FORM 10-K
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, 1999
Commission file number 0-14299
SECOM GENERAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 87-0410875
incorporation or organization) (IRS Employer Identification No.)
46035 GRAND RIVER AVENUE, NOVI,
MICHIGAN 48374
(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. [X]
As of December 20, 1999, 1,044,254 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 SmallCap Market System) was approximately $1,808,888.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 8
Item 3. Legal Proceedings............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 8
Item 6. Selected Financial Data....................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
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............ 17
Item 11. Executive Compensation........................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 23
Item 13. Certain Relationships and Related Transactions................ 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 26
2
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:
o Uniflow Corporation ("Uniflow") acquired in 1991
Tooling Segment:
o Form Flow, Inc. ("Form Flow") acquired in 1987
o L&H Die, Inc. ("L&H") acquired in 1987
o Micanol, Inc. ("Micanol") acquired in 1990
Production Machining Segment - Discontinued Operations:
o MMC Manufacturing Corp., formerly known as Milford
Manufacturing Corporation ("Milford") acquired in 1996 and
discontinued during 1998
In transactions occurring in March, July and October 1998, the
Company sold all of the assets of Milford. Refer to "Discontinued
Operations - Production Machining Segment" on page 8 for a description
of the foregoing.
In October 1998, the Company engaged the investment banking firm
of Goldsmith, Agio, Helms Securities, Inc. ("GAHS") to assist the Company in
a possible merger, sale or similar transaction related to the Company or its
subsidiaries. In May 1999, the Company and GAHS terminated their contract,
except GAHS has the right to receive a commission for two identified
potential buyers, if a sale were to be consummated with either one of the two
potential buyers. In addition to terminating their contract, the Company and
GAHS agreed to exclude any sales of Uniflow from any sales commission that
may be due GAHS. The Company has the right to reject any and all offers
submitted by GAHS. Additionally, the Company is currently negotiating a
definitive purchase agreement with a potential buyer of substantially all of
the assets of Uniflow. However, there are no assurances that a definitive
purchase agreement will be signed or that the transactions contemplated by
any agreement will be consummated. Separately, the Company has listed its
Novi real estate for sale.
The Company's corporate mailing address is 46035 Grand River
Avenue, 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.
3
Executive Officers of the Company
The executive officers of the Company (who serve as such at the
pleasure of the Board of Directors), their ages and the position or office
held by each, are as follows:
Name Age Positions with the Company
---- --- --------------------------
Robert A. Clemente........... 46 Chairman of the Board since 1994 and
Director since 1993
Martin J. Eidemiller........... 42 Vice President since 1994, Member of
the Operating Committee and Director
since June 1998
Paul D. Clemente.............. 36 Vice President since 1997 and Member
of the Operating Committee since
June 1998
Scott J. Konieczny............ 34 Chief Financial Officer since
October 1998, Secretary/Treasurer
since June 1998 and Member of the
Operating Committee since April 1999
Since June 1998, the Company has operated under a Board appointed
Operating Committee, which fulfills the duties of the Company's president.
Currently the Operating Committee is comprised of Paul Clemente, Martin
Eidemiller and Scott Konieczny.
Forward-looking Statements
The Company and its representatives may from time to time make
written or oral statements concerning expectations for the future which are
forward-looking statements, including statements in the Company's filings
with the Securities and Exchange Commission. Whenever possible, the Company
has identified these forward-looking statements by words or phrases such as
"will likely result", "expects", "anticipates", "believes", "forecast",
"estimate", "project" or similar expressions within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's
forward-looking statements reflect the Company's best judgment based on
current information and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed in, or
implied by, these statements. Readers are cautioned that they should not
place undue reliance on any forward-looking statements because such
statements speak only as of the date they are made.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could affect the Company's financial performance or
could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements. Among the factors that could impact the
Company's projections or goals with respect to long term growth and operating
results are: changes in the automotive, trucking and construction
4
industries, relations with collective bargaining unit employees, general
economic trends (including inflation and unemployment rates), interest rates,
the availability and cost of financing, increases in the cost of materials or
shortages in the availability of materials, the inability of governmental
entities or the Company or its suppliers, service providers or customers to
resolve potential problems with information systems or machinery related to
the arrival of year 2000, the ability to control costs in the future, greater
than expected decline in sales, increased competition in hiring and retention
of employees, the stock market, the ability to obtain price increases or
concessions, if and when needed, the inability to secure sources of working
capital, and the inability to reach a definitive agreement on the sale of any
of the Company's assets or real property.
The Company cautions that the foregoing list of important factors
may not be all-inclusive, and it specifically declines to undertake any
obligation to publicly revise any forward-looking statements that have been
made to reflect events or circumstances after the date of such statements or
to reflect the occurrence of any anticipated or unanticipated events.
Backlog and Seasonality
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 Uniflow, a QS 9000
certified company, which primarily manufactures automotive and truck parts
from steel bar, coil and tubing using cold forging and forming machines and
various types of secondary machining, such as threadrolling and piercing
equipment. During 1999, the Company continued the restructuring of Uniflow's
operations, which was started during the March 1998 quarter. Major steps
undertaken in the restructuring effort during 1999 included substantial
price increases on suspension housings and wheel studs, discontinuing
certain product lines, and the sale of its transmission shaft equipment.
Sales and Competition
Uniflow sells to both original equipment manufacturers ("OEM") and
service part manufacturers ("after-market"). Uniflow's fiscal 1999 sales were
comprised as follows: 19% wheel studs for heavy and light duty trucks; 54%
transmission gear housings and component shaft parts for automobiles and/or
light duty trucks; 24% automobile ball joint suspension housings; and 3%
miscellaneous cold headed and cold forged parts.
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 product line and
include subsidiaries of large corporations as well as smaller independent
entities.
5
Uniflow's sales are concentrated with a few customers, as four
customers comprised 87% of revenue for the fiscal year ended September 30,
1999. 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, although actual sales vary with final release instructions from
customers. Uniflow sells principally to customers in the United States.
Manufacturing and Engineering
Uniflow manufactures parts from steel bar, coil and tubing using
cut-off machines, cold forging hydraulic presses, cold heading machines,
threadrollers, broaching and piercing machines. Although part production can
involve up to 14 different production steps, primary equipment consists of
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 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, 1999, Uniflow employed a total of 83 full-time
employees compared to 145 in the prior year, as follows: 74 direct and
indirect labor (including factory floor supervision), 2 engineering, 4 office
and 3 management. Approximately 70 employees are subject to a collective
bargaining agreement that expires in April 2000.
Tooling Segment
General
The Company's Tooling Segment is comprised of Form Flow, L&H and
Micanol. In July 1998, the Company significantly reduced the size of Micanol
by selling certain equipment and transferring the remaining assets and
business to L&H. In 1995, the Company sold most of the assets and operations
of its Triple tooling subsidiary, while Form Flow absorbed its remaining
operating assets, principally its electro-diode machining capability.
The Tooling Segment 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, as well as the size and shape of the part, among other things.
6
As part of its sales and service, the Tooling Segment'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 customers are numerous and cover a wide
variety of industries, although the five largest customers comprised 47% of
revenues for the fiscal year ended September 30, 1999. If a significant
customer was lost, management believes that it could be replaced within an
estimated timeframe of 6 to 18 months, although its gross profit margin could
be adversely affected. The Tooling Segment customers manufacture items such
as automotive parts, ball bearings, industrial fasteners, hand tools, tubing,
consumer items, munitions and a wide array of OEM assembly parts. The Tooling
Segment 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 Segments
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 and L&H have separate plant facilities. Design and
engineering services are located at a Form Flow facility, and are offered by
all three of the companies comprising the Tooling Segment.
Employees
As of September 30, 1999, the Tooling Segment employed a total of
131 full-time employees compared to 134 in the prior year, as follows: 108
direct and indirect labor (including factory floor supervision), 4
engineering, 4 sales, 10 office and 5 management.
7
Discontinued Operations - Production Machining Segment
The Company's Production Machining Segment was comprised of
its wholly owned subsidiary, MMC Manufacturing Corp., f/k/a Milford
Manufacturing Corporation ("Milford"), which was acquired in November 1996.
Milford manufactured various aluminum brake components and starter motor
shafts for the automotive industry. In separate transactions occurring in
March, July and October 1998, all of Milford's assets were sold due to its
deteriorating operating results. (See Note 2 to the consolidated financial
statements included elsewhere in this Form 10-K for a description of the
disposition.)
Item 2. Properties.
The Company's mailing address is 46035 Grand River Avenue, Novi,
Michigan 48374. 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 (734) 729-3100.
2. L&H and Micanol are located in a 17,400 square foot building on
approximately two acres of land at 38200 Ecorse Road, Romulus,
Michigan 48174 and its telephone number is (734) 722-8011.
3. Uniflow is located in three buildings on approximately
six acres of land in Novi, Michigan 48374: (1) 12,400
square feet at 46001 Grand River Avenue, (2) 16,700
square feet at 46035 Grand River Avenue and (3) 32,000
square feet at 46039 Grand River Avenue. Its telephone
number is (248) 348-9370.
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 is not expected to have
a material adverse effect on the Company's consolidated financial position
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of the Company's stockholders
during its fourth fiscal quarter.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock (trading symbol "SECM") traded on
NASDAQ from June 1987 and on the NASDAQ National Market System (NMS) from
January 1992. In April 1999, trading of the Company's stock was moved to the
Nasdaq SmallCap Market System under the symbol SECM due to the Company's
failure to meet certain minimum listing requirements of the NMS.
8
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 and have been
adjusted for the one-for-five reverse stock split effective April 14, 1999.
Quarter Ended High Trade Low Trade
------------- ---------- ---------
12/31/97 12.50 8.45
3/31/98 11.25 7.50
6/30/98 12.50 6.90
9/30/98 8.60 1.55
12/31/98 4.06 0.31
3/31/99 3.13 1.25
6/30/99 3.75 1.38
9/30/99 5.13 2.50
On September 30, 1999 there were approximately 800
nominees/persons of record that held the Company's common stock. Of those
listed of record, approximately 523,000 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 of its business. In addition, bank loan
agreements prohibit the payment of cash dividends.
Item 6. Selected Financial Data.
See page F-22 of the consolidated financial statements for selected
financial data as of September 30, 1999, 1998, 1997, 1996, and 1995 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.
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 this Form 10-K.
9
Overview
The Company's 1999 net sales of $28.23 million were lower than
1998 net sales of $31.72 million due to the continuing consolidation of
Uniflow's product base and lower sales to primarily the Tooling Segment's
larger customers. In 1999, net income from continuing operations was $1.45
million, or $1.37 per share, compared to a net loss from continuing
operations of $6.07 million, or ($5.68) per share in 1998. The improvement in
results from continuing operations was due predominantly to the improvement
in Uniflow's gross margin, significant restructuring charges recorded at
Uniflow in 1998 and the recording of a gain on the sale of the Uniflow
transmission shaft product line in 1999.
During 1999, management focused its efforts on continuing the
restructuring of Uniflow's operations. Managements efforts included repricing
parts to acceptable profit margin levels, reducing production and
administrative costs and finalizing negotiations with an OEM customer so the
Company could recoup its investment of over $3.2 million in its transmisson
shaft program. As a result of the price increases, the suspension ball-joint
housing business and a significant portion of the wheel stud business have
been resourced to various competitors of Uniflow. Negotiations with the OEM
customer were concluded during September 1999 resulting in the Company
receiving $5.1 million for its investment in the project. The Company
received $3.9 million in September and the balance of $1.2 million was
received in December 1999.
The Company is currently focusing on growing sales with a new
customer of Uniflow which could replace much of the suspension ball-joint
housing business, as well as regaining some of the profitable wheel stud
business which was lost because of the price increases. Uniflow is continuing
to focus on maintaining the appropriate amount of labor and overhead costs to
match its sales level.
10
Although net sales declined in 1999 compared to 1998, the Tooling
Segment recorded higher operating income as a result of improved controls
over shop floor costs. The current year also benefited from the consolidation
of Micanol into L&H which commenced during the last fiscal quarter of 1998
(see segment review on page 12).
The Company's cash flows from continuing operations combined with
cash generated from the sales of the Milford and Uniflow assets allowed it to
substantially reduce the amount of secured debt outstanding and fund
continuing operations through the end of the fiscal 1999, including the
timely payment of all scheduled debt obligations. Because of the improvement
in operating results and the retirement of certain secured debt, the Company
was in compliance with all debt covenants at September 30, 1999. As of
September 30, the Company maintained a cash balance of approximately $500,000
and had approximately $3 million available on its line-of-credit.
Management believes it can extend current debt facilities with
existing lenders or refinance with other lenders on a continuing basis. The
Company believes that cash flows from continuing operations and amounts
available on its line-of-credit will be sufficient to fund continuing
operations through fiscal 2000 and meet all debt obligations when due.
While management is committed to continuing its efforts to improve
operating results in the normal course of business over the long term, it
nevertheless engaged an investment banking firm in October 1998 to assist in
the development of other strategic alternatives, such as the possible sale or
merger of all or part of the Company's continuing business. In May 1999, the
Company and GAHS terminated their contract, except GAHS has the right to
receive a commission for two identified potential buyers, if a sale were to
be consummated with either one of the two potential buyers. In addition to
terminating their contract, the Company and GAHS agreed to exclude any sales
of Uniflow from any sales commission that may be due GAHS. The Company is
currently negotiating a definitive purchase agreement with a potential buyer
of substantially all of the assets of Uniflow. However, there are no
assurances that a definitive purchase agreement will be signed or that the
transactions contemplated by any agreement will be consummated. As such,
although the Company would consider any meaningful offer on favorable terms,
continuing as an independent profitable going concern is considered a viable
alternative in maximizing shareholder value. Separately, the Company has
listed the Novi real estate for sale.
Results of Operations by Segment
Metal Parts Forming Segment
Chart of three-year comparative operating results (in thousands):
1999 1998 1997
------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Net Sales $13,261 100.0 $17,186 100.0 $18,930 100.0
Gross Profit (Differential) 923 7.0 (2,613) (15.2) 331 1.8
Operating (Income) Expenses (428) (3.2) 3,765 21.9 1,726 9.1
Operating Profit (Loss)1/ 1,351 10.2 (6,378) (37.1) (1,395) (7.4)
- ---------
1/ Before interest, bad debt and corporate overhead expense.
The Metal Parts Forming Segment is comprised of the Company's
Uniflow subsidiary. Uniflow currently manufactures truck wheel fasteners,
transmission shaft parts and a variety of OEM and aftermarket cold-formed and
forged parts. Customers are primarily automotive and trucking-related
original equipment manufacturers ("OEM") and service part manufacturers
("after-market").
11
Net sales decreased 22.8% in 1999 from 1998 and 9.2% in 1998 from
1997. The sales decrease in 1999 from 1998 primarily reflects an across the
board decline in sales of suspension housings and wheel studs, due to the
significant price increases implemented during October 1998. In addition,
various cold headed parts were discontinued as a result of the sale of the
National FX cold former machine in March 1998. The sales decline in 1998 from
1997 was due to the discontinuation of airbag housings and various cold
headed parts, offset by an increase in transmission shafts. Management is
focusing its efforts on developing various new products for a new customer
and regaining the profitable portions of the wheel fastener business.
Gross profit (differential) on net sales was 7.0% in 1999, (15.2%)
in 1998, and 1.8% in 1997. The substantial improvement in the gross profit
for 1999 was primarily due to the ability of management to better control its
production costs and the parts repricing Uniflow instituted in October 1998.
In addition, 1998 included $900,000 of costs related to the restructuring of
Uniflow, principally for discontinuing specific product lines and allowing
for certain plant consolidation costs. The decline in gross profit from 1997
to 1998 was due to the costs associated with restructuring Uniflow's
operations during 1998.
Operating (income) expense as a percentage of net sales was (3.2%)
in 1999, 21.9% in 1998, and 9.1% in 1997. The improvement in 1999 compared to
1998 was largely due to three items: the $2.3 million of net restructuring
charges included in 1998; the net $1.9 million gain recognized on the sale of
the transmission shaft production line recorded in 1999; and $550,000 of
restructuring charges recorded in 1999. Excluding the one-time items,
operating expense in 1999 decreased compared to 1998, due to lower personnel,
administrative support and sales related expenses. Without the restructuring
charges, operating expense in 1998 decreased compared to 1997, due to lower
personnel and sales related expenses.
In 1999, Uniflow's operating profit was $1.4 million, or 10.2% of
net sales, compared to a loss of ($6.4) million, or (37.1%) of net sales in
1998, while in 1997 the operating loss was ($1.4) million, or (7.4%) of net
sales. The improvement in operating profit in 1999 from 1998 was the result
of the price increases instituted in October 1998, the ability of management
to better match production costs to sales volume, the gain on the sale of the
transmission shaft product line and the significant restructuring charges in
1998. The increase in loss in 1998 from 1997 was the result of the
restructuring charges and related reductions in production efficiencies
realized during the plant consolidation period.
Tooling Segment
Chart of three-year comparable operating results (in thousands):
1999 1998 1997
------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Net Sales1/ $15,675 100.0 $17,303 100.0 $18,474 100.0
Gross Profit 3,802 24.3 3,789 21.9 4,879 26.4
Operating Expenses 2,062 13.2 2,366 13.7 2,292 12.4
Operating Profit2/ 1,740 11.1 1,423 8.2 2,587 14.0
- ---------
1/ Before elimination of intercompany sales.
2/ Before interest, bad debt and corporate overhead expense.
12
The Tooling Segment is comprised of the Form Flow and L&H and
Micanol units. The Tooling Segment manufactures and sells customized tools
and dies for use in the production of hot and cold-formed metal parts.
Net sales decreased in 1999 by 9.4% compared to 1998, and by 6.3%
in 1998 from 1997. The sales decreases in 1999 and 1998 were primarily the
result of lower sales from the L&H Die and Micanol unit, which recorded lower
sales orders from various of its larger accounts. Form Flow recorded a more
modest reduction in sales. The Tooling Segment customers have discontinued
product lines and/or benefited from longer tooling life, thus lowering their
tooling usage. A significant component of the decline was L&H sales to
Uniflow, as Uniflow's tooling requirements were reduced because of the sale
of its National FX 1250 parts former. Management's plan to increase sales is
to reduce the production turnaround time required to complete orders. In
addition, Form Flow has added a salesperson to increase customer contact.
Gross profit on net sales was 24.3% in 1999, 21.9% in 1998, and
26.4% in 1997. The improvement in 1999's gross profit over 1998 was
principally due to management's abilty to reduce material, labor and supply
costs to offset the decline in sales. The 1998 gross profit percentage
decreased principally because of the lower sales volume and the consolidation
expenses and lower production efficiencies that resulted from moving
Micanol's operation to the L&H facility.
Operating expense (as a percentage of net sales) has remained
steady for the periods shown, and was 13.2% in 1999, 13.7% in 1998, and 12.4%
in 1997.
The Tooling Segment's operating profit was $1.7 million in 1999,
or 11.1% of net sales, $1.4 million, or 8.2% of net sales in 1998, and $2.6
million, or 14.0% of net sales in 1997. The increase in operating profit in
1999 was primarily a result of the improved gross margin. The decrease in
1998 operating profit primarily resulted from the lower sales volume, along
with the expenses incurred with consolidating Micanol into L&H during the
last quarter of 1998.
Discontinued Operations - Production Machining Segment
During the second quarter of fiscal 1998 the Company decided to
discontinue its Milford operation due to ongoing adverse operating results.
During 1998 the Company sold the remaining machinery, equipment and business
of Milford for $4.2 million, of which $1.5 million was received in the form
of a note to be paid in four annual installments of $375,000 plus interest.
In 1998 this segment recorded an operating loss of $891,000, prior to the
decision to discontinue, compared to operating income of $356,000 in 1997.
The decline in operating results in 1998 from 1997 was attributable primarily
to lower product pricing, dictated by Milford's primary customer, and lower
production efficiencies caused largely by new manufacturing projects that
strained existing resources.
In 1998, the Company recognized a $1 million disposal gain on the
sale of Milford's assets and business in transactions involving Milford's two
primary customers.
Corporate Expenses
Unallocated corporate overhead was $1.6 million in 1999, compared
to $1.6 million in 1998, and $913,000 in 1997. Corporate expenses were flat
for 1999 compared to 1998, as a decrease in personnel, legal and accounting
costs, was offset by higher depreciation expenses and
13
fees associated with the hiring of an investment banking firm and refinancing
the line-of-credit and other secured debt held by the Company's primary
lender. The increase in 1998 compared to 1997 primarily reflects expenses
associated with the Company's newly operational computer information systems,
higher personnel costs and higher professional fees associated with the
disposal of various operating assets.
Interest Expense and Income Taxes
Interest expense was $753,000 in 1999, $954,000 in 1998 and $1.1
million in 1997. The decrease in 1999 compared to 1998 was due to the
improvement in cash flows from continuing operations and cash received from
asset sales, which led to a lower level of secured debt outstanding. The
decrease in interest expense in 1998 compared to 1997 resulted from a
reduction of secured debt related to various asset sales for cash.
Income tax (expense) benefit was ($76,000) in 1999, $544,000 in
1998, and ($29,000) in 1997. The tax provision in 1999 compared to 1998 was
due primarily to the income generated from the sale of the transmission shaft
product line and the improvement in income from continuing operations,
reduced by a change in the valuation of previously reserved deferred tax
assets. The income tax benefit in 1998 compared to the tax expense recorded
1997 reflected the substantial loss from continuing operations incurred in
1998.
Liquidity and Capital Resources
The Company's working capital position was a positive $5.5 million
at September 30, 1999, a negative ($3.6) million at September 30, 1998, and a
positive $5.7 million at September 30, 1997. The improvement in the Company's
working capital position in 1999 compared to 1998 was due primarily to a
substantial reduction in secured debt that resulted from asset sales and
improved cash flows from continuing operations. In addition, the Company was
in compliance with all bank covenants at September 30, 1999 and therefore
classified all long-term debt obligations according to their contractual
terms. The negative working capital position in 1998 compared to 1997 largely
resulted from the classification of long-term obligations to current, as the
Company was in default of certain bank covenants as of September 30, 1998.
Management believes it can extend current debt facilities with
existing lenders or refinance with other lenders on a continuing basis.
Scheduled debt payments due in fiscal 2000 total approximately $1.1 million
and management believes that internally generated cash from operations and
amounts available on its bank line-of-credit will be sufficient to cover the
scheduled debt payments as well as fund continuing working capital
requirements. In addition, the Company expects to receive approximately
$500,000 per year in principal payments on outstanding notes receivable
through fiscal 2002. The Company expects to continue improving its liquidity
and reduce outstanding debt by selling noncore assets. These items total $2.0
million and are classified as "Property, plant and equipment held for sale"
on the balance sheet.
14
Cash flows for 1999, 1998 and 1997 are summarized as follows:
1999 1998 1997
---- ---- ----
Cash flows from continuing
operating activities $ 2,371,000 $ 2,058,000 $ 1,173,000
Cash flows from (used in)
continuing investing activities 4,369,000 1,508,000 (3,025,000)
Cash flows (used in) from
continuing financing activities (6,803,000) (4,891,000) 4,327,000
Cash Flows Provided by Operating Activities
In 1999, of the $2.6 million in cash flows from operating
activities, working capital items and discontinued operations provided
$298,000. Working capital items provided $47,000, as accounts receivable
inventories were lowered in response to decreased sales and continued
improvement in managing inventory levels, offset by a decline in accounts
payable and accrued liabilities. Discontinued operations provided $251,000
from the collection of outstanding receivables, reduced by decreases in
accounts payable and accrued liabilities. In 1999, cash flows from operations
before working capital items and discontinued operations were $2.3 million
compared to $213,000 in 1998. This increase is attributable to the
improvement in operating income.
In 1998, of the $3.1 million in cash flows from operating
activities, working capital items and discontinued operations provided $2.9
million. Working capital items provided $1.8 million as accounts receivable
collections increased, while inventories were lowered due to better inventory
management and decreased sales. Discontinued operations provided $1.1
million from the sale of the Milford assets. In 1998, cash flows from
operations before working capital items and discontinued operations were
$213,000 compared to $2.6 million in 1997. This decline is attributable to
the decline in operating income from the Metal Parts Forming and Tooling
Segments.
In 1997, of the $1.4 million in cash flows from operating
activities, working capital items and discontinued operations used $1.2
million. Working capital items used $1.4 million, primarily related to higher
receivables and inventories due to increased sales. Discontinued operations
provided $250,000. In 1997, cash flows from operations before working capital
items and discontinued operations were $2.6 million.
Cash Flows Provided by Investing Activities
In 1999, capital expenditures were $184,000 primarily for several
new vehicles and miscellaneous production support equipment. In 1998, capital
expenditures were $1.2 million. These expenditures primarily related to the
expansion of the L&H building and costs associated with the new corporate
wide computer system. In 1997, capital expenditures totaled $3.1 million,
primarily related to equipment additions for production in all segments and
the installation of the new computer system.
The Company received $3.9 million in 1999, $2.7 million in 1998,
and $42,000 in 1997 from the disposals of machinery and equipment. The
Company sold its transmission shaft product line during 1999 for $5.1
million, of which $3.9 million was received in September 1999. The remaining
$1.2 million from the sale was paid in December 1999. Disposals in 1998
reflect the sale of Uniflow's FX 1250 cold former machine while disposals in
1997 were negligible.
15
Net cash provided by discontinued operations in 1999 was $2.6
million, which resulted from the sale of Milford's remaining machinery,
equipment and business during October 1998. In 1998, discontinued operations
used $207,000, consisting of capital expenditures for new programs, reduced
by cash proceeds from the sale of assets. In 1997, discontinued operations
used $7.2 million, primarily for the starter motor machining line and the
acquisition of Milford.
Cash Flows Used in Financing Activities
Cash flows (used in) provided by financing activities were ($9.2)
million in 1999, ($5.2) million in 1998, and $5.3 million in 1997. In 1999,
the Company sold Uniflow's transmission shaft product line and the remaining
machinery, equipment and business of Milford. The asset sales in 1999 allowed
the Company to substantially reduce its outstanding debt obligations. In
1998, the Company sold significant operating assets, including its primary
Milford operations and Uniflow's FX 1250 cold former, allowing for the
significant reduction in debt levels. In 1997, the $4.8 million increase in
the bank line of credit provided funding for the Milford operation and
acquisition, equipment deposits and general working capital purposes.
Proceeds from term debt financing in 1997 were $1.1 million, which was
principally utilized to finance computers in all business segments and
machinery at Uniflow.
Principal payments were $4.3 million in 1999, $2.8 million in 1998
and $1.5 million in 1997. The 1999 principal payments included $2.7 million
of one-time payments resulting from the sale of the transmission shaft
product line. The $2.8 million in 1998 included a $1.3 million one-time
payment resulting from the sale of Uniflow's FX 1250.
Discontinued operations used $2.4 million in 1999 to extinguish
secured debt related to the sale of Milford's remaining machinery, equipment
and business. In 1998, discontinued operations used $318,000 for principal
payments on long-term obligations. In 1997, discontinued operations provided
$929,000 from the financing of a manufacturing facility, reduced by payments
on long-term obligations.
Year 2000 Date Conversion
The Company utilizes a computer network comprised of both Local
Area Networks ("LAN's") and Wide Area Networks ("WAN's"). All of the various
hardware and software used in the administration of the network and the
Company's manufacturing, engineering and financial processes are purchased
from third party vendors. The Company believes, based on its testing and
certifications from third party vendors, that its hardware and network,
financial, manufacturing and engineering software applications are Year 2000
compliant.
Over the last two fiscal years, the Company has expended
approximately $72,000 to make its hardware and software Year 2000 compliant.
In addition, the Company believes it will spend approximately $20,000 to
complete its Year 2000 compliance program during the quarter ended December
31, 1999. The additional expenditures are approximately 20% of the Company's
information technology budget for the fiscal year ended September 30, 2000.
As amounts are expended for Year 2000 compliance they are paid for by cash
flows from continuing operations.
16
The Company believes that the steps it is and has taken regarding
Year 2000 compliance will allow its operations to run normally on January 1,
2000 and thereafter. The possibility exists, however, that unforeseen
circumstances may arise that may interrupt certain areas of the Company's
business, operations or systems. In the case of any such occurrence, the
Company believes that it can implement a solution within a matter of days and
no material interruption of its business or operations will occur.
The Company is seeking certification of Year 2000 compliance from
its significant third party vendors. If any of the Company's suppliers or
customers does not successfully and/or timely complete their Year 2000
compliance, the Company's business or operations could be adversely affected.
The Company has not generated and does not intend to generate any disaster
contingency plans regarding the Year 2000 compliance issue.
Impact from Inflation
Management does not believe that inflation had a significant
impact on the Company's operations during the prior three years ended
September 30, 1999.
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.
See page F-21 of the consolidated financial statements included in
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.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following is a listing of the members of the Board of
Directors of the Company and includes information regarding the individual's
age, principal occupation, other business experience, directorships in other
publicly-held companies and term of service with the Company. Directors are
elected at each Annual Meeting of Stockholders or until his successor is
elected and qualified. Information regarding executive officers is included
under "Item 1. Business" pursuant to General Instruction G.
17
NAME AND AGE POSITION AND PRINCIPAL OCCUPATION
Robert A. Clemente, 46 Director of the Company since December 1993 and
Chairman since December 1994, Mr. Clemente also
served as President and Chief Executive Officer
of the Company from December 1993 through May
1998. Mr. Clemente is an attorney and certified
public accountant and, since September 1999, Of
Counsel to the law firm of Hardy, Lewis and Page,
PC, Birmingham, Michigan, where he had also been
Of Counsel from December 1993 to December 1996.
From January 1997 through August 1999, Mr.
Clemente was Of Counsel to the firm of Munro &
Munro, PC, Troy, Michigan. Mr. Clemente
specializes in corporate, commercial and tax law.
Gregory Adamczyk, 45 Director of the Company since December 1993.
President and owner of Future Planning Corp.
since December 1980, Mr. Adamczyk is also
Chairman, Director and founder of Forward
Planning Corp. Both Future Planning Corp. and
Forward Planning Corp. are based in Livonia,
Michigan and specialize in manufacturing and
engineering, primarily for automotive factories.
Rocco Pollifrone, 42 Director of the Company since December 1993.
Since August 1999, Mr. Pollifrone is the Chief
Executive Officer of Trumark Engineering,
Detroit, Michigan. Prior to that, Mr. Pollifrone
was President and Chief Executive Officer of
Forward Planning Corp. and had been employed
there or with affiliated companies for over
20 years in various management positions.
Richard Thompson, 30 Director of the Company since December 1993.
President and owner of MST Steel Corp., Warren,
Michigan, since 1998, Mr. Thompson was Vice
President of MST Steel Corporation since 1991.
MST Steel Corp. is a steel service center that
warehouses, processes and sells flat-rolled
steel, primarily for the automotive industry.
Martin J. Eidemiller, 42 Director of the Company since June 1998. Mr.
Eidemiller has been a member of the Company's
Operating Committee since June 1998 and a Vice
President of the Company since 1994. Mr.
Eidemiller has been engaged in various management
positions with the Company for over ten (10)
years.
Robert Clemente, Director and Chairman of the Board, is the
brother of Paul Clemente, who is a Vice President and a member of the
Company's Operating Committee. There are no other family relationships among
the Directors and officers listed above.
18
Item 11. Executive Compensation
Summary of Compensation
The following summary compensation table sets forth information
concerning cash and non-cash compensation for services in all capacities
awarded to, earned by or paid during the last three (3) fiscal years to the
Company's Chief Executive Officer and officers whose cash compensation
exceeded One Hundred Thousand ($100,000) Dollars in any such fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
---------------------- ------------
Other Securities
Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Bonus Options (#)
- --------------------------- ---- ------ ----- ------------ ------------ -----------
Robert A. Clemente
<S> <C> <C> <C> <C> <C> <C>
Chairman of the Board 1999 $150,000 __ __ __ __
1998 150,000 __ __ __ __
1997 150,000 __ __ __ __
Martin J. Eidemiller
Vice President - 1999 $120,000 $18,000 __ __ __
Tooling Group and 1998 117,500 25,000 $15,000(1) __ __
Member of the 1997 110,000 20,000 __ __ __
Operating Committee
Paul D. Clemente
Vice President 1999 $100,000 $ 5,800 __ __ __
and Member of the
Operating Committee
Scott J. Konieczny 1999 $ 90,000 $12,800 __ __ __
Chief Financial
Officer, Secretary,
Treasurer and
Member of the
Operating Committee
<FN>
- ---------
(1) Paid in consideration of Mr. Eidemiller executing a noncompetition
agreement with the Company.
</TABLE>
19
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table provides information on option exercises in
fiscal 1999 by the Named Executive Officers and the value of such officers'
unexercised options at September 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
Shares ----------------------------- --------------------------
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Clemente __ __ 27,000 18,000 __ __
Martin J. Eidemiller __ __ 6,000 4,000 __ __
Paul D. Clemente __ __ 800 3,200 __ __
Scott J. Konieczny __ __ 800 1,200 __ __
</TABLE>
Compensation Pursuant to Stock Options
During fiscal 1999, no options were awarded to any of the
Company's Named Executive Officers. As of December 20, 1999 35,000
options were outstanding to the Company's Named Executive Officers outside of
the 1991 Non-qualified Stock Option Plan.
1991 Non-qualified Stock Option Plan
On August 1, 1991, Secom's Board adopted a non-qualified stock
option plan (the "1991 Plan"). The 1991 Plan authorizes the Board to grant
stock options for a maximum total of 80,000 shares of Common Stock to those
employees of Secom and its subsidiaries, including officers and directors,
who have performed well in their capacities and who have potential for
assuming higher levels of responsibility with Secom. The 1991 Plan is
administered by the Board, which determines the persons who are to receive
options and the terms of the options granted under the 1991 Plan. The option
price of all options granted under the 1991 Plan shall not be less than the
fair market value of the Common Stock at the date of grant. Under the 1991
Plan, options may be granted only during the recipient's employment, and must
be exercised within a period fixed by the Board, which may not exceed ten
(10) years from the date of grant unless earlier terminated as a result of
the termination of the recipient's employment. However, if the recipient's
employment is terminated as a result of death, total and permanent
disability, retirement after age 65 or other reasons approved by the Board,
those options may be exercised for specified periods up to twelve (12) months
after that termination. Options granted under the 1991 Plan may not be
transferred except by reason of death. The 1991 Plan provides that the Board
may establish a vesting schedule with respect to any options granted under
the 1991 Plan which would limit the exercisability of those options and/or
the sale or transfer of any shares purchased upon exercise of those options.
20
As of December 20, 1999, stock options for 33,200 shares were
outstanding to employees, including certain officers, pursuant to the 1991
Plan. During fiscal 1999, no options to purchase shares of Common Stock were
awarded to any of the Company's Named Executive Officers.
Compensation of Directors
The Company's directors do not receive compensation for attending
Board Meetings or for being Board Members. During fiscal 1999, the Company
paid $24,600 to Gregory Adamczyk, for special project fees authorized in
fiscal 1998.
Board Compensation Committee on Executive Compensation
The Compensation Committee (the "Committee") was established as a
standing committee of the Board in August 1992. Its purpose is to annually
fix the salaries of the Chief Executive Officer and other Executive Officers
of the Company, determine periodic bonuses and stock options for such
executives, and administer other programs that would provide compensation to
such executives. Rocco Pollifrone and Rich Thompson were appointed to the
Compensation Committee in April 1999.
General
It is the philosophy of the Committee to ensure that executive
compensation is directly linked to continuous improvement in the Company's
financial performance and stockholder value. The following objectives
represent the underlying principles which support all compensation decisions:
o Allow the Company to attract and retain quality professional talent
among its executive officer group by establishing executive
compensation that is competitive within its industry peer group.
o Integrate compensation practices that promote the successful execution
of the Company's long-term plans and goals.
o Encourage Company stock ownership by its executive officers and enhance
stockholder value through periodic stock option awards or other
stock-based compensation arrangements.
Executive compensation is reviewed on an annual basis by the
Committee in conjunction with an analysis of each individual's performance.
In addition, corporate performance is evaluated in a manner to ensure that
compensation levels support the continued focus on increasing profitability
and stockholder value. Conversely, in periods when corporate performance
goals are not achieved, the Committee may decrease the level of overall
individual compensation.
The Committee also reviews independent compensation survey
information from national and regional organizations that report compensation
practices and salary levels for various executive positions at comparably
sized companies that operate similar lines of business as the Company.
21
Salaries and Bonuses
The Committee's policy is to determine salaries and to award
discretionary bonuses to key employees each year based on their individual
performance and the overall performance of the Company during the immediately
preceding year. The Committee's review of individual performance of an
executive is largely a subjective test; the Committee considers the potential
of the individual executive and the executive's performance in his or her
position. In addition, the Committee consults with financial and other
professionals who have experience with respect to the compensation levels of
various executives at comparably sized companies that operate in similar
lines of business as the Company. These professionals also utilize relevant
independent compensation surveys for executive positions at comparably sized
companies. Salaries for the Company's executives generally fall near the mean
of salaries for similarly-situated companies.
The Compensation Committee generally uses different criteria in
determining each of the three components of an executive's compensation: base
salary, options and bonuses. To determine the base salary, the Compensation
Committee reviews the executive's past performance and prospects for future
performance and establishes a fair and equitable base salary. The
Compensation Committee rewards long-term performance through the granting of
stock options. The Committee believes that the issuance of stock options
provides an incentive to executives to increase the overall long-term
financial performance of the Company. Cash bonuses are used to reward the
short-term accomplishments of specific executives for favorable performance
of the business units under their management. In granting bonuses, the
Compensation Committee reviews recommendations from management, the
executive's current base salary and the overall financial condition of the
Company.
Stock Options
The Committee utilizes the 1991 Plan as a long-term stock
incentive plan to compensate executives based on the Company's long term
growth. Since the option price on options granted under the 1991 Plan can not
be less than the fair market value on the date of the grant, the Committee
believes that this provides the Company's executives with the incentive to
increase the Company's earnings and increase stockholder value.
Fiscal 1999 Compensation Concerning Chief Executive Officer
Since June 1998, the Company has operated under a Board appointed
Operating Committee, which fulfills the duties of the Company's president.
Currently, the Operating Committee is comprised of Paul Clemente, Martin
Eidemiller and Scott Konieczny. The Compensation Committee considers the
performance of each individual member of the Operating Committee as well as
the performance of the Company as a whole in determining the compensation of
each member of the Operating Committee. Since each member of the Operating
Committee is also an officer of the Company, the Board awarded each member
nominal additional compensation commensurate with the additional
responsibilities of the Operating Committee. In addition, during fiscal 1999,
Robert Clemente performed several special projects for the Company as well as
the duties of Chairman of the Board. In consideration of Mr. Clemente
performing the various special projects, the Compensation Committee
maintained his salary at $150,000 for fiscal 1999, although no bonus or other
compensation was awarded. Since many of the special projects had been
completed by November 1999, the Compensation Committee reduced Mr. Clemente's
salary to $75,000.
22
<PAGE>
Compensation Committee Interlocks and Insider Participation
Both members of the Compensation Committee are Directors. There
were no interlocks of executive officers or Board Members of the Compensation
or equivalent Committee of another entity, which has any executive officers
serving on the Compensation Committee of the Company. No executive officer of
the Company serves as a director of another entity, one of whose executive
officers served on the Compensation Committee of the Company. No executive
officer of the Company served as a member of the Compensation Committee of
another entity, one of whose executive officers served as a director of the
Company. See also "Item 13 - Certain Relationships and Related Transactions"
herein.
Company Performance
The following graph depicts a five (5) year comparison of
cumulative total returns, assuming $100 was invested on September 30, 1994 in
(a) Secom's Common Stock; (b) the NASDAQ Stock Market - U.S. (as a broad
equity market index) and (c) the NASDAQ non-financial index (as a peer group
index utilizing a published industry index).
[GRAPH OMITTED]
Cumulative Total Return
--------------------------------------------
9/94 9/95 9/96 9/97 9/98 9/99
---- ---- ---- ---- ---- ----
SECOM GENERAL CORPORATION 100 104 92 78 14 22
NASDAQ STOCK MARKET (U.S.) 100 138 164 225 229 372
NASDAQ NON-FINANCIAL 100 139 163 218 220 372
Ownership of Certain Beneficial Owners and Management
Item 12. Security
Principal Stockholders
The following table sets forth certain information with respect to
those persons who are known by management of the Company to have been a
beneficial owner of more than five (5%) percent of the Company's outstanding
Common stock as of the December 20, 1999.
Amount and Nature
Name and Address of Beneficial
Of Beneficial Owner Ownership Percent Owned (1)
------------------- ------------------ -----------------
Manubusiness Opportunities, Inc. ....
c/o 24417 Groesbeck Highway
Warren, Michigan 48089 ............. 326,085(1) 31.23%
John Cocke
46657 Arboretum
Plymouth, Michigan 48170 ............ 82,146 7.87%
Secom General Corporation 401(k) Plan
46035 Grand River Avenue
Novi, Michigan 48374 ................ 79,013(2) 7.57%
[FN]
- ---------
(1) Three Stockholders of Manubusiness Opportunities, Inc. ("MOI"), Gregory
Adamczyk, Rocco Pollifrone and Richard Thompson, are Directors of Secom.
(2) Participants of the Company's 401(k) Plan can vote their pro rata
portion of the shares owned by the Plan. Shares not voted by
participants may be voted by the Plan's trustee, Scott
23
Konieczny. Shares owned by the 401(k) Plan for the account of persons
who are not officers or directors are not included in the shares as
shown beneficially owned by all directors and officers as a group. Of
the shares owned by the Company's 401(k) Plan, approximately 9,888 are
owned for the account of officers and directors and are treated as being
owned directly. See "Security Ownership of Management."
Security Ownership of Management
The following table sets forth information with respect to the
beneficial ownership of shares of the Company's Common stock by the present
Directors and Named Executive Officers of the Company.
Number of Shares
Beneficially Owned
Name as of December 20, 1999(1) Percent Owned (2)
---- ------------------------ -----------------
Robert A. Clemente ............. 49,994(3)(5) 4.67%
Gregory Adamczyk ............... 64,238(3)(6) 6.15%
Rocco Pollifrone ............... 22,826(3)(7) 2.19%
Richard Thompson ............... 110,570(3)(8) 10.59%
Martin J.Eidemiller ............ 11,569(3)(9) 1.10%
Paul D. Clemente ............... 901(4)(10) *
Scott J. Konieczny ............. 1,761(4)(11) *
Current Directors and Officers
as a Group (totaling 7) ...... 261,859(12) 24.27%
[FN]
- ---------
* Less than 1% of the outstanding shares.
(1) To the best of the Company's knowledge based on information reported by
the Directors or executive officers or contained in the Company's
shareholder records. Each of the named persons is presumed to have sole
voting and sole investment power with respect to all shares shown,
except as otherwise indicated by additional information included in the
footnotes to this table.
(2) For the purposes of this table, shares indicated as being beneficially
owned include shares for which the person has the direct or indirect:
(i) voting power, which includes the power to vote or to direct the
voting, and/or (ii) investment power, which includes the power to
dispose or to direct the disposition, of the shares of Common Stock
indicated. Unless otherwise indicated, the beneficial owner has sole
investment and voting power. Shares indicated as being beneficially
owned also include shares not presently outstanding but which are
subject to exercise within 60 days through options, warrants, rights or
conversion privileges. For the purpose of computing the percentage of
the outstanding shares beneficially owned by a stockholder, any shares
issuable to such persons under stock options exercisable within 60 days
are deemed to be outstanding securities of the class owned by the
stockholder but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person.
(3) A director of the Company. The address for all directors is c/o Secom
General Corporation, 46035 Grand River Avenue, Novi, Michigan 48374.
(4) A Named Executive Officer of the Company. The address for all officers
is c/o Secom General Corporation, 46035 Grand River Avenue, Novi,
Michigan 48374.
24
(5) Includes (a) 27,000 shares which Mr. Clemente has the right to acquire
within 60 days pursuant to the exercise of stock options, and (b) 9,708
shares which represents 47.9% of the 20,268 shares beneficially owned by
Career Opportunities, a partnership of which Mr. Clemente is a general
partner.
(6) Represents 19.7% of the 326,085 shares that are beneficially owned by
MOI, as Mr. Adamczyk owns 19.7% of the Common Stock of MOI. See
"Principal Stockholders - Manubusiness Opportunities, Inc."
(7) Represents 7% of the 326,085 shares that are beneficially owned by MOI,
as Mr. Pollifrone owns 7% of the Common Stock of MOI. See "Principal
Stockholders - Manubusiness Opportunities, Inc."
(8) Includes (a) 100,010 shares which represents 30.67% of the 326,085
shares that are beneficially owned by MOI, as Mr. Thompson owns 30.67%
of the Common Stock of MOI, and (b) 10,560 shares which represents 52.1%
of the 20,268 shares beneficially owned by Career Opportunities, a
partnership of which the Orville K. Thompson Living Trust (the "Trust")
is a partner and Mr. Thompson is a beneficiary of the Trust. Does not
include 3,311 shares of Common Stock which are owned by Mr. Thompson's
sister under the Michigan Uniform Gifts to Minors Act. Although Mr.
Thompson is the custodian pursuant to such gift, he does not exercise
the power to vote such shares and disclaims beneficial ownership of such
shares. See "Principal Stockholders - Manubusiness Opportunities, Inc."
(9) Includes 6,000 shares of Common Stock which Mr. Eidemiller has the right
to acquire within 60 days pursuant to the exercise of stock options.
(10) Includes 800 shares of Common Stock which Mr. Clemente has the right to
acquire within 60 days pursuant to the exercise of stock options.
(11) Includes 800 shares of Common Stock which Mr. Konieczny has the right to
acquire within 60 days pursuant to the exercise of stock options.
(12) Shares shown as beneficially owned by more than one Director or officer
are included only once in the total.
Item 13. Certain Relationships and Related Transactions.
During the period January 1997 through August 1999, Robert Clemente
served in an "Of Counsel" capacity to the law firm of Munro & Munro, PC.
During fiscal 1999, Munro & Munro was retained by the Company for
professional legal services required in the normal course of business for
which the Company paid legal fees and expenses. Mr. Clemente does not receive
any portion of the fees paid by the Company to Munro & Munro. In addition
during 1999, Mr. Clemente provided legal services to MST Steel Corp., which
is owned by Director Richard Thompson, and to Future Planning Corp., and
Forward Planning Corp., whose principal owner and officer is Director Gregory
Adamczyk.
25
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:
PAGE
----
Consolidated Financial Statements ..................... F
Independent Auditors' Reports ......................... F-1
Consolidated Balance Sheets as of
September 30, 1999 and 1998 ......................... F-2
Consolidated Statements of Operations
for the Years Ended September 30, 1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for
the Years Ended September 30, 1999, 1998 and 1997 ... F-4
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1999, 1998 and 1997 ............. F-5
Notes to Consolidated Financial Statements ............ F-6
The information required to be submitted in Schedule II - Valuation and
Qualifying Accounts is included in the consolidated financial statements and
notes thereto. Schedules other than those listed above are omitted because of
the absence of the conditions under which they are required.
(b) Reports filed on Form 8-K.
None.
(c) Exhibits. See the Exhibit Index on the following page.
26
EXHIBIT INDEX
Exhibit Description Page*
- ------- ----------- -----
2.1 Agreement dated October 27, 1998 between MMC Manufacturing
Corp., Secom General Corporation and and Delco Remy
America, Inc................................................. 2.1 *(1)
2.2 Agreement dated September 17, 1999 between Uniflow
Corporation and General Motors Corporation................... 2.2 *(2)
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on August 25, 1987............ 3.1*(3)
3.2 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*(3)
3.3 Certificate of Designation of Rights of the Class A
Preferred Stock filed with the Secretary of State of
Delaware in December 1987.................................... 3.3*(3)
3.4 Amendment to Certificate of Incorporation filed on
August 31, 1990.............................................. 3.2*(4)
3.5 Amendment to Certificate of Incorporation filed on
December 17, 1991............................................ 3.5*(5)
3.6 Amendment to Certificate of Incorporation filed on April 14,
1999.......................................................... E-1
3.7 Bylaws of the Company........................................ 3.4*(2)
4.1 List of instruments defining the right of security holders... 4.1*(6)
10.1 Second Amendment To Amendment and Extension Agreement
between Bank One and Secom General Corporation and its
subsidiaries ............................................... 10.2*(7)
10.2 Master Equipment Lease Agreement between Secom General
Corporation and KeyCorp Leasing Ltd......................... 10.3*(8)
10.3 Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing between Secom General Corporation
and Metlife Capital Financial Corporation................... 10.4*(8)
- --------
* See the footnotes on pages 28 and 29 to locate these Exhibits.
27
EXHIBIT INDEX
Exhibit Description Page*
- ------- ----------- -----
10.4 1991 Nonqualified Stock Option Plan......................... 10.27*(9)
10.5 Form of Stock Option Agreement for Options granted under
the 1991 Non-qualified Stock Option Plan.................... 10.28*(9)
10.6 Subordination Agreement dated December 15, 1993 between
Larry McKnight as junior lender and NBD Bank, N.A. as
senior lender............................................... 10.17*(10)
10.7 Engagement Agreement dated October 1, 1998 between Secom
General Corporation and Goldsmith, Agio, Helms Securities,
Inc. ("GAHS")............................................... 10.17*(11)
22. Subsidiaries of the Registrant.............................. 22*(12)
23.1 Consent of Rehmann Robson, PC............................... E-4
23.2 Consent of Deloitte & Touche LLP............................ E-5
27. Financial Data Schedule
- --------
* See the footnotes below and on page 29 to locate these exhibits.
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 11, 1998.
*(2) Incorporated by reference from the Company's Current Report on Form 8-K
dated September 17, 1999.
*(3) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1987.
*(4) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1990.
*(5) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1991.
28
*(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1993.
*(7) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
*(8) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1996.
*(9) 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.
*(10) Incorporated by reference from the Company's Current Report on Form 8-K
dated December 15, 1993.
*(11) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 16, 1998.
*(12) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1998.
29
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.
Dated: December 23, 1999
SECOM GENERAL CORPORATION
By: /s/ Martin J. Eidemiller
-------------------------
Martin J. Eidemiller
Its: Vice President
-------------------------
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
Officers:
/s/ Martin J. Eidemiller
- ------------------------
Martin J. Eidemiller Vice President December 23, 1999
/s/ Paul D. Clemente
- -----------------------
Paul D. Clemente Vice President December 23, 1999
Principal Financial and
Accounting Officer:
/s/ Scott J. Konieczny Chief Financial Officer
- ------------------------ Secretary and Treasurer December 23, 1999
Scott J. Konieczny
/s/ Richard Thompson
- ------------------------
Richard Thompson Director December 23, 1999
/s/ Gregory Adamczyk
- ------------------------
Gregory Adamczyk Director December 23, 1999
/s/ Rocco Pollifrone
- ------------------------
Rocco Pollifrone Director December 23, 1999
- ------------------------
Robert A. Clemente Director December 23, 1999
SECOM GENERAL CORPORATION
NOVI, MICHIGAN
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED
SEPTEMBER 30, 1999, 1998 AND 1997
SECOM GENERAL CORPORATION
TABLE OF CONTENTS
Page
Independent Auditors' Reports F-1
Consolidated Financial Statements for the Years Ended
September 30, 1999, 1998 and 1997
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-20
Supplementary Information
Selected Quarterly Financial Data (Unaudited) F-21
Selected Financial Data (Unaudited) F-22
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, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Secom General Corporation and subsidiaries as of September 30, 1999 and
1998, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
December 17, 1999
F-1(a)
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Secom General Corporation
Novi, Michigan
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Secom General Corporation and
subsidiaries for the year ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted accounting
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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Secom General
Corporation and subsidiaries for the year ended September 30, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Detroit, Michigan
December 5, 1997
(January 11, 1999 as to Note 2)
F-1(b)
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------
ASSETS September 30
--------------------------
1 9 9 9 1 9 9 8
------- -------
Current assets
Cash $ 497,200 $ 104,600
Accounts receivable
Trade 3,272,000 4,139,000
Other, principally notes 525,300 163,500
Inventories 2,896,500 4,044,800
Prepaid expenses 93,100 286,500
Deferred tax assets 105,900 603,900
Property, plant and equipment
held for sale 2,038,500 1,440,000
Machinery and equipment of
discontinued subsidiary -- 4,200,000
----------- ------------
Total current assets 9,428,500 14,982,300
Notes receivable, net of current portion 975,400 365,400
Property, plant and equipment, net 6,930,000 12,189,200
Goodwill 97,800 146,700
Other assets 187,700 184,100
----------- ------------
Total assets $17,619,400 $ 27,867,700
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,073,300 $ 4,724,900
Long-term debt classified as current -- 6,623,300
Accounts payable 1,314,400 2,925,800
Accrued wages and benefits 749,400 779,000
Accrued restructuring costs -- 416,000
Other accrued expenses 830,600 746,700
Debt secured by assets of
discontinued subsidiary -- 2,349,800
----------- ------------
Total current liabilities 3,967,700 18,565,500
Long-term debt obligations 3,527,900 --
Deferred tax liabilities 401,300 960,100
----------- ------------
Total liabilities 7,896,900 19,525,600
----------- ------------
Commitments and contingencies (Note 11)
Stockholders' equity
Common stock, $.10 par value,
authorized 10,000,000 shares;
outstanding 1,044,300 shares;
(5,335,400 shares in 1998) 104,400 533,500
Additional paid-in capital 18,757,700 18,400,800
Accumulated deficit (9,139,600) (10,592,200)
----------- ------------
Total stockholders' equity 9,722,500 8,342,100
----------- ------------
Total liabilities and stockholders' equity $17,619,400 $ 27,867,700
=========== ============
F-2
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Year Ended September 30
--------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 28,226,000 $ 31,725,500 $ 35,037,200
Cost of sales:
Production 22,902,900 28,946,700 29,234,900
Restructuring charges -- 900,000 --
------------ ------------ ------------
Gross profit 5,323,100 1,878,800 5,802,300
Selling, general and
administrative expenses 4,469,900 5,352,700 4,910,000
Other restructuring charges 549,600 2,312,000 --
Gain on sale of product line (1,871,500) -- --
------------ ------------ ------------
Income (loss) from operations 2,175,100 (5,785,900) 892,300
------------ ------------ ------------
Other (expense) income
Interest (753,200) (953,700) (1,071,800)
Other, net 106,500 129,600 161,000
------------ ------------ ------------
Other expense - net (646,700) (824,100) (910,800)
------------ ------------ ------------
Income (loss) from continuing
operations before income taxes 1,528,400 (6,610,000) (18,500)
Income tax (expense) benefit (75,800) 543,900 (28,700)
------------ ------------ ------------
Income (loss) from continuing operations 1,452,600 (6,066,100) (47,200)
Discontinued operations
(Loss) income from operations of
discontinued subsidiary -- (890,600) 355,800
Gain on disposal of subsidiary, net
of applicable income taxes
of $248,700 -- 1,011,300 --
------------ ------------ ------------
Net income (loss) $ 1,452,600 $ (5,945,400) $ 308,600
============ ============ ============
Income (loss) per common share
(basic and diluted):
Continuing operations $ 1.37 $ (5.68) $ (0.04)
Discontinued operations -- 0.11 0.32
------------ ------------ ------------
Net income (loss) per common share $ 1.37 $ (5.57) $ 0.28
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Common Stock Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1996 5,342,200 $ 534,200 $18,457,100 $ (4,955,400) $ 14,035,900
Stock repurchases, net (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 at September 30, 1997 5,340,400 534,000 18,412,400 (4,646,800) 14,299,600
Stock repurchases, net (5,000) (500) (11,600) -- (12,100)
Net loss -- -- -- (5,945,400) (5,945,400)
---------- --------- ----------- ------------ ------------
Balance at September 30, 1998 5,335,400 533,500 18,400,800 (10,592,200) 8,342,100
One-for-five reverse stock split (4,268,300) (426,800) 426,800 -- --
Stock repurchases, net (22,800) (2,300) (69,900) -- (72,200)
Net income -- -- -- 1,452,600 1,452,600
---------- --------- ----------- ------------ ------------
Balance at September 30, 1999 1,044,300 $ 104,400 $18,757,700 $ (9,139,600) $ 9,722,500
========== ========= =========== ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Year Ended September 30
--------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------ ----------- ------------
<S> <C> <C> <C>
Cash from operating activities:
Net income (loss) $ 1,452,600 $ (5,945,400) $ 308,600
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,263,900 2,692,700 2,234,900
Deferred income tax benefit (60,800) (403,800) (1,500)
Provision for doubtful accounts 3,300 104,500 62,000
Gain on sale of assets (1,885,500) (23,900) (3,000)
Restructuring charges 549,600 3,788,500 --
Changes in operating assets and
liabilities which provided
(used) cash:
Trade and other receivables 206,500 1,288,100 (983,500)
Inventories 1,106,600 1,070,000 (454,000)
Prepaids 174,200 7,500 229,300
Other assets 1,000 (372,600) (215,600)
Trade accounts payable (1,347,900) (65,000) (229,800)
Accrued liabilities (92,800) (83,000) 226,100
Net cash provided by discontinued operations 250,700 1,081,500 249,900
------------ ------------ ------------
Net cash provided by operating activities 2,621,400 3,139,100 1,423,400
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposal of property, plant
and equipment 3,903,600 2,655,800 42,400
Collections on notes receivable 649,300 101,800 22,100
Capital expenditures (183,600) (1,249,100) (3,089,700)
Net cash provided by (used in)
discontinued operations 2,554,600 (207,200) (7,188,900)
------------ ------------ ------------
Net cash provided by (used in) investing activities 6,923,900 1,301,300 (10,214,100)
------------ ------------ ------------
Cash flows from financing activities:
Net change in bank line of credit (2,496,400) (2,442,600) 4,766,300
Proceeds from long-term obligations 65,200 395,900 1,134,600
Proceeds from issuances of stock -- -- 5,100
Retirements of common stock (72,200) (12,100) (50,000)
Payments on long-term obligations (4,299,500) (2,832,000) (1,529,400)
Net cash (used in) provided by
discontinued operations (2,349,800) (318,300) 928,800
------------ ------------ ------------
Net cash (used in) provided by
financing activities (9,152,700) (5,209,100) 5,255,400
------------ ------------ ------------
Net increase (decrease) in cash 392,600 (768,700) (3,535,300)
Cash, beginning of year 104,600 873,300 4,408,600
------------ ------------ ------------
Cash, end of year $ 497,200 $ 104,600 $ 873,300
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-5
SECOM GENERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts
of Secom General Corporation and its wholly-owned subsidiaries: Form
Flow, Inc.; L&H Die, Inc.; Micanol, Inc.; Uniflow Corporation; and MMC
Manufacturing Corp. f/k/a Milford Manufacturing Corporation ("Milford").
All significant intercompany accounts and transactions have been
eliminated.
Nature of 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 currently operates in two
business segments: tooling and metal parts forming (see Note 13). In
March 1998 the Company discontinued its production machining segment
(see Note 2).
Restructuring and Realignment of Business
During the year ended September 30, 1998, management significantly
reduced the size of the Company's consolidated business in order to stem
negative operating cash flows and reduce secured debt obligations. Those
efforts culminated in the sale of various operating assets, including
the discontinued Milford subsidiary and various machinery and equipment
of Uniflow, as well as revised part pricing or product discontinuation
on low margin sales and production. Management believes that these
efforts have substantially reduced the operational circumstances which
created the negative cash flows and significant operating losses. As
this trend continues, management believes internally generated cash from
operations, sales of underutilized assets and amounts available on the
line of credit will be sufficient to cover scheduled debt payments as
well as fund continuing working capital requirements, and restore normal
banking relations including compliance with ongoing debt covenants.
While management is committed to continuing its efforts to improve
operating results in the normal course of business over the long term,
it nevertheless engaged an investment banking firm in October 1998 to
assist in the development of other strategic alternatives, such as the
possible sale or merger of all or part of the Company's continuing
business. As such, although the Company would consider any meaningful
offer on favorable terms, continuing as an independent profitable going
concern is considered a viable alternative in maximizing shareholder
value.
Significant Customer and Concentration Risks
The Company has one customer which comprised approximately 21% of total
revenues in 1999, one customer which comprised approximately 19% of
total revenues in 1998, and one customer which comprised approximately
13% of total revenues in 1997. The loss of a significant customer could
have an adverse impact on short-term operating results.
F-6
The Company grants trade credit to customers in the normal course of
business and at September 30, 1999 has receivables of $2,265,200 from
companies in the automotive industry. Ongoing credit evaluations of
customers' financial condition are conducted and, generally, no
collateral is required. The Company maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements and the reported amounts
of income and expenses during the reporting period. Significant
estimates include fair value of assets held for sale, realization of tax
benefits associated with net operating losses and tax credit
carryforwards, and impairment of property and goodwill assets.
Inventory Valuation
Inventories are stated at the lower of cost determined using the
first-in, first-out method, or market.
Revenue Recognition
Revenues are recognized upon shipment of customer products.
Property, Plant and Equipment
Property, plant and equipment used in conducting the business are stated
at cost. Major improvements and renewals are capitalized while ordinary
maintenance and repairs are expensed. Management reviews these assets on
an ongoing basis to determine whether carrying values have been
impaired.
Property, plant and equipment held for sale are reported at estimated
fair value less estimated costs to sell.
Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, which range from 2 to 30
years.
F-7
Goodwill
Goodwill (cost in excess of net assets acquired) is currently amortized
on a straight-line basis over 5 years. Accumulated amortization was
$557,500 and $508,600 as of September 30, 1999 and 1998, respectively.
Management reviews the carrying value of goodwill on an ongoing basis to
assess its recoverability.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and federal income tax basis
of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. Deferred income taxes arise from temporary basis differences
principally related to tax carryforwards, various accruals and
allowances, certain assets acquired in business combinations and
property, plant and equipment. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
year plus or minus the change during the year in deferred tax assets and
liabilities.
Earnings (Loss) Per Common Share
Earnings (loss) per share is computed using the weighted average number
of common shares outstanding during the year. The diluted amount
reflects the potential dilution of all common stock equivalents. At
September 30, 1999, 1998 and 1997 options to purchase 68,200, 122,800,
and 115,300 shares, respectively, were excluded from the computation of
earnings per share because the options' exercise prices were greater
than the average market price of the common shares. A reconciliation of
the denominators used in the basic and diluted share calculation for
continuing operations follows for the years ended September 30:
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Denominator:
Weighted average shares
outstanding, basic 1,064,000 1,067,100 1,070,000
Incremental shares from assumed
conversion of options -- -- 22,300
--------- --------- ---------
Weighted average shares
outstanding, diluted 1,064,000 1,067,100 1,092,300
========= ========= =========
On April 14, 1999, a one-for-five reverse stock split was effected.
Accordingly, all historical weighted average share and per share amounts
have been restated to reflect the reverse stock split. Share amounts
presented in the Consolidated Statement of Stockholders Equity and
Balance Sheets reflect the actual share amounts outstanding for each
year presented.
F-8
Fair Values of Financial Instruments
The carrying amount of accounts receivable and accounts payable
approximate their fair values due to the short-term maturity of these
financial instruments. The carrying amounts of long-term debt
approximate their fair values because the interest rates are
representative of, or change with, market rates.
2. DISCONTINUED OPERATIONS - PRODUCTION MACHINING SEGMENT
Effective March 18, 1998, the Company sold all of its assets relating to
Milford's machined brake valve parts business in transactions with
Varity Kelsey-Hayes Corporation ("VKH") and PGK Acquisition Corp.
("PGK"). VKH was Milford's primary customer and Secom had acquired the
assets and business of Milford from VKH effective November 1, 1996.
Milford sold back to VKH, for $3 million in cash, the machinery,
equipment and tooling used in connection with the manufacture of
machined brake valve body parts along with its industrial facility. In
addition to the cash portion of the purchase price, VKH also assumed any
funding contributions required to be made to the Milford pension plan.
PGK acquired other machined valve related assets in exchange for the
assumption of approximately $1.2 million in accounts payable, other
accruals of approximately $700,000, and the bargaining unit employee
retiree health care obligation, recorded at $3.4 million. 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.
On October 27, 1998, the Company sold the remaining assets and business
of Milford to Delco Remy America, Inc. ("DRA"), for the purchase price
of $4.2 million dollars, receiving $2.7 million in cash and a $1.5
million promissory note. DRA purchased all of Milford's machinery,
equipment and certain inventories that were used to produce machined
starter motor shafts for DRA. The remaining inventory was sold to
Horizon Technology Group, L.L.C. in a separate transaction. Accordingly,
these assets were recorded at their net realizable values as of
September 30, 1998.
Terms of the $1.5 million note receivable include the receipt of four
annual installments of $375,000, plus interest at 8.5%, beginning on
September 1, 1999.
F-9
The disposal of Milford was accounted for as a discontinued operation
and, accordingly, the results of the Production Machining segment have
been reported separately as discontinued operations in the accompanying
consolidated statements of operations and cash flows. Summarized results
of the Production Machining segment prior to the March 1998 disposal
decision are as follows (in thousands):
Year Ended September 30
-----------------------
1 9 9 8 1 9 9 7
-------- --------
Net sales $ 7,935 $ 12,718
Cost of sales 7,580 10,479
-------- --------
Gross profit 355 2,239
Operating expenses 985 1,287
Nonoperating expenses, net 364 398
-------- --------
(Loss) income before income taxes (994) 554
Income tax benefit (expense) 103 (198)
-------- --------
Net (loss) income $ (891) $ 356
======== ========
The gain on the disposal of the production machining segment is net of
operating losses of $630,000 sustained in the months following the March
1998 disposal decision.
The net assets and liabilities of the discontinued production machining
operations included in the accompanying consolidated balance sheets are
as follows (in thousands):
September 30
-------------------
1 9 9 9 1 9 9 8
------- -------
Current assets
Accounts receivable $ 658
Inventory 41
Deposits $ 125
Machinery and equipment to be sold 4,200
------ ------
Total current assets 125 4,899
------ ------
Current liabilities
Debt 2,350
Accounts payable and accrued liabilities 100 549
------ ------
Total current liabilities 100 2,899
------ ------
Net current assets $ 25 $2,000
====== ======
F-10
3. RESTRUCTURING CHARGES - METAL PARTS FORMING SEGMENT
The Company's Metal Parts Forming segment is comprised of the Uniflow
subsidiary. During the second 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 during the years
ended September 30, 1999 and 1998, respectively. 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 goodwill and 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
during the years ended September 30, are summarized as follows (in
thousands):
1 9 9 9 1 9 9 8
------- -------
Discontinued product lines - inventories and
related costs $ -- $ 680
Plant consolidation costs -- 220
-------- ------
Cost of sales - restructuring costs -- $ 900
======== ======
1 9 9 9 1 9 9 8
------- -------
Machinery and asset writedowns $ 550 $1,450
Goodwill impairment -- 1,620
Less gain on sale of cold former machine -- (758)
-------- ------
Other restructuring costs $ 550 $2,312
======== ======
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following is a summary of changes in the allowance for doubtful
accounts receivable during each of the three years in the period ended
September 30:
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Balance, beginning of year $ 134,500 $ 52,800 $ 21,000
Add provision charged
against income 3,300 104,500 62,000
Plus (less) uncollected accounts
written off, net of recoveries 74,700 (22,800) (30,200)
--------- --------- ---------
Balance, end of year $ 212,500 $ 134,500 $ 52,800
========= ========= =========
F-11
5. INVENTORIES
Inventories at September 30 consist of the following components (in
thousands):
1 9 9 9 1 9 9 8
------- -------
Raw materials $ 261 $ 562
Work-in-process 985 1,366
Finished goods 1,650 2,117
--------- ---------
Total $ 2,896 $ 4,045
========= =========
The following is a summary of changes in the inventory valuation
allowance during each of the three years in the period ended
September 30:
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Balance, beginning of year $ 339,500 $ 232,500 $ 147,500
Add provision charged
against income -- 127,000 96,000
Less writeoffs (135,000) (20,000) (11,000)
--------- --------- ---------
Balance, end of year $ 204,500 $ 339,500 $ 232,500
========= ========= =========
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following assets at
September 30 (in thousands) (see Note 3):
1 9 9 9 1 9 9 8 Life
------- ------- ----
Machinery and equipment $ 9,501 $ 14,344 2 to 20 years
Building and improvements 4,285 4,705 3 to 30 years
Land and improvements 430 448 --
Furniture and fixtures 1,667 1,716 3 to 7 years
Vehicles 156 123 3 years
--------- ---------
Total 16,039 21,336
Less accumulated depreciation 9,109 9,147
--------- ---------
Net book value $ 6,930 $ 12,189
========= =========
F-12
7. LONG-TERM DEBT
Long-term debt consists of the following obligations at September 30 (in
thousands):
1 9 9 9 1 9 9 8
------- -------
Bank line of credit (a) $ -- $ 2,496
Real estate mortgage notes (b) 2,513 3,267
Michigan Strategic Fund Limited
Obligation Revenue Bonds (c) -- 4,352
Equipment term notes (d) 1,630 2,805
Other notes payable (e) 458 778
--------- ---------
Total long-term debt 4,601 13,698
Less current maturities (1,073) (4,725)
Less long-term obligations
classified as current -- (6,623)
Less debt secured by assets of
discontinued subsidiary -- (2,350)
--------- ---------
Long-term debt reported $ 3,528 $ --
========= =========
(a) In July 1996, the Company entered into an amended and restated revolving
credit and loan agreement with a bank, which was for a three-year period
and permitted borrowings of up to $4 million under a revolving credit
note and up to $2 million under a line of credit note. During 1998, the
Company violated certain debt covenants. As a result, in fiscal 1999 the
Company's primary lender required the Company to replace its current
credit facilities with several amendment and extension agreements, the
most recent of which extends continuing credit, up to $3 million at
prime plus 1%, through November 1, 1999. As of September 30, 1999 the
Company had $3 million available on its line of credit. Borrowings on
the bank line of credit are collateralized by accounts receivable and
inventory, and limited to certain advance rate percentages. Interest is
payable monthly. The agreement prohibits the payment of cash dividends
and requires the Company to maintain specific financial covenants
including minimum total equity, current ratio and EBITDA. Management
believes it can extend its current debt facility with the existing
lender or refinance with other lenders on a continuing basis.
(b) At September 30, 1999 the balance represents a $2.5 million mortgage
note which requires monthly principal and interest payments. The note
bears interest at 8.25% per annum and is collateralized by land and
buildings with a net book value of $2,970,000. The note matures in
fiscal 2011.
(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. During September 1999, the balance of $1,554,300
outstanding on the $3 million bond was paid as part of the sale of the
Uniflow transmission shaft product line. In October 1998, the balance of
$2,349,800 outstanding on the $4 million bond was paid with proceeds
received from the sale of the remaining Milford assets (Note 2).
F-13
(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 7.7% at September 30, 1999). The note is
collateralized by equipment with a net book value of $3,151,000 at
September 30, 1999.
(e) Interest rates on other notes payable range from 0.9% to 12%. At
September 30, 1999, the balance includes $346,000 in trade installment
notes collateralized by certain property. Maturity dates range from 2000
to 2002.
The prime rate at September 30, 1999 and 1998 was 8.25%.
Scheduled principal payments on long-term debt for each of the next five
years and thereafter are summarized as follows (in thousands):
Year Ended
September 30, Amount
------------ -------
2000 $1,073
2001 845
2002 606
2003 171
2004 185
Thereafter 1,721
------
Total $4,601
======
8. COMMON STOCK OPTIONS
In 1991, the Board of Directors (the "Board") adopted a nonqualified
common stock option plan (the "1991 Plan"). The 1991 Plan authorizes the
Board to grant options to purchase a maximum of 80,000 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 up to 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.
F-14
There were 5,000 stock options granted during 1998 and no options
granted during 1999 and 1997. For stock options granted during the year
ended September 30, 1998, 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 net operating results and
related per share amounts would have been adjusted to the pro forma
amounts indicated below:
1 9 9 8
--------------------------
Net
Net Loss Per
Loss Common Share
----------- ------------
As reported $(5,945,400) $(5.57)
Compensation costs for stock
option grants, net of tax benefit (23,700) (0.02)
----------- ------
Pro forma $(5,969,100) $(5.59)
=========== ======
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 during the year
ended September 30, 1998:
Assumptions
-----------
Expected volatility 50.0%
Risk-free interest rate 5.5%
Expected lives (in years) 5
A summary of the status of stock option grants under the Company's 1991
Plan as of September 30, 1999, 1998 and 1997 and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8 1 9 9 7
------------------- ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year 47,800 $10.60 62,600 $10.95 75,200 $10.75
Granted -- -- 5,000 8.75 -- --
Exercised -- -- -- -- (500) 9.70
Terminated (14,600) 12.89 (19,800) 11.35 (12,100) 9.70
------- ------ ------- ------ ------- ------
Outstanding at the end
of the year 33,200 9.55 47,800 10.60 62,600 10.95
======= ====== ======= ====== ======= ======
Options exercisable at
end of the year 17,900 $ 9.64 25,800 $11.50 22,400 $12.20
======= ====== ======= ====== ======= ======
Weighted average fair
value of options
granted during the
year $ 4.75
======
</TABLE>
F-15
The following table summarizes information about stock options
outstanding under the Company's 1991 Plan at September 30, 1999:
Remaining
Contractual
Exercise Options Options Life
Price Outstanding Exercisable (Years)
-------- ----------- ----------- ------------
$8.75 5,000 1,000 3.7
9.69 28,200 16,900 1.5
------ ------
33,200 17,900
====== ======
During the year ended September 30, 1996, 35,000 options exercisable at
$9.69 were issued to an officer of the Company outside of the 1991 Plan.
At September 30, 1999, 21,000 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. GAIN ON SALE OF PRODUCT LINE
In September 1999, the Company reached an agreement with an OEM customer
in connection with its efforts to settle claims and recoup its over $3.2
million investment in an uncompleted transmission shaft program. The
settlement value was approximately $5,087,000, of which $3,883,000 had
been received upon closing. The final $1,204,000 installment of the
settlement proceeds was received in December 1999 in satisfaction of
amounts included in property, plant and equipment held for sale as of
September 30, 1999.
10. INCOME TAXES
The provision for income taxes attributable to continuing operations
consists of the following components for the years ended September 30:
1 9 9 9 1 9 9 8 1 9 9 7
--------- ----------- --------
Current (expense) benefit $(136,600) $ 140,100 $(30,200)
Deferred (expense) benefit (688,800) 1,451,200 (74,900)
Change in valuation allowance 749,600 (1,047,400) 76,400
--------- ----------- --------
Income tax (expense) benefit $ (75,800) $ 543,900 $(28,700)
========= =========== ========
F-16
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
1 9 9 9 1 9 9 8
------- -------
Deferred tax assets:
Alternative minimum tax carryforwards $ 239,000 $ 349,900
Net operating loss carryforwards -- 628,800
Net operating loss carryforwards
of acquired companies and
tax credits - subject to limitations 187,000 446,000
Allowances and accruals 370,000 618,900
--------- -----------
Total deferred tax assets 796,000 2,043,600
Less valuation allowance (690,100) (1,439,700)
--------- -----------
Net deferred tax assets 105,900 603,900
Current portion 105,900 603,900
--------- -----------
Long-term portion $ -- $ --
========= ===========
Deferred tax liabilities:
Depreciation $ 372,500
Book and tax basis differences from
business combinations $ 332,500 574,800
Other amounts 68,800 12,800
--------- -----------
Total deferred tax liabilities
(all long-term) $ 401,300 $ 960,100
========= ===========
During 1999 and 1998, 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 of approximately $166,000 as
of September 30, 1999 are available for offset against future taxable
earnings through the year 2005, subject to annual limitations as set
forth in the Internal Revenue Code.
F-17
A reconciliation of the Company's statutory income tax provision
computed on pre-tax results from continuing operations to the recorded
income tax provision for the years ended September 30 are as follows:
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Statutory income tax
(provision) benefit $(519,700) $ 2,247,400 $ 6,300
Change in valuation allowance 749,600 (1,047,400) 76,400
Nondeductible goodwill
amortization (16,600) (582,000) (46,400)
Other (289,100) (74,100) (65,000)
--------- ----------- --------
Income tax (expense) benefit $ (75,800) $ 543,900 $(28,700)
========= =========== ========
11. COMMITMENTS AND CONTINGENCIES
Leases and Litigation
The Company's annual expense and future obligations related to operating
leases are 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 is not expected to have a material adverse effect on
the Company's consolidated financial position or results of operations.
Trading of Common Stock
In November 1998, the National Association of Securities Dealers
Automated Quotation System (NASDAQ) proposed delisting the trading of
the Company's common stock from the NASDAQ National Market System due to
the Company failing to meet certain minimum listing requirements. The
Company appealed the proposed delisting action and as result, the
trading of its' stock was moved to The Nasdaq SmallCap Market System
under the symbol SECM, during April 1999.
12. RELATED PARTY TRANSACTIONS
Since January 1997, the Company's Chairman, Robert Clemente, served in
an "Of Counsel" capacity to the law firm of Munro & Munro, PC, which has
been retained by the Company for professional legal services required in
the normal course of business. During fiscal 1999 and 1998 the Company
paid to this law firm $27,800 and $84,000, respectively, in legal fees
and expenses. Mr. Clemente does not receive any portion of the fees paid
by the Company to this law firm.
During the year ended September 30, 1999 the Company paid $24,600 to a
director for consulting fees owing as of September 30, 1998.
F-18
13. SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This Statement requires financial
information to be reported on the basis that management uses for
evaluating segment performance and making operating decisions.
The Company operates in two principal operating segments: 1) Metal parts
forming and 2) Tooling. The accounting policies of the reportable
segments are the same as those described in Note 1. Management evaluates
the performance of its operating segments separately to individually
monitor the different factors affecting performance. The Company
measures the performance of its operating segments based on net revenue
and operating income. Income taxes are managed on a Company-wide basis.
The following is summarized business segment information
applicable to continuing operations (in thousands):
<TABLE>
<CAPTION>
Metal Eliminations
Parts and
Year Ended September 30: Forming Tooling Corporate Consolidated
------------------------ ------- ------- ------------ -------------
<S> <C> <C> <C> <C>
1999
Net sales $ 13,261 $ 15,675 $ (710) $ 28,226
Income from operations 1,351 1,740 (916) 2,175
Identifiable assets 5,764 6,118 5,737 17,619
Depreciation and amortization 985 511 768 2,264
Capital expenditures 61 123 -- 184
1998
Net sales 17,186 17,303 (2,763) 31,726
(Loss) income from operations (6,378) 1,423 (831) (5,786)
Identifiable assets 10,676 6,819 5,473 22,968
Depreciation and amortization 1,501 616 576 2,693
Capital expenditures 506 504 239 1,249
1997
Net sales 18,930 18,474 (2,367) 35,037
(Loss) income from operations (1,395) 2,587 (300) 892
Identifiable assets 13,753 7,433 11,754 32,940
Depreciation and amortization 1,200 701 334 2,235
Capital expenditures 1,457 662 971 3,090
</TABLE>
F-19
14. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for interest and income taxes during the year ended
September 30 amounted to the following (in thousands):
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Interest:
Continuing operations $752 $985 $1,058
Discontinued operations 27 370 191
Income taxes:
Continuing operations -- 25 205
The Company entered into the following noncash investing and
financing transactions for the year ended September 30 (in thousands):
1999 1998
---- ----
Note receivable received from
sale of machinery and business $1,500 $575
* * * * *
F-20
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------------------------
1 9 9 9 1 9 9 8
--------------------------------------- ---------------------------------------
September June March December September June March December
1999 1999 1999 1998 1998 1998 1998 1997
--------- ----- ----- -------- --------- ---- ----- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 6,802 $ 6,693 $ 7,415 $ 7,316 $ 6,947 $ 7,879 $ 8,545 $ 8,354
Gross profit 1,360 1,464 1,417 1,082 165 813 8 893
Income (loss)
from continuing
operations 1,433 137 84 (201) (1,356) (949) (3,299) (462)
Income (loss)
from discontinued
operations -- -- -- -- 1,193 -- (621) (451)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 1,433 $ 137 $ 84 $ (201) $ (163) $ (949) $(3,920) $ (913)
======= ======= ======= ======= ======= ======= ======= =======
Income (loss) per
common share (1):
Continuing
operations $ 1.36 $ 0.13 $ 0.07 $ (0.19) $ (1.27) $ (0.89) $ (3.09) $ (0.43)
Discontinued
operations -- -- -- -- 1.12 -- (0.58) (0.43)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
per common share $ 1.36 $ 0.13 $ 0.07 $ (0.19) $ (0.15) $ (0.89) $ (3.67) $ (0.86)
======= ======= ======= ======= ======= ======= ======= =======
Price range of
common stock (1):
High bid $ 5.13 $ 3.75 $ 3.13 $ 4.06 $ 8.60 $ 12.50 $ 11.25 $ 12.50
Low bid 2.50 1.38 1.25 0.31 1.55 6.90 7.50 8.45
Weighted average
shares outstanding (1) 1,057 1,065 1,067 1,067 1,067 1,067 1,067 1,067
<FN>
(1) Per share amounts and weighted shares outstanding have been restated to
reflect the one-for-five reverse stock split.
</TABLE>
F-21
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
Year Ended September 30
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $ 28,226 $ 31,726 $ 35,037 $ 30,877 $ 36,276
Income (loss) from continuing
operations, before income taxes 1,528 (6,610) (18) 58 831
Income tax (expense) benefit (75) 544 (29) (17) 373
-------- -------- -------- -------- --------
Income (loss) from continuing
operations 1,453 (6,066) (47) 41 1,204
Income from discontinued
operations, net of income taxes -- 121 356 -- --
-------- -------- -------- -------- --------
Net income (loss) $ 1,453 $ (5,945) $ 309 $ 41 $ 1,204
======== ======== ======== ======== ========
Income (loss) per common share (1):
Continuing operations $ 1.37 $ (5.68) $ (0.04) $ 0.05 $ 1.40
Discontinued operations -- 0.11 0.32 -- --
-------- -------- -------- -------- --------
Net income (loss) per common share $ 1.37 $ (5.57) $ 0.28 $ 0.05 $ 1.40
======== ======== ======== ======== ========
Balance sheet data
Total assets $ 17,619 $ 27,868 $ 46,208 $ 34,954 $ 26,947
Long-term debt 3,528 8,973 17,711 13,724 4,622
Stockholders' equity 9,722 8,342 14,300 14,036 11,910
Common stock shares outstanding (1) 1,044 1,067 1,068 1,068 855
Equity per common share (1) 9.30 7.82 13.40 13.15 13.95
Current ratio 2.38 0.81 1.64 1.84 1.13
Long-term debt to stockholder's equity 0.36 1.08 1.24 0.98 0.39
<FN>
(1) Per share amounts and weighted shares outstanding have been restated to
reflect the one-for- five reverse stock split.
</TABLE>
F-22
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SECOM GENERAL CORPORATION
We, the undersigned, ROBERT CLEMENTE and SCOTT KONIECZNY, DO HEREBY
CERTIFY that we are, respectively, the Chairman and Secretary of SECOM
GENERAL CORPORATION, a Delaware corporation (the "Corporation"), and that
Article IV of the Corporation's Certificate of Incorporation has been duly
amended in accordance with the provisions of Section 242 of the Delaware
General Corporation Law, by the affirmative vote of the holders of at least a
majority of the issued and outstanding capital stock of the Corporation at a
Special Meeting of Shareholders held on April 12, 1999. At that meeting the
shareholders of the Corporation approved an amendment to the Corporation's
Certificate of Incorporation to effect a reverse stock split at the rate of
one (1) new share for each five (5) shares of currently outstanding common
stock.
As a result of that action, Article IV of the Corporation's
Certificate of Incorporation has been amended to read in its entirety as
follows:
ARTICLE IV
The total authorized capital stock of the Corporation shall consist
of 5,000,000 shares, par value $1.00 per share, of Preferred Stock and
10,000,000 shares, par value $.10 per share, of Common Stock.
Each share of the Corporation's Common Stock, $.004 par value, that
was outstanding at the close of business on August 31, 1990, shall become,
effective as of the close of business on August 31, 1990, and thereafter
continue to be, 3/100 of a share of Common Stock of this Corporation, $.10
par value, provided that the shares of Common Stock issued in the name of any
holder as of such time shall be converted only into a whole number of shares
at a rate of three (3) shares for each one hundred (100) shares issued
theretofore and any resulting fractional shares shall be treated in the
manner specified in this paragraph. Each holder of record of issued and
outstanding shares of the Corporation's Common Stock, $.004 par value, at the
close of business on said date shall be entitled to receive, upon surrender
of his or her stock certificate(s), a new certificate representing the number
of whole shares of Common Stock, $.10 par value, of which he or she is the
owner after giving effect to the provisions of this paragraph, and a cash
payment in lieu of any fractional shares at the rate of $3.125 per post-split
share. All such fractional shares shall be canceled and the Corporation's
stated capital reduced by the amount represented thereby.
Each five (5) shares of the Corporation's Common Stock, $.10 par
value, that was outstanding at the close of business on April 14, 1999, shall
become, effective as of the close of business on April 14, 1999 (the
"Effective Date"), and thereafter continue to be, combined into one (1) share
of Common Stock, $.10 par value, provided that the shares of Common Stock
issued in the name of any holder as of such time shall be converted only into
a whole number of shares and any resulting fractional shares shall be treated
in the manner specified below in this paragraph. Each
E-1
holder of record of issued and outstanding shares of the Corporation's Common
Stock, $.10 par value, at the close of business on the Effective Date shall
be entitled to receive, upon surrender of his or her stock certificate(s) a
new certificate representing the number of whole shares of Common Stock, $.10
par value, of which he or she is the owner after giving effect to the
provisions of this paragraph. No fractional shares of Common Stock or scrip
certificates therefor shall be issued to the holders of the presently
outstanding Common Stock, $.10 par value, by reason of the foregoing.
Stockholders who would otherwise be entitled to receive fractional shares,
will be entitled to receive a cash payment in lieu thereof at a price equal
to the fair market value of the Common Stock as determined by the
Corporation's Board of Directors on the Effective Date. American Stock
Transfer And Trust Company, the Corporation's transfer agent will pay to such
holders, on surrender of their certificate(s) for Common Stock, par value
$.10, the fair market value of such fractional shares and all such fractional
shares shall be canceled and the Corporation's stated capital shall be
reduced by the amount represented thereby.
A statement of all of the relative designations, powers, rights,
preferences, restrictions and limitations of the shares of each class is as
follows:
(1) The Preferred Stock:
Shares of the Preferred Stock of the corporation may be issued from
time to time in one or more series, each of which series shall have such
distinctive designations or title and contain such number of shares as shall
be fixed by the Board of Directors of the Corporation prior to the issuance
of any shares thereof. At the time of such issuance, a certificate shall be
filed as required by Section 151(g) of the General Corporation law of the
State of Delaware or its successor provisions. The Board of Directors of the
Corporation is hereby expressly granted authority to fix by duly adopted
resolution or resolutions the designations and the relative powers and
preferences, the relative, participating, optional, voting, conversion or
other special rights, the terms and conditions of any redemptions and the
relative qualifications, limitations or restrictions as may be authorized or
permitted by the laws of the State of Delaware in respect of each such series
of Preferred Stock.
(2) The Common Stock:
(A) Dividends - Subject to any and all prior rights of the holders of
any outstanding shares of the Preferred Stock of the Corporation, of any and
all series, the Board of Directors may declare and pay ratable dividends or
make other distributions in cash, its bonds or its property, including shares
or bonds of other corporations, on the outstanding shares of its Common
Stock, payable to the full extent permitted under the laws of the State of
Delaware.
(B) Liquidating Distributions - In the event of any distribution of
all of the assets of the Corporation, upon a liquidation, dissolution or
winding up of the Corporation, voluntary or involuntary, after payment of the
full preferential amounts to which the holders of the Preferred Stock shall
be entitled, the holders of the Common Stock shall be ratably entitled to
receive all of the remaining assets of the Corporation in proportion to the
number of shares held by them respectively.
E-2
(C) Voting - Each holder of the Common Stock shall be entitled to one
vote for each share of Common Stock held by him of record on the stock
transfer books of the Corporation.
IN WITNESS WHEREOF, we have hereunto set our hands and the seal of
the Corporation on this 12th day of April, 1999.
/s/ Robert Clemente
------------------------------
ROBERT CLEMENTE, Chairman
/s/ Scott J. Konieczny
------------------------------
SCOTT J. KONIECZNY, Secretary
E-3
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report
dated December 17, 1999, appearing in this Annual Report on Form 10-K of
Secom General Corporation for the year ended September 30, 1999.
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
December 27, 1999
E-4
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report
dated December 5, 1997 (January 11, 1999 as to Note 2), appearing in this
Annual Report on Form 10-K of Secom General Corporation for the year ended
September 30, 1999.
/s/ Deloitte & Touche LLP
Detroit, Michigan
December 27, 1999
E-5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 497,200
<SECURITIES> 0
<RECEIVABLES> 3,484,500
<ALLOWANCES> 212,500
<INVENTORY> 2,896,500
<CURRENT-ASSETS> 9,428,500
<PP&E> 16,038,500
<DEPRECIATION> 9,108,500
<TOTAL-ASSETS> 17,619,400
<CURRENT-LIABILITIES> 3,967,700
<BONDS> 0
<COMMON> 104,400
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,619,400
<SALES> 28,226,000
<TOTAL-REVENUES> 28,226,000
<CGS> 22,902,900
<TOTAL-COSTS> 26,050,900
<OTHER-EXPENSES> (106,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 753,200
<INCOME-TAX> 75,800
<INCOME-PRETAX> 0
<INCOME-CONTINUING> 1,452,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,600
<EPS-BASIC> 1.37
<EPS-DILUTED> 1.37
</TABLE>
