-----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, Mj6N0SSBAbpXUN+wYi2+bXRRsDp3A/Wjf3Ix1ExRiK56LjhgGJ8T5EI7mjtkDgwq 9TWcT/d7NV5rOlgmZ+ZB2g== 0000950135-01-501307.txt : 20010516 0000950135-01-501307.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950135-01-501307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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-Q SEC ACT: SEC FILE NUMBER: 333-93727 FILM NUMBER: 1639156 BUSINESS ADDRESS: STREET 1: 100 ROYALL ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 7818282500 MAIL ADDRESS: STREET 1: 100 ROYALL STREET CITY: CANTON STATE: MA ZIP: 02021 10-Q 1 b39261ice10-q.txt INSTRON CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 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 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 02021 CANTON, MASSACHUSETTS (Zip Code) (Address of Principal executive offices) (781) 828-2500 (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 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 [ ] As of March 31, 2001, the Registrant had 5,566,120 shares outstanding of common stock, all of which was held by affiliates of the Registrant. ================================================================================ 2 FORM 10-Q PART I ITEM I INSTRON CORPORATION Consolidated Balance Sheets (In thousands, except share and per share data)
MARCH 31, DECEMBER 31, 2001 2000 ---------- ----------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 8,599 $ 8,008 Accounts receivable (net of allowance for doubtful accounts of $861 in 2001 and $1,014 in 2000) 48,135 57,336 Unbilled revenues on contracts 791 -- Inventories 51,093 53,614 Contracts in process 1,164 -- Income tax receivable 2,582 2,621 Current deferred income taxes 7,438 7,001 Prepaid expenses and other current assets 3,151 1,802 -------- -------- Total current assets 122,953 130,382 Property, plant and equipment, net 19,348 20,439 Goodwill 9,009 9,386 Deferred income taxes 3,687 4,408 Other assets 3,752 3,910 Deferred financing costs, net 7,404 7,681 -------- -------- Total assets $166,153 $176,206 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Short term borrowings and current portion of long-term debt $ 5,405 $ 5,604 Accounts payable 9,819 12,661 Accrued liabilities 16,128 18,696 Accrued employee compensation and benefits 4,779 4,473 Deferred revenue 27,283 34,407 Excess of advance payments over accrued revenues 6,266 -- Advance payments received on contracts 9,871 13,433 -------- -------- Total current liabilities 79,551 89,274 Long-term debt 104,538 103,987 Pension and other long-term liabilities 9,787 9,896 -------- -------- Total liabilities 193,876 203,157 -------- -------- Commitments and contingencies Stockholders' deficit: Recapitalized common stock, $0.001 par value; 10,000,000 shares authorized; 5,566,120 shares issued. 6 6 Additional paid in capital 50,432 50,432 Accumulated deficit (68,775) (68,340) Accumulated other comprehensive loss (9,386) (9,049) -------- -------- Total stockholders' deficit (27,723) (26,951) -------- -------- Total liabilities and stockholders' deficit $166,153 $176,206 ======== ========
See accompanying Notes to Consolidated Financial Statements 2 3 FORM 10-Q PART I ITEM I INSTRON CORPORATION Consolidated Statements of Loss (Unaudited) (In thousands, except share and per share data)
Three Months Ended ------------------------- MARCH 31, APRIL 1, 2001 2000 --------- -------- Revenue: Sales $ 37,407 $ 37,434 Service 7,664 7,562 --------- --------- Total revenue 45,071 44,996 --------- --------- Cost of revenue: Sales 21,665 23,731 Service 5,466 5,649 --------- --------- Total cost of revenue 27,131 29,380 --------- --------- Gross profit 17,940 15,616 --------- --------- Operating expenses: Selling and administrative 13,017 13,285 Research and development 2,101 2,411 Restructuring costs -- 304 --------- --------- Total operating expenses 15,118 16,000 --------- --------- Income (loss) from operations 2,822 (384) Other (income) expenses: Interest expense 3,645 3,674 Interest income (258) (159) Foreign exchange losses 134 34 --------- --------- Total other (income) expense 3,521 3,549 --------- --------- Loss before income taxes (699) (3,933) Benefit for income taxes (264) (1,633) --------- ---------- Loss before cumulative effect of accounting change (435) (2,300) Cumulative effect of accounting change, net of tax -- (4,269) --------- --------- Net loss $ (435) $ (6,569) ========= ========= Loss per common share Basic: Before cumulative effect on accounting change $ (0.08) $ (0.41) Cumulative effect on accounting change, net of tax -- (0.77) --------- --------- Net loss $ (0.08) $ (1.18) ========= ========= Diluted: Before cumulative effect on accounting change $ (0.08) $ (0.41) Cumulative effect on accounting change, net of tax -- (0.77) --------- --------- Net loss $ (0.08) $ (1.18) ========= ========= Shares used in computing loss per common share: Basic 5,566,120 5,567,730 Diluted 5,566,120 5,567,730
See accompanying Notes to Consolidated Financial Statements 3 4 FORM 10-Q PART I ITEM I ITEM I INSTRON CORPORATION Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Three Months Ended ------------------------ MARCH 31, APRIL 1, 2001 2000 -------- ------- Cash flows from operating activities: Net loss $ (435) $ (6,569) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,202 2,364 Provision for losses on accounts receivable 111 63 Deferred taxes (238) (2,733) Changes in assets and liabilities: (Increase) decrease in accounts receivable 7,668 8,921 (Increase) decrease in unbilled revenue (791) -- (Increase) decrease in inventories 1,430 (27,052) (Increase) decrease in contracts in progress (1,164) -- (Increase) decrease in income tax receivable (17) (2,648) (Increase) decrease in prepaid expenses and other current assets (253) 29 Increase (decrease) in accounts payable, accrued expenses and advance payments (7,840) (4,037) Increase (decrease) in deferred revenue (6,500) 33,424 Increase (decrease) in excess of advance payments over accrued revenues 6,266 -- Other, net (427) (439) ------- -------- Net cash provided by operating activities 12 1,323 ------- -------- Cash flows from investing activities: Proceeds from the sale of property, plant and equipment 16 -- Capital expenditures (444) (851) Capitalized software costs (385) (287) Other, net 59 59 ------- -------- Net cash used in investing activities (754) (1,079) ------- -------- Cash flows from financing activities: Borrowings (payments) under short-term lines of credit (432) (1,040) Borrowings (payments) under revolving line of credit 2,888 (4,001) Payments under Senior Term Loan (1,000) (750) ------- -------- Net cash provided by (used in) financing activities 1,456 (5,791) ------- -------- Effect of exchange rate changes on cash (123) (28) ------- -------- Net increase (decrease) in cash and cash equivalents 591 (5,575) Cash and cash equivalents at beginning of year 8,008 10,978 ------- -------- Cash and cash equivalents at end of period $ 8,599 $ 5,403 ======= ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 4,501 $ 4,318 Income taxes -- 55
See accompanying Notes to Consolidated Financial Statements 4 5 FORM 10-Q PART I ITEM I INSTRON CORPORATION Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands)
Three Months Ended ---------------------- MARCH 31, APRIL 1, 2001 2000 ------- ------- Net loss $ (435) $(6,569) Other comprehensive loss: Cummulative effect of accounting change, net of tax 745 -- Unrealized gain/(loss) on derivative instruments (36) -- Foreign currency translation adjustments (1,046) (688) ------- ------- Comprehensive loss $ (772) $(7,257) ======= =======
See accompanying Notes to Consolidated Financial Statements 5 6 FORM 10-Q PART I ITEM 1 INSTRON CORPORATION Notes to Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 2000. 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. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. Prior year results have been restated to comply with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101). Also, certain prior year amounts have been reclassified to conform with EITF 00-10 "Accounting for Shipping and Handling Fees and Cost" and with the fiscal 2001 presentation. 2. MERGER AGREEMENT AND RECAPITALIZATION On September 29, 1999, the Company completed a merger by and among the Company, ISN Acquisition Corporation ("MergerCo") and Kirtland Capital Partners III L.P. ("Kirtland") pursuant to which Kirtland and certain affiliates, together with members of Instron's management and certain members of Instron's Board of Directors who were also stockholders (collectively, the "Rollover Stockholders") acquired the Company. The merger and related transactions were treated as a recapitalization (the "Recapitalization") for accounting purposes. Accordingly, the historical basis of the Company's assets and liabilities were not affected by these transactions. In the merger, MergerCo merged with and into the Company with the Company continuing as the surviving corporation. Pursuant to the Merger, each outstanding share of the Company's common stock (except for shares held by the Company, its subsidiaries and MergerCo), were converted into the right to receive a cash payment of $22.00, without interest. Certain shares of the Company's common stock held by the Rollover Stockholders were converted into shares of stock of the surviving corporation. As a result of the Merger, the Company's common stock no longer is registered under the Securities Exchange Act of 1934. In 1999, the Company incurred compensation expenses of $13.0 million as a result of the Recapitalization. In addition, the Company incurred costs of $13.1 million directly related to the Recapitalization. Of these transaction costs, $9.0 million was capitalized and is being amortized over the life of the 13 1/4% Senior Subordinated Notes (the "Notes") and the Senior Credit Facility, and $4.1 million was charged to stockholders' equity. The Notes were originally issued as part of a unit offering. Each unit ("Unit") consisted of a $1,000 principal amount Note and one warrant to purchase 5.109 shares of Instron's recapitalized common stock (the "Warrants"). On February 14, 2000, the Notes were registered with the Securities and Exchange Commission (the "SEC"), at which time the Units separated into their component Notes and Warrants. The Notes and Warrants may now be traded separately and the Units have ceased to exist. 6 7 3. REVENUE RECOGNITION In the fourth quarter of 2000, effective as of January 1, 2000, the Company changed its revenue recognition policy for certain product sales to comply with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidelines on the timing of revenue recognition based upon factors such as passage of title, installation, payment terms and customer acceptance. Prior to the adoption of SAB 101, the Company recognized revenue on the sale of its systems when the system was shipped to the customer and the title had passed to the customer, although the Company often had a further obligation to install the system. Since the Company had a long record of success in installing its systems and obtaining customer acceptance of the system, revenue was recognized prior to the final customer acceptance but after the passage of title. Based upon the new guidelines of SAB 101, the Company has changed its revenue recognition method for systems where installation is deemed to be a critical element in the contractual obligation to the customer. The Company has termed these as "complex" systems. For complex systems, the Company now recognizes revenue upon the completion of installation or fulfilling the obligations to the customer under the terms of the contract. For non-complex or "standard" systems, the Company has determined that installation is inconsequential and perfunctory and thus recognizes revenue on these systems upon shipment and the passing of title to the customer. In certain instances, customer payment terms may provide that a minority of the equipment purchase price is paid only after installation has been completed. In those circumstances, the portion of the payment terms related to installation is deferred until the installation has been completed with the majority portion of revenue and the entire product cost recognized upon shipment and passage of title. Systems installation is typically provided by the Company, is generally not billed separately to the customer and the costs to complete the installation are accrued for at the time of shipment. If it is billed separately to the customer then the installation revenue will be recognized in the period that installation is performed. Revenue from services are recognized as services are performed and ratably over the contract period for service maintenance contracts. The SAB 101 restatement has been applied retroactively to transactions that occurred prior to 2000. The cumulative effect adjustment of the change in accounting on prior years through December 31, 1999 was a reduction to income of $4.3 million (after credit for income taxes of $3.5 million), or $0.77 cents per diluted share, recorded in the first quarter of 2000. The effect of adopting SAB 101 increased first quarter 2000 sales by $3.9 million and decreased the net loss by $0.5 million or $0.08 cents per diluted share. In September 2000, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This consensus requires that all shipping and handling amounts billed to a customer in a sale transaction represent revenues earned for the goods provided and should be classified as revenue. Adoption of the consensus reached on EITF Issue 00-10 is required no later than the required implementation date for SAB 101. The Company adopted EITF Issue 00-10 in the year ended December 31, 2000 and a retroactive reclassification was recorded on the historical statement of operations for all quarters in 2000, 1999 and 1998. The first quarter of 2000 reclassification resulted in an increase in revenues and cost of sales of $331,000. In accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 81-1 ("SOP No. 81-1"), prior to 2001, the Company accounted for long-term contracts using the completed contract method as it was unable to make reasonable dependable estimates on a consistent basis regarding contract costs. During 2000, the Company completed a restructuring of its business, which included headcount reductions, realignment and re-allocation of resources specifically with regards to contracts that are complex and long-term in nature, and a conscious management focus of accepting long-term contracts with less technological risk. Additionally, the Company has refined its internal process management controls in order to develop more dependable cost and completion estimates. These changes have had a significant impact on the Company's ability to estimate and control costs, as supported by the results reported during the second half of fiscal year 2000, where the Company consistently met its forecasts for long-term contracts. Accordingly, commencing January 1, 2001, for certain long-term contracts revenue is recognized using the percentage-of-completion method based upon an efforts-expanded approach, whereby revenue and profit are recognized throughout the performance and production period of the contract. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which determined. Long-term contracts that are not eligible for percentage-of- completion accounting continue to be recognized using the completed contract method. Revenue and gross profit recognized under percentage of completion accounting method were approximately $2.0 million and $0.5 million respectively, during the period ended March 31, 2001. 7 8 Unbilled revenue under customer contracts represents revenue earned under the percentage-of-completion method but not yet billable under the terms of the contract. These amounts are billable based on the terms of the contract which include shipment of the product, achievement of milestones or completion of the contract. 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, " Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal year 2001. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in either current earnings or accumulated other comprehensive income/(expense), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company uses derivative instruments to enter into "cash-flow hedges", as defined by SFAS 133. For cash-flow hedge transactions, in which the Company is hedging the variability of cash flows related to a foreign currency dominated forecasted transaction, changes in the fair value of the derivative instrument will be reported in accumulated other comprehensive income/(expense). The gains and losses on the derivative instrument that are reported in accumulated other comprehensive income/(expense) will be reclassified to earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges are recognized in current earnings. The Company adopted SFAS 133 during the first quarter of 2001. As a result of this adoption, effective January 1, 2001, all derivatives were recognized on the balance sheet at fair value with the offsetting adjustment recorded in other comprehensive loss. Accordingly, the Company recorded an adjustment as of January 1, 2001 to the Statement of Comprehensive Loss to account for the cumulative effect of the accounting change. This adjustment resulted in a gain/(loss), net of tax of $0.5 million, totaling $0.7 million. The amount of the adjustment reclassified into earnings during the three month period ended March 31, 2001 totaled $0.2 million, net of tax. The Company expects to reclassify to earnings $0.2 million, net of tax, of the adjustment during the remainder of 2001. The Company uses derivatives to hedge foreign currency cash flows, on a continuing basis, for periods consistent with its forecasted exposures. Since the Company is using foreign exchange forward contracts to hedge foreign exchange exposures, the changes in the value of the derivatives are highly effective in offsetting changes in the cash flows of the hedged item. Any ineffective portion of the derivatives is recognized in current earnings, which represented an immaterial amount in the first quarter of 2001. On March 31, 2001, the Company had no ineffective hedges. 5. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares, plus the dilutive effect of common share equivalents outstanding using the "treasury stock method." For the three months ended March 31, 2001, outstanding options and warrants totaling 749,500 and 306,540 shares, respectively, have been excluded from the diluted earnings per share computation as their inclusion would be antidilutive. For the three months ended April 1, 2000, outstanding options and warrants totaling 459,050 and 306,540 shares, respectively, have been excluded from the diluted earnings per share computation as their inclusion would be antidilutive. 8 9 The following is a reconciliation of the basic and diluted EPS calculations:
Three Months Ended --------------------- March 31, April 1, (in thousands, except per share data) 2001 2000 -------- ------- Loss before cumulative effect of accounting change $ (435) $(2,300) Cumulative effect of accounting change, net of tax -- (4,269) ------ ------- Net Loss $ (435) $(6,569) ====== ======= Weighted average shares Weighted average of common shares outstanding - basic 5,566 5,568 Dilutive effect of stock options and warrants outstanding -- -- ------ ------- Weighted average of common and dilutive shares - diluted 5,566 5,568 ====== ======= Loss per common share: Basic: Before cumulative effect on accounting change $(0.08) $ (0.41) Cumulative effect on accounting change, net of tax -- (0.77) ------ ------- Net loss $(0.08) $ (1.18) ====== ======= Diluted: Before cumulative effect on accounting change $(0.08) $ (0.41) Cumulative effect on accounting change, net of tax -- (0.77) ------ ------- Net loss $(0.08) $ (1.18) ====== =======
6. INVENTORIES
(IN THOUSANDS) March 31, December 31, 2001 2000 -------- ----------- Raw materials $11,895 $13,219 Work-in-process 17,533 13,326 Finished goods 21,665 27,069 ------- ------ $51,093 $53,614 ======= =======
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 certain inventories in the United States and certain Asian branches. The Company uses the first-in, first-out (FIFO) method for all other inventories. Inventories valued at LIFO amounted to $8,955,000 and $6,599,000 at March 31, 2001 and December 31, 2000, respectively. The excess of current cost over stated LIFO value was $5,543,000 at March 31, 2001 and $5,460,000 at December 31, 2000. 7. BORROWING ARRANGEMENTS Total debt for the periods:
(IN THOUSANDS) MARCH 31, DECEMBER 31, 2001 2000 -------- ----------- Short-term borrowings $ 1,155 $ 1,604 Long-term debt - revolver 23,175 21,374 Senior debt - term loan 25,613 26,613 13-1/4% senior subordinated notes due 2009 60,000 60,000 -------- -------- Total debt 109,943 109,591 Less: current portion (5,405) (5,604) -------- -------- Long-term debt $104,538 $103,987 ======== ========
9 10 As part of the Recapitalization, the Company entered into a Senior Credit Facility providing for a Revolving Credit Facility of up to $50.0 million (subject to an available borrowing base) and a Term Loan Facility of $30.0 million, maturing in five and one-half years, unless terminated sooner upon certain events of default. If terminated upon an event of default, all outstanding advances under the credit facility may be required to be immediately repaid. The revolving portion of the Senior Credit Facility can be used to complete permitted acquisitions or for working capital and other general corporate purposes. Borrowings under the Senior Credit Facility will bear interest, at our option, at either the higher of the federal funds rate plus 1.0% or the prime rate plus 1.75%, or a LIBOR rate plus 3.25%. Ability to borrow under the Senior Credit Facility will be subject to the Company's compliance with the covenants described below. In addition, the Company incurred $60 million of debt through the sale of its 13 -1/4% Senior Subordinated Notes and Warrants (the "Senior Subordinated Notes"). The Warrants, when and if exercised, will entitle the holder thereof to receive 5.109 of a fully paid non-assessable share of common stock, par value $0.001 per share at an exercise price of $0.001 per share, subject to adjustment. The Warrants will be exercisable on or prior to September 15, 2009. The value of the Warrants on the date of the Recapitalization was $2.3 million and this value is being amortized over 10 years. Under the mandatory repayment schedule of the Term Loan Facility, the Company is required to make scheduled repayments in twenty-two quarterly installments of principal with interest thereon on the first day of each January, April, July and October commencing January 1, 2000. The Senior Subordinated Notes, which mature in 2009, require interest to be paid semi-annually in arrears each March 15 and September 15. In addition to the regularly scheduled Term Loan Facility Payments for 2000, we made a supplemental payment of $0.4 million during November, 2000. The Company is also required, under the Terms of the Senior Credit Facility, to pay a commitment fee based on the unused amount of the Revolving Credit Facility at an annual rate of 0.50%, paid quarterly in arrears. All of our obligations under the Senior Credit Facility are and will be secured by a first priority lien on substantially all of the properties and assets of Instron and our existing and future domestic subsidiaries. In addition, our obligations under the Senior Credit Facility are and will be secured by a first priority pledge of and security interest in all of the outstanding capital stock of our existing domestic subsidiaries and future domestic subsidiaries and a pledge of 65% of the outstanding capital stock of some foreign subsidiaries. Certain of our foreign subsidiaries have also granted a lien on substantially all of their properties and assets. The Senior Credit Facility requires that the Company meet and maintain certain financial ratios and tests, including a minimum consolidated net worth, consolidated adjusted EBITDA, consolidated capital expenditure, consolidated interest coverage ratio, consolidated fixed charge coverage ratio, maximum consolidated leverage ratio and senior leverage ratio. As of March 31, 2001, the Company was in compliance with the amended Senior Credit Facility covenants prior to the adoption of recently issued accounting pronouncements. The Company anticipates that the covenants will be amended during the second quarter of 2001 to reflect the adoption of recently issued accounting pronouncements. The Senior Subordinated Notes are governed by negative covenants that are less restrictive than those of the Senior Credit Facility. In addition, the Senior Subordinated Notes contain a provision whereby the Notes are in default if there is an acceleration of payment under the terms of the Senior Credit Facility. The Senior Credit Facility also contains covenants that limit the ability of the Company and its operating subsidiaries to take various actions, without the consent of the Senior lenders, including incurring additional indebtedness and liens and entering into some leases, fundamentally changing corporate structure, including mergers, consolidations and liquidations, acquiring and disposing of property, making principal payments on indebtedness prior to maturity, dividends and capital stock purchases, investments, capital expenditures, some modifications to organizational documents, changing fiscal periods, entering into sale and leaseback transactions, entering into affiliate transactions, entering into agreements restricting distributions, amending the acquisition documents, granting negative pledges and making a material change in the nature of the Company's business. 8. GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION As part of the Recapitalization in 1999, Instron Corporation issued public debt securities which are fully and unconditionally guaranteed by certain of the Corporation's subsidiaries. Below is the condensed consolidating financial information for the guarantor subsidiaries, which includes Instron Corporation (parent company and issuer of the debt), Instron Corporation, and the non-guarantor subsidiaries as of March 31, 2001 and December 31, 2000 and for the three month period ended March 31, 2001 and April 1, 2000. 10 11 INSTRON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 ------------------------------- In thousands Guarantor Non-Guarantor Eliminations Total --------- ------------- ------------ ----- ASSETS Current assets: Cash and cash equivalents $ 884 $ 7,715 $ -- $ 8,599 Accounts receivable, net 20,242 27,893 -- 48,135 Intercompany accounts receivable, net 17,661 (1,839) (15,822) -- Unbilled revenues on contracts 693 98 -- 791 Inventories 16,968 34,956 (831) 51,093 Contracts in process 197 967 -- 1,164 Income tax receivable 3,438 2,774 (3,630) 2,582 Deferred income taxes 6,200 746 492 7,438 Prepaid expenses and other current assets 1,203 1,948 -- 3,151 -------- ------- -------- -------- Total current assets 67,486 75,258 (19,791) 122,953 Property, plant and equipment, net 10,857 8,491 -- 19,348 Goodwill 8,917 78 14 9,009 Deferred income taxes 3,359 298 30 3,687 Other assets 3,243 546 (37) 3,752 Deferred financing costs, net 7,404 -- -- 7,404 -------- ------- -------- -------- Total assets $101,266 $84,671 $(19,784) $166,153 ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Short term borrowings and current portion of long-term debt 4,250 1,155 -- 5,405 Accounts payable 3,633 6,113 73 9,819 Accrued liabilities 8,137 7,946 45 16,128 Accrued employee compensation and benefits 3,264 1,515 -- 4,779 Deferred revenue 11,576 15,707 -- 27,283 Excess of advance payments over accrued revenues 2,971 3,295 -- 6,266 Advance payments received on contracts (1,649) 11,520 -- 9,871 -------- ------- -------- -------- Total current liabilities 32,182 47,251 118 79,551 Long-term debt 84,663 19,875 -- 104,538 Pension and other long-term liabilities 27,168 (1,700) (15,681) 9,787 -------- ------- -------- -------- Total liabilities 144,013 65,426 (15,563) 193,876 -------- ------- -------- -------- Stockholders' equity (deficit): Intercompany investments (7,679) 10,809 (3,130) -- Minority interest -- 74 (74) -- Common stock 6 -- -- 6 Additional paid in capital 50,432 -- -- 50,432 Retained earnings (accumulated deficit) (83,891) 16,136 (1,020) (68,775) Accumulated other comprehensive loss (1,615) (7,774) 3 (9,386) -------- ------- -------- -------- Total stockholders' equity (deficit) (42,747) 19,245 (4,221) (27,723) -------- ------- -------- -------- Total liabilities and stockholders' equity (deficit) $101,266 $84,671 $(19,784) $166,153 ======== ======= ======== ========
11 12 INSTRON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 ------------------------------ In thousands GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL --------- ------------- ------------ ----- ASSETS Current assets: Cash and cash equivalents $ 138 $ 7,870 $ -- $ 8,008 Accounts receivable, net 25,105 32,231 -- 57,336 Intercompany accounts receivable, net 12,619 3,091 (15,710) -- Inventories 21,981 32,313 (680) 53,614 Income tax receivable 3,696 2,555 (3,630) 2,621 Deferred income taxes 6,592 20 389 7,001 Prepaid expenses and other current assets 713 1,089 -- 1,802 ---------- --------- --------- ---------- Total current assets 70,844 79,169 (19,631) 130,382 Property, plant and equipment, net 11,344 9,095 -- 20,439 Goodwill 9,276 96 14 9,386 Deferred income taxes 3,784 594 30 4,408 Other assets 3,369 587 (46) 3,910 Deferred financing costs, net 7,681 -- -- 7,681 ---------- --------- --------- ---------- Total assets $ 106,298 $ 89,541 $ (19,633) $ 176,206 ========== ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Short term borrowings and current portion of long-term debt $ 4,350 $ 1,254 $ -- $ 5,604 Accounts payable 4,572 8,118 (29) 12,661 Accrued liabilities 8,588 10,096 12 18,696 Accrued employee compensation and benefits 2,833 1,640 -- 4,473 Deferred revenue 14,284 20,123 -- 34,407 Advance payments received on contracts 1,803 11,630 -- 13,433 ---------- --------- --------- ---------- Total current liabilities 36,430 52,861 (17) 89,274 Long-term debt 82,913 21,074 -- 103,987 Pension and other long-term liabilities 27,527 (1,950) (15,681) 9,896 ---------- --------- --------- ---------- Total liabilities 146,870 71,985 (15,698) 203,157 ---------- --------- --------- ---------- Stockholders' equity (deficit): Intercompany investments (7,681) 10,808 (3,127) -- Minority interest -- 78 (78) -- Common stock 6 -- -- 6 Additional paid in capital 50,432 -- -- 50,432 Retained earnings (accumulated deficit) (81,933) 14,343 (750) (68,340) Accumulated other comprehensive loss (1,396) (7,673) 20 (9,049) ---------- --------- --------- ---------- Total stockholders' equity (deficit) (40,572) 17,556 (3,935) (26,951) ---------- --------- --------- ---------- Total liabilities and stockholders' equity (deficit) $ 106,298 $ 89,541 $ (19,633) $ 176,206 ========== ========= ========= ==========
12 13 INSTRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands Three months ended March 31, 2001 ------------------------------ Guarantor Non-Guarantor Eliminations Total --------- ------------- ------------ ----- Revenue: Sales $23,510 $13,897 $ -- $37,407 Service 5,023 2,641 -- 7,664 Intercompany 2,628 6,532 (9,160) -- ------- ------- ------- ------- Total revenue 31,161 23,070 (9,160) 45,071 ------- ------- ------- ------- Cost of revenue: Sales 17,575 11,115 (7,025) 21,665 Service 3,502 1,982 (18) 5,466 ------- ------- ------- ------- Total cost of revenue 21,077 13,097 (7,043) 27,131 ------- ------- ------- ------- Gross profit 10,084 9,973 (2,117) 17,940 ------- ------- ------- ------- Operating expenses: Selling and administrative 7,718 5,317 (18) 13,017 Research and development 1,388 713 -- 2,101 ------- ------- ------- ------- Total operating expenses 9,106 6,030 (18) 15,118 ------- ------- ------- ------- Income (loss) from operations 978 3,943 (2,099) 2,822 Other (income) expenses: Intercompany (income) expense 556 1,170 (1,726) -- Interest expense 2,970 675 -- 3,645 Interest income (32) (226) -- (258) Foreign exchange (gains) losses (74) 208 -- 134 ------- ------- ------- ------- Total other (income) expense 3,420 1,827 (1,726) 3,521 ------- ------- ------- ------- Income (loss) before income taxes (2,442) 2,116 (373) (699) Provision (benefit) for income taxes (484) 323 (103) (264) ------- ------- ------- ------- Net income (loss) $(1,958) $ 1,793 $ (270) $ (435) ======= ======= ======= =======
13 14 INSTRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands Three months ended April 1, 2000 ------------------------------------ Guarantor Non-Guarantor Eliminations Total --------- ------------- ------------ ----- Revenue: Sales $18,175 $19,259 $ -- $37,434 Service 4,941 2,621 -- 7,562 Intercompany 3,027 1,928 (4,955) -- ------- ------- ------- ------- Total revenue 26,143 23,808 (4,955) 44,996 ------- ------- ------- ------- Cost of revenue: Sales 12,641 15,139 (4,049) 23,731 Service 3,737 1,967 (55) 5,649 ------- ------- ------- ------- Total cost of revenue 16,378 17,106 (4,104) 29,380 ------- ------- ------- ------- Gross profit 9,765 6,702 (851) 15,616 ------- ------- ------- ------- Operating expenses: Selling and administrative 7,712 5,327 246 13,285 Research and development 1,594 817 -- 2,411 Restructuring costs -- 304 -- 304 ------- ------- ------- ------- Total operating expenses 9,306 6,448 246 16,000 ------- ------- ------- ------- Income (loss) from operations 459 254 (1,097) (384) Other (income) expenses: Intercompany (income) expense 354 680 (1,034) -- Interest expense 3,064 610 -- 3,674 Interest income (54) (105) -- (159) Foreign exchange (gains) losses (96) 130 -- 34 ------- ------- ------- ------- Total other (income) expense 3,268 1,315 (1,034) 3,549 ------- ------- ------- ------- Loss before income taxes (2,809) (1,061) (63) (3,933) Provision (benefit) for income taxes (435) (456) (742) (1,633) ------- ------- ------- ------- Loss before cumulative effect of accounting change (2,374) (605) 679 (2,300) Cumulative effect of accounting change, net of tax 784 (5,053) -- (4,269) ------- ------- ------- ------- Net income (loss) $(1,590) $(5,658) $ 679 $(6,569) ======= ======= ======= =======
14 15 INSTRON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands Three months ended March 31, 2001 ------------------------------ Guarantor Non-Guarantor Eliminations Total --------- ------------- ------------ ------- Cash flows from operating activities: Net income (loss) $(1,958) $ 1,793 $(270) $ (435) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,713 489 -- 2,202 Provision for losses on accounts receivable 104 7 -- 111 Deferred taxes (1,099) 861 -- (238) Changes in assets and liabilities, excluding the effects from purchase of business: (Increase) decrease in accounts receivable (1,600) 9,268 -- 7,668 (Increase) decrease in unbilled revenue (693) (98) -- (791) (Increase) decrease in inventories 3,922 (2,643) 151 1,430 (Increase) decrease in contract in progress (196) (968) -- (1,164) (Increase) decrease in income tax receivable 201 (218) -- (17) (Increase) decrease in prepaid expenses and other current assets (535) 282 -- (253) Increase (decrease) in accounts payable, accrued expenses and advance payments (3,560) (4,280) -- (7,840) Increase (decrease) in deferred revenue (2,084) (4,416) -- (6,500) Increase (decrease) in excess of advance payments over accrued revenue 2,971 3,295 -- 6,266 Other, net 961 (1,507) 119 (427) ------- ------- ----- ------- Net cash provided by (used in) operating activities $(1,853) $ 1,865 $ -- $ 12 ------- ------- ----- ------- Cash flows from investing activities: Proceeds from the sale of property, plant and equipment 291 (275) -- 16 Capital expenditures (144) (300) -- (444) Capitalized software costs (321) (64) -- (385) Other, net 239 (180) -- 59 ------- ------- ----- ------- Net cash provided by (used in) investing activities 65 (819) -- (754) ------- ------- ----- ------- Cash flows from financing activities: Borrowings (payments) under short-term lines of credit (332) (100) -- (432) Borrowings (payments) under revolving line of credit 4,087 (1,199) -- 2,888 Payments under Senior Term Loan (1,000) -- -- (1,000) ------- ------- ----- ------- Net cash provided by (used in) financing activities 2,755 (1,299) -- 1,456 ------- ------- ----- ------- Effect of exchange rate changes on cash (221) 98 -- (123) ------- ------- ----- ------- Net increase (decrease) in cash and cash equivalents 746 (155) -- 591 Cash and cash equivalents at beginning of year 138 7,870 -- 8,008 ------- ------- ----- ------- Cash and cash equivalents at end of period $ 884 $ 7,715 $ -- $ 8,599 ======= ======= ===== =======
15 16 INSTRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Three months ended April 1, 2000 ------------------------------------------------------- Guarantor Non-Guarantor Eliminations Total --------- ------------- ------------ ----- Cash flows from operating activities: Net income (loss) $(1,590) $ (5,658) $ 679 $ (6,569) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,817 547 -- 2,364 Provision for losses on accounts receivable -- 63 -- 63 Deferred taxes (1,151) (1,935) 353 (2,733) Changes in assets and liabilities, excluding the effects from purchase of business: (Increase) decrease in accounts receivable 3,688 4,887 346 8,921 (Increase) decrease in inventories (4,570) (22,019) (463) (27,052) (Increase) decrease in income tax receivable (270) (1,612) (766) (2,648) (Increase) decrease in prepaid expenses and other current assets 126 (97) -- 29 Increase (decrease) in accounts payable, accrued expenses and advance payments (2,341) (1,584) (112) (4,037) Increase (decrease) in deferred revenue 9,189 24,235 -- 33,424 Other, net (558) 124 (5) (439) ------- -------- ----- -------- Net cash provided by (used in) operating activities $ 4,340 $ (3,049) $ 32 $ 1,323 ------- -------- ----- -------- Cash flows from investing activities: Capital expenditures (550) (301) -- (851) Capitalized software costs (198) (89) -- (287) Other, net 59 -- -- 59 ------- -------- ----- -------- Net cash used in investing activities (689) (390) -- (1,079) ------- -------- ----- -------- Cash flows from financing activities: Borrowings (payments) under short-term lines of credit (1,086) 46 -- (1,040) Borrowings (payments) under revolving line of credit (598) (3,403) -- (4,001) Payments under Senior Term Loan (750) -- -- (750) ------- -------- ----- -------- Net cash used in financing activities (2,434) (3,357) -- (5,791) ------- -------- ----- -------- Effect of exchange rate changes on cash (194) 165 -- (28) ------- -------- ----- -------- Net increase (decrease) in cash and cash equivalents 1,024 (6,631) 32 (5,575) ------- -------- ----- -------- Cash and cash equivalents at beginning of year 846 10,132 -- 10,978 ------- -------- ----- -------- Cash and cash equivalents at end of period $ 1,870 $ 3,501 $ 32 $ 5,403 ======= ======== ===== ========
16 17 FORM 10-Q PART I ITEM 2 INSTRON CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Quarter Ended March 31, 2001 vs. Quarter Ended April 1, 2000 Revenues for the first quarter of 2001 were $45,071,000, essentially flat compared to the same period last year. Foreign sales accounted for approximately 56% of consolidated first quarter revenues compared with 58% for the first quarter of 2000. The consolidated gross margin as a percentage of revenue improved to 39.8% for the first quarter of 2001 compared to 34.7% for the first quarter of 2000 due to improved margins in the Structures and Service businesses. During the first and second quarters of 2000, the Company completed a workforce reduction of 84 people, of which 24 were in the U.S. and 60 were in Germany and the U.K. The personnel reductions were primarily in engineering, manufacturing and administration. Severance costs associated with the workforce reductions were $0.3 million and $1.5 million during the first and second quarter of 2000, respectively. Total selling and administrative expenses decreased by 2.0% from the first quarter of 2000 due primarily to lower expenses in the Structures business as a result of last year's restructuring. As a percentage of revenue, selling and administrative expenses were 28.9% compared to 29.5% for the same period last year. Research and development expenses decreased by 12.9% for the first quarter of 2001 compared with the first quarter of 2000. This decrease reflects not only the significant investment that Instron made in 2000 in certain key product development areas, but also the benefit of integrating the development processes of our acquisitions. In addition, software development costs of $385,000 were capitalized during the first quarter of 2001 compared with $287,000 in the first quarter of last year. Exclusive of software development costs, research and development costs decreased by 7.9%. Net interest expense decreased to $3,387,000 compared to $3,515,000 in the first quarter of 2000. This decrease in 2001 is due to lower borrowings and lower interest rates. Loss before taxes for the first quarter of 2001 was $699,000 compared to loss before taxes of $3,933,000 for the same period last year. This improvement in profitability is due to increased margins on the Structures and Service businesses and lower operating expenses. The consolidated effective tax rate was 37.8% for the first quarter of 2001 compared to 41.5% in the first quarter of 2000. Net loss before cumulative effect of accounting change was $435,000 or $0.08 per diluted share of common stock for the quarter ended March 31, 2001 compared with $2,300,000, or $0.41 per diluted share of common stock for the quarter ended April 1, 2000. Instron reported net loss after cumulative effect of accounting change for SAB 101 of $435,000 or $0.08 per diluted share for the first quarter of 2001 compared to $6,569,000 or $1.18 per diluted share for the same period last year. 17 18 FINANCIAL CONDITION During the first quarter of 2001, the Company generated $12 thousand of cash from operating activities compared to $1.3 million for the same period in the prior year. The Company used $0.8 million of cash for investing activities during the first quarter of 2001, compared to $1.1 million of cash used during the same period in the prior year primarily to fund capital expenditures and software development costs. The Company increased borrowings by $1.5 million compared to paying down debt by $5.8 million during the same period last year. Accounts receivable declined from $57.3 million at December 31, 2000 to $48.1 million at March 31, 2001. This decrease was due primarily to the lower level of revenues in the first quarter as compared to the preceding three months ended December 31, 2000. Capital expenditures during the first quarter of 2001 were $0.4 million, compared to $0.9 million in the first quarter of 2000. The lower level of capital expenditures reflects the timing of the 2001 capital requirements. The Company plans to make capital expenditures of approximately $3.5 million during the current fiscal year. In addition, the Company plans to continue to develop and enhance its software products and pursue its strategy of acquisitions. At March 31, 2001, the Company had borrowings of $24.3 million, and additional borrowing availability of $21.5 million, under its $50.0 million multi-currency revolving credit facility, compared to $23.0 million in borrowings at December 31, 2000. The Company had $25.6 million outstanding under its term loan at March 31, 2001, compared to $26.6 million outstanding at December 31, 2000. At March 31, 2001, the Company also had $60.0 million of 13 1/4% Senior Subordinated Notes Due 2009 outstanding. The Senior Credit Facility requires that the Company meet and maintain certain financial ratios and tests, including a minimum consolidated net worth, consolidated adjusted EBITDA, consolidated capital expenditure, consolidated interest coverage ratio, consolidated fixed charge coverage ratio, maximum consolidated leverage ratio and senior leverage ratio. At April 1 and July 1, 2000, the Company was not in compliance with three of the original Senior Credit Facility covenants. The Company requested and was granted waivers of covenants. During the third quarter of 2000, the Company renegotiated and obtained more lenient debt covenants for the Senior Credit Facility. As of December 31, 2000 and March 31, 2001, the Company was in compliance with the amended Senior Credit Facility prior to the adoption of recently issued accounting pronouncements. The Company anticipates that the covenants will be amended during the second quarter of 2001 to reflect the impact of the recently issued accounting pronouncements. The Company is confident that it will be able to meet these covenants for the remainder of 2001. The Company believes its present capital resources and anticipated operating cash flows are sufficient to finance its planned operations and investing activities for the next eighteen months. If the Company were to consider a significant acquisition, it would have to seek alternative sources of equity funds and or additional debt. Bookings for the first quarter of 2001 were $37.3 million, a decrease of 17.9% over the same period last year. The decrease in bookings was primarily in North America and Europe for the material testing business. The Company's order backlog was $99.6 million at the end of the first quarter of 2001, compared to $103.6 million at the end of the first quarter of 2000 and $111.4 million at December 31, 2000. NEW ACCOUNTING PRONOUNCEMENTS In the fourth quarter of 2000, effective as of January 1, 2000, the Company changed its revenue recognition policy for certain product sales to comply with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101"). SAB 101 provides guidelines on the timing of revenue recognition based upon factors such as passage of title, installation, payment terms and customer acceptance. The SAB 101 restatement has been applied retroactively to transactions that occurred prior to 2000. The cumulative effect adjustment of the change in accounting on prior years through December 31, 1999 was a reduction to income of $4.3 million (after credit for income taxes of $3.5 million), or $0.77 cents per diluted share, which has been accounted for as a change to the first quarter of 2000 financial results. The effect of adopting SAB 101 increased first quarter 2000 sales by $3.9 million and decreased the net loss by $0.5 million or $0.08 cents per diluted share. In September 2000, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This consensus requires that all shipping and handling amounts billed to a customer in a sale transaction represent revenues earned for the goods provided and should be classified as revenue. Adoption of the consensus reached on EITF Issue 00-10 is required no later than the required implementation date for SAB 101. The Company adopted EITF Issue 00-10 in the year ended December 31, 2000 and a retroactive reclassification was recorded on the historical statement of operations for all quarters in 2000, 1999 and 1998. The first quarter of 2000 reclassification resulted in an increase in revenues and cost of sales of $331,000. 18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK The Company is exposed to market risk related to changes in foreign currency exchange rates. The Company enters into foreign exchange contracts to manage and reduce the impact of changes in foreign currency exchange rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The exposures are associated with certain accounts receivable denominated in local currencies and certain foreign revenue transactions. There has been no material changes related to the quantitative or qualitative aspects of market risk since December 31, 2000. FORWARD LOOKING STATEMENTS Certain statements contained in this Form 10Q are "forward-looking" statements within the meaning of the federal securities laws and are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views about future events and financial performance. Words such as "will," "should," "believe," "expect," "anticipate," "confident" and other similar expressions that predict or indicate future events or trends, or that are not statements of historical matters, identify forward-looking statements. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations, and we expressly do not undertake any duty to update forward-looking statements, which speak only as of the date of this release. These risks, uncertainties, and factors include, but are not limited to: (1) fluctuations in interest rates; (2) the stability of financial markets; (3) the level of bookings worldwide for Instron and IST; (4) our ability to timely ship backlog (in this regard, our expectations are based on historical as well as anticipated production levels); (5) the success of the automobile industry which is the major purchaser of IST products; (6) the impact of fluctuations in exchange rates and the uncertainties of operating in a global economy, including fluctuations in the economic conditions of the foreign and domestic markets served by the Company which can effect demand for its products and services; (7) our ability to identify and successfully consummate strategic acquisitions and our anticipated funding requirements in connection therewith; (8) our ability to meet the covenants and repayment schedules of the new loan and debt facilities undertaken as a result of the Merger and Recapitalization and the amendments to certain covenants contained in such facilities effected in the third quarter of 2000; (9) the effect of changes in accounting and/or tax policies and practices; and (10) other factors detailed from time to time in our filings with the Securities and Exchange Commission. 19 20 FORM 10-Q PART II INSTRON CORPORATION PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Neither the Registrant nor any of its subsidiaries is a party to, nor is any of their property the subject of, any material pending legal proceedings. ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K None 20 21 SIGNATURES Pursuant to the requirements of the Securities and 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 Date: May 16, 2000 By /s/ James M. McConnell ------------------------- James M. McConnell President and Chief Executive Officer Date: May 16, 2000 By /s/ Linton A. Moulding ------------------------- Linton A. Moulding Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----