<PAGE> 1
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18198
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DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1270573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gorham Island, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
203-221-8201
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of November 21, 1996 was
12,250,000.
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DeVlieg-Bullard, Inc.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements:
Balance Sheets--
October 31, 1996 and July 31, 1996 2
Statements of Operations--
Three Months Ended October 31, 1996
and October 31, 1995 3
Statements of Cash Flows--
Three Months Ended October 31, 1996
and October 31, 1995 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II - OTHER INFORMATION 10
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 11
EXHIBIT 11 Computation of Earnings Per Share 12
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DeVlieg-Bullard, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, 1996 July 31, 1996
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,498 $ 768
Accounts receivable, net 21,174 17,505
Inventories, net 39,079 42,071
Other current assets 1,265 1,165
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Total current assets 63,016 61,509
Property, plant and equipment, net 13,315 13,306
Engineering drawings 18,194 18,366
Goodwill 11,309 11,472
Other assets 14,950 15,150
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Total assets $120,784 $119,803
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,767 $ 9,854
Accrued expenses and other current liabilities 16,616 16,534
Revolving credit agreement 20,399 19,195
Current portion of long-term debt 2,576 2,932
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Total current liabilities 49,358 48,515
Long-term debt 14,806 15,175
Postretirement benefit obligation 22,692 22,830
Other noncurrent liabilities 11,569 11,699
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Total liabilities 98,425 98,219
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 34,049
Excess purchase price over net assets from the
Services Group acquisition (16,358) (16,358)
Retained earnings 4,675 3,946
Cumulative translation adjustment (130) (176)
-------- --------
Total stockholders' equity 22,359 21,584
-------- --------
Total liabilities and stockholders' equity $120,784 $119,803
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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DeVlieg-Bullard, Inc.
Statements of Operations
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1996 1995
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<S> <C> <C>
Net sales $32,134 $21,375
Cost of sales 23,799 15,508
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Gross profit 8,335 5,867
Operating expenses:
Engineering 391 288
Selling 2,669 1,909
General and administrative 2,758 2,086
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Total operating expenses 5,818 4,283
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Operating profit 2,517 1,584
Litigation expense -- 2,600
Other (income) expense, net 46 70
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Income before interest and income taxes 2,471 (1,086)
Interest expense 1,217 846
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Income before income taxes 1,254 (1,932)
Provision for income taxes 525 (812)
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Net income $ 729 $(1,120)
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Income per common share $ 0.05 $ (0.08)
======= =======
Average common shares and equivalents outstanding 15,228 13,551
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DeVlieg-Bullard, Inc.
Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 729 $(1,120)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,160 771
Provision for losses on accounts receivable 66 61
Change in assets and liabilities, net of effects from
acquisitions
(Increase)/decrease in accounts receivable (3,735) 428
Decrease/(increase) in inventories 2,992 (414)
Increase in other current assets (100) (1,197)
(Decrease)/increase in accounts payable (87) 1,466
Increase in accrued expenses and other current
liabilities 82 1,972
Other, net (167) (47)
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Net cash provided by (used for) operating activites 940 1,920
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Cash flows from investing activities:
Capital expenditures (434) (189)
Purchase of business -- (9,188)
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Net cash used for investing activities (434) (9,377)
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Cash flows from financing activities:
Net change in revolving credit agreement 1,204 6,167
Proceeds from issuance of long-term debt -- 5,000
Payments on long-term debt (1,026) (2,693)
Debt issuance costs -- (913)
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Net cash provided by financing activities 178 7,561
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Effect of exchange rate changes on cash 46 (3)
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Net increase/(decrease) in cash and cash equivalents 730 101
Cash and cash equivalents at beginning of period 768 415
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Cash and cash equivalents at end of period $1,498 $ 516
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 934 $ 953
Income taxes, net of refunds 8 (249)
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Supplemental disclosure of noncash investing and financing activities:
During the three months ended October 31, 1996, the Company entered into
capital leases for computer equipment totalling $192, which were financed by
capital lease obligations.
During the three months ended October 31, 1995, the Company assumed liabilities
in the amount of $42,638 in connection with the acquisition of The National
Acme Company. In addition, the Company accrued $1,500 for additional purchase
price adjustment as provided for in the stock purchase agreement. (The Company
paid $1,314 for such adjustment in March, 1996.)
In connection with obtaining the consent of the holders of the $12,000
principal amount of subordinated debentures to the acquisition of National Acme
and to the refinancing of the Company's senior credit facility and to the
refinancing of $4,000 principal amount of such subordinated debentures, the
Company issued stock purchase warrants valued at $1,750. Such amount was
credited to Additional paid-in capital and charged as a discount to
subordinated debentures, reducing the carrying value of the debentures.
5
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DeVlieg-Bullard, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission
for Form 10-Q, the financial statements, footnote disclosures and other
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed. The
financial statements contained in this report are unaudited but, in the opinion
of DeVlieg-Bullard, Inc. (the "Company"), reflect all adjustments, consisting
of only normal recurring adjustments, necessary to fairly present the financial
position as of October 31, 1996 and the results of operations and cash flows
for the interim periods of the fiscal year ending July 31, 1997 ("fiscal 1997")
and the fiscal year ended July 31, 1996 ("fiscal 1996") presented herein. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements, footnote disclosures
and other information should be read in conjunction with the financial
statements and the notes thereto included in the Company's annual report on
Form 10-K for the year ended July 31, 1996. Certain amounts in the fiscal 1996
financial statements have been reclassified to conform with the fiscal 1997
presentation.
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Amounts in these
notes, except per share data, are expressed in thousands.
NOTE 2: INVENTORIES
<TABLE>
<CAPTION>
October 31, July 31,
Inventories consisted of: 1996 1996
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(unaudited)
<S> <C> <C>
Raw materials $ 1,409 $ 1,451
Work-in-process 11,900 13,650
Finished goods 25,770 26,970
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$39,079 $42,071
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</TABLE>
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$10,815 and $10,922 at October 31, 1996, and July 31, 1996, respectively.
Inventories valued using LIFO were $13,377 and $15,970 at October 31, 1996,
and July 31, 1996, respectively. 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 October 31, 1996 and July 31,
1996.
6
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DEVLIEG-BULLARD, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summarized below is a discussion of the results of operations of the Company,
including its Services, National Acme, Tooling Systems and Industrial operating
groups. Amounts, except per share data, are expressed in thousands.
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995. Net sales for the first quarter of fiscal 1997 were $32,134 compared to
$21,375 for the first quarter of fiscal 1997, an increase of $10,759, or 50.3%,
reflecting the acquisition of National Acme, partially offset by declines in
the Company's other operating groups. National Acme's sales were $13,178 in
the first quarter of fiscal 1997. The decrease in net sales for the other
operating groups for the first quarter of fiscal 1997 compared to the same
prior year period consisted of $1,293, or 12.9%, in the Services Group,
primarily related to timing issues relative to new and remanufactured machines;
$801, or 13.9%, in the Tooling Systems Group, which was across all product
groups; and $327, or 5.8%, in the Industrial Group. Orders for the Tooling
Systems Group were slow in the first part of the quarter, but they have
improved substantially near the end of the quarter.
Gross profit for the first quarter of fiscal 1997 was $8,335 compared to $5,867
for the first quarter of fiscal 1996, an increase of $2,468 or 42.1%. National
Acme contributed $3,005 in gross profit for the first quarter of fiscal 1997,
while the other operating groups had decreases in line with the volume
shortfall. Gross profit as a percentage of net sales was 25.9% and 27.4% in
the first quarter of fiscal 1997 and fiscal 1996, respectively. The change in
margin reflects the inclusion of National Acme, declines in the Tooling Systems
and the Industrial Groups as a percent to sales (volume related), partially
offset by a substantial improvement in Services Group as a result of favorable
product mix and operations.
Operating expenses were $5,818, or 18.1% of net sales, and $4,283, or 20.0% of
net sales, in the first quarter of fiscal 1997 and fiscal 1996, respectively.
Operating expenses are higher than the prior year for the first fiscal quarter,
primarily due to $1,510 in operating expenses at National Acme, which was
acquired at the end of the first quarter of fiscal 1996. The decrease in
operating expenses as a percent to sales is the result of absorbing additional
volume without additional administrative investments.
There were no litigation expenses in the first quarter of fiscal 1997. The
Company is not aware of any outstanding legal proceedings the outcome of which,
in management's opinion, would have a material adverse effect on the Company's
results of operation or financial condition. Litigation expenses were $2,600
during the first quarter of fiscal 1996. Of these expenses, $2,200 ($1,320
after taxes) related 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 on the grounds that the
jury's verdict was against the weight of the evidence. The balance of the
expenses were legal costs incurred in connection with the class action suit
filed in 1992. This suit was settled during the second quarter of fiscal 1996.
7
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Interest expense was $1,217 in the first quarter of fiscal 1997 compared to
$846 in the first quarter of fiscal 1996, an increase of $371. The increase in
interest expense during the fiscal 1997 three month period ended October 31,
compared to the same fiscal 1996 period is due to higher average outstanding
debt balances, primarily resulting from the acquisition of National Acme at the
end of the first quarter of fiscal 1996, and higher effective interest rates.
Income tax expense of $525 was recorded for the first three months for fiscal
1997, compared to an income tax benefit of $812 for the same period last year,
reflecting the earnings in fiscal 1997 compared with a loss recorded in the
first quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $940 for the three months ended October 31,
1996, compared to $1,920 for the three months ended October 31, 1995.
Capital expenditures were $434 in the first three months of fiscal 1997,
compared to $189 in the same prior year period. As of October 31, 1996, the
Company had no material commitments for specific capital expenditures.
During the first quarter of fiscal 1997, the Company did not have any
expenditures for acquisitions. During the first quarter of 1996, cash of
$9,188 was used for the acquisition of The National Acme Company.
The balance outstanding under the Company's revolving credit agreement was
$20,399 at October 31, 1996 compared to $19,195 at July 31, 1996. Long-term
debt, including current maturities, was $17,382 and $18,107 at October 31,
1996, and July 31, 1996, respectively. The Company's total indebtedness was
$37,781 and $37,302 at October 31, 1996, and July 31, 1996, respectively, an
increase of $479.
The Company's revolving credit agreement, which matures on October 23, 1998,
subject to renewal, permits borrowings of up to $25,000 subject to collateral
maintenance requirements. Interest on outstanding borrowings under the
revolving credit agreement is payable monthly in arrears and interest rates are
determined at the time of borrowing based on the prime rate or alternative
rates based on LIBOR. The effective rate based on LIBOR was 8.59375% at
October 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 October 31, 1996, were $1,867.
The Company expects to continue to provide liquidity and finance its ongoing
operational needs primarily through internally generated funds.
OUTLOOK: ISSUES AND UNCERTAINTIES
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.
8
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A number of factors may affect future results, liquidity and capital resources;
actual results may differ materially from those reflected by forward-looking
statements made by the Company. These factors are discussed in the Company's
Annual Report on Form 10-K for the year ended July 31, 1996.
9
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 3, 1995, a jury rendered a verdict against the Company in the net
amount of approximately $1.3 million, plus interest, relating to a civil suit
filed against the Company in the Supreme Court for the State of New York,
County of Erie, styled Watson Bowman Acme Corp. v. DeVlieg-Bullard, Inc. A
final determination of the amount of the judgment has not been made at this
time. The plaintiff had alleged losses resulting from a breach of contract by
the Company, as successor to DeVlieg-Lyons Integrated Systems, Inc., in
connection with the delivery to the plaintiff of a CNC Milling Machine. The
suit was originally filed on November 21, 1991. The Company had countersued
for the remaining balance due under the contract of approximately $280 thousand.
The Company believes that the jury's verdict in this case failed to consider
material evidence in the case that indicates that the Company was not in breach
of the contract; a Notice of Appeal was filed on February 9, 1996. No
assurance can be given that such appeal will be successful. Accordingly, the
Company made an accrual in fiscal 1996 in the amount of $2.2 million for the
jury's verdict, plus interest and other costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
During the quarter ended October 31, 1996, the Company did not file any reports
on Form 8-K.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DeVlieg-Bullard, Inc.
---------------------
(Registrant)
Date: December 13, 1996 By: /s/ Lawrence M. Murray
----------------- ------------------------------------
Vice President and Chief
Financial Officer
11
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EXHIBIT 11
DeVlieg-Bullard, Inc.
Computation of Earnings per Share
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1996 1995
<S> <C> <C>
Net income (loss) $ 729 $(1,120)
====== =======
Average number of common
shares outstanding 12,250 12,250
Dilutive effect of outstanding
options (a) 218 237
Dilutive effect of outstanding
stock purchase warrants (a):
Class A (issued May 1994) 996 996
New Class A (issued October 1995) 498 49
Class B (c) 519 --
Class C (d) 747 19
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Total shares used in calculation of
earnings per share 15,228 13,551
====== =======
Income (loss) per share $ 0.05 $ (0.08)
====== =======
</TABLE>
(a) As determined by application of the treasury stock method.
(b) Not included in calculation as effect would be antidilutive.
(c) The Class B stock purchase warrants are issuable in May 1997 using a
formula based on the average closing stock price for the 90 days prior
to issuance. If such warrants were issuable on October 31, 1996,
approximately 519 warrants would be issued. The Class B warrants
became issuable on March 18, 1996. 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.
(d) In connection with the refinancing of the senior debt facility in
October 1995, 750,000 Class C stock purchase warrants ("Class C
Warrants") were issued. The Company has the opportunity to earn back
these warrants based on earnings as defined in the agreement. For the
three months ended October 31, 1996, the Company did not meet the
defined earnings level, therefore all Class C Warrants were considered
outstanding.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,498
<SECURITIES> 0
<RECEIVABLES> 17,618
<ALLOWANCES> 730
<INVENTORY> 39,079
<CURRENT-ASSETS> 63,016
<PP&E> 26,677
<DEPRECIATION> 13,362
<TOTAL-ASSETS> 120,784
<CURRENT-LIABILITIES> 49,358
<BONDS> 14,806
0
0
<COMMON> 123
<OTHER-SE> 22,236
<TOTAL-LIABILITY-AND-EQUITY> 120,784
<SALES> 32,134
<TOTAL-REVENUES> 32,134
<CGS> 23,799
<TOTAL-COSTS> 23,799
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 1,217
<INCOME-PRETAX> 1,254
<INCOME-TAX> 525
<INCOME-CONTINUING> 729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
