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INDEX TO EXHIBITS - PAGE 13 OF 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-14057
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MET-COIL SYSTEMS CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 42-1027215
- ------------------------------------ ---------------------
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer No.)
5486 SIXTH STREET SW, CEDAR RAPIDS, IOWA 52404
- ------------------------------------------ ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (319) 363-6566
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
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 _______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ________ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 3,035,706
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MET-COIL SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated condensed balance sheets, November 30, 1995
(unaudited) and May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated condensed statements of operations,
three months and six months ended November 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . 4
Consolidated condensed statements of cash flows,
six months ended November 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 6. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit 11 - Computation of loss per common
and common equivalent shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except shares) November 30, May 31,
1995 1995*
(Unaudited)
- ----------------------------------------------------------------------------------------
Current assets
Cash $ 866 $ 159
Cash, restricted for debt repayment 505 750
Trade receivables, net 6,010 8,436
Notes and other receivables 787 968
Inventories 13,336 13,265
Prepaid expenses 1,255 1,413
- ---------------------------------------------------------------------------------------
Total current assets 22,759 24,991
Property and equipment, net 6,798 7,953
Cash, restricted for debt repayment --- 236
Investments and other assets 2,504 2,471
Intangibles, net 2,864 3,084
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $ 34,925 $ 38,735
=======================================================================================
Current liabilities
Notes payable to banks and current maturities of
long-term debt $ 16,824 $ 18,445
Accounts payable and accrued liabilities 7,794 9,449
Customer deposits and progress billings 3,226 2,367
- ---------------------------------------------------------------------------------------
Total current liabilities 27,844 30,261
Long-term debt 3,960 3,838
Other 799 783
Preferred stock, convertible and redeemable at $13 per
share 3,583 3,457
Stockholders' Equity (Deficit):
Common stock, $.01 par value, authorized 10,000,000
shares; 31 29
1996 issued 3,063,783; 1995 issued 2,932,573
Additional paid-in capital 16,088 15,809
Retained earnings (deficit) (17,397) (15,570)
Foreign currency translation 146 257
Common stock in treasury, at cost, 28,000 shares (129) (129)
- ---------------------------------------------------------------------------------------
Net equity (deficit) (1,261) 396
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 34,925 $ 38,735
=======================================================================================
* Condensed from audited financial statements
See notes to consolidated financial statements
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Met-Coil Systems Corporation
Consolidated Condensed Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
November 30, November 30,
1995 1994 1995 1994
(Restated) (Restated)
- ------------------------------------------------------------------------------------------
Net revenues $11,161 $ 11,049 $ 20,815 $ 20,507
Cost of goods sold 8,628 8,510 16,742 15,230
Operating expenses 2,120 2,493 4,361 4,727
Interest expense, net 698 576 1,391 1,192
Other (income) expense, net 87 (67) 40 (88)
- ----------------------------------------------------------------------------------------
Loss before income taxes (372) (463) (1,719) (554)
Income taxes --- --- --- ---
- ----------------------------------------------------------------------------------------
Net loss $ (372) $ (463) $ (1,719) $ (554)
Preferred stock dividends 54 24 108 48
- ----------------------------------------------------------------------------------------
Net loss applicable to common
stock $ (426) $ (487) $ (1,827) $ (602)
========================================================================================
Weighted average common and
common equivalent shares 3,002 2,814 2,997 2,800
========================================================================================
Net loss per common share and
common equivalent share $ (0.14) $ (0.17) $ (0.61) $ (0.22)
========================================================================================
See notes to consolidated financial statements
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MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
November 30,
1995 1994
(Restated)
- -----------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,719) $ (554)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation 798 820
Amortization 220 220
Accretion of discount on debt and preferred stock 336 285
Undistributed (earnings) loss of affiliate 7 (128)
- -----------------------------------------------------------------------------------------------------
(358) 643
Changes in assets and liabilities:
Trade receivables 2,426 (991)
Notes and other receivables 181 (6)
Inventories (71) (1,653)
Accounts payable and accrued liabilities (1,655) 1,300
Customer deposits and progress billings 859 56
Prepaid expenses and other 158 (65)
- -----------------------------------------------------------------------------------------------------
Net cash flows from operating activities 1,540 (716)
- -----------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (128) (212)
Other, net (27) 563
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Net cash flows from investing activities (155) 351
- -----------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under revolving credit agreements (863) (489)
Repayments of long-term debt (846) (1,001)
Use of restricted cash for debt repayment 750 745
Reduction in Employee Stock Ownership Plan debt guarantee --- 167
Dividends on preferred stock --- (53)
Issuance of common stock 281 239
- -----------------------------------------------------------------------------------------------------
Net cash flows from financing activities (678) (392)
- -----------------------------------------------------------------------------------------------------
CASH
Increase (decrease) 707 (757)
Beginning balance 159 1,304
- -----------------------------------------------------------------------------------------------------
Ending balance $ 866 $ 547
=====================================================================================================
See notes to consolidated financial statements
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MET-COIL SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The condensed unaudited consolidated financial statements have been
prepared by the Company in accordance with the instructions for
Securities and Exchange Commission's Form 10-Q and do not include all
of the information and footnotes required by generally accepted
accounting principles for audited financial statements. The condensed
unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany items and
transactions have been eliminated in the consolidation. In the
preparation of the unaudited amounts, all adjustments (consisting
solely of normal recurring adjustments) have been made which are, in
the opinion of management, necessary for a fair statement of the
results for the interim periods. The results for the interim periods
are not necessarily indicative of the results of operations that may be
expected for the year. It is suggested that the condensed unaudited
consolidated financial statements contained herein be read in
conjunction with the consolidated statements and notes included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1995.
NOTE 2. PRIOR PERIOD ADJUSTMENT
The Company has restated its previously issued fiscal 1994 financial
statements and its previously issued fiscal 1995 quarterly financial
statements to increase cost of goods sold and decrease work-in-process
inventory at May 31, 1994 and at November 30, 1994, as a result of
improperly relieving inventory for the cost of items shipped to
customers. In addition, the second quarter of fiscal 1995 reflects an
adjustment to increase a reserve for an environmental matter that had
previously been reduced. These adjustments reduced previously
reported November 30, 1994 retained earnings by $1,499,000 and reduced
previously reported income for the three month and six month periods
ended November 30, 1994 by $778,000 or $.28 per common share and
$921,000 or $.33 per common share respectively.
NOTE 3. INVENTORIES
The composition of the inventories, using the FIFO method, which
approximates replacement cost, is as follows:
(in thousands)
November 30, May 31,
1995 1995
---------------- ---------------
Raw materials & parts . . . . . $9,859 $9,840
Work in process . . . . . . . . 2,620 2,507
Finished goods . . . . . . . . 766 827
------- --------
$13,245 $13,174
Increase to LIFO basis . . . . 91 91
------- -------
$13,336 $13,265
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NOTE 4. INVESTMENT IN AFFILIATE
The Company is accounting for its investment in Met-Coil Ltd. (50%
owned) by the equity method of accounting. Selected financial
information of the investment in affiliate is as follows (in
thousands):
Three Months Ended Six Months Ended
November 30, November 30,
1995 1994 1995 1994
------------------------ ----------------------------
Net revenues . . . . . . . . . . . . . . . $ 4,028 $ 2,795 $ 5,523 $ 5,403
Gross profit . . . . . . . . . . . . . . . 940 954 1,363 1,946
Operating income (loss). . . . . . . . . . 128 267 (67) 525
Net income . . . . . . . . . . . . . . . . 92 136 8 256
========= ========= ========= ========
Income from equity investments,
included in net revenues. . . . . . . . $ 46 $ 68 $ 4 $ 128
========= ========= ========= ========
NOTE 5. DEBT
Revolving lines of credit:
At May 31, 1995 the Company had revolving credit agreements with
two banks under which it could borrow up to $2,000,000 from each
bank in current notes payable. Borrowings, which can be utilized in
the form of a letter of credit facility, are limited pursuant to a
borrowing base formula (primarily a certain percentage of eligible
trade receivables), bear interest at the banks' prime rate plus
1.5%, require compensating balances of 5% of the committed revolving
lines of credit and require the payment of certain fees. The credit
agreements originally expired on September 30, 1995. As of May 31,
1995 and November 25, 1995, the Company was not in compliance with
various debt covenants. The Company has been obtaining monthly
extensions from the banks and currently the credit agreements expire
on January 25, 1996. In connection with the extensions each bank
has reduced its lending availability to the Company to $1,400,000.
The Company has borrowings of $2,700,000 under these revolving
credit agreements at November 30, 1995.
Senior debt:
The Company has $12,000,000 of senior notes with two insurance
companies. Interest is at 11% payable quarterly. The notes are due
in annual payments of $1,000,000 in October, each year with the
remaining principal due in October, 2001. As of May 31, 1995 and
November 30, 1995, the Company was not in compliance with various
covenants of the senior notes. Since waivers of these covenants
have not been obtained, the total amount of $12,000,000 of senior
notes have been classified as current.
For additional information concerning the Company's loan
agreements and accompanying terms and restrictions see Note 5 to
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended May 31, 1995 herein incorporated by reference thereto.
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NOTE 6. PREFERRED STOCK - REDEEMABLE CONVERTIBLE
The Company has authorized 1,000,000 shares of $1 par value
preferred stock. During the years ended May 31, 1995 and 1994 the
Company issued 200,000 and 162,000 shares of preferred stock
respectively, at $10 per share ($10 liquidation value per share).
The preferred stock provides for cumulative annual dividends of 6%
payable semi-annually. The preferred stock is convertible into
three shares of common stock at any time at the option of the
holder. After December 31, 1998 either the Company or the holder
may redeem the preferred stock at a redemption price of $13 per
share, plus accumulated but unpaid dividends.
The Company is increasing the carrying amount of the preferred
stock, using the interest method, so that the carrying amount will
equal the redemption amount of $4,706,000 at December 31, 1998.
NOTE 7. LITIGATION SETTLEMENT
For information concerning the 1992 litigation settlement see Note
12 to Financial Statements in the Company's Annual Report on Form
10-K for the year ended May 31, 1995 herein incorporated by
reference thereto.
NOTE 8. SUBSEQUENT EVENT
On January 12, 1996, the Company signed an agreement (expected to
close on January 31, 1996) to sell certain assets related to two
product lines currently manufactured at the Rowe facility. The sale
would include the "Rowe" name, the technical know how to produce the
"Press Feed" and "Cut-to-length" product lines and certain working
capital accounts related to these product lines. The sales proceeds
are currently estimated at $4,000,000 and will be used to retire
debt. This transaction should result in a gain to the Company in
excess of $2,000,000 when realized and is subject to lender
approval.
NOTE 9. SUPPLEMENTAL CASH FLOW DATA
Cash paid for Interest . . . . . . . . $ 1,027 $ 981
======== ======
During the second quarter of fiscal year 1996, the Company
received insurance proceeds of $485,000, related to a fire at the
Rowe facility. This amount has been placed in a cash collateral
account and the book value of property and equipment has been reduced
accordingly.
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MET-COIL SYSTEMS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SECOND QUARTER AND SIX MONTH RESULTS OF OPERATIONS
Revenues of $11.2 million for the second quarter increased 1% from
$11.0 million in the second quarter of fiscal year 1995. The 1996
second quarter margin of 23% was consistent with the 1995 second
quarter margin. Second quarter 1996 operating expenses of $2.1
million decreased from the prior year second quarter of $2.5 million
reflecting the Company's effort to trim costs and eliminate duplicity
in operations. The increase in interest expense from the prior second
quarter reflects the accretion of interest on preferred stock issued
in fiscal 1995. The second quarter 1996 net loss of $372,000 or $0.14
loss per common share decreased from the 1995 second quarter net loss
of $463,000 or $0.17 loss per common share due to the reduction in
operating expenses.
For the first half of fiscal 1996 and 1995 reported revenues were
$20.8 million and $20.5 million respectively. The 1996 first half
margin of 20% was down from the 1995 first half margin of 26% due
primarily to lower margins recognized by the Lockformer subsidiary
during the first quarter of fiscal 1996 as a result of low margin
orders on hand at the end of the prior fiscal year. These low margin
orders were due to the pricing formula for large distributors
implemented in the prior year which decreased margins and which went
undetected until the significant 1995 year end inventory write-down.
Operating expenses decreased from the prior year due to cost cutting
measures implemented, and interest expense increased due to preferred
stock interest accretion.
As discussed in Note 2 to the consolidated financial statements, the
financial results for the three month and six month periods ended
November 30, 1994 have been restated.
LIQUIDITY AND CAPITAL RESOURCES
An operating working capital deficit of $5.1 million at November 30,
1995 was caused by the classification of $11 million of senior notes
as current (see discussion below) that would have been reflected as
long-term had the Company been in compliance with loan covenants. The
operating working capital deficit was $5.3 million at May 31, 1995.
The Company generated cash from operating activities of $1.5 million
for the first half of 1996 compared to a use of $716,000 for the
corresponding period last year. Backlog was $18.7 million at
November 30, 1995, an increase of 40% over the November 30, 1994
level of $13.4 million.
As a result of the net loss for the year ended May 31, 1995, the
Company was in violation of various covenants of the revolving credit
agreements and senior notes. Noncompliance with loan covenants permit
the lenders to declare the Company in default of its loan agreements
and demand repayment of the loans in full. The revolving credit
agreements originally expired on September 30, 1995. While the
revolving credit agreements have been amended and extended to January
25, 1996 the various covenant violations have
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not been waived, therefore $11 million of senior notes have been
classified as current at November 30, 1995. The Company is engaged in
discussions with new lenders and has an oral commitment from the
local office of a potential new lender, but since national office
approval is required, a formal commitment letter is currently not in
place.
Assuming the current revolving credit agreements are either further
extended or replaced, cash flows from on hand balances (including cash
for debt repayment) and from operations are expected to meet the
Company's operating and debt service requirements through the
remainder of the current fiscal year. In the event the revolving
credit agreements are not extended or replaced, the Company would need
to raise additional capital in order to continue to meet operating and
debt service requirements. There are no assurances that the Company
would be able to raise additional capital. If the Company is unable
to extend or replace the revolving credit agreements or raise
additional capital, the Company would not be able to continue as a
going concern without effecting a reorganization or restructuring.
Dividends of 6% were not paid on the preferred stock when scheduled to
be paid on September 30, 1995 due to restrictions as a result of the
loan covenant violations, however, it is the Company's intent to pay
these dividends when either compliance is achieved or new loan
agreements are obtained. The Company continues to omit quarterly
common stock dividends due to loan covenants, which prohibit the
payment of common stock dividends. It is uncertain when, and if, the
Company will pay common stock dividends in the future.
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MET-COIL SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On December 15, 1995, the loan agreements with the Company's
bank lenders were amended and extended as described in Note 5 to the
Financial Statements included in Part 1, Item 1 of this Quarterly
Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At November 30, 1995, the Company was in violation of certain
financial covenants contained in its loan agreements. Since waivers
of these violations have not been obtained, $12,000,000 of Senior Notes
have been classified as current in the Financial Statements in Part 1,
Item 1 of this Quarterly Report. For further information see "Liquidity
and Capital Resources" in Part 1, Item 2 of this Quarterly Report.
ITEM 6. EXHIBITS
(a) EXHIBITS -- See Index to Exhibits included elsewhere herein.
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: January 15, 1995 Met-Coil Systems Corporation
Joseph H. Ceryanec
Vice President Finance,
Chief Financial Officer and
Chief Accounting Officer
Joseph H. Ceryanec/s/
----------------------
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MET-COIL SYSTEMS CORPORATION
INDEX TO EXHIBITS
Page
EXHIBIT 11 Computation of Loss Per Common and
Common Equivalent Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14