-----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, Ig3gwcXyLd4+hKfZ5BSQ18SHhTDNE+3hNz8FmH6VCIqC9EZ1lCt5tXW7sAY9JLOJ piKzYHugC68DlCH1/qs2wA== 0000950009-97-000052.txt : 19970225 0000950009-97-000052.hdr.sgml : 19970225 ACCESSION NUMBER: 0000950009-97-000052 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970204 SROS: NASD 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14299 FILM NUMBER: 97517598 BUSINESS ADDRESS: STREET 1: 46035 GRAND RIVER AVENUE CITY: NOVI STATE: MI ZIP: 48374 BUSINESS PHONE: 8103059410 MAIL ADDRESS: STREET 1: 46035 GRAND RIVER CITY: NOVI STATE: MI ZIP: 48374 10-K/A 1 FORM 10-K/A *WITHOUT* ITEM 405 BOX CHECKED FORM 10-K/A 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, 1996 Commission file number 0-14299 SECOM GENERAL CORPORATION (exact name of registrant as specified in its charter) DELAWARE 87-0410875 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 26600 HEYN DRIVE, NOVI, MICHIGAN 48376-0705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (810) 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. [ ] As of December 24, 1996, 5,342,200 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 National Market System) was approximately $13,355,500. DOCUMENTS INCORPORATED BY REFERENCE Part III - incorporated by reference from the Registrant's Proxy Statement for its Annual Meeting to be held in March 1997. TABLE OF CONTENTS PART I Page ---- Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15 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: * Uniflow Corporation ("Uniflow") acquired in 1991 Tooling Segment: * Form Flow, Inc. ("Form Flow") acquired in 1987 * L & H Die, Inc. ("L & H") acquired in 1987 * Micanol, Inc. ("Micanol") acquired in 1990 * Triple Technologies, Inc. ("Triple"), formerly known as Triple Tool, acquired in 1991 In May 1995, Triple's operations were downsized and relocated to a Form Flow facility. Triple's continuing business activity was absorbed into Form Flow. Effective November 1, 1996, the Company acquired the Milford, Michigan machining business of the VarityKelsey-Hayes Corporation ("VKH"), a business unit of Lucas-Varity Corporation (NYSE:LAV). The business was renamed Milford Manufacturing Corporation ("MMC"), and constitutes a third segment for the Company -- Production Machining. In connection with the acquisition, the Company also entered into a five year supply agreement for the manufacture and sale of various brake valve parts to VKH. See Management's Discussion and Analysis. The Company's corporate address is 26600 Heyn Drive, Novi, Michigan 48376-0705; its telephone number is (810) 305-9410 and its facsimile number is (810) 347-9956. 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. Principal Customers, Backlog and Seasonality In 1996, one of the Company's customers accounted for 11% of consolidated revenues. Sales of the Company's parts, tooling and services are not considered seasonal. The Company believes that its backlog, due to the nature of its respective businesses, is not necessarily indicative of the level of its present or future sales. - 3 - SEGMENT REVIEW Metal Parts Forming Segment General The Metal Parts Forming Segment is comprised of the Company's Uniflow unit, 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. Sales and Competition Uniflow's fiscal 1996 sales were comprised as follows: 32.8% wheel studs for heavy and light duty trucks (original equipment manufacturers or "OEM" and service part manufacturers or "aftermarket"); 24.9% automobile ball joint suspension housings (OEM and aftermarket); 23.6% transmission gear housings (OEM); and 18.7% miscellaneous cold headed and cold forged parts (OEM). While Uniflow operates in competitive markets, management believes that Uniflow's extensive tooling inventory gives it a competitive advantage in retaining certain reorders from the same customers. Although Uniflow is aggressively seeking sales of new parts, most of its business base remains reorders of the same customer specific parts. Uniflow's sales backlog usually covers a period of approximately three months of work. As such, the backlog is not necessarily indicative of Uniflow's sales performance beyond that time period. Management expects Uniflow's sales mix to change in 1997 and thereafter, as it focuses on larger OEM sales orders. See Management's Discussion and Analysis set forth in Item 7. Uniflow's sales are concentrated with a few customers, as five customers comprised 75% of revenue for the fiscal year ended September 30, 1996. 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 would likely be adversely affected. Manufacturing and Engineering Uniflow manufactures parts from steel bar, coil and tubing using cut-off machines, cold forging hydraulic presses, cold heading machines, CNC turning centers, threadrollers, broaching and piercing machines. Although part production can involve up to 14 different production steps, primary equipment consists of the cold forging presses and cold forming (header) machines, which form the parts into their general size and shape. The forging presses complete one operation at a time, while the header machines complete up to five operations in succession. After parts are forged or formed, they are routed to various secondary machining operations for finishing, such as CNC turning, 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 12 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. Employees As of September 30, 1996, Uniflow employed a total of 170 full-time employees compared to 153 in the prior year, as follows: 151 direct and indirect labor (including factory floor supervision), 6 engineering, 2 sales, 7 office and 4 management. - 4 - Tooling Segment General The Company's Tooling Segment ("Tooling Operations" or "Tooling Units") is comprised of three wholly-owned operating subsidiaries, which are Form Flow, L & H and Micanol. In May 1995, the Company significantly reduced the size of its Triple operation by selling off certain equipment. Triple's remaining operations were transferred to the Company's Form Flow unit, although certain equipment was moved to the other subsidiaries. The continuing Triple business activity has been absorbed into Form Flow. For further discussion about Triple, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 2 to the financial statements set forth in Item 8. The Tooling Operations manufacture 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 off a piece of 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 and the size and shape of the part, among other things. As part of its sales and service, the Tooling Unit'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. While tool orders typically take 4 to 10 weeks to complete, design and development orders can span over a period of months. Sales and Competition The Tooling Segment's customers manufacture items such as industrial fasteners, hand tools, electronic components, automotive parts, tubing, aircraft parts, consumer items and munitions as well as a wide array of OEM assembly parts. The Tooling Unit's customers include OEM and aftermarket suppliers and are mostly 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. Management believes its success is based on (1) the quality and durability of the tooling, (2) the ability to fulfill delivery commitments, and (3) price competitiveness. The Tooling Unit's 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 a tool drawing. 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, L & H and Micanol have separate plant facilities. Design and engineering services are located at a Form Flow facility, and are offered by all three of the Tooling Units. - 5 - Employees As of September 30, 1996, the Tooling Segment employed a total of 158 full-time employees compared to 175 in the prior year, as follows: 132 direct and indirect labor (including factory floor supervision), 5 engineering, 4 sales, 11 office and 6 management. Item 2. Properties The Company's corporate offices are located at 26600 Heyn Drive, Novi, Michigan. 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. The 6999 Cogswell facility was acquired by the Company in December 1995. Its telephone number is 313-729-3100. 2) L & H is located in a 12,600 square foot building on approximately two acres of land at 38200 Ecorse Road, Romulus, Michigan 48174 and its telephone number is 313-722-8011. 3) Micanol is located in a 12,400 square foot building on approximately two acres of land at 46001 Grand River Avenue, Novi, Michigan 48374 and its telephone number is 810-347-1230. 4) Uniflow is located in three buildings on approximately eight acres of land in Novi, Michigan 48374: (1) 30,300 square feet at 26600 Heyn Drive, (2) 16,700 square feet at 46035 Grand River Avenue and (3) 32,000 square feet at 46009 Grand River Avenue. Its telephone number is 810-348-9370. 5) MMC is located on 6.6 acres of land in an 81,500 square foot building at 101 Oak St., Milford, Michigan 48381. Its telephone number is 810-685-1573. 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 will not 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. - 6 - PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock (trading symbol "SECM") has traded on NASDAQ since June 1987 and the NASDAQ National Market System (NMS) since January 1992. 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.
High Low Quarter Ended Trade Trade ------------- ----- ----- 12/31/94 3.00 2.00 3/31/95 2.62 1.62 6/30/95 2.50 1.62 9/30/95 4.09 2.25 12/30/95 3.37 2.50 3/31/96 3.37 1.75 6/30/96 3.44 1.87 9/30/96 3.12 2.00
On September 30, 1996 there were approximately 1,000 nominees/persons of record that held the Company's common stock. Of those listed of record, approximately 2 million 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 and expansion of its business. In addition, the Company's bank loan agreement prohibits the payment of cash dividends without written consent from the lender. In August 1996, Manubusiness Opportunities, Inc. ("MOI") exercised its third and final warrant of 500,000 shares. The Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated the market trading value at the exercise date. For further discussions about MOI, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 6 to the financial statements set forth in Item 8. In June 1991 and in May 1992, the Company issued 10% common stock dividends to stockholders of record as of May 14, 1991 and May 1, 1992, respectively. Item 6. Selected Financial Data See page 34 for selected financial data as of September 30, 1996, 1995, 1994, 1993 and 1992 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. - 7 - 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 the Form 10-K. Overview The Company posted net income of $41,000 (one cent per share) on sales of $30,877,000 in 1996 compared to net income of $1,204,000 (28 cents per share) on sales of $36,276,000 in 1995. The decline in net income in 1996 from the prior year was primarily due to the continued difficulty in turning around the Company's Uniflow unit (see segment review below). Although Uniflow was able to secure various long-term sales orders during 1996 that are scheduled to ramp up in 1997 and 1998, overall sales declined in 1996 from 1995. Although sales decreased, operating expenses increased (as a percentage of sales), resulting in a loss in 1996 at Uniflow. The Company's Tooling Segment sales were lower primarily related to the downsizing of Triple Tool, which was absorbed into Form Flow's operation in late fiscal 1995. The Tooling Segment posted another profitable year, although net income was slightly lower than 1995. Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the VarityKelsey-Hayes' ("VKH") Milford, Michigan machining operation and its continuing business. Assets acquired were (1) machinery and equipment, with an estimated fair market value of $2.5 million, (2) real estate and building, with an estimated fair market value of $1.3 million, and inventories valued at approximately $1 million, as well as various environmental indemnifications and supply commitments with values yet undetermined. In exchange for the assets acquired, the Company paid approximately $5 million in consideration, as follows: (1) $1.2 million cash at closing, (2) the assumption of certain employee pension and retiree health care obligations, preliminarily estimated at $3 million and, (3) approximately $800,000 for additional inventories and equipment added to the location before the transaction closing. The Milford operation was renamed Milford Manufacturing Corporation ("MMC") and constitutes a third Secom business segment -- Production Machining. The Company anticipates the unit to be profitable in fiscal 1997 with sales expected to exceed $12 million. The Company's other two business segments are Metal Parts Forming (Uniflow) and Tooling (Form Flow, L & H and Micanol). Results of Operations Metal Parts Forming Segment Chart of three year comparative operating results (in thousands):
1996 1995 1994 ------------------- ------------------- ------------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales $ 14,748 100.0 $ 17,630 100.0 $ 16,052 100.0 Gross profit 1,197 8.1 2,226 12.6 1,533 9.6 Operating expense 1,898 12.9 1,951 11.1 1,356 8.4 Operating profit (loss) (701) (4.8) 275 1.6 177 1.1
- 8 - The Metal Parts Forming Segment is comprised of the Company's Uniflow unit. Uniflow currently manufactures suspension ball-joint housings, truck wheel fasteners, transmission shaft parts and a variety of OEM cold-formed and forged parts. Customers are primarily automotive and trucking-related original equipment manufacturers ("OEM") and service part manufacturers ("after-market"). Net sales decreased 16.3% in 1996 from 1995, and increased 9.8% in 1995 from 1994. The sales decrease in 1996 from 1995 primarily reflects (1) lower order volume for Uniflow's after-market truck wheel studs and suspension ball joint housings and, (2) additional sales in the prior year from deliveries made on a significant past-due sales backlog of approximately $1 million. The decrease in Uniflow's after-market component parts business is attributable to an overall slowness in the trucking after-market business, the loss of certain business by Uniflow's customers and the resourcing of various parts to competitors. Management does not anticipate further deterioration in 1997 after-market related sales. To replace the lower sales, management has been seeking new business for its cold forging press and cold forming header production capacity. Through those efforts, Uniflow secured an order to supply starter motor shafts for six years; shipments of $700,000 are expected in fiscal 1997, $2.5 million in 1998 and approximately $5 million annually for the remainder of this six year contract. The parts will be formed on Uniflow's National FX85 parts former and machined at the Company's newly acquired MMC unit. Uniflow also has tentatively received an order to manufacture transmission shaft parts, with shipments anticipated to start in early 1997; sales over $1.3 million are expected in fiscal 1997 and could exceed $8 million in 1998. Sales of airbag housings, for which first shipments were made in August 1996, are expected to exceed $1.5 million in 1997. Gross profit on sales was 8.1% in 1996, 12.6% in 1995 and 9.6% in 1994. The 1996 decline in gross profit reflects the lower sales volume and less efficient production. Management is in the process of implementing various operating techniques designed to improve Uniflow's manufacturing efficiency and gross profit. In particular, management is emphasizing improvements in production planning and preparation to reduce production costs. Management is also in the early stages of implementing a quality system in compliance with QS 9000 and a computerized information system that will provide on-line shop floor production and financial data. Incremental sales increases that are expected to commence throughout fiscal 1997 should improve the gross profit. Operating expense as a percentage of sales was 12.9% in 1996, 11.1% in 1995 and 8.4% in 1994. The percentage fluctuation was largely due to the varying sales level. Actual operating overhead expense in 1996 was $1.9 million, down from $1.95 million in 1995. In 1995, operating expense increased from 1994 level of $1.36 million, due primarily to increased engineering, product quality expense and the direct allocation of certain administrative expenses previously shown as unallocated corporate expense. Management does not expect its operating expense level to change significantly in 1997 from 1996. Uniflow's profit (loss) from operations was ($701,000) (-4.8% of sales) in 1996, $275,000 (1.6% of sales) in 1995 and $177,000 (1.1% of sales) in 1994. The profit decrease in 1996 from 1995 reflects the lower sales volume and higher costs of production. The profit increase in 1995 from 1994 primarily reflects the higher sales level. Management expects Uniflow's operating profit to improve with sales increases and with the implementation of production efficiencies. - 9 - Tooling Segment Chart of three year comparable operating results (in thousands):
1996 1995 1994 ---------------- ----------------- ----------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales (1) $18,166 100.0 $20,659 100.0 $19,143 100.0 Gross profit 4,317 23.8 4,902 23.7 4,841 25.3 Operating expense 2,325 12.8 2,445 11.8 1,833 9.6 Operating profit (loss) 1,992 11.0 2,457 11.9 3,008 15.7 (1) Before elimination of intercompany sales.
The Tooling Segment is comprised of the Form Flow, L & H and Micanol units. The Triple unit was downsized and absorbed into Form Flow's operation in June 1995. The Tooling Units sell tools and dies for use in the production of hot and cold formed metal parts. Net sales decreased 12.1% in 1996 compared to 1995 and increased 7.9% in 1995 compared to 1994. The 1996 sales decrease from 1995 is primarily due to the downsizing of Triple Tool, which posted sales of $1.79 million in 1995, and lower sales at Micanol in 1996, resulting from lower order demand from some of its customers. The 1995 sales increase over 1994 was the result of higher sales at Form Flow, L & H and Micanol, although Triple recorded lower sales. Gross profit on sales was 23.8% in 1996, 23.7% in 1995 and 25.3% in 1994. The 1996 gross profit percentage was comparable with 1995, while the decline in percentage in 1995 from 1994 primarily reflected unfavorable operating results at the Triple unit. Operating expense as a percentage of sales was 12.8% in 1996, 11.8% in 1995 and 9.6% in 1994. The increases in 1996 and 1995 reflect higher personnel expense and the direct allocation of certain expenses previously unallocated at the corporate level. The Tooling Segment's operating profit was $1,992,000 (11.0% of sales) in 1996, $2,457,000 (11.9% of sales) in 1995 and $3,008,000 (15.7% of sales) in 1994. The decline in operating profit in 1996 from 1995 principally resulted from lower profits at Form Flow, L & H and Micanol, offset by the reduction of Triple's operating loss. In the previous year, Form Flow realized higher profits on various special tooling development projects from certain customers. The decline in operating profit in 1995 from 1994 was principally related to lower sales volume from various higher margin customer accounts. Management is seeking to maintain higher machine utilization and higher value added tooling orders to improve its gross margin and operating profit. - 10 - Corporate Expenses Unallocated corporate overhead was $712,000 in 1996, $858,000 in 1995 and $1,620,000 in 1994. The reductions in unallocated corporate expense in 1996 and 1995 from 1994 reflect the direct allocation of certain expenses that relate to the respective operating units, as well as lower insurance and other administrative costs. Interest Expense, Miscellaneous Income and Income Taxes Interest expense was $848,000 in 1996, $1,138,000 in 1995 and $953,000 in 1994. The decline in interest expense in 1996 from 1995 resulted from lower average borrowing and lower average interest rates for the year. Lower borrowings resulted in part from the exercise of stock warrants that provided $2 million of equity to the Company and refinancing certain of its debt agreements. Interest expense increased in 1995 from 1994 primarily due to increased borrowing for the additions of capital equipment. Other income (expense) was $15,000 in 1996, ($8,000) in 1995 and $386,000 in 1994. The income in 1994 reflected settlement of debts at less than recorded values associated with Tri-Tec. Income tax expense (benefit) was $18,000 in 1996, ($373,000) in 1995 and $61,000 in 1994. The income tax benefit in 1995 was the result of the utilization of net operating loss carryforwards against taxable income and the reversal of portions of the valuation allowance in anticipation of future use of net operating loss carryforwards. Financial Condition The Company's working capital position, $4,908,000 at September 30, 1996, improved significantly during 1996 from $1,129,000 at September 30, 1995. The working capital increase primarily resulted from (1) a refinancing of long-term debt, as excess proceeds of approximately $2.35 million from new long-term debt were used to reduce short-term borrowings and (2) the exercise of stock purchase warrants that provided $2 million in additional equity, proceeds of which were also used to reduce short-term borrowings. Scheduled debt payments due in fiscal 1997 total approximately $2.1 million and management believes that internally generated cash from operations and amounts available on bank lines of credit will provide sufficient cash flow to cover the scheduled debt payments as well as fund continuing working capital requirements. Cash flows for 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994 ---- ---- ---- Cash flows from operating activities ......... $ 1,838,000 $ 1,772,000 $ 356,000 Cash flows used in investing activities ...... (4,918,000) (494,000) (589,000) Cash flows from (used in) financing activities 7,475,000 (1,274,000) 93,000
- 11 - Cash flows from operating activities Cash flows provided by operating activities were $1,969,000 in 1996 before changes in working capital items and discontinued operations, compared to $2,697,000 in 1995 and $3,030,000 in 1994. Working capital items used $290,000 in 1996, as inventories rose $1.2 million, partially offset by lower accounts receivable and higher accrued liabilities. Inventories in 1996 rose principally at Uniflow, largely in connection with the timing of customer orders. In 1995, working capital items used $882,000, primarily the result of higher accounts receivable and prepaid items, along with lower accounts payable. In 1994, working capital items used $2,984,000, primarily associated with higher Tooling inventories and reduced trade payables. Cash flows used in investing activities In 1996, the Company made capital expenditures that totaled $5,479,100, primarily for machinery at Uniflow associated with the manufacture of starter motor shaft parts. In this regard, the Company has committed to the acquisition of approximately $4 million of capital equipment. The equipment is scheduled for delivery and installation in mid 1997. In 1995, capital expenditures were $1,359,000, principally for a refurbished hydraulic press dedicated for airbag housing production and Form Flow's expansion of its die repair business, which included the acquisition of a new facility and additional grinding equipment. In 1994, capital expenditures of $908,000 were primarily for production tooling at Uniflow and miscellaneous equipment at the other units. The Company received $301,000 in 1996, $863,000 in 1995 and $149,000 in 1994, from the disposals of machinery and equipment. The disposals for all three years principally relate to the reduction of equipment base at the Triple unit. Cash flows from financing activities Cash flows provided by (used in) financing activities were $7,475,000 in 1996, ($1,274,000) in 1995 and $93,000 in 1994. In 1996, the Company completed a major debt refinancing of its existing assets and secured $7 million in industrial development bond financing to fund new equipment purchases associated with new sales orders. The 1996 refinancing included a $5 million note with a bank finance company due in six years; a real estate mortgage of $2.88 million due in 15 years; and a $6 million collateralized bank line of credit, of which $4 million is a committed revolver that expires in 1999. The refinancing provided excess cash of approximately $2.35 million, which was used to reduce borrowings on the bank line of credit. Also in 1996, the Company received $1.87 million and reduced accrued interest by $132,000 through the exercise of two stock warrants, which resulted in the issuance of 1 million shares of common stock. In 1996, scheduled principal debt payments totaled $1.4 million, compared to scheduled payments of $1.7 million in 1995 and $1.3 million in 1994. Also, in 1995 the Company extinguished a $1 million note payable in connection with the exercise of a stock warrant. - 12 - 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. Refer to page 35 of 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 - 13 - PART III The information called for by the items within this part is included in the Company's 1997 Proxy Statement, and is incorporated hereby by reference, as follows:
Caption(s) in 1997 Proxy Statement ---------------------------------- Item 10. Directors and Executive Officers of Registrant............"Election of Directors"; "Executive Officers"; "Compliance with Section 16(a) of The Securities Exchange Act" Item 11. Executive Compensation............"Executive Compensation" Item 12. Security Ownership of Certain Beneficial Owners and Management...................."Principal Stockholders" Item 13. Certain Relationships and Related Transactions.............."Election of Directors -- Certain Information Regarding the Nominees"; "Certain Transactions -- Agreements with Manubusiness Opportunities, Inc.," "Executive Compensation -- Compensation Committee Interlocks and Insider Participation."
- 14 - 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: 1. Financial Statements and Financial Statement Schedule. Page ---- Independent Auditors' Report............................... 20 Consolidated Balance Sheets as of September 30, 1996 and 1995................................................ 21 Consolidated Statements of Operations for the Years Ended September 30, 1996, 1995 and 1994....................... 22 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1996, 1995 and 1994........... 23 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994....................... 24 Notes to Consolidated Financial Statements................. 25 Schedule II - Valuation and Qualifying Accounts............ 36 Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or the notes thereto. (b) Reports filed on Form 8-K. The Company filed a report on Form 8-K dated December 20, 1996 to report the move of its corporate office to 26600 Heyn Drive, Novi, Michigan 48376-0705. The Company filed a report on Form 8-K dated November 15, 1996 to report the Company's acquisition of certain assets and assuming certain liabilities of the VarityKelsey-Hayes' Milford, Michigan machining operation and its continuing business. (c) Exhibits. See the Exhibit Index on the following page. - 15 - Exhibit Description Page* - ------- ----------- ----- 2.1 Asset Purchase Agreement between VarityKelsey-Hayes Corporation and Milford Acquisition Corporation. 2.1* 3.1 Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on August 25, 1987. 3.1* 3.2 Amendment to Articles of Incorporation filed on August 31, 1990. 3.2* 3.3 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* 3.4 Certificate of Designation of Rights of the Class A Preferred Stock filed with the Secretary of State of Delaware in December 1987. 3.3* 3.5 Amendment to Articles of Incorporation filed on December 17, 1991. 3.5* 3.6 Bylaws of the Company. 3.4* 4.1 List of instruments defining the right of security holders. 4.1* 4.3 Nonqualified Stock Option Agreement dated November 23, 1993 between Secom General Corporation as grantor and Manubusiness Opportunities, Inc. as grantee. 4.2* 4.4 Proxy Agreement dated November 23, 1993 between Roy A. McKnight, Larry McKnight, John Cocke and Manubusiness Opportunities, Inc. 4.3* 10.1 Machined Valve Products Supply Agreement 10.1* 10.2 Amended and Restated Revolving Credit and Loan Agreement between Secom General Corporation, Uniflow Corporation, Miconol, Inc., L&H Die, Inc. and Form Flow, Inc. 10.2* 10.3 Master Equipment Lease Agreement between Secom General Corporation and KeyCorp Leasing Ltd. 10.3* 10.4 Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing between Secom General Corporation and Metlife Capital Financial Corporation 10.4* 10.5 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer and Secom General Corporation as Borrower dated June 1, 1996 10.5* 10.6 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer, and Secom General Corporation, as Borrower dated as of Sept. 1, 1996 10.6* 10.7 1991 Nonqualified Stock Option Plan 10.27* 10.8 Form of Stock Option Agreement for Options granted under the 1991 Non-qualified Stock Option Plan 10.28* - 16 - 10.9 Subordination Agreement dated December 15, 1993 between Larry McKnight as junior lender and NBD Bank, N.A. as senior lender. 10.17* * See the footnotes on page 18 to locate these exhibits. 13. Annual Report to Shareholders E-1 22. Subsidiaries of the Registrant 22* 23. Consent of Deloitte & Touche LLP E-42 27. Financial Data Schedule E-43 - ------------ - 17 - 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. * Incorporated by reference from the Company's Current Report on Form 8-K dated November 15, 1996. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1987. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1990. * Incorporated by reference from the Company's Current Report on Form 8-K dated September 13, 1991. * 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. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1991. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1992. * Incorporated by reference from the Company's Current Report on Form 8-K dated December 15, 1993. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1993. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1996. - 18 - 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. SECOM GENERAL CORPORATION Dated: February 3, 1997 By: /s/ Robert A. Clemente ------------------------------- Robert A. Clemente Chairman, President and CEO 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 Officer: /s/ Robert A. Clemente - ------------------------------ Chairman, President February 3, 1997 Robert A. Clemente CEO and Director Principal Financial and Accounting Officer: /s/ David J. Marczak - ------------------------------ Chief Financial Officer, February 3, 1997 David J. Marczak Secretary, Treasurer and Director /s/ Gregory Adamczyk - ------------------------------ Director February 3, 1997 Gregory Adamczyk /s/ Rocco Pollifrone - ------------------------------ Director February 3, 1997 Rocco Pollifrone /s/ Orville K. Thompson - ------------------------------ Director February 3, 1997 Orville K. Thompson /s/ Richard Thompson - ------------------------------ Director February 3, 1997 Richard Thompson - 19 - 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, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(1) of Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Secom General Corporation and subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /s/ Deloitte & Touche LLP December 23, 1996 Detroit, Michigan - 20 - SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 - ---------------------------- ASSETS 1996 1995 ---- ---- CURRENT ASSETS: Cash ......................................... $ 319,600 $ 13,700 Receivables: Trade (net of allowances of $21,000 and $93,500) ................................ 4,130,700 4,484,800 Other ...................................... 33,200 320,600 Inventories (Note 3) ......................... 5,170,500 3,935,700 Prepaids and other ........................... 547,400 727,800 Deferred tax assets (Note 10) ................ 569,800 542,700 ----------- ----------- Total current assets ................ 10,771,200 10,025,300 CASH RESTRICTED FOR EQUIPMENT (Note 12) ........ 4,089,000 PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .... 17,758,600 14,583,600 INTANGIBLE ASSET (Note 1) ...................... 1,994,100 2,071,300 OTHER ASSETS ................................... 341,600 266,900 ----------- ----------- TOTAL ASSETS ................................... $34,954,500 $26,947,100 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations (Note 5) ................................. $ 2,121,400 $ 5,633,400 Trade accounts payable ....................... 2,856,800 2,065,500 Accrued liabilities .......................... 884,800 1,197,100 ----------- ----------- Total current liabilities ........... 5,863,000 8,896,000 LONG-TERM OBLIGATIONS (Note 5) ................. 13,724,300 4,621,700 DEFERRED TAX LIABILITIES (Note 10) ............. 1,331,300 1,518,900 ----------- ----------- Total liabilities ................... 20,918,600 15,036,600 STOCKHOLDERS' EQUITY (Notes 8 and 9): Common stock, $.10 par value, 10,000,000 shares authorized; outstanding: 1996, 5,342,200 shares; 1995, 4,276,200 shares.... 534,200 427,600 Additional paid-in capital ................... 18,457,100 16,478,900 Accumulated deficit .......................... (4,955,400) (4,996,000) ----------- ----------- Total stockholders' equity .......... 14,035,900 11,910,500 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $34,954,500 $26,947,100 =========== =========== See notes to consolidated financial statements.
-21- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- NET SALES ..................................... $30,877,100 $36,276,200 $32,570,900 COST OF SALES ................................. 25,064,900 29,016,100 26,048,200 ----------- ----------- ----------- GROSS PROFIT .................................. 5,812,200 7,260,100 6,522,700 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 4,920,700 5,282,300 4,801,500 ----------- ----------- ----------- INCOME FROM OPERATIONS ........................ 891,500 1,977,800 1,721,200 OTHER INCOME (EXPENSE): Interest .................................... (847,600) (1,137,800) (952,500) Other, net .................................. 14,600 (8,400) 385,600 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES .................... 58,500 831,600 1,154,300 INCOME TAX BENEFIT (EXPENSE) (Note 10) ........ (17,900) 372,700 (60,800) ----------- ----------- ----------- NET INCOME .................................... $ 40,600 $ 1,204,300 $ 1,093,500 =========== =========== =========== NET INCOME PER COMMON SHARE ................... $ 0.01 $ 0.28 $ 0.29 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) .................................... 4,874,600 4,284,200 3,795,200 =========== =========== =========== See notes to consolidated financial statements.
-22- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - ----------------------------------------------- Common Stock Additional ---------------------- Paid-in Accumulated Shares Amount Capital Deficit Total ------ ------ --------- ----------- ----- BALANCE, OCTOBER 1, 1994 ........................... 2,900,900 $ 290,100 $15,578,000 $(7,293,800) $ 8,574,300 Stock issued for settlement of stock guarantees .. 711,900 71,200 (85,500) (14,300) Issuances to 401(k) plan (employer match and employee elections) ........................ 37,700 3,800 79,400 83,200 Private placements ............................... 50,000 5,000 95,000 100,000 Net income ....................................... 1,093,500 1,093,500 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1994 ........................ 3,700,500 370,100 15,666,900 (6,200,300) 9,836,700 Exercise of stock warrant ........................ 500,000 50,000 950,000 1,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 42,300 4,200 79,900 84,100 Issuances for compensation ....................... 41,800 4,100 79,500 83,600 Stock repurchases, net ........................... (8,400) (800) (31,000) (31,800) Note issued for settlement of stock guarantee .... (266,400) (266,400) Net income ....................................... 1,204,300 1,204,300 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1995 ........................ 4,276,200 427,600 16,478,900 (4,996,000) 11,910,500 Exercise of stock warrants ....................... 1,000,000 100,000 1,900,000 2,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 35,700 3,600 77,600 81,200 Stock issued for note receivable ................. 25,000 2,500 35,000 37,500 Stock repurchases, net ........................... (14,300) (1,400) (32,500) (33,900) Stock issued for settlement of stock guarantees ..................................... 19,600 1,900 (1,900) Net income ....................................... 40,600 40,600 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1996 ........................ 5,342,200 $ 534,200 $18,457,100 $(4,955,400) $ 14,035,900 ========= ========= =========== =========== ============ See notes to consolidated financial statements.
-23- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 40,600 $ 1,204,300 $ 1,093,500 Adjustments to reconcile income from operations to net cash provided by operations: Depreciation and amortization ...................... 1,983,900 1,858,600 1,983,700 Provision for (benefit from) deferred taxes ........ (214,700) (521,900) 60,800 Increase (decrease) in allowance for ............... (72,500) 17,000 (228,800) doubtful accounts (Gain) loss on sales of assets ..................... 115,800 (319,500) 14,100 Stock issuances to 401(k) plan ..................... 32,000 64,700 107,000 Write-off of intangibles ........................... 84,200 309,700 Stock issuances for compensation ................... 83,600 Changes in assets and liabilities that provided (used) cash, net of effects of acquisitions and discontinued operations: Trade and other receivables ...................... 512,500 (298,400) (105,300) Inventories ...................................... (1,234,800) 134,300 (1,412,200) Prepaids and other ............................... (36,000) (193,700) 30,300 Other assets ..................................... (192,000) 78,300 (18,000) Trade accounts payable ........................... 842,000 (491,400) (984,400) Accrued liabilities .............................. (181,800) (111,300) (196,900) Other liabilities ................................ (297,200) Net cash provided by (used in) discontinued operations ...................................... 158,600 (42,300) 309,400 ----------- ----------- ----------- Net cash provided by operating activities ... 1,837,800 1,772,000 356,000 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment ............................... 301,000 863,000 149,300 Collections on notes receivable ...................... 259,800 2,300 20,600 Capital expenditures ................................. (5,479,100) (1,359,200) (907,900) Net cash provided by discontinued operations ......... 149,200 ----------- ----------- ----------- Net cash used in investing activities ........ (4,918,300) (493,900) (588,800) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in bank line of credit .................... (3,603,600) 210,600 44,900 Proceeds from long-term obligations and use of restricted cash ........................... 8,205,500 273,100 2,469,400 Proceeds from refinancing of long-term obligations ... 7,887,500 Proceeds from issuances of stock ..................... 1,918,800 61,700 Payments on long-term obligations due to refinancing . (5,535,800) Retirements of common stock .......................... (33,900) (12,500) Payments on long-term obligations .................... (1,314,600) (1,634,000) (1,065,000) Refund of restricted cash to bondholders ............. (700,000) Payments on capital lease obligations ................ (48,500) (110,900) (234,400) Net cash used in discontinued operations ............. (483,400) ----------- ----------- ----------- Net cash (used in) provided by financing activities ............................... 7,475,400 (1,273,700) 93,200 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH .... 4,394,900 4,400 (139,600) CASH AND RESTRICTED CASH, BEGINNING OF PERIOD .......... 13,700 9,300 148,900 ----------- ----------- ----------- CASH AND RESTRICTED CASH, END OF PERIOD ................ $ 4,408,600 $ 13,700 $ 9,300 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest ............... $ 902,900 $ 1,104,800 $ 965,200 =========== =========== =========== Cash paid during the year for income taxes ........... $ 153,600 $ 120,000 =========== =========== See notes to consolidated financial statements.
-24- SECOM GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business - Secom General Corporation (the "Company") is a publicly-traded holding company with four wholly-owned subsidiaries supplying the automotive, truck, construction and consumer markets. The Company operates in the following two business segments: Tooling: Form Flow, Inc. ("Form Flow") L&H Die, Inc. ("L&H Die") Micanol, Inc. ("Micanol") Metal Parts Forming: Uniflow Corporation ("Uniflow") Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. Inventories are stated at the lower of cost or market, as determined under the first-in, first-out method. Property, Plant and Equipment are recorded at cost. The Company capitalizes, as additions, expenditures which extend the useful life or increase the value of related assets. Maintenance and repairs are charged to operating expense as incurred. Expenditures for repairs and maintenance for the three years ended September 30, 1996 were $433,700, $408,400 and $535,900, respectively. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Intangible Asset consisting of goodwill (cost in excess of net assets acquired) is amortized on a straight-line basis over primarily 40 years. The carrying value of goodwill is evaluated periodically in relation to the operating performance of the underlying business and assets. Management has evaluated the carrying value of the goodwill and has determined at September 30, 1996 that remaining amounts are not impaired. Accumulated amortization was $662,700 and $585,400 as of September 30, 1996 and 1995, respectively. Income Taxes - Deferred income tax assets and liabilities are computed annually for differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Earnings per Share of common stock is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares consist primarily of the warrants and options to purchase common stock outstanding during the periods presented. Revenue Recognition - Revenues are recognized upon completion of services related to customer products. -25- Significant Customer - The Company has one customer which comprises 11% of total revenues. Use of Estimates - The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Standards - Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued in March 1995. The Statement is effective for fiscal years beginning after December 15, 1995, and requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. This Statement, which is effective for fiscal years beginning after December 15, 1995, establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. Noncash Transactions - The Company entered into the following noncash investing and financing transactions for the following years ended September 30 (in thousands):
1996 1995 1994 ---- ---- ---- Cancellation of accrued interest/note payable in exchange for exercise of stock warrant.... $ 132 $1,000 Common stock issued for services or for reduction of other obligations............... 32 148 $107 Stock issued for note receivable................ 37 Notes receivable issued for sale of Triple Tool equipment............................... 249 Note payable issued for settlement of stock guarantee.................................... 266 Note receivable and assumption of obligations from sale of Tri-Tec subsidiary.............. 1,191
Reclassifications - Certain amounts in the 1995 financial statements have been reclassified to conform with the presentation for 1996. 2. DISCONTINUED AND DOWNSIZED OPERATIONS In the quarter ended September 30, 1993, the Company adopted a formal plan to discontinue operations of its Plastic Molded Products Segment, Tri-Tec. In the first quarter of 1994, Tri-Tec's inventories and machinery and equipment were sold for cash and notes receivable and the assumption of certain capital lease obligations. At September 30, 1995 the Company was relieved as an obligor or guarantor on leases assumed by the buyer of Tri-Tec. -26- In the third fiscal quarter of 1995, the Company completed its downsizing of Triple Technologies (formerly "Triple Tool") by the sale of $725,800 (net book value) of equipment and the leasing of $342,000 (net book value) of equipment. The Company recorded a net gain of $2,500 on this transaction after writing down goodwill in the amount of $310,000 in connection with the downsizing. In June 1995, Triple Technologies' remaining operations, primarily electro-diode machining (EDM), contracts and the related equipment (net book value $341,000) were transferred to Form Flow. For the years ended September 30, 1996, 1995, and 1994, sales from Triple Technologies were $30,400, $1,559,000 and $2,500,000, respectively, and operating losses were $102,000, $399,000 and $50,200, respectively. 3. INVENTORIES Inventories at September 30 consist of (in thousands):
1996 1995 ---- ---- Raw materials ........... $ 949 $ 372 Work-in-process ......... 2,394 1,797 Finished goods .......... 1,828 1,767 ------ ------ Total ................... $5,171 $3,936 ====== ======
4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment at September 30 consist of (in thousands):
1996 1995 Life ---- ---- ---- Machinery and equipment ............. $ 18,192 $ 14,629 2 to 20 years Building and improvements ........... 5,154 4,714 3 to 30 years Land and improvements ............... 572 540 N/A Furniture and fixtures .............. 685 478 3 to 7 years Vehicles ............................ 168 215 3 years Construction-in-progress and deposits 538 236 N/A -------- -------- Total .................... 25,309 20,812 Less accumulated depreciation ....... (7,550) (6,228) -------- -------- Total ............................... $ 17,759 $ 14,584 ======== ========
-27- 5. LONG-TERM OBLIGATIONS Long-term obligations at September 30 consists of (in thousands):
1996 1995 ---- ---- Bank line of credit (a) ...................... $ 172 $ 3,776 Real estate mortgage notes (b) ............... 3,609 1,888 Michigan Strategic Fund Limited Obligation Revenue Bonds (c) ......................... 6,896 2,500 Equipment term notes (d) ..................... 4,778 1,176 Other notes payable (e) ...................... 390 811 Equipment capital leases ..................... 104 -------- -------- Total ............................. 15,845 10,255 Less current obligations ..................... (2,121) (5,633) -------- -------- Long-term obligations ........................ $ 13,724 $ 4,622 ======== ========
(a) In July 1996, the Company entered into an amended and restated revolving credit and loan agreement with a bank, which is for a three year period and permits borrowings of up to $4 million under a revolving credit note and up to $2 million under a line of credit note. At September 30, 1996, $172,000 was outstanding under the revolving credit note and no amounts were outstanding under the line of credit note. The interest is at prime or the 30 day LIBOR rate plus 215 basis points. This agreement replaced an existing agreement in which interest was at prime plus 1/2%. The revolving credit and loan agreement is collateralized by accounts receivable and inventory while borrowings are limited to stated percentages of accounts receivable and inventory. Under each note, interest is payable monthly and any unpaid principal is due July 1999. The agreement prohibits the payment of cash dividends and requires the Company to maintain specific financial covenants including minimum tangible equity, working capital, and cash flow. The Company was in compliance with all financial covenants at September 30, 1996. (b) During 1996, the Company refinanced its existing mortgage loans to obtain new mortgage loans requiring monthly installments of principal and interest. Interest on a $2.88 million mortgage note is 8.25% per annum and is collateralized by land and buildings with a net book value of $3,729,100, while interest on a $775,000 mortgage note is prime and is collateralized by land and building with a net book value of $987,200. Interest under the previous agreements was payable at prime plus 2% per annum. These agreements mature in fiscal 1999 and 2011. Principal payments are due as follows: 1997, $164,600; 1998, $173,500; 1999, $183,200; 2000, $193,200; 2001, $660,200 and thereafter, $2,234,800. (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. The bonds require monthly interest and principal payments through September 1, 2002. The Bonds bear interest at the rates of 6.15% and 5.99%, respectively, and are collateralized by equipment and cash with a net book value of approximately $7,000,000. Principal payments due are as follows: 1997, $1,004,600, 1998, $1,066,500, 1999, $1,133,000, 2000, $1,203,400, 2001, $1,278,700 and thereafter, $1,209,600. The bonds outstanding at September 30, 1995, were repaid in their entirety during fiscal 1996. Interest was at approximately 2% below the prime rate. -28- (d) The equipment term note is collateralized by equipment with a net book value of $9,902,200. Interest rate is the 30 day LIBOR plus 215 basis points (approximately 7.55% at September 30, 1996). Principal payments due are as follows: 1997, $691,800, 1998, $746,500, 1999, $805,500, 2000, $868,700, 2001, $937,800 and thereafter, $727,400. The equipment term notes outstanding at September 30, 1995 were repaid in their entirety during fiscal 1996. Interest was at prime rate plus 2%. (e) Interest rates on other notes payable range from 4.9% to 12%. At September 30, 1996, the balance includes $119,900 in trade installment notes collateralized by specific equipment. Maturity dates range from 1997 to 2000. Principal payments due are: 1997, $253,400; 1998, $55,400; 1999, $68,000, and 2000, $13,100. The prime rate at September 30, 1996 and 1995 was 8.25% and 8.75%, respectively. Principal payments on long-term obligations for the next five years are as follows (in thousands): 1997...................... $2,121 1998...................... 2,042 1999...................... 2,190 2000...................... 2,278 2001...................... 2,877 Thereafter................ 4,165
6. RELATED PARTY TRANSACTIONS In December 1993, the Company issued a $1,000,000 subordinated note payable, maturing December 1, 1995 and requiring payment of interest only, at the prime rate plus 3% to Manubusiness Opportunities, Inc. (MOI), an entity controlled by three directors of the Company. Payment of principal was due at maturity. MOI also received warrants and options to purchase 1.7 million shares of common stock, as follows: 500,000 shares expiring in November 1994 with an exercise price of $2 per share, 500,000 shares expiring in November 1995 with an exercise price of $2 per share, and 500,000 shares expiring in November 1996 with an exercise price of $3 per share and 200,000 options expiring in 1998 with an exercise price of $2.63 per share. In November 1994, MOI exercised its first warrant to acquire 500,000 shares of common stock in exchange for the cancellation of the $1,000,000 note. In November 1995, MOI exercised its second warrant to acquire 500,000 shares of common stock in exchange for a payment of $1,000,000. In August 1996, MOI exercised its third and final warrant of 500,000 shares. In conjunction with this exercise, the Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated market value at the new measurement date. Upon exercise, the Company received approximately $868,000 in cash and canceled accrued interest due to MOI of approximately $132,000. Included in accrued liabilities at September 30, 1995, is $125,000 of interest on the above note payable. 7. LEASES The Company leased one manufacturing facility under a noncancelable operating leases. Rental expense for continuing operations was $10,500, $36,000 and $106,000 for the years ended September 30, 1996, 1995 and 1994, respectively. During fiscal 1996, the Company purchased the leased plant facility. -29- Machinery and equipment includes assets under capital leases having a total cost of $438,700 and accumulated amortization of $156,700 at September 30, 1995. During 1996, this machinery and equipment was purchased and the Company no longer has any equipment under capital lease agreements. Annual payments due under noncancelable operating leases are as follows (in thousands): 1997...................... $ 45 1998...................... 45 1999...................... 45 2000...................... 45 2001...................... 45 Thereafter................ 45 ------ Total..................... $ 270 ======
8. STOCK OPTIONS AND COMMON STOCK GUARANTEES In 1991, the Board of Directors (the "Board") adopted a nonqualified stock option plan (the "1991 Plan"). The 1991 Plan authorizes the Board to grant options to purchase a maximum of 400,000 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 10 years from the date of grant. At September 30, 1996, 131,200 shares were exercisable under the Plan. Transactions under the 1991 Plan are summarized as follows:
Shares Price ------ ----- Options outstanding September 30, 1994 .. 178,750 $2.62 - $3.00 Options terminated ...................... (16,250) 2.62 ------- Options outstanding September 30, 1995 .. 162,500 2.62 - 3.00 Options granted ......................... 272,000 1.94 Options terminated ...................... (58,500) 2.62 - 2.75 ------- Options outstanding September 30, 1996 .. 376,000 $1.94 - $3.00 =======
During the year ended September 30, 1996, 175,000 options exercisable at $1.94 were issued to an officer of the Company outside of the 1991 Plan. At September 30, 1996, 17,500 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. -30- The Company is contingently liable under stock price guarantees issued in connection with 1991 private stock placements. Under the agreements the holder is entitled to the shortfall between the amount realized from sale of the shares during the guarantee period and the guaranteed price of the share. At September 30, 1996, the Company had approximately 13,000 shares remaining that are subject to guarantees with a maximum guarantee amount of approximately $96,000. 9. EMPLOYEE BENEFIT PLAN The Company maintains a defined contribution 401(k) plan to which it contributes stock on a discretionary basis. The cost of the stock contributed to the Plan resulted in a charge to expense of $123,000, $116,000 and $107,000 for the years ended September 30, 1996, 1995 and 1994, respectively. 10. INCOME TAXES The provision for income taxes consists of the following for the years ended September 30:
1996 1995 1994 ---- ---- ---- Current (expense) .............. $(232,600) $(149,200) Deferred benefit (expense) ..... 214,700 521,900 $(60,800) --------- --------- -------- Income tax benefit (expense) ... $ (17,900) $ 372,700 $(60,800) ========= ========= ========
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
September 30 ------------------------- 1996 1995 ---- ---- Deferred tax assets: Alternative minimum tax carryforwards .... $ 272,900 $ 137,200 Tax credit carryforwards ................. 108,400 108,400 Secom net operating loss carryforward .... 45,200 Net operating loss carryforwards of acquired companies .................... 397,700 544,500 Reserves ................................. 206,600 159,100 Other .................................... 52,900 17,000 ----------- ----------- Total deferred tax assets ....... 1,038,500 1,011,400 Less valuation allowance ................... (468,700) (468,700) ----------- ----------- Net deferred tax assets ......... 569,800 542,700 Current portion ............................ 569,800 542,700 ----------- ----------- Long-term portion .......................... None None =========== =========== Deferred tax liabilities: Depreciation ............................. $ 462,400 $ 488,100 Book and tax basis differences from business combinations ................. 830,100 988,200 Other .................................... 38,800 42,600 ----------- ----------- Total deferred tax liabilities .. 1,331,300 1,518,900 Current portion ............................ None None =========== =========== Long-term portion .......................... $ 1,331,300 $ 1,518,900 =========== ===========
-31- During 1996 and 1995, 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 as of September 30, 1996 are available for offset against future taxable earnings through the year 2007, subject to annual limitations as set forth in the Internal Revenue Code. A reconciliation of the Company's statutory income tax provision computed on pre-tax income to the recorded income tax provision for the year ended September 30 is as follows:
1996 1995 1994 ---- ---- ---- Statutory income tax liability ............ $(20,200) $(283,300) $(430,000) Change in valuation allowance ............. 766,000 30,000 Nondeductible goodwill amortization ....... (26,300) (128,000) (23,000) Book and tax basis differences from business combinations .................. 71,100 40,000 383,000 Nondeductible other expenses .............. (42,500) (22,000) (20,800) -------- --------- --------- Income tax benefit (expense) .............. $(17,900) $ 372,700 $ (60,800) ======== ========= =========
11. CONTINGENCIES The Company is involved in certain 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 will not have a material adverse effect on the Company's consolidated financial position or results of operations. 12. CASH RESTRICTED FOR EQUIPMENT The cash restricted for equipment was received from the Michigan Strategic Fund bondholders (see Note 5) to purchase equipment for future production requirements. The Company has contractually agreed to purchase the equipment and anticipates accepting delivery of such equipment in the 1997 fiscal year. 13. SUBSEQUENT EVENT Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the Varity Kelsey-Hayes Corporation's Milford, Michigan machining business. The acquisition was accounted for as a purchase and the results of operations will be included in the Company's financial statements beginning as of the acquisition date. The unit has been renamed "Milford Manufacturing Corporation." -32- 14. SEGMENT INFORMATION The following is the business segment information applicable to continuing operations (in thousands):
Metal Eliminations Parts and Forming Tooling Corporate Consolidated ------- ------- ------------ ------------ September 30, 1996: Net sales ............... $14,748 $18,136 $(2,007) $30,877 Income from operations .. (701) 2,093 (501) 891 Identifiable assets ..... 12,920 7,211 14,823 34,954 Depreciation and amortization ......... 1,098 671 215 1,984 Capital expenditures .... 1,803 163 3,513 5,479 September 30, 1995: Net sales ............... $17,630 $20,659 $(2,013) $36,276 Income from operations .. 275 2,457 (754) 1,978 Identifiable assets ..... 14,444 8,852 3,651 26,947 Depreciation and amortization ......... 1,151 671 37 1,859 Capital expenditures .... 592 751 16 1,359 September 30, 1994: Net sales ............... $16,052 $19,143 $(2,624) $32,571 Income from operations .. 177 3,008 (1,464) 1,721 Identifiable assets ..... 15,856 8,119 3,851 27,826 Depreciation and amortization ......... 1,273 598 113 1,984 Capital expenditures .... 570 330 8 908
****** -33- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED) - ------------------------------------------
Year Ended September 30 -------------------------------------------------- 1996 1995 1994 1993 1992 (In thousands; except per share amounts) INCOME STATEMENT DATA NET SALES ........................................ $30,877 $36,276 $32,571 $29,356 $27,574 INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES ............................ 58 831 1,154 (13) 295 INCOME TAX BENEFIT (EXPENSE) ..................... (17) 373 (61) (80) ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 41 1,204 1,093 (13) 215 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES ............................ (3,640) 38 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .............................. 41 1,204 1,093 (3,653) 253 CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES .................... 379 ------- ------- ------- ------- ------- NET INCOME (LOSS) ................................ $ 41 $ 1,204 $ 1,093 $(3,653) $ 632 ======= ======= ======= ======= ======= BALANCE SHEET DATA TOTAL ASSETS ..................................... $34,954 $26,947 $27,826 $31,291 $33,924 LONG-TERM OBLIGATIONS ............................ 13,724 4,622 7,089 7,123 10,519 STOCKHOLDERS' EQUITY ............................. 14,036 11,910 9,837 8,574 12,011 COMMON STOCK SHARES OUTSTANDING (1) .............. 5,342 4,276 3,701 2,901 2,821 EARNINGS (LOSS) PER COMMON SHARE (1): Continuing operations .......................... $ 0.01 $ 0.28 $ 0.29 $ 0.08 Discontinued operations ........................ $ (1.27) 0.01 Change in method of accounting for income taxes. 0.14 ------- ------- ------- ------- ------- NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.01 $ 0.28 $ 0.29 $ (1.27) $ 0.23 ======= ======= ======= ======= ======= EQUITY PER COMMON SHARE .......................... 2.63 2.79 2.66 2.96 4.26 CURRENT RATIO .................................... 1.84 1.13 1.02 0.82 0.96 LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 0.98 0.39 0.72 0.83 0.88 (1) Restated for the 10% stock dividends distributed in 1992.
-34- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ---------------------------------------------
Quarter Ended ----------------------------------------------------------------------------- 1996 1995 ------------------------------------- ------------------------------------ September June March December September June March December 1996 1996 1996 1995 1995 1995 1995 1994 --------- ---- ----- -------- --------- ---- ----- -------- (In thousands; except per share amounts) NET SALES............... $7,834 $8,254 $7,529 $7,260 $8,200 $9,915 $9,863 $8,298 GROSS PROFIT............ 1,139 1,806 1,494 1,373 1,566 2,338 2,193 1,163 INCOME (LOSS) BEFORE INCOME TAXES.......... (221) 52 163 65 171 545 424 (308) INCOME TAX BENEFIT (EXPENSE)............. 77 (12) (61) (22) 255 80 (48) 85 ------ ------ ------ ------ ------ ------ ------ ------ NET INCOME (LOSS)....... $ (144) $ 40 $ 102 $ 43 $ 426 $ 625 $ 376 $ (223) ====== ====== ====== ====== ====== ====== ====== ====== EARNINGS (LOSS) PER COMMON SHARE-- Net income (loss)....... $(0.03) $ 0.01 $ 0.02 $ 0.01 $ 0.10 $ 0.14 $ 0.09 $(0.05) ====== ====== ====== ====== ====== ====== ====== ====== PRICE RANGE OF COMMON STOCK: High bid.............. $ 3.12 $ 3.44 $ 3.37 $ 3.37 $ 4.09 $ 2.50 $ 2.62 $ 3.00 Low bid............... 2.00 1.87 1.75 2.50 2.25 1.62 1.62 2.00
-35- SECOM GENERAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - -----------------------------------------------
Column B Column C Column D Column E ----------------- --------------- ------------ ----------- Balance at Charged to Cost Deductions-- Balance at Column A Beginning of Year and Expenses Write Offs End of Year Description Allowance for doubtful accounts: Year ended September 30, 1994 ......... $ 307,600 $ 9,400 $238,200 $ 78,800 Year ended September 30, 1995 ......... 78,800 127,500 112,800 93,500 Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000 Inventory reserve: Year ended September 30, 1994 ......... 179,500 7,500 126,000 61,000 Year ended September 30, 1995 ......... 61,000 15,000 76,000 Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500 Deferred tax asset valuation allowance: Year ended September 30, 1994 ......... 1,265,000 30,000 1,235,000 Year ended September 30, 1995 ......... 1,235,000 766,300 468,700 Year ended September 30, 1996 ......... 468,700 468,700 -36-
EX-13 2 Exhibit 13 [ LOGO ] Secom General Corporation ------------------------------------- Building Value in Basic Manufacturing 1996 ANNUAL REPORT AND FORM 10-K January 1997 Report to Stockholders Introduction The enclosed report reviews our fiscal year ended September 30, 1996. Net income in fiscal 1996 declined to $41,000 (one cent per share) from $1.2 million (28 cents per share) in 1995. The decline in net income is principally related to unfavorable results from our Uniflow metal parts forming unit. Although we had reported progress at Uniflow in 1995, results in 1996 were particularly disappointing, largely attributable to: declining in sales in two key product groups (suspension ball joint housings and truck wheel studs), and increased manufacturing costs related, in significant part, to three project launches expected to generate up to an additional $15 million in annual sales volume. In response to the operational problems at Uniflow, we have taken decisive action to get on track, as discussed in more detail below. On the other hand, our Tooling Segment recorded another solid year of profitability, although less than the prior year, largely because of a change in its sales mix. Subsequent to our fiscal year end (effective Nov. 1, 1996), we added another business segment - Production Machining - through the acquisition of VarityKelsey-Hayes' Milford, Michigan machining plant (Milford Manufacturing Corporation). Overall, we are optimistic about Milford's prospects to competitively supply various machined brake parts as well as other machined parts. We expect the Milford operation to be profitable in 1997 with sales in excess of $11 million. During 1997, our goals and expectations include the successful completion of new project launches at Uniflow and Milford, and the implementation of a new information system that will be utilized by all operations. We believe that this new system will assist all of our units to improve production efficiency, reduce overhead and increase profitability. Use of this system will also assist in more prompt customer response time and compliance with industry quality standards (QS 9000). We expect to be operational with our new information system by the end of fiscal 1997. Review of Metal Parts Forming Segment (Uniflow) The business focus of Uniflow's management was lost during the year, resulting in a myriad of production related problems that caused increased machine downtime and the inefficient use of labor. At the same time, sales orders were lower for suspension ball joint housings and truck wheel studs. Subsequent to our fiscal year-end, we made various key management changes and have realigned other responsibilities in order to address this critical situation. On a couple of positive notes, the management realignment has resulted in a more effective and efficient business approach at Uniflow, while suspension housing orders have rebounded in early fiscal 1997. We are convinced Uniflow will achieve a high level of success, based on new business coming on line in 1997 and 1998, as well as management's newly defined initiatives to reduce costs and improve efficiencies. In particular, those efforts include the implementation of improved manufacturing systems and procedures, along with more direct accountability at all levels. At the same time, we are carefully reviewing cost data to determine which portions of Uniflow's sales base do not contribute sufficient profit margins. Moreover, we also are in the process of revising Uniflow's sales strategy, which needs specific direction, vision and emphasis on profit contribution by product. We expect Uniflow's sales mix to change significantly in 1997 and 1998, as production ramps up on new sales orders for transmission shaft parts, airbag housings and starter motor shafts. Ultimately new sales orders could provide an additional $15 million annual sales, although complete ramp up to these volumes probably would not culminate until sometime in fiscal late 1998 or early 1999. Review of Tooling Segment (Form Flow, L&H Die, Micanol) Overall results continued to be strong for the Tooling Segment in 1996, although profits were moderately lower due to a change in sales mix. In the prior year, Form Flow was able to realize higher margins due largely to a special design and build order from one of its customers. The Tooling Segment's overall sales base remained strong in 1996, with the exception of Micanol which did not receive anticipated volumes from some of its key customers. Tooling management is seeking to improve its profit margins by increasing its emphasis on higher value added tooling within the cold forming marketplace. Summary Although Secom's overall operating performance in 1996 was less than we had expected, many positive steps were taken during the year, as highlighted above. Most importantly, we have garnered various new sales orders for Uniflow that we believe will provide attractive long-term sources of revenue and profit margin gains, beginning in the latter part of the 1997 fiscal year. We also are optimistic about the prospects of our new Milford Manufacturing Corporation, which has provided Secom with much coveted technical machining expertise, as well as a multitude of additional factory resources. We expect that the combination of these factors will begin to be reflected in positive operating results in the second half of our 1997 fiscal year. Sincerely, /s/ Robert A. Clemente - --------------------------- Robert A. Clemente Chairman, CEO and President FORM 10-K/A 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, 1996 Commission file number 0-14299 SECOM GENERAL CORPORATION (exact name of registrant as specified in its charter) DELAWARE 87-0410875 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 26600 HEYN DRIVE, NOVI, MICHIGAN 48376-0705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (810) 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. [ ] TABLE OF CONTENTS PART I Page ---- Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15 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: * Uniflow Corporation ("Uniflow") acquired in 1991 Tooling Segment: * Form Flow, Inc. ("Form Flow") acquired in 1987 * L & H Die, Inc. ("L & H") acquired in 1987 * Micanol, Inc. ("Micanol") acquired in 1990 * Triple Technologies, Inc. ("Triple"), formerly known as Triple Tool, acquired in 1991 In May 1995, Triple's operations were downsized and relocated to a Form Flow facility. Triple's continuing business activity was absorbed into Form Flow. Effective November 1, 1996, the Company acquired the Milford, Michigan machining business of the VarityKelsey-Hayes Corporation ("VKH"), a business unit of Lucas-Varity Corporation (NYSE:LAV). The business was renamed Milford Manufacturing Corporation ("MMC"), and constitutes a third segment for the Company -- Production Machining. In connection with the acquisition, the Company also entered into a five year supply agreement for the manufacture and sale of various brake valve parts to VKH. See Management's Discussion and Analysis. The Company's corporate address is 26600 Heyn Drive, Novi, Michigan 48376-0705; its telephone number is (810) 305-9410 and its facsimile number is (810) 347-9956. 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. Principal Customers, Backlog and Seasonality In 1996, one of the Company's customers accounted for 11% of consolidated revenues. Sales of the Company's parts, tooling and services are not considered seasonal. The Company believes that its backlog, due to the nature of its respective businesses, is not necessarily indicative of the level of its present or future sales. - 3 - SEGMENT REVIEW Metal Parts Forming Segment General The Metal Parts Forming Segment is comprised of the Company's Uniflow unit, 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. Sales and Competition Uniflow's fiscal 1996 sales were comprised as follows: 32.8% wheel studs for heavy and light duty trucks (original equipment manufacturers or "OEM" and service part manufacturers or "aftermarket"); 24.9% automobile ball joint suspension housings (OEM and aftermarket); 23.6% transmission gear housings (OEM); and 18.7% miscellaneous cold headed and cold forged parts (OEM). While Uniflow operates in competitive markets, management believes that Uniflow's extensive tooling inventory gives it a competitive advantage in retaining certain reorders from the same customers. Although Uniflow is aggressively seeking sales of new parts, most of its business base remains reorders of the same customer specific parts. Uniflow's sales backlog usually covers a period of approximately three months of work. As such, the backlog is not necessarily indicative of Uniflow's sales performance beyond that time period. Management expects Uniflow's sales mix to change in 1997 and thereafter, as it focuses on larger OEM sales orders. See Management's Discussion and Analysis set forth in Item 7. Uniflow's sales are concentrated with a few customers, as five customers comprised 75% of revenue for the fiscal year ended September 30, 1996. 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 would likely be adversely affected. Manufacturing and Engineering Uniflow manufactures parts from steel bar, coil and tubing using cut-off machines, cold forging hydraulic presses, cold heading machines, CNC turning centers, threadrollers, broaching and piercing machines. Although part production can involve up to 14 different production steps, primary equipment consists of the cold forging presses and cold forming (header) machines, which form the parts into their general size and shape. The forging presses complete one operation at a time, while the header machines complete up to five operations in succession. After parts are forged or formed, they are routed to various secondary machining operations for finishing, such as CNC turning, 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 12 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. Employees As of September 30, 1996, Uniflow employed a total of 170 full-time employees compared to 153 in the prior year, as follows: 151 direct and indirect labor (including factory floor supervision), 6 engineering, 2 sales, 7 office and 4 management. - 4 - Tooling Segment General The Company's Tooling Segment ("Tooling Operations" or "Tooling Units") is comprised of three wholly-owned operating subsidiaries, which are Form Flow, L & H and Micanol. In May 1995, the Company significantly reduced the size of its Triple operation by selling off certain equipment. Triple's remaining operations were transferred to the Company's Form Flow unit, although certain equipment was moved to the other subsidiaries. The continuing Triple business activity has been absorbed into Form Flow. For further discussion about Triple, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 2 to the financial statements set forth in Item 8. The Tooling Operations manufacture 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 off a piece of 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 and the size and shape of the part, among other things. As part of its sales and service, the Tooling Unit'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. While tool orders typically take 4 to 10 weeks to complete, design and development orders can span over a period of months. Sales and Competition The Tooling Segment's customers manufacture items such as industrial fasteners, hand tools, electronic components, automotive parts, tubing, aircraft parts, consumer items and munitions as well as a wide array of OEM assembly parts. The Tooling Unit's customers include OEM and aftermarket suppliers and are mostly 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. Management believes its success is based on (1) the quality and durability of the tooling, (2) the ability to fulfill delivery commitments, and (3) price competitiveness. The Tooling Unit's 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 a tool drawing. 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, L & H and Micanol have separate plant facilities. Design and engineering services are located at a Form Flow facility, and are offered by all three of the Tooling Units. - 5 - Employees As of September 30, 1996, the Tooling Segment employed a total of 158 full-time employees compared to 175 in the prior year, as follows: 132 direct and indirect labor (including factory floor supervision), 5 engineering, 4 sales, 11 office and 6 management. Item 2. Properties The Company's corporate offices are located at 26600 Heyn Drive, Novi, Michigan. 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. The 6999 Cogswell facility was acquired by the Company in December 1995. Its telephone number is 313-729-3100. 2) L & H is located in a 12,600 square foot building on approximately two acres of land at 38200 Ecorse Road, Romulus, Michigan 48174 and its telephone number is 313-722-8011. 3) Micanol is located in a 12,400 square foot building on approximately two acres of land at 46001 Grand River Avenue, Novi, Michigan 48374 and its telephone number is 810-347-1230. 4) Uniflow is located in three buildings on approximately eight acres of land in Novi, Michigan 48374: (1) 30,300 square feet at 26600 Heyn Drive, (2) 16,700 square feet at 46035 Grand River Avenue and (3) 32,000 square feet at 46009 Grand River Avenue. Its telephone number is 810-348-9370. 5) MMC is located on 6.6 acres of land in an 81,500 square foot building at 101 Oak St., Milford, Michigan 48381. Its telephone number is 810-685-1573. 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 will not 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. - 6 - PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock (trading symbol "SECM") has traded on NASDAQ since June 1987 and the NASDAQ National Market System (NMS) since January 1992. 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.
High Low Quarter Ended Trade Trade ------------- ----- ----- 12/31/94 3.00 2.00 3/31/95 2.62 1.62 6/30/95 2.50 1.62 9/30/95 4.09 2.25 12/30/95 3.37 2.50 3/31/96 3.37 1.75 6/30/96 3.44 1.87 9/30/96 3.12 2.00
On September 30, 1996 there were approximately 1,000 nominees/persons of record that held the Company's common stock. Of those listed of record, approximately 2 million 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 and expansion of its business. In addition, the Company's bank loan agreement prohibits the payment of cash dividends without written consent from the lender. In August 1996, Manubusiness Opportunities, Inc. ("MOI") exercised its third and final warrant of 500,000 shares. The Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated the market trading value at the exercise date. For further discussions about MOI, reference is made to the Management's Discussion and Analysis set forth in Item 7 and Note 6 to the financial statements set forth in Item 8. In June 1991 and in May 1992, the Company issued 10% common stock dividends to stockholders of record as of May 14, 1991 and May 1, 1992, respectively. Item 6. Selected Financial Data See page 34 for selected financial data as of September 30, 1996, 1995, 1994, 1993 and 1992 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. - 7 - 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 the Form 10-K. Overview The Company posted net income of $41,000 (one cent per share) on sales of $30,877,000 in 1996 compared to net income of $1,204,000 (28 cents per share) on sales of $36,276,000 in 1995. The decline in net income in 1996 from the prior year was primarily due to the continued difficulty in turning around the Company's Uniflow unit (see segment review below). Although Uniflow was able to secure various long-term sales orders during 1996 that are scheduled to ramp up in 1997 and 1998, overall sales declined in 1996 from 1995. Although sales decreased, operating expenses increased (as a percentage of sales), resulting in a loss in 1996 at Uniflow. The Company's Tooling Segment sales were lower primarily related to the downsizing of Triple Tool, which was absorbed into Form Flow's operation in late fiscal 1995. The Tooling Segment posted another profitable year, although net income was slightly lower than 1995. Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the VarityKelsey-Hayes' ("VKH") Milford, Michigan machining operation and its continuing business. Assets acquired were (1) machinery and equipment, with an estimated fair market value of $2.5 million, (2) real estate and building, with an estimated fair market value of $1.3 million, and inventories valued at approximately $1 million, as well as various environmental indemnifications and supply commitments with values yet undetermined. In exchange for the assets acquired, the Company paid approximately $5 million in consideration, as follows: (1) $1.2 million cash at closing, (2) the assumption of certain employee pension and retiree health care obligations, preliminarily estimated at $3 million and, (3) approximately $800,000 for additional inventories and equipment added to the location before the transaction closing. The Milford operation was renamed Milford Manufacturing Corporation ("MMC") and constitutes a third Secom business segment -- Production Machining. The Company anticipates the unit to be profitable in fiscal 1997 with sales expected to exceed $12 million. The Company's other two business segments are Metal Parts Forming (Uniflow) and Tooling (Form Flow, L & H and Micanol). Results of Operations Metal Parts Forming Segment Chart of three year comparative operating results (in thousands):
1996 1995 1994 ------------------- ------------------- ------------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales $ 14,748 100.0 $ 17,630 100.0 $ 16,052 100.0 Gross profit 1,197 8.1 2,226 12.6 1,533 9.6 Operating expense 1,898 12.9 1,951 11.1 1,356 8.4 Operating profit (loss) (701) (4.8) 275 1.6 177 1.1
- 8 - The Metal Parts Forming Segment is comprised of the Company's Uniflow unit. Uniflow currently manufactures suspension ball-joint housings, truck wheel fasteners, transmission shaft parts and a variety of OEM cold-formed and forged parts. Customers are primarily automotive and trucking-related original equipment manufacturers ("OEM") and service part manufacturers ("after-market"). Net sales decreased 16.3% in 1996 from 1995, and increased 9.8% in 1995 from 1994. The sales decrease in 1996 from 1995 primarily reflects (1) lower order volume for Uniflow's after-market truck wheel studs and suspension ball joint housings and, (2) additional sales in the prior year from deliveries made on a significant past-due sales backlog of approximately $1 million. The decrease in Uniflow's after-market component parts business is attributable to an overall slowness in the trucking after-market business, the loss of certain business by Uniflow's customers and the resourcing of various parts to competitors. Management does not anticipate further deterioration in 1997 after-market related sales. To replace the lower sales, management has been seeking new business for its cold forging press and cold forming header production capacity. Through those efforts, Uniflow secured an order to supply starter motor shafts for six years; shipments of $700,000 are expected in fiscal 1997, $2.5 million in 1998 and approximately $5 million annually for the remainder of this six year contract. The parts will be formed on Uniflow's National FX85 parts former and machined at the Company's newly acquired MMC unit. Uniflow also has tentatively received an order to manufacture transmission shaft parts, with shipments anticipated to start in early 1997; sales over $1.3 million are expected in fiscal 1997 and could exceed $8 million in 1998. Sales of airbag housings, for which first shipments were made in August 1996, are expected to exceed $1.5 million in 1997. Gross profit on sales was 8.1% in 1996, 12.6% in 1995 and 9.6% in 1994. The 1996 decline in gross profit reflects the lower sales volume and less efficient production. Management is in the process of implementing various operating techniques designed to improve Uniflow's manufacturing efficiency and gross profit. In particular, management is emphasizing improvements in production planning and preparation to reduce production costs. Management is also in the early stages of implementing a quality system in compliance with QS 9000 and a computerized information system that will provide on-line shop floor production and financial data. Incremental sales increases that are expected to commence throughout fiscal 1997 should improve the gross profit. Operating expense as a percentage of sales was 12.9% in 1996, 11.1% in 1995 and 8.4% in 1994. The percentage fluctuation was largely due to the varying sales level. Actual operating overhead expense in 1996 was $1.9 million, down from $1.95 million in 1995. In 1995, operating expense increased from 1994 level of $1.36 million, due primarily to increased engineering, product quality expense and the direct allocation of certain administrative expenses previously shown as unallocated corporate expense. Management does not expect its operating expense level to change significantly in 1997 from 1996. Uniflow's profit (loss) from operations was ($701,000) (-4.8% of sales) in 1996, $275,000 (1.6% of sales) in 1995 and $177,000 (1.1% of sales) in 1994. The profit decrease in 1996 from 1995 reflects the lower sales volume and higher costs of production. The profit increase in 1995 from 1994 primarily reflects the higher sales level. Management expects Uniflow's operating profit to improve with sales increases and with the implementation of production efficiencies. - 9 - Tooling Segment Chart of three year comparable operating results (in thousands):
1996 1995 1994 ---------------- ----------------- ----------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Net sales (1) $18,166 100.0 $20,659 100.0 $19,143 100.0 Gross profit 4,317 23.8 4,902 23.7 4,841 25.3 Operating expense 2,325 12.8 2,445 11.8 1,833 9.6 Operating profit (loss) 1,992 11.0 2,457 11.9 3,008 15.7 (1) Before elimination of intercompany sales.
The Tooling Segment is comprised of the Form Flow, L & H and Micanol units. The Triple unit was downsized and absorbed into Form Flow's operation in June 1995. The Tooling Units sell tools and dies for use in the production of hot and cold formed metal parts. Net sales decreased 12.1% in 1996 compared to 1995 and increased 7.9% in 1995 compared to 1994. The 1996 sales decrease from 1995 is primarily due to the downsizing of Triple Tool, which posted sales of $1.79 million in 1995, and lower sales at Micanol in 1996, resulting from lower order demand from some of its customers. The 1995 sales increase over 1994 was the result of higher sales at Form Flow, L & H and Micanol, although Triple recorded lower sales. Gross profit on sales was 23.8% in 1996, 23.7% in 1995 and 25.3% in 1994. The 1996 gross profit percentage was comparable with 1995, while the decline in percentage in 1995 from 1994 primarily reflected unfavorable operating results at the Triple unit. Operating expense as a percentage of sales was 12.8% in 1996, 11.8% in 1995 and 9.6% in 1994. The increases in 1996 and 1995 reflect higher personnel expense and the direct allocation of certain expenses previously unallocated at the corporate level. The Tooling Segment's operating profit was $1,992,000 (11.0% of sales) in 1996, $2,457,000 (11.9% of sales) in 1995 and $3,008,000 (15.7% of sales) in 1994. The decline in operating profit in 1996 from 1995 principally resulted from lower profits at Form Flow, L & H and Micanol, offset by the reduction of Triple's operating loss. In the previous year, Form Flow realized higher profits on various special tooling development projects from certain customers. The decline in operating profit in 1995 from 1994 was principally related to lower sales volume from various higher margin customer accounts. Management is seeking to maintain higher machine utilization and higher value added tooling orders to improve its gross margin and operating profit. - 10 - Corporate Expenses Unallocated corporate overhead was $712,000 in 1996, $858,000 in 1995 and $1,620,000 in 1994. The reductions in unallocated corporate expense in 1996 and 1995 from 1994 reflect the direct allocation of certain expenses that relate to the respective operating units, as well as lower insurance and other administrative costs. Interest Expense, Miscellaneous Income and Income Taxes Interest expense was $848,000 in 1996, $1,138,000 in 1995 and $953,000 in 1994. The decline in interest expense in 1996 from 1995 resulted from lower average borrowing and lower average interest rates for the year. Lower borrowings resulted in part from the exercise of stock warrants that provided $2 million of equity to the Company and refinancing certain of its debt agreements. Interest expense increased in 1995 from 1994 primarily due to increased borrowing for the additions of capital equipment. Other income (expense) was $15,000 in 1996, ($8,000) in 1995 and $386,000 in 1994. The income in 1994 reflected settlement of debts at less than recorded values associated with Tri-Tec. Income tax expense (benefit) was $18,000 in 1996, ($373,000) in 1995 and $61,000 in 1994. The income tax benefit in 1995 was the result of the utilization of net operating loss carryforwards against taxable income and the reversal of portions of the valuation allowance in anticipation of future use of net operating loss carryforwards. Financial Condition The Company's working capital position, $4,908,000 at September 30, 1996, improved significantly during 1996 from $1,129,000 at September 30, 1995. The working capital increase primarily resulted from (1) a refinancing of long-term debt, as excess proceeds of approximately $2.35 million from new long-term debt were used to reduce short-term borrowings and (2) the exercise of stock purchase warrants that provided $2 million in additional equity, proceeds of which were also used to reduce short-term borrowings. Scheduled debt payments due in fiscal 1997 total approximately $2.1 million and management believes that internally generated cash from operations and amounts available on bank lines of credit will provide sufficient cash flow to cover the scheduled debt payments as well as fund continuing working capital requirements. Cash flows for 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994 ---- ---- ---- Cash flows from operating activities ......... $ 1,838,000 $ 1,772,000 $ 356,000 Cash flows used in investing activities ...... (4,918,000) (494,000) (589,000) Cash flows from (used in) financing activities 7,475,000 (1,274,000) 93,000
- 11 - Cash flows from operating activities Cash flows provided by operating activities were $1,969,000 in 1996 before changes in working capital items and discontinued operations, compared to $2,697,000 in 1995 and $3,030,000 in 1994. Working capital items used $290,000 in 1996, as inventories rose $1.2 million, partially offset by lower accounts receivable and higher accrued liabilities. Inventories in 1996 rose principally at Uniflow, largely in connection with the timing of customer orders. In 1995, working capital items used $882,000, primarily the result of higher accounts receivable and prepaid items, along with lower accounts payable. In 1994, working capital items used $2,984,000, primarily associated with higher Tooling inventories and reduced trade payables. Cash flows used in investing activities In 1996, the Company made capital expenditures that totaled $5,479,100, primarily for machinery at Uniflow associated with the manufacture of starter motor shaft parts. In this regard, the Company has committed to the acquisition of approximately $4 million of capital equipment. The equipment is scheduled for delivery and installation in mid 1997. In 1995, capital expenditures were $1,359,000, principally for a refurbished hydraulic press dedicated for airbag housing production and Form Flow's expansion of its die repair business, which included the acquisition of a new facility and additional grinding equipment. In 1994, capital expenditures of $908,000 were primarily for production tooling at Uniflow and miscellaneous equipment at the other units. The Company received $301,000 in 1996, $863,000 in 1995 and $149,000 in 1994, from the disposals of machinery and equipment. The disposals for all three years principally relate to the reduction of equipment base at the Triple unit. Cash flows from financing activities Cash flows provided by (used in) financing activities were $7,475,000 in 1996, ($1,274,000) in 1995 and $93,000 in 1994. In 1996, the Company completed a major debt refinancing of its existing assets and secured $7 million in industrial development bond financing to fund new equipment purchases associated with new sales orders. The 1996 refinancing included a $5 million note with a bank finance company due in six years; a real estate mortgage of $2.88 million due in 15 years; and a $6 million collateralized bank line of credit, of which $4 million is a committed revolver that expires in 1999. The refinancing provided excess cash of approximately $2.35 million, which was used to reduce borrowings on the bank line of credit. Also in 1996, the Company received $1.87 million and reduced accrued interest by $132,000 through the exercise of two stock warrants, which resulted in the issuance of 1 million shares of common stock. In 1996, scheduled principal debt payments totaled $1.4 million, compared to scheduled payments of $1.7 million in 1995 and $1.3 million in 1994. Also, in 1995 the Company extinguished a $1 million note payable in connection with the exercise of a stock warrant. - 12 - 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. Refer to page 35 of 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 - 13 - PART III The information called for by the items within this part is included in the Company's 1997 Proxy Statement, and is incorporated hereby by reference, as follows:
Caption(s) in 1997 Proxy Statement ---------------------------------- Item 10. Directors and Executive Officers of Registrant............"Election of Directors"; "Executive Officers"; "Compliance with Section 16(a) of The Securities Exchange Act" Item 11. Executive Compensation............"Executive Compensation" Item 12. Security Ownership of Certain Beneficial Owners and Management...................."Principal Stockholders" Item 13. Certain Relationships and Related Transactions.............."Election of Directors -- Certain Information Regarding the Nominees"; "Certain Transactions -- Agreements with Manubusiness Opportunities, Inc.," "Executive Compensation -- Compensation Committee Interlocks and Insider Participation."
- 14 - 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: 1. Financial Statements and Financial Statement Schedule. Page ---- Independent Auditors' Report............................... 20 Consolidated Balance Sheets as of September 30, 1996 and 1995................................................ 21 Consolidated Statements of Operations for the Years Ended September 30, 1996, 1995 and 1994....................... 22 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1996, 1995 and 1994........... 23 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994....................... 24 Notes to Consolidated Financial Statements................. 25 Schedule II - Valuation and Qualifying Accounts............ 36 Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or the notes thereto. (b) Reports filed on Form 8-K. The Company filed a report on Form 8-K dated December 20, 1996 to report the move of its corporate office to 26600 Heyn Drive, Novi, Michigan 48376-0705. The Company filed a report on Form 8-K dated November 15, 1996 to report the Company's acquisition of certain assets and assuming certain liabilities of the VarityKelsey-Hayes' Milford, Michigan machining operation and its continuing business. (c) Exhibits. See the Exhibit Index on the following page. - 15 - Exhibit Description Page* - ------- ----------- ----- 2.1 Asset Purchase Agreement between VarityKelsey-Hayes Corporation and Milford Acquisition Corporation. 2.1* 3.1 Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on August 25, 1987. 3.1* 3.2 Amendment to Articles of Incorporation filed on August 31, 1990. 3.2* 3.3 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* 3.4 Certificate of Designation of Rights of the Class A Preferred Stock filed with the Secretary of State of Delaware in December 1987. 3.3* 3.5 Amendment to Articles of Incorporation filed on December 17, 1991. 3.5* 3.6 Bylaws of the Company. 3.4* 4.1 List of instruments defining the right of security holders. 4.1* 4.3 Nonqualified Stock Option Agreement dated November 23, 1993 between Secom General Corporation as grantor and Manubusiness Opportunities, Inc. as grantee. 4.2* 4.4 Proxy Agreement dated November 23, 1993 between Roy A. McKnight, Larry McKnight, John Cocke and Manubusiness Opportunities, Inc. 4.3* 10.1 Machined Valve Products Supply Agreement 10.1* 10.2 Amended and Restated Revolving Credit and Loan Agreement between Secom General Corporation, Uniflow Corporation, Miconol, Inc., L&H Die, Inc. and Form Flow, Inc. 10.2* 10.3 Master Equipment Lease Agreement between Secom General Corporation and KeyCorp Leasing Ltd. 10.3* 10.4 Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing between Secom General Corporation and Metlife Capital Financial Corporation 10.4* 10.5 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer and Secom General Corporation as Borrower dated June 1, 1996 10.5* 10.6 Loan Agreement among GE Capital Public Finance, Inc. as Lender, and Michigan Strategic Fund, as Issuer, and Secom General Corporation, as Borrower dated as of Sept. 1, 1996 10.6* 10.7 1991 Nonqualified Stock Option Plan 10.27* 10.8 Form of Stock Option Agreement for Options granted under the 1991 Non-qualified Stock Option Plan 10.28* - 16 - 10.9 Subordination Agreement dated December 15, 1993 between Larry McKnight as junior lender and NBD Bank, N.A. as senior lender. 10.17* * See the footnotes on page 18 to locate these exhibits. 13. Annual Report to Shareholders E-1 22. Subsidiaries of the Registrant 22* 23. Consent of Deloitte & Touche LLP E-42 27. Financial Data Schedule E-43 - ------------ 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. * Incorporated by reference from the Company's Current Report on Form 8-K dated November 15, 1996. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1987. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1990. * Incorporated by reference from the Company's Current Report on Form 8-K dated September 13, 1991. * 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. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1991. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1992. * Incorporated by reference from the Company's Current Report on Form 8-K dated December 15, 1993. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1993. * Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1996. - 18 - 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. SECOM GENERAL CORPORATION Dated: February 3, 1997 By: /s/ Robert A. Clemente ------------------------------- Robert A. Clemente Chairman, President and CEO 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 Officer: /s/ Robert A. Clemente - ------------------------------ Chairman, President February 3, 1997 Robert A. Clemente CEO and Director Principal Financial and Accounting Officer: /s/ David J. Marczak - ------------------------------ Chief Financial Officer, February 3, 1997 David J. Marczak Secretary, Treasurer and Director /s/ Gregory Adamczyk - ------------------------------ Director February 3, 1997 Gregory Adamczyk /s/ Rocco Pollifrone - ------------------------------ Director February 3, 1997 Rocco Pollifrone /s/ Orville K. Thompson - ------------------------------ Director February 3, 1997 Orville K. Thompson /s/ Richard Thompson - ------------------------------ Director February 3, 1997 Richard Thompson - 19 - 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, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(1) of Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Secom General Corporation and subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /s/ Deloitte & Touche LLP December 23, 1996 Detroit, Michigan - 20 - SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 - ---------------------------- ASSETS 1996 1995 ---- ---- CURRENT ASSETS: Cash ......................................... $ 319,600 $ 13,700 Receivables: Trade (net of allowances of $21,000 and $93,500) ................................ 4,130,700 4,484,800 Other ...................................... 33,200 320,600 Inventories (Note 3) ......................... 5,170,500 3,935,700 Prepaids and other ........................... 547,400 727,800 Deferred tax assets (Note 10) ................ 569,800 542,700 ----------- ----------- Total current assets ................ 10,771,200 10,025,300 CASH RESTRICTED FOR EQUIPMENT (Note 12) ........ 4,089,000 PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .... 17,758,600 14,583,600 INTANGIBLE ASSET (Note 1) ...................... 1,994,100 2,071,300 OTHER ASSETS ................................... 341,600 266,900 ----------- ----------- TOTAL ASSETS ................................... $34,954,500 $26,947,100 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations (Note 5) ................................. $ 2,121,400 $ 5,633,400 Trade accounts payable ....................... 2,856,800 2,065,500 Accrued liabilities .......................... 884,800 1,197,100 ----------- ----------- Total current liabilities ........... 5,863,000 8,896,000 LONG-TERM OBLIGATIONS (Note 5) ................. 13,724,300 4,621,700 DEFERRED TAX LIABILITIES (Note 10) ............. 1,331,300 1,518,900 ----------- ----------- Total liabilities ................... 20,918,600 15,036,600 STOCKHOLDERS' EQUITY (Notes 8 and 9): Common stock, $.10 par value, 10,000,000 shares authorized; outstanding: 1996, 5,342,200 shares; 1995, 4,276,200 shares.... 534,200 427,600 Additional paid-in capital ................... 18,457,100 16,478,900 Accumulated deficit .......................... (4,955,400) (4,996,000) ----------- ----------- Total stockholders' equity .......... 14,035,900 11,910,500 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $34,954,500 $26,947,100 =========== =========== See notes to consolidated financial statements.
-21- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- NET SALES ..................................... $30,877,100 $36,276,200 $32,570,900 COST OF SALES ................................. 25,064,900 29,016,100 26,048,200 ----------- ----------- ----------- GROSS PROFIT .................................. 5,812,200 7,260,100 6,522,700 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 4,920,700 5,282,300 4,801,500 ----------- ----------- ----------- INCOME FROM OPERATIONS ........................ 891,500 1,977,800 1,721,200 OTHER INCOME (EXPENSE): Interest .................................... (847,600) (1,137,800) (952,500) Other, net .................................. 14,600 (8,400) 385,600 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES .................... 58,500 831,600 1,154,300 INCOME TAX BENEFIT (EXPENSE) (Note 10) ........ (17,900) 372,700 (60,800) ----------- ----------- ----------- NET INCOME .................................... $ 40,600 $ 1,204,300 $ 1,093,500 =========== =========== =========== NET INCOME PER COMMON SHARE ................... $ 0.01 $ 0.28 $ 0.29 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) .................................... 4,874,600 4,284,200 3,795,200 =========== =========== =========== See notes to consolidated financial statements.
-22- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - ----------------------------------------------- Common Stock Additional ---------------------- Paid-in Accumulated Shares Amount Capital Deficit Total ------ ------ --------- ----------- ----- BALANCE, OCTOBER 1, 1994 ........................... 2,900,900 $ 290,100 $15,578,000 $(7,293,800) $ 8,574,300 Stock issued for settlement of stock guarantees .. 711,900 71,200 (85,500) (14,300) Issuances to 401(k) plan (employer match and employee elections) ........................ 37,700 3,800 79,400 83,200 Private placements ............................... 50,000 5,000 95,000 100,000 Net income ....................................... 1,093,500 1,093,500 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1994 ........................ 3,700,500 370,100 15,666,900 (6,200,300) 9,836,700 Exercise of stock warrant ........................ 500,000 50,000 950,000 1,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 42,300 4,200 79,900 84,100 Issuances for compensation ....................... 41,800 4,100 79,500 83,600 Stock repurchases, net ........................... (8,400) (800) (31,000) (31,800) Note issued for settlement of stock guarantee .... (266,400) (266,400) Net income ....................................... 1,204,300 1,204,300 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1995 ........................ 4,276,200 427,600 16,478,900 (4,996,000) 11,910,500 Exercise of stock warrants ....................... 1,000,000 100,000 1,900,000 2,000,000 Issuances to 401(k) plan (employer match and employee elections) ........................ 35,700 3,600 77,600 81,200 Stock issued for note receivable ................. 25,000 2,500 35,000 37,500 Stock repurchases, net ........................... (14,300) (1,400) (32,500) (33,900) Stock issued for settlement of stock guarantees ..................................... 19,600 1,900 (1,900) Net income ....................................... 40,600 40,600 --------- --------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1996 ........................ 5,342,200 $ 534,200 $18,457,100 $(4,955,400) $ 14,035,900 ========= ========= =========== =========== ============ See notes to consolidated financial statements.
-23- SECOM GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 40,600 $ 1,204,300 $ 1,093,500 Adjustments to reconcile income from operations to net cash provided by operations: Depreciation and amortization ...................... 1,983,900 1,858,600 1,983,700 Provision for (benefit from) deferred taxes ........ (214,700) (521,900) 60,800 Increase (decrease) in allowance for ............... (72,500) 17,000 (228,800) doubtful accounts (Gain) loss on sales of assets ..................... 115,800 (319,500) 14,100 Stock issuances to 401(k) plan ..................... 32,000 64,700 107,000 Write-off of intangibles ........................... 84,200 309,700 Stock issuances for compensation ................... 83,600 Changes in assets and liabilities that provided (used) cash, net of effects of acquisitions and discontinued operations: Trade and other receivables ...................... 512,500 (298,400) (105,300) Inventories ...................................... (1,234,800) 134,300 (1,412,200) Prepaids and other ............................... (36,000) (193,700) 30,300 Other assets ..................................... (192,000) 78,300 (18,000) Trade accounts payable ........................... 842,000 (491,400) (984,400) Accrued liabilities .............................. (181,800) (111,300) (196,900) Other liabilities ................................ (297,200) Net cash provided by (used in) discontinued operations ...................................... 158,600 (42,300) 309,400 ----------- ----------- ----------- Net cash provided by operating activities ... 1,837,800 1,772,000 356,000 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment ............................... 301,000 863,000 149,300 Collections on notes receivable ...................... 259,800 2,300 20,600 Capital expenditures ................................. (5,479,100) (1,359,200) (907,900) Net cash provided by discontinued operations ......... 149,200 ----------- ----------- ----------- Net cash used in investing activities ........ (4,918,300) (493,900) (588,800) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in bank line of credit .................... (3,603,600) 210,600 44,900 Proceeds from long-term obligations and use of restricted cash ........................... 8,205,500 273,100 2,469,400 Proceeds from refinancing of long-term obligations ... 7,887,500 Proceeds from issuances of stock ..................... 1,918,800 61,700 Payments on long-term obligations due to refinancing . (5,535,800) Retirements of common stock .......................... (33,900) (12,500) Payments on long-term obligations .................... (1,314,600) (1,634,000) (1,065,000) Refund of restricted cash to bondholders ............. (700,000) Payments on capital lease obligations ................ (48,500) (110,900) (234,400) Net cash used in discontinued operations ............. (483,400) ----------- ----------- ----------- Net cash (used in) provided by financing activities ............................... 7,475,400 (1,273,700) 93,200 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH .... 4,394,900 4,400 (139,600) CASH AND RESTRICTED CASH, BEGINNING OF PERIOD .......... 13,700 9,300 148,900 ----------- ----------- ----------- CASH AND RESTRICTED CASH, END OF PERIOD ................ $ 4,408,600 $ 13,700 $ 9,300 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest ............... $ 902,900 $ 1,104,800 $ 965,200 =========== =========== =========== Cash paid during the year for income taxes ........... $ 153,600 $ 120,000 =========== =========== See notes to consolidated financial statements.
-24- SECOM GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 - --------------------------------------------- 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business - Secom General Corporation (the "Company") is a publicly-traded holding company with four wholly-owned subsidiaries supplying the automotive, truck, construction and consumer markets. The Company operates in the following two business segments: Tooling: Form Flow, Inc. ("Form Flow") L&H Die, Inc. ("L&H Die") Micanol, Inc. ("Micanol") Metal Parts Forming: Uniflow Corporation ("Uniflow") Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. Inventories are stated at the lower of cost or market, as determined under the first-in, first-out method. Property, Plant and Equipment are recorded at cost. The Company capitalizes, as additions, expenditures which extend the useful life or increase the value of related assets. Maintenance and repairs are charged to operating expense as incurred. Expenditures for repairs and maintenance for the three years ended September 30, 1996 were $433,700, $408,400 and $535,900, respectively. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Intangible Asset consisting of goodwill (cost in excess of net assets acquired) is amortized on a straight-line basis over primarily 40 years. The carrying value of goodwill is evaluated periodically in relation to the operating performance of the underlying business and assets. Management has evaluated the carrying value of the goodwill and has determined at September 30, 1996 that remaining amounts are not impaired. Accumulated amortization was $662,700 and $585,400 as of September 30, 1996 and 1995, respectively. Income Taxes - Deferred income tax assets and liabilities are computed annually for differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Earnings per Share of common stock is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares consist primarily of the warrants and options to purchase common stock outstanding during the periods presented. Revenue Recognition - Revenues are recognized upon completion of services related to customer products. -25- Significant Customer - The Company has one customer which comprises 11% of total revenues. Use of Estimates - The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Standards - Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued in March 1995. The Statement is effective for fiscal years beginning after December 15, 1995, and requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. This Statement, which is effective for fiscal years beginning after December 15, 1995, establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company has not yet adopted this Statement, however, the impact of such adoption is not expected to have a material effect on the Company's financial position or results of operations when adopted in the 1997 fiscal year. Noncash Transactions - The Company entered into the following noncash investing and financing transactions for the following years ended September 30 (in thousands):
1996 1995 1994 ---- ---- ---- Cancellation of accrued interest/note payable in exchange for exercise of stock warrant.... $ 132 $1,000 Common stock issued for services or for reduction of other obligations............... 32 148 $107 Stock issued for note receivable................ 37 Notes receivable issued for sale of Triple Tool equipment............................... 249 Note payable issued for settlement of stock guarantee.................................... 266 Note receivable and assumption of obligations from sale of Tri-Tec subsidiary.............. 1,191
Reclassifications - Certain amounts in the 1995 financial statements have been reclassified to conform with the presentation for 1996. 2. DISCONTINUED AND DOWNSIZED OPERATIONS In the quarter ended September 30, 1993, the Company adopted a formal plan to discontinue operations of its Plastic Molded Products Segment, Tri-Tec. In the first quarter of 1994, Tri-Tec's inventories and machinery and equipment were sold for cash and notes receivable and the assumption of certain capital lease obligations. At September 30, 1995 the Company was relieved as an obligor or guarantor on leases assumed by the buyer of Tri-Tec. -26- In the third fiscal quarter of 1995, the Company completed its downsizing of Triple Technologies (formerly "Triple Tool") by the sale of $725,800 (net book value) of equipment and the leasing of $342,000 (net book value) of equipment. The Company recorded a net gain of $2,500 on this transaction after writing down goodwill in the amount of $310,000 in connection with the downsizing. In June 1995, Triple Technologies' remaining operations, primarily electro-diode machining (EDM), contracts and the related equipment (net book value $341,000) were transferred to Form Flow. For the years ended September 30, 1996, 1995, and 1994, sales from Triple Technologies were $30,400, $1,559,000 and $2,500,000, respectively, and operating losses were $102,000, $399,000 and $50,200, respectively. 3. INVENTORIES Inventories at September 30 consist of (in thousands):
1996 1995 ---- ---- Raw materials ........... $ 949 $ 372 Work-in-process ......... 2,394 1,797 Finished goods .......... 1,828 1,767 ------ ------ Total ................... $5,171 $3,936 ====== ======
4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment at September 30 consist of (in thousands):
1996 1995 Life ---- ---- ---- Machinery and equipment ............. $ 18,192 $ 14,629 2 to 20 years Building and improvements ........... 5,154 4,714 3 to 30 years Land and improvements ............... 572 540 N/A Furniture and fixtures .............. 685 478 3 to 7 years Vehicles ............................ 168 215 3 years Construction-in-progress and deposits 538 236 N/A -------- -------- Total .................... 25,309 20,812 Less accumulated depreciation ....... (7,550) (6,228) -------- -------- Total ............................... $ 17,759 $ 14,584 ======== ========
-27- 5. LONG-TERM OBLIGATIONS Long-term obligations at September 30 consists of (in thousands):
1996 1995 ---- ---- Bank line of credit (a) ...................... $ 172 $ 3,776 Real estate mortgage notes (b) ............... 3,609 1,888 Michigan Strategic Fund Limited Obligation Revenue Bonds (c) ......................... 6,896 2,500 Equipment term notes (d) ..................... 4,778 1,176 Other notes payable (e) ...................... 390 811 Equipment capital leases ..................... 104 -------- -------- Total ............................. 15,845 10,255 Less current obligations ..................... (2,121) (5,633) -------- -------- Long-term obligations ........................ $ 13,724 $ 4,622 ======== ========
(a) In July 1996, the Company entered into an amended and restated revolving credit and loan agreement with a bank, which is for a three year period and permits borrowings of up to $4 million under a revolving credit note and up to $2 million under a line of credit note. At September 30, 1996, $172,000 was outstanding under the revolving credit note and no amounts were outstanding under the line of credit note. The interest is at prime or the 30 day LIBOR rate plus 215 basis points. This agreement replaced an existing agreement in which interest was at prime plus 1/2%. The revolving credit and loan agreement is collateralized by accounts receivable and inventory while borrowings are limited to stated percentages of accounts receivable and inventory. Under each note, interest is payable monthly and any unpaid principal is due July 1999. The agreement prohibits the payment of cash dividends and requires the Company to maintain specific financial covenants including minimum tangible equity, working capital, and cash flow. The Company was in compliance with all financial covenants at September 30, 1996. (b) During 1996, the Company refinanced its existing mortgage loans to obtain new mortgage loans requiring monthly installments of principal and interest. Interest on a $2.88 million mortgage note is 8.25% per annum and is collateralized by land and buildings with a net book value of $3,729,100, while interest on a $775,000 mortgage note is prime and is collateralized by land and building with a net book value of $987,200. Interest under the previous agreements was payable at prime plus 2% per annum. These agreements mature in fiscal 1999 and 2011. Principal payments are due as follows: 1997, $164,600; 1998, $173,500; 1999, $183,200; 2000, $193,200; 2001, $660,200 and thereafter, $2,234,800. (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. The bonds require monthly interest and principal payments through September 1, 2002. The Bonds bear interest at the rates of 6.15% and 5.99%, respectively, and are collateralized by equipment and cash with a net book value of approximately $7,000,000. Principal payments due are as follows: 1997, $1,004,600, 1998, $1,066,500, 1999, $1,133,000, 2000, $1,203,400, 2001, $1,278,700 and thereafter, $1,209,600. The bonds outstanding at September 30, 1995, were repaid in their entirety during fiscal 1996. Interest was at approximately 2% below the prime rate. -28- (d) The equipment term note is collateralized by equipment with a net book value of $9,902,200. Interest rate is the 30 day LIBOR plus 215 basis points (approximately 7.55% at September 30, 1996). Principal payments due are as follows: 1997, $691,800, 1998, $746,500, 1999, $805,500, 2000, $868,700, 2001, $937,800 and thereafter, $727,400. The equipment term notes outstanding at September 30, 1995 were repaid in their entirety during fiscal 1996. Interest was at prime rate plus 2%. (e) Interest rates on other notes payable range from 4.9% to 12%. At September 30, 1996, the balance includes $119,900 in trade installment notes collateralized by specific equipment. Maturity dates range from 1997 to 2000. Principal payments due are: 1997, $253,400; 1998, $55,400; 1999, $68,000, and 2000, $13,100. The prime rate at September 30, 1996 and 1995 was 8.25% and 8.75%, respectively. Principal payments on long-term obligations for the next five years are as follows (in thousands): 1997...................... $2,121 1998...................... 2,042 1999...................... 2,190 2000...................... 2,278 2001...................... 2,877 Thereafter................ 4,165
6. RELATED PARTY TRANSACTIONS In December 1993, the Company issued a $1,000,000 subordinated note payable, maturing December 1, 1995 and requiring payment of interest only, at the prime rate plus 3% to Manubusiness Opportunities, Inc. (MOI), an entity controlled by three directors of the Company. Payment of principal was due at maturity. MOI also received warrants and options to purchase 1.7 million shares of common stock, as follows: 500,000 shares expiring in November 1994 with an exercise price of $2 per share, 500,000 shares expiring in November 1995 with an exercise price of $2 per share, and 500,000 shares expiring in November 1996 with an exercise price of $3 per share and 200,000 options expiring in 1998 with an exercise price of $2.63 per share. In November 1994, MOI exercised its first warrant to acquire 500,000 shares of common stock in exchange for the cancellation of the $1,000,000 note. In November 1995, MOI exercised its second warrant to acquire 500,000 shares of common stock in exchange for a payment of $1,000,000. In August 1996, MOI exercised its third and final warrant of 500,000 shares. In conjunction with this exercise, the Company reduced the exercise price on the final warrants from $3 per share to $2 per share, which approximated market value at the new measurement date. Upon exercise, the Company received approximately $868,000 in cash and canceled accrued interest due to MOI of approximately $132,000. Included in accrued liabilities at September 30, 1995, is $125,000 of interest on the above note payable. 7. LEASES The Company leased one manufacturing facility under a noncancelable operating leases. Rental expense for continuing operations was $10,500, $36,000 and $106,000 for the years ended September 30, 1996, 1995 and 1994, respectively. During fiscal 1996, the Company purchased the leased plant facility. -29- Machinery and equipment includes assets under capital leases having a total cost of $438,700 and accumulated amortization of $156,700 at September 30, 1995. During 1996, this machinery and equipment was purchased and the Company no longer has any equipment under capital lease agreements. Annual payments due under noncancelable operating leases are as follows (in thousands): 1997...................... $ 45 1998...................... 45 1999...................... 45 2000...................... 45 2001...................... 45 Thereafter................ 45 ------ Total..................... $ 270 ======
8. STOCK OPTIONS AND COMMON STOCK GUARANTEES In 1991, the Board of Directors (the "Board") adopted a nonqualified stock option plan (the "1991 Plan"). The 1991 Plan authorizes the Board to grant options to purchase a maximum of 400,000 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 10 years from the date of grant. At September 30, 1996, 131,200 shares were exercisable under the Plan. Transactions under the 1991 Plan are summarized as follows:
Shares Price ------ ----- Options outstanding September 30, 1994 .. 178,750 $2.62 - $3.00 Options terminated ...................... (16,250) 2.62 ------- Options outstanding September 30, 1995 .. 162,500 2.62 - 3.00 Options granted ......................... 272,000 1.94 Options terminated ...................... (58,500) 2.62 - 2.75 ------- Options outstanding September 30, 1996 .. 376,000 $1.94 - $3.00 =======
During the year ended September 30, 1996, 175,000 options exercisable at $1.94 were issued to an officer of the Company outside of the 1991 Plan. At September 30, 1996, 17,500 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. -30- The Company is contingently liable under stock price guarantees issued in connection with 1991 private stock placements. Under the agreements the holder is entitled to the shortfall between the amount realized from sale of the shares during the guarantee period and the guaranteed price of the share. At September 30, 1996, the Company had approximately 13,000 shares remaining that are subject to guarantees with a maximum guarantee amount of approximately $96,000. 9. EMPLOYEE BENEFIT PLAN The Company maintains a defined contribution 401(k) plan to which it contributes stock on a discretionary basis. The cost of the stock contributed to the Plan resulted in a charge to expense of $123,000, $116,000 and $107,000 for the years ended September 30, 1996, 1995 and 1994, respectively. 10. INCOME TAXES The provision for income taxes consists of the following for the years ended September 30:
1996 1995 1994 ---- ---- ---- Current (expense) .............. $(232,600) $(149,200) Deferred benefit (expense) ..... 214,700 521,900 $(60,800) --------- --------- -------- Income tax benefit (expense) ... $ (17,900) $ 372,700 $(60,800) ========= ========= ========
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
September 30 ------------------------- 1996 1995 ---- ---- Deferred tax assets: Alternative minimum tax carryforwards .... $ 272,900 $ 137,200 Tax credit carryforwards ................. 108,400 108,400 Secom net operating loss carryforward .... 45,200 Net operating loss carryforwards of acquired companies .................... 397,700 544,500 Reserves ................................. 206,600 159,100 Other .................................... 52,900 17,000 ----------- ----------- Total deferred tax assets ....... 1,038,500 1,011,400 Less valuation allowance ................... (468,700) (468,700) ----------- ----------- Net deferred tax assets ......... 569,800 542,700 Current portion ............................ 569,800 542,700 ----------- ----------- Long-term portion .......................... None None =========== =========== Deferred tax liabilities: Depreciation ............................. $ 462,400 $ 488,100 Book and tax basis differences from business combinations ................. 830,100 988,200 Other .................................... 38,800 42,600 ----------- ----------- Total deferred tax liabilities .. 1,331,300 1,518,900 Current portion ............................ None None =========== =========== Long-term portion .......................... $ 1,331,300 $ 1,518,900 =========== ===========
-31- During 1996 and 1995, 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 as of September 30, 1996 are available for offset against future taxable earnings through the year 2007, subject to annual limitations as set forth in the Internal Revenue Code. A reconciliation of the Company's statutory income tax provision computed on pre-tax income to the recorded income tax provision for the year ended September 30 is as follows:
1996 1995 1994 ---- ---- ---- Statutory income tax liability ............ $(20,200) $(283,300) $(430,000) Change in valuation allowance ............. 766,000 30,000 Nondeductible goodwill amortization ....... (26,300) (128,000) (23,000) Book and tax basis differences from business combinations .................. 71,100 40,000 383,000 Nondeductible other expenses .............. (42,500) (22,000) (20,800) -------- --------- --------- Income tax benefit (expense) .............. $(17,900) $ 372,700 $ (60,800) ======== ========= =========
11. CONTINGENCIES The Company is involved in certain 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 will not have a material adverse effect on the Company's consolidated financial position or results of operations. 12. CASH RESTRICTED FOR EQUIPMENT The cash restricted for equipment was received from the Michigan Strategic Fund bondholders (see Note 5) to purchase equipment for future production requirements. The Company has contractually agreed to purchase the equipment and anticipates accepting delivery of such equipment in the 1997 fiscal year. 13. SUBSEQUENT EVENT Effective November 1, 1996, the Company acquired certain assets and assumed certain liabilities of the Varity Kelsey-Hayes Corporation's Milford, Michigan machining business. The acquisition was accounted for as a purchase and the results of operations will be included in the Company's financial statements beginning as of the acquisition date. The unit has been renamed "Milford Manufacturing Corporation." -32- 14. SEGMENT INFORMATION The following is the business segment information applicable to continuing operations (in thousands):
Metal Eliminations Parts and Forming Tooling Corporate Consolidated ------- ------- ------------ ------------ September 30, 1996: Net sales ............... $14,748 $18,136 $(2,007) $30,877 Income from operations .. (701) 2,093 (501) 891 Identifiable assets ..... 12,920 7,211 14,823 34,954 Depreciation and amortization ......... 1,098 671 215 1,984 Capital expenditures .... 1,803 163 3,513 5,479 September 30, 1995: Net sales ............... $17,630 $20,659 $(2,013) $36,276 Income from operations .. 275 2,457 (754) 1,978 Identifiable assets ..... 14,444 8,852 3,651 26,947 Depreciation and amortization ......... 1,151 671 37 1,859 Capital expenditures .... 592 751 16 1,359 September 30, 1994: Net sales ............... $16,052 $19,143 $(2,624) $32,571 Income from operations .. 177 3,008 (1,464) 1,721 Identifiable assets ..... 15,856 8,119 3,851 27,826 Depreciation and amortization ......... 1,273 598 113 1,984 Capital expenditures .... 570 330 8 908
****** -33- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED) - ------------------------------------------
Year Ended September 30 -------------------------------------------------- 1996 1995 1994 1993 1992 (In thousands; except per share amounts) INCOME STATEMENT DATA NET SALES ........................................ $30,877 $36,276 $32,571 $29,356 $27,574 INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES ............................ 58 831 1,154 (13) 295 INCOME TAX BENEFIT (EXPENSE) ..................... (17) 373 (61) (80) ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS ......... 41 1,204 1,093 (13) 215 INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES ............................ (3,640) 38 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .............................. 41 1,204 1,093 (3,653) 253 CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES .................... 379 ------- ------- ------- ------- ------- NET INCOME (LOSS) ................................ $ 41 $ 1,204 $ 1,093 $(3,653) $ 632 ======= ======= ======= ======= ======= BALANCE SHEET DATA TOTAL ASSETS ..................................... $34,954 $26,947 $27,826 $31,291 $33,924 LONG-TERM OBLIGATIONS ............................ 13,724 4,622 7,089 7,123 10,519 STOCKHOLDERS' EQUITY ............................. 14,036 11,910 9,837 8,574 12,011 COMMON STOCK SHARES OUTSTANDING (1) .............. 5,342 4,276 3,701 2,901 2,821 EARNINGS (LOSS) PER COMMON SHARE (1): Continuing operations .......................... $ 0.01 $ 0.28 $ 0.29 $ 0.08 Discontinued operations ........................ $ (1.27) 0.01 Change in method of accounting for income taxes. 0.14 ------- ------- ------- ------- ------- NET INCOME (LOSS) PER COMMON SHARE ............... $ 0.01 $ 0.28 $ 0.29 $ (1.27) $ 0.23 ======= ======= ======= ======= ======= EQUITY PER COMMON SHARE .......................... 2.63 2.79 2.66 2.96 4.26 CURRENT RATIO .................................... 1.84 1.13 1.02 0.82 0.96 LONG-TERM OBLIGATIONS TO STOCKHOLDERS' EQUITY .... 0.98 0.39 0.72 0.83 0.88 (1) Restated for the 10% stock dividends distributed in 1992.
-34- SECOM GENERAL CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ---------------------------------------------
Quarter Ended ----------------------------------------------------------------------------- 1996 1995 ------------------------------------- ------------------------------------ September June March December September June March December 1996 1996 1996 1995 1995 1995 1995 1994 --------- ---- ----- -------- --------- ---- ----- -------- (In thousands; except per share amounts) NET SALES............... $7,834 $8,254 $7,529 $7,260 $8,200 $9,915 $9,863 $8,298 GROSS PROFIT............ 1,139 1,806 1,494 1,373 1,566 2,338 2,193 1,163 INCOME (LOSS) BEFORE INCOME TAXES.......... (221) 52 163 65 171 545 424 (308) INCOME TAX BENEFIT (EXPENSE)............. 77 (12) (61) (22) 255 80 (48) 85 ------ ------ ------ ------ ------ ------ ------ ------ NET INCOME (LOSS)....... $ (144) $ 40 $ 102 $ 43 $ 426 $ 625 $ 376 $ (223) ====== ====== ====== ====== ====== ====== ====== ====== EARNINGS (LOSS) PER COMMON SHARE-- Net income (loss)....... $(0.03) $ 0.01 $ 0.02 $ 0.01 $ 0.10 $ 0.14 $ 0.09 $(0.05) ====== ====== ====== ====== ====== ====== ====== ====== PRICE RANGE OF COMMON STOCK: High bid.............. $ 3.12 $ 3.44 $ 3.37 $ 3.37 $ 4.09 $ 2.50 $ 2.62 $ 3.00 Low bid............... 2.00 1.87 1.75 2.50 2.25 1.62 1.62 2.00
-35- SECOM GENERAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - -----------------------------------------------
Column B Column C Column D Column E ----------------- --------------- ------------ ----------- Balance at Charged to Cost Deductions-- Balance at Column A Beginning of Year and Expenses Write Offs End of Year Description Allowance for doubtful accounts: Year ended September 30, 1994 ......... $ 307,600 $ 9,400 $238,200 $ 78,800 Year ended September 30, 1995 ......... 78,800 127,500 112,800 93,500 Year ended September 30, 1996 ......... 93,500 51,400 123,900 21,000 Inventory reserve: Year ended September 30, 1994 ......... 179,500 7,500 126,000 61,000 Year ended September 30, 1995 ......... 61,000 15,000 76,000 Year ended September 30, 1996 ......... 76,000 101,500 30,000 147,500 Deferred tax asset valuation allowance: Year ended September 30, 1994 ......... 1,265,000 30,000 1,235,000 Year ended September 30, 1995 ......... 1,235,000 766,300 468,700 Year ended September 30, 1996 ......... 468,700 468,700
-36-
CORPORATE INFORMATION ============================================================================= Officers and Directors Transfer Agent Robert A. Clemente, Chairman of the American Stock Transfer & Trust Co. Board, President and CEO. 40 Wall Street New York, New York 10005 David J. Marczak, Director, Chief Financial Officer, Secretary and Legal Counsel Treasurer. Nedelman Romzek Smith & Wolf Martin J. Eidemiller, Vice President Southfield, Michigan - Tooling Group. John Cocke, Vice President. Auditors Deloitte & Touche LLP Gregory Adamczyk, Director, is Detroit, Michigan majority owner and a director of Forward Planning Corp., an Market Makers engineering firm that specializes in First of Michigan Corporation manufacturing plant layout, design Roney & Company and related systems. Troster Singer Corp. Nash Weiss / Div. of Shatkin Inv. Rocco Pollifrone, Director, is Mayer & Schweitzer, Inc. President and CEO of Forward Wien Securities Corp. Planning Corp., an engineering firm J. Alexander Securities Inc. that specializes in manufacturing plant layout, design and related Executive Offices systems. 26600 Heyn Drive Novi, Michigan 48376-0705 Orville K. Thompson, Director, is (810)-305-9410 owner and President of MST Steel (810)-347-9956 facsimile Corp., a steel service center. Subsidiaries Richard Thompson, Director, is Form Flow, Inc. Vice President of MST Steel 6901 Cogswell Corp., a steel service center. Romulus, Michigan 48184 PO Box 157 38200 Ecorse Road Romulus, Michigan 48174 Micanol, Inc. PO Box 881 46001 Grand River Avenue Novi, Michigan 48376 Milford Manufacturing Corporation 101 Oak Street Milford, Michigan 48381 Uniflow Corporation PO Box 705 26600 Heyn Drive Novi, Michigan 48376-0705
[ BACK COVER ] [ logo ] Secom General Corporation ----------------------------------- 26600 Heyn Drive - Novi, MI 48376-0705 810-305-9410 - Fax: 810-347-9956 EX-23 3 Exhibit 23 INDEPENDENT AUDITORS' CONSENT Secom General Corporation: We consent to the incorporation by reference in Registration Statements No. 33-45177 and 33-43557 of Secom General Corporation on Form S-8 of our report dated December 23, 1996, appearing in this Annual Report on Form 10-K of Secom General Corporation for the year ended September 30, 1996. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Detroit, Michigan December 23, 1996 EX-27 4 ARTICLE 5 FDS FOR SECOM 10-K
5 YEAR SEP-30-1996 SEP-30-1996 $ 319,600 0 4,151,700 (21,000) 5,170,500 10,771,200 25,309,000 (7,550,400) 34,954,500 5,863,000 0 534,200 0 0 0 34,954,500 30,877,100 30,877,100 25,064,900 29,985,600 (14,600) 0 847,600 58,500 17,900 0 0 0 0 40,600 0.01 0.00
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