Company Summary
DLP, Inc. is a company with multiple divisions and subsidiaries participating in the custom heat process and finishing equipment industry, the custom metal fabricating industry, the material handling industry, the screenprint drying industry, and in the contract powder-coating industry. Most of our sales are made directly via our own sales force, from leads that are generated from "word of mouth" referrals, trade shows, trade publications, and other industry reps, while a large portion of our screenprint dryer and material handling sales are made by sales representatives and distributors. The type of customer to which we sell varies greatly across our various lines of business. In the custom heat process and finishing equipment arena we sell to primarily medium-sized regional manufacturers, with an occasional company like Steelcase thrown in. In our screenprint dryer sales, we have a firm footing with the premier screenprinters as well as with small-and medium-sized businesses. Customers for our fabricated products include a major retail store, UPS, and numerous small manufacturers. Contract powder-coating sales range from small-and medium-sized local manufacturers to national OEMs.
Company Ownership
On December 31, 1995, DLP, Inc., a Tennessee "C" corporation, acquired 100% of the common stock of DLP Systems, Inc., DLP Manufacturing, Inc., DLP Fabrications, Inc., DLP Coating, Inc., and DLP Coating of Tennessee, Inc. Of the five companies acquired, all are Tennessee "C" corporations except for DLP Coating of Tennessee, Inc., which is a Virginia "C" corporation.
The officers and owners of DLP, Inc. are as follows:
- David G. Stumbo, President and Treasurer - 7,360 shares (73.6%)
- Richard F. Stumbo, Vice President - 1,460 shares (14.6%)
- Mary Alice Stumbo, Vice President - 90 shares (0.9%)
- Sally Dillinger, Secretary - 90 shares (0.9%).
Company History
The companies first began in 1972 when David Stumbo and Ed Murguard ventured out from Hockingham Company and founded DLP Enterprises, Inc. doing business as HeatBlast Heating and Air Conditioning and Stumbo Construction. Both individuals were from a background of superior work ethic and extensive technical expertise that led to their early success. These efforts proved successful until the residential building industry fell off sharply. David anticipated the eventual phasing out of Stumbo Construction due to a declining marketplace and saturation of available general contractors as well as HeatBlast suffering the loss of some of its new housing business.
David knew that the future stability of the business was becoming dependent on their service work and the commercial end of the market. While building a large service business and a strong reputation in the area of commercial construction, David was being approached by individuals and companies requesting his services for such things as installing, servicing, and modifying commercial freezers and ovens. In 1976 he was asked to construct a conveyorized screenprint drying oven for a Nashville based company. David designed and built that first piece of equipment without realizing that a gas-fired, quality dryer did not yet exist in the screenprint industry. He also did not realize how quickly the word would travel throughout the textile industry, or that the first drying oven would still be used in production 20 years later.
Since that time DLP has developed an impeccable reputation in the areas of design, construction, installation, and service of all types of equipment including batch ovens, bake ovens, washers, freezers, duct systems, conveyor dryers, paint booths, and turnkey industrial finishing equipment, all of which are used in a wide variety of industries. This versatility greatly expanded the opportunities that were available and offered much stability because each industry was unrelated except for their equipment process needs. David's customer list soon began to read like a list of the Fortune 500.
In 1987 Ed decided to retire and the businesses were divided into what became DLP Manufacturing, Inc. (owned by David) and HeatBlast Heating and Air Conditioning, Inc. (owned by Ed). DLP Enterprises was converted to a Tennessee Limited Partnership—a land development company jointly owned by both individuals to manage and develop the 10+ acres they had acquired heavy industrial work. Ed eventually sold HeatBlast Heating and Air Conditioning and began retirement.
DLP Manufacturing continued designing, building, and installing commercial equipment and specializing in gas-fired heat process equipment for the screenprint industry and turnkey finishing systems for the finishing industry. Having built several powder process systems in the early 1980s by industry standards, DLP Manufacturing installed an in-house finishing system. This system was used as a means to experiment with the process of powder coating and to incorporate new ideas into DLP's line of finishing equipment. In time it became evident that contract services were in need on a larger scale. With the marriage of the finishing equipment and this need in the contract coating market, DLP Coating opened for business in 1990. This new venture was begun, operated, and majority owned by David.
With the growth in the T-shirt screen printing industry of the late 1980s, DLP's sales of screenprint dryers grew to the point that David decided to procure a veteran of the screenprint industry with expertise and extensive experience in marketing and sales, after which a major marketing effort was put in place to advance the sales of the company's best drying system. In 1991, David decided to spin that operation off as a separate business for better operational control. Due to the name recognition within the screen printing industry, that product line continued to be produced by DLP Manufacturing, Inc. DLP Systems, Inc. was formed (as a subsidiary of DLP Manufacturing) to manufacture the custom industrial equipment. David Stumbo owned 100% of both corporations and filed a consolidated tax return. David then continued the manufacturing of custom equipment under the new name of DLP Systems, Inc.
DLP Fabrications was formed in 1994 out of the need to enhance and centralize DLP's sheet metal fabricating abilities. DLP purchased a variety of CNC metal fabricating equipment to increase the tolerances achieved in its manufacturing processes. At the same time, a product line was needed to fill empty production time in the welding/fabricating department, as well as the contract powder coating.
An opportunity arose to manufacture and distribute material handling equipment (garment racks, etc.). DLP entered this market to expand its product offering and take advantage of the capacity of the fabricating and coating equipment. This new enterprise was started and owned by Greg Stumbo.
Ed Murguard died unexpectedly in August 1994. Upon his death, all of his business interests were divided 50/50 between Greg Stumbo and Ed's widow. After closing Ed's estate, Greg purchased the majority interest in Stumbo Holding Company from Ed's widow.
On October 31, 1994, the following transactions took place:
- The name of DLP Systems, Inc. was changed to Stumbo Holding Co., Inc. DLP Coating, Inc. formed a new wholly owned subsidiary with the name DLP Systems, Inc.
- The "new" DLP Systems purchased the operating portion of Stumbo Holding by assuming its operating assets and liabilities, which yielded a negative equity position.
- The rationale behind this move was fairly straightforward. Both DLP Systems and DLP Manufacturing had operating losses, while DLP Coating was profitable. By acquiring the operating loss of DLP Systems, DLP Coating avoided paying any income taxes.
As all of the above indicates, the DLP "family" of businesses was becoming increasingly complicated by the end of 1995. The tax and regulatory benefits of having several small corporations were being overshadowed by the problems created in managing so many separate entities. The decision was made to create a parent subsidiary relationship where DLP, Inc. would own 100% of DLP Manufacturing, DLP Fabrications, DLP Coating, DLP Systems, and DLP Coating of Tennessee. DLP, Inc. had been created in 1994 to function as a management company to provide services such as payroll, accounting, purchasing, etc. for all of the DLP companies. This transaction took place effective December 31, 1995. The decision was made to leave Stumbo Holding Company (the original corporation from 1986) out of this transaction for tax reasons and to keep the real estate, some equipment, and other intellectual property (trade names, copyrights) separate from the operating companies liabilities.
DLP Coating of Tennessee began operations in March 1995 as a wholly owned subsidiary of DLP Coating, Inc., representing the first geographic expansion of DLP's contract powder-coating facilities. The operation in Richmond, Virginia, was acquired from Smooth Coatings Inc., enabling DLP to eliminate a primary competitor before it entered the marketplace.
Effective December 31, 1996, the corporate shells of DLP Manufacturing, DLP Fabrications, and DLP Systems were dissolved, leaving DLP, Inc. as the surviving corporation. DLP Coating and DLP Coating of Tennessee were left as subsidiaries due to the distinct differences between the service nature of contract powder coating and the manufacturing nature of the other businesses.
In January 1997 DLP Coating opened its second satellite coating facility in Alabama. This location was selected because of its proximity to key industrial corridors servicing the firm's main customer base.
Today, the DLP "family" of businesses is relatively simple: DLP, Inc., equipment manufacturer and owner of DLP Coating, Inc. and DLP Coating of Tennessee, Inc., contract powder-coating operations. Stumbo Holding remains affiliated through its common ownership, leasing property and equipment to the DLP companies.
The following chart illustrates the past three years' financial performance of the combined company: this shows substantial sales but under-performance in net profit. It is expected that management controls will remedy this situation. Coupling that with new, profitable sales growth in targeted market segments is the over-all goal of this plan.
| Past Performance | 1995 | 1996 | 1997 |
| Sales | $9,562,251 | $10,078,159 | $7,775,189 |
| Gross Margin | $4,398,280 | $4,245,154 | $2,901,531 |
| Gross % (calculated) | 46.00% | 42.12% | 37.32% |
| Operating Expenses | $3,779,000 | $4,042,370 | $3,056,425 |
| Collection period (days) | 45 | 45 | 45 |
| Inventory turnover | 6 | 6 | 6 |
| Balance Sheet | |||
| Short-term Assets | |||
| Cash | ($138,617) | $180,743 | $56,817 |
| Accounts receivable | $770,218 | $596,011 | $729,662 |
| Inventory | $626,148 | $504,673 | $499,800 |
| Other Short-term Assets | $343,303 | $320,000 | $403,100 |
| Total Short-term Assets | $1,601,052 | $1,601,427 | $1,689,379 |
| Long-term Assets | |||
| Capital Assets | $674,455 | $730,278 | $769,053 |
| Accumulated Depreciation | $226,930 | $302,049 | $331,303 |
| Total Long-term Assets | $447,525 | $428,229 | $437,750 |
| Total Assets | $2,048,577 | $2,029,656 | $2,127,129 |
| Capital and Liabilities | 1995 | 1996 | 1997 |
| Accounts Payable | $680,228 | $192,226 | $437,433 |
| Short-term Notes | $223,730 | $549,000 | $500,000 |
| Other Short-term Liabilities | $315,458 | $296,232 | $398,126 |
| Subtotal Short-term Liabilities | $1,219,416 | $1,037,458 | $1,335,559 |
| Long-term Liabilities | $416,586 | $587,397 | $543,554 |
| Total Liabilities | $1,636,002 | $1,624,855 | $1,879,113 |
| Paid in Capital | ($30,594) | $3,966 | $3,966 |
| Retained Earnings | $291,253 | $260,373 | $391,386 |
| Earnings | $151,916 | $140,462 | ($147,336) |
| Total Capital | $412,575 | $404,801 | $248,016 |
| Total Capital and Liabilities | $2,048,577 | $2,029,656 | $2,127,129 |
| Other Inputs | |||
| Payment days | 30 | 30 | 30 |
| Sales on credit | $9,500,000 | $10,000,000 | $7,500,000 |
| Receivables turnover | 12.33 | 16.78 | 10.28 |
Company Locations and Facilities
Stumbo Holding Company, Inc., a company related to the DLP companies via common ownership, owns the 10+ acres and 77,000 square feet utilized by DLP, Inc. in Nashville, Tennessee. There are three buildings as described below:
- 945 Clemray Hwy. - consists of 30,000 square feet of industrial/warehouse space and office space (2,250 square feet). This building is utilized as DLP's administrative offices, as the manufacturing facility for DLP's equipment division, and as warehouse space for all inventory and work-in-progress goods.
- 947 and 949 Clemray Hwy. - These two buildings were connected to form one structure, which consists of 24,817 square feet of industrial space (5,175 sq. ft. of office space). This building houses the administrative offices and the two powder-coating systems of DLP Coating (Nashville).
- 951 Clemray Hwy. - consists of 22,500 square feet (2,000 sq. ft. office) and is currently leased to a third party.
In addition to these facilities, DLP leases:
- 1101 Clemray Hwy., 5,000 square feet. This space is used to house the contract coating's batch painting operation as well as an overflow assembly site.
- DLP Coating of Tennessee leases 7,800 square feet of space which houses its powder-coating system and its administrative offices in Birmingham, Alabama.
- DLP Coating of Tennessee leases 24,000 square feet of space which houses its powder-coating system and its production offices in Richmond, Virginia.
Strategy & Implementation Summary
