<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
Commission File No. 1-5562
KOLLMORGEN CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-2151861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160l Trapelo Road, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 890-5655
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at May 13, 1997
Common Stock, $2.50 par value 9,774,594 shares
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KOLLMORGEN CORPORATION
INDEX
Page No.
PART I - Financial Information
Consolidated Statements of Operations 3
for the Three Months Ended
March 31, 1997 and 1996 (unaudited)
Consolidated Balance Sheets as of 4
March 31, 1997 (unaudited)
and December 31, 1996
Consolidated Statements of Cash Flows 5-6
for the Three Months Ended
March 31, 1997 and 1996 (unaudited)
Notes to Unaudited Consolidated Financial Statements 7-8
Management's Discussion and Analysis 9-11
of Financial Condition and
Results of Operations
PART II - Other Information 11
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<TABLE>
PART I - FINANCIAL INFORMATION
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1997 1996
(unaudited) (unaudited)
-------- --------
<S> <C> <C>
Net sales $ 50,587 $ 57,040
Cost of sales 35,306 37,814
--------- ---------
Gross profit 15,281 19,226
--------- ---------
Selling and marketing expense 4,728 7,299
General and administrative expense 5,766 5,805
Research and development expense 1,979 3,303
--------- ---------
Income from operations 2,808 2,819
--------- ---------
Interest (expense) (1,283) (1,317)
Interest income 197 189
Other 20 (43)
--------- ---------
Income before income taxes, equity in earnings
of joint venture, and minority interest 1,742 1,648
Provision for income taxes 478 0
--------- ---------
Income before equity in earnings of joint
venture and minority interest 1,264 1,648
Equity in earnings of joint venture 670 0
Minority interest 76 0
--------- ---------
Net income $ 2,010 $ 1,648
========= =========
Net income available to common shareholders $ 2,010 $ 1,363
========= =========
Earnings per common share - Primary $ .20 $ .14
====== ======
Number of shares used in calculating
earnings per common share 10,177,411 9,706,225
========== ==========
<FN>
See accompanying notes to these unaudited consolidated financial statements.
</TABLE>
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<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<CAPTION>
ASSETS
March 31,
1997 December 31,
(unaudited) 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,949 $ 13,445
Accounts receivable (net of reserve of
$713 in 1997 and $772 in 1996) 40,457 43,189
Recoverable amounts on long-term contracts 4,321 4,973
Inventories 21,668 22,450
Prepaid expenses and other current assets 1,514 1,645
--------- ---------
Total current assets 79,909 85,702
--------- ---------
Property, plant and equipment, net 24,606 25,147
Goodwill 3,917 4,089
Investment in joint venture 13,390 12,720
Other assets 13,370 13,672
--------- ---------
$ 135,192 $ 141,330
========= =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 4,907 $ 5,545
Current portion of long-term debt 6,935 6,942
Accounts payable 16,998 21,765
Accrued liabilities 25,494 26,756
--------- ---------
Total current liabilities 54,334 61,008
--------- ---------
Long-term debt 51,941 53,054
Other liabilities 5,260 5,202
Minority interest 211 287
Common shareholders' equity:
Common stock 26,916 26,914
Additional paid-in capital 12,938 13,166
Accumulated deficit (8,044) (10,054)
Cumulative translation adjustments 500 791
Less common stock in treasury, at cost (8,864) (9,038)
--------- ---------
Total common shareholders' equity 23,446 21,779
--------- ---------
$ 135,192 $ 141,330
========= =========
<FN>
See accompanying notes to these unaudited consolidated financial statements.
</TABLE>
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<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1997 1996
(unaudited) (unaudited)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income from operations $ 2,010 $ 1,648
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,099 1,474
Amortization 282 271
Loss on sale of assets 0 17
Equity in income of joint venture (670) 0
Minority interest (76) 0
Other non-cash expenses 9 12
Changes in assets and liabilities:
Accounts and notes receivable 1,533 (1,364)
Recoverable amounts on long-term contracts 652 384
Inventories 286 (3,131)
Prepaid expenses 155 (169)
Accounts payable and accrued liabilities (4,596) (1,282)
Deferred income taxes and other expenses (3) (165)
Other (115) (353)
--------- ---------
Net cash provided by (used in) operations 566 (2,658)
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,033) (897)
Proceeds from sale of assets 0 775
Equity investment (82) (1,069)
Long term notes receivable (net of repayments) 262 130
--------- ---------
Net cash used in investing activities (853) (1,061)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under credit lines (195) 1,917
Principal repayment on other notes 0 (896)
Common stock issued from treasury 135 187
Redemption of preferred stock 0 (25,506)
Principal payments on capital lease obligations (24) (33)
Borrowings (repayments) of long-term debt (750) 25,002
Dividends (195)(484)
--------- ---------
Net cash provided by (used in) financing activities (1,029) 187
--------- ---------
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Effect of exchange rate changes on cash (180) (319)
--------- ---------
Net decrease in cash and cash equivalents (1,496) (3,851)
Cash and cash equivalents at beginning of period 13,445 17,789
--------- ---------
Cash and cash equivalents at end of period $ 11,949 $ 13,938
========= =========
Supplemental cash flow information
- ----------------------------------
Cash paid during the period for:
Interest $ 594 $ 380
Income taxes (net of refunds) 10 547
<FN>
See accompanying notes to these unaudited consolidated financial statements.
</TABLE>
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<PAGE>7
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
1. The accompanying unaudited consolidated financial statements include the
accounts of Kollmorgen Corporation (the "Company") and all of its
majority owned subsidiaries.
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
and its consolidated subsidiaries' financial condition at March 31, 1997
and the results of operations and cash flows for the three-month periods
ended March 31, 1997 and 1996. The results of operations for interim
periods are not necessarily indicative of the results to be expected for
the full year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information. These
interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
2. Effective December 31, 1996, the Company combined its Macbeth division
with the Color Control Systems business of Gretag AG and received 48% of
the shares in the Swiss holding company which controls the two
businesses (the Joint Venture ). Accordingly, for the quarter ended
March 31, 1997, the Macbeth division is not included in the accompanying
financial statements, but instead the Company is accounting for its
interest in the Joint Venture using the equity method.
3. Inventories (in thousands) consist of the following:
March 31, December 31,
1997 1996
--------- ------------
Raw materials $ 11,503 $ 11,816
Work in process 7,602 8,118
Finished goods 2,563 2,516
-------- --------
$ 21,668 $ 22,450
======== ========
4. The Financial Accounting Standards Board issued Statement No. 128 ( SFAS
128 ), Earnings per Share , which requires the presentation of basic
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<PAGE>8
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
and diluted earnings per share (EPS). Basic EPS excludes dilutive
securities and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Basic EPS
replaces primary EPS. Diluted EPS is computed similarly to fully
diluted EPS under the existing rules. The Company will adopt SFAS 128
as of December 31, 1997 and upon adoption, will restate all prior period
EPS data presented. Basic EPS calculated under the provisions of SFAS
128 for the three months ended March 31, 1997 and 1996 would have been
$.21 and $.14, respectively.
5. In April, 1997 the Company purchased additional shares of Servotronix to
increase its ownership of Servotronix from 25% to 81%. The Company will
consolidate Servotronix prospectively.
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<PAGE>9
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
In the first quarter of 1996 the Company sold a significant portion of
its instrumentation business located in France. Effective December 31, 1996,
the Company combined its Macbeth division with the Color Control Systems
business of Gretag AG and received 48% of the shares in the Swiss holding
company which controls the two businesses (the Joint Venture ).
Accordingly, for the quarter ended, the Macbeth division is not included in
the accompanying financial statements, but instead the Company is accounting
for its interest in the Joint Venture using the equity method. For
comparative purposes, both the French instrumentation business and the Joint
Venture will be referred to as the Businesses Divested . The Businesses
Divested represented a significant portion of the Company's Electro-Optical
Instruments segment which had been discussed separately from the Company's
motion technology segment in the prior year. Since comparative information
cannot be presented for the Electro-Optical Instruments segment, the Company
is discontinuing segment discussion.
Revenues declined $6.5 million for the three months ended March 31, 1997
as compared to the same period a year ago. Excluding the Businesses
Divested, first quarter revenues increased $1.7 million or 3% as compared to
the first quarter of 1996. The increase reflects the strong performance of
the Company s engineering consulting business, Proto-Power, which has seen
increased demand for its specialized services to the utility industry. This
increase more than offset a decline in revenues of the Company's aerospace
and defense business which was principally the result of a weakening in the
value of the dollar to the French franc, and a decrease in revenues
recognized on long term military contracts.
Gross margin as a percent of sales declined in the first quarter of 1997
as compared to the same period in 1996 from 33.7% to 30.2%. Excluding the
Businesses Divested, gross margin decreased from 31.1% to 30.2%. The slight
decline in margin was attributable to a decline in margin of the Company s
engineering consulting services. Although engineering services revenues
increased, staffing costs rose to support the higher level of business.
Sales and marketing expenses declined $2.6 million in the first quarter
of 1997 as compared to the first quarter of 1996. As a percentage of sales,
sales and marketing expenses decreased from 12.8% to 9.3% as a result of the
Businesses Divested. When Businesses Divested are excluded, the result is a
decline of $0.3 million and a decline as a percentage of sales from 10.3% in
the first quarter of 1996 to 9.3% in the first quarter of 1997. This decline
reflects decreased commission expenses due to an increase in direct sales
personnel at the Company's domestic motion technology business, and lower bid
costs associated with the Company s military business.
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General and administrative expenses remained relatively unchanged from
the first quarter of 1996. Excluding the Businesses Divested, general and
administrative expenses increased $0.7 million to 11.4% of sales as compared
to 10.3% of sales in 1996. The increase reflects the costs associated with
the Company s implementation of new information systems and the increased
expenses associated with the Company s Proto-Power division.
Research and development expenses declined in the first quarter by $1.3
million. Excluding the Businesses Divested, research and development
expenses declined by $0.2 million.
Income from operations of $2.8 million remained unchanged from the
first quarter of 1996. Interest expense was relatively unchanged from the
first quarter of 1996.
In 1996 the Company had a zero tax rate which reflected the utilization
of net operating loss carryforwards and other tax credits. Primarily as a
result of the divestiture of the Macbeth division, the Company s tax credit
carryforwards have been utilized, therefore the Company has used a blended
tax rate on its worldwide income of approximately 28% for 1997.
The Company s 48% share of the after-tax profits of the Joint Venture
were $0.7 million for the first quarter of 1997. The results of the
Company s Macbeth division were consolidated in the Company s results in
1996.
Bookings increased $4.0 million or 8% during the quarter as compared to
the first quarter of 1996 (excluding the Businesses Divested). The increase
reflects improved bookings for the Company's engineering consulting services
and for domestic military products.
Backlog increased in the first quarter from December 31, 1996 by $2.6
million reflecting orders received for submarine periscopes and optical
sights for naval surface warships.
LIQUIDITY AND CAPITAL RESOURCES
The Company s cash and cash equivalents decreased $1.5 million during
the first three months of 1997. Net cash provided by operating activities
generated $2.7 million. Accounts receivable generated $1.5 million in cash
during the first quarter reflecting strong collections and a reduction in
days sales outstanding. Inventories, recoverable amounts under long term
contracts, and prepaid expenses generated $1.1 million in cash during the
first quarter. Accounts payable and accrued liabilities used $4.6 million in
cash reflecting scheduled payments to be made in 1997 and approximately $1.5
million for the refinancing of a building lease on more favorable terms to
the Company. Additionally, the Company s Electro-Optical division used cash
of $1.7 million for payments in connection with long-term contracts and for
the procurement of materials.
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<PAGE>11
Investing activities used $0.9 million in cash for the purchase of
capital assets, primarily in connection with the start up of the Company s
Vietnam manufacturing facility which commenced operations on a limited basis
during the first quarter of 1997.
Financing activities used $1.0 million in cash principally for scheduled
payments of the Company s long term debt, and for dividends on common stock.
In April, 1997, the Company paid $5.4 million in cash to purchase shares
in Servotronix Ltd. in Israel, increasing its ownership of Servotronix from
25% to 81%.
The Company believes that it can generate sufficient cash from
operations and its current borrowing line of credit to finance its cash
requirements for capital expenditures, sinking fund payments, working capital
needs, and acquisition commitments for the next twelve months.
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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- Listed below are the exhibits filed with this report.
11. Statement re computation of per share earnings.
27. Financial Data Schedules.
(b) Reports on Form 8-K.
(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.
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<PAGE>12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
KOLLMORGEN CORPORATION
By: /s/ Robert J. Cobuzzi
Robert J. Cobuzzi, Senior Vice President
Treasurer and Chief Financial Officer
Date: May 15, 1997
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<TABLE>
Exhibit 11
KOLLMORGEN CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except share and per share amounts)
(unaudited)
<CAPTION>
For the
Three Months Ended
March 31,
------------------
1997 1996
---------- ----------
<S> <C> <C>
Net income $ 2,010 $ 1,648
Less preferred stock dividends and
accretion of discount 0 (285)
---------- ----------
Earnings applicable to primary
common shares 2,010 1,363
Number of shares:
Weighted average number of common
shares outstanding 10,177,411 9,706,225
---------- ----------
Earnings per common share $ .20 $ .14
========= =========
<FN>
See accompanying notes to these unaudited consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
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<ARTICLE>5
<LEGEND>
KOLLMORGEN CORPORATION AND SUBSIDIARIES EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,949
<SECURITIES> 0
<RECEIVABLES> 40,457
<ALLOWANCES> 713
<INVENTORY> 21,668
<CURRENT-ASSETS> 79,909
<PP&E> 96,721
<DEPRECIATION> (72,115)
<TOTAL-ASSETS> 135,192
<CURRENT-LIABILITIES> 54,334
<BONDS> 0
<COMMON> 26,916
0
0
<OTHER-SE> (3,470)
<TOTAL-LIABILITY-AND-EQUITY> 135,192
<SALES> 43,351
<TOTAL-REVENUES> 50,587
<CGS> 30,663
<TOTAL-COSTS> 35,306
<OTHER-EXPENSES> 12,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,283
<INCOME-PRETAX> 2,488
<INCOME-TAX> 478
<INCOME-CONTINUING> 2,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,010
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
