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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1995
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 (I.R.S. Employer Identification No.)
incorporation or organization)
5080 NORTH 40TH STREET, SUITE 475
PHOENIX, ARIZONA 85018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/957-0271
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 Preferred Stock American Stock Exchange
(par value $1.00 per share)
13-1/2% Convertible Subordinated American Stock Exchange
Debentures due December 15, 1995
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. / /
As of December 18, 1995, 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 18, 1995) was
approximately $18,870,000.
On December 18, 1995, 6,454,874 shares of the Registrant's Common Stock and
119,990 shares of the Registrant's Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement prepared in connection with the 1996
Annual Meeting of Shareholders are incorporated by reference into PART III of
this Annual Report.
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TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1 BUSINESS
General......................................................... 1
Financial Information About Industry Segments .................. 1
Narrative Description of Business
Microelectronic Circuits .................................... 1
Microelectronic Segment Review............................... 1
Electromechanical and Mechanical Equipment
and Components.............................................. 2
Electromechanical Segment Review............................. 3
Principal Customers.......................................... 3
Research, Engineering and Development........................ 4
Environmental Protection..................................... 4
Employees.................................................... 4
Executive Officers of the Company............................... 4
ITEM 2 PROPERTIES.......................................................... 5
ITEM 3 LEGAL PROCEEDINGS................................................... 5
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 5
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS..................................... 5
ITEM 6 SELECTED FINANCIAL DATA ............................................ 6
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 7
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................... 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 9
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 9
ITEM 11 EXECUTIVE COMPENSATION.............................................. 9
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...... 9
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 9
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..... 10
ITEM 15 SIGNATURES.......................................................... 26
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PART I
ITEM 1 BUSINESS
GENERAL
Bowmar Instrument Corporation ("Bowmar") was incorporated in the State of
Indiana in 1951. Bowmar and its subsidiaries (hereinafter sometimes referred to
collectively as the "Company") manufacture and sell microelectronic and
electromechanical products. These products fall into two industry segments -
microelectronic circuits and components ("microelectronic") and
electromechanical and mechanical equipment and components ("electromechanical").
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The sales and operating results of each industry segment and the identifiable
assets attributable to each industry segment for fiscal years 1995, 1994 and
1993 are set forth in Note 13 to the Consolidated Financial Statements.
NARRATIVE DESCRIPTION OF BUSINESS
MICROELECTRONIC CIRCUITS
The products designed, manufactured and sold by the Company in its
microelectronic segment include high density, solid state memory modules and
multichip modules for use in both commercial and military applications.
HIGH DENSITY, SOLID STATE MEMORY MODULES
The Company designs and manufactures high density memory microcircuits. These
memory modules are designed specifically for use in adverse environmental
conditions. In addition, these solid state memory modules are designed to
provide larger amounts of mass memory, space reduction and faster data
processing speeds. These products are used in both military and commercial
applications and include static RAM modules (SRAM), electronically erasable PROM
modules (EEPROM), and Flash PROM modules.
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.
Multichip modules can be designed to perform a wide variety of electronic
functions, such as amplifiers, regulators, switches, data converters,
oscillators and decoders. These products 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. The materials, products and services
used by the Company to manufacture products in its microelectronic segment are
readily available from a variety of sources. None of the business of the
microelectronic 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 this
segment require the carrying of significant finished goods inventory.
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Although the Company purchases components from other manufacturers, some of
which must be ordered several months in advance, it has not encountered, and
does not anticipate encountering, any significant difficulty in obtaining the
components required in its manufacturing operations. 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 of the microelectronic segment was approximately
$8,249,000 and $11,341,000, at the end of fiscal years 1995 and 1994,
respectively. Approximately 100% percent of this segment's fiscal 1994 backlog
was shipped during fiscal 1995. Approximately 98% percent of the fiscal 1995
year-end backlog is expected to be shipped during fiscal 1996 and the remainder
in fiscal 1997.
Management believes that the key competitive factors affecting its
microelectronic segment are product reliability, the ability to meet delivery
schedules and price. In marketing the products of this segment, the Company
competes with many other companies, many of which have greater financial
strength and technical and marketing resources than does the Company.
Consequently, it is the Company's objective to concentrate its activities in
markets where its resources do not place it at a competitive disadvantage and
where the Company's engineering capabilities and the reliability of its products
are recognized.
ELECTROMECHANICAL AND MECHANICAL EQUIPMENT AND COMPONENTS
The products designed, manufactured and sold by the Company in its
electromechanical segment include electromechanical components and packages,
electromechanical display devices, electronic display devices, keyboards and
related sub-systems, medical and dental equipment and ordnance products.
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 products include
display devices which respond electromagnetically to electronic input signals,
thus eliminating mechanical transmission delays. These products are sold
primarily to aircraft instrument manufacturers.
INTERFACE PRODUCTS
The Company designs and manufactures, to customer specification, a variety of
keyboard assemblies for military and commercial aerospace 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.
MEDICAL AND DENTAL PRODUCTS
The Company produces and markets a dental/medical equipment sterilizer (Cox
Rapid Heat Sterilizer) which is primarily sold in the dental equipment market.
Other product activities involve the joint development of a new type of dental
x-ray device with Panoramic Corporation. The x-ray system is a real time
intra-oral imaging device which, due to its low patient radiation exposure,
permits the operator to view live x-ray images.
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ORDNANCE
The Company produces mechanical and electromechanical fuzing and safing and
arming devices. Fuzes and safing and arming devices are manufactured for use in
various rocket and missile applications, and are sold directly to the U.S.
Government or to U.S. Government military prime contractors.
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 in the aerospace industry and agencies of the United
States Government. The materials, products and services 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.
While the Company purchases components from other manufacturers, some of which
must be ordered several months in advance, it has not encountered, and does not
anticipate encountering, any significant difficulty in obtaining the components
required in its manufacturing operations. The Company does not provide extended
payment terms to its customers. Products in the electromechanical 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 of the electromechanical segment was approximately
$2,834,000 and $6,887,000, at the end of fiscal years 1995 and 1994,
respectively. Approximately 63% percent of this segment's 1994 backlog was
shipped during fiscal 1995. Approximately 97% percent of the fiscal 1995
year-end backlog is expected to be shipped during fiscal 1996 and the remainder
in fiscal 1997 and 1998.
Management believes that price, product reliability and the ability to meet
delivery schedules are the key competitive factors relating to the Company's
products. Since many of the Company's competitors have greater financial
strength and technical and marketing resources, the Company's objective is to
concentrate its activities in markets in which its engineering capabilities and
the reliability of its products are recognized. The Company believes it is a
significant supplier in its selected product areas even though it faces strong
competition from other manufacturers, some of which utilize technology different
from that used by the Company.
PRINCIPAL CUSTOMERS
In fiscal years 1995 and 1994, sales of microelectronic products to one customer
accounted for approximately 21% and 27% respectively, of the Company's total
sales. Sales in this segment during 1995 to another customer also accounted for
approximately 12% of the Company's total sales. During fiscal year 1993, sales
of various electromechanical business segment products to the U.S. government
accounted for approximately 20 percent of the Company's total sales for that
year. No other customer accounted for 10 percent or more of the Company's total
sales in either business segment for such fiscal years. The majority of the
Company's sales in both business segments are made to the U.S. Government or to
U.S. Government prime contractors. These contracts tend to 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.
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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. Although the Company devotes a
minimal portion of its resources to pure research and development, the Company
emphasizes the application of its engineering expertise to the development and
refinement of proprietary products. Expenditures by the Company on research and
product development for fiscal years 1995, 1994 and 1993 amounted to
approximately $762,000, $593,000 and $272,000 respectively. The Company
principally utilizes its engineering staff in its research and development
efforts.
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 30, 1995, the Company employed 204 persons. Of such employees,
92 were employed in the microelectronic segment, 107 in the electromechanical
segment and 5 were employed on the corporate staff. A total of 59 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.
NAME, AGE & POSITION BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
- -------------------- ----------------------------------------------
EDWARD A. WHITE, 67 Elected Chairman of the Board of the Company on October 22,
Chairman of the Board 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.
THOMAS K. LANIN, 52 Elected President and Chief Executive Officer on June 2, 1995.
President and Chief Served as Vice President Finance and Chief Financial Officer from
Executive Officer March 1987 and Secretary and Treasurer from April 1987. Elected
as a director of the Company in July 1988.
JOSEPH G. WARREN, JR., 50 Elected Vice President Finance, Chief Financial Officer, Secretary
Vice President Finance, and Treasurer on July 12, 1995. From 1994 to 1995 served as Vice
Chief Financial Officer, President Finance of Axxess Technologies, Inc. From 1993 to 1994
Secretary and Treasurer served as 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.
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ITEM 2 PROPERTIES
The following table sets forth the information as to the Company's principal
properties:
APPROXIMATE
LOCATION SIZE TYPE OF OWNERSHIP OPERATION/FUNCTION
-------- ----------- ----------------- ------------------
Ft. Wayne, IN 75,000 sq. ft. Owned Manufacture of electro-
(plus 10 acres mechanical and
of vacant land mechanical equipment
adjacent thereto) and components
Phoenix, AZ 28,000 sq. ft. Lease (expires Manufacture of
10/97) microelectronic modules
Phoenix, AZ 2,900 sq. ft. Lease (expires 3/98) Corporate executive office
Acton, MA 82,000 sq. ft. Owned Land and buildings held
for sale; leased to
third party
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
NONE.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of fiscal 1995.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See Note 14 to the Consolidated Financial Statements in this Annual Report.
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ITEM 6 SELECTED FINANCIAL DATA
(In thousands of dollars, except share data)
FISCAL YEAR
OPERATIONS: 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 26,869 $ 27,821 $ 20,101 $ 24,596 $ 27,476
- ----------------------------------------------------------------------------------------------------------------------
Gross margin $ 10,153 $ 10,324 $ 5,990 $ 8,171 $ 7,217
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 577 $ 2,550 $ 888 $ 1,416 $ 272
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 3,903 $ 2,175 $ 755 $ 1,243 $ 286
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and equivalents - primary 6,615,241 6,554,441 6,236,590 6,261,963 6,124,655
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share - primary $ 0.54 $ 0.28 $ 0.06 $ 0.20 $ 0.05
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share - fully diluted $ 0.48 $ 0.27 $ 0.06 $ 0.20 $ 0.05
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (AT YEAR END):
- ----------------------------------------------------------------------------------------------------------------------
Working capital $ 6,889 $ 5,209 $ 3,817 $ 3,497 $ 2,324
Total assets $ 17,432 $ 13,783 $ 10,910 $ 11,368 $ 12,354
Long-term debt $ 3,992 $ 4,617 $ 5,078 $ 5,891 $ 8,814
- ----------------------------------------------------------------------------------------------------------------------
Note: No dividends have been declared or paid on Bowmar common shares. There
were 2,792 holders of record of Bowmar common stock on December 18,
1995.
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
Results of Operations
Fiscal 1995, 1994 and 1993 net sales were $26,869,000, $27,821,000 and
$20,101,000 respectively. The 3.4% decrease in net sales from 1994 to 1995 was
the result of a 10.5% decrease in sales in the electromechanical segment. The
decrease in sales in the electromechanical segment was primarily in the
mechanical and interface product lines, partially offset by increased ordnance
and rapid heat transfer sterilizer product lines. The increased sales in the
ordnance product line were positively impacted by a $435,000 claim settlement
recognized in the second quarter of fiscal 1995. Sales during fiscal 1995 in the
microelectronic segment were approximately equivalent to those in the prior
year. This segment experienced a decrease in custom military products which was
offset by an increase in the standard military memory product line. The 38.4%
increase in net sales from 1993 to 1994 was the result of a 137.4% increase in
sales in the microelectronic segment, partially offset by a 21.5% decrease in
sales in the electromechanical segment. Sales in the microelectronic segment
increased by approximately $10.4 million due primarily to a large order for high
density memories being utilized in the Abrams tank, as well as other new memory
products. Sales in the electromechanical segment decreased from 1993 to 1994 by
approximately $2.7 million due primarily to decreased sales in both ordnance and
systems products reflecting increased competitive pressures due to the decreased
level of procurement by the Department of Defense. Sales for the fourth quarter
of fiscal 1993 for the electromechanical segment included $1.9 million received
in settlement of an ordnance claim.
The Company continues to believe that changes in defense spending will not have
a material adverse affect on the Company's overall results. However, it appears
that although the Company's microelectronic segment of the Company's business
could experience growth as a result of changes in defense spending, the
Company's electromechanical segment could continue to be negatively impacted.
Accordingly, the Company continues to pursue its goal of reduced dependency on
the defense industry.
Gross margin, as a percentage of sales, increased slightly during fiscal 1995 to
37.8%. Gross margins in the microelectronic segment were approximately $8.0
million or 44.2% due to improving margins in the standard military memory
product line. Gross margins in the electromechanical segment were approximately
$2.2 million or 24.7% where margin percentages were down in each product line.
The gross margin for this segment was positively impacted by 5% due to the
recognition of the above noted ordnance claim settlement. Gross margins, as a
percent of sales, were 37.1% in fiscal 1994. Gross margins in the
microelectronic segment in 1994 were approximately $7.0 million or 38.9% due
primarily to the increased sales of high density memory products which have a
higher gross margin than other product lines. Gross margins in the
electromechanical segment in 1994 were approximately $3.3 millon or 33.8%.
Although sales in this segment had been down from the prior year, margins in the
mechanical and keyboard product lines increased over that year. Gross margins,
as a percent of sales, had decreased to 29.8% in fiscal 1993. This gross margin
percentage was 28.0% before giving effect to the gross margin of approximately
$900,000 derived from the settlement of a $1.9 million ordnance claim.
Selling, general and administrative expenses in fiscal 1995 were approximately
22.2% greater than those in fiscal 1994. This increase was principally due to
increased commissions, advertising and bonuses in the microelectronic segment,
to the writeoff in the third quarter of $236,000 in prepaid royalty payments and
increased marketing expenses both related to the Cox Sterile Products
acquisition, as well as to a $338,000 charge for the post employment benefits of
a former executive at the Company's headquarters. In fiscal 1994 selling,
general and administrative expense were greater than in 1993, due primarily to
increased commissions, marketing, and promotional support and bonus expenses in
the microelectronic segment, and increased advertising and selling expenses in
the electromechanical segment.
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Product development expense in fiscal 1995 increased by $169,000 or 28% over
1994 due to increased spending on the rapid heat transfer sterilizer in the
electromechanical segment and new product development and research in the
microelectronic segment. Product development expense also increased in fiscal
1994 versus 1993. The increase, primarily in the electromechanical segment,
related to the development of prototypes of a high-definition, low-intensity
dental x-ray machine and the development of a sterilizing autoclave.
Interest expense in fiscal 1995 was approximately the same as in fiscal 1994,
due to decreased borrowing in 1995 which offset the effect of higher interest
rates. Interest expense in fiscal 1994 was approximately the same as in fiscal
1993. The effect of increased borrowing on interest expense was offset by
reduced overall interest rates on term debt and the write off, in 1993 (as
compared to 1994), of greater deferred debt issuance costs. The Company expects
that the lower rates under its new financing agreement will lower its overall
cost of financing in the near term.
Other income in fiscal 1995 consists of net rent proceeds from the Company's
leased facility in Acton, MA., offset primarily by the write-off of $319,000 of
goodwill associated with the Cox Sterile Products acquisition. In fiscal 1994,
other income consisted primarily of the net rent proceeds, offset by expenses
related to a dispute with a state taxing authority and the write-off of disputed
reimbursable costs on a third-party development contract. Other income in fiscal
1993 consisted primarily of net rent proceeds and gains on the disposition of
certain fixed assets.
During the third quarter of fiscal 1995, the Company recorded a $3.3 million tax
credit resulting from the elimination of the valuation allowance, as prescribed
by the provisions of Statement of Financial Accounting Standards No. 109,
related to the Company's deferred tax assets. As a result of this elimination,
the Company's effective tax rate in future years for financial statement
purposes will approximate the statutory rate. The Company is subject to the
alternative minimum tax which, when combined with state taxes, resulted in a
current tax provision of $200,000, $375,000 and $133,000 in fiscal 1995, 1994
and 1993, respectively. During the fourth quarter of fiscal 1994 the Company
recorded a tax liability of $176,000 after becoming 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.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Fiscal year-end 1995 working capital increased to $6,889,000 from $5,209,000 at
October 1, 1994. Included in this increase is $1,698,000 in current deferred tax
assets. 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 1995 is approximately 2.3 to 1. Its total debt-to-equity ratio
improved to approximately 1.2 to 1.
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.
Subsequent to fiscal year-end 1995, the Company entered into a $10.7 million
financing agreement with Bank One Arizona, N.A. The financing agreement provides
for a two-year revolving line of credit facility of $4.0 million at 1% over the
Bank's prime rate, a five year term loan of $4.2 million at 1.25% over the
Bank's prime rate, an acquisition line of credit of $1 million at 1.5% over the
Bank's prime rate and a $1.5 million equipment leasing line of credit.
Approximately $2.1 million of the new term loan was used to pay the outstanding
term loan with Foothill Capital Corporation and approximately $1.8 million was
used to retire the balance of the Company's 13.5% convertible subordinated
debentures. The remaining financing is expected to be used for working capital,
equipment purchases and possible acquisitions.
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The Company continues to seek a buyer for its land and building in Acton, MA,
and anticipates that proceeds from the sale would be in excess of the
obligations thereon.
The Company's capital expenditure plans are principally to expand manufacturing
capacity in the microelectronic segment and to improve the efficiency of the
manufacturing processes, and are expected to be financed largely through leasing
arrangements and, to a lesser extent, through funds provided from operations.
In fiscal 1995 and 1994, the Company generated $3,017,000 and $946,000,
respectively of cash from operating activities. Management anticipates that
operations will continue to generate cash in the foreseeable future. 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.
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
ITEM 11 EXECUTIVE COMPENSATION
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by PART III (ITEMS 10, 11, 12 and 13) is incorporated
herein by reference to the Company's definitive Proxy Statement, prepared in
connection with the 1996 Annual Meeting of Shareholders, filed pursuant to
Regulation 14A.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Supplementary Data
Consolidated Financial Statements Page
--------------------------------- ----
Consolidated Balance Sheets as of September 30, 1995 and 11
October 1, 1994
Consolidated Statements of Income for the Years Ended
September 30, 1995, October 1, 1994 and October 2, 1993 12
Consolidated Statements of Shareholders' Equity for the Years
Ended September 30, 1995, October 1, 1994 and October 2, 1993 13
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, October 1, 1994 and October 2, 1993 14
Notes to Consolidated Financial Statements 15
Report of Independent Accountants 25
Financial Data Schedule
Financial Statement Schedules for the Years Ended September 30,
1995, October 1, 1994, and October 2, 1993
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 amended on July 28,
1995. (The former having been previously filed as Exhibit 3 to
the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, and the latter having been previously
filed as Exhibit 5(a) to the Current Report on Form 8K dated
October 16, 1995, both of which are incorporated here in by
reference.)
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 See Exhibit 3.1 above.
10a
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10.1(a) Loan documents by and between Foothill Capital Corporation
("Foothill") and Bowmar Instrument Corporation and its wholly
owned subsidiaries Bowmar/ALI, Inc. and White Technology, Inc.
(Previously filed as exhibits 10.1(a) through 10.1(n) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1989, Exhibits 10.1(o) through 10.1(w) for
the fiscal year ended September 30, 1990, Exhibit 10.1(x) for
the fiscal year ended September 30, 1991, Exhibits 10.1 (gg)
and (hh) for the fiscal year ended September 30, 1992, and
Exhibits 10.1 (bb) and (cc) for the fiscal year ended October
2, 1993 which are 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(c) Employment agreement dated August 15, 1991 between Edward A.
White and Bowmar Instrument Corporation. (Previously filed as
Exhibit 10.1 (dd) to the Registrant's Annual report of Form
10-K for the fiscal year ended September 30, 1991, 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.)
10.1(e) Amendment No. Sixteen dated April 2, 1994, to General Loan and
Security Agreements dated August 30, 1989, by and among
Foothill, Bowmar Instrument Corporation and Bowmar/Ali, Inc.
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.)
10b
14
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 Agreement, dated as of August 28, 1995, by and between
the Registrant and Bank One, Arizona NA (the "Lender").
10.4(b) Security Agreement, dated as of August 28, 1995, executed by
the Registrant, as Debtor, in favor of the Lender, as Secured
Party.
10.4(c) Promissory Note (Acquisition Note), dated August 28, 1995, in
the principal amount of $1,000,000, executed by the Registrant
in favor of the Lender.
10.4(d) Promissory Note (Term Note), dated August 28, 1995, in the
principal amount of $4,200,000, executed by the Registrant in
favor of the Lender.
10.4(e) Revolving Promissory Note, dated August 28, 1995, in the
principal amount of $4,000,000, executed by the Registrant in
favor of the lender.
10.4(f) Mortgage Security Agreement, Assignment of Rents and Fixture
Filing (Indiana), dated August 28, 1995, by and between the
Registrant, as Mortgagor, and the Lender, as Beneficiary.
10.4(g) Mortgage, Security Agreement, Assignment of Rents and Fixture
Filing (Massachusetts), dated August 28, 1995, by and between
Bowmar/ALI, Inc., a Massachusetts corporation (a wholly-owned
subsidiary of the Registrant), as Mortgagor, and the Lender,
as Beneficiary.
11 Computation of Earnings per share
21 Subsidiaries of the Registrant - The Registrant has one
subsidiary, Bowmar/Ali, Inc., a Massachusetts Corporation.
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 28, 1995, the Registrant filed a report on Form 8-K regarding
its Amended and Restated Code of By-Laws.
(c) Not applicable.
(d) Not applicable.
10c
15
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
SEPTEMBER 30, OCTOBER 1,
1995 1994
- ---------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 739 $ 147
Accounts receivable, net 3,882 4,834
Inventories 5,420 4,866
Prepaid expenses 457 478
Deferred income taxes 1,698 0
- ---------------------------------------------------------------------------------------
Total Current Assets 12,196 10,325
Property, Plant and Equipment, net 1,335 1,446
Deferred Income Taxes 2,167 0
Other Assets, net 1,734 2,012
- ---------------------------------------------------------------------------------------
Total Assets $ 17,432 $ 13,783
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 0 $ 1,135
Current portion of long-term debt 661 639
Accounts payable 1,453 1,036
Accrued salaries and benefits 2,092 1,555
Other accrued expenses 1,101 751
- ---------------------------------------------------------------------------------------
Total Current Liabilities 5,307 5,116
Long-Term Debt 3,992 4,617
Other Long-Term Liabilities 338 0
- ---------------------------------------------------------------------------------------
Total Liabilities 9,637 9,733
- ---------------------------------------------------------------------------------------
Commitments and Contingencies (see Note 10)
- ---------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, $1 par value,
authorized 500,000 shares, issued 119,900 120 120
and 120,032 shares
Common stock, $.10 stated value, authorized
15,000,000 shares, issued 6,499,316 and 6,458,257 shares 650 646
Treasury stock, 44,442 shares, at stated value (4) (4)
Additional paid-in capital 6,245 6,047
Retained earnings (deficit) 784 (2,759)
- ---------------------------------------------------------------------------------------
Total Shareholders' Equity 7,795 4,050
- ---------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 17,432 $ 13,783
=======================================================================================
See notes to consolidated financial statements.
11
16
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except share data)
FISCAL YEAR
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Net sales $ 26,869 $ 27,821 $ 20,101
Cost of sales 16,716 17,497 14,111
- --------------------------------------------------------------------------------------------------------
Gross margin 10,153 10,324 5,990
- --------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 8,315 6,807 4,562
Product development 762 593 272
Interest expense 723 751 775
Other (income) expense, net (224) (377) (507)
- --------------------------------------------------------------------------------------------------------
Total expenses 9,576 7,774 5,102
- --------------------------------------------------------------------------------------------------------
Income before income taxes 577 2,550 888
Income taxes 3,326 (375) (133)
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 3,903 $ 2,175 $ 755
========================================================================================================
Net income per common share:
Primary $ 0.54 $ 0.28 $ 0.06
Fully diluted $ 0.48 $ 0.27 $ 0.06
- --------------------------------------------------------------------------------------------------------
Weighted average number of common shares and equivalents:
Primary 6,615,241 6,554,441 6,236,590
Fully diluted 8,214,708 8,156,853 7,953,494
========================================================================================================
See notes to consolidated financial statements.
12
17
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars, except share data)
TOTAL
ADDITIONAL RETAINED SHARE-
PREFERRED COMMON TREASURY PAID-IN EARNINGS HOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 1992 $ 131 $ 615 $ (3) $ 5,907 $(4,943) $ 1,707
Net income 755 755
Issuance of common stock:
Exercise of options and
awards - 3,000 shares 1 2 3
Exchange of 23,458 shares
for 1,760 shares of preferred (2) 2 0
Deferred compensation costs 12 12
Treasury stock transactions:
Purchase of 20,000 shares (2) (48) (50)
Exercise of options -
13,000 shares 1 21 22
Additional expenses related
to debenture exchange (49) (49)
Payment of preferred dividends (384) (384)
- ----------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 2, 1993 129 618 (4) 5,845 (4,572) 2,016
Net income 2,175 2,175
Issuance of common stock:
Exercise of options and
awards - 161,970 shares 16 158 174
Exchange of 116,873 shares
for 8,768 shares of preferred (9) 12 (3) 0
Deferred compensation costs 47 47
Payment of preferred dividends (362) (362)
- ----------------------------------------------------------------------------------------------------------
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 -
40,500 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
==========================================================================================================
See notes to consolidated financial statements.
13
18
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
FISCAL YEAR
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 3,903 $ 2,175 $ 755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 552 701 528
Amortization of debt issue costs 52 36 146
Deferred income tax benefit (3,526) 0 0
Net changes in balance sheet accounts:
Accounts receivable 952 (1,897) 464
Inventories (554) (692) (1,406)
Prepaid expenses 21 (92) (5)
Other assets 319 0 630
Accounts payable 417 (469) 589
Accrued salaries and benefits 537 964 (609)
Other accrued expenses 350 163 (574)
Other (6) 57 (101)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,017 946 417
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (454) (450) (364)
Proceeds from sales of property, plant and equipment 5 0 12
Net change in other assets (41) (243) 17
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (490) (693) (335)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under (payments on) notes payable, net (1,135) 499 636
Retirement of long-term debt (602) (553) (841)
Issuance of common stock 162 174 25
Payment of costs for preferred stock issuance 0 0 (49)
Payment of preferred stock dividends (360) (362) (384)
Purchase of treasury stock 0 0 (50)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (1,935) (242) (663)
- ------------------------------------------------------------------------------------------------------------------
Net change in cash 592 11 (581)
Cash at beginning of year 147 136 717
- ------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 739 $ 147 $ 136
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest $ 689 $ 974 $ 843
Net cash paid for income taxes $ 164 $ 190 $ 113
Non-Cash Investing and Financing Activities:
Capital lease agreements $ 88 $ 235 $ 0
==================================================================================================================
See notes to consolidated financial statements.
14
19
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
a. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bowmar
Instrument Corporation and its subsidiaries (collectively the
"Company"). All significant intercompany accounts and transactions are
eliminated. Certain amounts in prior fiscal years consolidated
financial statements have been reclassified to conform to current
presentation.
b. CHANGE IN FISCAL YEAR-END
The Company elected in fiscal 1993 to change its fiscal year-end from
September 30 to the Saturday nearest September 30, in order to coincide
the Company's year-end with the 4/4/5 week schedule of its operating
units.
c. ACCOUNTS RECEIVABLE
Accounts receivable have been reduced by an allowance for doubtful
accounts of approximately $102,000 and $126,000 at fiscal year-end 1995
and 1994, respectively.
d. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. In accordance with industry practices,
inventories may include amounts relating to contracts and programs with
long production cycles, a portion of which is not expected to be
realized within one year.
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. PRODUCT DEVELOPMENT
Product development and tooling costs relating to specific customer
orders are charged to expense as such orders are delivered.
15
20
h. INCOME TAXES
The Company files a consolidated tax return with all of its
wholly-owned subsidiaries. Temporary differences in the recognition of
taxable income for financial reporting and income tax purposes relate
primarily to the use of different depreciation methods and useful lives
for tax purposes, the allowances for doubtful accounts and inventory
obsolescence and the timing of reporting bonus expense.
i. NET INCOME PER COMMON SHARE
Primary 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.
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. ACCOUNTING STANDARD NOT ADOPTED
The Company has not made a decision as to the date or method of
adoption of Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" issued in October 1995.
2. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, OCTOBER 1,
1995 1994
- ---------------------------------------------------------------------
Raw materials $ 2,164,000 $ 1,807,000
Work-in-process 2,891,000 2,718,000
Finished goods 365,000 341,000
- ---------------------------------------------------------------------
$ 5,420,000 $ 4,866,000
=====================================================================
Under contractual arrangements by which progress payments are received on U.S.
Government subcontracts, title to inventories identified with related contracts
is vested in the government. Inventories were reduced by $40,000 in 1995 and
$140,000 in 1994 for such progress payments.
3. OTHER ASSETS
Other assets include approximately $1,532,000 for certain land and buildings in
Acton, MA. The Company intends to sell this property which is presently leased
to the purchasers of the Bowmar/ALI Military Systems Division under an operating
lease agreement which extends through February 1997. Rental income during fiscal
years 1995, 1994 and 1993 was $552,000, $532,000 and $512,000, respectively.
Future minimum rentals due the Company under this lease are approximately
$572,000 in 1996 and $242,000 in the first five months of 1997. In fiscal 1994
other assets also included approximately $340,000 of goodwill related to the Cox
Sterile Products acquisition. This remaining goodwill was written off in the
third quarter of fiscal 1995 by a charge of $319,000 to other expense.
16
21
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
SEPTEMBER 30, OCTOBER 1,
1995 1994
--------------------------------------------------------------------
Land $ 123,000 $ 123,000
Buildings and improvements 927,000 888,000
Machinery and equipment 5,745,000 6,639,000
Leasehold improvements 315,000 352,000
Total, at cost 7,110,000 8,002,000
Less accumulated depreciation
and amortization 5,775,000 6,556,000
--------------------------------------------------------------------
$ 1,335,000 $ 1,446,000
====================================================================
At fiscal year-end 1995 and 1994, property, plant and equipment includes
approximately $473,000 and $450,000, respectively, of equipment under leases
that have been capitalized. Accumulated amortization for such equipment
approximated $233,000 and $134,000 for fiscal years 1995 and 1994, respectively.
5. NOTES PAYABLE
Notes payable at September 30, 1995, represent borrowings issued in conjunction
with an asset-based lending agreement with Foothill Capital Corporation
consisting of a credit line and term loans collateralized by the Company's
assets. Subsequent to the fiscal year-end the Company entered into a $10.7
million financing agreement with Bank One Arizona (see Note 6). The Foothill
lending agreement which expired November 15, 1995, had an authorized maximum
borrowing on the credit line of $4,000,000. The credit line bore interest at the
prime interest rate plus 2.75%, which was 11.5%, 10.5% and 9.25% at fiscal
year-end 1995, 1994 and 1993, respectively. The average interest rate for fiscal
years 1995, 1994 and 1993 was approximately 11.4%, 10.1%, and 9.8%,
respectively. The Company paid a commitment fee at a rate of 0.5% per annum on
the unused portion of the credit line.
6. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, OCTOBER 1,
1995 1994
-----------------------------------------------------------------------------
13.5% Convertible subordinated debentures $ 1,826,000 $ 1,826,000
Foothill Capital Corp. term loan 2,314,000 2,581,000
Industrial revenue bonds 472,000 540,000
Obligations under capital leases 41,000 309,000
-----------------------------------------------------------------------------
4,653,000 5,256,000
Less current portion 661,000 639,000
-----------------------------------------------------------------------------
$ 3,992,000 $ 4,617,000
=============================================================================
17
22
The 13.5% convertible subordinated debentures and the Foothill Capital
Corporation term loan were retired in November 1995 from the proceeds of the
$10.7 million financing agreement with Bank One Arizona. As of September 30,
1995, the 13.5% convertible subordinated debentures and the Foothill Capital
Corporation term loan have been classified based on the terms of the new
financing agreement.
The Bank One financing provides for a two year revolving line of credit facility
in the principal amounts of $4.0 million at 1% over the Bank's prime rate; a
five year term loan in the principal amount of $4.2 million at 1.25% over the
Bank's prime rate; an acquisition line of credit of $1 million at 1.5% over the
Bank's prime rate and an equipment leasing line of credit of $1.5 million. 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.
The industrial revenue bonds are payable at the rate of $22,500 per quarter
through September 30, 2000, plus interest at the reference rate of the Fort
Wayne National Bank. The interest rate at September 30, 1995 was 6.6%. The bonds
are collateralized by real property with a net book value of $1,532,000 which is
included in other assets. At September 30, 1995, 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 1, 1996, thereby effectively waiving compliance
through that date.
Based on terms of the industrial revenue bonds, obligations under capital leases
and the terms of the new Bank One financing agreement, the aggregate maturities
of the above term debt, including the interest portion of minimum lease payments
on capital leases, are approximately $661,000 in 1996, $550,000 in 1997,
$511,000 in 1998, $511,000 in 1999, and $2,420,000 in 2000.
7. INCOME TAXES
The (credit) provision for income taxes consists of the following:
FISCAL YEAR
1995 1994 1993
- -------------------------------------------------------------------------------
Current $ 200,000 $ 375,000 $ 133,000
Deferred (3,526,000) 0 0
- -------------------------------------------------------------------------------
$(3,326,000) $ 375,000 $ 133,000
===============================================================================
Based on the Company's recent pre-tax income and projections of future taxable
income over the period in which the deferred income tax assets are deductible,
the Company believes 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
resulting from 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.
18
23
A reconciliation of the (credit) provision for income taxes between the U.S.
statutory and effective rates follows:
FISCAL YEAR
1995 1994 1993
- -----------------------------------------------------------------------------------------
Provision at statutory rate 34.0% 34.0% 34.0%
Alternative minimum tax 0.0 2.0 1.4
State taxes, net of federal benefit 5.9 12.7 13.6
Utilization of federal net operating loss carryover (34.0) (34.0) (34.0)
Elimination of valuation allowance for deferred
tax assets (582.3) 0.0 0.0
- -----------------------------------------------------------------------------------------
(576.4)% 14.7% 15.0%
=========================================================================================
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 30, OCTOBER 1,
1995 1994
- --------------------------------------------------------------------------------------
Inventories $ 554,000 $ 761,000
Accrued salaries, benefits, interest and expenses 971,000 331,000
Net operating loss carryforwards 2,232,000 2,651,000
Alternative minimum tax credits 82,000 50,000
Other 26,000 25,000
Valuation allowance 0 (3,818,000)
- --------------------------------------------------------------------------------------
$ 3,865,000 $ 0
======================================================================================
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 30, 1995, the Company had federal net operating loss carryovers
for tax purposes of approximately $5,656,000 which expire from 2003 through
2005. Additionally, the Company has an alternative minimum tax credit of
approximately $82,000.
19
24
8. BENEFIT PLANS
The Company has a defined benefit pension plan for 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
1995 1994 1993
- -----------------------------------------------------------------------------
Service cost benefits earned $ 69,000 $ 82,000 $ 77,000
Interest cost 130,000 118,000 113,000
Return on plan assets (132,000) (135,000) (119,000)
Amortization of transition assets (10,000) (10,000) (10,000)
Amortization of prior service costs 12,000 12,000 12,000
- -----------------------------------------------------------------------------
$ 69,000 $ 67,000 $ 73,000
=============================================================================
At September 30, 1995, the actuarial present value of accumulated benefit
obligations was $1,782,000 of which $1,774,000 was vested. The vested benefit
obligation is the actuarial present value of the vested benefits to which the
employee is entitled if the employee separates immediately. Prepaid pension cost
at September 30, 1995 and October 1, 1994, was calculated as follows:
SEPTEMBER 30, OCTOBER 1,
1995 1994
- ------------------------------------------------------------------------------
Projected benefit obligation $ 1,782,000 $ 1,546,000
Market value of plan assets 2,047,000 1,903,000
- ------------------------------------------------------------------------------
Plan assets over projected benefit obligation 265,000 357,000
Unrecognized transition asset (28,000) (39,000)
Unrecognized past service costs 92,000 104,000
Unrecognized net loss (gain) (20,000) (118,000)
- ------------------------------------------------------------------------------
$ 309,000 $ 304,000
==============================================================================
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%.
In addition, the Company has an Incentive Savings 401(k) Plan covering
substantially all non-union employees of the Company who have completed six
months of service. During each of the fiscal years 1995, 1994 and 1993, the
Company made contributions to the plan of approximately $45,000, $58,000 and
$58,000 respectively.
20
25
9. STOCK OPTIONS AND AWARDS
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. At September 30, 1995,
30,583 shares were available for future grants to certain officers and employees
at prices not less than the fair market value at the date of grant determined by
the Board of Directors. At fiscal year-end 1995, 234,000 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. Shares from the Company's 1986 Plan remain
under option and are exercisable as early as one year after grant. At fiscal
year-end 1995, 66,000 shares from the Company's 1986 Plan are under option.
The Company's shareholder approved Non-Qualified Stock Option Plan for
Non-Employee Directors provides for 132,069 shares of common stock, for issuance
to non-employee directors, at an exercise price equal to the fair market value
on the date of issuance. The options are exercisable six months after date of
grant and expire in ten years. A total of 74,000 options under this
Non-Qualified Plan have been issued to non-employee directors and remain
unexercised at September 30, 1995.
The Company's shareholder approved Non-Qualified Option provides a non-qualified
option to purchase, for ten years, 275,000 shares of common stock at a price of
$1.375 per share, the closing price of the stock on August 15, 1991, the date on
which the options were granted to the Company's former President. The option is
100% vested. Of such options, 75,000 have been exercised leaving 200,000 shares
unexercised.
A summary of changes in outstanding options follows:
1995 1994 1993
- -----------------------------------------------------------------------------------------
Shares under option, beginning of year 353,500 442,000 442,000
Options granted (at an average
exercise price of $3.315,
$2.415 and $1.743) 257,000 31,000 27,000
Options exercised (at an average
exercise price of $1.476, $1.453 and $1.208) (35,500) (116,000) (21,000)
Options canceled (1,000) (3,500) (6,000)
- -----------------------------------------------------------------------------------------
Shares under option, end of year 574,000 353,500 442,000
=========================================================================================
Shares exercisable 309,250 318,500 410,250
=========================================================================================
Exercise price range $ 1.25 $ 1.25 $ 1.25
to $ 3.63 to $ 3.56 to $ 2.19
=========================================================================================
Shares available for future grant 88,429 248,000 96,000
=========================================================================================
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 is
being expensed over the vesting period. Amounts charged to expense in fiscal
years 1995, 1994 and 1993, net of forfeitures, were $40,000, $47,000, and
$12,000, respectively. At September 30, 1995, a total of 75,500 shares
previously awarded were restricted.
21
26
10. 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 1995, 1994 and 1993 was $399,000, $202,000, and $256,000,
respectively. Future minimum annual fixed rentals required under noncancelable
operating leases having an original term of more than one year are $410,000 in
1996, $273,000 in 1997, $46,000 in 1998, $15,000 in 1999 and $8,000 in 2000.
During fiscal 1995 a claim for $435,000 was settled and recorded as a sale.
There were no costs associated with this claim. During fiscal 1993 a claim which
was settled for $1,900,000 was recorded as a sale. Deferred costs and the
expenses related to the settlement of the claim were recorded as cost of sales.
After giving effect to the costs and related income taxes the impact on fiscal
1993 net income was approximately $820,000.
11. 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.
12. CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to the defense and commercial
industries in the United States. 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.
13. BUSINESS SEGMENTS
The Company operates in two industry segments. These segments are the
manufacture and sale of (1) electromechanical and mechanical equipment and
components, which include electromechanical display devices, electromechanical
components and packages, keyboards and related subsystems and ordnance; and (2)
microelectronic equipment and components, which include high density solid state
memory modules and multichip microcircuits.
A significant portion of the Company's business activity in each business
segment is conducted either directly with, or as a subcontractor to entities
having contracts with, the United States Department of Defense. As of September
30, 1995 and October 1, 1994, the Company's receivables from such customers were
approximately $3,000,000 and $3,189,000, respectively. Certain major customers
made up at least 10% of total Company sales in each of the last three fiscal
years. Sales to one customer of the electromechanical segment were 20% of total
Company sales for fiscal year 1993, while sales to one customer of the
microelectronic segment in fiscal 1995 and 1994 were 21% and 27%, respectively.
Sales to another customer of the microelectronic segment in 1995 were 11% of
total company sales.
Sales for each business segment are principally to unaffiliated customers.
Intersegment sales are not significant. Assets identifiable to industry segments
are those assets which are used in the Company's operations and do not include
general corporate assets. General corporate assets consist primarily of cash,
furniture and fixtures, unamortized debt issue costs and the deferred income tax
assets.
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OPERATIONS BY BUSINESS SEGMENTS
(in thousands of dollars)
FISCAL YEAR
1995 1994 1993
- ------------------------------------------------------------------------------
NET SALES
Electromechanical $ 8,802 $ 9,835 $ 12,524
Microelectronic 18,067 17,986 7,577
- ------------------------------------------------------------------------------
TOTAL $ 26,869 $ 27,821 $ 20,101
==============================================================================
OPERATING INCOME (LOSS)
Electromechanical $ (977) $ 1,110 $ 2,573
Microelectronic 3,680 3,354 (111)
- ------------------------------------------------------------------------------
Operating income 2,703 4,464 2,462
General corporate expense 1,403 1,163 799
Interest expense 723 751 775
Provision for income taxes (3,326) 375 133
- ------------------------------------------------------------------------------
NET INCOME $ 3,903 $ 2,175 $ 755
==============================================================================
IDENTIFIABLE ASSETS
Electromechanical $ 4,248 $ 5,446 $ 3,182
Microelectronic 6,627 6,231 5,795
General corporate 6,557 2,106 1,933
- ------------------------------------------------------------------------------
TOTAL $ 17,432 $ 13,783 $ 10,910
==============================================================================
CAPITAL EXPENDITURES*
Electromechanical $ 249 $ 197 $ 160
Microelectronic 293 484 197
General corporate 0 4 7
- ------------------------------------------------------------------------------
TOTAL $ 542 $ 685 $ 364
==============================================================================
DEPRECIATION AND AMORTIZATION EXPENSE
Electromechanical $ 218 $ 202 $ 182
Microelectronic 278 443 303
General corporate 56 56 43
- ------------------------------------------------------------------------------
TOTAL $ 552 $ 701 $ 528
==============================================================================
* Includes expenditures under capital leases.
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14. INTERIM FINANCIAL RESULTS (UNAUDITED)
(In thousands of dollars, except share data)
- --------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1994
DEC 31 APR 1 JUN 30 SEPT 30 YEAR JAN 1 APR 2 JUL 2 OCT 1 YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,021 $ 6,609 $ 7,004 $ 7,235 $ 26,869 $6,890 $ 6,830 $6,799 $ 7,302 $27,821
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin $ 2,416 $ 2,859 $ 2,312 $ 2,566 $ 10,153 $2,537 $ 2,781 $2,471 $ 2,535 $10,324
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 462 $ 687 $ 2,203 $ 551 $ 3,903 $ 547 $ 641 $ 519 $ 468 $ 2,175
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share:
Primary $ 0.06 $ 0.09 $ 0.32 $ 0.07 $ 0.54 $ 0.07 $ 0.08 $ 0.07 $ 0.06 $ 0.28
Fully diluted $ 0.06 $ 0.09 $ 0.27 $ 0.07 $ 0.48 $ 0.07 $ 0.08 $ 0.06 $ 0.06 $ 0.27
===================================================================================================================================
Common stock market price:
High 3 1/2 3 7/16 3 3/8 3 15/16 5 5/8 4 7/16 4 3 9/16
Low 2 13/16 2 3/4 2 1/2 2 3/4 1 5/8 2 3/4 2 5/8 2 9/16
===================================================================================================================================
Preferred stock market price:
High 47 46 42 1/4 52 72 56 48 48
Low 38 39 1/4 35 39 33 43 38 1/4 37 1/8
===================================================================================================================================
Note: Both common and preferred shares are traded on the American Stock
Exchange.
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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 30, 1995 and October 1, 1994, and
for each of the three years in the period ended September 30, 1995, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 30, 1995 and October 1,
1994, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
December 15, 1995
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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
By:
-----------------------------------
Joseph G. Warren, Jr.
Vice President Finance, Secretary,
Treasurer and Chief Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated:
- ------------------------------- -------------------------------------
Fred N. Gerard Thomas K. Lanin
Director President, Chief Executive Officer
and Director
- ------------------------------- -------------------------------------
Steven P. Matteucci Dan L. McGurk
Director Director
- ------------------------------- -------------------------------------
Thomas M. Reahard Edward A. White
Director Chairman of the Board
and Director
December 27, 1995
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