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 June 30, 1999
Commission File No. 1-5562
KOLLMORGEN CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-2151861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 Trapelo Road, Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 890-5655
-----------------------------------------------------------
(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 August 12, 1999
Common Stock, $2.50 par value 10,078,356 shares
<PAGE>2
KOLLMORGEN CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I - Financial Information
Unaudited Consolidated Statements of 3
Operations for the Three Months and Six
Months Ended June 30, 1999 and 1998
Unaudited Consolidated Balance Sheets 4
as of June 30, 1999 and
December 31, 1998
Unaudited Consolidated Statements of Cash Flows 5
for the Six Months Ended June 30, 1999
and 1998
Notes to Unaudited Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - Other Information
<PAGE>3
PART I - FINANCIAL INFORMATION
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $59,922 $60,340 $119,393 $117,133
Cost of sales 42,999 41,388 84,877 81,054
------- ------- --------- --------
Gross profit 16,923 18,952 34,516 36,079
Selling and marketing expenses 6,387 6,077 12,522 11,696
General and administrative expenses 6,752 6,233 13,204 11,355
Research and development expenses 3,434 2,749 6,487 5,930
Restructuring charge 3,065 - 3,065 -
Impairment of goodwill and assets
held for sale - - - 2,733
Tender offer costs - - - 1,273
------- --------- --------- --------
Income (loss) from operations (2,715) 3,893 (762) 3,092
Other income (expense):
Interest expense (1,013) (852) (1,914) (1,686)
Interest income 47 273 121 650
Intellectual property license,
net of expenses - - - 21,217
Other, net (279) 122 899 (8,214)
-------- --------- --------- --------
Income (loss) before income taxes
and minority interest (3,960) 3,436 (1,656) 15,059
(Provision) benefit for income taxes 1,385 (1,067) 580 (7,139)
-------- --------- --------- ---------
Income (loss) before minority interest (2,575) 2,369 (1,076) 7,920
Minority interest 59 (90) 194 (81)
-------- --------- --------- ---------
Net income (loss) $(2,516) $2,279 $ (882) $7,839
======== ========= ========= =========
Earnings (loss) per common share:
Basic $(0.25) $ 0.23 $ (0.09) $0.78
Diluted $(0.25) $ 0.21 $ (0.09) $0.73
========= ========= ========= =========
Number of shares used in calculating earnings (loss) per common share:
Basic 10,214,040 10,069,067 10,184,608 10,055,310
Diluted 10,214,040 10,702,072 10,184,608 10,675,887
========== ========== ========== ==========
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
<PAGE>4
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,951 $ 13,086
Accounts receivable (net of reserve of
$584 in 1999 and $581 in 1998) 42,427 48,927
Recoverable amounts on long-term contracts 5,238 2,597
Inventories 29,914 27,838
Prepaid expenses and other current assets 2,320 1,885
------- ---------
Total current assets 88,850 94,333
Property, plant and equipment, net 29,535 30,809
Goodwill, patents and other intangible assets net 31,443 20,420
Deferred income taxes 9,375 9,448
Other assets 14,490 13,623
------- ---------
Total assets $173,693 $168,633
======= =========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,875 $ 14,336
Income taxes payable 3,843 6,733
Accrued liabilities 25,145 28,110
Line of credit 9,117 9,270
Current portion of long-term debt 2,359 2,419
--------- ---------
Total current liabilities 54,339 60,868
Long-term debt 49,764 36,120
Other liabilities 13,984 14,943
Minority interest - 175
Shareholders' equity:
Common stock 26,945 26,932
Additional paid-in capital 13,313 12,882
Retained earnings 21,486 22,772
Accumulated other comprehensive loss (1,683) (270)
Less: common stock in treasury, at cost (4,455) (5,789)
--------- ---------
Total shareholders' equity 55,606 56,527
--------- ---------
Total liabilities and shareholders' equity $173,693 $168,633
========= =========
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
<PAGE>5
<TABLE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (882) $ 7,839
Adjustments to reconcile income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,144 2,559
Amortization 886 736
Impaired asset charge - 2,733
(Gain) loss on sale of assets (359) 22
Deferred income taxes - (3,572)
Minority interest and other non-cash expenses (90) 358
Changes in operating assets and liabilities
Accounts receivable 4,639 (2,486)
Recoverable amounts on long-term contracts (2,641) (196)
Inventories (1,636) (2,662)
Prepaid expenses (423) (760)
Accounts payable and accrued liabilities (5,165) 5,347
Other (343) 1,060
--------- ---------
Net cash provided by (used in) operating activities (2,870) 10,978
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,601) (3,766)
Proceeds from sale of assets 1,408 -
Acquisitions, net (16,054) -
Other (36) 70
--------- ---------
Net cash used in investing activities (18,283) (3,696)
--------- ---------
Cash flows from financing activities:
Borrowings (repayments) under credit lines, net 2,578 286
Proceeds from common stock issued from treasury 977 89
Borrowings (repayments) of long-term debt, net 13,928 (1,242)
Dividends paid (404) (402)
-------- ---------
Net cash provided by (used in) financing activities 17,079 (1,269)
-------- ---------
Effect of exchange rate changes on cash (61) (209)
--------- ---------
Net increase (decrease) in cash and cash equivalents (4,135) 5,804
Cash and cash equivalents at beginning of period 13,086 14,854
--------- ---------
Cash and cash equivalents at end of period $8,951 $20,658
========= =========
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
<PAGE>6
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(In thousands, except per share amounts)
1. The accompanying unaudited consolidated financial statements include the
accounts of Kollmorgen Corporation and its subsidiaries (the "Company").
2. In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial condition at June 30, 1999, the results of operations for the
three month and six month periods ended June 30, 1999 and 1998, and the
cash flows for the six month periods ended June 30, 1999 and 1998. The
balance sheet at December 31, 1998 was derived from the audited
financial statements as of December 31, 1998. 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, 1998.
3. Inventories consist of the following:
June 30, December 31,
1999 1998
-------- ------------
Raw materials $12,379 $12,187
Work in process 10,320 8,073
Finished goods 7,215 7,578
------- -------
$29,914 $27,838
======= =======
4. The Company's comprehensive earnings (loss) were as follows:
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------
1999 1998 1999 1998
------- ------- ------- -------
Net income (loss) $(2,516) $ 2,279 $ (882) $ 7,839
Foreign currency
translation adjustment, net (257) 76 (919) (124)
------- ------- ------- -------
$(2,773) $ 2,355 $(1,801) $ 7,715
======= ======= ======= =======
5. The following table includes certain financial information relating to
each of the Company's segments:
<TABLE>
<CAPTION>
Industrial Aerospace
and and Corporate,
Commercial Defense Interest Special
Group Group And Other Items Total
<S> <C> <C> <C> <C> <C>
Three months ended:
June 30,1999:
Sales $ 31,272 $28,650 - - $59,922
Profit (loss) before tax (1,193) 3,287 (2,989) (3,065) (3,960)
June 30,1998:
Sales 33,708 26,632 - - 60,340
Profit (loss) before tax 1,828 3,421 (1,813) - 3,436
Six months ended:
June 30,1999
Sales 64,829 54,564 - - 119,393
Profit (loss) before tax 305 6,091 (4,987) (3,065) (1,656)
June 30,1998
Sales 65,082 52,051 - - 117,133
Profit (loss) before tax 3,402 5,803 (2,932) 8,786 15,059
</TABLE>
<PAGE>7
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments. The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FAS Statement 133," which postponed the adoption date of SFAS No. 133.
As such, the Company is not required to adopt the statement until fiscal
2001. Had the Company implemented SFAS 133 for the current reporting
period there would have been no material effect on the financial
statements.
7. Basic EPS excludes the dilutive effect of common stock equivalent
securities and is computed by dividing net income 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 instruments 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. A reconciliation between
basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(2,516) $ 2,279 $ (882) $ 7,839
Shares used in net income
(loss) per share - basic 10,214 10,069 10,185 10,055
Effect of dilutive securities:
Stock options 0 633 0 621
------- ------- ------- -------
Shares used in net income
(loss) per share - diluted 10,214 10,702 10,185 10,676
Net income (loss)
per share-basic $(0.25) $0.23 $(0.09) $0.78
Net income (loss)
per share-diluted $(0.25) $0.21 $(0.09) $0.73
</TABLE>
During the second quarter of 1999, options to purchase 1,455,051 shares
of common stock were outstanding, but were not included in the
computation of diluted EPS because they would have an anti-dilutive
effect due to the Company's net loss position. During the second quarter
of 1998, options to purchase 1,500 shares of common stock with an
exercise price of $20.94 per share and with an expiration date of May
12, 2008, were outstanding, but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market price of the common shares. Also during the second
quarter of 1999 and 1998, 853,000 and 905,000, respectively, common
equivalent shares of the convertible subordinated debentures were not
included in the diluted EPS calculation as a result of their
antidilutive effect.
<PAGE>8
During the second quarter of 1999, options to purchase 522,407 shares of
common stock had exercise prices that exceeded the average market price
of the common stock. Exercise prices of these options ranged from $13.56
to $20.94 and expiration dates ranged up to June 14,2009.
During the first six months of 1999, options to purchase 1,455,051
shares of common stock were outstanding, but were not included in the
computation of diluted EPS because they would have an anti-dilutive
effect due to the Company's net loss position. During the first six
months of 1998, options to purchase 3,000 shares of common stock with
exercise prices ranging from $19.63 to $20.94 per share and with an
expiration dates ranging up to May 12, 2008, were outstanding, but were
not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares. Also during the first six months of 1999 and 1998, 853,000 and
905,000, respectively, common equivalent shares of the convertible
subordinated debentures were not included in the diluted EPS calculation
as a result of their antidilutive effect.
During the first six months of 1999, options to purchase 527,780 shares
of common stock had exercise prices that exceeded the average market
price of the common stock. Exercise prices of these options ranged from
$17.75 to $20.94 and expiration dates ranged up to May 26, 2008.
8. Effective May 1, 1999, the Company purchased the assets of New England
Affiliated Technologies ("NEAT") from Instrument Industries, Inc. for
$16.3 million, plus payments based upon the financial performance of
NEAT over the next two years. The acquisition was accounted for as a
purchase. The purchase price consists of assets acquired of $4.7
million, liabilities assumed of $1.8 million and goodwill of $13.4
million. NEAT is a leader in the application of high-performance
motion control for advanced positioning systems. The company has
approximately 100 employees at its manufacturing facility in Lawrence,
MA. and recorded sales of approximately $13 million in 1998.
9. The Company recorded a $3.1 million restructuring charge in the second
quarter of 1999 for the consolidation of its worldwide drives and
controls business and cost reductions in its Industrial and Commercial
motion control operations. The charge was primarily for severance
costs of $2.3 million associated with the termination of approximately
87 employees in the U.S., Europe, and Israel. The balance of the
charge was mainly to provide for the subletting of a leased facility
which will allow the Company to move one of its operations to a smaller,
more cost effective facility. At June 30, 1999, approximately $403,000
for the termination of 25 people has been charged against the
restructuring accrual.
10. On July 1, 1999, the Company completed the purchase of its long-time
naval systems partner, Calzoni S.p.A. of Bologna, Italy for
approximately $14.0 million. Calzoni designs and builds motion systems
and components primarily for naval platforms and is widely recognized as
the world's leading maker of submarine masts. Calzoni has facilities in
Bologna, as well as Milan and Florence. Sales in 1998 were approximately
$25 million.
11. Over the past several years, the Company has notified a number of
domestic and foreign companies that it believes infringe certain motion
control patents owned by the Company. As previously reported, the
Company has concluded royalty bearing licenses and settlements with
third parties with respect to these patents. The Company believes that
its patents are an important asset of the Company, and intends to
enforce its legal rights against alleged infringers.
In May 1999, the Company commenced a patent infringement action against
Yaskawa Electric Corporation and Yaskawa America, Inc. in the United
States District Court, Western District of Virginia, Roanoke Division,
alleging that defendants' products infringe certain of the Company's
patents. The Company is seeking monetary damages and equitable relief.
In June 1999, Allen-Bradley Company L.L.C. and Reliance Motion Control,
Inc. commenced an action in the Eastern District Court, Eastern District
of Wisconsin against the Company for a declaratory judgment of
non-infringement requesting the court to enter a judgment that
plaintiffs' products do not infringe certain of the Company's motion
control patents.
<PAGE>9
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the three months ended June 30, 1999, the Company had sales of $59.9
million and a net loss, after restructuring charges, of $2.5 million or $0.25
per common share (diluted). These results compare with sales for the three
months ended June 30, 1998 of $60.3 million and net income of $2.3 million equal
to $0.21 per common share (diluted). For the six months ended June 30, 1999, the
Company had sales of $119.4 million and a net loss, after restructuring charges,
of $0.9 million, equal to $0.09 per common share (diluted). These results
compare with sales for the six months ended June 30, 1998 of $117.1 million and
net income of $7.8 million equal to $0.73 per common share (diluted). Excluding
the restructuring charge recorded in 1999, and discussed below, the Company's
net loss for the three months ended June 30 would have been $0.6 million equal
to $0.05 per share (diluted). Excluding the impact of the Special Items in 1998
discussed below, the Company's net income for the three months ended June 30,
1998 would have been $2.3 million equal to $0.21 per share (diluted). For the
six months ended, excluding the restructuring charges and Special Items, net
income would have been $1.1 million equal to $0.10 per share (diluted) for 1999
and $4.2 million equal to $0.40 per share (diluted) for 1998.
The Company recorded a $3.1 million restructuring charge in the second
quarter of 1999 for the consolidation of its worldwide drives and controls
business, and for cost reductions in its industrial and commercial motion
control operations (the "Restructuring"). The impact of the consolidation and
cost-reduction efforts will result in a more efficient organization and is
expected to produce annual savings of approximately $5 million in 2000.
During the first quarter of 1998, the Company announced the first major
license agreement for its pioneering electronic motion control patents in the
amount of $27.2 million, which, after legal and other expenses, resulted in
income of $21.2 million. In connection with its patent enforcement program (See
Item 1-Legal Proceedings contained in Part II of the Report for a description of
the Company's outstanding patent litigation), the Company has engaged counsel to
continue enforcement of the Company's patent estate, and accordingly, has
recorded a charge of $6.8 million to cover legal expenses and other related
costs. The Company recorded a pre-tax charge of $2.7 million, primarily relating
to the write-down of goodwill from its 1994 acquisition of the assets of Sperry
Marine. Also in the first quarter of 1998, the Company incurred $1.3 million of
expenses in conjunction with the tender offer for Pacific Scientific Company.
Finally, the Company elected to change the vesting method for post-retirement
medical insurance benefits, resulting in a charge of $1.6 million. The total of
these items had a positive impact in 1998 of $8.8 million to the reported income
before income taxes of the Company and $3.6 million to the net income of the
Company. Collectively, the items in this paragraph from the first quarter of
1998 will be referred to as the "Special Items" to provide for comparative
discussion of the Company's results on a consistent basis.
RESULTS OF OPERATIONS
The following table reflects the results of operations for the Company's
two operating segments excluding the impact of the Restructuring and the Special
Items. This comparison provides a consistent basis by which to view the results
of the Company's two operating segments (in millions):
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Industrial and Commercial Group:
Bookings $ 32.8 $ 37.0 $ 70.1 $ 74.0
Sales 31.3 33.7 64.8 65.1
Profit (loss) before tax (1.2) 1.8 0.3 3.4
Aerospace and Defense Group:
Bookings $ 43.0 $ 31.9 $ 85.4 $ 60.1
Sales 28.7 26.6 54.6 52.1
Profit before tax 3.3 3.4 6.1 5.8
</TABLE>
<PAGE>10
1999 versus 1998
The loss before taxes for the three months ending June 30, 1999 of $4.0
million compares with a profit before taxes of $3.4 million in the same period
of 1998. The loss before tax for the six months ending June 30, 1999 of $1.7
million compares with profit before tax of $15.1 million in the same period of
1998. Excluding the Restructuring in 1999 and the Special Items in 1998
discussed above, the loss before tax would have been $0.9 million for the three
months ending June 30, 1999 compared with profit before tax of $3.4 million for
the three months ending June 30, 1998. For the six months ending June 30, 1999
and 1998, profit before tax would have been $1.4 million and $6.3 million,
respectively.
For the three months ended June 30, 1999, the Company's sales decreased
$400,000 or 1% as compared to the same period a year ago. The the Aerospace and
Defense Group's revenue increased 8% to $28.7 million for the three months ended
June 30, 1999 from $26.6 million for the three months ended June 30, 1998. The
increase reflects increased revenues for submarine systems, the acquisition of
Magnedyne in July 1998 and initial shipments under long term aerospace contracts
by the group's French operation. These increases offset declines in the
Industrial and Commercial Group's motion control businesses due to a slowdown in
the domestic machine tool sector and the continued impact of the Asian economy
on the group's high volume business. Sales to the Industrial and Commercial
Group's markets of $31.3 million for the three months ended June 30, 1999
represented a decrease of 7% from the $33.7 million of sales in same period of
1998. This decrease was partially offset by the acquisitions of NEAT and
Magnedyne.
The Company's sales increased $2.3 million or 2% for the six months
ended June 30, 1999 as compared to the same period a year ago. The Aerospace and
Defense Group's revenue increased 5% to $54.6 million for the six months ended
June 30, 1999 from $52.1 million for the six months ended June 30, 1998. The
increase reflects the acquisition of Magnedyne in July 1998 and initial
shipments under long term aerospace contracts by the group's French operation.
These increases offset declines in the Industrial and Commercial Group's motion
control businesses due to a slowdown in the domestic machine tool sector and the
continued impact of the Asian economy on the group's high volume business. Sales
to the Industrial and Commercial Group's markets of $64.8 million for the six
months ended June 30, 1999 represented a decline from the $65.1 million in same
period of 1998. This decline was partially offset by the acquisitions of NEAT
and Magnedyne.
The Company's overall gross margin as a percent of sales declined for
both the three and six months ended June 30, 1999 compared to the same periods
in 1998. The Industrial and Commercial Group had a decline in gross margin as a
percent of sales to 25% for the second quarter of 1999 from 29% in 1998. The
decline in margin was due to lower revenues experienced by the group without a
corresponding reduction in fixed costs. As part of the Restructuring, the
Company has provided for a reduction in overhead costs which will help to
improve its gross margin by the fourth quarter of 1999. The Aerospace and
Defense Group had a decline in gross margin as a percent of sales from 31% for
the second quarter of 1998 to 30% in 1999 as a result of product mix. For the
six months ended June 30, 1999 the Industrial and Commercial Group's gross
margin as a percent of sales was 26%, down from 29% in the same period of the
prior year for the reasons described above. The Aerospace and Defense Group's
gross margin for the six months ended June 30, 1999 remained consistent with the
same period in the prior year at 31%.
Sales and marketing expenses were $6.4 million or 11% in the second
quarter of 1999 as compared to $6.1 million or 10% for the same period in 1998.
Sales and marketing expenses were $12.5 million or 10% in the first six months
of 1999 as compared to $11.7 million or 10% for the same period in 1998.
General and administrative expenses were $6.8 million or 11% of sales in
the second quarter of 1999 as compared to $6.2 million or 10% of sales for the
same period in 1998. General and administrative expenses were $13.2 million or
11% in the first six months of 1999 as compared to $11.4 million or 10% for the
same period in 1998. This increase reflects insurance settlements and credits in
the first quarter of 1998 and the effect of the inclusion of Magnedyne and NEAT
in 1999.
<PAGE>11
Research and development expenses were $3.4 million or 6% of sales for
the second quarter of 1999 as compared with $2.7 million or 5% of sales for the
same period in the prior year. For the first half of 1999, research and
development expenses were $6.5 million or 5% of sales compared to $5.9 or 5% of
sales in the same period of the prior year.
Interest and Taxes
Interest expense was $1.9 million and $1.7 million for the six month
periods ending June 30, 1999 and 1998, respectively. The increase in interest
expense is due to an increase in borrowing to fund the purchase of the assets of
NEAT during the second quarter of 1999.
The Company recorded a tax benefit of 35% for the three months and six
months ended June 30, 1999. The tax rate for the six months ended June 30, 1998
was 47%. That rate reflected the impact of the patent licensing income, recorded
in the first quarter of 1998, taxable in the U.S. and subject to Japan
withholding tax. Excluding this Special Item, the Company's effective tax rate
was 31% in 1998. The Company's effective tax rate, excluding Special Items, is
less than the statutory U.S. tax rate as some of the Company's foreign
subsidiaries operate in countries where the statutory rate is less than the U.S.
rate, or the Company is operating under a tax holiday agreement.
Bookings increased $21.5 million or 16% during the first six months of
1999 as compared to the same period in the prior year. The increase is due to
the improved bookings in the Aerospace and Defense Group, which included a $22
million submarine periscope order.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash position decreased by $4.1 million
during the first half of 1999. Cash used for operations was $2.9 million, $18.3
million was used for investing activities, and financing activities provided
$17.1 million.
The Company used $5.6 million to fund working capital requirements. This
was principally due to scheduled payments for taxes and compensation, including
severance.
The Company's investing activities used $18.3 million primarily relating
to the acquisition of NEAT. Capital expenditures used $3.6 million, and the
Company received $1.4 million in connection with the sale of a building at book
value after an impairment charge in the first quarter of 1998. On July 1, 1999,
the Company agreed to purchase Calzoni S.p.A. of Bologna, Italy for
approximately $14.0 million. The Company will fund this purchase out of its
existing line of credit.
The Company's financing activities provided $17.1 million of cash during
the first half of 1999. This was due to the borrowing under the Company's credit
facility to fund the purchase of NEAT. Common dividends paid were $0.4 million
or $0.02 per common share for the six months ended June 30, 1999.
The Company believes that it can generate sufficient cash from
operations and its current line of credit to finance its cash requirements for
capital expenditures, mandatory sinking fund payments, potential acquisitions,
and working capital needs for the next twelve months.
Year 2000 Issue
The year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. Any of the
Company's computers, computer programs, manufacturing and administration
equipment or products that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. If any of the Company's
systems or equipment that have date-sensitive software use only two digits,
system failures or miscalculations may result causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
send and receive electronic data with third parties or engage in similar normal
business activities.
During 1998, the Company formed an ongoing internal review team to address
the year 2000 issue that encompasses operating and administrative areas of the
Company. A team of global professionals has been engaged in a process to work
with Company personnel to identify and resolve significant year 2000 issues in a
timely manner. In addition, executive management regularly monitors the status
of the Company's year 2000 remediation plans. The process includes an assessment
of issues and development of remediation plans, where necessary, as they relate
to internally used software, computer hardware and use of computer applications
in the Company's manufacturing processes and products. In addition, the Company
is engaged in assessing the year 2000 issue with significant suppliers.
<PAGE>12
The assessment process has been completed at the Company's U.S. operations.
With respect to the Company's international operations, the assessment process
has been completed for computer software and hardware information technology
systems used internally by the Company. In addition, the Company is finalizing
its assessment of significant suppliers at all major locations to determine the
extent to which the Company is vulnerable to third parties' failure to remediate
their own year 2000 issues. Finally, related to products sold by the Company,
the Company believes it has little if any exposure to contingencies related to
year 2000 issues.
During the past three years, as part of business modernization programs
intended to reduce cycle time and improve profitability, the Company has
purchased Enterprise Resource Planning ("ERP") Systems for some of its
operations in the U.S. and other international locations, which the software
vendors have indicated are year 2000 compliant. The Company is in the
implementation phase for these systems and other ancillary financial systems
with many sites expected to achieve full implementation before October 31, 1999.
Some sites are not expected to implement new ERP systems before the end of 1999
and accordingly, the Company has begun making the current systems year 2000
compliant. The cost of making those adaptations are not expected to be material
and will be expensed in the period incurred. It is expected that the Company's
internal systems will be in full compliance before the year 2000. If, due to
unforeseen circumstances, the implementation of the plan is not completed on a
timely basis, the year 2000 could have a material impact on the operations of
the Company.
The Euro
On January 1, 1999, eleven of fifteen member countries of the European
Union established fixed conversion rates between their existing currencies
("legacy currencies") and one common currency, the euro. The euro now trades on
currency exchanges and may be used in business transactions. The conversion to
the euro eliminates currency exchange rate risk among the eleven member
countries. Beginning in January 2002, new euro-denominated bills and coins will
be issued. The Company's business units significantly affected by the euro
conversion have established plans to address the issues raised by the euro
currency conversion, and expect to be substantially complete with these plans by
the year 2000. These issues include, among others, the need to adapt computer
and financial systems, business processes and equipment, and the need to
accommodate euro-denominated transactions and the impact of one common currency
on product pricing, taxation and governmental and legal regulations. The Company
does not expect the system and equipment conversion costs to be material to its
financial condition, results of operations or cash flows. Due to numerous
uncertainties, the Company cannot reasonably estimate the effects currency will
have on pricing and the resulting impact, if any, on its financial condition
results of operations or cash flows.
Forward Looking Information
Certain statements in this report are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. All forward
looking statements involve risks and uncertainties. In particular, any statement
contained herein, in press releases, written statements or other documents filed
with the Securities and Exchange Commission, or in the Company's communications
and discussions with investors and analysts in the normal course of business
through meetings, phone calls and conference calls, regarding the consummation
and benefits of future acquisitions, as well as expectations with respect to
future sales, operating efficiencies and product expansion, are subject to known
and unknown risks, uncertainties and contingencies, many of which are beyond the
control of the Company. These factors may cause actual results, performance or
achievements to differ materially from anticipated results, performances or
achievements. Factors that might affect such forward looking statements include,
but are not limited to, overall economic and business conditions; the demand for
the Company's goods and services; the timing of and market acceptance of new
products; competitive factors in the industries and geographic markets in which
the Company competes; changes in tax requirements (including tax rate changes,
new tax laws and revised tax law interpretations); interest rate fluctuations
and other capital market conditions, including foreign currency rate
fluctuations; economic and political conditions in international markets; the
ability to achieve anticipated synergies and other cost savings in connection
with acquisitions; the ability of the company to achieve cost savings and
subsequent financial performance from its 1999 second quarter restructuring;
the timing, impact and other uncertainties of future acquisitions; and the
Company's ability and its customers' and suppliers' ability to replace, modify
or upgrade computer programs in order to adequately address the year 2000
issue. Any forward looking statements should be considered in light of these
factors.
<PAGE>13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Over the past several years, the Company has notified a number of
domestic and foreign companies that it believes infringe certain motion control
patents owned by the Company. As previously reported, the Company has concluded
royalty bearing licenses and settlements with third parties with respect to
these patents. The Company believes that its patents are an important asset of
the Company, and intends to enforce its legal rights against alleged infringers.
In May 1999, the Company commenced a patent infringement action against
Yaskawa Electric Corporation and Yaskawa America, Inc. in the United States
District Court, Western District of Virginia, Roanoke Division, alleging that
defendants' products infringe certain of the Company's patents. The Company is
seeking monetary damages and equitable relief. In June 1999, Allen-Bradley
Company L.L.C. and Reliance Motion Control, Inc. commenced an action in the
Eastern District Court, Eastern District of Wisconsin against the Company for a
declaratory judgement of non-infringement requesting the court to enter a
judgement that plaintiffs' products do not infringe certain of the Company's
motion control patents.
Item 5. Other Information
On July 1, 1999, the Company completed the purchase of its
long-time naval systems partner, Calzoni S.p.A. of Bologna, Italy. Calzoni
designs and builds motion systems and components primarily for naval platforms
and is widely recognized as the world's leading maker of submarine masts.
Calzoni has facilities in Bologna, as well as Milan and Florence. Sales in 1998
were approximately $25 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Listed below are the exhibits filed with this report.
10 First Amendment to Fifth Amended and Restated
Multicurrency Credit Agreement dated as of
September 30, 1997, among Kollmorgen Corporation,
certain other Financial Institutions Listed on
Schedule 1, and BankBoston, N.A., as Agent.
27 Financial Data Schedules.
(b) Reports on Form 8-K - none
<PAGE>14
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: August 13, 1999
<PAGE>15
EXHIBIT 10
FIRST AMENDMENT
TO FIFTH AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT
First Amendment dated as of May 14, 1999 to Fifth Amended and Restated
Multicurrency Credit Agreement (the "Amendment"), by and among KOLLMORGEN
CORPORATION, a Delaware corporation (the "Company"), PMI MOTION TECHNOLOGIES
GmbH, a German limited liability company ("PMI GmbH"), BANKBOSTON, N.A. and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (collectively, the "Banks"), ABN AMRO Bank, N.V., as the
new fronting bank (the "Fronting Bank") and BANKBOSTON, N.A., as agent for the
Banks and the Fronting Bank (in such capacity, the "Agent"), amending certain
provisions of the Fifth Amended and Restated Multicurrency Credit Agreement
dated as of September 30, 1997 (as amended and in effect from time to time, the
"Credit Agreement") by and among the Company, PMI GmbH, the Banks, the Fronting
Bank and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Company, PMI GmbH, the Fronting Bank, and the Banks have
agreed to modify certain terms and conditions of the Credit Agreement as
specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Amendment to ss.1 of the Credit Agreement. Section 1 of the
Credit Agreement is hereby amended as follows:
(a) the definition of "Borrowers" is hereby amended by deleting the
text of the definition in its entirety and substituting in place thereof the
words "The Company, PMI GmbH and any other Borrowing Subsidiary.";
(b) the definition of "Collateral Instruments" is hereby amended by
inserting immediately after the words "of PMI GmbH" the words "or any other
Borrowing Subsidiary";
(c) the definition of "Counter Indemnity" is hereby amended by deleting
the words "PMI GmbH" in each place in which they appear in such definition and
substituting in place thereof the words "any Borrowing Subsidiary";
(d) the definition of "DM Lending Office" is hereby amended by
deleting such definition in its entirety;
(e) the definition of "International Facility Loans" is hereby amended
by deleting the words "to PMI GmbH pursuant to ss.4 and all liabilities of PMI
GmbH" in their entirety and substituting in place thereof the words "to any
Borrowing Subsidiary pursuant to ss.4 and all liabilities of such Borrowing
Subsidiary";
(f) the definition of "Maximum DM Amount" is hereby amended by
deleting such definition in its entirety;
(g) the definition of "Optional Currency" is hereby amended by
inserting immediately after the words "Any currency" which appear in such
definition the words "(including, without limitation, the Euro)"; and
(h) Section 1.1 is further amended by inserting the following
definitions in the appropriate alphabetical order:
ABN. ABN Amro Bank N.V.
Borrowing Subsidiary. Collectively, (a) PMI GmbH and (b) any
other wholly-owned Subsidiary of the Company which shall have delivered
to the Agent an election to become a Borrowing Subsidiary, in
substantially the form of Exhibit G hereto (the "Election Request"),
duly executed by such wholly-owned Subsidiary and the Company and which
Election Request shall have been approved in writing by the Agent, the
Fronting Bank and the Majority Banks, with such approval to be at the
sole discretion of the Agent, the Fronting Bank and the Majority Banks.
Election Request. As such term is defined in the definition
of "Borrowing Subsidiary".
<PAGE>16
EMU. The third stage of the economic and monetary union
formed pursuant to the EU Treaties.
Euro LIBOR Rate. With respect to any Loans denominated or to
be denominated in Euros, the rate of interest equal to (a) the rate at
which the Agent or the Fronting Bank, as the case may be, is able to
obtain deposits for comparable amounts in Euros for the relevant
Interest Period in the London interbank market for a period comparable
to the duration of such Interest Period, as determined by the Agent or
the Fronting Bank, as the case may be divided by (b) a number equal to
1.00 minus the Eurocurrecy Reserve Rate, if applicable.
EU Treaties. The Treating Establishing the European Economic
Community, as amended by the Treaty on the European Union (the
Maastrict Treaty).
Euro or e. The currency introduced during the third stage of
the EMU.
Foreign Lending Office. Initially, the German branch or the
Italian branch, as the case may be, of ABN in its capacity as Fronting
Bank, and thereafter such office as the Fronting Bank, in its sole
discretion acting in good faith, may notice to the Agent and the
Borrowers and which office shall include any lending office, branch or
affiliate of ABN.
participating member state. Each state described as a
"participating member state" in the EU Treaties.
2. Amendment to ss.4 of the Credit Agreement. Section 4 of the
Credit Agreement is hereby amended by deleting Section 4 in its entirety and
restating it as follows:
4. INTERNATIONAL CREDIT FACILITY.
4.1 Eurocurrency Loans. Subject to the terms and conditions
set forth in this Credit Agreement, (a) the Fronting Bank agrees to
lend to any Borrowing Subsidiary, and each such Borrowing Subsidiary
may borrow, repay, and reborrow from time to time between the Closing
Date and the Revolving Credit Loan Maturity Date either (i) upon notice
by such Borrowing Subsidiary to the Agent and the Fronting Bank's
Foreign Lending Office located in Germany given in accordance with
ss.4.6, Loans in Deutschmarks for a specified Interest Period to bear
interest at the Eurocurrency Rate (the "DM Eurocurrency Loans"), or, at
such Borrowing Subsidiary's option from time to time, subject to ss.4.7
hereof, Loans in an Optional Currency for a specified Interest Period
to bear interest at the Eurocurrency Rate (the "Optional Currency
Loans"), or (ii) by means of overdraft advances on such Borrowing
Subsidiary's DM current account with the Fronting Bank's Foreign
Lending Office located in Germany (the "DM Overdraft Advances") and (b)
the Fronting Bank agrees to issue Collateral Instruments for the
account of each such Borrowing Subsidiary upon receipt by it of a
duly-completed and executed Counter Indemnity from such Borrowing
Subsidiary in respect of each such Collateral Instrument, in form and
substance satisfactory to the Fronting Bank, provided that (a) the
Dollar Equivalent of the aggregate amount of all liabilities of the
Borrowing Subsidiaries in respect of all such Counter Indemnities
(whether contingent or otherwise) plus the Dollar Equivalent of the
total amount of DM Eurocurrency Loans and DM Overdraft Advances
outstanding at any one time (after giving effect to all amounts
requested) plus the Dollar Equivalent of the total amount of Optional
Currency Loans outstanding at any one time (after giving effect to all
amounts requested) (such aggregate amount being referred to herein as
"Total Facility Usage") shall not exceed $20,000,000, and, provided
further that the aggregate amount of all liabilities of the Borrowing
Subsidiaries in respect of all such Counter Indemnities (whether
contingent or otherwise) plus the total amount of DM Eurocurrency Loans
outstanding at any one time (after giving effect to all amounts
requested) plus the total amount of Optional Currency Loans outstanding
at any one time (after giving effect to all amounts requested) plus the
aggregate amount of all DM Overdraft Advances outstanding at any one
time, plus the sum of the outstanding amount of the Revolving Credit
Loans (after giving effect to all amounts requested) plus the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations shall not at
any time exceed the Total Commitment. Each request for a DM
Eurocurrency Loan, Optional Currency Loan or Collateral Instruments
hereunder and acceptances of a DM Overdraft Advance under this ss.4.1
shall constitute a representation and warranty by the applicable
Borrowing Subsidiary and the Company that the conditions set forth in
ss.12 and ss.13, in the case of the initial DM Eurocurrency Loan,
Optional Currency Loan or Collateral Instruments (if any) to be made or
issued, and ss.13, in the case of all other DM Eurocurrency Loans,
Optional Currency Loans or Collateral Instruments, have been satisfied
on the date of such request or acceptance, as the case may be.
<PAGE>17
4.2 Mandatory Repayments of International Facility Loans. If
at any time, for any reason whatsoever, including without limitation
fluctuations in currency rates (a) the Dollar Equivalent of the Total
Facility Usage exceeds $20,000,000 by more than 5% (with such amount
which exceeds the Total Facility Usage by more than 5% being
hereinafter referred to as the "IFL Excess"), or (b) the sum of (i)
Total Facility Usage plus (ii) the sum of the outstanding amount of the
Revolving Credit Loans (after giving effect to all amounts requested)
plus (iii) the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall at any time exceed the Total Commitment (with such
amount being hereinafter referred to as the "Additional Excess"), then
each Borrowing Subsidiary shall immediately pay the IFL Excess or, as
the case may be, the Additional Excess to the Fronting Bank, for
application first, to reduce the outstanding amount of DM Overdraft
Advances, second, to provide cash collateral in respect of any
outstanding Counter Indemnities and third, to any International
Facility Loans then outstanding.
4.3. Interest on International Facility Loans. Except as
otherwise provided in ss.6.11, each International Facility Loan shall
bear interest as follows:
(a) with respect to DM Overdraft Advances, interest shall be
payable by the relevant Borrowing Subsidiary on the day-to-day balance
in such Borrowing Subsidiary's current account maintained with the
Fronting Bank's Foreign Lending Office located in Germany at a rate per
annum equal to the higher of (i) Eurocurrency Rate plus the Applicable
Margin or (ii) such other rate as the local rate charged by the
Fronting Bank at the time the DM Overdraft Advances are outstanding;
and shall be deducted from such current account on the last
Eurocurrency Business Day of each calendar month or such other monthly
date as such Foreign Lending Office may reasonable require such
payments; and
(b) with respect to all other International Facility Loans,
for the period commencing with the Drawdown Date thereof and ending on
the last day of the Interest Period with respect thereto at a rate per
annum equal to the sum of (i) the Eurocurrency Rate determined for such
Interest Period plus (ii) the Applicable Margin with respect to
Eurocurrency Rate Loans as in effect from time to time. Each Borrowing
Subsidiary promises to pay interest, in accordance with ss.6.3 on each
International Facility Loan in arrears on each Interest Payment Date
with respect thereto.
4.4. Requests for Eurocurrency Loans. The applicable Borrowing
Subsidiary shall give to the Agent and the Fronting Bank's Foreign
Lending Office written notice substantially in the form of Exhibit C
hereto (or telephonic notice confirmed in a writing in the form of
Exhibit C hereto) of each International Facility Loan requested
hereunder (an "International Facility Loan Request") no less than two
(2) Eurocurrency Business Days prior to the proposed Drawdown Date of
such Eurocurrency Rate Loan. Each such notice shall specify (a) the
principal amount of the Loan requested, (b) the proposed Drawdown Date
of such Loan, (c) the Interest Period for such Loan (d) the Type of
such Loan; and (e) whether such Loan is a DM Eurocurrency Loan or an
Optional Currency Loan. Each International Facility Loan Request for an
International Facility Loan shall be irrevocable and binding on such
Borrowing Subsidiary and shall obligate such Borrowing Subsidiary to
accept the International Facility Loan requested on the proposed
Drawdown Date therefor. Each such International Facility Loan Request
shall be in a minimum aggregate amount of the DM Equivalent of $250,000
or an integral multiple thereof. In no event shall the Borrowing
Subsidiaries have more than (i) three (3) Drawdown Dates of
Eurocurrency Loans in any calendar month, and (ii) five (5) different
Interest Periods for borrowings of Eurocurrency Loans outstanding at
any time.
4.5 Evidence of Eurocurrency Loans. The obligations of each
Borrowing Subsidiary to repay all amounts borrowed by it as
Eurocurrency Loans and DM Overdraft Advances, all interest thereon and
all other amounts payable by it in respect thereof shall be evidenced
by this Credit Agreement, it being the intention of the parties hereto
that such Borrowing Subsidiary's obligations with respect to the
International Facility Loans owed by it is evidenced only as stated
herein and not by separate promissory notes or other instruments.
<PAGE>18
4.6. Maturity of Eurocurrency Loans. Each Borrowing Subsidiary
promises to pay on the Revolving Credit Loan Maturity Date, or such
earlier date as the Total Commitment shall terminate or the obligations
with respect to the International Facility Loan shall be accelerated in
accordance with ss.14, and there shall become absolutely due and
payable on the Revolving Credit Loan Maturity Date or such earlier
date, all of the International Facility Loans outstanding on such date,
together with any and all accrued and unpaid interest thereon, and to
provide on such date cash collateral satisfactory to the Fronting Bank
for the aggregate amount of all liabilities of such Borrowing
Subsidiary (whether contingent or otherwise) in respect of all Counter
Indemnities outstanding on such date.
4.7 Optional Currencies.
4.7.1. Request for Optional Currency. Subject to the
limitations set forth in ss.4.1, each Borrowing Subsidiary may,
upon at least three (3) Business Days' notice to the Agent and
the Fronting Bank (an "OC Notice"), request that one or more
International Facility Loans be made as Eurocurrency Rate Loans
in an Optional Currency, provided that any International Facility
Loan proposed to be made under this ss.4.7.1 shall be in an
amount not less than $250,000, or a greater amount which is an
integral multiple of $100,000, or the equivalent in an Optional
Currency. Each OC Notice requesting an International Facility
Loan in an Optional Currency shall be by telephone, telex,
telecopy or cable (in each case confirmed in writing by the
requesting Borrowing Subsidiary), specifying (a) the Optional
Currency Loan to be made, (b) the requested date of the proposed
borrowing, (c) the requested currency in which the Optional
Currency Loan is to be made, (d) the initial Interest Period for
the Optional Currency Loan to be borrowed, and (e) such Borrowing
Subsidiary's account with the Fronting Bank, or, in the case of
an Optional Currency which is the legal tender of a country in
which the Fronting Bank has no office, with another depository
specified by such requesting Borrowing Subsidiary in such
country, to which payment of the proceeds of such Optional
Currency Loan is to be made. If the Fronting Bank, on or prior to
the second Business Day preceding the first day of any Interest
Period for which an OC Notice has been delivered requesting an
International Facility Loan in an Optional Currency or on any
funding date, determines (which determination shall be
conclusive) that the Optional Currency is not freely transferable
and convertible into Dollars or that it will be impracticable for
the Fronting Bank to fund the International Facility Loan in such
Optional Currency, then the Fronting Bank shall so notify Agent,
which notification shall be given immediately by the Agent to
such Borrowing Subsidiary, and the requested Optional Currency
Loan shall, notwithstanding any contrary election by such
Borrowing Subsidiary or any other provisions hereof, be
denominated in Deutschmarks as a DM Eurocurrency Loan unless such
Borrowing Subsidiary, one Business Day prior to the commencement
of the Interest Period elects to have such Optional Currency Loan
denominated in Dollars as a Eurocurrency Rate Loan. Subject to
the foregoing and to the satisfaction of the terms and conditions
of ss.ss.12 and 13, each International Facility Loan requested to
be made in an Optional Currency will be made on the date
specified therefor in the OC Notice, in the currency requested in
the OC Notice and, upon being so made, will have the Interest
Period requested in the OC Notice.
4.7.2. Exchange Rate. For purposes of this Credit Agreement
the amount in one currency which shall be equivalent on any
particular date to a specified amount in another currency shall
be that amount (as conclusively ascertained by the Fronting Bank
by its normal banking practices, absent manifest error) in the
first currency which is or could be purchased by the Fronting
Bank (in accordance with normal banking practices) with such
specified amount in the second currency in any recognized
Eurocurrency Interbank Market selected by the Fronting Bank in
good faith for delivery on such date at the spot rate of exchange
prevailing at 2:00 p.m. (local time at the Fronting Bank's
Foreign Lending office) (or as soon thereafter as practicable) on
such date (such amount described in this ss.4.7.2, the "Rate of
Exchange").
<PAGE>19
4.7.3. Multiple Denominations. In the event that any portion
of the funds available under the terms of this Credit Agreement
is denominated in one or more Optional Currencies, the Dollar
equivalent of such portion of the funds shall be calculated
pursuant to ss.2.9.2 above. The amount so determined shall then
be added to the amount already outstanding in Dollars for the
purpose of determining the remaining availability of funds under
ss.4 hereof and any required repayments under ss.4.2.
4.7.4. Funding. The Fronting Bank may make any International
Facility Loan denominated in an Optional Currency by causing any
of its foreign branches or foreign affiliates to make such
Optional Currency Loan (whether or not such branch or affiliate
is named as a lending office on the signature pages hereof);
provided that in such event the obligation of the applicable
Borrowing Subsidiary to repay such Optional Currency Loan shall
nevertheless be to the Fronting Bank and shall, for all purposes
of this Credit Agreement be deemed made by the Fronting Bank, to
the extent of such Optional Currency Loan, for the account of
such branch or affiliate.
3. Amendment to ss.5 of the Credit Agreement. Section 5.1.1 of the
Credit Agreement is hereby amended by deleting the words "(i) the sum of the
aggregate Maximum Drawing Amount, all Unpaid Reimbursement Obligations and all
obligations under the Collateral Instruments shall not exceed $15,000,000 at any
one time; and (ii)" which appear in the second sentence of ss.5.1.1.
4. Amendment to ss.6 of the Credit Agreement. Section 6 of the
Credit Agreement is hereby amended as follows:
(a) Section 6.12.2(iii) of the Credit Agreement is hereby amended by
deleting the reference to "PMI GmbH" which appears in ss.6.12.2(iii) and
substituting in place thereof the words "any Borrowing Subsidiary"; and
(b) Section 6 of the Credit Agreement is further amended by inserting
immediately after the end of the text ofss.6.12 the following:
6.13. European Monetary Union.
(a) When, as a result of the implementation of the EMU, any
Optional Currency or Deutschmarks, as the case may be, ceases to be
lawful currency of the nation issuing such Optional Currency or
Deutschmarks and is replaced by the Euro as the lawful currency of such
nation, any amount payable hereunder by the Banks to any Borrower, or
by any Borrower to the Banks, in such Optional Currency or
Deutschmarks, as the case may be, shall instead be payable in the Euro
and the amount so payable shall be determined by translating the amount
payable in such Optional Currency or Deutschmarks, as the case may be,
to the Euro at the exchange rate then recognized by the European
Central Bank for the purpose of implementing the EMU.
(b) Upon written notice by the Agent to the Company, any
Optional Currency or Deutschmarks, as the case may be, recognized at
the same time as the Euro shall no longer be available as an Optional
Currency or Deutschmarks, as the case may be, for purposes of this
Credit Agreement, effective at the expiration of the period of five (5)
Business Days following the Company's receipt of such notice. Such
notice shall apply to (i) any Loan to be made or Letter of Credit or
Collateral Instrument to be issued, extended or renewed on or after the
expiration of such five (5) Business Day period or (ii) any Loan
outstanding at the end of such five (5) Business Day period and
denominated in such Optional Currency or Deutschmarks, as the case may
be, following the expiration of the Interest Period applicable to such
outstanding Loan at the time of the expiration of such five (5)
Business Day period.
(c) The Agent and the Fronting Bank may in its discretion by
notice to the Banks and the Company:
(i) modify the definition of "Business Day" to include a
principal financial center of any participating member state where
Loans to bear interest by reference to the Euro LIBOR Rate are funded,
or any amounts are or are to be paid in Euros;
(ii) designate an account or accounts at a bank in a principal
financial center of any participating member state for receiving
payments to the Agent or the Fronting Bank, whether for the account of
the Agent, the Fronting Bank or for the account of the Banks, in
immediately available funds, in Euros or for disbursing Loans to bear
interest by reference to the Euro LIBOR Rate;
<PAGE>20
(iii) designate the date or time for fixing the Euro LIBOR
Rate for any Interest Period to be consistent with any practice or
convention in the London interbank market;
(iv) designate the fraction for rounding upwards quotations by
the Reference Bank used to determine the Euro LIBOR Rate, to be, in the
reasonable judgment of the Agent, as nearly as may be, consistent with
the rounding of quotation by the Reference Banks for other Optional
Currencies or Deutschmarks, as the case may be, and also consistent
with any practice or convention in the London interbank market;
(v) designate other mechanics for fixing the Euro LIBOR Rate
to be, in the reasonable judgment of the Agent, as nearly as may be,
consistent with the mechanics for determining rates for other Optional
Currencies or Deutschmarks, as the case may be, (e.g. by reference to
Reuters screen or page) and also consistent with any practice or
convention in the London interbank market (e.g. by reference to a
comparable Reuters screen or page for the Euro);
(vi) designate the period of notice from any Borrower to the
Agent or the Fronting Bank required for the Borrowers to borrow any
Loan to be denominated in Euros or to convert any Loan denominated in
another Optional Currency or Deutschmarks, as the case may be, to a
Loan denominated in Euros;
(vii) designate the basis of accrual of interest, fees or
other amounts to be consistent with any practice or convention in the
London interbank market with respect to amounts calculated or payable
in Euros;
(viii) where this Credit Agreement specifies a minimum amount
or integral multiple thereof, designate what the Agent or the Fronting
Bank considers a reasonably comparable and convenient minimum amount
and integral multiple for the Euro; and
(ix) where this Credit Agreement specifies an amount to be
paid in an Optional Currency or Deutschmarks, as the case may be, that
is, under the terms of this Section, to be paid in Euros, designate a
convenient amount in Euros to account for de minimis rounding.
(d) Section 6.4 shall not apply in the event that an Optional
Currency or Deutschmarks, as the case may be, is not available or an
interbank offered rate may not be quoted for such Optional Currency or
Deutschmarks, as the case may be, solely because such Optional Currency
or Deutschmarks, as the case may be, ceases to be lawful currency of
the nation issuing such Optional Currency or Deutschmarks, as the case
may be, and is replaced by the Euro as the lawful currency of such
nation, so long as the Euro is available as an Optional Currency or
Deutschmarks, as the case may be, and the Euro LIBOR Rate may be quoted
for the Euro.
(e) Each Borrower agrees, at the request of the Majority
Banks, at any time and within 30 days following such request, to enter
into an agreement amending this Credit Agreement in such manner as the
Majority Banks shall reasonably specify in order further to reflect the
implementation of the EMU and to place the parties hereto in the
position they would have been in had the EMU not been implemented.
(f) Each Borrower agrees, at the request of any Bank, to
compensate such Bank for any reasonable loss, cost, expense or
reduction in return that shall be incurred or sustained by such Bank as
a result of the implementation of the EMU and that would not have been
incurred or sustained but for the transactions provided for herein. A
certificate of a Bank setting forth (i) the amount or amounts necessary
to compensate such Bank, (ii) a description of the nature of the loss
or expense sustained or incurred by such Bank as a consequence thereof
and (iii) a reasonably detailed explanation of the calculation thereof
shall be delivered to the applicable Borrower and shall be conclusive
absent manifest error. The Borrowers shall pay such Bank the amount
shown as due on any such certificate within ten (10) days after receipt
thereof.
5. Amendment to ss.7 of the Credit Agreement. Section 7 of the
Credit Agreement is hereby amended as follows:
(a) Section 7.1 of the Credit Agreement is hereby amended by (i)
deleting each of the first two references to "PMI GmbH" which appear in ss.7.1
and substituting in place thereof the words "any Borrowing Subsidiary"; and (ii)
deleting the last reference to "PMI GmbH" which appears in ss.7.1 and
substituting in place thereof the words "such Borrowing Subsidiary";
<PAGE>21
(b) Section 7.2 of the Credit Agreement is hereby amended by deleting
each reference to "PMI GmbH" which appears in ss.7.2 and substituting in place
thereof the words "any Borrowing Subsidiary";
(c) Section 7.3 of the Credit Agreement is hereby amended by deleting
the reference to "PMI GmbH" which appears in ss.7.3 and substituting in place
thereof the words "any Borrowing Subsidiary"; and
(d) Section 7.5 of the Credit Agreement is hereby amended by deleting
the reference to "PMI GmbH" which appears in ss.7.5 and substituting in place
thereof the words "any Borrowing Subsidiary".
6. Amendment to ss.8 of the Credit Agreement. Section 8.1(b) of the
Credit Agreement is hereby amended by deleting the reference to "PMI GmbH" which
appears in ss.8.1(b) and substituting in place thereof the words "the Company".
7. Amendment to ss.10 of the Credit Agreement. Section 10 of the
Credit Agreement is hereby as follows:
(a) Section 10.1(m) of the Credit Agreement is hereby amended by (i)
deleting the amount "$10,000,000" which appears in ss.10.1(m) and substituting
in place thereof the amount "$15,000,000"; and (ii) deleting the word "and"
which appears at the end of the text of ss.10.1(m);
(b) Section 10.1(n) of the Credit Agreement is hereby amended by
deleting the period which appears at the end of the text of ss.10.(n) and
substituting in place thereof a semicolon and the word "and";
(c) Section 10.1 of the Credit Agreement is further amended by
inserting immediately after the text ofss.10.1 (n) the following:
(o) unsecured Indebtedness of the Company not otherwise
permitted in this ss.10.1 which does not exceed, in the aggregate,
$10,000,000 outstanding at any one time;
(d) Section 10.5(a)(7) of the Credit Agreement is hereby amended by
deleting the words "exceed $30,000,000 and that portion of the aggregate
purchase price for such Permitted Acquisitions (or series of related Permitted
Acquisitions) constituting cash and any assumed Indebtedness does not exceed
$20,000,000" which appears in ss.10.5(a)(7) and substituting in place thereof
the words "exceed $35,000,000".
8. Amendment to the Credit Agreement. The Credit Agreement is
further amended (a) by deleting each reference to "DM Lending Office" in each
place in which it appears and substituting in place thereof the words "Foreign
Lending Office" and (b) by incorporating the Exhibit G attached hereto as the
Exhibit G to the Credit Agreement.
9. Resignation of Fronting Bank. Notwithstanding anything to the
contrary contained in the Credit Agreement, the parties hereto hereby agree that
from and after the date hereof BKB shall be considered as having resigned of the
Fronting Bank in accordance with the provisions of the Credit Agreement and ABN
shall be the Fronting Bank under the Credit Agreement.
10. Conditions to Effectiveness. This Amendment shall not become
effective until the Agent receives a counterpart of this Amendment executed by
the Company, PMI GmbH, the Agent, the Fronting Bank and the Banks;
11. Representations and Warranties. Each of the Company and PMI
GmbH hereby repeats, on and as of the date hereof, each of the representations
and warranties made by it in ss.8 of the Credit Agreement (except to the extent
of changes resulting from matters contemplated or permitted by the Credit
Agreement and the other Loan Documents, changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and to the extent that such representations and warranties relate expressly to
an earlier date), provided, that all references therein to the Credit Agreement
shall refer to such Credit Agreement as amended hereby. In addition, each of
the Company and PMI GmbH hereby represents and warrants that the execution and
delivery by the Company and PMI GmbH of this Amendment and the performance by
the Company and PMI GmbH of all of its agreements and obligations under the
Credit Agreement as amended hereby are within the corporate authority of the
Company and PMI GmbH and have been duly authorized by all necessary corporate
action on the part of the Company and PMI GmbH.
12. Ratification, Etc. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Guarantees, are hereby ratified and confirmed
in all respects and shall continue in full force and effect. The Credit
Agreement and this Amendment shall be read and construed as a single agreement.
All references in the Credit Agreement, the Loan Documents or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
<PAGE>22
13. No Waiver. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrowers or any rights of the Agent or the Banks consequent thereon.
14. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
15. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
a document under seal as of the date first above written.
KOLLMORGEN CORPORATION
By:_____________________________
Name:
Title:
PMI MOTION TECHNOLOGIES GmbH
By:_____________________________
Name:
Title:
BANKBOSTON, N.A., individually
and as Agent
By:_____________________________
Name:
Title:
ABN AMRO Bank N.V., individually
and as Fronting Bank
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
FIRST UNION BANK
By:_____________________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FOR CURRENT FISCAL YEAR ENDED MARCH 31, 1999
</LEGEND>
<CIK>0000056583
<NAME>KOLLMORGEN CORPORATION
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,951
<SECURITIES> 0
<RECEIVABLES> 42,427
<ALLOWANCES> 584
<INVENTORY> 29,914
<CURRENT-ASSETS> 88,850
<PP&E> 112,772
<DEPRECIATION> 83,237
<TOTAL-ASSETS> 173,693
<CURRENT-LIABILITIES> 54,339
<BONDS> 29,300
0
0
<COMMON> 26,945
<OTHER-SE> 28,661
<TOTAL-LIABILITY-AND-EQUITY> 173,693
<SALES> 108,268
<TOTAL-REVENUES> 119,383
<CGS> 76,624
<TOTAL-COSTS> 84,877
<OTHER-EXPENSES> 35,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,914
<INCOME-PRETAX> (1,462)
<INCOME-TAX> (580)
<INCOME-CONTINUING> (882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (882)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
<FN>
(1) EPS - Primary represents Earnings per share - Basic per SFAS 128
EPS - Diluted represents Earnings per share - Diluted per SFAS 128
</FN>
</TABLE>
