<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 3, 1999
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-5641
INSTRON CORPORATION
(Exact name of registrant as specified in its Charter)
Massachusetts 04-2057203
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
100 Royall Street
Canton, Massachusetts 02021
(Address of Principal executive offices) (Zip Code)
(781) 828-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock as of May 14, 1999.
Common Stock, $1 par value - 6,978,448 shares
<PAGE> 2
FORM 10-Q
PART I
ITEM I
INSTRON CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended
------------------------------
April 3, 1999 March 28, 1998
------------------------------
Revenue:
Sales $ 40,377 $ 27,504
Service 8,368 6,365
----------- -----------
Total revenue 48,745 33,869
----------- -----------
Cost of revenue:
Sales 23,026 15,603
Service 5,828 4,524
----------- -----------
Total cost of revenue 28,854 20,127
----------- -----------
Gross Profit 19,891 13,742
----------- -----------
Operating expenses:
Selling and administrative 14,489 10,061
Research and development 2,708 1,449
Special items charge -- 4,975
----------- -----------
Total operating expenses 17,197 16,485
----------- -----------
Income (loss) from operations 2,694 (2,743)
----------- -----------
Other (income) expense:
Interest, net 144 74
Foreign exchange (gains) losses (19) 100
Gain on sale of land -- (11,076)
----------- -----------
Total other (income) expense 125 (10,902)
----------- -----------
Income before income taxes 2,569 8,159
Provision for income taxes 976 4,248
----------- -----------
Net income $ 1,593 $ 3,911
=========== ===========
Weighted average number of basic common shares 6,744,776 6,482,371
=========== ===========
Earnings per share - basic $ 0.24 $ .60
=========== ===========
Weighted average number of diluted common shares 7,096,126 7,060,171
=========== ===========
Earnings per share - diluted $ 0.22 $ 0.55
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE> 3
10-Q
PART I
ITEM I
INSTRON CORPORATION FORM
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
APRIL 3, 1999 DECEMBER 31,1998
------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,554 $ 7,209
Accounts receivable (net of allowance for
doubtful accounts of $748 in 1999 and
$800 in 1998) 54,041 65,766
Inventories 39,603 36,121
Deferred income taxes 2,956 3,060
Prepaid expenses and other current assets 2,974 2,223
--------- ---------
Total current assets 110,128 114,379
Property, plant and equipment, net 23,781 24,001
Goodwill 11,998 12,384
Deferred income taxes 925 904
Other assets 6,036 6,586
--------- ---------
Total assets $ 152,868 $ 158,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Short term borrowings $ 7,549 $ 6,416
Accounts payable 13,982 15,807
Accrued liabilities 22,146 22,958
Accrued employee compensation and benefits 5,251 6,798
Accrued income taxes 1,026 93
Advance payments received on contracts 10,104 7,066
--------- ---------
Total current liabilities 60,058 59,138
Long-term debt 6,878 13,216
Pension and other long-term liabilities 6,573 6,316
--------- ---------
Total liabilities 73,509 78,670
--------- ---------
Commitments and Contingencies -- --
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock, $1 par value; 10,000,000 shares
Authorized; 7,065,100 and 7,051,968 shares
issued, respectively 7,065 7,052
Additional paid-in capital 8,855 8,727
Deferred compensation (2,540) (2,662)
Retained earnings 73,821 72,496
Accumulated other comprehensive loss (6,512) (4,699)
--------- ---------
80,689 80,914
Less: Treasury stock of 108,262 shares at cost 1,330 1,330
--------- ---------
Total stockholders' equity 79,359 79,584
--------- ---------
Total liabilities and stockholders' equity $ 152,868 $ 158,254
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
10-Q
PART I
ITEM 1
INSTRON CORPORATION FORM
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 3, 1999 March 28, 1998
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,593 $ 3,911
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Gain on the sale of property, plant and
equipment (11) (11,082)
Depreciation and amortization 2,152 1,649
Provision for losses on accounts receivable 11 8
Deferred taxes 28 (36)
Decrease in accounts receivable 10,717 654
Increase in inventories (3,957) (6,211)
(Increase) decrease in prepaid expenses and
other current assets (775) 281
Increase in accounts payable and accrued
expenses 481 5,622
Other 240 2,256
-------- --------
Net cash provided (used) by operating
activities 10,479 (2,948)
-------- --------
Cash flows from investing activities:
Proceeds from the sale of property,
plant and equipment 20 13,620
Capital expenditures (1,475) (2,039)
Capitalized software costs (587) (275)
Other 99 24
-------- --------
Net cash provided (used) by investing
activities (1,943) 11,330
-------- --------
Cash flows from financing activities:
Net payments under revolving credit and
term loan facility (6,136) (7,000)
Net short-term debt proceeds (payments) 1,336 (1,502)
Cash dividends paid (268) (261)
Proceeds from stock option exercises 140 280
-------- --------
Net cash used by financing activities (4,928) (8,483)
-------- --------
Effect of exchange rate changes on cash (263) 9
-------- --------
Net decrease in cash and cash equivalents 3,345 (92)
Cash and cash equivalents at beginning of year 7,209 2,566
-------- --------
Cash and cash equivalents at end of period $ 10,554 $ 2,474
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 332 $ 320
Income taxes 464 110
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
FORM 10-Q
PART I
ITEM I
INSTRON CORPORATION
Consolidated Statement of Comprehensive Income
(Unaudited)
(In Thousands)
Three Months Ended
-------------------------------
April 3, 1999 March 28, 1998
-------------------------------
Net income $ 1,593 $3,919
Other comprehensive income (loss):
Foreign currency translation adjustments (1,813) 688
------- ------
Comprehensive income (loss) $ (220) $4,607
======= ======
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual
report on Form 10-K for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that effect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended April 3, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income
by the weighted average number of common shares, plus the dilutive
effect of common share equivalents outstanding using the "treasury
stock method."
6
<PAGE> 7
FORM 10-Q
PART I
ITEM 1
INSTRON CORPORATION
Notes to Consolidated Financial Statements
April 3, 1999
(unaudited)
The following is a reconciliation of the basic and diluted EPS calculations:
APRIL 3, 1999 MARCH 28, 1998
------------- --------------
Net income $1,593,000 $3,911,000
========== ==========
Weighted average number of basic common
shares outstanding 6,744,776 6,482,371
Dilutive effect of common stock
equivalents outstanding 351,350 577,800
---------- ----------
Weighted average of common and
dilutive shares 7,096,126 7,060,171
========== ==========
Basic earnings per share $ 0.24 $ .60
========== ==========
Diluted earnings per share $ 0.22 $ .55
========== ==========
3. INVENTORIES
--------------
(In thousands) APRIL 3, 1999 DECEMBER 31, 1998
------------- -----------------
Raw materials $14,181 $13,257
Work-in-process 18,169 16,560
Finished goods 7,253 6,304
------- -------
$39,603 $36,121
======= =======
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
certain inventories in the United States and certain Asian branches. The
Company uses the first-in, first-out (FIFO) method for all other
inventories. Inventories valued at LIFO amounted to $9,457,000 and
$9,056,000 at April 3, 1999 and December 31, 1998, respectively. The excess
of current cost over stated LIFO value was $5,374,000 at April 3, 1999 and
$5,205,000 at December 31, 1998.
7
<PAGE> 8
FORM 10-Q
PART I
ITEM 1
INSTRON CORPORATION
Notes to Consolidated Financial Statements
April 3, 1999
(unaudited)
4. SPECIAL ITEMS CHARGE
During the first quarter of 1998 the Company recorded a special items
charge to operations to undertake a consolidation of its European
operations and write-down the value of certain non-performing assets.
A pre-tax charge of $5.0 million was taken in the quarter ended March
28, 1998 to cover these actions. The special items charge includes
termination benefits, the costs to exit a manufacturing facility,
other asset impairments and other related costs. The Company closed
down a manufacturing plant in Germany, relocated sales and service
support personnel to another location in Germany and moved the
manufacturing operation to the United Kingdom. During fiscal year 1998
and the first quarter of 1999, the Company has paid $1.4 million for
termination benefits and related costs and $1.7 million for the costs
to shut down and exit a manufacturing facility in Germany. In
addition, the Company wrote-off $1.0 million of non-performing assets
in 1998 primarily relating to its interest in Lightspeed Simulation
Systems. The balance of the Special Items reserve relates primarily to
the Company's obligation under a long-term lease agreement in Germany
expected to be paid through September 2001, partially offset by
estimated income under a sublease agreement.
5. SALE OF LAND
On March 27, 1998, the Company completed the sale of 42 acres of its
66 acre site off Route 128 in Canton, Massachusetts for $13.5 million.
As a result of this transaction, a non-operating pre-tax gain of $11.1
million was recorded in the first quarter of 1998.
8
<PAGE> 9
FORM 10-Q
PART I
ITEM 1
INSTRON CORPORATION
Notes to Consolidated Financial Statements
April 3, 1999
(unaudited)
6. SUBSEQUENT EVENT
On May 7, 1999, the Company announced the signing of a definitive
merger agreement with Kirtland Capital Partners (KCP), which would
give effect to a recapitalization of the Company. This
recapitalization would be accomplished through the merger of ISN
Acquisition Corporation, a wholly owned subsidiary organized by
Kirtland Capital Partners III LP, with and into the Company, with the
Company continuing as the surviving corporation. Each share of the
Company's common stock outstanding at the effective time of the merger
will be converted into the right to receive $22 per share payable in
cash. In addition, certain members of management of the Company, as
well as the Company's two founding shareholders, will maintain an
equity interest in the Company following the closing.
Under the terms of the Merger Agreement, the Company has agreed not to
pay any dividends on its common stock prior to the closing of the
transaction. The closing of the transaction is subject to the
satisfaction of various conditions, including approval by the
Company's shareholders and the receipt of certain regulatory
approvals. The transaction is expected to close during the third
quarter of 1999.
9
<PAGE> 10
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 3, 1999 VS. QUARTER ENDED MARCH 28, 1998
Revenues for the first quarter of 1999 were $48,745,000 an increase of 43.9%
over the same period last year, due primarily to the inclusion of Satec and IST
products and services. Satec was acquired in August 1998 and the buyout of the
remaining 49% of the IST joint venture was completed in September 1998. Foreign
sales accounted for approximately 57% of consolidated first quarter revenues
compared with 61% for the first quarter of 1998.
The consolidated gross margin as a percentage of revenue increased slightly to
40.8% for the first quarter of 1999 compared to 40.6% for the first quarter of
1998.
Total selling and administrative expenses increased by 44.0% over the first
quarter of 1998 due primarily to the inclusion of Satec and IST in 1999. As a
percentage of revenue, selling and administrative expenses were unchanged year
over year at 29.7%.
Research and development expenses increased by 86.9% for the first quarter of
1999 compared with the first quarter of 1998. This increase is primarily due to
the inclusion of Satec and IST in 1999. In addition, software development costs
of $587,000 were capitalized during the first quarter of 1999 compared with
$275,000 in the first quarter of last year. On a pro forma basis, as if Satec
and IST were wholly owned in 1998, and software development costs were reported
as period expenses, research and development expenses would have increased by
20.0% in 1999.
Operating expenses in the first quarter of 1998 included a special items charge
of $4,975,000, for the cost of consolidating European operations and to
write-down the value of certain non-performing assets. The special items charge
includes termination benefits, the costs to exit a manufacturing facility, asset
impairments and other related costs. The Company has shut down a manufacturing
plant in Germany and moved the manufacturing operation to the United Kingdom.
During fiscal year 1998 and the first quarter of 1999, the Company has paid $1.4
million for termination benefits and related costs and $1.7 million for the
costs to shut down and exit a manufacturing facility in Germany. In addition,
the Company wrote-off $1.0 million of non-performing assets in 1998, primarily
relating to its interest in Lightspeed Simulation Systems. The balance of the
Special Items reserve relates primarily to the Company's obligation under a
long-term lease agreement in Germany expected to be paid through September 2001,
partially offset by estimated income under a sublease agreement.
10
<PAGE> 11
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS (CONTINUED)
Net interest expense increased to $144,000 compared to $74,000 in the first
quarter of 1998. The net increase was due to an increase in interest expense
resulting from higher average borrowings (related to the purchase of Satec and
IST) and to lower interest income received on notes receivable and temporary
bank deposits.
A non-operating gain of $11,076,000 was recorded in the first quarter of 1998 on
the sale of excess land in Canton, Massachusetts.
Net income for the first quarter of 1999 was $1,593,000, or 22 cents per diluted
share, compared to net income of $3,911,000, or 55 cents per diluted share, for
the same period last year. For comparison purposes, when the after-tax effect of
the gain on sale of land and the special items charge are excluded, net income
of the ongoing business was $1,276,000 or 18 cents per diluted share in the
first quarter of 1998.
The consolidated effective tax rate was 38% for the first quarter of 1999
compared to 52% in 1998. The higher tax rate in 1998 was due to certain
non-deductible expenses relating to the special items charge. Excluding the
effect of the special items charge, the ongoing effective tax rate was 38% for
the first quarter of 1998.
FINANCIAL CONDITION
In the first quarter of 1999, the Company generated cash flows from operating
activities of $10.5 million due substantially to a $10.7 million decrease in
accounts receivable. These funds were used to pay down bank borrowings of $4.8
million, fund capital expenditures of $1.5 million and software development
costs of $0.6 million.
At April 3, 1999, the Company had $28.1 million of available credit under its
$35.0 million multicurrency revolving credit and term loan facility. The
Company's subsidiaries have other overdraft and borrowing facilities totaling
approximately $32.0 million of which $7.5 million were outstanding at April 3,
1999. The ratio of total debt to debt plus equity at April 3, 1999, decreased to
15.4% from 19.8% at year-end 1998.
11
<PAGE> 12
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION (CONTINUED)
The Company believes its present capital resources and anticipated operating
cash flows are sufficient to meet its current and future cash requirements to
finance operations, capital expenditures and acquisitions.
Bookings for the first quarter of 1999 increased by 23.8% over the same period
last year. This increase is due primarily to the inclusion of IST and Satec,
partially offset by lower bookings of the Company's core business in North
America and certain European countries.
The Company's order backlog was $65.4 million at the end of the first quarter of
1999, compared to $32.0 million for the first quarter of 1998 and compared to
$74.5 million at year-end 1998.
On February 24, 1999, the Board of Directors declared a regular quarterly
dividend of 4 cents per share on the Company's Common Stock, payable April 5,
1999, to shareholders of record on March 19, 1999.
On May 7, 1999, the Company announced the signing of a definitive merger
agreement with Kirtland Capital Partners (KCP), which would give effect to a
recapitalization of the Company. This recapitalization would be accomplished
through the merger of ISN Acquisition Corporation, a wholly owned subsidiary
organized by Kirtland Capital Partners III LP, with and into the Company, with
the Company continuing as the surviving corporation. Each share of the Company's
common stock outstanding at the effective time of the merger will be converted
into the right to receive $22 per share payable in cash. In addition, certain
members of management of the Company, as well as the Company's two founding
shareholders, will maintain an equity interest in the Company following the
closing.
Under the terms of the Merger Agreement, the Company has agreed not to pay any
dividends on its common stock prior to the closing of the transaction. The
closing of the transaction is subject to the satisfaction of various conditions,
including approval by the Company's shareholders and the receipt of certain
regulatory approvals. The transaction is expected to close during the third
quarter of 1999.
Euro Currency Issue. On January 1, 1999, eleven of the fifteen member countries
of the European Union established fixed conversion rates between their existing
currencies ("legacy currencies") and one common currency - the euro. The euro
now trades on currency exchanges and may be used in business transactions.
Beginning in January 2002, new euro-denominated bills and coins will be issued,
and legacy currencies will be withdrawn from circulation. The Company's
operating subsidiaries affected by the euro conversion have established plans to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, (1) the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions; and
(2) the competitive impact of cross-border price transparency, which may make it
more difficult for businesses to charge different prices for the same products
on a country-by-country basis, particularly once the euro currency is issued in
2002. The Company anticipates that the euro conversion will not have a material
adverse impact on its financial condition or results of operations.
12
<PAGE> 13
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION (CONTINUED)
Year 2000 Information and Readiness Disclosure Act. Instron supports the
exchange of information relating to the Year 2000 issue and designates the
information following below as the Year 2000 Readiness Disclosure within the
meaning of the Year 2000 Information and Readiness Disclosure Act. Information
set forth herein regarding the Year 2000 compliance of non-Instron products and
services are "republications" under the Year 2000 Information and Readiness
Disclosure Act and are based on information supplied by other companies about
the products and services they offer. Instron has not independently verified the
contents of these republications and takes no responsibility for the accuracy or
completeness of information contained in such republications.
Year 2000 Issue Readiness Disclosure. The term "Year 2000 issue" is a general
term used to describe various business-related problems that may result from the
improper processing by computer systems of dates after 1999. The Year 2000 issue
affects virtually all companies and all organizations. The Company has
identified its Year 2000 non-compliance risks in four categories: (i) internal
business systems, (ii) internal electronic equipment and embedded chip
technology, (iii) external non-compliance by the Company's suppliers, and (iv)
software systems products supplied by the Company to its customers.
Internal Business Systems: - The Company has an active, ongoing program to
insure that its business systems will be Year 2000 compliant. Instron began this
program to identify and correct Year 2000 issues in 1996. In accordance with
this program, the Company is following a four step process to address the Year
2000 Issue. The first stage consisted of auditing the major business systems and
telecommunication switches. This stage identified a couple of minor issues but
due to the installation of a new ERP system in 1996 at our two primary
manufacturing sites, the exposure is minimal and is expected to be corrected by
July 1999. The second stage, begun in September 1997, is an audit
13
<PAGE> 14
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION (CONTINUED)
of all departmental systems and network operating systems. This audit has been
completed and formed the basis for the third stage which identifies the
corrective actions required and outlines the necessary plan of action. The final
stage, which has started, will include the implementation and testing of all
required modifications.
Accordingly, the Company is confident that its major internal business systems
will be made Year 2000 compliant in a timely manner and in any event no later
than July 1999. The Company anticipates making capital expenditures of
approximately $500,000 in 1999 to upgrade computing, networking and
telecommunications systems as part of the plan to address the Year 2000 issue.
Although the costs associated with identifying and implementing the necessary
plan of action are not expected to be material to the Company's financial
position, there can be no assurance to this effect.
The Company has initiated an audit of the business systems of the two recent
acquisitions, Satec and IST. So far, there has been no indication of any major
Year 2000 issue that cannot be resolved in a timely manner.
Internal Electronic Equipment and Embedded Chip Technology: - The audit process
has identified certain telecommunication equipment that needs to be upgraded to
address the Year 2000 issue. The Company plans to replace this equipment by
August 1999 and is currently reviewing such office and facilities equipment as
machine tools, photocopiers, security systems and other systems which may be
impacted by the Year 2000 issue. The Company estimates that the total cost of
completing any modifications, upgrades or replacements of this equipment will
not have a material adverse effect on the Company's business or results of
operations. This estimate is being monitored and will be revised as additional
information becomes available.
14
<PAGE> 15
FORM 10-Q
PART I
ITEM 2
INSTRON CORPORATION
APRIL 3, 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION (CONTINUED)
Suppliers: - The Company has started a communication program with key suppliers
of computers, equipment, parts and material used, operated and maintained by the
Company. This program is intended to identify and, to the extent possible, to
resolve issues with suppliers involving the Year 2000 problem. However, the
Company has limited or no control over the actions of these third party
suppliers. Any failure of these suppliers to resolve Year 2000 issues with their
systems in a timely manner could have a material adverse effect upon the
Company's business, financial condition and results of operation.
Company Supplied Systems and Software to Customers: - The Company believes that
it has substantially identified and resolved all potential Year 2000 Issues with
all of the software products that it is currently developing and marketing.
Existing software on installed machines may not be Year 2000 compliant and
communication programs have been initiated to advise customers on how to upgrade
or replace their existing systems. Management believes that it is not possible
to determine with complete certainty that all Year 2000 issues affecting the
Company's products have been identified due to the complexity of these systems
and the fact that these products interact with other third party vendor products
and operate on computer systems which are not under the Company's control. Any
such failures to identify or remediate Year 2000 problems affecting the
Company's systems and software products could have a material adverse effect
upon the Company's business, financial conditions and results of operations.
The information presented above sets forth the key steps taken by the Company to
address the Year 2000 Issue. There can be no absolute assurance that the Company
has identified all the issues, can resolve them in a timely manner and that
there will be no failures or disruptions to operations which could result in a
material adverse effect upon the company's business, financial condition,
results of operations, and business prospects.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION (CONTINUED)
Contingency Plans. The Company intends to develop contingency plans for
significant business risks identified by the Company that might result from Year
2000 related events. Because the Company has not yet identified any specific
business function that will be materially at risk of significant Year 2000
related disruptions, and because a full assessment of the Company's risk from
potential Year 2000 failures is still in process, the Company has not yet
developed detailed contingency plans specific to Year 2000 problems. In the
event that the Company concludes that one or more contingency plans are
required, development of such contingency plans is currently scheduled to occur
no later than September 1999, or as otherwise appropriate.
This Form 10-Q Report contains certain "forward-looking" statements within the
meaning of the federal securities laws and are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such statements are only predictions and speak only
as of the date of this report. No assurances can be given that actual results
will not differ materially from those projected in the forward-looking
statements contained in this Form 10-Q report.
Certain factors that might cause such a difference include: the closing
and timing of the proposed merger with an affiliate of Kirtland Capital
Partners; the level of bookings worldwide for Instron including the structures
business of IST; the operating results of IST; the impact of fluctuations in the
exchange rates; the uncertainties of operating in a global economy, particularly
in Asia, including fluctuations in the economic conditions of the foreign and
domestic markets served by the Company; the Company's ability to successfully
integrate the products and operations of Satec; the impact of the Year 2000
issue; and the Company's ability to identify and successfully consummate
strategic acquisitions. For further discussion of the factors, investors are
encouraged to review the Company's Form 10-K for the fiscal year ended December
31, 1998 and its other recent SEC filings.
16
<PAGE> 17
FORM 10-Q
PART II
ITEM 2
INSTRON CORPORATION
April 3, 1999
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor any of its subsidiaries is a party to, nor is any of
their property the subject of, any material pending legal proceedings.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1999 Annual Meeting of Stockholders of the Registrant held on May 12,
1999, the two directors nominated by management, as listed in the Registrant's
proxy statement, were elected. At the Annual Meeting, these two nominees
received the following votes: George S. Burr: 5,561,584, For, 154,266 Withheld;
John W. Lacey: 5,476,303 For, 239,547 Withheld. There were no abstentions or
broker nonvotes with respect to the election of directors at the Annual Meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None
b. REPORTS ON FORM 8-K
On May 11, 1999, the Company announced it had entered into an
Agreement and Plan of Merger with Kirtland Capital Partners
III L.P. (Kirtland) and ISN Acquisition Corporation, a
corporation newly formed by Kirtland pursuant to which
Kirtland and certain affiliates, together with members of the
Company's management and certain members of the Company's
Board of Directors, who are also stockholders, will acquire
the Company.
17
<PAGE> 18
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSTRON CORPORATION
Date: May 18, 1999 By /s/ James M. McConnell
------------------------------------
James M. McConnell
President and Chief Executive Officer
Date: May 18, 1999 By /s/ Linton A. Moulding
-------------------------------------
Linton A. Moulding
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q FOR THE PERIOD ENDED APRIL 3, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 10,554
<SECURITIES> 0
<RECEIVABLES> 54,401
<ALLOWANCES> 748
<INVENTORY> 39,603
<CURRENT-ASSETS> 110,128
<PP&E> 66,611
<DEPRECIATION> 42,830
<TOTAL-ASSETS> 152,868
<CURRENT-LIABILITIES> 60,058
<BONDS> 0
0
0
<COMMON> 7,065
<OTHER-SE> 72,294
<TOTAL-LIABILITY-AND-EQUITY> 79,359
<SALES> 40,377
<TOTAL-REVENUES> 48,745
<CGS> 23,026
<TOTAL-COSTS> 28,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 2,569
<INCOME-TAX> 976
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,593
<EPS-PRIMARY> .24
<EPS-DILUTED> .22
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