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, 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 of (IRS Employer Identification No.)
incorporation or organization)
46035 GRAND RIVER AVENUE, NOVI, 48374
MICHIGAN (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (248) 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 19, 1997, 5,340,400 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 $9,345,700.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of 10-K into
Document which it is incorporated
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<S> <C>
Proxy Statement for Annual Part III
Meeting to be held in March 1998
</TABLE>
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TABLE OF CONTENTS
PART I
Page
Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 18
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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
Production Machining Segment:
* Milford Manufacturing Corporation ("Milford") acquired November 1996
The Company's corporate address is 46035 Grand River Drive, Novi,
Michigan 48374; its telephone number is (248) 305-9410 and its facsimile
number is (248) 347-2829.
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.
FORWARD-LOOKING STATEMENTS
Statements herein concerning expectations for the future constitute
forward-looking statements within the meaning of the Securities Exchange Act
of 1934 and are subject to a number of known and unknown risks, uncertainties
and other factors which might cause actual results to differ materially from
those expressed or implied by such forward-looking statements. Long term
growth of the Company may be affected by changes in the automotive, trucking
and construction industries, relations with various collective bargaining
unit employees, general economic trends (including inflation and
unemployment rates), interest rates, and the availability and cost of
financing.
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Long-term profitability will be dependent on management's ability to
control its costs of operations for its respective areas of base sales,
thereby providing adequate margins to maintain and expand its various
businesses.
Forward-looking statements herein include, but are not limited to,
those concerning anticipated growth in sales and profitability, greater than
expected declines in sales, inability to secure additional sources of working
capital if and when needed, the ability to obtain price concessions if and
when needed, and inability to manage growth.
PRINCIPAL CUSTOMERS, BACKLOG AND SEASONALITY
In 1997, VarityKelsey-Hayes ("VKH"), one of the Company's customers,
accounted for 25% of the Company's consolidated revenues. The Company entered
into a five-year supply agreement with VKH, concurrent with the execution of
its agreement to acquire the Milford operation from VKH.
Customer releases generally cover a period of three months or less.
Because the Company receives successive customer releases of products which
are subject to continual change in the short-term, management believes that
its backlog is not a relevant indicator of the level of its present or future
sales. Sales of the Company's parts, tooling and services are not considered
seasonal.
METAL PARTS FORMING SEGMENT
GENERAL
The Metal Parts Forming Segment is comprised of the 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 CNC lathes, threadrolling and piercing equipment.
SALES AND COMPETITION
Uniflow's fiscal 1997 sales were comprised as follows: 27% wheel studs
for heavy and light duty trucks (original equipment manufacturers or "OEM"
and service part manufacturers or "aftermarket"); 23% transmission gear
housings and component shaft parts; 22% automobile ball joint suspension
housings (OEM and aftermarket); and 27% miscellaneous cold headed and
cold forged parts (OEM).
Competition within the cold forging and forming business varies with
each product line and customer volume requirements. Generally, Uniflow
specializes in smaller volumes, although it supplies higher volume OEM part
requirements as well. Competitors are numerous in each segment and include
companies such as Mascotech and Colfor.
Uniflow's sales are concentrated with a few customers, as five customers
comprised 57% of revenue for the fiscal year ended September 30, 1997. 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 could be adversely affected. Uniflow's sales
backlog usually covers a period of approximately three months of work; actual
sales vary with final release instructions from customers.
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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.
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 16 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 as well as continuing support for
production operations.
EMPLOYEES
As of September 30, 1997, Uniflow employed a total of 189 full-time
employees compared to 170 in the prior year, as follows: 173 direct and
indirect labor (including factory floor supervision), 7 engineering, 2 sales,
4 office and 3 management.
TOOLING SEGMENT
GENERAL
The Company's Tooling Segment ("Tooling Operation" or "Tooling Unit")
is comprised of Form Flow, L & H and Micanol. In May 1995, the Company
significantly reduced the size of one of its Tooling operation subsidiaries,
Triple Technologies, Inc. ("Triple") 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.
The Tooling Operation manufactures 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 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.
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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.
Tool orders (without design services) typically can take 4 to 10 weeks to
complete, while 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, automotive parts, tubing, consumer items, munitions
and a wide array of OEM assembly parts. The Tooling Unit's customers include
OEM and aftermarket suppliers and are predominantly 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. Generally, independent competitors are smaller companies ranging
in size from 10 employees to up to 100 employees. The Tooling Segment also
competes with its customers internal tooling capabilities, as customers
typically have their own tool facilities to support production. Management
believes consistent success is dependent principally on tool quality and
durability, on-time delivery and 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 tool drawings. 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.
EMPLOYEES
As of September 30, 1997, the Tooling Segment employed a total of 155
full-time employees compared to 158 in the prior year, as follows: 130 direct
and indirect labor (including factory floor supervision), 5 engineering, 3
sales, 11 office and 6 management.
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PRODUCTION MACHINING SEGMENT
GENERAL
The Company's Production Machining Segment is comprised of the Company's
Milford unit (acquired November 1, 1996). Milford primarily manufactures
various machined brake parts, although late in fiscal 1997 it began
production of machined starter motor shafts for an automotive parts supplier.
Parts are generally fabricated in one of five major machining areas.
Production cycle time is generally two to four days.
SALES AND COMPETITION
Milford's sales for fiscal 1997 were comprised as follows: 95% the
sale of machined brake parts to one customer, VKH, with starter motor shafts
and miscellaneous parts comprising the remainder. In 1998, the sales mix is
anticipated to change to approximately 85% - machined brake parts, with
projected increases in sales of starter motor shafts.
Milford operates in a highly competitive market, with numerous
competitors involved in the machining of aluminum brake parts. Also,
customers can be potential competitors, as they usually have the capital,
engineering and manufacturing resources in place to make the same type of
parts supplied by Milford. Generally, the machining of brake parts requires
expensive single purpose machines, designed to complete the unique machining
requirements of each respective major family of similar parts. As a result of
the required level of investment in capital equipment by a supplier, longer
customer purchase order commitments are common. Purchase order contracts
typically span from one to five years or more. Actual part quantity releases
from customers are ultimately dependent on end sales of specific automobile
models that use parts supplied by Milford.
MANUFACTURING AND ENGINEERING
Milford predominantly manufactures various brake component parts made
from aluminum. The parts are used in braking system assemblies for sale to
various automotive companies. Milford manufactures three major variations of
brake fluid parts. Within each major valve type there are a few part
variations. The three major part types are manufactured on dedicated groups
of machinery. In January 1998 management anticipates commencing production on
a fourth major variation of aluminum fluid brake valve component for VKH.
This part will be manufactured on a newly installed rotary dial-machining
center.
Brake parts are saw cut from extruded aluminum bars into blanks and
routed through one of five major machining areas that are configured to
machine and drill the cut blanks to certain specifications. After the
machining operation is complete, parts are washed and deburred and then
plated by an outside processor. Parts return to the plant for final
inspection and shipment to the customer.
In addition, another line is set up to machine and fabricate starter
motor shafts. This line includes CNC machining, heat treating, grinding and
drilling. The Company's Uniflow unit supplies the formed starter motor shaft
blanks for machining and fabrication
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at Milford. Parts are coated and shipped to the customer by an outside coating
supplier.
The Company employs a small engineering and quality assurance staff to
support continuing production.
EMPLOYEES
As of September 30, 1997, Milford employed a total of 123, as follows:
103 direct and indirect, 4 engineering, 6 management and 10 office
administration.
ITEM 2. PROPERTIES
The Company's corporate offices are located at 46035 Grand River 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. 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 (248) 347-1230.
4) Uniflow is located in three buildings on approximately eight acres of
land in Novi, Michigan: (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 (248)
348-9370.
5) Milford is located in an 81,500 square foot building on 6.6 acres of
land at 101 Oak St., Milford, Michigan 48381. Its telephone number
is (248) 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.
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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.
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>
Quarter Ended High Trade Low Trade
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<S> <C> <C>
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
12/31/96 3.06 2.50
3/31/97 3.31 2.19
6/30/97 2.94 2.00
9/30/97 2.69 2.19
</TABLE>
On September 30, 1997 there were approximately 1,000 nominees/persons of
record that held the Company's common stock. Of those listed of record,
approximately 2.4 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, various bank
loan agreements prohibit the payment of cash dividends without written
consent from the lender(s).
ITEM 6. SELECTED FINANCIAL DATA
See page 44 for selected financial data as of September 30, 1997,
1996, 1995, 1994, and 1993 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.
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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
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 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's 1997 sales were $47.8 million and net income was
$309,000 (six cents per share), compared to 1996 sales of $30.9 million and
net income of $41,000 (one cent per share). The increase in sales and net
income was due to results from Milford Manufacturing Corporation ("Milford"),
which was acquired effective November 1, 1996. The Tooling Segment posted
another solid year of profitability, while the Metal Forming Segment
struggled with another year of operating losses (see segment review below).
During 1997 the Company began shipments of parts for two major
programs: starter motor shafts for an automotive supplier and transmission
shafts for an automotive company. These two programs required the acquisition
of substantial new equipment, which was primarily financed by $7 million in
industrial development revenue bonds sold in 1996. The transmission shaft
program involves part forging and machining by Uniflow. The starter motor
shaft program involves value added manufacturing from Uniflow, for its parts
forming capability, and Milford, which completes extensive machining of the
part.
The Company did not realize any significant contribution to sales
and profitability from these programs in 1997, because production did not
commence until the fourth quarter. Subsequent to year-end, the Company has
experienced problems in achieving cycle times anticipated within its
machining production line for the manufacture of starter motor shafts.
Although efficiency improvements continue to be made, it is unclear how long
it will take to bring this product to profitability.
The Company's cash flow from operations and availability from lines
of credit was adequate to fund operations as well as various new programs and
initiatives. The Company's ability to meet ongoing debt obligations in the
next year will be dependent, in part, on improvements in cash from
operations, as availability on the lines of credit are significantly less.
Making this matter more critical, subsequent to the year ended September 30,
1997, Milford's monthly operating results have significantly declined.
Management is currently in discussions with Milford's primary customer to
explore alternatives to turnaround this situation. Management is also
evaluating the prospects of disposing underperforming assets, within its
three business segments, to generate cash and reduce debt.
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RESULTS OF OPERATIONS
METAL PARTS FORMING SEGMENT
Chart of three-year comparative operating results (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales $18,930 100.0 $14,748 100.0 $17,630 100.0
Gross Profit 331 1.8 1,197 8.1 2,226 12.6
Operating Expense 1,726 9.1 1,898 12.9 1,951 11.1
Operating Profit (loss)1 (1,395) (7.4) (701) (4.8) 275 1.6
<FN>
1 Before interest, bad debt and corporate overhead expense.
</TABLE>
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 increased 28% in 1997 from 1996 and decreased 16.3% in 1996
from 1995. The sales increase in 1997 from 1996 primarily reflects higher
sales of airbag housings, starter motor shafts and transmission shafts.
Uniflow's existing business of suspension housings, transmission shafts and
wheel studs also increased 15% in 1997 over 1996. The Company has decided
to discontinue the manufacture of airbag housings due, in part, to the
continuing investment required to achieve additional sales in relation to
potential profit margins from those sales. Management is reviewing all of its
sales with the objective of retaining only profitable product lines that will
also allow for more efficient production through improved utilization of
direct and indirect labor.
Gross profit on sales was 1.8% in 1997, 8.1% in 1996 and 12.6% in
1995. The 1997 decline in gross profit reflects costs associated with the
start up of two new programs (transmission parts and starter motor shafts),
lower production efficiency and higher indirect labor expense. Efforts for
the prior three years, aimed at improving Uniflow's gross profit, have been
disappointing. Management is currently evaluating the merits of streamlining
Uniflow's operations in order to reduce its cost of manufacturing. Management
remains committed to achieving
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compliance with the quality standard "QS 9000", as well as the implementation
of a computerized information system that will provide on-line shop floor
production and financial data.
Operating expense as a percentage of sales was 9.1% in 1997, 12.9% in
1996 and 11.1% in 1995. The percentage fluctuation was largely due to the
varying sales level. Actual operating overhead expense in 1997 was $1.7
million, down from $1.9 million in 1996 and $2.0 million in 1995. The decrease
in 1997 from 1996 primarily reflects lower personnel expense.
Uniflow's profit (loss) from operations was ($1.4 million) (-7.4% of
sales), ($701,000) (-4.8% of sales) in 1996, $275,000 (1.6% of sales) in
1995. The increase in loss in 1997 from 1996 is the result of increased
factory costs associated with developing new jobs for production as well as
reduced production efficiency on Uniflow's traditional business. The profit
decrease in 1996 from 1995 reflects the lower sales volume and higher costs
of production.
TOOLING SEGMENT
Chart of three-year comparable operating results (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales1 $18,474 100.0 $18,166 100.0 $20,659 100.0
Gross Profit 4,879 26.4 4,317 23.8 4,902 23.7
Operating Expense 2,292 12.4 2,325 12.8 2,445 11.8
Operating Profit 2,587 14.0 1,992 11.0 2,457 11.9
<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 were flat in 1997, increasing by 1.7% over 1996, while in
1996 sales decreased 12.1% compared to 1995, primarily due to the downsizing
of Triple Tool in late fiscal 1995.
Although sales grew only 1.7%, gross profit on sales improved to
26.4% in 1997, compared to 23.8% in 1996 and 23.7% in 1995. The 1997 gross
profit percentage increased as management was able to control shop floor
labor and related support expense as well as
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concentrate on tooling sales orders that complement its particular skilled
labor and machining capabilities.
Operating expense (as a percentage of sales) has remained steady for
the periods shown, and was 12.4% in 1997, 12.8% in 1996, and 11.8% in 1995.
The Tooling Segment's operating profit was $2.6 million (14.0% of
sales in 1997) $2.0 million (11.0% of sales) in 1996, and $2.5 million (11.9%
of sales) in 1995. The increase in operating profit in 1997 over 1996
primarily reflects the improved gross profit on sales. The decline in gross
profit in 1996 compared to 1995 reflected lower profitability at Form Flow, L
& H and Micanol.
PRODUCTION MACHINING SEGMENT
Chart of 1997 operating results (in thousands):
<TABLE>
<CAPTION>
1997 1
----------------
AMOUNT %
------ -----
<S> <C> <C>
Net Sales $12,718 100.0
Gross Profit 2,168 17.0
Operating Expense 1,287 10.1
Operating Profit 881 6.9
<FN>
1 For the eleven months ended September 30, 1997, as the Production Machining
Segment is comprised of Milford, acquired November 1, 1996.
</TABLE>
Sales in 1997 were strong among all three major variations of brake
valve parts supplied to the Unit's primary customer, VKH. The sales strength
was largely related to the recent market popularity of "two-wheel"
anti-lock braking systems in automobile sales. Two of the three existing
brake valve parts are assembled in two-wheel anti-lock assemblies. For the
period beginning November 1, 1996 through October 31,1997, the Unit received
product pricing 10% above the agreed upon product pricing schedule. Beginning
November 1, 1997, pricing reverted to the original pricing schedule.
The Unit's gross profit was 17.0% for the entire year, however that
margin declined markedly in the fourth fiscal quarter. This decline continued
into the first quarter of fiscal 1998 and is due largely to higher release
schedules from its principal customer, causing additional overtime and
outside processing costs, inadequate machinery repair and maintenance,
insufficient tool engineering support management, and resources diverted to
the start-up of two major lines of parts
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manufacturing. Remedial programs are currently in progress to fix the
machinery and tooling that is in disrepair or not fully functional.
Management believes that it could take up to six months to complete the
necessary repairs and related remedial actions. In addition, management may
request a product pricing adjustment from its primary customer although there
are no assurances that one would be given.
Operating expense, 10.1% of sales, increased during the year, as
management filled quality assurance and engineering positions it believes are
necessary to run a successful operation. Management expects this expense
percentage to be fairly consistent in 1998.
Operating profit was 6.9% of sales for fiscal 1997, however, operating
profit trended downward during the last quarter of the fiscal year due to
inadequate repair, maintenance and tooling programs as well as resources
dedicated to the start up of two new part manufacturing programs. In addition
to improving production, management is considering a repricing of certain parts.
Management anticipates that Milford's ongoing operating loss situation will
be resolved in the quarter ending March 31, 1998 through price adjustments
and improvements in operations.
Corporate Expenses
Unallocated corporate overhead was $1,141,000 in 1997, $712,000 in
1996, and $858,000 in 1995.
The increase in 1997 expense reflects additional administrative and
personnel expense, primarily related to the establishment of new computer
systems, higher amortization related to the financing completed mid-1996 and
higher professional fee expense.
Interest Expense, Miscellaneous Income and Income Taxes
Interest expense was $1.3 million in 1997, $848,000 in 1996, and $1.1
million in 1995. The increase in interest expense in 1997 compared to 1996
resulted from higher term debt to finance equipment and higher line of credit
borrowings used for working capital. The decline in interest expense in 1996
from 1995 resulted from lower average borrowings and lower average interest
rates for the year.
Other income (expense) was negligible for the periods presented;
$(46,000) in 1997, and $15,000 in 1996, and ($8,000) in 1995.
Income tax expense (benefit) was $227,000 in 1997, $18,000 in 1996,
and ($373,000) in 1995. The higher income tax expense reflects the federal
statutory rates adjusted for permanent differences between financial carrying
amounts and tax carrying amounts. The income tax benefit in 1995 was the
result of the utilization of net operating loss
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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 improved to $5.7 million at
September 30, 1997, from $4.9 million at September 30, 1996 and from $1.1
million at September 30, 1995. The increase in working capital in 1997
compared to 1996 was attributable to the addition of the Milford operation.
The increase in working capital in 1996 from 1995 primarily resulted from (1)
a refinancing of long-term debt, as excess proceeds of approximately $2.4
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 1998 total approximately
$2.5 million and management believes that internally generated cash from
operations, amounts available on bank lines of credit and proceeds from
possible dispositions of underperforming assets will provide sufficient cash
flow to cover the scheduled debt payments as well as fund continuing working
capital requirements.
Cash flows for 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities $ 1,423,000 $1,838,000 $1,772,000
Cash flows used in investing activities (10,214,000) (4,918,000) (494,000)
Cash flows from (used in) financing activities 5,255,000 7,475,000 (1,274,000)
</TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities before changes in working
capital items and discontinued operations were $3.5 million in 1997, $2.0
million in 1996, and $2.7 million in 1995. Working capital items used $2.1
million in 1997, as accounts receivable were established at Milford,
partially offset by the establishment of normal accounts payables at Milford.
In 1996, working capital items used $131,000, as inventories rose $1.2
million, partially offset by lower accounts receivable and higher accrued
liabilities. In 1995, working capital items used $925,000, primarily the
result of higher accounts receivable and prepaid items and lower accounts
payable.
-16-
<PAGE>
CASH FLOWS USED IN INVESTING ACTIVITIES
In 1997, capital expenditures totaled $8.0 million. These
expenditures primarily relate to equipment acquired to machine starter motor
shafts for an automotive parts supplier, which represents a new line of
manufacturing for the Company. The new line, which consists of machining,
heat treating, grinding and drilling, is located at the Milford operation.
Also in 1997, the Milford acquisition transaction (November 1, 1996) used
$2.3 million in cash and received $1 million in lieu of product price
increases. In 1996, capital expenditures totaled $5.5 million primarily for
the manufacture of additional transmission component parts for sale to an
automotive customer. In 1995, capital expenditures were $1.4 million,
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. The Company received $42,000 in 1997, $301,000 in 1996, and
$863,000 in 1995 from the disposals of machinery and equipment. Disposals in
1997 were negligible, while in 1996 and 1995 the reductions principally
reflect the downsizing of the Triple unit.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows provided by (used in) financing activities were $5.3
million in 1997, $7.5 million in 1996, and ($1.3 million) in 1995. In 1997,
proceeds from the Company's bank revolving line of credit provided $4.8
million in cash to provide working capital requirements and short-term
financing related to various capital projects. Also in 1997, $2.6 million in
term debt financing was principally utilized to finance existing machinery at
Milford, computers in all business segments and machinery at Uniflow. 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 $2.9 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. Also in 1996, the Company received $1.9
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 1997, scheduled principal debt payments totaled $2.1 million,
compared to scheduled payments of $1.3 million in 1996 and $1.6 million in
1995. Also, in 1995 the Company extinguished a $1 million note payable in
connection with the exercise of a stock warrant.
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 43 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.
-17-
<PAGE>
PART III
The information called for by the items within this part is included in
the Company's 1998 Proxy Statement, and is incorporated hereby by reference,
as follows:
Caption(s) in 1998 Proxy Statement
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"; "Security
Ownership of Management"
Item 13. Certain Relationships and
Related Transactions......"Election of Directors -- Certain
Information Regarding the
Nominees"; "Certain Relationships and
Related Transactions"
"Executive Compensation --
Compensation Committee Interlocks
and Insider Participation."
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............................... 25
Consolidated Balance Sheets as of September 30, 1997
and 1996................................................ 26
Consolidated Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995....................... 27
-18-
<PAGE>
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1997, 1996 and 1995........... 28
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995....................... 29
Notes to Consolidated Financial Statements................. 30
Schedule II - Valuation and Qualifying Accounts............ 42
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 17, 1997 to report the
change in its corporate address to 46035 Grand River Avenue, Novi, Michigan
48374.
(c) Exhibits. See the Exhibit Index on the following page.
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Description Page*
- ------- ----------- -----
2.1 Asset Purchase Agreement between VarityKelsey-Hayes
Corporation and Milford Acquisition Corporation. 2.1*(1)
3.1 Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on August 25, 1987. 3.1*(2)
3.2 Amendment to Articles of Incorporation filed on
August 31, 1990. 3.2*(3)
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*(2)
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*(2)
3.5 Amendment to Articles of Incorporation filed on
December 17, 1991. 3.5*(6)
3.6 Bylaws of the Company. 3.4*(2)
4.1 List of instruments defining the right of security holders. 4.1*(9)
4.3 Nonqualified Stock Option Agreement dated November 23,
1993 between Secom General Corporation as grantor
and Manubusiness Opportunities, Inc. as grantee. 4.2*(9)
10.1 Machined Valve Products Supply Agreement. 10.1*(10)
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*(10)
10.3 Master Equipment Lease Agreement between Secom General
Corporation and KeyCorp Leasing Ltd. 10.3*(10)
10.4 Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing between Secom General Corporation
and Metlife Capital Financial Corporation. 10.4*(10)
- ---------
* See the footnotes on page 22 to locate these Exhibits.
-20-
<PAGE>
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*(10)
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*(10)
10.7 1991 Nonqualified Stock Option Plan. 10.27*(5)
10.8 Form of Stock Option Agreement for Options granted
under the 1991 Non-qualified Stock Option Plan. 10.28*(5)
10.9 Subordination Agreement dated December 15, 1993 between
Larry McKnight as junior lender and NBD Bank, N.A. as
senior lender. 10.17*(8)
10.10 Promissory Note and Security Agreement with Old Kent Bank
dated August 22, 1997, as amended, relating to Milford
Manufacturing Machinery and Equipment E-1
13. 1997 Annual Report and Form 10-K
22. Subsidiaries of the Registrant 22*(10)
23. Consent of Deloitte & Touche LLP E-7
27. Financial Data Schedule
- ---------
* See the footnotes on page 22 to locate these Exhibits.
-21-
<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.
* (1) Incorporated by reference from the Company's Current Report on
Form 8-K dated November 15, 1996.
* (2) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1987.
* (3) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1990.
* (4) Incorporated by reference from the Company's Current Report on
Form 8-K dated September 13, 1991.
* (5) 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.
* (6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1991.
* (7) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1992.
* (8) Incorporated by reference from the Company's Current Report on Form
8-K dated December 15, 1993.
* (9) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1993.
*(10) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
-22-
<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
By:/s/ Robert A. Clemente
----------------------
Dated: December 23, 1997 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 CEO December 23, 1997
- --------------------- and Director
Robert A. Clemente
Principal Financial and
Accounting Officer:
/s/ David J. Marczak Chief Financial Officer, December 23, 1997
- ------------------- Secretary, Treasurer and
David J. Marczak Director
/s/ Orville K. Thompson Director December 23, 1997
- -----------------------
Orville K. Thompson
/s/ Richard Thompson Director December 23, 1997
- --------------------
Richard Thompson
/s/ Gregory Adamczyk Director December 23, 1997
- -------------------
Gregory Adamczyk
/s/ Rocco Pollifrone Director December 23, 1997
- --------------------
Rocco Pollifrone
-23-
<PAGE>
- -----------------------------------------------------------------------------
Secom General Corporation
and Subsidiaries
Consolidated Balance Sheets
as of September 30, 1997 and 1996, and the
Related Consolidated Statements of Operations,
Stockholders' Equity, and Cash Flows for
Each of the Three Years in the Period Ended
September 30, 1997,
and Independent Auditors' Report
-24-
<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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(1) of Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1997, 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 5, 1997
-25-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
- ----------------------------
ASSETS 1997 1996
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash ......................................................... $ 346,800 $ 319,600
Receivables:
Trade (net of allowances of $52,800 and $21,000) ........... 6,772,100 4,130,700
Other ...................................................... 222,200 33,200
Inventories (Note 4) ......................................... 6,136,900 5,170,500
Prepaids and other ........................................... 465,900 547,400
Deferred tax assets (Note 11) ................................ 651,000 569,800
------------ ------------
Total current assets ................................ 14,594,900 10,771,200
CASH RESTRICTED FOR EQUIPMENT (Note 13) 526,500 4,089,000
PROPERTY, PLANT AND EQUIPMENT, NET (Note 5) 28,002,300 17,758,600
INTANGIBLE ASSETS (Note 1) ..................................... 1,857,800 1,994,100
OTHER ASSETS ................................................... 1,226,800 341,600
------------ ------------
TOTAL ASSETS ................................................... $ 46,208,300 $ 34,954,500
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations (Note 6) ......... $ 3,435,500 $ 2,121,400
Trade accounts payable ....................................... 3,678,700 2,856,800
Accrued liabilities:
Accrued wages and benefits ................................. 1,338,200 494,400
Accrued other .............................................. 453,500 390,400
------------ ------------
Total current liabilities ........................... 8,905,900 5,863,000
LONG-TERM DEBT OBLIGATIONS (Note 6) ............................ 17,710,600 13,724,300
POST RETIREMENT HEALTH CARE BENEFITS (Note 10) ................. 3,396,100
OTHER LIABILITIES (Note 9) ..................................... 485,100
DEFERRED TAX LIABILITIES (Note 11) ............................. 1,411,000 1,331,300
------------ ------------
Total liabilities ................................... 31,908,700 20,918,600
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Common stock, $.10 par value, 10,000,000 shares authorized;
outstanding: 1997, 5,340,400 shares; 1996, 5,342,200 shares 534,000 534,200
Additional paid-in capital ................................... 18,412,400 18,457,100
Accumulated deficit .......................................... (4,646,800) (4,955,400)
------------ ------------
Total stockholders' equity .......................... 14,299,600 14,035,900
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $ 46,208,300 $ 34,954,500
============ ============
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- ---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES ............................ $47,755,300 $30,877,100 $36,276,200
COST OF SALES ........................ 39,713,600 25,064,900 29,016,100
----------- ----------- -----------
GROSS PROFIT ......................... 8,041,700 5,812,200 7,260,100
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ........................... 6,196,900 4,920,700 5,282,300
----------- ----------- -----------
INCOME FROM OPERATIONS ............... 1,844,800 891,500 1,977,800
OTHER INCOME (EXPENSE):
Interest ........................... (1,262,900) (847,600) (1,137,800)
Other, net ......................... (46,400) 14,600 (8,400)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ........... 535,500 58,500 831,600
INCOME TAX BENEFIT (EXPENSE)
(Note 11)........................... (226,900) (17,900) 372,700
----------- ----------- -----------
NET INCOME ........................... $ 308,600 $ 40,600 $ 1,204,300
=========== =========== ===========
NET INCOME PER COMMON SHARE .......... $ 0.06 $ 0.01 $ 0.28
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 1) ........................... 5,461,300 4,874,600 4,284,200
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- -----------------------------------------------
Common Stock Additional
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995............ 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
Stock repurchases................. (20,000) (2,000) (48,000) (50,000)
Exercise of stock options......... 2,600 300 4,800 5,100
Stock issued for settlement of
stock guarantees................ 15,600 1,500 (1,500)
Net income........................ 308,600 308,600
--------- --------- ------------ ------------ -----------
BALANCE, SEPTEMBER 30, 1997......... 5,340,400 $ 534,000 $ 18,412,400 $ (4,646,800) $14,299,600
========= ========= ============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- ---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 308,600 $ 40,600 $ 1,204,300
Adjustments to reconcile income from operations
to net cash provided by operations:
Depreciation and amortization ........................ 2,915,900 1,983,900 1,858,600
Provision for (benefit from) deferred taxes .......... 74,900 (214,700) 244,400
Change in valuation allowance ........................ (76,400) (766,300)
Increase (decrease) in allowance for doubtful accounts 31,800 (72,500) 17,000
(Gain) loss on sales of assets ....................... (3,000) 115,800 (319,500)
Provision for defined benefit obligations ............ 224,900
Stock issuances to 401(k) plan ....................... 32,000 64,700
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 ........................ (2,862,200) 512,500 (298,400)
Inventories ........................................ (526,400) (1,234,800) 134,300
Prepaids and other ................................. 163,400 (36,000) (193,700)
Other assets ....................................... (556,900) (192,000) 78,300
Trade accounts payable ............................. 821,900 842,000 (491,400)
Accrued liabilities ................................ 906,900 (181,800) (111,300)
Net cash provided by (used in) discontinued operations 158,600 (42,300)
------------ ----------- -----------
Net cash provided by operating activities ..... 1,423,400 1,837,800 1,772,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property, plant and equipment 42,400 301,000 863,000
Collections on notes receivable ........................ 22,100 259,800 2,300
Capital expenditures ................................... (7,984,100) (5,479,100) (1,359,200)
Acquisition of Milford Manufacturing ................... (2,294,500)
------------ ----------- -----------
Net cash used in investing activities .......... (10,214,100) (4,918,300) (493,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit ...................... 4,766,300 (3,603,600) 210,600
Proceeds from long-term obligations .................... 2,634,600 8,205,500 273,100
Proceeds from refinancing of long-term obligations ..... 7,887,500
Proceeds from issuances of stock ....................... 5,100 1,918,800
Payments on long-term obligations due to refinancing ... (5,535,800)
Retirements of common stock ............................ (50,000) (33,900) (12,500)
Payments on long-term obligations ...................... (2,100,600) (1,314,600) (1,634,000)
Payments on capital lease obligations .................. (48,500) (110,900)
------------ ----------- -----------
Net cash provided by (used in) financing
activities .................................. 5,255,400 7,475,400 (1,273,700)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH ...... (3,535,300) 4,394,900 4,400
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD ............ 4,408,600 13,700 9,300
------------ ----------- -----------
CASH AND RESTRICTED CASH, END OF PERIOD .................. $ 873,300 $ 4,408,600 $ 13,700
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ................. $ 1,248,900 $ 902,900 $ 1,104,800
============ =========== ===========
Cash paid during the year for income taxes ............. $ 205,000 $ 153,600 $ 120,000
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business - Secom General Corporation (the "Company") is a
publicly-traded holding company with five wholly-owned subsidiaries
supplying the automotive, truck and construction markets. The Company
operates in the following three business segments:
Tooling:
Form Flow, Inc. ("Form Flow")
L&H Die, Inc. ("L&H Die")
Micanol, Inc. ("Micanol")
Metal Parts Forming - Uniflow Corporation ("Uniflow")
Production Machining - Milford Manufacturing Corporation ("Milford" -
acquired November 1, 1996)
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, 1997 were $766,300,
$433,700 and $408,400, respectively. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
which range from two to 30 years.
Intangible Assets consisting of goodwill (cost in excess of net assets
acquired) is currently amortized on a straight-line basis over primarily
20 years. Previously, such was being amortized over 40 years. The impact
of this change was not significant. Accumulated amortization was
$799,000 and $662,700 as of September 30, 1997 and 1996, 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, has been computed in accordance with
Accounting Principles Board (APB) Opinion No. 15, "Earnings Per Share,"
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. The Company has not yet
adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," however, the impact of such
adoption is not expected to have a significant effect on the financial
statements.
-30-
<PAGE>
Revenue Recognition - Revenues are recognized upon shipment of customer
products.
Significant Customer - The Company has one customer which comprised
approximately 25% of total revenues in 1997 and one customer which
comprised approximately 11% of total revenues in 1996. There were no
significant customers in 1995.
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 - Effective October 1, 1996, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In accordance with
this standard, the Company periodically evaluates the carrying value of
long-lived assets and certain identifiable intangibles to be held and
used, when events and circumstances indicate that the carrying amount of
an asset may not be recoverable. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flow
from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived
asset. The adoption of this new accounting standard did not have a
material effect on the Company's financial position or results of
operations.
The Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which was effective for the
Company beginning October 1, 1996. Under SFAS No. 123, compensation cost
is measured at the grant date based on the fair value of the equity
instrument awarded and is recognized over the service period, which is
usually the vesting period. In accordance with this statement, the
Company has elected to continue the application of APB Opinion No. 25
which recognizes compensation cost based on the intrinsic value of the
equity instrument award. Under the instrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock.
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
---- ----
<S> <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
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
</TABLE>
Noncash transactions related to 1997 were not considered significant.
Reclassifications - Certain amounts in the 1996 financial statements
have been reclassified to conform with the presentation for 1997.
-31-
<PAGE>
2. 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 (renamed
Milford Manufacturing Corporation). The acquisition was accounted for as
a purchase. The operations of Milford Manufacturing Corporation
("Milford") are included in the income statement of the Company
beginning November 1, 1996. Net cash paid to seller, assets acquired and
liabilities assumed recorded in connection with the transaction are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Liabilities assumed $3,656
Net cash paid to seller 2,295
------
Fair value of assets acquired $5,951
======
</TABLE>
Concurrent with the acquisition, in an unrelated agreement, 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,
which was recorded as deferred revenue and is being amortized over one
year on an estimated units of production method. Approximately $80,000
remains unamortized at September 30, 1997.
The following pro forma financial information (unaudited) is presented
for the year ended September 30, 1996 as if the purchase of Milford had
occurred on October 1, 1995 (in thousands, except per share amount):
<TABLE>
<CAPTION>
<S> <C>
Net sales $ 42,800
========
Net loss $ (83)
========
Net loss per common share $ (0.02)
========
</TABLE>
The pro forma financial information presented does not purport to be
indicative of the results that actually would have been obtained if the
acquisition had occurred during the period presented.
3. DOWNSIZED OPERATIONS
During the third quarter of fiscal 1995, the Company completed its
downsizing of Triple Technology (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 Technology's
remaining operations, primarily electro-diode machining (EDM), contracts
and the related equipment (net book value $341,000) were transferred to
Form Flow. For the year ended September 30, 1995, sales from Triple
Technology were $1,559,000 and operating losses were $399,000.
-32-
<PAGE>
4. INVENTORIES
Inventories at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials ................ $1,102 $ 949
Work-in-process .............. 2,772 2,394
Finished goods ............... 2,263 1,828
------ ------
Total ........................ $6,137 $5,171
====== ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996 Life
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment............ $ 26,678 $ 18,192 2 to 20 years
Building and improvements.......... 6,581 5,154 3 to 30 years
Land and improvements.............. 897 572 N/A
Furniture and fixtures............. 1,735 685 3 to 7 years
Vehicles.......................... 149 168 3 years
Construction-in-progress
and deposits .................... 1,334 538 N/A
-------- --------
Total 37,374 25,309
Less accumulated depreciation...... (9,372) (7,550)
-------- --------
Total.............................. $ 28,002 $ 17,759
======== ========
</TABLE>
6. LONG-TERM OBLIGATIONS
Long-term obligations at September 30 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Bank line of credit (a) ...................... $ 4,939 $ 172
Real estate mortgage notes (b) ............... 3,446 3,609
Michigan Strategic Fund Limited Obligation
Revenue Bonds (c) .......................... 5,891 6,896
Equipment term notes (d) ..................... 6,077 4,778
Other notes payable (e) ...................... 794 390
-------- --------
Total ............................. 21,147 15,845
Less current obligations ..................... (3,436) (2,121)
-------- --------
Long-term obligations ........................ $ 17,711 $ 13,724
======== ========
-33-
<PAGE>
<FN>
(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, 1997, $4,000,000 was outstanding under the
revolving credit note and $939,000 was 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 in fiscal 1998 for
the line of credit note and fiscal 1999 for the revolving credit
note. 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, 1997.
(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 $3,614,100, while interest on a $775,000
mortgage note is at prime and is collateralized by land and
building with a net book value of $1,100,000. Interest under the
previous agreements was payable at prime plus 2% per annum. These
agreements mature in fiscal 2001 and 2011. Additionally, during
1997, the Company entered into a bank agreement which provides for
up to $300,000 in advances for facility improvements, to be
converted into a five-year term note effective March 1998. Interest
will be at a floating rate. At September 30, 1997, no amounts were
outstanding under this agreement.
(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 $6,682,700. The bonds outstanding at September 30, 1995, were
repaid in their entirety during fiscal 1996. Interest was at
approximately 2% below the prime rate.
(d) During 1996, the Company entered into an equipment term note with a
financial institution with interest payable at the 30 day LIBOR
plus 215 basis points (approximately 7.87% at September 30, 1997)
or prime. During 1997, the Company entered into two equipment term
note agreements which require monthly installments of principal and
interest over a five-year period through February 2003. The first
note provides for advances up to $1,500,000 through December 31,
1997 at which time it will be converted into a term note. At
September 30, 1997, $507,200 was outstanding and interest is
currently payable at prime. The second note was for $1,500,000 with
interest payable at 8.5% per annum. This note was refinanced in
November 1997 to increase the principal to $1,800,000. All of these
equipment term notes are collateralized by the related equipment
which amounted to a net book value of $13,478,600 at September 30,
1997.
(e) Interest rates on other notes payable range from 4.9% to 12%. At
September 30, 1997, the balance includes $639,700 in trade
installment notes collateralized by certain property. Maturity
dates range from 1998 to 2000.
</TABLE>
The prime rate at September 30, 1997 and 1996 was 8.5% and 8.25%,
respectively.
-34-
<PAGE>
Principal payments on long-term obligations for the next five years are
as follows (in thousands):
<TABLE>
<CAPTION>
<C> <C>
1998 $ 3,436
1999 6,660
2000 2,847
2001 3,201
2002 2,900
Thereafter 2,103
--------
Total $ 21,147
========
</TABLE>
7. 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. As of
September 30, 1997, 200,000 MOI options were outstanding and
exercisable.
8. STOCK OPTIONS
In 1991, the Board of Directors (the "Board") adopted a nonqualified
stock option plan (the "1991 Plan"). The 1991 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.
The Company accounts for stock option grants and awards under its
stock-based compensation plan in accordance with APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for stock option
grants since the options have exercise prices of not less than the
market value of the Company's common stock at the date of grant.
-35-
<PAGE>
There were no stock options granted during 1997 and 1995. For stock
options granted during 1996, if compensation cost had been determined
based on the fair value at the date of grant consistent with the method
prescribed by SFAS No. 123, the Company's fiscal 1996 net earnings and
earnings per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Net Income
Net (Loss) Per
Income Common
(Loss) Share
------ -----------
<S> <C> <C>
As reported at September 30, 1996 $ 40,600 $ 0.01
Compensation costs for stock option
grants, net of tax .............. (300,300)
--------- -----
Pro forma at September 30, 1996 ... $(259,700) $(0.05)
========= =====
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996: expected
volatility of 38%, risk-free interest rate of 5.5% and expected lives of
five years.
A summary of the status of stock option grants under the Company's
stock-based compensation plans as of September 30, 1997, 1996 and 1995,
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Outstanding at the beginning
of the year..................... 376,000 $ 2.15 162,500 $ 2.68 178,750 $ 2.68
Granted .......................... 272,000 1.94
Exercised......................... (2,600) 1.94
Terminated........................ (60,400) 1.94 (58,500) 2.65 (16,250) 2.63
------- ------ ------- ------ ------- ------
Outstanding at the end of the
year............................ 313,000 $ 2.19 376,000 $ 2.15 162,500 $ 2.68
======= ====== ======= ====== ======= ======
Options exercisable at end of the
year............................ 112,200 $ 2.44 80,800 $ 2.49 56,500 $ 2.78
======= ====== ======= ====== ======= ======
Weighted average fair value of
options granted during the
year............................ $ 1.10
======
</TABLE>
-36-
<PAGE>
The following table summarizes information about stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Remaining
Exercise Options Options Life
Price Outstanding Exercisable (Years)
-------- ----------- ----------- ---------
<S> <C> <C> <C>
$1.94 209,000 41,800 3.5
2.63 84,000 50,400 1.3
3.00 20,000 16,000 0.5
------- -------
313,000 108,200
======= =======
</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, 1997, 35,000 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.
9. PENSION AND OTHER EMPLOYEE BENEFIT PLANS
The Company's Milford hourly employees have a defined benefit pension
plan, pursuant to a collective bargaining agreement. Benefits are based
on years of service and other factors. In conjunction with the Milford
acquisition, the Seller contributed the underfunded amount over $350,000
as of the acquisition date. Subsequent to November 1, 1996 the Company
assumed all future funding obligations related to the plan. Effective
May 1997, the Company and the Milford employees' union agreed to
transfer the plan assets to a union sponsored retirement plan and on an
ongoing basis the Company would contribute 40 cents per straight-time
hour worked. The transfer is expected to be completed in fiscal 1998 and
the amount to be transferred will be based on a valuation at a date to
be mutually agreed upon. After this transfer, the Company will have no
further obligation related to the Milford pension plan other than for
unpaid annual contributions.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheet as of September 30, 1997:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested $(2,820,800)
Nonvested (381,000)
-----------
Accumulated benefit obligation $(3,201,800)
===========
Projected benefit obligation for service rendered
to date $(3,201,800)
Plan assets at fair value 3,195,900
-----------
Plan assets less than projected benefit obligation (5,900)
Unrecognized net gain (418,700)
-----------
Pension liability included in the consolidated
balance sheet $ (424,600)
===========
</TABLE>
-37-
<PAGE>
Net periodic pension expense included the following components:
<TABLE>
<S> <C>
Service cost benefits during the year $ 23,200
Interest cost on projected benefit obligation 203,200
Actual return on plan assets (701,200)
Net amortization and deferral 507,100
---------
Net periodic pension expense $ 32,300
=========
</TABLE>
The projected benefit obligation was determined using a discount rate of
7.25% at September 30, 1997. The annual long-term rate of return on
assets was assumed to be 8.75% for 1997. Compensation increases for
applicable employees were estimated using 4.5% for 1997 and thereafter.
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 $145,500,
$123,000 and $116,000 for the years ended September 30, 1997, 1996 and
1995, respectively. Additionally, the Milford hourly employees are
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 account. Contributions during the year
ended September 30, 1997 were $65,900.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As a result of the Milford acquisition, the Company provides certain
postretirement health care and life insurance benefits to eligible
Milford employees, pursuant to a collective bargaining agreement. The
Company accounts for these benefits in accordance with the provisions of
SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other
Than Pensions," which requires the accrual of such benefits during the
years the employees provide services. Effective May 1997, in conjunction
with its new union contract, the Company negotiated an amendment to the
Plan which eliminates spousal coverage and certain other types of
benefits to be provided. The effect of this amendment reduced the
accumulated postretirement benefit obligation by $2,350,300, which will
be amortized as an adjustment to prior service cost over the remaining
service period of the employees.
Net periodic postretirement benefit cost for the year ended September
30, 1997 includes the following components:
<TABLE>
<S> <C>
Service cost $ 84,200
Interest cost 136,300
Amortization of unrecognized prior service cost (77,700)
--------
Net periodic postretirement benefit cost $142,800
========
</TABLE>
-38-
<PAGE>
The following table sets forth the amount recorded in the consolidated
balance sheet at September 30, 1997:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Active employees fully eligible for benefits $ 48,100
Other active employees 1,067,800
Current retirees --
----------
Total 1,115,900
Unrecognized prior service costs 2,280,200
----------
Accrued postretirement benefit liability $3,396,100
==========
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1997 decreasing to
5% in 1999 and thereafter. The health care cost trend rate assumption
has an effect on the amount reported. Changing the assumed health care
cost trends by one percentage point in each year would change the
accumulated postretirement benefit obligation as of September 30, 1997
by approximately $220,600 and net periodic postretirement benefit cost
by $25,100 for 1997.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 1997.
11. INCOME TAXES
The provision for income taxes consists of the following for the years
ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current expense ................ $(228,400) $(232,600) $(149,200)
Deferred benefit (expense) ..... (74,900) 214,700 (244,400)
Change in valuation allowance... 76,400 766,300
--------- --------- ---------
Income tax benefit (expense) ... $(226,900) $ (17,900) $ 372,700
========= ========= =========
</TABLE>
-39-
<PAGE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30
-------------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax carryforwards .... $ 325,900 $ 272,900
Net operating loss carryforwards of
acquired companies -- subject to
limitations ........................... 438,800 506,100
Allowances and accruals .................. 278,600 206,600
Postretirement and pension benefits....... 1,224,000
Other .................................... 52,900
----------- -----------
Total deferred tax assets ....... 2,267,300 1,038,500
Less valuation allowance ................... (392,300) (468,700)
----------- -----------
Net deferred tax assets ......... 1,875,000 569,800
Current portion ............................ 651,000 569,800
----------- -----------
Long-term portion .......................... $ 1,224,000 None
=========== ===========
Deferred tax liabilities:
Depreciation ............................. $ 650,200 $ 462,400
Book and tax basis differences from
business combinations ................. 1,926,500 830,100
Other .................................... 58,300 38,800
----------- -----------
Total deferred tax liabilities .. 2,635,000 1,331,300
Current portion ............................ None None
----------- -----------
Long-term portion .......................... $ 2,635,000 $ 1,331,300
=========== ===========
</TABLE>
During 1997 and 1996, 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, 1997 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
years ended September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory income tax liability ............ $(182,100) $ (20,200) $(283,300)
Change in valuation allowance ............. 76,400 766,300
Nondeductible goodwill amortization ....... (46,400) (26,300) (128,000)
Other ..................................... (74,800) (28,600) (17,700)
--------- --------- ---------
Income tax (expense) benefit .............. $(226,900) $ (17,900) $ 372,700
========= ========= =========
</TABLE>
-40-
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
The Company's annual expense and future obligations related to operating
leases is not significant. Additionally, the Company is involved in
certain legal proceedings arising in the normal course of business. In
the opinion of management, based on the advice 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.
13. CASH RESTRICTED FOR EQUIPMENT
The cash restricted for equipment was received from the Michigan
Strategic Fund bondholders (see Note 6) to purchase equipment for future
production requirements. Proceeds not yet utilized at September 30, 1997
totaled $526,500 and were classified as restricted cash. At September
30, 1997, the company has contractual obligations to purchase equipment
sufficient to utilize the restricted cash.
14. SEGMENT INFORMATION
The following is the business segment information applicable to
continuing operations (in thousands):
<TABLE>
<CAPTION>
Metal Eliminations
Parts Production and
Forming Machining Tooling Corporate Consolidated
------- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
September 30, 1997:
Net sales ............... $18,930 $12,718 $18,474 $(2,367) $47,755
Income from operations .. (1,395) 881 2,587 (228) 1,845
Identifiable assets ..... 13,753 9,182 7,433 15,840 46,208
Depreciation and
amortization ......... 1,200 612 701 403 2,916
Capital expenditures .... 1,457 1,336 662 4,529 7,984
September 30, 1996:
Net sales ............... $14,748 N/A $18,136 $(2,007) $30,877
Income from operations .. (701) N/A 2,093 (501) 891
Identifiable assets ..... 12,920 N/A 7,211 14,823 34,954
Depreciation and
amortization ......... 1,098 N/A 671 215 1,984
Capital expenditures .... 1,803 N/A 163 3,513 5,479
September 30, 1995:
Net sales ............... $17,630 N/A $20,659 $(2,013) $36,276
Income from operations .. 275 N/A 2,457 (754) 1,978
Identifiable assets ..... 14,444 N/A 8,852 3,651 26,947
Depreciation and
amortization ......... 1,151 N/A 671 37 1,859
Capital expenditures .... 592 N/A 751 16 1,359
</TABLE>
******
-41-
<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, 1995 ......... $ 78,800 $127,500 $112,800 $ 93,500
Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000
Year ended September 30, 1997 ......... 21,000 62,000 30,200 52,800
Inventory reserve:
Year ended September 30, 1995 ......... 61,000 15,000 76,000
Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500
Year ended September 30, 1997 ......... 147,500 96,000 11,000 232,500
Deferred tax asset valuation allowance:
Year ended September 30, 1995 ......... 1,235,000 766,300 468,700
Year ended September 30, 1996 ......... 468,700 468,700
Year ended September 30, 1997 ......... 468,700 76,400 392,300
-42-
</TABLE>
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
1997 1996
------------------------------------- ------------------------------------
September June March December September June March December
1997 1997 1997 1996 1996 1996 1996 1995
--------- ---- ----- -------- --------- ---- ----- --------
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............... $11,995 $12,964 $12,987 $ 9,809 $7,834 $8,254 $7,529 $7,260
GROSS PROFIT............ 2,079 2,242 2,216 1,505 1,139 1,806 1,494 1,373
INCOME (LOSS) BEFORE
INCOME TAXES.......... 78 280 379 (201) (221) 52 163 65
INCOME TAX (EXPENSE)
BENEFIT ............. (20) (123) (152) 68 77 (12) (61) (22)
------ -------- ----- ------- ------ ------ ------ ------
NET INCOME (LOSS)....... $ 58 $ 157 $ 227 $ (133) $ (144) $ 40 $ 102 $ 43
====== ======== ===== ======= ====== ====== ====== ======
EARNINGS (LOSS) PER
COMMON SHARE--
Net income (loss)....... $ 0.01 $ 0.03 $ 0.04 $ 0.02 $(0.03) $ 0.01 $ 0.02 $ 0.01
====== ======== ===== ===== ====== ====== ====== ======
PRICE RANGE OF
COMMON STOCK:
High bid.............. $ 2.69 $ 2.94 $ 3.31 $ 3.06 $ 3.12 $ 3.44 $ 3.37 $ 3.37
Low bid............... 2.19 2.00 2.19 2.50 2.00 1.87 1.75 2.50
WEIGHTED
AVERAGE SHARES
OUTSTANDING 5,424 5,460 5,480 5,494 5,257 4,879 4,820 4,611
</TABLE>
-43-
<PAGE>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
- ------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
--------------------------------------------------
1997 1996 1995 1994 1993
(In thousands; except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
NET SALES ........................................ $47,755 $30,877 $36,276 $32,571 $29,356
INCOME (LOSS) FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES ............................ 536 58 831 1,154 (13)
INCOME TAX (EXPENSE) BENEFIT ..................... (227) (17) 373 (61)
------- ------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 309 41 1,204 1,093 (13)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ............................ (3,640)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE .............................. 309 41 1,204 1,093 (3,653)
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR INCOME TAXES ....................
------- ------- ------- ------- -------
NET INCOME (LOSS) ................................ $ 309 $ 41 $ 1,204 $ 1,093 $(3,653)
======= ======= ======= ======= =======
BALANCE SHEET DATA
TOTAL ASSETS ..................................... $46,208 $34,954 $26,947 $27,826 $31,291
LONG-TERM OBLIGATIONS ............................ 17,711 13,724 4,622 7,089 7,123
STOCKHOLDERS' EQUITY ............................. 14,300 14,036 11,910 9,837 8,574
COMMON STOCK SHARES OUTSTANDING .................. 5,340 5,342 4.276 3,701 2,901
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations .......................... 0.06 0.01 0.28 0.29
Discontinued operations ........................ (1.27)
------- ------- ------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.06 $ 0.01 $ 0.28 $ 0.29 $ (1.27)
======= ======= ======= ======= =======
EQUITY PER COMMON SHARE .......................... 2.68 2.63 2.79 2.66 2.96
CURRENT RATIO .................................... 1.64 1.84 1.13 1.02 0.82
LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 1.24 0.98 0.39 0.72 0.83
</TABLE>
-44-
(Promissory Note OLD KENT BANK
(Installment Payments) OLD KENT
Address 27255 Lahser Road
-----------------
City Southfield State MI Zip 48034
---------- -- -----
November 14, 1997
------------------
(Supersedes August 22, 1997 Promissory Note)
FOR VALUE RECEIVED, the undersigned ("Obligor") promise (s) to pay to
the order of the bank named above ("Bank") the principal amount of **One
-----
MILLION EIGHT HUNDRED THOUSAND AND NO/100*** Dollars ($1,800,000) and
- ------------------------------------------- ----------------
interest (computed on the basis of a 360-day year for the actual number of
days elapsed) on the unpaid principal balance at a rate per annum of (check
applicable box):
_X_ 8.50% until Maturity and 10.50% after Maturity
The principal and interest on this Note shall be paid as follows (check
applicable box):
_X_ Principal and interest shall be paid in installments commencing
December 1, 1997 and on the first day of each MONTH thereafter
until December 1, 2002, at which time the remaining balance of
principal and interest shall be paid in full. Each installment
shall be paid in an amount equal to the greater of $28,505.67 or
the amount of unpaid interest accrued to the date of payment of
the installment.
LATE CHARGE: If any installment of principal or interest is not paid
within ten days after it is due, Obligor shall forthwith pay to Bank a late
charge in an amount equal to the greater of $50,00 or one-tenth (1/10) of
one percent (1%) of the unpaid principal balance as of the date the late
charge is assessed. This is in addition to Bank's other rights and remedies
for default in payment of an installment of principal or interest when due.
EXPENSES AND LOAN PROCESSING FEE: Obligor shall reimburse Bank for all
out-of-pocket expenses heretofore or hereafter incurred by Bank in
connection with making the loan evidenced by this Note and any renewals,
extensions or modifications of the loan and in connection with taking any
security for the loan, including, without limitation, filing and recording
fees, attorneys' fees and expenses, and costs of credit reports, surveys,
appraisals, title work and mortgagee's title insurance. Each out-of-pocket
expense (if not reimbursed to Bank on or before the date of this Note) shall
be reimbursed to Bank at the time of the first required interest payment
under this Note after the expense is incurred. There is also a loan processing
fee in respect of this loan in the amount of $750.00. The loan processing fee
(check applicable box):
_X_ has been paid to Bank on or before the date of this Note.
Accepted:
OLD KENT Old Kent Bank
------------------
By /s/ Timothy H. O'Rourke
-----------------------
Timothy H. O'Rourke
Its Vice President
--------------
Nonindividual Obligor:
Milford Manufacturing, Corporation
----------------------------------
a Michigan
----------------------------------
(State of Organization)
Corporation
----------------------------------
(Type of Entity)
/s/ David J. Marczak
----------------------------------
David J. Marczak
Its Chief Financial Officer
-------------------------------
E-1
Secom General Corporation
- -------------------------
a Delaware
Corporation
- -------------------------
By /s/ David J. Marczak
-----------------------
David J. Marczak
Its Chief Financial Officer
-----------------------
E-2
<PAGE>
ADDITIONAL PROVISIONS OF PROMISSORY NOTE
1. Prepayments. Obligor may prepay all or part of the principal of this
Note at any time, unless prepayment is prohibited, limited or conditioned in
any Rider to this Note or in any other agreement signed by Obligor. Any
partial prepayment will be applied to the installment or installments last
falling due under this Note, and a partial prepayment shall not affect the
amount or time of payment of succeeding required installments.
2. Security. This Note and all obligations of Obligor hereunder are
secured by any and all security agreements, guaranties, mortgages,
assignments and all other agreements and instruments heretofore or hereafter
given by any Obligor or any third party to Bank ("Security Documents"),
including, but not limited to, Security Documents given in connection with
any prior promissory notes given to Bank by any Obligor. As additional
security for the payment of Obligor's obligations under this Note, Obligor
grant(s) to Bank a security interest in all tangible and intangible property
of Obligor now or hereafter in the possession of Bank, including, without
limitation, all deposit accounts.
3. Default. Each of the following shall be an event of default under
this Note: (a) if default occurs in the payment of any installment of
principal or interest hereunder or of any late charge, out-of-pocket expense,
or loan processing fee at any time owing to Bank under this Note or in the
payment of any other indebtedness or obligation now or hereafter owing by any
Obligor to Bank, as and when the same shall be or become due and payable; (b)
if default occurs in the performance of any other obligation to Bank under
this Note or any Security Document or any loan agreement or other agreement
heretofore or hereafter entered into between any Obligor and Bank or if there
occurs any other event of default under any Security Document or any such
loan agreement or other document; (c) if any warranty or representation
heretofore or hereafter made to Bank by any Obligor or any guarantor of all
or part of the indebtedness evidenced by this Note ("Guarantor"), in this
Note, in any Security Document or in any financial statement, loan
application or other document given to Bank, shall have been false in any
material respect; (d) if any Obligor or any Guarantor or any of Obligor's or
Guarantor's partners (if any Obligor or Guarantor is a partnership) shall
die, dissolve, become insolvent, or make an assignment for the benefit of
creditors; (e) if any levy, writ of attachment, garnishment, execution or
similar process shall be issued against or placed upon any property of any
Obligor or any Guarantor; (f) if any guaranty that now or hereafter secures
payment of all or any part of the indebtedness evidenced by this Note shall
be terminated or limited for any reason without the written consent or
agreement of Bank; or (g) if at any time Bank for any reason shall in good
faith believe that the prospect of payment or performance of this Note or any
other indebtedness or obligation of any Obligor to Bank is impaired. Upon the
occurrence of any event of default, all or any part of the indebtedness
evidenced hereby and all or any part of all other indebtedness and
obligations then owing by any Obligor to Bank shall, at the option of Bank,
become immediately due and payable without notice or demand. If a voluntary
or involuntary case in bankruptcy, receivership or insolvency shall at any
time be begun by or against any Obligor or any Guarantor, or if any
attachment, garnishment, execution, levy or similar process shall at any time
be placed upon any deposit account at any time maintained with Bank by any
Obligor or any Guarantor, then all such indebtedness and obligations shall
automatically become immediately due and payable. All or any part of the
indebtedness evidenced hereby also may become, or may be declared to be,
immediately due and payable under the terms and conditions contained in any
loan agreement, Security Document or other agreement heretofore or hereafter
entered into between any Obligor and Bank.
4. Place and application of Payments. Each payment upon this Note shall
be made at any of Bank's offices or such other place as the holder hereof may
direct in writing. Any payment upon this Note shall be applied first to any
accrued and unpaid interest, then to the unpaid principal balance, then to
any expenses or loan processing fee then due and payable to Bank and then to
any unpaid late charges, except that after Maturity of this Note, Bank may
apply any payment or collection to any such amounts owing under this Note in
such manner as Bank shall determine in its sole discretion. If any Obligor at
any time owes Bank any indebtedness or obligation in addition to the
indebtedness evidenced by this Note, and if any indebtedness owed by Obligor
to Bank is then in default, Obligor shall not have, and hereby waives, any
right to direct or designate the particular indebtedness or obligation upon
which any payment made by, or collected from, Obligor or from any Guarantor
or other security shall be applied. The manner of application of any such
payment, as between or among such indebtedness and obligations, shall be
determined by Bank in its sole discretion.
5. Maximum Interest Rate. Notwithstanding any other provision of this
Note, Bank shall never be entitled to charge, take or receive as interest on
this Note any amount in excess of simple interest calculated at the lesser of
(a) a rate of thirty-five percent (35%) per year or (b) the highest rate to
which Obligor may lawfully agree in writing ("Maximum Rate"). If Bank ever
receives interest in excess of the Maximum Rate, the excess shall be
considered a partial prepayment of the principal of this Note or, if the
principal has been paid in full, shall be refunded to Obligor.
6. Setoff. Bank shall have the right at any time to set off any
indebtedness that Bank then owes to any Obligor (including any deposit
account) against any indebtedness evidenced by this Note that is then due and
payable.
E-3
7. Remedies. Bank shall have all rights and remedies provided by law and
by agreement of any Obligor. Any requirement of reasonable notice with
respect to any sale or other disposition of collateral shall be met if Bank
sends the notice at least five (5) days before the date of sale or other
disposition. Obligor agrees to pay any and all expenses, including reasonable
attorneys' fees and legal expenses, paid or incurred by Bank in protecting
and enforcing the rights of and obligations to Bank under any provision of
this Note or any Security Document.
8. Environmental Compliance. Obligor represents and warrants to, and
agrees with, Bank that: (a) none of Obligor's real or personal property is,
and Obligor will not permit it to become, contaminated by any substance that
is now or hereafter regulated by or subject to any present or future law or
regulation that establishes liability for the removal or clean-up of, or
damage caused by, any environmental contamination; (b) Obligor's operations,
activities, and real and personal property are, and Obligor shall cause them
to continue to be, in compliance with each such law and regulation; (c) if
the indebtedness evidenced by this Note is not paid at Maturity, then at any
time thereafter Bank may, but shall not be obligated to, conduct or obtain an
environmental investigation or audit of any or all of Obligor's properties,
and Obligor shall reimburse Bank for all costs and expenses incurred by Bank
in connection with any such investigation or audit; and (d) Obligor shall
indemnify and, at Bank's option, defend Bank with respect to all claims,
damages, losses, liabilities and expenses (including attorneys' fees)
asserted against or incurred by Bank by reason of any failure to comply with,
or any inaccuracy in, any of the agreements, representations and warranties
contained in this paragraph.
9. Waivers. No delay by Bank in the exercise of any right or remedy
shall operate as a waiver thereof. No single or partial exercise by Bank of
any right or remedy shall preclude any other or future exercise thereof or
the exercise of any other right or remedy. No waiver by Bank of any default
or of any provision hereof shall be effective unless in writing and signed by
Bank. No waiver of any right or remedy on one occasion shall be a waiver of
that right or remedy on any future occasion.
Obligor waives demand for payment, presentment, notice of dishonor and
protest of this Note and consents to any extension or postponement of time of
its payment, to any substitution, exchange or release of all or any part of
any security given to secure this Note, to the addition of any party hereto,
and to the release, discharge, waiver, modification, or suspension of any
rights and remedies against any person who may be liable for the indebtedness
evidenced by this Note.
10. General. If Obligor is more than one person, firm or corporation,
(a) each of them is primarily liable on this Note, (b) receipt of value by
any one of them constitutes receipt of value by both or all of them, (c)
their liability on this Note is joint and several, and (d) the term "Obligor"
means each of them and all of them. In this Note, "Maturity" means such time
as the entire remaining unpaid principal balance shall be or shall become due
and payable for any reason, including acceleration under paragraph 3 hereof.
11. Applicable Law and Jurisdiction. This Note shall be governed by and
interpreted according to the laws of the state in which Bank's principal
office is located, without giving effect to principles of conflict of laws.
Obligor irrevocably agrees and consents that any action against Obligor for
collection or enforcement of this Note may be brought in any state or federal
court that has subject matter jurisdiction and is located in, or whose
district includes, any county in which Bank has an office and that any such
court shall have personal jurisdiction over Obligor for purposes of the
action.
E-4
<PAGE>
Affiliate #20
SECURITY AGREEMENT
(Equipment and Fixtures)
The undersigned ("Debtor") hereby grant(s) to OLD KENT BANK, a Michigan
banking corporation, of 27255 Lahser, Southfield MI ("Bank") a continuing
security interest in equipment, wherever located and owned by Debtor, and all
proceeds thereof (collectively called "Collateral"). The term "equipment"
includes, but is not limited to, machinery, furniture, fixtures, vehicles,
and accessories, parts, special tools, and equipment now or hereafter affixed
to or used in connection with equipment, and all goods described in any
schedule or list attached hereto.
THIS SECURITY INTEREST SECURES PAYMENT AND PERFORMANCE OF ALL
INDEBTEDNESS AND OBLIGATIONS NOW AND HEREAFTER OWING BY DEBTOR TO BANK,
including all obligations of Debtor under this Agreement, and all
indebtedness and obligations now and hereafter owing to Bank that are
evidenced by any instruments, documents and agreements listed below that have
been executed by another person or persons, including any and all renewals,
extensions and modifications thereof (collectively called the
"Indebtedness"). The indebtedness and obligations now owing by Debtor to Bank
include, BUT ARE NOT NECESSARILY LIMITED TO, the indebtedness and obligations
evidenced by any instruments, documents and agreements listed below.
Instrument, Document Principal Amount Maker
or Agreement Date (If Any) (If Other Than Debtor)
Promissory Note August 22, 1997 $1,500,000.00
This security interest secures all present and future indebtedness and
obligations owing by Debtor to Bank, regardless of whether any such
indebtedness or obligation is (a) not listed above, (b) not presently
intended or contemplated by Debtor or Bank, (c) indirect, contingent or
secondary, (d) unrelated to the Collateral or to any financing of the
Collateral by Bank, (e) of a kind or class that is different from any
indebtedness or obligation now owing by Debtor to Bank, or (f) evidenced by a
note or other document that does not refer to this security interest or this
Agreement.
If Debtor is more than one person, the Indebtedness includes all
indebtedness and obligations now and hereafter owing to Bank by any one or
more of such persons, regardless of whether the remaining person or persons
are not liable for such indebtedness and obligations or whether one or more
persons who are not parties to this Agreement are also liable for all or part
of such indebtedness and obligations.
Additional provisions:
Security interest and Equipment applies only to Equipment on
attached Schedule "A" (Certain Machinery and Equipment at Milford
Manufacturing Corporation)
THE ADDITIONAL PROVISIONS PRINTED ON THE REVERSE SIDE ARE PART OF THIS
AGREEMENT AND ARE INCORPORATED IN THIS AGREEMENT BY REFERENCE.
Executed this August 22, 1997.
-----------------
OLD KENT BANK
By /s/ Timothy H. O'Rourke
-----------------------
Timothy H. O'Rourke
Its Vice President
----------------------
Nonindividual Debtor:
Milford Manufacturing, Corporation
- ----------------------------------
A Michigan
--------------------------------
(State of Organization)
Corporation
--------------------------------
(Type of Entity)
By /s/ David J. Marczak
-------------------------------
Its CFO.
------------------------------
Taxpayer Ident. No. 38-3315254
--------------
E-5<PAGE>
Individual Debtor(s):
- -------------------- -------------------
Social Security No.
- -------------------- -------------------
Social Security No.
Debtor Address:
- --------------------------------------------
26600 Heyne Dr.
- --------------------------------------------
Novi MI 48376
- --------------------------------------------
E-6
[Front Cover]
[Secom Logo] Secom General Corporation
-------------------------------------
Building Value in Basic Manufacturing
1997 ANNUAL REPORT AND FORM 10-K
<PAGE>
REPORT TO STOCKHOLDERS
January 1998
The Company's 1997 fiscal year ended with mixed financial
results. While the Tooling Segment (comprised of Form Flow, Inc., L & H Die,
Inc., and Micanol, Inc.) posted another solid year of profitability, the
Metal Parts Forming Segment (comprised of Uniflow Corporation) struggled with
another year of operating losses and the Production Machining Segment
(comprised of Milford Manufacturing Corporation), while posting early
profits, ended the year with significant losses which have continued into the
first quarter of fiscal 1998. Given the mixed financial results of fiscal
1997, management has developed a strategic plan aimed at enhancing the
profitable business units of the Company, strengthening the business
operations with potential profitability, while divesting the Company of
unprofitable operations.
The Tooling Segment was again the star performer among the Company's
business units. Both net sales and gross profit on sales improved during
fiscal 1997, in part, due to management's ability to control labor and
related support expenses as well as to focus on expanding customer sales. We
anticipate that the Tooling Segment will continue to post strong results for
fiscal 1998 and we are currently pursing expansion opportunities as a result
of customer requests. In addition, we are currently investigating the
possibility of establishing a satellite tooling location near our larger
customers which would allow the Company to respond more rapidly to
customer orders.
The Metal Parts Forming Segment, which is comprised only of Uniflow
Corporation, had another disappointing year, posting its second operating
loss in two years. These losses were attributable, at least in part, to
Uniflow's endeavors in the forming of air bag housings as well as component
production on our largest cold-former machine (FX85 1250 National Cold
Former). While Uniflow's efforts towards development of an expanded FX85
parts forming business generated sizable sales opportunities, management has
concluded that Uniflow lack the necessary "critical mass" within cold heading
to successfully produce orders. In addition, efforts towards expanding the
FX85 parts forming business had the effect of diverting critical expertise
from Uniflow's traditional product lines (suspension housings, wheel studs
and tubular transmission components) causing these product lines to suffer as
well.
We believe that Uniflow's traditional product lines can be successful
and profitable. Therefore, we are undertaking efforts to streamline
operations, refocusing on Uniflow's traditional product lines. In doing this,
we are establishing benchmarks in order to attain greater profitability and
will be continually monitoring Uniflow's performance against those benchmarks
during fiscal 1998.
As part of our efforts to streamline Uniflow's operations, we are pursing
a divestiture of the FX85 parts forming business and related equipment. In an
effort to further eliminate unprofitable operations, we are currently
analyzing Uniflow's assets to identify those which are under utilized or fail
to provide an adequate return on investment. We intend to sell those assets
during fiscal 1998.
While the Production Machining Segment posted promising results in early
fiscal 1997, its performance declined during the last quarter of fiscal 1997
and into the first quarter of fiscal 1998. We are currently reviewing all
aspects of operations of this segment in order to determine and implement cost
cutting measures. In addition, since the Production Machining Segment has
only one significant customer, we are working very closely with that customer
on contract commitments, costs and pricing.
<PAGE>
Although the Company's fiscal 1997 was profitable, the latter part of
fiscal 1997 and the early part of fiscal 1998 have been difficult.
Nevertheless, our goal is to make all operations profitable during fiscal
1998. We believe that we can achieve this by substantially completing the
Uniflow streamlining by mid-1998, and by reaching agreement with Milford's
primary customer in the near term, such that Milford will not continue to
sustain ongoing operating losses on parts sold to that customer.
Sincerely,
/s/ Robert A. Clemente
Robert A. Clemente
Chairman, President and CEO
<PAGE>
CORPORATE INFORMATION
=============================================================================
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
Southfield, Michigan
Martin J. Eidemiller, Vice President
- Tooling Group.
Gregory Adamczyk, Director, is Auditors
majority owner and a director of
Forward Planning Corp., an Deloitte & Touche LLP
engineering firm that specializes in Detroit, Michigan
manufacturing plant layout, design
and related systems. Market Makers
First of Michigan Corporation
Roney & Company
Rocco Pollifrone, Director, is Troster Singer Corp.
President and CEO of Forward Nash Weiss / Div. of Shatkin Inv.
Planning Corp., an engineering firm Mayer & Schweitzer, Inc.
that specializes in manufacturing Wien Securities Corp.
plant layout, design and related J. Alexander Securities Inc.
systems.
Orville K. Thompson, Director, is Executive Offices
owner and President of MST Steel
Corp., a steel service center. 46035 Grand River Avenue
Novi, Michigan 48374
(248)-305-9410
Richard Thompson, Director, is a (248)-347-2829 facsimile
Vice President of MST Steel Corp., a
steel service center.
Subsidiaries
Form Flow, Inc.
6901 Cogswell
Romulus, Michigan 48184
L & H Die, Inc.
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
<PAGE>
[Back Cover]
[Secom Logo] Secom General Corporation
---------------------------------------
46035 Grand River Avenue Novi, MI 48374
248-305-9410 Fax 248-347-2829
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our
report dated December 5, 1997, appearing in this Annual Report on Form 10-K
of Secom General Corporation for the year ended September 30, 1997.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Detroit, Michigan December 24, 1997
E-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> $ 346,800
<SECURITIES> 0
<RECEIVABLES> 6,824,900
<ALLOWANCES> (52,800)
<INVENTORY> 6,136,900
<CURRENT-ASSETS> 14,594,900
<PP&E> 37,374,700
<DEPRECIATION> (9,372,400)
<TOTAL-ASSETS> 46,208,300
<CURRENT-LIABILITIES> 8,905,900
<BONDS> 0
<COMMON> 534,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 46,208,300
<SALES> 47,755,300
<TOTAL-REVENUES> 47,755,300
<CGS> 39,713,600
<TOTAL-COSTS> 45,910,500
<OTHER-EXPENSES> 46,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,262,900
<INCOME-PRETAX> 535,500
<INCOME-TAX> 226,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,600
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.06
</TABLE>
