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INDEX TO EXHIBITS - PAGE 14 OF 18
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 FEBRUARY 28, 1998
---------------------
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 LOGO]
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, 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
--- ---
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: As of March 31, 1998,
there were 3,197,227 shares of common stock, par value .01 per share.
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MET-COIL SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS ----
Consolidated Condensed Balance Sheets, February 28, 1998
(Unaudited) and May 31, 1997............................................ 3
Unaudited Consolidated Condensed Statements of Operations,
Three Months and Nine Months Ended February 28, 1998 and 1997........... 4
Unaudited Consolidated Condensed Statements of Cash Flows,
Nine Months Ended February 28, 1998 and 1997............................ 5
Notes to Consolidated Condensed Financial Statements (Unaudited)........ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................12
ITEM 2. CHANGES IN SECURITIES..............................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................12
ITEM 5. OTHER INFORMATION..................................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................12
INDEX TO EXHIBITS...........................................................14
Exhibit 11 - Computation of Basic and Diluted
Earnings Per Share.................................15
Exhibit 27 - Financial Statement Schedule.............................16
Exhibit 99 - Press Release Dated April 7, 1998........................17
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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,
1998 1997
(Unaudited) (Note)
- ----------------------------------------------------------------------------------------------------------
Current assets
Cash $ 170 $ 594
Trade receivables, net 6,711 4,926
Notes and other receivables 0 800
Inventories 8,298 8,793
Prepaid expenses and other 1,223 905
- ----------------------------------------------------------------------------------------------------------
Total current assets 16,402 16,018
Property and equipment, net 3,090 4,093
Investments and other assets 757 998
Intangibles, net 2,093 2,416
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TOTAL ASSETS $ 22,342 $ 23,525
==========================================================================================================
Current liabilities
Revolving line of credit $ 2,892 $ 2,371
Current maturities of long-term debt 2,495 4,620
Accounts payable and accrued liabilities 5,139 4,225
Customer deposits 2,453 2,831
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 12,979 14,047
Long-term debt 5,251 6,617
Other 594 423
Preferred stock, convertible and redeemable at $13 per share 4,348 4,036
Stockholders' equity (deficit):
Common stock, $.01 par value, authorized 10,000,000 shares; 32 31
1998 issued 3,197,227; 1997 issued 3,171,824
Additional paid-in capital 16,312 16,248
Accumulated deficit (16,869) (17,725)
Foreign currency translation adjustment (51) (50)
Common stock in treasury, at cost (254) (102)
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Stockholders' equity (deficit) (830) (1,598)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 22,342 $ 23,525
==========================================================================================================
Note: Condensed from audited financial statements
See Notes to Consolidated Condensed Financial Statements
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MET-COIL SYSTEMS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
February 28, February 28,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Net revenues $ 11,032 $ 8,712 $ 33,931 $ 26,403
Cost of goods sold 8,684 6,986 26,318 20,792
Operating expenses 1,463 1,552 4,772 4,134
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Operating income 885 174 2,841 1,477
Interest expense, net 362 430 1,204 1,327
Other (income) expense, net 86 986 361 663
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Income before income taxes 437 (1,242) 1,276 (513)
Income taxes 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 437 $ (1,242) $ 1,276 $ (513)
Preferred stock dividends and accretion 160 117 480 351
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 277 $ (1,359) $ 796 $ (864)
===================================================================================================================
Weighted average shares outstanding:
Basic EPS 3,117 3,139 3,123 3,128
Diluted EPS 3,194 3,139 3,192 3,128
Earnings (loss) per shares outstanding:
Basic EPS $0.09 ($0.43) $0.25 ($0.28)
Diluted EPS $0.09 ($0.43) $0.25 ($0.28)
See Notes to Consolidated Condensed Financial Statements
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MET-COIL SYSTEMS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
February 28,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $1,276 $ (513)
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation 698 1,098
Amortization of intangibles and deferred finance charges 323 324
Accretion of discount on debt 303 327
Write-down of property held for sale 80 0
Undistributed loss of affiliate 226 120
Write-off of foreign currency translation adjustment 0 384
Write-off of intangible 0 246
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2,906 1,986
Changes in assets and liabilities:
Trade receivables (1,785) (195)
Notes and other receivables 50 247
Inventories 495 (793)
Investments, prepaid expenses and other assets (303) 708
Accounts payable, accrued liabilities and other liabilities 1,084 (539)
Customer deposits (378) 919
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Net cash flows from operating activities 2,069 2,333
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note receivable-related party 750 0
Proceeds from sale of assets 920 0
Purchase of property and equipment (695) (604)
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Net cash flows from investing activities 975 (604)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreements 521 (200)
Repayments of long-term debt (4,294) (2,026)
Borrowings on long-term debt 500 0
Dividends on preferred stock (108) (108)
Repurchase of treasury stock (152) 0
Issuance of common stock 65 102
Loan restructuring costs 0 (353)
- ----------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (3,468) (2,585)
- ----------------------------------------------------------------------------------------------------------
CASH
Increase (decrease) (424) (856)
Beginning balance 594 890
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Ending balance $ 170 $ 34
==========================================================================================================
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
tax assets.
The Company has two collective bargaining agreements covering
production employees at its main operating units which have three-year
terms. In December 1997 the Company negotiated with the unions to
enter into new collective bargaining agreements with terms similar to
the previous 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.
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,
1998 1997
------------ -------
Raw materials & parts .. $ 6,749 $ 6,779
Work in process ........ 2,217 2,425
Finished goods ......... 35 292
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9,001 $ 9,496
Reduction to LIFO basis .. 703 703
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$ 8,298 $ 8,793
========== =======
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 Nine Months Ended
February 28, February 28,
1998 1997 1998 1997
------------------ -----------------
Net revenues $ 523 $ 266 $3,175 $ 4,594
Gross profit 131 147 899 1,369
Operating income (loss) (218) (81) (446) (305)
Net income (loss) (176) (0) (452) (240)
====== ====== ====== =======
Income (loss) from equity investments,
included in net revenues $ (88) $ (0) $ (226) $ (120)
====== ====== ====== =======
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
NOTE 4. DEBT
Revolving Line of Credit:
At February 28, 1998 the Company has a revolving credit agreement
with two insurance companies under which it may 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 payment of certain
fees. Under this line, which expires April 30, 1999, outstanding
borrowings as of February 28, 1998 were $2,892,000.
Long-Term Debt:
At February 28, 1998 the Company had $4.1 million of senior notes
with two insurance companies, including additional funding of
$500,000 which the Company's lenders advanced in December 1997, to be
used for capital improvements. The senior notes mature in December
2000. Interest is at 11.5% payable monthly. The notes are due in
monthly payments of $141,250 in total plus interest.
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
Nine Months Ended
February 28,
1998 1997
-------- --------
Cash paid for interest $ 799 $ 896
======== ========
Preferred stock accretion included
with preferred stock dividends $ 312 $ 189
======== ========
NOTE 6. EARNINGS PER SHARE
The Financial Accounting Standards Board (FASB) has issued Statement
No. 128, "Earnings per Share", which supersedes APB Opinion No. 15.
Statement No. 128 requires the presentation of earnings per share by
all entities that have only common stock or potential common stock,
such as options, warrants and convertible securities, outstanding
that trade in a public market. Those entities that have only common
stock outstanding are required to present basic per-share amounts.
All other entities are required to present basic and diluted per
share amounts. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless
the effect is to reduce a loss or increase the income per common
share from continuing operations. All entities required to present
per-share amounts must initially apply Statement No. 128 for annual
and interim periods ending after December 15, 1997.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
NOTE 6. EARNINGS PER SHARE (CONTINUED)
Because the Company has potential common stock outstanding,
(convertible preferred stock and stock options, as discussed in the
notes included in the Company's Annual Report on Form 10-K for the year
ended May 31, 1997) the Company is required to present basic and
diluted earnings per share (EPS). The Company initially applied
Statement No. 128 for the quarter and nine months ended February 28,
1998 and, as required by the Statement, has restated all per share
information for the prior year to conform to the Statement.
NOTE 7. PENDING ACCOUNTING CHANGES
In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income" and Statement No. 131 "Disclosures About Segments
of an Enterprise and Related Information". Statement No. 130
establishes standards for reporting comprehensive income in financial
statements. Statement No. 131 expands certain reporting and disclosure
requirements for segments from current standards. The Statements are
effective for fiscal years beginning after December 15, 1997 and the
Company does not expect the adoption of these new standards to result
in material changes to previously reported amounts or disclosures.
NOTE 8. YEAR 2000
The Company has conducted a preliminary review of its computer systems
to identify the systems that could be affected by the "Year 2000"
issue. The "Year 2000" issue is the result of computer programs being
written using two digits (rather than four) to define the application
year. Programs that have time-sensitive software may not recognize
dates properly and could result in system failure or miscalculations.
The Company is managing the modification of its information systems to
ensure that they are appropriately modified and tested prior to January
1, 2000. The Company presently believes that, with modifications to
existing software which has been internally developed and conversion to
new software to replace externally purchased applications, the "Year
2000" issue will not pose significant operational problems for the
Company's computer systems as so modified and converted. Conversion of
other externally purchased automated systems, such as office equipment
and plant equipment is being evaluated as well.
Management expects the costs to modify and convert the Company's
information systems to "Year 2000" compliance will not have a material
impact on the Company's consolidated financial statements.
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MET-COIL SYSTEMS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIRD QUARTER AND NINE MONTH RESULTS OF OPERATIONS
Revenues for the quarter ended February 28, 1998 increased to $11 million from
$8.7 million last year, which represents an increase of 27%. Net income for
the third fiscal quarter of 1998 was $437,000 or $.09 income per common share
compared to net loss of $1,242,000 or $.43 loss per share one year ago, which
included write-offs of $1,364,000.
For the nine months ended February 28, 1998, revenues were $33.9 million, which
is an increase of 28% compared to revenues of $26.4 million one year ago. Net
income for the nine months was $1,276,000 million or $.25 income per share.
One year ago the Company reported a net loss of $513,000 or $.28 loss per share
for the nine months.
Improved revenues are attributable to continued product developments for the
steel service center industry and strong demand for the Company's labor-saving
products in the commercial and residential construction markets. As a
percentage of revenues, cost of goods sold and operating expenses have been
reduced while the Company's order backlog remained consistent at $14 million as
of February 28, 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
Financial Review:
At February 28, 1998, current assets exceeded current liabilities by $3.4
million and the Company had approximately $500,000 available under its
revolving credit agreement.
Cash Flows and Commitments:
In the first nine months of fiscal 1998, the Company has reduced its total
long-term debt by nearly $3.5 million. Debt service has been generated by cash
flows from operations, proceeds from land and a building which were sold and
proceeds from a receivable on the sale of a parcel of land in fiscal 1997.
Cash flow from operations through February 28, 1998 was $2.9 million. In
December 1997 the Company's lenders advanced $500,000 which has been used for
capital improvements, including plant expansion and advanced engineering
Computer-Aided Design (CAD) systems which are expected to improve operating
efficiencies.
In September 1997 and March 1998 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 February 28, 1998. Management of the Company believes that
amounts available from operating cash flows; funds available under its
revolving credit agreement and the Company's borrowing capacity will be
sufficient to meet its expected cash needs and capital expenditures for the
fiscal year.
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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 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 - See Legal Proceedings as included in the Company's
Annual Report on Form 10-K for the year ended May 31, 1997.
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 - 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 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: April 7, 1998 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 November 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.....................................
10 Material contracts -- incorporated by reference to
Form 10-K filed August 29, 1997...................................
11 Computation of Basic and Diluted
Earnings Per Share................................................ 15
27 Financial Statement Schedule...................................... 16
99 Press Release dated April 7, 1998................................. 17