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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18198
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DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1270573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gorham Island, Westport, CT 06880
- ---------------------------------------- ----------
(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 May 26, 1995 was
12,250,000.
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DeVlieg-Bullard, Inc.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
--------------------- ----
<S> <C>
Item 1. Financial Statements:
Balance Sheets--
April 30, 1995 and July 31, 1994 2
Statements of Operations--
Three and Nine Months Ended April 30, 1995
and April 30, 1994 3
Statements of Cash Flows--
Nine Months Ended April 30, 1995 and
April 30, 1994 4
Statement of Changes in
Stockholders' Equity--
Nine Months Ended April 30, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 15
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Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
--------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 248 $ 1,654
Accounts receivable, net 11,898 9,559
Inventories, net 21,526 19,269
Other current assets 1,735 2,980
-------- --------
Total current assets 35,407 33,462
Property, plant and equipment, net 6,948 6,340
Other assets 24,267 11,461
-------- --------
Total assets $ 66,622 $ 51,263
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit agreement $ 9,818 $ -
Current portion of long-term debt 2,159 1,828
Accounts payable 7,381 5,772
Accrued expenses and other current liabilities 6,666 4,874
-------- --------
Total current liabilities 26,024 12,474
Long-term debt 13,768 14,577
Postretirement benefit obligation 4,957 4,755
Other noncurrent liabilities 1,636 2,081
-------- --------
Total liabilities 46,385 33,887
-------- --------
Stockholders' equity:
Common stock, $0.01 par value; authorized 30,000,000
shares; issued and outstanding 12,250,000 123 123
Additional paid-in capital 32,299 32,299
Excess purchase price over net assets
from the Services Group acquisition (16,358) (18,131)
Retained earnings 4,319 3,270
Cumulative translation adjustment (146) (185)
-------- --------
Total stockholders' equity 20,237 17,376
-------- --------
Total liabilities and stockholders' equity $ 66,622 $ 51,263
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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DeVlieg-Bullard, Inc.
Statements of Operations
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 20,959 $ 16,488 $ 57,931 $ 47,873
Cost of sales 14,745 11,480 41,749 34,159
-------- -------- -------- --------
Gross profit 6,214 5,008 16,182 13,714
Operating expenses:
Engineering 277 284 826 880
Selling 1,976 1,673 5,604 4,840
General and administrative 2,236 1,853 5,952 5,529
-------- -------- -------- --------
Total operating expenses 4,489 3,810 12,382 11,249
-------- -------- -------- --------
Operating profit 1,725 1,198 3,800 2,465
Litigation settlement - - 1,500 -
Other expense, net 68 46 205 31
-------- -------- -------- --------
Income before interest expense and
income taxes 1,657 1,152 2,095 2,434
Interest expense 661 303 1,775 902
-------- -------- -------- --------
Income before income taxes 996 849 320 1,532
Provision (benefit) for income taxes 417 - (729) 249
-------- -------- -------- --------
Net income $ 579 $ 849 $ 1,049 $ 1,283
======== ======== ======== ========
Earnings per common share $ 0.04 $ 0.07 $ 0.08 $ 0.11
======== ======== ======== ========
Average common shares and equivalents
outstanding 13,266 12,250 13,252 12,250
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DeVlieg-Bullard, Inc.
Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,049 $ 1,283
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,842 1,713
Provision for losses on accounts receivable 159 159
Change in assets and liabilities, net of effect from
acquisitions:
(Increase)/decrease in accounts receivable (1,515) (80)
(Increase)/decrease in inventories (650) (306)
(Increase)/decrease in other current assets 1,406 (523)
Increase/(decrease) in accounts payable 1,275 798
Increase/(decrease) in accrued expenses and
other current liabilities 998 (892)
Other, net (2,178) (842)
-------- --------
Net cash provided by operating activities 2,386 1,310
-------- --------
Cash flows from investing activities:
Acquisitions (11,104) -
Capital expenditures (650) (819)
-------- --------
Net cash used for investing activities (11,754) (819)
-------- --------
Cash flows from financing activities:
Increase in revolving credit agreement 9,818 791
Payments on long-term debt (1,895) (1,205)
-------- --------
Net cash provided by/(used for) financing
activities 7,923 (414)
-------- --------
Effect of exchange rate changes on cash 39 (21)
-------- --------
Net (decrease)/increase in cash and cash equivalents (1,406) 56
Cash and cash equivalents at beginning of period 1,654 295
-------- --------
Cash and cash equivalents at end of period $ 248 $ 351
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,471 $ 774
Income taxes, net of refunds (235) (952)
</TABLE>
Supplemental statement of noncash investing and financing information:
The decrease in the deferred tax valuation reserve was $2,962 in fiscal
1995; $1,773 of this amount was credited to the balance sheet account
"Excess purchase price over net assets from the Services Group
acquisition."
The accompanying notes are an integral part of these financial statements.
4
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DeVlieg-Bullard, Inc.
Statement of Changes in Stockholders' Equity
(unaudited - in thousands)
Nine Months Ended April 30, 1995
<TABLE>
<CAPTION>
Common
Shares Additional Excess Cumulative
Issued and Common Paid-in Purchase Retained Translation
Outstanding Stock Capital Price Earnings Adjustment Total
----------- ------- ------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 12,250 $123 $32,299 ($18,131) $3,270 ($185) $17,376
Net income - - - - 1,049 - 1,049
Tax benefit realized related
purchase price of Services - - - 1,773 - - 1,773
Foreign currency translation - - - - - 39 39
------ ---- ------- -------- ------ ----- -------
Balance, April 30, 1995 12,250 $123 $32,299 ($16,358) $4,319 ($146) $20,237
====== ==== ======= ======== ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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DeVlieg-Bullard, Inc.
NOTES TO CONSOLIDATED 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 April 30, 1995 and the results of operations, cash flows and
changes in stockholders' equity for the interim periods of the fiscal year
ending July 31, 1995 ("fiscal 1995") and the fiscal year ended July 31, 1994
("fiscal 1994") 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, 1994.
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Dollar amounts in
these notes, except per share data, are expressed in thousands.
NOTE 2: Acquisitions
Cushman Industries
On September 9, 1994, the Company acquired specified operating assets of
Cushman Industries, Inc. ("Cushman"), a company in Chapter 11 bankruptcy,
including accounts receivable, inventories, selected machinery and equipment,
trademarks and intellectual property from the Cushman Industries Liquidating
Trust which had been established for the benefit of Cushman creditors. The
purchase price was approximately $3,100 and another $1,900 was incurred for the
relocation and consolidation of the Cushman operation into the Company's
manufacturing facility in Frankenmuth, Michigan. The acquisition was accounted
for by the purchase method of accounting, and accordingly, the purchase price
has been allocated to the fair market value of net assets acquired. The excess
purchase price over net assets acquired of approximately $4,200 has been
recorded as intangible assets (primarily engineering drawings) and is being
amortized on a straight-line basis over 30 years. Cushman's results of
operations are included in the Company's financial statements from the date of
acquisition. Cushman manufactures a broad line of manual and power chucks for
machine tool workholding applications. The Company conducts this business as
part of its Tooling Systems Group.
H.B. Industries, Inc.
On November 30, 1994, the Company acquired all of the outstanding capital stock
of H.B. Industries, Inc. which conducts its business as Ed Smith Machinery
Sales ("Ed Smith"). Ed Smith sells replacement parts for the Bullard product
line of machine tools. The purchase price was approximately $3,000, of which
$275 was placed into escrow for a period of one year in order to assure the
sellers' indemnification obligations. The acquisition was accounted for by the
purchase
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<PAGE> 8
method of accounting, and accordingly, the purchase price has been
allocated to the fair market value of net assets acquired. The excess
purchase price over net assets acquired of approximately $2,000 was recorded as
goodwill and is being amortized on a straight-line basis over a 15 year period.
Ed Smith's results of operations are included in the Company's financial
statements from the date of acquisition. The business is operated by the
Company's Services Group.
Mideastern
On January 23, 1995, the Company purchased substantially all of the assets and
assumed certain liabilities of Mideastern, Inc. ("Mideastern"). Mideastern
rebuilds and provides repair parts and service for a variety of machine tools
under the New Britain Machine brand name. The purchase price for this
acquisition was approximately $5,300 which consisted of $3,100 cash
consideration to the sellers, issuance of a $600 subordinated earnout note to
the sellers, stock options (see Note 9), Mideastern debt of $359 repaid by the
Company at closing, closing costs incurred, and liabilities assumed. The
acquisition was accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to assets acquired and
liabilities assumed based upon the fair market value at the date of
acquisition. The excess purchase price over net assets acquired of
approximately $2,800 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years. The results of operations of Mideastern
since acquired have been included in the Company's financial statements with
the Services Group.
The Company borrowed the funds from its revolving credit agreement to finance
these acquisitions.
The following unaudited pro forma financial information has been prepared
assuming the acquisitions of Cushman, Ed Smith and Mideastern had occurred as
of August 1, 1993.
Pro forma results of operations:
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended April 30,
1995 1994
------- -------
<S> <C> <C>
Net sales $61,127 $54,897
======= =======
Net income $ 1,453 $ 1,608
======= =======
Net income per common share $ 0.11 $ 0.13
======= =======
Average shares outstanding 13,252 12,250
======= =======
</TABLE>
The pro forma financial information does not purport to be indicative of the
results of operations which would have resulted had the acquisitions occurred
on August 1, 1993.
7
<PAGE> 9
NOTE 3: Inventories
Inventories consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
--------- --------
(unaudited)
<S> <C> <C>
Raw materials $ 885 $ 573
Work-in-process 5,258 3,595
Finished goods 15,383 15,101
------- -------
$21,526 $19,269
======= =======
</TABLE>
NOTE 4: Property, Plant and Equipment
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
--------- --------
(unaudited)
<S> <C> <C>
Real property $ 2,382 $ 1,877
Machinery and equipment 9,431 8,163
Capitalized leased assets 1,539 1,539
Furniture and fixtures 3,263 3,039
------- -------
16,615 14,618
Less: accumulated depreciation
and amortization (9,667) (8,278)
------- -------
$ 6,948 $ 6,340
======= =======
</TABLE>
8
<PAGE> 10
NOTE 5: Other Assets
Other assets consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
--------- --------
(unaudited)
<S> <C> <C>
Intangible assets $12,693 $ 8,533
Deferred taxes, net of
valuation allowance 5,840 2,878
Deferred financing costs 1,457 1,375
Investments carried at equity 137 137
Pension assets 418 418
Goodwill 4,835 -
Other 3,478 2,010
------- -------
28,858 15,351
Less: accumulated amortization (4,591) (3,890)
------- -------
$24,267 $11,461
======= =======
</TABLE>
NOTE 6: Litigation Settlement
The Company incurred a $1.5 million charge during its second quarter of fiscal
1995 for the accrual of its agreed settlement, with prejudice, of the
litigation filed by a committee of unsecured creditors of DeVlieg, Inc. and
debtor-in-possession, DeVlieg, Inc. The settlement is subject to final
documentation. The Company, certain of its present and former officers and
directors and several unrelated third parties were included as defendants. The
litigation sought in excess of $10 million in damages and alleged violations of
state fraudulent conveyance statutes in connection with the acquisition by the
Company of certain assets of DeVlieg, Inc. in September 1988 and March 1990.
NOTE 7: Income Taxes
The Company's income tax benefit for the three and nine months ended April 30,
1995 includes the release of valuation allowance previously recorded against
deferred tax assets, recorded in the second quarter. The total valuation
allowance released was $2,962 of which $1,189 was recorded as a tax benefit in
the statements of operations and $1,773 was credited to stockholders' equity
in the account "Excess purchase price over net assets from the Services Group
acquisition."
NOTE 8: Amendment of Credit Facility and Investment Agreement
Effective January 31, 1995, the Company amended its credit facility with its
senior lender and its investment agreement with the holders of its subordinated
debentures, subject to final documentation, by modifying the financial
covenants, including (i) minimum tangible net worth; (ii) maximum debt to worth
ratio; (iii) minimum debt service and capital expenditure coverage; and (iv)
maximum total
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<PAGE> 11
liabilities to cash flow. In addition, the amount the Company may borrow under
its revolving credit agreement shall be reserved $750 if the Company's ratio of
minimum debt service and capital expenditure coverage is less than 1.0, and
reserved $1,500 for the payment of the litigation settlement (Note 6). The
amendment was made to reflect the acquisitions (Note 2) and the litigation
settlement charge. The Company was in compliance with the amended covenants at
January 31, 1995 and April 30, 1995.
NOTE 9: Stock Options and Stock Purchase Warrants
On December 14, 1994, pursuant to the 1989 Employee Stock Plan ("1989 Plan"),
options to purchase 170,000 shares of common stock were granted to certain
employees at $1.625 per share, the fair market value on the date of grant. Of
these, options to purchase 50,000 shares were granted to William O. Thomas,
President and Chief Executive Officer of the Company, and options to purchase
30,000 shares were granted to Lawrence M. Murray, Vice President, Chief
Financial Officer of the Company. The options vest and become exercisable in
installments of 30% at the end of the first and second years and 40% at the end
of the third year, and they terminate ten years from the date of grant. At
April 30, 1995, of the 1,000,000 shares authorized for issuance pursuant to
awards granted under the 1989 Plan, 934,000 stock options were outstanding.
Stock options under the 1989 Plan are not considered in the computation and
presentation of income per share data as they are antidilutive.
On January 27, 1995, the Company granted non-qualified options to the
shareholders of Mideastern, Inc. to purchase an aggregate of 100,000 shares at
an exercise price of $1.50 per share. These options are exercisable at any
time and expire on January 27, 2000. If on January 27, 1998, the fair market
value of the shares covered by the options is not at least $3.50 per share, the
optionees may elect to either (i) retain the options or (ii) cause the Company
to redeem the options for an aggregate of $150 in cash.
The non-qualified options issued in January 1995 and the 1,000,000 stock
purchase warrants issued in May 1994 are dilutive and are included as share
equivalents using the treasury stock method in the computation of earnings per
share. The share equivalents for the quarter and nine months ended April 30,
1995 are 1,016,000 and 1,002,000, respectively.
10
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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 which
include the acquisitions completed in fiscal 1995 of Cushman, H.B. Industries,
Inc. ("Ed Smith"), and Mideastern (see Note 2). Dollar amounts, except per
share data, are expressed in thousands.
THREE MONTHS ENDED APRIL 30, 1995 COMPARED TO THREE MONTHS ENDED APRIL 30,
1994. Net sales for the third quarter of fiscal 1995 were $20,959 compared to
$16,488 for the third quarter of fiscal 1994, an increase of $4,471, or 27.1%,
reflecting increases in all of the Company's operating groups. The increase in
net sales by operating group for the third quarter of fiscal 1995 compared to
the same prior year period consists of $2,539, or 36.5%, in the Services Group;
$927, or 20.9%, in the Tooling Systems Group; and $1,005, or 19.7%, in the
Industrial Group. These results include additions from acquired businesses as
follows: Cushman added $925 to the Tooling Systems Group; and Ed Smith and
Mideastern added $602 and $1,244, respectively, to the Services Group.
Excluding the sales added by acquired businesses, the Services Group increased
$693, or 10.0%, compared to the third quarter of last year, reflecting
increases in its Parts and Remanufacturing operations. The Tooling Systems
Group's net sales, excluding the addition from Cushman, were $2 higher than in
the third quarter of fiscal 1994. The Industrial Group has continued to have a
favorable impact from new product introductions and promotional programs.
Gross profit for the third quarter of fiscal 1995 was $6,214 compared to $5,008
for the third quarter of fiscal 1994, an increase of $1,206, or 24.1%,
reflecting increases in each operating group due to internal growth as well as
contributions from acquired businesses as discussed above. Gross profit as a
percentage of net sales was 29.6% and 30.4% in the third quarter of fiscal
1995 and fiscal 1994, respectively, reflecting declines in each operating group
except the Services Group. The Services Group's gross profit as a percentage
of net sales improved in its Remanufacturing operation (due to work on higher
margin projects booked in fiscal 1995, improved performance and a contribution
from Mideastern), partially offset by a decline in its Parts operation (lack of
favorable inventory adjustment in fiscal 1995 and increased amortization
charges from the acquisitions). The Tooling Systems Group experienced higher
manufacturing costs relating to the hiring and training of employees and due to
inefficiencies associated with the assimilation of the Cushman operation into
the Tooling Systems' Frankenmuth, Michigan facility. The decline in the
Industrial Group's gross profit as a percentage of net sales compared to last
year is primarily due to higher labor costs due to extensive overtime and
certain production inefficiencies caused by key machine breakdowns.
Operating expenses were $4,489, or 21.4 % of net sales, compared to $3,810, or
23.1% of net sales, in the third quarter of fiscal 1995 and fiscal 1994,
respectively. Operating expenses for the third fiscal quarter exceeded prior
year levels by $679 primarily due to the higher sales volume and costs added by
acquired businesses.
11
<PAGE> 13
Interest expense was $661 in the third quarter of fiscal 1995 compared to $303
in the third quarter of fiscal 1994, an increase of $358. The increase in
interest expense is due to higher average outstanding debt balances, primarily
attributable to acquisitions (see Note 2) and higher effective interest rates,
particularly on the Company's subordinated debentures which were issued in May
1994.
The provision for income taxes for the three months ended April 30, 1995 was
$417, an effective rate of 42%, compared to no income tax expense for the same
period of the prior year due to the realization of a refund on prior year taxes
during the quarter.
NINE MONTHS ENDED APRIL 30, 1995 COMPARED TO NINE MONTHS ENDED APRIL 30, 1994.
Net sales for the nine months ended April 30, 1995 were $57,931 compared to
$47,873 for the nine months ended April 30, 1994, an increase of $10,058, or
21.0%. Businesses acquired in fiscal 1995 added $4,874 to net sales with
Cushman contributing $2,343 to the Tooling Systems Group, and Ed Smith and
Mideastern adding $1,021 and $1,510, respectively, to the Services Group.
Excluding the addition from acquisitions, net sales for the nine months ended
April 30, 1995 increased $5,184, or 10.8%, compared to the nine months ended
April 30, 1994. Excluding net sales from fiscal 1995 acquisitions, each
operating group improved as follows: Services Group increased $1,661, or 8.0%;
Tooling Systems Group increased $478, or 3.7%; and the Industrial Group
increased $3,045, or 21.2%. All operating groups have benefited from
promotional programs and new products in addition to the strong economy during
this time.
Gross profit for the nine months ended April 30, 1995 was $16,182 compared to
$13,714 for the same prior year period, an increase of $2,468, or 18.0%,
reflecting improvements in each operating group due to higher volume and
contributions from acquired businesses. Gross profit as a percentage of net
sales was 27.9% for the nine months ended April 30, 1995 compared to 28.6% for
the nine months ended April 30, 1994, reflecting no change for the Industrial
Group and a slight decline in the Services Group, partially offset by an
improvement in the Tooling Systems Group's gross profit as a percentage of net
sales.
Operating expenses were $12,382, or 21.4% of net sales, and $11,249, or 23.5%
of net sales, for the nine months ended April 30, 1995 and 1994, respectively,
a $1,133, or 10.1%, increase. The increase is attributable to higher sales
volume and costs added from acquired businesses.
The Company recorded a $1,500 litigation settlement charge in the second
quarter of fiscal 1995, or $0.11 loss per common share on a pre-tax basis. The
Company has agreed to pay $1,500 in cash, subject to final documentation, to
settle a civil suit filed by a committee of unsecured creditors of DeVlieg,
Inc. and debtor-in-possession, DeVlieg, Inc. The litigation sought in excess
of $10 million in damages and alleged violations of state fraudulent conveyance
statutes in connection with the acquisition by the Company of certain assets of
DeVlieg, Inc. in September 1988 and March 1990. The Company, certain of its
present and former officers and directors and several unrelated third parties
were included as defendants in the suit. While management believes the
allegations in the lawsuit were without merit, the Company agreed to the
settlement to avoid significant continuing litigation costs. See "Legal
Proceedings."
12
<PAGE> 14
Interest expense was $1,775 for the nine months ended April 30, 1995 compared
to $902 for the same period last year, an increase of $873. The increase in
interest expense is attributable to higher outstanding debt balances, primarily
due to acquisitions (see Note 2) and higher effective interest rates,
particularly on the Company's subordinated debentures which were issued in May
1994.
Income tax benefit was $729 compared to income tax expense of $249 for the nine
months ended April 30, 1995 and 1994, respectively. The income tax benefit is
primarily due to the Company's release in the second quarter of fiscal 1995 of
$2,962 of its valuation allowance previously recorded against deferred tax
assets. This amount was released based on expectations of continued
profitability. Of the released valuation allowance, $1,189 was included in the
benefit for income taxes on the statement of operations and $1,773 was credited
to the balance sheet account "Excess purchase price over net assets from the
Services Group acquisition."
Effective August 1, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 112 ("SFAS 112"), "Employers' Accounting for Postemployment
Benefits" under which employers must recognize the cost of benefits provided
to former or inactive, but not retired, employees. If the benefits accumulate
or vest, the cost must be recognized over the service life of the employee.
The impact of adoption was not material to the Company's results of operations
or financial position.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2,386 for the nine months ended
April 30, 1995 compared to $1,310 for the nine months ended April 30, 1994.
Capital expenditures were $650 in the first nine months of fiscal 1995 compared
to $819 in the same prior year period. As of April 30, 1995, the Company had
no material commitments for specific capital expenditures.
The Company has agreed to pay $1.5 million in cash, expected to be paid during
the fourth quarter of fiscal 1995, to settle a civil suit filed by a committee
of unsecured creditors of DeVlieg, Inc. and debtor-in-possession, DeVlieg, Inc.
See "Legal Proceedings."
Cash was used to acquire specified assets of Cushman Industries, Inc., and its
relocation from Hartford, Connecticut and consolidation into the Company's
Tooling Systems' facility in Frankenmuth, Michigan, for the purchase of H.B.
Industries, Inc. and for the purchase of substantially all of the assets of
Mideastern, Inc.
The balance outstanding under the Company's revolving credit agreement was
$9,818 at April 30, 1995 compared to $0 at July 31, 1994. Long-term debt,
including current maturities, was $15,927 and $16,405 at April 30, 1995 and
July 31, 1994, respectively. The Company's total indebtedness was $25,745 and
$16,405 at April 30, 1995 and July 31, 1994, respectively, an increase of
$9,340. Borrowings under the revolving credit agreement were used primarily to
finance acquisitions.
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<PAGE> 15
The Company's revolving credit agreement permits borrowings of up to $15,000
subject to collateral maintenance requirements. 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 and as described in Note 8, a $750 reserve, if
applicable, and a $1,500 reserve for payment of the litigation settlement.
Unused borrowings available at April 30, 1995 were $3,726, which includes
reserves of $1,500.
As outlined in Note 8, effective January 31, 1995 the Company amended the
financial covenants with its senior lender and the holders of its subordinated
debentures to reflect the acquisitions made (see Note 2) and the litigation
settlement (see Note 7).
The Company expects to continue to provide liquidity and finance its ongoing
operational needs primarily through internally generated funds. The Company is
actively pursuing an acquisition strategy. Under certain circumstances, certain
acquisitions require the consent of the Company's senior lender and the holders
of the subordinated debentures. In addition, the Company may need to incur
additional indebtedness or issue additional equity securities to make any such
acquisition.
14
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 4, 1993, the Company, certain of its present and former officers and
directors and several unrelated third parties were included as defendants in a
civil suit filed in the United States District Court for the Northern District
of Illinois, Western District. The suit was filed by a committee of unsecured
creditors of DeVlieg, Inc., a company in Chapter 11 proceedings in the
Bankruptcy Court for the Northern District of Illinois, and
debtor-in-possession, DeVlieg, Inc. The litigation sought in excess of $10
million in damages and alleged violations of state fraudulent conveyance
statutes in connection with the acquisition by the Company of certain assets of
DeVlieg, Inc. in September 1988 and March 1990. The Company agreed to settle
this suit, subject to final documentation, for $1.5 million in cash. The
settlement is effective as to the Company and each of its present and former
officers and directors party to the suit. The $1.5 million payment is expected
to be made during the fourth quarter of fiscal 1995.
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.
The Company is also involved in litigation and proceedings, including product
liability claims, in the ordinary course of its business. The Company does not
believe that the outcome of such litigation will have a material adverse effect
upon the Company, after taking into account any proceeds of available
insurance.
15
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the quarter ended April 30, 1995, the Company filed the following reports on Form 8-K:
Date of Report: February 3, 1995, as amended by Form 8-K/A filed March 22, 1995 (item 2). The Form 8-K/A included the
following:
(a) Financial Statements of business acquired:
Report of Independent Accountants
Balance Sheets of Mideastern, Inc. as of December 31, 1994 and 1993
Statements of Operations and Retained Earnings of Mideastern, Inc. for the
years ended December 31, 1994 and 1993
Statements of Cash Flows of Mideastern, Inc. for the years ended
December 31, 1994 and 1993
Notes to Financial Statements
Report of Independent Accountants
Balance Sheet of Mideastern, Inc. as of December 31, 1992
Statement of Operations and Retained Earnings of Mideastern, Inc. for the
year ended December 31, 1992
Statement of Cash Flows of Mideastern, Inc. for the year ended December 31, 1992
Notes of Financial Statements
(b) Pro forma financial information:
The pro forma combined financial statements give effect to the acquisitions by the Company of
Mideastern, Inc., Cushman Industries and H.B. Industries, Inc. as if the acquisitions had taken
place on August 1, 1993.
</TABLE>
16
<PAGE> 18
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: May 30, 1995 By: /s/Lawrence M. Murray
------------ ------------------------
Vice President and Chief
Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT FILED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-30-1995
<CASH> 248
<SECURITIES> 0
<RECEIVABLES> 11,898
<ALLOWANCES> 0
<INVENTORY> 21,526
<CURRENT-ASSETS> 35,407
<PP&E> 6,948
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,622
<CURRENT-LIABILITIES> 26,024
<BONDS> 13,768
<COMMON> 123
0
0
<OTHER-SE> 20,114
<TOTAL-LIABILITY-AND-EQUITY> 66,622
<SALES> 57,931
<TOTAL-REVENUES> 57,931
<CGS> 41,749
<TOTAL-COSTS> 41,749
<OTHER-EXPENSES> 14,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,775
<INCOME-PRETAX> 320
<INCOME-TAX> (729)
<INCOME-CONTINUING> 1,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,049
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
