-----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, FwxGBpa0TvcF5KnuR0wFKG6e+4Z01MOCHhgwQFgIVZcEgPXWqovQcHZdSoNKs7cP XuH1WNBVzSV5reKO2YehHw== 0000950135-96-001587.txt : 19960402 0000950135-96-001587.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950135-96-001587 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSTRON CORP CENTRAL INDEX KEY: 0000050716 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042057203 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05641 FILM NUMBER: 96542419 BUSINESS ADDRESS: STREET 1: 100 ROYALL ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178282500 MAIL ADDRESS: STREET 1: 100 ROYALL STREET CITY: CANTON STATE: MA ZIP: 02021 10-K405 1 INSTRON CORPORATION 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) / X / ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _____ TO _____ COMMISSION FILE NUMBER 1-5641 INSTRON CORPORATION (Exact name of registrant as specified in its Charter) MASSACHUSETTS 04-2057203 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 ROYALL STREET CANTON, MASSACHUSETTS 02021 (Address of Principal executive offices) (Zip Code) (617) 828-2500 (Registrant's telephone number, including area code) COMMON STOCK, $1 PAR VALUE AMERICAN STOCK EXCHANGE TITAL OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K 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 periods 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 The aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant as of March 15, 1996 was $72,749,936. The number of shares outstanding of each of the issuer's classes of common stock as of March 15, 1996 was 6,364,947. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive proxy statement for the 1996 Annual Meeting of Stockholders are incorporated by reference in Part III. - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS THE COMPANY Instron Corporation ("Instron" or the "Company") designs, develops, manufactures, markets, and services materials testing systems, software, and accessories for evaluating the mechanical properties of materials, components and structures. The Company's products are used principally in research and development, and quality control applications to test the strength, elasticity, hardness and other properties of various materials including metals, plastics, textiles, composites, ceramics and rubber. Instron offers a comprehensive range of microprocessor and computer based materials testing systems. In the worldwide market for these systems, Instron is a leading producer of static (electromechanical), dynamic (servohydraulic) and hardness testing systems. Instron's products typically are assembled from a number of company- designed standard hardware and software modules and accessories, selected and configured for the customer's specific application. Additional hardware, software and accessories may be added to the system at a later date. The systems have the ability to interface with microcomputers and personal computers which enhance control of the testing process, data collection and analysis. The Company has sales and service offices in 12 United States cities and 16 foreign countries. Approximately 60% of the Company's revenues are derived from sales outside the United States. Principal manufacturing facilities are located in the United States and the United Kingdom. PRINCIPAL MARKET The Company's principal market is comprised of industry, educational institutions and governments who need to understand the characterization and properties of materials as they perform research and development, and quality control applications. Most major industries use some form of materials testing for research and development and/or quality control. Industrial research focuses upon the development of new materials, substitute materials, or new uses of existing materials, to reduce manufacturing or operating costs and to improve product quality and durability. Industrial quality control applications involve the testing of finished products as well as materials purchased for the manufacturing process. Educational institutions use Instron products in basic research as well as for instruction in materials science. The Company places particular emphasis on educational institutions because scientists and engineers trained on Instron equipment may influence additional sales of the Company's products later in their careers. 2 3 Government and government agency use principally involves the testing of products to support defense and space programs, to ascertain compliance with safety and other legal requirements and to conduct research on new materials and emerging technologies. PRINCIPAL PRODUCTS Instron offers a comprehensive range of general purpose materials testing systems, application software, and accessories within two principal product lines; static systems and dynamic systems. Static and dynamic systems use different drive systems to push, pull or twist the material being tested. Static systems typically elongate or compress the material sample at selected speeds or rates of strain. Dynamic systems allow repeated deformation of the sample to simulate in-use conditions of the product over an extended period of time. The type of test determines which product line is appropriate to the needs of a customer. STATIC: Static (electromechanical) systems and related accessories accounted for approximately 69%, 71%, and 68% of the Company's revenue in 1995, 1994 and 1993, respectively. These systems consist of a frame, a moving crosshead, a load cell, grips, and electronic modules to control the test and analyze the test data. Static systems typically elongate or compress the material being tested at a user selected, constant speed which ranges from fractional microns per minute to one meter per minute. These systems continuously measure the precise force being applied and the resulting deformation of the material at various time intervals. They also analyze the results of the test, and either print, graph or electronically display them. Instron's static product offerings include hardness testing machines, the cost effective Series 4400 product line, and the high-performance Series 5500 product line. The Series 5500 systems are usually used for research and development and are equipped with software and many accessories. Quality Control applications usually require fewer accessories and less breadth of application capability. The prices of electromechanical systems generally range from $15,000 to $150,000, and prices of hardness testing machines range from $2,000 to $20,000. DYNAMIC: Dynamic (servohydraulic) systems and related accessories accounted for approximately 31%, 29% and 32% of the Company's sales in 1995, 1994 and 1993, respectively. These systems utilize a servo-controlled hydraulic actuator, a load cell, grips, and electronic modules to control the test and analyze the test data. Many of the elements have the same function, and in some cases are the same actual elements, as those of static test machines. The major distinction between a dynamic system and a static system is the means used to apply force to the test specimen. The former uses a 3 4 servo-controlled, hydraulic actuator and the latter a screw-driven, moving crosshead. Many tests can be carried out equally well with either a static or dynamic test machine. However, if the test requires extremely rapid rates of loading, or if it is a test of endurance in which the material is subjected to rapidly fluctuating loads, then the dynamic (servohydraulic) test machine is appropriate. Software, computer control and data analysis are features routinely added to basic dynamic systems. The computer is often used to command actuator motion to simulate real-life loading conditions. It is also used to record, analyze and display parameters of performance and endurance for test material or test components. Machines can be configured not only to elongate or compress the material being tested, but to simultaneously twist it or subject it to other forms of complex loading. The dynamic product line includes structural testing systems which are used to test products and assemblies. They typically consist of several actuators which push and pull the product at different points, and sensors which collect data and transmit it to a central measuring device. Utilizing the Company's engineering expertise, dynamic systems are often customized to fit the need of a customer's particular test application. Instron's dynamic product offerings vary with the force capacity of the machines, the complexity of the actuator system, the sophistication of the control electronics, and the computer system and software. The prices of servohydraulic systems generally range from $40,000 to $400,000 with very complex structures systems ranging as high as several million dollars. SERVICE In recent years, the Company has invested in new service offerings, including calibration, extended warranties, software support, upgrade contracts and telephone support. The service business accounted for approximately 15%, 15%, and 14% of the Company's total revenue in 1995, 1994, and 1993, respectively. The service revenue is included in the percentage amounts for static and dynamic systems set forth above. OTHER PRODUCTS AND ACCESSORIES The Company develops and sells Laboratory Information Management Systems (LIMS) for PC-based networks, through its U.S. subsidiary, Laboratory MicroSystems, Inc. The LIMS software manages the flow of information in a laboratory so that resources can be optimally employed in achieving the laboratory's primary goals of high quality analysis and fast turnaround. The Company has license agreements with third parties for the exclusive sale of certain products, including software, in the material testing industry. 4 5 Accessories can be included with the initial purchase or subsequently purchased in order to expand the capability of the original machine. Typical accessories include application software, grips, fixtures, optical/video extensometers which measure precisely the deformation of material being tested without actually contacting it and robotic devices which automatically feed test specimens to the systems. The Company also manufactures and sells environmental control accessories. Other products and accessories for static and dynamic equipment purchased separately from the original sale of equipment are included in the percentage amounts for static and dynamic systems set forth above. NEW PRODUCTS During 1995, Instron expanded the Series 4400 and Series 5500 electromechanical product lines. These new machines have been redesigned using the latest electronics technology and sharing common parts, making them easier and less costly to build and to service. The new machines are easier to operate, with easy to understand control panels and software interfaces, and ergonomic design features that minimize operator fatigue, reduce errors and increase productivity. Servohydraulic dynamic test software was enhanced with new Fast Track and Wavemaker for Windows products. The Fast Track software includes LabView drivers that make it possible for users to write their own applications and Wavemaker allows greater flexibility for sophisticated fatigue test requirements. RESEARCH AND DEVELOPMENT The Company maintains research and development staffs at their U.S. and U.K. manufacturing facilities, as well as the Wolpert operation in Germany. These development staffs often work directly with industrial and government researchers and the materials science departments of universities to create leading edge solutions to materials testing applications. Instron is a pioneer in the development and application of electronic measurement and drive systems techniques in materials testing systems. The Company has continuously designed, developed, and marketed state-of-the-art testing systems, software, and accessories, including digitally controlled static and dynamic systems, low-cost static systems for the quality control market, software, and microprocessor-based system controllers to be used in conjunction with its entire product line. 5 6 In 1995, the Company expensed $8,782,000 on research and development activities, compared with $8,062,000 in 1994, and $7,248,000 in 1993. In addition, the Company has capitalized certain software development costs of $1,315,000, $792,000, and $1,882,000 during 1995, 1994 and 1993, respectively. Had these costs been included as expenses during such periods, research and development expenses would have increased by 14% in 1995, decreased by 3% in 1994 and increased by 4% in 1993, respectively. The Company, in recent years, has focused its research and development expenditures on revitalizing the electromechanical and servohydraulic product lines, developing new hardness testing machines, developing new software and enhancements, and redesigning products to reduce manufacturing costs. These new products and enhancements do not, in the Company's opinion, present a significant risk that on-hand inventory, which supports existing models, will be made obsolete because of the interchangability of parts and the lead time available before the introduction of new products. In addition, the Company allocated funds, in 1995, for development projects that show potential for new applications and market opportunities utilizing the Company's core technological competencies. Two projects were identified as having product potential for 1996; applications in asphalt testing and a motion base system to be used in the new market of motion-based simulation games for the entertainment and training industries. COMPETITIVE CONDITIONS The Company competes with a number of other manufacturers, some of whom have greater financial, technical and marketing resources than the Company. The intensity of the competition varies by product line and by geographic area. Competition in the United States is greatest in the dynamic line where the Company has one major domestic competitor, MTS Systems Corporation. Competition in foreign markets is greatest in Germany and Japan, where there are major local manufacturers. The principal competitive factors are engineering excellence, the quality and technical capability of the equipment, responsiveness to customer needs, quality of service, and price performance. BACKLOG At December 31, 1995, the Company's backlog of orders was approximately $36,136,000 compared with $32,687,000 at December 31, 1994. The Company anticipates that essentially the entire backlog at December 31, 1995 will be shipped during 1996. RAW MATERIALS The Company orders most of its purchased component parts from vendors who either manufacture them or supply them as off-the-shelf items. While the Company is dependent upon a limited number of suppliers for certain components, it has not experienced significant problems in procurement or delivery of any essential materials, parts or components. Substantially all purchasing is accomplished on a competitive basis while maintaining a level of inventory sufficient to provide support of customer servicing requirements and meet scheduled delivery dates. 6 7 PATENTS AND TRADEMARKS The Company has several patents in the United States and in foreign countries. The Company relies basically on engineering and technological capability rather than on these patents to maintain its position in the industry. The trademark "Rockwell" and "Instron" and the device mark are registered trademarks of the Company. Under current law, these trademarks may be renewed indefinitely as long as they are maintained in use. ENVIRONMENTAL CONSIDERATIONS Compliance with federal, state and local provisions relating to protection of the environment has not had, and is not expected to have, any material adverse effects upon the production, capital expenditures, earnings, and competitive position of the Company and its subsidiaries. NUMBER OF EMPLOYEES At December 31, 1995, the Company employed 1,145 people worldwide. SEASONALITY Historically, the Company's sales are highest in the fourth quarter of each year due to the ordering pattern of its customers, which favors fourth quarter deliveries before budget authorizations expire. This is particularly true overseas where the order mix usually consists of larger systems than domestic orders. Sales in the first quarter are usually low as it takes time to rebuild in-process inventory levels after the heavy fourth quarter delivery requirements have been satisfied. Also, third quarter sales are generally low due to vacation patterns of both Company production workers and customer technical personnel needed for acceptance testing. The seasonal factors affecting sales are usually reflected in quarterly net income. FOREIGN OPERATIONS Foreign operations represent a significant portion of the Company's business. The Company's branches and subsidiaries outside of the United States accounted for 60% of the Company's total revenue in 1995, 60% in 1994 and 59% in 1993. The Company believes that the business and political risk of operating in its current foreign markets is not, in the aggregate, materially greater than the risk undertaken by the Company in the United States. The Company's principal foreign assets are located in the United Kingdom. Foreign exchange fluctuations can have a significant impact on the Company's consolidated net assets and results of operations as reported in U.S. dollars. However, the Company believes that these fluctuations generally have not had, and it does not expect them to have, a significant economic effect on the Company's business since foreign operations are generally 7 8 financed, and revenues and expenses are, for the most part, paid in local currencies, except for intercompany purchases which are closely monitored. Financial information concerning domestic and foreign operations appears in Notes 1 and 2 in the "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations ", included as part of this report. ITEM 2. PROPERTIES The Company's corporate headquarters and principal United States manufacturing facility is located on 66 acres of Company-owned land at the junction of Routes 128 and 138 in Canton, Massachusetts, approximately 15 miles from Boston. This facility provides 140,500 square feet of office and manufacturing space. The Company's principal foreign facility provides 120,000 square feet of office and manufacturing space located on seven acres of Company-owned land in High Wycombe, England, approximately 30 miles west of London. The Company has 32 sales offices and demonstration centers which are located throughout the United States and in 16 foreign countries. The Company believes that all properties are adequate and suitable for its present needs. ITEM 3. LEGAL PROCEEDINGS The registrant and its subsidiaries are not involved in any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1995. 8 9 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the executive officers of the Company are listed below along with their business experience during the past five years.
Name, Age Business Experience and Position During Past 5 Years - ------------ ------------------- James M. McConnell, 55 Mr. McConnell joined Instron Corporation President and Chief in April of 1990 as President and Chief Executive Officer Executive Officer. From 1987 to 1990, Mr. McConnell was President and Chief Executive Officer of Automatic Switch Company, and from 1986 to 1987, he was President of Rosemont, Inc. (both are wholly-owned subsidiaries of Emerson Electric Co.). Joseph E. Amaral, 48 Mr. Amaral joined Instron Corporation Vice President, General Manager in 1978. Since 1985, Mr. Amaral has held of North America Operations positions as Corporate Technical Staff Engineer, Corporate Technology Manager, Corporate Product Planning Manager, and Vice President, Corporate Technical Director. In March of 1995, he was elected Vice President, General Manager of North America Operations. Kenneth L. Andersen, 54 Mr. Andersen joined Instron Corporation Vice President, Sales in June of 1983. Since 1983, Mr. Andersen North America has held positions as Director of Software Business Group, Director of Structures Business Group, and Corporate Marketing Director. In February of 1993, he was elected Vice President of Sales, North America. John R. Barrett, 41 Mr. Barrett joined Instron Corporation in Treasurer 1988 as Assistant Treasurer. From 1979 to 1988, Mr. Barrett has held various financial management positions with Computervision Corporation. In February of 1993, he was elected Treasurer of the Corporation. Jonathan L. Burr, 48 Mr. Burr joined Instron Corporation in 1979. He Vice President, Corporate has held positions as Personnel Administrator, Director of Human Resources Director of Personnel, and Corporate Director of Human Resources. In February of 1993, he was elected Vice President, Corporate Director of Human Resources. Mr. Burr is the son of George S. Burr, Vice Chairman of the Board of Directors. Yahya Gharagozlou, 40 Mr. Gharagozlou joined Instron Corporation Vice President, Corporate in 1981. He has held positions as Application Technical Director Engineer, Assistant Product Manager, Corporate Product Manager for Software, Marketing Manager, Product Planning Manager and Director of Engineering. In February of 1996, he was elected Vice President, Corporate Technical Director.
9 10 EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Name, Age Business Experience and Position During Past 5 Years - ------------ ------------------- Arthur D. Hindman, 52 Mr. Hindman joined Instron Corporation Vice President and General in 1979. Since 1979, Mr. Hindman has held Manager, Asia Pacific/ positions as Manager, Marketing Administration; Latin America International Sales Manager, and General Manager, Asia/Latin America. In February of 1993, he was elected Vice President and General Manager, Asia Pacific/Latin America. Mr. Hindman is the son of Harold Hindman, Chairman of the Board of Directors. Ian M. MacGregor, 58 Mr. MacGregor joined Instron Limited in 1970 as Vice President and Managing a Sales Engineer and was promoted to Marketing Director of Instron Limited Director in 1977. He assumed the position of Managing Director of Instron Limited in October of 1982 and was elected Vice President of the Corporation in January of 1983. Linton A. Moulding, 42 Mr. Moulding joined Instron Corporation in 1985. Chief Financial Officer He has held positions as Corporate Controller, Director of U.S. Operations, Corporate Vice President of Manufacturing, and Vice President of Finance and Treasurer. In February of 1993, he was elected Chief Financial Officer of the Corporation.
10 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the American Stock Exchange under the symbol ISN. The table below sets forth the high and low sales prices of the Common Stock and the dividends declared during the two most recent fiscal years.
1995 1994 ----------------------------- ---------------------------- Market Price Cash Market Price Cash ------------------- Dividends ------------------ Dividends High Low Declared High Low Declared - -------------------------------------------------------------------------------- First quarter $13.625 $11.125 $.07 $12.000 $ 9.500 $.03 Second quarter 13.000 11.250 .00 11.500 9.500 .03 Third quarter 13.625 11.375 .04 13.125 9.500 .03 Fourth quarter 14.500 11.625 .04 12.875 10.500 .03 ---- ---- Total year $.15 $.12 ==== ====
The number of holders of record of the Company's Common Stock at December 31, 1995 was 542. This number does not include shareholders for whom shares are held in a "nominee" or "street" name. 11 12 ITEM 6. SELECTED FINANCIAL DATA
In thousands, except per share data 1995 1994 1993(1) 1992 1991(2) - --------------------------------------------------------------------------------------- OPERATING RESULTS - ----------------- Bookings of new orders $155,092 $138,947 $124,998 $112,369 $121,577 Total revenue 150,571 136,192 122,827 116,268 126,354 Income from operations 8,921 8,082 5,034 6,123 9,645 Income before taxes 7,684 6,979 3,883 5,659 7,865 Provision for income taxes 2,689 2,442 1,398 1,954 2,914 Net Income 4,995 4,537 2,485 3,705 4,951 Backlog 36,136 32,687 29,063 22,988 28,872 Research & development 8,782 8,062 7,248 8,097 7,872 FINANCIAL POSITION - ------------------ Working capital $ 38,259 $ 33,849 $ 31,070 $ 28,058 $ 29,342 Total assets 113,334 102,294 99,153 79,165 93,563 Total debt 19,875 17,818 21,718 7,646 13,064 Stockholders' equity 56,102 51,926 46,897 45,847 47,635 Capital expenditures 4,510 4,286 4,323 3,478 3,993 PER SHARE OF COMMON STOCK - ------------------------- Net income $ .78 $ .72 $ .39 $ .59 $ .78 Dividends declared .15 .12 .12 .12 .12 Book value 8.85 8.26 7.46 7.29 7.60 PERFORMANCE MEASUREMENT - ----------------------- Pre-tax income as a % of total revenue 5.1% 5.1% 3.2% 4.9% 6.2% Net income as a % of total revenue 3.3 3.3 2.0 3.2 3.9 Return on average stockholders' equity 9.2 9.2 5.4 7.9 10.8 Revenue growth 10.6 10.9 5.6 (8.0) 4.2 Total debt as a % of debt plus equity 26.2 25.5 31.7 14.3 21.5 Working capital ratio 1.9:1 1.9:1 1.8:1 2.1:1 1.8:1 (1) Effective January 1, 1993, the Company acquired certain assets of Wilson Instruments, Inc. (Wilson). The operating results of Wilson are included in the Company's Consolidated results of operations from the date of acquisition. In the third quarter of fiscal 1993, the Company acquired Amsler Otto Wolpert-Werke GmbH (Wolpert). The Company's results include the results of operations of Wolpert since August 24, 1993, the date of the acquisition. (2) During 1993, the Company adopted Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS109) and elected to apply the provisions of FAS109 retroactively to January 1, 1991. The cumulative effect of adopting FAS109 was a reduction in net income of $240,000 or $.04 per share.
12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Instron reported net income of $5.0 million, or 78 cents per share, for the year ended December 31, 1995, an increase of 10% over 1994. The improvement in net income was principally due to the growth of 1995 revenues. Total revenue of $150,571,000 in fiscal 1995 increased by 11% from total revenue of $136,192,000 in fiscal 1994. This revenue growth was attributable to increases in structural and custom material testing systems, hardness testing equipment, which included the operations of Shore Instruments acquired January 5, 1995, and higher revenues of the Company's service business. Total revenue in fiscal 1994 increased by 11% over fiscal 1993 on the strength of the Company's new electromechanical line of products, increased service business and a full year of revenue from the Wolpert operation, which was acquired in August of 1993. Total foreign revenue accounted for approximately 60% of total 1995 revenue, compared with 60% in 1994 and 59% in 1993. Total bookings of new orders increased by 12% to $155,092,000 in fiscal 1995 due to significant growth in the Asia/Latin America market, including Japan, and increases in the Company's European operation. In 1994, total bookings increased by 11% due principally to strong North America bookings and the inclusion of the Wolpert operation. The Company's backlog was $36,136,000 at December 31, 1995, an increase of 11% from the 1994 year-end backlog. Strong fourth quarter bookings in the Company's European and Asian markets contributed to the higher backlog. Order backlog at December 31, 1994, increased by 12% over the 1993 year-end backlog due to strong Domestic and European bookings during the latter part of 1994. The 1995 gross profit margin decreased to 41.5% from 43.4% in 1994 and 43.6% in 1993. The decrease in gross margin was due to higher than expected costs at the LMS software division, a mix of lower margin products and competitive pricing pressures partially offset by improved service profitability. As anticipated, the Company shipped several large structural and material testing systems with lower gross margins than traditional systems business, which had the effect of reducing gross margin during 1995. In contrast, service margins improved to 29% in 1995 compared to 25% in 1994 and 19% in 1993. The Company's service business has realized efficiencies by fully integrating the Wilson and Wolpert service organizations and has leveraged the increase in service revenues into higher profit margins. Selling and administrative expense growth was held to 4% in fiscal year 1995 and 1994. Selling and administrative expenses continued to decline as a percentage of revenue to 29.7% in 1995 compared to 31.5% in 1994 and 33.6% in 1993. In 1995, the increase in selling and administrative expenses was primarily related to the inclusion of Shore's operations and costs associated 13 14 with the implementation of new information systems. In 1994, the increase in selling and administrative expenses resulted from the inclusion of a full year of expenses of Wolpert and higher incentive compensation expenses. Research and development expenses increased by 9% in 1995, compared to an 11% increase in 1994. During the three years ended December 31, 1995, the Company has capitalized certain software development costs (see Note 1 of Notes to Consolidated Financial Statements). Had these costs been included as period expenses, research and development expenses would have increased by 14% in 1995, decreased by 3% in 1994 and increased by 4% in 1993. As a percentage of total revenue, research and development expenditures (including capitalized software costs) represented 6.7%, 6.5% and 7.4% in 1995, 1994 and 1993, respectively. The Company, in recent years, has focused its research and development expenditures on revitalizing the electromechanical and servohydraulic product lines, developing new hardness testing machines, developing new software and enhancements, and redesigning products to reduce manufacturing costs. These new products and enhancements do not, in the Company's opinion, present a significant risk that on-hand inventory, which supports existing models, will be made obsolete because of the interchangability of parts and the lead time available before the introduction of new products. In addition, the Company allocated funds, in 1995, for development projects that show potential for new applications and market opportunities utilizing the Company's core technological competencies. Two projects were identified as having product potential for 1996; applications in asphalt testing and a motion base system to be used in the new market of motion-based simulation games for the entertainment and training industries. Operating income increased from $8,082,000 in 1994 to $8,921,000 in 1995, representing 5.9% of total revenue in both years. Operating income was $5,034,000 or 4.1% of total revenue in 1993. Net interest expense increased by 34% in 1995 and by 35% in 1994. In both years, the increase was due to higher interest rates and higher average borrowings. The foreign exchange gains of $186,000 in 1995 were mainly attributable to the stronger Japanese yen versus the U.S. dollar and British pound and to the strengthening of certain European currencies against the British pound. In 1993, the foreign exchange losses of $367,000 were due to the weakening of certain European currencies versus the British pound. The effect of changes in foreign currency translation rates did not have a significant impact on the components of net income for each of the three years in the period ended December 31, 1995. 14 15 Income before taxes was 5.1% of total revenue in 1995 and 1994, and 3.2% in 1993. The consolidated effective tax rate was 35.0% in 1995 compared to 35.0% in 1994 and 36.0% in 1993. A detailed reconciliation of the Company's effective tax rate and the United States statutory tax rate appears in Note 8 of Notes to the Consolidated Financial Statements. FINANCIAL CONDITION The Company's primary source of funds in 1995 and 1994 was net cash generated by operations. The net cash generated by operations in 1995 consisted primarily of net income, as adjusted for the noncash effect of depreciation and amortization expense, and an increase in accounts payable and accrued expenses partially reduced by an increase in accounts receivable and inventories. The operating cash flows of $6.4 million and additional bank borrowings of $2.2 million were largely used to fund capital expenditures. Accounts receivable of $47.5 million at year-end 1995 increased 15% from $41.4 million at year-end 1994. This increase reflects the higher fourth quarter revenues in 1995 of which a significant amount of revenue was recognized in the last month of the quarter. Inventories rose $2.5 million or 11% over 1994 to $24.3 million at the end of 1995. The inventory turnover ratio increased to 2.90 from 2.77 at the end of 1994. The Company's principal investment activities during 1995 included capital expenditures of $4.5 million consisting mainly of machinery and equipment and building improvements; the purchase of Shore Instruments for $2.7 million and the development of software products of $1.3 million. The Company currently plans to make capital expenditures of approximately $6.0 million in fiscal 1996. In addition, the Company plans to continue to develop and enhance its software products and pursue its strategy of acquisitions. The Company's total debt outstanding at year-end 1995 was $19.9 million compared to $17.8 million at the end of 1994. The ratio of total debt to debt plus equity, at year-end 1995 increased to 26.2% from 25.5% in 1994. The Company maintains a multicurrency revolving credit and term loan facility that provides for borrowings of up to $25.0 million through April 1998. At December 31, 1995 and 1994, respectively, the Company had outstanding borrowings of $11.2 million and $11.0 million under this facility which were classified as long-term. The Company has additional overdraft and borrowing facilities for allowing advances of approximately $27.0 million of which $8.7 million and $6.8 million were outstanding and classified as short-term borrowings at December 31, 1995 and 1994, respectively. The Company believes its present capital resources and anticipated operating cash flows are 15 16 sufficient to meet its current and future cash requirements to finance operations, capital expenditures and acquisitions. On March 8, 1995, the Board of Directors of Instron Corporation voted to increase the regular quarterly dividend from three cents per share to four cents per share. As a result, the total cash dividends declared were fifteen cents per share compared to twelve cents per share in 1994. As previously announced, the Company continues to explore the opportunities for disposing of its real estate assets in Canton, Massachusetts. In January of 1996, the Company signed a non-binding Letter of Intent with Carl Schenck AG of Darmstadt, Germany, to enter into negotiations concerning the formation of a joint venture in the area of structures testing and the acquisition by Instron of Schenck's materials testing business. No assurances can be made that an agreement will be reached. The Company's future success is dependent upon a number of factors including business conditions within the materials testing market, the ability of the Company to maintain acceptable price levels and its ability to continue to develop, manufacture, market and service the high quality products demanded by its customers. 16 17 INSTRON CORPORATION ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION 17 18 INSTRON CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements included in Item 8: PAGE ---- Report of Independent Accountants..................................... 19 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993..................................... 20 Consolidated Balance Sheets as of December 31, 1995 and 1994.......... 21 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.................................................. 22 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993..................................... 23 Notes to Consolidated Financial Statements............................ 24-30 Supplementary Financial Information (Quarterly Financial Information/1995 and 1994 - (Unaudited)......... 31
18 19 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION: We have audited the accompanying consolidated balance sheets of Instron Corporation as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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. 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Instron Corporation as of December 31, 1995 and 1994, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. ---------------------------- COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 22, 1996 19 20 CONSOLIDATED STATEMENT OF INCOME
In thousands, except per share data (Years Ended December 31) 1995 1994 1993 - ---------------------------------------------------------------------------------------- Revenue: Sales $128,018 $115,737 $105,837 Service 22,553 20,455 16,990 -------- -------- -------- Total revenue 150,571 136,192 122,827 -------- -------- -------- Cost of revenue: Sales 72,155 61,854 55,398 Service 15,971 15,253 13,820 -------- -------- -------- Total cost of revenue 88,126 77,107 69,218 -------- -------- -------- Gross profit 62,445 59,085 53,609 -------- -------- -------- Operating expenses: Selling and administrative 44,742 42,941 41,327 Research and development 8,782 8,062 7,248 -------- -------- -------- Total operating expenses 53,524 51,003 48,575 -------- -------- -------- Income from operations 8,921 8,082 5,034 -------- -------- -------- Other (income) expense: Interest expense 1,490 1,300 1,102 Interest income (67) (239) (318) Foreign exchange (gains) losses (186) 42 367 -------- -------- -------- Total other expenses 1,237 1,103 1,151 -------- -------- -------- Income before income taxes 7,684 6,979 3,883 Provision for income taxes 2,689 2,442 1,398 -------- -------- -------- Net income $ 4,995 $ 4,537 $ 2,485 ======== ======== ======== Net income per common share $ .78 $ .72 $ .39 ======== ======== ========
See accompanying notes to consolidated financial statements. 20 21 CONSOLIDATED BALANCE SHEET
In thousands, except share data (December 31) 1995 1994 - ---------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 1,644 $ 1,877 Accounts receivable, net of allowance for doubtful accounts of $1,040 in 1995 and $943 in 1994 47,504 41,401 Inventories 24,337 21,859 Deferred income taxes 3,544 2,949 Prepaid expenses and other current assets 2,835 1,625 -------- -------- Total current assets 79,864 69,711 Property, plant and equipment, net 21,809 22,266 Deferred income taxes 1,476 398 Other assets 10,185 9,919 -------- -------- Total assets $113,334 $102,294 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 8,650 $ 6,800 Accounts payable 9,746 8,271 Accrued liabilities 12,704 12,553 Accrued employee compensation and benefits 6,135 6,051 Accrued income taxes 2,496 0 Advance payments received on contracts 1,874 2,187 -------- -------- Total current liabilities 41,605 35,862 Long-term debt 11,225 11,018 Other long-term liabilities 4,402 3,488 -------- -------- Total liabilities 57,232 50,368 -------- -------- Stockholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued Common stock, $1 par value; 10,000,000 shares authorized; 6,415,321 and 6,363,059 shares issued, respectively 6,415 6,363 Additional paid in capital 2,538 2,113 Retained earnings 52,439 48,393 Cumulative translation adjustment (4,576) (4,229) -------- -------- 56,816 52,640 Less: Treasury stock of 74,952 shares, at cost 714 714 -------- -------- Total stockholders' equity 56,102 51,926 -------- -------- Total liabilities and stockholders' equity $113,334 $102,294 ======== ========
See accompanying notes to consolidated financial statements. 21 22 CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands (Years Ended December 31) 1995 1994 1993 - --------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 4,995 $ 4,537 $ 2,485 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,784 5,815 4,416 Provision for losses on accounts receivable 163 156 92 Increase (decrease) in deferred income taxes (1,635) (161) 11 Changes in assets and liabilities, excluding the effects from purchase of businesses: (Increase) in accounts receivable (6,282) (896) (2,822) (Increase) decrease in inventories (2,210) 121 70 (Increase) decrease in prepaid expenses and other current assets (976) (8) 527 Increase (decrease) in accounts payable and accrued expenses 3,920 411 (3,595) Increase (decrease) in other long-term liabilities 995 (76) (732) Other 607 (756) (926) ------- ------- ------- Net cash provided (used) by operating activities 6,361 9,143 (474) ------- ------- ------- Cash Flows From Investing Activities Capital expenditures (4,510) (4,286) (4,323) Purchase of businesses, net of cash acquired (2,660) 0 (3,662) Capitalized software costs (1,315) (792) (1,882) Proceeds from the sale of property, plant & equipment 219 80 57 Other (59) (31) 91 ------- ------- ------- Net cash used by investing activities (8,325) (5,029) (9,719) ------- ------- ------- Cash Flows From Financing Activities Net borrowings under revolving credit and term loan facility 208 (1,171) 7,747 Net short-term borrowings 2,007 (828) 3,792 Proceeds from notes payable 0 0 2,333 Principal payments on notes payable (18) (2,524) (2,157) Cash dividends paid (884) (755) (754) Other 477 0 6 ------- ------- ------- Net cash provided (used) by financing activities 1,790 (5,278) 10,967 ------- ------- ------- Effect of exchange rate changes on cash (59) 143 30 ------- ------- ------- Net increase (decrease) in cash and cash equivalents (233) (1,021) 804 Cash and cash equivalents at beginning of year 1,877 2,898 2,094 ------- ------- ------- Cash and cash equivalents at end of year $ 1,644 $ 1,877 $ 2,898 ======= ======= ======= Supplemental Disclosures Of Cash Flow Information Cash paid during the year for: Interest $ 1,614 $ 1,404 $ 1,191 Income taxes 2,063 3,039 1,164 Supplemental Disclosures Of Noncash Investing And Financing Activities: Fair value of assets acquired $ 3,005 $ 0 $15,376 Cash paid 2,660 0 3,974 ------- ------- ------- Liabilities incurred or assumed in business acquisitions $ 345 $ 0 $11,402 ======= ======= =======
See accompanying notes to consolidated financial statements. 22 23 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Addi- Total stock tional Cumulative stock- $1 par paid in Retained translation Treasury holders' In thousands, except share data value capital earnings adjustment stock equity - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 $6,360 $2,093 $42,880 $(4,772) $(714) $45,847 Net income 2,485 2,485 Translation adjustments arising during the year (704) (704) Cash dividends declared ($.12 per share) (754) (754) 2,680 shares issued, net, under employee stock option plans 3 20 23 - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 6,363 2,113 44,611 (5,476) (714) 46,897 Net income 4,537 4,537 Translation adjustments arising during the year 1,247 1,247 Cash dividends declared ($.12 per share) (755) (755) - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 6,363 2,113 48,393 (4,229) (714) 51,926 Net income 4,995 4,995 Translation adjustments arising during the year (347) (347) Cash dividends declared ($.15 per share) (949) (949) 52,262 shares issued, net, under employee stock option plans 52 425 477 - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $6,415 $2,538 $52,439 $(4,576) $(714) $56,102 ====== ====== ======= ======= ===== =======
See accompanying notes to consolidated financial statements. 23 24 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all domestic and foreign subsidiaries. Significant intercompany transactions and balances are eliminated. Certain reclassifications were made to prior years' amounts to conform with the 1995 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's principal foreign operations are translated at exchange rates prevailing at the end of the period. Income statement items are translated using average quarterly exchange rates. Translation adjustments are recorded directly in stockholders' equity and are included in income only if the underlying foreign investment is sold or liquidated. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and trade receivables. The Company places its temporary cash investments with major banks throughout the world, in high quality, liquid instruments. The Company sells to a broad range of customers throughout the world and performs ongoing credit evaluations to minimize the risk of loss. The Company makes use of various devices such as letters of credit to protect its interests, principally on sales to foreign customers. INVENTORIES Inventories are valued at the lower of cost or market (net realizable value). The last-in, first-out (LIFO) method of determining cost is used for inventories in the United States and the Asian branches. The Company uses the first-in, first-out (FIFO) method for all other locations. PROPERTY, PLANT AND EQUIPMENT Depreciation is computed principally using the straight-line method over the estimated useful lives of 10 to 25 years for land improvements, 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment. Maintenance and repairs are expensed as incurred. Depreciation expense was $4,719,000, $4,108,000 and $3,698,000 for the years ended December 31, 1995, 1994 and 1993, respectively. SOFTWARE DEVELOPMENT COSTS Certain software development costs and purchased software are capitalized and then amortized over future periods. Amortization of capitalized software costs, for both internally developed and purchased software products, is computed on a product-by-product basis over the estimated economic life of the product, generally three years. Unamortized software costs included in other assets were $2,679,000, $2,580,000 and $2,880,000 at December 31, 1995, 1994 and 1993, respectively. Software development costs of $1,315,000, $792,000, and $1,882,000 were capitalized during 1995, 1994 and 1993, respectively. The amounts amortized and charged to expense in 1995, 1994 and 1993 were $1,216,000, $1,092,000, and $481,000, respectively. 24 25 REVENUE RECOGNITION Revenue from product sales are recognized at time of shipment. Revenue from services are recognized as services are performed and ratably over the contract period for service maintenance contracts. INCOME TAXES Deferred income taxes are provided using the liability method, which estimates future tax effects of differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. Provisions are made for the U.S. income tax liability on earnings of foreign subsidiaries except for locations where the Company has designated earnings to be permanently invested. Such earnings amounted to approximately $22,006,000 at year-end 1995. NET INCOME PER SHARE Net income per share is based on the weighted average number of common shares and common share equivalents outstanding. The number of outstanding shares and equivalents utilized in the per share computations were 6,431,882, 6,339,547 and 6,345,431 in 1995, 1994 and 1993, respectively. 2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS The Company operates in one industry segment, that being the design, production, marketing and servicing of precision systems, software and accessories, for evaluating the mechanical properties and performance of various materials, components and structures. The following table summarizes the Company's operations by significant geographic location for the years ended December 31:
In thousands 1995 1994 1993 - -------------------------------------------------------------------------------- REVENUE, INCLUDING INTERAREA SALES United States $ 70,181 $ 66,822 $ 62,686 European operations 61,899 54,079 50,391 Asia/Latin America 38,034 33,039 27,730 Other international 3,345 3,072 1,959 Eliminations (22,888) (20,820) (19,939) -------- -------- -------- Total revenue $150,571 $136,192 $122,827 ======== ======== ======== OPERATING PROFIT United States $ 7,052 $ 7,568 $ 5,124 European operations 3,612 2,673 3,907 Asia/Latin America 2,800 1,261 (129) Other international 394 586 62 Eliminations 162 22 (282) -------- -------- -------- Total operating profit 14,020 12,110 8,682 Corporate expenses (5,099) (4,028) (3,648) Other expenses (1,237) (1,103) (1,151) -------- -------- -------- Income before income taxes $ 7,684 $ 6,979 $ 3,883 ======== ======== ======== IDENTIFIABLE ASSETS AT YEAR-END United States $ 40,496 $ 36,734 $ 40,551 European operations 44,759 43,121 40,761 Asia/Latin America 18,057 12,980 12,152 Other international 2,188 2,222 1,401 Corporate 8,692 8,627 5,438 Eliminations (858) (1,390) (1,150) -------- -------- -------- Total assets $113,334 $102,294 $ 99,153 ======== ======== ========
25 26 2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS (continued) Sales between geographic areas in 1995, 1994 and 1993, respectively, consisted primarily of $10,534,000, $10,755,000 and $10,386,000 from the United States and $11,998,000, $8,921,000 and $8,472,000 from European operations. Transfers between geographic areas are at manufacturing cost plus a markup factor. 3. INVENTORIES Inventories at December 31 were as follows:
In thousands 1995 1994 - -------------------------------------------------------------------------------- Raw materials $11,269 $ 9,913 Work in process 5,257 4,279 Finished goods 7,811 7,667 ------- ------- Total inventory $24,337 $21,859 ======= =======
Inventories valued at LIFO amounted to $9,721,000 and $8,913,000 at December 31, 1995 and 1994, respectively. The excess of current cost over stated LIFO value was $4,535,000 at December 31, 1995 and $4,339,000 at December 31, 1994. During 1994, certain inventories were reduced, resulting in the liquidation of LIFO inventory layers carried at lower costs prevailing in prior years as compared with the current cost of inventory. The effect of this inventory liquidation was to reduce cost of revenue by $184,000 in 1994. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment balances at December 31 were as follows:
In thousands 1995 1994 - -------------------------------------------------------------------------------- At cost: Land and land improvements $ 2,064 $ 2,060 Buildings and building improvements 17,029 16,257 Machinery and equipment 37,233 37,912 ------- ------- 56,326 56,229 Less: Accumulated depreciation and amortization 34,517 33,963 ------- ------- Net property, plant and equipment $21,809 $22,266 ======= =======
5. BORROWING ARRANGEMENTS The Company maintains a multicurrency revolving credit and term loan facility that provides for borrowings of up to $25,000,000 through April 1998. Borrowings outstanding as of April 1998 convert to a term loan payable in sixteen equal quarterly installments. Interest on borrowings under the agreement is based upon either base rates, LIBOR, or other short-term borrowing rates. Commitment fees under this agreement are 3/8 of 1% per annum on the unused portion. The Company has met the various covenants in the agreement, the most restrictive of which requires a minimum level of tangible net worth. At December 31, 1995 and 1994, respectively, outstanding domestic borrowings of $9,900,000 and $9,500,000 with a weighted average interest rate of 6.13% and 6.56%, and outstanding European borrowings of $1,325,000 and $1,518,000 with a weighted average interest rate of 6.44% and 7.69%, were classified as long-term debt. Long-term debt maturing under the credit agreement in each of 26 27 5. BORROWING ARRANGEMENTS (continued) the five years subsequent to December 31, 1995, assuming outstanding borrowings at December 31, 1995 are unchanged at April 1998, is $2,104,688 in 1998 and $2,806,250 in 1999 and 2000. The Company's subsidiaries have other overdraft and borrowing facilities allowing advances up to approximately $27,000,000. At December 31, 1995, the outstanding portion of these facilities was $8,650,000, due currently. Bank guarantees outstanding at December 31, 1995, for which the Company is contingently liable, amounted to $5,159,000 and relate principally to performance contracts. 6. OPERATING LEASE COMMITMENTS Rental expense amounted to $3,745,000, $3,382,000 and $3,132,000 for the years ended December 31, 1995, 1994 and 1993, respectively. As of December 31, 1995, minimum annual commitments under noncancellable operating leases with terms of more than one year are:
Later In thousands 1996 1997 1998 1999 2000 Years - -------------------------------------------------------------------------------- $2,100 $1,025 $888 $550 $410 $1,106
7. EMPLOYEE PENSION AND RETIREMENT PLANS The Company maintains qualified noncontributory defined benefit pension plans covering United States employees and employees of Instron's United Kingdom subsidiary. The benefits are based on years of service and final average compensation at the date of retirement. The Company's general policy is to fund the pension plans to the extent such contributions are deductible under standards established by the Internal Revenue Service in the U.S. and the Inland Revenue in the U.K. Plan assets in the U.S. consist of mutual funds which invest primarily in common stocks, corporate bonds, U.S. government notes and temporary cash investments. In the U.K., plan assets are invested in funds whose assets consist primarily of common stocks, bonds and other securities. Employees of the Japan subsidiary receive lump sum payments as a multiple of annual salary at retirement or termination, based on years of service. These Japanese benefits are unfunded. Net periodic pension costs include the following components:
1995 1994 1993 -------------------------- -------------------------- -------------------------- In thousands U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan - ----------------------------------------------------------------------------------------------------------------------- Service cost $ 900 $ 1,167 $267 $ 793 $ 1,136 $220 $ 800 $ 1,054 $204 Interest cost 1,496 1,678 210 1,362 1,353 176 1,325 1,179 176 Actual return on plan assets (5,284) (3,754) 0 335 2,146 0 (1,733) (5,257) 0 Net amortization and deferral 3,802 1,769 25 (1,679) (4,123) 24 488 3,805 22 ------- ------- ---- ------- ------- ---- ------- ------- ---- Net periodic pension cost $ 914 $ 860 $502 $ 811 $ 512 $420 $ 880 $ 781 $402 ======= ======= ==== ======= ======= ==== ======= ======= ====
27 28 7. EMPLOYEE PENSION AND RETIREMENT PLANS (continued) The funded status of the Company's U.S., U.K. and Japan plans and amounts recognized in the Consolidated Balance Sheet at December 31 were:
1995 1994 1993 ------------------------- ------------------------- ------------------------ In thousands U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan - ------------------------------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Vested benefits $15,021 $18,448 $1,873 $13,760 $15,052 $1,761 $12,594 $12,981 $1,231 Non-vested benefits 185 0 0 182 0 0 129 0 0 ------- ------- ------ ------- ------- ------ ------- ------- ------ Accumulated benefit obligation $15,206 $18,448 $1,873 $13,942 $15,052 $1,761 $12,723 $12,981 $1,231 ======= ======= ====== ======= ======= ====== ======= ======= ====== Projected benefit obligation $21,134 $22,966 $3,327 $19,223 $18,739 $3,086 $18,014 $16,085 $2,422 Plan assets at fair value 21,556 24,466 0 16,547 20,935 0 16,225 20,421 0 ------- ------- ------ ------- ------- ------ ------- ------- ------ Projected benefit obligation in excess of (less than) plan assets (422) (1,500) 3,327 2,676 (2,196) 3,086 1,789 (4,336) 2,422 Unrecognized net gain(loss) 3,265 3,794 92 (380) 4,296 48 1,101 6,399 25 Unrecognized prior service cost (593) (1,256) 0 (638) (1,380) 0 (811) (1,413) 0 Unrecognized net asset (liability) at transition 75 649 (335) 83 726 (371) 92 755 (352) ------- ------- ------ ------- ------- ------ ------- ------- ------ Pension liability included in Consolidated Balance Sheet $ 2,325 $ 1,687 $3,084 $ 1,741 $ 1,446 $2,763 $ 2,171 $ 1,405 $2,095 ======= ======= ====== ======= ======= ====== ======= ======= ======
Assumptions used in the accounting for the Company's U.S., U.K., and Japan plans at December 31 were:
1995 1994 1993 ----------------------- ---------------------- ----------------------- U.S. U.K. Japan U.S. U.K. Japan U.S. U.K. Japan - ------------------------------------------------------------------------------------------------------------------- Weighted average discount rate 7.5% 8.0% 6.0% 7.5% 8.5% 6.0% 7.5% 7.5% 6.0% Rates of increase in compensation levels 5.0 5.5 5.0 5.0 6.0 5.0 5.0 5.5 5.0 Expected long-term rate of return on assets 9.0 8.5 0 9.0 9.0 0 9.0 8.0 0
The expense of all pension plans for 1995, 1994 and 1993 was $2,276,000, $1,743,000, and $2,063,000, respectively. The Company also sponsors a Savings and Security Plan for all U.S. employees. The plan (in accordance with section 401(k) of the Internal Revenue Code) offers participating employees a program of regular savings and investment, funded by their own contributions and those of the Company. The amount charged to operating expense for this plan was $535,000, $498,000 and $447,000 in 1995, 1994 and 1993, respectively. 8. INCOME TAXES The significant components of the Company's deferred tax assets and liabilities at December 31, are as follows:
In thousands 1995 1994 - ---------------------------- -------- -------- Employee benefits $ 4,188 $ 2,835 Inventories 2,109 1,016 Accrued expenses 1,436 2,514 ------- ------- Total deferred assets 7,733 6,365 ------- ------- Accrued expenses (65) (360) Depreciation (1,425) (1,519) Capitalized software costs (811) (558) ------- ------- Total deferred liabilities (2,301) (2,437) ------- ------- Valuation reserve (490) (600) ------- ------- Total net deferred assets $ 4,942 $ 3,328 ======= =======
A valuation reserve has been established where, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The net change in the valuation allowance in 1995 was a decrease of $110,000 relative to foreign tax benefits now realized. The valuation allowance as of December 31, 1995 related primarily to foreign tax benefits. 28 29 8. INCOME TAXES (continued) The components of income before income taxes consisted of the following:
In thousands 1995 1994 1993 - -------------------------------------------------------------------------------- Domestic $3,602 $4,667 $3,711 Foreign 4,082 2,312 172 ------ ------ ------ Total $7,684 $6,979 $3,883 ====== ====== ======
Income tax provisions (credits) were as follows:
In thousands 1995 1994 1993 - -------------------------------------------------------------------------------- Currently payable: Federal $ 2,525 $1,538 $ 955 Foreign 1,671 625 310 State 238 281 224 ------- ------ ------ 4,434 2,444 1,489 ------- ------ ------ Deferred, net: Federal & State (1,261) 192 (47) Foreign (484) (194) (44) ------- ------ ------ (1,745) (2) (91) ------- ------ ------ Total provision for income taxes $ 2,689 $2,442 $1,398 ======= ====== ======
The provisions for income taxes varied from the United States statutory rate of 34% for 1995, 1994 and 1993 principally because of the tax effect of the following:
In thousands 1995 1994 1993 - ------------------------------------------------------------------------------- Tax provision at United States statutory rate $2,612 $2,372 $1,320 Effect of earnings of foreign operations subject to different tax rates (200) (138) 34 State taxes, net of federal income tax benefit 157 185 66 Benefit of Foreign Sales Corporation (115) (91) (182) Amortization of software costs and goodwill 114 114 114 All other, net 121 0 46 ------ ------ ------ Total tax provision $2,689 $2,442 $1,398 ====== ====== ======
At December 31, 1995 there were no foreign tax credit carryforwards for financial reporting purposes or for tax reporting purposes. 29 30 9. STOCK OPTION PLANS The Company has four Stock Option Plans - 1979 Non-Qualified Plan, 1992 Stock Incentive Plan, the discontinued 1984 UK Share Option Scheme and the discontinued 1982 Incentive Stock Option Plan. Option prices are generally equal to the market price at the date of grant. During the three years ended December 31, 1995, the following activity occurred in these Plans:
Number Option of Shares Price - -------------------------------------------------------------------------------- Outstanding at December 31, 1992 529,916 $ 6.23-13.75 Granted, 1993 239,750 10.50-11.38 Exercised, 1993 (5,800) 6.23- 7.88 Terminated, 1993 (5,000) 13.75 ------- Outstanding at December 31, 1993 758,866 7.88-13.75 Granted, 1994 36,500 11.38-11.63 Terminated, 1994 (36,642) 8.25-13.13 ------- Outstanding at December 31, 1994 758,724 7.88-13.75 Granted, 1995 206,000 11.63-12.13 Exercised, 1995 (55,962) 8.00-12.00 Terminated, 1995 (27,312) 10.75-13.75 ------- Outstanding at December 31, 1995 881,450 $ 7.88-13.13 -------
At December 31, 1995, 510,781 shares were exercisable at $7.88 to $13.13 per share and 105,490 shares were available for future options. In 1995, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards ("SFAS") 123, Accounting for Stock Based Compensation. SFAS 123 provides the alternative of either accounting for stock based compensation at fair market value determined by an option pricing or other appropriate model ("market value method") or retaining the existing method of accounting, but disclosing the pro-forma effect of the market value method in a footnote ("disclosure alternative"). The company plans to adopt the disclosure alternative which is effective for fiscal 1996. 30 31 SUPPLEMENTARY FINANCIAL INFORMATION QUARTERLY FINANCIAL DATA (quarterly data unaudited)
Quarter Quarter Quarter Quarter In thousands, except per share data 1 2 3 4 Year - --------------------------------------------------------------------------------------------- 1995: Total revenue $34,165 $38,058 $33,929 $44,419 $150,571 Gross profit 14,408 15,765 14,598 17,674 62,445 Income before income taxes 991 2,076 1,272 3,345 7,684 Net income 614 1,288 788 2,305 4,995 Earnings per share 0.10 0.20 0.12 0.36 0.78 - --------------------------------------------------------------------------------------------- 1994: Total revenue $31,593 $32,568 $31,920 $40,111 $136,192 Gross profit 14,096 14,472 13,092 17,425 59,085 Income before income taxes 1,442 1,269 845 3,423 6,979 Net income 908 854 549 2,226 4,537 Earnings per share 0.14 0.14 0.09 0.35 0.72 - ---------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------ --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- ------------------------------------------------- The response to this item is contained in part under the caption, "Executive Officers of the Registrant", in Part I hereof, and the remainder is contained under the captions, "Information Regarding the Board of Directors' Nominees and Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - ------- ---------------------- The information contained under the caption "Election of a Class of Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------- -------------------------------------------------------------- The information contained under the caption "Information Regarding the Board of Directors' Nominees and Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ---------------------------------------------- The information contained under the caption "Information Regarding the Board of Directors' Nominees and Directors" in the Registrant's definitive proxy statement relating to its 1996 Annual Meeting of Stockholders is incorporated herein by reference. 31 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K - ------- -------------------------------------------------------------- (a)1. Financial Statements The following consolidated financial statements are included in Item 8: Consolidated statements of income for the years ended December 31, 1995, 1994 and 1993 Consolidated balance sheet at December 31, 1995 and 1994 Consolidated statements of cash flows for the years ended December 31, 1995, 1994 and 1993 Consolidated statements of stockholders' equity for the years ended December 31, 1995, 1994 and 1993 Notes to consolidated financial statements (a)2. Financial Statement Schedule ----------------------------
Schedule Page Number ---- -------- Report of Independent Accountants on financial statement schedule 35 Consolidated valuation accounts 36 II
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the accompanying notes. (a)3. Exhibits --------
Exhibit No. Description of Exhibits - ---------- ----------------------- 3(a) Restated Articles of Organization of the Registrant and all amendments incorporated by reference to Exhibit 3(a) of the Registrant's Form 10-K for the year ended December 31, 1981, Exhibit 4 of the Registrant's Form 10-Q for the quarter ended March 31, 1984, Exhibit 4 of the Registrant's Form 10-Q for the quarter ended June 28, 1986, and Exhibit 4 of the Registrant's Form 10-Q for the quarter ended June 27, 1987. 3(b) By-Laws of the Registrant, as amended, incorporated by reference to the Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 5, 1990. 10(a) 1979 Non-Qualified Stock Option and Stock Appreciation Rights Plan, as amended, incorporated by reference to Exhibit 10(a) of Form 10-K for the year ended December 31, 1991. 10(b) 1982 Incentive Stock Option Plan, as amended, incorporated by reference to Exhibit 10(b) of Form 10-K for the year ended December 31, 1987 and to Exhibit 19(b) of Form 10-Q for the quarter ended September 29, 1990. 10(c) 1984 United Kingdom Share Option Scheme, as amended, incorporated by reference to Exhibit 10(c) of Form 10-K for the year ended December 31, 1991. 10(d) 1992 Stock Incentive Plan, incorporated by reference to Exhibit 10(b) of Form 10-K for the year ended December 31, 1991. 10(e) Executive Severance Agreement, dated as of December 8, 1993, between the Company and James M. McConnell, incorporated by reference to Exhibit 10(e) on Form 10-K for the year ended December 31, 1993.
32 33 10(f) Form of Executive Severance Agreement, dated as of December 8, 1993, between the Company and each of Joseph E. Amaral, three other executive officers and two key employees, incorporated by reference to Exhibit 10(f) on Form 10-K for the year ended December 31, 1993. 10(g) Form of Executive Severance Agreement, dated as of December 8, 1993, between the Company and Kenneth L. Andersen, incorporated by reference to Exhibit 10(g) on Form 10-K for the year ended December 31, 1993. 10(h) Form of Executive Severance Agreement, dated as of December 8, 1993, between Instron Limited, the Company and each of Ian M. MacGregor and five key employees, incorporated by reference to Exhibit 10(h) on Form 10-K for the year ended December 31, 1993. 10(i) Executive Severance Agreement, dated as of December 8, 1993, the Company and an executive officer, incorporated by reference to Exhibit 10(i) on Form 10-K for the year ended December 31, 1993. 10(j) Executive Severance Agreement, dated as of August 8, 1995, between the Company and a key employee, incorporated by reference to Exhibit 10 on Form 10-Q for the quarter ended September 30, 1995. 11 Computation of primary and fully diluted earnings per share. 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule
(b) Report on Form 8-K None. 33 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. INSTRON CORPORATION (Registrant) By /s/ James M. McConnell By /s/ Linton A. Moulding ----------------------------------- ------------------------------- James M. McConnell Linton A. Moulding President and Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Harold Hindman Chairman of the Board March 25, 1996 - ------------------------ Harold Hindman /s/ George S. Burr Vice Chairman of the Board March 25, 1996 - ------------------------ George S. Burr President, Chief Executive Officer /s/ James M. McConnell and Director March 25, 1996 - ------------------------ James M. McConnell Director - ------------------------ Nicholas J. Grant Director - ------------------------ John W. Lacey /s/ Dennis J. Moore Director March 25, 1996 - ------------------------ Dennis J. Moore /s/ Sheldon Rutstein Director March 25, 1996 - ------------------------ Sheldon Rutstein /s/ John F. Smith Director March 25, 1996 - ------------------------ John F. Smith /s/ Richard W. Young Director March 25, 1996 - ------------------------ Richard W. Young
34 35 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION Our report on the consolidated financial statements of Instron Corporation as of and for each of the three years in the period ended December 31, 1995 has been included in this Annual Report on Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a) of this Form 10-K. In our opinion, this financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND L.L.P --------------------------- COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 22, 1996 35 36 SCHEDULE II INSTRON CORPORATION CONSOLIDATED VALUATION ACCOUNTS
(A) Effect of Balance at Additions Foreign Beginning Charged to Currency (B) Balance at Description of Year Operations Translation Deductions End of Year - ---------------------- ---------- ---------- ----------- ---------- ----------- Allowance for doubtful accounts: Year ended December 31, 1995 $943,000 $163,000 $ (4,000) $ 62,000 $1,040,000 -------- -------- -------- -------- ---------- Year ended December 31, 1994 $777,000 $356,000 $ 62,000 $252,000 $ 943,000 -------- -------- -------- -------- ---------- Year ended December 31, 1993 $837,000 $407,000 $(10,000) $457,000 $ 777,000 -------- -------- -------- -------- ---------- (A) Included in "Additions Charged to Operations" for the years ended December 31, 1994 and 1993, respectively, are $200,000 and $315,000 for allowance for doubtful accounts recorded in conjunction with the Company's acquisitions of Wilson and Wolpert. (B) Uncollected receivables written off, net of recoveries.
36 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 INSTRON CORPORATION COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
Year Ended December 31 1995 1994 1993 - ------------------------------------------------ ---- ---- ---- Net Income $4,995,000 $4,537,000 $2,485,000 ========== ========== ========== Primary earnings per share: Weighted average number of common shares outstanding 6,324,540 6,288,107 6,286,472 Add: Shares arising from the assumed exercise of stock options (as determined under the Treasury Stock Method) 107,342 51,440 58,959 ---------- ---------- ---------- Weighted average of common and equivalent shares outstanding 6,431,882 6,339,547 6,345,431 ========== ========== ========== Primary earnings per share $ .78 $ .72 $ .39 ========== ========== ========== Fully diluted earnings per share (1): Weighted average of common and equivalent shares outstanding (as determined for the Primary earnings per share calculation above) 6,431,882 6,339,547 6,345,431 Add: Additional shares arising from the assumed exercise of stock options (as determined under the Treasury Stock Method) 68,842 62,527 8,657 ---------- ---------- ---------- Weighted average of common and equivalent shares outstanding, as adjusted 6,500,724 6,402,074 6,354,088 ========== ========== ========== Fully diluted earnings per share $ .77 $ .71 $ .39 ========== ========== ========== Note 1: This calculation is submitted in accordance with the Securities Act of 1933 Release No. 5,133, although not required by footnote 2 to paragraph 14 of APB Opinion No.15 because it results in dilution of less than 3%.
37 EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT All of the subsidiaries listed below are included in the consolidated financial statements.
Percentage of Organized Voting Securities Under the Incorporated Owned by Registrant Laws of - ---------------------------------------------------------------------------- Instron Realty Trust 100% Massachusetts (1) Instron Japan Company, Ltd. 100% Massachusetts (1) Instron Asia, Ltd. 100% Massachusetts (1) Instron Canada Inc. 100% Canada (1) Instron Export Corporation 100% Massachusetts (1) Instron Foreign Sales Corporation 100% Jamaica (1) Instron Lawrence Corporation 100% Pennsylvania (1) Equipamentos Cientificos Instron, Ltda. 100% Brazil (1) Instron Limited 100% United Kingdom (2) Instron S.A. 100% France (2) Instron Proprietary, Ltd. 100% Australia (2) Instron Environmental, Ltd. 100% United Kingdom (2) Instron International, Ltd. 100% United Kingdom (2) Severn Furnaces, Ltd. 100% United Kingdom (2) Instron Singapore Pte Limited 100% Singapore (1) Instron Holdings, Ltd. 100% United Kingdom (1) Laboratory MicroSystems, Inc. 100% Massachusetts (1) Instron Wolpert GmbH 100% Germany (2) Instron Korea Co. Ltd. 100% Korea (1) (1) Subsidiaries of Instron Corporation (a Massachusetts corporation). (2) Subsidiaries of Instron Holdings Limited (United Kingdom).
38 EX-23 4 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements on Form S-3 (File No. 2-77062), and Forms S-8 (File Nos. 2-77060, 2-91694, 33-43955 and 33-48287) of our reports dated February 22, 1996, on our audit of the consolidated financial statements and related financial statement schedule of Instron Corporation as of December 31, 1995, and 1994, and for each of the three years in the period ended December 31, 1995 which reports are included in this Annual Report on Form 10-K. /S/ COOPERS & LYBRAND L.L.P. ---------------------------- COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 28, 1996 39 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995. 1,000 U.S. DOLLARS 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1 1,644 0 47,504 1,040 24,337 79,864 56,326 34,517 113,334 41,605 0 6,415 0 0 49,687 113,334 128,018 150,571 72,155 88,126 0 163 1,423 7,684 2,689 0 0 0 0 4,995 .78 .77
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