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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 FEBRUARY 28, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14057
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MET-COIL SYSTEMS CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 42-1027215
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(State or Other Jurisdiction of Incorporation) (I.R.S. Employer No.)
5486 SIXTH STREET SW, CEDAR RAPIDS, IOWA 52404
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (319) 363-6566
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
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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 3,140,718
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MET-COIL SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated condensed balance sheets, February 28, 1997
(unaudited) and May 31, 1996
Unaudited consolidated condensed statements of operations,
three months and nine months ended February 28, 1997 and February 29, 1996
Unaudited consolidated condensed statements of cash flows,
nine months ended February 28, 1997 and February 29, 1996
Notes to consolidated condensed financial statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
Exhibit 11 - Computation of income (loss) per common
and common equivalent share
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL sTATEMENTS
Met-Coil Systems Corporation
Consolidated Condensed Balance Sheets
(In thousands, except shares) February 28, May 31,
1997 1996
(Unaudited) (Note)
Current assets
Cash $ 34 $ 890
Trade receivables, net 4,780 4,585
Notes and other receivables 56 303
Inventories 8,800 8,007
Prepaid expenses 903 1,048
Total current assets 14,573 14,833
Property and equipment, net 5,013 5,507
Investments and other assets 891 1,574
Intangibles, net 2,532 2,749
Total Assets $23,009 $24,663
Current liabilities
Revolving lines of credit $ 2,515 $ 2,715
Current maturities of long-term debt 4,620 3,556
Accounts payable and accrued liabilities 3,765 4,849
Customer deposits 2,878 1,959
Total current liabilities 13,778 13,079
Long-term debt 6,606 9,244
Other 963 543
Preferred stock, convertible and redeemable at $13 per share 3,898 3,709
Stockholders' equity (deficit):
Common stock, $.01 par value, authorized 10,000,000 shares; 31 31
1997 issued 3,140,718; 1996 issued 3,146,521
Additional paid-in capital 16,280 16,205
Accumulated deficit (18,569) (17,759)
Foreign currency translation 124 (260)
Common stock in treasury, at cost (102) (129)
Net equity (deficit) (2,236) (1,912)
Total Liabilities and Stockholders' Equity (deficit) $23,009 $24,663
Note: Condensed from audited financial statements
See notes to consolidated financial statements
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Met-Coil Systems Corporation
Unaudited Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
Net revenues $ 8,712 $ 11,010 $ 26,403 $ 31,825
Cost of goods sold 6,986 8,578 20,792 25,320
Operating expenses 1,552 1,759 4,134 6,120
Gain on business sold 0 2,148 0 2,148
Interest expense, net 493 655 1,516 2,046
Other (income) expense, net 986 90 663 130
Income (loss) before income taxes (1,305) 2,076 (702) 357
Income taxes 0 300 0 300
Net income (loss) $(1,305) $ 2,376 $ (702) $ 657
Preferred stock dividends 54 54 162 162
Net income (loss) applicable
to common stock $(1,359) $ 2,322 $ (864) $ 495
Weighted average common and
common equivalent shares 3,139 3,058 3,128 3,011
Net income (loss) per common
and common equivalent share $ (0.43) $ 0.76 $ (0.28) $ 0.16
See notes to consolidated financial statements
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Met-Coil Systems Corporation
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Nine Months Ended
Feb. 28, Feb. 29,
1997 1996
Net Cash Flows From Operating Activities
Net income (loss) $ (702) $ 657
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation 1,098 1,193
Amortization of intangibles & deferred finance charges 324 499
Accretion of discount on debt and preferred stock 516 517
Share of loss of affiliate 120 7
Write-off of foreign currency translation adjustment 384 ---
Write-off of intangible 246 ---
Gain on sale of business --- (2,148)
1,986 725
Changes in assets and liabilities:
Trade receivables (195) 2,579
Notes and other receivables 247 (133)
Inventories (793) (280)
Accounts payable and accrued liabilities (539) (2,385)
Customer deposits and progress billings 919 375
Prepaid expenses and other 708 682
Net cash flows from operating activities 2,333 1,563
Net Cash Flows From Investing Activities
Purchase of property and equipment, net (604) (141)
Other, net --- (60)
Net cash flows from investing activities (604) (201)
Net Cash Flows From Financing Activities
Net repayments under revolving credit agreements (200) (977)
Repayments of long-term debt (2,026) (1,337)
Use of restricted cash for debt repayment --- 1,235
Dividends on preferred stock (108) ---
Issuance of common stock 102 397
Loan restructuring costs (353) ---
Net cash flows from financing activities (2,585) (682)
Cash
Increase (decrease) (856) 680
Beginning balance 890 159
Ending balance $ 34 $ 839
See notes to consolidated financial statements
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MET-COIL SYSTEMS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The unaudited consolidated condensed 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 unaudited consolidated
condensed 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 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, 1996.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
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 financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. INVENTORIES
The composition of the inventories, using the FIFO method, which
approximates replacement cost, is as follows:
(in thousands)
February 28, May 31,
1997 1996
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Raw materials & parts .... $ 8,022 $ 7,241
Work in process .......... 1,537 1,375
Finished goods ........... 430 580
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$ 9,989 $ 9,196
Reduction to LIFO basis .. (1,189) (1,189)
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$ 8,800 $ 8,007
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NOTE 3. 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 Company's investment in such affiliate is as follows
(in thousands):
Three Months Ended Nine Months Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
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Net revenues ......................... $ 266 $ 2,007 $ 4,594 $ 7,530
Gross profit ......................... (147) 544 1,369 1,907
Operating income (loss) ............. (81) (124) (305) (191)
Net income (loss) .................... (0) (16) (240) (17)
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Income (loss) from equity investments,
included in net revenues .......... $ (0) $ (8) $ (120) $ (7)
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NOTE 4. DEBT
Revolving lines of credit:
At May 31, 1996 the Company had a revolving credit agreement with
two insurance companies under which it could borrow up to $3,500,000 in
current notes payable. Borrowings are limited pursuant to a borrowing
base formula (certain percentages of eligible trade receivables and
inventories), bear interest at 11.5% and require the payment of certain
fees. The revolving line of credit agreement expires on April 30, 1999.
At February 28, 1997 the Company was not in compliance with various
financial covenants contained in the senior notes and revolving line of
credit. However, the Company has obtained waivers from the lenders for
the quarter ended February 28, 1997. The Company and the two insurance
companies also amended the note agreement effective April 10, 1997 and
the Company is in compliance with covenants as amended.
Senior debt:
At February 28, 1997 the Company had $6,300,000 of senior notes with
two insurance companies which bears interest at 11.5%. The notes are
due in monthly payments of $110,000 plus interest. At February 28, 1997
the Company was not in compliance with various financial covenants
contained in the senior notes and revolving line of credit. However,
the Company has obtained waivers from the lenders for the quarter ended
February 28, 1997. The Company and the two insurance companies amended
the note agreement effective April 10, 1997 and the Company is in
compliance with covenants as amended. In addition, a payment of
$1,200,000 which was due April 18, 1997 was extended to August 31, 1997.
For additional information concerning the Company's loan agreements and
accompanying terms and restrictions see Note 5 to the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the
year ended May 31, 1996 herein incorporated by reference thereto.
NOTE 5. SUPPLEMENTAL CASH FLOW DATA
Feb. 28, Feb. 29,
1997 1996
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Cash paid for Interest ............... $ 1,245 $1,498
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MET-COIL SYSTEMS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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THIRD QUARTER AND NINE-MONTH RESULTS OF OPERATIONS
Revenues of $8.7 million for the third quarter of fiscal 1997 decreased
by approximately 20% from $11.0 million in the third quarter of fiscal
year 1996 primarily due to the sale of Rowe Machinery on February 5,
1996. The consolidated 1997 third quarter gross margin of 20% was down
from the 1996 third quarter margin of 22%. In the third quarter of
fiscal 1997, management closed a sales office in Frankfurt, Germany and
also decided to make certain non-cash adjustments of costs that had been
previously capitalized; primarily development of a prototype product and
patent costs. Liquidation of the investment resulted in a loss of
approximately $500,000, most of which is recognition of foreign currency
translation adjustment. Total non-operating adjustments of
approximately $1,364,000 were made in the third quarter.
A 1997 third quarter net loss of $1,305,000 or $0.43 per common share
compares to net income of $2,376,000 or $0.76 per common share in the
third quarter of 1996. The income during the third quarter of last year
included a gain of $2.2 million ($0.72 per common share) resulting from
the sale of Rowe in February, 1996.
On a comparable basis, excluding Rowe Machinery, reported revenues for
the first nine months of fiscal 1997 and 1996 were $26.4 million and
$25.6 million, respectively. The improvement is primarily due to Iowa
Precision Industries and increased foreign sales. The 1997 gross margin
through the third quarter was 21.3%, up from 20.4% in 1996 due to the
sale of Rowe and steadily improving margins at Lockformer. Improvements
in gross margin and general and administrative expenses for nine months
of 1997 compared to 1996 are in excess of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has successfully reduced total liabilities, including
accounts payable and term financing debt, by $2.0 million for the nine
month period ending February 28, 1997. Working capital is $795,000,
which is a decrease from last fiscal year end, due to the classification
of long-term debt as current. The Company generated cash from operating
activities of $2.3 million, an increase of $700,000 over the
corresponding period last year. Backlog at February 28, 1997 was $14.0
million, which represents a 17% increase over May, 1996.
On March 31, 1997, dividends of 6% were paid on the Company's preferred
stock representing the dividends due for the six month period ending
March 31, 1997. However, preferred shareholders Messrs. Nonnenmann and
Carver have elected to defer receipt of dividend payments since March,
1996 subject to a promissory note which allows for a 9% rate of
interest. No common stock dividends were paid during the third quarter
by the Company due to loan covenants. It is uncertain when, and
if, the Company will pay common stock dividends in the future. At
February 28, 1997 the Company was not in compliance with various
financial covenants contained in the senior notes and revolving line of
credit. However, the Company has obtained waivers from the lenders for
the quarter ended February 28, 1997. The Company and the two insurance
companies amended the note agreement effective April 10, 1997 and the
Company is in compliance with covenants as amended.
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The statements under Management's Discussion and Analysis of Financial
Condition and Results of Operations and the other statements in this
Quarterly Report which are not historical facts are forward looking
statements. These forward looking statements involve risks and
uncertainties that could render them materially different, including,
but not limited to, the effect of economic conditions, the impact of
competition, availability and costs of inventory, the rate of technology
change, the availability of capital, supply constraints of difficulties,
the effect of the Company's accounting policies, the effect of
regulatory and legal developments, and other risks.
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MET-COIL SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - At February 28, 1997 the
Company was not in compliance with various financial covenants
contained in the senior notes and revolving line of credit.
However, the Company has obtained waivers from the lenders for the
quarter ended February 28, 1997. The Company and the two insurance
companies amended the note agreement effective April 10, 1997 and
the Company is in compliance with covenants as amended.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -- See Index to Exhibits included elsewhere herein.
(b) FORM 8-K -- No reports on Form 8-K were filed during the third
fiscal quarter.
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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: April 14, 1997 Met-Coil Systems Corporation
Randall J. Stodola
Vice President, Controller and
Chief Accounting Officer
Randall J. Stodola/s/
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MET-COIL SYSTEMS CORPORATION
INDEX TO EXHIBITS
EXHIBIT 3.1 Restated Certificate of Incorporation of the Registrant, as
amended--incorporated by reference to Exhibit 3.2 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
Nov. 30, 1987
EXHIBIT 3.2 Amended and Restated Bylaws of the Registrant--incorporated
by reference to Exhibit 3.4 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1987
EXHIBIT 4 Private Placement Offering of convertible preferred stock dated
December 24, 1993--incorporated by reference to Form 8-K filed May
27,1994
Private Placement Offering of convertible preferred stock dated
November 28, 1994--incorporated by reference to Form 8-K filed
March 10, 1995
EXHIBIT 11 Computation of Income (Loss) Per Common and
Common Equivalent Share