SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDING THE
CURRENT REPORT ON FORM 8-K
FILED JULY 23, 1996
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 9, 1996
BETTIS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-23568 76-0428239
(State of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
18703 GH Circle
Waller, Texas 77484
(713) 463-5100
(Address and telephone number of principal executive office)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 9, 1996, Bettis Corporation ("Bettis" or the "Company") acquired all
of the issued and outstanding stock of Shafer Valve Company, an Ohio
corporation ("Shafer"), from Valley City Steel Company, a Delaware
corporation, pursuant to a Stock Purchase Agreement (the "Agreement") with
Valley City Steel Company, Shiloh Industries Inc., a Delaware corporation and
Shiloh Corporation, an Ohio corporation (the latter two being the
shareholders of Valley City Steel Company) (collectively referred to as
"Valley City"). Pursuant to the Agreement, Bettis paid $13,200,000 to Valley
City for the shares of Shafer. The purchase price was funded utilizing
borrowings under the Company's revolving line of credit with Bank One, Texas,
N.A. The acquisition of Shafer was accounted for under the purchase method of
accounting.
Shafer manufactures and sells a line of rotary vane valve actuators from
plants in Mansfield and Orrville, Ohio.
The Company is not aware of any pre-existing material relationships between
(i) Shafer or their shareholders, on the one hand, and (ii) the Company, any
of the Company's affiliates, directors and officers or any associate of such
directors and officers on the other hand.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the Company Acquisition
This Form 8-K/A is being filed to include in the Current Report on
Form 8-K filed by the Registrant with the Securities and Exchange
Commission on July 23, 1996 the financial statements and pro forma
financial information required by Item 7.
The required financial statements of Shafer are included as
exhibits to this Form 8-K/A.
(b) Pro Forma Financial Information
The required pro forma financial information of the Registrant is
included as an exhibit to this Form 8-K/A.
<PAGE>
(c) Exhibits
Page
BETTIS CORPORATION:
Pro Forma Balance Sheet - June 30, 1996 (unaudited)... F-1
Pro Forma Statement of Operations -
Six Months Ended June 30, 1996 (unaudited).......... F-2
Pro Forma Statement of Operations -
Year Ended December 31, 1995 (unaudited)............ F-3
Notes to Pro Forma Financial Statements (unaudited)... F-4
SHAFER VALVE COMPANY
Report of Independent Accountants..................... F-5
Consolidated Balance Sheet - October 31, 1995 and 1994 F-6
Consolidated Statement of Operations -
For the Three Years ended October 31, 1995 ......... F-7
Consolidated Statement of Stockholder's Equity (Deficit)
For the Three Years Ended October 31, 1995 ......... F-8
Consolidated Statement of Cash Flows -
For the Three Years Ended October 31, 1995 ......... F-9
Notes to Consolidated Financial Statements............ F-10
SHAFER VALVE COMPANY
Consolidated Balance Sheet - April 30, 1996 and
October 31, 1995(unaudited)......................... F-18
Consolidated Statement of Operations -
Six Months Ended April 30, 1996 and 1995 (unaudited) F-19
Consolidated Statement of Cash Flows -
Six Months Ended April 30, 1996 and 1995 (unaudited) F-20
Notes to Consolidated Financial Statements (unaudited) F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Current Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BETTIS CORPORATION
Dated: September 23,1996 By:
/S/
Wilfred M. Krenek
Vice President and
Chief Financial Officer
<PAGE>
Index to Exhibits
Page
BETTIS CORPORATION:
Pro Forma Balance Sheet - June 30, 1996 (unaudited)............... F-1
Pro Forma Statement of Operations -
Six Months Ended June 30, 1996 (unaudited)...................... F-2
Pro Forma Statement of Operations -
Year Ended December 31, 1995 (unaudited)........................ F-3
Notes to Pro Forma Financial Statements (unaudited)............... F-4
SHAFER VALVE COMPANY
Report of Independent Accountants................................. F-5
Consolidated Balance Sheet - October 31, 1995 and 1994............ F-6
Consolidated Statement of Operations -
For the Three Years ended October 31, 1995 ..................... F-7
Consolidated Statement of Stockholder's Equity (Deficit)
For the Three Years Ended October 31, 1995 ..................... F-8
Consolidated Statement of Cash Flows -
For the Three Years Ended October 31, 1995 ..................... F-9
Notes to Consolidated Financial Statements........................ F-10
SHAFER VALVE COMPANY
Consolidated Balance Sheet - April 30, 1996 and October 31, 1995
(unaudited)..................................................... F-18
Consolidated Statement of Operations -
Six Months Ended April 30, 1996 and 1995 (unaudited)............ F-19
Consolidated Statement of Cash Flows -
Six Months Ended April 30, 1996 and 1995 (unaudited)............ F-20
Notes to Consolidated Financial Statements (unaudited)............ F-21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Bettis Corporation ("Bettis" or the "Company") acquired all of the issued
and outstanding stock of Shafer Valve Company ("Shafer") on July 9, 1996 from
Valley City Steel Company pursuant to a Stock Purchase Agreement with Valley
City Steel Company, Shiloh Industries Inc. and Shiloh Corporation (the latter
two being the shareholders of Valley City Steel Company) (collectively referred
to as "Valley City"). Bettis paid $13,200,000 in cash consideration to Valley
City for the shares of Shafer. The acquisition of Shafer was accounted for under
the purchase method of accounting.
The accompanying Unaudited Pro Forma Statement of Operations for the six
months ended June 30, 1996 and for the year ended December 31, 1995 includes the
accounts of the Company and reflects Shafer accounted for on a pro forma basis
as if it had been acquired on January 1, 1996 and 1995, respectively. Shafer has
historically used a fiscal October 31 year end for financial reporting purposes.
Included in the pro forma financial statements for the six months ended June 30,
1996 and for the year ended December 31, 1995 are Shafer's results of operations
for the six months ended April 30, 1996 and for the twelve months ended October
31, 1995, respectively.
Also included in the Unaudited Pro Forma Statement of Operations for the
six months ended June 30, 1996 and the year ended December 31, 1995 are the
accounts of Prime Actuator Control Systems Limited and Prime Actuator Control
Systems, Inc. (collectively referred to as "Prime"). Prime was acquired by the
Company on June 20, 1996 from Sooner Pipe and Supply Corporation ("Sooner"), an
Oklahoma Corporation. On July 3, 1996, the Company filed a Form 8K disclosing
the acquisition of Prime. On September 3, 1996, the Company filed a Form 8K/A
including the required financial statements and proforma financial statements
required concerning the Prime acquisition. The financial statements reflect
Prime accounted for on a pro forma basis as if it had been acquired on January
1, 1996 and 1995, respectively. Prime has historically used a fiscal July 31
year end for financial reporting purposes. Included in the pro forma financial
statements for the six months ended June 30, 1996 and for the year ended
December 31, 1995 are Prime's results of operations for the six months ended
April 30, 1996 and for the twelve months ended October 31, 1995, respectively.
The accompanying Unaudited Pro Forma Balance Sheet at June 30, 1996
includes the accounts of the Company (which include Prime at such date) and
reflect Shafer accounted for on a pro forma basis as if the acquisition had
occurred on such date.
The accompanying Unaudited Pro Forma Financial Statements have been
prepared based upon certain assumptions and include adjustments as detailed in
the Notes to Unaudited Pro Forma Financial Statements. The Company has not
completed all the evaluations necessary for the final purchase price allocations
related to the acquisition of Shafer or Prime; accordingly, actual adjustments
that reflect final evaluations of the purchased assets and assumed liabilities
may differ from the pro forma adjustments reflected herein.
The pro forma results included herein are not necessarily indicative of
actual results that might have occurred had the operations and management teams
of the Company, Shafer and Prime been consolidated during all the periods
presented.
<PAGE>
BETTIS CORPORATION
PRO FORMA BALANCE SHEET
June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ASSETS Bettis Shafer Adjustments Total
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 1,852 $ 2 $ - $ 1,854
Deferred income tax............... - 1,054 (301)(A) 753
Other current assets.............. 2,042 164 - 2,206
Total current assets............ 33,921 9,863 (301) 43,483
Property, plant and equipment, net.... 15,575 8,328 - 23,903
Excess cost over net assets acquired.. 8,766 10,805 (10,394)(B) 9,177
Other assets.......................... 2,186 205 - 2,391
$60,448 $29,201 $(10,695) $78,954
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term bank debt.............. $ 5,013 $ - $ - $ 5,013
Accounts payable - trade.......... 4,879 891 - 5,770
Accounts payable - Valley City.... - 440 (440)(C) -
Accrued liabilities............... 8,482 2,242 (524)(D) 10,200
Payable to Valley City............ - 24,597 (24,597)(C) -
Current maturities of long term debt 2,766 - - 2,766
Total current liabilities....... 21,140 28,170 (25,561) 23,749
Long term debt........................ 16,730 - 13,200 (G) 29,930
Deferred income taxes................. 579 2,697 - 3,276
Other non current liabilities......... 66 405 (405)(E) 66
Commitments and contingencies Stockholder's equity:
Common Stock...................... 85 1 (1)(F) 85
Additional paid in capital........ 5,777 - - 5,777
Accumulated earnings (deficit).... 17,202 (2,072) 2,072 (F) 17,202
Cumulative translation adjustment. (1,131) - - (1,131)
Total stockholder's equity (deficit) 21,933 (2,071) 2,071 21,933
$60,448 $29,201 $(10,695) $78,954
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-1
<PAGE>
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (in thousands,
except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Bettis ProForma ProForma
Corporation Prime Shafer Adjustments Total
<S> <C> <C> <C> <C> <C>
Net revenues........................... $29,814 $2,294 $7,728 $ - $39,836
Operating costs and expenses:
Manufacturing and direct........... 19,859 2,292 5,753 (224)(A) 27,680
Selling, general and administrative 7,192 1,207 2,027 (27)(A) 10,029
(190)(B)
(180)(C)
27,051 3,499 7,780 (621) 37,709
Operating income (loss)................ 2,763 (1,205) (52) 621 2,127
Other income (expense):
Interest, net...................... (548) (6) (845) (210)(D) (1,325)
284 (E)
Other, net......................... (142) 25 70 - (47)
(690) 19 (775) 74 (1,372)
Earnings (loss) before income tax
provision (benefit).................. 2,073 (1,186) (827) 695 755
Income tax provision (benefit)......... 992 (126) (224) (89)(F) 711
158 (G)
Net earnings (loss).................... $ 1,081 $(1,060) $ (603) $ 626 $ 44
Earnings per common share.............. $ .13 $ -
Weighted average common and common
equivalent shares outstanding 8,611,299 8,611,299
</TABLE>
The accompanying notes are an integral part of the
pro forma financial statements.
F-2
<PAGE>
BETTIS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Bettis ProForma ProForma
Corporation Prime Shafer Adjustments Total
<S> <C> <C> <C> <C> <C>
Net revenues........................... $55,142 $6,543 $16,462 $ - $78,147
Operating costs and expenses:
Manufacturing and direct........... 35,882 4,908 12,479 (521)(A) 52,748
Selling, general and administrative 14,235 2,226 3,872 (54)(A) 19,603
(378)(B)
(298)(C)
50,117 7,134 16,351 (1,251) 72,351
Operating income (loss)................ 5,025 (591) 111 1,251 5,796
Other income (expense):
Interest........................... (1,094) (70) (1,695) (360)(D) (2,646)
573 (E)
Other, net......................... 32 3 12 - 47
(1,062) (67) (1,683) 213 (2,599)
Earnings (loss) before income tax
provision (benefit)................ 3,963 (658) (1,572) 1,464 3,197
Income tax provision (benefit)......... 1,683 (235) (459) (178)(F) 1,107
296 (G)
Net earnings (loss).................... $ 2,280 $ (423)$ (1,113)$ 1,346 $ 2,090
Earnings per common share.............. $ .27 $ .25
Weighed average common and common
equivalent shares outstanding...... 8,536,355 8,536,355
</TABLE>
The accompanying notes are an integral part of the
pro forma financial statements.
F-3
<PAGE>
BETTIS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
The pro forma adjustments to the accompanying Pro Forma Balance Sheet are
summarized below:
(A) Adjustment to deferred tax benefit for adjustment to pension and deferred
compensation liability.
(B) To adjust excess cost over net assets acquired for purchase of Shafer by
Bettis.
(C) To eliminate intercompany accounts not assumed in the acquisition.
(D) To adjust pension liability for freezing plan effective date of the
acquisition.
(E) To adjust for deferred compensation plans not assumed in acquisition.
(F) To eliminate Shafer common stock and accumulated deficit at date of
acquisition.
(G) To record increase in borrowings under the Company's revolving line of
credit as a result of the acquisitions of Shafer and Prime
The pro forma adjustments to the accompanying Statements of Operations are
summarized below:
(A) To record depreciation and amortization expense related to the preliminary
allocation of the purchase price of Prime.
(B) To adjust historical goodwill expense.
(C) To record effect of freezing Shafer pension plan as of date of acquisition.
(D) To reverse the effects of historical interest expense related to
intercompany debt with Sooner not assumed in the acquisition and to record
interest expense on the amount drawn down on the Company's revolving credit
facility in connection with the acquisition of Prime, net of cash
available.
(E) To reverse the effects of historical interest expense related to
intercompany debt with Valley City not assumed in the acquisition and to
record interest expense on the amount drawn down on the Company's revolving
credit facility in connection with the acquisition of Shafer net of cash
available.
(F) To record income tax benefit that would have been realized if Prime would
have been acquired at the beginning of the period presented.
(G) To record income tax provision that would have been realized if Shafer
would have been acquired at the beginning of the period presented.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bettis Corporation
We have audited the accompanying consolidated balance sheet of Shafer
Valve Company as of October 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's equity (deficit), and cash flows for
each of the three years in the period ended October 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company entered into a stock purchase
agreement on July 9, 1996 for the sale of all of the outstanding common stock of
the Company to Bettis Corporation. The purchaser's basis in the assets will
differ from that reflected in the Company's historical financial statements at
October 31, 1995. No adjustments have been made in the accompanying financial
statements to reflect this transaction.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shafer Valve
Company as of October 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 20, 1996
F-5
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED BALANCE SHEET
October 31, 1995 and 1994
ASSETS 1995 1994
(in thousands)
Current assets:
Cash and cash equivalents...................... $ 8 $ 578
Accounts receivable - trade, net............... 2,205 2,209
Accounts receivable - Valley City............. 1,505 4
Inventories, net............................... 4,665 4,394
Deferred income tax ........................... 959 1,113
Other current assets........................... 101 361
Total current assets.......................... 9,443 8,659
Property, plant and equipment, net................. 8,878 9,827
Excess cost over net assets acquired less accumulated
amortization net of $1,465 and $1,030, respectively 11,013 11,428
Other assets....................................... 201 132
$29,535 $30,046
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable - trade........................ $ 695 $ 336
Accrued liabilities............................. 2,036 2,271
Payable to Valley City.......................... 25,176 24,477
Total current liabilities.................... 27,907 27,084
Deferred income tax................................ 2,716 3,004
Other non current liabilities...................... 380 313
Commitments and contingencies (Notes 4 & 5)
Stockholder's equity (deficit):
Common stock, no par value, 1,000 shares authorized
and outstanding.............................. 1 1
Accumulated deficit............................ (1,469) (356)
Total stockholder's equity (deficit)......... (1,468) (355)
$29,535 $30,046
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Years Ended October 31, 1995
1995 1994 1993
(in thousands)
Net revenues................................. $16,462 $15,253 $21,595
Operating costs and expenses:
Manufacturing and direct................. 12,479 10,971 14,313
Selling, general and administrative...... 3,872 4,085 5,440
16,351 15,056 19,753
Operating income (loss)...................... 111 197 1,842
Other income (expense):
Interest, net............................ (1,695) (1,711) (1,785)
Other, net............................... 12 (7) (8)
(1,683) (1,718) (1,793)
Earnings (loss) before income tax
provision (benefit) .................... (1,572) (1,521) 49
Income tax provision (benefit)............... (459) (419) (61)
Net earnings (loss).......................... $(1,113)$ (1,102)$ 110
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Three Years Ended October 31, 1995
(in thousands except share amounts)
Common Stock Accumulated
Shares Issued Amount Earnings (Deficit) Total
Balances at November 1, 1992 1,000 $ 1 $ 636 $ 637
Net earnings............... - - 110 110
Balances at October 31, 1993 1,000 1 746 747
Net loss................... - - (1,102) (1,102)
Balances at October 31, 1994 1,000 1 (356) (355)
Net loss................... - - (1,113) (1,113)
Balances at October 31, 1995 1,000 $ 1 $ (1,469) $ (1,468)
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Years Ended October 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................ $(1,113) $ (1,102)$ 110
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................. 1,602 1,636 1,699
Deferred taxes................................. (134) (216) (421)
(Gain) loss on sale of assets.................. 6 7 (3)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net 4 1,936 (2,100)
Increase in accounts receivable - Valley City.. (1,501) (5) -
(Increase) decrease in inventories............. (271) (505) 545
Decrease in other current assets............... 259 36 68
Increase (decrease) in accrued liabilities..... (235) (903) 28
Increase in non current liabilities............ 67 106 208
Net cash provided by (used in) operating
activities ................................ (1,025) 955 359
Cash flows from investing activities:
Additions to property, plant and equipment......... (254) (318) (420)
Proceeds from sale of assets....................... 10 142 11
Maturities of short term investments............... - - 1,290
Net cash provided by (used in) investing
activities ................................ (244) (176) 881
Cash flows from financing activities:
Increase (decrease) in payable to Valley City...... 699 (566) (1,159)
Net cash provided by (used in) financing
activities ................................ 699 566 (1,159)
Net increase (decrease) in cash and cash
equivalents .................................. (570) 213 81
Cash and cash equivalents at beginning of year..... 578 365 284
Cash and cash equivalents at end of year........... $ 8 $ 578 365
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-9
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of Shafer Valve Company and its wholly owned subsidiaries, Shafer
Foreign Sales Corporation and Shafer Valve Company-Houston (collectively
referred to as "Shafer").
Shafer manufactures and sells valve actuators, which are used to remotely
and automatically open and close quarter turn valves, from facilities located in
Mansfield and Orrville, Ohio. Shafer's market is principally the oil and gas
pipeline industry where pipes are used to transport liquids and gases.
Bettis Corporation ("Bettis" or the "Company") purchased 100% of the
issued and outstanding stock of Shafer from Valley City Steel Company on July 9,
1996 pursuant to a Stock Purchase Agreement with Valley City Steel Company,
Shiloh Industries Inc., a Delaware corporation, and Shiloh Corporation, an Ohio
corporation (the latter two being shareholders of Valley City Steel Company)
(collectively referred to as "Valley City"). Bettis paid $13,200,000 in cash
consideration to Valley City for the shares of Shafer. The acquisition of Shafer
was accounted for under the purchase method of accounting.
Preparation of the Financial Statements
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
Shafer as described above. On July 9, 1996, Bettis purchased 100% of the issued
and outstanding stock of Shafer. The purchaser's basis in the assets will differ
from that reflected in Shafer's historical financial statements at October 31,
1995. No adjustments have been made in the accompanying financial statements to
reflect this transaction. All material intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets and
liabilities, (2) the disclosures of contingent assets and liabilities, and (3)
the reported amounts of revenues and expenses during the reporting periods.
Ultimate results could differ from those estimates.
Cash and Cash Equivalents
Shafer includes all highly liquid debt securities purchased with an
original maturity of three months or less in cash and cash equivalents. Cash
equivalents are stated at cost which approximates market. The Company maintains
cash deposits in banks which from time to time exceed the amount of deposit
insurance available. Management periodically assesses the financial condition of
the institutions and believes that any credit loss is minimal.
F-10
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Short Term Investments
Short term investments consist of investments in commercial paper with
terms of less than one year and are classified as held to maturity. Such
investments are carried at amortized cost which approximates fair value.
Inventories
Inventories consisting of raw materials, supplies, finished parts and
sub-assemblies are stated at the lower of cost or market as determined by
management of Shafer. Cost is determined by the average first-in, first-out
method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated over its
estimated useful life by the use of the straight line method. Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related lease by use of the straight line method. Disposals are removed at
cost less accumulated depreciation with the resulting gain or loss being
reflected in operations.
Revenue Recognition
The Company recognizes revenues from product sales when goods are shipped
or when ownership is assumed by the customer.
Shafer has a ten year warranty on materials and workmanship on all products
manufactured. Shafer has not experienced any material product warranty expense.
Excess Cost Over Net Assets Acquired
The excess cost over fair value of the net assets of the Company upon
acquisition by Valley City is being amortized over a period of 30 years using
the straight line method. Shafer's management periodically evaluates this
intangible asset based on expectations of undiscounted cash flows and operating
income which gave rise to the assets. Amortization expense amounted to
approximately $415,000, $415,000 and $383,000 for the three years ended October
31, 1995, 1994 and 1993, respectively.
Income Taxes
Shafer files income tax returns as members of the consolidated group with
Valley City. The income tax provisions for the periods presented are calculated
as if Shafer had filed a separate tax return.
F-11
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fair Value of Financial Instruments
The Company includes fair value information in the notes to consolidated
financial statements when the fair value of its financial instruments are
different from the book value. The carrying value of cash and cash equivalents,
receivables and accounts payable approximate fair value due to the short term
maturities of these instruments. The carrying amount of the Company's payable to
Valley City approximates its fair value at October 31, 1995.
Concentration of Credit Risk
The Company's revenues in 1995 were generated from in excess of 270
customers. Only one customer accounted for more than 10 percent of total
revenues, with no one customer accounting for more than 13.9 percent of total
revenues. Shafer performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company's allowance for doubtful accounts at October 31, 1995 and 1994 was
$120,000.
2. Details of Certain Balance Sheet Accounts
Information regarding certain balance sheet accounts at October 31, 1995
and 1994 is presented below:
1995 1994
(in thousands)
Inventories
Raw materials and supplies........... $3,418 $3,402
Finished parts and sub assemblies.... 1,247 992
$4,665 $4,394
<TABLE>
<CAPTION>
Estimated
1995 1994 Lives
(in thousands) (in years)
Property, plant and equipment, at cost:
<S> <C> <C> <C>
Land.................................. $ 256 $ 256
Buildings and improvements............ 4,009 3,978 20-40
Machinery and equipment............... 8,716 8,514 5-10
12,981 12,748
Less accumulated depreciation............ 4,103 2,921
$8,878 $9,827
</TABLE>
F-12
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1995 1994
(in thousands)
Accrued liabilities:
Salaries, wages and commissions $ 556 $ 382
Pension liability.............. 1,185 1,314
Insurance...................... 258 247
Other.......................... 37 328
$ 2,036 $ 2,271
3. Related Party Transactions
The consolidated financial statements include direct charges incurred by
Valley City on behalf of Shafer for legal services, accounting fees, employee
health and insurance benefits, interest on net funds advanced to Shafer and
other expenses which amounted to approximately $2,336,000, $1,928,000 and
$1,808,000 for the years ended October 31, 1995, 1994 and 1993, respectively.
These direct charges were determined by specific identification as representing
actual costs incurred for Shafer by Valley City.
The short term payable to Valley City at October 31, 1995 and 1994 carried
interest rates of approximately 7.1%.
Interest payments to Valley City in the years ended October 31, 1995, 1994
and 1993 were $1,708,000, $1,726,000 and $1,808,000, respectively.
4. Leases
The Company leases various types of equipment and office space under
noncancellable operating leases which expire at various dates through 1998. Some
of the operating leases provide that the Company pay taxes, maintenance,
insurance and other occupancy expenses related to the leased property.
Generally, the leases provide for renewal for various periods at stipulated
rates. Rental expense under these leases totaled $87,000, $32,000 and $26,000
for the years ended October 31, 1995, 1994 and 1993, respectively.
The approximate future minimum annual rental payments under these
noncancellable operating leases is as follows (in thousands):
1996............................ $ 108
1997............................ 98
1998............................ 53
1999............................ 9
Total minimum lease payments.... $ 268
F-13
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Commitments and Contingencies
The Company is a defendant in various lawsuits involving claims arising in
the ordinary course of its business. In the opinion of management of Shafer, all
such matters involve amounts such that an unfavorable disposition of the
proceedings would not have a material adverse effect on the consolidated
financial condition, results of operations or cash flows of the Company
Shafer is a guarantor to a credit agreement of Valley City with its bank.
At October 31, 1995 and 1994, borrowings of $13,500,000 and $11,000,000,
respectively, were outstanding under this agreement.
6. Employee Benefit Plans
401(k) Plan
Shafer sponsors a 401(k) Plan which covers all employees who have met
certain eligibility requirements for the plan. The Company matches the
contributions of the employees up to a maximum of the employee's contribution of
3% of the employee's compensation. The Company can make discretionary
contributions to the plan. During the years ended October 31, 1995, 1994 and
1993, the Company matching contributions were $82,000, $113,000 and $118,000,
respectively.
Defined Benefit Pension Plan
The Company sponsors a defined benefit pension plan that covers
substantially all employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Company
and compensation during employment. The Company's funding policy is to make
periodic contributions within minimum funding requirements and maximum
deductible limitations. Plan assets consist primarily of insurance and annuity
contracts.
The following sets forth the funded status of the plan and amounts
reflected in the Company's balance sheet at October 31, 1995 and 1994:
F-14
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1995 1994
(in thousands)
Actuarial present value of benefit obligations:
Projected benefit obligation......... $ 2,084 $ 1,804
Fair value of assets held in the plan (1,320) (979)
Unfunded excess of projected benefit
obligation over plan assets...... 764 825
Net unrecognized loss from past
experience different than assumed.. (128) -
Unrecognized (gain) loss............. 549 489
Pension liability included in the balance sheet $ 1,185 $1,314
Pension expense for the three years ended October 31, 1995, 1994 and 1993
includes the following components:
1995 1994 1993
(in thousands)
Service cost of the current period......... $ 180 $ 217 $ 188
Interest cost on the projected benefit
obligation .............................. 149 158 230
Actual return on assets held in the plan... (78) (56) (144)
Loss due to settlements.................... - - 88
Net amortization of unrecognized (gain) loss (19) - -
$ 232 $ 319 $ 362
The Company's economic assumptions used in determining the pension cost and
pension liability shown above are as follows:
1995 1994 1993
(in thousands)
Discount rate.............................. 8.25% 7.25% 6.0%
Long-term rate of return on assets......... 8.0% 6.0% 6.0%
Rate of increase in compensation levels.... 5.0% 4.5% 5.0%
F-15
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Income Taxes
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax and financial reporting basis of
assets and liabilities and their financial reporting amounts.
The components of income tax provision (benefit) for the periods were as
follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1995 1994 1993
(in thousands)
Income tax provision (benefit):
<S> <C> <C> <C>
Current ..................................... $ (408) $ (236) $ 331
Deferred..................................... (134) (217) (421)
State........................................ 83 34 29
Total income tax benefit....................... $ (459)$ (419)$ (61)
</TABLE>
The difference between the effective rate reflected in the income tax
provision and the statutory federal tax rate is analyzed as follows:
<TABLE>
<CAPTION>
Year ended October 31,
1995 1994 1993
<S> <C> <C> <C>
State income tax............................... 5.2 2.2 58.4
Goodwill amortization.......................... 9.0 9.3 278.8
Foreign sales corporation...................... (2.7) (1.5) (84.9)
Other.......................................... (6.7) (3.5) (411.7)
Effective tax rate............................. (29.2)% (27.5)% (125.4)%
</TABLE>
Total income taxes paid (refunded) during the years ended October 31, 1995,
1994 and 1993 were $(326,000), $(622,000), and $331,000, respectively.
F-16
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of the deferred tax asset and liability at October 31, 1995
and 1994, respectively, were as follows:
1995 1994
(in thousands)
Deferred tax asset
Pension liability............................ $ 373 $ 438
Inventory reserves........................... 47 177
Property tax accrued......................... 62 60
Accrued deferred compensation................ 62 56
Vacation pay accrued......................... 58 62
Other........................................ 357 320
$ 959 $ 1,113
Deferred tax liability:
Property, plant and equipment................ $ 2,716 $ 3,004
F-17
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED BALANCE SHEET (Unaudited)
April 30, 1996 and October 31, 1995
April 30, October 31,
ASSETS 1996 1995
(in thousands)
Current assets:
Cash and cash equivalents...................... $ 2 $ 8
Accounts receivable - trade, net............... 2,996 2,205
Accounts receivable - Valley City.............. - 1,505
Inventories.................................... 5,647 4,665
Deferred income tax............................ 1,054 959
Other current assets........................... 164 101
Total current assets......................... 9,863 9,443
Property, plant and equipment, net................. 8,328 8,878
Excess cost over net assets acquired less accumulated
amortization net of $1,653 and $1,445, respectively 10,805 11,013
Other assets....................................... 205 201
$29,201 $29,535
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade....................... $ 891 $ 695
Accounts payable - Valley City................. 440 -
Accrued liabilities............................ 2,242 2,036
Payable to Valley City......................... 24,597 25,176
Total current liabilities.................... 28,170 27,907
Deferred income tax................................ 2,697 2,716
Other non-current liabilities...................... 405 380
Commitments and contingencies Stockholder's equity:
Common stock................................... 1 1
Accumulated deficit............................ (2,072) (1,469)
Total stockholder's equity:.................... (2,071) (1,468)
$29,201 $29,535
The accompanying notes are an integral part of the
consolidated financial statements.
F-18
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the Six Months Ended April 30, 1996 and 1995
1996 1995
(in thousands)
Net revenues....................................... $ 7,728 $ 8,137
Operating costs and expenses:
Manufacturing and direct....................... 5,753 6,463
Selling, general and administrative............ 2,027 1,991
7,780 8,454
Operating loss..................................... (52) (317)
Other income (expense):
Interest, net.................................. (845) (831)
Other, net..................................... 70 (7)
(775) (838)
Loss before income tax benefit..................... (827) (1,155)
Income tax benefit................................. (224) (340)
Net loss........................................... $ (603) $ (815)
The accompanying notes are an integral part of the
consolidated financial statements.
F-19
<PAGE>
SHAFER VALVE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For the Six Months Ended April 30, 1996 and 1995
Six Months Ended April 30,
1996 1995
(in thousands)
Cash flows from operating activities:
Net loss........................................... $ (603) $ (815)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.................. 772 793
Gain on sale of assets......................... (70) -
Deferred income tax............................ (114) (38)
Changes in assets and liabilities:
Decrease in accounts receivable, net........... (791) (1,352)
(Increase) decrease in accounts receivable -
Valley City ................................ 1,505 (7)
Increase in inventories........................ (982) (153)
(Increase) decrease in other current assets.... (63) 146
Increase in other assets....................... (4) (54)
Increase in accounts payable - trade........... 196 517
Increase in accrued liabilities................ 206 822
Increase in accounts payable - Valley City..... 440 340
Increase in non current liabilities............ 24 33
Net cash provided by operating activities.... 516 232
Cash flows from investing activities:
Additions to property, plant and equipment......... (14) (92)
Proceeds from sale of assets....................... 70 -
Net cash provided by (used in)
investing activities ...................... 56 (92)
Cash flows from financing activities:
Increase in payable to Valley City................. (578) (242)
Net cash provided by financing activities.... (578) (242)
Net increase (decrease) in cash and
cash equivalents ................................ (6) (102)
Cash and cash equivalents at beginning of period... 8 578
Cash and cash equivalents at end of period......... $ 2 $ 476
The accompanying notes are an integral part of the
consolidated financial statements.
F-20
<PAGE>
SHAFER VALVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(Unaudited)
1. Business and Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of Shafer Valve Company and its wholly owned subsidiaries, Shafer
Foreign Sales Corporation and Shafer Valve Company-Houston (collectively
referred to as "Shafer").
Shafer manufactures and sells valve actuators, which are used to remotely
and automatically open and close quarter turn valves, from a facility located in
Mansfield, Ohio. Shafer also manufactures certain actuators and components at a
facility in Orrville, Ohio. Shafer's market is principally the chemical,
petrochemical and refining industries where pipes are used to transport liquids
and gases.
Bettis Corporation ("Bettis" or the "Company") purchased 100% of the stock
of Shafer from Valley City Steel Company pursuant to a Stock Purchase Agreement
with Valley City Steel Company, Shiloh Industries Inc. and Shiloh Corporation
(the latter two being shareholders of Valley City Steel Company) (collectively
referred to as "Valley City") on July 9, 1996. Bettis paid $13,200,000 in cash
consideration to Valley City for the shares of Shafer. The acquisition of Shafer
was accounted for under the purchase method of accounting.
Shafer utilizes an October 31 fiscal year-end. These interim financial
statements have not been audited; however, in the opinion of management, only
adjustments consisting of normal recurring accruals considered necessary for
fair presentation have been included. Results of interim periods are not
necessarily indicative of results to be expected for the full year.
This presentation is consistent with the accounting policies reflected in
the financial statements included in Note 1 to the October 31, 1995 and 1994
Consolidated Financial Statements and should be read in conjunction herewith.
2. Summary of Significant Accounting Policies
There have been no significant changes in the accounting policies of
Shafer during the periods presented. For a description of these policies, see
Note 1 to the October 31, 1995 Consolidated Financial Statements.
F-21
