-----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, ATEYoHx+7iygpmLY71YOqBwYMK8SftYty+RwackdsxYYorHza8g37kh/tFM54LMh Tmm+Vfe3G/nZ4Gc3V55J2A== 0000950169-99-000002.txt : 19990218 0000950169-99-000002.hdr.sgml : 19990218 ACCESSION NUMBER: 0000950169-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOWLES FLUIDICS CORP CENTRAL INDEX KEY: 0000013585 STANDARD INDUSTRIAL CLASSIFICATION: 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: 99517057 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 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 31, 1998 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 24, 1998, computed by reference to the closing price for such stock on the composite reporting system on such date, was $908,274 based on 1,038,027 shares. The number of shares of the registrant's common stock outstanding as of December 24, 1998, was 12,685,011. 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 August 1999 and the other for production in February 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, 52 U.S. patents have been granted to the Company's employees and assigned to the Company. Ten 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. 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. Their market prices were generally stable during the current year and 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 accumulates such costs 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 1998 $ 866,390 4.1 FY 1997 $1,005,183 5.3 FY 1996 $1,175,890 6.5 In FY 1998, the Company's research and development efforts were directed primarily toward basic research and the design of new fluidic nozzles intended for a variety of purposes resulting in the filing of a number of patent applications. In FY 1997 and FY 1996, 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 wind tunnel testing. These efforts resulted in a number of patent filings. 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 275 employees during FY 1998 and employed 278 people on a full-time basis on October 31, 1998. The increase from the 252 employed on October 25, 1997, was primarily in the manufacturing 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 The Company entered into an amended lease in September 1993 for, in effect, all of the space at its facility in Columbia, Maryland, its principal location until April 16, 2004. 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 end of the initial term of the lease. 5 The facility provides for the Company's current needs for manufacturing windshield washer and defroster nozzles at levels adequate to meet projected customer needs and for manufacturing committed air conditioning outlets. Additional space for warehousing, however, will be required in the near future. The Columbia facilities are currently utilized as follows: Manufacturing, Materials, Quality Control 66,264 sq. ft. Administration and Sales 8,883 sq. ft. Laboratories and Engineering 13,679 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 its sales staff. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None were submitted during the fourth quarter of the Company's fiscal year. 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 1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8 2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8 3rd Quarter 1 3/4 1 2 1 3/8 4th Quarter 1 1/32 23/32 1 1/2 1 1/8 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. On December 8, 1998, the Board of Directors of the Company adopted a resolution authorizing the submission to the vote of the stockholders of the Company of a proposed amendment to the Articles of Incorporation of the Company under which all outstanding shares of common stock will be subject to a reverse stock split at the ratio of 1,000 shares of common stock before the reverse split to 1 share of common stock after the reverse split. The Board of Directors also adopted a resolution authorizing the redemption of all fractional shares of common stock resulting from the reverse stock split at the rate of $1,250 per post reverse split share. This proposed amendment to the Articles of Incorporation is pending subject to stockholder approval. Following the reverse stock split and purchase of resulting fractional shares of common stock, it is expected that the number of shareholders of the Company's common stock will be reduced from approximately 430 (as of October 15, 1998) to less than 200. 7 The number of holders of the Company's preferred stock will remain unchanged at approximately 18. As a result of the reduction in number of record shareholders below 300, the Company intends to suspend its obligation to file periodic reports with the Securities and Exchange Commission pursuant to section 15(d) of the Exchange Act of 1934. Approximate Number of Equity Security Holders Approximate Number of Record Holders Title of Class (as of October 31, 1998) -------------- ------------------------ Common Stock $.10 Par Value 389 Preferred Stock 8% Cumulative 18 Included in the number of stockholders of record are shares held in "nominee" or "street" name. 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 current and forecasted earnings, investment requirements, and the 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 31, 1998 October 25, 1997 October 26, 1996 October 28, 1995 October 29, 1994 ---------------- ---------------- ---------------- ---------------- ---------------- Net sales $21,084,804 $18,842,673 $18,128,274 $16,972,876 $15,111,829 Net income 932,186 1,142,023 884,306 1,783,875 1,727,020 Basic earnings per share .07 .08 .06 .14 .14 Diluted earnings per share .06 .07 .05 .11 .11 Working capital 5,389,165 5,414,955 4,649,328 4,296,368 3,126,959 Total assets 12,355,321 11,784,701 10,719,852 9,292,446 8,478,227 Long-term debt -- -- -- 202,811 512,831 Stockholders' equity $ 9,378,219 $ 8,511,429 $ 7,439,552 $ 6,629,891 $ 4,907,664
9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations FY 1998 vs. FY 1997 Total FY 1998 sales of $21,084,804 increased 12% over FY 1997 sales of $18,842,673, almost all due to higher technical services sales. Net income for FY 1998 was $932,186, an 18% decrease from the FY 1997 net income of $1,142,023. The principal reasons for the decrease were higher manufacturing costs of the windshield washer nozzles and the unfavorable effect of the General Motors strike during the Company's third quarter. Product sales of light vehicle windshield washer and defroster nozzles increased 1.5% or $275,409 to $18,385,923 in FY 1998 from $18,110,514 in FY 1997. Sales of washer nozzles provided an increase of $595,206, while those of defroster nozzles decreased $319,797 due to declining sales of the related older vehicle models. Sales of washer nozzles to the Big Three U.S. car manufacturers were approximately equal to the prior year. The Company's third quarter sales of both washer and defroster nozzles in FY 1998 were significantly affected by the strike at the General Motors auto plants in June and July. The Company's operating plans for the 1999 fiscal year assume that production requirements for light vehicle production in North America will be approximately equal to FY 1998. Technical services sales increased 269% to $2,698,880 in FY 1998 from $732,159 in FY 1997. In FY 1998 tooling and design services included those related to the new air conditioning outlets scheduled to start production for two vehicles during the next two fiscal years and those for newly designed washer nozzles for future car production, both of which were an increase over the prior year. For the 1999 fiscal year, technical services are forecasted to be somewhat higher than FY 1998 due to continuing tooling sales related to the new air conditioning outlets and washer nozzles. Gross profit on total sales declined 15% to $4,938,956 in FY 1998 from $5,777,299 in FY 1997. As a percentage of total sales, gross profit was 23.4% in FY 1998 versus 30.7% in FY 1997. Manufacturing costs were higher as a number of newly designed washer nozzles began production and a number of initiatives were taken including the introduction of cell manufacturing to improve the manufacturing processes. The decline in sales due to the General Motors strike also caused the gross profit to decline. In addition, the significantly larger 10 technical sales in FY 1998 versus FY 1997 which have essentially no profit margin negatively impacted the gross profit percentage on total sales. Selling, general and administrative expenses declined 13% in FY 1998 from FY 1997 due to the savings from the elimination of the higher sales commissions paid to the manufacturer's representatives and their replacement with the Company's own sales force in the Detroit area. Research and development costs decreased 14% to $866,390 in FY 1998 from $1,005,183 in the prior year due to a decline in the spending on the design and development of the automotive air conditioning outlets. The Company's plans call for the maintenance of this level of R&D spending in FY 1999. Interest income declined in FY 1998 due principally to lower cash and cash equivalents and investments available for sale. Other income increased because of higher royalties and license income generated by the sales of the Company's licensee outside North America. The provision for income taxes of $575,953 in FY 1998 reflects the lower income before taxes as compared to FY 1997. The effective income tax rate for FY 1998 was higher than FY 1997 due to increases in state taxes. FY 1997 vs. FY 1996 Total FY 1997 sales of $18,842,673 increased 4% above FY 1996 sales of $18,128,274. 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. 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. 11 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. 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. 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. Liquidity and Capital Resources Current assets at the 1998 fiscal year end were $7,825,174 compared with $8,195,361 at the end of the prior fiscal year. The decline of $370,187 was principally related to the decline of $584,385 in cash and cash equivalents and investments available for sale partially offset by the addition of the income taxes receivable of $194,213. Inventories rose by 6% during the fiscal year. Finished goods were built up to reach more comfortable levels to meet the stringent customer service requirements, and the tooling work-in-process declined since the tools were completed and approved for sale. Current liabilities declined 12% or $344,397 as the remaining payments were made during FY 1998 for the liability associated with the termination of the Company's sales agreement with its manufacturer's representatives. The current ratio of 3.2:1 at the 1998 fiscal year end increased in comparison to the 2.9:1 ratio at the 1997 fiscal year end principally due to the decline in current liabilities. 12 Cash provided by operating activities in the amount of $1,493,822 in fiscal year 1998 resulted principally from net income of $932,186 plus the non-cash charges for depreciation and amortization of $1,091,634 offset by an increase in working capital of $843,803. Funds were used for capital expenditures in the amount of $2,014,132 principally for production and computer equipment. The Company expects to spend approximately the same amount for capital expenditures in FY 1999. During the year, the Company sold $1,586,735 of U.S. Treasury Bills to meet working capital and capital expenditure requirements. The Company's $1,000,000 short-term line of credit was not utilized during the fiscal year 1998 and had no balance outstanding at October 31, 1998. The preferred stock dividend was declared and paid in January 1998. The Company's cash flow, financial position, and credit facilities should provide an adequate base for working capital and production investment requirements resulting from projected production rates by North American automotive manufacturers, additional market penetration, and potential new products near term, including air conditioning outlets. Impact of Year 2000 The management of the Company has considered the impact of the changeover before, during and after midnight, December 31, 1999, to January 1, 2000, on the handling of data and information, any related software, and functions of operations. Inadequate handling of the changeover could have a significant impact on the Company as follows: a) business systems - internal computer information system, CAD/CAM engineering design systems, payroll and personnel systems, and electronic data interchange (EDI) systems; b) manufacturing, warehouse and support equipment; c) technical infrastructure, e.g. network, computer server, personal computers, and telephone systems; d) production, service, and other suppliers; e) environmental support systems, e.g. security and maintenance systems; f) dedicated research and development systems. The changeover will have no direct impact on the Company's products themselves. 13 The Company's management has addressed each one of the above issues where the impact applies and has in general either updated the system, acquired a new system, tested the system and found compliance, or been assured by the equipment or software manufacturer that the related items were in compliance. A timetable was established in 1997, and all the necessary steps have been taken and completed with respect to the Company's internal systems. The Company's suppliers have been surveyed to assess the status of their systems, focusing on those with the largest potential impact on the Company. Questionable areas with respect to the Company's customers and suppliers continue to be addressed. Aside from the acquisition of new systems which were considered to be necessary and timely for the future successful functioning of the business, the costs of the steps taken were not material to the Company's profitability or financial condition. The most reasonable likely worst cases if the changeover were not handled properly by the Company's systems or its suppliers would be loss of power and/or communications for a temporary period which would impact production. Since the Company provides its products to and communicates daily with the auto companies' assembly plants or their other suppliers, this loss could be a serious problem. The Company plans to build inventory to meet this short-term contingency and consider alternative means of communications. Any significant loss of revenue would be directly related to lost production by the North American auto companies, which is not considered probable and cannot be estimated at this time. 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. 14 Schedule A: Relationship to Net Sales
Percent Change of Dollars ------------------------- Period-to-Period Percentage of Net Sales Increase or (Decrease) ------------------------------- ------------------------- FY 1998 FY 1997 FY 1996 1997-1998 1996-1997 ------- ------- ------- --------- --------- Net sales 100.0 100.0 100.0 11.9 3.9 Direct labor, material and other product-related costs 76.5 69.3 66.2 23.6 8.7 Selling, general and administrative expenses 12.8 16.4 20.1 (13.0) (15.1) Research and development costs 4.1 5.3 6.5 (13.8) (14.5) ----- ----- ----- Operating income 6.6 8.9 7.2 (17.6) 27.8 Interest income 0.3 0.6 0.5 (39.1) 31.5 Other income (expense) net 0.3 -- -- -- -- ----- ----- ----- Net income before taxes 7.2 9.5 7.7 (16.2) 29.4 ===== ===== =====
15 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Report of Independent Accountants...............................................17 Financial Statements: Consolidated Statements of Income....................................18 Consolidated Balance Sheets..........................................19 Consolidated Statements of Changes in Stockholders' Equity...........20 Consolidated Statements of Cash Flows................................21 Notes to Consolidated Financial Statements...........................22
16 REPORT OF INDEPENDENT ACCOUNTANTS December 16, 1998 To the Board of Directors and Stockholders Bowles Fluidics Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Bowles Fluidics Corporation as of October 31, 1998, and October 25, 1997, and the results of its operations and its cash flows for each of the three fiscal years in the period ended October 31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 17 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended --------------------------------------------------------------- October 31, October 25, October 26, 1998 1997 1996 ----------- ----------- ------------ Net sales $21,084,804 $18,842,673 $ 18,128,274 Cost of sales 16,145,848 13,065,374 11,996,305 ---------- ---------- ----------- Gross profit 4,938,956 5,777,299 6,131,969 Selling, general and administrative expenses 2,691,141 3,094,769 3,643,128 Research and development costs 866,390 1,005,183 1,175,890 ---------- ---------- ----------- Operating income 1,381,425 1,677,347 1,312,951 Interest income 71,530 117,541 89,401 Other income (expense), net 55,184 4,555 (11,417) ---------- ---------- ----------- Income before taxes 1,508,139 1,799,443 1,390,935 Provision for income taxes 575,953 657,420 506,629 ---------- ---------- ----------- Net income 932,186 1,142,023 884,306 Preferred stock dividends accrued (74,646) (74,646) (74,645) ---------- ---------- ----------- Income applicable to common shareholders $ 857,540 $ 1,067,377 $ 809,661 ========== ========== =========== Basic earnings per share $ .07 $ .08 $ .06 ========== ========== =========== Diluted earnings per share $ .06 $ .07 $ .05 ========== ========== ===========
The accompanying notes are an integral part of these financial statements. 18 BOWLES FLUIDICS CORPORATION CONSOLIDATED BALANCE SHEETS
October 31, October 25, 1998 1997 ----------- ----------- ASSETS Current Cash and cash equivalents $ 1,734,261 $ 755,525 Investments available for sale -- 1,563,121 Accounts receivable 3,233,775 3,112,063 Income taxes receivable 194,213 -- Inventories 2,263,144 2,130,615 Other current assets 399,781 634,037 ----------- ----------- Total current assets 7,825,174 8,195,361 ----------- ----------- Property and equipment, net 4,408,404 3,494,335 Other assets 121,743 95,005 ----------- ----------- Total assets $ 12,355,321 $ 11,784,701 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $ 1,109,902 $ 1,122,437 Accrued expenses 1,326,107 1,609,807 Income taxes payable -- 48,162 ----------- ----------- Total current liabilities 2,436,009 2,780,406 Other liabilities 541,093 492,866 ----------- ----------- Total liabilities 2,977,102 3,273,272 ----------- ----------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,268,501 1,264,001 Additional paid-in capital 2,732,833 2,728,083 Retained earnings 4,443,805 3,586,265 ----------- ----------- Total stockholders' equity 9,378,219 8,511,429 ----------- ----------- Total liabilities and stockholders' equity $ 12,355,321 $ 11,784,701 =========== ===========
The accompanying notes are an integral part of these financial statements. 19 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 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 Stock options exercised 9,250 45 4,500 4,750 Preferred stock dividends (74,646) (74,646) Net income 932,186 932,186 ---------- ------ -------- ------ ---------- ---------- ---------- Balance October 31, 1998 $9,378,219 933 $933,080 12,685 $1,268,501 $2,732,833 $4,443,805 ========= === ======= ====== ========= ========= =========
The accompanying notes are an integral part of these financial statements. 20 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, October 25, October 26, 1998 1997 1996 ----------- ----------- --------- Cash flows from operating activities: Net income $ 932,186 $ 1,142,023 $ 884,306 Adjustments to reconcile net income provided by operating activities: Depreciation and amortization 1,091,634 960,346 750,449 Deferred income taxes 332,759 (5,900) (241,315) (Gain)/Loss on disposal of assets 4,660 21,089 3,088 Accretion of interest on investments (23,614) (45,269) (31,659) ---------- ---------- --------- 2,337,625 2,072,289 1,364,869 ---------- ---------- --------- Change in operating accounts: Accounts receivable (121,712) (336,405) (14,264) Inventories (132,529) (144,550) (86,719) Other assets (26,447) (74,958) (122,381) Accounts payable (12,535) 17,926 109,090 Accrued expenses (283,700) (189,549) 537,235 Income taxes (242,375) 8,162 (71,441) Other liabilities (24,505) 156,433 428,049 ---------- ---------- --------- (843,803) (562,941) 779,569 ---------- ---------- --------- Net cash provided by operating activities: 1,493,822 1,509,348 2,144,438 ---------- ---------- --------- Cash flows from investing activities: Capital expenditures (2,014,132) (1,027,780) (1,321,331) Purchase of investments -- (1,540,015) (566,664) Patents and trademarks (32,347) (4,433) -- Proceeds from sale of equipment 10,054 1,441 -- Proceeds from sale of investments 1,586,735 600,000 700,000 ---------- ---------- --------- Net cash used in investing activities (449,690) (1,970,787) (1,187,995) ---------- ---------- --------- Cash flows from financing activities: Principal payment of debt -- -- (271,669) Preferred stock dividends (74,646) (74,646) (74,645) Proceeds from issuance of common stock 9,250 4,500 -- ---------- ---------- --------- Net cash used by financing activities (65,396) (70,146) (346,314) ---------- ---------- --------- Net increase(decrease) in cash and cash equivalents 978,736 (531,585) 610,129 Cash and cash equivalents: - Beginning of period 755,525 1,287,110 676,981 ---------- ---------- --------- - End of period $ 1,734,261 $ 755,525 $1,287,110 ========== ========== =========
The accompanying notes are an integral part of these financial statements. 21 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. The fiscal year 1998 has 53 weeks and fiscal years 1997 and 1996 have 52 weeks. Assets and liabilities, and revenues and expenses, are recognized on the accrual basis of accounting. Fluid Effects Corporation was merged into the Company as of April 6, 1998. 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 1998, 1997, and 1996 was $1,085,349, $939,678, and $711,282 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. 22 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 1996 and 1997 amounts have been reclassified to conform to the 1998 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 and reasonably short collection terms 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: 1998 1997 ---------- ----------- Raw material $ 720,084 $ 620,567 Work and tooling in progress 791,805 1,016,845 Finished goods 751,255 493,203 ---------- ---------- Total $2,263,144 $2,130,615 ========= ========= Tooling in progress includes costs accumulated under short-term contracts to produce tooling for certain of the Company's customers of $598,193 and $865,700 in 1998 and 1997 respectively. 23 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Property and Equipment, net Property and Equipment, net, is comprised of: 1998 1997 ---------- ---------- Production machinery and equipment $6,328,351 $4,946,390 Office furniture and equipment 2,502,438 2,321,844 Laboratory and machine shop equipment 1,586,801 1,428,516 Leasehold improvements 894,816 812,120 ----------- ---------- Total property and equipment 11,312,406 9,508,870 Less accumulated depreciation (6,904,002) (6,014,535) --------- --------- Property and equipment, net $4,408,404 $3,494,335 ========= ========= 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, 1999, and may be reaffirmed each year thereafter. The interest rate is Mercantile's prime rate, floating, which was 8% as of October 31, 1998. 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 31, 1998, or October 25, 1997. 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 31, 1998, and October 25, 1997. In February 1996 the unpaid balance of the then outstanding loan from Mercantile-Safe Deposit & Trust Company was paid in total. 24 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Stockholders' Equity The 8% convertible preferred stock of the Company at October 31, 1998, and October 25, 1997, 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 31, 1998, and October 25, 1997, consists of 17,000,000 authorized shares, par value $.10 per share. On October 31, 1998, the shares issued and outstanding were 12,685,011, whereas on October 25, 1997, they were 12,640,011. 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 31, 1998, 683,080 shares have been outstanding for more than 10 years and dividends are current, and thus can be redeemed. 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 31, 1998, 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. 25 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: 1998 1997 1996 -------- -------- ---------- Federal: Current $195,218 $620,131 $678,938 Deferred 292,675 (6,100) (222,600) -------- --------- -------- 487,893 614,031 456,338 -------- --------- -------- State: Current 47,976 43,189 68,791 Deferred 40,084 200 (18,500) -------- --------- -------- 88,060 43,389 50,291 -------- --------- -------- $575,953 $657,420 $506,629 ======= ======= ======= The components of the deferred tax asset and liability for 1998 and 1997 were as follows:
1998 1997 -------- -------- Deferred tax assets: Accrued vacation and retirement programs $ 43,818 $ 83,600 Non-deductible reserves 261,882 490,600 ------- ------- Total deferred tax assets 305,700 574,200 ------- ------- Deferred tax liabilities: Property and equipment (368,000) (303,700) ------- ------- Total deferred tax liabilities (368,000) (303,700) ------- ------- Net deferred tax asset (liability) $ (62,300) $ 270,500 ======= =======
Reconciliation of the provisions for income taxes at the U.S. federal statutory rate to the effective tax expense were as follows: 1998 1997 1996 ------------- ------------ --------- U.S. statutory income tax $512,767 $611,811 $472,918 State taxes, net of federal income tax benefit 58,736 28,637 33,711 Other, net 4,450 16,972 -- -------- -------- -------- $575,953 $657,420 $506,629 ======== ======== ======== Cash paid for income taxes was $489,000, $584,000, and $877,000 for 1998, 1997, and 1996 respectively. 26 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share Effective October 26, 1997, the Company adopted Statement of Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the presentation of primary earnings per share (EPS) and fully diluted EPS with a presentation of basic EPS and diluted EPS. All earnings per share amounts presented in the financial statements here have been restated in accordance with SFAS 128. Basic earnings per share is determined based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share is determined based on the weighted average number of common shares outstanding and potential dilution of securities that could share in earnings. The following table sets forth the computation of basic and diluted earnings per share:
For the Years Ended ------------------------------------------------------- October 31, October 25, October 26, 1998 1997 1996 ----------------- --------------- ---------------- Numerator: Numerator for basic earnings per share: Income applicable to common shareholders $ 857,540 $ 1,067,377 $ 809,661 Effect of dilutive securities: Preferred Stock Dividends 74,646 74,646 74,646 ------------ ----------- ----------- Numerator for diluted earnings per share Income applicable to common shareholders after assumed conversion $ 932,186 $ 1,142,023 $ 884,306 ---------- ---------- ---------- Denominator: Denominator for basic earnings per share: Weighted average shares outstanding during the period 12,660,294 12,633,764 12,610,011 Effect of dilutive securities: Employee Stock Options 32,160 48,607 91,887 Assumed Conversion of Preferred Stock 3,732,320 3,732,320 3,732,320 ----------- ----------- ----------- Denominator for diluted earnings per share 16,424,774 16,414,691 16,434,218 ---------- ---------- ---------- Earnings per Share: Basic $ .07 $ .08 $ .06 === === === Diluted $ .06 $ .07 $ .05 === === ===
27 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 31, 1998, minimum annual aggregate rentals are as follows: Year Ended Amount ---------- ------ 1999 $ 594,929 2000 572,831 2001 561,646 2002 561,646 2003 561,646 thereafter 257,421 ----------- Total minimum future rental payments $3,110,119 Rent expense under all leases for 1998, 1997, and 1996 was $666,908, $644,008, and $626,565 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 $169,685, $151,314, and $119,640 in 1998, 1997, and 1996 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 31, 1998, amounts to approximately $323,000, of which $264,000 is included in other liabilities. Expenses related to these programs were $41,090 in 1998, $46,476 in 1997, and $44,000 in 1996. 28 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: 1998 1997 1996 ------- ------- ------ Options outstanding, beginning of year 70,000 180,000 180,000 Options granted -- -- -- Options exercised (45,000) (30,000) -- Options expired (25,000) (80,000) -- --------- ---------- ------- Options outstanding, end of year -- 70,000 180,000 ========= ========== ======= Options activities are at exercise prices ranging from $.15 to $.65 per share. 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 were completed at May 14, 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. 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. 29 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. New Accounting Pronouncements The Financial Accounting Standards Board has issued the following Statements of Financial Standards ("FAS") which are not yet effective for the Company: 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. o FAS No. 133, Accounting for Derivative Instruments and Hedging Activities This statement becomes effective for fiscal years beginning after June 15, 1999. This standard establishes accounting and reporting standards for derivative instruments and hedging activities. The Company does not believe this new standard will have any impact on the Company upon adoption. 15. Proposed Reverse Stock Split On December 8, 1998, the Board of Directors of the Company adopted a resolution authorizing the submission to the vote of the stockholders of the Company of a proposed amendment to the Articles of Incorporation of the Company under which all outstanding shares of common stock will be subject to a reverse stock split at the ratio of 1000 shares of common stock before the reverse split to 1 share of common stock after the reverse split. The Board of Directors also adopted a resolution authorizing the redemption of all fractional shares of common stock resulting from the reverse stock split at the rate of $1,250 per post reverse split share. This proposed amendment to the Articles of Incorporation is pending subject to stockholder approval. 30 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 31 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 scheduled for March 11, 1999. 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 of overall Chairman of the Board corporate policy and planning. Member of Board of Directors since 1985. of Directors Previously Vice President and Treasurer of Reeves Industries, Inc., 1995-1997, Age 52 and Managing Director of Chemical Bank, 1992-1994. Ronald D. Stouffer President since March 1994. Responsible for execution of the Company's policies President and for the Company's operations. Executive Vice President responsible for Chief Executive Officer engineering and manufacturing from 1982 to 1994. Member of Board of Directors Age 67 since 1978. Joined the Company in 1967. Eric W. Koehler Appointed Executive Vice President and member of Board of Directors December 17, Executive Vice President 1997, in charge of marketing, sales, and engineering functions. Previously Vice Age 36 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 1995. Vice President, Responsible for manufacturing operations including industrial engineering and Operations tooling. Previously Engineering Manager for A. Raymond, Inc., 1992-1995. Age 51 Richard W. Hess Vice President, Automotive Products Engineering, since April 1998. Responsible Vice President, for the Company's engineering of automotive products. Previously Vice Engineering President, Engineering, since joining the Company in 1992. Age 55
32 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 March Secretary and Vice Presi- 1992. Responsible for purchasing and personnel. Joined the Company in 1966. dent, Administration Age 57 David A. Quinn Vice President, Finance, and Treasurer since joining the Company in October Vice President, 1993. Responsible for treasury, accounting and financial planning functions. Finance, and Treasurer Previously CFO for Bruning Paint Company, 1991-1993. Age 62 Dharapuram N. Srinath Vice President, Advanced Engineering, since April 1998. Responsible for the Vice President, development of new products, other than automotive, and research and Advanced Engineering development. Previously Vice President, Quality Assurance, from March 1995, and Age 47 Director of Quality Assurance and Product Reliability, 1992-1995. Joined the Company in 1978. Arlene M. Hardy Corporate Controller since 1990. Responsible for accounting functions. Joined Corporate Controller the Company in 1986. Age 51
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 scheduled for March 11, 1999. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information is included in the Proxy Statement for the Annual Meeting of Stockholders scheduled for March 11, 1999. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information is included in the Proxy Statement for the Annual Meeting of Stockholders scheduled for March 11, 1999. 33 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 31, 1998, October 25, 1997, and October 26, 1996 Consolidated Balance Sheets at October 31, 1998, and October 25, 1997 Consolidated Statements of Changes in Stockholders' Equity for the three years ended October 31, 1998, October 25, 1997, and October 26, 1996 Consolidated Statements of Cash Flows for the three years ended October 31, 1998, October 25, 1997, and October 26, 1996 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. (b) Reports on Form 8-K A Form 8-K was filed on October 6, 1998, during the fourth quarter of the Company's fiscal year indicating the unanimous election at an informal meeting of the Board of Directors on July 14, 1998, and confirmed at a meeting of the Board on September 22, 1998, of Frederic Ewing II, James Parkinson, and Neil T. Ruddock to the Board of Directors to serve until the next Annual Meeting of Stockholders. 34 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 ________________________ ____________________________ Frederic Ewing II Date Director ________________________ ____________________________ Jim Parkinson Date Director ________________________ ____________________________ Neil T. Ruddock Date 35 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 12-MOS OCT-31-1998 OCT-31-1998 1,734,261 0 3,427,988 0 2,263,144 7,825,174 11,312,406 6,904,002 12,355,321 2,436,009 0 1,268,501 0 933,080 7,176,638 12,355,321 21,084,804 21,084,804 16,145,848 19,703,379 (126,714) 0 0 1,508,139 575,953 932,186 0 0 0 932,186 0.07 0.06
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