ITEM 2 PROPERTIES
The following properties were owned or leased by the Company at December 31, 1994. The Trevose and Philadelphia locations are used in more than one business segment. All other properties are used exclusively in one segment, as identified.
Approx Owned/ Lease % Used Location Square Ft. Leased Ending for Mfg. Comments - ------------------------------------------------------------------------------ Trevose, PA 4,000 Leased 2001 0 Corporate headquarters Philadelphia, PA 70,000 Owned 40
Electronic Products Greensboro, MD 20,000 Owned 95 San Diego, CA 17,000 Leased 1999 0 Kaohsiung, Taiwan 51,000 Owned 55 Building is owned; land is leased through 2003 Cavite, Philippines 26,000 Owned 60 Building is owned; land is leased through 2007 Singapore 1,000 Leased 1995 0 Tours, France 1,000 Leased 2003 0
Page 5 of 32
Approx Owned/ Lease % Used Location Square Ft. Leased Ending for Mfg. Comments - ------------------------------------------------------------------------------
Metallurgical Products Export, PA 115,000 Leased 2001 80 McKeesport, PA 23,000 Leased 2004 65 Delmont, PA 30,000 Owned 90 Lancaster, PA 15,000 Leased 1996 90 Cedar Knolls, NJ 48,000 Owned 65 Reidsville, NC 250,000 Owned 55 Luquillo, P.R. 32,000 Owned 80 Luquillo, P.R. 12,000 Leased 1998 40
End User/Finished Products Feasterville, PA 2,000 Leased 1995 0 Kew Gardens, NY 67,000 Owned 75 Greensboro, NC 23,000 Owned 60 Fareham, England 22,000 Leased 2004 50 Wuppertal, Germany 20,000 Leased 1995 70 Versailles, France 2,000 Leased 1997 0
The Company believes its facilities to be adequate for its present needs.
ITEM 3
ITEM 3 PENDING LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits which it considers to be in the normal course of business, none of which is expected to have a material adverse effect on the Company.
ITEM 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NONE
Page 6 of 32
PART II
ITEM 5
ITEM 5 MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS
Technitrol Inc.'s common stock is traded on the American Stock Exchange. The following table reflects the high and low sales prices on such Exchange and the dividends paid to shareholders in each quarterly period during Technitrol's last two fiscal years.
QUARTER 1ST 2ND 3RD 4TH - -------------------------------------------------------------------------- 1994 HIGH $11.792 $12.917 $14.500 $16.000 1994 LOW $9.875 $10.875 $11.583 $12.000 1994 DIVIDENDS PAID $.093 $.093 $.093 $.095
1993 HIGH $9.125 $8.500 $9.250 $10.125 1993 LOW $8.250 $7.583 $7.750 $8.208 1993 DIVIDENDS PAID $.093 $.093 $.093 $.093
The relevant amounts have been restated to reflect a 200% stock dividend on September 18, 1994.
The approximate number of holders of record of the common stock, Technitrol Inc.'s only class of stock outstanding, as of January 13, 1995 was:
TITLE OF CLASS NUMBER OF SHAREHOLDERS -------------------------- ---------------------- Common Stock 676 par value $.125 per share
Page 7 of 32
Page 8 of 32
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources Cash and cash equivalents totalled $8.7 million at December 31, 1994, compared to $7.7 million a year earlier. Working capital was $30.2 million, compared to $24.1 million at December 31, 1993. Contributing to the year-to-year increase in working capital was the 1994 acquisition of the Fil-Mag Group as discussed below. Cash provided by operating activities was $9.6 million. The positive cash flow was composed mainly of net earnings of $6.9 million; depreciation and amortization of $5.3 million; and increases in accounts payable ($1.1 million) and accrued expenses ($3.9 million). A cash decrease due to deferred tax benefits was offset by an increase in income taxes payable. Cash was consumed by increases in accounts receivable ($4.6 million) and inventories ($2.5 million). Those increases were caused by the increase in sales from 1993 to 1994. Investing activities consumed $13 million during 1994. Capital expenditures constituted $4.4 million, excluding acquisitions. Separately, $8.8 million was paid for the capital stock of the Fil-Mag Group, net of cash acquired. Financing for the acquisition was provided by drawing down approximately $10 million on a temporary acquisition line of credit from CoreStates Bank, N.A., which was subsequently replaced by a three year revolving credit loan. Projected 1995 capital expenditures are expected to be financed by internally generated funds. Cash provided by financing activities was a net $4.2 million. The aforementioned $10 million loan was the source of funds. Cash consumed by financing activities was due to combined debt reduction of $3.5 million, and $2.3 million of dividend payments. It is expected that dividends will continue to be paid on a quarterly basis during 1995. The Company's foreign sales are conducted primarily through its foreign subsidiaries, principally in the Far East and Europe. In the Far East, the Company's sales are denominated primarily in U.S. dollars. In Europe, sales are denominated primarily in local currencies (consisting mainly of English pounds and French francs) and to a lesser extent in U.S. dollars. Since a very significant portion of the Company's foreign sales are denominated in U.S. dollars, the Company does not believe that its potential exposure to currency fluctuations is material to its business. During 1993 and 1994, the Company did not purchase any currency exchange forward contracts or similar instruments generally utilized to reduce the risk of currency fluctuations. The Company will reexamine this policy if sales denominated in currencies other than U.S. dollars become material to operations.
Balance Sheet Composition at December 31:
1994 1993 1994 1993 - ------------------------------------------------------------------------------- Cash and cash equivalents 10% 13% Current liabilities 28% 22% Other current assets 53% 50% Long-term debt 18% 9% Property, plant, and equipment 29% 32% Shareholders' equity 54% 69% Other assets 8% 5% ---- ---- ---- ---- Total 100% 100% 100% 100% ==== ==== ==== ====
Page 9 of 32
RESULTS OF OPERATIONS
In 1994:
In 1994, sales were $146.4 million compared to $100.5 million in 1993. The 45.7% increase was due to the $30.8 million sales of the Fil-Mag Group, acquired in January 1994, and a combined sales increase of $15.1 million realized by the other businesses of the Company. All three of the Company's segments experienced increased sales in 1994 from 1993. The December 31 backlog was $28.7 million in 1994 and $14.9 million in 1993. Contributing to the increase was the Fil-Mag Group's backlog. The increase in sales of the Electronic Products Segment to $41.2 million included the sales of the Fil-Mag Group as noted above. Operating profit of the Electronics Products Segment increased to $5.0 million in 1994, compared to $1.7 million in the prior year. The increase reflected the fifty weeks of profits of the Fil-Mag Group since its acquisition in January 1994. As a percentage of sales, this segment's annual operating profits equaled 12.2% which was the highest of the Company's three product segments. Year end backlog and order volumes indicated a softening in the segment's domestic markets, while offshore demand remained relatively strong. The Metallurgical Products Segment produced increased sales, operating profit and operating profit as a function of sales in 1994 as compared to 1993. AMI experienced its largest sales and profit improvements to the product line which was acquired from Engelhard Corporation in 1991. Housing starts continue to have an eventual impact on demand for various AMI products. Management is monitoring the indirect effect that recent interest rate increases will have on AMI backlog levels which were stable entering the first quarter of 1995. Separately, Chace sales and operating profits also grew year-to-year. On-going efforts aimed at cost containment and quality improvements have contributed to the growth in sales volume and profits. Chace's proven ability to compete in a demanding industrial market was reflected by a strong backlog position as it began the new year. Two of the three operating units which constitute the End User/Finished Products Segment experienced an increase in sales and operating profits. Chatillon sales volume and profitability improved in its primary product families, as the improved economic climate contributed to more favorable market conditions. Lloyd's year-to-year sales increase reflected incremental unit sales and the absence of the unfavorable currency translation which negatively impacted 1993 results. Lower sales and operating profit occurred at the Company's Products Division. Domestic demand for currency counters and dispensers decreased during 1994, which was also the first full year subsequent to the Division withdrawing as a provider of engineering services on a prime contract basis to an agency of the U.S. Government. The Company's selling, general and administrative expenses increased to $27.3 million in 1994 from $19.4 million in 1993. The key reason for the increase was the addition of the Fil-Mag Group. Interest expense grew to $1.1 million, caused by the $10 million increase in outstanding debt to fund the Fil-Mag Group acquisition and rising interest rates during the year. 1994 income tax expenses increased as a function of pre-tax earnings. The 1994 effective income tax rate rose to 39% from 35% in 1993 as a result of proportionately higher taxable income being earned by the Company's domestic operations. Effective income tax rates of the domestic operations generally exceed those of the Company's offshore operations.
Page 10 of 32
In 1993:
Sales increased by 1.9% to $100.5 million in 1993. The sales increases of the Electronic Products Segment and the Metallurgical Products Segment exceeded the sales decrease experienced by the End User/Finished Products Segment. The backlog on December 31, 1993 was $14.9 million, compared to $14.2 million on December 31, 1992. The Electronic Products Segment sales increased to $9.4 million from $8.2 million in 1992. Sales of the Metallurgical Products Segment increased to $63.9 million in 1993 from $60.4 million. The 1993 year marked the first full year of operation at the Export, PA, facility which includes the product line acquired from Engelhard Corporation in August 1991 and relocated during 1992. End User/Finished Products Segment sales decreased from $30 million to $27.1 million. This reflected a volume decrease in currency counters and dispensers in the Products Division. Separately, that division withdrew as a provider of engineering services on a prime contract basis to an agency of the U.S. Government. Also causing the sales decline of the segment were unfavorable currency translation of the sales of Lloyd Instruments Ltd., a U.K. Company, and a decrease in the sales of electronic products of Chatillon. Total 1993 gross profit dollars approximated those of 1992. However, as a percentage of sales, 1993 gross profit dropped slightly to 24.6% from 25.2% in 1992. Contributing to the decrease were inventory write-offs and high production costs incurred at the Export, PA, facility of the Metallurgical Products Segment and the cost associated with the Petersburg, PA, plant shutdown of the Electronic Products Segment. Selling, general and administrative expenses decreased to $19.4 million in 1993, compared to $20 million during the previous year. The decrease reflected the non-recurring 1992 expenses associated with AMI-DDC (see Note 2 to Consolidated Financial Statements) and relocating the Engelhard product line. Operating Profit of $5.4 million in 1993 represented a 10.6% increase from year-to-year. The Electronic Products Segment contributed to the increase, with the Components Division experiencing stronger profits in 1993 as a result of on-going cost reduction efforts. The operating profit increase of the Metallurgical Products Segment included improved earnings of the established operations of AMI and the first full year of contribution of AMI-DDC exceeding a decrease in profitability on the part of the product line acquired from Engelhard. The major markets of AMI remained cyclical and reflected general trends in housing, automotive, appliances and capital equipment. Improved profits were realized by Chace, as cost improvement programs yielded their intended results. Regarding the End User/Finished Products Segment, weak demand caused a decrease in profitability at the Products Division and flat earnings on certain Chatillon products, which more than offset improved profits realized by Lloyd Instruments Ltd. Interest expense decreased to $0.4 million in 1993 due to lower interest rates and a reduction in the amount of debt outstanding. Income tax expenses increased proportionate to 1993 pre-tax earnings, with the 35% effective income tax rate unchanged from the prior year. Contributing to the flat effective rate were increased earnings of the operation in Puerto Rico, which is exempt from U.S. Federal income taxes. The Company adopted Financial Accounting Standard No. 109, "Accounting for Income Taxes," during 1993. As a result, $261,000 of favorable cumulative effect on prior years was added to 1993 net earnings.
Page 11 of 32
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, notes to the consolidated financial statements, together with the opinion of the Company's independent auditors and the supplementary financial information required by this item are attached hereto and made part hereof.
ITEM 9
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - NONE
PART III
CROSS REFERENCE INDEX
FORM 10-K ITEM NUMBER AND CAPTION INCORPORATED MATERIAL ------------------------------ ----------------------------------- ITEM 10
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, REGISTRANT'S DEFINITIVE PROXY PROMOTERS & CONTROL PERSONS STATEMENT PGS. 3, 4 & 5
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION REGISTRANT'S DEFINITIVE PROXY STATEMENT PGS. 6 & 7
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN REGISTRANT'S DEFINITIVE PROXY BENEFICIAL OWNERS AND STATEMENT PGS. 2 & 3 MANAGEMENT
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND REGISTRANT'S DEFINITIVE PROXY RELATED TRANSACTIONS STATEMENT PGS. 3, 4 & 5
PART IV
ITEM 14
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
Financial Statements
Independent Auditors' Report Consolidated Balance Sheets - December 31, 1994 and 1993 Consolidated Statements of Earnings and Retained Earnings - Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
(b) Technitrol, Inc. filed a report on Form 8-K on January 31, 1994 regarding the acquisition of all shares of capital stock of Fee Fil-Mag Taiwan Corporation, Fee Fil-Mag Singapore Pte. Corporation, and Fil-Mag, Inc.
(c) Exhibits
(21) Subsidiaries of the Registrant (23) Consent of Certified Public Accountants (27) Financial Data Schedule (electronic filing only)
Page 12 of 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TECHNITROL, INC.
By /s/Roy E. Hock -------------------------------- Roy E. Hock Chairman (Principal Executive Officer)
Date March 21, 1995 --------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/Roy E. Hock By /s/Albert Thorp, III -------------------------------- ------------------------------- Roy E. Hock Albert Thorp, III Chairman of the Board of Directors Controller and Chief Executive Officer (Principal Accounting Officer)
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
By /s/Thomas J. Flakoll By /s/Stanley E. Basara -------------------------------- ------------------------------- Thomas J. Flakoll Stanley E. Basara President and Director Director
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
By /s/James J. Rafferty, Jr. By /s/John E. Burrows, Jr. -------------------------------- ------------------------------- James J. Rafferty, Jr. John E. Burrows, Jr. Vice President and Director Director
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
By /s/J. Barton Harrison By /s/Graham Humes -------------------------------- ------------------------------- J. Barton Harrison Graham Humes Secretary and Director Director
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
By /s/Robert J. Citrino By /s/Edward M. Mazze -------------------------------- ------------------------------- Robert J. Citrino Edward M. Mazze Treasurer Director (Principal Financial Officer)
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
By /s/Michael J. Kirchoff By /s/James M. Papada, III -------------------------------- ------------------------------- Michael J. Kirchoff James M. Papada, III Vice President Director
Date March 21, 1995 Date March 21, 1995 -------------------------------- -------------------------------
Page 13 of 32
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Earnings and Retained Earnings - Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Page 14 of 32
Independent Auditors' Report
The Board of Directors and Shareholders Technitrol, Inc.:
We have audited the consolidated financial statements of Technitrol, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technitrol, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in note 6 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania March 3, 1995
Page 15 of 32
TECHNITROL, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1994 and 1993 In thousands of dollars, except for share data
Assets 1994 1993 - --------------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 8,716 $ 7,721 Receivables: Trade 22,614 13,389 Other 139 88 Inventories: Finished goods 5,471 4,281 Work in process 8,420 5,991 Raw materials and supplies 7,823 5,169 ------- ------- Total inventories 21,714 15,441 Prepaid expenses 851 549 ------- ------- Total current assets 54,034 37,188
Property, plant and equipment 55,180 45,729 ------- ------- Less accumulated depreciation 30,809 26,922 Net property, plant and equipment 24,371 18,807 Deferred income taxes 2,409 1,605 Other assets 3,941 972 ------- ------- $84,755 $58,572 ======= =======
Liabilities and Shareholders' Equity 1994 1993 - --------------------------------------------------------------------------- Current liabilities: Current installments of long-term debt $ 22 $ 21 Short-term debt 756 -- Accounts payable 5,841 3,718 Income taxes payable 1,916 716 Dividends payable 572 559 Accrued payroll 3,118 1,499 Accrued pension expense 4,589 3,002 Other accrued expenses 7,060 3,617 ------- ------- Total current liabilities 23,874 13,132 ------- -------
Long-term debt, excluding current installments 15,124 5,146
Commitments and contingencies (Note 7)
Shareholders' equity: Common stock, $.125 par. Authorized 10,000,000 shares; 8,943,960 shares issued in 1994 and 2,981,320 in 1993 1,118 373 Additional paid-in capital 4,329 3,926 Retained earnings 45,923 41,993 ------- ------- 51,370 46,292 Less: Cost of treasury stock (2,922,508 shares in 1994, and 985,831 shares in 1993) (4,573) (4,628) Unearned compensation under stock award plan (560) (485) Cumulative translation adjustment (480) (885) ------- ------- Total shareholders' equity 45,757 40,294 ======= ======= $84,755 $58,572
See accompanying notes to consolidated financial statements.
Page 16 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended December 31, 1994, 1993 and 1992 In thousands of dollars, except per share data
1994 1993 1992 - ------------------------------------------------------------------------------- Net sales $146,444 $100,457 $ 98,554 Cost of sales 106,609 75,705 73,677 -------- -------- -------- Gross profit 39,835 24,752 24,877
Selling, general and administrative expenses 27,274 19,377 20,019 -------- -------- -------- Operating profit 12,561 5,375 4,858 Other income (expense): Interest income 140 108 89 Interest expense (1,130) (389) (717) Other, net (182) 71 109 -------- -------- -------- (1,172) (210) (519) -------- -------- -------- Earnings before income taxes 11,389 5,165 4,339 Income taxes 4,445 1,809 1,501 -------- -------- --------
Net earnings before cumulative effect of a change in accounting for income taxes $ 6,944 $ 3,356 $ 2,838
Cumulative effect on prior years (to January 1, 1993) of a change in accounting for income taxes (Note 6) -- 261 -- -------- -------- -------- Net earnings $ 6,944 $ 3,617 $ 2,838 ======== ======== ========
Earnings per share: Before cumulative effect of a change in accounting for income taxes $ 1.15 $ .56 $ .48 Cumulative effect of a change in accounting for income taxes $ -- $ .04 $ -- -------- -------- -------- Total earnings per share $ 1.15 $ .60 $ .48 ======== ======== ========
Retained earnings: Balance at beginning of year $ 41,993 $ 40,614 $ 40,005 Net earnings for the year 6,944 3,617 2,838 -------- -------- -------- $ 48,937 $ 44,231 $ 42,843 200% Common stock dividend 745 -- -- Cash dividends declared: ($.376 per share in 1994 and $.373 per share in 1993 and 1992) 2,269 2,238 2,229 -------- -------- --------
Balance at end of year $ 45,923 $ 41,993 $ 40,614 ======== ======== ========
See accompanying notes to consolidated financial statements.
Page 17 of 32
TECHNITROL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1994, 1993, and 1992 In thousands of dollars
1994 1993 1992 - ------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 6,944 $ 3,617 $ 2,838 Cumulative effect of a change in accounting for income taxes -- (261) -- Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,271 4,991 4,968 Loss (gain) on disposal of equipment 88 (60) 40 Changes in assets and liabilities net of effect of acquisitions: Increase in deferred tax benefits (1,019) (492) (673) Increase(decrease) in income taxes payable 1,055 798 (376) Increase(decrease) in accounts payable 1,082 689 (44) Increase in accrued expenses 3,912 981 60 (Increase)decrease in accounts receivable (4,626) 142 (192) (Increase)decrease in inventories (2,482) 1,031 (760) Other, net (607) 108 763 ------- ------- ------- Net cash provided by operating activities 9,618 11,544 6,624 Cash flows from investing activities: Acquisition of capital stock of the Fil-Mag Group, net of cash acquired (8,805) -- -- Acquisition of capital stock of Doduco Corporation, net of cash acquired -- -- (441) Sales or maturities of marketable securities 1 4 1 Capital expenditures, exclusive of acquisitions (4,429) (2,655) (3,674) Proceeds from sale of property, plant and equipment 282 71 54 ------- ------- ------- Net cash used in investing activities (12,951) (2,580) (4,060) ------- ------- ------- Cash flows from financing activities: Repayment of Fil-Mag Group funded indebtedness (1,014) -- -- Principal payments on long-term debt (21) (8,421) (10,678) Net repayments of short term debt (2,504) -- -- Proceeds of long-term borrowings 10,000 6,700 12,600 Repayment of Doduco Corporation funded indebtedness -- -- (6,120) Dividends paid (2,255) (2,237) (2,224) ------- ------- ------- Net cash provided by (used in) financing activities 4,206 (3,958) (6,422) ------- ------- ------- Net effect of exchange rate changes on cash 122 (33) (71) Net increase(decrease) in cash and cash equivalents 995 4,973 (3,929) Cash and cash equivalents at beginning of year 7,721 2,748 6,677 ------- ------- ------- Cash and cash equivalents at end of year $ 8,716 $ 7,721 $ 2,748 ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 18 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include the accounts of Technitrol, Inc. (the "Company") and all of its subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents Cash and cash equivalents include funds invested in a variety of liquid short-term investments with a maturity of three months or less.
Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. In addition to the inventories included in the accompanying balance sheets, the Company has custody of inventories on consignment from suppliers ($14,063,000 at December 31, 1994 and $11,092,000 at December 31, 1993).
Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is based upon the estimated useful life of the assets and has been provided for on both the accelerated and the straight line methods. Expenditures for maintenance and repairs are charged to operations as incurred, and major renewals and betterments are capitalized. Upon sale or retirement, the cost of the asset and related accumulated depreciation are removed from the balance sheet, and any resulting gains or losses are included in earnings.
Excess of Cost over Net Assets Excess of cost over net assets acquired (which the Company believes has continuing value) is being amortized on a straight-line basis over 15 years. The recoverability of the carrying value of intangible assets is evaluated on a recurring basis.
Earnings per Share Earnings per share are calculated based on the weighted average number of common shares outstanding. Earnings per share for prior years have been restated to reflect a 200% stock dividend recorded on September 18, 1994.
Foreign Currency Translation The financial statements of the Company's foreign subsidiaries have been translated into U.S. dollars in accordance with Financial Accounting Standards Board Statement No. 52. All balance sheet accounts have been translated using the year-end exchange rate and all income statement accounts have been translated using the average exchange rate for the year. The gains and losses resulting from the change in exchange rates from the date of acquisition to the current balance sheet date have been reported separately as a component of shareholders' equity. Transaction gains and losses are recorded in the statement of earnings for the year in which they occur.
(continued)
Page 19 of 32
TECHNITROL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued
(2) Acquisitions
On January 17, 1994, the Company, through its wholly-owned subsidiary, Technitrol International, Inc., a Delaware corporation, acquired from FEE Technology, S.A. all of the issued and outstanding capital stock of FEE Fil-Mag Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation ("FFS") and Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below as the "Fil-Mag Group". The Fil-Mag Group is a supplier of magnetic components to domestic and international manufacturers of PCs, network interface cards, network controllers and other devices that are connected to data communications networks such as Token Ring and Ethernet. The Fil- Mag Group conducts manufacturing operations in its plants in Taiwan and the Philippines; engineering activities at its San Diego, California location; and sales operations through offices in France, Singapore and San Diego. The Company intends to continue the businesses of the Fil-Mag Group at their current locations. The purchase price was $9,082,000 (net of expenses). In addition, the Company caused FMI to repay to FEE Technology, S.A. approximately $1 million of indebtedness. FFT was indebted to local banks in the amount of approximately $3.3 million, of which approximately $2.5 million was retired during 1994. The purchase price and the $1 million debt repayment were financed by borrowing $10 million under a temporary acquisition line of credit and cash on-hand of approximately $400,000. The purchase price was arrived at pursuant to arms-length negotiations, taking into account all pertinent factors including, but not limited to, the nature, monetary and strategic value of the assets being acquired, the businesses and business prospects of each member of the Fil- Mag Group and the synergies of the businesses of the Fil-Mag Group with the operations of the Components Division of the Company. The assets acquired had a fair value of approximately $18.0 million, including current assets of $9.0 million and approximately $2.5 million of goodwill associated with the acquisition. Liabilities assumed totaled $8.6 million. Subsequent to the acquisition, eight key employees of the Fil-Mag Group entered into a covenant against competition with the Company in exchange for which the Fil-Mag Group paid them, in the aggregate, $1 million during the twelve months subsequent to the acquisition. The $1 million was financed by cash on-hand. The acquisition has been accounted for by the purchase method of accounting. Had the business been acquired on January 1, 1993, unaudited consolidated pro forma results would have been:
Year ended December 31, 1993 ------------------ Sales $130.1 million Net earnings $ 4.3 million Net earnings per share $ .76
(continued) Page 20 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
The activity of the Fil-Mag Group for the period from January 1 to January 17, 1994, was not material to the consolidated results of the Company. This unaudited pro forma information is provided for comparative purposes only. It does not purport to be indicative of the results that actually would have occurred if the acquisition had been consummated on the date indicated or which may be obtained in the future. On February 12, 1992, the Company purchased all of the issued and outstanding shares of the capital stock of Doduco Corporation. Upon acquisition, the name of the acquired business was changed to AMI-DDC, Inc. ("AMI-DDC"). AMI-DDC is engaged in the business of manufacturing electrical contacts. The cost of the acquisition amounted to $728,000, consisting of $111,000 of acquisition costs and $617,000 cash paid for all outstanding shares of common stock. Funded indebtedness of AMI-DDC of $3.6 million was repaid during March of 1992, and an additional $2.5 million was repaid in April of 1992. The purchase price and debt repayments were financed by borrowing $5.9 million under a revolving credit loan (with a maximum draw of $6 million) and cash on hand of approximately $1.1 million. The acquisition was accounted for by the purchase method of accounting. Had the business been acquired on January 1, 1992, pro forma results of operations would have been:
Year Ended Dec. 31, 1992 ---------------- Sales $99.4 million Net earnings $ 2.9 million Net earnings per share $ .48
This unaudited pro forma information is provided for comparative purposes only. It does not purport to be indicative of the results that actually would have occurred if the acquisition had been consummated on the date indicated or which may be attained in the future.
(3) Property, Plant and Equipment
Components of property, plant and equipment were as follows (in thousands):
1994 1993 ---------------------- Land $ 1,044 $ 1,044 Buildings and improvements 15,074 12,400 Machinery and equipment 39,062 32,285 ------- ------- $55,180 $45,729 ======= ======= (continued) Page 21 of 32
TECHNITROL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued
(4) Long-term Debt Long-term debt was as follows (in thousands): 1994 1993 - ------------------------------------------------------------------------------- Bank Loans
Variable-rate (LIBOR plus 0.875%) bank loan facility with $8.3 million maximum draw, due May 1997 (4.125% rate at December 31, 1993) $ -- $5,000 ------- ------ Variable-rate (LIBOR plus 0.75%) bank loan facility with $20.0 million maximum draw, due March 1997 (6.97% rate at December 31, 1994) $15,000 $ -- ------- ------ Total bank loans $15,000 $5,000
Mortgage Notes, secured by mortgages on land, buildings, and certain equipment:
4.5% mortgage notes, due in monthly installments until 2000 146 167 ------- ------ Total long-term debt 15,146 5,167
Less current installments 22 21 ------- ------ Long-term debt excluding current installments $15,124 $5,146 ======= ======
Principal payments due within the next five years are as follows (in thousands):
Principal --------- 1995 $ 22 1996 23 1997 15,024 1998 25 1999 26
In January 1994, the Company borrowed $10 million under a temporary acquisition line of credit as described in Note 2. In March 1994, this amount was refinanced along with the $5 million outstanding at December 31, 1993, into a single variable-rate revolving bank loan facility with a maximum draw of $20 million, maturing in March 1997. On February 9, 1995, $2 million of the $15 million outstanding at December 31, 1994 was repaid and the committed facility was reduced from $20 million to $13 million. The Bank Loan facilities are unsecured and contain certain covenants requiring maintenance of minimum net worth and other customary and normal provisions. The Company is in compliance with all such covenants.
(continued) Page 22 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Research and Development Expense
Research and development expense is included in cost of sales and has not exceeded 3.3% of cost of sales in 1994, 1993 and 1992.
(6) Income Taxes
During 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 requires a change from the deferred method of accounting for income taxes of Accounting Principles Board Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The change in these deferred tax assets or liabilities, including the effect of a change in tax rates, if any, from the beginning to the end of the period generally is recognized as deferred tax expense or benefit. Effective January 1, 1993, the Company adopted FAS 109 and has reported the cumulative effect of that change in the method of accounting for income taxes in the consolidated statement of earnings for the year ended December 31, 1993. Prior year financial statements have not been restated. However, amounts recorded for certain prior business combinations have been adjusted from their net of tax amounts to their pre- tax amounts. Related deferred taxes have been recognized. The effect of these adjustments on earnings before taxes is not material.
Income tax expense was as follows (in thousands):
1994 1993 1992 - ----------------------------------------------------------------------- Current: Federal $2,837 $1,394 $1,666 State and local 898 630 487 Foreign 1,390 277 21 ------ ------ ------ 5,125 2,301 2,174 Deferred (benefit) (680) (492) (673) ------ ------ ------ $4,445 $1,809 $1,501 ====== ====== ======
For the year ended December 31, 1994, approximately $25,000 was credited to Additional Paid-In Capital to record the tax benefit of dividends paid on restricted stock. Additional Paid-In Capital was also credited for approximately $18,000 for the tax effect of the change in value from the award date to the release date of restricted stock which was released during the period.
(continued) Page 23 of 32
TECHNITROL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
A reconciliation of the statutory Federal income tax rate with the effective income tax rate follows:
1994 1993 1992 - ----------------------------------------------------------------------- Statutory Federal income tax rate 34% 34% 34% Increase(decrease) resulting from: Tax exempt earnings of subsidiaries in Puerto Rico (5) (14) (9) State and local income taxes, net of federal benefit 6 10 9 Non-deductable expenses 1 2 -- Foreign (1) 1 (1) Other, net 4 2 2 Effective tax rate 39% 35% 35% === === ===
Deferred tax assets and liabilities were as follows (in thousands):
1994 1993 - ----------------------------------------------------------------------- Assets: Plant and equipment, principally due to differences in depreciation $ -- $ 34 Inventories, principally due to additional costs valued for tax purposes 500 229 Vacation compensation 162 141 Pension expense 1,158 771 Stock awards 637 556 Accrued liabilities 549 327 Other 131 84 ------ ------ Total deferred tax assets $3,137 $2,142 ====== ====== Liabilities: Plant and equipment, principally due to differences in depreciation $ 194 $ -- Local tax on Puerto Rico-sourced income 74 120 Other 460 417 ------ ------ Total deferred tax liabilities $ 728 $ 537 ------ ------ Net deferred tax asset $2,409 $1,605 ====== ======
No valuation allowance for deferred tax assets was deemed necessary at December 31, 1994 or 1993. Based on the Company's history of taxable income and its projection of future earnings, management believes that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the deferred tax assets.
(7) Lease Commitments
The Company conducts a portion of its operations from leased premises and also leases certain equipment under operating leases. (continued)
Page 24 of 32
TECHNITROL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, continued
(7) Lease Commitments, continued
Total rental expense for the years ended December 31, 1994, 1993 and 1992 was $1,483,000, $1,183,000 and $1,291,000, respectively. The aggregate minimum rental commitments under non-cancellable leases in effect at December 31, 1994 are as follows (in thousands):
Year ending December 31 Total ------------- -------- 1995 $1,226 1996 1,140 1997 1,051 1998 1,011 1999 964 Thereafter 2,352 ------ $7,744 ======
(8) Shareholders' Equity
Changes were as follows (in thousands):
The cumulative translation adjustment was $480,000, $885,000 and $824,000 at December 31, 1994, 1993 and 1992, respectively.
(continued) Page 25 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity, continued
On August 3, 1994, the Company's Board of Directors approved a three- for-one split of the Company's common stock in the form of a 200% common stock dividend for shareholders of record as of August 18, 1994. A total of 5,962,640 shares were issued in connection with the split. The stated par value of each share was not changed from $.125. A total of $745,000 was reclassified from the Company's retained earnings account to the Company's common stock account. All share and per share amounts have been restated to retroactively reflect the stock split.
(9) Employee Benefit Plans
The Company and its subsidiaries maintain defined benefit pension plans and make contributions to multi-employer plans covering certain union employees. Certain non-U.S. subsidiaries have varying types of retirement plans providing benefits for substantially all of their employees.
Pension expense was as follows (in thousands):
1994 1993 1992 - ----------------------------------------------------------------------------- Principal defined benefit plans $1,310 $ 932 $ 811 Contributions to multi-employer plans 201 170 180 Other non-U.S. plans 160 -- -- ------ ------ ------ $1,671 $1,102 $ 991 ====== ====== ======
The expense for the principal defined benefit pension plans include the following components (in thousands):
1994 1993 1992 - ------------------------------------------------------------------------------ Service cost - benefits earned during the period $1,286 $ 963 $ 903 Interest cost on projected benefit obligation 1,206 991 888 Actual return on plan assets (124) (1,585) (586) Net amortization and deferral (1,058) 563 (394) ------- ------- ------ Net periodic pension cost $1,310 $ 932 $ 811 ======= ====== ======
(continued) Page 26 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plan, continued
The financial status of the principal defined benefit plans at December 31, was as follows (in thousands):
1994 1993 - ------------------------------------------------------------------------------ Actuarial present value of obligations: Accumulated benefit obligation (including vested benefits of $10,863,000 in 1994 and $7,891,000 in 1993) $12,401 $ 8,100 ------- ------- Projected benefit obligation for services to date 18,499 12,808 Plan assets at fair value 15,446 13,144 ------- ------ Plan assets in excess of (less than) projected benefit obligation (3,053) 336
Unrecognized net (gain) from past experience different from that assumed. (1,206) (3,368)
Prior service costs not yet recognized 612 664
Unrecognized net obligation at January 1, 1987 being recognized over 18 years 35 38 -------- -------- Accrued pension costs at December 31 $(3,612) $(2,330) ======== ========
Benefits are based on years of service and average final compensation. For U.S. plans, the Company funds, annually, at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Plan assets consist principally of short-term investments and listed bonds and stocks. Assumptions used to develop data for 1994 and 1993 were as follows:
1994 1993 - ---------------------------------------------------------------------------- Discount rates 7.3-7.5% 9.0% Annual compensation increases 4.8-7.0% 7.0% Expected long-term rates of return on plan assets 7.5-9.0% 9.0%
The Company provides certain post-retirement benefits (at least temporarily) to a small number of retirees at one of its recently acquired businesses. These amounts have been accrued and have not had a material impact on the Company's financial statements. The Company maintains a defined contribution 401(k) plan covering substantially all U.S. employees not affected by certain collective bargaining agreements. The Company contributes a matching amount equal to $.50 for each $1.00 of the participant's contribution not in excess of 3% of the participant's annual wages. The contribution expense under this plan was $165,000, $177,000 and $155,000 in 1994, 1993, and 1992, respectively.
(continued) Page 27 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Quarterly Financial Data (Unaudited)
Quarterly results of operations (unaudited) for 1994 and 1993 are summarized as follows (in thousands, except per share data):
Quarter ended Mar. 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------ 1994: Net sales $34,960 $37,816 $36,591 $37,077 Gross profit 9,443 10,324 9,985 10,083 Net earnings 1,370 1,742 1,884 1,948 Net Earnings per Share .23 .29 .31 .32
1993: Net sales $26,116 $25,295 $25,306 $23,740 Gross profit 6,061 6,478 6,265 5,948 Net earnings: Before cumulative effect - change in accounting for income taxes 647 793 903 1,013 Cumulative effect - change in accounting for income taxes 261 -- -- -- ------ ------ ------ ------ Total 908 793 903 1,013 Net earnings per share: Before cumulative effect - change in accounting for income taxes .11 .13 .15 .17 Cumulative effect - change in accounting for income taxes .04 -- -- -- ------ ------ ------ ------ Total .15 .13 .15 .17
(11) Incentive Compensation Plan
The Company has an Incentive Compensation Plan for key employees of the Company and its subsidiaries. The Plan grants the recipient the right of ownership of Technitrol, Inc. common stock, conditional on the attainment of defined performance goals and/or continued employment with the Company.
(continued)
Page 28 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Incentive Compensation Plan, continued
A summary of the shares under the Incentive Compensation Plan is as follows (with relevant share amounts restated to reflect the 200% stock dividend):
Awarded, Available to Not Yet be Granted Released - --------------------------------------------------------------------------- Shares authorized 600,000 Awarded during years prior to 1994 (342,525) 342,525 Shares released to recipients prior to 1994 (157,680) Balance at December 31, 1993 257,475 184,845 Awarded during 1994, net (34,985) 34,985 Shares released to recipients during 1994 (40,130) Balance at December 31, 1994 222,490 179,700
Shares are held by the Company until the defined performance goals and/or continued employment requirement have been attained. During the years ended December 31, 1994, 1993 and 1992, the Company issued to employees, net of cancellations, Incentive Compensation Shares having an approximate fair value at date of issue of $414,000, $159,000 and $374,000, respectively. Amounts charged to expense as a result of the incentive compensation plan and related expenses were $994,000 in 1994, $658,000 in 1993 and $653,000 in 1992.
(12) Supplementary Information
Charged directly to costs and expenses (in thousands):
1994 1993 1992 - -------------------------------------------------------------------------- Depreciation $5,016 $4,901 $4,890 Amortization of intangible assets 255 90 78 Advertising 1,159 1,117 1,009 Repairs and maintenance 1,936 1,162 1,079 Bad debt expense 114 76 80
Cash payments made (in thousands): Income taxes $3,663 $1,320 $1,780 Interest 1,058 389 724
(continued) Page 29 of 32
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Information, continued
Supplemental Disclosure of Non-cash Transactions:
On February 12, 1992, the Company purchased all of the capital stock of AMI-DDC for $728,000. In conjunction with the acquisition, liabilities were assumed as follows (in thousands):
Fair value of assets acquired $7,730 Cash paid for the capital stock (728) Liabilities assumed $7,002
(13) Segment Information
Information about the Company's reportable business segments and foreign operations are contained on Pages 2, 3 and 4 of this Form 10-K and is an integral part of the Company's financial statements.
Page 30 of 32
EXHIBIT INDEX
DOCUMENT
3. (a) Articles of Incorporation Incorporated by reference to Form 10-Q for quarter ended September 30, 1985.
(b) By-laws Incorporated by reference to Form 10-Q for the quarter ended September 30, 1990.
4. Instruments defining rights of Incorporated by reference to Form security holders 10-K for the year ended December 31, 1982.
21. Subsidiaries of Registrant Page 31
23. Consent of Certified Public Accountants Page 32
27. Financial Data Schedule Electronic Filing Only