FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 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 MARCH 31, 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
MAR 31 1998 SEP 30 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash ........................................... $ 396,500 $ 346,800
Accounts receivable, net ....................... 4,171,400 6,772,100
Other receivables .............................. 117,600 222,200
Inventories .................................... 4,962,500 6,136,900
Prepaids and other ............................. 270,200 465,900
Deferred tax asset ............................. 743,600 651,000
Net assets held for sale ....................... 1,900,000
Net assets of discontinued subsidiary........... 3,195,000
----------- -----------
TOTAL CURRENT ASSETS .................... 15,756,800 14,594,900
Cash restricted for equipment .................. 526,500
Property, plant & equipment, net ............... 13,796,600 28,002,300
Other assets ................................... 991,700 3,084,600
----------- -----------
TOTAL ASSETS ........................... $30,545,100 $46,208,300
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MAR 31 1998 SEP 30 1997
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term obligations ..... $ 3,853,100 $ 3,435,500
Trade accounts payable .......................... 2,848,800 4,002,100
Accrued wages and benefits ...................... 564,000 1,014,800
Accrued other ................................... 2,144,700 453,500
Debt secured by assets of discontinued
subsidiary...................................... 2,614,100
------------ ------------
TOTAL CURRENT LIABILITIES ..................... 12,024,700 8,905,900
Long term obligations ........................... 7,717,200 17,710,600
Post retirement health care benefits ............ 3,396,100
Other liabilities ............................... 485,100
Deferred tax liabilities ........................ 1,347,900 1,411,000
------------ ------------
TOTAL LIABILITIES ............................. 21,089,800 31,908,700
------------ ------------
Stockholders' equity common stock, $.10 par
value 10,000,000 shares authorized:
March 31, 1998 - 5,335,400 shares issued
September 30, 1997 - 5,340,400 shares issued .. 533,500 534,000
Additional paid-in capital ...................... 18,401,000 18,412,400
Accumulated deficit ............................. (9,479,200) (4,646,800)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY .................... 9,455,300 14,299,600
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 30,545,100 $ 46,208,300
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar 31 1998 Mar 31 1997 Mar 31 1998 Mar 31 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET SALES .......................................... $ 8,545,000 $ 9,190,700 $ 16,899,100 $ 17,234,600
COST OF SALES - PRODUCTION ......................... 7,625,900 7,656,900 14,918,500 14,544,400
COST OF SALES - RESTRUCTURING CHARGES............... 900,000 900,000
----------- ----------- ------------ ------------
GROSS PROFIT ....................................... 19,100 1,533,800 1,080,600 2,690,200
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ....... 1,616,900 1,171,300 2,934,500 2,387,100
OTHER RESTRUCTURING CHARGES......................... 1,762,000 1,762,000
----------- ----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS ...................... (3,359,800) 362,500 (3,615,900) 303,100
OTHER INCOME (EXPENSE)
Interest ........................................ (195,300) (287,500) (530,500) (532,100)
Other, net ...................................... (66,400) 56,900 (19,000) 76,100
----------- ----------- ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ............................. (3,621,500) 131,900 (4,165,400) (152,900)
INCOME TAX BENEFIT (EXPENSE) ....................... 322,700 (46,900) 404,700 48,300
----------- ----------- ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .......... (3,298,800) 85,000 (3,760,700) (104,600)
DISCONTINUED OPERATIONS:
Income (loss) from operations of
discontinued subsidiary ....................... (542,800) 142,300 (993,700) 198,500
Loss on disposal of subsidiary, including
provision of $400,000 for operating
losses during phase-out period (including
applicable income tax provision of
$258,900) ..................................... (78,000) (78,000)
----------- ----------- ------------ ------------
NET INCOME (LOSS) .................................. $(3,919,600) $ 227,300 $ (4,832,400) $ 93,900
=========== =========== ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations ........ $ (0.62) $ 0.01 $ (0.70) $ (0.02)
Income (loss) from operations of
discontinued subsidiary ....................... (0.10) 0.03 (0.19) 0.04
Loss on disposal of discontinued subsidiary ..... (0.01) (0.01)
----------- ----------- ------------ ------------
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE ... $ (0.73) $ 0.04 $ (0.90) $ 0.02
=========== =========== ============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING .............................. 5,335,400 5,480,400 5,346,100 5,488,500
=========== =========== ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar 31 1998 Mar 31 1997 Mar 31 1998 Mar 31 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations ............................ $(3,298,800) $ 85,000 $(3,760,700) $ (104,600)
Adjustments to reconcile income
(loss) from continuing operations
to net cash used in operations:
Depreciation and amortization ....... 669,500 575,300 1,398,000 1,134,800
Provision for (benefit from)
deferred taxes .................... (313,600) 21,900 (405,600) (73,300)
Loss on sales of assets ............. 600 600 18,500
Increase in allowance for
doubtful accounts ................. 65,200 3,000 82,200 6,000
Restructuring charges ............... 3,237,400 3,237,400
Changes in assets and liabilities
that provided (used) cash:
Accounts and other receivables ...... 623,800 (857,400) 1,269,000 (880,900)
Inventories ......................... (221,800) (369,800) 165,000 (552,700)
Prepaids ............................ (18,400) 58,500 28,900 241,200
Other assets ........................ (79,200) (83,300) (87,200) (115,600)
Accounts payable .................... (1,169,900) 59,000 (14,800) (62,400)
Accrued liabilities ................. 79,200 243,900 (3,900) 388,000
Net cash provided by (used in)
discontinued operations ............... 2,474,200 24,900 1,044,600 (369,900)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities .................... 2,048,200 (239,000) 2,953,500 (370,900)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of
property, plant & equipment .......... 2,500,000 2,503,000
Collections on notes receivable ......... 3,300 2,700 6,400 5,000
Capital expenditures .................... (360,100) (1,202,400) (1,047,900) (2,073,600)
Net cash used in discontinued
operations ............................ (84,600) (2,250,500) (160,600) (3,539,300)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities .................... 2,058,600 (3,450,200) 1,300,900 (5,607,900)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit ....... (2,180,000) 2,090,000 (2,939,000) 4,732,300
Proceeds from long-term obligations ..... 258,500 395,900
Purchases of common stock ............... (11,900)
Payments on long-term obligations ....... (1,525,200) (494,900) (2,112,200) (1,002,400)
Net cash used in discontinued
operations ............................ (385,300) (64,000)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities .................... (3,832,000) 1,595,100 (4,731,200) 3,729,900
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND RESTRICTED CASH ..................... 274,800 (2,094,100) (476,800) (2,248,900)
CASH AND RESTRICTED CASH, BEGINNING
OF PERIOD ............................... 121,700 4,253,800 873,300 4,408,600
----------- ----------- ----------- -----------
CASH AND RESTRICTED CASH, END OF PERIOD ... $ 396,500 $ 2,159,700 $ 396,500 $ 2,159,700
=========== =========== =========== ===========
OTHER CASH FLOW INFORMATION - INTEREST
PAID .................................... 281,100 $ 222,900 $ 531,000 $ 491,500
=========== =========== =========== ===========
<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 March 31, 1998
reflect all adjustments (normal recurring accruals plus restructuring and
discontinued operations as discussed below) 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
Tooling
o Form Flow, Inc. ("Form Flow")
o L & H Die, Inc. ("L & H Die")
o Micanol, Inc. ("Micanol")
The Company sold substantially all of its Milford Manufacturing
Corporation subsidiary ("Milford") in March 1998, which had comprised
the Production Machining segment.
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 March
31, 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 March 31, 1998,
they had no effect on the diluted EPS calculation.
NOTE 2. INVENTORIES
Inventories at March 31, 1998 and September 30, 1997 are summarized
as follows:
<TABLE>
<CAPTION>
Mar. 31, 1998 Sept. 30, 1997
------------- --------------
<S> <C> <C>
Raw materials ...... $1,008 $1,102
Work-in-process .... 2,088 2,772
Finished goods ..... 1,867 2,263
------ ------
$4,963 $6,137
====== ======
</TABLE>
NOTE 3. DISCONTINUED OPERATIONS - MILFORD MANUFACTURING CORPORATION
The Company's Production Machining segment was comprised of one
subsidiary, Milford Manufacturing Corporation. The Company sold substantially
all of its Milford subsidiary on March 16, 1998, which primarily machines
brake fluid valve parts for one customer. The Company had acquired the
operation on November 1, 1996. Remaining Milford operations are expected to
be sold in the coming months. Accordingly, 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:
<TABLE>
<CAPTION>
(in thousands)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Mar. 31 1998 Mar. 31 1997 Mar. 31 1998 Mar. 31 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 4,154 $ 3,797 $ 7,935 $ 5,561
Earnings (loss) from discontinued
operation before taxes (476) 247 (994) 330
Estimated gain on disposal of
business before taxes 181 181
Estimated tax provision (326) (105) (259) (132)
------- ------- ------- -------
Total earnings (loss) related to
discontinued operations (621) 142 (1,072) 198
</TABLE>
6
<PAGE>
As consideration for the sale of the Milford brake valve machining
assets and real property, the Company received $3 million in cash and was
relieved of approximately $5.9 million of liabilities. The remaining net
assets of the Production Machining segment held for sale have been recorded
at their net estimated realizable value.
NOTE 4. RESTRUCTURING CHARGES - METAL PARTS FORMING SEGMENT
During the quarter ended March 31, 1998, the Company recorded asset
writedowns in its Metal Parts Forming segment relating to the restructuring
of that business segment. The restructuring charges primarily relate to
discontinuing certain product lines, the disposal of various production
machines relating to those product lines 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 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>
NOTE 5. LONG TERM DEBT
Long term debt principally consists of a revolving bank line of
credit (borrowing availability which is based on accounts receivable and
inventory levels), real estate mortgages, equipment term notes, and
industrial revenue bonds. Some of the loan agreements associated with long
term debt 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 operating losses recorded in
the current quarter, which were primarily the result of restructuring charges
at the Uniflow unit and the discontinued production machining segment, the
Company was unable to remain in compliance with certain lender financial
covenants. Despite the non-compliance with certain financial covenants at
March 31, 1998, the Company has made every scheduled payment of principal and
interest on a timely basis.
The Company expects to receive waivers from its lenders and is in
the process of negotiating revised covenants and other debt terms with those
lenders. Based on discussions with its primary lender, the Company expects to
convert its existing $4 million committed revolving line of credit and $2
million line of credit due on demand, to a $4 million bank line of credit due
on demand, at the same or similar interest rate. Accordingly, the Company's
revolving line of credit for the current period is classified as a current
liability.
7
<PAGE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1998 and September 30,
1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Mar. 31, 1998 Sept. 30, 1997 Life
------------- -------------- ----
<S> <C> <C> <C>
Machinery ....................... $ 15,692 $ 26,678 2 to 20 years
Buildings and improvements ...... 4,757 6,581 3 to 30 years
Land ............................ 448 897 n/a
Furniture and fixtures .......... 1,737 1,735 5 to 7 years
Vehicles ........................ 143 149 3 years
Construction in progress/other .. 16 1,334 n/a
-------- --------
Total ........................... 22,793 37,374
Accumulated depreciation ........ (8,996) (9,372)
-------- --------
Net property, plant and equipment $ 13,797 $ 28,002
======== ========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
This management's discussion and analysis of financial condition and
results of operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and
financial performance. These forward looking statements are subject to
certain risks and uncertainties, including those discussed below, that could
cause results to differ materially from historical results or those
anticipated. In this report the words "expects", "anticipates", "believes",
and similar expressions identify forward-looking statements, which speak only
as to the date hereof.
The Company operates in 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.
The Company had operated a third business segment, Production
Machining, during the current quarter. The Company sold a substantial portion
of the assets and business associated with that segment in March 1998.
Accordingly, this segment is shown as a discontinued operation and prior
statements of operations have been restated to reflect this business
disposition. The Company recorded an estimated loss of $78,000 on the Milford
disposal. This estimated loss includes an accrual of $1.7 million related to
the starter motor machining line, covering estimated losses until its
dissolution and the writedown of machinery to its estimated net realizable
value. Cash proceeds of $3 million received on the Milford sale in March 1998
were primarily used to pay down bank debt.
During the current quarter, the Company developed a restructuring
plan for its Uniflow unit designed to significantly reduce continuing
operating losses. Under the restructuring plan, Uniflow will emphasize its
traditional press forging product lines, while curtailing its cold heading
capabilities and business. 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. Those write-offs total
$2.66 million and include the write-off of $1.62 million in remaining
goodwill recorded in connection with the 1991 acquisition of Uniflow. In
March 1998, consistent with its restructuring plan, Uniflow sold its National
FX 1250 six station die cold former, which was its largest cold heading
equipment investment. Uniflow recorded a gain of $758,000 on the sale,
receiving cash of $2.50 million and a note receivable for $700,000. The cash
was used to reduce bank term debt and short term borrowings.
Consolidated net sales for the quarter ended March 31, 1998
decreased 7% compared to the same quarter in the prior year. The decrease was
attributable to lower sales from both of the Company's business segments,
after elimination of intercompany sales. The Uniflow sales decrease largely
relates to management's restructuring of its sales base, while the Tooling
segment's sales were lower primarily due to lower sales at its Micanol unit.
For the six months ended March 31, 1998, sales were flat compared to the
prior year period, as Uniflow sales increases were offset by lower Tooling
segment sales. For the comparative year to date, Uniflow's sales of
transmission parts have expanded rapidly, partially offset by the
discontinuance of airbag housing part production and various wheel stud
production. On the other hand, for the comparative year to date, the Tooling
segment has experienced lower order volume at Micanol, its smallest unit.
The Company recorded a net loss of ($3,919,600) in the current
quarter, or ($0.73) cents per share, compared to net income of $227,300, or
four cents per share, in the same prior year quarter. For the six months
ended March 31, 1998, the Company recorded a net loss of ($4,832,400), or
($0.90) cents per share, compared to net income of $93,900, or two cents per
share, in the same prior year period. The
9
<PAGE>
significant loss in the current comparative periods is primarily due to asset
writedowns at the Company's Uniflow unit in connection with its business
restructuring plans.
As of March 31, 1998, the Company was in default of certain lender
financial covenants. The default situation primarily arose because of the
asset writedowns recorded in conjunction with the Uniflow business
restructuring. Management is currently renegotiating those covenants and
expects to receive waivers on the covenants in default from those applicable
lenders shortly. The Company has reclassified its revolving line of credit to
current assets based on management's anticipation its working capital line of
credit will convert to a customary "due on demand" line of credit. Management
believes that it can adequately fund operations for the foreseeable future
from cash provided by operations, amounts available on bank line of credit
arrangements, and anticipated sales of assets no longer core to the
operations.
SEGMENT REVIEW
<TABLE>
<CAPTION>
Metal Parts Forming Segment
(in thousands)
Three Months Ended Six Months Ended
------------------------------------- -----------------------------------
3/31/98 3/31/97 3/31/98 3/31/97
------------------------------------- -----------------------------------
Amount % Amount % Amount % Amount %
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales (1) $ 5,082 100.0 $ 4,847 100.0 $ 9,870 100.0 $ 8,803 100.0
Gross profit (1,090) (21.4) 217 4.5 (1,383) (14.0) 15 0.2
Operating expense 2,278 44.8 375 7.7 2,780 28.2 790 9.0
Operating loss (2) (3,368) (66.2) (157) (3.2) (4,163) (42.2) (774) (8.8)
<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 increased 4.8% in the current quarter compared to
the same quarter last year and 12.1% for the comparative six month period.
Current year sales increases of transmission shafts more than replaced the
loss of airbag housing sales, which accounted for $715,000 in sales in the
same prior year quarter, and wheel studs to one customer that have been
discontinued. Current year sales of suspension housing parts increased
by approximately 10% compared to last year. Also, Uniflow's intercompany
sales to Milford were $376,000 for the current quarter and year to date,
for which there was no activity in the prior periods.
Uniflow's gross profit was negative in the current quarter at
(21.4%), as a percentage of sales, compared to 4.5% of sales in the same
prior year quarter. For the six month comparative periods, the gross margin
was (14.0%) and 0.2%, respectively. The comparative declines in gross profit
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. Labor
costs were higher largely due to the Company's QS 9000 effort and additional
labor expended relating to the start up of various new parts in production.
The restructuring charges were related to discontinuing product lines and
plant consolidation costs. Management is focusing on its plant consolidation,
production scheduling, job preparation (setup, tooling, etc.) and product
pricing to improve its gross margin.
Operating expense was 44.8% in the current quarter (as a percentage
of sales), compared to 7.7% of sales in the prior comparative quarter. For
the six month comparative periods, operating expense was 28.2% and 9.0%,
respectively. The increase in operating expense, other than the inclusion of
$1.76 million in nonrecurring restructuring charges, reflects higher state
business taxes and higher engineering
10
<PAGE>
and sales support personnel expense. The restructuring charges were primarily
the writeoff of Uniflow's remaining goodwill.
<TABLE>
<CAPTION>
Tooling Segment
(in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
3/31/98 3/31/97 3/31/98 3/31/97
--------------------------------- ---------------------------------
Amount % Amount % Amount % Amount %
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales (1) $4,463 100.0 $4,722 100.0 $8,956 100.0 $9,200 100.0
Gross profit 985 22.1 1,204 25.5 2,089 23.3 2,410 26.2
Operating expense 635 14.2 558 11.7 1,149 12.8 1,109 12.1
Operating profit (2) 350 7.8 646 13.7 940 10.5 1,301 14.1
<FN>
(1) Includes intercompany activity
(2) Before interest, bad debt and unallocated corporate overhead expense.
</TABLE>
The Tooling Segment ("Tooling"), comprised of Form Flow, L & H Die
and Micanol, manufactures production tooling for the cold heading/forming
industry.
Tooling sales decreased 5.5% in the current quarter compared to the
same quarter last year, while for the six month comparative period sales
decreased 2.7%. Tooling 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 the sales order base was
stronger. The sales decline was partially offset by intercompany sales,
which increased for the current comparative periods. Intercompany tooling
sales are expected to decline with Uniflow's sale of its FX cold former
machine. Management believes that tooling orders will remain steady for the
remainder of the fiscal year. Although shipments were flat for the three
Tooling units during the quarter and year to date comparative periods,
management believes that Tooling sales will increase moderately for the
remainder of the fiscal year.
Tooling gross profit as a percentage of sales for the current
quarter was 22.1%, compared to 25.5% in the prior comparative quarter. For
the six month comparative periods, gross profit was 23.3% 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 intends to more closely match its direct labor costs with
sales volume so that it can maintain a higher gross profit level.
Tooling operating expense was higher in the current quarter, as a
percentage of sales, at 14.2% compared to 11.7% in the same prior year
quarter. For the six month year to date comparative periods, operating
expense was 12.8% of sales and 12.1% of sales, respectively. The higher
operating expense for the comparative periods presented primarily reflects
higher personnel expense.
Corporate Overhead, Interest Expense and Federal Income Taxes
Unallocated corporate overhead was $450,900 in the current quarter,
compared to $265,100 in the same period of the prior year. For the six month
comparative periods, corporate overhead was $901,200 compared to $498,500 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 manufacture 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 $195,300 compared to
$287,500 in the same prior year period. The decrease for the current quarter
primarily reflects a higher interest expense included in discontinued
operation in the current quarter, as borrowings attributable to the
discontinued segment were higher in the
11
<PAGE>
current quarter. For the six month comparative periods, interest expense was
$530,500 and 532,100, respectively.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities, before changes in working
capital items, was $274,800 in the quarter ended March 31, 1998, while
working capital changes used $786,300 and discontinued operations provided
$2.47 million, for net cash provided by operating activities of $2.05
million. Although the net loss from continuing operations for the current
quarter was $3.30 million, it was offset by nonrecurring charges of $3.42
million relating to Uniflow's restructuring, principally the writedown of
goodwill and other assets not related to Uniflow's core business. The working
capital use of cash was primarily due to the paydown of accounts payable,
partially offset by a reduction of accounts receivable. Net cash provided by
discontinued operations primarily reflects $3 million in cash received for
the sale of Milford facility and Milford's brake fluid valve assets, offset
by the paydown of various Milford accruals.
In the prior year quarter, net cash provided by operating
activities, before changes in working capital items, was $685,200, while
working capital changes used $949,100 and discontinued operations provided
$24,900, for net cash used in operating activities of $239,000. The working
capital use of cash was primarily related to increased accounts receivable
and inventories at Uniflow.
For the six months ended March 31, 1998, net cash provided by
operating activities, before changes in working capital items, was $521,900,
while working capital items provided $1.36 million in cash and discontinued
operations provided $1.04 million, for a total of $2.95 million cash from
operating activities. The six month net loss of $3.76 million from continuing
operations was largely offset by nonrecurring writedowns of $3.42 million
relating to Uniflow's restructuring. The working capital items that provided
cash were primarily improved accounts receivable collections. For the current
six month period, net cash provided by discontinued operations primarily
reflects $3 million in cash received for the sale of the Milford business,
offset by paydowns on related term debt and other liabilities.
In the prior year period, net cash from operating activities,
before changes in working capital, was $981,400, while working capital items
used $982,400 and discontinued operations used $369,900, for net cash used in
operations of $371,900. 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 $2.06 million in the
current quarter, as the Company received cash of $2.50 million from the sale
of Uniflow's FX 1250 cold former machine. Capital expenditures totaled
$360,100 during the current quarter, as the Tooling segment expanded its L&H
facility. In the same prior year quarter, net cash used in investing
activities was $3.45 million, as Uniflow acquired new equipment for its
expanded transmission part business, while discontinued operations used $2.25
million. For the six month period ended March 31, 1998, net cash provided by
investing activities was $1.30 million, as cash from the FX cold former sale
was partially offset by $1.05 million in capital expenditures, while $160,600
was used in discontinued operations. For the six month period ended March 31,
1997, net cash used in investing activities was $5.61 million, of which $2.07
million related to new equipment and $3.54 million related to the
discontinued operation.
In the current quarter, net cash used in financing activities was
$3.83 million. The Company reduced its borrowings by $2.18 million under its
bank line of credit arrangement and made payments totaling $1.52 million on
long term obligations, which includes an early principal payment of $1.30
million. In the same prior year quarter, net cash provided by financing
activities was $1.59 million, of which $2.09 million was provided by
increased borrowing on the Company's bank revolving line of credit, offset by
scheduled principal payments of $494,900. Cash provided by the bank revolver
was principally
12
<PAGE>
used to fund the acquisition of Milford, working capital requirements to fund
the Milford operation and progress payments on machinery and equipment
orders.
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.
Form 8-K filed May 14, 1998, regarding the resignation of David J.
Marczak, director, secretary, treasurer and chief financial officer.
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/ Robert A. Clemente May 15, 1998
--------------------------------
Robert A. Clemente
Chairman, President and CEO
By: /s/ Scott J. Konieczny May 15, 1998
--------------------------------
Controller and
Principal Accounting Officer
15
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> $ 396,500
<SECURITIES> 0
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0
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