-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NfyOQ0xyCKPryRpSGQu1UjyW8Ge0jhbuq49w+xqX2YwR6l7pyORdklyuEzOYAQ2Q z1t1guUE5zrQjbWXwuCuWw== 0000889697-99-000193.txt : 19991230 0000889697-99-000193.hdr.sgml : 19991230 ACCESSION NUMBER: 0000889697-99-000193 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECOM GENERAL CORP CENTRAL INDEX KEY: 0000790375 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 870410875 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14299 FILM NUMBER: 99782248 BUSINESS ADDRESS: STREET 1: 46035 GRAND RIVER AVENUE CITY: NOVI STATE: MI ZIP: 48374 BUSINESS PHONE: 2483059410 MAIL ADDRESS: STREET 1: 46035 GRAND RIVER CITY: NOVI STATE: MI ZIP: 48374 10-K405 1 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.
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 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 $12,800 __ __ __ Chief Financial Officer, Secretary, Treasurer and Member of the Operating Committee - --------- (1) Paid in consideration of Mr. Eidemiller executing a noncompetition agreement with the Company.
19 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values The following table provides information on option exercises in fiscal 1999 by the Named Executive Officers and the value of such officers' unexercised options at September 30, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN THE MONEY OPTIONS OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($) Shares ----------------------------- -------------------------- Acquired Value Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ----------- ------------- ----------- ------------- 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 __ __
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 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.
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 ------------ ------------ ------------ 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 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
F-3
SECOM GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------ Common Stock Additional ----------------------- Paid-In Accumulated Shares Amount Capital Deficit Total ---------- --------- ----------- ------------ ------------ 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 ========== ========= =========== ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
F-4
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 ------------ ----------- ------------ 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 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
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:
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 ------ -------- ------ -------- ------ -------- 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 ======
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):
Metal Eliminations Parts and Year Ended September 30: Forming Tooling Corporate Consolidated ------------------------ ------- ------- ------------ ------------- 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
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
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) 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 (1) Per share amounts and weighted shares outstanding have been restated to reflect the one-for-five reverse stock split.
F-21
SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED) - ------------------------------------------------------------------------------ Year Ended September 30 -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (In thousands, except per share amounts) 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 (1) Per share amounts and weighted shares outstanding have been restated to reflect the one-for- five reverse stock split.
F-22 EX-3.6 2 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 EX-23.1 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 EX-23.2 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 EX-27 5
5 1,000 YEAR SEP-30-1999 SEP-30-1999 $ 497,200 0 3,484,500 212,500 2,896,500 9,428,500 16,038,500 9,108,500 17,619,400 3,967,700 0 104,400 0 0 0 17,619,400 28,226,000 28,226,000 22,902,900 26,050,900 (106,500) 0 753,200 75,800 0 1,452,600 0 0 0 1,452,600 1.37 1.37
-----END PRIVACY-ENHANCED MESSAGE-----