<PAGE>
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 March 31, 1996
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.)
160l 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 May 13, 1996
Common Stock, $2.50 par value 9,726,898 shares
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KOLLMORGEN CORPORATION
INDEX
Page No.
PART I - Financial Information
Consolidated Statements of Operations 3
for the Three Months Ended
March 31, 1996 and 1995 (unaudited)
Consolidated Balance Sheets as of 4
March 31, 1996 (unaudited)
and December 31, 1995
Consolidated Statements of Cash Flows 5
for the Three Months Ended
March 31, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 7-9
of Financial Condition and
Results of Operations
PART II - Other Information 9
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<TABLE>
PART I - FINANCIAL INFORMATION
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share and per share amounts)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1996 1995
(unaudited) (unaudited)
-------- --------
<S> <C> <C>
Net sales $ 57,040 $ 53,416
Cost of sales 37,814 35,693
--------- ---------
Gross profit 19,226 17,723
--------- ---------
Selling and marketing expense 7,299 7,145
General and administrative expense 5,805 5,168
Research and development expense 3,303 3,164
--------- ---------
Income before interest and taxes 2,819 2,246
--------- ---------
Interest and other (income) expense:
Interest expense 1,317 1,246
Interest (income) (189) (202)
Other, net 43 30
--------- ---------
Income before income taxes 1,648 1,172
Provision for income taxes -0- -0-
--------- ---------
Net income $ 1,648 $ 1,172
========= =========
Net income available to common shareholders $ 1,363 $ 591
========= =========
Earnings per common share $ .14 $ .06
====== ======
Weighted average common shares outstanding 9,706,225 9,649,905
========= =========
<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
March 31,
1996 December 31,
(unaudited) 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,938 $ 17,789
Accounts receivable (net of reserve of
$758 in 1996 and $697 in 1995) 41,700 40,831
Recoverable amounts on long-term contracts 11,732 12,116
Inventories 28,825 26,210
Prepaid expenses and other current assets 3,355 1,557
--------- ---------
Total current assets 99,550 98,503
--------- ---------
Property, plant and equipment, net 27,264 28,803
Goodwill 4,986 5,631
Other assets 15,548 14,537
--------- ---------
$ 147,348 $ 147,474
========= =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 9,881 $ 9,019
Current portion of long-term debt 6,901 3,901
Redeemable preferred stock -0- 2,756
Accounts payable 24,646 24,969
Accrued liabilities 28,852 30,393
--------- ---------
Total current liabilities 70,280 71,038
--------- ---------
Long-term debt 58,850 36,888
Other liabilities 5,331 5,501
Redeemable preferred stock -0- 22,750
Common shareholders' equity:
Common stock 26,908 26,904
Additional paid-in capital 13,787 14,343
Accumulated deficit (17,309) (18,958)
Cumulative translation adjustments (1,229) (1,454)
Less common stock in treasury, at cost (9,270) (9,538)
--------- ---------
Total common shareholders' equity 12,887 11,297
--------- ---------
$ 147,348 $ 147,474
========= =========
<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)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1996 1995
(unaudited) (unaudited)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income from operations $ 1,648 $ 1,172
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,474 1,555
Amortization 271 288
Loss on sale of assets 17 537
Other non-cash expenses 12 12
Changes in assets and liabilities (net of effects
from acquisitions and divestitures):
Accounts and notes receivable (1,364) 4,138
Recoverable amounts on long-term contracts 384 (827)
Inventories (3,131) (2,367)
Prepaid expenses (169) (103)
Accounts payable and accrued liabilities (1,282) (1,608)
Deferred income taxes and other expenses (165) (60)
Other (353) (307)
--------- ---------
Net cash provided by (used in) operations (2,658) 2,430
--------- ---------
Cash flows from investing activities:
Capital expenditures (897) (1,406)
Proceeds from sale of assets 775 2,605
Equity investment (1,069) -0-
Long term notes receivable (net of repayments) 130 -0-
--------- ---------
Net cash provided by (used in) investing activities (1,061) 1,199
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under credit lines 1,917 (1,622)
Principal repayment on other notes (896) -0-
Common stock issued from treasury 187 -0-
Redemption of preferred stock (25,506) -0-
Principal payments on capital lease obligations (33) (12)
Borrowings (repayments) of long-term debt 25,002 (1,103)
Dividends (484)(743)
--------- ---------
Net cash provided by (used in) financing activities187 (3,480)
--------- ---------
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Effect of exchange rate changes on cash (319) 359
--------- ---------
Net increase (decrease) in cash and cash equivalents (3,851) 508
Cash and cash equivalents at beginning of period 17,789 7,165
--------- ---------
Cash and cash equivalents at end of period $ 13,938 $ 7,673
========= =========
Supplemental cash flow information
- ----------------------------------
Cash paid during the period for
Interest $ 380 $ 542
Income taxes (net of refunds) 547 (38)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
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 March 31,
1996, and the results of operations and cash flows for the three-month
periods ended March 31, 1996 and 1995. 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. These interim financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
3. Earnings 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. Inventories consist of the following:
March 31, December 31,
1996 1995
--------- ------------
Raw materials $ 15,047 $ 15,110
Work in process 9,513 7,653
Finished goods 4,265 3,447
-------- --------
$ 28,825 $ 26,210
======== ========
5. Effective March 1, 1996, the Company sold a significant portion of its
French instrumentation business for 12 million French francs
(approximately $2.4 million). The Company received $0.8 million in cash
and the balance of approximately $1.6 million which is included in other
current assets in the Company's balance sheet and will be paid to the
Company during 1996.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company s cash and cash equivalents decreased $3.9 million during
the first three months of 1996. Net income from operations after adding back
non-cash charges generated $3.4 million in cash. Inventories grew in the
first quarter, using $3.1 million in cash. The increase in inventories was
principally at the Company s U.S. motion technology group where changes in
the mix of products sold and the introduction of new electronics products
resulted in higher material purchases and production for some product lines.
Accounts receivable used $1.4 million in cash, reflecting a larger percentage
of revenue recognized in the last month of the first quarter versus the last
month of the fourth quarter of 1995. Accounts payable and accrued
liabilities used $1.3 million, largely as a result of scheduled payments
during the first quarter of 1995.
Investing activities used $1.1 million in cash during the quarter ended
March 31, 1996. The Company received $0.8 million in March 1996 as a partial
payment for the sale of certain assets of the Company s French
instrumentation business. The balance of approximately $1.6 million will be
paid to the Company during 1996. The Company made an additional equity
investment in Servotronix Ltd. of $1.1 million and will make an additional
investment of $0.3 million in the second quarter of 1996. The Company made
capital expenditures of $0.9 million during the first quarter.
Financing activities generated $0.2 million in the first quarter of
1996. On February 19, 1996 the Company redeemed all of its Series D
Convertible Preferred Stock ( Preferred Stock ) for its redemption value plus
a 10% premium and all unpaid dividends which totalled $25.8 million. The
Company financed the redemption through a $25 million five year amortizing
term loan with the Company s lead bank. Short term borrowings by the
Company s French subsidiary were $1 million.
In late April 1996, the Company entered into a lease financing
arrangement with a leasing company to provide for the financing of up to $5
million in equipment purchases for the Company s U.S. operations.
Approximately $2 million of equipment has been funded to date under this
agreement.
The Company believes that it can generate sufficient cash from
operations and its current borrowing and lease lines of credit to finance its
cash requirements for capital expenditures, sinking fund payments, and
working capital requirements for the next twelve months. The preceding
forward-looking statements are subject to significant risks and
uncertainties, which may cause the Company s actual experience to differ from
its expectations. These risks and uncertainties include, among other things,
the possibility that the Company s capital needs will be greater than
expected, due to, for example, lower than expected revenues, operating
losses, increased working capital needs, unanticipated capital expenditure
requirements and acquisitions, and the possibility that external borrowings,
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<PAGE>9
financing arrangements, or other capital sources will not be available as
anticipated or will not be available on terms that are favorable to the
Company.
RESULTS OF OPERATIONS
Sales for the quarter ended March 31, 1996 were $57.0 million, and net
income was $1.6 million or $0.14 per common share. This compares with first
quarter 1995 sales of $53.4 million and net income of $1.2 million or $0.06
per common share. Included in the 1995 amounts were sales for Photo
Research, a division which was sold by the Company in October 1995.
Excluding the sales of Photo Research, 1995 sales would have been $51.6
million. Earnings per share are computed after payment of preferred
dividends. Due to the redemption of the Company s Preferred Stock on
February 19, 1996, preferred dividends were $285 thousand in the first
quarter of 1996 versus $581 thousand in the first quarter of 1995.
Backlog at March 31, 1996 was $115 million versus $140 million at March
31, 1995, and $108 million at December 31, 1995. The decline versus the
first quarter 1995 reflects the elimination of the backlogs of the businesses
sold and a decline in the balance on certain long-term military contracts.
The increase in the backlog since year end reflects increases in the
Company s motion technology business, more than offsetting the backlog
associated with the Company s French instrumentation business which was sold
during the quarter.
Segments of Business Information
(dollars in thousands)
For the
Three Months Ended
March 31,
----------------------
1996 1995
--------- ---------
Motion Technologies Group:
Net sales $ 35,253 $ 29,989
Operating profit 2,616 2,007
Electro-Optical Instruments:
Net sales $ 21,787 $ 23,427
Operating profit 1,438 1,342
General Corporate:
Operating expenses $ (2,406) $ (2,177)
Consolidated:
Net sales $ 57,040 $ 53,416
Net income 1,648 1,172
In the Motion Technologies Group, first quarter 1996 sales were $35
million, an increase of 18% over the same period a year ago. The increase in
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sales was principally at the Company s U.S. motion technology group where
sales increased approximately $4 million, principally in the industrial and
commercial products group.
Operating income was $2.6 million for this segment, an increase of 30%
over the same period of 1995. The increase in operating income was a result
of increased sales volume which was partially offset by slightly lower gross
margins and increased operating expenses associated with the higher levels of
business.
Backlog for this segment at the end of the first quarter of 1996 was $62
million an increase of $6.6 million or 12% over year end 1995.
In the Electro-Optical Instruments segment, sales were $21.8 million for
the first quarter of 1996, a decrease of 7% from the same period a year ago.
Excluding the sales of the businesses sold by the Company in both 1995 and
1996, sales in the remaining businesses increased 8% in the first quarter of
1996 as compared to the same period a year ago. The increase in sales was
attributable to the Company s consulting engineering business.
Operating income in this segment for the first quarter of 1996 was $1.4
million versus $1.3 million for the first quarter of 1995. Excluding the
results of the businesses sold for both 1995 and 1996, operating income
increased 16% in the first quarter of 1996 as compared to the same period in
1995. The increase in operating income was a result of the increased volume
at the Company s consulting engineering business, offsetting lower operating
income at the Company s color instrumentation business.
Backlog for this segment at the end of the first quarter of 1996 was $53
million, essentially unchanged from year-end 1995. Excluding the French
instrumentation business sold by the Company, the backlog increased 4% over
year-end.
General corporate expenses includes interest expense, interest income,
and general corporate administrative expenses. Interest expense increased
for the first quarter of 1996 as compared to the first quarter of 1995
reflecting higher debt levels due to the term loan used to finance the
redemption of the Preferred Stock.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on
May 8, 1996, the following four persons were elected as directors: Gideon
Argov, Robert J. Cobuzzi, Geoffrey S. Rehnert, and George P. Stephan as
Class I directors for a term of two years. The votes cast for or
against/withheld with respect to each nominee are set forth below:
Name For Against/Withheld
-------------------- --------- ----------------
Gideon Argov 8,532,161 184,174
Robert J. Cobuzzi 8,532,464 183,871
Geoffrey S. Rehnert 8,525,000 191,335
George P. Stephan 8,528,966 187,369
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<PAGE>11
Messrs. Jerald G. Fishman, James H. Kasschau, J. Douglas Maxwell, Jr.
and Robert N. Parker continue as Class I directors.
At the Annual Meeting, the shareholders approved an amendment to the
1991 Kollmorgen Corporation Long Term Incentive Plan increasing the number of
shares reserved for issuance by 300,000 shares by the following votes:
For Against Abstaining
5,613,368 2,728,655 374,312
In addition, the shareholders approved certain amendments to the 1992
Stock Ownership Plan for Non-Employee Directors which amendments included,
among other things, an increase by 175,000 shares in the number of shares
reserved for issuance under that Plan, and a provision for the one-time grant
of a non-qualified option for 15,000 shares of the Company's Common Stock,
exercisable over a period of two years. The votes cast for these amendments
under this Plan were:
For Against Abstaining
5,716,179 2,623,108 377,048
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- Listed below are the exhibits filed with this report.
11. Statement re computation of per share earnings.
27. Financial Data Schedules.
(b) Reports on Form 8-K -- None.
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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: May 15, 1996
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<TABLE>
Exhibit 11
KOLLMORGEN CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share amounts)
(unaudited)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1996 1995
---------- ----------
<S> <C> <C>
Net income $ 1,648 $ 1,172
Less preferred stock dividends and
accretion of discount (285) (581)
Earnings applicable to primary
common shares 1,363 591
Number of shares:
Weighted average number of common
shares outstanding 9,706,225 9,649,905
---------- ----------
Earnings per common share $ .14 $ .06
====== ======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
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<ARTICLE>5
<LEGEND>
KOLLMORGEN CORPORATION AND SUBSIDIARIES EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,938
<SECURITIES> 0
<RECEIVABLES> 41,700
<ALLOWANCES> 758
<INVENTORY> 28,825
<CURRENT-ASSETS> 99,550
<PP&E> 111,632
<DEPRECIATION> (84,368)
<TOTAL-ASSETS> 147,348
<CURRENT-LIABILITIES> 70,280
<BONDS> 40,340
<COMMON> 26,908
0
0
<OTHER-SE> (14,021)
<TOTAL-LIABILITY-AND-EQUITY> 147,348
<SALES> 53,093
<TOTAL-REVENUES> 57,040
<CGS> 35,587
<TOTAL-COSTS> 37,814
<OTHER-EXPENSES> 16,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,317
<INCOME-PRETAX> 1,648
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,648
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
