SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 25, 1997
____________________________________________________
Commission File Number 2-37706
____________________________________________________
Bowles Fluidics Corporation
_______________________________________________________________________________
(exact name of registrant as specified in its charter)
Maryland 52-0741762
_______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6625 Dobbin Road, Columbia, Maryland 21045
_______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (410) 381-0400
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
None
_______________________________________________________________________________
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________________________________________
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
_____ _____
The aggregate market value of the registrant's voting stock held by
non-affiliate persons and entities as of December 31, 1997, computed by
reference to the closing price for such stock on the composite reporting system
on such date, was $3,277,460 based on 2,439,040 shares.
The number of shares of the registrant's common stock outstanding as of December
31, 1997, was 12,640,011.
<PAGE>
PART I
Item 1. BUSINESS
Bowles Fluidics Corporation was incorporated under Maryland law in
1961 (originally as Bowles Engineering Corporation) for the purpose of
advancing and exploiting the technology of fluidics. For about ten years
the principal business of the Company was research and development
primarily under contracts with agencies of the U.S. government. From
1972 to 1979 its principal income was derived from the sale of
proprietary consumer products it had developed based upon fluid
oscillators, including massaging showers and oral irrigation devices.
These consumer products have since been discontinued. Since 1979 its
principal product has been proprietary windshield and rear window washer
nozzles for the automotive industry. Late in FY 1989, the Company
extended the automotive product line to include shipments of fluidic
defroster nozzles. The Company also provides its automotive customers
with tooling and application engineering services related to its
products.
The Company has continued to expend efforts on the research and
development of new fluidic products for the automotive and other
industries. The air conditioning outlet in the instrument panel of
automotive vehicles has been a particular focus. Prototypes have been
developed and presented to a number of potential customers. At present,
two customers have selected the Company as the supplier of these
outlets, one for a vehicle scheduled to start production in 1999 and the
other for production in 2000.
Principal Products and Markets
The Company is the leading designer, manufacturer and supplier of
windshield and rear window washer nozzles for passenger cars and light
trucks in North America. Defroster nozzles for a limited number of these
same light vehicles are also being manufactured and sold.
The Company's principal market for its fluidic nozzles, both
windshield washer and defroster, consists of North America, i.e., the
"Big Three" U.S. automotive manufacturers and foreign transplants. The
Company believes that it supplies about 80% of the total windshield
washer nozzle requirements for light vehicles (cars and light trucks)
manufactured in the United States, Canada and Mexico. The defroster
nozzle is currently being supplied to a number of vehicle models in this
market.
The Company has a licensing agreement covering Europe with a major
German automotive parts supplier for its windshield washer systems. The
Company itself has no international operations.
2
<PAGE>
In North America, over 90% of the Company's production of nozzles
is incorporated in vehicles produced by General Motors, Ford and
Chrysler, each of whom typically represents over 10% of the Company's
sales volume. The Company is, therefore, dependent upon the requirements
of the U.S. automotive industry producing cars and light trucks.
Although the Company enters into agreements with its customers to meet
100% of their production requirements, notice of firm shipping
requirements for the coming week generally takes place weekly from the
assembly plants and at somewhat longer intervals from the first-tier
suppliers. The Company's monthly sales follow the seasonal pattern
dictated by the production levels of its customers. Consequently, sales
for the second and fourth quarters of the Company's fiscal year are
typically higher than for the first and third.
Sales also include technical services, i.e., design, tooling, and
prototyping services for the Company's customers. The requirements of
the automotive customers are for designs and tools to meet the needs of
forthcoming vehicle models or changes in existing models, as well as for
prototypes of new products desired for testing. These sales are, for the
most part, undertaken as a service to the customers, and the Company
contracts these services and tools so as to recover projected costs.
Patents and Competitive Products
The Company has engaged, since its inception, in research and
development in the fields of fluidics and fluid effect devices,
encompassing both gases and liquids. Over the past 19 years, 46 U.S.
patents have been granted to the Company's employees and assigned to the
Company. Twelve applications are presently in process for additional
U.S. patents. Patents in selected other countries have also been granted
for most of the art covered by the U.S. patents. Although these patents
embody new and novel technology or product, there is available
competitive technology and alternative product. The extent to which the
expiration of an individual patent may affect the Company's competitive
position is difficult to determine.
In the past, U.S. patents were granted for a period of 17 years
from the date of issue. However, beginning in June 1995, those granted
in the past can be for a period of either 17 years from date of issue or
20 years from date of filing the application, whichever expiration date
is later. Those granted on applications filed after June 1995 are for a
period of 20 years from date of filing.
The Company's fluidic windshield washer and defroster nozzles,
which are covered by issued U.S. and international patents, are in
direct competition with conventional nozzles of traditional design. The
Company believes that its products have advantages both in performance
and in economy of assembly to the vehicle by the car manufacturers.
3
<PAGE>
The Company is of the opinion that, in the long run, a history of
service, delivery, quality and economic supply is the most important
factor in binding its customers to it. Customers of the Company place a
great deal of emphasis on quality. The Company has maintained Ford's
preferred supplier rating (Q1 award) since 1985, has been rated an
excellent status in a supplier assessment by General Motors, and has
been a self-certified supplier for Chrysler since 1991. The Company's
material testing laboratory has been accredited by General Motors since
1992.
In addition, the Company's customers required that the Company put
into place a QS-9000-compliant quality system, the automotive version of
ISO 9000. Registration deadlines were July 1997 for Chrysler and
December 1997 for General Motors. The Company went through the initial
independent assessment in September 1996, received certification in
December 1996 as a QS-9000 supplier with ISO 9001 addendum, and has
maintained that certification since then.
The Company does not grant North American licenses for its own
patents in which it has an interest in marketing a product. The Company
does pursue interests expressed by others in the Company's technology in
an attempt to broaden its use. To the extent that there may be
additional uses in markets not related to those of primary interest to
the Company, efforts are made to license the patents for such use.
Raw Material Sources and Availability
Raw materials, primarily plastic resin, are sourced within the
United States. The market was stable during the current year with some
weakening in polypropylene prices toward the end of the year. Adequate
supply is expected to be available in the coming year. The resins
purchased are restricted to those approved by the Company's customers.
Working Capital Requirements
The Company's standard credit terms for receivables are net 30
days. Adequate levels of inventories are normally maintained in order to
ensure compliance with the stringent delivery requirements of our
customers.
The design and acquisition of production tools, which represent
the major portion of technical services sales, normally take several
months to complete, during which period the Company has to make progress
payments which are included in work-in-process inventories. Sales
invoices for these tools and services are rendered only after completion
and customers' acceptance of qualified products produced by the tools.
4
<PAGE>
Research and Development
The Company's research and development costs, all Company-funded,
were:
% of Sales
----------
FY 1997 $1,005,183 5.3
FY 1996 $1,175,890 6.5
FY 1995 $ 636,970 3.8
In FY 1997, the Company's research and development efforts were
directed primarily toward the further development of fluidic air
conditioning outlets for cars and light trucks, and the advancement of
its knowledge of the workings of fluidic washer nozzles, including
additional wind tunnel testing. These efforts resulted in a number of
patent filings.
In FY 1996, these same two areas were also the primary focus of
the research and development expenditures.
During FY 1997 and FY 1996, a customer committed $275,000 to the
design of air conditioning outlets for a specific model vehicle, which
expenditures have been included in application engineering expenses.
Potential sales of products still in the development stage cannot
be predicted since product capability and customer acceptance of the new
technology are difficult to determine.
Employees
The Company averaged approximately 245 employees during FY 1997
and employed 252 people on a full-time basis on October 25, 1997. The
increase from the 242 employed on October 26, 1996, was in the
marketing, quality control, and engineering departments.
Compliance with Environmental Regulations
The Company believes it is in compliance with all known
environmental regulations and has no plans for significant expenditures
to meet these requirements in the future.
Item 2. PROPERTIES
In September 1993, the Company entered into an amendment to its
original lease agreement for 62,600 sq. ft. of space in a building
located in Columbia, Maryland, its principal location. The amended lease
provided for the Company's occupancy of the premises until April 16,
2004, and the addition in September
5
<PAGE>
1993 of 14,226 sq. ft. and in February 1994 of another 12,000 sq. ft.
The Company is now the sole occupant of the premises. In an addendum to
the lease, the landlord agreed to make certain improvements to the
premises financed by a supplement to the rent. The lease amendment
further provides an option to continue the lease for an additional ten
years or to purchase the premises at 94% of fair market value at the
first termination of the lease.
The facility, which now totals 88,826 sq. ft., provides for the
Company's needs for manufacturing windshield washer and defroster
nozzles at levels adequate to meet projected customer needs. The
enlarged premises also allow for additional capacity for manufacturing
forecasted air conditioning outlets.
The facilities are currently utilized as follows:
Manufacturing, Materials, Quality Control 60,560 sq. ft.
Administration and Sales 8,538 sq. ft.
Laboratories and Engineering 19,728 sq. ft.
--------------
Total Area 88,826 sq. ft.
==============
Beginning April 15, 1997, the Company leased for three years 1,617
sq. ft. of office space in Southfield, Michigan, to be used by the sales
staff.
Item 3. LEGAL PROCEEDINGS
During FY 1994 and 1996, the Company discovered in the market two
instances of windshield washer nozzles which infringed upon its
windshield washer patents. As a result, the Company filed suits for
patent infringement in the United States District Court for the District
of Maryland. Both suits were settled favorably to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S STOCK AND RELATED STOCKHOLDER
MATTERS
Stock Price and Markets
The common stock of the Company is traded in the
"over-the-counter" market and is quoted on the NASD OTC Bulletin Board;
symbol BOWE. The preferred stock is unregistered and is not publicly
traded.
The high and low bid and asked prices of the common stock over the
last two fiscal years are listed below:
Bid Asked
------------------- --------------------
FY High Low High Low
-- ---- --- ---- ---
1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4
2nd Quarter 1 3/8 5/8 1 9/16 3/4
3rd Quarter 13/16 7/16 7/8 9/16
4th Quarter 3 1/8 3/4 3 1/2 7/8
1996 1st Quarter 5/8 3/8 1 3/4
2nd Quarter 3/8 3/8 3/4 3/4
3rd Quarter 3/8 3/8 3/4 5/8
4th Quarter 7/8 1/8 1 1/4 7/16
Note: The above quotes represent prices between dealers and do not include
retail mark-up, mark-down, or commissions. They do not represent actual
transactions.
Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class (as of October 25, 1997)
-------------- ------------------------
Common Stock
$.10 Par Value 440
Preferred Stock
8% Cumulative 44
Included in the number of stockholders of record are shares held
in "Nominee" or "Street" name.
7
<PAGE>
Dividends
The Company has never paid cash dividends on its common stock.
Payment of dividends on common stock is within the discretion of the
Company's Board of Directors and will depend, among other factors, on
earnings, capital requirements, and the operating financial condition of
the Company.
For information concerning dividends on preferred stock, see Note
6 of Notes to Consolidated Financial Statements.
8
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
October 25, 1997 October 26, 1996 October 28, 1995 October 29, 1994 October 30, 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C>
Net sales $18,842,673 $18,128,274 $16,972,876 $15,111,829 $12,299,037
Net income 1,142,023 884,306 1,783,875 1,727,020 1,076,040
Primary earnings
per share .08 .06 .13 .13 .08
Fully diluted earnings .07 .05 .11 .11 .07
per share
Working capital 5,414,955 4,649,328 4,296,368 3,126,959 1,791,192
Total assets 11,784,701 10,719,852 9,292,446 8,478,227 6,231,132
Long-term debt -- -- 202,811 512,831 584,612
Stockholders' equity 8,511,429 $ 7,439,552 $ 6,629,891 $ 4,907,664 $ 3,246,590
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
FY 1997 vs FY 1996
Total FY 1997 sales of $18,842,673 increased 4% above FY 1996
sales of $18,128,274, again achieving a new record for the Company. Net
income for FY 1997 rose to $1,142,023, representing a 29% gain over FY
1996 net income of $884,306. Adjusting for the FY 1996 nonrecurring
accrual of $760,000, (which reduced the Company's after-tax net income
by $465,400) for the expenses related to the termination of the sales
agreement with its manufacturer's representatives, net income for FY
1997 declined 15% principally due to higher application engineering and
tooling costs.
Product sales of light vehicle windshield washer and defroster
nozzles increased 5% to $18,110,514 in FY 1997 from $17,292,030 in FY
1996. Higher volume of shipments of newly and previously designed washer
nozzles to the Big Three U.S. car manufacturers as well as the
transplant manufacturers in the U.S. was the reason for the gain, even
though defroster outlet sales declined due to discontinuation of certain
models. This 5% increase compares favorably with the 2% gain in North
American light vehicle production during the same period.
The Company's operating plans for the 1998 fiscal year assume that
industry production levels in North America will be 2% to 4% less than
in the 1997 fiscal year. However, the Company's expectations for
defroster nozzle sales are for a larger decline because of lower
forecasted volume for the related vehicles.
In contrast to the increase in product sales for FY 1997,
technical services sales decreased 12% to $732,159 from FY 1996's
$836,244. Sales of tooling for new windshield washer nozzles were down
due to deferrals in the completion and approvals of these tooling
programs.
For the 1998 fiscal year, technical services sales are forecasted
to be significantly higher due to the addition of tooling sales related
to the production of the new air conditioning outlets.
Gross profit on total sales declined 6% to $5,777, 299 in FY 1997.
The margin on sales diminished to 30.7% in FY 1997 from 33.8% in the
previous fiscal year. The declines occurred principally due to increased
application engineering expenses associated with the customization of
new windshield and rear window washer nozzles. In addition, higher
tooling costs over and above amounts billed to customers were incurred
for the development and support of both washer nozzle and air
conditioning outlet tooling projects.
10
<PAGE>
Selling, general and administrative expenses declined $548,359 or
15% in FY 1997 from FY 1996 because of the accrual in fiscal year 1996
of $760,000 for expenses related to the termination of the Company's
sales agreement with its manufacturer's representatives. Excluding this
nonrecurring accrual, selling, general and administrative expenses
increased 7% in fiscal year 1997 principally due to professional fees
for services related to strategic and financial planning for the
Company.
Research and development costs decreased 15% to $1,005,183 from
$1,175,890 the previous fiscal year. Spending on various new product
programs was cut back and larger amounts were spent on the design and
development of the automotive air conditioning outlets.
Research and development expenditures are planned to expand in the
range of 15% in fiscal year 1998. Efforts will continue to be made in
the development of air conditioning outlets for cars and light trucks
and in the knowledge and improvement of washer nozzles.
In FY 1997, the provision for income taxes was $657,420,
reflecting the higher income before taxes and approximately the same
effective tax rate as in the previous fiscal year.
FY 1996 vs FY 1995
Total sales in FY 1996 rose 7% over FY 1995, which then set the
Company's sales record at $18,128,274 compared with $16,972,876 in FY
1995. Income before taxes, however, decreased 53% from FY 1995 to FY
1996. Net income also declined to $884,306 from $1,783,875 in FY 1995, a
50% reduction. Profitability was significantly affected by increased
spending for application engineering and research and development
expenses and for an accrual for the costs of terminating a sales
agreement.
Product sales of light vehicle windshield washer and defroster
nozzles increased 8% to $17,292,030 in FY 1996 from $15,960,301 in FY
1995. Higher volume of shipments of new products to the Company's major
customers was the major reason for the increase, which more than
compensated for a 3% decline in total North American light vehicle
production for the fiscal year 1996 versus 1995.
In contrast, technical services sales in FY 1996 decreased 17% to
$836,244 from FY 1995's $1,012,575. Sales of tooling for new windshield
washer and defroster nozzles were down significantly as there was a
lower rate of culmination of programs for these products. However, sales
were recorded for the first time for prototype tooling for new air
conditioning outlets for one automotive customer.
11
<PAGE>
Gross profit on total sales declined to 34% in FY 1996 from 36% in
FY 1995. The gross profit on product sales declined due to higher
manufacturing expenses mainly related to the modification and repair of
injection molding tooling. Additionally, application engineering costs
directed to the customization of new air conditioning outlets increased
significantly. In contrast, the gross loss on technical services sales
declined for FY 1996 compared to FY 1995 because of cost containment
efforts applied to the tooling programs for new windshield washer
nozzles.
Selling, general and administrative expenses increased $1,033,217
or 40% in FY 1996 from FY 1995 principally because of increases in sales
commissions. These commissions in FY 1996 include accruals of $760,000
related to the planned termination in May 1997 of the Company's sales
agreement with its manufacturer's representatives. The Company is
reorganizing its sales force using its own employees rather than
independent representatives. Aside from this special accrual, expenses
increased 10% due to higher patent, personnel, and computer expenses,
partially caused by the efforts to obtain QS-9000 certification and the
implementation of a new information system.
Research and development costs increased to $1,175,890 in FY 1996,
a $538,920 or 85% increase over the prior year. The Company discontinued
its efforts to develop fluidic nozzles for natural gas burner
appliances. It redirected those same resources plus additional personnel
and outside contractors to the development of automotive air conditioner
outlets, improvements in the design of windshield washer nozzles, and
fluidic technology research.
In FY 1996, the provision for income taxes was $506,629,
reflecting the lower income before taxes and somewhat lower effective
tax rate of 36.4% versus 39% for FY 1995.
Liquidity and Capital Resources
Current assets at the 1997 fiscal year end were $8,195,361
compared with $7,183,195 at the 1996 fiscal year end. Liquidity of these
assets improved as cash and cash equivalents, short-term investments,
and accounts receivable rose to $5,430,709 from $4,640,605 due to the
positive cash flow provided by operating activities during FY 1997.
Inventories increased 7% for the 1997 fiscal year since the
tooling work-in-process rose due to larger investments in tool programs
for both washer nozzles and air conditioning outlets, offsetting a
significant decrease in finished goods.
Current liabilities rose 10% for the fiscal year as a result of
the inclusion of all of the now current remaining liability for the
expenses associated with the termination of the Company's sales
agreement with its manufacturer's representatives.
12
<PAGE>
The current ratio of 2.9:1 at the 1997 fiscal year end increased
in comparison to the 2.8:1 ratio at the 1996 fiscal year end due to the
improved level of liquid assets.
Cash provided by operating activities in the amount of $1,509,348
in fiscal year 1997 resulted principally from net income of $1,142,023
plus the non-cash charges for depreciation and amortization of $960,346.
Funds were used for capital expenditures in the amount of
$1,027,780 principally for production and computer equipment. During the
year, the Company purchased $1,540,015 of U.S. Treasury bills and sold
$600,000 of such bills as a result of the Company's increase in
liquidity.
The Company's $1,000,000 short-term line of credit was not
utilized during the fiscal year 1997 and had no balance outstanding at
October 25, 1997. The preferred stock dividend was declared and paid in
January 1997.
The Company's financial position and credit facilities should
provide an adequate base for sales and production investment
requirements resulting from forecasted production rates by North
American automotive manufacturers, additional market penetration, and
potential new products near term, including air conditioning outlets.
In order to perform the required electronic communication with its
customers, control production, and receive product and services from its
suppliers, the Company needs to ensure that its own computer systems and
those of its suppliers will function properly for the year 2000 and
beyond. The Company is taking the necessary steps and expects to have
its internal computer systems year 2000 compliant by the end of 1998 and
is in the process of assessing the status of the production equipment
software. The Company does not expect the costs of compliance to be
significant to its results of operations. Its suppliers are being
surveyed to assess the status of their systems.
Forward-Looking Statements
This report contains certain forward-looking statements subject to
risks and uncertainties which could cause actual results to differ
materially from those anticipated. Readers are cautioned not to place
undue reliance on those forward-looking statements which speak only as
of the date of this report.
13
<PAGE>
Schedule A: Relationship to Net Sales
<TABLE>
<CAPTION>
Percent Change of Dollars
-----------------------------
Period-to-Period
Percentage of Net Sales Increase or (Decrease)
------------------------------------------ -----------------------------
FY 1997 FY 1996 FY 1995 1996-1997 1995-1996
------- ------- ------- --------- ---------
<S> <C>
Net sales 100.0 100.0 100.0 3.9 6.8
Direct labor, material and other product-
related costs 69.3 66.2 63.9 8.7 10.5
Selling, general and administrative expenses 16.4 20.1 15.4 (15.1) 39.6
Research and development costs 5.3 6.5 3.8 (14.5) 84.6
----- ----- -----
Operating income 8.9 7.2 16.9 27.8 (54.3)
Interest income 0.6 0.5 0.5 31.5 (84.5)
Other income (expense) net -- -- (0.1) -- (14.8)
---- ----- -----
Net income before taxes 9.5 7.7 17.3 29.4 (52.6)
===== ===== =====
</TABLE>
14
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Accountants........................................16
Financial Statements:
Consolidated Statements of Income..................................17
Consolidated Balance Sheets........................................18
Consolidated Statements of Changes in Stockholders' Equity.........19
Consolidated Statements of Cash Flows..............................20
Notes to Consolidated Financial Statements.........................21
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Bowles Fluidics Corporation
We have audited the accompanying consolidated balance sheets of Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 25,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
results of its operations and its cash flows for each of the three fiscal years
in the period ended October 25, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
December 19, 1997
16
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------------------
October 25, October 26, October 28,
1997 1996 1995
------------ ----------- -----------
<S> <C>
Net sales $18,842,673 $18,128,274 $16,972,876
Cost of sales 13,065,374 11,996,305 10,852,940
---------- ---------- ----------
Gross profit 5,777,299 6,131,969 6,119,936
Selling, general and
administrative expenses 3,094,769 3,643,128 2,609,911
Research and development
costs 1,005,183 1,175,890 636,970
---------- ---------- ----------
Operating income 1,677,347 1,312,951 2,873,055
Interest income 117,541 89,401 90,155
Other income (expense), net 4,555 (11,417) (30,433)
---------- ---------- ----------
Income before taxes 1,799,443 1,390,935 2,932,777
Provision for income taxes 657,420 506,629 1,148,902
---------- ---------- ----------
Net income 1,142,023 884,306 1,783,875
Preferred stock dividends
accrued (74,646) (74,645) (74,648)
---------- ---------- ----------
Income applicable to common
shareholders $ 1,067,377 $ 809,661 $ 1,709,227
========== ========== ==========
Primary earnings per share $ .08 $ .06 $ .13
========== ========== ==========
Fully diluted earnings per share $ .07 $ .05 $ .11
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 25, October 26,
1997 1996
----------- -----------
<S> <C>
ASSETS
Current
Cash and cash equivalents $ 755,525 $ 1,287,110
Investments available for sale 1,563,121 577,837
Accounts receivable 3,112,063 2,775,658
Inventories 2,130,615 1,986,065
Other current assets 634,037 556,525
---------- ----------
Total current assets 8,195,361 7,183,195
---------- ----------
Property and equipment, net 3,494,335 3,428,765
Other assets 95,005 107,892
---------- ----------
Total assets $11,784,701 $10,719,852
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $ 1,122,437 $ 1,104,511
Accrued expenses 1,609,807 1,389,356
Income taxes payable 48,162 40,000
---------- ----------
Total current liabilities 2,780,406 2,533,867
Other liabilities 492,866 746,433
---------- ----------
Total liabilities 3,273,272 3,280,300
---------- ----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,264,001 1,261,001
Additional paid-in capital 2,728,083 2,726,583
Retained earnings
($2,407,467 deficit eliminated at 10/29/94) Note 6 3,586,265 2,518,888
---------- ----------
Total stockholders' equity 8,511,429 7,439,552
---------- ----------
Total liabilities and stockholders' equity $11,784,701 $10,719,852
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ----------------------- Additional
Shares Shares Paid-in Retained
Total (000's) Amount (000's) Amount Capital Earnings
----------- ------- --------- ------- ------------ ------------- ----------
<S> <C>
Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ --
Stock options exercised 13,000 20 2,000 11,000
Preferred stock dividends (74,648) (74,648)
Net income 1,783,875 1,783,875
--------- ---- -------- ------ ---------- ---------- ---------
Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227
Preferred stock dividends (74,645) (74,645)
Net income 884,306 884,306
--------- ---- -------- ------ ---------- ---------- ---------
Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888
Stock options exercised 4,500 30 3,000 1,500
Preferred stock dividends (74,646) (74,646)
Net income 1,142,023 1,142,023
--------- ---- -------- ------ ---------- ---------- ---------
Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265
========= === ======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------
October 25, October 26, October 28,
1997 1996 1995
------------- ------------- -------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,142,023 $ 884,306 $ 1,783,875
Adjustments to reconcile net income
provided by operating activities:
Depreciation and amortization 960,346 750,449 661,024
Deferred income taxes 5,900 (241,315) (36,500)
(Gain)/Loss on disposal of assets 21,089 3,088 (2,267)
Accretion of interest on investments (45,269) (31,659) (14,125)
---------- ---------- ----------
2,084,089 1,364,869 2,392,007
---------- ---------- ----------
Change in operating accounts:
Accounts receivable (336,405) (14,264) (844,509)
Inventories (144,550) (86,719) (202,846)
Other assets (86,758) (122,381) (111,535)
Accounts payable 17,926 109,090 (70,656)
Accrued expenses (189,549) 537,235 57,314
Income taxes payable 8,162 (71,441) (431,715)
Other liabilities 156,433 428,049 63,150
---------- ---------- ----------
(574,741) 779,569 (1,540,797)
---------- ---------- ----------
Net cash provided by operating activities: 1,509,348 2,144,438 851,210
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (1,027,780) (1,321,331) (962,597)
Purchase of investments (1,540,015) (566,664) (1,143,566)
Patents and trademarks (4,433) -- (32,556)
Proceeds from sale of equipment 1,441 -- 31,025
Proceeds from sale of investments 600,000 700,000 962,985
---------- ---------- ----------
Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709)
---------- ---------- ----------
Cash flows from financing activities:
Principal payment of debt -- (271,669) (525,102)
Preferred stock dividends (74,646) (74,645) (74,648)
Proceeds from issuance of common stock 4,500 -- 13,000
---------- ---------- ----------
Net cash used by financing activities (70,146) (346,314) (586,750)
---------- ---------- ----------
Net increase(decrease) in cash and cash
equivalents (531,585) 610,129 (880,249)
Cash and cash equivalents:
- Beginning of period 1,287,110 676,981 1,557,230
---------- ---------- ----------
- End of period $ 755,525 $ 1,287,110 $ 676,981
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General. The Company and its wholly owned subsidiary, Fluid Effects
Corporation, operate on a 52/53-week fiscal year which ends on the last
Saturday of October. All years presented are 52 weeks. Assets and
liabilities, and revenues and expenses, are recognized on the accrual basis
of accounting.
Cash Equivalents. Cash equivalents are highly liquid investments with
original maturities of 90 days or less.
Investments. Investments, which are available for sale, consist of U.S.
Treasury bills with original maturities over 90 days, but not greater than
365 days, and are carried at cost plus accrued interest, which approximates
market.
Inventory Pricing. Inventories are carried at the lower of cost (first-in,
first-out) or market.
Property, Equipment and Depreciation. The cost of property and equipment is
depreciated over the estimated useful life of the related assets.
Depreciation is computed on the straight-line method for all assets based
on the following estimated lives:
Years
-----
Production machinery and equipment 3-10
Office furniture and equipment 5-7
Laboratory and machine shop equipment 3-10
Leasehold improvements lease term
Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was
$939,678, $711,282, and $612,294 respectively.
Patents. Costs associated with obtaining United States patents are
capitalized and amortized using the straight-line method over the life of
the patent beginning with the date of issue or date of filing the
application. The Company initially charges all costs associated with the
acquisition of U.S. and foreign patents to expense, then capitalizes those
costs related to U.S. patents upon issuance of those patents.
Management reviews all of the patent costs and writes off any patents
which are considered to be of no foreseeable economic benefit to the
Company. The Company recognizes income from patent licenses in accordance
with the respective payment terms of each license agreement.
21
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (continued)
Income Taxes. The Company uses the asset and liability method for
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences
between the financial statements carrying amounts and the tax bases of
existing assets and liabilities.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications. Certain 1995 and 1996 amounts have been reclassified to
conform to the 1997 presentation.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable and cash investments. The Company's customer base
includes the significant U.S. automotive manufacturers and a large number
of automotive parts suppliers. The Company does not require collateral for
its trade accounts receivable. However, the Company's credit evaluation
process, reasonably short collection terms, and the geographical dispersion
of sales transactions help to mitigate any concentration of credit risk.
The Company also has cash investment policies that limit the amount of
credit exposure to any one financial institution and require placement of
investments in financial institutions evaluated as highly creditworthy.
2. Inventories
Inventories are comprised of:
1997 1996
---------- ----------
Raw material $ 620,567 $ 678,494
Work and tooling in progress 1,016,845 242,369
Finished goods 493,203 1,065,202
--------- ---------
Total $2,130,615 $1,986,065
========= =========
22
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.Property and Equipment, net
Property and Equipment, net, is comprised of:
1997 1996
---------- ----------
Production machinery and equipment $4,946,390 $4,397,018
Office furniture and equipment 2,321,844 1,992,152
Laboratory and machine shop equipment 1,428,516 1,395,837
Leasehold improvements 812,120 796,928
---------- ----------
Total property and equipment 9,508,870 8,581,935
Less accumulated depreciation (6,014,535) (5,153,170)
--------- ---------
Property and equipment, net $3,494,335 $3,428,765
========= =========
4. Line of Credit
In May 1996, the Company entered into a fourth amended and restated
agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and
extend its $1,000,000 line of credit until May 8, 1997, on an unsecured
basis. At the Company's request and the Bank's discretion the line of
credit was extended until May 8, 1998, and may be reaffirmed each year
thereafter. The interest rate is Mercantile's prime rate, floating, which
was 8-1/2% as of October 25, 1997. In addition, a 3/8% annual fee is
assessed on the unused portion of this credit facility. Advances on the
line of credit are limited to 85% of eligible accounts receivable and 40%
of finished goods inventory. No amount was outstanding on this credit line
at October 25, 1997, or October 26, 1996.
In addition to the maintenance of certain financial ratios, the
covenants of the fourth amended loan agreement require the Company's
tangible net worth to be not less than $2,000,000 as of the close of each
fiscal year.
5. Debt
No debt was outstanding as of October 25, 1997, and October 26, 1996. In
February 1996 the unpaid balance of the then outstanding loan from
Mercantile-Safe Deposit & Trust Company was paid in total.
Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and
$37,586, respectively.
23
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stockholders' Equity
The 8% convertible preferred stock of the Company at October 25, 1997,
and October 26, 1996, consists of 3,000,000 authorized shares, par value
$1.00 per share, with 933,080 shares issued and outstanding on both dates.
The common stock of the Company at October 25, 1997, and October 26,
1996, consists of 17,000,000 authorized shares, par value $.10 per share.
On October 25, 1997, the shares issued and outstanding were 12,640,011,
whereas on October 26, 1996, they were 12,610,011.
The Company's preferred stock provides for an annual dividend of $.08
per share from the net earnings of the Company and is cumulative only for
those years in which the Company has earnings, and $1.00 per share in
liquidation before any distribution can be made to holders of common stock.
If any dividends payable on the preferred stock with respect to any fiscal
year of the Company are not paid for any reason, the rights of the holders
of the preferred stock to receive payment of such dividends shall not lapse
or terminate; but unpaid dividends shall accumulate and shall be paid
without interest to the holders of the preferred stock when and as
authorized by the Board of Directors before any dividends shall be paid on
any other class of stock.
The Company's preferred stock may at the option of the holder, at any
time dividends are current, be converted into common stock of the Company
at the conversion rate of four shares of common for each share of
preferred. Additionally, the preferred stock is redeemable at par in whole
or in part at the option of the Board of Directors at any time the
dividends are current after a period of 10 years subsequent to issue. At
October 25, 1997, 683,080 shares have been outstanding for more than 10
years and dividends are current, and thus can be converted. The common
stock has one (1) vote per share and the preferred stock has four (4) votes
per share.
Reserved Shares. As of and for the three fiscal years in the period
ended October 25, 1997, there were 300,000 shares of common stock reserved
for issuance in connection with the Company's stock option plans. None of
the authorized shares of common stock are reserved for conversion of
preferred stock. Under the laws of the State of Maryland, the authorization
of the preferred stock in itself provides the authorization of common stock
necessary for conversion.
Quasi-reorganization. Effective October 29, 1994, the Board of Directors
approved a quasi-reorganization which had the impact of eliminating the
retained earnings deficit as an adjustment to additional paid-in capital.
24
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
The Company and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. The provision for income
taxes consisted of the following:
1997 1996 1995
--------- --------- ---------
Federal:
Current $620,131 $678,938 $1,019,525
Deferred (6,100) (222,600) (30,100)
-------- ------- ---------
614,031 456,338 989,425
-------- ------- ---------
State:
Current 43,189 68,791 164,377
Deferred 200 (18,500) (4,900)
-------- ------- ---------
43,389 50,291 159,477
-------- ------- ---------
$657,420 $506,629 $1,148,902
======= ======= =========
The components of the deferred tax asset and liability for 1997 and 1996
were as follows:
1997 1996
--------- ---------
Deferred tax assets:
Accrued vacation and retirement programs $ 83,600 $190,300
Non-deductible reserves 490,600 387,100
------- -------
Total deferred tax assets 574,200 577,400
------- -------
Deferred tax liabilities:
Property and equipment (303,700) (312,800)
------- -------
Total deferred tax liabilities (303,700) (312,800)
------- -------
Net deferred tax assets $270,500 $264,600
======= =======
Reconciliation of the provisions for income taxes at the U.S. federal
statutory rate to the effective tax expense were as follows:
1997 1996 1995
-------- -------- ----------
U.S. statutory income tax $611,811 $472,918 $ 997,145
State taxes, net of federal
income tax benefit 28,637 33,711 105,255
Other, net 16,972 -- 46,502
------ ------ -------
$657,420 $506,629 $1,148,902
======= ======= =========
Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for
1997, 1996, and 1995, respectively.
25
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings per Share
Primary earnings per share are based on the weighted average number of
common shares and the effects of shares issuable under stock options
based on the treasury stock method. Fully diluted earnings per share
assumes that the preferred stock is converted to common stock at the
beginning of the year.
The number of shares used for computing primary earnings per share was
12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995,
respectively. The number of shares used in computing fully diluted
earnings per share was 16,423,720, 16,473,390, and 16,445,005 in 1997,
1996, and 1995, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (FAS 128), which will require
companies to present basic earnings per share (EPS) and diluted earnings
per share, instead of the primary and fully diluted EPS that is currently
required. The new standard requires additional informational disclosures,
and also makes certain modifications to the currently applicable EPS
calculations defined in Accounting Principles Board Opinion No. 15. The
new standard is required to be adopted by all public companies for
reporting periods ending after December 15, 1997, and will require
restatement of EPS for all periods reported. Under the requirements of
FAS 128, the Company's EPS would be as follows:
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
Basic earnings per share $ .08 $ .06 $ .14
Diluted earnings per share .07 .05 .11
9. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating
leases which expire in 2004 for Columbia, Maryland, and in 2000 for
Southfield, Michigan. As of October 25, 1997, minimum annual aggregate
rentals are as follows:
Year Ended Amount
---------- ------
1998 $ 593,835
1999 594,831
2000 577,026
2001 561,648
2002 561,648
thereafter 842,472
---------
Total minimum future rental payments $3,731,460
=========
26
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (continued)
Rent expense under all leases for 1997, 1996, and 1995 was $644,008,
$626,565, and $622,671, respectively.
Management is unaware of any pending legal proceedings which would
have a material adverse effect on the financial statements of the
Company.
10. Employee Benefit Plans
On November 1, 1990, the Company adopted a defined contribution (401k)
plan covering substantially all of its employees. Contributions and costs
were determined by matching 50% of employee contributions up to 4% of
each covered employee's earnings. As of April 1, 1994, the Company
increased its matching contribution to 50% of the employee contributions
up to 6% of each covered employee's earnings. The Company's contributions
to the plan were $151,314, $119,640, and $101,286 in 1997, 1996, and
1995, respectively.
The Company has agreed to retirement programs for certain former
officers providing for the payment of certain retirement benefits. The
unfunded present value, at a discount rate of 7.5%, of these benefits
accumulated as of October 25, 1997, amounts to approximately $347,000, of
which $288,000 is included in other liabilities. Expenses related to
these programs were $46,476 in 1997, $44,000 in 1996, and $102,000 in
1995.
11. Stock Options
In May 1992, the Company adopted its key employee incentive stock
option plan. Activity in the Company's incentive stock option plan was as
follows:
1997 1996 1995
----------- ----------- -----------
Options outstanding, beginning of year 180,000 180,000 200,000
Options granted - - -
Options exercised (30,000) - (20,000)
Options expired (80,000) - -
------------ ----------- -----------
Options outstanding, end of year 70,000 180,000 180,000
=========== =========== ===========
Options activities are at exercise prices ranging from $.15 to $.65
per share.
27
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. (continued)
Statement of Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS 123) became effective for the Company in 1997. As
allowed by FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25), in accounting for its stock option plans. FAS 123
requires the Company to present pro forma information as if the Company
had accounted for stock options granted since December 15, 1995, under
the fair value method of FAS 123. No pro forma information has been
presented by the Company as no stock options have been issued since
December 15, 1995, the effective date of FAS 123.
12. Termination of Sales Agreement
During the fiscal year 1996, the Company accrued $760,000 ($465,400
net of income taxes) for the termination in May 1997 of the sales
agreement with its manufacturer's representatives. The payments commenced
in May 1997, and the current balance as of October 25, 1997, was
$532,270, which is expected to be paid during fiscal year 1998.
13. Major Customers
Over 90% of the Company's production of nozzles is incorporated in
vehicles produced by General Motors, Ford, and Chrysler, each of whom
typically represents over 10% of the Company's sales volume. The Company
is, therefore, substantially dependent upon the North American production
requirements of these three automotive companies. In addition, the
Company's customers required that a QS-9000-compliant quality system be
developed and registered by an independent organization. Registration
deadlines were July 1997 for Chrysler and December 1997 for General
Motors. In September 1996, the Company was assessed by Underwriters
Laboratories Inc., received QS-9000 certification with ISO 9001 addendum
as of December 20, 1996, and has maintained that certification since
then.
14. New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Standards ("FAS"):
28
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. (continued)
o FAS No. 129, Disclosure of Information about Capital Structures
This statement becomes effective for fiscal years ending after
December 15, 1997, and continues the previous requirements to disclose
certain information about an entity's capital structure found in
previously issued Opinions and Standards. The Company currently
follows the provisions for this statement.
o FAS No. 131, Disclosures about Segments of an Enterprise and Relative
Information
This statement becomes effective for fiscal years beginning after
December 15, 1997, and changes the way public companies report
information about segments of their business in their financial
statements and requires them to report selected segment information in
their quarterly reports to stockholders. The Company intends to adopt
the disclosure requirement by this statement for the year ending
October 30, 1999.
29
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
Information is included in the Proxy Statement for the Annual Meeting of
Stockholders on March 12, 1998.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name, Age and Position: Business Experience During Past Five Years:
----------------------- -------------------------------------------
<S> <C>
William Ewing III Chairman of the Board since July 1996. Responsible for the formation
Chairman of the Board of of overall corporate policy and planning. Member of Board of
Directors Directors since 1985. Previously Vice President and Treasurer of
Age 51 Reeves Industries, Inc., 1995-1997, and Managing Director of Chemical
Bank, 1992-1994.
Ronald D. Stouffer President since March 1994. Responsible for execution of the
President Company's policies and for the Company's operations. Executive Vice
Chief Executive Officer President responsible for engineering and manufacturing from 1982 to
Age 66 1994. Member of Board of Directors since 1978. Joined the Company in
1967.
Eric W. Koehler Appointed Executive Vice President and member of Board of Directors
Executive Vice President December 17, 1997, in charge of marketing, sales, and engineering
Age 35 functions. Previously Vice President, Marketing, since March 1994,
responsible for marketing and sales functions. Director of Marketing,
1990-1994. Joined the Company in 1989.
Melvyn J. L. Clough Vice President, Operations, since joining the Company in November
Vice President, 1995. Responsible for manufacturing operations including industrial
Operations engineering and tooling. Previously Engineering Manager for A.
Age 50 Raymond, Inc., 1992-1995.
Richard W. Hess Vice President, Engineering, since joining the Company in 1992.
Vice President, Responsible for the Company's engineering department, including
Engineering, research and development and applications engineering activities.
Age 54
</TABLE>
31
<PAGE>
Executive Officers of the Registrant (continued)
<TABLE>
<CAPTION>
Name, Age and Position: Business Experience During Past Five Years:
----------------------- -------------------------------------------
<S> <C>
Eleanor M. Kupris Vice President, Administration, since 1982. Corporate Secretary since
Secretary and Vice Presi- March 1992. Responsible for purchasing and personnel. Joined the
dent, Administration Company in 1966.
Age 56
David A. Quinn Vice President, Finance, since joining the Company in October 1993.
Vice President, Responsible for treasury, accounting and financial planning
Finance functions. Previously CFO for Bruning Paint Company, 1991-1993.
Age 61
Dharapuram N. Srinath Vice President, Quality Assurance, since March 1995. Responsible for
Vice President, quality assurance and reliability functions. Director of Quality
Quality Assurance Assurance and Product Reliability, 1992-1995. Joined the Company in
Age 46 1978.
Arlene M. Hardy Corporate Controller since 1990. Responsible for accounting
Corporate Controller functions. Joined the Company in 1986.
Age 50
</TABLE>
The names, ages and positions of all of the executive officers of the
Company are listed above, along with their business experience during the
past five years. Officers are appointed annually by the Board of Directors
at its meeting immediately following the Annual Meeting of Stockholders.
There are no family relationships among any of the officers of the Company,
nor any arrangements or understanding between any such officers and another
person pursuant to which they were elected as officers.
Item 11. EXECUTIVE COMPENSATION
- ------------------------------------
Information is included in the Proxy Statement for the Annual Meeting of
Stockholders on March 12, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------------
Information is included in the Proxy Statement for the Annual Meeting of
Stockholders on March 12, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------------------------------------------------------------
Information is included in the Proxy Statement for the Annual Meeting of
Stockholders on March 12, 1998.
32
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------------------
(a) 1 Financial Statements
--------------------
Included in Part II of this report:
Report of Independent Accountants
Consolidated Statements of Income for the three years
ended October 25, 1997, October 26, 1996, and October
28, 1995
Consolidated Balance Sheets at October 25, 1997, and
October 26, 1996
Consolidated Statements of Changes in Stockholders'
Equity for the three years ended October 25, 1997,
October 26, 1996, and October 28, 1995
Consolidated Statements of Cash Flows for the three
years ended October 25, 1997, October 26, 1996, and
October 28, 1995
Notes to Consolidated Financial Statements
(a) 2 Financial Statements Schedules
------------------------------
Schedules are omitted because of the absence of conditions
under which they are required or because the required
information is given in the financial statements or notes
thereto.
(a) 3 Exhibits
--------
Exhibit 11 -
Schedule showing computations of earnings per share
for each of three years ended October 25, 1997,
October 26, 1996, and October 28, 1995
(b) Reports on Form 8-K
-------------------
None
33
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
A. PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
--------------------------------------------------
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
<S><C>
Calculation of net income:
Net income per books $ 1,142,023 $ 884,306 $ 1,783,875
Less: Dividends on convertible
preferred stock 74,646 74,645 74,648
----------- ----------- -----------
Net income as adjusted $ 1,067,377 $ 809,661 $ 1,709,227
=========== =========== ===========
Calculation of outstanding shares:
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed exercise of stock
options 48,607 91,887 113,055
----------- ----------- -----------
Number of common shares
outstanding adjusted 12,682,371 12,701,898 12,706,408
=========== =========== ===========
Primary earnings per common share: $ .08 $ .06 $ .13
=========== =========== ===========
</TABLE>
34
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE (continued)
B. FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
--------------------------------------------------
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
<S><C>
Net income per books $ 1,142,023 $ 884,306 $ 1,783,875
=========== =========== ===========
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed conversion of
preferred stock 3,732,320 3,732,320 3,732,320
Assumed exercise of
stock options 57,636 131,059 119,332
----------- ----------- -----------
Number of common shares
outstanding adjusted 16,423,720 16,473,390 16,445,005
=========== =========== ===========
Fully diluted earnings per common
share $ .07 $ .05 $ .11
=========== =========== ===========
</TABLE>
35
<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.
BOWLES FLUIDICS CORPORATION
BY:
<TABLE>
<S><C>
Chairman of
the Board and
- --------------------------- Director -------------------------
William Ewing III Date
President and
- --------------------------- Director -------------------------
Ronald D. Stouffer Date
Executive
Vice President and
- --------------------------- Director -------------------------
Eric W. Koehler Date
Vice President
- --------------------------- Finance -------------------------
David A. Quinn Date
- --------------------------- Corporate Controller -------------------------
Arlene M. Hardy Date
- --------------------------- Director -------------------------
David C. Dressler Date
- --------------------------- Director -------------------------
John E. Searle, Jr. Date
</TABLE>
36
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-25-1997
<PERIOD-END> OCT-25-1997
<CASH> 755,525
<SECURITIES> 1,563,121
<RECEIVABLES> 3,112,063
<ALLOWANCES> 0
<INVENTORY> 2,130,615
<CURRENT-ASSETS> 8,195,361
<PP&E> 9,508,870
<DEPRECIATION> 6,014,535
<TOTAL-ASSETS> 11,784,701
<CURRENT-LIABILITIES> 2,780,406
<BONDS> 0
0
933,080
<COMMON> 1,264,001
<OTHER-SE> 6,314,348
<TOTAL-LIABILITY-AND-EQUITY> 11,784,701
<SALES> 18,842,673
<TOTAL-REVENUES> 18,842,673
<CGS> 13,065,374
<TOTAL-COSTS> 17,165,326
<OTHER-EXPENSES> (122,096)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,799,443
<INCOME-TAX> 657,420
<INCOME-CONTINUING> 1,142,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,023
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
