FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1998
Commission file number 0-14299
SECOM GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction (IRS Employer I.D. Number)
of incorporation or organization)
46035 GRAND RIVER AVENUE 48374
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 248-305-9410
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirement for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of Shares Outstanding
Common Stock 5,335,400
<PAGE>
SECOM GENERAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets................................ 1
Consolidated Statement of Operations....................... 3
Consolidated Statements of Cash Flows...................... 4
Notes to Interim Consolidated Financial Statements......... 5
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations...................................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities........................................... 14
Item 3. Defaults in Securities.......................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
<PAGE>
<TABLE>
<CAPTION>
ASSETS
June 30, Sept. 30,
1998 1998
-------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash ................................... $ 71,300 $ 346,800
Accounts receivable, net ............... 3,731,500 6,772,100
Other receivables ...................... 123,500 222,200
Inventories ............................ 4,747,500 6,136,900
Prepaids and other ..................... 247,300 465,900
Deferred tax asset ..................... 651,000
Net assets held for sale ............... 1,900,000
Net assets of discontinued subsidiary .. 3,195,000
----------- -----------
TOTAL CURRENT ASSETS ............ 14,016,100 14,594,900
Cash restricted for equipment .......... 526,500
Property, plant & equipment, net ....... 13,186,300 28,002,300
Other assets ........................... 750,900 3,084,600
----------- -----------
TOTAL ASSETS ................... $27,953,300 $46,208,300
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, Sept. 30,
1998 1997
------- --------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term
obligations ........................... $ 4,641,400 $ 3,435,500
Long term obligations classified
as current ............................ 7,382,000
Trade accounts payable .................. 1,997,500 4,002,100
Accrued wages and benefits .............. 658,000 1,014,800
Accrued other ........................... 1,836,400 453,500
Debt secured by assets of discontinued
subsidiary ............................ 2,478,900
------------ ------------
TOTAL CURRENT LIABILITIES ............. 18,994,200 8,905,900
Long term obligations ................... 17,710,600
Post retirement health care benefits .... 3,396,100
Other liabilities ....................... 485,100
Deferred tax liabilities ................ 452,900 1,411,000
------------ ------------
TOTAL LIABILITIES ..................... 19,447,100 31,908,700
------------ ------------
Stockholders' equity common stock,
$.10 par value 10,000,000 shares
authorized:
June 30, 1998 - 5,335,400 shares issued
September 30, 1997 - 5,340,400 shares
issued ................................ 533,500 534,000
Additional paid-in capital .............. 18,400,800 18,412,400
Accumulated deficit ..................... (10,428,100) (4,646,800)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ............ 8,506,200 14,299,600
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $ 27,953,300 $ 46,208,300
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES ............................... $ 7,879,100 $ 9,145,900 $ 24,778,200 $ 26,380,500
COST OF SALES - PRODUCTION .............. 7,066,300 7,765,200 22,140,600 22,384,600
COST OF SALES - RESTRUCTURING CHARGES ... 900,000
----------- ----------- ------------ ------------
GROSS MARGIN ............................ 812,800 1,380,700 1,737,600 3,995,900
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .............................. 1,335,200 1,124,000 4,113,900 3,436,100
OTHER RESTRUCTURING CHARGES ............. 400,000 2,162,000
----------- ----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS ........... (922,400) 256,700 (4,538,300) 559,800
OTHER INCOME (EXPENSE)
Interest ............................. (197,600) (290,300) (728,100) (822,400)
Other, net ........................... 34,700 37,500 15,600 113,600
----------- ----------- ------------ ------------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ....... (1,085,300) 3,900 (5,250,800) (149,000)
INCOME TAX BENEFIT (EXPENSE) ............ 136,400 (73,200) 541,100 (24,900)
----------- ----------- ------------ ------------
LOSS FROM CONTINUING OPERATIONS ......... (948,900) (69,300) (4,709,700) (173,900)
DISCONTINUED OPERATIONS:
Income (loss) from operations of
discontinued subsidiary ............ 226,400 (993,700) 424,900
Loss on disposal of subsidiary,
including provision of $400,000
for operating losses during phase-
out period (including applicable
income tax provision $258,900) ..... (78,000)
----------- ----------- ------------ ------------
NET INCOME (LOSS) ....................... $ (948,900) $ 157,100 $ (5,781,400) $ 251,000
=========== =========== ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Loss from continuing operations ...... $ (0.18) $ (0.01) $ (0.88) $ (0.03)
Income (loss) from operations of
discontinued subsidiary ............ 0.04 (0.19) 0.08
Loss on disposal of discontinued
subsidiary ......................... (0.01)
----------- ----------- ------------ ------------
BASIC AND DILUTED INCOME (LOSS) PER
COMMON SHARE .......................... $ (0.18) $ 0.03 $ (1.08) $ 0.05
=========== =========== ============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING ................... 5,335,400 5,460,000 5,335,900 5,474,200
=========== =========== ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations ............ $(948,900) $ (69,300) $(4,709,700) $ (173,900)
Adjustments to reconcile loss
from continuing operations to net
cash provided by (used in) operations:
Depreciation and amortization .......... 517,300 593,600 1,915,300 1,728,400
Provision for (benefit from)
deferred taxes ....................... (120,500) 131,900 (526,100) 58,600
(Gain) loss on sales of assets ......... (7,700) (2,800) (7,100) 15,700
Increase (decrease) in allowance
for doubtful accounts ................ (500) 25,000 81,700 31,000
Restructuring charges .................. 400,000 3,637,400
Changes in assets and liabilities
that provided (used) cash:
Accounts and other receivables ......... 180,200 381,400 1,449,200 (499,500)
Inventories ............................ 305,600 (93,500) 470,600 (646,200)
Prepaids ............................... 96,700 (98,600) 125,600 142,600
Other assets ........................... 100,500 (229,700) 13,300 (345,300)
Accounts payable ....................... (726,800) (87,900) (741,600) (150,300)
Accrued liabilities .................... (199,400) 32,800 (203,300) 420,800
Net cash provided by (used in)
discontinued operations .................. (251,300) (398,500) 793,400 (768,300)
--------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities ....................... (654,800) 184,400 2,298,700 (186,400)
--------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property,
plant & equipment ........................ 14,100 2,503,000 14,100
Collections on notes receivable ............ 57,700 2,900 64,100 7,900
Capital expenditures ....................... (62,300) (538,300) (1,110,200) (1,904,200)
Net cash provided by (used in)
discontinued operations .................. 19,100 (850,900) (141,500) (5,097,800)
--------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities ................................. 14,500 (1,372,200) 1,315,400 (6,980,000)
--------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit .......... 795,000 524,000 (2,144,000) 5,256,300
Proceeds from long-term obligations ........ 503,500 395,900 503,500
Proceeds from issuance of common stock ..... 5,000 5,000
Purchases of common stock .................. (11,900)
Payments on long-term obligations .......... (354,100) (407,000) (2,466,300) (1,128,200)
Net cash provided by (used in)
discontinued operations .................. (125,800) (144,200) 336,700 3,660,900
--------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities ................................. 315,100 481,300 (3,889,600) 8,297,500
--------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH .............. (325,200) (706,500) (275,500) 1,131,100
CASH ......................................... 396,500 2,157,200 346,800 319,600
--------- ----------- ----------- -----------
CASH END OF PERIOD ........................... $ 71,300 $ 1,450,700 $ 71,300 $ 1,450,700
========= =========== =========== ===========
OTHER CASH FLOW INFORMATION - INTEREST PAID .. $ 396,500 $ 222,900 $ 531,000 $ 778,600
========= =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
SECOM GENERAL CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
General
The consolidated financial statements included herein have been
prepared by Secom General Corporation (the "Company") without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate so that the information presented is not misleading.
In the opinion of management, the financial statements as of June 30, 1998
reflect all adjustments (including normal recurring accruals and other
matters discussed herein) which are necessary to present a fair statement of
the results for the period then ended. These financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's 10-K for the fiscal year ended
September 30, 1997.
Business
The Company is a publicly traded holding company with four wholly
owned subsidiaries operating in two business segments:
Metal Parts Forming
o Uniflow Corporation ("Uniflow")
Tooling
o Form Flow, Inc. ("Form Flow")
o L & H Die, Inc. ("L & H Die")
o Micanol, Inc. ("Micanol")
Early in the year, the Company had operated a third business
segment, Production Machining, through its Milford Manufacturing subsidiary.
The Company sold Milford's brake fluid valve machining assets and business in
a March 1998 transaction, which had accounted for over 90% of its sales.
Remaining assets in the Production Machining segment, consisting primarily of
a starter motor shaft machining line of equipment, are shown at their
estimated net realizable values.
Principles of consolidation
The interim consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions are eliminated.
Reclassifications
Certain reclassifications have been made to the prior period
balances for comparative purposes.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
5
<PAGE>
Earnings (loss) per share
Effective for the Company's consolidated financial statements for
the quarter ended December 31, 1997, it adopted SFAS No. 128, "Earnings per
Share," which replaces the presentation of primary earnings per share ("EPS")
and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to stockholders by the weighted-average number of shares
outstanding for the period. Similar to fully diluted EPS, diluted EPS assumes
the issuance of common stock for all other potentially dilutive equivalent
shares outstanding. All prior period EPS data have been restated. The
adoption of this new accounting standard did not have a material effect on
the Company's reported EPS amounts.
The Company had 313,000 shares of stock options outstanding at
June 30, 1998 at a weighted average option price of $2 per share. Since the
option prices were all at or above the stock's trading price as of June 30,
1998, they had no effect on the diluted EPS calculation
NOTE 2. INVENTORIES
Inventories at June 30, 1998 and September 30, 1997 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, Sept. 30,
1998 1997
------- ---------
<S> <C> <C>
Raw materials ............... $ 801 $1,102
Work-in-process ............. 1,802 2,772
Finished goods .............. 2,145 2,263
------ ------
$4,748 $6,137
====== ======
</TABLE>
NOTE 3. DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT
The Company's Milford Manufacturing subsidiary had comprised its
Production Machining segment. The assets and business of Milford's brake
fluid valve part machining business, including the subsidiary's land and
building, were sold in March 1998. The brake valve machining business had
accounted for over 90% of Milford's sales base. The Company received $3
million in cash and was relieved of approximately $5.9 million of liabilities
in the sale transaction. The Company had acquired the operation in November
1996.
In July 1998, the Company also received $450,000 for the sale of
certain Milford equipment associated with the machining of various automotive
seating components. Milford's remaining assets and operations, consisting of
a starter motor machining line of equipment, have been recorded at their net
estimated realizable values.
The results of the Production Machining segment have been
reported separately as discontinued operations in the Consolidated Statements
of Operations. Prior period consolidated financial statements have also been
restated to present the Production Machining segment as a discontinued
operation. Summarized results of the Production Machining segment are as
follows:
6
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ...................... $ 751 $3,818 $ 8,686 $9,379
Total earnings (loss) related
to discontinued operations ... (450) 227 (1,522) 425
</TABLE>
NOTE 4. RESTRUCTURING CHARGES - METAL PARTS FORMING SEGMENT
The Company's Metal Parts Forming segment is comprised of the
Uniflow subsidiary. During the quarter ended March 31, 1998, the Company
began implementing a restructuring plan at Uniflow. The plan includes
emphasizing the cold forging business, while selling off much of its cold
heading capacity and business. As a result, the Company recorded asset
writedowns in connection with the restructuring in the March 31, 1998 and
June 30, 1998 quarters. Those charges covered costs of discontinuing certain
product lines, including related machinery writedowns, and costs associated
with the consolidation of production into two facilities from three. Also, in
conjunction with the restructuring, the Company recorded writedowns of
machinery and equipment consistent with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Major components of the Uniflow restructuring charges recorded in the quarter
ended March 31,1998 are as follows:
<TABLE>
<S> <C>
Discontinued product lines -
inventories & related costs $ 680
Plant consolidation costs 220
---
Cost of sales - restructuring 900
Machinery writedowns 900
Goodwill 1,620
Less gain on Uniflow machine (758)
------
Other restructuring costs 1,762
</TABLE>
During the quarter ended June 30, 1998, the Company recorded
additional asset writedowns totaling $400,000, related to Uniflow assets held
for sale. The additional reserves reflect revised estimates of the net
realizable values of these assets.
NOTE 5. LONG TERM DEBT AND WORKING CAPITAL LINE OF CREDIT
Long term debt principally consists of real estate mortgages,
equipment term notes, and industrial revenue bonds. Some of the loan
agreements associated with long term debt and the Company's working capital
bank line of credit impose financial covenants requiring the Company to
maintain certain levels of working capital, specified leverage ratios and
certain levels of fixed expense coverage.
As a result of recent operating losses, the Company was unable to
remain in compliance with certain lender financial covenants. Accordingly,
all long term debt subject to covenant violations has been reclassified as
current. Despite the non-compliance with certain financial covenants, the
Company has made every scheduled payment of principal and interest on a
timely basis. The Company is in the process of negotiating revised covenants
and other debt terms with those lenders.
Through March 31, 1998, the Company had operated under a
committed three-year bank revolving line of credit with its primary lender.
As a result of the subsequent covenant violations, that lender has stipulated
that the revolving line become a "due on demand" instrument. Based on recent
discussions with the lender, the Company believes it will enter into a
forbearance agreement, whereby that
7
<PAGE>
lender will agree to continue to extend credit for a period of 60 to 90 days.
After that time period, the lender will reassess the Company's financial
status and the basis, if any, by which it would continue to extend credit to
the Company. Under the current line of credit arrangement, maximum borrowings
against inventory were reduced from $1 million to $500,000 in July 1998.
The equipment related to remaining Milford operations is financed
under Industrial Development Revenue Bonds (the "Bonds") issued by the
Company to one financial institution. Outstanding principal on this debt was
approximately $2.5 million at June 30, 1998 and is collateralized by
equipment with a net book value of approximately $3.2 million. This equipment
is in the process of being moved to another locality as part of the steps to
discontinue operating in that segment. Moving that equipment to another
locality requires an early extinguishment of the related Bonds.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 and September 30,
1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, Sept. 30,
1998 1997 Life
------- --------- ----
<S> <C> <C> <C>
Machinery................... $15,027 $26,678 2 to 20 years
Buildings and improvements.. 4,773 6,581 3 to 30 years
Land........................ 448 897 n/a
Furniture and fixtures...... 1,767 1,735 5 to 7 years
Vehicles.................... 123 149 3 years
Construction in
progress/other............ 12 1,334 n/a
------- -------
Total....................... 22,150 37,374
Accumulated depreciation.... (8,964) (9,372)
------- -------
Net property, plant and
equipment................. $13,186 $28,002
======= =======
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This management's discussion and analysis of financial condition
and results of operations includes a number of forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward looking statements are subject to
certain risks and uncertainties, including those discussed below, that could
cause results to differ materially from historical results or those
anticipated. In this report the words "expects", "anticipates", "believes",
and similar expressions identify forward-looking statements, which speak only
as to the date hereof.
The Company operates in two business segments: Metal Parts
Forming and Tooling. The Metal Parts Forming segment manufactures cold forged
and cold headed parts, while the Tooling Segment provides perishable tooling
for the cold heading industry.
In the quarter ended March 31, 1998, the Company sold a
substantial portion of the assets and business associated with a third
segment - Production Machining. This segment was comprised of the Milford
Manufacturing facility, which was recently sold, and is now shown as a
discontinued operation. Prior statements of operations have been restated to
reflect this discontinued operation and the Company recorded an estimated
loss of $78,000 on the Milford disposal, which includes an accrual of $1.7
million related to the remaining Milford assets and business that were not
sold, its starter motor shaft machining line. The accrued reserves cover
estimated operating losses until disposal of the line and the writedown of
that machinery to its estimated net realizable value.
Various circumstances have made the sale of the starter motor
shaft machining line assets and business unlikely in the near term. Those
circumstances involve contractual terms with the customer for those parts,
production related issues and the terms of the debt financing associated
with that machining line. To overcome some of these obstacles, the
Company is negotiating with another manufacturer for the "turn-key"
production of parts for delivery to the customer. Under this scenario, while
the Company would retain substantial ongoing economic risk related to this
production, it would recoup its machinery and startup costs based on pieces
sold to the customer. Successful implementation of this plan is dependent on
customer approval, the ability of the subcontractor to adequately perform and
the Company's ability to refinance approximately $2.5 million in debt secured
by this equipment. Management hopes to have a definite plan underway with
respect to the starter motor machining line in the quarter ending September
30, 1998.
During the quarter ended March 31, 1998, the Company developed a
restructuring plan to significantly reduce continuing operating losses at its
Uniflow unit. Under this plan, Uniflow is emphasizing its traditional press
forging product lines, while curtailing its cold heading capabilities and
business. Despite these efforts, losses widened in the quarter ended June 30,
1998, as productivity continued to decline. Management attributes some of the
lower production efficiency to its plant consolidation efforts during the
quarter. The Company may consider additional restructuring steps or other
options if the Uniflow losses are not curtailed in the near term.
In conjunction with the restructuring, the Company has
written-off certain assets associated with product lines that are no longer
part of Uniflow's continuing core business. In March 31, 1998, those
write-offs totaled $2.66 million and include the write-off of $1.62 million
in remaining goodwill recorded in connection with the 1991 acquisition of
Uniflow. These writeoffs were partially offset by the $758,000 gain realized
on the sale of Uniflow's six die-station cold header machine in March 1998.
In the quarter ended June 30, 1998, the Company recorded additional writeoffs
totaling $400,000, reflecting a revision to its previous estimates on the net
realizable value of various Uniflow assets for sale.
9
<PAGE>
The continuing Uniflow operating losses have caused the Company
to conserve its working capital. In July 1998, the Company's primary lender
stipulated that its committed working capital revolver line of credit become
a "due on demand" instrument. Based on recent discussions, the Company
believes it will enter into a forbearance agreement with its primary lender,
whereby that lender will agree to continue to extend credit for a period of
60 to 90 days. After that time period, the lender will reassess the Company's
financial status and the basis, if any, by which it would continue to extend
credit to the Company. Under the current line of credit arrangement, maximum
borrowings against inventory were reduced from $1 million to $500,000 in July
1998.
In the near term, the Company's ability to continue to fund
operations will be dependent on its subsidiary operating results,
particularly its Uniflow unit. Management will consider additional steps
to generate liquidity based on those results, which could include
additional restructuring, asset sales and debt refinancing.
The Company recorded a net loss of ($948,900) in the current
quarter, or ($0.18) per share, compared to net income of $157,100, or three
cents per share, in the same prior year quarter. For the nine months ended
June 30, 1998, the Company recorded a net loss of ($5,781,400), or ($1.08)
per share, compared to net income of $251,000, or five cents per share, in
the same prior year period.
RESULTS FROM OPERATIONS
SEGMENT REVIEW
<TABLE>
<CAPTION>
Metal Parts Forming Segment
(in thousands)
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
6/30/98 6/30/97 6/30/98 6/30/97
Amount % Amount % Amount % Amount %
------- ----- ------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales (1) $4,044 100.0 $5,155 100.0 $13,914 100.0 $13,959 100.0
Gross margin (341) (8.4) 192 3.7 (1,880) (13.5) 207 1.5
Operating expense 729 18.0 465 9.0 3,353 24.1 1,254 9.0
Operating loss (2) (1,070) (26.5) (273) (5.3) (5,233) (37.6) (1,047) (7.5)
<FN>
- ---------
(1) Includes intercompany activity.
(2) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
The Metal Parts Forming segment, comprised of Uniflow
Corporation, manufactures metal parts from tube, bar and coil, using cold
forging and cold forming techniques. Primary parts currently manufactured are
suspension ball joint housings, transmission shafts and gear housings and
truck wheel studs.
Uniflow's sales decreased 21.6% in the current quarter compared to
the same quarter last year. The current quarter sales decreases are largely a
result of Uniflow's business restructuring. In the prior year quarter, Uniflow
generated approximately $1.2 million in airbag housing parts and cold formed
parts, for which it had no sales in the current quarter. Sales of Uniflow's
core business products fluctuated for the current quarter comparative period.
Although incoming orders remained strong for wheel studs, sales of this
product line declined moderately for the comparative current quarter, due to
lower productivity, affected partially by plant consolidation efforts. Sales
of transmission and suspension parts were higher, due to sales of two new
transmission parts that started in late 1997 and strong orders for
suspension parts.
For the nine months year to date, Uniflow sales were essentially
flat, although the sales mix changed significantly. Sales of transmission
parts increased by almost 70%, due to the shipment of the two additional part
variations, while sales of wheel studs and suspension parts increased
moderately.
10
<PAGE>
Uniflow's gross margin was negative in the current quarter at
(8.4%), as a percentage of sales, compared to 3.7% of sales in the same prior
year quarter. For the nine month comparative periods, the gross margin was
(13.5%) and 1.5%, respectively. The comparative declines in gross margin for
the quarter and year-to-date periods reflects higher labor and factory
support cost and $900,000 of costs related to Uniflow's restructuring
recorded in the quarter ended March 31, 1998. Labor costs were higher largely
due to plant consolidation costs, QS 9000 certification efforts, and overall
declines in production efficiency. The restructuring charges were related of
discontinuing product lines and plant consolidation costs. Management is
emphasizing production scheduling, job preparation (setup, tooling, etc.) and
product pricing to improve its gross margin.
Operating expense was 18.0% in the current quarter (as a
percentage of sales), compared to 9.0% of sales in the prior comparative
quarter. Operating expense was higher in the current quarter due to the
$300,000 writedown of certain assets held for sale to their estimated net
realizable values and the loss of approximately $100,000 realized on the sale
of miscellaneous equipment. For the nine month comparative periods, operating
expense was 24.1% and 9.0%, respectively. In addition to the current quarter
writedowns, the year to date increase in operating expense reflects the
writeoff of $1.62 million of goodwill, which was recorded in the March 1998
quarter.
<TABLE>
<CAPTION>
Tooling Segment
(in thousands)
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
6/30/98 6/30/97 6/30/98 6/30/97
Amount % Amount % Amount % Amount %
------- ----- ------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales (1) $4,415 100.0 $4,592 100.0 $13,371 100.0 $13,793 100.0
Gross margin 985 22.3 1,201 26.2 3,075 23.0 3,611 26.2
Operating expense 598 13.5 572 12.5 1,747 13.1 1,681 12.2
Operating profit (2) 387 8.8 629 13.7 1,328 9.9 1,930 14.0
<FN>
- ---------
(1) Includes intercompany activity
(2) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
The Tooling segment ("Tooling"), comprised of Form Flow, L & H
Die and Micanol, manufactures production tooling for the cold heading/forming
industry. Subsequent to June 30, 1998, the Company moved its Micanol
operation from Novi, Michigan to its L & H Die facility in Romulus, Michigan.
Tooling sales decreased 3.9% in the current quarter compared to
the same quarter last year, while for the nine month comparative period sales
decreased 3.1%. Management attributes the sales decline during the current
periods to slower orders within the entire cold heading industry compared to
the same periods in the prior year, when industry orders were stronger.
Management believes that the lower sales reflects a normal fluctuation within
its marketplace.
Tooling gross profit as a percentage of sales for the current
quarter was 22.3%, compared to 26.2% in the prior comparative quarter. For
the nine month comparative periods, gross profit was 23.0% and 26.2%,
respectively. The gross profit decreases for the comparable periods were
primarily attributable to the lower sales level combined with higher labor
costs. Management expects improved labor utilization through the recent
consolidation of Micanol's operation within L & H Die's facility.
Tooling operating expense was slightly higher in the current
quarter, as a percentage of sales, at 13.5% compared to 12.5% in the same
prior year quarter. For the nine month year to date comparative periods,
operating expense was 13.1% of sales and 12.2% of sales, respectively. The
slightly higher
11
<PAGE>
operating expense for the comparative periods presented primarily reflects
higher administrative personnel expense.
Corporate Overhead and Interest Expense
Unallocated corporate overhead was $498,600 in the current
quarter, compared to $238,300 in the same period of the prior year. For the
nine month comparative periods, corporate overhead was $1.40 million compared
to $736,800 in the prior year. The increases for the comparative periods were
principally due to higher building and machinery depreciation expense and
higher personnel expense. The increased depreciation reflects machinery owned
directly by the Company, primarily production equipment utilized by Uniflow
to machine transmission parts, and increased depreciation resulting from
investments in new information systems. The higher personnel expense reflects
additional personnel relating to managing the information systems as well as
additional assistance with subsidiary manufacturing efforts.
Interest expense for the current quarter was $197,600 compared to
$290,300 in the same prior year period. For the nine month comparative
periods, interest expense was $728,100 and $822,400, respectively. The lower
interest expense primarily reflects lower borrowings for the comparative
quarter and year to date periods. Borrowings have been reduced in the current
comparative periods as proceeds from various asset sales have been used to
reduce debt.
FINANCIAL CONDITION AND LIQUIDITY
As a result of continuing operating losses, the Company was in
default of various debt covenants with two lenders, causing a default
situation with all of its secured debt lenders. Consequently, all long-term
debt in covenant violation has been reclassified as current liabilities.
Management is negotiating with its lenders to develop mutually acceptable
terms upon which to continue the Company's debt funding on a long term basis.
Those negotiations will include attempts to refinance the $2.5 million in
industrial revenue bonds that are secured by the starter motor shaft line, as
the moving of that collateral requires an early extinguishment of those
bonds. The success of those efforts will be largely dependent on the
timeframe by which management can significantly reduce continuing operating
losses. Despite the covenant default situation, the Company has made every
scheduled payment of principal and interest through August 1998 on a timely
basis.
Net cash used in operating activities, before changes in working
capital items, was $160,300 in the quarter ended June 30, 1998, while working
capital changes and discontinued operations used $494,500 for net cash used
in operating activities of $654,800. The operating use of cash primarily
reflects operating losses from the Company's Uniflow unit. In the prior year
quarter, net cash provided by operating activities, before changes in working
capital items, was $678,400, while working capital changes and discontinued
operations used $494,000, for net cash provided by operating activities of
$184,400. In the prior year quarter, the positive cash provided by operating
activities primarily reflected the lower operating loss for the quarter
compared to the current period.
For the nine months ended June 30, 1998, net cash provided by
operating activities, before changes in working capital items, was $391,500,
while working capital items and discontinued operations provided $1.91
million, for a total of $2.30 million cash from operating activities. The
nine month loss from continuing operations of $4.71 million includes
nonrecurring writedowns of $3.64 million relating to Uniflow's restructuring.
Accounts receivable provided cash of $1.45 million, which was largely related
to the collection of accounts from the discontinued operation. In the prior
year period, net cash from operating activities, before changes in working
capital, was $1.66 million, while working capital items and discontinued
operations used $1.85 million, for net cash used in operations of $186,400.
The working capital use of cash primarily related to higher accounts
receivable and inventories relating to the ramping up of various Uniflow
projects.
Net cash provided by investing activities was $14,500 in the
current quarter. Capital expenditures totaled $62,300 during the current
quarter, primarily for the Tooling segment. In the same prior year
12
<PAGE>
quarter, net cash used in investing activities was $1.37 million, as Uniflow
acquired new equipment for its expanded transmission part business, while
discontinued operations used $850,900, primarily equipment for its starter
motor shaft machining line. For the nine month period ended June 30, 1998,
net cash provided by investing activities was $1.31 million, as cash from the
FX cold former sale was partially offset by $1.11 million in capital
expenditures. Those expenditures were primarily for a building expansion at L
& H Die, production tooling at Uniflow and corporate wide information
systems. For the nine month period ended June 30, 1997, net cash used in
investing activities was $6.98 million, of which $1.9 million related to new
equipment, primarily for Uniflow's expanded transmission part machining
capability, while $5.1 million related to the discontinued operation, which
was primarily for funding of the starter motor shaft machining line.
In the current quarter, net cash provided by financing activities
was $315,100. The Company increased its borrowings by $795,000 under its bank
line of credit arrangement to fund operations, offset by scheduled debt
payments totaling $354,100 on long term obligations. In the same prior year
quarter, net cash provided by financing activities was $481,300, of which
$524,000 was provided by increased borrowing on the Company's bank revolving
line of credit, offset by scheduled principal payments of $407,000.
For the nine months ended June 30, 1998, net cash used in
financing activities was $3.89 million, as the Company reduced its bank line
of credit by $2.1 million, primarily from the sale of the Milford assets and
the Uniflow FX 1250 cold former, while payments on long term obligations
totaled $2.47 million. An early principal payment of $1.2 million was made in
conjunction with the sale of Uniflow's FX 1250 cold former in March 1998. In
the prior year nine month period, net cash provided by financing activities
was $8.30 million, as the bank line of credit was used to acquire the Milford
operation and fund its working capital. Also, in the prior year, discontinued
operations provided $3.66 million in cash from financing activities,
primarily related to bond draws for the progress payments due on machinery
for the starter motor shaft machining line.
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults in Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
A Report on Form 8-K was filed by the Company on June 22, 1998
with respect to the restructuring of the Company's executive
management.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SECOM GENERAL CORPORATION
(Registrant)
By: /s/ Paul Clemente August 14, 1998
--------------------------------
Paul Clemente
Vice President
By: /s/ Scott J. Konieczny August 14, 1998
-------------------------------
Controller and
Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 71,300
<SECURITIES> 0
<RECEIVABLES> 3,866,000
<ALLOWANCES> (134,500)
<INVENTORY> 4,747,500
<CURRENT-ASSETS> 14,016,100
<PP&E> 22,150,700
<DEPRECIATION> 8,964,400
<TOTAL-ASSETS> 27,953,300
<CURRENT-LIABILITIES> 18,994,200
<BONDS> 0
<COMMON> 533,500
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,953,300
<SALES> 24,778,200
<TOTAL-REVENUES> 24,778,200
<CGS> 23,040,600
<TOTAL-COSTS> 29,316,500
<OTHER-EXPENSES> (15,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 728,100
<INCOME-TAX> (541,100)
<INCOME-PRETAX> 0
<INCOME-CONTINUING> (4,709,700)
<DISCONTINUED> (1,071,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,781,400)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
