SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20109
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Kronos Incorporated
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2640942
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Fifth Avenue, Waltham, MA 02154
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(Address of principal executive offices) (Zip Code)
(617) 890-3232
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(Registrant's telephone number, including area code)
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(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
--------- ---------
As of March 30, 1996, 8,063,940 shares of the registrant's Common Stock,
$.01 par value, were outstanding (after giving effect to the three-for-two stock
split of the Company's Common Stock effected in the form of a stock dividend
paid on January 29, 1996 to stockholders of record on January 15, 1996.)
<PAGE>
KRONOS INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the Three
Months and Six Months Ended March 30, 1996 and April 1, 1995 1
Condensed Consolidated Balance Sheets at March 30, 1996
and September 30, 1995 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 30, 1996 and April 1, 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
UNAUDITED
Three Months Ended Six Months Ended
----------------------- -----------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Product ........................................... $ 23,236 $ 21,342 $ 45,774 $ 40,476
Service ........................................... 9,866 7,864 18,795 14,883
---------- ---------- ---------- ----------
33,102 29,206 64,569 55,359
Cost of sales:
Product ........................................... 6,321 6,457 12,302 12,193
Service ........................................... 6,797 6,057 13,337 11,885
---------- ---------- ---------- ----------
13,118 12,514 25,639 24,078
---------- ---------- ---------- ----------
Gross profit ................................. 19,984 16,692 38,930 31,281
Expenses:
Sales and marketing ............................... 10,828 9,787 21,237 18,853
Engineering, research and development ............. 2,856 2,095 5,502 3,782
General and administrative ........................ 2,406 2,168 4,758 4,058
Other expense, net ................................ 61 111 113 299
---------- ---------- ---------- ----------
16,151 14,161 31,610 26,992
---------- ---------- ---------- ----------
Income before income taxes ................... 3,833 2,531 7,320 4,289
Provision for income taxes ............................. 1,468 959 2,804 1,612
---------- ---------- ---------- ----------
Net income ................................... $ 2,365 $ 1,572 $ 4,516 $ 2,677
========== ========== ========== ==========
Net income per common share:
Primary ........................................... $ 0.28 $ 0.19 $ 0.54 $ 0.33
Fully diluted ..................................... $ 0.28 $ 0.19 $ 0.54 $ 0.33
Average common and common equivalent shares outstanding:
Primary ...................................... 8,319,500 8,100,620 8,300,580 8,054,826
========== ========== ========== ==========
Fully diluted ................................ 8,319,500 8,108,483 8,300,580 8,076,228
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
UNAUDITED
March 30, September 30,
1996 1995
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents .................................................... $ 20,879 $ 17,727
Marketable securities ................................................... 7,391 3,716
Accounts receivable, less allowances for doubtful accounts of $1,017
at March 30, 1996 and $1,001 at September 30, 1995 ................... 26,325 28,159
Inventories ............................................................. 4,492 4,469
Deferred income taxes ................................................... 1,515 1,515
Other current assets .................................................... 1,998 1,273
-------- --------
Total current assets ............................................. 62,600 56,859
Equipment, net ............................................................. 12,656 10,079
Excess of cost over net assets of businesses acquired ...................... 6,222 6,606
Other assets ............................................................... 5,008 4,062
-------- --------
Total assets ..................................................... $ 86,486 $ 77,606
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................... $ 8,847 $ 8,352
Accrued compensation .................................................... 6,303 7,149
Federal and state income taxes payable .................................. 1,943 969
Unearned service revenue ................................................ 16,797 13,815
-------- --------
Total current liabilities ........................................ 33,890 30,285
Other liabilities .......................................................... 686 752
Shareholders' equity:
Preferred Stock, par value $1.00 per share: authorized 1,000,000 shares,
no shares issued and outstanding
Common Stock, par value $.01 per share: authorized 12,000,000 shares,
8,063,940 shares and 7,940,468 shares issued at March 30, 1996 and
September 30, 1995, respectively ..................................... 81 79
Additional paid-in capital .............................................. 25,237 24,353
Retained earnings ....................................................... 26,864 22,348
Equity adjustment from translation ...................................... (271) (206)
Cost of shares of Common Stock held in treasury (35 shares and 170
shares at March 30, 1996 and September 30, 1995, respectively) ....... (1) (5)
-------- --------
Total shareholders' equity ....................................... 51,910 46,569
-------- --------
Total liabilities and shareholders' equity ....................... $ 86,486 $ 77,606
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
Six Months Ended
--------------------
March 30, April 1,
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income .............................................................. $ 4,516 $ 2,677
Adjustments to reconcile net income to net cash and equivalents
provided by operating activities:
Depreciation .................................................... 2,155 1,780
Amortization of deferred software development costs and
excess of cost over net assets of businesses acquired ....... 1,562 1,226
Changes in certain operating assets and liabilities:
Accounts receivable, net .................................... 1,885 1,211
Inventories ................................................. (13) 1,081
Unearned service revenue .................................... 2,968 864
Accounts payable, accrued compensation
and other liabilities ................................... 685 1,320
Net investment in sales-type leases ......................... (756)
Other ........................................................... (403)
-------- --------
Net cash and equivalents provided by operating activities 12,599 10,159
Investing activities:
Purchase of equipment ................................................... (4,905) (1,750)
Capitalization of software development costs ............................ (1,537) (1,053)
(Increase) decrease in marketable securities ............................ (3,675) 35
Acquisitions of businsesses ............................................. (339) (208)
Other ................................................................... 164 (14)
-------- --------
Net cash and equivalents used in investing activities ... (10,292) (2,990)
Financing activities:
Principal payments under capital leases ................................. (20) (71)
Net proceeds from exercise of stock option and employee stock
purchase plans ....................................................... 889 157
-------- --------
Net cash and equivalents provided by financing activities 869 86
Effect of exchange rate changes on cash and equivalents ...................... (24) (15)
-------- --------
Increase in cash and equivalents ............................................. 3,152 7,240
Cash and equivalents at the beginning of the period .......................... 17,727 7,938
-------- --------
Cash and equivalents at the end of the period ................................ $ 20,879 $ 15,178
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
KRONOS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - General
The accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, that management
considers necessary for a fair presentation of the Company's financial position
and results of operations as of and for the interim periods presented pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosures in these financial statements are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the fiscal year ended September 30, 1995. The results of
operations for the three month and six month periods ended March 30, 1996 and
April 1, 1995 are not necessarily indicative of the results for a full fiscal
year.
Certain amounts have been reclassified in fiscal 1995 to permit comparison with
fiscal 1996. These amounts primarily relate to third party maintenance costs
which were previously included in product cost of sales and are currently
included in service cost of sales.
NOTE B - Fiscal Quarters
The Company utilizes a system of fiscal quarters. Under this system, the first
three quarters of each fiscal year end on a Saturday. However, the fourth
quarter of each fiscal year will always end on September 30. Because of this,
the number of days in the first and fourth quarters of each fiscal year may vary
slightly from year to year. The second and third quarters of each fiscal year
will be exactly thirteen weeks long. This policy does not have a material effect
on the comparability of results of operations between quarters.
NOTE C - Marketable Securities
The Company's marketable securities, which primarily consist of state revenue
bonds and generally mature within one year, are classified as held to maturity
and are carried at amortized cost.
<PAGE>
NOTE D - Inventories
Inventories consist of the following (in thousands):
March 30, September 30,
1996 1995
-------------- --------------
Finished goods $2,002 $1,769
Work - in - process 217 315
Raw materials 2,273 2,385
-------------- --------------
$4,492 $4,469
============== ==============
NOTE E - Stock Split
The Company's Board of Directors approved a three-for-two stock split effected
in the form of a 50% stock dividend that was paid on January 29, 1996 to
stockholders of record as of January 15, 1996. Accordingly, the presentation of
shares outstanding and amounts per share have been restated for all periods
presented to reflect the split. The par value of the additional shares was
transferred from additional paid-in capital to Common Stock.
On November 17, 1995, the Company's Board of Directors adopted a Rights
Agreement. Under the Agreement, the Company distributed to stockholders a
dividend of one Right for each outstanding share of Common Stock. As a result of
the stock split, each stockholder has two-thirds of a Right for each share of
Common Stock held as of the Record Date.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues. Revenues for the second quarter of fiscal 1996 amounted to
$33.1 million as compared with $29.2 million for the second quarter of the prior
year. Revenues for the first six months of fiscal 1996 were $64.6 million as
compared with $55.4 million for the first six months of the prior year. Revenue
growth of 13% and 17% in the quarter and six month periods ended March 30, 1996,
respectively, declined from 39% and 38% for comparable periods of the prior
year. The decline in the revenue growth rate for both periods presented is
attributable to a variety of factors, the most significant of which was the
unusually strong revenue growth rate experienced in fiscal 1995. The Company's
historical growth trend of approximately 20% accelerated during fiscal years
1994 and 1995 to 37% and 30%, respectively. This acceleration of revenue growth
was attributed to, among other factors, the absorption of acquired dealer
territories and the impact of the start-up of the Company's marketing agreement
with ADP, Inc. As a result of these factors, the Company's revenue growth rate
in fiscal 1996 may be less than that experienced in comparable periods in fiscal
1995. The Company also believes that its revenue growth rate over the remainder
of fiscal 1996 may be less than the historical trend because of the product
transition from DOS and Unix platforms to the Windows and client/server
environments. However, the Company believes that demand for its products and
services remains strong and that the revenue growth experienced in the first six
months of fiscal 1996 should continue through the remainder of the fiscal year.
Product revenues for the quarter increased 9% to $23.2 million. Service revenues
for the quarter increased 26% to $9.9 million. The growth in product revenues
was principally driven by customer demand. The growth in service revenues
reflects increases in maintenance revenue from expansion of the installed base
as well as an increase in the level of services accompanying the sale of new
products. Product revenues for the first six months of fiscal 1996 increased 13%
to $45.8 million and service revenues increased 26% to $18.8 million. The growth
in product and service revenues for this six month period was principally a
result of the same factors discussed in this paragraph for the quarter.
Gross Profit. Gross profit as a percentage of revenues was 60% in the
second quarter of fiscal 1996 as compared with 57% in the second quarter of the
prior year. Product gross profit increased to 73% in the quarter from 70% in the
second quarter of the prior year. The improvement in product gross profit in the
second quarter of fiscal 1996 is primarily attributable to the mix of products
sold which includes a higher proportion of software than in the prior period. As
software sales typically generate higher gross profit than other product sales,
the result has been a favorable impact on product gross margin. The Company
anticipates that product gross margin should approximate 72% to 74% of product
revenues over the remainder of fiscal 1996. Service gross profit increased to
31% in the second quarter of fiscal 1996 from 23% in the second quarter of the
prior year. The increase in service gross profit is primarily attributable to
the growth in service revenues. The Company has been able to absorb the increase
in service volume without a ratable increase in service expenses. Over the past
year, the Company has focused on increasing service revenues from new and
existing customers as well as improving the efficiency and, therefore, reducing
the cost of delivering such services. The improved service margins experienced
in the second quarter of 1996 are a result of this focus.
Gross profit as a percentage of revenues for the first six months of
fiscal 1996 was 60% as compared with 57% for the first six months of fiscal
1995. Product gross profit increased to 73% in the first six months of fiscal
1996 from 70% in the first six months of the prior year. Service gross profit
increased to 29% for the first six months of fiscal 1996 from 20% in the first
six months of the prior year. The increase in both product and service gross
profit was principally a result of the same factors discussed in the paragraph
above for the quarter.
Expenses. Expenses as a percentage of revenues remained constant at 49%
for all periods presented. The relatively flat level of spending in relation to
sales reflects a concerted effort to increase spending in engineering, research
and development while improving efficiency in other expense categories.
Sales and marketing expenses as a percentage of revenues decreased to 33%
in the three and six month periods ended March 30, 1996 from 34% in the
comparable periods of the prior fiscal year. The decline in sales and marketing
expenses as a percentage of revenues is a result of various programs implemented
by the Company to increase sales productivity and efficiency including but not
limited to the development of industry focused vertical business divisions. In
the quarter ended March 30, 1996 the relationship of sales and marketing
expenses to revenues was also favorably impacted by a higher proportion of sales
from the dealer and ADP distribution channels than in the same period of the
prior year. The Company anticipates that sales and marketing expenses as a
percentage of revenues over the remainder of fiscal 1996 should remain
comparable to the level achieved in the first six months of fiscal 1996.
Engineering, research and development expenses increased as a percentage
of revenues to 9% in the second quarter of fiscal 1996 and six month period
ended March 30, 1996 as compared with 7% in the second quarter and six month
period of the prior year. The growth in engineering, research and development
expenses as a percentage of revenues was anticipated as the Company continues to
invest in new product development, primarily in the Windows and client/server
environments. Expenses of $2.9 million and $2.1 million in the second quarter of
fiscal 1996 and 1995 are net of capitalized software development costs of $.8
million and $.5 million, respectively. Expenses of $5.5 million and $3.8 million
in the first six months of fiscal 1996 and 1995 are net of capitalized software
development costs of $1.5 million and $1.1 million, respectively. The growth in
spending on capitalizable software development costs principally reflects
enhancements of new products released in the past four quarters and enhancements
of existing products.
General and administrative expenses as a percentage of revenues amounted
to 7% for all periods presented. Expenses in the first six months of fiscal 1996
include start-up costs incurred for an internally funded customer lease program.
Other expense, net amounted to .2% and .4% of revenues for the second
quarter of fiscal 1996 and 1995, respectively, and .2% and .5% for the first six
months of fiscal 1996 and 1995, respectively. Other expense, net is composed
primarily of amortization of intangible assets related to acquisitions made by
the Company which is partially offset by interest income earned on its
investments.
Income Taxes. The provision for income taxes as a percentage of pretax
income was 38% for all periods presented The Company's effective income tax rate
may fluctuate between periods as a result of various factors, none of which are
material, either individually or in aggregate, to the consolidated results of
operations.
Liquidity and Capital Resources
Working capital as of March 30, 1996, amounted to $28.7 million as
compared with $26.6 million at September 30, 1995. As of those dates, cash and
equivalents and marketable securities amounted to $28.3 million and $21.4
million, respectively. Cash generated from operations increased to $12.6 million
in the first six months of fiscal 1996 from $10.2 million in the first six
months of the prior year. The increase in cash generated from operations is
principally due to increased earnings and management of the Company's operating
assets and liabilities. Cash generated from operations was negatively impacted
by the Company's initial investment in its internally funded leasing program.
Cash used in investing activities increased to $10.3 million in the first six
months of fiscal 1996 from $3.0 million. Excluding investments in marketable
securities, cash used in investing activities amounted to $6.6 million for the
first six months of fiscal 1996. As anticipated, the Company has increased
spending on equipment, principally for the expansion of the Company's
manufacturing, distribution and corporate facilities and investments in the
Company's internal information systems infrastructure.
Cash generated from operations was more than sufficient to fund
investments in equipment and capitalized software development costs. The Company
expects to fund its investments in equipment and software development costs over
the remainder of its fiscal year with existing cash and equivalents together
with internally generated cash. The Company has available a bank line of credit
of $3.0 million. No amounts were outstanding on the line of credit as of March
30, 1996.
Certain Factors That May Affect Future Operating Results
The following important factors, among others, could cause actual
operating results to differ materially from those indicated by forward-looking
statements made in this Quarterly Report on Form 10-Q and presented elsewhere by
management from time to time.
Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results may fluctuate as a result of a variety of factors, including
the timing of the introduction of new products and product enhancements by the
Company and its competitors, market acceptance of new products, mix of products
sold, the purchasing patterns of its customers, competitive pricing pressure and
general economic conditions. The Company historically has realized a relatively
larger percentage of its annual revenues and profits in the fourth quarter and a
relatively smaller percentage in the first quarter of each fiscal year, although
there can be no assurance that this pattern will continue. In addition, while
the Company has contracts to supply systems to certain customers over an
extended period of time, substantially all of the Company's product revenue and
profits in each quarter result from orders received in that quarter. If
near-term demand for the Company's products weakens or if significant
anticipated sales in any quarter do not close when expected, the Company's
revenues for that quarter will be adversely affected. The Company believes that
its operating results for any one quarter are not necessarily indicative of
results for any future period.
Product Development and Technological Change. The markets for time
accounting and data collection systems are characterized by continual change and
improvement in computer software and hardware technology. The Company's future
success will depend largely on its ability to enhance its existing product lines
and to develop new products and interfaces to third party products on a timely
basis for the increasingly sophisticated needs of its customers. Although the
Company is continually seeking to further enhance its product offerings and to
develop new products and interfaces, there can be no assurance that these
efforts will succeed, or that, if successful, such product enhancements or new
products will achieve widespread market acceptance, or that the Company's
competitors will not develop and market products which are superior to the
Company's products or achieve greater market acceptance.
Competition. The time accounting and data collection industries are
highly competitive. Competition could increase if competitors in related
industries, such as human resources and payroll, enter the market. Advances in
software development tools have accelerated the software development process
and, therefore, can allow competitors to penetrate certain of the Company's
markets. Maintaining the Company's technological and other advantages over
competitors will require continued investment by the Company in research and
development and marketing and sales programs. There can be no assurance that the
Company will have sufficient resources to make such investments or be able to
achieve the technological advances necessary to maintain its competitive
advantages. Increased competition could adversely affect the Company's operating
results through price reductions and loss of market share.
Attracting and Retaining Sufficient Technical Personnel for Product
Development, Support and Sales. The Company has encountered intense competition
for experienced technical personnel for product development, technical support
and sales and expects such competition to continue in the future. Any inability
to attract and retain a sufficient number of qualified technical personnel could
adversely affect the Company's ability to produce, support and sell robust
products in a timely manner.
Dependence on Alternate Distribution Channels. The Company markets and
sells its products through its direct sales organization, independent dealers
and OEMs. For the fiscal year ended September 30, 1995, approximately 23% of the
Company's revenue was generated through sales to dealers and OEMs. Reduction in
the sales efforts of the Company's major dealers and/or OEMs or termination or
changes in their relationships with the Company could have a material adverse
effect on the results of the Company's operations.
Dependence on Time Accounting Product Line. To date, substantially all
[i.e., over ninety per cent 90%] of the Company's revenues have been
attributable to sales of time accounting systems and services. Competitive
pressures or other factors could cause the Company's time accounting products to
lose market acceptance or experience significant price erosion, adversely
affecting the results of the Company's operations.
Reliance on Key Vendors. The Company depends upon the reliability and
viability of a variety of software development tools owned by third parties to
develop its products. If these tools are inadequate or not properly supported,
the Company's ability to release competitive products in a timely manner could
be adversely impacted. Certain parts and components used in the Company's
products are purchased from single vendors. The Company has chosen to source
these items from single vendors because it believes that the vendor chosen is
able to consistently provide the Company with the highest quality product at a
competitive price on a timely basis. While the Company has to date been able to
obtain adequate supplies of these parts and components, the Company's inability
to transition to alternate sources on a timely basis if and as required in the
future could result in delays or reductions in product shipments which could
have material adverse effect on the Company's operating results. In addition,
the Company purchases payroll interface software from a single vendor for resale
in certain of its time accounting systems. Although the Company believes its
relationship with this vendor is good, any interruption or termination of the
Company's rights to resell such software could delay shipment of certain of the
Company's products and require the Company to write its own software to perform
this function. Although the Company believes it would be able to produce its own
payroll interface software, any delay or problems encountered in doing so could
temporarily and adversely affect the Company's results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment to Sales Agreement dated December 6, 1990,
between Integrated Design, Inc. and the Registrant
10.2 Amendment to Lease dated November 9, 1992, as amended,
between John Hancock Mutual Life Insurance Company and
the Registrant, relating to premises leased in
Waltham, MA
11 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KRONOS INCORPORATED
By /s/ Paul A. Lacy
Paul A. Lacy
Vice President of Finance
and Administration
(Duly Authorized Officer and
Principal Financial Officer)
May 9, 1996
<PAGE>
KRONOS INCORPORATED
EXHIBIT INDEX
Exhibit
Number Description
10.1 Amendment to Sales Agreement dated December 6, 1990, between
Integrated Design, Inc. and the Registrant
10.2 Amendment to Lease dated November 9, 1992, as amended,
between John Hancock Mutual Life Insurance Company and the
Registrant, relating to premises leased in Waltham, MA
11 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule
November 2, 1995
VIA FAX AND MAIL
Mr. James Carroll, President
Integrated Design, Inc.
2101 Commonwealth
Ann Arbor, MI 48105
Re: Time Bank Software Sales Agreement
Dated December 6, 1990 (the Agreement")
Dear Mr. Carroll:
As we discussed, permit this letter to serve as our understanding that Kronos
Incorporated is authorized to enter into leases with prospective customers for
Time Bank Software. The parties agree to interpret the Agreement as if it
covered leases, as well as sales, and specifically agree that Kronos will pay
the Dealer Price for the Time Bank Software, and will be entitled to the
variable percentage rebate specified in Section 3.3 of the Agreement for any
such lease.
The parties agree to negotiate an amendment to the Agreement to provide for
leases, as well as sales, of the Time Bank Software, as soon as practicable.
Until such time, the remaining terms of the Agreement will be interpreted by the
parties as if they contemplated leases as well as sales of the Time Bank
Software.
All capitalized terms used without definition herein will be as defined in the
Agreement.
Please indicate your agreement with the above by signing on the line below,
faxing a signed copy to my attention, and mailing the original in the enclosed
self-addressed, stamped envelope.
Very truly yours,
/s/ Alayne Green Shapiro
Alayne Green Shapiro
Attorney
AGS/cf
cc: Sally Wallace
AGREED TO, AS ABOVE:
INTEGRATED DESIGN, INC.
By: /s/ James Carroll
James Carroll, President
SIXTH AMENDMENT TO LEASE
This is a Sixth Amendment to Lease dated as of January 1, 1996
between John Hancock Mutual Life Insurance Company ("Landlord") and Kronos
Incorporated ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a lease dated November 6, 1992, as
amended by a First Amendment dated November 6, 1992, a Second Amendment dated
June, 1994, a Restated Third Amendment dated as of October 30, 1994, a Fourth
Amendment dated as of June 1, 1995, and a Fifth Amendment dated as of
June 28, 1995, of premises ("Premises") in a building ("Building") located
at 400 Fifth Avenue, Waltham, Massachusetts ("Lease"); and
WHEREAS, Landlord and Tenant have agreed to amend the Lease to incorporate
additional space on the terms and conditions more particularly set forth below.
NOW, THEREFORE, for good and valuable consideration, and in consideration of
the covenants and agreements herein contained, the parties hereby agree to
amend the Lease as follows:
1.The plan attached hereto as Exhibit A-3, setting forth the approximate
location of 762 square feet on the 1st floor of the Building to be added to the
Premises pursuant to this Sixth Amendment ("Sixth Amendment Additional Space"),
is hereby incorporated into Exhibit A to the Lease.
2.The term "Leased Premises" in Section 1 of the Lease is here by amended
by deleting therefrom the phrase "70,112 rentable square feet", and substituting
therefor the phrase "70,874 rentable square feet".
3.The definition of "Minimum Annual Rent" set forth in Section 1 of the
Lease is hereby amended by deleting the same and substituting therefor the
following:
<TABLE>
<CAPTION>
"MINIMUM ANNUAL RENT:
Year Sq. Ft. Per RSF Total
<C> <C> <C> <C>
4/1/93- 62,340 10.95* $682,623.00
3/31/94
4/1/94- 62,340 14.75* 919,515.00
10/31/94 annual rate;
536,383.75 for this
7-month period
11/1/94- 62,340 14.75* 979,023.00
3/31/95 3,480 17.10 annual rate; 407,926.25
for this 5-month period
4/1/95- 62,340 15.00 994,608.00 annual rate;
5/31/95 3,480 17.10 165,768.00 for this
2-month period
6/1/95- 62,340 15.00 1,076,156.00 annual
1/31/96 3,480 17.10 rate; 717,437.33 for
4,292 19.00 this 8-month period
2/1/96- 62,340 15.00 1,091,357.90
3/31/96 3,480 17.10 annual rate; 181,892.98
4,292 19.00 for this 2-month period
762 19.95
4/1/96- 62,340 15.25 1,106,942.90
3/31/97 3,480 17.10
4,292 19.00
762 19.95
4/1/97- 62,340 16.25 1,169,282.90
3/31/98 3,480 17.10
4,292 19.00
762 19.95
4/1/98- 62,340 17.00 1,216,037.90
3/31/99 3,480 17.10
4,292 19.00
762 19.95
4/1/99- 62,340 17.00 1,216,037.90
3/31/00 3,480 17.10
4,292 19.00
762 19.95
*Except as modified by the terms of Section 36."
</TABLE>
4. The term "Total Rentable Area of the Leased Premises" in Section 1 of
the Lease is hereby amended by deleting therefrom "70,112 sq. feet", and
substituting therefor "70,874 sq. feet".
5. The term "Tax Base" in Section 1 of the Lease is hereby amended by
adding thereto the following:
"Notwithstanding the foregoing, the Tax Base for the Sixth Amendment
Additional Space shall be Tax Year 1996."
6. The terms "Tax Percentage" and "Operating Cost Percentage" in Section 1
of the Lease are hereby amended by adding thereto the following:
", and, as to the Sixth Amendment Additional Space, .63%"
7. The term "Operating Cost Base" is hereby amended by adding thereto the
following:
"Notwithstanding the following, the Operating Cost Base for the Sixth
Amendment Additional Space shall be Calendar Year 1996."
8. The Sixth Amendment Additional Space shall be deemed to be incorporated
into the Lease as of February 1, 1996, and from and after that date, the
Premises shall be deemed to include the original premises demised under the
Lease and the Sixth Amendment Additional Space, in accordance with and subject
to all of the terms and provisions of the Lease. Accordingly, the Tenant's
rights to the Sixth Amendment Additional Space shall expire as of the date of
expiration of the Lease, or its earlier termination. Any exercise by Tenant of
its option to extend the Lease in accordance with Section 38 thereof shall
include the Sixth Amendment Additional Space.
9. Tenant hereby acknowledges and agrees that the Sixth Amendment
Additional Space shall be delivered by Landlord to Tenant in its "as is, with
all faults" condition, and that Landlord shall have no obligations with respect
to improvement of the Sixth Amendment Additional Space. Nothwithstanding any
provision hereof to the contrary, (a) this Sixth Amendment shall not be
effective until the existing occupant has vacated the Sixth Amendment Additional
Space, (b) Tenant shall have no claim against Landlord in the event that the
space is not available as of February 1, 1996, and (c) Tenant's occupancy shall
at all times be subject to all of the terms and conditions of the Lease.
10. Landlord and Tenant hereby represent and warrant to each other that the
only broker with whom each of them has had dealings in connection with this
Sixth Amendment is Beacon Management Company. Each party agrees to defend,
indemnify and hold the other party harmless from any breach of the foregoing
representation.
Except as hereinabove amended, the Lease remains in full force and
effect.
EXECUTED as a sealed instrument as of the day and year first above
written.
LANDLORD:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ M.E. Armour
Its:
TENANT:
KRONOS INCORPORATED
By: /s/Paul Lacy
Its:
V.P., Finance and
Administration
<PAGE>
EXHIBIT A - 3
Exhibit A-3 contains a graphic which sets forth the approximate location of 762
square feet on the first floor of the Building to be added to the Premises
pursuant to the Sixth Amendment to the Lease.
<TABLE>
<CAPTION>
KRONOS INCORPORATED
Exhibit 11 - Statement re Computation of Per
Share Earnings (In thousands, except
share and per share amounts)
Three Months Ended Six Months Ended
----------------------- -----------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income .................................. $ 2,365 $ 1,572 $ 4,516 $ 2,677
========== ========== ========== ==========
Net income per common share:
Primary:
Weighted average shares outstanding 8,019,061 7,796,088 7,984,979 7,763,423
Common Stock equivalents .......... 300,439 304,532 315,601 291,404
---------- ---------- ---------- ----------
Total ............................. 8,319,500 8,100,620 8,300,580 8,054,826
========== ========== ========== ==========
Net income per common share ....... $ 0.28 $ 0.19 $ 0.54 $ 0.33
========== ========== ========== ==========
Fully diluted:
Weighted average shares outstanding 8,019,061 7,796,088 7,984,979 7,763,423
Common Stock equivalents .......... 300,439 312,395 315,601 312,806
---------- ---------- ---------- ----------
Total ............................. 8,319,500 8,108,483 8,300,580 8,076,228
========== ========== ========== ==========
Net income per common share ....... $ 0.28 $ 0.19 $ 0.54 $ 0.33
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements of the Corporation for the six
months ended March 30, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000886903
<NAME> Kronos Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Mar-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,879
<SECURITIES> 7,391
<RECEIVABLES> 27,342
<ALLOWANCES> 1,017
<INVENTORY> 4,492
<CURRENT-ASSETS> 62,600
<PP&E> 28,441
<DEPRECIATION> 15,785
<TOTAL-ASSETS> 86,486
<CURRENT-LIABILITIES> 33,890
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 51,829
<TOTAL-LIABILITY-AND-EQUITY> 86,486
<SALES> 45,774
<TOTAL-REVENUES> 64,569
<CGS> 12,302
<TOTAL-COSTS> 25,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,320
<INCOME-TAX> 2,804
<INCOME-CONTINUING> 4,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,516
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
