<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K 405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14057
MET-COIL SYSTEMS CORPORATION
DELAWARE 42-1027215
(STATE OF INCORPORATION) (I.R.S. ID NO.)
5486 SIXTH STREET SW, CEDAR RAPIDS, IA 52404
Registrant's telephone number, including area code: 319/363-6566
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the Common Stock, $.01 par value, held by
non-affiliates of the registrant on August 23, 1996 based upon the average of
the closing bid and asked prices on that date as reported by the Wall Street
Journal was $7,216,128
Registrant had 3,120,488 shares of Common Stock, $.01 par value, outstanding as
of August 23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement to be filed with the Commission on
or before September 13, 1996 are incorporated by reference into Part III
hereof.
ANNUAL REPORT NOT INCLUDED
THE COMPANY'S 1996 ANNUAL REPORT TO STOCKHOLDERS, PORTIONS OF WHICH ARE
INCORPORATED HEREIN, IS NOT INCLUDED WITH THIS 10-K BUT HAS BEEN SEPARATELY
DISTRIBUTED, ACCOMPANIES THIS REPORT, OR IS AVAILABLE UPON REQUEST.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Met-Coil Systems Corporation ("Met-Coil"), a holding company, and its
operating units (collectively referred to as the "Company") design, engineer,
manufacture and market metal forming and fabricating machinery and
computer-controlled fabrication systems which produce a wide variety of
products from metal coils and sheets. The Company also manufactures and
markets high-speed automated material handling and press line automation
equipment and systems. Met-Coil's operating units include two wholly-owned
subsidiaries--Iowa Precision Industries, Inc. ("Iowa Precision"), The
Lockformer Company ("Lockformer") and a joint venture -- Met-Coil Ltd.
("MCL"). See "Description of Operations" below.
The Company's sheet metal machinery and fabrication systems are designed
to process parts from metal coils and blanks in thicknesses up to one-half
inch. Generally, the equipment operates in an automated, computer-controlled
environment and includes high speed roll forming machinery and slitting,
shearing and material handling equipment. Fabrication systems manufactured by
the Company integrate various pieces of equipment which process coils and
blanks into finished metal products.
The Company's manufacturing systems and machinery are used to produce a
broad range of products, including ductwork for heating, ventilation, and
air-conditioning systems; metal cabinetry for home appliances; electronic
components; metal furniture and shelving; and automobile parts. The Company
markets its machinery and systems primarily through a worldwide distributor
network.
Met-Coil was organized under Delaware law in 1973 and its present
operating units were acquired thereafter. Met-Coil's principal assets are the
shares of stock of its subsidiaries and affiliates.
In fiscal 1996 Met-Coil sold the working capital assets and a majority of
the operations of its subsidiary, Rowe Machinery & Automation Inc. ("Rowe") (as
further discussed below) and is in the process of dissolving its European
operation.
Although, the Company is currently emphasizing internal growth and plans
to continue to do so in the foreseeable future, from time to time, it may
consider acquisitions of product lines or companies, or investments in joint
ventures with companies that have compatible product lines, that would
complement the Company's existing capabilities to supply fabrication systems
for sheet metal processing applications. However, the Company is not currently
considering any such acquisitions or investments, and it is uncertain whether
such considerations in the future will result in definitive agreements for, or
the consummation of, any such acquisitions or investments. The Company cannot
predict the impact that any such transactions might have on its stockholders.
DESCRIPTION OF OPERATIONS
Iowa Precision Industries, Inc.
Iowa Precision manufactures integrated systems for producing slit, roll
formed, punched, notched and sheared blanks from sheet metal coils. It is a
major manufacturer of heating, ventilation, and air conditioning (HVAC)
manufacturing machinery and automated systems. Iowa Precision's Adjustable
Elbow Machine and it's Fabriduct system combine Lockformer's roll forming
technology with Iowa Precision's equipment to provide unique systems for
converting sheet metal into finished ductwork with improved sealing
characteristics. In addition, Iowa Precision provides a variety of computer
controlled fabrication systems. Iowa Precision is one of the few manufacturers
of coil processing equipment which designs and produces its own microprocessor
computer numerical controls.
2
<PAGE> 3
The Lockformer Company
Lockformer designs and manufactures roll forming and cutting machinery and
systems utilized by HVAC contractors as well as other industries such as metal
furniture, appliance, sign, and glass. Product developments include
enhancements to microprocessor-controlled cutting systems using plasma arc
torch heads for processing sheetmetal ("Vulcan) and other metals ("Precision
Cutting Machine" or "PCM") and a glass cutting machine ("Excalibur"). These
cutting machines offer lower cost alternatives for their respective markets.
The machines have software packages that determine optimal patterns to be cut
to form various materials to maximize yield. In addition, Lockformer markets
its Transverse Duct Connector (TDC) System which connects air-conditioning
ductwork and provides enhanced sealing. Lockformer also manufactures
quick-change reprogrammable products, such as duplex machines with moveable
heads, that fit into flexible fabrication systems.
Rowe Machinery & Automation, Inc.
Rowe specializes in the development and manufacture of heavy duty metal
coil processing systems. It produces a variety of high speed, automated heavy
duty coil stock straightening and feeding systems, press feeding lines,
cut-to-length sheeting lines, blanking lines and coil stock handling systems.
On February 5, 1996, the Company sold certain assets related to two product
lines manufactured at the Rowe facility to Mestex, Inc. The sale included the
"Rowe" name, the technical know how to produce the "Press Feed" and
"Cut-to-Length" product lines and the working capital accounts related to these
product lines. The Company received $3,000,000 in cash at closing and a note
receivable for $600,000. This note was collected at May 31, 1996. The Company
recognized a gain from this transaction of $2,148,000.
Met-Coil Europe
Met-Coil and its subsidiaries have had a presence in Europe for over 30
years. During fiscal 1996 the European office (established in fiscal year 1993)
was closed and the Company will use independent agents for the marketing of its
products in the future.
Met-Coil Ltd.
MCL was formed as a 50% owned joint venture in September 1986 with a
Japanese capital goods manufacturer. MCL sells and services Met-Coil products
in Japan and the Asia-Pacific markets. MCL receives commissions on its sales
of Met-Coil products that are manufactured by the Company's operating units.
MCL also manufactures a group of Company products in Japan for the Japanese and
Asia-Pacific markets. The Company receives royalty payments on these products.
MARKETING, CUSTOMERS AND SUPPLIERS
The Company markets its machinery and fabrication systems primarily
through a worldwide distributor network. Each of the Company's operating units
has management personnel responsible for sales and marketing for their
respective organizations. The Company also has an international department
that is responsible for the coordination of overseas sales and for maintaining
and developing the Company's international distributor network. For
information concerning the Company's export sales, see Notes to Consolidated
Financial Statements included in Part IV, Item 14 of this 10-K.
Iowa Precision and Lockformer rely primarily on independent distributors
for their domestic and international sales. Iowa Precision, Lockformer have
approximately 33 and 30 domestic distributors and 30 and 28 international
distributors, respectively. Many of these distributors represent more than one
of the Company's subsidiaries.
The Company's employees provide installation, training and full service
for its machinery and systems. The Company warrants its products for periods
of up to two years. The Company services the computer components of the
machinery and systems that it designs and manufactures.
3
<PAGE> 4
The Company's customers consist primarily of fabricators of heating,
ventilation and air conditioning (HVAC) ductwork; metal service centers, which
serve as intermediate processors of coils between the mill and the final
manufacturer; as well as a wide range of manufacturers of sheet metal products
in the appliance, metal furniture, automotive, electronics, electrical, and
other industries.
A majority of the Company's revenues are currently generated from domestic
sources, such sales representing 76%, 83% and 84% of consolidated revenues
during fiscal years 1996, 1995, and 1994, respectively. Several of the
Company's principal product lines (including its TDC, Vulcan systems, tools,
bending and punching machinery) are used for the production of heating,
ventilation and air-conditioning (HVAC) ductwork for industrial, commercial and
residential buildings and therefore are subject to economic conditions
affecting the construction industry. Domestic sales of these product lines
represented approximately 56%, 44% and 53% of the Company's sales during fiscal
1996, 1995 and 1994, respectively. Sales to one customer represented 12% of
of consolidated revenues during fiscal year 1996.
The Company's principal raw materials are steel and electronic components,
which it can obtain from a variety of sources. The Company has not
experienced, and does not anticipate, any significant difficulties in obtaining
adequate supplies of raw materials.
PRODUCT DEVELOPMENT
The Company's policy is to develop and produce only those products for
which the Company believes it is positioned to obtain and hold a substantial
market share. The Company's product development, which results from individual
subsidiary effort or from the combined effort of its subsidiaries, involves: a)
creation of new products; b) improvements to existing products; and c) design
of specific products or modifications of existing products at the request of a
customer. Such products or modifications are frequently incorporated into the
Company's standard equipment. During fiscal years 1996, 1995 and 1994, the
Company spent approximately $1,476,000, $1,362,000, and $1,823,000,
respectively, in the aggregate for the three categories described above.
PATENTS, TRADEMARKS AND LICENSES
The Company holds a variety of patents and trademarks relating to the
designs, uses and names of its products and to the names of its subsidiaries.
It is the Company's policy to obtain patent protection for as many of its new
and developmental products as possible and to enforce all such patent rights.
The Company does not believe, however, that the loss of any of these patents or
trademarks would have a material adverse effect on the Company's overall
competitive position. As a result of the settlement agreement with
Construction Technology, Inc. (CTI), the Company purchased from CTI a license
to manufacture and sell the Vulcan for $2.5 million (see Notes to Consolidated
Financial Statements included in Part IV, Item 14 of this 10-K).
BACKLOG
The Company's backlog of orders at July 31, 1996 was approximately $12.5
million, compared to approximately $19.7 million at July 31, 1995. The change
is primarily attributable to the sale of Rowe Machinery and a lower backlog
level at Lockformer.
All orders for machinery and systems not shipped at the end of each period
are included in backlog. The Company estimates that all of the present backlog
will be shipped within the balance of the current fiscal year ending May 31,
1997. (See Management Discussion and Analysis of Financial Condition and
Results of Operations, Part II, Item 7 of this 10-K.)
COMPETITION
The Company's markets are competitive, with the principal competitive
factors being product quality, customer service and price. The Company
competes with a number of manufacturers which produce equipment similar to some
of the Company's products or product lines. Moreover, the Company's policy is
to produce and market only those products for which the Company believes it is
positioned to hold a substantial market share. While the Company's products
are generally in the higher range of quality and price, it believes that it is
a significant competitive force in most of the market segments of its principal
product lines. To date, the Company has not been subject to significant
foreign competition in its domestic markets.
4
<PAGE> 5
The Company believes that the Iowa Precision and Lockformer names are well
known in the sheet metal processing and fabricating industry and that the
reputation of the Company for quality products and service provides the Company
with a significant competitive advantage. In addition, the Company's ability
to design systems that perform most, if not all, of the sheet metal processing
and fabricating functions for a given application and the Company's ability to
design, build and service most of the computer needs of the Company's systems
provide the Company with additional advantages over its competition.
EMPLOYEES
At May 31, 1996, the Company employed approximately 249 persons, of whom
approximately 142 were production employees, 19 were engineering personnel, 11
were sales personnel and the remainder were management and clerical employees.
There are currently two collective bargaining agreements covering the
production employees at the Lockformer and Iowa Precision plants (totalling
approximately 142 employees). These agreements will expire in January 1998 and
May 1998, respectively. The Company believes its relations with its employees
are satisfactory.
EXECUTIVE OFFICERS OF MET-COIL
Name Age Position with the Company and five-year background (1)
Raymond H. Blakeman 72 Chairman of the Board of Met-Coil since July 1986 and
Chief Executive Officer of Met-Coil from July 1986 to
December 1988, from June 1990 to May 31, 1994 and
from May 1, 1995 to present.
James D. Heitt 56 Vice President of Met-Coil since August 1990.
President of Iowa Precision since July 1986.
John J. Toben 46 Vice President International of Met-Coil since
February 1992. International Marketing Manager June
1988 to February 1992.
Joseph H. Ceryanec 35 Vice President Finance and Chief Financial Officer of
Met-Coil since May 31, 1994. Vice President from
December 1993 to May 1994. Senior Manager of Ernst &
Young, a public accounting firm, from October 1992 to
December 1993, and Manager with Ernst & Young from
October 1989 to October 1992.
Jacinto A. Rosa 37 Executive Vice President of Met-Coil since November
1994. From 1991 to 1994 President, EPM Corp., a
manufacturer of coil winding equipment and automated
systems. Prior thereto Director of Marketing for
Murata Wiedmann, a manufacturer of sheet metal
fabricating equipment and automated systems.
- --------------------
(1) Officers of the Company are elected annually by the Board of Directors and
hold office until their successors are elected. Mr. Rosa resigned as an
officer and employee of the Company effective September 15, 1996.
5
<PAGE> 6
ITEM 2. PROPERTIES
The Company maintains facilities with an aggregate of approximately
311,145 square feet of space for its corporate and subsidiary operations. The
Company considers all of its facilities to be in good operating condition and
adequate for its current needs.
The following table summarizes the principal corporate and subsidiary
facilities of the Company, both owned and leased:
<TABLE>
<CAPTION>
Approx. Area Owned/
Location Primary Function in square feet Leased Expiration
- -------- ---------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
Lisle, Illinois Lockformer manufacturing, 85,000 Owned --
warehousing and offices
Cedar Rapids, Iowa Iowa Precision 74,000 Owned (1) --
manufacturing, warehousing
and offices
Cedar Rapids, Iowa Iowa Precision manufacturing 5,000 Leased (2) --
Dallas, Texas Rowe manufacturing, 72,000 Owned (3) --
warehousing and offices
Rockford, Illinois Roper Whitney manufacturing, 126,000 Leased (4) 4/1/98
warehousing and offices
</TABLE>
- -------------------
(1) Being acquired pursuant to a real estate purchase contract. See Notes to
Consolidated Financial Statements included in Part IV, Item 14 of this
10-K.
(2) Leased on a month-to-month basis. Ninety (90) day notice of intent to
vacate premises required.
(3) In connection with the sale of Rowe, the Company entered into a lease
agreement with Mestex, Ltd. The initial term of the lease is 12 months
and expires February 4,1997. The lease may then continue on a month to
month basis.
(4) In connection with the sale of Roper Whitney, the Company entered into a
sublease with the buyer which generally reflects the rents and terms of
the original building lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal actions, governmental
investigations, and proceedings relating to various matters incidental to its
business including product liability claims. The Company intends to vigorously
defend these matters. While the outcome of such matters cannot be predicted
with certainty, in the opinion of management, after reviewing such matters and
consulting with the Company's counsel and insurers, any liability which may
ultimately be incurred, is not expected to materially affect the consolidated
financial position and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of the fiscal year 1996.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Met-Coil's common stock is quoted on the NASDAQ Small Cap Market. The
range of high and low bid prices for the common stock, as reported by the Dow
Jones Historical Stock Quote Reporter Service are shown below. Prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES
HIGH LOW
- -------------------------------------------------------------------------------
<S> <C> <C>
FISCAL 1996
Fourth Quarter ............... $ 2.50 $ 1.37
Third Quarter ................ 2.00 .75
Second Quarter ............... 2.00 1.12
First Quarter ................ 3.12 1.50
FISCAL 1995
Fourth Quarter ............... $ 3.37 $ 2.12
Third Quarter ................ 3.50 2.87
Second Quarter ............... 3.50 2.87
First Quarter ................ 3.25 2.25
- -------------------------------------------------------------------------------
</TABLE>
As of August 23, 1996, there were approximately 1,500 stockholders of
record of Met-Coil common stock, par value $.01 per share, excluding
approximately 249 employees with vested rights in the Company's ESOP (some of
whom otherwise hold shares in the Company).
No cash dividends were declared on the Company's common stock during the
last two fiscal years. See Notes to the Consolidated Financial Statements
included in Part IV, Item 14 of this 10-K and Management Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7 of
this 10-K for discussions regarding dividend restrictions.
ITEM 6. SELECTED FINANCIAL DATA
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Financial Statements and Financial Statement Schedules" included in
Part IV, Item 14 hereof and herein incorporated by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Changes:
None
(b) Disagreements:
None.
7
<PAGE> 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to executive officers of Met-Coil
is contained in Part I, Item 1 hereof under the caption "Executive Officers of
Met-Coil." The information required by this item as to directors is included
under the caption "Election of Directors" in Met-Coil's definitive proxy
statement for its 1996 Annual Meeting, and is incorporated herein by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the captions
"Report on Executive Compensation" and "Summary Compensation Table" in
Met-Coil's definitive proxy statement for its 1996 Annual Meeting, and is
incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Security Ownership of Directors and Management" in Met-Coil's definitive proxy
statement for its 1996 Annual Meeting, and is incorporated herein by reference
thereto.
ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS
The John A. Carver Trust, of which Mr. Carver is a Trustee, holds a first
mortgage on unimproved land adjacent to the Lockformer facility. The note
calls for interest only payments through August 28, 1997 at prime rate (per
Wall Street Journal) plus 5 1/4%, however such rate shall not be less than 11%,
with principal due August 28, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
(1)&(2) See the Index to Financial Statements included elsewhere herein
for a list of financial statements and financial statement
schedules included or incorporated herein by reference.
(3) List of Exhibits required by Item 601 of Regulation S-K:
See Index to Exhibits included elsewhere herein.
(b) Reports on Form 8-K:
(1) Filing on October 6, 1995 regarding change in Auditors.
(2) Filing on February 16, 1996 regarding sale of Rowe Machinery &
Automation, Inc.
(3) Filing on April 30, 1996 regarding restructuring of revolving
lines of credit and senior debt.
(c) Exhibits required by Item 601 of Regulation S-K:
See Index to Exhibits included elsewhere herein.
(d) Financial Statement Schedules:
See the Index to Financial Statements included elsewhere herein
for a list of financial statements and financial statement
schedules included or incorporated herein by reference.
8
<PAGE> 9
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.
MET-COIL SYSTEMS CORPORATION
By: Joseph H. Ceryanec/s/
----------------------------
Joseph H. Ceryanec
Vice President Finance
and Chief Financial Officer
Date: September 13, 1996
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.
<TABLE>
<CAPTION>
Signature TITLE DATE
<S> <C> <C>
Raymond H. Blakeman/s/ Director, Chairman of the Board September 13, 1996
- -----------------------
Raymond H. Blakeman
Joseph H. Ceryanec/s/ Vice President and Chief Financial Officer September 13, 1996
- -----------------------
Joseph H. Ceryanec
E. Keith Moore/s/ Director September 13, 1996
- -----------------------
E. Keith Moore
John F. Logan/s/ Director September 13, 1996
- -----------------------
John F. Logan
Gary M. Neal/s/ Director September 13, 1996
- -----------------------
Gary M. Neal
Roy J. Carver Jr./s/ Director September 13, 1996
- -----------------------
Roy J. Carver Jr.
Michael J. Nonnenmann/s/ Director September 13, 1996
- ------------------------
Michael J. Nonnenmann
</TABLE>
9
<PAGE> 10
INDEX TO FINANCIAL STATEMENTS
PART IV, ITEM 14 - (continued)
Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Five Year Summary .................................................................... F-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................ F-2
Reports of Independent Auditors ..................................................... F-5 & F-6
Consolidated Balance Sheets, May 31, 1996 and 1995 ................................... F-7
Consolidated Statements of Operations, Three Years Ended May 31, 1996 ................ F-8
Consolidated Statements of Stockholders' Equity, Three Years Ended May 31, 1996 ...... F-9
Consolidated Statements of Cash Flows, Three Years Ended May 31, 1996 ................ F-10
Notes to Consolidated Financial Statements ........................................... F-11
</TABLE>
Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Individual financial statements for equity method investees have been
omitted because they are not significant subsidiaries.
10
<PAGE> 11
Five Year Summary
<TABLE>
<CAPTION>
(In thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------
Years Ended May 31, 1996 1995 (b) 1994 1993 1992
(Restated)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues $ 41,554 $ 43,775 $ 42,594 $ 48,026 $ 48,490
Cost of goods sold 34,140 35,732 33,832 40,406 41,240
Selling, general, and
administrative expenses 7,640 9,495 9,382 9,311 11,821
Interest expense, net 2,592 2,690 2,435 2,595 2,219
Other non-operating (income)
expense, net (1,962)(a) 336 672(a) 850 4,796(c)
- ----------------------------------------------------------------------------------------------------------------
Loss before income taxes and
effect of accounting change (856) (4,478) (3,727) (5,136) (11,586)
Income tax credits 300 - - - 565 1,350 3,351
- ----------------------------------------------------------------------------------------------------------------
Loss before effect
of accounting change (556) (4,478) (3,162) (3,786) (8,235)
Effect of accounting change - - - - - - - - - (262)(d) 579(e)
- ----------------------------------------------------------------------------------------------------------------
Net loss $ (556) $ (4,478) $ (3,162) $ (4,048) $ (7,656)
================================================================================================================
Loss per common share before
effect of accounting change $ (0.26) $ (1.61) $ (1.16) $ (1.41) $ (3.28)
Effect of accounting change - - - - - - - - - (0.10) 0.23
- ----------------------------------------------------------------------------------------------------------------
Net loss per common share $ (0.26) $ (1.61) $ (1.16) $ (1.51) $ (3.05)
================================================================================================================
Weighted average common shares 3,031 2,871 2,719 2,688 2,514
================================================================================================================
BALANCE SHEET DATA:
Working capital (deficiency) $ 1,754 $ (6,686) $ 5,892 $ 8,090 $ 8,141
Property and equipment, net 5,507 7,953 8,751 11,056 12,982
Total assets 24,663 37,319 37,099 41,019 48,673
================================================================================================================
Debt:
Debt Outstanding $ 15,515 $ 22,283 $ 23,816 $ 26,266 $ 28,024
Less: Cash restricted for
debt repayment - - - (986) (1,959) - - - - - -
- ----------------------------------------------------------------------------------------------------------------
Net debt outstanding 15,515 21,297 21,857 26,266 28,024
Preferred stock, convertible
and redeemable 3,709 3,457 1,472 - - - - - -
Stockholders' equity (deficit) (1,912) (1,020) 2,841 4,887 8,212
================================================================================================================
SHARE DATA:
Dividend per common share $ - - - $ - - - $ - - - $ - - - $ - - -
Book value per common share (.61) (.35) 1.02 1.85 3.11
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
(a) Note 4 - Subsidiaries and Affiliates
(b) Note 2 - Prior Period Adjustment
(c) Note 12 - Settlement Agreement
(d) Postretirement Benefits
(e) Income Taxes
F-1
<PAGE> 12
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in connection with the Consolidated
Financial Statements and Notes thereto, to which references are made elsewhere
herein - especially as to Note 2 (prior period restatement) and Note 5 (debt).
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
which certain items bear to
net revenues:
Percentage of Net Revenues
1996 1995 1994
Restated
- --------------------------------------------------------------------------------
Net Revenues 100% 100% 100%
Cost of goods sold 82 81 79
Operating expenses 18 22 22
Interest expense, net 6 6 6
Other (income) expense items, net (4) 1 2
- --------------------------------------------------------------------------------
Loss before income taxes (2) (10) (9)
Income tax credits 1 -- 1
- --------------------------------------------------------------------------------
Net Loss (1) (10) (8)
- --------------------------------------------------------------------------------
The results reflected above have been restated for 1995 due to a
misstatement of inventory at Lockformer at May 31, 1995 as a result of an error
in the calculation of the inventory LIFO reserve. See "Restatement" below.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues of $41.6 million decreased from $43.8 million in 1995. The reason
for the decrease is due to the sale of two significant product lines at Rowe on
February 5, 1996. Sales of products related to these two product lines amounted
to $4 million for the period from February 5, 1995 to May 31, 1995. Therefore
on a comparable basis revenues increased $1.8 million or 4%, reflecting a
continued strong sales market. Included in fiscal 1996 revenues are sales of
$6.4 million related to the product lines that were sold. International sales
were particularly strong and increased from $7.2 million in 1995 to $10.3
million in 1996.
Fiscal 1996 cost of goods sold as a percentage of revenues were generally
consistent with fiscal 1995 with the slight increase attributable to the
companies buying in small quantities due to cash constraints throughout much of
1996. The restatement of 1995 cost of goods sold caused a 3% increase as a
percentage of net revenues.
Operating expenses decreased $1.9 million from 1995 to 1996 which
represented a 4% decrease as a percentage of net revenues. The large decrease
was attributable to the significant reduction in operations at Rowe during the
fourth quarter and to cost cutting measures put in place in early 1996 and
related to cuts in selling and general and administrative employees due in part
to the consolidation of certain functions at Lockformer and Iowa Precision.
Interest expense decreased slightly from $2.7 million in 1995 to $2.6
million in 1996. The decrease was due to the lower level of borrowing which
occurred primarily in the fourth quarter of 1996 offset somewhat by a full year
of interest accretion on the preferred stock issued during 1995.
Other income and expense as noted above includes a $2.1 million gain on the
sale of the product lines at Rowe.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues of $43.8 million increased slightly from $42.6 million in 1994.
During fiscal year 1994 the consolidated revenues included almost $6 million of
revenue from Roper Whitney which was sold in December, 1993. Therefore,
revenues on a comparable basis increased $7.2 million or 20% and reflected a
continued strong sales market. All three domestic subsidiaries had increased
revenues with Rowe increasing almost $5 million. International revenues were
$7.2 million and consistent with fiscal 1994.
F-2
<PAGE> 13
Fiscal 1995 cost of goods sold as a percentage of revenues were somewhat
higher than fiscal 1994 with improvements at Rowe offset by decreased margins
at Lockformer. Operating expenses also were consistent among the two years.
Interest expense increased from $2.4 million in fiscal 1994 to $2.7
million in fiscal 1995 due to the accretion of interest on preferred stock.
The 1995 pretax loss was primarily attributable to Lockformer and was not
reduced by tax credits as all tax loss carrybacks had been previously utilized
and deferred tax assets have been fully reserved due to a history of operating
losses.
RESTATEMENT
As noted in the financial statements (see Note 2 ) the financial results
for fiscal 1995 have been restated to reflect an adjustment of $1.4 million
related to the May 31, 1995, inventory balance at the Lockformer facility. This
adjustment, which reduced inventory and increased cost of goods sold was due to
an error in the calculation of the 1995 LIFO reserve.
LIQUIDITY AND CAPITAL RESOURCES
Financial Review
The Company's total assets were $24.7 million at the end of fiscal 1996
and reflected a $12.7 million or 34% decrease from the prior year end. The
decrease was primarily attributable to a $8.7 million decrease in current
assets which was the result of the sale of $3.1 million in current assets sold
in conjunction with the sale of the Rowe product lines as well as cash
management efforts implemented during 1996 to reduce receivables and
inventories. Additionally property and equipment related to a previously owned
subsidiary was sold during the year.
Current liabilities decreased $17.2 million from 1995 to 1996 due in large
part to the classification of $12 million of senior notes as current in 1995
due to debt covenant violations that were not amended or waived. Of the
remaining current liabilities, the current line of credit decreased $856,000,
accounts payable decreased $4.1 million and accrued liabilities decreased
$495,000. All of these liabilities decreased primarily due to the Company's
improved cash flow, especially during the third and fourth quarter of 1996
which allowed the Company to lower current liabilities. Total debt outstanding,
excluding the line of credit, decreased $5.9 million. This decrease was
primarily attributable to payments made with proceeds of $3.6 million from the
sale of the Rowe product lines, application of $986,000 of restricted cash held
for debt payments at end of the prior year, $400,000 proceeds from the
aforementioned sale of property and equipment, $530,000 from the collection of
a note receivable, and cash flows generated from the reduction in receivables
and inventories mentioned above. Working capital was $1.8 million at May 31,
1996.
Cash Flows and Commitments
As a result of the net loss for the year and the restatement of 1995, the
Company was in violation with certain financial covenants of its revolving
credit and senior note agreements. Due primarily to the Company's continued
operational improvement and positive cash flow, the lenders have amended their
loan agreement. This amendment waives certain covenant violations and amends
certain other financial ratios at May 31, 1996 and for future years. With this
amendment management believes the Company will comply with the financial
covenants in the future.
Based on amounts available under the Company's line of credit, which have
averaged $1 million since May 31, 1996, and cash flows from operations, the
Company expects to meet the cash required for investing and financing
activities for fiscal 1997.
During 1996 the Company paid dividends of 6% on the preferred stock except
that in connection with the March 31, 1996 payment, only one-half of the
semi-annual payment was made due to restrictions in the senior note agreement.
In connection with the recent loan amendment received, the Company will be
allowed to pay the remainder of the March 31, 1996 dividend as well as the
September 30, 1996 dividend payment. The Company continues to omit quarterly
common stock dividends due to loan covenants, which prohibit the payment of
common stock dividends. It is uncertain when, and if, the Company will pay
common stock dividends in the future.
As of May 31, 1996 the Company had no commitments for, or need of,
significant capital expenditures.
F-3
<PAGE> 14
MANAGEMENT'S DISCUSSION (CONTINUED)
MARKETS AND TRENDS
The Company is engaged in highly competitive markets with a significant
portion of its business related to the domestic HVAC and construction
industries. In the early 1990's these industries were depressed, however,
lower interest rates and other factors along with the generally improving U.S.
economy have resulted in continually improved activity during fiscal 1996. It
is expected that this trend will continue in 1997.
In addition, the Company continues to expand its market and geographic
diversity, thereby reducing dependencies and enhancing it scope of business
opportunities.
Management believes that the relatively moderate inflation of the past
several years has not had a material effect on the Company's business, and if
this relatively moderate rate continues it is not expected to have a material
effect on operations.
CONTINGENCIES AND OTHER MATTERS
The Company is engaged in various legal and other proceedings incident to
its business (see Note 12).
The statements under Management's Discussion and Analysis of Financial
Condition and Results of Operations and the other statements in this Annual
report which are not historical facts are forward looking statements. These
forward looking statements involve risks and uncertainties that could render
them materially different, including, but not limited to, the effect of
economic conditions, the impact of competition, availability
and costs of inventory, the rate of technology change, the availability of
capital, supply constraints or difficulties, the effect of the Company's
accounting policies, the effect of regulatory and legal developments, and other
risks.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." This Statement defines a new "fair value" method of accounting
for stock-based compensation expense, and requires certain additional
disclosures for these plans. The Statement also allows the retention of the
previous "intrinsic value" method of accounting for expense recognition under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company intends to retain the intrinsic value method and,
therefore, the new standard will have no effect on the Company's financial
position or results from operations.
CORPORATE INFORMATION
PRICE RANGE OF COMMON SHARES:
Met-Coil's common stock is quoted on the NASDAQ Small Cap Market System.
The range of high and low bid prices for the common stock, as reported by the
Dow Jones Historical Stock Quote Reporter Service, are shown below. Prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Bid Prices
High Low
- ----------------------------------------------------------------------------
<S> <C> <C>
Fiscal 1996
Fourth quarter $2.50 $1.37
Third quarter 2.00 0.75
Second quarter 2.00 1.12
First quarter 3.12 1.50
- ----------------------------------------------------------------------------
Fiscal 1995
Fourth quarter $3.37 $2.12
Third quarter 3.50 2.87
Second quarter 3.50 2.87
First quarter 3.25 2.25
- ----------------------------------------------------------------------------
</TABLE>
As of August 23, 1996, there were approximately 1,500 stockholders of
record of Met-Coil common stock, par value $0.01 per share, excluding
approximately 249 employees with vested rights in the Company's ESOP (some of
whom otherwise hold shares in the Company).
See Note 5 to the Consolidated Financial Statements and Management
Discussion and Analysis of Financial Condition and Results of Operations for
discussions regarding dividend restrictions.
F-4
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Met-Coil Systems Corporation
Cedar Rapids, Iowa
We have audited the accompanying consolidated balance sheet of Met-Coil Systems
Corporation and Subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Met-Coil Systems Corporation and
Subsidiaries at May 31, 1996, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Cedar Rapids, Iowa
September 12, 1996
F-5
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Met-Coil Systems Corporation
Cedar Rapids, Iowa
We have audited the consolidated balance sheet of Met-Coil Systems Corporation
and Subsidiaries as of May 31, 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended May 31, 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 consolidated financial position of Met-Coil Systems
Corporation and Subsidiaries at May 31, 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended May 31, 1995, in conformity with generally accepted accounting
principles.
The Company's recurring operating losses, working capital deficiency and debt
covenant violations (as described in Note 5(C)) raise substantial doubt about
the Company's ability to continue as a going concern. The 1995 financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
ERNST & YOUNG LLP
Des Moines, Iowa
July 31, 1995, except for Note 2 as to which
the date is September 12, 1996
F-6
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except shares)
- --------------------------------------------------------------------------------------------
May 31, 1996 1995
(Restated)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 890 $ 159
Cash, restricted for debt repayment (Note 5) - - - 750
Trade receivables, net (Note 3) 4,585 8,436
Notes and other receivables 303 968
Inventories (Note 3) 8,007 11,849
Prepaid expenses 1,048 1,413
- --------------------------------------------------------------------------------------------
Total current assets 14,833 23,575
Property and equipment:
Land 1,535 1,983
Buildings and building improvements 5,199 6,605
Machinery and equipment 8,901 11,344
Furniture and equipment 3,188 3,152
- --------------------------------------------------------------------------------------------
18,823 23,084
Less accumulated depreciation 13,316 15,131
- --------------------------------------------------------------------------------------------
Net property and equipment 5,507 7,953
Cash, restricted for debt repayment (Note 5) - - - 236
Investments and other assets (Note 4) 1,574 2,471
License fee (Note 3) 1,500 1,731
Intangibles, net (Note 3) 1,249 1,353
- --------------------------------------------------------------------------------------------
Total Assets (Note 5) $ 24,663 $ 37,319
============================================================================================
Current liabilities
Revolving line of credit (Note 5) $ 2,715 $ 3,571
Current maturities of long-term debt (Note 5) 3,556 14,874
Accounts payable 2,958 7,063
Accrued liabilities 1,891 2,386
Customer deposits 1,959 2,367
- --------------------------------------------------------------------------------------------
Total current liabilities 13,079 30,261
Long-term debt (Note 5) 9,244 3,838
Deferred income tax credits, net (Note 6) 140 440
Other (Note 8) 403 343
Commitments and contingencies (Notes 12 and 13)
Preferred stock, convertible and redeemable (Note 10) 3,709 3,457
Stockholders' Equity (Deficit) (Notes 5 and 9):
Common stock, $.01 par value, authorized 10,000,000,
1996 issued 3,146,521; 1995 issued 2,932,573 31 29
Additional paid-in capital 16,205 15,809
Accumulated deficit (Notes 2 and 4) (17,759) (16,986)
Foreign currency translation adjustment (260) 257
Cost of common stock reacquired for treasury (129) (129)
- --------------------------------------------------------------------------------------------
Stockholders' equity (deficit) (1,912) (1,020)
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 24,663 $ 37,319
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 18
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------
Years Ended May 31, 1996 1995 1994
(Restated)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Notes 4 and 11) $ 41,654 $ 43,693 $ 42,423
Equity in affiliate (Note 4) (100) 82 171
- ------------------------------------------------------------------------------------------------------
Net revenues 41,554 43,775 42,594
Cost of goods sold (Note 2) 34,140 35,732 33,832
Selling, general and administrative expenses 7,640 9,495 9,382
Interest expense, net 2,592 2,690 2,435
(Gain) loss on businesses sold, net (Note 4) (2,148) - - - 454
Other expense, net 186 336 218
- ------------------------------------------------------------------------------------------------------
Loss before income taxes (856) (4,478) (3,727)
Income tax credits (Note 6) 300 - - - 565
- ------------------------------------------------------------------------------------------------------
Net loss (556) (4,478) (3,162)
Preferred stock dividends 217 130 - - -
- ------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ (773) $ (4,608) $ (3,162)
======================================================================================================
Weighted average common
shares 3,031 2,871 2,719
- ------------------------------------------------------------------------------------------------------
Net loss per common share $ (0.26) $ (1.61) $ (1.16)
======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 19
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(In thousands, except share data)
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN
ADDITIONAL CURRENCY ESOP
COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY DEBT
STOCK CAPITAL DEFICIT ADJUSTMENT STOCK GUARANTEE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 $ 27 $ 15,025 $ (9,216) $ 42 $ (147) $ (844) $ 4,887
Net loss - - - - - - (3,162) - - - - - - - - - (3,162)
Issuance of 142,461
shares (Note 9) 1 447 - - - - - - - - - - - - 448
Payments on ESOP debt - - - - - - - - - - - - - - - 677 677
Translation adjustment - - - - - - - - - (9) - - - - - - (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1994 $ 28 $ 15,472 $ (12,378) $ 33 $ (147) $ (167) $ 2,841
Net loss (Restated) - - - - - - (4,478) - - - - - - - - - (4,478)
Issuance of 111,125
shares (Note 9) 1 337 - - - - - - - - - - - - 338
Reissuance of 10,000 shares - - - - - - - - - - - - 18 - - - 18
Payments on ESOP debt - - - - - - - - - - - - - - - 167 167
Preferred stock dividend - - - - - - (130) - - - - - - - - - (130)
Translation adjustment - - - - - - - - - 224 - - - - - - 224
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1995 (Restated) $ 29 $ 15,809 $ (16,986) $ 257 $ (129) $ - - - $ (1,020)
Net loss - - - - - - (556) - - - - - - - - - (556)
Issuance of 213,948
shares (Note 9) 2 396 - - - - - - - - - - - - 398
Preferred stock dividend - - - - - - (217) - - - - - - - - - (217)
Translation adjustment - - - - - - - - - (517) - - - - - - (517)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1996 $ 31 $ 16,205 $ (17,759) $ (260) $ (129) $ - - - $ (1,912)
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------------------------
Years Ended May 31, 1996 1995 1994
(Restated)
- ------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (556) $ (4,478) $ (3,162)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation 1,498 1,569 1,798
Amortization 441 442 344
Accretion of discount on debt and preferred stock 796 623 505
(Gain) loss on sale of assets and businesses (2,148) --- 454
Deferred income taxes (300) --- ---
Undistributed earnings of affiliate 100 (82) (171)
- ------------------------------------------------------------------------------------------------
(169) (1,926) (232)
Changes in assets and liabilities:
Trade receivables 3,064 (1,936) 1,303
Notes and other receivables 245 115 (59)
Income taxes receivable --- 176 1,327
Inventories 1,506 (1,441) (1,910)
Accounts payable and accrued liabilities (3,334) 2,710 93
Customer deposits 253 809 413
Other, net 200 133 (486)
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,765 (1,360) 449
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from the sales of investments and other assets --- --- 1,000
Dividends received from affiliate 11 34 11
Purchases of property and equipment (251) (769) (819)
Other, net 52 (44) 319
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (188) (779) 511
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving credit agreements (340) (19) 168
Repayments of long-term debt (1,381) (2,180) (3,814)
Proceeds from long-term debt --- --- 1,313
Deferred loan costs (292) --- ---
(Increase) decrease in cash restricted for debt repayment 986 973 (1,959)
Issuance of preferred stock --- 1,827 1,472
Dividends on preferred stock (217) (130) ---
Issuance of common stock 398 356 448
Reduction of ESOP debt guarantee --- 167 677
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (846) 994 (1,695)
- ------------------------------------------------------------------------------------------------
CASH
Increase (decrease) 731 (1,145) (735)
Beginning balance 159 1,304 2,039
- ------------------------------------------------------------------------------------------------
Ending Balance $ 890 $ 159 $ 1,304
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company designs, engineers and manufactures metal processing machinery
and computer-controlled fabrication systems and sells primarily to customers
that manufacture products from sheet metal coils and blanks throughout the
world. For the year ended May 31, 1996, sales to one customer represented 12%
of net revenues.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Met-Coil
Systems Corporation and its subsidiaries, all of which are wholly-owned. All
material intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, the Company considers all cash
accounts, which are not subject to withdrawal restrictions or penalties, and
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
INVENTORY VALUATION:
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
INVESTMENTS IN AND ADVANCES TO AFFILIATE:
The Company has a 50% equity interest in Met-Coil Limited (Japan) for
which it uses the equity method of accounting.
PROPERTY AND EQUIPMENT:
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
following estimated useful lives.
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and building improvements 10 - 25
Machinery and equipment 3 - 10
Furniture and equipment 4 - 10
</TABLE>
INTANGIBLES:
Intangibles, which consist primarily of a license agreement (see Note 12)
and the excess of purchase price over fair market value of net assets acquired,
are being amortized by the straight-line method over periods ranging from 10 to
40 years. The Company evaluates intangibles continually to determine whether
any impairment has occurred. This review takes into consideration the
recoverability of the unamortized amounts based on the estimated undiscounted
cash flows of the related product lines.
PENSION PLANS:
The Company's funding policy is to make the minimum annual contributions
that are required by applicable regulations.
ENVIRONMENTAL:
Expenditures that relate to current operations are expensed or capitalized
as appropriate. Expenditures that relate to an existing condition caused by
past operations, and which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action.
INCOME TAXES:
Deferred income taxes are provided for the difference in the periods in
which certain items of revenue and expense (principally depreciation,
settlement expense and amortization) enter into the determination of income for
financial statement and income tax reporting purposes.
TRANSLATION OF FOREIGN CURRENCIES:
Asset and liability accounts of the foreign equity-method investee and the
foreign consolidated subsidiary are translated to U.S. dollars using rates of
exchange in effect at the balance sheet date. Income statements are translated
at average exchange rates during the year. Adjustments arising from
translation of the balance sheets to U.S. dollars are included in stockholders'
equity (deficit).
F-11
<PAGE> 22
LOSS PER SHARE:
Loss per common share during each of the periods presented is based on the
weighted average number of shares outstanding.
RISKS AND UNCERTAINTIES
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for uncollectable
accounts receivable, recoverability of long-term assets, environmental and
product liability accruals and income tax accruals including valuation
allowances for deferred income tax assets.
NEW ACCOUNTING PRONOUNCEMENTS:
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." This Statement defines a new "fair value" method of accounting
for stock-based compensation expense, and requires certain additional
disclosures for these plans. The Statement also allows the retention of the
previous "intrinsic value" method of accounting for expense recognition under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company intends to retain the intrinsic value method and,
therefore, the new standard will have no effect on the Company's financial
position or results from operations.
RECLASSIFICATIONS:
Certain amounts for prior years have been reclassified to conform to
current year presentation.
NOTE 2. PRIOR PERIOD ADJUSTMENT
The Company has restated its previously issued fiscal 1995 financial
statements to increase cost of goods sold and decrease inventories at May 31,
1995, as a result of an error in the calculation adjusting inventories to the
LIFO basis. This adjustment reduced previously reported 1995 retained earnings
by $1,416,000 and increased previously reported 1995 loss before income taxes
and net loss by $1,416,000. This adjustment also increased the net loss per
common share to $1.61 from $1.12.
NOTE 3. SUPPLEMENTAL ASSET DATA
ACCOUNTS RECEIVABLE:
Amounts shown for trade receivables are net of allowances of $210,000 and
$222,000 for 1996 and 1995, respectively.
INVENTORIES:
The composition of the inventories at May 31, using the first-in,
first-out (FIFO) method, which approximates replacement cost, is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Raw materials and parts $ 7,241 $ 9,690
Work in process 1,375 2,507
Finished goods and supplies 580 827
--------- ---------
9,196 13,024
Reduction to LIFO basis (1,189) (1,175)
--------- ---------
$ 8,007 $ 11,849
--------- ---------
</TABLE>
LICENSE FEE AND INTANGIBLES:
Amounts shown for the license fee are net of accumulated amortization of
$1,000,000 and $769,000 for 1996 and 1995, respectively, and the amounts shown
for intangibles are net of accumulated amortization of $1,186,000 and
$1,082,000 for 1996 and 1995, respectively.
F-12
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. SUBSIDIARIES AND AFFILIATES
WHOLLY-OWNED SUBSIDIARIES:
The Company has two significant wholly-owned subsidiaries at May 31, 1996:
Iowa Precision Industries and The Lockformer Company.
SALE OF SUBSIDIARIES:
On February 5, 1996, the Company sold certain assets related to two
product lines manufactured at the Rowe Machinery and Automation subsidiary to
Mestex, Inc. The sale included the "Rowe" name, the technical know-how to
produce the "Press Feed" and "Cut-to-Length" product lines, and certain working
capital accounts related to these product lines. The Company received
$3,000,000 in cash at closing and a note receivable for $600,000. This note was
collected at May 31, 1996. The Company recognized a gain from this transaction
of $2,148,000.
In December, 1993, the Company sold the business operations of Roper
Whitney Company ("Roper Whitney"), a wholly owned subsidiary. The sale included
most assets and liabilities of Roper Whitney, excluding trade accounts
receivable. The Company received $1,000,000 in cash at closing and a note
receivable, due over a period of five years, for $875,000. In connection with
the sale, the Company recognized a loss of $454,000 due primarily to termination
benefits paid former employees and the liquidation of inventory.
AFFILIATE:
A summary of financial information of Met-Coil Ltd., an affiliate
accounted for by the equity method is set forth below:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Current assets $4,316 $6,755 $ 6,577
Noncurrent assets 351 370 324
------ ------ -------
Total assets $4,667 $7,125 $ 6,901
------ ------ -------
Current liabilities $3,148 $4,758 $ 5,040
Noncurrent liabilities --- --- ---
------ ------ -------
Total liabilities 3,148 4,758 5,040
Stockholders' equity 1,519 2,367 1,861
------ ------ -------
$4,667 $7,125 $ 6,901
------ ------ -------
Net sales $9,839 $9,270 $11,416
Gross profit 2,599 3,192 3,602
Net income (loss) $ (200) $ 164 $ 289
</TABLE>
During 1996 the Company received dividends from Met-Coil Ltd. of $11,000
and in 1995, $34,000. The Company's accumulated deficit includes
approximately $686,000, $745,000, and $663,000 of equity in net income of
Met-Coil Ltd. at May 31, 1996, 1995, and 1994 respectively.
NOTE 5. DEBT
REVOLVING LINE OF CREDIT:
At May 31, 1996 the Company had a revolving credit agreement with two
insurance companies under which it could borrow up to $3,500,000. Borrowings
are limited to a borrowing base formula (certain percentages of eligible trade
receivables and inventories), bear interest at 11.5% and require the payment of
certain fees. As of May 31, 1996 there was $2,715,000 in borrowings outstanding
under this line which expires on April 30, 1999. As of May 31, 1996 the Company
was not in compliance with certain financial covenants of the line of credit
and senior debt. See "Senior Debt (terms and conditions)" below.
F-13
<PAGE> 24
LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt as of May 31 consisted of the following:
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Senior notes (A) $ 7,290 $12,750
Litigation settlement (Note 12) 4,170 4,080
First mortgage on unimproved land (B) 1,300 1,300
Industrial revenue bonds, variable interest
rate, 7.65% at May 31, 1995 --- 400
Real estate contract, installments through May, 1997
with interest rate of 9% 40 114
Equipment notes, contracts payable and other, due in
various installments, including interest at 8% to 12% --- 68
------- -------
$12,800 $18,712
Less current maturities 3,556 14,874(c)
------- -------
$ 9,244 $ 3,838
------- -------
Cash restricted for payment of debt $ --- $ 986
------- -------
</TABLE>
(A) The Company has $7,290,000 of senior notes with two insurance companies.
Interest is at 11.5% payable monthly. The notes are due in monthly
principal payments of $110,000 plus interest. Additionally there is a
payment of $1,200,000 due on April 18, 1997. As of May 31, 1996 the
Company was not in compliance with certain financial covenants of the
senior notes. See "Senior Debt (terms and conditions)" below.
(B) The Company obtained a first mortgage on unimproved land adjacent to the
Lockformer plant. The mortgage is held by a trust of which the trustee is
a director of the Company. Effective August 28, 1996 the mortgage note
was renegotiated with interest only payments through August 28, 1997 at
prime rate (per Wall Street Journal) plus 5 1/4%, however such rate of
interest shall not be less than 11%, with principal due August 28, 1997.
(C) As of May 31, 1995 the Company was not in compliance with various loan
covenants of the senior notes and revolving line of credit, since waivers
of these violations had not been obtained, $12,000,000 of senior notes had
been classified as current.
The aggregate maturities of the long-term debt for years ending May 31 are as
follows:
(in thousands)
<TABLE>
<S> <C>
1997 $ 3,556
1998 3,228
1999 1,868
2000 1,814
2001 1,255
Thereafter 1,079
-------
$12,800
-------
</TABLE>
SENIOR DEBT (terms and conditions):
The covenants and other provisions of both the senior notes payable
agreements and revolving credit agreements (described above) are the same.
Borrowings are collateralized by substantially all of the Company's
assets. The agreements contain various restrictive covenants, which among
other things, prohibit the payment of dividends, specify the application of
proceeds from significant asset sales (primarily to the reduction of senior
debt), and require the maintenance of certain financial ratios and amounts. At
May 31, 1996 the Company was not in compliance with various financial covenants
and, subsequent to year end, the Company and the two insurance companies
amended the senior notes. The amendment waives certain covenant violations and
amends certain other financial ratios at May 31, 1996 and for future years.
With these amendments it is expected that the Company will comply with the
financial covenants in the future.
FAIR VALUES:
The estimated fair values of the Company's debt instruments approximate
their carrying values due to the recent debt refinancing.
F-14
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6.INCOME TAXES
The provision for income tax credits is made up of the following
components for the years ended May 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current tax expense (credit):
Federal $ --- $ --- $ (494)
State --- --- (71)
Foreign --- --- ---
------ ------ ------
--- --- (565)
Deferred tax expense (credit) - Federal (300) --- ---
------ ------ ------
$ (300) $ --- $ (565)
------ ------ ------
</TABLE>
Deferred tax expense (credit) results from temporary differences in the
recognition of revenue and expense for income tax and financial statement
purposes. The sources of these differences and the tax effect of each are as
follows for the years ended May 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Excess of tax over book depreciation $ (109) $ (189) $ (523)
Change in basis difference of inventory 154 128 116
Accruals not currently deductible (40) 72 193
Investment in affiliate (83) 348 (74)
Settlement expense not deductible until paid (64) 207 512
Net operating loss carryforwards (111) (1,984) (753)
Tax credit carryforwards --- (320) ---
Deferred tax asset valuation allowance --- 1,561 475
Other (47) 177 54
------ ------- ------
$ (300) $ --- $ ---
------ ------- ------
</TABLE>
Deferred tax (liabilities) assets are composed of the following as of
May 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------ ------
<S> <C> <C>
Liabilities:
Basis difference of property and equipment $(1,754) $(1,863)
Basis difference of inventory (532) (378)
Undistributed earnings of affiliate (243) (326)
Other (22) (69)
------- -------
Gross deferred tax liabilities (2,551) (2,636)
------- -------
Assets:
Net operating loss carryforwards 4,310 4,199
Settlement loss 937 873
Various accruals not presently deductible 440 400
Tax credit carryforwards 724 724
------- -------
Gross deferred tax assets 6,411 6,196
Deferred tax assets valuation allowance (4,000) (4,000)
------- -------
Net deferred tax assets 2,411 2,196
------- -------
Net deferred tax liabilities $ (140) $ (440)
------- -------
</TABLE>
F-15
<PAGE> 26
Total reported income tax (credits) applicable to the Company's
operations varies from the amount that would have resulted by applying the
federal income tax rate of 34% to loss before income tax credits for the
following reasons for the years ended May 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Income tax credit at statutory
federal income tax rate $ (291) $ (1,522) $ (1,267)
State tax credit, net of federal tax --- (31) (47)
Deferred tax asset valuation allowance --- 1,546 475
Nondeductible amortization of intangibles 31 34 34
Rate differential on loss carrybacks --- --- 203
Other (40) (27) 37
---------- ----------- ----------
$ (300) $ --- $ (565)
---------- ----------- ----------
</TABLE>
At May 31, 1996 the Company has tax net operating loss carryforwards of
$12,300,000 available under provisions of the Internal Revenue Code to be
applied against future federal taxable income. These carryforwards expire
through May 31, 2011. At May 31, 1996 the Company also has approximately $
76,000 of alternative minimum tax (AMT) credit carryforwards available to
offset regular tax in future years to the extent that the regular tax exceeds
AMT. The credits do not have expiration dates. The Company also has
approximately $480,000 of general business credit carryovers which expire
through May 31, 2000.
NOTE 7. RETIREMENT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of
employees who meet the eligibility requirements. The Plan holds 220,564 shares
of common stock at May 31, 1996. The Company makes cash payments to the Plan,
consisting of contributions and dividend payments, in an amount sufficient for
it to satisfy ongoing plan requirements.
Cash contributions to the Plan were $2,000, $167,000, and $675,000 for the
years ended May 31, 1996, 1995 and 1994, respectively. For financial statement
purposes, expense for the Plan is determined based on the percentage of shares
allocated to participants each period. Cash contributions of $54,000 are
reflected as prepaid at May 31, 1996. The amount charged to expense was
$295,000, $301,000 and $324,000 for the years ended May 31, 1996, 1995 and 1994
respectively.
PROFIT-SHARING 401(K) PLAN:
The Company has a qualified profit-sharing plan under Internal Revenue
Code Section 401(k) for those employees who meet certain eligibility
requirements set forth in the plan. The Company makes contributions to the
plan based upon predetermined percentages of the employees' compensation.
Additional amounts may be contributed at the option of the Company's Board of
Directors. The retirement expense for the fiscal years ended May 31, 1996,
1995 and 1994 was $335,000, $367,000, and $377,000, respectively.
F-16
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEFINED BENEFIT PLANS:
The Company's Lockformer subsidiary has two defined benefit pension plans
covering substantially all of its employees. The following table includes
aggregate amounts for the plans' funded status and amounts recognized in the
accompanying financial statements as of May 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits 1996 $(2,369); 1995 $(2,246) $ (2,394) $ (2,259)
----------- -----------
Projected benefit obligation $ (2,394) $ (2,259)
Plan assets at fair value (consisting primarily of
fixed income obligations) 2,864 2,674
----------- -----------
Plan assets in excess of projected benefit obligation $ 470 $ 415
Unrecognized net gain (267) (196)
Unrecognized prior service cost 49 14
Unrecognized transition asset (75) (84)
----------- -----------
Prepaid expense included on balance sheet $ 177 $ 149
----------- -----------
Net pension cost (credit) for 1996 and 1995 includes the following components:
(in thousands) 1996 1995
----------- -----------
Service cost $ 39 $ 155
Interest cost on projected benefit obligation 181 45
Actual return on plan assets (344) (119)
Net amortization and deferral 96 (118)
----------- -----------
$ (28) $ (37)
----------- -----------
</TABLE>
During 1993 Lockformer curtailed one of the defined benefit pension plans
and recognized a curtailment loss of $107,000. The plan was frozen on May 31,
1994, and, when finally settled, any additional gains or losses are not
expected to be significant to the Company's operations.
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of May 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.0% 8.0% 7.5%
Expected long-term rate of return 9.0 9.0 9.0
Long-term inflation rate 5.5 5.5 5.5
</TABLE>
NOTE 8. POSTRETIREMENT BENEFITS
The Company has been providing postretirement health insurance for a
limited group of current retirees. Effective May 31, 1993 the Company provided
benefits pursuant to a fixed payment schedule per participant which is immune
to inflationary pressures. Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits" (FAS 106) requires the cost
of providing such postretirement benefits over the retirees' average remaining
life expectancy be accrued, rather than charged to expense as incurred. In
applying FAS 106, the Company immediately recognized the Accumulated
Postretirement Benefit Obligation (APBO). A discount rate of 8% was used to
determine the APBO. The APBO was $182,000 and $207,000 at May 31, 1996, and
1995 respectively.
NOTE 9. CAPITAL STOCK
OPTIONS:
Effective June 4, 1993 the Company adopted the 1993 Employee Stock Option
Plan due to the expiration of the 1983 Incentive Stock Option Plan. Under the
terms of the plan options to purchase 300,000 shares of the Company's common
stock at fair market value at the date of grant may be granted to employees of
the Company. At May 31, 1996, options for 151,600 shares at exercise prices
ranging from $1.625 to $6.75 per share had been granted and were outstanding,
88,450 of which were exercisable. The options become exercisable at the rate
of 25% per year, on a cumulative basis.
F-17
<PAGE> 28
EMPLOYEE STOCK TRUST:
The Company has a grantor trust, established May 31, 1993, to which it is
authorized to contribute up to 400,000 common shares. As of May 31, 1995 the
Company held 169,671 shares in the trust and in January 1996, the Company
issued an additional 50,000 shares to the Trust. The proceeds from the market
sale of the shares over time, at expected appreciated values, will be used to
fund various employee benefits. During the year ended May 31, 1996, 189,020
common shares were issued to the Company's 401(k) plan and 24,928 common shares
were issued to fund other benefits.
NOTE 10. PREFERRED STOCK - REDEEMABLE, CONVERTIBLE
The Company has authorized 1,000,000 shares of $1 par value preferred
stock. During the years ended May 31, 1995 and 1994 the Company issued 200,000
and 162,000 shares of preferred stock respectively, at $10 per share ($10
liquidation value per share). The preferred stock provides for cumulative
annual dividends of 6% payable semi-annually. The preferred stock is
convertible into three shares of common stock at anytime at the option of the
holder. After December 31, 1998 either the Company or the holder may redeem
the preferred stock at a redemption price of $13 per share, plus accumulated
unpaid dividends.
The Company is increasing the carrying amount of the preferred stock, using the
interest method, so that the carrying amount will equal the redemption amount
of $4,706,000 at December 31, 1998.
NOTE 11. EXPORT SALES
Export sales by geographical area for the years ended May 31 are:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
---- ---- ----
Amount % * Amount % * Amount % *
------ ---- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Canada $ 392 1% $1,180 3% $1,240 3%
Europe 1,960 5 3,592 8 1,525 4
Far East 3,792 9 1,477 3 2,672 6
Australia 584 1 319 1 32 ----
Central/South America 2,097 5 316 1 818 2
Other 1,433 3 347 1 1,033 2
----- ---- ----- ---- ------ ----
$10,258 24% $7,231 17% $7,320 17%
------ ---- ----- ---- ------ ----
</TABLE>
* Percent to net sales
NOTE 12. LITIGATION AND CONTINGENT LIABILITIES
SETTLEMENT AGREEMENT:
In January, 1992 the Company and its Lockformer subsidiary reached a
Settlement Agreement to settle lawsuits filed against the companies by
Construction Technologies Inc. ("CTI"). The suits alleged patent infringement,
among other things, against Lockformer's Vulcan cutting system. Under the terms
of the Settlement Agreement CTI granted Lockformer a royalty bearing license.
In return, Lockformer agreed to pay CTI, in addition to royalties due under the
license, $7.3 million (discounted at 11%) over a 15 year period. As of May 31,
1996 the Company is required to pay CTI $675,000 annually through January, 2005
with a final payment of $175,000 due January 27, 2006. In addition, the Company
is required to pay $50,000 per month through December, 1996 as the result of
deferring certain amounts of the January, 1996 payment.
The agreement also provides for prepayments equal to (i) 25% of
Lockformer's pre-tax profits exceeding $600,000 up to $1.0 million in any
single fiscal year; (ii) 35% of its pre-tax profits exceeding $1.0 million in
any single fiscal year; (iii) 50% of the profits of any sale of its capital
assets other than trade-ins of capital assets for upgrades or replacements; and
(iv) 30% of any non-recurring gains of Lockformer other than those resulting
from trade-ins of capital assets for upgrades or replacements. To
collateralize these obligations, Lockformer has granted CTI a second lien on
all of its assets.
Under the terms of the Settlement Agreement, an unrelated supplier also
agreed to pay CTI $100,000 by January 27, 1993 and $50,000 each year for 15
years beginning January 27, 1993.
F-18
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company guaranteed Lockformer's and the unrelated supplier's
obligations under the Settlement Agreement and issued CTI 200,000 unregistered
shares of common stock pursuant to a Shareholders Agreement which restricts
CTI's resale of the shares, grants CTI limited registration and preemptive
rights with respect to newly issued common stock, restricts the Company's
payment of cash dividends or other distributions above $.12 per share per year
and restricts the creation of new liens on the Company's assets without CTI's
approval. The Shareholders Agreement terminates upon the payment of all
obligations under the Settlement Agreement.
The cost of the license was determined by CTI in conjunction with the
Settlement Agreement. The Company is amortizing the license fee on a straight
line basis over the life of CTI's patent, and believes it is properly
reflecting its value.
GENERAL:
The Company is subject to various legal actions, governmental
investigations, and proceedings relating to various matters incidental to its
business including product liability and environmental claims. The Company
intends to vigorously defend these matters. While the outcome of such matters
cannot be predicted with certainty, in the opinion of management, after
reviewing such matters and consulting with the Company's counsel and insurers,
any liability which may ultimately be incurred, is not expected to materially
affect the consolidated financial position and results of operations of the
Company.
NOTE 13. LEASES
The Company leases a building under a noncancelable agreement expiring on
April 1, 1998 and requiring annual rentals of $340,000 plus payment of property
taxes, maintenance and insurance. In connection with the sale of Roper Whitney
(see Note 4) the Company entered into a sublease with the buyer which
generally reflects the rents and terms of the original building lease. The
minimum rental commitments and amounts due under sublease for this operating
lease are $340,000 for 1997 and $283,000 for 1998.
The Company also leases automobiles and other facilities and equipment on
short-term leases. The minimum rental commitments for these operating leases
are $112,000 and $102,000 for 1997 and 1998, respectively.
Net rental expense for fiscal years 1996, 1995, and 1994 is $147,000,
$56,000 and $377,000 respectively.
NOTE 14.SUPPLEMENTAL CASH FLOW DATA
Supplemental data for years ended May 31 are:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash payments (receipts) for:
Interest $ 1,913 $ 2,101 $ 2,018
----- ----- -----
Income tax refunds $ -- $ (176) $(1,850)
----- ----- -----
</TABLE>
Supplemental data of noncash operating, investing and financing activities:
During the year ended May 31, 1996 the Company sold certain assets and
liabilities of Rowe and recognized a gain on the sale of $2,148,000. The assets
sold were: inventories $2,230,000, accounts receivable $761,000, plant and
equipment, net $236,000 and other assets of $16,000. Liabilities assumed by the
buyer were: accounts payable $1,080,000, customer deposits $662,000 and accrued
liabilities of $101,000. The proceeds of $3.6 million from this sale were paid
directly to the Company's lenders to retire debt.
Additionally, during the year ended May 31, 1996 the Company restructured
its debt and in connection therewith received a discount of $516,000 from its
prior lenders. However, the Company also collected a note receivable for
$709,000 in advance of its maturity and recognized a discount of $179,000 and
sold non-operating assets with a net book value of $493,000 for $400,000. The
Company also received insurance proceeds of $485,000 related to a fire at the
Rowe facility and these funds were paid directly to the Company's lenders to
reduce debt and the Company also reduced the net book value of property and
equipment.
During the years ended May 31, 1996 and 1995 the Company's foreign
currency translation adjustments increased (decreased) stockholders' equity
(deficit) by ($517,000) and $224,000, respectively.
During the year ended May 31, 1994 the Company sold certain assets and
liabilities of Roper Whitney for cash of $1,000,000, a note receivable of
$875,000 and recognized a loss on the sale of $454,000. The assets sold were:
inventories $2,876,000, plant and equipment, net $1,315,000, and other assets
$133,000. The liabilities assumed by the buyer were: accounts payable
$1,306,000, long-term debt $622,000, and other liabilities $67,000.
F-19
<PAGE> 30
INDEX TO EXHIBITS
FORM 10-K FOR YEAR ENDED MAY 31, 1996
Exhibit Description
No.
3.1 Restated Certificate of Incorporation of the Registrant, as
amended--incorporated by reference to Exhibit 3.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended Nov. 30, 1987.
3.2 Amended and Restated Bylaws of the Registrant--incorporated by
reference to Exhibit 3.4 of Registrant's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1987.
4.1 Article IV of the Registrant's Restated Certificate of Incorporation
(included in Exhibit 3.2 above).
4.2 The Registrant's $15 million Senior Notes due 2001, dated October 1,
1989--incorporated by reference to Exhibit 4.2 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1990.
10.2 The Registrant's Incentive Compensation Plan -- incorporated by
reference to Exhibit 4(a) of the Registrant's Registration Statement on
Form S-8 filed with the Commission on April 6, 1987 (Registration No.
33-13014).
10.3 The Lockformer Company Employees Retirement Plan (as amended and
restated effective as of August 1, 1989). (4)
10.4 Met-Coil Systems Corporation Employee Stock Ownership Plan and
Trust--incorporated by reference to Exhibit 10.9 of Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 filed with the
Commission on October 21, 1985 (Registration No. 2-99971).
10.7 Agreement, dated January 29, 1995, between The Lockformer Company and
District Lodge No. 8, International Association of Machinists and
Aerospace Workers. (5)
10.8 Agreement, dated June 1, 1995, between Iowa Precision Industries, Inc.
and Local Union 263, Sheet Metal Workers International Association. (5)
10.9 Building Lease Agreement, dated April 11, 1988, by and between Roper
Whitney Corporation and Industrial Machinery, Systems and Supply,
Inc. (1)
10.10 Met-Coil Systems Corporation Non-Employee Director Restricted Stock
Plan, effective October 15, 1987--incorporated by reference to Exhibit
10.33 of the Registrant's Annual Report Form 10-K for the fiscal year
ended May 31, 1988.
10.27 Settlement agreement among Construction Technology, Inc., Met-Coil
Systems Corporation, The Lockformer Company, Inc., and Mechanical Data,
Inc., dated as of January 27, 1992. (2)
10.31 Met-Coil Systems Corporation Retirement Plan as amended and restated
effective Sept. 16, 1992. (3)
10.32 The Registrant's 1993 Employee Stock Option Plan. (4)
10.33 Mortgage note agreement dated Feb.28,1994 between Registrant and the
John A. Carver 1983 Trust. (4)
11
<PAGE> 31
10.39 The Lockformer Company Employees Pension Plan as amended and restated
effective June 28, 1987. (5)
10.40 Amended and restated note agreement dated April 18, 1996 by and
between Met-Coil Systems, Iowa Precision Industries, The Lockformer
Company, Principal Mutual Life Insurance Company, and Modern Woodmen of
American Incorporated by reference to Registrant's current report on
Form 8-K dated April 18, 1996 (as filed with the Commission on April
29, 1996).
22 Subsidiaries of the Registrant
- ---------------------
(1) Exhibit is incorporated by reference to Exhibit 2 of the Registrant's
Current Report of From 8-K, dated May 1, 1989 (as filed with the
Commission on May 16, 1989).
(2) Exhibit is incorporated by reference to similarly numbered exhibit of the
registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1992.
(3) Exhibit is incorporated by reference to similarly numbered exhibit of the
registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1993.
(4) Exhibit is incorporated by reference to similarly numbered exhibit of the
registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1994.
(5) Exhibit is incorporated by reference to similarly numbered exhibit of the
registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1995.
Exhibit filed with this Form 10-K but not included herein. Available
upon request.
12
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF MET-COIL SYSTEMS CORPORATION
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- -------------------------------------------------------------------------------
<S> <C>
Iowa Precision Industries, Inc. Delaware
The Lockformer Company Illinois
Met-Coil Great Lakes Company (1)
Met-Coil Ltd. (2)
Met-Coil Systems International, Inc. (FSC) U.S. Virgin Islands
Fen-Pro Inc. Illinois (3)
Met-Coil - Texas Texas (4)
</TABLE>
All Subsidiaries do business under their own names or under the Met-Coil name.
- -------------------------------------------------------
(1) F/K/A Mark One Corporation. Subsidiary inactive, Incorporated in
Michigan
(2) International joint venture, 50% owned by Met-Coil, based in Japan.
(3) F/K/A Roper Whitney Company, F/K/A Met-Coil-RWC, Inc., F/K/A Fenestra, Inc.
(4) F/K/A Rowe Machinery & Automation, Inc.
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1
<CASH> 890
<SECURITIES> 0
<RECEIVABLES> 4,585
<ALLOWANCES> 210
<INVENTORY> 8,007
<CURRENT-ASSETS> 14,833
<PP&E> 18,823
<DEPRECIATION> 13,316
<TOTAL-ASSETS> 24,663
<CURRENT-LIABILITIES> 13,079
<BONDS> 15,515
<COMMON> 16,236
3,709
0
<OTHER-SE> (18,148)
<TOTAL-LIABILITY-AND-EQUITY> 24,663
<SALES> 41,654
<TOTAL-REVENUES> 41,554
<CGS> 34,140
<TOTAL-COSTS> 41,780
<OTHER-EXPENSES> (1,962)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,592
<INCOME-PRETAX> (856)
<INCOME-TAX> (300)
<INCOME-CONTINUING> (556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> 0
</TABLE>
