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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996
Commission file number: 0-18198
DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1270573
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(State of incorporation) (I.R.S. employer identification no.)
One Gorham Island, Westport, Connecticut 06880
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 203-221-8201
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
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
- -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part Ill of this Form 10-K or any amendment to
this Form 10-K. [X]
At July 31, 1996, the aggregate market value of the voting stock held by
nonaffiliates was approximately $16,439,597. The market value calculation was
determined using the closing price of registrant's common stock on August 31,
1996, as reported on the NASDAQ National Market System, and assumes all shares
beneficially owned by executive officers and members of the Board of Directors
of the registrant are shares owned by "affiliates," a status which each of the
executive officers and directors individually disclaims.
DeVlieg-Bullard, Inc., had 12,250,000 shares of common stock outstanding at
August 31, 1996.
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DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents from which portions are
Part of Form 10-K incorporated by reference
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<S> <C>
III Proxy Statement relating to the
Company's Annual Meeting of Stockholders
on December 18, 1996
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
DeVlieg-Bullard, Inc., (the "Company") is a diversified industrial concern
specializing in manufacturing, servicing, upgrading, automating and
remanufacturing precision engineered machine tools. The Company also
manufactures sophisticated original and replacement tooling products used in
industrial machine tools. Considered together, these businesses provide a
diversified line of original equipment and aftermarket machine tool services
and products ranging from highly automated remanufactured machine tools to
replacement parts. In addition, the Company produces high quality stationary
power tools for use in the woodworking and metalworking industries.
The Company, headquartered in Westport, Connecticut, conducts its business
through the Services Group, National Acme, Tooling Systems Group and Industrial
Group in facilities located in California, Connecticut, Illinois, Michigan,
Ohio, Pennsylvania, Tennessee, the United Kingdom and Germany.
For financial information on the Company's business segments, see Note 16 of
Notes to the Company Financial Statements.
The Services Group provides repair and replacement parts, field service,
rebuild, retrofit and remanufacturing services predominantly for the DeVlieg,
Bullard, American Tool, Brown & Sharpe, Futurmill, New Britain Machine,
Rockford and White-Sundstrand brand machine tools. The Services Group conducts
its operations at facilities located in Huntington Beach, California; Cromwell,
Connecticut; Rockford, Illinois; Madison Heights, Michigan; Abbottstown,
Pennsylvania; and Twinsburg, Ohio.
The National Acme Division manufactures original equipment multiple spindle
automatic bar and chucking machines, repair and replacement parts, tooling and
attachments under the trade name of Acme-Gridley. In addition, The National
Acme Trading Company brokers used Acme-Gridley equipment. National Acme
conducts its operations at facilities in Cleveland and Fremont, Ohio.
The Tooling Systems Group ("Tooling Systems") manufactures precision tool
holding devices, boring tools and electronic tool management systems used in
manual and computer numerically controlled ("CNC") machine tools. These
products are marketed under the Universal Engineering, DeVlieg-Microbore and
Cushman Industries tradenames primarily to the automotive, aerospace, defense,
construction and farm equipment industries. Tooling Systems conducts its
operations at facilities in Frankenmuth and Gladwin, Michigan; Lutterworth,
England; and through a 50% owned joint venture in Bielefeld, Germany.
The Industrial Group, consisting of the Company's Powermatic Division
("Powermatic"), produces high quality, stationary power tools, including table
saws, shapers, bandsaws, drill presses, planers and jointers for use in the
woodworking and metalworking industries. Powermatic conducts its operations in
two facilities, both located in McMinnville, Tennessee.
BUSINESS STRATEGY AND MARKET DEVELOPMENT
The Company's business strategy is to capitalize on the opportunities for
growth in its core businesses by increasing its penetration of existing markets
through acquisitions and expanding into new markets by introducing new products
and services.
SERVICES GROUP
As a primary provider of aftermarket services for a large installed base of
machine tools, the Company believes it has a strong competitive position in
providing replacement parts, field repair and remanufacturing services for the
DeVlieg, Bullard, American Tool, Brown & Sharpe, Futurmill, New Britain
Machine, Rockford and White-Sundstrand tradenames. However, the installed base
of these machine tools is expected to decrease gradually over time as older
machine tools historically serviced by the Company are retired from service.
The Services Group's business strategy includes expanding to other machine tool
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brands, by acquiring other machine tool companies and by introducing engineered
productivity improvements which prolong the life of installed base equipment.
On November 30, 1994, the Company purchased H.B. Industries, Inc. which
conducts its business as Ed Smith Machinery Sales. The acquisition complements
the Company's existing line of Bullard products, parts and services and
strengthens the Services Group's position in the automotive market. See Note 2
of Notes to the Company Financial Statements.
On January 23, 1995, the Company acquired essentially all of the assets of
Mideastern, Inc. which has been an important provider of field and
remanufacturing services and aftermarket replacement parts for New Britain
Machine automatic screw machines since it was founded in 1986. The acquisition
of Mideastern, Inc., and the addition of its four former owners, strengthens
the Services Group's New Britain Machine parts remanufacturing capability and
adds field service expertise to the services provided to the New Britain
Machine customer base. See Note 2 of Notes to the Company Financial
Statements.
NATIONAL ACME
On October 23, 1995, the Company purchased The National Acme Company, a leading
manufacturer of original equipment multiple spindle bar and chucking machines,
as well as a supplier of related aftermarket parts and service. See Note 2 of
Notes to the Company Financial Statements.
National Acme's reputation has been based on building the most durable multiple
spindle automatic bar and chucking machines in the world. This has resulted in
a large installed base of machines around the world, including machines built
by three licensees spanning over 50 years. National Acme's business strategy
includes increased emphasis on international markets, as well as cost
reductions in its aftermarket parts business.
TOOLING SYSTEMS GROUP
The primary strategy for Tooling Systems is to gain market share in its product
lines through continued emphasis on the acquisition of additional tooling
companies and by providing superior customer service, including product
quality, delivery and application engineering. To further its ability to
distribute Microbore products, Tooling Systems opened a sales and warehousing
facility in the United Kingdom in fiscal 1991 and began distribution in Mexico
during fiscal 1993 and in Asian markets during fiscal 1995. New product
introductions have enhanced Tooling Systems' product offerings and are
important to its market development.
On September 9, 1994, the Company acquired certain assets of Cushman
Industries, Inc., a manufacturer of work holding devices including manual
chucks, power chucks and special order work holding systems. See Note 2 of
Notes to the Company Financial Statements.
INDUSTRIAL GROUP
Powermatic enjoys strong name recognition and a reputation for quality among
its customers. Powermatic expects to capitalize on these strengths by
continuing to extend its line of woodworking machinery intended for the light
industrial market and the home hobbyist.
OPERATING GROUPS
SERVICES GROUP
The Services Group provides repair and replacement parts, field service,
rebuild, retrofit and remanufacturing services through its Parts Operation and
Remanufacturing Operation.
Parts Operation. The Parts Operation provides aftermarket services, consisting
of repair and replacement parts, predominantly for the DeVlieg, Bullard,
American Tool, Brown & Sharpe, Futurmill, New Britain Machine, Rockford and
White-Sundstrand brand machine tools.
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Parts are sold primarily through direct customer contact. The Parts Operation
employs a technically-oriented customer service group composed of 13 customer
service representatives and seven technical support personnel. Because of the
age, variety and technical complexity of the machine tool population,
identification of replacement parts or repair solutions requires technically
qualified employees who are familiar with the products served. Products are
marketed to over 5,000 active customers, consisting primarily of aerospace and
defense contractors, automotive and transportation equipment manufacturers,
farm equipment builders, manufacturers of industrial equipment and precision
tool and die shops located throughout the United States and overseas.
The Parts Operation's warranty policy covers all of its aftermarket products
and services and generally provides a 90-day warranty on defects in materials
and a 30-day warranty on defects in workmanship for replacement parts.
Remanufacturing Operation. The Remanufacturing Operation provides field
service, rebuild, retrofit and remanufacturing services for numerous brands of
machine tools, including DeVlieg, Bullard, American Tool, Brown & Sharpe,
Futurmill, New Britain Machine, Rockford and White-Sundstrand brands. The
remanufacture of a machine tool, typically consisting of replacing worn parts
and components, realigning the machine, and adding updated CNC capability and
electrical and mechanical enhancements, generally takes four to six months to
complete. Once completed, a remanufactured machine is a "like new,"
state-of-the-art machine costing approximately 50% of the cost of a replacement
machine.
The Remanufacturing Operation employs approximately 80 persons including more
than 30 field service engineers. The technical complexity and variety of
product enhancements that relate to rebuilding, retrofitting and
remanufacturing machine tools require highly skilled sales, engineering and
assembly personnel. The Remanufacturing Operation's services are sold through
direct sales personnel, numerous nonexclusive distributors located throughout
the United States and direct customer inquiries.
The Remanufacturing Operation's warranty policy covers all newly manufactured
and remanufactured products and generally provides a one-year parts and labor
warranty.
NATIONAL ACME
National Acme manufactures new machines, provides repair and replacement parts
through its Machines and Aftermarket operations and brokers used machines
through its National Acme Trading Company.
Machines. National Acme manufactures high quality, original equipment multiple
spindle automatic bar and chucking machines. These are sold through direct
customer contact and through distributors world-wide under the Acme-Gridley and
NAMCO trade names. The selling prices for National Acme machines range from
$100,000 to over $1.0 million.
Aftermarket. Parts, tooling and attachments are sold directly to customers and
through distributors. National Acme has six customer service representatives
and six field service technicians, who provide technical assistance.
Approximately 4,900 parts are stocked for "off the shelf" shipment to
customers. In addition, a quick response program in manufacturing responds to
customer breakdowns on parts not available from stock.
All machines and aftermarket parts are covered by a one-year warranty.
National Acme Trading Company. Used Acme-Gridley machines are sold through
telemarketing and direct mail. Popular machine sizes are stocked. Technicians
are available to provide selective repairs or rebuilds as required. Machines
are usually sold "as is." Depending on the work performed on the machines,
limited warranties are available.
TOOLING SYSTEMS GROUP
Tooling Systems manufactures precision tool holders, boring tools, electronic
tool management systems and work holding chucks for use in tooling a wide range
of metal cutting machine tools and machining centers, including manual,
multiple spindle and general purpose machines along with CNC machining
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centers, with and without automatic tool changers, and all types of lathes.
Tooling Systems includes the product offerings of Universal Engineering,
DeVlieg-Microbore and Cushman Industries. These product names have been
continuously present in their markets for over 50 years.
Tool Holders. The primary focus of Tooling Systems is on the design and
manufacture of precision engineered tool holders and accessories. The products
are used in metal cutting machine tools, including tooling for manual machines,
proprietary Kwik Switch tooling systems, tooling systems for high production
dial and transfer machines, and tooling for CNC machining centers. Tool
holders and accessories provide the link between the drive shaft and the
cutting surface of machine tools, and are required to hold tolerances of up to
.0001 of an inch. The selling prices for tool holders range from $50 to $800.
Boring Tools. Through its Microbore product line, Tooling Systems provides an
expanded line of standard and custom designed adjustable cartridge-type boring
tools used to cut, drill or bore metal and other parts. The Microbore product
line of boring tools provides rigidity and allows for rapid dimensional changes
while maintaining precise tolerance levels. The selling prices for boring
tools range from $125 to $10,000.
Electronic Tool Management Systems. Tooling Systems also supplies electronic
tool management systems, consisting of optical preset machines, which utilize
photosensitive reading heads to determine the length and diameter of the tool
boring set. Employing custom designed software packages, these machines preset
and provide inventory control and a range of data for tooling away from the
machining center, thereby assuring fast, accurate set-up and changeovers on CNC
machining centers. The selling prices for these products are from $15,000 and
up.
Work Holding Systems. Through its Cushman product line, Tooling Systems
supplies Cushman chucks and work holding products to assist customers with
holding parts and tools. Chucks and work holding products range from manual
and power chucks, super spacers, jaws, as well as special designs and rebuild
services. The selling prices of chucks range from $500 to $50,000.
Products offered by Tooling Systems are sold to users of precision metal
cutting machine tools, including the automotive, aerospace, defense,
construction and equipment manufacturing industries. The automotive industry
is Tooling Systems' largest customer source, representing approximately 45% of
Tooling Systems' net sales in fiscal year 1996. Tooling Systems provides its
customers with a range of catalog products as well as special engineered
products. In this regard, Tooling Systems employs six engineers to work
directly with customer design engineers and purchasing agents to provide
solutions for unique tooling applications.
Substantially all of Tooling Systems' product line is sold by approximately 350
nonexclusive distributors located throughout the United States. A direct sales
force assists the distributors and sells a portion of the product line directly
to original equipment manufacturers. Tooling Systems' direct sales force is
paid a salary plus commission.
Tooling Systems offers no express warranty with respect to its tool holders and
boring tools. With respect to its electronic tool management systems, Tooling
Systems' warranty policy provides a one-year warranty on parts and labor for
defects of workmanship or material.
The basic raw material employed in the manufacturing process used by Tooling
Systems is steel bar stock, which is available from a number of sources.
Tooling Systems is not dependent on any one supplier and has not experienced
difficulty in obtaining necessary raw materials.
INDUSTRIAL GROUP
POWERMATIC. Powermatic manufactures and markets a broad line of high quality,
stationary power tools, and related replacement parts and accessories, each
used primarily in the woodworking and metalworking industries. Powermatic
offers a line of stationary tools for both industrial use and for home
hobbyists (the "Artisan" line).
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Industrial Product Line. The primary focus of Powermatic is on the design,
manufacture and distribution of high quality, manually operated stationary
woodworking power tools and repair parts, including table saws, shapers,
bandsaws, drill presses, planers and jointers. Powermatic's industrial product
line is marketed primarily to manufacturers of millwork items, cabinetry and
furniture as well as educational and institutional markets for use in
industrial arts and vocational training. Powermatic also produces a line of
manually operated stationary metalworking machines and related replacement
parts and accessories. These products are marketed primarily to machine,
maintenance and tool and die shops.
During fiscal 1996, approximately 90% of the products comprising the industrial
line were designed and manufactured by Powermatic. The remaining industrial
products are manufactured to Powermatic's specifications by firms located in
Taiwan, Italy and the United States. The Company believes there are
alternative sources of supply for its industrial line products. The selling
prices for Powermatic's industrial line products range from $500 to $20,000.
Artisan Product Line. The Artisan product line was introduced in February 1989
with five high quality, stationary woodworking power tools primarily for the
light industrial market and the home hobbyist. Today, the Artisan product line
consists of ten different woodworking products. These products are
manufactured by Taiwanese suppliers to Powermatic's specifications. The
Company believes there are alternative sources of supply for its Artisan
product line. The selling prices for Powermatic's Artisan line products range
from $100 to $1,200.
Powermatic's Industrial and Artisan product lines are sold through
approximately 650 nonexclusive distributors located throughout the United
States. Powermatic's district sales managers are paid a salary plus commission
and its manufacturing representatives are paid on a commission-only basis.
Powermatic's warranty policy covers all of its manufactured products and
generally provides a warranty on parts and labor of one year or 2,000 hours of
use, whichever occurs first.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations in sales,
with a pattern of net sales being lower in December due to plant closings
during the holidays and in the summer months due to customer shutdowns,
vacations and less activity from the home hobbyist.
COMPETITION
SERVICES GROUP
The market for aftermarket products and services for the machine tools serviced
by the Company is competitive, with competition from numerous independent
parts, service and rebuild suppliers with various sales and resource levels.
Management believes the Company has a competitive advantage with respect to the
DeVlieg, Bullard, American Tool, Brown & Sharpe, Futurmill, New Britain
Machine, Rockford and White-Sundstrand brand machine tools because the Company
owns an estimated 200,000 drawings and all other documents and customer lists
related to such machine tools, and employs skilled personnel who have been
trained for and have experience with these products. As a result, management
believes the Services Group has a dominant market share with respect to
providing services for these brands of machine tools.
Principal competitive factors for the Services Group's products and services
are customer service and technical support, delivery times, price and
proprietary technology.
NATIONAL ACME
National Acme was inventor of the multiple spindle automatic bar and chucking
machines in 1896. Since that time, National Acme has sold more multiple
spindle automatics than any other company. The market is competitive with
competition coming from a number of companies both domestically and
internationally. The Company believes National Acme's competitive advantages
are based on the durability of its machines, the large installed base of
machines and its technical expertise. To complement its durability, National
Acme has developed a new high precision design with a unique carrier holding
feature, which allows
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customers to produce parts with substantially increased accuracy at faster
speeds. The new design will provide advantages with both its accuracy and
speed.
A large number of small companies compete in the Aftermarket business.
Principal competitive factors are proprietary technology, technical support,
delivery and price.
TOOLING SYSTEMS GROUP
The market for Tooling Systems' product lines is highly competitive. There are
a number of companies which manufacture precision tool holding devices and
other products within Tooling Systems' product lines that have greater sales
and financial resources than the Company. However, management believes that
Tooling Systems is one of the largest domestic manufacturers whose primary
focus is on the design and manufacture of precision tool holding, boring,
electronic tool management system and work holding products. Principal
competitive factors for precision tooling products are product quality,
delivery, service and price.
INDUSTRIAL GROUP
The market for Powermatic products is also highly competitive, with substantial
competition from both domestic and foreign manufacturers, many of which have
significantly greater sales and financial resources than the Company.
Principal competitive factors for Powermatic's product lines include product
quality, delivery, service and price.
PATENTS AND TRADEMARKS
The Company possesses rights to over 200 domestic and foreign patents and
trademarks relating to its businesses. While the Company considers its patents
and trademarks important in the operation of its business, its business is not
dependent on any single patent or trademark or group of patents or trademarks.
However, the Company considers the following trademarks to be important to its
business: Acme-Gridley(R), American Tool(R), Artisan(R), Belsaw(R), Brown &
Sharpe(R), Bullard(R), Cushman(R), DeVlieg(R), Futurmill(R), Microbore(R), New
Britain Machine(R), Powermatic(R), Universal Engineering(R) and
White-Sundstrand(R). The Company licenses the White-Sundstrand(R) trademark
from Sundstrand Corporation under an agreement which will expire in 2008. The
Company sublicenses the Belsaw(R) trademark from C.B. Tool & Supply, Inc. under
an agreement which will expire in 2001. The Company licenses the Brown &
Sharpe(R) trademark from Brown & Sharpe Manufacturing Company under an
agreement which expires in 1998. The DeVlieg(R) and Microbore(R) trademarks
are licensed from D.V. Associates, L.P. pursuant to a license agreement, and
the Company's rights thereto are subject to its payment of certain license
fees. The Company holds an option to purchase such trademarks from D.V.
Associates, L.P.
EMPLOYEES
As of July 31, 1996, the Company had approximately 900 employees, approximately
540 of whom were hourly employees and 360 of whom were salaried employees.
Approximately 125 hourly employees at the Tooling Systems Group in Frankenmuth,
Michigan are covered by a collective bargaining agreement expiring in May 1997.
Approximately 130 hourly employees at the Powermatic Division in McMinnville,
Tennessee are covered by a collective bargaining agreement expiring in July
1998. Approximately 195 employees at National Acme in Cleveland, Ohio are
covered by a collective bargaining agreement expiring in October 1997.
ENVIRONMENTAL MATTERS
The Company, and the industry in which it competes, are subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways, and the generation, handling, storage, transportation, treatment
and disposal of waste materials. These laws and regulations are constantly
evolving and the Company cannot predict accurately the effect they will have on
the Company in the future. It is the Company's policy to comply with all
applicable environmental, health and safety laws and regulations. In many
instances, the implementing regulations have not been finalized. Even where
regulations have been adopted, they are subject to varying and conflicting
interpretations and
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implementation. In some cases, compliance can only be achieved by capital
expenditures. The Company cannot accurately predict what capital expenditures,
if any, may be required.
Management believes that all operations conducted by the Company are in all
material respects in compliance with all applicable laws and regulations
relating to environmental matters.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with Company
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<S> <C> <C>
William O. Thomas 55 President and Chief Executive
Officer and Director
Lawrence M. Murray 54 Vice President and Chief
Financial Officer
</TABLE>
Officers are elected by the Board of Directors. There are no family
relationships among any officers.
The following is a brief summary of the business experience of the executive
officers of the Company:
William O. Thomas has been a Director of the Company since 1986, served as its
Chairman from 1986 to December 1989 and served as its Vice Chairman from
December 1989 until March 2, 1992. Effective March 2, 1992, Mr. Thomas was
elected President and Chief Executive Officer of the Company. Mr. Thomas is
currently a Director of Sanitas, Inc. He received his B.S. degree from Purdue
University.
Lawrence M. Murray was elected as Vice President, Chief Financial Officer and
Secretary of the Company effective June 15, 1992, and has served in these
capacities since then, except that, from December 15, 1993 to June 13, 1996, he
served as Assistant Secretary. From 1985 until 1992, Mr. Murray served as Vice
President and Chief Financial Officer of Sanitas, Inc. He is currently a
Director of Sanitas, Inc. Mr. Murray received his B.S. and M.B.A. degrees from
Indiana University.
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ITEM 2. PROPERTIES
The Company, headquartered in Westport, Connecticut, conducts its operations at
facilities located in California, Connecticut, Illinois, Michigan, Ohio,
Pennsylvania, Tennessee, the United Kingdom and Germany (50% owned joint
venture). The Company currently operates one shift a day, five days a week
with workforce and workweek adjustments made as required. Management believes
that the Company's facilities are in good condition and provide adequate
capacity to meet the Company's needs for the foreseeable future. The following
table sets forth certain information relating to the Company's principal
facilities:
<TABLE>
<CAPTION>
Approx. Owned/Leased
Floor Area (Expiration
Location in Sq. Ft. Principal Uses Date if Leased)
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<S> <C> <C> <C>
DEVLIEG-BULLARD, INC.:
Westport, CT 5,300 Corporate Headquarters Leased (2002)
SERVICES GROUP:
Parts:
Rockford, IL 60,000 Administrative offices; Leased (1999)
warehousing of repair parts
Madison Heights, MI 10,000 Warehousing of repair parts Leased (1997)
Remanufacturing:
Twinsburg, OH 50,000 Remanufacturing Leased (2002)
Abbottstown, PA 13,000 Administrative offices; Owned
Remanufacturing; field service
support and sales
Cromwell, CT 44,600 Administrative offices; Leased (1997)
remanufacturing
Huntington Beach, CA 7,400 Field service support and sales Leased (1998)
NATIONAL ACME:
Cleveland, OH 559,700 Administrative offices and Owned
manufacturing
Fremont, OH 56,000 Warehouse and distribution center Leased (1996)
TOOLING SYSTEMS GROUP:
Frankenmuth, MI 100,000 Administrative offices; design Leased (2006)
and manufacture of tooling
products
Gladwin, MI 40,000 Manufacturing, shipping and Owned
assembly
Lutterworth, UK 8,500 Sales offices, warehousing of Leased (1997)
repair parts
INDUSTRIAL GROUP:
Powermatic:
McMinnville, TN 217,200 Administrative offices and Leased (2006)
manufacturing
McMinnville, TN 59,800 Foundry; administrative offices; Leased (2006)
and production
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
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 alleged 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 believes the allegations were 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 accrued
$2.4 million in fiscal 1996 for the settlement and related litigation costs.
The settlement was approved by the court at a hearing on July 19, 1996.
Management believes the settlement to be in the best interest of the Company
and its shareholders.
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 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 fiscal 1996 in the amount of $2.2 million for the
jury's verdict, plus interest and other costs.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the NASDAQ Stock Market under the symbol
"DVLG." The following table sets forth the high and low sales prices for the
shares of common stock as reported in the NASDAQ National Market System for
each quarterly period of the last two fiscal years.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
For Fiscal Year 1996
- --------------------
Quarter ended: July 31 $ 2.875 $ 2.25
April 30 2.75 2.00
January 31 2.6875 1.875
October 31 3.125 1.6875
For Fiscal Year 1995
- --------------------
Quarter ended: July 31 $ 2.125 $ 1.25
April 30 2.50 1.625
January 31 1.875 1.375
October 31 2.00 1.125
</TABLE>
The Company has not declared any cash dividends on the common stock since
inception. Declaration of dividends with respect to the common stock is at the
discretion of the Board of Directors. Any determination to pay dividends will
depend upon the financial condition, capital requirements, results of
operations and other factors deemed relevant by the Board of Directors. The
declaration of dividends is subject to certain restrictive covenants contained
in the Company's loan agreements. See Notes 7 and 8 of Notes to the Company
Financial Statements.
The Company had 149 holders of record (not including individual participants in
securities position listings) of its common stock as of July 31, 1996,
representing approximately 1,100 individual participants.
The transfer agent and registrar for the common stock is The First National
Bank of Boston.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical data presented for each of the five years in
the period ended July 31, 1996, and as of the end of each of the five years in
the period ended July 31, 1996, are derived from the Company Financial
Statements. The following data should be read in conjunction with "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8 - Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
DEVLIEG-BULLARD, INC. (c)
(in thousands, except per share data)
1996 (a) 1995 (b) 1994 1993 (d) 1992 (e)
-------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (C):
Net sales $113,314 $78,150 $63,619 $58,604 $64,268
Gross profit 31,459 22,155 18,079 18,111 13,338
Operating profit (loss) 8,308 5,243 2,790 3,521 (5,925)
Nonrecurring charges 4,600 1,500 - - 6,392
Income (loss) from continuing
operations 3,635 3,405 2,832 2,821 (12,372)
before interest and taxes
Income (loss) from (717) 1,393 1,579 1,652 (13,583)
continuing operations
Net income (loss) (717) 1,393 1,579 7,490 (10,838)
Income (loss) per common share:
Continuing operations $ (0.06) $ 0.11 $ 0.13 $ 0.13 $ (1.16)
Net income (loss) (0.06) 0.11 0.13 0.61 (0.94)
Average common shares and
equivalents outstanding 12,250 13,257 12,436 12,250 12,250
ASSETS AND CAPITAL:
Total current assets $ 61,509 $36,321 $33,462 $30,030 $33,747
Property, plant and equipment 13,306 6,876 6,340 6,637 7,899
Total assets 119,803 66,232 51,263 45,056 48,903
Revolving credit agreement 19,195 12,115 - 10,811 15,247
Total current liabilities 48,515 25,490 12,474 23,305 37,724
Long-term debt 15,175 13,639 14,577 2,949 1,003
Total liabilities 98,219 45,662 33,887 33,627 39,755
Stockholders' equity 21,584 20,570 17,376 11,429 9,148
</TABLE>
(a) On October 23, 1995, the Company acquired The National Acme Company.
This acquisition was accounted for as a purchase. See Note 2 of Notes
to the Company Financial Statements.
Fiscal 1996 also includes nonrecurring charges of $4,600 for
litigation settlements (see "Item 3 - Legal Proceedings").
(b) On September 9, 1994, the Company acquired specified assets of Cushman
Industries, Inc. On November 30, 1994, the Company acquired H.B.
Industries, Inc. On January 23, 1995, the Company acquired
substantially all of the assets of Mideastern, Inc. These
acquisitions were accounted for as purchases. See Note 2 of Notes to
the Company Financial Statements.
Fiscal 1995 also includes nonrecurring charges of $1,500 for a
litigation settlement.
(c) On November 24, 1992, the Company sold the assets of its Penberthy,
Inc. subsidiary. Accordingly, Penberthy has been reflected as a
discontinued operation for periods presented and fiscal 1993 and 1992
results of operations have been restated, but assets and capital have
not been restated.
(d) Effective August 1, 1992, the Company adopted Financial Accounting
Standard No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." As a result, the Company recorded a one-time,
non-cash charge of $4,588 representing the cumulative effect of this
accounting change and increased expenses for postretirement benefits
by $191 for the 1993 fiscal year. Also, effective August 1, 1992, the
Company adopted Financial Accounting Standard No. 109, "Accounting for
Income Taxes."
On March 23, 1993, the Company acquired the Brown & Sharpe grinding
machine business from Brown & Sharpe Manufacturing Company. The
acquisition was accounted for as a purchase.
(e) Fiscal 1992 includes nonrecurring charges of $6,392 related to certain
restructuring activities. Additionally, charges of $3,545 related to
inventory obsolescence were included in cost of sales.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summarized below is a discussion of the results of operations of the Company,
including its Services, National Acme, Tooling Systems and Industrial operating
groups. Amounts are expressed in thousands, except per share data.
OVERVIEW OF RESULTS
Fiscal 1996 was a year of growth in sales and earnings for the Company. The
Company also continued to benefit from the cost reduction and process
improvement programs undertaken in fiscal years 1992-1996. In addition to
modest growth in the Company's operating groups, the National Acme acquisition,
which occurred during the year, contributed $29,570 in sales and $2,949 in
operating profit to the overall results.
ACQUISITION (See Note 2 of Notes to the Company Financial Statements)
On October 23, 1995, the Company purchased The National Acme Company. National
Acme, located in Cleveland, Ohio, is a leading manufacturer of multiple spindle
automatic bar and chucking machines, marketed under the trade name Acme-
Gridley, as well as a supplier of related aftermarket parts and services. This
acquisition further strengthens the Company's original equipment offerings and
provides a base for further growth of the original equipment and related parts
and service business.
RESULTS OF OPERATIONS
The following table sets forth selected items from the Statements of Operations
as a percentage of the Company's net sales for the periods indicated. The
discussion which follows should be read in conjunction with the Company's
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Fiscal year ended July 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 72.2 71.7 71.6
Gross profit 27.8 28.3 28.4
Operating expenses 20.4 21.6 24.0
Operating profit 7.3 6.7 4.4
Nonrecurring charges 4.1 1.9 -
Net income (0.6) 1.8 2.5
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995.
SALES
Net sales for fiscal 1996 were $113,314 compared to $78,150 for fiscal 1995, an
increase of $35,164, or 45.0%. The acquisition of National Acme added $29,570
to net sales. Net sales for fiscal 1996 for the Services Group increased
$4,316, or 12.4%, and the Industrial Group increased $1,539, or 6.9%, while the
Tooling Systems Group had a slight decrease of $261, or approximately 1%.
GROSS PROFIT
Gross profit for fiscal 1996 was $31,459 compared to $22,155 in fiscal 1995, an
increase of $9,304, or 42.0%. The increase is primarily the result of the
acquisition of National Acme, which added $8,163 in gross profit. The Services
Group increased $1,264, or 11.4%, and the Industrial Group increased $628, or
12.1%, offset by a reduction in gross profit in the Tooling Systems Group of
$751. Gross profit as a percent of sales was 27.8% in fiscal 1996 as compared
with 28.3% in fiscal 1995. The decrease in gross margin as a percent of net
sales is primarily due to the decline in the Tooling Systems Group, which was
24.3% in fiscal 1996 as compared with 27.6% in fiscal 1995, primarily due to
the assimilation of the Cushman business acquired in fiscal 1995.
OPERATING EXPENSES
Operating expenses in fiscal 1996 were $23,151 compared to $16,912 in the prior
year, an increase of $6,239. The increase is primarily due to the acquisition
of National Acme, which increased operating expenses by $5,214. As a percent
of net sales, operating expenses were 20.4% compared with 21.6% in the prior
year.
14
<PAGE> 15
OTHER EXPENSES
Other expenses were $73 in fiscal 1996, compared to $338 in fiscal 1995. The
fiscal 1995 expenses included $372 in costs associated with an unsuccessful
acquisition and $300 in royalty fees, offset by a $305 gain on the sale of land
held for disposition.
NONRECURRING CHARGES
Litigation expenses of $4,600 were recorded during fiscal 1996. Of these
expenses, $2,200 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 grounds that the jury's verdict was against the weight of the
evidence. The balance of $2,400 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 to avoid continued litigation costs related to
the suit. See "Item 3 - Lease Proceedings." See also Note 10 of Notes to the
Company Financial Statements for a discussion of the Class B Stock Purchase
Warrants.
The Company incurred a $1,500 litigation settlement charge in 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
Interest expense was $4,404 in fiscal 1996 compared to $2,594 in fiscal 1995,
an increase of $1,810. The increase in interest expense is attributable to a
higher outstanding debt balance, primarily due to the acquisition of National
Acme (see Note 2 of Notes to the Company Financial Statements) and higher
effective interest rates.
INCOME TAXES
The income tax benefit was $52 and $582 for fiscal 1996 and 1995, respectively.
The income tax benefit recorded in fiscal 1996 relates to the loss recorded in
fiscal 1996 as a result of the litigation expenses for the year. The fiscal
1995 tax benefit is primarily due to the Company's release 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."
FISCAL 1995 COMPARED TO FISCAL 1994.
SALES
Net sales for fiscal 1995 were $78,150 compared to $63,619 for fiscal 1994, an
increase of $14,531, or 22.8%, reflecting increases in all of the Company's
operating groups. The increase in net sales by operating group consisted of
$6,653, or 23.7%, in the Services Group; $4,369, or 25.9%, in the Tooling
Systems Group; and $3,509, or 18.8%, in the Industrial Group. The Industrial
Group increase is especially noteworthy given that a three-week strike reduced
sales by an estimated $700 during the fourth quarter of fiscal 1995. The
Industrial Group entered into a new collective bargaining agreement with the
United Steelworkers of America, which expires on July 1, 1998. Fiscal 1995
results include additions from acquired businesses as follows: Cushman added
$3,494 to the Tooling Systems Group and Ed Smith and Mideastern added $1,161
and $2,995, respectively, to the Services Group. Excluding the sales added by
acquired business, the Services Group net sales increased $2,497, or 8.9%,
compared to the prior year, reflecting increases in its Parts and
Remanufacturing Operations. The Tooling Systems Group's net sales, excluding
the addition from Cushman, were $875, or 5.2%, higher than fiscal 1994.
15
<PAGE> 16
GROSS PROFIT
Gross profit for fiscal 1995 was $22,155 compared to $18,079 in fiscal 1994, an
increase of $4,076, or 22.6%, reflecting increases in each operating group.
Gross profit as a percentage of net sales was 28.3% and 28.4% in fiscal 1995
and 1994, respectively, with increases in the Services Group, offset by
declines in the Tooling Systems and Industrial Groups.
OPERATING EXPENSES
Operating expenses in fiscal 1995 were $16,912, or 21.6% of net sales, compared
to $15,289, or 24.0% of net sales, in fiscal 1994. Operating expenses in
fiscal 1995 exceeded prior year levels due to the higher sales volume and costs
added by acquired businesses.
OTHER EXPENSES
Other expenses were $338 in fiscal 1995 compared with income of $42 in fiscal
1994. The fiscal 1995 amount includes $372 in costs associated with an
unsuccessful acquisition and $300 in royalty fees, offset by a $305 gain on the
sale of land held for disposition.
NONRECURRING CHARGES
In the second quarter of fiscal 1995, the Company settled for $1,500 a civil
suit filed by a committee of unsecured creditors of DeVlieg, Inc. and
debtor-in-possession, DeVlieg, Inc.
INTEREST EXPENSE
Interest expense was $2,594 in fiscal 1995 compared to $1,345 in fiscal 1994,
an increase of $1,249. The increase in interest expense was due to higher
average outstanding debt balances, primarily due to acquisitions, and higher
effective interest rates, particularly on the Company's subordinated debentures
which were issued in May 1994.
INCOME TAXES
The fiscal 1995 income tax benefit was $582 compared to a $92 benefit in fiscal
1994. The fiscal 1995 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."
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Historically, the Company's continuing operations have been financed by
internally generated funds. Acquisitions have been funded with increases in
indebtedness, while funds from divestitures have generally been used to reduce
indebtedness (see Note 2 of Notes to the Company Financial Statements).
Net cash provided by operating activities was $3,494 in fiscal 1996 compared to
$1,363 in fiscal 1995, an increase of $2,131. Included in these results is
$2,329 in payments made against the $4,600 accrued for litigation settlement
(see "Item 3 - Legal Proceedings"). Net of these items, cash flow from
operating activities would have been $5,823.
Cash used for capital expenditures was $1,138, $970 and $1,020, in fiscal 1996,
1995, and 1994, respectively. The Company currently has no material
commitments for specific capital expenditures.
Cash of $10,656 was used in fiscal 1996 for the National Acme acquisition.
During fiscal 1995, $12,151 of cash was used for acquisitions.
FINANCING AND INVESTING
The balance outstanding under the Company's revolving credit agreement was
$19,195 at July 31, 1996, compared to $12,115 at July 31, 1995. Long-term
debt, including current maturities, at July 31, 1996, was $18,107, compared to
$15,788 at July 31, 1995, an increase of $2,319. The Company's total
indebtedness was $37,302 and $27,903 at July 31, 1996, and 1995, respectively,
an increase of $9,399.
16
<PAGE> 17
Cash and equivalents at July 31, 1996 was $768, an increase of $353 compared to
July 31, 1995. Net cash provided by financing activities was $8,672 in fiscal
1996 compared to net cash provided by financing activities of $10,004 in the
prior year.
As outlined in Notes 7 and 8 of Notes to the Company Financial Statements, the
Company entered into a new $30,000 senior debt facility in October 1995, which
consisted of a $25,000 revolving credit agreement and a $5,000 term loan. The
term loan requires monthly principal payments of $86 that began November 30,
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 the Company 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
3 - Legal Proceedings") and increased the senior credit facility to $32,000.
The new term loan requires monthly principal payments of $83 that began June
30, 1996. The term loans require payments through September 30, 1998, with
final payments totalling $2,667 due on October 23, 1998.
The new senior debt facility aggregating approximately $32,000 at July 31,
1996, is comprised of $7,063 in term loans and a revolving credit agreement
which provides for borrowings up to $24,699. 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 8.75%
at July 31, 1996. As of July 31, 1996, the Company's new revolving credit
agreement, which matures on October 23, 1998, subject to renewal, permits
borrowings of up to $24,699 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 rates based on LIBOR. The effective rate based on LIBOR
was 8.5% at July 31, 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 July 31, 1996, were $2,692, after
reduction for funds reserved for settlement of the litigation costs discussed
above.
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 8 of Notes to the
Company Financial Statements). Interest payments on the Subordinated
Debentures of 11.5% per annum are payable quarterly in arrears commencing July
1, 1994. 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 on
the Junior Subordinated Debt accrues at 14.5%, and the cash interest of 11% per
annum is payable quarterly in arrears commencing January 1, 1996. The Junior
Subordinated Debt provides for the repayment of principal of $4,000 and unpaid
interest in June 2001 or thirty days after the payment of the Subordinated
Debentures.
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 settlement of certain legal proceedings (see
Note 10 of Notes to the Company 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 10 of Notes to the Company 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 following discussion includes certain forward-looking statements. Actual
results could differ materially from those reflected by the forward-looking
statements contained in this document and a number of factors may affect future
results, liquidity and capital resources. These factors include: the fact that
the Company derives a substantial portion of its sales from cyclical
industries, including the automotive, aerospace and housing industries; the
ability to introduce new products in a timely fashion; the pace of
technological changes effecting the products manufactured and services provided
by the Company; the Company's substantial debt service requirements, much of
which is based on variable rates; the
17
<PAGE> 18
dependence of the Company's growth on acquisitions and the Company's ability to
finance such acquisitions and to profitably integrate the acquired
operations; the level of margins achievable in the markets served by the
Company; and the ability to continue to minimize operating expenses. Although
the Company believes it has the business strategy and resources needed for
improved operations, future sales and margin trends cannot be reliably
predicted.
During the past two fiscal years, the Company has recorded pre-tax charges of
$6,100 to accrue for or settle three separate lawsuits which preceded or
resulted from the initial public offering in March 1990. 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. A significant acquisition would require
additional borrowings. There can be no assurance that the Company would be
able to obtain financing on acceptable terms.
IMPACT OF INFLATION
Management does not believe that inflation has had a material impact on the
Company's net sales or net income during the last three fiscal years.
Borrowings under the senior credit facility bear interest at short-term rates.
Increases in the prevailing rate of inflation could be accompanied by increases
in short-term interest rates, which could have an adverse impact on the
Company's net income and cash flow.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
Balance Sheets
July 31, 1996, and 1995
Statements of Operations
Years ended July 31, 1996, 1995 and 1994
Statements of Cash Flows
Years ended July 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity
Years ended July 31, 1996, 1995 and 1994
Notes to the Company Financial Statements
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of DeVlieg-Bullard, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 42 of this report present fairly, in all material
respects, the financial position of DeVlieg-Bullard, Inc., at July 31, 1996,
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Stamford, Connecticut
September 4, 1996
20
<PAGE> 21
DEVLIEG-BULLARD, INC.
BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 768 $ 415
Accounts receivable 17,505 12,634
Inventories 42,071 22,421
Prepaid expenses and other current assets 1,165 851
--------- ---------
Total current assets 61,509 36,321
Property, plant and equipment 13,306 6,876
Engineering drawings 18,366 8,409
Goodwill 11,472 7,058
Other assets 15,150 7,568
--------- ---------
Total assets $ 119,803 $ 66,232
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,854 $ 6,520
Accrued expenses and other current liabilities 16,534 4,706
Revolving credit agreement 19,195 12,115
Current maturities of long-term debt 2,932 2,149
--------- ---------
Total current liabilities 48,515 25,490
Long-term debt 15,175 13,639
Postretirement benefit obligation 22,830 5,022
Other noncurrent liabilities 11,699 1,511
--------- ---------
Total liabilities 98,219 45,662
--------- ---------
Commitments and contingencies (Note 15)
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 34,049 32,299
Excess purchase price over net assets from
the Services Group acquisition (16,358) (16,358)
Retained earnings 3,946 4,663
Cumulative translation adjustment (176) (157)
--------- ---------
Total stockholders' equity 21,584 20,570
--------- ---------
Total liabilities and stockholders' equity $ 119,803 $ 66,232
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
DEVLIEG-BULLARD, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended July 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $113,314 $78,150 $63,619
Cost of sales 81,855 55,995 45,540
-------- ------- -------
Gross profit 31,459 22,155 18,079
Operating expenses:
Engineering 1,623 1,083 1,148
Selling 10,553 7,650 6,613
General and administrative 10,975 8,179 7,528
-------- ------- -------
Total operating expenses 23,151 16,912 15,289
-------- ------- -------
Operating profit 8,308 5,243 2,790
Nonrecurring charges 4,600 1,500 -
Other (income) expense, net 73 338 (42)
-------- ------- -------
Income before interest and taxes 3,635 3,405 2,832
Interest expense 4,404 2,594 1,345
-------- ------- -------
Income (loss) before income taxes (769) 811 1,487
(Benefit) for income taxes (52) (582) (92)
-------- ------- -------
Net income (loss) $ (717) $ 1,393 $ 1,579
======== ======= =======
Income (loss) per common share $ (0.06) $ 0.11 $ 0.13
======== ======= =======
Weighted average common shares and
equivalents outstanding 12,250 13,257 12,436
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
DEVLIEG-BULLARD, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended July 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ (717) $ 1,393 $ 1,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,612 2,721 1,776
Deferred income taxes (636) (2,181) (2,878)
Provision for losses on accounts receivable 152 187 107
Gain on disposal of other assets - (305) -
Net change in assets and liabilities:
Accounts receivable 285 (793) (887)
Inventories (4,936) (1,546) (345)
Prepaid expenses and other current assets (758) 643 (948)
Accounts payable 1,402 414 587
Accrued expenses and other current liabilities 3,638 (623) (762)
Other, net 452 1,453 2,505
--------- ------- -------
Net cash provided by operating activities 3,494 1,363 734
--------- ------- -------
Cash flows from investing activities:
Acquisitions, net (10,656) (12,151) -
Capital expenditures (1,138) (970) (1,020)
Proceeds from sale of other assets - 487 -
--------- ------- -------
Net cash (used for) investing activities (11,794) (12,634) (1,020)
--------- ------- -------
Cash flows from financing activities:
Net borrowings (repayment) of revolving credit
agreement 7,080 12,115 (10,811)
Payments of long-term debt (5,193) (2,111) (1,492)
Proceeds from issuance of long-term debt 8,000 - 15,000
Debt issuance costs (1,215) - (1,035)
--------- ------- -------
Net cash provided by financing activities 8,672 10,004 1,662
--------- ------- -------
Effect of exchange rate changes on cash (19) 28 (17)
--------- ------- -------
Net change in cash and cash equivalents 353 (1,239) 1,359
Cash and cash equivalents at beginning of period 415 1,654 295
--------- ------- -------
Cash and cash equivalents at end of period $ 768 $ 415 $ 1,654
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year ended July 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the period for:
Interest $3,808 $2,397 $1,284
Income taxes, net of refunds (83) (445) (852)
</TABLE>
Supplemental schedule of non-cash investing and financing information:
During fiscal 1996, the Company assumed liabilities in the amount of $38,781 in
connection with the acquisition of The National Acme Company.
During fiscal 1995, the Company issued $1,277 of debt and assumed liabilities
in the amount of $1,048 in connection with the acquisitions (see Note 2).
In Connection with the consent by 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 10).
During fiscal 1994, the Company issued subordinated debentures with detachable
stock purchase warrants. The fair market value of the warrants aggregated
$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 Notes 10 and 12).
The amortization of the debt discount was $342, $190 and $25 in fiscal 1996,
1995 and 1994, respectively.
The Company's tax benefit related to the excess purchase price from the
Services Group acquisition reduces the Company's income tax liability (see Note
1). Such amount included in fiscal 1996 and 1995 and 1994 is $0, $1,773, and
$2,635 respectively.
During fiscal 1996, 1995 and 1994, the Company entered into capital leases for
equipment totaling $471, $0, and $253 respectively, which were financed by
capital lease obligations.
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
DEVLIEG-BULLARD, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common
------
Shares Additional Excess
------ ---------- ------
Issued and Common Paid-in Purchase
---------- ------ ------- --------
Outstanding Stock Capital Price
----------- ----- ------- -----
Year ended
----------
July 31, 1996, 1995 & 1994
--------------------------
<S> <C> <C> <C> <C>
Balance, July 31, 1993 12,250 $123 $30,549 $(20,766)
Net Income - - - -
Issuance of stock purchase warrants - - 1,750 -
Tax benefit realized related to Excess
purchase price of Services Group - - - 2,635
Foreign currency translation adjustment - - - -
------ ---- ------- --------
Balance, July 31, 1994 12,250 123 32,299 (18,131)
Net Income - - - -
Tax benefit realized related to Excess
purchase price of Services Group - - - 1,773
Foreign currency translation adjustment - - - -
------ ---- ------- --------
Balance, July 31, 1995 12,250 123 32,299 (16,358)
Net Income - - - -
Issuance of stock purchase warrants - - 1,750 -
Foreign currency translation adjustment - - - -
------ ---- ------- --------
Balance, July 31, 1996 12,250 $123 $34,049 $(16,358)
====== ==== ======= ========
<CAPTION>
Retained
--------
Earnings Cumulative
-------- ----------
(Accumulated Translation
------------ -----------
Deficit) Adjustment Total
-------- ---------- -----
Year ended
- -----------
July 31, 1996, 1995 & 1994
--------------------------
<S> <C> <C> <C>
Balance, July 31, 1993 $1,691 $(168) $11,429
Net Income 1,579 - 1,579
Issuance of stock purchase warrants - - 1,750
Tax benefit realized related to Excess
purchase price of Services Group - - 2,635
Foreign currency translation adjustment - (17) (17)
------ ----- -------
Balance, July 31, 1994 3,270 (185) 17,376
Net Income 1,393 - 1,393
Tax benefit realized related to Excess
purchase price of Services Group - - 1,773
Foreign currency translation adjustment - 28 28
------ ----- -------
Balance, July 31, 1995 4,663 (157) 20,570
Net Income (717) - (717)
Issuance of stock purchase warrants - - 1,750
Foreign currency translation adjustment - (19) (19)
------ ----- -------
Balance, July 31, 1996 $3,946 $(176) $21,584
====== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
DEVLIEG-BULLARD, INC.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
DeVlieg-Bullard, Inc. (the "Company"), is a diversified industrial concern
specializing in manufacturing, servicing, upgrading, automating and
remanufacturing precision engineered machine tools. The Company also
manufactures sophisticated original and replacement tooling products used in
industrial machine tools and a variety of power tools for niche industrial
markets. The Company conducts its business through four operating groups: the
Services Group, National Acme, the Tooling Systems Group and the Industrial
Group.
BASIS OF PRESENTATION
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Certain amounts in
the fiscal 1995 and 1994 financial statements have been reclassified to conform
with the fiscal 1996 presentation. Amounts, except per share data, are
expressed in thousands.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial maturity of
three months or less to be cash equivalents. The Company invests excess funds
in short-term, interest-bearing obligations. When a balance is outstanding on
the Company's revolving credit agreement, all available cash is used to
decrease such outstanding balance.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out basis. Cost includes material, labor and
manufacturing overhead. Approximately 40% of the total inventory value is
determined on the basis of the last-in, first-out (LIFO) method of inventory
accounting.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Cost represents estimated
fair market value at date of acquisition for acquired businesses, or the
predecessor entity's net book value if acquired by the Company from a related
party. Depreciation is computed over the estimated useful lives of the assets,
ranging from three to thirty-one years, by the straight-line method. Assets
recorded under capital leases and leasehold improvements are amortized over the
shorter of their useful lives or the term of the related leases by use of the
straight-line method. Depreciation for tax purposes is calculated in
accordance with applicable Internal Revenue Code provisions.
OTHER ASSETS
Intangible assets, consisting of engineering drawings and bills of material for
parts and machine assemblies, are amortized over their estimated useful lives,
ranging from ten to thirty years, using the straight-line method. Goodwill,
the excess of purchase price over net assets acquired, is amortized over the
estimated useful lives, ranging from fifteen to thirty years. Deferred
financing costs are amortized on a straight-line basis, which is not materially
different from the effective interest method, over the life of the related
indebtedness.
FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated at exchange rates in
effect on reporting dates, and income and expenses are translated at rates in
effect on transaction dates. The resulting differences due to changing
exchange rates are charged or credited directly to the "Cumulative translation
adjustment" account included as part of stockholders' equity.
26
<PAGE> 27
REVENUE RECOGNITION
Revenue recognized on long-term contracts is based on the
percentage-of-completion method. Deferred revenue from noncompetition
agreements is recognized over the contractual period of the agreement,
generally five years. All other revenue is recognized when earned.
INCOME TAXES
The Company uses Financial Accounting Standards Board Statement No. 109 ("SFAS
109"), "Accounting for Income Taxes." SFAS 109 requires that deferred taxes be
established for all temporary differences between the book and tax bases of
assets and liabilities.
A portion of the assets and liabilities acquired by the Company from a related
party was recorded at the predecessor entity's net book value for financial
reporting purposes. The difference between the fair value and the
predecessor's book value at the purchase date is reflected in the account
"Excess purchase price over net assets from the Services Group acquisition."
The tax benefit of the amortization of this difference is recorded upon
realization as an increase to stockholders' equity by reducing the account
"Excess purchase price over net assets from the Services Group acquisition."
INCOME (LOSS) PER SHARE
Income per share is computed by dividing net income available to common
stockholders 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 (see Note 10). Loss
per share is computed by dividing net loss by the weighted average number of
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 - ACQUISITIONS
NATIONAL ACME
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 noncompete
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 Notes 7 and 8).
National Acme, located in Cleveland, Ohio, manufactures Acme-Gridley
multiple spindle 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 $4,831 has been allocated to
goodwill and $10,695 to engineering drawings. These amounts will be amortized
on a straight-line basis over thirty years. The noncompete agreement of $1,400
will be amortized on the straight-line basis over ten years. Liabilities of
$38,781 were assumed in connection with the Acquisition, primarily for
postretirement medical benefits ($20,559) and pension benefits ($10,926). The
results of operations of National Acme have been included in the Company's
balance sheet starting with the second quarter of fiscal 1996.
27
<PAGE> 28
The following pro forma information has been prepared assuming the acquisition
of National Acme had occurred on August 1, 1995 and 1994, respectively.
Pro forma results of operations:
<TABLE>
<CAPTION>
(unaudited - in thousands, except per share data) Year ended July 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $121,798 $114,869
======== ========
Net income $(598) $1,290
===== ======
Net income per common share $ (0.05) $0.09
======= =====
Average shares outstanding 12,250 13,953
====== ======
</TABLE>
In preparing the unaudited pro forma summary of operations, adjustments were
made to the historical financial statements to reflect increases in the
revolving line of credit and interest expense; amortization of intangible
assets; depreciation of fixed asset write-up to fair market value; and other
estimated purchase accounting entries. 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.
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 $2,800 was recorded 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 tangible assets acquired has been allocated in the
amounts of $2,800 to engineering drawings and $2,000 to goodwill 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 work holding 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. 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 $2,300 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 8), 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 $2,900 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years. The results of operations of Mideastern
since acqusition are included in the Company's financial statements with the
Services Group.
The Company borrowed funds from its revolving credit agreement to finance these
acquisitions.
28
<PAGE> 29
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of:
<TABLE>
<CAPTION>
July 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Trade receivables $15,666 $11,443
Unbilled receivables on contracts in progress 2,377 1,486
Other 136 627
------- -------
18,179 13,556
Less: allowance for doubtful accounts (674) (922)
------- -------
$17,505 $12,634
======= =======
</TABLE>
The Company's trade receivables are concentrated in the machine tool and
related manufacturing industries. Unbilled receivables on contracts in
progress represent revenue recognized under the percentage of completion basis
and are expected to be received within one year. All amounts included in
unbilled receivables on contracts in progress are related to long-term
contracts and are reduced by appropriate progress billings.
NOTE 4 - INVENTORIES
Net inventories consisted of:
<TABLE>
<CAPTION>
July 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 1,451 $ 781
Work-in-process 13,650 5,303
Finished goods 26,970 16,337
-------- ---------
$ 42,071 $ 22,421
======== =========
</TABLE>
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$10,922 and $6,105 at July 31, 1996 and 1995, respectively. Inventories valued
using LIFO were $15,970 at July 31, 1996. There was no LIFO reserve against
those inventories. The financial accounting basis for the inventories of
acquired companies exceeds the tax basis by $12,224 at July 31, 1996.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
July 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Real property $ 5,765 $ 2,382
Machinery and equipment 14,140 9,928
Capitalized leased assets 2,010 1,539
Furniture and fixtures 4,134 3,278
-------- -------
26,049 17,127
Less: allowance for accumulated depreciation (12,743) (10,251)
------- -------
$13,306 $ 6,876
======= =======
</TABLE>
Depreciation expense, including amortization of leased assets, totaled $2,512,
$1,966 and $1,584 for fiscal years 1996, 1995 and 1994, respectively.
Capitalized leased assets are comprised of computer hardware, software and
related installation costs.
NOTE 6 - OTHER ASSETS
<TABLE>
<CAPTION>
Other assets consisted of: July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Engineering drawings $22,611 $12,021
Less: accumulated amortization (4,245) (3,612)
------- --------
$18,366 $ 8,409
======= ========
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Goodwill $12,258 $7,295
Less: accumulated amortization (786) (237)
------- ------
$11,472 $7,058
======= ======
Other assets:
Deferred taxes, net of valuation allowance
(Note 12) $11,024 $5,059
Deferred financing costs 2,745 1,515
Investments carried at equity 137 137
Pension asset 40 432
Other 3,389 1,535
------- ------
17,335 8,678
Less: accumulated amortization (2,185) (1,110)
------- ------
Total other assets
$15,150 $7,568
======= ======
</TABLE>
Amortization of intangible and other assets totaled $2,257, $1,065, and $668
for the years ended July 31, 1996, 1995 and 1994, respectively.
NOTE 7 - REVOLVING CREDIT AGREEMENT
On October 23, 1995, the Company replaced its existing revolving credit
agreement and term loan with a $30,000 senior credit facility comprised of a
$25,000 revolving credit agreement and a $5,000 term loan. The term loan
requires monthly principal payments of $86 that began November 30, 1995. 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 15) and increased the senior credit
facility to $32,000. The new term loan requires monthly principal payments of
$83 that began June 30, 1996. The term loans require payments through
September 30, 1998, with final payments totalling $2,667 due on October 28,
1998. Interest rates are based on the prime rate or alternative rates based on
LIBOR.
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.
Borrowings of $23,900 under the senior credit facility were incurred at the
closing to retire the then existing senior credit facility and to finance the
Acquisition. The Company has incurred approximately $1,200 in refinancing
costs. These costs will be capitalized and amortized over the life of the
debt. At July 31, 1996, borrowings outstanding under the revolving credit
agreement were $19,195. The rate in effect at July 31, 1996, was 8.5%.
30
<PAGE> 31
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Term Loans $ 7,063 $ 2,500
Subordinated Debentures, net of discount 9,141 10,465
Note payable - 1,083
Promissory note 320 427
Capital lease obligations 818 713
Other 765 600
--------- --------
18,107 15,788
Less: current maturities (2,932) (2,149)
--------- --------
$ 15,175 $ 13,639
========= ========
</TABLE>
The Term Loans (see Note 7) had initial principal amounts of $5,000 and $3,000
and require monthly payments of approximately $86 that began November 30, 1995,
and $83 that began June 30, 1996, through September 30, 1998. On October 23,
1998, $2,667 will be due under the Term Loans. Interest on the Term Loan is
payable monthly at 1.25% above prime rate or, at the Company's option, at
alternative rates based on LIBOR. The rate in effect at July 31, 1996 was
8.75%.
On May 25, 1994, the Company entered into an investment agreement with a
syndicate of lenders pursuant to which, among other things, the Company issued
Subordinated Debentures in the aggregate amount of $12,000. Consummation of
the Acquisition (see Note 2) and the refinancing of the senior credit facility
(see Note 7) required the consent of the holders of the Subordinated Debentures
pursuant to the terms of 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, to
replace the principal owed to one of the Subordinated Debenture holders.
Interest on the Subordinated Debt is 11.5% per annum, payable quarterly in
arrears commencing July 1, 1994. Interest on the Junior Subordinated Debt
accrues at the rate of 14.5% per annum, with cash interest payable at 11% per
annum on a quarterly basis commencing January 1, 1996.
The Subordinated Debentures are due $2,000 in fiscal years 1999 and 2000 and
$4,000 in fiscal year 2001. The Junior Subordinated Debentures plus unpaid
interest are due June 30, 2001, or 30 days after the Subordinated Debt is paid
in full.
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.
Under the terms of the Subordinated Debentures, the Company is required to
comply with various operational and financial covenants which are the same
nature as those required under the terms of the senior credit facility (see
Note 7) but at reduced levels. Refinancing costs of $1,215 and $1,035 were
incurred as a result of the replacement of the revolving credit agreement in
fiscal 1996 and issuance of the Subordinated Debentures in fiscal 1994,
respectively, which were deferred and are being amortized over the life of the
new debt agreements.
In conjunction with the issuance of the Subordinated Debentures in May 1994,
the Company issued one million stock purchase warrants (see Note 10). The
discount on the Subordinated Debentures initially aggregating $1,750 represents
the fair market value of the stock purchase warrants issued to the original
holders of the Subordinated Debentures. In connection with the refinancing of
the senior credit facility and the issuance of the Junior Subordinated Debt,
the Company issued an additional 500 Class A stock purchase warrants and 750
Class C stock purchase warrants (see Note 10). An additional discount of
$1,750 was recorded on the Subordinated Debt and the Junior Subordinated Debt,
representing the fair market value of the stock purchase warrants issued. The
discount was $2,943 and $1,535 at July 31,
31
<PAGE> 32
1996 and 1995, respectively, and is being amortized over the remaining life of
the Subordinated Debentures using effective interest rates of approximately 21%
and 15%, respectively.
The note payable issued for $3,250 in December 1992 is due in three equal
annual installments beginning December 1993 and results from the Company's
redemption of its outstanding Class F, Series A Preferred Stock. The note
bears interest at 7% per annum, payable quarterly in arrears, and was fully
repaid in December 1995.
A promissory note of $427 was issued in connection with the Cushman acquisition
(see Note 2). It is payable in four equal annual installments of $107 with the
first installment paid in September 1995.
Other long-term debt includes $400 related to earnout note originally issued
for $600 in connection with the Mideastern acquisition (see Note 2). It is
payable in equal annual installments of $200 beginning January 31, 1996,
providing certain earnings levels are attained related to the acquired
operations. The note bears interest at a rate of 8% and interest payments will
be made through January 31, 1997, however, the payment of interest thereafter
is also contingent upon the attainment of certain earnings levels as specified
in the note.
Also included in other long-term debt is $365 for a mortgage assumed in
connection with the acquisition of National Acme (see Note 2) is due August
1996.
Scheduled debt maturities for the next five fiscal years in the aggregate are
as follows:
<TABLE>
<CAPTION>
Amount
<S> <C>
1997 $2,932
1998 2,553
1999 5,263
2000 2,100
2001 8,192
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY
In October 1995 and May 1994, the Company issued stock purchase warrants with
an aggregate fair market value of $1,750 and $1,750, respectively (see Notes 8
and 10). Such amounts increased Additional paid-in capital.
NOTE 10 - STOCK OPTIONS AND STOCK PURCHASE WARRANTS
STOCK OPTIONS
Pursuant to the Company's 1989 Employee Stock Plan, an incentive stock
compensation plan which permits the issuance of up to 1,300 shares of common
stock, options have been granted to certain employees to purchase shares of the
Company's common stock at a price not less than the fair market value at the
date of grant. The options granted during fiscal 1996, 1995 and 1994 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. The options granted prior to fiscal 1994 are exercisable in
annual installments of up to 20% of the total shares represented by options,
commencing one year from the date of grant and terminating ten years
thereafter.
32
<PAGE> 33
Transactions under this plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Price
Under Option Range
------------ -----
<S> <C> <C>
Outstanding at July 31, 1994 778 $1.75 - 2.625
Forfeited (20) 1.8125
Granted December 14, 1994 170 1.625
Granted February 22, 1995 6 1.9375
-----
Outstanding at July 31, 1995 934 1.625 - 2.625
Forfeited (20) 2.625
Granted December 13, 1995 131 2.4375
Granted February 28, 1996 26 2.25
-----
Outstanding July 31, 1996 1,071 $1.625 - 2.50
=====
Exercisable at July 31, 1996 584 $1.625 - 2.50
=====
</TABLE>
Effective June 15, 1992, all then outstanding options were surrendered and
reissued at an exercise price of $2.00 per share, the then fair market value of
the stock.
Effective January 10, 1991, the Company adopted a stock option plan for its
outside directors, and granted each outside director an option to purchase five
thousand shares of common stock (an aggregate of twenty-five thousand shares)
at $2.50 per share, the then fair market value of the shares. The Company has
reserved a total of fifty thousand shares for issuance under this stock option
plan. The options are exercisable in annual installments of up to 20% of the
total shares represented by the options commencing one year from the date of
grant and terminating ten years thereafter.
On January 27, 1995, in connection with the Mideastern acquisition (see Note
2), the Company issued options to the former Mideastern shareholders to
purchase up to 100 shares of common stock at a purchase price of $1.50 per
share. If, on January 27, 1998, the fair market value of the shares covered by
these options is not at least $3.50 per share (subject to adjustment), the
optionee may elect to redeem the options for $1.50 per share.
STOCK PURCHASE WARRANTS
In conjunction with the issuance of the Subordinated Debentures (see Note 8),
the Company issued Class A Stock Purchase Warrants (the "Class A Warrants")
which permit holders of the Subordinated Debentures to purchase one million
shares of the Company's common stock at an exercise price of $0.01 per share.
The Class A Warrants are exercisable from May 25, 1996, through May 25, 2004,
or three years after final payment of the Subordinated Debentures, if later.
The Company also issued an unlimited number of Class B Stock Purchase Warrants
(the "Class B Warrants"), which became available to the Subordinated Debenture
holders as a result of the settlement of the class action suit filed in 1992
(see Note 15). The actual number of warrants to be issued cannot be determined
at this time because they are based on a formula that uses the average closing
stock price for 90 days prior to May 25, 1997. If the average stock price for
the 90 days prior to May 25, 1997 is $4.29 or higher, no additional warrants
will be issued. However, if the average stock price is $3.00 or $1.75 for the
90 days prior to May 25, 1997, the number of warrants to be issued would be
approximately 360 and 1,200, respectively.
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 replaced by the Junior
Subordinated Debt which was issued to Messrs. Bradley and Poole.
Pursuant to the terms of the Investment Agreement, as amended, the Company
issued additional 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.
33
<PAGE> 34
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 warrants as likely to
be issued at this time. The additional 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.
The Class A Warrants, Class B Warrants and Class C Warrants are subject to
anti-dilution protection and the holders of such warrants are entitled to
certain registration rights.
NOTE 11 - EMPLOYEE BENEFIT PLANS
PENSION
The Company has noncontributory defined benefit pension plans covering
essentially all of its hourly and salaried employees, except employees of the
Services Group. The plans provide retirement, death and disability benefits to
eligible employees based upon age, salary and length of service. The Company's
funding policy for these plans is to satisfy the minimum funding requirements
of ERISA, which is tax deductible under the Internal Revenue Code.
The Company assumed pension liabilities of $10,926 as a result of the
acquisition of The National Acme Company on October 23, 1995 (see Note 2).
Assets of the plans, comprised of temporary cash investments, convertible
debentures, preferred and common stocks, including 110 shares of the Company's
common stock, are invested in a master trust.
Pension expense is as follows:
<TABLE>
<CAPTION>
Year ended July 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 656 $ 253 $ 73
Interest on projected benefit obligation 2,393 925 874
Actual return on plan assets (4,080) (812) (1,859)
Net amortization and deferral 1,979 (162) 982
------- ----- -------
$ 948 $ 204 $ 70
======= ===== =======
</TABLE>
The funded status of plans in which plan assets at fair market value exceed the
projected benefit obligation is presented below:
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Plan assets at fair market value $ 6,526 $ 5,572
Projected benefit obligation 4,564 4,481
------- -------
Excess fair value of assets over projected benefit
obligation 1,962 1,091
Unrecognized net gain (1,638) (822)
------- -------
Accrued pension asset $ 324 $ 269
======= =======
</TABLE>
The projected benefit obligations at July 31, 1996, and 1995 include
accumulated benefit obligations of $4,564 and $4,481 and vested benefit
obligations of $4,476 and $4,386, respectively.
34
<PAGE> 35
The funded status of plans in which the projected benefit obligation exceeds
plan assets at fair market value is presented below:
<TABLE>
<CAPTION>
July 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Plan assets at fair market value $ 34,266 $ 6,264
Projected benefit obligation 44,879 7,553
-------- -------
Excess projected benefit obligation over
fair value of assets (10,613) (1,289)
Unrecognized transition obligation 219 256
Unrecognized net gain (2,994) (620)
Unrecognized prior service cost and other 841 911
Contribution after measurement date 126 33
Additional liability required (87) (547)
======== =======
Accrued pension liability $(12,508) $(1,256)
========= =======
</TABLE>
The projected benefit obligations at July 31, 1996, and 1995 include
accumulated benefit obligations of $44,486 and $7,553 and vested benefit
obligations of $43,140 and $7,315, respectively.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 8.0% and 8.25% for fiscal 1996 and 1995,
respectively. The expected long-term rate of return on plan assets was 9% for
both years.
OTHER EMPLOYEE BENEFITS
The Company also has two defined contribution pension plans pursuant to Section
401(k) of the Internal Revenue Code. Non-union employees and all salaried
employees of the Company are eligible for participation in the Savings Plan.
Plan participants may contribute up to 12% of gross compensation. The Company
matches 50% of participant contributions of up to 6% of each participant's
gross compensation. Contribution expense for the years ended July 31, 1996,
1995 and 1994 was $343, $127 and $93, respectively.
Certain employees hired by National Acme after April 1, 1986, no longer accrue
benefits under the defined benefit pension plans and the Company contributes 3%
of gross compensation to an Hourly Savings Plan. Contributions under this plan
were $99 during fiscal 1996.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain employees with health and life insurance benefits
after retirement. Health insurance benefits require employee contributions in
certain cases. The Company assumed postretirement medical liabilities of
$20,559 as a result of the acquisition of The National Acme Company on October
23, 1995 (see Note 2).
Postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Year ended July 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 129 $ 71 $ 38
Interest on projected benefit obligation 1203 460 222
Amortization of actuarial losses 3 26 -
------- ----- -----
Net periodic postretirement benefit cost $ 1,335 $ 557 $ 260
======= ===== =====
</TABLE>
The Company has not funded any portion of its postretirement benefit
obligations.
35
<PAGE> 36
The following table sets forth the funded status of the plans and the amount
recognized in the accompanying balance sheets:
<TABLE>
<CAPTION>
July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Retirees $19,835 $3,613
Active plan participants - fully eligible 1,285 587
Other active plan participants 2,877 1,440
------- ------
Accumulated postretirement benefit obligation 23,997 5,640
Unrecognized gain/(loss) 994 (618)
------- ------
$24,991 $5,022
======= ======
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 8.0% and 8.25% for fiscal 1996 and 1995, respectively.
The medical cost trend rate in fiscal 1996 and 1995 was 9% and 10%,
respectively, declining on a linear basis to a terminal rate of 5.5% by the
year 2003. A one percentage point increase in the assumed health care cost
trend rates for each future year would have increased fiscal 1996 and 1995
costs by approximately $89 and $70, respectively, and the accumulated
postretirement benefit obligation as of July 31, 1996 and 1995 by $1,259 and
$603, respectively.
NOTE 12 - INCOME TAXES
Effective August 1, 1992, the Company adopted SFAS 109 (see Note 1). Pre-tax
(loss)/income from continuing operations was $(769), $811 and $1,487 in fiscal
1996, 1995 and 1994, respectively.
The (benefit) provision for income taxes on income (loss) is summarized below:
<TABLE>
<CAPTION>
Year ended July 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax expense
Federal $ 132 $ 31 $ 151
State and local 170 120 -
----- ------ -----
Total current 302 151 151
----- ------ -----
Deferred tax expense (benefit)
Federal (301) (623) (207)
State and local (53) (110) (36)
----- ------ -----
Total deferred (354) (733) (243)
----- ------ -----
Total $ (52) $ (582) $ (92)
===== ====== =====
</TABLE>
36
<PAGE> 37
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
July 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Intangible assets $( 1,570) $(1,678)
Fixed assets (2,900) (976)
Inventories (4,632) -
-------- -------
Gross deferred tax liabilities (9,102) (2,654)
Credit carryforwards 354 474
Noncompetition agreement 240 425
Inventory reserves 4,038 2,521
Intangible assets 2,954 3,647
Accounts receivable reserves 275 378
Accrued postretirement benefits 10,005 2,009
Accrued pension benefits 4,676 56
Accrued expenses and other 2,289 686
------- -------
Gross deferred tax assets 24,831 10,196
Deferred tax assets valuation allowance (4,705) (2,483)
------- -------
Net deferred taxes $11,024 $ 5,059
======= =======
</TABLE>
The tax benefit resulting from the amortization of excess tax basis (i.e. the
excess over recorded book value) of certain intangible assets will reduce the
equity account "Excess purchase price over net assets from the Services Group
acquisition," which will increase stockholders' equity (see Note 1).
The Company recorded deferred tax assets of $7,551 related to the acquisition
of National Acme (see Note 2) and also established a valuation allowance of
$2,222 due to uncertainty of the realization of the deferred tax assets. The
Company released $2,962 of valuation allowance in fiscal 1995 because of
profitable results in recent history and expectations of income within the
foreseeable future.
The differences between the U.S. federal statutory tax rate and the Company's
effective rate on income from continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended July 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 35.0%
Valuation allowance - (146.6) (50.4)
State income taxes, net of federal benefit (10.0) 19.2 -
Liability of former group - - 8.6
Nondeductible goodwill (23.4) - -
Other nondeductible items (0.8) 6.3 1.3
Other 6.9 15.3 (0.7)
----- ------ -----
6.7% (71.8)% (6.2)%
===== ====== =====
</TABLE>
The Company has investment tax credit carryforwards of $234 which expire at
various dates through the year 2000. The Company also has minimum tax credit
carryforwards of $120 which have no expiration.
NOTE 13 - RELATED PARTIES
STANWICH PARTNERS, INC. ("SPI")
Two of the principals of SPI serve on the Company's Board of Directors. The
Company has a consulting agreement, as amended, with SPI through July 1998,
which provides for payments to SPI for consulting services of $261 per year for
each of the three fiscal years ending July 31, 1996, 1997 and 1998. Aggregate
SPI consulting fee expense under all agreements was $261 for each of the fiscal
years ended July 31, 1996, 1995 and 1994. At July 31, 1995, the Company had
prepaid consulting fees to SPI of $109. In fiscal 1996, the Company paid $250
for additional services in connection with the refinancing of the senior credit
facility (see Notes 7 and 8). In fiscal 1995, the Company paid $180 for
additional services in connection with the purchase of Cushman, Mideastern and
Ed Smith (see Note 2).
37
<PAGE> 38
In fiscal 1996, 1995 and 1994 the Company reimbursed SPI approximately $5, $7
and $7, respectively, for travel expenses incurred by SPI on behalf of the
Company.
D.V. ASSOCIATES, L.P.
Pursuant to a license agreement, the Company licenses certain trademarks from
D.V. Associates, L.P., and the Company's rights to these trademarks are subject
to the payment of certain license fees. The Company paid license fees to D.V.
Associates, L.P., of $300 in fiscal 1996, 1995 and 1994. The Company holds an
option to purchase the trademarks from D.V. Associates, L.P., for $3,000. Two
of the Company's directors have limited partnership interests in D.V.
Associates, L.P.
SOMERSWORTH, INC. ("SOMERSWORTH")
Through December 21, 1989, the Company was an 80%-owned subsidiary of a
wholly-owned subsidiary of Somersworth. The Company and Somersworth were
parties to a tax-sharing agreement. In fiscal 1994, the Company paid a $151
assessment to the Internal Revenue Service for the last period the Company was
included in Somersworth's consolidated tax return. Such amount is included in
fiscal 1994 income tax expense.
CHARLES E. BRADLEY AND JOHN G. POOLE
In order to obtain the consent of the Subordinated Debt holders to the
refinancing of the senior credit facility in October, 1995, Messrs. Bradley and
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, to replace the principal owed to one of the
Subordinated Debenture holders. 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 collateral fee for as long
as the pledge is in effect, payable in monthly installments. During fiscal
1996, the Company paid $68 as collateral fee to Mr. Bradley and $191 and $115
in interest expense on the Junior Subordinated Debt to Messrs. Bradley and
Poole, respectively.
COMPANY POLICY
It is the policy of the Company that any transaction between the Company and
any of its officers, directors or 5% stockholders, or affiliates thereof, must
be on terms no less favorable than those which would be obtained from
unaffiliated parties. In addition, transactions which exceed $100 must be
approved by a majority of the disinterested members of the Company's Board of
Directors.
NOTE 14 - LEASE COMMITMENTS
The Company has various noncancelable operating leases relating principally to
machinery and equipment and real property, which expire at various dates
through 2006. Three of the Company's operating facilities were leased in April
1986 under an operating lease with an initial 20-year term. This lease
initially required monthly payments of $69 and contains an escalation
provision, effective commencing on the fifth anniversary of the lease and
thereafter at each five-year anniversary, based on increases in the consumer
price index. Monthly payments are $80, after assignment of the lease for the
Penberthy facility and after the escalation effective May 1996. The lease is
renewable for four additional five-year terms. Upon completion of the initial
20-year term, the Company is required to renew the lease for at least one
five-year term or purchase the property. Accordingly, the minimum rental
commitments shown below reflect one additional five-year renewal term.
38
<PAGE> 39
Rental expense relative to all operating leases for the years ended July 31,
1996, 1995 and 1994 was $2,731, $2,156, and $2,123, respectively. At July 31,
1996, future minimum rental commitments under noncancelable operating leases
with a term in excess of one year are as follows:
<TABLE>
<S> <C>
Fiscal year
1997 $ 2,238
1998 1,962
1999 1,809
2000 1,531
2001 1,492
Thereafter 9,629
-------
$18,661
=======
</TABLE>
NOTE 15 - COMMITMENTS AND CONTINGENCIES
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 settled this suit
for $1.5 million during fiscal 1995. This was recorded as a nonrecurring
charge in the Statements of Operations. The settlement is effective as to the
Company and each of its present and former officers and directors party to the
suit.
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 alleged 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 were
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. The settlement was approved by the
court at a hearing on July 19, 1996. Management believes the settlement to be
in the best interest of the Company and its shareholders.
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 has 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 of
$2.2 million for the jury's verdict, plus interest and other costs.
At July 31, 1996, the accrued liability for these cases was $2,309.
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
39
<PAGE> 40
have a material adverse effect upon the Company, after taking into account any
proceeds of available insurance.
NOTE 16 - BUSINESS SEGMENTS
The Company's business activities are conducted by four business segments: the
Services Group, National Acme, the Tooling Systems Group and the Industrial
Group. Financial information for each of these segments is summarized below:
<TABLE>
<CAPTION>
Operating Depreciation
Net Profit Identifiable Capital and
Sales (Loss) Assets Expenditures (a) Amortization
----- ------ ------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1996:
Services Group $ 39,034 $5,763 $ 33,173 $ 395 $1,615
National Acme 29,570 2,949 50,053 558 1,174
Tooling Systems Group 20,983 1,055 19,942 40 963
Industrial Group 23,727 1,155 8,022 441 527
Corporate - (2,614) 8,613 175 333
-------- ------ -------- ------- ------
Total $113,314 $8,308 $119,803 $ 1,609 $4,612
======== ====== ======== ======= ======
Year ended July 31, 1995:
Services Group $ 34,716 $4,790 $ 33,262 $ 417 $1,427
Tooling Systems Group 21,246 1,792 19,805 140 827
Industrial Group 22,188 701 6,222 360 536
Corporate - (2,040) 6,943 53 (69)
-------- ------ -------- ------- ------
Total $ 78,150 $5,243 $ 66,232 $ 970 $2,721
======== ====== ======== ======= ======
Year ended July 31, 1994:
Services Group $ 28,063 $2,494 $ 24,874 $ 576 $1,198
Tooling Systems Group 16,877 1,624 12,495 408 499
Industrial Group 18,679 536 6,922 213 422
Corporate - (1,864) 6,972 76 (343)
-------- ------ -------- ------- ------
Total $ 63,619 $2,790 $ 51,263 $ 1,273 $1,776
======== ====== ======== ======= ======
</TABLE>
Notes
(a) Capital expenditures include $471, $0, and $253 of leased assets
financed by capital lease obligations in fiscal 1996, 1995 and 1994,
respectively.
NOTE 17 - FOURTH QUARTER EVENTS
During the fourth quarter of fiscal 1996, the Company made adjustments in the
amount of $466 to reduce the pension and other postretirement benefits expense
related to the National Acme acquisition (see Note 2) based on the results of
actuarial estimates.
40
<PAGE> 41
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 18, 1996, contains, under the caption
"Election of Directors," information required by Item 10 of Form 10-K as to
directors of the Company and is incorporated herein by reference. Pursuant to
General Instruction G(3), certain information concerning executive officers of
the Company is included in Part I of this Form 10-K, under the caption
"Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 18, 1996, contains, under the caption
"Executive Compensation and Other Information," information required by Item 11
of Form 10-K and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 18, 1996, contains, under the captions
"Security Ownership of Certain Beneficial Owners" and "Election of Directors,"
information required by Item 12 of Form 10-K and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 18, 1996, contains, under the caption
"Certain Relationships and Related Transactions," information required by Item
13 of Form 10-K and is incorporated herein by reference.
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
10-K
(a)(1) The following financial statements of DeVlieg-Bullard, Inc., are
included herein under Item 8 of Part II; Pages 19 to 40.
Report of Independent Accountants
Balance Sheets
July 31, 1996 and 1995
Statements of Operations
Years ended July 31, 1996, 1995 and 1994
Statements of Cash Flows
Years ended July 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity
Years ended July 31, 1996, 1995 and 1994
Notes to the Company Financial Statements
(2) The following financial statement schedules of DeVlieg-Bullard, Inc.,
are included herein on pages S-1 to S-3:
Report of Independent Accountants on Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Management Contracts and Compensatory Plans and Arrangements
DeVlieg-Bullard, Inc., 1989 Employee Stock Plan (included as Exhibit
10.03).
DeVlieg-Bullard, Inc., 1991 Stock Option Plan for Outside Directors
(included as Exhibit 10.05).
Non-Interference and Non-Disclosure Agreement executed by William O.
Thomas dated May 25, 1994 (included as Exhibit 10.12).
Consulting Agreement dated as of August 1, 1995, between the Company
and Stanwich Partners, Inc. (included as Exhibit 10.14).
(b) DeVlieg-Bullard, Inc., did not file any reports on Form 8-K for the
quarter ended July 31, 1996.
42
<PAGE> 43
(c) Exhibits:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company. (Incorporated
by reference to the Company's Registration Statement on Form S-1
Registration No. 33-32725.)
3.2 Restated Bylaws of the Company. (Incorporated by reference to the
Company's Registration Statement on Form S-1, Registration No.
33-32725.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to the
Company's Registration Statement on Form S-1, Registration No.
33-32725.)
4.2 Article IV of the Restated Certificate of Incorporation of the
Company. (Included in Exhibit 3.1.)
10.01 Form of Registration Rights Agreement dated as of March 22, 1990,
among the Company and certain stockholders identified therein.
(Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-32725.)
10.02 License Agreement dated as of March 22, 1990, between D.V. Associates,
L.P. and the Company. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No. 33-32725.)
10.03 DeVlieg-Bullard, Inc., 1989 Employee Stock Plan. (Incorporated by
reference to the Company's Registration Statement on Form S-1,
Registration No. 33-32725.)
10.04 Amendment No. 1 to Shareholders' Agreement dated December 15, 1989.
(Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-32725.)
10.05 DeVlieg-Bullard, Inc., 1991 Stock Option Plan for Outside Directors.
10.06 Amended and Restated Lease Agreement by and between Corporate Property
Associates 5 and DeVlieg-Bullard, Inc., dated as of April 3, 1986, and
amended and restated as of November 24, 1992. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended July 31, 1993.)
10.07 Investment Agreement dated May 25, 1994, among (i) the Company and
(ii) Allied Investment Corporation, Allied Investment Corporation II
and Allied Capital Corporation, Banc One Capital Partners Corporation,
and PNC Capital Corp. The Company agrees to furnish supplementally a
copy of any omitted schedules to the Commission upon request.
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994.)
10.08 Debenture in the original principal amount of $2,360,000 issued May
25, 1994, by the Company to Allied Investment Corporation, the "Allied
Investment Corporation Debenture." In addition, the Company issued
the following debentures which are substantially identical to the
Allied Investment Corporation Debenture except as to Holder and
amount:
<TABLE>
Holder Principal Amount
------ ----------------
<S> <C>
Allied Investment Corporation II $1,300,000
Allied Capital Corporation 340,000
Banc One Capital Partners Corporation 4,000,000
PNC Capital Corp. 4,000,000
</TABLE>
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994.)
43
<PAGE> 44
10.09 Class A Stock Purchase Warrant issued by the Company May 25, 1994, to
PNC Capital Corp., the "PNC Class A Warrant," for the right to
purchase 333,333 shares of the Company's common stock. In addition,
the Company issued the following warrants which are substantially
identical to the PNC Class A Warrant except as to Holder and number of
shares subject to warrant:
<TABLE>
<CAPTION>
Number of Shares
Holder Subject to Warrant
------ ------------------
<S> <C>
Allied Investment Corporation 196,668
Allied Investment Corporation II 108,333
Allied Capital Corporation 28,333
Banc One Capital Partners Corporation 333,333
</TABLE>
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994.)
10.10 Class B Stock Purchase Warrant issued to PNC Capital Corp., the "PNC
Class B Warrant," by the Company May 25, 1994, for the right to
purchase one-third of the number of shares of the Company's common
stock available in the aggregate pursuant to the terms of paragraph
2.02 of the Investment Agreement (an unexecuted form of which
constitutes Exhibit 2.01 to the Investment Agreement referred to above
in Exhibit 10.25 to this report). In addition, the Company issued the
following warrants which are substantially identical to the PNC Class
B Warrant except as to Holder and number of shares subject to warrant:
<TABLE>
<CAPTION>
Pro Rata Share of Shares Subject
Holder to Warrant
------ ----------
<S> <C>
Allied Investment Corporation 19.7%
Allied Investment Corporation II 10.8%
Allied Capital Corporation 2.8%
Banc One Capital Partners Corporation 33.3%
</TABLE>
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994.)
10.11 Registration Agreement dated May 25, 1994, by and between
DeVlieg-Bullard, Inc., and Allied Investment Corporation, Allied
Investment Corporation II, Allied Capital Corporation, Banc One
Capital Partners Corporation and PNC Capital Corp. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1994.)
10.12 Non-Interference and Non-Disclosure Agreement executed by William O.
Thomas dated May 25, 1994. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 1994.)
10.13 First Amendment to the DeVlieg-Bullard, Inc., 1989 Employee Stock Plan
approved by the Company's stockholders at the annual meeting of
stockholders held on December 15, 1993. (Incorporated by reference to
the Company's Proxy Statement dated November 19, 1993.)
10.14 Consulting Agreement dated as of August 1, 1995, between the Company
and Stanwich Partners, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July 31,
1995.)
10.15 Memorandum of Closing dated as of September 9, 1994, between the
Company and the Cushman Industries Liquidating Trust. (Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended July 31, 1994.)
10.16 Product Supply Agreement dated as of September 9, 1994, between the
Company and the Cushman Industries Liquidating Trust. (Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended July 31, 1994.)
44
<PAGE> 45
10.17 Stock Purchase Agreement by and between the shareholders of H.B.
Industries, Inc. and DeVlieg-Bullard, Inc., dated November 30, 1994.
The Company agrees to furnish supplementally any omitted schedules to
the Commission upon request. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended October
31, 1994.)
10.18 Asset Purchase Agreement dated January 23, 1995, by and between
DeVlieg-Bullard, Inc., Mideastern, Inc., and the shareholders of
Mideastern, Inc. (Pursuant to Item 601(b)(2) of Regulation S-K, the
schedules to this agreement are omitted but will be provided
supplementally to the Commission upon request.) (Incorporated by
reference to the Company's Current Report on Form 8-K dated February
3, 1995.)
10.19 Earnout Note dated January 23, 1995, in the principal amount of
$600,000 issued by DeVlieg-Bullard, Inc., to Mideastern, Inc.
(Incorporated by reference to the Company's Current Report on Form 8-K
dated February 3, 1995.)
10.20 Stock Purchase Agreement among Acme-Cleveland Corporation, AC
Intermediate Company and DeVlieg-Bullard, Inc., Dated September 7,
1995. (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to
this agreement are omitted but will be provided supplementally to the
Commission upon request.) (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended July 31, 1995.)
10.21 Financing and Security Agreement dated October 23, 1995, between the
CIT Group/Business Credit, Inc. and DeVlieg-Bullard, Inc.
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.22 Revolving Loan Promissory Note dated October 23, 1995, in the
principal amount of $25,000,000 between the CIT Group/Business Credit,
Inc., and DeVlieg-Bullard, Inc. (Incorporated by reference to the
Company's Form 8-K dated November 7, 1995.)
10.23 Term Loan Promissory Note dated October 23, 1995, in the principal
amount of $5,000,000 between the CIT Group/Business Credit, Inc., and
DeVlieg-Bullard, Inc. (Incorporated by reference to the Company's
Form 8-K dated November 7, 1995.)
10.24 First Amendment to Investment Agreement dated October 23, 1995, among
Banc One Capital Partners Corporation, PNC Capital Corp., Allied
Investment Corporation, Allied Investment Corporation II, Allied
Capital Corporation II, Charles E. Bradley, Sr., John G. Poole and
DeVlieg-Bullard, Inc. (Incorporated by reference to the Company's
Form 8-K dated November 7, 1995.)
10.25 Debenture in the original principal amount of $2,500,000 issued
October 23, 1995, by DeVlieg-Bullard, Inc., to Charles E. Bradley, Sr.
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.26 Debenture in the original principal amount of $1,500,000 issued
October 23, 1995, by DeVlieg-Bullard, Inc., to John G. Poole.
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.27 Class A Stock Purchase Warrant issued by DeVlieg-Bullard, Inc. on
October 23, 1995, to Charles E. Bradley, Sr. (the "Bradley Class A
Warrant") for the right to purchase 52,083 shares of the
45
<PAGE> 46
Company's common stock. In addition, the Company issued the following
additional Class A Stock Purchase Warrants, which were substantially
identical to the Bradley Class A Warrant, except as to the holder and
number of shares subject to the warrant:
<TABLE>
<CAPTION>
Number of Shares
Holder Subject to Warrant
------ ------------------
<S> <C>
John G. Poole 31,250
Charles E. Bradley, Sr. 104,166
John G. Poole 62,500
Banc One Capital Partners Corporation 166,667
PNC Capital Corp. 166,667
Allied Capital Corporation II 21,250
Allied Investment Corporation II 81,250
Allied Investment Corporation 147,501
</TABLE>
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.28 Class B Stock Purchase Warrant issued by DeVlieg-Bullard, Inc. dated
October 23, 1995, to PNC Capital Corp. (The "PNC Class B Warrant")
for the right to purchase a presently indeterminable number of shares
of the Company's common stock. In addition, the Company issued
substantially identical Class B Stock Purchase Warrants to each of
Banc One Capital Partners Corporation, Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation II.
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.29 Class C Stock Purchase Warrant issued by DeVlieg-Bullard, Inc., dated
October 23, 1995, to PNC Capital Corp. (the "PNC Class C Warrant")
for the right to purchase 250,000 shares of the Company's common
stock. In addition, the Company issued the following additional Class
C Stock Purchase Warrants, which are substantially identical to the
PNC Class C Warrant, except as to the holder and number of shares
subject to the warrant:
<TABLE>
<CAPTION>
Number of Shares
Holder Subject to Warrant
------ ------------------
<S> <C>
Banc One Capital Partners Corporation 250,000
Charles E. Bradley, Sr. 156,250
John G. Poole 93,750
</TABLE>
(Incorporated by reference to the Company's Form 8-K dated November 7,
1995.)
10.30 Credit Support Agreement dated October 23, 1995, between
DeVlieg-Bullard, Inc., and CPS Holdings, Inc. (Incorporated by
reference to the Company's Form 8-K dated November 7, 1995)
10.31 First Amendment to Registration Rights Agreement dated October 23,
1995, among Allied Investment Corporation, Allied Investment
Corporation II, Allied Capital Corporation II, Banc One Capital
Partners Corporation, PNC Capital Corp., Charles E. Bradley, Sr., John
G. Poole and DeVlieg-Bullard, inc. (Incorporated by reference to the
Company's Form 8-K dated November 7, 1995.)
10.32 First Amendment to Financing and Security Agreement dated April 12,
1996, between The CIT Group/Business Credit, Inc., and
DeVlieg-Bullard, Inc. (Incorporated by reference to the Company's
Form 10-Q for the quarter ended April 30, 1996.)
10.33 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. (Incorporated by reference to the Company's
Form 10-Q for the quarter ended April 30, 1996.)
10.34 Second Amendment to the DeVlieg-Bullard, Inc. 1989 Employee Stock
Option Plan.
11 Computation of Earnings per Share
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule (for SEC use only)
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on September 25, 1996.
DEVLIEG-BULLARD, INC.
By: /s/ William O. Thomas
---------------------
William O. Thomas
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures and Title(s) Date
- ----------------------- ----
/s/ William O. Thomas September 25, 1996
- -----------------------
William O. Thomas
President and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Lawrence M. Murray September 25, 1996
- -----------------------
Lawrence M. Murray
Vice President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Charles E. Bradley September 25, 1996
- -----------------------
Charles E. Bradley, Director,
Chairman of the Board
/s/ Thomas L. Cassidy September 25, 1996
- ----------------------
Thomas L. Cassidy, Director
/s/ George A. Chandler September 25, 1996
- ----------------------
George A. Chandler, Director
47
<PAGE> 48
Signatures and Title(s) Date
/s/ John G. Poole September 25, 1996
- ------------------
John G. Poole, Director
/s/ Burton C. Borgelt September 25, 1996
- ----------------------
Burton C. Borgelt, Director
/s/ John R. Kennedy September 25, 1996
- --------------------
John R. Kennedy, Director
/s/ John E. McConnaughy, Jr. September 25, 1996
- -----------------------------
John E. McConnaughy, Jr., Director
48
<PAGE> 49
DeVlieg-Bullard, Inc.
Index To Financial Statement Schedules
Description
Report of Independent Accountants on Financial
Statement Schedules S-2
Schedule VIII -Valuation and Qualifying Accounts S-3
All other financial statement schedules are either not required or not
applicable to the Company.
S-1
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of DeVlieg-Bullard, Inc.
Our audits of the financial statements referred to in our report dated
September 4, 1996 appearing on page 20 of this Form 10-K also included an audit
of the Financial Statement Schedule listed in the index appearing under Item
14(a)(2) of this Form 10-K on page 42. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
/s/ PRICE WATERHOUSE LLP
Stamford, Connecticut
September 4, 1996
S-2
<PAGE> 51
DeVlieg-Bullard, Inc.
Schedule VIII - Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1993 Expense Other Deductions July 31, 1994
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $ 969 $ 107 $ 36(1) $ (276)(2) $ 836
Inventories 6,690 (1,556)(3) - (99)(4) 5,035
Deferred Tax Assets 9,746 - - (4,301) 5,445
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1994 Expense Other Deductions July 31, 1995
-------------- ------- ----- ---------- -------------
Accounts Receivable $ 836 $ 187 $ 189(5) $ (290)(2) $ 922
Inventories 5,035 (205)(3) 1,296(5) (21)(4) 6,105
Deferred Tax Assets 5,445 - - (2,962) 2,483
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1995 Expense Other Deductions July 31, 1996
-------------- ------- ----- ---------- -------------
Accounts Receivable $ 922 $ 61 $ 178(5) $(487) $674
Inventories 6,105 (68)(3) 4,942(5) (57) 10,922
Deferred Tax Assets 2,483 - 2,222(5) - 4,705
Litigation Reserve 38 4,600(6) - (2,329) 2,309
</TABLE>
(1) Recoveries of amounts previously written off.
(2) Write-off amounts deemed uncollectible.
(3) Provision for obsolescence, net of inventory sold.
(4) Scrapped inventory.
(5) Includes reserves of companies acquired (see Note 2 of Notes to the
Company Financial Statements).
(6) See Note 15 of Notes to the Company Financial Statements for a
description of litigation expenses.
S-3
<PAGE> 1
EXHIBIT 10.05
DEVLIEG-BULLARD, INC.
1991 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. Purpose
The purposes of the DeVlieg-Bullard, Inc. 1991 Stock Option Plan for
Outside Directors are to advance the interests of DeVlieg-Bullard, Inc. (the
"Company") and its stockholders by attracting and retaining the highest quality
of experienced persons as directors and to align the interest of the Outside
Directors of the Company more closely with the interests of the Company's
stockholders.
2. Definitions
The following terms shall have the meanings indicated below:
(a) "Affiliate" shall have the meaning set forth in the Company's
1989 Employee Stock Plan.
(b) "Board" shall have the meaning set forth in the Company's 1989
Employee Stock Plan.
(c) "Change in Control" shall have the meaning set forth in the
Company's 1989 Employee Stock Plan.
(d) "Code" shall have the meaning set forth in the Company's 1989
Employee Stock Plan.
(e) "Committee" shall have the meaning set forth in the Company's
1989 Employee Stock Plan.
(f) "Common Stock" means the common stock, par value $.01 per
share, of the Company.
(g) "Company" shall have the meaning set forth in the Company's
1989 Employee Stock Plan.
(h) "Disability" shall have the meaning set forth in the Company's
1989 Employee Stock Plan.
<PAGE> 2
(i) "Fair Market Value" shall have the meaning set forth in the
Company's 1989 Employee Stock Plan.
(j) "Option" means an option granted to an Outside Director
pursuant to the Plan.
(k) "Optionee" means an Outside Director who has been granted an
Option pursuant to the Plan.
(l) "Outside Director" means any member of the Board of Directors
of the Company who during the term of this Plan has not served
as an officer or employee of the Company, a consultant to the
Company or an officer or employee of Stanwich Partners, Inc.
or its affiliates.
(m) "Plan" means the DeVlieg-Bullard, Inc. 1991 Stock Option Plan
for Outside Directors.
(n) "Potential Change in Control" shall have the meaning set forth
in the Company's 1989 Employee Stock Plan.
(o) "Retirement" means retirement from active directorship of the
Company.
(p) "Subsidiary" shall have the meaning set forth in the Company's
1989 Employee Stock Plan.
3. Administration
The Plan shall be administered by the Committee of the Board of the
Company. The Committee is authorized to interpret the Plan and may from time
to time adopt such rules and regulations, not inconsistent with the provisions
of the Plan, as it may deem advisable to carry out the Plan; provided, however,
that the Committee shall have no discretion with respect to designating the
recipient of an Option, the number of shares of Common Stock that are subject
to an Option or the exercise price for an Option. All decisions made by the
Committee in construing the provisions of the Plan shall be final.
4. Eligibility
Each Outside Director of the Company shall be eligible to participate
under the Plan.
5. Stock Subject to the Plan
Subject to adjustment as provided in Paragraph 11, not more than
50,000 shares of Common Stock may be issued in respect of Options granted under
the Plan. Such shares that may be issued upon the exercise of Options under
the Plan are authorized but unissued shares.
2
<PAGE> 3
Shares of Common Stock subject to an Option shall, upon the expiration or
termination of such Option, to the extent unexercised, again be available for
grant under the Plan.
6. Grant of Options
Options will be awarded under this Plan pursuant to the following:
(a) Each Outside Director of the Company who served in such
capacity on January 10, 1991 shall be and hereby is granted as
of such date, subject to stockholder approval of the Plan, an
Option to purchase 5,000 shares of the Company's Common Stock
subject to adjustment as provided in Paragraph 11.
(b) Commencing with the Annual Meeting of Shareholders for the
year ended July 31, 1991, each Outside Director on the date of
his initial election to the Board, whether such election is by
the Board or by the Company's stockholders, shall be granted
as of such date, subject to stockholder approval of the Plan,
an Option to purchase 5,000 shares of the Company's Common
Stock subject to adjustment as provided in Paragraph 11,
provided that such Optionee has not received such an Option on
some previous date.
7. Option Price
Each Option granted hereunder shall represent the right to purchase
the shares of Common Stock represented thereby at the Fair Market Value on the
date the Option is granted.
8. Option Agreement
The grant of any Options shall be evidenced by a written Stock Option
Agreement executed by the Company and the Optionee. The Stock Option Agreement
shall contain the number of shares of Common Stock subject to the Option
evidenced thereby, the other essential terms of the Option determined in
accordance with Paragraph 9 hereof, and other terms that are not inconsistent
with requirements of this Plan.
9. Terms and Conditions of Options
(a) Except as otherwise provided in Paragraph 12, Options granted
pursuant to the Plan shall become exercisable one year from
the date of grant, except that the first grant hereunder which
shall vest six months and one day following stockholder
approval of this Plan. All Options shall have a term of ten
years from the date of grant, subject to earlier termination
pursuant to Paragraph 13.
3
<PAGE> 4
(b) Options that have not become exercisable on the date the
Optionee ceases to serve as a director of the Company for any
reason shall be forfeited and terminated immediately upon
termination of service.
(c) Options that have become exercisable on the date the
termination or expiration of the Optionee's position as a
director may be exercised as follows:
(1) Retirement or Disability
If the Optionee shall cease to be a director of the
Company by reason of Retirement or Disability, the
Optionee may exercise the Option if and to the extent
it was exercisable on the date of such cessation.
Such Option may be exercised for a period of three
years from the date of such cessation or until the
expiration of the stated term of such Option;
whichever period is the shorter.
(2) Death
If the Optionee shall cease to be a director by
reason of death, the Optionee's legal representative
may exercise the Option if and to the extent it was
exercisable on the date of the Optionee's death.
Such Options may be exercised for a period of one
year from the date of such death or until the
expiration of the stated term of such Option,
whichever period is shorter.
(3) Termination for any other reason
If the Optionee shall cease to be a director of the
Company for any reason other than Retirement,
Disability, or death, the Optionee may exercise the
Option, to the extent it was exercisable on the date
of such cessation, if the Optionee was involuntarily
terminated by the Company without Cause. Such
Options, if exercised, must be exercised within the
lesser of three months from the date of cessation or
the balance of the stated term of the Option. For
purposes of this Plan, "Cause" shall have the meaning
set forth in the Company's 1989 Employee Stock Plan.
(d) Exercise of Options
An Option shall be exercised by delivery to the Corporate
Secretary of the Company a written notice of exercise in the
form prescribed by the Corporate Secretary for use from time
to time. Such notice of exercise shall indicate the number of
shares to which the Option is exercised and shall be
accompanied by the full exercise price for the Options
exercised.
4
<PAGE> 5
(e) Form of Payment
The exercise price may be paid in cash (including certified or
cashier's check, bank draft or money order), Common Stock, or
a combination of Common Stock and cash. The Common Stock so
delivered shall be valued at the Fair Market Value of the
Common Stock on the date of exercise. No shares of Common
Stock shall be issued or delivered until full payment has been
made.
(f) Non-Transferability
No Option under the Plan shall be assignable or transferable
by the Optionee, except by will or pursuant to applicable laws
of descent and distribution. During the life of an Optionee,
an Option shall be exercisable only by such Optionee or the
Optionee's guardian or legal representative.
(g) No Rights as Stockholders
Holders of Options under the Plan shall have no rights as
stockholders unless and until certificates for shares of
Common Stock are registered in their names in satisfaction of
a duly exercised option.
10. Withholding Taxes
Whenever the Company issues or transfers shares of Common Stock under
the Plan, the Company shall have the right to require the Optionee to remit to
the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificate for such
shares. The Company shall have the right to retain sufficient shares of Common
Stock to cover the amount of any tax required by any government to be withheld
or otherwise deducted or paid with respect to the exercise of the Options;
provided, that the Optionee does not deliver to the Company cash and/or shares
of Common Stock in the amount determined by the Company to be sufficient to
satisfy such tax. The Common Stock so retained or delivered shall be valued at
the Fair Market Value of the Common Stock on the date retained or delivered.
11. Capital Adjustments and Corporate Reorganizations
In the event of any change in the outstanding shares of stock by
reason of a stock dividend, split or combination, or recapitalization or
reclassification, or reorganization, merger or consolidation, in which the
Company is the surviving corporation or other similar change affecting the
stock, the number and class of shares then subject to Options and for which
Options may thereafter be granted and the amount per share of stock payable
upon exercised or surrender of such Options shall be appropriately adjusted by
the Committee to reflect such change. No fractional shares shall be issued as
a result of such adjustment. In the event of a dissolution of
5
<PAGE> 6
the Company or a reorganization, merger or consolidation in which the Company
is not the surviving corporation, the Company by action of its Board shall
either (i) terminate outstanding and unexercised Options as of the effective
date of such dissolution, merger or consolidation by giving notice to each
Optionee of its intention to do so and permitting the exercise, during the
period prior to such effective date to be specified by the Committee, of all
outstanding and unexercised Options or portions thereof; provided, however,
that no Option shall become exercisable hereunder either after the expiration
date thereof or prior to one year from the date of grant thereof, or (ii) in
the case of such reorganization, merger or consolidation, arrange for an
appropriate substitution of shares or other securities of the corporation with
which the Company is reorganized, merged or consolidated in lieu of the shares
of stock which are subject to such outstanding and unexercised Options.
12. Change in Control Provision
(a) In the event of a "Change in Control" or a "Potential Change
in Control" the following acceleration and valuation
provisions shall apply:
(1) Any Option awarded under the Plan to an Optionee, not
previously exercisable, shall become fully
exercisable.
(2) The value of all exercisable Options may, at the
Optionee's election, be cashed out at the Change in
Control Price (as defined in the Company's 1989
Employee Stock Plan).
13. Effective Date and Term of the Plan
The Plan will become effective on the date of its adoption by the
Board, subject to approval by a majority of the stockholders at the Annual
Meeting of Stockholders for the year ended July 31, 1991. The Board in its
discretion may terminate the Plan at any time with respect to any shares for
which options have not heretofore been granted. Except with respect to Options
then outstanding, if not sooner terminated, the Plan shall terminate upon, and
no further Options shall be granted after, the expiration of 10 years from the
effective date of the Plan.
14. Amendments
The Board shall have the right to alter or amend the Plan or any part
thereof from time to time provided that no change in any Option theretofore
granted may be made which would impair the rights of the Optionee without the
consent of such Optionee; and provided, further, that the Board may not make
any alteration or amendment which would materially increase the benefits
accruing to participants under the Plan, increase the aggregate number of
shares of Common Stock which may be issued pursuant to provisions of the Plan,
or extend the terms of the Plan, without the approval of the stockholders of
the Company.
6
<PAGE> 1
EXHIBIT 10.34
SECOND AMENDMENT TO THE DEVLIEG-BULLARD, INC.
1989 EMPLOYEE STOCK PLAN
WHEREAS, the stockholders of DeVlieg-Bullard, Inc. (the
"Company") adopted the 1989 Employee Stock Plan (the "1989 Plan") in
December 1989;
WHEREAS, pursuant to Section 12 of the 1989 Plan, the
Company's Board of Directors and stockholders have retained the right
to amend the 1989 Plan;
WHEREAS, the stockholders of the Company approved a first
amendment to the 1989 Plan in December 1993; and
WHEREAS, the Company's Board of Directors now proposes to the
stockholders a second amendment to the 1989 Plan.
NOW, THEREFORE, IN CONSIDERATION of the premises and by
resolution of the Company's Board of Directors, the 1989 Plan is
hereby amended as follows, subject to approval by the stockholders of
the Company:
1. The first sentence of the first paragraph of Section 3 is amended to
read as follows:
"The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,300,000 shares."
2. The third paragraph of Section 3 of the Plan is hereby amended by
adding the following sentence at the end of such paragraph:
"The maximum number of shares that may be awarded to any participant
under Section 4 of this Plan will be adjusted in the same manner as
the number of shares subject to outstanding Options."
3. Section 4 of the Plan is hereby amended by adding the following
sentence at the end of such Section 4:
"No officer or key employee shall be eligible to receive awards
relative to shares of Stock which exceed 100,000 shares in any fiscal
year."
4. This Amendment shall be effective upon its approval by the Company's
stockholders.
<PAGE> 1
EXHIBIT 11
DeVlieg-Bullard, Inc.
Computation of Earnings per Share
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ (717) $1,393 $1,579
======= ====== ======
Average number of common
shares outstanding 12,250 12,250 12,250
Dilutive effect of outstanding
options (a) (b) 13 --
Dilutive effect of outstanding
stock purchase warrants (a):
Class A (issued May 1994) (b) 994 186
New Class A (issued October
1995) (b) -- --
Class B (c) (b) -- --
Class C (d) (b) -- --
------- ------ ------
Total shares used in calculation of
earnings per share 12,250 13,257 12,436
======= ======= ======
Income (loss) per share $ (0.06) $ 0.11 $ 0.13
====== ======= ======
</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. If such shares were issueable on July 31, 1996, 387,475
shares would be issued. The Class B warrants became issuable on March
18, 1996.
(d) In connection with the refinancing of the senior debt facility in
October 1995 (see Note 8 of Notes to the Company 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 year months
ended July 31, 1996, the Company did not meet the defined earnings
level, therefore all Class C Warrants would be considered outstanding
since issuance.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
DeVlieg-Bullard, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-40874, 33-54608, 33-85528 and 333-02335) of
DeVlieg-Bullard, Inc. of our report dated September 4, 1996 appearing on page
20 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Stamford, Connecticut
October 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 768
<SECURITIES> 0
<RECEIVABLES> 18,179
<ALLOWANCES> 674
<INVENTORY> 42,071
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0
0
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</TABLE>
