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 June 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 0-7304
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DYNAMICS CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
NEW YORK 13-0579260
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 Steamboat Road, Greenwich, Connecticut 06830-7197
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(Address of principal executive offices) (Zip Code)
(203) 869-3211
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 30, 1996:
Voting 3,809,007
Non-Voting 3,679
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
INDEX
Page No.
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Part I - Financial Information:
Item 1. Financial Statements
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Condensed Consolidated Balance Sheets -
As of June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of
Income - For the Three and Six Months
Ended June 30, 1996 and 1995 3
Condensed Consolidated Statement of
Stockholders' Equity - For the Six
Months Ended June 30, 1996 4
Condensed Consolidated Statements of
Cash Flows - For the Six Months
Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6 - 9
Item 2. Management's Discussion and
---------------------------
Analysis of Results of Operations
---------------------------------
and Financial Condition 10 - 13
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Part II - Other Information:
Item 4. Submission of Matters to a Vote of
----------------------------------
Security Holders 14
----------------
Item 6. Exhibits and Reports on Form 8-K 14
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Signature Page 15
Part 1 - Financial Information
Item 1 - Financial Statements
- -----------------------------
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1996 (Unaudited) and DECEMBER 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
ASSETS 1996 1995
------ -------- -----------
Current Assets:
Cash and cash equivalents $ 704 $ 1,767
Accounts Receivable, less allowances of
$645 and $613 20,844 19,898
Inventories - Note 1 23,007 23,440
Other current assets 2,585 1,254
Deferred income taxes 4,619 4,434
-------- --------
TOTAL CURRENT ASSETS 51,759 50,793
Property, Plant and Equipment - at cost,
less accumulated depreciation and
amortization of $36,280 and $36,048 4,844 4,164
Equity Investment in CTS Corporation -
Note 2 80,281 77,180
Other Assets 2,090 2,164
Deferred Income Taxes 243
-------- --------
TOTAL ASSETS $139,217 $134,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current installments of long-term debt$ 55 $ 63
Accounts payable 6,494 6,284
Accrued expenses and sundry liabilities 14,237 14,616
Federal income taxes payable 1,277 851
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TOTAL CURRENT LIABILITIES 22,063 21,814
Long-term Debt - Note 3 5,148 3,424
Other Liabilities 1,555 1,605
Deferred Income Taxes 1,984
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TOTAL LIABILITIES 28,766 28,827
Contingencies - Note 7
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 110,451 105,474
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $139,217 $134,301
======== ========
See accompanying notes to condensed consolidated financial statements.
-2-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED June 30, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Unaudited
For the three months For the six months
ended June 30, ended June 30,
----------------- ------------------
1996 1995 1996 1995
------- ------- ------- ------
Net sales $33,326 $28,750 $61,190 $54,560
Cost of sales 26,798 21,721 49,587 41,192
------- ------- ------- -------
Gross profit 6,528 7,029 11,603 13,368
Selling, general and administrative
expenses 6,027 6,561 12,583 13,124
------- ------- ------- -------
501 468 (980) 244
Other income (expense), net - Note 4 (219) 109 (102) 345
------- ------- ------- -------
Income (loss) from continuing
operations before items shown
below 282 577 (1,082) 589
Income tax charge (benefit) - Note 5 117 215 (413) 220
------- ------- ------- -------
Income (loss) from continuing
operations before equity in
CTS Corporation 165 362 (669) 369
Income from equity investment in CTS
Corporation 1,974 1,200 6,034 2,002
------- ------- ------- -------
Income from continuing operations 2,139 1,562 5,365 2,371
Reclassification of provision for
Fermont disposition, net of taxes -
Note 6 23 251 297
------- ------- ------- -------
Net income $ 2,139 $ 1,585 $ 5,616 $ 2,668
======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding 3,819,080 3,839,622 3,823,427 3,843,082
========= ========= ========= =========
Income per common share:
Continuing operations $ .56 $ .40 $ 1.40 $ .61
Reclassification of provision for
Fermont disposition .01 .07 .08
------- ------- ------- -------
Net income $ .56 $ .41 $ 1.47 $ .69
======= ======= ======= =======
Dividends per common share - - $ .10 $ .10
======= ======= ======= =======
<FN>
See accompanying notes to condensed consolidated financial statements.
-3-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(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,
1995 3,829,561 $383 $11,623 $93,807 $(339) $105,474
Shares issued and issuable
from treasury pursuant to
benefit plans 10 10
Shares acquired for
treasury and pursuant to
benefit plans (16,017) (2) (85) (278) (365)
Amortization of deferred
compensation and related
tax benefit 36 63 99
Net income 5,616 5,616
Cash dividends (383) (383)
--------- ---- ------- ------- ----- --------
Balance at June 30, 1996 3,813,544 $381 $11,584 $98,762 $(276) $110,451
========= ==== ======= ======= ===== ========
<FN>
* Net of shares held in treasury at $.10 par value per share (3,361,617 voting shares at June 30, 1996 and 3,345,600 voting shares
at December 31, 1995). The cumulative cost of treasury shares held at June 30, 1996 amounted to approximately $35,600. Includes
non-voting shares outstanding of 3,687 at June 30, 1996.
See accompanying notes to condensed consolidated financial statements.
-4-
DYNAMICS CORPORATION OF AMERICA
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLAR AMOUNTS IN THOUSANDS)
Unaudited
June 30, June 30,
1996 1995
--------- ---------
Operating activities:
Net income $ 5,616 $ 2,668
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 637 557
Deferred income taxes (2,412) 910
Income from equity investment in CTS
before income taxes (3,861) (2,975)
Dividends from CTS 760 673
Gain on sale of property (198)
Decrease (increase) in other assets 74 (290)
Decrease in other liabilities (50) (176)
Issuance of Company common stock 10 13
Other--net 99 110
Changes in operating assets and liabilities:
Accounts receivable (946) (1,860)
Inventory 433 (2,803)
Other current assets (1,331) 17
Accounts payable, accrued expenses and
sundry liabilities (169) 1,342
Federal income taxes payable 426 540
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Net cash used in operating activities (714) (1,472)
------- -------
Investing activities:
Purchases of CTS common stock (603)
Purchases of property, plant and equipment (1,317) (669)
Proceeds from note receivable 476
------- -------
Net cash used in investing activities (1,317) (796)
------- -------
Financing activities:
Principal payments under capital lease
obligations (34) (80)
Borrowings under lines of credit 1,750
Purchases of treasury stock (365) (303)
Dividends paid (383) (385)
------- -------
Net cash (provided by) used in financing
activities 968 (768)
------- -------
Decrease in cash and cash equivalents (1,063) (3,036)
Cash and cash equivalents at beginning of
period 1,767 6,837
------- -------
Cash and cash equivalents at end of period $ 704 $ 3,801
======= =======
See accompanying notes to condensed consolidated financial statements.
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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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 six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995. Financial statements for prior
periods have been reclassified to include Fermont Division in the results of
operations of the Company (see Note 6).
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:
June 30, December 31,
1996 1995
--------- ------------
(in thousands)
Raw materials and supplies $ 7,720 $ 8,660
Work in process 8,614 7,560
Finished goods 6,106 6,863
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22,440 23,083
------- -------
Inventories subject to progress billings 600 1,233
Progress billings (33) (876)
------- -------
567 357
------- -------
$23,007 $23,440
======= =======
Note 2 - Equity Investment in CTS Corporation:
At June 30, 1996, the Company's holdings aggregated 2,303,100 shares of CTS
Corporation common stock, unchanged from year-end, and the Company's percentage
of equity ownership in CTS remained at 44.1%.
The market value of the Company's investment in CTS amounted to $108,246,000 at
June 30, 1996 and $86,942,000 at December 31, 1995. The market value at August
9, 1996 was $96,154,000. Under the Control Share Acquisitions Chapter of the
Indiana Business Corporation Law, 1,020,000 of the Company's shares of CTS
common stock presently have no voting rights.
-6-
Note 2 - Equity Investment in CTS Corporation (continued):
Summarized unaudited financial information derived from CTS' Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 follows:
Three Months Ended Six Months Ended
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June 30, July 2, June 30, July 2,
1996 1995 1996 1995
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(in thousands)
Net sales $ 83,820 $ 76,413 $164,006 $152,391
======== ======== ======== ========
Gross profit $ 21,874 $ 19,148 $ 41,673 $ 36,421
======== ======== ======== ========
Net earnings $ 5,340 $ 4,642 $ 9,754 $ 7,898
======== ======== ======== ========
The Company's proportionate share of CTS' earnings in accordance with the equity
method of accounting reflects a change as of January 1, 1996 in the effective
tax rate applied by the Company to its share of CTS' undistributed earnings.
The Company decided it is appropriate to change the rate applied to its share of
CTS' income from the corporate tax rate to the lower rate applicable to
dividends received, based on the substantially improved operating results of CTS
and its continuing strong cash flow. With the new rate, the Company's reported
share of CTS' net earnings for the three and six months ended June 30, 1996
increased by $528,000 ($.14 per share) and $3,430,000 ($.90 per share),
respectively. Included in the six month increase is $2,466,000 for the favorable
adjustment to taxes previously provided at the corporate rate on the Company's
cumulative share of CTS' undistributed earnings through January 1, 1996.
Note 3 - Long-Term Debt:
The Company borrowed an additional $1,750,000 under its Revolving Credit
Agreement with banks during the six months ended June 30, 1996.
Note 4 - Other Income (Expense), Net:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Interest:
Income $ 4 $ 64 $ 13 $135
Expense (69) (14) (127) (26)
----- ---- ----- ----
(65) 50 (114) 109
Environmental costs (200) (200)
Sale of property and
leasehold rights 198 198
Other, net 46 (139) 212 38
----- ---- ----- ----
$(219) $109 $(102) $345
===== ==== ===== ====
-7-
Note 5 - Income Tax Charge (Benefit):
The effective tax rates for the three and six months ended June 30, 1996 and
1995 exceeded the Federal statutory rate due to the effect of state income
taxes.
Note 6 - Reclassification of Provision for Fermont Disposition:
Results for the second quarter include the operations of the Fermont Division,
which previously had been accounted for as a discontinued operation and a
division held for sale. Although it continues to seek a buyer for this
operation, the Company decided to bid on new contracts in addition to the $71.6
million contract previously awarded to Fermont by the government. Therefore,
Fermont's operations have been reclassified in the Company's results of
operations for prior periods.
Included in assets on the Consolidated Balance Sheet as of June 30, 1996 are
current assets of Fermont totaling $4,578,000, consisting primarily of accounts
receivable, inventories and advances to a supplier of $1,326,000 related to
accelerated engine purchases directed by the Government, and noncurrent assets
(property, plant and equipment) totaling $976,000.
Included in liabilities are current liabilities of Fermont totaling $808,000,
consisting primarily of accounts payable, salaries, wages and benefits and
taxes.
Fermont's sales for the three months ended June 30, 1996 and 1995 were
$6,094,000 and $1,249,000, respectively, and its operating profit (loss) was
$161,000 and $(372,000), respectively. Fermont's sales for the six months ended
June 30, 1996 and 1995 were $7,976,000 and $1,940,000, respectively, and its
operating loss was $(250,000) and $(813,000), respectively.
Note 7 - 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 or results of operations of the Company.
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. The Company has elected to
participate in the allocation of responsibility proceedings conducted by the PRP
group formed in connection with the Superfund site in the vicinity of the
California site; and the suit against the Company by a property owner
neighboring the Company site for allegedly causing contamination at the
neighbor's property has been discontinued pending the outcome of the allocation
process. In February 1996, the Company settled the past costs
-8-
portion of a 1995 lawsuit by a state environmental agency to recover past and
future response costs related to the cleanup of a non-Company site in
Pennsylvania as to which the Company was earlier designated a PRP; and the
Company has also been sued by certain of the PRPs who have agreed with the state
agency to fund other past response costs at that site to recover a portion of
those costs from the Company and other PRPs who have not agreed to participate
in such funding. The Company is also a defendant in two lawsuits
seeking contribution for Superfund cleanup costs relating to two other non-
Company sites in that state. Based upon its 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. However, 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 these matters.
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.
-9-
Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
Results of Operations - Three Months Ended June 30, 1996 Compared to Three
- --------------------------------------------------------------------------
Months ended June 30, 1995
- --------------------------
Sales increased $4,576,000 or 15.9%. Sales in the Electrical Appliances and
Electronic Devices segment decreased $428,000. Sales of heat dissipating
devices, especially for computer microprocessors, and of frequency control
devices declined $1,196,000 and $107,000, respectively. The sales decline for
heat dissipating devices for computers is primarily attributable to an
oversupply of parts by computer manufacturers. Sales of electrical appliances
increased $875,000, due to sales gains in the commercial and international
product lines. Sales in the Fabricated Metal Products and Equipment segment
increased $508,000, due primarily to sales improvements in door and air
products. Sales in the Power and Controlled Environmental Systems segment
increased $4,496,000. Sales of engine generator sets increased $4,845,000, due
primarily to First Article deliveries under a government contract. Sales
declines for custom mobile, power plant and thermal products totaling $1,407,000
were partially offset by increased sales of $1,058,000 for transportable medical
units.
Gross profit decreased $501,000 and declined as a percentage of sales to 19.6%
from 24.4%. Gross profit in the Electrical Appliances and Electronic Devices
segment decreased due to lower sales of higher-margined heat dissipating devices
for computers, offset in part by increased volume of higher-margined commercial
and international electrical appliance products. Gross profit declined in the
Fabricated Metal Products and Equipment segment due to manufacturing
inefficiencies at the Scranton, Pennsylvania plant. Gross profit increased in
the Power and Controlled Environmental Systems segment, as improved fixed cost
absorption on engine generator sets was offset by lower gross profit due to
sales mix on thermal, custom mobile and power plant products and transportable
medical units.
Selling, general and administrative expenses decreased $534,000, due to a
reduction in performance-related incentive costs and advertising expenditures.
Other income (expense) was a net expense of $219,000 for the current quarter
compared to income of $109,000 for the prior year's quarter, or an unfavorable
variance of $328,000. Net interest income (expense) had an unfavorable variance
of $115,000, as the Company had borrowings under its Revolving Credit Agreement
in the current period versus investments of excess funds in the prior period.
The Company recorded an expense of $200,000 in the current period to provide for
estimated additional environmental costs associated with a Company site in
California. A gain of $198,000 was recognized in the prior year's period from
the sale of property and leasehold rights. Other miscellaneous items increased
$185,000 over the prior year's quarter.
Income tax charges decreased $98,000 due principally to the $295,000 decline in
income from continuing operations before equity accounting. The income tax rate
increased to 41.5% for the current quarter from 37.3% for the prior period, due
to revised estimates of taxable earnings and the effect of minimum state taxes
in the current quarter. The effective rate for both periods differs from the
Federal statutory rate due to the effect of state income taxes.
-10-
Income from the Company's equity investment in CTS Corporation ("CTS")
increased $774,000, reflecting CTS' increase in quarterly net earnings, the
Company's period to period increase in percentage of equity ownership to 44.1%
from 43.1% and, most significantly, a change in the effective tax rate applied
by the Company to its share of CTS' undistributed earnings (see Note 2 - Equity
Investment in CTS Corporation in the Notes to the Condensed Consolidated
Financial Statements), which resulted in a $528,000 increase in the Company's
reported share of CTS' earnings in the current quarter.
Effective April 1, 1996, the Fermont Division's results of operations are
included in the Company's results of operations (see Note 6 - Reclassification
of Provision for Fermont Disposition in the Notes to the Condensed Consolidated
Financial Statements). Reported results for prior periods have been
reclassified, including a $23,000 reversal of a reserve for Fermont's
disposition recorded in the prior year's quarter.
Results of Operations - Six Months Ended June 30, 1996 Compared to Six Months
- -----------------------------------------------------------------------------
Ended June 30, 1995
- -------------------
Sales increased $6,630,000 or 12.2%. Sales in the Electrical Appliances and
Electronic Devices segment increased $279,000. Sales of electrical appliances
increased $1,753,000, due primarily to sales improvements in the commercial
product line. Sales of frequency control devices improved $354,000, due
primarily to increases in oscillator sales. Sales of heat dissipating devices
declined $1,828,000, principally attributable to an oversupply of parts by
computer manufacturers. Sales in the Fabricated Metal Products and Equipment
segment increased $1,139,000, due primarily to sales improvements in door and
air products. Sales in the Power and Controlled Environmental Systems segment
improved $5,212,000. Sales of engine generator sets increased $6,036,000, due
largely to First Article deliveries under a government contract to manufacture
generator sets. Sales declines of custom mobile, thermal and power plant
products totaling $2,749,000 were partially offset by increased sales of
$1,925,000 for transportable medical units.
Gross profit declined $1,765,000 and decreased as a percentage of sales to 19.0%
from 24.5%. Gross profit in the Electrical Appliances and Electronic Devices
segment decreased due to lower sales of higher-margined heat dissipating devices
for computers, offset in part by improved sales of higher-margined commercial
and international electrical appliance products. Gross profit declined in the
Fabricated Metal Products and Equipment segment due to manufacturing
inefficiencies at the Scranton, Pennsylvania plant. Gross profit increased in
the Power and Controlled Environmental Systems segment, as improved fixed cost
absorption on engine generator sets was offset by lower gross profit on lower
overall sales of thermal, custom mobile and power plant products.
Selling, general and administrative expenses decreased $541,000, due to a
reduction in performance-related incentive costs and advertising expenditures.
Other income (expense) was a net expense of $102,000 for the current period
compared to income of $345,000 for the prior year's period, or an unfavorable
variance of $447,000. Net interest income (expense) had an unfavorable variance
of $223,000, as interest expense increased $101,000 due to borrowings under the
Company's Revolving Credit Agreement and interest income declined $122,000 from
the prior period, which included $74,000 of income from a note receivable. The
Company recorded an expense of $200,000 in the current period to provide for
-11-
the estimated additional environmental costs associated with a Company site in
California. Other miscellaneous items increased $174,000 over the prior year's
six month period.
An income tax benefit of $413,000 was recorded in the current period, a 38.2%
tax rate, versus an income tax expense of $220,000 in the prior period, a 37.4%
tax rate. The effective rate for both periods is higher than the Federal
statutory rate due to the effect of state income taxes.
Income from the Company's equity investment in CTS increased $4,032,000,
reflecting CTS' improvement in period to period net earnings, the Company's
increase in percentage of equity ownership to 44.1% from 43.1% in the prior
period, and, most significantly, a change in the effective tax rate applied by
the Company to its share of CTS' undistributed earnings (see Note 2 - Equity
Investment in CTS Corporation in the Notes to the Condensed Consolidated
Financial Statements), which resulted in a $3,430,000 increase in the Company's
reported share of CTS' six month earnings.
Effective April 1, 1996, the Fermont Division's results of operations are
included in the Company's results of operations (see Note 6 - Reclassification
of Provision for Fermont Disposition in the Notes to the Condensed Consolidated
Financial Statements). Reported results for prior periods have been
reclassified, including $251,000 and $297,000 reversals of a reserve for
Fermont's disposition recorded for the six months ended June 30, 1996 and 1995,
respectively.
Financial Condition
- -------------------
Cash and cash equivalents decreased $1,063,000 during the six months ended June
30, 1996. Cash of $714,000 was used in operating activities, principally to
fund increases in other current assets and accounts receivable, offset in part
by dividends from CTS and a decrease in inventories. Cash of $1,317,000 was
used in investing activities to purchase equipment. Cash of $968,000 was
provided by financing activities, as borrowings increased by $1,750,000 and the
Company funded dividend payments and treasury stock purchases.
Cash at June 30, 1996 amounted to $704,000. During the six month period, the
Company borrowed $1,750,000 for working capital requirements under its
$37,000,000 Revolving Credit Agreement with its banks, bringing the total
borrowings to $4,750,000. The Company presently has $32,250,000 available
under the Agreement, in addition to a $9,000,000 uncommitted line with a bank.
Liquidity and financial resources are considered adequate to fund planned
Company operations, including capital expenditures, payment of dividends and
additional stock purchases, if any. 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 $14,015,000 to realize its deferred tax assets, which are
$4,862,000 at June 30, 1996. Also under applicable carryback provisions of the
Internal Revenue Code, prior years' taxable income could be utilized to realize
a substantial portion of the deferred tax assets.
-12-
With respect to environmental matters (see Note 7 - Contingencies in the Notes
to the Condensed Consolidated Financial Statements), the Company incurred costs
of $325,000 and $426,000 for managing hazardous substances or pollutants during
the current three and six month periods, including the $200,000 in Other Income
(Expense) provided for estimated additional costs associated with participating
in the allocation of responsibility proceeding conducted by a PRP group involved
with a Company site in California. This compares to $72,000 and $124,000 for
the comparable prior year three and six month periods. In complying with
federal, state and local environmental protection statutes and regulations, the
Company has altered or modified certain manufacturing processes and expects to
continue to do so in the future. Such modifications to date have not
significantly increased capital expenditures or materially 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 matters.
The adoption of recently issued FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
had no impact on the Company's financial position or results of operations. The
Company accounts for stock-based compensation in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." However, there is no pro
forma effect on net income and earnings per share under FASB Statement No. 123,
"Accounting for Stock-Based Compensation."
-13-
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) On May 3, 1996, the Annual Meeting of Shareholders was held at Cole
Auditorium, Greenwich Library, West Putnam Avenue and Dearfield Drive,
Greenwich, Connecticut.
(b) Three Class B directors were elected to serve until the Annual Meeting of
Shareholders in 1998. The voting results were as follows:
Votes Votes
Director For Withheld
---------------- --------- --------
Patrick J. Dorme 3,494,912 9,955
Russell H. Knisel 3,494,683 10,184
Saul Sperber 3,491,212 13,655
There were no abstentions in the directors' election.
(c) The proposal relating to the selection of Ernst & Young LLP as independent
auditors of the Company for the year 1996 was approved and ratified. Of
the total number of votes cast, 3,498,533 were cast in favor of the
proposal, 3,935 were cast against the proposal and 2,399 shares abstained.
Information included in the definitive proxy statement for the May 3, 1996
Annual Meeting of Shareholders is incorporated herein by reference.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(b) There were no reports on Form 8-K for the three months ended June 30, 1996.
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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
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(Registrant)
/s/ Patrick J. Dorme
--------------------------------
(Signature)
Patrick J. Dorme
Vice President - Finance and
Chief Financial Officer
Date: August 13, 1996
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