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, 1996, 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. / /
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. $134,919,979 as of March 19, 1997.
Indicate the number of outstanding shares of the registrant's Common
Stock. 9,772,562 shares as of March 19, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Definitive Proxy Statement to be filed for the
1997 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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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
forth 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 to the Financial Statements."
(c) Narrative Description of Business
Motion Technologies Group.
The Company believes that it is one of the major worldwide
manufacturers of high performance, brushless, 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 manufactures 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 the second quarter 1996, the Company
introduced a new line of digital drives being sold under the trademark
"Servostar" developed by the Company and its affiliate in Israel,
Servotronix, Ltd. 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. Commencing in 1996, this
Division began selling linear motors for various industrial applications.
Kollmorgen Artus manufactures and sells generators, special motors,
electromechanical actuators and drive electronics, synchros, and resolvers,
which are sold worldwide into the defense and aerospace market. During
early 1997, Kollmorgen Artus announced the successful test flight of its
proprietary ac/dc regulated power management system on the Bell-Boeing V-22
Osprey tiltrotor aircraft.
In addition to the Company's principal facilities referenced under the
caption Item 2. "Properties," the Company in recent years has begun the
manufacture and assembly of its motion technologies products in other
geographic locations. The Company's Industrial Drives Division, through a
joint venture in Bombay, India, manufactures high volume, fractional
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horsepower motors primarily for the computer peripheral and electronics
markets. The Company also distributes, and has begun the manufacture of,
its industrial motors products in the People's Republic of China through a
majority-owned joint venture company, Tianjin Kollmorgen Industrial Drives
Corporation, located in Tianjin, PRC. Kollmorgen Artus recently completed
the construction of a new motor assembly facility in Bien Hoa, Vietnam.
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. Several 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 products sold into the industrial/commercial
markets are marketed and sold by the Company's Industrial and Commercial
Products Sales Group, and the products sold into the defense and aerospace
markets 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 manufacturers' representatives or distributors, or by a
combination of the foregoing.
The backlog of the motion technologies group at the end of 1996 was
$54 million essentially all of which is expected to be shipped in 1997.
Electro-Optical Instruments.
During 1996, the Company's electro-optical business was 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 and 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
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vision. During 1996, this operation has received option awards of
approximately $7.6 million from the Naval Sea Systems Command for optical
sights for the DDG-51 Arleigh-Burke Class guided missile destroyers and in
early 1997 received an additional award of $5.1 million for these products.
In July, 1996, this Division received an award from the U.S. Army Tank
Automotive and Armaments Command for its new CLAWSTM weapon control system
design for a variety of small arms weapon systems.
In 1995, the Company received a $35 million long-term 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.
Also, in 1995 the Electro-Optical Division received two additional awards
from the United States Navy. The first, a long-term contract initially
valued at $1.8 million, for three Type 8 Mod 3 periscopes, included 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 included
an option for delivery of production units valued in excess of $10 million.
During 1996, the Division was awarded a $4.5 million contract for submarine
periscopes by the Brazilian Navy and received a $4.1 million option award
for Type 8 Mod 3 periscopes by the US Navy. The US Navy also exercised an
option for $7.1 million of Type 8 Mod 3 periscopes in the 1997 first
quarter.
During 1996, the Company served the industrial/commercial marketplace
through a wholly-owned subsidiary, Kollmorgen Instruments Corporation,
which operated 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 utilized in the textile, paint, paper, plastics and many other
industries where the measurement of color is important. It also
manufactures densitometers, which are used to control photographic and
printing processes by measuring the opacity or density of materials, such
as films, inks, and dyes. This Division manufactures specialized lighting
devices for the inspection and comparison of transparencies and prints in
the photographic and printing industries and manufactures standard lighting
sources used in evaluating color and produces a line of color standards
sold under the U.S. registered trademark "Munsell". In recent years, this
Division has 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, designs and manufactures a product line of on-line
spectrophotometers. In Europe, these and other Macbeth products are
distributed through Kollmorgen Instruments GmbH, Kollmorgen (U.K.) Limited,
the Company's wholly-owned English subsidiary, and through independent
representatives and dealers.
In January, 1997 the Company announced the signing of a definitive
agreement with the shareholders of Gretag AG ("Gretag"), a Swiss Company,
to form a new Swiss Company to be called Gretag-Macbeth Holding AG
("Holding"). The Company, effective December 31, 1996, contributed all of
its "Macbeth" electro-optical instruments businesses to Holding, namely its
Macbeth Division, Kollmorgen (U.K.) Limited and Kollmorgen Instruments,
GmbH. The Gretag shareholders agreed to contribute all of Gretag's Color
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Control Systems business located in Switzerland, Germany and the United
States to Holding. The parties to this transaction have also announced
that they intend to bring Holding public on the Swiss Stock Exchange
subject to market conditions. The Company's Macbeth businesses and the
Gretag businesses had combined revenues of approximately $56 million in
1996. The Company will own 48% of Holding and the Gretag shareholders will
own 52%. Control of Holding will be shared equally by the parties. The
offices of Holding will be located in New Windsor, New York. The Gretag
CCS business manufactures and sells worlwide, a complete line of color
control instrumentation to the graphic arts marketplace. Products include
densitometers for the color control of printing and spectrophotometers and
related software for ink formulation and on-line quality control. This
business has recently introduced a new line of hand-held spectrophotometers
for the desktop publishing and digital imaging markets that is being sold
under the SpectrolineTM trademark. The Gretag CCS business has its
principal manufacturing facility in Regensdorf, Switzerland, and its
products are sold in approximately 60 countries through a network of
dealers and distributors.
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. As a result of Nuclear
Regulatory Commission mandated improvements for nuclear plant systems and
documentation, this business has been able to take advantage of its
expertise and significantly increased revenues at its existing customer
base.
Kollmorgen Artus also manufactures and sells calibration equipment for
air traffic control navigation aids. In the first quarter of 1996,
Kollmorgen Artus sold its SorelTM fault detection product line.
Within this segment, military products represented 43% of sales in
1996, and 43% of sales in 1995, and 44% of sales in 1994. 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
1996 was $42 million of which approximately 80% is expected to be shipped
in 1997.
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
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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 1996, no customer accounted for 10% or more of the Company's
consolidated revenues.
Government Sales.
In 1996, sales to the U.S. Government or for U.S. Government end-use
represented approximately 18% of revenues, of which 12% were generated
from the electro-optical instruments segment and 6% was from the motion
technologies group.
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 1996, the Company spent $12.1 million or approximately 5.3% of
its consolidated sales on research activities related to the development of
new products. This compares to $13.2 million or 5.8% in 1995, and $10.8
million or 5.7% in 1994. 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.
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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.
Employees.
The Company is currently a party to one collective bargaining
agreement. The Company's Electro-Optical Division is a party to a three-
year agreement expiring in August, 1999, with the International Association
of Machinists and Aerospace Workers that currently covers 34 employees.
As of December 31, 1996, the Company employed approximately 1,850
employees. The Company believes that it enjoys satisfactory relations with
its employees, including those covered by the collective bargaining
agreement.
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
Northampton, MA 98,000 sq.ft. Owned
Corporate Waltham, MA 6,250 sq.ft. Leased
</TABLE>
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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, 1997:
Present Business Experience During
Name Age Office Past Five Years
Gideon Argov 40 President Chairman of the Board since
and March 1996, President and Chief
Chief Executive Officer since November
Executive 1991; Director since May 1991.
Officer From March 1988 to May 1991,
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 55 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 51 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.
Mark E. Petty 41 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.
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Keith D. Jones 38 Controller Corporate Controller since May,
and Chief 1996. Chief Accounting Officer
Accounting since March, 1996. Director of
Officer Finance and Corporate Controller of
Cambridge Biotech Corporation from
September 1991 to August 1995.
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 2,200 registered holders of the Company's Common
Stock on March 14, 1997. 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 96 2 Q 96 3 Q 96 4 Q 96 1 Q 95 2 Q 95 3 Q 95 4 Q 95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per
common share:
High: 13 1/8 15 5/8 14 3/4 13 3/4 6 7/8 8 7/8 12 11 1/4
Low: 9 5/8 11 3/8 10 1/2 10 1/8 5 5/8 6 1/8 8 9
Shares of common
stock traded: 1,152 1,215 818 1,710 752 821 1,770 961
Dividends per
common share $.02 $.02 $.02 $.02 $.02 $.02 $.02 $.02
Average outstanding
common shares and
common share
equivalents 9,706 10,092 10,044 10,028 9,650 9,658 9,670 9,692
</TABLE>
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Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial data
for the Company for each of the five fiscal years 1992 through 1996. All
dollar amounts are in thousands except per share data.
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
1996 1995* 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 230,424 $ 228,655 $ 191,771 $ 185,538 $ 194,859
Net income (loss) 8,904 7,157 4,051 4,752 (8,725)
Total assets 141,330 147,474 138,201 134,008 149,568
Total debt 65,541 49,808 53,991 53,524 56,170
Redeemable preferred
stock (See Note 8 to
Financial Statements) - 25,506 22,532 22,407 22,282
Common share data:
Number of average
outstanding shares
and equivalents10,042,106 9,667,434 9,641,698 9,632,232 9,627,228
Net income (loss) $ .86 $ .26 $ .18 $ .25 $(1.14)
Cash dividends $ .08 $ .08 $ .08 $ .08 $ .08
<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 are set forth in the Company's Form 8-K dated
January 27, 1997.
On January 16, 1997 the Company completed an agreement ( Subscription
Agreement ) to combine effective December 31, 1996 its Macbeth division
( Macbeth ) with the Color Control Systems business of Gretag AG ( Gretag ).
Macbeth and Gretag will be owned by a Swiss holding company, Gretag-Macbeth
Holding AG ( Holding ) which will be equally controlled by the Company and
the shareholders of Gretag AG who will own 48% and 52% of Holding,
respectively. Accordingly, the results of operations and statement of cash
flows for the twelve months ended December 31, 1996 reflect the inclusion of
Macbeth, and the consolidated balance sheet as of December 31, 1996 reflects
the net asset value of Macbeth under the caption "Investment in joint
venture", which will be accounted for under the equity method prospectively.
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In March, 1996 the Company sold a significant portion of its
instrumentation business located in France for 12 million French francs
(approximately $2.4 million), the approximate book value of the assets sold.
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. Collectively these two businesses will be
referred to as the Businesses Sold .
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 the redemption had
a beneficial impact in 1996 on the Company s earnings per share.
Additionally, unlike the dividends on the Preferred Stock, interest payments
are deductible from taxable income and will have a favorable impact to the
Company in 1997 as its tax benefit carryforwards were essentially utilized in
1996.
Results of Operations
For the year ended December 31, 1996, the Company had sales of $230.4
million and net income of $8.9 million, equal to $0.86 per common share.
These results compare with 1995 sales of $228.7 million and net income of
$7.2 million equal to $0.26 per common share, and 1994 sales of $191.8
million and net income of $4.1 million, equal to $0.18 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, as required by the early
redemption of the Preferred Stock in February, 1996.
The Company's sales increased 1% in 1996 over 1995. Excluding the
Businesses Sold, revenues increased 9% which is attributable to increased
revenue in both of the Company's business segments. Overall within its two
segments, the Company s aerospace and defense related revenues decreased 3%
and industrial and commercial revenues increased 3%. Domestic sales
increased 3% in 1996 over 1995 and sales to customers outside of the United
States decreased 3% over 1995. The Company s sales increase of 19% in 1995
over 1994 is also attributable to increased revenues in both of the Company s
business segments.
The Company s overall gross margin improved as a percent of sales to 34%
in 1996 versus 33% in 1995, as a margin decline in the electro-optical
instruments segment was more than offset by margin gains in the motion
technologies segment. Both changes in gross margin were primarily a result
of sales volume. The Company s gross margin declined to 33% in 1995 as
compared to 35% in 1994, as a result of margin declines in the Company s
motion technologies group caused by increases in Original Equipment
Manufacturer ( OEM ) sales, at margins lower than the segment s other
businesses.
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Sales and marketing expenses were $27.6 million or 12% of sales for 1996
as compared to $29.4 million or 13% of sales for 1995 and $27.8 million or
14% of sales for 1994. The decrease in spending in 1996 was the result of
the exclusion of the Businesses Sold for most of 1996. The increase in
spending in 1995 as compared to 1994 was primarily the result of increased
expenses incurred by the Company s Macbeth division in connection with the
launching of several new products and the expansion of its worldwide sales
and marketing operations.
Research and development expenses were $12.1 million or 5% of sales in
1996, $13.2 million or 6% of sales in 1995, and $10.8 million or 6% of sales
in 1994. The decrease in spending in 1996 was the result of excluding the
Businesses Sold for most of 1996. The increase in research and development
spending in 1995 over 1994 was primarily attributable to the support of long-
term contracts awarded to the Company s French aerospace and defense
operation, and for the development of commercial products introduced in 1995
and 1996.
Interest expense was $5.8 million, $4.7 million, and $4.6 million, in
1996, 1995, and 1994, respectively. The increase in interest expense in 1996
over 1995 reflects the impact of the $25 million term loan that the Company
entered into to fund the redemption of its Preferred Stock. Interest
expense remained relatively flat from 1994 to 1995 as the debt the Company
incurred in connection with the 1994 acquisitions 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.
General corporate expenses included interest expense net of investment
income and general and administrative expenses. The Company had a zero tax
rate in 1996 as a result of the substantial utilization of its remaining net
operating loss and other tax credit carryforwards. The Company s tax rate is
expected to be approximately 25% on a consolidated basis in 1997. The
Company recognized tax benefits of approximately $0.8 million for the year
1994 resulting from resolution of certain prior year tax assessments.
Motion Technologies Group
Sales in the motion technologies group increased to $141.3 million in
1996, up 8% from $130.8 million in 1995. Sales in 1995 were up 27% compared
to 1994 sales of $103.4 million. In 1996 this segment increased its domestic
revenues by 9% and foreign revenues by 7% over 1995. Sales to the defense
market decreased 2% as compared to 1995, while sales to the non-defense
markets increased 12%. The most significant increase in sales was in the
Company s U.S. commercial business where revenues increased 14% over 1995,
largely as a result of increased sales of its motion control systems to
specialty machine manufacturers. The sales increase in 1995 versus 1994
reflects an increase in the group s domestic commercial business primarily to
OEM s, and its French subsidiary which sells primarily to the aerospace and
defense market.
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<PAGE>13
Operating income (excluding corporate expenses) for this segment was
$11.3 million and $9.8 million in 1996 and 1995, respectively, and the
operating income was $8.5 million in 1994. The increase in operating income
in 1996 over 1995 was a result of the increased revenues discussed above.
Operating profit as a percent of sales increased in 1996 to 8% from 7%.
Gross margins for the segment increased to 31% in 1996 from 30% in 1995. This
increase was principally due to the increased sales resulting from the
successful application of domestic aerospace and defense products into the
industrial and commercial market. Additionally, the Company s French motion
technology subsidiary had improved gross margins over 1995 due to increased
revenues without an increase in fixed costs. Manufacturing cost reductions
and unit price increases in 1996 improved the gross margins on ongoing OEM
contracts. The positive improvements in gross margin were somewhat offset by
lower gross margins on the Company s commercial products, caused in large
part by product mix changes due to new product transition and a slowdown in
the semi-conductor equipment industry.
Information concerning gross margins and operating expenses for 1995
reflect certain reclassifications between the two business segments to be
consistent with the 1996 presentation, and which result in minor variations
from the prior year s report.
The motion technologies group s research and development spending
increased to 6% of sales in 1996 from 5% in 1995. Spending increased in the
U.S. on new product development, and to support two aerospace programs at the
Company s French subsidiary. Sales and marketing expenses increased 6% in
1996 over 1995, but remained at 12% of sales for both years.
The segment s operating income of $9.8 million for 1995 improved as
compared to $8.5 million in 1994 as a result of the increased revenues of the
group. Gross margins in 1995 declined to 30% as compared to 35% in 1994 due
to the increased amount of OEM sales which historically have been at lower
gross margins than the group s other business. R&D spending in 1995 remained
at 5% of sales as compared with 1994, and sales and marketing expenses were
12% of sales in 1995 as compared to 14% in 1994.
New orders for this segment were up 8% in 1996 over 1995. The
Industrial and Commercial Products group had an increase in new orders of
18%, and the Aerospace and Defense Products group showed a decline of 3%
compared to 1995. Backlog for this segment was $54.0 and $56.2 million at
December 31, 1996 and 1995, respectively. The Company believes the decrease
is primarily due to shorter lead-time requirements of the segment s
customers, particularly in the non-defense markets. In 1995, new orders were
up 14% over 1994, and backlog decreased $4.1 million from $60.3 million at
December 31, 1994.
Capital expenditures in 1996, 1995, and 1994 for this segment were $3.7
million, $2.7 million and $3.0 million, respectively, principally for
replacement of existing equipment and investments in new equipment to improve
manufacturing efficiency.
<PAGE>
<PAGE>14
ELECTRO-OPTICAL INSTRUMENTS
Sales in the electro-optical instruments segment decreased to $89.2
million, down 9% from $97.8 million in 1995. Sales in 1995 increased by 11%
over 1994 sales of $88.4 million. The decrease in 1996 versus 1995 was due
to the impact of the Businesses Sold. Excluding the Businesses Sold, sales
in 1996 increased 10% as compared to 1995. The increase was due primarily to
sales at the Company s Proto-Power consulting engineering business where
sales nearly doubled in 1996 versus 1995. Sales of color instrumentation
products at the Company s Macbeth division increased 6% in 1996. The
Electro-Optical division showed a decline of 6% in revenues as compared to
1995 on a long-term military contract for surface naval weapons directors.
Operating income (excluding corporate expenses) for this segment was
$8.1 million in 1996 an increase of 27% over 1995 operating income of $6.4
million which was up 93% from 1994 operating income of $3.3 million.
Excluding the impact of the Businesses Sold, operating income rose 22% to
$9.2 million in 1996 as compared with $7.6 million in 1995. The increase in
1996 over 1995 is primarily a result of increased sales volume at the
Company's Proto-Power division. Operating income in the Macbeth light and
instrumentation business also improved due to increased sales volume, and
lower operating expenses than in 1995 due to decreased personnel and
marketing costs.
Gross margins for this segment declined slightly in 1996 over 1995,
decreasing to 38% from 39%. Margin declines at the segment s Electro-Optical
division were a result of lower sales volume.
Research and development spending decreased 46% in 1996 versus 1995
reflecting the impact of the Businesses Sold, which when excluded would
result in a decrease of $0.2 million or 6% in R&D spending versus 1995.
Sales and marketing expenses decreased 20% in 1996 over 1995. Excluding the
Businesses Sold, sales and marketing expenses remained flat from 1995 to
1996, but declined as a percentage of sales to 12% from 13% in 1995.
Operating income in 1995 of $6.4 million was up 93% from 1994. The
increase was attributable to the contribution from increased sales by the
Company s Electro-Optical, Macbeth, and Proto-Power divisions.
Backlog for this segment was $41.8 million, $53.1 million, and $58.3
million at December 31, 1996, 1995, and 1994, respectively. The decrease in
1996 was caused in large part by the decrease in new orders under long-term
military contracts by the Electro-Optical division, and the elimination of
the backlog of the Businesses Sold.
Capital expenditures in 1996, 1995, and 1994 for this segment were $1.2
million, $1.1 million, and $1.7 million, respectively, primarily for
replacement of existing equipment and investment in new equipment to improve
the efficiency of product manufacturing.
<PAGE>
<PAGE>15
Liquidity and Capital Resources
The Company's consolidated cash position decreased by $4.3 million
during 1996. Cash provided from operations was $6.4 million, while $0.1
million was provided by investing activities due primarily to the sale of
assets, and $10.4 million was used for financing activities.
At December 31, 1996, the Company was contingently liable for $7.9
million of standby letters of credit issued principally to secure advance
payments received from foreign customers on long-term military contracts.
Accounts receivable growth used $9.7 million of cash reflecting
significant increases of progress billings on long-term military contracts,
and the increased revenues at the Company s Proto-Power division.
Inventories used $0.4 million of cash as compared to $3.9 million in the
prior year, reflecting the Company s focus on reducing inventory purchases in
1996. Recoverable amounts on long-term contracts decreased by $7.1 million
reflecting the attainment of billing milestones on long term military
contracts under the percentage-of-completion method. Accounts payable and
accrued liabilities used $3.8 million in cash reflecting payments made in
connection with the sale of a portion of the Company s instrumentation
business in France and scheduled payments made in the first quarter of 1996.
The Company's investing activities in 1996 included expenditures of
$4.8 million for property, plant and equipment primarily for replacement of
existing equipment and investment in new equipment to improve the efficiency
of manufacturing. In early 1996 the Company sold a portion of its
instrumentation business located in France and received $2.4 million. The
Company also sold two buildings which it did not occupy in 1996 receiving
$2.9 million in cash after expenses. The Company invested $1.4 million to
purchase stock in Servotronix, Ltd. a company in Israel which is involved in
the joint development of high performance digital drives and controls with
the Company s motion technologies group. In 1997 the Company intends to make
additional investments of approximately $8.5 million in cash and the
Company s common stock to acquire the balance of the outstanding shares of
Servotronix.
The Company's financing activities used $10.4 million of cash during
the year. On January 19, 1996 the Company entered into a five year $25
million term loan to finance the redemption of its outstanding Preferred
Stock, which was redeemed in cash for $25.8 million in February 1996.
Scheduled payments under the term loan were $2.3 million in 1996. Dividends,
both common and preferred, accounted for $1.1 million. The Company also made
mandatory sinking fund payments on its two convertible subordinated
debentures totaling $3.8 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 $1.9 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,
$1.1 million was repaid against existing credit lines.
<PAGE>
<PAGE>16
In April, 1996 the Company entered into a lease financing arrangement
with a leasing company to provide for the financing of up to $5 million for
equipment purchases through March 31, 1997. During 1996 the Company financed
approximately $2.8 million under the equipment lease agreement.
Capital spending for 1997 is expected to be at the same level as 1996.
The Company expects to obtain lease or debt financing for some of its capital
requirements for 1997. 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 and future borrowing capacity it will be able to finance its 1997
capital expenditures, sinking fund payments, working capital requirements,
and acquisition commitments. 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.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is included in Item 14(a) of
this Report.
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 14, 1997, is
contained in the definitive proxy statement to be filed with the Securities
and Exchange Commission (the "Commission") on or before April 7, 1997, 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".
<PAGE>
<PAGE>17
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 7, 1997, 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 7, 1997, 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.
None.
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 19.
(2) Exhibits. See Exhibit Index on page 48.
(b) Reports on Form 8-K.
(i) On January 27, 1997, the Company filed a
current report on Form 8-K setting forth
certain risk factors relating to forward
looking statements that the Company and its
representatives may make from time to time.
(ii) On January 31, 1997, the Company filed a
current report on Form 8-K announcing the
signing of an agreement with the shareholders
of Gretag AG relating to the formation of
Gretag-Macbeth Holding AG, a new Swiss joint
venture composed of the Company's Macbeth
color business and the Gretag Color Control
Systems business.
<PAGE>
<PAGE>18
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 28, 1997
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 28, 1997
President and
Chief Executive Officer/Director
/s/ Robert J. Cobuzzi
Robert J. Cobuzzi March 28, 1997
Senior Vice President, Treasurer and
Chief Financial Officer/Director
/s/ Keith D. Jones
Keith D. Jones March 28, 1997
Controller and
Chief Accounting Officer
/s/ James A. Eder
James A. Eder March 28, 1997
Vice President and Secretary and
Attorney-in-Fact For:
James H. Kasschau, Director Geoffrey S. Rehnert, Director
J. Douglas Maxwell, Jr., Director George P. Stephan, Director
Robert N. Parker, Director
<PAGE>
<PAGE>19
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 20
Consolidated Balance Sheets as of
December 31, 1996 and 1995 21-22
Consolidated Statements of Operations
for the years ended December 31,
1996, 1995 and 1994 23
Consolidated Statements of Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994 24-25
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 26-27
Notes to Consolidated Financial Statements 28-47
<PAGE>
<PAGE>20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kollmorgen Corporation:
We have audited the accompanying consolidated balance sheets of
Kollmorgen Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
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 and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 27, 1997
<PAGE>
<PAGE>21
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands)
<CAPTION>
ASSETS 1996 1995
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)$ 13,445 $ 17,789
Accounts receivable (net of reserve
of $772 in 1996 and $697 in 1995) 43,189 40,831
Recoverable amounts on long-term
contracts 4,973 12,116
Inventories (Note 3) 22,450 26,210
Prepaid expenses 1,645 1,557
--------- ---------
Total current assets 85,702 98,503
--------- ---------
Property, plant and equipment, net (Note 4) 25,147 28,803
Goodwill (net of accumulated amortization
of $771 in 1996 and $1,037 in 1995) 4,089 5,631
Deferred income taxes (Note 11) 1,728 -
Investment in joint venture (Note 2) 12,720 -
Other assets 11,944 14,537
--------- ---------
$ 141,330 $ 147,474
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE>22
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
1996 1995
--------- ---------
Current liabilities:
Notes payable (Note 6) $ 5,545 $ 9,019
Current portion of long-term
debt (Note 7) 6,942 3,901
Redeemable preferred stock (Note 8) - 2,756
Accrued compensation and payroll taxes 7,703 8,328
Accounts payable 21,765 24,969
Accrued liabilities 19,053 22,065
--------- ---------
Total current liabilities 61,008 71,038
--------- ---------
Long-term debt (Note 7) 53,054 36,888
Other liabilities 5,202 5,501
Minority interest 287 -
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, none in 1996 and
23,187.5 in 1995 - 22,750
Shareholders' equity (Notes 9 and 10):
Common stock, par value $2.50 per share
-- authorized 25,000,000 shares
-- outstanding 10,765,570 shares in
1996 and 10,762,024 in 199526,914 26,904
Additional paid-in capital 13,166 14,343
Accumulated deficit (10,054) (18,958)
Cumulative translation adjustments 791 (1,454)
Less common stock in treasury, at cost
-- 1,012,508 shares in 1996 and
1,068,558 shares in 1995 (9,038) (9,538)
--------- ---------
Total shareholders' equity 21,779 11,297
--------- ---------
$ 141,330 $ 147,474
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<PAGE>23
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 1996, 1995, and 1994
(Dollars in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $230,424 $228,655 $191,771
Cost of sales 152,928 152,614 124,627
-------- -------- --------
Gross profit 77,496 76,041 67,144
-------- -------- --------
Selling and marketing expense 27,570 29,412 27,753
General and administrative expense 24,348 22,435 21,491
Research and development expense 12,143 13,178 10,843
-------- -------- --------
Income before interest, minority
interest, and taxes 13,435 11,016 7,057
-------- -------- --------
Other (income) expense:
Interest expense 5,806 4,702 4,558
Interest (income) (493) (695) (879)
Other, net (268) (148) 142
-------- -------- --------
Income before minority interest
and income taxes 8,390 7,157 3,236
Minority interest 514 - -
Income tax benefit (Note 11) - - 815
-------- -------- --------
Net income $ 8,904 $ 7,157 $ 4,051
======== ======== ========
Net income available to common
shareholders $ 8,619 $ 2,509 $ 1,727
======== ======== ========
Earnings per common share $ .86 $ .26 $ .18
===== ===== =====
Number of shares used in calculating
earnings per share 10,042 9,670 9,642
======== ======== ========
<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 Shareholders' Equity
December 31, 1996, 1995 and 1994 (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, December 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)
Commmon 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, December 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
Common stock issuances 5,511 13 35 5,511 48
Dividends paid on common
and preferred stock (2,978) (2,978)
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)
---------- ------- -------- -------- -------- ----------- -------- --------- --------
Balance, December 31, 1995 10,762,024 26,904 14,343 (18,958) (1,454) (1,068,558) (9,538) 9,693,466 11,297
Net income 8,904 8,904
Common stock issuances 3,546 10 34 3,546 44
Dividends paid on common
and preferred stock (1,069) (1,059)
Common stock issued from
treasury (142) 56,050 500 56,050 358
Translation adjustments 2,245 2,245
---------- ------- -------- -------- -------- ---------- ------- --------- --------
<PAGE>
<PAGE>25
<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, December 31, 1996 10,765,570 $26,914 $13,166 $(10,054) $ 791 (1,012,508) $(9,038) 9,753,062 $21,779
========== ======= ======== ========= ======== ========== ======== ========= ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>26
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995, and 1994
(Dollars in thousands)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from operations $ 8,904 $ 7,157 $ 4,051
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 5,259 5,751 5,897
Amortization 1,063 1,848 781
(Gain) on sale of assets (561) (293) -
Minority interest (514) - -
Other non-cash expenses 44 48 46
Changes in operating assets and liabilities (net of
effects from acquisitions and divestitures):
Restricted cash - 8,000 (1,280)
Accounts receivable (9,664) (2,194) (3,154)
Recoverable amounts on long-term contracts 7,143 (4,736) (1,546)
Inventories (353) (3,892) 512
Prepaid expenses (840) (248) (501)
Accounts payable and accrued liabilities (3,832) 6,264 (1,329)
Deferred income taxes and other expenses (281) 1,051 714
-------- -------- --------
Net cash provided by operating activities 6,368 18,756 4,191
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (4,848) (3,852) (4,837)
Proceeds from sale of assets (net of
related expenses) 5,762 5,619 -
Equity investments (1,529) (1,718) -
Cash of subsidiary acquired (divested), net (481) - -
Long term notes receivable, net 1,234 (425) -
Acquisition of Hightech Components and
certain assets of Sperry Marine - - (3,749)
-------- -------- --------
Net cash provided by (used in) investing activities 138 (376) (8,586)
-------- -------- --------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
<PAGE>27
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under credit lines (1,552) (803) 1,351
Principal repayment on other notes (1,916) (896) -
Common stock issued from treasury 358 243 45
Redemption of preferred stock (25,506) - -
Principal payments under capital lease obligations (95) (42) (33)
Net borrowings (retirements) of long-term debt 19,394 (3,075) (4,499)
Dividends paid on common and preferred stock(1,069) (2,978) (2,975)
-------- -------- --------
Net cash used in financing activities (10,386) (7,551) (6,111)
Effect of exchange rate changes on cash (464) (205) (11)
-------- -------- --------
Net increase (decrease) in cash and equivalents (4,344) 10,624 (10,517)
Cash and cash equivalents at beginning of year17,789 7,165 17,682
-------- -------- --------
Cash and cash equivalents at end of year $13,445 $17,789 $ 7,165
======== ======== ========
Supplemental cash flow information
Cash paid during the period for:
Interest 5,467 4,704 4,809
Income taxes (net of refunds) (334) (321) 101
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>28
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(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 1996 classifications.
For purposes of the Notes to Consolidated Financial Statements, the term the
"Company" refers to Kollmorgen Corporation and its subsidiaries.
Principles of Consolidation Except as discussed in Note 2, 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 a 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
40 years) and the machinery and equipment (3 to 12 years). Leasehold
<PAGE>
<PAGE>29
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 these assets are
being amortized on a straight-line basis over periods ranging from 10 to 20
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.
Revenue Recognition Sales, other than revenues from major long-term
contracts, are recorded based upon product shipment or acceptance by the
customer if earlier. Major programs that are performed under long-term
contracts are accounted for using the percentage-of-completion method.
Revenues recognized under this method were $31.7 million, $37.7 million, and
$34.4 million in 1996, 1995, and 1994, 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 and dilutive common equivalent shares outstanding. Fully diluted net
income assumes full conversion of all convertible securities into common
stock that 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 The Company accounts for income taxes under the liability
method. Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
<PAGE>
<PAGE>30
Notes to Consolidated Financial Statements - continued
between the carrying amounts and the tax basis of assets and liabilities. A
valuation allowance is required to offset any net deferred tax assets if,
based upon the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Postretirement Benefits Other Than Pensions 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 $0.9 million in 1996 for postretirement benefits to 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.
Note 2. Investment in joint ventures
On January 16, 1997, the Company completed an agreement ( Subscription
Agreement ) to combine, effective December 31, 1996, its Macbeth division
( Macbeth ) with the Color Control Systems business of Gretag AG ( Gretag ).
Macbeth and Gretag will be owned by a Swiss holding company ( Holding or the
Joint Venture ) which will be equally controlled by the Company and the
shareholders of Gretag AG who will own 48% and 52% of Holding, respectively.
Accordingly, the results of operations and statement of cash flows for the
twelve months ended December 31, 1996 reflect the inclusion of Macbeth, and
the consolidated balance sheet as of December 31, 1996 reflects the net asset
value of Macbeth as Investment in joint venture. The Company will account
for this transaction using the equity method.
Included in the Company s Investment in joint venture is a note
receivable of 6.8 million Swiss francs (approximately $5.1 million) payable
by the Joint Venture to the Company. The note is non-interest bearing until
December 31, 1997 when it will accrue interest at 1% above the three month
CHF LIBOR rate, which was 3% at December 31, 1996. The note is due in full
from the proceeds of any initial public offering of the common stock of the
Joint Venture. If the note has not been repaid by December 31, 1997, the
note will be repaid in equal quarterly installments over a five year period
commencing March 31, 1998. The fair value of this note at December 31, 1996
after consideration of imputed interest for the non-interest bearing period
discounted at the Company's incremental borrowing rate of 8% is $4.3 million.
<PAGE>
<PAGE>31
Notes to Consolidated Financial Statements - continued
Note 3. Inventories
Inventories at December 31 consist of the following:
1996 1995
--------- ---------
Raw materials $ 11,816 $ 15,110
Work in process 8,118 7,653
Finished goods 2,516 3,447
--------- ---------
$ 22,450 $ 26,210
========= =========
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31 consists of the following:
1996 1995
--------- ---------
Land $ 1,460 $ 2,086
Leasehold improvements 812 792
Buildings 25,937 35,652
Machinery and equipment 68,807 74,385
Capital leases 382 581
--------- ---------
97,398 113,496
Less accumulated depreciation
and amortization 72,251 84,693
--------- ---------
$ 25,147 $ 28,803
========= =========
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 was to prepay the loan
and interest rates declined. The fair value of the interest rate swap at
December 31, 1996, was $0.3 million.
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>32
Notes to Consolidated Financial Statements - continued
Note 6. Lines of credit and notes payable
Notes payable consist of the following at December 31:
1996 1995
-------- --------
Foreign $ 5,545 $ 7,103
Domestic - 1,916
-------- --------
$ 5,545 $ 9,019
======== ========
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 bearing interest at the bank's prime rate plus one half of one
percent or the Eurodollar rate plus two percent (with a 21 million French
franc facility for the Company s French subsidiary, and 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
Convertible Preferred Stock as discussed in Note 8. 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. These
requirements change during the term of the loan. The Company was in
compliance with all covenants at December 31, 1996.
At December 31, 1996, the Company had $7.9 million of standby and
documentary letters of credit outstanding with its lead bank, approximately
$4 million (21 million francs) under the French facility, and no amounts were
outstanding under the domestic revolving credit facility.
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>33
Notes to Consolidated Financial Statements - continued
Note 7. Long-term debt
Long-term debt consists of the following:
1996 1995
-------- --------
8 3/4% Convertible subordinated
debentures due 2009 $ 34,590 $ 36,340
10.50% Convertible subordinated
debentures due 1997 2,000 4,000
Term loan, 7.45% due through 2001 22,750 -
Term loan, 4.50% due through 2001 424 -
Term loans, 10.50% due 1997 9 28
Capital lease obligations 223 421
-------- --------
59,996 40,789
Less current maturities 6,942 3,901
-------- --------
$ 53,054 $ 36,888
======== ========
The 8.75% Convertible Subordinated Debentures are convertible at any
time prior to maturity, unless previously redeemed, into 1,006,987 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 at least $1.75, but not
more than $3.5 million principal amounts commencing May 1, 19954, and each
year thereafter including May 1, 2008. The balance, if any, is due on May 1,
2009. At December 31, 1996 the market price of these debentures approximated
carrying value.
The 10.50% Convertible Subordinated Debentures, issued in a private
placement, are convertible into 80,000 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.
As described in Note 6 above, the 7.45% term loan was for the sole
purpose of redeeming the Company s Preferred Stock (as described in Note 8),
and the balance is to be repaid in mandatory installments of $3 million,
$5.25 million, $6 million, $6.75 million, and $1.75 million in the years
1997, 1998, 1999, 2000, and 2001 respectively.
The Company incurred $5.8 million, $4.7 million, and $4.6 million of
interest expense on debt in 1996, 1995, and 1994, respectively.
<PAGE>
<PAGE>34
Notes to Consolidated Financial Statements - continued
Long-term debt at December 31, 1996, matures as follows:
Date Maturities
---- ----------
1997 $ 6,942
1998 7,172
1999 7,806
2000 8,634
2001 3,602
Thereafter 25,840
--------
$59,996
========
Note 8. Preferred Stock
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 made required 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 at December 31, 1995.
Note 9. Common Stock, Additional Paid-in Capital and Treasury Stock
Pursuant to the By-Laws of the Company, directors who are not employees
of the Company 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
<PAGE>
<PAGE>35
Notes to Consolidated Financial Statements - continued
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 or (ii) a date determined by 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, 1996 and 1995, were
as follows: conversion of debentures and redeemable preferred stock --
1,086,987 and 2,935,524, respectively; and stock options and other awards --
1,634,991 and 1,122,441, 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
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 is effective for periods beginning after December
15, 1995. SFAS 123 requires that companies either recognize compensation
expense for grants of stock, stock options, and other equity instruments
based on fair value, or provide pro forma disclosure of net income and
earnings per share in the notes to the financial statements. The Company
adopted the disclosure provisions of SFAS 123 in 1996 and continues to apply
APB Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized. Pro forma amounts are
indicated below.
The Company s maintains two employee stock option plans under which
grants have been made to officers and key employees. Additionally, the
Company maintains a non-employee director "(NED)" stock option plan that
provides, among other things, a one-time grant to each non-employee director
of a non-qualified stock option to purchase (i) 15,000 shares of common stock
and (ii) the right to acquire an additional option to purchase up to 10,000
shares if the non-employee director purchases a corresponding number of
shares on the open market within ninety days after the grant. Generally, the
options outstanding under the Company s stock plans: (a) are granted at
<PAGE>
<PAGE>36
Notes to Consolidated Financial Statements - continued
prices which equate to the market value of the stock on the date of grant,
(b) vest ratably over a five year period for the employee plans and over a
two year period for the NED plan and (c) expire ten years subsequent to
award. At 12/31/96 the Company has authorized 1,309,991 and 325,000 shares
for issuance under the employee plans and the NED plan, respectively. A
total of 275,500 and 125,000 options were granted in 1996 under the employee
plans and the NED plan, respectively.
A summary of the status of the Company s stock options as of
December 31, 1996, 1995, and 1994, and changes during the year ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
1996 Exercise 1995 Exercise 1994 Exercise
Shares Price Shares Price Shares Price
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1 986,950 $ 7.95 905,700 $ 7.58 884,820 $ 7.87
Granted 400,500 10.91 209,000 9.16 146,000 7.47
Exercised (56,050) 6.39 (38,050) 6.38 (6,800) 5.57
Canceled (67,700) 8.38 (89,700) 7.75 (118,320) 9.71
---------- -------- ---------
Outstanding at
December 31 1,263,700 8.93 986,950 7.95 905,700 7.58
========== ======== =========
Options exercisable
at December 31 576,200 7.97 453,850 7.88 374,400 7.98
========== ======== =========
Options available
for future grant 256,163 118,009 256,320
========== ======== =========
</TABLE>
The fair value of each option granted during 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: (a) dividend yield
of 0.8%, (b) expected volatility of 37%, (c) risk-free interest rate of
6.2%, in 1996 and 5.6% in 1995, and (d) expected life of 5 years. The
Weighted Average Fair Value of options granted during the years 1996 and
1995 are $4.21 and $3.54, respectively.
<PAGE>
<PAGE>37
Notes to Consolidated Financial Statements - continued
The following table summarizes information about currently
outstanding and exercisable stock options at December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Number of Average Weighted Number Weighted
Range of Options Remaining Average Exercisable Average
Exercise Outstanding Contractual Exercise at Exercise
Prices at 12/31/96 Life Price 12/31/96 Price
------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 4.50- 6.75 145,900 6.4 $ 5.45 87,300 $ 5.28
7.38-10.50 940,100 7.0 8.89 478,200 8.34
11.63-14.06 177,700 9.0 12.03 10,700 13.16
--------- -------
1,263,700 7.2 8.93 576,200 7.97
========= =======
</TABLE>
Had compensation costs for the Company s 1996 and 1995 grants for
stock-based compensation plans been determined consistent with SFAS 123,
the Company s net income and net income per share for 1996 and 1995 would
approximate the pro forma amounts below:
1996 1995
----------------- ------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net income $8,904 $8,612 $7,157 $7,145
Net income per share $0.86 $0.83 $0.26 $0.26
The effect of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
Note 11. Taxes on income
The components of income (loss) before income taxes were as follows:
1996 1995 1994
-------- -------- --------
Domestic $ 9,436 $ 7,543 $ 5,001
Foreign (1,046) (386) (1,765)
-------- -------- --------
Total $ 8,390 $ 7,157 $ 3,236
======== ======== ========
<PAGE>
<PAGE>38
Notes to Consolidated Financial Statements - continued
Statement of Accounting Standards No. 109, "Accounting for Income
Taxes" ("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.
As required by FAS 109, management of the Company has evaluated the
positive and negative evidence bearing upon the realizability of its
deferred tax assets. Management has evaluated the components of its
deferred tax assets, the anticipated taxable income of the Company, and
concluded that, in accordance with applicable accounting standards, it is
more likely than not that a portion of these assets will not be utilized.
For income tax purposes the Company has elected to treat the transfer
of the Macbeth assets into the Joint Venture as a taxable transaction.
Accordingly, the Company will recognize a tax gain of the excess of the
fair value of the Macbeth assets over their net tax value.
The valuation allowance decreased during 1996 resulting from
recognizing benefits from the utilization of net operating loss and tax
credit carryforwards as a result of current income from operations and the
tax gain from the formation of the Joint Venture.
The provision (benefit) for income taxes consists of the following
(in thousands):
1996 1995 1994
-------- -------- --------
Current provision (benefit):
U.S. federal $ 1,543 $ 61 $ (906)
Foreign - (235) 35
State 185 - 56
-------- -------- --------
1,728 (174) (815)
-------- -------- --------
Deferred provision (benefit):
U.S. federal (1,487) - -
Foreign - 174 -
State (241) - -
-------- -------- --------
(1,728) 174 -
-------- -------- --------
Total $ - $ - $ (815)
======== ======== ========
<PAGE>
<PAGE>39
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:
1996 1995 1994
-------- -------- --------
Income tax provision (benefit) if
computed at U.S. federal rates $ 2,937 $ 2,433 $ 1,100
Gain on the formation of Joint Venture 8,645 - -
Benefit of net operating loss
carryforwards and tax credits (13,487) (2,650) (1,769)
Foreign unutilized net operating
losses and tax credits 364 - 646
Foreign tax rate variances - 70 (2)
State income taxes net of
federal benefit 1,602 - 37
Other (61) 147 (827)
-------- -------- --------
$ - $ - $ (815)
======== ======== ========
The deferred tax assets and liabilities are comprised of the
following:
12/31/96 12/31/95
--------------------
Bad debt reserve $ 197 $ 233
Employee benefit reserves 2,015 711
Reserve for net realizable value
of real estate 1,088 1,200
Other 3,526 3,807
General business tax and
other credits 4,477 18,842
Property, plant and equipment (2,215) (2,527)
--------- ---------
9,388 22,266
Valuation allowance (7,660) (22,266)
--------- ---------
Net deferred tax asset $ 1,728 $ -
========= =========
For Federal income tax purposes, the Company has no domestic regular
tax net operating loss carryforwards. The Company has foreign net
operating losses of approximately $2.4 million and these net operating
losses expire beginning in 1998.
<PAGE>
<PAGE>40
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. In 1996 the Company increased its equity interest in Servotronix
to 25.1 % with payments totaling $1.4 million. The Company intends to
purchase the remaining shares of Servotronix in 1997 for approximately
$8.5 million, a portion of which may be paid in the Company s common
stock.
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 $1.9
million to the joint venture to fund its working capital requirements.
The joint venture was finalized in 1996 and the Company's proportionate
share of the operating results has been included in the financial results
of the Company for 1996. Management believes that the exclusion of the
joint venture in 1995 does not have a material impact on the financial
statements presented for that year.
Note 13. Sale of Assets
In March 1996 the Company sold a significant portion of its
instrumentation business located in France for approximately $2.4 million,
the net book value of the assets sold.
During 1996 the Company sold real estate which it did not occupy for
$2.9 million, net of related expenses, and which resulted in a gain of
approximately $0.4 million.
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, and which resulted in a loss of approximately $0.5 million.
In October, 1995, the Company sold its Photo Research division for
approximately $3.2 million in cash after deducting related expenses, and
which resulted in a gain of approximately $0.9 million.
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 $2.2 million in 1996,
$2.5 million in 1995, and $2.1 million in 1994. 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, 1996, are as follows:
<PAGE>
<PAGE>41
Notes to Consolidated Financial Statements - continued
Operating Capital
Leases Leases
---------- ----------
1997 $ 1,704 $ 117
1998 1,518 80
1999 1,391 55
2000 1,383 0
2001 995 0
Thereafter 3,300 0
-------- --------
Total minimum lease payments$ 10,291 $ 252
========
Less amounts representing interest (29)
--------
Present value of net minimum
lease payments $ 223
========
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 policy has been and continues to be to conduct its activities in
compliance with all applicable rules and regulations.
Pursuant to the Subscription Agreement described in Note 2, the
Company has retained certain potential liabilities of the Macbeth
division. Management believes that the assumption of these potential
liabilities will not have a material adverse effect on the financial
position of the Company.
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 (the
<PAGE>
<PAGE>42
Notes to Consolidated Financial Statements - continued
"Plans"). 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 1996, 1995 and 1994
included the following components:
1996 1995 1994
-------- -------- --------
Service cost $ 2,499 $ 1,617 $ 1,986
Interest cost 3,633 3,123 3,104
Actual (return) loss on
plan assets (10,502) (13,472) 158
Net amortization and deferral 4,280 8,396 (5,508)
-------- -------- --------
Net periodic pension cost
(credit) $ (90) $ (336) $ (260)
======== ======== ========
The assumptions used in determining the end of year benefit
obligations included a discount rate of 6.50% in 1996 and 1995, and 8.25%
in 1994, an expected investment return of 10% and compensation increases
of 5%. The Plans' assets consist principally of cash, common stocks, and
bonds.
The Plans' funded status together with the amounts recognized in the
Company's Balance Sheet at December 31 are as follows:
1996 1995
-------- --------
Actuarial present value of
benefit obligations:
Vested $(36,545) $(40,853)
======== ========
Accumulated (37,450) (41,766)
======== ========
Projected (51,729) (56,600)
Plans' assets at fair value 63,879 58,357
-------- --------
Plans' assets in excess of
projected benefit obligation 12,150 1,757
Unrecognized net (gain) loss (5,864) 4,931
Unrecognized net asset at January 1 (4,705) (5,277)
Unrecognized prior service cost 1,717 1,798
-------- --------
Prepaid pension cost $ 3,298 $ 3,209
======== ========
<PAGE>
<PAGE>43
Notes to Consolidated Financial Statements - continued
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, 1996 and 1995, 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 1996 and in 1995 for the
SERP.
The Company has a voluntary 401(k) savings and investment plan
designed to enhance the existing retirement program covering eligible
domestic employees. In 1996, 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 $0.7 million, $0.5
million, and $0.2 million in 1996, 1995, and 1994, respectively.
As a result of the formation of the Joint Venture as described in
Note 2, the Company expects the employees of Macbeth to become employees
of the Joint Venture in 1997. This will be accounted for as a curtailment
and a settlement under Statements of Accounting Standards No. 88,
"Employers' Accounting for Settlement and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106").
The gain or loss has not yet been determined.
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 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 1996, 1995, and 1994
included the following components:
<PAGE>
<PAGE>44
Notes to Consolidated Financial Statements - continued
1996 1995 1994
-------- -------- --------
Service cost $ 168 $ 122 $ 133
Interest cost 423 460 435
Amortization of obligation
at transition 278 278 278
Amortization of (gain)/loss 9 - -
------- ------- -------
Net periodic postretirement
benefit cost $ 878 $ 860 $ 846
======= ======= =======
The plan amounts recognized in the Company's Balance Sheet at
December 31, 1996 and 1995, are as follows:
1996 1995
-------- --------
Accumulated postretirement benefit
obligations:
Retirees and dependents $ (3,712) $ (4,174)
Fully eligible active plan
participants (326) (315)
Other active plan participants (2,498) (2,330)
-------- --------
Total (6,536) (6,819)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (6,536) (6,819)
Unrecognized net (gain) loss 559 835
Unrecognized prior service cost - -
Unrecognized transition obligation 4,448 4,726
-------- --------
Accrued postretirement benefit cost $ (1,529) $ (1,258)
======== ========
The Company's postretirement benefit plans are unfunded.
For measurement purposes, a 6.0% annual rate of increase in the per
capita cost of covered medical benefits was assumed for 1997; the rate was
assumed to decrease to 5.5% for 1998 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, 1996, by $193 thousand and the aggregate of the service cost
and interest cost components of net periodic postretirement benefit cost
by $16 thousand.
The weighted average discount rates used in determining the
accumulated postretirement benefit obligation are 7.0% and 6.5% as of
December 31, 1996 and 1995,respectively.
<PAGE>
<PAGE>45
Notes to Consolidated Financial Statements - continued
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):
1996 1995 1994
-------- -------- --------
Net sales
North America $190,776 $180,891 $151,288
Europe 48,806 56,269 45,922
Other 440 - -
Eliminations (9,598) (8,505) (5,439)
--------- --------- ---------
$230,424 $228,655 $191,771
========= ========= =========
Net income
North America $ 9,416 $ 7,501 $ 5,199
Europe (55) (325) (1,403)
Other (536) - -
Eliminations 79 (19) 255
--------- --------- ---------
$ 8,904 $ 7,157 $ 4,051
========= ========= =========
Identifiable assets
North America $105,445 $107,450 $102,998
Europe 33,288 41,238 36,037
Other 4,223 0 0
Eliminations (1,626) (1,214) (834)
--------- --------- ---------
$141,330 $147,474 $138,201
========= ========= =========
The Company's principal foreign manufacturing facilities are in
France, India, and Germany. The sales eliminations are transfers at
prevailing wholesale selling prices. The Company has no other significant
foreign operations.
In addition to foreign operations, export sales amounted to $39.7
million in 1996, $31.9 million in 1995, and $32.5 million in 1994. Sales
to the U.S. Government or for U.S. Government end-use amounted to $41.3
million in 1996, $43.5 million in 1995, and $39.3 million in 1994.
Note 19. Industry Segment Information
The Company has operations in two industry segments: the motion
technologies group and electro-optical instruments. The following table
<PAGE>
<PAGE>46
Notes to Consolidated Financial Statements - continued
includes certain financial information relating to each of the Company s
segments in the last three fiscal years.
1996 1995 1994
-------- --------- ---------
Motion Technologies Group
Sales $141,250 $130,811 $103,379
Operating income 11,274 9,798 8,521
Assets 82,539 76,509 64,238
Capital additions 3,667 2,728 3,000
Depreciation 3,380 3,316 3,105
Backlog 54,047 56,248 60,267
Electro-Optical Instruments
Sales $ 89,174 $ 97,844 $ 88,392
Operating income 8,133 6,406 3,315
Assets 31,515 50,255 48,078
Capital additions 1,156 1,111 1,738
Depreciation 1,695 2,214 2,567
Backlog 41,767 53,119 58,303
Corporate
Operating (expenses) $(10,503) $ (9,047) $ (8,600)
Assets 27,276 20,710 25,885
Capital additions 25 13 99
Depreciation 184 221 225
Consolidated
Sales $230,424 $ 228,655 $ 191,771
Net income before taxes 8,904 7,157 3,236
Assets 141,330 147,474 138,201
Capital additions 4,848 3,852 4,837
Depreciation 5,259 5,751 5,897
Backlog 95,814 109,367 118,570
The operating income in the above table represents operating segment
income after minority interest and 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, 1996, 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 1995 and 1994 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
<PAGE>
<PAGE>47
Notes to Consolidated Financial Statements
segments. Corporate assets consist principally of cash and investments,
net assets held for disposition, equity investments, and intangible
pension assets.
Note 20. Quarterly Results of Operations (Unaudited)
Quarter
1996 First Second Third Fourth
- ---- -------- -------- -------- --------
Net sales $ 57,040 $ 59,788 $ 52,830 $ 60,766
Gross profit 19,226 20,158 17,525 20,587
Net income 1,648 2,229 1,804 3,223
Earnings per common
share 0.14 0.22 0.18 0.32
Quarter
1995 First Second Third Fourth
- ---- -------- -------- -------- --------
Net sales $ 53,416 $ 58,887 $ 54,668 $ 61,684
Gross profit 17,723 19,851 18,589 19,878
Net income 1,172 1,838 1,501 2,646
Earnings (loss) per
common share 0.06 0.13 0.10 (0.03)
Deducted from earnings in the fourth quarter of 1995 was the 10% premium
of $2.3 million or $0.24 per share as required by the early redemption of
the Preferred Stock in February, 1996.
<PAGE>
<PAGE>48
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 N/A
of 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.
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>49
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(b) Subscription Agreement dated as of N/A
January 15, 1997 among Gretag AG,
Dr. Eduard M. Brunner, William J.
Recker, Dr. Hans R. Zulliger,
Kollmorgen Corporation, Gretag-Macbeth
Holding AG, incorporated by reference
to Exhibit 10(A) of Form SE filed
on January 31, 1997.
10(c) 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(d) Kollmorgen 1991 Long Term Incentive Plan, N/A
as amended, incorporated by reference to
Exhibit A of the Company's Proxy Statement
dated April 5, 1996, for the Annual Meeting
of Shareholders held on May 8, 1996.
10(e) Form of 1988 and 1990 Non-Qualified Stock N/A
Option Agreement for James A. Eder. Said
agreements are 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(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 and 1996 Incentive Stock N/A
Option Agreement under the Long-Term
Incentive Plan for Gideon Argov, Robert
J. Cobuzzi, James A. Eder, Keith D. Jones
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(g)
to the Annual Report on Form 10-K of the
Company for the year ended December 31,
1995.
<PAGE>
<PAGE>50
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(h) Kollmorgen 1992 Stock Ownership Plan for N/A
Non-Employee Directors, as amended,
incorporated by reference to Exhibit B
of the Company's Proxy Statement dated
April 5, 1996, for the Annual Meeting
of Shareholders held on May 8, 1996.
10(i) Form of Non-Qualified Stock Option 52
Agreement for the grant of 15,000 options
between each non-employee director and the
Company pursuant to the Kollmorgen 1992
Stock Ownership Plan for Non-Employee
Directors, as amended.
10(j) Kollmorgen 1997 Corporate Incentive Plan N/A
for Corporate Officers and other key
corporate employees is identical to the
plan incorporated by reference to Exhibit
10(j) to the Annual Report on Form 10-K
for the year ended December 31, 1996.
10(k) 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(l) 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(m) Form of severance agreement for George P. N/A
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.
10(n) 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.
<PAGE>
<PAGE>51
Page in this
Exhibit No. Description of Exhibit Form 10-K
10(o) 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(p) 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.
10(q) Master Equipment Lease Agreement dated N/A
as of April 19, 1996, between Provident
Commercial Group, Inc. and Kollmorgen
Corporation incorporated by reference
to EX-10 of the Form SE filed on
November 30, 1996.
11 Calculations of Earnings Per Share 58
21 Subsidiaries of the Company 59
23 Consent of Independent Accountants - 60
Coopers & Lybrand L.L.P.
24 Powers of Attorney 61
27 Financial Data Schedule 66
99 Certain Risk Factors incorporated by N/A
reference to Exhibit 99 to the Form 8-K
of the Company filed on January 27, 1997.
<PAGE>
EXHIBIT 10(I)
NON-QUALIFIED 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
a non-employee director of the Corporation (hereinafter called the
"Optionee").
WITNESSETH THAT:
WHEREAS, the Corporation by due corporate action and with the
affirmative vote of the holders of at least a majority of the stock of the
Corporation entitled to vote adopted the Kollmorgen 1992 Stock Ownership
Plan for Non-Employee Directors; and
WHEREAS, the Corporation by due corporate action and with the
affirmative vote of the holders of at least a majority of the stock of the
Corporation entitled to vote adopted certain amendments to the Kollmorgen
1992 Stock Ownership Plan for Non-Employee Directors (such Plan, as
amended, is hereinafter called the "Plan"); and
WHEREAS, the Plan provides for the automatic grant of an option to
purchase 15,000 shares of the Corporation's Common Stock, $2.50 par value,
("Common Stock") pursuant to the terms of the Plan and upon the terms and
conditions hereinafter provided;
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, a non-qualified stock option (hereinafter called
the "Option") to purchase 15,000 shares of Common Stock (hereinafter
called the "Optioned Shares") at a price of $ per share
(hereinafter called the "Option Price"). Such Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
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 50% of the Optioned Shares on or after twelve
(12) months following the Option Date; and
ii) all of the Optioned Shares on or after twenty-four
(24) months following the Option Date.
(b) Nothing in this Option Agreement shall confer upon the Optionee
any right to be retained in the service of the Corporation as a non-
employee director.
3. Termination of Option.
(a) Upon termination of an Optionee's service as a director of the
Corporation for any reason (including death, disability or retirement)
other than as set forth in paragraph 3(b) below, such Optionee may
exercise that portion of the Option that was exercisable at the time of
such termination during the period equal to the greater of (i) one (1)
month for each year of service as a non-employee director up to twelve
(12) months, or (ii) ninety (90) days following the date of such
termination of service for any reason other than death and, in the case of
death, until one year following the date of death 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. Upon the
expiration of the applicable post-termination exercise period, any such
Option, to the extent not exercised, shall be canceled without payment
therefor.
(b) In the event that an Optionee voluntarily resigns from the Board
without the consent of the Board or is removed from the Board for Cause
(as defined below), any Option granted to such Optionee, whether then
vested and exercisable or not, shall terminate, as of the date of such
resignation or removal. For purposes of this paragraph 3(b), removal for
"Cause" shall mean a removal as a director by reason of (i) any act or
omission which constitutes a material breach by the Optionee of an
obligation to the Corporation, (ii) the conviction by the Optionee of a
felony, or the perpetration by the Optionee of a dishonest act or common
law fraud against the Corporation, or (iii) any other willful act or
omission which is materially injurious to the financial condition or
business reputation of the Corporation.
(c) Whether services have been terminated, and reason thereof, for
the purposes of this Agreement shall be determined by the Personnel and
Compensation Committee of the Board of Directors (hereinafter called the
"Committee"), whose determination shall be final, binding and conclusive.
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 the 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 or by check, or (ii) through the delivery of shares of
the Corporation's Common Stock having a fair market 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. The Optionee shall pay all amounts required
under applicable federal, state and local withholding tax rules and
regulations.
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
Optioned 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
Securities Exchange Act of 1934, 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 Common
Stock or the rights thereof or convertible into or exchangeable for Common
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) In the event of any consolidation, recapitalization,
reclassification, stock dividend, distribution of property, special cash
dividend or other change in corporate structure affecting the Common
Stock, (other than as set forth in paragraphs 8(c) and (d) below),
adjustments may be made by the Committee in order to preserve to the
holders of outstanding options to purchase Common Stock rights thereunder
substantially equivalent to the rights held by them immediately prior to
such event under such outstanding options to purchase Common Stock,
including adjustments to the number, class and exercise price of shares
subject to outstanding options granted under the Plan, or such adjustments
or other actions as the Committee may deem appropriate.
(c) Anything herein contained notwithstanding, immediately prior to
a Corporate Termination (as defined in paragraph 9(a)) the Optionee shall
receive from the Corporation an amount in cash, in a lump sum, for each
share of Common Stock subject to the Option (whether or not vested) held
by the Optionee equal to the difference between the exercise price of the
Option and the last Fair Market Value (as defined in paragraph 9) of a
share of Common Stock prior to the Corporate Termination, provided,
however, that if the Option was granted within the six months prior to the
Corporate Termination, it shall not be subject to a cash out, but instead
shall become fully vested and exercisable immediately prior to the
Corporate Termination.
(d) In the event of any merger of the Corporation, (i) the terms of
the Option, including, without limitation, the terms regarding vesting,
exercisability, transfer, forfeitability and delivery of shares of Common
Stock, shall continue to be governed by the terms of the Plan; and (ii)
the Optionee shall be entitled to receive, upon the exercise of the
Option, the same per-share consideration received by each of the
Corporation's shareholders in connection with such merger, multiplied by
the number of Optioned Shares covered by the Option.
9. Definitions. For all purposes of this Option Agreement:
(a) A "Corporate Termination" shall mean the dissolution or
liquidation of the Corporation.
(d) The "Fair Market Value" shall mean, as of any day, (i) if shares
of Common Stock are listed on the New York Stock Exchange, the
per share closing price of the shares of Common Stock as
reported on the New York Stock Exchange composite tape on the
day on which such determination is being made, or, if there was
no sale of shares of Common Stock so reported, then on the most
recent preceding trading day on which there was such a sale,
(ii) if shares of Common Stock are not listed on the New York
Stock Exchange, but are listed on another national securities
exchange or exchanges, the per share closing price of the shares
of Common Stock as reported for such exchange (or if more than
one such exchange, then the principal stock exchange for trading
of the shares of Common Stock) on the day on which such
determination is being made, or, if there was no sale of shares
of Common Stock so reported, then on the most recent preceding
trading day on which there was such a sale, (iii) if the shares
of Common Stock are not listed on any national securities
exchange, then the last price for the shares of Common Stock as
reported on the National Association of Securities Dealers, Inc.
Automated Quotation System on the day on which such
determination is being made, or, if there was no sale of shares
of Common Stock so reported, then on the most recent preceding
trading day on which there was such a sale, or (iv) if the
shares of Common Stock are not listed on any national securities
exchange and sales of shares of Common Stock are not reported as
specified in clause (iii) of this definition, then the last
price for the shares of Common Stock reported for the over-the-
counter market on the day on which such determination is being
made, or, if there was no sale of the shares of Common Stock so
reported, then on the most recent preceding trading day on which
there was such a sale.
10. 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.
11. 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.
12. Governing Law. This Option Agreement and its interpretation and
performance shall be controlled solely by the laws of the State of New
York.
13. 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.
14. 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 services
was for reasons constituting cause, and any determinations of the
Committee shall be conclusive.
15. 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.
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. #_____________________
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 amounts required under applicable federal, state and local 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>
<TABLE>
EXHIBIT 11
<CAPTION>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CALCULATIONS OF EARNINGS PER SHARE
(Dollars in thousands, except per share amounts)
Year Ended December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 8,804 $ 7,157 $ 4,051 $ 4,752 $ (8,725)
Less preferred stock dividends,
accretion of discount, and
premium paid on preferred
stock redemption (285) (4,648) (2,324) (2,324) (2,330)
----------- ----------- ----------- ----------- -----------
Earnings applicable to common stock 8,619 2,509 1,727 2,428 (11,055)
----------- ----------- ----------- ----------- -----------
Number of shares:
Weighted average number of
shares outstanding 9,732,055 9,667,434 9,641,698 9,632,232 9,627,228
Shares issuable on assumed
exercise of dilutive options 310,051 -- -- -- --
----------------------- ----------- ----------- -----------
Adjusted shares 10,042,106 9,667,434 9,641,698 9,632,232 9,627,228
=========== =========== =========== =========== ===========
Earnings (loss) per share $ .86 $ .26 $ .18 $ .25 $(1.14)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
As of March 23, 1997, 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
Kollmorgen Overseas Development
Corporation Delaware 100
Proto-Power Corporation Delaware 100
Kollmorgen Tandon (India) India 51
Tianjin Kollmorgen Industrial Peoples' Republic
Drives Corporation of China 63
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), on Form S-8
(No. 33-48953), on Form S-8 (No.333-21409) and on Form S-8 (No. 333-21379)
of our report dated January 27, 1997, on our audits of the consolidated
financial statements of Kollmorgen Corporation as of December 31, 1996,
and 1995, and for the three years in the period ended December 31, 1996,
which report is included in the 1996 Annual Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 25, 1997
<PAGE>
EXHIBIT 24
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, 1996, 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 , 1997.
/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, 1996, 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 , 1997.
/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, 1996, 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 , 1997.
/s/ Robert N. Parker
_______________________________
Robert N. Parker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
GEOFFREY S. REHNERT 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, 1996, 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 , 1997.
/s/ Geoffrey S. Rehnert
_______________________________
Geoffrey S. Rehnert
<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, 1996, 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 , 1997.
/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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,445
<SECURITIES> 0
<RECEIVABLES> 43,189
<ALLOWANCES> 772
<INVENTORY> 22,450
<CURRENT-ASSETS> 85,702
<PP&E> 97,398
<DEPRECIATION> (72,251)
<TOTAL-ASSETS> 141,330
<CURRENT-LIABILITIES> 61,008
<BONDS> 0
<COMMON> 26,914
0
0
<OTHER-SE> (5,135)
<TOTAL-LIABILITY-AND-EQUITY> 141,330
<SALES> 212,664
<TOTAL-REVENUES> 230,424
<CGS> 142,030
<TOTAL-COSTS> 152,928
<OTHER-EXPENSES> 64,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,806
<INCOME-PRETAX> 8,904
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,904
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
