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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1997
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 1--1416
BINKS SAMES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
36-0808480
(I.R.S. Employer Identification No.)
9201 WEST BELMONT AVENUE
FRANKLIN PARK, ILLINOIS
(Address of principal executive offices)
60131
(Zip Code)
(847) 671-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
CAPITAL STOCK, $1.00 AMERICAN STOCK EXCHANGE
PAR VALUE PER SHARE CHICAGO STOCK EXCHANGE
CAPITAL STOCK AMERICAN STOCK EXCHANGE
PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
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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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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /___/
The aggregate market value of the voting stock of the Registrant held by
non-affiliates was approximately $126,073,001 as of March 11, 1998 (based on the
closing sale price as reported by the American Stock Exchange as of such date).
As of March 11, 1998, the Registrant had outstanding 2,963,837 shares of
Capital Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the definitive Incorporated into Part III
Proxy Statement for the Registrant's
Annual Meeting of Stockholders
to be held on April 28, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
Binks Sames Corporation, a Delaware corporation incorporated on January 2,
1929 as a successor to a business founded in 1890, and its subsidiaries
(hereinafter referred to collectively as the "Company") are engaged in the
manufacture and sale of spray finishing and coating application equipment. The
Company sells its products primarily to the automotive industry and general
industrial finishing and automotive refinishing markets.
The Company serves three primary geographic markets, North and South
America, Europe and the Pacific Rim, and presently generates over 56% of its
sales outside the United States.
The Company divides its products into three general groups: standard
products, engineered (industrial) systems and automotive paint systems.
Standard products consist of a variety of components used in the spray finishing
process such as spray guns, fluid handling equipment and accessories.
Engineered (industrial) systems consist of specialty products together with
standard components to comprise a finishing system. Automotive products include
automatic electrostatic paint application machines as well as paint circulation
equipment serving the global automotive market. The Company also manufactures
equipment for functional and corrosion control applications.
The Company incurred substantial losses in fiscal 1997 and 1996 following
the restructuring of the Company's operations beginning in June 1996. As a
result of these losses and the related impact on the Company's financial
condition, the Board of Directors of the Company determined to seek a sale of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Significant Developments" included in Item 7 of
Part II hereof.
PRODUCTS
The Company's standard products include over forty different models of
spray guns, a wide variety of air and fluid nozzles, a complete line of high and
low pressure material handling pumps, pressure tanks ranging in capacity from
two to sixty gallons, replacement parts for these components, and accessories
such as siphon cups, pressure cups, oil and water extractors, air and fluid
regulators, ball valves, hose connections and fittings, air and fluid hoses, air
respirators and safety products and paint heaters.
Engineered systems includes pre-engineered spray booths for the industrial
market, paint circulating systems, air replacement systems, automatic spray
coating machines, and liquid and powder manual and automatic electrostatic
application equipment. Many industrial equipment installations are custom
designed and engineered by the Company to satisfy specific needs of customers
and include various standard and industrial equipment items as components.
Automotive products include automated systems which circulate, distribute,
regulate, and apply coatings used in the painting of automobiles. The Company
supplies equipment and systems capable of handling a multitude of liquid and
powder coatings, such as primers, base coats (color), clear coats, and mastics.
These systems are custom designed to meet the needs of the global automotive
market.
The Company provides products as well as complete systems for the following
six basic coatings application methods: (1) COMPRESSED AIR ATOMIZATION: A
conventional method employing compressed air in the spray gun to atomize,
disperse and deposit coating materials; (2) AIRLESS SPRAYING: A high speed
spray method in which hydraulic pressure developed by a material handling pump
is used to atomize the coating material by pumping it at high pressure through
the nozzle of the airless spray gun; (3) HIGH VOLUME LOW PRESSURE (HVLP): An
adaptation of the conventional air spray method, HVLP utilizes larger than
normal volumes of air delivered at lower pressures to produce quality
finishes while complying with certain environmental regulations governing the
amounts of volatile organic compounds emitted into the atmosphere;
(4) ELECTROSTATIC SPRAYING: A method which combines atomization of the coating
material
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by one of the methods described in (1) and (2) above with delivery of an
electrical charge of the coating as it leaves the spray gun, thereby
attracting it to a grounded product in much the same way as iron filings are
attracted to a magnet; (5) POWDER SPRAYING: A method of applying a coating
material in powder form, with delivery of an electrical charge to the coating
as it leaves the spray gun as with Electrostatic Spraying, and then hardening
the coating through the application of heat; and (6) PLURAL COMPONENT
SPRAYING: The method used to apply plural component materials such as
polyurethane foams, polyesters, gelcoats, epoxies and elastomers, and
requiring special equipment for precise metering, mixing and dispensing of
the resins, catalysts and accelerators which create such plural component
materials.
The Company groups its sales revenues into the product categories discussed
previously (standard, engineered, and automotive). In fiscal 1995, 42% of total
revenues consisted of standard products while 58% of total revenues consisted of
engineered and automotive products. In fiscal 1996, 38% of total revenues
consisted of standard products while 62% of total revenues consisted of
engineered and automotive products. In fiscal 1997, 46% of total revenues
consisted of standard products while 54% of total revenues consisted of
engineered and automotive products.
RESEARCH AND DEVELOPMENT
The Company is continually engaged in experimental work on various coating
systems. The Company spent approximately $5.0 million, $4.9 million and $4.0
million during fiscal year 1997, 1996, and 1995, respectively, on research
activities relating to development of products or services, none of which was
customer sponsored.
DISTRIBUTION AND MARKETING
THE AMERICAS. The Company markets its standard products and engineered
systems in the United States through nine branch offices, seven of which have
warehouse facilities, and approximately 35 sales offices strategically located
throughout the country. In addition, the Company distributes its standard
products and engineered systems through numerous distributors and dealers
serving the industrial finishing, automotive refinishing, and painting
contractor markets throughout the United States, Mexico, Canada, and South
America. The Company has exclusive distribution arrangements in South America.
Although some engineered systems are sold through distributors, the
Company typically sells directly to industrial concerns or manufacturers for
larger installations (contracts in excess of $500 thousand). These jobs
require highly specialized knowledge and experience in engineering,
installation and start up of a finishing system.
EUROPE. The Company's standard products and engineered systems products
are sold throughout Europe. The Company maintains sales offices in a dozen
countries and utilizes agents to establish its presence in other countries.
PACIFIC RIM. The Company's products have been sold in Japan for over 30
years and the Company has a wholly-owned subsidiary in Australia. In late
1997, the Company opened an office in China. China is considered a growth
area with potential increases in general industry business through exclusive
distribution arrangements.
Financial information regarding sales, operating income (loss) and
identifiable assets attributable to each of the Company's geographic areas is
contained in the Notes to Consolidated Financial Statements.
THE GLOBAL AUTOMOTIVE MARKET. The Company sells directly to automotive
companies as well as to automotive systems integrators and prime contractors.
Subsidiaries in France, England, and the United States provide high-end
electrostatic application equipment and automatic painting machines, as well as
paint circulation and distribution equipment.
COMPETITION
The Company believes that it is one of the largest manufacturers of a broad
line of spray finishing and coating application equipment. There are many other
manufacturers of coating application equipment who also engage in other lines of
business, principally Graco Incorporated, Illinois Tool Works and Nordson
Corporation. The Company also
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competes in the United States with non-U.S. manufactured products which up to
this time have been unsuccessful in obtaining a significant share of the
available market.
EMPLOYEES
As of November 30, 1997, approximately 1,260 persons were employed by the
Company in the United States, England, Canada, Australia, Sweden, France,
Belgium, Scotland, Germany, Japan and China.
CONCENTRATION
The amount of business conducted with particular customers varies
significantly from year to year. Sales to the automotive industry as a whole
(which includes several different manufacturers as well as different divisions
or facilities within some manufacturers) generally have accounted for between
25% and 45% of the Company's consolidated net sales in past years. No single
customer accounts for more than 10% of the Company's net sales.
BACKLOG OF ORDERS
The dollar amount of the Company's backlog of orders as of November 30,
1997 was approximately $55 million as compared to approximately $60 million as
of November 30, 1996. All of the orders in backlog as of November 30, 1997 are
expected to be filled within the year ended November 30, 1998. The dollar
amount of backlog at any given time is subject to significant variations
depending upon the number of orders received and the degree of completion of
pending industrial equipment products which, by their nature, are completed over
a period of time pursuant to sizable contracts. The difference in backlog
between November 30, 1997 and November 30, 1996 is attributable to these
factors. The business of the Company is not materially affected by seasonal
factors, and the Company's backlog is not generally a result of such factors.
MATERIALS
The Company purchases its requirements of aluminum, brass and steel in the
form of bar stock, rolls, tubing and sheeting as well as in the form of castings
and forgings which are manufactured by suppliers, for the most part from
Company-owned dies and patterns. The Company also purchases certain components
which it incorporates into its finished products such as electric motors,
gasoline engines, switches, gauges, and consumable products. The materials and
components purchased by the Company are readily available from a number of
suppliers.
INTELLECTUAL PROPERTY
The Company owns a number of patents in the United States and other
countries pertaining to spray equipment, components, control and memory
devices, pumps and valves, as well as presently pending applications for
patents in the United States and other countries. The Company does not
consider its business to be materially dependent on any single patent or
group of patents, or any pending applications for patents. The Company has
registered its trademark "Binks" in the United States and 39 other countries
and has registered fifteen additional trademarks in the United States,
including its "Sames" trademark. The "Sames" trademark is registered in
numerous other countries as are ten other Sames product trademarks.
ENVIRONMENTAL
Federal, state, local and international provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, have not materially
affected the Company's capital expenditures, earnings or competitive position.
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ITEM 2. PROPERTIES
The Company closed its manufacturing plant in Franklin Park, Illinois in
February, 1997, and sold the facility, subject to a leaseback of 60,000
square feet of office space, in October, 1997. The Company has shifted
production conducted at this facility to its approximately 100,000 square
foot leased plant in Longmont, Colorado. The Company leases the Franklin
Park office space for its corporate headquarters and Chicago branch office
functions. The Company has canceled its plans to relocate its offices to
leased facilities in the Chicago area.
The Company owns a branch office and warehouse in Dallas, Texas, comprising
approximately 25,000 square feet, a branch office and warehouse in Atlanta,
Georgia, comprising approximately 25,000 square feet, and the building and land
used by the Company's Poly-Craft Systems Division in Cottage Grove, Oregon,
comprising approximately 25,000 square feet. The Company's branch and sales
offices operate from 35 other locations in the United States, fourteen of which
are leased premises and seven of which include warehousing space. An aggregate
of approximately 245,000 square feet is leased at such locations. The Company
does not regard any such leased premises to be material.
The Company's non-U.S. subsidiaries own and occupy manufacturing and office
facilities aggregating approximately 307,000 square feet and lease property for
such purposes aggregating approximately 130,000 square feet.
The Company considers its plants and physical properties to be in good
condition.
ITEM 3. LEGAL PROCEEDINGS
In the case captioned CONTINENTAL PARTNERS GROUP, INC. V. BINKS
MANUFACTURING CO., No. 91 L 17815, filed on November 5, 1991 in the Circuit
Court of Cook County, Illinois (the "Action"), Continental Partners Group, Inc.
("Continental") seeks recovery from the Company of $902,700 which Continental
alleges is due under the terms of a contract between Continental and the Company
dated February 20, 1990. The Action also seeks interest and costs. The Company
has filed an answer in the Action, denying any liability to Continental under
the contract alleged, and asserting that the contract with Continental was
terminated by the Company without further liability to Continental. The claims
in the Action are being vigorously contested by the Company and the Company
believes that it has meritorious defenses to such claims.
On September 25, 1997, the Company entered into an agreement with Graco,
Inc. to settle a lawsuit initiated in May, 1983 wherein Graco, Inc. asserted
that the Company had "willfully" infringed a patent through the sale of certain
pumps by the Company prior to expiration of the patent in June, 1993. The
settlement agreement called for a cash payment of $640,000 by the Company to
Graco, Inc. which was made on September 26, 1997.
Behr Systems, Inc. has sued the Company's subsidiaries, Sames
Electrostatic, Inc. and Sames, S.A., for patent infringement. The suit was
filed on June 9, 1997 in the United States District Court for the Eastern
District of Michigan, Southern Division. In this suit, Behr alleges that
certain bell cups manufactured in France by Sames, S.A., and sold in the
United States by Sames Electrostatic, Inc., infringe on its U.S. Patent No.
4,405,086. These bell cups are used in conjunction with the Company's PPH
605, a high speed rotary atomizer used in automative paint application
installations. Behr seeks damages in the form of lost profits or, in the
alternative, a reasonable royalty for past infringement. Behr also seeks an
injunction on future sales of the PPH 605. Discovery in this case is
proceeding. The Court has set a July, 1998 trial date.
AJC and ACIR Sunkiss (collectively "ACIR") have sued the Company for
false advertising and trademark and copyright infringement. The suit was
filed in May, 1997 in the United States District Court for the Northern
District of Illinois, Eastern Division. In this suit, ACIR alleges that the
Company's advertising for its INFRATHERM -Trademark- thermoreactors infringed
on ACIR's trademarks and that this advertising contained false and misleading
statements, causing consumers to believe that ACIR's products were actually
manufactured and sold by the Company. ACIR also alleges that the Company
infringed its copyright by using, without authorization, a photograph of one
of ACIR's products in advertising distributed by the Company. The case was
settled, in principle, at a voluntary mediation in October 1997. The parties
are currently finalizing a draft settlement agreement. This draft settlement
agreement requires
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the Company to place a corrective advertisement in a trade
journal and to send a letter to customers correcting the alleged false
settlements contained in the Company's advertising. Finally, the draft
settlement requires the Company to pay $600,000 to ACIR.
Robert Hashima has filed suit alleging that he is entitled to a
retirement allowance of $1,600,000.00 under the Binks Japan Limited
retirement policy. Binks Japan has responded asserting that Mr. Hashima is
not entitled to the allowance because Hashima implemented various benefits
without Board approval and was involved in certain "related party
transactions" to his benefit that were not reported during audits. A
preliminary attachment order was entered on July 30, 1997 as a result of
Hashima's claim against Binks Japan freezing its assets held in various
banks. On November 26, 1997, upon urging by the Japanese courts, Hashima
withdrew his petition and the court lifted the attachment order. This case
will proceed to formal litigation.
Chester Baranowski brought suit against the Company seeking
$2,550,000 claiming wrongful dismissal, breach of contract and breach of
certain salary and benefits. The Company has denied all substantive
allegations and filed a counterclaim against Baranowski for breach of
fiduciary duty and conspiracy to defraud the Company.
By letter dated January 5, 1998, the Company gave notice to M&M Supply
Incorporated ("M&M") of its termination as a Binks-Sames distributor
effective April 10, 1998. By letter dated January 13, 1998, counsel for M&M
notified the Company that M&M has acted as a dealer and conducted its
business as a dealership as those terms are defined by the Wisconsin Fair
Dealership Law and that the Company was prohibited from terminating M&M's
dealership arrangement with the Company. The Company's position is that the
Wisconsin Fair Dealership Law does not apply because the requisite community
of interest between the Company and M&M does not exist. Discussion with M&M's
counsel to attempt to resolve this dispute are currently continuing.
The Company entered into a build to suit lease dated August 29, 1997 for
a planned future headquarters site in Vernon Hills, Illinois. The Company has
notified the developer and landlord that the Company wants to terminate the
lease. It is anticipated that the Company will incur lease termination costs.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Lease Termination" included in Item 7 of Part II hereof, and
Note 10 to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the period covered by this report.
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EXECUTIVE OFFICERS OF THE COMPANY
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The executive officers(1) of the Company are listed below.
DORAN J. UNSCHULD, age 74, has been President and Chief Executive Officer
since June 1996 and a director of the Company since 1982. His present term of
office as a director expires at the 1999 Annual Meeting. Mr. Unschuld has been
employed by the Company in various positions since 1952 and has been a Senior
Vice President from 1995 to 1996, a Vice President from 1971 to 1995 and
Secretary of the Company from 1965 to 1996. Mr. Unschuld will retire as
President and Chief Executive Officer of the Company at the 1998 Annual Meeting.
TERENCE P. ROCHE(2), age 39, has been a director of the Company since 1997,
when he was appointed by the Board of Directors to fill the vacancy created by
the resignation of Burke B. Roche. His present term of office as a director
expires at the 1999 Annual Meeting. Mr. Roche has been an officer of the
Company since 1995. Mr. Roche has been employed by the Company since 1986 and
is presently Executive Vice President, Assistant Secretary and Assistant
Treasurer. Mr. Roche had been the Industrial Sales Manager of the Company from
1990 to 1996.
JEFFREY W. LEMAJEUR, age 36, has been an officer of the Company since 1992.
Mr. Lemajeur has been employed by the Company since 1991 and is presently Vice
President of Finance, Chief Financial Officer and Treasurer of the Company.
CARL M. SPRINGER, age 56, has been an officer of the Company since 1995.
Mr. Springer has been employed by the Company since 1977 and is presently Vice
President - Manufacturing and Engineering, Assistant Secretary and Assistant
Treasurer. Mr. Springer had been the Electronics Product Manager of the Company
from 1978 to 1996.
STEPHEN R. MATHERS, age 48, has been an officer of the Company since June,
1996. Mr. Mathers has been employed by the Company since 1974 and is presently
Vice President - Corporate Development. Mr. Mathers has been President and CEO
of Sames Electrostatic, Inc., a subsidiary of the Company, since 1990 and is
currently serving as President of Binks Sames, S.A., a French subsidiary of the
Company.
PETER M. GREEN, age 52, has been an officer of the Company since April,
1997. Mr. Green has been employed by the Company since 1971 and is presently
Vice President - Europe.
W. KENT ANDERSON, age 59, has been an officer of the Company since April,
1997. Mr. Anderson has been employed by the Company since 1959 and is presently
Vice President - Americas.
RICHARD M. CAMPOBASSO, age 40, has been an officer of the Company since
April, 1997. Mr. Campobasso has been employed by the Company since 1982 and is
presently Vice President - Standard Products.
TODD A. VAUGHAN, age 39, has been an officer of the Company since April,
1997. Mr. Vaughan has been employed by the Company since 1992 and is presently
Vice President - Global Automotive.
G. BRUCE BRYAN, age 42, has been an officer of the Company since April
1997. Mr. Bryan has been employed by the Company since 1993 and is presently
Vice President - Engineered Systems.
ROBERT B. ROCHE(2), age 56, has been an officer of the Company since April,
1997. Mr. Roche has been employed by the Company since 1964 and is presently
Vice President - Global Distribution.
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Notes:
(1) All officers' terms expire in 1998.
(2) Terence P. Roche and Robert B. Roche are cousins.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S CAPITAL STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's capital stock is traded on the American and Chicago Stock
Exchanges. The high and low prices for each quarterly period within the two
most recent fiscal years, as reported by such exchanges, and the dividends
declared during such periods with respect to the capital stock of the Company
are as follows:
<TABLE>
<CAPTION>
Cash Dividend Declared
Quarter Ending High Low Per Share
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<S> <C> <C> <C>
February 29, 1996 24 1/2 22 ---
May 31, 1996 24 5/8 21 3/8 .10
August 31, 1996 29 22 3/4 .20
November 30, 1996 28 21 1/8 .10
February 28, 1997 40 1/2 27 5/8 ---
May 31, 1997 43 5/8 38 .10
August 31, 1997 48 1/8 42 1/8 .10
November 30, 1997 44 1/4 41 1/4 .10
</TABLE>
On March 11, 1998, the last reported sale price of the Company's capital
stock was $45.75 per share. As of March 11, 1998, there were approximately 976
registered holders of the Company's capital stock, which is the only class of
equity securities of the Company outstanding. Harris Trust and Savings Bank,
Chicago, Illinois, is the transfer agent and registrar of the Company's capital
stock.
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ITEM 6. SELECTED FINANCIAL DATA
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Five years ended November 30, 1997
(not covered by Independent Auditors' Reports-
in thousands, except per share amounts)
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<CAPTION>
Year ended November 30,
1997(a) 1996(b) 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net sales $ 236,998 296,686 266,003 243,599 210,405
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Cost of goods sold 178,420 216,017 178,940 167,261 138,954
Selling, general, and administrative
expenses 78,588 83,111 76,517 68,757 66,506
Restructuring costs 9,612 9,043 - - -
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Operating income (loss) (29,622) (11,485) 10,546 7,581 4,945
Other expense 2,931 4,672 3,463 2,003 2,923
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Earnings (loss) before income taxes (32,553) (16,157) 7,083 5,578 2,022
Income tax expense (benefit) 7,527 (5,049) 2,777 2,163 641
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Net earnings (loss) $ (40,080) (11,108) 4,306 3,415 1,381
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Net earnings (loss) per share $ (13.07) (3.60) 1.39 1.11 .44
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Cash dividends per share $ .30 .40 .50 .30 .36
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Total assets $ 191,734 230,229 231,101 193,364 179,999
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Long-term debt $ 60,946 44,634 43,202 38,114 34,136
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</TABLE>
(a) In fiscal 1997, the Company recorded nonrecurring charges of $21.1
million ($19.8 million after tax, or $6.46 per share), as described in
note 16 of the notes to consolidated financial statements. Nonrecurring
charges are included in cost of goods sold ($8.7 million); selling,
general and administrative expenses ($2.8 million); and restructuring
costs ($9.6 million). In addition, the Company recorded a charge of
$10.0 million ($3.26 per share) to reduce the balance sheet carrying
amounts of deferred tax assets initially recorded in prior years.
(b) In fiscal 1996, the Company recorded nonrecurring charges of $18.9
million ($12.6 million after tax, or $4.07 per share), as described in
note 16 of the notes to consolidated financial statements. Nonrecurring
charges are included in cost of goods sold ($7.1 million); selling,
general, and administrative expenses ($2.8 million); and restructuring
costs ($9 million).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
Beginning in June 1996, the Company's Board of Directors adopted measures as
part of a comprehensive reorganization and restructuring of the Company. These
measures included: (i) closing of the Company's manufacturing facility in
Franklin Park, Illinois and shifting production to the Company's new Longmont,
Colorado manufacturing facility; (ii) reduction of manufacturing capacity with
increased outsourcing; (iii) rationalization of the Company's product line to
eliminate non-profitable products; (iv) headcount reductions related primarily
to manufacturing; and (v) reorganization of the Company's sales and marketing,
product management, research and development, manufacturing and distribution
functions along geographic and operational lines.
In fiscal 1997, the Company recorded a net loss of $40.1 million, which followed
a net loss of $11.1 million in fiscal 1996. The Company's net losses included
special charges of $21.1 million in 1997 and $18.9 million in 1996 due to
impairment and restructuring charges, inventory writedowns and warranty and
dispute resolution costs. The fiscal 1997 net loss also includes a charge of
$10.0 million to reduce the balance sheet carrying amounts of deferred tax
assets initially recorded in prior years. As a result of successive years of
losses and the related impact on the Company's financial condition, the Board of
Directors of the Company has determined to seek a sale of the Company. The
Company has retained financial and other advisors to identify potential
purchasers.
On February 13, 1998, John J. Schornack, 67, resigned and retired as a Director
and Chairman of the Board of Directors of the Company. Dr. Donald G. Meyer, 63,
a director of the Company since 1996, and previously from 1990 to 1995, has been
elected Chairman of the Board to succeed Mr. Schornack. Doran J. Unschuld, 74,
the Company's President and Chief Executive Officer since 1996, and an employee
of the Company since 1952, has announced that he will retire as President and
Chief Executive Officer at the Company's annual meeting in April 1998.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales decreased $60 million, or 20%, to $237 million in fiscal 1997. The
decline in net sales occurred principally in North America, where net sales
declined by $37 million, to $103 million in fiscal 1997. In part, the decline
had been anticipated due to fiscal 1996 rationalization measures that eliminated
a large number of slow moving items from the product line. The sales decline
was also attributable to problems encountered in transferring production to
Longmont from the Franklin Park manufacturing facility which was closed in
February 1997. The Company also experienced a $20 million decline in net sales
at its French subsidiary, where fiscal 1997 net sales were $56 million. Net
sales at its French subsidiary would have been $9 million higher in fiscal 1997
if the average French franc-to-U.S. dollar exchange rate had not changed between
years. The balance of the decline in net sales was primarily due to lower
worldwide demand for large automotive installations; the decline was also
anticipated because fiscal 1996 was a record year for such installations.
The Company had a net loss of $40.1 million ($13.07 per share) in fiscal 1997 as
compared to a loss of $11.1 million ($3.60 per share) in fiscal 1996.
Nonrecurring charges had a substantial impact on both years. The Company
recorded $21.1 million of nonrecurring charges in fiscal 1997 comprised of: (a)
$9.6 million of impairment and restructuring costs consisting of closing the
Franklin Park facility, net of the gain on the sale of the building, start-up
costs at the Longmont facility, workforce reductions primarily outside the U.S.,
the loss on the sale of the Infratherm product line, liquidation of operations
in Italy, and the impairment of the Company's Belgian operations; (b) $5.7
million of additional inventory writedowns attributable to product line
rationalization; and (c) $5.7 million of warranty and dispute resolution costs.
In fiscal 1996, the Company recorded $18.9 million of special charges, including
$9 million of impairment and restructuring charges, $7.1 million of inventory
writedowns due to product line rationalization, and $2.8 million of warranty and
dispute resolution costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Gross profit declined $22.1 million (27%) in fiscal 1997 as compared to fiscal
1996. This decline was largely due to the decline in sales combined with the
cost impact of transferring North American production to Longmont from the
Franklin Park plant. Gross profit as a percentage of sales decreased to 25% in
fiscal 1997 from 27% in fiscal 1996 for the same reasons.
Selling, general, and administrative expenses decreased $4.5 million (5%) as
compared to fiscal 1996 reflecting efficiencies resulting from the fiscal 1996
restructuring.
Interest expense increased $675 thousand (15%) in fiscal 1997 as compared to
fiscal 1996 due to higher average borrowing levels.
Other income and expense, which amounted to $2.1 million of income for fiscal
1997 as compared to an expense of $267 thousand in the prior year, includes
interest income, exchange gains and losses, gains on sales of fixed assets, and
miscellaneous income and expense. In fiscal 1997, the majority of this income
was the result of foreign currency transaction gains and other miscellaneous
income in European and Pacific Rim markets.
In fiscal 1997, the Company recorded income tax expense of $7.5 million. This
was largely attributable to not fully recording income tax benefits relating to
the current year pretax loss, combined with a charge of $10 million to reduce
the balance sheet carrying amounts of deferred tax assets initially recorded in
prior years. In fiscal 1996, the Company recorded income tax benefits of $5.1
million on a pretax loss of $16.2 million.
As a result of all of the factors above, the Company recorded a net loss of
$40.1 million in fiscal 1997 as compared to a net loss of $11.1 million in
fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased $30.7 million, or 12%, to a record $297 million in fiscal
1996. The Company's operations in Europe and the Pacific Rim had net sales of
$157 million: an increase of $38.9 million, or 33%, over fiscal 1995. Net
sales in Europe and the Pacific Rim would have been $4 million higher in fiscal
1996 if prevailing fiscal 1995 currency exchange rates had remained in effect
for fiscal 1996. The Company's operations in the Americas (principally the U.S.
and Canada) had net sales of $140 million, a decrease of $8.2 million, or 6%, as
compared to the prior year. Net sales in the Americas decreased to 47% of
worldwide sales in fiscal 1996 as compared to 56% in the prior year. Worldwide
sales growth was largely due to increasing market acceptance, particularly in
the automotive industry, of environmentally friendly technologies introduced by
the Company in recent years.
The Company had a net loss of $11.1 million ($3.60 per share) in fiscal 1996 as
compared to net earnings of $4.3 million ($1.39 per share) in fiscal 1995. The
Company recorded $18.9 million of pretax nonrecurring charges in fiscal 1996;
the after-tax effect of such charges was $12.6 million, or $4.07 per share. The
nonrecurring charges recorded in fiscal 1996 are comprised of costs associated
with the restructuring of operations and product lines to enhance the Company's
competitiveness and improve profitability. The Company has eliminated numerous
product lines, reduced employment positions, and substantially reduced its
manufacturing capacity in anticipation of increased levels of outsourcing.
Gross profit declined $6.4 million in fiscal 1996 largely because of product
rationalization and product mix. Included in cost of goods sold is a
nonrecurring charge of $7.1 million relating principally to the elimination of
product lines. Also, the increase in sales was driven by an increase in large
contracts which have inherently lower margins. Gross profit as a percentage of
sales decreased to 27% in fiscal 1996 from 33% in fiscal 1995 primarily for the
same reasons.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Selling, general, and administrative expenses increased $6.6 million, or 9%,
from fiscal 1995 to fiscal 1996, primarily to support the increase in sales.
Included in selling, general, and administrative expenses in fiscal 1996 is a
nonrecurring charge of $2.8 million relating to the resolution of disputes
pertaining to the performance of products sold in prior years.
Restructuring costs of $9.0 million were recorded in fiscal 1996, principally
comprised of employee separation costs of $5.4 million, asset writeoffs of $3.3
million, and consulting fees of $375 thousand. The employee separation costs
reflect the reduction of 567 employees in the U.S., England, Mexico, Belgium,
France, Italy, and Canada. Asset writeoffs consist of the Company's writeoff of
its investment in Binks de Mexico, writeoffs of specific manufacturing assets,
and disposition of the corporate jet. Consulting fees were incurred to help
shape and implement the new strategic direction of the Company.
The Company has changed its approach to serving customers in Mexico.
Previously, customers were supplied with U.S.-made products by a subsidiary in
Mexico. The Company is liquidating this distribution subsidiary and
establishing a sales generating operation. The new Mexican operating unit will
generate sales orders that will be shipped and billed in U.S. dollars
(eliminating currency risk) from the Dallas, Texas warehouse to leverage
existing fixed distribution costs.
Interest expense increased $373 thousand, or 9%, due to higher average levels of
borrowings to support the higher level of sales activity.
Other income and expense, which went from income of $569 thousand in fiscal 1995
to $267 thousand of expense in fiscal 1996, includes interest income, exchange
gains and losses, and gains on the sales of fixed assets. In fiscal 1995, the
Company sold two buildings for pretax gains totaling $258 thousand, and in
fiscal 1996, the Company sold a property in the United States for a pretax gain
of $289 thousand.
Income tax benefits were 31% of pretax losses in fiscal 1996 as compared to an
effective income tax rate of 39% on fiscal 1995 pretax income.
The Company recorded a net loss of $11.1 million in fiscal 1996 as compared to
net earnings of $4.3 million in fiscal 1995, resulting from all of the factors
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Revenues generated from operations are the primary source of the Company's
liquidity. Short-term funds are also provided for current operations through
bank loans. The Company maintains substantial lines of credit for general
corporate purposes. The unused lines of credit were approximately $25 million
at November 30, 1997.
The Company's cash balances decreased $9 million during fiscal 1997. The net
decrease was primarily due to cash used in operating activities of $23.2 million
largely due to operating losses, partially offset by an increase in accounts
payable; $5.3 million generated from investing activities, chiefly proceeds from
the sale of fixed assets; and $9.5 million from financing activities, largely
due to proceeds from long-term borrowings. Changes in foreign currency
translation rates during the year resulted in a decrease of cash in U.S. dollars
of $584 thousand.
In fiscal 1997, the Company paid cash dividends totaling $914 thousand on its
capital stock, compared to $1.2 million in fiscal 1996.
On September 23, 1997, the Company entered into a $50 million unsecured
five-year credit facility with a syndicate of Chicago area banks. As of
November 30, 1997, the Company was not in compliance with several of the
financial covenants contained in the credit facility. On March 16, 1998, the
Company agreed with the bank group to collateralize the credit facility, pay
amendment fees, increase the interest rate to prime plus 1/2% on existing
borrowings
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
and prime plus 1% on new borrowings, and shorten the duration of the
agreement to two years, in exchange for waiving all existing defaults, amending
certain terms, and increasing the total line of credit to $52.5 million to
accommodate the projected cash flow needs of the Company. On March 16, 1998,
the Company also agreed with the holder of its 7.14% senior notes to pay
amendment fees, increase the interest rate to 7.64%, and shorten the maturity to
September 30, 1999 in exchange for waiving all existing defaults and amending
certain terms of the agreement.
LEASE TERMINATION
In January 1998, the Company notified the developer and landlord of its
planned future headquarters site in Vernon Hills, Illinois that the Company
wanted to terminate the project. The Company had previously entered into a
20-year lease agreement for the Vernon Hills site. While groundbreaking for
the new site has not occured, it is anticipated that the Company will incur
lease termination costs. The Company is unable to make a meaningful estimate
of the amount or range of loss that could result from an unfavorable
resolution of this matter.
IMPACT OF NEW ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which requires the prominent display of comprehensive income and its
components in the financial statements. The Company is required to comply with
SFAS No. 130 in Fiscal 1999 and estimates its adoption will not have a material
effect on the consolidated financial statements.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements.
The Company is required to comply with SFAS No. 131 in Fiscal 1999 and estimates
its adoption will not have a material effect on the consolidated financial
statements.
YEAR 2000 COMPLIANCE
The Company has upgraded or replaced its computer software applications and
systems which the Company believes accommodates the "Year 2000" dating changes
necessary to permit correct recording of year dates for 2000 and later years.
The Company does not expect that additional costs with regard to year 2000
compliance will be material to its financial condition or results of operations.
The Company does not currently anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance. The
Company does not currently have any information concerning the compliance status
of its suppliers and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Information on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors. The information required in response to this item
regarding directors of the Company will be contained in the Company's definitive
Proxy Statement (the "Proxy Statement") for its Annual Meeting of Stockholders
to be held on April 28, 1998 under the caption "Election of Directors" and is
incorporated herein by reference.
(b) Executive Officers of the Company. The information required in
response to this item regarding executive officers of the Company is contained
in Part I of this report and is incorporated herein by reference.
(c) Section 16(a) Compliance. The information concerning compliance
with Section 16(a) of the Exchange Act required under this item is incorporated
herein by reference to the Proxy Statement under the caption "Section 16
Reporting".
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in
the Proxy Statement under the captions "Executive Compensation" and "Information
Regarding Directors" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item will be contained
in the Proxy Statement under the captions "Election of Directors" and "Voting
Securities" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in
the Proxy Statement under the caption "Election of Directors" and is
incorporated herein by reference.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1,2 Financial Statements and Schedules
See Index to Financial Information on page F-1.
3 Exhibits
See Exhibit Index beginning on page i.
(b) Reports on Form 8-K
1 On February 17, 1998, the Company filed a Current
Report on Form 8-K reporting that the Company had
issued a press release regarding the Company's
intention to pursue a sale of the Company.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Binks Sames Corporation
By: /s/ Doran J. Unschuld
-----------------------------------------
Doran J. Unschuld
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Doran J. Unschuld President, Chief Executive March 26, 1998
- --------------------------- Officer and Director
Doran J. Unschuld
(Principal Executive Officer)
/s/ Jeffrey W. Lemajeur Vice President of Finance and March 26, 1998
- --------------------------- Chief Financial Officer
Jeffrey W. Lemajeur
(Principal Financial and
Accounting Officer)
/s/ Terence P. Roche Executive Vice President, March 26, 1998
- --------------------------- Assistant Secretary, Assistant
Terence P. Roche Treasurer and Director
/s/ William W. Roche Director March 26, 1998
- ---------------------------
William W. Roche
/s/ Dr. Donald G. Meyer Director March 26, 1998
- ---------------------------
Dr. Donald G. Meyer
/s/ Clifford J. Vaughan Director March 26, 1998
- ---------------------------
Clifford J. Vaughan
/s/ Dr. Wayne F. Edwards Director March 26, 1998
- ---------------------------
Dr. Wayne F. Edwards
</TABLE>
16
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . F-2, 3
Financial Statements:
Consolidated Balance Sheets, November 30, 1997 and 1996. . . . F-4
Consolidated Statements of Operations, years ended
November 30, 1997, 1996, and 1995 . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity, years
ended November 30, 1997, 1996, and 1995 . . . . . . . . . . F-6
Consolidated Statements of Cash Flows, years ended
November 30, 1997, 1996, and 1995 . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . F-8 to 20
</TABLE>
Financial Statement Schedules:
All schedules are omitted as the required information is not applicable, or
the information is presented in the accompanying consolidated financial
statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Binks Sames Corporation:
We have audited the accompanying consolidated balance sheets of Binks Sames
Corporation (the Company) and consolidated subsidiaries as of November 30, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended November 30, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Binks Sames
Corporation and consolidated subsidiaries as of November 30, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
November 30, 1997 and 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
March 16, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Binks Sames Corporation (formerly known as
Binks Manufacturing Company)
Franklin Park, Illinois
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Binks Sames Corporation (formerly known
as Binks Manufacturing Company) for the year ended November 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Binks Sames Corporation for the year ended November 30, 1995 in
conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 9, 1996
F-3
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
November 30, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,220 16,200
Receivables, net 73,638 79,433
Inventories 78,144 84,737
Income taxes receivable 3,484 99
Deferred income taxes 2,840 8,221
Other current assets 746 1,324
- ------------------------------------------------------------------------------------------------------------
Total current assets 166,072 190,014
- ------------------------------------------------------------------------------------------------------------
Other noncurrent assets:
Intangible assets 3,182 3,287
Deferred income taxes 189 4,525
Other assets 2,290 4,435
- ------------------------------------------------------------------------------------------------------------
Total other noncurrent assets 5,661 12,247
- ------------------------------------------------------------------------------------------------------------
Property, plant, and equipment, at cost:
Land 1,425 1,762
Buildings 12,004 21,511
Machinery and equipment 29,227 42,177
- ------------------------------------------------------------------------------------------------------------
42,656 65,450
Less accumulated depreciation 22,655 37,482
- ------------------------------------------------------------------------------------------------------------
Net property, plant, and equipment 20,001 27,968
- ------------------------------------------------------------------------------------------------------------
$ 191,734 230,229
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Current liabilities:
Bank overdrafts and notes payable to banks 8,144 8,708
Current maturities of long-term debt 484 676
Accounts payable 58,249 52,987
Accrued expenses:
Payrolls, commissions, etc. 8,073 8,989
Taxes, other than income taxes 942 1,919
Other 14,280 17,371
Income taxes payable - 2,794
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 90,172 93,444
Deferred compensation 7,313 9,564
Deferred income taxes 452 540
Long-term debt, less current maturities 60,946 44,634
- ------------------------------------------------------------------------------------------------------------
Total liabilities 158,883 148,182
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Capital stock, $1 par value. Authorized 12,000,000 shares; issued and
outstanding 2,963,837 shares in 1997 and 3,088,837 shares in 1996 2,964 3,089
Additional paid-in capital 19,629 24,504
Retained earnings 13,333 54,327
Foreign currency translation adjustments (3,075) 127
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 32,851 82,047
- ------------------------------------------------------------------------------------------------------------
$ 191,734 230,229
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
Years ended November 30, 1997, 1996, and 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 236,998 296,686 266,003
Cost of goods sold 178,420 216,017 178,940
- -------------------------------------------------------------------------------------------------
Gross profit 58,578 80,669 87,063
Selling, general, and administrative expenses 78,588 83,111 76,517
Restructuring costs 9,612 9,043 -
- -------------------------------------------------------------------------------------------------
Operating income (loss) (29,622) (11,485) 10,546
- -------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 5,080 4,405 4,032
Other expense (income), net (2,149) 267 (569)
- -------------------------------------------------------------------------------------------------
2,931 4,672 3,463
- -------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (32,553) (16,157) 7,083
Income tax expense (benefit) 7,527 (5,049) 2,777
- -------------------------------------------------------------------------------------------------
Net earnings (loss) $ (40,080) (11,108) 4,306
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ (13.07) (3.60) 1.39
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended November 30, 1997, 1996, and 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Foreign
Additional currency
Capital paid-in Retained translation
stock capital earnings adjustments Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1994 $ 3,089 24,504 63,909 (1,275) 90,227
Net earnings - - 4,306 - 4,306
Foreign currency translation
adjustments - - - 1,616 1,616
Cash dividends ($.50 per share) - - (1,544) - (1,544)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1995 3,089 24,504 66,671 341 94,605
Net loss - - (11,108) - (11,108)
Foreign currency translation
adjustments - - - (1,559) (1,559)
Liquidation of foreign subsidiary - - - 1,345 1,345
Cash dividends ($.40 per share) - - (1,236) - (1,236)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1996 3,089 24,504 54,327 127 82,047
Net loss - - (40,080) - (40,080)
Foreign currency translation
adjustments - - - (3,202) (3,202)
Repurchase and retirement of 125,000 shares
of capital stock (125) (4,875) - - (5,000)
Cash dividends ($.30 per share) - - (914) - (914)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1997 $ 2,964 19,629 13,333 (3,075) 32,851
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended November 30, 1997, 1996, and 1995
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (40,080) (11,108) 4,306
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Property, plant, and equipment 5,299 4,285 3,765
Intangible assets 237 146 177
Deferred compensation, net of payments (310) 544 493
Deferred income taxes 9,359 (9,175) (1,295)
Other, net (1,222) 339 189
Cash provided by (used in) changes in:
Receivables (2,883) 11,879 (18,936)
Inventories 4,164 622 (10,341)
Other current assets 1,509 1,799 (530)
Accounts payable 11,290 (2,927) 17,589
Accrued expenses (4,646) 12,912 2,258
Income taxes (5,923) 518 1,607
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (23,206) 9,834 (718)
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment (4,830) (3,540) (7,664)
Proceeds from sale of property, plant, and equipment 7,812 1,738 2,025
(Increase) decrease in other assets 2,353 83 (560)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 5,335 (1,719) (6,199)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (914) (1,236) (1,544)
Proceeds from long-term borrowings 30,635 2,983 6,069
Net increase (decrease) in short-term borrowings (1,126) (1,061) 3,868
Repurchase and retirement of capital stock (5,000) - -
Principal payments on long-term debt (14,120) (921) (1,679)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,475 (235) 6,714
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (584) (207) 166
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (8,980) 7,673 (37)
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 16,200 8,527 8,564
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,220 16,200 8,527
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures - cash paid for:
Interest $ 4,549 4,147 4,350
Income taxes 4,186 3,435 3,422
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND REPORT PREPARATION
The consolidated financial statements include the accounts of the Company
and consolidated subsidiaries in the U.S., England, Scotland, Sweden,
Australia, Canada, Belgium, Italy, Germany, Japan, and France. All material
intercompany balances and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions which affect reported earnings, financial
position, and various disclosures. Actual results could differ from those
estimates.
CURRENCY TRANSLATION
The results of operations for non-U.S. subsidiaries are translated from
local currencies into U.S. dollars using average exchange rates during each
period; assets and liabilities are translated using exchange rates at the
end of each period. Adjustments resulting from the translation process are
reported in a separate component of stockholders' equity, and are not
included in the determination of the results of operations.
FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts as hedges against
accounts receivable and accounts payable denominated in currencies other
than the currency used in preparing the financial statements. Market value
gains and losses on the foreign exchange contracts are recognized and
offset the foreign exchange gains or losses on the related accounts
receivable and accounts payable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and amounts due from banks
with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
PROPERTY, PLANT, AND EQUIPMENT
Depreciation of property, plant, and equipment is computed by the
straight-line method. Estimated lives range from 25 to 40 years for
buildings and from 4 to 12 years for machinery and equipment.
INTANGIBLE ASSETS
Intangible assets are comprised of goodwill and patents. Goodwill
represents excess costs of acquired companies over the fair values of their
net tangible assets. All intangibles are amortized by the straight line
method, with goodwill amortized over 40 years, and patents over their
respective useful lives.
(Continued)
F-8
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's
carrying amount to determine if a writedown is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value approximates the carrying value for all financial
instruments, with the exception of long-term debt, for which the fair value
is less than the carrying value by an amount which is immaterial to the
consolidated financial statements.
REVENUE RECOGNITION
Profits on long-term equipment production and installation contracts are
recorded on the basis of the estimated percentage of completion of
individual contracts determined under the cost-to-cost method. Estimated
losses on long-term contracts are recognized in the period in which a loss
becomes apparent.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to expense when incurred.
Research and development costs were $5.0 million, $4.9 million, and $4.0
million in fiscal 1997, 1996, and 1995, respectively.
ADVERTISING EXPENSES
Advertising costs are charged to expense when incurred. Advertising costs
were $2.2 million, $2.3 million, and $1.8 million in fiscal 1997, 1996, and
1995, respectively.
INCOME TAXES
The asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for
operating loss and tax credit carryforwards and for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the
enactment date.
STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue to apply the principles
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," as discussed in note 12 to the consolidated financial
statements.
(Continued)
F-9
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share are based on the weighted average number of
shares of capital stock outstanding (3,065,549 shares in fiscal 1997 and
3,088,837 shares in fiscal 1996 and 1995). Average capital stock
equivalent shares (stock options) outstanding have not been included in the
computation of earnings per share because they would not have been
dilutive.
RECLASSIFICATIONS
Certain amounts in the fiscal 1996 and fiscal 1995 financial statements, as
previously reported, have been reclassified to conform to the fiscal 1997
presentation.
(2) RECEIVABLES
Net receivables are comprised of the following at November 30 (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade $ 67,646 74,889
Costs and estimated earnings in excess of billings on
uncompleted contracts 5,752 4,855
Other 3,177 2,930
- -------------------------------------------------------------------------------------------------------------------
76,575 82,674
Less allowance for doubtful receivables 2,937 3,241
- -------------------------------------------------------------------------------------------------------------------
$ 73,638 79,433
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Comparative information with respect to uncompleted long-term equipment contracts
at November 30 follows (in thousands):
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Expenditures and estimated earnings on uncompleted contracts $ 20,619 38,812
Less applicable billings 18,553 39,468
- -------------------------------------------------------------------------------------------------------------------
$ 2,066 (656)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of billings on
uncompleted contracts (included in receivables) $ 5,752 4,855
Billings in excess of costs and estimated earnings on
uncompleted contracts (included in accounts payable) (3,686) (5,511)
- -------------------------------------------------------------------------------------------------------------------
$2,066 (656)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) INVENTORIES
Inventories at November 30 are summarized as follows (in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods and service parts $ 32,918 41,375
Work in process 43,909 39,673
Raw material 1,317 3,689
- --------------------------------------------------------------------------------
$ 78,144 84,737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(4) NON-U.S. SUBSIDIARIES
Financial information relating to non-U.S. subsidiaries is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $ 112,963 122,247 120,399
Total liabilities 77,824 79,104 78,975
- --------------------------------------------------------------------------------
Net assets $ 35,139 43,143 41,424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net sales $ 140,726 167,324 129,769
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings before income taxes (a) $ (313) 4,465 7,083
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net earnings (loss) (b) $ (1,812) 2,413 2,213
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(a) Includes nonrecurring charges of $5.1 million in fiscal 1997 and $3.1
million in fiscal 1996.
(b) Includes charges of $1.3 million to reduce the balance sheet carrying
amounts of deferred tax assets arising in prior years.
(5) CREDIT FACILITIES AND LONG-TERM DEBT
Lines of credit and overdraft facilities aggregate $77.4 million at
November 30, 1997, against which the Company has overdrafts and notes
payable to banks of $7.6 million, bankers' acceptances of $13.5 million,
$30.5 million drawn under a revolving credit facility, and letters of
credit supporting export activities of $700 thousand. The remaining unused
lines of credit are available to support the Company's U.S. operations
($6.0 million) and non-U.S. operations ($19.1 million).
(Continued)
F-11
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Consolidated long-term debt consists of the following at November 30 (in
thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bankers' acceptances due in various maturities through
January 26, 1998 under lines of credit expiring in 1998
(6.31% to 6.44% in 1997 and 6.03% to 6.31% in 1996) $ 13,500 27,000
Borrowings under a revolving credit facility due in various
maturities through January 30, 1998 under a line of
credit expiring in 2002 (6.75% to 6.875% in 1997) 30,500 -
Senior notes maturing through 2008 (7.14%) 15,000 15,000
Obligations under capital leases 349 593
Other loans, maturities at various dates through 2005,
weighted average interest rate of 4.8% in 1997
and 1996 2,081 2,717
- ---------------------------------------------------------------------------------------------------------------
61,430 45,310
Less current maturities 484 676
- ---------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $ 60,946 44,634
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
As they mature, the banker's acceptances are refinanced through borrowings
under the revolving credit facility and accordingly are classified as
long-term debt. The aggregate maturities of long-term debt due in each of
the fiscal years 1999 through 2002 are $2.0 million, $1.6 million, $2.2
million, and $45.4 million, respectively.
On September 23, 1997, the Company entered into a $50 million unsecured
five-year credit facility with a syndicate of Chicago area banks. As of
November 30, 1997, the Company was not in compliance with several of the
financial covenants contained in the credit facility. On March 16, 1998,
the Company agreed with the bank group to collateralize the credit
facility, pay amendment fees, increase the interest rate to prime plus 1/2%
on existing borrowings and prime plus 1% on new borrowings, and shorten the
duration of the agreement to two years, in exchange for waiving all
existing defaults, amending certain terms, and increasing the total line of
credit to $52.5 million to accommodate the projected cash flow needs of the
Company. On March 16, 1998, the Company also agreed with the holder of its
7.14% senior notes to pay amendment fees, increase the interest rate to
7.64%, and shorten the maturity to September 30, 1999 in exchange for
waiving all existing defaults and amending certain terms of the agreement.
(6) INCOME TAXES
The Company files a consolidated Federal income tax return which includes
all U.S. subsidiaries. Federal income taxes for each U.S. subsidiary are
computed separately and are payable to the Company.
No provision is made for U.S. Federal income taxes which would be payable
if undistributed earnings of non-U.S. subsidiaries were paid as dividends
to the Company. If such earnings, which aggregate $30.0 million at
November 30, 1997, were to be distributed, the resulting U.S. Federal
income taxes would be largely offset by net operating loss carryforwards.
(Continued)
F-12
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign tax credit carryforwards at November 30, 1997 totaled $2.6 million.
Expiration of the foreign tax credit carryforwards is as follows: $870
thousand in fiscal 1998, $528 thousand in fiscal 1999, $316 thousand in
fiscal 2000, and $883 thousand in 2002.
Income tax expense (benefit) is comprised as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
State
U.S. and
Federal Non-U.S. local Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1997:
Current $ (2,775) 747 196 (1,832)
Deferred 8,679 680 - 9,359
- -------------------------------------------------------------------------------------------------------------------------------
$ 5,904 1,427 196 7,527
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996:
Current 98 3,670 358 4,126
Deferred (7,412) (1,763) - (9,175)
- -------------------------------------------------------------------------------------------------------------------------------
$ (7,314) 1,907 358 (5,049)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995:
Current 1,456 2,306 310 4,072
Deferred (434) (861) - (1,295)
- -------------------------------------------------------------------------------------------------------------------------------
$ 1,022 1,445 310 2,777
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Actual income tax expense differed from the amounts computed by applying the U.S. Federal income tax
rate of 34% to pretax income (loss) as a result of the following (in thousands):
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense (benefit) $ (11,068) (5,493) 2,408
Difference between U.S. and non-U.S. tax rates 336 182 277
Nondeductible expenses 206 326 381
State and local income taxes, net of
Federal income tax benefit 130 236 205
Research tax credit - (94) (267)
Change in the valuation allowance for deferred tax assets 17,127 (1,021) 1,038
Benefit not recorded for non-U.S. net operating loss - - (114)
Foreign tax credits less than (in excess of) U.S. taxes
on dividends from foreign subsidiaries 833 1,150 (1,209)
Restructuring costs - (639) -
Other (37) 304 58
- -------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 7,527 (5,049) 2,777
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-13
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at November 30, 1997 and 1996 are presented below
(in thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets attributable to:
Deferred compensation $ 2,280 2,458
Inventories 1,482 1,117
Allowance for doubtful receivables 499 450
Foreign tax credit carryforwards 2,597 1,714
Accrued expenses 990 1,499
Net operating loss carryforwards 12,197 5,379
Nonrecurring charges 2,337 3,146
Other 213 294
- --------------------------------------------------------------------------------
Total gross deferred tax assets 22,595 16,057
Less valuation allowance 18,013 886
- --------------------------------------------------------------------------------
Total deferred tax assets 4,582 15,171
- --------------------------------------------------------------------------------
Deferred tax liabilities attributable to:
Plant and equipment, principally due to
differences in depreciation 1,725 2,199
Long-term contracts 39 515
Other 241 252
- --------------------------------------------------------------------------------
Total gross deferred liabilities 2,005 2,966
- --------------------------------------------------------------------------------
Net deferred tax assets $ 2,577 12,205
- --------------------------------------------------------------------------------
</TABLE>
The net change in the total valuation allowance for the fiscal years ended
1997, 1996, and 1995 was an increase of $17.1 million, a decrease of $1.0
million, and an increase of $1.0 million, respectively. The valuation
allowance for deferred tax assets as of November 30, 1994 was $0.9 million.
The fiscal 1997 change in the valuation allowance included a charge of
$10.0 million to reduce the carrying amounts of deferred tax assets
initially recorded in prior years. The increased allowance is required
because the Company no longer has adequate assurance that the deferred tax
assets will be realized in future periods.
At November 30, 1997, the Company has net operating loss carryforwards of
$35.9 million which primarily expire in 2011 and 2012.
The Internal Revenue Service has completed its examination of the Company's
Federal income tax returns through November 30, 1989.
(Continued)
F-14
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(7) EMPLOYEE BENEFITS
Through November 30, 1997, the Company maintained a defined contribution
profit sharing plan. The Company contributed to the plan the lesser of 15%
of the participants' compensation, 18% of the Company's adjusted net income
as defined in the plan, or six times the total of the participants'
contributions made for the year. Effective as of December 1, 1997, the
Company is no longer required to make contributions to the profit sharing
plan, but will make contributions to match certain employee contributions
to the Company's 401(k) plan. Additionally, the Company maintains deferred
compensation plans for certain officers and key employees. The deferred
compensation plan benefits are determined by a formula which considers the
employee's average salary and years of service with the Company. The total
expense relating to these plans was $1.2 million in 1997, $1.6 million in
fiscal 1996, and $1.0 million in fiscal 1995.
(8) QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial data for the years ended November 30, 1997
and 1996 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------
Fiscal 1997 February 28 May 31 August 31 November 30
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 64,591 52,967 67,506 51,934
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Gross profit $ 18,623 15,805 19,684 4,466
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 142 (1,882) (1,323) (37,017)
Net earnings (loss) per share $ .05 (.61) (.43) (12.08)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------
Fiscal 1996 February 29 May 31 August 31 November 30
- -------------------------------------------------------------------------------------------------------
Net sales $ 65,429 62,877 71,535 96,845
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Gross profit $ 21,146 20,790 23,828 14,905
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,118 (291) 806 (12,741)
Net earnings (loss) per share $ .36 (.09) .26 (4.13)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(9) OPERATING LEASES
The Company occupies certain offices and uses certain equipment under
operating lease arrangements. Rent expense under such arrangements was
$3.4 million, $2.9 million, and $2.8 million in fiscal years 1997, 1996,
and 1995, respectively.
(Continued)
F-15
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of November 30, 1997 are $2.4 million, $1.7 million, $1.1 million, $454
thousand, and $274 thousand in 1998 through 2002, respectively.
It is expected that in the normal course of business most leases that
expire will be renewed or replaced by leases on the same or similar
properties; thus, it is anticipated that future annual rent expense will
not be materially less than the amount shown for 1997.
(10) CONTINGENCIES
In January 1998, the Company notified the developer and landlord of its
planned future headquarters site in Vernon Hills, Illinois that the Company
wanted to terminate the project. The Company had previously entered into
a 20-year lease agreement for the Vernon Hills site. While
groundbreaking for the new site has not occurred, it is anticipated that
the Company will incur lease termination costs. The Company is unable
to make a meaningful estimate of the amount or range of loss that could
result from an unfavorable resolution of this matter.
The Company is the defendant in a lawsuit filed by former financial
advisors seeking approximately $900 thousand under terms of a contract.
Management believes that all required payments have been made and no
further amounts have been provided for.
The Company has certain other contingent liabilities resulting from
litigation and claims incident to the ordinary course of business.
Management believes that the probable resolution of such contingencies will
not materially affect the financial position or results of operations of
the Company.
(11) REPURCHASE AND RETIREMENT OF CAPITAL STOCK
In September 1997, the Company repurchased 125,000 shares of its capital
stock from the profit sharing plan, at the price of $40.00 per share, or
$5.0 million, and retired the shares.
(12) STOCK OPTION PLAN
During fiscal 1996, the Company established a stock option plan. The plan
provides for the granting of stock options to key employees and Directors
to purchase a maximum of 300,000 shares of the Company's capital stock.
All options are granted at the fair market value at the date of grant and
generally vest at the rate of 25% per year. Outstanding options become
fully vested upon a change in control as defined in the plan agreement.
The maximum option term is 10 years.
(Continued)
F-16
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Changes in options outstanding are summarized as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
Range of Weighted-average
Options exercise prices exercise prices
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, November 30, 1995 - $ - $ -
Granted 93,500 23.375 23.375
Balance, November 30, 1996 93,500 23.375 23.375
Granted 32,550 40.375-43.00 42.52
Forfeited (4,000) 23.375 23.375
Balance, November 30, 1997 122,050 23.375-43.00 28.47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Of the options outstanding at November 30, 1997, options on 57.625 shares
were exercisable at a price of $23.38 per share; none of the options
outstanding at November 30, 1996 were exercisable. At November 30, 1997,
there were 177,950 shares available for future grants.
Using the Black-Scholes model and the following assumptions, the estimated
fair value of the options granted in fiscal 1997 and 1996 were $13.57 and
$6.87, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.2% 6.5
Expected dividend yield 0.9 1.7
Expected volatility 25.25 25.25
Estimated lives of options (in years) 5.0 5.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure provisions of SFAS No. 123.
Accordingly, no compensation expense has been recognized for the stock
option activity. Had compensation expense for the Company's stock option
activity been calculated under the provisions of SFAS No. 123, the
Company's net loss for fiscal year 1997 would have increased by $782
thousand ($0.26 per share). During the phase-in period of SFAS No. 123,
the estimation of compensation costs reflects only a partial vesting of
options. In future years, the estimated pro forma compensation costs may
be higher depending upon, among other factors, the number of options
granted.
(13) STOCKHOLDER RIGHTS PLAN
On February 2, 1990, the Company declared a dividend distribution of one
Right for each outstanding share of Capital Stock of the Company to the
stockholders of record on February 13, 1990. Certain terms of the Rights
were amended on January 21, 1991. Each Right, when exercisable, entitles
the registered holder to purchase from the Company one share of Capital
Stock, at a price of $100 per share, subject to adjustment. The Rights
become exercisable ten days after the earliest to occur of (i) public
announcement that a person or group of associated or affiliated persons
acquired, or obtained the right to acquire,
(Continued)
F-17
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
beneficial ownership of 15% or more of the outstanding Capital Stock of the
Company (the Stock Acquisition Date); (ii) the commencement of, or an
announcement of an intention to make, a tender offer or exchange offer if,
upon consummation thereof, any person or group of associated or affiliated
persons would be the beneficial owner of 15% or more of the outstanding
Capital Stock of the Company; or (iii) the Board of Directors declares any
person owning 10% or more of the outstanding Capital Stock of the Company
to be an "Adverse Person" pursuant to the criteria set forth in the Rights
Agreement.
If a person or group of associated or affiliated persons becomes the
beneficial owner of 15% or more of the outstanding Capital Stock of the
Company, the Company is the surviving corporation in a merger and the
Capital Stock remains outstanding, an acquiring person engages in certain
self-dealing transactions, or the Board of Directors declares any person to
be an "Adverse Person" subject to certain adjustments and other conditions,
each Right not owned or transferred by the acquiring person or Adverse
Person will entitle the holder to purchase one share of Capital Stock of
the Company at a purchase price of 20% of its then-market value. In
addition, if the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or
earning power is sold, subject to certain adjustments and other conditions,
each Right will entitle the holder to purchase capital stock of the
acquiring company having a market value of $200 for a purchase price of
$100.
The Rights are redeemable by the Company at any time prior to 20 days after
the Stock Acquisition Date, at $0.01 per Right, at the Company's option.
After the Stock Acquisition Date, the Rights may not be exercised until the
Company's right of redemption has expired. The Rights expire on
February 2, 2000. Until a Right is exercised, the holder of a Right, as
such, will have no rights as a stockholder of the Company, including,
without limitation, the right to vote or receive dividends.
(14) FORWARD EXCHANGE CONTRACTS
The Company operates internationally, with manufacturing and distribution
facilities in various locations around the world. The Company's approach
to reduce the effects of fluctuations in foreign currency exchange rates
includes foreign currency hedging activities. The Company does not use
derivative financial instruments for trading or speculative purposes. As
of November 30, 1997, the Company had forward exchange contracts maturing
in fiscal 1998 to sell $1.6 million U.S. dollars, and to purchase
$1.4 million of foreign currency, primarily French francs, at contracted
forward rates.
(15) GAINS ON SALES OF REAL ESTATE
During each of the last three fiscal years, the Company has sold real
estate. The $2.9 million gain on the sale of the Franklin Park facility in
fiscal 1997 is recorded in "restructuring costs" as described in note 16.
Gains of $289 thousand in fiscal 1996 and $258 thousand in fiscal 1995 are
included in "other income."
(Continued)
F-18
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(16) NONRECURRING CHARGES
During fiscal 1997, the Company continued a strategic restructuring of its
operations and product lines and relocated its primary domestic
manufacturing facilities from Franklin Park, Illinois to Longmont,
Colorado. The Company has reduced the number of products that it offers
for sale, and has reduced the number of manufacturing and administrative
employment positions. Total nonrecurring charges of $21.1 million were
recorded in fiscal 1997, including costs recorded as follows (in
thousands):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cost of goods sold $ 8,667
Selling, general, and administrative expenses 2,802
Restructuring costs 9,612
- --------------------------------------------------------------------------------
21,081
Income tax benefits 1,269
- --------------------------------------------------------------------------------
$ 19,812
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Nonrecurring charges in cost of goods sold include a $2.3 million loss on
rationalized inventory sold at auction, $1.6 million of noninventoriable
manufacturing variances incurred at the Longmont facility, and cost
overruns of $4.8 million on certain long-term contracts. Nonrecurring
charges in selling, general, and administrative expenses include
settlements of litigation, product performance disputes, and workers'
compensation claims. Restructuring costs are comprised of the following
components: (a) $1.9 million resulting from the closing of the Franklin
Park facility, which is net of a $2.9 million gain on the sale of the
building; (b) $1.7 million in manufacturing startup costs at the Longmont
facility; (c) $4.6 million resulting from workforce reductions primarily
outside the U.S., the loss on the sale of the Infratherm product line,
liquidation of operations in Italy and the impairment of the Company's
Belgian operations; and, (d) $1.4 million of professional service fees and
other costs. At November 30, 1997, accrued nonrecurring charges were $4.3
million, substantially all of which will result in cash outflows in fiscal
1998.
During fiscal 1996, the Company incurred nonrecurring charges of $18.9
million as a result of the restructuring of its operations and product
lines. The nonrecurring charges included the following costs (thousands):
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Cost of goods sold $ 7,086
Selling, general, and administrative expenses 2,780
Restructuring costs 9,043
- --------------------------------------------------------------------------------
18,909
Income tax benefits 6,334
- --------------------------------------------------------------------------------
$ 12,575
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(Continued)
F-19
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Included in cost of goods sold is a nonrecurring charge of $7.1 million
resulting from the writedown of inventories related to products that have
been eliminated. Included in selling, general, and administrative expenses
is a nonrecurring charge of $2.8 million relating to the resolution of
disputes pertaining to the performance of products sold in prior years.
The principal components of restructuring costs of $9 million are (a)
employee separation costs of $5.4 million resulting from the reduction of
567 positions in the U.S., Mexico, Canada, England, Belgium, France, and
Italy; (b) writeoffs of $3.3 million relating to specific manufacturing
assets, the investment in Binks de Mexico, and disposition of the corporate
jet; and (c) other costs of $300 thousand. At November 30, 1996, accrued
nonrecurring charges were $7.1 million, substantially all of which resulted
in cash outflows in fiscal 1997.
(17) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry, the manufacture and distribution of
spray finishing and coating application equipment. The Company's products
are sold to customers in North America, South America, Europe, Asia,
Africa, and Australia. U.S. exports to third-party customers are less than
10% of U.S. sales. No single customer accounts for more than 10% of the
Company's net sales.
The table below presents the Company's operations by geographic area:
Americas (U.S. and Canada); Europe (France, England, Belgium, Germany,
Italy, and Sweden); and the Pacific Rim (Japan and Australia). Sales are
presented by originating area. Interarea transfers comprise transactions
among the Company and its subsidiaries in different geographic areas; these
transfers are eliminated in consolidation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers (includes exports):
Americas $ 102,836 139,721 147,961
Europe 113,376 139,832 105,174
Pacific Rim 20,786 17,133 12,868
Interarea transfers from:
Americas 5,557 6,871 5,357
Europe 21,019 22,980 23,221
Eliminations (26,576) (29,851) (28,578)
- ----------------------------------------------------------------------------------------------------
Total $ 236,998 296,686 266,003
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Operating income (loss):
Americas (28,500) (17,165) 6,695
Europe (1,296) 5,142 3,321
Pacific Rim 174 538 530
- ----------------------------------------------------------------------------------------------------
Total (29,622) (11,485) 10,546
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Identifiable assets at November 30:
Americas 87,252 117,293 128,882
Europe 96,869 99,384 90,213
Pacific Rim 7,613 13,552 12,006
- ----------------------------------------------------------------------------------------------------
Total $ 191,734 230,229 231,101
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
BINKS SAMES CORPORATION
<TABLE>
EXHIBIT NO. DESCRIPTION
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3.1 Restated Certificate of Incorporation.(1)
3.2 Amendment to Restated Certificate of Incorporation.(2)
3.2 Amended and Restated By-laws, as of December 11, 1996.(3)
4.3 Amended and Restated Rights Agreement, dated as of February 2,
1990 and amended and restated as of January 21, 1991, between the
Company and Harris Trust and Savings Bank, as successor rights
agent.(4)
10.1(a)(*) Form of Executive Retirement Income Contracts between the Company
and Doran J. Unschuld and W. Kent Anderson.(5)
10.1(b)(*) Form of Amendment to Executive Retirement Income Contract for
Doran J. Unschuld.(1)
10.2(*) Form of Employment Security Agreement between the Company and
Doran J. Unschuld and Jeffrey W. Lemajeur.(1)
10.3(*) Forms of Employment Security Agreements between the Company and
certain key employees.(1)
10.4(*) Form of Insurance Maintenance Agreement between the Company and
each of its directors and officers.(1)
10.5(*) Binks Sames Corporation Amended and Restated 1996 Stock Option
Plan.(6)
10.6 Amended and Restated Credit Agreement dated March 16, 1998 by and
among the Company, the Lenders named therein and The First
National Bank of Chicago, as agent.(7)
10.7 Note Purchase Agreement, dated as of November 30, 1993, among
the Company and the Purchasers named therein.(8)
10.8 Waiver and Second Amendment to Note Purchase Agreement, dated as
of March 16, 1998, among the Company and the Purchasers named
therein.(7)
21.1 List of subsidiaries.(1)
23.1 Consent of KPMG Peat Marwick LLP.(9)
23.2 Consent of Crowe, Chizek and Company LLP.(9)
27.1 Financial Data Schedule.(7)
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(*) Management contract or compensatory plan, contract or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of
Form 10-K.
(1) Filed under corresponding exhibit number to the Company's Form
10-K for its fiscal year ended November 30, 1993 and incorporated
herein by reference.
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(2) Filed as Exhibit 4.1 to the Company's registration statement
on Form S-8 (File no. 333-30191) and incorporated herein by
reference.
(3) Filed under corresponding exhibit number to the Company's Form
10-K for its fiscal year ended November 30, 1996 and incorporated
herein by reference.
(4) Filed under corresponding exhibit number to the Company's
Form 10-K for its fiscal year ended November 30, 1993 and
incorporated herein by reference.
(5) Filed under corresponding exhibit number to the Company's Form
10-K for its fiscal year ended November 30, 1995 and incorporated
herein by reference.
(6) Filed under corresponding exhibit number to the Company's
registration statement on Form S-8 (File no. 333-30191) and
incorporated herein by reference.
(7) Filed under corresponding exhibit number to the Company's
Form 10-K for the year ended November 30, 1997 as originally
filed.
(8) Filed as Exhibit 4.2 to the Company's Form 10-K for its
fiscal year ended November 30, 1993 and incorporated herein by
reference.
(9) Filed herewith.
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EXHIBIT 23.1
Binks Sames Corporation:
We consent to incorporation by reference in the registration statement (No.
333-30191) on Form S-8 of Binks Sames Corporation of our report dated March 16,
1998 relating to the consolidated balance sheets of Binks Sames Corporation and
consolidated subsidiaries as of November 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended November 30, 1997 and 1996, which report appears on page F-2 in
the November 30, 1997 annual report on Form 10-K/A of Binks Sames Corporation.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois KPMG PEAT MARWICK LLP
March 26, 1998
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EXHIBIT 23.2
CONSENT OF CROWE, CHIZEK AND COMPANY LLP
To Binks Sames Corporation:
We consent to the inclusion in the Company's Registration Statement on Form
S-8 of our report dated February 9, 1996 of our audit of the consolidated
financial statements of Binks Sames Corporation and Consolidated Subsidiaries
as of November 30, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year ended November 30, 1995,
appearing on page F-3 of the Binks Sames Corporation Annual Report on Form
10-K/A for the year ended November 30, 1997.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 26, 1998
