<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-5641
------
INSTRON CORPORATION
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C>
Massachusetts 04-2057203
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
100 Royall Street 02021
Canton, Massachusetts (Zip Code)
(Address of Principal executive offices)
</TABLE>
(617) 828-2500
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 number of shares outstanding of each of the issuer's classes of common
stock as of May 5, 1997.
Common Stock, $1 par value -- 6,444,735 shares
================================================================================
<PAGE> 2
<TABLE>
INSTRON CORPORATION FORM 10-Q
Consolidated Statement of Income PART I
(Unaudited) ITEM 1
(In thousands, except share data)
<CAPTION>
Three Months Ended
--------------------------------
March 29, 1997 March 30, 1996
--------------------------------
<S> <C> <C>
Revenue:
Sales $ 29,844 $ 29,751
Service 6,179 5,473
---------- ----------
Total revenue 36,023 35,224
---------- ----------
Cost of revenue:
Sales 17,059 16,626
Service 4,258 3,942
---------- ----------
Total cost of revenue 21,317 20,568
---------- ----------
Gross Profit 14,706 14,656
---------- ----------
Operating expenses:
Selling and administrative 10,859 10,992
Research and development 1,908 2,137
Special items charge 0 1,812
---------- ----------
Total operating expenses 12,767 14,941
---------- ----------
Income (loss) from operations 1,939 (285)
---------- ----------
Other expenses:
Interest, net 329 255
Foreign exchange (gains) losses 128 (183)
---------- ----------
Total other expenses 457 72
---------- ----------
Income (loss) before income taxes 1,482 (357)
Provision (benefit) for income taxes 563 (136)
---------- ----------
Net income (loss) $ 919 $ (221)
========== ==========
Net income (loss) per common share
(Note 2) $ 0.14 $ (0.03)
========== ==========
Average common and equivalent shares
outstanding (Note 2) 6,542,578 6,349,602
========== ==========
Dividends declared per share of
common stock $ 0.04 $ 0.04
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE> 3
<TABLE>
INSTRON CORPORATION FORM 10-Q
Consolidated Balance Sheet PART I
(In thousands, except share data) ITEM 1
<CAPTION>
March 29, December 31,
1997 1996
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,861 $ 2,541
Accounts receivable (net of
allowance for doubtful accounts of
$939 in 1997 and $1,107 in 1996) 44,148 46,938
Inventories 26,226 26,320
Deferred income taxes 3,692 3,602
Prepaid expenses and other current assets 2,552 1,857
-------- --------
Total current assets 78,479 81,258
Property, plant and equipment, net 21,274 22,466
Deferred Income Taxes 512 1,203
Other Assets 16,182 16,906
-------- --------
Total assets $116,447 $121,833
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 6,138 $ 6,510
Accounts payable 8,551 7,153
Accrued liabilities 13,995 12,805
Accrued employee compensation and benefits 4,350 6,205
Accrued income taxes 247 1,602
Advance payments received on contracts 3,260 2,889
-------- --------
Total current liabilities 36,541 37,164
Long-term debt 14,597 17,409
Other long-term liabilities 3,872 4,859
-------- --------
Total liabilities 55,010 59,432
-------- --------
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized, none issued 0 0
Common stock, $1 par value; 10,000,000 shares
authorized; 6,519,687 shares issued 6,520 6,520
Additional paid in capital 3,514 3,514
Retained earnings 56,658 55,997
Cumulative translation adjustment (4,541) (2,916)
-------- --------
62,151 63,115
Less: Treasury stock of 74,952 shares at cost 714 714
-------- --------
Total stockholders' equity 61,437 62,401
-------- --------
Total liabilities and stockholders' equity $116,447 $121,833
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
<TABLE>
INSTRON CORPORATION FORM 10-Q
Consolidated Statement of Cash Flows PART I
(Unaudited) ITEM 1
<CAPTION>
(In thousands) For the three months ended
----------------------------------
March 29, 1997 March 30, 1996
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 919 $ (221)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,702 1,678
Provision for losses on accounts receivable 92 29
Increase in deferred taxes 93 18
Decrease in accounts receivable 1,849 3,649
Increase in inventories (675) (2,458)
Increase in prepaid expenses
and other current assets (385) (380)
Decrease in accounts
payable and accrued expenses (436) (499)
Increase in other long-term liabilities 311 371
Other (452) 275
------- -------
Net cash provided by operating activities 3,018 2,462
------- -------
Cash flows from investing activities:
Capital expenditures (613) (916)
Capitalized software costs (106) (405)
Other 145 10
------- -------
Net cash used by investing activities (574) (1,311)
------- -------
Cash flows from financing activities:
Net borrowings under revolving credit and
term loan facility (2,698) (182)
Net short-term borrowings (115) 1,170
Cash dividends paid (258) (255)
Other 0 223
------- -------
Net cash provided (used) by financing activities (3,071) 956
------- -------
Effect of exchange rate changes on cash (53) (1)
------- -------
Net increase (decrease) in cash and cash equivalents (680) 2,106
Cash and cash equivalents at beginning of year 2,541 1,644
------- -------
Cash and cash equivalents at end of period $ 1,861 $ 3,750
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 413 $ 437
Income taxes 1,518 463
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
INSTRON CORPORATION FORM 10-Q
PART I
Notes to Consolidated Financial Statements ITEM 1
March 29, 1997
(unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
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.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 29,
1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997.
2. Net Income per Share
--------------------
Net income per share is based on the weighted average number of common
shares and common share equivalents outstanding.
In February 1997, The Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). This statement attempts to simplify current standards used in
the United States for computing earnings per share and make them more
comparable with international
5
<PAGE> 6
standards. SFAS 128 replaces APB Opinion 15 and related interpretations (APB
15). APB 15 requires the dual presentation of primary and fully diluted
earnings per share. Primary EPS shows the amount of income attributed to each
share of common stock if every common stock equivalent were converted into
common stock. Fully diluted EPS considers common stock equivalents and all
other securities that could be converted into common stock.
SFAS 128 simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. Basic EPS includes no dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted EPS. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods, earlier application is not permitted. SFAS 128
requires restatement of all prior period earnings per share data.
Had the Company computed earnings (loss) per share consistent with the
provisions of SFAS 128 basic EPS would have been $0.14 and ($.03) for the three
month period ended March 29, 1997 and March 30, 1996, respectively. Diluted EPS
would have been equivalent to the earnings (loss) per share amount reported.
<TABLE>
3. Inventories
-----------
<CAPTION>
(In thousands) March 29, 1997 December 31, 1996
-------------- -------------- -----------------
<S> <C> <C>
Raw Materials $12,428 $13,416
Work-in-process 5,946 5,550
Finished goods 7,852 7,354
------- -------
$26,226 $26,320
======= =======
</TABLE>
6
<PAGE> 7
INSTRON CORPORATION FORM 10-Q
PART I
Notes to Consolidated Financial Statements ITEM 1
March 29, 1997
(unaudited)
3. Inventories (continued)
-----------------------
Inventories are valued at the lower of cost or market (net realizable
value). The last-in, first-out (LIFO) method of determining cost is
principally used for inventories in the United States and the Asian
branches. The Company uses the first-in, first-out (FIFO) method for all
other inventories. Inventories valued at LIFO amounted to $11,025,000 and
$10,808,000 at March 29, 1997 and December 31, 1996, respectively. The
excess of current cost over stated LIFO value was $5,080,000 at March 29,
1997 and $4,990,000 at December 31, 1996.
4. Sale of LMS
-----------
On April 14, 1997, the Company sold its Laboratory MicroSystems division,
known as LMS, to Axiom Systems. The net assets associated with LMS at the
time of the sale were approximately $2.9 million,and there was no
significant gain or loss recorded as a result of this disposition. The
proforma results of this transaction is not disclosed as the results were
immaterial.
7
<PAGE> 8
INSTRON CORPORATION FORM 10-Q
MARCH 29, 1997 PART I
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
- ---------------------
Quarter ended March 29, 1997 vs. quarter ended March 30, 1996
- -------------------------------------------------------------
As previously disclosed, Instron contributed its structures business as part of
the agreement to form the Joint Venture, Instron Schenck Testing Systems
("IST"), with Carl Schenck AG in November of 1996. Under a manufacturing and
supply agreement, Instron has supplied structures systems to IST at
substantially reduced gross margins compared to gross margins achieved on
structures business in the first quarter of 1996. The normal gross margin on
these systems is reflected in IST's financial results. The revenue on shipments
to IST and related manufacturing costs are included in the Company's
consolidated revenue and cost of revenue figures. Orders received from IST are
not reflected in the Company's total bookings and backlog figures as the
expected profit margin on this business is substantially lower than the
Company's normal operations. Under a research and development agreement, as
well as a support services agreement, Instron has rebilled IST for development
projects and support services that Instron provided to IST.
Revenues for the first quarter of 1997 were $36,023,000, an increase of 2.3%
over the same period last year, due primarily to increased revenues of the
Company's service business. Foreign sales accounted for approximately 60% of
consolidated first quarter revenues compared with 66% for the first quarter of
1996.
The Company's consolidated gross margin as a percentage of revenue decreased to
40.8% for the first quarter of 1997 compared to 41.6% for the first quarter of
1996, due in part to the impact of supplying IST with structures systems, as
discussed above, and to a mix of lower margin products, partially offset by
improved profitability of the Company's service business. The Company expects
its gross margin percentage to be negatively effected during fiscal year 1997
resulting from its agreement to supply product to IST at the lower profit
margins.
Total selling and administrative expenses decreased by 1.2% compared to the
first quarter of 1996 as certain selling and administrative expenses have been
rebilled to IST. As a percentage of revenue, selling and administrative expenses
were 30.1% in the first quarter of 1997 compared to 31.2% for the comparable
period last year.
8
<PAGE> 9
INSTRON CORPORATION FORM 10-Q
MARCH 29, 1997 PART I
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (continued)
- ---------------------------------
Research and development expenses decreased by 10.7% for the first quarter of
1997 compared with the first quarter of 1996. This decrease is the result of
certain Instron engineering resources being utilized to develop new products for
IST in accordance with the Joint Venture agreement. The costs associated with
these development efforts were transferred to IST and represent Instron's
strategy to leverage its existing technology and application knowledge within
the structural testing market. Software development costs of $106,000 were
capitalized during the first quarter of 1997 compared with $405,000 in the first
quarter of last year. If these costs had been included as period expenses and if
the engineering costs transferred to IST were included as period expenses,
research and development expenses would have decreased by 5.7%.
Operating expenses in the first quarter of 1996 included a special items charge
of $1,812,000, representing the cost of implementing a work force reduction and
consolidation of certain manufacturing operations.
Net interest expense increased by 29.0% compared to the first quarter of 1996
due to higher average borrowings resulting primarily from the Company's cash
investment of approximately $7.0 million to obtain a 51% interest in IST.
Foreign exchange losses of $128,000 in the first quarter of 1997 resulted
primarily from the strengthening of the U.S. dollar. This compares to foreign
exchange gains of $183,000 in the first quarter of 1996, which resulted
primarily from the strengthening of certain European currencies against the
British pound.
Net income for the first quarter of 1997 was $919,000, or 14 cents per share,
compared to a net loss of $221,000, or 3 cents per share, for the same period
last year, which included the effect of a special items charge. Excluding this
special
9
<PAGE> 10
INSTRON CORPORATION FORM 10-Q
MARCH 29, 1997 PART I
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (continued)
- ---------------------------------
items charge, net income would have been $902,000 in the first quarter of 1996,
or 14 cents per share.
The consolidated effective tax rate was 38% for the first quarter of 1997 and
1996.
Financial Condition
- -------------------
In the first quarter of 1997, the Company generated net operating cash flows of
$3.0 million which were used to fund capital expenditures of $0.6 million and
pay down bank borrowings. Cash and cash equivalents decreased by $0.7 million in
the first quarter of 1997.
At March 29, 1997, the Company had $20.4 million of available credit under its
$35.0 million multicurrency revolving credit and term loan facility. The
Company's subsidiaries have other overdraft and borrowing facilities for
allowing advances of approximately $26.0 million of which $6.1 million were
outstanding at March 29, 1997. The ratio of total debt to debt plus equity at
March 29, 1997, decreased to 25.2% from 27.7% at year-end 1996.
Accounts receivable decreased by $1.8 million from year-end 1996 and inventories
rose by $0.7 million from the end of 1996. The inventory turnover ratio
decreased slightly to 2.66 from 2.68 at year-end 1996.
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.
Bookings for the first quarter of 1997 decreased by 8.0% from the same period
last year. When the first quarter of 1996 is adjusted to exclude structures
orders and when bookings for the disposed of LMS division (as discussed below)
are excluded from the first quarter of 1997 and 1996, bookings for ongoing
business increased by 0.8%. This increase is due primarily to strong order
bookings in North America partially offset by lower bookings in the Company's
European operation.
10
<PAGE> 11
INSTRON CORPORATION FORM 10-Q
MARCH 29, 1997 PART I
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition (continued)
- -------------------------------
The Company's order backlog was $30.3 million at the end of the first quarter of
1997, a decrease of 16.7% from the first quarter of 1996. When the first quarter
of 1996 is adjusted to exclude structures orders and when LMS backlog is
excluded from the first quarter of 1997 and 1996, the decrease of backlog for
ongoing business is 6.3%.
On February 26, 1997, the Board of Directors declared a regular quarterly
dividend of 4 cents per share on the Company's Common Stock, payable March 28,
1997, to shareholders of record on March 14, 1997.
On April 14, 1997, the Company sold its Laboratory MicroSystems division known
as LMS to Axiom Systems. This operation achieved customer bookings of over $6
million in 1996, but did not make a material contribution to Instron's profits.
In prior years it had depressed Instron's reported profit levels. There was no
significant gain or loss recorded in the first quarter of 1997 resulting from
this disposition.
On May 1, 1997 the Company acquired the GRC Instrument business unit of GRC
International, Inc. in an asset purchase deal. This unit includes the Dynatup
product line of instrumented impact testing equipment. These products complement
Instron's existing electromechanical testing machines, hardness testers and
impact testers and are expected to contribute over $3.5 million to the Company's
annualized revenue. The Company intends to use existing manufacturing capacity
at its Canton, Massachusetts facility to produce Dynatup's products and have
entered into a transition agreement with GRC International, Inc. to ensure
support from the current Dynatup location in Santa Barbara, California. This
acquisition will be accounted for under the purchase method of accounting. The
assets and results of operations of the Dynatup business will be recorded in the
Company's financial statements as of May 1, 1997.
11
<PAGE> 12
INSTRON CORPORATION FORM 10-Q
MARCH 29, 1997 PART I
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Form 10-Q Report contains certain "forward-looking" statements within the
meaning of the federal securities laws and are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such statements are only predictions and speak only
as of the date of this report. 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-Q report.
Certain factors that might cause such a difference include: the level of
bookings worldwide, particularly in Europe, the operating results of the IST
Joint Venture between the Company and Carl Schenck AG, the Company's ability to
successfully integrate the operations of the Dynatup product line and the impact
of fluctuations in exchange rates. Actual results may also differ materially due
to risks and uncertainties which are described from time to time in the
Company's SEC reports, including, but not limited to, the Company's report on
Form 10-K for the fiscal year 1996.
12
<PAGE> 13
INSTRON CORPORATION FORM 10-Q
March 29, 1997 PART II
ITEM 2
Part II - Other Information
Item 1. Legal Proceedings
- ------- -----------------
Neither the Registrant nor any of its subsidiaries is a party to, nor is any of
their property the subject of, any material pending legal proceedings.
Item 2. Changes in the Rights of the Company's Security Holders
- ------- -------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
None.
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
a. Exhibits
Exhibit 11 - Computation of Primary and Fully Diluted
Earnings per Share.
b. Reports on Form 8-K
None.
13
<PAGE> 14
FORM 10-Q
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and 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
Date: May 12, 1997 By /s/ James M. McConnell
-------------------------------------
James M. McConnell
President and Chief Executive Officer
Date: May 12, 1997 By /s/ Linton A. Moulding
-------------------------------------
Linton A. Moulding
Chief Financial Officer
14
<PAGE> 1
<TABLE>
INSTRON CORPORATION EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
-----------------------------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended
-------------------------------
March 29, March 30,
1997 1996
---------- -----------
<S> <C> <C>
Net income (loss) $ 919,000 $ (221,000)
========== ===========
Primary earnings per share:
Weighted average number of common shares outstanding 6,444,735 6,349,602
Add: Shares arising from the assumed
exercise of stock options
(as determined under the
Treasury Stock Method) 97,843 0
---------- -----------
Weighted average of common and equivalent shares 6,542,578 6,349,602
========== ===========
Primary earnings per share $ 0.14 $ (.03)
========== ===========
Fully diluted earnings per share (1):
Weighted average of common and equivalent shares
outstanding (as determined for the Primary earnings
per share calculation above) 6,542,578 6,349,602
Add: Additional shares arising from the assumed
exercise of stock options (as determined under
the Treasury Stock Method) 0 0
---------- -----------
Weighted average of common
and equivalent shares 6,542,578 6,349,602
========== ===========
Fully diluted earnings $ 0.14 $ (.03)
========== ==========
</TABLE>
Note (1): This calculation is submitted in accordance with the Securities Act
of 1993 Release No. 5,133 although it is not required by footnote 2
to paragraph 14 of APB Opinion No. 15 because it results in dilution
of less than 3%.
15
<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-Q FOR THE PERIOD ENDED MARCH 29, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 1,861
<SECURITIES> 0
<RECEIVABLES> 44,148
<ALLOWANCES> 939
<INVENTORY> 26,226
<CURRENT-ASSETS> 78,479
<PP&E> 60,693
<DEPRECIATION> 39,419
<TOTAL-ASSETS> 116,447
<CURRENT-LIABILITIES> 36,541
<BONDS> 0
0
0
<COMMON> 6,520
<OTHER-SE> 57,830
<TOTAL-LIABILITY-AND-EQUITY> 116,447
<SALES> 29,844
<TOTAL-REVENUES> 36,023
<CGS> 17,059
<TOTAL-COSTS> 21,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 92
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 1,482
<INCOME-TAX> 563
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 919
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
