UNITED STATES
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 July 2, 1999
------------
Commission File Number 0-6072
EMS TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
------------------------------ ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation of organization)
660 Engineering Drive
Norcross, Georgia 30092
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (770) 263-9200
--------------
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
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of business on August 1, 1999:
Class Number of Shares
----- ----------------
Common Stock, $.10 par Value 8,708,760
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share data)
Quarter ended Six months ended
--------------- ----------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
------ ------ ------- ------
Net sales $67,455 46,231 122,648 88,907
Cost of sales 47,050 29,404 82,561 56,670
Selling, general and
administrative expenses 10,986 9,990 22,441 19,333
Research and development expenses 5,582 3,041 10,289 5,862
------ ------ ------- ------
Operating income 3,837 3,796 7,357 7,042
Non-operating income(expense), net (69) (19) (80) 32
Interest expense (669) (424) (1,223) (900)
------ ------ ------ ------
Earnings before income taxes 3,099 3,353 6,054 6,174
Income tax expense (1,009) (1,315) (2,002) (2,393)
------ ------ ------ ------
Net earnings $ 2,090 2,038 4,052 3,781
====== ====== ====== ======
Net earnings per share:
Basic $ .24 .24 .47 .44
Diluted .24 .23 .46 .43
Weighted average number
of shares:
Common 8,699 8,656 8,697 8,644
Common and dilutive
common equivalent 9,125 8,907 9,096 8,890
See accompanying notes to interim consolidated financial statements.
Consolidated Balance Sheets (Unaudited)
(In thousands)
July 2 December 31
1999 1998
------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 11,395 4,384
Trade accounts receivable, net 58,654 57,455
Inventories:
Work in process 8,604 5,164
Parts and materials 22,790 19,657
------- -------
Total inventories 31,394 24,821
------- -------
Deferred income taxes 5,138 6,620
------- -------
Total current assets 106,581 93,280
------- -------
Property, plant and equipment:
Land 2,980 1,150
Building and leasehold improvements 25,261 15,493
Machinery and equipment 93,694 54,351
Furniture and fixtures 7,142 4,735
------- -------
Total property, plant and equipment 129,077 75,729
Less accumulated depreciation
and amortization 85,669 40,849
------- -------
Net property, plant and equipment 43,408 34,880
------- -------
Other assets 21,927 7,684
Goodwill, net of accumulated amortization 11,282 11,542
------- -------
$183,198 147,386
======= =======
See accompanying notes to interim consolidated financial statements.
Consolidated Balance Sheets (Unaudited), continued
(In thousands except share data)
July 2 December 31
1999 1998
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 5,958 2,197
Accounts payable 21,580 11,815
Income taxes 1,808 1,580
Accrued compensation costs 4,367 4,503
Accrued retirement costs 418 959
Deferred revenue 4,144 2,895
Other liabilities 1,879 1,154
------- -------
Total current liabilities 40,154 25,103
Long-term debt, excluding current installments 35,124 19,150
Deferred income taxes 2,473 2,473
------- -------
Total liabilities 77,751 46,726
------- -------
Stockholders' equity:
Preferred stock of $1.00 par value
per share. Authorized 10,000,000
shares; none issued - -
Common stock of $.10 par value per
share. Authorized 75,000,000 shares;
issued and outstanding 8,704,000 in
1999 and 8,689,000 in 1998 870 869
Additional paid-in capital 34,416 34,615
Accumulated other comprehensive income -
foreign currency translation adjustment (1,330) (2,263)
Retained earnings 71,491 67,439
------- -------
Total stockholders' equity 105,447 100,660
------- -------
$183,198 147,386
======= =======
See accompanying notes to interim consolidated financial statements.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
----------------------
July 2 July 3
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 4,052 3,781
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,499 2,885
Goodwill amortization 260 602
Changes in operating assets
and liabilities:
Trade accounts receivable 2,202 (3,616)
Inventories (3,466) (4,642)
Accounts payable 3,394 1,389
Income taxes 335 941
Accrued costs, deferred revenue
and other current liabilities (904) 2,468
Other 297 708
------ -----
Net cash provided by operating activities 11,669 4,516
------ -----
Cash flows from investing activities:
Purchase of property, plant and equipment (7,137) (3,785)
Payments for asset acquisition (9,622) -
------ -----
Net cash used in investing activities (16,759) (3,785)
------ -----
Cash flows from financing activities:
Borrowing of long-term debt 11,546 867
Proceeds from exercise of stock options,
net of withholding taxes paid (197) 107
------ -----
Net cash provided by financing activities 11,349 974
------ -----
Net change in cash and cash equivalents 6,259 1,705
Effect of exchange rates on cash 752 22
Cash and cash equivalents at
beginning of period 4,384 4,300
------ -----
Cash and cash equivalents at
end of period $11,395 6,027
====== =====
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,223 900
Cash paid for income taxes $ 1,085 1,702
Noncash Investing and Financing:
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited and Spar Holding, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited) located near Montreal, Quebec.
The transaction was accounted for as an asset purchase valued at
$17,353,000. The Company paid $6,227,000 of the purchase price at
closing and $3,395,000 for the first installment of the deferred portion
of the purchase price, with funds provided under the Company's credit line
with a U.S. bank. The remaining $7,731,000 of the purchase price is financed
by the seller in three additional installments over a three-year period. See
note 4 for further details of the acquisition and its financing.
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The interim consolidated financial statements include the accounts of
EMS Technologies, Inc.(formerly known as Electromagnetic Sciences,
Inc.) and its wholly-owned subsidiaries LXE Inc. and EMS Technologies
Canada, Ltd. (formerly known as CAL Corporation) (collectively, "the
Company"). In the opinion of management, the interim consolidated
financial statements reflect all normal and recurring adjustments
necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
(2) Acquisition
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited) - collectively, the Space
Division, located near Montreal, Quebec. The transaction was accounted
for as an asset purchase valued at $17,353,000, representing the
$20,276,000 price per the purchase agreement, as adjusted for
$376,700 of debt owed by the seller and assumed by the Company, which
related to Canadian government support for Space Division research
activities, and a $2,547,000 adjustment for the amount by which the
Space Division's actual working capital at the closing date was less
than the working capital that had been projected in the purchase
agreement.
The Company paid $6,227,000 of the purchase price at closing and
$3,395,000 as the first installment of the deferred portion of the
purchase price, with funds provided under the Company's credit line
with a U.S. bank. The remainder of the purchase price was financed by
the seller in three additional equal installments, with the first
installment to be adjusted for actual-versus-projected working capital
determined as of the closing date. The remaining three installments
are due, with annual interest of 5.5%, on December 31, 1999 and the
two subsequent years. These installments are payable, at the
Company's option, either in cash or equivalent value of the Company's
common stock.
The following schedule (in thousands, except per share data) presents
pro forma consolidated financial data, as though the acquisition had
occurred at the beginning of the period reported on:
Quarter ended Six months ended
--------------- ----------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
------ ------ ------- ------
Pro Forma Consolidated Data:
Net sales $67,455 62,407 126,688 115,838
Net income 2,090 2,745 3,657 3,440
Earnings per share:
Basic .24 .32 .42 .40
Diluted .24 .30 .42 .39
(3) Earnings per Share
Basic earnings per share is the per share allocation of income
available to common stockholders based only on the weighted average
number of common shares actually outstanding during the period.
Diluted earnings per share represents the per share allocation of
income attributable to common stockholders based on the weighted
average number of common shares actually outstanding plus all dilutive
potential common shares outstanding during the period.
The Company has granted stock options that are potentially dilutive to
basic earnings per share, summarized as follows (shares in thousands):
Outstanding as of
--------------------
July 2 July 3
1999 1998
------ ------
Dilutive stock options,
included in earnings per
share calculations:
Shares 494 783
Average price per share $ 9.35 $ 11.23
Anti-dilutive stock options,
excluded from earnings per
share calculations:
Shares 733 166
Average price per share $ 19.36 $ 23.74
The Company's earnings per share were also diluted by the effect of
convertible debt, calculated as if the debt were converted on the
first day of the period, with net income adjusted for interest expense
(net of taxes) that would have been avoided if such conversion had
occurred.
Following is a reconciliation of the numerator and denominator for
basic and diluted earnings per share calculations for the second
quarter and first six months (in thousands, except earnings per share
data):
Net Common Earnings
Earnings Shares Per
(Numerator) (Denominator) Share
----------- ------------- --------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Second Quarter
- --------------
Basic $2,090 2,038 8,699 8,656 $.24 .24
Common equivalent shares:
From stock options 101 251
From convertible debt 325 -
Add: Interest expense on
convertible debt, net
of income taxes 63 -
----- ----- ----- -----
Diluted $2,153 2,038 9,125 8,907 $.24 .23
===== ===== ===== =====
Six Months
- ----------
Basic $4,052 3,781 8,697 8,644 $.47 .44
Common equivalent shares:
From stock options 74 246
From convertible debt 325 -
Add: Interest expense on
convertible debt, net
of income taxes 125 -
----- ----- ----- -----
Diluted $4,177 3,781 9,096 8,890 $.46 .43
===== ===== ===== =====
(4) Comprehensive Income
Beginning in fiscal 1998, the Company has adopted SFAS 130,
"Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components.
Under SFAS 130, all items that are recognized under accounting
standards as components of comprehensive income must be reported in
the financial statements. The only element of comprehensive income
that is applicable to the Company is the change in the foreign
currency translation adjustment.
Following is a summary of comprehensive income (in thousands):
Quarter ended Six months ended
--------------- ----------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
------ ------ ------ ------
Net income $2,090 2,038 4,052 3,781
Other comprehensive income
(expense) - foreign currency
translation adjustment 848 (67) 933 (285)
----- ----- ----- -----
Comprehensive income $2,938 1,971 4,985 3,496
===== ===== ===== =====
(5) Other Assets
Other assets increased to $21.9 million at July 2, 1999 compared with
$7.7 million at December 31, 1998, mainly because of the acquisition
of the Montreal operations.
The most significant of these other acquired assets was a 5% equity
investment in a limited partnership, valued at $9.8 million. The
general partner in this venture is a large, international aerospace
firm. The investment's objective is to enable the Montreal operations
to participate in the development and implementation of a satellite
network that will provide high-data-rate wireless services.
Another significant asset acquired with the Montreal operations was a
$4.0 million net pension asset, representing the excess of pension
assets compared with pension liabilities under defined plans for the
Montreal operation's employees. This net pension asset will be used
to fund future benefit obligations arising from the plans.
Following is a summary of other assets:
July 2 December 31
1999 1998
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Other assets $ 8,157 7,684
Investment in limited partnership 9,771 -
Net pension assets 3,999 -
------ -----
Total other assets $21,927 7,684
====== =====
(6) Interim Segment Disclosures
The Company is organized into two reportable segments: Space and
Electronics, and Wireless Products. Each segment is separately
managed and comprises a range of products and services that share
distinct operating characteristics. The Company evaluates each
segment primarily upon operating profit.
These were the same two reportable segments disclosed as of the end of
the preceding fiscal year; however, the Company has reclassified its
satellite communications (SATCOM) product lines (comprising earth
based terminal products for communicating via satellite) from Space
and Electronics to Wireless Products.
The Company reported a significant increase in Space and Electronics
assets as a result of the acquisition of the Montreal operations.
Following is a summary of the Company's interim segment data (in
thousands):
Quarter ended Six months ended
--------------- ----------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
------ ------ ------- -------
Net sales:
Space and electronics $37,697 14,956 63,893 31,571
Wireless products 29,758 31,275 58,755 57,336
------ ------ ------- -------
Total $67,455 46,231 122,648 88,907
====== ====== ======= =======
Operating income (loss):
Space and electronics $ 2,203 (321) 4,096 836
Wireless products 1,634 4,117 3,261 6,206
------ ------ ------- -------
Total $ 3,837 3,796 7,357 7,042
====== ====== ======= =======
Net earnings (loss):
Space and electronics $ 1,334 (339) 2,447 348
Wireless products 747 2,260 1,554 3,232
Corporate 9 117 51 201
------ ------ ------- -------
Total $ 2,090 2,038 4,052 3,781
====== ====== ======= =======
July 2 December 31
1999 1998
------- -----------
Assets:
Space and electronics $ 96,831 61,781
Wireless products 79,654 77,803
Corporate 6,713 7,802
------- -------
Total $183,198 147,386
======= =======
ITEM 2. Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
In January 1999, the Company acquired the Space Systems and Products
Division of Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-
owned subsidiary of Spar Aerospace Limited) located near Montreal,
Quebec. The transaction was accounted for as an asset purchase valued
at $17 million, and no goodwill resulted.
Consolidated net sales for the second quarter and first six months
of 1999 were $67.5 million and $122.6 million respectively,
compared with $46.2 million and $88.9 million for the same
respective periods in 1998. Most of this growth was in the space
and electronics segment, which benefited from acquisition of the
Montreal operations. Revenues in the wireless products segment
decreased in the second quarter of 1999 from 1998 due to a lower
level of orders from certain large customers for healthcare and
infrastructure products. However, for the first six months,
revenues in this segment increased slightly in 1999 compared with
1998 due to strong first quarter sales of logistics products.
Cost of sales, as a percentage of consolidated net sales, was 70%
for the second quarter and 67% for the first six months of 1999,
compared with 64% for the same periods in 1998. These increases
were due to the significant growth of the Company's space
operations, which have a higher cost of sales percentage than the
remainder of the Company's operations.
Selling, general and administrative expenses, as a percentage of net
sales, were 16% in the second quarter of 1999 and 18% for the first
six months of 1999, compared with 22% in both periods of 1998. These
decreases were attributable to the growth in the Company's space
operations, which have a lower selling, general and administrative
expense percentage than the remainder of the Company's operations.
Research and development expenses represent the cost of the Company's
internally funded efforts. In the Company's space and electronics
segment, significant research and development effort also occurs under
specific customer orders and, accordingly, is reflected in cost of
sales. The increase in research and development expenses is related
to products being developed for new wireless applications in space,
satellite communications, and private local area networks.
Interest expense increased in 1999 compared with 1998 due to increased
debt associated with the assets purchased in Montreal.
The effective income tax rate for 1999 was 33%, compared with 39% for
1998. This decrease related to a comparatively higher proportion of
1999 pre-tax profits being derived from the Company's Canadian
operations, which benefit from research-related income tax incentives.
Liquidity and Capital Resources
- -------------------------------
The increase in cash was mainly a result of cash provided by operating
activities. Management believes that the Company's present liquidity,
together with cash from operations and sources of external financing,
will support its current business activities and near-term capital
investment plans. Additional sources of liquidity will be needed over
the next few years if the Company and its markets continue to grow.
Long-term debt increased in the first six months of 1999 mainly due to
the financing of the assets purchased in Montreal. One-third of the
purchase price was financed at closing through the Company's credit
line with a U.S. bank. The remainder of the purchase price was
financed by the seller in four equal installments, with the second
installment being adjusted for actual versus projected working capital
determined as of the closing date. In the second quarter of 1999, the
Company paid the first installment in cash, with funds drawn from the
Company's credit line with a U.S. bank. The other three installments
are due, with annual interest of 5.5%, on December 31 of 1999 and the
two subsequent years. These installments are payable, at the Company's
option, either in cash or equivalent value of the Company's common
stock.
In January 1999, the Company entered into a $7.5 million term loan
agreement with an insurance company, secured by a mortgage on one of
the Company's owned buildings. The loan is payable in equal monthly
installments over 15 years with a fixed interest rate of 7.1%. In
addition, in February 1999, the Company amended its existing revolving
credit agreement with a bank in Canada to fund Canadian operations,
increasing available borrowings to $24 million on a demand note, under
a credit agreement extending through February, 2001.
Year 2000
- ---------
For the past two years, the Company has pursued a plan to modify
existing information systems or implement new systems, as necessary,
to become Year 2000-compliant in a timely manner. This plan involved
identification and remediation of potential problems, as well as
testing of new systems and processes and the development of
contingency plans. Efforts encompassed not only the hardware and
software that support the Company's information technologies, but also
manufacturing hardware and other equipment and processes that may rely
on embedded software. The Company has completed the main phase of the
plan, which focused on internal operations. The Company's Year 2000
efforts are currently focused on communications with suppliers, to
confirm that the Year 2000 issue will not have a significant effect on
the Company's supply chain.
The Company believes that neither (1) the cost of addressing Year
2000, nor (2) the consequences of untimely resolution of remaining
Year 2000 issues, will have a material effect on the Company's results
of operations; however, management believes that the Company could be
affected, particularly late in 1999, if potential customers for the
Company's wireless network products delay purchases until after the
end of the year due to the Year 2000 effort required of their own
information technology personnel.
Risk Factors and Forward-Looking Statements
- -------------------------------------------
Forward looking statements with respect to expected cash flows and tax
rates are included in management's discussion and analysis of
financial condition and results of operations. Actual results could
differ materially from those suggested in any forward-looking
statements as a result of a variety of factors. Such factors include,
but are not limited to, the Company's ability to achieve product
development and manufacturing objectives within the cost and timing
parameters created by customers and end-users, the timeliness of
orders and payments from customers, the availability of funding for
major new space programs, and the strength and timing of end-user
acceptance of new communications services, such as high-data-rate
mobile services. In addition, actual results could be affected by the
Company's ability to achieve expected levels of research efforts that
qualify for tax incentives, and apportionment of pre-tax income among
various tax jurisdictions.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibit is filed as part of this report:
3.1 Second Amended and Restated Articles of Incorporation of
EMS Technologies, Inc., effective March 22, 1999
(Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998).
3.2 Bylaws of EMS Technologies, Inc., as amended through
March 15, 1999 (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998).
4.1 EMS Technologies, Inc. Stockholder Rights Plan dated as of
April 6, 1999 (Incorporated by reference to the Company's
Report on Form 8-K dated April 6, 1999).
10.1 EMS Technologies, Inc. Executive Annual Incentive
Compensation Plan, as amended April 30, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K - The Company filed a report on Form 8-K to disclose
the adoption of a Stockholder Rights Plan, effective April 6, 1999. The Plan
replaced a similar plan adopted in 1989 that expired on April 6, 1999.
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.
EMS TECHNOLOGIES, INC.
By: /s/ Thomas E. Sharon Date: 8/16/99
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Don T. Scartz Date: 8/16/99
Don T. Scartz
Treasurer and Chief Financial
Officer
As amended
April 30, 1999
EMS Technologies, INC.
Executive Annual Incentive Compensation Plan
1. PURPOSE
The purpose of this Plan is to attract and retain in the
employ of the Company executives of outstanding experience and
ability, and to incentivize them to superior performance. Under
this Plan, annual incentive compensation (or "bonuses") will be
based upon performance against financial and non-financial
objectives that are consistent with the objectives of the Company
and its shareholders. Thus, the Plan provides a means of
rewarding those who contribute through their individual
performance to the objectives of the Company.
2. DEFINITIONS
Unless the context otherwise requires, the words which
follow shall have the following meaning:
(a) Plan - This Annual Incentive Compensation Plan for
executives.
(b) Business Unit - A principal subsidiary, business
division or group of the Company as identified for the purposes
of the Plan by the Committee.
(c) Board - The Board of Directors of the Company.
(d) Company - EMS Technologies, Inc.
(e) Committee - The Compensation Committee of the Board,
which has the exclusive authority to interpret and make awards
under the Plan.
(f) Plan Year - A fiscal year of the Company.
(g) Base Compensation - A Participant's annual salary
compensation, before reduction for Cafeteria Plan, Savings
Incentive Plan, Stock Purchase Plan or other elective reductions
or deductions, and before deduction of any taxes.
(h) Participant - A person selected in accordance with
Section 4 to be eligible to receive a bonus in accordance with
this Plan.
(i) Target Incentive - The bonus payable under the Plan in
the event 100% of financial objectives are met and the
Participant's normalized Performance Score is 100%.
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Committee shall have the power to (i) approve eligible
Participants, (ii) approve payments under the Plan, (iii)
interpret the Plan, (iv) adopt, amend and rescind rules and
regulations relating to the Plan, and (v) make all other
determinations and take all other actions necessary or desirable
for the Plan's administration.
The decision of the Committee on any question concerning the
interpretation and administration of the Plan shall be final and
conclusive. The Committee's determinations may differ in the
Committee's sole discretion between different Participants,
irrespective of whether they are similarly situated. Subject to
Section 7, nothing in the Plan shall give any employee or his or
her legal representative or assigns any right to a bonus or
otherwise to participate in the Plan except as the Committee may
determine.
4. ELIGIBLE PARTICIPANTS
Participants will be those executives who are designated by
the Chief Executive Officer as being in a position to have a
significant impact on profits and Company performance and are
approved by the Committee to receive a bonus under the Plan.
However, if a Change in Control (as defined in Section 7) occurs
prior to the time Participants are determined for the Plan Year
in which the Change in Control occurs, all persons who were
Participants in the prior Plan Year and who are active employees
of the Company as of the date of the Change in Control shall be
Participants for such Plan Year.
Except as the Committee may otherwise determine or as
provided in Section 7, each Participant for any Plan Year must
serve during that Year as an executive of the Company and be an
active employee of the Company when the Committee approves
bonuses after the end of the Plan Year.
The Committee may decide to award a pro-rated bonus to a
Participant who is newly promoted or hired during a Plan Year.
Pro-rated bonuses may also be awarded to Participants who retire
with the Company's approval during a Plan Year and to the estates
of Participants who die during a Plan Year.
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS
Incentive compensation awards shall be determined as set
forth in this Section 5.
(a) Determination of Targets.
During the first calendar quarter of each Plan Year, the Target
Incentive for each Participant shall be determined by the
Committee. The Target Incentive shall equal the Participant's
Base Compensation multiplied by a percentage that is based on the
Committee's evaluation of the individual Participant's level of
responsibility and potential to affect Company profits and
performance. The Committee shall also specify the portions of
each individual's Target that are dependent on the Company's
and/or relevant Business Unit's financial performance during the
Year.
(b) Determination of Company and Business Unit Financial
Targets.
During the first calendar quarter of each Plan Year, the
Committee shall set for the Company and for each Business Unit
the target financial parameters against which actual financial
performance will be elevated. At a minimum, these parameters
will include Profit Before Taxes (PBT). The Committee shall also
determine a formula outlining how the Target Incentives in 5(a)
will be affected if actual performance for PBT is not at the 100%
level, and may establish such formulas for other specified
financial performance parameters.
(c) Determination of Participant Performance Scores.
At the end of the year, the CEO shall prepare an overall
assessment of each Participant's contributions. The Committee
will use these assessments, together with its own assessments
(particularly of the CEO), and together with each Participant's
success in achieving any specific performance objectives
established for the year, to establish an overall Performance
Score for each Participant.
The Performance Score guidelines will be:
< 80% for Needs Improvement
90% for Generally Meets Expectation (3.0 Performance)
100% for Nominal Performance (Meets Expectations)
125% for Outstanding Performance
For the purposes of this Plan:
Any excess over 100% will be doubled - for example, a
raw score of 108% will be increased to 116%.
Any deficit below 90% will be increased by a factor of
9, such that at 80% the Performance Score becomes 0 and
the Participant is ineligible for an Incentive Award -
for example, a raw score of 85% will be reduced to 45%
(90-5*9 = 45).
In the event the average of all Performance Ratings of all
Participants, as determined based on the foregoing guidelines and
rules, exceeds 100%, the Score of all Participants shall be
normalized by proportionate reduction such that the average shall
equal 100% (the rules appearing immediately before this sentence
shall not be further applied after or as a result of such
normalization).
(d) Determination of Award Based on Financial Objectives.
Following the close of each Plan Year, the Chief Financial
Officer shall prepare a report setting forth the extent to which
the Company and/or relevant Business Unit achieved the various
financial objectives described in Section 5(b). The Target
Incentive for each Participant shall first be adjusted for the
weighting and actual performance against Company and relevant
Business Unit targets as described in 5(a) and 5(b). The
Committee shall then determine, based on an assessment of other
financial parameters believed relevant in light of the Company's
financial performance during the year, whether the calculated
Target Incentive (as adjusted pursuant to the preceding sentence)
shall be further adjusted.
(e) Preliminary Determination of Each Participants Award. A
preliminary determination of each Participant's award shall be
made by multiplying his or her adjusted Target Incentive, as
determined in paragraph (d), by his or her normalized individual
Performance Score.
(f) Final Approval.
All awards shall be subject to final approval by the Committee,
which shall have the authority in its judgment to adjust awards
based on non-financial objectives, as well as, in unusual
circumstances as determined by the Committee, to adjust the
awards based on financial objectives.
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS
Except as provided in Section 7, bonuses awarded under this
Plan will be fully paid in cash and/or shares of the Company's
common stock (which may be subject to restrictions specified by
the Committee), as determined by the Committee, within 90 days
after the end of the Plan Year.
Any amounts paid under this Plan shall be considered as
compensation to the Participant for the purpose of disability and
life insurance programs, unless and to the extent such
compensation is expressly excluded by the provisions of such
programs, but such amounts shall not be considered as
compensation for purposes of any other incentive plan or other
benefit unless such other plan or benefit expressly includes
compensation paid under this Plan.
7. CHANGE IN CONTROL OF THE COMPANY
(a) Contrary Provisions. The provisions of this Section 7
shall govern and supersede any inconsistent terms or provisions
of the Plan.
(b) Change in Control. For purposes of the Plan, "Change in
Control" shall mean any of the following events:
(1) The acquisition in one or more transactions by any
person or group (as such terms are defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934
Act")), of "Beneficial Ownership" (within the meaning of Rule
13d-3 under 1934 Act) of 50% or more of the combined voting power
of the Company's then-outstanding voting securities; or
(2) The individuals who are members of the Incumbent
Board (as defined below), cease for any reason to constitute at
least two-thirds of the Board. The "Incumbent Board" consists of
the individuals who as of January 23, 1997, are members of he
Board and any individual becoming a director subsequent to
January 23, 1997, whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least
two-thirds of the directors then composing the Incumbent Board;
provided, however, that any individual who is not a member of the
Incumbent Board at the time he or she becomes a member of the
Board shall become a member of the Incumbent Board upon the
completion of two full years as a member of the Board, except
that no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office (i) as a result
of either an actual or threatened "election contest" (within the
meaning of Rule 14a-11 under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a person other than the Board (a "Proxy Contest"), or (ii) with
the approval of the other Board members, but by reason of any
agreement intended to avoid or settle a Proxy Contest; or
(3) Approval by shareholders of the Company of (i) a
merger or consolidation involving the Company if such
shareholders do not, immediately following such merger or
consolidation, own, directly or indirectly, more than 50% of the
combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Company's voting securities immediately before such merger or
consolidation, or (ii) a complete liquidation or dissolution of
the Company or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.
If a Participant's employment is terminated prior to a
Change in Control and the Participant reasonably demonstrates
that such termination (i) was at the request of a third party who
has indicated an intention or taken steps reasonably calculated
to effect a Change in Control and who thereafter effects a Change
in Control, or (ii) otherwise occurred in connection with or in
anticipation of a Change in Control which actually occurs, then
for all purposes of this Plan the date of a Change in Control in
respect of such Participant shall mean the date immediately prior
to the date of termination of such Participant's employment.
(c) Payment Upon a Change in Control. Upon a Change
in Control, the bonus for a Plan Year ending prior to the date of
the Change in Control for which payment has not previously been
made shall be unconditionally payable to each Participant. The
portion based on financial objectives shall be determined as
specified in paragraph 5(c), and the portion based on non-
financial objectives shall be at not less than the Target level
related to such objectives.
If a Change in Control occurs with prior approval of
the Board, bonuses for the Plan Year during which the Change in
Control occurs shall be unconditionally payable to each
Participant, such bonuses to be at the Target level or at such
higher percentage of Base Compensation as may be approved by the
Committee.
If a Change in Control occurs without prior approval
of the Board, bonuses for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such bonuses to be equal to the Target level. If
such a Change in Control occurs before Targets shall have been
established for a Plan Year, the Targets for such Plan Year shall
be no less favorable to each of the Participants than the Targets
for the prior Plan Year.
Bonuses payable in accordance with this paragraph 7(c)
shall be paid in cash on or before the fifth day following the
date of the Change of Control.
(d) Amendment or Termination.
(i) This Section 7 shall not be amended or terminated
as to any Participant who has not given his or her written
consent.
(ii) Any amendment or termination of the Plan prior to
a Change in Control which (1) was at the request of a third
party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control, or (2) otherwise arose
in connection with or in anticipation of a Change in Control,
shall be null and void as to any Participant who has not given
his or her written consent.
(e) Trust Arrangement. All benefits under the Plan
shall be paid by the Company. The Plan shall be unfunded and the
benefits hereunder shall be paid only from the general assets of
the Company. However, in the discretion of the Committee the
Company may establish a trust or other arrangement for the
purpose of funding the benefits payable under the Plan.
8. NON-ASSIGNABILITY
No bonus or other right or benefit under this Plan shall be
subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate,
sell, assign, pledge, encumber or charge the same shall be void
and shall not be recognized or given effect by the Company.
9. NO RIGHT TO EMPLOYMENT
Nothing in this Plan or in any notice of award pursuant
hereto shall confer any right to continue in the employment of
the Company nor affect the Company's right to terminate the
employment of any Participant.
10. AMENDMENT OR TERMINATION
The Board may amend or terminate the Plan, without the
consent of any Participant, at any time prior to the end of the
first calendar quarter of the Plan Year for which such amendment
or termination becomes effective.
gc\execinc.pla
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