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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended DECEMBER 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from N/A to N/A
Commission File Number 0-13817
MARGATE INDUSTRIES, INC.
(Exact Name of Registrant as specified in its Charter)
DELAWARE 84-8963939
State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization Number)
129 NORTH MAIN STREET, YALE, MICHIGAN 48097
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (313) 387-4300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.005 PAR VALUE
Title of Class
Indicate by check mark whether 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
--- ---
At March 15, 1996, 4,603,637 shares of Common Stock, no par value, were
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on that date was approximately $3,355,014.
Documents incorporated by reference: NONE
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.
Yes X No
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Page 1 of pages Exhibits are indexed on page .
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. Margate Industries, Inc. (the
"Company"), was formed under the laws of the State of Delaware on April 4, 1984.
The Company sold 4,000,000 Units, at $0.02 per Unit, for total proceeds of
$80,000 in a public offering which closed in May of 1985. Each Unit consisted
of one share of common stock of the Company and one Warrant to purchase an
additional share of common stock. The Warrants expired by their terms
unexercised.
On November 17, 1986, the Company issued 12,515,580 shares of its $.001
par value common stock to the holders of 100% of the outstanding common stock
of New Haven Foundry, Inc., ("NHF") in a merger transaction in which NHF became
a wholly-owned subsidiary of the Company. The shares of common stock issued to
the shareholders of NHF represented approximately 70% of the Company's common
stock outstanding after the completion of the transaction. The shares of the
Company's common stock issued to the shareholders of NHF were registered under
the Securities Act of 1933, as amended, in a Registration Statement on Form S-4
(SEC File No. 33-5294), which was initially filed on April 29, 1986 and
declared effective on October 8, 1987.
During 1987, the Company established a wholly-owned subsidiary, Michigan
Casting Corporation, ("MCC") which provides finishing services on castings
manufactured by NHF and other foundries.
In June of 1989, Brown City Casting Corporation ("BCCC"), a wholly-owned
subsidiary, commenced operations to provide finishing services on castings
produced by foundries in the Michigan area. In June, 1993, the Company
transferred its operations to Yale, Michigan and now conducts business under
the name of Yale Industries. BCCC ceased all operations in Brown City,
Michigan in June, 1993.
On July 19, 1990, the Company sold 55% of the common stock of NHF to
Wesley Industries, Inc., ("Wesley"), for $1,589,000 consisting of $1,500,000
cash and an $89,000 five-year Promissory Note. Wesley is 50%-owned by Mr.
Delbert W. Mullens, currently a Director of the Company and 50%-owned by Ms.
Lula Mullens. The promissory note called for interest at 2% over the prime
rate, with no principal payments required until September, 1991. The Company
extended the term of the note and payments will now begin in April, 1994. Upon
repayment of the promissory note, Wesley has the right to purchase an additional
20% of the shares of NHF held by the Company for $800,000 or the then current
book value, whichever is greater. Upon such purchase, the Company can require
Mr. Mullens to purchase the remaining shares for $1,800,000 or the then current
book value, whichever is greater.
The terms of the sale also provided for an annual commission contract
between NHF and the Company and between NHF and Wesley relating to sales in
excess of $35,000,000 annually. The Company receives $150,000 each year plus
3% on the difference between actual sales in excess of $35,000,000 but less
than $40,000,000 plus 2% on actual sales that exceed $40,000,000. This
commissions contract will be in effect for a period of not less than fifteen
(15) years. Also, for a minimum period of fifteen (15) years, the Company and
its subsidiaries will provide cleaning services on all castings produced by NHF
on an exclusive basis, so long as the Company retains an ownership interest in
NHF.
Pursuant to the sale, Mr. Mullens was elected to the Company's Board of
Directors. Conversely, the Company has representatives that account for forty
five percent (45%) of the Directors/Voters on the NHF Board of Directors. In
addition, Mr. Mullens is restricted from transferring his interest in NHF stock
without the consent of the Company and also he has a first right of refusal to
purchase the balance of the NHF common stock in the event the Company wishes to
sell or transfer any of its remaining NHF stock.
Pursuant to the agreement for the sale of NHF common stock, Mr. Mullens
has the option to purchase 100,000 shares of the Company's common stock at
$1.50 per share and an additional 100,000 shares at $2.50 per share upon
purchase of the first 100,000 shares. Mr. Mullens' shares subject to option
and the exercise price thereof were adjusted to reflect the reverse stock split
described below.
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Effective June 21, 1993, the Company initiated operations at Yale,
Michigan and relocated its corporate offices to that location. Yale Industries
employs approximately ninety (90) workers at the facility, which provides
specialized cleaning and testing of metal castings for foundries and machine
shops.
On January 12, 1994, pursuant to a vote at a Special Meeting of
Shareholders, the Company approved a one for five reverse split of the
outstanding shares of the Company and reduced the authorized shares of the
Company from 50,000,000 to 25,000,000. Unless otherwise indicated,
information in this Report reflects one for five reverse split of the Company's
Common Stock effective in January, 1994.
On February 1, 1995, the Company obtained forty percent (40%) interest in
Complete Engineering Development Services, Inc. (CEDS). Due to disappointing
results, the Board of Directors elected to divest its interest in CEDS as of
December 31, 1995.
In November 1995, the Company established a wholly-owned subsidiary, Fort
Atkinson Industries, which provides finishing services on castings manufactured
in the Iowa-Wisconsin area. Operations began on March 1, 1996.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's
activities are confined to the finishing and testing of grey iron castings for
the automotive and other industries, hence the Company has no other industry
segments other than as stated herein. See Financial Statements for additional
information concerning the Company's business.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
The Company engages in the business of performing finishing operations on
grey iron castings for the foundry industry and owns a minority interest in NHF,
a foundry located in New Haven, Michigan that manufactures grey iron castings
for the automotive industry. The following is a description of the Company's
two wholly-owned subsidiaries and NHF.
Michigan Casting Corporation ("MCC"), a Michigan corporation, is engaged
in the business of performing finishing operations for the foundry industry.
Such operations include the cleaning, grinding and testing of castings prior to
shipment to the end purchaser. MCC commenced operations in June of 1987, and
its facilities are currently located in Romeo, Michigan, approximately 15 miles
from New Haven, Michigan where NHF's facilities are located. NHF uses the
services of MCC for approximately 80% of the castings and cylinder heads they
manufacture for Chrysler Corporation and others. The Company formed this
subsidiary because a separate company and facility provided NHF, and other
foundries, certain advantages over handling finishing functions in-house.
Over the past several years, automobile manufacturers have begun to require
that additional finishing work and water testing be done on castings prior to
shipment. These requirements have increased the amount of time and labor
spent on these services. Management has found that MCC, as a separate company
devoted to these activities, has been able to handle these functions more cost
effectively. In addition, since MCC is capable of providing these services
to other customers as well as NHF, MCC generates additional revenues for the
Company.
Yale Industries and Fort Atkinson Industries are also engaged in the
business of performing finishing operations on grey iron castings for the
foundry industry. The Company believes there exists a significant potential
for additional sales volume for finishing operations from non-affiliated
foundries and from NHF as it continues to grow and diversify into the non-
automotive industries.
New Haven Foundry, a 45% owned subsidiary of the Company, is a
manufacturer of grey iron castings for the North American automotive industry
and is currently a supplier of cylinder heads, manifolds, bearing caps,
flywheels, and transmission casings for Detroit-based car manufacturers. Its
principal customers include the Chrysler Corporation and Detroit Diesel
Corporation. Approximately 88% of NHF's total sales are to Chrysler Corporation
to whom it is the only supplier of grey iron cylinder heads. Although NHF is
presently attempting to
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expand its customer base, the loss of this customer could have a materially
adverse effect on NHF and consequently the Company.
(i) PRINCIPAL PRODUCTS PRODUCED AND SERVICE RENDERED AND PRINCIPAL
MARKETS. The principal service rendered by the Company is the finishing,
cleaning and testing of grey iron castings produced by NHF for the automotive
industry and other component manufacturers in the United States and Canada.
(ii) STATUS OF NEW PRODUCTS OR INDUSTRY SEGMENTS. The Company
announced it would begin cleaning operations at Fort Atkinson in early 1996.
Except as to Fort Atkinson, there has been no public announcement of, and no
information otherwise has been made public about, a new product or industry
segment, which would require the investment of a material amount of the
Company's assets, or which otherwise is material.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company as a
service orientated entity is not dependant on the availability of raw materials,
however, the Company is dependant on the availability of qualified, trained
manpower. The raw materials utilized by NHF are supplied by domestic suppliers
and there does not appear to be any shortage of the three major raw materials
used by NHF namely coke, scrap steel and sand.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS. The
Company does not own any patents, trademarks, licenses, franchises, or
concessions.
(v) SEASONAL NATURE OF BUSINESS. The Company's business is not
seasonal in nature.
(vi) WORKING CAPITAL ITEMS. Practices and conditions with respect
to specific working capital items are not relevant to an understanding of the
Company's business. Working capital is required for inventories and accounts
receivable, to meet rapid delivery requirements, or to assure continuous
allotments of goods from suppliers.
(vii) MAJOR CUSTOMERS. The following table sets forth information
concerning customers, or any group of customers under common control, or
customers which are affiliates of each other, to which sales were made by the
Company during the fiscal year ended December 31, 1995, in an amount which
equals 10% or more of the Company's revenue and the Company's relationship to
each:
RELATIONSHIP PERCENT
TO AMOUNT OF OF TOTAL
CUSTOMER COMPANY SALES REVENUE
-------- ------- ----- -------
New Haven Foundry, Inc. Subsidiary $6,763,353 72.6%
The Company believes that if it should lose any of its present
customers, primarily NHF, such loss would have a material adverse effect on
the Company.
(viii) BACKLOG. Backlog is not relevant to an understanding of
the Company's business.
(ix) RENEGOTIATION OR TERMINATION OF GOVERNMENTAL CONTRACTS. No
portion of the Company's business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the Government.
(x) COMPETITION. The Company's domestic competition is limited
primarily to cleaning operations and captive foundries of the automobile
industry. For the most part, these domestic foundries have older facilities
and are not a significant threat to the Company's competitive position.
Internationally, the Company faces competition from similar operations
located in Europe, South America and Mexico. The Company's most serious
threat of competition is from state-of-the-art operations located in Mexico
and Brazil. These companies in Brazil present a competitive threat because they
are subsidized by their respective governments, have labor cost advantages, and
modernfacilities.
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(xi) RESEARCH AND DEVELOPMENT. The Company has not engaged and does
not currently engage in any research and development activities.
(xii) ENVIRONMENTAL PROTECTION. The Company is subject to
various federal, state, and local provisions regarding environmental matters,
the existence of which has not hindered nor adversely affected the Company's
business. Although the Company does not believe its business operations
presently impair environmental quality, compliance with federal, state and
local regulations which have been enacted or adopted regulating the discharge
of materials into the environment could have an adverse effect upon the capital
expenditures, earnings and competitive position of the Company. Since
inception, the Company has not made any material capital expenditures for
environmental control facilities and does not expect to make any such
expenditures during the current and following fiscal years. However, the
Company has agreed to administer the expenditure of $253,000 which the city of
Yale, Michigan received as a community development block grant to perform an
investigation to determine the extent of contamination at the Yale plant site
and to clean up soil contamination left by previous owners and operators to a
maximum of $253,000. The Company estimates the costs of administering the
grant to be less than $50,000. As a result of its agreement to perform these
procedures, the city of Yale, Michigan will transfer the property to the
Company for use for casting, cleaning and foundry support operations within two
years subject to certain conditions set forth in Item 7 of this Report. The
Company has also received a hold harmless for any existing conditions at the
facility. The property was transferred to the Company in 1995.
As more fully described in Note 11 of the Financial Statements, NHF, the
Company's 45% owned subsidiary, is reporting the following contingencies in
relation to environmental problems:
NHF is party to an action brought by FIRGIM and the United States of
America ("U.S.") which alleges that NHF discharged potentially contaminated
water into a stream which flows to settling ponds maintained by NHF, in
violation of the Federal Clean Water Act. NHF estimates that a civil penalty
approximating $500,000 will be incurred by NHF to settle the litigation, and
NHF has provided reserves for this amount. Such charge is included in selling,
general and administrative expenses in the accompanying statement of operations.
NHF is party to an action brought by the U.S. and is also currently
negotiating with the Michigan Department of Environmental Quality (MDEQ)
regarding alleged violations of environmental laws pertaining to air and
waste issues, including used foundry sand on its property. NHF is negotiating
a consent decree with those agencies which encompasses most of these alleged
violations and is also working with the MDEQ to resolve any remaining alleged
violations.
Based on results of preliminary investigation, some small portions of the
foundry waste sand pile are known to contain levels of heavy metals which
exceed environmental standards established by the U.S. Environmental
Protection Agency ("EPA"). NHF has engaged environmental consultants to
assist in developing a remediation plan to submit to the U.S. and MDEQ for
approval. Other than those portions of the sand pile known to contain levels
of heavy metals which exceed environmental standards, NHF believes the
remainder of used sand is not in violation of such standards.
NHF has identified several options to remediate the sand including
on-site treatment or capping in place. Costs associated with these
alternatives are currently estimated to range from $1.2 million to $6.0
million, and NHF has recorded a reserve of $1.5 million. Of this amount,
$1.25 million was provided in the current year and is included in selling,
general and administrative expenses in the accompanying statement of
operations. The low estimate of the range assumes that no additional
portions of the sand pile will contain heavy metals which exceed
environmental standards. Although the ultimate outcome of this matter is not
known at this time, on the basis of investigations performed to date by NHF
and its environmental consultants, NHF does not believe that future costs
associated with remedial action, in excess of reserves provided, will
ultimately have a materially adverse impact on NHF's financial position or
future results of operations.
(xiii) EMPLOYEES. As of December 31, 1995, the Company had 148
hourly employees and 21 salaried employees at MCC, Yale Industries, Fort
Atkinson Industries and Margate Industries. None of these
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employees are presently represented by a union. The Company also used
approximately 80 employees from employee leasing service companies.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. The Company has no operations in foreign countries and no
portion of its sales or revenues is derived from customers in foreign
countries except Yale had sales of approximately $1,300 in 1995, $532,000 in
1994 and $1,296,000 in 1993 to Western Foundry, a Canadian company and
$53,700 in 1995 and $968,000 in 1994 to Ford of Canada.
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ITEM 2. PROPERTIES
MCC's facilities are located in Romeo, Michigan, approximately 40 miles
from Detroit, in leased facilities covering 42,000 square feet. MCC has
leased this facility for a period of four years, beginning in June of 1994,
during which time MCC will pay an average of $9,000 per month. MCC's equipment
is suitable for its present needs and is capable of handling anticipated
increases in production.
Yale Industries' facilities, which consist of a plant and the Company's
corporate offices, are located in Yale, Michigan and are provided by the city
of Yale, Michigan in consideration of the Company administering the
expenditure of $253,000 for the investigation and cleanup at the plant site.
The Company believes its plant at Yale is suitable for its present and future
needs. The plant consists of approximately 70,000 square feet.
Fort Atkinson's facilities are located in Fort Atkinson, Wisconsin. It
leases facilities covering approximately 73,000 square feet. The Company has
leased this facility for a ten (10) year period beginning in December 1995.
Base rent is $11,212.50 per month. The Company believes the plant is suitable
for its present and future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no pending or threatened legal proceeding to which
it is or will be a party which, if successful, might result in a material
adverse change in the business, properties, or financial condition of the
Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No response required.
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PART II
ITEM 5. MARKET PRICE AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) PRINCIPAL MARKET OR MARKETS. The Company's common stock is traded
on the over-the-counter market and, commencing on January 28, 1987, has been
listed on the National Association of Securities Dealers, Inc., Automated
Quotation System ("NASDAQ") under the symbol, "CGUL". The following tables
set forth the range for high and low bid quotations for the Company's common
stock, as reported by NASDAQ for the periods indicated. These prices are
believed to be representative inter-dealer quotations, without retail markup,
markdown or commissions, and may not represent actual transactions.
BID PRICE
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HIGH LOW
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Quarter ended March 31, 1995 $2.56 $1.75
Quarter ended July 30, 1995 $2.00 $1.38
Quarter ended September 30, 1995 $1.63 $1.06
Quarter ended December 31, 1995 $1.19 $0.75
Quarter ended March 31, 1994 $3.75 $2.38
Quarter ended June 30, 1994 $3.31 $2.88
Quarter ended September 30, 1994 $3.13 $2.38
Quarter ended December 31, 1994 $2.06 $1.63
Quarter ended March 31, 1993 $2.03 $1.41
Quarter ended June 30, 1993 $1.56 $1.25
Quarter ended September 30, 1993 $3.28 $1.41
Quarter ended December 31, 1993 $3.59 $2.50
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The approximate
number of holders of record or the Company's common stock at March 15, 1996
was 489.
(c) DIVIDENDS. The Company began paying quarterly dividends of $.00625
per share in August of 1991. Subsequently in August, 1992 the Board of
Directors increased the dividend to $.0075 and in August, 1993, the quarterly
dividend was increased to $.01 per share. On November 15, 1993 the quarterly
dividend was increased to $.0125. On February 15, 1995 the quarterly dividend
was increased to $.0150. On September 21, 1995 the quarterly dividend was
suspended and will be decided at the Annual Meeting in June of each year if, or
when the Company will pay a dividend.
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The following table sets forth certain selected financial data with
respect to the Company.
(In Thousands, Except for Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 9,311 $ 8,486 $ 8,183 $ 6,122 $ 4,249
Net income (loss) $(1,744) $ 1,552 $ 1,246 $ 1,682 $ 38
Net income (loss) per
common share $ (0.37) $ 0.33 $ 0.27 $ 0.37 $ 0.01
Dividends declared per
common share $0.0300 $0.0525 $0.0425 $0.0288 $0.0188
Total assets $ 5,647 $ 7,328 $ 6,162 $ 5,119 $ 3,418
Long-term debt $ 184 $ 26 $ - $ 4 $ 6
Stockholders' equity $ 4,467 $ 6,338 $ 5,068 $ 4,002 $ 2,416
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition and
results of operations during the periods included in the accompanying
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
The current and quick ratios, which provide an indication of the
Company's short-term assets in relation to its short-term obligations, for
the comparable periods are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Working Capital $1,899,110 $2,138,682
Current Ratio 4.62:1 4.99:1
Quick Assets (Cash, Securities
and Receivables) $2,032,454 $2,000,418
Quick Ratio 3.88:1 3.73:1
</TABLE>
As noted by the above computations, the current ratio has decreased from
4.99:1 to 4.62:1 and working capital has decreased by $239,572 for the period
from December 31, 1994 to December 31, 1995. The quick ratio has increased
from 3.73:1 to 3.88:1. The largest single factor contributing to the decrease
in working capital is the investment in property, plant and equipment of
approximately $675,000.
The Company's cash, cash equivalents and securities of approximately
$666,413 are invested in bank deposits and marketable securities, consisting
of investments in money market funds and equity securities. These funds will
be used to support the increased sales volumes at the Company's subsidiaries.
At December 31, 1995, market values were approximately $59,000 less than cost.
Receivables increased by $405,447 from December 31, 1994 to December 31,
1995. The increase was due primarily to the increased sales volume.
The Company has a facility line of credit of $500,000, with monthly
interest payments at .5% over the prime rate. This line of credit is
collateralized by substantially all the assets of the Company. No borrowings
were outstanding as of December 31, 1995.
The Company believes its cash flow from operations is sufficient to fund
its current level of operations.
The Company has in the past and will in the future seek qualified
acquisitions in similar and related industries for expansion opportunities
and larger market penetration. The Company currently has no agreement or
arrangement to acquire any other business entity.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Sales increased by $824,115 or 10.0% from December 31, 1994 to December
31, 1995. The Company's net income decreased by $3,188,781 over the prior
year's net income of $1,444,770. The growth rate in sales for 1995 is mostly
attributable to increased activity in the automobile industry.
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Cost of sales as a percentage of sales was 84.3% for the year ending
December 31, 1995 as compared to 79.5% for the year ending December 31, 1994.
The major reasons for the increase was higher labor costs. The higher labor
costs are a result of inefficiencies by major customers due to increased
sales and the use of temporary employees due to low unemployment rates.
Selling, general and administrative expenses increased by $169,978 from
1994 to 1995. This was mainly due to the above noted increase in sales, as
most of these costs are variable and increased costs in merger and
acquisition activities.
Interest and dividend income for the year ending December 31, 1995
decreased from $43,945 in 1994 to $40,311 in 1995.
Related party services and sales commissions decreased from $79,222 in
1994 to $23,388 in 1995. The decreases was in sales volume from customers
from outside sales representatives.
YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993
Sales increased by $302,878 or 3.7% from December 31, 1993 to December
31, 1994. The Company's net income increased by $198,945 over the prior
year's net income of $1,245,924. The growth rate in sales for 1994 is mostly
attributable to increased activity in the automobile industry.
Cost of sales as a percentage of sales was 79.5% for the year ending
December 31, 1994 as compared to 75.6% for the year ending December 31, 1993.
The major reasons for the increase was higher insurance costs (1.8%) and
increased repairs and maintenance costs (2.5%). The higher insurance cost is
attributed to increased costs of insurance and increased benefits offered to
retain employees due to lower unemployment rates. Increased repairs related
to renovation cost of existing equipment to handle new business and products.
Selling, general and administrative expenses increased by $17,904 from
1993 to 1994. This was mainly due to the above noted increase in sales, as
most of these costs are variable.
Interest income for the year ending December 31, 1994 decreased from
$103,600 in 1993 to $49,945 in 1994. This decrease was a result of the payoff
of NHF of its loan.
Related party services and sales commissions increased from $41,111 in
1993 to $79,222 in 1994. This increase was for new customers obtained through
the use of sales representatives (Casting Sales, Inc.).
EFFECTS OF CHANGES IN PRICES
When possible, the Company attempts to adjust the selling prices of its
products in response to increases in its costs of labor, raw materials and
capital. However, the market served by the Company is competitive and that
competition may limit the allowance of price increases.
During 1995, 1994 and 1993 there were no significant changes in prices.
The Company had commitments for the purchase of, or the installation of,
fixed assets at the Yale Industries facility. The Company had agreed to
purchase $1.5 million in assets between July 1, 1993 and June 30, 1995. This
commitment had been met as of December 31, 1994. The Company had an option to
buy the facility for $1.00. The Company met its commitments and exercised the
option in 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the financial
statements appearing on Item 14 of this Report. Such information is
incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on Form 8K filed October 3, 1995, on October 2,
1995 the Company advised Arthur Andersen LLP, its independent auditors, that
they were dismissed as the Company's independent auditors for the 1995 fiscal
year.
The report of Arthur Andersen, LLP dated March 22,1995 on the Company's
consolidated financial statements as of December 31, 1994 and 1993 and for the
periods ended December 31, 1994 and 1993 and for the periods ended December 31,
1994 included an explanatory paragraph calling attention to an uncertainty at
the Company's 45%-owned equity investee, New Haven Foundry. The report also
included an explanatory paragraph calling attention to a change in accounting.
The change of accountants was approved by the Company's Board of
Directors.
In connection with Arthur Andersen's audit of the 1994 consolidated
financial statements of the Company, the Board of Directors of the Company
disagreed with Arthur Andersen regarding the necessity of including the
explanatory paragraph calling attention to the uncertainty referred to in
their Auditors' Report. The disagreement was ultimately resolved to Arthur
Andersen's satisfaction.
ITEM 10. IDENTIFICATION OF OFFICERS AND DIRECTORS
The following table sets forth the names and ages of all Officers and
Directors of the Company, indicating all positions and offices with the
Company held by each such person, and any periods during which he has served
as such:
<TABLE>
<CAPTION>
POSITION SERVED
AS DIRECTOR
NAME AGE ALL POSITIONS WITH THE COMPANY OF COMPANY
---- --- ------------------------------ ----------
<S> <C> <C> <C>
Frederick G. Schriever 71 Chairman of the Board November 1987 to present
and Director of the Company,
MCC, and Yale Industries
Delbert W. Mullens 51 Vice Chairman of the Board July 1990 to present
and Director of the Company,
MCC, and Yale Industries
William H. Hopton 61 President and Director January 1986 to present
of the Company, MCC,
and Yale Industries
Frederick G. Berlet 67 Treasurer and Director November 1987 to present
of the Company, MCC,
and Yale Industries
David A. Widlak 47 Secretary and Director November 1987 to present
of the Company, MCC,
and Yale Industries
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS
FREDERICK G. SCHRIEVER has been Chairman of the Company's Board of
Directors since November of 1987. He has been President of Casting Sales, Inc.
from 1972 to present. Casting Sales, Inc. acts as a manufacturer's
representative of foundries. Since 1955 to the present, Mr. Schriever has also
been President of Amber Tool and Engineering which holds real estate and owns an
interest in several companies and President of Trio Machine Products Corp., a
production machine shop. Since 1960 to the present, he has also been President
of J.P. Bell Co., a company specializing in machine levelers, Vice President of
Casting Industries, Inc. and Chairman of Arrow Exit Systems, Inc. Mr. Schriever
received a Bachelor of Science Degree in chemistry in 1949 from the University
of Michigan. Mr. Schriever devotes as much time as necessary to the business of
the Company and its subsidiaries.
DELBERT W. MULLENS has been a Director since July of 1990 and President of
NHF since September 1, 1992. He has been the President, Director, and principal
shareholder of Flint Coatings of Flint, Michigan, a company engaged in painting
automotive parts for major car manufacturers including General Motors
Corporation. Mr. Mullens is also Chairman of Product-SDL Chemical, Inc. Mr.
Mullens received a Bachelor of Science Degree in Business Administration from
Tennessee State University. Mr. Mullens devotes as much time as is necessary to
the business of the Company and its subsidiaries.
WILLIAM H. HOPTON has been President of the Company since April of 1988,
and a Director of the Company since January of 1986. Mr. Hopton also served as
the Company's vice President from January of 1986 to April
-12-
<PAGE>
of 1988. Since 1984, Mr. Hopton has been President of NHF. Effective
September 1, 1992, Mr. Hopton retired as President of NHF but will provide
consulting services to NHF as needed. Also, as of that date, he is devoting
his business time to the management of Margate Industries, Inc. Mr. Hopton
received a B.A. Degree in Business Administration from the University of
Detroit in 1964.
FREDERICK G. BERLET has been a Director of the Company since November of
1987 and its Treasurer since April of 1988. He also serves as Director of
numerous Canadian and U.S. corporations and is President of S.W.O.
Managements Consultants Limited. He graduated with a Masters Degree in
Business Administration in 1953 from the University of Western Ontario.
Mr. Berlet devotes as much time as is necessary to the business of the Company
and its subsidiaries.
DAVID A. WIDLAK has been Secretary and a Director of the Company since
November of 1987. In February 1994 he was named Vice President of Mergers and
Acquisitions. He received a Bachelors Degree from Wayne State University in
1969 and a juris doctorate Degree in Law from the University of Michigan in
1972. Mr. Widlak devotes as much time as is necessary to the business of the
Company and its subsidiaries.
The Directors of the Company and its subsidiaries hold office for a
three year term until the annual meeting of the shareholders and until their
successors have been elected and qualified in the year in which their term
expires. The term of two Directors expire each year.
The Officers of the Company and its subsidiaries are elected by the
respective Board of Directors at the first meeting after each annual meeting
of shareholders and hold office until the next annual meeting of directors or
their earlier resignation or removal.
The date of the next annual meeting of the Company will be determined by
the Company's Board of Directors in accordance with Delaware law.
No Director holds a directorship in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act
of 1940.
COMMITTEES, MEETINGS OF THE BOARD OF DIRECTORS. The Company has an audit
and compensation committee consisting of Frederick Berlet which consults with
and reviews the reports of the Company's independent auditors and the
Company's internal financial staff. This committee also makes recommendations
to the Company's Board of Directors as to compensation matters. The audit and
compensation committee held one meeting during the year. The Company's Board
of Directors held four regular and one special meetings during the fiscal year
ended December 31, 1995, at which time all of the then Directors were present
or consented in writing to the actions taken at such meetings.
COMPLIANCE WITH SECURITIES EXCHANGE ACT REPORTING REQUIREMENTS. To the
Company's knowledge, during the fiscal year ended December 31, 1995, the
Company's Officers and Directors complied with all applicable Section 16(a)
filing requirements. This statement is based solely on a review of the copies
of such reports furnished to the Company by its Officers and Directors and their
written representations that such reports accurately reflect all reportable
transactions.
-13-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION. The following table sets forth the total remuneration
paid during the Company's last fiscal year ended December 31, 1995 and the
prior two years to the Chief Executive Officer, the only executive office
whose total cash and non cash compensation exceeded $100,000 prior to 1995.
In 1995 David Widlak's, Vice President of Mergers and Acquisitions,
compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAY-
outs
- -------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER ALL
NAME ANNUAL RESTRICTED LTIP OTHER
AND COMPEN- STOCK OPTIONS/ PAY- COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) SARS OUTS SATION
POSITION YEAR(1) ($) ($) ($)(2) ($) (#)(3) ($) ($)(4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William H. Hopton 1995 $ 82,500 $ 12,500 $ 27,000 $ 7,687
President and CEO 1994 $ 75,000 $ 18,000 $ 24,000 $ 8,342
1993 $ 65,000 $ 10,000 $ 24,000 $ 7,342
David Widlak 1995 $ 55,000 $ 8,300 $ 27,000 $ 10,490
Vice President of
Merger &
Acquisitions
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Periods presented are for the year ended December 31.
(2) Represents Directors fees.
(3) Number of shares of Common Stock subject to options granted during the year
indicated.
(4) Represents employer contributions for insurance, disability insurance and
car allowance.
COMPENSATION OF DIRECTORS
The Directors receive $6,000 for each meeting they attend plus expenses.
The Chairman of the Board of Directors receives $7,000 per meeting. Special
Board Meetings are paid at $3,000 per meeting.
-14-
<PAGE>
OPTIONS GRANTED
The following table sets forth the options that have been granted to the
Chief Executive Officer and President listed in the Executive Compensation Table
during the Company's last fiscal year ended December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% OF TOTAL
OPTIONS/ OPTIONS/SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE
---- ------- -------------- --------- ----------
<S> <C> <C> <C> <C>
William H. Hopton N/A N/A N/A N/A
President and CEO
</TABLE>
AGGREGATE OPTIONS EXERCISED IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
The following table sets forth certain information regarding options to
purchase shares of Common Stock exercised during the Company's 1995 fiscal
year and the number and value of exercisable and unexercisable options to
purchase shares of Common Stock held as of the end of the Company's 1995
fiscal year by the Executive Officers of the Company named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN 1995
AND OPTION VALUES AT DECEMBER 31, 1995
- ------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
12/31/95 12/31/95
Shares Acquired Exerciasable/ Exercisable/
Name on Exercise Value Realized(1) Unexercisable Unexercisable(2)
----- --------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
William H. Hopton 16,000 $20,000 0/32,000 $0/$8,960
President and CEO
- ------------------------------------------------------------------------------------
</TABLE>
(1) Value realized is equal to the difference between the fair market value per
share of Common Stock on the date of exercise and the option exercise price
per share multiplied by the number of shares acquired upon exercise of an
option.
(2) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of Common Stock of $.78
at December 31, 1995, and the option exercise price per share multiplied by
the number of shares subject to options.
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS. As of December 31,
1995, Mr. Hopton held options to purchase 32,000 shares of the Company's
common stock, at a price of $.50 per share. These options are exercisable
through December 15, 1997. Delbert W. Mullens, Vice-Chairman, held options
to purchase 100,000 shares at a price of $1.50 per share and 100,000 shares
at a price of $2.50 per share. Mr. Mullens' options are exercisable at any
time, provided that he holds a minimum 55% ownership interest in NHF and the
Company also holds an ownership interest in NHF.
-15-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth as of March 15, 1996, information with respect to
the ownership of the Company's $.005 par value common stock by each person
known by the Company to own beneficially more than 5% of the outstanding
common stock, and by each of its officers and directors and by all officers
and directors collectively as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- ------------------- ---------- -----------
<S> <C> <C>
Paul L. Cosper 284,120(2) 6.2%
P.O. Box 96050
Wixom, MI 48096
Charles H. Raches, Jr. 252,840 5.5%
6600 Tepee Ridge Road
Bozeman, MT 59715
Frederick G. and Patricia W. Schriever 795,147 17.3%
64 Clairview
Grosse Pointe Shores,
MI 48236
Frederick G. Berlet 225,416(3) 4.9%
S.W.O. Management Consultants, Ltd.
35 Parkwood Drive
Tillsonburg, Ontario
Canada N4G 2B7
David A. Widlak 93,000 2.0%
P.O. Box 482
Washington, MI 48094
Delbert W. Mullens 15,000(4) 0.3%
2888 Bloomfield Crossings
Bloomfield Hills, MI 48013
William H. Hopton 120,060(5) 2.6%
5448 North River Rd.
Marine City, MI 48039
All Officers and Directors 1,248,623 27.1%
of the Company & Subsidiaries
as a Group (5 Persons)
</TABLE>
_______________________
(1) Each person has sole voting and investment power with respect to the shares
shown except as noted.
(2) The shares beneficially owned by Mr. Cosper are held in the name of Paul L.
Cosper, Trustee under an Agreement of Trust executed by Paul L. Cosper as
Grantor. The beneficiaries of this trust are Mr. Cosper's wife and
children.
(3) The shares beneficially owned by Mr. Berlet are held in joint tenancy with
his wife and children.
-16-
<PAGE>
(5) Does not include 200,000 options to purchase common stock.
(6) Includes 80,060 shares held by William Hopton, individually, 40,000 shares
held jointly with his four children, and does not include 32,000 options
not exercised as of this date.
CHANGES IN CONTROL. The Company knows of no contractual arrangements,
including any pledge by any person of securities, which may at a subsequent date
result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The terms of the sale of NHF common stock by the Company provide for a
commission contract between NHF and the Company relating to sales in excess
of $35,000,000 annually. The Company will receive $150,000 per year plus 3%
on the difference between actual sales in excess of $35,000,000 but less than
$40,000,000 plus 2% on actual sales that exceed $40,000,000. This commissions
contract will be in effect for a period of not less than fifteen (15) years
beginning in June 1990. The Company earned commissions from NHF in 1995 of
$705,420 and accordingly, has a receivable in the amount of $114,541 as of
December 31, 1995. Also, for a minimum period of fifteen (15) years
beginning in June 1990, the Company and its subsidiaries will provide
cleaning services on all castings produced by NHF on an exclusive basis,
provided the Company retains an ownership interest in NHF. Consolidated net
sales to NHF in 1995 amounted to $6,057,933.
Effective September 1, 1992, William Hopton retired as President of NHF
but provides consulting services to NHF, as needed. Since that date, he has
devoted his full time to the management of the Company and its subsidiaries.
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1). The following Financial Statements are filed as part of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets, December 31, 1995 and 1994 . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income, Years ended December 31, 1995, 1994 and 1993 . . . . F-4
Consolidated Statements of Stockholders' Equity For the Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows, Years ended December 31, 1995, 1994 and 1993 . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-7
(a) (2). The following Financial Statement are filed as part of this Report:
Financial Statements of Subsidiary Not Consolidated . . . . . . . . . . . . . . . . . S-1
</TABLE>
(a) (3) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the last quarter of the period covered by this report, the Company
filed an 8-K on a change of Auditors.
-18-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
________
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
________
DECEMBER 31, 1995
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
________
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
________
DECEMBER 31, 1995
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
- CONTENTS -
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Independent Auditors' Reports 1
Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Margate Industries, Inc. and Subsidiaries
Yale, Michigan
We have audited the accompanying consolidated balance sheet of MARGATE
INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity 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 did not audit the financial
statements of NEW HAVEN FOUNDRY, the investment in which, as discussed in Note 1
to the financial statements, is accounted for by the equity method of
accounting. The financial statements of NEW HAVEN FOUNDRY were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for NEW HAVEN FOUNDRY, is based solely on the
report of the other auditors.
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, the financial statements referred to above present fairly, in
all material respects, the financial position of MARGATE INDUSTRIES, INC. AND
SUBSIDIARIES at December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
PERRIN, FORDREE & COMPANY, P.C.
Troy, Michigan
February 20, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Margate Industries, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of MARGATE
INDUSTRIES, INC. (a Delaware corporation) and subsidiaries as of December 31,
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1994. 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 Margate Industries, Inc. and
subsidiaries as of December 31, 1994, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 14 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for postretirement benefits other
than pensions.
/s/ Arthur Andersen LLP
Detroit, Michigan,
March 22, 1995
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------
1995 1994
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 513,700 $ 573,957
Marketable securities 152,713 465,867
Accounts receivable:
Trade 505,849 308,637
Related parties 974,733 651,957
Note receivable - related party 17,800 17,800
Inventories 55,333 104,572
Prepaid expenses and other 78,879 288,276
Prepaid federal income tax 105,457 279,758
Deferred tax assets 19,000 34,000
----------- ----------
Total current assets 2,423,464 2,724,824
INVESTMENT IN NEW HAVEN FOUNDRY 531,711 2,311,712
OTHER 48,419 -
NOTES RECEIVABLE FROM RELATED PARTY -
Less current portion 35,600 53,400
PROPERTY, PLANT AND EQUIPMENT - At cost,
net of accumulated depreciation and
amortization of $711,193 and $499,594 at
December 31, 1995 and 1994, respectively 2,607,593 2,240,281
----------- ----------
$5,646,787 $7,330,217
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 182,246 $ 325,585
Accrued salaries and wages 47,232 53,354
Dividends payable - 69,828
Accrued workers' compensation 108,260 49,000
Accrued single business tax 1,000 7,000
Notes payable 165,663 23,771
Other accrued liabilities 19,953 7,604
----------- ----------
Total current liabilities 524,354 536,142
DEFERRED TAX LIABILITIES 141,000 88,000
OTHER POSTRETIREMENT BENEFITS 330,739 288,024
NOTE PAYABLE - Long-term 183,770 26,433
STOCKHOLDERS' EQUITY:
Common stock - $.005 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 4,653,637 and
4,655,614 at December 31, 1995 and
1994, respectively 23,268 23,278
Paid-in for common stock in excess of
par value 7,499,980 7,517,749
Accumulated deficit (3,056,324) (1,149,409)
----------- ----------
Total stockholders' equity 4,466,924 6,391,618
----------- ----------
$5,646,787 $7,330,217
----------- ----------
----------- ----------
</TABLE>
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES (Including related party sales and
commissions of $6,763,353, $5,660,167 and
$5,550,503 in 1995, 1994 and 1993,
respectively) $ 9,310,525 $ 8,486,410 $ 8,183,431
COST OF SALES 7,844,506 6,742,792 6,183,513
----------- ----------- -----------
GROSS PROFIT 1,466,019 1,743,618 1,999,918
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,076,964 906,986 889,082
RELATED PARTY SERVICES AND SALES COMMISSIONS 23,388 79,222 41,111
----------- ----------- -----------
INCOME FROM OPERATIONS 365,667 757,410 1,069,725
INTEREST AND DIVIDEND INCOME, Net 40,311 43,945 103,600
EQUITY IN INCOME (LOSS) OF INVESTEE COMPANIES (2,055,133) 858,313 20,200
RECOGNITION OF PREVIOUSLY DEFERRED GAIN - - 561,811
OTHER INCOME 83,244 4,202 29,998
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (1,565,911) 1,663,870 1,785,334
PROVISION FOR FEDERAL INCOME TAXES 178,000 219,000 389,000
----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,743,911) 1,444,870 1,396,334
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE - Other postretirement benefits - - (150,410)
----------- ----------- -----------
NET INCOME (LOSS) $(1,743,911) $ 1,444,870 $ 1,245,924
----------- ----------- -----------
----------- ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE:
Primary:
Before accounting change $ (.37) $ 0.31 $ 0.30
Accounting change - - (0.03)
----------- ----------- -----------
$ (.37) $ 0.31 $ 0.27
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN FOR
-------------------------- COMMON STOCK TOTAL
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31,
1992 4,598,970 $ 22,995 $7,342,539 $(3,363,744) $4,001,790
Stock options exercised 33,333 166 16,500 - 16,666
Net income - - - 1,245,924 1,245,924
Cash dividends declared
($.0425 per share) - - - (196,517) (196,517)
----------- ----------- ------------ ------------ ------------
Balance - December 31,
1993 4,632,303 23,161 7,359,039 (2,314,337) 5,067,863
Stock options exercised 33,334 167 16,499 - 16,666
Tax benefit of options
exercised - - 160,758 - 160,758
Stock purchase (10,000) (50) (18,547) - (18,597)
Adjustment to fair value
of equity securities
available for sale - - - (35,413) (35,413)
Net income - - - 1,444,870 1,444,870
Cash dividends declared,
($.0525 per share) - - - (244,529) (244,529)
----------- ----------- ------------ ------------ ------------
Balance - December 31,
1994 4,655,637 23,278 7,517,749 (1,149,409) 6,391,618
Stock options exercised 20,000 100 9,900 - 10,000
Tax benefit of options
exercised - - 10,699 - 10,699
Stock purchase (22,000) (110) (38,368) - (38,478)
Adjustment to fair value
of equity securities
available for sale - - - (23,256) (23,256)
Net loss - - - (1,743,911) (1,743,911)
Cash dividends declared
($.03 per share) - - - (139,748) (139,748)
----------- ----------- ------------ ------------ ------------
4,653,637 $ 23,268 $7,499,980 $(3,056,324) $(4,466,924)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $8,839,986 $8,730,519 $7,992,778
Cash paid to suppliers and employees (8,635,588) (7,938,392) (6,818,006)
Interest and dividends received 41,803 61,298 103,600
Interest paid (1,492) (17,353) (6,964)
Income taxes (paid) refunded 75,000 (324,242) (370,000)
----------- ----------- -----------
Net cash from operating activities 319,709 511,830 901,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - (229,956) (109,719)
Proceeds from sale of securities 373,142 289,095 73,175
Purchase of property, plant and
equipment (578,911) (906,027) (797,416)
----------- ----------- -----------
Net cash to investing activities (205,769) (846,888) (833,960)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 10,000 16,666 16,666
Purchase of treasury stock (38,478) (18,597) -
Principal payments under long-term
obligations (23,771) (21,219) (2,160)
Net proceeds from notes receivable 17,800 217,800 428,700
Payment of dividends (139,748) (232,603) (173,107)
----------- ----------- -----------
Net cash to financing activities (174,197) (37,953) 270,099
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (60,257) (373,011) 337,547
CASH AND CASH EQUIVALENTS:
Balance - beginning of year 573,957 946,968 609,421
----------- ----------- -----------
Balance - end of year $ 513,700 $ 573,957 $ 946,968
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS
<TABLE>
<S> <C> <C> <C>
FIXED ASSET ACQUIRED UNDER CAPITAL
LEASE OBLIGATION $ - $ 67,466 $ -
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Margate Industries,
Inc. (the Company) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management which is responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
BUSINESS ACTIVITY
Margate Industries, Inc. is a holding company for subsidiaries involved
in the cleaning of small and medium-sized grey iron castings that are
sold primarily to the North American automobile industry.
Export sales totaled approximately $54,500, $532,000 and $1,296,000 for
the years ended December 31, 1995, 1994 and 1993, respectively. Net
sales to certain major customers that represented 10% or more of the
consolidated net sales are as follows:
1995 1994 1993
----------- ----------- ----------
Western Foundry, Ltd. $ 1,300 $ 532,000 $1,296,000
New Haven Foundry 6,057,933 5,065,000 5,141,000
Ford Motor Company 53,200 968,000 -
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Michigan Casting Corporation
(MCC), Yale Industries (Yale), Fort Atkinson Industries, Inc. (FAI)
and its 80%-owned subsidiary, West Haven Castings Co. (West Haven).
West Haven ceased operations during 1993. Ten percent of the minority
interest of West Haven is owned by a director of the Company. All
intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
PRINCIPLES OF CONSOLIDATION - CONTINUED
In November 1995, the Company established a wholly-owned subsidiary,
Fort Atkinson Industries, Inc., which provides finishing services on
castings manufactured in the Iowa-Wisconsin area. Operations began on
March 1, 1996.
The Company follows the equity method of accounting for its 45%
investment in New Haven Foundry (NHF) and it 40% interest in Complete
Engineering Development Services, Inc. (CEDS). The carrying value of
the Company's investment reflects its underlying equity in the net
assets of NHF and CEDS.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, consisting primarily of grinding wheels, are stated at the
lower of cost, determined on the first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Costs of
maintenance and repairs are charged to expense when incurred.
Depreciation and amortization of plant and equipment is recorded using
the straight-line method over the estimated useful lives of the assets.
Depreciation and amortization expense totaled $211,599, $157,548 and
$91,512 in 1995, 1994 and 1993, respectively. Estimated useful lives
of assets in the various classes of property, plant and equipment are
as follows:
Buildings and improvements 40 years
Machinery and equipment 12 years
Automobiles, furniture and fixtures 12 years
-7-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
REVENUE RECOGNITION
Revenues derived from the cleaning of castings are recognized as
services are provided.
Sales commissions are recognized as revenue when earned.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed based on the weighted
average number of shares of common stock outstanding during each year,
plus the shares that would be outstanding assuming exercise of
dilutive stock options and warrants. The total weighted average number
of shares of common stock and common stock equivalents was 4,658,206,
4,677,652 and 4,613,117 for the years ended December 31, 1995, 1994
and 1993, respectively.
On January 12, 1994, the Company's Board of Directors approved a
proposal to reduce the authorized number of shares of common stock
from 50,000,000 shares to 25,000,000 shares. In addition, a reverse
stock split of one share of common stock for each five shares presently
issued to and held by each stockholder was declared and the par value
of the common stock was increased from $.001 to $.005 per share. All
references in the financial statements to average number of shares
outstanding, per share amounts, and stock option plan data have been
restated to reflect the reverse-split.
WORKERS' COMPENSATION
In 1992, the Company became fully insured for workers' compensation.
Prior to this time, the Company was partially self-insured. All
significant partially insured claims have been accrued.
-8-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company provides cleaning services to NHF for products
manufactured by that Company. Pursuant to the July 1990 agreement for
the sale of NHF common stock, the Company provides exclusive cleaning
services on all castings produced by NHF for a minimum period of 15
years, provided the Company maintains an ownership interest in NHF.
The terms of the sale also provided for a commission contract between
NHF and the Company. The Company will receive a minimum of $150,000
per year, plus 3% of actual sales in excess of $35,000,000 but less
than $40,000,000, plus an additional 2% on the actual sales that exceed
$40,000,000. This commission contract is in effect for a period of
not less than 15 years. The Company earned commissions from NHF
amounting to $705,420, $607,149 and $410,000 in 1995, 1994 and 1993,
respectively.
During 1995, 1994 and 1993, the Company earned interest income of
$2,116, $2,125 and $45,862, respectively on notes receivable and past
due accounts receivable from NHF.
Any unpaid balances of the aforementioned amounts are included in the
related party balances on the accompanying balance sheet.
-9-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 2 - RELATED PARTY TRANSACTIONS - CONTINUED:
NHF has received authorization from the Internal Revenue Service to
defer funding requirements for its hourly pension plan for the years
1981 through 1984 and 1986. These deferred obligations are being
funded over a 15-year period. The Pension Benefit Guaranty
Corporation (PBGC) has required that the Company guarantee the
deferred obligations and has second and third liens on substantially
all of the Company assets as collateral for the funding waivers.
Accordingly, the Company is contingently liable for the following
contributions, including interest, to be made by NHF.
ANNUAL
YEARS CONTRIBUTION
----- ------------
1996 $252,195
1997 191,878
1998 126,209
1999 and 2000 60,422
The Company also has a note receivable from a related party (see Note
5).
NOTE 3 - INVESTMENT IN UNCONSOLIDATED COMPANY:
As described in Note 1, the Company accounts for its 45% investment in
NHF using the equity method. Summarized financial information of NHF
is as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994 1994
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Current assets $13,626,618 $12,613,943 $ 8,913,751
Net property, plant and
equipment 11,982,268 8,886,886 7,176,045
Other assets 392,363 1,201,933 1,284,841
----------- ------------ ------------
Total assets $26,001,249 $22,702,762 $17,374,637
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities $18,214,820 $12,624,715 $10,286,696
Noncurrent liabilities 6,603,140 4,940,482 3,857,738
Stockholders' equity 1,183,289 5,137,565 3,230,203
----------- ------------ ------------
Total liabilities and
Stockholders' equity $26,001,249 $22,702,762 $17,374,637
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
-10-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 3 - INVESTMENT IN UNCONSOLIDATED COMPANY - CONTINUED:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $60,035,860 $55,816,957 $46,935,738
OPERATING EXPENSES 65,303,136 52,656,595 46,357,847
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (5,267,276) 3,160,362 577,891
INCOME TAXES (BENEFIT) (1,313,000) 1,253,000 533,000
----------- ----------- -----------
NET INCOME $ (3,954,276) $ 1,907,362 $ 44,891
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NHF implemented Statement of Financial Accounting Standards No. 106,
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
(SFAS 106) in the first quarter of 1993. The estimated liability as
of the adoption date was $10.4 million, based on available actuarial
valuations. NHF elected to amortize the transition obligation over 20
years. The annual expense for future postretirement employee benefits
will include the annual amortization of this liability, future years'
service cost and interest expense. The adoption of this statement had
a significant impact on the Company's equity in the income of NHF.
In connection with Wesley Industries' purchase of 55% of NHF (in
1990), a stockholder of Wesley received an option to purchase an
additional 20% of NHF's stock from Margate for a price equal to the
greater of $800,000 or book value. If this option is exercised,
Margate can require that the stockholder purchase all of the NHF
shares held by Margate for an amount equal to the greater of $1,800,000
or book value.
As described in Note 1, the Company accounts for its 40% investment in
CEDS, acquired January 1995, using the equity method. During 1995,
CEDS became insolvent and terminated operations. Therefore, at
December 31, 1995, no financial information is presented and the
investment in CEDS has been written down to net realizable value, $-0-.
-11-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 4 - MARKETABLE SECURITIES:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115). The effect of adopting the
provisions of SFAS 115 on the Company's financial statements was
immaterial. This statement requires management to classify
investments in equity and debt securities as either: held-to-maturity
securities and reported at amortized cost; trading securities and
reported at fair value, with unrealized gains and losses included in
earnings; or as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity. At
January 1, 1995, the Company classified its securities as available-
for-sale. At December 31, 1995, the Company reported all equity
securities as available-for-sale, with a fair value of $152,713, and
an unrealized loss of $23,256. This unrealized loss is included in
stockholders' equity as an adjustment to fair value of equity
securities available-for-sale. At December 31, 1994, investments in
equity securities were valued at lower of aggregate cost or market and
totaled $465,867.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31,
1995
Available-for-
sale equity
securities $211,382 $ 1,296 $ 59,965 $152,713
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Proceeds from the sale of marketable equity securities in 1995
aggregated $373,142. The sale resulted in realized gains of $83,244
which is included in other income. For purposes of calculating the
realized gain on sale of securities, cost of the securities is
determined by use of the specific identification method.
-12-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 5 - NOTE RECEIVABLE - RELATED PARTY:
Note receivable - related party consisted of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Wesley Industries, Inc. - principal
payable $4,450 per quarter beginning
April 30, 1994, and expiring
January 31, 1999, plus interest at
the prime rate established by
National Bank of Detroit. Interest
is payable quarterly. This note is
unsecured. $ 53,400 $ 71,200
Less current portion 17,800 17,800
-------- --------
$ 35,600 $ 53,400
-------- --------
-------- --------
</TABLE>
The prime rate at December 31, 1995, was 8.5%.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows as of
December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Building and improvements $ 691,687 $ 530,043
Machinery and equipment 2,487,765 2,094,390
Automotive equipment 43,327 25,148
Furniture and fixtures 96,007 90,294
---------- -----------
Total cost 3,318,786 2,739,875
Less accumulated depreciation and
amortization 711,193 499,594
---------- ----------
Net property, plant and
equipment $2,607,593 $2,240,281
---------- -----------
---------- -----------
</TABLE>
The Company received Community Development Block Grant (CDBG) funds
through the City of Yale totaling $387,035 and land with a value of
$25,000. These grants have been recorded as a credit in the property
accounts and will be amortized into income over the life of the assets
acquired.
-13-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 7 - NOTES PAYABLE:
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Note payable - bank, due in monthly
principle installments of $7,583, plus
interest at prime in payment of loan
guarantee for investment in CEDS,
uncollateralized, maturing December
1998. An additional $50,000 is
currently due, representing the
balance of the loan guarantee on
investment in CEDS. $323,000 $ -
-------- ---------
Capital lease - related party, due in
monthly installments of $2,102,
including interest at 3.7%, maturing
February 1997. 26,433 50,204
-------- ---------
349,433 50,204
Less current portion 165,663 23,771
-------- ---------
$183,770 $ 26,433
-------- ---------
-------- ---------
</TABLE>
Maturities of notes payable obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $165,663
1997 92,770
1998 91,000
---------
$349,433
---------
---------
</TABLE>
The Company maintains a bank line of credit of $500,000 for working
capital requirements. The applicable interest rate is at the prime
lending rate, currently 8.5% at December 31, 1995. The line of credit
is secured by all accounts receivable, inventories and equipment of
the Company. Additionally, certain required financial ratios must be
maintained. The Company is in compliance with all covenant
requirements as of December 31, 1995. The Company had no borrowings
against the line as of December 31, 1995 and 1994.
-14-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 8 - DEFERRED GAIN (LOSS) ON SALE (ACQUISITION) OF COMMON STOCK:
The sale of NHF common stock in 1990 provided cash proceeds of
$1,500,000 and a six-year promissory note in the amount of $89,000.
At that time, the gain on the sale of $561,811 was deferred because
the financial condition of NHF raised significant doubts as to NHF's
ability to meet financial commitments to the Pension Benefit Guaranty
Corporation (PBGC). Margate is a guarantor of this pension liability,
as explained in Note 2. As a result of significant improvement in
NHF's operations, positive cash flows and scheduled timely payments on
the PBGC obligation, the gain was recognized during 1993.
Margate Industries, Inc. (the Company) acquired 40% of the stock of
Complete Engineering Development Services, Inc. (CEDS) in January
1995. Under the provisions of the agreement, the Company became a
guarantor of CEDS' line-of-credit agreement. On December 21, 1995,
CEDS defaulted on the line of credit and demand payment was made by
the lender. The Company, as guarantor, negotiated a term note
agreement with the bank for $273,000 along with a required payment of
$50,000 which relieved them of all principal and interest due under
the line-of-credit agreement. As a result, the Company incurred a
capital loss of approximately $275,000 of which $83,000 was utilized
for federal tax purposes in 1995. The remaining unused capital loss
of $192,000 is available for carryforward and expires in 2000.
NOTE 9 - INCOME TAXES:
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
-15-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 9 - INCOME TAXES - CONTINUED:
At December 31, components of deferred income taxes include the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current deferred taxes - gross assets $ 19,000 $ 34,000
--------- ---------
Current deferred tax -
assets 19,000 34,000
--------- ---------
Noncurrent deferred taxes:
Gross assets 178,000 98,000
Gross liabilities (254,000) (186,000)
--------- ---------
Valuation allowance (65,000) -
--------- ---------
Net noncurrent deferred
tax - assets (liabilities) (141,000) (88,000)
--------- ---------
Total deferred tax -
assets (liabilities) $(122,000) $ (54,000)
--------- ---------
--------- ---------
</TABLE>
The 1995 acquisition of CEDS, as discussed in Note 8, resulted in a
federal tax capital loss to Margate. Due to the uncertainty of the
future realization, a valuation allowance was established for this
deferred asset in 1995. This loss carryforward expires in 2000.
The 1990 sale of the New Haven Foundry stock, as discussed in Note 8,
resulted in a federal tax capital loss to Margate. Due to the
uncertainty of realization, a valuation allowance was established for
this deferred tax asset in 1993. This capital loss carryforward
expired during 1994.
Deferred income taxes, included in the accompanying balance sheets,
result from temporary differences related to the following items which
are treated differently for financial reporting and tax reporting
purposes.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CDBG proceeds $ - $ - $140,000
Depreciation and amortization (254,000) (186,000) (105,000)
Capital loss carryforward 65,000 - 197,000
Other postretirement benefits 113,000 98,000 88,000
Workers' compensation expense 3,000 17,000 33,000
Vacation expense 16,000 17,000 -
Other - - (21,000)
-------- -------- --------
Total $(57,000) $(54,000) $332,000
-------- -------- --------
-------- -------- --------
</TABLE>
-16-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 9 - INCOME TAXES - CONTINUED:
The components of the provision for income taxes are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current tax expense $110,000 $170,000 $536,000
Deferred tax expense
(benefit) 68,000 49,000 (147,000)
Operating and capital loss
carryforwards (65,000) - -
Adjustment to valuation
allowance 65,000 - -
-------- -------- --------
Provision for income taxes $178,000 $219,000 $389,000
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation of the statutory tax rate to the effective tax rates
recorded as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Statutory rate (34)% 34% 34%
(Earnings) losses of unconsolidated
subsidiaries 45 (17) (1)
Deferred income related to CDBG
proceeds - (1) -
Recognition of previously deferred gain - - (13)
Other - (3) -
----- ---- ----
Effective rate 11 % 13% 20%
----- ---- ----
----- ---- ----
</TABLE>
NOTE 10 - DIVIDENDS PAYABLE:
As of December 31, 1995, there were no dividends declared or payable
to stockholders.
In December 1994, the Company declared a quarterly cash dividend of
$.0150 per share of its common stock. The dividend is payable
February 15, 1995, to stockholders of record at the close of business
on January 13, 1995.
-17-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 11 - STOCK OPTIONS:
The following table sets forth stock options granted, exercised and
canceled during the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding at the
beginning of the year 260,000 $ .50 333,334 $1.45 166,667 $ .50
Stock options granted - - - - 100,000 1.50
Stock options granted - - - - 100,000 2.50
Stock options exercised (20,000) .50 (33,334) .50 (33,333) .50
Stock options canceled - - (40,000) - - -
------- ----- ------- ----- ------- -----
Stock options outstanding at the
end of the year 240,000 $ .50 260,000 $1.65 333,334 $1.45
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
Outstanding employee options of 40,000 shares of stock are exercisable
at a maximum of 20,000 per year, through 1997.
In addition, pursuant to the agreement for the sale of 55% of NHF (in
1990), stock options were granted to the owner of Wesley Industries
for 100,000 shares at a price of $1.50 and 100,000 shares at a price
of $2.50. The options are exercisable at any time, provided that the
owner of Wesley Industries holds a minimum 55% ownership interest in
NHF and the Company also holds an ownership interest in NHF.
-18-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 12 - CASH FLOWS:
A reconciliation of net income (loss) to net cash flows from operating
activities is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $(1,743,911) $1,444,870 $1,245,924
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 211,599 157,548 91,512
Gain on sale of marketable
securities (83,244) - (6,962)
Loss on sale of property, plant
and equipment - - 18,710
Equity in (income) loss of
Investee companies 2,103,000 (858,313) (20,200)
Deferred income tax provision 68,000 49,000 (225,000)
Deferred gain on sale of New
Haven Foundry Common Stock - - (561,811)
Tax benefit of stock options
exercised 10,699 160,758 -
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable:
Trade (197,212) 142,643 (252,193)
Related parties (322,776) 101,466 61,540
(Increase) decrease in inventories 49,239 (59,107) (25,143)
(Increase) decrease in prepaid
expenses and other 335,280 (464,973) (32,322)
Increase (decrease) in accounts
payable (143,339) 99,992 131,965
Increase (decrease) in accrued
income tax - (351,000) 166,000
Increase (decrease) in accrued
workers' compensation 59,260 14,420 (29,068)
Increase (decrease) in accrued
salaries and wages (6,122) (25,318) 29,660
Increase (decrease) in accrued
single business tax (6,000) 1,500 (28,488)
Increase (decrease) in other
accrued liabilities (57,479) (67,653) 75,257
Increase in accrued pension and
retiree health benefits 42,715 25,997 262,027
Increase in deferred taxes - 140,000 -
----------- ---------- ----------
Net cash from operating activities $ 319,709 $ 511,830 $ 901,408
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
-19-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 13 - LEASE COMMITMENTS:
MCC leases its building under an operating lease agreement which
expires in September 1998. This lease requires the Company to pay all
maintenance and insurance expenses.
Minimum payments under these leases are as follows:
1996 $111,800
1997 111,800
1998 88,500
--------
$312,100
--------
--------
Rental expense for these leases in 1995, 1994 and 1993, was
approximately $109,000, $103,000 and $115,000, respectively.
NOTE 14 - OTHER POSTRETIREMENT BENEFITS:
In December 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 106 on ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106). The new
standard requires that the expected cost of these benefits be charged
to expense during the years that the employees render service.
The cumulative effect at January 1, 1993, of adopting SFAS 106 was to
reduce net income by $150,410 ($228,410 before tax), or $.03 per
share. The effect of this change reduced 1993 income before
cumulative effect of accounting change by $23,617 ($33,617 before
tax).
The following table sets forth the Plan's funded status reconciled
with the amount shown in the Company's consolidated balance sheet at
December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ - $ -
Fully-eligible active plan
participants 85,114 77,295
Other active plan participants 229,892 191,083
-------- --------
$315,006 $268,378
-------- --------
-------- --------
</TABLE>
-20-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 14 - OTHER POSTRETIREMENT BENEFITS - CONTINUED:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Unrecognized net loss from past
experience different from that
assumed and from changes in
assumptions $ 15,733 $ 19,646
Accrued postretirement benefit
obligation 315,006 268,378
-------- --------
Accrued postretirement benefit cost $330,739 $288,024
-------- --------
-------- --------
</TABLE>
The Company's postretirement healthcare and life insurance plan is not
funded as the Company funds benefits on a pay-as-you-go basis.
Net periodic postretirement benefit costs included the following
components:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost - benefits attributed to
service during the period $ 21,623 $ 11,937
Interest cost on accumulated other
postretirement benefit obligation 21,061 16,625
Recognition of transition obligation 31 -
-------- --------
Net periodic other postretirement
benefit cost $ 42,715 $ 28,562
-------- --------
-------- --------
</TABLE>
For measurement purposes, an 8% and 10.6% annual rate of increase in
the per capita cost of covered healthcare benefits was assumed for
1995 and 1994, respectively; the rate was assumed to decrease to 6%
over ten years and remain at that level thereafter. The healthcare
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed healthcare cost trend
rate by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994, by
$87,687 and $73,239, respectively, and the aggregate of the service
and interest cost components of net periodic postretirement benefit
cost for the years then ended by $13,259 and $8,885, respectively.
-21-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 14 - OTHER POSTRETIREMENT BENEFITS - CONTINUED:
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% and 8% as of December 31, 1995 and 1994,
respectively.
NOTE 15 - CONTINGENCIES:
NHF, the Company's 45%-owned equity investee, is party to an action
brought by PIRGIM and the United States of America ("U.S.") which
alleges that NHF discharged potentially contaminated water into a
stream which flows to settling ponds they maintain, in violation of
the Federal Clean Water Act. NHF estimates that a civil penalty
approximating $500,000 will be incurred by NHF to settle the
litigation and the Company has provided reserves for this amount.
NHF is party to an action brought by the U.S. and is also currently
negotiating with the Michigan Department of Environmental Quality
(MDEQ) regarding alleged violations of environmental laws pertaining
to air and waste issues, including used foundry sand on its property.
NHF is negotiating a consent decree with these agencies which
encompasses most of these alleged violations and is also working with
the MDEQ to resolve any remaining alleged violations.
Based on results of preliminary investigation, some small portions of
the foundry waste sand pile are known to contain levels of heavy
metals which exceed environmental standards established by the U.S.
Environmental Protection Agency ("EPA"). NHF has engaged
environmental consultants to assist in developing a remediation plan
to submit to the U.S. and MDEQ for approval. Other than those
portions of the sand pile known to contain levels of heavy metals
which exceed environmental standards, NHF believes the remainder of
used sand is not in violation of such standards.
-22-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 15 - CONTINGENCIES - CONTINUED:
NHF has identified several options to remediate the sand including on-
site treatment or capping in place. Costs associated with these
alternatives are currently estimated to range from $1,200,000 to
$6,000,000, and NHF has recorded a reserve of $1,500,000, of which
$1,250,000 was provided in the current year. The low estimate of the
range assumes that no additional portions of the sand pile will
contain heavy metals exceeding environmental standards. Although the
ultimate outcome of this matter is not known at this time, on the
basis of investigations performed to date by the Company and its
environmental consultants, NHF does not believe that future costs
associated with remedial action in excess of reserves provided will
ultimately have a materially adverse impact on the Company's financial
position or future results of operations.
NOTE 16 - EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) plan covering all employees that
satisfy the Plan's eligibility requirements. The Company is required
to match 25% of each employee's contribution, not to exceed 8% of the
participant's compensation. Employer's contribution for the years
ended December 31, 1995 and 1994, was $23,264 and $19,123,
respectively.
Margate maintains a Defined Contribution Plan covering substantially
all employees that satisfy the Plan's eligibility requirements. Under
the provisions of the Plan, Margate is required to make an annual
contribution of 5% of each participant's eligible compensation. Plan
contributions for the years ended December 31, 1995 and 1994, were
$22,386 and $38,227, respectively.
During 1995, MCC adopted a Cafeteria Plan under Section 125 of the
Internal Revenue Code which allows employees that participate to pay
for their portion of health benefits with before tax dollars. The
Plan covers all employees that meet the requirements of coverage under
MCC's group health benefit plan.
-23-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1995
NOTE 17 - COMMITMENTS:
On January 1, 1996, FAI entered into a lease agreement for its
operations facility located in Wisconsin. The term of the
noncancellable operating lease is ten years at a monthly base rent of
$11,313. The Company is required to pay taxes, insurance and common
area maintenance charges.
On January 2, 1996, Margate executed a $400,000 bank term loan. The
proceeds of the loan were necessary to facilitate the application for
a Community Development Block Grant for FAI.
In February 1996, Margate purchased 30,000 shares of outstanding stock
of the Company.
-24-
<PAGE>
NEW HAVEN FOUNDRY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
S-1
<PAGE>
NEW HAVEN FOUNDRY
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994
INDEX OF FINANCIAL STATEMENTS
Report of Independent Public Accountants
Balance Sheet as of December 31, 1995 and 1994
Statement of Operations for the Years Ended December 31, 1995, 1994, and 1993
Statement of Changes in Stockholders' Equity for the Years Ended December 31,
1995, 1994, and 1993
Statement of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993
Notes to Financial Statements
Schedule II - Valuation and Qualifying Accounts
S-2
<PAGE>
Report of Independent Public Accountants
To the Board of Directors
New Haven Foundry:
We have audited the accompanying balance sheet of NEW HAVEN FOUNDRY
("Company")(a Michigan corporation) as of December 31, 1995 and 1994, and the
related statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 New Haven Foundry as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As explained in Note 6 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for postretirement
benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index of
Financial Statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
Detroit, Michigan,
March 12, 1996.
<PAGE>
NEW HAVEN FOUNDRY
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,500 $ 37,374
Accounts receivable-
Trade, net of allowance for doubtful
accounts of $60,000 and $25,000
for 1995 and 1994, respectively 9,351,933 9,836,525
Other 74,595 89,779
Inventories 964,303 1,720,915
Prepaid expenses-
Tooling 714,001 380,845
Insurance and other 177,120 50,872
Federal income tax receivable 1,508,166 99,633
Deferred tax assets 835,000 398,000
------------ ------------
Total current assets 13,626,618 12,613,943
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 1,323,984 509,325
Building and improvements 5,667,746 3,850,495
Machinery and equipment 14,440,703 12,387,523
Pollution control equipment 2,790,413 2,552,955
Vehicles 221,350 156,231
Furniture and fixtures 602,329 464,701
Construction in progress 124,069 1,255,236
------------ ------------
25,170,594 21,176,466
Less- Accumulated depreciation
and amortization 13,188,326 12,289,580
------------ ------------
Net property, plant and equipment 11,982,268 8,886,886
------------ ------------
OTHER ASSETS:
Maintenance repair parts 392,363 1,201,933
------------ ------------
Total assets $ 26,001,249 $ 22,702,762
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE>
NEW HAVEN FOUNDRY
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1994
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 4,397,249 $ 2,398,086
Related parties 1,174,101 512,721
Accrued salaries and wages 570,061 609,002
Notes payable - Bank 8,878,698 7,240,615
Current portion of long-term debt 69,545 109,355
Accrued commissions - related parties 288,086 164,190
Current portion of accrued pension cost 639,175 633,000
Other accrued liabilities 2,197,905 1,078,746
----------- -----------
Total current liabilities 18,214,820 12,745,715
----------- -----------
LONG-TERM DEBT - less current portion 328,161 55,200
----------- -----------
ACCRUED EMPLOYEE BENEFITS:
Retiree health 4,272,879 2,647,568
Pension cost - less current portion 1,152,100 1,366,714
Workers' compensation 850,000 750,000
----------- -----------
Total accrued employee benefits 6,274,979 4,764,282
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 stated value per
share, 65,960 shares authorized,
issued and outstanding 660 660
Paid in for common stock in excess of
stated value 6,597,602 6,597,602
Accumulated deficit (5,414,973) (1,460,697)
----------- -----------
Total stockholders' equity 1,183,289 5,137,565
----------- -----------
$26,001,249 $22,702,762
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
NEW HAVEN FOUNDRY
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $60,035,860 $55,816,957 $46,935,738
COST OF SALES 57,689,840 47,535,223 41,240,262
----------- ----------- -----------
GROSS PROFIT 2,346,020 8,281,734 5,695,476
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,093,529 4,691,830 4,764,813
----------- ----------- -----------
OPERATING INCOME (LOSS) (4,747,509) 3,589,904 930,663
INTEREST EXPENSE 519,767 429,542 352,772
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (5,267,276) 3,160,362 577,891
PROVISION (CREDIT) FOR INCOME TAXES (1,313,000) 1,253,000 533,000
----------- ----------- -----------
NET INCOME (LOSS) $(3,954,276) $ 1,907,362 $ 44,891
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK $ (59.95) $ 28.92 $ 0.68
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
-4-
<PAGE>
NEW HAVEN FOUNDRY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
PAID-IN FOR
COMMON STOCK
COMMON IN EXCESS TOTAL
STOCK OF STATED ACCUMULATED STOCKHOLDERS'
AMOUNT VALUE DEFICIT EQUITY
------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE - December 31, 1992 $660 $6,597,602 $(3,412,950) $ 3,185,312
Net Income - - 44,891 44,891
---- ---------- ----------- -----------
BALANCE - December 31, 1993 660 6,597,602 (3,368,059) 3,230,203
Net Income - - 1,907,362 1,907,362
---- ---------- ----------- -----------
BALANCE - December 31, 1994 660 6,597,602 (1,460,697) 5,137,565
Net Loss - - (3,954,276) (3,954,276)
BALANCE - December 31, 1995 $660 $6,597,602 $(5,414,973) $ 1,183,289
---- ---------- ----------- -----------
---- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE>
NEW HAVEN FOUNDRY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities-
Cash received from customers $ 60,520,182 $ 50,394,076 $ 47,247,900
Cash paid to suppliers and employees (56,911,911) (46,927,337) (44,410,983)
Interest paid (490,909) (508,079) (399,285)
Income taxes paid (620,000) (1,560,000) (821,819)
------------ ------------ ------------
Net cash provided by operating
activities 2,497,362 1,398,660 1,615,813
------------ ------------ ------------
Cash flows from investing activities -
Purchase of property, plant and equipment (4,406,470) (2,859,230) (1,738,792)
Proceeds from sale of plant and equipment 2,000 16,106 -
------------ ------------ ------------
Net cash used in investing
activities (4,404,470) (2,843,124) (1,738,792)
------------ ------------ ------------
Cash flows from financing activities-
Principal payments under long-term
obligations (126,273) (169,318) (765,489)
Proceeds of long-term debt 359,424 - -
Net borrowings under short-term notes payable 1,638,083 588,421
Proceeds (repayments) of related party
advances, net - (200,000) 277,686
------------ ------------ ------------
Net cash provided by
financing activities 1,871,234 1,460,149 100,618
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (35,874) 15,685 (22,361)
CASH - Beginning of year 37,374 21,689 44,050
------------ ------------ ------------
CASH - End of year $ 1,500 $ 37,374 $ 21,689
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
New Haven Foundry (the Company) is a 55% owned subsidiary of Wesley
Industries, Inc. (Wesley) and is involved in the manufacture of small and
medium-sized grey iron castings that are sold primarily to the North American
automotive industry. Margate Industries, Inc. (Margate) holds the remaining
45% interest.
Export sales totaled approximately $131,000 for the year ended December 31,
1993. There were no export sales in 1995 or 1994. Net sales to significant
customers were as follows:
<TABLE>
<CAPTION>
CUSTOMER 1995 1994 1993
-------- ----------- ----------- -----------
<S> <C> <C> <C>
Chrysler Corporation $49,473,000 $44,771,000 $37,006,000
Kelsey-Hayes Corporation 3,439,000 4,204,000 -
Detroit Diesel Corp. 1,546,000 1,624,000 2,468,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
-7-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market, determined on the
first-in, first-out method. Specialized maintenance repair parts are
expensed when used. Inventories, net of valuation reserves, are comprised of
the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 350,996 $ 390,915
Finished goods 613,307 1,330,000
---------- ----------
Total production inventories 964,303 1,720,915
Maintenance repair parts 392,363 1,201,933
---------- ----------
Total inventories $1,356,666 $2,922,848
---------- ----------
---------- ----------
</TABLE>
TOOLING
The planned cost of customer tooling in excess of the customer's purchase
price and amounts recoverable through products' unit selling price are
deferred and amortized over a three year period.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Costs of maintenance and
repairs are charged to expense when incurred. Major renewals and
improvements are capitalized. Depreciation of property, plant and equipment
is computed using the straight-line method over the estimated useful lives of
the assets.
Estimated useful lives for assets in the various classes of property, plant,
and equipment are as follows:
<TABLE>
<S> <C>
Land improvements 10 Years
Buildings and improvements 40 Years
Machinery, equipment and fixtures 5-14 Years
Vehicles 5 Years
</TABLE>
-8-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
REVENUE RECOGNITION
Revenues from sales of the Company's products are recognized upon shipment of
such products to its customers.
NET INCOME PER SHARE OF COMMON STOCK
Net income (loss) per share of common stock is based upon the weighted
average number of shares of 65,960 outstanding during the years ended
December 31, 1995, 1994, and 1993.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to 1995 presentation.
(2) RELATED PARTY TRANSACTIONS
Effective July 1, 1990, Wesley purchased 55% of the Company's voting common
stock from Margate. Pursuant to the Stock Purchase Agreement, as amended,
for a period of fifteen years or as long as Margate retains a stock interest
in the Company, whichever is longer, in exchange for marketing and management
services the Company pays Margate and Wesley each 3% of the amount of the
Company's annual gross sales between $35,000,000 and $40,000,000, plus
$150,000. On annual gross sales over $40,000,000, Margate and Wesley will
each receive an additional 2% of annual gross sales. The Company was charged
by Margate and Wesley $705,000, $607,000, and $409,963 each during 1995,
1994, and 1993, respectively, to satisfy this obligation.
Michigan Casting Corporation (MCC) and Brown City Casting Corp., doing
business as Yale Industries, Inc. (Yale) effective, are subsidiaries of
Margate, and provide cleaning and finishing services to the Company. The
management of Margate and the Company mutually agree upon the pricing and
terms of these transactions such that they are at prices and terms equivalent
to those available to and transacted with, unrelated parties. Margate and
its subsidiaries charged the Company $6,046,000, $4,991,000, and $5,141,000
for such services during 1995, 1994, and 1993, respectively.
-9-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company purchases coating services from an affiliated company. Charges
for these services were $1,640,000, $1,488,000, and $1,409,000 in 1995, 1994,
and 1993, respectively.
A director of the Company is associated with a firm which acts as a sales
representative for the Company. The firm charged the Company $433,000,
$437,000, and $397,000 for services rendered during 1995, 1994, and 1993,
respectively.
The Company incurred costs of $14,000, $20,000, and $28,500 during 1995,
1994, and 1993 for administrative and accounting services provided by Wesley.
During 1994 and 1993, the Company incurred interest charges of $2,125 and
$45,862, respectively, on overdue accounts payable and notes payable to
Margate.
Any unpaid balances of the aforementioned charges are included in the related
party balances in the accompanying balance sheets.
The Company had a $600,000 loan from Margate. This amount was repaid at
$100,000 per month, plus interest at 2% over prime, during the period October
1993 to March 1994.
(3) NOTES PAYABLE
The Company has outstanding notes payable to a bank consisting of borrowings
under a short-term line of credit agreement. Borrowings under the line of
credit agreement require monthly interest payments at 1.25% over the prime
rate and are limited to the sum of the following, as defined in the
agreement; (a) 80% of eligible accounts receivable;
(b) the lesser of 50% of eligible inventories or $2,000,000; and
(c)$1,975,000, which is reduced $71,000 per month beginning June 1, 1995.
All amounts outstanding under this line of credit are due on demand and are
secured by substantially all assets of the Company.
The interest rates at December 31, 1995, 1994, and 1993 were 9.75%, 9.75%,
and 7.5%, respectively.
-10-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(4) LONG-TERM DEBT
Long-term debt is comprised of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Working capital loan with a key customer;
monthly payments of $11,665 plus interest
at the greater of 10.5% or the prime rate
through August 1995, secured by
substantially all assets of the Company $ - $ 81,755
Non-interest bearing obligation payable to a
former employee; annual payments
of $27,600 through 1997 55,200 82,800
Installment loan, secured by equipment financed;
monthly payments of $2,600 including
interest of 11% through July 1998 69,890 -
Land-contract requiring monthly payments of
$3,472 including interest of 8.5% through
September of 2005 272,616 -
-------- --------
397,706 164,555
Less- Current portion 69,545 109,355
-------- --------
$328,161 $ 55,200
-------- --------
-------- --------
</TABLE>
-11-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 69,545
1997 75,587
1998 39,771
1999 24,217
2000 and after 188,586
--------
$397,706
--------
--------
</TABLE>
During 1988, the Company terminated an employment agreement with a former
employee and entered into a new agreement that requires annual payments of
$27,600 through 1997. If the Company fails to perform any obligation under
the terms of the new agreement, the former employee may enforce a claim
against the Company under the terms of the former agreement for unpaid
compensation and interest totaling $442,382. The Company is contingently
liable for $387,182, which represents the difference between the potential
claim under the former agreement of $442,382 and the obligation accrued under
the new agreement at December 31, 1995.
(5) PENSION PLANS
The Company has two qualified noncontributory defined benefit pension plans
covering substantially all of its employees. Pension costs are actuarially
determined and prior service costs are amortized over the estimated remaining
service period of active employees. Benefits under the hourly employees plan
are based on years of credited service and retirement date. Benefits under
the salaried employees plan are based on years of credited service and
compensation.
-12-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following table sets forth the funded status of the Company's pension
plans for hourly and salaried employees and amounts recognized in the balance
sheets at December 31, 1995 and 1994, based on actuarial valuations prepared
for the plan years ending September 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
----------------------- ------------------------
HOURLY SALARY HOURLY SALARY
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Actuarial present value of
vested benefit obligation $ 6,834,470 $3,241,652 $ 6,927,479 $2,499,396
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Accumulated benefit obligation $ 6,864,056 $3,241,652 $ 7,387,911 $2,552,920
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Projected benefit obligation $ 6,864,056 $3,241,652 $ 7,387,911 $3,194,727
Plan assets at fair value 6,270,599 3,642,878 5,456,019 3,331,076
----------- ---------- ----------- ----------
Projected benefit obligation less
than (in excess of) plan assets (593,457) 401,226 (1,931,892) 136,349
Unrecognized net loss (gain) (995,351) (230,900) (13,494) 122,447
Unrecognized prior service cost
(gain) (519,892) - (571,808) 62,984
Unrecognized net transition
amount at January 1, 1988 391,600 (244,501) 456,900 (261,200)
----------- ---------- ----------- ----------
Prepaid (accrued) pension cost (1,717,100) (74,175) (2,060,294) 60,580
Less- Current portion 565,000 74,175 633,000 -
----------- ---------- ----------- ----------
Long-term prepaid (accrued)
pension cost $(1,152,100) $ - $(1,427,294) $ 60,580
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
-13-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Net periodic pension cost for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
------------------- -------------------- --------------------
HOURLY SALARY HOURLY SALARY HOURLY SALARY
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits
earned during the year $107,828 $ 115,572 $ 130,280 $ 102,294 $ 92,989 $ 103,699
Interest cost on projected
benefit obligation 566,639 248,084 538,274 223,358 577,055 232,007
Actual (gain) loss on plan
assets (779,709) (506,670) (80,923) (268,638) (463,619) (264,536)
Net amortization and
deferral 360,702 223,220 (352,173) (22,337) 29,274 (18,608)
-------- --------- --------- --------- --------- ---------
Net periodic pension cost $255,460 $ 80,206 $ 235,458 $ 34,677 $ 235,699 $ 52,562
-------- --------- --------- --------- --------- ---------
-------- --------- --------- --------- --------- ---------
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligations was 8%, 8% and 7% for the years ended December
31, 1995, 1994, and 1993, respectively. The rate of increase in future
compensation levels for the salaried plan was 4% and the expected long-term
rate of return on assets was 8% for the years ended 1995, 1994, and 1993,
respectively.
The Company's funding policy for these plans is to make the minimum annual
contributions required by applicable regulations. The Company has received
authorization from the Internal Revenue Service to defer minimum funding
required for its pension plans for the years 1981 through 1984 and 1986. The
Company is funding its deferred obligations over 15 years. The Pension
Benefit Guaranty Corporation has second and third liens on all Company assets
as collateral for the funding waivers. Total contributions, including
interest, to be made by the Company in the future against the deferred
portion of the pension obligations are as follows:
<TABLE>
<CAPTION>
ANNUAL
YEARS CONTRIBUTIONS
----- -------------
<S> <C>
1996 $252,195
1997 191,878
1998 126,209
1999 and 2000 60,422
</TABLE>
These amounts are included in accrued pension costs reported in the
accompanying balance sheet.
-14-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
During 1995, Wesley Industries, Inc. terminated its salaried defined benefit
pension plan, effective September 1, 1995. This plan includes the salaried
employees of the Company. The assets of the terminated plan will be used to
purchase non-participating annuity contracts for retired employees and vested
non-employee participants with the remaining assets transferred to the
Company's existing 401(k) plan for the benefit of vested current employees.
The Company has accounted for this plan termination as a plan curtailment in
the 1995 financial statements. The Company's portion of the curtailment loss
amounted to $55,000 and is included in the Company's statement of operations
for the current year. The Company is currently awaiting final regulatory
approval in order to formally terminate the plan, including final
distribution of plan assets. Formal termination of the plan is expected to
occur in 1996 and the Company currently estimates there will be no
significant gain or loss incurred related to this event.
(6) POSTRETIREMENT EMPLOYEE BENEFITS
Employees retiring from the Company are entitled to postretirement health
care and life insurance benefits. The amount of these benefits are based on
years of credited service and the age of the participant. The Company may
amend or change the plan periodically.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106, "Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS 106"). The new standard requires that
the expected cost of these benefits be charged to expense during the years in
which eligible employees render service. The Company implemented SFAS 106 in
the first quarter of 1993 and the transition liability of $10,732,329 will be
recognized over 20 years.
-15-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following table sets forth the plan's funded status as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Accumulated benefit obligation -
Retirees $ 6,410,519 $ 5,507,078
Fully eligible active plan participants 2,800,679 2,651,217
Other active plan participants 4,716,823 4,348,100
----------- -----------
$13,928,021 $12,506,395
----------- -----------
----------- -----------
1995 1994
----------- -----------
Accumulated postretirement benefit
obligation in excess of plan assets $13,928,021 $12,506,395
Unrecognized net loss (624,608) (268,603)
Unrecognized net transition obligation (9,030,534) (9,590,224)
----------- -----------
Accrued postretirement benefit cost $ 4,272,879 $ 2,647,568
----------- -----------
----------- -----------
</TABLE>
The Company's postretirement healthcare and life insurance plan is not funded
as the Company provides benefits on an as incurred basis. The amount of cash
benefits paid under this plan for 1995, 1994, and 1993 were $438,951,
$394,767 and $478,194, respectively.
Net periodic postretirement benefit cost included the following components
for the years ending December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Service cost - benefits earned $ 524,692 $ 353,685 $ 303,784
Interest cost 1,072,292 821,441 858,586
Amortization of transition
obligation - - -
Net amortization and deferral 576,039 570,869 570,511
---------- ---------- ----------
Net periodic cost $2,173,023 $1,745,995 $1,732,881
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
-16-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For measurement purposes, a 10.4%, 10.8%, and 11.2% annual rate of increase
in the per capita cost of covered healthcare benefits was assumed for the
years ended December 31, 1995, 1994 and 1993 respectively; the rate was
assumed to decrease gradually to 6%, in 2007 and remain at that level
thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed
healthcare cost trend rate by 1 percentage point in each year would increase
the accumulated postretirement benefit obligation $1,833,000 as of December
31, 1995, and the aggregate of service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $88,000. The
discount rate used in determining the accumulated postretirement benefit
obligation was 8 percent.
(7) WORKERS' COMPENSATION
The Company is self-insured for a substantial portion of its workers'
compensation claims. Generally, the maximum annual loss exposure is 75
percent to 110 percent of the normal workers' compensation insurance
premiums. Losses in excess of those amounts are insured up to an aggregate
limit of $5,000,000. The Company's maximum exposure per claim varies by
policy period from $100,000 to $350,000. As of December 31, 1995, the Company
had outstanding letters of credit in the amount of $550,000, which are
secured by the Company's line of credit. The letters of credit secure the
Company's workers' compensation obligations.
(8) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
At December 31, 1995, the Company has available operating loss carryforwards
for financial reporting and tax purposes of approximately $1,870,000. These
losses were incurred prior to the change in ownership in 1990. As a result
of the ownership change, the amount utilized in any one year cannot exceed
approximately $208,000. These losses can be carried forward to future years,
through 2005. The Company used $208,000 of these carryforwards to offset the
taxable effects of the current year's temporary differences.
-17-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, the components of deferred income taxes include the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current deferred taxes-
Gross assets $ 835,000 $ 398,000
Gross liabilities - -
----------- -----------
Net current deferred tax assets 835,000 398,000
Noncurrent deferred taxes-
Gross assets 2,984,000 2,395,000
Gross liabilities (863,000) (697,000)
----------- -----------
Net noncurrent deferred tax assets 2,121,000 1,698,000
----------- -----------
Valuation allowance (2,121,000) (1,698,000)
----------- -----------
Total deferred tax assets $ 835,000 $ 398,000
----------- -----------
----------- -----------
</TABLE>
The tax effects of cumulative temporary differences at December 31, are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Depreciation $ (860,000) $ (677,000)
Pension expense 609,000 680,000
Postretirement benefits 1,453,000 810,000
Workers' compensation expense 289,000 255,000
Vacation expense 174,000 165,000
Other 655,000 157,000
Operating loss carryforward 636,000 706,000
---------- ----------
Total $2,956,000 $2,096,000
---------- ----------
---------- ----------
</TABLE>
-18-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The components of the provision (credit) for income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Current tax expense $ (876,000) $1,482,000 $ 843,000
Deferred tax expense, exclusive
of operating loss carryforward (643,000) (358,000) (571,000)
Operating loss carryforward (70,000) (70,000) (70,000)
Adjustment to valuation allowance 276,000 199,000 331,000
----------- ---------- ---------
Provision (credit) for income taxes $(1,313,000) $1,253,000 $ 533,000
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
The effective tax rates for the years ended December 31, 1995, 1994, and
1993, are different from the statutory rate of 34% as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate (34%) 34% 34%
Permanent items 11% 1% 1%
Operating losses utilized, not
benefited previously (4%) (2%) (2%)
Change in valuation reserve 5% 6% 57%
Other (3%) 1% 2%
---- ---- ----
Effective rate (25%) 40% 92%
---- ---- ----
---- ---- ----
</TABLE>
-19-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(9) CASH FLOWS
The reconciliation of net income to net cash provided by operating activities
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $(3,954,276) $1,907,362 $ 44,891
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities-
Depreciation and amortization 1,192,269 998,381 880,447
Deferred tax provision (437,000) (209,000) (189,000)
Loss on disposal of equipment 116,819 133,902 -
Changes in assets and liabilities-
Accounts receivable, net 499,776 (5,350,149) 229,194
Inventories, net 1,566,182 1,359,162 42,736
Prepaid expenses and other (1,867,937) 598,388 (201,790)
Accounts payable 2,660,543 (293,912) (64,137)
Accrued employee benefits 1,516,872 1,438,843 1,498,943
Accrued liabilities 1,204,114 815,683 (625,471)
----------- ---------- ----------
Net cash provided by operating
activities $ 2,497,362 $1,398,660 $1,615,813
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
(10) STOCK OPTIONS
In connection with the Wesley purchase of 55% of the Company's voting common
stock, Delbert Mullens, a shareholder of Wesley, received an option to
purchase an additional 20% of the Company's stock from Margate for a price
equal to the greater of $800,000 or book value. If this option is exercised,
Margate can require that Mr. Mullens purchase the remaining 25% of the
Company shares held by Margate for an amount equal to the greater of
$1,800,000 or book value.
-20-
<PAGE>
NEW HAVEN FOUNDRY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(11) CONTINGENCIES
The Company is party to an action brought by PIRGIM and the United States of
America ("U.S.") which alleges that the Company discharged potentially
contaminated water into a stream which flows to settling ponds maintained by
the Company, in violation of the Federal Clean Water Act. The Company
estimates that a civil penalty approximating $500,000 will be incurred by the
Company to settle the litigation, and the Company has provided reserves for
this amount. Such charge is included in selling, general and administrative
expenses in the accompanying statement of operations.
The Company is party to an action brought by the U.S. and is also currently
negotiating with the Michigan Department of Environmental Quality (MDEQ)
regarding alleged violations of environmental laws pertaining to air and
waste issues, including used foundry sand on its property. The Company is
negotiating a consent decree with these agencies which encompasses most of
these alleged violations and is also working with the MDEQ to resolve any
remaining alleged violations.
Based on results of preliminary investigation, some small portions of the
foundry waste sand pile are known to contain levels of heavy metals which
exceed environmental standards established by the U.S. Environmental
Protection Agency ("EPA"). The Company has engaged environmental consultants
to assist in developing a remediation plan to submit to the U.S. and MDEQ for
approval. Other than those portions of the sand pile known to contain levels
of heavy metals which exceed environmental standards, the Company believes
the remainder of used sand is not in violation of such standards.
The Company has identified several options to remediate the sand including
on-site treatment or capping in place. Costs associated with these
alternatives are currently estimated to range from $1.2 to $6.0 million, and
the Company has recorded a reserve of $1.5 million. Of this amount, $1.25
million was provided in the current year and is included in selling, general
and administrative expenses in the accompanying statement of operations. The
low estimate of the range assumes that no additional portions of the sand
pile will contain heavy metals which exceed environmental standards.
Although the ultimate outcome of this matter is not known at this time, on
the basis of investigations performed to date by Company and its
environmental consultants, the Company does not believe that future costs
associated with remedial action, in excess of reserves provided, will
ultimately have a materially adverse impact on the Company's financial
position or future results of operations.
-21-
<PAGE>
SCHEDULE II
NEW HAVEN FOUNDRY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
YEAR ENDED BEGINNING COSTS AND END
DECEMBER 31, 1993 OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 8,000 $ 61,000 $ - $ 69,000
Valuation allowance for deferred
taxes 1,168,000 331,000 - 1,499,000
YEAR ENDED
DECEMBER 31, 1994
- -----------------------------------
Allowance for doubtful accounts 69,000 21,000 65,000 25,000
Valuation allowance for deferred
taxes 1,499,000 199,000 - 1,698,000
Valuation allowance for inventories - 100,000 - 100,000
YEAR ENDED
DECEMBER 31, 1995
- -----------------------------------
Allowance for doubtful accounts 25,000 35,000 - 60,000
Valuation allowance for deferred
taxes 1,698,000 423,000 - 2,121,000
Valuation allowance for inventories 100,000 150,000 - 250,000
</TABLE>
-22-
<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.
MARGATE INDUSTRIES, INC.
Dated: March 22, 1996 By: /s/ William H. Hopton
----------------------------------
William H. Hopton
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>
/s/ Frederick G. Schriever Chairman of the Board and Director March 22, 1996
- ------------------------------
Frederick G. Schriever
/s/ Delbert W. Mullens Vice Chairman and Director March 22, 1996
- ------------------------------
Delbert W. Mullens
/s/ William H. Hopton President, Chief Financial Officer March 22, 1996
- ------------------------------ and Director
William H. Hopton
/s/ David A. Widlak Secretary and Director March 22, 1996
- ------------------------------
David A. Widlak
/s/ Frederick G. Berlet Treasurer and Director March 22, 1996
- ------------------------------
Frederick G. Berlet
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1995
<CASH> 514
<SECURITIES> 153
<RECEIVABLES> 559
<ALLOWANCES> 0
<INVENTORY> 55
<CURRENT-ASSETS> 2,423
<PP&E> 3,319
<DEPRECIATION> 711
<TOTAL-ASSETS> 5,647
<CURRENT-LIABILITIES> 524
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 4,444
<TOTAL-LIABILITY-AND-EQUITY> 5,647
<SALES> 9,310
<TOTAL-REVENUES> 7,378
<CGS> 7,845
<TOTAL-COSTS> 23
<OTHER-EXPENSES> 1,077
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (1,566)
<INCOME-TAX> 178
<INCOME-CONTINUING> (1,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,744)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
