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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 1-5641
INSTRON CORPORATION
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-2057203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 ROYALL STREET 02021
CANTON, MASSACHUSETTS (Zip Code)
(Address of Principal executive offices)
(617) 828-2500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $1 PAR VALUE AMERICAN STOCK EXCHANGE
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K _____.
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 periods 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 ____
The aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant as of March 14, 1997 was $65,833,790.
The number of shares outstanding of each of the issuer's classes of common stock
as of March 14, 1997 was 6,519,687.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy statement for the 1997 Annual Meeting
of Stockholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Instron Corporation ("Instron" or the "Company") designs, develops,
manufactures, markets, and services materials testing systems, software, and
accessories. These products are used principally in research and development and
quality control applications to test the mechanical properties of various
materials, components, and structures. The materials tested include metals,
plastics, textiles, composites, ceramics and rubber. Instron systems test
virtually all natural and man-made materials from fragile fibers to the exotic
materials needed for space exploration.
In the worldwide market for these systems, Instron is a leading producer of
static (electromechanical), dynamic (servohydraulic), and hardness testing
systems. Instron offers a comprehensive range of instruments and computer based
materials testing systems that provide and enhance control of the testing
process, data collection and analysis.
Instron's products typically are assembled from a number of
company-designed standard hardware and software modules and accessories,
selected and configured for the customer's specific application. Additional
hardware, software and accessories may be added to the system at a later date.
The Company has sales and service offices in 11 United States cities and 16
foreign countries. Approximately 60% of the Company's revenues are derived from
sales outside the United States. Principal manufacturing facilities are located
in the United States and the United Kingdom.
PRINCIPAL MARKETS
The Company's principal markets are industry, educational institutions and
governments; organizations that need to understand the characterization and
properties of materials.
INDUSTRY - Most major industries use materials testing as a part of their
research and development and quality control activities. Industrial research
focuses upon developing new materials, substitute materials, or new uses for
existing materials; reducing manufacturing or operating costs; and improving
product quality and durability.
Industrial quality control involves testing the properties of finished
products as well as materials purchased as part of the manufacturing process.
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EDUCATIONAL INSTITUTIONS - Educational institutions use Instron products
for both basic research and instruction in materials science. The Company places
particular emphasis on educational institutions because scientists and engineers
trained on Instron equipment may influence additional sales of the Company's
products later in their careers.
GOVERNMENTS - Government and government agency use principally involves
testing products to support defense, space, and civil engineering programs, to
ascertain compliance with safety and other legal requirements, and to conduct
research on new materials and emerging technologies.
PRINCIPAL PRODUCTS
Instron offers a comprehensive range of general-purpose materials testing
systems, application software, and accessories within two principal product
lines: static systems and dynamic systems. The major distinction between a
static system and a dynamic system is the means used to apply force to the test
specimen. The former uses a screw-driven moving crosshead and the latter a
servo-controlled hydraulic actuator. Many tests can be carried out equally well
with either a static or dynamic test machine. However, if the test requires
extremely rapid rates of loading, or if it is a test of endurance in which the
material is subjected to rapidly fluctuating loads, then the dynamic test
machine is appropriate. Instron's product offerings vary in the force capacity
of the machines, the complexity of the drive system, and the sophistication of
the control electronics, the computer system, and the software.
STATIC SYSTEMS - Static (electromechanical) systems consist of a frame, a
moving crosshead, a load cell, grips, and electronic modules to control the test
and analyze the test data. Static systems typically stretch or compress the
material being tested at a user selected, constant speed that ranges from
fractional microns per minute to one meter per minute. These systems
continuously measure the precise force being applied and the resulting
deformation of the material at various time intervals. They also analyze the
results of the test, and either print, graph or electronically display them.
Instron's static product offerings include the cost effective Series 4400
product line and the high-performance Series 5500 product line. The Series 5500
systems are generally used for research and development and are equipped with
software and many accessories. Quality control applications usually require
fewer accessories and less breadth of application capability.
The prices of static systems generally range from $15,000 to $150,000.
Static testing systems and related accessories accounted for approximately 69%,
69%, and 71% of the Company's revenue in 1996, 1995 and 1994, respectively.
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DYNAMIC SYSTEMS - Dynamic (servohydraulic drive) systems allow repeated
deformation of the material being tested to simulate in-use conditions over an
extended period of time. These systems use a servo-controlled hydraulic
actuator, a load cell, grips and electronic modules to control the test and
analyze the test data.
Software, computer control, and data analysis are features routinely added
to basic dynamic systems. The computer may be used to command actuator motion to
simulate real-life loading conditions. It is also used to store and analyze data
and display parameters of performance and endurance for test materials or test
components.
Utilizing the Company's engineering expertise, dynamic systems are often
customized to fit the need of a customer's particular test application. Machines
can be configured not only to stretch or compress the material being tested, but
also to simultaneously twist it or subject it to other forms of complex loading.
The dynamic product line includes structural testing systems. These systems
are used to test a wide range of automotive components from suspension and
steering systems to entire vehicles. They typically consist of several actuators
that push and pull the structure at different points, and sensors that collect
and transmit the resulting data to a central processing unit.
The prices of dynamic systems generally range from $40,000 to $400,000 with
very complex structures systems ranging as high as several million dollars.
Dynamic systems and related accessories accounted for approximately 31%, 31% and
29% of the Company's sales in 1996, 1995 and 1994, respectively.
HARDNESS TESTING SYSTEMS - Instron is in the forefront of development for
new hardness-testing systems. These systems indent the surface of a material
under a controlled force. The size of the resulting indentation gives an
indication of the hardness of the surface of the material.
The Series 2000 hardness-testing machine takes advantage of the latest
digital control technology by offering closed-loop control of hardness testing.
The prices of hardness testing machines range from $2,000 to $20,000. The
sales of hardness testing systems and related accessories are included in the
percentage amounts for static systems set forth above.
SERVICE - In recent years, the Company has invested in new service
offerings, including calibration, extended warranties, software support, upgrade
contracts and telephone support. The service business accounted for
approximately 16%, 15%, and 15% of the Company's total revenue in 1996, 1995,
and 1994, respectively. The service revenue is included in the percentage
amounts for static and dynamic systems set forth above.
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OTHER PRODUCTS AND ACCESSORIES - Instron manufactures and sells a wide
range of other products and accessories. The products include durometers, impact
testers, and asphalt binder testers. Typical accessories include application
software, grips, fixtures, optical/video extensometers that measure precisely
the deformation of the material being tested without actually contacting it,
robotic devices that automatically feed test specimens to the systems, and
environmental control accessories. Accessories can be included with the initial
purchase or subsequently purchased in order to expand the capability of the
original machine.
The Company also has license agreements with third parties for the
exclusive sale of certain products, including software, in the material testing
industry.
These other products and accessories for static and dynamic equipment
purchased separately from the original sale of equipment are included in the
percentage amounts for static and dynamic systems set forth above.
RESEARCH AND DEVELOPMENT
The Company maintains major research and development staffs at its U.S. and
U.K. manufacturing facilities. These development staffs often work directly with
industrial and government researchers and the materials science departments of
universities to create leading edge solutions to materials testing applications.
Instron is a pioneer in the development and application of electronic
measurement and drive systems techniques in materials testing systems. The
Company has continuously designed, developed, and marketed state-of-the-art
testing systems, software, and accessories, including digitally controlled
static testing systems and dynamic systems, low-cost static systems for the
quality control market, software, and microprocessor-based system controllers to
be used in conjunction with its entire product line.
In 1996, the Company expensed $8,616,000 on research and development
activities, compared with $8,782,000 in 1995, and $8,062,000 in 1994. In
addition, the Company has capitalized certain software development costs of
$1,144,000, $1,315,000, and $792,000 during 1996, 1995 and 1994, respectively.
Had these costs been included as expenses during such periods, research and
development expenses would have decreased by 3% in 1996 compared to an increase
of 14% in 1995 and a decrease of 3% in 1994. The Company, in recent years, has
focused its research and development expenditures on revitalizing the static and
dynamic product lines, developing new hardness testing machines, developing new
software and enhancements, and redesigning products to reduce manufacturing
costs. These new products and enhancements do not, in the Company's opinion,
present a significant risk that on-hand inventory, which supports existing
models, will be made obsolete because of
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the interchangeability of parts and the lead time available before the
introduction of new products.
COMPETITIVE CONDITIONS
The Company competes with a number of other manufacturers, some of whom
have greater financial, technical and marketing resources than the Company. The
intensity of the competition varies by product line and by geographic area.
Competition in the United States is greatest in the dynamic line, where the
Company has one major domestic competitor, MTS Systems Corporation. Competition
in foreign markets is greatest in Germany and Japan, where there are major local
manufacturers. The principal competitive factors are engineering excellence, the
quality and technical capability of the equipment, responsiveness to customer
needs, quality of service, and price performance.
BACKLOG
At December 31, 1996, the Company's backlog of orders was approximately
$34,361,000 compared with $36,136,000 at December 31, 1995. The Company
anticipates that essentially the entire backlog at December 31, 1996 will be
shipped during 1997.
RAW MATERIALS
The Company orders most of its purchased component parts from vendors who
either manufacture them or supply them as off-the-shelf items. While the Company
is dependent upon a limited number of suppliers for certain components, it has
not experienced significant problems in procurement or delivery of any essential
materials, parts or components. Substantially all purchasing is accomplished on
a competitive basis while maintaining a level of inventory sufficient to provide
support of customer servicing requirements and meet scheduled delivery dates.
PATENTS AND TRADEMARKS
The Company has several patents in the United States and in foreign
countries. The Company relies basically on engineering and technological
capability rather than on these patents to maintain its position in the
industry. The trademark "Rockwell" and "Instron" and the device mark are
registered trademarks of the Company. Under current law, these trademarks may be
renewed indefinitely as long as they are maintained in use.
ENVIRONMENTAL CONSIDERATIONS
Compliance with federal, state and local provisions relating to protection
of the environment has not had, and is not expected to have, any material
adverse effects upon the production, capital expenditures, earnings, and
competitive position of the Company and its subsidiaries.
NUMBER OF EMPLOYEES
At December 31, 1996 the Company employed 1,095 people worldwide.
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SEASONALITY
Historically, the Company's sales are highest in the fourth quarter of each
year due to the ordering pattern of its customers, which favors fourth quarter
deliveries before budget authorizations expire. This is particularly true
overseas where the order mix usually consists of larger systems than domestic
orders. Sales in the first quarter are usually low as it takes time to rebuild
in-process inventory levels after the heavy fourth quarter delivery requirements
have been satisfied. Also, third quarter sales are generally low due to vacation
patterns of both Company production workers and customer technical personnel
needed for acceptance testing. The seasonal factors affecting sales are usually
reflected in quarterly net income.
FOREIGN OPERATIONS
Foreign operations represent a significant portion of the Company's
business. The Company's branches and subsidiaries outside of the United States
accounted for 61% of the Company's total revenue in 1996, 60% in 1995 and 60% in
1994. The Company believes that the business and political risk of operating in
its current foreign markets is not, in the aggregate, materially greater than
the risk undertaken by the Company in the United States. The Company's principal
foreign assets are located in the United Kingdom.
Foreign exchange fluctuations can have a significant impact on the
Company's consolidated net assets and results of operations as reported in U.S.
dollars. However, the Company believes that these fluctuations generally have
not had, and it does not expect them to have, a significant economic effect on
the Company's business since foreign operations are generally financed, and
revenues and expenses are, for the most part, paid in local currencies, except
for intercompany purchases which are closely monitored. Financial information
concerning domestic and foreign operations appears in Notes 1 and 2 in the
"Notes to Consolidated Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included as part of
this report.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal United States
manufacturing facility is located on 66 acres of Company-owned land at the
junction of Routes 128 and 138 in Canton, Massachusetts, approximately 15 miles
from Boston. This facility provides 140,500 square feet of office and
manufacturing space. In August 1996, the Company signed a Purchase & Sale
Agreement with Reebok International Ltd. ("Reebok") to sell 42 acres, which are
considered excess to current and future needs, for approximately $13.5 million.
Reebok must gain numerous approvals and permits from various regulatory agencies
before the sale can be finalized.
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The Company's principal foreign facility provides 120,000 square feet of
office and manufacturing space located on seven acres of Company-owned land in
High Wycombe, England, approximately 30 miles west of London.
The Company has 31 sales offices and demonstration centers which are
located throughout the United States and in 16 foreign countries. The Company
believes that all properties are adequate and suitable for its present needs.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the Company are
listed below along with their business experience during the past five years.
NAME, AGE AND POSITION BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ---------------------- ---------------------------------------
James M. McConnell, 56 Mr. McConnell joined Instron Corporation
President and Chief in April of 1990 as President and Chief
Executive Officer Executive Officer. From 1987 to 1990,
Mr. McConnell was President and Chief
Executive Officer of Automatic Switch
Company, and from 1986 to 1987, he was
President of Rosemont, Inc. (both are
wholly-owned subsidiaries of Emerson
Electric Co.).
Joseph E. Amaral, 49 Mr. Amaral joined Instron Corporation
Vice President, General Manager in 1978. Since 1985, Mr. Amaral has held
of North America Operations positions as Corporate Technical Staff
Engineer, Corporate Technology Manager,
Corporate Product Planning Manager, and
Vice President, Corporate Technical
Director. In March of 1995, he was elected
Vice President, General Manager of North
America Operations.
Kenneth L. Andersen, 55 Mr. Andersen joined Instron Corporation
Vice President, Sales in June of 1983. Since 1983, Mr. Andersen
North America has held positions as Director of Software
Business Group, Director of Structures
Business Group, and Corporate Marketing
Director. In February of 1993, he was
elected Vice President of Sales, North
America.
John R. Barrett, 42 Mr. Barrett joined Instron Corporation in
Treasurer 1988 as Assistant Treasurer. From 1979 to
1988, Mr. Barrett held various financial
management positions with Computervision
Corporation. In February of 1993, he was
elected Treasurer of the Corporation.
Jonathan L. Burr, 49 Mr. Burr joined Instron Corporation in 1979.
Vice President, Corporate He has held positions as Personnel Admini-
Director of Human Resources strator, Director of Personnel, and
Corporate Director of Human Resources. In
February of 1993, he was elected Vice
President, Corporate Director of Human
Resources. Mr. Burr is the son of George S.
Burr, Vice Chairman of the Board of
Directors.
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EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
NAME, AGE AND POSITION BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ---------------------- ---------------------------------------
Yahya Gharagozlou, 41 Mr. Gharagozlou joined Instron Corporation
Vice President, Corporate in 1981. He has held positions as
Technical Director Application Engineer, Assistant Product
Manager, Corporate Product Manager for
Software, Marketing Manager, Product
Planning Manager and Director of
Engineering. In February of 1996, he was
elected Vice President, Corporate Technical
Director.
Arthur D. Hindman, 53 Mr. Hindman joined Instron Corporation in
Vice President and General 1979. Since 1979, Mr. Hindman has held
Manager, Asia Pacific/ positions as Manager, Marketing
Latin America Administration; International Sales Manager,
and General Manager, Asia/Latin America. In
February of 1993, he was elected Vice
President and General Manager, Asia
Pacific/Latin America. Mr. Hindman is the
son of Harold Hindman, Chairman of the Board
of Directors.
Norman Smith, 50 Mr. Smith joined Instron Limited in 1982 as
Vice President and Managing Marketing Director Designate and assumed the
Director of Instron Limited position of Marketing Director in 1983. In
January, 1996, he was promoted to Deputy
Managing Director and was elected Vice
President of Instron and Managing Director
of Instron Limited in November of 1996.
Linton A. Moulding, 43 Mr. Moulding joined Instron Corporation in
Chief Financial Officer 1985. He has held positions as Corporate
Controller, Director of U.S. Operations,
Corporate Vice President of Manufacturing,
and Vice President of Finance and Treasurer.
In February of 1993, he was elected Chief
Financial Officer of the Corporation.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the American Stock Exchange under
the symbol ISN. The table below sets forth the high and low sales prices of the
Common Stock and the dividends declared during the two most recent fiscal years.
1996 1995
----------------------------- ----------------------------
Cash Cash
Market Price Dividends Market Price Dividends
High Low Declared High Low Declared
------- ------- --------- ------- ------- ---------
First quarter $14.500 $12.625 $ .04 $13.625 $11.125 $ .07
Second quarter 14.375 13.000 .04 13.000 11.250 .00
Third quarter 14.375 11.000 .04 13.625 11.375 .04
Fourth quarter 14.250 11.375 .04 14.500 11.625 .04
------ ------
Total year $ .16 $ .15
====== ======
The number of holders of record of the Company's Common Stock at December 31,
1996 was 510. This number does not include shareholders for whom shares are held
in a "nominee" or "street" name.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands, except per share data 1996 1995 1994 1993(1) 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Bookings of new orders $ 161,692 $ 155,092 $ 138,947 $ 124,998 $ 112,369
Total revenue 153,113 150,571 136,192 122,827 116,268
Income from operations 9,145 8,921 8,082 5,034 6,123
Income before taxes 7,385 7,684 6,979 3,883 5,659
Provision for income
taxes 2,803 2,689 2,442 1,398 1,954
Net Income 4,582 4,995 4,537 2,485 3,705
Backlog 34,361 36,136 32,687 29,063 22,988
Research & development 8,616 8,782 8,062 7,248 8,097
FINANCIAL POSITION
Working capital $ 44,094 $ 38,259 $ 33,849 $ 31,070 $ 28,058
Total assets 121,833 113,334 102,294 99,153 79,165
Total debt 23,919 19,875 17,818 21,718 7,646
Stockholders' equity 62,401 56,102 51,926 46,897 45,847
Capital expenditures 4,473 4,510 4,286 4,323 3,478
PER SHARE OF COMMON STOCK
Net income $ .70 $ .78 $ .72 $ .39 $ .59
Dividends declared .16 .15 .12 .12 .12
Book value 9.68 8.85 8.26 7.46 7.29
PERFORMANCE MEASUREMENT
Pre-tax income as a % of
total revenue 4.8% 5.1% 5.1% 3.2% 4.9%
Net income as a % of
total revenue 3.0 3.3 3.3 2.0 3.2
Return on average
stockholders' equity 7.7 9.2 9.2 5.4 7.9
Revenue growth 1.7 10.6 10.9 5.6 (8.0)
Total debt as a % of debt
plus equity 27.7 26.2 25.5 31.7 14.3
Working capital ratio 2.2:1 1.9:1 1.9:1 1.8:1 2.1:1
</TABLE>
(1) Effective January 1, 1993, the Company acquired certain assets of Wilson
Instruments, Inc. ("Wilson"). The operating results of Wilson are included
in the Company's consolidated results of operations from the date of
acquisition. In the third quarter of fiscal 1993, the Company acquired
Amsler Otto Wolpert-Werke GmbH ("Wolpert"). The Company's results include
the results of operations of Wolpert since August 24, 1993, the date of the
acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Instron reported net income of $4.6 million, or 70 cents per share, for the year
ended December 31, 1996, compared with $5.0 million or 78 cents per share in
1995. Net income in 1996 included a special items charge to operations of $1.8
million representing the costs to implement a workforce reduction and
consolidation of certain manufacturing operations. The financial benefits of
these actions are substantially expected to be realized in 1997. Net income in
1996, before the effects of the special items charge, was $5.7 million or 87
cents per share, an increase of 14% over net income of $5.0 million in 1995.
This comparable increase over 1995 is primarily due to improved profitability of
the Company's service business and improved operating margins of the LMS
software division.
Total revenue of $153,113,000 in fiscal 1996 increased by 2% from total revenue
of $150,571,000 in fiscal 1995. This increase was principally due to increases
in the Company's service business revenues. Total revenue in fiscal 1995
increased by 11% over fiscal 1994 due to increases in shipments of structural
and custom material testing systems, hardness testing equipment and higher
revenues of the Company's service business. Total foreign revenue accounted for
approximately 61% of total 1996 revenue, compared with 60% in 1995 and 60% in
1994.
Total bookings of new orders increased by 4% to $161,692,000 in fiscal 1996 due
to increased bookings in North America (including a $6.5 million order from Ford
Motor Company). In 1995, total bookings increased by 12% due to growth in the
Asia/Latin America market, including Japan, and increases in the Company's
European operation.
The Company's backlog of orders was $34,361,000 at December 31, 1996, which
excludes approximately $11 million of structures orders which were contributed
to the Joint Venture formed between the Company and Carl Schenck A.G., as more
fully described below. The 1996 backlog, on a comparable basis, increased by 4%
from year-end 1995 assuming the structures testing business is eliminated from
year-end 1995 backlog. Order backlog at December 31, 1995, increased by 11% over
the 1994 year-end backlog due to strong fourth quarter bookings in the Company's
European operation and Asia markets.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The gross profit margins for the three years ended December 31, 1996, were
42.1%, 41.5% and 43.4%, respectively. The increase in 1996 is primarily due to
improved service margins. The decrease in gross margin for 1995 was due to
higher than expected costs at the LMS software division, a mix of lower margin
products and competitive pricing pressures partially offset by improved service
profitability. During 1995, the Company shipped several large structural and
material testing systems with lower gross margins than traditional systems
business, which had the effect of reducing gross margin during 1995. The profit
margin on the Company's service business increased to 34% in 1996 compared to
29% in 1995 and 25% in 1994. The Company's service business has realized
efficiencies by fully integrating the Wilson and Wolpert service organizations
and has leveraged the increase in service revenues into higher profit margins.
In fiscal year 1997, the Company expects to make certain expenditures in the
service business and therefore does not anticipate further improvements in the
service profit margin.
The 1996 selling and administrative expenses were essentially unchanged from
1995. As a percentage of revenue, selling and administrative expenses decreased
to 29.3% in 1996 compared to 29.7% in 1995 and 31.5% in 1994. In 1995, selling
and administrative expenses increased by 4.2% due to the inclusion of Shore's
operations and costs associated with the implementation of new information
systems.
Research and development expenses decreased by 2% in 1996, compared to a 9%
increase in 1995. During the three years ended December 31, 1996, the Company
has capitalized certain software development costs (see Note 1 of Notes to
Consolidated Financial Statements). Had these costs been included as period
expenses, research and development expenses would have decreased by 3% in 1996,
compared to an increase of 14% in 1995 and a decrease of 3% in 1994. As a
percentage of total revenue, research and development expenditures (including
capitalized software costs) represented 6.4%, 6.7% and 6.5% in 1996, 1995 and
1994, respectively. The Company, in recent years, has focused its research and
development expenditures on revitalizing the electromechanical and
servohydraulic product lines, developing new hardness testing machines,
developing new software and enhancements, and redesigning products to reduce
manufacturing costs. These new products and enhancements do not, in the
Company's opinion, present a significant risk that on-hand inventory, which
supports existing models, will be made obsolete because of the interchangability
of parts and the lead time available before the introduction of new products.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Operating income increased by 2.5% to $9,145,000 in 1996, compared to $8,921,000
in 1995 and $8,082,000 in 1994. As a percentage of total revenue, operating
income represented 6.0%, 5.9% and 5.9% in 1996, 1995 and 1994, respectively. The
1996 operating income was effected by a special items charge of $1,812,000, as
previously mentioned. Operating income, before the effect of the special items
charge, was $10,957,000 or 7.2% of total revenue.
Net interest expense decreased by 25% in 1996 and increased by 34% in 1995. The
net decrease in 1996 resulted from higher interest income charged on certain
debts owed the Company, partially offset by higher interest expense resulting
from an increase in average borrowings. Net interest expense increased in 1995
due to higher interest rates and higher average borrowings. Foreign exchange
losses of $689,000 in 1996 resulted from the strengthening of the British pound
against certain European currencies. Foreign exchange gains of $186,000 in 1995
were attributable to a stronger Japanese yen versus the U.S. dollar and British
pound, and to the strengthening of certain European currencies against the
British pound.
Income before taxes was 4.8% of total revenue in 1996, compared to 5.1% in 1995
and 1994. The consolidated effective tax rate was 38% in 1996 compared to 35.0%
in 1995 and 1994, respectively. A detailed reconciliation of the Company's
effective tax rate and the United States statutory tax rate appears in Note 8 of
Notes to the Consolidated Financial Statements.
FINANCIAL CONDITION
At December 31, 1996, the Company had $2.5 million of cash and cash equivalents
compared to $1.6 million at December 31, 1995. The Company's operating
activities generated cash of $9.8 million and $6.4 million in 1996 and 1995,
respectively. Investing activities used $12.2 million in 1996 and $8.3 million
in 1995, while financing activities provided $3.1 million in 1996 and $1.8
million in 1995.
The Company's primary source of funds in 1996 and 1995 was net cash generated by
operations. The net cash generated by operations in 1996 consisted primarily of
net income, as adjusted for the non-cash effect of depreciation and amortization
expense. The operating cash flows of $9.8 million and additional bank borrowings
of $3.3 million were used to fund capital expenditures and the Company's 51%
investment in Instron Schenck Testing Systems ("IST"), a Joint Venture of
Instron Corporation and Carl Schenck A.G. of Darmstadt, Germany, as discussed
below.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
At December 31, 1996, accounts receivable were $46.9 million compared to $47.5
million at year-end 1995. Inventories of $26.3 million increased by $2.0 million
from year-end 1995. The inventory turnover ratio decreased to 2.68 from 2.90 at
the end of 1995.
The Company's principal investment activities during 1996 included the $6.9
million cash investment in the Instron Schenck Testing Systems Joint Venture,
capital expenditures of $4.5 million and the development of software products of
$1.1 million. The Company plans to make capital expenditures of approximately
$5.0 million in fiscal 1997, principally for manufacturing and other equipment.
In addition, the Company plans to continue to develop and enhance its software
products and pursue its strategy of acquisitions.
The Company's total debt outstanding at year-end 1996 was $23.9 million compared
to $19.9 million at the end of 1995. The ratio of total debt to debt plus
equity, at year-end 1996 increased to 27.7% from 26.2% in 1995. The increase in
debt is largely due to the funding of the Company's $6.9 million investment in
IST.
In March 1997, the Company amended and extended its multicurrency revolving
credit and term loan facility that provides for borrowings of up to $35.0
million through April 2000. At December 31, 1996 and 1995, respectively, the
Company had outstanding borrowings of $17.4 million and $11.2 million under this
facility which were classified as long-term. The Company has additional
overdraft and borrowing facilities for allowing advances of approximately $26.0
million of which $6.5 million and $8.7 million were outstanding and classified
as short-term borrowings at December 31, 1996 and 1995, respectively. The
Company believes its present capital resources and anticipated operating cash
flows are sufficient to meet its current and future cash requirements to finance
operations, capital expenditures and acquisitions
Annual cash dividend payments have been declared at the rate of sixteen cents
per share since 1995.
In August 1996, the Company signed a Purchase & Sale Agreement with Reebok
International, Ltd. to sell 42 acres of land in Canton, Massachusetts, which are
considered excess to current and future needs, for approximately $13.5 million.
Reebok must receive numerous approvals and permits from various regulatory
agencies before the sale can be finalized.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Effective November 17, 1996, the Company formed a joint venture with Carl
Schenck A.G. of Darmstadt, Germany, known as Instron Schenck Testing Systems,
which will compete in the global structural testing market. Under the terms of
the agreement, Instron contributed its structural testing business and $6.9
million in cash for a 51% ownership in the Joint Venture. The Company has an
option to purchase Schenck's interest at certain future dates, subject to a
buyout formula as set forth in the agreement. The current agreement calls for
shared control over the operations of the Joint Venture. As such, the Company's
interest in IST is accounted for under the equity method of accounting and
accordingly, 51% of the operating results of IST are included in the Company's
consolidated results of operations from the effective date of the Joint Venture,
which were not material.
This Form 10-K contains forecasts of future revenues and earnings which
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Investors are cautioned that the Company's operating results have varied in the
past and are likely to vary in the future as a result of a number of factors,
many of which are outside the control of the Company. Accordingly no assurances
can be given that actual results will not differ materially from those projected
in the forward-looking statements contained in this Form 10-K. Certain factors
that might cause such a difference include the following: the potential
fluctuations in quarterly results due to unpredictable customer demands and the
difficulty of projecting such fluctuations; the seasonality of the Company's
business, including the decline of business in Europe during the summer months;
increased competition in the Company's businesses and the impact of competitive
products and pricing, including a willingness of competitors to cut prices in
order to preserve or gain market share; the risks inherent in new product
development and introductions, including uncertainty of customer acceptance and
price-performance relative to competitors; dependency on suppliers, including
supplier interruption of or price increases for materials, parts or components;
the uncertainties of operating in a global economy, including fluctuations in
the economic conditions of the foreign and domestic markets served by the
Company which can affect the demand for its products and services; fluctuations
in exchange rates, interest rates and inflation, all of which can affect the
amounts of revenues and earnings reported by the Company; the Company's ability
to successfully integrate the products and operations of businesses acquired by
the Company, including Wilson Instruments, Wolpert and Shore Instruments; and
the uncertain effect on operating results of the Joint Venture between the
Company and Carl Schenck A.G.
17
<PAGE> 18
INSTRON CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
18
<PAGE> 19
INSTRON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements included in Item 8: PAGE
----
Report of Independent Accountants ........................................ 20
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 ........................................ 21
Consolidated Balance Sheets as of December 31, 1996 and 1995 ............. 22
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 ...................................................... 23
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 ........................................ 24
Notes to Consolidated Financial Statements ............................... 25-33
Supplementary Financial Information
(Quarterly Financial Information/1996 and 1995 - (Unaudited) ............ 34
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION:
We have audited the accompanying consolidated balance sheets of Instron
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Instron
Corporation as of December 31, 1996 and 1995, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts /s/COOPERS & LYBRAND L.L.P.
February 20, 1997 ---------------------------
COOPERS & LYBRAND L.L.P.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF INCOME
In thousands, except per share data
(Years Ended December 31) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Sales $ 128,804 $ 128,018 $ 115,737
Service 24,309 22,553 20,455
--------- --------- ---------
Total revenue 153,113 150,571 136,192
--------- --------- ---------
Cost of revenue:
Sales 72,556 72,155 61,854
Service 16,086 15,971 15,253
--------- --------- ---------
Total cost of revenue 88,642 88,126 77,107
--------- --------- ---------
Gross profit 64,471 62,445 59,085
--------- --------- ---------
Operating expenses:
Selling and administrative 44,898 44,742 42,941
Research and development 8,616 8,782 8,062
Special items charge 1,812 0 0
--------- --------- ---------
Total operating expenses 55,326 53,524 51,003
Income from operations 9,145 8,921 8,082
--------- --------- ---------
Other (income) expense:
Interest expense 1,548 1,490 1,300
Interest income (477) (67) (239)
Foreign exchange (gains) losses 689 (186) 42
--------- --------- ---------
Total other expenses 1,760 1,237 1,103
--------- --------- ---------
Income before income taxes 7,385 7,684 6,979
Provision for income taxes 2,803 2,689 2,442
--------- --------- ---------
Net income $ 4,582 $ 4,995 $ 4,537
========= ========= =========
Net income per common share $ .70 $ .78 $ .72
========= ========= =========
See accompanying notes to consolidated financial statements
21
<PAGE> 22
CONSOLIDATED BALANCE SHEET
In thousands, except share data (December 31) 1996 1995
- --------------------------------------------- --------- ---------
Assets
Current assets:
Cash and cash equivalents $ 2,541 $ 1,644
Accounts receivable, net of allowance for doubtful
accounts of $1,107 in 1996 and $1,040 in 1995 46,938 47,504
Inventories 26,320 24,337
Deferred income taxes 3,602 3,544
Prepaid expenses and other current assets 1,857 2,835
--------- ---------
Total current assets 81,258 79,864
Property, plant and equipment, net 22,466 21,809
Deferred income taxes 1,203 1,476
Other assets 16,906 10,185
--------- ---------
Total assets $ 121,833 $ 113,334
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 6,510 $ 8,650
Accounts payable 7,153 9,746
Accrued liabilities 12,805 12,704
Accrued employee compensation and benefits 6,205 6,135
Accrued income taxes 1,602 2,496
Advance payments received on contracts 2,889 1,874
--------- ---------
Total current liabilities 37,164 41,605
Long-term debt 17,409 11,225
Other long-term liabilities 4,859 4,402
--------- ---------
Total liabilities 59,432 57,232
--------- ---------
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized; none issued
Common stock, $1 par value; 10,000,000
shares authorized; 6,519,687 and 6,415,321
shares issued, respectively 6,520 6,415
Additional paid in capital 3,514 2,538
Retained earnings 55,997 52,439
Cumulative translation adjustment (2,916) (4,576)
--------- ---------
63,115 56,816
Less: Treasury stock of 74,952 shares, at cost 714 714
--------- ---------
Total stockholders' equity 62,401 56,102
--------- ---------
Total liabilities and stockholders' equity $ 121,833 $ 113,334
========= =========
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands (Years Ended December 31) 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 4,582 $ 4,995 $ 4,537
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,873 6,784 5,815
Provision for losses on accounts receivable 358 163 156
Increase (decrease) in deferred income taxes 299 (1,635) (161)
Changes in assets and liabilities, excluding
the effects from purchase of business:
(Increase) decrease in accounts receivable 1,297 (6,282) (896)
(Increase) decrease in inventories (521) (2,210) 121
(Increase) decrease in prepaid expenses and
other current assets 151 (976) (8)
Increase (decrease) in accounts payable and
accrued expenses (3,894) 3,920 411
Increase (decrease) in other long-term
liabilities 8 995 (76)
Other 671 607 (756)
-------- -------- --------
Net cash provided by operating activities 9,824 6,361 9,143
-------- -------- --------
Cash Flows From Investing Activities
Capital expenditures (4,473) (4,510) (4,286)
Joint venture investment (6,926) 0 0
Purchase of business 0 (2,660) 0
Capitalized software costs (1,144) (1,315) (792)
Proceeds from the sale of property, plant & equipment 224 219 80
Other 156 (59) (31)
-------- -------- --------
Net cash used by investing activities (12,163) (8,325) (5,029)
-------- -------- --------
Cash Flows From Financing Activities
Net borrowings under revolving credit and term
loan facility 6,068 208 (1,171)
Net short-term borrowings (2,785) 2,007 (828)
Principal payments on notes payable 0 (18) (2,524)
Cash dividends paid (1,024) (884) (755)
Other 861 477 0
-------- -------- --------
Net cash provided (used) by financing
activities 3,120 1,790 (5,278)
-------- -------- --------
Effect of exchange rate changes on cash 116 (59) 143
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 897 (233) (1,021)
Cash and cash equivalents at beginning of year 1,644 1,877 2,898
-------- -------- --------
Cash and cash equivalents at end of year $ 2,541 $ 1,644 $ 1,877
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 1,730 $ 1,614 $ 1,404
Income taxes 2,286 2,063 3,039
Supplemental Disclosures of Noncash Investing
And Financing Activities:
Fair value of assets acquired $ 0 $ 3,005 $ 0
Cash paid 0 2,660 0
-------- -------- --------
Liabilities incurred or assumed in
business acquisition $ 0 $ 345 $ 0
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Addi- Total
stock tional Cumulative stock-
$1 par paid in Retained translation Treasury holders'
In thousands, except share data value capital earnings adjustment stock equity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 6,363 $ 2,113 $ 44,611 $ (5,476) $ (714) $ 46,897
Net income 4,537 4,537
Translation adjustments
arising during the year 1,247 1,247
Cash dividends declared
($.12 per share) (755) (755)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,363 2,113 48,393 (4,229) (714) 51,926
Net income 4,995 4,995
Translation adjustments
arising during the year (347) (347)
Cash dividends declared
($.15 per share) (949) (949)
52,262 shares issued, net, under
employee stock option plans 52 425 477
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 6,415 2,538 52,439 (4,576) (714) 56,102
Net income 4,582 4,582
Translation adjustments
arising during the year 1,660 1,660
Cash dividends declared
($.16 per share) (1,024) (1,024)
104,366 shares issued under
employee stock option plans 105 976 1,081
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 6,520 $ 3,514 $ 55,997 $ (2,916) $ (714) $ 62,401
======= ======= ======== ======== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. Significant intercompany
transactions and balances are eliminated. Certain reclassifications were made to
prior years' amounts to conform with the 1996 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's principal
foreign operations are translated at exchange rates prevailing at the end of the
period. Income statement items are translated using average quarterly exchange
rates. Translation adjustments are recorded directly in stockholders' equity and
are included in income only if the underlying foreign investment is sold or
liquidated.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the
Company to a concentration of credit risk principally consist of cash, cash
equivalents and trade receivables. The Company places its temporary cash
investments with major banks throughout the world, in high quality, liquid
instruments. The Company sells to a broad range of customers throughout the
world and performs ongoing credit evaluations to minimize the risk of loss. The
Company makes use of various devices such as letters of credit to protect its
interests, principally on sales to foreign customers.
INVENTORIES Inventories are valued at the lower of cost or market (net
realizable value). The last-in, first-out (LIFO) method of determining cost is
used for inventories in the United States and the Asian branches. The Company
uses the first-in, first-out (FIFO) method for all other locations.
INTANGIBLE ASSETS Intangible assets are stated at cost and amortized using the
straight-line method over the assets estimated useful lives, which range from 8
to 10 years. The Company evaluates the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate the
carrying value of the assets may not be recoverable.
25
<PAGE> 26
PROPERTY, PLANT AND EQUIPMENT Depreciation is computed principally using the
straight-line method over the estimated useful lives of 10 to 25 years for land
improvements, 10 to 40 years for buildings and improvements and 3 to 15 years
for machinery and equipment. Maintenance and repairs are expensed as incurred.
Depreciation expense was $4,619,000, $4,719,000 and $4,108,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
SOFTWARE DEVELOPMENT COSTS Certain software development costs and purchased
software are capitalized and then amortized over future periods. Amortization of
capitalized software costs, for both internally developed and purchased software
products, is computed on a product-by-product basis over the estimated economic
life of the product, generally three years. Unamortized software costs included
in other assets were $2,473,000, $2,679,000 and $2,580,000 at December 31, 1996,
1995 and 1994, respectively. Software development costs of $1,144,000,
$1,315,000, and $792,000 were capitalized during 1996, 1995 and 1994,
respectively. The amounts amortized and charged to expense in 1996, 1995 and
1994 were $1,350,000, $1,216,000, and $1,092,000, respectively.
REVENUE RECOGNITION Revenue from product sales are recognized at time of
shipment. Revenue from services are recognized as services are performed and
ratably over the contract period for service maintenance contracts.
INCOME TAXES Deferred income taxes are provided using the liability method,
which estimates future tax effects of differences between financial statement
carrying amounts and the tax basis of existing assets and liabilities.
Provisions are made for the U.S. income tax liability on earnings of foreign
subsidiaries except for locations where the Company has designated earnings to
be permanently invested. Such earnings amounted to approximately $20,291,000 at
year-end 1996.
NET INCOME PER SHARE Net income per share is based on the weighted average
number of common shares and common share equivalents outstanding. The number of
outstanding shares and equivalents utilized in the per share computations were
6,524,467, 6,431,882 and 6,339,547 in 1996, 1995 and 1994, respectively.
FAIR VALUE The Company's financial instruments consist primarily of cash and
cash equivalents, trade receivables, trade payables and debt. The carrying
amounts of these instruments approximates fair value due to their short maturity
terms.
2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
The Company operates in one industry segment, that being the design, production,
marketing and servicing of precision systems, software and accessories, for
evaluating the mechanical properties and performance of various materials,
components and structures.
26
<PAGE> 27
The following table summarizes the Company's operations by significant
geographic location for the years ended December 31:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
REVENUE, INCLUDING INTERAREA SALES
United States $ 70,924 $ 70,181 $ 66,822
European operations 64,913 61,899 54,079
Asia/Latin America 39,077 38,034 33,039
Other international 3,404 3,345 3,072
Eliminations (25,205) (22,888) (20,820)
--------- --------- ---------
Total revenue $ 153,113 $ 150,571 $ 136,192
========= ========= =========
OPERATING PROFIT
United States $ 6,599 $ 7,052 $ 7,568
European operations 6,218 3,612 2,673
Asia/Latin America 3,081 2,800 1,261
Other international 326 394 586
Eliminations (237) 162 22
--------- --------- ---------
Total operating profit 15,987 14,020 12,110
Corporate expenses (5,030) (5,099) (4,028)
Special items charge (1,812) 0 0
Other expenses (1,760) (1,237) (1,103)
--------- --------- ---------
Income before income taxes $ 7,385 $ 7,684 $ 6,979
========= ========= =========
IDENTIFIABLE ASSETS AT YEAR-END
United States $ 38,654 $ 40,496 $ 36,734
European operations 45,271 44,759 43,121
Asia/Latin America 19,149 18,057 12,980
Other international 2,499 2,188 2,222
Corporate 16,938 8,692 8,627
Eliminations (678) (858) (1,390)
--------- --------- ---------
Total assets $ 121,833 $ 113,334 $ 102,294
========= ========= =========
Sales between geographic areas in 1996, 1995 and 1994, respectively, consisted
primarily of $11,337,000, $10,534,000 and $10,755,000 from the United States and
$13,706,000, $11,998,000 and $8,921,000 from European operations. Transfers
between geographic areas are at manufacturing cost plus a markup factor.
3. INVENTORIES
Inventories at December 31 were as follows:
In thousands 1996 1995
- --------------------------------------------------------------------------------
Raw materials $13,416 $11,269
Work in process 5,550 5,257
Finished goods 7,354 7,811
------- -------
Total inventory $26,320 $24,337
======= =======
Inventories valued at LIFO amounted to $10,808,000 and $9,721,000 at December
31, 1996 and 1995, respectively. The excess of current cost over stated LIFO
value was $4,990,000 at December 31, 1996 and $4,535,000 at December 31, 1995.
27
<PAGE> 28
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances at December 31 were as follows:
In thousands 1996 1995
- --------------------------------------------------------------------------------
At cost:
Land and land improvements $ 2,113 $ 2,064
Buildings and building improvements 18,742 17,029
Machinery and equipment 41,004 37,233
------- -------
61,859 56,326
Less: Accumulated depreciation and
amortization 39,393 34,517
------- -------
Net property, plant and equipment $22,466 $21,809
======= =======
In August 1996, the Company signed a Purchase & Sale Agreement with Reebok
International, Ltd. to sell 42 acres of land in Canton, Massachusetts, which are
considered excess to current and future needs, for approximately $13.5 million.
Reebok must receive numerous approvals and permits from various regulatory
agencies before the sale can be finalized.
5. BORROWING ARRANGEMENTS
In March 1997, the Company amended and extended its multicurrency revolving
credit and term loan facility that provides for borrowings of up to $35.0
million through April 2000. Borrowings outstanding as of April 2000 convert to a
term loan payable in sixteen equal quarterly installments. Interest on
borrowings under the agreement is based upon either base rates, money market
rates, or other short-term borrowing rates.
Facility fees under this agreement are 1/4 of 1% per annum. The Company has met
the various covenants in the agreement, the most restrictive of which requires a
minimum level of tangible net worth. At December 31, 1996 and 1995,
respectively, outstanding domestic borrowings of $15,000,000 and $9,900,000 with
a weighted average interest rate of 6.17% and 6.13%, and outstanding European
borrowings of $2,409,000 and $1,325,000 with a weighted average interest rate of
8.20% and 6.44%, were classified as long-term debt. Long-term debt maturing
under the credit agreement in each of the five years subsequent to December 31,
1996, assuming outstanding borrowings at December 31, 1996 are unchanged at
April 2000, is $3,264,188 in 2000 and $4,352,250 in 2001.
The Company's subsidiaries have other overdraft and borrowing facilities
allowing advances up to approximately $26,000,000. At December 31, 1996, the
outstanding portion of these facilities was $6,510,000, due currently. Bank
guarantees outstanding at December 31, 1996, for which the Company is
contingently liable, amounted to $4,151,000 and relate principally to
performance contracts.
28
<PAGE> 29
6. OPERATING LEASE COMMITMENTS
Rental expense amounted to $3,348,000, $3,745,000 and $3,382,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996,
minimum annual commitments under noncancellable operating leases with terms of
more than one year are:
Later
In thousands 1997 1998 1999 2000 2001 Years
- --------------------------------------------------------------------------------
$2,253 $1,887 $1,522 $ 810 $ 446 $1,547
7. EMPLOYEE PENSION AND RETIREMENT PLANS
The Company maintains qualified noncontributory defined benefit pension plans
covering United States employees and employees of Instron's United Kingdom
subsidiary. The benefits are based on years of service and final average
compensation at the date of retirement. The Company's general policy is to fund
the pension plans to the extent such contributions are deductible under
standards established by the Internal Revenue Service in the U.S. and the Inland
Revenue in the U.K. Plan assets in the U.S. consist of mutual funds which invest
primarily in common stocks, corporate bonds, U.S. government notes and temporary
cash investments. In the U.K., plan assets are invested in funds whose assets
consist primarily of common stocks, bonds and other securities. Employees of the
Japan subsidiary receive lump sum payments as a multiple of annual salary at
retirement or termination, based on years of service. These Japanese benefits
are unfunded.
Net periodic pension costs include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- --------------------------
In thousands U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost $ 936 $ 1,158 $ 257 900 $ 1,167 $ 267 $ 793 $ 1,136 $ 220
Interest cost 1,648 1,690 206 1,496 1,678 210 1,362 1,353 176
Actual return on plan assets (2,655) (2,576) 0 (5,284) (3,754) 0 335 2,146 0
Net amortization and deferral 1,009 (33) 21 3,802 1,769 25 (1,679) (4,123) 24
------- ------- ------ ------- ------- ------ ------- ------- -------
Net periodic pension cost $ 938 $ 239 $ 484 $ 914 $ 860 $ 502 $ 811 $ 512 $ 420
======= ======= ====== ======= ======= ====== ======= ======= =======
</TABLE>
The funded status of the Company's U.S., U.K. and Japan plans and amounts
recognized in the Consolidated Balance Sheet at December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- -------------------------- --------------------------
In thousands U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $16,513 $19,546 $1,996 $15,021 $15,973 $ 1,873 $13,760 $15,052 $ 1,761
Non-vested benefits 212 0 0 185 0 0 182 0 0
------- ------- ------ ------- ------- ------- ------- ------- -------
Accumulated benefit obligation $16,725 $19,546 $1,996 $15,206 $15,973 $ 1,873 $13,942 $15,052 $ 1,761
======= ======= ====== ======= ======= ======= ======= ======= =======
Projected benefit obligation $23,246 $24,681 $3,404 $21,134 $20,167 $ 3,327 $19,223 $18,739 $ 3,086
Plan assets at fair value 24,865 29,748 0 21,556 24,466 0 16,547 20,935 0
------- ------- ------ ------- ------- ------- ------- ------- -------
Projected benefit obligation
in excess of (less than)
plan assets (1,619) (5,067) 3,404 (422) (4,299) 3,327 2,676 (2,196) 3,086
Unrecognized net gain(loss) 4,038 4,011 77 3,265 3,794 92 (380) 4,296 48
Unrecognized prior service cost (549) 1,498 0 (593) 1,543 0 (638) (1,380) 0
Unrecognized net asset (liability)
at transition 66 637 (278) 75 649 (335) 83 726 (371)
------- ------- ------ ------- ------- ------- ------- ------- ------
Pension liability included
in Consolidated Balance Sheet $ 1,936 $ 1,079 $3,203 $ 2,325 $ 1,687 $ 3,084 $ 1,741 $ 1,446 $2,763
======= ======= ====== ======= ======= ======= ======= ======= ======
</TABLE>
29
<PAGE> 30
7. EMPLOYEE PENSION AND RETIREMENT PLANS (CONTINUED)
Assumptions used in the accounting for the Company's U.S., U.K., and Japan plans
at December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- -------------------------- ------------------------
U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.5% 8.0% 6.0% 7.5% 8.0% 6.0% 7.5% 8.5% 6.0%
Rates of increase in
compensation levels 5.0 5.5 5.0 5.0 5.5 5.0 5.0 6.0 5.0
Expected long-term rate of
return on assets 9.0 9.5 .0 9.0 9.5 0 9.0 9.0 0
</TABLE>
The expense of all pension plans for 1996, 1995 and 1993 was $1,661,000,
$2,276,000, and $1,743,000, respectively. The Company also sponsors a Savings
and Security Plan for all U.S. employees. The plan (in accordance with section
401(k) of the Internal Revenue Code) offers participating employees a program of
regular savings and investment, funded by their own contributions and those of
the Company. The amount charged to operating expense for this plan was $523,000,
$535,000 and $498,000 in 1996, 1995 and 1994, respectively.
8. INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
at December 31, are as follows:
In thousands 1996 1995
- --------------------------------------------------------------------------------
Employee benefits $ 3,783 $ 4,188
Inventories 2,572 2,109
Accrued expenses 1,372 1,436
------- -------
Total deferred assets 7,727 7,733
------- -------
Accrued expenses (124) (65)
Depreciation (1,667) (1,425)
Capitalized software costs (898) (811)
------- -------
Total deferred liabilities (2,689) (2,301)
------- -------
Valuation reserve (490) (490)
------- -------
Total net deferred assets $ 4,548 $ 4,942
======= =======
A valuation reserve has been established where, based upon available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized. The valuation allowance as of December 31, 1996 related primarily
to foreign tax benefits.
The components of income before income taxes consisted of the following:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic $2,996 $3,602 $4,667
Foreign 4,389 4,082 2,312
------ ------ ------
Total $7,385 $7,684 $6,979
====== ====== ======
30
<PAGE> 31
Income tax provisions (credits) were as follows:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $ 609 $ 2,525 $ 1,538
Foreign 1,486 1,671 625
State 314 238 281
------- ------- -------
2,409 4,434 2,444
------- ------- -------
Deferred, net:
Federal & State 215 (1,261) 192
Foreign 179 (484) (194)
------- ------- -------
394 (1,745) (2)
------- ------- -------
Total provision for income taxes $ 2,803 $ 2,689 $ 2,442
======= ======= =======
The provisions for income taxes varied from the United States statutory rate of
34% for 1996, 1995 and 1994 principally because of the tax effect of the
following:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Tax provision at United States
statutory rate $ 2,511 $ 2,612 $ 2,372
Effect of earnings of foreign
operations subject to
different tax rates 199 (200) (138)
State taxes, net of federal
income tax benefit 208 157 185
Benefit of Foreign Sales Corporation (195) (115) (91)
Amortization of software costs and goodwill 97 114 114
All other, net (17) 121 0
------- ------- -------
Total tax provision $ 2,803 $ 2,689 $ 2,442
======= ======= =======
9. STOCK OPTION PLANS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation, SFAS No. 123," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
The Company has two stock options plans currently in effect under which future
grants may be issued: the 1992 Stock Incentive Plan and the 1979 Non-Qualified
Plan. A total of 1,391,500 shares has been authorized by the Company for grants
of options or shares. Stock Options granted during 1996 and 1995 generally have
a maximum term of eight years and vest equally over four years.
31
<PAGE> 32
9. STOCK OPTION PLANS (continued)
A summary of the Company's stock option activity for the years ended December 31
follows:
Number Weighted Average
of Options Exercise Prices
---------- ---------------
Outstanding at
December 31, 1993 758,866 $10.50
Granted, 1994 36,500 11.59
Terminated, 1994 (36,642) 12.20
--------
Outstanding at
December 31, 1994 758,724 10.50
Granted, 1995 206,000 11.87
Exercised, 1995 (55,962) 9.40
Terminated, 1995 (27,312) 12.24
---------
Outstanding at
December 31, 1995 881,450 10.80
Granted, 1996 225,750 13.51
Exercised, 1996 (112,726) 9.91
Terminated, 1996 (15,750) 12.59
--------
Outstanding at
December 31, 1996 978,724 $11.49
========
At December 31, 1996, 1995 and 1994, respectively, there were 526,045, 510,781
and 433,419 options exercisable with a weighted average exercise price of
$10.58, $10.25 and $10.25. Exercise prices for options outstanding as of
December 31, 1996, ranged from $9.50 to $13.75. The weighted average remaining
contractual life of those options is 7.7 years.
The weighted average fair value at date of grant for options granted during 1996
and 1995 was $5.79 and $4.90 per option, respectively. The fair value of these
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions for 1996 and 1995, respectively:
risk-free interest rates of 6.5% and 6.0%; dividend yields of 1.19% and 1.35%;
volatility factors of the expected market price of the Company's common stock of
.30 and .31; and a weighted average expected life of the options of 7.8 years.
32
<PAGE> 33
9. STOCK OPTION PLANS (continued)
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1996 and 1995 consistent with
the provisions of SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below:
In thousands, except per share data 1996 1995
----------------------------------- ---- ----
Net income - as reported $4,582 $4,995
Net income - pro forma 4,105 4,780
Net income per share - as reported $ .70 $ .78
Net income per share - pro forma .63 .74
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
10. JOINT VENTURE
Effective November 17, 1996, the Company formed a joint venture with Carl
Schenck A.G. of Darmstadt, Germany, known as Instron Schenck Testing Systems
("IST"). IST will compete in the global structural testing market. Under the
terms of the agreement, Instron contributed its structural testing business and
$6.9 million in cash for a 51% ownership in the Joint Venture. The Company has
an option to purchase Schenck's interest at certain future dates, subject to a
buyout formula as set forth in the agreement. The current agreement calls for
shared control over the operations of the Joint Venture. As such, the Company's
interest in IST is accounted for under the equity method of accounting and
accordingly, 51% of the operating results of IST are included in the Company's
consolidated results of operations from the effective date of the Joint Venture,
which were not material.
11. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
is effective for fiscal years ending after December 15, 1997, including interim
periods. The Statement requires restatement of all prior-period earnings per
share data presented after the effective date. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
and is substantially similar to the standard recently issued by the
International Accounting Standards Committee entitled International Accounting
Standards, Earnings Per Share (IAS33). The Company plans to adopt SFAS 128 in
1997 and has not yet determined the impact.
12. SPECIAL ITEMS CHARGE
In March 1996, the Company recognized a $1,812,000 special items charge to
implement a workforce reduction and consolidate certain manufacturing
operations. At December 31, 1996 approximately $1,000,000 remained in accrued
liabilities, and is expected to be paid in early 1997.
33
<PAGE> 34
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
(quarterly data unaudited)
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter
In thousands, except per share data 1 2 3 4 Year
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996:
Total revenue $ 35,224 $ 35,337 $ 38,494 $ 44,058 $153,113
Gross profit 14,656 15,239 15,488 19,088 64,471
Income (loss) before income taxes (357) 1,472 2,318 3,952 7,385
Net income (loss) (221) 912 1,437 2,454 4,582
Earnings per share (a) (0.03) 0.14 0.22 0.38 0.70
------------------------------------------------------------------------------------------------
1995:
Total revenue $ 34,165 $ 38,058 $ 33,929 $ 44,419 $150,571
Gross profit 14,408 15,765 14,598 17,674 62,445
Income before income taxes 991 2,076 1,272 3,345 7,684
Net income 614 1,288 788 2,305 4,995
Earnings per share 0.10 0.20 0.12 0.36 0.78
------------------------------------------------------------------------------------------------
</TABLE>
(a) The sum of the quarterly earnings per share does not equal the amount
reported for the year, as per share amounts are calculated independently
and are based on the weighted average common shares outstanding for each
period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The response to this item is contained in part under the caption, "Executive
Officers of the Registrant," in Part I hereof, and the remainder is contained
under the captions, "Information Regarding the Board of Directors' Nominees and
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Registrant's definitive proxy statement relating to its 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information contained under the caption "Election of a Class of Directors"
in the Registrant's definitive proxy statement relating to its 1997 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information contained under the caption "Information Regarding the Board of
Directors' Nominees and Directors" in the Registrant's definitive proxy
statement relating to its 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
34
<PAGE> 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information contained under the caption "Information Regarding the Board of
Directors' Nominees and Directors" in the Registrant's definitive proxy
statement relating to its 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
- -------- --------------------------------------------------------------
(a)1. Financial Statements
The following consolidated financial statements are included in Item 8:
Consolidated statements of income for the
years ended December 31, 1996, 1995 and 1994
Consolidated balance sheet at
December 31, 1996 and 1995
Consolidated statements of cash flows for the
years ended December 31, 1996, 1995 and 1994
Consolidated statements of stockholders' equity
for the years ended December 31, 1996, 1995 and 1994
Notes to consolidated financial statements
(a)2. Financial Statement Schedule
----------------------------
Schedule
Page Number
---- ------
Report of Independent Accountants on
financial statement schedule 39
Consolidated valuation accounts 40 II
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the accompanying notes.
(a)3. Exhibits
--------
Exhibit No. Description of Exhibits
- ----------- -----------------------
3(a) Restated Articles of Organization of the Registrant and all
amendments - incorporated by reference to Exhibit 3(a) of the
Registrant's Form 10-K for the year ended December 31, 1981,
Exhibit 4 of the Registrant's Form 10-Q for the quarter ended
March 31, 1984, Exhibit 4 of the Registrant's Form 10-Q for the
quarter ended June 28, 1986, and Exhibit 4 of the Registrant's
Form 10-Q for the quarter ended June 27, 1987.
3(b) By-Laws of the Registrant, as amended, incorporated by reference
to the Current Report on Form 8-K, filed with the Securities and
Exchange Commission on October 5, 1990.
35
<PAGE> 36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
- -------- --------------------------------------------------------------
(continued)
-----------
10(a) 1979 Non-Qualified Stock Option and Stock Appreciation Rights
Plan, as amended, incorporated by reference to Exhibit 10(a) of
Form 10-K for the year ended December 31, 1991.
10(b) 1982 Incentive Stock Option Plan, as amended, incorporated by
reference to Exhibit 10(b) of Form 10-K for the year ended
December 31, 1987 and to Exhibit 19(b) of Form 10-Q for the
quarter ended September 29, 1990.
10(c) 1984 United Kingdom Share Option Scheme, as amended,
incorporated by reference to Exhibit 10(c) of Form 10-K for the
year ended December 31, 1991.
10(d) 1992 Stock Incentive Plan, as amended, incorporated by reference
to Exhibit 4.3 of Form S-8 filed with the Securities and
Exchange Commission on June 3, 1996.
10(e) Executive Severance Agreement, dated as of December 8, 1993,
between the Company and James M. McConnell, incorporated by
reference to Exhibit 10(e) on Form 10-K for the year ended
December 31, 1993.
10(f) Form of Executive Severance Agreement, dated as of December 8,
1993, between the Company and each of Joseph E. Amaral, three
other executive officers and two key employees, incorporated by
reference to Exhibit 10(f) on Form 10-K for the year ended
December 31, 1993.
10(g) Form of Executive Severance Agreement, dated as of December 8,
1993, between the Company and Kenneth L. Andersen, incorporated
by reference to Exhibit 10(g) on Form 10-K for the year ended
December 31, 1993.
10(h) Form of Executive Severance Agreement, dated as of December 8,
1993, between Instron Limited, the Company and each of Ian M.
MacGregor and five key employees, incorporated by reference to
Exhibit 10(h) on Form 10-K for the year ended December 31, 1993.
10(i) Executive Severance Agreement, dated as of December 8, 1993, the
Company and an executive officer, incorporated by reference to
Exhibit 10(i) on Form 10-K for the year ended December 31, 1993.
10(j) Executive Severance Agreement, dated as of August 8, 1995,
between the Company and a key employee, incorporated by
reference to Exhibit 10 on Form 10-Q for the quarter ended
September 30, 1995.
10(k)* Joint venture agreement between Instron Corporation and Carl
Schenck AG, dated November 17, 1996.
* Confidential Treatment Requested.
36
<PAGE> 37
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
- -------- --------------------------------------------------------------
(continued)
-----------
11 Computation of primary and fully diluted earnings per share.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
(b) Report on Form 8-K
None.
37
<PAGE> 38
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.
INSTRON CORPORATION
(Registrant)
By: /s/ James M. McConnell By: /s/Linton A. Moulding
-------------------------- -------------------------
James M. McConnell Linton A. Moulding
President and Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Harold Hindman Chairman of the Board March 24, 1997
- ------------------------
Harold Hindman
Vice Chairman of the Board
- ------------------------
George S. Burr
President, Chief Executive Officer
/s/ James M. McConnell and Director March 24, 1997
- ------------------------
James M. McConnell
Director
- ------------------------
John W. Lacey
/s/ Dennis J. Moore Director March 24, 1997
- ------------------------
Dennis J. Moore
/s/ Sheldon Rutstein Director March 24, 1997
- ------------------------
Sheldon Rutstein
/s/ John F. Smith Director March 24, 1997
- ------------------------
John F. Smith
/s/ Richard W. Young Director March 24, 1997
- ------------------------
Richard W. Young
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF INSTRON CORPORATION
Our report on the consolidated financial statements of Instron Corporation
has been included in this Annual Report on Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule for each of the three years in the period
ending December 31, 1996, listed in Item 14(a) of this Form 10-K.
In our opinion, this financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P
February 20, 1997 ----------------------------
COOPERS & LYBRAND L.L.P.
39
<PAGE> 40
SCHEDULE II
INSTRON CORPORATION
CONSOLIDATED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
(A) Effect of
Balance at Additions Foreign
Beginning Charged to Currency (B) Balance at
Description of Year Operations Translation Deductions End of Year
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended
December 31, 1996 $1,040,000 $ 358,000 $ 27,000 $ 318,000 $1,107,000
---------- ---------- ---------- ---------- ----------
Year ended
December 31, 1995 $ 943,000 $ 163,000 $ (4,000) $ 62,000 $1 040,000
---------- ---------- ---------- ---------- ----------
Year ended
December 31, 1994 $ 777,000 $ 356,000 $ 62,000 $ 252,000 $ 943,000
---------- ---------- ---------- ---------- ----------
</TABLE>
(A) Included in "Additions Charged to Operations" for the year ended December
31, 1994, is $200,000 for allowance for doubtful accounts recorded in
conjunction with the Company's acquisition of Wilson.
(B) Uncollected receivables written off, net of recoveries.
40
<PAGE> 1
Exhibit 10(K)
MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION
JOINT VENTURE AGREEMENT
BETWEEN
1. Instron Corporation, 100 Royall Street, Canton, Massachusetts 02021
- hereinafter called "Instron Corp."
2. Instron Partners, 100 Royall Street, Canton, Massachusetts 02021
- hereinafter called "IP"
3. Instron GmbH i. Gr., Industriestrasse 19, 67063 Ludwigshafen am Rhein
- hereinafter called "Instron GmbH"
- Instron Corp., IP and Instron GmbH are also jointly referred to as
"Instron" or the "Instron Parties" and each an "Instron Party"
and
4. Carl Schenck AG, Landwehrstrasse 55, Darmstadt
- hereinafter called "Schenck AG"
5. Schenck Atis GmbH, Landwehrstrasse 55, Darmstadt
- hereinafter called "Schenck Atis"
6. Schenck Pegasus Testing Inc., 535 Acorn Street, Deer Park, N.Y.
11729-3698, USA
- hereinafter called "SPT" -
- Schenck AG, Schenck Atis and SPT are also jointly referred to as
"Schenck" or the "Schenck Parties", and each a "Schenck Party",
- each Schenck Party and each Instron Party is also individually
referred to as a "Party", and Schenck and Instron are jointly referred
to as the "Parties", concerning
Instron Schenck Testing Systems GmbH, a German GmbH
Instron Schenck Testing Systems, a Delaware Partnership
<PAGE> 2
CONFIDENTIAL TREATMENT
----------------------
1.6 The German Schenck Business and the US Schenck Business, and each of
them, shall be jointly referred to as the "Schenck Business". The UK
Instron Business and the US Instron Business, and each of them, shall be
jointly referred to as the "Instron Business". The terms "Business" or
"Businesses" shall mean and include all of the aforementioned
businesses. The products of the Business as of the Effective Date are
listed in EXHIBIT 1.6.
1.7 The term "Affiliate", when used with reference to any person means a
company affiliated to it within the meaning of Section 15 of the German
Stock Corporation Act.
SEC. DEFINITIONS
DEFINITION OF REFERENCE SECTION
18 Month [*] Statement 7.1
30 Month [*] Statement 7.1
Actual [*] 7.1
[*] Statement (s) 7.1
Board 17.2
Budget 19.1
Business or Businesses 1.6, 8.3
[*] Option 25.1
[*] Option 2 25.2
Companies and Company 3.4
Confidential Information 34.1
Contribution Agreement (s) 3.7
German Schenck Business 1.2
German Schenck Contribution Agreement 3.5.2
GmbH 1.1
Instron Business 1.6
Instron Contribution Agreement (s) 3.6
Instron Schenck Testing Systems 3.5.4
Instron U.K. 1.5
* Material omitted and filed separately with the Securities and Exchange
Commission.
2
<PAGE> 3
Joint Venture Companies 17.1
Management 17.1
Offered Party 25.3, 26.4, 30.2
Offering Party 25.3, 30.2
Notified Party 26.4
Receivables Statement 7.6
Schenck Business 1.6
Schenck Contribution Agreement(s) 3.6
Transferor 8.3
UK Instron Business 1.5
US Company 3.5.4
US Instron Business 1.4
US Instron Contribution Agreement 3.5.6
US Schenck Business 1.3
US Schenck Contribution Agreement 3.5.5
I INTRODUCTION
------------
SEC.1 PREAMBLE AND CURRENT STATUS
1.1 In preparation for the joint venture contemplated hereunder, the
following company was established: On July 24, 1996 Schenck Atis
established Schenck Atis Vermogensver waltungs GmbH, a German limited
liability company with a stated capital of DM 50,000, before the notary
public Dr. Klaus Berghauser in Darmstadt (Deed Role No. 3/96), and
registered under HRB 6497 with the Commercial Register of the local
court at Darmstadt, (hereinafter, called "GmbH") and subscribed to a
share in the nominal value of DM 50,000; on October 24, 1996, the
Articles of Association of the GmbH were amended as set out in Exhibit
1.1 by way of a notarial deed before the notary public Dr. Wolfgang
Ebner in Darmstadt (Deed Role No. 854/1996).
1.2 At its production plant in Darmstadt, Schenck Atis operates its business
of structural testing systems (the "German Schenck Business") .
3
<PAGE> 4
1.3 At its production plant in Troy, Schenck Pegasus Corporation operates
its business of structural testing systems (the "US Schenck Business").
1.4 At its production plant in Canton, Instron Corp. operates its business
of structural testing systems (the "US Instron Business").
1.5 At its production plant in High Wycombe, Instron's subsidiary Instron
Limited ("Instron U.K.") operates its business of structural testing
systems (the "UK Instron Business").
ESTABLISHMENT OF THE JOINT VENTURE
- ----------------------------------
SEC.3 GENERAL STRUCTURE
3.1 Instron and Schenck will form a joint venture in order to design,
manufacture, sell and service structures testing systems as heretofore
produced in the Business.
3.2 The joint venture shall reflect the intent of the parties of creating a
joint production and sales effort and of sharing the opportunities of
such joint effort.
3.3 The joint venture shall aim to create, and be perceived as, a joint
presence of the parties under the industrial leadership of Instron
offering high quality products tailored to the requirements of the
desired customer base. It will seek to service high level market
segments utilizing the established quality image and reputation of
Instron and Schenck.
3.4 The joint venture will be established in such form that Instron will
hold 51% of the interests in each of the GmbH (to be renamed as Instron
Schenck Testing Systems GmbH) and Instron Schenck Testing Systems (the
"Companies" and each a "Company"). Schenck will hold 49% of the
interests in each of the Companies.
3.5 For this purpose, the Parties agree to take the following steps:
3.5.1 Schenck Atis will sell and transfer to Instron GmbH a partial
share in the GmbH in the nominal value of DM 25,500 as set out
in Section 4.
3.5.2 On the date hereof, Schenck Atis will contribute the German
Schenck Business to the GmbH against issuance of a share
(Geschaftsanteil) in the nominal value of DM
4
<PAGE> 5
CONFIDENTIAL TREATMENT
----------------------
* and pursuant to a contribution agreement to be entered
into in the form attached as EXHIBIT 3.5.2 ("German Schenck
Contribution Agreement") . To the extent that the book value of
the contributed Business exceeds the aforementioned nominal
value, it shall be booked as a loan as more specifically set
forth in the German Schenck Contribution Agreement.
3.5.3 On the date hereof, Instron GmbH will subscribe to a share in
the GmbH in the nominal value of [*] and will undertake to
contribute the equivalent in DM (at the best available spot rate
of today of Bank of Boston and any other second bank reasonably
selected by Instron) of the amount of [*] to the GmbH, of which
[*] will be treated as stated capital and the excess will be
treated as capital reserve.
3.5.4 On the date hereof, IP and SPT will establish a Delaware General
Partnership under the name "Instron Schenck Testing Systems"
(the "US Company") and with a partnership agreement as set out
in EXHIBIT 3.5.4.
3.5.5 On the date hereof, SPT will contribute the US Schenck Business
and order backlog transferred to it by Schenck Pegasus
Corporation prior to or on the date hereof to the US Company
against issuance of its 49% partnership interest and pursuant to
a contribution agreement to be entered into in the form attached
as EXHIBIT 3.5.5 ("US Schenck Contribution Agreement").
3.5.6 On the date hereof, IP will contribute the US Instron Business
and the UK Instron Business, each as transferred to it on or
prior to the date hereof by Testing Systems Holdings, Inc. and
IST Enterprises Ltd., and the amount of [*] to the US Company
against issuance of its 51% partnership interest and pursuant to
a contribution agreement to be entered into in the form attached
as EXHIBIT 3.5.6 ("US Instron
* Material omitted and filed separately with the Securities and Exchange
Commission.
5
<PAGE> 6
Contribution Agreement").
3.6 The German Schenck Contribution Agreement and the US Schenck
Contribution Agreement shall be jointly referred to as the "Schenck
Contribution Agreements", and each of them shall also be referred to as
the "Schenck Contribution Agreement". The US Instron Contribution
Agreement shall also be referred to as the "Instron Contribution
Agreement". The terms "Contribution Agreement" or "Contribution
Agreements" shall mean and include all of the Schenck Contribution
Agreements and the Instron Contribution Agreement.
3.7 On or after the date hereof, the US Company will establish subsidiaries
in the US and the UK to conduct business as resolved by the board of the
US Company.
3.8 After such transfers, the GmbH shall make different tax elections
according to US and German tax law, respectively, as follows:
3.8.1 An item of income, gain, loss, and deduction with respect to any
property (other than cash) that has been contributed by a
shareholder to the capital of the GmbH and which is required or
permitted to be allocated to such shareholder for US income tax
purposes under Section 704 (c) of the US Internal Revenue Code
so as to take into account the variation between the tax basis
of such property and its fair market value at the time of its
contribution shall be allocated to such Partner solely for
income tax purposes in the manner so required or permitted using
the traditional method under Treasury Regulation Section
1.704-3.
3.8.2 In connection with any assignment or transfer of an interest
described in Sections 734 (b) and 743 (b) of the US Internal
Revenue Code of 1986 the GmbH shall at the time and in the
manner provided in Treasury Regulations Section 1.754-1 (b) (or
any like statute or regulation then in effect) make an election
to adjust the basis of the GmbH's property in the manner
provided in Section 755 of the Code
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CONFIDENTIAL TREATMENT
----------------------
provided such adjustment increases the basis of GmbH property.
3.8.3 The value booked by the GmbH according to German tax law for the
assets contributed shall be determined pursuant to the minimum
values allowed under Section 20 para 2 of the German
Transformation Tax Act (Umwandlungssteuergesetz).
3.9 Schenck hereby licenses to the Companies and their subsidiaries the use
of the name "Schenck" as part of their corporate names for a period from
the Effective Date until [*] following the date Schenck ceases to be a
shareholder or partner in the relevant Company, and otherwise including
the use as a tradename and unregistered trademark for a period from the
Effective Date until [*] following the date Schenck ceases to be a
shareholder or partner in the relevant Company. Instron hereby licenses
to the Companies and their subsidiaries the use of the name "Instron" as
part of their corporate names for a period from the Effective Date until
[*] following the date Instron ceases to be a shareholder or partner in
the relevant Company, and otherwise including the use as a tradename and
unregistered trademark for a period from the Effective Date until [*]
following the date Instron ceases to be a shareholder or partner in the
relevant Company. Each license is royalty-free, nonexclusive and
nontransferable.
SEC.4 SALE AND TRANSFER OF SHARES
4.1 Schenck Atis hereby splits its share in the GmbH in the nominal value of
[*] in two partial shares in the nominal values of [*] and [*] and sells
and transfers to Instron GmbH as of the Effective Date and subject to
the terms and conditions of this Agreement, 51% of its shares in GmbH,
i.e. the share in the nominal value of [*] free of all liens and
encumbrances of whatever nature, with all rights and obligations
appurtenant thereto, in
* Material omitted and filed separately with the Securities and Exchange
Commission.
7
<PAGE> 8
CONFIDENTIAL TREATMENT
----------------------
particular all rights to dividends not yet distributed; Instron GmbH
hereby accepts such sale and transfer.
4.2 To the extent additional documents or actions are required or beneficial
for purposes of the transfer or a required registration of a transfer of
any of the share purchased, the Parties shall cooperate with each other.
SEC.5 EFFECTIVE DATE
The Effective Date within the meaning of this Agreement shall be the
date of signature of this Agreement.
SEC.6 PURCHASE PRICE AND COMPENSATION PAYMENT
6.1 The purchase price for the share sold pursuant to Section 4 hereof shall
be [*].
6.2 Instron GmbH shall compensate Schenck Atis for the excess value of the
contribution by Schenck compared with the contribution by Instron as
follows: Instron GmbH shall make an initial payment of [*] to Schenck
Atis. This amount is based on the estimated aggregate [*] contributed by
each of Schenck and Instron under this Agreement and the Contribution
Agreements as set out in EXHIBIT 7.5. The Parties undertake to update
EXHIBIT 7.5 within 30 days from the Effective Date to reflect the status
of the [*] contributed as of the Effective Date. To the extent that the
[*] contributed by any of the Parties is greater (but not more than [*])
or lower than set out in EXHIBIT 7.5, the compensation will be adjusted
as set out in EXHIBIT 6.2. Any payments resulting from such adjustments
and to be made by either of Instron or Schenck become due within 35 days
after the Effective Date.
6.3 The payment set forth in Section 6.1 shall
be made within three German business days from the Effective Date to the
following account:
[*]
* Material omitted and filed separately with the Securities and Exchange
Commission.
8
<PAGE> 9
CONFIDENTIAL TREATMENT
----------------------
The initial payment set forth in Section 6.2 shall be due for payment
within three German business days from the Effective Date. It shall be
paid to Schenck AG on behalf of Schenck Atis by wire transfer in same
day funds as follows:
[*]
Any adjustment payment will be made to the aforementioned account if to
be made to Schenck, and to an account to be notified by Instron, if to
be made to Instron.
6.4 If either Party is in default with any of the above payments, it shall
pay default interest from the due date of payment at the rate of 3%
above the applicable discount rate of the German Federal Bank.
SEC.7 [*] AND REVIEW
7.1 As soon as practicable after the end of the eighteenth month after the
Effective Date, but not later than 30 days thereafter, the Companies
shall jointly prepare and have audited a statement setting forth the [*]
by each of Instron and Schenck to the Joint Venture Companies as set out
in EXHIBIT 7.5 (as updated by the Parties pursuant to Section 6.2,
provided that an increase of the [*] contributed by any Party in excess
of [*] shall be disregarded for purposes of this Agreement) and the
actual [*] (as defined in EXHIBIT 7.1, hereinafter called "Actual [*]")
achieved by such Company for those [*] out of such [*] during the period
of 18 months from the Effective Date ("18 Month [*] Statement") , and
shall deliver the 18 Month [*] Statement to Instron Corp. and Schenck
AG. Likewise, as soon as practicable after the end of the thirtieth
month after the Effective Date, but not later than 30 days thereafter,
each Company shall prepare and have audited a statement setting forth
the [*] by each of Instron and Schenck to such Company and the Actual
[*]
* Material omitted and filed separately with the Securities and Exchange
Commission.
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<PAGE> 10
CONFIDENTIAL TREATMENT
----------------------
achieved by such Company for those [*] out of the [*] from the end of
the period covered by the 18 Month [*] Statement to the end of the
period of 30 months from the Effective Date ("30 Month [*] Statement"),
and shall deliver the 30 Month [*] Statement to Instron Corp. and
Schenck AG. Each of the 18 Month [*] Statements and the 30 Month [*]
Statements (collectively the "[*] Statements") shall present a fair and
true view of the Actual [*] achieved by the relevant Company for the
relevant [*] during the relevant period and shall be complete and
correct in all respects. For purposes of this Section 7, the [*] on an
[*] shall be deemed "achieved" when the relevant [*] can be [*] under US
GAAP.
7.2 Upon receipt of each of the [*] Statements, each of Instron Corp. and
Schenck AG and their auditors shall have 60 days to review them or have,
them reviewed. For this purpose, the Companies shall grant Instron,
Schenck and their auditors any access to all documents and information
deemed relevant by the respective party, including appropriate
interviews with personnel. Notwithstanding the above, the parties,
auditors shall have the right to participate in preparing the [*]
Statements.
7.3 The [*] Statements shall be binding for both Parties, unless either
Party notifies the Companies in writing within 60 days after receipt of
both [*] Statements of any objections with respect to the [*] Statements
presented. If the Parties and the Companies cannot reach agreement
concerning the objections made within 60 days, the matter shall be
referred to the German office of an international firm of auditors,
which is independent from both Parties and has been selected jointly by
both Parties within a further period of 14 days. If the Parties cannot
agree on an auditing firm within the above period, such auditing firm
shall be appointed by the President of the Frankfurt Chamber of Industry
and Commerce upon application by either Party. The auditing firm shall
reach a decision on the issues in
* Material omitted and filed separately with the Securities and Exchange
Commission.
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<PAGE> 11
CONFIDENTIAL TREATMENT
----------------------
dispute within 60 days. The second sentence of Section 7.2 shall apply
accordingly. The, determination of the appointed auditor shall be made
in the English language and shall be final and binding for both Parties.
7.4 The costs for the preparation of the [*] Statements shall be borne by
the Companies. Each Party shall bear the costs of its own auditors. The
costs of the appointed independent auditors shall be borne by the
Companies.
7.5 (i) If the aggregate Actual [*] achieved by the Companies for the
[*] by Instron or Schenck, as the case may be, as determined by
the relevant 18 Month [*] Statement, is less than the aggregate
guaranteed [*] on the [*] by that Party to the Companies as set
out in EXHIBIT 7.5 (as updated by the Parties pursuant to
Section 6.2, provided that an increase of the [*] contributed by
Any Party in excess of [*] shall be disregarded for purposes of
this Agreement), then that Party shall pay the difference to the
companies within 30 days from the relevant 18 Month [*]
Statement having become final.
(ii) If the aggregate Actual [*] achieved by the Companies for the
[*] by Instron or Schenck, as determined by the relevant 30
Month [*] Statement, is greater than zero, then the Companies
shall pay such amount to the relevant Party within 30 days from
the relevant 30 Month [*] Statement having become final,
provided that such amount shall always be limited to the amount
of the payment made by that Party under Section 7.5 (i). If such
aggregate Actual [*] achieved is less than zero, the relevant
Party shall pay the shortfall to the Companies.
7.6 Each Schenck Party guarantees to the Companies the [*] of all accounts
receivable resulting from the [*] transferred by the Schenck Parties
within [*] months after the
* Material omitted and filed separately with the Securities and Exchange
Commission.
11
<PAGE> 12
CONFIDENTIAL TREATMENT
----------------------
Effective Date. Each Instron Party guarantees to the Companies the [*]
of all accounts receivable resulting from the [*] transferred by the
Instron Parties within [*] months after the Effective Date. As soon as
practicable after the end of the [*] month after the Effective Date, but
not later than 30 days thereafter, the Companies shall jointly prepare a
statement (hereinafter called the "Receivables Statement") as of the end
of the [*] months period showing the accounts receivable resulting from
the [*] by each Party and the amount thereof not collected within the
above period. Sections 7.1 through 7.4 shall apply accordingly. Each
Party will, within a period of thirty days after the Receivables
Statement having become final, pay to the Companies the amount shown on
the Receivables Statement as not collected. The Companies shall continue
to use their best efforts to collect the accounts receivable. Any
amounts collected shall be reimbursed to the respective Party within
thirty days from receipt. If, [*] months after the Effective Date, any
accounts receivable are not collected, such accounts receivable shall be
transferred to the respective Party at such Party's request; the
Companies' obligation to use best efforts to collect any accounts
receivable shall cease to exist.
7.7 If any of the Joint Venture Companies negotiates or accepts a [*] with
or by a customer for whatever reason, such Joint Venture Company has to
seek prior approval for such [*] or acceptance by such shareholder or
partner as has contributed the relevant [*]. Upon approval, the [*]
relating to the relevant [*] will be [*] as agreed on a case by case
basis, and the receivable [*] will only relate to the [*].
SEC.8 REPRESENTATIONS AND WARRANTIES
8.1 Schenck Atis represents and warrants to Instron GmbH as of the date
hereof that:
8.1.1 Ownership, Capitalization and Free Transferability
--------------------------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission.
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<PAGE> 13
- the information contained in Section 1.1 is correct; the GmbH
has been duly established and is validly existing; and Schenck
Atis is the sole and unrestricted owner of the share sold;
- the share in the GmbH in the nominal value of DM 50,000 has been
fully paid; no repayments of stated capital have been made;
there is no obligation to make additional contributions
(Nachschugpflichten); and the GmbH is neither insolvent nor
over-indebted;
- neither bankruptcy nor judicial composition procedures have been
applied for or have been started with respect to the properties
of the GmbH; and there are no circumstances that could justify
the voidance of this Agreement pursuant to the provisions of the
Bankruptcy Code or the Reorganization Code or the Voidable
Preference Act;
- the shares in the GmbH are not encumbered by any third party
rights; there are no silent partnerships or subparticipations;
- the articles of association of the GmbH continue to exist
unaltered in the following version: October 24, 1996
8.1.2 Company Agreements
------------------
The GmbH has no corporate relationship of any nature with third parties
(including Schenck, except for the ownership of Schenck Atis), in
particular no participation or sub-participation in another company,
enterprise agreement within the meaning of secs. 291 and 292 of the
German Stock Corporation Act (Aktiengesetz), or any joint venture
agreements, and the GmbH has not issued any letter of support
(Patronatserklarung) in favor of any third party;
8.1.3 Taxes
-----
All taxes, social security contributions and other public charges
payable by the GmbH and
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<PAGE> 14
attributable to periods prior to the Effective Date, have been or will
be paid. Prior to the Effective Date, GmbH has filed with the
appropriate authorities all required tax returns; as of the Effective
Date, it is not in default in paying any taxes, public charges or social
security contributions which are due;
8.1.4 Equity and Business of GmbH
---------------------------
- The GmbH has an equity corresponding to its registered capital
with no losses whatsoever except with respect to the costs of
establishment not exceeding DM 1.300.
- The GmbH does not have any liabilities of whatever nature, and
there is no necessity to account for any accruals or reserves
against unknown or unclear liabilities or risks of whatever
nature;
- The GmbH has no assets other than the equivalent of its
registered capital in cash less the costs of establishment as
referred to above and it does not have, and never had, any
business activities of whatever nature.
8.2 Each Party represents and warrants to the other as of the date hereof
that:
8.2.1 Such Party's execution, delivery and performance of this
Agreement and all other agreements to be entered into by such
Party or its affiliates pursuant to this Agreement have been
duly authorized by all necessary competent corporate bodies,
including, in the case of Schenck AG, its Supervisory Board.
8.2.2 Such Party has received the approval of all regulatory and other
governmental agencies deemed necessary by such Party's counsel
to consummate the transactions contemplated by this Agreement.
8.3 Each Party represents and warrants to the other as of the date hereof
that, with respect to the Contribution Agreement(s) entered into by it
and the Business(es) contributed by it (in the context of the following
representations and warranties, the term "Transferor" shall
14
<PAGE> 15
mean each Party making a contribution under Contribution Agreements, and
"Business" shall refer to the Business contributed by the Party making
the relevant representations and warranty):
8.3.1 The representations and warranties of the Transferor in the
Contribution Agreement(s), all of which are incorporated in this
Agreement by reference, are true and correct.
8.3.2 Transferor will fully and completely fulfill all of its
obligations under the relevant Contribution Agreement when due.
8.4 To the extent knowledge is relevant in connection with the
representations and warranties pursuant to sec.8, the actual and
constructive knowledge of the board members and managing director,
prokurists and other senior employees (leitende Angestellte) of each of
Instron or Schenck, as the case may be, and the relevant Business shall
be imputed to the relevant Party.
8.5 If and to the extent that representations and warranties of any Party
are untrue, such Party shall put Instron or Schenck (with respect to
representations and warranties contained in Sections 8.1 and 8.2) and/or
the relevant Company (with respect to representations and warranties
contained in Section 8.3), as the case may be, in a position as if such
representations and warranties were true by making the representations
and warranties true; to the extent that the relevant representation and
warranty is not, or could not be, made true by the representing Party
within one month from receipt of a written demand by the claiming Party,
the representing Party shall pay damages in cash pursuant to Sections
249 et seq. German Civil Code. The scope and extent of liability of any
Party with respect to claims relating to a breach of the representation
and warranty contained in Section 8.3.1 shall be subject to the
limitations set forth in the relevant Contribution Agreement.
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<PAGE> 16
8.6 Any claims resulting from the breach of representations and warranties
shall be made in writing by the relevant claiming Party to the
representing Party and shall be time barred (verjahrt) after June 30,
1998. Claims based on legal defects shall be time-barred in accordance
with statutory provisions. Claims resulting from the breach of any tax
representations and warranties shall be time barred three months after
assessment of the relevant tax, but in no event prior to the date
referred to in the first sentence of this Subsection. Section 194 et
seq. of the German Civil Code apply.
8.7 The fact that any Party and its consultants have had access to documents
and the opportunity to conduct an abbreviated summary review concerning
the Business shall not impair the representations and warranties.
Sections 460 and 464 of the German Civil Code and Section 377 of the
German Commercial Code shall not apply.
8.8 As between the Parties, there are no representations and warranties with
respect to (i) the GmbH, (ii) the execution, delivery and performance of
this Agreement and regulatory approvals, and (iii) the Contribution
Agreements and the Businesses other than those set forth in this Section
8 and in the Contribution Agreements, and the remedies set forth in
Section 8 and in the Contribution Agreements are conclusive with respect
to such representations and warranties. With respect to the subject
matter thereof, any other claims and remedies which may be available
under the law are excluded.
SEC.9 ARRANGEMENTS FOR TRANSFER
On the Effective Date, Schenck shall make available to Instron all
information necessary or beneficial for the transfer of the share in the
GmbH hereunder.
III. AGREEMENTS BETWEEN THE PARTIES AND THE COMPANIES
------------------------------------------------
SEC.10 LEASE AGREEMENTS
Effective as of the Effective Date, Schenck GmbH & Co.
Immobilien & Service KG will lease to the GmbH premises as set out in
the lease
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<PAGE> 17
agreement attached hereto as EXHIBIT 10.1.
SEC.11 SUPPORT SERVICES AND CONTRACT MANUFACTURING AND SUPPLY AGREEMENTS
11.1 Effective as of the Effective Date, Instron Corp., Schenck AG and
Schenck Pegasus, a Michigan Corporation ("Schenck Pegasus") shall
conclude with the GmbH and the US Company, as the case may be, the
Support Services Agreements contained in EXHIBITS 11.1.1, 11.1.2 AND
11.1.3.
11.2 Effective as of the Effective Date, Schenck Fertigungs GmbH, a
subsidiary of Schenck AG, Schenck Pegasus and Instron shall conclude
with the GmbH and the US Company Contract Manufacturing and Supply
Agreements contained in EXHIBITS 11.2.1, 11.2.2 AND 11.2.3.
SEC.12 RESEARCH AND DEVELOPMENT AGREEMENTS
Effective as of the Effective Date, Schenck AG and Instron shall
conclude with the GmbH and the US Company Research and Development
Agreements contained in EXHIBITS 12.1 AND 12.2.
SEC.13 SERVICE AGREEMENTS
Effective as of the Effective Date, Schenck AG or any of its
subsidiaries and Instron Corp. shall conclude with the GmbH and the US
Company After Sales Service Agreements contained in EXHIBITS 13.1 AND
13.2.
SEC.1 FINDER'S FEE AND COMMISSION SALES AGREEMENTS AND PREFERRED SUPPLIER AND
JOINT SALES AGREEMENTS
14.1 Effective as of the Effective Date, Schenck AG and Instron Corp. shall
conclude with the GmbH and the US Company Finder's Fee and Commission
Sales Agreements contained in EXHIBITS 14.1.1 AND 14.1.2.
14.2 Effective as of the Effective Date, Schenck and Instron shall conclude
with the GmbH and the US Company the Preferred Supplier and Joint Sales
Agreements contained in EXHIBIT
17
<PAGE> 18
14.2.1 AND 14.2.2.
SEC.15 LICENSE AGREEMENT
Effective as of the Effective Date, Schenck AG will conclude with the US
Company the License Agreement contained in EXHIBIT 15.
IV. CORPORATE STRUCTURE AND MANAGEMENT OF THE COMPANY
-------------------------------------------------
SEC.16 AMENDMENT OF CORPORATE DOCUMENTS OF THE COMPANIES
On the Effective Date, the Articles of Association
(Gesellschaftsvertrag) of the GmbH shall be amended to read as set out
in EXHIBIT 16 which also contains a convenience translation of the
Articles of Association in the English language. Simultaneously, the
firm name of the GmbH will be changed to Instron Schenck Testing Systems
GmbH.
SEC.17 CORPORATE BODIES OF COMPANIES
17.1 Each of the GmbH and the US Company and their respective
subsidiaries (the "Joint Venture Companies") shall be managed by one or
more managing directors (also referred to as the "management").
17.2 In addition, each of the Joint Venture Companies shall have a board (the
"Board") which will supervise and assist the management.
17.3 Matters not delegated to decisions by the management or the Board under
this Agreement or applicable law or the Articles of Association or the
Partnership Agreement of the relevant Joint Venture Company shall be
decided by the shareholders or partners of the relevant Joint Venture
Company.
SEC.18. MANAGING DIRECTOR
18.1 The managing director(s) shall be appointed and removed by unanimous
consent of the Board of the relevant Company. The same applies to the
conclusion, amendment and termination of service agreements with the
managing directors and any elements thereof.
18.2 With respect to material claims which any of the Companies may have
against either Party
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<PAGE> 19
or any of its Affiliates, management will be deemed to be instructed to
take all reasonable steps to collect such claims, and shall not be
subject to a shareholder or partner decision in this respect. Any such
material claim may only be settled with the consent of either Schenck
AG, if the claim is against any Instron Party or any of its Affiliates,
or Instron, if the claim is against any Schenck Party or any of its
Affiliates. If management does not properly proceed with the above
claims against the relevant Party or its relevant Affiliate within six
months from knowledge of such claim or if such claim would become
time-barred (verjahrt) within the following three months, then the other
Party has the right to proceed in its own name but for the sole benefit
of the relevant Company. Management shall notify each Party immediately
after it acquires knowledge of any such claim.
SS.19 ANNUAL BUSINESS, FINANCE AND INVESTMENT PLAN
19.1 Not later than one month before the end of each fiscal year of each
Company, management will establish and submit to the Board for approval,
which will require a unanimous vote, a business, finance, investment,
research and development plan for the following fiscal year (the
"BUDGET").
19.2 The Budget will set forth
19.2.1 the planned sales by product line, other revenues, costs and
expenses including depreciation and change of provisions and
accruals;
19.2.2 all contemplated investments in and disposals of tangible and
intangible assets and interests in other enterprises and
contemplated sales of such assets;
19.2.3 proposed research and development work and the finances required
therefor; and
19.2.4 the financing required and the methods to meet such
requirements.
SS.20 DECISIONS SUBJECT TO BOARD APPROVAL
20.1 The management must first obtain the approval of the Board with the
majority set out in subsections 2 or 4 hereof respectively before taking
any of the actions or entering into any
19
<PAGE> 20
of the transactions set out or referred to in subsections 2 or 4 hereof.
20.2 With respect to any of the Companies, the following actions must be
submitted to the competent Board for approval by majority decision,
unless unanimous approval is required under Section 20.4:
20.2.1 Acquisition or sale, closing or opening of business units;
20.2.2 The introduction or discontinuance of particular branches or
fields of business or particular material research or
development work or the termination of existing fields of
activity;
20.2.3 The acquisition, disposal or encumbrance of fixed assets,
including any tangible or intangible assets of any kind, if the
consideration or the book-value exceeds DM 100,000 in each case;
20.2.4 The granting of any loans or credit in excess of DM 200,000,
including factoring arrangements, or the granting of any future
or similar positions or any derivative transactions, or any
guarantee or indemnity or similar obligation in respect of any
liabilities of any other person in excess of DM 200,000;
20.2.5 The raising of loans or credit lines, including factoring
arrangements or the taking of any future or similar positions or
derivative transactions which (when aggregated with any other
such loans or credit in the same financial period) exceed, or
would involve an exposure in excess of, DM 1,000,000 in any such
case, or the change or termination of agreements of such nature;
20.2.6 The entering into of any joint venture, partnership (including
silent partnership) or consortium with any third party which
will bind the Company for a longer period than twelve (12)
months or which will involve a financial obligation either of
the Company or of the third party in excess of DM 200,000;
20.2.7 The making of any capital investment or other capital
expenditure or commitment
20
<PAGE> 21
in excess of (when aggregated with any related investment or
expenditure or commitment in the same financial period) DM
200,000 in each case;
20.2.8 The application for or acceptance of any material license
agreement having a contract value of more than DM 100,000;
20.2.9 The commencement or settlement in any jurisdiction of legal or
arbitration proceedings which involve or could involve an amount
in excess of DM 100,000 (including related costs);
20.2.10 The selection of employees to be retransferred to Schenck under
the German Contribution Agreement, and the relocation of
business or services among the Companies including the UK
Company.
20.3 The Board may amend or modify the list contained in subsection 2 hereof
at any time by majority decision; such amendment or modification shall,
however, not affect any of the unanimity requirements contained in this
Agreement.
20.4 With respect to any of the Companies, the following actions must be
submitted to the competent Board for approval by unanimous consent:
20.4.1 Sale, lease or pledge of all or substantially all of the assets
of the Company;
20.4.2 Restructuring all of the Company's business or major changes of
the business of the Company contributed as provided herein;
20.4.3 The acquisition, disposal of or creation of any encumbrance over
shares, or any other interests in other enterprises;
20.4.4 Acquisition or sale, closing or opening of material business
units;
20.4.5 The establishment or liquidation of subsidiaries or the grant of
participation and sub-participation (Unterbeteiligungen),
including silent partnership interests, in the Company or any
subsidiary or associated company;
20.4.6 The introduction or discontinuance of material branches or
fields of business not
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part of a Budget;
20.4.7 The acquisition, disposal or encumbrance of fixed assets,
including any tangible or intangible assets of any kind, if the
consideration or the book-value exceeds DM 1,000,000 in each
case, and any encumbrance over any assets for the direct or
indirect benefit of any interestholder or any of its affiliated
companies;
20.4.8 The granting of any loans or credit in excess of DM 2,000,000,
including factoring arrangements, or any guarantee or indemnity
or similar obligation in respect of any liabilities of any other
person in excess of DM 2,000,000, or the granting of any future
or similar positions or any derivative transactions;
20.4.9 The raising of loans or credit lines, including factoring
arrangements or the taking of any future or similar positions or
derivative transactions which (when aggregated with any other
such loans or credit in the same financial period) exceed, or
would involve an exposure in excess of, DM 10,000,000 in any
such case, or the change or termination of agreements of such
nature;
20.4.10 The repayment of loans from shareholders other than on a pro
rata basis except for the repayment of the inventory loan under
the German Contribution Agreement;
20.4.11 The entering into or variation of any material transactions or
agreements with a shareholder or partner or one of their
affiliated companies;
20.4.12 The entering into of any joint venture, partnership (including
silent partnership) or consortium with any third party which
will bind the Company for a longer period than twelve (12)
months or which will involve a financial obligation either of
the Company or of the third party in excess of DM 2,000,000;
20.4.13 The making of any capital investment or other capital
expenditure or commitment in excess of (when aggregated with any
related investment or expenditure or
22
<PAGE> 23
commitment in the same financial period) DM 2,000,000 in each
case;
20.4.14 Making any material change to the basis of accounting or
changing in any material respect accounting principles and
policies of the Company, except changes required by law or
accounting standards;
20.4.15 The granting or revocation of general power-of-attorney
(Generalvollmachten), and "procura" (Prokuren);
20.4.16 The exercise of major shareholders' rights in subsidiaries and
associated companies, including without limitation the
appointment and removal of members of any management board,
shareholders' committee and supervisory board, the approval of
the annual financial statements, the issue, redemption or
repurchase of share capital or other equity interests, and other
matters affecting the corporate and capital structure;
20.4.17 The entering into, change and/or termination of any controlling,
profit-and-loss-pooling or other inter-company agreements
(Beherrschungs-, Gewinnabfuhrungsund andere
Unternehmensvertrage);
20.4.18 The application for or acceptance of any material license
agreement having a contract value of more than DM 1,000,000;
20.4.19 The entering into of any material business transaction which is
not within the ordinary scope of the Company's business;
20.4.20 The commencement or settlement in any jurisdiction of legal or
arbitration proceedings which involve or could involve an amount
in excess of DM 1,000,000 (including related costs);
20.4.21 The liquidation or winding up of any subsidiary or the making of
any application with an administrator or liquidator of, or the
filing of a petition for bankruptcy or arrangements with
creditors in respect of, any such company.
23
<PAGE> 24
20.5 The Board may amend or modify the list contained in subsection 4 hereof
at any time by unanimous consent.
20.6 Notwithstanding any of the above or below provisions, to the extent that
actions or transactions relate to the retransfer of employees from the
Companies to Schenck or the relocation of the Businesses within the
Companies, or of the Companies, the managing director shall only be
obliged to obtain the majority decision of the Board, unless the Board
by unanimous consent otherwise resolves.
SS.21. BOARD
21.1 Each of the GmbH and the US Company shall have a Board which shall
supervise and assist the managing director and have the other duties set
out herein. Each Board shall consist of four members. Each of Instron
and Schenck shall appoint two board members of each Board. Each of the
Parties may at any time remove the Board member(s) appointed by it.
21.2 Each Board shall have a Chairman who shall hold this office for a one
year period from his appointment. Instron shall appoint the Chairman of
the Board.
21.3 Each Board shall also represent the Companies in transactions with the
managing director(s) of the relevant Company.
21.4 Each Board shall resolve on all matters with majority, unless this
Agreement requires unanimous consent. In the event that the vote of a
Board is tied or, with respect to matters requiring unanimity, that
unanimity cannot be achieved, then
21.4.1 with respect to matters subject to unanimity, the matter shall
be referred to a second vote of the Board within a period of one
month, and if such vote is not unanimous, the matter shall be
referred to the Chief Executive Officers of Instron Corp. and
Schenck AG for joint decision (but they shall be under no
obligation to reach an agreement)
24
<PAGE> 25
21.4.2 with respect to matters subject to majority vote, the matter
shall be referred to a second vote of the Board within a period
of one month subject to simple majority, and the Chairman of the
Board shall have a second vote so that 3 out of 5 votes shall
constitute a majority.
21.5 The Board shall be entitled to give instructions to the management in
general and specific cases, unless any matter set forth in Section 20.4
is concerned in which case the instruction is subject to unanimity of
the Board.
21.6 The Board may by unanimous consent establish reporting procedures and
guidelines for the management. Each two members of the Board shall be
entitled to request information from the management with respect to the
business of the Companies as they deem appropriate.
21.7 In its first meeting, the Board shall pass rules for its own procedure
which shall only be changed by unanimous vote.
SS.22 DECISIONS OF THE SHAREHOLDERS OR PARTNERS OF THE COMPANY
22.1 The shareholders or partners, as the case may be, of the Companies have
to resolve on all issues which are subject to their resolution by law or
pursuant to the relevant Company's Articles of Association or
Partnership Agreement. Voting rights with respect to the Companies shall
be allocated in proportion to the percentage of ownership.
22.2 With respect to each of the Companies, the following matters shall,
subject to applicable law, be resolved exclusively, and shall be decided
unanimously, by the shareholders' or partners' meeting, as the case may
be:
22.2.1 changes to the Articles of Association or Partnership Agreement;
22.2.2 the approval of the annual financial statements of the Company;
22.2.3 the distribution of profits;
22.2.4 the appointment of the Company's auditors, except as provided
already in this
25
<PAGE> 26
Agreement;
22.2.5 the ratification of the actions (Entlastung) of the managing
directors and of the members of the Board;
22.2.6 any repayment of capital to the shareholders or partners, or any
of their affiliated companies;
22.2.7 the issue, redemption, repurchase or acceptance as a pledge of
any stated capital or other equity interests in the Company or
of any subscription rights or any agreement to grant such rights
in connection with any equity interests in the Company except
pursuant to this Agreement;
22.2.8 the liquidation and winding-up of the Company, or any
application for the appointment of a receiver, administrator or
liquidator;
22.2.9 the delegation and/or revocation of the delegation of any power
and authority of the shareholders' or partners' meeting to the
Board; and
22.2.10 all other matters which under mandatory law are required to be
decided by the shareholders' or partners' meeting and have not
been or may not be delegated to the Board.
22.3 In a shareholders' and in a partners' meeting to be held on the
Effective Date, the parties shall resolve on (i) the appointment of the
new managing directors, (ii) the increase of capital as set out in this
Agreement, (iii) the rules of procedure for the management of Joint
Venture Companies implementing this agreement, and on the discharge
(Entlastung) of management for the period prior to the Effective Date.
22.4 To the extent permitted by law, any provision of law which would
prohibit an interest holder or partner from voting on a matter because
of its interest in the matter will be inapplicable to matters referred
to in this Section 22.
22.5 To the extent that any matter is subject to Board approval or decision,
and the Board of the
26
<PAGE> 27
CONFIDENTIAL TREATMENT
----------------------
respective Joint Venture Company has not yet been established, the
relevant matter shall be decided by shareholders' or partners'
resolution of the GmbH or, in the case of the US Company and its
subsidiaries, of the US Company, always subject to majority or unanimity
requirements as set forth in Section 20.
SS.23 [*] AND PROFIT DISTRIBUTION POLICY
23.1 The parties are in agreement that each Company shall [*] its [*] in
excess of the [*] of its partners on the [*], unless the Parties jointly
decide otherwise.
23.2 All profits of the Companies shall be fully retained by the relevant
Company, unless the Parties resolve otherwise pursuant to Section 22 or
unless otherwise provided in the Partnership Agreement of the US
Company.
SS.24 ACCOUNTING MATTERS
24.1 The books and records of each of the Joint Venture Companies shall be
properly kept and maintained in accordance with U.S. GAAP applied on a
consistent basis. Each Joint Venture Company shall also keep books and
records complying with any requirements of applicable law. Each Party
shall have full access to such books and records.
24.2 Each of the Companies' annual financial statements shall be audited by a
firm of independent public accountants appointed by the shareholders or
partners of the relevant Company. The relevant Company shall bear the
cost of the audit.
24.3 Each Party will be furnished regularly with quarterly consolidated
financial statements prepared by each of the Companies including but not
limited to a balance sheet, profit and loss statement, a statement of
cash flow, a statement setting forth all material transactions with any
Party to this Agreement or any of their affiliated companies or any of
the Joint Venture Companies, and a statement setting forth the Actual
[*] achieved by the
* Material omitted and filed separately with the Securities and Exchange
Commission.
27
<PAGE> 28
CONFIDENTIAL TREATMENT
----------------------
Companies for the [*] by the parties, categorized by [*], not [*] and
[*] and [*], and calculated and adjusted as described in Section 7. In
addition, beginning with the financial statements for the quarter ending
nearest to the second anniversary of the Effective Date, there shall be
included a statement setting forth separately the accounts receivable
resulting from the [*] by each Party, the amount thereof [*] during the
period and the amount remaining [*].
V. OPTIONS AND SALE OF INTERESTS
-----------------------------
SS.25 [*] OPTIONS
25.1 Instron has the right to acquire from the Schenck Parties their
interests in the Companies by requesting Schenck to conclude the Sale
Agreement attached hereto as EXHIBIT 25.1 (the "[*] Option"). The [*]
Option may only be exercised [*] during the period starting on [*] and
ending on [*] of each of the calendar years [*], and will be subject to
a purchase price as set out in EXHIBIT 25.2. Instron has the right to
determine the effective date of the Sale Agreement which may be not
earlier than 14 days from the date the [*] Option has been exercised and
not later than 90 days from that date, subject to approval of the
competent cartel authorities. If the [*] Option has been exercised, the
parties have to conclude the Sale Agreement before a notary public to be
determined by Instron and reasonably acceptable to Schenck within 45
days from the date of exercising the [*] Option, but not after the
effective date of the Sale Agreement. If Schenck does not conclude the
Sale Agreement as provided herein, then, in addition to any other
remedies which Instron may have, all voting rights relating to, and
rights to dividends from, the Companies shall be suspended, and any such
dividends shall automatically accrue to Instron.
25.2 [*]
* Material omitted and filed separately with the Securities and Exchange
Commission.
28
<PAGE> 29
CONFIDENTIAL TREATMENT
----------------------
25.3 [*]
SS.26 SALE OF INTERESTS
26.1 For so long as Instron and Schenck are shareholders of the GmbH and
partners of the US Company, they shall only sell and transfer their
interests and shares in any of the Companies subject to the provisions
of this Section 26, unless otherwise agreed to by the Parties.
26.2 Except for the transfers under Section 26.3, second sentence, any sale
and transfer of an interest in any of the Companies must simultaneously
include the interests of the selling party in the other Company. No
partial sale shall be permissible.
26.3 Neither Party may sell or transfer its interests or shares within seven
years from the Effective Date other than to the other Party, except as
provided in Section 27. Each Party has the right, however, to transfer
interests to any of its Affiliates subject to the undertaking of the
transferee to retransfer the interest or transfer the interest to
another designated Affiliates, subject to the aforementioned
undertaking, if the affiliation ceases to exist.
26.4 [*]
SS.27 [*]
VI. TERM AND TERMINATION
--------------------
SS.28 TERM AND ORDINARY TERMINATION OF JOINT VENTURE
28.1 This Agreement will continue for an indefinite period of time until
terminated under Subsection 2 hereof or in accordance with Sections 27
or 29 of this Agreement.
28.2 This Agreement shall automatically terminate if either Party (including
Affiliates) transfers its interests in the Companies to the other Party
or a third party in accordance with the
* Material omitted and filed separately with the Securities and Exchange
Commission.
29
<PAGE> 30
CONFIDENTIAL TREATMENT
----------------------
terms of this Agreement.
SS.29 TERMINATION FOR CAUSE
29.1 The right of either Party to terminate this Agreement for cause shall be
unaffected.
29.2 In the event that one Party breaches this Agreement and the breach would
constitute cause for termination by the other Party, then the other
Party shall notify the breaching Party in writing, and the breaching
Party shall have thirty days from the receipt of notification to cure
the breach. If the breach is not cured within that period or an
extension thereof granted by the other Party to the breaching Party in
writing, then the other Party shall be entitled at any time thereafter
so long as the breach remains uncured, to terminate this Agreement for
cause as provided in subsection 1 hereof.
SS.30 CONSEQUENCES OF TERMINATION
30.1 Subject to the last sentence of Section 30.2, the Party terminating for
cause shall be entitled to those remedies available under applicable
law.
30.2 [*]
VII. GENERAL PROVISIONS
------------------
SS.31 INTENTIONALLY LEFT BLANK
SS.32 COVENANT NOT TO COMPETE
Each of Instron and Schenck shall not compete in any way, directly or
indirectly, including through any of its Affiliates, with the Joint
Venture Companies within the previous geographical area and business
field of the Business during the term of this Agreement and for a period
of [*] from the date at which such Party ceases to partner or
shareholder in any of the Companies; without limiting the generality of
the foregoing, it shall not, directly or indirectly, acquire an interest
in a competitor (other than an interest of less than [*] in a
* Material omitted and filed separately with the Securities and Exchange
Commission.
30
<PAGE> 31
CONFIDENTIAL TREATMENT
----------------------
publicly traded company), work for a competitor or otherwise promote a
competitor directly or indirectly. In addition, during the term of this
Agreement and for a period of [*] from the Effective Date, neither Party
or any of its Affiliates shall solicit away from any of the Joint
Venture Companies any of their employees.
SS.33 GUARANTEES
33.1 Schenck AG hereby guarantees the complete and punctual performance of
all obligations and liabilities under this Agreement, and all agreements
to be concluded hereunder, of the other Schenck Parties and any other
Affiliate of Schenck.
33.2 Instron Corp. hereby guarantees the complete and punctual performance of
all obligations and liabilities under this Agreement, and all agreements
to be concluded hereunder, of the other Instron Parties and any other
Affiliate of Instron Corp.
33.3 The guarantees hereunder are given in the form of independent
performance guarantees, and may be drawn in cash only, subject to the
right of either Party to seek injunctive relief.
33.4 Schenck AG guarantees to Instron Corp. that it will not let Schenck Atis
(or any other affiliated Schenck entity holding shares in the GmbH) fall
into bankruptcy or insolvency. Instron Corp. guarantees the same to
Schenck AG with respect to its affiliated companies being shareholders
of the GmbH and Instron GmbH.
33.5 Each of Schenck AG and Instron Corp. further guarantees as follows:
33.5.1 Schenck AG guarantees to Instron Corp. that Schenck Pegasus
Testing Inc. (or any other Affiliate of Schenck which may be a
partner in the US Company) will not engage in any business or
activity whatsoever other than holding a partnership interest in
the US Company.
33.5.2 Instron Corp. guarantees to Schenck AG that Instron Partners (or
any other
* Material omitted and filed separately with the Securities and Exchange
Commission. 31
<PAGE> 32
CONFIDENTIAL TREATMENT
----------------------
Affiliate of Instron which may be a partner in the US Company) will not
engage in any business or activity whatsoever other than holding a
partnership interest in the US Company.
SS.34 CONFIDENTIALITY
34.1 For purposes of this Agreement, the term "Confidential Information"
shall include, without limitation, all information, data, reports,
analyses, compilations, studies, interpretations, projections,
forecasts, records and other information (whether prepared by either
Party or otherwise and in whatever form maintained, whether documentary,
computerized otherwise), regardless of the form of communication, that
contain or otherwise reflect or are based upon, in whole or in part,
information concerning any Instron Party or any Schenck Party which is
obtained by or disclosed in connection with the provisions of this
Agreement which would not satisfy any of the requirements set forth in
Section 34.4.
34.2 Schenck and Instron agree that it and its Affiliates will not disclose
or allow disclosure of, reveal or make available to any third party any
Confidential Information of the other Party except as required by law or
with the prior written consent of such other Party.
34.3 Schenck and Instron agree that it and its Affiliates will not use any
Confidential Information concerning the other Party in any way directly
or indirectly detrimental to the other Party or Parties or for any
purpose other than for the purpose of this Agreement. In furtherance of
the foregoing, Instron and Schenck agree that during the term of this
Agreement and for a period of [*] thereafter it and its Affiliates will
not knowingly, as a result of knowledge or information obtained from the
Confidential Information: (i) divert or attempt to divert any business
or custom of the other Party or of its Affiliates; or (ii)
* Material omitted and filed separately with the Securities and Exchange
Commission. 32
<PAGE> 33
employ or attempt to employ or divert an employee of the other Party or
any of its Affiliates, and subsidiaries.
34.4 This Section shall not apply to those particular portions of the
Confidential Information of each Party that (i) is or become generally
available to the public other than as the result of disclosure by the
other Party by any of its Affiliates or representatives, (ii) were
available to the other Party on a non-confidential basis prior to the
disclosure of such Confidential Information to the other Party pursuant
to this Agreement, (iii) become available to the other Party on a
non-confidential basis.
34.5 This Section 34 shall be binding upon the successors of the Parties and
their respective Affiliates. If, during the period referred to in
subsection 34.3, any Party shall merge or consolidate with or into, or
sell all or substantially all of its assets to, a third party, it shall
either (i) cause its obligations under this Section 34 to be assumed by
the third party, or (ii) promptly return all Confidential Information
and all copies thereof to the other Party, without retaining any copies,
extracts or other reproductions in whole or in part of such material,
and certify the successful completion of the return of such Confidential
Information in writing to the other Party.
SS.35 COSTS AND FEES
35.1 The fees for the notarization of this Agreement, any transactions
required to be implemented hereunder, the registrations in the
Commercial Register and costs of any cartel authorities shall be borne
equally by Schenck on the one hand and Instron on the other hand, unless
the costs may be borne by the Companies under applicable law.
35.2 Each Party shall bear its own costs and any costs and fees of
professional advisors.
35.3 Each of Instron and Schenck shall bear all personal taxes, if any,
resulting from the sale of its interests and rights.
SS.36 MISCELLANEOUS
33
<PAGE> 34
36.1 Amendments and modifications of this Agreement (including this clause)
and waivers and consents with respect to this Agreement must be made in
writing or in notarial form, if such form is required. A waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which it was given. The failure to enforce at any
time any of the provisions of this Agreement or to require at any time
performance by the other party of any of the provisions hereof shall in
no way be construed to be a waiver of such provisions or to affect
either the validity of this Agreement, or any part hereof, or the right
of either party thereafter to enforce each and every provision in
accordance with the terms of this Agreement.
36.2 All notices and other notifications pursuant to or in connection with
this Agreement must be made in writing and hand delivered or sent by
registered mail or by fax (with a confirmation copy to follow by mail
for information purposes) to the following address(s) or to the
addresses which the respective Party will notify to the other in
writing:
If to Schenck:
Carl Schenck AG
Landwehrstrage 55
D-64293 Darmstadt
Federal Republic of Germany
Attention: Legal Department
With copy to:
Schenck Corporation
535 Acorn Street
Deer Park, NY 11729-3698
Attn.: Blaise Sarcone
Fax No.: (001) 516-242-4308
If to Instron:
Instron Corporation
100 Royall Street
Canton, MA 02021
U.S.A.
Attn.: John Barrett
34
<PAGE> 35
Fax No.:(001) 617-821-2487
36.3 The partial or total invalidity of, or the impossibility to perform,
individual provisions of this Agreement will not impair the validity of
the other provisions of this Agreement. The Parties undertake to replace
provisions that are or have become invalid, or impossible to be
performed, in whole or in part by a valid provision, the economic result
of which comes as close as possible to that of the invalid provision.
36.4 The Parties undertake to take all actions and make all declarations, and
to cause the Joint Venture Companies to take all actions and make all
declarations, that are necessary and suitable to achieve the
consummation of this Agreement. This will apply in particular to
declarations to the Commercial Registers and the financial authorities.
36.5 All Exhibits attached to this Agreement will be a part of this
Agreement.
36.6 Headings are inserted for convenience only, are not part of this
Agreement, and will not modify the content of any provision of this
Agreement.
36.7 Rights and obligations arising from this Agreement will not be
assignable by either Party without the prior written consent of the
other Party hereto, provided, however, that each Party may, without the
consent of the other, assign its rights and obligations hereunder to an
Affiliate, provided further that in the event of any such assignment,
the assigning Party will remain liable for its obligations hereunder,
and that the Affiliate will be obliged to reassign the assigned right or
obligation if the above-mentioned affiliation with the assigning Party
ceases to exist.
36.8 This agreement sets forth the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes any prior
agreement, written or oral, with respect to the subject matter hereof.
SS.37 GOVERNING LAW AND ARBITRATION
37.1 This Agreement shall be governed by the laws of the Federal Republic of
Germany (with
35
<PAGE> 36
the exception of the provisions relating to the conflict of laws).
37.2 Any disputes arising out of, under or in connection with this Agreement
shall be finally settled by arbitration under the Rules of Arbitration
and Conciliation of the International Chamber of Commerce in Paris. The
arbitration shall be conducted in the English language in Frankfurt am
Main. Enforcement of the arbitration award may be sought in any court of
competent jurisdiction. In addition, any party may apply to any court of
competent jurisdiction for injunctive relief in an appropriate case.
DOCSC\502113.1
36
<PAGE> 1
EXHIBIT 11
INSTRON CORPORATION
<TABLE>
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Net Income $4,582,000 $4,995,000 $4,537,000
========== ========== ==========
Primary earnings per share:
Weighted average number of common shares
outstanding 6,396,202 6,324,540 6,288,107
Add: Shares arising from the assumed
exercise of stock options (as
determined under the Treasury Stock
Method) 128,265 107,342 51,440
---------- ---------- ----------
Weighted average of common and equivalent
shares outstanding 6,524,467 6,431,882 6,339,547
========== ========== ==========
Primary earnings per share $ .70 $ .78 $ .72
========== ========== ==========
Fully diluted earnings per share (1):
Weighted average of common and equivalent
shares outstanding (as determined for the
Primary earnings per share calculation
above) 6,524,467 6,431,882 6,339,547
Add: Additional shares arising from the
assumed exercise of stock options (as
determined under the Treasury Stock
Method) 8,270 68,842 62,527
---------- ---------- ----------
Weighted average of common and equivalent
shares outstanding, as adjusted 6,532,737 6,500,724 6,402,074
========== ========== ==========
Fully diluted earnings per share $ .70 $ .77 $ .71
========== ========== ==========
</TABLE>
Note 1: This calculation is submitted in accordance with the Securities Act of
1933, Release No. 5,133, although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
41
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
All of the subsidiaries listed below are included in the consolidated financial
statements.
<CAPTION>
Percentage of Organized
Voting Securities Under the
Incorporated Owned by Registrant Laws of
- --------------------------------------------------------------------------------
<S> <C> <C>
Instron Realty Trust 100% Massachusetts (1)
Instron Japan Company, Ltd. 100% Massachusetts (1)
Instron Asia, Ltd. 100% Massachusetts (1)
Instron Canada Inc. 100% Canada (1)
Instron Export Corporation 100% Massachusetts (1)
Instron Foreign Sales Corporation 100% Jamaica (1)
Instron Lawrence Corporation 100% Pennsylvania (1)
Equipamentos Cientificos Instron, Ltda. 100% Brazil (1)
Instron Limited 100% United Kingdom (2)
Instron S.A. 100% France (2)
Instron Proprietary, Ltd. 100% Australia (2)
Instron Environmental, Ltd. 100% United Kingdom (2)
Instron International, Ltd. 100% United Kingdom (2)
Severn Furnaces, Ltd. 100% United Kingdom o (2)
Instron Singapore Pte Limited 100% Singapore (1)
Instron Holdings, Ltd. 100% United Kingdom (1)
Instron Wolpert GmbH 100% Germany (2)
Instron Korea Co. Ltd. 100% Korea (1)
<FN>
{1) Subsidiaries of Instron Corporation (a Massachusetts corporation).
(2) Subsidiaries of Instron Holdings Limited (United Kingdom).
</TABLE>
42
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-3 (File No. 2-77062), and Forms S-8 (File Nos. 2-77060, 2-91694,
33-43955, 33-61759, 33-48287 and 333-05059) of our reports dated February 20,
1997, on our audits of the consolidated financial statements and related
financial statement schedule of Instron Corporation as of December 31, 1996, and
1995, and for each of the three years in the period ended December 31, 1996
which reports are included in this Annual Report on Form 10-K.
Boston, Massachusetts /s/COOPERS & LYBRAND L.L.P.
March 31, 1997 -----------------------------
COOPERS & LYBRAND L.L.P.
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,541
<SECURITIES> 0
<RECEIVABLES> 46,938
<ALLOWANCES> 1,107
<INVENTORY> 26,320
<CURRENT-ASSETS> 81,258
<PP&E> 61,859
<DEPRECIATION> 39,393
<TOTAL-ASSETS> 121,833
<CURRENT-LIABILITIES> 37,164
<BONDS> 0
0
0
<COMMON> 6,520
<OTHER-SE> 55,881
<TOTAL-LIABILITY-AND-EQUITY> 62,401
<SALES> 128,804
<TOTAL-REVENUES> 153,113
<CGS> 72,556
<TOTAL-COSTS> 88,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 358
<INTEREST-EXPENSE> 1,548
<INCOME-PRETAX> 7,385
<INCOME-TAX> 2,803
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,582
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
