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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) : November 7, 1995 (October 23, 1995)
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DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-18198 62-1270573
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
One Gorham Island, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
203-221-8201
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OF ASSETS AND REFINANCING OF DEBT
On October 23, 1995, DeVlieg-Bullard, Inc. (the "Company"), in accordance with
the terms of the Stock Purchase Agreement among Acme-Cleveland Corporation, AC
Intermediate Company and DeVlieg-Bullard, Inc., consummated the acquisition
(the "Acquisition") of all of the outstanding stock of The National Acme
Company, an Ohio corporation ("National Acme"). Immediately following the
consummation of the Acquisition, National Acme was merged with and into the
Company, with the Company as the surviving corporation.
The consideration for the Acquisition consisted of $8.1 million for the
outstanding stock of National Acme and $900,000 in consideration for a
noncompetition agreement. The purchase price is subject to adjustment based on
the net worth (as defined) of National Acme at the closing based on an audited
balance sheet of National Acme on that date. The Company accrued $1.5 million
for the purchase price adjustment (allocated $1.0 million to the non-compete
agreement, with the balance to intangible assets).
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 the time of
acquisition. Such amounts may change as additional information becomes
available. The excess purchase price over net assets acquired of $15,545,000
will be amortized on a straight line basis over thirty years. The non-compete
agreement of $1.9 million will be amortized on a straight line basis over five
years. Liabilities of $42,638,000 were assumed in connection with the
Acquisition, primarily for postretirement medical benefits ($24,887,000) and
pension benefits ($10,795,000).
In conjunction with the Acquisition, the Company refinanced (the "Refinancing")
its senior credit facility pursuant to a Financing and Security Agreement dated
October 23, 1995, between the Company and The CIT Group/Business Credit, Inc.
(the "Agreement") in the amount of $30 million. The Agreement is secured by all
of the Company's assets. Under the terms of the Agreement, the Company is
required to comply with various operational and financial covenants, as defined,
including (i) minimum net worth, (ii) interest coverage ratio, (iii) liabilities
to net worth ratio, (iv) current ratio, (v) fixed charge coverage ratio and (vi)
minimum earnings levels, as defined. In addition, the Agreement places
limitations on the Company's ability to make capital expenditures and to pay
dividends.
The Agreement consists of a $25 million Revolving Credit Agreement and a $5
million Term Loan. The Revolving Credit Agreement matures on October 23, 1998,
subject to renewal by agreement of the parties. Amounts available under the
Revolving Credit Agreement are based upon a formula related to the Company's
eligible accounts receivable and inventories. Interest on outstanding balances
is payable monthly in arrears. Interest rates are based on the prime rate or
alternative rates based on LIBOR. A line of credit fee of 0.25% per annum is
payable monthly on the difference between the Revolving Line of Credit and the
average Revolving Loan balance. The Agreement also provides for a $300,000 loan
facility fee paid at closing and collateral management fee of $50,000 per year,
payable at the date of closing and annually thereafter. There are early
termination fees should the Company terminate the Agreement prior to its third
anniversary.
The Term Loan is payable in 35 equal installments of $85,714.30, with a payment
in the 36th month of $2 million. Interest on the Term Loan is payable monthly.
Interest rates are based on the prime rate or alternative rates based on LIBOR.
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Borrowings of $23.9 million under the Agreement were incurred at the closing to
retire the existing senior credit facility and to finance the Acquisition. The
Company anticipates approximately $1 million in financing costs will be incurred
related to the Refinancing, legal and other related acquisition costs. Costs
related to the Refinancing will be capitalized and amortized over the life of
the related debt.
Comsummation of the Acquisition and the Refinancing required the consent of the
holders of the Company's $12 million principal amount of subordinated debt (the
"Subordinated Debt"), pursuant to the terms of the Investment Agreement dated
May 25, 1994, (the "Investment Agreement") among Allied Investment Corporation,
Allied Investment Corporation II, Allied Capital Corporation II (collectively
"Allied"), PNC Capital Corp. ("PNC") and Banc One Capital Partners Corporation
("Banc One"). Due to the inability of the Company to obtain the consent of
Allied on mutually agreeable terms, Charles E. Bradley and John G. Poole,
directors and significant shareholders of the Company, loaned the Company $2.5
million and $1.5 million, respectively, pursuant to the terms of Junior
Subordinated Debentures (the "Junior Subordinated Debt"), to repay the
principal owed to Allied. Interest on the Junior Subordinated Debt accrues at a
rate of 14.5% per annum, with interest payable at 11% per annum on a quarterly
basis. The Junior Subordinated Debt matures on June 30, 2001, or 30 days after
the Subordinated Debt is paid in full. The Junior Subordinated Debt is subject
to the terms and provisions of the Investment Agreement between the Company and
certain other parties dated May 25, 1994, as amended by the First Amendment to
the Investment Agreement dated October 23, 1995 (the "First Amendment").
In connection with the repayment of Allied, Allied returned to the Company Class
A Warrants representing the right to acquire 83,333 shares of the Company's
common stock. In connection with the issuance of the Junior Subordinated Debt,
the Company issued Class A Warrants to Messrs. Bradley and Poole on the same
terms as those returned by Allied representing the right to purchase 52,083 and
31,250 shares of the Company's common stock, respectively.
In connection with the Refinancing, the holders of the Subordinated Debt agreed
to release their security interest in the Company's assets. CPS Holdings, Inc.,
a Delaware corporation, pledged 600,000 shares of the common stock of Consumer
Portfolio Services, Inc., a Delaware corporation, to secure the Subordinated
Debt. Mr. Bradley is the President and a director and beneficially owns
approximately 34% of the outstanding common stock of CPS Holdings, Inc. and is
the Chairman of the Board and beneficially owns approximately 5% of the
outstanding common stock of Consumer Portfolio Services, Inc. Mr. Poole is a
director, Vice President and Secretary of CPS Holdings, Inc. Pursuant to the
terms of a Credit Support Agreement dated October 23, 1995, between the Company
and CPS Holdings, Inc. the Company agreed to pay CPS Holdings, Inc. $90,000
annually for so long as the pledge is in effect, payable in monthly
installments of $7,500.
Pursuant to the terms of the First Amendment, the Company issued Class A Stock
Purchase Warrants to acquire 500,000 shares of the Company's common stock
("Class A Warrants") and Class C Stock Purchase Warrants to acquire 750,000
shares of the Company's common stock, subject to adjustment in certain
circumstances ("Class C Warrants") to PNC, Banc One, Bradley and Poole, pro rata
based on the principal amount of the Subordinated Debt and Junior Subordinated
Debt held by such parties. 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 a 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
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C Warrants have the right to acquire may be reduced based on the Company
attaining earnings levels, as defined in the First Amendment.
In accordance with the Company's policy on transactions with affiliated parties,
the foregoing transactions with Messrs. Bradley and Poole and their affiliates
were approved by the disinterested members of the Company's Board of Directors
and were deemed to be fair to the Company and on terms no less favorable than
those which would be obtained from an unafilliated party.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
Report of Independent Auditors
Consolidated Balance Sheets of The National Acme Company and Subsidiary
as of July 31, 1995 and September 30, 1994.
Statements of Consolidated Operations and Accumulated Deficit of The
National Acme Company and Subsidiary for the ten months ended July 31,
1995 and the years ended September 30, 1994 and 1993.
Statements of Consolidated Cash Flows of The National Acme Company and
Subsidiary for the ten months ended July 31, 1995 and the years ended
September 30, 1994 and 1993.
Notes to Consolidated Financial Statements.
Item 7(A)
Consolidated Financial Statements
THE NATIONAL ACME COMPANY
AND SUBSIDIARY
July 31, 1995
(LOGO ERNST & YOUNG LLP)
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(LETTERHEAD ERNST & YOUNG LLP) 1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115-1405
Report of Independent Auditors
To the Board of Directors
The National Acme Company
We have audited the accompanying consolidated balance sheets of The National
Acme Company (a second tier subsidiary of Acme-Cleveland Corporation) and
Subsidiary as of July 31, 1995 and September 30, 1994, and the related
statements of consolidated operations and accumulated deficit, and cash flows
for the ten months ended July 31, 1995 and the years ended September 30, 1994
and 1993. 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The National Acme
Company and Subsidiary at July 31, 1995 and September 30, 1994, and the results
of their operations and their cash flows for the ten months ended July 31, 1995
and the years ended September 30, 1994 and 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes C and F to the consolidated financial statements,
effective October 1, 1993, the Company changed its method of accounting for
income taxes, postemployment benefits, and postretirement benefits other than
pensions.
/s/ ERNST & YOUNG LLP
August 25, 1995
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The National Acme Company and Subsidiary
Consolidated Balance Sheets
JULY 31 SEPTEMBER 30
1995 1994
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(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2,663 $ 8,232
Trade receivables less allowances of $51 and $50,
respectively 4,993 4,976
Inventories:
Finished goods 3,107 2,009
Work-in-process 2,252 1,046
Raw materials 138 86
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Total inventories 5,497 3,141
Receivable (payable) from affiliates 4,099 (652)
Other current assets 77 26
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Total current assets 17,329 15,723
Property, plant and equipment--at cost:
Land 301 301
Buildings 6,603 6,584
Machinery and equipment 14,789 14,659
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21,693 21,544
Less accumulated depreciation 19,376 19,076
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Net property, plant and equipment 2,317 2,468
Deferred income taxes 45 0
Other assets 788 838
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TOTAL ASSETS $ 20,479 $ 19,029
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JULY 31 SEPTEMBER 30
1995 1994
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(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 340 $ 340
Accounts payable 2,099 1,418
Other accrued expenses 1,943 1,783
Accrued compensation and hospitalization 3,482 3,005
Postemployment benefits other than pensions 2,145 3,036
Other accrued taxes 941 657
Advance payments 1,007 1,393
Income taxes payable 45 0
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Total current liabilities 12,002 11,632
Long-term debt 365 365
Postemployment benefits other than pensions 24,510 24,867
Unfunded pension costs and other long-term liabilities 6,757 7,346
Shareholder's equity:
Common stock, par value $1 per share,
750 shares authorized, 100 shares issued and
outstanding 0 0
Other capital 65,552 65,552
Pension adjustment (6,058) (6,283)
Accumulated deficit (82,649) (84,450)
-----------------------------------
Total shareholder's equity (23,155) (25,181)
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 20,479 $ 19,029
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See notes to consolidated financial statements.
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The National Acme Company and Subsidiary
Statements of Consolidated Operations and Accumulated Deficit
10 MONTHS YEAR ENDED YEAR ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
JULY 31, 1995 1994 1993
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(In Thousands)
Net sales $ 30,675 $ 30,668 $ 27,289
Cost of products sold (22,185) (23,825) (22,155)
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Gross profit 8,490 6,843 5,134
Selling, general and administrative expense (6,288) (6,741) (6,449)
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Earnings (loss) from operations 2,202 102 (1,315)
Other income (expense):
Interest income 413 365 495
Interest expense (42) (79) (95)
Other income 220 221 89
Other expense (92) (9) (431)
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Earnings (loss) before income taxes and cumulative
effect of accounting changes 2,701 600 (1,257)
Income taxes 0 0 0
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Earnings (loss) before cumulative effect of
accounting changes 2,701 600 (1,257)
Cumulative effect of accounting changes 0 (24,462) 0
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Net earnings (loss) 2,701 (23,862) (1,257)
Accumulated deficit, beginning of period (84,450) (59,772) (57,699)
Dividends paid/declared to parent (900) (816) (816)
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ACCUMULATED DEFICIT, END OF PERIOD $ (82,649) $ (84,450) $ (59,772)
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See notes to consolidated financial statements.
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The National Acme Company and Subsidiary
Statements of Consolidated Cash Flows
10 MONTHS YEAR ENDED YEAR ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
JULY 31, 1995 1994 1993
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OPERATING ACTIVITIES
Net earnings (loss) before cumulative effect
of accounting changes $ 2,701 $ 600 $ (1,257)
Adjustments to reconcile net earnings (loss)
to cash provided by operating activities for
non-cash items:
Depreciation 300 365 471
Deferred income tax credits (45) 0 0
Gain on sale of property, plant and equipment 0 1 11
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Cash provided (used) by earnings and non-cash
items 2,956 966 (775)
Changes in assets and liabilities:
Increase in trade receivables (17) (143) (1,007)
Increase in inventories (2,356) (867) (61)
Increase in accounts payable 681 159 287
Increase in accrued compensation and
hospitalization 477 78 582
Increase (decrease) in other accrued taxes 284 24 (76)
Increase in income taxes payable 45 0 0
Increase (decrease) in postemployment
benefits other than pensions (1,248) 140 0
Decrease in unfunded pension costs (322) (294) (46)
(Increase) decrease in receivable from
affiliates (4,976) 1,010 9,142
Other, net (269) 594 (1,862)
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Cash (used) provided by operating activities (4,745) 1,667 6,184
INVESTING ACTIVITY
Capital expenditures (149) (226) (100)
FINANCING ACTIVITIES
Principal payment on long-term debt 0 (315) (295)
Dividends paid to parent (675) (816) (816)
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Cash used by financing activities (675) (1,131) (1,111)
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(Decrease) increase in cash and cash equivalents (5,569) 310 4,973
Cash and cash equivalents at beginning of period 8,232 7,922 2,949
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,663 $ 8,232 $ 7,922
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See notes to consolidated financial statements.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements
Ten Months Ended July 31, 1995 and
Years Ended September 30, 1994 and 1993
(Dollars in Thousands)
A. ACCOUNTING POLICIES AND PRACTICES
The National Acme Company (Company) is a second tier subsidiary of
Acme-Cleveland Corporation (Acme-Cleveland). The Company's accounting and
reporting policies conform to generally accepted accounting principles and to
industry practices. Significant accounting policies and practices are
described below:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and National Acme Trading Company, its wholly-owned subsidiary. Upon
consolidation, all significant intercompany items are eliminated.
CASH FLOW INFORMATION
Payments for interest were $25, $78 and $94 in 1995, 1994 and 1993,
respectively.
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.
INVENTORIES
Finished goods inventory represents component parts and machines available
for sale. Inventories are priced at the lower of cost or market. Cost
includes material, labor and manufacturing overhead. Supplies and tooling
used in production are expensed at the time of purchase and are considered
in the inventory burden rate. Inventories valued using the last-in,
first-out (LIFO) method comprised 95% and 96% of consolidated inventories at
July 31, 1995 and September 30, 1994, respectively. If the cost of all
inventories had been determined by the FIFO method, which approximates
current cost, inventories at July 31, 1995 and September 30, 1994 would have
been greater by $11,553 and $11,311, respectively.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements -- Continued
A. ACCOUNTING POLICIES AND PRACTICES--CONTINUED
During 1994 and 1993, inventory quantities were reduced at certain
locations. These reductions resulted in liquidations of LIFO inventory
quantities carried at lower costs prevailing in prior years as compared with
the cost of current purchases, the effect of which increased net earnings by
$78 in 1994, and $61 in 1993. There was no LIFO liquidation in 1995.
Other accrued expenses include the following:
JULY 31, SEPT. 30,
1995 1994
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Product liability $ 700 $ 700
Warranty reserve 300 300
Accrued workers' compensation 425 425
Other 518 358
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Totals $ 1,943 $ 1,783
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PROVISION FOR WARRANTY CLAIMS
Estimated warranty costs are provided at the time of sale of the warranted
products.
ACCRUED COMPENSATION
Accrued compensation included accruals for the current portion of unfunded
pension costs of $877 and $507 in 1995 and 1994, respectively.
OTHER INCOME
Other income included royalty income of $189, $83 and $44 in 1995, 1994 and
1993, respectively.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements -- Continued
A. ACCOUNTING POLICIES AND PRACTICES--CONTINUED
DEPRECIATION AND AMORTIZATION
Depreciation of property, plant and equipment is computed by the
straight-line method over the estimated useful lives of assets.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenditures are expensed as incurred and were
$182, $234 and $74 in 1995, 1994 and 1993, respectively.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," effective October 1, 1993. This
accounting statement requires the use of the liability method for income
taxes rather than the previously used deferred method. Under the liability
method, deferred tax assets and liabilities are determined by the
differences between the financial statement amounts of existing assets and
liabilities and their respective tax basis. These differences are measured
using the tax rate that is presently in effect when the differences reverse.
Under the deferred method, deferred income taxes are provided on items
recognized in different periods for financial reporting purposes than for
income tax purposes. These differences were measured at the effective tax
rate in the year of origination.
In adopting SFAS No. 109, as permitted under the new rules, the Company has
elected not to restate the financial statements of any prior years.
Adoption of this statement did not effect operations for 1994. See Note C
for further discussion.
DIVIDENDS AND EARNINGS PER SHARE
Dividends per share and earnings per share information is not provided
because the Company was a second tier subsidiary of Acme-Cleveland, and,
accordingly, such information is not applicable.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
A. ACCOUNTING POLICIES AND PRACTICES--CONTINUED
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Remediation costs that relate to an existing
condition caused by past operations are accrued when it is probable that
these costs will be incurred and can be reasonably estimated.
B. TRANSACTIONS WITH AFFILIATES
The Company paid Acme-Cleveland's subsidiaries $770, $840 and $831 in 1995,
1994 and 1993, respectively for human resource administration, investment
management, tax and legal services provided in those years which costs are
included in selling, general, and administrative expense.
Interest income of $86, $29 and $223 in 1995, 1994 and 1993, respectively was
recorded pursuant to an intercompany agreement with Acme-Cleveland.
C. INCOME TAXES
As discussed in Note A, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," as of October 1, 1993. The cumulative effect from the adoption
of this standard had no effect on net earnings. A valuation allowance of
$16,441, equal to the net deferred tax asset, was recorded due to recent tax
losses and the uncertainty of realizing temporary differences, the benefit of
net operating loss carryforwards, capital loss carryforwards and foreign tax
credit carryforwards. The Company is included in the consolidated tax return
of Acme-Cleveland. Acme-Cleveland's policy, under its tax-sharing agreement,
is to allocate income taxes to its subsidiaries on a separate-return basis.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
C. INCOME TAXES--CONTINUED
Income taxes included in the statements of consolidated operations and retained
earnings are as follows:
DEFERRED
LIABILITY METHOD METHOD
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1995 1994 1993
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Federal:
Current $ 40 $ 0 $ 0
Deferred (40) 0 0
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0 0 0
State and local:
Current 5 0 0
Deferred (5) 0 0
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TOTAL $ 0 $ 0 $ 0
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At July 31, 1995, the Company had available for federal income tax purposes,
net operating loss carryforwards of $1,549 which expires in 2009, and a capital
loss carryforward of $669 which expires in 1996. The Company also has a $1,500
alternative minimum tax net operating loss carryforward which expires in 2009
and a $40 alternative minimum tax credit carryforward which can be carried
forward indefinitely.
A reconciliation of the statutory federal income tax rate and the effective
rate follows:
DEFERRED
LIABILITY METHOD METHOD
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1995 1994 1993
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Statutory federal income tax rate 34.0% 34.0% (34.0)%
Effect of:
Decrease in valuation allowance (33.6) (29.6) 0
Loss for which no current benefit is available 0 0 34.8
Other items (.4) (4.4) (.8)
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0% 0% 0%
==================== ===========
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
C. INCOME TAXES--CONTINUED
For 1993, the provision for deferred income taxes was based on the tax effects
of the differences in the timing of income and expense recognition between
financial reporting purposes and tax reporting purposes. The components of
deferred income taxes are summarized as follows:
Deferred
Method
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Health care $ 344
Inventory, depreciation, other employee benefits, and reserves
deducted for tax returns in periods different than for financial
reporting purposes (373)
Elimination of deferred items due to loss carryforwards 29
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$ 0
========
Components of the Company's deferred tax assets and liabilities as of July 31,
1995 and September 30, 1994 are as follows:
JULY 31, SEPT. 30,
1995 1994
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Deferred tax assets:
Postretirement benefits $ 9,063 $ 9,487
Pensions 2,442 2,287
Inventory 698 734
Compensation and other related accounts 386 329
Product liability 238 238
Workers' compensation 145 145
State and local property taxes 233 196
State and local temporary differences and loss
carryforwards, net of federal taxes 1,959 2,045
Federal net operating loss carryforward 527 1,170
Foreign tax credit carryforward 0 75
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
C. INCOME TAXES--CONTINUED
JULY 31, SEPT. 30,
1995 1994
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Alternate minimum tax credit carryforward 40 0
Capital loss carryforwards 227 312
Other 420 314
----------------------
Total deferred tax assets 16,378 17,332
Deferred tax liabilities:
Tax over book depreciation 175 186
Prepaid insurance 21 5
----------------------
Total deferred tax liabilities 196 191
Valuation allowance (16,137) (17,141)
----------------------
NET DEFERRED TAX ASSET $ 45 $ 0
======================
During 1994, the valuation allowance increased by $700 since the adoption of
SFAS No. 109 on October 1, 1993. During 1995, the valuation allowance
decreased by $1,004 due primarily to the utilization of net operating loss
carryforwards and the expiration of capital loss and foreign tax credit
carryforwards.
D. CREDIT AGREEMENTS AND BORROWINGS
The Company financed the construction of the Fremont facility with proceeds
received from the sale of Industrial Development First Mortgage Revenue Bonds
issued by state and local municipalities. In connection with this bond, the
Company entered into a lease agreement under which ownership of the facility
transferred to the state and municipalities. Since the Company has the right
to reacquire the facility for a nominal amount at the expiration of the lease
term, the transaction has been recorded as a capitalized lease obligation by
recording the facility and indebtedness as assets and liabilities of the
Company. Long-term debt represents the industrial revenue bonds with interest
rates ranging from 2.7% to 7.1% maturing in annual installments of $340 in 1995
and $365 in 1996.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
D. CREDIT AGREEMENTS AND BORROWINGS--CONTINUED
LONG-TERM CREDIT FACILITY
Acme-Cleveland has a credit agreement with certain banking institutions which
permit borrowings up to $12,000 (no amounts were outstanding at either July 31,
1995 or September 30, 1994). Related to this agreement, the banking
institutions have a first security interest in all domestic accounts
receivable, inventory and equipment of the Company.
E. PENSION AND PROFIT SHARING
The Company has non-contributory defined benefit plans covering most employees.
Plans sponsored by Acme-Cleveland for most salaried employees of the Company
provide pay-related benefits based on years of service. Plans for hourly and
certain salaried employees provide benefits based on flat-dollar amounts and
years of service. The Company complies with federal funding requirements.
Plan assets include marketable equity securities, money market funds, and other
fixed income securities.
A summary of the components of net periodic pension cost is as follows:
JULY 31, SEPTEMBER 30,
1995 1994 1993
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Service cost benefits earned during the period $ 373 $ 398 $ 374
Interest cost on projected benefit obligation 2,203 2,583 2,672
Actual return on plan assets (1,850) (120) (3,201)
Net amortization and deferral 344 (2,208) 787
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NET PENSION COST OF DEFINED BENEFIT PLANS $ 1,070 $ 653 $ 632
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
E. PENSION AND PROFIT SHARING--CONTINUED
The following table sets forth the funded status and amounts recognized in the
Company's balance sheet for its defined benefit plans:
JULY 31, SEPTEMBER 30,
1995 1994
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ACTUARIAL PRESENT VALUE
Vested accumulated benefit obligation $ 33,689 $ 33,081
===========================
Nonvested accumulated benefit obligation $ 1,039 $ 914
===========================
Projected benefit obligation $ 35,077 $ 34,078
Fair value of plan assets 27,201 26,116
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EXCESS OF PROJECTED BENEFIT OBLIGATION
OVER FAIR VALUE OF PLAN ASSETS 7,876 7,962
Unrecognized net asset at transition to
SFAS No. 87, net of amortization 150 156
Unrecognized net loss (6,564) (6,763)
Unrecognized prior service cost (166) (191)
Additional minimum liability 6,231 6,498
---------------------------
ACCRUED PENSION COST $ 7,527 $ 7,662
===========================
The following table sets forth the assumptions used to determine the projected
benefit obligation at July 31, 1995 and September 30, 1994:
Discount rate 7.75%
Rate of increase in future compensation levels 4.50%
Long-term rate of return on plan assets 9.00%
The Company's minimum additional pension liability of $6,231 and $6,498
consists of intangible assets of $173 and $215 and reductions of shareholder's
equity of $6,058 and $6,283 at July 31, 1995 and at September 30, 1994,
respectively.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements--Continued
E. PENSION AND PROFIT SHARING--CONTINUED
The Company has defined contribution retirement plans that cover its eligible
employees. The purpose of these defined contribution plans is generally to
provide additional financial security during retirement by providing employees
with an incentive to make regular savings. The Company's matching
contributions to the plans were $98, $98 and $79 in 1995, 1994 and 1993,
respectively.
F. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company provides health care
insurance benefits for certain of its retired employees.
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Under SFAS No.
106, the Company is required to accrue the estimated cost of retiree benefit
payments, other than pensions, during employees' active service period. The
Company previously expensed the cost of these benefits as claims were paid.
These costs were $2,362 in 1993.
The Company elected to recognize this change in accounting on the immediate
recognition basis. The cumulative effect of adopting SFAS No. 106 was an
increase in accrued postemployment benefits and a decrease in 1994 net earnings
of $24,343. Certain plan amendments to benefits and revisions to actuarial
assumptions made in 1994 reduced the actuarial present value of accumulated
plan benefits from $26,948 at September 30, 1994 to $18,999 at July 31, 1995.
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
F. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS--CONTINUED
In addition to the cumulative effect, the Company's 1995 and 1994
postretirement health care costs under the new method consisted of the
following components:
1995 1994
------------------------
Service cost benefits earned during the period $ 29 $ 42
Interest cost on accumulated postretirement benefit
obligations 1,196 2,040
Net amortization of items other than transition
obligation (661) 0
------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COSTS $ 564 $ 2,082
========================
The Company continues to fund these benefit costs on a pay-as-you-go basis,
with the retiree, in most instances, paying a portion of the costs.
Summary information for the Company's plans is as follows:
JULY 31, SEPT. 30,
1995 1994
---------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees $ 17,361 $ 25,164
Active participants eligible to receive benefits 397 514
Other active plan participants 1,241 1,270
---------------------------
18,999 26,948
Unamortized gain 7,565 836
---------------------------
TOTAL ACCRUED COST $ 26,564 $ 27,784
===========================
CURRENT PORTION OF ACCRUED COST $ 2,123 $ 2,917
===========================
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The National Acme Company and Subsidiary
Notes to Consolidated Financial Statements - Continued
F. NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS--CONTINUED
The discount rate used in determining the APBO was 7.75% in 1995 and 1994. The
assumed health care cost trend rate used in measuring the APBO was an average
of 12.25% in 1995 and 1994, declining to an ultimate rate of 6% in 2004 and
thereafter.
If the health care cost trend rate assumptions were increased by 1%, the APBO
as of July 31, 1995 would increase by 5%. The effect of this change on service
and interest cost for 1995 would be an increase of 4%, or approximately $50.
Effective October 1, 1993, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement establishes financial
accounting and reporting for the cost of benefits provided to former or
inactive employees after employment but before retirement. Prior to 1994, the
cost of such benefits was recorded at the time of the event giving use to the
benefit. The adoption resulted in a $119 cumulative effect charge to net
earnings.
G. LEASES
The Company leases certain machinery and equipment used in manufacturing and
warehousing operations.
Future minimum lease payments and non-cancelable operating leases with initial
or remaining terms of one year or more consisted of the following at July 31,
1995:
1996 $ 6
1997 1
-----
TOTAL MINIMUM LEASE PAYMENTS $ 7
=====
The total rental expense for all operating leases charged to operations was
$101, $131 and $141 in 1995, 1994, and 1993, respectively.
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(b) PRO FORMA FINANCIAL INFORMATION:
The following pro forma information is absed on historical balance sheet data of
the Company and National Acme as of July 31, 1995. The unaudited pro forma
combined results of operations for the three months ended October 31, 1995, and
for the year ended July 31, 1995, have been prepared based on the individual
statements of the Company and National Acme as if the Acquisition had taken
place on August 1, 1995 and 1994, respectively.
In preparing the unaudited pro forma results of operations and balance sheet
data, adjustments were made to the historical financial statements under the
assumptions set forth in the accompanying notes thereto. 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.
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Pro Forma Balance Sheet
As of July 31, 1995
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
(unaudited)
Cash $ 415 $ 2,663 ($ 2,660)a $ 418
Accounts receivable, net 11,148 4,993 16,141
Inventories, net 22,421 5,497 8,553 b 36,471
Receivable from affiliate - 4,099 (4,099)a -
Other current assets 2,337 77 2,414
------- ------- --------
Total current assets 36,321 17,329 55,444
Property, plant and equipment 6,876 2,317 5,336 c 14,529
Other assets 23,035 833 27,949 h 51,817
------- ------- --------
Total assets $66,232 $20,479 $121,790
======= ======= ========
Accounts payable $ 6,520 $ 2,099 $ 8,619
Accrued expenses and other
current liabilities 4,706 9,563 14,269
Revolving credit agreement 12,115 - 7,584 d 21,199
1,500 e
Current portion of long-term debt 2,149 340 600 d 3,089
------- ------- --------
Total current liabilities 25,490 12,002 47,176
Long-term debt 13,639 365 1,900 d 14,154
(1,750)f
Postretirement benefit obligation 5,022 24,510 (2,703)g 26,829
Other noncurrent liabilities 1,511 6,757 3,043 g 11,311
------- ------- --------
Total liabilities 45,662 43,634 99,470
Stockholders' equity
Common stock 123 - 123
Additional paid-in capital 32,299 65,552 (65,552)a 34,049
1,750 f
Excess purchase price over net
assets from the Services Group
acquisition (16,358) - (16,358)
Pension adjustment - (6,058) 6,058 g -
Retained earnings 4,663 (82,649) 82,649 a 4,663
Cumulative translation adjustment (157) - (157)
------- ------- --------
Total stockholders' equity 20,570 (23,155) 22,320
------- -------- --------
Total liabilities and stockholders'
equity $66,232 $20,479 $121,790
======= ======= ========
Assumptions used in pro forma balance sheet:
a Eliminate intercompany and equity accounts of National Acme.
b To adjust inventory values to estimated fair market values as of the
purchase and adjust estimated excess and obsolete reserves.
c To adjust property, plant and equipment to fair market value based on
appraisals.
d To record additional debt for the refinancing of the senior credit
agreement and for the purchase of National Acme and other refinancing and
acquisition costs.
e To accrue for the estimated purchase price adjustment.
f To record the issuance of stock purchase warrants valued at $1,750.
These warrants were recorded as additional discount to the subordinated
debt.
g To adjust postretirement benefit and pension obligations based on
actuarial estimates.
h To record excess of purchase price over assets acquired, deferred taxes,
non-compete agreement and closing costs. The deferred tax asset was
$10,115, calculated based on temporary differences related to National
Acme that are expected to reverse in the future, primarily the
postretirement benefit obligation and pension liability, offset by the
effects of LIFO inventory and other reserves, at a combined federal and
state tax rate of 39%.
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Pro Forma Results of Operations
For the Three Months Ended October 31, 1995
DeVlieg- National
Bullard, Inc. Acme Adjustments Combined
Net sales $21,375 $8,484 $29,859
Cost of sales 15,508 5,952 268 a 21,876
148 b
-------- ------ -------
Gross profit 5,867 2,532 7,983
Operating expenses 4,283 1,661 (138)c 5,806
-------- ------ -------
Operating profit 1,584 871 2,177
Litigation expense 2,600 - 2,600
Other (income)/expense 70 (42) 46 c 74
-------- ------ -------
Earnings before interest and taxes (1,086) 913 (497)
Interest expense 846 11 373 d 1,230
-------- ------ -------
Earnings before taxes (1,932) 902 (1,727)
Income taxes (812) - 86 e (726)
-------- ------ -------
Net income ($ 1,120) $ 902 ($1,001)
======== ====== =======
Income (loss) per common share ($0.08) ($0.07)
======== =======
Weighted average common shares
and equivalents outstanding 13,551 629 f 14,180
======== =======
Pro Forma Results of Operations
For the Twelve Months Ended July 31, 1995
DeVlieg- Adjust-
Bullard, Inc NationalAcme ments Combined
------------
10 months 2 months
Net sales $78,150 $30,675 $6,044 $114,869
Cost of sales 55,995 22,185 4,773 898 a 84,441
590 b
------- ------- ------ --------
Gross profit 22,155 8,490 1,271 30,428
Operating expenses 16,912 6,288 1,286 (550) c 23,936
------- ------- ------ --------
Operating profit 5,243 2,202 (15) 6,492
Nonrecurring item 1,500 - - 1,500
Other (income)/expense 338 (541) (174) 488 c 111
------- ------- ------ --------
Earnings before interest and taxes 3,405 2,743 159 4,881
Interest expense 2,594 42 12 1,600 d 4,248
------- ------- ------ --------
Earnings before taxes 811 2,701 147 633
Income taxes (582) - - (75) e (657)
-------- ------- ------ --------
Net income $ 1,393 $ 2,701 $ 147 $ 1,290
======= ======= ====== ========
Income (loss) per common share $ 0.11 $0.09
======= ========
Weighted average common shares
and equivalents outstanding 13,257 696 f 13,953
======= ========
Assumptions used in pro forma results of operations:
a To amortize intangible assets over their respective lives.
b To record additional depreciation expense on the write-up of property,
plant and equipment to their fair market values; real estate of $2,775
over 20 years, machinery and equipment of $4,057 over 20 years and
furniture and fixtures of $221 over 5 years.
c To eliminate intercompany charges from previous parent company and to
eliminate interest income.
d To record additional interest expense for the increases in debt balances
and the effects of refinancing the senior credit facility and the issuance
of the junior subordinated debentures. The interest amount was calculated
using the increase in borrowings for the acquisition ($10,487), plus
closing costs of approximately $1,000 at a rate of 9%. In addition, the
amount includes additional interest on the outstanding debt during all
periods presented at the higher rates provided for under the new senior
credit facility, as well as the impact of the rate increase on the junior
subordinated debentures, the amortization of the additional debt discount
and the amortization of various fees. A 1/8% change in the interest rates
would
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26
have changed the variable portion of interest expense by $7 and $27 for
the three months ended October 31, 1995 and twelve months ended July 31,
1995, respectively.
e To record tax expense on the results of operations of National Acme and
the above transactions.
f To record additional shares issued for stock purchase warrants.
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(C) EXHIBITS*:
2.1 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 of
the Company's Annual Report on Form 10-K for the year ended July 31,
1995.
10.1 Financing and Security Agreement dated October 23, 1995, between the
CIT Group/Business Credit, Inc. and DeVlieg-Bullard, Inc.
10.2 Revolving Loan Pomissory Note dated October 23, 1995, in the principal
amount of $5,000,000 between the CIT Group/Business Credit, Inc. and
Devlieg-Bullard, Inc.
10.4 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.
10.5 Debenture in the original principal amount of $2,500,000 issued October
23, 1995, by DeVlieg-Bullard, Inc., to Charles E. Bradley, Sr.
10.6 Debenture in the original principal amount of $1,500,000 issued October
23, 1995, by DeVlieg-Bullard, Inc., to John G. Poole
10.7 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
10.8 Class B Stock Purchase Warrant issued by DeVlieg-Bullard, Inc. dated
October 23, 1995, to PNC Capital Corp. (the "PNC 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.
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10.9 Class C Stock Purchase Warrant issued by DeVlieg-Bullard, Inc. dated
October 23, 1995, to PNC Capital Corporation (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
------ ------------------
Charles E. Bradley, Sr. 156, 250
John G. Poole 93,750
Banc One Capital Partners Corporation 250,000
10.10 Credit Support Agreement dated October 23, 1995, between DeVlieg-
Bullard, Inc., and CPS Holdings, Inc.
10.11 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.
- -----------
* Previously filed.
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SIGNATURES
Pursuant to the requirements 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.
DeVlieg-Bullard, Inc.
----------------------
(Registrant)
Date: June 23, 1977 By: /s/ Lawrence M. Murray
---------------- ----------------------
Vice President and Chief
Financial Officer
29