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INDEX TO EXHIBITS - PAGE 12 OF 13
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UNITED STATES
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
AUGUST 31, 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, IA 52404
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(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
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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 3,171,824
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MET-COIL SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets, August 31, 1997
(Unaudited) and May 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Condensed Statements of Operations,
Three Months Ended August 31, 1997 and 1996 . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Condensed Statements of Cash Flows,
Three Months Ended August 31, 1997 and 1996 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements (Unaudited) . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . 10
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 10
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exhibit 11 - Computation of Income Per Common
and Common Equivalent Shares . . . . . . . . . . . . . . . . . 13
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except shares)
August 31 May 31,
1997 1997
(Unaudited) (Note)
======================================================================================
Current assets
Cash $ 194 $ 594
Trade receivables, net 5,168 4,926
Notes and other receivables 19 800
Inventories 9,656 8,793
Prepaid expenses and other 781 905
- --------------------------------------------------------------------------------------
Total current assets 15,818 16,018
Property and equipment, net 3,917 4,093
Investments and other assets 999 998
Intangibles, net 2,309 2,416
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TOTAL ASSETS $ 23,043 $ 23,525
======================================================================================
Current liabilities
Revolving line of credit $ 2,613 $ 2,371
Current maturities of long-term debt 2,420 4,620
Accounts payable and accrued liabilities 5,781 4,225
Customer deposits 2,842 2,831
- --------------------------------------------------------------------------------------
Total current liabilities 13,656 14,047
Long-term debt 6,366 6,617
Other 354 423
Preferred stock, convertible and redeemable at $13 per share 4,142 4,036
Stockholders' equity (deficit):
Common stock, $.01 par value, authorized 10,000,000 shares; 31 31
1998 issued 3,171,824; 1997 issued 3,171,824
Additional paid-in capital 16,248 16,248
Accumulated deficit (17,654) (17,725)
Foreign currency translation adjustment 2 (50)
Common stock in treasury, at cost (102) (102)
- --------------------------------------------------------------------------------------
Stockholders' equity (deficit) (1,475) (1,598)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 23,043 $ 23,525
======================================================================================
Note: Condensed from audited financial statements
See Notes to Consolidated Condensed Financial Statements
4
MET-COIL SYSTEMS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Three Months Ended
August 31,
1997 1996
===================================================================================
Net revenues $ 10,454 $ 8,679
Cost of goods sold 8,028 6,861
Operating expenses 1,691 1,196
Interest expense, net 395 456
Other (income) expense, net 163 (416)
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Income before income taxes 177 582
Income taxes - - - - - -
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Net income $ 177 $ 582
Preferred stock dividends and accretion 160 117
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Net income applicable to
common stock $ 17 $ 465
===================================================================================
Weighted average common shares
and common share equivalents 3,243 3,120
===================================================================================
Net income per common share $ 0.01 $ 0.15
===================================================================================
See Notes to Consolidated Condensed Financial Statements
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MET-COIL SYSTEMS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
August 31,
1997 1996
===================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 177 $ 582
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation 257 465
Amortization of intangibles and deferred finance charges 107 99
Accretion of discount on debt 100 106
Write-down of property held for sale 80 -
Undistributed loss of affiliate 125 -
- -------------------------------------------------------------------------------------------------------------------
846 1,252
Changes in assets and liabilities:
Trade receivables (242) (251)
Notes and other receivables 781 (732)
Inventories (863) (523)
Prepaid expenses and other 50 269
Accounts payable and accrued liabilities 1,487 (349)
Customer deposits 11 506
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Net cash flows from operating activities 2,070 172
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (161) (298)
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Net cash flows from investing activities (161) (298)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreements 242 181
Repayments of long-term debt (2,551) (492)
Issuance of common stock - - - 58
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Net cash flows from financing activities (2,309) (253)
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CASH
Increase (decrease) (400) (379)
Beginning balance 594 890
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Ending balance $ 194 $ 511
===================================================================================================================
See Notes to Consolidated Condensed 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 (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 unaudited consolidated condensed 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, 1997.
Risks and Uncertainties:
The preparation of the Company's 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
those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of
the allowance for uncollectible accounts receivable,
recoverability of long-term assets, environmental and product
liability accruals and income tax accruals including valuation
allowances for deferred income assets.
The Company has two collective bargaining agreements
covering production employees at its main operating units which
expire in fiscal 1998. The Company expects to negotiate with the
unions and to enter into new collective bargaining agreements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
Reclassifications:
Certain amounts for the prior year have been reclassified
to conform with the current year presentation.
For the quarter ended August 31, 1996 preferred stock
dividends were not previously reported as a deduction from net
income. Preferred stock dividends of $54,000, which were paid by
the Company, have been deducted in arriving at net income
applicable to Common Shareholders. This presentation has no effect
on aggregate annual dividends or quarters other than the first
quarter of fiscal 1997.
NOTE 2. INVENTORIES
The composition of the inventories, using the FIFO method, which
approximates replacement cost, is as follows (in thousands):
August 31, May 31,
1997 1997
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Raw materials & parts . . . . . . . . . $ 7,493 $ 6,779
Work in process . . . . . . . . . . . . . 2,866 2,425
Finished goods . . . . . . . . . . . . . - - - 292
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10,359 $ 9,496
Reduction to LIFO basis . . . . . . . . . 703 703
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$ 9,656 $ 8,793
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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 investment in affiliate is as follows (in
thousands):
Three Months Ended
August 31,
1997 1996
--------------------------
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,307 $ 2,230
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 805
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . (193) 9
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (251) 1
========== ===========
Income (loss) from equity investments,
included in net revenues . . . . . . . . . . . . . . . . . . $ (125) $ ---
========== ===========
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
NOTE 4. DEBT
Revolving Line of Credit:
At August 31, 1997 the Company had a revolving credit agreement
with two insurance companies under which it could borrow up to
$3,500,000. 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 payments of
certain fees. Under this line, which expires April 30, 1999,
outstanding borrowings as of August 31, 1997 were $2,613,000.
Long-Term Debt:
At August 31, 1997 the Company had $4.4 million of senior notes
with two insurance companies, due in December 2000. Interest is at
11.5% payable monthly. The notes are due in monthly payments of
$110,000 in total plus interest. In addition, a principal payment of
$1,200,000 which was due on August 31, 1997, was paid to the lenders.
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, 1997 herein incorporated by reference thereto.
NOTE 5. SUPPLEMENTAL CASH FLOW DATA
Three Months Ended
August 31,
1997 1996
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Cash paid for Interest $ 261 $ 333
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MET-COIL SYSTEMS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
Net income for the first quarter of fiscal 1998 was $177,000, which
after deducting preferred stock dividends and accretion, results in
net income applicable to the Common Shareholders of $17,000 or $.01
per share. Net income for the first quarter of last fiscal year was
$582,000, which after deducting preferred stock dividends and
accretion, resulted in net income applicable to the Common
Shareholders of $465,000 or $.15 net income per share. Last year's
first quarter results included a lawsuit settlement of $450,000 ($.14
per share).
Both operating units recorded increased sales compared to the first
quarter of fiscal 1997. First quarter 1998 revenues were $10.5
million compared to $8.7 million in first quarter of fiscal 1997.
The Company's backlog was $16.8 million at August 31, 1997 compared
to $12.2 million for 1996. The increase in sales, operating
expenses, gross margin and backlog is primarily due to increased
demand for the Company's Vulcan Plasma Cutting Machines and
Fabrication Systems and positive economic factors. Operating
expenses increased $490,000 and gross margin improved from 21% to
23%.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1997, current assets exceeded current liabilities by
$2.2 million and the Company had approximately $900,000 available
under its revolving credit agreement.
Cash flow from operations in the first fiscal quarter was $2.1
million and covered all debt service on the Company's senior term
notes including a required scheduled prepayment of $1.2 million to
the Company's lenders in August. Proceeds of $1 million from the
sale of the Company's excess land were applied toward the mortgage
on that property. In the first quarter the Company reduced total
long-term debt by $2.5 million.
Subsequent to the end of the first quarter, the Company entered into
a sales contract to sell the land and building which contained the
operations of a former subsidiary. No material gain or loss is
expected to result from the transaction. The proceeds will be used
to retire debt.
In September 1997 all dividends were paid on the Company's preferred
stock. 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.
The Company was in compliance with all debt covenants contained in
its note agreements as of August 31, 1997. Management of the
Company believes that amounts available from operating cash flows
and funds available under its revolving credit agreement will be
sufficient to meet its expected cash needs and capital expenditures
for the fiscal year.
The statements under Management's Discussion and Analysis of
Financial Condition and Results of Operations and 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 or 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 - The Company has been involved in a long standing
legal suit regarding a license agreement purchased from the
Company by a competitor. Under the terms of the license agreement,
the competitor paid royalties to the Company and is now seeking
return of these payments. The suit has been through several appeal
processes in which both parties have been declared valid in various
claims. The Company seeks to recover $324,294 in unpaid past
royalties plus accrued interest. The licensee seeks $346,127, which
includes interest of $118.192, plus accrued interest thereon from
January 1, 1997. The Company intends to continue vigorous defense of
this matter.
The Company is subject to various other legal actions, governmental
investigations and proceedings relating to various matters
incidental to its business including product liability and
environmental claims. The Company intends to vigorously defend
these matters. While the outcome of such matters cannot be
predicted with certainty, in the opinion of management, after
reviewing such matters and consulting with the Company's counsel and
insurers, any liability which may ultimately be incurred is not
expected to materially affect the consolidated financial position
and results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - Subsequent to the end of the first quarter of
fiscal 1998, the Company entered into a sales contract to sell
the land and building which contained the operations of a former
subsidiary. No material gain or loss is expected to result from the
sale. The proceeds from the sale will be used to retire debt.
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 by the
Registrant during the first quarter of
fiscal 1998.
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SIGNATURES
Pursuant to the requirements of The 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: October 15, 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 NO. PAGE
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . .
11 Computation of Income Per Common and Common Equivalent Shares . . . . . . . . . . . . . . . . 13