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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1995
COMMISSION FILE NUMBER 0-16182
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VERNITRON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1962029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
645 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 593-7900
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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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12,538,012 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF JULY
28, 1995.
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VERNITRON CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited):
Condensed Statements of Operations -
Quarter Ended March 31, 1995 and 1994 3
Condensed Statements of Operations -
Six Months Ended June 30, 1995 and 1994 4
Condensed Balance Sheets -
June 30, 1995 and December 31, 1994 5
Condensed Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
VERNITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Quarter Ended
June 30,
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1995 1994
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NET SALES $ 16,854 $ 15,836
Cost of sales 12,210 11,368
Selling, general and administrative expenses 3,497 3,294
Amortization of intangible assets 52 52
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OPERATING INCOME 1,095 1,122
Interest expense - net 541 653
Other expense 7 3
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INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES 547 466
Charge in lieu of taxes 214 161
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INCOME FROM CONTINUING OPERATIONS 333 305
Discontinued Operations (Note 2):
Income from operations, includes a tax
benefit of $77 in 1994 - 118
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NET INCOME 333 423
Preferred stock dividends 137 81
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NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS' EQUITY $ 196 $ 342
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NET INCOME PER COMMON SHARE:
Continuing operations $ .02 $ .04
Discontinued operations - .03
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Total $ .02 $ .07
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Weighted average common shares outstanding 12,538,012 5,185,070
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See notes to condensed financial statements.
3
VERNITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
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1995 1994
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NET SALES $ 33,750 $ 30,765
Cost of sales 24,424 22,540
Selling, general and administrative expenses 7,125 6,452
Amortization of intangible assets 104 104
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OPERATING INCOME 2,097 1,669
Interest expense - net 1,037 1,254
Other expense 15 3
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INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES 1,045 412
Charge in lieu of taxes 408 161
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INCOME FROM CONTINUING OPERATIONS 637 251
Discontinued Operations (Note 2):
Loss from operations, net of tax benefit of
$77 in 1994 - (118)
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NET INCOME 637 133
Preferred stock dividends 258 150
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NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS' EQUITY $ 379 $ (17)
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NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ .03 $ .02
Discontinued operations - (.02)
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Total $ .03 $ -
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Weighted average common shares outstanding 12,538,012 5,185,070
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See notes to condensed financial statements.
4
VERNITRON CORPORATION
CONDENSED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1995 1994
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 84 $ 27
Accounts receivable - net 9,489 9,293
Inventories - net 15,768 14,527
Other current assets 616 468
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TOTAL CURRENT ASSETS 25,957 24,315
PROPERTY, PLANT AND EQUIPMENT - net 7,751 7,990
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 6,728 6,832
NET ASSETS HELD FOR DISPOSAL 1,204 2,507
OTHER ASSETS 462 553
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TOTAL ASSETS $42,102 $42,197
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,282 $ 6,394
Accrued expenses and other liabilities 5,617 5,941
Current portion of long-term debt 592 442
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TOTAL CURRENT LIABILITIES 11,491 12,777
LONG-TERM DEBT, less current portion 12,727 11,921
OTHER LONG-TERM LIABILITIES 3,017 3,579
DEFERRED INCOME 585 651
SHAREHOLDERS' EQUITY:
Preferred Stock, issued and outstanding 724,936
shares in 1995 and 672,344 shares in 1994 7 7
Common Stock, issued and outstanding 12,538,012
shares in 1995 and 1994 125 125
Capital in Excess of Par 14,358 13,982
Accumulated Deficit (since December 31, 1991) (208) (845)
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TOTAL SHAREHOLDERS' EQUITY 14,282 13,269
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,102 $42,197
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See notes to condensed financial statements.
5
VERNITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 637 $ 133
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Recognition of net operating loss carryforward 376 80
Depreciation and amortization 780 855
Increase in current assets, other than cash (1,585) (1,067)
Increase (decrease) in current liabilities (1,436) 404
Other - net (729) 377
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NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,957) 782
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (437) (241)
Proceeds from sale of assets (Note 2) 1,495
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NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,058 (241)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 18,712 336
Repayment of borrowings (17,756) (600)
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 956 (264)
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NET INCREASE IN CASH 57 277
Cash at beginning of period 27 103
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CASH AT END OF PERIOD $ 84 $ 380
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See notes to condensed financial statements.
6
VERNITRON CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION
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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 Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. Operating results for the quarter and six months ended June 30,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
In accordance with quasi-reorganization accounting principles, the Company
elected to adjust its December 31, 1991 balance sheet to fair value and
transferred the accumulated deficit of $14,094 to capital in excess of par.
Per share data for the periods are based upon the weighted average number of
common shares outstanding during such periods. Outstanding common stock options
have not been included in the computation of earnings per share as their
exercise would not have a material dilutive effect.
Total interest paid for the six months ended June 30, 1995 and 1994 was $1,024
and $1,204 respectively. The Company had net income tax payments of $51 and $30
for the six months ended June 30, 1995 and 1994, respectively.
NOTE 2 - DISCONTINUED OPERATIONS
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Effective September 30, 1994, the Company adopted a plan to dispose of all of
its Electronic Components business. The disposal is being accounted for as a
discontinued operation, and, accordingly, the related net assets and operating
results have been reported separately from continuing operations. During 1995,
the Company sold the remaining product line of this business for $1,500. The
loss from operations of the discontinued Electronic Components business in 1995
of $64 was charged to reserves established in the prior year for anticipated
operating losses until disposal.
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VERNITRON CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands)
NOTE 3 - INVENTORIES
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Inventories have been determined generally by lower of cost (first-in, first-out
or average) or market. Inventories consist of:
June 30, December 31,
1995 1994
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Raw materials $ 2,922 $ 2,551
Work-in-process 5,526 5,879
Finished goods 7,320 6,097
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$15,768 $14,527
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NOTE 4 - OTHER INFORMATION
June 30, December 31,
1995 1994
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Allowance for doubtful accounts $ 325 $ 345
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Accumulated depreciation and amortization
of property, plant and equipment $ 4,338 $ 3,662
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Accumulated amortization of excess of cost
over net assets acquired $ 731 $ 627
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8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Dollars in thousands)
RESULTS OF OPERATIONS
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Net sales by product group were as follows:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 1994 1995 1994
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Motion Control $ 6,407 $ 6,596 $13,047 $ 12,566
Industrial Components 10,447 9,240 20,703 18,199
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Net Sales $ 16,854 $15,836 $33,750 $30,765
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QUARTER ENDED JUNE 30, 1995 COMPARED TO THE QUARTER ENDED JUNE 30, 1994
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Net sales for the second quarter of 1995 increased by $1,018, or 6%,
compared to the same period in 1994.
The Motion Control group's sales (motors, sensors and controls) decreased
slightly in 1995 by $189, or 3%, as compared to 1994. This decrease was
primarily due to lower shipments of synchros resulting from a consolidation of
inventory at Government depots and manufacturing and purchasing inefficiencies
affecting the resolver and motor product lines. These inefficiencies are
considered temporary and should be corrected in the third quarter of 1995.
These lower sales were partially offset by higher electromagnetic sub-system
sales resulting from new product introductions which did not begin to generate
significant sales volume until the second half of 1994 and higher potentiometer
sales resulting from greater operating efficiencies due to changes in product
line management and the relocation of the product line from Deer Park, New York
to St. Petersburg, Florida during the first quarter of 1994. Bookings were
$7,194 in the second quarter of 1995, an increase of $2,349, or 48%, compared to
the comparable quarter in 1994, primarily due to higher foreign bookings for
industrial resolvers resulting from an increased focus on foreign market
opportunities, higher motor orders resulting from new Government program awards,
and higher potentiometer orders due to improved sales/marketing management. The
nature of the Motion Control group's bookings results in an uneven pattern from
quarter to quarter and does not necessarily reflect overall business trends.
Backlog at June 30, 1995 was $14,216, compared to $12,621 at December 31, 1994.
The Industrial Components group's sales (bearings and connectors) increased
in 1995 by $1,207, or 13%, compared to 1994. Sales of bearings and connectors
were up by 10% and 17%, respectively, primarily due to new and increased
activity with original equipment manufacturers ("OEM's") and the introduction of
new and/or enhanced products. Industrial Component's bookings for the quarter
were $10,102, an increase of $452, or 5%, compared to 1994. This increase is
primarily in bearings and is due to increased OEM activity. Backlog at June 30,
1995 was $11,268, compared to $10,387 at December 31, 1994.
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Operating income was $1,095 in 1995, as compared to $1,122 in 1994,
representing a $27 decrease. This decrease was primarily due to lower gross
margins resulting from an unfavorable sales mix in both business groups and
higher raw material costs in the Industrial Components group as well as higher
selling, general and administrative expenses. These unfavorable variances were
partially offset by the gross margin earned on the incremental Industrial
Components group sales. Overall, gross margin on sales was 27.6% in 1995, down
from 28.2% in 1994. However, productivity, as measured by value-added per
employee, increased 8% to approximately $18.7 in 1995 from approximately $17.4
in 1994.
Selling, general and administrative expenses increased by $203 in 1995
primarily due to higher medical costs and the addition of sales personnel.
Interest expense declined by $112 in 1995 as a result of lower average
borrowings due primarily to the repurchase of the Company's bank indebtedness at
a discount in the third quarter of 1994. This was partially offset by higher
interest rates.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1994
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RESULTS OF OPERATIONS
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Net sales for the first half of 1995 increased by $2,985, or 10%, compared
to the same period in 1994.
The Motion Control group's sales (motors, sensors and controls) increased
in 1995 by $481, or 4%, as compared to 1994. This increase was primarily due
to higher electromagnetic sub-system sales resulting from new product
introductions which did not begin to generate significant sales volume until the
second half of 1994 and higher potentiometer sales resulting from greater
operating efficiency in the current period (see discussion of quarter ended June
30, 1995). These higher shipments were partially offset by lower shipments of
synchros resulting from a consolidation of inventory at Government depots, lower
resolver sales due to the shipment of certain large orders in the first quarter
of 1994 and manufacturing and purchasing inefficiencies effecting the resolver
and motor product lines. Bookings were $14,642 in 1995, an increase of $3,009,
or 26%, compared to 1994, primarily due to higher foreign orders for industrial
resolvers and higher motor and potentiometer orders. The nature of the Motion
Control group's bookings results in an uneven pattern from quarter to quarter
and does not necessarily reflect overall business trends.
The Industrial Components group's sales (bearings and connectors) increased
in 1995 by $2,504, or 14%, compared to 1994. Sales of bearings and connectors
were up by 13% and 14%, respectively. Industrial Component's bookings were
$21,584, an increase of $2,224, or 12%, compared to 1994. Both the increase in
sales and bookings reflect favorable economic conditions (particularly in the
first quarter of 1995), new and increased activity with OEM's and the
introduction of new and/or enhanced products.
Operating income was $2,097, in 1995, as compared to $1,669 in 1994,
representing a $428 increase. This increase was primarily due to the gross
margin earned on the incremental sales volume
10
in both business groups and cost reductions in the Motion Control group
resulting from restructuring actions completed during 1994, which were partially
offset by an unfavorable sales mix in the Motion Control group, higher raw
material costs in the Industrial Components group and higher selling, general
and administrative expenses. Overall, gross margin on sales was 27.6 % in 1995,
up from 26.7% in 1994. Productivity, as measured by value-added per employee,
increased 16% to approximately $37.6 in 1995 from approximately $32.4 in 1994.
Selling, general and administrative expenses increased by $673 in 1995
primarily due to higher medical costs, the addition of sales personnel and the
reinstatement of certain profit sharing provisions.
Interest expense declined by $217 in the first half of 1995 as a result of
lower average borrowings due primarily to the repurchase of the Company's bank
indebtedness at a discount in the third quarter of 1994. This was partially
offset by higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
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The Company believes that its $17.5 million credit facility and cash
generated from operations will be sufficient to meet its future capital
expenditure and working capital requirements and required debt amortization.
The Company had no material commitments for capital expenditures as of June
30, 1995.
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K
None
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.
Date: August 4, 1995 VERNITRON CORPORATION
By: /s/ Stephen W. Bershad
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Stephen W. Bershad
Chief Executive Officer
By: /s/ Raymond F. Kunzmann
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Raymond F. Kunzmann
Vice President - Finance, Controller
and Chief Financial Officer
12