SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
Commission file number: 0-18198
DeVlieg-Bullard, Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1270573
(State of incorporation) (I.R.S. employer
identification no.)
One Gorham Island, Westport, Connecticut 06880
(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
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part Ill of this Form 10-K or any amendment to this
Form 10-K. [ ]
At July 31, 1997, the aggregate market value of the voting stock held by
nonaffiliates was approximately $28,953,000. The market value calculation was
determined using the closing price of registrant's common stock on August 31,
1997, 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 12,275,400 shares of common stock outstanding at
August 31, 1997.
<PAGE>
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 10, 1997
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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 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 Machine Tool Group, Tooling Systems Group and Industrial Group in
facilities located in California, Connecticut, Illinois, Michigan, Ohio,
Pennsylvania, Tennessee, China, the United Kingdom and Germany.
The Company has combined the businesses previously operated as its Services
Group and the operations of National Acme (acquired during fiscal 1996) into the
Machine Tool Group due to the similarities in their businesses. For financial
information on the Company's business segments, see Note 16 of Notes to the
Company Financial Statements.
The Machine Tool Group manufactures original equipment multiple spindle
automatic bar and chucking machines, tooling and attachments under the trade
names of Acme-Gridley and New Britain Machine. In addition, The National Acme
Trading Company brokers used Acme-Gridley and New Britain equipment. The Machine
Tool Group also provides repair and replacement parts, field service, rebuild,
retrofit and remanufacturing services predominantly for the DeVlieg, Bullard,
Acme-Gridley, American Tool, Brown & Sharpe, Futurmill, Mattison, National Acme,
New Britain Machine, Rockford and White-Sundstrand brand machine tools. The
Machine Tool Group conducts its operations at facilities located in Huntington
Beach, California; Rockford, Illinois; Madison Heights, Michigan; Cleveland and
Twinsburg, Ohio; and Abbottstown, Pennsylvania.
The Tooling Systems Group ("Tooling Systems") manufactures precision tool
holding devices, machine tool spindles, boring tools, workholding chucks 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, Cushman Industries and Microset trade
names primarily to the automotive, original equipment manufacturers, aerospace,
construction and farm equipment industries, along with general manufacturing and
job shops. 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.
Machine Tool Group
As a primary provider of aftermarket services for its 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 its
brand names. However, the installed base of these machine tools, with the
exception of Acme- Gridley and New Britain Machine, is expected to decrease
gradually over time as older machine tools historically serviced by the Company
are retired from service. The Machine Tool 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. In addition, the Machine Tool Group is
placing increased emphasis on international markets and reducing the costs of
its product offerings.
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On January 17, 1997, the Company purchased all of the assets of Mattison
Technologies, Inc., a Rockford, Illinois-based machine tool company. The
Mattison business adds to the Company's existing parts business. See Note 2 of
Notes to the Company Financial Statements.
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.
On January 23, 1995, the Company acquired substantially 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. strengthens the Machine Tool 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.
On November 30, 1994, the Company acquired 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 Machine Tool Group's position in the automotive market. See Note 2 of Notes
to the Company Financial Statements.
Tooling Systems Group
The primary strategy for the Tooling Systems Group is to expand its product
lines through continued emphasis on the acquisition of additional tooling and
cutting tool companies. Metalworking software development companies will also be
added to the list of acquisition candidates. Sales of Tooling Systems' core
products will be driven by providing superior customer service, including
product quality, delivery and application engineering, with intense focus on
higher margin "specials." Recent new product introductions have centered on
applications used in high speed machining processes, currently the fastest
growing application base in the metalworking industry.
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
Machine Tool Group
The Machine Tool Group manufactures new machines and provides repair and
replacement parts, field service, rebuild, retrofit and remanufacturing services
through its Machines, Parts and Remanufacturing Operations and brokers used
machines through its National Acme Trading Company.
Machines. The Machine Tool Group manufactures high quality, original equipment
multiple spindle automatic bar and chucking machines. These machines are sold
through direct customer contact and through distributors world-wide under the
Acme-Gridley, National Acme and New Britain Machine trade names. The selling
prices for machines range from $100,000 to over $1.0 million. All machines are
covered by a one-year warranty.
Parts Operation. The Parts Operation provides aftermarket services, consisting
of repair and replacement parts, and engineered productivity kits and field
service, predominantly for the DeVlieg, Bullard, Acme-Gridley, American Tool,
Brown & Sharpe, Futurmill, Mattison, National Acme, New Britain Machine,
Rockford and White-Sundstrand brand machine tools.
Parts are sold primarily through direct customer contact and the Parts Operation
employs a technically-oriented customer service group and 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
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qualified employees who are familiar with the products served. Products are
marketed to over 5,000 active customers, consisting of aerospace and defense
contractors, automotive and transportation equipment manufacturers, farm
equipment builders, plumbing supply companies, bearings manufacturers,
manufacturers of industrial equipment and precision tool and die shops located
throughout the United States and overseas. Approximately 60,000 parts are
stocked for "off the shelf" shipment to customers. Approximately 250,000 total
parts are available through the Parts Operation to service the estimated 28,000
machines included in the Company's installed base.
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 rebuild,
retrofit and remanufacturing services for numerous brands of machine tools,
including DeVlieg, Bullard, Acme-Gridley, American Tool, Brown & Sharpe,
Futurmill, Mattison, National Acme, New Britain Machine, Rockford and
White-Sundstrand brands. The remanufacture of a machine tool, typically
consisting of replacing worn parts and components, realigning the machine, and
adding updated CNC capability and electrical and mechanical enhancements,
generally takes two 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 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 Trading Company. Used machines are sold through telemarketing and
direct mail. Popular machine sizes are stocked. Technicians provide selective
repairs or rebuilds as required, although machines are also 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 a
broad 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
tolerances and provide a range of data for tooling away from the machining
center, thereby assuring fast, accurate set-up and changeovers on CNC machining
centers. The selling prices for these products are from $15,000 and up.
Work Holding Systems. Through its Cushman product line, Tooling Systems supplies
Cushman chucks and work holding products to assist customers with holding parts
and tools. Chucks and work holding products range from manual and power chucks,
super spacers, jaws, as well as special designs and rebuild services. The
selling prices of chucks range from $500 to $50,000.
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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 1997. 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 1997, 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 14 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
600 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 the second fiscal quarter 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
Machine Tool Group
National Acme, acquired in fiscal 1996, invented the multiple spindle automatic
bar and chucking machines in 1896. Since that time, National Acme has sold more
multiple spindle automatics in the United States 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 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, Acme-Gridley, American Tool, Brown & Sharpe, Futurmill, Mattison,
National Acme, New Britain Machine, Rockford and White-Sundstrand brand machine
tools because the Company owns an estimated 400,000 drawings and 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 Machine Tool Group has a distinct advantage with respect
to providing services for these brands of machine tools.
Principal competitive factors for the Machine Tool Group's products and services
are proprietary technology, customer service and technical support, delivery and
price.
Tooling Systems Group
The market for Tooling Systems' product lines is highly competitive. There are a
number of companies that 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 systems 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.
The Company considers the following trademarks to be important to its business:
Acme-Gridley(R), American Tool(R), Artisan(R), Belsaw(R), Brown & Sharpe(R),
Bullard(R), Cushman(R), DeVlieg(R), Futurmill(R), Microbore(R), New Britain
Machine(R), Powermatic(R), Universal Engineering(R) and White-Sundstrand(R). The
Company licenses the White- Sundstrand(R) trademark from Sundstrand Corporation
under an agreement which will expire in 2008. The Company sublicenses the
Belsaw(R) trademark from C.B. Tool & Supply, Inc. under an agreement which will
expire in 2001. The Company licenses the Brown & Sharpe(R) trademark from Brown
& Sharpe Manufacturing Company under an agreement which expires in 1998. The
DeVlieg(R) and Microbore(R) trademarks are licensed from D.V. Associates, L.P.
pursuant to a license agreement, and the Company's rights thereto are subject to
its payment of certain license fees. The Company holds an option to purchase
such trademarks from D.V. Associates, L.P.
EMPLOYEES
As of July 31, 1997, the Company had approximately 880 employees, approximately
510 of whom were hourly employees and 370 of whom were salaried employees.
Approximately 110 hourly employees at the Tooling Systems Group in Frankenmuth,
Michigan are covered by a collective bargaining agreement expiring in May 2000.
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 the
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Machine Tool Group's Cleveland, Ohio location 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:
Name Age Position with Company
---- --- ---------------------
William O. Thomas 56 President, Chief Executive Officer and
Director
Lawrence M. Murray 55 Vice President, Chief Financial Officer
and Secretary
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 and Chief Financial Officer of
the Company effective June 15, 1992, and has served in these capacities since
then. He has served as Secretary of the Company from June 13, 1996 to present.
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, China, 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)
Beijing, China 500 Sales office Leased (1998)
Machine Tool Group:
Parts:
Rockford, IL 90,000 Administrative offices; Leased (1999)
warehousing of repair parts
Madison Heights, MI 17,000 Warehousing of repair parts Leased (1999)
Remanufacturing:
Twinsburg, OH 50,000 Remanufacturing Leased (2002)
Abbottstown, PA 13,000 Administrative offices; Owned
Remanufacturing; field service
support and sales
Huntington Beach, CA 7,400 Field service support and sales Leased (1998)
Machines:
Cleveland, OH 559,700 Administrative offices and Owned
manufacturing
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 November 3, 1995, a jury rendered a verdict against the Company in the net
amount of approximately $1.3 million, plus interest, relating to a civil suit
filed against the Company in the Supreme Court for the State of New York, County
of Erie, styled Watson Bowman Acme Corp. v. DeVlieg-Bullard, Inc. The plaintiff
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 made an accrual in fiscal 1996 in the amount of
$2.2 million for the jury's verdict, plus interest and other costs. Following
the filing of a Notice of Appeal in the third quarter of fiscal 1996, the
Company settled this suit for $1.5 million in the second quarter of fiscal 1997.
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.
High Low
---- ---
For Fiscal Year 1997
- --------------------
Quarter ended: July 31 $3.81 $2.81
April 30 3.56 2.81
January 31 3.69 2.06
October 31 2.50 2.19
For Fiscal Year 1996
Quarter ended: July 31 $2.88 $2.25
April 30 2.75 2.00
January 31 2.69 1.88
October 31 3.13 1.69
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 129 holders of record (not including individual participants in
securities position listings) of its common stock as of August 31, 1997,
representing approximately 1,100 individual participants.
The transfer agent and registrar for the common stock is The First National Bank
of Boston.
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Item 6. Selected Financial Data
The following selected historical data presented for each of the five years in
the period ended July 31, 1997, and as of the end of each of the five years in
the period ended July 31, 1997, 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. (a)
(in thousands, except per share data)
1997(b) 1996(c) 1995(d) 1994 1993(e)
------- ------- ------- ---- -------
Results of Operations (a):
<S> <C> <C> <C> <C> <C>
Net sales $ 130,611 $ 113,314 $ 78,150 $ 63,619 $ 58,604
Gross profit 34,988 31,459 22,155 18,079 18,111
Nonrecurring charges -- 4,600 1,500 -- --
Operating income from continuing
operations before interest and taxes 11,763 3,635 3,405 2,832 2,821
Net income (loss) from
continuing operations 3,898 (717) 1,393 1,579 1,652
Net income (loss) 3,898 (717) 1,393 1,579 7,490
Income (loss) per common share:
Continuing operations $ 0.26 $ (0.06) $ 0.11 $ 0.13 $ 0.13
Net income (loss) 0.26 (0.06) 0.11 0.13 0.61
Weighted average common shares and
equivalents outstanding 15,178 12,250 13,257 12,436 12,250
Assets and Capital:
Total current assets $ 66,149 $ 61,509 $ 36,321 $ 33,462 $ 30,030
Property, plant and equipment 12,657 13,306 6,876 6,340 6,637
Total assets 121,444 119,803 66,232 51,263 45,056
Revolving credit agreement 22,525 19,195 12,115 -- 10,811
Total current liabilities 47,876 48,515 25,490 12,474 23,305
Long-term debt 14,179 15,175 13,639 14,577 2,949
Total liabilities 95,731 98,219 45,662 33,887 33,627
Stockholders' equity 25,713 21,584 20,570 17,376 11,429
</TABLE>
(a) On November 24, 1992, the Company sold the assets of its Penberthy, Inc.
subsidiary ("Penberthy"). Accordingly, Penberthy has been reflected as a
discontinued operation for periods presented and fiscal 1993 results of
operations have been restated, but assets and capital have not been
restated.
(b) On January 17, 1997, the Company acquired all of the assets of Mattison
Technologies, Inc. This acquisition was accounted for as a purchase. See
Note 2 of Notes to the Company Financial Statements.
(c) 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.
(d) 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.
(e) 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.
12
<PAGE>
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 Machine Tool, Tooling Systems and Industrial operating groups.
Amounts are expressed in thousands, except per share data.
Overview of Results
Fiscal 1997 was a year of strong growth in sales and earnings for the Company.
The Company also continued to benefit from cost reduction and process
improvement programs undertaken since 1992. In addition to growth in most of the
Company's operating groups, an acquisition, which occurred in January 1997,
contributed $3,219 in sales and $1,861 in operating profit to the overall
results. The Company has combined the Services Group and National Acme (acquired
during fiscal 1996) into the Machine Tool Group due to the similarities in their
businesses. The segment reporting below reflects this new structure.
Acquisition (See Note 2 of Notes to the Company Financial Statements)
On January 17, 1997, the Company acquired substantially all of the assets of
Mattison Technologies, Inc. for $6,544, as adjusted, financed in part by a
$2,334 seller's note and $3,500 increase in term debt. The results of Mattison
are included with the Company since acquisition. Mattison's results are reported
with those of the Machine Tool Group.
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
Financial Statements and Notes thereto.
Fiscal year ended July 31,
1997 1996 1995
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.2 72.2 71.7
Gross profit 26.8 27.8 28.3
E S G & A expenses 17.8 20.5 22.5
Nonrecurring charges -- 4.1 1.9
Operating income 9.0 3.2 4.4
Net income 3.0 (0.6) 1.8
Consolidated Results
Sales
Sales increased to $130,611 in fiscal 1997 from $113,314 in fiscal 1996, an
increase of $17,297, or 15.3%. Fiscal 1997 results included the incremental
sales from the acquisition of Mattison of $3,219 and reflects the inclusion of
National Acme for a full year in 1997 as compared to nine months in the prior
year. Net sales for the Machine Tool Group increased 25.0%, while the Tooling
Systems Group and the Industrial Group were basically the same as the prior
year.
Net sales for fiscal 1995 were $78,150. Of the $35,164, or 45.0%, increase in
fiscal 1996 sales as compared to fiscal 1995, the acquisition of National Acme
added $29,570. Net sales for fiscal 1996 for the Machine Tool Group, without
National Acme, increased 12.4%, and the Industrial Group increased 6.9%, while
the Tooling Systems Group had a slight decrease in sales of approximately 1%.
Gross Profit
Gross profit was $34,988 in fiscal 1997, compared with $31,459 in 1996, an
increase of $3,529, or 11.2%. Gross profit as a percent of sales was 26.8%
compared with 27.8% in 1996. This reduction reflects unfavorable product mix
with lower margin machine sales after the National Acme acquisition, as well as
actions taken by the Company to reduce inventories during fiscal 1997, which
resulted in lower production levels, and the associated lower overhead
absorption negatively affected gross profit.
Gross profit for fiscal 1995 was $22,155. The increase from fiscal 1995 to
fiscal 1996 is primarily the result of the acquisition of National Acme, which
added $8,163 in gross profit. Gross profit as a percent of sales was 28.3% in
fiscal 1995. The decrease in gross profit as a percent of net sales is primarily
due to 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 were $23,237 in fiscal 1997 compared with $23,273 in fiscal
1996. As a percent of sales, E S G & A expenses for fiscal 1997 declined to
17.8% from 20.5% in 1996. The decrease in operating expenses as a percentage of
net sales is attributable to cost reduction programs implemented by the Company
and leverage from higher sales volumes.
13
<PAGE>
E S G & A expenses in fiscal 1995 were $17,584, or 22.5% of net sales. The
increase from fiscal 1995 to 1996 was 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. The fiscal 1996
E S G & A expense decline as a percent of sales compared to fiscal 1995 is
attributable to cost reductions and leverage from higher sales.
Other Income
Other income was $12 in fiscal 1997, $49 in fiscal 1996 and $334 in fiscal 1995.
Fiscal 1995 other income includes a $305 gain on the sale of land held for
disposition.
Nonrecurring Charges
There were no litigation expenses during fiscal 1997. The Company is not aware
of any outstanding legal proceedings the outcome of which, in management's
opinion, would have a material adverse effect on the Company's results of
operations or financial condition.
Litigation expenses of $4,600 were recorded in fiscal 1996. Of these expenses,
$2,200 ($1,320 after taxes) related to an adverse judgement rendered in a breach
of contract suit (allocated to the Machine Tool Group). Following the filing of
a Notice of Appeal in fiscal 1996, the Company settled this suit for $1,500
during fiscal 1997. The balance of $2,400 ($1,440 after taxes) was provided for
settlement and legal costs incurred in connection with a class action suit filed
in 1992, which was settled in fiscal 1996. 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.
The Company incurred a $1,500 litigation settlement charge in fiscal 1995. The
litigation had sought in excess of $10 million in damages and alleged violations
of state fraudulent conveyance statutes in connection with the acquisition by
the Company of certain assets of DeVlieg, Inc., in September 1988 and March
1990. The Company, certain of its present and former officers and directors and
several unrelated third parties were included as defendants in the suit. While
management believed the allegations in the lawsuit were without merit, the
Company agreed to settlement to avoid continued litigation costs related to the
suit.
Interest Expense
Interest expense was $5,090 and $4,404 in fiscal 1997 and 1996, respectively.
The increase in interest expense was a result of additional debt incurred to
finance the acquisition of National Acme in fiscal 1996 and Mattison in fiscal
1997. Interest expense was $2,594 in fiscal 1995. The increase in interest
expense in fiscal 1996 compared to fiscal 1995 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
Income tax expense of $2,775 in fiscal 1997 reflected the profitability of the
Company. 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 acquired from related
parties."
Operating Results by Business Segment
Machine Tool Group sales were $85,782 and $68,604 in fiscal 1997 and 1996,
respectively, an increase of $17,178, or 25.0%. While the primary reason for the
increase in sales was the inclusion of National Acme for the full year in fiscal
1997 as compared to nine months in fiscal 1996, Mattison added $3,219 and an
increase in field service business as a result of repairs required after
flooding of a customer's facility in the midwest accounted for the rest.
Operating income for the Machine Tool Group was $12,226 in fiscal 1997 compared
to $6,430 in fiscal 1996. Mattison added $1,861 of operating income to fiscal
1997 as compared to fiscal 1996 operating income. The fiscal 1996 results
included a nonrecurring litigation charge of $2,200 related to a breach of
contract suit. Without this nonrecurring charge, operating income increased
41.7% in fiscal 1997. Operating income as a percent of sales improved, primarily
due to the addition of Mattison and the field service leverage from higher sales
against fixed costs.
Sales and operating income for fiscal 1995 were $34,716 and $4,492,
respectively. The most significant change from fiscal 1995 to fiscal 1996 was
the acquisition of National Acme during fiscal 1996.
Tooling Systems Group sales were $21,152 in fiscal 1997 compared to $20,983 in
1996. Operating income increased to $1,186 in fiscal 1997 from $1,064 in fiscal
1996. Sales and operating income for fiscal 1995
14
<PAGE>
were $21,246 and $1,821, respectively. The decline in operating income from
fiscal 1995 to fiscal 1996 was the result of inefficiencies resulting from the
assimilation of the Cushman business acquired in fiscal 1995.
Industrial Group sales declined slightly to $23,677 in fiscal 1997 from $23,727
in fiscal 1996. The decline in fiscal 1997 was the result of flooding at the
Company's largest distributor, which negatively impacted the fourth quarter
results. Operating income increased to $1,225 in fiscal 1997 from $1,155 in
1996, primarily as a result of cost reductions, price increases and increased
manufacturing productivity. Sales and operating income for fiscal 1995 were
$22,188 and $701, respectively, with improvement in fiscal 1996 over 1995 due to
cost reductions and leverage from higher sales against fixed costs.
New Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128") was issued. Management will adopt SFAS 128 for the
second quarter ending January 31, 1998, and expects that the diluted earnings
per share calculation under SFAS 128 will not be materially different from the
earnings per share the Company currently reports.
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 $3,148 in fiscal 1997 compared to
$3,494 in fiscal 1996. Included in the fiscal 1997 results is $1,500 paid to
settle the breach of contract lawsuit and fiscal 1996 included $2,329 in
payments made against the $4,600 accrued for litigation settlement (see "Item 3
- - Legal Proceedings"). Net of these items, cash flow from operating activities
would have been $4,648 and $5,823 for fiscal 1997 and 1996, respectively.
Cash used for capital expenditures was $1,216, $1,138 and $970, in fiscal 1997,
1996, and 1995, respectively. The Company currently has no material commitments
for specific capital expenditures.
Cash of $6,746 was used in fiscal 1997 for the Mattison acquisition. 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. During fiscal 1997, the Company
disposed of excess machinery and equipment related to the Mattison acquisition
for $2,566.
Financing and Investing
The balance outstanding under the Company's revolving credit agreement was
$22,525 at July 31, 1997, compared to $19,195 at July 31, 1996. Long-term debt,
including current maturities, at July 31, 1997, was $17,810, compared to $18,107
at July 31, 1996, a decrease of $297. The Company's total indebtedness was
$40,335 and $37,302 at July 31, 1997, and 1996, respectively, an increase of
$3,033. Cash and equivalents at July 31, 1997 was $637, a decrease of $131
compared to July 31, 1996. Net cash provided by financing activities was $2,049
in fiscal 1997 compared to $8,672 in the prior year.
As outlined in Note 7 of Notes to the Company Financial Statements, the Company
amended its senior credit facility in January 1997 to increase the amount
available for borrowings thereunder to $40,000 from $32,000. New term loans in
the amount of $3,500, as well as a $2,334 seller's note, were obtained to
finance the Mattison acquisition (See Note 2 of Notes to the Company Financial
Statements).
The balance under the new senior credit facility at July 31, 1997, is comprised
of $7,663 in term loans and a revolving credit agreement which provides for
borrowings up to $30,000. 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 8.72% at July 31, 1997. 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, 1997, were $4,025.
The first and second term loans of $5,000 and $3,000, respectively, require
monthly principal payments of $86 beginning November 30, 1995, and $83 beginning
June 30, 1996, respectively. A third term loan of $2,000 was repayable with
proceeds from the sale of Mattison's excess machinery and equipment (this sale
was completed in February 1997 and the loan was repaid in March 1997), while the
fourth term loan of $1,500 requires monthly payments of $33 beginning January
31, 1997. 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 8.97% at July 31, 1997.
15
<PAGE>
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 Debentures (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 Debentures accrues at 14.5%, and the cash interest of 11%
per annum is payable quarterly in arrears commencing January 1, 1996. The Junior
Subordinated Debentures provide for the repayment of principal of $4,000 and
unpaid interest in June 2001 or thirty days after the payment of the
Subordinated Debentures.
The Company expects to continue to provide liquidity and finance its ongoing
operational needs primarily through internally generated funds.
Recent Events
On August 1, 1997, the Machine Tool Group laid off 60 hourly production workers
and 15 salaried employees as part of the consolidation of the former Services
Group and the operations of National Acme. The reorganization, which is expected
to contribute to annual cost reductions in excess of $2,000 when completed,
calls for a change to outsourcing a major portion of National Acme's parts which
had been produced internally. The parts being outsourced are used in the
manufacture of new Acme-Gridley machines and are sold separately in the
aftermarket.
As a result of planning difficulties encountered during the changeover to
outsourcing, fiscal 1998 first quarter net sales and net earnings per share are
expected to be approximately $4,000 to $5,000 and approximately $0.02 to $0.03
per share lower, respectively, than in the first quarter of fiscal 1997.
Difficulties encountered during the changeover to outsourcing were primarily a
failure to adequately identify and source some of the parts needed for first and
second quarter new machine production and aftermarket sales. Although the
Company expects the problem to be worked out in the second quarter, it is still
too early to forecast second quarter results.
Outlook
Total fiscal 1998 earnings, while reduced in the first and second quarters of
the year, are still expected to exceed fiscal 1997 results. The Company plans to
continue expanding product and service offerings, both internally and through
strategic acquisitions, while continuing to identify and implement additional
cost savings measures.
The Company's growth strategy also includes strategic acquisitions, in addition
to growth in its present businesses. A significant acquisition would require
additional borrowings. There can be no assurance that the Company would be able
to obtain financing for a significant acquisition on acceptable terms.
During fiscal 1996 and 1995, the Company 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, all suits have been
settled and 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.
Cautionary Factors
The discussions in this document may include 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 affecting the products manufactured and services
provided by the Company; the Company's substantial debt service requirements,
much of which are 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.
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.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants
Balance Sheets
July 31, 1997, and 1996
Statements of Operations
Years ended July 31, 1997, 1996 and 1995
Statements of Cash Flows
Years ended July 31, 1997, 1996 and 1995
Statements of Changes in Stockholders' Equity
Years ended July 31, 1997, 1996 and 1995
Notes to the Company Financial Statements
17
<PAGE>
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 39 of this report present fairly, in all material
respects, the financial position of DeVlieg-Bullard, Inc., at July 31, 1997, and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended July 31, 1997, 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 5, 1997
18
<PAGE>
DEVLIEG-BULLARD, INC.
BALANCE SHEETS
($ in thousands)
July 31,
----------------------
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 637 $ 768
Accounts receivable 25,798 17,505
Inventories 38,195 42,071
Prepaid expenses and other current assets 1,519 1,165
--------- ---------
Total current assets 66,149 61,509
Property, plant and equipment 12,657 13,306
Engineering drawings 18,039 18,366
Goodwill 11,948 11,472
Other assets 12,651 15,150
--------- ---------
Total assets $ 121,444 $ 119,803
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,751 $ 9,854
Accrued expenses and other current liabilities 11,969 16,534
Revolving credit agreement 22,525 19,195
Current maturities of long-term debt 3,631 2,932
--------- ---------
Total current liabilities 47,876 48,515
Long-term debt (including related party debt:
1997 - $4,227; 1996 - $4,084) 14,179 15,175
Postretirement benefit obligation 21,999 22,830
Other noncurrent liabilities 11,677 11,699
--------- ---------
Total liabilities 95,731 98,219
--------- ---------
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, $0.01 par value; authorized 30,000,000
shares; issued and outstanding: 1997 - 12,275,400;
1996 - 12,250,000 123 123
Additional paid-in capital 34,096 34,049
Excess purchase price over net assets acquired
from related parties (Note 1) (16,242) (16,358)
Retained earnings 7,844 3,946
Cumulative translation adjustment (108) (176)
--------- ---------
Total stockholders' equity 25,713 21,584
--------- ---------
Total liabilities and stockholders' equity $ 121,444 $ 119,803
========= =========
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
DEVLIEG-BULLARD, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year ended July 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Net sales $ 130,611 $ 113,314 $ 78,150
Cost of sales 95,623 81,855 55,995
--------- --------- ---------
Gross profit 34,988 31,459 22,155
--------- --------- ---------
Operating expenses:
Engineering 1,771 1,623 1,083
Selling 11,123 10,553 7,650
General and administrative 10,343 11,097 8,851
--------- --------- ---------
Total E S G & A expenses 23,237 23,273 17,584
Nonrecurring charges -- 4,600 1,500
0ther income, net (12) (49) (334)
--------- --------- ---------
Total operating expenses 23,225 27,824 18,750
--------- --------- ---------
Operating income 11,763 3,635 3,405
Interest expense (including related
party interest 1997 - $686;
1996 - $452; and 1995 - $0) 5,090 4,404 2,594
--------- --------- ---------
Income (loss) before income taxes 6,673 (769) 811
Provision/(benefit) for income taxes 2,775 (52) (582)
--------- --------- ---------
Net income (loss) $ 3,898 $ (717) $ 1,393
========= ========= =========
Income (loss) per common share: $ 0.26 $ (0.06) $ 0.11
========= ========= =========
Weighted average common shares and
equivalents outstanding 15,178 12,250 13,257
========= ========= =========
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
DEVLIEG-BULLARD, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended July 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,898 $ (717) $ 1,393
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,505 4,612 2,721
Deferred income taxes 2,444 (636) (2,181)
Provision for losses on accounts receivable 30 152 187
Gain on disposal of other assets -- -- (305)
Net change in assets and liabilities:
Accounts receivable (6,723) 285 (793)
Inventories 5,710 (4,936) (1,546)
Prepaid expenses and other current assets (301) (758) 643
Accounts payable (103) 1,402 414
Accrued expenses and other current liabilities (4,422) 3,638 (623)
Other, net (1,890) 452 1,453
--------- --------- ---------
Net cash provided by operating activities 3,148 3,494 1,363
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net (6,746) (10,656) (12,151)
Capital expenditures (1,216) (1,138) (970)
Proceeds from sale of other assets 2,566 -- 487
--------- --------- ---------
Net cash used for investing activities (5,396) (11,794) (12,634)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving credit agreement 127,647 121,032 83,472
Repayments under revolving credit agreement (124,317) (113,952) (71,357)
Proceeds from issuance of long-term debt 5,834 8,000 --
Payments of long-term debt (6,938) (5,193) (2,111)
Debt issuance costs (224) (1,215) --
Issuance of stock 47 -- --
--------- --------- ---------
Net cash provided by financing activities 2,049 8,672 10,004
--------- --------- ---------
Effect of exchange rate changes on cash 68 (19) 28
--------- --------- ---------
Net change in cash and cash equivalents (131) 353 (1,239)
Cash and cash equivalents at beginning of period 768 415 1,654
--------- --------- ---------
Cash and cash equivalents at end of period $ 637 $ 768 $ 415
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Supplemental disclosures of cash flow information:
Year ended July 31,
--------------------------------------
1997 1996 1995
---- ---- ----
Cash paid during the period for:
Interest $4,456 $3,808 $2,397
Income taxes, net of refunds 986 (83) (445)
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 National Acme acquisition. During fiscal 1995, the Company
issued $1,277 of debt and assumed liabilities in the amount of $1,048 in
connection with acquisitions (see Note 2).
During fiscal 1996, 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).
The amortization of the debt discount was $472, $342, and $190 in fiscal 1997,
1996 and 1995, respectively.
The Company's tax benefit related to the Excess purchase price over net assets
acquired from related parties reduces the Company's income tax liability (see
Note 1). Such amount included in fiscal 1997, 1996 and 1995 is $116, $0 and
$1,773, respectively.
During fiscal 1997, 1996 and 1995, the Company entered into capital leases for
equipment totaling $192, $471 and $0, respectively, which were financed by
capital lease obligations.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
DEVLIEG-BULLARD, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common
Shares Additional Excess Cumulative
Issued and Common Paid-in Purchase Retained Translation
Outstanding Stock Capital Price Earnings Adjustment Total
----------- ----- ------- ----- -------- ---------- -----
Year ended
- ----------
July 31, 1997, 1996 & 1995
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 12,250 $ 123 $ 32,299 $(18,131) $ 3,270 $ (185) $ 17,376
Net income -- -- -- -- 1,393 -- 1,393
Tax benefit realized related to Excess
purchase price over net assets acquired
from related parties -- -- -- 1,773 -- -- 1,773
Foreign currency translation adjustment -- -- -- -- -- 28 28
-------- -------- -------- -------- -------- -------- --------
Balance, July 31, 1995 12,250 123 32,299 (16,358) 4,663 (157) 20,570
Net loss -- -- -- -- (717 ) -- (717)
Issuance of stock purchase warrants -- -- 1,750 -- -- -- 1,750
Foreign currency translation adjustment -- -- -- -- -- (19) (19)
-------- -------- -------- -------- -------- -------- --------
Balance, July 31, 1996 12,250 123 34,049 (16,358) 3,946 (176) 21,584
Net income -- -- -- -- 3,898 -- 3,898
Tax benefit realized related to Excess
purchase price over net assets acquired
from related parties -- -- -- 116 -- -- 116
Exercise of stock options 25 -- 47 -- -- -- 47
Foreign currency translation adjustment -- -- -- -- -- 68 68
-------- -------- -------- -------- -------- -------- --------
Balance, July 31, 1997 12,275 $ 123 $ 34,096 $(16,242) $ 7,844 $ (108) $ 25,713
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
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 three operating groups: the
Machine Tool Group, 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 1996 and 1995 financial statements have been reclassified to conform
with the fiscal 1997 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. At July 31, 1997, approximately 34% 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.
Impairment of Long-Lived Assets
During fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), which established standards
for recognition and measurement of impairment losses on long-lived assets,
certain identifiable assets and goodwill. SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used or disposed of
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The Company's adoption of this statement had no impact on the
financial statements of the Company.
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.
24
<PAGE>
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.
Stock-Based Employee Compensation Plans
As described in Note 10, the Company has elected to follow the accounting
provisions of Accounting Principles Board Opinion No. 25 for stock-based
compensation and to furnish the pro forma disclosures required under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
Income Taxes
The Company uses Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes," which 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 acquired from related parties."
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 acquired from related parties." The
remaining balance in this account at July 31, 1997 was $16,242.
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.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128") effective for financial statements issued for periods
ending after December 15, 1997. The new standard specifies the computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock. The Company will adopt SFAS 128 in the second
quarter of fiscal 1998 and expects that the diluted earnings per share
calculation under SFAS 128 will not be materially different from the primary
earnings per share results the Company currently reports.
NOTE 2 - ACQUISITIONS
Mattison Technologies
On January 17, 1997, the Company acquired substantially all of the assets of
Mattison Technologies, Inc., a Rockford, Illinois-based machine tool company
("Mattison"), including intellectual property, parts inventory, accounts
receivable and customer lists. This acquisition was accounted for by the
purchase method of accounting and, accordingly, the purchase price has been
allocated to assets acquired based upon the fair market value at the date of
acquisition. The excess purchase price over net assets acquired of approximately
$900 was recorded as engineering drawings and is being amortized on a
straight-line basis over ten years for specified assets subject to a license
agreement and thirty years for the remaining assets. The purchase price was
$6,544, plus legal and closing costs, and was financed with term debt of $3,500
and a $2,334 seller's note, $1,600 of which was secured by Mattison's accounts
receivable, as well as with funds from the revolving credit facility. As the
Mattison accounts receivable were collected, the Company paid down the principal
on the seller's note; the balance on the seller's note of $733 is due January 7,
1998. The Mattison operations have been consolidated with the Machine Tool
Group.
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.
25
<PAGE>
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 under its senior credit
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 National Acme operations have been consolidated with the
Machine Tool Group.
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. 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.
Pro forma results of operations:
(unaudited - in thousands,
except per share data) Year ended July 31,
--------------------
1996 1995
---- ----
Net sales $121,798 $114,896
======== ========
Net (loss) income $ (598) $ 1,290
======== ========
Net (loss) income per common share $ (0.05) $ 0.09
======== ========
Average shares outstanding 12,250 13,953
======== ========
In preparing the unaudited pro forma summary of operations, adjustments were
made to the historical financial statements to reflect increases in the
revolving line of credit and interest expense; amortization of intangible
assets; depreciation of fixed asset write-up to fair market value; and other
estimated purchase accounting entries. The pro forma results are not necessarily
indicative of what would have been obtained if the operations had been combined
during fiscal 1996 and 1995, nor are they necessarily indicative of the results
that may occur in the future.
Cushman Industries, Inc.
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 Tooling System Group'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 Machine Tool Group.
Mideastern, Inc.
26
<PAGE>
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 Notes 8 and 10), 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 acquisition are included in
the Company's financial statements with the Machine Tool 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.
Pro forma results of operations for the year ended July 31, 1995:
(unaudited - in thousands, except per share data)
Net sales $81,346
=======
Net income $1,848
======
Net income per common share $0.14
=====
Average shares outstanding $13,264
=======
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,
nor are they necessarily indicative of the results that may occur in the future.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of:
July 31,
----------------------
1997 1996
-------- --------
Trade receivables $ 18,798 $ 15,445
Unbilled receivables on contracts in progress 6,990 2,377
Other 400 136
-------- --------
26,188 17,958
Less: allowance for doubtful accounts (390) (453)
-------- --------
$ 25,798 $ 17,505
======== ========
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 method 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:
July 31,
---------------------------
1997 1996
------- -------
Raw materials $ 1,448 $ 1,451
Work-in-process 11,452 13,650
Finished goods 25,295 26,970
------- -------
$38,195 $42,071
======= =======
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$10,504 and $10,922 at July 31, 1997 and 1996, respectively. Inventories valued
using LIFO were $12,819 and $15,970 at July 31,
27
<PAGE>
1997 and 1996, respectively. There was no LIFO reserve against those
inventories. The financial accounting basis for the inventories of acquired
companies exceeds the tax basis by $12,224 at July 31, 1997 and 1996.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
July 31,
----------------------
1997 1996
-------- --------
Real property $ 5,814 $ 5,765
Machinery and equipment 14,843 14,140
Capitalized leased assets 2,174 2,010
Furniture and fixtures 4,653 4,134
-------- --------
27,484 26,049
Less: allowance for accumulated depreciation (14,827) (12,743)
-------- --------
$ 12,657 $ 13,306
======== ========
Depreciation expense, including amortization of leased assets, totaled $2,156,
$2,512 and $1,966 for fiscal years 1997, 1996 and 1995, respectively.
Capitalized leased assets are comprised of computer hardware, software and
related installation costs.
NOTE 6 - OTHER ASSETS
Other assets consisted of: July 31,
----------------------
1997 1996
-------- --------
Engineering drawings $ 23,103 $ 22,611
Less: accumulated amortization (5,064) (4,245)
-------- --------
$ 18,039 $ 18,366
======== ========
Goodwill $ 13,464 $ 12,258
Less: accumulated amortization (1,516) (786)
-------- --------
$ 11,948 $ 11,472
======== ========
Other assets:
Deferred taxes, net of valuation allowance
(Note 12) $ 8,696 $ 11,024
Deferred financing costs 2,912 2,745
Investments carried at equity 137 137
Pension asset 569 40
Other 3,075 3,389
-------- --------
15,389 17,335
Less: accumulated amortization (2,738) (2,185)
-------- --------
Total other assets $ 12,651 $ 15,150
======== ========
Amortization of intangible and other assets totaled $2,378, $2,257 and $1,065
for the years ended July 31, 1997, 1996 and 1995, 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 certain
litigation settlement costs (see Note 15) and increased the senior credit
facility to $32,000. This term loan requires monthly principal payments of $83
that began June 30, 1996. In connection with the acquisition of Mattison (see
Note 2), the Company amended its senior credit facility to increase it to
$40,000. This facility now consists of a $30,000 revolving credit agreement and
up to $10,000 in term loans. Funds from two new term loans totalling $3,500 were
used to finance the acquisition. Of this amount, $2,000 was repaid in March with
proceeds of the sale of excess machinery and equipment and the $1,500 balance is
payable in monthly installments of $33. 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)
28
<PAGE>
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 maturity date for the senior credit facility was extended to October 23,
2000, 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, at 1.0% above prime rate or, at the Company's
option, at 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 amendment to the
revolving credit agreement also provides for loan facility fees of $120 paid in
January 1997 and $300 in October 1995 and a collateral management fee of $60 per
year, payable in January 1997 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 incurred $224 and $1,215 in financing costs in fiscal
1997 and 1996, respectively. These costs were capitalized and will be amortized
over the life of the debt. At July 31, 1997, borrowings outstanding under the
revolving credit agreement were $22,525. The rate in effect at July 31, 1997,
was 8.72%.
NOTE 8 - LONG-TERM DEBT
July 31,
-----------------------
1997 1996
-------- --------
Term loans $ 6,300 $ 7,063
Subordinated Debentures, net of discount 9,756 9,141
Seller's note 733 --
Promissory note 213 320
Capital lease obligations 606 818
Other 202 765
-------- --------
17,810 18,107
Less: current maturities (3,631) (2,932)
-------- --------
$ 14,179 $ 15,175
======== ========
The Term loans (see Note 7) had initial principal amounts of $5,000, $3,000 and
$1,500 and require monthly payments of approximately $86 that began November 30,
1995; $83 that began June 30, 1996; and $33 that began January 31, 1997.
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 rate in effect at
July 31, 1997 was 8.97%.
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 Debentures
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 1999 and fiscal 2000 and
$4,000 in fiscal 2001. The Junior Subordinated Debentures plus unpaid interest
are due June 30, 2001, or 30 days after the Subordinated Debtentures are paid in
full.
Also in connection with the refinancing, the holders of the Subordinated
Debentures agreed to release their security interest in the Company's assets.
Mr. Bradley has pledged assets to secure the Subordinated Debentures and he and
his son 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.
29
<PAGE>
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 Debentures, 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
$2,471 and $2,943 at July 31, 1997 and 1996, respectively, and is being
amortized over the remaining life of the Subordinated Debentures using effective
interest rates of approximately 21%.
The seller's note of $733 was issued in connection with the Mattison acquisition
(See Note 2) and is payable in January 1998. The note bears interest at a rate
of 10%.
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 $200 related to an 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%.
Scheduled debt maturities for the next five fiscal years in the aggregate are as
follows:
Amount
------
1998 $3,631
1999 4,511
2000 3,688
2001 8,423
2002 27
The Company is in compliance with all debt covenants under the senior credit
facility and long-term debt agreements.
NOTE 9 - STOCKHOLDERS' EQUITY
The Company issued common stock in connection with the exercise of stock options
during fiscal 1997; $47 was credited to Additional paid-in capital.
In October 1995, the Company issued stock purchase warrants with an aggregate
fair market value of $1,750 (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. Options granted after fiscal 1993 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.
30
<PAGE>
A summary of the status of the Company's Stock Option Plan at July 31, 1997,
1996 and 1995 is as follows:
Shares Weighted Average
Under Option Exercise Price
------------ --------------
Outstanding at July 31, 1994 778 $ 1.95
Forfeited (20) 1.81
Granted 176 1.64
-----
Outstanding at July 31, 1995 934 1.89
Forfeited (20) 2.63
Granted 157 2.41
-----
Outstanding July 31, 1996 1,071 1.96
Granted 100 2.44
Exercised (25) 1.87
Forfeited (7) 2.26
-----
Outstanding July 31, 1997 1,139 1.96
=====
Range of Exercise Prices:
Under $2.00 $2.00 and over
----------- --------------
Options outstanding:
Number outstanding 520 619
Weighted average remaining years of
contractual life 6.5 6.1
Weighted average exercise price $ 1.75 $ 2.21
Options exercisable:
Number exercisable 452 404
Weighted average exercise price $ 1.77 $ 2.09
Effective January 10, 1991, the Company adopted a stock option plan for its
outside directors, and granted each outside director an option to purchase 5
shares of common stock (an aggregate of 25 shares) at $2.50 per share, the then
fair market value of the shares. The Company has reserved a total of 50 shares
for issuance under this stock option plan. The options are exercisable one year
from the date of grant and terminate ten years thereafter. On June 13, 1996, the
Company granted an additional 25 shares under the outside director's plan at
$2.56 per share, the then fair market value of the shares. On December 18, 1996,
the shareholders approved an increase in the number of options available for
grant under this plan to 65 shares.
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.
The Company applied APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
stock option plans in its results of operations. Had the Company recorded a
charge for fair value of options granted consistent with SFAS 123, net income
and net income per common share would have been reduced by $81 and $0.01 in
fiscal 1997 and $18 and no impact in fiscal 1996, respectively. The fair value
of options granted during fiscal 1997 and 1996 was $171 and $195, respectively.
The fair value of each option grant for the Company's plans is estimated on the
date of the grant using the Black Scholes option pricing model, with the
following assumptions used for grants in fiscal 1997 and 1996:
Risk free rate of interest 5.5% - 7%
Expected option lives 10 years for Directors and Executive Officers,
3 years for other grants
Expected Volatility 50 - 54%
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 Class B Stock Purchase Warrants (the "Class B Warrants"),
which became available to the Subordinated Debenture holders as a result of the
31
<PAGE>
settlement of the class action suit filed in 1992 (see Note 15). The actual
number of Class B Warrants outstanding, based on a formula that uses the average
closing stock price for 90 days prior to May 25, 1997, is 289.
In connection with the issuance of the Junior Subordinated Debentures, 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 Debentures 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
("Class C Warrants") to acquire 750 shares of the Company's Common Stock,
subject to adjustment in certain circumstances, 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. 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 union hourly and certain salaried employees. 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 and preferred and common stocks, including 110 shares of the
Company's common stock, are invested in a master trust.
Pension expense is as follows:
Year ended July 31,
-----------------------------
1997 1996 1995
------- ------- -------
Service cost $ 653 $ 656 $ 253
Interest on projected benefit obligation 3,810 2,393 925
Actual return on plan assets (2,719) (4,080) (812)
Net amortization and deferral (790) 1,979 (162)
------- ------- -------
$ 954 $ 948 $ 204
======= ======= =======
Effective September 1, 1996, the benefits under the National Acme Salaried
Employees Plan were frozen. The Company recognized $408 of net curtailment
income in fiscal 1997.
32
<PAGE>
The funded status of plans in which plan assets at fair market value exceed the
projected benefit obligation is presented below:
July 31,
-------------------
1997 1996
------- -------
Plan assets at fair market value $ 8,063 $ 6,526
Projected benefit obligation 6,025 4,564
------- -------
Excess fair value of assets over projected benefit
obligation 2,038 1,962
Unrecognized prior service cost 36 --
Contribution after measurement date 8 --
Unrecognized net gain (1,513) (1,638)
------- -------
Accrued pension asset $ 569 $ 324
======= =======
The projected benefit obligations at July 31, 1997, and 1996 include accumulated
benefit obligations of $6,025 and $4,564 and vested benefit obligations of
$5,843 and $4,476, respectively.
The funded status of plans in which the projected benefit obligation exceeds
plan assets at fair market value is presented below:
July 31,
-----------------------
1997 1996
-------- --------
Plan assets at fair market value $ 31,524 $ 34,266
Projected benefit obligation 41,141 44,879
-------- --------
Excess projected benefit obligation over
fair value of assets (9,617) (10,613)
Unrecognized transition obligation 183 219
Unrecognized net gain (4,177) (2,994)
Unrecognized prior service cost and other 735 841
Contribution after measurement date 336 126
Additional liability required -- (87)
-------- --------
Accrued pension liability $(12,540) $(12,508)
======== ========
The projected benefit obligations at July 31, 1997, and 1996 include accumulated
benefit obligations of $41,141 and $44,486 and vested benefit obligations of
$39,934 and $43,140, respectively.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 8.25% and 8.0% for fiscal 1997 and 1996,
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. All non-union and salaried employees of the
Company are eligible for participation in the Savings Plan. Plan participants
may contribute up to 15% of gross compensation. The Company provides a match of
50% of participant contributions, up to 6% of each participant's compensation.
Contribution expense for the years ended July 31, 1997, 1996 and 1995 was $480,
$343 and $127, respectively.
Certain union employees hired by National Acme after April 1, 1986, no longer
accrue benefits under the defined benefit pension plan. These employees receive
a contribution, based on their hire date, of either 1% or 3% of compensation.
Plan participants may also contribute up to 15% of compensation. Contributions
under this plan were $100 and $99 during fiscal 1997 and 1996, respectively.
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>
Postretirement benefit cost includes the following components:
Year ended July 31,
------------------------------
1997 1996 1995
------- ------- -------
Service cost $ 101 $ 129 $ 71
Interest on projected benefit obligation 1,725 1203 460
Amortization of actuarial losses (131) 3 26
------- ------- -------
Net periodic postretirement benefit cost $ 1,695 $ 1,335 $ 557
======= ======= =======
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:
July 31,
--------------------
1997 1996
------- -------
Retirees $17,306 $19,835
Active plan participants - fully eligible 843 1,285
Other active plan participants 2,355 2,877
------- -------
Accumulated postretirement benefit obligation 20,504 23,997
Unrecognized gain 3,694 994
------- -------
$24,198 $24,991
======= =======
The assumed discount rate used to measure the accumulated postretirement benefit
obligation was 8.25% and 8.0% for fiscal 1997 and 1996, respectively. The
medical cost trend rate in fiscal 1997 and 1996 was 8.5% and 9%, respectively,
declining on a linear basis to a terminal rate of 5.5% by the year 2004. A one
percentage point increase in the assumed health care cost trend rates for each
future year would have increased fiscal 1997 and 1996 costs by approximately $95
and $89, respectively, and the accumulated postretirement benefit obligation as
of July 31, 1997 and 1996 by $969 and $1,259, respectively.
NOTE 12 - INCOME TAXES
Pre-tax income/(loss) was $6,673, $(769) and $811 in fiscal 1997, 1996 and 1995,
respectively.
The (benefit) provision for income taxes on income (loss) is summarized below:
Year ended July 31,
----------------------------
1997 1996 1995
------- ------- -------
Current tax expense
Federal $ 104 $ 132 $ 31
State and local 227 170 120
------- ------- -------
Total current 331 302 151
------- ------- -------
Deferred tax expense (benefit)
Federal 2,195 (301) (1,120)
State and local 133 (53) (197)
------- ------- -------
Total deferred 2,328 (354) (1,317)
------- ------- -------
Release of valuation allowance:
Charged to Excess of purchase price over net
assets acquired from related parties 116 -- 1,773
Due to change in circumstances -- -- (1,189)
------- ------- -------
Total $ 2,775 $ (52) $ (582)
======= ======= =======
34
<PAGE>
Deferred tax assets (liabilities) are comprised of the following:
July 31,
-----------------------
1997 1996
-------- --------
Intangible assets $ (1,944) $ (1,570)
Fixed assets (2,742) (2,900)
Inventories (4,632) (4,632)
-------- --------
Gross deferred tax liabilities (9,318) (9,102)
Credit carryforwards 527 354
Noncompetition agreement 60 240
Inventory reserves 4,145 4,038
Intangible assets 2,367 2,954
Accounts receivable reserves 240 275
Accrued postretirement benefits 9,688 10,005
Accrued pension benefits 4,722 4,676
Accrued expenses and other 854 2,289
-------- --------
Gross deferred tax assets 22,603 24,831
Deferred tax assets valuation allowance (4,589) (4,705)
-------- --------
Net deferred taxes $ 8,696 $ 11,024
======== ========
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 acquired from related
parties," which will increase stockholders' equity (see Note 1). The Company has
a valuation allowance of $2,367 and $2,483 in fiscal 1997 and 1996,
respectively, related to this item because of the uncertainty of realization of
this asset. 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 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 differences between the U.S. federal statutory tax rate and the Company's
effective rate on income from continuing operations are as follows:
Year ended July 31,
------------------------
1997 1996 1995
----- ----- -----
Statutory rate 34.0% 34.0% 34.0%
Valuation allowance -- -- (146.6)
State income taxes, net of federal benefit 3.5 (10.0) 19.2
Nondeductible goodwill 3.5 (23.4) --
Other nondeductible items -- (0.8) 6.3
Other 0.6 6.9 15.3
----- ----- -----
41.6% 6.7% (71.8)%
===== ===== =====
The Company has investment tax credit carryforwards of $287 which expire at
various dates through the year 2000. The Company also has minimum tax credit
carryforwards of $240 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, 1997, 1996 and 1995. 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 1997, 1996 and 1995 the Company reimbursed SPI approximately $11, $5
and $7, respectively, for travel expenses incurred by SPI on behalf of the
Company.
D.V. Associates, L.P.
Pursuant to a license agreement, the Company licenses certain trademarks from
D.V. Associates, L.P., and the Company's rights to these trademarks are subject
to the payment of certain license fees. The Company paid
35
<PAGE>
license fees to D.V. Associates, L.P., of $300 in fiscal 1997, 1996 and 1995.
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.
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 1997 and 1996, the Company paid
$90 and $68 as collateral fee to Mr. Bradley and his son. Interest payments on
the Junior Subordinated Debt of $282 and $191 were paid to Mr. Bradley and $169
and $115 were paid to Mr. Poole for fiscal 1997 and 1996, respectively. In
addition, interest payable to Messrs. Bradley and Poole of $143 and $84,
respectively, has been added to the Junior Subordinated Debt balances as of July
31, 1997.
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. Two of the Company's operating facilities were leased in April 1986 under
an operating lease with an initial 20-year term. This lease 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 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,
1997, 1996 and 1995 was $2,529, $2,731 and $2,156, respectively. At July 31,
1997, future minimum rental commitments under noncancelable operating leases
with a term in excess of one year are as follows:
Fiscal year
-----------
1998 $ 2,275
1999 2,183
2000 2,006
2001 1,603
2002 1,560
Thereafter 8,729
--------
$ 18,356
========
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.
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 accrued $2,400 in fiscal 1996
for the
36
<PAGE>
settlement and related litigation costs. The settlement was approved by the
court at a hearing on July 19, 1996.
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. The plaintiff
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 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. Accordingly, a Notice of Appeal was filed on February 9, 1996.
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. This suit was
settled for $1,500 during fiscal 1997.
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.
NOTE 16 - BUSINESS SEGMENTS
The Company's business activities are conducted by three business segments: the
Machine Tool Group, the Tooling Systems Group and the Industrial Group.
Financial information for each of these segments is summarized below:
<TABLE>
<CAPTION>
Machine Tooling
Tool Systems Industrial
Group Group Group Corporate Total
----- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1997
Net sales $ 85,782 $ 21,152 $ 23,677 $ -- $130,611
Operating income 12,226 1,186 1,225 (2,874) 11,763
Identifiable assets 88,484 18,992 7,182 6,786 121,444
Capital expenditures (a) 677 60 391 280 1,408
Depreciation and amortization 3,158 350 388 609 4,505
Year ended July 31, 1996:
Net sales $ 68,604 $ 20,983 $ 23,727 $ -- $113,314
Operating income 6,430 1,064 1,155 (5,014) 3,635
Operating income without
nonrecurring items (b) 8,630 1,064 1,155 (2,614) 8,235
Identifiable assets 83,226 19,942 8,022 8,613 119,803
Capital expenditures (a) 953 40 441 175 1,609
Depreciation and amortization 2,789 963 527 333 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 (b) 4,492 1,821 701 (2,042) 4,972
Identifiable assets 33,262 19,805 6,222 6,943 66,232
Capital expenditures (a) 417 140 360 53 970
Depreciation and amortization 1,427 827 536 (69) 2,721
</TABLE>
(a) Capital expenditures include $192, $471 and $0 of leased assets financed by
capital lease obligations in fiscal 1997, 1996 and 1995, respectively.
(b) Nonrecurring litigation costs of $4,600 in fiscal 1996 were allocated as
follows: $2,200 to the Machine Tool Group and $2,400 to Corporate.
Nonrecurring litigation costs of $1,500 in fiscal 1995 were allocated to
Corporate. 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.
37
<PAGE>
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 10, 1997 contains, under the caption "Proposal 1:
Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," information required by Item 10 of Form 10-K as to directors and
executive officers 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 "Business - Executive Officers."
Item 11. Executive Compensation
The Proxy Statement issued in connection with the Annual Meeting of Stockholders
to be held on December 10, 1997 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 10, 1997 contains, under the captions "Security Ownership
of Certain Beneficial Owners" and "Proposal 1: 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 10, 1997 contains, under the caption "Certain
Relationships and Related Transactions," information required by Item 13 of Form
10-K and is incorporated herein by reference.
38
<PAGE>
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 17 to 37.
Report of Independent Accountants
Balance Sheets
July 31, 1997 and 1996
Statements of Operations
Years ended July 31, 1997, 1996 and 1995
Statements of Cash Flows
Years ended July 31, 1997, 1996 and 1995
Statements of Changes in Stockholders' Equity
Years ended July 31, 1997, 1996 and 1995
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 10.11).
Consulting Agreement dated as of August 1, 1995, between the Company
and Stanwich Partners, Inc. (included as Exhibit 10.13).
(b) DeVlieg-Bullard, Inc., did not file any reports on Form 8-K for the
quarter ended July 31, 1997.
39
<PAGE>
(c) Exhibits:
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 Registration No. 33-32725 ("Registration Statement."))
3.2 Restated Bylaws of the Company. (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement.)
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 Exhibit 10.5 to the Company's
Registration Statement.)
10.02 License Agreement dated as of March 22, 1990, between D.V. Associates,
L.P. and the Company. (Incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement.)
10.03 DeVlieg-Bullard, Inc., 1989 Employee Stock Plan. (Incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement.)
10.04 Amendment No. 1 to Shareholders' Agreement dated December 15, 1989.
(Incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement.)
10.05 DeVlieg-Bullard, Inc., 1991 Stock Option Plan for Outside Directors.
(Incorporated by reference to Exhibit 10.05 to the Company's Annual
Report on Form 10-K for the year ended July 31, 1996 ("1996 Form
10-K").
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 Exhibit 10.37 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 Exhibit 10.43 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1994 ("April 1994
Form 10-Q."))
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." Although the Company repaid this
debt on October 23, 1995, the following debentures are outstanding on
terms that are substantially identical to the Allied Investment
Corporation Debenture except as to Holder and amount:
Holder Principal Amount
------ ----------------
Banc One Capital Partners Corporation $4,000,000
PNC Capital Corp. 4,000,000
(Incorporated by reference to Exhibit 10.44 to the Company's April
1994 Form 10-Q.)
40
<PAGE>
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 warrant which is substantially
identical to the PNC Class A Warrant except as to Holder and number of
shares subject to warrant:
Number of Shares
Holder Subject to Warrant
------ -------------------
Banc One Capital Partners Corporation 333,333
(Incorporated by reference to Exhibit 10.45 to the Company's April
1994 Form 10-Q.)
10.10 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 Exhibit 10.47 to the Company's April 1994 Form 10-Q.)
10.11 Non-Interference and Non-Disclosure Agreement executed by William O.
Thomas dated May 25, 1994. (Incorporated by reference to Exhibit 10.48
to the Company's April 1994 Form 10-Q.)
10.12 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
Exhibit A to the Company's Proxy Statement dated November 19, 1993.)
10.13 Consulting Agreement dated as of August 1, 1995, between the Company
and Stanwich Partners, Inc. (Incorporated by reference to Exhibit
10.35 to the Company's Annual Report on Form 10-K for the year ended
July 31, 1995.)
10.14 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 Exhibit 10.44
to the Company's Annual Report on Form 10-K for the year ended July
31, 1995.)
10.15 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 Exhibit 10.44 to
the Company's Form 8-K dated November 7, 1995.)
10.16 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 Exhibit 10.5 to the Company's Form
8-K dated November 7, 1995.)
10.17 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 Exhibit 10.6 to the Company's Form 8-K
dated November 7, 1995.)
10.18 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:
Number of Shares
Holder Subject to Warrant
------ -------------------
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 Exhibit 10.7 to the Company's Form 8-K
dated November 7, 1995.)
41
<PAGE>
10.19 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 Exhibit 10.8 to the Company's Form 8-K
dated November 7, 1995.)
10.20 Class C Stock Purchase Warrant issued by DeVlieg-Bullard, Inc., dated
October 23, 1995, to PNC Capital Corp. (the "PNC Class C Warrant") for
the right to purchase 250,000 shares of the Company's common stock. In
addition, the Company issued the following additional Class C Stock
Purchase Warrants, which are substantially identical to the PNC Class
C Warrant, except as to the holder and number of shares subject to the
warrant:
Number of Shares
Holder Subject to Warrant
------ ------------------
Banc One Capital Partners Corporation 250,000
Charles E. Bradley, Sr. 156,250
John G. Poole 93,750
(Incorporated by reference to Exhibit 10.9 to the Company's Form 8-K
dated November 7, 1995.)
10.21 Credit Support Agreement dated October 23, 1995, between
DeVlieg-Bullard, Inc., and CPS Holdings, Inc. (Incorporated by
reference to Exhibit 10.10 to the Company's Form 8-K dated November 7,
1995.)
10.22 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
Exhibit 10.11 to the Company's Form 8-K dated November 7, 1995.)
10.23 Second Amendment to the DeVlieg-Bullard, Inc. 1989 Employee Stock
Option Plan (Incorporated by reference to Exhibit 10.34 to the 1996
Form 10-K.)
10.24 Second Amendment to the DeVlieg-Bullard, Inc. 1991 Stock Option Plan
for Outside Directors. (Incorporated by reference to Exhibit A to the
Company's Proxy Statement dated November 13, 1996.)
10.25 Amended and Restated Financing and Security Agreement dated January
17, 1997, between the CIT Group/Business Credit, Inc. and
DeVlieg-Bullard, Inc. The Company agrees to furnish supplementally a
copy of any omitted exhibits or schedules to the Commission upon
request. (Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1997
("January 1997 Form 10-Q."))
10.26 Amended and Restated Revolving Loan Promissory Note dated January 17,
1997, in the principal amount of $30,000,000 between the CIT
Group/Business Credit, Inc., and DeVlieg-Bullard, Inc. (Incorporated
by reference to Exhibit 10.2 to the Company's January 1997 Form 10-Q.)
10.27 Amended and Restated Term Loan I Promissory Note dated January 17,
1997, in the principal amount of $5,000,000 between the CIT
Group/Business Credit, Inc. and DeVlieg-Bullard, Inc. (Incorporated by
reference to Exhibit 10.3 to the Company's January 1997 Form 10-Q.)
10.28 Amended and Restated Term Loan II Promissory Note dated January 17,
1997, in the principal amount of $3,000,000 between the CIT
Group/Business Credit, Inc. and DeVlieg-Bullard, Inc. (Incorporated by
reference to Exhibit 10.4 to the Company's January 1997 Form 10-Q.)
10.29 Amended and Restated Term Loan III Promissory Note dated January 17,
1997, in the principal amount of $2,000,000 between the CIT
Group/Business Credit, Inc. and DeVlieg-Bullard, Inc. (Incorporated by
reference to Exhibit 10.5 to the Company's January 1997 Form 10-Q.)
10.30 Amended and Restated Term Loan IV Promissory Note dated January 17,
1997, in the principal amount of $1,500,000 between the CIT
Group/Business Credit, Inc. and DeVlieg-Bullard, Inc. (Incorporated by
reference to Exhibit 10.6 to the Company's January 1997 Form 10-Q.)
10.31 Asset Purchase Agreement between Mattison Technologies, Inc. and
DeVlieg-Bullard, Inc. dated December 18, 1996 (Pursuant to Item
601(b)(2) of Regulation S-K, the schedules to this agreement
42
<PAGE>
are omitted, but will be provided supplementally to the Commission
upon request.) (Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K dated February 3, 1997.)
10.32 Secured Promissory Note dated January 16, 1997 in the principal amount
of $2,600,000 between Mattison Technologies, Inc., and
DeVlieg-Bullard, Inc. (Incorporated by reference to Exhibit 2.2 to the
Company's Form 8-K dated February 3, 1997.)
10.33 Registration Rights Agreement dated February 27, 1997, among
DeVlieg-Bullard, Inc., Charles E. Bradley, Stanwich Oil and Gas, Inc.
and Corestates Bank. (Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 1997 ("April 1997 Form 10-Q."))
10.34 Second Amendment to Investment Agreement dated April 12, 1996, among
DeVlieg-Bullard, Inc., Banc One Capital Partners Corporation, PNC
Capital Corp., Charles E. Bradley and John G. Poole.
10.35 Third Amendment to Investment Agreement dated January 17, 1997, among
DeVlieg-Bullard, Inc., Banc One Capital Partners Corporation, PNC
Capital Corp., Charles E. Bradley and John G. Poole. (Incorporated by
reference to Exhibit 10.2 to the Company's April 1997 Form 10-Q.)
11 Computation of Earnings per Share
23 Consent of Price Waterhouse LLP
27 Financial Data Schedules (for SEC use only)
43
<PAGE>
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 September 25, 1997.
DEVLIEG-BULLARD, INC.
(Registrant)
By: /s/ William O. Thomas
---------------------
William O. Thomas
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signatures and Title(s) Date
- ----------------------- ----
/s/ William O. Thomas September 25, 1997
- ---------------------
William O. Thomas
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Lawrence M. Murray September 25, 1997
- ----------------------
Lawrence M. Murray
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
September 25, 1997
- ----------------------
Charles E. Bradley
Chairman of the Board
/s/ Burton C. Borgelt September 25, 1997
- ---------------------
Burton C. Borgelt, Director
/s/ Thomas L. Cassidy September 25, 1997
- ---------------------
Thomas L. Cassidy, Director
/s/ George A. Chandler September 25, 1997
- ----------------------
George A. Chandler, Director
/s/ John R. Kennedy September 25, 1997
- -------------------
John R. Kennedy, Director
/s/ John E. McConnaughy, Jr. September 25, 1997
- ----------------------------
John E. McConnaughy, Jr., Director
/s/ John G. Poole September 25, 1997
- -----------------
John G. Poole, Director
44
<PAGE>
DeVlieg-Bullard, Inc.
Index To Financial Statement Schedules
Description
Report of Independent Accountants on Financial
Statement Schedules S-2
Schedule VIII -Valuation and Qualifying Accounts S-3
All other financial statement schedules are either not required or not
applicable to the Company.
S-1
<PAGE>
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
5, 1997 appearing on page 18 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 39. 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 5, 1997
S-2
<PAGE>
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, 1994 Expense Other Deductions July 31, 1995
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $ 706 $ 187 $ 207(5) $ (290)(2) $ 810
Inventories 5,035 (205)(3) 1,296(5) (21)(4) 6,105
Deferred Tax Assets 5,445 -- -- (2,962) 2,483
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1995 Expense Other Deductions July 31, 1996
-------------- ------- ----- ---------- -------------
Accounts Receivable $ 810 $ 61 $ 695 $ (487)(2) $ 453
Inventories 6,105 (68)(3) 4,942(5) (57)(4) 10,922
Deferred Tax Assets 2,483 -- 2,222(5) -- 4,705
Litigation Reserve 38 4,600(6) -- (2,329)(6) 2,309
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1996 Expense Other Deductions July 31, 1997
-------------- ------- ----- ---------- -------------
Accounts Receivable $ 453 $ 36 $ -- $ (99)(2) $ 390
Inventories 10,922 674(3) -- (1,092)(4) 10,504
Deferred Tax Assets 4,705 -- -- (116) 4,589
Litigation Reserve 2,309 (712) -- (1,597)(6) --
</TABLE>
(1) Recoveries of amounts previously written off.
(2) Write-off amounts deemed uncollectible.
(3) Provision for obsolescence.
(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. The Company settled one of the cases during fiscal
1997 and one during fiscal 1996.
S-3
<PAGE>
Exhibit 11
DeVlieg-Bullard, Inc.
Computation of Earnings per Share
(unaudited - in thousands, except per share data)
1997 1996 1995
------- -------- -------
Net income (loss) $ 3,898 $ (717) $ 1,393
======= ======== =======
Average number of common
shares outstanding 12,259 12,250 12,250
Dilutive effect of outstanding
options (a) 390 (b) 13
Dilutive effect of outstanding
stock purchase warrants (a):
Class A (issued May 1994) 997 (b) 994
New Class A (issued October 1995) 498 (b) --
Class B (c) 287 (b) --
Class C (d) 747 (b) --
------- -------- -------
Total shares used in calculation of
earnings per share 15,178 12,250 13,257
======= ======== =======
Income (loss) per share $ 0.26 $ (0.06) $ 0.11
======= ======== =======
(a) As determined by application of the treasury stock method.
(b) Not included in calculation as effect would be antidilutive.
(c) A total of 289 Class B stock purchase warrants were issuable in May 1997
using a formula based on the average closing stock price for the 90 days
prior to issuance. The Class B warrants became issuable on March 18, 1996,
but at that time, the number of shares to be issued was unknown.
(d) In connection with the refinancing of the senior credit facility in October
1995 (see Note 8 and 10 of Notes to the Company Financial Statements)
750,000 Class C stock purchase warrants ("Class C Warrants") were issued.
The Company has the opportunity to earn back these shares based on earnings
as defined in the agreement. For the year ended July 31, 1997 and 1996, the
Company did not meet the defined earnings level, therefore all Class C
Warrants would be considered outstanding since issuance.
Exhibit 10.34
SECOND AMENDMENT TO INVESTMENT AGREEMENT
THIS SECOND AMENDMENT TO INVESTMENT AGREEMENT ("Amendment"), dated as of
April ___, 1996, is made by and among (i) DEVLIEG-BULLARD, INC., a Delaware
corporation (the "Company"), (ii) BANC ONE CAPITAL PARTNERS CORPORATION, a Texas
Corporation ("Banc-One"), and PNC CAPITAL CORP., a Delaware corporation ("PNC")
(Banc-One and PNC are sometimes collectively referred to as the "Senior Holders"
or individually as a "Senior Holder"), (iii) CHARLES E. BRADLEY, SR., an
individual residing in Connecticut ("Bradley") and (iv) JOHN G, POOLE, an
individual residing in Connecticut ("Poole") (Bradley and Poole are sometimes
collectively referred to as the "Junior Holders", or individually as a "Junior
Holder"; the Senior Holders and Junior Holders are sometimes collectively
referred to as the "Holders").
WITNESSETH:
WHEREAS, the Senior Holders, Allied (as defined in the Agreement) and the
Company entered into an Investment Agreement dated as of May 25, 1994, as
amended by that certain First Amendment to Investment Agreement dated as of
October 23, 1995, by and among Senior Holders, Allied, Junior Holders and the
Company (collectively the "Agreement"), pursuant to which the Senior Holders and
Allied agreed to purchase $12,000,000 of subordinated debentures and Junior
Holders agreed to purchase $4,000,000 of junior debentures (the proceeds of said
junior debentures having been used to satisfy the senior debentures held by
Allied), all in accordance with, and as provided in, the Agreement; and
WHEREAS, the Company has requested that the Senior Holders and the Junior
Holders amend certain financial covenants set forth in the Agreement; and
WHEREAS, Allied remains a "Holder" under the Agreement for limited purposes
only and, accordingly, is not required to join in this Amendment;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreement contained herein, intending to be legally bound hereby, the parties
agree as follows:
1. Paragraph 7.13 of Section 7 of the Agreement is hereby amended by
deleting "Current" in the third line thereof and inserting in its place the
following: "Total".
2. Paragraph 7.17 of Section 7 is hereby amended in its entirety to read as
follows:
<PAGE>
7.17 Certain Adjustments. Notwithstanding the foregoing financial covenants
set forth in paragraphs 7.11 through 7.16 of this Section 7, to the extent
the Company is obligated to pay any amounts in settlement of the litigation
entitled Kochenash v. Stanwich Oil & Gas, Inc. et al, and such obligation
or payment results in noncompliance by the Company and its Consolidated
Subsidiaries for any period with any or all of such financial covenants,
then for the relevant period and for the purpose of determining such
compliance:
(a) Consolidated EBITDA (in the case of the financial covenants in
paragraphs 7.12, 7.15 and 7.16) will be increased; Consolidated
Current Liabilities (in the case of financial covenant in paragraph
7.14) will be decreased; Consolidated Total Liabilities (in the case
of the financial covenant in paragraphs 7.11 and 7.13) will be
decreased; in each case by the lesser of (i) $2,000,000, or (ii) such
amount as may be necessary to effect the minimum level of compliance
with such financial covenant;
(b) Consolidated Interest Expense (in the case of the financial covenant
in paragraph 7.12) will be decreased by the lesser of (i) the interest
expense on $2,000,000 at the Chemical Bank Rate (as hereinafter
defined) plus 1.00% per annum, or (ii) such amount as may be necessary
to effect the minimum level of compliance with such financial covenant
after giving effect to the application of clause (a) above, and
(c) The denominator in the Consolidated Fixed Charges Coverage Ratio (in
the case of the financial covenant in paragraph 7.15) will be
decreased by the lesser of (i) one-third of the scheduled amortization
of the principal on the New Term Loan (as hereinafter defined), or
(ii) such amount as may be necessary to effect the minimum level of
compliance with such financial covenant after giving effect to the
application of clause (a) above.
As used herein, "Chemical Bank Rate" shall mean the rate of interest per
annum announced by Chemical Bank from time to time as its prime rate in
effect at its office in the City of New York. As used herein, the "New Term
Loan" shall mean that certain term loan in the original principal amount of
$3,000,000 from The CIT Group/Business Credit, Inc. to the Company, closed
on April ___, 1996 (which New Term Loan constitutes a portion of the Senior
Debt, as defined in the Agreement).
3. The provisions of the Agreement shall remain in full force and effect
except as modified hereby.
<PAGE>
IN WITNESSETH WHEREOF, the parties, by their duly authorized officers,
have executed and delivered this Second Amendment to Investment Agreement as of
the date first written above.
DEVLIEG-BULLARD, INC.
ATTEST: By: /s/ Lawrence M. Murray
---------------------------- ------------------------------
Title: Chief Financial Officer
-----------------------
BANC ONE CAPITAL PARTNERS
CORPORATION
ATTEST: By: /s/ James H. Wolfe
---------------------------- ------------------------------
Title: Managing Director
---------------------------
PNC CAPITAL CORP
ATTEST: By: /s/ David J. Blair
---------------------------- ------------------------------
Title: Sr. Vice President
---------------------------
WITNESS: /s/ Estelle K. Moulketis /s/ Charles E. Bradley
------------------------- ----------------------------------
CHARLES E. BRADLEY
WITNESS: /s/ Lisa Randazzo /s/ John G. Poole
------------------------- ----------------------------------
JOHN G. POOLE
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of DeVlieg-Bullard, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-40874, 33-54608, 33-85528, 333-02335 and
333-22667) of DeVlieg-Bullard, Inc. of our report dated September 5, 1997
appearing on page 18 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
October 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FORM 10-K FOR THE YEAR ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jul-31-1997
<PERIOD-START> Aug-01-1996
<PERIOD-END> Jul-31-1997
<CASH> 637
<SECURITIES> 0
<RECEIVABLES> 18,798
<ALLOWANCES> (390)
<INVENTORY> 38,195
<CURRENT-ASSETS> 66,149
<PP&E> 27,484
<DEPRECIATION> (14,827)
<TOTAL-ASSETS> 121,444
<CURRENT-LIABILITIES> 47,876
<BONDS> 14,179
0
0
<COMMON> 123
<OTHER-SE> 25,590
<TOTAL-LIABILITY-AND-EQUITY> 121,444
<SALES> 130,611
<TOTAL-REVENUES> 130,611
<CGS> 95,623
<TOTAL-COSTS> 95,623
<OTHER-EXPENSES> (12)
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 5,090
<INCOME-PRETAX> 6,673
<INCOME-TAX> 2,275
<INCOME-CONTINUING> 3,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,898
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
</TABLE>
