FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission file number 0-14299
SECOM GENERAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26600 HEYN DRIVE, NOVI, MICHIGAN 48376-0705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 305-9410
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934:
None
(Title of class and name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
Common Stock, par value $.10 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 24, 1996, 5,342,200 shares of the Registrant's Common Stock
were outstanding and the aggregate market value of such Common Stock held by
non-affiliates (based on the closing price on that date as reported on the
NASDAQ National Market System) was approximately $13,355,500.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - incorporated by reference from the Registrant's Proxy
Statement for its Annual Meeting to be held in March 1997.
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 15
<PAGE>
PART I
Item 1. Business
General
Secom General Corporation, a Delaware corporation (the "Company"), is a
holding company with the following wholly-owned operating subsidiaries:
Metal Parts Forming Segment:
* Uniflow Corporation ("Uniflow") acquired in 1991
Tooling Segment:
* Form Flow, Inc. ("Form Flow") acquired in 1987
* L & H Die, Inc. ("L & H") acquired in 1987
* Micanol, Inc. ("Micanol") acquired in 1990
* Triple Technologies, Inc. ("Triple"), formerly known as
Triple Tool, acquired in 1991
In May 1995, Triple's operations were downsized and relocated to a Form Flow
facility. Triple's continuing business activity was absorbed into Form Flow.
Effective November 1, 1996, the Company acquired the Milford, Michigan
machining business of the VarityKelsey-Hayes Corporation ("VKH"), a business
unit of Lucas-Varity Corporation (NYSE:LAV). The business was renamed Milford
Manufacturing Corporation ("MMC"), and constitutes a third segment for the
Company -- Production Machining. In connection with the acquisition, the
Company also entered into a five year supply agreement for the manufacture and
sale of various brake valve parts to VKH. See Management's Discussion and
Analysis.
The Company's corporate address is 26600 Heyn Drive, Novi, Michigan 48376-0705;
its telephone number is (810) 305-9410 and its facsimile number is (810)
347-9956.
Except as otherwise indicated by the context, any reference to the "Company"
shall mean the Company and its subsidiaries. The Company's fiscal year-end is
September 30.
Principal Customers, Backlog and Seasonality
In 1996, one of the Company's customers accounted for 11% of consolidated
revenues. Sales of the Company's parts, tooling and services are not
considered seasonal. The Company believes that its backlog, due to the nature
of its respective businesses, is not necessarily indicative of the level of
its present or future sales.
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<PAGE>
SEGMENT REVIEW
Metal Parts Forming Segment
General
The Metal Parts Forming Segment is comprised of the Company's Uniflow unit,
which primarily manufactures automotive and truck parts from steel bar, coil
and tubing using cold forging and forming machines and various types of
secondary machining, such as threadrolling and piercing equipment.
Sales and Competition
Uniflow's fiscal 1996 sales were comprised as follows: 32.8% wheel studs for
heavy and light duty trucks (original equipment manufacturers or "OEM" and
service part manufacturers or "aftermarket"); 24.9% automobile ball joint
suspension housings (OEM and aftermarket); 23.6% transmission gear housings
(OEM); and 18.7% miscellaneous cold headed and cold forged parts (OEM). While
Uniflow operates in competitive markets, management believes that Uniflow's
extensive tooling inventory gives it a competitive advantage in retaining
certain reorders from the same customers.
Although Uniflow is aggressively seeking sales of new parts, most of its
business base remains reorders of the same customer specific parts. Uniflow's
sales backlog usually covers a period of approximately three months of work.
As such, the backlog is not necessarily indicative of Uniflow's sales
performance beyond that time period. Management expects Uniflow's sales
mix to change in 1997 and thereafter, as it focuses on larger OEM sales
orders. See Management's Discussion and Analysis set forth in Item 7.
Uniflow's sales are concentrated with a few customers, as five customers
comprised 75% of revenue for the fiscal year ended September 30, 1996. If
Uniflow were to lose a significant customer, management believes that it could
replace that business within an estimated timeframe of 6 to 18 months,
although its gross profit margin would likely be adversely affected.
Manufacturing and Engineering
Uniflow manufactures parts from steel bar, coil and tubing using cut-off
machines, cold forging hydraulic presses, cold heading machines, CNC turning
centers, threadrollers, broaching and piercing machines. Although part
production can involve up to 14 different production steps, primary equipment
consists of the cold forging presses and cold forming (header) machines, which
form the parts into their general size and shape. The forging presses complete
one operation at a time, while the header machines complete up to five
operations in succession.
After parts are forged or formed, they are routed to various secondary
machining operations for finishing, such as CNC turning, threadrolling,
piercing and drilling. External steps completed by outside processors
typically include specialized machining, heat-treating, annealing and plating.
Production order turnaround time can vary from 4 to 12 weeks, depending on
engineering requirements, lead times from outside vendors and the production
backlog. Uniflow's tooling department makes and repairs some of the perishable
tooling used in production, while the Company's Tooling Segment also supplies
Uniflow with some of its production tooling. The engineering staff offers tool
design and production development services to customers for new or modified
parts.
Employees
As of September 30, 1996, Uniflow employed a total of 170 full-time employees
compared to 153 in the prior year, as follows: 151 direct and indirect labor
(including factory floor supervision), 6 engineering, 2 sales, 7 office and 4
management.
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<PAGE>
Tooling Segment
General
The Company's Tooling Segment ("Tooling Operations" or "Tooling Units") is
comprised of three wholly-owned operating subsidiaries, which are Form Flow, L
& H and Micanol. In May 1995, the Company significantly reduced the size of
its Triple operation by selling off certain equipment. Triple's remaining
operations were transferred to the Company's Form Flow unit, although certain
equipment was moved to the other subsidiaries. The continuing Triple business
activity has been absorbed into Form Flow. For further discussion about
Triple, reference is made to the Management's Discussion and Analysis set
forth in Item 7 and Note 2 to the financial statements set forth in Item 8.
The Tooling Operations manufacture close tolerance tooling for the hot and
cold metal forming industry. Hot and cold metal forming companies typically
make metal parts from steel coil that is automatically fed through various
stations on a "header forming" machine. A header machine cuts off a piece of
steel coil and moves it through each die station progressively, using tool
inserts to form the part. Tool life is dependent on the type of material used
to make the part and the size and shape of the part, among other things.
As part of its sales and service, the Tooling Unit's design and development
staff will advise customers about tooling issues and other engineering matters
related to the production of hot and cold formed parts. While tool orders
typically take 4 to 10 weeks to complete, design and development orders can
span over a period of months.
Sales and Competition
The Tooling Segment's customers manufacture items such as industrial
fasteners, hand tools, electronic components, automotive parts, tubing,
aircraft parts, consumer items and munitions as well as a wide array of OEM
assembly parts. The Tooling Unit's customers include OEM and aftermarket
suppliers and are mostly related to the automotive industry. Continuing
customer relations are important as significant revenue is derived from
tooling reorders.
The Tooling Segment operates in fragmented markets with numerous competitors.
Management believes its success is based on (1) the quality and durability
of the tooling, (2) the ability to fulfill delivery commitments, and
(3) price competitiveness. The Tooling Unit's design and engineering
services allow it to compete for tool development work; management
believes these services provide the Company a significant advantage in
attracting new customer business. The Tooling Segment sells principally to
customers in the United States.
Manufacturing and Engineering
All tooling orders are manufactured to customer specifications as indicated on
a tool drawing. Tools are made from bar stock steel or carbide blanks and
generally are routed through a production sequence that includes cutting,
turning (CNC/lathe work), heat treating, grinding, polishing and coating.
Form Flow, L & H and Micanol have separate plant facilities. Design and
engineering services are located at a Form Flow facility, and are offered by
all three of the Tooling Units.
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<PAGE>
Employees
As of September 30, 1996, the Tooling Segment employed a total of 158
full-time employees compared to 175 in the prior year, as follows: 132 direct
and indirect labor (including factory floor supervision), 5 engineering, 4
sales, 11 office and 6 management.
Item 2. Properties
The Company's corporate offices are located at 26600 Heyn Drive, Novi,
Michigan. The subsidiaries operate in the following facilities, all of which
are owned by the Company:
1) Form Flow is located in two 12,600 square foot adjacent buildings on
approximately four acres of land at 6901 and 6999 Cogswell in Romulus,
Michigan 48174. The 6999 Cogswell facility was acquired by the Company in
December 1995. Its telephone number is 313-729-3100.
2) L & H is located in a 12,600 square foot building on approximately two
acres of land at 38200 Ecorse Road, Romulus, Michigan 48174 and its
telephone number is 313-722-8011.
3) Micanol is located in a 12,400 square foot building on approximately two
acres of land at 46001 Grand River Avenue, Novi, Michigan 48374 and its
telephone number is 810-347-1230.
4) Uniflow is located in three buildings on approximately eight acres of land
in Novi, Michigan 48374: (1) 30,300 square feet at 26600 Heyn Drive, (2)
16,700 square feet at 46035 Grand River Avenue and (3) 32,000 square feet
at 46009 Grand River Avenue. Its telephone number is 810-348-9370.
5) MMC is located on 6.6 acres of land in an 81,500 square foot building at
101 Oak St., Milford, Michigan 48381. Its telephone number is 810-685-1573.
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings arising in the normal
course of business. In the opinion of management (based on the opinion of
counsel) the outcome of such litigation will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of the Company's stockholders during its
fourth fiscal quarter.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock (trading symbol "SECM") has traded on NASDAQ since
June 1987 and the NASDAQ National Market System (NMS) since January 1992. The
following table sets forth (for the respective period indicated) the high and
low trade for the common stock as reported by NASDAQ. Trade prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
High Low
Quarter Ended Trade Trade
------------- ----- -----
<S> <C> <C>
12/31/94 3.00 2.00
3/31/95 2.62 1.62
6/30/95 2.50 1.62
9/30/95 4.09 2.25
12/30/95 3.37 2.50
3/31/96 3.37 1.75
6/30/96 3.44 1.87
9/30/96 3.12 2.00
</TABLE>
On September 30, 1996 there were approximately 1,000 nominees/persons of
record that held the Company's common stock. Of those listed of record,
approximately 2 million shares were held by brokers and nominees
representing an undetermined number of beneficial stockholders.
Owners of common stock are entitled to receive dividends declared by the Board
of Directors out of funds legally available therefor. The Company has never
paid a cash dividend and does not anticipate paying cash dividends in the
foreseeable future. Its policy is to retain earnings so it can provide funds
for operations and expansion of its business. In addition, the Company's bank
loan agreement prohibits the payment of cash dividends without written consent
from the lender.
In August 1996, Manubusiness Opportunities, Inc. ("MOI") exercised its third
and final warrant of 500,000 shares. The Company reduced the exercise price on
the final warrants from $3 per share to $2 per share, which approximated the
market trading value at the exercise date. For further discussions about
MOI, reference is made to the Management's Discussion and Analysis set forth
in Item 7 and Note 6 to the financial statements set forth in Item 8.
In June 1991 and in May 1992, the Company issued 10% common stock dividends to
stockholders of record as of May 14, 1991 and May 1, 1992, respectively.
Item 6. Selected Financial Data
See page 34 for selected financial data as of September 30, 1996, 1995, 1994,
1993 and 1992 and for the years then ended as required by this Item. This
information should be read in conjunction with the financial statements and
the footnotes thereto referred to in Item 14(a)(1) of this Form 10-K.
- 7 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto contained
elsewhere in the Form 10-K.
Overview
The Company posted net income of $41,000 (one cent per share) on sales
of $30,877,000 in 1996 compared to net income of $1,204,000 (28 cents per
share) on sales of $36,276,000 in 1995. The decline in net income in 1996 from
the prior year was primarily due to the continued difficulty in turning around
the Company's Uniflow unit (see segment review below).
Although Uniflow was able to secure various long-term sales orders
during 1996 that are scheduled to ramp up in 1997 and 1998, overall sales
declined in 1996 from 1995. Although sales decreased, operating expenses
increased (as a percentage of sales), resulting in a loss in 1996 at Uniflow.
The Company's Tooling Segment sales were lower primarily related to the
downsizing of Triple Tool, which was absorbed into Form Flow's operation in
late fiscal 1995. The Tooling Segment posted another profitable year, although
net income was slightly lower than 1995.
Effective November 1, 1996, the Company acquired certain assets and
assumed certain liabilities of the VarityKelsey-Hayes' ("VKH") Milford,
Michigan machining operation and its continuing business. Assets acquired were
(1) machinery and equipment, with an estimated fair market value of $2.5
million, (2) real estate and building, with an estimated fair market value of
$1.3 million, and inventories valued at approximately $1 million, as well as
various environmental indemnifications and supply commitments with values yet
undetermined. In exchange for the assets acquired, the Company paid
approximately $5 million in consideration, as follows: (1) $1.2 million cash
at closing, (2) the assumption of certain employee pension and retiree health
care obligations, preliminarily estimated at $3 million and, (3) approximately
$800,000 for additional inventories and equipment added to the location before
the transaction closing.
The Milford operation was renamed Milford Manufacturing Corporation
("MMC") and constitutes a third Secom business segment -- Production
Machining. The Company anticipates the unit to be profitable in fiscal 1997
with sales expected to exceed $12 million. The Company's other two business
segments are Metal Parts Forming (Uniflow) and Tooling (Form Flow, L & H and
Micanol).
Results of Operations
Metal Parts Forming Segment
Chart of three year comparative operating results (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 14,748 100.0 $ 17,630 100.0 $ 16,052 100.0
Gross profit 1,197 8.1 2,226 12.6 1,533 9.6
Operating expense 1,898 12.9 1,951 11.1 1,356 8.4
Operating profit (loss) (701) (4.8) 275 1.6 177 1.1
</TABLE>
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<PAGE>
The Metal Parts Forming Segment is comprised of the Company's Uniflow
unit. Uniflow currently manufactures suspension ball-joint housings, truck
wheel fasteners, transmission shaft parts and a variety of OEM cold-formed and
forged parts. Customers are primarily automotive and trucking-related original
equipment manufacturers ("OEM") and service part manufacturers
("after-market").
Net sales decreased 16.3% in 1996 from 1995, and increased 9.8% in
1995 from 1994. The sales decrease in 1996 from 1995 primarily reflects (1)
lower order volume for Uniflow's after-market truck wheel studs and suspension
ball joint housings and, (2) additional sales in the prior year from
deliveries made on a significant past-due sales backlog of approximately $1
million. The decrease in Uniflow's after-market component parts business is
attributable to an overall slowness in the trucking after-market business, the
loss of certain business by Uniflow's customers and the resourcing of various
parts to competitors. Management does not anticipate further deterioration in
1997 after-market related sales.
To replace the lower sales, management has been seeking new business
for its cold forging press and cold forming header production capacity.
Through those efforts, Uniflow secured an order to supply starter motor shafts
for six years; shipments of $700,000 are expected in fiscal 1997, $2.5 million
in 1998 and approximately $5 million annually for the remainder of this six
year contract. The parts will be formed on Uniflow's National FX85 parts
former and machined at the Company's newly acquired MMC unit. Uniflow also has
tentatively received an order to manufacture transmission shaft parts, with
shipments anticipated to start in early 1997; sales over $1.3 million are
expected in fiscal 1997 and could exceed $8 million in 1998. Sales of airbag
housings, for which first shipments were made in August 1996, are expected to
exceed $1.5 million in 1997.
Gross profit on sales was 8.1% in 1996, 12.6% in 1995 and 9.6% in
1994. The 1996 decline in gross profit reflects the lower sales volume and
less efficient production. Management is in the process of implementing
various operating techniques designed to improve Uniflow's manufacturing
efficiency and gross profit. In particular, management is emphasizing
improvements in production planning and preparation to reduce production
costs. Management is also in the early stages of implementing a quality
system in compliance with QS 9000 and a computerized information system
that will provide on-line shop floor production and financial data.
Incremental sales increases that are expected to commence throughout fiscal
1997 should improve the gross profit.
Operating expense as a percentage of sales was 12.9% in 1996, 11.1% in
1995 and 8.4% in 1994. The percentage fluctuation was largely due to the
varying sales level. Actual operating overhead expense in 1996 was $1.9
million, down from $1.95 million in 1995. In 1995, operating expense increased
from 1994 level of $1.36 million, due primarily to increased engineering,
product quality expense and the direct allocation of certain administrative
expenses previously shown as unallocated corporate expense. Management does
not expect its operating expense level to change significantly in 1997 from
1996.
Uniflow's profit (loss) from operations was ($701,000) (-4.8% of
sales) in 1996, $275,000 (1.6% of sales) in 1995 and $177,000 (1.1% of sales)
in 1994. The profit decrease in 1996 from 1995 reflects the lower sales volume
and higher costs of production. The profit increase in 1995 from 1994
primarily reflects the higher sales level. Management expects Uniflow's
operating profit to improve with sales increases and with the implementation
of production efficiencies.
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<PAGE>
Tooling Segment
Chart of three year comparable operating results (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ----------------- -----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales (1) $18,166 100.0 $20,659 100.0 $19,143 100.0
Gross profit 4,317 23.8 4,902 23.7 4,841 25.3
Operating expense 2,325 12.8 2,445 11.8 1,833 9.6
Operating profit (loss) 1,992 11.0 2,457 11.9 3,008 15.7
<FN>
(1) Before elimination of intercompany sales.
</TABLE>
The Tooling Segment is comprised of the Form Flow, L & H and Micanol
units. The Triple unit was downsized and absorbed into Form Flow's operation
in June 1995. The Tooling Units sell tools and dies for use in the production
of hot and cold formed metal parts.
Net sales decreased 12.1% in 1996 compared to 1995 and increased 7.9%
in 1995 compared to 1994. The 1996 sales decrease from 1995 is primarily due
to the downsizing of Triple Tool, which posted sales of $1.79 million in 1995,
and lower sales at Micanol in 1996, resulting from lower order demand from
some of its customers. The 1995 sales increase over 1994 was the result of
higher sales at Form Flow, L & H and Micanol, although Triple recorded lower
sales.
Gross profit on sales was 23.8% in 1996, 23.7% in 1995 and 25.3% in
1994. The 1996 gross profit percentage was comparable with 1995, while the
decline in percentage in 1995 from 1994 primarily reflected unfavorable
operating results at the Triple unit.
Operating expense as a percentage of sales was 12.8% in 1996, 11.8% in
1995 and 9.6% in 1994. The increases in 1996 and 1995 reflect higher personnel
expense and the direct allocation of certain expenses previously unallocated
at the corporate level.
The Tooling Segment's operating profit was $1,992,000 (11.0% of sales)
in 1996, $2,457,000 (11.9% of sales) in 1995 and $3,008,000 (15.7% of sales)
in 1994. The decline in operating profit in 1996 from 1995 principally
resulted from lower profits at Form Flow, L & H and Micanol, offset by the
reduction of Triple's operating loss. In the previous year, Form Flow realized
higher profits on various special tooling development projects from certain
customers. The decline in operating profit in 1995 from 1994 was principally
related to lower sales volume from various higher margin customer accounts.
Management is seeking to maintain higher machine utilization and higher value
added tooling orders to improve its gross margin and operating profit.
- 10 -
<PAGE>
Corporate Expenses
Unallocated corporate overhead was $712,000 in 1996, $858,000 in 1995
and $1,620,000 in 1994. The reductions in unallocated corporate expense in
1996 and 1995 from 1994 reflect the direct allocation of certain expenses that
relate to the respective operating units, as well as lower insurance and other
administrative costs.
Interest Expense, Miscellaneous Income and Income Taxes
Interest expense was $848,000 in 1996, $1,138,000 in 1995 and $953,000
in 1994. The decline in interest expense in 1996 from 1995 resulted from lower
average borrowing and lower average interest rates for the year. Lower
borrowings resulted in part from the exercise of stock warrants that provided
$2 million of equity to the Company and refinancing certain of its debt
agreements. Interest expense increased in 1995 from 1994 primarily due to
increased borrowing for the additions of capital equipment.
Other income (expense) was $15,000 in 1996, ($8,000) in 1995
and $386,000 in 1994. The income in 1994 reflected settlement of debts at less
than recorded values associated with Tri-Tec.
Income tax expense (benefit) was $18,000 in 1996, ($373,000) in 1995
and $61,000 in 1994. The income tax benefit in 1995 was the result of the
utilization of net operating loss carryforwards against taxable income and the
reversal of portions of the valuation allowance in anticipation of future use
of net operating loss carryforwards.
Financial Condition
The Company's working capital position, $4,908,000 at September 30,
1996, improved significantly during 1996 from $1,129,000 at September 30,
1995. The working capital increase primarily resulted from (1) a refinancing
of long-term debt, as excess proceeds of approximately $2.35 million from new
long-term debt were used to reduce short-term borrowings and (2) the exercise
of stock purchase warrants that provided $2 million in additional equity,
proceeds of which were also used to reduce short-term borrowings. Scheduled
debt payments due in fiscal 1997 total approximately $2.1 million and
management believes that internally generated cash from operations and amounts
available on bank lines of credit will provide sufficient cash flow to cover
the scheduled debt payments as well as fund continuing working capital
requirements.
Cash flows for 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities ......... $ 1,838,000 $ 1,772,000 $ 356,000
Cash flows used in investing activities ...... (4,918,000) (494,000) (589,000)
Cash flows from (used in) financing activities 7,475,000 (1,274,000) 93,000
</TABLE>
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<PAGE>
Cash flows from operating activities
Cash flows provided by operating activities were $1,969,000 in 1996
before changes in working capital items and discontinued operations, compared
to $2,697,000 in 1995 and $3,030,000 in 1994. Working capital items used
$290,000 in 1996, as inventories rose $1.2 million, partially offset by lower
accounts receivable and higher accrued liabilities. Inventories in 1996 rose
principally at Uniflow, largely in connection with the timing of customer
orders. In 1995, working capital items used $882,000, primarily the result of
higher accounts receivable and prepaid items, along with lower accounts
payable. In 1994, working capital items used $2,984,000, primarily associated
with higher Tooling inventories and reduced trade payables.
Cash flows used in investing activities
In 1996, the Company made capital expenditures that totaled
$5,479,100, primarily for machinery at Uniflow associated with the manufacture
of starter motor shaft parts. In this regard, the Company has committed to the
acquisition of approximately $4 million of capital equipment. The equipment is
scheduled for delivery and installation in mid 1997. In 1995, capital
expenditures were $1,359,000, principally for a refurbished hydraulic press
dedicated for airbag housing production and Form Flow's expansion of its die
repair business, which included the acquisition of a new facility and
additional grinding equipment. In 1994, capital expenditures of $908,000 were
primarily for production tooling at Uniflow and miscellaneous equipment at the
other units. The Company received $301,000 in 1996, $863,000 in 1995 and
$149,000 in 1994, from the disposals of machinery and equipment. The disposals
for all three years principally relate to the reduction of equipment base at
the Triple unit.
Cash flows from financing activities
Cash flows provided by (used in) financing activities were $7,475,000
in 1996, ($1,274,000) in 1995 and $93,000 in 1994. In 1996, the Company
completed a major debt refinancing of its existing assets and secured $7
million in industrial development bond financing to fund new equipment
purchases associated with new sales orders. The 1996 refinancing included a $5
million note with a bank finance company due in six years; a real estate
mortgage of $2.88 million due in 15 years; and a $6 million collateralized
bank line of credit, of which $4 million is a committed revolver that expires
in 1999. The refinancing provided excess cash of approximately $2.35 million,
which was used to reduce borrowings on the bank line of credit. Also in 1996,
the Company received $1.87 million and reduced accrued interest by $132,000
through the exercise of two stock warrants, which resulted in the issuance of
1 million shares of common stock. In 1996, scheduled principal debt payments
totaled $1.4 million, compared to scheduled payments of $1.7 million in 1995
and $1.3 million in 1994. Also, in 1995 the Company extinguished a $1 million
note payable in connection with the exercise of a stock warrant.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
See Item 14(a)(1) for a list of the financial statements included in this
Form 10-K.
Refer to page 35 of this Form 10-K for the supplementary quarterly financial
data required by this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
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<PAGE>
PART III
The information called for by the items within this part is included in
the Company's 1997 Proxy Statement, and is incorporated hereby by reference,
as follows:
<TABLE>
<CAPTION>
Caption(s) in 1997 Proxy Statement
----------------------------------
<S> <C> <C>
Item 10. Directors and Executive
Officers of Registrant............"Election of Directors";
"Executive Officers";
"Compliance with Section 16(a) of
The Securities Exchange Act"
Item 11. Executive Compensation............"Executive Compensation"
Item 12. Security Ownership of
Certain Beneficial Owners
and Management...................."Principal Stockholders"
Item 13. Certain Relationships and
Related Transactions.............."Election of Directors -- Certain
Information Regarding the
Nominees"; "Certain Transactions
-- Agreements with Manubusiness
Opportunities, Inc.,"
"Executive Compensation --
Compensation Committee Interlocks
and Insider Participation."
</TABLE>
- 14 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement Schedule.
Page
----
Independent Auditors' Report............................... 20
Consolidated Balance Sheets as of September 30, 1996
and 1995................................................ 21
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994....................... 22
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1995 and 1994........... 23
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994....................... 24
Notes to Consolidated Financial Statements................. 25
Schedule II - Valuation and Qualifying Accounts............ 36
Schedules other than those listed above are omitted because of the absence of
the conditions under which they are required or because the information called
for is included in the consolidated financial statements or the notes thereto.
(b) Reports filed on Form 8-K.
The Company filed a report on Form 8-K dated December 20, 1996 to report the
move of its corporate office to 26600 Heyn Drive, Novi, Michigan 48376-0705.
The Company filed a report on Form 8-K dated November 15, 1996 to report the
Company's acquisition of certain assets and assuming certain liabilities of
the VarityKelsey-Hayes' Milford, Michigan machining operation and its
continuing business.
(c) Exhibits. See the Exhibit Index on the following page.
- 15 -
<PAGE>
Exhibit Description Page*
- ------- ----------- -----
2.1 Asset Purchase Agreement between VarityKelsey-Hayes
Corporation and Milford Acquisition Corporation. 2.1*<F1>
3.1 Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on August 25, 1987. 3.1*<F2>
3.2 Amendment to Articles of Incorporation filed on
August 31, 1990. 3.2*<F3>
3.3 Certificate of Merger between the Company and Secom
General Corporation, a Utah corporation filed with the
Secretary of State of Delaware in December 1987. 3.2*<F2>
3.4 Certificate of Designation of Rights of the Class A
Preferred Stock filed with the Secretary of State of
Delaware in December 1987. 3.3*<F2>
3.5 Amendment to Articles of Incorporation filed on
December 17, 1991. 3.5*<F6>
3.6 Bylaws of the Company. 3.4*<F2>
4.1 List of instruments defining the right of security holders. 4.1*<F9>
4.3 Nonqualified Stock Option Agreement dated November
23, 1993 between Secom General Corporation as grantor
and Manubusiness Opportunities, Inc. as grantee. 4.2*<F9>
4.4 Proxy Agreement dated November 23, 1993 between Roy A.
McKnight, Larry McKnight, John Cocke and Manubusiness
Opportunities, Inc. 4.3*<F9>
10.1 Machined Valve Products Supply Agreement 10.1*<F10>
10.2 Amended and Restated Revolving Credit and Loan Agreement
between Secom General Corporation, Uniflow Corporation,
Miconol, Inc., L&H Die, Inc. and Form Flow, Inc. 10.2*<F10>
10.3 Master Equipment Lease Agreement between Secom General
Corporation and KeyCorp Leasing Ltd. 10.3*<F10>
10.4 Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing between Secom General Corporation
and Metlife Capital Financial Corporation 10.4*<F10>
10.5 Loan Agreement among GE Capital Public Finance, Inc.
as Lender, and Michigan Strategic Fund, as Issuer and
Secom General Corporation as Borrower dated June 1, 1996 10.5*<F10>
10.6 Loan Agreement among GE Capital Public Finance, Inc.
as Lender, and Michigan Strategic Fund, as Issuer,
and Secom General Corporation, as Borrower dated
as of Sept. 1, 1996 10.6*<F10>
10.7 1991 Nonqualified Stock Option Plan 10.27*<F5>
10.8 Form of Stock Option Agreement for Options granted
under the 1991 Non-qualified Stock Option Plan 10.28*<F5>
- 16 -
<PAGE>
10.9 Subordination Agreement dated December 15, 1993
between Larry McKnight as junior lender and
NBD Bank, N.A. as senior lender. 10.17*<F8>
* See the footnotes on page 18 to locate these exhibits.
13. Annual Report to Shareholders E-1
22. Subsidiaries of the Registrant 22*<F10>
23. Consent of Deloitte & Touche LLP E-42
27. Financial Data Schedule E-43
- ------------
- 17 -
<PAGE>
All exhibits that have page numbers followed by an * are incorporated by
reference from the filings set forth below. The numbers set forth as page
numbers for those exhibits are the exhibit numbers those documents were given
in those other filings. All other exhibits are included in this Form 10-K at
the page numbers shown.
* <F1> Incorporated by reference from the Company's Current Report on Form
8-K dated November 15, 1996.
* <F2> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1987.
* <F3> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1990.
* <F4> Incorporated by reference from the Company's Current Report on Form
8-K dated September 13, 1991.
* <F5> Incorporated by reference from the Company's Registration Statement
on Form S-4 (File No. 33-40865) that was declared effective on
November 20, 1991.
* <F6> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1991.
* <F7> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1992.
* <F8> Incorporated by reference from the Company's Current Report on Form
8-K dated December 15, 1993.
* <F9> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1993.
*<F10> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SECOM GENERAL CORPORATION
Dated: February 3, 1997 By: /s/ Robert A. Clemente
-------------------------------
Robert A. Clemente
Chairman, President and CEO
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.
Signature Title Date
--------- ----- ----
Principal Executive Officer:
/s/ Robert A. Clemente
- ------------------------------ Chairman, President February 3, 1997
Robert A. Clemente CEO and Director
Principal Financial and
Accounting Officer:
/s/ David J. Marczak
- ------------------------------ Chief Financial Officer, February 3, 1997
David J. Marczak Secretary, Treasurer
and Director
/s/ Gregory Adamczyk
- ------------------------------ Director February 3, 1997
Gregory Adamczyk
/s/ Rocco Pollifrone
- ------------------------------ Director February 3, 1997
Rocco Pollifrone
/s/ Orville K. Thompson
- ------------------------------ Director February 3, 1997
Orville K. Thompson
/s/ Richard Thompson
- ------------------------------ Director February 3, 1997
Richard Thompson
- 19 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Secom General Corporation
Novi, Michigan
We have audited the accompanying consolidated balance sheets of Secom General
Corporation and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(1) of Form 10-K. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement 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 consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Secom General Corporation and
subsidiaries at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
December 23, 1996
Detroit, Michigan
- 20 -
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
- ----------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash ......................................... $ 319,600 $ 13,700
Receivables:
Trade (net of allowances of $21,000 and
$93,500) ................................ 4,130,700 4,484,800
Other ...................................... 33,200 320,600
Inventories (Note 3) ......................... 5,170,500 3,935,700
Prepaids and other ........................... 547,400 727,800
Deferred tax assets (Note 10) ................ 569,800 542,700
----------- -----------
Total current assets ................ 10,771,200 10,025,300
CASH RESTRICTED FOR EQUIPMENT (Note 12) ........ 4,089,000
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .... 17,758,600 14,583,600
INTANGIBLE ASSET (Note 1) ...................... 1,994,100 2,071,300
OTHER ASSETS ................................... 341,600 266,900
----------- -----------
TOTAL ASSETS ................................... $34,954,500 $26,947,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations
(Note 5) ................................. $ 2,121,400 $ 5,633,400
Trade accounts payable ....................... 2,856,800 2,065,500
Accrued liabilities .......................... 884,800 1,197,100
----------- -----------
Total current liabilities ........... 5,863,000 8,896,000
LONG-TERM OBLIGATIONS (Note 5) ................. 13,724,300 4,621,700
DEFERRED TAX LIABILITIES (Note 10) ............. 1,331,300 1,518,900
----------- -----------
Total liabilities ................... 20,918,600 15,036,600
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Common stock, $.10 par value, 10,000,000
shares authorized; outstanding: 1996,
5,342,200 shares; 1995, 4,276,200 shares.... 534,200 427,600
Additional paid-in capital ................... 18,457,100 16,478,900
Accumulated deficit .......................... (4,955,400) (4,996,000)
----------- -----------
Total stockholders' equity .......... 14,035,900 11,910,500
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $34,954,500 $26,947,100
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-21-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET SALES ..................................... $30,877,100 $36,276,200 $32,570,900
COST OF SALES ................................. 25,064,900 29,016,100 26,048,200
----------- ----------- -----------
GROSS PROFIT .................................. 5,812,200 7,260,100 6,522,700
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 4,920,700 5,282,300 4,801,500
----------- ----------- -----------
INCOME FROM OPERATIONS ........................ 891,500 1,977,800 1,721,200
OTHER INCOME (EXPENSE):
Interest .................................... (847,600) (1,137,800) (952,500)
Other, net .................................. 14,600 (8,400) 385,600
----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................... 58,500 831,600 1,154,300
INCOME TAX BENEFIT (EXPENSE) (Note 10) ........ (17,900) 372,700 (60,800)
----------- ----------- -----------
NET INCOME .................................... $ 40,600 $ 1,204,300 $ 1,093,500
=========== =========== ===========
NET INCOME PER COMMON SHARE ................... $ 0.01 $ 0.28 $ 0.29
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 1) .................................... 4,874,600 4,284,200 3,795,200
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-22-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- -----------------------------------------------
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994 ........................... 2,900,900 $ 290,100 $15,578,000 $(7,293,800) $ 8,574,300
Stock issued for settlement of stock guarantees .. 711,900 71,200 (85,500) (14,300)
Issuances to 401(k) plan (employer match
and employee elections) ........................ 37,700 3,800 79,400 83,200
Private placements ............................... 50,000 5,000 95,000 100,000
Net income ....................................... 1,093,500 1,093,500
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1994 ........................ 3,700,500 370,100 15,666,900 (6,200,300) 9,836,700
Exercise of stock warrant ........................ 500,000 50,000 950,000 1,000,000
Issuances to 401(k) plan (employer match
and employee elections) ........................ 42,300 4,200 79,900 84,100
Issuances for compensation ....................... 41,800 4,100 79,500 83,600
Stock repurchases, net ........................... (8,400) (800) (31,000) (31,800)
Note issued for settlement of stock guarantee .... (266,400) (266,400)
Net income ....................................... 1,204,300 1,204,300
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1995 ........................ 4,276,200 427,600 16,478,900 (4,996,000) 11,910,500
Exercise of stock warrants ....................... 1,000,000 100,000 1,900,000 2,000,000
Issuances to 401(k) plan (employer match
and employee elections) ........................ 35,700 3,600 77,600 81,200
Stock issued for note receivable ................. 25,000 2,500 35,000 37,500
Stock repurchases, net ........................... (14,300) (1,400) (32,500) (33,900)
Stock issued for settlement of stock
guarantees ..................................... 19,600 1,900 (1,900)
Net income ....................................... 40,600 40,600
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1996 ........................ 5,342,200 $ 534,200 $18,457,100 $(4,955,400) $ 14,035,900
========= ========= =========== =========== ============
<FN>
See notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 40,600 $ 1,204,300 $ 1,093,500
Adjustments to reconcile income from
operations to net cash provided by
operations:
Depreciation and amortization ...................... 1,983,900 1,858,600 1,983,700
Provision for (benefit from) deferred taxes ........ (214,700) (521,900) 60,800
Increase (decrease) in allowance for ............... (72,500) 17,000 (228,800)
doubtful accounts
(Gain) loss on sales of assets ..................... 115,800 (319,500) 14,100
Stock issuances to 401(k) plan ..................... 32,000 64,700 107,000
Write-off of intangibles ........................... 84,200 309,700
Stock issuances for compensation ................... 83,600
Changes in assets and liabilities that
provided (used) cash, net of effects
of acquisitions and discontinued
operations:
Trade and other receivables ...................... 512,500 (298,400) (105,300)
Inventories ...................................... (1,234,800) 134,300 (1,412,200)
Prepaids and other ............................... (36,000) (193,700) 30,300
Other assets ..................................... (192,000) 78,300 (18,000)
Trade accounts payable ........................... 842,000 (491,400) (984,400)
Accrued liabilities .............................. (181,800) (111,300) (196,900)
Other liabilities ................................ (297,200)
Net cash provided by (used in) discontinued
operations ...................................... 158,600 (42,300) 309,400
----------- ----------- -----------
Net cash provided by operating activities ... 1,837,800 1,772,000 356,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property,
plant and equipment ............................... 301,000 863,000 149,300
Collections on notes receivable ...................... 259,800 2,300 20,600
Capital expenditures ................................. (5,479,100) (1,359,200) (907,900)
Net cash provided by discontinued operations ......... 149,200
----------- ----------- -----------
Net cash used in investing activities ........ (4,918,300) (493,900) (588,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit .................... (3,603,600) 210,600 44,900
Proceeds from long-term obligations and
use of restricted cash ........................... 8,205,500 273,100 2,469,400
Proceeds from refinancing of long-term obligations ... 7,887,500
Proceeds from issuances of stock ..................... 1,918,800 61,700
Payments on long-term obligations due to refinancing . (5,535,800)
Retirements of common stock .......................... (33,900) (12,500)
Payments on long-term obligations .................... (1,314,600) (1,634,000) (1,065,000)
Refund of restricted cash to bondholders ............. (700,000)
Payments on capital lease obligations ................ (48,500) (110,900) (234,400)
Net cash used in discontinued operations ............. (483,400)
----------- ----------- -----------
Net cash (used in) provided by financing
activities ............................... 7,475,400 (1,273,700) 93,200
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH .... 4,394,900 4,400 (139,600)
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD .......... 13,700 9,300 148,900
----------- ----------- -----------
CASH AND RESTRICTED CASH, END OF PERIOD ................ $ 4,408,600 $ 13,700 $ 9,300
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ............... $ 902,900 $ 1,104,800 $ 965,200
=========== =========== ===========
Cash paid during the year for income taxes ........... $ 153,600 $ 120,000
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-24-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business - Secom General Corporation (the "Company") is a publicly-traded
holding company with four wholly-owned subsidiaries supplying the
automotive, truck, construction and consumer markets. The Company
operates in the following two business segments:
Tooling:
Form Flow, Inc. ("Form Flow")
L&H Die, Inc. ("L&H Die")
Micanol, Inc. ("Micanol")
Metal Parts Forming:
Uniflow Corporation ("Uniflow")
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Inventories are stated at the lower of cost or market, as determined
under the first-in, first-out method.
Property, Plant and Equipment are recorded at cost. The Company
capitalizes, as additions, expenditures which extend the useful life or
increase the value of related assets. Maintenance and repairs are charged
to operating expense as incurred. Expenditures for repairs and
maintenance for the three years ended September 30, 1996 were $433,700,
$408,400 and $535,900, respectively. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Intangible Asset consisting of goodwill (cost in excess of net assets
acquired) is amortized on a straight-line basis over primarily 40 years.
The carrying value of goodwill is evaluated periodically in relation to
the operating performance of the underlying business and assets.
Management has evaluated the carrying value of the goodwill and has
determined at September 30, 1996 that remaining amounts are not impaired.
Accumulated amortization was $662,700 and $585,400 as of September 30,
1996 and 1995, respectively.
Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Earnings per Share of common stock is computed by dividing net income by
the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares consist primarily of the warrants
and options to purchase common stock outstanding during the periods
presented.
Revenue Recognition - Revenues are recognized upon completion of services
related to customer products.
-25-
<PAGE>
Significant Customer - The Company has one customer which comprises 11%
of total revenues.
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
these estimates.
New Accounting Standards - Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," was issued in March 1995. The
Statement is effective for fiscal years beginning after December 15,
1995, and requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has not yet
adopted this Statement, however, the impact of such adoption is not
expected to have a material effect on the Company's financial position or
results of operations when adopted in the 1997 fiscal year.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995. This Statement, which is effective for fiscal years
beginning after December 15, 1995, establishes financial accounting and
reporting standards for stock-based employee compensation plans. The
Company has not yet adopted this Statement, however, the impact of such
adoption is not expected to have a material effect on the Company's
financial position or results of operations when adopted in the 1997
fiscal year.
Noncash Transactions - The Company entered into the following noncash
investing and financing transactions for the following years ended
September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cancellation of accrued interest/note payable
in exchange for exercise of stock warrant.... $ 132 $1,000
Common stock issued for services or for
reduction of other obligations............... 32 148 $107
Stock issued for note receivable................ 37
Notes receivable issued for sale of Triple
Tool equipment............................... 249
Note payable issued for settlement of stock
guarantee.................................... 266
Note receivable and assumption of obligations
from sale of Tri-Tec subsidiary.............. 1,191
</TABLE>
Reclassifications - Certain amounts in the 1995 financial statements have
been reclassified to conform with the presentation for 1996.
2. DISCONTINUED AND DOWNSIZED OPERATIONS
In the quarter ended September 30, 1993, the Company adopted a formal
plan to discontinue operations of its Plastic Molded Products Segment,
Tri-Tec. In the first quarter of 1994, Tri-Tec's inventories and
machinery and equipment were sold for cash and notes receivable and the
assumption of certain capital lease obligations. At September 30, 1995
the Company was relieved as an obligor or guarantor on leases assumed by
the buyer of Tri-Tec.
-26-
<PAGE>
In the third fiscal quarter of 1995, the Company completed its downsizing
of Triple Technologies (formerly "Triple Tool") by the sale of $725,800
(net book value) of equipment and the leasing of $342,000 (net book
value) of equipment. The Company recorded a net gain of $2,500 on this
transaction after writing down goodwill in the amount of $310,000 in
connection with the downsizing. In June 1995, Triple Technologies'
remaining operations, primarily electro-diode machining (EDM), contracts
and the related equipment (net book value $341,000) were transferred to
Form Flow. For the years ended September 30, 1996, 1995, and 1994, sales
from Triple Technologies were $30,400, $1,559,000 and $2,500,000,
respectively, and operating losses were $102,000, $399,000 and $50,200,
respectively.
3. INVENTORIES
Inventories at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials ........... $ 949 $ 372
Work-in-process ......... 2,394 1,797
Finished goods .......... 1,828 1,767
------ ------
Total ................... $5,171 $3,936
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995 Life
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment ............. $ 18,192 $ 14,629 2 to 20 years
Building and improvements ........... 5,154 4,714 3 to 30 years
Land and improvements ............... 572 540 N/A
Furniture and fixtures .............. 685 478 3 to 7 years
Vehicles ............................ 168 215 3 years
Construction-in-progress and deposits 538 236 N/A
-------- --------
Total .................... 25,309 20,812
Less accumulated depreciation ....... (7,550) (6,228)
-------- --------
Total ............................... $ 17,759 $ 14,584
======== ========
</TABLE>
-27-
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations at September 30 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bank line of credit (a) ...................... $ 172 $ 3,776
Real estate mortgage notes (b) ............... 3,609 1,888
Michigan Strategic Fund Limited Obligation
Revenue Bonds (c) ......................... 6,896 2,500
Equipment term notes (d) ..................... 4,778 1,176
Other notes payable (e) ...................... 390 811
Equipment capital leases ..................... 104
-------- --------
Total ............................. 15,845 10,255
Less current obligations ..................... (2,121) (5,633)
-------- --------
Long-term obligations ........................ $ 13,724 $ 4,622
======== ========
</TABLE>
(a) In July 1996, the Company entered into an amended and restated
revolving credit and loan agreement with a bank, which is for a
three year period and permits borrowings of up to $4 million under a
revolving credit note and up to $2 million under a line of credit
note. At September 30, 1996, $172,000 was outstanding under the
revolving credit note and no amounts were outstanding under the line
of credit note. The interest is at prime or the 30 day LIBOR rate
plus 215 basis points. This agreement replaced an existing agreement
in which interest was at prime plus 1/2%. The revolving credit and
loan agreement is collateralized by accounts receivable and
inventory while borrowings are limited to stated percentages of
accounts receivable and inventory. Under each note, interest is
payable monthly and any unpaid principal is due July 1999. The
agreement prohibits the payment of cash dividends and requires the
Company to maintain specific financial covenants including minimum
tangible equity, working capital, and cash flow. The Company was in
compliance with all financial covenants at September 30, 1996.
(b) During 1996, the Company refinanced its existing mortgage loans to
obtain new mortgage loans requiring monthly installments of
principal and interest. Interest on a $2.88 million mortgage note is
8.25% per annum and is collateralized by land and buildings with a
net book value of $3,729,100, while interest on a $775,000 mortgage
note is prime and is collateralized by land and building with a net
book value of $987,200. Interest under the previous agreements was
payable at prime plus 2% per annum. These agreements mature in
fiscal 1999 and 2011. Principal payments are due as follows: 1997,
$164,600; 1998, $173,500; 1999, $183,200; 2000, $193,200; 2001,
$660,200 and thereafter, $2,234,800.
(c) In June and September 1996, the Michigan Strategic Fund sold
$3,000,000 and $4,000,000, respectively, of its Limited Obligation
Revenue Bonds and the bondholders then loaned the proceeds to the
Company for the purchase of equipment. The bonds require monthly
interest and principal payments through September 1, 2002. The Bonds
bear interest at the rates of 6.15% and 5.99%, respectively, and are
collateralized by equipment and cash with a net book value of
approximately $7,000,000. Principal payments due are as follows:
1997, $1,004,600, 1998, $1,066,500, 1999, $1,133,000, 2000,
$1,203,400, 2001, $1,278,700 and thereafter, $1,209,600. The bonds
outstanding at September 30, 1995, were repaid in their entirety
during fiscal 1996. Interest was at approximately 2% below the prime
rate.
-28-
<PAGE>
(d) The equipment term note is collateralized by equipment with a net
book value of $9,902,200. Interest rate is the 30 day LIBOR plus 215
basis points (approximately 7.55% at September 30, 1996). Principal
payments due are as follows: 1997, $691,800, 1998, $746,500, 1999,
$805,500, 2000, $868,700, 2001, $937,800 and thereafter, $727,400.
The equipment term notes outstanding at September 30, 1995 were
repaid in their entirety during fiscal 1996. Interest was at prime
rate plus 2%.
(e) Interest rates on other notes payable range from 4.9% to 12%. At
September 30, 1996, the balance includes $119,900 in trade
installment notes collateralized by specific equipment. Maturity
dates range from 1997 to 2000. Principal payments due are: 1997,
$253,400; 1998, $55,400; 1999, $68,000, and 2000, $13,100.
The prime rate at September 30, 1996 and 1995 was 8.25% and 8.75%,
respectively.
Principal payments on long-term obligations for the next five years are
as follows (in thousands):
<TABLE>
<S> <C>
1997...................... $2,121
1998...................... 2,042
1999...................... 2,190
2000...................... 2,278
2001...................... 2,877
Thereafter................ 4,165
</TABLE>
6. RELATED PARTY TRANSACTIONS
In December 1993, the Company issued a $1,000,000 subordinated note
payable, maturing December 1, 1995 and requiring payment of interest
only, at the prime rate plus 3% to Manubusiness Opportunities, Inc.
(MOI), an entity controlled by three directors of the Company. Payment of
principal was due at maturity. MOI also received warrants and options to
purchase 1.7 million shares of common stock, as follows: 500,000 shares
expiring in November 1994 with an exercise price of $2 per share, 500,000
shares expiring in November 1995 with an exercise price of $2 per share,
and 500,000 shares expiring in November 1996 with an exercise price of $3
per share and 200,000 options expiring in 1998 with an exercise price of
$2.63 per share.
In November 1994, MOI exercised its first warrant to acquire 500,000
shares of common stock in exchange for the cancellation of the $1,000,000
note. In November 1995, MOI exercised its second warrant to acquire
500,000 shares of common stock in exchange for a payment of $1,000,000.
In August 1996, MOI exercised its third and final warrant of 500,000
shares. In conjunction with this exercise, the Company reduced the
exercise price on the final warrants from $3 per share to $2 per share,
which approximated market value at the new measurement date. Upon
exercise, the Company received approximately $868,000 in cash and
canceled accrued interest due to MOI of approximately $132,000. Included
in accrued liabilities at September 30, 1995, is $125,000 of interest on
the above note payable.
7. LEASES
The Company leased one manufacturing facility under a noncancelable
operating leases. Rental expense for continuing operations was $10,500,
$36,000 and $106,000 for the years ended September 30, 1996, 1995 and
1994, respectively. During fiscal 1996, the Company purchased the leased
plant facility.
-29-
<PAGE>
Machinery and equipment includes assets under capital leases having a
total cost of $438,700 and accumulated amortization of $156,700 at
September 30, 1995. During 1996, this machinery and equipment was
purchased and the Company no longer has any equipment under capital lease
agreements.
Annual payments due under noncancelable operating leases are as follows
(in thousands):
<TABLE>
<S> <C>
1997...................... $ 45
1998...................... 45
1999...................... 45
2000...................... 45
2001...................... 45
Thereafter................ 45
------
Total..................... $ 270
======
</TABLE>
8. STOCK OPTIONS AND COMMON STOCK GUARANTEES
In 1991, the Board of Directors (the "Board") adopted a nonqualified
stock option plan (the "1991 Plan"). The 1991 Plan authorizes the Board
to grant options to purchase a maximum of 400,000 shares of common stock
to employees, at not less than the fair market value at the date of
grant. The options vest at various dates as described in the related
option agreement and expire 10 years from the date of grant. At September
30, 1996, 131,200 shares were exercisable under the Plan. Transactions
under the 1991 Plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Price
------ -----
<S> <C> <C>
Options outstanding September 30, 1994 .. 178,750 $2.62 - $3.00
Options terminated ...................... (16,250) 2.62
-------
Options outstanding September 30, 1995 .. 162,500 2.62 - 3.00
Options granted ......................... 272,000 1.94
Options terminated ...................... (58,500) 2.62 - 2.75
-------
Options outstanding September 30, 1996 .. 376,000 $1.94 - $3.00
=======
</TABLE>
During the year ended September 30, 1996, 175,000 options exercisable at
$1.94 were issued to an officer of the Company outside of the 1991 Plan.
At September 30, 1996, 17,500 of these options were exercisable and the
remaining options vest ratably over a five year period. These options
expire 10 years from the date of grant.
-30-
<PAGE>
The Company is contingently liable under stock price guarantees issued in
connection with 1991 private stock placements. Under the agreements the
holder is entitled to the shortfall between the amount realized from sale
of the shares during the guarantee period and the guaranteed price of the
share. At September 30, 1996, the Company had approximately 13,000 shares
remaining that are subject to guarantees with a maximum guarantee amount
of approximately $96,000.
9. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution 401(k) plan to which it
contributes stock on a discretionary basis. The cost of the stock
contributed to the Plan resulted in a charge to expense of $123,000,
$116,000 and $107,000 for the years ended September 30, 1996, 1995 and
1994, respectively.
10. INCOME TAXES
The provision for income taxes consists of the following for the years
ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current (expense) .............. $(232,600) $(149,200)
Deferred benefit (expense) ..... 214,700 521,900 $(60,800)
--------- --------- --------
Income tax benefit (expense) ... $ (17,900) $ 372,700 $(60,800)
========= ========= ========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30
-------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax carryforwards .... $ 272,900 $ 137,200
Tax credit carryforwards ................. 108,400 108,400
Secom net operating loss carryforward .... 45,200
Net operating loss carryforwards of
acquired companies .................... 397,700 544,500
Reserves ................................. 206,600 159,100
Other .................................... 52,900 17,000
----------- -----------
Total deferred tax assets ....... 1,038,500 1,011,400
Less valuation allowance ................... (468,700) (468,700)
----------- -----------
Net deferred tax assets ......... 569,800 542,700
Current portion ............................ 569,800 542,700
----------- -----------
Long-term portion .......................... None None
=========== ===========
Deferred tax liabilities:
Depreciation ............................. $ 462,400 $ 488,100
Book and tax basis differences from
business combinations ................. 830,100 988,200
Other .................................... 38,800 42,600
----------- -----------
Total deferred tax liabilities .. 1,331,300 1,518,900
Current portion ............................ None None
=========== ===========
Long-term portion .......................... $ 1,331,300 $ 1,518,900
=========== ===========
</TABLE>
-31-
<PAGE>
During 1996 and 1995, certain tax benefits from net operating losses and
temporary differences creating deferred tax assets have been reserved
with a valuation allowance due to their uncertainty of realization.
Remaining net operating loss carryforwards as of September 30, 1996 are
available for offset against future taxable earnings through the year
2007, subject to annual limitations as set forth in the Internal Revenue
Code.
A reconciliation of the Company's statutory income tax provision computed
on pre-tax income to the recorded income tax provision for the year ended
September 30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory income tax liability ............ $(20,200) $(283,300) $(430,000)
Change in valuation allowance ............. 766,000 30,000
Nondeductible goodwill amortization ....... (26,300) (128,000) (23,000)
Book and tax basis differences from
business combinations .................. 71,100 40,000 383,000
Nondeductible other expenses .............. (42,500) (22,000) (20,800)
-------- --------- ---------
Income tax benefit (expense) .............. $(17,900) $ 372,700 $ (60,800)
======== ========= =========
</TABLE>
11. CONTINGENCIES
The Company is involved in certain legal proceedings arising in the
normal course of business. In the opinion of management, based on the
opinion of counsel, the outcome of such litigation will not have a
material adverse effect on the Company's consolidated financial position
or results of operations.
12. CASH RESTRICTED FOR EQUIPMENT
The cash restricted for equipment was received from the Michigan
Strategic Fund bondholders (see Note 5) to purchase equipment for future
production requirements. The Company has contractually agreed to purchase
the equipment and anticipates accepting delivery of such equipment in the
1997 fiscal year.
13. SUBSEQUENT EVENT
Effective November 1, 1996, the Company acquired certain assets and
assumed certain liabilities of the Varity Kelsey-Hayes Corporation's
Milford, Michigan machining business. The acquisition was accounted for
as a purchase and the results of operations will be included in the
Company's financial statements beginning as of the acquisition date. The
unit has been renamed "Milford Manufacturing Corporation."
-32-
<PAGE>
14. SEGMENT INFORMATION
The following is the business segment information applicable to
continuing operations (in thousands):
<TABLE>
<CAPTION>
Metal Eliminations
Parts and
Forming Tooling Corporate Consolidated
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
September 30, 1996:
Net sales ............... $14,748 $18,136 $(2,007) $30,877
Income from operations .. (701) 2,093 (501) 891
Identifiable assets ..... 12,920 7,211 14,823 34,954
Depreciation and
amortization ......... 1,098 671 215 1,984
Capital expenditures .... 1,803 163 3,513 5,479
September 30, 1995:
Net sales ............... $17,630 $20,659 $(2,013) $36,276
Income from operations .. 275 2,457 (754) 1,978
Identifiable assets ..... 14,444 8,852 3,651 26,947
Depreciation and
amortization ......... 1,151 671 37 1,859
Capital expenditures .... 592 751 16 1,359
September 30, 1994:
Net sales ............... $16,052 $19,143 $(2,624) $32,571
Income from operations .. 177 3,008 (1,464) 1,721
Identifiable assets ..... 15,856 8,119 3,851 27,826
Depreciation and
amortization ......... 1,273 598 113 1,984
Capital expenditures .... 570 330 8 908
</TABLE>
******
-33-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
- ------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
--------------------------------------------------
1996 1995 1994 1993 1992
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
NET SALES ........................................ $30,877 $36,276 $32,571 $29,356 $27,574
INCOME (LOSS) FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES ............................ 58 831 1,154 (13) 295
INCOME TAX BENEFIT (EXPENSE) ..................... (17) 373 (61) (80)
------- ------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 41 1,204 1,093 (13) 215
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ............................ (3,640) 38
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE .............................. 41 1,204 1,093 (3,653) 253
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR INCOME TAXES .................... 379
------- ------- ------- ------- -------
NET INCOME (LOSS) ................................ $ 41 $ 1,204 $ 1,093 $(3,653) $ 632
======= ======= ======= ======= =======
BALANCE SHEET DATA
TOTAL ASSETS ..................................... $34,954 $26,947 $27,826 $31,291 $33,924
LONG-TERM OBLIGATIONS ............................ 13,724 4,622 7,089 7,123 10,519
STOCKHOLDERS' EQUITY ............................. 14,036 11,910 9,837 8,574 12,011
COMMON STOCK SHARES OUTSTANDING (1) .............. 5,342 4,276 3,701 2,901 2,821
EARNINGS (LOSS) PER COMMON SHARE (1):
Continuing operations .......................... $ 0.01 $ 0.28 $ 0.29 $ 0.08
Discontinued operations ........................ $ (1.27) 0.01
Change in method of accounting for income taxes. 0.14
------- ------- ------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.01 $ 0.28 $ 0.29 $ (1.27) $ 0.23
======= ======= ======= ======= =======
EQUITY PER COMMON SHARE .......................... 2.63 2.79 2.66 2.96 4.26
CURRENT RATIO .................................... 1.84 1.13 1.02 0.82 0.96
LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 0.98 0.39 0.72 0.83 0.88
<FN>
(1) Restated for the 10% stock dividends distributed in 1992.
</TABLE>
-34-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
September June March December September June March December
1996 1996 1996 1995 1995 1995 1995 1994
--------- ---- ----- -------- --------- ---- ----- --------
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............... $7,834 $8,254 $7,529 $7,260 $8,200 $9,915 $9,863 $8,298
GROSS PROFIT............ 1,139 1,806 1,494 1,373 1,566 2,338 2,193 1,163
INCOME (LOSS) BEFORE
INCOME TAXES.......... (221) 52 163 65 171 545 424 (308)
INCOME TAX BENEFIT
(EXPENSE)............. 77 (12) (61) (22) 255 80 (48) 85
------ ------ ------ ------ ------ ------ ------ ------
NET INCOME (LOSS)....... $ (144) $ 40 $ 102 $ 43 $ 426 $ 625 $ 376 $ (223)
====== ====== ====== ====== ====== ====== ====== ======
EARNINGS (LOSS) PER
COMMON SHARE--
Net income (loss)....... $(0.03) $ 0.01 $ 0.02 $ 0.01 $ 0.10 $ 0.14 $ 0.09 $(0.05)
====== ====== ====== ====== ====== ====== ====== ======
PRICE RANGE OF
COMMON STOCK:
High bid.............. $ 3.12 $ 3.44 $ 3.37 $ 3.37 $ 4.09 $ 2.50 $ 2.62 $ 3.00
Low bid............... 2.00 1.87 1.75 2.50 2.25 1.62 1.62 2.00
</TABLE>
-35-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
<TABLE>
<CAPTION>
Column B Column C Column D Column E
----------------- --------------- ------------ -----------
Balance at Charged to Cost Deductions-- Balance at
Column A Beginning of Year and Expenses Write Offs End of Year
Description
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1994 ......... $ 307,600 $ 9,400 $238,200 $ 78,800
Year ended September 30, 1995 ......... 78,800 127,500 112,800 93,500
Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000
Inventory reserve:
Year ended September 30, 1994 ......... 179,500 7,500 126,000 61,000
Year ended September 30, 1995 ......... 61,000 15,000 76,000
Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500
Deferred tax asset valuation allowance:
Year ended September 30, 1994 ......... 1,265,000 30,000 1,235,000
Year ended September 30, 1995 ......... 1,235,000 766,300 468,700
Year ended September 30, 1996 ......... 468,700 468,700
-36-
</TABLE>
Exhibit 13
[ LOGO ] Secom General Corporation
-------------------------------------
Building Value in Basic Manufacturing
1996 ANNUAL REPORT AND FORM 10-K
<PAGE>
January 1997
Report to Stockholders
Introduction
The enclosed report reviews our fiscal year ended September 30, 1996. Net
income in fiscal 1996 declined to $41,000 (one cent per share) from $1.2
million (28 cents per share) in 1995. The decline in net income is
principally related to unfavorable results from our Uniflow metal parts
forming unit. Although we had reported progress at Uniflow in 1995, results
in 1996 were particularly disappointing, largely attributable
to: declining in sales in two key product groups (suspension ball joint
housings and truck wheel studs), and increased manufacturing costs related,
in significant part, to three project launches expected to generate up to an
additional $15 million in annual sales volume. In response to the operational
problems at Uniflow, we have taken decisive action to get on track, as
discussed in more detail below. On the other hand, our Tooling Segment
recorded another solid year of profitability, although less than the prior
year, largely because of a change in its sales mix.
Subsequent to our fiscal year end (effective Nov. 1, 1996), we added another
business segment - Production Machining - through the acquisition of
VarityKelsey-Hayes' Milford, Michigan machining plant (Milford Manufacturing
Corporation). Overall, we are optimistic about Milford's prospects to
competitively supply various machined brake parts as well as other machined
parts. We expect the Milford operation to be profitable in 1997 with sales in
excess of $11 million.
During 1997, our goals and expectations include the successful completion of
new project launches at Uniflow and Milford, and the implementation of a new
information system that will be utilized by all operations. We believe that
this new system will assist all of our units to improve production
efficiency, reduce overhead and increase profitability. Use of this system
will also assist in more prompt customer response time and compliance with
industry quality standards (QS 9000). We expect to be operational with our
new information system by the end of fiscal 1997.
Review of Metal Parts Forming Segment (Uniflow)
The business focus of Uniflow's management was lost during the year,
resulting in a myriad of production related problems that caused increased
machine downtime and the inefficient use of labor. At the same time, sales
orders were lower for suspension ball joint housings and truck wheel studs.
Subsequent to our fiscal year-end, we made various key management changes and
have realigned other responsibilities in order to address this critical
situation. On a couple of positive notes, the management realignment has
resulted in a more effective and efficient business approach at Uniflow,
while suspension housing orders have rebounded in early fiscal 1997.
We are convinced Uniflow will achieve a high level of success, based on new
business coming on line in 1997 and 1998, as well as management's newly
defined initiatives to reduce costs and improve efficiencies. In particular,
those efforts include the implementation of improved manufacturing systems
and procedures, along with more direct accountability at all levels. At the
same time, we are carefully reviewing cost data to determine which portions
of Uniflow's sales base do not contribute sufficient profit margins.
Moreover, we also are in the process of revising Uniflow's sales strategy,
which needs specific direction, vision and emphasis on profit contribution by
product.
We expect Uniflow's sales mix to change significantly in 1997 and 1998, as
production ramps up on new sales orders for transmission shaft parts, airbag
housings and starter motor shafts. Ultimately new sales orders could provide
an additional $15 million annual sales, although complete ramp up to these
volumes probably would not culminate until sometime in fiscal late 1998 or
early 1999.
Review of Tooling Segment (Form Flow, L&H Die, Micanol)
Overall results continued to be strong for the Tooling Segment in 1996,
although profits were moderately lower due to a change in sales mix. In the
prior year, Form Flow was able to realize higher margins due largely to a
special design and build order from one of its customers. The Tooling
Segment's overall sales base remained strong in 1996, with the exception of
Micanol which did not receive anticipated volumes from some of its key
customers. Tooling management is seeking to improve its profit margins by
increasing its emphasis on higher value added tooling within the cold forming
marketplace.
Summary
Although Secom's overall operating performance in 1996 was less than we had
expected, many positive steps were taken during the year, as highlighted
above. Most importantly, we have garnered various new sales orders for
Uniflow that we believe will provide attractive long-term sources of revenue
and profit margin gains, beginning in the latter part of the 1997 fiscal
year. We also are optimistic about the prospects of our new Milford
Manufacturing Corporation, which has provided Secom with much coveted
technical machining expertise, as well as a multitude of additional factory
resources. We expect that the combination of these factors will begin to be
reflected in positive operating results in the second half of our 1997 fiscal
year.
Sincerely,
/s/ Robert A. Clemente
- ---------------------------
Robert A. Clemente
Chairman, CEO and President
<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission file number 0-14299
SECOM GENERAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26600 HEYN DRIVE, NOVI, MICHIGAN 48376-0705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 305-9410
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934:
None
(Title of class and name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
Common Stock, par value $.10 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 15
<PAGE>
PART I
Item 1. Business
General
Secom General Corporation, a Delaware corporation (the "Company"), is a
holding company with the following wholly-owned operating subsidiaries:
Metal Parts Forming Segment:
* Uniflow Corporation ("Uniflow") acquired in 1991
Tooling Segment:
* Form Flow, Inc. ("Form Flow") acquired in 1987
* L & H Die, Inc. ("L & H") acquired in 1987
* Micanol, Inc. ("Micanol") acquired in 1990
* Triple Technologies, Inc. ("Triple"), formerly known as
Triple Tool, acquired in 1991
In May 1995, Triple's operations were downsized and relocated to a Form Flow
facility. Triple's continuing business activity was absorbed into Form Flow.
Effective November 1, 1996, the Company acquired the Milford, Michigan
machining business of the VarityKelsey-Hayes Corporation ("VKH"), a business
unit of Lucas-Varity Corporation (NYSE:LAV). The business was renamed Milford
Manufacturing Corporation ("MMC"), and constitutes a third segment for the
Company -- Production Machining. In connection with the acquisition, the
Company also entered into a five year supply agreement for the manufacture and
sale of various brake valve parts to VKH. See Management's Discussion and
Analysis.
The Company's corporate address is 26600 Heyn Drive, Novi, Michigan 48376-0705;
its telephone number is (810) 305-9410 and its facsimile number is (810)
347-9956.
Except as otherwise indicated by the context, any reference to the "Company"
shall mean the Company and its subsidiaries. The Company's fiscal year-end is
September 30.
Principal Customers, Backlog and Seasonality
In 1996, one of the Company's customers accounted for 11% of consolidated
revenues. Sales of the Company's parts, tooling and services are not
considered seasonal. The Company believes that its backlog, due to the nature
of its respective businesses, is not necessarily indicative of the level of
its present or future sales.
- 3 -
<PAGE>
SEGMENT REVIEW
Metal Parts Forming Segment
General
The Metal Parts Forming Segment is comprised of the Company's Uniflow unit,
which primarily manufactures automotive and truck parts from steel bar, coil
and tubing using cold forging and forming machines and various types of
secondary machining, such as threadrolling and piercing equipment.
Sales and Competition
Uniflow's fiscal 1996 sales were comprised as follows: 32.8% wheel studs for
heavy and light duty trucks (original equipment manufacturers or "OEM" and
service part manufacturers or "aftermarket"); 24.9% automobile ball joint
suspension housings (OEM and aftermarket); 23.6% transmission gear housings
(OEM); and 18.7% miscellaneous cold headed and cold forged parts (OEM). While
Uniflow operates in competitive markets, management believes that Uniflow's
extensive tooling inventory gives it a competitive advantage in retaining
certain reorders from the same customers.
Although Uniflow is aggressively seeking sales of new parts, most of its
business base remains reorders of the same customer specific parts. Uniflow's
sales backlog usually covers a period of approximately three months of work.
As such, the backlog is not necessarily indicative of Uniflow's sales
performance beyond that time period. Management expects Uniflow's sales
mix to change in 1997 and thereafter, as it focuses on larger OEM sales
orders. See Management's Discussion and Analysis set forth in Item 7.
Uniflow's sales are concentrated with a few customers, as five customers
comprised 75% of revenue for the fiscal year ended September 30, 1996. If
Uniflow were to lose a significant customer, management believes that it could
replace that business within an estimated timeframe of 6 to 18 months,
although its gross profit margin would likely be adversely affected.
Manufacturing and Engineering
Uniflow manufactures parts from steel bar, coil and tubing using cut-off
machines, cold forging hydraulic presses, cold heading machines, CNC turning
centers, threadrollers, broaching and piercing machines. Although part
production can involve up to 14 different production steps, primary equipment
consists of the cold forging presses and cold forming (header) machines, which
form the parts into their general size and shape. The forging presses complete
one operation at a time, while the header machines complete up to five
operations in succession.
After parts are forged or formed, they are routed to various secondary
machining operations for finishing, such as CNC turning, threadrolling,
piercing and drilling. External steps completed by outside processors
typically include specialized machining, heat-treating, annealing and plating.
Production order turnaround time can vary from 4 to 12 weeks, depending on
engineering requirements, lead times from outside vendors and the production
backlog. Uniflow's tooling department makes and repairs some of the perishable
tooling used in production, while the Company's Tooling Segment also supplies
Uniflow with some of its production tooling. The engineering staff offers tool
design and production development services to customers for new or modified
parts.
Employees
As of September 30, 1996, Uniflow employed a total of 170 full-time employees
compared to 153 in the prior year, as follows: 151 direct and indirect labor
(including factory floor supervision), 6 engineering, 2 sales, 7 office and 4
management.
- 4 -
<PAGE>
Tooling Segment
General
The Company's Tooling Segment ("Tooling Operations" or "Tooling Units") is
comprised of three wholly-owned operating subsidiaries, which are Form Flow, L
& H and Micanol. In May 1995, the Company significantly reduced the size of
its Triple operation by selling off certain equipment. Triple's remaining
operations were transferred to the Company's Form Flow unit, although certain
equipment was moved to the other subsidiaries. The continuing Triple business
activity has been absorbed into Form Flow. For further discussion about
Triple, reference is made to the Management's Discussion and Analysis set
forth in Item 7 and Note 2 to the financial statements set forth in Item 8.
The Tooling Operations manufacture close tolerance tooling for the hot and
cold metal forming industry. Hot and cold metal forming companies typically
make metal parts from steel coil that is automatically fed through various
stations on a "header forming" machine. A header machine cuts off a piece of
steel coil and moves it through each die station progressively, using tool
inserts to form the part. Tool life is dependent on the type of material used
to make the part and the size and shape of the part, among other things.
As part of its sales and service, the Tooling Unit's design and development
staff will advise customers about tooling issues and other engineering matters
related to the production of hot and cold formed parts. While tool orders
typically take 4 to 10 weeks to complete, design and development orders can
span over a period of months.
Sales and Competition
The Tooling Segment's customers manufacture items such as industrial
fasteners, hand tools, electronic components, automotive parts, tubing,
aircraft parts, consumer items and munitions as well as a wide array of OEM
assembly parts. The Tooling Unit's customers include OEM and aftermarket
suppliers and are mostly related to the automotive industry. Continuing
customer relations are important as significant revenue is derived from
tooling reorders.
The Tooling Segment operates in fragmented markets with numerous competitors.
Management believes its success is based on (1) the quality and durability
of the tooling, (2) the ability to fulfill delivery commitments, and
(3) price competitiveness. The Tooling Unit's design and engineering
services allow it to compete for tool development work; management
believes these services provide the Company a significant advantage in
attracting new customer business. The Tooling Segment sells principally to
customers in the United States.
Manufacturing and Engineering
All tooling orders are manufactured to customer specifications as indicated on
a tool drawing. Tools are made from bar stock steel or carbide blanks and
generally are routed through a production sequence that includes cutting,
turning (CNC/lathe work), heat treating, grinding, polishing and coating.
Form Flow, L & H and Micanol have separate plant facilities. Design and
engineering services are located at a Form Flow facility, and are offered by
all three of the Tooling Units.
- 5 -
<PAGE>
Employees
As of September 30, 1996, the Tooling Segment employed a total of 158
full-time employees compared to 175 in the prior year, as follows: 132 direct
and indirect labor (including factory floor supervision), 5 engineering, 4
sales, 11 office and 6 management.
Item 2. Properties
The Company's corporate offices are located at 26600 Heyn Drive, Novi,
Michigan. The subsidiaries operate in the following facilities, all of which
are owned by the Company:
1) Form Flow is located in two 12,600 square foot adjacent buildings on
approximately four acres of land at 6901 and 6999 Cogswell in Romulus,
Michigan 48174. The 6999 Cogswell facility was acquired by the Company in
December 1995. Its telephone number is 313-729-3100.
2) L & H is located in a 12,600 square foot building on approximately two
acres of land at 38200 Ecorse Road, Romulus, Michigan 48174 and its
telephone number is 313-722-8011.
3) Micanol is located in a 12,400 square foot building on approximately two
acres of land at 46001 Grand River Avenue, Novi, Michigan 48374 and its
telephone number is 810-347-1230.
4) Uniflow is located in three buildings on approximately eight acres of land
in Novi, Michigan 48374: (1) 30,300 square feet at 26600 Heyn Drive, (2)
16,700 square feet at 46035 Grand River Avenue and (3) 32,000 square feet
at 46009 Grand River Avenue. Its telephone number is 810-348-9370.
5) MMC is located on 6.6 acres of land in an 81,500 square foot building at
101 Oak St., Milford, Michigan 48381. Its telephone number is 810-685-1573.
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings arising in the normal
course of business. In the opinion of management (based on the opinion of
counsel) the outcome of such litigation will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of the Company's stockholders during its
fourth fiscal quarter.
- 6 -
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock (trading symbol "SECM") has traded on NASDAQ since
June 1987 and the NASDAQ National Market System (NMS) since January 1992. The
following table sets forth (for the respective period indicated) the high and
low trade for the common stock as reported by NASDAQ. Trade prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
High Low
Quarter Ended Trade Trade
------------- ----- -----
<S> <C> <C>
12/31/94 3.00 2.00
3/31/95 2.62 1.62
6/30/95 2.50 1.62
9/30/95 4.09 2.25
12/30/95 3.37 2.50
3/31/96 3.37 1.75
6/30/96 3.44 1.87
9/30/96 3.12 2.00
</TABLE>
On September 30, 1996 there were approximately 1,000 nominees/persons of
record that held the Company's common stock. Of those listed of record,
approximately 2 million shares were held by brokers and nominees
representing an undetermined number of beneficial stockholders.
Owners of common stock are entitled to receive dividends declared by the Board
of Directors out of funds legally available therefor. The Company has never
paid a cash dividend and does not anticipate paying cash dividends in the
foreseeable future. Its policy is to retain earnings so it can provide funds
for operations and expansion of its business. In addition, the Company's bank
loan agreement prohibits the payment of cash dividends without written consent
from the lender.
In August 1996, Manubusiness Opportunities, Inc. ("MOI") exercised its third
and final warrant of 500,000 shares. The Company reduced the exercise price on
the final warrants from $3 per share to $2 per share, which approximated the
market trading value at the exercise date. For further discussions about
MOI, reference is made to the Management's Discussion and Analysis set forth
in Item 7 and Note 6 to the financial statements set forth in Item 8.
In June 1991 and in May 1992, the Company issued 10% common stock dividends to
stockholders of record as of May 14, 1991 and May 1, 1992, respectively.
Item 6. Selected Financial Data
See page 34 for selected financial data as of September 30, 1996, 1995, 1994,
1993 and 1992 and for the years then ended as required by this Item. This
information should be read in conjunction with the financial statements and
the footnotes thereto referred to in Item 14(a)(1) of this Form 10-K.
- 7 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto contained
elsewhere in the Form 10-K.
Overview
The Company posted net income of $41,000 (one cent per share) on sales
of $30,877,000 in 1996 compared to net income of $1,204,000 (28 cents per
share) on sales of $36,276,000 in 1995. The decline in net income in 1996 from
the prior year was primarily due to the continued difficulty in turning around
the Company's Uniflow unit (see segment review below).
Although Uniflow was able to secure various long-term sales orders
during 1996 that are scheduled to ramp up in 1997 and 1998, overall sales
declined in 1996 from 1995. Although sales decreased, operating expenses
increased (as a percentage of sales), resulting in a loss in 1996 at Uniflow.
The Company's Tooling Segment sales were lower primarily related to the
downsizing of Triple Tool, which was absorbed into Form Flow's operation in
late fiscal 1995. The Tooling Segment posted another profitable year, although
net income was slightly lower than 1995.
Effective November 1, 1996, the Company acquired certain assets and
assumed certain liabilities of the VarityKelsey-Hayes' ("VKH") Milford,
Michigan machining operation and its continuing business. Assets acquired were
(1) machinery and equipment, with an estimated fair market value of $2.5
million, (2) real estate and building, with an estimated fair market value of
$1.3 million, and inventories valued at approximately $1 million, as well as
various environmental indemnifications and supply commitments with values yet
undetermined. In exchange for the assets acquired, the Company paid
approximately $5 million in consideration, as follows: (1) $1.2 million cash
at closing, (2) the assumption of certain employee pension and retiree health
care obligations, preliminarily estimated at $3 million and, (3) approximately
$800,000 for additional inventories and equipment added to the location before
the transaction closing.
The Milford operation was renamed Milford Manufacturing Corporation
("MMC") and constitutes a third Secom business segment -- Production
Machining. The Company anticipates the unit to be profitable in fiscal 1997
with sales expected to exceed $12 million. The Company's other two business
segments are Metal Parts Forming (Uniflow) and Tooling (Form Flow, L & H and
Micanol).
Results of Operations
Metal Parts Forming Segment
Chart of three year comparative operating results (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 14,748 100.0 $ 17,630 100.0 $ 16,052 100.0
Gross profit 1,197 8.1 2,226 12.6 1,533 9.6
Operating expense 1,898 12.9 1,951 11.1 1,356 8.4
Operating profit (loss) (701) (4.8) 275 1.6 177 1.1
</TABLE>
- 8 -
<PAGE>
The Metal Parts Forming Segment is comprised of the Company's Uniflow
unit. Uniflow currently manufactures suspension ball-joint housings, truck
wheel fasteners, transmission shaft parts and a variety of OEM cold-formed and
forged parts. Customers are primarily automotive and trucking-related original
equipment manufacturers ("OEM") and service part manufacturers
("after-market").
Net sales decreased 16.3% in 1996 from 1995, and increased 9.8% in
1995 from 1994. The sales decrease in 1996 from 1995 primarily reflects (1)
lower order volume for Uniflow's after-market truck wheel studs and suspension
ball joint housings and, (2) additional sales in the prior year from
deliveries made on a significant past-due sales backlog of approximately $1
million. The decrease in Uniflow's after-market component parts business is
attributable to an overall slowness in the trucking after-market business, the
loss of certain business by Uniflow's customers and the resourcing of various
parts to competitors. Management does not anticipate further deterioration in
1997 after-market related sales.
To replace the lower sales, management has been seeking new business
for its cold forging press and cold forming header production capacity.
Through those efforts, Uniflow secured an order to supply starter motor shafts
for six years; shipments of $700,000 are expected in fiscal 1997, $2.5 million
in 1998 and approximately $5 million annually for the remainder of this six
year contract. The parts will be formed on Uniflow's National FX85 parts
former and machined at the Company's newly acquired MMC unit. Uniflow also has
tentatively received an order to manufacture transmission shaft parts, with
shipments anticipated to start in early 1997; sales over $1.3 million are
expected in fiscal 1997 and could exceed $8 million in 1998. Sales of airbag
housings, for which first shipments were made in August 1996, are expected to
exceed $1.5 million in 1997.
Gross profit on sales was 8.1% in 1996, 12.6% in 1995 and 9.6% in
1994. The 1996 decline in gross profit reflects the lower sales volume and
less efficient production. Management is in the process of implementing
various operating techniques designed to improve Uniflow's manufacturing
efficiency and gross profit. In particular, management is emphasizing
improvements in production planning and preparation to reduce production
costs. Management is also in the early stages of implementing a quality
system in compliance with QS 9000 and a computerized information system
that will provide on-line shop floor production and financial data.
Incremental sales increases that are expected to commence throughout fiscal
1997 should improve the gross profit.
Operating expense as a percentage of sales was 12.9% in 1996, 11.1% in
1995 and 8.4% in 1994. The percentage fluctuation was largely due to the
varying sales level. Actual operating overhead expense in 1996 was $1.9
million, down from $1.95 million in 1995. In 1995, operating expense increased
from 1994 level of $1.36 million, due primarily to increased engineering,
product quality expense and the direct allocation of certain administrative
expenses previously shown as unallocated corporate expense. Management does
not expect its operating expense level to change significantly in 1997 from
1996.
Uniflow's profit (loss) from operations was ($701,000) (-4.8% of
sales) in 1996, $275,000 (1.6% of sales) in 1995 and $177,000 (1.1% of sales)
in 1994. The profit decrease in 1996 from 1995 reflects the lower sales volume
and higher costs of production. The profit increase in 1995 from 1994
primarily reflects the higher sales level. Management expects Uniflow's
operating profit to improve with sales increases and with the implementation
of production efficiencies.
- 9 -
<PAGE>
Tooling Segment
Chart of three year comparable operating results (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ----------------- -----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales (1) $18,166 100.0 $20,659 100.0 $19,143 100.0
Gross profit 4,317 23.8 4,902 23.7 4,841 25.3
Operating expense 2,325 12.8 2,445 11.8 1,833 9.6
Operating profit (loss) 1,992 11.0 2,457 11.9 3,008 15.7
<FN>
(1) Before elimination of intercompany sales.
</TABLE>
The Tooling Segment is comprised of the Form Flow, L & H and Micanol
units. The Triple unit was downsized and absorbed into Form Flow's operation
in June 1995. The Tooling Units sell tools and dies for use in the production
of hot and cold formed metal parts.
Net sales decreased 12.1% in 1996 compared to 1995 and increased 7.9%
in 1995 compared to 1994. The 1996 sales decrease from 1995 is primarily due
to the downsizing of Triple Tool, which posted sales of $1.79 million in 1995,
and lower sales at Micanol in 1996, resulting from lower order demand from
some of its customers. The 1995 sales increase over 1994 was the result of
higher sales at Form Flow, L & H and Micanol, although Triple recorded lower
sales.
Gross profit on sales was 23.8% in 1996, 23.7% in 1995 and 25.3% in
1994. The 1996 gross profit percentage was comparable with 1995, while the
decline in percentage in 1995 from 1994 primarily reflected unfavorable
operating results at the Triple unit.
Operating expense as a percentage of sales was 12.8% in 1996, 11.8% in
1995 and 9.6% in 1994. The increases in 1996 and 1995 reflect higher personnel
expense and the direct allocation of certain expenses previously unallocated
at the corporate level.
The Tooling Segment's operating profit was $1,992,000 (11.0% of sales)
in 1996, $2,457,000 (11.9% of sales) in 1995 and $3,008,000 (15.7% of sales)
in 1994. The decline in operating profit in 1996 from 1995 principally
resulted from lower profits at Form Flow, L & H and Micanol, offset by the
reduction of Triple's operating loss. In the previous year, Form Flow realized
higher profits on various special tooling development projects from certain
customers. The decline in operating profit in 1995 from 1994 was principally
related to lower sales volume from various higher margin customer accounts.
Management is seeking to maintain higher machine utilization and higher value
added tooling orders to improve its gross margin and operating profit.
- 10 -
<PAGE>
Corporate Expenses
Unallocated corporate overhead was $712,000 in 1996, $858,000 in 1995
and $1,620,000 in 1994. The reductions in unallocated corporate expense in
1996 and 1995 from 1994 reflect the direct allocation of certain expenses that
relate to the respective operating units, as well as lower insurance and other
administrative costs.
Interest Expense, Miscellaneous Income and Income Taxes
Interest expense was $848,000 in 1996, $1,138,000 in 1995 and $953,000
in 1994. The decline in interest expense in 1996 from 1995 resulted from lower
average borrowing and lower average interest rates for the year. Lower
borrowings resulted in part from the exercise of stock warrants that provided
$2 million of equity to the Company and refinancing certain of its debt
agreements. Interest expense increased in 1995 from 1994 primarily due to
increased borrowing for the additions of capital equipment.
Other income (expense) was $15,000 in 1996, ($8,000) in 1995
and $386,000 in 1994. The income in 1994 reflected settlement of debts at less
than recorded values associated with Tri-Tec.
Income tax expense (benefit) was $18,000 in 1996, ($373,000) in 1995
and $61,000 in 1994. The income tax benefit in 1995 was the result of the
utilization of net operating loss carryforwards against taxable income and the
reversal of portions of the valuation allowance in anticipation of future use
of net operating loss carryforwards.
Financial Condition
The Company's working capital position, $4,908,000 at September 30,
1996, improved significantly during 1996 from $1,129,000 at September 30,
1995. The working capital increase primarily resulted from (1) a refinancing
of long-term debt, as excess proceeds of approximately $2.35 million from new
long-term debt were used to reduce short-term borrowings and (2) the exercise
of stock purchase warrants that provided $2 million in additional equity,
proceeds of which were also used to reduce short-term borrowings. Scheduled
debt payments due in fiscal 1997 total approximately $2.1 million and
management believes that internally generated cash from operations and amounts
available on bank lines of credit will provide sufficient cash flow to cover
the scheduled debt payments as well as fund continuing working capital
requirements.
Cash flows for 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities ......... $ 1,838,000 $ 1,772,000 $ 356,000
Cash flows used in investing activities ...... (4,918,000) (494,000) (589,000)
Cash flows from (used in) financing activities 7,475,000 (1,274,000) 93,000
</TABLE>
- 11 -
<PAGE>
Cash flows from operating activities
Cash flows provided by operating activities were $1,969,000 in 1996
before changes in working capital items and discontinued operations, compared
to $2,697,000 in 1995 and $3,030,000 in 1994. Working capital items used
$290,000 in 1996, as inventories rose $1.2 million, partially offset by lower
accounts receivable and higher accrued liabilities. Inventories in 1996 rose
principally at Uniflow, largely in connection with the timing of customer
orders. In 1995, working capital items used $882,000, primarily the result of
higher accounts receivable and prepaid items, along with lower accounts
payable. In 1994, working capital items used $2,984,000, primarily associated
with higher Tooling inventories and reduced trade payables.
Cash flows used in investing activities
In 1996, the Company made capital expenditures that totaled
$5,479,100, primarily for machinery at Uniflow associated with the manufacture
of starter motor shaft parts. In this regard, the Company has committed to the
acquisition of approximately $4 million of capital equipment. The equipment is
scheduled for delivery and installation in mid 1997. In 1995, capital
expenditures were $1,359,000, principally for a refurbished hydraulic press
dedicated for airbag housing production and Form Flow's expansion of its die
repair business, which included the acquisition of a new facility and
additional grinding equipment. In 1994, capital expenditures of $908,000 were
primarily for production tooling at Uniflow and miscellaneous equipment at the
other units. The Company received $301,000 in 1996, $863,000 in 1995 and
$149,000 in 1994, from the disposals of machinery and equipment. The disposals
for all three years principally relate to the reduction of equipment base at
the Triple unit.
Cash flows from financing activities
Cash flows provided by (used in) financing activities were $7,475,000
in 1996, ($1,274,000) in 1995 and $93,000 in 1994. In 1996, the Company
completed a major debt refinancing of its existing assets and secured $7
million in industrial development bond financing to fund new equipment
purchases associated with new sales orders. The 1996 refinancing included a $5
million note with a bank finance company due in six years; a real estate
mortgage of $2.88 million due in 15 years; and a $6 million collateralized
bank line of credit, of which $4 million is a committed revolver that expires
in 1999. The refinancing provided excess cash of approximately $2.35 million,
which was used to reduce borrowings on the bank line of credit. Also in 1996,
the Company received $1.87 million and reduced accrued interest by $132,000
through the exercise of two stock warrants, which resulted in the issuance of
1 million shares of common stock. In 1996, scheduled principal debt payments
totaled $1.4 million, compared to scheduled payments of $1.7 million in 1995
and $1.3 million in 1994. Also, in 1995 the Company extinguished a $1 million
note payable in connection with the exercise of a stock warrant.
- 12 -
<PAGE>
Item 8. Financial Statements and Supplementary Data.
See Item 14(a)(1) for a list of the financial statements included in this
Form 10-K.
Refer to page 35 of this Form 10-K for the supplementary quarterly financial
data required by this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
- 13 -
<PAGE>
PART III
The information called for by the items within this part is included in
the Company's 1997 Proxy Statement, and is incorporated hereby by reference,
as follows:
<TABLE>
<CAPTION>
Caption(s) in 1997 Proxy Statement
----------------------------------
<S> <C> <C>
Item 10. Directors and Executive
Officers of Registrant............"Election of Directors";
"Executive Officers";
"Compliance with Section 16(a) of
The Securities Exchange Act"
Item 11. Executive Compensation............"Executive Compensation"
Item 12. Security Ownership of
Certain Beneficial Owners
and Management...................."Principal Stockholders"
Item 13. Certain Relationships and
Related Transactions.............."Election of Directors -- Certain
Information Regarding the
Nominees"; "Certain Transactions
-- Agreements with Manubusiness
Opportunities, Inc.,"
"Executive Compensation --
Compensation Committee Interlocks
and Insider Participation."
</TABLE>
- 14 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement Schedule.
Page
----
Independent Auditors' Report............................... 20
Consolidated Balance Sheets as of September 30, 1996
and 1995................................................ 21
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994....................... 22
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1995 and 1994........... 23
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994....................... 24
Notes to Consolidated Financial Statements................. 25
Schedule II - Valuation and Qualifying Accounts............ 36
Schedules other than those listed above are omitted because of the absence of
the conditions under which they are required or because the information called
for is included in the consolidated financial statements or the notes thereto.
(b) Reports filed on Form 8-K.
The Company filed a report on Form 8-K dated December 20, 1996 to report the
move of its corporate office to 26600 Heyn Drive, Novi, Michigan 48376-0705.
The Company filed a report on Form 8-K dated November 15, 1996 to report the
Company's acquisition of certain assets and assuming certain liabilities of
the VarityKelsey-Hayes' Milford, Michigan machining operation and its
continuing business.
(c) Exhibits. See the Exhibit Index on the following page.
- 15 -
<PAGE>
Exhibit Description Page*
- ------- ----------- -----
2.1 Asset Purchase Agreement between VarityKelsey-Hayes
Corporation and Milford Acquisition Corporation. 2.1*<F1>
3.1 Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on August 25, 1987. 3.1*<F2>
3.2 Amendment to Articles of Incorporation filed on
August 31, 1990. 3.2*<F3>
3.3 Certificate of Merger between the Company and Secom
General Corporation, a Utah corporation filed with the
Secretary of State of Delaware in December 1987. 3.2*<F2>
3.4 Certificate of Designation of Rights of the Class A
Preferred Stock filed with the Secretary of State of
Delaware in December 1987. 3.3*<F2>
3.5 Amendment to Articles of Incorporation filed on
December 17, 1991. 3.5*<F6>
3.6 Bylaws of the Company. 3.4*<F2>
4.1 List of instruments defining the right of security holders. 4.1*<F9>
4.3 Nonqualified Stock Option Agreement dated November
23, 1993 between Secom General Corporation as grantor
and Manubusiness Opportunities, Inc. as grantee. 4.2*<F9>
4.4 Proxy Agreement dated November 23, 1993 between Roy A.
McKnight, Larry McKnight, John Cocke and Manubusiness
Opportunities, Inc. 4.3*<F9>
10.1 Machined Valve Products Supply Agreement 10.1*<F10>
10.2 Amended and Restated Revolving Credit and Loan Agreement
between Secom General Corporation, Uniflow Corporation,
Miconol, Inc., L&H Die, Inc. and Form Flow, Inc. 10.2*<F10>
10.3 Master Equipment Lease Agreement between Secom General
Corporation and KeyCorp Leasing Ltd. 10.3*<F10>
10.4 Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing between Secom General Corporation
and Metlife Capital Financial Corporation 10.4*<F10>
10.5 Loan Agreement among GE Capital Public Finance, Inc.
as Lender, and Michigan Strategic Fund, as Issuer and
Secom General Corporation as Borrower dated June 1, 1996 10.5*<F10>
10.6 Loan Agreement among GE Capital Public Finance, Inc.
as Lender, and Michigan Strategic Fund, as Issuer,
and Secom General Corporation, as Borrower dated
as of Sept. 1, 1996 10.6*<F10>
10.7 1991 Nonqualified Stock Option Plan 10.27*<F5>
10.8 Form of Stock Option Agreement for Options granted
under the 1991 Non-qualified Stock Option Plan 10.28*<F5>
- 16 -
<PAGE>
10.9 Subordination Agreement dated December 15, 1993
between Larry McKnight as junior lender and
NBD Bank, N.A. as senior lender. 10.17*<F8>
* See the footnotes on page 18 to locate these exhibits.
13. Annual Report to Shareholders E-1
22. Subsidiaries of the Registrant 22*<F10>
23. Consent of Deloitte & Touche LLP E-42
27. Financial Data Schedule E-43
- ------------
<PAGE>
All exhibits that have page numbers followed by an * are incorporated by
reference from the filings set forth below. The numbers set forth as page
numbers for those exhibits are the exhibit numbers those documents were given
in those other filings. All other exhibits are included in this Form 10-K at
the page numbers shown.
* <F1> Incorporated by reference from the Company's Current Report on Form
8-K dated November 15, 1996.
* <F2> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1987.
* <F3> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1990.
* <F4> Incorporated by reference from the Company's Current Report on Form
8-K dated September 13, 1991.
* <F5> Incorporated by reference from the Company's Registration Statement
on Form S-4 (File No. 33-40865) that was declared effective on
November 20, 1991.
* <F6> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1991.
* <F7> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1992.
* <F8> Incorporated by reference from the Company's Current Report on Form
8-K dated December 15, 1993.
* <F9> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1993.
*<F10> Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SECOM GENERAL CORPORATION
Dated: February 3, 1997 By: /s/ Robert A. Clemente
-------------------------------
Robert A. Clemente
Chairman, President and CEO
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.
Signature Title Date
--------- ----- ----
Principal Executive Officer:
/s/ Robert A. Clemente
- ------------------------------ Chairman, President February 3, 1997
Robert A. Clemente CEO and Director
Principal Financial and
Accounting Officer:
/s/ David J. Marczak
- ------------------------------ Chief Financial Officer, February 3, 1997
David J. Marczak Secretary, Treasurer
and Director
/s/ Gregory Adamczyk
- ------------------------------ Director February 3, 1997
Gregory Adamczyk
/s/ Rocco Pollifrone
- ------------------------------ Director February 3, 1997
Rocco Pollifrone
/s/ Orville K. Thompson
- ------------------------------ Director February 3, 1997
Orville K. Thompson
/s/ Richard Thompson
- ------------------------------ Director February 3, 1997
Richard Thompson
- 19 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Secom General Corporation
Novi, Michigan
We have audited the accompanying consolidated balance sheets of Secom General
Corporation and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(1) of Form 10-K. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement 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 consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Secom General Corporation and
subsidiaries at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
December 23, 1996
Detroit, Michigan
- 20 -
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
- ----------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash ......................................... $ 319,600 $ 13,700
Receivables:
Trade (net of allowances of $21,000 and
$93,500) ................................ 4,130,700 4,484,800
Other ...................................... 33,200 320,600
Inventories (Note 3) ......................... 5,170,500 3,935,700
Prepaids and other ........................... 547,400 727,800
Deferred tax assets (Note 10) ................ 569,800 542,700
----------- -----------
Total current assets ................ 10,771,200 10,025,300
CASH RESTRICTED FOR EQUIPMENT (Note 12) ........ 4,089,000
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .... 17,758,600 14,583,600
INTANGIBLE ASSET (Note 1) ...................... 1,994,100 2,071,300
OTHER ASSETS ................................... 341,600 266,900
----------- -----------
TOTAL ASSETS ................................... $34,954,500 $26,947,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations
(Note 5) ................................. $ 2,121,400 $ 5,633,400
Trade accounts payable ....................... 2,856,800 2,065,500
Accrued liabilities .......................... 884,800 1,197,100
----------- -----------
Total current liabilities ........... 5,863,000 8,896,000
LONG-TERM OBLIGATIONS (Note 5) ................. 13,724,300 4,621,700
DEFERRED TAX LIABILITIES (Note 10) ............. 1,331,300 1,518,900
----------- -----------
Total liabilities ................... 20,918,600 15,036,600
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Common stock, $.10 par value, 10,000,000
shares authorized; outstanding: 1996,
5,342,200 shares; 1995, 4,276,200 shares.... 534,200 427,600
Additional paid-in capital ................... 18,457,100 16,478,900
Accumulated deficit .......................... (4,955,400) (4,996,000)
----------- -----------
Total stockholders' equity .......... 14,035,900 11,910,500
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $34,954,500 $26,947,100
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-21-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET SALES ..................................... $30,877,100 $36,276,200 $32,570,900
COST OF SALES ................................. 25,064,900 29,016,100 26,048,200
----------- ----------- -----------
GROSS PROFIT .................................. 5,812,200 7,260,100 6,522,700
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 4,920,700 5,282,300 4,801,500
----------- ----------- -----------
INCOME FROM OPERATIONS ........................ 891,500 1,977,800 1,721,200
OTHER INCOME (EXPENSE):
Interest .................................... (847,600) (1,137,800) (952,500)
Other, net .................................. 14,600 (8,400) 385,600
----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................... 58,500 831,600 1,154,300
INCOME TAX BENEFIT (EXPENSE) (Note 10) ........ (17,900) 372,700 (60,800)
----------- ----------- -----------
NET INCOME .................................... $ 40,600 $ 1,204,300 $ 1,093,500
=========== =========== ===========
NET INCOME PER COMMON SHARE ................... $ 0.01 $ 0.28 $ 0.29
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 1) .................................... 4,874,600 4,284,200 3,795,200
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-22-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- -----------------------------------------------
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994 ........................... 2,900,900 $ 290,100 $15,578,000 $(7,293,800) $ 8,574,300
Stock issued for settlement of stock guarantees .. 711,900 71,200 (85,500) (14,300)
Issuances to 401(k) plan (employer match
and employee elections) ........................ 37,700 3,800 79,400 83,200
Private placements ............................... 50,000 5,000 95,000 100,000
Net income ....................................... 1,093,500 1,093,500
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1994 ........................ 3,700,500 370,100 15,666,900 (6,200,300) 9,836,700
Exercise of stock warrant ........................ 500,000 50,000 950,000 1,000,000
Issuances to 401(k) plan (employer match
and employee elections) ........................ 42,300 4,200 79,900 84,100
Issuances for compensation ....................... 41,800 4,100 79,500 83,600
Stock repurchases, net ........................... (8,400) (800) (31,000) (31,800)
Note issued for settlement of stock guarantee .... (266,400) (266,400)
Net income ....................................... 1,204,300 1,204,300
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1995 ........................ 4,276,200 427,600 16,478,900 (4,996,000) 11,910,500
Exercise of stock warrants ....................... 1,000,000 100,000 1,900,000 2,000,000
Issuances to 401(k) plan (employer match
and employee elections) ........................ 35,700 3,600 77,600 81,200
Stock issued for note receivable ................. 25,000 2,500 35,000 37,500
Stock repurchases, net ........................... (14,300) (1,400) (32,500) (33,900)
Stock issued for settlement of stock
guarantees ..................................... 19,600 1,900 (1,900)
Net income ....................................... 40,600 40,600
--------- --------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1996 ........................ 5,342,200 $ 534,200 $18,457,100 $(4,955,400) $ 14,035,900
========= ========= =========== =========== ============
<FN>
See notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 40,600 $ 1,204,300 $ 1,093,500
Adjustments to reconcile income from
operations to net cash provided by
operations:
Depreciation and amortization ...................... 1,983,900 1,858,600 1,983,700
Provision for (benefit from) deferred taxes ........ (214,700) (521,900) 60,800
Increase (decrease) in allowance for ............... (72,500) 17,000 (228,800)
doubtful accounts
(Gain) loss on sales of assets ..................... 115,800 (319,500) 14,100
Stock issuances to 401(k) plan ..................... 32,000 64,700 107,000
Write-off of intangibles ........................... 84,200 309,700
Stock issuances for compensation ................... 83,600
Changes in assets and liabilities that
provided (used) cash, net of effects
of acquisitions and discontinued
operations:
Trade and other receivables ...................... 512,500 (298,400) (105,300)
Inventories ...................................... (1,234,800) 134,300 (1,412,200)
Prepaids and other ............................... (36,000) (193,700) 30,300
Other assets ..................................... (192,000) 78,300 (18,000)
Trade accounts payable ........................... 842,000 (491,400) (984,400)
Accrued liabilities .............................. (181,800) (111,300) (196,900)
Other liabilities ................................ (297,200)
Net cash provided by (used in) discontinued
operations ...................................... 158,600 (42,300) 309,400
----------- ----------- -----------
Net cash provided by operating activities ... 1,837,800 1,772,000 356,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property,
plant and equipment ............................... 301,000 863,000 149,300
Collections on notes receivable ...................... 259,800 2,300 20,600
Capital expenditures ................................. (5,479,100) (1,359,200) (907,900)
Net cash provided by discontinued operations ......... 149,200
----------- ----------- -----------
Net cash used in investing activities ........ (4,918,300) (493,900) (588,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit .................... (3,603,600) 210,600 44,900
Proceeds from long-term obligations and
use of restricted cash ........................... 8,205,500 273,100 2,469,400
Proceeds from refinancing of long-term obligations ... 7,887,500
Proceeds from issuances of stock ..................... 1,918,800 61,700
Payments on long-term obligations due to refinancing . (5,535,800)
Retirements of common stock .......................... (33,900) (12,500)
Payments on long-term obligations .................... (1,314,600) (1,634,000) (1,065,000)
Refund of restricted cash to bondholders ............. (700,000)
Payments on capital lease obligations ................ (48,500) (110,900) (234,400)
Net cash used in discontinued operations ............. (483,400)
----------- ----------- -----------
Net cash (used in) provided by financing
activities ............................... 7,475,400 (1,273,700) 93,200
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH .... 4,394,900 4,400 (139,600)
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD .......... 13,700 9,300 148,900
----------- ----------- -----------
CASH AND RESTRICTED CASH, END OF PERIOD ................ $ 4,408,600 $ 13,700 $ 9,300
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ............... $ 902,900 $ 1,104,800 $ 965,200
=========== =========== ===========
Cash paid during the year for income taxes ........... $ 153,600 $ 120,000
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
-24-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
- ---------------------------------------------
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business - Secom General Corporation (the "Company") is a publicly-traded
holding company with four wholly-owned subsidiaries supplying the
automotive, truck, construction and consumer markets. The Company
operates in the following two business segments:
Tooling:
Form Flow, Inc. ("Form Flow")
L&H Die, Inc. ("L&H Die")
Micanol, Inc. ("Micanol")
Metal Parts Forming:
Uniflow Corporation ("Uniflow")
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Inventories are stated at the lower of cost or market, as determined
under the first-in, first-out method.
Property, Plant and Equipment are recorded at cost. The Company
capitalizes, as additions, expenditures which extend the useful life or
increase the value of related assets. Maintenance and repairs are charged
to operating expense as incurred. Expenditures for repairs and
maintenance for the three years ended September 30, 1996 were $433,700,
$408,400 and $535,900, respectively. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Intangible Asset consisting of goodwill (cost in excess of net assets
acquired) is amortized on a straight-line basis over primarily 40 years.
The carrying value of goodwill is evaluated periodically in relation to
the operating performance of the underlying business and assets.
Management has evaluated the carrying value of the goodwill and has
determined at September 30, 1996 that remaining amounts are not impaired.
Accumulated amortization was $662,700 and $585,400 as of September 30,
1996 and 1995, respectively.
Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Earnings per Share of common stock is computed by dividing net income by
the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares consist primarily of the warrants
and options to purchase common stock outstanding during the periods
presented.
Revenue Recognition - Revenues are recognized upon completion of services
related to customer products.
-25-
<PAGE>
Significant Customer - The Company has one customer which comprises 11%
of total revenues.
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
these estimates.
New Accounting Standards - Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," was issued in March 1995. The
Statement is effective for fiscal years beginning after December 15,
1995, and requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has not yet
adopted this Statement, however, the impact of such adoption is not
expected to have a material effect on the Company's financial position or
results of operations when adopted in the 1997 fiscal year.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995. This Statement, which is effective for fiscal years
beginning after December 15, 1995, establishes financial accounting and
reporting standards for stock-based employee compensation plans. The
Company has not yet adopted this Statement, however, the impact of such
adoption is not expected to have a material effect on the Company's
financial position or results of operations when adopted in the 1997
fiscal year.
Noncash Transactions - The Company entered into the following noncash
investing and financing transactions for the following years ended
September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cancellation of accrued interest/note payable
in exchange for exercise of stock warrant.... $ 132 $1,000
Common stock issued for services or for
reduction of other obligations............... 32 148 $107
Stock issued for note receivable................ 37
Notes receivable issued for sale of Triple
Tool equipment............................... 249
Note payable issued for settlement of stock
guarantee.................................... 266
Note receivable and assumption of obligations
from sale of Tri-Tec subsidiary.............. 1,191
</TABLE>
Reclassifications - Certain amounts in the 1995 financial statements have
been reclassified to conform with the presentation for 1996.
2. DISCONTINUED AND DOWNSIZED OPERATIONS
In the quarter ended September 30, 1993, the Company adopted a formal
plan to discontinue operations of its Plastic Molded Products Segment,
Tri-Tec. In the first quarter of 1994, Tri-Tec's inventories and
machinery and equipment were sold for cash and notes receivable and the
assumption of certain capital lease obligations. At September 30, 1995
the Company was relieved as an obligor or guarantor on leases assumed by
the buyer of Tri-Tec.
-26-
<PAGE>
In the third fiscal quarter of 1995, the Company completed its downsizing
of Triple Technologies (formerly "Triple Tool") by the sale of $725,800
(net book value) of equipment and the leasing of $342,000 (net book
value) of equipment. The Company recorded a net gain of $2,500 on this
transaction after writing down goodwill in the amount of $310,000 in
connection with the downsizing. In June 1995, Triple Technologies'
remaining operations, primarily electro-diode machining (EDM), contracts
and the related equipment (net book value $341,000) were transferred to
Form Flow. For the years ended September 30, 1996, 1995, and 1994, sales
from Triple Technologies were $30,400, $1,559,000 and $2,500,000,
respectively, and operating losses were $102,000, $399,000 and $50,200,
respectively.
3. INVENTORIES
Inventories at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials ........... $ 949 $ 372
Work-in-process ......... 2,394 1,797
Finished goods .......... 1,828 1,767
------ ------
Total ................... $5,171 $3,936
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995 Life
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment ............. $ 18,192 $ 14,629 2 to 20 years
Building and improvements ........... 5,154 4,714 3 to 30 years
Land and improvements ............... 572 540 N/A
Furniture and fixtures .............. 685 478 3 to 7 years
Vehicles ............................ 168 215 3 years
Construction-in-progress and deposits 538 236 N/A
-------- --------
Total .................... 25,309 20,812
Less accumulated depreciation ....... (7,550) (6,228)
-------- --------
Total ............................... $ 17,759 $ 14,584
======== ========
</TABLE>
-27-
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations at September 30 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bank line of credit (a) ...................... $ 172 $ 3,776
Real estate mortgage notes (b) ............... 3,609 1,888
Michigan Strategic Fund Limited Obligation
Revenue Bonds (c) ......................... 6,896 2,500
Equipment term notes (d) ..................... 4,778 1,176
Other notes payable (e) ...................... 390 811
Equipment capital leases ..................... 104
-------- --------
Total ............................. 15,845 10,255
Less current obligations ..................... (2,121) (5,633)
-------- --------
Long-term obligations ........................ $ 13,724 $ 4,622
======== ========
</TABLE>
(a) In July 1996, the Company entered into an amended and restated
revolving credit and loan agreement with a bank, which is for a
three year period and permits borrowings of up to $4 million under a
revolving credit note and up to $2 million under a line of credit
note. At September 30, 1996, $172,000 was outstanding under the
revolving credit note and no amounts were outstanding under the line
of credit note. The interest is at prime or the 30 day LIBOR rate
plus 215 basis points. This agreement replaced an existing agreement
in which interest was at prime plus 1/2%. The revolving credit and
loan agreement is collateralized by accounts receivable and
inventory while borrowings are limited to stated percentages of
accounts receivable and inventory. Under each note, interest is
payable monthly and any unpaid principal is due July 1999. The
agreement prohibits the payment of cash dividends and requires the
Company to maintain specific financial covenants including minimum
tangible equity, working capital, and cash flow. The Company was in
compliance with all financial covenants at September 30, 1996.
(b) During 1996, the Company refinanced its existing mortgage loans to
obtain new mortgage loans requiring monthly installments of
principal and interest. Interest on a $2.88 million mortgage note is
8.25% per annum and is collateralized by land and buildings with a
net book value of $3,729,100, while interest on a $775,000 mortgage
note is prime and is collateralized by land and building with a net
book value of $987,200. Interest under the previous agreements was
payable at prime plus 2% per annum. These agreements mature in
fiscal 1999 and 2011. Principal payments are due as follows: 1997,
$164,600; 1998, $173,500; 1999, $183,200; 2000, $193,200; 2001,
$660,200 and thereafter, $2,234,800.
(c) In June and September 1996, the Michigan Strategic Fund sold
$3,000,000 and $4,000,000, respectively, of its Limited Obligation
Revenue Bonds and the bondholders then loaned the proceeds to the
Company for the purchase of equipment. The bonds require monthly
interest and principal payments through September 1, 2002. The Bonds
bear interest at the rates of 6.15% and 5.99%, respectively, and are
collateralized by equipment and cash with a net book value of
approximately $7,000,000. Principal payments due are as follows:
1997, $1,004,600, 1998, $1,066,500, 1999, $1,133,000, 2000,
$1,203,400, 2001, $1,278,700 and thereafter, $1,209,600. The bonds
outstanding at September 30, 1995, were repaid in their entirety
during fiscal 1996. Interest was at approximately 2% below the prime
rate.
-28-
<PAGE>
(d) The equipment term note is collateralized by equipment with a net
book value of $9,902,200. Interest rate is the 30 day LIBOR plus 215
basis points (approximately 7.55% at September 30, 1996). Principal
payments due are as follows: 1997, $691,800, 1998, $746,500, 1999,
$805,500, 2000, $868,700, 2001, $937,800 and thereafter, $727,400.
The equipment term notes outstanding at September 30, 1995 were
repaid in their entirety during fiscal 1996. Interest was at prime
rate plus 2%.
(e) Interest rates on other notes payable range from 4.9% to 12%. At
September 30, 1996, the balance includes $119,900 in trade
installment notes collateralized by specific equipment. Maturity
dates range from 1997 to 2000. Principal payments due are: 1997,
$253,400; 1998, $55,400; 1999, $68,000, and 2000, $13,100.
The prime rate at September 30, 1996 and 1995 was 8.25% and 8.75%,
respectively.
Principal payments on long-term obligations for the next five years are
as follows (in thousands):
<TABLE>
<S> <C>
1997...................... $2,121
1998...................... 2,042
1999...................... 2,190
2000...................... 2,278
2001...................... 2,877
Thereafter................ 4,165
</TABLE>
6. RELATED PARTY TRANSACTIONS
In December 1993, the Company issued a $1,000,000 subordinated note
payable, maturing December 1, 1995 and requiring payment of interest
only, at the prime rate plus 3% to Manubusiness Opportunities, Inc.
(MOI), an entity controlled by three directors of the Company. Payment of
principal was due at maturity. MOI also received warrants and options to
purchase 1.7 million shares of common stock, as follows: 500,000 shares
expiring in November 1994 with an exercise price of $2 per share, 500,000
shares expiring in November 1995 with an exercise price of $2 per share,
and 500,000 shares expiring in November 1996 with an exercise price of $3
per share and 200,000 options expiring in 1998 with an exercise price of
$2.63 per share.
In November 1994, MOI exercised its first warrant to acquire 500,000
shares of common stock in exchange for the cancellation of the $1,000,000
note. In November 1995, MOI exercised its second warrant to acquire
500,000 shares of common stock in exchange for a payment of $1,000,000.
In August 1996, MOI exercised its third and final warrant of 500,000
shares. In conjunction with this exercise, the Company reduced the
exercise price on the final warrants from $3 per share to $2 per share,
which approximated market value at the new measurement date. Upon
exercise, the Company received approximately $868,000 in cash and
canceled accrued interest due to MOI of approximately $132,000. Included
in accrued liabilities at September 30, 1995, is $125,000 of interest on
the above note payable.
7. LEASES
The Company leased one manufacturing facility under a noncancelable
operating leases. Rental expense for continuing operations was $10,500,
$36,000 and $106,000 for the years ended September 30, 1996, 1995 and
1994, respectively. During fiscal 1996, the Company purchased the leased
plant facility.
-29-
<PAGE>
Machinery and equipment includes assets under capital leases having a
total cost of $438,700 and accumulated amortization of $156,700 at
September 30, 1995. During 1996, this machinery and equipment was
purchased and the Company no longer has any equipment under capital lease
agreements.
Annual payments due under noncancelable operating leases are as follows
(in thousands):
<TABLE>
<S> <C>
1997...................... $ 45
1998...................... 45
1999...................... 45
2000...................... 45
2001...................... 45
Thereafter................ 45
------
Total..................... $ 270
======
</TABLE>
8. STOCK OPTIONS AND COMMON STOCK GUARANTEES
In 1991, the Board of Directors (the "Board") adopted a nonqualified
stock option plan (the "1991 Plan"). The 1991 Plan authorizes the Board
to grant options to purchase a maximum of 400,000 shares of common stock
to employees, at not less than the fair market value at the date of
grant. The options vest at various dates as described in the related
option agreement and expire 10 years from the date of grant. At September
30, 1996, 131,200 shares were exercisable under the Plan. Transactions
under the 1991 Plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Price
------ -----
<S> <C> <C>
Options outstanding September 30, 1994 .. 178,750 $2.62 - $3.00
Options terminated ...................... (16,250) 2.62
-------
Options outstanding September 30, 1995 .. 162,500 2.62 - 3.00
Options granted ......................... 272,000 1.94
Options terminated ...................... (58,500) 2.62 - 2.75
-------
Options outstanding September 30, 1996 .. 376,000 $1.94 - $3.00
=======
</TABLE>
During the year ended September 30, 1996, 175,000 options exercisable at
$1.94 were issued to an officer of the Company outside of the 1991 Plan.
At September 30, 1996, 17,500 of these options were exercisable and the
remaining options vest ratably over a five year period. These options
expire 10 years from the date of grant.
-30-
<PAGE>
The Company is contingently liable under stock price guarantees issued in
connection with 1991 private stock placements. Under the agreements the
holder is entitled to the shortfall between the amount realized from sale
of the shares during the guarantee period and the guaranteed price of the
share. At September 30, 1996, the Company had approximately 13,000 shares
remaining that are subject to guarantees with a maximum guarantee amount
of approximately $96,000.
9. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution 401(k) plan to which it
contributes stock on a discretionary basis. The cost of the stock
contributed to the Plan resulted in a charge to expense of $123,000,
$116,000 and $107,000 for the years ended September 30, 1996, 1995 and
1994, respectively.
10. INCOME TAXES
The provision for income taxes consists of the following for the years
ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current (expense) .............. $(232,600) $(149,200)
Deferred benefit (expense) ..... 214,700 521,900 $(60,800)
--------- --------- --------
Income tax benefit (expense) ... $ (17,900) $ 372,700 $(60,800)
========= ========= ========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30
-------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax carryforwards .... $ 272,900 $ 137,200
Tax credit carryforwards ................. 108,400 108,400
Secom net operating loss carryforward .... 45,200
Net operating loss carryforwards of
acquired companies .................... 397,700 544,500
Reserves ................................. 206,600 159,100
Other .................................... 52,900 17,000
----------- -----------
Total deferred tax assets ....... 1,038,500 1,011,400
Less valuation allowance ................... (468,700) (468,700)
----------- -----------
Net deferred tax assets ......... 569,800 542,700
Current portion ............................ 569,800 542,700
----------- -----------
Long-term portion .......................... None None
=========== ===========
Deferred tax liabilities:
Depreciation ............................. $ 462,400 $ 488,100
Book and tax basis differences from
business combinations ................. 830,100 988,200
Other .................................... 38,800 42,600
----------- -----------
Total deferred tax liabilities .. 1,331,300 1,518,900
Current portion ............................ None None
=========== ===========
Long-term portion .......................... $ 1,331,300 $ 1,518,900
=========== ===========
</TABLE>
-31-
<PAGE>
During 1996 and 1995, certain tax benefits from net operating losses and
temporary differences creating deferred tax assets have been reserved
with a valuation allowance due to their uncertainty of realization.
Remaining net operating loss carryforwards as of September 30, 1996 are
available for offset against future taxable earnings through the year
2007, subject to annual limitations as set forth in the Internal Revenue
Code.
A reconciliation of the Company's statutory income tax provision computed
on pre-tax income to the recorded income tax provision for the year ended
September 30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory income tax liability ............ $(20,200) $(283,300) $(430,000)
Change in valuation allowance ............. 766,000 30,000
Nondeductible goodwill amortization ....... (26,300) (128,000) (23,000)
Book and tax basis differences from
business combinations .................. 71,100 40,000 383,000
Nondeductible other expenses .............. (42,500) (22,000) (20,800)
-------- --------- ---------
Income tax benefit (expense) .............. $(17,900) $ 372,700 $ (60,800)
======== ========= =========
</TABLE>
11. CONTINGENCIES
The Company is involved in certain legal proceedings arising in the
normal course of business. In the opinion of management, based on the
opinion of counsel, the outcome of such litigation will not have a
material adverse effect on the Company's consolidated financial position
or results of operations.
12. CASH RESTRICTED FOR EQUIPMENT
The cash restricted for equipment was received from the Michigan
Strategic Fund bondholders (see Note 5) to purchase equipment for future
production requirements. The Company has contractually agreed to purchase
the equipment and anticipates accepting delivery of such equipment in the
1997 fiscal year.
13. SUBSEQUENT EVENT
Effective November 1, 1996, the Company acquired certain assets and
assumed certain liabilities of the Varity Kelsey-Hayes Corporation's
Milford, Michigan machining business. The acquisition was accounted for
as a purchase and the results of operations will be included in the
Company's financial statements beginning as of the acquisition date. The
unit has been renamed "Milford Manufacturing Corporation."
-32-
<PAGE>
14. SEGMENT INFORMATION
The following is the business segment information applicable to
continuing operations (in thousands):
<TABLE>
<CAPTION>
Metal Eliminations
Parts and
Forming Tooling Corporate Consolidated
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
September 30, 1996:
Net sales ............... $14,748 $18,136 $(2,007) $30,877
Income from operations .. (701) 2,093 (501) 891
Identifiable assets ..... 12,920 7,211 14,823 34,954
Depreciation and
amortization ......... 1,098 671 215 1,984
Capital expenditures .... 1,803 163 3,513 5,479
September 30, 1995:
Net sales ............... $17,630 $20,659 $(2,013) $36,276
Income from operations .. 275 2,457 (754) 1,978
Identifiable assets ..... 14,444 8,852 3,651 26,947
Depreciation and
amortization ......... 1,151 671 37 1,859
Capital expenditures .... 592 751 16 1,359
September 30, 1994:
Net sales ............... $16,052 $19,143 $(2,624) $32,571
Income from operations .. 177 3,008 (1,464) 1,721
Identifiable assets ..... 15,856 8,119 3,851 27,826
Depreciation and
amortization ......... 1,273 598 113 1,984
Capital expenditures .... 570 330 8 908
</TABLE>
******
-33-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
- ------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
--------------------------------------------------
1996 1995 1994 1993 1992
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
NET SALES ........................................ $30,877 $36,276 $32,571 $29,356 $27,574
INCOME (LOSS) FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES ............................ 58 831 1,154 (13) 295
INCOME TAX BENEFIT (EXPENSE) ..................... (17) 373 (61) (80)
------- ------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 41 1,204 1,093 (13) 215
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ............................ (3,640) 38
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE .............................. 41 1,204 1,093 (3,653) 253
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR INCOME TAXES .................... 379
------- ------- ------- ------- -------
NET INCOME (LOSS) ................................ $ 41 $ 1,204 $ 1,093 $(3,653) $ 632
======= ======= ======= ======= =======
BALANCE SHEET DATA
TOTAL ASSETS ..................................... $34,954 $26,947 $27,826 $31,291 $33,924
LONG-TERM OBLIGATIONS ............................ 13,724 4,622 7,089 7,123 10,519
STOCKHOLDERS' EQUITY ............................. 14,036 11,910 9,837 8,574 12,011
COMMON STOCK SHARES OUTSTANDING (1) .............. 5,342 4,276 3,701 2,901 2,821
EARNINGS (LOSS) PER COMMON SHARE (1):
Continuing operations .......................... $ 0.01 $ 0.28 $ 0.29 $ 0.08
Discontinued operations ........................ $ (1.27) 0.01
Change in method of accounting for income taxes. 0.14
------- ------- ------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.01 $ 0.28 $ 0.29 $ (1.27) $ 0.23
======= ======= ======= ======= =======
EQUITY PER COMMON SHARE .......................... 2.63 2.79 2.66 2.96 4.26
CURRENT RATIO .................................... 1.84 1.13 1.02 0.82 0.96
LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 0.98 0.39 0.72 0.83 0.88
<FN>
(1) Restated for the 10% stock dividends distributed in 1992.
</TABLE>
-34-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
September June March December September June March December
1996 1996 1996 1995 1995 1995 1995 1994
--------- ---- ----- -------- --------- ---- ----- --------
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............... $7,834 $8,254 $7,529 $7,260 $8,200 $9,915 $9,863 $8,298
GROSS PROFIT............ 1,139 1,806 1,494 1,373 1,566 2,338 2,193 1,163
INCOME (LOSS) BEFORE
INCOME TAXES.......... (221) 52 163 65 171 545 424 (308)
INCOME TAX BENEFIT
(EXPENSE)............. 77 (12) (61) (22) 255 80 (48) 85
------ ------ ------ ------ ------ ------ ------ ------
NET INCOME (LOSS)....... $ (144) $ 40 $ 102 $ 43 $ 426 $ 625 $ 376 $ (223)
====== ====== ====== ====== ====== ====== ====== ======
EARNINGS (LOSS) PER
COMMON SHARE--
Net income (loss)....... $(0.03) $ 0.01 $ 0.02 $ 0.01 $ 0.10 $ 0.14 $ 0.09 $(0.05)
====== ====== ====== ====== ====== ====== ====== ======
PRICE RANGE OF
COMMON STOCK:
High bid.............. $ 3.12 $ 3.44 $ 3.37 $ 3.37 $ 4.09 $ 2.50 $ 2.62 $ 3.00
Low bid............... 2.00 1.87 1.75 2.50 2.25 1.62 1.62 2.00
</TABLE>
-35-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
<TABLE>
<CAPTION>
Column B Column C Column D Column E
----------------- --------------- ------------ -----------
Balance at Charged to Cost Deductions-- Balance at
Column A Beginning of Year and Expenses Write Offs End of Year
Description
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1994 ......... $ 307,600 $ 9,400 $238,200 $ 78,800
Year ended September 30, 1995 ......... 78,800 127,500 112,800 93,500
Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000
Inventory reserve:
Year ended September 30, 1994 ......... 179,500 7,500 126,000 61,000
Year ended September 30, 1995 ......... 61,000 15,000 76,000
Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500
Deferred tax asset valuation allowance:
Year ended September 30, 1994 ......... 1,265,000 30,000 1,235,000
Year ended September 30, 1995 ......... 1,235,000 766,300 468,700
Year ended September 30, 1996 ......... 468,700 468,700
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE INFORMATION
=============================================================================
<S> <C>
Officers and Directors Transfer Agent
Robert A. Clemente, Chairman of the American Stock Transfer & Trust Co.
Board, President and CEO. 40 Wall Street
New York, New York 10005
David J. Marczak, Director, Chief
Financial Officer, Secretary and Legal Counsel
Treasurer. Nedelman Romzek
Smith & Wolf
Martin J. Eidemiller, Vice President Southfield, Michigan
- Tooling Group.
John Cocke, Vice President. Auditors
Deloitte & Touche LLP
Gregory Adamczyk, Director, is Detroit, Michigan
majority owner and a director of
Forward Planning Corp., an Market Makers
engineering firm that specializes in First of Michigan Corporation
manufacturing plant layout, design Roney & Company
and related systems. Troster Singer Corp.
Nash Weiss / Div. of Shatkin Inv.
Rocco Pollifrone, Director, is Mayer & Schweitzer, Inc.
President and CEO of Forward Wien Securities Corp.
Planning Corp., an engineering firm J. Alexander Securities Inc.
that specializes in manufacturing
plant layout, design and related Executive Offices
systems. 26600 Heyn Drive
Novi, Michigan 48376-0705
Orville K. Thompson, Director, is (810)-305-9410
owner and President of MST Steel (810)-347-9956 facsimile
Corp., a steel service center.
Subsidiaries
Richard Thompson, Director, is Form Flow, Inc.
Vice President of MST Steel 6901 Cogswell
Corp., a steel service center. Romulus, Michigan 48184
PO Box 157
38200 Ecorse Road
Romulus, Michigan 48174
Micanol, Inc.
PO Box 881
46001 Grand River Avenue
Novi, Michigan 48376
Milford Manufacturing Corporation
101 Oak Street
Milford, Michigan 48381
Uniflow Corporation
PO Box 705
26600 Heyn Drive
Novi, Michigan 48376-0705
</TABLE>
<PAGE>
[ BACK COVER ]
[ logo ] Secom General Corporation
-----------------------------------
26600 Heyn Drive - Novi, MI 48376-0705
810-305-9410 - Fax: 810-347-9956
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Secom General Corporation:
We consent to the incorporation by reference in Registration Statements
No. 33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our
report dated December 23, 1996, appearing in this Annual Report on Form 10-K
of Secom General Corporation for the year ended September 30, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 319,600
<SECURITIES> 0
<RECEIVABLES> 4,151,700
<ALLOWANCES> (21,000)
<INVENTORY> 5,170,500
<CURRENT-ASSETS> 10,771,200
<PP&E> 25,309,000
<DEPRECIATION> (7,550,400)
<TOTAL-ASSETS> 34,954,500
<CURRENT-LIABILITIES> 5,863,000
<BONDS> 0
<COMMON> 534,200
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,954,500
<SALES> 30,877,100
<TOTAL-REVENUES> 30,877,100
<CGS> 25,064,900
<TOTAL-COSTS> 29,985,600
<OTHER-EXPENSES> (14,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 847,600
<INCOME-PRETAX> 58,500
<INCOME-TAX> 17,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,600
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.00
</TABLE>
