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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
Commission file number 0-16182
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VERNITRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-1962029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
645 Madison Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 593-7900
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
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12,659,952 shares of Common Stock, $.01 par value, were outstanding as of May 1,
1996.
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VERNITRON CORPORATION
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Statements of Operations -
Quarter Ended March 31, 1996 and 1995 3
Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 4
Condensed Statements of Cash Flows-
Three Months Ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
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PART 1. FINANCIAL INFORMATION
ITEM I. Financial Statements
VERNITRON CORPORATION
Condensed Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Quarter Ended
March 31,
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1996 1995
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Net Sales $ 17,031 $ 16,896
Cost of sales 12,603 12,214
Selling, general and administrative expenses 3,265 3,628
Amortization of intangible assets 52 52
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Operating income 1,111 1,002
Interest expense 444 496
Other (income) expense (7) 8
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Income before taxes 674 498
Charge in lieu of taxes 284 194
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Net income 390 304
Preferred stock dividends 184 121
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Net income applicable to common shareholders $ 206 $ 183
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Net income per common share $ 0.02 $ 0.01
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Weighted average common shares outstanding 12,645,227 12,538,012
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See notes to condensed financial statements.
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VERNITRON CORPORATION
Condensed Balance Sheets
(Dollars in thousands)
March 31, December 31,
1996 1995
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 88 $ 91
Accounts receivable - net 9,848 8,525
Inventories - net 17,426 16,544
Other current assets 708 651
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TOTAL CURRENT ASSETS 28,070 25,811
PROPERTY, PLANT AND EQUIPMENT - net 7,507 7,603
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 6,572 6,624
OTHER ASSETS 399 447
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TOTAL ASSETS $42,548 $40,485
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,758 $ 5,315
Accrued expenses and other liabilities 5,947 5,696
Current portion of long-term debt 466 466
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TOTAL CURRENT LIABILITIES 12,171 11,477
LONG-TERM DEBT, less current portion 12,120 11,047
OTHER LONG-TERM LIABILITIES 2,735 2,697
DEFERRED INCOME 486 519
SHAREHOLDERS' EQUITY:
Preferred Stock, issued and outstanding 738,584
shares in 1996 and 781,642 shares in 1995 7 8
Common Stock, issued and outstanding 12,659,952
shares in 1996 and 12,604,107 shares in 1995 127 126
Capital in Excess of Par 14,598 14,611
Retained Earnings (since December 31, 1991) 304 -
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TOTAL SHAREHOLDERS' EQUITY 15,036 14,745
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,548 $40,485
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See notes to condensed financial statements.
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VERNITRON CORPORATION
Condensed Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Quarter Ended
March 31,
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 390 304
Adjustments to reconcile net income to cash
used in operating activities:
Realization of net operating loss carryforward 261 181
Depreciation and amortization 411 385
Increase in current assets, other than cash (2,262) (1,776)
Increase (decrease) in current liabilities 694 (871)
Other - net 113 (231)
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NET CASH USED IN OPERATING ACTIVITIES (393) (2,008)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (263) (193)
Proceeds from sale of assets 975
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NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (263) 782
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 16,957 19,004
Repayment of borrowings (15,884) (17,756)
Redemption of preferred stock odd lot shares (420)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 653 1,248
NET INCREASE (DECREASE) IN CASH (3) 22
CASH AT BEGINNING OF PERIOD 91 27
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CASH AT END OF PERIOD $ 88 $ 49
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See notes to condensed financial statements.
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VERNITRON CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation (consisting of normal recurring accruals) have been
included. Operating results for the quarter ended March 31,1996 are not
indicative of the results that may be expected for the year ending December 31,
1996. (See Note 4). For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and the Company's Current Report on Form 8-K,
dated May 7, 1996.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
In accordance with quasi-reorganization accounting principles, the Company
elected to adjust its December 31, 1991 balance sheet to fair value and
transferred the accumulated deficit of $14,094 to capital in excess of par.
Per share data for the periods are based upon the weighted average number of
common shares outstanding during such periods. Outstanding common stock options
have not been included in the computation of earnings per share as their
exercise would not have a material dilutive effect.
Total interest paid in the quarters ended March 31, 1996 and 1995 was $336 and
$489, respectively. The Company had net income tax payments of $19 and $41 in
the quarters ended March 31, 1996 and 1995, respectively.
NOTE 2- INVENTORIES
Inventories have been determined generally by lower of cost (first-in, first-out
or average) or market.
Inventories consist of:
March 31, December 31,
1996 1995
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Raw materials $ 7,567 $ 7,203
Work-in-process 5,777 5,293
Finished goods 9,265 9,255
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22,609 21,751
Less reserves 5,183 5,207
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$17,426 $16,544
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VERNITRON CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)
NOTE 3 - OTHER INFORMATION
March 31, December 31,
1996 1995
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Allowance for doubtful accounts $ 242 $ 278
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Accumulated depreciation and amortization
of property, plant and equipment $5,434 $5,075
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Accumulated amortization of excess of cost
over net assets acquired $ 888 $ 836
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NOTE 4 - SUBSEQUENT EVENTS
On April 25, 1996, the Company completed its previously announced acquisition of
Precision Aerotech, Inc. (PAI). Pursuant to an Agreement and Plan of Merger
dated February 16, 1996, each outstanding share of common stock of PAI was
canceled and converted into the right to receive $5.00 per share in cash. Based
on 789,208 shares of PAI Common Stock outstanding immediately prior to the
acquisition, the aggregate consideration paid therefor was $3.9 million. In
addition, the Company repaid $12 million of borrowings under PAI term loans.
Precision Aerotech designs, manufactures and markets laser scanners, precision
metal optics, high performance air bearings and precision machined parts sold
predominantly in commercial markets.
In order to obtain the funds necessary to finance the Merger, to refinance PAI's
and the Company's existing debt and pay the related fees and expenses of the
transaction, Vernitron entered into a Credit Agreement, dated April 25, 1996,
between the Company, the various banks named therein and Banque Paribas, as
agent, providing for borrowings under a $36 million senior secured credit
facility. The credit facility is comprised of (i) a term loan in the principal
amount of $14 million maturing in four years, (ii) a term loan in the principal
amount of $12 million maturing in six years and (iii) a revolving credit line in
an aggregate principal amount of up to the lesser of $10 million or the
borrowing base in effect from time to time, maturing in four years.
In connection with the acquisition and financing, the Company granted to Banque
Paribas a warrant to acquire up to 666,312 shares of Common Stock at an exercise
price of $.01 per share and a warrant to an affiliate of Banque Paribas, Paribas
Principal, Inc., to acquire up to 776,388 shares of Common Stock at an exercise
price of $1.25 per share. In connection therewith, the parties entered into a
Warrant Purchase Agreement containing customary terms and conditions. The
Company also authorized the granting to an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation of a warrant to acquire up to 100,000 shares of
Common Stock at an exercise price of $1.25 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in thousands)
RESULTS OF OPERATIONS
Net sales by product group for the first quarter were as follows:
1996 1995
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Motion Control $ 5,775 $ 6,640
Industrial Components 11,256 10,256
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Net Sales $17,031 $16,896
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QUARTER ENDED MARCH 31,1996 COMPARED TO THE QUARTER ENDED MARCH 31, 1995
Net sales in 1996 were substantially the same as 1995.
The Motion Control group's sales (electromagnetic components and subsystems)
decreased in 1996 by $.9 million, or 13%, as compared to 1995. This decrease
was primarily due to lower shipments of synchros ($.3 million), resulting from
excess inventory at Government supply depots, and from lower AC motor sales ($.4
million), primarily due to the timing of certain programs. Bookings were $6.0
million in 1996, a decrease of $1.4 million, or 19%, compared to 1995, primarily
due to certain multi-year and other large resolver orders booked in 1995 which
did not repeat in the current year. In general, the nature of the Motion
Control group's bookings results in an uneven pattern from quarter to quarter
and, therefore, the level of bookings in any particular quarter does not
necessarily reflect overall business trends. Backlog at March 31, 1996 was $16.3
million, compared to $16.1 million at December 31, 1995.
The Industrial Components group's sales (bearings, electrical/electronic
terminal blocks and connectors) increased in 1996 by $1.0 million, or 10%,
compared to 1995. Sales of bearings were up by 18%, reflecting shipments on
certain large orders from original equipment manufacturers received in the prior
year. Industrial Component's bookings for the quarter were $10.9 million, a
decrease of $.6 million, or 5%, compared to 1995 primarily due to the timing of
a large terminal block order received in the first quarter of 1995. Backlog at
March 31, 1996 was $11.5 million, compared to $11.9 million at December 31,
1995.
Operating income was $1.1 million in 1996, as compared to $1.0 million in 1995,
representing a $.1 million increase. This increase was due to lower selling,
general and administrative expenses which were substantially offset by lower
gross margin on sales. Overall, gross margin on sales was 26.0% in 1996, down
from 27.7% in 1995. This decrease was primarily due to an unfavorable sales mix
and inefficiencies resulting from lower sales volume in the Motion Control
group.
Selling, general and administrative expenses decreased by $.4 million primarily
due to lower employment costs .
Interest expense declined by $.1 million in 1996 as both average borrowings and
interest rates were marginally lower in the current year.
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LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $.4 million in 1996 as compared to $2.0 million in
1995 primarily due to a reduction of accounts payable and accrued expenses in
1995 which did not repeat in the current year.
Cash used in investing activities was $.3 million in 1996 as compared to cash
provided of $.8 million in 1995. During the first quarter of 1995, $1.0 million
was generated from the sale of assets of the Electronics Components business
which was discontinued during 1994.
Overall, the Company increased borrowings under its $17.5 million credit
facility by $1.1 million.
The Company had no material commitments for capital expenditures as of March 31,
1996.
On April 25, 1996, the Company entered into a new $36 million senior secured
credit facility in connection with its acquisition of Precision Aerotech, Inc.
(See Note 4 to the Condensed Financial Statements). The Company believes this
new credit facility and cash generated from the combined operations will be
sufficient to meet the future capital expenditure and working capital
requirements of the combined companies and required debt amortization under its
new credit facility.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
Date: May 8 ,1996 VERNITRON CORPORATION
By: /s/
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Stephen W. Bershad
Chief Executive Officer
By: /s/
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Raymond F. Kunzmann
Vice President - Finance, Controller
and Chief Financial Officer
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