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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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
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 III 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
Documents from which portions are
Part of Form 10-K incorporated by reference
- ----------------- ---------------------------------
III Proxy Statement relating to the
Company's Annual Meeting of
Stockholders on December 18, 1996
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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 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.
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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.
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
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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 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.
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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).
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.
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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
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.
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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
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
---- --- ---------------------
<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)
- -------- ---------- -------------- ---------------
<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 Leased (1996)
center
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.
As disclosed in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Financing and
Investing," on April 12, 1996, the Company obtained a new term loan in the
amount of $3.0 million to assist in the financing of the above litigation costs.
The Company does not believe that the expected outcome of these legal
proceedings will have any future material adverse impact on the results of
operations, liquidity or financial condition of the Company.
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.
11
<PAGE> 12
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)
-------- -------- ---- -------- --------
RESULTS OF OPERATIONS (C):
<S> <C> <C> <C> <C> <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
Nonrecurring charges 4,600 1,500 - - 6,392
Operating income (loss) from continuing
operations before interest and taxes 3,635 3,405 2,832 2,821 (12,372)
Net income (loss) from
continuing operations (717) 1,393 1,579 1,652 (13,583)
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.
12
<PAGE> 13
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. In addition, the Company's balance sheet has
changed materially from the prior year as a result of the inclusion of the
accounts of National Acme.
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
E S G & A Expenses 20.5 22.5 24.1
Nonrecurring charges 4.1 1.9 -
Operating income 3.2 4.4 4.4
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.
E S G & A EXPENSES
E S G & A expenses in fiscal 1996 were $23,273 compared to $17,584 in the prior
year, an increase of $5,689. The increase is primarily due to the acquisition of
National Acme, which increased E S G & A expenses by $5,214. Fiscal 1995 amounts
also included a $372 charge for unsuccessful acquisition costs. As a percent of
net sales, E S G & A expenses were 20.5% compared with 22.5% in the prior year.
OTHER EXPENSES
Other income was $49 in fiscal 1996, compared to $334 in fiscal 1995. The fiscal
1995 income includes a $305 gain on the sale of land held for disposition.
13
<PAGE> 14
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 included in the Services Group results. 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 - Legal 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.
OPERATING INCOME
Operating income was $3,635 in fiscal 1996, compared with $3,405 in fiscal 1995.
Fiscal 1996 results included nonrecurring litigation costs of $4,600, while
fiscal 1995 results included nonrecurring litigation costs of $1,500, as well as
costs for an unsuccessful acquisition of $372 recorded in operating expenses and
a gain of $305 on the sale of land held for disposal.
National Acme added $3,135 to operating income during fiscal 1996, while the
other business segments had operating income as follows: Services Group - $3,295
($5,495 before the allocation of nonrecurring litigation costs related to a
breach of contract suit); Tooling Systems Group - $1,064; and Industrial Group -
$1,155. Corporate expenses were $5,014 (or $2,614 without nonrecurring
litigation costs related to the class action lawsuit). During fiscal 1995, the
business segments had operating income as follows: Services Group - $4,492;
Tooling Systems Group - $1,821; and Industrial Group - $701. Corporate expenses
were $3,609 (or $2,042 without nonrecurring costs mentioned above).The Services
Group (without the nonrecurring litigation charge) and Powermatic had increases
in operating income as a percent of sales as a result of cost reductions and
leverage from higher sales against fixed costs. The Tooling Systems Group had a
decline in operating income as a percent to sales as a result of inefficiencies
resulting from the assimilation of the Cushman business acquired in fiscal 1995.
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
14
<PAGE> 15
$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.
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.
E S G & A EXPENSES
E S G & A expenses in fiscal 1995 were $17,584, or 22.5% of net sales, compared
to $15,309, or 24.1% of net sales, in fiscal 1994. E S G & A expenses in fiscal
1995 exceeded prior year levels due to the higher sales volume and costs added
by acquired businesses, in addition to $372 costs related to an unsuccessful
acquisition.
OTHER EXPENSES
Other income was $334 in fiscal 1995 compared with income of $62 in fiscal 1994.
The fiscal 1995 amount includes 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.
OPERATING INCOME
Operating income was $3,405 in fiscal 1995 compared with $2,832 in fiscal 1994.
Fiscal 1995 results included nonrecurring litigation costs of $1,500, as well as
costs for an unsuccessful acquisition of $372 recorded in operating expenses and
a gain of $305 on the sale of land held for disposal.
The business segments had operating income in fiscal 1995 as follows: Services
Group - $4,492; Tooling Systems Group - $1,821; and Industrial Group - $701.
Corporate expenses were $3,609 (or $2,042 without nonrecurring costs mentioned
above). During fiscal 1994 the business segments had operating income as
follows: Services Group - $2,474; Tooling Systems Group - $1,633; and Industrial
Group - $536. Corporate expenses were $1,811. The Services Group increase over
fiscal 1994 is primarily the result of the fiscal 1995 acquisitions, but also a
result of improved profitability due to cost reductions. Powermatic had
increases in operating income as a percent of sales as a result of cost
reductions and leverage from higher sales against fixed costs. While Tooling
Systems Group had an increase in operating income, as a percent to sales they
were below the prior year as a result of inefficiencies resulting from the
assimilation of the Cushman business acquired during the year.
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
15
<PAGE> 16
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. 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.
16
<PAGE> 17
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 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.
17
<PAGE> 18
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
18
<PAGE> 19
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
19
<PAGE> 20
DEVLIEG-BULLARD, INC.
BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
July 31,
---------------------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
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 (including related party debt: 15,175 13,639
1996 - $4,084; 1995 - $0)
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.
20
<PAGE> 21
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 11,097 8,851 7,548
-------- ------- -------
Total E S G & A expenses 23,273 17,584 15,309
Nonrecurring charges
4,600 1,500 -
Other (income) expense, net (49) (334) (62)
-------- ------- -------
Total operating expenses 27,824 18,750 15,247
-------- ------- -------
Operating income 3,635 3,405 2,832
Interest expense (including related party
interest 1996 - $452; 1995 and 1994 - $0) 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.
21
<PAGE> 22
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)
Proceeds from issuance of long-term debt (5,193) (2,111) (1,492)
Debt issuance costs 8,000 - 15,000
(1,215) - (1,035)
-------- -------- --------
Net cash provided by (used for) 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.
22
<PAGE> 23
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 Notes 8 and 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 8 and 10).
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.
23
<PAGE> 24
DEVLIEG-BULLARD, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common
Shares Additional
Issued and Common Paid-in
Outstanding Stock Capital
----------- ----- -------
Year ended
July 31, 1996, 1995 & 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, July 31, 1993 12,250 $ 123 $ 30,549
Net Income -- -- --
Issuance of stock purchase warrants -- -- 1,750
Tax benefit realized related to Excess
purchase price of Services Group -- -- --
Foreign currency translation adjustment -- -- --
-------- -------- --------
Balance, July 31, 1994 12,250 123 32,299
Net Income -- -- --
Tax benefit realized related to Excess
purchase price of Services Group -- -- --
Foreign currency translation adjustment -- -- --
-------- -------- --------
Balance, July 31, 1995 12,250 123 32,299
Net Income -- -- --
Issuance of stock purchase warrants -- -- 1,750
Foreign currency translation adjustment -- -- --
-------- -------- --------
Balance, July 31, 1996 12,250 $ 123 $ 34,049
======== ======== ========
<CAPTION>
Retained
Excess Earnings Cumulative
Purchase (Accumulated Translation
Price Deficit) Adjustment Total
----- ------- ---------- -----
Year ended
July 31, 1996, 1995 & 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 31, 1993 $(20,766) $ 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 -- -- 2,635
Foreign currency translation adjustment -- -- (17) (17)
-------- -------- -------- --------
Balance, July 31, 1994 (18,131) 3,270 (185) 17,376
Net Income -- 1,393 -- 1,393
Tax benefit realized related to Excess
purchase price of Services Group 1,773 -- -- 1,773
Foreign currency translation adjustment -- -- 28 28
-------- -------- -------- --------
Balance, July 31, 1995 (16,358) 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 $(16,358) $ 3,946 $ (176) $ 21,584
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
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.
REVENUE RECOGNITION
Revenue recognized on long-term contracts is based on the
percentage-of-completion method based on costs incurred as a percentage of
estimated total costs of individual contracts. Anticipated losses are recognized
when they become known. Estimated costs to complete are reviewed monthly and
revisions in estimated profits are made, if necessary. Deferred revenue from
noncompetition agreements is recognized over the contractual period of the
agreement, generally five years. All other revenue is recognized when earned.
25
<PAGE> 26
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 in 1990 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 of $23,500 was recorded 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." The
remaining balance in this account at July 31, 1996 was $16,358.
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 aggregate of
the assets acquired were $49,082, which was allocated based on the fair values
at the time of acquisition. 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.
The following pro forma information has been prepared assuming the acquisition
of National Acme had occurred on August 1, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Pro forma results of operations:
(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
26
<PAGE> 27
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 aggregate of the assets acquired in connection with the fiscal 1995
acquisitions were $14,476; liabilities assumed of $1,048; and debt issued of
$1,277. The Company borrowed funds from its revolving credit agreement to
finance these acquisitions.
The following unaudited pro forma financial information has been prepared
assuming the acquisitions of Cushman, Ed Smith and Mideastern had occurred as of
August 1, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Pro forma results of operations:
(unaudited - in thousands, except per share data) Year ended July 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $81,346 $72,985
======= =======
Net income $ 1,848 $ 2,138
======= =======
Net income per common share $ .014 $ 0.17
======= =======
Average shares outstanding $13,264 12,475
======= =======
</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; repayment of existing debt of Mideastern; 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 1995
and 1994, nor are they necessarily indicative of the results that may occur in
the future.
27
<PAGE> 28
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.
28
<PAGE> 29
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
======= =======
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%.
29
<PAGE> 30
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, 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.
30
<PAGE> 31
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>
The Company is in compliance with all debt covenants under the senior credit
facility and long-term debt agreements.
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.
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
31
<PAGE> 32
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. 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.
The Company 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.
32
<PAGE> 33
<TABLE>
<CAPTION>
Pension expense is as follows:
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.
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).
33
<PAGE> 34
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.
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) (1,120) (1,031)
State and local (53) (197) (182)
----- ------- -------
Total deferred (354) (1,317) (1,213)
----- ------- -------
Release of valuation allowance:
Charged to Excess of purchase price over net
assets from the Services Group acquisition -- 1,773 2,636
Due to change in circumstances -- (1,189) (1,666)
----- ------- ------
Total $ (52) $ (582) $ (92)
===== ======= =======
</TABLE>
34
<PAGE> 35
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
has a valuation allowance of $2,483 related to this item because of the
uncertainty of realization of this asset.
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).
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.
35
<PAGE> 36
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.
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.
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>
<CAPTION>
Fiscal year
- -----------
<S> <C>
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 $10,000
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 $1,500
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.
36
<PAGE> 37
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
$1,500 over approximately five months. The Company has accrued $2,400 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 $1,300, 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.
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 $2,200 for the
jury's verdict, plus interest and other costs.
At July 31, 1996, the accrued liability for these cases was $2,309. On April 12,
1996, the Company obtained a new term loan in the amount of $3,000 to assist in
the financing of the above litigation costs. The Company does not believe that
the expected outcome of these legal proceedings will have any future material
adverse impact on the results of operations, liquidity or financial condition of
the Company.
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.
37
<PAGE> 38
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>
Tooling
Services National Systems Industrial
Group Acme Group Group Corporate Total
----- ---- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1996:
Net sales $39,034 $29,570 $20,983 $23,727 $ -- $113,314
Operating income 3,295 3,135 1,064 1,155 (5,014) 3,635
Operating income without
nonrecurring items (a) 5,495 3,135 1,064 1,155 (2,614) 8,235
Identifiable assets 33,173 50,053 19,942 8,022 8,613 119,803
Capital Expenditures (b) 395 558 40 441 175 1,609
Depreciation and amortization 1,615 1,174 963 527 333 4,612
YEAR ENDED JULY 31, 1995:
Net sales $34,716 $ -- $21,246 $22,188 $ -- $ 78,150
Operating income 4,492 -- 1,821 701 (3,609) 3,405
Operating income without
nonrecurring items (a) 4,492 -- 1,821 701 (2,042) 4,972
Identifiable assets 33,262 -- 19,805 6,222 6,943 66,232
Capital Expenditures (b) 417 -- 140 360 53 970
Depreciation and amortization 1,427 -- 827 536 (69) 2,721
YEAR ENDED JULY 31, 1994:
Net sales $28,063 $ -- 16,877 18,679 $ -- $ 63,619
Operating income 2,474 -- 1,633 536 (1,811) 2,832
Identifiable assets 24,874 -- 12,495 6,922 6,972 51,263
Capital Expenditures (b) 576 -- 408 213 76 1,273
Depreciation and amortization 1,198 -- 499 422 (343) 1,776
</TABLE>
Notes
(a) Nonrecurring litigation costs of $4,600 in fiscal 1996 were allocated
as follows: $2,200 to the Services Group and $2,400 to Corporate.
Nonrecurring litigation costs of $1,500 in fiscal 1995 was allocated to
Corporate. See Note 15. In fiscal 1995, nonrecurring operating expenses
of $372 for unsuccessful acquisition costs and a $305 gain on the sale
of land held for disposition were allocated to Corporate.
(b) 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.
38
<PAGE> 39
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.
39
<PAGE> 40
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 41.
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.
40
<PAGE> 41
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
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>
<TABLE>
<CAPTION>
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
Form 10-Q for the quarter ended April 30, 1994.)
41
<PAGE> 42
<TABLE>
<S> <C>
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:
<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
(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:
<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%
(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.)
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.)
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
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 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:
<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
(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
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
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:
<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
(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
- -----------
* Previously filed.
</TABLE>
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended report to be signed
on its behalf by the undersigned, thereunto duly authorized, on June 23, 1997.
DEVLIEG-BULLARD, INC.
(REGISTRANT)
By: /s/ Lawrence M. Murray
------------------------------------------
Lawrence M. Murray
Vice President and Chief Financial Officer
(Chief Accounting Officer)
45
<PAGE> 46
DeVlieg-Bullard, Inc.
Index To Financial Statement Schedules
Description
<TABLE>
<S> <C>
Report of Independent Accountants on Financial
Statement Schedules S-2
Schedule VIII -Valuation and Qualifying Accounts S-3
</TABLE>
All other financial statement schedules are either not required or not
applicable to the Company.
S-1
<PAGE> 47
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> 48
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 $361 $ (276)(2) $ 836
Inventories 6,690 (1,556)(3) - (99)(4) 5,035
Deferred Tax Assets 9,746 - - (4,301) 5,445
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1994 Expense Other Deductions July 31, 1995
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1995 Expense Other Deductions July 31, 1996
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
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
