SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 31, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-7304
DYNAMICS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
NEW YORK 13-0579260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Steamboat Road, Greenwich, Connecticut 06830-7197
(Address of principal executive offices) (Zip Code)
(203) 869-3211
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 29, 1994:
Voting 3,862,779
Non-Voting 4,797
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
As at March 31, 1994 and December 31, 1993 2
Condensed Consolidated Statements of
Operations - For the Three Months
Ended March 31, 1994 and 1993 3
Condensed Consolidated Statement of
Stockholders' Equity - For the Three
Months Ended March 31, 1994 4
Condensed Consolidated Statements of
Cash Flows - For the Three Months
Ended March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 9 - 10
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Part 1 - Financial Information
Item 1 - Financial Statements
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1994 (Unaudited) and DECEMBER 31, 1993
(DOLLAR AMOUNTS IN THOUSANDS)
March 31, December 31,
ASSETS 1994 1993
Current Assets:
Cash and cash equivalents $ 7,012 $ 8,969
Accounts Receivable, less allowances of $562
and $531 16,387 16,287
Inventories - Note 1 20,043 18,092
Other current assets 1,946 1,897
Current assets of discontinued operation 1,606 1,408
Deferred income taxes 4,563 4,542
TOTAL CURRENT ASSETS 51,557 51,195
Property, Plant and Equipment - at cost, less
accumulated depreciation and amortization of
$31,470 and $31,252 3,787 3,906
Equity Investment in CTS Corporation - Note 2 57,614 57,037
Other Assets 1,757 1,769
Deferred Income Taxes 1,458 1,457
TOTAL ASSETS $116,173 $115,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 304 $ 400
Accounts payable 4,198 3,617
Accrued expenses and sundry liabilities 12,684 12,602
Federal income taxes payable 2,482 2,354
TOTAL CURRENT LIABILITIES 19,668 18,973
Long-term Debt 491 623
Other Liabilities 2,954 2,954
TOTAL LIABILITIES 23,113 22,550
Contingencies - Note 5
Stockholders' Equity:
Preferred stock, par value $1 per share --
authorized 894,000 shares - none issued
Series A Participating Preferred Stock, par
value $1 per share - authorized 106,000
shares - none issued
Stockholders' equity - see accompanying
statement 93,060 92,814
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$116,173 $115,364
See accompanying notes to condensed consolidated financial statements.
-2-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Unaudited
For the three months
ended March 31,
1994 1993
Net sales $22,716 $25,591
Cost of sales 16,689 18,860
Gross profit 6,027 6,731
Selling, general and administrative expenses 5,751 6,535
276 196
Other income, net - Note 3 50 59
Income before items shown below 326 255
Provision for income taxes - Note 4 113 88
Income before equity in CTS Corporation
and changes in accounting methods 213 167
Income from equity investment in CTS
Corporation 720 451
Income before changes in accounting methods 933 618
Equity in CTS' cumulative effect to
January 1, 1993 of changes in accounting
methods - Note 2 (1,716)
Net income (loss) $ 933 $(1,098)
Weighted average number of common and common
equivalent shares outstanding 3,885,886 3,904,490
Income (loss) per common share:
Income before changes in accounting methods $ .24 $ .16
Equity in CTS' cumulative effect to
January 1, 1993 of changes in
accounting methods (.44)
Net income (loss) $ .24 $ (.28)
Dividends per common share $ .10 $ .10
See accompanying notes to condensed consolidated financial statements.
-3-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
Common Stock
(Authorized 10,000,000
voting shares and 600,000
non-voting shares) Paid-in Total
Shares Additional Retained Deferred Stockholders'
Outstanding* Par Value Capital Earnings Compensation Equity
Balance at December 31, 1993 3,889,751 $389 $11,451 $81,125 $(151) $92,814
Shares issued and issuable
from treasury pursuant to
benefit plans 316 13 13
Shares acquired for
treasury and pursuant to
benefit plans (22,370) (2) (87) (237) (326)
Amortization of deferred
compensation and related
tax charges (3) 18 15
Net income 933 933
Cash dividends (389) (389)
Balance at March 31, 1994 3,867,697 $387 $11,374 $81,432 $(133) $93,060
<FN>
* Net of shares held in treasury at $.10 par value per share (3,307,464 voting shares at March 31, 1994
and 3,285,410 voting shares at December 31, 1993). The cumulative cost of treasury shares held at March
31, 1994 amounted to approximately $34,800. Includes non-voting shares outstanding of 4,797 at March 31,
1994.
See accompanying notes to condensed consolidated financial statements.
-4-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
March 31, March 31,
1994 1993
Operating activities:
Net income (loss) $ 933 ($1,098)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 265 265
Deferred income taxes (22) 6
Loss (income) from equity investment in
CTS before income taxes (733) 1,252
Dividends from CTS 192 192
Increase in other assets (3)
Issuance of Company common stock 13 10
Other--net 15 21
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (100) 2,369
Increase in inventory (1,951) (310)
Increase in other current assets (49) (526)
Increase (decrease) in accounts payable,
accrued expenses and sundry liabilities 717 (486)
Increase in Federal income taxes payable 128 83
Decrease (increase) in current assets of
discontinued operation (198) 409
Net cash provided by (used in) operating
activities (790) 2,184
Investing activities:
Purchases of CTS common stock (90)
Purchases of property, plant and equipment (146) (158)
Proceeds from note receivable 12 12
Net cash used in investing activities (224) (146)
Financing activities:
Principal payments under capital
lease obligations and mortgages (228) (89)
Purchases of treasury stock (326) (38)
Dividends paid (389) (391)
Net cash used in financing activities (943) (518)
Increase (decrease) in cash and cash
equivalents (1,957) 1,520
Cash and cash equivalents at beginning of
period 8,969 6,095
Cash and cash equivalents at end of period $7,012 $7,615
See accompanying notes to condensed consolidated financial statements.
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of Management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1993.
Note 1 - Inventories:
Quarterly inventories are estimated based on perpetual inventory records
of the Company and the gross profit method under the first-in, first-out
and the last-in, first-out methods.
Inventories are summarized as follows:
March 31, December 31,
1994 1993
(in thousands)
Raw materials and supplies $8,250 $7,251
Work in process 6,604 6,426
Finished goods 4,545 4,076
19,399 17,753
Inventories subject to progress billings 1,153 1,189
Progress billings (509) (850)
644 339
$20,043 $18,092
-6-
Note 2 - Equity Investment in CTS Corporation:
At March 31, 1994, the Company's holdings aggregated 1,922,700 shares of
CTS common stock, increased from 1,920,900 shares at December 31, 1993,
and the Company's percentage of equity ownership in CTS decreased to
37.2% from 37.3%, due to employee benefit stock issuances by CTS. At
May 12, 1994, the Company's holdings aggregated 1,932,700 shares of CTS
common stock, or 37.4%. Included in Accounts Payable at December 31,
1993 was $54,000 for purchases of CTS common stock.
The market value of the Company's investment in CTS amounted to
$41,819,000 at March 31, 1994 and $37,938,000 at December 31, 1993. The
market value at May 12, 1994 was $48,559,000. Under the Control Share
Acquisitions Chapter of the Indiana Business Corporation Law, 1,020,000
of the Company's shares of CTS stock presently have no voting rights.
Summarized unaudited financial information derived from CTS' Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994 follows:
Three Months Ended
April 3, April 4,
1994 1993
(in thousands)
Net sales $64,357 $60,439
Gross earnings $14,127 $12,620
Earnings before cumulative effect of
changes in accounting principles $2,490 $1,767
Cumulative effect of accounting change -
postretirement benefits (5,096)
Cumulative effect of accounting change -
income taxes 482
Net earnings (loss) $2,490 ($2,847)
The Company recognized its proportionate share under equity
accounting of CTS' adoption of Financial Accounting Standards
Board ("FASB") Statement No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," a charge of
$1,896,000, or $.49 per share, and FASB Statement No. 109,
"Accounting for Income Taxes," a credit of $180,000, or $.05
per share. These onetime, non-cash accounting changes were
adopted by CTS as cumulative effects to January 1, 1993.
Note 3 - Other Income, Net:
Three Months Ended
March 31,
1994 1993
(in thousands)
Interest:
Income $52 $22
Expense (27) (33)
25 (11)
Dividend income 14
Change in unrealized loss on
current marketable securities (13) 15
Other, net 24 55
$50 $59
-7-
Note 4 - Provision for Income Taxes:
The effective tax rate for the three months ended March 31, 1994 and
1993 approximates the Federal statutory rate.
Note 5 - Contingencies:
The Company is a supplier to the United States Government under
contracts and subcontracts on which there are cost allocation, cost
allowability and compliance issues under examination by various
agencies or departments of the Federal government. In the course of
the resolution of these issues, the Company may be required to adjust
certain prices or refund certain payments on its government contracts
and subcontracts. The Company believes that any such price
adjustments or refunds will not have a materially adverse effect on
the financial position of the Company.
In May, 1994, the Company agreed to accept $6,450,000 in settlement of
the preproduction portion of its proposed change order to the
Government seeking equitable compensation for constructive changes
and associated delays by the Government in a contract for the supply
of 3KW generator sets to be manufactured by the Company's
discontinued Fermont division. The proposed change order was
submitted in April 1992. Negotiations to settle the production
portion of the proposed change order are expected to commence shortly.
The Company has been notified by the U.S. Environmental Protection
Agency ("EPA") that it is a Potentially Responsible Party ("PRP")
regarding hazardous waste cleanup at a non-Company site in Connecticut
and at a Company site in California. Certain of the PRPs at the
Connecticut site have agreed with the EPA to fund a feasibility
study at the site and have sued the Company and other PRPs who have
not agreed to share the costs. A property owner neighboring the
Company site in California has sued the Company and others for
allegedly causing contamination at the neighbor's property. In
addition, the Company has received notice from a state environmental
agency that it is a PRP with respect to a non-Company site in
Pennsylvania, and is also a defendant in two lawsuits seeking
contribution towards the Superfund cleanup costs relating to two
other non-Company sites in that state. Based upon knowledge of the
extent of the Company's exposure and current statutes, rules and
regulations, management believes that the anticipated costs
resulting from claims and proceedings with respect to the above
mentioned sites, including remediation, the extent and cost of which
are presently unknown, will not materially affect the financial
position of the Company.
With respect to other claims and actions against the Company, it is
the opinion of Management that they will not have a material effect
on the financial position of the Company.
-8-
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Sales decreased $2,875,000 in the quarter ended March 31, 1994 compared to
the same period a year ago. Sales in the Electrical Appliances and
Electronic Devices segment decreased $1,034,000. Sales of electrical
appliances, particularly specialty consumer products, declined $2,503,000
while sales of electronic devices increased $1,469,000. Sales of heat
dissipating devices for computer microprocessors more than tripled. Sales in
the Fabricated Metal Products and Equipment segment increased $343,000, as
gains on air distribution product sales were offset to some extent by a
decline in systems product sales. Sales in the Power and Controlled
Environmental Systems segment decreased $2,184,000, due to a significant
decline in custom mobile shipments following completion of an order from a
Government prime contractor in the prior year which was partially offset by
sales increases in the current year for thermal and medical products.
Gross profit declined $704,000 in the quarter ended March 31, 1994 compared
to the same period a year ago but increased as a percentage of sales to 26.5%
from 26.3%. Gross profit in the Electrical Appliances and Electronic Devices
segment decreased due to sales declines and lower margins from product mix on
electrical appliances, which was partially offset by increased sales of
higher margined heat dissipating devices. Gross profit increased in the
Fabricated Metal Products and Equipment segment, due to higher sales in the
current year's quarter offset by lower margins from product mix. In the
Power and Controlled Environmental Systems segment gross profit decreased due
to lower sales in the current year, which was partially offset by improved
margins from product mix.
Selling, general and administrative expenses decreased $784,000 in the
quarter ended March 31, 1994 compared to the same period a year ago, mainly
due to lower advertising expenditures and reduced salary costs following
staff restructurings in the fourth quarter of 1993.
The provision for income taxes increased $25,000 due to higher income before
equity in the income of CTS Corporation. The income tax rate in the quarter
ended March 31, 1994 increased to 34.7% compared to 34.5% for the same period
a year ago, approximating the Federal statutory rate.
Income from the Company's equity investment in CTS Corporation increased
$269,000, reflecting CTS' $723,000 increase in earnings before prior year
accounting changes.
During the quarter ended March 31, 1993, the Company recorded its
proportionate share of CTS' net charge from its adoption of Financial
Accounting Standards Board ("FASB") Statement No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," a charge of $1,896,000, or
$.49 per share, and FASB Statement No. 109, "Accounting for Income Taxes," a
credit of $180,000, or $.05 per share. These onetime, non-cash accounting
changes were adopted by CTS as cumulative effects to January 1, 1993.
Financial Condition
Cash and cash equivalents decreased $1,957,000 during the three months ended
March 31, 1994. Cash of $790,000 was used in operating activities,
reflecting an increase in inventories, offset in part by increases in
accounts payable, accrued expenses and sundry liabilities. Cash of $224,000
was used in investing activities, primarily to purchase machinery and
equipment and CTS common stock, and cash of $943,000 was used in financing
activities to fund the Company's dividend payment, purchase treasury stock
and to make principal payments under mortgage and capital lease obligations.
-9-
Cash at March 31, 1994 amounted to $7,012,000. During the quarter, the
Company did not borrow under its $27,000,000 Revolving Credit Agreement or
its $10,000,000 uncommitted line with its banks. The entire amount of the
credit facilities is available for use by the Company.
During the second quarter, the Company expects to receive payment from the
Government of $6,450,000 as agreed upon to settle the preproduction portion
of Fermont Division's proposed change order concerning the 3KW generator set
contract, less progress payments previously received on that contract. (See
Note 5 - Contingencies in the Notes to Condensed Consolidated Financial
Statements.)
Liquidity and financial resources are considered adequate to fund planned
Company operations, including capital expenditures and payment of dividends.
The Company intends to continue its stated policy of reviewing potential
acquisitions of companies and product lines which it believes would enhance
its growth and profitability.
Management anticipates that the Company's deferred tax assets will be
realized based upon its expectation of future taxable income. The Company
will require taxable income of $16,271,000 ($15,617,000 of ordinary income
and $654,000 of capital gain income) to realize its net deferred tax assets
of $6,021,000 at March 31, 1994.
With respect to environmental matters (see Note 5 - Contingencies in the
Notes to the Consolidated Financial Statements), the Company has accrued
$72,000 for mandated expenditures at a Company site in California during the
quarter, compared to similar accrued expenses of $23,000 for the comparable
prior year period.
In complying with federal, state and local environmental protection statutes
and regulations, the Company has altered or modified certain manufacturing
processes and expects to do so in the future. Such modifications to date
have not significantly increased capital expenditures or affected earnings or
the competitiveness of the Company.
It is possible, but unanticipated at this time, that future results of
operations or cash flows could be materially affected by an unfavorable
resolution of environmental-related matters.
-10-
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K for the three months ended
March 31, 1994.
-11-
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.
DYNAMICS CORPORATION OF AMERICA
(Registrant)
/s/ Patrick J. Dorme
(Signature)
Patrick J. Dorme
Vice President - Finance and
Chief Financial Officer
Date: May 13, 1994