SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 24, 1995 Commission file number 0-230
AEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1353403
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
305 Richardson Road, Lansdale, PA 19446
(Address of principal executive offices/Zip Code)
(Registrant's telephone number, including area code) (215) 822-2929
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock Par Value $1.00 (nonvoting)
Class B common stock Par Value $1.00 (voting)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /<PAGE>
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. $1,878,769
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. (May 5, 1995)
Class A common stock, par value $1.00 - 3,575,319
Class B common stock, par value $1.00 - 418,634
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference into the Part of
the Form 10-K specified herein: Annual Report to Shareholders for fiscal
year 1995 furnished to the Commission pursuant to Rule 14a-3(b) under the
Securities Exchange Act of 1934 (but only to the extent set forth in Parts
I and II of this Annual Report).<PAGE>
PART I
ITEM 1. BUSINESS
AEL Industries, Inc. (the "Company" or "AEL") is principally engaged
in the Electronic Defense Products and Services business. This business
consists primarily of the design and manufacture of electronic
countermeasures systems, simulation systems, radar receivers, microwave
integrated circuits and other electronic equipment, and avionics installa-
tion and integration services for the United States and foreign governments
and their suppliers. The Company also provides other services to both the
commercial and governmental markets such as aircraft modification and
maintenance, calibration, product testing and technical publication.
In view of recent and significant developments and consolidations in
the defense industry, the Board of Directors ("Board") of the Company
appointed a committee of the Board known as the Long Range Planning
Committee ("LRPC") for the purpose of considering strategic alternatives
for the Company. The LRPC concluded negotiations on February 28, 1995 with
the Company's controlling shareholders, Dr. Leon Riebman and Claire E.
Riebman with the signing of agreements which provided the Board with
increased flexibility in exploring the possible sale of the Company. The
Board has authorized the LRPC to pursue such a sale and has engaged Dillon,
Read & Co. Inc. to assist in this matter.
The Company's registered office and principal administrative and
executive offices are located at 305 Richardson Road, Lansdale,
Pennsylvania 19446, approximately 28 miles north of Philadelphia, and the
telephone number is 215-822-2929.
Electronic Defense Products and Services
Products and Services
The Electronic Defense Products and Services business consists
primarily of the design, manufacture and servicing of products sold to U.S.
Government agencies and their suppliers. The Company also sells products
to foreign governments and their suppliers. Please refer to Note 10 of the
Notes to Consolidated Financial Statements for fiscal year 1995 for
industry segment information.
Revenues from aircraft avionics installation and integration programs
were approximately 37%, 33% and 29% of the Company's consolidated sales and
service revenues in fiscal years 1995, 1994 and 1993, respectively. The
ANVIS/HUD program, included in this group, accounted for 13%, 8% and 4% of
the Company's consolidated sales and service revenues in fiscal years 1995,
1994 and 1993, respectively. Avionics installation and integration
programs for fixed and rotary wing aircraft are of continued significance
to the Company. Through these programs the Company has installed
electronic systems in a wide variety of aircraft.
Another significant product group is electronic countermeasures
systems, which accounted for 23%, 22% and 24% of the Company's consolidated
sales and service revenues in fiscal years 1995, 1994 and 1993,
respectively. These systems include the Army's TACJAM-A program which
accounted for 14% of consolidated revenues in fiscal year 1995, 5% in
fiscal year 1994 and 11% in fiscal year 1993.
Sales of radar warning receivers (including the AN/ALR-67 and AN/APR-
39A programs) accounted for 13%, 10% and 8% of the Company's consolidated
sales and service revenues in fiscal years 1995, 1994 and 1993,
respectively.
Jamming simulator programs (including the AN/MLQ-T4, AN/FSQ-T22 and
Embedded Radar Environment Simulators), accounted for 5%, 11% and 10% of
the Company's consolidated sales and service revenues in fiscal years 1995,
1994 and 1993, respectively.
In the manufacture of its products, the Company uses raw materials
which generally are readily available from several sources. The Company
owns various registered trademarks. The Company relies principally upon
engineering and marketing skills to maintain and enhance its competitive
position in the electronic defense markets. Although most of the Company's
business is not dependent upon patent or similar protection, the Company's
research and development efforts have yielded patents in certain areas of
technology.
The U.S. Government is a customer of particular significance to the
Electronic Defense Products and Services business. Sales directly to the
U.S. Government comprised approximately 43%, 47% and 47% of the Company's
consolidated sales and service revenues in fiscal years 1995, 1994 and
1993, respectively. The majority of additional domestic revenues are
attributable to contracts with suppliers to the U.S. Government. Contracts
awarded to the Company by the U.S. Government and its suppliers are
generally complex and occasionally require significant technological
advances. The loss of direct U.S. Government business would have a
material adverse effect on the operations of this business and the Company.
Any major curtailment in Government spending or appropriations for
electronic defense products and services could also materially and
adversely affect the Company's operations by reducing the Company's
opportunities to contract with other U.S. Government suppliers.
Approximately 65% of the Company's domestic revenues in fiscal year
1995 were derived from contracts awarded on a fixed-price basis, which
obligate the Company to deliver equipment or perform services at a fixed
price without regard to the cost incurred. Fixed-price contracts with the
U.S. Government and suppliers to the U.S. Government frequently include a
progress payment or milestone payment clause, which provides for payment to
the Company of a significant portion of the costs of performing a contract
as they are incurred. The remaining 35% of domestic revenues arose from
contracts awarded on a cost-plus or time-and-material basis, under which
the Company is reimbursed for the cost of performance (plus a fee or
profit) up to a negotiated ceiling amount. Contracts with the U.S.
Government and suppliers to the U.S. Government generally provide for
termination at any time for the convenience of the Government, and upon
such termination a contractor is entitled to receive payment for the work
performed plus a pro rata portion of the profit it would have earned but
for the termination.
Competition
A considerable number of companies are engaged in the sale of
electronic defense products and services. Competition has significantly
increased over the last few years as a result of decreased Government
spending and appropriations. Overall, there are fewer programs (especially
start-ups) on which to bid and, therefore, the Company faces greater
competition in its traditional product areas. In response to competitive
pressures, the Company sometimes agrees to invest its own funds in the
performance of a program to enhance the likelihood of receiving a contract
award. Competitors of the Company include large diversified corporations
and smaller, highly specialized firms. The Company's competitive position
ultimately depends on its technical expertise and the price and quality of
its products and services. Because of the variety of its activities, it is
impossible to state precisely the competitive position of the Company with
respect to each of its product groups. The Company does not have dominance
in the markets for its products.
Marketing
The products and services of this business are marketed primarily in
the United States to the U.S. Government and its suppliers. The Company
also markets its products overseas through its Systems International
Division. Sales are made on the basis of competitive bids or negotiated
contracts, primarily through direct contact between the Company's technical
and marketing employees and the technical and purchasing representatives of
its customers. The Company also generates sales through the use of trade
and catalog advertising.
Backlog
The backlog of firm orders was $106,558,000 at February 24, 1995 and
$121,478,000 at February 25, 1994. Approximately 7% of the backlog at
February 24, 1995 was firm but unfunded. Approximately 51% of the total
backlog consisted of orders from the U.S. Government and 13% from foreign
customers. As of February 24, 1995, approximately 25% of the backlog
consisted of orders for electronic countermeasures systems including 16%
for TACJAM-A; 40%, orders for avionics installation/integration programs,
including 28% for ANVIS/HUD; and 14%, orders for radar warning receivers,
including 11% for AN/APR-39A. Approximately 80% of the total backlog is
expected to be completed in fiscal year 1996.
<PAGE>
Other Business Information
Research and Development
During fiscal years 1995, 1994 and 1993 the Company expended
approximately $2,206,000, $2,162,000 and $2,501,000, respectively, on
Company-sponsored research and development. In addition, there were
expenditures for customer-sponsored research and development which are not
readily identifiable since many contracts awarded to the Company have R&D
effort commingled with production effort. In customer-sponsored research
and development contracts, the proprietary rights to the development belong
to the customer; however, the Company generally obtains technical know-how
which it may be able to apply in other fields.
Fluctuations in company-sponsored R&D result from changes in the
allocation of available cash and technical resources, including personnel.
Company-sponsored R&D may lead to innovations which are attractive to
potential customers and which may then be adapted to the customer's needs
and incorporated into systems. The Company's R&D focus is to create
technological advantages which may be applied either to new government
system programs or to new commercial ventures. The Company is actively
pursuing commercial applications for its technologies for the CATV and
cellular industries.
As a result of its research and development efforts, the Company may
become one of a small number of suppliers of the items developed, which may
result in the award of production contracts to the Company. The Company is
significantly involved in the field of advanced electronics which entails a
high degree of technological obsolescence resulting from the rapid
advancements made both by the Company and others within the industry. It
is therefore extremely difficult to measure the useful life of any specific
product or service at the time of development.
Employees
At April 28, 1995 the Company had 1102 employees, 334 of whom are
engineers. The Company believes its relations with employees are generally
satisfactory. The Company's employees are not covered by collective
bargaining agreements.
Foreign Sales
The Company has no foreign operations. However, foreign sales
accounted for approximately 15%, 13% and 10% of consolidated sales and
service revenues in fiscal years 1995, 1994 and 1993, respectively. All
sales of military products to foreign customers must be approved by the
U.S. Government; such approvals are subject to revocation and may be
adversely affected by changes in U.S. Government export policy. There
exist certain risks inherent in foreign transactions which may not be
present in domestic transactions, including currency fluctuations, changes
in foreign government policies, differences in international laws and
difficulties in negotiating and litigating with foreign entities. The
Company has taken reasonable measures to reduce such risks by requiring in
appropriate cases payment in U.S. currency, letters of credit, advanced
deposits, and by retaining title to goods delivered until payment.
Environmental Matters - See Item 3 of this report.
ITEM 2. PROPERTIES
As of May 5, 1995, the Company owned or leased a total of
approximately 735,000 square feet of office and plant space with main
facilities in Pennsylvania, Illinois, Georgia, Virginia, New Jersey and
Ohio. The Company owns most of these facilities. The operations of the
Electronic Defense Products and Services business are carried on at all of
the Company's main facilities. No discussion of productive capacity and
extent of utilization is provided because the Company is not involved in a
traditional manufacturing business. Its products are principally custom
designed and sold in small quantities. The present facilities are
considered to be suitable, adequate, and well-equipped for the Company's
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company has provided documents relating to the AN/MLQ-T4 Ground
Jammer program to the Department of Defense pursuant to a subpoena issued
by its Inspector General in 1992. At this time the Company cannot
determine when the Government will complete its investigation or whether it
will seek remedies in connection with this investigation.
In 1989 the United States Environmental Protection Agency ("EPA")
placed a site that includes the Company's Richardson Road property on the
National Priorities List for detailed study and cleanup of alleged
environmental contamination. A revised Remedial Investigation/Feasibility
Study Work Plan, written under the direction of the Company and other
potentially responsible parties and under the overall guidance of the EPA,
was submitted to the EPA in 1993. The Company continues to cooperate with
the EPA in the study of this site. The cost of performing the Study
defined in the Plan and the eventual remediation, if required, is not
expected to have a material adverse impact on the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter ended February 24, 1995.<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers of the Company. Officers serve at the discretion of the Board of
Directors.
Name Age Position
Dr. Leon Riebman 75 Chairman of the Board, President
and Chief Executive Officer
George King 57 Executive Vice President and Chief
Financial Officer
Dr. Riebman is a founder of the Company and has served as a director and
Chief Executive Officer since the Company's organization in 1950, and as
Chairman of the Board of Directors since 1987. In 1993 he reassumed the
role of President, a position he had held from 1950 to 1983. Dr. Riebman
is also a director of Ampal Corp. (New York, NY) and Bank & Trust Co. of
Old York Road (Willow Grove, PA).
Mr. King joined the Company as Vice President in 1975 and was named
Senior Vice President in 1985 and Executive Vice President in 1992.<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Class A common stock of the Company is traded in the over-the-counter
market and is listed in the National Market System maintained by the
National Association of Securities Dealers under the symbol AELNA. The
Class B common stock trades only sporadically in the over-the-counter
market, which does not constitute an established public trading market. On
May 5, 1995 there were 1456 record holders of Class A common stock and 81
record holders of Class B common stock. The following table sets forth for
the periods shown the high and low closing prices for the Company's Class A
common stock as furnished by NASDAQ.
Fiscal Year High Low
1994
First Quarter.................. 7-1/4 5-3/4
Second Quarter................. 7-1/4 5
Third Quarter.................. 8-1/4 6-1/2
Fourth Quarter................. 10-1/4 7-1/4
1995
First Quarter.................. 9-1/4 7-1/2
Second Quarter................. 10 7
Third Quarter.................. 9-1/4 8
Fourth Quarter................. 16-1/4 8-5/8
The Company has never paid, and there are no present plans to pay, a cash
dividend on its common stock. Future dividend policy will be determined by
the Board of Directors in light of the prevailing financial needs and
earnings of the Company and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Financial Data"
contained in the Company's Annual Report to Shareholders for fiscal year
1995 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" contained in the
Company's Annual Report to Shareholders for fiscal year 1995 is incorpor-
ated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information listed below appears in the Company's Annual Report to
Shareholders for fiscal year 1995 and is incorporated herein by reference.
Report of Independent Auditors
Consolidated Balance Sheets at February 24, 1995 and February 25, 1994
Consolidated Statements of Operations for the three years ended February
24, 1995
Consolidated Statements of Cash Flows for the three years ended February
24, 1995
Consolidated Statements of Shareholders' Equity for the three years ended
February 24, 1995
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
A Board of seven Directors is currently serving until the next annual
meeting of shareholders or until their respective successors shall have
been duly elected and qualified.
Present Principal
Occupation or Director
Name Employment Age Since
Francis J. Dunleavy(a) Private investor 80 April 1982
Frederick R. Einsidler(b) Private investor 69 July 1988
Conrad J. Fowler(c) Private investor 73 Dec. 1950
Leeam Lowin(d) Private investor 49 July 1992
Lloyd W. Moffit(e) Consultant-informa- 70 Nov. 1977
tion systems
Dr. Leon Riebman(f) Chairman of the 75 Dec. 1950
Board and President
of the Company (Chief
Executive Officer)
Robert Riebman(g) Software Consultant 43 April 1995
(a) Prior to his retirement in 1980, Mr. Dunleavy was Vice Chairman of the
Board of International Telephone and Telegraph Corporation, a tele-
communications company. Mr. Dunleavy is a director of the following
companies whose securities are publicly traded: Quaker Chemical
Corp.; Crown Cork and Seal Co. Inc.; Bird, Inc.; and Selas Corporation
of America.
(b) Prior to his retirement in 1987, Mr. Einsidler was Chairman and Chief
Executive Officer of Butler International, Inc., whose principal
business was aviation services, engineering services and
telecommunications services.
(c) Mr. Fowler retired from the Company in 1986. He was formerly
Executive Vice President of the Company and was Chairman of the Board
of Directors from 1959 to 1987.
(d) Mr. Lowin has been a private investor and investment manager, as well
as a financial and business consultant, for more than 25 years. He
has been instrumental in founding, financing and managing companies in
the medical electronics and data communications fields.
(e) Prior to his retirement in 1975, Lloyd W. Moffit was an Admiral in the
U.S. Navy and Deputy Operations Director (Reconnaissance and
Electronic Warfare) for the Chairman of the Joint Chiefs of Staff.
(f) Dr. Riebman is also a director of Ampal Corp. and Bank & Trust Co. of
Old York Road.
(g) Mr. Riebman is Dr. Riebman's son. As a software engineer and computer
consultant, he has worked for such companies as Siemens Medical
Service, Motorola and Digital Equipment Corporation.
Each of the directors has had the same principal occupation or
employment for at least the past five years.
Through inadvertence, Dr. Riebman and Claire E. Riebman, his wife,
each failed to timely file a Form 4 to report the change in status of
certain individually held shares to tenants by the entirety. All required
filings have now been made and there remain no known delinquencies.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
<TABLE>
The following table presents information detailing the compensation paid to the Company's
Executive Officers for the last three (3) fiscal years.
SUMMARY COMPENSATION TABLE
<CAPTION> Long-Term
Compensation
Annual Compensation Awards
<S> <C> <C> <C> <C> <C> <C>
Name Other Securities All Other
and Annual Underlying Compen-
Principal Fiscal Compensa- Options/ sation(3)
Position Year(1) Salary($) Bonus($) tion(2) ($) SARs (#) ($)
LEON RIEBMAN 1995 359,208 52,500 2,344 2,500 7,976
Chief Execu- 1994 349,002 0 0 0 6,112
tive Officer 1993 344,618 86,000 0 2,500 5,805
GEORGE KING 1995 184,940 21,624 1,455 1,500 6,936
Executive Vice 1994 178,258 0 0 1,500 4,629
President- 1993 178,092 41,746 0 1,500 4,279
Chief Financial
Officer
<FN>
(1) The Company's fiscal year ends on the last Friday in February.
(2) Amount represents reimbursement by Company of 25% of tax liability for gain realized as a result of stock option
exercise in accordance with the terms of Company's Nonqualified Stock Option Plan.
(3) Fiscal year 1995 amount includes Company contribution to 401(k) Savings Plan for Dr. Riebman and Mr. King and
patent bonus of $1000 paid to Dr. Riebman.
</FN>
/TABLE
<PAGE>
OPTION GRANTS
<TABLE>
The table below illustrates the number and value of stock option grants awarded to the
Company's Executive Officers in fiscal year 1995. Options are not exercisable until two years after
the date of award and expire at the end of five years from the award date.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term
Number of
Securities
Underlying
Options/ % of Total Op- Exercise
SARS tions/SARS Granted or Base
Granted to Employees in Price Expiration
Name (#) Fiscal Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Leon Riebman 2,500 4.0% $8.50 4/20/99 $5,875 $12,975
George King 1,500 2.4% $10.25 1/18/00 $4,245 $9,390
</TABLE>
OPTION EXERCISES
<TABLE>
The following table shows the number of shares acquired by the Executive Officers through the
exercise of options during fiscal year 1995 and the value realized at the time of exercise. This
table also shows the number of securities underlying outstanding options and their realizable value
at the end of the fiscal year based on a market price on February 24, 1995 of $15.00 per share.
<CAPTION>
Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year-End Option/SAR Table
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs at
Options/SARs at Fiscal Fiscal Year-End ($)
Year-End (#)
Shares
Acquired Value
On Exercise Realized Exercisable / Exercisable /
Name (#) ($) Unexercisable Unexercisable
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Leon Riebman 2,500 $9,375 7,500/2,500 $69,600/$16,250
George King 1,500 $5,820 10,500/12,000 $72,555/$62,625
/TABLE
<PAGE>
COMPENSATION OF DIRECTORS
As adjusted effective September 1994, Directors who are not employees
of the Company receive a retainer of $8,000 per year, a fee of $1,000 for
each directors' meeting attended, and a fee of $660 ($760 for the
Committtee Chairman) for each committee meeting attended, and are
reimbursed for travel and other expenses of attending meetings. For
committee meetings that occur other than on a day adjacent to the regular
Board meeting, fees are $860 for the Committee Chairman and $760 for the
other members.
The Board of Directors appointed a Long Range Planning Committee for
the purpose of considering strategic alternatives for the Company. Due to
the nature of their activities, the members of the Long Range Planning
Committee were paid a flat fee of $3,000 each for the period November 1994
to February 1995 in lieu of payment in accordance with the above schedule
for committee meetings.
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Class A common stock against the
cumulative total return of the S&P 500 Stock Index and a peer group index
prepared by the University of Chicago's Center for Research in Security
Prices for the period of five fiscal years commencing February 23, 1990 and
ending February 24, 1995. The companies included in the peer group index
below are the same as those included in the 1994 performance graph except
for Ketema Inc. which is no longer active.
Comparison of Five-Year Cumulative Total Return*
AEL INDUSTRIES, INC., S & P 500 INDEX & PEER GROUP INDEX1
The points represented on the Performance Graph are as follows:
02/23/90 02/22/91 02/28/92 02/26/93 02/25/94 02/24/95
AEL Industries,
Inc. 100.0 86.4 145.5 118.2 154.5 272.7
S&P 500 Index 100.0 117.0 136.3 150.7 162.4 175.0
Peer Group
Index 100.0 118.6 134.5 159.7 201.1 222.0
* Assumes $100 invested in the Company and each index on February 23, 1990,
and that all dividends are reinvested.
1 Members of the Peer Group are Litton Industries, E-Systems, Watkins-
Johnson, General Motors (Class H), Raytheon, ESCO Electronics, EG&G, Cubic,
JMAR Industries, Moog, Whitehall, Loral, Tech Sym, Sparton, Canadian Marconi,
Edo, and Diagnostic Retrieval Systems.
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
On February 28, 1995, the Company's controlling shareholders, Dr. Leon
Riebman and Claire E. Riebman, transferred all of their Class A nonvoting
and Class B voting common stock into a voting trust controlled by four
voting trustees, who are independent directors of the Company, to provide
the Company's Board of Directors with increased flexibility in exploring
the possible sale of the Company. The voting trust has an initial term of
nine months with an extension period of up to one additional year, subject
to certain conditions. The voting trustees have full power to vote the
Riebmans' stock with regard to any proposed transaction for the sale of the
Company. Any proposal for the sale of the Company, and the agreements with
the Riebmans referred to below, are subject to ratification by the Class A
and Class B shareholders, each voting as a separate class. Ratification of
a proposal for the sale of the Company and ratification of the agreements
with the Riebmans must be voted upon by the shareholders as a single
proposition.
In consideration of the controlling shareholders entering the voting
trust agreement, transferring their shares to the voting trust, and
agreeing to accept the same per share price for their voting stock as other
shareholders receive for their stock in the event of a sale of the Company,
the Company issued 180,947 shares of Class A nonvoting stock to the
Riebmans on February 28, 1995. These shares have also been transferred
into the voting trust and will be returned to the Company for cancellation
without any payment to the Riebmans if a sale of the Company does not occur
while the voting trust is in effect.
Under separate agreements also entered into on February 28, 1995, the
Company has agreed to make the following payments to Dr. Riebman if the
Company is sold while the voting trust is in effect: payments totalling
$675,000 for consulting services to be provided by Dr. Riebman for a three-
year period after the sale of the Company, commencing with his employment
termination; a change-in-control payment of $500,000 if Dr. Riebman's
employment terminates after the sale of the Company; and a noncompetition
payment of up to $1,900,000. Dr. Riebman, for his part, has agreed not to
voluntarily retire while these agreements remain in force. During this
period, his compensation and fringe benefits will continue to be determined
by the Board of Directors.
In 1982, the Company entered into an Employment and Retirement
Agreement with Dr. Riebman. Although one of the February 1995 agreements
served to supplement this Agreement, the amendments did not change the
amount of retirement benefits or death benefits. In accordance with the
Employment and Retirement Agreement, upon his retirement, Dr. Riebman will
receive, for ten years, annual retirement payments which are generally
equal to 50% of his average salary and bonus during his last three years of
full time employment (adjusted for changes in the cost of living), reduced
by the $41,032 annuity value of the vested benefits paid to Dr. Riebman
pursuant to the termination of the Company's pension plan. As of February
24, 1995, Dr. Riebman's accrued retirement benefits under the agreement
totaled $1,335,000.
In the event of Dr. Riebman's death, his employment and retirement
payments will terminate and in lieu thereof his wife, if living, will
receive an annual death benefit for a period of six years after his death
(but not beyond the tenth anniversary of Dr. Riebman's retirement, or the
date of her death, whichever is sooner) in an amount equal to the salary or
retirement payments Dr. Riebman would have received in such years.
In 1986 the Company entered into a stock repurchase agreement with Dr.
Riebman whereby upon the death of Dr. Riebman, his Estate has the right,
exercisable by sending written purchase notice(s) to the Company at any
time within one year after the date of death, to require the Company to
purchase from the Estate the number and class of shares designated in the
purchase notice and owned by the Estate on the date of death. Shares of
stock owned jointly by Dr. Riebman and his wife would, for purposes of the
agreement, be deemed owned by the Estate. The purchase price per share is
determined by a formula designed to result in a price per share slightly
below the market price for the Class A shares on the date the Company
receives the purchase notice. The total amount required to be expended by
the Company pursuant to all purchase notices cannot exceed $250,000. The
initial term of the agreement was five years and the agreement will
continue to be renewed automatically for successive five year periods
unless the Company provides six months' prior notice of termination.
In 1988 the Company entered into several agreements with George King,
Executive Vice President. The Change of Control Agreement provides that
if, within 24 months after a change of control, Mr. King's employment is
terminated by the Company or he resigns following a reduction in his
salary, responsibilities or duties, then he or his surviving spouse will
become entitled to receive certain payments (the "change of control
benefit"). A change of control of the Company is deemed to have occurred
when Dr. Leon Riebman and/or his wife own, in the aggregate, less than 50%
of the outstanding Class B common stock of the Company (or, if no Class B
common stock is outstanding, less than 15% of the outstanding Class A
common stock, and another person owns more than 15%) and Dr. Riebman ceases
to be Chief Executive Officer of the Company. Mr. King or his surviving
spouse will also be entitled to receive such payments if his employment is
terminated without cause within twelve months prior to a change of control.
The value of the change of control benefit (paid over a 36-month period)
will be approximately three times Mr. King's average annual salary, bonus
and other taxable income from the Company for his last five years of
employment, reduced by amounts paid contemporaneously pursuant to the
Supplemental Benefits Agreement described below. The value of the change
of control benefit is also reduced by the present value of all other
amounts paid under any other agreement, including property transferred,
which are contingent upon a change of control. The change of control
benefit is expected to be a business expense deductible by the Company
under the Internal Revenue Code. The Change of Control Agreement
terminates automatically upon the death or total disability of Mr. King, or
upon his voluntary resignation (except as noted above) or termination for
cause, and may be terminated at any time by the Company or Mr. King on 18
months' notice.
The Supplemental Benefits Agreement provides that Mr. King will retire
from active employment with the Company at age 65, unless the Board of
Directors requests that he continue in his position. If Mr. King retires
at age 65 (or later if he continues his employment at the request of the
Board) he or his surviving spouse will receive for ten years after
retirement, as a supplemental retirement benefit, monthly payments equal to
25% of average monthly earnings (salary plus bonus) for his highest paid
three consecutive years of service with the Company. If he leaves the
Company prior to attaining age 65 he will be entitled to receive a reduced
benefit (the amount of which depends on his age at the time his employment
terminates) payable for ten years commencing when the Executive attains age
62. However, if he becomes completely and permanently disabled while
employed by the Company he will receive the full 25% benefit. If Mr. King
dies while employed by the Company, or after terminating employment but
before payments commence, his surviving spouse will receive, in lieu of the
supplemental retirement benefit, a death benefit consisting of monthly
payments equal to 25% of his average monthly earnings for his highest paid
three consecutive years of service. Death benefit payments will commence
when Mr. King would have attained age 65 and will continue for ten years or
until his surviving spouse's death, whichever occurs sooner.
Pursuant to the agreements, Mr. King received an option to purchase
15,000 shares of Class A common stock of the Company. The exercise price
of each option is equal to the market price on the date of issuance. Mr.
King's option expires on December 31, 2002. The option was initially
exercisable for 10% of the total number of shares. Additional increments
become exercisable approximately at five-year intervals, so that the option
will be fully exercisable when Mr. King attains age 65. The option also
becomes fully exercisable if, within 24 months after a change of control,
Mr. King's employment is terminated by the Company or he resigns following
a reduction in his salary, responsibilities or duties. To the extent
unexercised, the stock option terminates upon voluntary resignation (except
in the circumstances mentioned in the preceding sentence, in which case the
option terminates three months after resignation) and three months after
the termination of employment other than by voluntary resignation. Mr.
King's personal representative may exercise the option within three months
after his death to the extent that he could have exercised it on the date
of his death.
No special or separate fund is provided for the payment of any of the
foregoing benefits but the Company is permitted to fund the same with
insurance on the individual's life if it so desires. All payments are
subject to the individual's compliance with certain confidentiality, non-
competition and other provisions. Mr. King has waived any age
discrimination claim related to his agreement to retire at age 65.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All voting rights are vested in the Company's Class B common stock,
except that the Class A common stock votes as a class on any matter
directly affecting the rights and privileges of such class or as otherwise
required by law. Dr. Leon Riebman and Conrad J. Fowler each beneficially
own more than 5% of the Class B common stock. Dr. Riebman is an executive
officer and both are directors of the Company and their mailing address is
305 Richardson Road, Lansdale, Pennsylvania 19446-1429.
On February 28, 1995 Dr. Riebman and his wife, Claire E. Riebman (the
"Riebmans") transferred all of their AEL stock into a Voting Trust
established pursuant to a Voting Trust Agreement between the Company and
the Riebmans. The Voting Trust is controlled by Francis J. Dunleavy,
Frederick R. Einsidler, Conrad J. Fowler and Leeam Lowin, the four
independent directors who comprise the Long Range Planning Committee of the
Board of Directors, in their capacity as Voting Trustees. The Voting
Trustees have full power to vote the Riebmans' stock in any proposed
transaction for the sale of the Company.
The following table shows all equity securities of the Company
beneficially owned (a), directly or indirectly, as of May 5, 1995, by each
director and executive officer and by all directors and executive officers
as a group:
Class A Percent Class B Percent
Common of Common of
Name Stock(b) Class(b) Stock Class
Francis J. Dunleavy... 1,900 * 0 0
Frederick R. Einsidler 627 * 0 0
Conrad J. Fowler...... 143(c) * 76,874(c) 18%
Leeam Lowin........... 1,075,700(d) 30% 0 0
Lloyd W. Moffit....... 400 * 0 0
Dr. Leon Riebman...... 199,093(e) 6% 241,262(e) 58%
Robert Riebman........ 4,500 * 0 0
George King........... 15,441(f) * 297(f) *
All Directors and 1,297,804 36% 318,433 76%
Executive Officers as
a group
________________
*less than 1%
(a)The securities "beneficially owned" are determined in accordance with
the definitions of "beneficial ownership" as set forth in the releases of
the Securities and Exchange Commission applicable as of the date hereof, and,
accordingly, may include securities owned by or for, among others,
spouses and/or minor children of the individual and other relatives who
have the same home as such individual as well as other securities as to
which the individual has or shares voting or investment power or has the
right to acquire under outstanding stock options within 60 days after May
5, 1995. Beneficial ownership may be disclaimed as to certain of the
securities.
(b) Each share of Class B common stock is convertible, at the option of
the holder, into one share of Class A common stock. The figures in
these columns do not reflect the additional shares of Class A common
stock acquirable upon conversion of Class B common stock.
(c) The sole voting and investment power of the Class A shares
belongs to Mr. Fowler's wife, who also has sole voting and investment
power with respect to 32,789 Class B shares. Mr. Fowler has sole
voting and investment power as to the remaining Class B shares.
(d) Mr. Lowin has sole voting and investment power with respect to 583,000
shares and shared investment power with respect to 475,700 shares.
The sole voting power with respect to these 475,700 shares rests with
other persons. The sole voting and investment power of an additional
17,000 shares belongs to Mr. Lowin's wife.
(e) Dr. Riebman and Mrs. Riebman share voting and investment power with
respect to 191,593 Class A shares with Francis J. Dunleavy, Frederick
R. Einsidler, Conrad J. Fowler and Leeam Lowin, Voting Trustees Under
Voting Trust Agreement dated as of February 28, 1995. The remaining
Class A shares are in the form of options exercisable within 60 days
after May 5, 1995, are held solely by Dr. Riebman, and are required to
be deposited in the Voting Trust upon acquisition. Dr. and Mrs.
Riebman also share voting and investment power with respect to 241,262
Class B shares with Francis J. Dunleavy, Frederick R. Einsidler,
Conrad J. Fowler and Leeam Lowin, Voting Trustees Under Voting Trust
Agreement dated as of February 28, 1995. The Voting Trustees are not
benefical owners of any of these Class A or Class B shares in their
individual capacities.
(f) Mr. King and his wife share voting and investment power with respect
to 4,941 Class A shares and 297 Class B shares. The remaining shares
are in the form of options exercisable within 60 days after May 5,
1995 and are held solely by Mr. King.
As of May 5, 1995, Raymond S. Markowitz, a Vice President of the
Company owned less than 1% of the Company's Class A common stock and 24,963
shares of Class B common stock (6% of the class). His mailing address is
305 Richardson Road, Lansdale, PA 19446-1429. He is not an executive
officer of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable transactions, except as previously described under the
heading "Employment Contracts and Termination of Employment and Change-In-
Control Arrangements", in Item 11 of this Report.<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this report.
1. Financial statements and Financial Statement Schedules.
a. The financial statements of the Company set forth under Item
8 of this report.
b. The Financial Statement Schedule II - Valuation and
Qualifying Accounts - as required by Regulation S-X. All
other schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the
information required is included in the financial
statements and notes thereto.
2. Exhibits
The exhibits listed in the accompanying index to exhibits
are filed as part of this annual report. EXHIBITS 10A
THROUGH 10N IN THE ACCOMPANYING INDEX TO EXHIBITS, LISTING
THE COMPANY'S EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
ARE FILED PURSUANT TO ITEM 14(C) OF THIS REPORT.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal year 1995. <PAGE>
AEL INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED FEBRUARY 24, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged Balance at
beginning to costs & end of
Description of period expenses Deductions period
- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
February 26, 1993:
Allowance for contract losses $7,571 $6,494 $9,656 (a) $4,409
========= ========= ========= =========
Inventory allowance . . . . . .$1,273 $465 $714 (b) $1,024
========= ========= ========= =========
Allowance for bad debts . . . . $201 $7 $7 (c) $201
========= ========= ========= =========
February 25, 1994:
Allowance for contract losses $4,409 $6,650 $7,195 (a) $3,864
========= ========= ========= =========
Inventory allowance . . . . . .$1,024 $245 $311 (b) $958
========= ========= ========= ========
Allowance for bad debts . . . . $201 $9 $26 (c) $184
========= ========= ========= =========
February 24, 1995:
Allowance for contract losses $3,864 $8,585 $8,839 (a) $3,610
========= ========= ========= =========
Inventory allowance . . . . . . $958 $201 (b) $757
========= ========= ========= =========
Allowance for bad debts . . . . $184 $16 $0 (c) $200
========= ========= ========= =========
(a) Deductions are a result of allowance usage over the terms of the
related contracts.
(b) Deductions are a result of physical disposal of inventory for which
allowances were previously provided.
(c) Deductions are a result of write-offs of uncollectible accounts
receivable for which allowances were previously provided.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AEL INDUSTRIES, INC.
Attest:
/s/John R. Cox By: /s/George King
John R. Cox George King, Executive Vice
Secretary President and Chief Financial
Officer
Date: May 17, 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.
Signature Title Date
(i) Principal Executive
Officer
/s/ Leon Riebman Chairman of the Board May 17, 1995
Leon Riebman
(ii) Principal Financial
Officer
/s/ George King Executive Vice President May 17, 1995
George King and Chief Financial Officer
(iii) Principal Accounting
Officer
/s/ John F. Sharkey Vice President, Finance May 17, 1995
John F. Sharkey
<PAGE>
Signature Title Date
(iv) A Majority of the Board
of Directors
/s/ Francis J. Dunleavy Director May 17, 1995
Francis J. Dunleavy
/s/ Frederick R. Einsidler Director May 17, 1995
Frederick R. Einsidler
/s/ Conrad J. Fowler Director May 17, 1995
Conrad J. Fowler
/s/ Leeam Lowin Director May 17, 1995
Leeam Lowin
/s/ Lloyd W. Moffit Director May 17, 1995
Lloyd W. Moffit
/s/ Leon Riebman Director May 17, 1995
Leon Riebman
/s/ Robert Riebman Director May 17, 1995
Robert Riebman
<PAGE>
INDEX TO EXHIBITS
3A Articles of Incorporation as amended and
restated through April 2, 1993 (Incorporated
by reference to Exhibit 3A in the Company's
Form 10K Report for the fiscal year ended
February 26, 1993)
3B Bylaws as amended through February 28, 1995.
9 Voting Trust Agreement dated February 28,
1995 between AEL Industries, Inc., Dr. Leon
Riebman and Claire E. Riebman, and Francis J.
Dunleavy, Frederick R. Einsidler, Conrad J.
Fowler and Leeam Lowin, as voting trustees
(Incorporated by reference to Exhibit B in
the Company's Form 8-K Report dated February
28, 1995)
10A Incentive Stock Option Plan effective January
1, 1992 (Incorporated by reference to Exhibit
10A in the Company's Form 10-K Report for the
fiscal year ended February 28, 1992)
10B Nonqualified Stock Option Plan as amended
through April 10, 1991 (Incorporated by
reference to Exhibit 10B in the Company's
Form 10-K Report for the fiscal year ended
February 22, 1991)
10C AEL Bonus Plan for Senior Employees amended
and restated as of February 28, 1992
(Incorporated by reference to Exhibit 10C in
the Company's Form 10-K Report for the fiscal
year ended February 28, 1992)
10D Stock Repurchase Agreement dated April 16,
1986 between AEL Industries, Inc. and Leon
Riebman (Incorporated by reference to Exhibit
10G in the Company's Form 10-K Report for the
fiscal year ended February 28, 1986)
10E Employment and Retirement Agreement dated
January 9, 1982 between AEL Industries, Inc.
and Leon Riebman (Incorporated by reference
to Exhibit 10A in the Company's Form 10-K
Report for the fiscal year ended February 26,
1982)
10F Amendment No. 1 dated November 14, 1991 to
Employment and Retirement Agreement dated
January 9, 1982 between AEL Industries, Inc.
and Leon Riebman (Incorporated by reference
to Exhibit 10F in the Company's Form 10-K
Report for the fiscal year ended February 28,
1992)
10G Employment and Retirement Agreement dated
October 15, 1980 between AEL Industries, Inc.
and Conrad J. Fowler (Incorporated by
reference to Company's S-1 Registration
Statement No. 2-71264, Amendment No. 2, dated
May 15, 1981)
10H Supplemental Benefits Agreement dated April
25, 1988, between AEL Industries, Inc. and
Mark H. Ronald (Incorporated by reference to
Exhibit 10I in the Company's Form 10-K Report
for the fiscal year ended February 24, 1989)
10I Change of Control, Nonqualified Stock Option
and Supplemental Benefits Agreements dated
May 16, 1988, between AEL Industries, Inc.
and George King (Incorporated by reference to
Exhibit 10I in the Company's Form 10-K Report
for the fiscal year ended February 24, 1989)
10J Amendment No. 1 dated as of September 1, 1994
to Agreements between AEL Industries, Inc.
and Senior Executives dated as of August 1,
1993. (Basic Agreement incorporated by
reference to Exhibit 10J in the Company's 10-
K Report for the fiscal year ended February
25, 1994)
10K Agreement between AEL Industries, Inc. and
Teachers Insurance and Annuity Association of
America dated March 30, 1988 (Incorporated by
reference to Exhibit 10M in the Company's
Form 10-K Report for the fiscal year ended
February 24, 1989)
10L Agreement between AEL Industries, Inc. and
Leon Riebman and Claire E. Riebman dated
February 28, 1995 (Incorporated by reference
to Exhibit A in the Company's Form 8-K Report
dated February 28, 1995)
10M 1995 Agreement between AEL Industries, Inc.
and Leon Riebman dated February 28, 1995,
amending Exhibit 10E Employment and
Retirement Agreement, (Incorporated by
reference to Exhibit C in the Company's Form
8-K Report dated February 28, 1995)
10N Participation Rights Agreement between AEL
Industries, Inc. and Leon Riebman dated
February 28, 1995 (Incorporated by reference
to Exhibit D in the Company's Form 8-K Report
dated February 28, 1995)
11 Statement re computation of per share
earnings (or loss)
13 Portions of 1995 Annual Report to
Shareholders specifically incorporated by
reference elsewhere in this report.
22 List of Subsidiaries
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
BYLAWS
ARTICLE I. NAME AND SEAL.
Section 101. Name. The name of the Corporation is AEL Industries,
Inc.
Section 102. State of Incorporation. The Corporation has been
incorporated under the laws of the Commonwealth of Pennsylvania.
Section 103. Seal. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation, the year of its
organization, the words "Corporate Seal", and the name of the State of
Incorporation. The seal may be used by any person authorized by the Board
of Directors of the Corporation or by these Bylaws by causing the seal or a
facsimile thereof to be impressed or affixed, or in any manner reproduced.
ARTICLE II. REGISTERED AND PRINCIPAL OFFICES.
Section 201. Registered Office. The registered office of the
Corporation in the State of Incorporation shall be at
305 Richardson Road
Lansdale, Pa. 19446
Section 202. Offices. The principal office of the Corporation and
any other offices of the Corporation shall be located at such places,
within and without the State of Incorporation, as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE III. MEETINGS OF SHAREHOLDERS.
Section 301. Place of Meetings. All meetings of the shareholders
shall be held at such place or places, within or without the State of
Incorporation, as shall be determined by the Board of Directors from time
to time.
Section 302. Annual Meetings. The annual meeting of the
shareholders for the election of directors and the transaction of such
other business as may properly come before the meeting shall be held at
such place and at such time as the Board of Directors shall fix. Any
business which is a proper subject for shareholder action may be transacted
at the annual meeting, irrespective of whether the notice of said meeting
contains any reference thereto, except as otherwise provided by applicable
statute or regulation.
Section 303. Conduct of Shareholders' Meetings. The Chairman of the
Board or the President shall preside at all shareholders' meetings, or, in
their absence, any vice president. The officer presiding over the
shareholders' meeting may establish such rules and regulations for the
conduct of the meeting as he may deem to be reasonably necessary or
desirable for the orderly and expeditious conduct of the meeting. The
revocation of a proxy shall not be effective until written notice thereof
has been given to the Secretary of the Corporation.
ARTICLE IV. DIRECTORS AND BOARD MEETINGS.
Section 401. Management by Board of Directors. The business and
affairs of the Corporation shall be managed by its Board of Directors. The
Board of Directors may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or
done by the shareholders.
Section 402. Number of Directors. The Board of Directors shall
consist of not less than three (3) nor more than ten (10) directors. The
number of directors to be elected, subject to the foregoing limits, shall
be determined by resolution of the Board of Directors. The directors shall
be elected by the shareholders at the annual meeting of shareholders to
serve until the next annual meeting of shareholders. Each director shall
serve until his successor shall have been elected and shall qualify, even
though his term of office as herein provided has otherwise expired, except
in the event of his earlier resignation or removal.
Section 403. Resignations. Any director may resign at any time.
Such resignation shall be in writing, but the acceptance thereof shall not
be necessary to make it effective.
Section 404. Compensation of Directors. No director shall be
entitled to any salary as such; but the Board of Directors may fix, from
time to time, a reasonable fee to be paid each director for his services in
attending meetings of the Board. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in attending each meeting
of the Board or any Committee of the Board.
Section 405. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day and at such hour as the Board shall
from time to time designate. The Board of Directors shall meet for
reorganization at the first regular meeting following the annual meeting of
shareholders at which the directors are elected. Notice of regular
meetings of the Board of Directors need not be given.
Section 406. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and
shall be called whenever two or more members of the Board so request in
writing. Notice of the time and place of every special meeting, which need
not specify the business to be transacted thereat and which may be either
verbal or in writing, shall be given by the Secretary to each member of the
Board at least one calendar day before the date of such meeting.
Section 407. Reports and Records. The reports of officers and
committees shall be filed with the Secretary. The Board of Directors shall
keep complete records of its proceedings in a minute book kept for that
purpose. When a director shall request it, the vote of each director upon
a particular question shall be recorded in the minutes.
Section 408. Executive Committee. The Board of Directors may,
without limiting its right to establish other committees, establish an
Executive Committee of the Board which shall consist of any two or more
directors. The Executive Committee shall have and exercise the authority of
the Board of Directors in the management and affairs of the Corporation,
except as otherwise provided in the resolution establishing the Executive
Committee.
Section 409. Absence or Disqualification of Committee Members. In
the absence or disqualification of any member of any committee or
committees established by the Board of Directors, the member or members
thereof present at any meeting of such committee or committees, and not
disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another director to act at the meeting in the place
of any such absent or disqualified member.
ARTICLE V. OFFICERS.
Section 501. Officers. The officers of the Corporation shall be a
President, Chairman of the Board, one or more Vice Presidents, a Secretary,
a Treasurer, and such other officers or assistant officers as the Board of
Directors may from time to time deem advisable. Except for the President,
Secretary and Treasurer, the Board may refrain from filling any of the said
offices at any time and from time to time. Officers shall be elected by
the Board of Directors at the time and in the manner as the Board of
Directors from time to time shall determine. Each officer shall hold
office for a term extending until the first regular meeting of the Board of
Directors following the annual meeting of shareholders and until his
successor shall have been elected and shall qualify, except in the event of
his earlier resignation or removal.
Section 502. Chairman of the Board. The Chairman of the Board shall
be the Chief Executive Officer and shall preside at meetings of the Board
of Directors. He shall be responsible for directing the business of the
Corporation with the objective of providing maximum profit and return on
invested capital. He shall determine the basic objectives of the
Corporation, formulating plans and policies and allocating resources for
the achievement of these objectives, subject to the approval of the Board
of Directors. The Chairman of the Board shall also perform such other
duties as may be prescribed by the Board of Directors.
Section 503. President. The President shall be the Chief Operating
Officer and shall direct, administer and coordinate the activities of the
Corporation in accordance with policies, goals and objectives established
by the Chief Executive Officer and the Board of Directors. He shall be
accountable for the full range of operations of the Corporation, providing
operational guidance and analyzing and appraising the effectiveness of all
operations. The President shall also perform such other duties as may be
prescribed by the Chairman of the Board or the Board of Directors.
Section 504. Vice Presidents. The Vice Presidents shall perform
such duties and do such acts as may be prescribed by the Board of Directors
or the President. Subject to the provisions of this Section, the Vice
Presidents in order of their seniority shall perform the duties and have the
powers of the President in the event of his absence or disability.
Section 505. Chief Financial Officer. The Chief Financial Officer
shall be responsible for the Corporation's overall financial plans and
policies and its accounting practices. He shall direct the treasury,
budgeting, auditing, tax and accounting activities for the Corporation and
its subsidiaries. He shall on request render to the Chief Executive
Officer and the Board of Directors an account of all financial transactions
of the Corporation and of its financial condition. The Chief Financial
Officer shall act under the direction of the Chief Executive Officer and
shall also perform such other duties as may be prescribed by the Chief
Executive Officer or the Board of Directors.
Section 506. Treasurer. The Treasurer shall act under the direction
of the Chief Financial Officer. He shall be responsible for the conduct of
the Corporation's relationship with lending institutions, shareholders and
the financial/investment community. He shall be responsible for managing
the investment of corporate funds and for overseeing the management of the
Corporation's pension and retirement funds. The Treasurer shall also
perform such other duties as may be prescribed by the Chief Financial
Officer.
Section 507. Secretary. The Secretary shall act under the direction
of the Chief Executive Officer. Unless a designation to the contrary is
made at a meeting, the Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for that purpose, and
shall perform like duties for the standing committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the President or the
Board of Directors. The Secretary shall keep in safe custody the seal of
the Corporation, and, when duly authorized to do so, cause it to be affixed
to any instruments requiring it.
Section 508. Assistant Officers. Any assistant officers elected by
the Board of Directors shall have such duties as may be prescribed by the
Board of Directors, the President, or the officer to whom they are an
assistant. Assistant officers shall perform the duties and have the power
of the officer to whom they are an assistant in the event of such officer's
absence or disability.
Section 509. Compensation. Unless otherwise provided by the Board of
Directors, the salaries and compensation of all officers shall be fixed by
the Chief Executive Officer, except that the salary and compensation of the
Chief Executive Officer shall be fixed by the Board of Directors.
Section 510. General Powers. The officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the
business of the Corporation, subject always to the directions of the Board
of Directors.
ARTICLE VI. PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION.
601. Personal Liabilities of Directors.
(a) A director of this Corporation shall not be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, unless
(1) the director has breached or failed to perform the duties of
his office under Section 8363 of the Pennsylvania Directors' Liability Act
(which, as amended from time to time, is hereafter called the "Directors'
Liability Act"); and
(2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
602. Mandatory Indemnification of Directors and Officers.
The Corporation shall, to the fullest extent permitted by applicable
law, indemnify its directors and officers who were or are a party or are
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, (whether or not such action, suit or proceeding arises or
arose by or in the right of the Corporation or other entity) by reason of
the fact that such director or officer is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee, general partner, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans), against
expenses (including, but not limited to, attorneys' fees and costs),
judgments, fines, (including excise taxes assessed on a person with respect
to any employee benefit plan) and amounts paid in settlement actually and
reasonably incurred by such director or officer in connection with such
action, suit or proceeding, except as otherwise provided in Section 604. A
director or officer of the Corporation entitled to indemnification under
this Section 602 is hereafter called a "person covered by Section 602".
603. Expenses.
Expenses incurred by a person covered by Section 602 in defending a
threatened, pending or completed civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified
by the Corporation, except as otherwise provided in Section 604.
604. Exceptions.
No indemnification under Section 602 or advancement or reimbursement
of expenses under Section 603 shall be provided to a person covered by
Section 602 (a) with respect to expenses or the payment of profit arising
from the purchase or sale of securities of the Corporation in violation of
Section 16(b) of the Securities Exchange Act of 1934; (b) if a final
unappealable judgment or award establishes that such director or officer
engaged in self-dealing, willful misconduct or recklessness; (c) for
expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, and amounts paid in settlement) which have been paid
to or for the benefit of such person by an insurance carrier under a policy
of liability insurance the premiums for which are paid by the Corporation
or any entity or individual other than such person; and (d) for amounts
paid in settlement of any threatened, pending or completed action, suit or
proceeding without the written consent of the Corporation, which shall not
be unreasonably withheld. The Board of Directors of the Corporation is
hereby authorized, at any time by resolution, to add to the above list of
exceptions from the right of indemnification under Section 602 or
advancement of reimbursement of expenses under Section 603, but any such
additional exception shall not apply with respect to any event, act or
omission which has occurred prior to the date that the Board of Directors
in fact adopts such resolution. Any such additional exception may, at any
time after its adoption, be amended, supplemented, waived or terminated by
further resolution of the Board of Directors of the Corporation.
605. Continuation of Rights.
The indemnification and advancement or reimbursement of expenses
provided by, or granted pursuant to, this Article shall continue as to a
person who has ceased to be a director or officer of the Corporation, and
shall inure to the benefit of the heirs, executors and administrators of
such person.
606. General Provisions.
(a) The term "to the fullest extent permitted by applicable law", as
used in this Article, shall mean the maximum extent permitted by public
policy, common law or statute. Any person covered by Section 602 may, to
the fullest extent permitted by applicable law, elect to have the right to
indemnification or to advancement or reimbursement of expenses,
interpreted, at such person's option, (i) on the basis of the applicable
law on the date this Article was approved by shareholders, or (ii) on the
basis of the applicable law in effect at the time of the occurrence of the
event or events giving rise to the action, suit or proceeding, or (iii) on
the basis of the applicable law in effect at the time indemnification is
sought.
(b) The right of a person covered by Section 602 to be indemnified or
to receive an advancement or reimbursement of expenses pursuant to Section
603 (i) may also be enforced as a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and such
person, (ii) to the fullest extent permitted by applicable law, is intended
to be retroactive and shall be available with respect to events occurring
prior to the adoption hereof, and (iii) shall continue to exist after the
rescission or restrictive modification (as determined by such person) of
this Article with respect to events, acts or omissions occurring before
such rescission or restrictive modification is adopted.
(c) If a request for indemnification or for the advancement or
reimbursement of expenses pursuant hereto is not paid in full by the
Corporation within sixty days after a written claim has been received by
the Corporation together with all supporting information reasonably
requested by the Corporation, the claimant may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim (plus
interest at the prime rate announced from time to time by the Corporation's
primary banker) and, if successful in whole or in part, the claimant shall
be entitled also to be paid the expenses (including, but not limited to,
attorneys' fees and costs) of prosecuting such claim.
(d) The indemnification and advancement or reimbursement of expenses
provided by, or granted pursuant to, this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding that office.
(e) The provisions of this Article may, at any time (and whether
before or after there is any basis for a claim for indemnification or for
the advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or terminated, in whole or in part, with respect to
any person covered by Section 602 by a written agreement signed by the
Corporation and such person.
(f) The Corporation shall have the right to appoint the attorney for
a person covered by Section 602, provided such appointment is not
unreasonable under the circumstances.
607. Optional Indemnification.
The Corporation may, to the fullest extent permitted by applicable
law, indemnify, and advance or reimburse expenses for, persons (whether or
not directors or officers) in all situations other than those covered by
this Article.
608. Prior Bylaws.
Any bylaw provisions which are amended, replaced or repealed by this
Article shall continue to apply to any breach of performance of duty or any
failure of performance of duty by any director or officer to which this
Article does not apply by reason of Section 8367 of the Directors'
Liability Act.
ARTICLE VII. SHARE OF CAPITAL STOCK.
Section 701. Authority to Sign Share Certificates. Every share
certificate shall be signed by the Chairman of the Board, the President
or one of the Vice Presidents and by the Secretary or one of the Assistant
Secretaries. To the extent permitted by law such signatures may be
facsimiles, engraved or printed.
Section 702. Lost or Destroyed Certificates. Any person claiming a
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if said shareholder shall have: (a) requested such
replacement certificate before the Corporation has notice that the shares
have been acquired by a bona fide purchaser; (b) provided the Corporation
with an indemnity agreement satisfactory in form and substance to the Board
of Directors, or President or the Secretary; and (c) satisfied any other
reasonable requirements (including, without limitation, providing a surety
bond) fixed by the Board of Directors, or the President or the Secretary.
ARTICLE VIII. GENERAL.
Section 801. Fiscal Year. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section 802. Signing Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer, officers, or
other person or persons as the Board of Directors may from time to time
designate.
Section 803. Record Date. The Board of Directors may fix any time
whatsoever (whether or not the same is more than fifty days) prior to the
date of any meeting of shareholders, or the date fixed for the payment of
any dividends or distribution, or the date for the allotment of rights, or
the date when any change or conversion or exchange of shares will be made
or will go into effect, as a record date for the determination of the
shareholders entitled to notice of, or to vote at any such meeting, or
entitled to receive payment of any such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights in respect
to any such change, conversion or exchange of shares.
Section 804. Text of Proposed Resolution in Written Notice.
Whenever the language of a proposed resolution is included in a written
notice to shareholders, the shareholders' meeting considering the
resolution may adopt it with such clarifying or other amendments as do not
enlarge its original purpose, without further notice to shareholders not
present in person or by proxy.
Section 805. Absentee Participation in Meetings. One or more
directors or shareholders may participate in a meeting of the Board of
Directors, or of a committee of the Board, or a meeting of the
shareholders, by means of a conference, telephone or similar communications
equipment, by means of which all persons participating in the meeting can
hear each other.
Section 806. Emergency Bylaws. In the event of any emergency
resulting from warlike damage or an attack on the United States or any
nuclear or atomic disaster, and until the termination of such emergency,
the following Bylaw provisions shall be in effect, notwithstanding any
other provisions of these Bylaws:
(a) A special meeting of the Board of Directors may be called by any
officer or director upon one hour's notice, and
(b) The director or directors in attendance at the meeting shall
constitute a quorum.
Section 807. Section 910 of the Pennsylvania Business Corporation Law
shall not be applicable to this Corporation; the provisions of Section 910
shall not be applicable with respect to any stock previously or hereafter
issued, whether the same has voting rights at the time of issuance or
acquired voting rights at any time thereafter.
Section 808. Financial Reports. Unless the Corporation shall have
100 or more shareholders of record on the last day of a fiscal year, the
directors of the Corporation shall not be required to cause to be sent to
the share-holders annual financial statements for such fiscal year under
Section 318 of the Pennsylvania Business Corporation Law. If the
Corporation shall have fewer than 100 shareholders of record on the last
day of a fiscal year, any financial statements for such fiscal year which
the directors in their discretion may cause to be sent to the shareholders
need not be examined by an independent certified public accountant or by a
firm thereof, or accompanied by such accountant's or firm's opinion
thereof.
Section 809. (a) Section 911 of the Pennsylvania Business
Corporation Law ("BCL") shall not be applicable to this Corporation.
(b) As provided in Section 911C(3) of the BCL, this section 809 may
be rescinded only by amendment of the Articles of Incorporation or by
amendment of the bylaws approved by at least 85% of the whole Board of
Directors.
ARTICLE IX. AMENDMENT OR REPEAL.
Section 901. Amendment or Repeal by the Board of Directors. These
Bylaws may be amended or repealed, in whole or in part, by the affirmative
vote of a majority of the Board of Directors at any regular or special
meeting of the Board duly convened.
Section 902. Recording Amendments and Repeals. The text of all
amendments and repeals to these Bylaws shall be attached to the Bylaws with
a notation of the date of each such amendment or repeal and a notation of
whether such amendment or repeal was adopted by the shareholders or the
Board of Directors.
<PAGE>
ARTICLE X. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS AND REPEALS.
Section 1001. Adoption and Effective Date. These Bylaws have been
adopted and restated as the Bylaws of the Corporation this 12th day of
July, 1988, and shall be effective as of said date.
Section 1002. Amendments or Repeals.
Date Amended
Section Involved or Repealed Adopted By
402, 407, 408, 507,
601 and 806 January 9, 1990 Board of Directors
810 July 11, 1990 Board of Directors
703 and 901 April 22, 1993 Board of Directors
1. The following resolution was adopted by the Board of Directors of this
Corporation on January 9, 1990.
RESOLVED, that the Bylaws of the Corporation are hereby amended
as set forth below:
A. Section 402 is amended to read in full as follows:
Section 402. Number of Directors. The Board of Directors shall
consist of not less than three (3) nor more than ten (10) directors. The
number of directors to be elected, subject to the foregoing limits, shall
be determined by resolution of the Board of Directors. The directors shall
be elected by the shareholders at the annual meeting of shareholders to
serve until the next annual meeting of shareholders. Each director shall
serve until his successor shall have been elected and shall qualify, even
though his term of office as herein provided has otherwise expired, except
in the event of his earlier resignation or removal. A majority of the
Board of Directors, whether or not he or they constitute a quorum, may
designate a successor to fill a vacancy arising from the resignation,
death, incapacity or disqualification of any director.
B. Section 407 is amended to read in full as follows:
Section 407. Reports and Records. The reports of officers and
committees shall be filed with the Secretary. The Board of Directors shall
keep complete records of its proceedings. When a director shall request
it, the vote of each director upon a particular question shall be recorded
in the minutes.
C. Section 408 is amended to read in full as follows:
Section 408. Executive Committee. The Board of Directors may,
without limiting its right to establish other committees, establish an
Executive Committee of the Board which shall consist of any two or more
directors. The Executive Committee shall have and exercise the authority of
the Board of Directors in the management and affairs of the Corporation,
except as otherwise provided by applicable statute or in the resolution
establishing the Executive Committee.
D. Section 507 is amended to read in full as follows:
Section 507. Secretary. The Secretary shall act under the direction
of the Chief Executive Officer. Unless a designation to the contrary is
made at a meeting, the Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all of the
proceedings of such meetings, and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the shareholders and special meetings
of the Board of Directors, and shall perform such other duties as may be
prescribed by the CEO or the Board of Directors. The Secretary shall keep
in safe custody the seal of the Corporation, and, when duly authorized to
do so, cause it to be affixed to any instruments requiring it.
E. The heading of ARTICLE VI and Section 601 is amended to read in
full as follows:
ARTICLE VI. PERSONAL LIABILITY OF DIRECTORS AND OFFICERS;
INDEMNIFICATION.
601. Personal Liabilities of Directors and Officers.
(a) A director of this Corporation shall not be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, unless
(1) the director has breached or failed to perform the duties of
his office under Section 8363 of the Pennsylvania Directors' Liability Act;
and
(2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
(b) An officer of this Corporation shall not be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, unless the officer has breached or failed to perform the duties of
his office under Section 1732 of the Pennsylvania Business Corporation Law.
F. Section 806 is amended to read in full as follows:
Section 806. Emergency Bylaws. In the event of any emergency
resulting from an attack on the United States, a nuclear disaster, or
another catastrophe as a result of which a quorum of the board cannot
readily be assembled, and until the termination of such emergency, the
following Bylaw provisions shall be in effect, notwithstanding any other
provisions of these Bylaws:
(a) A special meeting of the Board of Directors may be called by any
officer or director upon one hour's notice, and
(b) The director or directors in attendance at the meeting shall
constitute a quorum.
2. The following resolution was adopted by the Board of Directors of this
Corporation on July 11, 1990:
RESOLVED, that the following Section 810 shall be added to the bylaws
of the Corporation:
Section 810. Pennsylvania Anti-Takeover Act of 1990. The following
subchapters of Chapter 25 of Title 15 of Pennsylvania Consolidated Statutes
(which subchapters were added by Pennsylvania Act No. 1990-36, formerly
Senate Bill No. 1310) shall not be applicable to this corporation:
Subchapter G Control Share Acquisitions
Subchapter H Disgorgement by Certain Controlling Shareholders
following Attempts to Acquire Control
Subchapter I Severance Compensation for Employees Terminated
following Certain Control-Share Acquisitions
Subchapter J Business Combination Transactions - Labor
Contracts
3. The following resolution was adopted by the Board of Directors of this
Corporation on April 22, 1993:
RESOLVED, that the following Section 703 shall be added to the bylaws
of the Corporation:
"Section 703. Preferred Stock. (a) Section B of Article 4th of the
Articles of Incorporation provides that the Board of Directors of the
Corporation is expressly vested with authority to fix by resolution the
designations, preferences, qualifications, limitations, restrictions and
special or relative rights (if any) of the Preferred Stock and each series
thereof which may be designated by the Board of Directors. The Board of
Directors shall act only with the unanimous approval of all directors then
in office with respect to the designation of (1) the voting rights and
powers (if any) of the Preferred Stock and each series thereof and (2) the
rights (if any) of holders of Preferred Stock, and each such series
thereof, to convert the same into, or exchange the same for, shares of any
other classes (or series of classes) of capital stock of the Corporation,
except shares of Class A common stock.
"(b) This section 703 may be amended or repealed only with the
unanimous approval of all directors then in office."
RESOLVED, that the following Section 901 shall be added to the bylaws
of the Corporation:
"Section 901. Amendment or Repeal by the Board of Directors. Except
as otherwise provided in any bylaw section, these Bylaws may be amended or
repealed, in whole or in part, by the affirmative vote of a majority of the
Board of Directors at any regular or special meeting of the Board duly
convened."
4. The following resolution was adopted by the Board of Directors of this
Corporation on February 28, 1995:
RESOLVED, that the Board of Directors of AEL INDUSTRIES, INC. , a
Pennsylvania corporation ("Corporation"), by the affirmative vote of a
majority of the Board of Directors of the Corporation at a meeting duly
convened and held on February 28, 1995, does hereby amend the Bylaws of the
Corporation as follows so as to effectuate the purposes of an Agreement
dated February 28, 1995 between the Corporation and Dr. Leon Riebman and
Claire Riebman.
ARTICLE IV. DIRECTORS AND BOARD MEETINGS.
Section 401. Management by Board of Directors. Except as provided in
Section 410 of these Bylaws, the business and affairs of the Corporation
shall be managed by its Board of Directors, and the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the
shareholders.
Section 402. Number of Directors. (a) The Board of Directors shall
consist of not less than three (3) nor more than ten (10) directors. The
number of directors to be elected, subject to the foregoing limits, shall
be determined by resolution of the Board of Directors. The directors shall
be elected by the shareholders at the annual meeting of shareholders to
serve until the next annual meeting of shareholders. Each director shall
serve until his successor shall have been elected and shall qualify, even
though his term of office as herein provided has otherwise expired, except
in the event of his earlier resignation or removal. A majority of the
Board of Directors, whether or not he or they constitute a quorum, may
designate a successor to fill a vacancy arising from the resignation,
death, incapacity or disqualification of any director.
(b) A majority of the Board of Directors shall be independent
directors. For the purpose of these bylaws the term "independent director"
shall mean a person (i) who is not an employee of or consultant to the
Company; (ii) is not related by blood or marriage to either Dr. Leon
Riebman or Claire E. Riebman; and (iii), in the reasonable determination of
the Committee, does not have a financial or other material relationship
with either Dr. Leon Riebman or Claire E. Riebman which might influence the
objectivity of his or her judgment as it relates to the best interests of
the Company and its shareholders.
Section 403. Resignations. Any director may resign at any time. Such
resignation shall be in writing, but the acceptance thereof shall not be
necessary to make it effective.
Section 404. Compensation of Directors. No director shall be entitled to
any salary as such; but the Board of Directors may fix, from time to time,
a reasonable fee to be paid each director for his services in attending
meetings of the Board. Directors may also be reimbursed by the Corporation
for all reasonable expenses incurred in attending each meeting of the Board
or any Committee of the Board.
Section 405. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day and at such hour as the Board shall
from time to time designate. The Board of Directors shall meet for
reorganization at the first regular meeting following the annual meeting of
shareholders at which the directors are elected. Notice of regular
meetings of the Board of Directors need not be given.
Section 406. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and
shall be called whenever two or more members of the Board so request in
writing. Notice of the time and place of every special meeting, which need
not specify the business to be transacted thereat and which may be either
verbal or in writing, shall be given by the Secretary to each member of the
Board at least one calendar day before the date of such meeting.
Section 407. Reports and Records. The reports of officers and committees
shall be filed with the Secretary. The Board of Directors shall keep
complete records of its proceedings. When a director shall request it, the
vote of each director upon a particular question shall be recorded in the
minutes.
Section 408. Executive Committee. The Board of Directors may, without
limiting its right to establish other committees, establish an Executive
Committee of the Board which shall consist of any two or more directors.
The Executive Committee shall have and exercise the authority of the Board
of Directors in the management and affairs of the Corporation, except as
otherwise provided by applicable statute or in the resolution establishing
the Executive Committee, and except as provided in Section 410 of these
Bylaws.
Section 409. Absence or Disqualification of Committee Members. In the
absence or disqualification of any member of any committee (other than the
Long Range Planning Committee) or committees established by the Board of
Directors, the member or members thereof present at any meeting of such
committee or committees, and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another director to
act at the meeting in the place of any such absent or disqualified member.
Section 410. Long Range Planning Committee. (a) All actions by the
Company contemplated by the Agreement dated February 28, 1995 by and among
the Company and Dr. Leon Riebman and Claire E. Riebman (the "Agreement"),
and by the Voting Trust Agreement, the Escrow Agreement, the 1995 Agreement
and the Participation Rights Agreement, all referred to therein, shall be
taken on its behalf exclusively by the Long Range Planning Committee (the
"Committee"), which shall have the full authority of the Board of Directors
for the purposes of all four of the foregoing agreements.
(b) All actions of the Committee shall require the approval of a
majority of the members thereof; provided, however, if at any time there
exist fewer than three members of the Committee, all actions at such time
shall require the unanimous approval of the members of the Committee.
(c) The Board of Directors shall (i) maintain the Committee in
existence during the Initial Term, Renewal Term (as those terms are defined
in the Agreement) or any extension of the Agreement; (ii) not change the
present composition of the Committee except upon request of the Committee;
and (iii) cause any successor member of the Committee to be a person who
the Committee considers to be an independent director, as defined in
Section 402(b) of these Bylaws.
(d) The amendment or repeal of any provision of Article IV relating
to the Committee shall require the approval of the Committee.
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and Bruce H. Collopy ("Executive") dated as of August 1,
1993 (the "Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
Bruce H. Collopy
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and Charles B. Cronin ("Executive") dated as of August 1,
1993 (the "Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
Charles B. Cronin
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and John R. Cox ("Executive") dated as of August 1, 1993 (the
"Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
John R. Cox
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and Joseph J. Iervolino ("Executive") dated as of August 1,
1993 (the "Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
Joseph J. Iervolino
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and Joseph A. Klepchick ("Executive") dated as of August 1,
1993 (the "Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
Joseph A. Klepchick
AMENDMENT NO. 1
This Amendment dated September 7, 1994 amends the Agreement between AEL
Industries, Inc. and Lawrence D. Wehrheim ("Executive") dated as of August 1,
1993 (the "Agreement").
1. The Agreement shall be deemed to be renewed effective September 1,
1994, and all benefits available under said Agreement in the event of the
occurrence of the conditions specified in the Agreement, as amended to date,
shall inure to the benefit of the Executive as if the Agreement had been
executed on September 1, 1994. The Agreement shall expire on August 31,
1999, unless sooner terminated as provided therein.
AEL INDUSTRIES, INC.
By:_____________________________________
Leon Riebman
______________________________________
Lawrence D. Wehrheim
<TABLE>
EXHIBIT 11
AEL INDUSTRIES, INC.
COMPUTATION OF NET
INCOME PER SHARE
Fiscal Year Ended
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Computation of number of shares for computation
of net income per share:
Primary:
Average number of class A shares outstanding
during the year
3,345,000 3,314,000 3,435,000
Average number of class B shares outstanding
during the year
435,000 435,000 436,000
Incremental shares issuable on exercise of
stock options
46,000 31,000 30,000
----------- ----------- -----------
Total shares for computation of net income
per share
3,826,000 3,780,000 3,901,000
=========== =========== ===========
Net income
$1,769,000 $1,617,000 $484,000
=========== =========== ===========
Net income per share
$0.46 $0.43 $0.12
=========== =========== ===========
Fully diluted:
Average number of class A shares outstanding
during the year
3,345,000 3,314,000 3,435,000
Average number of class B shares outstanding
during the year
435,000 435,000 436,000
Incremental shares issuable on exercise of
stock options
97,000 63,000 31,000
----------- ----------- -----------
Total shares for computation of net income
per share assuming full dilution
3,877,000 3,812,000 3,902,000
=========== =========== ===========
Net income
$1,769,000 $1,617,000 $484,000
=========== =========== ===========
Net income per share assuming full
dilution
$0.46 $0.42 $0.12
=========== =========== ===========
</TABLE>
<PAGE>
AEL INDUSTRIES, INC.
Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------
Feb. 24, Feb. 25, Feb. 26, Feb. 28, Feb. 22,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales and service revenues $126,537 $123,632 $113,132 $140,112 $144,258
Operating income 4,096 3,742 2,143 5,323 6,621
Interest expense (1,334) (1,719) (2,418) (3,272) (3,809)
Investment income 259 455 843 322 321
Other expense, net of other income (493) (167) (318) (644) (425)
Provision for claims settlement (2,200)
Gain on redemption of shares in foreign company 14,368
--------- --------- --------- --------- ---------
2,528 2,311 (1,950) 16,097 2,708
Income tax provision 759 694 106 5,641 986
--------- --------- --------- --------- ---------
Income (loss) before extraordinary credit and
cumulative effect of change in accounting principle 1,769 1,617 (2,056) 10,456 1,722
Extraordinary credit-benefit of net operating loss
carryforward 1,846 852
Cumulative effect of change in accounting for income
taxes 2,540
--------- --------- --------- --------- ---------
Net income $1,769 $1,617 $484 $12,302 $2,574
========= ========= ========= ========= =========
Earnings per share:
Income (loss) before extraordinary credit and
cumulative effect of change in accounting principle $.46 $.43 $(.52) $2.69 $.44
Extraordinary credit-benefit of net operating loss
carryforward .47 .22
Cumulative effect of change in accounting for income
taxes .64
--------- --------- --------- --------- ---------
Net income $.46 $.43 $ .12 $3.16 $.66
========= ========= ========= ========= =========
Working capital $29,590 $29,241 $33,678 $42,517 $22,425
Total assets 101,418 109,156 114,646 114,384 118,120
Long-term debt 15,742 19,599 25,141 32,119 37,603
Shareholders' equity 60,222 58,065 56,320 56,701 44,393
Backlog 106,558 121,478 156,306 127,417 187,265
All fiscal years contain fifty-two weeks, except fiscal year 1992 which contains fifty-three weeks.
Note 8 of the consolidated financial statements describes legal matters and related uncertainties.
Backlogs include the following unfunded amounts:
1995 - $7,833,000; 1994 - $14,747,000; 1993 - $16,039,000; 1992- $4,370,000; and 1991 - $23,915,000.
</TABLE>
<PAGE>
Responsibility for Financial Statements
The Company's management is responsible for the fair presentation
of the financial statements and other financial information contained in this
Annual Report. The financial statements, which include amounts based on
estimates and judgements, are prepared in accordance with generally
accepted accounting principles.
Management fulfills its responsibility primarily by establishing and
maintaining accounting systems and practices which are adequately supported
by internal accounting controls. Controls are designed to provide
reasonable assurance that assets are safeguarded, transactions are executed
in accordance with management's authorization and the financial records are
reliable for the purpose of preparing financial statements. Controls
include the selection and training of management and supervisory personnel;
maintenance of an organizational structure providing for the delegation of
authority and the establishment of responsibilities; communication of
requirements for compliance with approved accounting, control and business
practices throughout the organization; business planning and review; and a
program of internal audit.
The Board of Directors pursues its responsibility for the Company's
financial statements through its Audit Committee comprised solely of
outside directors, who meet periodically with the internal auditors,
independent auditors, and representatives of management to discuss auditing
and financial reporting matters. The independent auditors have access to
the Audit Committee, without management representatives present, to discuss
the adequacy of internal accounting controls, as well as the scope and
results of their audit and their opinion on the quality of financial
reporting and other matters.
_______________________
Chief Financial Officer
Report of Independent Auditors
To the Board of Directors and Shareholders of AEL Industries, Inc.
We have audited the accompanying consolidated balance sheets of AEL
Industries, Inc. as of February 24, 1995 and February 25, 1994, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended February 24,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AEL Industries, Inc. at February 24, 1995 and February 25, 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended February 24, 1995, in conformity with
generally accepted accounting principles.
As discussed in the last paragraph of Note 8 to the consolidated
financial statements, the outcome of a U.S. Government investigation
associated with a fixed-price contract is presently not determinable. No
provision for any liability that may result from this matter has been made
in the accompanying financial statements.
As discussed in Note 5 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal year
1993.
Philadelphia, Pennsylvania
March 24, 1995
<PAGE>
<PAGE>
AEL INDUSTRIES, INC.
Consolidated Balance Sheets
February 24, 1995 and February 25, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Assets 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and equivalents $3,140 $10,414
Marketable securities 724 1,428
Receivables, including unbilled amounts of $29,244 at February 24, 1995, and
$28,313 at February 25, 1994:
U.S. Government 40,695 37,045
Other 5,273 4,202
--------- ---------
45,968 41,247
Inventories 1,312 3,047
Deferred income taxes 1,928 2,646
Other current assets 208 238
--------- ---------
Total current assets 53,280 59,020
Property, plant and equipment, at cost:
Land 1,860 1,897
Buildings and improvements 39,555 40,256
Machinery and equipment 41,414 39,327
Office furniture and equipment 16,751 15,218
--------- ---------
99,580 96,698
Less accumulated depreciation 56,941 52,375
--------- ---------
Net property, plant and equipment 42,639 44,323
Other assets 5,499 5,813
--------- ---------
$101,418 $109,156
========= =========
Liabilities and Shareholders' Equity 1995 1994
- ----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $7,732 $4,795
Accrued salaries, wages and employee benefits 5,062 5,811
Other current liabilities 7,039 13,631
Current portion of long-term debt 3,857 5,542
--------- ---------
Total current liabilities 23,690 29,779
Long-term debt, net of current portion 15,742 19,599
Other liabilities 1,764 1,713
Commitments and contingent liabilities-Note 8
Shareholders' equity:
Class A common stock (non-voting), $1 par value; 20,000,000 shares authorized;
shares issued and outstanding, 1995 - 3,369,000; 1994 - 3,333,000 3,369 3,333
Class B common stock (voting), $1 par value; 440,000 shares authorized;
shares issued and outstanding, 1995 and 1994 - 435,000 435 435
Capital in excess of par value 2,923 2,557
Retained earnings 53,303 51,740
Unrealized gain on marketable securities, net of tax 192
--------- ---------
Total shareholders' equity 60,222 58,065
--------- ---------
$101,418 $109,156
========= =========
See accompanying notes.
</TABLE>
<PAGE>
AEL INDUSTRIES, INC.
Consolidated Statements of Operations
Three years ended February 24, 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Sales and service revenues $126,537 $123,632 $113,132
Operating costs and expenses:
Cost of products and services 97,448 94,164 84,696
Administrative and selling expenses 17,657 17,674 18,824
Bid and proposal costs 5,130 5,890 4,968
Research and development costs 2,206 2,162 2,501
---------- ---------- ----------
122,441 119,890 110,989
---------- ---------- ----------
Operating income 4,096 3,742 2,143
---------- ---------- ----------
Interest expense (1,334) (1,719) (2,418)
Investment income 259 455 843
Other expense, net of other income (493) (167) (318)
Provision for claims settlement (2,200)
---------- ---------- ----------
(1,568) (1,431) (4,093)
---------- ---------- ----------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 2,528 2,311 (1,950)
Income tax provision 759 694 106
---------- ---------- ----------
Income (loss) before cumulative effect
of change in accounting principle 1,769 1,617 (2,056)
Cumulative effect of change in accounting for income taxes 2,540
---------- ---------- ----------
Net income $1,769 $1,617 $484
========== ========== ==========
Earnings per share:
Income (loss) before cumulative effect
of change in accounting principle $.46 $.43 $(.52)
Cumulative effect of change in accounting for income taxes .64
---------- ---------- ----------
Net income $.46 $.43 $ .12
========== ========== ==========
Weighted average shares outstanding 3,826,000 3,780,000 3,901,000
========== ========== ==========
See accompanying notes.
</TABLE>
<PAGE>
AEL INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Three years ended February 24, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,769 $1,617 $484
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,240 6,519 6,734
Amortization of other assets 419 407 407
Cumulative effect of change in accounting for income taxes (2,540)
Deferred income taxes 695 274 610
Accrued retirement benefits 51 (294) 45
Other 11 (131)
Increase in receivables (4,721) (1,610) (4,856)
Decrease in inventories and other current assets 1,765 1,521 725
(Decrease) increase in accounts payable, accrued liabilities
and other current liabilities (4,404) 513 1,446
--------- --------- ---------
Net cash provided by operating activities 1,825 8,816 3,055
Cash flows from investing activities:
Additions to property, plant and equipment (5,281) (6,386) (8,694)
Proceeds from sales of property, plant and equipment 683
Purchases of marketable securities (31,369)
Liquidations of marketable securities 979 10,687 22,016
Other (60) 29 237
--------- --------- ---------
Net cash (absorbed) provided by investing activities (3,679) 4,330 (17,810)
Cash flows from financing activities:
Reductions in long-term debt (5,542) (6,978) (728)
Stock option exercises 352 302 27
Repurchases of common stock (230) (224) (892)
--------- --------- ---------
Net cash absorbed by financing activities (5,420) (6,900) (1,593)
--------- --------- ---------
(Decrease) increase in cash and equivalents (7,274) 6,246 (16,348)
Cash and equivalents at beginning of period 10,414 4,168 20,516
--------- --------- ---------
Cash and equivalents at end of period $3,140 $10,414 $4,168
========= ========= =========
See accompanying notes.
</TABLE>
<PAGE>
AEL INDUSTRIES, INC.
Consolidated Statements of Shareholders' Equity
Three years ended February 24, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized Total
Common Stock Capital in Gain on Class A Share-
--------------------- Excess of Retained Marketable Treasury holders'
Class A Class B Par Value Earnings Securities Shares Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1992 $4,443 $436 $2,235 $58,932 $(9,345) $56,701
Stock option exercises 5 22 27
Purchases of common stock for treasury (892) (892)
Retirement of treasury stock (1,143) (9,094) 10,237
Net income for the year 484 484
--------- --------- --------- --------- --------- --------- ---------
Balance at February 26, 1993 3,305 436 2,257 50,322 - 56,320
Conversion of Class B to Class A 1 (1)
Stock option exercises 52 250 302
Tax benefit from stock option exercises 50 50
Purchases of common stock for treasury (224) (224)
Retirement of treasury stock (25) (199) 224
Net income for the year 1,617 1,617
--------- --------- --------- --------- --------- --------- ---------
Balance at February 25, 1994 3,333 435 2,557 51,740 - 58,065
Stock option exercises 60 292 352
Tax benefit from stock option exercises 74 74
Purchases of common stock for treasury (230) (230)
Retirement of treasury stock (24) (206) 230 0
Change in unrealized gain on securities available 0
for sale, net of tax 192 192
Net income for the year 1,769 1,769
--------- --------- --------- --------- --------- --------- ---------
Balance at February 24, 1995 $3,369 $435 $2,923 $53,303 $192 - $60,222
========= ========= ========= ========= ========= ========= =========
See accompanying notes.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Fiscal Year. The Company's fiscal year ends on the last Friday in
February. Fiscal years in the three-year period ended February 24,
1995 each contain fifty-two weeks.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition. Contract revenue is recognized principally on
the percentage-of-completion method in the ratio that cost incurred
bears to estimated cost at completion. Other revenue is recorded on
the basis of shipment of products or performance of services.
Contract Provisions. Under fixed price contracts, the Company may
encounter, and on certain programs from time to time has encountered,
cost overruns caused by increased material, labor, or overhead costs,
design or production difficulties and various other factors such as
technical and manufacturing complexity, which must be, and in such
cases have been, borne by the Company. Adjustments to contract cost
estimates are made in the periods in which the facts requiring such
revisions become known. When the revised estimate indicates a loss,
such loss is provided for currently in its entirety. In addition, the
Company from time to time commits to invest its own funds,
particularly in the case of high-technology seed programs. The
estimated costs of such investments in excess of the related contract
values are provided for currently in their entirety upon receipt of
such contracts by the Company.
Cash and Equivalents. Cash and equivalents include all highly liquid
investments with original maturities of three months or less.
Marketable Securities. In fiscal year 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Accordingly, on
February 24, 1995, the company's marketable securities are classified
as available-for-sale securities and carried at market value as
determined based on quoted market prices, and the unrealized gain is
reported net of tax as a separate component of shareholders' equity.
The cost basis of the marketable securities at February 24, 1995 is
$449,000. Prior year financial statements have not been restated to
reflect the change in accounting method. At February 25, 1994,
marketable securities were carried at cost and the aggregate market
value was $1,697,000.
Receivables. Unbilled receivables represent costs and profits in
excess of billed amounts on contracts accounted for on the percentage-
of-completion method and are billable upon shipment of the product or
performance of the service, achievement of milestones or completion of
the contract. Such amounts are generally billed and collected within
one year. However, approximately $4,000,000 of unbilled receivables
at February 24, 1995 are expected to be billed and collected after one
year, including $2,200,000 for costs subject to future negotiations
with the U.S. Government.
Inventories. Inventories are stated at the lower of cost or market
and consist primarily of raw materials and work in process. Raw
materials are valued generally at an average cost; work-in-process and
finished goods are valued generally on a first-in, first-out basis.
Plant and Equipment. Depreciation of plant and equipment is computed
on the straight-line method based upon the following estimated useful
lives:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 10 years
Office furniture and equipment 5 to 8 years
Other Assets. Other assets include $7,300,000 representing the excess
of the purchase price over the fair value of the assets acquired and
liabilities assumed in connection with an acquisition in 1987. Such
amount is being amortized on a straight-line basis over 20 years.
Accumulated amortization was $2,768,000 and $2,403,000 at February 24,
1995 and February 25, 1994, respectively.
Income Taxes. The Company uses the asset and liability method of
accounting for income taxes. Accordingly, deferred tax assets and
liabilities are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
Interest. The Company capitalizes interest costs associated with the
cost of constructing major new facilities. Interest of $88,000 and
$61,000 incurred in fiscal years 1994 and 1993, respectively, has been
capitalized.
Earnings Per Share. Per share data are based on the weighted average
number of shares of stock outstanding each year including the dilutive
effect of stock options. Per share computations on a fully diluted
basis are the same as those reported.
Reclassifications. Certain financial statement items for fiscal year
1994 have been reclassified in order to conform with the current
year's presentation.
2. Possible Sale of the Company
On February 28, 1995, the Company's controlling shareholders, Dr.
Leon Riebman and Claire E. Riebman, transferred all of their class A
nonvoting and class B voting common stock into a voting trust
controlled by four independent directors of the Company to provide the
Company's Board of Directors with increased flexibility in exploring
the possible sale of the Company. The voting trust has an initial
term of nine months with an extension period of up to one additional
year, subject to certain conditions. The voting trustees have full
power to vote the Riebmans' stock with regard to any proposed
transaction for the sale of the Company. Such stock constitutes
approximately 7% of all outstanding shares, before issuance of the
180,947 class A shares described below, and 55% of the class B voting
shares at February 24, 1995. Any proposal for the sale of the
Company, and the agreements with the Riebmans referred to below, are
subject to ratification by the class A and class B shareholders, each
voting as a separate class. Ratification of a proposal for the sale
of the Company and ratification of the agreements with the Riebmans
must be voted upon by the shareholders as a single proposition.
In consideration of the controlling shareholders entering the
voting trust agreement, transferring their shares to the voting trust,
and agreeing to accept the same per share price for their voting stock
as other shareholders receive for their stock in the event of a sale
of the Company, the Company issued 180,947 shares of class A nonvoting
stock to the Riebmans on February 28, 1995. These shares have also
been transferred into the voting trust and will be returned to the
Company for cancellation without any payment to the Riebmans if a sale
of the Company does not occur while the voting trust is in effect. If
a sale does occur, the issuance of 180,947 shares will result in a
charge against income for an amount equal to market value of the
shares at the time the Company is sold.
Under separate agreements also entered into on February 28, 1995,
the Company has agreed to make the following payments to Dr. Riebman
if the Company is sold while the voting trust is in effect: payments
totalling $675,000 for consulting services to be provided by Dr.
Riebman for a three-year period commencing with his employment
termination; a change-in-control payment of $500,000 if Dr. Riebman's
employment terminates after the sale of the Company; and a
noncompetition payment of up to $1,900,000.
The Company also has agreements with seven other officers which
could result in severance payments to those officers if their
employment were to terminate during a two-year period following a
change in control of the Company. Aggregate severance payments under
such agreements could range up to approximately $2,500,000 depending
on the number of officers terminated and the timing of the
terminations.
The Company expensed costs of approximately $675,000 in fiscal
year 1995 related to the possible sale of the Company.
3. Line of Credit and Letters of Credit
The Company has a line of credit agreement expiring June 30, 1995
which provides for unsecured borrowings of up to $8,000,000 at the
prime rate. The Company had only nominal temporary borrowings under
the line of credit agreement during the year ended February 24, 1995,
and did not borrow during the year ended February 25, 1994. The terms
of the line of credit agreement contain, among other provisions,
requirements for maintaining defined levels of working capital, net
worth, annual capital expenditures and a debt-to-equity ratio. The
agreement also requires an annual commitment fee of approximately
$50,000.
At February 24, 1995, standby letters of credit of approximately
$12,800,000 have been issued under an agreement, expiring June 30,
1995, which are being maintained as security for performance and
advances received on long-term contracts, and as security for debt
service payments under industrial revenue bond loan agreements. The
agreement provides a maximum commitment for letters of credit of
$14,500,000 and requires an annual commitment fee of approximately
$73,000.
4. Long-Term Borrowings
Long-term borrowings consist of:
(Dollars in thousands)
February 24, February 25,
1995 1994
___________ ___________
10.03% senior unsecured note payable,
principal due annually through April
1997. $ 8,400 $13,400
Industrial revenue bonds, interest is
variable, (4.4% at February 24, 1995
and 2.8% at February 25, 1994), prin-
cipal due annually through 2010.
(Bonds are collateralized by certain
property and equipment at the Company's
St. Louis Regional Airport facility.) 6,295 6,500
Industrial revenue bonds, interest is
variable, (4.4% at February 24, 1995
and 2.8% at February 25, 1994), prin-
cipal due April 2009. (Bonds are col-
lateralized by certain property and
equipment of the Company's Cross Sys-
tems Division.) 4,000 4,000
Obligation under capital lease, inter-
est at prime plus 1%, principal due
quarterly through December 1996. (Lease
is collateralized by data processing
equipment.) 519 779
Other 385 462
_______ _______
19,599 25,141
Less current portion 3,857 5,542
_______ _______
$15,742 $19,599
======= =======
Aggregate maturities of long-term borrowings over the next five
fiscal years are as follows: 1996 - $3,857,000; 1997 - $3,872,000;
1998 - $2,127,000; 1999 - $342,000; and 2000 - $362,000.
The terms of certain financing agreements contain, among other
provisions, requirements for maintaining defined levels of working
capital, net worth, capital expenditures and various financial ratios,
including debt to equity.
The Company paid interest of $1,511,000, $1,965,000 and $2,507,000
during fiscal years 1995, 1994 and 1993, respectively.
5. Income Taxes:
Effective for fiscal year 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". The cumulative effect of the accounting change as of the
beginning of fiscal year 1993 was $2,540,000, or $.64 per share,
primarily resulting from recording tax benefits related to contract
loss provisions recorded in prior years and adjusting tax rates on
previously recorded tax assets and liabilities. The cumulative effect
included the recognition of a valuation allowance of $200,000 to
reflect the potential loss of state tax benefits. The effect of the
adoption of SFAS No. 109 on fiscal year 1993's income tax provision
decreased net income by $920,000, or $.24 per share, primarily
relating to the establishment of a valuation allowance for the
deferred tax assets.
The income tax provisions for the three years ended February 24,
1995 are comprised of the following:
(Dollars in thousands)
1995 1994 1993
____ ____ ____
Current:
Federal $(26) $420 $(533)
State 90 29
____ ____ _____
64 420 (504)
Deferred:
Federal 600 177 669
State 95 97 (59)
____ ____ _____
695 274 610
Total provision $759 $694 $ 106
==== ==== =====
The provisions for income taxes for the three years ended February 24,
1995 differ from the provisions computed by applying the statutory federal
income tax rate due to the following:
(Dollars in thousands)
1995 1994 1993
____ ____ ____
Statutory federal income tax $ 860 $ 786 $ (663)
Increase (decrease) resulting from:
Tax exempt investment income (21) (79) (237)
Amortization of intangible assets 124 124 124
State income taxes 185 97 (42)
Tax credits (364) (303) (110)
Foreign income 32 42 39
Costs related to possible sale
of the Company 229
Reversal of tax liabilities (350)
Valuation allowance 980
Other 64 27 15
_____ _____ ______
$ 759 $ 694 $ 106
===== ===== ======
The Company's federal income tax returns for fiscal years prior
to 1992 have been closed to assessments by the Internal Revenue
Service. Accordingly, the Company reversed related tax liabilities,
reducing its income tax provision in fiscal year 1995 by $350,000.
The significant components of the deferred tax liabilities and
assets are as follows:
(Dollars in thousands)
February 24, February 25,
1995 1994
___________ ___________
Deferred tax liabilities:
Depreciation $(1,219) $(1,197)
Other (144) (7)
_______ _______
(1,363) (1,204)
Deferred tax assets:
Employee benefits 1,595 1,437
Inventory and contract loss
allowances 2,147 2,304
Provision for claims settlement 440
Tax credit carryforwards 707 768
Other 212 331
_______ _______
4,661 5,280
Valuation allowance (1,180) (1,180)
_______ _______
Net deferred tax asset $ 2,118 $ 2,896
======= =======
At February 24, 1995, the Company has general business credit
carryforwards of approximately $390,000 which expire in the years 2008
through 2010. The Company also has alternative minimum tax credit
carryforwards of approximately $317,000 that do not expire.
The Company paid income taxes, net of refunds, of $315,000,
$380,000 and $75,000 in fiscal years 1995, 1994 and 1993,
respectively.
6. Employee Benefit Plans
Under the Company's Retirement Savings Plan which covers all
eligible employees, the Company makes a matching contribution not
exceeding three percent of an employee's annual compensation, but
otherwise equivalent to one-half of the employee's contribution.
Starting from January 1994, the Company is also making additional
contributions to the plan, for all eligible employees, equal to 1% of
their compensation, until compensation exceeded the Federal Insurance
Contributions Act maximum taxable wage base, at which point the Com-
pany doubled its additional contribution. The Company's aggregate
contributions to the Retirement Savings Plan for fiscal years 1995,
1994 and 1993 were $1,437,000, $1,139,000 and $1,017,000,
respectively.
The Company also maintains individual unfunded supplemental
retirement benefit plans for two current executive officers and one
former executive officer. Supplemental retirement benefits are based
on the officers' final average annual earnings from the Company and
are payable in installments over ten years upon retirement,
disability, death, or, if no longer employed by the Company, at age
62. Expense recognized for the benefits accrued under the plans was
$91,000, $95,000 and $61,000 in fiscal years 1995, 1994 and 1993,
respectively. In addition, the resignation of an executive resulted
in a curtailment gain of $381,000 recognized in fiscal year 1994.
Other liabilities on the consolidated balance sheets as of February
24, 1995 and February 25, 1994, include amounts of $1,716,000 and
$1,625,000, respectively, for the supplemental retirement benefit
plans.
7. Other Current Liabilities
Other current liabilities at February 24, 1995 and February 25,
1994 include allowances for contract losses and other contract al-
lowances aggregating $3,600,000 and $3,900,000, respectively. Other
current liabilities at February 25, 1994 also include billings in
excess of revenues recognized on uncompleted contracts of approxi-
mately $4,600,000.
In fiscal year 1993, the Company established an allowance of
$2,200,000 based on an agreement to settle civil claims pertaining to
the pricing of a 1985 fixed-price contract modification. The Company
paid $1,100,000 in each fiscal year 1995 and 1994.
8. Commitments and Contingencies
Rent expense under operating leases was $858,000, $735,000 and
$703,000 for fiscal years 1995, 1994 and 1993, respectively. Fiscal
year minimum lease payments under noncancellable operating leases are
as follows: 1996 - $400,000; 1997 - $373,000; 1998 - $220,000; 1999 -
$90,000; 2000 - $62,000 and 2001 and beyond - $348,000.
From time to time, the Company may be involved in lawsuits,
investigations and other legal proceedings arising from the ordinary
conduct of its business with the U.S. Government and others. One such
action relates to the U.S. Environmental Protection Agency (EPA)
which, in 1989, placed a site that includes the Company's Richardson
Road property on the National Priorities List for detailed study and
cleanup of alleged environmental contamination. The Company continues
to cooperate with the EPA in the study of this site. In the opinion
of management, except for the matter described below, these legal pro-
ceedings will not have a material adverse effect on the consolidated
financial position.
The Company continues to cooperate with the Department of Defense
in an investigation which commenced in 1992 regarding the AN/MLQ-T4
Ground Jammer Program. At this time, management is unable to
determine when the Government will complete its inquiry or whether it
will seek any remedies.
9. Common Stock and Stock Option Plans
At February 24, 1995, shares of class A common stock were
reserved as follows: 926,000 shares for the exercise of stock options
and 435,000 shares for the conversion of class B common stock. Class
B common shares are convertible into class A common shares on a one-
for-one basis. If, at any time, a majority of class B common share-
holders vote in favor of conversion or if less than 50,000 class B
common shares remain outstanding, all class B common shares will
automatically be deemed converted into class A common shares, which
will then assume voting rights.
At February 24, 1995, options were exercisable for 76,000 class A
shares at prices ranging from $4.75 to $10.00 per share. Changes in
the number of shares of class A common stock subject to outstanding
but unexercised options for the two years ended February 24, 1995 are
as follows:
(in thousands)
1995 1994
____ ____
Balance, beginning of period 202 298
Options granted at prices of
$6.63 to to $10.25 per share 62 53
Options exercised at prices of
$4.56 to $8.81 per share (60) (52)
Options cancelled and terminated (21) (97)
___ ___
Balance, end of period 183 202
=== ===
Generally, options granted are fully exercisable two years from
the date granted and all unexercised options terminate five years
after the date granted, upon the resignation of the optionee, or three
months after the termination of employment if by other than
resignation. No charges to income have been made in accounting for
options. Options are granted at a price equal to the fair market
value of class A common stock on the date of grant.
10. Segment Reporting
The Company's principal business is electronic defense products
and services, which consists primarily of the design and manufacture
of electronic countermeasures systems, simulation systems, radars and
receivers. The Company is also engaged in the installation and
integration design of avionics and electronic warfare systems.
The Company provides other products such as antennas, microwave
integrated circuits and hybrid microcircuits, and services such as
calibration, product testing and technical publication.
Presented below are the sources of revenues for each segment by
type of customer for the three years ended February 24, 1995:
(Dollars in thousands)
1995 1994 1993
____ ____ ____
Sales and service revenues:
Domestic:
U.S. Government:
Electronic Defense Products
and Services $ 96,357 $ 98,282 $ 93,913
Other Products and Services 69 50 99
Commercial:
Electronic Defense Products
and Services 2,227 1,160 1,568
Other Products and Services 9,082 7,772 5,851
________ ________ ________
107,735 107,264 101,431
International:
Electronic Defense Products
and Services 18,802 16,368 11,701
________ ________ ________
$126,537 $123,632 $113,132
======== ======== ========
Sales and service revenues from the U.S. Government include sales
and service revenues recognized under contracts with suppliers to the
U.S. Government.
<PAGE>
11. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Quarter Ended
May 27, Aug. 26, Nov. 25, Feb. 24,
Fiscal Year 1995 1994 1994 1994 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $30,574 $30,911 $30,939 $34,113
Operating expenses 29,789 29,895 29,747 33,010
--------- --------- --------- ---------
Operating income 785 1,016 1,192 1,103
Other expense, net of other income (305) (510) (297) (456)
--------- --------- --------- ---------
480 506 895 647
Income tax provision 144 152 268 195
--------- --------- --------- ---------
Net income $336 $354 $627 $452
========= ========= ========= =========
Net income per share $.09 $.09 $.16 $.12
========= ========= ========= =========
Quarter Ended
May 28, Aug. 27, Nov. 26, Feb. 25,
Fiscal Year 1994 1993 1993 1993 1994
- --------------------------------------------------------------------------------------
Revenues $30,731 $27,754 $27,292 $37,855
Operating expenses 29,682 26,561 26,504 37,143
--------- --------- --------- ---------
Operating income 1,049 1,193 788 712
Other expense, net of other income (251) (462) (362) (356)
--------- --------- --------- ---------
798 731 426 356
Income tax provision 360 326 0 8 (a)
--------- --------- --------- ---------
Net income $438 $405 $426 $348
========= ========= ========= =========
Net income per share $.12 $.10 $.12 $.09
========= ========= ========= =========
(a) Income tax provisions in the third and fourth quarters of fiscal year 1994 were reduced by deferred tax benefits
pertaining to the retroactive reenactment of federal income tax research credits.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis provide information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
Results of Operations - Fiscal 1995 versus Fiscal 1994
Sales and service revenues of $126,537,000 reflect a slight increase
over the $123,632,000 in revenues reported for fiscal year 1994. Fiscal
year 1995 was favorably impacted by higher revenues from TACJAM-A, an
electronic countermeasures program, which provided revenues of $17,795,000
in fiscal year 1995 versus $6,615,000 in fiscal year 1994. In addition,
two avionics installation/ integration programs provided significantly
higher revenues in fiscal year 1995. One avionics program with a foreign
customer generated revenues of $8,882,000 in fiscal year 1995, up from
$3,590,000 in fiscal year 1994. The other avionics program, ANVIS/HUD,
generated revenues of $16,941,000 in fiscal year 1995, up from $10,285,000
in fiscal year 1994. Avionics programs in the aggregate provided
$46,843,000 and $41,307,000 of revenues in fiscal years 1995 and 1994,
respectively. Partially offsetting these increases, revenues from the Band
9/10 electronic countermeasures program fell to $6,314,000 in fiscal year
1995 from $10,830,000 in fiscal year 1994, and several radar environmental
simulator programs and other programs contributed less to total revenues in
fiscal year 1995 due to program maturation.
Operating income for fiscal year 1995 was $4,096,000 as compared with
$3,742,000 for fiscal year 1994. The increase in operating income was
primarily due to a decrease in adverse cost estimates and profitability
adjustments, which in the aggregate had unfavorable effects of $3,000,000
in fiscal year 1995 and $3,900,000 in fiscal year 1994, and a decrease of
$760,000 in bid and proposal spending. The decrease in adverse cost esti-
mates and profitability adjustments was attributable to performance
improvements during fiscal year 1995 in the radar warning receivers program
group, particularly the APR-39A program. The favorable items affecting
operating income were partially offset by overall lower gross margins on
revenues for fiscal year 1995, and approximately $675,000 charged against
income in fiscal year 1995 for costs related to the possible sale of the
Company. Research and development costs in fiscal year 1995 were constant
with the amount reported in the prior year.
Interest expense in fiscal year 1995 decreased $385,000 from fiscal
year 1994 due to lower average debt levels. In the first quarter of fiscal
year 1995, the Company repaid $5,000,000 of the $13,400,000 remaining
balance of its 10.03% unsecured note payable. Investment income decreased
$196,000 from fiscal year 1994 primarily due to the use of cash equivalents
to satisfy the Company's operating needs. Other income for fiscal year 1995
and fiscal year 1994 included $243,000 and $498,000, respectively, for
royalties received under a license agreement with a foreign vendor.
The income tax provision for fiscal year 1995 was based on an annual
effective tax rate of 30% which is consistent with the annual effective tax
rate in fiscal year 1994. The Company's federal income tax returns for
fiscal years prior to 1992 have been settled by the Internal Revenue
Service. Accordingly, the Company reversed related tax liabilities, redu-
cing its income tax provision in fiscal year 1995 by $350,000. See Note 5
to the consolidated financial statements for the reconciliation of the
statutory federal income tax rate to the Company's effective tax rates in
fiscal years 1995 and 1994.
Results of Operations - Fiscal 1994 versus Fiscal 1993
Sales and service revenues in fiscal year 1994 were $123,632,000, an
increase of 9% from the $113,132,000 in revenues reported for fiscal year
1993. The revenue increase was primarily attributable to the avionics
installation/integration programs which generated revenues of $41,307,000
in fiscal year 1994 compared with revenues of $32,732,000 in fiscal year
1993. The Company's ANVIS/HUD avionics program individually produced
revenues of $10,285,000 in 1994 versus $4,262,000 in 1993. In addition to
the avionics programs, revenues from radar warning receiver programs
increased $3,357,000 in fiscal year 1994, primarily due to the AN/APR-39A
program revenues of $10,352,000 which were approximately double the
revenues reported in fiscal year 1993. Partially offsetting the revenue
growths in the avionics and receiver programs was a decline in revenues
from the electronic countermeasures program group in fiscal year 1994.
Within the countermeasures group, the TACJAM-A program contributed revenues
of $6,615,000 in fiscal year 1994, down from $12,996,000 in fiscal year
1993. However, in fiscal year 1994, the Band 9/10 program, another major
electronic countermeasures program, increased its contribution to revenues
by $2,656,000, and revenues from a major electronic countermeasures program
with a foreign government increased by $2,012,000.
Operating income for fiscal year 1994 was $3,742,000 as compared with
$2,143,000 for fiscal year 1993. The increase in operating income was
primarily due to growth in sales and service revenues, a reduction in
administrative and selling expenses, and significantly less costs in fiscal
year 1994 associated with restructuring, corporate downsizing, and
consolidation of resources. The administrative and selling expenses
reduction reflected the Company's continuing efforts to contain costs in
those areas, as well as a one-time curtailment gain of $381,000 related to
a supplemental retirement benefit plan for a former executive officer.
Partially offsetting these favorable items, operating income in fiscal year
1994 was adversely impacted by an increase in bid and proposal spending, as
well as contract cost estimate and profitability adjustments, which in the
aggregate had an unfavorable effect of $3,900,000 in fiscal year 1994 as
compared with $2,500,000 in fiscal year 1993. Revisions to the estimated
final costs on several engineering development programs resulted in
contract loss provisions in fiscal year 1994 which were $3,100,000 above
comparable provisions for those programs in fiscal year 1993. Conversely, a
profitability adjustment to the AN/MLQ-34 TACJAM program, resulting from a
prolonged contract modification negotiation, produced a favorable impact of
$1,800,000 on operating income in fiscal year 1994 with no comparable
adjustments in fiscal year 1993. Bid and proposal costs increased $922,000
in fiscal year 1994 reflecting the Company's increased bidding activity for
a major aircraft modification program and development programs associated
with long-term production contracts. Finally, company-sponsored research
and development spending decreased $339,000 in fiscal year 1994 due to the
Company's re-allocation of available technical resources, including
personnel, to customer-sponsored engineering development efforts, including
the development programs referenced above.
Interest expense in fiscal year 1994 decreased $699,000 from fiscal
year 1993 primarily due to lower average debt levels. In the first quarter
of fiscal year 1994, the Company repaid $6,600,000 of its $20,000,000,
10.03% unsecured note payable. Investment income for fiscal year 1994 de-
creased $388,000 from the prior fiscal year, primarily due to the
liquidation of marketable securities to meet the $6,600,000 debt repayment.
Also, marketable securities were liquidated to fund capital expenditures
including a significant building addition at the Company's Richardson Road
facility which was completed in fiscal year 1994 at a total cost of
approximately $4,300,000. Other income for fiscal years 1994 and 1993
included $498,000 and $368,000, respectively, for royalties received under
a license agreement with a foreign vendor. Finally, in fiscal year 1993
the Company established an allowance of $2,200,000 relating to a settlement
of civil claims pertaining to the pricing of a 1985 fixed-price contract
modification.
The income tax provisions for fiscal years 1994 and 1993 were based on
annual effective tax rates of 30% and 42%, respectively. Operating results
for the purpose of calculating the annual effective tax rate in fiscal year
1993 exclude the provision for claims settlement of $2,200,000. See Note 5
to the consolidated financial statements for the reconciliation of the
statutory federal income tax rate to the Company's effective tax rates in
fiscal years 1994 and 1993.
As of the beginning of fiscal year 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and recorded the cumulative effect of the accounting change of
$2,540,000, or $.64 per share, primarily resulting from the recording of
tax benefits related to contract loss provisions recorded in prior years
and adjusting tax rates on previously recorded tax assets and liabilities.
Possible Sale of the Company
In February 1995, the Company's controlling shareholders, Dr. Leon
Riebman and Claire E. Riebman, transferred all of their class A nonvoting
and class B voting common stock into a voting trust controlled by four
independent directors of the Company to provide the Company's Board of
Directors with increased flexibility in exploring the possible sale of the
Company. The voting trust has an initial term of nine months with an
extension period of up to one additional year, subject to certain
conditions. The voting trustees have full power to vote the Riebmans'
stock with regard to any proposed transaction for the sale of the Company.
Such stock constitutes approximately 7% of all outstanding shares, before
issuance of the 180,947 class A shares described below, and 55% of the
class B voting shares at February 24, 1995. Any proposal for the sale of
the Company, and the agreements with the Riebmans referred to below, are
subject to ratification by the class A and class B shareholders, each vot-
ing as a separate class.
In consideration of the controlling shareholders entering the voting
trust agreement, transferring their shares to the voting trust, and
agreeing to accept the same per share price for their voting stock as other
shareholders receive for their stock in the event of a sale of the Company,
the Company issued 180,947 shares of class A nonvoting stock to the
Riebmans on February 28, 1995. These shares have also been transferred
into the voting trust and will be returned to the Company for cancellation
without any payment to the Riebmans if a sale of the Company does not occur
while the voting trust is in effect. If a sale does occur, the issuance of
180,947 shares will result in a charge against income for an amount equal
to market value of the shares at the time the Company is sold.
Under separate agreements also entered into during February 1995, the
Company has agreed to make the following payments to Dr. Riebman if the
Company is sold while the voting trust is in effect: payments totalling
$675,000 for consulting services to be provided by Dr. Riebman for a three-
year period commencing with the termination of his employment; a change-in-
control payment of $500,000 if Dr. Riebman's employment terminates after
the sale of the Company; and a noncompetition payment of up to $1,900,000.
Such costs will be charged against income at the time of, or subsequent to,
the sale of the Company.
The Company also has agreements with seven other officers which
could result in severance payments to those officers if their employment were
to terminate during a two-year period following a change in control of the
Company. Aggregate severance payments under such agreements could range up to
approximately $2,500,000 depending on the number of officers terminated and
the timing of the terminations. Such costs will be charged against income
when it is probable that a liability has been incurred.
In fiscal year 1995, the Company expensed costs of approximately
$675,000 related to the possible sale of the Company. Additional costs are
expected in fiscal year 1996 as efforts to sell the Company continue. If
the Company is sold while the voting trust is in effect, a fee of $500,000,
plus an additional amount based on the selling price of the Company, will
be paid.
Results of Operations - Outlook for Fiscal Year 1996
The Company completed fiscal year 1995 with a firm orders backlog of
$106,558,000, including an unfunded amount of $7,833,000. The backlog at
February 24, 1995 dropped approximately 12% from the backlog amount
reported at the end of fiscal year 1994 primarily due to delays in new
contract awards, many of which are now expected in fiscal year 1996. The
overall level of new orders in fiscal year 1996 is expected to exceed the
level of orders received in fiscal year 1995. In addition, fiscal year 1996
sales and service revenues are also expected to exceed the level reported
in fiscal year 1995. However, there are no assurances that either new
orders or revenues will exceed the levels reported in 1995, and revenues
recognized will at least be partially dependent upon the timing and amounts
of anticipated new orders. The projected increases in new orders and
revenues are expected to have an offsetting impact on backlog, resulting in
a projected backlog at the end of fiscal year 1996 consistent with the
amount reported at February 24, 1995. It is anticipated that approximately
80% of the backlog at February 24, 1995 will be completed in fiscal year
1996.
Besides the potential impact of a possible sale of the Company as
described above, fiscal year 1996 operating results will be influenced by
various other internal and external factors. The Company is presently
engaged in several programs involving complicated engineering development
efforts and, as is the case with most development efforts, technical and
other complexities are often encountered. These complexities have resulted
in increased contract cost estimates in the past and could have the same
result in the future. The Company could also encounter similar risks on
other long-term contracts and such factors could impact future operating
results. The Company presently has a program for which certain unanticipa-
ted costs, incurred and to be incurred, are subject to negotiations with
the U.S. Government, and the outcome of those negotiations could impact
future operating results. At February 24, 1995, the Company had recorded an
unbilled receivable of $2,200,000 relating to such costs. In addition,
the Company in the past has sought high-technology seed programs and may do
so again in the future. Such programs, which are intended to provide a
base for the Company's future operations, may require contract investment
provisions or significant Company-sponsored research and development
expenditures, both reflecting the Company's commitment of its own funds.
Management is continuing its strategic planning efforts in order to
enhance the Company's ability to be responsive to the Government's changing
national defense requirements and to select products and business areas
which will enable the Company to effectively compete and perform in a very
demanding marketplace. Although the uncertainties of future world events
and changes in national defense spending hang over the defense industry,
the Company's products, heavily concentrated in the field of defense
electronics, and management's constant thrust to improve its design,
manufacturing and quality systems, provide the Company with the
prerequisites to be competitive. The U.S. Government and its suppliers
continue to be the most significant customers of the Company, and a
significant reduction in one or more of the Company's major defense pro-
grams, existing or anticipated, could adversely effect the Company's future
operating results. In addition to its business with the U.S. Government,
the Company continues to seek commercial applications for its products and
services, including the development of wide dynamic range fiber optic links
for use in CATV and cellular communications systems, and the expansion of
its aircraft modification business into commercial aviation.
The Company from time to time is subject to claims and investigations
arising from the conduct of its business with the U.S. Government. In one
such instance, the Company continues to cooperate with the Department of
Defense in an investigation which commenced in 1992 regarding the AN/MLQ-T4
Ground Jammer program. At this time, management is unable to determine
when the Government will complete its inquiry or whether it will seek any
remedies. This matter and other ongoing legal matters which may impact
future operating results are described in Note 8 to the consolidated
financial statements.
The Company's consolidated balance sheet at February 24, 1995 contains
a net deferred tax asset of $2,118,000 including a valuation allowance of
$1,180,000 primarily for the uncertainty relating to the realization of
future income tax benefits. The Company believes it is more likely than
not that the majority of the net deferred tax asset will be realized
through future reversals of existing taxable temporary differences and
future taxable income. The Company's conclusion that it is "more likely
than not" that the majority of the deferred tax asset will be realized is
based on a history of earnings, forecasted earnings for fiscal year 1996
and the prospects for continued earnings after 1996. However, significant
subsequent events related to the uncertainties discussed above could have a
material adverse effect on expected future income and, consequently, the
realization of the Company's deferred tax asset. The Company will continue
to periodically review the tax criteria related to the recognition of the
deferred tax asset.
Inflation
Because the Company's products and services are predominantly
custommade, the impact of inflation on operating results is typically not
significant. The Company attempts to alleviate inflationary pressures by
increasing selling prices to help offset rising costs (subject to
competitive conditions and regulatory requirements), increasing
productivity and improving design and manufacturing techniques.
Liquidity and Capital Resources
The Company's primary source of short-term financing is from cost
reimbursements under contracts with the U.S. Government and its suppliers.
That financing is supplemented, when necessary, through borrowings under a
line of credit agreement. The absorption of cash flows in fiscal year 1995
was primarily to repay long-term debt and fund capital expenditures. At
February 24, 1995, the Company has available cash and equivalents of
approximately $3,100,000 and a line of credit agreement, which expires June
30, 1995, providing for borrowings up to $8,000,000. The Company had no
borrowings under the line of credit agreement at February 24, 1995.
The Company's ratio of current assets to current liabilities increased
from 2 to 1 at February 25, 1994 to 2.2 to 1 at February 24, 1995, and the
long-term debt to equity ratio at February 24, 1995 was essentially
unchanged from the ratio at February 25, 1994. The Company's liquidity
position remains strong at the end of fiscal year 1995 with approximately
$29,600,000 in working capital.
The Company's third installment repayment of $3,300,000 on its 10.03%
unsecured note obligation is due April 1995. Management believes that the
Company's current cash and working capital positions, and available
borrowing capacity, should provide sufficient capital resources to meet the
Company's operating needs for the foreseeable future as well as the
maturing debt obligation due in April 1995.
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OR JURISDICTION OF INCORPORATION
AEL Foreign Sales Corp. U.S. Virgin Islands
AEL International Marketing
Services, Inc. Delaware
UltraVest Corp. Delaware
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of AEL Industries, Inc. of our report dated March 24, 1995, included
in the 1995 Annual Report to Shareholders of AEL Industries, Inc.
Our audits also included the financial statement schedule of AEL
Industries, Inc. listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements pertaining to the Incentive Stock Option Plans (Form S-8 No. 2-
87030 and No. 33-64512) and the Non-Qualified Stock Option Plans (Forms S-8
No. 2-18195, No. 33-41025, and No. 33-64510) of AEL Industries, Inc. of our
report dated March 24, 1995, with respect to the financial statements
incorporated herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedules included in the
1995 Annual Report (Form 10-K) of AEL Industries, Inc.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
May 16, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM AEL
INDUSTRIES, INC. FORM 10-K FOR YEAR ENDED FEBRUARY 24, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-24-1995
<PERIOD-END> FEB-24-1995
<CASH> 3,140
<SECURITIES> 724
<RECEIVABLES> 45,968
<ALLOWANCES> 0
<INVENTORY> 1,312
<CURRENT-ASSETS> 2,136
<PP&E> 99,580
<DEPRECIATION> 56,941
<TOTAL-ASSETS> 101,418
<CURRENT-LIABILITIES> 23,690
<BONDS> 15,742
<COMMON> 3,804
0
0
<OTHER-SE> 56,418
<TOTAL-LIABILITY-AND-EQUITY> 101,418
<SALES> 126,537
<TOTAL-REVENUES> 126,537
<CGS> 97,448
<TOTAL-COSTS> 97,448
<OTHER-EXPENSES> 2,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,334
<INCOME-PRETAX> 2,528
<INCOME-TAX> 759
<INCOME-CONTINUING> 1,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,769
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
