<PAGE> 1
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18198
DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1270573
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gorham Island, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
203-221-8201
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(Registrant's telephone number, including area code)
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
--- ---
The number of shares of common stock outstanding as of November 21, 1995 was
12,250,000.
<PAGE> 2
DeVlieg-Bullard, Inc.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
--------------------- ----
<S> <C>
Item 1. Financial Statements:
Balance Sheets--
October 31, 1995 and July 31, 1995 2
Statements of Operations--
Three Months Ended October 31, 1995
and October 31, 1994 3
Statements of Cash Flows--
Three Months Ended October 31, 1995
and October 31, 1994 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II - OTHER INFORMATION 16
-----------------
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, 1995 July 31, 1995
---------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 516 $ 415
Accounts receivable, net 15,466 11,148
Inventories, net 37,468 22,421
Other current assets 3,591 2,337
-------- -------
Total current assets 57,041 36,321
Property, plant and equipment, net 14,007 6,876
Other assets 50,115 23,035
-------- -------
Total assets $121,163 $66,232
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 9,918 $ 6,520
Accrued expenses and other current liabilities 16,070 4,706
Revolving credit agreement 18,282 12,115
Current portion of long-term debt 3,072 2,149
-------- -------
Total current liabilities 47,342 25,490
Long-term debt 13,691 13,639
Postretirement benefit obligation 27,819 5,022
Other noncurrent liabilities 11,114 1,511
-------- -------
Total liabilities 99,996 45,662
Stockholders' equity:
Common stock, $0.01 par value; authorized
30,000 shares; issued and outstanding
12,250,000 123 123
Additional paid-in capital 34,049 32,299
Excess purchase price over net assets from the
Services Group acquisition (16,358) (16,358)
Retained earnings 3,543 4,663
Cumulative translation adjustment (160) (157)
-------- -------
Total stockholders' equity 21,197 20,570
-------- -------
Total liabilities and stockholders' equity $121,163 $66,232
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
DeVlieg-Bullard, Inc.
Statements of Operations
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
---- ----
<S> <C> <C>
Net sales $21,375 $18,530
Cost of sales 15,508 13,510
------- -------
Gross profit 5,867 5,020
Operating expenses:
Engineering 288 275
Selling 1,909 1,718
General and administrative 2,086 1,939
------- -------
Total operating expenses 4,283 3,932
------- -------
Operating profit 1,584 1,088
Litigation expense 2,600 -
Other (income) expense, net 70 64
------- -------
Income before interest and income taxes (1,086) 1,024
Interest expense 846 527
------- -------
Income before income taxes (1,932) 497
Provision for income taxes (812) 162
------- -------
Net income $(1,120) $ 335
======= =======
Income per common share $ (0.08) $ 0.03
======= =======
Average common shares and equivalents outstanding 13,551 13,250
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
DeVlieg-Bullard, Inc.
Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $(1,120) $ 335
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 771 573
Provision for losses on accounts receivable 61 48
Change in assets and liabilities, net of effects from
acquisitions
Decrease/(increase) in accounts receivable 428 (656)
(Increase)/decrease in inventories (414) 148
Decrease in other current assets (1,197) (1,014)
Increase in accounts payable 1,466 13
Increase in accrued expenses and other current
liabilities 1,972 249
Other, net (47) 227
------- ------
Net cash provided by (used for) operating activities 1,920 (77)
------- ------
Cash flows from investing activities:
Capital expenditures (189) (337)
Purchase of business (9,188) (2,718)
------- ------
Net cash used for investing activities (9,377) (3,055)
------- ------
Cash flows from financing activities:
Net change in revolving credit agreement 6,167 2,044
Proceeds from issuance of long-term debt 5,000 -
Payments on long-term debt (2,693) (186)
Debt issuance costs (913) -
------- ------
Net cash provided by financing activities 7,561 1,858
------- ------
Effect of exchange rate changes on cash (3) 36
------- ------
Net increase/(decrease) in cash and cash equivalents 101 (1,238)
Cash and cash equivalents at beginning of period 415 1,654
------- ------
Cash and cash equivalents at end of period $ 516 $ 416
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
<TABLE>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $953 $529
Income taxes, net of refunds (249) 111
</TABLE>
During the three months ended October 31, 1995, the Company assumed liabilities
in the amount of $42,638 in connection with the acquisition of The National
Acme Company (See Note 2). In addition, the Company accrued $1,500 for
additional purchase price adjustment as provided for in the stock purchase
agreement.
In connection with obtaining the consent of the holders of the $12,000
principal amount of subordinated debentures to the acquisition of National Acme
and to the refinancing of the Company's senior credit facility and to the
refinancing of $4,000 principal amount of such subordinated debentures, the
Company issued stock purchase warrants valued at $1,750. Such amount was
credited to Additional paid-in capital and charged as a discount to
subordinated debentures, reducing the carrying value of the debentures (see
Note 7).
5
<PAGE> 7
DeVlieg-Bullard, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission
for Form 10-Q, the financial statements, footnote disclosures and other
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed. The
financial statements contained in this report are unaudited but in the opinion
of DeVlieg-Bullard, Inc. (the "Company"), reflect all adjustments, consisting
of only normal recurring adjustments, necessary to fairly present the financial
position as of October 31, 1995 and the results of operations and cash flows
for the interim periods of the fiscal year ending July 31, 1996 ("fiscal 1996")
and the fiscal year ended July 31, 1995 ("fiscal 1995") presented herein. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements, footnote disclosures
and other information should be read in conjunction with the financial
statements and the notes thereto included in the Company's annual report on
Form 10-K for the year ended July 31, 1995.
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Amounts in these
notes, except per share data, are expressed in thousands.
NOTE 2: ACQUISITION
On October 23, 1995, the Company acquired (the "Acquisition") all of the
outstanding stock of The National Acme Company, an Ohio corporation ("National
Acme"). Immediately following the consummation of the Acquisition, National
Acme was merged with and into the Company with the Company as the surviving
corporation.
The consideration for the Acquisition consisted of $8,288 for the outstanding
stock of National Acme and $900 in consideration for a non-competition
agreement. The purchase price is subject to adjustment based on the net worth
(as defined) of National Acme at the closing based on an audited balance sheet
of National Acme on that date. An accrual of $1,500 has been made to reflect
the estimated purchase price adjustment; $1,000 of that amount has been
allocated to the non-compete agreement. The Company borrowed funds from its
new senior debt facility to finance the Acquisition (see Note 6).
National Acme, located in Cleveland, Ohio, is the leading manufacturer of
Acme-Gridley(R) multiple spindle bar and chucking machines, as well as a
supplier of related after-market parts and service. National Acme's standard
product offerings include over twenty different machine models. In addition,
National Acme offers a broad array of after-market products and services,
including repair parts, replacement tooling, retrofit upgrade kits and training
and service contracts.
6
<PAGE> 8
The Acquisition was accounted for by the purchase method of accounting and,
accordingly, the purchase price has been allocated to the estimated fair market
value of net assets acquired based on information available at this time. Such
amounts may change as additional information becomes available. The excess of
purchase price over net assets acquired of $17,520 will be amortized on a
straight line basis over thirty years. The non-compete agreement of $1,900
will be amortized on the straight line basis over five years. Liabilities of
$42,638 were assumed in connection with the Acquisition, primarily for
postretirement medical benefits $(24,887) and pension benefits $(10,795). The
accounts of National Acme have been included in the Company's balance sheet as
of October 31, 1995 and the results of operations will be included with those
of the Company starting in the second quarter of fiscal 1996.
The following pro forma information is based on historical balance sheet data
of the Company and National Acme as of July 31, 1995. The unaudited pro forma
combined results of operations for the three months ended October 31, 1995, and
for the year ended July 31, 1995, have been prepared based on the individual
statements of the Company and National Acme as if the Acquisition had taken
place on August 1, 1995 and 1994, respectively.
In preparing the unaudited pro forma results of operations and balance sheet
data, adjustments were made to the historical financial statements under the
assumptions set forth in the accompanying notes thereto. The pro forma results
are not necessarily indicative of what would have been obtained if the
operations had been combined during fiscal 1996 and 1995, nor are they
necessarily indicative of the results that may occur in the future.
7
<PAGE> 9
<TABLE>
<CAPTION>
Pro Forma Balance Sheet
As of July 31, 1995
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
<S> <C> <C> <C> <C>
Cash $ 415 $ 2,663 $(2,660) a $ 418
Accounts receivable, net 11,148 4,993 16,141
Inventories, net 22,421 5,497 8,553 b 36,471
Receivable from affiliate - 4,099 (4,099) a -
Other current assets 2,337 77 2,414
------- ------- --------
Total current assets 36,321 17,329 55,444
Property, plant and equipment 6,876 2,317 5,336 c 14,529
Other assets 23,035 833 27,949 h 51,817
------- ------- --------
Total assets $66,232 $20,479 $121,790
======= ======= ========
Accounts payable $ 6,520 $ 2,099 $ 8,619
Accrued expenses and other
current liabilities 4,706 9,563 14,269
Revolving credit agreement 12,115 - 9,084 d,e 21,199
Current portion of long-term debt 2,149 340 600 d 3,089
------- ------- --------
Total current liabilities 25,490 12,002 47,176
Long-term debt 13,639 365 150 d,f 14,154
Postretirement benefit obligation 5,022 24,510 (2,703) g 26,829
Other noncurrent liabilities 1,511 6,757 3,043 g 11,311
------- ------- --------
Total liabilities 45,662 43,634 99,470
Stockholders' equity
Common stock 123 - 123
Additional paid-in capital 32,299 65,552 (63,802) a,f 34,049
Excess purchase price over net
assets from the Services Group
acquisition (16,358) - (16,358)
Pension adjustment - (6,058) 6,058 g -
Retained earnings 4,663 (82,649) 82,649 a 4,663
Cumulative translation adjustment (157) - (157)
------- ------- --------
Total stockholders' equity 20,570 (23,155) 22,320
------- ------- --------
Total liabilities and
stockholders' equity $66,232 $20,479 $121,790
======= ======= ========
</TABLE>
Assumptions used in pro forma balance sheet:
a Eliminate intercompany and equity accounts of National Acme.
b To adjust inventory values to estimated fair market values as of the
purchase and adjust estimated excess and obsolete reserves.
c To adjust property, plant and equipment to fair market value based on
appraisals.
d To record additional debt for the refinancing of the senior credit
agreement and for the purchase of National Acme and other refinancing and
acquisition costs.
e To accrue for the estimated purchase price adjustment.
f To record the issuance of stock purchase warrants valued at $1,750. These
warrants were recorded as additional discount to the subordinated debt.
g To adjust postretirement benefit and pension obligations based on
actuarial estimates.
h To record excess of purchase price over assets acquired, deferred taxes
and non-compete agreement.
8
<PAGE> 10
<TABLE>
<CAPTION>
Pro Forma Results of Operations
For the Three Months Ended October 31, 1995
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
<S> <C> <C> <C> <C>
Net sales $21,375 $8,484 $29,859
Cost of sales 15,508 5,952 416 a,b 21,876
------- ------ -------
Gross profit 5,867 2,532 7,983
Operating expenses 4,283 1,661 (138) c 5,806
------- ------ -------
Operating profit 1,584 871 2,177
Litigation expense 2,600 - 2,600
Other (income)/expense 70 (42) 46 c 74
------- ------ -------
Earnings before interest and taxes (1,086) 913 (497)
Interest expense 846 11 373 d 1,230
------- ------ -------
Earnings before taxes (1,932) 902 (1,727)
Income taxes (812) - 86 e (726)
------- ------ -------
Net income $(1,120) $ 902 $(1,001)
======= ====== =======
Income (loss) per common share $ (0.08) $ (0.07)
======= =======
Weighted average common shares
and equivalents outstanding 13,551 629 f 14,180
======= =======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Results of Operations
For the Twelve Months Ended July 31, 1995
Adjust-
National Acme ments Combined
DeVlieg- -------- ----
Bullard, Inc. 10 months 2 months
<S> <C> <C> <C> <C> <C>
Net sales $78,150 $30,675 $6,044 $114,869
Cost of sales 55,995 22,185 4,773 1,488 a,b 84,441
------- ------- ------ --------
Gross profit 22,155 8,490 1,271 30,428
Operating expenses 16,912 6,288 1,286 (550) c 23,936
------- ------- ------ --------
Operating profit 5,243 2,202 (15) 6,492
Nonrecurring item 1,500 - - 1,500
Other (income)/expense 338 (541) (174) 488 c 111
------- ------- ------ --------
Earnings before interest and 3,405 2,743 159 4,881
taxes
Interest expense 2,594 42 12 1,600 d 4,248
------- ------- ------ --------
Earnings before taxes 811 2,701 147 633
Income taxes (582) - - (75) e (657)
------- ------- ------ --------
Net income $ 1,393 $ 2,701 $ 147 $ 1,290
======= ======= ====== ========
Income (loss) per common share $ 0.11 $ 0.09
======= ========
Weighted average common shares
and equivalents outstanding 13,257 696 f 13,953
======= ========
</TABLE>
Assumptions used in pro forma results of operations:
a To amortize intangible assets over their respective lives.
b To record additional depreciation expense on the write-up of property,
plant and equipment to their fair market values.
c To eliminate intercompany charges from previous parent company and to
eliminate interest income.
d To record additional interest expense for the increases in debt balances
and the effects of refinancing the senior credit facility and the
issuance of the junior subordinated debentures (see Note 6).
e To record tax expense on the results of operations of National Acme
and the above transactions.
f To record additional shares issued for stock purchase warrants
(see Note 7).
9
<PAGE> 11
NOTE 3: INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
---- ----
(unaudited)
<S> <C> <C>
Raw materials $ 1,355 $ 781
Work-in-process 12,393 5,303
Finished goods 23,720 16,337
------- -------
$37,468 $22,421
======= =======
NOTE 4: OTHER ASSETS
Other assets consisted of:
October 31, July 31,
1995 1995
---- ----
(unaudited)
Intangible assets, primarily engineering drawings $12,009 $12,021
Excess of purchase price over net assets acquired 17,520 -
Goodwill 7,401 7,295
Deferred taxes, net of valuation allowance 11,806 5,059
Deferred financing costs 2,428 1,515
Investments carried at equity 137 137
Pension assets 432 432
Other 3,777 1,535
------- -------
55,510 27,994
Less: accumulated amortization (5,395) (4,959)
------- -------
$50,115 $23,035
======= =======
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
October 31, July 31,
1995 1995
---- ----
(unaudited)
Real property $ 5,732 $ 2,382
Machinery and equipment 13,600 9,928
Capitalized leased assets 1,539 1,539
Furniture and fixtures 3,794 3,278
------- -------
24,665 17,127
Less: accumulated depreciation (10,658) (10,251)
------- -------
$14,007 $ 6,876
======= =======
</TABLE>
10
<PAGE> 12
NOTE 6: REFINANCING OF DEBT
On October 23, 1995, the Company replaced its existing revolving credit
agreement and term loan with a $30,000 senior credit facility comprised of a
$25,000 revolving credit agreement and a $5,000 term loan. The funding
occurred on October 23, 1995, contemporaneously with the Company's completion
of the acquisition of National Acme (see Note 2).
The senior credit facility is secured by all of the Company's assets. Under
the terms of the facility, the Company is required to comply with various
operational and financial covenants, as defined, including (i) minimum net
worth, (ii) interest coverage ratio, (iii) liabilities to net worth ratio, (iv)
current ratio, (v) fixed charge coverage ratio and (vi) minimum earnings
levels, as defined. In addition, the facility places limitations on the
Company's ability to make capital expenditures and to pay dividends.
The facility matures on October 23, 1998, subject to renewal by agreement of
the parties. Amounts available under the revolving credit agreement are based
upon a formula related to the Company's eligible accounts receivable and
inventories. Interest on outstanding balances is payable monthly in arrears.
Interest rates are based on the prime rate or alternative rates based on LIBOR.
A line of credit fee of 0.25% per annum is payable monthly on the difference
between the revolving credit agreement and the average loan balance under the
agreement. The revolving credit agreement also provides for a $300 loan
facility fee paid at closing and a collateral management fee of $50 per year,
payable at the date of closing and annually thereafter. There are early
termination fees should the Company terminate the agreement prior to its third
anniversary.
The term loan is payable in 35 equal installments of $86, with a payment in the
36th month of $2,000. Interest on the term loan is payable monthly. Interest
rates are based on the prime rate or alternative rates based on LIBOR.
Borrowings of $23,900 under the agreement were incurred at the closing to
retire the existing senior credit facility and to finance the Acquisition. The
Company anticipates approximately $1,000 in financing costs will be incurred
related to the refinancing. These costs will be capitalized and amortized over
the life of the debt.
Consummation of the Acquisition and the refinancing required the consent of the
holders of the Company's $12,000 principal amount of subordinated debt (the
"Subordinated Debt"), pursuant to the terms of the Investment Agreement dated
May 25, 1994 (the "Investment Agreement"). Due to the inability of the Company
to obtain the consent of one of the debenture holders on mutually agreeable
terms, Charles E. Bradley and John G. Poole, directors and significant
shareholders of the Company, loaned the Company $2,500 and $1,500,
respectively, pursuant to the terms of Junior Subordinated Debentures (the
"Junior Subordinated Debt"), to repay the principal owed to one of the
subordinated debenture holders. Interest on the Junior Subordinated Debt
accrues at a rate of 14.5% per annum, with cash interest payable at 11% per
annum on a quarterly basis. The Junior Subordinated Debt matures on June 30,
2001, or 30 days after the Subordinated Debt is paid in full. The Subordinated
Debt matures $2,000 in 1999 and 2000 and $4,000 at maturity in 2001.
11
<PAGE> 13
Also in connection with the refinancing, the holders of the Subordinated Debt
agreed to release their security interest in the Company's assets. Messrs.
Bradley and Poole have pledged assets to secure the Subordinated Debt and will
receive $90 annually as a collateral fee for as long as the pledge is in
effect, payable in monthly installments.
NOTE 7: STOCK PURCHASE WARRANTS
In connection with the issuance of the Junior Subordinated Debt, the Company
issued Class A Stock Purchase Warrants (the "Class A Warrants") to Messrs.
Bradley and Poole, representing the right to purchase 52 and 31 shares of the
Company's common stock, respectively. These Class A Warrants were originally
issued to the subordinated debenture holder who was bought out by Messrs.
Bradley and Poole.
Pursuant to the terms of the Investment Agreement, as amended, the Company
issued Class A Stock Purchase Warrants to acquire 500 shares of the Company's
Common Stock. The Company also issued Class C Stock Purchase Warrants to
acquire 750 shares of the Company's Common Stock, subject to adjustment in
certain circumstances ("Class C Warrants") to the subordinated and junior
subordinated debenture holders, pro rata based on the principal amount of the
Subordinated Debt and Junior Subordinated Debt. The exercise price of the
Class A and Class C Warrants is $0.01 per share. The Class A Warrants may be
exercised at any time in whole or in part from and after October 23, 1997, and
shall expire the later of three years from the date of final payment on the
Subordinated Debt or May 25, 2004. The Class C Warrants may be exercised at
any time after October 31, 1998, subject to earlier exercise upon the sale of
the Company, and expire on the later of three years after the payment of the
Subordinated Debt or October 31, 2005.
The number of shares of the Company's Common Stock which the holders of the
Class C Warrants have the right to acquire may be reduced based on the Company
attaining earnings levels, as defined in the Investment Agreement, as amended.
Although the Company believes that it will attain sufficient earnings levels
such that the holders of the Class C Warrants will not have the right to
acquire shares of the Company's common stock pursuant thereto, no assurance can
be given that the Company will attain satisfactory earnings levels. As a
result of this uncertainty, the Company has recorded 200 as likely to be issued
at this time. The Class A and Class C Warrants have an aggregate fair market
value of $1,750. Such amount increased Additional paid-in capital and is
recorded as a discount to the subordinated debentures. This discount will be
amortized as interest expense over the life of the subordinated debt.
12
<PAGE> 14
DEVLIEG-BULLARD, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summarized below is a discussion of the results of operations of the Company,
including its Services, Tooling Systems and Industrial operating groups.
Amounts, except per share data, are expressed in thousands.
ACQUISITION
On October 23, 1995, the Company purchased The National Acme Company for $9,188
in cash, plus $1,500 accrued for additional purchase price adjustment and the
assumption of $42,638 in liabilities. (See Note 2 of Notes to Financial
Statements.) National Acme's sales for the ten months ended July 31, 1995 were
$30,675 and for fiscal 1994 were $30,668. The balance sheet for National Acme
has been included in the financial statements. The results of operations of
National Acme will be included with the Company starting in the second quarter
of fiscal 1996.
THREE MONTHS ENDED OCTOBER 31, 1995 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1994. Net sales for the first quarter of fiscal 1996 were $21,375 compared to
$18,530 for the first quarter of fiscal 1995, an increase of $2,875, or 15.4%,
reflecting increases in all of the Company's operating groups. The increase in
net sales by operating group for the first quarter of fiscal 1996 compared to
the same prior year period consists of $2,988, or 24.9%, in the Services Group;
$567, or 10.9%, in the Tooling Systems Group; and $290, or 5.4%, in the
Industrial Group.
Gross profit for the first quarter of fiscal 1996 was $5,867 compared to $5,020
for the first quarter of fiscal 1995, an increase of $847, or 16.9%, reflecting
increases in each operating group. Gross profit as a percentage of net sales
was 27.4% and 27.1% in the first quarter of fiscal 1996 and fiscal 1995,
respectively, reflecting improvements in the Services Group offsetting a
decline in the Tooling Systems Group. The Industrial Group gross profit as a
percentage of net sales was approximately the same for the first quarter of
fiscal 1996 as compared with the same period a year ago.
Operating expenses were $4,283 or 20.0% of net sales, compared to $3,932, or
21.2% of net sales, in the first quarter of fiscal 1996 and fiscal 1995,
respectively. Operating expenses exceed prior year for the first fiscal
quarter, primarily due to the higher sales volume and acquisitions made during
fiscal 1995. The decrease in operating expenses as a percentage of net sales
is attributable to continued cost reduction programs implemented by the
Company.
Litigation expenses of $2,600 were recorded during the first quarter of fiscal
1996. Of these expenses, $2,200 $(1,320 after taxes) relates to an adverse
judgment rendered in a breach of contract suit. Although the Company accrued
for the full jury verdict, plus interest and other legal costs, it has filed
post-trial motions seeking to set aside the jury's verdict and enter judgement
dismissing certain claims as a matter of law or, in the alternative, to set
aside the jury's verdict and order a new trial on the ground that the jury's
verdict was against the weight of the evidence. The balance of the expenses
are legal costs incurred in connection with the class action suit filed in
1992.
13
<PAGE> 15
Interest expense was $846 in the first quarter of fiscal 1996 compared to $527
in the first quarter of fiscal 1995, an increase of $319. The increase in
interest expense during the fiscal 1996 three month period ended October 31,
compared to the same fiscal 1995 period is due to higher average outstanding
debt balances resulting from the fiscal 1995 acquisitions and higher effective
interest rates.
An income tax benefit of $812 was recorded for the first three months of fiscal
1996, compared to income tax expense of $162 compared for the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $1,920 for the three months ended October
31, 1995 compared to net cash used for operating activities of $77 for the
three months ended October 31, 1994.
Capital expenditures were $189 in the first three months of fiscal 1996
compared to $337 in the same prior year period. As of October 31, 1995, the
Company had no material commitments for specific capital expenditures.
Cash of $9,188 was used for the acquisition of The National Acme Company on
October 23, 1995. A final payment will be made on the basis of a net worth
adjustment as defined in the stock purchase agreement. The Company has accrued
$1,500 for such payment.
The balance outstanding under the Company's revolving credit agreement was
$18,282 at October 31, 1995 compared to $12,115 at July 31, 1995. Long-term
debt, including current maturities, was $18,773 and $15,788 at October 31,
1995 and July 31, 1995, respectively. The Company's total indebtedness was
$37,055 and $27,903 at October 31, 1995 and July 31, 1995, respectively, an
increase of $9,152. Borrowings under the revolving credit agreement were used
primarily to finance the National Acme acquisition (see Note 2 of Notes to
Financial Statements). As outlined in Note 6 of Notes to Financial Statements,
the Company entered into a new $30,000 senior debt facility in October 1995.
Borrowings under these facilities were used to repay the then existing senior
debt facility and are available for working capital requirements and to fund
acquisitions.
The new senior debt facility aggregating $30,000 is comprised of a $5,000 term
loan and a revolving credit agreement which provides for borrowings up to
$25,000. The term loan requires monthly principal payments of approximately
$86 beginning November 30, 1995, through September 30, 1998, with a final
payment of $2,000 due on October 23, 1998. Interest on the term loan is
payable monthly at 1.25% above prime rate or, at the Company's option, at
alternative rates based on LIBOR. The effective rate based on LIBOR was 9.125%
at October 31, 1995. The Company's new revolving credit agreement, which
matures on October 23, 1998, subject to renewal, permits borrowings of up to
$25,000 subject to collateral maintenance requirements. Interest on
outstanding borrowings under the revolving credit agreement is payable monthly
in arrears and interest rates are determined at the time of borrowing based on
the prime rate or alternative rates based on LIBOR. The effective rate based on
LIBOR was 8.875% at October 31, 1995. The amount the Company may borrow under
the revolving credit agreement is based upon a formula related to the Company's
eligible accounts receivable and inventories, reduced by outstanding letters of
credit. Unused borrowings available at October 31, 1995 were $3,959.
14
<PAGE> 16
Pursuant to the subordinated debt facility, the Company issued subordinated
debentures in May 1994 in the principal amount of $12,000. Of this amount,
$4,000 was replaced by junior subordinated debt (see Note 6 of Notes to
Financial Statements). The subordinated debentures provide for the repayment
of principal of $2,000 in fiscal 1999 and 2000 and $4,000 in fiscal 2001.
Interest payments on the subordinated debentures of 11.5% per annum are payable
quarterly in arrears commencing July 1, 1994. The junior subordinated debt
provides for the repayment of principal of $4,000 in June 2001 or thirty days
after the payment of the subordinated debentures. Interest accrues at 14.5%
per annum on the junior subordinated debt, and the cash interest of 11% per
annum is payable quarterly in arrears commencing January 1, 1996. In
connection with the issuance of the subordinated debentures in May 1994, the
Company issued the holders warrants to purchase one million shares of the
Company's common stock at $0.01 per share, which were valued at $1,750, and a
presently indeterminable number of additional shares at $0.01 per share, which
may become available pursuant to a formula, dependent upon the outcome of the
certain legal proceedings. In addition, in connection with the issuance of the
junior subordinated debt and refinancing of the senior credit facility, the
Company issued 500 additional Class A and 750 Class C stock purchase warrants
(see Note 7 of Notes to Financial Statements). These were valued at $1,750.
The Company expects to continue to provide liquidity and finance its ongoing
operational needs primarily through internally generated funds.
15
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 3, 1995, a jury rendered a verdict against the Company in the net
amount of $1,323,228, plus interest, relating to a civil suit filed against the
Company in the Supreme Court for the State of New York, County of Erie, styled
Watson Bowman Acme Corp. v. DeVlieg-Bullard, Inc. A final determination of the
amount of the judgment has not been made at this time. The plaintiff had
alleged losses resulting from a breach of contract by the Company, as successor
to DeVlieg-Lyons Integrated Systems, Inc., in connection with the delivery to
the plaintiff of a CNC Milling Machine. The Company had countersued for the
remaining balance due under the contract of $279,544.
The Company believes that the jury's verdict in this case failed to consider
material evidence in the case that indicates that the Company was not in breach
of the contract and has filed post-trial motions seeking to set aside the
jury's verdict and enter judgments dismissing certain claims as a matter of law
or, in the alternative, to set aside the jury's verdict and order a new trial
on the ground that the jury's verdict was against the weight of the evidence.
These motions were argued on December 7, 1995, however, the court has yet to
rule on such motions. No assurance can be given that such post-trial motions
or any subsequent appeal will be successful. Accordingly, the Company has made
an accrual in the amount $2.2 million for the jury's verdict, plus interest and
other costs.
On March 2, 1992, a purported class action suit was filed in the United States
District Court for the District of Connecticut against the Company, Stanwich
Oil & Gas, Inc., the First Boston Corporation and certain of the Company's
officers and directors. The suit alleges violations of the federal securities
laws and state and federal common law in connection with alleged
misrepresentations and omissions made by the Company in connection with its
initial public offering in March 1990 and in certain reports later issued by
the Company. To date, the United States District Court for the District of
Connecticut has not certified the class of plaintiffs in the referenced action.
By ruling dated September 7, 1994, the court granted that portion of the
defendants' motion to dismiss certain parties to the suit based on a claim that
any of them were secondarily liable for having aided and abetted an alleged
securities fraud violation based on Rule 10b-5 and Section 10(b) of the
Securities Exchange Act of 1934. The court denied the remainder of the motion
to dismiss. While management believes the allegations are without merit and is
defending the litigation vigorously, management is unable at this time to
estimate the effect of any settlement or adverse judgment on the results of
operations and/or financial condition of the Company. The Company has,
therefore, made no accrual for any such settlement, adverse judgment or costs
of adjudication (other than accrual for certain pre-trial costs). Certain
costs estimated to be incurred in defending the suit have been accrued.
16
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the quarter ended October 31, 1995, the Company filed the following
reports on Form 8-K:
Date of Report: November 7, 1995 (Item 2). The Form 8-K included the
following:
(a) Financial Statements of Business Acquired:
Report of Independent Auditors
Consolidated Balance Sheets of The National Acme Company and
Subsidiary as of July 31, 1995 and September 30, 1994.
Statements of Consolidated Operations and Accumulated Deficit of
The National Acme Company and Subsidiary for the ten months
ended July 31, 1995 and the years ended September 30, 1994 and
1993.
Statements of Consolidated Cash Flows of The National Acme
Company and Subsidiary for the ten months ended July 31, 1995
and the years ended September 30, 1994 and 1993.
Notes to Consolidated Financial Statements.
Date of Report: November 21, 1995 (Item 5 - Other Events)
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DeVlieg-Bullard, Inc.
---------------------
(Registrant)
Date: December 15, 1995 By: Lawrence M. Murray
----------------- ------------------------
Vice President and Chief
Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED OCTOBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 516
<SECURITIES> 0
<RECEIVABLES> 16,324
<ALLOWANCES> 1,139
<INVENTORY> 37,468
<CURRENT-ASSETS> 57,041
<PP&E> 24,665
<DEPRECIATION> 10,658
<TOTAL-ASSETS> 121,163
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<BONDS> 0
<COMMON> 123
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0
<OTHER-SE> 21,074
<TOTAL-LIABILITY-AND-EQUITY> 121,163
<SALES> 21,375
<TOTAL-REVENUES> 21,375
<CGS> 15,508
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<OTHER-EXPENSES> 2,670
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<INTEREST-EXPENSE> 846
<INCOME-PRETAX> (1,932)
<INCOME-TAX> (812)
<INCOME-CONTINUING> (1,120)
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