Item 1. Business.
(a) General. Kollmorgen Corporation, incorporated in the State of New York in 1916, has operations in two industry segments: the motion technologies group and electro-optical instruments. The term the "Company" as used herein refers to Kollmorgen Corporation and its subsidiaries.
(b) Financial Information about Industry Segments. The following table includes certain financial information relating to each of the Company's industry segments in each of its last three fiscal years:
The income (loss) before taxes in the above table is defined as total revenue less operating expense and represents operating segment income before general corporate expense and income taxes. Identifiable assets by segment are those assets used exclusively in the operation of that industry segment.
Corporate expenses, which include interest (net of investment income) and general and administrative expenses, are not allocated to respective segments. Corporate assets consist principally of cash and investments, as well as net assets held for disposition.
The loss from operations in 1992 includes a restructuring charge of $10.0 million taken primarily to consolidate several motor operations. The charge is allocated as follows:
Motion Technologies Group $ 8,000 Corporate $ 2,000
(c) Narrative Description of Business
Motion Technologies Group.
The Company believes that it is one of the major worldwide manufacturers of specialty direct current ("d.c.") permanent magnet motors with associated electronic servo amplifiers and servo feedback components. These products are manufactured in the United States by the Company's Inland Motor and Industrial Drives/PMI Divisions. In addition, the Company's foreign subsidiary, Kollmorgen Artus in France, serves the European markets. The Inland Motor Division designs and manufactures specialty d.c. torque motors, servo motors, tachometer generators, electromechanical actuators and associated high technology drive electronics used worldwide in aerospace, defense, process control, medical, and machine tool applications. The Industrial Drives Division manufactures a line of specialty drive motors and related electronic amplifiers which are used in a variety of industrial applications including industrial automation, process control, machine tools, underwater equipment, and robotics. In addition, this Division sells a line of stepper motors and brushless motors used for office and factory automation, instrumentation, and medical applications. The PMI Division designs, manufactures and distributes a line of low inertia, high speed of response, d.c. motors and associated electronics plus feedback devices used primarily in industrial automation and medical applications. Kollmorgen Artus manufactures and sells d.c. servo and torque motors, electromechanical actuators and drive electronics, synchros, and resolvers, which are sold primarily into the European avionics and aerospace market. This subsidiary also manufactures and sells a line of fault detection instruments for the electric utility industry as well as calibration equipment for air traffic control navigation aids.
Commencing in 1994, the Company's VMG group began designing for manufacture in Bombay, India, high volume, fractional horsepower motors primarily for the computer peripheral and electronics markets. In April, 1994, the Company purchased certain assets and liabilities of Hightech
Components, Limited, at a purchase price of $1.5 million. Hightech is a distributor of motor and control products and is located in Hampshire, England.
In the specialty motor and drive business, competitive advantage is gained by the ability of the Company to design new or adapt existing motors and drive systems to meet relatively stringent packaging and performance requirements of customers, most of whom are original equipment manufacturers purchasing the motors and drives for inclusion in their end product. While meeting these stringent technical specifications, the motors and drives must also be price competitive. The number and identity of the competitors in this segment varies depending upon the particular industry and product application. In recent years, a number of large European and Japanese manufacturers, either directly or through joint ventures with American companies, have been able to compete successfully in the United States machine tool and industrial automation marketplaces, including the market for industrial motors of the type that the Company's Industrial Drives/PMI Division manufactures. In other markets, there are relatively few competitors for each marketplace or application, and generally they are specialized domestic or foreign motor manufacturers.
In the United States, the industrial/commercial products manufactured in this segment are marketed and sold by the Company's Industrial and Commercial Products Sales Group, and the defense and aerospace products are marketed by the Aerospace and Defense Products Sales Group. Depending upon the particular motor product or control system in question, the products of the Company's motion technologies group are marketed and sold directly through qualified technical personnel employed by the Company, or through manufacturer's representatives or distributors, or by a combination of the foregoing.
The backlog of the motion technologies group at the end of 1994 was $64.6 million of which approximately 88% is expected to be shipped in 1995.
Electro-Optical Instruments.
The Company's electro-optical business is conducted principally by one domestic division and two subsidiaries: the Electro-Optical Division, Kollmorgen Instruments Corporation, and Proto-Power Corporation. The products of this industry segment serve two broad customer groups: military and industrial/commercial. The Company serves the military market primarily through the Electro-Optical Division located in Northampton, Massachusetts. This Division has been the primary designer and major supplier of submarine periscopes and related spare parts to the United States Navy since 1916. In September, 1994, the Company acquired substantially all of the assets of the conventional optical periscope business of Sperry Marine, Inc. at a purchase price of approximately $5 million. The Electro-Optical Division also markets and sells submarine periscopes to navies throughout the world.
This Division also has been an important supplier of other electro- optical instruments for various weapon systems. These instruments often possess highly advanced servo-driven optical systems and may use lasers, infrared detectors, or low-light level television imaging systems for night
vision. During 1994, this operation received awards of approximately $14 million from the Naval Sea Systems Command for optical sights for the DDG-51 Arleigh Burke Class guided missile destroyers.
In February, 1995, the Company received a $35 million contract from the Naval Sea Systems Command for the design and production of a photonic mast system which is intended to replace existing optical periscopes.
The Company serves the industrial/commercial marketplace for electro- optical instruments through a wholly-owned subsidiary, Kollmorgen Instruments Corporation, which operates through its Macbeth and Photo Research Divisions. The Macbeth Division, located in New Windsor, New York, designs, manufactures and sells worldwide specialized instruments and materials used for the measurement of color and light. This Division manufactures and sells a line of spectrophotometers which measure color and are used in the textile, paint, paper, plastics and many other industries where the measurement of color is important. It is also a manufacturer of densitometers, which are instruments that are used to control photographic and printing processes by measuring the opacity or density of materials, such as films, inks, and dyes. In addition, this Division manufactures specialized lighting devices for the inspection and comparison of transparencies and prints in the photographic and printing industries. The Macbeth Division also manufactures standard lighting sources used in evaluating color and produces a line of color standards sold under the U.S. registered trademark "Munsell". The on-line version of the spectrophotometers manufactured by this Division permits the measurement of spectral characteristics on a production line in a broad range of industrial processes without interrupting production flow. Kollmorgen Instruments GmbH, a German subsidiary of Kollmorgen Instruments Corporation, designs and manufactures a product line of transportable spectrophotometers.
The Photo Research Division located in Chatsworth, California, manufactures and sells specialized photometers and spectroradiometers, instruments which make very precise color and brightness measurements of displays (such as CRTs and lighted panels) and are used in both industrial and military applications. This Division also manufactures and sells on-line inspection and alignment systems for CRT displays used in the computer and medical industries.
The Company believes that its businesses which manufacture industrial/ commercial electro-optical instruments are highly regarded in their respective markets. This position has been built upon high quality products which provide uniform results and meet specialized needs and standards, upon proprietary software, and upon superior after-sales service. The Company's competition in this field consists of a number of domestic and foreign privately held companies and divisions or subsidiaries of publicly held corporations. Depending upon the product and customers in question, the Company's industrial products are sold through dealers and independent sales representatives, distributors or systems houses and directly through the divisions' own sales forces. In Europe, these products are distributed through Kollmorgen Instruments GmbH, Kollmorgen (U.K.) Limited, the Company's wholly-owned English subsidiary, and through independent representatives and dealers.
Proto-Power Corporation, a wholly-owned subsidiary of the Company, is a consulting engineering company that primarily provides services for the modification and upgrade of nuclear and fossil power plants of domestic electric utility companies and independent power producers. In recent years, this subsidiary has licensed its proprietary computer-aided engineering software to a number of its customers for analyzing the performance of power plant systems and equipment.
Within this segment, military products represented 51% of sales in 1994, 47% of sales in 1993, and 45% of sales in 1992. Generally speaking, the Company's military business is characterized by long-term contracts which call for the delivery of products over more than one year and progress payments during the manufacture of the product. Competition is generally limited to divisions of large multinational companies which specialize in military contracting. To date, the Company has been able to compete effectively against these larger companies because of the Company's experience and expertise in the specialized areas which it serves.
The backlog of the electro-optical instruments segment at the end of 1994 was $54 million of which approximately 62% is expected to be shipped in 1995.
Customer Base.
Except to the extent that sales to the U.S. government under numerous prime and sub-contracts may be considered as sales to a single customer, the Company's business is not characterized by dependence upon one customer or a few customers, the loss of any of which would have a materially adverse effect on its total business. Typical of all engineered or custom-made component businesses, the Company's motion technologies group is characterized by a customer base founded upon a number of large key accounts, the importance of any one of which can vary from year to year. During 1994, no customer accounted for 10% or more of the Company's consolidated revenues.
Government Sales.
In 1994, sales to the U.S. Government or for U.S. Government end-use represented approximately 20% of revenues, of which 16% were generated from the electro-optical instruments segment and 4% was from the motion technologies group.
Patents.
The Company has either applied for or been granted a number of domestic and foreign patents pertaining to the motion technologies group and electro- optical instruments segments. The Company believes that these patents are and will be important to the Company's continued leadership position in these business segments and, when necessary, has and will continue to enforce its legal rights against alleged infringements of its patent estate.
Raw Materials.
The raw materials essential to the Company's business are generally available in the open market, and neither segment of the Company's business
experienced any significant shortages in such materials during the past three years. The Company believes that it has adequate sources of raw materials available for use and does not anticipate any significant shortages.
Research and Development.
During 1994, the Company spent $10.8 million or approximately 5.7% of its consolidated sales on research activities related to the development of new products. This compares to $9.3 million or 5.0% in 1993, and $10.6 million or 5.5% in 1992. Substantially all of this amount was sponsored by the Company.
Environmental Matters.
The Company's operations are subject to a variety of federal environmental laws and regulations. The most significant of these laws are the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, all of which are administered by the United States Environmental Protection Agency. These statutes and the regulations impose certain controls on atmospheric emissions, discharges into sewers and domestic waters, and the handling and disposal of hazardous wastes. In addition, certain state and local jurisdictions have adopted environmental laws and regulations that are more stringent than federal regulations. Compliance with these federal and state laws and regulations has resulted in expenditures by the Company to improve or replace pollution control equipment. The Company's estimated capital expenditures for environmental control facilities are not expected to be material.
Under the federal Comprehensive Environmental Response, Compensation and Liability Act and analogous state statutes, certain liabilities are imposed for the disposal of "hazardous substances" without regard to fault or the legality of such disposals. The Company has been named, or has been informed that it may be named, as a potentially responsible party at several waste disposal sites under these statutes. Based upon the information available to date, the Company does not believe that its share of any clean-up costs will have a material impact on the Company's financial condition, cash flows or results of operations.
Employees.
In February, 1995, the Company received a petition from the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America ("UAW") requesting the representation of a group of approximately 200 production and maintenance employees at the Company's Inland Motor facility located in Radford, Virginia. The representation election has been scheduled for March 30, 1995.
The Company is currently a party to two collective bargaining agreements. In August, 1993, the Company's Electro-Optical Division entered into a three-year agreement with the International Association of Machinists
and Aerospace Workers currently covering 42 employees. In March, 1994, the Macbeth Division of Kollmorgen Instruments Corporation entered into a three- year contract with the International Brotherhood of Electrical Workers currently covering 27 employees at that Division.
As of December 31, 1994, the Company employed approximately 1,650 employees. The Company believes that it enjoys satisfactory relations with its employees, including those covered by collective bargaining agreements.
Financial Information About Foreign and Domestic Operations and Export Sales.
Financial information on the Company's foreign and domestic operations and export sales is contained in the response to Item 14(a) of this Report.
Item 2.
Item 2. Properties.
The Company's corporate office is located in Waltham, Massachusetts. The table which follows sets forth a current summary of the locations of the Company's principal operating plants and facilities, and other pertinent facts concerning them. The Company's facilities are substantially utilized, well maintained and suitable for its products and services.
The Company maintains approximately 192,000 sq.ft. of excess space resulting from prior business segment dispositions and consolidations of facilities. Currently approximately 81,000 sq.ft of this excess space is being sublet and 111,000 sq.ft. remains unutilized.
Item 3.
Item 3. Legal Proceedings.
The Company has various legal proceedings arising from the ordinary conduct of its business; however, they are not expected to have a material
adverse effect on the consolidated financial position, cash flows, or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Company.
The following is a list of the Company's executive officers, their ages and their positions as of February 23, 1995:
Present Business Experience During Name Age Office Past Five Years
Gideon Argov 38 President President and Chief Executive and Officer since November 1991; Chief Director since May 1991. From Executive March 1988 to May 1991, Officer President and Chief Executive Officer and Director of High Voltage Engineering Company. Prior to that date, for five years a manager and senior consultant with Bain & Company.
Robert J. Cobuzzi 53 Senior Senior Vice President (since Vice February 1993), Treasurer and President, Chief Financial Officer since Treasurer July 1991. From April 1989 to and July 1991, Vice President and Chief Treasurer of High Voltage Financial Engineering Company. Prior to Officer April 1989, Vice President and Chief Financial Officer of Ausimont N.V.
James A. Eder 49 Vice Vice President since January President, 1990; General Counsel since Secretary December 1991, and Secretary and since 1983. Previously he had General been Assistant Corporate Counsel Counsel from 1977 to 1982.
Robert W. Woodbury, Jr. 38 Vice Vice President since May 1993; President, Controller and Chief Accounting Controller Officer of the Company since and Chief February 1992. From May 1990 to Accounting February 1992, the Chief Officer Financial Officer of Kidde- Fenwal, a Division of Williams Holdings, PLC. Prior to that, from 1988 to 1990 the Controller of Unitrode Corporation.
All officers are elected annually for one-year terms at the organizational meeting of the Board of Directors held immediately following the annual meeting of shareholders.
PART II
Item 5.
Item 5. Market for the Company's Common Equity and Related Shareholder Matters.
The Company's Common Stock is traded on the New York Stock Exchange. There were approximately 2,200 registered holders of the Company's Common Stock on March 10, 1995. The following table sets forth the high and low sales price for shares of the Company's Common Stock within the last two fiscal years and the dividends paid during each quarterly period.
Item 6.
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial data for the Company for each of the five fiscal years 1990 through 1994. All dollar amounts are in thousands except per share data.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
For the year ended December 31, 1994, the Company had sales of $191.8 million and net income of $4.1 million, equal to $.18 per common share. These results compare with 1993 sales of $185.5 million and net income of $4.8 million, equal to $.25 per common share, and 1992 results of $194.9 million and a net loss of $8.7 million, equal to a loss of ($1.14) per common share. Earnings (loss) per common share are calculated after payment of preferred dividends.
The Company's sales increase of 3% in 1994 over 1993 is attributable to an increased volume in both of the Company's business segments. In 1994, sales increased by 1% over the prior year in the motion technologies group as a result of improved revenues at the Company's French operation and domestic commercial businesses, despite an 11% reduction in sales volume in the domestic military/aerospace businesses. Sales increased in 1994 over 1993 in the electro-optical instruments segment as a result of increased revenues for periscopes and weapons directors at the Company's Electro-Optical Division from both domestic and international markets.
Operating results for 1992 included a $10 million charge primarily for the consolidation of the Company's French motor facilities and several redundant functions in the domestic motor businesses. The Company has substantially completed its restructuring activities. The remaining reserve balance of $4 million relates to excess facilities resulting from this consolidation.
Sales and marketing expense was $27.8 million or 14% of sales for 1994 as compared to $24.7 million or 13% of sales for 1993 and $25.5 million or 13% of sales for 1992. The increase in 1994 over 1993 is partially attributable to the April, 1994, acquisition of Hightech Components, Limited, located in Hampshire, England, a distributor of motor and control products throughout Western Europe. In addition, the Company incurred a full year of operational expenses for several sales offices which were opened at the end of 1993. The Electro-Optical Division incurred $1 million of additional expenses relating to several bid and proposal activities which have resulted in a contract award in February, 1995, of $35 million from the Naval Sea Systems Command for the design and construction of the next generation of periscopes to the U.S. Navy.
Research and development expense was $10.8 million in 1994 or 6% of sales as compared to $9.3 million in 1993 (5% of sales) and $10.6 million in 1992 (6% of sales). The increased spending was primarily attributable to the Company's French operation which incurred unanticipated additional expenses of $1 million to expedite the development of certain new products.
Interest expense, net, was $3.7 million, $4.1 million, and $5.2 million, in 1994, 1993, and 1992, respectively. The declining interest expense is related to the Company's annual mandatory sinking fund payment on its two convertible subordinated debentures.
The Company recognized tax benefits on income of approximately $.8 million for each of the years 1994, 1993, and 1992. In both 1994 and 1993, the recognition of the income tax benefit resulted from resolution of certain prior year tax assessments. The Company also recognized the income tax benefits of applicable net operating losses and tax credits in 1992 as a reduction in the provision for income taxes. The benefit of unutilized net operating losses and tax credits will be carried over to future periods to reduce income taxes otherwise payable.
Liquidity and Capital Resources
The Company's consolidated cash decreased by $10.5 million during 1994. Cash provided from operations was $4.1 million, while $8.6 million was used for investing activities and $6.1 million was used for financing activities.
The most significant changes in operating assets and liabilities included a $1.3 million transfer of available cash to be used as collateral for the Company's amended and restated one-year standby letter of credit facility. The facility requires the Company to maintain a cash collateral balance of $6 million with the issuing bank which is held in interest bearing
accounts and is restricted as to withdrawal or use. Accordingly, the Company has classified these funds as restricted cash. At December 31, 1994, the Company was contingently liable for $18.1 million at the issuing bank for outstanding standby and documentary letters of credit which are issued principally to secure advance payments received from foreign customers on long-term military contracts.
In addition, the Company has a $2 million letter of credit at another bank which guarantees an obligation for a former business that was sold by the Company in 1987. This letter of credit is secured by $2 million in cash at this bank and is classified as restricted cash. The Company anticipates that it will be required to pay the $2 million in 1995 to satisfy its obligation. The $2 million was provided for at the time of the sale of this business and, therefore, will have no impact on the Company's results of operations. The Company has no further obligation with respect to this transaction.
Total working capital increased by $6.0 million. Accounts receivable increased by a $3.2 million as the Company had increased volume of shipments in the fourth quarter of 1994. Recoverable amounts on long-term contracts increased by $1.5 million as the amount of percent-complete sales increased due to achieving certain milestones on military contracts. Accounts payable and accrued liabilities decreased by $1.3 million as the Company made severance payments that were provided for in previous years' restructurings.
The Company's investing activities included expenditures of $4.8 million for property, plant and equipment. In addition, the Company purchased substantially all of the net assets of Hightech Components, Limited at a purchase price of $1.5 million, of which $.7 million was paid in cash and $.8 million was financed with a promissory note.
The Company also purchased certain assets of the conventional optical periscope business of Sperry Marine, Inc. The purchase price of $5 million was paid with $3 million in cash and $2 million financed with promissory notes. This acquisition resulted in $4.2 million of goodwill.
Capital spending for 1995 is expected to be at similar levels to 1994.
The Company's financing activities used $6.1 million of cash during the year of which dividends, both common and preferred, accounted for $3.0 million. The Company also made mandatory sinking fund payments on its two convertible subordinated debentures totaling $3.8 million. In addition, the Company purchased on the open market $652 thousand aggregate principal amount of the Company's 8-3/4% Convertible Subordinated Debentures at market prices less than par value which resulted in an immaterial gain. The Company is required, under the terms of the convertible subordinated debenture agreements, to make certain mandatory sinking fund payments each year through the year 2009. At the Company's French facility, $1.4 million was borrowed against existing credit lines.
The Company continues to focus on working capital reductions and effective cash management in order to maximize the amount of available cash. The Company believes that with the cash generated from operations and with its current borrowing capacity it will be able to finance its 1995 capital expenditures, sinking fund payments, and working capital requirements. As an integral part of the annual renewal of its letter of credit facility, the Company negotiates the amount of collateralized cash plus the maximum drawing amount for letters of credit and the foreign line of credit.
MOTION TECHNOLOGIES GROUP
Sales in the motion technologies group increased to $113.7 million, up 1% from $112.8 million in 1993 and down 3% from $116.6 million in 1992. The Company's French subsidiary, Kollmorgen Artus, which supplies motors to foreign aerospace and defense markets, had a 9% increase in sales in 1994 over 1993. Sales in the domestic industrial and commercial group increased 4% in 1994 as the Company began shipping motors under a multi-million dollar, long-term contract received in 1993 with a major U.S. machine tool manufacturer. Sales in the domestic aerospace and defense group declined by 11% as a result of the continued weak condition in the defense/aerospace market as certain contracts anticipated in 1994 were delayed.
Operating income for this segment was $6.4 million and $9.2 million in 1994 and 1993, respectively, and a loss of $2.5 million in 1992. The decrease in operating income in 1994 over 1993 was partially a result of an increase of $1 million in research and development expense incurred at the Company's French subsidiary for issues arising in new product development. The Company anticipates that these issues will be resolved during the second quarter of 1995. The Company also incurred increased selling and marketing expense for full-year operating costs at recently-opened domestic and foreign sales offices.
New orders for this segment were up 7% in 1994 over 1993, of which 10% was attributable to the industrial and commercial businesses and 4% was attributable to the aerospace and defense products group. The bookings increase in the aerospace and defense products group is primarily attributable to the acquisition of Hightech Components, Limited. Backlog for this segment was $64.6 million and $52.2 million at December 31, 1994 and 1993, respectively. The increase is primarily the result of orders booked through increased marketing and sales activities at our domestic and foreign sales offices.
Capital expenditures in 1994 and 1993 for this segment were $3.2 million and $3.3 million, respectively, most of which was for replacement of existing equipment and investments in new equipment to improve the efficiency of manufacturing our products.
ELECTRO-OPTICAL INSTRUMENTS
Sales in the electro-optical instruments segment increased to $78.1 million, up 7% from $72.8 million in 1993, and approximately the same as the sales level of $78.3 million in 1992. The increase in 1994 over 1993 was primarily due to increased sales at the Company's Electro-Optical Division which manufactures periscopes and defense-related sighting systems. The Division also recognized an increase in percent-complete sales over 1993 as certain milestones were achieved on long-term military contracts. Sales in the Company's commercial color, light and instrumentation business increased slightly in 1994 over 1993. New products introduced during 1994 in this business resulted in an increased sales volume of $2 million. This increase was offset by a $1 million sales reduction at the Company's Chatsworth, California, facility as a result of the temporary shutdown of that facility during the first quarter due to the Northridge earthquake in January, 1994. The loss realized from this shutdown did not impact earnings because of the proceeds the Company received under its property and business interruption insurance. The facility resumed operations on April 1, 1994.
Operating income for this segment was $5.1 million, up 65% from $3.1 million in 1993, and up 24% from $4.1 million in 1992. The increase in 1994 over 1993 is primarily a result of increased sales volume at the Company's Electro-Optical Division. Operating income in the commercial light and instrumentation business also improved due to the increased sales volume for the new products introduced plus overall increased operating efficiency at the Company's facility in Munich, Germany.
Backlog for this segment was $54 million and $58.3 million at December 31, 1994 and 1993, respectively.
Capital expenditures in 1994 and 1993 for this segment were $1.6 million and $2.1 million, respectively, most of which was for replacement of existing equipment and investment in new equipment to improve the efficiency of manufacturing our products.
General corporate expenses included interest expense, net of investment income, and general and administrative expenses. In addition, the general corporate amounts include restructuring and other non-recurring costs of $2 million in 1992.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is included in Item 14(a) of this Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Company.
The information required by this Item 10 of Form 10-K relating to directors who are nominees, and to directors continuing in office after the Company's Annual Meeting of Shareholders to be held on May 10, 1995, is contained in the definitive proxy statement to be filed with the Securities and Exchange Commission (the "Commission") on or before April 5, 1995, under the headings "Nominees", and "Continuing Directors", and such information is incorporated herein by reference in response to this item.
The information required by this Item 10 of Form 10-K with respect to executive officers is set forth in Part I of this Form 10-K under the heading "Executive Officers of the Company".
Item 11.
Item 11. Executive Compensation.
The information required by this Item 11 of Form 10-K is contained in the Company's definitive proxy statement to be filed with the Commission on or before April 5, 1995, under the heading "Executive Compensation" and such information is incorporated herein by reference in response to this item.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 of Form 10-K is contained in the definitive proxy statement to be filed with the Commission on or before April 5, 1995, under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" and such information is incorporated herein by reference in response to this item.
Item 13.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 of Form 10-K is contained in the Company's definitive proxy statement to be filed with the Commission on or before April 5, 1995, under the heading "Certain Relationships and Related Transactions" and such information is incorporated herein by reference in response to this item.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements. See Index to Financial Statements on page 19.
(2) Exhibits. See Exhibit Index on page 42.
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Kollmorgen Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KOLLMORGEN CORPORATION
/s/ Robert J. Cobuzzi Robert J. Cobuzzi Its: Senior Vice President, Treasurer and Chief Financial Officer March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
/s/ Gideon Argov Gideon Argov March 20, 1995 President and Chief Executive Officer/Director
/s/ Robert J. Cobuzzi Robert J. Cobuzzi March 20, 1995 Senior Vice President, Treasurer and Chief Financial Officer
/s/ Robert W. Woodbury, Jr. Robert W. Woodbury, Jr. March 20, 1995 Vice President, Controller and Chief Accounting Officer
/s/ James A. Eder James A. Eder March 20, 1995 Vice President and Secretary and Attorney-in-Fact For:
Allan M. Doyle, Jr., Director Robert N. Parker, Director
Jerald G. Fishman, Director Eric M. Ruttenberg, Director
James H. Kasschau, Director George P. Stephan, Director
J. Douglas Maxwell, Jr., Director
The following consolidated financial statements of the Company and its subsidiaries are included in response to Item 8.
Page(s) in Form 10-K -----------
Report of Independent Accountants - Coopers & Lybrand L.L.P. 20
Consolidated Balance Sheets as of December 31, 1994 and 1993. 21-22
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992. 23
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992. 24
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992. 25-26
Notes to Consolidated Financial Statements. 27-41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders Kollmorgen Corporation:
We have audited the accompanying consolidated balance sheets of Kollmorgen Corporation as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kollmorgen Corporation as of December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts January 31, 1995
KOLLMORGEN CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands, except per share amounts) _________________________________________________________________
Note 1. Summary of significant accounting policies
A summary of the significant accounting policies followed by Kollmorgen Corporation is presented below. Certain reclassifications have been made to the prior years' financial statements to conform to 1994 classifications. For purposes of the Notes to Consolidated Financial Statements, the term the "Company" refers to Kollmorgen Corporation and its subsidiaries.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries.
In 1993, the Company's wholly-owned subsidiary, Kollmorgen Artus, prospectively changed its financial reporting year from a fiscal year ending on October 31 to December 31. The consolidated statements of income are presented for the year ended December 31, 1993, excluding the results of operations for November and December, 1992, which were immaterial.
Cash and Cash Equivalents Cash equivalents are stated at cost which approximates fair value. The Company considers all highly liquid investments purchased within an original maturity of three months or less to be cash equivalents.
Recoverables Recoverable amounts on long-term contracts represent revenues recognized on a percentage-of-completion basis less progress billings.
Inventories Inventories are stated at the lower of cost or market, principally using the first-in, first-out method. Progress payments received on contracts other than major long-term contracts are deducted from inventories.
Property, Plant and Equipment and Accumulated Depreciation Property, plant and equipment are carried at cost and include expenditures for major improvements which substantially increase their useful life. Repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is recognized.
For financial reporting purposes, depreciation is provided generally on a straight-line basis over the estimated useful lives of the buildings (10 to 50 years) and the machinery and equipment (3 to 12 years). Leasehold improvements are depreciated over the remaining period of the existing leases. For income tax purposes, depreciation is computed by using various accelerated methods and, in some cases, different useful lives than those used for financial reporting.
Notes to Consolidated Financial Statements - continued
Goodwill and Intangibles Goodwill consists of amounts by which the cost of acquisitions exceeded the values assigned to net tangible assets. Intangible assets consist principally of patents. All of the intangible assets are being amortized on a straight-line basis over periods ranging from 10 to 40 years.
Cumulative Translation Adjustments Assets and liabilities of foreign subsidiaries are translated at year-end exchange rates. The effects of these translation adjustments are reported in a separate component of shareholders' equity. The effect of exchange rates on cash flows is not material.
Sales Sales, other than revenues from major long-term contracts, are recorded as products are shipped. Major programs that are performed under long-term contracts are accounted for using the percentage-of-completion method. Revenues recognized under this method were $34.4 million, $24.5 million, and $29.3 million in 1994, 1993, and 1992, respectively. In most cases the contracts also provide for progress billings over the life of the program.
Earnings (Loss) Per Common Share Earnings (loss) per common share is based on net income less the dividends and interest accretion on redeemable preferred stock divided by the weighted average number of common shares outstanding. Fully diluted net income assumes full conversion of all convertible securities into common stock which include the convertible subordinated debentures and redeemable preferred stock. The fully diluted calculation does not result in dilution of net income per common share and, accordingly, is not presented.
Income Taxes Effective January 1, 1993 the Company adopted Statement of Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). The adoption of FAS 109 had no material effect on results of operations or financial position.
Postretirement Benefits Other Than Pensions Effective January 1, 1993, the Company adopted Statement of Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106"). Under FAS 106, the Company is required to accrue the expected benefit obligation for postretirement benefits during the employees' active service periods. The Company previously expensed the cost of these benefits, which are principally health care, as claims were incurred.
The Company has elected the delayed recognition method in which the cost for employees hired prior to January 1, 1992, is being amortized over 20 years. The Company paid approximately $.8 million in 1994 for post- retirement benefits to current retirees.
Note 2. Restricted cash
The restricted cash balance of $8 million in 1994 and $6.7 million in 1993 serves as collateral for both an irrevocable standby and documentary letter of credit facility at the Company's lead bank and to secure a specific
Notes to Consolidated Financial Statements - continued
letter of credit at another bank. The cash is held in custody by the issuing bank and is restricted as to withdrawal or use, and is being invested in short-term money market instruments for the benefit of the Company.
Note 3. Inventories
Inventories at December 31 consist of the following:
1994 1993 --------- --------- Raw materials $ 12,323 $ 11,530 Work in process 6,888 7,847 Finished goods 4,020 2,641 --------- --------- $ 23,231 $ 22,018 ========= =========
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31 consists of the following:
1994 1993 --------- --------- Land $ 1,877 $ 1,459 Leasehold improvements 889 669 Buildings 35,162 34,650 Machinery and equipment 74,146 70,369 Capital leases 450 - --------- --------- 112,524 107,147 Less accumulated depreciation and amortization 81,735 76,686 --------- --------- $ 30,789 $ 30,461 ========= =========
Note 5. Accrued Liabilities
Accrued liabilities at December 31 consist of the following:
1994 1993 --------- --------- Restructuring and related costs $ 4,000 $ 7,346 Salaries, wages, commissions 3,359 5,100 Pension/supplemental retirements3,941 3,912 Insurance 1,954 2,213 Other accrued liabilities 17,923 13,990 --------- --------- $ 31,177 $ 32,561 ========= =========
Notes to Consolidated Financial Statements - continued
Note 6. Lines of credit and notes payable
Notes payable consist of the following at December 31:
1994 1993 -------- -------- Foreign $ 6,152 $ 3,545 Domestic 3,952 1,987 -------- -------- $10,104 $ 5,532 ======== ========
In December 1994, the Company amended its existing agreement with its lead bank which provides for a one-year $21 million domestic standby letter of credit facility and extended the terms of the existing 21 million French franc revolving credit facility (approximately $4 million). Under the terms of the agreement, the Company must maintain at all times a cash collateral balance equal to $6 million. At December 31, 1994, the Company had $18.1 million of standby and documentary letters of credit outstanding at this bank. The agreement also requires the Company to maintain, among other things, certain financial ratios, the most restrictive of which is net worth, and contains other affirmative and negative covenants. The Company was in compliance with all covenants at December 31, 1994.
The Company's French facility, Kollmorgen Artus, also maintains working capital lines of credit with three French banks. At December 31 the Company had approximately $2 million or approximately 11 million French francs of unused lines of credit.
Note 7. Long-term debt
Long-term debt consists of the following:
1994 1993 -------- -------- 8 3/4% Convertible subordinated debentures due 2009 $ 37,438 $ 39,840 10 1/2% Convertible subordinated debentures due 1997 6,000 8,000 Term loans, 10.5% due through 1997 41 152 Capital lease obligations 408 - -------- -------- 43,887 47,992 Less current maturities 3,220 3,872 -------- -------- $ 40,667 $ 44,120 ======== ========
The 8 3/4% Convertible Subordinated Debentures are convertible at any time prior to maturity, unless previously redeemed, into 1,089,898 shares of common stock of the Company at a conversion price of $34.35 per share,
subject to adjustment in certain events. The Company is required to make annual sinking fund payments sufficient to retire $1.75 million principal amount of debentures which commenced on May 1, 1994, and each year thereafter including May 1, 2009. In addition to the mandatory sinking fund payment, the Company purchased, on the open market, $652 thousand aggregate principal amount of bonds at a market price below par value which resulted in an immaterial gain.
The 10-1/2% Convertible Subordinated Debentures issued in a private placement, are convertible into 240,000 shares of the Company's common stock at a price of $25 per share at any time prior to maturity, unless previously redeemed. The debentures are subject to mandatory sinking fund payments which commenced on August 1, 1993, and each year thereafter including August 1, 1997, in the amount of $2 million of principal reduction.
The Company incurred $4.8 million, $5.1 million, and $5.8 million of interest expense on debt in 1994, 1993, and 1992, respectively.
Long-term debt at December 31, 1994, matures as follows:
Date Maturities ---- ---------- 1995 $ 3,220 1996 3,850 1997 3,841 1998 1,834 1999 1,802 Thereafter 29,340 -------- $43,887 ========
Note 8. Preferred Stock
The Company's Restated Certificate of Incorporation provides that the Corporation is authorized to issue 500,000 shares of preferred stock, $1.00 par value, in series. Currently, there are 23,187.5 shares of preferred stock issued and outstanding.
In March, 1990, the Company sold 23,187.5 shares of a new issue of Series D convertible preferred stock (the "Series D Stock") for $1,000 per share, or an aggregate of approximately $23.2 million, to a group of investors led by Tinicum Enterprises, Inc. ("Tinicum Group"). The stock has a cumulative dividend rate of 9.5 percent per year and is convertible into an aggregate of 1,717,591 shares of Kollmorgen common stock, subject to antidilution provisions. Under the agreement between the Company and the Tinicum Group, two representatives of the Tinicum Group were elected to the Company's Board of Directors. The Series D Stock is entitled to vote together with the Company's common stock based on the number of shares of the Company's common stock into which the Series D Stock is convertible. While the Series D Stock is outstanding, the Company has agreed, among other things, not to issue any capital stock of the Company other than the Company's common stock and securities issuable under the Company's Shareholder Rights Plan without first obtaining the consent of a majority of the outstanding Series D Stock. The Company is required to redeem all
Notes to Consolidated Financial Statements - continued
outstanding Series D Stock on April 1, 2000, at $1,000 per share, in each case plus accrued and unpaid dividends. The Series D Stock purchase agreement also includes certain financial covenants applicable to the Company, and certain restrictions applicable to the purchasers on the disposition, acquisition or the taking of other specified actions with respect to the voting securities of the Company.
The balance of the preferred stock is shown net of the unamortized preferred stock discount. The unamortized amount in 1994 and 1993 is $656 and $781, respectively.
Note 9. Common Stock, Additional Paid-in Capital and Treasury Stock
Pursuant to the By-Laws of the Corporation, directors who are not employees of the Corporation receive an annual retainer of $12,000. Under the terms of the 1992 Stock Ownership Plan for Non-Employee Directors, each non-employee director receives at least 50% of his annual retainer in shares of common stock. The number of shares of common stock is based on the fair market value of such shares at the end of each quarterly period. Also, each non-employee director automatically receives an option to purchase an additional 2,000 shares of common stock every other year. At the implementation of the Plan, 150,000 shares were reserved for issuance.
The Company maintains a Shareholder Rights Plan which provides one Preferred Stock Purchase Right (Right) for each outstanding share of Common Stock of the Company. Each Right entitles the registered holder, subject to the terms of a Rights Agreement, to purchase one one-thousandth of a share (Unit) of Series B Preferred Stock, par value $1.00 per share (Preferred Stock), at a purchase price of $50 per Unit. The units of preferred stock are non-redeemable, voting, and are entitled to certain preferential dividend rights. The exercise price and the number of units issuable are subject to adjustment to prevent dilution.
The Rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement (the date of such announcement being the "Stock Acquisition Date") that a person or group has acquired beneficial ownership of 20% or more of the then outstanding shares of capital stock of the Company entitled to vote ("Acquiring Party") or (ii) a date determined by the Board of Directors following the commencement of a tender or exchange offer which would result in a party beneficially owning 30% or more of the shares of voting stock of the Company.
The Board of Directors of the Company may redeem the Rights at any time on or prior to the tenth day following the Stock Acquisition Date at a price of $0.01 per Right. Unless earlier redeemed, the Rights will expire on December 20, 1998.
Common stock reserved for issuance at December 31, 1994 and 1993, were as follows: conversion of debentures and redeemable preferred stock -- 3,066,470 and 3,197,416, respectively; and stock options and other awards -- 1,174,991 and 1,236,111, respectively.
Notes to Consolidated Financial Statements - continued
As a result of the Company's losses in previous years, there was not a sufficient amount of retained earnings from which to pay dividends and, accordingly, dividends paid on common and preferred stock were charged to "Additional Paid-in Capital."
Note 10. Employee stock option and purchase plans
The Company maintains two stock option plans under which grants have been made to officers and key employees. Options are generally first exercisable after one year but before ten years from date of grant.
A summary of changes during 1994, 1993, and 1992 in shares of common stock authorized for grant to officers and key employees under the stock option plans are as follows: Number of Shares 1994 1993 1992 -------- -------- -------- Shares under option at January 1 872,820 892,337 1,044,189 Options granted 132,000 185,000 115,000 Options exercised (6,800) - - Options canceled (118,320) (204,517) (266,852) ---------- ---------- ---------- Shares under option at December 31 879,700 872,820 892,337 ========== ========== ========== Options exercisable at December 31 369,600 300,220 347,887
Price per share of options granted $ 5.63 to $ 6.00 to $ 4.50 to $ 8.88 $ 7.75 $ 8.50
Option prices at December 31, 1994, ranged from $4.50 to $20.00 per share. Prices of options exercised in 1994 ranged from $5.00 to $8.00 per share.
Options available for grant at December 31, 1994, 1993 and 1992 were 155,291, 213,291, and 352,291, respectively.
Note 11. Taxes on income
The components of income (loss) before income taxes were as follows:
1994 1993 1992 -------- -------- -------- Domestic $ 5,001 $ 5,819 $ (3,526) Foreign (1,765) (1,915) (5,971) -------- -------- -------- Total $ 3,236 $ 3,904 $ (9,497) ======== ======== ========
FAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the
Notes to Consolidated Financial Statements - continued
financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The provision (benefit) for income taxes consists of the following (in thousands):
1994 1993 1992 -------- -------- -------- Current provision (benefit): U.S. federal $ (906) $ (703) $ 20 Foreign 35 - (196) State 56 - 50 -------- -------- -------- (815) (703) (126) -------- -------- -------- Deferred provision (benefit): U.S. federal - - 20 Foreign - (145) (746) State - - 80 -------- -------- -------- - (145) (646) -------- -------- -------- Total $ (815) $ (848) $ (772) ======== ======== ========
The U.S. effective income tax rate from operations is different from the U.S. federal statutory rate for the following reasons:
1994 1993 1992 -------- -------- -------- Income tax provision (benefit) if computed at U.S. federal rates $ 1,100 $ 1,378 $ (3,229) Benefit of net operating loss carryforwards (1,769) (1,534) - Foreign unutilized net operating losses and tax credits 646 - 2,249 Foreign tax rate variances (2) - 9 State income taxes net of federal benefit 37 - 86 Other (827) (692) 113 -------- -------- -------- $ (815) $ (848) $ (772) ======== ======== ========
Notes to Consolidated Financial Statements - continued
The deferred tax assets and liabilities are comprised of the following:
12/31/94 12/31/93 ---------- ---------- Restructuring reserve $ - $ 483 Bad debt reserve 260 300 Other 406 2,430 Employee benefit reserves 2,405 2,376 Allowance for doubtful accounts - 1,090 Reserve for net realizable value of real estate 2,500 2,564 Other - 1,093
Net operating losses and credits17,580 17,024
Property, plant and equipment (2,526) (2,526) Other 393 (195) --------- --------- 21,018 24,639 --------- --------- Valuation allowance (21,018) (24,639) --------- --------- Net deferred tax asset $ - $ - ========= =========
For Federal income tax purposes, the Company has domestic regular tax net operating loss carryforwards of approximately $19 million and alternative minimum tax net operating loss carryforwards of $17.0 million as of December 31, 1994, which may be used to offset future taxable income. The Company also has foreign net operating losses of approximately $6.8 million. These net operating losses expire beginning in 2002. Additionally, the Company has available $5.9 million of investment tax credit carryforwards which will expire beginning in 2002.
Note 12. Asset Acquisitions
On April 8, 1994, certain assets and liabilities of Hightech Components, Limited were purchased for $1.5 million of which $.7 million was paid in cash and $.8 million was financed with a promissory note. Hightech is a distributor of motion technology products and is located in Hampshire, England.
On September 1, 1994, the Electro-Optical Division in Northampton, Massachusetts, purchased certain assets of the conventional optical periscope business of Sperry Marine, Inc. The purchase price was $5 million of which $3 million was paid in cash and $2 million was financed with promissory notes. This acquisition resulted in $4.2 million of goodwill.
Notes to consolidated Financial Statements - continued
Note 13. Restructuring costs and asset disposition
In 1992 the Company recorded a $10 million restructuring charge principally for the consolidation of facilities in France and the elimination of redundant functions in the Company's domestic motion technologies group.
In November 1992 the Company sold certain assets of its proprietary MICRO-FLIR(R) thermal imaging products business to the Electronic Systems Group of Westinghouse Electric Corporation located in Baltimore, Maryland.
Note 14. Leases
The Company leases certain of its facilities and equipment under various operating and capital lease arrangements. Such arrangements generally include fair market value renewal and/or purchase options.
Rent expense for operating leases amounted to $2.1 million and $3.0 million in 1994 and 1993, respectively, (excluding $.3 million and $.9 million, respectively, which was provided for in the prior restructuring provisions), and $5.2 million in 1992. Future minimum rental payments required under non-cancelable operating and capital leases having a lease term in excess of one year, together with the present value of the net minimum lease payments at December 31, 1994, are as follows:
Operating Capital Leases Leases ---------- ---------- 1995 $ 2,414 $ 112 1996 2,186 112 1997 1,944 112 1998 1,398 112 1999 1,061 68 Thereafter 7,389 -- -------- -------- Total minimum lease payments$ 16,392 $ 516 ======== Less amounts representing interest (108) -------- Present value of net minimum lease payments $ 408 ========
Note 15. Contingencies
The Company has various lawsuits, claims, commitments and contingent liabilities arising from the ordinary conduct of its business; however, they are not expected to have a material adverse effect on its consolidated financial position.
Notes to Consolidated Financial Statements - continued
In doing business with the U.S. Government, the Company is subject to routine audits and, in certain circumstances, to inquiry, review, or investigation by the U.S. Government Agencies relating to the Company's compliance with Government Procurement policies and practices. The Company's policy has been and continues to be to conduct its activities in compliance with all applicable rules and regulations.
The Company is engaged primarily in the manufacture and sale of highly diversified lines of commercial, industrial, and military products into both domestic and international markets. The Company generally does not require collateral from its customers on the basis of ongoing reviews and evaluations of their credit and financial condition.
Note 16. Pension and other employee benefit plans
The Company maintains three non-contributory qualified defined benefit pension plans covering substantially all domestic employees. Plans covering most employees provide pension benefits based generally on the employee's years of service and final five-year or career average compensation. Due to full funding, the Plans currently have no required contribution by the Company.
The net periodic pension cost for the years 1994, 1993 and 1992, including amounts related to discontinued operations, included the following components:
1994 1993 1992 -------- -------- -------- Service cost $ 1,986 $ 2,146 $ 2,235 Interest cost 3,104 3,058 3,289 Actual (return) loss on plan assets 158 (6,376) (4,280) Net amortization and deferral (5,508) (65) (2,419) -------- -------- --------
Net periodic pension cost (credit) $ (260) $ (1,237) $ (1,175) ======== ======== ========
The assumptions used in determining the end of year benefit obligations included a discount rate of 8.25% and 7.25% in 1994 and 1993, respectively, an expected investment return of 10% and compensation increases of 5%. During 1993, the Company had pension curtailments resulting from the larger than expected reductions in the number of employees who would otherwise be eligible to participate in a defined benefit pension plan. Accordingly, the net amortization and deferral component of the credit includes a curtailment gain of $1.3 million for 1993. The Plan assets consist principally of cash, common stocks, and bonds.
Notes to Consolidated Financial Statements - continued
The Plans' funded status together with the amounts recognized in the Company's Balance Sheet at December 31 are as follows:
1994 1993 -------- -------- Actuarial present value of benefit obligations: Vested $ 27,896 $ 29,991 ======== ======== Accumulated 28,432 30,885 ======== ======== Projected 37,830 44,333 Plan assets at fair value 46,992 49,625 -------- -------- Plan assets in excess of projected benefit obligation 9,162 5,292 Unrecognized net (gain) loss (2,368) 1,661 Unrecognized net asset at January 1 (5,849) (6,421) Unrecognized prior service cost 1,928 2,081 -------- -------- Prepaid pension cost $ 2,873 $ 2,613 ======== ========
The Salaried Employees' Retirement Plan provides that in the event of a termination of that Plan following a change in control of the Company, any assets of the Plan remaining after provision is made for all benefits thereunder will be employed to supplement such benefits.
The Company also maintains a Supplemental Retirement Income Plan ("SERP") for key employees. Eligibility is restricted to individuals designated by the Personnel and Compensation Committee of the Board who, in its sole discretion, have made outstanding long-term contributions to the Company. The SERP is designed to provide each designated participant with an increased level of retirement income commencing the month following his 65th birthday. Under the SERP, a supplemental amount is paid to each participant so that, together with any amounts payable under the Company's qualified retirement plans, any long-term disability insurance payments and any social security benefits, the participant receives a monthly benefit equal to 60% of his salary at the date of inclusion in the plan. Amounts payable under the SERP are subject to adjustment for inflation. The Company has accrued an actuarially determined liability of $2.8 million at December 31, 1994 and 1993, in anticipation of the payment of such benefits in the future to seven former employees who were designated as eligible by the Personnel and Compensation Committee for participation in the SERP program. The Company incurred a pension expense of $.3 million in 1994 and in 1993 for the SERP.
The Company has a voluntary 401(k) savings and investment plan designed to enhance the existing retirement program covering certain eligible domestic employees. In 1994, the Company matched 1% of each participant's contributions, up to a maximum of 1% of base salary. Company contributions to this plan were $225 thousand, $325 thousand, and $298 thousand in 1994, 1993, and 1992, respectively.
Notes to Consolidated Financial Statements - continued
Note 17. Postretirement medical insurance benefits
The Company maintains a postretirement medical benefits plan covering substantially all domestic employees hired prior to January 1, 1992. The plan is contributory, retiree contributions are based on the difference between total cost and the employer contribution and are adjusted annually. The Company's contribution towards retiree medical benefits for employees retiring after January 1, 1992, are capped at 1991 levels. FAS 106 was implemented on a delayed recognition basis, resulting in amortization of the transition obligation amount over 20 years. The Company currently funds the plan as claims are paid.
Net periodic postretirement benefit cost for 1994 included the following components:
Service cost $ 133 Interest cost 435 Amortization of obligation at transition278 ------- Net periodic postretirement benefit cost$ 846 =======
The Company's postretirement benefit plans are unfunded.
For measurement purposes, a 9% annual rate of increase in the per capita cost of covered medical benefits was assumed for 1994; the rate was assumed to decrease gradually to 5.5% for 1999 and remain at that level thereafter. Increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of January 1, 1994, by $211 thousand and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost by $17 thousand.
The plan amounts recognized in the Company's Balance Sheet at December 31, 1994, are as follows:
Accumulated postretirement benefit obligation: Retirees $ 4,053 Fully eligible plan participants 257 Other active plan participants 1,573 ------- Total 5,883 Plan assets at fair value - ------- Accumulated postretirement benefit obligation in excess of plan assets (5,883) Unrecognized net (gain) loss 58 Unrecognized prior service cost - Unrecognized transition obligation 5,004 ------- Accrued postretirement benefit cost $ (821) =======
Notes to Consolidated Financial Statements - continued
The weighted average discount rates used in determining the accumulated postretirement benefit obligation are 8.25% and 7.25% as of December 31, 1994 and 1993, respectively.
Note 18. Foreign Operations and Geographic Segments, and Export Sales
The impact of the Company's foreign operations upon the consolidated financial statements are summarized as follows (in thousands):
Foreign 1994 Consolidated Eliminations Domestic Operations - ---- ------------ ------------ --------- ---------- Net sales $191,771 $ (5,439) $151,288 $ 45,922 ======== ======== ======== ======== Net income from operations $ 4,051 $ 255 $ 5,199 $ (1,403) ======== ======== ======== ======== Identifiable assets$112,315 $ (834) $ 77,112 $ 36,037 Corporate assets 25,886 - 25,886 - -------- -------- -------- -------- Total assets $138,201 $ (834) $102,998 36,037 ======== ======== ======== Liabilities 27,364 -------- Equity in foreign subsidiaries $ 8,673 ========
Foreign 1993 Consolidated Eliminations Domestic Operations - ---- ------------ ------------ --------- ---------- Net sales $185,538 $ (4,113) $150,260 $ 39,391 ======== ======== ======== ======== Net income (loss) from continuing operations $ 4,752 $ 325 $ 6,938 $ (2,511) ======== ======== ======== ======== Identifiable assets$ 95,943 $ (72) $ 66,814 $ 29,201 Corporate assets 38,065 - 38,065 - -------- -------- -------- -------- Total assets $134,008 $ (72) $104,879 29,201 ======== ======== ======== Liabilities 21,635 -------- Equity in foreign subsidiaries $ 7,566 ========
Notes to Consolidated Financial Statements - continued
Foreign 1992 Consolidated Eliminations Domestic Operations - ---- ------------ ------------ --------- ---------- Net sales $194,859 $ (3,693) $150,914 $ 47,638 ======== ======== ======== ======== Net income (loss) from continuing operations $ (8,725) $ 316 $ (4,064) $ (4,977) ======== ======== ======== ======== Identifiable assets$110,691 $ (683) $ 77,372 $ 34,002 Corporate assets 38,877 - 38,877 - -------- -------- -------- -------- Total assets $149,568 $ (683) $116,249 34,002 ======== ======== ======== Liabilities 26,725 -------- Equity in foreign subsidiaries $ 7,277 ========
The Company's principal foreign manufacturing facilities are in France and Germany. The sales eliminations are transfers at prevailing wholesale selling prices.
In addition to foreign operations, export sales amounted to $32.5 in 1994, $27.6 million in 1993, and $54.0 million in 1992.
Sales to the U.S. Government or for U.S. Government end-use amounted to $39.3 in 1994, $39.4 in 1993, and $38.9 million in 1992.
Note 19. Other Financial Statement Data
The following sections should be considered integral parts of the Notes to Consolidated Financial Statements:
Page
Segments of Business Information 2
EXHIBIT INDEX
Page in this Exhibit No. Description of Exhibit Form 10-K
3(a) Restated Certificate of Incorporation, as N/A amended, incorporated by reference to Exhibit 3(a) of the Form SE filed on April 2, 1990.
3(b) By-Laws, as amended. N/A
4(a) Debenture Purchase Agreement dated as of N/A July 30, 1982, with respect to 10-1/2% Convertible Subordinated Debentures Due 1997 incorporated by reference to Exhibit 4 to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 1982.
4(b) Indenture dated as of May 1, 1984, with respect N/A to 8-3/4% Convertible Subordinated Debentures Due 2009 incorporated by reference to Exhibit 4 to Registration Statement on Form S-3 (2-90655)
4(c) Rights Agreement dated as of December 20, 1988, N/A as amended and restated as of March 27, 1990, between the Company and the First National Bank of Boston, as Rights Agent, incorporated by reference to Exhibit 4(d) of the Form SE filed on April 2, 1990.
4(d) Stock purchase agreement dated March 27, 1990, N/A with Annex II, Registration Rights, with respect to the issue of Series D Convertible Preferred Stock, par value $1.00, of the Company, incorporated by reference to Exhibit 4(e) of the Form SE filed on April 2, 1990.
10(a) Restated and Amended Letter of Credit Facility N/A Agreement dated December 15, 1994, among Kollmorgen Corporation, The First National Bank of Boston, Certain Other Financial Institutions Listed on Schedule 1, and The First National Bank of Boston, as Agent, incorporated by reference to Exhibit 10 of the Form SE filed on or about March 20, 1995.
Page in this Exhibit No. Description of Exhibit Form 10-K
10(b) Kollmorgen Stock Option Plan, as amended, N/A incorporated by reference to Exhibit A of the Company's Proxy Statement dated March 24, 1987, for the Annual Meeting of Shareholders held on April 22, 1987.
10(c) Kollmorgen 1991 Long Term Incentive Plan, N/A incorporated by reference to Exhibit A of the Company's Proxy Statement dated April 29, 1991, for the Annual Meeting of Shareholders held on May 23, 1991.
10(d) Form of 1988 Non-Qualified Stock Option N/A Agreement for James A. Eder. Said agreement is incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1988.
10(e) Form of 1990 Non-Qualified Stock Option N/A Agreement for James A. Eder. Said agreement is incorporated by reference to Exhibit 10(h) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1991.
10(f) Form of 1991, 1992, and 1993 Non-Qualified N/A Stock Option Agreement under the Long-Term Incentive Plan and/or Kollmorgen Stock Option Plan for Gideon Argov, Robert J. Cobuzzi, James A. Eder and Robert W. Woodbury, Jr. Each agreement is identical except for the number of shares and the date of grant. Said agreement is incorporated by reference to Exhibit 10(j) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1991.
10(g) Kollmorgen 1992 Stock Ownership Plan for N/A Non-Employee Directors incorporated by reference to Exhibit A of the Company's Proxy Statement dated April 6, 1992, for the Annual Meeting of Shareholders held on May 13, 1992.
10(h) Form of 1992 Non-Qualified Stock Option N/A Agreement between each non-employee director and the Company pursuant to the Kollmorgen 1992 Stock Ownership Plan for Non-Employee Directors incorporated by reference to Exhibit 10(i) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1992.
Page in this Exhibit No. Description of Exhibit Form 10-K
10(i) Bonus Plan for Corporate Officers and other N/A key corporate employees incorporated by reference to Exhibit 10(j) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1992.
10(j) Employment Agreement dated May 10, 1991, as N/A amended, for James A. Eder. Said Agreement is incorporated by reference to Exhibit 10(c) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1991.
10(k) Letter employment agreement dated May 21, N/A 1991, for Gideon Argov. Said Agreement is incorporated by reference to Exhibit 10(c) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1991.
10(l) Letter employment agreement dated July 1, N/A 1991, for Robert J. Cobuzzi. Said Agreement is incorporated by reference to Exhibit 10(c) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1991.
10(m) Form of severance agreement for each of the N/A following persons: Allan M. Doyle, Jr. and George P. Stephan. Said agreement is incorporated by reference to Exhibit 10(i) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1989.
10(n) Form of Indemnification Agreement for each of the N/A Company's executive officers, directors and director emeritus. Each agreement is identical to this exhibit except for the name and title of each individual. Said agreement is incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1987.
10(o) Description of Post-Retirement Arrangement for N/A Non-Employee Directors. Said agreement is incorporated by reference to Exhibit 10(i) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1988.
Page in this Exhibit No. Description of Exhibit Form 10-K
10(p) Participation Agreement between Allan M. Doyle, Jr. N/A and the Corporation with respect to Mr. Doyle's service as a director of Millitech Corporation incorporated by reference to Exhibit 10(q) to the Annual Report on Form 10-K of the Company for the year ended December 31, 1992.
10(q) Supplemental Retirement Income Plan for key N/A executives incorporated by reference to Exhibit 10(n) to the Annual Reporton Form 10-K of the Company for the year ended December 31, 1990.
11 Calculations of Earnings Per Share. 46
21 Subsidiaries of the Company. 47
23 Consent of Independent Accountants - 48 Coopers & Lybrand L.L.P.
24 Powers of Attorney 49
27 Financial Data Schedules 56