SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-7304
DYNAMICS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
NEW YORK 13-0579260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Steamboat Road, Greenwich, Connecticut 06830-7197
(Address of principal executive offices) (Zip Code)
(203) 869-3211
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 30, 1994:
Voting 3,869,756
Non-Voting 4,765
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
As of June 30, 1994 and December 31, 1993 2
Condensed Consolidated Statements of
Operations - For the Three and Six Months
Ended June 30, 1994 and 1993 3
Condensed Consolidated Statement of
Stockholders' Equity - For the Six
Months Ended June 30, 1994 4
Condensed Consolidated Statements of
Cash Flows - For the Six Months
Ended June 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 9 - 10
Part II - Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
<PAGE>
Part 1 - Financial Information
Item 1 - Financial Statements
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1994 (Unaudited) and DECEMBER 31, 1993
(DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
ASSETS 1994 1993
Current Assets:
Cash and cash equivalents $ 10,791 $ 8,969
Accounts receivable, less allowances of $604
and $531 16,713 16,287
Inventories - Note 1 20,423 18,092
Other current assets 1,807 1,897
Current assets of discontinued operation
- Note 2 1,745 1,408
Deferred income taxes 4,564 4,542
TOTAL CURRENT ASSETS 56,043 51,195
Property, Plant and Equipment - at cost, less
accumulated depreciation and amortization of
$31,755 and $31,252 3,695 3,906
Equity Investment in CTS Corporation - Note 3 59,669 57,037
Other Assets 1,813 1,769
Deferred Income Taxes 1,311 1,457
TOTAL ASSETS $122,531 $115,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 221 $ 400
Accounts payable 4,638 3,617
Accrued expenses and sundry liabilities 12,726 12,602
Federal income taxes payable 4,095 2,354
TOTAL CURRENT LIABILITIES 21,680 18,973
Long-term Debt 462 623
Other Liabilities 2,626 2,954
TOTAL LIABILITIES 24,768 22,550
Contingencies - Note 6
Stockholders' Equity:
Preferred stock, par value $1 per share --
authorized 894,000 shares - none issued
Series A Participating Preferred Stock, par
value $1 per share - authorized 106,000
shares - none issued
Stockholders' equity - see accompanying
statement 97,763 92,814
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $122,531 $115,364
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED June 30, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Unaudited
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $23,998 $25,719 $46,714 $51,310
Cost of sales 17,309 19,203 33,998 38,063
Gross profit 6,689 6,516 12,716 13,247
Selling, general and administrative
expenses 5,883 6,196 11,634 12,731
806 320 1,082 516
Other income, net - Note 4 201 123 251 182
Income from continuing operations before
items shown below 1,007 443 1,333 698
Provision for income taxes - Note 5 375 183 488 271
Income from continuing operations before
equity in CTS Corporation 632 260 845 427
Income from equity investment in CTS
Corporation 1,101 467 1,821 918
Income from continuing operations 1,733 727 2,666 1,345
Income from discontinued operation, net
of income tax charge of $2,022 -
Note 2 3,334 3,334
Income before changes in accounting methods 5,067 727 6,000 1,345
Equity in CTS' cumulative effect to
January 1, 1993 of changes in
accounting methods - Note 3 (1,716)
Net income (loss) $ 5,067 $ 727 $ 6,000 $ (371)
Weighted average number of common and
common equivalent shares
outstanding 3,880,117 3,902,805 3,882,964 3,903,644
Income (loss) per common share:
Continuing operations $ .45 $ .18 $ .69 $ .34
Discontinued operation .86 .86
Equity in CTS' cumulative effect to
January 1, 1993 of changes in
accounting methods (.44)
Net income (loss) $ 1.31 $ .18 $ 1.55 $ (.10)
Dividends per common share - - $ .10 $ .10
<FN>
See accompanying notes to condensed consolidated financial statements.
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</TABLE>
<PAGE>
<TABLE>
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
<CAPTION>
Common Stock
(Authorized 10,000,000
voting shares and 600,000
non-voting shares) Paid-in Total
Shares Additional Retained Deferred Stockholders'
Outstanding* Par Value Capital EarningsCompensation Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,889,751 $389 $11,451 $81,125 $(151) $92,814
Shares issued and issuable
from treasury pursuant to
benefit plans 34,816 4 517 (507) 14
Shares acquired for
treasury and pursuant to
benefit plans (49,263) (5) (157) (561) (723)
Amortization of deferred
compensation and related
tax charges (3) 50 47
Net income 6,000 6,000
Cash dividends (389) (389)
Balance at June 30, 1994 3,875,304 $388 $11,808 $86,175 $(608) $97,763
<FN>
* Net of shares held in treasury at $.10 par value per share (3,299,857 voting shares at June 30, 1994 and
3,285,410 voting shares at December 31, 1993). The cumulative cost of treasury shares held at June 30, 1994
amounted to approximately $34,800. Includes non-voting shares outstanding of 4,765 at June 30, 1994.
See accompanying notes to condensed consolidated financial statements.
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</TABLE>
<PAGE> DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
June 30, June 30,
1994 1993
Operating activities:
Net income (loss) $ 6,000 $ (371)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 553 543
Deferred income taxes 124 29
Loss (income) from equity investment in
CTS before income taxes (1,994) 772
Dividends from CTS 386 384
Increase in other assets (68) (52)
Decrease in other liabilities (328) (150)
Issuance of Company common stock 14 10
Other--net 47 53
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (426) 4,473
Increase in inventory (2,331) (233)
Decrease (increase) in other current assets 90 (70)
Increase (decrease) in accounts payable,
accrued expenses and sundry liabilities 664 (1,826)
Increase in Federal income taxes payable 1,741 158
Decrease (increase) in current assets of
discontinued operation (337) 887
Net cash provided by operating activities 4,135 4,607
Investing activities:
Purchases of CTS common stock (543)
Purchases of property, plant and equipment (342) (362)
Other 24 12
Net cash used in investing activities (861) (350)
Financing activities:
Principal payments under capital
lease obligations and mortgages (340) (202)
Purchases of treasury stock (723) (66)
Dividends paid (389) (391)
Net cash used in financing activities (1,452) (659)
Increase in cash and cash equivalents 1,822 3,598
Cash and cash equivalents at beginning of period 8,969 6,095
Cash and cash equivalents at end of period $10,791 $ 9,693
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The accompanying unaudited condensed consolidated 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 Rule
10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of Management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six months ended June 30, 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1993.
Note 1 - Inventories:
Quarterly inventories are estimated based on perpetual inventory records
of the Company and the gross profit method under the first-in, first-out
and the last-in, first-out methods.
Inventories are summarized as follows:
June 30, December 31,
1994 1993
(in thousands)
Raw materials and supplies $ 8,436 $ 7,251
Work in process 6,931 6,426
Finished goods 4,767 4,076
20,134 17,753
Inventories subject to progress billings 1,169 1,189
Progress billings (880) (850)
289 339
$20,423 $18,092
Note 2 - Discontinued Operations - Fermont Division:
A proposed change order was submitted in April 1992 to the Government
seeking equitable compensation for constructive changes and associated
delays by the Government in a contract for the supply of 3KW generator
sets to be manufactured by the Company's discontinued Fermont division.
In May 1994 the Company agreed to accept $6,450,000 from the Government
in settlement of the preproduction portion of its proposed change order.
The settlement, net of related expenses and income taxes, amounted to
$3,334,000, or $.86 per share, and has been reported as income from
discontinued operations in the second quarter. Negotiations to settle
the production portion of the proposed change order have not yet
commenced.
In July 1994, management bid on a major new government generator set
contract and decided to pursue other contracts in order to enhance the
value of Fermont. Accordingly, commencing on July 1, 1994, the division
will no longer be classified as a discontinued operation but as a
business held for sale and operating results will be reported as part of
continuing operations. A reserve for projected losses for the ensuing
twelve month period, including the estimated costs to consummate the
division's sale and adjustments for the net realizable value of the
division's assets, has been provided from the remainder of the reserve
established in 1991 to discontinue the operation.
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<PAGE>
Note 3 - Equity Investment in CTS Corporation:
At June 30, 1994, the Company's holdings aggregated 1,962,300 shares of
CTS common stock, increased from 1,920,900 shares at December 31, 1993,
and the Company's percentage of equity ownership in CTS increased to
38.0% from 37.3%. At August 9, 1994, the Company's holdings aggregated
2,014,200 shares of CTS common stock, or 39.0%. Included in Accounts
Payable at June 30, 1994 was $536,000 for purchases of CTS common stock.
The market value of the Company's investment in CTS amounted to
$48,567,000 at June 30, 1994 and $37,938,000 at December 31, 1993. The
market value at August 9, 1994 was $55,642,000. Under the Control Share
Acquisitions Chapter of the Indiana Business Corporation Law, 1,020,000
of the Company's shares of CTS stock presently have no voting rights.
Summarized unaudited financial information derived from CTS' Quarterly
Report on Form 10-Q for the quarter ended July 3, 1994 follows:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
(in thousands)
Net sales $70,618 $62,613 $134,975 $123,052
Gross earnings $15,633 $12,711 $ 29,760 $25,331
Earnings before cumulative effect of
changes in accounting principles $3,889 $1,810 $6,379 $3,577
Cumulative effect of accounting change -
postretirement benefits (5,096)
Cumulative effect of accounting change -
income taxes 482
Net earnings (loss) $ 3,889 $ 1,810 $ 6,379 $(1,037)
The Company recognized its proportionate share under equity accounting of
CTS' adoption of Financial Accounting Standards Board ("FASB") Statement
No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than
Pensions," a charge of $1,896,000, or $.49 per share, and FASB Statement
No. 109, "Accounting for Income Taxes," a credit of $180,000, or $.05 per
share. These onetime, non-cash accounting changes were adopted by CTS as
cumulative effects to January 1, 1993.
Note 4 - Other Income, Net:
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(in thousands)
Interest:
Income $46 $42 $98 $64
Expense (18) (31) (45) (64)
28 11 53 0
Other, net 173 112 198 182
$201 $123 $251 $182
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<PAGE>
Note 5 - Provision for Income Taxes:
The effective tax rate for the three and six months ended June 30, 1994
and 1993 exceeds the Federal statutory rate primarily due to the effect
of state income and franchise taxes.
Note 6 - Contingencies:
The Company is a supplier to the United States Government under
contracts and subcontracts on which there are cost allocation, cost
allowability and compliance issues under examination by various agencies
or departments of the Federal government. In the course of the
resolution of these issues, the Company may be required to adjust
certain prices or refund certain payments on its government contracts
and subcontracts. The Company believes that any such price adjustments
or refunds will not have a material adverse effect on the financial
position of the Company.
In May 1994 the Company settled the preproduction portion of its
proposed change order submitted to the Government in April 1992 seeking
equitable compensation for constructive changes and associated delays by
the Government in a contract for the supply of 3KW generator sets to be
manufactured by the Company's Fermont division. (See Note 2 for further
information.) Negotiations to settle the production portion of the
proposed change order have not yet commenced.
The Company has been notified by the U.S. Environmental Protection
Agency ("EPA") that it is a Potentially Responsible Party ("PRP")
regarding hazardous waste cleanup at a non-Company site in Connecticut
and at a Company site in California. Certain of the PRPs at the
Connecticut site have agreed with the EPA to fund a feasibility study at
the site and have sued the Company and other PRPs who have not agreed to
share the costs. A property owner neighboring the Company site in
California has sued the Company and others for allegedly causing
contamination at the neighbor's property. In addition, the Company has
received notice from a state environmental agency that it is a PRP with
respect to a non-Company site in Pennsylvania, and is also a defendant
in two lawsuits seeking contribution towards the Superfund cleanup costs
relating to two other non-Company sites in that state. Based upon its
knowledge of the extent of the Company's exposure and current statutes,
rules and regulations, management believes that the anticipated costs
resulting from claims and proceedings with respect to the above
mentioned sites, including remediation, the extent and cost of which are
presently unknown, will not materially affect the financial position of
the Company.
With respect to other claims and actions against the Company, it is the
opinion of Management that they will not have a material effect on the
financial position of the Company.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales for the three and six months ended June 30, 1994 decreased $1,721,000
and $4,596,000, respectively, from the same periods a year ago. Sales in the
Electrical Appliances and Electronic Devices segment increased $1,930,000 and
$896,000. Sales of electrical appliances for the most recent three and six
month periods ended June 30, 1994 compared to a year ago were up slightly and
declined $2,463,000, respectively, due to a decline for the six month period
in sales of blenders and specialty products. Sales of heat dissipating
devices, including those for computer microprocessors, increased $1,968,000
and $3,253,000 while sales of frequency control products remained relatively
unchanged from the same periods a year ago. Sales in the Fabricated Metal
Products and Equipment segment increased $185,000 and $528,000, respectively,
as commercial air products and door products sales improved. Sales in the
Power and Controlled Environmental Systems segment decreased $3,836,000 and
$6,020,000, respectively, due to the significant decline in custom mobile
shipments following completion of a large order from a Government prime
contractor in the prior year.
Gross profit increased $173,000 and decreased $531,000 for the three and six
months ended June 30, 1994, respectively, when compared to the same periods a
year ago and increased as a percentage of sales to 27.9% from 25.3% for the
quarter and to 27.2% from 25.8% for the six month period. Gross profit in
the Electrical Appliances and Electronic Devices segment increased in the
most recent three and six month period on sharply higher sales and volume
efficiencies in production of heat dissipating devices which were offset in
part by lower sales of electrical appliances for the most recent six month
period compared to the same period a year ago. Gross profit in the
Fabricated Metal Products and Equipment segment decreased due to product
sales mix and competitive pricing for the quarter ended June 30, 1994 and
increased principally due to higher sales in the six month period ended June
30, 1994 compared to the same periods a year ago. In the Power and
Controlled Environmental Systems segment gross profit declined sharply
primarily as a result of decreased sales in the current periods but increased
as a percentage of sales due to margins earned on services related to a
technology transfer.
Selling, general and administrative expenses decreased $313,000 and
$1,097,000 for the three and six months ended June 30, 1994, respectively,
when compared to the same periods a year ago, mainly due to lower advertising
expenditures and reduced salary and related benefit costs following staff
reductions in the fourth quarter of 1993.
The provision for income taxes increased $192,000 and $217,000 for the three
and six month periods ended June 30, 1994, respectively, compared to the same
periods a year ago which resulted from increased income from continuing
operations before equity in the income of CTS Corporation. The income tax
rate decreased to 37.2% from 41.3% and to 36.6% from 38.8% for the three and
six month periods ended June 30, 1994, respectively, compared to the same
periods a year ago due to the effect of state income taxes.
Income from the Company's equity investment in CTS Corporation increased
$634,000 and $903,000 for the three and six months ended June 30, 1994,
respectively, when compared to the same periods a year ago, reflecting CTS'
increase in earnings, before the prior year's accounting changes, of
$2,079,000 and $2,802,000, respectively.
During the quarter ended June 30, 1994 the Company agreed to accept
$6,450,000 from the Government in settlement of the preproduction portion of
its proposed change order on a contract for 3KW generator sets to be
manufactured by the Company's discontinued Fermont division. The settlement,
net of related expenses and income taxes, amounting to $3,334,000, or $.86
per share, was reported as income from discontinued operations.
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<PAGE>
During the quarter ended March 31, 1993, the Company recognized its
proportionate share of CTS' adoption of Financial Accounting Standards Board
("FASB") Statement No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," a charge of $1,896,000, or $.49 per share, and
FASB Statement No. 109, "Accounting for Income Taxes," a credit of $180,000,
or $.05 per share. These onetime, non-cash accounting changes were adopted
by CTS as cumulative effects to January 1, 1993.
Financial Condition
Cash and cash equivalents increased $1,822,000 during the six months ended
June 30, 1994. Cash of $4,135,000 was provided by operating activities,
including the cash received from the Government, net of unliquidated progress
payments, in settlement of the preproduction portion of the Company's
proposed change order concerning the contract for 3KW generator sets, offset
in part by an increase in inventories. Cash of $861,000 was used in
investing activities, primarily to purchase CTS common stock and machinery
and equipment, and cash of $1,452,000 was used in financing activities to
purchase treasury stock, fund the Company's dividend payment and to make
principal payments under mortgage and capital lease obligations.
Cash at June 30, 1994 amounted to $10,791,000. During the six month period,
the Company did not borrow under its $27,000,000 Revolving Credit Agreement
or its $10,000,000 uncommitted line with its banks. The entire amount of
these credit facilities is available for use by the Company.
Liquidity and financial resources are considered adequate to fund planned
Company operations, including capital expenditures and payment of dividends.
The Company intends to continue its stated policy of reviewing potential
acquisitions of companies and product lines which it believes would enhance
its growth and profitability.
Subsequent to June 30, 1994 and through August 9, 1994, the Company has
purchased an additional 51,900 shares of CTS common stock at a cost of
$1,438,000, which raises the Company's percentage of equity ownership in CTS
to 39.0%. The shares were paid for with available funds.
Management anticipates that the Company's deferred tax assets will be
realized based upon its expectation of future taxable income. The Company
will require taxable income of $15,744,000 ($15,090,000 of ordinary income
and $654,000 of capital gain income) to realize its net deferred tax assets
of $5,875,000 at June 30, 1994.
With respect to environmental matters (see Note 6 - Contingencies in the
Notes to the Condensed Consolidated Financial Statements), the Company has
accrued $89,000 and $161,000 for mandated expenditures at a Company site in
California during the current three and six month periods, respectively,
compared to $108,000 and $131,000 for the comparable prior year periods.
In complying with federal, state and local environmental protection statutes
and regulations, the Company has altered or modified certain manufacturing
processes and expects to do so in the future. Such modifications to date
have not significantly increased capital expenditures or affected earnings or
the competitiveness of the Company.
It is possible, but unanticipated at this time, that future results of
operations or cash flows could be materially affected by an unfavorable
resolution of environmental-related matters.
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<PAGE>
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
(a) On May 6, 1994, the Annual Meeting of Shareholders was held at
Cole Auditorium, Greenwich Library, West Putnam Avenue and
Dearfield Drive, Greenwich, Connecticut.
(b) Three Class B directors were elected to serve until the Annual
Meeting of Shareholders in 1996. The voting results were as
follows:
Votes Votes
Director For Against
Patrick J. Dorme 3,494,193 7,621
Russell H. Knisel 3,491,256 10,558
Saul Sperber 3,488,283 13,531
There were no abstentions in the directors' election.
(c) The proposal relating to the selection of Ernst & Young as
independent auditors of the Company for the year 1994 was
approved and ratified. Of the total number of votes cast,
3,310,819 were cast in favor of the proposal, 14,538 were cast
against the proposal and 176,457 shares abstained.
Information included in the definitive proxy statement for the
May 6, 1994 Annual Meeting of Shareholders is incorporated
herein by reference.
Item 6 - Exhibits and Reports on Form 8-K
(b) On May 9, 1994, the Company reported on Form 8-K under Item 5,
Other Events, an agreement reached on May 3, 1994 between the
Company and the U.S. Government. The Company agreed to settle
for $6,450,000 the preproduction portion of its proposed
change order to the Government seeking equitable compensation
for constructive changes and associated delays by the
Government in a contract for the supply of 3KW generator sets
to be manufactured by the Company's Fermont division. See
Note 2 to the Condensed Consolidated Financial Statements for
further information.
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<PAGE>
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.
DYNAMICS CORPORATION OF AMERICA
(Registrant)
/s/ Patrick J. Dorme
(Signature)
Patrick J. Dorme
Vice President - Finance and
Chief Financial Officer
Date: August 10, 1994
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