SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20109
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Kronos Incorporated
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2640942
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
297 Billerica Road, Chelmsford, MA 01824
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(Address of principal executive offices) (Zip Code)
(978) 250-9800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of April 28, 2001, 12,492,652 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
KRONOS INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended March 31, 2001 and April 1, 2000 1
Condensed Consolidated Balance Sheets at March 31, 2001
and September 30, 2000 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 2001 and April 1, 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
UNAUDITED
Three Months Ended Six Months Ended
------------------------------ ------------------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
-------------- ------------- -------------- --------------
Net revenues:
Product ........................................... $ 32,368 $ 32,091 $ 66,090 $ 68,243
Service ........................................... 34,705 29,735 65,736 58,191
------------ ------------ ------------ ------------
67,073 61,826 131,826 126,434
------------ ------------ ------------ ------------
Cost of sales:
Product ........................................... 8,024 7,566 15,821 15,857
Service ........................................... 19,746 17,000 37,469 33,255
------------ ------------ ------------ ------------
27,770 24,566 53,290 49,112
------------ ------------ ------------ ------------
Gross profit .................................. 39,303 37,260 78,536 77,322
Operating expenses and other income:
Sales and marketing ............................... 24,560 22,415 46,863 44,345
Engineering, research and development ............. 8,416 7,573 16,336 14,589
General and administrative ........................ 4,476 4,290 8,616 8,444
Amortization of intangible assets ................. 1,853 1,587 3,587 3,138
Other income, net ................................. (1,559) (1,708) (2,712) (3,043)
Special charge .................................... 2,991 -- 2,991 --
------------ ------------ ------------ ------------
40,737 34,157 75,681 67,473
Income before income taxes .................... (1,434) 3,103 2,855 9,849
Income tax (benefit)provision........................... (502) 1,148 999 3,644
------------ ------------ ------------ ------------
Net (loss) income ............................. $ (932) $ 1,955 $ 1,856 $ 6,205
============ ============ ============ ============
Net (loss) income per common share:
Basic ......................................... $ (0.07) $ 0.16 $ 0.15 $ 0.50
============ ============ ============ ============
Diluted ....................................... $ (0.07) $ 0.15 $ 0.14 $ 0.47
============ ============ ============ ============
Average common and common equivalent shares outstanding:
Basic ......................................... 12,498,446 12,515,139 12,433,581 12,488,805
============ ============ ============ ============
Diluted ....................................... 12,498,446 13,162,020 12,836,493 13,157,464
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
UNAUDITED
March 31, September 30,
2001 2000
-------------- --------------
ASSETS
Current assets:
Cash and equivalents .................................................... $ 11,989 $ 23,201
Marketable securities ................................................... 39,378 10,788
Accounts receivable, less allowances of $7,140
at March 31, 2001 and $6,986 at September 30, 2000 ................... 57,887 71,493
Deferred income taxes ................................................... 6,853 5,916
Other current assets .................................................... 15,742 13,750
--------- ---------
Total current assets ............................................. 131,849 125,148
Property, plant and equipment, net ......................................... 36,278 37,082
Marketable securities ...................................................... 14,700 17,450
Excess of cost over net assets of businesses acquired, net ................. 28,250 29,421
Deferred software development costs, net ................................... 15,199 13,788
Other assets ............................................................... 14,906 16,600
--------- ---------
Total assets ...................................................... $ 241,182 $ 239,489
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 6,838 $ 8,278
Accrued compensation .................................................... 20,523 19,879
Accrued expenses and other current liabilities .......................... 12,692 14,339
Deferred professional service revenues .................................. 24,224 23,451
Deferred maintenance revenues ........................................... 50,844 48,483
--------- ---------
Total current liabilities ......................................... 115,121 114,430
Deferred maintenance revenues .............................................. 13,158 15,814
Other liabilities .......................................................... 1,612 1,455
Shareholders' equity:
Preferred Stock, par value $1.00 per share: authorized 1,000,000 shares,
no shares issued and outstanding ..................................... -- --
Common Stock, par value $.01 per share: authorized 20,000,000 shares,
12,634,728 shares issued at March 31, 2001 and September 30, 2000 ..... 126 126
Additional paid-in capital .............................................. 18,415 23,842
Retained earnings ....................................................... 99,700 97,844
Accumulated other comprehensive loss .................................... (1,501) (1,366)
Cost of Treasury Stock (146,028 shares and 310,038
shares at March 31, 2001 and September 30, 2000, respectively) ....... (5,449) (12,656)
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Total shareholders' equity ........................................ 111,291 107,790
--------- ---------
Total liabilities and shareholders' equity ........................ $ 241,182 $ 239,489
========= =========
See accompanying notes to condensed consolidated financial statements.
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
Six Months Ended
-------------------------
March 31, April 1,
2001 2000
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Operating activities:
Net income .................................................................. $ 1,856 $ 6,205
Adjustments to reconcile net income to net cash and equivalents
provided by operating activities:
Depreciation ........................................................ 3,862 3,753
Amortization of excess of cost over net assets of businesses acquired 3,587 3,182
Amortization of deferred software development costs ................. 4,071 3,461
Provision for deferred income taxes ................................. (1,051) (865)
Changes in certain operating assets and liabilities:
Accounts receivable, net ......................................... 13,077 9,640
Deferred maintenance revenue ..................................... (1,540) 104
Accounts payable, accrued compensation
and other liabilities ........................................ (1,388) (6,066)
Long term investment in leases ................................... 2,214 2,609
Non cash portion of special charge ............................... 1,253 ---
Other ............................................................ (1,734) (3,404)
Tax benefit from exercise of stock options .......................... 2,304 4,552
-------- --------
Net cash and equivalents provided by operating activities .... 26,511 23,171
Investing activities:
Purchase of property, plant and equipment ................................... (3,045) (14,192)
Capitalization of software development costs ................................ (5,838) (4,810)
(Increase)decrease in marketable securities ............................... (25,838) 3,435
Acquisitions of businesses, net of cash acquired ............................ (2,056) (4,009)
-------- --------
Net cash and equivalents used in investing activities ........ (36,777) (19,576)
Financing activities:
Net proceeds from exercise of stock option and employee stock
purchase plans .......................................................... 5,964 5,548
Purchase of treasury stock .................................................. (6,453) (16,738)
Proceeds from sale of put options ........................................... -- 169
-------- --------
Net cash and equivalents used in financing activities ....... (489) (11,021)
Effect of exchange rate changes on cash and equivalents .......................... (457) (119)
-------- --------
Decrease in cash and equivalents ................................................. (11,212) (7,545)
Cash and equivalents at the beginning of the period .............................. 23,201 20,148
-------- --------
Cash and equivalents at the end of the period .................................... $ 11,989 $ 12,603
======== ========
See accompanying notes to condensed consolidated financial statements.
KRONOS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - General
The accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, that management
considers necessary for a fair presentation of the Company's financial position
and results of operations as of and for the interim periods presented pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosures in these financial statements are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the fiscal year ended September 30, 2000. The results of
operations for the three and six months ended March 31, 2001 are not necessarily
indicative of the results for a full fiscal year. Certain reclassifications have
been made in the accompanying consolidated financial statements in order to
conform to the fiscal 2001 presentation.
NOTE B - Fiscal Quarters
The Company utilizes a system of fiscal quarters. Under this system, the first
three quarters of each fiscal year end on a Saturday. However, the fourth
quarter of each fiscal year will always end on September 30. Because of this,
the number of days in the first quarter (91 days in fiscal 2001 and 93 days in
fiscal 2000) and fourth quarter (92 days in fiscal 2001 and 91 days in fiscal
2000) of each fiscal year varies from year to year. The second and third
quarters of each fiscal year will be exactly thirteen weeks long. This policy
does not have a material effect on the comparability of results of operations
between quarters.
NOTE C - Comprehensive Income
For the three and six months ended March 31, 2001 and April 1, 2000
comprehensive income consisted of the following (in thousands):
Three Months Ended Six Months Ended
--------------------- -------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
---------- -------- -------- --------
Comprehensive income:
Net (loss) income ............... $ (932) $ 1,955 $ 1,856 $ 6,205
Cumulative translation adjustment (666) (309) (540) (309)
Unrealized gains
on .............................. 200 -- 405 --
available-for-sale securities
------- ------- ------- -------
Total comprehensive (loss) income ... $(1,398) $ 1,646 $ 1,721 $ 5,896
======= ======= ======= =======
Note D - Special Charge
During this fiscal quarter, the Company commenced the shut down of its
Crosswinds Technology Group operations located in Santa Cruz, California, which
resulted in a $3.0 million charge to operating income. The charge included $1.6
million in termination costs, $1.3 million for the write off of intangible
assets and $.1 million in other costs. At March 31, 2001, the Company recorded a
liability associated with the Crosswinds closing of $1.7 million. The components
of this liability are listed below and are expected to be settled within the
next twelve months. Approximately 19 employees were effected by this action.
Accrual for special charge (in thousands):
Balance at
Description March 31, 2001
----------- --------------
Termination costs $1,600
Other costs .... 100
------
Total accrual .. $1,700
======
NOTE E - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
--------------------------- -------------------------
March 31, April 1, March 31, April 1,
2001 2000 2001 2000
------------- ----------- ----------- -------------
Net income (in thousands) ...... $ (932) $ 1,955 $ 1,856 $ 6,205
============ =========== =========== ===========
Weighted-average shares ........ 12,498,446 12,515,139 12,433,581 12,488,805
Effect of dilutive securities:
Put options ................. -- 30,802 -- 15,401
Employee stock options ...... -- 616,079 402,912 653,258
------------ ----------- ----------- -----------
Adjusted weighted-average shares
and assumed conversions ..... 12,498,446 13,162,020 12,836,493 13,157,464
============ =========== =========== ===========
Basic earnings per share ....... $ (0.07) $ 0.16 $ 0.15 $ 0.50
============ =========== =========== ===========
Diluted earnings per share ..... $ (0.07) $ 0.15 $ 0.14 $ 0.47
============ =========== =========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This discussion includes certain forward-looking statements about Kronos'
business and its expectations, including statements relating to demand for
products and services, revenue growth rates and gross margin, management of
dealer channels, future acquisitions and available cash, investments and
operating cash flow. Any such statements are subject to risk that could cause
the actual results to vary materially from expectations. For a further
discussion of the various risks that may affect Kronos' business and
expectations, see "Certain Factors That May Affect Future Operating Results" at
the end of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Revenues. Revenues for the three and six months ended March 31, 2001 were
$67.1 million and $131.8 million, respectively, as compared to $61.8 million and
$126.4 million for the comparable periods in the prior year. Revenue growth in
the three and six months ended March 31, 2001 were 9% and 4%, respectively, as
compared to flat and 10% growth in the comparable periods of the prior year.
Beginning in the second quarter of fiscal 2000 Kronos experienced revenue growth
rates that were lower than those historically experienced due to a combination
of factors including the transitory impact on demand for Kronos products and
services as a result of Year 2000 compliance efforts and the elongation of
Kronos' sales cycle. The revenue growth rate experienced in the second quarter
of fiscal 2001 exceeded the growth rate experienced in the comparable period of
the prior year, but continues to be less than growth rates historically
experienced. The revenue growth rate experienced in the second quarter of fiscal
2001 compares favorably to the comparable quarter of the prior year principally
due to the unusually low growth rate experienced in the second quarter of fiscal
2000. Management believes that demand for Kronos' products and services
continues to exist, however, revenue growth rates for the remainder of the year
are uncertain given the broad economic downturn and the possibility of companies
postponing technology spending.
Product revenues for the quarter increased 1% to $32.4 million as compared
to $32.1 million and product revenue decline of 21% in the second quarter of
fiscal 2000. Product revenues for the first six months of fiscal 2001 declined
3% to $66.1 million compared to $68.2 million and product revenue decline of 8%
in the first six months of fiscal 2000. The product revenue growth experienced
in the second quarter was principally driven by the Kronos' direct sales
channel. Product revenues from Kronos' independent dealer channel decreased
slightly during the second quarter of fiscal 2001 in comparison to the same
quarter of the prior year. Management continues to believe that given the
increased sophistication of Kronos' products and the related heightened need for
pre-sales technological support and other sales support, the dealer channel's
sales cycle requires greater management and participation by Kronos. To address
this trend, management anticipates expending greater resources to assist the
dealer channel in the short term and increasing Kronos' emphasis on direct sales
in the longer term.
Service revenues for the second quarter of fiscal 2001 increased to $34.7
million as compared to $29.7 million in the second quarter of fiscal 2000.
Service revenues for the first six months of fiscal 2001 were $65.7 million as
compared to $58.2 million for the first six months of the prior year. Service
revenues grew at a rate of 17% and 13% during the three and six month periods
ended March 31, 2001, respectively. The growth in service revenues in these
periods reflect an increase in maintenance revenue from expansion of the
installed base, increased level of services sold to the installed base and, to a
lesser extent, incremental maintenance revenues resulting from Kronos'
acquisitions of various dealer territories over the past four quarters. The
growth in service revenues in the second quarter of fiscal 2001 also reflects an
increase in the level of professional services delivered due to more effective
management of resources as compared to the same period in the prior year.
Service revenues grew at a rate of 41% and 42% in the three and six month
periods ended April 1, 2000, respectively. The unusually high service revenue
growth rate experienced in these periods is attributable to an increase in
maintenance revenue from expansion of the installed base due to the accelerated
product revenue growth experienced in fiscal 1999 because of demand for new
products and upgrades resulting from customers' Year 2000 compliance efforts.
Also contributing to the growth in service revenues in these periods were an
increase in the level of maintenance contracts and professional services
accompanying new and upgrade sales as well as maintenance and professional
service revenues resulting from Kronos' acquisitions, including its largest
dealer territory in June 1999.
Gross Profit. Gross profit as a percentage of revenues was 59% and 60% in
the three and six month periods ended March 31, 2001, respectively, decreasing
from 60% and 61% for the comparable periods of the prior year. The decrease in
margin was directly attributable to lower product revenues as a percentage of
total sales. Service revenue, which generates lower gross margin, has grown
faster than product revenue and represents a greater proportion of total revenue
in fiscal 2001 than in the comparable period of the prior year. Product gross
profit as a percentage of product revenues was 75% and 76% in the three and six
month periods ended March 31, 2001, respectively, compared to 76% and 77% in
each of the comparable periods in the prior year. Software, which typically
generates higher gross profit, was a greater proportion of product revenues in
the three and six month periods ended March 31, 2001 as compared to the same
periods in prior year. However, higher software development amortization and
production costs due to lower sales volume offset the effect of this favorable
mix. Service gross profit as a percentage of service revenues was 43% in the
three and six month periods ended March 31, 2001 and April 1, 2000. Management
anticipates that service gross margin for the remainder of the fiscal year to
exceed the gross margin experienced in the second quarter due to its on-going
efforts to streamline operations and more effectively utilize its service
resources.
Net Operating Expenses. Net operating expenses as a percentage of revenues
were 61% and 57% for the three and six month periods ended March 31, 2001,
respectively, as compared to 55% and 53% for the comparable periods in the prior
year. The increase in operating expenses in fiscal 2001, as compared to fiscal
2000, is attributable to increased program and infrastructure costs incurred to
support increases in business volume and product development efforts as well as
increased amortization of intangible assets related to acquisitions. Sales and
marketing expenses as a percentage of revenues were 37% and 36% in the three and
six month periods ended March 31, 2001, respectively, as compared to 36% and 35%
in the comparable periods of the prior year. Engineering, research and
development expenses as a percentage of revenues were 13% and 12% in the three
and six month periods ended March 31, 2001 as compared to 12% in the comparable
periods of the prior year. Engineering expenses of $8.4 million and $7.6 million
in the second quarter of fiscal 2001 and 2000, respectively, are net of
capitalized software development costs of $2.8 million and $2.5 million,
respectively. Engineering expenses of $16.3 million and $14.6 million in the
first six months of fiscal 2001 and 2000, respectively, are net of capitalized
software development costs of $5.5 million and $4.8 million, respectively. The
growth in engineering, research and development expenses this year resulted
principally from the continuing research, design and development of software and
hardware technology. General and administrative expenses as a percentage of
revenues were 7% in the three and six month periods ended March 31, 2001 and
April 1, 2000. Amortization of intangible assets as a percentage of revenues was
3% in the three and six month periods ended March 31, 2001 as compared to 3% and
2% in the comparable periods of the prior year. The increase in amortization
expense is principally related to various dealer territory acquisitions
completed in the past four quarters. Kronos amortizes these costs over the
assets estimated remaining economic lives. Other income, net is principally
attributable to interest income earned from Kronos' cash as well as investments
in its marketable securities and lease portfolio.
Special Charge. A special charge in the amount of $3.0 million related to
the termination of Kronos' Crosswinds Technology operations was recorded in the
second quarter of fiscal 2001. The Crosswinds Technology Group, which was
purchased in May 1999, was responsible for the product development, marketing
and sales support of time and attendance applications that operated as a
Microsoft Outlook plug in product. Lower than anticipated sales of these
applications, redundant infrastructure and ongoing operating losses has resulted
in the termination of the stand-alone operating unit. Revenues in the first six
months of fiscal 2001 generated by the Crosswinds Technology Group approximated
$0.5 million. The $3.0 million charge consists of $1.6 million in termination
costs, $1.3 million for the write off of intangible assets and $0.1 million in
other costs. Cash outlays of approximately $1.7 million relating to this action
are anticipated to be paid over the next twelve months. The anticipated pre-tax
financial benefit resulting from this action is a cost reduction of
approximately $0.3 million in fiscal 2001 and $1.2 million annually thereafter,
excluding amortization of $1.3 million over the next three years. In addition,
to better align costs with expected revenues for the remainder of fiscal 2001;
Kronos anticipates reducing its workforce in the third quarter of this year by
75 to 125 employees or approximately 5%. This is anticipated to result in a
third quarter special charge of less than $1.0 million. As a result of these
additional headcount reductions, pre-tax savings attributable to salary and
fringe benefits, but excluding other indirect costs, are expected to be $2.0
million to $3.0 million for the remainder of fiscal 2001 and $6.0 million to
$8.0 million annually thereafter.
Income Taxes. The income tax benefit and tax provision as a percentage of
pretax results were 35% in the three and six month periods ended March 31, 2001,
respectively, as compared to a tax provision as a percentage of pretax income of
37% in the comparable periods of the prior year. The lower effective income tax
rate experienced in fiscal 2001 was principally attributable to tax benefits
resulting from Kronos' investment tax credits. Management anticipates the
effective income tax rate for the remainder of the fiscal year will be 35%.
Liquidity and Capital Resources
Working capital as of March 31, 2001, amounted to $16.7 million as compared
to $10.7 million at September 30, 2000. During fiscal 2000, working capital was
reduced as Kronos funded its investment in its corporate headquarters facility
and other property, plant and equipment, as well as the repurchase of common
shares under Kronos' stock repurchase program and, to a lesser extent, payments
related to acquisitions of dealer territories. Cash and equivalents and
marketable securities amounted to $66.1 million as of March 31, 2001 and $51.4
million as of September 30, 2000.
Cash generated from operations amounted to $26.5 million in the first six
months of fiscal 2001 as compared to $23.2 million in the first six months of
fiscal 2000. The increase in cash generated from operations is principally
attributable to increased collection of accounts receivable from trade customers
and the lease portfolio, increased deferred professional services and a smaller
decline in accrued compensation partially offset by lower earnings and a
reduction in the tax benefit from exercise of stock options as compared to the
prior year. Cash used for property, plant and equipment was $3.0 million in the
first six months of fiscal 2001 compared to $14.2 million in the same period of
fiscal 2000. Fiscal 2000 investments in property, plant and equipment were
principally related to the construction of Kronos' corporate headquarters campus
as well as investments in information systems and infrastructure to improve and
support expanded operations. Excess cash reserves not required for operations,
investments in property, plant and equipment or acquisitions are invested in
marketable securities. Marketable securities increased by $25.8 million in
fiscal 2001 compared to a decrease of $3.4 million in the first six months of
fiscal 2000. Kronos' use of cash for acquisition of businesses in the first six
months of fiscal year 2001 was principally related to the acquisition of a
dealer territory in November 2000. Kronos is assessing several acquisition
opportunities that may be completed over the next six months, although there can
be no assurance that these acquisitions will be completed.
Under Kronos' stock repurchase program, Kronos repurchased 135,000 common
shares in the first six months of fiscal 2001 at a cost of $4.9 million compared
to 328,500 common shares at a cost of $15.6 million for the same period in the
prior year. The common shares repurchased under the program are used for Kronos'
employee stock option plans and employee stock purchase plan. Cash provided by
operations was more than sufficient to fund investments in capitalized software
development costs, property, plant and equipment and stock repurchases. Kronos
believes it has available adequate cash and investments and operating cash flow
to fund its investments in property, plant and equipment, software development
costs, cash payments related to acquisitions, if any, and any additional stock
repurchases for the foreseeable future.
Certain Factors That May Affect Future Operating Results
Except for historical matters, the matters discussed in this Quarterly
Report on Form 10-Q are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Kronos desires to
take advantage of the safe harbor provisions of the Act and is including this
statement for the express purpose of availing itself of the protection of the
safe harbor with respect to all forward looking statements that involve risks
and uncertainties.
Kronos' actual operating results may differ from those indicated by forward
looking statements made in this Quarterly Report on Form 10-Q and presented
elsewhere by management from time to time because of a number of factors
including the potential fluctuations in quarterly results, timing and acceptance
of new product introductions by Kronos and its competitors, the ability to
attract and retain sufficient technical personnel, competitive pricing pressure,
the dependence on Kronos' time and attendance product line, and the dependence
on alternate distribution channels and on key vendors, as further described
below and in Kronos' Annual Report on Form 10-K for the fiscal year ended
September 30, 2000, which are specifically incorporated by reference herein.
Potential Fluctuations in Quarterly Results. Kronos' quarterly operating
results may fluctuate as a result of a variety of factors, including the
purchasing patterns of its customers, mix of products and services sold, the
timing of the introduction of new products and product enhancements by Kronos
and its competitors, market acceptance of new products, competitive pricing
pressure and general economic conditions. Kronos historically has realized a
relatively larger percentage of its annual revenues and profits in the fourth
quarter and a relatively smaller percentage in the first quarter of each fiscal
year, although there can be no assurance that this pattern will continue. In
addition, while Kronos has contracts to supply systems to certain customers over
an extended period of time, substantially all of Kronos' product revenue and
profits in each quarter result from orders received in that quarter. If
near-term demand for Kronos' products weakens or if significant anticipated
sales in any quarter do not close when expected, Kronos' revenues for that
quarter will be adversely affected. Kronos believes that its operating results
for any one period are not necessarily indicative of results for any future
period.
Product Development and Technological Change. Continual change and
improvement in computer software and hardware technology characterize the
markets for frontline labor management systems. Kronos' future success will
depend largely on its ability to enhance the capabilities and increase the
performance of its existing products and to develop new products and interfaces
to third party products on a timely basis to meet the increasingly sophisticated
needs of its customers. Although Kronos is continually seeking to further
enhance its product offerings and to develop new products and interfaces, there
can be no assurance that these efforts will succeed, or that, if successful,
such product enhancements or new products will achieve widespread market
acceptance, or that Kronos' competitors will not develop and market products
which are superior to Kronos' products or achieve greater market acceptance.
Dependence on Time and Attendance Product Line. To date, more than 90% of
the Kronos' revenues have been attributable to sales of time and attendance
systems and related services and Kronos expects that to continue in the next
fiscal year. Competitive pressures or other factors could cause Kronos' time and
attendance products to lose market acceptance or experience significant price
erosion, adversely affecting the results of Kronos' operations.
Dependence on Alternate Distribution Channels. Kronos markets and sells its
products through its direct sales organization, independent dealers and OEMs. In
the first six months of fiscal 2001, approximately 13% of Kronos' revenue was
generated through sales to dealers and OEMs. A reduction in the sales efforts of
Kronos' major dealers and/or OEMs, the termination or changes in their
relationships with Kronos, or the failure of Kronos to monitor and incent its
independent dealers and OEMs, could have a material adverse affect on the
results of Kronos' operations.
Attracting and Retaining Sufficient Technical Personnel for Product
Development, Support and Sales. Kronos has encountered intense competition for
experienced technical personnel for product development, technical support and
sales and expects such competition to continue in the future. Any inability to
attract and retain a sufficient number of qualified technical personnel could
adversely affect Kronos' ability to produce, support and sell products in a
timely manner.
Competition. The frontline labor management industry is highly competitive.
Technological changes such as those allowing for increased use of the Internet
may also create the potential for new entrants. Although Kronos believes it has
core competencies that are not easily obtainable by competitors, maintaining
Kronos' technological and other advantages over competitors will require
continued investment by Kronos in research and development and marketing and
sales programs. There can be no assurance that Kronos will have sufficient
resources to make such investments or be able to achieve the technological
advances necessary to maintain its competitive advantages. Increased competition
could adversely affect Kronos' operating results through price reductions and/or
loss of market share.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2001 Annual Meeting of Stockholders of Kronos Incorporated was
held on February 8, 2001.
(b) At the Annual Meeting, Messrs. Richard J. Dumler and Samuel Rubinovitz
were elected as Class III Directors for three-year terms expiring in
2004. In addition, the Directors whose terms of office continue after
the meeting are two Class I Directors: Messrs. D. Bradley McWilliams
and Lawrence Portner and two Class II Directors: Messrs. Mark S. Ain
and W. Patrick Decker. The tabulation was as follows:
FOR WITHHELD
--- --------
Richard J. Dumler 11,036,521 237,322
Samuel Rubinovitz 11,035,393 238,450
(c) Amendments to the Company's 1992 Equity Incentive Plan and an increase
in the number of shares available under the Plan from 3,356,250 to
4,356,250, were approved as follows:
BROKER
FOR AGAINST ABSTAIN NON VOTES
--- ------- ------- ---------
7,090,296 2,505,462 161,368 1,516,717
(d) The other item voted upon at the meeting was the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors
for the 2001 fiscal year.
FOR AGAINST ABSTAIN
--- ------- -------
11,256,789 4,550 12,504
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal quarter
ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KRONOS INCORPORATED
By /s/ Paul A. Lacy
Paul A. Lacy
Vice President of Finance
and Administration
(Duly Authorized Officer and
Principal Financial Officer)
May 11, 2001