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 29, 1997
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
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As of March 31, 1997, 8,204,572 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<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 29, 1997 and
March 30, 1996 1
Condensed Consolidated Balance Sheets at March 29, 1997
and September 30, 1996 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 29, 1997 and March 30, 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
<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 29, March 30, March 29, March 30,
1997 1996 1997 1996
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net revenues:
Product .............................. $ 26,121 $ 23,236 $ 51,839 $ 45,774
Service .............................. 13,282 9,866 24,674 18,795
----------- ----------- ----------- -----------
39,403 33,102 76,513 64,569
Cost of sales:
Product .............................. 7,041 6,321 13,456 12,302
Service .............................. 8,622 6,797 16,452 13,337
----------- ----------- ----------- -----------
15,663 13,118 29,908 25,639
----------- ----------- ----------- -----------
Gross profit .................... 23,740 19,984 46,605 38,930
Expenses:
Sales and marketing .................. 14,158 10,828 27,259 21,237
Engineering, research and development 4,034 2,856 7,791 5,502
General and administrative ........... 2,745 2,406 5,253 4,758
Other (income) expense, net .......... (75) 61 (112) 113
----------- ----------- ----------- -----------
20,862 16,151 40,191 31,610
----------- ----------- ----------- -----------
Income before income taxes ...... 2,878 3,833 6,414 7,320
Provision for income taxes ................ 1,099 1,468 2,449 2,804
----------- ----------- ----------- -----------
Net income ...................... $ 1,779 $ 2,365 $ 3,965 $ 4,516
=========== =========== =========== ===========
Net income per common share:
Primary and fully diluted ............ $ 0.21 $ 0.28 $ 0.47 $ 0.54
Average common and common equivalent shares
outstanding:
Primary ......................... 8,439,616 8,319,500 8,405,492 8,300,580
=========== =========== =========== ===========
Fully diluted ................... 8,439,627 8,319,500 8,418,489 8,300,580
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
UNAUDITED
March 29, September 30,
1997 1996
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ASSETS
<S>
Current assets:
<C> <C>
Cash and equivalents .................................................... $ 14,306 $ 10,795
Marketable securities ................................................... 18,200 21,995
Accounts receivable, less allowances for doubtful accounts of $907
at March 29, 1997 and $987 at September 30, 1996 ..................... 29,674 30,622
Inventories ............................................................. 4,832 4,149
Deferred income taxes ................................................... 3,025 3,025
Other current assets .................................................... 4,304 3,765
--------- ---------
Total current assets ............................................. 74,341 74,351
Equipment, net ............................................................. 16,980 14,738
Excess of cost over net assets of businesses acquired ...................... 6,786 7,221
Other assets ............................................................... 12,284 8,556
--------- ---------
Total assets ..................................................... $ 110,391 $ 104,866
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................... $ 12,328 $ 11,894
Accrued compensation .................................................... 6,831 8,445
Federal and state income taxes payable .................................. 654 1,367
Unearned service revenue ................................................ 19,067 16,388
--------- ---------
Total current liabilities ........................................ 38,880 38,094
Deferred income taxes ...................................................... 2,236 2,236
Unearned service revenue ................................................... 2,806 2,721
Other liabilities .......................................................... 592 717
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,
8,205,350 shares and 8,124,133 shares issued at March 29, 1997 and
September 30, 1996, respectively ..................................... 82 81
Additional paid-in capital .............................................. 28,375 27,512
Retained earnings ....................................................... 37,737 33,773
Equity adjustment from translation ...................................... (293) (251)
Cost of Treasury Stock (778 shares and 583
shares at March 29, 1997 and September 30, 1996, respectively) ....... (24) (17)
--------- ---------
Total shareholders' equity ....................................... 65,877 61,098
--------- ---------
Total liabilities and shareholders' equity ....................... $ 110,391 $ 104,866
========= =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
Six Months Ended
----------------------
March 29, March 30,
1997 1996
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<S>
Operating activities:
<C> <C>
Net income ............................................................ $ 3,965 $ 4,516
Adjustments to reconcile net income to net cash and equivalents
provided by operating activities:
Depreciation .................................................. 3,020 2,155
Amortization of deferred software development costs and
excess of cost over net assets of businesses acquired ...... 2,179 1,562
Changes in certain operating assets and liabilities:
Accounts receivable, net ................................... 932 1,885
Inventories ................................................ (687) (13)
Unearned service revenue ................................... 2,689 2,968
Accounts payable, accrued compensation
and other liabilities ................................... (1,690) 685
Net investment in sales-type leases ........................ (2,676) (756)
Other ......................................................... (844) (403)
-------- --------
Net cash and equivalents provided by operating activities 6,888 12,599
Investing activities:
Purchase of equipment ................................................. (5,177) (4,905)
Capitalization of software development costs .......................... (2,552) (1,537)
(Increase) decrease in marketable securities .......................... 3,795 (3,675)
Acquisitions of businsesses ........................................... (422) (339)
Other ................................................................. (5) 164
-------- --------
Net cash and equivalents used in investing activities ... (4,361) (10,292)
Financing activities:
Net proceeds from exercise of stock option and employee stock ......... 889
purchase plans
Other ................................................................. -- (20)
-------- --------
Net cash and equivalents provided by financing activities 968 869
Effect of exchange rate changes on cash and equivalents .................... 16 (24)
-------- --------
Increase in cash and equivalents ........................................... 3,511 3,152
Cash and equivalents at the beginning of the period ........................ 10,795 17,727
-------- --------
Cash and equivalents at the end of the period .............................. $ 14,306 $ 20,879
======== ========
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, 1996. The results of operations for the
three and six month periods ended March 29, 1997 and March 30, 1996 are not
necessarily indicative of the results for a full fiscal year. Certain amounts
have been reclassified in fiscal 1996 to permit comparison with fiscal 1997.
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 fiscalyear 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 - Inventories
Inventories consist of the following (in thousands):
March 29, September 30,
1997 1996
------------------- -------------------
Finished goods $2,584 $2,148
Work - in - process 289 283
Raw materials 1,959 1,718
------------------- -------------------
$4,832 $4,149
=================== ===================
<PAGE>
NOTE D - Financial Accounting Standards Board Statement No. 128, Earnings per
Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted in the first
quarter of fiscal 1998. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected
to result in an increase in basic earnings per share of approximately $.01 per
share for the three month periods ended March 29, 1997 and March 30, 1996,
respectively, and approximately $.03 per share and $.02 per share for the six
month periods ended March 29, 1997 and March 30, 1996, respectively. The impact
of Statement 128 on the calculation of diluted earnings per share for these
quarters is not expected to be material.
<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 1997 amounted to
$39.4 million as compared with $33.1 million for the second quarter of the
prior year. Revenues for the first six months of fiscal 1996 were $76.5
million as compared with $64.6 million for the first six months of the prior
year. Revenue growth of 19% and 18% in the three and six month periods ended
March 29, 1997, respectively, increased from 13% and 17% for comparable periods
of the prior year.
Product revenues for the second quarter of fiscal 1997 amounted to
$26.1 million as compared with $23.2 million for the second quarter of the prior
year. Product revenues for the first six months of fiscal 1997 were $51.8
million as compared with $45.8 million for the first six months of the prior
year. Product revenue growth of 12% for the second quarter of fiscal 1997
increased from 9% for the comparable period of the prior year. Product
revenue growth was 13% in each of the six month periods ended March 29, 1997 and
March 30, 1996. The growth in product revenues in the three and six month
periods ended March 29, 1997 was principally driven by customer demand.
While revenues increased over comparable periods of the prior year, the growth
rate was below management's expectations. The shortfall in revenue growth
from management's expectations is attributable to a variety of factors,
the most significant of which includes the impact of recent product transitions
and less than anticipated sales volume in the international and government
and education markets. During the quarter the Company continued its
transition of its core products from DOS and UNIX platforms to the Windows and
client/server environments. Sales of the Company's client/server product to
the manufacturing sector were below expectations due to a longer than
anticipated sales cycle as a result of the complexity and size of these
transactions. Sales in both the government and education and international
markets also fell short of expectations. Sales to these markets may vary from
quarter to quarter as the Company invests in these markets by building the
infrastructure necessary to support future growth. Revenue growth over the
remainder of fiscal 1997 will depend in part on the commercial success of the
Company's Windows and client/server versions of its time and attendance
products as well as its penetration into the international and government
and education markets.
Service revenues for the second quarter of fiscal 1997 amounted to
$13.3 million as compared with $9.9 million for the second quarter of the prior
year. Service revenues for the first six months of fiscal 1997 were $24.7
million as compared with $18.8 million for the first six months of the prior
year. Service revenue growth of 35% and 31% in the three and six month
periods ended March 29, 1997, respectively, increased from 26% in each of the
comparable periods of the prior year. The growth in service revenues in the
three and six month periods ended March 29, 1997 reflects an increase in
maintenance revenue from expansion of the installed base. The Company also
<PAGE>
continued its efforts to increase revenue arising from maintenance and
professional services. This effort has led to an increase in the level of
maintenance contracts and professional services accompanying new sales as
well as services sold to existing customers.
Gross Profit. Gross profit as a percentage of revenues was 62% in the
second quarter of fiscal 1997 as compared with 60% in the second quarter of
the prior year. Gross profit as a percentage of revenues for the first six
months of fiscal 1997 was 61% as compared with 60% for the first six months of
fiscal 1996.
Product gross profit as a percentage of revenues was 73% in the quarter,
consistent with the prior year. Product gross profit increased slightly to
74% in the first six months of fiscal 1997 from 73% in the first six months of
the prior year. Service gross profit as a percentage of revenues increased
to 35% in the second quarter of fiscal 1997 from 31% in the second quarter of
the prior year. Service gross profit increased to 33% for the first six
months of fiscal 1997 from 29% in the first six months of the prior year. The
increase in service gross profit in the three and six month periods ended
March 29, 1997 is primarily attributable to growth in service revenues
without a proportionate increase in service expenses. The Company has
continued to realize the benefits of its service revenue enhancement programs,
as well as improved efficiency in the delivery of services.
Expenses. Total operating expenses as a percentage of revenues were
53% for the second quarter and six month period ended March 29, 1997 as
compared to 49% for comparable periods in the prior year. The increase in
expenses as a percentage of revenues results from lower than expected
revenues, as well as investments made in the Company's international
operations, government and education division and in engineering.
Sales and marketing expenses as a percentage of revenues increased to
36% in the three and six month periods ended March 29, 1997 from 33% in the
comparable periods of the prior year. The increase in sales and marketing
expenses as a percentage of revenues is a result of the Company's investment in
its international sales organization, including providing corporate support
resources and investing in its direct subsidiary operations, as well as the
Company's investment in the government and education division. The Company
believes such investments are necessary to penetrate these markets successfully.
Engineering, research and development expenses as a percentage of
revenues increased to 10% in the second quarter and six month period ended
March 29, 1997 as compared with 9% 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 results from the development
of new products primarily in the Windows and client/server environments.
Expenses of $4.0 million and $2.9 million in the second quarter of fiscal 1997
and 1996 are net of capitalized software development costs of $1.4 million
and $.8 million, respectively. Expenses of $7.8 million and $5.5 million in
the first six months of fiscal 1997 and 1996 are net of capitalized software
<PAGE>
development costs of $2.6 million and $1.5 million, respectively. The growth
in spending on capitalized software development costs principally
reflects enhancements of products released in the past three quarters.
General and administrative expenses as a percentage of revenues
amounted to 7% for all periods presented. Other (income) expense amounted
to less than 1% for all periods presented. Other (income) expense is
composed primarily of amortization of intangible assets related to
acquisitions made by the Company which is 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 is material, either individually or in aggregate, to the
consolidated results of operations.
Liquidity and Capital Resources
Working capital as of March 29, 1997, amounted to $35.5 million as
compared with $36.3 million at September 30, 1996. As of those dates,
cash and equivalents and marketable securities amounted to $32.5 million
and $32.8 million, respectively. Cash generated from operations decreased
to $6.9 million in the first six months of fiscal 1997 from $12.6 million in the
first six months of the prior year. The decrease in cash generated from
operations is principally due to changes in working capital items, primarily
the Company's investment in its internal lease program and a reduction in
compensation and income tax related obligations. The Company's investment in
equipment in the first six months of fiscal 1997 was comparable to its
investment in the first six months of the prior year.
Cash generated from operations, together with the Company's other
financial resources, was 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 also has an informal $3.0 million credit
facility in which the bank may offer credit to the Company at the bank's
discretion. No amounts were outstanding under the credit facility as of
March 29, 1997.
On April 16, 1997, the Company announced that its Board of Directors
had approved a stock repurchase program covering up to 500,000 shares of the
Company's common stock. The Company intends to use the shares for issuance
under its employee stock purchase and stock option plans.
<PAGE>
Certain Factors That May Affect Future Operating Results
The Company's actual operating results may differ 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 because of
a number of factors, including the potential fluctuations in quarterly
results, timing of new product announcements or introductions by the
Company and its competitors, competitive pricing pressures, the ability to
attract and retain sufficient technical personnel, the dependence on
alternate distribution channels, and the dependence on the Company's time and
attendance product line and on key vendors, as further described below and in
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, which factors are specifically incorporated by reference
herein.
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 and attendance 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. The Company is transitioning its
product offerings from DOS and Unix platforms to the Windows and
client/server environments. The Company's revenue growth and results of
operations in fiscal 1997 will depend in part on the success of this
<PAGE>
product transition.
Competition. The time and attendance and data collection industries
are highly competitive. Competition is increasing as 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/or loss of market share.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1997 Annual Meeting of Stockholders of Kronos Incorporated
was held on January 31, 1997.
(b) At the Annual Meeting, W. Patrick Decker was elected as a
Class II Director for a three-year term expiring in 2000. In
addition, the Directors whose terms of office continue after the
meeting are two Class I Directors: Messrs. D. Bradley McWilliams
and Lawrence Portner and three Class III Directors:
Messrs. Mark S. Ain, Richard Dumler and Samuel Rubinovitz.
The tabulation of votes for the Director nominee was as follows:
FOR WITHHELD
W. Patrick Decker 7,521,335 6,575
(c) The other item voted upon at the meeting was as follows:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
(i) Ratification of the 7,517,765 3,251 6,894 ----
selection of Ernst &
Young LLP
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 1992 Employee Stock Purchase Plan, as amended and restated
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
fiscal quarter ended March 29, 1997.
<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 13, 1997
<PAGE>
KRONOS INCORPORATED
EXHIBIT INDEX
Exhibit
Number Description
10 1992 Employee Stock Purchase Plan, as amended and restated
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993.
As amended through July 1, 1997
Kronos Incorporated
1992 Employee Stock Purchase Plan
SECTION 1. PURPOSE OF PLAN
The Kronos Incorporated 1992 Employee Stock Purchase Plan
(the "Plan") is intended to provide a method by which eligible employees of
Kronos Incorporated ("Kronos") and of such of Kronos' subsidiaries as Kronos'
Board of Directors (the "Board of Directors") may from time to time designate
(such subsidiaries, together with Kronos, being hereinafter referred to as the
"Company") may use voluntary, systematic payroll deductions to purchase shares
of the Common Stock of Kronos (the "Stock") and thereby acquire an interest in
the future of the Company. For purposes of the Plan, a "subsidiary" is any
corporation in which Kronos owns, directly or indirectly, stock possessing 50%
or more of the total combined voting power of all classes of stock.
SECTION 2. OPTIONS TO PURCHASE STOCK
Under the Plan, there is available an aggregate of not more than
275,000(1) shares of Stock (subject to adjustment as provided in Section 15) for
sale pursuant to the exercise of options ("Options") granted under the Plan to
employees of the Company ("Employees") who meet the eligibility requirements set
forth in Section 3 hereof ("Eligible Employees"). The Stock to be delivered
upon exercise of Options under the Plan may be either shares of authorized but
unissued Stock or shares of reacquired Stock, as the Board of Directors may
determine.
SECTION 3. ELIGIBLE EMPLOYEES
Except as otherwise provided below, each Employee whose customary
employment for the Company is more than 20 hours per week and who has completed
six months or more of continuous service in the employ of the Company will be
eligible to participate in the Plan.
<PAGE>
(a) Any Employee who immediately after the grant of an option to
him would (in accordance with the provisions of Sections 423 and 424(d) of the
Internal Revenue Code of 1986, as amended (the "Code")) own stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the employer corporation or of its parent or subsidiary corporations, as defined
in Section 424 of the Code, will not be eligible to receive an option to
purchase stock pursuant to the Plan.
(b) No Employee will be granted an option under the Plan which
would permit his or her rights to purchase shares of stock under all employee
stock purchase plans of the Company and parent and subsidiary corporations to
accrue at a rate which exceeds $25,000 in fair market value of such stock
(determined at the time the option is granted) for each calendar year during
which any such Option granted to such Employee is outstanding at any time, as
provided in Sections 423 and 424(d) of the Code.
SECTION 4. METHOD OF PARTICIPATION
Options may be granted hereunder during the "Option Periods" described
below. The initial Option Period shall be the three-month period commencing on
October 1, 1992. Subsequent Option Periods shall be the six month periods
commencing on January 1 and July 1. Each person who will be an Eligible
Employee on the first day of an Option Period may elect to participate in the
Plan by executing and delivering, at least 15 days prior to such day, a payroll
deduction authorization in accordance with Section 5. Such Employee will
thereby become a participant ("Participant") on the first day of such Option
Period and will remain a Participant until his or her participation is
terminated as provided in the Plan.
SECTION 5. PAYROLL DEDUCTION
The payroll deduction authorization will request withholding at a rate
(in whole percentages) of not less than 2% nor more than 10% of the
Participant's Compensation paid in the Option Period in accordance with the
Company's normal payroll practices. In no event shall more than $1,500 be
withheld with respect to any Participant for the initial Option Period, and in
no event shall more than $12,500 be withheld with respect to any participant for
subsequent Option Periods. For purposes of the Plan, "Compensation" will mean
all compensation paid to the participant by the Company and currently includible
in his or her income, including bonuses, commissions and other amounts
includible in the definition of compensation provided in the Treasury
<PAGE>
Regulations promulgated under Section 415 of the Code, plus any amount that
would be so included but for an election under section 401(k) or 125 of the
Code, but not including payments under stock option plans and other employee
benefit plans or any other amounts excluded from the definition of compensation
provided in the Treasury Regulations under Section 415 of the Code. A
Participant may increase or reduce the withholding rate of his or her payroll
deduction authorization for a future Option Period by written notice delivered
to the Company at least 15 days prior to the first day of the Option Period as
to which the change is to be effective. All amounts withheld in accordance with
a Participant's payroll deduction authorization will be credited to a
withholding account for such Participant.
SECTION 6. GRANT OF OPTIONS
Each person who is a Participant on the first day of an Option Period
will as of such day be granted an Option for such Period. Such Option will be
for the number of whole shares (not in excess of the share maximum as
hereinafter defined) of Stock to be determined by dividing (i) the balance in
the Participant's withholding account on the last day of the Option Period, by
(ii) the purchase price per share of the Stock determined under Section 7. For
purposes of the preceding sentence, the share maximum with respect to any Option
for any Option Period shall be the largest number of shares which, when
multiplied by the fair market value of a share of Stock at the beginning of the
Option Period, produces a dollar amount of $12,500 or less. The number of
shares of Stock receivable by each Participant upon exercise of his or her
Option for an Option Period will be reduced, on a substantially proportionate
basis, in the event that the number of shares then available under the Plan is
otherwise insufficient.
SECTION 7. PURCHASE PRICE
The purchase price of Stock issued pursuant to the exercise of an
Option will be 85% of the fair market value of the Stock at (a) the time of
grant of the Option or (b) the time at which the Option is deemed exercised,
whichever is less. Fair market value on any given day will mean the Closing
Price of the Stock on such day or, if there was no Closing Price on such day,
the latest day prior thereto on which there was a Closing Price. The
"Closing Price" of the Stock on any business day will be the last sale price
as reported on the principal market on which the Stock is traded or, if no last
sale is reported, then the fair market value of the Stock as determined by the
Board of Directors. A good faith determination by the Board of Directors as to
<PAGE>
fair market value shall be final and binding.
SECTION 8. EXERCISE OF OPTIONS
Each Employee who is a Participant in the Plan on the last day of an
Option Period will be deemed to have exercised on the last day of the Option
Period the Option granted to him or her for that Option Period. Upon such
exercise, the balance of the Participant's withholding account will be applied
to the purchase of the number of whole shares of Stock determined under
Section 6 and as soon as practicable thereafter certificates for said shares
will be issued and delivered to the Participant. In the event that the balance
of the Participant's withholding account following an Option Period is in excess
of the total purchase price of the shares so issued, the balance of the account
shall be returned to the Participant; provided, however, that if the balance
left in the account consists solely of an amount equal to the value of a
fractional share it will be retained in the withholding account and carried over
to the next Option Period. The entire balance of the Participant's withholding
account following the final Option Period shall be returned to the Participant.
No fractional shares will be issued hereunder.
Notwithstanding anything herein to the contrary, Kronos' obligation to
issue and deliver shares of Stock under the Plan is subject to the approval
required of any governmental authority in connection with the authorization,
issuance, sale or transfer of said shares, to any requirements of any national
securities exchange applicable thereto, and to compliance by the Company with
other applicable legal requirements in effect from time to time, including
without limitation any applicable tax withholding requirements.
SECTION 9. INTEREST
No interest will be payable on withholding accounts.
SECTION 10. CANCELLATION AND WITHDRAWAL
A Participant who holds an Option under the Plan may at any time prior
to exercise thereof under Section 8 cancel such Option as to all
(but not less than all) the Shares subject or to be subject to such Option by
written notice delivered to the Company. Upon such cancellation, the balance in
his or her withholding account will be returned to him.
A Participant may terminate his or her payroll deduction authorization
as of any date by written notice delivered to the Company and will thereby cease
<PAGE>
to be a Participant as of such date. Any Participant who voluntarily terminates
his or her payroll deduction authorization prior to the last business day of an
Option Period will be deemed to have cancelled his or her Option.
Any Participant who cancels an Option or terminates his or her payroll
deduction authorization may at any time thereafter again become a Participant in
accordance with Section 4.
SECTION 11. TERMINATION OF EMPLOYMENT
Subject to Section 12, upon the termination of a Participant's service
with the Company for any reason, he or she will cease to be a Participant, and
any Option held by such Participant under the Plan will be deemed cancelled, the
balance of his or her withholding account will be returned to him or her, and he
or she will have no further rights under the Plan.
SECTION 12. DEATH OF PARTICIPANT
A Participant may file a written designation of beneficiary specifying
who is to receive any Stock and/or cash credited to the Participant under the
Plan in the event of the Participant's death, which designation will also
provide for the election by the Participant of either (i) cancellation of the
Participant's Option upon his or her death, as provided in Section 10 or (ii)
application as of the last day of the Option Period of the balance of the
deceased Participant's withholding account at the time of death to the exercise
of his or her Option, pursuant to Section 8 of the Plan. In the absence of a
valid election otherwise, the death of a Participant will be deemed to effect a
cancellation of his or her Option. A designation of beneficiary and
election may be changed by the Participant at any time, by written notice. In
the event of the death of a Participant and receipt by Kronos of proof of the
identity and existence at the Participant's death of a beneficiary validly
designated by him or her under the Plan, Kronos will deliver to such beneficiary
such Stock and/or cash to which the beneficiary is entitled under the Plan. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, Kronos will deliver such Stock and/or cash to the executor
or administrator of the estate of the Participant, if Kronos is able to identify
such executor or administrator. If Kronos is unable to identify such
administrator or executor, Kronos, in its discretion, may deliver such stock
and/or cash to the spouse or to any one or more dependents of a Participant as
Kronos may determine. No beneficiary will, prior to the death of the
Participant by whom he has been designated, acquire any interest in any Stock or
cash credited to the Participant under the Plan.
<PAGE>
SECTION 13. PARTICIPANT'S RIGHTS NOT TRANSFERABLE
All Participants will have the same rights and privileges under the
Plan. Each Participant's rights and privileges under any Option may be
exercisable during his or her lifetime only by him or her, and may not be sold,
pledged, assigned, or transferred in any manner. In the event any Participant
violates the terms of this Section, any Option held by him or her may be
terminated by the Company and upon return to the Participant of the balance of
his or her withholding account, all his or her rights under the Plan will
terminate.
SECTION 14. EMPLOYMENT RIGHTS
Nothing contained in the provisions of the Plan will be construed to
give to any Employee the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Employee at any time.
SECTION 15. CHANGE IN CAPITALIZATION
In the event of any change in the outstanding Stock of Kronos by reason
of a stock dividend, split-up, recapitalization, merger, consolidation,
reorganization, or other capital change, after the effective date of this Plan,
the aggregate number of shares available under the Plan, the number of shares
under Options granted but not exercised, and the Option price will be
appropriately adjusted.
SECTION 16. ADMINISTRATION OF PLAN
The Plan will be administered by the Board of Directors, which will
have the right to determine any questions which may arise regarding the
interpretation and application of the provisions of the Plan and to make,
administer, and interpret such rules and regulations as it will deem necessary
or advisable. The Board of Director's determinations hereunder shall be final
and binding.
SECTION 17. AMENDMENT AND TERMINATION OF PLAN
Kronos reserves the right at any time or times to amend the Plan to any
extent and in any manner it may deem advisable by vote of the Board of
Directors; provided, however, that any amendment relating to the aggregate
number of shares which may be issued under the Plan (other than an adjustment
provided for in Section 15) or to the Employees (or class of Employees) eligible
to receive Options under the Plan will have no force or effect unless it is
approved by the shareholders within twelve months before or after its adoption.
<PAGE>
The Plan shall terminate automatically following the end of the first
Option Period beginning in 2002; provided, however, that the Board of Directors
in its discretion may extend the Plan for one or more Option Periods. The Plan
may be earlier suspended or terminated by the Board of Directors, but no such
suspension or termination will adversely affect the rights and privileges of
holders of outstanding Options. The Plan will terminate in any case when all
or substantially all the Stock reserved for the purposes of the Plan has been
purchased.
SECTION 18. APPROVAL OF SHAREHOLDERS
The Plan is subject to the approval of the shareholders of Kronos,
which approval must be secured within twelve months before or after the date the
Plan is adopted by the Board of Directors, and any Option granted hereunder
prior to such approval is conditioned on such approval being obtained prior to
the exercise thereof.
- --------
(1)The 275,000 share total gives effect to the May 15, 1992 stock dividend.
<TABLE>
KRONOS INCORPORATED
Exhibit 11 - Statement re: Computation of Per Share Earnings
(In thousands, except share data)
Three Months Ended Six Months Ended
------------------------ -----------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income .................................. $ 1,779 $ 2,365 $ 3,965 $ 4,516
========== ========== ========== ==========
Net income per common share:
Primary:
Weighted average shares outstanding 8,185,134 8,019,061 8,158,144 7,984,979
Common Stock equivalents .......... 254,482 300,439 247,348 315,601
---------- ---------- ---------- ----------
Total ............................. 8,439,616 8,319,500 8,405,492 8,300,580
========== ========== ========== ==========
Net income per common share ....... $ 0.21 $ 0.28 $ 0.47 $ 0.54
========== ========== ========== ==========
Fully diluted:
Weighted average shares outstanding 8,185,134 8,019,061 8,158,144 7,984,979
Common Stock equivalents .......... 254,493 300,439 260,345 315,601
---------- ---------- ---------- ----------
Total ............................. 8,439,627 8,319,500 8,418,489 8,300,580
========== ========== ========== ==========
Net income per common share ....... $ 0.21 $ 0.28 $ 0.47 $ 0.54
========== ========== ========== ==========
</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 29, 1997 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-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Mar-26-1997
<EXCHANGE-RATE> 1
<CASH> 14,306
<SECURITIES> 18,200
<RECEIVABLES> 30,581
<ALLOWANCES> 907
<INVENTORY> 4,832
<CURRENT-ASSETS> 74,341
<PP&E> 37,700
<DEPRECIATION> 20,720
<TOTAL-ASSETS> 110,391
<CURRENT-LIABILITIES> 38,880
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 65,795
<TOTAL-LIABILITY-AND-EQUITY> 110,391
<SALES> 51,839
<TOTAL-REVENUES> 76,513
<CGS> 13,456
<TOTAL-COSTS> 29,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,414
<INCOME-TAX> 2,449
<INCOME-CONTINUING> 3,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,965
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
