SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1995, 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 1-5562
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.)
Reservoir Place, 1601 Trapelo Road, Waltham, MA 02154-7333
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 890-5655
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock - $2.50 par value New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
8 3/4% Convertible Subordinated
Debentures Due 2009 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of each class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / X /
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. $103,690,463 as of March 25, 1996.
Indicate the number of outstanding shares of the registrant's Common
Stock. 9,723,466 shares as of March 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of 1996 Definitive Proxy Statement to be filed for the 1996
Annual Meeting of Shareholders are incorporated by reference into Part III.
<PAGE>
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PART I
Item 1. Business.
(a) General. Kollmorgen Corporation, incorporated in the State of New
York in 1916, has operations in two industry segments: the motion
technologies group and electro-optical instruments. The term the "Company"
as used herein refers to Kollmorgen Corporation and its subsidiaries.
(b) Financial Information about Industry Segments. A table setting for
the amounts of revenue, operating profit or loss and identifiable assets
attributable to each of the Company's industry segments in each of its last
three fiscal years is contained in Note 19 captioned "Industry Segment
Information."
(c) Narrative Description of Business
Motion Technologies Group.
The Company believes that it is one of the major worldwide manufacturers
of specialty direct current ("d.c.") permanent magnet motors with associated
electronic servo amplifiers and servo feedback components. These products
are manufactured in the United States by the Company's Inland Motor,
Industrial Drives and PMI Divisions. In addition, the Company manufacturers
motion technology products through its French subsidiary, Kollmorgen Artus.
The Inland Motor Division designs and manufactures specialty d.c. torque
motors, servo motors, tachometer generators, electromechanical actuators and
associated high technology drive electronics used worldwide in aerospace,
defense, process control, medical, and machine tool applications. The
Industrial Drives Division manufactures a line of specialty drive motors and
related electronic amplifiers which are used in a variety of industrial
applications including industrial automation, process control, machine tools,
underwater equipment, and robotics. In addition, this Division sells a line
of stepper motors and brushless motors used for office and factory
automation, instrumentation, and medical applications. The PMI Division
designs, manufactures and distributes a line of low inertia, high speed of
response, d.c. motors and associated electronics plus feedback devices used
primarily in industrial automation and medical applications. Kollmorgen
Artus manufactures and sells generators, special motors, electromechanical
actuators and drive electronics, synchros, and resolvers, which are sold
worldwide into the avionics and aerospace market.
Commencing in 1994, the Company's VMG group began designing for
manufacture in Bombay, India, high volume, fractional horsepower motors
primarily for the computer peripheral and electronics markets. Commencing in
1995, the Company began distributing its industrial motors products into the
People's Republic of China through a majority-owned joint venture company,
Tianjin Kollmorgen Industrial Drives Corporation, located in Tianjin, PRC.
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In the specialty motor and drive business, competitive advantage is
gained by the ability of the Company to design new or adapt existing motors
and drive systems to meet relatively stringent packaging and performance
requirements of customers, most of whom are original equipment manufacturers
purchasing the motors and drives for inclusion in their end product. While
meeting these stringent technical specifications, the motors and drives must
also be price competitive. The number and identity of the competitors in
this segment varies depending upon the particular industry and product
application. In recent years, a number of large European and Japanese
manufacturers, either directly or through joint ventures with American
companies, have been able to compete successfully in the United States
machine tool and industrial automation marketplaces, including the market for
industrial motors of the type that the Company's Industrial Drives
manufactures. In other markets, there are relatively few competitors for
each marketplace or application, and generally they are specialized domestic
or foreign motor manufacturers.
In the United States, the industrial/commercial products manufactured in
this segment are marketed and sold by the Company's Industrial and Commercial
Products Sales Group, and the defense and aerospace products are marketed by
the Aerospace and Defense Products Sales Group. Depending upon the
particular motor product or control system in question, the products of the
Company's motion technologies group are marketed and sold directly through
qualified technical personnel employed by the Company, or through
manufacturer's representatives or distributors, or by a combination of the
foregoing.
The backlog of the motion technologies group at the end of 1995 was
$56.2 million essentially all of which is expected to be shipped in 1996.
Electro-Optical Instruments.
The Company's electro-optical business is conducted principally by one
domestic division and two subsidiaries: the Electro-Optical Division,
Kollmorgen Instruments Corporation, and Proto-Power Corporation. The
products of this industry segment serve two broad customer groups: military
and industrial/commercial. The Company serves the military market primarily
through the Electro-Optical Division located in Northampton, Massachusetts.
This Division has been the primary designer and major supplier of submarine
periscopes and related spare parts to the United States Navy since 1916. In
September, 1994, the Company acquired substantially all of the assets of the
conventional optical periscope business of Sperry Marine, Inc. at a purchase
price of approximately $5 million. The Electro-Optical Division also markets
and sells submarine periscopes to navies throughout the world.
This Division also has been an important supplier of other electro-
optical instruments for various weapon systems. These instruments often
possess highly advanced servo-driven optical systems and may use lasers,
infrared detectors, or low-light level television imaging systems for night
vision. During 1994, this operation received awards of approximately $14
million from the Naval Sea Systems Command for optical sights for the DDG-51
Arleigh-Burke Class guided missile destroyers. In addition, this Division
received additional orders for spares and production units valued at
approximately $10 million in 1995.
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In February, 1995, the Company received a $35 million contract from the
Naval Sea Systems Command for the design and production of a photonics mast
system which is intended to replace existing optical periscopes. In the
second quarter, 1995, the Electro-Optical Division received two additional
awards from the United States Navy. The first, a contract initially valued
at $1.8 million, for three Type 8 Mod 3 periscopes, has an option valued in
excess of $28 million for 42 additional periscopes. The second contract,
valued at $6.9 million, for the design and fabrication of a modular mast
system for a new class of attack submarines, also has an option for delivery
of production units valued in excess of $10 million.
The Company serves the industrial/commercial marketplace for electro-
optical instruments through a wholly-owned subsidiary, Kollmorgen Instruments
Corporation, which operates through its Macbeth Division. The Macbeth
Division, located in New Windsor, New York, designs, manufactures and sells
worldwide specialized instruments and materials used for the measurement of
color and light. This Division manufactures and sells a line of
spectrophotometers which measure color and are used in the textile, paint,
paper, plastics and many other industries where the measurement of color is
important. It is also a manufacturer of densitometers, which are instruments
that are used to control photographic and printing processes by measuring the
opacity or density of materials, such as films, inks, and dyes. In addition,
this Division manufactures specialized lighting devices for the inspection
and comparison of transparencies and prints in the photographic and printing
industries. The Macbeth Division also manufactures standard lighting sources
used in evaluating color and produces a line of color standards sold under
the U.S. registered trademark "Munsell". The on-line version of the
spectrophotometers manufactured by this Division permits the measurement of
spectral characteristics on a production line in a broad range of industrial
processes without interrupting production flow. This Division has recently
entered into several multi-year development and production contracts with
large domestic and foreign paint manufacturers to deliver a proprietary
multi-angle spectrophotometer for use in matching metal paints for automobile
refinishing. Kollmorgen Instruments GmbH, a German subsidiary of Kollmorgen
Instruments Corporation, designs and manufactures a product line of on-line
spectrophotometers.
Macbeth's position has been built upon high quality products which
provide uniform results and meet specialized needs and standards, upon
proprietary software, and upon superior after-sales service. The Company's
competition in this field consists of a number of domestic and foreign
privately held companies and divisions or subsidiaries of publicly held
corporations. Depending upon the product and customers in question, the
Company's industrial products are sold through dealers and independent sales
representatives, distributors or systems houses and directly through the
divisions' own sales forces. In Europe, these products are distributed
through Kollmorgen Instruments GmbH, Kollmorgen (U.K.) Limited, the Company's
wholly-owned English subsidiary, and through independent representatives and
dealers.
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<PAGE>5
In October, 1995, the Company sold the Photo Research Division of
Kollmorgen Instruments Corporation, a manufacturer of photometers and
spectroradiometers, for $3.2 million to a subsidiary of Excel Technology,
Inc.
Proto-Power Corporation, a wholly-owned subsidiary of the Company, is a
consulting engineering company that primarily provides services for the
modification and upgrade of nuclear and fossil power plants of domestic
electric utility companies and independent power producers. In recent years,
this subsidiary has licensed its proprietary computer-aided engineering
software to a number of its customers for analyzing the performance of power
plant systems and equipment.
Kollmorgen Artus also manufactures and sells calibration equipment for
air traffic control navigation aids. In March, 1996, Kollmorgen Artus sold
its product line of Sorel fault detection equipment.
Within this segment, military products represented 43% of sales in 1995,
44% of sales in 1994, and 47% of sales in 1993. The Company's military
business is characterized by long-term contracts which require the delivery
of products over more than one year and progress payments during the
manufacture of the product. Competition is generally limited to divisions of
large multinational companies which specialize in military contracting. To
date, the Company has been able to compete effectively against these larger
companies because of the Company's experience and expertise in the
specialized areas which it serves.
The backlog of the electro-optical instruments segment at the end of
1995 was $53.1 million of which approximately 70% is expected to be shipped
in 1996.
Customer Base.
Except to the extent that sales to the U.S. government under numerous
prime and sub-contracts may be considered as sales to a single customer, the
Company's business is not characterized by dependence upon one customer or a
few customers, the loss of any of which would have a materially adverse
effect on its total business. Typical of all engineered or custom-made
component businesses, the Company's motion technologies group is
characterized by a customer base founded upon a number of large key accounts,
the importance of any one of which can vary from year to year. During 1995,
no customer accounted for 10% or more of the Company's consolidated revenues.
Government Sales.
In 1995, sales to the U.S. Government or for U.S. Government end-use
represented approximately 19% of revenues, of which 15% were generated from
the electro-optical instruments segment and 4% was from the motion
technologies group.
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<PAGE>6
Patents.
The Company has either applied for or been granted a number of domestic
and foreign patents pertaining to the motion technologies group and electro-
optical instruments segments. The Company believes that these patents are
and will be important to the Company's continued leadership position in these
business segments and, when necessary, has and will continue to enforce its
legal rights against alleged infringements of its patent estate.
Raw Materials.
The raw materials essential to the Company's business are generally
available in the open market, and neither segment of the Company's business
experienced any significant shortages in such materials during the past three
years. The Company believes that it has adequate sources of raw materials
available for use and does not anticipate any significant shortages.
Research and Development.
During 1995, the Company spent $13.2 million or approximately 5.8% of
its consolidated sales on research activities related to the development of
new products. This compares to $10.8 million or 5.7% in 1994, and $9.3
million or 5.0% in 1993. Substantially all of this amount was sponsored by
the Company.
Environmental Matters.
The Company's operations are subject to a variety of federal
environmental laws and regulations. The most significant of these laws are
the Clean Air Act, the Clean Water Act and the Resource Conservation and
Recovery Act, all of which are administered by the United States
Environmental Protection Agency. These statutes and the regulations impose
certain controls on atmospheric emissions, discharges into sewers and
domestic waters, and the handling and disposal of hazardous wastes. In
addition, certain state and local jurisdictions have adopted environmental
laws and regulations that are more stringent than federal regulations.
Compliance with these federal and state laws and regulations has resulted in
expenditures by the Company to improve or replace pollution control
equipment. The Company's estimated capital expenditures for environmental
control facilities are not expected to be material.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act and analogous state statutes, certain liabilities are imposed
for the disposal of "hazardous substances" without regard to fault or the
legality of such disposals. The Company has been named, or has been informed
that it may be named, as a potentially responsible party at several waste
disposal sites under these statutes. Based upon the information available to
date, the Company does not believe that its share of any clean-up costs will
have a material impact on the Company's financial condition, cash flows or
results of operations.
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<PAGE>7
Employees.
The Company is currently a party to two collective bargaining
agreements. The Company's Electro-Optical Division is a party to a three-
year agreement expiring in August, 1996, with the International Association
of Machinists and Aerospace Workers that currently covers 45 employees. In
March, 1994, the Macbeth Division of Kollmorgen Instruments Corporation
entered into a three-year contract with the International Brotherhood of
Electrical Workers, which contract currently covers 28 employees at that
Division.
As of December 31, 1995, the Company employed approximately 1,765
employees. The Company believes that it enjoys satisfactory relations with
its employees, including those covered by collective bargaining agreements.
In February, 1995, the Company received a petition from the
International Union, United Automobile, Aerospace & Agricultural Implement
Workers of America ("UAW") requesting the representation of a group of
approximately 200 production and maintenance employees at the Company's
Inland Motor facility located in Radford, Virginia. At the election held in
March, 1995, a majority of employees eligible to cast ballots voted against
such union representation.
Financial Information About Foreign and Domestic Operations and Export
Sales.
Financial information on the Company's foreign and domestic operations
and export sales is contained in the response to Item 14(a) of this Report.
Item 2. Properties.
The Company's corporate office is located in Waltham, Massachusetts.
The table which follows sets forth a current summary of the locations of the
Company's principal operating plants and facilities, and other pertinent
facts concerning them. The Company's facilities are substantially utilized,
well maintained and suitable for its products and services.
<TABLE>
<CAPTION>
Size of Leased
Industry Segment Location Facility or owned
<S> <C> <C> <C>
Motion Technologies Group Blacksburg, VA 5,000 sq.ft. Leased
Commack, NY 100,000 sq.ft. Leased
Radford, VA 261,000 sq.ft. Owned
Avrille, France 94,000 sq.ft. Owned
Besancon, France 11,000 sq.ft. Owned
Electro-Optical Instruments Brattleboro, VT 24,000 sq.ft. Leased
Groton, CT 11,500 sq.ft. Owned
New Windsor, NY 83,000 sq.ft. Owned
Northampton, MA 98,000 sq.ft. Owned
Corporate Waltham, MA 6,250 sq.ft. Leased
</TABLE>
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<PAGE>8
The Company maintains approximately 192,000 sq.ft. of excess space resulting
from prior business segment dispositions and consolidations of facilities.
Currently approximately 65,000 sq.ft of this excess space is being leased or
sublet and 127,000 sq.ft. remains unutilized.
Item 3. Legal Proceedings.
The Company has various legal proceedings arising from the ordinary
conduct of its business; however, they are not expected to have a material
adverse effect on the consolidated financial position, cash flows, or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Company.
The following is a list of the Company's executive officers, their ages
and their positions as of March 15, 1996:
Present Business Experience During
Name Age Office Past Five Years
Gideon Argov 39 President President and Chief Executive
and Officer since November 1991;
Chief Director since May 1991. From
Executive March 1988 to May 1991,
Officer President and Chief Executive
Officer and Director of High
Voltage Engineering Company.
Prior to that date, for five
years a manager and senior
consultant with Bain & Company.
Robert J. Cobuzzi 54 Senior Senior Vice President (since
Vice February 1993), Treasurer and
President, Chief Financial Officer since
Treasurer July 1991. From April 1989 to
and July 1991, Vice President and
Chief Treasurer of High Voltage
Financial Engineering Company. Prior to
Officer April 1989, Vice President and
Chief Financial Officer of
Ausimont N.V.
James A. Eder 50 Vice Vice President since January
President, 1990; General Counsel since
Secretary December 1991, and Secretary
and since 1983. Previously he had
General been Assistant Corporate Counsel
Counsel from 1977 to 1982.
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<PAGE>9
Mark E. Petty 40 Vice Vice President since January 1,
President 1996. President of the
Company's U.S. Motion
Technologies Group since 1994.
Prior to that, he held several
management positions in the
Company since March 1992.
Previously, President of General
Eastern, a Division of High
Voltage Engineering Company.
All officers are elected annually for one-year terms at the
organizational meeting of the Board of Directors held immediately following
the annual meeting of shareholders.
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder
Matters.
The Company's Common Stock is traded on the New York Stock Exchange.
There were approximately 2,100 registered holders of the Company's Common
Stock on March 15, 1996. The following table sets forth the high and low
sales price for shares of the Company's Common Stock within the last two
fiscal years and the dividends paid during each quarterly period.
<TABLE>
SELECTED QUARTERLY STOCK DATA
(in thousands, except per share amounts)
<CAPTION>
1 Q 95 2 Q 95 3 Q 95 4 Q 95 1 Q 94 2 Q 94 3 Q 94 4 Q 94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per
common share:
High: 6 7/8 8 7/8 11 5/8 11 1/8 9 9 3/4 8 1/8 7 1/2
Low: 5 3/4 6 1/4 8 1/8 9 1/8 7 1/4 7 3/8 6 7/8 5 1/4
Shares of common
stock traded: 752 821 1,770 961 839 1,215 440 716
Dividends per
common share $.02 $.02 $.02 $.02 $.02 $.02 $.02 $.02
Average outstanding
common shares and
common share
equivalents 9,650 9,658 9,670 9,692 9,637 9,640 9,644 9,647
</TABLE>
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial data
for the Company for each of the five fiscal years 1991 through 1995. All
dollar amounts are in thousands except per share data.
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<PAGE>10
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $ 228,655 $ 191,771 $ 185,538 $ 194,859 $ 200,457
Net income (loss) 7,157 4,051 4,752 (8,725) (35,938)
Total assets 147,474 138,201 134,008 149,568 154,443
Total debt 49,808 53,991 53,524 56,170 58,339
Redeemable preferred
stock (See Note 8 to
Financial Statements) 25,506 22,532 22,407 22,282 22,156
Common share data:
Number of average
outstanding shares
and equivalents 9,667,434 9,641,698 9,632,232 9,627,228 9,628,122
Net income (loss) * $ .26 $ .18 $ .25 $(1.14) $(3.97)
Cash dividends $ .08 $ .08 $ .08 $ .08 $ .26
<FN>
* After payment of the 10% premium on the redemption of the Series D Convertible
Preferred Stock. See Note 8 to the financial statements.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This filing contains forward-looking statements which involve risks and
uncertainties. The Company s actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, product demand and
market acceptance risks, the effect of economic conditions, the impact of
competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraints or difficulties,
availability of capital resources, general business and economic conditions,
the effect of the Company s accounting policies, and other risks detailed
below and in the Company s Securities and Exchange Commission filings.
In October, 1995 the Company sold its Photo Research business for $3.2
million in cash after expenses relating to the sale, which resulted in a gain
of approximately $0.9 million. On January 19, 1996 the Company entered into
a term loan with the Company s lead bank which amended its existing loan
agreement to include a $25 million five year amortizing term loan for the
purpose of the redemption in February, 1996 of the Company s Series D
Convertible Preferred Stock (the "Preferred Stock"). The Preferred Stock had
a dividend rate of 9.5% versus the 7.45% interest rate of the term loan, and
consequently should have a beneficial impact on the Company s earnings per
share and cash flow. Additionally, the deductibility of the interest
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<PAGE>11
payments will have a favorable impact if the Company s tax benefit
carryforwards are fully utilized. In March, 1996 the Company sold a
significant portion of its French instrumentation business for 12 million
French francs (approximately $2.4 million). This will allow the Company to
consolidate all of its motion technology operations at one site, which is
expected to lower the fixed costs of the French group. It is not expected
that the sale of this business will have a material impact on the Company's
results in the first quarter of 1996.
Results of Operations
For the year ended December 31, 1995, the Company had sales of $228.7
million and net income of $7.2 million, equal to $0.26 per common share.
These results compare with 1994 sales of $191.8 million and net income of
$4.1 million, equal to $0.18 per common share, and 1993 sales of $185.5
million and net income of $4.8 million, equal to $0.25 per common share.
Deducted from earnings in the calculation of earnings per share in 1995 was
the 10% premium of $2.3 million, or $0.24 per share, required pursuant to the
1990 Preferred Stock purchase agreement, and paid by the Company at the
February 1996 redemption of all of the Preferred Stock.
The Company's sales increase of 19% in 1995 over 1994 is attributable to
increased revenue in both of the Company's business segments. Overall the
Company s aerospace and defense related revenues increased 21% and non-
defense related revenues increased 18%. Domestic sales increased 25% in 1995
over 1994 and sales to customers outside of the United States increased 9%
over 1994. The Company s sales increase of 3% in 1994 over 1993 is also
attributable to increased revenues in both of the Company s business
segments.
Sales and marketing expenses were $29.4 million or 13% of sales for 1995
as compared to $27.8 million or 14% of sales for 1994 and $24.7 million or
13% of sales for 1993. The increase in spending in 1995 was primarily the
result of increased expenses incurred by the Company s Macbeth division
relating to the costs of launching several new products, and the expansion of
the Company s sales and marketing operations in Europe and the Far East. The
increase in sales and marketing expenses in 1994 over 1993 reflects the
acquisition in 1994 of Hightech Components, Ltd. in the U.K. and the full
year operation of sales offices opened in late 1993. Additionally, the
Company s Electro-Optical division incurred $1 million of additional expenses
in connection with several bid proposals in 1994, which resulted in an award
in 1995 of a $35 million contract for the design and construction of the next
generation of periscopes for the U.S. Navy.
Research and development expenses were $13.2 million or 6% of sales in
1995, $10.8 million or 6% of sales in 1994, and $9.3 million or 5% of sales
in 1993. The increased spending was primarily attributable to the support of
long term contracts awarded to the Company s French aerospace and defense
operation, and the development projects for commercial motion technology
products for introduction in 1995, 1996, and 1997. The increase in research
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<PAGE>12
and development spending in 1994 over 1993 was primarily attributable to
$1 million in spending to expedite the development of products by the
Company s French instrument group, which were delivered in 1995.
Interest expense was $4.7 million, $4.8 million, and $5.1 million, in
1995, 1994, and 1993, respectively. Interest expense remained relatively
flat from 1994 to 1995 as the debt the Company incurred in connection with
the 1994 acquisition of certain assets of Hightech Components Ltd. and
Sperry Marine Inc., and the increased bank debt of the Company s French
subsidiary, was offset by the reduction in long term debt as a result of the
Company's annual mandatory sinking fund payments on its two convertible
subordinated debentures. The decline in interest expense in 1994 over 1993
was also a result of the lower level of long term debt due to these mandatory
sinking fund payments.
The Company recognized tax benefits of approximately $0.8 million for
each of the years 1994 and 1993 resulting from resolution of certain prior
year tax assessments. The Company s tax rate reflects the utilization of net
operating loss and other tax credit carryforwards.
Motion Technologies Group
Sales in the motion technologies group increased to $130.8 million in
1995, up 27% from $103.4 million in 1994. Sales in 1994 were down 4%
compared to 1993 sales of $107.2 million. In 1995 this segment increased its
domestic revenues by 36% and foreign revenues by 10% over 1994. Sales to the
defense market increased 41% over 1994, and sales to the non-defense markets
increased 22%. The most significant increase in sales was in the Company s
U.S. commercial business where revenues increased 30% over 1994, largely as a
result of increased OEM sales. The Company's French subsidiary, Kollmorgen
Artus, which sells principally to the aerospace and defense markets, had a
20% increase in sales in 1995 over 1994, which included revenues recognized
under significant development and production contracts for two aerospace
programs. The sales decline in 1994 versus 1993 reflects an 11% decline in
the aerospace and defense group as a result of the of the weak condition in
the defense/aerospace market.
Operating income (excluding corporate expenses) for this segment was
$9.8 million and $8.5 million in 1995 and 1994, respectively, and the
operating income was $9.7 million in 1993. The increase in operating income
in 1995 over 1994 was a result of the increased revenues discussed above,
however, operating profit as a percent of sales declined in 1995 to 7.5% from
8.2%. Gross margins for the segment declined to 31% in 1995 from 35% in
1994. This reduction was principally attributable to an increased portion of
revenues from OEM business, which has historically been at lower gross
margins than the Company s other business. Manufacturing cost reductions and
unit price increases should improve the gross margins on ongoing OEM
contracts which are expected to provide significant revenues in 1996. It is
expected that the segment should be able to improve gross margins in 1996 as
compared to 1995. The preceding forward-looking statements are subject to
significant risks and uncertainties, which may cause the Company s actual
<PAGE>
<PAGE>13
experience to differ from its expectations. These risks and uncertainties
include, among other things, the possibility that the mix of products sold
will be less favorable than either expectations or that experienced in 1995,
unexpected increases in cost of goods sold, increased competition, pricing
pressures, and lower than expected sales.
The motion technologies group s research and development spending
remained at 5% of sales in both 1995 and 1994, but the total dollar spending
increased 39% to support the development of products introduced in 1995 and
expected to be introduced in 1996 and 1997, and two aerospace programs at the
Company s French subsidiary. Sales and marketing expenses increased 9% in
1995 to support the higher level of sales. Sales and marketing expenses were
12% of sales in 1995 and 14% in 1994.
The segment s operating income for 1994 declined from 1993 as a result
of the decline in revenues in the aerospace and defense business, increased
spending on research and development, and the costs associated with the
expansion of the segment s sales and marketing force, both domestically and
internationally.
New orders for this segment were up 14% in 1995 over 1994, with the
Industrial and Commercial Products and Aerospace and Defense Products groups
both having an increase of 14% over 1994. Backlog for this segment was $56.2
and $60.3 million at December 31, 1995 and 1994, respectively. The Company
believes the decrease is primarily due to shorter leadtime requirements of
the segment s customers, particularly in the non-defense markets. In 1994,
new orders were up 7% over 1993, and backlog increased 23%. The increases
reflected the increased sales and marketing efforts and the acquisition of
Hightech Components Ltd.
Capital expenditures in 1995, 1994, and 1993 for this segment were $2.7
million, $3.0 million and $3.0 million, respectively, principally for
replacement of existing equipment and investments in new equipment to improve
manufacturing efficiency.
Electro-Optical Instruments
Sales in the electro-optical instruments segment increased to $97.8
million, up 11% from $88.4 million in 1994. Sales in 1994 increased by 13%
over 1993 sales of $78.4 million. The increase in 1995 over 1994 was due in
large part to increased sales of new color instrumentation products at the
Company s Macbeth division. The Electro-Optical division also realized an
increase in revenues over 1994 under percentage of completion accounting on
long-term military contracts. The sales increased in this segment despite
the absence of fourth quarter sales for the Company s Photo Research division
which was sold in early October, 1995. Excluding the sales of Photo Research
for both 1995 and 1994, revenues increased 14%. In 1994 the sales increase
over 1993 was primarily attributable to increased revenues by the Company s
Electro-Optical division.
<PAGE>
<PAGE>14
Operating income (excluding corporate expenses) for this segment was
$6.4 million in 1995, an increase of 93% over 1994 operating income of $3.3
million which was unchanged from 1993 operating income of $3.3 million.
Included in the 1995 results for the segment is the gain on the sale of Photo
Research. Excluding this gain, operating income would have been $5.5
million, an increase of 65% over 1994. The increase in 1995 over 1994 is
primarily a result of increased sales volume at the Company's Electro-Optical
division. Operating income in the commercial light and instrumentation
business also improved due to the increased sales volume for newly introduced
products. The Company s consulting engineering business, Proto-Power, also
showed significant growth in both revenues and operating income. The results
of the Company s French instrumentation business were negatively affected by
charges of approximately $1.2 million associated with the planned downsizing
of that operation which took place in the fourth quarter of 1995 and early
1996.
Gross margin for this segment improved slightly in 1995 over 1994,
increasing to 37% from 36%. Margin improvements at the segment s Electro-
Optical division were somewhat offset by a small decline at the segment s
Macbeth division, reflecting the lower gross margins on OEM products
introduced in late 1994.
Research and development spending increased 8% in 1995 versus 1994, and
remained at 7% of sales. Sales and marketing expenses increased 3% in 1995
over 1994, but declined as a percentage of sales to 14% from 15% in 1994.
Operating income in 1994 of $3.3 million was unchanged from 1993. The
contribution on increased sales by the Company s Electro-Optical division was
offset by lower sales and increased spending by the Company s French
instrumentation business.
Backlog for this segment was $53.1 million, $58.3 million, and $61.6
million at December 31, 1995, 1994, and 1993, respectively. The decrease in
1995 was caused in large part by the shipments at the Company s French
instrumentation business booked in 1994 and not replaced. Additionally, in
both 1995 and 1994 the recognition of revenues on long term contracts under
percentage of completion accounting by the Electro-Optical division reduced
the segment's backlog.
Capital expenditures in 1995, 1994, and 1993 for this segment were $1.1
million, $1.7 million, and $2.5 million, respectively, primarily for
replacement of existing equipment and investment in new equipment to improve
the efficiency of product manufacturing.
Liquidity and Capital Resources
The Company's consolidated cash position increased by $10.6 million
during 1995. Cash provided from operations was $19.0 million, while $0.4
million was used for investing activities and $7.6 million was used for
financing activities.
<PAGE>
<PAGE>15
Included in the cash provided from operations is the elimination of the
requirement by the Company s lead bank, to maintain restricted cash balances
in support of its standby letter of credit facility, which made available $6
million of cash to the Company. Additionally, the Company had a $2 million
letter of credit at another bank which guaranteed an obligation for a former
business sold by the Company in 1987. The Company was required to pay the $2
million in 1995 to satisfy its obligation, which was previously reserved and,
therefore, had no impact on the Company's results of operations. The Company
has no further obligation with respect to this transaction.
At December 31, 1995, the Company was contingently liable for $8.9
million for outstanding standby letters of credit issued principally to
secure advance payments received from foreign customers on long-term military
contracts.
Accounts receivable growth used $2.2 million of cash, reflecting
increased revenue of 20% in the fourth quarter of 1995 compared to the same
period in 1994. Inventories used $3.9 million of cash reflecting the higher
revenue levels as compared to 1994. Recoverable amounts on long-term
contracts increased by $4.7 million reflecting the increased revenue
recognized on long term military contracts under the percentage completion
method for which billing milestones have not yet been reached. Accounts
payable and accrued liabilities generated $8.3 million in cash excluding the
use of cash to fund the $2 million payment required by the standby letter of
credit discussed above. This increase in liabilities was to support the
increased volume of the businesses as compared to a year ago.
The Company's investing activities in 1995 included expenditures of $3.9
million for property, plant and equipment primarily for replacement of
existing equipment and investment in new equipment to improve manufacturing
efficiency. In early 1995 the Company sold a vacant building, receiving $2.4
million in cash after expenses, which was used to repay a mortgage of $2.0
million. The Company sold the assets of its Photo Research business in
October 1995 receiving $3.2 million in cash after deducting expenses
connected with the transaction. The Company invested $1.0 million in a joint
venture in India to manufacture high volume low cost fractional horsepower
motors. Additionally, the Company made an equity investment of $0.6 million
in Servotronix Ltd., an Israeli company which is involved in the joint
development of high performance digital drives and controls with the
Company s motion technologies group. In 1996 the Company will make an
additional investment of at least $1.4 million in Servotronix.
The Company's financing activities used $7.6 million of cash during the
year. Dividends, both common and preferred, accounted for $3.0 million. The
Company also made mandatory sinking fund payments on its two convertible
subordinated debentures totalling $3.1 million. The Company is required,
under the terms of the convertible subordinated debenture agreements, to make
certain mandatory sinking fund payments each year through the year 2009. The
Company paid $0.9 million against notes the Company issued in connection with
the 1994 acquisition of the submarine periscope assets of Sperry Marine Inc.
and the assets of Hightech Components Ltd. At the Company's French facility,
$1.2 million was borrowed against existing credit lines.
<PAGE>
<PAGE>16
On February 19, 1996 the Company redeemed all of the outstanding shares
of its Preferred Stock at 110% of liquidation value plus accrued and unpaid
dividends. The redemption payment of $25.8 million was financed by $25
million in debt and $0.8 million in working capital. As a requirement of the
$25 million term loan provided under the Company s Amended and Restated
Credit Agreement among the Company, its primary bank, and certain other
financial institutions, the Company entered into a rate protection agreement
with its primary bank. The rate protection agreement is a $25 million five
year amortizing interest rate swap which effectively converts a floating rate
debt to a 7.45% fixed rate of interest. The Company has no exposure to
fluctuations in interest rates during the term of the loan, unless the
Company were to prepay the loan and interest rates declined. Repayments
under the term loan commence in 1996 with payments due of $2.3 million. The
credit agreement has a combined limit of $45 million divided between the term
loan and a revolving credit facility of up to $20 million with a $12.5
million sublimit on letters of credit.
Capital spending for 1996 is expected to be at significantly higher
levels in 1996 principally due to the investment by the Company in new
information systems to better allow the Company to manage and grow its
business. The Company expects to obtain lease or debt financing for much of
its capital requirements for 1996. The Company s need, cost of, and access
to funds are dependent on future operating results, as well as conditions
external to the Company. The Company continues to focus on working capital
reductions and effective cash management in order to maximize the amount of
available cash. The Company believes that with the cash generated from
operations and with its current borrowing capacity it will be able to finance
its 1996 capital expenditures, sinking fund payments, and working capital
requirements.
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, 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.
General corporate expenses included interest expense, investment income,
and general and administrative expenses.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is included in Item 14(a) of
this Report.
<PAGE>
<PAGE>17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this Item 10 of Form 10-K relating to
directors who are nominees, and to directors continuing in office after the
Company's Annual Meeting of Shareholders to be held on May 8, 1996, is
contained in the definitive proxy statement to be filed with the Securities
and Exchange Commission (the "Commission") on or before April 5, 1996, under
the headings "Nominees", and "Continuing Directors", and such information is
incorporated herein by reference in response to this item.
The information required by this Item 10 of Form 10-K with respect to
executive officers is set forth in Part I of this Form 10-K under the heading
"Executive Officers of the Company".
Item 11. Executive Compensation.
The information required by this Item 11 of Form 10-K is contained in
the Company's definitive proxy statement to be filed with the Commission on
or before April 5, 1996, under the heading "Executive Compensation" and such
information is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 of Form 10-K is contained in
the definitive proxy statement to be filed with the Commission on or before
April 5, 1996, under the headings "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" and such information is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 of Form 10-K is contained in
the Company's definitive proxy statement to be filed with the Commission on
or before April 5, 1996, under the heading "Certain Relationships and Related
Transactions" and such information is incorporated herein by reference in
response to this item.
<PAGE>
<PAGE>18
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements. See Index to Financial Statements
on page 20.
(2) Exhibits. See Exhibit Index on page 47.
(b) Reports on Form 8-K. On February 26, 1996, the Company filed a
current report on Form 8-K announcing the redemption of its entire
issue of Series D Convertible Preferred Stock.
<PAGE>
<PAGE>19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, Kollmorgen Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KOLLMORGEN CORPORATION
/s/ Robert J. Cobuzzi
Robert J. Cobuzzi
Its: Senior Vice President, Treasurer
and Chief Financial Officer
March __, 19965
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
/s/ Gideon Argov
Gideon Argov March __, 1996
President and
Chief Executive Officer/Director
/s/ Robert J. Cobuzzi
Robert J. Cobuzzi March __, 1996
Senior Vice President, Treasurer and
Chief Financial Officer
/s/
Keith D. Jones March __, 1996
Chief Accounting Officer
/s/ James A. Eder
James A. Eder March __, 1996
Vice President and Secretary and
Attorney-in-Fact For:
Allan M. Doyle, Jr., Director Robert N. Parker, Director
Jerald G. Fishman, Director Eric M. Ruttenberg, Director
James H. Kasschau, Director George P. Stephan, Director
J. Douglas Maxwell, Jr., Director
<PAGE>
<PAGE>20
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are included in response to Item 8.
Page(s) in
Form 10-K
-----------
Report of Independent Accountants 21
Consolidated Balance Sheets as of
December 31, 1995 and 1994 22-23
Consolidated Statements of Operations
for the years ended December 31,
1995, 1994 and 1993 24
Consolidated Statements of Shareholders'
Equity for the years ended
December 31, 1995, 1994 and 1993 25-26
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993 27-28
Notes to Consolidated Financial Statements 29-46
<PAGE>
<PAGE>21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kollmorgen Corporation:
We have audited the accompanying consolidated balance sheets of
Kollmorgen Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kollmorgen Corporation as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 31, 1996, except as to the information
presented in Note 8 relating to the Series D
Convertible Preferred Stock redemption for
which the date is February 19, 1996.
<PAGE>
<PAGE>22
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars in thousands)
<CAPTION>
ASSETS 1995 1994
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 17,789 $ 7,165
Restricted cash (Note 2) - 8,000
Accounts receivable (net of reserve
of $697 in 1995 and $1,064 in 1994) 40,831 38,348
Recoverable amounts on long-term contracts 12,116 7,380
Inventories (Note 3) 26,210 23,231
Prepaid expenses 1,557 1,303
--------- ---------
Total current assets 98,503 85,427
--------- ---------
Property, plant and equipment, net (Note 4) 28,803 30,789
Net assets held for sale (Note 13) - 3,000
Goodwill (net of accumulated amortization
of $1,037 in 1995 and $420 in 1994) 5,631 6,180
Other assets 14,537 12,805
--------- ---------
$ 147,474 $ 138,201
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE>23
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
1995 1994
--------- ---------
Current liabilities:
Notes payable (Note 6) $ 9,019 $ 10,104
Current portion of long-term debt (Note 7) 3,901 3,220
Redeemable preferred stock (Note 8) 2,756 -
Accrued compensation and payroll taxes 8,328 5,000
Accounts payable 24,969 18,722
Accrued liabilities 22,065 23,356
--------- ---------
Total current liabilities 71,038 60,402
--------- ---------
Long-term debt (Note 7) 36,888 40,667
Other liabilities 5,501 4,720
Commitments and contingencies (Note 15) - -
Redeemable preferred stock (Note 8)
Series D, par value $1.00 and
liquidation value $1,000 per share
--authorized, issued and outstanding
shares, 23,187.5 22,750 22,532
Shareholders' equity (Notes 9 and 10):
Common stock, par value $2.50 per share
-- authorized 25,000,000 shares
-- outstanding 10,762,024 shares in
1995 and 10,756,513 in 199426,904 26,891
Additional paid-in capital 14,343 20,353
Accumulated deficit (18,958) (26,115)
Cumulative translation adjustments (1,454) (1,371)
Less common stock in treasury, at cost
-- 1,068,558 shares in 1995 and
1,106,608 shares in 1994 (9,538) (9,878)
--------- ---------
Total shareholders' equity 11,297 9,880
--------- ---------
$ 147,474 $ 138,201
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<PAGE>24
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 1995, 1994, and 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales $228,655 $191,771 $185,538
Cost of sales 152,614 124,627 121,286
-------- -------- --------
Gross profit 76,041 67,144 64,252
-------- -------- --------
Selling and marketing expense 29,412 27,753 24,708
General and administrative expense 22,435 21,491 21,973
Research and development expense 13,178 10,843 9,338
-------- -------- --------
Income before interest and taxes 11,016 7,057 8,233
-------- -------- --------
Other (income) expense:
Interest expense, net 4,007 3,679 4,149
Other, net (148) 142 180
-------- -------- --------
Income before income taxes 7,157 3,236 3,904
Income tax benefit (Note 11) 0 (815) (848)
-------- -------- --------
Net income $ 7,157 $ 4,051 $ 4,752
======== ======== ========
Net income available to
common shareholders $ 2,509 $ 1,727 $ 2,428
======== ======== ========
Earnings per common share $ .26 $ .18 $ .25
====== ====== ======
Weighted average common shares
outstanding 9,667 9,642 9,634
======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>25
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
December 31, 1995, 1994 and 1993 (dollars in thousands)
<CAPTION>
Common Stock Add'l Accum- Cumulative Treasury Stock Total
-------------- Paid-in ulated Translation -------------- -------------
Shares Amount Capital Deficit Adjustment Shares Amount Shares Amount
---------- ------- ------- -------- ---------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1992 10,744,542 $26,861 $26,521 $(34,918) $ (443) 1,114,408 $(9,947) 9,630,134 $ 8,074
Net income 4,752 4,752
Common stock issuances 5,488 14 24 5,488 38
Dividends paid on common
and preferred stock (2,973) (2,973)
Accretion of preferred
stock discount (125) (125)
Translation adjustments (2,181) (2,181)
---------- ------- -------- -------- -------- ---------- -------- --------- -------
Balance, Dec. 31, 1993 10,750,030 26,875 23,447 (30,166) (2,624) 1,114,408 (9,947) 9,635,622 7,585
Net income 4,051 4,051
Common stock issuances 6,483 16 30 6,483 46
Dividends paid on common
and preferred stock (2,975) (2,975)
Common stock issued
from treasury (24) 7,800 69 7,800 45
Accretion of preferred
stock discount (125) (125)
Translation adjustments 1,253 1,253
---------- ------- -------- -------- -------- --------- -------- --------- --------
Balance, Dec. 31, 1994 10,756,513 26,891 20,353 (26,115) (1,371) 1,106,608 (9,878) 9,649,905 9,880
Net income 7,157 7,157
Dividends paid on common
and preferred stock (2,978) (2,978)
Common stock issuances 5,511 13 35 5,511 48
Common stock issued from
treasury (97) 38,050 340 38,050 243
Accretion of preferred
stock discount (652) (652)
Translation adjustments (83) (83)
Preferred stock redemption
premium (2,318) (2,318)
---------- ------- -------- -------- -------- --------- ------- --------- --------
<PAGE>
<PAGE>26
<CAPTION>
Common Stock Add'l Accum- Cumulative Treasury Stock Total
-------------- Paid-in ulated Translation -------------- -------------
Shares Amount Capital Deficit Adjustment Shares Amount Shares Amount
---------- ------- ------- -------- ---------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1995 10,762,024 $26,904 $14,343 $(18,958) $(1,454) 1,068,558 $(9,538) 9,693,466 $11,297
========== ======= ======= ========= ======== ========= ======= ========= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>27
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994, and 1993
(Dollars in thousands)
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from operations $ 7,157 $ 4,051 $ 4,752
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation 5,751 5,897 5,989
Amortization 1,848 781 755
(Gain) on sale of assets (293) - -
Other non-cash expenses 48 46 38
Changes in operating assets and liabilities (net of
effects from acquisitions):
Restricted cash 8,000 (1,280) (962)
Accounts and notes receivable (2,194) (3,154) 2,105
Recoverable amounts on long-term contracts (4,736) (1,546) 6,209
Inventories (3,892) 512 1,264
Prepaid expenses (248) (501) (1,145)
Accounts payable and accrued liabilities 6,264 (1,329) (8,452)
Deferred income taxes and other expenses 747 249 25
Other 304 465 290
-------- -------- --------
Net cash provided by operations 18,756 4,191 10,868
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (3,852) (4,837) (5,470)
Purchase of property held for sale (4,263)
Proceeds from sale of assets (net of related expenses) 5,619 - -
Equity investments (1,718) - -
Long term notes receivable (net of repayments)(425) - -
Acquisition of Hightech Components and
certain assets of Sperry Marine - (3,749) -
-------- -------- --------
Net cash provided by (used in) investing activities (376) (8,586)(9,733)
-------- -------- --------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
<PAGE>28
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under credit lines(803) 1,351 (1,322)
Principal repayment on other notes (896) - -
Common stock issued from treasury 243 45 -
Principal payments under capital lease obligations (42) (33) -
Retirement of long-term debt (3,075) (4,499) (2,656)
Dividends paid on common and preferred stock(2,978) (2,975) (2,973)
-------- -------- --------
Net cash provided by (used in) investing activities (7,551) (6,111)(6,951)
Effect of exchange rate changes on cash (205) (11) 35
-------- -------- --------
Net increase (decrease) in cash and equivalents 10,624 (10,517)(5,781)
Cash and cash equivalents at beginning of year 7,165 17,682 23,463
-------- -------- --------
Cash and cash equivalents at end of year $ 17,789 $ 7,165 $ 17,682
======== ======== ========
Supplemental cash flow information
Cash paid during the period for:
Interest 4,704 4,809 5,130
Income taxes (net of refunds) (321) 101 (646)
Non-cash financing activities:
Mortgage assumed - - 1,987
Acquisition of Hightech Components and
assets of Sperry Marine:
Fair value of assets acquired - 6,539 -
Cash paid - 3,749 -
--------
Notes assumed 2,790
========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>29
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(Dollars in thousands, except per share amounts)
_________________________________________________________________
Note 1. Summary of significant accounting policies
A summary of the significant accounting policies followed by Kollmorgen
Corporation is presented below. Certain reclassifications have been made to
the prior years' financial statements to conform to 1995 classifications.
For purposes of the Notes to Consolidated Financial Statements, the term the
"Company" refers to Kollmorgen Corporation and its subsidiaries.
Principles of Consolidation The consolidated financial statements
include the accounts of the Company and all of its majority-owned
subsidiaries.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Cash and Cash Equivalents Cash equivalents are stated at cost that
approximates fair value. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Recoverables Recoverable amounts on long-term contracts represent
revenues recognized on a percentage-of-completion basis less progress
billings.
Inventories Inventories are stated at the lower of cost or market,
principally using the first-in, first-out method. Progress payments received
on contracts other than major long-term contracts are deducted from
inventories.
Property, Plant and Equipment and Accumulated Depreciation Property,
plant and equipment are carried at cost and include expenditures for major
improvements which substantially increase their useful life. Repairs and
maintenance are expensed as incurred. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss
is recognized.
For financial reporting purposes, depreciation is provided generally on
a straight-line basis over the estimated useful lives of the buildings (10 to
50 years) and the machinery and equipment (3 to 12 years). Leasehold
<PAGE>
<PAGE>30
Notes to Consolidated Financial Statements - continued
improvements are depreciated over the remaining period of the existing
leases. For income tax purposes, depreciation is computed by using various
accelerated methods and, in some cases, different useful lives than those
used for financial reporting.
Goodwill and Intangibles Goodwill consists of amounts by which the
cost of acquisitions exceeded the values assigned to net tangible assets.
Intangible assets consist principally of patents. All of the intangible
assets are being amortized on a straight-line basis over periods ranging from
10 to 40 years.
At each balance sheet date, management evaluates whether there has been
a permanent impairment in the value of goodwill or intangible assets by
assessing the carrying value of the asset against the anticipated future cash
flows from related operating activities. Factors which management considers
in performing this assessment include current operating results, trends and
prospects, and, in addition, demand, competition, and other economic factors.
Foreign Currency Translation The functional currency for the majority
of the Company s foreign operations is the applicable local currency. The
translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using the exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The gains or losses resulting from
such translation are included in stockholders equity. Gains or losses
resulting from foreign currency transactions are included in other income.
Sales Sales, other than revenues from major long-term contracts, are
recorded as products are shipped. Major programs that are performed under
long-term contracts are accounted for using the percentage-of-completion
method. Revenues recognized under this method were $37.7 million, $34.4
million, and $24.5 million in 1995, 1994, and 1993, respectively. In most
cases the contracts also provide for progress billings over the life of the
program.
Earnings Per Common Share Earnings per common share is based on net
income less the dividends, interest accretion and the premium paid (see Note
8) on redeemable preferred stock divided by the weighted 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 significant dilution of net income per common
share and, accordingly, is not presented.
Income Taxes Effective January 1, 1993 the Company adopted Statement
of Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109").
The adoption of FAS 109 had no material effect on results of operations or
financial position.
<PAGE>
<PAGE>31
Notes to Consolidated Financial Statements - continued
Postretirement Benefits Other Than Pensions Effective January 1, 1993,
the Company adopted Statement of Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106").
Under FAS 106, the Company is required to accrue the expected benefit
obligation for postretirement benefits during the employees' active service
periods.
The Company has elected the delayed recognition method in which the cost
for employees hired prior to January 1, 1992, is being amortized over 20
years. The Company paid approximately $0.8 million in 1995 for post-
retirement benefits to current retirees.
Fair Value of Financial Instruments The method and assumptions used to
estimate the fair value of each class of financial instrument for which it is
practicable to estimate a value are as follows:
Long-Term Debt: The fair value of the Company s long-term debt is
estimated based on its quoted market prices.
Standby Letters of Credit: The fair values of letters of credit are
based on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
New Accounting Pronouncement In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), which is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
SFAS 123 established a fair value based method of accounting for stock-based
compensation plans. The Company will adopt the disclosure method in 1996.
The Company has not determined its effect on a proforma basis to 1995 net
income and earnings per share of applying fair value accounting rules to
grants of stock-based awards in 1995.
Note 2. Restricted cash
The Company has no restricted cash balances at December 31, 1995. In
1995 the Company s lead bank eliminated the requirement for the Company to
maintain restricted cash balances in support of an irrevocable standby and
documentary letter of credit facility. Additionally, in 1995 the Company
paid $2 million under a guarantee secured by a letter of credit at another
bank and which was supported by a $2 million restricted cash balance.
The restricted cash balance of $8 million in 1994 served as collateral
for both an irrevocable standby and documentary letter of credit facility at
the Company's lead bank and to secure a specific letter of credit at another
bank.
<PAGE>
<PAGE>32
Notes to Consolidated Financial Statements - continued
Note 3. Inventories
Inventories at December 31 consist of the following:
1995 1994
--------- ---------
Raw materials $ 15,110 $ 12,323
Work in process 7,653 6,888
Finished goods 3,447 4,020
--------- ---------
$ 26,210 $ 23,231
========= =========
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31 consists of the following:
1995 1994
--------- ---------
Land $ 2,086 $ 1,877
Leasehold improvements 792 889
Buildings 35,652 35,162
Machinery and equipment 74,385 74,146
Capital leases 581 450
--------- ---------
113,496 112,524
Less accumulated depreciation
and amortization 84,693 81,735
--------- ---------
$ 28,803 $ 30,789
========= =========
Note 5. Financial Instruments
The Company has not used derivatives to hedge its exposure to market
risks from changes in foreign exchange rates and interest rates. In 1996,
however, as part of its borrowing facility with its lead bank (see Note 6)
the Company entered into a $25 million five year amortizing interest rate
swap which effectively converts a floating rate debt to a fixed rate of
interest of 7.45%. The Company has no exposure to fluctuations in interest
rates during the term of the loan, unless the Company were to prepay the loan
and interest rates declined.
The Company s principal foreign operations are in countries in which the
currency historically has been fairly stable. Management believes that any
fluctuations in currency rates within these countries will not have a
material adverse effect on the Company s financial condition, cash flows, or
results of operations.
<PAGE>
<PAGE>33
Notes to Consolidated Financial Statements - continued
Note 6. Lines of credit and notes payable
Notes payable consist of the following at December 31:
1995 1994
-------- --------
Foreign $ 7,103 $ 6,152
Domestic 1,916 3,952
-------- --------
$ 9,019 $10,104
======== ========
On January 19, 1996, the Company amended its borrowing facility with its
lead bank to provide for (i) a five year $20 million revolving credit
facility (with a $12.5 million sublimit on letters of credit), and (ii) a $25
million amortizing five year term loan. The term loan was for the sole
purpose of redeeming the Series D Convertible Preferred Stock as discussed in
Note 8. The term loan bears interest at 7.45% and is repaid in mandatory
installments of $2.25 million, $3 million, $5.25 million, $6 million, $6.75
million, and $1.75 million in the years 1996, 1997, 1998, 1999, 2000, and
2001 respectively. The borrowing facility is secured by substantially all of
the tangible and intangible assets of the Company (excluding real property).
The facility contains certain financial covenants that the Company must
comply with including limits on capital spending, minimum cash flow
requirements, minimum tangible net worth, current ratio, and other ratios
relating to the amount of total debt that the Company may have as compared to
the Company s net worth and earnings. The requirements to be met change
during the term of the loan.
At December 31, 1995, the Company s agreement with its lead bank
provided for a one-year $17.5 million domestic revolving credit and standby
letter of credit facility, and a 21 million French franc revolving credit
facility (approximately $4 million) for the Company s French operation. At
December 31, 1995, the Company had $8.9 million of standby and documentary
letters of credit outstanding at this bank, approximately $3.6 million (17.6
million francs) under the French facility, and no amounts were outstanding
under the domestic revolving credit facility. The agreement also required
the Company to maintain, among other things, certain financial ratios, and
contained other affirmative and negative covenants. The Company was in
compliance with all covenants at December 31, 1995.
The Company's French subsidiary, Kollmorgen Artus, maintains working
capital lines of credit with three French banks other than the Company s lead
bank discussed above. At December 31, 1995 the Company had approximately
$3.1 million outstanding and $0.7 million of availability under these lines
of credit.
<PAGE>
<PAGE>34
Notes to Consolidated Financial Statements - continued
Note 7. Long-term debt
Long-term debt consists of the following:
1995 1994
-------- --------
8 3/4% Convertible subordinated
debentures due 2009 $ 36,340 $ 37,438
10 1/2% Convertible subordinated
debentures due 1997 4,000 6,000
Term loans, 10.5% due through 1997 28 41
Capital lease obligations 421 408
-------- --------
40,789 43,887
Less current maturities 3,901 3,220
-------- --------
$ 36,888 $ 40,667
======== ========
The 8 3/4% Convertible Subordinated Debentures are convertible at any
time prior to maturity, unless previously redeemed, into 1,057,933 shares of
common stock of the Company at a conversion price of $34.35 per share,
subject to adjustment in certain events. The Company is required to make
annual sinking fund payments sufficient to retire $1.75 million principal
amount of debentures which commenced on May 1, 1994, and each year thereafter
including May 1, 2009. As part of the mandatory sinking fund payments, the
Company purchased, on the open market, $951 thousand aggregate principal
amount of bonds at a market price below par value which resulted in an
immaterial gain. At December 31, 1995 the market price of these debentures
approximated carrying value.
The 10-1/2% Convertible Subordinated Debentures, issued in a private
placement, are convertible into 160,000 shares of the Company's common stock
at a price of $25 per share at any time prior to maturity, unless previously
redeemed. The debentures are subject to mandatory sinking fund payments
which commenced on August 1, 1993, and each year thereafter including
August 1, 1997, in the amount of $2 million of principal reduction.
The Company incurred $4.7 million, $4.8 million, and $5.1 million of
interest expense on debt in 1995, 1994, and 1993, respectively.
Long-term debt at December 31, 1995, matures as follows:
Date Maturities
---- ----------
1996 $ 3,901
1997 3,913
1998 1,843
1999 1,792
2000 1,750
Thereafter 27,590
--------
$ 40,789
========
<PAGE>
<PAGE>35
Notes to Consolidated Financial Statements - continued
Note 8. Preferred Stock
The Company's Restated Certificate of Incorporation provides that the
Corporation is authorized to issue 500,000 shares of preferred stock, $1.00
par value, in series. At December 31, 1995, there were 23,187.5 shares of
preferred stock issued and outstanding.
In March, 1990, the Company sold 23,187.5 shares of a new issue of
Series D convertible preferred stock (the "Preferred Stock") for $1,000 per
share, or an aggregate of approximately $23.2 million, to a group of
investors led by Tinicum Enterprises, Inc. The Preferred Stock had a
cumulative dividend rate of 9.5 percent per year and was convertible into an
aggregate of 1,717,591 shares of Kollmorgen common stock, subject to
antidilution provisions.
On February 19, 1996, the Company redeemed all of the Preferred Stock.
The redemption price included a 10% premium of $2.3 million plus unpaid
dividends through the date of redemption. At December 31, 1995, there were
no unpaid dividends, and the Preferred Stock is shown at its liquidation
value plus the 10% premium or $25.5 million. The Company borrowed $25
million to finance the redemption (see Note 6), and such note requires
repayments in 1996 of $2.3 million, this amount together with the amount of
the redemption to be funded from working capital, or a total of $2.8 million,
is classified as a current liability on the accompanying balance sheet.
Note 9. Common Stock, Additional Paid-in Capital and Treasury Stock
Pursuant to the By-Laws of the Corporation, directors who are not
employees of the Corporation receive an annual retainer of $12,000. Under
the terms of the 1992 Stock Ownership Plan for Non-Employee Directors, each
non-employee director receives at least 50% of his annual retainer in shares
of common stock. The number of shares of common stock is based on the fair
market value of such shares at the end of each quarterly period.
The Company maintains a Shareholder Rights Plan which provides one
Preferred Stock Purchase Right (Right) for each outstanding share of Common
Stock of the Company. Each Right entitles the registered holder, subject to
the terms of a Rights Agreement, to purchase one one-thousandth of a share
(Unit) of Series B Preferred Stock, par value $1.00 per share (Preferred
Stock), at a purchase price of $50 per Unit. The units of preferred stock
are non-redeemable, voting, and are entitled to certain preferential dividend
rights. The exercise price and the number of units issuable are subject to
adjustment to prevent dilution.
The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement (the date of such announcement being the
"Stock Acquisition Date") that a person or group has acquired beneficial
ownership of 20% or more of the then outstanding shares of capital stock of
the Company entitled to vote ("Acquiring Party") or (ii) a date determined by
<PAGE>
<PAGE>36
Notes to Consolidated Financial Statements - continued
the Board of Directors following the commencement of a tender or exchange
offer which would result in a party beneficially owning 30% or more of the
shares of voting stock of the Company.
The Board of Directors of the Company may redeem the Rights at any time
on or prior to the tenth day following the Stock Acquisition Date at a price
of $0.01 per Right. Unless earlier redeemed, the Rights will expire on
December 20, 1998.
Common stock reserved for issuance at December 31, 1995 and 1994, were
as follows: conversion of debentures and redeemable preferred stock --
2,935,524 and 3,066,470, respectively; and stock options and other awards --
1,122,441 and 1,173,991, respectively.
As a result of the Company's losses in previous years, there was not a
sufficient amount of retained earnings from which to pay dividends and,
accordingly, dividends paid on common and preferred stock were charged to
"Additional Paid-in Capital."
Note 10. Stock option and purchase plans
The Company maintains two employee stock option plans under which grants
have been made to officers and key employees. Options are generally first
exercisable after one year but before ten years from date of grant.
A summary of changes during 1995, 1994, and 1993 in shares of common
stock authorized for grant to officers and key employees under the stock
option plans are as follows:
Number of Shares
1995 1994 1993
---------- ---------- ----------
Shares under option at January 1 879,700 872,820 892,337
Options granted 209,000 132,000 185,000
Options exercised (38,050) (6,800) -
Options canceled (89,700) (118,320) (204,517)
---------- ---------- ----------
Shares under option at December 31 960,950 879,700 872,820
========== ========== ==========
Options exercisable at December 31 443,850 369,600 300,220
Price per share of options granted $ 7.38 to $ 5.63 to $ 6.00 to
$ 9.75 $ 8.88 $ 7.75
Option prices at December 31, 1995, ranged from $4.50 to $16.88 per
share. Prices of options exercised in 1995 ranged from $5.00 to $7.625 per
share.
<PAGE>
<PAGE>37
Notes to Consolidated Financial Statements - continued
Options available for grant at December 31, 1995, 1994 and 1993 were
12,491, 145,291, and 213,291, respectively.
In addition, under the terms of the 1992 Stock Ownership Plan for Non-
Employee Directors, the Company maintains a stock option program for its non-
employee directors who automatically receive an option to purchase 2,000
shares of common stock every other year. Options available for grant under
this program at December 31, 1995, 1994 and 1993 were 105,518, 111,029, and
130,512, respectively.
Note 11. Taxes on income
The components of income (loss) before income taxes were as follows:
1995 1994 1993
-------- -------- --------
Domestic $ 7,543 $ 5,001 $ 5,819
Foreign (386) (1,765) (1,915)
-------- -------- --------
Total $ 7,157 $ 3,236 $ 3,904
======== ======== ========
FAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.
The provision (benefit) for income taxes consists of the following (in
thousands):
1995 1994 1993
-------- -------- --------
Current provision (benefit):
U.S. federal $ 61 $ (906) $ (703)
Foreign (235) 35 -
State - 56 -
-------- -------- --------
(174) (815) (703)
-------- -------- --------
Deferred provision (benefit):
U.S. federal - - -
Foreign 174 - (145)
State - - -
-------- -------- --------
174 - (145)
-------- -------- --------
Total $ 0 $ (815) $ (848)
======== ======== ========
<PAGE>
<PAGE>38
Notes to Consolidated Financial Statements - continued
The U.S. effective income tax rate from operations is different from the
U.S. federal statutory rate for the following reasons:
1995 1994 1993
-------- -------- --------
Income tax provision (benefit) if
computed at U.S. federal rates $ 2,433 $ 1,100 $ 1,378
Benefit of net operating loss
carryforwards (2,650) (1,769) (1,534)
Foreign unutilized net operating
losses and tax credits - 646 -
Foreign tax rate variances 70 (2) -
State income taxes net of
federal benefit - 37 -
Other 147 (827) (692)
-------- -------- --------
$ 0 $ (815) $ (848)
======== ======== ========
The deferred tax assets and liabilities are comprised of the following:
12/31/95 12/31/94
---------- ----------
Bad debt reserve $ 233 $ 260
Employee benefit reserves 711 2,405
Reserve for net realizable value
of real estate 1,200 2,500
Other 3,807 799
Net operating losses and credits18,842 17,580
Property, plant and equipment (2,527) (2,526)
--------- ---------
22,266 21,018
--------- ---------
Valuation allowance (22,266) (21,018)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
For Federal income tax purposes, the Company has domestic regular tax
net operating loss carryforwards of approximately $19.9 million, which may be
used to offset future taxable income. The Company also has foreign net
operating losses of approximately $6.8 million. These net operating losses
expire beginning in 2002. Additionally, the Company has available $7.6
million of general business tax and other credit carryforwards which will
expire beginning in 2002.
<PAGE>
<PAGE>39
Notes to Consolidated Financial Statements - continued
Note 12. Asset Acquisitions and Equity Investments
In May 1995 the Company entered into an agreement to acquire for $0.6
million, a 10% equity interest in Servotronix Ltd., an Israeli firm which
designs and markets digital control systems for the motion control market.
Under the agreement with Servotronix, the companies will jointly develop
products for the worldwide motion control marketplace to be sold exclusively
under the name of Kollmorgen through the Company s distribution channels.
Servotronix will continue to design and market products of their own design
to their customers under the Kollmorgen name.
In 1995 the Company advanced to Servotronix $0.3 million for working
capital in anticipation of exercising its right to increase its equity share.
In 1996 the Company will increase its equity interest in Servotronix with
payments totalling $1.4 million. The Company has the right to increase its
minority interest in 1997 for an additional $2.7 million.
In 1995 the Company invested $1.0 million for a 51% interest in a joint
venture in Bombay, India to manufacture high volume brushless fractional
horsepower motors. Additionally the Company has advanced $1.1 million to the
joint venture to fund its working capital requirements. The joint venture
was not finalized as of December 31, 1995 and was not included in the
financial results of the Company. Management believes that the exclusion of
the joint venture does not have a material impact on the financial statements
presented.
On April 8, 1994, certain assets and liabilities of Hightech Components,
Ltd. were purchased for $1.5 million of which $0.7 million was paid in cash
and $0.8 million was financed with a promissory note. Hightech is a
distributor of motion technology products and is located in Hampshire,
England.
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.
Note 13. Sale of Assets
In February, 1995, the Company sold a vacant building which it had
recorded as an asset held for sale at the end of 1994, and valued at $3
million. Included in the results of operations for the year ended December
31, 1995, and classified as other expense, is a loss of approximately $0.5
million on the sale.
<PAGE>
<PAGE>40
Notes to Consolidated Financial Statements - continued
In October, 1995, the Company sold its Photo Research division for
approximately $3.2 million in cash after deducting related expenses. The
Company recorded a gain, which is included in other income, of approximately
$0.9 million on the sale.
Note 14. Leases
The Company leases certain of its facilities and equipment under various
operating and capital lease arrangements. Such arrangements generally
include fair market value renewal and/or purchase options.
Rent expense for operating leases amounted to $2.5 million in 1995, $2.1
million in 1994, and $3.0 million in 1993 (excluding $.3 million and $.9
million in 1994 and 1993, respectively, which was provided for in prior
restructuring provisions). Future minimum rental payments required under
non-cancelable operating and capital leases having a lease term in excess of
one year, together with the present value of the net minimum lease payments
at December 31, 1995, are as follows:
Operating Capital
Leases Leases
---------- ----------
1996 $ 2,045 $ 162
1997 1,507 162
1998 1,227 126
1999 1,138 65
2000 1,134 0
Thereafter 6,223 0
-------- --------
Total minimum lease payments$ 13,274 515
========
Less amounts representing interest (94)
--------
Present value of net minimum
lease payments $ 421
========
Note 15. Contingencies
The Company has various lawsuits, claims, commitments and contingent
liabilities arising from the ordinary conduct of its business; however, they
are not expected to have a material adverse effect on its consolidated
financial position.
In doing business with the U.S. Government, the Company is subject to
routine audits and, in certain circumstances, to inquiry, review, or
investigation by the U.S. Government Agencies relating to the Company's
compliance with Government Procurement policies and practices. The Company's
<PAGE>
<PAGE>41
Motes to Consolidated Financial Statements - continued
policy has been and continues to be to conduct its activities in compliance
with all applicable rules and regulations.
The Company is engaged primarily in the manufacture and sale of highly
diversified lines of commercial, industrial, and military products into both
domestic and international markets. The Company generally does not require
collateral from its customers on the basis of ongoing reviews and evaluations
of their credit and financial condition.
Note 16. Pension and other employee benefit plans
The Company maintains three non-contributory qualified defined benefit
pension plans covering substantially all domestic employees. Plans covering
most employees provide pension benefits based generally on the employee's
years of service and final five-year or career average compensation. Due to
full funding, the Plans currently have no required contribution by the
Company.
The net periodic pension cost for the years 1995, 1994 and 1993,
including amounts related to discontinued operations, included the following
components:
1995 1994 1993
-------- -------- --------
Service cost $ 1,617 $ 1,986 $ 2,146
Interest cost 3,123 3,104 3,058
Actual (return) loss on plan assets (13,472) 158 (6,376)
Net amortization and deferral 8,396 (5,508) (65)
-------- -------- --------
Net periodic pension cost (credit) $ (336) $ (260) $ (1,237)
======== ======== ========
The assumptions used in determining the end of year benefit obligations
included a discount rate of 6.50% and 8.25% in 1995 and 1994, respectively,
an expected investment return of 10% and compensation increases of 5%. The
reduction in the discount rate resulted in a significant increase in the
actuarial present value of benefit obligations as of December 31, 1995.
During 1993, the Company had pension curtailments resulting from the larger
than expected reductions in the number of employees who would otherwise be
eligible to participate in a defined benefit pension plan. Accordingly, the
net amortization and deferral component of the credit includes a curtailment
gain of $1.3 million for 1993. The Plan assets consist principally of cash,
common stocks, and bonds.
<PAGE>
<PAGE>42
Notes to Consolidated Financial Statements - continued
The Plans' funded status together with the amounts recognized in the
Company's Balance Sheet at December 31 are as follows:
1995 1994
-------- --------
Actuarial present value of
benefit obligations:
Vested $ 40,853 $ 27,896
======== ========
Accumulated 41,766 28,432
======== ========
Projected 56,600 37,830
Plan assets at fair value 58,357 46,992
-------- --------
Plan assets in excess of
projected benefit obligation 1,757 9,162
Unrecognized net (gain) loss 4,931 (2,368)
Unrecognized net asset at January 1 (5,277) (5,849)
Unrecognized prior service cost 1,798 1,928
-------- --------
Prepaid pension cost $ 3,209 $ 2,873
======== ========
The Salaried Employees' Retirement Plan provides that in the event of a
termination of that Plan following a change in control of the Company, any
assets of the Plan remaining after provision is made for all benefits
thereunder will be employed to supplement such benefits.
The Company also maintains a Supplemental Retirement Income Plan
("SERP") for former key employees. The Company has accrued an actuarially
determined liability of $3.5 million at December 31, 1995 and $2.8 million at
December 31, 1994, in anticipation of the payment of such benefits in the
future to seven former employees who were designated as eligible by the
Personnel and Compensation Committee for participation in the SERP program.
The Company incurred a pension expense of $0.3 million in 1995 and in 1994
for the SERP.
The Company has a voluntary 401(k) savings and investment plan designed
to enhance the existing retirement program covering certain eligible domestic
employees. In 1995, the Company matched 50% of each participant's
contributions, up to a maximum contribution of 2% of base salary. Company
contributions to this plan were $534 thousand, $225 thousand, and $325
thousand in 1995, 1994, and 1993, respectively.
Note 17. Postretirement medical insurance benefits
The Company maintains a postretirement medical benefits plan covering
substantially all domestic employees hired prior to January 1, 1992. The
plan is contributory. Retiree contributions are adjusted annually, and are
based on the difference between total cost and the employer contribution.
The Company's contribution towards retiree medical benefits for employees
<PAGE>
<PAGE>43
Notes to Consolidated Financial Statements - continued
retiring after January 1, 1992, are capped at 1991 levels. FAS 106 was
implemented on a delayed recognition basis, resulting in amortization of the
transition obligation amount over 20 years. The Company currently funds the
plan as claims are paid.
Net periodic postretirement benefit cost for 1995, 1994, and 1993
included the following components:
1995 1994 1993
-------- -------- --------
Service cost $ 122 $ 133 $ 136
Interest cost 460 435 446
Amortization of
obligation at transition 278 278 301
------- ------- -------
Net periodic postretirement
benefit cost $ 860 $ 846 $ 883
======= ======= =======
The Company's postretirement benefit plans are unfunded.
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered medical benefits was assumed for 1995; the rate was
assumed to decrease gradually to 5.5% for 1999 and remain at that level
thereafter. Increasing the assumed health care cost trend rates by 1% in
each year would increase the accumulated postretirement benefit obligation as
of January 1, 1995, by $209 thousand and the aggregate of the service cost
and interest cost components of net periodic postretirement benefit cost by
$18 thousand.
The plan amounts recognized in the Company's Balance Sheet at
December 31, 1995 and 1994, are as follows:
1995 1994
-------- --------
Accumulated postretirement benefit obligation:
Retirees $ 4,174 $ 4,053
Fully eligible plan participants 315 257
Other active plan participants 2,330 1,573
-------- --------
Total 6,819 5,883
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (6,819) (5,883)
Unrecognized net (gain) loss 835 58
Unrecognized prior service cost - -
Unrecognized transition obligation 4,726 5,004
-------- --------
Accrued postretirement benefit cost $ (1,257) $ (821)
======== ========
<PAGE>
<PAGE>44
Notes to Consolidated Financial Statements - continued
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation are 6.5% and 8.25% as of December 31, 1995,
and 1994, respectively.
Note 18. Foreign Operations and Geographic Segments, and Export Sales
The impact of the Company's foreign operations upon the consolidated
financial statements are summarized as follows (in thousands):
European
1995 Consolidated Eliminations Domestic Operations
- ---- ------------ ------------ --------- ----------
Net sales $228,655 $ (8,505) $180,891 $ 56,269
========= ========= ========= =========
Net income from
operations $ 7,157 $ (19) $ 7,501 $ (325)
========= ========= ========= =========
Identifiable assets$126,764 $ (1,214) $ 86,740 $ 41,238
Corporate assets 20,710 - 20,710 -
--------- --------- --------- ---------
Total assets $147,474 $ (1,214) $107,450 41,238
========= ========= =========
Liabilities 33,044
---------
Equity in foreign
subsidiaries $ 8,194
=========
European
1994 Consolidated Eliminations Domestic Operations
- ---- ------------ ------------ --------- ----------
Net sales $191,771 $ (5,439) $151,288 $ 45,922
========= ========= ========= =========
Net income (loss) from
continuing operations $ 4,051 $ 255 $ 5,199 $ (1,403)
========= ========= ========= =========
Identifiable assets$112,315 $ (834) $ 77,112 $ 36,037
Corporate assets 25,886 - 25,886 -
--------- --------- --------- ---------
Total assets $138,201 $ (834) $102,998 36,037
========= ========= =========
Liabilities 27,364
---------
Equity in foreign
subsidiaries $ 8,673
=========
<PAGE>
<PAGE>45
Notes to Consolidated Financial Statements - continued
European
1993 Consolidated Eliminations Domestic Operations
- ---- ------------ ------------ --------- ----------
Net sales $185,538 $ (4,113) $150,260 $ 39,391
========= ========= ========= =========
Net income (loss) from
continuing operations $ 4,752 $ 325 $ 6,938 $ (2,511)
========= ========= ========= =========
Identifiable assets$ 95,943 $ (72) $ 66,814 $ 29,201
Corporate assets 38,065 - 38,065 -
--------- --------- --------- ---------
Total assets $134,008 $ (72) $104,879 29,201
========= ========= =========
Liabilities 21,635
---------
Equity in foreign
subsidiaries $ 7,566
=========
The Company's principal foreign manufacturing facilities are in France
and Germany. The sales eliminations are transfers at prevailing wholesale
selling prices. The Company has no significant foreign operations other than
in Europe.
In addition to foreign operations, export sales amounted to $31.9 million
in 1995, $32.5 million in 1994, and $27.6 million in 1993.
Sales to the U.S. Government or for U.S. Government end-use amounted to
$43.5 million in 1995, $39.3 million in 1994, and $39.4 million in 1993.
Note 19. Industry Segment Information
The Company has operations in two industry segments: the motion
technologies group and electro-optical instruments. The following table
includes certain financial information relating to each of the Company s
segments in the last three fiscal years.
1995 1994 1993
-------- --------- ---------
Motion Technologies Group
Sales $ 130,811 $ 103,379 $ 107,177
Operating Income 9,798 8,521 9,673
Assets 76,509 64,238 55,383
Capital additions 2,728 3,000 2,989
Depreciation 3,316 3,105 3,138
Backlog 56,248 60,267 48,946
<PAGE>
<PAGE>46
Notes to Consolidated Financial Statements - continued
Electro-Optical
Instruments
Sales $ 97,844 $ 88,392 $ 78,361
Operating income 6,406 3,315 3,289
Assets 50,255 48,078 40,560
Capital additions 1,111 1,738 2,451
Depreciation 2,214 2,567 2,644
Backlog 53,119 58,303 61,551
Corporate
Operating expenses $ (9,047) $ (8,600) $ (9,058)
Assets 20,710 25,886 38,065
Capital additions 13 99 30
Depreciation 221 225 207
Consolidated
Sales $ 228,655 $ 191,771 $ 185,538
Net income before taxes 7,157 3,236 3,904
Assets 147,474 138,201 134,008
Capital additions 3,852 4,837 5,470
Depreciation 5,751 5,897 5,989
Backlog 109,367 118,570 110,497
The operating income in the above table represents operating segment
income before general corporate expenses, interest, and income taxes.
Identifiable assets by segment are those assets used exclusively in the
operation of that industry segment.
Effective January 1, 1995, the Company began reporting the operating
results of its French instruments business in the Electro-Optical Instruments
segment. Previously, the business had been part of the Motion Technologies
Group. Accordingly, the 1994 and 1993 segment information has been restated
to reflect this change.
Corporate expenses include interest expense, interest income, and
general and administrative expenses, and are not allocated to respective
segments. Corporate assets consist principally of cash and investments, net
assets held for disposition, equity investments, and intangible pension
assets.
<PAGE>
<PAGE>47
EXHIBIT INDEX
Page in this
Exhibit No. Description of Exhibit Form 10-K
3(a) Restated Certificate of Incorporation, N/A
as amended, incorporated by reference to
Exhibit 3(a) of the Form SE filed on
April 2, 1990.
3(b) By-Laws, as amended. N/A
4(a) Debenture Purchase Agreement dated as of N/A
July 30, 1982, with respect to 10-1/2%
Convertible Subordinated Debentures Due
1996 incorporated by reference to
Exhibit 4 to the Quarterly Report on
Form 10-Q of the Company for the quarter
ended June 30, 1982.
4(b) Indenture dated as of May 1, 1984, with N/A
respect to 8-3/4% Convertible Subordinated
Debentures Due 2009 incorporated by
reference to Exhibit 4 to Registration
Statement on Form S-3 (2-90655).
4(c) Rights Agreement dated as of December 20, N/A
1988, as amended and restated as of
March 27, 1990, between the Company and
the First National Bank of Boston, as
Rights Agent, incorporated by reference
to Exhibit 4(d) of the Form SE filed
on April 2, 1990.
4(d) Stock purchase agreement dated March 27, 1990, N/A
with Annex II, Registration Rights, with
respect to the issue of Series D Convertible
Preferred Stock, par value $1.00, of the
Company, incorporated by reference to
Exhibit 4(e) of the Form SE filed on
April 2, 1990.
10(a) Third Restated and Amended Letter of Credit N/A
Facility Agreement dated January 19, 1996,
among Kollmorgen Corporation, The First
National Bank of Boston, Certain Other
Financial Institutions Listed on Schedule 1,
and The First National Bank of Boston,
as Agent, incorporated by reference to
Exhibit 10 of the Form SE filed on or about
February 11, 1996.
<PAGE>
<PAGE>48
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(b) Kollmorgen Stock Option Plan, as amended, N/A
incorporated by reference to Exhibit A of
the Company's Proxy Statement dated
March 24, 1987, for the Annual Meeting of
Shareholders held on April 22, 1987.
10(c) Kollmorgen 1991 Long Term Incentive Plan, N/A
incorporated by reference to Exhibit A of
the Company's Proxy Statement dated
April 29, 1991, for the Annual Meeting of
Shareholders held on May 23, 1991.
10(d) Form of 1988 Non-Qualified Stock Option N/A
Agreement for James A. Eder. Said agreement
is incorporated by reference to Exhibit 10(g)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1988.
10(e) Form of 1990 Non-Qualified Stock Option N/A
Agreement for James A. Eder. Said agreement
is incorporated by reference to Exhibit 10(h)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1991.
10(f) Form of 1991, 1992, and 1993 Non-Qualified N/A
Stock Option Agreement under the Long-Term
Incentive Plan and/or Kollmorgen Stock Option
Plan for Gideon Argov, Robert J. Cobuzzi,
James A. Eder and Mark E. Petty. Each
agreement is identical except for the
number of shares and the date of grant. Said
agreement is incorporated by reference to
Exhibit 10(j) to the Annual Report on
Form 10-K of the Company for the year ended
December 31, 1991.
10(g) Form of 1995 Incentive Stock Option 51
Agreement under the Long-Term Incentive Plan
for Gideon Argov, Robert J. Cobuzzi, and
Mark E. Petty. Each agreement is identical
except for the number of shares.
<PAGE>
<PAGE>49
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(h) Kollmorgen 1992 Stock Ownership Plan for N/A
Non-Employee Directors incorporated by
reference to Exhibit A of the Company's
Proxy Statement dated April 6, 1992, for
the Annual Meeting of Shareholders held
on May 13, 1992.
10(i) Form of 1992 Non-Qualified Stock Option N/A
Agreement between each non-employee
director and the Company pursuant to the
Kollmorgen 1992 Stock Ownership Plan for
Non-Employee Directors incorporated by
reference to Exhibit 10(i) to the
Annual Report on Form 10-K of the Company
for the year ended December 31, 1992.
10(j) Kollmorgen 1996 Corporate Incentive Plan 60
for Corporate Officers and other key
corporate employees.
10(k) Employment Agreement dated May 10, 1991, N/A
as amended, for James A. Eder. Said
Agreement is incorporated by reference
to Exhibit 10(c) to the Annual Report on
Form 10-K of the Company for the year
ended December 31, 1991.
10(l) Letter employment agreement dated May 21, N/A
1991, for Gideon Argov. Said Agreement is
incorporated by reference to Exhibit 10(c)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1991.
10(m) Letter employment agreement dated July 1, N/A
1991, for Robert J. Cobuzzi. Said Agreement
is incorporated by reference to Exhibit 10(c)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1991.
10(n) Form of severance agreement for each of the N/A
following persons: Allan M. Doyle, Jr. and
George P. Stephan. Said agreement is
incorporated by reference to Exhibit 10(i)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1989.
<PAGE>
<PAGE>50
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(o) Form of Indemnification Agreement for each N/A
of the Company's executive officers, directors
and director emeritus. Each agreement is
identical to this exhibit except for the name
and title of each individual. Said agreement
is incorporated by reference to Exhibit 10(f)
to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1987.
10(p) Description of Post-Retirement Arrangement for N/A
Non-Employee Directors. Said agreement is
incorporated by reference to Exhibit 10(i) to
the Annual Report on Form 10-K of the Company
for the year ended December 31, 1988.
10(q) Participation Agreement between Allan M. N/A
Doyle, Jr. and the Corporation with respect
to Mr. Doyle's service as a director of
Millitech Corporation incorporated by
reference to Exhibit 10(q) to the Annual
Report on Form 10-K of the Company for the
year ended December 31, 1992.
10(r) Supplemental Retirement Income Plan for N/A
key executives incorporated by reference
to Exhibit 10(n) to the Annual Report on
Form 10-K of the Company for the year
ended December 31, 1990.
11 Calculations of Earnings Per Share 61
21 Subsidiaries of the Company 62
23 Consent of Independent Accountants - 63
Coopers & Lybrand L.L.P.
24 Powers of Attorney 64
27 Financial Data Schedule 71
<PAGE>
EXHIBIT 10(G)
INCENTIVE STOCK OPTION AGREEMENT
* * * * * * *
This AGREEMENT, entered into as of this day of 199 ,
(hereinafter called the "Option Date") between KOLLMORGEN CORPORATION, a
corporation organized under the laws of the State of New York (hereinafter
called the "Corporation"), and of
an employee of the Corporation or of a subsidiary or affiliate of the
Corporation (hereinafter called the "Optionee").
WITNESSETH THAT:
WHEREAS, the Corporation by due corporate action and with the written
consent of the holders of at least a majority of the stock of the Corporation
entitled to vote adopted the 1991 Long Term Incentive Plan (such Plan, as
amended, hereinafter called the "Plan"); and
WHEREAS, the Plan is administered by the Personnel and Compensation
Committee of the Corporation's Board of Directors (hereinafter called the
"Committee"), which is composed of individuals who are not employees of the
Corporation or otherwise eligible to receive stock options; and
WHEREAS, the Committee has determined on the date hereof that it would
be in the best interests of the Corporation to grant to the Optionee the
option contained in this Agreement because of the incentives it will generate
in the Optionee to promote the long range interests of the Corporation; and
WHEREAS, the Optionee wishes to accept such option, upon the terms and
conditions hereinafter provided; and
WHEREAS, the Committee has determined that the option price hereinafter
provided for is not less than 100% of the fair market value of the Common
Stock of the Corporation on the date hereof;
NOW, THEREFORE, in consideration of the premises it is agreed as
follows:
1. Option Grant. Subject to the terms and conditions hereof and to
the terms and conditions of the Plan, which are hereby incorporated herein by
reference, the Corporation hereby grants to the Optionee, and the Optionee
hereby accepts, an incentive stock option (hereinafter called the "Option")
within the meaning of Section 422(A)(b) of the Internal Revenue Code of 1986,
as amended, to purchase shares of Common Stock, $2.50 par value,
of the Corporation (hereinafter called the "Optioned Shares") at a price of
$ per share (hereinafter called the "Option Price").
<PAGE>
<PAGE>2
2. Period of Option, and Conditions of its Exercise.
(a) Unless the Option be terminated earlier as provided in this Option
Agreement, the term of the Option and of this Option Agreement shall commence
as of the date hereof and terminate at the close of business on the day
immediately preceding the tenth anniversary of such date. Upon any
termination of the Option, all rights of the Optionee hereunder shall cease.
Except as expressly provided in paragraph 3, this Option may be exercised as
follows:
i) up to 10% of the Optioned Shares on or after twelve (12)
months following the Option Date;
ii) up to an additional 10% of the Optioned Shares on or
after eighteen (18) months following the Option Date;
iii) up to an additional 20% of the Optioned Shares on or
after twenty-four (24) months following the Option Date;
and,
iv) up to an additional 20% of the Optioned Shares on or
after the third, fourth and fifth anniversary of the
Option Date;
provided, however, that the Committee may accelerate the date upon which the
option may be first exercisable if in its opinion such acceleration is
advisable in order to effectuate the purposes for which the Option was
granted. Events which the Committee may consider in arriving at such an
opinion shall include, by way of example and not limitation, any merger or
consolidation of the Corporation or any transfer by the Corporation of
substantially all of its assets or any change or proposed change in the
control of the Corporation. Notwithstanding the foregoing, upon a
determination by the Committee that there has been a sale of substantially
all of the Corporation's assets or a dissolution or liquidation of the
Corporation, or a "Change in Control" of the Corporation (as defined below)
this Option shall immediately become exercisable in full. For this purpose a
"Change in Control" shall mean a change in control of a nature that would be
required to be reported or disclosed by the Corporation in response to the
requirements of any rule or regulation promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), as in effect on the Option Date; provided, however, a
Change in Control shall be deemed to have occurred if and when (i) any person
[including a "Person" as used in Section 14(d) of the 1934 Act] is or becomes
a beneficial owner (as such term is defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of securities of the Corporation representing 10% or
more of the combined voting power of the Corporation's then outstanding
securities (a) if the beneficial ownership of such person is not approved by
the Board of Directors of the Corporation either before or within 30 days
after receipt of notice that such person is or has become such a beneficial
owner, or (b) if, at any time within twenty-four (24) months thereafter, the
employment of the person employed as Chief Executive Officer of the
<PAGE>
<PAGE>3
Corporation terminates involuntarily (other than for cause) or (ii) during
any period of twenty-four (24) consecutive months, commencing before or after
the Option Date, individuals who at the beginning of such twenty-four (24)
month period were directors of the Corporation cease for any reason, other
than solely because of death, retirement or disability, to constitute at
least a majority of the Board of Directors of the Corporation and the
nominations of their replacements are not approved by a majority of the
members of the original Board of Directors who continue on the Board.
(b) Nothing in this Option Agreement shall confer upon the Optionee any
right to continue in the employ of the Corporation or any subsidiary or
affiliate thereof or interfere in any way with the right of the Corporation
or any subsidiary or affiliate thereof to terminate the employment of the
Optionee at any time.
3. Death or Termination of Employment of Optionee.
(a) If the employment of the Optionee by the Corporation or a
subsidiary or affiliate thereof shall terminate by reason of his death, the
Option may be exercised prior to the earlier of (i) the expiration date of
the Option or (ii) the expiration of one year after the date of the
Optionee's death (or such longer period, not exceeding one additional year,
as the Committee may approve), by the person or persons (hereinafter called
the "Beneficiary") to whom the Optionee's rights under the Option pass by
will or the laws of descent or distribution (including his estate during the
period of administration), provided, however, that the Beneficiary shall be
entitled to exercise the Option only to the same extent exercisable by the
Optionee on the date of his death.
(b) If, prior to the first anniversary of the Option Date, the
Optionee's employment with the Corporation or any subsidiary or affiliate
thereof shall be terminated for any reason, this Option Agreement, the Option
and all rights to purchase Optioned Shares pursuant hereto shall forthwith
terminate and become null and void.
(c) If, on or after the first anniversary of the Option Date, the full-
time employment of the Optionee by the Corporation or any subsidiary or
affiliate thereof shall terminate for any reason other than (i) the death of
the Optionee or (ii) circumstances which, in the sole and absolute opinion of
the Committee, constitute cause for discharge of the Optionee, the Option may
be exercised by the Optionee at any time prior to the earlier of (i) the
expiration date of the Option or (ii) the expiration of three months after
the date of such termination of employment, to the extent the Option was
exercisable by the Optionee on the date of such termination of employment.
(d) If the employment of the Optionee by the Corporation or any
subsidiary or affiliate thereof shall terminate under circumstances which, in
the sole and absolute opinion of the Committee, constitute cause for
discharge, this Option Agreement, the Option, and all rights to purchase
shares pursuant hereto, shall forthwith terminate and become null and void.
<PAGE>
<PAGE>4
(e) If the Optionee is employed by a subsidiary or affiliate of the
Corporation which ceases to be such a subsidiary or affiliate, the Optionee's
employment shall be deemed to terminate upon the date of such cessation,
unless he forthwith becomes or remains an employee of the Corporation or of
another subsidiary or affiliate thereof.
(f) To the extent that the Option is not exercised within the
applicable periods in the cases set forth in subparagraphs (a), (b) and (c)
of this paragraph 3, this Option Agreement, the Option, and all rights to
purchase shares pursuant thereto, shall forthwith terminate and become null
and void.
(g) Whether employment has been terminated for the purposes of this
Agreement shall be determined by the Committee, whose determination shall be
final, binding and conclusive.
(h) Anything in the Plan or herein contained notwithstanding, to the
extent that (i) any formal written employment or termination agreement
between the Corporation and the Optionee which is formally executed by both
the Corporation and the Optionee contains terms governing the Options
hereunder specifically or options in general in the event of a termination of
the Optionee's employment and (ii) the terms of such employment or
termination agreement applicable to such options in the event of a
termination of the Optionee's employment are more favorable to the Optionee
than the terms of this Agreement, then such terms of such employment or
termination agreement shall control the terms of this Agreement.
4. Non-Transferability. During the Optionee's lifetime the Option
shall be exercisable only by him and neither the Option nor any other right
granted to the Optionee hereunder shall be transferable by the Optionee other
than by will, the laws of descent and distribution, or a Qualified Domestic
Relations Order under ERISA and the Code. In the event of any attempt by the
Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of
this Option or of any right hereunder, except as provided for herein, or in
the event of any levy of any attachment, execution or similar process upon
the rights or interest hereby conferred, the Corporation may terminate this
Option Agreement by notice to the Optionee and it shall thereupon become null
and void.
5. Manner of Exercising Option. The Option shall be exercised in the
following manner: the Optionee (or the Beneficiary) shall give to the
Corporation notice in writing, substantially in the form set forth in Exhibit
A hereto, of his intention to purchase, specifying the number of Optioned
Shares as to which he desires to exercise the Option, the number and
denomination of the stock certificates that he desires, and the date on which
he desires to complete his purchase (the "Completion Date"), which shall not
be less than five business days thereafter. The Optionee (or the
Beneficiary) shall pay the Corporation on the Completion Date either (i) in
cash by Federal Reserve Wire Transfer or by check, or (ii) through the
delivery of shares of the Corporation's Common Stock having a fair market
<PAGE>
<PAGE>5
value on the date of exercise equal to the full purchase price of the shares
purchased, or (iii) by a combination of (i) and (ii) above, against delivery
of one or more certificates therefor.
6. Issuance and Delivery of Shares. Against payment for the shares
purchased, the Corporation will issue and deliver to the Optionee (or the
Beneficiary) on the Completion Date, one or more certificates for the shares
purchased. If and so long as any Common Stock of the Corporation is listed
on any securities exchange, any other provisions of this Option Agreement
notwithstanding, the Corporation shall not be required to make delivery to
the Optionee (or the Beneficiary) of certificates for shares so purchased
until such shares have been listed (or authorized for listing upon official
notice of issuance) on the securities exchange on which outstanding shares of
Common Stock of the Corporation are then listed nor (whether listed or not)
until there has been compliance with such laws and regulations as the
Corporation may deem applicable, including, without limitation, the
Securities Act of 1933, the 1934 Act and the rules and regulations issued
thereunder.
7. Rights as Shareholder. The Optionee or a transferee of the Option
shall have no rights as a shareholder with respect to any share covered by
the Option until he shall have become the holder of record of such share,
and, subject to paragraph 8 hereof, no adjustment shall be made for dividends
or distributions or other rights in respect of such share for which the
record date is prior to the date upon which he shall become the holder of
record thereof.
8. Recapitalizations, Reorganizations, etc.
(a) The existence of the Option shall not affect in any way the right
or power of the Corporation or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or
consolidation of the Corporation, or any issue of stock or of options,
warrants or rights to purchase stock or of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the stock or the rights thereof
or convertible into or exchangeable for stock, or the dissolution or
liquidation of the Corporation, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether of
a similar character or otherwise.
(b) The shares with respect to which the Option is granted are shares
of stock of the Corporation as presently constituted, but if, and whenever,
prior to the delivery by the Corporation of all of the shares of the stock
with respect to which the Option is granted, the Corporation shall effect a
subdivision or consolidation of shares, or other capital adjustment, the
payment of a stock dividend or other increase or reduction of the number of
shares of the stock outstanding, without receiving compensation therefor in
money, services or property, the number and price of shares remaining under
the Option shall be appropriately adjusted. Such adjustment shall be made by
<PAGE>
<PAGE>6
the Committee, whose determination as to what adjustment shall be made, and
the extent thereof, shall be final, binding and conclusive. Any such
adjustment may provide for the elimination of any fractional share which
might otherwise become subject to the Option.
(c) Upon a merger or consolidation of the Corporation with any other
entity, pursuant to which the Corporation is not the surviving corporation or
pursuant to which the Corporation is the surviving corporation and holders of
Common Stock of the Corporation receive any consideration in exchange for
their shares of Common Stock of the Corporation, the Option shall be
terminated (whether or not vested) and the Optionee shall receive (i) the
consideration to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger or consolidation, if immediately prior to
such merger or consolidation the Optionee had been the holder of record of a
number of shares of stock of the Corporation equal to the number of Optioned
Shares to which the Option relates, minus (ii) the Option Price. The
Committee shall have the authority to resolve any questions regarding the
application of the foregoing sentence and its determination shall be final,
binding and conclusive.
In the event of a liquidation or dissolution of the Corporation pursuant
to which the Committee has not, under Section 2 of the Option Agreement,
caused the Option to vest at least 20 days prior to such liquidation or
dissolution, the Option shall be terminated (whether or not vested) and the
Optionee shall receive (i) the consideration to which the Optionee would have
been entitled, if immediately prior to the liquidation or dissolution the
Optionee had been the holder of record of a number of shares of stock of the
Corporation equal to the number of Optioned Shares to which the Option
relates, minus (ii) the Option Price. The Committee shall have the authority
to resolve any questions regarding the application of the foregoing sentence
and its determination shall be final, binding and conclusive.
(d) Except as hereinbefore expressly provided, the issue by the
Corporation of shares of stock of any class, or securities convertible into
or exchangeable for shares of stock of any class, for cash or property, or
for labor or services, either upon direct sale or upon the exercise of
options, rights or warrants to subscribe therefor, or to purchase the same,
for upon conversion of shares or obligations of the Corporation convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares
of stock subject to the Option.
9. Change in Option Terms. The Committee may, with the consent of the
Optionee (or the Beneficiary), modify or change the terms of this Option
Agreement, including the Option Price, in a manner which does not conflict
with the provisions of the Plan; provided that the Option Price as so changed
or modified shall not be less than 100% of the fair market value of the
Common Stock of the Corporation on the date of such modification or change.
<PAGE>
<PAGE>7
10. Definition of "Year", "Subsidiary" and "Affiliate". For all
purposes of this Option Agreement:
(a) A "year" shall be a period of 365 consecutive days (or 366
consecutive days if a 29th of February shall fall during such
period). The first day of any period shall commence at 12:01
o'clock A.M., Eastern Standard Time, on such day, and the last day
of such period shall terminate at 12:00 o'clock midnight. If the
last day of any period shall fall on a Saturday, Sunday or legal
holiday in the State of New York, such period shall be deemed to
end on the next business day thereafter.
(b) A "subsidiary" shall be a corporation as defined in Section 424(f)
of the Internal Revenue Code.
(c) An "affiliate" shall be a joint venture, partnership or other
entity (other than a corporation), 50 percent or more of which is
owned directly or indirectly by the Corporation.
11. Notices. Any notice given under this Option Agreement shall be in
writing and shall be deemed given when delivered personally, or when sent by
certified mail, postage prepaid, in the case of the Optionee to his address
hereinabove set forth or such other address as he may designate by notice
given to the Corporation, and in the case of the Corporation, to its
Corporate Office at 1601 Trapelo Road, Waltham, MA 02154, Attention:
Secretary, or such other address as may then be applicable by notice given to
the Optionee.
12. Failure to Enforce not a Waiver. The failure of the Corporation to
enforce at any time any provision of this Option Agreement or the Plan shall
in no way be construed to be a waiver of such provision as to any future
event or of any other provision hereof or of the Plan.
13. Governing Law. This Option Agreement and its interpretation and
performance shall be controlled solely by the laws of the State of New York.
14. Date of Granting of the Option. The date of this Option Agreement
shall be deemed for all purposes the date of the granting of the Option,
unless and except where the grant is conditioned upon any event, in which
case the date of satisfaction on which such event occurs shall be deemed the
date of the granting of the Option.
15. Power of the Committee. The Committee shall have all the powers
delegated to it by the provisions of the Plan including, without limitation,
the power to construe this Option Agreement and the Plan, and the power to
determine whether a termination of the Optionee's employment was for reasons
constituting cause for discharge, and any determinations of the Committee
shall be conclusive.
<PAGE>
<PAGE>8
16. Provisions of the Plan. The Option provided for herein is granted
pursuant to the Plan, and the Option and this Option Agreement are in all
respects governed by, and subject to all of the terms and provisions of, the
Plan. Any term used herein shall, unless the context plainly requires
otherwise, have the meaning assigned to it in the Plan. The Corporation
agrees to maintain a copy of the Plan during the term of this Option
Agreement at its principal office for inspection by the Optionee at any time
during normal business hours.
IN WITNESS WHEREOF, the Corporation has caused this Option to be signed
by its corporate officer thereunto duly authorized, and the Optionee has
signed this Option Agreement, all as of the date first above written.
KOLLMORGEN CORPORATION
By ___________________________
Vice President
___________________________
Optionee
S.S. #_____________________
<PAGE>
<PAGE>9
EXHIBIT A
[Sample form of letter to be sent by Optionee (or Beneficiary)]
[ Date ]
Kollmorgen Corporation
Attention: Secretary
1601 Trapelo Road
Waltham, MA 02154
Re: Exercise of Stock Option
Dear Sirs:
Pursuant to the terms of the Option Agreement between us dated
________________, 19___, in which you have granted me an option to purchase a
certain number of shares of your Common Stock, of the par value of $2.50 per
share, on certain terms and conditions, I hereby give notice that I elect to
exercise such option to the extent of _____________ shares and that I desire
to complete this purchase on __________________, 19___. On that date I shall
pay you the sum of _____________________________________________ Dollars
($___________) in full payment for such shares. In addition, on that date I
shall pay you all applicable federal, state and local taxes, if any, required
under withholding tax rules and regulations. I request that such shares be
evidenced by __________ stock certificate(s) in the following
denomination(s): ____________________________________.
Very truly yours,
[name and address]
S.S.#
NOTE: The above form should be appropriately modified in the
case of use by a person to whom the rights of a deceased
Optionee have passed by will or the laws of descent and
distribution.
<PAGE>
EXHIBIT 10(J)
KOLLMORGEN 1996 CORPORATE INCENTIVE PLAN
Under this Plan, Kollmorgen's corporate management will receive a bonus
calculated as a percent of base pay and dependent on achieving certain levels
of performance. 50% of the bonus is dependent on earnings per share, 25% on
revenue growth, and 25% on objectives. Bonuses for the officers may range
from a threshold of 15% of base pay to a cap of 80% of base pay.
<PAGE>
<TABLE>
EXHIBIT 11
<CAPTION>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CALCULATIONS OF EARNINGS PER SHARE
(Dollars in thousands, except per share amounts)
Year Ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 7,157 $ 4,051 $ 4,752 $ (8,725) $ (35,938)
Less preferred stock dividends,
accretion of discount, and
premium paid on preferred
stock redemption (4,648) (2,324) (2,324) (2,330) (2,325)
----------- ----------- ----------- ----------- -----------
Earnings applicable to common stock 2,509 1,727 2,428 (11,055) (38,263)
----------- ----------- ----------- ----------- -----------
Number of shares:
Weighted average number of
shares outstanding 9,667,434 9,641,698 9,632,232 9,627,228 9,628,122
Shares issuable on assumed
exercise of dilutive options -- -- -- -- --
----------------------- ----------- ----------- -----------
Adjusted shares 9,667,434 9,641,698 9,632,232 9,627,228 9,628,122
=========== =========== =========== =========== ===========
Earnings (loss) per share $ .26 $ .18 $ .25 $(1.14) $(3.97)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
As of March 15, 1996, the Company owned or controlled the following
percentages of the capital stock of the corporations listed below:
State or Country of
Name of Corporation Incorporation % Owned
Crystal Spectialties, Inc. California 100
Kollmorgen Asia Investment Company Delaware 100
Kollmorgen Foreign Sales Corporation U.S. Virgin Islands 100
Kollmorgen Instruments Corporation Delaware 100
Kollmorgen Overseas Development Corporation Delaware 100
Proto-Power Corporation Delaware 100
Proto-Technology Corporation Delaware 100
Questec Enterprises, Inc. Delaware 100
31 Sea Cliff Avenue Corporation New York 100
Kollmorgen Instruments GmbH West Germany 100
Kollmorgen A.G. Switzerland 100
Kollmorgen Asia Investment Company B.V. Netherlands 100
Kollmorgen India Investment Company B.V. Netherlands 100
Kollmorgen India Holding Company B.V. Netherlands 100
Kollmorgen India Investment Company Mauritius 100
Kollmorgen Tandon (India) India 51
Kollmorgen (U.K.) Limited Great Britain 100
Tianjin Kollmorgen Industrial Peoples' Republic
Drives Corporation of China 50
PMI Motion Technologies GmbH West Germany 100
Artus Group France 100
Kollmorgen Artus
Societe Anonyme Cryla
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Kollmorgen Corporation:
We consent to the incorporation by reference in the Registration
Statements of Kollmorgen Corporation on Form S-3 (No. 2-90655), on Form S-8
(No. 2-64648), on Form S-8 (No. 33-44229) and on Form S-8 (No. 33-48953), of
our report dated January 31, 1996, except as to the infomation presented in
Note 8 relating to the Series D Convertible Preferred Stock redemption for
which the date is February 19, 1996, on our audits of the consolidated
financial statements of Kollmorgen Corporation as of December 31, 1995, and
1994, and for the three years in the period ended December 31, 1995, which
report is included in the 1995 Annual Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 28, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
ALLAN M. DOYLE, JR. does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ Allan M. Doyle, Jr.
_______________________________
Allan M. Doyle, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
JERALD G. FISHMAN does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ Jerald G. Fishman
___________________________________
Jerald G. Fishman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
JAMES H. KASSCHAU does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ James H. Kasschau
___________________________________
James H. Kasschau
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
J. DOUGLAS MAXWELL, JR. does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ J. Douglas Maxwell, Jr.
________________________________
J. Douglas Maxwell, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
ROBERT N. PARKER does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ Robert N. Parker
_______________________________
Robert N. Parker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
ERIC M. RUTTENBERG does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ Eric M. Ruttenberg
_______________________________
Eric M. Ruttenberg
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
GEORGE P. STEPHAN does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and
attorney in fact to execute in his name, place and stead as director of
Kollmorgen Corporation an Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto; and to file the same
with the Securities and Exchange Commission. Each of the said attorneys
shall have the power to act hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 28th day
of March , 1996.
/s/ George P. Stephan
_______________________________
George P. Stephan
<TABLE> <S> <C>
<PAGE>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,789
<SECURITIES> 0
<RECEIVABLES> 40,831
<ALLOWANCES> 697
<INVENTORY> 26,210
<CURRENT-ASSETS> 98,503
<PP&E> 113,496
<DEPRECIATION> 84,693
<TOTAL-ASSETS> 147,474
<CURRENT-LIABILITIES> 71,038
<BONDS> 40,340
<COMMON> 26,904
25,506
0
<OTHER-SE> (15,607)
<TOTAL-LIABILITY-AND-EQUITY> 147,474
<SALES> 219,493
<TOTAL-REVENUES> 228,655
<CGS> 146,979
<TOTAL-COSTS> 152,614
<OTHER-EXPENSES> 65,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,007
<INCOME-PRETAX> 7,157
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,157
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
