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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994
Commission File No. 1-5562
KOLLMORGEN CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-2151861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 Trapelo Road, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 890-5655
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 11, 1994
Common Stock, $2.50 par value 9,646,616 shares
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KOLLMORGEN CORPORATION
INDEX
Page No.
PART I - Financial Information
Consolidated Statements of Operations for 3
the Three Months and Nine Months Ended
September 30, 1994 and 1993 (unaudited)
Consolidated Balance Sheets as of 4
September 30, 1994 (unaudited) and
December 31, 1993
Consolidated Statements of Cash Flows 5-6
for the Nine Months Ended
September 30, 1994 and 1993 (unaudited)
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
PART II - Other Information 11
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<TABLE>
PART I - FINANCIAL INFORMATION
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(unaudited)
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1994 1993 1994 1993
--------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 46,396 $ 46,844 $140,333 $140,568
Cost of sales 30,791 30,483 92,026 93,086
--------- ------------------ ---------
Gross profit 15,605 16,361 48,307 47,482
--------- ------------------ ---------
Selling and marketing expense 6,719 6,019 19,673 18,302
General and administrative expense 5,388 5,484 15,938 16,574
Research and development expense 2,451 2,281 7,775 7,212
--------- ------------------ ---------
Income before interest and taxes 1,047 2,577 4,921 5,394
--------- ------------------ ---------
Interest and other (income) expense:
Interest expense, net 915 890 2,799 3,123
Other (43) 15 (59) 24
--------- ------------------ ---------
Income before income taxes 175 1,672 2,181 2,247
Provision for income taxes - - - -
--------- ------------------ ---------
Net income $ 175 $ 1,672 $ 2,181 $ 2,247
========= ================== =========
Earnings (loss) per common share $ (0.04) $ 0.11 $ .05 $ 0.05
========= ================== =========
Number of shares used in calculating
earnings (loss) per common share 9,640,000 9,633,0009,640,000 9,633,000
========= ================== =========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
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<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
ASSETS
September 30,
1994 December 31,
(unaudited) 1993
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,741 $ 17,682
Restricted cash 8,000 6,720
Accounts receivable 35,621 33,744
Recoverable amounts on long-term contracts 8,656 5,834
Inventories 23,039 22,018
Prepaid expenses 3,756 3,564
--------- ---------
Total current assets 86,813 89,562
--------- ---------
Property, plant and equipment, net 30,787 30,461
Net assets held for sale 3,000 3,000
Goodwill 6,269 1,636
Other assets 9,639 9,349
--------- ---------
$ 136,508 $ 134,008
========= =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 9,975 $ 5,532
Current portion of long-term debt 3,949 3,872
Accounts payable 16,597 16,341
Accrued liabilities 31,720 32,561
--------- ---------
Total current liabilities 62,241 58,306
--------- ---------
Long-term debt 40,465 44,120
Other liabilities 2,061 1,590
Redeemable preferred stock 22,511 22,407
Common shareholders' equity:
Common stock 26,878 26,875
Additional paid-in capital 21,117 23,447
Accumulated deficit (27,985) (30,166)
Cumulative translation adjustments (881) (2,624)
Less common stock in treasury, at cost (9,899) (9,947)
--------- ---------
Total common shareholders' equity 9,230 7,585
--------- ---------
$ 136,508 $ 134,008
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<CAPTION>
For the
Nine Months Ended
September 30,
------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income from operations $ 2,181 $ 2,247
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,227 5,241
Changes in assets and liabilities:
Restricted cash (1,280) (423)
Accounts and notes receivable 603 2,109
Recoverable amounts on long-term contracts (2,822) 4,589
Inventories 707 1,903
Prepaid expenses (85) 227
Accounts payable and accrued liabilities (1,288) (8,543)
Deferred income taxes and other expenses 407 (11)
Other (803) 467
--------- ---------
Net cash provided by (used in) operations 2,847 7,806
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,397) (3,828)
Purchase of property held for sale - (4,263)
Acquisition of Hightech Components (749) -
Acquisition of certain assets of Sperry Marine (3,000) -
--------- ---------
Net cash provided by (used in) investing activities (7,146) (8,091)
--------- ---------
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Cash flows from financing activities:
Net borrowings (repayments) under credit lines 331 (2,774)
Issuance of common stock 11 34
Common stock issued from treasury 34 -
Principal repayments on capital lease (22) -
Retirement of long-term debt (3,765) (2,426)
Dividends (2,231) (2,230)
--------- ---------
Net cash provided by (used in) financing activities (5,642) (7,396)
--------- ---------
Net increase (decrease) in cash and cash equivalents (9,941) (7,681)
Cash and cash equivalents at beginning of period 17,682 23,463
--------- ---------
Cash and cash equivalents at end of period $ 7,741 $ 15,782
========= =========
Non-cash financing activities:
Mortgage assumed $ - $ 1,987
Acquisition of Hightech Components:
Fair value of assets acquired 1,539 -
Cash paid 749 -
--------- ---------
Note assumed 790 -
========= =========
Acquisition of assets of Sperry Marine:
Fair value of assets acquired 5,000 -
Cash paid 3,000 -
--------- ---------
Notes assumed 2,000 -
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
1. The accompanying unaudited consolidated financial statements include
the accounts of Kollmorgen Corporation and all of its majority owned
subsidiaries.
2. In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
Company's and its consolidated subsidiaries' financial condition at
September 30, 1994, and the results of operations for the three-month
and nine-month periods then ended and the cash flows for the nine-
month periods ended September 30, 1994, and September 30, 1993. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information.
3. Earnings (loss) per common share is based on net income less the
dividends and interest accretion on redeemable preferred stock
divided by the average number of common shares outstanding. Fully
diluted net income assumes full conversion of all convertible
securities into common stock which include the convertible
subordinated debentures and redeemable preferred stock. The fully
diluted calculation does not result in dilution of net income per
common share and, accordingly, is not presented (see Exhibit 11).
4. On September 1, 1994, the Electro-Optical Division in Northampton,
Massachusetts, purchased certain assets of the conventional optical
periscope business of Sperry Marine Inc. The purchase price was
$5 million of which $3 million was paid in cash and $2 million was
financed with promissory notes. This acquisition resulted in
$4.2 million of goodwill.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Kollmorgen's cash and cash equivalents decreased by $9.9 million
during the first nine months of 1994. Net income from operations and
depreciation and amortization provided $7.4 million in cash. Accounts
receivable and inventory provided a total of $1.3 million while the
recoverable amounts on long-term contracts and accrued liabilities and
accounts payable used a total of $4.1 million.
The Company's restricted cash balance increased $1.3 million to a
total of $8.0 million at September 30, 1994. In September, the Company's
standby letter of credit facility was amended to allow for a reduced level
of free cash necessary for collateral. This amendment stipulated that the
amount of cash necessary for collateral will be equal to 50% of the total
outstanding standby letters of credit to a maximum collateral amount of
$8 million. The total outstanding letters of credit at September 30,
1994, at the Company's lead bank was $15.9 million. (The Company is
currently negotiating the renewal of its one-year domestic standby letter
of credit facility with its lead bank.)
Investing activities accounted for $7.1 million in cash of which
$3.4 million was used to purchase fixed assets. In addition, certain
assets of the conventional optical periscope business of Sperry Marine
Inc. were purchased on September 1, 1994, for a total of $5 million of
which $3 million was paid in cash and $2 million was financed with
promissory notes. This acquisition resulted in $4.2 million of goodwill.
On April 8, 1994, the assets of Hightech Components, Ltd. were
purchased for $1.5 million of which $.7 million was paid in cash and
$.8 million was financed with an interest-bearing promissory note.
Hightech is a distributor of motion technology products and is located in
Hampshire, England.
Financing activities used $5.6 million in cash of which $2.2 million
was used for payment of dividends on both common and preferred stock. In
addition, $1.7 and $2 million, respectively, were used to make mandatory
sinking fund payments on the Company's 8-3/4% and 10-1/2% convertible
subordinated debentures.
The Company believes that, along with its existing cash and cash
equivalent balances, it can generate sufficient resources from operations
to fund its capital expenditures, mandatory sinking fund payments and
working capital requirements.
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There were no significant capital expenditure commitments at the end
of the quarter.
RESULTS OF OPERATIONS
Sales for the third quarter 1994 were $46.4 million resulting in net
income of $0.2 million or a loss of $.04 per common share. This compares
to third quarter 1993 sales of $46.8 million and net income of $1.7
million or $.11 per common share. For the 1994 nine month period, sales
were $140.3 million and net income was $2.2 million or $.05 per common
share. This compares to 1993 results for the same period of
$140.6 million of sales and net income of $2.2 million or $.05 per common
share. Earnings (loss) per common share are computed after payment of
preferred dividends.
Backlog at the end of the 1994 third quarter was $127 million, an
increase over year-end 1993 of $17 million.
Segments of Business Information
(dollars in thousands)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
------------------ ------------------
Motion Technologies Group:
Net sales $ 27,630 $ 27,982 $ 81,824 $ 84,516
Operating profit 1,119 2,736 4,415 6,393
Electro-Optical Instruments:
Net sales $ 18,766 $ 18,862 $ 58,509 $ 56,052
Operating profit 1,084 868 3,907 2,189
General Corporate:
Operating expenses $ (2,028)$ (1,932) $ (6,141)$ (6,335)
Consolidated:
Net sales $ 46,396 $ 46,844 $140,333 $140,568
Operating profit 175 1,672 2,181 2,247
In the Motion Technologies Group, third quarter 1994 sales were $27.6
million, at approximately the same level for the corresponding quarter of
1993. Operating income was $1.1 million for the third quarter of 1994
compared to $2.7 million, down 59% from the same quarter a year ago.
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Sales for the nine month period of 1994 were $81.8 million with
operating income of $4.4 million, compared to sales of $84.5 million and
operating income of $6.4 million for the same period in 1993. The
reduction in sales is due primarily to lower sales volume in the Company's
military/aerospace businesses both domestically and abroad. The decrease
in operating income for both the third quarter and year-to-date periods of
1994 is partially due to costs associated with new products under
development at the Instruments division of the Company's subsidiary in
France. In addition, the Industrial and Commercial Products divisions
experienced an unfavorable product mix in which 1994 experienced a higher
level of sales volume that contributed to a lower gross margin. Also this
division has been experiencing certain production problems that
contributed to the overall lower sales and operating income.
Backlog for this segment at the end of the third quarter of 1994 was
$65.0 million, an increase of 24% over year-end 1993.
In the Electro-Optical Instruments segment, sales were $18.8 million
for the third quarter of 1994, at approximately the same level as the
third quarter of 1993. Operating income was $1.1 million compared to $0.9
million for the corresponding quarter a year ago. Sales increased
slightly over the same quarter of 1993 at Kollmorgen Instruments
Corporation, the Company's commercial color and light measurement products
subsidiary. Offsetting this increase was a reduced sales volume at the
Company's engineering services subsidiary and at the Electro-Optical
division. Despite the similar sales volume for the 1993 and 1994 third
quarters, operating income increased 25% this quarter. This increase is a
result of overall increased operating efficiency at the Company's
facilities in California and in Munich, Germany.
For the nine month period of 1994 sales were $58.5 million compared
to $56.1 million in 1993. Operating income was $3.9 million compared to
$2.2 million for the corresponding period a year ago. The increase in
sales is a result of increased revenues during the first and second
quarters of 1994 on long-term military contracts at the Company's Electro-
Optical division. (Major long-term programs at this division are
accounted for using the percentage-of-completion method of revenue
recognition.) This increase was partially offset by lower sales in the
color and light measurement businesses as a result of weak demand in the
first quarter for the color measurement products and because of the
California facility's temporary shutdown due to the January 17, 1994,
earthquake. Operating income for this segment increased 78% over the same
period of 1993 as a result of the increased revenues recognized on long-
term military contracts.
Backlog for this segment at the end of the third quarter of 1994 was
$62 million, an increase of 6% from year-end 1993.
General corporate expense included net interest income and expense
and general corporate administrative expenses. These expenses were down
$.2 million from the same nine month period of 1993 as a result of lower
interest expense due to the sinking fund payments on the Company's two
convertible subordinated debentures.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- Listed below are the exhibits filed with this
report.
Exhibit 11 Statement re computation of per share earnings.
Exhibit 27 Financial Data Schedules
(b) Reports on Form 8-K -- On September 9, 1994, the Company filed a
Form 8-K reporting on the purchase of certain assets of the conventional
optical periscope business of Sperry Marine Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOLLMORGEN CORPORATION
By: /s/ Robert J. Cobuzzi
Robert J. Cobuzzi, Senior Vice
President, Treasurer and
Chief Financial Officer
Date: November 10, 1994
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<TABLE>
Exhibit 11
KOLLMORGEN CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share amounts)
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
1994 1993 1994 1993
-------- -------- -------- --------
Net income (loss) $ 175 $ 1,672 $ 2,181 $ 2,247
Less preferred stock dividends
and accretion of discount (581) (581) (1,743) (1,743)
-------- -------- -------- --------
Earnings (loss) applicable to
primary common shares (406) 1,091 438 504
Number of shares:
Weighted average number of
shares outstanding 9,640 9,633 9,640 9,633
-------- -------- -------- --------
Earnings (loss) per common share $ (0.04) $ 0.11 $ 0.05 $ 0.05
======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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Exhibit 27
KOLLMORGEN CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULES
(Dollars in thousands, except per share amounts)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
September 30,
1994
-------------
Cash and cash items $ 7,741
Notes and accounts receivable - trade 38,621
Allowance for doubtful accounts 3,000
Inventory 23,039
Total current assets 86,813
Property, plant and equipment 112,897
Accumulated depreciation 82,110
Total assets 136,508
Total current liabilities 62,241
Bonds, mortgages and similar debt 40,465
Preferred stock - mandatory redemption 22,511
Common stock 26,878
Other stockholders' equity (17,648)
Total liabilities and stockholders' equity 136,508
September 30, 1994
--------------------------------
For the three For the nine
months ended months ended
-------------- ------------
Net sales of tangible products $ 44,800 $135,295
Total revenues 46,396 140,333
Cost of tangible goods sold 29,809 88,915
Total costs and expenses applicable
to sales and revenues 30,791 92,026
Other costs and expenses 14,558 43,386
Interest and amortization of debt
discount 915 1,884
Income before taxes and other items 175 2,181
Net income 175 2,181
Earnings per share - primary (0.04) 0.05
Earnings per share - fully diluted (0.04) 0.05
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