-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HsmDZc/zEdDLxN3RC/cOg1k4zQloAbFr8Qg0u9xapcE4coTvS8qjcs2vDuV8/+3+ PrvCpldpO1svb7+TlmUXIw== 0000950169-98-000040.txt : 19980126 0000950169-98-000040.hdr.sgml : 19980126 ACCESSION NUMBER: 0000950169-98-000040 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971025 FILED AS OF DATE: 19980123 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOWLES FLUIDICS CORP CENTRAL INDEX KEY: 0000013585 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 520741762 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-37706 FILM NUMBER: 98511802 BUSINESS ADDRESS: STREET 1: 6625 DOBBIN RD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 BUSINESS PHONE: 4103810400 MAIL ADDRESS: STREET 1: 6625 DOBBIN ROAD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 FORMER COMPANY: FORMER CONFORMED NAME: BOWLES ENGINEERING CORP DATE OF NAME CHANGE: 19700629 10-K 1 BOWLES FLUIDICS CORPORATION FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 25, 1997 ____________________________________________________ Commission File Number 2-37706 ____________________________________________________ Bowles Fluidics Corporation _______________________________________________________________________________ (exact name of registrant as specified in its charter) Maryland 52-0741762 _______________________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6625 Dobbin Road, Columbia, Maryland 21045 _______________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number: (410) 381-0400 ____________________________________________________ Securities registered pursuant to Section 12(b) of the Act: None _______________________________________________________________________________ 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 and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____ _____ The aggregate market value of the registrant's voting stock held by non-affiliate persons and entities as of December 31, 1997, computed by reference to the closing price for such stock on the composite reporting system on such date, was $3,277,460 based on 2,439,040 shares. The number of shares of the registrant's common stock outstanding as of December 31, 1997, was 12,640,011. PART I Item 1. BUSINESS Bowles Fluidics Corporation was incorporated under Maryland law in 1961 (originally as Bowles Engineering Corporation) for the purpose of advancing and exploiting the technology of fluidics. For about ten years the principal business of the Company was research and development primarily under contracts with agencies of the U.S. government. From 1972 to 1979 its principal income was derived from the sale of proprietary consumer products it had developed based upon fluid oscillators, including massaging showers and oral irrigation devices. These consumer products have since been discontinued. Since 1979 its principal product has been proprietary windshield and rear window washer nozzles for the automotive industry. Late in FY 1989, the Company extended the automotive product line to include shipments of fluidic defroster nozzles. The Company also provides its automotive customers with tooling and application engineering services related to its products. The Company has continued to expend efforts on the research and development of new fluidic products for the automotive and other industries. The air conditioning outlet in the instrument panel of automotive vehicles has been a particular focus. Prototypes have been developed and presented to a number of potential customers. At present, two customers have selected the Company as the supplier of these outlets, one for a vehicle scheduled to start production in 1999 and the other for production in 2000. Principal Products and Markets The Company is the leading designer, manufacturer and supplier of windshield and rear window washer nozzles for passenger cars and light trucks in North America. Defroster nozzles for a limited number of these same light vehicles are also being manufactured and sold. The Company's principal market for its fluidic nozzles, both windshield washer and defroster, consists of North America, i.e., the "Big Three" U.S. automotive manufacturers and foreign transplants. The Company believes that it supplies about 80% of the total windshield washer nozzle requirements for light vehicles (cars and light trucks) manufactured in the United States, Canada and Mexico. The defroster nozzle is currently being supplied to a number of vehicle models in this market. The Company has a licensing agreement covering Europe with a major German automotive parts supplier for its windshield washer systems. The Company itself has no international operations. 2 In North America, over 90% of the Company's production of nozzles is incorporated in vehicles produced by General Motors, Ford and Chrysler, each of whom typically represents over 10% of the Company's sales volume. The Company is, therefore, dependent upon the requirements of the U.S. automotive industry producing cars and light trucks. Although the Company enters into agreements with its customers to meet 100% of their production requirements, notice of firm shipping requirements for the coming week generally takes place weekly from the assembly plants and at somewhat longer intervals from the first-tier suppliers. The Company's monthly sales follow the seasonal pattern dictated by the production levels of its customers. Consequently, sales for the second and fourth quarters of the Company's fiscal year are typically higher than for the first and third. Sales also include technical services, i.e., design, tooling, and prototyping services for the Company's customers. The requirements of the automotive customers are for designs and tools to meet the needs of forthcoming vehicle models or changes in existing models, as well as for prototypes of new products desired for testing. These sales are, for the most part, undertaken as a service to the customers, and the Company contracts these services and tools so as to recover projected costs. Patents and Competitive Products The Company has engaged, since its inception, in research and development in the fields of fluidics and fluid effect devices, encompassing both gases and liquids. Over the past 19 years, 46 U.S. patents have been granted to the Company's employees and assigned to the Company. Twelve applications are presently in process for additional U.S. patents. Patents in selected other countries have also been granted for most of the art covered by the U.S. patents. Although these patents embody new and novel technology or product, there is available competitive technology and alternative product. The extent to which the expiration of an individual patent may affect the Company's competitive position is difficult to determine. In the past, U.S. patents were granted for a period of 17 years from the date of issue. However, beginning in June 1995, those granted in the past can be for a period of either 17 years from date of issue or 20 years from date of filing the application, whichever expiration date is later. Those granted on applications filed after June 1995 are for a period of 20 years from date of filing. The Company's fluidic windshield washer and defroster nozzles, which are covered by issued U.S. and international patents, are in direct competition with conventional nozzles of traditional design. The Company believes that its products have advantages both in performance and in economy of assembly to the vehicle by the car manufacturers. 3 The Company is of the opinion that, in the long run, a history of service, delivery, quality and economic supply is the most important factor in binding its customers to it. Customers of the Company place a great deal of emphasis on quality. The Company has maintained Ford's preferred supplier rating (Q1 award) since 1985, has been rated an excellent status in a supplier assessment by General Motors, and has been a self-certified supplier for Chrysler since 1991. The Company's material testing laboratory has been accredited by General Motors since 1992. In addition, the Company's customers required that the Company put into place a QS-9000-compliant quality system, the automotive version of ISO 9000. Registration deadlines were July 1997 for Chrysler and December 1997 for General Motors. The Company went through the initial independent assessment in September 1996, received certification in December 1996 as a QS-9000 supplier with ISO 9001 addendum, and has maintained that certification since then. The Company does not grant North American licenses for its own patents in which it has an interest in marketing a product. The Company does pursue interests expressed by others in the Company's technology in an attempt to broaden its use. To the extent that there may be additional uses in markets not related to those of primary interest to the Company, efforts are made to license the patents for such use. Raw Material Sources and Availability Raw materials, primarily plastic resin, are sourced within the United States. The market was stable during the current year with some weakening in polypropylene prices toward the end of the year. Adequate supply is expected to be available in the coming year. The resins purchased are restricted to those approved by the Company's customers. Working Capital Requirements The Company's standard credit terms for receivables are net 30 days. Adequate levels of inventories are normally maintained in order to ensure compliance with the stringent delivery requirements of our customers. The design and acquisition of production tools, which represent the major portion of technical services sales, normally take several months to complete, during which period the Company has to make progress payments which are included in work-in-process inventories. Sales invoices for these tools and services are rendered only after completion and customers' acceptance of qualified products produced by the tools. 4 Research and Development The Company's research and development costs, all Company-funded, were: % of Sales ---------- FY 1997 $1,005,183 5.3 FY 1996 $1,175,890 6.5 FY 1995 $ 636,970 3.8 In FY 1997, the Company's research and development efforts were directed primarily toward the further development of fluidic air conditioning outlets for cars and light trucks, and the advancement of its knowledge of the workings of fluidic washer nozzles, including additional wind tunnel testing. These efforts resulted in a number of patent filings. In FY 1996, these same two areas were also the primary focus of the research and development expenditures. During FY 1997 and FY 1996, a customer committed $275,000 to the design of air conditioning outlets for a specific model vehicle, which expenditures have been included in application engineering expenses. Potential sales of products still in the development stage cannot be predicted since product capability and customer acceptance of the new technology are difficult to determine. Employees The Company averaged approximately 245 employees during FY 1997 and employed 252 people on a full-time basis on October 25, 1997. The increase from the 242 employed on October 26, 1996, was in the marketing, quality control, and engineering departments. Compliance with Environmental Regulations The Company believes it is in compliance with all known environmental regulations and has no plans for significant expenditures to meet these requirements in the future. Item 2. PROPERTIES In September 1993, the Company entered into an amendment to its original lease agreement for 62,600 sq. ft. of space in a building located in Columbia, Maryland, its principal location. The amended lease provided for the Company's occupancy of the premises until April 16, 2004, and the addition in September 5 1993 of 14,226 sq. ft. and in February 1994 of another 12,000 sq. ft. The Company is now the sole occupant of the premises. In an addendum to the lease, the landlord agreed to make certain improvements to the premises financed by a supplement to the rent. The lease amendment further provides an option to continue the lease for an additional ten years or to purchase the premises at 94% of fair market value at the first termination of the lease. The facility, which now totals 88,826 sq. ft., provides for the Company's needs for manufacturing windshield washer and defroster nozzles at levels adequate to meet projected customer needs. The enlarged premises also allow for additional capacity for manufacturing forecasted air conditioning outlets. The facilities are currently utilized as follows: Manufacturing, Materials, Quality Control 60,560 sq. ft. Administration and Sales 8,538 sq. ft. Laboratories and Engineering 19,728 sq. ft. -------------- Total Area 88,826 sq. ft. ============== Beginning April 15, 1997, the Company leased for three years 1,617 sq. ft. of office space in Southfield, Michigan, to be used by the sales staff. Item 3. LEGAL PROCEEDINGS During FY 1994 and 1996, the Company discovered in the market two instances of windshield washer nozzles which infringed upon its windshield washer patents. As a result, the Company filed suits for patent infringement in the United States District Court for the District of Maryland. Both suits were settled favorably to the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 PART II Item 5. MARKET FOR REGISTRANT'S STOCK AND RELATED STOCKHOLDER MATTERS Stock Price and Markets The common stock of the Company is traded in the "over-the-counter" market and is quoted on the NASD OTC Bulletin Board; symbol BOWE. The preferred stock is unregistered and is not publicly traded. The high and low bid and asked prices of the common stock over the last two fiscal years are listed below: Bid Asked ------------------- -------------------- FY High Low High Low -- ---- --- ---- --- 1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4 2nd Quarter 1 3/8 5/8 1 9/16 3/4 3rd Quarter 13/16 7/16 7/8 9/16 4th Quarter 3 1/8 3/4 3 1/2 7/8 1996 1st Quarter 5/8 3/8 1 3/4 2nd Quarter 3/8 3/8 3/4 3/4 3rd Quarter 3/8 3/8 3/4 5/8 4th Quarter 7/8 1/8 1 1/4 7/16 Note: The above quotes represent prices between dealers and do not include retail mark-up, mark-down, or commissions. They do not represent actual transactions. Approximate Number of Equity Security Holders Approximate Number of Record Holders Title of Class (as of October 25, 1997) -------------- ------------------------ Common Stock $.10 Par Value 440 Preferred Stock 8% Cumulative 44 Included in the number of stockholders of record are shares held in "Nominee" or "Street" name. 7 Dividends The Company has never paid cash dividends on its common stock. Payment of dividends on common stock is within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating financial condition of the Company. For information concerning dividends on preferred stock, see Note 6 of Notes to Consolidated Financial Statements. 8 Item 6. SELECTED FINANCIAL DATA
October 25, 1997 October 26, 1996 October 28, 1995 October 29, 1994 October 30, 1993 ---------------- ---------------- ---------------- ---------------- ---------------- Net sales $18,842,673 $18,128,274 $16,972,876 $15,111,829 $12,299,037 Net income 1,142,023 884,306 1,783,875 1,727,020 1,076,040 Primary earnings per share .08 .06 .13 .13 .08 Fully diluted earnings .07 .05 .11 .11 .07 per share Working capital 5,414,955 4,649,328 4,296,368 3,126,959 1,791,192 Total assets 11,784,701 10,719,852 9,292,446 8,478,227 6,231,132 Long-term debt -- -- 202,811 512,831 584,612 Stockholders' equity 8,511,429 $ 7,439,552 $ 6,629,891 $ 4,907,664 $ 3,246,590
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations FY 1997 vs FY 1996 Total FY 1997 sales of $18,842,673 increased 4% above FY 1996 sales of $18,128,274, again achieving a new record for the Company. Net income for FY 1997 rose to $1,142,023, representing a 29% gain over FY 1996 net income of $884,306. Adjusting for the FY 1996 nonrecurring accrual of $760,000, (which reduced the Company's after-tax net income by $465,400) for the expenses related to the termination of the sales agreement with its manufacturer's representatives, net income for FY 1997 declined 15% principally due to higher application engineering and tooling costs. Product sales of light vehicle windshield washer and defroster nozzles increased 5% to $18,110,514 in FY 1997 from $17,292,030 in FY 1996. Higher volume of shipments of newly and previously designed washer nozzles to the Big Three U.S. car manufacturers as well as the transplant manufacturers in the U.S. was the reason for the gain, even though defroster outlet sales declined due to discontinuation of certain models. This 5% increase compares favorably with the 2% gain in North American light vehicle production during the same period. The Company's operating plans for the 1998 fiscal year assume that industry production levels in North America will be 2% to 4% less than in the 1997 fiscal year. However, the Company's expectations for defroster nozzle sales are for a larger decline because of lower forecasted volume for the related vehicles. In contrast to the increase in product sales for FY 1997, technical services sales decreased 12% to $732,159 from FY 1996's $836,244. Sales of tooling for new windshield washer nozzles were down due to deferrals in the completion and approvals of these tooling programs. For the 1998 fiscal year, technical services sales are forecasted to be significantly higher due to the addition of tooling sales related to the production of the new air conditioning outlets. Gross profit on total sales declined 6% to $5,777, 299 in FY 1997. The margin on sales diminished to 30.7% in FY 1997 from 33.8% in the previous fiscal year. The declines occurred principally due to increased application engineering expenses associated with the customization of new windshield and rear window washer nozzles. In addition, higher tooling costs over and above amounts billed to customers were incurred for the development and support of both washer nozzle and air conditioning outlet tooling projects. 10 Selling, general and administrative expenses declined $548,359 or 15% in FY 1997 from FY 1996 because of the accrual in fiscal year 1996 of $760,000 for expenses related to the termination of the Company's sales agreement with its manufacturer's representatives. Excluding this nonrecurring accrual, selling, general and administrative expenses increased 7% in fiscal year 1997 principally due to professional fees for services related to strategic and financial planning for the Company. Research and development costs decreased 15% to $1,005,183 from $1,175,890 the previous fiscal year. Spending on various new product programs was cut back and larger amounts were spent on the design and development of the automotive air conditioning outlets. Research and development expenditures are planned to expand in the range of 15% in fiscal year 1998. Efforts will continue to be made in the development of air conditioning outlets for cars and light trucks and in the knowledge and improvement of washer nozzles. In FY 1997, the provision for income taxes was $657,420, reflecting the higher income before taxes and approximately the same effective tax rate as in the previous fiscal year. FY 1996 vs FY 1995 Total sales in FY 1996 rose 7% over FY 1995, which then set the Company's sales record at $18,128,274 compared with $16,972,876 in FY 1995. Income before taxes, however, decreased 53% from FY 1995 to FY 1996. Net income also declined to $884,306 from $1,783,875 in FY 1995, a 50% reduction. Profitability was significantly affected by increased spending for application engineering and research and development expenses and for an accrual for the costs of terminating a sales agreement. Product sales of light vehicle windshield washer and defroster nozzles increased 8% to $17,292,030 in FY 1996 from $15,960,301 in FY 1995. Higher volume of shipments of new products to the Company's major customers was the major reason for the increase, which more than compensated for a 3% decline in total North American light vehicle production for the fiscal year 1996 versus 1995. In contrast, technical services sales in FY 1996 decreased 17% to $836,244 from FY 1995's $1,012,575. Sales of tooling for new windshield washer and defroster nozzles were down significantly as there was a lower rate of culmination of programs for these products. However, sales were recorded for the first time for prototype tooling for new air conditioning outlets for one automotive customer. 11 Gross profit on total sales declined to 34% in FY 1996 from 36% in FY 1995. The gross profit on product sales declined due to higher manufacturing expenses mainly related to the modification and repair of injection molding tooling. Additionally, application engineering costs directed to the customization of new air conditioning outlets increased significantly. In contrast, the gross loss on technical services sales declined for FY 1996 compared to FY 1995 because of cost containment efforts applied to the tooling programs for new windshield washer nozzles. Selling, general and administrative expenses increased $1,033,217 or 40% in FY 1996 from FY 1995 principally because of increases in sales commissions. These commissions in FY 1996 include accruals of $760,000 related to the planned termination in May 1997 of the Company's sales agreement with its manufacturer's representatives. The Company is reorganizing its sales force using its own employees rather than independent representatives. Aside from this special accrual, expenses increased 10% due to higher patent, personnel, and computer expenses, partially caused by the efforts to obtain QS-9000 certification and the implementation of a new information system. Research and development costs increased to $1,175,890 in FY 1996, a $538,920 or 85% increase over the prior year. The Company discontinued its efforts to develop fluidic nozzles for natural gas burner appliances. It redirected those same resources plus additional personnel and outside contractors to the development of automotive air conditioner outlets, improvements in the design of windshield washer nozzles, and fluidic technology research. In FY 1996, the provision for income taxes was $506,629, reflecting the lower income before taxes and somewhat lower effective tax rate of 36.4% versus 39% for FY 1995. Liquidity and Capital Resources Current assets at the 1997 fiscal year end were $8,195,361 compared with $7,183,195 at the 1996 fiscal year end. Liquidity of these assets improved as cash and cash equivalents, short-term investments, and accounts receivable rose to $5,430,709 from $4,640,605 due to the positive cash flow provided by operating activities during FY 1997. Inventories increased 7% for the 1997 fiscal year since the tooling work-in-process rose due to larger investments in tool programs for both washer nozzles and air conditioning outlets, offsetting a significant decrease in finished goods. Current liabilities rose 10% for the fiscal year as a result of the inclusion of all of the now current remaining liability for the expenses associated with the termination of the Company's sales agreement with its manufacturer's representatives. 12 The current ratio of 2.9:1 at the 1997 fiscal year end increased in comparison to the 2.8:1 ratio at the 1996 fiscal year end due to the improved level of liquid assets. Cash provided by operating activities in the amount of $1,509,348 in fiscal year 1997 resulted principally from net income of $1,142,023 plus the non-cash charges for depreciation and amortization of $960,346. Funds were used for capital expenditures in the amount of $1,027,780 principally for production and computer equipment. During the year, the Company purchased $1,540,015 of U.S. Treasury bills and sold $600,000 of such bills as a result of the Company's increase in liquidity. The Company's $1,000,000 short-term line of credit was not utilized during the fiscal year 1997 and had no balance outstanding at October 25, 1997. The preferred stock dividend was declared and paid in January 1997. The Company's financial position and credit facilities should provide an adequate base for sales and production investment requirements resulting from forecasted production rates by North American automotive manufacturers, additional market penetration, and potential new products near term, including air conditioning outlets. In order to perform the required electronic communication with its customers, control production, and receive product and services from its suppliers, the Company needs to ensure that its own computer systems and those of its suppliers will function properly for the year 2000 and beyond. The Company is taking the necessary steps and expects to have its internal computer systems year 2000 compliant by the end of 1998 and is in the process of assessing the status of the production equipment software. The Company does not expect the costs of compliance to be significant to its results of operations. Its suppliers are being surveyed to assess the status of their systems. Forward-Looking Statements This report contains certain forward-looking statements subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Readers are cautioned not to place undue reliance on those forward-looking statements which speak only as of the date of this report. 13 Schedule A: Relationship to Net Sales
Percent Change of Dollars ----------------------------- Period-to-Period Percentage of Net Sales Increase or (Decrease) ------------------------------------------ ----------------------------- FY 1997 FY 1996 FY 1995 1996-1997 1995-1996 ------- ------- ------- --------- --------- Net sales 100.0 100.0 100.0 3.9 6.8 Direct labor, material and other product- related costs 69.3 66.2 63.9 8.7 10.5 Selling, general and administrative expenses 16.4 20.1 15.4 (15.1) 39.6 Research and development costs 5.3 6.5 3.8 (14.5) 84.6 ----- ----- ----- Operating income 8.9 7.2 16.9 27.8 (54.3) Interest income 0.6 0.5 0.5 31.5 (84.5) Other income (expense) net -- -- (0.1) -- (14.8) ---- ----- ----- Net income before taxes 9.5 7.7 17.3 29.4 (52.6) ===== ===== =====
14 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page ---- Report of Independent Accountants........................................16 Financial Statements: Consolidated Statements of Income..................................17 Consolidated Balance Sheets........................................18 Consolidated Statements of Changes in Stockholders' Equity.........19 Consolidated Statements of Cash Flows..............................20 Notes to Consolidated Financial Statements.........................21 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Bowles Fluidics Corporation We have audited the accompanying consolidated balance sheets of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three fiscal years in the period ended October 25, 1997. 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 financial position of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the results of its operations and its cash flows for each of the three fiscal years in the period ended October 25, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Baltimore, Maryland December 19, 1997 16 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended ----------------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ------------ ----------- ----------- Net sales $18,842,673 $18,128,274 $16,972,876 Cost of sales 13,065,374 11,996,305 10,852,940 ---------- ---------- ---------- Gross profit 5,777,299 6,131,969 6,119,936 Selling, general and administrative expenses 3,094,769 3,643,128 2,609,911 Research and development costs 1,005,183 1,175,890 636,970 ---------- ---------- ---------- Operating income 1,677,347 1,312,951 2,873,055 Interest income 117,541 89,401 90,155 Other income (expense), net 4,555 (11,417) (30,433) ---------- ---------- ---------- Income before taxes 1,799,443 1,390,935 2,932,777 Provision for income taxes 657,420 506,629 1,148,902 ---------- ---------- ---------- Net income 1,142,023 884,306 1,783,875 Preferred stock dividends accrued (74,646) (74,645) (74,648) ---------- ---------- ---------- Income applicable to common shareholders $ 1,067,377 $ 809,661 $ 1,709,227 ========== ========== ========== Primary earnings per share $ .08 $ .06 $ .13 ========== ========== ========== Fully diluted earnings per share $ .07 $ .05 $ .11 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 17 BOWLES FLUIDICS CORPORATION CONSOLIDATED BALANCE SHEETS
October 25, October 26, 1997 1996 ----------- ----------- ASSETS Current Cash and cash equivalents $ 755,525 $ 1,287,110 Investments available for sale 1,563,121 577,837 Accounts receivable 3,112,063 2,775,658 Inventories 2,130,615 1,986,065 Other current assets 634,037 556,525 ---------- ---------- Total current assets 8,195,361 7,183,195 ---------- ---------- Property and equipment, net 3,494,335 3,428,765 Other assets 95,005 107,892 ---------- ---------- Total assets $11,784,701 $10,719,852 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $ 1,122,437 $ 1,104,511 Accrued expenses 1,609,807 1,389,356 Income taxes payable 48,162 40,000 ---------- ---------- Total current liabilities 2,780,406 2,533,867 Other liabilities 492,866 746,433 ---------- ---------- Total liabilities 3,273,272 3,280,300 ---------- ---------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,264,001 1,261,001 Additional paid-in capital 2,728,083 2,726,583 Retained earnings ($2,407,467 deficit eliminated at 10/29/94) Note 6 3,586,265 2,518,888 ---------- ---------- Total stockholders' equity 8,511,429 7,439,552 ---------- ---------- Total liabilities and stockholders' equity $11,784,701 $10,719,852 ========== ==========
The accompanying notes are an integral part of these financial statements. 18 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock --------------------- ----------------------- Additional Shares Shares Paid-in Retained Total (000's) Amount (000's) Amount Capital Earnings ----------- ------- --------- ------- ------------ ------------- ---------- Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ -- Stock options exercised 13,000 20 2,000 11,000 Preferred stock dividends (74,648) (74,648) Net income 1,783,875 1,783,875 --------- ---- -------- ------ ---------- ---------- --------- Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227 Preferred stock dividends (74,645) (74,645) Net income 884,306 884,306 --------- ---- -------- ------ ---------- ---------- --------- Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888 Stock options exercised 4,500 30 3,000 1,500 Preferred stock dividends (74,646) (74,646) Net income 1,142,023 1,142,023 --------- ---- -------- ------ ---------- ---------- --------- Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265 ========= === ======= ====== ========= ========= =========
The accompanying notes are an integral part of these financial statements. 19 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended -------------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 1,142,023 $ 884,306 $ 1,783,875 Adjustments to reconcile net income provided by operating activities: Depreciation and amortization 960,346 750,449 661,024 Deferred income taxes 5,900 (241,315) (36,500) (Gain)/Loss on disposal of assets 21,089 3,088 (2,267) Accretion of interest on investments (45,269) (31,659) (14,125) ---------- ---------- ---------- 2,084,089 1,364,869 2,392,007 ---------- ---------- ---------- Change in operating accounts: Accounts receivable (336,405) (14,264) (844,509) Inventories (144,550) (86,719) (202,846) Other assets (86,758) (122,381) (111,535) Accounts payable 17,926 109,090 (70,656) Accrued expenses (189,549) 537,235 57,314 Income taxes payable 8,162 (71,441) (431,715) Other liabilities 156,433 428,049 63,150 ---------- ---------- ---------- (574,741) 779,569 (1,540,797) ---------- ---------- ---------- Net cash provided by operating activities: 1,509,348 2,144,438 851,210 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures (1,027,780) (1,321,331) (962,597) Purchase of investments (1,540,015) (566,664) (1,143,566) Patents and trademarks (4,433) -- (32,556) Proceeds from sale of equipment 1,441 -- 31,025 Proceeds from sale of investments 600,000 700,000 962,985 ---------- ---------- ---------- Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709) ---------- ---------- ---------- Cash flows from financing activities: Principal payment of debt -- (271,669) (525,102) Preferred stock dividends (74,646) (74,645) (74,648) Proceeds from issuance of common stock 4,500 -- 13,000 ---------- ---------- ---------- Net cash used by financing activities (70,146) (346,314) (586,750) ---------- ---------- ---------- Net increase(decrease) in cash and cash equivalents (531,585) 610,129 (880,249) Cash and cash equivalents: - Beginning of period 1,287,110 676,981 1,557,230 ---------- ---------- ---------- - End of period $ 755,525 $ 1,287,110 $ 676,981 ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 20 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies General. The Company and its wholly owned subsidiary, Fluid Effects Corporation, operate on a 52/53-week fiscal year which ends on the last Saturday of October. All years presented are 52 weeks. Assets and liabilities, and revenues and expenses, are recognized on the accrual basis of accounting. Cash Equivalents. Cash equivalents are highly liquid investments with original maturities of 90 days or less. Investments. Investments, which are available for sale, consist of U.S. Treasury bills with original maturities over 90 days, but not greater than 365 days, and are carried at cost plus accrued interest, which approximates market. Inventory Pricing. Inventories are carried at the lower of cost (first-in, first-out) or market. Property, Equipment and Depreciation. The cost of property and equipment is depreciated over the estimated useful life of the related assets. Depreciation is computed on the straight-line method for all assets based on the following estimated lives: Years ----- Production machinery and equipment 3-10 Office furniture and equipment 5-7 Laboratory and machine shop equipment 3-10 Leasehold improvements lease term Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was $939,678, $711,282, and $612,294 respectively. Patents. Costs associated with obtaining United States patents are capitalized and amortized using the straight-line method over the life of the patent beginning with the date of issue or date of filing the application. The Company initially charges all costs associated with the acquisition of U.S. and foreign patents to expense, then capitalizes those costs related to U.S. patents upon issuance of those patents. Management reviews all of the patent costs and writes off any patents which are considered to be of no foreseeable economic benefit to the Company. The Company recognizes income from patent licenses in accordance with the respective payment terms of each license agreement. 21 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. (continued) Income Taxes. The Company uses the asset and liability method for accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications. Certain 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and cash investments. The Company's customer base includes the significant U.S. automotive manufacturers and a large number of automotive parts suppliers. The Company does not require collateral for its trade accounts receivable. However, the Company's credit evaluation process, reasonably short collection terms, and the geographical dispersion of sales transactions help to mitigate any concentration of credit risk. The Company also has cash investment policies that limit the amount of credit exposure to any one financial institution and require placement of investments in financial institutions evaluated as highly creditworthy. 2. Inventories Inventories are comprised of: 1997 1996 ---------- ---------- Raw material $ 620,567 $ 678,494 Work and tooling in progress 1,016,845 242,369 Finished goods 493,203 1,065,202 --------- --------- Total $2,130,615 $1,986,065 ========= ========= 22 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3.Property and Equipment, net Property and Equipment, net, is comprised of: 1997 1996 ---------- ---------- Production machinery and equipment $4,946,390 $4,397,018 Office furniture and equipment 2,321,844 1,992,152 Laboratory and machine shop equipment 1,428,516 1,395,837 Leasehold improvements 812,120 796,928 ---------- ---------- Total property and equipment 9,508,870 8,581,935 Less accumulated depreciation (6,014,535) (5,153,170) --------- --------- Property and equipment, net $3,494,335 $3,428,765 ========= ========= 4. Line of Credit In May 1996, the Company entered into a fourth amended and restated agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and extend its $1,000,000 line of credit until May 8, 1997, on an unsecured basis. At the Company's request and the Bank's discretion the line of credit was extended until May 8, 1998, and may be reaffirmed each year thereafter. The interest rate is Mercantile's prime rate, floating, which was 8-1/2% as of October 25, 1997. In addition, a 3/8% annual fee is assessed on the unused portion of this credit facility. Advances on the line of credit are limited to 85% of eligible accounts receivable and 40% of finished goods inventory. No amount was outstanding on this credit line at October 25, 1997, or October 26, 1996. In addition to the maintenance of certain financial ratios, the covenants of the fourth amended loan agreement require the Company's tangible net worth to be not less than $2,000,000 as of the close of each fiscal year. 5. Debt No debt was outstanding as of October 25, 1997, and October 26, 1996. In February 1996 the unpaid balance of the then outstanding loan from Mercantile-Safe Deposit & Trust Company was paid in total. Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and $37,586, respectively. 23 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Stockholders' Equity The 8% convertible preferred stock of the Company at October 25, 1997, and October 26, 1996, consists of 3,000,000 authorized shares, par value $1.00 per share, with 933,080 shares issued and outstanding on both dates. The common stock of the Company at October 25, 1997, and October 26, 1996, consists of 17,000,000 authorized shares, par value $.10 per share. On October 25, 1997, the shares issued and outstanding were 12,640,011, whereas on October 26, 1996, they were 12,610,011. The Company's preferred stock provides for an annual dividend of $.08 per share from the net earnings of the Company and is cumulative only for those years in which the Company has earnings, and $1.00 per share in liquidation before any distribution can be made to holders of common stock. If any dividends payable on the preferred stock with respect to any fiscal year of the Company are not paid for any reason, the rights of the holders of the preferred stock to receive payment of such dividends shall not lapse or terminate; but unpaid dividends shall accumulate and shall be paid without interest to the holders of the preferred stock when and as authorized by the Board of Directors before any dividends shall be paid on any other class of stock. The Company's preferred stock may at the option of the holder, at any time dividends are current, be converted into common stock of the Company at the conversion rate of four shares of common for each share of preferred. Additionally, the preferred stock is redeemable at par in whole or in part at the option of the Board of Directors at any time the dividends are current after a period of 10 years subsequent to issue. At October 25, 1997, 683,080 shares have been outstanding for more than 10 years and dividends are current, and thus can be converted. The common stock has one (1) vote per share and the preferred stock has four (4) votes per share. Reserved Shares. As of and for the three fiscal years in the period ended October 25, 1997, there were 300,000 shares of common stock reserved for issuance in connection with the Company's stock option plans. None of the authorized shares of common stock are reserved for conversion of preferred stock. Under the laws of the State of Maryland, the authorization of the preferred stock in itself provides the authorization of common stock necessary for conversion. Quasi-reorganization. Effective October 29, 1994, the Board of Directors approved a quasi-reorganization which had the impact of eliminating the retained earnings deficit as an adjustment to additional paid-in capital. 24 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes The Company and its subsidiary file a consolidated federal income tax return and separate state income tax returns. The provision for income taxes consisted of the following: 1997 1996 1995 --------- --------- --------- Federal: Current $620,131 $678,938 $1,019,525 Deferred (6,100) (222,600) (30,100) -------- ------- --------- 614,031 456,338 989,425 -------- ------- --------- State: Current 43,189 68,791 164,377 Deferred 200 (18,500) (4,900) -------- ------- --------- 43,389 50,291 159,477 -------- ------- --------- $657,420 $506,629 $1,148,902 ======= ======= ========= The components of the deferred tax asset and liability for 1997 and 1996 were as follows: 1997 1996 --------- --------- Deferred tax assets: Accrued vacation and retirement programs $ 83,600 $190,300 Non-deductible reserves 490,600 387,100 ------- ------- Total deferred tax assets 574,200 577,400 ------- ------- Deferred tax liabilities: Property and equipment (303,700) (312,800) ------- ------- Total deferred tax liabilities (303,700) (312,800) ------- ------- Net deferred tax assets $270,500 $264,600 ======= ======= Reconciliation of the provisions for income taxes at the U.S. federal statutory rate to the effective tax expense were as follows: 1997 1996 1995 -------- -------- ---------- U.S. statutory income tax $611,811 $472,918 $ 997,145 State taxes, net of federal income tax benefit 28,637 33,711 105,255 Other, net 16,972 -- 46,502 ------ ------ ------- $657,420 $506,629 $1,148,902 ======= ======= ========= Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for 1997, 1996, and 1995, respectively. 25 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share Primary earnings per share are based on the weighted average number of common shares and the effects of shares issuable under stock options based on the treasury stock method. Fully diluted earnings per share assumes that the preferred stock is converted to common stock at the beginning of the year. The number of shares used for computing primary earnings per share was 12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995, respectively. The number of shares used in computing fully diluted earnings per share was 16,423,720, 16,473,390, and 16,445,005 in 1997, 1996, and 1995, respectively. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (FAS 128), which will require companies to present basic earnings per share (EPS) and diluted earnings per share, instead of the primary and fully diluted EPS that is currently required. The new standard requires additional informational disclosures, and also makes certain modifications to the currently applicable EPS calculations defined in Accounting Principles Board Opinion No. 15. The new standard is required to be adopted by all public companies for reporting periods ending after December 15, 1997, and will require restatement of EPS for all periods reported. Under the requirements of FAS 128, the Company's EPS would be as follows: October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Basic earnings per share $ .08 $ .06 $ .14 Diluted earnings per share .07 .05 .11 9. Commitments and Contingencies The Company leases its facilities under non-cancelable operating leases which expire in 2004 for Columbia, Maryland, and in 2000 for Southfield, Michigan. As of October 25, 1997, minimum annual aggregate rentals are as follows: Year Ended Amount ---------- ------ 1998 $ 593,835 1999 594,831 2000 577,026 2001 561,648 2002 561,648 thereafter 842,472 --------- Total minimum future rental payments $3,731,460 ========= 26 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. (continued) Rent expense under all leases for 1997, 1996, and 1995 was $644,008, $626,565, and $622,671, respectively. Management is unaware of any pending legal proceedings which would have a material adverse effect on the financial statements of the Company. 10. Employee Benefit Plans On November 1, 1990, the Company adopted a defined contribution (401k) plan covering substantially all of its employees. Contributions and costs were determined by matching 50% of employee contributions up to 4% of each covered employee's earnings. As of April 1, 1994, the Company increased its matching contribution to 50% of the employee contributions up to 6% of each covered employee's earnings. The Company's contributions to the plan were $151,314, $119,640, and $101,286 in 1997, 1996, and 1995, respectively. The Company has agreed to retirement programs for certain former officers providing for the payment of certain retirement benefits. The unfunded present value, at a discount rate of 7.5%, of these benefits accumulated as of October 25, 1997, amounts to approximately $347,000, of which $288,000 is included in other liabilities. Expenses related to these programs were $46,476 in 1997, $44,000 in 1996, and $102,000 in 1995. 11. Stock Options In May 1992, the Company adopted its key employee incentive stock option plan. Activity in the Company's incentive stock option plan was as follows: 1997 1996 1995 ----------- ----------- ----------- Options outstanding, beginning of year 180,000 180,000 200,000 Options granted - - - Options exercised (30,000) - (20,000) Options expired (80,000) - - ------------ ----------- ----------- Options outstanding, end of year 70,000 180,000 180,000 =========== =========== =========== Options activities are at exercise prices ranging from $.15 to $.65 per share. 27 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. (continued) Statement of Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) became effective for the Company in 1997. As allowed by FAS 123, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its stock option plans. FAS 123 requires the Company to present pro forma information as if the Company had accounted for stock options granted since December 15, 1995, under the fair value method of FAS 123. No pro forma information has been presented by the Company as no stock options have been issued since December 15, 1995, the effective date of FAS 123. 12. Termination of Sales Agreement During the fiscal year 1996, the Company accrued $760,000 ($465,400 net of income taxes) for the termination in May 1997 of the sales agreement with its manufacturer's representatives. The payments commenced in May 1997, and the current balance as of October 25, 1997, was $532,270, which is expected to be paid during fiscal year 1998. 13. Major Customers Over 90% of the Company's production of nozzles is incorporated in vehicles produced by General Motors, Ford, and Chrysler, each of whom typically represents over 10% of the Company's sales volume. The Company is, therefore, substantially dependent upon the North American production requirements of these three automotive companies. In addition, the Company's customers required that a QS-9000-compliant quality system be developed and registered by an independent organization. Registration deadlines were July 1997 for Chrysler and December 1997 for General Motors. In September 1996, the Company was assessed by Underwriters Laboratories Inc., received QS-9000 certification with ISO 9001 addendum as of December 20, 1996, and has maintained that certification since then. 14. New Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued the following Statements of Financial Standards ("FAS"): 28 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. (continued) o FAS No. 129, Disclosure of Information about Capital Structures This statement becomes effective for fiscal years ending after December 15, 1997, and continues the previous requirements to disclose certain information about an entity's capital structure found in previously issued Opinions and Standards. The Company currently follows the provisions for this statement. o FAS No. 131, Disclosures about Segments of an Enterprise and Relative Information This statement becomes effective for fiscal years beginning after December 15, 1997, and changes the way public companies report information about segments of their business in their financial statements and requires them to report selected segment information in their quarterly reports to stockholders. The Company intends to adopt the disclosure requirement by this statement for the year ending October 30, 1999. 29 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 30 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors of the Registrant Information is included in the Proxy Statement for the Annual Meeting of Stockholders on March 12, 1998. Executive Officers of the Registrant
Name, Age and Position: Business Experience During Past Five Years: ----------------------- ------------------------------------------- William Ewing III Chairman of the Board since July 1996. Responsible for the formation Chairman of the Board of of overall corporate policy and planning. Member of Board of Directors Directors since 1985. Previously Vice President and Treasurer of Age 51 Reeves Industries, Inc., 1995-1997, and Managing Director of Chemical Bank, 1992-1994. Ronald D. Stouffer President since March 1994. Responsible for execution of the President Company's policies and for the Company's operations. Executive Vice Chief Executive Officer President responsible for engineering and manufacturing from 1982 to Age 66 1994. Member of Board of Directors since 1978. Joined the Company in 1967. Eric W. Koehler Appointed Executive Vice President and member of Board of Directors Executive Vice President December 17, 1997, in charge of marketing, sales, and engineering Age 35 functions. Previously Vice President, Marketing, since March 1994, responsible for marketing and sales functions. Director of Marketing, 1990-1994. Joined the Company in 1989. Melvyn J. L. Clough Vice President, Operations, since joining the Company in November Vice President, 1995. Responsible for manufacturing operations including industrial Operations engineering and tooling. Previously Engineering Manager for A. Age 50 Raymond, Inc., 1992-1995. Richard W. Hess Vice President, Engineering, since joining the Company in 1992. Vice President, Responsible for the Company's engineering department, including Engineering, research and development and applications engineering activities. Age 54
31 Executive Officers of the Registrant (continued)
Name, Age and Position: Business Experience During Past Five Years: ----------------------- ------------------------------------------- Eleanor M. Kupris Vice President, Administration, since 1982. Corporate Secretary since Secretary and Vice Presi- March 1992. Responsible for purchasing and personnel. Joined the dent, Administration Company in 1966. Age 56 David A. Quinn Vice President, Finance, since joining the Company in October 1993. Vice President, Responsible for treasury, accounting and financial planning Finance functions. Previously CFO for Bruning Paint Company, 1991-1993. Age 61 Dharapuram N. Srinath Vice President, Quality Assurance, since March 1995. Responsible for Vice President, quality assurance and reliability functions. Director of Quality Quality Assurance Assurance and Product Reliability, 1992-1995. Joined the Company in Age 46 1978. Arlene M. Hardy Corporate Controller since 1990. Responsible for accounting Corporate Controller functions. Joined the Company in 1986. Age 50
The names, ages and positions of all of the executive officers of the Company are listed above, along with their business experience during the past five years. Officers are appointed annually by the Board of Directors at its meeting immediately following the Annual Meeting of Stockholders. There are no family relationships among any of the officers of the Company, nor any arrangements or understanding between any such officers and another person pursuant to which they were elected as officers. Item 11. EXECUTIVE COMPENSATION - ------------------------------------ Information is included in the Proxy Statement for the Annual Meeting of Stockholders on March 12, 1998. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ---------------------------------------------------------------------------- Information is included in the Proxy Statement for the Annual Meeting of Stockholders on March 12, 1998. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------------ Information is included in the Proxy Statement for the Annual Meeting of Stockholders on March 12, 1998. 32 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ----------------------------------------------------------------------------- (a) 1 Financial Statements -------------------- Included in Part II of this report: Report of Independent Accountants Consolidated Statements of Income for the three years ended October 25, 1997, October 26, 1996, and October 28, 1995 Consolidated Balance Sheets at October 25, 1997, and October 26, 1996 Consolidated Statements of Changes in Stockholders' Equity for the three years ended October 25, 1997, October 26, 1996, and October 28, 1995 Consolidated Statements of Cash Flows for the three years ended October 25, 1997, October 26, 1996, and October 28, 1995 Notes to Consolidated Financial Statements (a) 2 Financial Statements Schedules ------------------------------ Schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. (a) 3 Exhibits -------- Exhibit 11 - Schedule showing computations of earnings per share for each of three years ended October 25, 1997, October 26, 1996, and October 28, 1995 (b) Reports on Form 8-K ------------------- None 33 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE A. PRIMARY EARNINGS PER SHARE
For the Fiscal Year Ended -------------------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Calculation of net income: Net income per books $ 1,142,023 $ 884,306 $ 1,783,875 Less: Dividends on convertible preferred stock 74,646 74,645 74,648 ----------- ----------- ----------- Net income as adjusted $ 1,067,377 $ 809,661 $ 1,709,227 =========== =========== =========== Calculation of outstanding shares: Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed exercise of stock options 48,607 91,887 113,055 ----------- ----------- ----------- Number of common shares outstanding adjusted 12,682,371 12,701,898 12,706,408 =========== =========== =========== Primary earnings per common share: $ .08 $ .06 $ .13 =========== =========== ===========
34 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE (continued) B. FULLY DILUTED EARNINGS PER SHARE
For the Fiscal Year Ended -------------------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Net income per books $ 1,142,023 $ 884,306 $ 1,783,875 =========== =========== =========== Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed conversion of preferred stock 3,732,320 3,732,320 3,732,320 Assumed exercise of stock options 57,636 131,059 119,332 ----------- ----------- ----------- Number of common shares outstanding adjusted 16,423,720 16,473,390 16,445,005 =========== =========== =========== Fully diluted earnings per common share $ .07 $ .05 $ .11 =========== =========== ===========
35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOWLES FLUIDICS CORPORATION BY: Chairman of the Board and - --------------------------- Director ------------------------- William Ewing III Date President and - --------------------------- Director ------------------------- Ronald D. Stouffer Date Executive Vice President and - --------------------------- Director ------------------------- Eric W. Koehler Date Vice President - --------------------------- Finance ------------------------- David A. Quinn Date - --------------------------- Corporate Controller ------------------------- Arlene M. Hardy Date - --------------------------- Director ------------------------- David C. Dressler Date - --------------------------- Director ------------------------- John E. Searle, Jr. Date
36 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 12-MOS OCT-25-1997 OCT-25-1997 755,525 1,563,121 3,112,063 0 2,130,615 8,195,361 9,508,870 6,014,535 11,784,701 2,780,406 0 0 933,080 1,264,001 6,314,348 11,784,701 18,842,673 18,842,673 13,065,374 17,165,326 (122,096) 0 0 1,799,443 657,420 1,142,023 0 0 0 1,142,023 0.08 0.07
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