<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 September 30, 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.)
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 12, 1996
Common Stock, $2.50 par value 9,749,706 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, 1996 and 1995 (unaudited)
Consolidated Balance Sheets as of 4
September 30, 1996 (unaudited) and
December 31, 1995
Consolidated Statements of Cash Flows 5-6
for the Nine Months Ended
September 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial 8-11
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,
------------------- -----------------
1996 1995 1996 1995
--------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 52,830 $ 54,668 $169,658 $166,971
Cost of sales 35,305 36,079 112,749 110,808
--------- ------------------ ---------
Gross profit 17,525 18,589 56,909 56,163
--------- ------------------ ---------
Selling and marketing expense 6,576 7,359 20,601 22,221
General and administrative expense 5,708 5,364 18,256 16,335
Research and development expense 2,670 3,162 9,024 9,653
--------- ------------------ ---------
Income before interest and taxes 2,571 2,704 9,028 7,954
--------- ------------------ ---------
Interest and other (income) expense:
Interest expense 1,389 1,267 4,192 3,747
Interest (income) (95) (135) (386) (504)
Other (income) expense (367) 71 (41) 200
--------- ------------------ ---------
Income before minority interest and
income taxes 1,644 1,501 5,263 4,511
Minority interest 160 0 418 0
--------- ------------------ ---------
Income before taxes 1,804 1,501 5,681 4,511
Provision for income taxes 0 0 0 0
--------- ------------------ ---------
Net income $ 1,804 $ 1,501 $ 5,681 $ 4,511
========= ================== =========
Earnings per common share:
Primary $ 0.18 $ 0.10 $ 0.54 $ 0.29
========= ================== =========
Fully diluted $ 0.18 $ 0.10 $ 0.54 $ 0.29
========= ================== =========
Number of shares used in calculating
earnings per common share:
Primary 10,044,000 9,670,000 10,036,000 9,659,000
========== ========= ========== =========
Fully diluted 10,056,000 9,670,000 10,082,000 9,659,000
======-=== ========= ========== =========
<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,
1996 December 31,
(unaudited) 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,096 $ 17,789
Accounts receivable (net of reserve of
$586 in 1996 and $697 in 1995) 39,895 40,831
Recoverable amounts on long-term contracts 6,510 12,116
Inventories 29,634 26,210
Prepaid expenses and other current assets 2,001 1,557
--------- ---------
Total current assets 92,136 98,503
--------- ---------
Property, plant and equipment, net 27,678 28,803
Goodwill 4,639 5,631
Other assets 14,512 14,537
--------- ---------
$ 138,965 $ 147,474
========= =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 8,752 $ 9,019
Current portion of long-term debt 6,891 3,901
Redeemable preferred stock 0 2,756
Accounts payable 18,657 24,969
Accrued liabilities 28,973 30,393
--------- ---------
Total current liabilities 63,273 71,038
--------- ---------
Long-term debt 53,551 36,888
Other liabilities 5,439 5,501
Minority interest 381 0
Redeemable preferred stock 0 22,750
Common shareholders' equity:
Common stock 26,912 26,904
Additional paid-in capital 13,362 14,343
Accumulated deficit (13,277) (18,958)
Cumulative translation adjustments (1,617) (1,454)
Less common stock in treasury, at cost (9,059) (9,538)
--------- ---------
Total common shareholders' equity 16,321 11,297
--------- ---------
$ 138,965 $ 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)
(unaudited)
<CAPTION>
For the
Nine Months Ended
September 30,
------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income from operations $ 5,681 $ 4,511
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 4,569 4,616
Amortization 798 910
Loss on sale of assets 211 0
Minority interest (418) 0
Other non-cash expenses 34 36
Changes in assets and liabilities:
Restricted cash 0 8,000
Accounts and notes receivable (40) (2,991)
Recoverable amounts on long-term contracts 5,606 (1,654)
Inventories (2,855) (4,252)
Prepaid expenses (466) (94)
Accounts payable and accrued liabilities (7,219) 3,771
Deferred income taxes and other expenses (671) (112)
Other 28 97
--------- ---------
Net cash provided by operations 5,258 12,838
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,828) (2,888)
Proceeds from sale of assets 2,930 2,605
Equity investments (1,404) 0
Cash of subsidiary acquired 97 0
Long term notes receivable (net of repayments) 396 0
--------- ---------
Net cash used in investing activities (1,809) (283)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under credit lines 1,216 (784)
Borrowings of long-term debt 25,000 0
Principal repayments on long-term debt and other notes (7,215) (3,423)
Common stock issued from treasury 312 226
Redemption of preferred stock (25,506) 0
Dividends paid on common and preferred stock (874) (2,233)
--------- ---------
Net cash used in financing activities (7,067) (6,214)
--------- ---------
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<PAGE>6
Effect of exchange rate changes on cash (75) (708)
--------- ---------
Net increase (decrease) in cash and cash equivalents (3,693) 5,633
Cash and cash equivalents at beginning of period 17,789 7,165
--------- ---------
Cash and cash equivalents at end of period $ 14,096 $ 12,798
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 3,278 $ 2,627
Income taxes (net of refunds) 703 (15)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>7
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
1. The accompanying unaudited consolidated financial statements
include the accounts of Kollmorgen Corporation and all of its
majority owned subsidiaries. Certain reclassifications have
been made to the prior years' financial statements to conform
to 1996 classifications.
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 Septemer 30, 1996, the results of
operations for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the cash flows for the nine-
month periods ended September 30, 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
(redeemed February 1996) divided by the weighted average
number of common and common equivalent 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.
4. Inventories (net) consist of the following:
September 30, December 31,
1996 1995
------------- ------------
Raw materials $ 14,525 $15,110
Work in process 10,352 7,653
Finished goods 4,757 3,447
-------- --------
$ 29,634 $ 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).
6. Effective June 30, 1996, the Company concluded the acquisition of 51%
of the stock of Kollmorgen Tandon (India) (KTI). Consequently, KTI
is included in the results of operations for the three and nine
months ended September 30, 1996 and its balance sheet has been
consolidated at September 30, 1996. The impact of the effect of the
consolidation on the changes in assets and liabilities has been
eliminated from the Statement of Cash Flows.
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<PAGE>8
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company s cash and cash equivalents decreased $3.7 million during
the first nine months of 1996. Net income from operations after adding
back non-cash charges generated $10.9 million in cash. Inventories grew
in the first three quarters, using $2.9 million in cash. The increase in
inventories was a result of a greater than anticipated change in the mix
of products sold at the Company s U.S. motion technology group, inventory
purchases for a large color control order, and an increase in stock
inventory to take advantage of volume discounts by the Company s Electro-
Optical division. Recoverable amounts on long-term contracts generated
$5.6 million as a result of higher than anticipated progress payments
being received by the Company s Electro-Optical division. Accounts
payable and accrued liabilities used $7.6 million as a result of payments
in connection with long-term contracts, payments of costs associated with
the sale of a portion of the Company s instrumentation business in France,
and scheduled payments made during the first quarter of 1996.
Investing activities used $1.8 million in cash during the first nine
months of 1996. The Company received $2.4 million in the first half of
the year for the sale of certain assets of the Company s French
instrumentation business, and $0.5 million for the sale of idle property
in the third quarter of 1996. The Company made an additional equity
investment in Servotronix Ltd. of $1.4 million. The Company made capital
expenditures of $3.8 million.
Financing activities used $7.1 million in the first nine months 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 totaled $25.8 million.
The Company financed the redemption through a $25 million five year
amortizing term loan with the Company s lead bank. The Company made
scheduled repayments of its long-term debt of $7.2 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. To
date, approximately $2.0 million of equipment has been funded under the
agreement.
The Company believes that it can generate sufficient cash from
operations and its current credit 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,
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<PAGE>9
operating losses, increased working capital needs, unanticipated capital
expenditure requirements and acquisitions, and the possibility that
external borrowings, 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 September 30, 1996 were $52.8 million,
and net income was $1.8 million or $0.18 per common share. This compares
with third quarter 1995 sales of $54.7 million and net income of $1.5
million or $0.10 per common share. Included in the 1995 amounts were
sales for Photo Research, a division which was sold by the Company in
October 1995, and a significant portion of the Company s French
instrumentation business which was sold in the first quarter of 1996.
Excluding the sales of the businesses sold, sales for the third quarter
would have been $52.8 million and $50.4 million in 1996 and 1995,
respectively, an increase of 4.8%. Earnings per share are computed after
payment of preferred dividends. Due to the redemption of the Company s
Preferred Stock on February 19, 1996, no preferred dividends were paid in
the third quarter of 1996 versus $582 thousand in the third quarter of
1995.
Selling and marketing expenses declined 10.6% to $6.6 million from
$7.4 million for the three months ended September 30, 1996 and 1995,
respectively. For the nine months ended September 30, 1996 and 1995,
selling and marketing expenses declined 7.3% to $20.6 million from $22.2
million, respectively. The decline in selling and marketing expenses for
the three and nine month periods reflects the impact of the businesses
sold. However, this was partially offset by increased selling and
marketing spending at the Company s U.S. motion technology group.
Administrative expenses increased 6.4% and 11.8% for the three and
nine month periods ending September 30, 1996 as compared to the
corresponding periods of the prior year. The increase reflects increased
spending to support the implementation of new information systems at the
Company s U.S. motion technology group, the consolidation of the Company s
Indian subsidiary, and increased spending necessary to support the higher
levels of business.
Research and development expenses declined 15.6% and 6.5% for the
three and nine month periods ended September 30, 1996, as compared to the
same period of the prior year. This decline is principally the result of
the sale of businesses. Spending on research and development by the
Company s motion technology segment increased for the year in 1996 over
1995.
Backlog at September 30, 1996 was $101.8 million versus $121.4
million at September 30, 1995, and $108.4 million at December 31, 1995.
The decline versus both the 1995 third quarter and year-end reflects the
elimination of the backlogs of the businesses sold and a decline in the
balance on certain long-term military contracts.
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Segments of Business Information
(Dollars in thousands)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------------------ ------------------
Motion Technologies Group:
Net sales $ 33,770 $ 32,079 $105,372 $ 95,451
Operating income $ 2,229 $ 2,425 $ 8,007 $ 7,002
Electro-Optical Instruments:
Net sales 19,060 22,589 64,286 71,520
Operating income 2,234 1,431 5,388 4,388
General Corporate:
Operating expenses 2,659 2,355 7,714 6,879
Consolidated:
Net sales $ 52,830 $ 54,668 $169,658 $166,971
Operating income $ 1,804 $ 1,501 $ 5,681 $ 4,511
In the Motion Technologies Group, third quarter 1996 sales were $33.8
million, an increase of 5.3% over the same period a year ago. Sales at
the Company s U.S. motion technology group increased approximately $1.0
million or 3.8%, principally in the industrial and commercial products
group. Third quarter sales at the Company s French motion technology
operation increased $0.7 million or 11.5% reflecting an increase in
revenues on research and development contracts for the aerospace industry.
Operating income for the third quarter was $2.2 million for this
segment, a decrease of 8.1% over the same period of 1995. The decrease in
operating income was a result of decreased margins and increased sales and
marketing expenses associated with new products, increased R&D spending
and unfavorable product mix.
Backlog for this segment at the end of the third quarter of 1996 was
$56.2 million, an increase of $1.0 million or 1.7% over year-end 1995.
In the Electro-Optical Instruments segment, sales were $19.1 million
for the third quarter of 1996, a decrease of 15.6% 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 4.0% in
the third quarter of 1996 as compared to the same period a year ago. The
increase in sales was attributable to revenue increases at the Company s
consulting engineering business and color measurement systems business
more than offsetting a sales decrease at the Company s Electro-Optical
division on long-term defense contracts.
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<PAGE>11
Operating income in this segment for the third quarter of 1996 was
$2.2 million versus $1.4 million for the third quarter of 1995. Excluding
the results of the businesses sold for both 1995 and 1996, operating
income was $2.3 million in the third quarter of 1996 as compared to $1.5
million in the same period in 1995. The increase in operating income was
a result of the increased operating income of the Company s consulting
engineering and color instrumentation businesses.
Backlog for this segment at the end of the third quarter of 1996 was
$45.6 million, down 14.2% from year-end 1995. Excluding the French
instrumentation business sold by the Company, the backlog declined 10.0%
from year-end 1995 which reflects a decline in long-term military
contracts.
General corporate expenses includes interest expense, interest
income, and general corporate administrative expenses. Interest expense
increased for the third quarter of 1996 as compared to the third 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- Listed below are the exhibits filed with this
report.
Exhibit 10 Master Equipment Lease Agreement dated as of
April 19, 1996, between Provident Commercial
Group, Inc. and Kollmorgen Corporation
incorporated by reference to EX-10 of the Form SE
filed on November 13, 1996, for the period ended
September 30, 1996.
Exhibit 11 Statement re computation of per share earnings.
Exhibit 27 Financial Data Schedules
(b) Reports on Form 8-K -- None.
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<PAGE>12
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 14, 1996
<PAGE>
Exhibit 10
Master Equipment Lease Agreement dated as of April 19,
1996, between Provident Commercial Group, Inc. and
Kollmorgen Corporation incorporated by reference to EX-10
of the Form SE filed on November 13, 1996, for the period
ended September 30, 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 For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- -------- --------
Net income $ 1,804 $ 1,501 $ 5,681 $ 4,511
Less preferred stock dividends
and accretion of discount 0 (582) (285) (1,746)
-------- -------- -------- --------
Earnings applicable to
primary common shares 1,804 919 5,396 2,765
Number of shares:
Weighted average number of
shares outstanding:
Primary 10,044 9,670 10,036 9,659
Fully diluted 10,056 9,670 10,082 9,659
-------- -------- -------- --------
Earnings per common share:
Primary $ 0.18 $ 0.10 $ 0.54 $ 0.29
======== ======== ======== ========
Fully diluted $ 0.18 $ 0.10 $ 0.54 $ 0.29
======== ======== ======== ========
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,096
<SECURITIES> 0
<RECEIVABLES> 39,895
<ALLOWANCES> 586
<INVENTORY> 29,634
<CURRENT-ASSETS> 92,136
<PP&E> 111,913
<DEPRECIATION> (84,235)
<TOTAL-ASSETS> 138,965
<CURRENT-LIABILITIES> 63,273
<BONDS> 0
<COMMON> 26,912
0
0
<OTHER-SE> (10,591)
<TOTAL-LIABILITY-AND-EQUITY> 138,965
<SALES> 157,424
<TOTAL-REVENUES> 169,658
<CGS> 105,334
<TOTAL-COSTS> 112,749
<OTHER-EXPENSES> 47,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,192
<INCOME-PRETAX> 5,681
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,681
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
