing costs associated with all of our niche products to offer
increasing value to our customers.
<PAGE>
Carolina Metals, Inc. (CMI) has the buildings, permits, and talented
workforce to accept the challenge of converting radioactive scrap metal
into useful products. This capability was successfully demonstrated
during 1995 under Westinghouse Savannah River Company's Beneficial Reuse
Program for recycling slightly contaminated Stainless Steel into useful
products. NMI's competitive proposal for a full scale recycling facility
to manage all of the DoE's steel scrap was selected by Westinghouse and
recommended for implementation. This facility will utilize
State-of-the-Art technology to be competitive with the commercial
marketplace while ensuring that contaminated materials are recycled
rather than buried as a waste. The same facility would use its excess
capacity in an environmentally sound manner to recycle contaminated steel
from the commercial nuclear industry.
As a Strategic Team member, ARMCO Inc., the nations premiere specialty
steel producer, will participate with NMI in the construction and
production operations associated with the large scale recycling facility.
There are several DoE initiatives underway to advance the likelihood of
a major recycling program in the near future. CMI will continue to offer
melting and recycling services to the DoE, DoD, and commercial industry
with existing equipment while production opportunities solidify.
<PAGE>
The United States Enrichment Corporation (USEC) has committed to the
commercialization of the Atomic Vapor Laser Isotope Separation Process
(AVLIS) which will replace Gaseous Diffusion as the means for separating
fissionable U-235 from natural uranium. This transition will occur over
the next ten years. The annual AVLIS feed requirements, which CMI is
ideally suited to produce with available floor space, permits, and
trained personnel, will be 10,000 metric tons per year. NMI has supplied
the AVLIS feed stock for the development work performed at the Lawrence
Livermore National Laboratory.
USEC is scheduled to privatize from the Department of Energy (DoE) during
1996. Once this occurs, USEC will be required by the Nuclear Regulatory
Commission to convert the byproduct stream of Uranium Hexafluoride gas
(UF(6)), created during the gaseous diffusion process, into a stable
product such as Uranium Tetrafluoride (UF(4)). With the only installed
domestic capacity, and ability to ramp up to significantly higher rates,
CMI offers USEC a Strategic Partnership opportunity that is unmatched in
the uranium industry. As the DoE's UF(6) stockpile of over 1 billion
pounds is addressed, opportunities to increase conversion revenues will
materialize.
<PAGE>
PRESIDENT'S LETTER
DEAR STOCKHOLDER:
Fiscal 1995 was a successful transition year for NMI. While sales
revenues were flat, we achieved net income of $522,000 compared to a loss
of $10.2 million in fiscal 1994. Our year ending backlog more than
doubled to $30.7 million which was the highest in eight years and the
second highest in Company history. NMI has transitioned from being a
Depleted Uranium (DU) penetrator company to a diversified company with
four new markets each having potential annual sales revenue which could exceed
our existing revenue. In effect we view ourselves as a high growth
start-up company in these new markets.
FINANCIAL HIGHLIGHTS
Fiscal 1995 sales of $18.8 million and net income of $522,000 or
$0.22/share compared favorably to fiscal 1994 sales of $19 million and a
loss of $10.2 million or $4.43/share. Year-end backlog more than
doubled to $30.7 million from $14.5 million the prior year. Capital
expenditures for the year were $0.8 million.
LIQUIDITY
Our balance sheet remains stable even after replacing, at a discount,
long term debt with short term borrowing. Year-end cash and marketable
securities were $1.25 million. Inventories of $17.5 million were $3.1
million higher than the prior year. This inventory increase relates to DU
penetrator blanks made for a foreign customer under a purchase order
option that has not yet been funded. Funding delays on this option have
caused serious liquidity concerns since September 1995. We expect
funding and full payment in the second quarter of Fiscal 1996 which will
relieve the ongoing liquidity concerns. We are most grateful to State
Street Bank & Trust Company which has increased and extended our line of
credit to cover this delayed payment.
BERALCAST-TM- INVESTMENT CASTINGS
Fiscal 1995 sales of our Beralcast-TM- products jumped 800% over the
prior year along with a corresponding increase in year-end backlog.
Lockheed Martin has become our largest customer replacing Olin
Corporation (a DU penetrator customer). Our patented alloys have been
chosen by Lockheed Martin for 52 different components in the
Electro-Optic system of the Army's new Comanche helicopter. Prototype
hardware for the Comanche will be delivered in fiscal 1996 and 1997 with
production beginning in 2002. NMI's lightweight, high-strength alloys
were also selected by Rockwell International for use on the Army's new
Patriot missile, and for upgraded missile guidance systems. Major
Aerospace companies including Boeing, Loral, Honeywell, Hughes Aircraft
Co., United Technologies, and others have recently purchased Beralcast-TM-
prototype hardware for future use in production of systems. Aircraft
engine manufacturers have expressed interest in evaluating Beralcast-TM- for
several components. Once production begins, NMI anticipates dramatic
sales revenue increases.
UNITED STATES ENRICHMENT CORPORATION (USEC)
The United States Government is in the process of privatizing uranium
enrichment services in 1996. The new company called USEC has committed
to commercializing a new uranium enrichment process developed by Lawrence
Livermore National Laboratory (LLNL). This new process is called
Advanced Vapor Laser Isotope Separation (AVLIS). NMI has supplied
virtually all the DU feed stock to LLNL since 1980. The Company has
proposed a partnership with USEC to transfer the feed stock process
technology from LLNL to Carolina Metals, Inc. (CMI) our wholly owned
subsidiary in Barnwell SC. A pilot plant would be constructed over the
next three years with a full size commercial facility scheduled for
production commencing in 2002. CMI is ideally suited for this major new
initiative, with a trained workforce, ample remote property, licenses and
strong community acceptance. Once in production we anticipate
substantial sales revenue for AVLIS feed stock.
Once USEC is privatized it will be required by the Nuclear Regulatory
Commission to dispose of the depleted UF(6) tails from the existing
gaseous diffusion plants. NMI has submitted a partnership proposal to
USEC to perform this work at CMI which is the only operational and
licensed depleted UF(6) conversion plant in North America. Acceptance of
this proposal would result in a major expansion at CMI to handle the
large volumes of depleted UF(6) generated each day by USEC. The
Department of Energy (DoE) has its own inventory of over one billion
pounds of depleted UF(6) that one day will need to be converted to a more
stable and useful form. This marketplace should provide a substantial
contribution to our future sales and earnings.
<PAGE>
RECYCLING CONTAMINATED METAL
During fiscal 1995 the Company installed new metal melting equipment and
received the appropriate license modifications at CMI to demonstrate the
recycling of contaminated stainless steel into useful products for the
Department of Energy. The Company has undertaken an expansion project to
double existing metal melting capabilities at CMI to better service DoE
and commercial nuclear power customers. The Company entered into a
teaming agreement with Alaron Corporation of Columbia, SC to provide
metal recycling services to the commercial nuclear power industry.
The Company's offer to commercialize advanced steelmaking technology in
partnership with ARMCO Inc. was recommended for approval to DoE by
Westinghouse, Savannah River Co. The DoE is evaluating our proposal to
install a steel micromill at CMI.
PRODUCT SEGMENTS
[PIE CHARTS]
PERSONNEL/DIRECTORS
During fiscal 1995 the Company hired highly skilled technical people to
support increasing Beralcast-TM- business at NMI and expanded by 50% the
workforce at CMI supporting the new metal recycling business.
Our commitment to Research and Development was enhanced by the addition
of a Ph.D. powder metallurgist to develop new applications for our
Specialty Powders, and a Ph.D. chemist to develop recycling processes
primarily for USEC. The Company now has five Ph.D.'s developing
technology to expand our product mix.
It is with deep sadness and regret we report that NMI Director Richard S.
Vokey pased away in July 1995. Mr. Vokey served on the Board of
Directors for 13 years. His sage advice, intelligence, and friendship
will be greatly missed.
ISO 9002 CERTIFICATION
During fiscal 1995 the Company initiated a company-wide effort to receive
ISO 9002 certificate of registration during calendar 1996. We have
joined the US Army's Contractor Performance Certification Program(CP)(2)
that recognizes companies who demonstrate a total commitment to producing
quality products. To become certified we must satisfy rigorous
certification requirements, that include aggressive utilization of
Statistical Process Control (SPC), demonstrate continuous product and
process improvements, and a demonstrated commitment to customer
satisfaction. This program will result in a stronger, more profitable
Company committed to customer satisfaction.
THE FUTURE
We believe NMI's sales and earnings will increase substantially in
fiscal 1996. Never before has the Company seen four new market areas
ideally suited to its technology, licenses, and site locations; each able
to sustain record sales and earnings for the foreseeable future. We have
a tremendous group of talented and dedicated employees, new partnerships
with customers and suppliers all of which translates into an exciting
opportunity for growth in our business. We are committed to achieving
financial results that will enhance shareholder value.
Thank you for your continued support and confidence.
/s/ ROBERT E. QUINN /s/ GEORGE J. MATTHEWS
Robert E. Quinn George J. Matthews [LOGO]
President Chairman of the Board
<PAGE>
SELECTED FINANCIAL DATA
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF EMPLOYEES)
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales and Contract Revenues $18,784 $ 19,004 $ 17,019 $42,083 $48,250 $47,662 $49,760 $45,714 $42,395 $41,770
Costs and Expenses 20,708 29,958 27,515 39,791 44,930 44,734 45,350 42,378 45,143 35,810
Operating Income (loss) (1,924) (10,954) (10,496) 2,292 3,320 2,928 4,410 3,336 (2,748) 5,960
Other Income (expense), Net (118) (430) (557) (745) (1,029) (1,706) (1,191) (1,182) (271) (343)
Income (loss) Before Taxes (2,042) (11,384) (11,053) 1,547 2,291 1,222 3,219 2,154 (3,019) 5,617
Provision (benefit) for Income Taxes (1,967) (1,188) (3,746) 626 871 489 972 506 (1,452) 2,835
Extraordinary Gain 585 -- -- -- -- -- -- -- -- --
Cummulative Change in Accounting Principle -- -- 1,100 -- -- -- -- -- -- --
Net Income (loss) 510 (10,196) (6,207) 921 1,420 733 2,247 1,648 (1,567) 2,782
Earnings (loss) per Share .22 (4.43) (2.70) .40 .60 .30 .86 .62 (.58) 1.03
Capital Expenditures, Net 777 709 1,265 1,015 1,349 2,270 3,306 2,812 3,040 2,028
Research and Development 439 575 1,031 1,233 1,357 685 1,007 1,186 679 727
FINANCIAL POSITION AT YEAR-END
Stockholders' Equity 27,245 26,252 36,371 43,037 42,614 41,756 43,135 41,592 40,632 42,198
Shares Outstanding 2,388 2,307 2,295 2,295 2,335 2,384 2,596 2,632 2,701 2,701
Net Book Value per Common Share Outstanding 11.41 11.38 15.85 18.76 18.25 17.52 16.62 15.80 15.04 15.62
Dividends Paid -- -- 459 276 238 251 263 -- -- --
Dividend per Share -- -- .20 .12 .10 .10 .10 -- -- --
Total Assets 40,886 40,542 57,223 66,391 70,810 73,603 76,520 75,461 66,189 71,990
Working Capital 15,866 17,477 24,532 32,571 33,034 32,772 35,578 36,231 27,095 28,605
Long-term Debt (including current installments) 4,480 4,859 8,986 11,372 13,759 16,040 18,405 19,756 11,163 12,624
OTHER DATA
Weighted Average Number of Shares
of Common Stock Outstanding 2,353 2,300 2,295 2,302 2,369 2,447 2,622 2,677 2,701 2,701
Backlog (at Year-end) 30,709 14,512 8,285 10,729 10,398 14,758 19,352 16,016 31,947 18,544
Number of Employees (at Year-end) 200 189 169 231 456 455 574 585 569 529
</TABLE>
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES WHICH APPEAR LATER IN THIS REPORT.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales decreased by $220,000 or 1% in fiscal 1995. Sales in the
Uranium Services and Recycle industry segment increased by $217,000 or 5%.
Sales in the Specialty Metal Products industry segment increased by
$4,818,000 or 66%. Sales in the Depleted Uranium Penetrator industry segment
decreased by $5,255,000 or 75%.
The increase in the Uranium Services and Recycle industry segment was
mainly due to increases in remelt services. The increase in the Specialty
Metal Products industry segment was a result of increased sales of beryllium
products and commercial depleted uranium. The decrease in the Depleted
Uranium Penetrator industry segment was primarily due to lower large caliber
penetrator production sales.
Gross income (net sales and contract revenues less cost of sales)
increased by $5,918,000 to $3,332,000 or 18% of sales as compared to
$(2,586,000) or (14)% of sales for fiscal 1994. This increase in gross income
is primarily due to increased reserves taken in fiscal 1994 and the absence
in fiscal 1995 of losses on certain contracts which occurred during fiscal
1994.
Selling, general and administrative expenses increased by $608,000 to
$4,817,000. This increase was attributable to higher legal and audit costs
which were primarily associated with debt restructuring and a property sale.
As a percentage of sales, these expenses increased to 26% as compared to 22%
for the prior year.
Company-sponsored research and development expenses decreased by $136,000
to $439,000 for fiscal 1995. As a percentage of sales, these expenses were 2%
as compared to 3% in fiscal 1994.
Interest and other income, net, increased to $232,000 for the fiscal year
as compared to $120,000 for the prior year. This increase was mainly due to
a gain recognized during the second quarter of fiscal 1995 on the sale of an
office building.
Interest expense decreased by $200,000 to $350,000 as compared to fiscal
1994. This decrease was primarily the result of reductions in debt during
1995.
The Company realized a $585,000 extraordinary gain, net of taxes of
$10,000, on the early extinguishment of debt.
INCOME TAXES
Income taxes benefited during 1995 and 1994 were at an effective rate
of 96% and 10%, respectively. During fiscal 1995 the Company received
$978,000 in tax refunds from carryback losses and reduced tax reserves by
$989,000 as a result of successful completion of a federal tax audit.
INFLATION
Inflation has not had a material impact on the Company's cost of doing
business. Management attempts to protect the Company by adjusting prices
where market conditions permit and by reviewing and improving production
processes where possible. Price escalation clauses also are negotiated into
long-term contracts when possible.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, working capital decreased to $14,366,000 from
$17,477,000 in fiscal 1994. This decrease is primarily due to debt
restructuring.
The Company was profitable in fiscal 1995 for the first time since fiscal
1992, inclusive of a tax benefit of $1,967,000 and a $585,000 gain on early
extinguishment of debt. As a result of cumulative losses in prior years, due
primarily to a downturn in the Company's defense contracting business and
related downsizing, as well as to the costs of investing in new lines of
business, the Company has experienced cash flow difficulties and has funded
its operating and cash flow deficits primarily from borrowings.
The Company's cash flow projections for fiscal 1996 indicate that there is
sufficient cash to sustain operations. The report of the Company's
independent auditors included with the Company's financial statements for the
fiscal year ended September 30, 1995, expresses concern about the Company's
ability to continue as a going concern in light of the current status of its
indebtedness and potential delays in receiving a critical sales order and
payment from a foreign customer for penetrator blanks. During fiscal 1995,
the Company manufactured penetrator blanks in accordance with a contract
option with a foreign customer without funding in order to preserve critical
skills within the Company, while the U.S. Army's multi-year 120mm
requirements were finalized. (This strategy was successful in obtaining a
multi-year U.S. Army 120mm contract.) The Company expected a payment of
$3,030,000 in September, 1995 for work performed on the penetrator blanks for
the foreign customer. As of January 10, 1996, the Company had not received
such sales order and payment and the exact timing of payment to the Company
is uncertain. The customer has documented its intention to fund the option
in the near future by providing the Company with a letter of intention.
Therefore, the Company expects it
<PAGE>
will receive the payment, and that upon receipt of such payment, the Company
will be able to continue as a going concern, addressing the matter raised in
the auditor's report. While management is confident that this payment will
be received, the Company simultaneously is pursuing several potential
alternate sources of cash to attempt to insure that the Company has adequate
cash to sustain operations.
Since restrictive covenants in the Company's agreements with lenders limit
borrowing by the Company other than under the existing credit facilities, the
Company may seek to raise cash through the sale of its stock (or
securities convertible into stock). The issuance of additional equity
securities could have a dilutive effect on the Company's outstanding common
stock. There can be no assurance that the Company would be able to raise
additional funds through a sale of its equity securities on favorable terms,
if at all.
On January 11, 1996, the Company and its commercial bank extended the
maturity dates of the credit facilities (See Notes 1 and 6 of the Notes to
Consolidated Financial Statements) pursuant to the terms contained in a
certain Forbearance and Amendment Agreement dated as of January 11, 1996
between the Company, its wholly-owned subsidiary, Carolina Metals, Inc. and
State Street Bank and Trust Company (the "Forbearance Agreement"). As
required by the bank prior to the execution of the Forbearance Agreement, on
January 11, 1996 the Company sold an aggregate of $510,500 in 10% convertible
subordinated debentures to certain investors. (See Note 1 of the Notes to
Consolidated Financial Statements.)
The Company also has outstanding approximately $800,000 in principal
amount on industrial revenue bond indebtedness.
The Company did not declare any dividends during its last two fiscal
years. Given the Company's current cash flow situation, the Company does not
expect to pay dividends in the next year. Future cash dividends if any,
would be paid on an annual basis, the amount of which is subject to the
determination and approval of the Company's Board of Directors. The
Company's loan agreement with a bank prohibits the declaration or payments of
dividends without the bank's consent.
ENVIRONMENTAL REMEDIATION
The Company has been working with various regulatory bodies to formulate a
plan for the removal of materials contained in a holding basin at its site in
Concord, Massachusetts. To date, a final plan for remediation has not been
established. The Company believes the cost of remediation will not have a
material impact on its results of operations or financial position. (See
Note 11 of the Notes to Consolidated Financial Statements for further
discussion.)
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales increased by $1,985,000 or 12% in fiscal 1994. Sales in Uranium
Services and Recycle industry increased by $4,752,000. Sales in Specialty
Metal Products industry segment decreased by $2,974,000 or 29%. Sales in the
Depleted Uranium Penetrator industry segment increased by $207,000 or 3%.
The increase in Uranium Services and Recycle industry is the result of the
production contract of commercial DU that began at Carolina Metals, Inc. The
decrease in the Specialty Metal Products industry segment was due primarily
to decreased volumes of commercial DU and Medical Powders. The increase in
the Depleted Uranium Penetrator industry segment was primarily due to higher
large caliber penetrator production sales.
The timing, volumes and possible downselect decisions regarding future
large caliber penetrator business, in general, are uncertain in the current
environment of reduced U.S. defense spending. The Company will continue
to pursue both domestic and foreign military depleted uranium penetrator
production requirements.
Gross loss (net sales and contract revenues less cost of sales) decreased
by $256,000 to $(2,586,000) or (14)% of sales as compared to $(2,842,000) or
(17)% of sales for fiscal 1993. This reduction in gross loss is primarily due
to higher sales volume and reduced cost structure.
Selling, general and administrative expenses decreased by $2,414,000 to
$4,209,000. This decrease was attributable to workforce reductions and
decreased discretionary spending partially offset by increases in reserves.
As a percentage of sales, these expenses decreased to 22% as compared to 39%
for the prior year.
Company-sponsored research and development expenses decreased by $456,000
to $575,000 for fiscal 1994. As a percentage of sales, these expenses were 3%
as compared to 6% in fiscal 1993.
Interest and other income, net, decreased to $120,000 for the fiscal year
as compared to $396,000 for the prior year. This decrease was mainly due to
lower levels of cash throughout most of 1994.
Interest expense decreased by $403,000 to $550,000 as compared to fiscal
1993. This decrease was primarily the result of reductions in debt during
1994.
The Company realized a $3,584,000 loss from a write-off of Depleted
Uranium Penetrators industry segment fixed assets. The reduction in fixed
assets was part of a realignment of the Company's asset base due to declining
defense industry spending.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,076,000 $ 1,213,000
Marketable securities 170,000 497,000
Accounts receivable, net of allowances for doubtful accounts
of $883,000 in 1995 and $1,290,000 in 1994 4,730,000 5,455,000
Inventories 17,468,000 14,486,000
Deferred income tax benefit -- 675,000
Other current assets 343,000 371,000
------------ -----------
Total Current Assets 23,787,000 22,697,000
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,356,000 1,356,000
Buildings 19,072,000 19,827,000
Machinery, equipment, and fixtures 25,296,000 24,287,000
Construction-in-progress 42,000 397,000
------------ -----------
Total Property, Plant and Equipment 45,766,000 45,867,000
Less: Accumulated depreciation 30,479,000 29,706,000
------------ -----------
Net property, plant, and equipment 15,287,000 16,161,000
OTHER ASSETS 1,812,000 1,684,000
------------ -----------
$40,886,000 $40,542,000
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 2,405,000 $ 1,091,000
Accounts payable 4,192,000 2,667,000
Accrued payroll and related costs 682,000 763,000
Other accrued expenses 642,000 699,000
------------ -----------
Total Current Liabilities 7,921,000 5,220,000
------------ -----------
DEFERRED FEDERAL AND STATE INCOME TAXES -- 676,000
------------ -----------
LONG-TERM OBLIGATIONS 2,075,000 3,768,000
------------ -----------
OTHER LONG-TERM LIABILITIES 3,645,000 4,626,000
------------ -----------
COMMITMENTS & CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common stock, par value $.10; authorized - 6,000,000 shares;
issued and outstanding for 1995 and 1994;
2,387,964 shares and 2,307,464 shares, respectively 239,000 230,000
Additional paid-in capital 14,226,000 13,752,000
Retained earnings 12,780,000 12,270,000
------------ -----------
Total Stockholders' Equity 27,245,000 26,252,000
------------ -----------
$40,886,000 $40,542,000
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
NET SALES AND CONTRACT REVENUES $18,784,000 $ 19,004,000 $ 17,019,000
------------ ------------ ------------
COST AND EXPENSES:
Cost of sales 15,452,000 21,590,000 19,861,000
Selling, general, and administrative expenses 4,817,000 4,209,000 6,623,000
Research and development expenses 439,000 575,000 1,031,000
Loss on fixed asset writedown -- 3,584,000 --
------------ ----------- -------------
20,708,000 29,958,000 27,515,000
------------ ----------- -------------
OPERATING LOSS (1,924,000) (10,954,000) (10,496,000)
INTEREST AND OTHER INCOME, NET 232,000 120,000 396,000
INTEREST EXPENSE (350,000) (550,000) (953,000)
------------ ----------- -------------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF ACCOUNT CHANGE (2,042,000) (11,384,000) (11,053,000)
PROVISION (BENEFIT) FOR INCOME TAXES (1,967,000) (1,188,000) (3,746,000)
------------ ----------- -------------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (75,000) (10,196,000) (7,307,000)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT NET OF TAXES OF $10,000 585,000 -- --
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- 1,100,000
------------ ----------- -------------
NET INCOME (LOSS) $ 510,000 $(10,196,000) $ (6,207,000)
------------ ----------- -------------
------------ ----------- -------------
PER SHARE INFORMATION
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (0.03) (4.43) (3.18)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT NET OF TAXES OF $10,000 0.25 -- --
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- 0.48
------------ ----------- -------------
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ 0.22 $ (4.43) $ (2.70)
------------ ----------- -------------
------------ ----------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,352,756 2,300,131 2,294,664
------------ ----------- -------------
------------ ----------- -------------
DIVIDENDS PER SHARE $ -- $ -- $ .20
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL
NUMBER PAR PAID-IN RETAINED
OF SHARES VALUE CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at September 30, 1992 2,294,664 $229,000 $13,676,000 $ 29,132,000
--------- -------- ------------ ------------
Common Stock Cash Dividend -- -- -- (459,000)
Net Loss for the Year -- -- -- (6,207,000)
--------- -------- ------------ ------------
Balance at September 30, 1993 2,294,664 $229,000 $13,676,000 $ 22,466,000
--------- -------- ------------ ------------
Stock Options Exercised 12,800 1,000 76,000 --
Net Loss for the Year -- -- -- (10,196,000)
--------- -------- ------------ ------------
Balance at September 30, 1994 2,307,464 $230,000 $13,752,000 $ 12,270,000
--------- -------- ------------ ------------
--------- -------- ------------ ------------
Stock Options Exercised 80,500 9,000 474,000 --
Net Income for the Year -- -- -- 510,000
--------- -------- ------------ ------------
Balance at September 30, 1995 2,387,964 $239,000 $14,226,000 $ 12,780,000
--------- -------- ------------ ------------
--------- -------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 510,000 $(10,196,000) $ (6,207,000)
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,339,000 2,874,000 3,056,000
Loss on fixed asset writedown -- 3,584,000 --
Changes in assets and liabilities, net-
Decrease (increase) in accounts receivable 725,000 (2,205,000) 8,160,000
Decrease (increase) in income tax receivables -- 2,394,000 (2,394,000)
Decrease (increase) in inventories (2,982,000) 1,150,000 (2,016,000)
(Decrease) increase in accounts
payable and accrued expenses 1,387,000 (993,000) 303,000
Gain on sale of building (175,000) -- --
Changes in accrued and deferred taxes (1,000) (1,286,000) (3,689,000)
Changes in other long-term liabilities (981,000) 2,439,000 --
Other (100,000) 253,000 37,000
----------- ------------ -----------
Net cash used by operating activities (278,000) (1,986,000) (2,750,000)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (777,000) (709,000) (1,265,000)
(Purchases) Sales of marketable securities, net 326,000 94,000 (19,000)
Proceeds from sale of Property, Plant & Equipment 487,000 -- --
----------- ------------ -----------
Net cash (used) provided by investing activities 36,000 (615,000) (1,284,000)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (4,103,000) (4,127,000) (2,386,000)
Proceeds from bank debt 3,725,000 -- --
Proceeds from Stock issuance 483,000 77,000 --
Cash dividends -- -- (459,000)
----------- ------------ -----------
Net cash (used) provided by financing activities 105,000 (4,050,000) (2,845,000)
----------- ------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS: (137,000) (6,651,000) (6,879,000)
Cash and cash equivalents at beginning of year 1,213,000 7,864,000 14,743,000
----------- ------------ -----------
Cash and cash equivalents at end of year $ 1,076,000 $ 1,213,000 $ 7,864,000
----------- ------------ -----------
----------- ------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest, net of amounts capitalized $ 280,000 $ 680,000 $ 824,000
Income taxes $ (978,000) $ -- $ 1,236,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. LIQUIDITY
As of September 30, 1995, Nuclear Metals and subsidiaries (the Company)
was not in compliance with certain financial covenants of its debt
agreements. These events of non-compliance permitted the lender to declare
all amounts due and payable upon notice to the Company.
The Company's Demand Line of Credit Note ($925,000 outstanding at
September 30, 1995, and $1,680,000 at January 11, 1996) was due by January
15, 1996. This note, which was negotiated in September 1995, was intended to
provide the Company working capital until the receipt of a specific order and
the related proceeds from the sale of penetrator blanks to a certain
customer, which management expected to occur prior to the due date of the
note. In addition, under the Company's Revolving Line of Credit $1,000,000
was due in February 1996. The proceeds from the sale of penetrator blanks
discussed above were to be used to pay this amount. As of January 11, 1996,
the Company's customer has not been able to obtain funding to complete the
purchase.
On January 11, 1996, the Company reached an agreement with its lender to
amend certain terms of its debt, including the waiver of past violations of
debt covenants, extension of certain debt maturity dates and the revision of
certain financial covenants. The agreement requires the Company to make a
payment of $500,000 of the Demand Line of Credit Note on January 12, 1996,
the proceeds of which were received from certain shareholders in exchange for
a note payable of $500,000 due June 1997. The note payable to the
shareholders is payable interest only semi-annually until its maturity date
at a rate of 10%, convertible into shares of the Company's common stock at
$11.89 per share and subordinate to the debt of the Company. The agreement
also revised the repayment terms for the remaining balance of the Demand Line
of Credit Note (balance of $1,680,000 as of January 11, 1996) as follows:
$500,000 on January 12, 1996, and monthly installments of $100,000, $200,000,
$300,000 and $580,000 beginning January 31, 1996, and ending April 15, 1996,
and revised the due date for the Line of Credit ($1,000,000 outstanding at
September 30, 1995, and January 11, 1996) to December 31, 1996. In addition,
the agreement requires the Company to use any proceeds received from the sale
of penetrator blanks to the customer, discussed above, to prepay the amounts
outstanding under the Demand Line of Credit Note and purchase certificates of
deposit in aggregate of $1,000,000 from the lender and pledge those as
security for the Company's remaining obligations to lender.
Management believes that the order and the related proceeds from the
customer will be received by the Company to enable it to meet its debt
service requirements. The customer has documented its expectations that it
will receive its funding (from the primary contractor and government source)
by March 1996, and remit payment to the Company by April 1996. In the event
that the customer is not able to complete this purchase, the Company will not
have the available funds to meet the debt service requirements, in which case
the Company will pursue alternative financing sources to meet these
requirements. This matter raises substantial doubt about the Company's
ability to continue as a going concern. These financial statements do not
incluse any adjustments that might result from the outcome of this
uncertainty.
2. OPERATIONS
The Company is a manufacturer of specialized metal products which are
fabricated by a variety of metalworking processes. Export sales to foreign
unaffiliated customers are 33% of total net sales and contract revenues in
fiscal 1995, 37% in fiscal 1994, and less than 10% in fiscal 1993. A
significant portion of the Company's sales revenue has been derived from
major customers as follows:
LOCKHEED LOCKHEED OLIN ROYAL
COGEMA MARTIN IDAHO FALLS CORP ORDNANCE
1995 19% 18% 9% 8% --%
1994 20 -- 6 21 12
1993 -- -- 11 35 3
3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Nuclear Metals, Inc. and its wholly owned subsidiaries: NMI Foreign Sales
Corporation, NMI Holdings, Inc., a Massachusetts securities corporation, and
Carolina Metals, Inc. All material intercompany transactions and balances
have been eliminated in consolidation.
FISCAL YEARS
References in these financial statements to 1995, 1994, and 1993 are for
the fiscal years ended September 30, 1995, September 30, 1994, and September
30, 1993, respectively.
REVENUE RECOGNITION
Revenues are recorded when products are shipped, except for revenues on
long-term contracts which are recorded on the percentage-of-completion
method. The percentage-of-completion method is used for research and
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
development contracts and for production contracts which require significant
amounts of initial engineering and development costs. The
percentage-of-completion is determined by relating the actual number of
contract units completed to date to the total units to be completed under the
respective contract. When the estimated total cost on a contract indicates a
loss, the Company's policy is to record the entire loss currently.
Performance incentives incorporated in certain government contracts are
recognized when incentives are earned or awarded or when penalties are
incurred or assessed. Contract revenues include fees resulting from
facilitization contracts with the U. S. Army (contracts to establish
production capacity through the purchase and installation of equipment to be
owned by the U.S. Army). Costs associated with these contracts, exclusive of
the costs to purchase the equipment ($0 in 1995, $380,000 in 1994 and
$1,285,000 in 1993) are included in cost of sales. The consolidated balance
sheets do not include the cost of this U.S. Army-owned equipment.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are recorded at cost which approximates market
value. Cash equivalents include certificates of deposit with a maturity of
three months or less.
MARKETABLE SECURITIES
Marketable securities are recorded at cost which approximates market
value. Marketable securities include certificates of deposit purchased with a
maturity greater than three months.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and include materials, labor, and manufacturing and engineering
overhead.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at the lower of cost or net
realizable value. For financial reporting purposes, the Company provides
depreciation on the straight-line method over the estimated useful lives of
the assets, which are as follows:
Buildings 20 - 30 years
Machinery, equipment, and fixtures 3 - 10 years
Maintenance and repairs are charged to operations as incurred; renewals
and betterment's are capitalized. When property, plant, and equipment are
sold, retired or entirely written down, the asset cost and accumulated
depreciation are removed from the accounts, and the resulting gain or loss is
included in operations.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This statement requires a reveiw for
impairment for long-lived assets and certain identifiable intangibles to be
held and used by an entity whether events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. An
impairment loss would be recognized if the sum of the expected future cash
flows to result from the use and eventual disposition of the asset is less
than the carrying amount of the asset. The amount by which the carrying
amount of the asset exceeds the fair value less costs to sell, is an
impairment loss to be recognized. This statement would apply to fiscal years
beginning after December 15, 1995. The effects on the Company's financial
condition and results of operations are not expected to be material.
During the fourth quarter of 1994, the Company recorded a loss on fixed
asset writedown in the Depleted Uranium Segment of $3,584,000 consisting
principally of a provision to adjust the carrying values of idle and
underperforming fixed assets to estimated net realizable values. The
provision was based on a periodic review of fixed assets and a determination
that there has been a permanent decline in the value of assets due to
declines in defense spending and the pricing necessary to compete effectively
for such contracts.
INCOME TAXES
The Company provides for income taxes in each year's consolidated
statements of operations regardless of the year in which the transactions are
reported for tax purposes to recognize the tax effects of all events.
The deferred federal and state income taxes result primarily from using
accelerated depreciation on property, plant, and equipment for income tax
reporting purposes and from establishing reserves which are not currently
deductible for income tax purposes, respectively.
The Company adopted Statement of Financial Accounting Standards No. 109 in
the first quarter of fiscal 1993 via a cumulative catch-up adjustment. The
catch-up adjustment resulted in a one time gain of $1,100,000.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are related only to Company-sponsored
research and development and include direct costs and an allocation of
overhead.
RECLASSIFICATIONS
Certain amounts previously reported in the consolidated financial
statements have been reclassified to conform with the 1995 presentation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. ACCOUNTS RECEIVABLE
The following is an analysis of accounts receivable (net of allowances for
doubtful accounts):
1995 1994
Accounts receivable $4,449,000 $3,676,000
Unbilled Receivables and Retainages due
upon completion of contracts 281,000 1,779,000
---------- ----------
$4,730,000 $5,455,000
---------- ----------
---------- ----------
5. INVENTORIES
Inventories (net of reserves) at September 30, 1995, and September 30,
1994, were as follows:
1995 1994
Work-in-process $13,942,000 $10,021,000
Raw materials 2,794,000 3,721,000
Spare parts 732,000 744,000
----------- -----------
$17,468,000 $14,486,000
----------- -----------
----------- -----------
As of September 30, 1995, approximately $11.8 million of the Company's
inventory consists of Depleted Uranium (DU) in various stages of production.
This amount consists of both value-added costs to government owned material,
($6.6 million), which is used for U.S. Military contracts and for material
which the Company has acquired from other sources, ($5.2 million). During
fiscal 1995 the U.S. Army notified the Company that the Army would provide
the DU for production for the most recent penetrator contract. Management
strongly believes that the Army is responsible to compensate the Company for
the value-added costs of this material and that at a minimum the Army would
allow the Company to use this material for non U.S. military contracts at no
additional cost to the Company. Management is pursuing several Department of
Energy programs that would require more DU over the next several years than
the Company currently has on hand. Management believes that the carrying cost
of the inventory on hand will be fully realizable through these possible
programs or from its ongoing usage for U.S. and foreign military
procurements, however it is uncertain how much of the inventory balance will
be utilized in fiscal 1996.
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable of the Company at September 30,
1995, and September 30, 1994, areas follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
10.05% Note, annual principal payments
of $1,176,000 to maturity in 1997
(paid off in 1995) $ -- $3,532,000
Term Credit, interest rate of prime plus 0.5%
due in monthly principal payments through 1996 1,733,000 --
Line of Credit, interest rate of prime plus 0.5% 1,000,000 --
Demand Line of Credit, interest rate of prime plus 1.5% 925,000 --
Industrial Development Revenue Notes, variable
interest rates (5.8% - 6.1% at September 30, 1995)
due in quarterly principal payments through 2000 822,000 1,302,000
Capital Leases -- 25,000
---------- ----------
$4,480,000 $4,859,000
Less Current portion of long-term obligations 2,405,000 1,091,000
---------- ----------
$2,075,000 $3,768,000
---------- ----------
---------- ----------
</TABLE>
Based on the amended debt agreement date January 11, 1996 as discussed
below maturities of long-term obligations subsequent to September 30, 1995,
are: 1996 - $2,405,000; 1997 - $1,895,000; 1998 - $80,000; 1999 - $80,000;
$20,000 thereafter.
During fiscal 1995, the Company restructured its long-term debt, the
principal balance of $3,532,000 outstanding on the 10.05% note was settled at
a discount. Accordingly, the Company recorded an extraordinary gain on
extinguishment of debt of $585,000 net of taxes of $10,000 in the
accompanying statement of operations as a result of this transaction.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Simultaneously, the Company entered into a credit facility of $5,650,000
with a bank. As of September 30, 1995, this facility consisted of a revolving
line of credit of $3,250,000 and a term credit of $2,400,000. The revolving
line of credit has $2,250,000 in letters of credit outstanding and $1,000,000
in credit line advance. This credit facility is secured by accounts
receivable and inventory of the Company.
The Company's Line of Credit Demand Note (the note) (Balance of $925,000
as of September 30, 1995, and $1,680,000 at January 11, 1996) was due by
January 15, 1996. This Note, which was negotiated in September 1995, was
intended to provide the Company working capital until the receipt of proceeds
from the sale of specific penetrators blanks to a certain customer. This
Note is secured by a number of patents currently held by the Company. In
consideration for providing this facility, the Company issued the lender a
warrant to purchase 25,000 shares of the Company's common stock at $11.89 per
share which was the approximate market value of the Company's common stock at
the time the warrants were issued. These warrants expire in 2005. The holder
of the warrant has the option to exercise a portion of the warrant in a
cashless transaction by surrendering the remaining portion of the warrant as
defined.
On January 11, 1996, the Company reached an agreement with its lender to
amend certain terms of its debt, including the waiver of past violations of
debt covenants, extension of certain debt maturity dates and the revision of
certain financial covenants. The agreement required the Company to make a
payment of $500,000 of the Demand Line of Credit Note on January 12, 1996,
the proceeds of which were received from certain shareholders in exchange for
a note payable of $500,000 due June 1997. The note payable to the
shareholders is payable interest only (in cash or common stock) semi-annually
until its maturity date at a rate of 10%, convertible into shares of the
Company's common stock at $11.89 per share and subordinate to the debt of the
Company. The agreement also revised the repayment terms for the remaining
balance of the Demand Line of Credit Note (balance of $1,680,000 as of
January 11, 1996) as follows: $500,000 on January 12, 1996, and monthly
installments of $100,000, $200,000, $300,000 and $580,000 beginning January
31, 1996, and ending April 15, 1996, and revised the due date for the Line of
Credit ($1,000,000 outstanding at September 30, 1995, and January 11, 1996)
to December 31, 1996. This agreement also adjusts the value of the eligible
loan collateral determined under the borrowing base formula. In addition,
the agreement requires the Company to use any proceeds received from the sale
of penetrator blanks to the customer, discussed above, to prepay the amounts
outstanding under the Demand Line of Credit Note and purchase certificates of
deposit in aggregate of $1,000,000 from the lender and pledge those as
security for the Company's remaining obligations to lender. The revisions to
the financial covenants includes general working capital requirements, and
net income before interest and taxes not less than the amounts for the
quarter ending dates as follows: March 31, 1996 - $250,000, June 30, 1996 -
$25,000, September 30, 1996 - $175,000, December 31, 1996 - $175,000, and
$175,000 thereafter. On or before July 1, 1996, the Company will be
required to provide the bank documentation that the Company will have
sufficient funds to fulfill all obligations to the bank. In consideration
for providing this amendment, the Company will pay the Bank a fee in the
amount of $150,000 upon the earlier of the receipt of funds from sale of
penetrator blanks or at December 31, 1996.
The Industrial Development Revenue Notes consist of four note issues.
The interest rates on these notes range from 66.5% to 70% of the lender
bank's prime interest rate. The notes are secured by all property, plant,
and equipment.
7. INCOME TAXES
Effective the beginning of fiscal 1993 the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, the Company must compute the impact upon its future
income tax payments, using current tax rates, of temporary differences
resulting from the different periods in which events are recognized in the
financial statements and in the tax returns. SFAS 109 requires deferred tax
assets and liabilities to be adjusted when the tax rates or other provisions
of the income tax law change.
The Company elected to adopt this new standard by recording a cumulative
catch-up adjustment. Net income increased by $1,100,000 as a result of
adopting the new standard. Adopting SFAS 109 has not caused a significant
change in the Company's provision (benefit) for income taxes, reconciliation
of the effective tax rate with the statutory rate or significant components
of the income tax benefit.
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory federal income tax rate due to the following:
1995 1994 1993
Statutory rate (34.0)% (34.0)% (34.0)%
Increase (reduction) in taxes resulting from:
State taxes, net of federal effect (6.0) (6.3) (6.3)
Valuation allowance (2.0) 29.6 6.4
Tax reserves no longer required (48.0) -- --
Other (6.0) -- --
----- ----- -----
(96.0)% (10.4)% (33.9)%
----- ----- -----
----- ----- -----
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of September 1995, the Company has a federal net operating loss
carryforward of approximately $5.4 million of which $3.1 million expires in
2009 and $2.3 million expires in 2010 and State net operating loss
carryforwards of approximately $14.4 million which expire between 1998
through 2008. These net operating loss carryforwards are fully reserved by
valuation allowances.
The components of the provision (benefit) for income taxes are as follows:
1995 1994 1993
Current benefit:
Federal $ (766,000) $(1,757,000) $(2,336,000)
State (135,000) (543,000) (435,000)
Valuation allowance 901,000 2,300,000 435,000
----------- ----------- -----------
Total current benefit $ -- $ -- $(2,336,000)
----------- ----------- -----------
----------- ----------- -----------
Deferred benefit
Federal $(1,819,000) $(1,738,000) $(1,410,000)
State (148,000) (537,000) (261,000)
Valuation allowance -- 1,087,000 261,000
Total deferred benefit (1,967,000) (1,188,000) (1,410,000)
----------- ----------- -----------
Total benefit $(1,967,000) $(1,188,000) $(3,746,000)
----------- ----------- -----------
----------- ----------- -----------
During 1995 the Company received $978,000 of Federal income tax refunds.
As of September 30, 1994, the Company had established a full valuation
allowance for this amount. Accordingly, the Company reduced it's valuation
allowance by $978,000 upon receipt of this amount.
The Company has provided a full valuation allowance on the net deferred
tax assets as of September 30, 1995, and 1994. The Company's alternative
minimum tax credit has an unlimited life. The tax effects of significant
items making up the deferred tax liabilities and deferred tax assets, as of
the end of the 1995 and 1994 fiscal years are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets:
Reserves not currently deductible for tax purpose $2,331,000 $2,518,000
Accrued employee health benefits 382,000 422,000
Federal operating loss carryforward 1,843,000 1,757,000
State operating loss carryforwards and other assets 1,374,000 1,239,000
Other 345,000 445,000
Valuation allowance (3,738,000) (3,905,000)
---------- ----------
Total deferred tax assets 2,537,000 2,476,000
Alternative minimum tax credit 407,000 407,000
---------- ----------
$2,944,000 $2,883,000
---------- ----------
---------- ----------
Liabilities:
Fixed asset basis difference $2,229,000 $2,033,000
Employee benefits 715,000 715,000
Other -- 136,000
---------- ----------
$2,944,000 $2,884,000
---------- ----------
---------- ----------
</TABLE>
8. STOCK OPTIONS AND EMPLOYMENT AGREEMENTS
A total of 247,900 shares of common stock have been reserved for issuance
upon exercise of options issued or issuable pursuant to the Company's stock
option plans for employees and directors. The exercise price of options
issued or issuable under such plans may not be less than 100% of the fair
market value of the shares purchasable on the date of grant of the options.
Information concerning options which have been granted under the plans and
the exercise prices thereof is set forth below. Those options with an
indicated exercise price of $6.63 expire in 2003, those with an exercise
price of $13.50, $14.00, or $16.00 expire in 2004, in each case on the
anniversary of the date of grant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Common shares under option are presented:
<TABLE>
<CAPTION>
Number Option Price
of Shares per Share
<S> <C> <C>
Options outstanding as of September 30, 1993 105,700 $6-6.50
Exercised (12,800) 6.00
Granted 13,500 6.63-16.00
Canceled (7,500) 6.00
Options outstanding as of September 30, 1994 98,900 6.00-16.00
Exercised (80,500) 6.00
Granted 25,300 13.50-14.00
Canceled (5,200) 6.00-6.50
------ -----------
Options outstanding as of September 30, 1995 38,500 $6.63-16.00
------ -----------
------ -----------
</TABLE>
In consideration of entering into a credit agreement with its lender the
Company issued the lender a warrant to purchase 25,000 shares of the
Company's common stock for $11.89 per share, which was the approximate
market value of the Company's common stock at the date of the transaction.
These warrants expire in 2005. The holder of the warrant has the option to
exercise a portion of the warrant in a cashless transaction by surrendering
the remaining portion of the warrant as defined.
9. PENSION PLAN
The Company has a defined benefit pension plan designed to provide
retirement benefits to all employees. This plan provides pension benefits
that are based on the employee's salary and years of service. The Company's
policy is to fund the plan at a level within the range required by applicable
regulations.
The Company's net pension cost for 1995, 1994, and 1993 was $165,000,
$269,000 and $90,000, respectively. During 1995, the Company used the
weighted average discount rate of 8.0%. Net pension cost for the Company's
defined benefit plan included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the period $155,000 $206,000 $198,000
Interest cost on projected benefit obligation 954,000 936,000 869,000
Actual return on plan assets (985,000) (414,000) (524,000)
Net amortization and deferral 41,000 (459,000) (453,000)
-------- -------- --------
Net pension cost $165,000 $269,000 $90,000
-------- -------- --------
-------- -------- --------
</TABLE>
Assumptions used in determining the plan's funded status:
Discount rate 8.0% 8.0% 7.0%
Expected rate of increase in
compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return
on assets 8.5% 8.5% 8.5%
The following table sets forth the plan's funded status as of
September 30, 1995, September 30, 1994, and September 30, 1993.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Vested benefit obligation $(11,245,000) $(11,013,000) $(11,826,000)
------------ ------------ ------------
Accumulated benefit obligation $(11,249,000) $(11,061,000) $(11,878,000)
------------ ------------ ------------
Projected benefit obligation $(12,661,000) $(12,364,000) $(14,155,000)
Plan assets at fair value 12,274,000 11,981,000 12,093,000
Funded status (387,000) (383,000) (2,062,000)
Unrecognized prior service costs 121,000 125,000 129,000
Unrecognized net loss 1,885,000 2,042,000 3,986,000
------------ ------------ ------------
Prepaid pension cost $1,619,000 $1,784,000 $2,053,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Plan assets are invested under the provision of a trust agreement with a
bank in common trust funds.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. POSTRETIREMENT BENEFITS
Effective the beginning of fiscal 1994 the Company adopted Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting
for Postretirement Benefits Other Than Pensions". The statement requires
companies to accrue the cost of postretirement health care and life insurance
benefits within the employees' active service periods. The Company had been
recognizing these costs on the cash basis prior to adoption of SFAS 106. In
fiscal 1993, the Company expensed $23,400 of these benefits.
The Company provides employees who retired from the Company prior to
January 1, 1993, with at least ten years of service and are under the age of
65, with Group Health Insurance on a cost-sharing basis. Coverage for an
employee's spouse or dependents will also continue under this plan until the
employee has reached age 65 at which time, the coverage ceases. In addition,
the Company provides the same employees who are at least 62 years of age with
life insurance equal to their ending annual salary up to a maximum of $50,000.
For employees who retire after January 1, 1993, the postretirement
benefits do not include health insurance. In addition, the life insurance
benefit, up to a maximum of $50,000, is provided for one year after
retirement.
The accumulated benefit obligation of these benefits as of October 1,
1995, is approximately $751,000 ($36,000 for medical insurance and $715,000
for life insurance). Plan assets of $344,000 in cash reserves are on hand
with an insurance company to partially cover the cost of the life insurance
benefits. The Company adopted the new standard prospectively as of October 1,
1993, and is amortizing the transition obligation of $456,000, over three
years for the medical insurance benefits and fifteen years for the life
insurance benefits.
Postretirement benefit expense for fiscal 1995 is $96,000. The components
of the expense are as follows:
Service cost of benefits earned $1,000
Interest cost on liability 57,000
Return on plan assets (10,000)
Amortization of transition obligation 48,000
--------
Net postretirement benefit cost $96,000
--------
--------
The following table sets forth the Benefit Plan's funded status as of
October 1, 1995:
Accumulated Post Retirement Benefit obligation $(751,000)
Plan Asset at Fair Value 344,000
---------
Funded Status $(407,000)
Transition obligation 344,000
---------
Accrued Post-Retirement Benefit Cost $(63,000)
---------
---------
The following actuarial assumptions were used:
Salary increase 5.5%
Discount rate 7.0%
Return on Assets 3.0%
Medical Inflation 10.0%
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. COMMITMENTS AND CONTINGENCIES
EXPANSION
The Company is expanding its facilities by adding new equipment. The
Company anticipates that this will require capital expenditures totaling
approximately $1,000,000 during fiscal 1996.
WASTE DISPOSAL
In the process of manufacturing depleted uranium products, the Company
generates low-level radioactive waste (LLRW) that must be disposed of at
sites licensed by federal, state, and local governments. At present, there
is one licensed commercial repository in the United States available for use
by the Company. For LLRW originating in Concord, no site currently exists
and provisions have been made to accommodate interim storage. State
government has the responsibility to implement the provisions of the federal
Low-Level Waste Policy Amendments Act and provide a state solution for
Massachusetts companies that generate this type of waste. Management is of
the opinion that an extended period of storage can be accommodated within
existing buildings and in an environmentally safe manner acceptable to all
regulatory agencies until such time as an acceptable site is identified.
HOLDING BASIN FACILITY
For a number of years, ending in 1985, the Company disposed of
manufacturing-related depleted uranium waste and the associated spent acid
and other residual materials by neutralizing with lime and discharging the
neutralized mixture to a holding basin on its premises in Concord,
Massachusetts. In 1986 the holding basin was covered with hypalon, an
impervious material used to prevent rain and surface run-off water from
leaching through the holding basin. The Company now uses a proprietary
"closed loop" process that it developed to discontinue such discharges. The
Company believes that both practices were and are in compliance with all
applicable regulations.
The Commonwealth of Massachusetts, Department of Environmental Protection
("DEP"), has designated the Concord site, including the holding basin, as a
"priority" remediation site. The DEP, in conjunction with the Company and its
consultants, are developing a comprehensive evaluation and risk assessment.
The risk assessment originally scheduled for completion during calendar year
1995 has been delayed. Additional information needed for the risk assessment
has been collected and is currently being evaluated with the current
expectation that completetion of the risk evauation will occur in 1996. The
Company continues to believe that the results of these studies will establish
that the holding basin does not present an environmental risk consistent with
its designation as a "priority" site.
The vast majority (approximately 96%) of the material in the holding basin
is the byproduct of manufacturing processes conducted by the Company under
Government contracts using Government furnished material. Management
believes, based on advice from legal counsel and discussions with the Army,
that this material continues to be Government owned and that the Government
has a responsibility for any required remediation of the site. The Company
has no written commitment from the Government to fund any remediation costs,
however, existing contracts provide the basis for Government responsibility
to pay the costs of removal of the material from the holding basin. In
September 1995, the Company submitted a request for funding for the full
remediation under Public Law 85-804. The Army is currently reviewing the
submittal and is expected to provide their recommendations to the Company
early in 1996. The Army has not denied the Government's responsibility to pay
the costs of removal of the material from the holding basin. Management of
the Company considers it unlikely that the Army will not pay the appropriate
costs for remediation. Also, the Government has demonstrated a general
practice of paying its portion of site remediation costs by the funding of
other remediation projects.
Included in the accompanying balance sheet as of September 30, 1995, is a
$2.8 million reserve against any potential administrative, legal, research or
other costs of remediating the holding basin that are not paid by the
Government. The Company believes this reserve to be adequate for any residual
costs that may be incurred beyond the Government's portion of the holding
basin.
The planned decommissioning of the holding basin has involved discussions
with several agencies including the NRC, DEP and the Army. The Company has
developed a range of cost estimates for remediation of the holding basin
based on assumptions as to the amount of gravel to be removed and that all
material will be buried at licensed sites. Significant costs include
excavation, transportation and burial of the holding basin material as well
as back fill and grading at the Concord site. Under these assumptions, the
estimated costs of burial range from $4 million to $9 million. In developing
these estimates, the future burial rates that will be charged at the licensed
sites are uncertain and are the predominant reason for the wide range of
potential costs. These burial costs are affected by, among other things, the
various regulatory agencies, the regulations imposed by these agencies and
the volume of waste processed at individual licensed sites. In developing
these estimates for burial, the Company has not assumed any offset based
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
on Government funding or insurance claims. Further, the Company assumes that
the recommendations of the Company's outside experts as to how much gravel
should be removed will be accepted by the regulatory authorities and that
none of the material in the holding basin will be recycled. The Company
believes that its cost of remediation will not have a material impact on its
results of operations or financial position.
DECOMMISSIONING PLANNING REQUIREMENTS
The Company is in the process of renewing certain licenses by the NRC
which the Company is required to hold in order to possess and process
depleted uranium materials. Under applicable licensing regulations, the
Company was required to submit and did submit a Decommissioning Funding Plan
("DFP") to provide for the possible future decommissioning of its Concord
facility. The Company is also required to provide financial assurance for
such decommissioning.
Approximately 96% of the depleted uranium materials which generated the
DFP requirements were processed for the United States Government.
Accordingly, the Company believes that its financial assurance, is only for
the balance of the cost. The total estimated cost of decommissioning the NMI
facility is $13.7 million. The Company's share, approximately 4%, would be
$550,000 for which a reserve is included in the accompanying balance sheet as
of September 30, 1995. The Company has provided financial assurance in the
form of a letter of credit in the amount of $750,000.
The outcome of a December 1994, NRC enforcement conference with respect to
what the NRC described as the Company's apparent lack of compliance with the
decommissioning financial assurance regulations has resulted in the Company
submitting a request to the NRC for exemption to certain aspects of the
Decommissioning and Disposal(D&D) regulations. The exemption request includes
alternate financial funding mechanisms not specifically called out in the
regulations. Management believes that these funding mechanisms when coupled
with Government contractual obligations will collectively satisfy the
decommissioning funding obligations of the Company. In filing the exemption,
the Company reiterated its long standing position that the United States
Government is obligated, by policy and by contract, to bear the balance of
decommissioning costs at the Concord site. The Company expects NRC's response
to the exemption request, early in 1996.
Management believes that based on progress made to date on the holding
basin remediation, along with the submission of a request for partial
exemption to the D&D rules, escalated enforcement action by NRC regarding
decommissioning funding compliance, although possible, will not occur.
Escalated enforcement action could take form of civil penalty, license
suspension or license revocation. A license action, such as a suspension or
revocation would have a material and adverse impact on results of operations
and financial position.
LEGAL PROCEEDINGS
The Company is involved with various legal actions. Management believes
that the final disposition of these actions will not have a material effect
on the Company's results of operations or financial position.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. TRANSACTIONS WITH RELATED PARTIES
Under the terms of a management agreement, Matthews Associates Limited is
entitled to an annual management fee. George J. Matthews, Chairman of the
Board of Directors, is sole owner of Matthews Associates Limited. These
fees, as well as certain expenses of Matthews Associates Limited that were
reimbursed by the Company, have been included in selling, general, and
administrative expenses. Management fees were $350,000 in 1995, 1994, and
1993. Mr. Matthews does not receive any other salary or fee for services as
Chairman of the Board of Directors.
13. MAINTENANCE AND REPAIRS
Maintenance and repair expenditures, which are charged to cost and expense
as incurred, amounted to $854,000 in 1995, $1,029,000 in 1994 and $1,002,000
in 1993.
14. INDUSTRY SEGMENT INFORMATION
The Company is engaged in the manufacture and sale of various specialty
metal products. The Company operates in three industry segments: Uranium
Services and Recycle, Specialty Metal Products, and Depleted Uranium
Penetrators. The Company has changed its segments for financial purposes.
All prior year amounts have been restated. Information relating to the
Company's operations for the industry segments described above for each of
the three years in the period ended September 30 is as follows:
1995 1994 1993
Net Sales and Contract Revenues:
Uranium Services & Recycle $ 4,969,000 $ 4,752,000 $ -
Specialty Metal Products 12,102,000 7,284,000 10,258,000
Depleted Uranium Penetrators 1,713,000 6,968,000 6,761,000
------------ ------------- -------------
Total $18,784,000 $ 19,004,000 $ 17,019,000
------------ ------------- -------------
------------ ------------- -------------
Operating Loss:
Uranium Services & Recycle $ (996,000) $ (5,409,000) $ -
Specialty Metal Products (341,000) (162,000) (2,816,000)
Depleted Uranium Penetrators (237,000) (5,033,000) (7,330,000)
------------ ------------- -------------
Subtotal (1,574,000) (10,604,000) (10,146,000)
General Corporate Expenses 350,000 350,000 350,000
------------ ------------- -------------
Net Operating Loss (1,924,000) (10,954,000) (10,496,000)
------------ ------------- -------------
Other Expense, Net 118,000 430,000 557,000
------------ ------------- -------------
Loss Before Taxes $(2,042,000) $(11,384,000) $(11,053,000)
------------ ------------- -------------
------------ ------------- -------------
Identifiable Assets:
Uranium Services & Recycle $16,609,000 $ 16,772,000 $ 18,090,000
Specialty Metal Products 5,140,000 5,646,000 7,297,000
Depleted Uranium Penetrators 12,158,000 9,863,000 11,697,000
Corporate 6,979,000 8,261,000 20,139,000
------------ ------------- -------------
Total $40,886,000 $ 40,542,000 $ 57,223,000
------------ ------------- -------------
------------ ------------- -------------
Depreciation and Amortization Expenses:
Uranium Services & Recycle $ 404,000 $ 843,000 $ 864,000
Specialty Metal Products 251,000 421,000 450,000
Depleted Uranium Penetrators 443,000 1,252,000 1,351,000
Corporate 241,000 358,000 391,000
------------ ------------- -------------
Total $ 1,339,000 $ 2,874,000 $ 3,056,000
------------ ------------- -------------
------------ ------------- -------------
Capital Expenditures:
Uranium Services & Recycle $ 325,000 $ 68,000 $ 184,000
Specialty Metal Products 85,000 315,000 827,000
Depleted Uranium Penetrators 6,000 65,000 96,000
Corporate 361,000 261,000 158,000
------------ ------------- -------------
Total $ 777,000 $ 709,000 $ 1,265,000
------------ ------------- -------------
------------ ------------- -------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Uranium Services and Recycle segment includes the manufacture of
depleted uranium products (non-penetrator) and the recycle of low level
radioactive metal. The Specialty Metal Products segment includes a large
assortment of metal products fabricated using foundry, extrusion, and
machining capabilities and involves the production and sale of various metal
powders manufactured by the Company's patented Rotating Electrode Process.
Operations in the Depleted Uranium Penetrator industry segment include the
production of various penetrators (a component of armor-piercing ammunition
used in certain U.S. military gun systems) which are sold to a department of
the U.S. Department of Defense (DOD), to prime contractors manufacturing such
ammunition for the DOD or to foreign military operations. Revenues derived
from contract research and development activities have been included in the
above segments based on the nature of the product.
Net sales and contract revenues by industry segment include sales to
unaffiliated customers (intersegment sales are not significant). A
significant portion of the Company's revenues has been derived from three
major customers (see Note 2) sales to Cogema are included in the Uranium
Services & Recycle industry segment. Sales to Lockheed Martin and Lockheed
Idaho Falls are included in the Specialty Metal Products industry segment.
Due to the utilization among segments of common production facilities and
equipment and the involvement of a single management organization in all
phases of the Company's operations, necessary allocations have been made
based on estimates which management believes to be reasonable.
Operating loss includes net sales and contract revenues less operating
expenses allocated to the individual segments. General corporate expenses
represent expenses which are not of an operating nature and, therefore, are
not allocable to industry segments.
Identifiable assets shown include accounts receivable, inventory, and
plant and equipment that have been allocated to each of the Company's
industry segments. Corporate assets consist primarily of cash, certificates
of deposit, and other assets.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. QUARTERLY RESULTS (UNAUDITED)
Financial results by quarter for 1995, 1994, and 1993 are summarized below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1995
Net Sales $ 5,626 $ 4,213 $ 3,753 $ 5,191
Operating Income (Loss) 220 (1,355) 45 (834)
Income (loss) before
extraordinary item 121 (300) 39 65
Extra gain on extinguishment of debt -- 585 -- --
Net Income 121 285 39 65
Per share amounts:
Income (loss) before
extraordinary item 0.05 (0.13) 0.02 0.03
Extra gain on extinguishment of debt -- 0.25 -- --
Net income per share 0.05 0.12 0.02 0.03
1994
Net Sales $ 4,300 $ 4,506 $ 5,527 $ 4,671
Operating Income (Loss) (1,118) 142 (2,183) (7,795)
Net Income (loss) (808) 24 (2,031) (7,381)
Net Income (loss) per share (0.35) 0.01 (0.88) (3.21)
1993
Net Sales $ 5,872 $ 4,719 $ 3,858 $ 2,570
Operating Income (Loss) 377 197 (5,879) (5,191)
Income (loss) before
cumulative effect of accounting change 156 74 (4,000) (3,537)
Cumulative effect of accounting change (1,100) -- -- --
Net Income (loss) 1,256 74 (4,000) (3,537)
Per share amounts:
Income (loss) before
cumulative effect of accounting change 0.07 0.03 (1.74) (1.54)
Cumulative effect of accounting change 0.48 -- -- --
Net Income (loss) per share 0.55 0.03 (1.74) (1.54)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Nuclear Metals, Inc.:
We have audited the accompanying consolidated balance sheets of NUCLEAR
METALS, INC. (a Massachusetts corporation) and subsidiaries as of September
30, 1995, and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1995. 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 audits.
We conducted our audits 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 audits provide 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 Nuclear Metals,
Inc. and subsidiaries as of September 30, 1995 and 1994, and the results of
their operations and their cash flows for the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Notes 1 and 6
to the financial statements, on January 11, 1996, the Company reached an
agreement with its lender to amend certain terms of its debt, including the
extension of certain debt maturity dates; the lender's waiver of past
violations of debt covenants and the revision of certain financial covenants.
The Company's ability to meet its revised debt service requirements in 1996
is dependent upon the receipt of a specific order and the related proceeds
from a certain customer. As of January 11, 1996, the Company's customer has
not been able to obtain funding to complete the purchase. This matter raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 1.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
November 22, 1995 (except for Notes 1 and 6
for which the date is January 11, 1996)
<PAGE>
CORPORATE DIRECTORY
BOARD OF DIRECTORS
George J. Matthews
Chairman
Wilson B. Tuffin
Vice Chairman
Robert E. Quinn
President
Frank H. Brenton
Chairman, Marshall's Incorporated, Retired
Kenneth A. Smith
Edwin R. Gilliland Professor of Chemical Engineering
Massachusetts Institute of Technology
Photo of
Richard
Vokey
Richard S. Vokey
President and Vice Chairman
Boston Private Bank & Trust Company
1928-1995
EXECUTIVE OFFICERS AND CORPORATE STAFF
George J. Matthews
Chairman of the Board of Directors
Wilson B. Tuffin
Vice Chairman of the Board of Directors
Robert E. Quinn
President
Douglas F. Grotheer
Vice President, Engineering
William T. Nachtrab
Vice President, Technology
James M. Spiezio
Vice President, Finance and Administration
Frank J. Vumbaco
Vice President, Health/Safety and
Corporate Communications
Bruce E. Zukauskas
Vice President, Operations
Thomas A. Wooters
Clerk
COMMON STOCK INFORMATION
The Company's common stock is traded on the NASDAQ Market under the symbol
NUCM. As reported by a principal market maker for the stock, the high and low
bid prices for the three years ended September 30 are reflected in the
following table. This information reflects inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
1995 HIGH LOW
1st Quarter 18 13 1/4
2nd Quarter 16 3/4 11 1/2
3rd Quarter 14 1/2 11 1/2
4th Quarter 14 1/4 11
1994 HIGH LOW
1st Quarter 10 3/4 6 1/8
2nd Quarter 13 10 1/8
3rd Quarter 20 11 3/4
4th Quarter 21 14
1993 HIGH LOW
1st Quarter 7 5 1/2
2nd Quarter 10 6 1/4
3rd Quarter 11 1/4 7 1/2
4th Quarter 9 5 3/4
As of September 30, 1995, there were approximately 298 holders of record of
the Company's Common Stock. The Company believes the actual number of
beneficial owners of the Company's Common Stock is greater because a large
number of shares are held in custodial or nominee accounts.
The Company did not declare any dividends during its last two fiscal years.
Given the Company's current cash flow situation, the Company does not expect
to pay dividends in the next year. Future cash dividends, if any, would be
paid on an annual basis, the amount of which is subject to the determination
and approval of the Company's Board of Directors. The Company's loan
agreement with a bank prohibits the declaration or payment of dividends
without the bank's consent.
HEADQUARTERS
2229 Main Street, Concord, Massachusetts 01742
CAROLINA METALS, INC.
Highway 80, Barnwell, South Carolina 29812
TRANSFER AGENT AND REGISTRAR
State Street Bank & Trust Co.
225 Franklin Street, Boston, Massachusetts 02101
AUDITORS
Arthur Andersen LLP
One International Place, Boston, Massachusetts 02110
ANNUAL MEETING
The annual meeting of stockholders will be held on May 1, 1996 at 10:00
A.M. at the offices of State Street Bank & Trust Company, 225 Franklin
Street, Boston, Massachusetts 02101.
FORM 10-K
The Form 10-K Annual Report to the Securities and Exchange Commission will be
provided without charge to shareholders on written request. Requests should
be directed to the Vice President, Finance, Nuclear Metals, Inc. 2229 Main
Street, Concord, Massachusetts 01742.
<PAGE>
[LOGO]
NUCLEAR METALS, INC.
2229 MAIN ST, CONCORD, MASSACHUSETTS 01742
PHONE (508) 369-5410 - FAX (508) 369-4045
