<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
(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, 1996
--------------------
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
------------------------------- --------------------
(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 31, 1996 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--
April 30, 1996 and July 31, 1995 2
Statements of Operations--
Three and Nine Months Ended April 30, 1996
and April 30, 1995 3
Statements of Cash Flows--
Nine Months Ended April 30, 1996
and April 30, 1995 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
PART II - OTHER INFORMATION 18
-----------------
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 20
</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, 1996 July 31, 1995
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,000 $ 415
Accounts receivable, net 14,567 11,148
Inventories, net 39,515 22,421
Other current assets 2,794 2,337
-------- --------
Total current assets 57,876 36,321
Property, plant and equipment, net 13,106 6,876
Other assets 50,028 23,035
-------- --------
Total assets $121,010 $ 66,232
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,684 $ 6,520
Accrued expenses and other current liabilities 17,658 4,706
Revolving credit agreement 16,473 12,115
Current portion of long-term debt 2,893 2,149
-------- --------
Total current liabilities 46,708 25,490
Long-term debt 15,081 13,639
Postretirement benefit obligation 27,579 5,022
Other noncurrent liabilities 10,864 1,511
-------- --------
Total liabilities 100,232 45,662
Stockholders' equity:
Common stock, $0.01 par value; authorized
30,000 shares; issued and outstanding
12,250 123 123
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 3,156 4,663
Cumulative translation adjustment (192) (157)
-------- --------
Total stockholders' equity 20,778 20,570
-------- --------
Total liabilities and stockholders' equity $121,010 $ 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 Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $30,262 $20,959 $84,890 $57,931
Cost of sales 21,717 14,745 62,635 41,749
------- ------- ------- -------
Gross profit 8,545 6,214 22,255 16,182
Operating expenses:
Engineering 447 277 1,178 826
Selling 2,951 1,976 7,944 5,604
General and administrative 2,838 2,236 7,893 5,952
------- ------- ------- -------
Total operating expenses 6,236 4,489 17,015 12,382
------- ------- ------- -------
Operating profit 2,309 1,725 5,240 3,800
Litigation expense - - 4,600 1,500
Other (income) expense, net (137) 68 (25) 205
------- ------- -------- -------
Income (loss) before interest
and income taxes 2,446 1,657 665 2,095
Interest expense 1,257 661 3,194 1,775
------- ------- ------- -------
Income (loss) before income taxes 1,189 996 (2,529) 320
Provision for income taxes 500 417 (1,022) (729)
------- ------- -------- -------
Net income (loss) $ 689 $ 579 ($ 1,507) $ 1,049
======= ======= ======== =======
Income (loss) per common share $ 0.05 $ 0.04 ($ 0.12) $ 0.08
======= ======= ======== =======
Average common shares and
equivalents outstanding 14,965 13,266 12,250 13,252
======= ======= ======== =======
</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>
Nine Months Ended
April 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($1,507) $ 1,049
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,339 1,842
Provision for losses on accounts receivable 169 159
Change in assets and liabilities, net of effects from
acquisitions
Decrease/(increase) in accounts receivable 1,219 (1,515)
Increase in inventories (2,461) (650)
(Increase) decrease in other current assets (400) 1,406
Increase in accounts payable 1,232 1,275
Increase in accrued expenses and other current
liabilities 5,060 998
Other, net (1,375) (2,178)
-------- --------
Net cash provided by operating activities 5,276 2,386
-------- --------
Cash flows from investing activities:
Capital expenditures (736) (650)
Purchase of business (10,549) (11,104)
-------- --------
Net cash used for investing activities (11,285) (11,754)
-------- --------
Cash flows from financing activities:
Increase in revolving credit agreement 4,358 9,818
Proceeds from issuance of long-term debt 8,000 -
Payments on long-term debt (4,668) (1,895)
Debt issuance costs (1,061) -
-------- --------
Net cash provided by financing activities 6,629 7,923
-------- --------
Effect of exchange rate changes on cash (35) 39
-------- --------
Net increase/(decrease) in cash and cash equivalents 585 (1,406)
Cash and cash equivalents at beginning of period 415 1,654
-------- --------
Cash and cash equivalents at end of period $ 1,000 $ 248
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
DeVlieg-Bullard, Inc.
Statements of Cash Flows (continued)
(unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $2,900 $1,471
Income taxes, net of refunds (101) (235)
</TABLE>
During the nine months ended April 30, 1996, the Company assumed liabilities in
the amount of $42,658 in connection with the acquisition of The National Acme
Company (See Note 2).
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).
During the nine months ended April 30, 1995, the decrease in the deferred tax
valuation reserve was $2,962; $1,773 of this amount was credited to the balance
sheet account "Excess purchase price over net assets from the Services Group
acquisition."
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 April 30, 1996 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.
INCOME (LOSS) PER SHARE
Income per share is computed by dividing net income by the weighted average
number of common shares and equivalents outstanding during the period.
Outstanding stock options, which are common stock equivalents, are included in
the calculation if they are dilutive. Stock purchase warrants, which are common
stock equivalents, are included in the calculation of income per share from the
date of issuance. Loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Stock
options and stock purchase warrants are not considered in this calculation as
they would be anti-dilutive.
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 paid for the Acquisition consisted of $8,987 at closing for
the outstanding stock of National Acme and in consideration for a non-compete
agreement, and $1,314 for additional purchase price adjustment in March 1996,
as well as closing costs. The Company borrowed funds from its new senior debt
facility to finance the Acquisition (see Note 6).
National Acme, located in Cleveland, Ohio, manufactures Acme-Gridley(R)
multiple spindle
6
<PAGE> 8
automatic bar and chucking machines and supplies related aftermarket parts and
service.
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 $4,750 has been allocated to
goodwill. These amounts will be amortized on a straight-line basis over thirty
years. The non-compete agreement of $900 will be amortized on the straight-line
basis over five years. Liabilities of $42,658 were assumed in connection with
the Acquisition, primarily for postretirement medical benefits ($24,887) and
pension benefits ($10,795). The results of operations of National Acme have
been included in the Company's balance sheet starting with 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 nine months ended April 30, 1996, 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
Pro Forma Balance Sheet
As of July 31, 1995
<TABLE>
<CAPTION>
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
<S> <C> <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 estimated fair value of engineering drawings, deferred taxes and
non-compete agreement and the excess of purchase price over net assets
acquired.
8
<PAGE> 10
Pro Forma Results of Operations
For the Nine Months Ended April 30, 1996
<TABLE>
<CAPTION>
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
<S> <C> <C> <C> <C> <C>
Net sales $84,890 $8,484 $93,374
Cost of sales 62,635 5,952 416 a,b 69,003
------- ------ -------
Gross profit 22,255 2,532 24,371
Operating expenses 17,015 1,661 (138) c 18,538
------- ------ -------
Operating profit 5,240 871 5,833
Litigation expense 4,600 - 4,600
Other (income)/expense (25) (42) 46 c (21)
------- ------ --------
Earnings before interest and taxes 665 913 1,254
Interest expense 3,194 11 373 d 3,578
------- ------ -------
Loss (earnings) before taxes (2,529) 902 (2,324)
Income taxes (1,022) - 86 e (936)
------- ------ -------
Net income (loss) ($1,507) $ 902 ($1,388)
======= ====== =======
Loss per common share ($0.12) ($0.11)
======= =======
Weighted average common shares
and equivalents outstanding 12,250 - f 12,250
======= =======
</TABLE>
Pro Forma Results of Operations
For the Twelve Months Ended July 31, 1995
<TABLE>
<CAPTION>
DeVlieg- Adjust-
Bullard, Inc. National Acme ments Combined
-------------
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
taxes 3,405 2,743 159 4,881
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 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). No shares are considered to be issued for the nine months ended
April 30, 1996, since the inclusion of such shares would be anti-dilutive.
9
<PAGE> 11
NOTE 3: INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Raw materials $ 1,531 $ 781
Work-in-process 12,924 5,303
Finished goods 25,060 16,337
------- -------
$39,515 $22,421
======= =======
</TABLE>
NOTE 4: OTHER ASSETS
Other assets consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Intangible assets, primarily engineering drawings $24,513 $12,021
Goodwill 12,428 7,295
Deferred taxes, net of valuation allowance 12,606 5,059
Deferred financing costs 2,576 1,515
Investments carried at equity 137 137
Pension assets 432 432
Other 3,933 1,535
------- -------
56,625 27,994
Less: accumulated amortization (6,597) (4,959)
------- -------
$50,028 $23,035
======= =======
</TABLE>
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Real property $ 5,747 $ 2,382
Machinery and equipment 13,887 9,928
Capitalized leased assets 1,539 1,539
Furniture and fixtures 4,009 3,278
-------- --------
25,182 17,127
Less: accumulated depreciation (12,076) (10,251)
-------- --------
$ 13,106 $ 6,876
======== ========
</TABLE>
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
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<PAGE> 12
term loan. The funding occurred on October 23, 1995, contemporaneously with the
Company's completion of the acquisition of National Acme (see Note 2).
On April 12, 1996, the Company obtained an additional $3,000 term loan to help
fund the litigation settlement costs (See Note 8).
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 existing term loan requires monthly principal payments of $86 beginning
November 30, 1995, and the new term loan requires monthly principal payments of
$83 beginning June 30, 1996. The term loans require payments through September
30, 1998, with final payments totalling $2,667 due on October 23, 1998.
Interest rates are based on the prime rate or alternative rates based on LIBOR.
Borrowings of $23,900 under the senior credit facility were incurred at the
closing to retire the existing senior credit facility and to finance the
Acquisition. The Company anticipates approximately $1,200 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 fiscal 1999 and fiscal 2000 and $4,000 at maturity in
fiscal 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. Mr. Bradley
has 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 repaid with proceeds from
the issuance of the Junior Subordinated Debt to 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.
As a result of the settlement of a purported class action suit filed in 1992 in
March 1996 (See "Item 1. Legal Proceedings"), the holders of the Subordinated
Debentures have the right to purchase shares under the Class B Stock Purchase
Warrants (the "Class B Warrants"). The actual shares to be issued to holders of
the Class B Warrants cannot be determined at this time because they are based
on a formula that includes the average closing stock price for 90 days prior to
May 25, 1997. Using the average market price for the third quarter of fiscal
1996, approximately 480 shares would be issued.
12
<PAGE> 14
NOTE 8: LITIGATION SETTLEMENT
The Company accrued $4,600 in legal costs during fiscal 1996. Of this amount,
$2,200 related to a jury verdict rendered against the Company, including
interest expense and legal costs. The Company is appealing the verdict on the
basis that it was against the weight of evidence. The balance of $2,400 related
to the purported class action suit filed against the Company in 1992. The
Company accrued for a settlement and related litigation costs, subject to
approval of the settlement by the court, among other things. (See "Item 1.
Legal Proceedings.")
13
<PAGE> 15
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.
Amounts, except per share data, are expressed in thousands.
ACQUISITION
On October 23, 1995, the Company purchased The National Acme Company for $8,987
in cash, plus $1,314 for additional purchase price adjustment paid in March
1996, closing costs and the assumption of $42,658 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 results
of operations of National Acme are included with the Company starting in the
second quarter of fiscal 1996.
THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 30,
1995.
Net sales for the third quarter of fiscal 1996 were $30,262 compared to
$20,959 for the third quarter of fiscal 1995, an increase of $9,303, or 44.4%,
reflecting the acquisition of National Acme. National Acme's sales for the
third quarter were $9,245. The change in net sales for the other operating
groups for the third quarter of fiscal 1996 compared to the same prior year
period consists of a decrease of $158, or 1.7%, in the Services Group; a
decrease of $87, or 1.6%, in the Tooling Systems Group; and an increase of
$303, or 5.0%, in the Industrial Group.
Gross profit for the third quarter of fiscal 1996 was $8,545 compared to $6,214
for the third quarter of fiscal 1995, an increase of $2,331, or 37.5%,
primarily due to the acquisition of National Acme. Gross profit as a percentage
of net sales was 28.2% and 29.6% in the third quarter of fiscal 1996 and fiscal
1995, respectively. The decrease in gross margin as a percent of net sales is
primarily due to problems experienced in the Tooling Systems Group assimilating
the Cushman acquisition.
Operating expenses were $6,236, or 20.6% of net sales in the third quarter of
fiscal 1996, compared to $4,489, or 21.4% of net sales in the third quarter of
fiscal 1995. Operating expenses exceed prior year for the third fiscal quarter,
primarily due to the acquisition of National Acme. The decrease in operating
expenses as a percentage of net sales is attributable to cost reduction
programs implemented by the Company and leverage from the higher sales volume.
Interest expense was $1,257 in the third quarter of fiscal 1996 compared to
$661 in the third quarter of fiscal 1995, an increase of $596. The increase in
interest expense during the third quarter of fiscal 1996 is due to higher
average outstanding debt balances resulting from the acquisition of National
Acme and higher effective interest rates.
An income tax expense of $500 was recorded for the third quarter of fiscal
1996, compared to an expense of $417 for the same period last year.
14
<PAGE> 16
NINE MONTHS ENDED APRIL 30, 1996 COMPARED TO NINE MONTHS ENDED APRIL 30, 1995.
Net sales for the first nine months of fiscal 1996 were $84,890 compared to
$57,931 for the first nine months of fiscal 1995, an increase of $26,959, or
46.5%. The acquisition of National Acme added $21,534 to net sales. Other
operating groups had increases at the Services Group of $3,911, or 15.7%
(primarily the result of fiscal 1995 acquisitions), increases at Tooling
Systems Group of $628, or 4.0%, and increases at the Industrial Group of $886,
or 5.1%.
Gross profit for the nine months ended April 30, 1996 was $22,255 compared to
the $16,182 for the same period in the prior year, an increase of $6,073, or
37.5%, primarily a result of the acquisition of National Acme, but also
reflecting increases in each operating group, except the Tooling Systems Group.
Gross profit as a percentage of net sales was 26.2% for the first nine months
of fiscal 1996 compared to 27.9% for the first nine months of fiscal 1995. The
decrease in gross margin as a percent of net sales is primarily due to the
inclusion of the results of National Acme beginning in the second quarter of
fiscal 1996.
Operating expenses were $17,015, or 20.0% of net sales, and $12,382, or 21.4%
of net sales, for the first nine months of fiscal 1996 and 1995, respectively,
an increase of $4,633, or 37.4%. The increase is primarily attributable to the
acquisition of National Acme in October 1995. The decrease in operating
expenses as a percentage of net sales is attributable to cost reduction
programs implemented by the Company and leverage from the higher sales volume.
Litigation expenses of $4,600 were recorded during the first nine months 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 a Notice of Appeal against the verdict on the ground that the jury's
verdict was against the weight of the evidence. The balance of $2,400 ($1,440
after taxes) is for legal costs incurred in connection with the settlement of
the class action suit filed in 1992. The litigation alleged violations of the
federal securities laws and state and federal common law in connection with the
Company's initial public offering in March 1990. The Company, Stanwich Oil &
Gas, Inc., the First Boston Corporation and certain of the Company's officers
and directors were included as defendants in the suit. While management
believes the allegations in the lawsuit were without merit, the Company agreed
to settlement, which is contingent on approval of the court, to avoid continued
litigation costs related to the suit. See also Note 7 of Notes to Financial
Statements for a discussion of the Class B Stock Purchase Warrants.
The Company incurred a $1,500 litigation settlement charge in the first nine
months of fiscal 1995. The litigation had 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 believed the allegations in the
lawsuit were without merit, the Company agreed to settlement to avoid continued
litigation costs related to the suit.
Interest expense was $3,194 for the nine months ended April 30, 1996 compared
to $1,775 for the same period in the prior year. The $1,419 increase in
interest expense is attributable to higher
15
<PAGE> 17
outstanding debt balance, primarily due to the acquisition of National Acme
(see Note 2 of Notes to Financial Statements) and higher effective interest
rates.
Income tax benefit was $1,022 and $729 for the nine months ended April 30, 1996
and 1995, respectively. The income tax benefit recorded in fiscal 1996 relates
to the loss recorded for the first nine months of fiscal 1996 as a result of
the litigation expenses for the period. In fiscal 1995, the Company released
$2,962 of its valuation allowance previously recorded against deferred tax
assets based on expectations of continued profitability for the foreseeable
future. Of this amount, $1,189 was recorded as income tax 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."
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $5,276 for the nine months ended April 30,
1996 compared to $2,386 for the nine months ended April 30, 1995.
Capital expenditures were $736 in the first nine months of fiscal 1996 compared
to $650 for the same period in the prior year. As of April 30, 1996, the
Company had no material commitments for specific capital expenditures.
Cash of $10,549 was used for the acquisition of The National Acme Company on
October 23, 1995. In the nine months of fiscal 1995, $11,104 of cash was used
for acquisitions.
The balance outstanding under the Company's revolving credit agreement was
$16,473 at April 30, 1996 compared to $12,115 at July 31, 1995. Long-term debt,
including current maturities, was $17,974 and $15,788 at April 30, 1996 and
July 31, 1995, respectively. The Company's total indebtedness was $34,447 and
$27,903 at April 30, 1996 and July 31, 1995, respectively, an increase of
$6,544. 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 this facility were used to repay the then existing senior debt facility,
to finance the National Acme acquisition (see Note 2 of Notes to Financial
Statements) and to provide for working capital requirements. On April 12, 1996,
the Company obtained a new term loan in the amount of $3,000 to assist in the
financing of the litigation costs (See "Item 1. Legal Proceedings").
The new senior debt facility aggregating approximately $32,000 at April 30,
1996, is comprised of $7,486 in term loans and a revolving credit agreement
which provides for borrowings up to $24,571. The existing term loan requires
monthly principal payments of $86 beginning November 30, 1995, and the new term
loan requires monthly principal payments of $83 beginning June 30, 1996. The
term loans require payments through September 30, 1998, with final payments
totalling $2,667 due on October 23, 1998. Interest on the term loans 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 8.5625% at April
30, 1996. The Company's new revolving credit agreement, which matures on
October 23, 1998, subject to renewal, permits borrowings of up to $24,571
subject to collateral maintenance requirements. Interest on outstanding
borrowings under the revolving credit agreement is payable monthly in arrears
at 1% above the prime rate or, at the Company's option, at alternative
16
<PAGE> 18
rates based on LIBOR. The effective rate based on LIBOR was 8.3125% at April
30, 1996. 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 April 30, 1996 were $4,766.
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 fiscal 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% 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 became available based
upon the anticipated settlement of certain legal proceedings (see Note 7 of
Notes to Financial Statements). 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.
OUTLOOK
The Company does not provide forecasts of potential future financial
performance. While management of the Company is optimistic about the Company's
long-term prospects, success within all of the Company's divisions is dependent
upon the general health of the economy, as well as the timely introduction and
acceptance of new products. While no one marketplace or industry has a major
impact on the Company's operations or results, the inherent pace of
technological changes presents certain risks that need to be considered in
evaluating the growth outlook.
During the past two fiscal years, the Company has recorded pre-tax charges of
$6,100 to accrue for or settle three separate lawsuits. At this time, the
Company is not a party to any legal proceeding the outcome of which, in
management's opinion, would have a material adverse effect on the Company's
consolidated results of operations or financial position.
The Company actively seeks to expand by acquisition, as well as through the
growth of its present businesses. While a significant acquisition would require
additional borrowings, the Company believes it would be able to obtain
financing on acceptable terms.
17
<PAGE> 19
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 approximately $1.3 million, 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
suit was originally filed on November 21, 1991. The Company had countersued for
the remaining balance due under the contract of approximately $280 thousand.
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; a Notice of Appeal was filed on February 9, 1996. No assurance
can be given that such appeal will be successful. Accordingly, the Company made
an accrual in the first quarter of fiscal 1996 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.
While management continues to believe the allegations are without merit, in
March 1996 the Company and all the remaining defendants, collectively, reached
a settlement of the suit with representatives of the purported class. Under the
terms of the settlement, the defendants collectively would pay a total of
approximately $1.5 million over approximately five months. The Company has
accrued $2.4 million in fiscal 1996 for the settlement and related litigation
costs. Consummation of the settlement is contingent upon the occurrence of
several events, including, but not limited to, broad certification of the suit
as a class action, and subsequent approval of the settlement by the court.
Management believes the settlement to be in the best interests of the Company
and its shareholders.
18
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Financing and Security Agreement dated April
12, 1996, between The CIT Group/Business Credit, Inc., and
DeVlieg-Bullard, Inc.
10.2 Term Loan Promissory Note dated April 12, 1996, in the principal
amount of $3,000,000 between The CIT Group/Business Credit, Inc.,
and DeVlieg-Bullard, Inc.
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
April 30, 1996.
19
<PAGE> 21
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: June 4, 1996 By: /s/ Lawrence M. Murray
------------ -------------------------
Vice President and Chief
Financial Officer
20
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT
April 12, 1996
DeVlieg-Bullard, Inc.
One Gorham Island
Westport, Connecticut
Attn: Lawrence Murray
Gentlemen:
Reference is made to the Financing and Security Agreement
dated October 23, 1995 (the "Financing Agreement") between DeVlieg-Bullard,
Inc. ("Borrower") and The CIT Group/Business Credit, Inc. ("CITBC" or the
"Lender"). Capitalized terms used herein and defined in the Financing
Agreement shall have the same meanings as set forth therein unless otherwise
specifically defined herein.
Subject to satisfaction by you of the Conditions Precedent (as
hereinafter defined), we hereby agree with you that the Financing Agreement is
amended as set forth below.
1. AMENDMENTS TO FINANCING AGREEMENT
a. Global Amendment. Except as otherwise specifically amended
herein to the contrary, each reference to "Term Loan" shall be
amended to read "Term Loans", and each reference to "Term Loan
Promissory Note" shall be amended to read "Term Loan
Promissory Notes".
b. Section 1.
Section 1 is hereby amended as follows:
i. By inserting in appropriate alphabetical order the
following new definitions:
A. AVAILABILITY RESERVE shall mean, so long as (1)
the Watson Bowman Judgment shall not have been
satisfied in full or reversed by a final
unappealable order of an appellate court of proper
jurisdiction, or (2) the
<PAGE> 2
Kochenash Litigation has not either been settled
and the full amount of such settlement paid by the
Borrower, or resolved in the Borrower's favor by a
final unappealable order of a court of proper
jurisdiction, $3,000,000, provided that such
$3,000,000 amount shall be reduced at any
particular time Dollar for Dollar by (x) the face
amount of any Letter of Credit issued and
outstanding at such time under this Financing
Agreement securing payment of the Watson Bowman
Judgment and such reduction shall continue in
effect if such Letter of Credit is terminated by
reason of a reversal of such Watson Bowman
Judgment by a final unappealable order of an
appellate court of proper jurisdiction, and (y)
the aggregate amounts paid (I) in satisfaction of
such Watson Bowman Judgment or in settlement of
the related litigation (provided that if such
settlement payments aggregate less than
$1,902,796.55 but fully dispose of all claims in
such litigation, the reduction shall be in the
amount of $1,902,796.55), or (II) in satisfaction
or settlement of the Kochenash Litigation
(including in each case interest thereon),
provided further that the amount of reduction of
the Availability Reserve by reason of payment of
the settlement referred to in clause (II) shall
not exceed $1,097,203.45.
B. DATE OF FIRST AMENDMENT shall mean April 12,
1996.
C. NEW TERM LOAN shall mean the new term loan in the
principal amount of $3,000,000, to be made by
CITBC to the Borrower on the Date of First
Amendment pursuant to, and repayable in accordance
with, the provisions of Section 4 of this
Financing Agreement.
D. EXCESS CASH FLOW shall mean, for any fiscal year,
(a) net income plus (i) amortization, plus (ii)
depreciation expense, plus (iii) interest expense,
each to the extent deducted in computing net
income, (less, to the extent included in
calculating EBITDA, gains realized on the sale of
assets other than Inventory in the normal course
of business, and plus, to the extent deducted in
calculating EBITDA, losses realized on the sale of
assets other than
<PAGE> 3
Inventory in the normal course of business), plus
(iv) any decrease during such period in the
aggregate of all items constituting working
capital other than cash, less (b) (i) interest
expense paid in cash, (ii) principal payments
(other than Mandatory Prepayments in accordance
with paragraphs 1(c) and (d) of Section 3 hereof,
and paragraph 5 of Section 4 hereof) on
Indebtedness paid in cash, (iii) Capital
Expenditures (if permitted hereunder) paid in cash
and (iv) any increase during such period in the
aggregate of all items constituting working
capital other than cash. Excess Cash Flow will
exclude an amount equal to any decrease in working
capital resulting from the payment of Obligations
with proceeds of sales of assets (other than
Inventory in the normal course of business) to the
extent not otherwise deducted pursuant to clause
(b) (ii) of the preceding sentence.
E. EXISTING TERM LOAN shall mean the term loan in the
aggregate principal amount of $5,000,000 made by
CITBC on the Closing Date pursuant to, and
repayable in accordance with, the provisions of
Section 4 of this Financing Agreement.
F. KOCHENASH LITIGATION shall mean the litigation
entitled Kochenash v. Stanwich Oil & Gas.
G. LETTER OF GUARANTY AGREEMENT shall mean the letter
of guaranty agreement dated January 11, 1996
between the Borrower and CITBC.
H. LOANS shall mean, collectively, the Revolving
Loans, the Existing Term Loan, and the New Term
Loan.
I. WATSON BOWMAN JUDGMENT shall mean the judgment,
dated February 9, 1996, of the Supreme Court of
State of New York, County of Erie in the
litigation entitled Watson Bowman Acme Corp. v.
DeVlieg-Bullard, Inc.
ii. By amending the following existing definitions as
indicated.
3
<PAGE> 4
A. The definition of AVAILABILITY is amended by
adding after "Borrower" in the last line thereof
the following: "and the maximum amount guaranteed
under the guaranties of CITBC issued pursuant to
the Letter of Guaranty Agreement, plus aa) the
Availability Reserve".
B. The definition of MANDATORY PREPAYMENT is amended
by (1) adding "(i)" after "mean" in the first line
thereof; (2) correcting the reference to
"paragraph (b)" therein to read "paragraph (c)";
and (3) adding the following after "Agreement" in
the last line thereof: ", or (ii) the amount by
which the Borrower must prepay the New Term Loan
pursuant to Section 4, paragraph 5 of this
Financing Agreement, or both, as the context may
require."
C. The definition of REVOLVING LINE OF CREDIT is
amended by deleting "$25,000,000" at the end
thereof and inserting in its place the following:
"$24,571,429 subject to an increase, from time to
time, in an amount equal to the aggregate amount
of payments or prepayments of the principal of the
Term Loans made on and after the Date of First
Amendment which increase, however, shall not
exceed $428,571".
D. The definition of TERM LOAN is amended in its
entirety to read as follows:
TERM LOANS means, collectively, the Existing Term
Loan and the New Term Loan.
E. The definition of TERM LOAN PROMISSORY NOTE is
amended in its entirety to read as follows:
TERM LOAN PROMISSORY NOTES means, each of notes,
in the forms of Exhibits A1 and A1-a attached
hereto, delivered by the Borrower to CITBC to
evidence the Term Loans pursuant to, and repayable
in accordance with, the provisions of Section 4 of
this Financing Agreement.
c. Section 3
4
<PAGE> 5
Section 1.(a) is amended by deleting "$25,000,000" in the
eleventh line thereof and inserting in its place the
following: "the amount of the Revolving Line of Credit".
d. Section 4
i. Paragraph 1. is amended to read in its entirety as
follows:
"1. The Borrower has executed and delivered to CITBC a Term
Loan Promissory Note, in the form of Exhibit A1, on the
Closing Date to evidence the Existing Term Loan extended to
such Borrower by CITBC. The Borrower agrees to execute and
deliver to CITBC a Term Loan Promissory Note, in the form of
Exhibit A1-a, on the Date of First Amendment, to evidence the
New Term Loan to be extended to the Borrower, on such date, by
CITBC."
ii. Paragraph 2. is amended to read as follows:
"2. On the Closing Date, CITBC made the Existing Term Loan to
the Borrower in the principal amount of $5,000,000.
Upon receipt of a Term Loan Promissory Note evidencing
the New Term Loan to be extended to the Borrower by CITBC,
CITBC agrees to extend to the Borrower in immediately
available funds the New Term Loan in the principal amount of
$3,000,000.
iii. Paragraphs 4., 5., and 6. are redesignated Paragraphs
6., 7., and 8., respectively, and the following new Paragraphs
4. and 5. are inserted immediately following Paragraph 3.:
"4. The principal amount of the New Term Loan shall be repaid
to CITBC by the Borrower:
(i) in twenty-eight (28) consecutive, monthly
installments each in the amount of $83,333.33 with the first
installment due on June 30, 1996, and with subsequent
installments due on each Monthly Date thereafter to and
including September 30, 1998; and
(ii) in one (1) final installment of the remaining
principal amount outstanding, plus all other amounts having
accrued and become outstanding payable on October 23, 1998.
5
<PAGE> 6
5. Mandatory Prepayments shall be made with respect to the
New Term Loan both: (i) within 90 days after the end of each
fiscal year of the Borrower, commencing with the fiscal year
ended July 31, 1997, in an amount equal to fifty percent (50%)
of Excess Cash Flow of the Borrower for such fiscal year, and
(ii) if the Watson Bowman Judgment is reversed by a final
unappealable order of an appellate court of proper
jurisdiction, within 30 days of such order becoming
unappealable and in an amount equal to the lesser of
$1,269,000 or the aggregate unpaid balance of the New Term
Loan.
The proceeds of all of these prepayments shall be applied to
the scheduled installments of principal in the inverse order
of maturity."
iv. The newly designated Paragraph 6. is amended by deleting
"Loan" in the first line thereof and inserting in its place:
"Loans", and by deleting the second sentence in its entirety
and inserting in its place the following: "Each optional
prepayment made pursuant to this paragraph 6 shall be applied
first to the scheduled installments of principal of the New
Term Loan in the inverse order of maturity, and after the New
Term Loan has been paid in full, then to the scheduled
installments of principal of the Existing Term Loan in the
inverse order of maturity."
v. The newly designated Paragraph 7. is amended by deleting
"Loan" in the third line thereof and inserting in its place:
"Loans", and by deleting "the" in the last line thereof and
inserting in its place the following: "either".
e. Section 5
Paragraph 1.(a) is amended by deleting "$1,500,000" in the
eighth line thereof and inserting in its place: "$5,000,000".
f. Section 7
Paragraph 16 of Section 7 is amended by inserting "Existing"
before the phrase "Term Loan" in the second sentence thereof,
and by inserting the following immediately after such
sentence: "The proceeds of the New Term Loan will be used by
the Borrower to make payments in connection with each of the
Watson Bowman Judgment and the Kochenash Litigation."
6
<PAGE> 7
g. Section 8
i. Paragraph 12 of Section 8 is amended by deleting "Current"
in the fourth line thereof and inserting in its place the
word: "Total".
ii. Paragraph 16 of Section 8 is amended in its entirety to
read as follows:
"16. CERTAIN ADJUSTMENTS. Notwithstanding the foregoing
financial covenants set forth in paragraphs 10 through 15 of
this Section 8, to the extent the Borrower is obligated to pay
any amounts in settlement of the Kochenash Litigation and such
obligation or payment results in noncompliance by the Borrower
and its Consolidated Subsidiaries for any period with any or
all of such financial covenants, then for the relevant periods
and for the purpose of determining such compliance:
(a) Consolidated EBITDA (in the case of the financial
covenants in paragraphs 11, 14 and 15) will be
increased; Consolidated Current Liabilities (in the
case of the financial covenant in paragraph 13) will be
decreased; Consolidated Total Liabilities (in the case
of the financial covenant in paragraphs 10 and 12) will
be decreased; in each case by the lesser of (i)
$2,000,000, or (ii) such amount as may be necessary to
effect the minimum level of compliance with such
financial covenant;
(b) Consolidated Interest Expense (in the case of the
financial covenant in paragraph 11) will be decreased
by the lesser of (i) the interest expense on $2,000,000
at the Chemical Bank Rate plus one percent (1.00%) per
annum, or (ii) such amount as may be necessary to
effect the minimum level of compliance with such
financial covenant after giving effect to the
application of clause (a) above, and
(c) The denominator in the Consolidated Fixed Charge
Coverage Ratio (in the case of the financial covenant
in paragraph 14) will be decreased by the lesser of (i)
one-third of the scheduled amortization of the
principal of the New Term Loan in accordance with
Section 4 paragraph 4, or (ii) such amount as may be
necessary to effect the minimum level of compliance
with such financial covenant after giving effect to the
application of clause (a) above."
7
<PAGE> 8
h. Section 11
Paragraph 1.(g) is amended by deleting the phrase "Revolving
Credit" where it appears in each of the second and third lines
thereof.
i. Exhibit A-1a. A new Exhibit A-1a, in the form of Exhibit A-1a
to this First Amendment, is added to the Financing Agreement.
j. Schedules. The following schedules to the Financing Agreement
are amended to read in the form of the correspondingly
numbered schedules to the First Amendment: Schedules 1(b),
7.1, 7.14, and 7.18.
2. CONDITIONS PRECEDENT
The foregoing amendments shall become effective upon the satisfaction by
you of each of the following conditions (each a "Condition Precedent"):
a. CORPORATE ORGANIZATION. CITBC shall have received (to the
extent changed or created since the Closing Date) a copy of the Certificate or
Articles of Incorporation and the By-Laws, of the Borrower, certified by the
Secretary or Assistant Secretary of the Borrower.
b. PROCEEDINGS. On or prior to the Date of First Amendment,
all corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to CITBC, and CITBC shall have received all
such counterpart originals or certified or other copies of such documents as it
may reasonably request.
c. BOARD RESOLUTIONS. CITBC shall have received a copy of
the resolutions of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Amendment Agreement, and any
related agreements and documents, in each case certified by the Secretary or
Assistant Secretary of the Borrower as of the Date of First Amendment, together
with a certificate of the Secretary or Assistant Secretary of the Borrower as
to the incumbency and signature of the officers of the Borrower executing such
agreements and documents on behalf of the Borrower and any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
8
<PAGE> 9
d. TERM LOAN PROMISSORY NOTE. CITBC shall have received a
Term Loan Promissory Note evidencing the New Term Loan, payable to CITBC and
duly executed and delivered by the Borrower with all blanks appropriately
filled in.
e. AMENDMENT TO PATENT SECURITY AGREEMENT. CITBC shall have
received an Amendment to Patent Security Agreement duly executed and delivered
by the Borrower and such Amendment shall be in form and substance satisfactory
to CITBC.
f. UPDATED SCHEDULES. CITBC shall have received an updated
version of each of Schedules 1(b), 7.1, 7.14, and 7.18.
g. NO MATERIAL ADVERSE CHANGE. No material adverse change in
the properties, business, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Borrower shall have occurred since
January 31, 1996.
h. FEES AND EXPENSES. On the Date of First Amendment, the
Borrower shall have (i) reimbursed CITBC for all Out-of-Pocket Expenses for
which a request for payment shall have been made at or prior to the Date of
First Amendment and (ii) paid to CITBC a $30,000 amendment fee.
i. OPINION. Counsel for the Borrower shall have delivered to
CITBC a favorable opinion of such counsel satisfactory to the CITBC and its
special counsel dated the Date of First Amendment, covering such matters as
CITBC may reasonably request.
j. AMENDMENT TO INVESTMENT AGREEMENT. CITBC shall have
received an amendment to the Investment Agreement referred to in clause (2) of
the definition of "Subordinated Debt" in the Financing Agreement reflecting an
amendment to Section 7.17 of such Investment Agreement which corresponds to the
amendment set forth in paragraph 16 of Section 8 to be effected by this
Amendment Agreement and such Amendment shall have been duly executed by the
parties to such Investment Agreement and shall be in form and substance
satisfactory to CITBC.
k. ACKNOWLEDGEMENT BY THE SUBORDINATED CREDITORS. CITBC
shall have received written acknowledgement from each of the Subordinated
Creditors that the Borrower proposes to enter into this Amendment Agreement,
including but not limited to written acknowledgement of the making of the New
Term Loan by CITBC.
l. OFFICER'S CERTIFICATE. CITBC shall have received an
executed officer's certificate of the Borrower signed in the name of the
Borrower by one of its
9
<PAGE> 10
Executive Officers, satisfactory in form and substance to CITBC certifying
that: (i) the representations and warranties contained in the Financing
Agreement, as proposed to be amended by this Amendment Agreement are true and
correct on and as of the Date of First Amendment; (ii) the Borrower is in
compliance with all of the terms and provisions set forth in the Financing
Agreement, as proposed to be amended by this Amendment Agreement; and (iii) no
Default has occurred and is continuing.
m. ADDITIONAL DOCUMENTS. The Borrower shall have executed
and delivered to CITBC all other approvals, opinions or documents as CITBC may
reasonably request.
3. GOVERNING LAW
This Amendment Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
Upon the execution of this Amendment Agreement, all of the
above Conditions Precedent shall have been deemed satisfied. No waiver and,
except as otherwise specifically hereinabove provided, no other change of the
terms or provisions of the Financing Agreement is intended or implied. This
Amendment Agreement shall not constitute a waiver by us of any existing
defaults under the Financing Agreement, whether or not we have knowledge of the
same, and shall not constitute a waiver of any future defaults whatsoever. If
the foregoing is in accordance with your understanding of our agreement, would
each of you kindly so indicate by signing and returning the enclosed copy of
this letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., as Lender
By: /s/ Charles J. Abrams
-------------------------------------
Name: Charles J. Abrams
Title: Assistant Vice President
10
<PAGE> 11
Read and Agreed to:
DEVLIEG-BULLARD, INC.,
AS BORROWER
By: /s/ Lawrence M. Murray
-------------------------------
Name: Lawrence M. Murray
Title: Chief Financial Officer
11
<PAGE> 1
EXHIBIT 10.2
TERM LOAN PROMISSORY NOTE
$3,000,000 New York, New York
April 12, 1996
FOR VALUE RECEIVED, the undersigned, DeVlieg-Bullard, Inc., a
Delaware corporation (herein the "Borrower"), promises to pay to the order of
The CIT Group/Business Credit, Inc. ("CITBC"), at CITBC's offices located at
1211 Avenue of the Americas, New York, NY 10036, in lawful money of the United
States of America and in immediately available funds, the principal amount of
Three Million Dollars ($3,000,000) in twenty-eight (28) equal principal
installments of Eighty-Three Thousand Three Hundred Thirty-Three Dollars and
Thirty-Three Cents ($83,333.33) each payable monthly on the last business day
of each month commencing June 30, 1996 and one (1) final installment of the
remaining principal amount outstanding, plus all other amounts having accrued
and outstanding, payable on October 23, 1998.
The Borrower further agrees to pay interest at said office, in
like money, on the unpaid principal amount owing hereunder from time to time
from the date hereof on the date and at the rate specified in the Financing and
Security Agreement referred to below. Any amount of principal hereof which is
not paid when due, whether at stated maturity, by acceleration, or otherwise,
shall bear interest from the date when due until said principal amount is paid
in full, payable on demand at a rate per annum equal at all times to the
Default Rate.
If any payment on this Term Loan Promissory Note (the "Note")
becomes due and payable on a day other than a business day, the maturity
thereof shall be extended to the next succeeding business day, and with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
<PAGE> 2
This Note is one of the Term Loan Promissory Notes referred to
in the Financing and Security Agreement dated October 23, 1995 between Borrower
and CITBC, as amended by the First Amendment dated April 12, 1996 (and as
further amended, modified or supplemented from time to time, the "Financing
Agreement") and is subject to, and entitled to, all provisions and benefits
thereof and is subject to optional and mandatory prepayment, in whole or in
part, as provided therein. Terms defined in the Financing Agreement are used
herein with their defined meanings unless otherwise defined herein.
Upon the occurrence of any one or more of the Events of
Default specified in the Financing Agreement or upon termination of the
Financing Agreement, all amounts then remaining unpaid on this Note may become,
or be declared to be immediately due and payable, all as provided in the
Financing Agreement.
This Note is secured by certain Loan Documents, including the
Financing Agreement, and is guaranteed as provided in the Financing Agreement,
reference to which is hereby made for a description of the Collateral and
guarantees provided for under such Loan Documents and the rights of CITBC with
respect to such Collateral and guarantees.
The Borrower hereby waives presentment, notice of dishonor,
protest and any other notice or formality with respect to this Term Loan
Promissory Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
DEVLIEG-BULLARD, INC.
By /s/ Lawrence M. Murray
-------------------------------
Name: Lawrence M. Murray
Title: Chief Financial Officer
2
<PAGE> 1
EXHIBIT 11
DeVlieg-Bullard, Inc.
Computation of Earnings per Share
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 31, April 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 689 $ 579 ($1,507) $ 1,049
======= ======= ======= =======
Average number of common
shares outstanding 12,250 12,250 12,250 12,250
Dilutive effect of outstanding
options (a) 225 16 (b) 2
Dilutive effect of outstanding
stock purchase warrants (a):
Class A (issued May 1994) 996 1,000 (b) 1,000
New Class A (issued October 1995) 498 -- (b) --
Class B (c) 249 -- (b) --
Class C (d) 747 -- (b) --
------- ------- ------ -------
Total shares used in calculation of
earnings per share 14,965 13,266 12,250 13,252
======= ======= ======= =======
Income (loss) per share $ 0.05 $ 0.04 ($0.12) $ 0.08
======= ======= ======= =======
</TABLE>
(a) As determined by application of the treasury stock method
(b) Not included in calculation as effect would be antidilutive.
(c) The Class B stock purchase warrants are issuable in May 1997 using a
formula based on the average closing stock price for the 90 days prior to
issuance. The average stock price used here was the average for the
quarter ended April 30, 1996. The Class B warrants became issuable on
March 15, 1996, and have been included since that date.
(d) In connection with the refinancing of the senior debt facility in October
1995 (see Note 6 of Notes to Financial Statements) 750,000 Class C stock
purchase warrants ("Class C Warrants") were issued. The Company has the
opportunity to earn back these shares based on earnings as defined in the
agreement. For the nine months ended April 30, 1996, the Company did not
meet the defined earnings level, therefore all Class C Warrants are
considered outstanding since issuance.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 15,496
<ALLOWANCES> 929
<INVENTORY> 39,515
<CURRENT-ASSETS> 57,876
<PP&E> 25,182
<DEPRECIATION> 12,076
<TOTAL-ASSETS> 121,010
<CURRENT-LIABILITIES> 46,708
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 20,655
<TOTAL-LIABILITY-AND-EQUITY> 121,010
<SALES> 84,890
<TOTAL-REVENUES> 84,890
<CGS> 62,635
<TOTAL-COSTS> 62,635
<OTHER-EXPENSES> 4,575
<LOSS-PROVISION> 169
<INTEREST-EXPENSE> 3,194
<INCOME-PRETAX> (2,529)
<INCOME-TAX> (1,022)
<INCOME-CONTINUING> (1,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,507)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
