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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: SEPTEMBER 27, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4817
BOWMAR INSTRUMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 35-0905052
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
5080 NORTH 40TH STREET, SUITE 475 85018
PHOENIX, ARIZONA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 602/957-0271
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, WITHOUT PAR VALUE AMERICAN STOCK EXCHANGE
(STATED VALUE $.10 PER SHARE)
$3.00 SENIOR VOTING CUMULATIVE CONVERTIBLE AMERICAN STOCK EXCHANGE
PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 15, 1997, the aggregate market value of the Registrant's Common
Stock and Preferred Stock held by non-affiliates (based upon the closing price
of the shares on the American Stock Exchange on December 15, 1997) was
approximately $14,221,000.
On December 15, 1997 6,674,492 shares of the Registrant's Common Stock and
119,906 shares of the Registrant's Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement prepared in connection with the 1998
Annual Meeting of Shareholders are incorporated by reference into PART III of
this Annual Report.
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TABLE OF CONTENTS
PART I
PAGE
----
Item 1 Business
Forward Looking Statements and Associated Risks............................... 2
General....................................................................... 2
Narrative Description of Business............................................. 2
Recent Developments........................................................... 2
Microelectronic Circuits and Components....................................... 3
Microelectronic Segment Review................................................ 3
Electromechanical and Mechanical Equipment and Components..................... 4
Electromechanical Segment Review.............................................. 4
Principal Customers........................................................... 5
Research, Engineering and Development......................................... 5
Regulatory Matters............................................................ 5
Employees..................................................................... 6
Executive Officers of the Company............................................. 6
Item 2 Properties.................................................................... 7
Item 3 Legal Proceedings............................................................. 7
Item 4 Submission of Matters to a Vote of Security Holders........................... 7
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters..... 8
Item 6 Selected Financial Data....................................................... 8
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 9
Item 8 Financial Statements and Supplementary Data................................... 11
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 11
PART III
Item 10 Directors and Executive Officers of the Registrant............................ 11
Item 11 Executive Compensation........................................................ 12
Item 12 Security Ownership of Certain Beneficial Owners and Management................ 12
Item 13 Certain Relationships and Related Transactions................................ 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 12
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PART I
ITEM 1 BUSINESS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for the historical information contained herein, certain matters
discussed in this document contain forward-looking statements. The words
"believe", "expect" and "anticipate" identify forward-looking statements which
speak only as of the date the statement is made. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risk and uncertainties, some of which cannot be predicted or
quantified and are beyond the Company's control. Potential risks and
uncertainties include but are not limited to such factors as the ability of the
Company to identify a potential buyer for the Technologies division and to
conclude a beneficial agreement in a timely fashion, the ability of the Company
to conclude such a sale without substantial disruption to the business of the
Technologies division, demand for the products of the White Microelectronics
division, the ability of the Company to penetrate successfully the commercial
market for microelectronic products, demand for microelectronic products
generally, industry competitiveness, reductions in price and other risks of
doing business generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this document
will in fact transpire or prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
GENERAL
Bowmar Instrument Corporation ("Bowmar") was incorporated in the State of
Indiana in 1951. Bowmar and its subsidiaries (hereinafter referred to
collectively as the "Company") manufacture and sell microelectronic and
electromechanical products. The Company manufactures and sells electromechanical
and mechanical equipment and components, which include electromechanical display
devices, electromechanical components and packages, turnkey interface systems,
electromechanical packages and systems and microelectronic circuits and
components, which include high density solid state memory modules and
microprocessor modules and multichip modules.
NARRATIVE DESCRIPTION OF BUSINESS
RECENT DEVELOPMENTS
Acting upon the recommendations of management, on December 4, 1997, the Board of
Directors determined to implement a series of actions designed to strategically
reposition the Company, reduce Corporate overhead and realign management. The
Board of Directors has concluded that these steps are in the best interest of
the Company and its shareholders.
First, the Board of Directors has determined to seek a buyer for the Company's
Technologies division in Ft. Wayne, Indiana. Although the Company has received
several unsolicited inquiries from third parties interested in acquiring the
division, it is not yet in serious discussions with any particular potential
buyer. Changes over the past few years in U.S. defense spending have had a
negative impact on the Technologies division. The Company has sought to minimize
that negative impact by pursuing commercial business for the division. Although
in fiscal 1997 the Technologies division made progress by substantially
increasing its new business bookings in the third and fourth quarters of the
year, the rapid growth in business during that time strained the division's
capacities. New personnel hired to handle the increased demand drove up costs.
As a result, the division experienced a $51,000 pre-tax loss for the year.
Meanwhile, the Company's White Microelectronics division has continued to grow.
The division's sales for fiscal 1997 were almost 18% over sales for fiscal 1996.
Gross margin in the Microelectronics division also increased 15% over fiscal
1996. Changes in U.S. defense spending have not had the same adverse effect on
the Microelectronics division because of the nature of its products and its
competitive advantages in the military niche market that it services.
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The Company has retained an investment advisor to assist it in its efforts to
sell the Technologies division. There can be no assurance that the Board of
Directors will be able to identify a suitable buyer, or any buyer at all, or
that if a sale is concluded it will be on terms and conditions advantageous to
the Company.
In light of the decision to sell the Technologies division, the Board of
Directors concluded that the Company could realize additional overhead savings
by closing the Company's Corporate headquarters in Phoenix, Arizona as soon as
reasonably possible, but in any event by the end of January, 1998. The Company
will operate exclusively out of the new White Microelectronics division facility
also located in Phoenix, Arizona.
The Board of Directors believes that these steps will result in a strategic
repositioning of the Company as a pure Microelectronics company, focused
exclusively on that segment of the business which has demonstrated the greatest
probability of long-term success. The Company's President and Chief Executive
Officer, Tom Lanin, has submitted his resignation effective January 2, 1998. The
Board has determined to appoint Hamid Shokrgozar, the White Microelectronics
division's current President, as President and CEO of the Company. Mr. Lanin
will remain with the Company in his capacity as a Director, serving on the Board
of Directors through his current term. Management expects to nominate Mr. Lanin
for reelection to the Board in fiscal 1998. Mr. Lanin also will remain available
to the Company to facilitate the transition and to assist Mr. Shokrgozar as he
assumes his duties.
MICROELECTRONIC CIRCUITS AND COMPONENTS
The products designed, manufactured and sold by the Company in its
microelectronic division (also referred to as the White Microelectronics
division) include high density, solid state memory products and microprocessor
circuits in both monolithic and modular form (multichip modules) for use in
commercial, industrial and military markets in U.S. and abroad.
High Density, Solid State Memory and Microprocessor Modules
The Company designs and manufactures high density, solid state memory modules
and microprocessor microcircuits. The memory modules are designed specifically
for use in adverse environmental conditions. They are designed to provide larger
amounts of mass memory, space reduction and faster data processing speeds. They
are used in both military and commercial applications and include static RAM
modules (SRAM), electronically erasable PROM modules (EEPROM), and Flash PROM
modules. The family of microprocessor modules supports the development of highly
complex systems including application-specific analog, mixed analog-digital and
logic functions. These products are designed to serve state-of-the-art high end
industrial and military markets and are intended to be used in portable, mobile
land-based, airborne and naval applications as well as high end data
communication and data processing systems.
Multichip Modules
The Company designs and manufactures highly reliable, compact multichip modules
(MCM's). Multichip modules are used as components in a broad spectrum of
electronic devices where circuit reliability and size reduction is important. A
multichip module is a packaging technique that places several semiconductor
chips, interconnected with a high density substrate, into a compact package.
These can be designed to perform a wide variety of electronic functions, such as
amplifiers, regulators, switches, data converters, oscillators and decoders.
They are sold to original equipment manufacturers serving principally the
military market, as well as the aerospace, medical and high temperature markets.
MICROELECTRONIC SEGMENT REVIEW
The products designed, manufactured, and sold by the Company in its
microelectronic segment are sold to private industry and to the United States
and foreign governments both through Company sales personnel and independent
sales representatives and distributors. In a time of strong demand for memory
and microprocessor products, as at present, sources of supply of IC (integrated
circuit) die and other components may be constrained and subject to shortages. A
multichip module manufacturer's ability to compete is heavily dependent on its
ability to maintain access to steady sources of supply. To address these needs,
the Company
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has maintained strong relationships with leading semiconductor fabricators in
the United States and the far east. The Company has no specific long-term
contractual arrangement with its vendors. None of the business of the
microelectronic segment is seasonal. The Company does not provide extended
payment terms to its customers. Products in the microelectronic segment are sold
under a standard one year warranty and may be returned for repair or replacement
during the warranty period.
The backlog for products was approximately $10,967,000 and $9,444,000, at the
end of fiscal years 1997 and 1996, respectively. Approximately 99% of the
segment's fiscal 1996 backlog was shipped during fiscal 1997. Approximately 93%
percent of the fiscal 1997 year-end backlog is expected to be shipped during
fiscal 1998.
Management believes that the key competitive factors are product reliability,
the ability to meet delivery schedules and price. The Company competes with
numerous other companies, many of which have greater financial strength and
technical and marketing resources than does the Company. It is not possible to
predict the extent of competition which present or future activities of the
Company in this segment will encounter because of changing competitive
conditions, government requirements, technological developments and other
factors.
ELECTROMECHANICAL AND MECHANICAL EQUIPMENT AND COMPONENTS
The products designed, manufactured and sold by the Company in its discontinued
electromechanical segment (also referred to as the Technologies division)
include electromechanical components and packages, electromechanical display
devices, electronic display devices, interface systems including keyboards and
related sub-systems.
Electromechanical Components and Packages
The Company's electromechanical components and instrument packages consist of
rotating devices, including gearheads, mechanical counters, dial drives,
mechanical packages and related devices. Specific applications for these
products include controls for automatically tuning airborne radio transmitters
and receivers, controls for fuel flow in jet engines and selected automatic
flight control servomechanisms. These products are sold principally to aircraft
instrument manufacturers as information displays in aerospace and ground
equipment.
Electromechanical Display Devices
The Company also produces digital displays which permit a more accurate readout
of information than is feasible with analog meters. These include display
devices which respond electromagnetically to electronic input signals, thus
eliminating mechanical transmission delays. These products are sold primarily to
aircraft instrument manufacturers.
Turnkey Interface Systems
The Company designs and manufactures, to customer specification, a variety of
keyboard assemblies for commercial and military applications. The Company has
the capability of meeting demanding requirements such as backlighting to meet
night vision goggle (NVG) compatibility, adverse environments, and the
integration of displays, including LCD's, and microprocessor technology.
Electromechanical Packages and Systems
The Company designs and manufacturers complex specialized systems used in
interface control of cable handling systems aboard submarines and antenna
control systems in satellite communications systems. These products are sold
directly to the U.S. Government or to U.S. Government prime contractors.
ELECTROMECHANICAL SEGMENT REVIEW
The customers for the products of the electromechanical segment include original
equipment manufacturers, primarily in the aerospace industry and agencies of the
U.S. Government. The materials, products and services
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used by the Company to manufacture its products in the electromechanical segment
are readily available from a variety of sources. None of the business of the
electromechanical segment is seasonal.
Neither the needs of the Company for a continuing allotment of goods from its
suppliers nor the requirements of its customers for the products of the
electromechanical segment require the carrying of finished goods inventory. In
its purchase of components (some of which must be ordered months in advance),
the Company has not encountered, and does not anticipate encountering any
significant difficulty. The Company does not provide extended payment terms to
its customers. Products are sold under a standard one year warranty and may be
returned for repair or replacement during the warranty period.
The electromechanical segment backlog was approximately $6,049,000 and
$2,226,000, at the end of fiscal years 1997 and 1996, respectively.
Approximately 99% percent of this segment's 1996 backlog was shipped during
fiscal 1997. Approximately 87% percent of the fiscal 1997 year-end backlog is
expected to be shipped during fiscal 1998.
Management believes that price, product reliability and the ability to meet
delivery schedules are the key competitive factors. Many of the Company's
competitors in this segment are larger and have greater financial resources,
larger technical and marketing resources and different technologies than the
Company. It is not possible to predict the extent of competition which present
or future activities of the Company in this segment will encounter because of
changing competitive conditions, government requirements, technological
developments and other factors.
PRINCIPAL CUSTOMERS
In fiscal 1997 no single customer sales accounted for 10% of the Company's
sales. The majority of the Company's sales are made to the U.S. Government or to
U.S. Government prime contractors. These contracts can be for relatively large
dollar amounts, sometimes calling for deliveries over more than one year. The
award of new contracts or the expiration of old contracts could have a
significant short-term impact on sales and operating results.
RESEARCH, ENGINEERING AND DEVELOPMENT
Current research and product development activities are directed primarily
toward the improvement of existing standard products while some projects are
focused on the development of new products or processes. The Company devotes
minimal resources to pure research and development, but emphasizes the
application of its engineering expertise to the development and refinement of
proprietary products or technologies. Expenditures by the Company on research
and product development for fiscal years 1997, 1996 and 1995 amounted to
approximately $480,000, $423,000, and $362,000 for continuing operations
respectively and $130,000, $157,000 and $450,000 from discontinued operations
respectively. The Company principally utilizes its engineering staff in its
research and product development efforts.
REGULATORY MATTERS
Government Contracting Regulation
Most of the Company's business is derived from subcontracts with prime
contractors of the U.S. Government. As a U.S. Government subcontractor, the
Company is subject to Federal Government contracting regulation. Under these
regulations, the U.S. Government is entitled for three years after final payment
on certain negotiated contracts or contract modifications to examine all of the
Company's cost records with respect to such contracts to determine whether the
Company furnished complete, accurate and current cost or pricing data to the
Government in connection with the negotiation of the price of the contract or
modification. The U.S. Government also has the right after final payment to seek
a downward adjustment to the price of a contract or modification if it
determines that the contractor failed to disclose complete, accurate and current
data.
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In addition, the Federal Acquisition Regulation governs the allowability of
costs incurred by the Company in the performance of U.S. Government contracts to
the extent that such costs are included in its proposals or are allocated to its
U.S. Government contracts during performance of those contracts.
The Company's subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the contractor is
normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract and an
allowance for profit on the allowable costs incurred or adjustment for loss if
completion of performance would have resulted in a loss. In addition, the
Company's subcontracts provide for termination for default if the Company fails
to perform or breaches a material obligation. In the event of a termination for
default, the customer may have the unilateral right at any time to require the
Company to return unliquidated progress payments pending final resolution of the
propriety of the termination for default. The Company may also have to pay the
excess, if any, of the cost of purchasing a substitute item from a third party.
If the customer has suffered other ascertainable damages as a result of a
sustained default, the customer could demand payment of such damages by the
Company.
In connection with the Company's U.S. Government business, the Company also is
subject to Government investigations of its policies, procedures and internal
controls for compliance with procurement regulations and applicable laws. The
Company may be subject to downward contract price adjustments, refund
obligations or civil and criminal penalties. In certain circumstances in which a
contractor has not complied with the terms of a contract or with regulations or
statutes, the contractor might be debarred or suspended from obtaining future
contracts for a specified period of time. Any such suspension or debarment of
the Company could have a material adverse effect on the Company's business.
It is the Company's policy to cooperate with the Government in any
investigations of which it has knowledge, but the outcome of any such Government
investigations cannot be predicted with certainty. In the opinion of management
of the Company, it has complied in all material respects with applicable
government requirements.
Environmental Protection
Compliance with federal, state and local laws or regulations which govern the
discharge of materials into the environment has not had a material adverse
effect upon the capital expenditures, earnings or competitive position of the
Company.
EMPLOYEES
As of September 27, 1997, the Company employed 226 persons. Of such employees,
115 were employed in the microelectronic segment, 106 in the electromechanical
segment and 5 were employed on the corporate staff. A total of 66 of the
Company's employees in the electromechanical segment were employed pursuant to
collective bargaining agreements covering workers at the Company's Technologies
division in Fort Wayne, Indiana. This agreement will expire on November 15,
1998. The Company believes its labor relations are satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages, positions and business experience of all of the executive
officers of Bowmar are listed below. Officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the Annual
Meeting of Shareholders and serve until the next annual election or until their
successors have been elected and qualified or as otherwise provided in the
Company's By-Laws.
There are no family relationships between any of the directors and executive
officers of the Company, nor any arrangement or understanding between any such
executive officer and any other person pursuant to which he was elected as an
executive officer.
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NAME, AGE & POSITION BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
- ------------------------------------------ ------------------------------------------------
Thomas K. Lanin, 54....................... Elected President and Chief Executive Officer on
President and Chief Executive Officer June 2, 1995. Served as Vice President Finance
and Chief Financial Officer from March 1987 to
June 1995, and Secretary and Treasurer from
April 1987. Elected as a Director of the Company
in July 1988.
Edward A. White, 69....................... Elected Chairman of the Board of the Company on
Chairman of the Board October 22, 1983. Served as Chief Executive
Officer from October 22, 1983 to January 31,
1992 and as President from July 31, 1987 until
December 10, 1990.
Joseph G. Warren, Jr., 52................. Elected Vice President Finance and Treasurer on
Vice President Finance, Treasurer, July 12, 1995. From 1994 to 1995 served as Vice
Chief Financial Officer, Secretary President Finance & Chief Financial Officer of
Axxess Technologies, Inc. From 1993 to 1994
served as Secretary Treasurer and Vice President
of Golden Technologies, Inc. From 1992 to 1993
served as President of Coors Ceramicon Designs,
Ltd., and from 1985 to 1992 served as Vice
President Finance of Coors Ceramics Company.
ITEM 2 PROPERTIES
The following table sets forth the information as to the Company's principal
properties:
LOCATION APPROXIMATE SIZE TYPE OF OWNERSHIP OPERATION/FUNCTION
- --------------------------- --------------------- ---------------------- ---------------------
Ft. Wayne, IN.............. 75,000 sq. ft (plus Owned Manufacture of
10 acres of vacant electromechanical and
land adjacent mechanical equipment
thereto) and components
Phoenix, AZ................ 28,000 sq. ft Lease (expired 10/97) Manufacture of
microelectronic
circuits and
components
Phoenix, AZ................ 53,000 sq. ft. Lease (expires Manufacture of
7/31/2007) microelectronic
circuits and
components
Phoenix, AZ................ 2,900 sq. ft. Lease (expires 3/98) Corporate executive
office
Acton, MA.................. 80,000 sq, ft. Owned Held for sale
Management considers these properties to be well maintained and adequate for
their use. See Note 6 to the Consolidated Financial Statements in this Annual
Report for description of the mortgages and liens on these properties.
ITEM 3 LEGAL PROCEEDINGS
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Government. The investigation is centering on the
interpretation of certain Government contract specified testing requirements on
incoming material. The Company is cooperating fully with the investigation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock and $3.00 Preferred Stock are traded on the American
Stock Exchange under the symbols BOM and BOM.PR, respectively. See Note 18 to
the Consolidated Financial Statements in this Form 10-K for the high and low
sales prices for each of the Common Stock and $3.00 Preferred Stock over the
last two fiscal years.
As of December 18, 1997, there were approximately 5,555 holders of record of the
Company's Common Stock and approximately 782 holders of record of the Company's
$3.00 Preferred Stock. The Company has not paid cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
intends to retain all earnings to provide funds for the operation and expansion
of its business. One of the Company's credit agreements precludes the payment of
cash dividends for both preferred and Common Stock in excess of $500,000 per
year. Another agreement prohibits all dividends. This prohibition has been
waived through October 3. 1998.
ITEM 6 SELECTED FINANCIAL DATA
FISCAL YEAR
-------------------------------------------------------
OPERATIONS: 1997 1996 1995 1994 1993
- --------------------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Net sales.............................. $22,189 $18,840 $18,067 $17,986 $ 7,577
-------- -------- -------- -------- --------
- - - - -
Gross margin........................... $ 9,020 $ 7,838 $ 7,388 $ 6,448 $ 1,989
-------- -------- -------- -------- --------
- - - - -
Income (loss) from continuing $ 2,119 $ 2,056 $ 1,554 $ 1,440 $(1,685)
operations before income taxes (Note
1)...................................
-------- -------- -------- -------- --------
- - - - -
Weighted average number of common:
shares and equivalents -- primary.... 6,662,285 6,564,987 6,615,241 6,554,441 6,236,590
--------- --------- --------- --------- ---------
shares and equivalents -- fully 8,214,708 8,156,853
diluted (Note 2)..................
------- -------
Income (loss) per common share:
Continuing operations -- primary..... $ 0.14 $ 0.14 $ 0.57 $ 0.16 $ (0.33)
Continuing operations -- fully $ 0.50 $ 0.17
diluted (Note 2)..................
-------- --------
- -
Net income per share -- primary........ $ 0.02 $ 0.14 $ 0.54 $ 0.28 $ 0.06
Net income per share -- fully diluted $ 0.48 $ 0.27
(Note 2).............................
-------- --------
- -
Financial Positions (at year end):
Working capital...................... $ 9,822 $ 8,502 $ 6,889 $ 5,209 $ 3,817
Total assets......................... $21,509 $16,538 $17,432 $13,783 $10,910
Long-term debt....................... $ 4,546 $ 3,675 $ 3,992 $ 4,617 $ 5,078
- ---------------
Note 1 -- See footnote 16 of the Consolidated Financial Statement provided
elsewhere herein for discussion of discontinued operations.
Note 2 -- In 1997,1996 and 1993, fully diluted net income per share is
considered to be the same as primary net income per share since the
effect of the potentially dilutive convertible preferred is
antidilutive.
Note 3 -- No dividends have been declared or paid on Bowmar common shares. There
were 5,555 holders of record of Bowmar common stock on December 18,
1997.
This table should be read in conjunction with the Consolidated Financial
Statements provided elsewhere herein.
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document contain forward-looking statements. The words
"believe", "expect" and "anticipate" identify forward-looking statements which
speak only as of the date the statement is made. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risk and uncertainties, some of which cannot be predicted or
quantified and are beyond the Company's control. Potential risks and
uncertainties include but are not limited to such factors as the ability of the
Company to identify a potential buyer for the Technologies division and to
conclude a beneficial agreement in a timely fashion, the ability of the Company
to conclude such a sale without substantial disruption to the business of the
Technologies division, demand for the products of the White Microelectronics
division, the ability of the Company to penetrate successfully the commercial
market for microelectronic products, demand for microelectronic products
generally, industry competitiveness, reductions in price and other risks of
doing business generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this document
will in fact transpire or prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
Introduction
As previously disclosed, the Board of Directors has determined to implement a
series of actions expected to strategically reposition the Company, reduce
corporate overhead and realign management. See Part I, Item 1,
"Business -- Recent Developments," above. First, the Board of Directors has
determined to seek a buyer for the Company's Technologies division. Although the
Company has received several unsolicited inquiries from third parties interested
in acquiring the division, it is not yet in serious discussions with any
particular potential buyers. The Company has retained an investment advisor, to
assist in its efforts to sell this division. There can be no assurance that the
Board of Directors will be able to identify a suitable buyer, or any buyer at
all, or that if a sale is concluded it will be on terms and conditions
advantageous to the Company.
Second, the Board of Directors determined to close the Company's corporate
headquarters in Phoenix, Arizona as soon as reasonably possible, but in any
event by the end of January, 1998. The Company will operate exclusively out of
the new White Microelectronics division facility also located in Phoenix,
Arizona.
Third, the Company's President and Chief Executive Officer, Tom Lanin, has
submitted his resignation effective January 2, 1998. The Board has determined to
appoint Hamid Shokrgozar, the White Microelectronics division's current
president, as President and CEO of the Company. Mr. Lanin will remain with the
Company in his capacity as a Director. Mr. Lanin also will remain available to
the Company to facilitate the transition and to assist Mr. Shokrgozar as he
assumes his new duties.
Based on the decision to sell the Technologies division, the division has been
accounted for as a "discontinued operation". Accordingly, a $1.3 million reserve
for anticipated losses and the cost of disposition was recorded in the fourth
quarter of fiscal 1997. In addition, the Company estimates that the changes
associated with the closing of the corporate office and related severance
payments will result in a net charge to earnings during the first quarter of
fiscal 1998 of approximately $340,000. The following discussion takes into
account the treatment of the Technologies division as a discontinued operation.
Results of Operations
Fiscal 1997, 1996 and 1995 net sales attributable to the microelectronics
division were $22,189,000, $18,840,000 and $18,067,000 respectively. The
increase in net sales between fiscal 1997 and 1996 was caused by the initial
stocking orders for distributors in the second quarter, increased custom orders
in the fourth quarter, and new products which were introduced in the prior year.
The increase in net sales from 1995 to 1996 was the result of an increase in the
standard military memory product line partially offset by a decrease in custom
military products.
9
11
The Company continues to believe that changes in U.S. defense spending will not
have a material adverse effect on the Company's overall results, particularly on
the White Microelectronics division. In 1997, the Company nevertheless continued
to pursue its goal of reduced dependency on the defense industry by pursuing
commercial business while emphasizing niche military markets where it has a
competitive advantage.
Gross margins in the microelectronics division were approximately $9.0 million
or 40.7% as compared to $7.8 million or 41.6% in the prior fiscal year. The
increase in gross margin dollars was due to the increased sales. The 0.9%
decline in the gross margin percentage was a result of strong downward pressure
on pricing brought about by a very competitive market which the Company expects
will continue in fiscal 1998. Gross margins in fiscal 1996 for this division
were approximately 41.6% as compared to $7.3 million or 40.9% in fiscal 1995.
The increase was due to improved margins in the standard military memory product
line.
Selling, general and administrative expenses in fiscal 1997 were 9.5% above 1996
expenses. The main reason for the increase was an increase in advertising and
sales commissions relating to the increased sales volume. Legal expenses also
increased in 1997 primarily as a result of the investigation by the U.S.
Attorney's office as discussed in Item 3. The remainder of the increase in
selling, general and administrative expense was attributed to higher payroll
related expenses due to the increased number of employees. The 1996 selling,
general and administrative expenses approximated the 1995 expenses.
Product development expense in fiscal 1997 increased by $57,000 or 13.5% from
1996. The main reason for the increase was the additional spending on developing
a microprocessor module in conjunction with the Diehl business development
alliance. 1996 product development expense was $61,000 higher than 1995 due to
increased spending on new products in fiscal 1996.
Interest expense in fiscal 1997 declined as a result of both lower rates and
decreased average borrowing levels as compared to 1996. This also explains the
lower interest expense in fiscal 1996 as compared to fiscal 1995.
Other expense in fiscal 1997 consists primarily of a one time $425,000
write-down on the Company's Acton, Massachusetts property held for sale. The
building is currently under contract for sale, and as a result of the write-down
the Company anticipates no further loss on the sale. However, the loss of rental
income from this property will lower other income by approximately $120,000 for
the first quarter of fiscal 1998 as compared to the same quarter in 1997. Until
the building is sold, it is anticipated that the cost of maintaining the
building and the related taxes will be $45,000 per quarter. The offsetting other
income is attributed to the proceeds from the Acton leased facility until lease
expiration in February, 1997 and a $91,000 gain on the sale of a stock
investment by the Company. There was no significant difference in other income
between fiscal 1996 and 1995.
The Company is subject to the alternative minimum tax which, when combined with
state taxes, and deferred taxes resulted in a tax provision (benefit) from
continuing operations of $786,000, $784,000, and $(2,556,000) in fiscal years
1997, 1996, and 1995, respectively.
Financial Condition, Capital Resources and Liquidity
Fiscal year-end 1997 working capital increased to $9,822,000 from $8,502,000 at
September 28, 1996. Changes in the components of working capital are detailed in
the Company's Consolidated Statements of Cash Flows. The Company's current ratio
at fiscal year-end 1997 is approximately 2.3 to 1. Its total debt-to-equity
ratio improved to approximately 1.3 to 1.
The Company's capital expenditure plans are principally to expand manufacturing
capacity and are expected to be financed largely through leasing arrangements
and, to a lesser extent, through funds provided from operations.
Management believes that cash generated by operations, in addition to the
Company's borrowing capability, should be sufficient to fund the Company's cash
needs for the foreseeable future.
In fiscal 1997 and 1996, the Company generated $1,295,000 and $309,000
respectively of cash from operating activities. Management anticipates that
operations will continue to generate cash in the foreseeable future.
10
12
Management also anticipates that for the near term its cash payments for Federal
income taxes will be based on rates applicable to the alternative minimum tax as
it uses its net operating loss carryforwards.
The Company has reviewed the effect of the year 2000 on its various systems.
Management has devised and is implementing a plan to ensure that this problem
does not affect the operations of the Company. The plan consists of both
modifying existing systems and implementing new systems where there are
additional factors that would warrant a new system, it is not anticipated that
the costs related to resolving this issue will be material.
Discontinued Operations
The $846,000 decline in sales between fiscal 1997 and 1996 is a result of the
sale of the Rapid Heat Sterilizer (RHT) and ordnance product lines in late
fiscal 1996 which was partially offset by an increase in mechanical products.
The $2,325,000 decline in sales when fiscal 1996 is compared to fiscal 1995 was
a result of declines in sales in the ordnance and RHT product lines, which were
sold in the fourth quarter of fiscal 1996. Interface product sales also declined
as a result of increased competition.
Gross margin dollars in fiscal 1997 were only slightly lower than fiscal 1996,
even though sales declined 13%. This was a result of improved product mix and
improved efficiency in the manufacturing process. Gross margin dollars declined
in fiscal 1996 as compared to fiscal 1995 as a result of decreased sales, which
were partially offset by improved product mix in the latter part of fiscal 1996.
Operating expenses increased $97,000 in fiscal 1997 as compared to fiscal 1996,
which was primarily due to increased sales and marketing expenses related to an
effort to increase bookings. The $1,198,000 decrease in fiscal 1996 from fiscal
1995 was a result of write-offs in fiscal 1995 related to the RHT product line
and lower costs in fiscal 1996 as a result of lower sales and cost reduction
efforts.
Product development decreased significantly in fiscal 1996 as compared to fiscal
1995 because the product development expenses related to the RHT and the dental
market were curtailed in fiscal 1996.
In addition to the previous expenses in the fourth quarter of fiscal 1997 a
$1,300,000 reserve was recorded for costs associated with the sale of the
Technologies division. This amount includes $600,000 for estimated future
operating losses during the phase out period. The actual performance of the
discontinued operation may be different than management estimates.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Annual Report for required financial statements and
supplementary data.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item for directors is set forth in the
Company's 1997 Proxy Statement under the heading "Election of Directors" and the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by this reference as if set forth in full. The information
required by this Item for Executive Officers of the Company is set forth in Part
I of this Form 10-K as a separate item following Item 1 entitled "Executive
Officers of the Company."
11
13
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Executive Compensation" and is incorporated herein
by this reference as if set forth in full.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Principal Shareholders" and under the heading
"Election of Directors-Nominees" and is incorporated herein by this reference as
if set forth in full.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Certain Transactions" and under the heading
"Compensation Committee Interlocks and Insider Participation" and is
incorporated herein by this reference as if set forth in full.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Consolidated Financial Statements
14
Report of Independent Accountants..........................................
15
Consolidated Balance Sheets as of September 27, 1997 and September 28,
1996.....................................................................
16
Consolidated Statements of Income for the Years Ended September 27, 1997,
September 28, 1996 and September 30, 1995................................
17
Consolidated Statements of Shareholders' Equity for the Years Ended
September 27, 1997, September 28, 1996 and September 30, 1995............
18
Consolidated Statements of Cash Flows for the Years Ended September 27,
1997, September 28, 1996 and September 30, 1995..........................
19
Notes to Consolidated Financial Statements.................................
Financial Statement Schedules for the Years Ended September 27, 1997,
September 28, 1996 and September 30, 1995.
Financial statement schedules have been omitted because either they are not
required or are not applicable, or because the information has been included in
the consolidated financial statements or notes thereto.
(a)(3) EXHIBITS
EXHIBIT
NUMBER
- ----------
3.1 Amended and Restated Articles of Incorporation. (Previously filed as Exhibit A to
the Registrant's definitive Proxy Statement prepared in connection with the 1993
Annual Meeting of Shareholders, which is incorporated herein by reference.)
3.2 Amended and Restated Code of By-Laws, as further amended on December 4, 1997.*
4.1 Indenture, Bowmar Instrument Corporation 13 1/2% Convertible Subordinated
Debentures due December 15, 1995. (Previously filed as Exhibit 4.4 to the
Registration Statement on Form S-7, File No. 2-70025, on November 25, 1980, which
is incorporated herein by reference.)
4.2 Amended and Restated Articles of Incorporation. (See Exhibit 3.1 above.)
12
14
EXHIBIT
NUMBER
- ----------
4.3 Rights Agreement, dated as of December 6, 1996 between Bowmar Instrument
Corporation and American Stock Transfer and Trust Corporation. (Previously filed
as Exhibit 5C to the Form 8-K filed by the Registrant on December 19, 1996, which
is incorporated herein by reference).
10.1(b) Lease dated February 23, 1990, by and between Bowmar/Ali, Inc. as landlord and
LAU Acquisition Corporation as tenant. (Previously filed as Exhibit 10.1(bb) to
the Registrant's Annual Report of Form 10-K for the fiscal year ended September
30, 1990, which is incorporated herein by reference.)
**10.1(d) Employment agreement dated August 15, 1991, as amended as of August 15, 1992, and
as of June 1, 1995 between Gardiner S. Dutton and Bowmar Instrument Corporation.
(The first two having been previously filed as Exhibit 10.1(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1992, and the last having been filed as Exhibit 5(b) to Form 8-K dated June 26,
1995, all which are incorporated herein by reference.)
**10.2(a) Form of Incentive Stock Option Agreement covering incentive stock options granted
under the Corporation's now terminated 1986 Plan, as amended October 23, 1987.
(Previously filed as Exhibit 10.2(c) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1987, which is incorporated herein
by reference.)
**10.2(b) Form of Non-Incentive Stock Option Agreement covering non-incentive stock options
granted under the Corporation's now terminated 1986 Plan, as amended October 23,
1987. (Previously filed as Exhibit 10.2(c) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1987, which is incorporated
herein by reference.)
**10.2(c) Bowmar Instrument Corporation Stock Option Plan for Non-Employee Directors as
amended February 4, 1994. (Incorporated herein by reference to Exhibit B to the
Registrant's definitive Proxy Statement, prepared in connection with the 1994
Annual Meeting of Shareholders.)
**10.2(d) Non-Incentive Stock Option Agreement dated August 16, 1991, as amended August 15,
1992, between Bowmar Instrument Corporation and Gardiner S. Dutton. (Previously
filed as Exhibit 10.1(ff) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, which is incorporated herein by reference.)
**10.2(e) 1994 Flexible Stock Plan. (Previously filed as Exhibit A to the Registrant's
definitive Proxy Statement prepared in connection with the 1994 Annual Meeting of
Shareholders, which is incorporated herein by reference.)
**10.3(a) Form of Agreement governing awards of restricted stock under the Corporation's
now terminated Restricted Plan. (Incorporated by reference to the exhibit to
Amendment No. 1 to the Registrant's Registration Statement of Form S-8 (No.
2-67645).)
10.4(a) Loan documents by and between Bank One, Arizona, NA and Bowmar Instrument
Corporation and its wholly owned subsidiary, Bowmar/ALI, Inc. (Previously filed
as exhibits 10.4a through 10.4g to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 which is incorporated herein by
reference).
10.4(b) Modification Agreement dated April 26, 1996, pursuant to the Loan Agreement dated
August 28, 1995 by and between Bank One, Arizona, NA and the Registrant.
(Previously filed as Exhibit 10.4(b) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 28, 1996, which is incorporated herein
by reference).
10.4(c) Second Modification Agreement dated August 9, 1996, pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, NA and the
Registrant. (Previously filed as Exhibit 10.4(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 28, 1996, which is
incorporated herein by reference)
13
15
EXHIBIT
NUMBER
- ----------
10.4(d) Third Modification Agreement dated March 28, 1997 pursuant to the Loan Agreement
dated August 28, 1995 by and between Bank One, Arizona NA and the Registrant.
(Previously filed as Exhibit 10.4(d) to the Form 10-Q for the quarter ended March
29, 1997, which is incorporated herein by reference).
10.4(e) Modification of Mortgage (Massachusetts) dated March 28, 1997 by and between Bank
One, Arizona NA and the Registrant and its wholly owned subsidiary, Bowmar/ALI.
(Previously filed as Exhibit 10.4(e) to the Form 10-Q for the quarter ended March
29, 1997, which is incorporated herein by reference).
10.4(f) Modification of Mortgage (Indiana) dated March 28, 1997 by and between Bank One,
Arizona NA and the Registrant. (Previously filed as Exhibit 10.4(f) to the Form
10-Q for the quarter ended March 29, 1997 which is incorporated herein by
reference).
10.4(g) Revolving Promissory Note (RLT) dated March 28, 1997 by and between Bank One,
Arizona NA and the Registrant, for up to $1,200,000. (Previously filed as Exhibit
10.4(g) for the quarter ended March 29, 1997, which is incorporated herein by
reference).
10.5* Lease dated February 4, 1997 by and between Bowmar Instrument Corporation as
tenant and Gus Enterprises-XII, LLC as landlord.*
11* Computation of Earnings per share
21 Subsidiaries of the Registrant -- The Registrant has one subsidiary, Bowmar/Ali,
Inc., a Massachusetts Corporation.
27* Financial Data Schedule
(b) REPORTS ON FORM 8-K
There are no reports for the quarter ended September 27, 1997.
(c) Not applicable.
(d) Not applicable.
- ---------------
* filed herewith
** management compensatory contract, plan or arrangement
14
16
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
BOWMAR INSTRUMENT CORPORATION
We have audited the consolidated financial statements of Bowmar Instrument
Corporation and Subsidiaries as of September 27, 1997 and September 28, 1996,
and for each of the three years in the period ended September 27, 1997, as
listed in Item 14(a) of this Form 10-K. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bowmar
Instrument Corporation and Subsidiaries as of September 27, 1997 and September
28, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended September 27, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Phoenix, Arizona
December 2, 1997 (except for Notes 16 and 17
for which the date is December 19, 1997)
15
17
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
ASSETS
Current Assets
Cash............................................................ $ 1,218 $ 108
Accounts receivable, less allowance for doubtful accounts of $43
and $136..................................................... 4,476 3,992
Inventories..................................................... 8,158 6,059
Prepaid expenses................................................ 539 402
Deferred income taxes........................................... 2,782 1,652
------- -------
Total Current Assets............................................ 17,173 12,213
Property, Plant and Equipment, net................................ 2,642 1,122
Deferred Income Taxes............................................. 492 1,524
Other Assets, net................................................. 1,202 1,679
------- -------
Total Assets............................................ $21,509 $16,538
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt............................... $ 1,608 $ 556
Accounts payable................................................ 1,987 933
Accrued salaries and benefits................................... 1,953 1,503
Other accrued expenses.......................................... 503 719
Reserve for loss on discontinued operation...................... 1,300 0
------- -------
Total Current Liabilities............................... 7,351 3,711
Long term Debt.................................................... 4,546 3,675
Other Long term Liabilities....................................... 339 339
------- -------
Total Liabilities............................................... 12,236 7,725
------- -------
Commitments and Contingencies (see Note 11)
Shareholders' Equity
Preferred stock, $1.00 par value, authorized 500,000 shares,
issued 119,906 and 119,948 shares............................ 120 120
Common stock, $0.10 stated value, authorized 15,000,000 shares,
issued 6,718,934 and 6,527,675 shares........................ 672 653
Treasury stock, 44,442 shares, at stated value.................. (4) (4)
Additional paid-in capital........................................ 6,609 6,330
Retained earnings................................................. 1,876 1,714
------- -------
Total Shareholders' Equity...................................... 9,273 8,813
------- -------
Total Liabilities and Shareholders' Equity.............. $21,509 $16,538
======= =======
See notes to Consolidated Financial Statements.
16
18
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
FISCAL YEAR
-------------------------------------
1997 1996 1995
--------- --------- ---------
Net sales................................................. $ 22,189 $ 18,840 $ 18,067
Cost of sales............................................. 13,169 11,002 10,679
--------- --------- ---------
Gross margin.............................................. 9,020 7,838 7,388
--------- --------- ---------
Expenses:
Selling, general and administrative..................... 5,870 5,360 5,224
Product development..................................... 480 423 362
Interest expense........................................ 416 522 751
Other expense (income), net............................. 135 (523) (503)
--------- --------- ---------
Total expenses.......................................... 6,901 5,782 5,834
--------- --------- ---------
Income from continuing operations before income taxes..... 2,119 2,056 1,554
Income tax expense (benefit).............................. 786 784 (2,556)
--------- --------- ---------
Income from continuing operations......................... 1,333 1,272 4,110
--------- --------- ---------
Discontinued operations (Note 16):
Electromechanical segment
(Loss) income from operations, net of income tax
expense (benefit) of ($20), $12, and ($770)............. (31) 18 (207)
Loss on disposition including provision of $600,000
for operating losses during the phase-out period,
net of deferred income tax benefit of $520.............. (780)
--------- --------- ---------
Loss (income) from discontinued operations................ (811) 18 (207)
--------- --------- ---------
Net income................................................ $ 522 $ 1,290 $ 3,903
========= ========= =========
Income (loss) per common share-primary:
Continuing operations................................... $ 0.14 $ 0.14 $ 0.57
Discontinued operations................................. (0.12) 0.00 (0.03)
--------- --------- ---------
Net income per share -- primary........................... $ 0.02 $ 0.14 $ 0.54
========= ========= =========
Income (loss) per common share-fully diluted:
Continuing operations................................... $ 0.50
Discontinued operations................................. (0.02)
--------- --------- ---------
Net income per share -- fully diluted..................... $ 0.48
--------- --------- ---------
Weighted average number of common shares and equivalents:
Primary................................................. 6,662,285 6,564,987 6,615,241
Fully diluted........................................... 8,214,708
========= ========= =========
- ---------------
Note -- In 1997 and 1996 fully diluted net income per share is considered to be
the same as primary net income per share since the effect of the
potentially dilutive convertible preferred is antidilutive.
See notes to Consolidated Financial Statements.
17
19
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
ADDITIONAL RETAINED TOTAL
PREFERRED COMMON TREASURY PAID-IN EARNINGS SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) EQUITY
--------- ------ -------- ---------- -------- -------------
BALANCE, OCTOBER 1, 1994.............. $ 120 $646 $ (4) $6,047 $ (2,759) $ 4,050
---- ---- --- ------ ------- ------
Net income............................ 3,903 3,903
Issuance of common stock:
Exercise of options and awards and
related tax benefits 35,500
shares........................... 4 158 162
Deferred compensation costs........... 40 40
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 30, 1995........... 120 650 (4) 6,245 784 7,795
---- ---- --- ------ ------- ------
Net income............................ 1,290 1,290
Issuance of common stock:
Exercise of options and awards and
related tax benefits 27,800
shares........................... 3 70 73
Deferred compensation costs........... 15 15
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 28, 1996........... 120 653 (4) 6,330 1,714 8,813
---- ---- --- ------ ------- ------
Net income............................ 522 522
Issuance of common stock:
Exercise of options and awards and
related tax benefits 190,700
shares........................... 19 270 289
Deferred compensation costs........... 9 9
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 27, 1997........... $ 120 $672 $ (4) $6,609 $ 1,876 $ 9,273
==== ==== === ====== ======= ======
See notes to Consolidated Financial Statements.
18
20
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
FISCAL YEAR
-----------------------------------
1997 1996 1995
------- ----------- -------
OPERATING ACTIVITIES:
Net income................................................... $ 522 $ 1,290 $ 3,903
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 540 496 552
Amortization of debt issue costs........................ 0 0 52
Reserve for loss from discontinued operations........... 1,300 0 0
Deferred income tax (benefit) expense................... (98) 689 (3,526)
Net changes in balance sheet accounts:
Accounts receivable................................... (484) (110) 952
Inventories........................................... (2,099) (639) (554)
Prepaid expenses...................................... (137) 55 21
Other assets.......................................... 462 19 319
Accounts payable...................................... 1,055 (520) 417
Accrued salaries and benefits......................... 450 (589) 537
Other accrued expenses................................ (216) (382) 350
Other................................................. 0 0 (6)
------- ------- -------
Net cash provided by operating activities.................... 1,295 309 3,017
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................... (1,802) (365) (454)
Proceeds from sales of property, plant and equipment......... 0 135 5
Net change in other assets................................... 0 0 (41)
------- ------- -------
Net cash used in investing activities........................ (1,802) (230) (490)
------- ------- -------
FINANCING ACTIVITIES:
Borrowings under (payments on) notes payable................. 2,204 4,200 (1,135)
Retirement of long-term debt................................. (516) (4,623) (602)
Issuance of common stock..................................... 289 73 162
Payment of preferred stock dividends......................... (360) (360) (360)
------- ------- -------
Net cash provided by (used in) financing activities.......... 1,617 (710) (1,935)
------- ------- -------
Net change in cash........................................... 1,110 (631) 592
Cash at beginning of year.................................... 108 739 147
------- ------- -------
Cash at end of year.......................................... $ 1,218 $ 108 $ 739
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest................................... $ 412 $ 511 $ 689
Net cash paid for income taxes............................... $ 280 $ 139 $ 164
Non-cash Investing and Financing Activities:
Capital lease agreements................................... $ 235 $ 0 $ 88
See notes to Consolidated Financial Statements.
19
21
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Company is a U.S. designer and manufacturer of high density, solid state
memory modules, multichip modules, interface products, and electromechanical
components and packages. The Company's customers include both domestic and
international government contractors and commercial businesses. The majority of
the sales and earnings are generated by the memory and multichip module product
lines.
2. SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bowmar
Instrument Corporation and its subsidiary (collectively the "Company"). All
significant inter-company accounts and transactions are eliminated. Certain
amounts in prior fiscal years consolidated financial statements have been
reclassified to conform to current presentation.
B. FISCAL YEAR-END
The Company's fiscal year-end is the Saturday nearest September 30.
C. CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of three months
or less to be cash equivalents.
D. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out)
or market.
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including property under capital lease
agreements, are stated at cost. Depreciation is determined on a straight-line
basis over the estimated useful lives ranging from 5 to 33 years for buildings
and improvements and 3 to 10 years for machinery and equipment. Leasehold
improvements are amortized over the lives of the leases or estimated useful
lives of the assets, whichever is less. When assets are sold or otherwise
retired, the cost and accumulated depreciation are removed from the books and
the resulting gain or loss is included in operating results.
F. GOVERNMENT CONTRACTS
Sales under government contracts are recorded when the units are shipped and
accepted by the government. Applicable earnings are recorded pro rata based
upon total estimated earnings at completion of the contracts; projected losses
are provided for in their entirety when identified.
G. SALES RECOGNITION
Sales are recognized when the Company's products are shipped. When shipments
are to distributors, the Company records at the time of shipment commissions
related to the sales and reserves for estimated returned goods and future
pricing adjustments.
H. INCOME TAXES
The Company files a consolidated tax return with its wholly owned subsidiary.
Temporary differences in the recognition of taxable income for financial
reporting and income tax purposes relate primarily to the use of
20
22
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
different depreciation methods and useful lives for tax purposes, the
allowances for doubtful accounts, inventory obsolescence and the timing of
reporting bonus expense.
I. NET INCOME PER COMMON SHARE
Primary net income per share is computed by deducting preferred dividends from
net income to determine net income available to common shareholders. This
amount is then divided by the weighted average number of common shares
outstanding and Common Stock equivalents. Net income per share assuming full
dilution is determined by dividing net income by the weighted average number
of common shares outstanding during the year after giving effect to Common
Stock equivalents arising from stock options and preferred stock assumed
converted to Common Stock.
J. NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 Earnings Per Share (FAS 128) which
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS). FAS 128 replaces the presentation of primary and
fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15
Earnings Per Share (APB 15) with the presentation of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company is required to adopt FAS 128 with its
December 28, 1997 financial statements and restate all prior period EPS
information. The Company will continue to account for EPS under APB 15 until
that time. The adoption of FAS 128 is not expected to have a significant
impact on the Company's reported earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), which establishes standards
for reporting and display of comprehensive income and its components. This
statement requires a separate statement to report the components of
comprehensive income for each period reported. The provisions of this
statement are effective for fiscal years beginning after December 15, 1997.
Management believes that the Company currently does not have items that would
require presentation in a separate statement of comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131), which establishes standards for the way the public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
This statement is effective for financial statements for periods beginning
after December 15, 1997. Management believes this statement may require
expanded disclosure in the Company's future financial statements.
K. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
21
23
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
Raw materials............................................. $ 3,277,000 $ 3,330,000
Work-in-process........................................... 4,258,000 2,531,000
Finished goods............................................ 623,000 198,000
---------- ----------
Total Inventories......................................... $ 8,158,000 $ 6,059,000
========== ==========
The inventories are net of reserve for excess and obsolete for $978,000 and
$865,000 for fiscal 1997 and 1996 respectively.
4. OTHER ASSETS
Other assets include $1,457,000 for certain land and buildings in Acton, MA. and
a reserve of $425,000 for the disposition of the building. The reserve of
$425,000 for the estimated loss on the disposition of the building was included
in other income and expense in fiscal 1997. The property is currently under
contract for sale pending the performance of certain actions by the Company
including environmental testing. The building was leased to the purchasers of
the Bowmar/ALI Military Systems division under an operating lease agreement
which ended February, 1997. Rental income during fiscal years 1997, 1996, and
1995 was $233,000, $572,000 and $552,000, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
Land...................................................... $ 123,000 $ 123,000
Buildings and improvements................................ 956,000 935,000
Machinery and equipment................................... 7,525,000 5,566,000
Leasehold improvements.................................... 316,000 316,000
---------- ----------
Total, at cost............................................ 8,920,000 6,940,000
Less accumulated depreciation and amortization............ 6,278,000 5,818,000
---------- ----------
Net Property, Plant and Equipment......................... $ 2,642,000 $ 1,122,000
========== ==========
At fiscal year-end 1997 and 1996, property, plant and equipment includes
approximately $608,000 and $467,000, respectively, of equipment under leases
that have been capitalized. Accumulated amortization for such equipment
approximated $379,000 and $344,000 for fiscal years 1997 and 1996, respectively.
22
24
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
Bank One term loan........................................ $ 3,405,000 $ 3,825,000
Bank One revolving line of credit......................... 2,331,000 0
Industrial revenue bonds.................................. 270,000 360,000
Obligations under capital leases.......................... 148,000 46,000
---------- ----------
6,154,000 4,231,000
Less current portion...................................... 1,608,000 556,000
---------- ----------
Total long term debt...................................... $ 4,546,000 $ 3,675,000
========== ==========
The financing agreement with Bank One provides for a $4.0 million revolving line
of credit which expires February 28, 1999 and bears interest at .5% over the
Bank's prime rate (on September 27, 1997 the loan rate was 9.0%); and a term
loan in the principal amount of $3,405,000 which bears interest at the rate of
1.25% over the bank's prime rate. The term loan's rate on September 27, 1997 was
9.75% with principal payments of $35,000 per month and the balance due on July
31, 2000. The Bank One financing is collateralized by all of the assets of the
Company, subject to the prior lien associated with the industrial revenue bonds
and includes certain restrictions on the Company including a limitation on cash
dividends of $500,000 maximum per year. The agreement also includes certain
other restrictive covenants, the most restrictive of which is currently a debt
coverage ratio of 3 to 1.
The availability of cash under the revolving line of credit is based on eligible
accounts receivable and inventories. There is a charge of 1/4 of 1% per month on
the unused portion of the line of credit. The Company entered into the agreement
with Bank One in November 1995 and the proceeds were used to retire convertible
subordinated debentures and certain Foothill Capital Corporation loans.
The industrial revenue bonds are payable quarterly through September 30, 2000 at
the rate of $22,500 per quarter, plus interest at the reference rate of the Fort
Wayne National Bank. The interest rate at September 27, 1997 was 6.38%. The
bonds are collateralized by real property in Acton, Massachusetts with a net
book value of $1,032,000 which is included in other assets. At September 27,
1997 the Company was not in compliance with certain covenants related to the
industrial revenue bonds. The sole holder of these bonds has consented to the
Company's noncompliance with these covenants through October 3, 1998, thereby
effectively waiving compliance through that date. The most restrictive covenant
is that no dividends may be paid. These bonds will be retired if the Acton
facility is sold.
The aggregate maturities of the above term debt are approximately $1,608,000 in
1998, $1,879,000 in 1999 and $2,667,000 in 2000.
The weighted average interest rate on long term debt for fiscal 1997, 1996 and
1995 was approximately 9.9%, 9.9%, and 11.4% respectively.
23
25
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision (credit) for income taxes on continuing operations consists of the
following:
FISCAL YEAR
1997 1996 1995
-------- ----------- -----------
Current......................................... $364,000 $ 95,000 $ 588,000
Deferred........................................ 422,000 689,000 (3,144,000)
-------- -------- ----------
Income tax provision (credit)................... $786,000 $ 784,000 $(2,556,000)
======== ======== ==========
Based on the Company's taxable income in recent years and projecting future
taxable income over the period in which the deferred income tax assets are
deductible, the Company believes that it is more likely than not that it will
realize the benefit of the deferred tax assets. As a result, during fiscal 1995,
the Company recorded a $3.3 million tax credit due to the elimination of the
valuation allowance related to the Company's deferred tax asset. There can be no
assurance, however, that the Company will generate a specific level of continued
earnings.
A reconciliation of the (credit) provision for income taxes on continuing
operations between the U.S. statutory and effective rates follows:
FISCAL YEAR
1997 1996 1995
----- ----------- ------
Provision at statutory rate............................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit..................... 4.5 6.4 5.9
1995 utilization of federal net operating loss
carryover............................................. (34.0)
Adjustment related to prior years tax returns........... (1.4) (2.3) 0.0
Elimination of valuation allowance for deferred tax
assets................................................ 0.0 0.0 (170.4)
---- ---- -----
Effective Tax Rate...................................... 37.1% 38.1% (164.5)%
==== ==== =====
The income tax effect of loss carryforwards, tax credit carryforwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities. Deferred income taxes consisted of the
following:
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
Current:
Inventories............................................. 646,000 $ 540,000
Accrued salaries, benefits, interest, expenses and
reserves............................................. 1,360,000 667,000
Net operating loss carryforwards........................ 776,000 532,000
Other................................................... 0 (87,000)
----------- -----------
Subtotal.................................................. 2,782,000 1,652,000
Long Term:
Depreciation............................................ 264,000 303,000
Net operating loss carryforwards........................ 84,000 1,172,000
Alternative minimum tax credits......................... 144,000 101,000
Other................................................... 0 (52,000)
----------- -----------
Subtotal.................................................. 492,000 1,524,000
----------- -----------
Total..................................................... $ 3,274,000 $ 3,176,000
=========== ===========
24
26
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fourth quarter of fiscal 1994, the Company became aware of a
potential liability with regard to certain state income taxes for taxable years
1990 through 1994 as a result of a ruling by that state's Supreme Court. There
have been no tax assessments nor has the state audited the Company's tax returns
for those years. The Company recorded an estimated liability of approximately
$176,000 in the fourth quarter of fiscal 1994.
As of September 27 1997, the Company had federal net operating loss carryovers
for tax purposes of approximately $2,663,000 which expire from 2003 through
2005. Additionally, the Company has an alternative minimum tax credit
carryforward of approximately $144,000.
8. BENEFIT PLANS
The Company has a defined benefit pension plan for union employees at its Fort
Wayne, Indiana facility pursuant to a collective bargaining agreement. Benefits
are based primarily on a benefits multiplier and years of service. The Company
funds the amount equal to the minimum funding required plus additional amounts
which may be approved by the Company from time to time. Net periodic pension
cost included the following components:
FISCAL YEAR
-------------------------------------
1997 1996 1995
--------- --------- ---------
Service cost benefits earned.................... $ 84,000 $ 71,000 $ 69,000
Interest cost................................... 138,000 135,000 130,000
Return on plan assets........................... (384,000) (110,000) (132,000)
Amortization of transition asset................ (10,000) (10,000) (10,000)
Amortization of prior service costs............. 15,000 (17,000) 12,000
Deferral of gain to future years................ 245,000 0 0
--------- --------- ---------
Total pension cost.............................. $ 88,000 $ 69,000 $ 69,000
========= ========= =========
At September 27, 1997, the actuarial present value of accumulated benefit
obligations was $1,954,961 of which $1,915,726 was vested. The vested benefit
obligation is the actuarial present value of the vested benefits to which the
employee would be entitled if the employee separated immediately. Prepaid
pension cost at September 27, 1997 and September 28, 1996, was calculated as
follows:
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
Projected benefit obligation.............................. $ 1,955,000 $ 1,920,000
Market value of plan assets............................... 2,279,000 2,047,000
---------- ----------
Plan assets over projected benefit obligation............. 324,000 127,000
Unrecognized transition assets............................ (10,000) (19,000)
Unrecognized past service costs........................... 92,000 107,000
Unrecognized net loss (gain).............................. (199,000) 72,000
---------- ----------
Prepaid Pension Cost...................................... $ 207,000 $ 287,000
========== ==========
Plan assets primarily consist of investments in mutual funds, corporate bonds
and money market funds. The weighted-average assumed discount rate was 7.5% and
the long-term rate of return on assets was 7.0%.
In addition, the Company has an Incentive Savings 401(k) Plan covering non-union
employees of the Company who have completed six months of service. The Company
matches employee contributions equal to 50% of the first 3% of a participant's
wage base. During each of the fiscal years 1997, 1996 and 1995, the Company made
contributions to the plan of approximately $64,000, $60,000, and $45,000
respectively.
25
27
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTIONS AND AWARDS
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock Based Compensation". Accordingly, since all options are
issued with exercise prices greater than or equal to the market price on the
grant date, no compensation cost has been recognized for the stock option plans.
Under the Company's shareholder approved 1994 Flexible Stock Plan, Common Stock
is available for the grant of options, appreciation rights, restricted stock
awards, performance shares and other stock-based awards. The vesting and terms
of the options granted under this plan are determined when awarded by the Board
of Directors. At September 27,1997 there were 189,519 shares available for
future grants to officers and employees at prices not less than the fair value
at the date of grant by the Board of Directors. At fiscal year-end 1997, 504,000
shares from the Company's 1994 plan are under option.
During fiscal 1995, the Board of Directors terminated the Company's shareholder
approved 1986 Stock Option Plan. At fiscal year-end 1997, 44,500 shares from the
Company's 1986 Plan remain under option.
The Company's shareholder approved Non-Qualified Stock Option Plan for Directors
provides for shares of Common Stock for issuance to directors, at an exercise
price equal to the fair market value on the date of issuance. At fiscal year end
September 27, 1997, there were 82,760 shares available for future grants to the
directors. The options are exercisable as early as six months after date of
grant and expire in ten years. A total of 114,000 options under this
Non-Qualified Plan have been issued to non-employee directors and remain
unexercised at September 27, 1997.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock option plans under the fair value based method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997:
risk free interest rate varied depending on grant date, ranging from 5.72% to
6.69%, no common dividend, volatility factor of the expected market price of the
Company's Common Stock of 65%, and an expected average life of the option of 5.5
years.
A summary of the Company's stock option activity and related information is as
follows:
FISCAL YEAR
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
-------- -------- ------- -------- ------- --------
Beginning balance outstanding... 705,200 $ 2.41 582,000 $ 2.52 361,000 $ 1.85
Granted......................... 373,500 1.98 172,500 2.00 257,000 3.31
Exercised....................... (190,700) 1.40 (27,800) 1.42 (35,500) 1.48
Canceled........................ (225,500) 3.33 (21,500) 3.42 (500) 1.69
Ending balance outstanding...... 662,500 $ 2.14 705,200 $ 2.41 582,000 $ 2.52
======== ===== ======= ===== ======= =====
Exercisable at end of year...... 402,625 $ 2.18 426,825 $ 2.50 309,250 $ 1.94
======== ===== ======= ===== ======= =====
Shares available for future
grant......................... 272,279 23,530 88,429
======== ======= =======
26
28
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The pro forma
information for 1997 and 1996 follows (in thousands except for per share
information):
FISCAL YEAR
---------------
1997 1996
---- ------
Net income.......................................................... $522 $1,290
Option compensation expense......................................... 245 47
---- ------
Pro forma net income................................................ $277 $1,243
==== ======
Had the Company elected to adopt the recognition provisions of SFAS No. 123, net
income per share would have been reduced by $.03 and $.01 for fiscal 1997 and
1996 respectively.
The following table summarizes additional information about the Company's stock
options outstanding as of September 27, 1997:
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
WEIGHTED AVERAGE WEIGHTED-
SHARES AVERAGE REMAINING AVERAGE
UNDER EXERCISE CONTRACTUAL EXERCISABLE EXERCISE
OPTION PRICE LIFE SHARES PRICE
------- -------- ----------- ----------- --------
Range of exercise price:
$1.250 - $2.625............. 630,500 $ 1.99 8.46 years 370,625 $ 2.01
$3.125 - $3.562............. 32,000 $ 3.38 7.77 years 32,000 $ 3.38
------- ----- ---------- ------- -----
662,500 $ 2.14 8.43 years 402,625 $ 2.18
======= ===== ========== ======= =====
On December 6, 1996, the Board of Directors adopted a program to permit the
repricing of 213,500 options that were granted to officers and employees in 1995
under the Company's 1994 Flexible Stock Plan. The revised exercise price is
$2.00 per share (approximately 25% over the market price on the date of the
repricing) instead of the original exercise prices which ranged from $3.125 to
$3.375 per share. In the above table these options are shown as being canceled
and new options granted.
During fiscal 1995, the Board of Directors terminated the Company's Restricted
Stock Award Plan under which shares of the Company's Common Stock were available
to certain officers and employees without the payment of consideration. The cost
of such awards at the date of grant was considered to be compensation and was
expensed over the vesting period. Amounts charged to expense in fiscal years
1997, 1996, and 1995, net of forfeitures, were $8,700, $15,000, and $40,000,
respectively. At September 27, 1997, all of the shares previously awarded were
unrestricted.
10. FINANCIAL INSTRUMENTS
The financial position of the Company at September 27, 1997, includes certain
financial instruments which may have a fair value that is different from the
value currently reflected on the financial statements. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practical to estimate that value.
Cash and Cash Equivalents
Cash is invested in overnight securities, therefore the fair value is
equal to the carrying amount.
Long Term Debt
The carrying amount of long term debt is a reasonable estimate of fair
value as the stated rates of interest approximate current market rates.
27
29
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under noncancelable lease
agreements some of which include renewal options of up to five years. Total rent
expense for 1997, 1996, and 1995 was $376,000, $356,000, and $399,000
respectively. Future minimum annual fixed rentals required under noncancelable
operating leases having an original term of more than one year are $651,000 in
1998, $636,000 in 1999, $543,000 in 2000, $520,000 in 2001, $458,000 in 2002,
and $2,431,000 thereafter.
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Federal government. The investigation is centering on
the interpretation of certain government contract specified testing requirements
on incoming material. The Company is cooperating fully with the investigation.
Management believes a potential prosecution is remote.
12. PREFERRED STOCK
Preferred shareholders vote equally with common shareholders. Each share of
preferred stock has one vote, is convertible into 13.33 shares of the Company's
Common Stock (stated value $0.10 per share), and pays annual dividends totaling
$3.00, payable quarterly on March 31, June 30, September 30 and December 31 of
each year. The preferred stock is redeemable at the option of the Company at
$25.00 per share on and after January 1, 1998, and is not subject to mandatory
redemption.
13. CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to the defense and commercial
industries in the United States. In fiscal 1997, no customer sales accounted for
10% or more of the Company's sales. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. At certain times throughout the year the Company
may maintain certain bank accounts in excess of the FDIC insured limits. As of
September 27, 1997 and September 28, 1996, there was $949,000 and $0 of
uninsured cash respectively.
14. DISPOSITIONS
The Company sold a certain stock investment in February, 1997. This transaction
resulted in a gain of approximately $91,000 which was recorded in other income.
The Company sold the production equipment and tooling used in the ordnance
product line in May, 1996. Additionally, in June, 1996, the Company sold the
inventory, production equipment, test equipment and drawings that pertained to
the rapid heat transfer sterilizer product line. These transactions resulted in
a combined gain of approximately $90,000 which was recorded as other income.
Both product lines were a part of electromechanical segment sales. The combined
net sales were $1,038,000, $2,150,000, and $448,000 and the combined operating
losses were $83,000, $991,000 and $11,000 in fiscal 1996, 1995 and 1994
respectively.
15. SHAREHOLDERS RIGHTS PLAN
On December 6, 1996, the Board of Directors adopted a shareholder rights plan to
protect shareholders against unsolicited attempts to acquire control of the
Company which do not offer what the Company believes to be an adequate price for
all shareholders. To implement the plan, the Board declared a dividend of one
common share purchase right (a "Right" or "Rights") for each outstanding share
of the Corporation's Common Stock and entered into a rights agreement with
American Stock Trust and Transfer, as Rights Agents (the "Rights Agreement"). If
and when the Rights become exercisable, each Right will entitle the registered
holder to purchase from the Company one share of Common Stock of the Company at
a purchase
28
30
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $20.00 (subject to adjustment pursuant to certain anti-dilution
provisions) (the "Purchase Price"). The terms of the rights are set forth in the
Rights Agreements.
Separate certificates representing the Rights will be distributed only upon an
event triggering a distribution. Pursuant to the Rights Agreement, if a person
or group (an "Acquiring Person") acquires 15% or more of the Company's
outstanding voting stock or announces a tender or exchange offer that would
result in the ownership by the Acquiring Person of 15% or more of the
outstanding voting stock, the Rights certificates will be distributed and each
holder of the rights (other than the Acquiring Person) may either exercise the
Rights to acquire Common Stock of the Company at the then Purchase Price or
convert the Rights into that number of shares of Common Stock equal to the
Purchase Price times the number of Rights held by the holder divided by 50% of
the then current market price of the Common Stock.
In the event that the Company is acquired in a merger or other transaction where
it is not the surviving corporation or where all or part of its Common Stock is
exchanged for securities, cash or property of another person, or in the event
that 50% or more of the Company's assets are sold, proper provision will be made
so that each holder of the right (other than the Acquiring Person) will have the
right to receive, upon exercise thereof, that number of shares of common stock
of the acquiring corporation which at the time of such transaction will have a
market value of two times the exercise price of the Right. Similarly, in the
event that a person acquires 15% or more of the outstanding Common Stock of the
Company, proper provision will be made so that each holder of a Right (other
than the Acquiring Person) will thereafter have the right to receive upon
exercise that number of shares of Common Stock of the Company having a market
value of two times the exercise price of the Right.
The Rights Agreement also contains an exchange option. At any time after a
person becomes an Acquiring Person, and prior to the acquisition by such
Acquiring Person of 50% or more of the outstanding Common Stock of the Company,
the Board of Directors may exchange the Rights (other than Rights owned by the
Acquiring Person, which Rights shall become void), in whole or in part, at an
exchange ratio of one share of Common Stock per Right.
Finally, the Rights are subject to redemption. At any time prior to the tenth
calendar day following the date of a public announcement that a person or group
has become an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not part, at a price of $.01 per Right.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that from and after such time as
any person becomes an Acquiring Person, no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends. The
Rights cannot be bought, sold or otherwise traded separately from the Common
Stock. Certificates for Common Stock issued after the date of the Rights
Agreement carry a notation that indicates the Rights are attached. The Rights
will expire on December 5, 2006 unless extended or unless the Rights are earlier
redeemed by the Company.
16. DISCONTINUED OPERATIONS
In December, 1997 the Board of Directors decided to sell its Technologies
division. This operation is reflected as discontinued operations for all periods
presented in the Company's Statement of Income. During 1997, the Company
recorded a reserve of $1,300,000 for estimated future operating losses of the
Technologies division, and the estimated costs and losses associated with the
disposition.
While the estimated net loss is based on management analysis it is difficult to
estimate what the Company may ultimately realize on the sale of this division.
Therefore, what the Company could eventually realize may differ materially in
the near term from the amounts assumed in arriving at the estimated net loss.
29
31
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The historical statements of operations have been adjusted to show the results
of the discontinued operations separately.
The following table reflects the results of the discontinued operation for the
periods presented in the Company's Consolidated Statements of Income:
FISCAL YEAR
TECHNOLOGIES DIVISION -----------------------------------------
OPERATING RESULTS 1997 1996 1995
----------------------------------------------- ---------- ----------- ----------
Net sales...................................... $5,631,000 $ 6,477,000 $8,802,000
Gross margin................................... $1,682,000 $ 1,692,000 $2,176,000
Product development............................ $ 130,000 $ 157,000 $ 450,000
---------- ---------- ----------
Operating expenses............................. $1,602,000 $ 1,505,000 $2,703,000
========== ========== ==========
The components of net assets of discontinued operations included in the
Company's Consolidated Balance Sheets at September 27, 1997 and September 28,
1996 are as follows:
SEPTEMBER 27, SEPTEMBER 28,
TECHNOLOGIES DIVISION 1997 1996
---------------------------------------------------------- ------------- -------------
Receivables, net.......................................... $ 1,089,000 $ 932,000
Inventories............................................... 1,958,000 841,000
Other current assets...................................... 385,000 361,000
Property and equipment
Intangible and other assets (net)......................... 700,000 640,000
Accounts payable and other current liabilities............ (694,000) (593,000)
Long-term debt............................................ (41,000) 0
---------- ----------
Net Assets................................................ $ 3,397,000 $ 2,181,000
========== ==========
17. CLOSURE OF THE CORPORATE OFFICE
As a result of the divestiture of the Technologies division, it was decided that
there was no continuing need for the Company's corporate office. Therefore, the
corporate office will be eliminated in the first quarter of fiscal 1998 which
will result in an estimated charge in the first quarter of fiscal 1998 of
$340,000 for severance and other closing costs.
30
32
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. INTERIM FINANCIAL RESULTS (UNAUDITED)
FISCAL 1997 FISCAL 1996
------------------------------------------------------- ------------------
DEC. 30 MAR. 29 JUN. 28 SEP. 27 YEAR DEC. 30 MAR. 30
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Net sales............................... $5,036 $5,577 $5,752 $5,824 $22,189 $4,797 $4,851
Gross margin............................ $2,072 $2,266 $2,309 $2,373 $ 9,020 $1,922 $2,056
Income from continuing operations before
income taxes.......................... $ 624 $ 733 $ 631 $ 131 $ 2,119 $ 539 $ 493
Income from continuing operations....... $ 383 $ 450 $ 387 $ 112 $ 1,333 $ 334 $ 305
Discontinued operations (Note 16)
Technologies Division
Income (loss) from operations, net
of tax............................ $ 46 $ (52) $ (36) $ 11 $ (31) $ (130) $ 3
Loss on disposition net of deferred
income tax credit of $520(a)...... $ (780) $ (780)
Income (loss) from discontinued
operations............................ $ 46 $ (52) $ (36) $ (769) $ (811) $ (130) $ 3
NET INCOME.............................. $ 429 $ 398 $ 351 $ (657) $ 522 $ 204 $ 308
Net income per share -- primary(b)...... $ 0.05 $ 0.05 $ 0.04 $(0.12) $ 0.02 $ 0.02 $ 0.03
Common stock market price:(c)
High.................................. 1 3/4 2 3/16 2 15/16 2 13/16 3 2 15/16
Low................................... 1 3/4 1 5/8 1 13/16 2 1/4 2 1/4 2 3/16
Preferred market price:(c)
High.................................. 32 34 40 39 1/2 41 37 3/4
Low................................... 28 5/8 30 1/2 31 1/2 37 33 34
JUN. 29 SEP. 28 YEAR
------- ------- --------
<
Net sales............................... $4,042 $5,150 $ 18,840
Gross margin............................ $1,781 $2,079 $ 7,838
Income from continuing operations before
income taxes.......................... $ 471 $ 553 $ 2,056
Income from continuing operations....... $ 291 $ 342 $ 1,272
Discontinued operations (Note 16)
Technologies Division
Income (loss) from operations, net
of tax............................ $ 37 $ 108 $ 18
Loss on disposition net of deferred
income tax credit of $520(a)......
Income (loss) from discontinued
operations............................ $ 37 $ 108 $ 18
NET INCOME.............................. $ 329 $ 450 $ 1,290
Net income per share -- primary(b)...... $ 0.04 $ 0.05 $ 0.14
Common stock market price:(c)
High.................................. 2 11/16 2 1/16
Low................................... 1 7/8 1 1/2
Preferred market price:(c)
High.................................. 36 1/2 33 1/2
Low................................... 30 28 5/8
- ---------------
(a) Discontinued operations loss on disposition includes a provision of $600,000
for losses during the phase-out period.
(b) Fully diluted net income per share is considered to be the same as primary
net income per share since the effect of the potentially dilutive
convertible preferred stock is currently antidilutive.
(c) Both common and preferred shares are traded on the American Stock Exchange.
31
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ITEM 15 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BOWMAR INSTRUMENT CORPORATION
Date: December 10, 1997 /s/ JOSEPH G. WARREN, JR.
--------------------------------------- --------------------------------------------
Joseph G. Warren, Jr.
Vice President Finance, Secretary,
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated:
/s/ THOMAS K. LANIN /s/ STEVEN P. MATTEUCCI
- --------------------------------------------- --------------------------------------------
Thomas K. Lanin Steven P. Matteucci
President, Chief Executive Officer and Director
Director Date: December 10, 1997
Date: December 10, 1997 --------------------------------------
---------------------------------------
/s/ JOSEPH G. WARREN, JR. /s/ EDWARD A. WHITE
- --------------------------------------------- --------------------------------------------
Vice President Finance, Secretary, Treasurer Edward A. White
and Chief Financial and Accounting Officer Chairman of the Board and Director
Date: December 10, 1997 Date: December 10, 1997
--------------------------------------- --------------------------------------
/s/ DAN L. MCGURK /s/ THOMAS M. REAHARD
- --------------------------------------------- --------------------------------------------
Dan L. McGurk Thomas M. Reahard
Director Director
Date: December 10, 1997 Date: December 10, 1997
--------------------------------------- --------------------------------------
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