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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000
Commission file number 0-14299
SECOM GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0410875
(State or other jurisdiction (IRS Employer I.D. Number)
of incorporation or organization)
46035 GRAND RIVER AVENUE 48374
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 248-305-9410
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirement for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of Shares Outstanding
Common Stock 1,038,200
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SECOM GENERAL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets..................................1
Consolidated Statements of Operations........................3
Consolidated Statements of Cash Flows........................4
Notes to Interim Consolidated Financial Statements...........5
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations.......................................11
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................14
Item 2. Changes in Securities............................................14
Item 3. Defaults in Securities...........................................14
Item 4. Submission of Matters to a Vote of Security Holders..............14
Item 5. Other Information................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
ASSETS
(Unaudited)
Mar. 31, 2000 Sept. 30, 1999
------------- --------------
Current assets
Cash and cash equivalents $ 2,447,800 $ 497,200
Accounts receivable
Trade 2,408,300 3,272,000
Other, principally notes 543,000 525,300
Inventories -- 2,896,500
Prepaid expenses 221,500 93,100
Deferred tax assets 74,000 105,900
Real estate and buildings held for sale 2,900,000 834,600
Property, plant, equipment and inventory
of discontinued subsidary 4,906,200 --
Machinery and equipment held for sale -- 1,203,900
----------- -----------
Total current assets 13,500,800 9,428,500
Notes receivable, net of current portion 905,400 975,400
Property, plant and equipment, net 102,700 6,930,000
Other assets 58,000 285,500
----------- -----------
Total assets $14,566,900 $17,619,400
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
1
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
Mar. 31, 2000 Sept. 30, 1999
------------- --------------
Current liabilities
Current maturities of secured debt $ 195,700 $ 1,073,300
Accounts payable 709,900 1,314,400
Accrued wages and benefits 606,900 749,400
Other accrued expenses 434,000 830,600
Debt secured by buildings and
real estate held for sale 2,447,700 --
Debt secured by property, plant and
equipment of discontinued subsidiary 54,400 --
------------ ------------
Total current liabilities 4,448,600 3,967,700
Long-term debt obligations -- 3,527,900
Deferred tax liabilities -- 401,300
------------ ------------
Total liabilities 4,448,600 7,896,900
------------ ------------
Stockholders' equity
Common stock, $.10 par value,
authorized 10,000,000 shares;
outstanding 1,038,200 shares 103,800 104,400
Additional paid-in capital 18,736,700 18,757,700
Accumulated deficit (8,722,200) (9,139,600)
------------ ------------
Total stockholders' equity 10,118,300 9,722,500
------------ ------------
Total liabilities and stockholders' equity $ 14,566,900 $ 17,619,400
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended Mar. 31, Ended Mar. 31,
------------------ ------------------
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 329,900 $352,300 $ 668,200 $ 698,000
Costs and expenses:
Depreciation and interest 165,500 215,400 308,800 411,600
Salaries and benefits 93,600 96,800 186,800 230,000
Professional services 9,000 73,000 59,200 138,500
Other (3,700) 41,800 90,300 104,900
--------- -------- --------- ---------
Total costs and expenses 264,400 427,000 645,100 885,000
Income (loss) from continuing operations
before income taxes 65,500 (74,700) 23,100 (187,000)
Income tax (expense) benefit (33,600) (3,400) (16,800) 23,500
--------- -------- --------- ---------
Income (loss) from continuing operations 31,900 (78,100) 6,300 (163,500)
Discontinued operations:
Income from operations of
discontinued subsidiaries 416,000 162,100 597,700 46,900
Loss on disposal of subsidiary,
net of applicable income tax
benefit of $93,200 (186,600) -- (186,600) --
--------- -------- --------- ---------
Net income (loss) $ 261,300 $ 84,000 $ 417,400 $(116,600)
========= ======== ========= =========
Income (loss) per common share
(basic and diluted):
Continuing operations $ 0.03 $ (0.08) $ 0.01 $ (0.16)
Discontinued operations 0.22 0.15 0.39 0.04
--------- -------- --------- ---------
Net Income (loss) per common share $ 0.25 $ 0.07 $ 0.40 $ (0.12)
========= ======== ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<TABLE>
<CAPTION>
SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------
Three Months Six Months
Ended Mar. 31, Ended Mar. 31,
------------------- ----------------------
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 261,300 $ 84,000 $ 417,400 $ (116,600)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 100,100 153,700 200,200 289,100
Deferred income tax expense (benefit) 33,600 3,400 16,800 (23,500)
Gain on sale of assets -- -- -- (1,000)
Changes in operating assets and liabilities
which provided (used) cash:
Prepaid expenses and other (100,800) (66,600) (138,200) (72,800)
Trade accounts payable (157,000) (175,100) (6,300) (230,200)
Accrued liabilities (110,200) (159,200) (183,400) (2,100)
Net cash provided by discontinued operations 222,300 965,900 (40,400) 1,062,500
----------- --------- ----------- -----------
Net cash provided by operating activities 249,300 806,100 266,100 905,400
----------- --------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of property, plant
and equipment -- -- -- 2,000
Net cash provided by discontinued operations 2,414,300 41,100 3,609,400 2,620,400
----------- --------- ----------- -----------
Net cash provided by investing activities 2,414,300 41,100 3,609,400 2,622,400
----------- --------- ----------- -----------
Cash flows from financing activities:
Net change in bank line of credit -- (563,400) -- (450,600)
Payments on long-term obligations (102,200) (91,100) (203,200) (184,200)
Retirements of common stock (21,600) -- (21,600) --
Net cash used in discontinued operations (1,502,600) (317,800) (1,700,100) (2,929,700)
----------- --------- ----------- -----------
Net cash used in financing activities (1,626,400) (972,300) (1,924,900) (3,564,500)
----------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,037,200 (125,100) 1,950,600 (36,700)
Cash and cash equivalents, beginning of period 1,410,600 193,000 497,200 104,600
----------- --------- ----------- -----------
Cash and cash equivalents, end of period $ 2,447,800 $ 67,900 $ 2,447,800 $ 67,900
=========== ========= =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
SECOM GENERAL CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The consolidated financial statements included herein have been prepared
by Secom General Corporation (the "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations.
In the opinion of management, the financial statements as of March 31,
2000 reflect all adjustments (normal recurring accruals) which are
necessary to present a fair statement of the results for the period then
ended. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in
the Company's Form 10-K and Annual Report for the fiscal year ended
September 30, 1999.
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., ("Tooling Segment"); Uniflow
Corporation ("Metal Parts Forming Segment"). All significant intercompany
accounts and transactions have been eliminated.
Nature of Business
Secom General Corporation is a publicly-traded holding company. During the
quarter ended March 31, 2000 the Company sold substantially all of the
assets of its Metal Parts Forming Segment and signed a definitive purchase
agreement for the sale of its Tooling Segment (see Note 2). Upon
completion of the anticipated sale of the Tooling Segment the Company's
business activities will consist principally of the sale of the remaining
real estate and the ongoing collection of promissory notes, receivables
and royalties.
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
and tax credit carryforwards.
Reclassifications
Certain reclassifications have been made to the prior period balances for
comparative purposes.
5
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.
Revenues
Revenues consist of management fees from the discontinued operations, real
estate rental income, interest and royalty income. The discontinued
operations recognize revenues upon shipment of customer products.
Earnings (Loss) Per Common Share
Earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the year. This statement requires a dual
presentation and reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all common stock
equivalents. At March 31, 2000 and 1999 options to purchase 68,200 and
69,200 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 three and six month periods ended
March 31:
(Unaudited)
Three Months Six Months
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
Denominator:
Weighted average shares
outstanding, basic 1,044,100 1,067,100 1,043,600 1,067,100
Incremental shares from
assumed conversion of options -- -- -- --
--------- --------- --------- ---------
Weighted average shares
outstanding, diluted 1,044,100 1,067,100 1,043,600 1,067,100
========= ========= ========= =========
2. DISCONTINUED OPERATIONS
Sale of Metal Parts Forming Segment
On February 9, 2000, the Company sold substantially all of the operating
assets, business and properties of its Uniflow subsidiary to Alken-Ziegler
Livonia, LLC, ("Alken-Ziegler). The sale was effective as of February 1,
2000. Alken-Ziegler paid approximately $2.4 million in cash and agreed to
assume Uniflow's obligations under its collective bargaining agreement
with the UAW. In addition, Alken-Ziegler is obligated to pay the Company a
commission of 3% on sales made by Alken-Ziegler to certain customers for a
period up to five years. The Company acquired Uniflow in September 1991.
6
Due to the sale of Uniflow the current and prior periods results of the
Metal Parts Forming Segment have been reported as discontinued operations
in the accompanying consolidated statements of operations and cash flows.
Summarized results of the Metal Parts Forming Segment up to the
February 1, 2000 effective date of the disposal are as follows (in
thousands):
(Unaudited)
Three Months Six Months
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
Net sales $ 746 $ 3,647 $ 3,045 $ 7,505
Cost of sales 685 3,301 2,817 6,978
------- ------- ------- -------
Gross profit 61 346 227 527
Operating expenses 62 251 231 503
Nonoperating expenses, net 30 175 119 369
------- ------- ------- -------
Loss before income taxes (31) (80) (123) (346)
Income tax (expense) benefit -- (4) 38 52
------- ------- ------- -------
Net loss $ (31) $ (84) $ (85) $ (294)
======= ======= ======= =======
The $2.4 million in cash received from the sale was invested in short-term
certificates of deposit.
The assets and liabilities of the discontinued Metal Parts Forming Segment
included in the accompanying consolidated balance sheets are as follows
(in thousands):
Unaudited
Mar. 31, Sept. 30,
2000 1999
--------- ---------
Current assets
Accounts and other receivables $ 183 $1,365
Inventory 626
Prepaids and other 36 42
Machinery & equipment held for sale 1,204
------ ------
Total current assets 219 3,237
Net property, plant and equipment 2,250
------ ------
Other assets 156 277
------ ------
Total assets 375 5,764
------ ------
Current liabilities
Accounts payable 575
Accrued liabilities 123 202
------ ------
Total current liabilities 123 777
------ ------
Net assets $ 252 $4,987
====== ======
Proposed sale of Tooling Segment
On March 29, 2000 the Company's Board of Directors authorized management
to sign a definitive purchase agreement, subject to shareholder approval,
to sell substantially all of the operating assets, business and properties
of its Tooling Segment to Alken-Ziegler Livonia, LLC and GL Ziegler
Investments, LLC. Under the terms of the purchase agreement, the Company
would receive approximately $9.6 million in cash, adjusted for specific
changes in inventory levels. The Company would retain the accounts
receivable as of the closing and would be responsible for the payment of
any accounts payable and accrued liabilities as of that date. The Company
anticipates netting an additional $1 million from the collection of the
accounts receivable and payment of the retained liabilities. Based on the
7
March 31, 2000 balance sheet, the Company believes it will recognize a
pre-tax gain of approximately $4.7 million on the sale, resulting in a
$1.6 million federal income tax liability.
Based on the above, the current and prior period results of the Tooling
Segment have been reported as discontinued operations in the consolidated
statements of operations and cash flows. The Company anticipates the
Tooling Segment to be profitable through the date of sale and expects to
record a gain on the sale if and when realized. Summarized results of the
Tooling Segment through March 31, 2000 are as follows (in thousands):
(Unaudited)
Three Months Six Months
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
Net sales $4,147 $3,985 $7,901 $7,657
Cost of sales 2,916 2,996 5,663 5,847
------ ------ ------ ------
Gross profit 1,231 989 2,238 1,810
Operating expenses 476 518 954 1,024
Nonoperating expenses, net 132 189 261 381
------ ------ ------ ------
Income before income taxes 623 282 1,023 405
Income tax expense 176 36 340 64
------ ------ ------ ------
Net income $ 447 $ 246 $ 683 $ 341
====== ====== ====== ======
The assets and liabilities of the discontinued Tooling Segment included in
the accompanying consolidated balance sheets are as follows (in
thousands):
Unaudited
Mar. 31, Sept. 30,
2000 1999
---------- ---------
Current assets
Accounts and other receivables $2,448 $2,057
Inventory 2,325
Prepaids and other 24 34
Property, plant, equipment and inventory
of discontinued subsidiary 4,906
------ ------
Total current assets 7,378 4,416
Net property, plant and equipment 1,604
Net goodwill 98
------ ------
Total assets 7,378 6,118
------ ------
Current liabilities
Debt 54 74
Accounts payable 687 610
Accrued liabilities 323 244
------ ------
Total current liabilities 1,064 928
------ ------
Net assets $6,314 $5,190
====== ======
8
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following assets at March 31,
2000 and September 30, 1999 (in thousands):
(Unaudited)
Mar. 31 2000 Sept. 30, 1999 Life
------------ -------------- -------------
Furniture and fixtures $ 1,072 $ 1,667 3 to 7 years
Building and improvements -- 4,285 3 to 30 years
Land and improvements -- 430
Machinery and equipment -- 9,501 2 to 20 years
Vehicles -- 156 3 years
------- -------
Total 1,072 16,039
Less accumulated depreciation 969 9,109
------- -------
Net book value $ 103 $ 6,930
======= =======
4. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for interest and income taxes for the three and six months
ended March 31, 2000 and 1999, respectively, were (in thousands):
(Unaudited)
Three Months Six Months
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
Interest:
Continuing operations 43 60 111 125
Discontinued operations 15 147 40 300
Income taxes:
Continuing operations -- -- -- --
Discontinued operations 537 -- 1,078 --
On January 31, 2000, the Company retired the remaining $1.5 million of a
note secured by certain capital equipment of the discontinued operations.
During the quarter ended December 31, 1999, the Company received $1.2
million in satisfaction for amounts included in property, plant and
equipment held for sale as of September 30, 1999. The money represented
the final installment due the discontinued Metal Parts Forming Segment
from the sale of its transmission shaft product line in September 1999.
5. SUBSEQUENT EVENTS
On April 12, 2000, the Company sold one of its buildings and real estate
parcels located in Novi, Michigan. The Company sold the building for $1.2
million and expects to record a pre-tax gain on the sale of between
$100,000 and $200,000 in the quarter ended June 30, 2000. After expenses
and a payment of $699,000 to satisfy an outstanding mortgage on the
building, the Company netted approximately $386,000 in cash.
9
In May 2000, the Company anticipates signing an agreement to sell its
three remaining buildings and the related real estate located in Novi,
Michigan, for $2.75 million cash. After retiring approximately $1.5
million of debt secured by the buildings and real estate and payment of
other expenses, the Company anticipates netting $1 million.
As of May 10, 2000, in accordance with Delaware law, the holders of a
majority of the issued and outstanding common stock of Secom executed a
Written Consent in Lieu of a Special Meeting approving the sale of
substantially all of the operating assets and real estate of the Tooling
Segment, pursuant to an Asset Purchase Agreement dated March 29, 2000.
Please see Secom's Schedule 14(c) Information Statement dated May 10, 2000
which is incorporated herein by reference. Upon completion of the proposed
sale of the Tooling Segment, the Company's Board of Directors anticipates
adopting a Plan of Liquidation which would be subject to shareholder
approval at an annual meeting expected to be held in August 2000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
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 growth and operating results
are: changes in the automotive, trucking and construction industries,
relations with 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 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, the
inability to close on the sale of any of the Company's assets or real
property, and the condition of the real estate or financial markets.
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.
In October 1998, the Company engaged the services of Goldsmith,
Agio, Helms and Company, an investment banker, to assist the Company in
exploring strategic alternatives for the Company, including a potential sale.
The Board of Directors of the Company believed that shareholder value could
be maximized by a sale of part or all of the Company and its assets. As part
of this effort, during the quarter ended March 31, 2000 the Company's Board
of Directors authorized the sale of the Company's Metal Parts Forming
Segment, Uniflow, which manufactured cold forged and cold headed parts, and
signed a definitive purchase agreement, subject to shareholder approval, for
the sale of the Company's Tooling Segment. The Tooling Segment provides
perishable tooling for the hot and cold-formed metal parts industries.
On February 9, 2000, the Company sold substantially all of the
operating assets, business and properties of its Uniflow subsidiary to
Alken-Ziegler Livonia, LLC, ("Alken-Ziegler). Accordingly, this segment is
shown as a discontinued operation and prior period statements of operations
and cash flows have been restated to reflect this business disposition. The
Company recorded a loss on the sale of ($187,000), net of an applicable
income tax benefit of $93,000. Cash proceeds of $2.4 million received on the
sale were invested in short term certificates of deposit.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN
RESULTS OF OPERATIONS (Continued)
On March 29, 2000, the Company's Board of Directors authorized
management to sign a definitive purchase agreement, subject to shareholder
approval, to sell substantially all of the operating assets, business and
properties of its Tooling Segment to Alken-Ziegler Livonia, LLC and GL
Ziegler Investments, LLC. Under the terms of the purchase agreement, the
Company would receive approximately $9.6 million in cash, adjusted for
specific changes in inventory levels. The Company would retain the accounts
receivable as of the closing and would be responsible for any accounts
payable and accrued liabilities as of that date. The Company anticipates
netting an additional $1 million from the collection of the accounts
receivable and payment of the retained liabilities. Based on the March 31,
2000 balance sheet, the Company believes it will recognize a pre-tax gain of
approximately $4.7 million on the sale, resulting in a $1.6 million federal
income tax liability.
The Company recorded net income of $261,300, or $0.25 per share,
for the quarter ended March 31, 2000 compared to net income of $84,000, or
$0.07 per share, in the March 31, 1999 quarter. For the six months ended
March 31, 2000 the Company recorded net income of $417,400, or $0.40 per
share, compared to a net loss of ($116,600), or ($0.12) per share in the
prior year period. The net income was primarily due to a substantial increase
in the operating results of the discontinued Tooling Segment, as a result of
a substantial increase in sales to one of its larger customers. The
improvement in the Tooling Segment's results was reduced by the loss incurred
on the sale of substantially all of the assets of the Metal Parts Forming
Segment.
RESULTS OF OPERATIONS BY SEGMENT
Due to the sale of the Metal Parts Forming Segment and the pending
sale of the Tooling Segment, the Company's only continuing operations are
those of the corporate holding company. Upon the anticipated sale of the
Tooling Segment the Company's business activities will consist principally of
the sale of the remaining real estate and the ongoing collection of
promissory notes, receivables and royalties. Income taxes are managed on a
Company-wide basis.
CORPORATE EXPENSES
Although revenues for the quarter ended March 31, 2000 declined by
6.4% over the same quarter last year, the Company recorded an improvement in
results from continuing operations in the current period. The decline in
revenues was due to a decrease in management fees charged to the discontinued
segments, offset by an increase in interest and royalty income. The Company
recorded income from continuing operations of $31,900, or $0.03 per share,
for the quarter ended March 31, 2000 compared to a loss from continuing
operations of ($78,100), or ($0.08) per share, in the March 31, 1999 quarter.
For the six month period ended March 31, 2000, the Company recorded income
from continuing operations of $6,300, or $0.01 per share, compared to a loss
from continuing operations of ($163,500), or ($0.16) per share, in the prior
year period. The improvement in results from operations was primarily due to
lower professional fees, as a result of the hiring of an investment banker in
the prior year period, and reduced depreciation costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, before changes in
working capital items and discontinued operations, was $395,000 in the
quarter ended March 31, 2000, while working capital changes used $368,000 of
cash and discontinued operations provided $222,000 of cash, for net cash
provided by operating activities of $249,000. The cash used by working
capital items was greater than the improvement in income from continuing
operations. Net cash provided by discontinued operations was due to a
decrease in accounts receivable offset by an increase in inventories and a
decrease in accounts payable and accrued liabilities.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In the prior year comparative quarter, net cash provided by
operating activities, before changes in working capital items and
discontinued operations, was $241,000, while working capital changes used
$401,000 of cash and discontinued operations provided $966,000 of cash, for
net cash provided by operating activities of $806,000. The Cash provided by
income from continuing operations was insufficient to offset the cash used by
working capital items. The cash provided by discontinued operations was
principally due to substantial decreases in the accounts receivable and
inventory of Uniflow.
For the six months ended March 31, 2000, net cash provided by
operating activities, before changes in working capital items and
discontinued operations, was $634,000, while working capital items used
$328,000 and discontinued operations used $40,000 in cash, for total cash
provided by operations of $266,000. The improvement in income from continuing
operations helped to offset the cash used by working capital items. The use
of cash by discontinued operations was due to collection of accounts
receivable offset by a reduction in accounts payable and accrued liabilities.
For the six months ended March 31, 1999, net cash provided by
operating activities, before changes in working capital items and
discontinued operations, was $148,000, while working capital items used
$305,000 and discontinued operations provided $1.06 million, for total cash
provided by operations of $905,000. The cash provided by income from
continuing operations was insufficient to offset the cash used by working
capital items. Net cash provided by discontinued operations resulted from a
decrease in accounts receivable and inventories, reduced by a decrease in
accounts payable and accrued liabilities.
Net cash provided by investing activities was $2.41 million in the
quarter ended March 31, 2000, principally due to the sale of substantially
all of the assets of Uniflow. Net cash provided by investing activities was
negligible in the prior year quarter.
For the six months ended March 31, 2000, cash provided by
investing activities was $3.61 million, of which $1.2 million represented the
final installment due from the sale of Uniflow's transmission shaft program
during September 1999 and $2.41 million resulted from the sale of
substantially all of the assets of Uniflow. In the prior year comparative
period, cash provided by investing activities was $2.62 million, due
primarily from the sale of the remaining Milford machinery, equipment and
business.
Net cash used in financing activities was $1.63 million in the
quarter ended March 31, 2000, of which $1.5 million was used by discontinued
operations for the retirement of a note secured by certain machinery and
equipment. Net cash used in financing activities in the prior year quarter
was $972,000. Continuing operations reduced borrowings on a bank line of
credit by $563,000 and discontinued operations made scheduled principal
payments of $318,000.
For the six months ended March 31, 2000, cash used in financing
activities was $1.92 million. Continuing operations used $203,000 for
scheduled debt payments while discontinued operations used $1.5 million for
the retirement of a note secured by certain machinery and equipment and
$200,000 for scheduled debt payments. In the prior year comparative period,
cash used in financing activities was $3.56 million. Continuing operations
used $451,000 to reduce borrowings on a bank line of credit and made
scheduled debt payments totaling $184,000. Discontinued operations used $2.93
million, of which $2.35 million was for extinguishing secured debt related to
the sale of Milford's remaining machinery, equipment and business and
$580,000 was used for scheduled debt payments.
YEAR 2000 DATE CONVERSION
All of the Company's critical systems are running according to
plan. The Company did not experience any disruptions in its operations as a
result of the Year 2000 date change.
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults in Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
As of May 10, 2000, in accordance with Delaware law, the holders
of a majority of the issued and outstanding common stock of Secom
executed a Written Consent in Lieu of a Special Meeting approving
the sale of substantially all of the operating assets and real
estate of the Tooling Segment, pursuant to an Asset Purchase
Agreement dated March 29, 2000. Please see Secom's Schedule 14(c)
Information Statement dated May 10, 2000 which is incorporated
herein by reference.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Form 8-K dated February 9, 2000, regarding the sale the Company's
Uniflow subsidiary.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
SECOM GENERAL CORPORATION
(Registrant)
By: /s/ Paul D. Clemente
------------------------------------- May 10, 2000
Paul D. Clemente
Vice President
By: /s/ Scott J. Konieczny
------------------------------------- May 10, 2000
Scott J. Konieczny
Chief Financial Officer
15
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