DYNAMICS
CORPORATION
OF AMERICA
1993 Annual Report
Shareholders' Meeting:
The annual meeting of shareholders will be held on May 6, 1994 at 10:30 A.M.
in the Cole Auditorium of the Greenwich Library, West Putnam Avenue at
Dearfield Drive, Greenwich, Connecticut.
Stock Listing:
New York Stock Exchange
Ticker Symbol: DYA
NYSE-Composite Transactions
Symbol: DynaAmer
Additional Information:
A copy of the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission will be furnished, without charge, on the written
request of a shareholder. Requests should be forwarded to the Company,
attention of the Secretary,
475 Steamboat Road, Greenwich, Connecticut 06830-7197
Executive Offices:
475 Steamboat Road
Greenwich, Connecticut
06830-7197
Tel. 203-869-3211
Transfer Agent and Registrar:
THE FIRST NATIONAL
BANK OF BOSTON
P.O. Box 644
Mail Stop 45-02-09
Boston, Massachusetts
02102-0644
Tel. 617-575-2900
Independent Auditors:
ERNST & YOUNG
1111 Summer Street
Stamford, Connecticut
06905-5571
Tel. 203-326-8200
DYNAMICS CORPORATION OF AMERICA
Contents
Page
President's Message ........................................ 2
Management's Discussion and
Analysis .................................................. 4
Consolidated Balance Sheets ............................... 7
Consolidated Statements of
Operations ................................................ 8
Consolidated Statements of Stockholders'
Equity ................................................... 9
Consolidated Statements of
Cash Flows ................................................ 10
Notes to Consolidated Financial
Statements ................................................ 11
Report of Independent Auditors ............................ 20
Selected Financial Data .................................... 21
Segments of Business ....................................... 22
Range of Stock Prices and Dividend
Information ............................................... 23
Divisions and Subsidiary .................................. 24
Directors and Officers ...................... Inside Back Cover
Dynamics Corporation of America is a diversified manufacturer of commercial
and industrial products founded in 1924 and incorporated in New York. Its
corporate headquarters are in Greenwich, Connecticut and its shares are
listed on the New York Stock Exchange (trading symbol: DYA). The Company's
seven plants are located in California, Connecticut, Ohio and Pennsylvania.
Its five separate business units manufacture electronic components such as
Zero Insertion Force (ZIF(tm)) printed circuit board retainers and heat
dissipators; frequency control components and oscillators; commercial and
consumer appliances sold under the Waring(R), Acme Juicerator(R),
Qualheim(tm), Blendor(R) and NuBlend(R) tradenames; air distribution systems
sold under the Anemostat(R), Anemotrak(R) and Envirotrak(R) tradenames;
vision frames and louvers for fire rated doors; and air conditioning, related
equipment for power plant and other applications, mobile vans and
transportable shelters (including the Environ(R)) for specialized electronic
and medical diagnostic equipment such as CT and MRI scanners. The Company
also invests from time to time in shares of other businesses. The Company
currently holds a 37.3% stake in CTS Corporation ("CTS"), an Indiana
corporation headquartered in Elkhart whose shares are listed on the New York
Stock Exchange (trading symbol: CTS). CTS is a manufacturer of electronic and
electromechanical components and subsystems for the automotive,
communications equipment, data processing, defense and aerospace, instruments
and controls and consumer electronic markets.
1
PRESIDENT'S MESSAGE
TO SHAREHOLDERS
1993--What a challenging year it was!
Managing the performance of Dynamics Corporation of America during the past
few years while meeting the challenges of a depressed economy, low consumer
confidence, major personnel layoffs, and the continuing uncertainty of the
promised but elusive recovery has, at times, required the patience of Job and
the wisdom of Solomon to survive and prosper. However, by perseverance and in
spite of the many setbacks, DCA's continuing operations have managed to
remain profitable, although not to the degree that management had planned or
worked so hard to achieve.
For the year ended December 31, 1993, Dynamics Corporation of America
reported income from continuing operations of $2,677,000, or $.68 per share,
on sales of $101,329,000. This compared with income from continuing
operations of $3,333,000, or $.85 per share, on sales of $110,243,000 for the
year ended December 31, 1992. Income in 1992 was increased by a resolution of
prior years tax matters of $780,000, or $.20 per share.
Included in income from continuing operations, before accounting changes, is
the Company's proportionate share of the results of the CTS Corporation, in
which DCA presently has a 37.3% ownership, for the year ended December 31,
1993, in accordance with the equity method of accounting required for that
investment, which was income of $1,619,000, or $.41 per share, compared to a
loss of $442,000, or $.11 per share, for last year.
The Company reported net income for the year ended December 31, 1993 of
$961,000, or $.24 per share, compared with net income of $2,123,000, or $.54
per share, in 1992.
Net income for the year ended December 31, 1993 included DCA's proportionate
share of CTS' net charge for onetime accounting changes, related to post
retirement benefits other than pensions and accounting for income taxes,
amounting to $1,716,000, or $.44 per share.
The Company fell considerably short of its planned sales and profit goals for
the year. The largest contributors to the 1993 shortfall were the Anemostat
Products Division and the Waring Products Division. These two divisions
experienced more than $13 million in lower sales than in 1992 and recorded
losses of approximately $400,000 as compared to earnings of approximately
$4,300,000 (pretax) in the 1992 period. Unfortunately, as we begin 1994,
market conditions for these operations have not materially improved although
we expect the benefits gained from their restructuring in 1993 will allow
both to be more competitive.
At our annual meeting held on May 7, 1993, I reported to you on the progress
being made by our wholly owned subsidiary International Electronic Research
Corporation. Through that date, this operation had recorded bookings of
$1,650,000 for its newly developed thermal products for various
microprocessors being introduced into the computer marketplace. These strong
bookings continued throughout the year resulting in sales at IERC of
$8,348,000--a 57% increase over the prior year. Operating income increased
fivefold. This outstanding performance continues into 1994 with bookings in
January and February for these same products already exceeding $2.7 million.
There is no guarantee that this order rate will continue but it is a great
start.
As in 1992, DCA did not borrow any funds during the year under the Revolving
Credit Agreement with its banks and the Company again demonstrated its
continuing ability to generate positive cash flow as its cash and cash
equivalents at year end increased to $8,969,000 as compared to $6,095,000 in
1992.
2
In 1993, the management of the CTS Corporation began to realize the benefits
of its restructuring of operations, aggressive new product development and a
very strong automotive market for its products. These actions resulted in CTS
achieving net sales of $236,979,000, an increase of $9,588,000 or 4.2% over
1992, and operating earnings of $11,021,000, which increased significantly
from $4,098,000 in 1992. Before the Financial Accounting Standards Board
mandated accounting changes, earnings per share were $1.27 compared to $.37
in 1992. Operating cash flow at CTS was also positive and increased by $4.7
million over 1992 reflecting the company's continued emphasis on balance
sheet management.
On a personal note, it is with profound regret and sadness that I inform you
that Edward J. Mooney, our valued director, officer and colleague, who
celebrated his 40th year with DCA prior to his retirement in December, died
on February 7, 1994. On the occasion of his 25th year with the Company in
1978, the Board of Directors adopted the following resolution:
"RESOLVED, that we, his fellow Directors, record our utmost respect and
admiration and express our appreciation and gratitude to Edward J. Mooney for
his many years of devotion to duty, abundant talent, uncompromising
integrity, fortitude, keenness of mind and sound counsel. He has been a
champion of right, philosopher, teacher and pillar of strength, all of which
have left an indelible mark on those who have come in contact with him and
have contributed immeasurably to the survival, growth and success of this
Corporation."
Our admiration, so well expressed 15 years ago, only grew in the ensuing
years. His abundant talent, friendship, wise counsel and wit will be missed
by all his fellow employees and the many and significant contributions that
he made are a lasting legacy for DCA. We hereby extend to his family our
heartfelt sympathy in their great loss.
The challenges of 1993 have been many; the disappointments confronted; the
successes gratefully accepted. As we prepare to confront new challenges, we
feel confident that a financially sound, debt free DCA is in a position to
capitalize on the opportunities afforded to it to grow and prosper.
We sincerely thank those employees who responded to the challenges this past
year with their hard work, dedication and ingenuity. We also thank our
shareholders for their continued support and encouragement.
(SIGNATURE OF ANDREW LOZYNIAK)
Andrew Lozyniak
Chairman of the Board
and President
March 11, 1994
3
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion, unless otherwise noted, pertains to continuing
operations.
Results of Operations
(1993 compared to 1992)
Sales decreased $8,914,000 or 8.1%. Sales in the Electrical Appliances and
Electronic Devices segment decreased $8,452,000 as sales of electrical
appliances decreased $10,364,000 with lower sales of juicer products and
blenders partially offset by increased sales of specialty consumer products.
Sales of electronic devices increased $1,912,000 as sales of new heat
dissipating devices for computer microprocessors more than doubled while
sales of frequency control devices decreased. Sales in the Fabricated Metal
Products and Equipment segment decreased $2,894,000 as air, door and systems
product sales declined due to the weak market for new industrial and
commercial construction and renovation, as well as competitive pricing. Sales
in the Power and Controlled Environmental Systems segment increased
$2,432,000 due principally to increased shipments under a multi-unit,
defense-related custom mobile order to a Government prime contractor, which
were partially offset by sales declines in power plant products.
Gross profit decreased $5,664,000 to 24.5% from 27.6% of sales. Gross profit
in the Electrical Appliances and Electronic Devices segment decreased
significantly due to lower sales of electrical appliances and lower sales and
manufacturing yields in the frequency control and hermetic seal product
lines, offset in part by the effect of increased sales of higher margined
heat dissipating devices. In the Fabricated Metal Products and Equipment
segment, gross profit decreased due to lower sales, especially of higher
margined systems products and services, and price competition. Gross profit
in the Power and Controlled Environmental Systems segment decreased due to
price competition for reduced defense procurements and a declining medical
products market for mobile vans and transportable shelters.
Selling, general and administrative expenses decreased $2,099,000 due to
lower commission, freight and sales promotion expenses in all segments of the
Company. The decrease was primarily volume related.
Other income increased $301,000. Royalty income increased $963,000 from the
initial royalty under a technology transfer agreement with a customer in the
Power and Controlled Environmental Systems segment. Staff restructurings
resulted in charges of $470,000, principally for severance, in the current
year. In 1992, the sale of excess property and plant resulted in a gain of
$554,000.
Income taxes amounted to $617,000, a decline of $547,000 principally because
of lower income before taxes. The year to year comparison of income taxes was
also affected by the favorable resolution of certain tax matters in 1992
amounting to $780,000. The 1993 effective tax rate is higher than the
applicable 34% Federal statutory rate primarily because of state income taxes
which were offset in part by non-taxable income and foreign tax credits.
The cumulative effect to January 1, 1992 of the Company's adoption of
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting
for Income Taxes," resulted in a charge of $942,000 to 1992 earnings.
Equity in CTS Corporation
Equity in the earnings of CTS Corporation before accounting changes by CTS
increased $2,061,000 primarily as a result of CTS' increase in such earnings
of $4,669,000.
During the quarter ended March 31, 1993, the Company recorded its
proportionate share of CTS' net charge from its adoption of 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.
The Company's equity ownership in CTS was 37.3% at year end compared to 37.2%
at the end of the previous year. The change in the equity ownership
percentage is attributable to purchases of CTS stock by the Company.
Liquidity and Financial Resources
In 1993, the Company increased cash and cash equivalents $2,874,000 by
generating $5,166,000 from operating activities while using $882,000 and
$1,410,000 in investing and financing activities, respectively, as disclosed
in the statement of cash flows. The discontinued Fermont division required
cash of $370,000 for operating activities. Cash and marketable securities,
other than shares of CTS, amounted to $9,656,000 at December 31, 1993. The
Company did not borrow dur-
4
ing the year under its $27,000,000 Revolving Credit Agreement or the
$10,000,000 uncommitted line with its banks. The entire amount of the credit
facilities is available for use by the Company.
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 which it believes could 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's
income from continuing operations before income taxes aggregated $9,089,000
for the three years ended December 31, 1993. Sustaining this income level
would be sufficient to realize deferred tax assets over the tax recovery
period. Although they are not expected to be required, the Company has
available various tax planning strategies, including property sale and
leaseback strategies, to supplement taxable income from operations in order
to realize deferred tax assets. The Company will require taxable income of
$15,396,000 ($14,742,000 of ordinary income and $654,000 of capital gain
income) to realize its net deferred tax assets of $5,999,000 at December 31,
1993. Under applicable carryback provisions of the current Internal Revenue
Code, $5,858,000 of the prior years' taxable income could be utilized to
realize temporary differences, including all capital related items. The
Company in large measure controls the reversal of $5,501,000 of temporary
differences and a significant portion of the remaining differences is
expected to reverse during the next five years.
The effect on the Company's income taxes of the Omnibus Budget Reconciliation
Act of 1993 was not significant in 1993 and is not expected to be significant
in the foreseeable future.
The Company continues to test its prototype units toward the goal of securing
first article approval from the U.S. Government of the 3KW generator sets
designed and manufactured by the discontinued Fermont division. Management
believes the reserve for this discontinued operation is adequate, although
the additional time for testing has extended the projected contract
completion date into 1996. (See Note 3 to the Consolidated Financial
Statements.)
Staff restructuring costs of $470,000 in 1993, principally for severance,
will result in cash outflows of approximately $369,000 and reduced salary
costs of approximately $1,500,000 in 1994.
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 adjacent to the California site has sued the Company and others for
allegedly causing contamination of their property. The Company incurred costs
of $273,000 in 1993 to fund engineering studies and conduct investigations of
the California site and to pay related expenses. The Company also has
received notice from a state environmental agency that it is a PRP with
respect to a non-Company site in Pennsylvania, and is a defendant in two
lawsuits seeking contribution for Superfund cleanup costs relating to two
other non-Company sites in that state.
The amount of future environmental-related expenditures and the extent of
insurance coverage is not determinable at this time. 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
possible remediation, the extent of which is 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.
In 1993 the Company expended $426,000, including the $273,000 at the
California site, to manage hazardous substances, to monitor pollutants, to
test for contaminants and to provide for required clean-up activities, a 48%
increase in such expenditures over the prior year.
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.
During 1993, the Company adopted FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits" and FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
impact of which was not significant.
The impact of inflation on the operations of the Company was not material.
5
Results of Operations
(1992 compared to 1991)
Sales decreased $1,719,000 or 1.5%. Sales in the Electrical Appliances and
Electronic Devices segment increased overall by $2,249,000 or 3.7%. Sales of
electrical appliances, driven primarily by consumer demand for juicer and
other specialty products, increased $7,887,000 or 19.7%. Sales of electronic
components declined $5,638,000 as procurement for defense-related product
applications declined and manufacturing difficulties resulted in lost
business in the communication and data processing industries. Recently
developed electronic heat dissipating devices began to generate significant
sales toward the end of 1992 which offset in part the decline in
defense-related products. Sales in the Power and Controlled Environmental
Systems segment decreased $5,792,000. Sales of power plant products were
lower because a majority of the shipments on a major foreign order occurred
in 1991. Sales of mobile and transportable medical products declined
substantially due to delays in the release by Magnetic Resonance Imaging
(MRI) manufacturers of the next generation product for mobile applications
and in part to a maturing market for the existing models of MRI products for
mobile applications. Sales in the Fabricated Metal Products and Equipment
segment increased $1,824,000 primarily on the strength of laboratory,
isolation and clean room systems and door products. Sales of air products for
commercial and industrial applications declined in line with lower levels of
commercial building construction.
Gross profit increased $2,577,000 to 27.6% from 24.9% of sales. Gross profit
in the Electrical Appliances and Electronic Devices segment increased in the
aggregate and as a percentage of sales, because increased sales of electrical
appliances offset the effects of lower sales and production levels of
electronic components. Gross profit in the Power and Controlled Environmental
Systems segment increased in the aggregate and as a percentage of sales,
contributing significantly to overall improved Company gross profit.
Aggressive cost controls and improved gross margins on power plant and
medical product shipments contributed to the current year's improvement.
Gross profit in the Fabricated Metal Products and Equipment segment improved
primarily because of increased sales of more profitable systems products.
Other air products continued to experience a decline in gross profit
percentage as a result of reduced volume and competitive pressures on
pricing. Door products also experienced increased price competition.
Selling, general and administrative expenses increased $184,000. Advertising
for electrical appliances increased approximately $1,000,000, primarily for
the NuBlend(tm) blender, and legal and incentive plan expenses declined
approximately $850,000.
Other income increased $71,000. Income from marketable securities activity
declined $422,000 following the planned liquidation at a net gain in 1991 of
substantially all of the Company's current marketable securities portfolio,
and the resultant elimination of dividend income from such securities. The
sale of surplus property and plant resulted in a gain of $554,000 in 1992.
Income from a non-refundable escrow deposit of $254,000 was recorded in the
prior year.
Income taxes amounted to $1,164,000 and reflected a $780,000 favorable
resolution of prior year tax matters. Accordingly, the effective tax rate
differs substantially from the statutory rate of 34%. The Company adopted
FASB Statement No. 109, "Accounting for Income Taxes." The effect of the
adoption of FASB Statement No. 109 on the current year's income tax provision
was not significant. However, the cumulative effect of this change to January
1, 1992, resulted in a $942,000 charge to the current year's earnings.
Equity in CTS Corporation
Losses from the equity investment in CTS Corporation amounted to $442,000
which compared unfavorably to income of $650,000 which the Company reported
in 1991. The $1,092,000 year to year decrease, equivalent to $.28 per share,
in the Company's proportionate share of CTS' operating results was due
primarily to CTS' $2,313,000 decline in net income. The Company's equity
ownership was 37.2% at year end compared to 37.4% at the end of the previous
year. The .2% decline is attributable to common stock issued by CTS in
conformity with employee plans.
Discontinued Unconsolidated Affiliate
Equity in the loss of a discontinued unconsolidated affiliate (Farmhand,
Inc.) amounted to $20,000 through the date of disposition compared to a loss
of $492,000 in the prior year. The loss on disposition of the Company's
equity interest in Farmhand amounted to $248,000, or $.06 per share.
6
Dynamics Corporation of America
Consolidated Balance Sheets
(dollar amounts in thousands)
As of December 31, 1993 1992
Assets
Current Assets:
Cash and cash equivalents $ 8,969 $ 6,095
Accounts receivable, less allowances of $531 and $600 16,287 19,691
Inventories--Note 2 18,092 21,175
Other current assets--Note 6 1,897 1,126
Current assets of discontinued operation--Note 3 1,408 2,450
Deferred income taxes 4,542 4,425
---- -------
Total Current Assets 51,195 54,962
Property, Plant and Equipment, at cost, less accumulated depreciation and
amortization--Notes 4 and 8 3,906 4,187
Equity Investment in CTS Corporation--Note 5 57,037 57,795
Other Assets--Note 6 1,769 1,469
Deferred Income Taxes 1,457 1,875
---- -------
Total Assets $115,364 $120,288
==== =======
Liabilities
Current Liabilities:
Current installments of long-term debt $ 400 $ 411
Accounts payable 3,617 5,782
Accrued expenses and sundry liabilities--Notes 3 and 7 12,602 14,087
Federal income taxes payable 2,354 2,353
---- -------
Total Current Liabilities 18,973 22,633
Long-term Debt--Note 8 623 1,023
Other Liabilities--Note 9 2,954 3,916
---- -------
Total Liabilities 22,550 27,572
Contingencies--Note 15
Stockholders' Equity--Notes 10 and 11
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
Common Stock, par value $.10 per share--authorized 10,600,000; outstanding
3,889,751 and 3,903,035 shares 389 390
Paid-in Additional Capital 11,451 11,573
Retained Earnings 81,125 81,015
Deferred Compensation (151) (262)
---- -------
Total Stockholders' Equity 92,814 92,716
----- -------
Total Liabilities and Stockholders' Equity $115,364 $120,288
======= =======
The accompanying notes are an integral part of these statements.
7
Dynamics Corporation of America
Consolidated Statements of Operations
(dollar amounts in thousands, except per share data)
For the Years ended December 31, 1993 1992 1991
Net sales $101,329 $110,243 $111,962
Cost of sales 76,526 79,776 84,072
------ ------ -------
Gross profit 24,803 30,467 27,890
Selling, general and administrative expenses 24,071 26,170 25,986
------ ------ -------
732 4,297 1,904
Other income, net--Note 12 943 642 571
------ ------ -------
Income from continuing operations before items shown below 1,675 4,939 2,475
Income tax charge (benefit)--Note 13 617 1,164 (105)
------ ------ -------
Income from continuing operations before equity in CTS
Corporation 1,058 3,775 2,580
Income (loss) from equity investment in CTS Corporation, net of
income tax charges of $52, $87 and $99 1,619 (442) 650
------ ------ -------
Income from continuing operations 2,677 3,333 3,230
------ -------
Discontinued operations:
Equity in loss of discontinued unconsolidated affiliate,
net of income tax benefits of $13 and $309 (20) (492)
Loss on disposition of unconsolidated affiliate, net of
income tax benefit of $169--Note 6 (248)
Operating losses of discontinued division, net of income tax
benefit of $739--Note 3 (1,393)
Provision for disposition of discontinued division, net of
income tax benefit of $1,322--Note 3 (2,678)
------ -------
Loss from discontinued operations (268) (4,563)
------ ------ -------
Income (loss) before changes in accounting methods 2,677 3,065 (1,333)
Equity in CTS' cumulative effect to January 1, 1993 of changes
in accounting methods--Note 5 (1,716)
Cumulative effect to January 1, 1992 of change in accounting for
income taxes--Note 13 (942)
------ ------ -------
Net income (loss) $ 961 $ 2,123 ($ 1,333)
====== ======= =======
Income (loss) per common share:
Continuing operations $.68 $.85 $.83
Discontinued operations (.07) (1.17)
Equity in CTS' cumulative effect to January 1, 1993
of changes in accounting methods (.44)
Cumulative effect to January 1, 1992 of change in accounting
for income taxes (.24)
---- ---- -----
Net income (loss) $.24 $.54 ($.34)
==== ==== =====
The accompanying notes are an integral part of these statements.
8
Dynamics Corporation of America
Consolidated Statements of Stockholders' Equity
(dollar amounts in thousands)
For the Years ended December 31, 1993, 1992 and 1991
Common Paid-in Total
shares Par additional Retained Deferred stockholders'
outstanding* value capital earnings compensation equity
---------- ------- -------- ------ ---------- -----------
Balance at December 31, 1990 3,879,666 $388 $11,313 $81,881 ($415) $93,167
Shares issued and issuable from treasury
pursuant to benefit plans and other 44,861 4 559 (328) 235
Shares acquired for treasury (43) (1) (1)
Amortization of deferred compensation and
related tax charges (55) 317 262
Net loss (1,333) (1,333)
Cash dividends ($.20 per share) (781) (781)
--------- --- ------ ------ ------ -------
Balance at December 31, 1991 3,924,484 392 11,817 79,766 (426) 91,549
Shares issued and issuable from treasury
pursuant to benefit plans 2,303 17 17
Shares acquired for treasury and pursuant
to stock plans (23,752) (2) (207) (91) 19 (281)
Amortization of deferred compensation and
related tax charges (54) 145 91
Net income 2,123 2,123
Cash dividends ($.20 per share) (783) (783)
--------- --- ------ ------ ------ -------
Balance at December 31, 1992 3,903,035 390 11,573 81,015 (262) 92,716
Shares issued and issuable from treasury
pursuant to benefit plans and other 3,727 1 65 (32) 34
Shares acquired for treasury and pursuant
to stock plans (17,011) (2) (183) (70) 58 (197)
Amortization of deferred compensation and
related tax charges (4) 85 81
Net income 961 961
Cash dividends ($.20 per share) (781) (781)
--------- ---- ------ ------ ------ ----
Balance at December 31, 1993 3,889,751 $389 $11,451 $81,125 ($151) $92,814
========= ==== ====== ====== ====== ========
<FN>
*Net of shares held in treasury--3,285,410, 3,272,126, and 3,250,677 voting
shares at December 31, 1993, 1992 and 1991, respectively. The cumulative cost
of treasury shares at December 31, 1993 amounted to approximately $34,400.
Includes non-voting shares outstanding of 4,810 at December 31, 1993.
The accompanying notes are an integral part of these statements.
9
Dynamics Corporation of America
Consolidated Statements of Cash Flows
(dollar amounts in thousands)
For the Years ended December 31, 1993 1992 1991
Operating activities:
Net income (loss) $ 961 $ 2,123 ($1,333)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,227 1,190 1,179
Deferred income taxes 301 1,141 (2,921)
Increase (decrease) in allowance for net unrealized losses
on marketable securities (180) 46 269
Net realized losses on current marketable securities 121
Purchases of marketable securities, net (534)
Loss from equity investments in unconsolidated
affiliates before income taxes 45 388 52
Loss on disposition of unconsolidated affiliate
before income tax benefit 417
Dividends from CTS 767 1,271 1,439
Gain on sale of property (554)
Issuance of Company Common Stock 34 17 235
Increase (decrease) in other liabilities (962) 952 2,439
Decrease (increase) in other assets (347) 82 209
Other, net 85 91 262
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,404 (2,442) 2,265
Decrease (increase) in inventories 3,083 (670) 3,205
Decrease (increase) in other current assets (178) 129 592
Decrease in accounts payable, accrued expenses and
sundry liabilities (3,704) (3,156) (2,274)
Increase (decrease) in Federal income taxes payable 1 (439) (231)
Decrease (increase) in current assets of discontinued
operation 1,042 (1,277) 2,226
------ ------ ------
Net cash provided by (used in) operating activities 5,166 (691) 7,613
------ ------ ------
Investing activities:
Sales of marketable securities, net 1,801
Purchases of property, plant and equipment (929) (973) (994)
Purchases of property, plant and equipment for discontinued
operation (54)
Proceeds from sale of property 966
Proceeds from disposition of unconsolidated affiliate 1,700
Proceeds from note receivable 47 2
------ ----- -----
Net cash provided by (used in) investing activities (882) 1,695 753
------ ----- -----
Financing activities:
Principal payments under lines of credit, capital lease
obligations and mortgages (432) (406) (3,576)
Borrowings under lines of credit 1,200
Purchases of treasury stock (197) (281) (1)
Dividends paid (781) (783) (781)
------ ------ ------
Net cash used in financing activities (1,410) (1,470) (3,158)
------ ------ ------
Increase (decrease) in cash and cash equivalents 2,874 (466) 5,208
Cash and cash equivalents at beginning of year 6,095 6,561 1,353
------ ------ ------
Cash and cash equivalents at end of year $ 8,969 $ 6,095 $ 6,561
====== ======= =======
The accompanying notes are an integral part of these statements.
10
Dynamics Corporation of America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Significant Accounting Policies
(a) The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly owned.
Investments in unconsolidated affiliates are accounted for by the equity
method of accounting. All material intercompany transactions and accounts
have been eliminated in consolidation.
(b) Revenues are reported on contracts, principally government related, based
on the proportion of units completed to units contracted. Costs related to
such revenues are based on estimated average costs for units contracted.
(c) Inventories are stated at the lower of cost or market. Inventory costs
have been determined by the last-in, first-out (LIFO) method for
approximately 42% (1993) and 40% (1992) of inventories, excluding inventories
subject to progress billings under contracts. Costs for other inventories
have been determined principally by the first-in, first-out (FIFO) method.
(d) Depreciation is computed on the straight-line and declining balance
methods over the estimated useful lives of assets.
(e) Realized gain or loss on the sale of marketable securities is determined
using specific cost identification. In 1993, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the impact of which was
not significant. The Company's current marketable securities are considered
trading securities.
(f) Research and development costs are expensed as incurred and amounted to
$1,252,000 (1993), $1,203,000 (1992) and $1,041,000 (1991).
(g) Per share data is based upon the weighted average number of common and
common equivalent shares outstanding during the periods.
(h) For purposes of the Consolidated Statements of Cash Flows, the Company
considers all investment instruments with a maturity of three months or less
at the time of purchase to be cash equivalents.
(i) In 1993, the Company adopted FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits," the impact of which was not
significant.
Note 2: Inventories
1993 1992
(in thousands)
Raw materials and supplies $ 7,251 $ 7,019
Work in process 6,426 7,966
Finished goods 4,076 4,585
------ -------
17,753 19,570
------ -------
Inventories subject to
progress billings 1,189 2,603
Progress billings (850) (998)
------ -------
339 1,605
------ -------
$18,092 $21,175
====== =======
The excess of current replacement cost over LIFO cost of inventories amounted
to $950,000 (1993) and $863,000 (1992).
The United States Government has liens on substantially all inventories
subject to progress billings.
11
Notes to Consolidated
Financial Statements (continued)
Note 3: Discontinued Operation--
Fermont Division
The Company determined to discontinue operations at its Fermont Division, a
manufacturer of electrical power systems for government and commercial
markets, effective as of September 30, 1991, and put the assets and business
up for sale. In conjunction with the discontinuance, the Company recorded a
provision for disposition of $5,600,000 for costs estimated to be incurred
prior to Fermont's disposition, including $3,629,000 for operating losses
during the phaseout period. The provision for disposition in the Consolidated
Statement of Operations in 1991 was reduced by $1,600,000 before taxes for
the favorable settlement of a court action involving a contract for the sale
of 60 KW engine generator sets to the Government. Fermont's sales for the
years ended December 31, 1993, 1992 and 1991 were $5,248,000, $14,655,000,
and $5,257,000, respectively.
The Company will fulfill all contractual obligations of Fermont, including
its obligations under its contract with the U.S. Government to supply 3 KW
engine generator sets, currently projected to be completed in 1996, unless a
buyer for the business assumes performance of its contracts. The Company has
submitted a proposed change order to the Government seeking several million
dollars in equitable compensation for delay damages and added costs of
obtaining first article approval of the prototype 3KW generator sets and for
related matters (see Note 15).
Current assets of the discontinued operation consist primarily of accounts
receivable and inventories. Accounts payable and accrued expenses and sundry
liabilities include $822,000 and $944,000 at December 31, 1993 and 1992,
respectively, related to the division's operations.
Note 4: Property, Plant and Equipment (in thousands)
1993 1992
------- -------
Fixed Capital Fixed Capital
Classification Assets Leases Total Assets Leases Total
- ---------------------------------- ------ ------ ------ ------ ------ ------
Land and improvements $ 983 $ 983 $ 983 $ 983
Buildings and improvements 8,979 $2,270 11,249 8,987 $2,270 11,257
Machinery, equipment, furniture
and fixtures 21,768 651 22,419 21,070 739 21,809
Leasehold improvements 507 507 474 474
------ ------ ------ ------ ------ ------
32,237 2,921 35,158 31,514 3,009 34,523
Less accumulated depreciation and
amortization 28,802 2,450 31,252 27,951 2,385 30,336
------ ------ ------ ------ ------ ------
$ 3,435 $ 471 $ 3,906 $ 3,563 $ 624 $ 4,187
====== ====== ====== ====== ====== ======
12
Note 5: Equity Investment in CTS Corporation
The Company's holdings aggregated 1,920,900 shares of CTS Corporation ("CTS")
common stock at December 31, 1993 and 1,918,100 shares at December 31, 1992
and 1991. The Company's equity ownership in CTS was 37.3%, 37.2% and 37.4% at
December 31, 1993, 1992 and 1991, respectively. 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 $37,938,000
and $33,567,000 at December 31, 1993 and 1992, respectively. The market value
of the Company's investment in CTS on February 22, 1994 amounted to
$42,780,000, on holdings of 1,922,700 shares. 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.
The excess of the carrying amount of the Company's investment over the
underlying equity in the net assets of CTS, net of accumulated amortization
of $6,690,000, amounted to $13,879,000 at December 31, 1993 and is being
amortized over twenty-five years using the straight-line method ($772,000 in
1993). At December 31, 1993, dividends paid by CTS to the Company exceeded
the Company's aggregate share of CTS' net income by $1,563,000.
CTS operates primarily in one business segment, electronic and
electromechanical components and subsystems, in worldwide markets. Summarized
financial information derived from CTS' 1993 Annual Report to Stockholders
follows:
Year Ended December 31,
-------------------------------
1993 1992 1991
------ ------ -------
(in thousands)
Net sales $236,979 $227,391 $229,536
======= ======= =======
Gross earnings $ 47,344 $ 41,101 $ 40,418
======= ======= =======
Earnings before
cumulative effect
of changes in
accounting
principles $ 6,570 $ 1,901 $ 4,214
Cumulative effect of
accounting
change--postretirement
benefits (5,096)
Cumulative effect of
accounting
change--income
taxes 482
------ ------ -------
Net earnings $ 1,956 $ 1,901 $ 4,214
====== ====== =======
Current assets $ 97,266 $ 87,376 $ 91,493
====== ====== =======
Noncurrent assets $ 87,798 $ 83,397 $ 84,868
====== ====== =======
Current liabilities $ 49,888 $ 37,262 $ 39,569
====== ====== =======
Noncurrent
liabilities $ 15,973 $ 14,139 $ 14,307
====== ====== =======
Stockholders' equity $119,203 $119,372 $122,485
====== ====== =======
The Company recognized its proportionate share, in accordance with the equity
method of accounting, of CTS' net charge from its adoption of 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 in the first
quarter of 1993 as cumulative effects to January 1, 1993.
CTS is required to file annual and other reports, including audited annual
financial statements, with the Securities and Exchange Commission and such
reports and statements are available for review at the offices of the
Securities and Exchange Commission in Washington, D.C. The Company has relied
on CTS' financial information to compile its financial statements.
13
Notes to Consolidated
Financial Statements (continued)
Note 6: Other Assets
Other Current Assets
Other current assets include marketable equity securities at market of
$687,000 (1993) and $95,000 (1992), with a cost basis of $2,115,000 (1993)
and $1,702,000 (1992).
1993 1992
(in thousands)
Other Assets
Note receivable from sale of
investment in Farmhand $ 404 $ 451
Property, plant and
equipment--
discontinued division 208 328
Cash surrender value of life
insurance 1,157 690
------ ------
$1,769 $1,469
====== ======
The Company's investment in Farmhand, a privately held farm and other
equipment manufacturer, was sold in December, 1992, in exchange for
$1,700,000 in cash and a $500,000 note, at six percent interest per annum,
payable quarterly through 2009. The current portion of the note is included
in Other Current Assets.
Note 7: Accrued Expenses and Sundry Liabilities
1993 1992
(in thousands)
Salaries, wages, commissions
and employee benefits $ 2,680 $ 3,569
Taxes, other than Federal
income taxes 1,183 1,330
Advertising 495 700
Insurance 616 880
Customer contract claims,
including price adjustments
and refunds 2,800 2,800
Advances from customers 448 478
Warranties 1,182 1,672
Discontinued division 1,350 1,334
Other 1,848 1,324
------ ------
$12,602 $14,087
====== ======
Note 8: Long term Debt and Credit Facilities
Long-term Debt
1993 1992
(in thousands)
Industrial revenue bonds, 7.35%
payable through 1994 $ 108 $ 215
Mortgage notes, 9% payable
through 1996 171 239
Obligations under capital
leases 744 980
------ ------
1,023 1,434
Less current portion 400 411
------ ------
$ 623 $1,023
====== ======
The industrial revenue bonds and mortgages are collateralized by land,
buildings and improvements having a net book value of $339,000 at December
31, 1993.
Capital leases generally provide that the Company pay property taxes and
operating costs. Certain capital leases contain renewal and/or purchase
options.
Minimum lease payments under capital leases total $1,074,000, including
$330,000 representing interest. Minimum lease payments in each year for the
next five years are: $277,000, $166,000, $80,000, $50,000 and $45,000. The
present value of the current portion of such payments is $218,000 at December
31, 1993.
The aggregate principal payments of long-term debt (excluding capital leases)
for the next three years are: $182,000, $82,000 and $15,000.
The Company leases real estate and equipment under operating leases. Certain
of the leases contain renewal options and escalation clauses relating to
taxes and maintenance. Rental expense amounted to $676,000, $711,000 and
$773,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
Minimum lease payments under operating leases total $1,947,000. Minimum lease
payments in each year for the next five years are: $477,000, $321,000,
$272,000, $224,000 and $185,000.
Interest payments amounted to $118,000, $148,000 and $181,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.
14
Notes to Consolidated
Financial Statements (continued)
Credit Facilities
The Company has a Revolving Credit Agreement with banks which provides a line
of credit of up to $27,000,000 through September 30, 1994 at the lower of the
prime rate or other rate options available at the time of borrowing. The
Company pays a commitment fee of 3/8% based on the unused portion of the
line. The Agreement provides that, at the option of the Company, the
principal outstanding at September 30, 1994 may be converted to a four year
term loan, with interest at the lower of 1/4% over the prime rate or other
rate options, payable in equal semi-annual principal installments. The
Agreement contains restrictions which, among other things, require the
Company to have income from continuing operations before equity in the
operating results of unconsolidated affiliates for the year and in at least
one of any two consecutive fiscal quarters. The Agreement requires
maintenance of certain financial ratios and contains other restrictive
covenants, including a restriction on dividends.
The Company also has an uncommitted line of credit with a bank amounting to
$10,000,000. The Company does not pay any fee for the uncommitted line and
therefore the availability of the line is at the discretion of the bank.
Outstanding letters of credit, principally related to imports and bid and
performance bond obligations, amounted to $6,039,000 at December 31, 1993.
Note 9: Other Liabilities
1993 1992
(in thousands)
Accrued pension cost $2,145 $1,680
Discontinued division 809 2,236
------ -----
$2,954 $3,916
====== =====
Note 10: Stockholders' Equity
1980 Restricted Stock and Cash Bonus Plan
The Plan, prior to amendment, provided for the discretionary award or sale of
up to 400,000 shares of common stock to key executives. The shares awarded or
sold are subject to restrictions against transfer as well as repurchase
rights of the Company which, in effect, provide for the lapse of restrictions
at the rate of 20% per year beginning one year from the award or sale. In
addition, the Plan provides for a cash bonus to the participant equal to the
fair market value of the shares on the date said restrictions lapse in the
case of an award, or the excess of the fair market value thereof as of such
date over the original purchase price if the shares were purchased, with a
limit upon the total bonuses paid to any participant during the 5-year period
of twice the fair market value of the shares on the date of award or sale.
The Plan was amended in 1988 to make additional shares available for issuance
to replenish the Plan for shares awarded since its inception. At December 31,
1993, 1992, and 1991, 370,500, 368,700 and 367,900 shares, respectively, were
available for award or sale under the Plan.
In addition to the shares issued and amortization of deferred compensation
included in the Consolidated Statements of Stockholders' Equity, the Company
accrued bonuses of $58,000 (1993), $146,000 (1992) and $178,000 (1991) and
reacquired (at no cost) through forfeitures 3,800 (1993) and 800 (1992)
previously issued restricted shares pursuant to the Plan.
1986 Stock Plan for Outside Directors
The Plan provides for a portion of outside directors' compensation to be
deferred and to be paid in shares of the Company's common stock upon a
director's retirement, disability or death. Under the Plan, common stock
units (payable in shares of the Company's common stock on a one-for-one
basis) are credited to the directors based on their service as outside
directors each year. Common stock units of 449 (1993), 351 (1992) and 462
(1991) were credited to the outside directors. In 1992, 1,251 shares were
distributed under the Plan to a deceased director's estate. The total number
of units in the Plan is 4,027 at December 31, 1993.
Note 11: Preferred Stock Purchase Rights
In 1986 the Company declared a distribution to shareholders of record on
February 14, 1986 of one preferred stock purchase right for each outstanding
share of the Company's voting and non-voting common stock. Under certain
conditions, each right may be exercised to purchase one one-hundredth of a
share of a newly created series of participating preferred stock at an
exercise price of $80. The rights become exercisable ten days after a public
announcement that a party or group has acquired or obtained the right to
acquire 20% or more of the Company's common stock in a transaction not
previously approved by the Board of Directors of the Company, or after
commencement or public announcement of a tender offer for 25% or more of the
Company's common stock. The rights, which are non-voting, expire on February
14, 1996 unless
15
Notes to Consolidated
Financial Statements (continued)
extended and may be redeemed by the Company at a price of $.05 per right at
any time prior to their expiration or prior to the acquisition by a party or
group of 20% of the Company's common stock, unless approved by the Board of
Directors. The participating preferred stock to be purchased upon exercise of
the rights will be nonredeemable.
In the event the Company is acquired in a merger or other business
combination transaction after the rights become exercisable, provision shall
be made so that each holder of a right shall have the right to receive, upon
exercise thereof and payment of the then current exercise price, that number
of shares of common stock of the surviving company which at the time of such
transaction would have a market value of two times the exercise price of the
right. If the Company is the surviving company, each holder would have the
right to receive for the then current exercise price preferred stock of the
Company with a market value of two times the exercise price.
Note 12: Other Income, Net
1993 1992 1991
(in thousands)
Income (Expense):
Interest:
Income $ 181 $ 123 $ 108
Expense (118) (148) (180)
------ ----- -----
63 (25) (72)
Dividend income 27 72
Net gains (losses) on
current marketable
securities:
Realized on sales (121) 573
Change in unrealized
loss 180 (46) (269)
Royalty income 1,207 244 226
Gain on sale of property 554
Division sale
termination fee 254
Restructuring costs,
principally severance (470)
Other, net 57 (85) (213)
------ ----- -----
$ 943 $ 642 $ 571
====== ===== =====
Note 13: Income Taxes
Income tax charge (benefit) from continuing operations consists of:
1993 1992 1991
(in thousands)
Current income taxes:
Federal $211 $ 199 $ 302
State 77 276 319
---- ----- -----
288 475 621
---- ----- -----
Deferred income tax
charges (credits):
Federal 204 563 (618)
State 125 126 (108)
---- ------ -----
329 689 (726)
---- ------ -----
$617 $1,164 ($105)
==== ====== =====
Deferred income tax charges (credits) result from the following:
1993 1992 1991
(in thousands)
Inventory ($572) ($167) $ 304
Employee benefits (94) (167) (392)
Discontinued operations,
restructuring and
customer contract
adjustments 438 632 (468)
Warranties 152 (176) 148
Patent infringement
judgment 471 (159)
Deferred income 372
Other, net 33 96 (159)
---- ---- -----
$329 $689 ($726)
==== ==== ====
A reconciliation of the Federal statutory rate to the Company's consolidated
effective tax rate for continuing operations follows:
1993 1992 1991
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of Federal income tax
benefit 8.0 5.4 2.2
Resolution of prior
years tax matters (15.8) (41.0)
Employee benefits (3.9)
Foreign tax credits (3.4)
Other, net 2.1 .6
---- ---- -----
36.8% 23.6% (4.2%)
==== ==== =====
16
Significant components of the Company's deferred tax assets and liabilities
at December 31 are as follows:
1993 1992
(in thousands)
Deferred tax assets:
Warranty reserve $ 504 $ 655
Bad debt allowance 195 210
Uniform cost capitalization
and inventory valuation
allowances 1,820 1,247
Employee benefit plans 1,690 1,452
Investments 470 469
Reserve for discontinued
division 875 1,453
Reserve for customer
contract claims 624 630
Depreciation 375 420
Other, net 272 190
----- -----
6,825 6,726
Valuation allowance for
deferred tax assets (335) (314)
----- -----
Total deferred tax assets 6,490 6,412
----- -----
Deferred tax liabilities:
Deferred income (372)
Other, net (119) (112)
----- -----
Total deferred tax
liabilities (491) (112)
----- -----
Net deferred tax assets $5,999 $6,300
===== =====
Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes." The effect of the
adoption of FASB Statement No. 109 on the 1992 income tax provision was not
significant. However, the cumulative effect of this change to January 1, 1992
resulted in a $942,000 charge to 1992 earnings.
Income tax payments, net of refunds, amounted to $302,000, $1,329,000 and
$187,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
Note 14: Employee Benefit Plans
The Company has a noncontributory defined benefit retirement plan covering
substantially all of its employees. The benefits are based on the employee's
years of service and career average compensation. Pension costs are generally
funded to the extent of tax deductible amounts. Contributions are intended to
provide not only for benefits attributed to service to date but also for
those expected to be earned in the forthcoming year. The Company also
contributes to a multi-employer plan, which provides defined benefits, as
required by collective bargaining agreements.
A summary of the components of net periodic pension cost of the defined
benefit plan and the total contributions charged to pension expense for the
multi-employer plan follows:
1993 1992 1991
(in thousands)
Defined benefit plan:
Service cost--benefits
earned during the
period $ 628 $ 726 $ 612
Interest cost on
projected benefit
obligation 1,402 1,346 1,305
Actual return on plan
assets (2,085) (1,780) (1,607)
Net amortization and
deferral 520 346 231
------ ------ -------
Net pension charges for
defined benefit plan 465 638 541
Multi-employer plan 294 299 294
------ ------ -------
Net periodic pension
cost $ 759 $ 937 $ 835
====== ====== =======
Net periodic pension cost for the defined benefit plan includes $87,000
(1993), $105,000 (1992) and $138,000 (1991) charged against accrued expenses
of the discontinued Fermont division. Net periodic pension cost for the
defined benefit plan for 1992 includes $83,000 of additional charges under
FASB Statement No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
relating to an early retirement offer at one of the Company's divisions.
Assumptions used in accounting for the defined benefit plan as of December 31
were:
1993 1992 1991
Discount rate 7.50% 7.75% 7.75%
Rate of increase in
compensation levels 5.0 % 5.0 % 5.0 %
Expected long-term rate
of return on assets 9.0 % 9.0 % 9.0 %
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets
17
Notes to Consolidated
Financial Statements (continued)
at December 31, 1993 and 1992 for the Company's defined benefit pension plan:
1993 1992
(in thousands)
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation, including vested
benefits of $16,744 and
$15,010 ($18,681) ($17,112)
Effect of salary projections (1,463) (1,529)
------ ------
Projected benefit obligation
for service rendered to date (20,144) (18,641)
Plan assets at fair value 17,257 16,095
------ ------
Projected benefit obligation in
excess of plan assets (2,887) (2,546)
Unrecognized net loss from past
experience different from
assumed and effect of changes
in assumptions 2,497 2,974
Prior service cost not yet
recognized in net periodic
pension cost 317 354
Unrecognized net asset
remaining from initial
application of FASB Statement
No. 87 (2,072) (2,462)
------- ------
Accrued pension cost ($ 2,145) ($1,680)
======= ======
The 1993 change in the discount rate from 7.75% to 7.50% resulted in a
$689,000 increase in the projected benefit obligation. Plan assets are
invested in cash equivalents, guaranteed investment contracts, and equity
stocks, including common stock of the Company having a market value of
$1,500,000 and $1,300,000 at December 31, 1993 and 1992, respectively.
Information concerning the Company's share of related estimated plan benefits
and assets is not available for the multi-employer plan.
The Company has a Savings and Investment Plan for all employees not covered
by collective bargaining agreements, which qualifies as a profit sharing plan
under Section 401(k) of the Internal Revenue Code. The Company's
contributions under the Plan are based on specified percentages of employee
contributions and were $342,000 (1993), $316,000 (1992) and $578,000 (1991).
Note 15: 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 April, 1992, the Company submitted a proposed change order to the
Government seeking several million dollars in equitable compensation for
constructive changes made by the Government to a contract for the supply of
3KW generator sets to be manufactured by the Company's discontinued Fermont
division. The Company is not able to predict the outcome of its proposed
change order at this time. The Government has executed a contract
modification to continue prototype testing of the 3KW generator set which
resumed in September 1993. Negotiations on a possible settlement of the
proposed change order, which commenced in late May 1993, have recently
resumed after a delay by the Government.
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 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.
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.
18
Note 16: Industry Segments:
See Financial Information About Industry Segments on pages 22 and 23 of this
report.
Note 17: Quarterly Financial Data (Unaudited):
(dollar amounts in thousands, except per share data)
Three months ended Year
March 31 June 30 September 30 December 31
--------------- --------------- --------------- --------------- ----------------
1993
Net sales $25,591 $25,719 $24,241 $25,778 $101,329
======= ======= ======= ======= ========
Gross profit $ 6,731 $ 6,516 $ 5,764 $ 5,792 $ 24,803
======= ======= ======= ======= ========
Income from continuing
operations $ 618 $ 727 $ 233 $ 1,099(b) $ 2,677
======= ======= ======= ======= ========
Net income (loss) ($ 1,098)(a) $ 727 $ 233 $ 1,099 $ 961
======= ======= ======= ======= ========
Income (loss) per share:
Income from continuing
operations $ .16 $ .18 $ .06 $ .28(b) $ .68
======= ======= ======= ======= ========
Net income (loss) ($ .28)(a) $ .18 $ .06 $ .28 $ .24
======= ======= ======= ======= ========
1992
Net sales $24,076 $27,528 $28,252 $30,387 $110,243
======= ======= ======= ======= ========
Gross profit $ 6,613 $ 7,808 $ 7,745 $ 8,301 $ 30,467
======= ======= ======= ======= ========
Income from continuing
operations $ 545 (c) $ 793 $ 679 $ 1,316(e) $ 3,333
======= ======= ======= ======= ========
Net income (loss) ($ 359)(d) $ 788 $ 667 $ 1,027(f) $ 2,123
======= ======= ======= ======= ========
Income (loss) per share:
Income from continuing
operations $.14 (c) $.20 $.18 $.33(e) $.85
==== ==== ==== ==== ====
Net income (loss) ($.09)(d) $.20 $.17 $.26(f) $.54
==== ==== ==== ==== ====
<FN>
(a) The Company recognized its proportionate share, in accordance with the
equity method of accounting, of CTS' net charge from its adoption of FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," a charge of $1,896 ($.49 per share), and FASB Statement No.
109, "Accounting for Income Taxes," a credit of $180 ($.05 per share). These
onetime, non-cash accounting changes were adopted by CTS as cumulative
effects to January 1, 1993.
(b) Increased by $608 ($.16 per share) from initial royalty under a
technology transfer agreement. Includes a charge of $286 ($.07 per share) for
restructuring costs, principally severance.
(c) Increased by $349 ($.09 per share) from the sale of property.
(d) Includes a charge of $942 ($.24 per share) for the cumulative effect to
January 1, 1992 of a change in the Company's method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes."
(e) Increased by $780 ($.20 per share) for resolution of prior years tax
matters.
(f) Includes a charge of $248 ($.06 per share) for the loss on disposition of
the Company's equity investment in Farmhand, Inc.
19
Report of Ernst & Young, Independent Auditors
(LOGO OF ERNST & YOUNG)
1111 Summer Street
Stamford, Connecticut 06905
Phone: 203 326 8200
Fax: 203 358 9644
To the Board of Directors and Stockholders of Dynamics Corporation of America
We have audited the accompanying consolidated balance sheets of Dynamics
Corporation of America as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. The financial statements of CTS Corporation (a corporation in
which the Company had a 37.3% interest at December 31, 1993) have been
audited by other auditors whose report, which included an explanatory
paragraph for CTS Corporation's accounting changes discussed in Note 5 to
these consolidated financial statements, has been furnished to us; insofar as
our opinion on the consolidated financial statements relates to data included
for CTS Corporation, it is based solely on their report.
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 and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Dynamics Corporation of
America at December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the consolidated financial statements, in 1992 the
Company changed its method of accounting for income taxes. As discussed in
Note 5 to the consolidated financial statements, in 1993 CTS Corporation
changed its method of accounting for income taxes and post-retirement health
care and life insurance benefits.
(Signature of Ernst & Young)
February 22, 1994
20
Selected Financial Data
(amounts in thousands, except share data)
Year ended December 31, 1993 1992 1991 1990 1989
Net sales $ 101,329 $ 110,243 $ 111,962 $ 110,306 $ 116,792
========== ========== ========== ========== ==========
Gross profit $ 24,803 $ 30,467 $ 27,890 $ 27,146 $ 27,050
========== ========== ========== ========== ==========
Income (loss) from continuing operations
before equity in CTS $ 1,058(a) $ 3,775(c) $ 2,580(f) $ 1,559(h) ($2)(i)
Income (loss) from equity investment in
continuing operations of CTS 1,619 (442) 650 893 2,586
---------- ---------- ---------- ---------- ----------
Income from continuing operations 2,677 3,333 3,230 2,452 2,584
Loss from discontinued division (4,071)(g) (1,550) (455)
Equity in income (loss) of discontinued
unconsolidated affiliate (20) (492) 201 225
Loss on disposition of unconsolidated
affiliate (248)(d)
Equity in CTS' cumulative effect to January
1, 1993 of changes in accounting methods (1,716)(b)
Cumulative effect to January 1, 1992 of
change in accounting for income taxes (942)(e)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 961 $ 2,123 ($1,333) $ 1,103 $ 2,354
========== ========== ========== ========== ==========
Average common shares outstanding 3,902,164 3,915,224 3,914,312 3,914,682 4,026,207
========== ========= ========== ========== ==========
Amounts per common share:
Income from continuing operations $.68 $.85 $.83 $.63 $.64
==== ==== ==== ==== ====
Net income (loss) $.24 $.54 ($.34) $.28 $.58
==== ==== ==== ==== ====
Cash dividends $.20 $.20 $.20 $.20 $.20
==== ==== ==== ==== ====
Stockholders' equity (j) $23.86 $23.75 $23.33 $24.01 $23.72
====== ====== ====== ====== ======
Total assets $ 115,364 $ 120,288 $ 122,020 $ 125,999 $ 127,345
========== ========== ========== ========== ==========
Long-term debt $ 623 $ 1,023 $ 1,313 $ 1,625 $ 1,927
========== ========== ========== ========== ==========
<FN>
(a) Increased by $608 ($.16 per share) from initial royalty income under a
technology transfer agreement. Includes a charge of $286 ($.07 per share) for
restructuring costs, principally severance.
(b) The Company recognized its proportionate share, in accordance with the
equity method of accounting, of CTS' net charge from its adoption of FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," a charge of $1,896 ($.49 per share), and FASB Statement No.
109, "Accounting for Income Taxes," a credit of $180 ($.05 per share). These
onetime, non-cash accounting changes were adopted by CTS as cumulative
effects to January 1, 1993.
(c) Increased by $780 ($.20 per share) for resolution of prior years tax
matters and $349 ($.09 per share) from the sale of property.
(d) Loss on disposition of the Company's equity investment in Farmhand Inc.
($.06 per share).
(e) Cumulative effect to January 1, 1992 of a change in the Company's method
of accounting for income taxes from the deferred method to the liability
method required by FASB Statement No. 109, "Accounting for Income Taxes"
($.24 per share).
(f) Includes income from a resolution of prior years' tax matters of $1,015
($.26 per share) and from a nonrefundable escrow deposit of $155 ($.04 per
share) from the decision by Halton OY of Finland not to proceed with the
purchase of the Company's Anemostat Division.
(g) Includes a charge of $2,678 ($.68 per share) for estimated operating
losses and costs during the phaseout period of the Company's Fermont
Division.
(h) Increased by $448 ($.12 per share) from the reversal of an overaccrual in
the prior year for a consumer product line restructuring and related product
discontinuance and $277 ($.07 per share) from interest income on refunds of
Federal income taxes, and reduced by charges of $1,051 ($.27 per share) for
costs in connection with a patent infringement judgment, $655 ($.17 per
share) for realized and unrealized losses on the Company's current marketable
securities and $560 ($.14 per share) for a special warranty program.
(i) Includes a charge of $496 ($.12 per share) to establish a reserve for
unrealized losses on the Company's current marketable securities portfolio, a
charge of $1,854 ($.46 per share) for a consumer product line restructuring
and related product discontinuance and income of $385 ($.10 per share) from
settlement of a business interruption claim.
(j) Based upon shares outstanding at end of period.
The above Selected Financial Data should be read in conjunction with the
Consolidated Financial Statements of the Company, including the Notes to
Consolidated Financial Statements, appearing elsewhere in this Annual Report.
21
Segments of Business
During 1993 the Company continued its operations in a number of manufacturing
businesses conducted by four divisions and a subsidiary, each of which
operates as a separate unit and each of which maintains its own sales,
administration, accounting, marketing, engineering and manufacturing
operations. Corporate headquarters determines policy and provides such
services as legal counsel, accounting, financing, cash management, auditing,
insurance, public relations and long-range planning guidance.
The methods of distribution and marketing utilized by the Company vary by
operation. In general, sales for all the Company's segments combine some
direct selling in certain market areas with appropriate manufacturers'
representatives, wholesalers, distributors and/or dealers.
The operations are classified into three industry segments: electrical
appliances and electronic devices, fabricated metal products and equipment,
and power and controlled environmental systems.
Segments are grouped according to similarities in profitability, risk, growth
potential, material and labor composition of products and/or capital
requirements.
These segments accounted for the following net sales, operating results and
other financial data for each of the three years in the period ended December
31, 1993:
Financial Information About Industry Segments
Year ended December 31: 1993 1992 1991
(in thousands)
Net Sales:
Electrical Appliances and Electronic
Devices $ 53,813 $ 62,265 $ 60,016
Fabricated Metal Products and Equipment 22,347 25,241 23,417
Power and Controlled Environmental Systems 25,169 22,737 28,529
-------- -------- --------
$101,329 $110,243 $111,962
======== ======== ========
Operating Profit (Loss):
Electrical Appliances and Electronic
Devices $ 1,438 $ 3,619 $ 3,620
Fabricated Metal Products and Equipment 498 1,667 1,785
Power and Controlled Environmental Systems 2,399 1,821 (722)
-------- -------- --------
4,335 7,107 4,683
Corporate Expenses (2,719) (2,451) (2,930)
Interest Income (Expense), net 52 (31) (87)
Other Income, net 7 314 809
-------- -------- --------
$ 1,675 $ 4,939 $ 2,475
======== ======== ========
Depreciation and Amortization:
Electrical Appliances and Electronic
Devices $ 795 $ 741 $ 704
Fabricated Metal Products and Equipment 255 253 249
Power and Controlled Environmental Systems 157 187 222
Corporate 20 9 4
-------- -------- --------
$ 1,227 $ 1,190 $ 1,179
======== ======== ========
Capital Expenditures:
Electrical Appliances and Electronic
Devices $ 748 $ 707 $ 767
Fabricated Metal Products and Equipment 149 348 218
Power and Controlled Environmental Systems 31 44 90
Corporate 22 29
-------- -------- --------
$ 950 $ 1,128 $ 1,075
======== ======== ========
Identifiable Assets:
Electrical Appliances and Electronic
Devices $ 23,317 $ 24,110 $ 23,592
Fabricated Metal Products and Equipment 8,154 8,924 8,375
Power and Controlled Environmental Systems 10,837 15,435 13,746
Corporate 71,440 69,041 71,993
-------- -------- --------
113,748 117,510 117,706
-------- -------- --------
Assets of Discontinued Operations 1,616 2,778 4,314
-------- -------- --------
$115,364 $120,288 $122,020
======== ======== ========
22
Financial Information About Industry Segments (continued)
Year ended December 31: 1993 1992 1991
(dollar amounts in thousands)
U.S. Government Sales, direct and indirect (occurring predominantly in
the Power and Controlled Environmental Systems segment), including
indirect sales in that segment to a single customer in excess of 10%
(1993) $18,151 $13,360 $12,112
====== ====== =======
Export Sales $ 8,787 $10,137 $17,279
====== ====== =======
Classes of Products representing 10% or more of Company net sales:
Electrical Appliances and Electronic Devices:
Consumer and Commercial Portable Electrical Appliances 37.0% 43.5% 35.7%
Quartz Crystal Products 10.6%
Fabricated Metal Products and Equipment:
Air Distribution Equipment and Controls 22.1% 22.9% 20.9%
Notes:
See page 24 for the classification of the Company's present manufacturing
Divisions and Subsidiary for segment purposes and a brief description of
each.
Total revenue by industry segments includes sales to all unaffiliated
customers including the U.S. Government.
Operating profit is total revenues less operating expenses. Identifiable
assets by industry segments are those assets that are used in the Company's
operations in each industry. Corporate assets are principally cash,
receivables, assets of discontinued operations and marketable securities,
including the Company's equity investment in CTS Corporation, substantially
all of which is held by its wholly owned subsidiary, LTB Investment
Corporation.
It should be noted that the reported information follows the pronouncements
of the Financial Accounting Standards Board and does not follow the Company's
internal allocation procedures relating to interest, other income and certain
administrative costs such as management, legal and financial. Accordingly,
the information may not be indicative of the financial results of, or
investments in, the reported segments were they independent organizations, or
useful for comparison with operations of other companies.
Range of Stock Prices and Dividend Information
The Company's Common Stock (Voting) is traded on the New York Stock Exchange
(ticker symbol: DYA). There is no market for the Non-Voting Common Shares of
the Company.
The prices of the Company's Common Stock and dividends paid during 1993 and
1992 are as follows:
New York Stock Exchange Dividends Paid
--------------------------------- ----------------
1993 1992 1993 1992
HIGH LOW HIGH LOW
---- ---- ---- ----
1st Quarter 14-3/8 12-7/8 12 9-7/8 $.10 $.10
2nd Quarter 16-3/8 13-7/8 14-3/8 11-1/2
3rd Quarter 17 15-1/2 15-1/4 13-3/8 $.10 $.10
4th Quarter 17-3/4 14-7/8 13-7/8 11-3/4
As of February 22, 1994 there were 4,233 shareholders of record.
The Board of Directors of the Company established a semi-annual dividend
policy in January 1978 and expects to continue this policy. At its January
1984 meeting, the Board of Directors established the regular semi-annual
dividend rate of ten cents ($.10) per share. The first payment for 1994 was
made on March 1 to shareholders of record as of the close of business on
February 15, 1994.
The number of employees of the Company as of December 31, 1993 was 1,062.
23
DCA's Manufacturing Divisions and Subsidiary
The following is the classification of the Company's present operations
for industry segment purposes and a brief description of each:
Electrical Appliances
and Electronic Devices
INTERNATIONAL ELECTRONIC
RESEARCH CORPORATION
135 West Magnolia Blvd.
Burbank, California
91502-7704
Designs and manufactures the Zero Insertion Force (ZIF(tm)) printed circuit
board retainer, ZIF II using tool free concept, thermally efficient coldwalls
and enclosures using the integrated ZIF(tm) or the machined ZIF(tm)
technology approach for high performance electronic systems, heat
dissipators/sinks and other components related to thermal management of
electronic systems for the Military/Aerospace, computer and commercial market
place worldwide.
REEVES-HOFFMAN DIVISION 400 West North Street
Carlisle, Pennsylvania
17013-2248
Designs and manufactures quartz crystals, crystal oscillators and
glass-to-metal hermetic seal packages for sales to customers worldwide.
Primary applications include telecommunications, computers, hybrid
microcircuits, navigation, position location, military communication, medical
imaging and guidance systems.
WARING PRODUCTS DIVISION 283 Main Street
New Hartford, Connecticut
06057-0319
Manufactures commercial and consumer portable electrical appliances such as
the original Blendor(R) and the NuBlend(R) blender, mixers, can openers, food
processors, juicers, juice extractors, coffee preparation products, ice cream
makers and food dehydrators and steamers sold under the Waring(R), Acme
Juicerator(R) and Qualheim(tm) brand names for both the domestic and export
markets.
Power and Controlled
Environmental Systems
ELLIS AND WATTS DIVISION 4400 Glen Willow Lake Lane
Batavia, Ohio
45103-2356
Manufactures special air conditioning equipment, liquid cooling systems,
fluid transfer units, air handling equipment, special fans, dehydrators,
mobile vans and transportable suites (Environ(R)) for specialized electronic
and medical diagnostic equipment, including "CT" Scanners, Lithotriptors and
Magnetic Resonance Imaging (MRI) systems, for government, industry, medical
and power plant use.
Fabricated Metal
Products and Equipment
ANEMOSTAT PRODUCTS
DIVISION
888 North Keyser Avenue
Scranton, Pennsylvania
18504-9723
Designs, manufactures and markets a broad line of air distribution equipment
with both pneumatic and electronic controls to meet the need for total
environmental control in laboratories, industrial buildings, commercial
buildings, and air distribution in aircraft, marine and rail equipment. Brand
names include Anemostat(R), Anemotherm(R), Multi-Vent(R), Anemotrak(R) and
Envirotrak(R). Anemostat also manufacturers a line of UL(R) approved vision
frames and louvers for fire rated doors.
24
Dynamics Corporation of America
Directors
HAROLD COHAN+*
Business Consultant
PATRICK J. DORME
Vice President-Finance and
Chief Financial Officer of the
Corporation
FRANK A. GUNTHER+*
President, Highpoint Enterprises
Incorporated
HENRY V. KENSING
Vice President and General
Counsel of the Corporation
RUSSELL H. KNISEL+*
Vice Chairman, Shawmut Bank
ANDREW LOZYNIAK
Chairman of the Board and
President of the Corporation
EDWARD J. MOONEY
Vice Chairman of the Board,
Vice President and Secretary
of the Corporation
SAUL SPERBER+*
Financial Advisor
+Member of Audit Committee
*Member of Compensation Committee
Officers
ANDREW LOZYNIAK
Chairman of the Board and
President
EDWARD J. MOONEY**
Vice Chairman of the Board,
Vice President and Secretary
HENRY V. KENSING
Vice President and General
Counsel
PATRICK J. DORME
Vice President-Finance and
Chief Financial Officer
RICHARD E. SMITH
Treasurer
M. GREGORY BOHNSACK
Controller
** Retired at year end
25
Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
26