-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P1MiCDpj+f9QIBJN2gqC9kqXilf3a5PSv5lhZk/XsKvBdtKTDDlY5V5e5mikyVHB uQtvYLMCBZBiCBWYiWaWYg== 0000030819-96-000003.txt : 19960515 0000030819-96-000003.hdr.sgml : 19960515 ACCESSION NUMBER: 0000030819-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNAMICS CORP OF AMERICA CENTRAL INDEX KEY: 0000030819 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 130579260 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07252 FILM NUMBER: 96563750 BUSINESS ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830-7197 BUSINESS PHONE: 2038693211 MAIL ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830-7197 FORMER COMPANY: FORMER CONFORMED NAME: CLAUDE NEON INC DATE OF NAME CHANGE: 19751008 10-Q 1 DCA 10-Q P/E 3/31/96 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------------- ---------------- Commission File Number: 0-7304 ------------------------------------- DYNAMICS CORPORATION OF AMERICA - ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 13-0579260 - ------------------------------------------------ -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 475 Steamboat Road, Greenwich, Connecticut 06830-7197 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (203) 869-3211 - ------------------------------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- ------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 29, 1996: Voting 3,810,502 Non-Voting 3,688 DYNAMICS CORPORATION OF AMERICA AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information Item 1. Financial Statements -------------------- Condensed Consolidated Balance Sheets - As of March 31, 1996 and December 31, 1995 2 Condensed Consolidated Statements of Income - For the Three Months Ended March 31, 1996 and 1995 3 Condensed Consolidated Statement of Stockholders' Equity - For the Three Months Ended March 31, 1996 4 Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 - 8 Item 2. Management's Discussion and --------------------------- Analysis of Results of Operations --------------------------------- and Financial Condition 9 - 10 ----------------------- Part II - Other Information: Item 6. Exhibits and Reports on Form 8-K 11 -------------------------------- Signature Page 12 Part 1 - Financial Information Item 1 - Financial Statements - ----------------------------- DYNAMICS CORPORATION OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1996 (Unaudited) and DECEMBER 31, 1995 (DOLLAR AMOUNTS IN THOUSANDS) March 31, December 31, ASSETS 1996 1995 ------ -------- ----------- Current Assets: Cash and cash equivalents $ 277 $ 1,767 Accounts Receivable, less allowances of $488 and $484 18,165 19,175 Inventories - Note 1 22,541 22,989 Other current assets 1,416 1,237 Current assets of division held for sale - Note 2 3,727 1,191 Deferred income taxes 4,430 4,434 -------- -------- TOTAL CURRENT ASSETS 50,556 50,793 Property, Plant and Equipment - at cost, less accumulated depreciation and amortization of $33,342 and $33,051 3,510 3,603 Equity Investment in CTS Corporation - Note 3 78,562 77,180 Other Assets 3,037 2,725 Deferred Income Taxes 377 -------- -------- TOTAL ASSETS $136,042 $134,301 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current installments of long-term debt$ 59 $ 63 Accounts payable 5,760 6,284 Accrued expenses and sundry liabilities 14,922 14,616 Federal income taxes payable 953 851 -------- -------- TOTAL CURRENT LIABILITIES 21,694 21,814 Long-term Debt - Note 4 4,411 3,424 Other Liabilities 1,645 1,605 Deferred Income Taxes 1,984 -------- -------- TOTAL LIABILITIES 27,750 28,827 Contingencies - Note 7 Stockholders' Equity: Preferred stock, par value $1 per share -- authorized 894,000 shares - none issued Series A Participating Preferred Stock, par value $1 per share - authorized 106,000 shares - none issued Stockholders' equity - see accompanying statement 108,292 105,474 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,042 $134,301 ======== ======== See accompanying notes to condensed consolidated financial statements. -2- DYNAMICS CORPORATION OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Unaudited For the three months ended March 31, ------------------- 1996 1995 ------ ------ Net sales $25,982 $25,119 Cost of sales 20,682 18,564 ------- ------- Gross profit 5,300 6,555 Selling, general and administrative expenses 6,370 6,338 ------- ------- (1,070) 217 Other income, net - Note 5 117 234 ------- ------- Income (loss) before items shown below (953) 451 Income tax charge (benefit) - Note 6 (370) 170 -------- ------- Income (loss) before equity in CTS Corporation (583) 281 Income from equity investment in CTS Corporation, net of income tax charge (benefit) of $(2,332) and $383 - Note 3 4,060 802 ------- ------- Net income $ 3,477 $ 1,083 ======= ======= Weighted average number of common and common equivalent shares outstanding 3,827,776 3,846,580 ========= ========= Net income per common share $ .91 $ .28 ======= ======= Dividends per common share $ .10 $ .10 ======= ======= See accompanying notes to condensed consolidated financial statements. -3- DYNAMICS CORPORATION OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 (DOLLAR AMOUNTS IN THOUSANDS) Unaudited
Common Stock (Authorized 10,000,000 voting shares and 600,000 non-voting shares) ------------------------- Paid-in Total Shares Additional Retained Deferred Stockholders' Outstanding* Par Value Capital Earnings Compensation Equity ------------ --------- ---------- -------- ------------ ------------ Balance at December 31, 1995 3,829,561 $383 $11,623 $93,807 $(339) $105,474 Shares issued and issuable from treasury pursuant to benefit plans 10 10 Shares acquired for treasury and pursuant to benefit plans (14,324) (1) (46) (277) (324) Amortization of deferred compensation 38 38 Net income 3,477 3,477 Cash dividends (383) (383) --------- ---- ------- ------- ----- -------- Balance at March 31, 1996 3,815,237 $382 $11,587 $96,624 $(301) $108,292 ========= ==== ======= ======= ===== ======== * Net of shares held in treasury at $.10 par value per share (3,359,924 voting shares at March 31, 1996 and 3,345,600 voting shares at December 31, 1995). The cumulative cost of treasury shares held at March 31, 1996 amounted to approximately $35,600. Includes non-voting shares outstanding of 3,695 at March 31, 1996. See accompanying notes to condensed consolidated financial statements.
-4- DYNAMICS CORPORATION OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS) Unaudited March 31, March 31, 1996 1995 -------- -------- Operating activities: Net income $3,477 $1,083 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 292 261 Deferred income taxes (2,357) 368 Income from equity investment in CTS before income taxes (1,728) (1,185) Dividends from CTS 346 336 Decrease (increase) in other assets 108 (108) Issuance of Company common stock 10 13 Other--net 78 38 Changes in operating assets and liabilities: Accounts receivable 1,010 (384) Inventories 448 (1,880) Other current assets (179) (131) Accounts payable, accrued expenses and sundry liabilities (218) 2,026 Federal income taxes payable 102 442 Increase in assets of division held for sale (2,956) (179) ------- ------ Net cash provided by (used in) operating activities (1,567) 700 ------ ------ Investing activities: Purchases of CTS common stock (603) Purchases of property, plant and equipment (199) (324) Other 14 ------ ------ Net cash used in investing activities (199) (913) ------ ------ Financing activities: Principal payments under capital lease obligations (17) (12) Borrowings under lines of credit 1,000 Purchases of treasury stock (324) (263) Dividends paid (383) (385) ------ ------ Net cash provided by (used in) financing activities 276 (660) ------ ------ Decrease in cash and cash equivalents (1,490) (873) Cash and cash equivalents at beginning of period 1,767 6,837 ------ ------ Cash and cash equivalents at end of period $ 277 $5,964 ====== ====== See accompanying notes to condensed consolidated financial statements. -5- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED - ---------------------------------------------------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Note 1 - Inventories: Quarterly inventories are estimated based on perpetual inventory records of the Company and the gross profit method under the first-in, first-out and the last- in, first-out methods. Inventories are summarized as follows: March 31, December 31, 1996 1995 --------- ------------ (in thousands) Raw materials and supplies $ 7,787 $ 8,772 Work in process 8,495 7,354 Finished goods 6,259 6,863 ------- ------- $22,541 $22,989 ======= ======= Note 2 - Current Assets of Division Held for Sale: Current assets of the Fermont division held for sale consist primarily of accounts receivable, inventories, and advances of $1,472,000 in the current period to a supplier related to accelerated engine purchases directed by the Government. Note 3 - Equity Investment in CTS Corporation: At March 31, 1996, the Company's holdings aggregated 2,303,100 shares of CTS Corporation common stock, unchanged from year-end, and the Company's percentage of equity ownership in CTS remained at 44.1%. The market value of the Company's investment in CTS amounted to $88,381,000 at March 31, 1996 and $86,942,000 at December 31, 1995. The market value at May 13, 1996 was $101,336,000. Under the Control Share Acquisitions Chapter of the Indiana Business Corporation Law, 1,020,000 of the Company's shares of CTS common stock presently have no voting rights. -6- Note 3 - Equity Investment in CTS Corporation (continued): Summarized unaudited financial information derived from CTS' Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 follows: Three Months Ended ---------------------- March 31, April 2, 1996 1995 -------- ------- (in thousands) Net sales $80,186 $75,978 ======= ======= Gross profit $19,799 $17,273 ======= ======= Net earnings $4,414 $3,256 ======= ======= The Company's proportionate share of CTS' first quarter earnings in accordance with the equity method of accounting reflects a change as of January 1, 1996 in the effective tax rate applied by the Company to its share of CTS' undistributed earnings. The Company has decided it is appropriate to change the effective tax rate applied to its share of CTS' income from the corporate tax rate to the lower rate applicable to dividends received, based on the substantially improved operating results of CTS and its continuing strong cash flow, as well as the increasing quarterly dividends declared by CTS. In response to these positive developments, along with the substantial increase in the market value of the Company's investment in CTS, the lower dividend received tax rate will now be utilized by the Company in reporting its share of CTS income. The effect of this change in the first quarter of 1996 was two-fold: the Company's proportionate share of CTS' first quarter income was $1,594,000, or $.42 per share, versus $.30 per share if the corporate tax rate had been used; and the Company increased reported income by $2,466,000, or $.64 per share, for the favorable adjustment to taxes previously provided at the corporate rate on the Company's cumulative share of CTS' undistributed earnings through January 1, 1996. Note 4 - Long-Term Debt: The Company borrowed an additional $1,000,000 under its Revolving Credit Agreement with banks during the quarter ended March 31, 1996. Note 5 - Other Income, Net: Three Months Ended March 31, ------------------ 1996 1995 ------ ------ (in thousands) Interest: Income $ 9 $71 Expense (58) (12) --- --- (49) 59 Other, net 166 175 ---- ---- $117 $234 ==== ==== -7- Note 6 - Income Tax Charge (Benefit): The effective tax rates for the charges (benefits) for the three months ended March 31, 1996 and 1995 exceeded the Federal statutory rate due to the effect of state income taxes. Note 7 - Contingencies: The Company is a supplier to the United States Government under contracts and subcontracts on which there are cost allocation, cost allowability and compliance issues under examination by various agencies or departments of the Federal government. In the course of the resolution of these issues, the Company may be required to adjust certain prices or refund certain payments on its government contracts and subcontracts. The Company believes that any such price adjustments or refunds will not have a materially adverse effect on the financial position or results of operations of the Company. The Company has been notified by the U.S. Environmental Protection Agency ("EPA") that it is a Potentially Responsible Party ("PRP") regarding hazardous waste cleanup at a non-Company site in Connecticut and at a Company site in California. Certain of the PRPs at the Connecticut site have agreed with the EPA to fund a feasibility study at the site and have sued the Company and other PRPs who have not agreed to share the costs. 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 February 1996, the Company settled the past costs portion of a 1995 lawsuit by a state environmental agency to recover past and future response costs related to the cleanup of a non-Company site in Pennsylvania as to which the Company was earlier designated a PRP; and the Company has also been sued by certain of the PRPs who have agreed with the state agency to fund other past response costs at that site to recover a portion of those costs from the Company and other PRPs who have not agreed to participate in such funding. The Company is also a defendant in two lawsuits seeking contribution for Superfund cleanup costs relating to two other non- Company sites in that state. Based upon its knowledge of the extent of the Company's exposure and current statutes, rules and regulations, management believes that the anticipated costs resulting from claims and proceedings with respect to the above mentioned sites, including remediation, the extent and cost of which are presently unknown, will not materially affect the financial position of the Company. However, it is possible, but unanticipated at this time, that future results of operations or cash flow could be materially affected by an unfavorable resolution of these matters. With respect to other claims and actions against the Company, it is the opinion of Management that they will not have a material effect on the financial position of the Company. -8- Item 2. Management's Discussion and Analysis of Results of Operations and ----------------------------------------------------------------- Financial Condition ------------------- Results of Operations - --------------------- Sales increased $863,000 in the quarter ended March 31, 1996 compared to the same period a year ago. Sales in the Electrical Appliances and Electronic Devices segment increased $707,000; increases in sales of electrical appliances and oscillators were offset in part by a decline in sales of heat dissipating devices for computers, due to a slowdown in orders by computer manufacturers in response to a sluggish retail market. Sales in the Fabricated Metal Products and Equipment segment increased $631,000 due to sales improvements in all product lines. Sales in the Power and Controlled Environmental Systems segment declined $475,000, as declines in thermal, custom mobile and power plant product sales were partially offset by increased sales of transportable medical units. Gross profit decreased $1,255,000 in the quarter ended March 31, 1996 compared to the same period a year ago, and declined as a percentage of sales to 20.4% from 26.1%. Gross profit in the Electrical Appliances and Electronic Devices segment decreased due to lower sales of higher-margined heat dissipating devices for computers and competitive pricing pressures on electrical appliances. Gross profit was significantly lower in the Fabricated Metal Products and Equipment segment despite the sales increase, primarily due to manufacturing inefficiencies at the Scranton, Pennsylvania plant. Gross profit was relatively unchanged in the Power and Controlled Environmental Systems segment due to product mix on the lower sales volume. Selling, general and administrative expenses in the quarter ended March 31, 1996 were comparable to such expenses in the same period a year ago. Other income decreased $117,000, due primarily to a decrease in interest income of $62,000 and an increase in interest expense of $46,000. The change in those items results from Company borrowings under its Revolving Credit Agreement in 1996, versus investment of excess funds in the first quarter of 1995. The Company recorded an income tax benefit of $370,000, a 38.8% tax rate, for the current period, and an income tax expense of $170,000, a 37.7% tax rate, for the prior year period. The effective rate for both periods differed from the Federal statutory rate due to the effect of state income taxes. Income from the Company's equity investment in CTS Corporation increased $3,258,000, reflecting CTS' $1,158,000 increase in quarterly net earnings, the Company's period to period increase in percentage of equity ownership to 44.1% from 43.1% and a change in the effective tax rate applied by the Company to its share of CTS' undistributed earnings (see Note 3 - Equity Investment in CTS Corporation in the Notes to the Condensed Consolidated Financial Statements). -9- Financial Condition - ------------------- Cash and cash equivalents decreased $1,490,000 during the three months ended March 31, 1996. Cash of $1,567,000 was used in operating activities, principally to fund increases in assets of the division held for sale, offset in part by decreases in accounts receivable and inventories. Cash of $199,000 was used in investing activities to acquire production equipment. Cash of $276,000 was provided by financing activities, as borrowings increased by $1,000,000 and the Company funded dividend payments and treasury stock purchases. Cash at March 31, 1996 amounted to $277,000. During the three month period, the Company borrowed an additional $1,000,000 for working capital requirements under its $37,000,000 Revolving Credit Agreement with its banks, bringing the total borrowings to $4,000,000. The Company presently has $33,000,000 available under the Agreement, in addition to a $9,000,000 uncommitted line with a bank. Liquidity and financial resources are considered adequate to fund planned Company operations, including capital expenditures and payment of dividends and additional stock purchases, if any. The Company intends to continue its stated policy of reviewing potential acquisitions of companies and product lines which it believes would enhance its growth and profitability. Management anticipates that the Company's deferred tax assets will be realized based upon its expectation of future taxable income. The Company will require taxable income of $14,111,000 to realize its deferred tax assets, which are $4,807,000 at March 31, 1996. Also under applicable carryback provisions of the Internal Revenue Code, prior years' taxable income could be utilized to realize a substantial portion of the deferred tax assets. With respect to environmental matters (see Note 7 - Contingencies in the Notes to the Condensed Consolidated Financial Statements), the Company incurred costs of $96,000 for managing hazardous substances or pollutants during the current three month period, compared to $52,000 for the comparable prior year period. Also, during the prior year's first quarter, the Company had capital expenditures at a Company site in California of $17,000 to limit and/or monitor hazardous substances or pollutants. In complying with federal, state and local environmental protection statutes and regulations, the Company has altered or modified certain manufacturing processes and expects to continue to do so in the future. Such modifications to date have not significantly increased capital expenditures or materially affected earnings or the competitiveness of the Company. It is possible, but unanticipated at this time, that future results of operations or cash flows could be materially affected by an unfavorable resolution of environmental matters. With respect to recently issued FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company anticipates no substantial impact on its financial position or results of operations upon adoption in 1996. The Company accounts for stock- based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company expects no pro forma effect on net income and earnings per share under FASB Statement No. 123, "Accounting for Stock- Based Compensation." -10- Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (b) There were no reports on Form 8-K for the three months ended March 31, 1996. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYNAMICS CORPORATION OF AMERICA ------------------------------- (Registrant) /s/ Patrick J. Dorme ------------------------------- (Signature) Patrick J. Dorme Vice President - Finance and Chief Financial Officer Date: May 14, 1996 ------------ -12- EX-27 2 DCA FINANCIAL DATA SCHEDULE 3/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 277 0 18,653 488 22,541 50,556 36,852 33,342 136,042 21,694 4,411 0 0 382 107,910 136,042 25,982 25,982 20,682 20,682 0 0 58 (953) (370) 3,477 0 0 0 3,477 .91 .91
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