FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
Commission file number 0-14299
SECOM GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction (IRS Employer I.D. Number)
of incorporation or organization)
26600 HEYN DRIVE 48376-0705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 810-305-9410
Indicate by check mark whether the registrant (1) has filed all reports 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
requirement for the past 90 days. Yes /X / No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of Shares Outstanding
Common Stock 5,355,200
<PAGE>
SECOM GENERAL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets......................................1
Consolidated Statement of Operations.............................3
Consolidated Statements of Cash Flows............................4
Notes to Interim Consolidated Financial Statements...............5
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations............................................9
<CAPTION>
PART II OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings....................................................13
Item 2. Changes in Securities................................................13
Item 3. Defaults in Securities...............................................13
Item 4. Submission of Matters to a Vote of Security Holders.................13
Item 5. Other Information....................................................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASSETS
MAR 31 1997 SEP 30 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 127,100 $ 319,600
Accounts receivable, net 6,996,000 4,130,700
Other receivables 185,700 33,200
Inventories 6,043,700 5,170,500
Prepaids and other 369,800 547,400
Deferred tax asset 510,800 569,800
----------- -----------
TOTAL CURRENT ASSETS 14,233,100 10,771,200
Cash restricted for equipment 2,032,600 4,089,000
Property, plant & equipment, net 25,803,300 17,758,600
Intangible asset 1,925,800 1,994,100
Other assets 869,900 341,600
----------- -----------
TOTAL ASSETS $44,864,700 $34,954,500
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MAR 31 1997 SEP 30 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term obligations $ 3,008,300 $ 2,121,400
Trade accounts payable 3,686,800 2,856,800
Accrued liabilities 1,822,400 884,800
Deferred income 583,300
------------ ------------
TOTAL CURRENT LIABILITIES 9,100,800 5,863,000
Long term obligations 20,303,000 13,724,300
Deferred tax liabilities 1,331,300 1,331,300
------------ ------------
TOTAL LIABILITIES 30,735,100 20,918,600
------------ ------------
Stockholders' equity common stock, $.10 par
value 10,000,000 shares authorized:
March 31, 1997 - 5,355,200 shares issued
September 30, 1996 - 5,342,200 shares issued 535,500 534,200
Additional paid-in capital 18,455,800 18,457,100
Accumulated deficit (4,861,700) (4,955,400)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,129,600 14,035,900
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,864,700 $ 34,954,500
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar 31 1997 Mar 31 1996 Mar 31 1997 Mar 31 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 12,987,300 $ 7,529,400 $ 22,795,900 $ 14,789,000
COST OF SALES 10,771,700 6,035,300 19,075,400 11,921,800
------------ ------------ ------------ ------------
GROSS PROFIT 2,215,600 1,494,100 3,720,500 2,867,200
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,536,600 1,196,100 2,972,300 2,342,500
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 679,000 298,000 748,200 524,700
OTHER INCOME (EXPENSE)
Interest (300,500) (179,100) (552,100) (402,200)
Other, net 300 44,300 (18,200) 105,500
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 378,800 163,200 177,900 228,000
INCOME TAX BENEFIT (EXPENSE) (151,500) (61,200) (84,000) (83,200)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 227,300 $ 102,000 $ 93,900 $ 144,800
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE $ 0.04 $ 0.02 $ 0.02 $ 0.03
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,480,400 4,820,400 5,488,500 4,669,800
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar 31 1997 Mar 31 1996 Mar 31 1997 Mar 31 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from operations $ 227,300 $ 102,000 $ 93,900 $ 144,800
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 735,300 472,800 1,384,600 983,300
Provision for (benefit from) deferred taxes 126,500 (65,800) 59,000 (43,800)
(Gain) loss on sales of assets 0 (11,500) 18,500 (11,200)
Increase (decrease) in allowance for doubtful accounts 3,000 6,000 (16,000)
Recognition of deferred income (249,900) (416,600)
Provision for defined benefit obligations 60,000 140,000
Changes in assets and liabilities that
provided (used) cash:
Accounts and other receivables (1,945,700) 52,500 (3,023,800) 729,300
Inventories 96,400 (382,000) (377,300) (443,900)
Prepaids 46,400 (93,600) 177,500 (93,600)
Other assets 54,400 6,900 22,100
Accounts payable 515,300 3,000 830,000 (117,800)
Accrued liabilities 92,000 (34,100) 715,200 (282,800)
Net cash provided by (used in) discontinued operations (9,400) 49,000
----------- ----------- ----------- -----------
Net cash provided by operating activities (239,000) 40,800 (370,900) 897,300
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property,
plant & equipment 1,500 1,900
Collections on notes receivable 2,700 225,000 5,000 229,600
Capital expenditures (2,982,900) (270,700) (4,400,800) (924,300)
Acquisition of Milford (470,000) (1,212,000)
----------- ----------- ----------- -----------
Net cash used in investing activities (3,450,200) (44,200) (5,607,800) (692,800)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit 2,090,000 96,100 4,732,300 (1,133,400)
Proceeds from long-term obligations 363,200 758,100
Proceeds from issuances of common stock 1,000,000
Retirements of common stock (20,800) (20,800)
Payments on long-term obligations (494,900) (318,500) (1,002,500) (675,700)
Payments on capital lease obligations (14,100) (36,800)
----------- ----------- ----------- -----------
Net cash provided from (used in) financing activities 1,595,100 105,900 3,729,800 (108,600)
----------- ----------- ----------- -----------
NET DECREASE IN CASH AND RESTRICTED CASH (2,094,100) 102,500 (2,248,900) 95,900
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD 4,253,800 7,100 4,408,600 13,700
----------- ----------- ----------- -----------
CASH AND RESTRICTED CASH, END OF PERIOD $ 2,159,700 $ 109,600 $ 2,159,700 $ 109,600
=========== =========== =========== ===========
OTHER CASH FLOW INFORMATION - INTEREST PAID $ 281,600 $ 181,900 $ 511,500 $ 425,700
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
General
The consolidated financial statements included herein have been prepared
by Secom General Corporation (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate so that the information presented is not misleading. In the opinion
of management, the financial statements as of March 31, 1997 reflect all
adjustments (normal recurring accruals) which are necessary to present a fair
statement of the results for the period then ended. These financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's 10-K for the
fiscal year ended September 30, 1996.
Business
The Company is a publicly traded holding company with five wholly owned
subsidiaries, aligned in three business segments:
Metal Parts Forming
o Uniflow Corporation
Tooling
o Form Flow, Inc. ("Form Flow")
o L & H Die, Inc. ("L & H Die")
o Micanol, Inc. ("Micanol")
Production Machining
o Milford Manufacturing Corporation
("Milford" - acquired Nov. 1, 1996)
Principles of consolidation
The interim consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated.
Reclassifications
Certain reclassifications have been made to the prior period balances
for comparative purposes.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Earnings (loss) per share
The earnings (loss) per share of common stock is computed by dividing
net income (loss) by the weighted average number of common shares and common
equivalent shares (primarily stock options to purchase common stock).
<PAGE>
NOTE 2. INVENTORIES
Inventories at March 31, 1997 and September 30, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Mar. 31, 1997 Sept.30, 1996
------------- -------------
<S> <C> <C>
Raw materials............................ $1,485,000 $ 948,800
Work-in-process .......................... 2,375,500 2,394,100
Finished goods ........................... 2,183,200 1,827,600
---------- ----------
$6,043,700 $5,170,500
========== ==========
</TABLE>
NOTE 3. ACQUISITION - MILFORD MANUFACTURING CORPORATION
Effective November 1, 1996, the Company acquired the operations, assets
and certain liabilities of Varity Kelsey-Hayes Corporation's ("VKH") Milford,
Michigan brake fluid valve parts machining operation. The new business was
renamed Milford Manufacturing Corporation. The acquisition was accounted for
as a purchase. The Company also entered into a five-year agreement to supply
VKH with various machined brake parts. VKH paid $1 million to the Company at
closing, in lieu of a 10% product price increase for the first year of
operation. Net cash paid to the Seller, assets acquired, liabilities assumed
and the deferred income recorded in connection with the transaction are
estimated as follows (in thousands):
<TABLE>
<S> <C>
Prepaids $ 75
Inventory and spare parts 888
Machinery and equipment 3,789
Land and buildings 1,300
------
Total $6,052
======
Net cash paid to seller $1,081
Employee benefit plan
liabilities assumed (Note 7) 3,596
Other liabilities assumed 375
Deferred income 1,000
------
Total $6,052
======
</TABLE>
Results of operations of the Milford unit have been included in the
consolidated results of operations from the date of acquisition. The
following unaudited Secom consolidated pro forma results of operation for the
year ended September 30, 1996 assume the acquisition of Milford occurred as
of October 1, 1995. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been
effective as of October 1, 1995, or which may result in the future.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Pro forma
1996
-------
<S> <C>
Net sales $42,847
Net loss 83
Net loss per common share $ 0.02
</TABLE>
<PAGE>
NOTE 4. LONG TERM OBLIGATIONS
Long term obligations principally consists of a bank revolving line of
credit (borrowing availability which is based on accounts receivable and
inventory levels), real estate mortgages, equipment term notes, industrial
revenue bonds and post-retirement health care for employees at the Company's
Milford subsidiary pursuant to a collective bargaining agreement.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1997 and September 30, 1996
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Mar. 31, 1997 Sept. 30, 1996 Life
------------- -------------- ----
<S> <C> <C> <C>
Machinery ................................................. $ 22,482 $ 18,144 2 to 20 years
Buildings and improvements ................................ 6,214 5,154 3 to 30 years
Land ...................................................... 897 572 n/a
Furniture and fixtures .................................... 872 685 5 to 7 years
Vehicles .................................................. 171 216 3 years
Construction in progress/other ............................ 3,797 538 n/a
-------- --------
Total...................................................... 34,434 25,309
Accumulated depreciation .................................. (8,631) (7,550)
-------- --------
Net property, plant and equipment ......................... $ 25,803 $ 17,759
======== ========
</TABLE>
NOTE 6. EMPLOYEE BENEFIT PLANS (MILFORD)
The Company's Milford hourly union employees have a defined benefit
pension plan, pursuant to a collective bargaining agreement. Benefits are
based on years of service and other factors. The Milford hourly pension plan
was underfunded by approximately $778,000 based on a preliminary estimate as
of October 31, 1996. The Company assumed $350,000 of the underfunded pension
obligation as part of its acquisition of Milford. The estimated funded status
of the Plan as of October 31, 1996 is as follows:
<TABLE>
<S> <C>
Projected Benefit Obligation ("PBO") $3,106,000
Market value of assets 2,328,000
----------
PBO greater than market value of assets 778,000
Less: Amount retained by Seller 428,000
----------
Net amount assumed by the Company $ 350,000
</TABLE>
Effective May 1, 1997 the Company and the Milford hourly employees
union agreed to transfer the plan assets for the active employees to a union
sponsored retirement plan whereby the Company will contribute 40 cents per
straight-time hour worked. The transfer is expected to be completed
later in the year at which time the Company anticipates contributing its
underfunded liability related to those employees assumed as part of the
purchase.
The Milford unit currently provides post-retirement health care and life
insurance benefits to eligible employees, pursuant to a collective bargaining
agreement. The Company accounts for these benefits in accordance with the
provisions of SFAS No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" ("OPEB"), which requires the accrual of such
benefits during the years the employees provide services. Net post-retirement
benefit cost includes the following components:
<TABLE>
<S> <C>
Service Cost $ 45,000
Interest cost on accumulated benefit obligation 73,000
-------
$118,000
=======
</TABLE>
<PAGE>
Benefit costs are estimated assuming retiree health care costs will
increase initially at a 7.0% annual rate, decreasing to an annual rate of
increase of 5.0%. Post-retirement health care benefits were estimated at
$3.25 million as of October 31, 1996 (acquisition date). Effective May 1,
1997, the Company negotiated an amendment to the retiree health care plan as
part of a three year agreement with the existing collective bargaining unit.
As a result of the agreement, the post-retirement health care obligation is
estimated at $1.06 million with the change in the plan to be amortized over the
estimate service life of the eligible employees. The discount rate used to
estimate the accumulated post-retirement benefit obligation was 7.25%.
Milford's policy is to fund post-retirement benefits on a pay as you go basis,
and therefore, the plan has no assets as of October 31, 1996 or March 31,
1997.
The Milford hourly union employees are also eligible to participate in a
401(k) Plan, pursuant to a collective bargaining agreement, under which the
Company contributes 35 cents per hour worked to each employee's plan account.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
This management's discussion and analysis of financial condition and
results of operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below, that could
cause results to differ materially from historical results or those
anticipated. In this report the words "expects", "anticipates", "believes",
and similar expressions identify forward-looking statements, which speak only
as to the date hereof.
The Company operates in three business segments: Metal Parts Forming,
Tooling and Production Machining. The Metal Parts Forming Segment
manufactures cold forged and cold headed parts; the Tooling Segment provides
perishable tooling for the cold heading industry; and, the Production
Machining Segment primarily manufactures brake components and other
automotive related parts.
Net sales for the quarter ended March 31, 1997 were $12,987,300
compared to $7,529,400 in the quarter ended March 31, 1996, for an increase
of 72.5%. The increase was primarily attributable to the Company's newly
acquired operation Milford unit (acquired Nov. 1, 1996) and higher sales from
the Company's Uniflow unit. The Company recorded net income of $227,300 (four
cents per share) for the quarter ended March 31, 1997, compared to net income
of $102,000 (two cents per share) in the same period of the prior year.
Effective November 1, 1996, the Company acquired the Milford,
Michigan machining operation of the VarityKelsey-Hayes Corporation ("VKH"), a
business unit of Lucas-Varity Corporation (NYSE:LAV). VKH is a leading
supplier of braking systems to the automotive sector, and the Milford
operation supplies VKH with various machined aluminum brake fluid valve
parts. The newly acquired business was renamed the Milford Manufacturing
Corporation ("Milford"). In connection with the purchase transaction, Milford
entered into a five year supply agreement with VKH covering the sale of
various machined brake parts to its various operations. Net cash of $1.1
million paid to VKH in connection with the transaction was provided from the
Company's $6 million bank lines of credit. Management expects the unit to be
profitable in fiscal 1997 with sales in excess of $11 million.
SEGMENT REVIEW
<TABLE>
<CAPTION>
Metal Parts Forming Segment
(in thousands)
Three Months Ended Six Months Ended
------------------ ------------------
3/31/97 3/31/96 3/31/97 3/31/96
---------------------------------------------------------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $4,847 100.0 $3,354 100.0 $8,803 100.0 $6,864 100.0
Gross profit 217 4.5 367 10.9 15 0.2 804 11.7
Operating expense 375 7.7 400 11.9 790 9.0 833 12.1
Operating profit (157) (3.2) (33) (1.0) (774) (8.8) (29) (0.4)
<FN>
(1) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
<PAGE>
The Metal Parts Forming Segment, comprised of Uniflow Corporation,
manufactures metal parts from tube, bar and coil, using cold forging and cold
forming techniques. Primary parts currently manufactured are suspension ball
joint housings, transmission shafts and gear housings, truck wheel studs,
airbag housings and various other cold forged/formed aftermarket and OEM
parts.
Uniflow's sales increased 44.5% in the current quarter compared to
the same period last year. The sales increase was primarily related to sales
of airbag housings, a new production part that began in August 1996.
Shipments of suspension ball joint housings and transmission parts also
increased. Management expects Uniflow's sales base to strengthen further in
the next few quarters, as initial shipments begin of new transmission parts
for an automotive customer, starter motor shafts for an automotive supplier
and various other new sales orders recently received. For the six months year
to date, Uniflow sales have increased 28.2%, up primarily due to the sale of
airbag housings and higher orders of other automotive related parts.
Uniflow's gross margin was 4.5% (as a percentage of sales) in the
current quarter, compared to 10.9% of sales in the prior year comparative
period. For the six month comparative periods, the gross margin was 0.2% and
11.7%, respectively. The comparative decreases in gross margin reflect (1)
additional costs associated with the development of new production orders and
(2) higher material, direct labor and indirect labor costs. Direct materials
and outside processing increased, due largely to a change in the sales mix,
as some products require more expensive raw material and heat treating
processes. The labor increases were principally the result of the inefficient
production. To improve Uniflow's gross margin, management is focusing on
production scheduling, job preparation (setup, tooling, etc.) as well as
continuing to analyze profit contribution by part type.
Operating expense was 7.7% in the current quarter (as a percentage of
sales), compared to 11.9% of sales in the prior comparative quarter. For the
six month comparative periods, operating expense was 9.0% and 12.1%,
respectively. The declines in operating expense as a percentage of sales
reflect the higher sales level and a reduction in administrative personnel
costs during the current quarter.
<TABLE>
<CAPTION>
Tooling Segment
(in thousands)
Three Months Ended Six Months Ended
------------------ -----------------
3/31/97 3/31/96 3/31/97 3/31/96
----------------------------------------------------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $4,722 100.0 $4,796 100.0 $9,200 100.0 $8,974 100.0
Gross profit 1,204 25.5 1,079 22.5 15 0.2 1,987 22.1
Operating expense 558 11.7 625 13.0 790 9.0 1,166 13.0
Operating profit 646 13.7 454 9.5 (774) (8.8) 821 9.1
<FN>
(1) Includes intercompany activity
(2) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
The Tooling Segment ("Tooling"), comprised of Form Flow, L & H Die
and Micanol, manufactures production tooling for the cold heading/forming
industry.
Tooling sales decreased 1.5% in the current quarter compared to the
same quarter last year, while for the six month comparative period sales
increased 2.5%. Although shipments were flat for the three Tooling units
during the quarter and year to date comparative periods, management believes
that Tooling sales will increase moderately for the remainder of the fiscal
year.
Tooling gross profit as a percentage of sales for the current quarter
was 25.5%, compared to 22.5% in the prior comparative quarter. For the six
month comparative periods, gross profit was 26.2%
<PAGE>
and 22.1%, respectively. The increases in gross profit for the comparable
periods were primarily attributable to improved production efficiencies at
the Micanol and L&H units.
Tooling operating expense remained relatively stable for the
comparative periods presented, as in the current quarter, operating expense
as a percentage of sales was 11.8% compared to 13% in the same prior year
quarter. For the six month year to date comparative periods, operating
expense was 12.1% of sales and 13% of sales, respectively.
<TABLE>
<CAPTION>
Production Machining Segment
(In thousands)
Three Months Ended Six Months Ended
------------------------------- --------------------------------
3/31/97 3/31/96 3/31/97 3/31/96
---------------------------------------------------------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C>
Net Sales $3,797 100.0 $5,561 100.0
Gross profit 682 18.0 1,030 11.2
Operating expense 366 9.6 585 6.4
Operating profit 316 8.3 445 4.8
<FN>
(1) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
The Production Machining Segment is comprised of the Company's
Milford subsidiary (acquired Nov. 1, 1996). Milford primarily machines
aluminum brake fluid valve parts used in automotive braking systems.
Management expects the unit to be profitable in fiscal 1997 with
sales in excess of $11 million. Management's primary focus since the
acquisition is to improve manufacturing efficiencies and reduce production
costs so that it can remain competitive in the areas that it competes. The
Milford unit is also seeking additional business within the assembly and
machining of braking system parts, as well as other machined parts.
Corporate Overhead, Interest Expense and Federal Income Taxes
Unallocated corporate overhead was $265,100 in the current quarter,
compared to $173,100 in the same period of the prior year. For the six month
comparative periods, corporate overhead was $498,500 compared to $349,300 in
the prior year. The increases for the comparative periods were principally
due to higher building depreciation/amortization expense and increased legal
expense.
Interest expense for the current quarter was $300,500 compared to
$179,100 in the same prior year period. For the six month comparative
periods, interest expense was $552,100 and 402,200, respectively. The higher
interest expense reflects increased long-term borrowing for new equipment and
machinery associated with new sales orders and the acquisition of Milford.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities, before changes in working
capital items, was $902,200 in the quarter ended March 31, 1997, while
working capital changes used $1,141,200 of cash, for a net use of cash from
operating activities of $239,000. The working capital use of cash was
primarily due to the normal buildup of accounts receivable associated with
the Company's newly acquired Milford unit. The current quarter reflected
increased accounts receivable of $1.09 million generated from Milford;
decreased Milford inventories of $74,000: and increased Milford accounts
payable and other liabilities that totaled $349,000. In the prior year
quarter, net cash provided by operating activities, before changes in working
capital items, was $497,500. Working capital changes used $456,700 in cash,
resulting in net cash provided by operations of $40,800.
<PAGE>
For the six months ended March 31, 1997, net cash provided by
operating activities, before changes in working capital items, was
$1,285,400, while working capital items used $1,656,300 in cash for net use
of cash from operations of $370,900. The working capital items using cash were
primarily increased accounts receivable at the Milford unit, offset by
increased accounts payable and accrued liabilities at Milford. In the prior
year period, net cash from operating activities was $1,057,100, while working
capital items used $159,800, for net cash flow from operations of $897,300. In
the prior year period, accounts receivable increased, offset by decreased
inventories and increased accounts payable and accrued liabilities.
Net cash used in investing activities was $3.45 million in the current
quarter, of which $2.98 million was for machinery and equipment (including
progress payments) related to new sales orders, while $470,000 related to the
acquisition of Milford. In the same prior year quarter, net cash used in
investing activities was $44,200. For the six month period ended March 31,
1997, net cash used in investing activities was $5.6 million, of which $4.4
million related to new equipment and $1.2 million related to the acquisition
of Milford. In the prior year six month period, capital expenditures were
$924,300, relating primarily to the purchase and refurbishing of a forging
press at Uniflow and, the acquisition of a plant facility adjacent to Form
Flow for expansion of its die repair business.
Net cash provided by financing activities was $1.6 million in the
current quarter, of which $2.09 million was provided by increased borrowing
on the Company's bank revolving line of credit, offset by scheduled principal
payments of $494,900. Cash provided by the bank revolver was principally used
to fund the acquisition of Milford, working capital requirements to fund the
Milford operation and progress payments on machinery and equipment orders. In
the prior year comparative quarter, the Company received proceeds of $363,200
from long-term financing, offset by payments on long-term debt of $318,500.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults in Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Form 8-K/A re: " Milford Manufacturing Corporation Acquisition",
filed on January 15, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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
(Registrant)
By: /s/ Robert A. Clemente May 14, 1997
------------------------------
Robert A. Clemente
Chairman, President and CEO
By: /s/ David J. Marczak May 14, 1997
------------------------------
David J. Marczak
Chief Financial Officer
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