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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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 Identification No.)
incorporation or organization)
100 ROYALL STREET 02021
CANTON, MASSACHUSETTS (Zip Code)
(Address of Principal executive offices)
(781) 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 20, 1998 was $97,734,780.
The number of shares outstanding of each of the issuer's classes of
common stock as of March 20, 1998 was 6,771,996.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy statement for the 1998
Annual Meeting of Stockholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1946, 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), hardness and impact
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.
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.
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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 usually 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 systems and related accessories accounted for approximately 70%, 69%, and
69% of the Company's revenue in 1997, 1996 and 1995 respectively.
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.
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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.
In November of 1996, the Company formed a joint venture with Carl Schenck
A.G. of Darmastadt, Germany, known as Instron Schenck Testing Systems ("IST").
IST competes in the global structural testing markets. Under the terms of the
agreement, the Company contributed its structural testing business, including
order backlog, and $6.9 million in cash for a 51% ownership in the joint
venture. Under a contract manufacturing and supply agreement, Instron
manufactures and sells structural testing systems to IST.
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 30%, 31% and
31% of the Company's sales in 1997, 1996 and 1995, respectively.
HARDNESS 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.
The prices of hardness testing machines range from $2,000 to $20,000. The
sales of hardness 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 17%, 16%, and 15% of the Company's total revenue in 1997, 1996,
and 1995, respectively. The service revenue is included in the percentage
amounts for static and dynamic systems set forth above.
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
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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.
In May 1997, the Company acquired the assets of the Dynatup business unit
of GRC International Inc., which included a product line of instrumental impact
testing equipment designed primarily for the plastics industry. The Company
believes that the Dynatup product line will complement the Company's existing
electro-mechanical testing systems, hardness testers and impact testers.
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 their 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 and dynamic testing systems. As part of the IST joint venture agreement,
the Company agreed to expand the capability of the new dynamic controller and
software to support the structures business. The costs associated with these
development efforts are reimbursed by IST.
In 1997, the Company expensed $6,959,000 on research and development
activities, compared with $8,616,000 in 1996, and $8,782,000 in 1995. The
Company has also capitalized certain software development costs of $637,000,
$1,144,000, and $1,315,000 during 1997, 1996 and 1995, respectively. In
addition, certain Instron engineering resources are utilized to develop new
products for IST in accordance with the joint venture agreement. The costs
associated with the development efforts are reimbursed by IST. If research and
development expenses were restated for comparison purposes by including software
development costs as period expenses, and by adjusting engineering expenses for
the effect of the IST joint venture and the disposition of LMS, research and
development expenses of the ongoing business would have increased by 4.0% in
1997. 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 the interchangeability of parts and the lead time available before the
introduction of new products.
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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, 1997, the Company's backlog of orders was approximately
$28,748,000 compared with $34,361,000 at December 31, 1996. The Company
anticipates that essentially the entire backlog at December 31, 1997 will be
shipped during 1998.
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.
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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 trademarks "Dynatup", "Shore", "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, 1997 the Company employed 1,087 people worldwide.
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. 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 59% of the Company's total revenue in 1997, 61% in 1996 and 60% in
1995. The Company believes that the business and political risk of operating in
most of its current foreign markets is not, in the aggregate, materially greater
than the risk undertaken by the Company in the United States. The recent
economic turmoil in the Asian economics has increased the business risks
associated with operating in this region. 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.
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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 at the junction of Routes 128 and 138 in
Canton, Massachusetts, approximately 15 miles from Boston. On March 27, 1998,
the Company sold 42 acres of excess land in Canton, Massachusetts, for
$13.5 million in cash. The remaining 24 acres is believed to be sufficient for
current and future business requirements.
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 registrant 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, 1997.
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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, 57 Mr. McConnell joined Instron Corporation
President and in April 1990 as President and Chief
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, 50 Mr. Amaral joined Instron Corporation in
Vice President, General Manager 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 1995, he was elected
Vice President, General Manager of North
America Operations.
Kenneth L. Andersen, 56 Mr. Andersen joined Instron Corporation
Vice President of Sales, in June 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 1993, he
was elected Vice President of Sales,
North America
John R. Barrett, 43 Mr. Barrett joined Instron Corporation
Treasurer in 1988 as Assistant Treasurer. From
1979 to 1988, Mr. Barrett has held
various financial management positions
with Computervision Corporation. In
February 1993, he was elected Treasurer
of the Corporation.
Jonathan L. Burr, 50 Mr. Burr joined Instron Corporation in
Vice President, Corporate Director 1979. He has held positions as Personnel
of Human Resources Administrator, 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, 42 Mr. Gharagozlou joined Instron
Vice President, Corporate Technical Corporation in 1981. He has held
Director positions as Application Engineer,
Assistant Product Manager, Corporate
Product Manager for Software, Marketing
Manager, Product Planning Manager, and
Director of Engineering. In February
1996, he was elected Vice President,
Corporate Technical Director.
Arthur D. Hindman, 54 Mr. Hindman joined Instron Corporation
Vice President and General Manager, in 1979. Since 1979, Mr. Hindman has
Asia Pacific/Latin America held positions as Manager, Marketing
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.
William Milliken, 43 Mr. Milliken joined Instron Corporation
Vice President, Corporate in October of 1997 as Vice President,
Director of Manufacturing Corporate Director of Manufacturing.
From 1988 to 1997, Mr. Milliken was
Director of Manufacturing for Otis
Elevator's Asia division. From 1978 to
1988 he held various financial and
manufacturing management positions with
General Motors Vice President,
Corporation.
Linton A. Moulding, 44 Mr. Moulding joined Instron Corporation
Chief Financial Officer in 1985. He has held positions as
Corporate Controller, Director of US
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.
Norman Smith, 51 Mr. Smith joined Instron Limited in 1982
Vice President and Managing Director, as Marketing Director Designate and
of Instron Limited assumed the 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 1996.
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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.
1997 1996
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MARKET PRICE CASH MARKET PRICE CASH
------------ DIVIDENDS ------------ DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
- --------------------------------------------------------------------------------
First quarter $13.500 $12.000 $ .04 $14.500 $12.625 $ .04
Second quarter 14.250 10.750 .04 14.375 13.000 .04
Third quarter 18.875 14.000 .04 14.375 11.000 .04
Fourth quarter 19.188 15.125 .04 14.250 11.375 .04
------ ------
Year $19.188 $10.750 $ .16 $14.500 $11.000 $ .16
======= ======= ====== ======= ======== ======
The number of holders of record of the Company's Common Stock at December
31, 1997 was 461. 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 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Bookings of new orders $150,020 $161,692 $155,092 $138,947 $124,998
Total revenue 155,660 153,113 150,571 136,192 122,827
Income from operations 12,571 9,145 8,921 8,082 5,034
Income before taxes 11,555 7,385 7,684 6,979 3,883
Net Income 7,164 4,582 4,995 4,537 2,485
Backlog 28,748 34,361 36,136 32,687 29,063
Research & development 6,959 8,616 8,782 8,062 7,248
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) 18,880 15,329 15,891 13,855 9,083
FINANCIAL POSITION
Working capital $ 41,942 $ 44,094 $ 38,259 $ 33,849 $ 31,070
Total assets 118,985 121,833 113,334 102,294 99,153
Total debt 13,659 23,919 19,875 17,818 21,718
Stockholders' equity 66,254 62,401 56,102 51,926 46,897
Capital expenditures 4,176 4,473 4,510 4,286 4,323
PER SHARE OF COMMON STOCK
Net income per basic share* $ 1.11 $ .72 $ .79 $ .72 $ .40
Net income per diluted share* 1.05 .70 .78 .72 .39
Dividends declared .16 .16 .15 .12 .12
Book value 9.82 9.68 8.85 8.26 7.46
PERFORMANCE MEASUREMENT
Revenue growth 1.7% 1.7% 10.6% 10.9% 5.6%
Pre-tax income as a % of
total revenue 7.4 4.8 5.1 5.1 3.2
Effective income tax rate 38.0 38.0 35.0 35.0 36.0
Net income as a % of total revenue 4.6 3.0 3.3 3.3 2.0
Return on average stockholders'
equity 11.1 7.7 9.2 9.2 5.4
Total debt as a % of debt,
plus equity 17.1 27.7 26.2 25.5 31.7
Working capital ratio 2.0:1 2.2:1 1.9:1 1.9:1 1.8:1
</TABLE>
* Earnings per share for fiscal years 1996, 1995, 1994 and 1993 have been
restated to conform to the requirements of SFAS 128.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Instron contributed its structures business as part of an agreement to
form a joint venture, Instron Schenck Testing Systems ("IST"), with Carl Schenck
AG in November of 1996, as previously announced. The investment in IST has been
accounted for under the equity method of accounting. Pursuant to a manufacturing
and supply agreement, Instron has supplied structures systems and components to
IST at substantially reduced gross margins compared to gross margins achieved
prior to the formation. The revenue on shipments to IST and related
manufacturing costs are included in the Company's consolidated revenue and cost
of revenue. 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. Pursuant to a research
and development agreement, as well as a support services agreement, Instron is
reimbursed by IST for certain development projects and support services that
Instron provided to IST. Financial comparisons of the results of fiscal 1997 are
also impacted by Instron's disposition of the LMS business in April 1997.
Historically this operation did not contribute significantly to operating
income, however, the exclusion of its operating results from the last three
quarters of 1997 has an effect on the comparison of bookings, backlog, revenues
and operating expenses.
Total revenue of $155,660,000 in fiscal 1997 increased by 1.7% from total
revenue of $153,113,000 in fiscal 1996. For comparison purposes, when structures
shipments ($5.6 million in 1997) and revenues of LMS ($1.2 million in 1997) are
adjusted for 1997 and 1996, as described above, revenues of the ongoing business
increased by 5.6% in 1997. Total revenue in fiscal 1996 increased by 2% over
fiscal 1995 due primarily to an improvement in the Company's service business.
Total foreign revenue accounted for approximately 59% of total 1997 revenue,
compared with 61% in 1996 and 60% in 1995.
Bookings of new orders were $150,020,000 in fiscal 1997. If bookings were
restated by adjusting structures and LMS orders, as previously described,
bookings of the ongoing business increased by 5.4% in 1997. This increase is
largely due to improved bookings in North America, partially offset by lower
demand in overseas markets. In 1996, total bookings increased by 4% due to
increased bookings in North America.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The Company's backlog of orders was $28,748,000 at December 31, 1997, a
decrease of 16.3% from 1996. On a comparative basis, when LMS orders are
excluded from last year's backlog, the backlog for 1997 decreased by 7.0%. The
year-end 1996 backlog increased by 4% over 1995, assuming that structures orders
are eliminated from the year-end 1995 backlog.
The gross profit margins for the three years ended December 31, 1997, were
41.2%, 42.1% and 41.5%, respectively. The decrease in 1997 is due principally to
the impact of supplying IST with structures systems at lower than normal profit
margins which is expected to continue through fiscal year 1998. The increase in
gross margin for 1996 was primarily due to improved service margins.
The 1997 selling and administrative expenses of $44,641,000 decreased
slightly from 1996. This decrease is due to certain selling and administrative
expenses being reimbursed by IST and the exclusion of LMS expenses subsequent to
the sale of the business in April 1997. As a percentage of revenue, selling and
administrative expenses decreased to 28.7% in 1997 compared to 29.3% in 1996 and
29.7% in 1995. In 1996, selling and administrative expenses increased slightly
from 1995.
Research and development expenses decreased by 19.2% in 1997 and 2.0% in
1996. The decrease in 1997 resulted from certain Instron engineering resources
($2.0 million in 1997) being utilized to develop new products for IST in
accordance with the joint venture agreement which were reimbursed by IST. During
the three years ended December 31, 1997, the Company has capitalized certain
software development costs (see Note 1 of Notes to Consolidated Financial
Statements). If research and development expenses were restated for comparison
purposes by including software developments costs as period expenses, and by
adjusting engineering expenses for the effect of the IST joint venture and the
disposition of LMS as previously discussed, research and development expenses of
the ongoing business would have increased by 4.0% in 1997. As a percentage of
total revenue, research and development expenditures, on a comparable basis,
represented 6.3%, 6.4% and 6.9% in 1997, 1996 and 1995, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Operating income increased by 37.5% to $12,571,000 in 1997, compared to
$9,145,000 in 1996 and $8,921,000 in 1995. As a percentage of total revenue,
operating income represented 8.1%, 6.0% and 5.9% in 1997, 1996 and 1995,
respectively. The 1996 operating income was effected by a special items charge,
of $1,812,000. Before the effect of the special items charge, operating income
in 1996 was $10,957,000 or 7.2% of total revenue. Excluding the effect of the
special items charge, operating income increased by 14.7% in 1997, due primarily
to the positive impact of IST, including the reimbursement of certain
engineering expenses, and increased revenues of the ongoing business.
Net interest expense decreased by 22% in 1997 and by 25% in 1996. The net
decrease in 1997 was due to reduced interest expense resulting from lower
average borrowings and further reduced by interest income received on notes
receivable and temporary bank deposits. The decrease in 1996 resulted from
interest income charged on certain debts owed the Company, partially offset by
higher interest expense. Foreign exchange losses of $185,000 in 1997 resulted
from the strengthening of the US dollar against certain Asian currencies.
Foreign exchange losses of $689,000 in 1996 resulted from the strengthening of
the British pound against certain European currencies and the U.S. dollar.
Income before taxes was 7.4% of total revenue in 1997, compared to 4.8% in
1996 and 5.1% in 1995. The consolidated effective tax rate was 38% in 1997 and
1996 and 35% in 1995. A detailed reconciliation of the Company's effective tax
rate and the United States statutory tax rate appears in Note 7 of Notes to the
Consolidated Financial Statements.
Instron reported net income of $7.2 million, or $1.05 per diluted share of
common stock , for the year ended December 31, 1997, compared with $4.6 million
or 70 cents per diluted share in 1996. Net income in 1996 included a special
items charge to operations of $1.8 million ($1.1 million net of taxes).
Excluding the effect of the special items charge, net income increased by 25.6%
in 1997, due to the positive impact of IST, increased revenues of the ongoing
business, a decline in interest expense and lower foreign exchange losses. Net
income in 1996 increased by 14%, before the effects of the special items charge,
over net income of $5.0 million in 1995.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In February 1997, the Financial Accounting Standards Board issued SFAS
128, Earnings Per Share, which is effective for periods ending after December
15, 1997. The statement changes computational guidelines and disclosure
requirements for earnings per share. The Company has adopted SFAS 128 in the
accompanying financial statements and has restated all prior period earnings per
share data.
FINANCIAL CONDITION
The Company's operating activities generated cash of $17.0 million and
$9.8 million in 1997 and 1996, respectively. Investing activities used $6.2
million in 1997 and $12.2 million in 1996, while financing activities used $10.6
million in 1997 and provided $3.1 million in 1996.
The Company's primary source of funds in 1997 and 1996 was net cash
generated by operations. The net cash generated by operations in 1997 consisted
primarily of net income, as adjusted for the non-cash effect of depreciation and
amortization expense, a reduction in inventories and the timing of payments of
certain accounts payable and accrued expenses. The operating cash flows of $17.0
million were used to pay down debt, fund capital expenditures and purchase the
assets of Dynatup.
At December 31, 1997, accounts receivable were $48.2 million compared to
$46.9 million at year-end 1996, which reflects higher fourth quarter revenue in
1997. Inventories of $24.0 million decreased by $2.3 million from year-end 1996.
The inventory turnover ratio increased to 2.87 from 2.68 at the end of 1996.
The Company's principal investment activities during 1997 included capital
expenditures of $4.2 million, the purchase of Dynatup's net assets for $2.0
million and the development of software products of $0.6 million. The Company
plans to make capital expenditures of approximately $7.0 million in fiscal 1998,
principally for manufacturing equipment and building improvements. 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 1997 was $13.7 million
compared to $23.9 million at the end of 1996. The ratio of total debt to debt
plus equity, at year-end 1997 decreased to 17.1% from 27.7% in 1996. The
reduction in debt was primarily due to increased earnings in 1997.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION (CONTINUED)
The Company maintains a multicurrency revolving credit and term loan
facility that provides for borrowings of up to $35.0 million. At December 31,
1997 and 1996, respectively, the Company had outstanding domestic borrowings of
$7.6 million and outstanding domestic and international borrowings of $17.4
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 $6.1 million and $6.5 million were
outstanding and classified as short-term borrowings at December 31, 1997 and
1996, 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.
On March 27, 1998, the Company sold 42 acres of excess land in Canton,
Massachusetts, for $13.5 million in cash. The proceeds will initially be
utilized to reduce outstanding debt, pay closing costs, related transaction
fees and associated expenses, as well as pay taxes on the gain of this sale.
Approximately 22% of the Company's total orders came from Asian markets in
1997. The Company expects that the current economic situation in Asia will have
a negative impact in 1998. Bookings from this region are expected to decline to
19% of our total volume. At the same time, however, IST anticipates new order
bookings to increase in this part of the world. The current strength in North
America and Europe is expected to continue and potentially offset the slowdown
in Asia. This potential increase in sales, together with IST's contribution,
should enable earnings to maintain their upward momentum in 1998.
The Company is currently undertaking a worldwide review of its internal
business and operating systems to assess the year 2000 issue. As the Company
has recently updated its major business information systems in the U.S. and
U.K., it believes it will be able to address the year 2000 issue without any
material adverse effect on its business operations and financial condition. With
regard to Instron's software offerings to customers, we have initiated a
communication program to our installed base advising our customers on the
potential need to upgrade the older systems and software that may still be in
operation.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION (CONTINUED)
The Company has undertaken a consolidation of its European operations in
order to lower costs and improve efficiencies and has also written down the
value of certain non-performing assets. A special items charge of approximately
$5.0 million, before taxes, will be taken in the first quarter of 1998 to cover
these actions.
Certain statements contained in this Annual Report are "forward-looking"
statements within the meaning of the federal securities laws that are based on
current expectations, estimates and management's beliefs and assumptions. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks," and
"estimates" or variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are made in reliance
upon the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions which are difficult to predict.
Accordingly, no assurances can be given that actual results will not differ
materially from those projected in the forward-looking statements contained in
this Annual Report. Certain factors that might cause such a difference include:
the level of bookings worldwide for Instron and IST, particularly in Asia; the
success of the automobile industry which is the major purchaser of IST
products; the operating results of the IST joint venture; the impact of
fluctuation in exchange rates; 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; the Company's ability to successfully integrate the
products and operations of businesses acquired; the Company's ability to
identify and successfully consummate strategic acquisitions; increased
competition in the Company's businesses and the impact of competitive products
and pricing; and the risks inherent in new product development and
introductions, including uncertainty of customer acceptance and
price-performance relative to competitors.
18
<PAGE> 19
INSTRON CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
19
<PAGE> 20
INSTRON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements included in Item 8: PAGE
----
Report of Independent Accountants..................................... 21
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995..................................... 22
Consolidated Balance Sheets as of December 31, 1997 and 1996.......... 23
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................. 24
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995..................................... 25
Notes to Consolidated Financial Statements............................ 26-35
Supplementary Financial Information
(Quarterly Financial Information/1997 and 1996 - (Unaudited)......... 36
20
<PAGE> 21
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/COOPERS & LYBRAND L.L.P.
---------------------------
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 24, 1998
21
<PAGE> 22
INSTRON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARE DATA
(YEARS ENDED DECEMBER 31) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Sales $ 129,679 $ 128,804 $ 128,018
Service 25,981 24,309 22,553
---------- ---------- ----------
Total revenue 155,660 153,113 150,571
---------- ---------- ----------
Cost of revenue:
Sales 74,126 72,556 72,155
Service 17,363 16,086 15,971
---------- ---------- ----------
Total cost of revenue 91,489 88,642 88,126
---------- ---------- ----------
Gross profit 64,171 64,471 62,445
---------- ---------- ----------
Operating expenses:
Selling and administrative 44,641 44,898 44,742
Research and development 6,959 8,616 8,782
Special items charge 0 1,812 0
---------- ---------- ----------
Total operating expenses 51,600 55,326 53,524
Income from operations 12,571 9,145 8,921
---------- ---------- ----------
Other (income) expense:
Interest expense 1,465 1,548 1,490
Interest income (634) (477) (67)
Foreign exchange (gains) losses 185 689 (186)
---------- ---------- ----------
Total other expenses 1,016 1,760 1,237
---------- ---------- ----------
Income before income taxes 11,555 7,385 7,684
Provision for income taxes 4,391 2,803 2,689
---------- ---------- ----------
Net income $ 7,164 $ 4,582 $ 4,995
========== ========== ==========
Weighted average number of basic common shares 6,455,527 6,396,202 6,324,540
Earnings per share - basic $ 1.11 $ .72 $ .79
========== ========== ==========
Weighted average number of diluted common shares 6,791,801 6,524,467 6,431,882
Earnings per share - diluted $ 1.05 $ .70 $ .78
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 23
INSTRON CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA (DECEMBER 31) 1997 1996
- ------------------------------------------------------- -------- --------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,566 $ 2,541
Accounts receivable, net of allowance for doubtful
accounts of $1,071 in 1997 and $1,107 in 1996 48,226 46,938
Inventories 24,024 26,320
Deferred income taxes 3,314 3,602
Prepaid expenses and other current assets 3,767 1,857
-------- --------
Total current assets 81,897 81,258
Property, plant and equipment:
Land and Buildings 21,796 20,855
Machinery and equipment 39,627 41,004
Accumulated depreciation (40,216) (39,393)
-------- --------
Property, plant and equipment, net 21,207 22,466
Deferred income taxes 806 1,203
Other assets 15,075 16,906
-------- --------
Total assets $118,985 $121,833
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 6,059 $ 6,510
Accounts payable 11,095 7,153
Accrued liabilities 14,083 12,805
Accrued employee compensation and benefits 6,220 6,205
Accrued income taxes 957 1,602
Advance payments received on contracts 1,541 2,889
-------- --------
Total current liabilities 39,955 37,164
Long-term debt 7,600 17,409
Pension and other long-term liabilities 5,176 4,859
-------- --------
Total liabilities 52,731 59,432
-------- --------
Commitments and Contingencies (Note 5)
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized;
none issued
Common stock, $1 par value; 10,000,000 shares authorized;
6,823,698 and 6,519,687 shares issued, respectively 6,824 6,520
Additional paid in capital 6,972 3,514
Deferred compensation (3,235) 0
Retained earnings 62,097 55,997
Cumulative translation adjustment (5,690) (2,916)
-------- --------
66,968 63,115
Less: Treasury stock of 74,952 shares, at cost 714 714
-------- --------
Total stockholders' equity 66,254 62,401
-------- --------
Total liabilities and stockholders' equity $118,985 $121,833
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
INSTRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
IN THOUSANDS (YEARS ENDED DECEMBER 31) 1997 1996 1995
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 7,164 $ 4,582 $ 4,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,494 6,873 6,784
Provision for losses on accounts receivable 27 358 163
Deferred income taxes 306 299 (1,635)
Changes in assets and liabilities, excluding
the effects from purchase of businesses:
(Increase) decrease in accounts receivable (1,335) 1,297 (6,282)
(Increase) decrease in inventories 2,563 (521) (2,210)
(Increase) decrease in prepaid expenses and
other current assets (2,028) 151 (976)
Increase (decrease) in accounts payable and
accrued expenses 3,477 (3,894) 3,920
Other 321 679 1,602
-------- -------- --------
Net cash provided by operating activities 16,989 9,824 6,361
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,176) (4,473) (4,510)
Joint Venture investment 0 (6,926) 0
Purchase of businesses (2,010) 0 (2,660)
Capitalized software costs (637) (1,144) (1,315)
Other 596 380 160
-------- -------- --------
Net cash used by investing activities (6,227) (12,163) (8,325)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit and term
loan facility (9,730) 6,068 208
Net short-term borrowings (173) (2,785) 1,989
Cash dividends paid (1,064) (1,024) (884)
Other 348 861 477
-------- -------- --------
Net cash provided (used) by financing activities (10,619) 3,120 1,790
-------- -------- --------
Effect of exchange rate changes on cash (118) 116 (59)
Net increase (decrease) in cash and cash equivalents 25 897 (233)
Cash and cash equivalents at beginning of year 2,541 1,644 1,877
-------- -------- --------
Cash and cash equivalents at end of year $ 2,566 $ 2,541 $ 1,644
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,671 $ 1,730 $ 1,614
Income taxes 3,041 2,286 2,063
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired $ 2,649 $ 0 $ 3,005
Cash paid 2,010 0 2,660
-------- -------- --------
Liabilities incurred or assumed in
business acquisitions $ 639 $ 0 $ 345
======== ======== ========
Note receivable on sale of business $ 3,000 $ 0 $ 0
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
<TABLE>
<CAPTION>
INSTRON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ADDI- TOTAL
TIONAL CUMULATIVE STOCK-
COMMON PAID IN DEFERRED RETAINED TRANSLATION TREASURY HOLDERS'
IN THOUSANDS, EXCEPT SHARE DATA STOCK CAPITAL COMPENSATION EARNINGS ADJUSTMENT STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 6,363 $ 2,113 $ 0 $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 0 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
($.16 per share) (1,024) (1,024)
104,366 shares issued under
employee stock option plans 105 976 1,081
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 6,520 3,514 0 55,997 (2,916) (714) 62,401
Net income 7,164 7,164
Translation adjustments
arising during the year (2,774) (2,774)
Cash dividends declared
($.16 per share) (1,064) (1,064)
33,511 shares issued under
employee stock option plans 34 314 348
Restricted stock grants issued during
the year 270 3,144 (3,414) 0
Compensation expense recognized under
the 1992 Stock Incentive Plan 179 179
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 6,824 $ 6,972 $(3,235) $62,097 $(5,690) $ (714) $66,254
======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1997 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. In addition, the Company
has certain receivables, payables, borrowings and other assets and liabilities
denominated in foreign currencies, which are not hedged and therefore are
subject to exchange rate fluctuations.
26
<PAGE> 27
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 certain 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.
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 $4,341,000, $4,619,000 and $4,719,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Upon retirement or
disposition, the cost and related accumulated depreciation of the assets
disposed of are removed from the accounts, with any resulting gain or loss
included in operations. On March 27, 1998, the Company sold 42 acres of excess
land in Canton, Massachusetts for $13.5 million.
SOFTWARE DEVELOPMENT COSTS Certain software development costs are capitalized
and then amortized over future periods. Amortization of capitalized software
costs 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 $1,574,000, $2,473,000 and $2,679,000 at December 31, 1997,
1996 and 1995, respectively. Software development costs of $637,000, $1,144,000,
and $1,315,000 were capitalized during 1997, 1996 and 1995, respectively. The
amounts amortized and charged to expense in 1997, 1996 and 1995 were $725,000,
$1,350,000, and $1,216,000, 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. Tax
credits are recorded as a reduction in income taxes. 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 $23,685,000 at year-end 1997.
27
<PAGE> 28
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share," which is effective for fiscal
year 1997. Under the new requirements, primary and fully diluted earnings per
share are replaced by basic and diluted earnings per share. Basic earnings
per share is computed based only on the weighted average number of common shares
outstanding during the period and the diluted effect of stock options is
excluded. Diluted earnings per share is based on the weighted average number of
common shares and common share equivalents outstanding.
The following is a reconciliation of the basic and diluted EPS calculations:
IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995
- ----------------------------------- ------- ------- -------
Net Income $ 7,164 $ 4,582 $ 4,995
======= ======= =======
Weighted average number of common
shares outstanding - basic 6,456 6,396 6,325
Dilutive effect of stock options
outstanding 336 128 107
------- ------- -------
Weighted average of common and dilutive
shares - diluted 6,792 6,524 6,432
======= ======= =======
BASIC EARNINGS PER SHARE $ 1.11 $ 0.72 $ 0.79
======= ======= =======
DILUTED EARNINGS PER SHARE $ 1.05 $ 0.70 0.78
======= ======= =======
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.
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.
28
<PAGE> 29
The following table summarizes the Company's operations by significant
geographic location for the years ended December 31:
IN THOUSANDS 1997 1996 1995
- -----------------------------------------------------------------------------
REVENUE, INCLUDING INTERAREA SALES
United States $ 76,314 $ 70,924 $ 70,181
European operations 66,877 64,913 61,899
Asia/Latin America 40,004 39,077 38,034
Other international 3,868 3,404 3,345
Eliminations (31,403) (25,205) (22,888)
-------- -------- --------
Total revenue $155,660 $153,113 $150,571
======== ======== ========
OPERATING PROFIT
United States $ 9,507 $ 6,599 $ 7,052
European operations 5,794 6,218 3,612
Asia/Latin America 3,470 3,081 2,800
Other international 146 326 394
Eliminations 94 (237) 162
-------- -------- --------
Total operating profit 19,011 15,987 14,020
Corporate expenses (6,440) (5,030) (5,099)
Special items charge 0 (1,812) 0
Other expenses (1,016) (1,760) (1,237)
-------- -------- --------
Income before income taxes $ 11,555 $ 7,385 $ 7,684
======== ======== ========
IDENTIFIABLE ASSETS AT YEAR-END
United States $ 38,384 $ 38,654 $ 40,496
European operations 42,674 45,271 44,759
Asia/Latin America 18,645 19,149 18,057
Other international 2,072 2,499 2,188
Corporate 18,066 16,938 8,692
Eliminations (856) (678) (858)
-------- -------- --------
Total assets $118,985 $121,833 $113,334
======== ======== ========
Sales between geographic areas in 1997, 1996 and 1995, respectively, consisted
primarily of $13,091,000, $11,337,000 and $10,534,000 from the United States and
$18,168,000, $13,706,000 and $11,998,000 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 1997 1996
- -------------------------------------------------------------------------
Raw materials $12,742 $13,416
Work in process 5,156 5,550
Finished goods 6,126 7,354
------- -------
Total inventory $24,024 $26,320
======= =======
Inventories valued at LIFO amounted to $9,395,000 and $10,808,000 at December
31, 1997 and 1996, respectively. The excess of current cost over stated LIFO
value was $5,247,000 at December 31, 1997 and $4,990,000 at December 31, 1996.
29
<PAGE> 30
4. BORROWING ARRANGEMENTS
The Company maintains a multicurrency revolving credit and term loan facility
that provides for borrowings of up to $35,000,000 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, 1997 and 1996,
respectively, outstanding domestic borrowings of $7,600,000 and $15,000,000 with
a weighted average interest rate of 6.61% and 6.17%, and outstanding European
borrowings of $2,409,000 in 1996 with a weighted average interest rate of 8.20%,
were classified as long-term debt. Long-term debt maturing under the credit
agreement in each of the five years subsequent to December 31, 1997, assuming
outstanding borrowings at December 31, 1997 are unchanged at April 2000, is
$1,425,000 in 2000, $1,900,000 in 2001 and 1,900,000 in 2002.
The Company's subsidiaries have other overdraft and borrowing facilities
allowing advances up to approximately $26,000,000. At December 31, 1997, the
outstanding portion of these facilities was $6,059,000, due currently. Bank
guarantees outstanding at December 31, 1997, for which the Company is
contingently liable, amounted to $2,953,000 and relate principally to
performance contracts.
5. OPERATING LEASE COMMITMENTS
Rental expense amounted to $3,697,000, $3,348,000 and $3,745,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. As of December 31, 1997,
minimum annual commitments under noncancellable operating leases with terms of
more than one year are:
LATER
IN THOUSANDS 1998 1999 2000 2001 2002 YEARS
- ------------------------------------------------------------------------------
$2,196 $1,658 $ 877 $ 551 $ 480 $1,196
6. 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.
30
<PAGE> 31
Net periodic pension costs include the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ --------------------------- ----------------------------
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 $ 961 $ 1,357 $ 231 936 $ 1,158 $ 257 $ 900 $ 1,167 $ 267
Interest cost 1,799 1,990 201 1,648 1,690 206 1,496 1,678 210
Actual return on plan assets (2,547) (4,812) 0 (2,655) (2,576) 0 (5,284) (3,754) 0
Net amortization and deferral 669 1,847 19 1,009 (33) 21 3,802 1,769 25
------- ------- ------- ------- ------- ------- ------- ------- -------
Net periodic pension cost $ 882 $ 382 $ 451 $ 938 $ 239 $ 484 $ 914 $ 860 $ 502
======= ======= ======= ======= ======= ======= ======= ======= =======
</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>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
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 $ 19,164 $ 25,743 $ 2,113 $ 16,513 $ 19,546 $ 1,996 $ 15,021 $ 15,973 $ 1,873
Non-vested benefits 452 0 0 212 0 0 185 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Accumulated benefit obligation $ 19,616 $ 25,743 $ 2,113 $ 16,725 $ 19,546 $ 1,996 $ 15,206 $ 15,973 $ 1,873
======== ======== ======== ======== ======== ======== ======== ======== ========
Projected benefit obligation $ 26,209 $ 33,222 $ 3,221 $ 23,246 $ 24,681 $ 3,404 $21,134 $20,167 $ 3,327
Plan assets at fair value 26,650 33,522 0 24,865 29,748 0 21,556 24,466 0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Projected benefit obligation
in excess of (less than)
plan assets (441) (300) 3,221 (1,619) (5,067) 3,404 (422) (4,299) 3,327
Unrecognized net gain(loss) 3,683 (1,177) 259 4,038 4,011 77 3,265 3,794 92
Unrecognized prior service cost (505) 1,066 0 (549) 1,498 0 (593) 1,543 0
Unrecognized net asset
(liability) at transition 57 538 (229) 66 637 (278) 75 649 (335)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Pension liability included
in Consolidated Balance Sheet $ 2,794 $ 127 $ 3,251 $ 1,936 $ 1,079 $ 3,203 $ 2,325 $ 1,687 $ 3,084
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Assumptions used in the accounting for the Company's U.S., U.K., and Japan plans
at December 31 were:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------ -------------------------
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 7.0% 6.5% 5.0% 7.5% 8.0% 6.0% 7.5% 8.0% 6.0%
Rates of increase in
compensation levels 4.5 4.75 4.0 5.0 5.5 5.0 5.0 5.5 5.0
Expected long-term rate of
return on assets 9.0 8.75 0.0 9.0 9.5 0 9.0 9.5 0
</TABLE>
The expense of all pension plans for 1997, 1996 and 1995 was $1,715,000,
$1,661,000, and $2,276,000, 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 $530,000,
$523,000 and $535,000 in 1997, 1996 and 1995, respectively.
31
<PAGE> 32
7. INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
at December 31, are as follows:
IN THOUSANDS 1997 1996
- --------------------------------------------------------------------------------
Employee benefits $ 3,986 $ 3,783
Inventories 2,734 2,572
Accrued expenses 632 1,372
------- -------
Total deferred assets 7,352 7,727
------- -------
Accrued expenses (360) (124)
Depreciation (1,400) (1,667)
Capitalized software costs (982) (898)
------- -------
Total deferred liabilities (2,742) (2,689)
------- -------
Valuation reserve (490) (490)
------- -------
Total net deferred assets $ 4,120 $ 4,548
======= =======
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, 1997 related primarily
to foreign tax benefits.
The components of income before income taxes consisted of the following:
IN THOUSANDS 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $ 5,664 $ 2,996 $ 3,602
Foreign 5,891 4,389 4,082
------- -------- -------
Total $11,555 $ 7,385 $ 7,684
======= ======== =======
Income tax provisions (credits) were as follows:
IN THOUSANDS 1997 1996 1995
- --------------------------------------------------------------------------------
Currently payable:
Federal $ 1,701 $ 609 $2,525
Foreign 2,090 1,486 1,671
State 172 314 238
------- ------- -------
3,963 2,409 4,434
------- ------- -------
Deferred, net:
Federal & State 518 215 (1,261)
Foreign ( 90) 179 (484)
------- ------- -------
428 394 (1,745)
------- ------- -------
Total provision for income taxes $ 4,391 $ 2,803 $ 2,689
======= ======= =======
The provisions for income taxes varied from the United States statutory rate of
34% for 1997, 1996 and 1995 principally because of the tax effect of the
following:
IN THOUSANDS 1997 1996 1995
- -------------------------------------------------------------------------------
Tax provision at United States
statutory rate $ 3,929 $ 2,511 $2,612
Effect of earnings of foreign
operations subject to
different tax rates (2) 199 (200)
State taxes, net of federal
income tax benefit 114 208 157
Benefit of Foreign Sales Corporation (68) (195) (115)
Amortization of software costs and goodwill 356 97 114
All other, net 62 (17) 121
------- ------- ------
Total tax provision $ 4,391 $ 2,803 $2,689
======= ======= ======
32
<PAGE> 33
8. STOCK OPTION PLANS
The Company accounts for stock-based compensation using the intrinsic value
method. 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 1997, 1996 and 1995 generally
have a maximum term of eight years and vest equally over four years.
A summary of the Company's stock option activity for the years ended December 31
follows:
WEIGHTED
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICES
-----------------------------------------------------------------------------
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
Granted, 1997 5,000 12.25
Exercised, 1997 (37,385) 11.02
Terminated, 1997 (13,000) 12.43
--------
Outstanding at
December 31, 1997 933,339 $11.51
========
33
<PAGE> 34
At December 31, 1997, 1996 and 1995, respectively, there were 656,902, 526,045
and 510,781 options exercisable with a weighted average exercise price of
$10.94, $10.58 and $10.25. Exercise prices for options outstanding as of
December 31, 1997, 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
1997, 1996 and 1995 was $5.04, $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 1997,
1996 and 1995, respectively: risk-free interest rates of 5.7.%, 6.5% and 6.0%;
dividend yields of 1.31%, 1.19% and 1.35%; volatility factors of the expected
market price of the Company's common stock of .31, .30 and .31; and a weighted
average expected life of the options of 8.0, 7.8 and 7.8 years.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1997, 1996 and 1995, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1997 1996 1995
------ ------ ------
Net income - proforma $6,691 $4,105 $4,780
Earnings per share - basic $ 1.04 $ .64 $ .76
Earnings per share - diluted $ .99 $ .63 $ .74
The pro forma effect on net income for 1997, 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.
On May 14, 1997 and October 29, 1997, respectively, the Company issued 250,000
and 20,500 shares of restricted stock to key employees, which resulted in
$3,414,000 of non-cash deferred compensation to be recognized as operating
expense over a seven year period. Vesting is accelerated if certain performance
criteria are met.
9. 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 competes 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. During 1997, the Company shipped $5.6 million to IST at
substantially reduced gross margins and was reimbursed for certain operating
expenses of $2.5 million by IST for services provided to the joint venture.
10. NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." This Statement
requires that changes
34
<PAGE> 35
in comprehensive income be shown in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income for
the Company will include foreign currency adjustments. The Company is in the
process of evaluating the impact of the new standard on the presentation of the
financial statements and the disclosures therein. The Company will adopt the new
standard beginning in the first quarter of the fiscal year ending December 31,
1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosures therein. The Company will adopt the new standard for the fiscal
year ending December 31, 1998.
11. SPECIAL ITEMS CHARGE
In March 1996, the Company recognized a $1,812,000 special items charge to
implement a work force reduction and consolidate certain manufacturing
operations.
35
<PAGE> 36
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>
1997:
Total revenue $ 36,023 $37,124 $35,996 $46,517 $155,660
Gross profit 14,706 15,127 15,008 19,330 64,171
Income before income taxes 1,482 2,376 2,966 4,731 11,555
Net income 919 1,470 1,842 2,933 7,164
Earnings per share - basic 0.14 0.23 0.29 0.45 1.11
Earnings per share - diluted* 0.14 0.22 0.26 0.42 1.05
-------------------------------------------------------------------------------------------
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 before income taxes (357) 1,472 2,318 3,952 7,385
Net income (221) 912 1,437 2,454 4,582
Earnings per share - basic* (0.03) 0.14 0.22 0.38 0.72
Earnings per share - diluted* (0.03) 0.14 0.22 0.38 0.70
-------------------------------------------------------------------------------------------
</TABLE>
* 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 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the captions "Summary Compensation Table",
"Severance and Other Agreements", "Pension Plans", "Stock Option Plans" and
"Stock Performance Graph" in the Registrant's definitive proxy statement
relating to its 1998 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 "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's definitive proxy statement
relating to its 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
36
<PAGE> 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" in the
Registrant's definitive proxy statement relating to its 1998 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, 1997, 1996 and 1995
Consolidated balance sheet at
December 31, 1997 and 1996
Consolidated statements of cash flows for the
years ended December 31, 1997 1996 and 1995
Consolidated statements of stockholders' equity
for the years ended December 31, 1997, 1996 and 1995
Notes to consolidated financial statements
(a)2. FINANCIAL STATEMENT SCHEDULE
SCHEDULE
PAGE NUMBER
---- --------
Report of Independent Accountants on
financial statement schedule 41
Consolidated valuation accounts 42 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(CONTINUED)
37
<PAGE> 38
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, incorporated by reference to Exhibit
10(b) of Form 10-K for the year ended December 31, 1991.
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, incorporated by reference to Exhibit
10(k) of Form 10-K for the year ended December 31, 1996.
10(l) Form of Executive Severance Agreement entered into between the Company
and each of two key employees, dated December 9, 1997 and December 15,
1997, respectively.
38
<PAGE> 39
10(m) Form of Executive Severance Agreement entered into among Instron
Limited, the Company and each of two key employees, dated December 1,
1997 and December 8, 1997, respectively.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27.1997 Financial Data Schedule
27.1996 Financial Data Schedule
27.1995 Financial Data Schedule
(b) Report on Form 8-K
None.
39
<PAGE> 40
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 30, 1998
- ------------------------
Harold Hindman
/S/ George S. Burr Vice Chairman of the Board March 30, 1998
- ------------------------
George S. Burr
President, Chief Executive Officer
/S/ James M. McConnell and Director March 30, 1998
- ------------------------
James M. McConnell
/S/ John W. Lacey Director March 30, 1998
- ------------------------
John W. Lacey
/S/ Dennis J. Moore Director March 30, 1998
- ------------------------
Dennis J. Moore
/S/ Sheldon Rutstein Director March 30, 1998
- ------------------------
Sheldon Rutstein
/S/ John F. Smith Director March 30, 1998
- ------------------------
John F. Smith
/S/ Richard W. Young Director March 30, 1998
- ------------------------
Richard W. Young
40
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF INSTRON CORPORATION
Our report on the consolidated financial statements of Instron Corporation is
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 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.
/S/ COOPERS & LYBRAND L.L.P
---------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1998
41
<PAGE> 42
SCHEDULE II
INSTRON CORPORATION
CONSOLIDATED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
EFFECT OF
BALANCE AT ADDITIONS FOREIGN
BEGINNING CHARGED TO CURRENCY (A) 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, 1997 $1,107,000 $ 27,000 $ (56,000) $ 7,000 $1,071,000
---------- ---------- ---------- ---------- ----------
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
---------- ---------- ---------- ---------- ----------
</TABLE>
(A) Uncollected receivables written off, net of recoveries and deduction due
to the disposal of LMS in 1997.
42
<PAGE> 1
EXHIBIT 10(l)
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the [EFFECTIVE DATE] by and between Instron
Corporation, a Massachusetts corporation with its principal place of business in
Canton, Massachusetts (the "Company"), and [NAME OF EXECUTIVE] of [ADDRESS OF
EXECUTIVE] (the "Executive").
1. PURPOSE. The Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel.
The Board of Directors of the Company (the "Board") recognizes, however, that,
as is the case with many publicly held corporations, the possibility of a Change
in Control (as defined in Section 2 hereof) exists and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders. Therefore, the Board has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including the
Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change in
Control. Nothing in this Agreement shall be construed as creating an express or
implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right to
be retained in the employ of the Company.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any one of the following events:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934 (the "Act")) becomes a "beneficial owner"
(as such term is defined in Rule 13d-3 promulgated under the Act) (other than
the Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities;
(b) persons who, as of [EFFECTIVE DATE], constituted the Company's Board
(the "Incumbent Board") cease for any reason, including without limitation as a
result of a tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of the Board, provided that any person becoming a
director of the Company subsequent to [EFFECTIVE DATE] whose election was
approved by at least a majority of the directors then comprising the Incumbent
Board shall, for purposes of this Agreement, be considered a member of the
Incumbent Board;
1
<PAGE> 2
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation or other entity, other than (a) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events
provided in this Section 3 occurring subsequent to a Change in Control as
defined in Section 2:
(a) termination by the Company of the employment of the Executive with the
Company for any reason other than (A) a willful act of dishonesty by the
Executive with respect to any matter involving the Company or any subsidiary or
affiliate, or (B) conviction of the Executive of a crime involving moral
turpitude, or (C) the gross or willful failure by the Executive to substantially
perform the Executive's duties with the Company, or (D) the failure by the
Executive to perform his full-time duties with the Company by reason of his
death, disability or retirement; provided, however, that a Terminating Event
shall not be deemed to have occurred pursuant to this Section 3(a) solely as a
result of the Executive being an employee of any direct or indirect successor to
the business or assets of the Company, rather than continuing as an employee of
the Company following a Change in Control. For purposes of clauses (A) and (C)
of this Section 3(a), no act, or failure to act, on the Executive's part shall
be deemed "willful" unless done, or omitted to be done, by the Executive without
reasonable belief that the Executive's act, or failure to act, was in the best
interest of the Company and its subsidiaries and affiliates. For purposes of
this Agreement, "disability" shall mean the Executive's incapacity due to
physical or mental illness which has caused the Executive to be absent from the
full-time performance of his duties with the Company for a period of six (6)
consecutive months if the Company shall have given the Executive a Notice of
Termination and, within thirty (30) days after such Notice of Termination is
given, the Executive shall not have returned to the full-time performance of his
duties. For purposes of this Agreement, "retirement" shall mean termination of
the Executive's employment in accordance with the Company's retirement policy,
not including early retirement, generally applicable to its salaried employees,
as in effect immediately prior to the Change in Control, or in accordance with
any retirement arrangement established with respect to the Executive with the
Executive's express written consent;
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(b) termination by the Executive of the Executive's employment with the
Company for Good Reason. Good Reason shall mean the occurrence of any of the
following events:
(i) a substantial adverse change, not consented to by the Executive, in
the nature or scope of the Executive's responsibilities, authorities, powers,
functions or duties from the responsibilities, authorities, powers, functions or
duties exercised by the Executive immediately prior to the Change in Control; or
(ii) a reduction in the Executive's annual base salary as in effect on
the date hereof or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all or substantially all
management employees; or
(iii) the relocation of the Company's offices at which the Executive is
principally employed immediately prior to the date of a Change in Control to a
location more than fifty (50) miles from such offices, or the requirement by the
Company for the Executive to be based anywhere other than the Company's offices
at such location, except for required travel on the Company's business to an
extent substantially consistent with the Executive's business travel obligations
immediately prior to the Change in Control; or
(iv) the failure by the Company to pay to the Executive any portion of
his compensation or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within fifteen (15) days of the date such compensation is due without prior
written consent of the Executive; or
(v) the failure by the Company to obtain an effective agreement from
any successor to assume and agree to perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
twenty four (24) months after a Change in Control,
(a) the Company shall pay to the Executive an amount equal to two (2) times
the "base amount" (as such term is defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code")) applicable to the Executive (the
"Base Amount"), payable in one lump-sum payment. Said amount shall be paid no
later than thirty-one (31) days following the Date of Termination (as such term
is defined in Section 8(b)); and
(b) the Company shall pay to the Executive all reasonable legal and
arbitration fees and expenses incurred by the Executive in successfully
obtaining or enforcing any right or benefit provided by this Agreement.
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5. LIMITATION ON BENEFITS.
(a) It is the intention of the Executive and of the Company that no
payments by the Company to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Company by reason of
the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed the amount which can be deducted by the Company, the
payments which the Executive is entitled to receive under this Agreement shall
be reduced by that amount which exceeds the maximum amount deductible by the
Company under Section 280G. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Company with interest thereon at the
applicable federal rate determined under Section 1274(d) of the Code, compounded
annually, or at such other rate as may be required in order that no such
payments shall be non-deductible to the Company by reason of the operation of
said Section 280G.
(b) If any dispute between the Company and the Executive as to any of the
amounts to be determined under this Section 5, or the method of calculating such
amounts, cannot be resolved by the Company and the Executive, either the Company
or the Executive, after giving three (3) days' written notice to the other, may
refer the dispute to a partner in the Boston office of a firm of independent
certified public accountants selected jointly by the Company and the Executive.
The determination of such partner as to the amount to be determined under
Section 5(a) and the method of calculating such amounts shall be final and
binding on both the Company and the Executive. The Company shall bear the costs
of any such determination if the amount determined by such partner differs to
any material degree from the final amount proposed by the Company to the
Executive before submission to such partner. If there is no such material
difference, the costs of any such determination shall be evenly divided between
the Company and the Executive.
6. TERM. This Agreement shall take effect on the date first set forth above
and shall terminate upon the earlier of (a) the termination by the Company of
the employment of the Executive because of (A) a willful act of dishonesty by
the Executive with respect to any matter involving the Company or any subsidiary
or affiliate, or (B) conviction of the Executive of a crime involving moral
turpitude, or (C) the gross or willful failure by the Executive to substantially
perform the Executive's duties with the Company, or (D) the failure by the
Executive to perform his full-time duties with the Company by reason of his
death, disability (as defined in Section 3(a)) or retirement (as defined in
Section 3(a)), (b) the resignation or termination of the Executive for any
reason prior to a Change in Control, or (c) the resignation of the Executive
after a Change in Control for any reason other than the occurrence of any of the
events enumerated in Section 3(b)(i)-(v) of this Agreement.
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7. WITHHOLDING. All payments made by the Company under this Agreement shall
be net of any tax or other amounts required to be withheld by the Company under
applicable law.
8. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term of
this Agreement, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with this Section
8. For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and the Date of Termination. Further, a Notice of Termination pursuant to
one or more of clauses (A) through (C) of Section 3(a) hereof is required to
include a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds (2/3) of the entire membership of the Board at a meeting of the
Board (after reasonable notice to the Executive and an opportunity for the
Executive, accompanied by the Executive's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the termination met the
criteria set forth in one or more of clauses (A) through (C) of Section 3(a)
hereof.
(b) DATE OF TERMINATION. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean (i) if the Executive's
employment is terminated for disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination. In the case of a
termination by the Company other than a termination pursuant to one or more of
clauses (A) through (C) of Section 3(a) (which may be effective immediately),
the Date of Termination shall not be less than thirty (30) days after the Notice
of Termination is given. In the case of a termination by the Executive, the Date
of Termination shall not be less than fifteen (15) days from the date such
Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement,
in the event that the Executive gives a Notice of Termination to the Company,
the Company may unilaterally accelerate the Date of Termination and such
acceleration shall not result in a Terminating Event for purposes of Section
3(a) of this Agreement.
(c) NO MITIGATION. The Company agrees that, if the Executive's employment
by the Company is terminated during the term of this Agreement, the Executive is
not required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Section 4(a) and (b)
hereof. Further, the amount of any payment provided for in this Agreement shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
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(d) SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of The
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by the Company, one by the Executive and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration Association in the City of Boston. Such arbitration shall be
conducted in the City of Boston in accordance with the rules of the American
Arbitration Association for commercial arbitrations, except with respect to the
selection of arbitrators which shall be as provided in this Section 8(d).
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof.
9. ASSIGNMENT; PRIOR AGREEMENTS. Neither the Company nor the Executive may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall inure to the benefit of and be binding upon the
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns. In the event of the Executive's
death after a Terminating Event but prior to the completion by the Company of
all payments due him under Section 4(a) and (b) of this Agreement, the Company
shall continue such payments to the Executive's beneficiary designated in
writing to the Company prior to his death (or to his estate, if the Executive
fails to make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Company, or to the Company at its main office, attention of the Board of
Directors.
13. EFFECT ON OTHER PLANS. An election by the Executive to resign after a
Change in Control under the provisions of this Agreement shall not be deemed a
voluntary termination of
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employment by the Executive for the purpose of interpreting the provisions of
any of the Company's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under the
Company's benefit plans, programs or policies except as otherwise provided in
Section 5 hereof, and except that the Executive shall have no rights to any
severance benefits under any severance pay plan.
14. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Company.
15. GOVERNING LAW. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of The Commonwealth of
Massachusetts.
16. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by
law upon any successor to the Company, the Company will use its best efforts to
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place.
17. CONFIDENTIAL INFORMATION. The Executive shall never use, publish or
disclose in a manner adverse to the Company's interests, any proprietary or
confidential information relating to (a) the business, operations or properties
of the Company or any subsidiary or other affiliate of the Company, or (b) any
materials, processes, business practices, technology, know-how, research,
programs, customer lists, customer requirements or other information used in the
manufacture, sale or marketing of any of the respective products or services of
the Company or any subsidiary or other affiliate of the Company; provided,
however, that no breach or alleged breach of this Section 17 shall entitle the
Company to fail to comply fully and in a timely manner with any other provision
hereof. Nothing in this Agreement shall preclude the Company from seeking money
damages, or equitable relief by injunction or otherwise without the necessity of
proving actual damage to the Company, for any breach by the Executive hereunder.
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company by its duly authorized officer, and by the Executive, as of the
date first above written.
INSTRON CORPORATION
By: /s/ James M. McConnell
-----------------------------
Name: James M. McConnell
Title: President and CEO
[Signed by Executive]
-----------------------------
[Name of Executive]
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SCHEDULE
to
Exhibit 10(l)
NAME OF EXECUTIVE EFFECTIVE DATE
William J. Milliken December 9, 1997
Daniel D. Ewing III December 15, 1997
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EXHIBIT 10(m)
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of the [EFFECTIVE DATE] by and between Instron
Corporation, a Massachusetts corporation with its principal place of business in
Canton, Massachusetts (the "Company"), Instron Limited, a company incorporated
in England and Wales under Registered No. 662120 whose registered office is at
Coronation Road, High Wycombe, Bucks ("Limited") and [NAME OF EXECUTIVE] of
[ADDRESS OF EXECUTIVE] (the "Executive").
1. PURPOSE
(a) The Board of Directors of the Company considers it essential to the
best interest of their stockholders to foster the stability of key management
personnel of the Company and its subsidiaries, including Limited. The Board of
Directors of the Company recognizes however that, as is the case with many
publicly held corporations, the possibility of a Change in Control (as defined
in Section 2 hereof) exists and that such possibility and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company, Limited and
the Company's stockholders. Therefore, the Board of the Company has determined
that appropriate steps should be taken to reenforce and encourage the continued
attention and dedication of the members of the management of the Company and of
its subsidiaries, including Limited, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a "Change in Control".
(b) The Board of Directors of Limited, having regard to the wishes of the
Board of Directors of the Company, its controlling stockholder, and having
regard to its own determination that it is essential to the best interests of
its business to foster the stability of its key management personnel has
determined to take the following steps to reenforce and encourage the continued
attention and dedication of the Executive to his assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change in Control.
(c) The Company is a party to this Agreement to confirm specifically its
approval of these arrangements between its subsidiary, Limited, and the
Executive.
(d) Nothing in this Agreement shall be construed as creating an express or
implied contract of employment between the Executive and the Company, and,
except as otherwise agreed in writing between the Executive and Limited, this
Agreement shall not give the Executive any right to be retained in the
employment of Limited.
2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred in any one of the following events:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the
<PAGE> 2
Securities Exchange Act of 1934 (the "Act")) becomes a "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the Act) (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities;
(b) persons who, as of [EFFECTIVE DATE], constituted the Company's Board
(the "Incumbent Board") cease for any reason, including without limitation as a
result of a tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of the Board, provided that any person becoming a
director of the Company subsequent to [EFFECTIVE DATE] whose election was
approved by at least a majority of the directors then comprising the Incumbent
Board shall, for purposes of this Agreement, be considered a member of the
Incumbent Board;
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation or other entity, other than (a) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events
provided in this Section 3 occurring subsequent to a Change in Control as
defined in Section 2:
(a) termination by Limited of the employment of the Executive with Limited
for any reason other than (A) a willful act of dishonesty by the Executive with
respect to any matter involving the Company, Limited or any subsidiary or
affiliate, or (B) conviction of the Executive of a crime involving moral
turpitude, or (C) the gross or willful failure by the Executive to substantially
perform the Executive's duties with Limited, or (D) the failure by the Executive
to perform his full-time duties with Limited by reason of his death, disability
or retirement; provided, however, that a Terminating Event shall not be deemed
to have occurred pursuant to this Section 3(a) solely as a result of the
Executive being an employee of any direct or indirect successor to the business
or assets of Limited or the Company, rather than continuing as an employee of
Limited or the Company following a Change in Control. For
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<PAGE> 3
purposes of clauses (A) and (C) of this Section 3(a), no act, or failure to act,
on the Executive's part shall be deemed "willful" unless done, or omitted to be
done, by the Executive without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company, Limited and its
subsidiaries and affiliates. For purposes of this Agreement, "disability" shall
mean the Executive's incapacity due to physical or mental illness which has
caused the Executive to be absent from the full-time performance of his duties
with Limited for a period of six (6) consecutive months if Limited shall have
given the Executive a Notice of Termination and, within thirty (30) days after
such Notice of Termination is given, the Executive shall not have returned to
the full-time performance of his duties. For purposes of this Agreement,
"retirement" shall mean termination of the Executive's employment in accordance
with the retirement policies of Limited, not including early retirement,
generally applicable to its salaried employees, as in effect immediately prior
to the Change in Control, or in accordance with any retirement arrangement
established with respect to the Executive with the Executive's express written
consent;
(b) termination by the Executive of the Executive's employment with Limited
for Good Reason. Good Reason shall mean the occurrence of any of the following
events:
(i) a substantial adverse change, not consented to by the Executive, in
the nature or scope of the Executive's responsibilities, authorities, powers,
functions or duties from the responsibilities, authorities, powers, functions or
duties exercised by the Executive immediately prior to the Change in Control; or
(ii) a reduction in the Executive's annual base salary as in effect on
the date hereof or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all or substantially all
management employees; or
(iii) the relocation of Limited's offices at which the Executive is
principally employed immediately prior to the date of a Change in Control to a
location more than fifty (50) miles from such offices, or the requirement by
Limited for the Executive to be based anywhere other than Limited's offices at
such location, except for required travel on Limited's business to an extent
substantially consistent with the Executive's business travel obligations
immediately prior to the Change in Control; or
(iv) the failure by Limited to pay to the Executive any portion of his
compensation or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of Limited within
fifteen (15) days of the date such compensation is due without prior written
consent of the Executive; or
(v) the failure by the Company or Limited to obtain an effective
agreement from any successor to assume and agree to perform this Agreement.
4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within
twenty four (24) months after a Change in Control,
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(a) Limited shall pay to the Executive an amount equal to two (2) times the
"base amount" (as such term is defined in Section 280G(b)(3) of the United
States Internal Revenue Code of 1986, as amended (the "Code")) applicable to the
Executive (the "Base Amount"), payable in one lump-sum payment. Said amount
shall be paid no later than thirty-one (31) days following the Date of
Termination (as such term is defined in Section 7(b)); and
(b) Limited shall pay to the Executive all reasonable legal and arbitration
fees and expenses incurred by the Executive in successfully obtaining or
enforcing any right or benefit provided by this Agreement.
5. TERM. This Agreement shall take effect on the date first set forth above
and shall terminate upon the earlier of (a) the termination by Limited of the
employment of the Executive because of (A) a willful act of dishonesty by the
Executive with respect to any matter involving the Company, Limited or any
subsidiary or affiliate, or (B) conviction of the Executive of a crime involving
moral turpitude, or (C) the gross or willful failure by the Executive to
substantially perform the Executive's duties with Limited, or (D) the failure by
the Executive to perform his full-time duties with Limited by reason of his
death, disability (as defined in Section 3(a)) or retirement (as defined in
Section 3(a)), (b) the resignation or termination of the Executive for any
reason prior to a Change in Control, or (c) the resignation of the Executive
after a Change in Control for any reason other than the occurrence of any of the
events enumerated in Section 3(b)(i)-(v) of this Agreement.
6. WITHHOLDING. All payments made by Limited under this Agreement shall be
made after deduction of any tax or other amounts required to be withheld by
Limited under applicable law.
7. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC.
(a) NOTICE OF TERMINATION. After a Change in Control and during the term of
this Agreement, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with this Section
7. For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and the Date of Termination. Further, a Notice of Termination pursuant to
one or more of clauses (A) through (C) of Section 3(a) hereof is required to
include a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds (2/3) of the entire membership of the Board of Directors of
Limited at a meeting of the Board (after reasonable notice to the Executive and
an opportunity for the Executive, accompanied by the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board of
Directors of Limited, the termination met the criteria set forth in one or more
of clauses (A) through (C) of Section 3(a) hereof.
(b) DATE OF TERMINATION. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of
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this Agreement, shall mean (i) if the Executive's employment is terminated for
disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period) and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination. In the case of a termination by Limited other than a
termination pursuant to one or more of clauses (A) through (C) of Section 3(a)
(which may be effective immediately), the Date of Termination shall not be less
than thirty (30) days after the Notice of Termination is given. In the case of a
termination by the Executive, the Date of Termination shall not be less than
fifteen (15) days from the date such Notice of Termination is given.
Notwithstanding Section 3(a) of this Agreement, in the event that the Executive
gives a Notice of Termination to Limited, Limited may unilaterally accelerate
the Date of Termination and such acceleration shall not result in a Terminating
Event for purposes of Section 3(a) of this Agreement.
(c) NO MITIGATION. Limited agrees that, if the Executive's employment by
Limited is terminated during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by Limited pursuant to Section 4(a) and (b) hereof.
Further, the amount of any payment provided for in this Agreement shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company or Limited or otherwise.
(d) SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
subject to the non-exclusive jurisdiction of the High Court of Justice in
England and Wales.
8. ASSIGNMENT; PRIOR AGREEMENTS. No party hereto may make any assignment of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other parties, and without such consent any
attempted transfer shall be null and void and of no effect. This Agreement shall
inure to the benefit of and be binding upon the Company, Limited and the
Executive, their respective successors, executors, administrators, heirs and
permitted assigns. In the event of the Executive's death after a Terminating
Event but prior to the completion by Limited of all payments due him under
Section 4(a) and (b) of this Agreement, Limited shall continue such payments to
the Executive's beneficiary designated in writing to Limited prior to his death
(or to his estate, if the Executive fails to make such designation).
9. ENFORCEABILITY. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
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10. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
11. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with Limited,
to the Company at its main office, attention of the Board of Directors, or to
Limited at its main office, attention of the Board of Directors.
12. EFFECT ON OTHER PLANS. An election by the Executive to resign after a
Change in Control under the provisions of this Agreement shall not be deemed a
voluntary termination of employment by the Executive for the purpose of
interpreting the provisions of any of the benefit plans, programs or policies of
the Company or Limited. Nothing in this Agreement shall be construed to limit
the rights of the Executive under the benefit plans, programs or policies of the
Company or Limited except that the Executive shall have no rights to any
severance benefits under any severance pay plan.
13. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
each of the Company and Limited.
14. GOVERNING LAW. This contract shall be construed under and be governed
in all respects by the laws of England and Wales.
15. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by
law upon any successor to the Company or Limited, the Company or Limited, as the
case may be, will use its best efforts to require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of its business or assets to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company or Limited, as the case may be, would be required to perform if no such
succession had taken place.
16. CONFIDENTIAL INFORMATION. The Executive shall never use, publish or
disclose in a manner adverse to the interests of the Company or Limited, any
proprietary or confidential information relating to (a) the business, operations
or properties of the Company, Limited or any subsidiary or other affiliate of
the Company or Limited, or (b) any materials, processes, business practices,
technology, know-how, research, programs, customer lists, customer requirements
or other information used in the manufacture, sale or marketing of any of the
respective products or services of the Company, Limited or any subsidiary or
other affiliate of the Company or Limited; provided, however, that no breach or
alleged breach of this Section 16 shall entitle the Company or Limited to fail
to comply fully and in a timely manner
6
<PAGE> 7
with any other provision hereof. Nothing in this Agreement shall preclude the
Company or Limited from seeking money damages, or equitable relief by injunction
or otherwise without the necessity of proving actual damage to the Company or
Limited, for any breach by the Executive hereunder.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Limited by their duly authorized officers, and by the Executive, as of the date
first above written.
INSTRON CORPORATION
By: /s/ James M. McConnell
---------------------------------
Name: James M. McConnell
Title: President and CEO
INSTRON LIMITED
By: /s/ Norman Allenby-Smith
---------------------------------
Name: Norman Allenby-Smith
Title: Director
[Signed by Executive]
--------------------------------
[Name of Executive]
7
<PAGE> 8
SCHEDULE
to
Exhibit 10(m)
NAME OF EXECUTIVE EFFECTIVE DATE
Catherine Calow December 1, 1997
Steven M. Webb December 8, 1997
8
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
All of the subsidiaries listed below are included in the consolidated financial
statements.
PERCENTAGE OF ORGANIZED
VOTING SECURITIES UNDER THE
INCORPORATED OWNED BY REGISTRANT LAWS OF
- ------------------------------------------------------------------------------
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 (2)
Instron Singapore Pte Limited 100% Singapore (1)
Instron Holdings, Ltd. 100% United Kingdom (1)
Laboratory MicroSystems, Inc. 100% Massachusetts (1)
Instron Wolpert GmbH 100% Germany (2)
Instron Korea Co. Ltd. 100% Korea (1)
Instron Schenck Testing Systems 51% Delaware(3)
Instron Schenck Testing Systems-GmbH 51% Germany(3)
(1) Subsidiaries of Instron Corporation (a Massachusetts corporation).
(2) Subsidiaries of Instron Holdings Limited (United Kingdom).
(3) Formed as part of the joint venture agreement with Carl Schenck A.G. of
Darmstadt, Germany, and accounted for under the equity method of accounting
in the Company's financial statements.
43
<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
and 33-48287) of our reports dated February 24, 1998, on our audit of the
consolidated financial statements and related financial statement schedule of
Instron Corporation as of December 31, 1997, and 1996, and for each of the three
years in the period ended December 31, 1997 which reports are included in this
Annual Report on Form 10-K.
/S/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 31, 1998
44
<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, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<EXCHANGE-RATE> 1
<CASH> 2,566
<SECURITIES> 0
<RECEIVABLES> 48,226
<ALLOWANCES> 1,071
<INVENTORY> 24,024
<CURRENT-ASSETS> 81,897
<PP&E> 61,423
<DEPRECIATION> 40,216
<TOTAL-ASSETS> 118,985
<CURRENT-LIABILITIES> 39,955
<BONDS> 0
0
0
<COMMON> 6,824
<OTHER-SE> 59,430
<TOTAL-LIABILITY-AND-EQUITY> 118,985
<SALES> 129,679
<TOTAL-REVENUES> 155,660
<CGS> 74,126
<TOTAL-COSTS> 91,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 1,465
<INCOME-PRETAX> 11,555
<INCOME-TAX> 4,391
<INCOME-CONTINUING> 7,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,164
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.05
</TABLE>
<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>
<RESTATED>
<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> .72
<EPS-DILUTED> .70
</TABLE>
<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 YEAR ENDED DECEMBER 31, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,644
<SECURITIES> 0
<RECEIVABLES> 47,504
<ALLOWANCES> 1,040
<INVENTORY> 24,337
<CURRENT-ASSETS> 79,864
<PP&E> 56,326
<DEPRECIATION> 34,517
<TOTAL-ASSETS> 113,334
<CURRENT-LIABILITIES> 41,605
<BONDS> 0
6,415
0
<COMMON> 0
<OTHER-SE> 49,687
<TOTAL-LIABILITY-AND-EQUITY> 113,334
<SALES> 128,018
<TOTAL-REVENUES> 150,571
<CGS> 72,155
<TOTAL-COSTS> 88,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 163
<INTEREST-EXPENSE> 1,423
<INCOME-PRETAX> 7,684
<INCOME-TAX> 2,689
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,995
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
